1. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 1 Chapter 13: Achieving Service Recovery and Obtaining Customer Feedback

2. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 2 Overview of Chapter 13  Customer Complaining Behavior  Customer Responses to Effective Service Recovery  Principles of Effective Service Recovery Systems  Service Guarantees  Discouraging Abuse and Opportunistic Behavior  Learning from Customer Feedback

3. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 3 Customer Complaining Behavior

4. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 4 American Customer Satisfaction Index: Selected Industry Scores, 2006 Express mail, parcels Cars, vans, etc. Life insurance Fast food Restaurants Broadcasting (natl. news) Industry: Soft drinks Comm. banks Hotels Personal computers Airlines Hospitals 83 81 75 77 65 74 77 69 0 10 20 30 40 50 60 70 80 90 100 -3.5%2.5% -7.4%1.4%0.0%-1.3%-9.7%-4.1%11.6%-10.4% % Change 2006 vs. 2005 Score (Max = 100) Source: www.theacsi.org,www.theacsi.org Accessed 9.11.2006

5. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 5 Customer Response Categories to Service Failures (Fig 13.1) Service Encounter is Dissatisfactory Take some form of Public Action Take some form of Private Action Take No Action Complain to the service firm Complain to a third party Take legal action to seek redress Defect (switch provider) Negative word-of- mouth Any one or a combination of these responses is possible

6. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 6 Understanding Customer Responses to Service Failure  Why do customers complain?  What proportion of unhappy customers complain?  Why don’t unhappy customers complain?  Who is most likely to complain?  Where do customers complain?  What do customers expect once they have made a complaint?

7. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 7 Customers Often View Complaining as Difficult and Unpleasant (Fig 13.2)

8. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 8 Three Dimensions of Perceived Fairness in Service Recovery Process (Fig 13.3) Procedural Justice Interactive Justice Interactive Justice Outcome Justice Outcome Justice Complaint Handling and Service Recovery Process Justice Dimensions of the Service Recovery Process Customer Satisfaction with Service Recovery Customer Satisfaction with Service Recovery Source: Tax and Brown

9. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 9 Customer Responses to Effective Service Recovery

10. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 10 How Complaint Resolution Affects Customer Retention Rates 9% 37% 19% 46% 54% 70% 82% 95% 0 10 20 30 40 50 60 70 80 90 100 Customer did not complain Complaint was not resolved Complaint was resolved Complaint was resolved quickly Problem cost > $100Problem cost $1–$5 Percent of Unhappy Customers Retained Source: Claes Fornell, Birger Wernerfelt, “A Model for Customer Complaint Management,” Marketing Science, Vol. 7, No. 3 (Summer, 1988), pp. 287–298

11. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 11 Importance of Service Recovery  Plays a crucial role in achieving customer satisfaction  Tests a firm’s commitment to satisfaction and service quality  Employee training and motivation is highly important  Impacts customer loyalty and future profitability  Complaint handling should be seen as a profit center, not a cost center

12. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 12 The Service Recovery Paradox  Customers who experience a service failure that is satisfactorily resolved may be more likely to make future purchases than customers without problems (Note: not all research supports this paradox)  If second service failure occurs, the paradox disappears— customers’ expectations have been raised and they become disillusioned  Severity and “recoverability” of failure (e.g., spoiled wedding photos) may limit firm’s ability to delight customer with recovery efforts  Best strategy: Do it right the first time

13. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 13 Principles of Effective Service Recovery Systems

14. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 14 Components of an Effective Service Recovery System (Fig 13.4) Do the job right the first time Effective Complaint Handling Identify Service Complaints Resolve Complaints Effectively Learn from the Recovery Experience Increased Satisfaction and Loyalty Conduct research Monitor complaints Develop “Complaints as opportunity” culture Develop effective system and training in complaints handling Conduct root cause analysis =+ Close the loop via feedback

15. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 15 Strategies to Reduce Customer Complaint Barriers (Table 13.1) Complaint Barriers for Dissatisfied Customers Strategies to Reduce These Barriers Inconvenience  Hard to find right complaint procedure  Effort involved in complaining  Put customer service hotline numbers, e-mail and postal addresses on all customer communications materials Doubtful Pay Off  Uncertain if action will be taken by firm to address problem  Have service recovery procedures in place, communicate this to customers  Feature service improvements that resulted from customer feedback Unpleasantness  Fear of being treated rudely  Hassle, embarrassment  Thank customers for their feedback  Train frontline employees  Allow for anonymous feedback

16. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 16 How to Enable Effective Service Recovery  Be proactive—on the spot, before customers complain  Plan recovery procedures  Teach recovery skills to relevant personnel  Empower personnel to use judgment and skills to develop recovery solutions  See Service Perspectives 13.2: Guidelines For Effective Problem Resolution

17. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 17 How Generous Should Compensation Be?  Rules of thumb for managers to consider:  What is positioning of our firm?  How severe was the service failure?  Who is the affected customer?

18. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 18 Service Guarantees

19. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 19 Service Guarantees Help Promote and Achieve Service Loyalty  Force firms to focus on what customers want  Set clear standards  Highlight cost of service failures  Require systems to get and act on customer feedback  Reduce risks of purchase and build loyalty

20. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 20 How to Design Service Guarantees  Unconditional  Easy to understand and communicate  Meaningful to the customer  Easy to invoke  Easy to collect  Credible

21. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 21 Types of Service Guarantees Table 13.2  Single attribute-specific guarantee  One key service attribute is covered  Multiattribute-specific guarantee  A few important service attributes are covered  Full-satisfaction guarantee  All service aspects covered with no exceptions  Combined guarantee  All service aspects are covered  Explicit minimum performance standards on important attributes

22. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 22 The Hampton Inn 100% Satisfaction Guarantee (Fig 13.5)  What are benefits of such a guarantee?  Are there any downsides?

23. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 23 Discouraging Abuse and Opportunistic Behavior

24. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 24 Dealing with Customer Fraud  Treating all customers with suspicion is likely to alienate them  TARP found only 1 to 2 percent of customer base engages in premeditated fraud—so why treat remaining 98 percent of honest customers as potential crooks?  Insights from research on guarantee cheating  Amount of a guarantee payout had no effect on customer cheating  Repeat-purchase intention reduced cheating intent  Customers are reluctant to cheat if service quality is high (rather than just satisfactory)  Managerial implication  Firms can benefit from offering 100 percent money-back guarantees  Guarantees should be offered to regular customers as part of membership program  Excellent service firms have less to worry about than average providers

25. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 25 Learning from Customer Feedback

26. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 26 Key Objectives of Effective Customer Feedback Systems  Assessment and benchmarking of service quality and performance  Customer-driven learning and improvements  Creating a customer-oriented service culture

27. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 27 Customer Feedback Collection Tools  Total market surveys  Post-transaction surveys  Ongoing customer surveys  Customer advisory panels  Employee surveys/panels  Focus groups  Mystery shopping  Complaint analysis  Capture service operating data

28. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 28 Key Customer Feedback Collection Tools: Strengths and Weakness (Table 13.3) COLLECTION TOOLS FIRM PROCESS TRANSACTION SPECIFIC ACTIONABLE REPRESENTATIVE RELIABLE POTENTIAL FOR SERVICE RECOVERY FIRST HAND LEARNING COST EFFECTIVENESS LEVEL OF MEASUREMENT TOTAL MARKET SURVEY (INCLU. COMPETITORS) ANNUAL SURVEY ON OVERALL SATISFACTION TRANSACTIONAL SURVEY SERVICE FEEDBACK CARDS MYSTERY SHOPPING UNSOLICITED FEEDBACK (e.g., COMPLAINTS) FOCUS GROUP DISCUSSIONS SERVICE REVIEWS Source: Adapted from Jochen Wirtz and Monica Tomlin, “Institutionalizing Customer-Driven Learning Through Fully Integrated Customer Feedback Systems.” Managing Service Quality,10, no.4 (2000): p. 210.

29. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 29 Entry Points for Unsolicited Feedback  Frontline employees  Intermediaries acting for original supplier  Managers contacted by customers at head/regional office  Complaint cards deposited in special box or mailed  Telephone or e-mail  Complaints passed to company by third-party recipients  Consumer advocates  Trade organizations  Legislative agencies

30. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 30 Summary of Chapter 13: Service Recovery and Customer Feedback (1)  When customers are dissatisfied, they can  Take some form of public action  Take some form of private action  Take no action  To understand customer responses to service failures, some questions to ask are:  Why do customers complain?  What proportion of unhappy customers complain?  Why don ’ t unhappy customer complain?  Who is most likely to complain?  Where do customers complain?  What do customers expect once they have made a complaint?

31. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 31 Summary of Chapter 13: Service Recovery and Customer Feedback (2)  Effective service recovery can lead to customer loyalty  The service recovery paradox does not always hold true — better to get it right the first time  Components of an effective recovery system include:  Doing it right the first time  Effective complaint handling  Identifying service complaints  Resolving complaints effectively  Learning from the recovery experience

32. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 32 Summary of Chapter 13: Service Recovery and Customer Feedback (3)  Guiding principles for effective service recovery include:  Make it easy for customers to give feedback  Enable effective service recovery  Focusing on how generous compensation should be  Dealing with complaining customer  Issues to consider in having services guarantees are:  Power of service guarantees  How to design service guarantees  Is full satisfaction the best a firm can guarantee?  Is it always appropriate to introduce a service guarantee?  To discourage abuse and opportunistic behavior, we need to deal with customer fraud

33. Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 33 Summary of Chapter 13: Service Recovery and Customer Feedback (4)  We can learn from customer feedback — key objectives:  Assessment and benchmarking of service quality and performance  Customer-driven learning and improvements  Creating a customer-oriented service culture  A mix of customer feedback collection tools can help to deliver needed information to firms  Total market surveys, annual survey, and transactional surveys  Service feedback cards  Mystery shopping  Unsolicited customer feedback  Focus group discussions and service reviews  Capture unsolicited feedback  Feedback must be analyzed, reported, disseminated, and used