The authors study a service guarantee program implemented by a midpriced chain of franchised hotels in North America. The chain offered the following guarantee: “Our goal at [hotel name] is 100% guest satisfaction. If you are not satisfied with something, please let us know, and we’ll make it right or you won’t pay.” The program was promoted with signage in hotel lobbies and tent-fold cards placed in guest rooms, but no media advertising was used to support the program. The chain offered its franchisees no formal incentive or reward for program participation but reimbursed hotels for any program-related payouts during the first year. Each hotel was required to participate in a training program, complete with training manuals and videotapes, before implementation. The chain tracked invocations of the guarantee to provide information to the individual hotels on the reasons for failure and to determine the financial impact of the guarantee program.
The observation period ranged from January 1998 (the start of the program) to April 1999; implementation decisions and dates varied across hotels during this period. Of the 188 hotels in the chain, 118 hotels implemented the program during these 16 months. The hotel organization commissioned a third-party marketing research firm to collect data through telephone surveys of a random sampling of hotel guests from each hotel at planned intervals. The survey questionnaire included customer service evaluation items that were used to create a scale and background information. The length of time between surveys and the realized sample sizes varied considerably across hotels and time. In total, data included 85,321 observations from 178 hotels across 16 survey administration dates.
Using a novel multisite regression discontinuity design developed for these data, which controls for unobserved heterogeneity among guests and treatments across hotels, the authors compute Bayesian posterior estimates of the varying program effect for each hotel. The results provide new theoretical insights into service guarantee programs effects in the field. On average, the service guarantee was not effective in raising customer service evaluation scores, but the program was significantly more effective at hotels with a better prior service history and an easier-to-serve guest population, both of which are consistent with signaling arguments but do not comport with the incentive argument that guarantees improve actual service quality.
Managers can gain from program continuation policies devised from the results, which are sensitive to both observed and unobserved differences across sites. In addition, the authors use the results to devise policies to reward hotels that exceed site-specific expectations. By controlling for observed and unobserved differences across sites, the authors show that these policies potentially reward even those hotels with negative net program effects, which is useful in reducing the organizational stigma of failure. Finally, the results allow for the identification of sites to be targeted for future program rollout through computation of their odds of succeeding.
Biography
Xinlei (Jack) Chen is Assistant Professor of Marketing in the Sauder School of Business at the University of British Columbia. He received his PhD in Marketing from the University of Minnesota and his BE from Tsinghua University, China. His research interest includes distribution channels, structural modeling of consumer choice and firm strategies (pricing, advertising, and promotion), new empirical industrial organization, and the entertainment industry (movie, video game).
George John is General Mills–Gerot Chair in Marketing in the Carlson School of Management at the University of Minnesota. He received a bachelor’s degree in Aeronautical Engineering from the Indian Institute of Technology, Madras, India; an MBA from the University of Illinois; and a PhD in Marketing from Northwestern University. Previously, he served on the faculty of the Business School at the University of Wisconsin–Madison. His research interests center on interorganizational relationships and marketing in high-technology environments. He is listed by ISI-Web of Science as a highly cited researcher in the Business–Economics category (www.isihighlycited.com).
Julie M. Hays (deceased) earned a BS in Chemical Engineering from the University of Minnesota, an MBA from University of St. Thomas, St. Paul, and a PhD in Operations and Management Science from the University of Minnesota. She was a member of the Decision Sciences Department in the Opus College of Business at St. Thomas University. Her research focused on service quality and service operations management. She passed away in November 2007.
Arthur V. Hill is John and Nancy Lindahl Professor for Excellence in Business Education in the Operations and Management Science Department of the Curtis L. Carlson School of Management at the University of Minnesota. He earned a BA in Mathematics from Indiana University and both an MS in Industrial Administration and a PhD in Management from the Krannert School of Management at Purdue University. He serves (or has served) as the associate editor or editorial board member for Decision Science, Journal of Operations Management, Production and Inventory Management Journal, Production and Operations Management, and Technology & Operations Review. He was editor-in-chief of Journal of Operations Management from 1993 to 1995. His current research focuses on process improvement programs, behavioral issues in supply chain management, and service operations management.
Susan Geurs is chief executive officer of SG Advisors, a hotel consulting company. Previously, Sue worked for Carlson Hotels for 22 years in various management and executive level positions, include serving as regional vice president of franchise operations, overseeing 125 international and domestic hotels, and as vice president of guest services, overseeing field education, corporate services, customer service, quality assurance, and development of standards. Sue has served on the quality assurance committee for the American Hotel and Lodging Association. She received a BA from the University of Minnesota and an MBA from Indiana Weslyan University.
Journal Marketing Research, Volume 46, Number 5, October 2009
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