Many service businesses offer compensation after any failure, frequent or rare. Repurchase intentions measure how likely customers say they are to buy again. Imagine your airline is setting its recovery budget for repeated crew shortages, occasional cancellations and weather disruptions. When should your team offer compensation?
Compensation raises repurchase intentions after a recurring failure the company causes, but not after a rare one or one it does not cause.
Data chart
Customers' average agreement that they would fly this airline again and recommend it to a friend, on a scale from 1 (strongly disagree) to 5 (strongly agree).
After a recurring failure the airline caused, customers who got compensation say they are more likely to buy again. After a rare failure it caused, compensation makes no reliable difference.
Study 1 airline scenario, Table 3 (p. 429) and Figure 1a (p. 430). Exact values, no compensation then compensation: recurring failure 1.85 and 2.42; rare failure 2.79 and 2.44. Both groups received an explanation; the rare-failure comparison shows no reliable difference.
Key takeaway
Customers report stronger repurchase intentions when you compensate them for a recurring failure you cause.
The airline and restaurant tests use imagined failures and student samples, and the hotel test is only briefly reported. All measure stated repurchase intentions, not actual repeat purchases, and none compares explaining the cause with giving no explanation.
Source
Grewal, D., Roggeveen, A., & Tsiros, M. (2008). The Effect of Compensation on Repurchase Intentions in Service Recovery. Journal of Retailing, 84(4), 424–434. https://doi.org/10.1016/j.jretai.2008.06.002.