By Dr. Husni Kharouf: Associate Head of School (Research) School of Marketing and Management – Research Associate Centre of Business in Society
The effect of the Covid-19 pandemic is evident in almost all sectors, with service industries such as hospitality and travel feeling the impact particularly acutely. Service organisations have been exposed to severe and unprecedented disruption over the last two years, experiencing negative effects ranging from loss of revenue to losing consumers completely. It is reported that a tenth of Britain’s restaurants were forced to close due to the pandemic (Hooker, 2021).
As the service sector begins its recovery, uncertainty still looms and organisations continue to struggle to retain and attract new consumers. Our research has identified a simple but effective method that might help service organisations in their recovery efforts – we call it Service Gifts.
What is a service gift?
Gift giving is widely used in the service industry to provide additional value to consumers with the aim of gaining repeat business, positive word of mouth or immediate financial benefit. Gift giving also enables organisations to utilise expiring or perishable supply which would otherwise go to waste – a particular issue in the service industry. For example, an airline with empty seats in first class might upgrade economy ticket holders to fill these seats (and to make their customers happy); a rental car agency might upgrade specific customers to a more expensive class of car at no charge, both to balance inventory supplies and to positively impact customer perception.
However, our research found that the effect of a service gift is amplified when it is given without the expectation of direct and immediate compensation. While a service gift often results in a direct and immediate response (for example, the consumer who received a free glass of champagne on their birthday might tip extra) or a change in the relationship between the consumer and the organisation (such as increased consumer loyalty to the organisation) on a more holistic level it can also stimulate positive feelings and social connection. This can apply even if the individual targeted customer doesn’t particularly appreciate the gift – although if that flight upgrade or fancy rental car didn’t make a consumer appreciate the organisation more, a generalised or collective social connection may nevertheless develop.
This subtle, but important, addition to the social connections between organisations and consumers can play an important role in service organisations’ recovery efforts. In fact, we found that when managers use gift giving it directly boosts consumers’ collective social connection to the organisation and in return the service organisation benefits from this exchange more broadly than simply in the interaction with the individual customer.
But service gift giving needs a careful strategy behind it as not all consumers will perceive a gift in the same way: while some will see it as a well-intentioned gesture to initiate or maintain a relationship, others may view it as an intentional effort to influence or even control their behaviour. A service gift can play an important role in the recovery of an organisation post-pandemic, but it’s only a starting point for relationships.
Covid: A tenth of Britain’s restaurants lost during pandemic available at: https://www.bbc.co.uk/news/business-57087070 (accessed 10th of January 2022)
Schwartz, B. (1967). The Social Psychology of the Gift. American Journal of Sociology, 73(1), 1–11. http://www.jstor.org/stable/2776124
Tang, Y. (E), Hinsch, C., Lund, D.J. and Kharouf, H. (2020), “Service gifts, collective social connection and reciprocity”, European Journal of Marketing, Vol. 54 No. 10, pp. 2477-2500. https://doi.org/10.1108/EJM-12-2019-0886