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Session Overview
05-04: Mathieu Béal
Friday, 19/Jul/2019:
3:45pm - 4:10pm

Seminar Room 2-4

Chair: Holger Roschk

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The Effects of Relationship Length on Customer Profitability After Service Recovery

Authors: Mathieu Béal (IAE Lyon, France), William Sabadie (IAE Lyon, France), Yany Grégoire (HEC Montréal, Canada)

Academic evidence and meta-analyses (Gelbrich & Roschk, 2011; Orsingher, Valentini, & de Angelis, 2010)clearly establish that successful service recovery effectively enhances customers’ intentions (e.g., retention, word of mouth), yet little research investigates the effects of service recovery on customer profitability or real behavior. This gap is surprising; the use of financial and objective metrics is a high priority in services literature in general (Ostrom, Parasuraman, Bowen, Patrício, & Voss, 2015; Van Vaerenbergh & Orsingher, 2016). Furthermore, prior research indicates that relational variables influence customer responses after a service recovery in different manners. Two different schools have emerged. On the one hand, the “love is blind” effect implies that customers with a strong relationship are more forgiving in the aftermath of any recovery (Grégoire & Fisher, 2006; Umashankar, Ward, & Dahl, 2017). On the other hand, the “love becomes hate” effect predicts that customers with a strong relationship have higher expectations, which make them respond more negatively (Grégoire & Fisher, 2008; Grégoire, Tripp, & Legoux, 2009). Relatively substantial evidence confirms the first school of thought, but unfortunately, researchers have not established an effective framework that might reconcile both perspectives. To address this second gap, the current research relies on archival data and real behaviors.

In response to these two research gaps, the current study offers two core contributions. First, we investigate the influence of satisfaction with the service recovery on real behaviors and financial outcomes, such that we propose and formally test the sequence SSR àcross- buying variation (over a 1.5-year period) àcustomer profitability variation (over the same period). Second, building on the recently introduced theory of transformation relational events (TRE) (Harmeling, Palmatier, Houston, Arnold, & Samaha, 2015), we investigate the moderating role of relationship length (i.e., duration of the relationship between a customer and a firm) on the effect of SSR on cross-buying variation. This theory is relevant by suggesting that service recovery may be viewed as a “turning point” that affects relationship trajectories in different ways, depending on the nature of the event (positive or negative) and the length of the relationship. By applying TRE theory, we can anticipate both rival explanations. When a service recovery is dissatisfying, relationship length acts as a buffering variable, consistent with a “love is blind” effect. After such a negative recovery, customers with longer relationships exhibit greater cross-buying variation than customers in shorter relationships. In contrast, when the service recovery is satisfying, the opposite effect arises, and customers with longer relationships reveal lesser cross-buying variation than those with short relationships. For customers in shorter (longer) relationships, a satisfying service recovery exceeds (meets) their relational expectations, which should result in more (similar) cross-buying patterns over time.

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