| What is the profitability of investing in customer relationships? Does the time and money invested in recovering dissatisfied customers offer a reasonable return, and, if so, what is the mechanism that generates profits? Research has demonstrated that effective service recovery increases customer satisfaction, but the costs of the recovery effort and the associated profitability of these customers has not been considered.; This study uses identity theory to explain customer profitability after service failure and recovery. The results show that service failure and recovery have significant effects on customer identification and subsequent profitability. Service recovery strategies based on the matching principle are not found to be effective in this study. Instead, after a service failure, customers prefer broad-based recovery efforts, described as integrated recovery.; This research contributes to the identity literature by describing how customers manage and repair identity transgressions. In the marketing literature, this study contributes by reconceptualizing service failure from an identify perspective, by incorporating recovery costs and future profit into a recovery model, by describing multiple dimensions of service recovery, and by describing the service recovery paradox in terms of customer profit. Refinements to resource exchange theory are proposed and incorporated into the integrated recovery model. For managers, this research offers guidance on maximizing the profitability of service recovery investments. |
