McGraw-Hill © 2000 The McGraw-Hill Companies 1 S M S M McGraw-Hill © 2000 The McGraw-Hill Companies Chapter 7 SERVICE RECOVERY

McGraw-Hill © 2000 The McGraw-Hill Companies 2 S M Objectives for Chapter 7: Service Recovery Illustrate the importance of recovery from service failures in 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 complain Provide strategies for effective service recovery Discuss service guarantees

McGraw-Hill © 2000 The McGraw-Hill Companies 3 S M Figure 7-1 Unhappy Customers’ Repurchase Intentions 95% 70% 46% 37% 82% 54% 19% 9% Complaints Resolved Quickly Complaints Resolved Complaints Not Resolved Minor complaints ($1-$5 losses)Major complaints (over $100 losses) Unhappy Customers Who Don’t Complain Unhappy Customers Who Do Complain Percent of Customers Who Will Buy Again Source: Adapted from data reported by the Technical Assistance Research Program.

McGraw-Hill © 2000 The McGraw-Hill Companies 4 S M Figure 7-3 Customer Response Following Service Failure Service Failure Do NothingTake Action Stay with Provider Switch Providers Complain to Provider Complain to Family & Friends Complain to Third Party Stay with Provider Switch Providers

McGraw-Hill © 2000 The McGraw-Hill Companies 5 S M Figure 7-5 Service Recovery Strategies Learn from Recovery Experiences Treat Customers Fairly Learn from Lost Customers Welcome and Encourage Complaints Fail Safe the Service Act Quickly Service Recovery Strategies

McGraw-Hill © 2000 The McGraw-Hill Companies 6 S M Figure 7-6 Causes Behind Service Switching Service Switching Behavior High Price Price Increases Unfair Pricing Deceptive Pricing Pricing Location/Hours Wait for Appointment Wait for Service Inconvenience Service Mistakes Billing Errors Service Catastrophe Core Service Failure Uncaring Impolite Unresponsive Unknowledgeable Service Encounter Failures Negative Response No Response Reluctant Response Response to Service Failure Found Better Service Competition Cheat Hard Sell Unsafe Conflict of Interest Ethical Problems Customer Moved Provider Closed Involuntary Switching Source: Sue Keaveney

McGraw-Hill © 2000 The McGraw-Hill Companies 7 S M Service Guarantees guarantee = an assurance of the fulfillment of a condition (Webster’s Dictionary) for products, guarantee 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?)

McGraw-Hill © 2000 The McGraw-Hill Companies 8 S M Table 7-7 Characteristics of an Effective Service Guarantee Source: Christopher W.L. Hart, “The Power of Unconditional Guarantees,” Harvard Business Review, July-August, 1988, pp

McGraw-Hill © 2000 The McGraw-Hill Companies 9 S M Why a Good Guarantee Works forces company to focus on customers sets clear standards generates feedback forces company to understand why it failed builds “marketing muscle”

McGraw-Hill © 2000 The McGraw-Hill Companies 10 S M Service Guarantees Does everyone need a guarantee? Reasons companies do NOT offer guarantees: –guarantee would be at odds with company’s image –too many uncontrollable external variables –fears of cheating by customers –costs of the guarantee are too high

McGraw-Hill © 2000 The McGraw-Hill Companies 11 S M Service Guarantees service guarantees work for companies who are already customer-focused effective guarantees can be BIG deals - they put the company at risk in the eyes of the customer customers should be involved in the design of service guarantees the guarantee should be so stunning that it comes as a surprise -- a WOW!! factor “it’s the icing on the cake, not the cake”