The phenomena when customers perceive a service as better after a failure and the following recovery process has occurred is called service recovery paradox. In the case of the paradox, customers are more satisfied post-recovery in comparison to if the failure would not have occurred. How to best manage a service recovery depends on the type of service failure since the recovery actions should be adjusted in order to match the failure in a suitable way. Three surveys were conducted in this study, one for each type of failure classified as (1) Service delivery failures, (2) Failure to respond to customer needs and requests and (3) Unprompted and unsolicited employee actions. Each survey presented a scenario in three parts. The first part of the scenario was neutral, the second part was post-failure and the third part was post-recovery. The respondents had to take a standpoint regarding their level of satisfaction after each scenario part. The findings from this study confirm the possibility for an increase in customer post-recovery satisfaction concerning (1) Service delivery failures combined with suitable recovery actions, hence the service recovery paradox was found. In the case of (2) Failures to respond to customer needs and requests combined with suitable recovery actions, the level of post-recovery customer satisfaction did not reach pre- failure satisfaction. The last type of service failure, (3) Unprompted and unsolicited employee actions, resulted in the lowest level of customer satisfaction both post-failure and post-recovery and was hence most far away from the paradox.

Aim: When service failures occur, companies must use service recovery actions to recover customer satisfaction. The service recovery paradox refers to the paradox which occurs when a customer is more satisfied after successful service recovery, than they would have been if no failure had occurred. The purpose of this thesis is to examine the effectiveness of using the anchoring effect to lower the threshold value for service recovery paradox occurrence in a specific service failure scenario in the hotel industry. I.e., using the anchoring effect, this thesis aims to reduce monetary compensation required for the service recovery paradox to occur in the specific scenario. Method: 225 respondents were given a survey based on a scenario of a service failure in the hotel industry. The method used was a between-subject experimental design survey, manipulating anchor size, with 5 conditions; SEK 200, SEK 450, SEK 700, SEK 950, and no anchor, to see if the different conditions affected requested compensation whilst customer satisfaction remained constant. Gender and age of the participants was also measured to see if the requested compensation rates depended on these variables. Results: Results showed that it was possible to reduce monetary compensationrequired to reach the SRP by using anchoring values. The control group, which was given the scenario without any anchors, rendered a higher requested compensation than all groups which were given anchors. Furthermore, results showed that the mean compensation required to reach the SRP for the scenario decreased as the anchor values decreased, which indicates that the lower the anchor is set the lower the claim for requested monetary compensation becomes. Finally, the results indicated that age was a relevant variable whilst gender was not a relevant variable regarding compensation requirements. Contribution: Reaching the SRP can sometimes be expensive, especially when it comes to major service failures such as double-booked hotel rooms as is analysed in this thesis. The main contribution of this thesis is to provide an instrument for managers with which they might reach the SRP at lower costs. The results from this research can be directly implemented by managers in similar situations in the hotel industry and may also be used as a foundation for reaching the SRP in other industries as well as other scenarios. Suggestions for future research: As this survey only analyses Swedish participants, results may not be directly applicable to hotels in other cultures. Future research should, thus, focus on examining whether results vary depending on geographic and cultural factors. Other aspects that should be further investigated are what causes the differences in answers between different age groups and if gender displays any differences in other cultures, as it does not seem relevant with Swedish participants. Furthermore, the same surveys, with adjustments, could be used to conduct similar research on other scenarios and in other industries. Finally, researching whether anchoring levels below the lowest anchor used in this thesis, SEK 200, could further lower the required compensation would provide a more complete framework for this research.

Title: Where Service Recovery Meets its Paradox - A search for the level of Service Recovery required for the Service Recovery Paradox to occur in the Hotel Industry  Level: Student thesis, final assignment for Bachelor Degree in Business Administration  Author: Beatrice Nylander & Andreas Edström  Supervisor: Patrik Sörqvist  Date: 2021 – June  Aim: The purpose of this study was to, within the hotel industry, investigate at what level of service recovery the service recovery paradox will come into existence.  Method: Two surveys have been conducted where 190 respondents were introduced to a scenario- based service failure in the hotel industry. Survey 1 collected data about the amount of monetary compensation that customers felt they needed post service failure, in order to subsequently feel a little more satisfied than in the case of an error-free service experience (the point for service recovery paradox). In survey 2, customer satisfaction was then measured at three different levels of compensation after service failure. The three levels were the mean from survey 1, mean -1 SD, and mean +1 SD. This with the aim to, in an independent sample, test whether the point for service recovery paradox in survey 1 causes the paradox to arise in survey 2 or not.  Result & Conclusions: In the event of a specific service failure in the hotel industry, the level of service recovery paradox, through monetary compensation, was found. Survey 1 (N = 40) determined the compensation level to be SEK 1204. The same compensation level was confirmed as a sufficient level to achieve the service recovery paradox in survey 2 (N = 150).  Contribution of the thesis: Service failures are often not completely avoidable, especially not in the hotel industry. This study helps to understand the level of monetary compensation that may be required to achieve the service recovery paradox, in the event of a specific service failure in the hotel industry. The results from this study contribute to guidance in service recovery and give hotel managers knowledge of what monetary compensation level they should apply to restore customer satisfaction and also avoid overcompensation, in case of service failures.  Suggestions for future research: Future researchers should assume that service industries and service failures are all unique. Failure scenarios need to be described in detail in order for results to be applicable by managers. Future research may also examine the anchoring effect in order to avoid overcompensation if possible. SRP researchers who examine the hotel industry in particular may investigate the SRP level of additional customer segments that travel; alone, at work, with friends or with children. Although SRP might occur because of service recovery, repurchase intentions might decrease. A major challenge for future researchers will therefore be to measure how customer satisfaction after service failure and recovery stands long term. Another suggestion is to conduct the study again, but with real service failures and with real compensation.  Keywords: service failure, service recovery, service recovery paradox, service recovery hotel industry, customer satisfaction