Identifying failure recovery strategies for paper industrial suppliers

• We propose a general model of failure recovery and compensation strategy for the paper industry.
• Intrinsic compensation and economic compensation are more effective than product replacement.
• Perceived switching costs and the long-term relationship are key factors for surviving in the competitive paper industry.

Most failure recovery studies focus on the service industry, with few examining manufacturing. This study thus discusses how a manufacturing company implements failure recovery to increase customer satisfaction and repurchase intention. The aims of this study are two-fold: 1) to understand how failure attributions and failure types affect customer satisfaction, and 2) to propose a general model of failure recovery and compensation strategy for paper manufacturers that can be incorporated into their standard operating procedures.The results of in-depth interviews with 37 experts showed that the most common failures in the paper industry are related to employee behavior (e.g., applying the wrong failure recovery process) or the delivery system (e.g., not delivering on-time, wrong delivery methods, and insufficient delivery quantity). In terms of compensation strategies, intrinsic compensation (e.g., apologizing and providing reasonable explanations) and economic compensation (e.g., providing product discounts or refunds) are shown to be more effective than product replacement. Based on these results, this study developed a theoretical explanatory scheme to identify the most appropriate failure recovery strategies for paper industry suppliers.