The Effects of Service Failures and Recovery on Customer Loyalty in E- Services: An Empirical Investigation

Structured Abstract Purpose: Despite having been widely studied in traditional (bricks-and-mortar) services, the effect of service failures and recovery on customer loyalty has received only limited attention in the context of e-services. Taking the default stance that theory from traditional services will find replication in e-services, this study sets out to empirically test the following set of hypotheses in an e-service setting: H1: Service failures result in decreased customer loyalty intentions; H2: Achieving recovery from failures increases customer loyalty intentions; H3: Satisfaction with the way recovery is accomplished increases customer loyalty intentions; H4: Superior recovery results in loyalty intentions which are more favorable than they would be had no failure occurred (service recovery paradox). Methodology: The study was based on an online survey of actual customers of a commercial e-banking service. Findings: H1-H3 were supported, suggesting that: i) the detrimental effects of failures are also present online (H1); and ii) it is possible to achieve effective recovery in e-services leading to customer loyalty, despite the challenging nature of online failures and the reduced degree of human interaction (H2, H3). H4 was only partially supported in that it was found that unless recovery efforts " delight " the customer, they can, at best, restore loyalty to the levels existing prior to the failures. Practical Implications: E-service delivery systems should be designed which a strong failure-prevention mindset and include effective service recovery mechanisms. However, i n general, e-service providers should not look at superior recovery as a substitute for error-free service. Originality/Value: The study provides empirical evidence of the effects of service failure and recovery in the context of online service, an area which has received limited attention to date.