The Perils of Service Contract Divestment: When and Why Customers Seek Revenge and How It Can Be Attenuated

Abstract

Profitability considerations lead service providers to divest from customer service contracts, either by service contract demotion (cutting back services) or by service contract termination (ending service provision). Such initiatives have been associated with customer revenge. The pressing question for practitioners is which divestment approach has a stronger or weaker effect on customer revenge. Drawing on justice and appraisal theories, the authors suggest that the answer depends on customers’ predivestment satisfaction and on the provision of financial compensation or apology. Three experiments and a critical incident study reveal that for previously satisfied customers, service termination entails a stronger effect on customer revenge, while for previously dissatisfied customers, service demotion entails a stronger effect. The findings further demonstrate that offering financial compensation or an apology can mitigate or exacerbate the effect, highlighting the need to align these divestment handling instruments with the divestment approach chosen and customers’ predivestment satisfaction. The findings also show that the effect can be explained by customer anger. Overall, this article provides guidance on how to divest whom in order to mitigate detrimental effects.