Compensating citizens for poor service delivery: Experimental research in public and private settings

AuthorMarijke C. Leliveld,Kees Ahaus,Jean Pierre Thomassen,Steven Van de Walle
Published date01 December 2017
Date01 December 2017
Compensating citizens for poor service delivery:
Experimental research in public and private
Jean Pierre Thomassen
| Marijke C. Leliveld
| Steven Van de Walle
Kees Ahaus
Department of Operations, Rijksuniversiteit
Groningen Faculteit Economie en
Bedrijfskunde, Groningen, The Netherlands
Department of Marketing, Rijksuniversiteit
Groningen Faculteit Economie en
Bedrijfskunde, Groningen, The Netherlands
Public Governance Institute, KU Leuven,
Jean Pierre Thomassen, Department of
Operations, Rijksuniversiteit Groningen
Faculteit Economie en Bedrijfskunde,
Nettelbosje, Groningen 9700 AV, The
After a service failure, citizens expect a recovery strategy that
restores perceived justice and places a reasonable value on their
loss. Offering monetary compensation is a strategy commonly
used in private settings, but less so in public settings. To date,
compensation effects have not been researched in public settings.
To investigate citizensevaluations of perceived justice, negative
emotions and post-recovery satisfaction we used a 2 (sector: pub-
lic, private) by 2 (compensation promised: yes, no) by 2 (compensa-
tion offered: yes, no) factorial between-subjects experimental
design (student sample), and replicated this in a second study (US
citizens sample). Results showed that compensation leads to simi-
lar positive effects in public and private settings, confirming earlier
private setting research that applied justice theory. Explicitly prom-
ising compensation prior to a service encounter had no effect.
However, promising compensation and not offering it led to
decreased citizensevaluations, which confirms expectancy discon-
firmation theory.
A driving licence that is not available on the agreed date or a citizen who has waited too long at a counter are both
examples of operational service failures. They are inevitable and part of daily life (Kim and Ulgado 2012) because
services are intangible, hard to standardize and production and consumption happen simultaneously (Murray and
Schlachter 1990). They are little studied in public management literature and how citizens recover satisfaction after
a service failure (service recovery) even less so (Van de Walle 2016). This article uses service management literature
from the private domain as its theoretical base. Here, justice theory (Adams 1965) is the dominant framework to
explain customersevaluations and behaviour after a service failure. It argues that customers evaluate the fairness
DOI: 10.1111/padm.12339
Public Administration. 2017;95:895911. © 2017 John Wiley & Sons Ltd 895
of service recovery on distributive, procedural and interactional justice (e.g., Homburg and Fürst 2005; Vázques-
Casielles et al. 2010).
Expectancy disconfirmation theory (Oliver 1993) states that differences between expectations and experiences
(e.g., for justice dimensions) can lead to positive or negative disconfirmations, which subsequently influence post-
recovery satisfaction (e.g., Van Ryzin 2013). Perceived justice and satisfaction after a service failure are influenced
by how organizations operate after a failure; for example, by apologizing, fixing the problem and/or offering com-
pensation. Monetary compensation is a common recovery instrument to improve perceived justice and satisfaction
after a service failure (e.g., Wirtz and Mattila 2004). Compensation schemes exist in the private domain (e.g., hotels
and airlines) and the semi-public domain (e.g., railways, city transport and energy supply) but are less common in
core public organizations. Public organizations also differ in whether they explicitly promise to compensate when a
service failure occurs.
To understand public compensation, we researched the effects of promising and offering a small monetary
compensation on customersevaluations of perceived justice, negative emotions and post-recovery satisfaction in
public and private settings. We used a between-subjects factorial design across Dutch students (study 1) and
replicated this study using a US online panel (study 2) to increase external validity. Our results contribute to the-
ory in two ways. First, by adding to the literature on the research theme. Second, this is the first experimental
study to apply justice theory in public service recovery settings. Justice theory emerges as applicable to public as
in private settings. The next sections elaborate by reviewing current empirical service management literature on
service failures, service recovery, justice theory and monetary compensation to formulate hypotheses. Then the
experimental methodology and results are presented. We conclude by discussing limitations and finally suggest
future research.
1.1 |Service failures
New Public Management ideas suggest that public organizations increasingly approach citizens as customers
(Aberbach and Christensen 2005). Customer satisfaction metrics have become important for public managers (Van
Ryzin 2013). Therefore, public management scholars (Osborne et al. 2015) argue for a service-dominant logic
approach (Lusch and Vargo 2014) to place customers, rather than products, policy-makers or professionals, at the
heart of service research, design and operations. From this perspective, service failures are defined as situations in
which customers experience an economic (e.g., money, time) and/or a social loss (e.g., status, esteem) due to a mis-
hap or a problem when experiencing a public service (Kim and Ulgado 2012) regardless of responsibility (Magnini
et al. 2007). Service management literature categorizes failures by their type and severity. First, there are process
and outcome failures (Tsai et al. 2014). Process failures occur during service delivery and involve how customers
receive the service, whereas outcome failures involve what customers actually receive. Outcome failures include
delay versus denial failures. A delay requires customers to wait to receive a service, while denial is the total breach
of an (implicit) contract (Levesque and McDougall 2000). Second, the severity or importance of a failure depends on
customersperceived cumulated economic and social loss resulting from the service failure. Failures range from
unimportant and mildly annoying through to extremely important and very severe (Mattila 2001; Magnini
et al. 2007). The type of failure and the severity both affect customersperceived loss and unfairness.
1.2 |Service recovery and justice theory
Service recovery involves actions organizations take to respond to service failure to make up for the perceived loss
sufficient to regain customerssatisfaction (Mattila 2001; Hocutt and Bowers 2005). The larger the loss customers
feel, the more recovery they seek (Kim and Ulgado 2012). Justice theory (Adams 1965) sees customers evaluating
recovery fairness in interactional, procedural and distributive terms. Interactional justice is the perceived fairness of
treatment by employees. Procedural justice is the perceived fairness of the organization's recovery policies and

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