The Effect of Compensation on Repurchase Intentions in Service Recovery

To explore when the presence of compensation enhances repurchase intentions after a service failure, the authors use an experimental procedure and evaluate the impact of compensation in different stability and locus of responsibility conditions. Findings from three studies using scenarios from different service industries indicate that compensation is necessary only when the company is responsible for the failure and the failure occurs frequently. If the failure occurs infrequently or the company is not responsible, compensation does not affect repurchase intentions. The results further demonstrate that stability and locus of responsibility attributions influence the perceived equity of the exchange, which mediates the effectiveness of compensation as a recovery effort. The authors discuss the theoretical and managerial implications.