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Common mistakes in designing and

implementing service guaranteesRod McColl

ESC Rennes School of Business, Rennes, France, andJan Mattsson

Department of Social Sciences, Roskilde University, Roskilde, Denmark, and ESC Rennes School of Business, Rennes, France

AbstractPurpose – The purpose of this paper is to explore companies’ experiences in designing and implementing service guarantees.Design/methodology/approach – The methodology relied on 22 in-depth personal interviews across a sample of ten Australian service firms.Findings – The effectiveness of a service guarantee depends on how well a firm designs and implements it. It was found that service guarantees were generally not well conceived, implemented, or monitored after launch. Through a comparison of theory and practice, this study identifies a number of common mistakes, including inadequate or non-existent pre-launch market research; ambiguous definition of the role of the guarantee; inadequate market testing of alternative guarantee promises; a lack of consultation with key functional managers during development; a lack of CEO commitment; ambiguous assignment of responsibility for ongoing management of the guarantee; and an absence of performance evaluation.Research limitations/implications – The study employs qualitative research techniques and considers only Australian firms.Practical implications – While the common mistakes offer cautions for managers when planning a service guarantee, some outstanding examples of successfully implemented service guarantees also emerged. A notable example is the customer charter, a more comprehensive conditional guarantee that avoids many of the pitfalls associated with traditional service guarantees.Originality/value – Previous studies do not address the experiences of a broad sample of companies that have designed and implemented a service guarantee. The findings in this paper extend the understanding of how service guarantees could become more effective and identify directions for future research.

Keywords Service guarantees, Qualitative research, Australian service firms, Service control, Australia, Customer services qualityPaper type Research paper

An executive summary for managers and executive readers can be found at the end of this article.

IntroductionService guarantees are written promises of service performance declared through advertising and company literature, making offers of compensation if promises are not honored (Kashyap, 2001; Sum et al., 2002). They may be either unconditional or conditional, and are prevalent across many service industries, including the retailing, real estate, fast food, airline, telecommunication, transport, and leisure industries (Burch, 1993; Fabien, 1997; Henderson, 1997; Lewis, 1993; Maher, 1991, 1992), as well as professional services (Hart et al., 1992; Raffio, 1992; Reske, 1995), financial services (Berry, 1995), and education (Lawrence and McCollough, 2001; Magnuson, 1996; Maher, 1991; Ostrom and Iacobucci, 1998).

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The appeal of service guarantees lies in their potentially broad strategic application. A service guarantee may serve as a quality instrument for improving firm performance, a marketing device to provide competitive advantage through differentiation and the opportunity to command a price premium, a customer service tool to improve levels of satisfaction and increase the number of legitimate complaints, or a combination of all of these uses (Berry, 1995; Hart, 1993, 1988; Spreng et al., 1995; Tucci and Talaga, 1997; Wirtz, 1998).A recent review of more than 20 years of service guarantee research in key relevant journals notes that the vast majority of empirical research on service guarantees (87 percent of the 109 papers reviewed) focuses on the promotional and marketing effects of service guarantees (Hogreve and Gremler, 2009). These investigations implicitly assume that the guarantees under study have been effectively designed and implemented across the organization and have been carefully communicated to customers. Studying the effects of poorly conceived service guarantees could potentially result in a contradiction of their findings.Unquestionably, improving the design and implementation of service guarantees would enhance their effectiveness. A framework resulting from a study of companies with service guarantee experience sets out five distinct steps for the successful design and implementation of a service guarantee (Fabien, 2005):

1 Analysis of market and internal factors.2 Service quality signaling.3 Guarantee design.4 Implementation and communication.5 Performance analysis.

However, the actual process companies use to design and implement a service guarantee remains obscure. To what extent do companies actually follow these implementation steps and their accompanying guidelines? This study answers a call for research determining how companies can design service guarantee processes to enable employees to deliver service and satisfy customers (Hogreve and Gremler, 2009). The main objective of this study is to investigate the experience of companies that have implemented service guarantees and to identify common lapses in the development and implementation process. Insights from this investigation would inform future academic research in this field and assist practitioners in learning from the experiences of others.In addressing the overarching research objective, we begin by reviewing research issues from the service guarantee literature. We then outline our research methodology, and we follow this discussion with a presentation of our analysis and findings in the form of common missteps companies make in developing service guarantees. We conclude by connecting the contribution of this research to the current body of theory, providing recommendations for practitioners, and proposing issues for further research.

Research issuesTwo themes dominate the literature, which spans more than two decades:

1 factors relating to the design of service guarantees; and2 measurement of customer and firm-related outcomes (Hogreve and Gremler, 2009).

These themes shape the direction of this study and we discuss them in turn.

Designing service guaranteesService guarantee may be either unconditional or conditional, but regardless of its type, a strong guarantee should be easy to understand and communicate, heavily promoted, simple and obvious, meaningful to customers, easy to invoke, fast to collect on, and credible (Hart, 1988). Where

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possible, a service guarantee should also specify the payout, avoid complex or legalistic language, and allow activation by the customer (McDougall et al., 1998).Benefits of a guarantee vary across different services (Tucci and Talaga, 1997) and may be more interesting in situations where the price of the service is high, where an industry has a poor image for quality, and where businesses depend on repeat purchases (Hart et al., 1992). Customer circumstances that provide fertile ground for service guarantees include markets where word-of-mouth is particularly important, where the customer’s expertise is low, and where consequences of service failure are high (Hart, 1988; Hart et al., 1992; Ostrom and Iacobucci, 1998; Ostrom and Hart, 2000). Service guarantees also provide advantages to well known and reputable companies by increasing expected quality and reducing perceived risks (Wirtz et al., 2000). Service guarantees therefore seem to perform differently, depending upon the nature of the service, the competitive environment of that sector, and consumer purchasing behavior.When developing the guarantee, before its introduction an organization should research thoroughly and consider carefully all external market forces, for example by reviewing industry standards, likely response by competitors, and attitudes of various customer segments, together with any possible internal effects on management, contact staff, and operations personnel (Fabien, 2005). However, designing the specifics of a service guarantee presents many challenges. For example, no clear guidelines exist for determining the right level of compensation (Baker and Collier, 2005; Kukar-Kinney and MacKenzie, 2007).

Outcomes of service guaranteesMost previous empirical research examining the customer effects of service guarantees uses a combination of research methodologies but relies mainly on experiments and surveys (Hogreve and Gremler, 2009). Few studies consider the benefits to the organization.Various studies suggest that the presence of a service guarantee can improve a customer’s intention to purchase (Kukar-Kinney, 2006) and build loyalty by signaling to customers that employees will be motivated to deliver a high level of service (Boshoff, 2003; McWilliams and Gerstner, 2006). A service guarantee positively influences customers’ perceptions of overall service quality, or at least communicates a company’s quality intentions (Andaleeb and Basu, 1998; Erevelles et al., 2001). Guarantees also operate at the encounter-specific level by positively influencing customer service evaluations and reducing consumers’ perceived risks in purchasing a service (Kandampully and Butler, 2001), although whether conditional or unconditional guarantees are better suited to achieve this outcome is unclear.In addressing the question of their effectiveness in encouraging legitimate complaints, McColl et al.(2005) found that service guarantees did not increase the likelihood to complain when they were used in isolation from other consumer stimuli, such as a firm’s advertising. Their findings suggest that providing additional evidence to the written guarantee, such as how service processes allow for promises to be guaranteed, could enhance the effectiveness of the service guarantee. Offers of high monetary compensation may have a similar effect in encouraging complaints (Marmorstein et al., 2001).Service guarantees have a statistically significant effect on service quality through employee motivation and vision (Hays and Hill, 2001, 2006), and a nonlinear relationship exists between perceived service quality and employee-related variables, including frontline motivation and an increased ability to detect service failures through complaint information (Sum et al., 2002). In a similar vein, service guarantees may support service initiatives by influencing a firm’s service processes, the recovery process, and new service development initiatives (Lide´n and Sande´n, 2004). These studies build a strong case for using a service guarantee as a quality tool or within a change management program.

Methodology

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To study the way companies design and implement service guarantees, we began by analyzing the guarantees within the sample for their particular design elements. These elements included type (conditional or unconditional), promises of compensation, and conditions for invoking. Appendix 1(Table AI) presents a summary of the results of the content analysis. As the earlier section covering research issues shows, the choice of design elements has received a great deal of interest from academic researchers. The discussion of the types of guarantees in the sample provides a context for the findings.We found that each of the service guarantees met the criteria of being simple and understandable. All appeared to be easy to invoke with the exception of the bank case, where customers who spent more than five minutes in a queue and wished to invoke the guarantee needed to wait additional time to complete a detailed claim form.In terms of the types of guarantees introduced, only the hotel case had adopted a 100 percent unconditional guarantee as part of a world-wide initiative. The most comprehensive and innovative conditional service guarantee was that of insurance-B, which claims to be first in the world to offer a customer charter in a non-public organization. The company’s charter outlines 21 service standards that customers could expect from the company and reinforces service promises by a $30 payment offer for any breaches of the guaranteed conditions. A national accounting firm independently audits the charter performance, and the company makes the results of the audit public. In total, nine companies offered conditional guarantees that promised either monetary compensation (for example, $5 for slow service in the bank case) or a refund of any charges in the event a customer invoked the guarantee (the most common form of compensation).The process of identifying common problems in the design and implementation of service guarantees relied on qualitative research, which is appropriate for a constructivism epistemological position where the goal is new theory development (Carson et al., 2001; Crotty, 1998; Healy and Perry, 2000). Qualitative research is also appropriate when a new slant on a phenomenon is required or where the subtle details of phenomena are not suited to an investigation using quantitative methods (Strauss and Corbin, 1990).We conducted a total of 22 in-depth, personal interviews across ten different service organizations representing nine industries. In the previous 109 studies of service guarantees, only five investigations consider more than one industry context (Hogreve and Gremler, 2009). Examining many industries in one study, as is the case here, allows the findings to be applied beyond a single case experience.Each of the companies studied operates in Australia, where we carried out the interviews. Seven conduct business nationally and one internationally, with the remaining two being locally based in the city of Melbourne. While the organizations in the study constituted a convenience sample, we made every effort to obtain sample variability in terms of types of industry, company size, and type of guarantee, resulting in an initial sample of 17 companies that advertised a service guarantee in company literature. We conducted interviews within these organizations until a convergence of views was obtained – that is, until no new themes emerged (Miles and Huberman, 1994). This process resulted in a final sample of the ten organizations listed in Table I. We selected individual company respondents using the key informant approach (Robson and Foster, 1989), which consisted of talking with managers who were personally responsible for or closely associated with the guarantee design and implementation process. In most organizations, we conducted multiple interviews to capture the views of the cross-functional unit involved.Interviews followed the recursive model of interviewing (Minichiello et al., 1995), as answers to open questions are more likely to reflect a respondent’s own thinking and thereby improve the validity of the results (Dey, 1993; Patton, 1990). A topic guide directed the flow of the interviews. Each interview lasted between 45 and 90 minutes, and all of the interviews were audio-taped and later transcribed verbatim.The data analysis consisted of data reduction, followed by data display and conclusion-drawing/verification (Miles and Huberman, 1994). Owing to the exploratory nature of the

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study, data reduction for each of the 22 interviews employed mainly in vivo codes (Strauss and Corbin, 1990) and yielded a matrix table from codes developed from each interview. We then integrated and synthesized the displays to identify respondents’ attitudes and opinions. For the data analysis, we used QSR NVivo6 computer-based analysis software (QSR International Pty Ltd, 2006).

FindingsThe findings regarding actual company practice reveal significant discrepancies from the recommendations of Fabien (2005) concerning good practice in the design and implementation of service guarantees. These variances between theory and practice include inadequate or non-existent pre-launch market research; ambiguous definition of the role of the guarantee; inadequate market testing of alternative guarantee promises; a lack of consultation with key functional managers during development; a lack of CEO commitment; ambiguous assignment of responsibility for ongoing management of the guarantee; and an absence of performance evaluation. We describe these common mistakes in detail below, under headings that refer to the steps in the guarantee implementation process (Fabien, 2005). Appendix 2 (Figure A1) presents a model depicting these mistakes.

Step 1 – Analysis of market and internal factorsMistake 1. Inadequate or non-existent pre-launch market researchIn the majority of cases, the company performed no industry analysis before implementing the service guarantee. This finding pointed to a fundamental departure in practice from the recommendations in the literature, and the model presented in Appendix 2 (Figure A1) reflects its importance. In only four cases did the company carry out primary market research – in communications, banking, insurance-B, and hotel – and even these organizations focused mainly on consumer-related issues to the neglect of other factors, such as a review of industry standards, competition, and the legal environment. The following examples illustrate various approaches to customer research.Research in the banking case comprised a large-scale quantitative study, which concluded that for 92 percent of the bank’s customers:

Fast service at the branch was the most important service requirement in a banking service.

This finding led to the introduction of the bank’s promise that a customer would spend no longer than “five minutes in a queue or receive $5.” Insurance-A used a series of focus groups to determine the precise wording of the guarantee and its format – a car insurance guarantee that promises:

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A guaranteed repair, by a reputable company using guaranteed manufacturers’ parts and completed on time.

Companies by-passed preliminary market analysis for three main reasons: lack of time, lack of resources, or uncertainty as to what information they should gather. One company reported that:

We were under pressure to get the thing out to customers quickly and no one worried about researching the market.

Insurance-B described a positive experience of conducting a comprehensive industry analysis prior to launch which continues to play a role in identifying new guarantee promises:

Our initial research indicated that policy holders were concerned and confused about the term “100 percent guaranteed” which persuaded us to adopt a conditional version.

Today, this company holds regular customer focus group discussions using present and past clients. In addition, the company has established a system of customer and staff comment cards. Available at branches, the cards encourage general feedback and solicit suggestions for additional guarantee conditions. The company also encourages staff members to submit ideas online, anonymously if necessary, concerning potential new or revised promises. A recent example relates to customer complaints about delays in claim settlements. The average time delay for a settlement check was more than 14 days, and the company found that:

. . . our customers expected to receive a check in less than five business’ days.

After a three-month review of the operational issues required to reduce the delay, the company established a new target, promising to mail a check within three working days. This promise was subsequently incorporated into the following year’s guarantee and remains in place today.In summary, we found that similarly sized firms used different approaches to researching their service guarantee, ranging from no action at all to a full assessment of the market, including customer perceptions and operational implications of meeting service promises.The second common mistake related to the role of the service guarantee.

Step 2 – Service quality signalingMistake 2. Unclear definition of the role of the service guaranteeThe study uncovered what companies anticipated from their service guarantee. Table II summarizes the responses, which reflect a broad range of expectations among managers. Two factors caused the breadth of expected outcomes:

1 absence of a clearly defined role for the guarantee; and2 changes in the role and management of the guarantee over time, resulting in additional expectations.

Expected benefits consisted of marketing-, quality-, or customer service-related factors. Marketing-related factors include service differentiation, repositioning the brand or company, matching the guarantee of a competitor, and reducing perceived risks in purchasing. In a number of cases, the company employed the service guarantee for quality improvement reasons, such as boosting existing quality initiatives, replacing completely the existing quality program, improving staff motivation and performance, and reducing costs, although this last factor was only mentioned at insurance-A. Customer service-related factors were important for many of the organizations studied.

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The main factors mentioned included increasing the number of legitimate complaints reported to the organization, providing a better system for tracking complaints, and generally improving service-related perceptions.Insurance-B offers an example of a company with a successful guarantee (a customer charter) and a clear vision of its role.

Our customer charter gave our TQM program a fresh focus as previous attempts to improve customer service had been quite disparate.

Insurance-B’s focus from the outset was to use the charter as a vehicle to improve overall service quality. The company considered any marketing benefits to be secondary.

We next examine the design process.

Step 3 – Guarantee designMistake 3. Inadequate market testing of alternative guarantee promisesTwo key missteps were evident during this phase:

1 a general lack of testing of alternative guarantee types and conditions; and2 inadequate organization-wide involvement of key managers.

Despite doing no primary market research prior to launch, most companies nevertheless allocated time to considering the exact promises to be incorporated into conditional guarantees. Unfortunately, however, companies did not test the various design options among customers. The design phase varied across our sample of organizations, with the majority taking six and 12 months for this phase. One organization took less than six months and three firms spent less than one month in development.

With respect to guarantee type, companies offered a number of arguments in favor of a conditional guarantee over a 100 percent unconditional promise, with the most frequently mentioned being the ability to emphasize specific aspects of the service offer. Firms also perceived conditional guarantees to be easier for operations personnel to perform against, particularly easier than 100 percent unconditional guarantees, and in the main were skeptical about the power of the unconditional service guarantee, citing possible financial and image risks for non-performance.Compensation levels for successful claims were generally set at a point which would encourage a disgruntled customer to invoke the guarantee but not penalize the company too greatly. Full money-back refunds fell short of either criterion, as insurance-B reflects in this response:

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A $30 payout isn’t very much if you have a major disagreement with the company, but for something minor like not having a decision-maker on hand at the time of your call it is quite high.

The postal company, which launched its guarantee with the offer of a replacement courier bag, later changed this promise, deciding that providing a replacement courier bag was:

meaningless and insulting to claimants when important documents such as a job application did not arrive or when tickets to a major event went astray.

By virtue of its design, the 100 percent unconditional guarantee made the customer the ultimate judge of quality. A key consideration for companies designing a conditional service guarantee was who should have authority for invoking the service guarantee should the need arise – the customer, the company, or both parties. The telecommunications, bank, real estate, and insurance-B cases allow either the employee or the customer to activate the guarantee. At the telecommunications company:

between 70-80 percent of payouts are initiated by employees rather than customers.

However, a customer invoking a service guarantee must first be aware of the guarantee’s existence. Regrettably, none of the companies in the sample measured customer awareness of their guarantee.Customer-initiated conditions also assume that staff members interacting with customers have full knowledge of the procedures for processing a guarantee claim. This issue represented a problem in the bank case, which relied heavily on part-time employees who were not always fully aware of the service guarantee process. The bank reported that:

some staff seem unsure of the claims’ procedure, thereby resulting in a double service failure for customers who are looking for a positive service recovery.

Respondents noted that one weakness of the company invoked guarantee was that employees might be inclined to avoid acknowledging claims if the claims reflected negatively on them individually or on their colleagues. In the bank case, some employees were described as:

reluctant to encourage claims because of how the branch would be seen at head office.

A hotel respondent presented an alternative view that the company-invoked guarantee:

may act as a pleasant surprise to a guest in the service recovery process, particularly if the guest had been unaware of the existence of the service guarantee.

A second problem in the implementation phase, poor consultation of senior managers, is discussed next.

Mistake 4. Lack of consultation with key functional managersTypically, the marketing manager initiated the introduction of a service guarantee, with expectations that the guarantee could deliver benefits which might improve customer service levels. Surprisingly, this development phase included very little consultation with operations personnel. Many respondents noted that this oversight later resulted in conflicts between the marketing and operations’ functions as operations came under pressure to deliver on the firm’s promises:

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Our biggest mistake was not to incorporate all of the senior management team. It came to be seen as just a marketing program until our operations people couldn’t deliver on the promises. Then the arguments began.In contrast, the hotel devoted considerable time and resources to staff training to ensure that all employees understood their role in the guarantee process and, importantly, that they had authority to invoke the service guarantee if they believed the circumstances warranted. The next phase of implementation, communication of the service guarantee internally and to customers, again suffered from two common mistakes.

Step 4 – Implementation and communicationMistake 5. Lack of CEO commitmentSuccessful service guarantee programs received full support from the chief executive officer and the senior management team, as our hotel and insurance-B cases show with their effectively designed, launched, and managed guarantees.Conversely, other service guarantee programs in our sample miscarried because of inadequate support at the highest level within the organization. The primary explanation for failure was that the senior management team was unable to convince the CEO of bottom line benefits linked to the service guarantee. Consequently, in some organizations the program remained entrenched within the function that either proposed the guarantee or inherited it after launch. Without support from the CEO, the service guarantee program starved from lack of resources:

We had the management team on board but the CEO didn’t provide the resources to maintain the program.

The location of this issue at the heart of the model in Appendix 2 (Figure A1) reflects its significance.

Mistake 6. Ambiguous assignment of responsibility for ongoing management of the guaranteeSuccessful guarantee programs were managed by a cross-functional team with a clearly assigned manager who had the authority to implement changes to the conditions of the guarantee. A positive experience in managing its service guarantee led the telecommunications organization to modify its service guarantee many times after launch, and the company is now considering offering new products, such as insurance policies, in the event of poor service. The transport company has also strengthened its guarantee, deleting clauses which were not explicit promises, and today only guarantees delivery by 9.30 a.m. for its first-class service. These modifications suggest that in a number of cases the development of the service guarantee process was on-going and included phases of feedback and review. However, our findings suggest that companies often undertook design modifications without the aid of adequate hard data reflecting the guarantees’ performance.In less successful cases, different functions within the organization competed for ownership of the program in an internal power struggle. When the bank discontinued its service guarantee, the CEO claimed that the guarantee had enabled the firm to demonstrate its commitment to improving customer service. However, one company respondent said that the bank had spent more than $800,000 each year on penalties (at $5 per payout), which he considered to be:

a lot of money to find out which branches were not meeting operating standards.

A further assertion of the real reason for withdrawing the service guarantee was that success of the guarantee in encouraging branch traffic conflicted with the bank’s desire to switch clients to lower cost service-delivery options, such as the internet, the telephone, and automatic teller machines (ATMs):

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The guarantee of not spending more than five minutes in a queue actually encouraged customers to visit the branches, which was not the goal of our program.

The bank has recently introduced a customer charter along the lines of insurance-B. This type of more detailed conditional guarantee, with publicly audited results, may become the more common type of service guarantee in the future.

Step 5 – Performance analysisMistake 7. Absence of performance evaluationUnexpectedly, in only three cases were the number of payments made under the service guarantees recorded – insurance-B, the hotel, and the bank. Unfortunately, the companies established no comparisons with pre-guarantee complaints, rendering impossible any conclusions about the specific effects of the service guarantees. Additionally, in assessing whether the guarantee met the expectations originally established, no organization conducted a formal cost-benefit analysis using financial data.We found that respondents were generally more positive about their service guarantee experience when the guarantee was a central component of the overall service offer, such as for the hotel, insurance-B, postal, and real estate cases. In those companies, managers believed that the guarantee delivered important benefits in supporting quality improvement initiatives. However, where the service guarantee had no link to the core service, or had no organization-wide commitment to its success, managers assessed the benefits as marginal.

Discussion and implications for management practiceOur findings of Australian service guarantees expose many discrepancies between theory and practice. Our sample revealed that conditional service guarantees were much more common than the 100 percent unconditional guarantee which has been popularized in the academic and practitioner literature (Hart, 1988). Organizations favour conditional guarantees because they appear to be easier to perform against and less risky than unconditional promises.In terms of the expected outcomes, we found that Australian managers envisaged that beyond providing quality signals (Fabien, 2005), their guarantee would deliver marketing-, quality-, and customer service-related benefits to their organizations. However, the service guarantee often began life as a marketing device and shifted over time toward a change management tool monitored by a cross-functional team responsible to the HRM manager.An outstanding example of an effective guarantee implementation process operates at insurance-B in the form of as a customer charter, which has replaced the former quality system. The actual charter is a dynamic document, relying on continuous market data from customers and staff to inform new charter promises. The extant literature contains very little about this tool, which appears to offer benefits over traditional service guarantees by allowing companies to add new promises easily and publicly report audited performance scores.The non-performance of marketing research by most companies in the pre- and post-launch phases of the guarantee implementation process was surprising. These critical first and last stages of Fabien’s (2005) model appear to have been neglected in practice, creating difficulty for managers in both designing strategic service guarantees and later evaluating their effectiveness.Given that service guarantee effectiveness depends on how well the guarantee is designed and implemented, this study offers many lessons for managers. We found that in general, service guarantees were ill-conceived, poorly implemented, or not monitored after launch. Comparison between theory and both good and poor business practice identified a number of common mistakes, including inadequate or non-existent prelaunch market research; ambiguous definition of the role of the guarantee; inadequate market testing of alternative guarantee promises; a lack of consultation with key functional managers during development; a lack of CEO commitment; ambiguous assignment of responsibility for ongoing management of the guarantee; and an absence of

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performance evaluation. These mistakes offer a roadmap and identify potential potholes for managers considering the introduction of a service guarantee.

Conclusions and implications for further researchOur study of 10 Australian service guarantees addresses an important gap in the service guarantee literature by exploring the companies’ experiences and comparing those findings with the extant literature, in particular the model for the effective design and implementation of service guarantees (Fabien, 2005).The study of a cross-section of Australian companies is valuable in that it provides data beyond the single case-study experience typically reported in previous research. In addition, the study identifies a number of potential areas for further empirical investigation. First, given the number of companies that expected the guarantee to deliver benefits beyond customer outcomes, previous researchers’ preoccupation with customer rather than organization outcomes seems unwarranted. Findings from previous investigations may need reconsideration, particularly those that relied on surveys or case studies rather than experimental designs. The assumption that all service guarantees are well designed now seems optimistic, and future studies should distinguish between the conditional and unconditional guarantees when reporting findings. Second, the findings concerning the outstanding performance of the customer charter at insurance-B warrant further empirical investigation, particularly vis-a` -vis the charter’s performance compared to traditional forms of service guarantees.Although it does not undermine the validity of our findings, one limitation of the study deserves mention. The study was exploratory and consisted of Australia-based organizations, and as with all exploratory research, extrapolation of the findings across a broader sample must be done with care.In summary, despite the publication of over 100 papers over the past two decades, the service guarantee literature remains undeveloped. This study makes an important contribution to this literature by exploring companies’ experience in designing and implementing service guarantees. The findings reveal a number of common management errors, indicating that managers should think carefully about the design and implementation of service guarantees so as to maximize customer and firm outcomes.

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Management Review, Vol. 33 No. 3, pp. 19-29.Hays, J.M. and Hill, A.V. (2001), “A longitudinal study of the effects of a service guarantee”, Production and Operations Management, Vol. 10 No. 4, pp. 405-24.Hays, J.M. and Hill, A.V. (2006), “An extended longitudinal study of the effects of a service guarantee”, Production and Operations Management, Vol. 15 No. 1, pp. 117-31.Healy, M. and Perry, C. (2000), “Comprehensive criteria to judge validity and reliability of qualitative research within the realism paradigm”, Qualitative Market Research, Vol. 3 No. 2, pp. 118-26.Henderson, L. (1997), “A juicy service guarantee”, Telephony, Vol. 233 No. 4, p. 42.Hogreve, J. and Gremler, D. (2009), “Twenty years of service guarantee research”, Journal of Service Research, Vol. 11 No. 4, pp. 322-43.Kandampully, J. and Butler, L. (2001), “Service guarantees: a strategic mechanism to minimise customers perceived risk in service organisations”, Managing Service Quality, Vol. 11 No. 2, pp. 112-20.Kayshap, R. (2001), “The effects of service guarantees on external and internal markets”, Journal of Academy of Marketing Science, Vol. 1 No. 10.Kukar-Kinney, M. (2006), “The role of price-matching characteristics in influencing store loyalty”, Journal ofBusiness Research, Vol. 59, April, pp. 475-82.Kukar-Kinney, M. and MacKenzie, S.B. (2007), “Consumer responses to character of price-matching guarantees: the moderating role of price consciousness”, Journal of Retailing, Vol. 83, pp. 211-21.Lawrence, J.J. and McCollough, M.A. (2001), “A conceptual framework for guaranteeing higher education”, Quality Assurance in Education, Vol. 9 No. 3, pp. 139-52.Lewis, A. (1993), “Service guarantees in outpatient clinics: a case study”, Health Care Management Review, Vol. 18, September, pp. 59-65.Linde´n, S. and Sande´n, B. (2004), “The role of service guarantees in service development”, The Service Industries Journal, Vol. 24 No. 4, pp. 1-20.McColl, R., Mattsson, J. and Morley, C. (2005), “The effects of service guarantees, type of service and recovery on service evaluations during a complaint situation”, Journal of Customer Satisfaction/Dissatisfaction and Complaint Behaviour, Vol. 18, pp. 32-50.McDougall, G., Levesque, T. and VanderPlaat, P. (1998), “Designing the specific service guarantee: unconditional or specific?”, Journal of Services Marketing, Vol. 12 No. 4, pp. 278-303.McWilliams, B. and Gerstner, E. (2006), “Offering low price guarantees to improve customer retention”, Journal of Retailing, Vol. 82, June, pp. 105-13.Magnuson, C. (1996), “Graduates for hire: warranty included”, Nations Business, Vol. 84, June, p. 83.Maher, D. (1991), “Service guarantees: double-barreled standards”, Training, Vol. 28, June, pp. 27-30.Maher, D. (1992), “Service guarantees”, Manage, Vol. 43, May, pp. 22-4.Marmorstein, H., Sarel, D. and Lasser, W. (2001), “Increasing the persuasiveness of a service guarantee: The role of service process evidence”, Journal of Services Marketing, Vol. 15 No. 2, pp. 147-59.Minichiello, V., Aroni, R., Timewell, E. and Alexander, L. (1995), In-depth Interviewing, Longman, Melbourne.Miles, M. and Huberman, A.M. (1994), Qualitative Data Analysis: An Expanded Sourcebook, Sage Publications,Beverly Hills, CA.Ostrom, A. and Hart, C. (2000), “Service guarantees”, in Swartz, T.A. and Iacobucci, D. (Eds), Handbook ofService Marketing and Management, Ch. 18, Sage Publications, Beverly Hills, CA, pp.-362-75.Ostrom, A.L. and Iacobucci, D. (1998), “The effect of guarantees on consumers evaluation of services”, Journal of Services Marketing, Vol. 12 No. 5, pp. 362-78.Patton, M.Q. (1990), Qualitative Evaluation Methods, Sage Publications, Beverly Hills, CA.QSR International Pty Ltd (2006), QSR Nivo6 (Computer Software), QSR International Pty Ltd, Doncaster, Victoria.Raffio, T. (1992), “Quality and delta dental plan of Massachusetts”, Sloan Management Review, Vol. 34, Fall,pp. 101-10.Reske, H.J. (1995), “Law firm offers satisfaction guarantee”, American Bar Association Journal, Vol. 81 No. 18, p. 18.Robson, S.R. and Foster, A. (1989), Qualitative Research in Action, Edward Arnold, London.Spreng, R.A., Harrell, G.D. and Mackoy, R.D. (1995), “Service recovery: impact on satisfaction and intentions”,Journal of Services Marketing, Vol. 9 No. 1, pp. 15-23.Strauss, A. and Corbin, J. (1990), Basics of Qualitative Research:Grounded Theory Procedures and Techniques, Sage Publications, Beverly Hills, CA.Sum, C., Lee, Y., Hays, J. and Hill, A. (2002), “Modelling the effects of a service guarantee on perceived service quality using alternating conditional expectations”, Decision

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Sciences, Vol. 33 No. 3, pp. 347-83.Tucci, L.A. and Talaga, J. (1997), “Service guarantees and consumers evaluation of services”, Journal of ServicesMarketing, Vol. 11 No. 1, pp. 10-18.Wirtz, J. (1998), “Development of a service guarantee model”, Asia Pacific Journal of Management, Vol. 15 No. 1, pp. 84-102.Wirtz, J., Kum, D. and Lee, K. (2000), “Should a firm with a reputation for outstanding service quality offer a service guarantee?”, Journal of Services Marketing, Vol. 14 No. 6, pp. 502-12.

Further readingWirtz, J. (1996), “Development of a model on the impacts of service guarantees”, International Research Seminar in Service Management, pp. 748-766.

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About the authorsRod McColl has more than 25 years of academic experience in Australia, Asia, and France, where he is Professor in Service Marketing and Director of Research at ESC Rennes School of Business. He has a Doctorate in Education, Master’s degree in Business (Research) and a Bachelor’s degree in Marketing. Over the past 20 years he has completed more than 300 marketing consulting studies for organizations across a broad range of service industries. Rod is a co-author with Philip Kotler of Marketing in Australia (2nd ed.), presently Australia’s largest selling marketing text. He is also lead

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author of Services Marketing: A Managerial Perspective, published by McGraw-Hill. Peer-reviewed articles have appeared in the following journals: Journal of Customer Satisfaction/Dissatisfaction and Complaint Behaviour, Total Quality Management, Journal of Strategic Marketing, Journal of Product & Brand Management, Journal of Brand Management and the Journal of Euromarketing. Rod McColl is the corresponding author and can be contacted at: rod.mccoll@esc-rennes.fr

Jan Mattsson is Chair in Management (since 1996) at the Department of Communication, Business and Information Technology (CBIT), Roskilde University, Roskilde, Denmark. He has held prior permanent/visiting appointments as professor in Sweden, Norway, Finland, New Zealand and Australia since 1990. Dr Mattsson serves on the editorial boards of The Journal of Marketing Channels, The Journal of Euro-marketing, The Journal of Business-to- Business Marketing, The International Journal of Service Industry Management, The Service Industries Journal, European Journal of Marketing, International Journal of Internet Marketing and Advertising and Asia-Pacific Journal of Marketing and Logistics and as ad hoc reviewer for the Journal of Retailing and Consumer Services and The Italian Journal of Food Science. He has recently co-edited special issues on ethics in E-commerce for International Journal of Internet Marketing and Advertising and in services for The Services Industries Journal.

Executive summary and implications for managers and executivesThis summary has been provided to allow managers and executives a rapid appreciation of the content of the article. Those with a particular interest in the topic covered may then read the article in toto to take advantage of the more comprehensive description of the research undertaken and its results to get the full benefit of the material present.

If we do not sell your house you do not pay us. That is one sort of simple service guarantee that a real estate company is likely to provide. Typical others include a handful of dollars, euros or pounds if your out-of-order phone is not fixed within the time agreed, a free bag of goodies if your express parcel does not arrive the next day, or a free DVD if you do not like the film you hired from the rental shop.Guarantees, whether with or without conditions attached, which promise a level of service performance are prevalent across many service industries, including retailing, real estate, fast food, airline, telecommunication, transport and leisure as well as professional and financial services and education.The appeal of a service guarantee lies in its potentially broad strategic application. It may serve as a quality instrument for improving firm performance; a marketing device to provide competitive advantage through differentiation and the opportunity to command a price premium; a customer service tool to improve levels of satisfaction and increase the number of legitimate complaints; or a combination of all of these.Unquestionably, improving the design and implementation of service guarantees would enhance their effectiveness. A framework resulting from a previous study of companies with service guarantee experience sets out five distinct steps for the successful design and implementation of a service guarantee: Step 1: analysis of market and internal factors; Step 2: service quality signaling; Step 3: guarantee design; Step 4: implementation and communication; and Step 5: performance analysis.However, the actual process companies use to design and implement a service guarantee remains obscure. In “Common mistakes in designing and implementing service guarantees” Rod McColl and Jan Mattsson sample Australian service firms to ascertain: “To what extent do companies actually follow these implementation steps and their accompanying guidelines?” They reveal a number of common errors, indicating that managers should think carefully about the design and implementation of service guarantees in order to maximize customer and firm outcome. Variances between theory and practice include inadequate or non-existent prelaunch market research;

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ambiguous definition of the role of the guarantee; inadequate market testing of alternative guarantee promises; a lack of consultation with key functional managers during development; a lack of CEO commitment; ambiguous assignment of responsibility for ongoing management of the guarantee; and an absence of performance evaluation.Regardless of its type, a strong guarantee should be easy to understand and communicate, heavily promoted, simple and obvious, meaningful to customers, easy to invoke, fast to collect on, and credible. Where possible it should also specify the payout, avoid complex or legalistic language, and allow activation by the customer. Benefits of a guarantee vary across different services and may be more interesting in situations where the price of the service is high, where an industry has a poor image for quality, and where businesses depend on repeat purchases. Customer circumstances that provide fertile ground for service guarantees include markets where word-of-mouth is particularly important, where the customer’s expertise is low, and where consequences of service failure are high.Service guarantees also provide advantages to well-known and reputable companies by increasing expected quality and reducing perceived risks. They therefore seem to perform differently, depending upon the nature of the service, the competitive environment of that sector, and consumer purchasing behavior. When developing the guarantee, before its introduction, an organization should research thoroughly and consider carefully all external market forces, for example by reviewing industry standards, likely response by competitors, and attitudes of various customer segments, together with any possible internal effects on management, contact staff, and operations personnel. Designing the specifics of a service guarantee presents many challenges. For example, no clear guidelines exist for determining the right level of compensation.The study found that the Australian managers envisaged that beyond providing quality signals their guarantee would deliver marketing-, quality-, and customer service-related benefits to their organizations. However, the service guarantee often began life as a marketing device and shifted over time toward a change management tool monitored by a cross-functional team responsible to the HRM manager.An outstanding example of an effective guarantee implementation process operated at an insurance company in the form of as a customer charter which replaced the former quality system. The charter itself is a dynamic document, relying on continuous market data from customers and staff to inform new charter promises. This tool appears to offer benefits over traditional service guarantees by allowing companies to add new promises easily and publicly report audited performance scores.The non-performance of marketing research by most companies in the pre- and post-launch phases of the guarantee implementation process was surprising. These critical stages appear to have been neglected, creating difficulty for managers in both designing strategic service guarantees and later evaluating their effectiveness.