Benefits of Service Guarantees
Good guarantee forces the company to focus on its customers, because the company must know what is important to customers - what they expect and value. Need to clearly understand what satisfaction is to their customers.
Sets clear standards for the organisation, prompting the company to clearly define what it expects of its employees and communicate this to them
Generates immediate and relevant feedback, providing an incentive for customers to complain and thereby provides more representative feedback to the company than simply relying on the small number of people who voice feedback
When the guarantee is invoked there is an instant opportunity to recover, thus satisfying the customer and helping retain loyalty
Information generated through the guarantee can be tracked and integrated into continuous improvement efforts
Studies of the impact of service guarantees suggest employee morale and loyalty can be enhanced as a result
For customers, guarantees reduce their sense of risk and builds confidence in the organisation
When to use (or not use) service guarantee
Existing service quality in the company is poor - significant problems should be fixed prior to making any guarantees, cost of implementing guarantee could outweigh any benefits through things like payouts for not meeting customer standards
Guarantees don't fit the company's image - if they already have a reputation for high quality, formal guarantee is not necessary. E.g. if Ritz-Carlton offered a guarantee it might confuse customers who already expect the highest of quality. A guarantee would be more apt for a lower budget hotel perhaps.
Service quality is truly uncontrollable - not good practice for a training organisation to guarantee that all participants would pass after a specific duration if passing depends on the participants own effort. However, the company could guarantee satisfaction with the training or significant aspects of the training instead
Potential exists for customer abuse of the guarantee - opportunistic behaviour such as cheating or fraudulent invocation of service guarantees. E.g. at a pizza chain students occasionally cheated the company by invoking the service guarantee to receive free food. In these cases, firms should carefully consider the consequences of offering a guarantee.
Costs of guarantee outweigh benefits - carefully calculate costs (payouts for failures and costs of making improvements) against anticipated benefits (loyalty, quality improvement, WOM, attracting customers)
Customers perceive little risk in service - guarantees are most effective when customers are uncertain about the company/quality of their service. No point if this risk isn't here.
Customers perceive little variability in service quality among competitors - guarantee is effective when the industry exhibits extreme variability among competitors and also when customers have a low perceived quality.
Types of Service Guarantee
Satisfaction vs. service attribute guarantee
Unconditional satisfaction guarantees or service attribute guarantees. They are offered by the likes of Radisson, Travel Lodge and Ibis. Tesco's one in front is an aspect of service that is important to customers. Both cases, companies have guaranteed elements of the service they know is important.
External vs. internal guarantee
Guarantees don't have to just be for external customers - some companies are finding that internal guarantees for their employees are effective ways of aligning internal service operations. E.g. Embassy Suites guarantee housekeeping staff that they can get supplies on the day requested, and if not the supply dpt. pays approx. 4 euros to the housekeeper.
Characteristics of effective guarantees
Guarantee should be unconditional - no strings attached
Guarantee should be meaningful and easily understood, not look as if it has been written by a legal department with all kinds of restriction, proof required and limitations
The payout should be meaningful, customers expect to be reimbursed in a manner that fully compensates them
Guarantee should be easy to invoke, shouldn't need customers to fill out lengthy forms or documents to receive the guarantee