Chapter 11

Lecture 6Regaining Customer Confidence Through Customer Service and Service Recovery1

ObjectivesTo provide an overview of customer serviceTo access customer service as a strategic functionTo explore how to develop a customer service cultureTo discuss why organizations should plan for service recovery To present the steps to service recoveryTo explore the hidden benefits of service recovery2

Customer ServiceCustomer service refers to all customer-provider interactions other than proactive selling and the core product delivery offering that facilitate the organizations relationship with its customers.3

Customer Service as a Strategic FunctionCustomer Service as an Information ResourceCustomer Service as an Input for Service Design ImprovementsCustomer Service as an Opportunity to Enhance Customer Relationships4

Developing a Customer Service CultureWhen the customer service function is elevated to a strategic level, the service organization signals its importance to all employees. As a former CEO of American Express (http://www.americanexpress.com) noted, "A dissatisfied customer is an opportunity." Senior executives at MBNA (http://www.mbna.com) spend four hours each month listening in on customer service telephone calls.5

Developing a Customer Service Culture (contd)Service organizations and manufacturing organizations are realizing that customer service is a major corporate asset. One significant function of customer service is to enable the organization to recover from failures that caused customer dissatisfaction and complaints.

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Developing a Customer Service Culture (contd)

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FedExs Hierarchy of Horrors8wrong-day deliveryright day, late deliverypick-up not madelost packagecustomer misinformed by FedExbilling and paperwork mistakesemployee performance failuresdamaged packages

Service RecoveryService recovery is the effort an organization expends to win back customer goodwill once it has been lost due to service failure.9

Service RecoveryService Recovery Plays a crucial role in achieving customer satisfaction by testing a firms commitment to satisfaction and service qualityImpacts customer loyalty and future profitabilitySeverity and recoverability of failure (e.g., spoiled wedding photos) may limit firms ability to delight customer with recovery effortsService Recovery ParadoxCustomers who experience a service failure that is satisfactorily resolved may be more likely to make future purchases than customers without problemsIf second service failure occurs, the paradox disappears

Best Strategy: Do it Right the First Time10

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Customer Response Categories to Service Failures 11Dont know how to complain (i.e. process)May want to avoid confrontationDont want to take the time to write letter/email/callMay not see service important enough to bother complainingBelieve no one will be concerned with the complaintFeel complaining is stressful/unpleasant

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Understanding Customer Responses to Service FailureWhy do customers complain?Obtain compensationVent their anger emotional release from frustrationHelp to improve the service - correct the problemAltruistic reasons

What proportion of unhappy customers complain?

Why dont unhappy customers complain?

Who is most likely to complain?

Where do customers complain?

What do customers expect once they have made a complaint?

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Complaining OutcomesVoice

High => store managerMedium => sales clerkLow => no one associated with the store

Exit

High => never purchases againMedium => only purchases if other alternatives are not availableLow => continues to shop as usual13

Complaining OutcomesRetaliation

High => tells lots of people and attempts to physically damage the store

Medium => tells a few people and created minor inconveniences

Low => does not retaliate at all14

The Need for Service Recovery The High Cost of Lost CustomersLosing customers is expensive

When Is Service Recovery Needed? Each point at which the customers encounter the service organization may influence their perception of the services excellence (the moment of truth)

Other Means of Identifying Recovery Needs Many ways to detect when service recovery efforts may be needed15

Components of an Effective Service Recovery System

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 researchMonitor complaintsDevelop Complaints as Opportunity culture

Develop effective system and training in complaint handling

Conduct root cause analysis

=+

Close the loop via feedback

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Strategies to Reduce Customer Complaint Barriers

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Steps to Service RecoveryStep 1ApologyTo apologize means to admit failure, yet it is important to recognize that service organizations do sometimes fall short.Step 2Urgent ReinstatementAction is taken quickly & making an effort to correct the problem.Step 3EmpathyMaking the effort to understand & comprehend why customer is disappointed.Step 4Symbolic CompensationTo amend in some tangible way of making up for the failure.--coupon for free lunch, room upgrade on next visitStep 5Follow-upTo check whether the effort to win back customers goodwill was successful & well received.

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Service Recovery Strategy SelectionCompensatoryCompensate the customer to off-set the costs of the service failure.Coupons, discounts, free upgrade, free productsRestorationProviding an identical offering, correction to the original offering, or by offering a substitute.Total replacement, correction (defective product is repaired) or substitutionApologeticVerbal to indicate that firm is sorry either from front-line providers or upper-level management.ReimbursementProvide the customer with a refund or store credit.UnresponsiveSimply does not respond to customer complaints about service failures.

19What Should the Customer Receive to Offset the Failure?

Benefits of Service RecoveryThere are several ways systematic service recovery programs benefit an organization:The process can help improve the overall quality of service delivery as the service occurs Keeping track of the sources of dissatisfaction that create a need for recovery can help the organizationService recovery can reduce the incidence of bungled/ failed/ poor moments of truth if information regarding customers dissatisfaction is put to good use 20

Customer Complaint Management Process

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Handling a Dissatisfied CustomerA dissatisfied customer is an opportunityIsolate complaining customer in shared servicesApologize and let customer vent/outletExplain without being defensiveAllow customer to choose optionsPersonalize follow-up for satisfaction and suggestions22

23Service Guarantees

Service Guarantees Help Promote and Achieve Service LoyaltyForce firms to focus on what customers want Set clear standardsHighlight cost of service failuresHelp firm identify and overcome fail pointsReduce the risk of purchase decision and build long-term loyalty

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How to Design Service GuaranteesUnconditionalEasy to understand and communicateMeaningful to the customerEasy to invoke/appealEasy to collect onCredible25

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Is it Always Suitable to Introduce a Guarantee?It may not be appropriate to introduce guarantees whenCompanies have a strong reputation for service excellence

Company does not have good quality level

Quality cannot be controlled because of external forces

Consumers see little financial, personal, or physiological risk associated with the purchase

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27Discouraging Abusive and Opportunistic Customer Behavior

Addressing the Challenge of JaycustomersJaycustomer: A customer who behaves in a thoughtless or abusive fashion, causing problems for the firm, its employees, and other customers

More potential for mischief in service businesses, especially when many customers are present

No organization wants an ongoing relationship with an abusive customer

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Seven Types of JaycustomersThe CheatThinks of various ways to cheat the firmThe ThiefNo intention of paying sets out to steal or pay lessServices lend themselves to clever schemes to avoid payment e.g., bypassing electricity meters, circumventing TV cables, riding free on public transportationFirms must take preventive actions against thieves, but make allowances for honest but absent-minded customers

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Seven Types of JaycustomersThe RulebreakerRules guide customers safely through the service encounterGovernment agencies may impose rules for health and safety reasonsSome rules protect other customers from dangerous behavior e.g. ski patrollers issue warnings to reckless skiers by attaching orange stickers on their lift tickets

Ensure company rules are necessary, should not be too much or inflexible

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Seven Types of JaycustomersThe Belligerent (Loudmouthed)Shouts loudly, maybe mouthing insults, threats, and cursesService personnel are often abused even when they are not to be blamedConfrontations between customers and service employees can easily escalate Firms should ensure employees have skills to deal with difficult situations

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Seven Types Of JaycustomersFamily FeudersPeople who get into arguments with other customers often members of their own family

The VandalService vandalism includes pouring soft drinks into bank cash machines, slashing bus seats, breaking hotel furnitureSources: bored and drunk young people, and unhappy customers who feel mistreated by service providers take revenge Prevention is the best cure32

Seven Types Of JaycustomersThe Deadbeat (Idlers/ lazybones)Customers who fail to pay (as distinct from thieves who never intended to pay in the first place)Preventive action is better than cure e.g., insisting on prepayment; asking for credit card number when order is takenCustomers may have good reasons for not payingIf the client's problems are only temporary ones, consider long-term value of maintaining the relationship

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Web SitesStew Leonards (http://www.stew-leonards.com), p. 168Angies List(http://www.angieslist.com), p. 168Best Buy (http://www.bestbuy.com), p. 168Sprint (http://www.sprint.com), p. 169American Express(http://www.americanexpress.com), p. 17034

Web Sites (contd)MBNA (http://www.mbna.com), p. 170Sewell Village Cadillac(http://www.sewell.com), p. 173K-Mart Holding Company (http://www.kmartcorp.com), p. 174Circuit City (http://www.circuitcity.com), p. 174Holiday Inn (http://www.ichotelsgroup.com), p. 175Scandinavian Airlines (SAS)(http://www.scandinavian.net), p. 17535