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Common mistakes in designing and
implementing service guarantees
Rod McColl
ESC Rennes School of Business, Rennes, France, and
Jan Mattsson
Department of Social Sciences, Roskilde University, Roskilde, Denmark, and ESC Rennes School of Business,
Rennes, France
Abstract
Purpose – 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 quality
Paper type Research paper
An executive summary for managers and executive readers can be found at the end of this article.
Introduction
Service 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).
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
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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 issues
Two themes dominate the literature, which spans more than two decades:
1 factors relating to the design of service guarantees; and
2 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 guarantees
Service 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
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
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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-ofmouth 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; KukarKinney and MacKenzie, 2007).
Outcomes of service guarantees
Most 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
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
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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 conclusiondrawing/verification (Miles and Huberman, 1994). Owing to the exploratory nature of the 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).
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Findings
The 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 factors
Mistake 1. Inadequate or non-existent pre-launch market research
In 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:
A guaranteed repair, by a reputable company using guaranteed manufacturers’ parts and
completed on time.
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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 signaling
Mistake 2. Unclear definition of the role of the service guarantee
The 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; and
2 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. Marketingrelated 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.
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 servicerelated perceptions.
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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 design
Mistake 3. Inadequate market testing of alternative guarantee promises
Two key missteps were evident during this phase:
1 a general lack of testing of alternative guarantee types and conditions; and
2 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 moneyback 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 managers
Typically, 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 communication
Mistake 5. Lack of CEO commitment
Successful 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 guarantee
Successful 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 analysis
Mistake 7. Absence of performance evaluation
Unexpectedly, 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 practice
Our 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 research
Our 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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Seminar in Service Management, pp. 748-766.
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About the authors
Rod 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 executives
This 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.