Improving the effectiveness of banks’ service guarantees: SERVICE GUARANTEES

Over the past decade, considerable research attention has been devoted to examining the criteria for developing an effective guarantee. The services literature is now equally replete with theory and empirical evidence on the benefits that firms can derive when well-conceived guarantees are implemented. While recent research highlights the need to continue to identify the situational nuances that influence the impact of any given guarantee, there is a great deal of agreement about the features that an effective guarantee should possess and the types of outcomes that should follow.

Essential features and anticipated benefits of successful guarantees

Essential features

Discussion of the features that have been deemed essential for success precedes consideration of the benefits that should be achieved. In brief, the guarantee must be credible, readily understood by consumers, easy to invoke and collect on, and provide fair compensation in the event that it is triggered. The first criterion stems from the fact that the guarantee is designed to attract prospective buyers as well as to assure existing customers that the quality of future service will be higher. By virtue of the fact that non-customers as well as many existing customers have either a neutral or a negative attitude towards the firm’s service, it is apparent that a change in their beliefs must be accomplished. Previous research indicates that the guarantee must be credible if this is to occur. More concretely, to maintain credibility the guarantee must focus on service elements that are within the provider’s control and the level of service promised must be plausible to the target market.

Secondly, the target audience must comprehend the terms and conditions of the guarantee readily for it to be meaningful and to avoid the appearance of being just another marketing gimmick. Beyond simplicity, the guarantee must pertain to service dimensions that are most important and salient to consumers; or, better still, it could be unconditional. In the latter case, the determination as to whether the guarantee has been triggered is subjective and rests solely with the customer. Finally, the process of invoking the guarantee should not seem daunting, painstaking, confrontational or costly to the customer relative to the compensation that has been promised in the event of a service deficiency. Also, the compensation should be both non-trivial and commensurate to the nature of the service deficiency.

Anticipated benefits

There are two major categories of benefits to be derived from a well-conceived guarantee programme: enhanced corporate operations, and the associated consumer responses.

The mere process of preparing to offer a service guarantee forces the provider to identify service dimensions that are critical to its target market and to re-examine the service delivery system that will soon be responsible for a heightened level of performance. In the process, inefficiencies are likely to be identified and methods of reducing the frequency of service failures developed. As firms confront and address their imperfections, in advance of the launch of the guarantee, they will typically recognise the need for continuous customer and employee feedback. These realisations are likely to produce enduring benefits that speed adaptations to prevent service failures as well as prompt them to improve their service recovery system.

Armed with a more efficient and effective service delivery system, firms can then promote guarantees to attract customers to their higher quality, lower risk offering. Both the guarantee itself and the improved level of service should help to cultivate brand loyalty, stimulate more positive word-of-mouth, and reduce customers’ price sensitivity to the service. Collectively, these factors will increase the number of customers and their lifetime value to the firm. Finally, the guarantee programme invites and ensures increased feedback, which provides more opportunities for service recovery and decreases negative ‘voice’ from dissatisfied customers.

When all goes according to plan, the costs of designing and enacting the service guarantee are dwarfed by the increase in revenues. Moreover, a number of ancillary benefits might be expected to accrue to firms that are fully prepared to deliver the promised level of service. These indirect benefits could include: more productive employees; lower employee turnover; increased two-way flow of information through the organisation; fewer and less costly customer complaints to be handled; and lower liability and legal costs arising from service errors and delays. It is interesting that the substantial body of related literature cautions against promoting a guarantee before the service firm is truly ready, but the implementation issues that must be addressed to achieve the proper state of readiness have received scant research attention to date.

Representative APR 391%

Let's say you want to borrow $100 for two week. Lender can charge you $15 for borrowing $100 for two weeks. You will need to return $115 to the lender at the end of 2 weeks. The cost of the $100 loan is a $15 finance charge and an annual percentage rate of 391 percent. If you decide to roll over the loan for another two weeks, lender can charge you another $15. If you roll-over the loan three times, the finance charge would climb to $60 to borrow the $100.

Implications of Non-payment: Some lenders in our network may automatically roll over your existing loan for another two weeks if you don't pay back the loan on time. Fees for renewing the loan range from lender to lender. Most of the time these fees equal the fees you paid to get the initial payday loan. We ask lenders in our network to follow legal and ethical collection practices set by industry associations and government agencies. Non-payment of a payday loan might negatively effect your credit history.

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