CUSTOMER SATISFACTION AND LOYALTY AFTER
SERVICE FAILURE AND RECOVERY
A study in restaurant industry in Ho Chi Minh City of Vietnam

In Partial Fulfillment of the Requirements of the Degree of

MASTER OF BUSINESS ADMINISTRATION

In International Business

by Pham Thi Thuy

MBA03031
International University - Vietnam National University HCMC

August 2013


CUSTOMER SATISFACTION AND LOYALTY AFTER
SERVICE FAILURE AND RECOVERY
A study in restaurant industry in Ho Chi Minh City of Vietnam

In Partial Fulfillment of the Requirements of the Degree of

MASTER OF BUSINESS ADMINISTRATION

In International Business
by
Ms. Pham Thi Thuy
ID: MBA03031
International University - Vietnam National University HCMC

and encouragement given to me.


Plagiarism Statements
I would like to declare that, apart from the acknowledged references, this
thesis either does not use language, ideas, or other original material from anyone; or
has not been previously submitted to any other educational and research programs or
institutions. I fully understand that any writings in this thesis contradicted to the above
statement will automatically lead to the rejection from the MBA program at the
International University – Vietnam National University Hochiminh City.


Copyright Statement
This copy of the thesis has been supplied on condition that anyone who
consults it is understood to recognize that its copyright rests with its author and that
no quotation from the thesis and no information derived from it may be published
without the author’s prior consent.
© Pham Thi Thuy / MBA03031/2013


Table of Contents
CHAPTER 1 - INTRODUCTION ............................................................................. 1
1.1
Research background ................................................................................. 1
1.2

Problem statement...................................................................................... 2

1.3



Justice dimensions and customer satisfaction...................................... 10

2.1.6

Customer satisfaction and loyalty ....................................................... 11

2.1.7

Social Status Orientation and Customer Satisfaction........................... 11

2.2

Research model and hypotheses ............................................................... 12

CHAPTER 3- RESEARCH METHOD................................................................... 14
3.1
Research design ....................................................................................... 14
3.2

Research process...................................................................................... 15

3.3

Data collection......................................................................................... 15

3.4

Data analysis............................................................................................ 20


Response rate........................................................................................... 24


4.2

Demographic profile ................................................................................ 24

4.3

Descriptive statistics ................................................................................ 27

4.3.1

Distributive justice attribute................................................................ 28

4.3.2

Procedural justice attribute ................................................................. 28

4.3.3

Interactional justice attribute............................................................... 29

4.3.4

Customer satisfaction ......................................................................... 30

4.3.5

Customer loyalty ................................................................................ 30


Exploratory Factor Analysis (EFA) of independent variables............. 35

4.5.2

EFA of dependent variable – customer satisfaction............................. 38

4.5.3

EFA of dependent variable – customer loyalty.................................... 39

4.5.4

EFA of morderating variable- modern status orientation..................... 41

4.5.5

Rename factors................................................................................... 42

4.5.6

Restate model..................................................................................... 44

The models and hypothesis were restated as followings: ................................. 44
4.6

Regression analysis and hypothesis testing.............................................. 44

4.6.1




6.1

Conclusion............................................................................................... 57

6.2

Recommendation ..................................................................................... 58

6.3

Limitation and suggestion ........................................................................ 59

REFERENCE .......................................................................................................... 61
APENDIX ............................................................................................................... 64
Apendix 1: Survey Questionnaire (Vietnamese version) ...................................... 64
Apendix 2: Survey Questionnaire (English version)............................................. 69
Apendix 3: Data coding....................................................................................... 73


List of Tables
Table 2-1 : Definition of justice elements and representative researchs…………...……..9
Table 3-1: Summary of measurement scale……………………...………………………18
Table 3-2 : Summary of coding variables………………………………………………..21
Table 4-1: Summary of demographic profile…………………………………………….25
Table 4-2: Summary of demographic profile (continued 1)……………………………..27
Table 4-3: Summary of demographic profile (continued 2 )………………………….....28
Table 4-4 : Summary of descriptive statistics of distributive justice…………………….29
Table 4-5 : Summary of descriptive statistics of procedural justice……………………..29

Table 4-34: Summary result of hypotheses test………………………………………… 48
Table 4-35: Summary of regression analyses (by modern status orientation)…………...49
Table 4-36: Summary of regression analyses (by Gender)………………………………50
Table 4-37: Summary of regression analyses (by Age)………………………………….50
Table 4-38: Summary of regression analyses (by Service failure type)………………... 51
Table 4-39: Summary of regression analyses (by Frequency) …………………………..52
Table 4-40: Summary of regression analyses (by Income)…………………...…………52
Table 4-41: Test of Homogeneity of Variance…………………………………………..53
Table 4-42: Result of ANOVA test……………………………………………………...53


List of Figures
Figure 2-1: Research model…………………………………………………………13
Figure 3-1: Research process………………………………………………………..15
Figure 4-1: Revised research model…………………………...……………………45


Abstract
This research was conducted to examine the evaluation of customers towards result of
service recovery of organizations. In this paper the three justice dimensions was
employed to explain the customer satisfaction after service failure and recovery in
restaurant setting in Ho Chi Minh City fo Vietnam.
Convenient sampling method was used to collect data by means of a survey. SPSS
software version 20 was used to analyse collected data set. The measurement scales
were adopted and adjusted from previous research. Exploratory Factor Analysis was
applied to refine measurement scale and reduce factors. Research model and
hypotheses were tested using regression analysis.
The result of data analysis provided empirical evidence that justice evaluation has
positive effect on customer satisfaction after service failure and recovery. The result
also confirmed that customer satisfaction and their loyalty had strong correlation.

In their reasearch Fisk, Brown, and Bitner (1993) also argued that due to nature of
service it is not possible for companies to provide 100% error-free services. Therefore
putting effots in resolving customer complaints effectively play an important role in
winning back customer trust and their commitment. Consequently, the way how to
manage service failure recovery and to know consumer responses to the recovery
process are increasingly seen as factors that may separate the more successful
organizations from the others.
While organizations could be aware of the impact that organization responses to
service failure had on customers’ intention of repurchase and their loyalty, they were
less sure which aspect of the service failure recovery effort were driving customer
satisfaction and their loyalty more than the others.


1.2

Problem statement

In recent years the restaurant industry in Vietnam especially in Ho Chi Minh City has
been developing quickly and people tend to eat out in restaurants more often than to
cook at home. This trend makes the restaurant business more attractive to investors
but since Vietnam was opening to globalization to catch up with fast development of
the world customers started to require up-to-international standard services. The
competition in restaurant industry in Vietnam therefore getting tense than ever before
when customers now have more choices than they had in the past. In order to meet
higher expectation and demand from customers

it is vital for organizations to

continuously improve their competitive advantage through their best service quality.
The some restaurants, especially big and foreign brands, in Ho Chi Minh City are

Research objectives

The main purpose of this thesis is to investigate the evaluation of customers toward
service recovery performance of the organizations. The study also examined the
impact of customer evaluation on future relationship which is reflected through the
loyalty level customers have to organizations after service encounter in the case of
restaurant industry in Ho Chi Minh City of Vietnam. The specific objectives of this
research therefore are as followings :
- To identify the relative importance of individual justice attributes in explaining the
customer satisfaction after service failure and recovery.
-

To recommend alternatives to effectively recover service failure to improve

customer satisfaction and customer loyalty.
The main questions that this research focuses to explore are :
1. Currently how do customers evaluate the service failure recovery of
restaurants in Ho Chi Minh City ?
2. How does the customer satisfaction after service failure and recovery impact
the loyalty level of customers with restaurants in Ho Chi Minh City ?
1.4

Contribution of the research

The measurement scale and collected data analysis gives management in restaurant
industry an idea of how customers evaluate their service recovery performance base
on perception of different justices.
The findings of this research helps organizations in retaurant industry understand the
effect of justice evaluation of customer on their satisfaction after revice failure and
recovery. The study also recommends alternatives to improve customer satisfaction

Theory framework

2.1.1 Service failure and recovery attributes
According to Polaris Marketing Research, a service failure is defined as a service
performance that fails to meet a customer expectations. Service failures could be
devided into two main types, which are outcome and processs failure and being
mentioned in many service marketing literatures (Bitner, Booms, and Tetreault 1990;
Keaveney 1995; Mohr and Bitner 1995). The outcome aspect of service failure
involves what customers actually receive from the service, whereas the process
dimension is more about how customers receive the service or how the service is
delivered to customers (Gronroos 1988, Parasuraman, Zeithaml, and Berry 1985). In
other words, in an outcome failure, organization fail to fulfill basic service need or fail
to perform core service while for process failure, the delivery of core service is
deficient in some way.
Service recovery refers to actions an organization takes in response to service failure
(Gronroos 1988). When a service failure occurs, service providers try to fix the
problem by compensating for the losses that service failures caused to their customers
or taking necessary actions to prevent the service failure happen again in future. The
service failure recovery performance of organization could be in following forms:
Compenstion: Social exchange theory emphasizes role of distributive justice because
it relates to the allocation of costs and benefits in achieving equitable exchange
relationships (Deutsch 1975, 1985). In term of service recovery, distributive justice
perceptions involve the allocation of compensation (in form of discount, refunds,
coupons and others) by the organization in response to the inequity that service failure
caused. Walster, Berscheid, and Walster (1973) have shown that compensation is a
strategy for restoring equity in an exchange relationship when one party has been
harmed by the other. Tax, Brown, and Chandrashekara (1998) use content analysis of
qualitative evaluation of service complaint experiences to show that compensation is
the most important recovery dimension associated with customers’ perceptions of
distributive justice. Therefore it was suggested that higher level of compensation

organizations to always initiate their service recovery effort rather than to wait until
customer lodge an official complaint then organization reactively resolve it. When
organization initiate a recovery, customer perception of interactional justice should be
enhanced, because customers likely to view a proactive effort as an act of courtesy, an
implication of honesty and a show of empathic understanding and respect.


The service marketing literatures also provides information that different type of
failure causes different categories of loss to customers therefore service failure type is
expected to impact on customer satisfaction judgements toward service recovery.
Therefore, it is expected that three types of service failures, namely staff attitude, staff
skill and service procedure have moderating effect on relationship between justice
evaluation and customer satisfaction.
2.1.2

Equity theory

Equity theory has been applied in customer satisfaction research very early. The
equity is about fairness, rightness, or deservedness judgement that we make in
reference to what others receive (Oliver 1997, p.194). This theory suggests that in an
exchange if customers feel inequitily treated and their input to exchange is not tally
with output of the exchange, then there will be not a satisfaction (Goodwin and Ross
1992, Oliver 1997). This theory also suggests that customers are concerned not only
with the perceived fairness of the outcome they receive, but also with the perceived
fairness of the process used to deliver the outcome (Conlon and Murray 1996). These
two concerns were being referred to as distributive and procedural justice,
respectively. Some studies also separate out the inter-personal aspect of the
procedural justice, referred to as interactional justice, which emphasized the manner
in which the process is executed and information is communicated to the customer by
the service provider (Seiders and Berry 1998)

how the policy is implemented (Vermunt, Van der Kloot, and Van der Meer 1993).
Interactional justice also conveys a common courtesy, politeness, respect, empathy
and willingness to listen.
The justice theory explains how people judge and response to an outcome, procedure
and manner to implement procedure base on their perception of justice .


Table 2-1 : Definition of justice elements and representative researchs
(Source : Journal of Markeing Vol.62 April 1998, P. 63)
Concept
Distributive
Justice
Equity

Equality

Need

Prodedural
Justice
Process
control

Definition

Dependent variables

Previous research

Provision of outcomes Satisfaction, repurchase Goodwin and Ross

(1990)

Accessibility

Ease of engaging a process

Satisfaction

Bowen and Lawler(1995)

Timing/speed

Perceived amount of time
taken to complete a
procedure

Anger, uncertainty,
Satisfaction, service
quality

Fisk and Coney (1982)
Maister (1985)
Taylor (1994)

Flexibility

Adaptability of procedures
to
reflect
individual


Well-mannered, courteous
behavior

Complaint evaluation,
repurchase intention,
satisfaction

Effort

Amount of positive energy
put into resolving a
problem
Provision
of
caring,
individual attention

Anger, satisfaction,
trust

Interactional
Justice
Explaination/
causal account

Empathy

Freedom to communicate Satisfaction,
views on a decision process commitment

2.1.5 Justice dimensions and customer satisfaction
Customers evaluate service failure recovery performance in terms of the outcome or
benefits they receive as a result of service failure encounter, the procedures
organization used to arrive at the outcomes as well as the nature of the interpersonal
treatment and communication during the process (Clemmer and Schneider 1996).
Social exchange theorists have also identified three dimensions of perceived justice
(distributive justice, procedural justice, interactional justice) that influence how
people evaluate the exchanges.
Service failure and recovery is viewed as a series of actions in which a service failure
generates a procedure that will create economic and social interaction between
customer and service provider. Therefore it is predicted that customer satisfaction
with service failure recovery will be influenced by customer perception of all three
dimensions of justice.
H1: There is a positive relationship between distributive justice and customer
satisfaction with service failure recovery
H2: There is a positive relationship between procedural justice and customer
satisfaction with service failure recovery


H3: There is a positive relationship between interactional justice and customer
satisfaction with service failure recovery
2.1.6

Customer satisfaction and loyalty

Service failure recovery satisfaction refers to the degree to which the customer
perceives the company’s service failure recovery performance as meeting or
exceeding his or her expections (e.g., Gilly and Gerb 1982; McCollough, Berry, and
Yadaw 2000). Overall customer satisfaction after the service encounter refers to the
degree to which the customer perceives the company’s general performance in a

The research found that high MSO consumers are particular demographic in Vietnam
who are younger and more educated. The study result explained why those
individuals may be strongly influenced by mordern values. Further, high MSO
consumers more receptive to new things and have more chances at international
experience, thus they’re more likely to influenced by modern style. The findings of
the study also confirmed that high MSO consumers tend to choose foreign products
while those with low MSO will buy domestic products.
In addition, low social status oritentation consumers could easily enjoy their happy
life without placing importance on material value. As suggested by the findings from
Tambyah, Nguyen and Jung (2009) low MSO consumers consider the care for benefit
of the others than themselves, the importance of living a simple and clean life,
regardless of wealth. Thefore being rich does not convey high status or display their
position in life.
From above discussed points, it is predicted that customers with different level of
social status orientation may access service recovery performance of organization not
in the same way, the Modern Status Orientation was then suggested to have
moderating impact on relationship between justice evaluation and customer
satisfaction after service failure recovery. Hence the hypothesis was formed as
followings:
H5: Modern Status Orientation has moderating effect on relationship between
justice evaluation and customer satisfaciton
2.2

Research model and hypotheses

The research model is presented in Figure 1 below. This model consists of three
constructs which are justice dimension, customer satisfaction and customer loyalty.
The justice dimension has a three sub-justice dimensions namely distributive justice,
procedure justice and interactional justice.