Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 1

Chapter 13: Achieving Service Recovery and Obtaining Customer Feedback

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 2

Overview of Chapter 13

1. Customer Complaining Behavior

2. Customer Responses to Effective Service Recovery

3. Principles of Effective Service Recovery Systems*

4. Service Guarantees

5. Discouraging Abuse and Opportunistic Behavior

6. Learning from Customer Feedback

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

1. Customer Complaining Behavior

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 4

American Customer Satisfaction Index:Selected Industry Scores, 2006

Express m

ail,

parcels

Cars, va

ns,

etc.

Life insurance

Fast food

Restaurants

Broad

casting

(natl. n

ews)

Industry:

Soft d

rinks

Com

m. b

anks

Hotels

Perso

nal

com

puters

Airlines

Hosp

itals83 83 81

75 75 75 77

6574 77

69

0

10

20

30

40

50

60

70

80

90

100

-3.5% 2.5% 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, Accessed 9.11.2006

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

Service Encounter is Dissatisfactory

Take some form of Public Action

Take some form of Public Action

Take some form of Private

Action

Take some form of Private

Action

Take No ActionTake No Action

Complain to the service firm

Complain to the service firm

Complain to a third party

Complain to a third party

Take legal action to seek redress

Take legal action to seek redress

Defect (switch provider)

Defect (switch provider)

Negative word-of-mouth

Negative word-of-mouth

Any one or a combination of these responses is possible

Any one or a combination of these responses is possible

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? (Figure 13.3)

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)

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

Procedural Justice

Interactive

Justice

Interactive

JusticeOutcome

Justice

Outcome

Justice

Complaint Handling and Service Recovery Process

Complaint Handling and Service Recovery Process

Justice Dimensions of the Service Recovery Process

Customer Satisfaction with

Service Recovery

Customer Satisfaction with

Service RecoverySource: Tax and Brown

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 9

2. Customer Responses to Effective Service Recovery

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 10

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

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 11

How Complaint Resolution AffectsCustomer Retention Rates

9%

37%

19%

46%54%

70%

82%

95%

0102030405060708090

100

Customer did notcomplain

Complaint wasnot resolved

Complaintwas resolved

Complaint wasresolved quickly

Problem cost > $100 Problem cost $1–$5

Percent of UnhappyCustomers Retained

Source: Claes Fornell, Birger Wernerfelt, “A Model for Customer Complaint Management,” Marketing Science, Vol. 7, No. 3 (Summer, 1988), pp. 287–298

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

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

3. Principles of Effective Service Recovery Systems

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

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

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 (ex: Ritz Carlton)

Plan recovery procedures

Teach recovery skills to relevant personnel

Empower personnel to use judgment and skills to develop recovery solutions

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 17

4. Service Guarantees

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

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

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 19

The Hampton Inn 100% Satisfaction Guarantee (Fig 13.5)

What are benefits of such a guarantee?

Are there any downsides?

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 20

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

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 21

How to Design Service Guarantees

Unconditional

Easy to understand and communicate

Meaningful to the customer

Easy to invoke

Easy to collect

Credible

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 22

5. Discouraging Abuse and Opportunistic Behavior

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 23

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

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 24

6. Learning from Customer Feedback

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 25

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

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 26

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

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 27

Key Customer Feedback Collection Tools:Strengths and Weakness (Table 13.3)

COLLECTION TOOLS FIRM PROCESSTRANSACTION

SPECIFIC ACTIONABLEREPRESENTATIVE

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.

Slide © 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 28

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