Building on the properties of emerging markets, we investigate how a firm should align its service recovery strategies with different types of service failure to reduce customer churn in an emerging market. Using resource exchange theory and a multi-method approach, we show that the conventional wisdom related to service recovery needs to be reevaluated in emerging markets. Our results show that process failures lead to a higher likelihood of customer churn compared to outcome failures in emerging markets. Investigating service recovery mechanisms, we find that compensation is more effective in recovering from process failures than in recovering from outcome failures in emerging markets. Similarly, employee behavior has a stronger impact on mitigating the ill effects of process failures than those of outcome failures. The study contributes to the literature on service recovery and resource exchange theory and provides managerial insights for the effective management of customer churn due to service failures in emerging markets.
This is a preview of subscription content, access via your institution.
Buy single article
Instant access to the full article PDF.
Tax calculation will be finalised during checkout.
Subscribe to journal
Immediate online access to all issues from 2019. Subscription will auto renew annually.
Tax calculation will be finalised during checkout.
Details of the comments and the themes can be provided upon request. A snapshot of the comments is presented in the Web Appendix.
We conduct an additional robustness analysis with customer (dis)satisfaction as the dependent variable.
This type of setting may sometimes create sample selection bias. To check and mitigate this potential bias, we conduct a set of behavioral experiments and find that the results are sample selection bias resistant.
Note that in the context of our data, customers have faced failure for the first time. We note that the exposition and modeling of repeat failure and its impact on churn is an important future research avenue given the data availability. However, in the behavioral experiments, we explicitly control for same.
Note that the percentage composition of outcome and process failures is different, which may bias the results. We test the proposed relationships with the behavioral experiments to remove any potential issues with the field data.
In a separate analysis, we attempted to account for the endogeneity using the Latent Instrument Variables approach; however, this approach did not return any fruitful results.
We have presented our results to one of the firms in the hospitality industry, which has expressed a willingness to implement our findings. We are still in negotiation with that firm about a data-sharing agreement.
Alashban, A. A., Hayes, L. A., Zinkhan, G. M., & Balazs, A. L. (2002). International brand-name standardization/adaptation: Antecedents and consequences. Journal of International Marketing, 10(3), 22–48.
Albrecht, A. K., Walsh, G., & Beatty, S. E. (2017). Perceptions of group versus individual service failures and their effects on customer outcomes: The role of attributions and customer entitlement. Journal of Service Research, 20(2), 188–203.
Anderson, E. W., Fornell, C., & Lehmann, D. R. (1994). Customer satisfaction, market share, and profitability: Findings from Sweden. Journal of Marketing, 58(3), 53–66.
Barakat, L. L., Ramsey, J. R., Lorenz, M. P., & Gosling, M. (2015). Severe service failure recovery revisited: Evidence of its determinants in an emerging market context. International Journal of Research in Marketing, 32(1), 113–116.
Basso, K., & Pizzutti, C. (2016). Trust recovery following a double deviation. Journal of Service Research, 19(2), 209–223.
Becker, G. S. (2013). The economic approach to human behavior. Chicago: University of Chicago Press.
Bendapudi, N., & Berry, L. L. (1997). Customers' motivations for maintaining relationships with service providers. Journal of Retailing, 73(1), 15–37.
Besharov, M. L. (2014). The relational ecology of identification: How organizational identification emerges when individuals hold divergent values. Academy of Management Journal, 57(5), 1485–1512.
Blodgett, J. G., Hill, D. J., & Tax, S. S. (1997). The effects of distributive, procedural, and interactional justice on postcomplaint behavior. Journal of Retailing, 73(2), 185–210.
Bodey, K., & Grace, D. (2007). Contrasting “complainers” with “non-complainers” on attitude toward complaining, propensity to complain, and key personality characteristics: A nomological look. Psychology & Marketing, 24(7), 579–594.
Bolton, R. N. (1998). A dynamic model of the duration of the customer's relationship with a continuous service provider: The role of satisfaction. Marketing Science, 17(1), 45–65.
Boulding, W., Kalra, A., Staelin, R., & Zeithaml, V. A. (1993). A dynamic process model of service quality: From expectations to behavioral intentions. Journal of Marketing Research, 30(1), 7–27.
Brinberg, D., & Wood, R. (1983). A resource exchange theory analysis of consumer behavior. Journal of Consumer Research, 10(3), 330–338.
Burgess, S. M., & Steenkamp, J.-B. E. M. (2006). Marketing renaissance: How research in emerging markets advances marketing science and practice. International Journal of Research in Marketing, 23(4), 337–356.
Chuang, S.-C., Cheng, Y.-H., Chang, C.-J., & Yang, S.-W. (2012). The effect of service failure types and service recovery on customer satisfaction: A mental accounting perspective. Service Industries Journal, 32(2), 257–271.
Cropanzano, R., & Mitchell, M. S. (2005). Social exchange theory: An interdisciplinary review. Journal of Management, 31(6), 874–900.
Czepiel, J. A. (1990). Service encounters and service relationships: Implications for research. Journal of Business Research, 20(1), 13–21.
Foa, Uriel G, and Edna B Foa. (1974). Societal structures of the mind: Charles C Thomas.
Gelbrich, K., & Roschk, H. (2011a). Do complainants appreciate overcompensation? A meta-analysis on the effect of simple compensation vs. overcompensation on post-complaint satisfaction. Marketing Letters, 22(1), 31–47.
Gelbrich, K., & Roschk, H. (2011b). A meta-analysis of organizational complaint handling and customer responses. Journal of Service Research, 14(1), 24–43.
Grainer, M., Noble, C. H., Bitner, M. J., & Broetzmann, S. M. (2014). What unhappy customers want. MIT Sloan Management Review, 55(3), 31–35.
Grégoire, Y., Tripp, T. M., & Legoux, R. (2009). When customer love turns into lasting hate: The effects of relationship strength and time on customer revenge and avoidance. Journal of Marketing, 73(6), 18–32.
Gronroos, C. (1990). Relationship approach to marketing in service contexts: The marketing and organizational behavior interface. Journal of Business Research, 20(1), 3–11.
Gupta, R., & Malik, P. (2012). FDI in Indian retail Sector: Analysis of competition in Agri-food sector. Internship Project Report, Competition Commission of India.
Hamilton, R. (2016). Consumer-based strategy: Using multiple methods to generate consumer insights that inform strategy. Journal of Academy of Marketing Science, 44(3), 281–285.
Harris, L. C., & Ogbonna, E. (2002). Exploring service sabotage: The antecedents, types and consequences of frontline, deviant, antiservice behaviors. Journal of Service Research, 4(3), 163–183.
Hart, C. W., Heskett, J. L., & Earl Sasser, W., Jr. (1989). The profitable art of service recovery. Harvard Business Review, 68(4), 148–156.
Hess, R. L., Ganesan, S., & Klein, N. M. (2003). Service failure and recovery: The impact of relationship factors on customer satisfaction. Journal of the Academy of Marketing Science, 31(2), 127–145.
Holloway, B. B., & Beatty, S. E. (2003). Service failure in online retailing: A recovery opportunity. Journal of Service Research, 6(1), 92–105.
Joireman, J., Grégoire, Y., Devezer, B., & Tripp, T. M. (2013). When do customers offer firms a “second chance” following a double deviation? The impact of inferred firm motives on customer revenge and reconciliation. Journal of Retailing, 89(3), 315–337.
Karande, K., Magnini, V. P., & Tam, L. (2007). Recovery voice and satisfaction after service failure an experimental investigation of mediating and moderating factors. Journal of Service Research, 10(2), 187–203.
Katsikeas, C. S., Morgan, N. A., Leonidou, L. C., & Hult, G. T. M. (2016). Assessing performance outcomes in marketing. Journal of Marketing, 80(2), 1–20.
King, G., & Roberts, M. E. (2015). How robust standard errors expose methodological problems they do not fix, and what to do about it. Political Analysis, 23(2), 159–179.
Knafo, A., Roccas, S., & Sagiv, L. (2011). The value of values in cross-cultural research: A special issue in honor of Shalom Schwartz. Los Angeles: Sage Publications Sage.
Knox, G., & van Oest, R. (2014). Customer complaints and recovery effectiveness: A customer base approach. Journal of Marketing, 78(5), 42–57.
Kopalle, P. K., Lehmann, D. R., & Farley, J. U. (2010). Consumer expectations and culture: The effect of belief in karma in India. Journal of Consumer Research, 37(2), 251–263.
Kuvaas, B. (2008). An exploration of how the employee–organization relationship affects the linkage between perception of developmental human resource practices and employee outcomes. Journal of Management Studies, 45(1), 1–25.
Lam, D., Lee, A., & Mizerski, R. (2009). The effects of cultural values in word-of-mouth communication. Journal of International Marketing, 17(3), 55–70.
Liao, H. (2007). Do it right this time: The role of employee service recovery performance in customer-perceived justice and customer loyalty after service failures. Journal of Applied Psychology, 92(2), 475–488.
Lovelock, C. H. (1983). Classifying services to gain strategic marketing insights. Journal of Marketing, 47(3), 9–20.
Magnini, V. P., Ford, J. B., Markowski, E. P., & Jr, E. D. H. (2007). The service recovery paradox: Justifiable theory or smoldering myth? Journal of Services Marketing, 21(3), 213–225.
Mattila, A. S. (1999). The role of culture in the service evaluation process. Journal of Service Research, 1(3), 250–261.
Mattila, A. S. (2001). The effectiveness of service recovery in a multi-industry setting. Journal of Services Marketing, 15(7), 583–596.
Mattila, A. S., & Patterson, P. G. (2004). Service recovery and fairness perceptions in collectivist and individualist contexts. Journal of Service Research, 6(4), 336–346.
McCollough, M. A., Berry, L. L., & Yadav, M. S. (2000). An empirical investigation of customer satisfaction after service failure and recovery. Journal of Service Research, 3(2), 121–137.
McGrath, J. E. (1981). Dilemmatics: The study of research choices and dilemmas. American Behavioral Scientist, 25(2), 179–210.
Mikolon, S., Quaiser, B., & Wieseke, J. (2015). Don’t try harder: Using customer inoculation to build resistance against service failures. Journal of the Academy of Marketing Science, 43(4), 512–527.
Min, S., Zhang, X., Kim, N., & Srivastava, R. K. (2016). Customer acquisition and retention spending: An analytical model and empirical investigation in wireless telecommunications markets. Journal of Marketing Research, 53(5), 728–744.
Oliver, R. L. (1980). A cognitive model of the antecedents and consequences of satisfaction decisions. Journal of Marketing Research, 17(4), 460–469.
Oliver, R. L., Rust, R. T., & Varki, S. (1997). Customer delight: Foundations, findings, and managerial insight. Journal of Retailing, 73(3), 311–336.
Palmer, A., Beggs, R., & Keown-McMullan, C. (2000). Equity and repurchase intention following service failure. Journal of Services Marketing, 14(6), 513–528.
Patterson, P. G., Cowley, E., & Prasongsukarn, K. (2006). Service failure recovery: The moderating impact of individual-level cultural value orientation on perceptions of justice. International Journal of Research in Marketing, 23(3), 263–277.
Petrin, A., & Train, K. (2010). A control function approach to endogeneity in consumer choice models. Journal of Marketing Research, 47(1), 3–13.
Rao, A. R., Qu, L., & Ruekert, R. W. (1999). Signaling unobservable product quality through a brand ally. Journal of Marketing Research, 36(2), 258–268.
Roschk, H., & Gelbrich, K. (2014). Identifying appropriate compensation types for service failures: A meta-analytic and experimental analysis. Journal of Service Research, 17(2), 195–211.
Schmitt, B. H., Pan, Y., & Tavassoli, N. T. (1994). Language and consumer memory: The impact of linguistic differences between Chinese and English. Journal of Consumer Research, 21(3), 419–431.
Schwartz, S. H. (2006). A theory of cultural value orientations: Explication and applications. Comparative Sociology, 5(2), 137–182.
Schwartz, S. H. (2011). Studying values: Personal adventure, future directions. Journal of Cross-Cultural Psychology, 42(2), 307–319.
Sheth, J. N. (2011). Impact of emerging markets on marketing: Rethinking existing perspectives and practices. Journal of Marketing, 75(4), 166–182.
Singh, J. (1990). Voice, exit, and negative word-of-mouth behaviors: An investigation across three service categories. Journal of the Academy of Marketing Science, 18(1), 1–15.
Sivakumar, K., Li, M., & Dong, B. (2014). Service quality: The impact of frequency, timing, proximity, and sequence of failures and delights. Journal of Marketing, 78(1), 41–58.
Skitka, L. J., & Tetlock, P. E. (1992). Allocating scarce resources: A contingency model of distributive justice. Journal of Experimental Social Psychology, 28(6), 491–522.
Smith, A. M., & Reynolds, N. L. (2002). Measuring cross-cultural service quality: A framework for assessment. International Marketing Review, 19(5), 450–481.
Smith, A. K., Bolton, R. N., & Wagner, J. (1999). A model of customer satisfaction with service encounters involving failure and recovery. Journal of Marketing Research, 36(3), 356–372.
Tax, S. S., Brown, S. W., & Chandrashekaran, M. (1998). Customer evaluations of service complaint experiences: Implications for relationship marketing. Journal of Marketing, 62(2), 60–76.
Triandis, H. C. (1993). Collectivism and individualism as cultural syndromes. Cross-Cultural Research, 27(3–4), 155–180.
Tyler, T. R. (1989). The psychology of procedural justice: A test of the group-value model. Journal of Personality and Social Psychology, 57(5), 830–838.
Vauclair, C.-M., & Fischer, R. (2011). Do cultural values predict individuals' moral attitudes? A cross-cultural multilevel approach. European Journal of Social Psychology, 41(5), 645–657.
Webster, C., & Sundaram, D. S. (1998). Service consumption criticality in failure recovery. Journal of Business Research, 41(2), 153–159.
Weun, S., Beatty, S. E., & Jones, M. A. (2004). The impact of service failure severity on service recovery evaluations andpost-recovery relationships. Journal of Services Marketing, 18(2), 133–146.
Wirtz, J., Xiao, P., Chiang, J., & Malhotra, N. (2014). Contrasting the drivers of switching intent and switching behavior in contractual service settings. Journal of Retailing, 90(4), 463–480.
Zeithaml, V. A., Berry, L. L., & Parasuraman, A. (1993). The nature and determinants of customer expectations of service. Journal of the Academy of Marketing Science, 21(1), 1–12.
Zhu, Z., Sivakumar, K., & Parasuraman, A. (2004). A mathematical model of service failure and recovery strategies. Decision Sciences, 35(3), 493–525.
The authors would like to thank the special issue Guest Editors and the anonymous reviewers for their guidance and support in the review process. We are also grateful to the dissertation advisory committee of Sourav Bikash Borah at Indian Institute of Management, Bangalore for providing feedback in an earlier version of the manuscript. The authors would like to thank Naufel Vilcassim, Rajan Vardarajan, Jagdish Sheth, and Constantine Katsikeas for their insightful guidance at various stages during the development of the paper.
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rajendra Srivastava and V. Kumar served as Special Issue Guest Editors for this article.
Electronic supplementary material
Appendix 1: Taxi Service Failure-Recover Scenario
Please recall the Taxi Service provider you generally use.
Outcome Failure: Unavailable Service
You have to travel to another city for some important personal work. You have decided to book a taxi with the same service provider. You called the taxi service provider and booked an air- conditioned (AC) taxi with free Wi-Fi service to drop you at the airport. You have booked the taxi for 10 am on the day of your journey. Finally, the day of your journey arrives. The taxi arrives on time. However, as you board the taxi you have realized that it is not the type of taxi you booked. The taxi has neither air conditioning nor Wi-Fi service, which was promised while booking. Finally, your journey starts. Upon reaching the airport, you have decided to complain to the service provider.
Process Failure: Inattentive Service
You have to travel to another city for important personal work. You have decided to book a taxi with the same service provider. You called the taxi service and booked an air-conditioned (AC) taxi with free Wi-Fi service to drop you at the airport. You have booked the taxi for 10 am on the day of your journey. Finally, the day of your journey arrives. However, the taxi arrives 15 min late. As you board the taxi, you have realized that the driver is in the middle of a telephone call. The driver finishes his call after 5 min. Finally, your journey starts. However, you have realized that the AC is not switched on. You asked the driver to switch on the AC. However, he does not pay attention to your request. After a second request, he finally switches on the AC. Upon reaching the airport, you have decided to complain to the service provider.
A typical recovery profile is described below
You have called customer care and begun to narrate the entire incident. Customer service allows you to complete what you want to say. The executive replied, “We are sorry to hear about your experience. We are committed to providing excellent customer service to our customers. Let me check with the concerned department. Could you please give me some time? I will get back to you as soon as possible”. After 10 min, you have received a call from a customer service executive. The executive informed you, “We are extremely disappointed to know that your experience with us on the last trip was not satisfactory. Based on your complaint, we have investigated the problem. We accept our mistake and will try our best to avoid such mistakes in the future. We have decided to provide a 100% refund for this trip, which will be credited to your account. We hope you will give us an opportunity to serve you again”.
We changed the recovery profiles based on our intended manipulation. For compensation, customers read, “We have decided to provide a 100% refund for this trip, which will be credited to your account” (high compensation) or “We have decided to provide a 50% refund for this trip, which will be credited in your account” (medium compensation). In a no-compensation scenario, the statement was missing. Again, for TAT customers read “After 10 minutes, you have received a call from customer service executive” (faster resolution vs. “After 3 hours, you have received a call from customer service executive” (delayed resolution). Politeness and courtesy have been manipulated by many statements in the recovery profile such as “The customer service executive interrupts you when you try to complete what you want to say” (rude behavior) vs. “The customer service allows you to complete what you want to say” (polite behavior). Similarly, the customer reads that the executive replied, “We are committed to providing excellent customer service to our customers. Let me check with the concerned department. Give me some time and I will get back to you as soon as possible” (rude behavior) vs. the executive replied, “We are sorry to hear about your experience. We are committed to providing excellent customer service to our customers. Let me check with the concerned department. Could you please give me some time? I will get back to you as soon as possible” (Polite behavior).
Appendix 2: Measures
Propensity to Complain (adapted from Bodey and Grace (2007)) (1-Strongly Agree, 7-Strongly Disagree); Coefficient alpha = .85.
PC1: If there is a service failure, I will complain to the company.
PC2: If I am dissatisfied with the things I buy, I will complain about them to the shop (or other suppliers) that sold them to me.
PC3: I do not hesitate to complain if I think it is warranted to do so.
PC4: Based on my past purchasing experiences, I am likely to complain in the event of dissatisfaction or service failure.
PC5: I am inclined to complain to the service provider if I am unhappy with a service.
PC6: I am usually reluctant to complain about service regardless of how bad it is (R).
PC7: I am less likely than most people to complain about unsatisfactory service (R).
Realism of the Scenario (adapted from Liao 2007) (1-Not at all, 7- Completely); Coefficient alpha = .78.
RS1: The extent to which this particular scenario “sounds realistic”. (R).
RS2: The extent to which this particular scenario “could happen in real life”. (R).
Turn Around Time (adapted from Tax et al. 1998). 7-point scale anchored at the endpoints (1- Strongly Disagree, 7- Strongly Agree); Coefficient alpha = .75.
TAT1: The taxi service provider was quick to resolve my problem.
TAT2: The length of time taken to resolve my problem was longer than necessary. (R).
Service Recovery Expectations (adapted from Hess et al. (2003)) (1- Strongly Disagree, 7- Strongly Agree); Coefficient alpha = .80.
SRE1: I expect the taxi service provider to do everything in its power to solve the problem.
SRE2: I do not expect the taxi service provider to exert much effort to solve the problem. (R).
SRE3: I expect the taxi service provider to try to make up for (providing the wrong taxi/inattentive service by the driver).
Controllability Attribution (adapted from Smith et al. (1999)) (1- Strongly Disagree, 7- Strongly Agree).
Do you think the service provider could have prevented the problem?
Based on your experience, how important do you feel the service failure was?
Politeness and Courtesy (adapted from Liao (2007)) (1- Strongly Disagree, 7- Strongly Agree).
The customer service representative was courteous to me.
Likelihood of Churn (adapted from (Singh 1990)) (1- Strongly Disagree, 7-Strongly Agree).
Based on my experience with service failure and recovery, I am going to end my relationship with the firm.
Appendix 3: Restaurant Failure-Recovery Scenario
Please recall a restaurant that you have visited recently.
You go to the same restaurant for lunch. You are seated at your table and the waiter comes to take the order. You select your items from the menu and place your order. The waiter informs you that the restaurant is out of the items you have selected. You have decided to complain to the manager.
You go to the same restaurant for lunch. You are seated at your table, but the waiter is busy talking to other waiters. Finally, after almost shouting at the top of your voice, the waiter takes the order. However, the waiter delays inordinately in delivering your food and after two reminders, finally serves you. You have decided to complain to the manager.
Service Recovery Scenario
You walk to the manager and start narrating the incident. The manager allows you to complete what you want to say. The manager replied, “We are sorry to hear about your experience. We are committed to providing excellent customer service to our customers. Let me check what I can do for you. I will get back to you as soon as possible”. After 2 min, the manager gets back to you. The manager informed you, “We are extremely disappointed to know that your experience with us in today was not satisfactory. Based on your complaint, we have investigated the problem and we have decided to provide a 100% refund for today’s lunch. We hope you will give us an opportunity to serve you again”.
We change the recovery profiles based on our intended manipulation. For compensation, customers read “we have decided to provide a 100% refund for today’s lunch” (high compensation) or “we have decided to provide a 50% refund for today’s lunch” (medium compensation). In no-compensation scenario, the statement was missing. Again, for TAT customers read “After 2 minutes, the manager gets back to you” (faster resolution) vs. “After 15 minutes, the manager gets back to you” (slower resolution). Politeness and courtesy have been manipulated by many statements in the recovery profile such as “The manager interrupts you when you try to complete what you want to say” (rude behavior) vs. “The manager allows you to complete what you want to say” (polite behavior). Similarly, the manager replied, “We are committed to providing excellent customer service to our customers. Let me check what I can do for. I will get back to you as soon as possible” (rude behavior) vs. the manager replied, “We are sorry to hear about your experience. We are committed to providing excellent customer service to our customers. Let me check what I can do for you. I will get back to you as soon as possible” (polite behavior).
Measures: All measures are similar to Experiment 1.
About this article
Cite this article
Borah, S.B., Prakhya, S. & Sharma, A. Leveraging service recovery strategies to reduce customer churn in an emerging market. J. of the Acad. Mark. Sci. 48, 848–868 (2020). https://doi.org/10.1007/s11747-019-00634-0
- Service recovery
- Emerging markets
- Type of failure