Service Recovery

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Service Recovery
Chapter
8

• The Impact of Service Failure and Recovery
• How Customers Respond to Service Failures
• Customers Recovery Expectations
• Service Recovery Strategies
• Service Guarantees

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Objectives for Chapter 8Service Recovery

• Illustrate the importance of recovery from
  service failures in keeping customers and
  building loyalty.
• Discuss the nature of consumer complaints and why
  people do and do not complain.
• Provide evidence of what customers expect and the
  kind of responses they want when they do
  complain.
• Present strategies for effective service
  recovery, together with examples of what does and
  does not work.
• Discuss service guaranteeswhat they are, the
  benefits of guarantees, and when to use themas a
  particular type of service recovery strategy.

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Figure 8.1Unhappy Customers Repurchase
Intentions
Unhappy Customers Who Dont Complain
9
Unhappy Customers Who Do Complain
19
Complaints Not Resolved
54
Complaints Resolved
82
Complaints Resolved Quickly
Percent of customers who will buy again after a
major complaint (over 100 in losses)
Source Adapted from data reported by the
Technical Assistance Research Program.
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The Recovery Paradox

• Q Since effective service recovery often leads
  to increased loyalty, should firms intentionally
  screw up and then recover in an effort to
  garner increased loyalty?
• A Uh, probably not. Problems w/this approach
  include
• Many customers dont complain.
• Its expensive to fix mistakes. One study reveals
  that only the very highest levels of service
  recovery result in increased satisfaction
  loyalty.
• Since Reliability is the most critical of the 5
  Dimensions, does it make sense to make deliberate
  mistakes?
• Only some customers may respond positively to
  recovery.

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Figure 8.3 Customer Complaint Actions Following
Service Failure
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Figure 8.4Causes Behind Service Switching
Pricing

• High price
• Price increases
• Unfair pricing
• Deceptive pricing

Response to Service Failure

• Negative response
• No response
• Reluctant response

Inconvenience
Competition

• Location/hours
• Wait for appointment
• Wait for service

Service Switching Behavior

• Found better service

Ethical Problems
Core Service Failure

• Cheat
• Hard sell
• Unsafe
• Conflict of interest

• Service mistakes
• Billing errors
• Service catastrophe

Service Encounter Failures
Involuntary Switching

• Uncaring
• Impolite
• Unresponsive
• Unknowledgeable

• Customer moved
• Provider closed

Switching defection
Source Sue Keaveney, Customer Switching
Behavior in Service Industries An Exploratory
Study, Journal of Marketing, April, 1995, pp.
71-82.
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Figure 8.5Service Recovery Strategies
Treat Customers Fairly
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Service Recovery 8 Key Strategies

• 1. Make the Service Fail-Safe
• Do it right the first time.
• Poka yokes automatic warnings or controls in
  place to ensure mistakes are not made.
• Create a zero defects culture
• 2. Encourage and Track Complaints
• Research satisfaction surveys, critical
  incidents studies, lost customer research.
• 3. Act Quickly
• Front line response and employee empowerment
  (Ritz Carlton and complaint ownership.
• Allow customers to fix their own problems
  usually through technology.

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Service Recovery 8 Key Strategies

• 4. Provide Adequate Explanations
• Dissatisfaction can be reduced if an adequate
  explanation is provided.
• 2 characteristics
• First, the content of the explanation must be
  appropriate.
• Second, the style of the explanation delivery is
  important.
• Explanations perceived by customers as honest,
  sincere, and not manipulative are generally the
  most effective.
• 5. Cultivate Relationships with Customers
• strong customer-firm relationships can help
  shield the firm from the negative effects of
  failures on customer satisfaction.

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Service Recovery 8 Key Strategies

• 6. Learn from Recovery Experiences
• By conducting root-cause analysis, firms can
  identify the sources of the problems and modify
  processes, sometimes eliminating almost
  completely the need for recovery.
• 7. Learn from Lost Customers
• To prevent future failures, conduct formal market
  research. This data is most effectively obtained
  by depth interviews, administered by skilled
  interviewers who truly understand the business.

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Service Recovery 8 Key Strategies

• 8. Treat Customers Fairly (see Customers
  Recovery Expectations p. 221)
• Understanding and Accountability. Customers
  expect an apology when things go wrong . . . if a
  firm provides an apology to the customer, the
  percentage of dissatisfied customers drops from
  86 to 20 percent.
• Fair Treatment. Customers look for 3 types of
  justice
• Outcome Fairness. Equitable exchanges.
• Procedural Fairness. Policies, rules, and
  timeliness of the complaint process.
• Interactional Fairness. Interpersonal treatment.

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Service Guarantees

• guarantee an assurance of the fulfillment of a
  condition (Websters Dictionary)
• in a business context, a guarantee is a pledge or
  assurance that a product offered by a firm will
  perform as promised and, if not, then some form
  of reparation will be undertaken by the firm
• for tangible products, a guarantee is often done
  in the form of a warranty
• services are often not guaranteed
• cannot return the service
• service experience is intangible
• (so what do you guarantee?)

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Figure 8.2The Hampton Inn 100 PercentSatisfactio
n Guarantee
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Exhibit 8.6Characteristics of an
EffectiveService Guarantee

• Unconditional
• the guarantee should make its promise
  unconditionally no strings attached
• Meaningful
• the firm should guarantee elements of the service
  that are important to the customer
• the payout should cover fully the customers
  dissatisfaction
• Easy to Understand and Communicate
• customers need to understand what to expect
• employees need to understand what to do
• Easy to Invoke and Collect
• the firm should eliminate hoops or red tape in
  the way of accessing or collecting on the
  guarantee

Source Christopher W.L. Hart, The Power of
Unconditional Guarantees, Harvard Business
Review, July-August, 1988, pp. 54-62.
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Service Guarantees

• Q Does everyone need to offer a guarantee?
• Reasons companies might NOT want to offer a
  service guarantee
• existing service quality is poor
• guarantee does not fit the companys image
• too many uncontrollable external variables
• fears of cheating or abuse by customers
• costs of the guarantee outweigh the benefits
• customers perceive little risk in the service
• customers perceive little variability in service
  quality among competitors