When Customers Push Back: The Dangers of Service Divestment and How to Avoid Them

[We’re pleased to welcome authors Christina M. Haenel of the University of Goettingen, Hauke A. Wetzel of Massey University, and Maik Hammerschmidt of the University of Goettingen. They recently published an article in Journal of Service Research entitled “The Perils of Service Contract Divestment: When and Why Customers Seek Revenge and How It Can Be Attenuated,” which is currently free to read for a limited time. Below, they reflect on this research:]

Divesting from unprofitable customers is a widely-established practice in many service industries. Service providers often demote (i.e., they cut back services) or terminate customer service contracts (i.e, they end service provision). The idea is that investing less in unprofitable customer relationships saves costs and enhances firm profitability.

Our recent study forthcoming in Journal of Service Research shows, however, that such practices may severely harm future business. In particular, service contract demotion and termination trigger customer revenge, including aggressive behaviors towards employees, negative word-of-mouth, and third-party complaining for negative publicity.

The good news for service providers who rely on divestment practices is that customer revenge depends on the divestment practice and the targeted customers. Customer revenge is much less likely if customers implicitly agree with the service provider’s initiative. Unsatisfied customers are less likely to become angry and take revenge when their contracts are terminated than when they are demoted. For satisfied customers it is the other way around. Thus, when service providers wish to divest from specific relationships, they should terminate unsatisfied customers’ contracts but they should demote satisfied customers’ contracts.
For many service providers our findings may come as a surprise as terminating service contracts is generally viewed as a last resort. Drawing an analogy to romantic relationships (that many of us may have experienced themselves) helps to understand the findings: It can be very relieving if an unhappy relationship is ended, whereas we prefer to get a second chance if we value a relationship.

Our study offers another counterintuitive finding. Offering financial compensation or an apology turn out to be double-edged swords that can serve to remedy customer revenge after experiencing service divestment—or reinforce it. It is best to offer financial compensation or apology only to “turn around” customers who implicitly disagree with the service provider’s divestment choice and are likely to take revenge (i.e., if satisfied customers’ relationships are terminated or if unsatisfied customers’ relationships are demoted). It does not make a difference whether financial compensation or an apology are offered. This is an interesting finding in itself as offering an apology is a much cheaper option.

Overall, we contend that for service divestment initiatives to minimize customer revenge, the customer’s perspective on the relationship should be accounted for. If the firm’s chosen divestment approach aligns with the customer’s take on the relationship, service providers may well adopt service divestment practices without fueling customer rage.

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