Would compensation be necessary? The importance of service recovery strategy in e-retail delivery problems

Purpose - This study examines the different effects of service recovery strategies on customers' future intentions when online shoppers were experiencing delivery failures. Two types of problem severity are evaluated: wrong-product delivery (issues with the product quality or quantity) and late delivery. This study also investigates the impact of service criticality on the relationship between service recovery strategies and customers' future intentions. Design/methodology/approach - This study employs experimental research with 123 online shoppers as participants. Following the results, a subsequent test is conducted to examine the effect of participants' demographics on future intentions. Finally, the current study elaborates the findings using qualitative research, interviewing both sides impacted by the service failures: online shoppers and e-retail managers. Findings - The findings show that complementing product replacement with monetary compensation is the most effective strategy to improve repurchase intention after a dissatisfaction moment. This effect is indifferent to service criticality and severity. Age influences the participants' repurchase intentions, in which younger people are less tolerant of service failures. In contrast, gender and education level do not provide any differences. To prevent delivery failures, managers participating in this study suggest several best practices regarding systems and infrastructure, people and coordination and collaboration with logistics partners. Research limitations/implications - The study mainly examines a limited type of service and service failures. Further studies are encouraged to expand the variables and scenarios, as well as to employ more distinctive methods, to enrich the findings related to recovery strategy in the e-commerce industry. Practical implications - Given proper compensation, service failure could create momentum for online retailers to boost customer loyalty. This study suggests that managers design the most effective service recovery to win customers back to the business. Originality/value - This paper enriches the literature related to a service recovery strategy, particularly within the online shopping context.