Do complainants appreciate overcompensation? A meta-analysis on the effect of simple compensation vs. overcompensation on post-complaint satisfaction

Journal of Economic Psychology

Folmer

et al. 2014

When a financial damage has been inflicted, perpetrators can satisfy victims' outcome related concerns by providing a financial compensation. Few studies have investigated, however, whether overcompensation (i.e., compensation that is greater than the damage suffered) is more beneficial than equal compensation (i.e., compensation that covers the exact damage suffered).The results of four studies show that overcompensation offers no effects in addition to the impact of equal compensation, and that it even provokes negative outcomes. More specifically, overcompensation is attributed to occur because of a lower level of moral orientation on the part of the perpetrator (Study 2 through 4), leads to less favorable perceptions of the perpetrator (Study 2 and 4), and lower levels of trust in the perpetrator (Study 3 and 4) than equal compensation. No significant differences between overcompensation and equal compensation appeared for relationship preservation and cooperation (Study 4). These results show that while overcompensation may rebuild cooperation (albeit not more effectively than equal compensation), it does so at a monetary and relational cost that limits its effectiveness as a tool to promote true interpersonal trust. The present studies thus show that a large financial compensation does not provide any surplus value in terms of psychological outcomes and relationship continuation, even though such compensation best satisfies a victim's economic needs.

Section: Economic and Psychological Perspectivessupporting

confidence: 89%

Section: A Psychological Perspective On Overcompensationmentioning

confidence: 98%

What money can’t buy: The psychology of financial overcompensation

Journal of Economic Psychology

Folmer

et al. 2014

“…Particularly interesting in this regard is that the previously mentioned work of Haesevoets, Van Hiel, Onraet, et al () on low‐price guarantees showed, across a set of four empirical studies, that overcompensating price differences in fivefold is not more effective to enhance customer loyalty than equally compensating price differences. In line with the results of this recent study (and those of various other compensation studies; e.g., see Estelami & De Maeyer, ; Garrett, ; Haesevoets, Van Hiel, Pandelaere, et al, ; Noone & Lee, ; for a meta‐analysis, see Gelbrich & Roschk, ; for a recent field study, see Goode, Hoehle, Venkatesh, & Brown, ), the present findings indicated that, in general, large overcompensation does not improve customer loyalty beyond the level that is already reached by equal compensation. Given the high incremental costs of large overcompensation and its lack of positive effects, overcompensation can be considered a cost‐ineffective business strategy for companies to enhance loyalty.…”

Section: Discussionsupporting

confidence: 91%

Towards identifying customer profiles in reactions to financial overcompensation: The role of self‐interest and fairness sensitivity in explaining who prefers more money

J of Consumer Behaviour

Pandelaere

et al. 2019

In the aftermath of a product failure, companies often offer a financial compensation. The present research compares the effects of equal compensation (i.e., a refund that is equivalent to the purchase price) and large overcompensation (i.e., a refund that is five times larger than the purchase price) on customer loyalty, which was hypothesized to be moderated by individual differences in self‐interest and fairness sensitivity. Our results, first of all, revealed that, overall, large overcompensation does not result in higher customer loyalty than equal compensation. Although overcompensation does not appear to be a worthwhile strategy in general, our results also showed that large overcompensation nonetheless entails positive effects for a particular type of customer. Indeed, relative to equal compensation, overcompensation had an incremental effect on customer loyalty for customers low on perpetrator fairness sensitivity and for customers high on victim fairness sensitivity. Variables related to self‐interest (i.e., materialism and greed) did not demonstrate such a moderation effect. Theoretical and practical implications are discussed.

“…For instance, Boshoff (1999) found in the context of an airline company that a refund of expenses plus an additional free airline ticket enhanced customers' satisfaction more than when merely the expenses were reimbursed. A similar positive effect of receiving overcompensation was obtained in the context of a hotel (Gilly & Hansen, 1985) and a restaurant (Hocutt, Bowers, & Donavan, 2006).…”

supporting

confidence: 59%

“…In this light, it should be noted that in the present study we only tested and found the mediating role of fairness perceptions for the largest price-beating condition that covered price differences five times. We did this because prior research on overcompensation has revealed that people can handle unfairness, at least when it is not too large and in their advantage (e.g., see Boshoff, 1997;Gilly & Hansen, 1985;Hocutt et al, 2006). Based on these findings, it can thus reasonably be expected that a price-beating refund (and thus the degree of advantageous inequality) has to be rather large in order to be perceived as less fair than price-matching (which restores the state of equality).…”

Section: Theoretical Implicationsmentioning

confidence: 99%

Low‐price guarantees as advertisement strategy and compensation policy: The more, the better?

J of Consumer Behaviour

Onraet

et al. 2017

Companies sometimes employ a “lowest price or more than the difference back” policy (i.e., a price‐beating guarantee). We investigated whether such a policy is more effective to attract and retain customers than when the exact price difference is promised (i.e., a price‐matching guarantee). The first study revealed that about 60% of the marketers and shop owners in our sample thought that beating price differences is a more effective strategy than matching price differences. However, the four subsequent studies challenged this assumption. Specifically, the advertisement as well as the provision of price‐beating refunds did not have an incremental positive effect on customers' general attitudes in terms of trust, brand perception, loyalty, and shopping intentions beyond the level that was already reached by price‐matching refunds. Moreover, our mediation analyses revealed that the null effect of price‐matching versus price‐beating was mediated by fairness perceptions. From a theoretical perspective, these results are in line with a fairness account, which holds that people do not only evaluate the economic value of an outcome, but also take equality considerations into account. Because price‐beating is literally more expensive than price‐matching, from a practical point of view, companies should be informed that the employment of a price‐beating guarantee is a cost‐ineffective advertisement strategy and compensation policy.