Empirical examination of customers' attitudinal, emotional and behavioural reactions in a service termination context

The press is filled with stories about termination of customer relationships in banking, telecom and other service industries. Yet, there is limited research on firm-initiated service termination and in particular, customers’ reactions to different termination strategies is under-researched. This study employs a 2 (termination strategies: firm-oriented and customer-oriented) * 5 (compensation types: explanation, apology, moderate monetary compensation, high monetary compensation and no compensation) experimental design with US adult consumers in retail banking. In phase 1, the study examines the direct and indirect effects of termination severity on customers’ reactions and the perceived justice theory is used to explain the post termination conceptual framework. The results show that a firm-oriented approach is perceived as more severe and less fair compared with a customer-oriented approach. In addition, termination severity negatively influences perceived justice and positively influences anger, direct complaint, negative WoM and revenge behaviours. The results also demonstrate that anger and perceived justice mediate the relationships between termination severity and behavioural responses and attitude towards complaining moderates the effects of anger on revenge, direct and third party complaint. The study contributes to the service termination literature by enhancing the understanding of the consequences of service termination and also providing a theoretical model of customers’ attitudinal, emotional and behavioural reactions to firm-initiated service termination. Furthermore, little is known about the role that compensation plays in influencing customers’ responses to intentional failures such as service termination. Therefore, in phase 2, this research examines the effects of different types of compensation and different level of monetary compensation on customers’ anger, satisfaction, image and negative WoM following the two termination approaches. Expectancy violation theory is used to explain the post compensation conceptual model. Contrary to the accepted wisdom, the findings reveal that explanation is the salient compensation type for both termination approaches. In addition, high level of monetary compensation is only effective following a firm-oriented, but not a customer-oriented approach. Moreover, apology and moderate monetary compensation are not effective in improving customers’ satisfaction and reducing their anger following either approach. The research contributes to the service recovery literature by examining the effectiveness of psychological and monetary compensation in service termination, which is an intentional failure. The findings provide managers with critical insights about the effectiveness of different compensation strategies based on specific termination strategies (i.e. psychological compensation following customer-oriented and both psychological and high monetary compensation following firm-oriented approaches)