1) The use of service guarantees has grown in popularity over the past decade as more service firms offer them to attract customers. 2) Little empirical research has examined how exactly guarantees impact consumer evaluations and under what conditions guarantees are most effective. 3) The study aims to test the impact of guarantees on consumer evaluations under varying conditions of perceived service quality variance and information about the firm's quality. It is predicted that guarantees will have a more positive impact when there is greater perceived risk from quality variance.

1. The effect of guarantees on consumers’ evaluation of services
The use of service guarantees or warranties by service firms in the USA has
grown rapidly over the past decade (Hart, 1993a). Although retailers as far
back as the 1880s have offered guarantees to customers (e.g. Wanamaker’s
department stores, Montgomery Ward; Hart, 1993a), it is only recently that
service guarantees have enjoyed wider popularity as a marketing tool.
Furthermore, only lately have professional service firms such as consulting
companies, law firms, and educational institutions, like the Los Angeles
Unified School District started offering guarantees (Armstrong and Smith,
1991). Two of the most celebrated success stories of service guarantee
implementation are the cases of Hampton Inn, which offers an unconditional
satisfaction guarantee, and Delta Dental Plan, a provider of dental insurance,
which guarantees several aspects of its service (Hart, 1988; Raffio, 1992).
Both firms have had impressive results from offering a guarantee. Hampton
Inn estimates that in 1991 it had an $18 million revenue increase attributable
to the guarantee and Delta Dental’s account retention rate rose from 97
percent to 99 percent, an increase worth $19 million annually (Hart, 1993a).
Interest in guarantees has been spurred by these success stories as well as
firms’ heightened awareness of the need to provide salient quality cues to
consumers in the marketplace. Marketing managers recognize that the
quality of some services is not easily observed or evaluated. For example,
many services are thought to be especially difficult to evaluate because of
their intangibility and their tendency to consist of relatively more credence
properties than do most goods (Darby and Karni, 1973; Zeithaml and Bitner,
1996). This can lead to difficulty for the consumer when choosing among
multiple service providers as well as when forming post-purchase
evaluations in order to make repurchase decisions. When purchase quality is
difficult to judge, purchases are perceived as risky. In such cases, consumers
often look to salient cues in the service environment to help form their
expectations about a service firm and reduce perceived purchase risk (cf.
Bitner, 1992). Both intrinsic cues (i.e. aspects of a product that cannot be
changed without changing the nature of the product such as the taste of a
beverage) and extrinsic cues (i.e. those that can be changed without
changing the product such as price and guarantees) can affect consumers’
perceptions of product quality (Olson and Jacoby, 1972). However, it has
been suggested that consumers will depend more on extrinsic cues than on
intrinsic ones when the latter requires more time and effort than the
362 THE JOURNAL OF SERVICES MARKETING, VOL. 12 NO. 5 1998, pp. 362-378 © MCB UNIVERSITY PRESS, 0887-6045
The effect of guarantees on
consumers’ evaluation of
services
Amy L. Ostrom
Assistant Professor of Marketing, Department of Marketing, Arizona
State University, Tempe, Arizona, USA
Dawn Iacobucci
Professor of Marketing, Kellogg Graduate School of Management,
Northwestern University, Evanston, Illinois, USA
An executive summary for
managers and executives
can be found at the end of
this article
This paper is based on the first author’s dissertation. The authors would like to thank
Mary Jo Bitner and Robert Roundtree for their helpful comments and the National
Science Foundation for research support CNSF grant #SES-9023445.
Growing use of service
warranties
Need to provide salient
quality cues

2. consumer perceives to be worthwhile, or when intrinsic cues are not
available as is the case in initial purchase situations for services (Zeithaml,
1988). In these situations, consumers must rely on brand name, price, service
guarantees or other extrinsic cues to form their judgments. These cues
become the basis for consumers’ expectations of what will transpire in a
service encounter. Research in the areas of consumer satisfaction and service
quality has demonstrated the important role that expectations play in
influencing judgments of quality and satisfaction both directly and indirectly
through the process of disconfirmation (Oliver, 1997; Parasuraman et al.,
1985; see Iacobucci et al., 1996 for a review). Therefore, it is important for
firms to understand how various cues may affect consumers’ pre-purchase
expectations or evaluations.
Even with the dramatic increase in the offering of guarantees, considerably
less research has been done on guarantees than on other extrinsic cues (e.g.
price, brand name). Though Hampton Inn’s and Delta Dental’s success with
their guarantee has been described in several managerial pieces (Hart,
1993a; Raffio, 1992), little empirical research exists that examines why
these guarantees were so effective and how these types of service guarantees
impact consumers’ responses to the companies offering them. Hence, there
are a number of basic questions concerning guarantees that require further
research such as: “Under what conditions are guarantees likely to influence
evaluations?” and “How do guarantees and other cues interact to affect
consumer judgments?” The goal of this research is to identify the conditions
in which guarantees will be the most useful as well as to suggest the types of
services that may benefit the most from offering a guarantee. After a review
of the research examining warranties for durables and some conceptual work
addressing guarantees for services, several propositions are presented and
empirically tested in the context of two studies aimed at examining the
impact of guarantees on consumers’ evaluations.
Warranty literature
Marketers studying the importance of warranty information to consumers
considering purchasing durables have examined the extent to which
warranties serve as cues to quality and have demonstrated instances in which
warranties are likely to lead to an increase in evaluations (e.g. Boulding and
Kirmani, 1993; Innis and Unnava, 1991; also see Grossman, 1981; Lutz,
1989; Spence, 1977). Also, given that purchases of many durables are
typically sufficiently costly, both in terms of price and search costs, the
concept of risk has played a prominent role in the warranty literature
(Bearden and Shimp, 1982; Erevelles, 1993; Shimp and Bearden, 1982).
Researchers have discussed several types of risk (e.g. performance,
financial, physical, social, and psychological; Jacoby and Kaplan, 1972) that
arise from consumers’ perceptions of the uncertainty of the outcome and
consequences of the outcome they will experience with a product
(Cunningham, 1967). Because warranties have been depicted as a means to
reduce the uncertainty experienced by the consumer and the negative
consequences that the consumer faces if a product failure does occur, several
studies have examined how the presence of a warranty influences some of
these types of risk perceived by the consumer (Bearden and Shimp, 1982;
Shimp and Bearden, 1982).
Shimp and Bearden (1982) examined how warranty quality, warrantor
reputation, and price interact to affect consumers’ judgments of the financial
and performance risk associated with new products. They found that high
THE JOURNAL OF SERVICES MARKETING, VOL. 12 NO. 5 1998 363
Basic questions
concerning guarantees
Concept of risk
Means to reduce
uncertainty

3. warranty quality led to less perceived financial risk, but moderate warranty
quality was no different from a poor or nonexistent warranty. Also, though
these cues did influence perceived financial risk, none of them (warranty
quality, warrantor reputation, or price) significantly lessened the perceptions
of performance risk. That is, consumers were no more confident that the
product would work but they realized they would be financially
compensated if the product failed.
Risk also played a prominent role in Bearden and Shimp’s (1982)
investigation of the effect of warranty quality, warrantor reputation, and
price on risk perceptions and consumers’ evaluative judgments. In their
study, price appeared to act as a risk enhancer, whereas warrantor reputation
and warranty information appeared to be risk reducers. Erevelles (1993)
found similar results examining warranties for tennis rackets. Using
structural equation modeling, both Bearden and Shimp (1982) and Erevelles
(1993) provide evidence that warranties only affect consumer attitudes and
quality judgments indirectly through risk, thus once again suggesting a
fundamental relationship between warranties and risk.
Finally, Innis and Unnava (1991) found a significant interaction between
warranty quality and brand name, where warranty quality enhanced product
evaluations for a new brand but not for an established brand. They explained
their results in terms of risk. They argued that the established brand name
has the ability to serve as a risk-reducer for the consumer and, therefore,
when the consumer already has the brand name as a cue to quality, warranty
information has less of an impact on consumer evaluations. Without brand
information, a warranty reduces uncertainty thereby leading to more
favorable evaluations.
Service guarantees
While the previously discussed research investigated warranties for durables,
there also has been some initial work that has examined guarantees for
services (Hart, 1988; 1993a; 1993b; Wirtz, 1998). Much of the work
concerning service guarantees has focused on the benefits that offering a
guarantee can have for the internal operations of a firm. For example, it has
been suggested that offering a guarantee requires a customer orientation
because it is necessary to understand what is important to the customer in
order to determine what to guarantee (Hart, 1988). It has also been argued
that a guarantee leads to greater customer feedback and aids the firm in
identifying failure points in the service delivery process (Hart, 1988; 1993a).
Rather than focusing on these internal organizational benefits, here, we are
interested in the effects that a guarantee has on potential customers’
perception of the firm offering a guarantee.
Given that services are characterized as intangible (Zeithaml and Bitner,
1996), research has suggested that the quality of information available about
services is diminished relative to goods, thereby leading to an increase in
perceived risk (Guseman, 1981; Murray and Schlacter, 1990). It could be
argued that the increase in perceived risk would lead to an increase in the
importance of salient cues such as guarantees that might be available to a
consumer. Thus, guarantees may be all the more important in the service
sector. For example, in exploratory work examining five service firms in
different industries, Wirtz (1998) found evidence that firms that were the
first in their industry to offer a guarantee, which would increase the
likelihood of the guarantee being salient, enjoyed greater benefits in terms of
attracting new customers.
364 THE JOURNAL OF SERVICES MARKETING, VOL. 12 NO. 5 1998
Risk enhancers and
reducers
Benefits of offering a
guarantee

4. Hart (1993b) describes a conceptual and managerial framework for
guarantee implementation developed by examining how service guarantees
have been used in practice and the characteristics of the firms that have been
successful using them. He argues that the potential for a guarantee to be
beneficial to a firm is determined by the market’s perception of firm quality
(e.g. a strong, positive reputation may provide an implicit guarantee negating
the need for an explicit one) and the guarantee potential in the market (Hart,
1993b). The guarantee potential in the market is thought to be determined by
the level of quality in the industry (e.g. a guarantee can help a firm stand out
in an industry known for poor quality) and the purchase risk to the consumer
(Hart, 1993b). Consistent with findings from the warranty literature
concerning the warranty-risk relationship, Hart suggests that the usefulness
of a service guarantee for a firm depends on the purchase risk experienced
by the consumer which may be influenced by the price of the service, the
ego involvement of the consumer, the customer’s knowledge of the service,
the impact of failure on the customers’ customers, the time required, and the
tangibility of the service (Hart, 1993b). All of these affect either a
consumer’s perceived uncertainty concerning what will happen during a
service encounter or the subsequent consequences that the consumer would
face given a negative outcome.
Although service guarantees have been discussed conceptually in the
literature, little empirical work has been done testing their effectiveness. In
the next section, a series of propositions are offered describing the impact
that guarantees have on consumers’ pre-purchase evaluations.
Service guarantee propositions
Using the previous empirical research conducted in the area of warranties
and the additional conceptual work done in the area of service guarantees as
a basis, the following propositions are offered that highlight the effect of
guarantees at the pre-purchase point in the evaluation process. The literature
discussed earlier suggests that warranties for durables can influence
consumers’ evaluations and should lead to more positive evaluations. It is
reasonable to expect that this would also be true for guarantees for services.
A baseline prediction is that:
P1: Pre-purchase evaluations of a service firm will be more positive when it
offers a guarantee than when it does not.
One of the key aspects of services that has been cited is the tendency for
service performance to be more heterogeneous or that there is more variance
in the quality of service provided (Iacobucci, 1992; Zeithaml and Bitner,
1996; Zeithaml et al., 1985). This is thought to be due to the human
component, both employee and customer, that is usually involved in the
process of delivering a service. This increase in the heterogeneity or
variance in service quality would likely increase the consumers’ view of the
risk associated with making a purchase due to the greater uncertainty of
whether the individual will receive high quality service during any particular
service encounter. It has been argued that when the consumer perceives
considerable risk in a purchase situation, a guarantee will be valued by the
consumer and it will lead to more positive evaluative judgments (Hart,
1993a; Innis and Unnava, 1991). This suggests the following:
P2a: When consumers perceive there to be greater variance in service
quality provided, they will view a purchase as being more risky.
THE JOURNAL OF SERVICES MARKETING, VOL. 12 NO. 5 1998 365
Framework for guarantee
implementation
Effectiveness of service
guarantees

5. P2b: When consumers perceive there to be greater variance in service
quality provided, a service guarantee will have a more positive impact
on consumers’ evaluations.
Quality information about the firm as a moderator
While generally a guarantee should be more highly valued when there is
greater risk associated with the purchase category, the usefulness of offering
one for any specific firm within that category or industry should depend on
the other information possessed by the consumer. For example, a guarantee
should have less of an impact when the consumer has more direct
information about the quality level of the specific firm’s services he or she is
considering purchasing, such as reputation information from word-of-mouth,
Consumer Reports, or that which is conveyed by a strong brand name (Innis
and Unnava, 1991). This knowledge may reduce the consumer’s uncertainty
about a negative outcome. In addition, as a consumer’s perception of the
quality of a service firm increases, a consumer may believe that the firm
offers an “implicit” guarantee in that it will work to fix any problem that
occurs. This would reduce the impact of a guarantee and the view that a
guarantee is needed to get redress for any service delivery failure that might
occur. Therefore, the following should hold:
P3: When positive quality information is present about a firm, a guarantee
will have less of an impact on consumers’ evaluations.
The two studies that follow test the impact of guarantees on consumers’ pre-
purchase evaluations highlighted in propositions P1-P3.
Study 1
The literature cited previously suggests that guarantees may act as a cue to
quality and help improve consumers’ evaluations. It is argued that the
greatest impact of a guarantee will be observed when consumers perceive
there to be a greater degree of risk in the purchase situation. The goal of
Study 1 is to test propositions P1 and P2a and b.
Method
Subjects. Eighty-three MBA students participated in the study. Each was
asked to make evaluative judgments of a hotel after reading a brief
scenario[1]. Approximately 60 percent of the subjects were male, their
average age was 28, and they had on average 4-5 years of work experience.
The subjects were randomly assigned to the experimental conditions.
Design. A study manipulating variance and guarantee availability was
conducted in a 2 × 2 design. Perceived variance was operationalized by
manipulating the variance in quality of hotels in the hotel industry by
showing subjects a replica of a Consumer Reports[2] rating of hotels across
several dimensions (e.g. general atmosphere, amenities, friendly and
courteous staff). In the high variance condition, six hotels were shown as
differing greatly across the dimensions. In this condition, subjects were also
told “hotels in this category tend to be variable in terms of quality. The
experience an individual has depends on the hotel he or she chooses to stay
at.” In the low variance condition, the Consumer Reports rating showed all
six of the hotels described as having almost the exact same rating (neutral)
on each of the dimensions. Subjects were also told that “hotels in this
category tend to be similar in terms of quality. The experience an individual
has is the same regardless of the hotel he or she chooses to stay at.”
366 THE JOURNAL OF SERVICES MARKETING, VOL. 12 NO. 5 1998
Redress for service
delivery failure
Impact of guarantee

6. Guarantee availability was manipulated by having the hotel either offer a
guarantee or there was no mention of a guarantee. An example of the stimuli
appears in Appendix 1.
Dependent measures. Subjects were asked to evaluate the hotel in terms of
its quality and their expected satisfaction with it each on a single, 7-point
scale. Subjects also completed six items meant to capture consumers’
perceptions of risk[3]. They were asked to indicate the following: “Given the
expense involved, how much risk would be involved with staying at the
hotel?”, “How risky do you feel it would be to stay at the hotel?”, “How sure
are you about the hotel’s ability to perform?”, “Considering the possible
problems with the hotel’s performance, how much risk would you say would
be involved with choosing to stay at the hotel?”, “In your opinion, do you
feel that this hotel would perform as well as similar hotels that you could go
to?,” and “How confident are you of the hotel’s ability to perform as
expected?”. Each item was measured on a 9 point scale.
Results. As a check for the variance manipulation, subjects were asked how
much variability in quality was present in the hotel industry. The
manipulation check for the variance in quality in the industry was significant
(F1,79
=28.73, p < 0.0001). Subjects indicated that there was greater variance
in quality in the industry when they were in the high variance condition (M =
5.29) than when they were in the low variance condition (M = 3.32).
Satisfaction and quality judgments were highly correlated (r = 0.89), so they
were combined into a single composite measure called “evaluation”.
Subjects’ evaluations were higher when a guarantee was present (M = 5.17)
than when one was not offered (M = 3.85) (F1,79
=31.02, p < 0.0001). There
also was a significant guarantee by variance interaction for evaluations (F1,79
= 6.21, p < 0.015). The interaction plotted in Figure 1 indicates that a
guarantee led to an increase in evaluations in both the low variance
condition (Mno guar = 4.22 versus Mguar = 4.95) (F1,79 = 4.68, p < 0.03) and the
high variance condition (Mno guar
= 3.5 versus Mguar
= 5.4) (F1,79
= 32.89, p <
0.0001), but the effect was greater in the high variance condition. There was
no difference in evaluations between the two variance conditions when a
guarantee was present (F1,79 = 1.86, p < 0.18). Evaluations were higher in the
low variance condition than the high variance condition when no guarantee
was present (F1,79 = 4.65, p < 0.03).
Finally, a factor analysis of the risk items revealed only one factor. The items
were combined to form a single measure (Cronbach’s Alpha = 0.89). The
THE JOURNAL OF SERVICES MARKETING, VOL. 12 NO. 5 1998 367
No Guarantee Guarantee
Evaluation
+
–
p<.0001
p<.03
p<.03
Low Variance
High Variance
Figure 1. Study 1: the variance by guarantee availability interaction (p < 0.015)
Consumers’ perceptions
of risk
Satisfaction related to
quality judgments

7. main effect for variance was, at best, marginally significant (F1,78
= 2.29, p <
0.13). However, the means were in the right direction. There was more
perceived risk in the high variance condition (M = 4.62) than the low
variance condition (M = 4.22). There was a significant main effect for
guarantee availability (F1,78
= 9.77, p < 0.01). There was less perceived risk
when a guarantee was offered (M = 4.02) than when one was not offered (M
= 4.85). The interaction was not significant.
Discussion of Study 1
As predicted in P1, these findings suggest that when no specific information
is available about a brand or service firm, a service guarantee is a helpful
positive cue in that it leads to more positive evaluations. Consistent with 2a,
there was a marginally significant main effect for variance on the risk
dependent measure. The higher variance condition was perceived as more
risky than the lower variance condition. In addition, the results show that
guarantees improved evaluations for an industry characterized by low or
high variance in quality. However, as predicted in P2b, there was a greater
relative impact of a service guarantee in the high variance condition. This
finding is consistent with the view that variance in quality, or uncertainty
perceived by consumers, increases perceptions of risk. It is in this condition
when a service guarantee has the greatest influence on consumers’
judgments about a service firm.
In Study 1, the results indicate that guarantees lead to more positive
evaluations and have a greater impact when there is more perceived variance
in the service industry. Study 2 examines the same relationship investigated
in Study 1 but does so by examining how the relationship is affected by the
presence of other general information about the quality level of the service
firm that is being evaluated. The argument could be made that a guarantee is
still useful because of the heterogeneity aspect of services and the ability of
a guarantee to protect the consumer against the financial cost of a service
delivery failure or to make certain that he or she will be compensated if a
service delivery failure does occur. To test this, Study 2 was conducted.
Study 2
Method
Subjects. Eighty MBA students were asked to make evaluative judgments
after reading a scenario describing a situation where they were faced with a
service purchase decision involving the selection of a hotel. The subjects
were drawn from the same population as in Study 1. The respondents were
randomly assigned to the experimental conditions.
Design. Study 2 examines how the quality level of a firm and amount of
perceived variance in service quality previously experienced influence the
impact that a guarantee has on consumers’ evaluation of a firm in a 2 × 2 × 2
design. Quality level (here being thought of as the amount of service and
amenities expected) was manipulated by having subjects consider a hotel
that was either a luxury hotel or a budget hotel. Variance was manipulated
by emphasizing low or high variance in the quality of service previously
experienced by subjects. Participants were told to imagine either that they
had had both good and bad experiences with similar hotels (in the high
variance condition) or that all of their experiences with this type of hotel had
been similar (in the low variance condition). Guarantee availability was
manipulated by stating that the hotel had a satisfaction guarantee (stating if
368 THE JOURNAL OF SERVICES MARKETING, VOL. 12 NO. 5 1998
Helpful positive cue
More positive evaluations
Quality level

8. they were unhappy with their stay for any reason, their night’s stay was free)
or not.
Dependent measures. The same measures used in Study 1 were administered
in Study 2. Subjects were asked to evaluate the hotel in terms of its quality
and their expected satisfaction with it as well as complete the items
measuring risk.
Results. Responses for quality and satisfaction were highly correlated (r =
0.81) and were therefore combined into a single index measure called
evaluation. Subjects’ evaluations were more positive when there was a
guarantee present (M = 5.32) than when one was not offered (M = 4.77) (F1,72
= 5.88, p < 0.02) and for a luxury (M = 5.59) versus a budget hotel (M = 4.40)
(F1,72 = 15.17, p < 0.0002). There was a marginally significant main effect for
variance in past experience (F1,72
= 3.12, p < 0.08): evaluations were
somewhat higher when variance in past experience had been low (M = 5.41)
versus high (M = 4.80). These main effects were qualified by a significant
interaction between quality level of the hotel and guarantee availability (F1,72
= 8.69, p < 0.004). Figure 2 contains the plot of this interaction; simple
effects revealed that when no guarantee was present, evaluations were higher
when the hotel being evaluated was a luxury (M = 5.62) versus a budget hotel
(M = 3.88) (F1,72
= 23.62, p < 0.0001). However, there was no difference in
evaluations when a guarantee was present (Mluxury
= 5.57 versus Mbudget
=
4.96) (F1,72
= 0.44, p < 0.5). When the hotel was described as a luxury hotel,
the presence of a guarantee did not have an impact on evaluations (F1,72 =
0.15, p < 0.7) whereas when the hotel was described as a budget hotel, a
guarantee led to more positive evaluations (F1,72 = 13.42, p < 0.0005).
A factor analysis of the risk items revealed only one factor. Again, the items
were combined to form one index measure called risk (Cronbach’s Alpha =
0.85). For risk, the main effect for variance was not significant (F1,72 = 1.32,
p < 0.26). However, there was a marginally significant guarantee by quality-
level interaction (F1,72 = 2.75, p < 0.10). An examination of the contrasts
revealed that a guarantee led to lower perceptions of risk in the budget hotel
condition (Mguar = 3.48 versus Mno guar = 4.37) (F1,72 = 4.85, p < 0.03).
Discussion of study 2
In contrast to predictions articulated in P2a and b, variance in quality
previously experienced by subjects had little impact on subjects’ perceptions
of risk; perhaps it was overwhelmed by the simpler, distinct, quality (budget,
THE JOURNAL OF SERVICES MARKETING, VOL. 12 NO. 5 1998 369
No Guarantee Guarantee
Evaluation +
–
p<.0005
p<.0001
Luxury
Budget
Figure 2. Study 2: the quality level by guarantee availability interaction
(p < 0.004)
Responses for quality
and satisfaction
Factor analysis of risk
items

9. luxury) information in the subjects’ judgments. That is, it is possible that the
manipulation simply was not strong enough, compared to the quality level
manipulation. This possibility is somewhat supported by the fact that there
was only a marginally significant main effect of variance for evaluations in
Study 2.
Consistent with P3, the results of Study 2 show that the presence of a
guarantee led to more positive evaluations for a budget hotel, but had no
impact for a luxury hotel. This suggests the ability of other quality
information to moderate the impact of guarantees on consumers’
evaluations. These findings are consistent with the idea that being a luxury
hotel already provides quality information that is sufficient for consumers.
The results of Study 2 do provide some evidence for the importance of other
information possessed by the consumer. It is important to note that consumer
knowledge of the quality class of hotel, luxury versus budget, had a
pronounced impact on evaluations even when the information was not
specific to the particular luxury or budget hotel being evaluated (i.e. it could
still be a relatively good or bad luxury or budget hotel). This suggests that
more general, positive quality class information (e.g. a four star resort versus
a budget hotel) may be sufficient to reduce consumers’ perceptions of risk
and reduce the usefulness of a guarantee at this pre-purchase stage in the
evaluation process.
Managerial implications and recommendations
This research empirically examined the impact of service guarantees on
consumers’ pre-purchase evaluations. Two studies were conducted to test
several propositions regarding the effect of guarantees on consumer
judgments. The ability of guarantees to increase pre-purchase evaluations
(P1) was tested in both studies and the results indicate that guarantees can
increase evaluations, but they do so only under certain conditions which are
highlighted in P2b and P3.
P2b argues that guarantees will have a greater impact on evaluations under
conditions where there is greater variance in service quality. Support for the
notion that greater variance in service quality leads to greater perceived risk
and that this is also the situation that leads to the greatest impact of a
guarantee is most clearly demonstrated in Study 1. This is consistent with
Hart’s (1988) suggestion that guarantees are most useful when consumers
perceive the purchase situation to have a higher degree of risk. Guarantees
seem to have the ability to reduce uncertainty associated with a negative
outcome or the consequences a consumer is likely to face if a service
delivery failure does occur.
The impact of a guarantee when other quality information is salient (P3) was
investigated in Study 2. The findings are consistent with other research that
demonstrates that a warranty only increases evaluations in the absence of
other quality information, such as a brand name (e.g. Innis and Unnava,
1991). These results expand that research by showing that not only specific
brand or service firm information but also information about the general
product class (e.g. luxury versus budget hotels) can reduce the impact of a
guarantee on evaluations. In general, the findings suggest that as the effect
of consumers’ perceptions of high variance in service quality and
accompanying perceptions of risk are reduced by obtaining other
information regarding quality, a guarantee has less of an influence on
consumers’ pre-purchase evaluations and, consequently, may do little to
attract new customers.
370 THE JOURNAL OF SERVICES MARKETING, VOL. 12 NO. 5 1998
No impact for luxury
hotel
Ability to reduce
uncertainty

10. These findings have several implications for the use of guarantees by service
firms. First, the more variance or possibility for heterogeneity in the level of
service quality delivered and the likely perceptions of greater risk, the
greater the potential impact of a guarantee on consumers’ evaluations. There
are several factors such as characteristics of the product (e.g. complexity of
the service, extent of dependence on human labor) and characteristics of the
consumer (e.g. his or her expertise level) that could potentially influence
perceptions of heterogeneity in service quality that exist for a service firm or
within a service industry. Each could be examined to identify a guarantee’s
ability to counteract the effects of perceived quality variability. Second, as
suggested by Hart (1993a), it appears that in situations where a company has
gained a reputation for quality or for being at a higher quality level and
hence, less variability in service quality is perceived by customers, a
guarantee may be of little value in gaining additional customers.
There are several limitations of this research that warrant consideration and
reduce the generalizability of the results. First, only one service context was
examined, hotels, and it is a context in which guarantees have been offered
by actual service firms. It may be the case that the results would differ for
different types of services. Second, competitive effects were not examined.
The impact of a guarantee may differ depending on whether a firm’s
competitors already offer a guarantee versus the situation where offering one
would be a novel occurrence in the industry (Wirtz, 1998). Third, the paper
and pencil nature of the task does not have the same emotional intensity of a
real life service firm choice decision.
Unresolved issues
There are a number of interesting issues still to be addressed in the area of
service guarantees. For example, consistent with prior research, our results
indicate that risk plays a role in determining the effectiveness of a service
guarantee. Prior work has shown that consumers are willing to make
different trade-offs between service attributes (e.g. price, friendliness of
service providers) seemingly on the basis of perceived risk (Ostrom and
Iacobucci, 1995). Hence, it may be interesting to investigate how customers’
perceptions of risk impact their view of the importance of a guarantee in
relation to other service attributes. This also highlights the importance of
understanding the factors that may moderate perceptions of risk. For
example, frequent users of a service, due to their greater experience, may
view a service situation as being characterized by less risk than would an
infrequent or a first time user.
Also, while the focus of this current work is at the pre-purchase stage when
consumers are making purchase decisions among various service providers,
a guarantee’s pre-purchase influence is only one phase in the consumption
process during which a guarantee may impact consumer judgment. Models
of customer satisfaction and service quality suggest that both consumers’
expectations and the disconfirmation of those expectations can impact
consumers’ overall evaluations of a service encounter (Oliver, 1980; see
Iacobucci et al., 1996 for a review). A guarantee might then heighten
dissatisfaction if a firm fails to live up to what is promised in the guarantee.
However, it is also likely that for many consumers, the compensation they
get if they decide to invoke the guarantee may lessen their dissatisfaction
with the service encounter and the service firm.
THE JOURNAL OF SERVICES MARKETING, VOL. 12 NO. 5 1998 371
Implications for service
firms
Frequent or infrequent
users of a service

11. Therefore, one key area for additional research concerns the factors that
affect whether or not a person will invoke a guarantee after a service delivery
failure (Bolton and Drew, 1995; Lewis, 1993). Understanding the factors
which determine guarantee invocation is critical especially given the work
that suggests that people do not often complain even when a service delivery
failure has occurred (Sellers, 1988). Also, the importance of service recovery
as well as its ability to lead to positive outcomes and highly satisfied
customers even after a service delivery failure has been well-documented
(Bitner et al., 1990; Sellers, 1988). Both the disconfirmation of guarantee
and service recovery expectations may influence consumers’ final evaluative
judgments. For example, Halstead et al. (1993) in their study of dissatisfied
carpet purchasers found that customers’ service and warranty expectations,
and in particular the disconfirmation of those expectations, successfully
predicted customers’ ultimate satisfaction. Therefore, we would expect a
guarantee to affect consumers’ overall evaluation of a service or service firm.
However, there is little known about this or the effect invoking a guarantee
has on customers’ subsequent behavior (Bolton and Drew, 1995).
Though “unconditional” satisfaction guarantees (i.e. a guarantee with no
restrictions) have been described as the most powerful type of guarantee (Hart,
1988), there are other types of guarantees that may be offered. It may be the
case that specific guarantees for aspects of a service (e.g. Delta Dental
guarantees that customers will receive a status update or problem resolution
within a single business day or they receive a $50 refund; some restaurants have
guaranteed that lunch would be served in a specific period of time or it was free)
affect consumers’ judgments differently. For example, research has shown that
gender differences exist in terms of the impact that the core and relational
aspects of a service have on evaluations (Iacobucci and Ostrom, 1993). It is
possible that the content of more specific guarantees (i.e. guaranteeing a specific
element of the core of a service versus guaranteeing an interpersonal aspect of
the service such as how the customer will be treated) may impact the extent to
which a guarantee influences the evaluations of men versus women.
Also, it would be interesting to learn more about the impact of a guarantee
within a competitive environment. If other firms within an industry offer
one, how important is it for competitors to follow suit? Another issue to be
addressed is the timing of guarantee introduction. Could the introduction of
a guarantee to a familiar service firm lead consumers to question what had
happened to necessitate offering a guarantee? Additional insight is needed
into how the impact of a guarantee might differ depending on the firm’s
stage in its life cycle at the time of guarantee implementation.
Notes
1. The use of scenarios is based on the role-playing approach that has been used by many
marketing and consumer researchers (e.g. Bitner, 1990; Dabholkar, 1996; Surprenant and
Solomon, 1987). The service selected, hotels, fits well with the knowledge base and
common experiences of MBA students. Role playing has been said to be most successful
when there is congruence between the subjects’ real experiences and those they are asked
to role play as there is here (Dabholkar, 1996).
2. Consumer Reports is a highly regarded, monthly publication that provides consumers
with objective, comparative information regarding competing product and service
offerings within various product categories and industries.
3. Risk has been measured several ways in the literature (see Dowling, 1986 for a review).
Some researchers have measured it by asking people to make both uncertainty of
negative outcome and consequences of negative outcome judgments. Risk is then
calculated as the product of uncertainty and consequences summed across the different
372 THE JOURNAL OF SERVICES MARKETING, VOL. 12 NO. 5 1998
Factors which determine
guarantee invocation
Unconditional
satisfaction guarantees

12. types of risk that have been identified (i.e. physical, psychological, social, performance
and financial). Alternatively, other researchers have measured risk by using a single set of
measures (i.e. Bearden and Shimp, 1982; Shimp and Bearden, 1982) asking subjects to
directly assess the different types of perceived risk, which is the approach taken here. The
six items used to measure risk are a subset of the items proposed by Shimp and Bearden
(1982) to measure financial and performance risk. The items were modified to be
consistent with the hotel scenario.
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Appendix 1
Consumer Reports recently published ratings of several hotels in various parts of the USA.
Table AI is a list of a selection of hotels in the moderately priced category.
The discussion of the results that accompanied the ratings indicated that there was a
“considerable amount of variance in quality for moderately priced hotels within the industry.”
The experience of any individual person varied greatly depending on the particular hotel at
which he or she chose to stay.
Imagine that you need to find a hotel to stay at for an upcoming trip. Hotel J, a hotel in the
moderately priced hotel category that was not rated by Consumer Reports, is one option. Hotel
J offers an unconditional, satisfaction guarantee that states if you are unhappy with your stay
for any reason you will not be charged for your night’s stay.
Appendix 2: Scenario
You are in the market to find a luxury (budget) hotel to stay at on an upcoming business trip.
You have stayed at several luxury (budget) hotels, Hotel A, Hotel B and Hotel C, in the past
374 THE JOURNAL OF SERVICES MARKETING, VOL. 12 NO. 5 1998

14. with some good experiences and some bad experiences (and had similar experiences at all of
them). The most convenient hotel for you to stay at this trip is Hotel X. You have never stayed
at Hotel X before (but they do offer a satisfaction guarantee that says if you are unhappy with
your stay for any reason your night’s stay will be free).
s
THE JOURNAL OF SERVICES MARKETING, VOL. 12 NO. 5 1998 375
Satisfaction
Score
Price
$
0 20 40 60 80 100
Hotel X 59
Hotel Y 60
Hotel Z 60
Hotel A 59
Hotel B 59
Hotel C 61
General
Hotel
Atmosphere
Physical
Conditions of
Rooms
Amenities
(pool, room
service etc.)
Competence
& Friendliness
of Staff
Better Worse
Table AI. Published ratings of six hotels in various parts of the USA

15. Executive summary and implications for managers and executives
Is your service guaranteed?
Ostrom and Iacobucci report that evidence from practice shows how service
guarantees prove effective in stimulating sales. Indeed, the example of
Hampton Inn here reports additional sales of $18 million attributable to the
service guarantee. Despite this evidence, service guarantees are still quite
rare. Why is this and how can the findings here help persuade managers to
adopt guarantees as a practical marketing tool?
Resistance to guarantees
There are various “good” reasons given by managers resisting guarantees
including:
• A guarantee suggests the possibility of service failure – not the message
we want to put across.
• Guarantees are expensive – we can’t afford the time or money needed to
fulfil claims.
• Introducing a guarantee means training staff in resolving claims.
• Having a guarantee will encourage complaints.
• The service is too involved and too subject to problems for a guarantee
to work.
I’m sure you can add a few more reasons to this list. However, Ostrom and
Iacobucci show us that, in many situations, a service guarantee works and
can overcome the problems listed above.
• Customers have more confidence in buying your service (the guarantee
reduces perceptions of risk).
• A guarantee presents an impression of positive customer service.
• Guarantees (especially where competitors don’t have them) assist in
keeping customers loyal.
Managers face the challenge of making the guarantee work rather than
inventing reasons for not having one.
Getting the right guarantee
It’s one thing to say that a service guarantee works and quite another to
decide the nature and scope of the guarantee. Do we provide an
unconditional guarantee? Or should we restrict the guarantee to one or
other aspect of our service? In a fast food delivery service should we
guarantee on delivery time but not provide a guarantee on food quality?
Many service firms go part way towards a general guarantee. We’ve all read
that notice in our hotel room, on a menu or in the shop – “if you are
dissatisfied with any aspect of our service please bring it to the attention of
the management.” Clearly, this isn’t a guarantee since no promise (or
implied promise) of reparation is included. Adding the word “guarantee”
means that the problem will be put right or some form of repayment will be
forthcoming – the customer knows what to expect.
In my view an unconditional guarantee requires staff to focus on customer
needs and service quality instead of applying a formula to the service task. And
it also means that the firm must accept complaints about aspects of the service
376 THE JOURNAL OF SERVICES MARKETING, VOL. 12 NO. 5 1998
This summary has been
provided to allow
managers and executives
a rapid appreciation of
the content of this
article. Those with a
particular interest in the
topic covered may then
read the article in toto to
take advantage of the
more comprehensive
description of the
research undertaken and
its results to get the full
benefit of the material
present

16. not previously experienced. But if you’re unwilling to accept the risks that go
with the word “unconditional” then you can still guarantee restricted aspects
of your service – service time, quality of work done, facilities and so on.
Promoting the guarantee
Some firms seem to have a secret guarantee – indeed some encourage staff
to give reparation or redress without advertising the fact. For some
businesses this makes sense. As Ostrom and Iacobucci find, people expect
nothing less from a luxury hotel and the business gains nothing from
advertising a guarantee, unconditional or otherwise. Indeed, we could argue
that a limited guarantee from an upscale service could prove counter-
productive.
Most service organizations aren’t in this happy position. Offering a service
guarantee provides advantages but only when customers and potential
customers are aware that the guarantee exists.
Advertising copywriters argue that guarantees present a very powerful
message in promotions – among the strongest cues available to the writer.
And the evidence from firms promoting guarantees supports this contention
since they maintain significant uplifts in sales compared to those not running
(or maybe not promoting) a guarantee.
My advice is “if you’ve got it, flaunt it!” Make your guarantee a key feature
of your advertising and promotions.
Implementing the guarantee
When you start down the road to your guarantee it is essential that your
employees know what is expected of them. I was once involved in creating a
direct mail campaign for a mail order company that offered a “no quibble,
unconditional product and service guarantee”. The problem was that
customer service staff weren’t aware of the extent of this guarantee and, as
you’ll understand, they quibbled with customers claiming their reparation!
Collapse of confidence in the company and the end of a successful
promotion (the firm rather foolishly blamed the guarantee rather than
unprepared and unresponsive employees).
To make your guarantee work you must:
• Tell your staff about it
• Explain how they should respond to customers invoking the guarantee
• Make sure front line staff explain the guarantee to customers
• Use the invoking of the guarantee as another means of identifying and
resolving service delivery problems or service breakdowns.
In the final analysis it will be the front line staff who face the problem of
delivering on the promise contained in a guarantee. They must be
“empowered” to respond with the right solution or payment. In a complex or
varied service this means those staff should have the power to make
discretionary judgements about customers’ problems (see Rafiq and Ahmed
in this issue of JSM).
Guarantees – a simple idea with a complicated solution
It’s simple to introduce the service guarantee. It’s pretty easy to tell
customers of the guarantee’s existence. The difficulty lies in giving
THE JOURNAL OF SERVICES MARKETING, VOL. 12 NO. 5 1998 377

17. appropriate training to staff, managing the settlement of claims under the
guarantee and using the guarantee as a level for service quality and
customer service improvements.
Finally, as Ostrom and Iacobucci remark, a guarantee is not a panacea and,
where all the competition has a guarantee, it is actual service quality and
other quality cues that set your firm apart. Where such “guarantee
competition” exists (how many pizza delivery firms don’t give a guarantee
on delivery time?) you need the guarantee but it’s no longer a promotional
benefit just a requirement to compete.
(A précis of the article “The effect of guarantees on consumers’ evaluation
of services.” Supplied by Marketing Consultants for MCB University Press.)
378 THE JOURNAL OF SERVICES MARKETING, VOL. 12 NO. 5 1998