8Chapter

Service Recovery

The Impact of Service Failure and Recovery

How Customers Respond to Service Failures

Customers’ Recovery Expectations Service Recovery Strategies Service Guarantees

8Chapter

Service Recovery

Doing it right the first time

When failure occurs

Customer Complaints

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Figure 8.3

Customer Complaint Actions Following Service Failure

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Figure 8.1

Unhappy Customers’ Repurchase Intentions

82%

54%

19%

9%

Complaints Resolved Quickly

Complaints Resolved

Complaints Not Resolved

Unhappy Customers Who Don’t Complain

Unhappy Customers Who Do Complain

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.

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Figure 8.4

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 serviceCompetition

• 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. 71-82.

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Types of Complainers

1. Passives- Don’t Complain2. Voicers- complain but don’t do negative things3. Irates- Angry, Negative WOM, likely to switch4. Activists- beyond complaining

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Why do people complain?

Restitution

Self-Esteem

Theoretical Explanation

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Cognitive Appraisal Theory

1. The Primary Appraisal

PositiveIrrelevantStressful (harmful, threatening)

Goals and/or Ego

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Cognitive Appraisal Theory

1. The Secondary Appraisal (How do I deal with)

A. Assign Blame (Internal, External, Situation)B. Assess AlternativesC. Assess Future ExpectationsD. Strategies

1. Problem Focused (Directed Externally)2. Emotion Focused3. Avoidance (Exit)

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Complaining

Are there costs of Complaining?

What do complainers expect?

1. Timely response2. Courtesy3. Fairness

OutcomeProceduralInteraction

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

The Recovery Paradox

Many studies have supported

Excellent Service Recovery leads to higher Satisfaction than if the failure had never occurred

Latest research shows not for repeated failure

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Service Failure Types

1. Core Service Failure

2. Customer Needs & Requests

3. Unprompted ActionsLack of AttentionNorms, Courtesy, RespectFairness, Honesty, etc.

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Learn from R

ecovery E

xperiences

Act

Qui

ckly

Treat Customers Fairly

Fail-safethe Service

Cultivate Relationships

with Customers

Encourage and Track

Complaints

Provide

Ade

quate

Explan

ation

s

Learn

from Lo

st

Custom

ers

ServiceRecoveryStrategies

Figure 8.5

Service Recovery Strategies

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Recovery Strategies

Welcome Complaints Act Quickly Be Fair Learn from Experiences Learn from lost customers

Practical Guide Win-Win Complaint Handling

The Person and the Problem (Process / Outcome) The Complaint Opportunity Physical vs Psychological Restitution

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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?)

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Figure 8.2

The Hampton Inn 100 PercentSatisfaction Guarantee

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Exhibit 8.6

Characteristics 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 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 guaranteeSource: Christopher W.L. Hart, “The Power of Unconditional Guarantees,” Harvard Business Review, July-August, 1988, pp. 54-62.

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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.

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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”

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Service Guarantees

Does everyone need a 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

© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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”