Handle with care! Service contract termination as a service delivery task

Abstract

Purpose Profitability considerations lead service providers to terminate service contracts with low-value customers. However, customers targeted by service contract terminations often take revenge through negative word-of-mouth (NWOM). Presently, it is unclear how service contract termination initiatives prevent this harmful side effect. The purpose of this study is to compare the effectiveness of common service contract termination initiatives for reducing NWOM of customers whose service contracts are being cancelled. The study results provide guidance for minimizing the downside of service contract termination. Design/methodology/approach This study distinguishes between service contract termination initiatives common in practice (preannouncement, explanation, financial compensation, apology and support in finding an alternative provider). Drawing on a multi-industry survey of 245 customers who have experienced service contract terminations in real life, the authors estimate regression models to link perceived service contract termination initiatives to NWOM. Findings All else equal, only preannouncement and support in finding an alternative are effective to reduce NWOM. This study also shows that the right choice of service contract termination initiatives depends on the context of the termination. Making a preannouncement, offering an explanation and providing support in finding an alternative are more effective in reducing NWOM when these actions are aligned with the contextual factors of relationship duration and competitive intensity. Research limitations/implications This study shows that service contract termination needs to address several aspects of the service termination experience. The key implication for future research is that it matters in terms of NWOM how service contract terminations are performed. Practical implications This research identifies the service contract termination initiatives that are most effective to reduce NWOM after service contract termination in general and under consideration of the moderating roles of relationship duration and competitive intensity. Originality/value While most related studies have considered customer responses to the cancellation of other customers’ contracts, this study contributes to the scarce literature on the undesirable customer responses (such as NWOM) to the termination of their own contract. To the best of the authors’ knowledge, it is the first study in this emerging stream of research that accounts for the effects of process- and outcome-oriented contract termination initiatives on NWOM. To the best of the authors’ knowledge, it is also the first study to account for moderators of the effect of contract termination initiatives on NWOM, namely, relationship duration and competitive intensity.