The Effects of Service Guarantees on External and Internal Markets

Despite widespread use, there is a void in our understanding of why, when, and how customers use service guarantees to evaluate service firms. Most previous research has focused on the effects of service guarantees prior to purchase, ignoring their beneficial effects on customer evaluations after the service has been experienced. This paper develops three conceptual frameworks that elaborate the psychological and economic effects of service guarantees on customers, both before and after the service has been experienced. In addition, a fourth framework explains how implementing guarantees enables firms to positively influence employees and improve performance. This rather unique perspective that examines both external (customer) and internal (employee) markets contributes to a more comprehensive understanding of service guarantee effects and provides an effective basis for the design and management of service guarantees. The take-away is encapsulated in an inventory of propositions.