It is said that service guarantees improve the quality of a service. Some researchers also believe that service guarantees have a direct relation to the quality of a service. However, it is opposed by others. Another school of thought states that service guarantees are required when the company wants to authenticate the quality and the value derived from the product. It is said that such guarantees are irrelevant when the service has is of superior quality, and a third source is not required to ensure the quality. The service quality standards are the only factors that change the people’s perceptions about the services. Service guarantees play a secondary role in the formation of perspectives (Hays & Hill, 2006).
However, on the other hand, it is said that service guarantees are needed to reduce the dissatisfaction of the consumers in case of a failure to meet the consumer expectations of service. A product/ service carries a promise with it. If the product/ service fails to fulfill that promise, the consumer is left dissatisfied. In such cases, it is important to retain the consumer and service guarantees are beneficial in doing so. It is said that in the case of products, the replacement of the product would be helpful in eliminating the dissatisfaction factor. However, services are experiential in nature, and their effect cannot be undone. Therefore, service guarantees play their part in the minimization or elimination of the dissatisfaction caused to the consumer. Also, service guarantees pose as a symbol of judgment for the service’s quality. It also helps in building a positive perception of the service in the minds of the consumer and minimizes the risk that consumers face in the consumption of the service (Wu, Liao, Hung, & Ho, 2012).
In the competitive world, companies struggle to differentiate their offerings from that of the competitors. This differentiation is done with an aim to increase the market share for the company, and in turn, increase the profitability derived from the company’s offering. In the book, ‘Marketing communications’, it is stated that service guarantees are used to differentiate the products from the competitors. Other activities used to differentiate the services are membership services and loyalty schemes (McCabe, 2009). Service guarantees have the potential to change the industry's game. However, the condition is that these service guarantees must be a breakthrough of the industry. Such service guarantees put the competitors at a severe disadvantage (Hart, 2015).
This report will further cover the basic understanding of the service industry concept. It will include the extensive discussion of the service guarantees in the hotel industry. Also, it will identify the customer needs and will state the future of service guarantees in service industries.
Service guarantees can also be termed as service recovery. Service is an experience that cannot be undone. And a service guarantee serves to minimize the effect of the experience. It is a promise to the consumer to recompense for the losses that a consumer faces if the service fails to meet the level that it has promised. Service guarantees are adopted by firms as a part of customer-focused strategies. The reason is that these strategies form consumer perceptions. Also, service guarantees with differentiable communication are likely to become a word-of-mouth phenomenon. This, therefore, serves as a marketing strategy for the service-providing company (Johnston & Clark, 2005).
However, there are some situations in that service guarantees may be inappropriate. As mentioned before, one school of thought is firm on the belief that the quality of the service and its consistency is a guarantee in itself. One situation in that offering a service guarantee is not appropriate is when the company already has a reputation and positive perception established among the consumers. In such cases, the service guarantees would serve as an additional cost to the company as tracking the actual and the wrong claims to service dissatisfaction would be difficult. Apart from that, service guarantees are also inappropriate in the case when the quality of the service can be highly impacted by external situations. The reason to not use a service guarantee approach, in this case, is that it could cost the companies more than the net revenue generated from the sale of the services (Lovelock, 2008).
It is said that service guarantees do not have a strong correlation with the quality of a service. Although from the company point of view., the obligation to recompense the customer in case of service failure serves as an obligation to perform well. The quality is maintained. Service guarantees can therefore be classified as tactics for quality management in a services company. It is said that the services guarantees are not a compensation of the performance gaps. They cannot be a substitute to the quality offering of a company. However, they can be used as a communications strategy. It can be used to reinforce and develop the quality perception about the company. Therefore, there is a strong relationship between the service guarantee and the perception of quality (Taylor & Cole , 1999).
Service guarantees form positive perceptions about the company, or at least minimize negative perceptions. It helps in minimizing the negative perception of quality of the others. It is said that negative word-of-mouth affects a company’s perception. It also is a bad impact on a service’s quality. Therefore, the service guarantees are aimed at developing positive perceptions about a service’s quality and negating negative perceptions about the same. The direct relationship with quality does not exist. The relationship exists with the perception of quality (McQuilken, 2010).
Implicit Satisfaction Guarantees
These service guarantees are the ones that are present implicitly. There is no formal statement that the customer will be re-compensated in the case of the service not fulfilling its promise. The example would be that of a restaurant. The restaurant does not explicitly state that they would compensate in the case of bad food. It is also stated that there is a customer protection legislation that implies that the compensation be given in the case of failure to meet promises. However, the issue with this type of service guarantee is that the compensation does not have any defined boundaries. It might be that the restaurant or the company giving the services has defined the compensation in the case of a complaint (Bowie & Buttle, 2013).
Explicit Satisfaction Guarantees
Explicit service guarantees are the opposite of the implicit service guarantees. The performance in this case, is measurable. In the implicit case, the performance failures cannot be determined numerically. For example the rating of one plate of food may be more for one consumer, and lesser for the other. In that case, the quantifications are based on perceptions. In this case, it is a defined quantity. For example some companies state that if the food is not delivered within 30 minutes of ordering, no charge would be taken. In this case, the 30 minutes are a defined quantity whereas; the compensation is free food (Bowie & Buttle, 2013). Dominos in Canada had applied their 30 minutes or free marketing campaign. This is a service guarantee. However, they ended this service guarantee because of the costs to the company. The costs included several lawsuits against the company. Some delivery persons as well as pedestrians had died because of the target to get to the customer within 30 minutes. It now works on the quality guarantee that is the implicit form rather than the explicit guarantee (Snopes.com, 2014).
Unconditional and Conditional Service Guarantee
A service guarantee's power is indirectly proportional to the number of conditions it consists of. It means that the greater the conditions, the less the service guarantee's power of effectiveness on the consumer. In the Harvard Business Review, it was stated that a good service guarantee is unconditional. It is meaningful to the consumer and it is easy. For example, consider the two sentences:
1) A housing inspector's services have a guarantee that all possible problems will be identified except that that is not readily apparent.
2) A housing inspector's services have a guarantee that all possible problems will be identified.
The second sentence is an unconditional service guarantee and has more value when compared to the first service guarantee (Hart, 2015).
It is indicated that service guarantees directly affect the perceived quality of the service. The reason is that it reduces the perceived risk of the consumers. Perceived risk is the uncertainty associated with the purchase decisions. If a service is guaranteed, the customer knows that if the service fails to deliver its promise, the re-compensation will be done. When a hotel has an unconditional service guarantee, the customer perceived risk is reduced. However, discussing on the type of compensation in return for the guarantee in the case of failure, Hung and Ho found that money-back guarantee reduces the perceived risk and increases the perceived quality of the service the most.
The hotel industry shows that service guarantees coming from reputed hotels that have had service quality holds more weightage to the perceived quality and the perceived risk. However, if a hotel with a lower reputation offers a service guarantee, the perceived quality is not impacted greatly (Wu, Liao, Hung, & Ho, 2012).
The Ritz Carlton hotel is a five start hotel chain. Even though it is a luxury hotel, it offers its service guarantee on the price basis. It offers a best rate guarantee to its customers. This service guarantee is offered in Canada and the USA. It is a conditional service guarantee that is offered. The main statement is that if one finds a more inexpensive rate at Ritz Carlton, they would be given a 25% discount on the rate that has been discovered. However, the conditions are stated afterward. First of all, the time concern. It is said that the finding must be made within 24 hours of reservations. One other condition is that the hotel should be the same, the room type must be the same, and the reservation dates must be the same (Ritz Carlton, 2015). The 25% conditional discount carries the cons that come with the conditional service guarantee. Since conditional service guarantees are not as effective as unconditional guarantees, it would not have a very large impact on the perception of the quality of the service. Also, the service guarantee is based on the price point on the same hotel that does not differentiate it directly from the external competitors. This shows that the hotel is showing that the hotel would not charge more than the rate that is prevalent. There is no location restriction given for the hotel and the hotel's prices can be compared to the prices of other Ritz-Carlton hotels globally.
The pros of this service guarantee are that the customers would be attracted by this offer. It can be seen through the comparison of the other five star hotels’ service guarantees that the offering given by Ritz Carlton are additional. It is 25% off of the lowest price found. Whereas the others only offer price matching, and no additional discount. This positions Ritz at a competitive advantage in terms of service guarantees. Also, it forms the perception that Ritz delivers the same value to its customers at the same price and that the global quality and prices are the same. Since the condition is based on the same hotel, bedroom, and time period, it is inferred that Ritz wants to communicate that customers can derive the same value from Ritz anywhere in the world.
The Peninsula Hotel is located in various locations internationally. In Canada, it is near the Niagara falls and is called the Peninsula Inn. In other places, this hotel is named differently. In Chicago, the hotel's name is matched with the same. It is called Peninsula Chicago. In Chicago, the Best price guarantee comes with a $50 coupon and the price matching is done. The terms and conditions of this best price guarantee are that the claim must be done within 24 hours of the reservation. It is also stated in the terms and conditions that the $50 coupon can be used with an expense on Hotel or airfare of more than $100 excluding taxes and fees (Expedia.com, 2015).
The con of this is that through the best price guarantee, the hotel would market its services on the price basis, however, it does not mean that the customer would be attracted after the conditions have been disclosed. An analysis of the situation is that the company states that the coupon can be utilized under certain conditions. This statement shows that the hotel itself is unsure and does not guarantee completely that the coupon cannot be won by anyone. It is putting conditions on after the re-compensation has been made that weakens the company’s guarantee. The proof this is that the people will be attracted by the statement of the best price guarantee (Hotels.com, 2015).
The hotel RIU Palace Peninsula offers a best price guarantee. All the hotels that have been discussed till now are offering best price guarantees. It can be gauged that in the five star hotel category, the hotels that do not target executives, but families, try to create a competitive advantage through their price guarantees. It is states on the RIU website that in case anyone finds a cheaper alternative to the hotel, RIU will match the price and offer a further 10% discount on the matched price as a compensation. Other methods of compensation are through the transference of RIU points that can be utilized at RIU. In this case also, the 24 hours guarantee is there. The conditions include that the reservations be made from the RIU website or call to the RIU hotel. Also, the reservation should be in the same hotel and the same type of room. This statement does not gather a competition from other hotels, but from the hotel itself. If someone finds a same category room in RIU hotel Peninsula, being given at a more discounted price, they would be given the service guarantee. This service guarantee shows that the hotel policies are robust and that the hotel management would not discriminate and charge high prices, even in the times when the demand for the hotels are high. This means that during Christmas, everyone staying at the hotel in the same type of room would be paying the same amount. It shows that the pricing system is not based on the level of demand. Other conditions include the price being in the same currency and complete hotel stay. Partial hotel stays would not be awarded the discount or the credit points (RIU Hotel, 2015).
The pros are that the hotel communicates its consistent policy through this service guarantee. It shows that the hotel services would not decline in quality because of high demand. The cons are that the service guarantee offered does not compete with other hotel prices.
In Dubai, Ritz-Carlton markets its three steps of service that is termed as their gold standards (Ritz Carlton Dubai, 2015). It can be observed that the Dubai division of Ritz-Carlton promotes itself on the basis of luxury. The services offered are far more luxurious than the services offered in the Canada and USA Ritz Carlton (Ritz Carlton Dubai, 2015). The marketing basis of the hotel in USA and Canada is not on this basis. In the Canada and USA hotels, the service guarantees are offered to ensure that the hotel does not discriminate on the basis of price. It offers the same price to the customers whether they book one day before the actual reservation date or one month before. Furthermore, there are Spa packages for USA and Canada that state the prices that are offered (Ritz Carlton En, 2015). In Dubai, the spa is termed as luxury and no prices are mentioned. This shows that the main concern for rice guarantees is in USA and Canada; and quality service guarantee in Dubai.
In Beijing, China, the Ritz-Carlton Hotel does not have any statement of price guarantees. However, the hotel does have reward points that can be utilized in the reservation. It was stated on the website that the Ritz-Carlton is a luxurious destiny for those who want to visit and experience the city of Beijing. The marketing is based on the place and not the service guarantees. It offers membership in its spa center. However, no prices are mentioned as they were in the USA and Canada offerings.
Ritz-Carlton in Saudi Arabia is suited according to the culture prevalent there. It has been stated on their website that the hotel requires that all those who enter are dressed in either traditional garments or full covered attire. It is explicitly mentioned that the sleeveless tops and shorts are not allowed within the hotel premises. The dress code is mentioned in every website page of the Riyadh Ritz-Carlton, emphasizing that the Saudi culture be followed. There are no service guarantees offered by the Riyadh hotel (Ritz Carlton Riyadh, 2015).
This differentiation in the services and the adaptation of different requirements by different cultures show that the hotel is globalized. However, for USA and Canada, the globalization factor is nullified by the service guarantee.
It is recommended that the five star hotels cannot compete against each other on the price basis. The reason is that this price based competition will lower the perception of the price. However, out of the three hotels, Ritz Carlton in Canada offers the highest amount of recommendation. Peninsula Inn just promises to match the price and give a $50 voucher. The hotel RIU offers a 10% compensation on the matched price. It is recommended that the hotels practice a service guarantee strategy that differentiates it from the competition directly. The hotels could offer that the speed of the delivery in the hotel would be very quick like dominos. It should quantify the guarantee so that the compensation can be defined and has more impact on the consumers as compared to unqualified service guarantees. Hotels may also form a service guarantee on the quality basis rather than the price basis. However, quality cannot be quantified. So, the quality service guarantee can b kept implicit rather than explicit. As mentioned before, the time basis can be quantified apart from the price. The service guarantee can be formed on the basis that the service would be delivered within 30 minutes of the said time. It would show that the hotel would not be overcrowded in holidays and the people would not have to wait for the fulfillment of their requirements in holiday times.
Furthermore, guarantees cannot be aimed directly at the competition. The reason that has been gauged is that if the service guarantee is faced by the competition and the competitor fulfills the same, the hotel would have to face a lot of consequences. Also, the reputation of the hotel would be damaged because the credibility of its service guarantees would decline.
The service guarantees are present to make sure that the customer needs and requirements are met keeping in view the firm's promise of offering. It can be seen that the employee behavior is modified according to the service guarantee. They make sure that the service guarantee's credibility remains. From the consumer perspective, it ensures that the customer perceives the service as superior and credible enough to keep its promise (Shahril, 2012).
From the discussion, it can be analyzed that the customer needs differ for different locations. The five star hotels have been made flexible to adapt to the culture and the mindsets of the people in that the hotel is operational. All three of the hotels offered the best price guarantee and were trying to communicate that the hotel's quality is consistent worldwide. This is an important factor from the customer needs perspectives. This shows that the target of these five star hotels are travelers. The hotels are sure on their service and they guarantee that the same service at the same price would be there while traveling to other destinations. This creates a loyal consumer base for the entire hotel chain. Furthermore, the cultural adaptations show that the hotel's structure is globalized and fit according to the needs of the customers in that culture.
Service guarantees have been emerging as powerful tools to establish competitive advantage for other service firms. However, the discussion in this report shows that the service guarantees must be coupled with service quality to get the maximum impact on the customer perceived quality. Service guarantees coupled with service qualities would get the service firm a higher competitive advantage as compared to the case in that the service firm only uses the service guarantee and the service quality is not consistent. This inconsistency decreases the effectiveness of the guarantee (Lee, 2006).
Since much research has been done in this area, it can be predicted that in the future, firms will couple service guarantees with service qualities to overcome competition and make the service guarantees as a differentiation factor to their services. As it has been discussed that breakthrough service guarantees such as the Domino's marketing campaign inculcated with the 30 minute service guarantee serves as a highly differentiable factor. Also, it increases the competitive front of the company, as gauged by the discussion. Therefore, the emerging trend of the usage of service guarantees shows that in the future, it would be used by most service companies and the competition will be based on the greatest offering on the guarantee.
Bowie, D., & Buttle, F. (2013). Hospitality Marketing.
New York: Routledge.
Expedia.com. (2015, May 20). Peninsula Inn
. Retrieved May 21, 2015, from Expedia: http://www.expedia.com/p/info-other/guarantees#1
Hart, C. W. (2015). The Power of Unconditional Service Guarantees
. Retrieved May 20, 2015, from Harvard Business Review: https://hbr.org/1988/07/the-power-of-unconditional-service-guarantees/ar/1
Hays, J., & Hill, A. (2006). Service Guarantee Strength: The key to service quality. Journal of Operations Management , 24
Hotels.com. (2015, May 20). The Peninsula Inn
. Retrieved May 21, 2015, from Hotels.com: http://www.hotels.com/ho216417/the-peninsula-inn-niagara-falls-canada/
Johnston, R., & Clark, G. (2005). Service Operations Management: Improving Service Delivery.
New Delhi: Pearson.
Lee, K. (2006, December 5). Exploring the Impacts of Service Guarantee Startegy in the Casual Restaurant Sector
. Retrieved May 20, 2015, from Scholar Library: http://scholar.lib.vt.edu/theses/available/etd-12132006-211709/unrestricted/KLeeDissertation2006.pdf
Lovelock, C. (2008). Services Marketing People, Technology, Strategy.
New Delhi: Pearson Education.
McCabe, S. (2009). Marketing Communications in Tourism and Hospitality.
McQuilken, L. (2010). The influence of failure severity and employee effort on service recovery in a service guarantee context. Australasian Marketing Journal (AMJ) , 18
Ritz Carlton Dubai. (2015). Gold Standards
. Retrieved May 21, 2015, from Ritz-Carlton: http://www.ritzcarlton.com/en/Corporate/GoldStandards/Default.htm
Ritz Carlton Dubai. (2015). Home
. Retrieved May 21, 2015, from Ritz Carlton: http://www.ritzcarlton.com/en/Properties/DubaiIfc/Default.htm
Ritz Carlton En. (2015). Spa Packages
. Retrieved May 21, 2015, from Ritz Carlton: http://www.ritzcarlton.com/en/Properties/Toronto/Reservations/Packages/Day.htm
Ritz Carlton. (2015). Reservations
. Retrieved May 21, 2015, from Ritz Carlton: http://www.ritzcarlton.com/en/Look-No-Further.htm
Ritz Carlton Riyadh. (2015). Dining
. Retrieved May 21, 2015, from Ritz Carlton: http://www.ritzcarlton.com/en/Properties/Riyadh/Dining/Default.htm
RIU Hotel. (2015). Discover the Hotel
. Retrieved May 21, 2015, from RIU Hotel: http://www.riu.com/en/Paises/mexico/cancun/hotel-riu-palace-peninsula/
Shahril, A. (2012). Impact of Service Guarantee on Empowerment, employee responsiveness in service recovery and service quality. Current Issues in Hospitality and Tourism: Research and Innovations
Snopes.com. (2014, July 21). Domino's
. Retrieved May 19, 2015, from Snopes: http://www.snopes.com/business/consumer/dominos.asp
Taylor, E., & Cole , J. (1999). Understanding Consumer Response to Service Guarantees. The Electricity Journal , 12
Wu, C.-J., Liao, H.-C., Hung, K.-P., & Ho, Y.-H. (2012). Service guarantees in the hotel industry: Their effects on consumer risk and service quality perceptions. International Journal of Hospitality Management , 31