In today’s hyper‐competitive business environment, repeat customers are vital for success. Service failures, however, have the potential to destroy customer loyalty. In this study, we wanted to examine how two situational factors, the service type and magnitude of failure, moderate customer responses to service failures. Results from our experimental study indicate that the cost to mollify customers might vary tremendously for different types of services and for different magnitudes of failure. Effective service recovery (e.g. apology combined with a tangible compensation) had a strong positive influence on recovery satisfaction and loyalty for hair styling services whereas the magnitude of the impact was less pronounced for restaurants and dry‐cleaning services. Consistent with previous research, subjects who perceived the failure to be highly serious had lower perceptions of fairness or justice associated with service recovery than their counterparts who considered the failure to be less severe. In sum, our findings support the notion of context‐specificity of service recovery.
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