How much is enough? An investigation of monetary compensation for service failures

Abstract

The amount of compensation for service failures significantly influences consumer satisfaction, but both under- and overcompensation can be ineffective. Customer expectations for monetary compensation vary by service context. This study explores three contextual factors—service recovery characteristics, service type, and failure type—through scenario-based experiments. The findings reveal that outcome failures require higher compensation than process failures, and expectations increase with failure severity. Additionally, positive emotional displays by employees enhance the recovery experience but cannot replace fair compensation. These insights offer guidance for tailoring service recovery strategies to specific service contexts.