| Abstract: | Understanding the nature of service failures and their impact on customer responses and designing cost‐effective recovery strategies have been recognized as important issues by both service researchers and practitioners. We first propose a conceptual framework of service failure and recovery strategies. We then transform it into a mathematical model to assist managers in deciding on appropriate resource allocations for outcome and process recovery strategies based on customer risk profiles and the firm's cost structures. Based on this mathematical model we derive optimal recovery strategies, conduct sensitivity analyses of the optimal solutions for different model parameters, and illustrate them through numerical examples. We conclude with a discussion of managerial implications and directions for future research. |
