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Conference Proceeding

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This paper focuses on a fundamental problem for marketers: the ratchet effect. The ratchet effect occurs when actual service performance is perceived to be significantly higher than service expectations, causing dissonance and resulting consumer guilt. If left unattended, consumers relieve their guilt by increasing the perceived state of expectations for subsequent visits. Known as the ratchet effect, this causes a dilemma for the service business as they consistently strive to improve service performance. Using equity theory, our experimental study explores whether businesses can break the ratchet effect by providing mechanisms of reciprocity for consumers to respond at little or no cost when they receive outsized benefits. By manipulating should/will expectations, we test the effects of different forms of reciprocity, prophylactic and sacrificial, to minimize the ratchet effect. Results demonstrate that sacrificial reciprocity on initial visits can increase customer satisfaction for subsequent visits, while psychic reciprocity minimizes immediate consumer guilt. Finally, understanding why positive inequity evokes cognitive dissonance to produce the ratchet effect is an important advancement in equity theory.