8 Service Recovery Chapter The Impact of Service Failure and Recovery How Customers Respond to Service Failures Customers’ Recovery Expectations Switching versus Staying Following Service Recovery Service Recovery Strategies Service Guarantees McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Objectives for Chapter 8: 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 do complain. Present strategies for effective service recovery, together with examples of what does and does not work. Discuss service guarantees—what they are, the benefits of guarantees, and when to use them—as a particular type of service recovery strategy.

Reliability is Critical in Service but… In all service contexts, service failure is inevitable. Service failure occurs when service performance that falls below a customer’s expectations in such a way that leads to customer dissatisfaction. Service recovery refers to the actions taken by a firm in response to service failure.

Complaining Customers: The Tip of the Iceberg

Unhappy Customers’ Repurchase Intentions

Dissatisfied Consumers’ Behavior The Retail Customer Dissatisfaction Study 2006 by the Verde Group found: 48% of respondents reported that they avoided a store because of someone else’s negative experience for those who encountered problems, 33% said they would “definitely not” or “probably not” return The exponential power of storytelling: as people tell the story, the negativity is embellished and grows 6

Customer Rage Study Conducted by In collaboration with 7

How Customers Expressed Their Displeasure

What Customers Wanted to Get Non-monetary remedies

What Complainants Got: 56% of complainants felt they got NOTHING

Ping-Ponging (Number of Contacts Needed to Resolve Complaint) Mean number of contacts Complainants = 4.3 % complainants

Length of Time to Resolve Complaints % complainants

Fairness Themes in Service Recovery

Customer Complaint Actions Following Service Failure

Service Recovery Paradox “A good recovery can turn angry, frustrated customers into loyal ones. ..can, in fact, create more goodwill than if things had gone smoothly in the first place.” (Hart et al.) HOWEVER: only a small percent of customers complain service recovery must be SUPERLATIVE only with responsiveness, redress, and empathy/courtesy only with tangible rewards even though service recovery can improve satisfaction, it has not been found to increase purchase intentions or perceptions of the brand service recovery is expensive

Service Recovery Paradox The service recovery paradox is more likely to occur when: the failure is not considered by the customer to be severe the customer has not experienced prior failures with the firm the cause of the failure is viewed as unstable by the customer the customer perceives that the company had little control over the cause of the failure Conditions must be just right in order for the recovery paradox to be present!

Causes Behind Service Switching

Service Recovery Strategies

Eight Most Common Remedies Customers Seek with Serious Problems Have the product repaired or service fixed Be reimbursed for the hassle of having experienced a problem Receive a free product or service in the future Explanation by the firm as to what happened Assurance that the problem will not be repeated A thank you for the customer’s business An apology from the firm An opportunity for the customer to vent his or her frustrations to the firm

Customer Satisfaction with Timeliness of Firm Responses to Service Failures

Service Guarantees guarantee = an assurance of the fulfillment of a condition (Webster’s 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?)

The Hampton Inn 100 Percent Satisfaction Guarantee

Characteristics of an Effective Service 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 customer’s 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

Benefits of Service Guarantees A good guarantee forces the company to focus on its customers. An effective guarantee sets clear standards for the organization. A good guarantee generates immediate and relevant feedback from customers. When the guarantee is invoked there is an instant opportunity to recover, thus satisfying the customer and helping retain loyalty. Information generated through the guarantee can be tracked and integrated into continuous improvement efforts. Employee morale and loyalty can be enhanced as a result of having a service guarantee in place. A service guarantee reduces customers’ sense of risk and builds confidence in the organization.

British Airways Guarantee

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”

Does everyone need a service guarantee? Reasons companies might NOT want to offer a service guarantee: existing service quality is poor guarantee does not fit the company’s 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

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”