A field experiment on response strategy in non-alternative environments: A moderated-mediation model

Abstract

Companies are increasingly confronted with data breaches, which incur substantial costs. In response, they frequently adopt compensation strategies aimed at mitigating adverse consequences and appeasing affected customers. However, the effectiveness of compensation strategies in assuaging customer concerns following data breaches remains an area of ongoing research, particularly in non-alternative environments where customer choice is limited and switching to alternative providers is not feasible. Furthermore, there is limited research on the effect of compensation on both immediate reactions and long-lasting beliefs in the same nomological network. Accordingly, this study proposes a moderated-mediation model based on expectancy violation theory to investigate customers’ reactions to data breaches in non-alternative environments. Leveraging a field experiment involving 335 real victims of a significant data breach in a non-alternative setting, our findings challenge the presumed efficacy of compensation strategies. We found that although compensation can mitigate customers’ immediate reactions, it is unable to repair long-lasting beliefs in non-alternative environments. We interpret the results and provide implications for research and practice.