The Guarantee of Service Guarantees

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Hive Mind (cc)

When companies offer service guarantees, do they profit from them as much as the consumer does? Dr. Jeffrey Meyer at Bowling Green State University with Dr. Dwayne D. Gremler and Dr. Jens Hogreve at Catholic University of Eichstaett-Ingolstadt answer this question in the  article: “Do Service Guarantees Guarantee Greater Market  Value?” recently published in the  Journal of Service Research.

From the abstract:

Service guarantees are an important feature of many service offerings because consumers recognize greater risk associated with the purchase of services than with the purchase of goods. Despite substantial service guarantee research in the past two decades though, no extant study has examined the return on service guarantee investments. To fill this gap, the authors examine the effect of a service guarantee on a firm’s market value by identifying new service guarantee announcements, then using these announcements as events in an event study. The results show that simply offering a service guarantee does not result in greater market value, as measured by a change in stock market returns, for the offering firm. Instead, the market value of a service guarantee depends on its scope and the process required to invoke the guarantee. In particular, service guarantees that are specific in scope or automatically invoked JSR coverlead to significantly greater market value than unconditional or customer-invoked guarantees, respectively. In addition, these differences are moderated by firm size. From a theoretical point of view, this study extends signaling theory to explain the differential effects of service guarantees, depending on their design.

Read the entire article, free for the next month, here! Don’t forget to sign up for e-alerts to receive the latest from the Journal of Service Research.

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