How much compensation is too much? An investigation of the effectiveness of financial overcompensation as a means to enhance customer loyalty
The present paper examines the effectiveness of financial overcompensation as a means to enhance customer loyalty after a product failure. Overcompensation implies that customers are entitled to a refund that is larger than the purchase price. It is, however, still unclear whether large overcompensa...
| Main Authors: | , , , , |
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| Format: | Article |
| Language: | English |
| Published: |
Cambridge University Press
2017-03-01
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| Series: | Judgment and Decision Making |
| Subjects: | |
| Online Access: | http://journal.sjdm.org/16/16929/jdm16929.pdf |
| _version_ | 1797813873348182016 |
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| author | Tessa Haesevoets Alain Van Hiel Mario Pandelaere Dries H. Bostyn David De Cremer |
| author_facet | Tessa Haesevoets Alain Van Hiel Mario Pandelaere Dries H. Bostyn David De Cremer |
| author_sort | Tessa Haesevoets |
| collection | DOAJ |
| description | The present paper
examines the effectiveness of financial overcompensation as a means to enhance
customer loyalty after a product failure. Overcompensation implies that
customers are entitled to a refund that is larger than the purchase price. It
is, however, still unclear whether large overcompensations entail saturation
effects, or alternatively, result in an actual drop in customer loyalty. We
predicted that the overcompensation-loyalty relationship is generally
characterized by an inverted U-shaped function. In line with this prediction,
the results of four studies showed that mild overcompensations had, on average,
a positive effect on customer loyalty beyond equal compensation, but only up to
compensation levels of approximately 150% of the purchase price of faulty
products. Beyond this level, the effectiveness of overcompensation diminished,
eventually leading to a general drop in customer loyalty. Despite this overall
pattern, two studies revealed robust individual differences in how customers
react to increasing overcompensation. A majority of customers increased their
loyalty when the overcompensation enlarged, but the curve flattened out in the
high range. However, there was also a smaller portion of customers who reacted
negatively to every form of overcompensation. A practical implication of these
findings, therefore, is that companies should not offer compensations that are
greater than 150% of the initial price, as these do not contribute to greater
loyalty in any category of customers. |
| first_indexed | 2024-03-13T07:58:06Z |
| format | Article |
| id | doaj.art-60a5a195ec63435295f551ad96569aaa |
| institution | Directory Open Access Journal |
| issn | 1930-2975 |
| language | English |
| last_indexed | 2024-03-13T07:58:06Z |
| publishDate | 2017-03-01 |
| publisher | Cambridge University Press |
| record_format | Article |
| series | Judgment and Decision Making |
| spelling | doaj.art-60a5a195ec63435295f551ad96569aaa2023-06-02T00:09:10ZengCambridge University PressJudgment and Decision Making1930-29752017-03-01122183197How much compensation is too much? An investigation of the effectiveness of financial overcompensation as a means to enhance customer loyaltyTessa HaesevoetsAlain Van HielMario PandelaereDries H. BostynDavid De CremerThe present paper examines the effectiveness of financial overcompensation as a means to enhance customer loyalty after a product failure. Overcompensation implies that customers are entitled to a refund that is larger than the purchase price. It is, however, still unclear whether large overcompensations entail saturation effects, or alternatively, result in an actual drop in customer loyalty. We predicted that the overcompensation-loyalty relationship is generally characterized by an inverted U-shaped function. In line with this prediction, the results of four studies showed that mild overcompensations had, on average, a positive effect on customer loyalty beyond equal compensation, but only up to compensation levels of approximately 150% of the purchase price of faulty products. Beyond this level, the effectiveness of overcompensation diminished, eventually leading to a general drop in customer loyalty. Despite this overall pattern, two studies revealed robust individual differences in how customers react to increasing overcompensation. A majority of customers increased their loyalty when the overcompensation enlarged, but the curve flattened out in the high range. However, there was also a smaller portion of customers who reacted negatively to every form of overcompensation. A practical implication of these findings, therefore, is that companies should not offer compensations that are greater than 150% of the initial price, as these do not contribute to greater loyalty in any category of customers.http://journal.sjdm.org/16/16929/jdm16929.pdfovercompensation customer loyalty curve progression inverted U-function optimum individual differencesNAKeywords |
| spellingShingle | Tessa Haesevoets Alain Van Hiel Mario Pandelaere Dries H. Bostyn David De Cremer How much compensation is too much? An investigation of the effectiveness of financial overcompensation as a means to enhance customer loyalty Judgment and Decision Making overcompensation customer loyalty curve progression inverted U-function optimum individual differencesNAKeywords |
| title | How much
compensation is too much? An investigation of the effectiveness of financial
overcompensation as a means to enhance customer loyalty |
| title_full | How much
compensation is too much? An investigation of the effectiveness of financial
overcompensation as a means to enhance customer loyalty |
| title_fullStr | How much
compensation is too much? An investigation of the effectiveness of financial
overcompensation as a means to enhance customer loyalty |
| title_full_unstemmed | How much
compensation is too much? An investigation of the effectiveness of financial
overcompensation as a means to enhance customer loyalty |
| title_short | How much
compensation is too much? An investigation of the effectiveness of financial
overcompensation as a means to enhance customer loyalty |
| title_sort | how much compensation is too much an investigation of the effectiveness of financial overcompensation as a means to enhance customer loyalty |
| topic | overcompensation customer loyalty curve progression inverted U-function optimum individual differencesNAKeywords |
| url | http://journal.sjdm.org/16/16929/jdm16929.pdf |
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