If a customer experiences a service failure and does not complain, the service provider has no knowledge of the problem. And not only does the company have an unhappy customer, it also may be unaware that a problem exists.

A service guarantee is one way a company can encourage customer complaints. And while service guarantees could be viewed as just another marketing ploy, my research has found that a service guarantee can offer many positive benefits.

So what is a service guarantee? A service guarantee is a promise by a company that it will perform at a certain level. If that level is not met, the company promises to compensate the customer in some way. For example, Radisson Hotels Worldwide offers the following guarantee:

Our goal at Radisson is 100 percent guest satisfaction.  If you are not satisfied with something, please let us know. We’ll make it right or you won’t pay.

Before deciding to offer a service guarantee a company must be sure that the level of service quality that it is planning to guarantee is generally achievable. If the company guarantees a level of quality that it is unable to provide, invocations of the guarantee can be financially prohibitive.

Amtrak discovered this when it was forced to discontinue its service guarantee in 2002. Amtrak began offering unsatisfied customers travel vouchers in 2000, with the goal of providing no more than one voucher per 1,000 passengers. Amtrak never attained this level of service satisfaction, and consequently it was forced to discontinue the guarantee program for financial reasons (Arnold, 2002).

When implemented appropriately, service guarantees can improve service quality, customer satisfaction and customer loyalty. A company can achieve these goals through marketing, employee motivation and learning from its mistakes.

Marketing A strong service guarantee can have both a proactive and reactive marketing impact. Proactive marketing reflects the company’s ability to attract new customers. A company can use a service guarantee to proclaim the reliability of their high-quality service and, thus, attract new customers. Reactive marketing reflects a company’s ability to increase customer loyalty and customer satisfaction through customer retention and recovery efforts.

Service guarantees have been shown to increase the number of unhappy customers who complain. Hampton Inns, for example, found that its guarantee program increased the proportion of customers who voiced their dissatisfaction as compared to the customers who did not complain when they were dissatisfied (Rust, Subramanian, & Wells, 1992).

A service guarantee also provides a mechanism for employees to respond to complaints. Effectively resolving customer complaints can result in customers who are even more loyal than those who are consistently satisfied with the company’s service.

In research and work with Radisson Hotels Worldwide, we found that customer satisfaction increased after Radisson began offering its service guarantee (Hays & Hill, 2001a). We also found that the increase in customer satisfaction continued over a period of several years.

Employee motivationCustomer perceptions of quality are shaped by the courtesy, empathy and responsiveness of service employees. Motivated employees with a clear vision of the importance of service quality are more likely to provide customers with a high-quality service experience.

A service guarantee clearly defines the employee’s job as satisfying customers instead of just taking reservations, checking out customers or cleaning rooms. The guarantee makes a powerful statement about the importance of service quality to the company and empowers employees to ensure customer satisfaction.

Our research confirmed that employee motivation and vision was significantly increased when Radisson began offering its service guarantee and that this effect continued over time. Additionally, we found that increased employee motivation and vision had a positive effect on customer satisfaction (Hays & Hill, 2001b).

Learn from mistakesA company needs to learn quickly from its employees and customers to survive in an increasingly competitive service economy. Service guarantees encourage and reward customer complaints, which systematically provide feedback on service quality. A company offering a service guarantee is forced to compensate customers for low-quality service. By “punishing” the company for less-than-quality service, they prompt the company to find the root causes of service problems and to improve service quality.

However, we did not find an increase in employee perceptions of learning after Radisson began offering the service guarantee. I believe that although a service guarantee provides a mechanism for the discovery of service failure and an incentive to learn from those failures, a service guarantee, by itself, does not provide a mechanism for retaining and transferring the knowledge gained. To learn from a service guarantee, a company must implement systems and procedures that not only encourage discovery of service failure but also capture and employ this information.

A service guarantee can enable a company to continuously improve service quality and customer satisfaction by encouraging customers to complain. A service operation should want its customers to complain so that employees can “fix” the problem, make the customer happy, and find and eliminate the root causes of the problem.

About the Author: Julie M. Hays is an assistant professor in the St. Thomas College of Business and teaches courses related to operations management. Her dissertation was based on research supported by a $140,000 grant from National Science Foundation/Transformations to Quality Organizations to study service guarantees.