The purpose of this paper is to investigate the effects of explanation and compensation, as specific accommodative management responses to negative online customer reviews, on potential customers.
The scenario-based online experiment with 306 participants investigates the effects of explanation and compensation on potential customers’ purchase intentions in the hotel segment of the hospitality industry.
The results reveal that combining an explanation with compensation is the most effective management response; providing neither an explanation nor compensation is the least effective. The effects of management responses that entail providing only an explanation or compensation do not differ significantly.
Continued research should investigate the effects of specific accommodative management responses in other service industries and other cultural settings and consider different kinds of explanations and compensation.
Hotel managers in the hospitality industry should reply to negative online customer reviews by combining an explanation with compensation. Service providers that currently lack structures and procedures to identify service failures and their causes or that cannot take corrective actions should provide compensation. Service providers that currently have limited financial resources should provide explanations.
This study analyses the effects of explanation and compensation on potential customers’ purchase intentions. In addressing the effects on potential customers, instead of on complainants, the conceptual framework represents a novel combination of management responses from service recovery research with signalling theory, the search-experience-credence framework and risk reduction methods.
