8-1

Service Recovery

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

ChapterChapter

88

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

8-2

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.

8-3

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.

8-4

Complaining Customers:The Tip of the Iceberg

8-5

Unhappy Customers’ Repurchase Intentions

8-6

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

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In collaboration with

Customer Rage Study Conducted by

8-8

How Customers Expressed Their Displeasure

Expressions of displeasure Respondents -

Problem

Shared the story with my friends/other people 85%

Complained to the org. that caused the problem1 84%

Decided I'd never do business/come back again 59%

Threatened to talk with/contact management 55%

Yelled or raised my voice 24%Threatened to report the org. that caused the problem to a gov't regulatory agency

16%

Threatened legal action 7%

Threatened to contact the media 6%

Cursed/used profanity 6%

8-9

What Customers Wanted to Get

Wanted to getRespondents -

ProblemProduct repaired/service fixed 85%Explanation of why problem occurred 78%

Assurance problem wouldn't be repeated 78%Apology 59%Chance to vent 58%Money back 49%Free product or service in the future 30%Financial compensation for my lost time, inconvenience or injury

23%

Revenge -- make them pay for the hassle and inconvenience

11%

Other 9%

Non-monetary remedies

8-10

What Complainants Got:

56% of complainants felt they got

NOTHING

8-11

Ping-Ponging (Number of Contacts Needed to Resolve Complaint)

18% 18% 19%

11%7% 6%

21%

0%

20%

40%

60%

80%

100%

One Two Three Four Five Six Seven ormore

% c

om

pla

ina

nts

Mean number of contactsComplainants = 4.3

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Length of Time to Resolve Complaints

4% 7%

15%

5% 3%

19%

46%

0%

20%

40%

60%

80%

100%

Immed. Less than 1day, but not

immed.

1-7 days 8-14 days 15-28 days 28 + days Still notresolved

% c

om

pla

ina

nts

8-13

Fairness Themes in Service Recovery

8-14

Customer Complaint Actions Following Service Failure

8-15

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

8-16

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!

8-17

Causes Behind Service Switching

8-18

Service Recovery Strategies

8-19

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

8-20

Customer Satisfaction with Timeliness of Firm Responses to Service Failures

8-21

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?)

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The Hampton Inn 100 PercentSatisfaction Guarantee

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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 guarantee

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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.

8-25

British Airways Guarantee

8-26

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”

8-27

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

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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”