Selling with "Satisfaction guaranteed"

Satisfaction Guaranteed is defined as a selling policy assuring that no consumer is worse off after purchase. The authors show that for a wide spectrum of guarantee policies, the most profitable policy is a Satisfaction Guaranteed policy. Setting a price equal to the willingness to pay of satisfied customers, but generously compensating dissatisfied customers for all costs involved, this policy can be a "creative device" to capture back-added economic value created for consumers through the guarantee. Comparing this policy with a no-guarantee policy, a Satisfaction Guaranteed policy comes with a higher price in a monopoly market and in a competitive market. Conditions under which selling with a Satisfaction Guaranteed policy is more profitable than selling without it are derived. Although this policy seems to be an attractive offer to consumers, the authors show that because of its high price, it may not. Easy-to-satisfy consumers are better off without the Satisfaction Guaranteed policy.