The Effect of Compensation Size on Recovery Satisfaction After Group Service Failures: The Role of Group Versus Individual Service Recovery

Two experimental studies reveal that customers’ reactions to different levels of recovery compensation differ between a recovery that occurs at the group level (such that every customer knows that every other affected customer receives the same compensation) and one that occurs at the individual level (such that the individual does not know whether and how much compensation other affected customers receive). In both cases, recovery compensation exhibits diminishing returns on compensation size in terms of recovery satisfaction. However, at the group level, the rate at which the returns on compensation diminish is greater and satisfaction reaches a plateau at lower compensation levels than at the individual level. The salient social comparison made during a group service recovery (GSR), as evidenced by the mediating role of distributive justice, explains these effects. Finally, we note that at midrange compensation levels, GSR and individual service recovery did not lead to different levels of recovery satisfaction, suggesting a zone of tolerance or indifference at these levels. Further, our findings yield important managerial implications for the efficient allocation of service recovery resources after a group service failure.