SMChapter 7

SERVICE RECOVERY

Objectives for Chapter Service Recovery

• Illustrate the importance of recovery from service failures in 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 complain

• Provide strategies for effective service recovery

• Discuss service guarantees

Service Recovery

• Service Failure:

Service Performance < Expectation = Dissatisfaction

• Service Recovery: resolving failure / problem

• Reasons for Failure:

– No promised Service

– Delayed Service

– Poor Outcome

– Uncaring Employees

Service Recovery

• Fixing Service Failure / Customer Problem

– Customer Satisfaction

– Positive WOM communication

– Bottom Line performance

Service Recovery

• Service Paradox:

Excellent Service Recovery = More Satisfied

• Should the Company plan to Disappoint Customer and provide good Service Recovery?

– Strategy fails

– “Doing it Right the First time” is the best option

Figure 7-3

Customer Response Following Service Failure

Service Failure

Do NothingTake Action

Stay with ProviderSwitch Providers

Complain to Provider

Complain to Family & Friends

Complain to Third Party

Stay with ProviderSwitch Providers

Why people Do (Do not) complain

• People complaint

• People Do not take Action

High Involvement Service

Types Complaint Actions

• On the spot

• Negative WOM

Switching vs Staying

Remain Loyal Switch

How the Failure

is Handled

Customers’ Recovery Expectations

• Understanding & Accountability

• Fair Treatment

– Outcome Fairness

– Procedural Fairness

– Interactional Fairness

• Magnitude of the Failure

• Nature of Relationship with the Firm

• Attitude toward Switching

– Demographic Factors ( Income, Education, Age)

– Individual Factors (Risk Aversive)

• EXPERIENCE with all ENCOUNTERs

Figure 7-1

Unhappy Customers’ Repurchase Intentions

95%

70%

46%

37%

82%

54%

19%

9%

Complaints Resolved Quickly

Complaints Resolved

Complaints Not Resolved

Minor complaints ($1-$5 losses) Major complaints (over $100 losses)

Unhappy Customers Who Don’t Complain

Unhappy Customers Who Do Complain

Percent of Customers Who Will Buy Again

Source: Adapted from data reported by the Technical Assistance Research Program.

Figure 7-6

Themes underlying service switching

Service Switching Behavior

•Pricing

Inconvenience

Core Service Failure

Service Encounter Failures

Response to Service Failure

Competition

Ethical Problems

Involuntary SwitchingSource: Sue Keaveney

Figure 7-5

Service Recovery Strategies

Service

Recovery

Strategies

Make the Service fail Safe

• Meeting consumer’s Expectation > Cost

• Expectation = Reliability

• How to assure Reliability? = Quality Practice

Encourage & Track Complaints

• Research

– Satisfaction Survey

– Lost Customer Research

– Toll Free number, email

– Blog Activities

• Anticipate the problem in advance

Act Quickly

• Complaining customer seek Quicker Response

• Well Prepared to Act

• Customer Problem > Solved with the First encounter > Satisfied

Treat the Customer Fairly

Learn from Recovery Experience

• Problem Solving = Opportunities to

Create Relationship

Service Recovery Strategies

• Make the Service fail Safe

• Meeting consumer’s Expectation > Cost

• Expectation = Reliability

• How to assure Reliability? = Quality Practice

Service Guarantees

• guarantee = an assurance of the fulfillment of a condition (Webster’s Dictionary)

• for products, guarantee often done in the form of a warranty

• services are often not guaranteed

Table 7-7

Characteristics of an Effective Service Guarantee

Unconditional The guarantee should make its promise unconditionally -

no strings attached.

Meaningful It should guarantee elements of the service that are

important to the customer.

The payout should cover fully the customer'sdissatisfaction.

Easy to Understand and Communicate For customers - they need to understand what to expect.

For employees - they need to understand what to do.

Easy to Invoke and Collect There should not be a lot of hoops or red tape in the way

of accessing or collecting on the guarantee.

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

Service Guarantees

• Does everyone need a guarantee?

• Reasons companies do NOT offer guarantees:

– guarantee would be at odds with company’s image

– fears of cheating by customers

– costs of the guarantee are too high