Get over it: How goodwill overcomes the negative effects of corporate and service failures

Across two essays, this dissertation investigates how firms can develop goodwill in order to reduce negative impacts from failures. Essay 1 uses the context of a service failure to introduce and examine the concept of "external service recovery." Although past spillover research examines how negative outcomes can transfer from one firm to another firm, this essay examines conditions under which a service failure at one firm creates an opportunity to enhance customer evaluations of a subsequent firm. Additionally, a new type of recovery paradox is considered, in which consumers have more favorable perceptions of a firm when there was a previous failure with a different firm compared with no previous service failure. Results of three empirical studies suggest that firms can benefit from another firm's service failure, but only when the recovering firm is not affiliated with the failing firm. Essay 2 extends the failure context from Essay 1 into broader corporate failures, such as a violation of employee rights or disregard for the environment. It considers how corporate social responsibility (CSR) can inoculate the firm from customer dysfunctional behavior, such as theft or negative word of mouth. Across three studies, Essay 2 demonstrates that CSR initiatives mitigate the occurrence of dysfunctional consumer behaviors, but only when CSR initiatives are congruent with the failure context (e.g., when an environmental CSR initiative precedes an environmental firm initiative, such as an oil spill). Collectively, these two essays provide important extensions to our understanding of how firms can recover from failures, and deliver specific implications for how managers can both profit from other firms failures and mitigate the negative consequences from their own failures.