How a firm's best versus normal customers react to compensation after a service failure

This paper examines whether customers with a strong relationship do or do not react more favorably to different compensation amounts, compared to weak relationship customers. Drawing on a wide range of compensation amounts (eleven conditions between 0%–200%), Study 1 (hotel context) supports a moderating effect of relationship quality: the nonlinear curve progression between compensation and recovery satisfaction is less concave for strong—compared to weak—relationship customers. In particular, both customer groups are equally responsive to low compensation, but strong relationship customers react more favorably to high compensation. Study 2 demonstrates that this nonlinear pattern holds true for a different setting (restaurant context), and for customers' overall satisfaction judgment. Further, it supports that the moderating effect of relationship quality is mediated by perceived reciprocity. We discuss the theoretical implications for the recovery literature and formulate recommendations for the compensation that firms should offer to their best vs. normal customers. •Relationship quality moderates the nonlinear path “compensation→satisfaction”.•High and low relationship customers are equally satisfied with low to moderate compensation.•High relationship customers respond more favorably to high compensation.•Perceived reciprocity acts as a mediator.•Optimal compensation differs for transaction-specific compared to overall satisfaction.