Ostrom dan iacobucci

The effect of guarantees on consumers’ evaluation of servicesThe use of service guarantees or warranties by service firms in the USA hasgrown rapidly over the past decade (Hart, 1993a). Although retailers as farback as the 1880s have offered guarantees to customers (e.g. Wanamaker’sdepartment stores, Montgomery Ward; Hart, 1993a), it is only recently thatservice guarantees have enjoyed wider popularity as a marketing tool.Furthermore, only lately have professional service firms such as consultingcompanies, law firms, and educational institutions, like the Los AngelesUnified School District started offering guarantees (Armstrong and Smith,1991). Two of the most celebrated success stories of service guaranteeimplementation are the cases of Hampton Inn, which offers an unconditionalsatisfaction guarantee, and Delta Dental Plan, a provider of dental insurance,which guarantees several aspects of its service (Hart, 1988; Raffio, 1992).Both firms have had impressive results from offering a guarantee. HamptonInn estimates that in 1991 it had an $18 million revenue increase attributableto the guarantee and Delta Dental’s account retention rate rose from 97percent to 99 percent, an increase worth $19 million annually (Hart, 1993a).

Interest in guarantees has been spurred by these success stories as well asfirms’ heightened awareness of the need to provide salient quality cues toconsumers in the marketplace. Marketing managers recognize that thequality of some services is not easily observed or evaluated. For example,many services are thought to be especially difficult to evaluate because oftheir intangibility and their tendency to consist of relatively more credenceproperties than do most goods (Darby and Karni, 1973; Zeithaml and Bitner,1996). This can lead to difficulty for the consumer when choosing amongmultiple service providers as well as when forming post-purchaseevaluations in order to make repurchase decisions. When purchase quality isdifficult to judge, purchases are perceived as risky. In such cases, consumersoften look to salient cues in the service environment to help form theirexpectations about a service firm and reduce perceived purchase risk (cf.Bitner, 1992). Both intrinsic cues (i.e. aspects of a product that cannot bechanged without changing the nature of the product such as the taste of abeverage) and extrinsic cues (i.e. those that can be changed withoutchanging the product such as price and guarantees) can affect consumers’perceptions of product quality (Olson and Jacoby, 1972). However, it hasbeen suggested that consumers will depend more on extrinsic cues than onintrinsic ones when the latter requires more time and effort than the

362 THE JOURNAL OF SERVICES MARKETING, VOL. 12 NO. 5 1998, pp. 362-378 © MCB UNIVERSITY PRESS, 0887-6045

The effect of guarantees onconsumers’ evaluation ofservicesAmy L. OstromAssistant Professor of Marketing, Department of Marketing, ArizonaState University, Tempe, Arizona, USADawn IacobucciProfessor of Marketing, Kellogg Graduate School of Management,Northwestern University, Evanston, Illinois, USA

An executive summary formanagers and executivescan be found at the end ofthis article

This paper is based on the first author’s dissertation. The authors would like to thankMary Jo Bitner and Robert Roundtree for their helpful comments and the NationalScience Foundation for research support CNSF grant #SES-9023445.

Growing use of servicewarranties

Need to provide salientquality cues

consumer perceives to be worthwhile, or when intrinsic cues are notavailable as is the case in initial purchase situations for services (Zeithaml,1988). In these situations, consumers must rely on brand name, price, serviceguarantees or other extrinsic cues to form their judgments. These cuesbecome the basis for consumers’ expectations of what will transpire in aservice encounter. Research in the areas of consumer satisfaction and servicequality has demonstrated the important role that expectations play ininfluencing judgments of quality and satisfaction both directly and indirectlythrough the process of disconfirmation (Oliver, 1997; Parasuraman et al.,1985; see Iacobucci et al., 1996 for a review). Therefore, it is important forfirms to understand how various cues may affect consumers’ pre-purchaseexpectations or evaluations.

Even with the dramatic increase in the offering of guarantees, considerablyless research has been done on guarantees than on other extrinsic cues (e.g.price, brand name). Though Hampton Inn’s and Delta Dental’s success withtheir guarantee has been described in several managerial pieces (Hart,1993a; Raffio, 1992), little empirical research exists that examines whythese guarantees were so effective and how these types of service guaranteesimpact consumers’ responses to the companies offering them. Hence, thereare a number of basic questions concerning guarantees that require furtherresearch such as: “Under what conditions are guarantees likely to influenceevaluations?” and “How do guarantees and other cues interact to affectconsumer judgments?” The goal of this research is to identify the conditionsin which guarantees will be the most useful as well as to suggest the types ofservices that may benefit the most from offering a guarantee. After a reviewof the research examining warranties for durables and some conceptual workaddressing guarantees for services, several propositions are presented andempirically tested in the context of two studies aimed at examining theimpact of guarantees on consumers’ evaluations.

Warranty literatureMarketers studying the importance of warranty information to consumersconsidering purchasing durables have examined the extent to whichwarranties serve as cues to quality and have demonstrated instances in whichwarranties are likely to lead to an increase in evaluations (e.g. Boulding andKirmani, 1993; Innis and Unnava, 1991; also see Grossman, 1981; Lutz,1989; Spence, 1977). Also, given that purchases of many durables aretypically sufficiently costly, both in terms of price and search costs, theconcept of risk has played a prominent role in the warranty literature(Bearden and Shimp, 1982; Erevelles, 1993; Shimp and Bearden, 1982).

Researchers have discussed several types of risk (e.g. performance,financial, physical, social, and psychological; Jacoby and Kaplan, 1972) thatarise from consumers’ perceptions of the uncertainty of the outcome andconsequences of the outcome they will experience with a product(Cunningham, 1967). Because warranties have been depicted as a means toreduce the uncertainty experienced by the consumer and the negativeconsequences that the consumer faces if a product failure does occur, severalstudies have examined how the presence of a warranty influences some ofthese types of risk perceived by the consumer (Bearden and Shimp, 1982;Shimp and Bearden, 1982).

Shimp and Bearden (1982) examined how warranty quality, warrantorreputation, and price interact to affect consumers’ judgments of the financialand performance risk associated with new products. They found that high

THE JOURNAL OF SERVICES MARKETING, VOL. 12 NO. 5 1998 363

Basic questionsconcerning guarantees

Concept of risk

Means to reduceuncertainty

warranty quality led to less perceived financial risk, but moderate warrantyquality was no different from a poor or nonexistent warranty. Also, thoughthese cues did influence perceived financial risk, none of them (warrantyquality, warrantor reputation, or price) significantly lessened the perceptionsof performance risk. That is, consumers were no more confident that theproduct would work but they realized they would be financiallycompensated if the product failed.

Risk also played a prominent role in Bearden and Shimp’s (1982)investigation of the effect of warranty quality, warrantor reputation, andprice on risk perceptions and consumers’ evaluative judgments. In theirstudy, price appeared to act as a risk enhancer, whereas warrantor reputationand warranty information appeared to be risk reducers. Erevelles (1993)found similar results examining warranties for tennis rackets. Usingstructural equation modeling, both Bearden and Shimp (1982) and Erevelles(1993) provide evidence that warranties only affect consumer attitudes andquality judgments indirectly through risk, thus once again suggesting afundamental relationship between warranties and risk.

Finally, Innis and Unnava (1991) found a significant interaction betweenwarranty quality and brand name, where warranty quality enhanced productevaluations for a new brand but not for an established brand. They explainedtheir results in terms of risk. They argued that the established brand namehas the ability to serve as a risk-reducer for the consumer and, therefore,when the consumer already has the brand name as a cue to quality, warrantyinformation has less of an impact on consumer evaluations. Without brandinformation, a warranty reduces uncertainty thereby leading to morefavorable evaluations.

Service guaranteesWhile the previously discussed research investigated warranties for durables,there also has been some initial work that has examined guarantees forservices (Hart, 1988; 1993a; 1993b; Wirtz, 1998). Much of the workconcerning service guarantees has focused on the benefits that offering aguarantee can have for the internal operations of a firm. For example, it hasbeen suggested that offering a guarantee requires a customer orientationbecause it is necessary to understand what is important to the customer inorder to determine what to guarantee (Hart, 1988). It has also been arguedthat a guarantee leads to greater customer feedback and aids the firm inidentifying failure points in the service delivery process (Hart, 1988; 1993a).Rather than focusing on these internal organizational benefits, here, we areinterested in the effects that a guarantee has on potential customers’perception of the firm offering a guarantee.

Given that services are characterized as intangible (Zeithaml and Bitner,1996), research has suggested that the quality of information available aboutservices is diminished relative to goods, thereby leading to an increase inperceived risk (Guseman, 1981; Murray and Schlacter, 1990). It could beargued that the increase in perceived risk would lead to an increase in theimportance of salient cues such as guarantees that might be available to aconsumer. Thus, guarantees may be all the more important in the servicesector. For example, in exploratory work examining five service firms indifferent industries, Wirtz (1998) found evidence that firms that were thefirst in their industry to offer a guarantee, which would increase thelikelihood of the guarantee being salient, enjoyed greater benefits in terms ofattracting new customers.

364 THE JOURNAL OF SERVICES MARKETING, VOL. 12 NO. 5 1998

Risk enhancers andreducers

Benefits of offering aguarantee

Hart (1993b) describes a conceptual and managerial framework forguarantee implementation developed by examining how service guaranteeshave been used in practice and the characteristics of the firms that have beensuccessful using them. He argues that the potential for a guarantee to bebeneficial to a firm is determined by the market’s perception of firm quality(e.g. a strong, positive reputation may provide an implicit guarantee negatingthe need for an explicit one) and the guarantee potential in the market (Hart,1993b). The guarantee potential in the market is thought to be determined bythe level of quality in the industry (e.g. a guarantee can help a firm stand outin an industry known for poor quality) and the purchase risk to the consumer(Hart, 1993b). Consistent with findings from the warranty literatureconcerning the warranty-risk relationship, Hart suggests that the usefulnessof a service guarantee for a firm depends on the purchase risk experiencedby the consumer which may be influenced by the price of the service, theego involvement of the consumer, the customer’s knowledge of the service,the impact of failure on the customers’ customers, the time required, and thetangibility of the service (Hart, 1993b). All of these affect either aconsumer’s perceived uncertainty concerning what will happen during aservice encounter or the subsequent consequences that the consumer wouldface given a negative outcome.

Although service guarantees have been discussed conceptually in theliterature, little empirical work has been done testing their effectiveness. Inthe next section, a series of propositions are offered describing the impactthat guarantees have on consumers’ pre-purchase evaluations.

Service guarantee propositionsUsing the previous empirical research conducted in the area of warrantiesand the additional conceptual work done in the area of service guarantees asa basis, the following propositions are offered that highlight the effect ofguarantees at the pre-purchase point in the evaluation process. The literaturediscussed earlier suggests that warranties for durables can influenceconsumers’ evaluations and should lead to more positive evaluations. It isreasonable to expect that this would also be true for guarantees for services.A baseline prediction is that:

P1: Pre-purchase evaluations of a service firm will be more positive when itoffers a guarantee than when it does not.

One of the key aspects of services that has been cited is the tendency forservice performance to be more heterogeneous or that there is more variancein the quality of service provided (Iacobucci, 1992; Zeithaml and Bitner,1996; Zeithaml et al., 1985). This is thought to be due to the humancomponent, both employee and customer, that is usually involved in theprocess of delivering a service. This increase in the heterogeneity orvariance in service quality would likely increase the consumers’ view of therisk associated with making a purchase due to the greater uncertainty ofwhether the individual will receive high quality service during any particularservice encounter. It has been argued that when the consumer perceivesconsiderable risk in a purchase situation, a guarantee will be valued by theconsumer and it will lead to more positive evaluative judgments (Hart,1993a; Innis and Unnava, 1991). This suggests the following:

P2a: When consumers perceive there to be greater variance in servicequality provided, they will view a purchase as being more risky.


Framework for guaranteeimplementation

Effectiveness of serviceguarantees

P2b: When consumers perceive there to be greater variance in servicequality provided, a service guarantee will have a more positive impacton consumers’ evaluations.

Quality information about the firm as a moderatorWhile generally a guarantee should be more highly valued when there isgreater risk associated with the purchase category, the usefulness of offeringone for any specific firm within that category or industry should depend onthe other information possessed by the consumer. For example, a guaranteeshould have less of an impact when the consumer has more directinformation about the quality level of the specific firm’s services he or she isconsidering purchasing, such as reputation information from word-of-mouth,Consumer Reports, or that which is conveyed by a strong brand name (Innisand Unnava, 1991). This knowledge may reduce the consumer’s uncertaintyabout a negative outcome. In addition, as a consumer’s perception of thequality of a service firm increases, a consumer may believe that the firmoffers an “implicit” guarantee in that it will work to fix any problem thatoccurs. This would reduce the impact of a guarantee and the view that aguarantee is needed to get redress for any service delivery failure that mightoccur. Therefore, the following should hold:

P3: When positive quality information is present about a firm, a guaranteewill have less of an impact on consumers’ evaluations.

The two studies that follow test the impact of guarantees on consumers’ pre-purchase evaluations highlighted in propositions P1-P3.

Study 1The literature cited previously suggests that guarantees may act as a cue toquality and help improve consumers’ evaluations. It is argued that thegreatest impact of a guarantee will be observed when consumers perceivethere to be a greater degree of risk in the purchase situation. The goal ofStudy 1 is to test propositions P1and P2aand b.

MethodSubjects. Eighty-three MBA students participated in the study. Each wasasked to make evaluative judgments of a hotel after reading a briefscenario[1]. Approximately 60 percent of the subjects were male, theiraverage age was 28, and they had on average 4-5 years of work experience.The subjects were randomly assigned to the experimental conditions.

Design. A study manipulating variance and guarantee availability wasconducted in a 2 × 2 design. Perceived variance was operationalized bymanipulating the variance in quality of hotels in the hotel industry byshowing subjects a replica of a Consumer Reports[2] rating of hotels acrossseveral dimensions (e.g. general atmosphere, amenities, friendly andcourteous staff). In the high variance condition, six hotels were shown asdiffering greatly across the dimensions. In this condition, subjects were alsotold “hotels in this category tend to be variable in terms of quality. Theexperience an individual has depends on the hotel he or she chooses to stayat.” In the low variance condition, the Consumer Reportsrating showed allsix of the hotels described as having almost the exact same rating (neutral)on each of the dimensions. Subjects were also told that “hotels in thiscategory tend to be similar in terms of quality. The experience an individualhas is the same regardless of the hotel he or she chooses to stay at.”


Redress for servicedelivery failure

Impact of guarantee

Guarantee availability was manipulated by having the hotel either offer aguarantee or there was no mention of a guarantee. An example of the stimuliappears in Appendix 1.

Dependent measures. Subjects were asked to evaluate the hotel in terms ofits quality and their expected satisfaction with it each on a single, 7-pointscale. Subjects also completed six items meant to capture consumers’perceptions of risk[3]. They were asked to indicate the following: “Given theexpense involved, how much risk would be involved with staying at thehotel?”, “How risky do you feel it would be to stay at the hotel?”, “How sureare you about the hotel’s ability to perform?”, “Considering the possibleproblems with the hotel’s performance, how much risk would you say wouldbe involved with choosing to stay at the hotel?”, “In your opinion, do youfeel that this hotel would perform as well as similar hotels that you could goto?,” and “How confident are you of the hotel’s ability to perform asexpected?”. Each item was measured on a 9 point scale.

Results. As a check for the variance manipulation, subjects were asked howmuch variability in quality was present in the hotel industry. Themanipulation check for the variance in quality in the industry was significant(F1,79=28.73, p < 0.0001). Subjects indicated that there was greater variancein quality in the industry when they were in the high variance condition (M =5.29) than when they were in the low variance condition (M = 3.32).

Satisfaction and quality judgments were highly correlated (r = 0.89), so theywere combined into a single composite measure called “evaluation”.Subjects’ evaluations were higher when a guarantee was present (M = 5.17)than when one was not offered (M = 3.85) (F1,79=31.02, p < 0.0001). Therealso was a significant guarantee by variance interaction for evaluations (F1,79= 6.21, p < 0.015). The interaction plotted in Figure 1 indicates that aguarantee led to an increase in evaluations in both the low variancecondition (Mno guar= 4.22 versus Mguar = 4.95) (F1,79 = 4.68, p < 0.03) and thehigh variance condition (Mno guar= 3.5 versus Mguar = 5.4) (F1,79 = 32.89, p <0.0001), but the effect was greater in the high variance condition. There wasno difference in evaluations between the two variance conditions when aguarantee was present (F1,79 = 1.86, p < 0.18). Evaluations were higher in thelow variance condition than the high variance condition when no guaranteewas present (F1,79 = 4.65, p < 0.03).

Finally, a factor analysis of the risk items revealed only one factor. The itemswere combined to form a single measure (Cronbach’s Alpha = 0.89). The


No Guarantee Guarantee

Evaluation+

–

p<.0001

p<.03

p<.03

Low VarianceHigh Variance

Figure 1. Study 1: the variance by guarantee availability interaction (p < 0.015)

Consumers’ perceptionsof risk

Satisfaction related toquality judgments

main effect for variance was, at best, marginally significant (F1,78 = 2.29, p <0.13). However, the means were in the right direction. There was moreperceived risk in the high variance condition (M = 4.62) than the lowvariance condition (M = 4.22). There was a significant main effect forguarantee availability (F1,78 = 9.77, p < 0.01). There was less perceived riskwhen a guarantee was offered (M = 4.02) than when one was not offered (M= 4.85). The interaction was not significant.

Discussion of Study 1As predicted in P1, these findings suggest that when no specific informationis available about a brand or service firm, a service guarantee is a helpfulpositive cue in that it leads to more positive evaluations. Consistent with 2a,there was a marginally significant main effect for variance on the riskdependent measure. The higher variance condition was perceived as morerisky than the lower variance condition. In addition, the results show thatguarantees improved evaluations for an industry characterized by low orhigh variance in quality. However, as predicted in P2b, there was a greaterrelative impact of a service guarantee in the high variance condition. Thisfinding is consistent with the view that variance in quality, or uncertaintyperceived by consumers, increases perceptions of risk. It is in this conditionwhen a service guarantee has the greatest influence on consumers’judgments about a service firm.

In Study 1, the results indicate that guarantees lead to more positiveevaluations and have a greater impact when there is more perceived variancein the service industry. Study 2 examines the same relationship investigatedin Study 1 but does so by examining how the relationship is affected by thepresence of other general information about the quality level of the servicefirm that is being evaluated. The argument could be made that a guarantee isstill useful because of the heterogeneity aspect of services and the ability ofa guarantee to protect the consumer against the financial cost of a servicedelivery failure or to make certain that he or she will be compensated if aservice delivery failure does occur. To test this, Study 2 was conducted.

Study 2MethodSubjects. Eighty MBA students were asked to make evaluative judgmentsafter reading a scenario describing a situation where they were faced with aservice purchase decision involving the selection of a hotel. The subjectswere drawn from the same population as in Study 1. The respondents wererandomly assigned to the experimental conditions.

Design. Study 2 examines how the quality level of a firm and amount ofperceived variance in service quality previously experienced influence theimpact that a guarantee has on consumers’ evaluation of a firm in a 2 × 2 × 2design. Quality level (here being thought of as the amount of service andamenities expected) was manipulated by having subjects consider a hotelthat was either a luxury hotel or a budget hotel. Variance was manipulatedby emphasizing low or high variance in the quality of service previouslyexperienced by subjects. Participants were told to imagine either that theyhad had both good and bad experiences with similar hotels (in the highvariance condition) or that all of their experiences with this type of hotel hadbeen similar (in the low variance condition). Guarantee availability wasmanipulated by stating that the hotel had a satisfaction guarantee (stating if


Helpful positive cue

More positive evaluations

Quality level

they were unhappy with their stay for any reason, their night’s stay was free)or not.

Dependent measures. The same measures used in Study 1 were administeredin Study 2. Subjects were asked to evaluate the hotel in terms of its qualityand their expected satisfaction with it as well as complete the itemsmeasuring risk.

Results. Responses for quality and satisfaction were highly correlated (r =0.81) and were therefore combined into a single index measure calledevaluation. Subjects’ evaluations were more positive when there was aguarantee present (M = 5.32) than when one was not offered (M = 4.77) (F1,72= 5.88, p < 0.02) and for a luxury (M = 5.59) versus a budget hotel (M = 4.40)(F1,72= 15.17, p < 0.0002). There was a marginally significant main effect forvariance in past experience (F1,72= 3.12, p < 0.08): evaluations weresomewhat higher when variance in past experience had been low (M = 5.41)versus high (M = 4.80). These main effects were qualified by a significantinteraction between quality level of the hotel and guarantee availability (F1,72= 8.69, p < 0.004). Figure 2 contains the plot of this interaction; simpleeffects revealed that when no guarantee was present, evaluations were higherwhen the hotel being evaluated was a luxury (M = 5.62) versus a budget hotel(M = 3.88) (F1,72= 23.62, p < 0.0001). However, there was no difference inevaluations when a guarantee was present (Mluxury = 5.57 versus Mbudget=4.96) (F1,72= 0.44, p < 0.5). When the hotel was described as a luxury hotel,the presence of a guarantee did not have an impact on evaluations (F1,72=0.15, p < 0.7) whereas when the hotel was described as a budget hotel, aguarantee led to more positive evaluations (F1,72= 13.42, p < 0.0005).

A factor analysis of the risk items revealed only one factor. Again, the itemswere combined to form one index measure called risk (Cronbach’s Alpha =0.85). For risk, the main effect for variance was not significant (F1,72 = 1.32,p < 0.26). However, there was a marginally significant guarantee by quality-level interaction (F1,72 = 2.75, p < 0.10). An examination of the contrastsrevealed that a guarantee led to lower perceptions of risk in the budget hotelcondition (Mguar = 3.48 versus Mno guar= 4.37) (F1,72 = 4.85, p < 0.03).

Discussion of study 2In contrast to predictions articulated in P2aand b, variance in qualitypreviously experienced by subjects had little impact on subjects’ perceptionsof risk; perhaps it was overwhelmed by the simpler, distinct, quality (budget,


No Guarantee Guarantee

Evaluation +

–

p<.0005

p<.0001

LuxuryBudget

Figure 2. Study 2: the quality level by guarantee availability interaction (p < 0.004)

Responses for qualityand satisfaction

Factor analysis of riskitems

luxury) information in the subjects’ judgments. That is, it is possible that themanipulation simply was not strong enough, compared to the quality levelmanipulation. This possibility is somewhat supported by the fact that therewas only a marginally significant main effect of variance for evaluations inStudy 2.

Consistent with P3, the results of Study 2 show that the presence of aguarantee led to more positive evaluations for a budget hotel, but had noimpact for a luxury hotel. This suggests the ability of other qualityinformation to moderate the impact of guarantees on consumers’evaluations. These findings are consistent with the idea that being a luxuryhotel already provides quality information that is sufficient for consumers.

The results of Study 2 do provide some evidence for the importance of otherinformation possessed by the consumer. It is important to note that consumerknowledge of the quality class of hotel, luxury versus budget, had apronounced impact on evaluations even when the information was notspecific to the particular luxury or budget hotel being evaluated (i.e. it couldstill be a relatively good or bad luxury or budget hotel). This suggests thatmore general, positive quality class information (e.g. a four star resort versusa budget hotel) may be sufficient to reduce consumers’ perceptions of riskand reduce the usefulness of a guarantee at this pre-purchase stage in theevaluation process.

Managerial implications and recommendationsThis research empirically examined the impact of service guarantees onconsumers’ pre-purchase evaluations. Two studies were conducted to testseveral propositions regarding the effect of guarantees on consumerjudgments. The ability of guarantees to increase pre-purchase evaluations(P1) was tested in both studies and the results indicate that guarantees canincrease evaluations, but they do so only under certain conditions which arehighlighted inP2band P3.

P2bargues that guarantees will have a greater impact on evaluations underconditions where there is greater variance in service quality. Support for thenotion that greater variance in service quality leads to greater perceived riskand that this is also the situation that leads to the greatest impact of aguarantee is most clearly demonstrated in Study 1. This is consistent withHart’s (1988) suggestion that guarantees are most useful when consumersperceive the purchase situation to have a higher degree of risk. Guaranteesseem to have the ability to reduce uncertainty associated with a negativeoutcome or the consequences a consumer is likely to face if a servicedelivery failure does occur.

The impact of a guarantee when other quality information is salient (P3) wasinvestigated in Study 2. The findings are consistent with other research thatdemonstrates that a warranty only increases evaluations in the absence ofother quality information, such as a brand name (e.g. Innis and Unnava,1991). These results expand that research by showing that not only specificbrand or service firm information but also information about the generalproduct class (e.g. luxury versus budget hotels) can reduce the impact of aguarantee on evaluations. In general, the findings suggest that as the effectof consumers’ perceptions of high variance in service quality andaccompanying perceptions of risk are reduced by obtaining otherinformation regarding quality, a guarantee has less of an influence onconsumers’ pre-purchase evaluations and, consequently, may do little toattract new customers.


No impact for luxuryhotel

Ability to reduceuncertainty

These findings have several implications for the use of guarantees by servicefirms. First, the more variance or possibility for heterogeneity in the level ofservice quality delivered and the likely perceptions of greater risk, thegreater the potential impact of a guarantee on consumers’ evaluations. Thereare several factors such as characteristics of the product (e.g. complexity ofthe service, extent of dependence on human labor) and characteristics of theconsumer (e.g. his or her expertise level) that could potentially influenceperceptions of heterogeneity in service quality that exist for a service firm orwithin a service industry. Each could be examined to identify a guarantee’sability to counteract the effects of perceived quality variability. Second, assuggested by Hart (1993a), it appears that in situations where a company hasgained a reputation for quality or for being at a higher quality level andhence, less variability in service quality is perceived by customers, aguarantee may be of little value in gaining additional customers.

There are several limitations of this research that warrant consideration andreduce the generalizability of the results. First, only one service context wasexamined, hotels, and it is a context in which guarantees have been offeredby actual service firms. It may be the case that the results would differ fordifferent types of services. Second, competitive effects were not examined.The impact of a guarantee may differ depending on whether a firm’scompetitors already offer a guarantee versus the situation where offering onewould be a novel occurrence in the industry (Wirtz, 1998). Third, the paperand pencil nature of the task does not have the same emotional intensity of areal life service firm choice decision.

Unresolved issuesThere are a number of interesting issues still to be addressed in the area ofservice guarantees. For example, consistent with prior research, our resultsindicate that risk plays a role in determining the effectiveness of a serviceguarantee. Prior work has shown that consumers are willing to makedifferent trade-offs between service attributes (e.g. price, friendliness ofservice providers) seemingly on the basis of perceived risk (Ostrom andIacobucci, 1995). Hence, it may be interesting to investigate how customers’perceptions of risk impact their view of the importance of a guarantee inrelation to other service attributes. This also highlights the importance ofunderstanding the factors that may moderate perceptions of risk. Forexample, frequent users of a service, due to their greater experience, mayview a service situation as being characterized by less risk than would aninfrequent or a first time user.

Also, while the focus of this current work is at the pre-purchase stage whenconsumers are making purchase decisions among various service providers,a guarantee’s pre-purchase influence is only one phase in the consumptionprocess during which a guarantee may impact consumer judgment. Modelsof customer satisfaction and service quality suggest that both consumers’expectations and the disconfirmation of those expectations can impactconsumers’ overall evaluations of a service encounter (Oliver, 1980; seeIacobucci et al., 1996 for a review). A guarantee might then heightendissatisfaction if a firm fails to live up to what is promised in the guarantee.However, it is also likely that for many consumers, the compensation theyget if they decide to invoke the guarantee may lessen their dissatisfactionwith the service encounter and the service firm.


Implications for servicefirms

Frequent or infrequentusers of a service

Therefore, one key area for additional research concerns the factors thataffect whether or not a person will invoke a guarantee after a service deliveryfailure (Bolton and Drew, 1995; Lewis, 1993). Understanding the factorswhich determine guarantee invocation is critical especially given the workthat suggests that people do not often complain even when a service deliveryfailure has occurred (Sellers, 1988). Also, the importance of service recoveryas well as its ability to lead to positive outcomes and highly satisfiedcustomers even after a service delivery failure has been well-documented(Bitner et al., 1990; Sellers, 1988). Both the disconfirmation of guaranteeand service recovery expectations may influence consumers’ final evaluativejudgments. For example, Halstead et al. (1993) in their study of dissatisfiedcarpet purchasers found that customers’ service and warranty expectations,and in particular the disconfirmation of those expectations, successfullypredicted customers’ ultimate satisfaction. Therefore, we would expect aguarantee to affect consumers’ overall evaluation of a service or service firm.However, there is little known about this or the effect invoking a guaranteehas on customers’ subsequent behavior (Bolton and Drew, 1995).

Though “unconditional” satisfaction guarantees (i.e. a guarantee with norestrictions) have been described as the most powerful type of guarantee (Hart,1988), there are other types of guarantees that may be offered. It may be thecase that specific guarantees for aspects of a service (e.g. Delta Dentalguarantees that customers will receive a status update or problem resolutionwithin a single business day or they receive a $50 refund; some restaurants haveguaranteed that lunch would be served in a specific period of time or it was free)affect consumers’ judgments differently. For example, research has shown thatgender differences exist in terms of the impact that the core and relationalaspects of a service have on evaluations (Iacobucci and Ostrom, 1993). It ispossible that the content of more specific guarantees (i.e. guaranteeing a specificelement of the core of a service versus guaranteeing an interpersonal aspect ofthe service such as how the customer will be treated) may impact the extent towhich a guarantee influences the evaluations of men versus women.

Also, it would be interesting to learn more about the impact of a guaranteewithin a competitive environment. If other firms within an industry offerone, how important is it for competitors to follow suit? Another issue to beaddressed is the timing of guarantee introduction. Could the introduction ofa guarantee to a familiar service firm lead consumers to question what hadhappened to necessitate offering a guarantee? Additional insight is neededinto how the impact of a guarantee might differ depending on the firm’sstage in its life cycle at the time of guarantee implementation.

Notes

1. The use of scenarios is based on the role-playing approach that has been used by manymarketing and consumer researchers (e.g. Bitner, 1990; Dabholkar, 1996; Surprenant andSolomon, 1987). The service selected, hotels, fits well with the knowledge base andcommon experiences of MBA students. Role playing has been said to be most successfulwhen there is congruence between the subjects’ real experiences and those they are askedto role play as there is here (Dabholkar, 1996).

2. Consumer Reportsis a highly regarded, monthly publication that provides consumerswith objective, comparative information regarding competing product and serviceofferings within various product categories and industries.

3. Risk has been measured several ways in the literature (see Dowling, 1986 for a review).Some researchers have measured it by asking people to make both uncertainty ofnegative outcome and consequences of negative outcome judgments. Risk is thencalculated as the product of uncertainty and consequences summed across the different


Factors which determineguarantee invocation

Unconditionalsatisfaction guarantees

types of risk that have been identified (i.e. physical, psychological, social, performanceand financial). Alternatively, other researchers have measured risk by using a single set ofmeasures (i.e. Bearden and Shimp, 1982; Shimp and Bearden, 1982) asking subjects todirectly assess the different types of perceived risk, which is the approach taken here. Thesix items used to measure risk are a subset of the items proposed by Shimp and Bearden(1982) to measure financial and performance risk. The items were modified to beconsistent with the hotel scenario.

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Appendix 1Consumer Reportsrecently published ratings of several hotels in various parts of the USA.Table AI is a list of a selection of hotels in the moderately priced category.

The discussion of the results that accompanied the ratings indicated that there was a“considerable amount of variance in quality for moderately priced hotels within the industry.”The experience of any individual person varied greatly depending on the particular hotel atwhich he or she chose to stay.

Imagine that you need to find a hotel to stay at for an upcoming trip. Hotel J, a hotel in themoderately priced hotel category that was not rated by Consumer Reports, is one option. HotelJ offers an unconditional, satisfaction guarantee that states if you are unhappy with your stayfor any reason you will not be charged for your night’s stay.

Appendix 2: ScenarioYou are in the market to find a luxury (budget) hotel to stay at on an upcoming business trip.You have stayed at several luxury (budget) hotels, Hotel A, Hotel B and Hotel C, in the past


with some good experiences and some bad experiences (and had similar experiences at all ofthem). The most convenient hotel for you to stay at this trip is Hotel X. You have never stayedat Hotel X before (but they do offer a satisfaction guarantee that says if you are unhappy withyour stay for any reason your night’s stay will be free).

■


SatisfactionScore

Price$

0 20 40 60 80 100

Hotel X 59

Hotel Y 60

Hotel Z 60

Hotel A 59

Hotel B 59

Hotel C 61

GeneralHotel

Atmosphere

PhysicalConditions of

Rooms

Amenities(pool, roomservice etc.)

Competence& Friendliness

of Staff

Better Worse

Table AI. Published ratings of six hotels in various parts of the USA

Executive summary and implications for managers and executives

Is your service guaranteed?Ostrom and Iacobucci report that evidence from practice shows how serviceguarantees prove effective in stimulating sales. Indeed, the example ofHampton Inn here reports additional sales of $18 million attributable to theservice guarantee. Despite this evidence, service guarantees are still quiterare. Why is this and how can the findings here help persuade managers toadopt guarantees as a practical marketing tool?

Resistance to guaranteesThere are various “good” reasons given by managers resisting guaranteesincluding:

• A guarantee suggests the possibility of service failure – not the messagewe want to put across.

• Guarantees are expensive – we can’t afford the time or money needed tofulfil claims.

• Introducing a guarantee means training staff in resolving claims.

• Having a guarantee will encourage complaints.

• The service is too involved and too subject to problems for a guaranteeto work.

I’m sure you can add a few more reasons to this list. However, Ostrom andIacobucci show us that, in many situations, a service guarantee works andcan overcome the problems listed above.

• Customers have more confidence in buying your service (the guaranteereduces perceptions of risk).

• A guarantee presents an impression of positive customer service.

• Guarantees (especially where competitors don’t have them) assist inkeeping customers loyal.

Managers face the challenge of making the guarantee work rather thaninventing reasons for not having one.

Getting the right guaranteeIt’s one thing to say that a service guarantee works and quite another todecide the nature and scope of the guarantee. Do we provide anunconditional guarantee? Or should we restrict the guarantee to one orother aspect of our service? In a fast food delivery service should weguarantee on delivery time but not provide a guarantee on food quality?

Many service firms go part way towards a general guarantee. We’ve all readthat notice in our hotel room, on a menu or in the shop – “if you aredissatisfied with any aspect of our service please bring it to the attention ofthe management.” Clearly, this isn’t a guarantee since no promise (orimplied promise) of reparation is included. Adding the word “guarantee”means that the problem will be put right or some form of repayment will beforthcoming – the customer knows what to expect.

In my view an unconditional guarantee requires staff to focus on customerneeds and service quality instead of applying a formula to the service task. Andit also means that the firm must accept complaints about aspects of the service


This summary has beenprovided to allowmanagers and executivesa rapid appreciation ofthe content of thisarticle. Those with aparticular interest in thetopic covered may thenread the article in toto totake advantage of themore comprehensivedescription of theresearch undertaken andits results to get the fullbenefit of the materialpresent

not previously experienced. But if you’re unwilling to accept the risks that gowith the word “unconditional” then you can still guarantee restricted aspectsof your service – service time, quality of work done, facilities and so on.

Promoting the guaranteeSome firms seem to have a secret guarantee – indeed some encourage staffto give reparation or redress without advertising the fact. For somebusinesses this makes sense. As Ostrom and Iacobucci find, people expectnothing less from a luxury hotel and the business gains nothing fromadvertising a guarantee, unconditional or otherwise. Indeed, we could arguethat a limited guarantee from an upscale service could prove counter-productive.

Most service organizations aren’t in this happy position. Offering a serviceguarantee provides advantages but only when customers and potentialcustomers are aware that the guarantee exists.

Advertising copywriters argue that guarantees present a very powerfulmessage in promotions – among the strongest cues available to the writer.And the evidence from firms promoting guarantees supports this contentionsince they maintain significant uplifts in sales compared to those not running(or maybe not promoting) a guarantee.

My advice is “if you’ve got it, flaunt it!” Make your guarantee a key featureof your advertising and promotions.

Implementing the guaranteeWhen you start down the road to your guarantee it is essential that youremployees know what is expected of them. I was once involved in creating adirect mail campaign for a mail order company that offered a “no quibble,unconditional product and service guarantee”. The problem was thatcustomer service staff weren’t aware of the extent of this guarantee and, asyou’ll understand, they quibbled with customers claiming their reparation!Collapse of confidence in the company and the end of a successfulpromotion (the firm rather foolishly blamed the guarantee rather thanunprepared and unresponsive employees).

To make your guarantee work you must:

• Tell your staff about it

• Explain how they should respond to customers invoking the guarantee

• Make sure front line staff explain the guarantee to customers

• Use the invoking of the guarantee as another means of identifying andresolving service delivery problems or service breakdowns.

In the final analysis it will be the front line staff who face the problem ofdelivering on the promise contained in a guarantee. They must be“empowered” to respond with the right solution or payment. In a complex orvaried service this means those staff should have the power to makediscretionary judgements about customers’ problems (see Rafiq and Ahmedin this issue of JSM).

Guarantees – a simple idea with a complicated solutionIt’s simple to introduce the service guarantee. It’s pretty easy to tellcustomers of the guarantee’s existence. The difficulty lies in giving


appropriate training to staff, managing the settlement of claims under theguarantee and using the guarantee as a level for service quality andcustomer service improvements.

Finally, as Ostrom and Iacobucci remark, a guarantee is not a panacea and,where all the competition has a guarantee, it is actual service quality andother quality cues that set your firm apart. Where such “guaranteecompetition” exists (how many pizza delivery firms don’t give a guaranteeon delivery time?) you need the guarantee but it’s no longer a promotionalbenefit just a requirement to compete.

(A précis of the article “The effect of guarantees on consumers’ evaluationof services.” Supplied by Marketing Consultants for MCB University Press.)


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