McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved Chapter 7 Service Recovery The Impact of Service Failure and Recovery How Customers Respond to Service Failures Why Do (and Don’t) People Complain? When They Complain, What Do Customers Expect? Switching vs. Staying Following Service Recovery Service Recovery Strategies Service Guarantees

McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved Objectives for Chapter 7: Service 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 complain. Provide strategies for effective service recovery. Discuss service guarantees.

McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved 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/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved Figure 7.3 Customer Complaint Actions Following Service Failure

McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved Figure 7.4 Fairness and Satisfaction Source: Reproduced from S.S. Tax and S. W. Brown, “Recovering and Learning from Service Failure, “ Sloan Management Review, Fall 1998, p. 80.

McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved Learn from Recovery Experiences Treat Customers Fairly Learn from Lost Customers Welcome and Encourage Complaints Fail Safe the Service Act Quickly Service Recovery Strategies Figure 7.5 Service Recovery Strategies

McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved 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, “Customer Switching Behavior in Service Industries: An Exploratory Study,” Journal of Marketing, April, 1995, pp

McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved 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/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved Figure 7.7 Characteristics of an Effective Service Guarantee Unconditional The guarantee should make its promise unconditionally - no strings attached. Meaningful It should guarantee elements of the service that are important to the customer. The payout should cover fully the customer's dissatisfaction. Easy to Understand and Communicate For customers - they need to understand what to expect. For employees - they need to understand what to do. Easy to Invoke and Collect There should not be a lot of 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

McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved Figure 7.2 The Hampton Inn 100 Percent Satisfaction Guarantee

McGraw-Hill/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved 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/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved 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/Irwin ©2003. The McGraw-Hill Companies. All Rights Reserved 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”