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Service Failure and Recovery

1

Service Failure and Recovery

Table of contents

Introduction------------------------------------------------------------------------3

Main Content

What is service--------------------------------------------------------------------4

Characteristics of Service--------------------------------------------------------5

Why service goes wrong?--------------------------------------------------------8

What is service failure?----------------------------------------------------------8

Types of service failures---------------------------------------------------------8

Service recovery-----------------------------------------------------------------10

The key of service recovery---------------------------------------------------10

Service recovery strategies----------------------------------------------------12

Relationship marketing in service--------------------------------------------14

Brand Equity in service--------------------------------------------------------17

Conclusion-----------------------------------------------------------------------20

References------------------------------------------------------------------------21

2

Service Failure and Recovery

Introduction

Building strong brands is of indispensable for high-tech and service areas. The

world’s overall service exports increased by 12.0% between 2000 and 2008 (Ref:

World Trade Organization 2009). At the same time, the three major exporters

experienced an export growth of commercial services of 22.8% (US), 38.2%

(Germany), and even 77.9% (UK) higher than the export growth of manufactured

goods (World Trade Organization 2009). Many people start to know service is

important, but do they know the real service? And how to serve customers. This is not

a simply smile.

This essay will introduce what is service firstly, this part includes the definition and

the characteristics of service. Secondly, the discussion is about why service goes

wrong-the service failure. After that the service recovery comes, except introduce the

definition, the author focus more on service recovery strategy. Last but not least, how

to measure the result of these strategies also will be discussed in the last part.

What is service?

Services cannot be called minor or unimportant part of western economies, but go to

the major view of value creation. The service sector is not novel, as proved by biblical

references to innkeepers and financial helpers among others. Today nearly all of the

goods we buy have an element of service somewhere. We can readily increase

activities such as accountancy, banking as being service based. Also a swath of goods

relies on service-based actions to give them usage worth, and a marketing advantage

over other competitors. Many sophisticated goods such as television sets and washing

machines pertain to service offers relying on delivery, financing, insurance and

3

maintenance benefits. (Palmer, 2008)

There are many definitions of constitution of service. Modern definitions are based on

the facts that a service alone is not giving any tangible output, but inturn helping in

the production of these goods. A genuine definition of a service was given by The

Economic, which states that service is "anything that cannot be dropped on your

foot." The definition that would be implemented with reference to this paper is: "Any

indispensable intangible facility, either by itself or as a significant element of a

tangible product, that is requisite in some form of exchange and satisfies an

identified need." (Palmer, 2008) While only a definition is far away to understand

what is service, the characteristics of service can not be ignored when discuss about it.

Characteristics of Service

Service has various unique characteristics that separates them from goods and have

implications how they need to be are marketed. These characteristics very often are

mentioned as intangibility, variability, non-perennial nature and the inability to own a

service. These are referred herewith: (Palmer, 2008)

Intangibility

Every pure service is assessed; it can hardly be checked or scrutinized before it is

purchased. A prospective purchaser of most goods of this category is able to scrutinize

goods for physical integrity, reliability, genuine appearance, flavor, arome etc.

However many advertising say examining these tangible properties could be possible

by inspection prior to purchase. But pure services have no tangible properties that the

customer can use to examine advertising claims before the purchasing them. The

intangible process features mentioning services, such as genuine faith, personal care,

4

staff behaviour, their efficacyetc., can only be scrutanized after purchasing or

consuming that service. (Palmer, 2008)

Inseparability

The production and consumption of a tangible good are very different from each other.

Production of goods takes place by companies in one central location and then they

are transported to places where there is greatest probability of customers purchasing

them. Thus, the large scale manufacturing firms can acquire economies of scale

through a centralized producing unit and can maintain centralized measures for

quality control. The manufacturing firms also have the advantage to manufacture

goods at time as per their convenience; and make them available to customers at times

that are convenient to customers. Consumption and Production are very different yet

inseparable from each other. Consumption of a service is said to be interlinked and

dependent on its means of production. The interaction of the producer offering the

goods and the consumer buying the goods is important for the benefits of the service

to be realized. There should be adequate interaction: taking in consideration the

suitability of time and place for both the parties so that the producer can directly pass

on service benefits to the consumers. However when talking about specific cases of

personal care services, the presence of the customer is necessary through out the

entire process of production: for example-a surgeon can perform an operation on a

patient only when the patient is actually present there; so the complete involvement of

the consumer is required here. In this context marketing has emerged as an excellent

means of improving complex producer-consumer interaction; it cannot be called a

mere medium of exchange in today’s context. (Palmer, 2008)

Perishability

Services differ from goods in terms of tangibility: the former cannot be stored. A car

5

manufacturing company can easily bring forward its excess stocks if it is unable to

sell all of its output in the current period. It is a mojor advantage for goods

manufacturing company; apart from the storage costs, financing costs and the

possibility of loss through some sort of catastrophy. On the contrary, a service

producer that cannot sell all of its output produced in the current period does not get

such opportunity to carry forward the service for sale in the subsequent financial

period. An airline offering a flight from Paris to New York at 8 AM cannot carry

forward its services ( vacant seats) once the aircraft has left at 8.00 am. The service

becomes ineffective once the scheduled time elapses and spare seats cannot be kept to

meet any increase in demand if it is anticipated the next hour. (Palmer, 2008)

Ownership

Service to a large extent depends upon the characteristics of intangibility and

perishability. Buyers have the right to thoroughly evaluate the required item while

purchasing; the final decision to purchase lies in the hands of the buyer as they are

free to what they want and can even in turn sell the product to a third party. But when

a service is provided to the customer, the ownership still remains with the seller. The

buyer/ customer is simply purchasing the right to benefit from a service process such

as the use of a public park or a solicitor's time. However; there is a difference between

the inability to own the service and the rights owned to acquire a service in future.

Example buying a theatre ticket gives the buyer a temporary right to avail the facility

at some specific time in future; it does not entitle him to avail the service always at his

beck and call. Lovelock and Gummesson 2004 have defined the concept of

rental/rights as a service where it is not possible to provide the ownership of a product

to another person through an exchange or transaction medium.

This factor of inability to own a service in turn has some specific lay out

methodologies for the architecture of distribution channels; such that the wholesaler

6

or retailer is not empowered to take title, as is the case with goods. Instead, the newer

direct distribution methods are popular where subsequent intermediaries are present,

very often playing the role of a co-producer with the service provider. (Palmer, 2008)

Over all, the service is a type of economic activity that is intangible, inseparable and

variable, not stored and does not result in ownership. Services are one of the two key

components of economics, the other being goods. Therefore, the service is very

important to each company, while is it go right in every organization.

Why service goes wrong:

The requirement of each person is different, therefore it is impossible for one product

to satisfy all customers. Very often services provided to the customers are not in

accordance to their requirements or the way they anticipated them to be; leaving

customers dissatisfied. A major reason for this discontentment is the inseparable and

intangible nature of services. A customer may define a service failure as an

unfavourable situation where something has gone wrong or out of the customer’s

anticipation; irrespective of responsibility. Personal and high contact services are

intertwined and interlinked; as a result service failure usually cannot be disguised

from the customer. Service failure can be a minor negligible such as a short delay or

smallinconvenience to the customer; or sometimes my also result in a grave issue,

such as a food poisoning incident. (Palmer, 2008)

What is service failure:

Service failures can be referred to a state of sheer customer dissatisfaction mainly due

to any service related mishaps or infelicitous conditions (real or perceived) that has

serious repercussions on the customer's experience with a firm (Maxham, 2001).

7

Depending on the characteristics, service failures can be of two types: outcome and

process. The former is pertaining to complicationswith the core service supply that the

customer is getting in the name of service; the latter one refers to some outcomes that

inturn make the service unpleasant for the customer; example service delay, a cold

attitude towards the customer etc. Smith et al support this type of classification with

special reference to the banking sector; very often it can be seen that there are

outcome failures, such as lack of reliability and folly, and process failures, such as

unhealthy communication with a bank employee.

Types of service failures

The consequences of service failures are not similar in each case since the outcome

failure consequences are way different from those in a process failure. Smith et al

(2009) has mentioned this on the basis of mental accounting principles and prospect

theory. As feelings and contentment are outcomes to specific circumstances

(Zeelenberg and Pieters, 2004 ), it can be suggested that each type of service failure

will have a distinct impact on customers’ feelings and contentment.

Bagozzi et al (1999) states that emotions/ feelings basically behave as broad classes of

positive and negative affects; which inturn means that there are two basic aspects of

emotion (Oliver, 1993; Westbrook, 1987). The division of emotions in two groups

–positive and negative is beneficial because these divisions can act as a tool to

understand and interpret a person’s attitude, and the austerity of the case (Laros and

Steenkamp, 2005 ).

In a service failure condition, buyers do not gain any positive experiences;so it is only

the negative emotions- resentment, anger, disappointment and loss of faith that need

to be considered.A detailed explanation to this would be in considering the types of

failure that result in such negative emotions and discontentment. (Neira et al, 2010)

8

Nicholls et al (1995) inferred that customer contentment depends on the swiftness of

the process and the employees’ intimacy, attention, proficiency and professionalism.

Smith et al (1994) has revealed that there was more discontentments among customers

who experienced process failures than those having outcome failures. Similarly

Hoffman et al’ (1995) demonstrated that failures as a result of employees’ attitude

towards the customers have most grave consequences unlike issues pertaining to

faulty systems. In another study Gwin and Lindgren (1986) were capable of proving

that for financial services the customer- service provider relationship has more

importance than the service implication. Finally, Al-Eisa and Alhemoud (2009) have

inferred that a swift and friendly service, warmth and helpfulness of employees are

requisite for strong customer bonding and contentment especially with reference to

retail banks.

Outcome failures are in fact the right plans and procedure that due to chance or

negligence result in unpleasant consequences. Thus, the customer will rate it

negatively but there is no negative emotion associated with it. On the other hand, a

process failure is in fact a wrong plan or strategy which very often appears intentional

with a favourable result. This results in the customer developing a sense of treachery

and negative thoughts towards the service provider. (Neira et al, 2010)

So al together it can be inferred that service failures develop negative thoughts and

opinion in the customers. If unresolved, it can even result in customers leaving the

service provider and suggesting other customers not to have any terms with them and

even challenging the organization through consumer rights bodies or legal channels.

9

Service recovery

Service failure cannot be avoided every time; so it is important to think of plans for

service recovery. Service recovery incorporates actions aimed to resolve problems,

diminish negative emotions of discontented customers and eventually retain these

customers" (Miller et al., 2000), and it encompasses conditions where a service failure

occurs but customers show no negativity towards it (Smith et al., 1999). Further,

Johnston (1994) defines it as to "seek out and approach service failures directly" the

"seeking out" differentiates recovery from complaint handling, as many discontented

customers do not complain.

The key of service recovery

Successful service recovery has significant benefits. It increases customers'

anticipation of the efficiency of the service and the company; result in positive and

healthy communication; increase customers-satisfaction; and develop customer

bonding, loyalty and eventually effect the company’s profits (Bitner et al, 1990; Hart

et al., 1990; Spreng et al, 1995; Michel, 2001).

However, the extent of success is based on:

A, the kind of service provided (Mattila, 2001)

B, the kind of service failure (McDougall and Levesque, 1990)

C, the swiftness in responding (Boshoff, 1997)

In this essay, the author already introduced the type of service and service failure,

while what is the speed of response and why it is also important to service recovery.

The swiftness in responding to service failure is the time the customer must wait to

receive a response from the service provider; be it positive or negative. It is a major

point of concern in both the complaints and the service encounters literature. (Kelley

10

et al, 1993; Clemmer and Schneider, 1996; Taylor, 1994). But the real or objective

time and perceived or subjective waiting time are not the same and this needs to be

shown effectively. According to Pruyn and Smidts (1998), the latter effects the

customer’s analysis to a greater extent.

The equity theory suggests that a delay in the service recovery increases the perceived

inequity in the bonding between the service provider and the buyer by adding to the

damages claimed by the customer (Maister, 1985). This is mainly due to the

importance of time in everyone’s lives. Prolonged delay in service recovery will add

to the customer dissatisfaction. Customers are very conscious that a bank is actually

concerned for their problems and needs or not and becomes disappointedwhen there is

no help available readily (Lewis and Spyrakopoulos, 2001).

Therefore, the swiftness in responding to the service failure can be inferred as an

indication to recovery status and service quality (Wirtz and Mattila, 2004). Most of

the studies on this topic support that the swiftness in responding has a major impact

on customers' evaluations of the service which involves contentment as well (Boshoff,

1997; McDougall and Levesque, 1999; Swanson and Kelley, 2001).

Thus, customers are more contented with the service recovery when there is swiftness

in responding to the service failure. But in addition to rapid response, choose the right

strategy is more important.

Service recovery strategies

Service recovery strategies involve the actions taken by the service providers in

response to the service failures; these involve an amalgamation of psychological

recoveries and tangible efforts, and are a topic of consideration for several researchers

in this area. Bitner et al. (1990) has referred to the critical incident technique or

11

open-ended survey which gives respondents the liberty to emphasize any service

problem they have faced in order to identify and develop service recovery strategies.

Some of the strategies and plans that were inferred after such analysis were: Pardon;

Briefing; Amendment; Empathy; Compensation; Follow-up; Acknowledgment;

Special emphasis; and Managerial intervention. The author thinks that all the recovery

strategies can be classified into below three types according to the time when they can

be used.

Acknowledgment – Apology (explanation)

An acknowledgment and apology (explanation) are usually necessary planks of

service recovery. They should be used at the first time when service failure occurs.

The propose is to appease the customer's mood, avoid the situation from deteriorating.

An acknowledgment/apology can be referred to as a psychological compensation.

Unless really is inevitable objective reasons, or too mach explanation may let person

antipathetic (Davidow, 2000). An apology is the most appropriate way of gaining

customer’s confidence and esteem (a social resource) in such conditions as in the

banking sector (Walster and Walster, 1973 ).

In accordance with equity theory providing equity in the customer- service provider

bonding after a service failure, it is acceptance of mistake is required and apology is

indispensable (Boshoff and Leong, 1998). An apology refers to the acceptance given

by the organization accepting the losses or inconvenience suffered by the customer

and inturn trying to amend in the best possible way (Kelley et al., 1993 ). This in turn

strengthens the customer’s evaluation of the recovery system (Kelley et al., 1993 ) by

revealing the concern the organization has towards the customer who was affected by

the service failure.

Jenks (1993) declares customers do expect the organization to accept the folly in case

12

of a service failure. Like ways, Johnston and Fern (1999) state that apologies are

essential to achieve contentment with regain of financial services. Similarly, several

authors prove that an acceptance of folly strengthens customers’ idea of contentment

and justice. (Hart et al., 1990; Bitner, et al., 1990; Goodwin and Ross, 1992; Conlon

and Murray, 1996)

Thus, there is a much higher degree of reliability and contentment in the customer’s

part when the service provider gives an apology in case of service failure

.

Compensation strategy

After the customer calmed down, how to make up the fault is need to be consider

about. For the redevelopment of equity in the exchange process, it is importantthat the

the service providershould pay for the losses suffered by the customer due to service

failure on the organization’s part. (Walster et al, 1973). A wide range of studies on the

topic reveal that customers anticipate compensation after a service failure. (Blodgett,

et al, 1997).Specifically, Lewis and Spyrakopoulos (2001) reveal that retail banking

customers on a service failure anticipate to get what was to be provided to them in the

first place to make things smooth and normal between the two parties. Thus a most

probable recovery strategy is the pay for the losses beared by the customer(Bell and

Ridge, 1992; Zemke, 1994). The key concept of a compensation strategy is to

compensate the customer for the losses du to the failue of services on the

organization’s part and try and fabricate a balance wherein there is neither loss nor

profit and contentment for both the parties(Boshoff, 1997). Thus to develop equity

again, it is imperative to compensate the customer for their losses that includes

redirecting the transaction and exchanging the good if possible or refunding the

money. Precisely saying, a compensation strategy elavates customer belief on the

organization even in case of service failures. (Miller et al, 2000, Ruyter and Wetzels,

13

2000; Bitner et al, 1990; Boshoff, 1997; Duffy et al, 2006)

Thus, customer belief on the organization is higher when the service provider offers

compensation in cases o service failures than when it does not.

Correction

After the apology and compensation, it is not mean all things already finished. It is

more important to find out the reasons why lead to the service failure. Even a small

service failure event could destroy a brand. And the compensation also leads to a lost

of interest more or less. So the following work is avoid the same thing to happen

again.

Although the above strategies can be used after the service failure occurs, the real

service recovery strategy means something more than them. For example, using the

relationship marketing to build strong links with customers is a depth and long-term

strategy.

Relationship marketing in service

For the materialization of services marketing is requisite. Berry(1983) has defined

relationship marketing as “method to allure and attract customers and – in multi-service

organizations – strengthening customer relationships”. In fact relationship marketing

pertains to all marketing methodologies aimed in creating, developing and maintaining

healthy relational exchanges. Morgan and Hunt (1994)

Successful bonding between partners is a long term process; gradually fabricated with

the passage of time. Five distinct phases are present with reference to this process:

(Scanzoni, 1979). Awareness is the initial phase in this bonding cycle and states that the

consideration of second partner as an appropriate exchange partner is important. The

14

parties are not interacting with each other; it is just an effort to maintain a strong

relation that can elevate their attraction toward other organizations.

The next phase is exploration; it is the investigation process and initial phase in

relational exchange. Here the first step is consideration of the pros and cons, benefits

and losses, burdens and liabilities by the potential exchange partners.

The third phase is called expansion or elaboration; it involves the incessant growth of

profits achieved by exchange partners and their increasing escalating collaboration.

However the basic difference between exploration and elaboration is that here there is

mutual faith between the partners and also a sense of contentment. If relationships

develop then commitment is formed between the two business partners.

Commitment is the most requisite part of relationships and pertains to a conspicuous or

inconspicuous sense of relational development between exchange partners (Dwyer et

al., 1987). Two major factors affect the growth of ccommitment; the first is that both the

partners need to put in significant measure of inputs to their collaboration. The second

assumption is based on the reliability which is the extent to which they can rely on each

other with respect to a long term association.

The last phase of successful bonding development is dissolution. Here there is involved

a sense of intrapsychic temperament wherein one party secretly evaluates its

discontentment with the other party, deducing that the price of amendment or

modification is much more compared to the negative aspects in the association.Thus it

develops a sense of interdependence and each others importance. Dissolution is then

presented publicly.

For the above mentioned five points of successful bonding it can be said that amongst

them all the fourth point – commitment is the most requisite and plays a very crucial

role in building of a strong relationship between the buyer and the seller. Lack of

15

commitment between the parties will result in a major set-back to their

association.Thus, commitment should work as a major factor in the creation of a model

that relatesrelational exchanges to the service marketing. Apart from that, the

foundation of commitment is faith which is created by the third phase as discussed

above. Therefore, the next paragraphs will discuss about the trust and commitment.

Trust

Trust can be referred to as customer or organization’s faith that its requirements can be

satisfied by the help and collaboration of the other party (Anderson and Weitz, 1989).

Trust is prevalent only when either party has a sense of confidence and faith in the

working and methodologies of the other party(Morgan and Hunt, 1994). Talking in

terms of social psychology a general opinion states that trust comprises of two essential

factors: trust in the partner’s honesty and trust in the partner’s benevolence. The faith

that the other party will keep to its words is what is meant by honesty in the partner.

Benevolence in the partner is the faith that the partner is embroiled in the company’s

benefit and will not be doing actions that are unfavourable of adverse to the company’s

welfare(Geyskens and Steenkamp, 1995). However a difference between affective and

calculative commitment reveals that trust which includes honesty as well as

benevolence has an optimistic effect on affective commitment (Anderson and Narus,

1990; Anderson and Weitz, 1989; Morgan and Hunt, 1994; Geyskens and Steenkamp,

1995). But calculative commitment is pessimistically affected by trust (Geyskens and

Steenkamp, 1995). Thus it is evident that if partners in an association have faith in each

other; there is a greater emotional bonding between them thereby strengthening the

customer- service provider relationship.

Commitment

The importance of commitment in customer- service provider relationship has been

discussed above. Scanzoni (1979) has referred commitment as the highest degree of

16

interdependence of the two partners. A collaboration and mutual interdependence has

been accepted to provide appreciable returns and positive growth for the partners; this

has been accepted by various researchers and marketing economists world-wide. There

is mutual benefit: while the manufacturers can achieve improved product growths,

increased margins and better shares for their company in the market, distributors

receive greater market entrenchment and higher customer contentment. The fabrication

of commitment results from industrial/organizational psychology and is considered as

an indication to carry on activities that support a sense of relation building with a

business partner (Fehr, 1988). Commitment is very often referred to a conspicuous or

inconspicuous state of relational support between exchange partners (Dwyer et al.,

1987). As a result it is seen as a source to obtain positive outcomes between the parties

beneficial to both of them; so they try to develop and maintain this key factor in their

relationship (Morgan and Hunt, 1994). Commitment is often mentioned as a factor that

is very much required in the formation of a long-term association or as a probable

influential response (Kumar et al., 1995). Therefore, commitment is a psychological

aspect of human brain which is responsible for developing an attitude of association

formation and perspective growth plans by mutual association.

From this part, it is obviously to see that the relationship marketing is a useful tool to

get service recovery. A success relationship marketing will build strong links between

exchange partners. While how to know the result of relationship marketing? How can

people know the recovery strategy is success or not?

Brand Equity in service

For above questions, the answer can be found in brand equity. Brand equity means the

influential effect of brand knowledge on customers and their reactions to the

promotions of the brand (Kotler, 2009). Brand equity is crucial because of its benefits

in information productivity, cost effectiveness, lesser purchasing risk involvement,

17

powerful demonstration, and so on. However strong brand equity is related to the

behavioral outcomes such as the customer’s brand loyalty, identification, the service

oriented commitments, and the connectivity (Keller, 2008). So, if the brand equity of

any organization is stronger, the service oriented strategies will work positively.

The research over brand equity has two main approaches: finance oriented and

consumer oriented. This essay is based on the consumer-based brand equity which is

quite important for the industry and the organizations which are service oriented

(Berry, 2000). The main aspect is all about measuring the differential effect of a brand,

and it actually depicts the overall brand equity.

According to the brand equity can be measured in three ways - the firm level (Chu

and Hean, 2006), the product level (Ailawadi et al, 2003) and consumer level (Keller,

1993). In this essay the author discuss about the consumer level (loyalty) in the below.

Loyalty

The loyalty of customer is related to the behavior of the customer towards the services

of the organization so that he/she buys the product or services repeatedly (Andreassen

& Lindestad). The consumer who feels happy by using once the products and services

of the company, buys them again and again and also promotes the positivity through

mouth publicity (A. Selnes & Hansen)

If we take e-business for instance: The most desirable goal is to achieve the loyalty of

customers. The monetary necessity requires the increment in customer loyalty,

because there is required a long time to drive the customer for repeat purchase and

win his confidence in the product or services (Gefen, Reichheld & Schefter, 2000).

Customer loyalty is the most important part in the organizations which are service

driven (Ganesh, 2000; Jones & Sasser, Kim & Son, 2009; Mithas, Reichheld & Teal,

18

1996) and may be a crucial determinant of profit in comparison with market share and

position (Heskett, 1994). Loyal customers are quite interested to appreciate the

concerned vendor to other friends who might be perspective customers, increasing the

customer base by incurring almost negligible cost in marketing (Heskett et al., 1994;

Reichheld & Sasser,). Customer loyalty is very helpful in the survival of e-businesses

because mouth publicity and support from the customers who are loyal is even more

beneficial than offline promotions (Reichheld & Schefter, 2000).

Overall, there are many ways to measure a brand. Some measurements approaches are

at the firm level, some at the product level, and still others are at the consumer level.

If some of them or all of them show a increasing trend of brand equity, it means the

service recovery strategy get the success.

Conclusion

Customer service is the most crucial part of the marketing mix that was defined for

products and services industry. Customer service always creates value for the product

which is very important. In the world of consumerism, the customers are very much

concerned about the after sales service apart from buying the products only. The basic

character of service is of being intangible and there are instances where things go

wrong so there should be extra care regarding the issue. The apology and

compensation strategy should be used as soon as possible when the service failure

occurs. What is more important, some long-term strategies such as relationship

marketing should be paid more attention. In addition, although the service is

intangible, the result of service recovery strategies still can be measured by other

aspects, for example, the brand equity, especially the customer loyalty of it.

At the moment, the competition between different companies already transfer form

the single product competition to a more comprehensive one which includes the

service quality. So it is very important to value the service which is always be ignored

19

before.

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