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Getting the right payoff from customer penalty fees

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  • Tax, Stephen S.
  • Kim, Young “Sally”
  • Nair, Sudhir

Abstract

Over the past 20 years, a convergence has occurred regarding the importance of building relationships with valuable customers as the cornerstone of service strategy. Customer satisfaction and delight have been associated with supporting the retention and growth of important relationships. More recently, firms have adopted penalties and fees as a central means of growing revenue. This has caused friction with the programs targeted at improving customer relations, and increased defections and spurred government regulation. In this article, we collect and analyze data to identify the aspects of penalties that generate customer dissatisfaction and negative emotional and behavioral responses. We offer guidelines for the implementation of penalties that balance the goals of revenue generation and customer loyalty. These include: preventing unintentional failures, managing the perceived magnitude of penalties, effectively educating customers on the offer, ensuring that penalties are clear and transparent, linking penalty decisions to responsibility for the transgression, taking into account narrowly missing avoiding a penalty, and consideration of the customer relationship and employee empowerment.

Suggested Citation

  • Tax, Stephen S. & Kim, Young “Sally” & Nair, Sudhir, 2013. "Getting the right payoff from customer penalty fees," Business Horizons, Elsevier, vol. 56(3), pages 377-386.
    • Handle: RePEc:eee:bushor:v:56:y:2013:i:3:p:377-386
    DOI: 10.1016/j.bushor.2013.01.012
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    References listed on IDEAS

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    1. Swait, Joffre & Adamowicz, Wiktor, 2001. "The Influence of Task Complexity on Consumer Choice: A Latent Class Model of Decision Strategy Switching," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 28(1), pages 135-148, June.
    2. P.A. Phillips, 2007. "The Balanced Scorecard and Strategic Control: A Hotel Case Study Analysis," The Service Industries Journal, Taylor & Francis Journals, vol. 27(6), pages 731-746, September.
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    Cited by:

    1. Ji Wu & Zhiqiang (Eric) Zheng & J. Leon Zhao, 2021. "FairPlay: Detecting and Deterring Online Customer Misbehavior," Information Systems Research, INFORMS, vol. 32(4), pages 1323-1346, December.

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