Hotel overbooking: The effect of overcompensation on customers' reactions to denied service

Overbooking represents an important strategy for many service providers that apply revenue management. Although the objective is to overbook such that no customers are denied service, denials may result when the customer no-show rate is lower than expected. Research has shown that denied service can increase customer complaining behavior, and decrease customer satisfaction and spending behavior. Therefore, it behooves the service provider to put a service recovery strategy in place that will minimize the likelihood of these negative outcomes. This study investigates, in the context of denied service due to hotel overbooking, the role of overcompensation (type and amount) in shaping customers' reactions to the service failure/recovery experience. Results suggest that cash-based overcompensation will yield significantly higher satisfaction ratings than voucher-based overcompensation or normal compensation alone, although the relationship between cash-based overcompensation and satisfaction is not linear. Additionally, overcompensation, regardless of type or amount, does not significantly influence customer repatronage intentions over and above normal compensation alone.