The Reaction Between Loyal and Variety-Seeking Customers When Encountering Service Failure and Service Recovery

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1 International Journal of Psychology and Cognitive Science 2017; 3(2): ISSN: (Print); ISSN: (Online) The Reaction Between Loyal and Variety-Seeking Customers When Encountering Service Failure and Service Recovery Hui-Hsin Huang Department of Business Administration, Aletheia University, Tamsui, New Taipei City, Taiwan R.O.C address Keywords Service Failure, Service Recovery, Customer Satisfaction, Perceived Value, Variety-Seeking Received: June 24, 2017 Accepted: July 21, 2017 Published: August 30, 2017 Citation Hui-Hsin Huang. The Reaction Between Loyal and Variety-Seeking Customers When Encountering Service Failure and Service Recovery. International Journal of Psychology and Cognitive Science. Vol. 3, No. 2, 2017, pp Abstract This study focuses on measuring the satisfaction and pereived value between loyal and variety-seeking consumers when they encounter service failure and service recovery. The customers who are loyal to the brand will show more trust and brand love toward this brand. On the contrary, the variety-seeking customers have been distinguished from non-variety seekers in that no single product from a class will satisfy them. Thus, they show brand switching tendency between brands. When encountering service failures, the different traits between these two segments will case the different response. In this research, we use the experimental method to explore two different groups of consumers on their responses of service failure and perceived value after service recovery. The results show that the loyal consumers will feel less disappointment in service failure and demonstrate more tendencies to repurchase than variety-seeking consumers. 1. Introduction Customer purchase behavior is an important topic in marketing research. In recent years, service industries become stronger and the service standards also improve with the increasing customer satisfaction. Some studies (Menon & Kahn, 1995; Van et al., 1996) show that loyal customers were decreased. With the unprecedented increase in the number of competing product alternatives in these years, customer can choose the interesting product which they want to buy. Brown (1952) proposed that a consumer who consistently alternates between two brands as a "loyal consumer with divided loyalty" whereas Givon (1984) labels the same consumer an "extreme variety-seeker. The variety-seeking behavior has become more and more common in people s life. The pattern of switching among brands can be induced by manipulation of marketing variables by the desire for variety. Consumers typically seek variety among hedonic products such as restaurant, hair salon or leisure activities (Ratner, Kahn, and Kahneman 1999). There are some factors affect customers buying behavior such as staff s attitude, impression of the company, service failure, word-of-mouth. Some scholars (Bitner et al., 1990) suggest that service failure would affect customer s satisfaction and the repurchase intention when failure occurs. Service recovery is defined as the company makes up the mistake which were come from service failure, and it s necessary to recovery the mistake after service failure. Customers would expect about the level of reparation and how much attention they pay for the customers after service failure.

2 7 Hui-Hsin Huang: The Reaction Between Loyal and Variety-Seeking Customers When Encountering Service Failure and Service Recovery After the recovery strategies, customers will evaluate the satisfaction of the service recovery and evaluation of the company. Thus, this study explores the impact of service failure on the customer s satisfaction and the perceived value after service recovery. We focus on the different two segments: loyalty customers and variety-seeking customers to find the impact of service failure on customer perceived value and repurchase intention. The results of this research can be applying to service industry and be referred by the managers for marketing strategy decision such as customer management and strategies of customer satisfaction. 2. Literature Review 2.1. Loyalty Customer Loyalty customer is defined as a customer who has a sense of belonging and identity to the company, products or services. And this loyal feeling will directly affect the customers purchase behavior (Jones & Sasser, 1995). According to the scholar (Kotler,1994) defined of Loyalty: When customers buy a product or service, there will be some degree of satisfaction or non-satisfaction, if the customer is satisfied, there will be a higher repurchases intention, on the contrary, when customer isn't satisfied, the repurchase intention will be lower. To use the buying behavior of consumers as a measure of customer loyalty, customer loyalty would be found that consumers are willing to buy companies or brands products over time in the future (Reynold & Gutman, 1984). Loyalty can be defined as not a random behavior reaction, behavioral of loyalty should have been a long time existence, by which a decision-making unit in consideration of one or more different brand, formed a trusted brand repurchase intention. (Jacoby & Chestnut, 1978) 2.2. Variety-Seeking Behavior Customer Variety-seeking could defined as the effort of consumers to have optimum stimulation level (Steenkamp & Baumgartner, 1995) The literature on variety seeking suggest that variety can deliver stimulation and novelty to bored or under stimulated consumers (Menon and Kahn 1995; Steenkamp and Baumgartner 1992). Consumers keep a particular product or brand loyalty, which can be used as a loyalty conduct. But some researchers found that in recent years customers try to increase stimulation by seeking something different or new relative to their previous choice (McAlister & Pessemier, 1982; Menon & Kahn, 1995; Van et al., 1996). We have defined customer who have this kind of behavior called Variety-seeker Service Failure In recent years, the service industry has been increasing popularity, customers requirements to the service standard have also improved and among the service, the most unpredictable is service failures. Service failure is commonly defined as the service which does not meet the customer s expectations. Also can defined as the mistake, problem or error that occurs in the delivery of the service (Bitner et al., 1990; Hoffman et al., 1995). Service failures can lead to customer s dissatisfaction, defection (Keaveney, 1995), and negative word of mouth (Richins, 1983), behaviors adversely will affecting the profitability of the company (Smith et al., 1999). Due to the literature of service failure, we can understand service failure will affect consumer s satisfaction. But the magnitude of the service failure is based on the customer s losses in the service. Kelley & Davis (1994) suggest when the magnitude of service failure increasing, customers will expect the service industry be able to do appropriate remedial actions for process. Best & Andreasen (1977) studies in consumer buying behavior have found that magnitude of service failure will affect consumer perception of failure and repurchase intention. Previous research on how customers respond to service failures suggests that the higher of the magnitude, the lower the level of customer satisfaction Customer Satisfaction In recent years, customer satisfaction plays an important role in the service industry. Due to the rise of service industry, the customer has increasing emphasis on attitude of service industries and pay attention on the details of service. When service failure occurs, it s maybe make customers whose satisfaction down or reduce the repurchase intention to the company. Hunt (1977) considered that "satisfy" can be a measure of emotional, which can reflects positive feelings of consumers after buying a product or service. It means to confirm the definition the product at least should be or as good as originally expected after assessment experience of the customers. Churchill & Surpreant (1982) pointed out that customer satisfaction is the result produced after consumers purchase and use of the products, customer satisfaction is generated by the investment return and the expected results of the comparative costs for customers. Jones and Sasser (1995) believe that customer satisfaction with the products or services, not only re-purchase intention, but also generate word of mouth, recommendations and other acts. Thus, we propose hypothesis 1: H1: High magnitudes of service failures have larger impact on customer satisfaction than a low magnitude of service failure. H1a: In a high magnitude of service failure scenario, customer satisfaction of Loyalty customer and Variety-seeking customer are significant different. H1b: In a low magnitude of service failure scenario, customer satisfaction of Loyalty customer and Variety-seeking customer are significant different.

3 International Journal of Psychology and Cognitive Science 2017; 3(2): Service Recovery When customers are attach great importance to the impact of service failure. Service recovery has become one of the most important ways to help customers. Customers service recovery expectations are customers beliefs about the level of reparation after service failure (Zeithaml, Berry, and Parasuraman 1993). Albrecht & Zemke (1985) and Goodman (1989) improve service recovery have already indicated the problem of service failures, if companies do not attach importance to service recovery, will definitely lead to bigger losses. For the companies, the recovery's purpose is to help customers leave dissatisfied and become a status of satisfaction customer and hope the company can still retain consumers in the future (Andreassen, 2001). Some studies have indicated that when the service failure occurs, the best recovery is by frontlines (Hart, et al., 1990). Because the frontlines crews are the first one help customers to reduce the effect of the service failure. A quickly response to keep customers loyal is required as the service firm s opportunity to prove its commitment to the quality (Hart, et al., 1990; Conlon and Murray, 1996). Zemke and Bell (1990) suggest that service recovery should match what the customers want, usually the dissatisfied customers expect reasonable compensation for their losses (e.g. money and time). Some scholars have suggested (1) Apology, (2) Urgent reinstatement, (3) Empathy as customers, (4) Symbolic atonement and (5) Follow-up, this five type of recovery strategies (Zemke and Bell, 1990). Others suggest that (1) Management intervention, (2) Correction, (3) Replacement, (4) Correction plus, (5) Discount, (6) Apology, and (7) Refund (Kelley, et al., 1993). The most common and frequently used as recovery strategies are apology, assistance, and compensation, or some combination of these three (Bitner, et al., 1990; Hart, et al., 1990; Hoffman, et al., 1995; Kelley, et al., 1993; Smith, et al., 1999). In our research, we used the three type of service recovery which were proposed by Ernest and Heriyadi (2008), Apology, Compensation and Assistance Perceived Value The term "value" increasing people s attention in recent years, not only in the area of strategy or marketing but also filled in customers mind. Managers provide a valuable behavior to customers or corporate as the main goal. Therefore, a number of scholars have proposed that perceived value is customer who evaluation of value based on the perception between acquisition and how much they pay, so make an evaluation of the results of the product or the service (Zeithaml, 1988; Teas and Agarwal, 1997), Zeithaml and Bitner (2000) believes that perceived value is a totally assessment, based on what the customers obtained and the perception of customers pay for the effectiveness of the product or service. If customers were attach great importance to the impact of service failure which means when the customer occur the failure, they will maybe into other company's or brand's customer. Thus, we propose hypothesis 2: H2: Service Recovery will affect the perceived value of the customers. H2a: In compensation to the recovery situation, the perceived value of loyalty customer and variety-seeking customer are significant different. H2b: In apology to the recovery situation, the perceived value of loyalty customer and variety-seeking customer are significant different. H2c: In assistance to the recovery situation, the perceived value of loyalty customer and variety-seeking customer are significant different Repurchase Intention Reichheld (1993) considered that to keep the existing customers cost less than develop new customers, and maintaining with old customer s relationship costs were also lower than the cost of the new customer. Thus to improve customer repurchase behavior is an important topic in many companies. Repurchase intention is defined that consumer has a positive evaluation and emotion to the brand, products and service, and produces repeat buying behavior to deepen the brand centripetal force of consumer (Oliver, 1997). Thus, we propose hypothesis 3: H3: Customer s perceived value will affect customer repurchase intention. 3. Method This paper conducts experimental method to investigating different consumers on service failure, service recovery to perceived value and retention between loyal customers and variety-seeking customers. A 2 (induced by service failure magnitude stimuli: higher vs. lower) X 3 (service recovery: compensation vs. apology vs. assistance) was demonstrated Loyalty and Variety-Seeking First, the participants will be asking to write the question which is about Loyalty and Variety-seeking behavior. The questions of loyalty and variety-seeking (Griffin, 1997, Gronholdt, 2000, Lee, 2001; Castro, Pielke, & Adegoke, 2007) which include 5 loyalty questions (Cronbach s α=0.907) and 5 variety-seeking behavior questions (Cronbach s α=0.885) Service Failure The participants will read a scenario which is about going to cell phone Company to buy a new cell phone. Second, the service failure of participants will be manipulated. The higher and lower failure magnitude of subjects will be tested by reading a story. The story is about service failure occur when customer buying a cell phone. These parts of questions include 5 service failure questions (Cronbach s α=0.909).

4 9 Hui-Hsin Huang: The Reaction Between Loyal and Variety-Seeking Customers When Encountering Service Failure and Service Recovery 3.3. Customer Satisfaction (After Service Failure) scenarios, there will be several questions of perceived value (Cronbach s α=0.958). After the participants finish the first story s questionnaire, the questionnaire will be divided into two different sections, magnitude higher and magnitude lower of service failure. We are going to measure the subject s customer satisfaction of higher magnitude and lower magnitude after reading the story. In this study, we were using customer satisfaction scale (Woodside & Daly, 1989) (Cronbach s α=0.760) to measure the subjects' satisfaction for the moment when the service failure occurs. Customer satisfaction is used to measure the impact of service failures on consumers Service Recovery Third, the subjects will read the second story about the service recovery. The higher magnitude subjects and lower magnitude subjects will read one of three service recovery scenarios randomized; scenarios were compensation, apology and assistance (Ernest and Heriyadi, 2008). And there are three questionnaires and all items were scored on five-point labeled Likert scales ranging from "completely disagree" to "completely agree." (Cronbach s α=0.948) Perceived Value After the subjects finish the questionnaire of service recovery, we ll test the satisfaction after reading the recovery 3.6. Repurchase Intention Finally we will test the customers repurchase intention, there will be 5 questions about repurchase intention to measure the subject s satisfaction after all the questionnaire. All items were scored on five-point labeled Likert scales ranging from "completely disagree" to "completely agree." (Cronbach s α=0.959). 4. The Results and Discussion There are 300 college students randomly assigned into the six scenarios. Then we conduct the t-test and regression analysis to test the proposed hypothesizes. Customer Satisfaction Table 1. The result of t-test analysis in different service failure. Service Sample mean S.t. F-value t-value failure size higher *** lower In the results of t-rest, it can be found that the customers show higher satisfaction in the lower service failure (M=10.41) than which in the higher service failure (M=8.63). Then H1 is supported. Table 2. The result of t-test analysis of different customers in different service failure. Customer Satisfaction Sample size mean S.t. F-value t-value in higher service failure loyalty variety -seeking in lower service failure loyalty Variety- seeking * In table 2, it can be found that there is no significant difference of satisfaction between loyalty and variety-seeking customers in the higher service failure environment. But in the lower service failure, it is significant difference of satisfaction between these two kinds of customers. The loyalty customers show higher satisfaction (M=10.96) than variety-seeking customers (M=9.84). Thus, H1a is not supported but H1b is supported. Table 3. The result of t-test analysis of different customers among different service recoveries. Service recovery Perceived value Sample size mean S.t. F-value t-value apology loyalty variety -seeking ** compensation loyalty variety -seeking assistance loyalty variety -seeking ** In table 3 it can be found that there are significant differences of perceived value in the situation of apology and assistance service recovery. But there is no significant difference in compensation service recovery. Thus, H2b is not supported. In the type of apology, the loyalty customers show higher perceived value (M=14.56) than variety-seeking customers (M=11.96). Thus, H2a is supported. In the type of assistancem, the loyalty customers show higher perceived value (M=16.67) than variety-seeking customers (M=14.44). Thus, H2c is supported.

5 International Journal of Psychology and Cognitive Science 2017; 3(2): Table 4. The results of regression analysis. Dependent variable Perceived value Repurchase intention constant Service Recovery 0.826*** --- Perceived value *** R F value *** *** Based on the results of regression analysis in table 4, it can be found that service recovery will affect the perceived value of the customers positively. Thus, H2 is supported. And the perceived value of customers will influence their repurchase intention. Thus, H3 is supported. 5. Conclusion This research finds that in lower service failure, the loyal customer will demonstrate higher satisfaction than variety seeking customers. Thus, it is important to improve customer to become loyalty. But in higher service failure, there is no different of satisfaction between loyal and variety-seeking customers. It means even loyal customer will feel dissatisfaction when encountering serious service failure. The mangers of service industry should prudently deal with service failure so as not to customer churn. In different type of service recoveries, the loyal customers show higher satisfaction than variety-seeking customers only in apology or assistance situations. But there is no difference of satisfaction between loyal and variety-seeking customers in compensation situations. Finally the satisfaction of service recovery can influence customers perceived value and customers perceived value will influence repurchase intention. Thus service failure and service recovery may affect people's decision. Consumers in a negative satisfaction not only tend to variety-seeking buying, but also will try to change the buying behavior. These results can provide a management application for manufacturers and retailers to reduce the factors that will induce negative satisfaction. Because the negative satisfaction will improve less repurchase intention and the customer will become low loyalty to the brand. References [1] Albrecht, K. & Zemke, R. (1985). Service America, pp [2] Andreassen, Tor Wallin (2001), From Disgust to Delight: DoCustomers Hold a Grudge, Journal of Service Research, Vol.4, No.1, pp [3] Best, A. & Andreasen, A. R. (1977). Consumer Complain-dose Business Respond. Harvard Business Review, 55(4), [4] Bitner, M. J., Booms, B. H., and Tetreault, M. S. (1990). The service encounter: Diagnosing favorable and unfavorable incidents. Journal of Marketing, 54(1), [5] Brown, G. H. (1952). Brand loyalty Fact or fiction? Advertising Age, 23, [6] Churchill, G. A., and C. Surprenant (1982). An Investigation into the Determinants of Customer Satisfaction, Journal of Marketing Research, Vol. 19, Iss. 4, (1982, pp [7] Conlon, D. E., and Murray, N. M. (1996). Customer perceptions of corporate responses to product complaints: The role of expectations. Academy of Management Journal, 39(4), [8] Givon, M. (1984). Variety Seeking Through Brand Switching, Marketing Science, 3, [9] Goodman, J. (1989). The Nature of Customer Satisfaction. Quality Progress, [10] Hart, C. W. L., Heskett, J. L., and Sasser, W. E. (1990). The profitable art of service recovery. Harvard Business Review, 68(2), [11] Hoffman, K. D., Kelley, S. W. and Rotalsky, H. M. (1995), Tracking service failures and employee recovery efforts, Journal of Services Marketing, Vol. 9 No. 2, pp [12] Hunt, H. K., 1977, Conceptualization and Measurement of Consumer Satisfaction and Dissatisfaction, Cambridge, MA: Market Science Institute. [13] Jacoby, J. And Chestnut, R. W. (1978), Brand Loyalty Measurement and Management, Viley, New York. [14] Jacoby, J. and Kyner, D. B., 1973, Brand Loyalty Vs. Repeat Purchasing Behavior, Journal of Marketing Research, 10(1), 1-9. [15] Jones, T. O. and Sasser, W. E., 1995, Why Satisfied Customer Defect, Harvard Business Review, 73(6), [16] Keaveney, S. M. (1995), Customer switching behavior in service industries: an exploratory study, Journal of Marketing, Vol. 59 No. 2, pp [17] Kelley, S. W., Hoffman, K. D., and Davis, M. A. (1993). A typology of retail failures and recoveries. Journal of Retailing, 69(4), [18] Kelley, S. W. & Davis, M. A. (1994). Antecedents to Customer Expectations for Service Recovery. Journal of Academy of Marketing Science, 22(1), [19] Kotler, B. P., Ayal, Y. & Subach, A. (1994). Effects of predatory risk and resource renewal on the timing of foraging activity in a gerbil community. Oecologia100: [20] McAlister, L., & Pessemier, E. (1982). Variety-seeking behavior: an interdisciplinary review. Journal of Consumer Research, 9(3), [21] Menon, S., & Kahn, B. (1995). The impact of context on variety-seeking in product choices. Journal of Consumer Research, 22(3), ,. [22] Oliver, R. L., Rust, R. T. and Varki, S. (1997. Customer Delight: Foundations, Findings, and Managerial Insight. Journal of Retailing, 73, [23] Reichheld, F. F. (1993) Learning from Customer Defections. Haward Business Review, no.74 (1993):

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