Service Failure and Recovery

Neeli Bendapudi

May 16, 2005

The Company can influence expectations via

Advertising—Kevin M and Saturn CSR Sales Promotion— Mark S and Amazon

Tangibles— Mine and Speedway/Amul and Old Navy

Price— Bill and Turbo Tax/ Rachelle and SWPersonnel— Kavita and Heritage apts

Aaron and StAaron and Statler arms

Top 10 Service Complaints

10. Misplaced priorities— Colleen and OBMVJennifer and AE Outfitters

9. Auto pilot— Bharatwaj and BMV 8. I just work here.— Vijay and Kroger7. Don’t ask, don’t tell— Keith and Student insurance 6. Keep you guessing—Ian and Brooks Brothers

Top 10 Service Complaints

5. Big wait. Ryan and Continental /Anil and Health center

4. Big chill. Mike H. and AOL3. Red Alert. Jessica and Stauffs2. Broken promises. Poornima and United

Adam L and the plumber! 1. True lies. Jeremy and MAG

The Profitable Art of Service Recovery

orTo Err is Human; To Recover,

Divine.

AndLearning from Failure

orFixing both the Car and the

Customer.

•Though errors are inevitable, dissatisfied customers are not!

•Using recovery to discover root causes of failure

•The service recovery paradox….and the limits to it!

•The link to employee satisfaction and loyalty

Mistakes are inevitable, especially in serviceswith a high human component.

The Seven Steps on the Road to Service Recovery

Flexibility and grace in getting up after a fall!

But, first, identify failures!• Setting performance standards

Stephanie and Earthlink

Suzanne and Chicago cabs

1. The service system as a gymnast.

•Communicate importance of recovery toenhance vigilance

ECHO, “Run to a problem”

Sunita and Pella

•Next, try to anticipate failures and Need for Recovery

New products or services

Uncontrollable factors

Inexperienced employees

David W and Ordering checks

• What are the costs and benefits?CARESS the customer.

• The Problem-Impact Tree approach

• Think about “Getting Customers Back”versus “Fixing Problems.”

2. Measurement precedes management.

Lanson and McDonalds

What is the customer worth?

Lifetime value of the customer

Indirect effects of W-O-M

Trading up Honda CivicHonda AccordHonda Acura

Ana and Dollar Rent-a-car

Problem Impact Tree

Frequency of complaint versus seriousnessImpact

Low HighLow

Frequency

High

Ignore ConsiderImprovementsVery importantto some

Consider SOLVEImprovements NOW!!!Small effectsmay add up

Diane and Wendy’s

All guests

No problem Have problem

Report Don’tproblem report

Problem Notresolved resolved

All guests (100%)

No problem Have problem(75%) (25%)

Report Don’tproblem(50%) report (50%)

Problem Notresolved resolved(70%) (30%)

All guests

No problem Have problem(95%)

Report Don’tproblem report (75%)

Problem Notresolved resolved(90%) (50%)

Relationship to Satisfaction (A+B)

All guests

No problem Have problem(95%)

Report Don’tproblem report (80%)

Problem Notresolved resolved(90%) (60%)

Relationship to Repurchase Intention

Assume lifetime value of customer=$200

Value of no problem=$200*0.95=$190Value with problem

=$200* weighted average retention =$200* (.5x.7x.9)+(.5x.3x.6)+(.5x.8)=$200* (.805)=$161

It is worth $29 to avoid the problem!

The value of recovery---using lifetime value

Expected value when resolved=$200* 0.9=$180

Expected value when not resolved=$200* 0.60=$120

It is worth $60 to resolve the problem.

Value of resolving a problem| complaint made

Value of customer with unreported problem=$200* .80= $160

Value of customer with reported problem=(.70* .90*$200)+ (.30*.60*$200)=$162

In this case, not much more value.Why? Percentage of unresolved complaints…Focus on resolving complaints not increasing #

What do we gain if the customer complains?

3. Break the silence, aggressively

How many complain?

Why so few?

How can you make it easier forconsumers to complain?

Pro-activityTrainingAccess: Video Point boothsRewards!

Jane and Williams Sonoma

The longer the ‘fix’ takes, the higher theexpectations

Focus on fairnessOutcomeProcedureInteraction

4. Act Fast and Effectively

Greg W and Macy’s

5. Train and empower frontline

Hiring and training are criticalSafe zones and standards:

Recovery must be personalized

Recovery must be quick

Recovery at the first point of contact (orsoonest)

6. Close the loop

Get the information into the system

Communicate with the customerWhat happened, why, how problemswill be addressed and prevented

Improve the System.Chronic problem versus chronic

complainer

Manish and ColumbusPD

7. Recovery Paradox

For customers……..

For employees…….

What are the limits to this paradox?

1. Speed with a human face2. Tease out complaints3. No-blame culture4. Create closure5. Pro-active top-level involvement6. Complaints as strategic input7. Centralized and decentralized8. Focus on communication and

improvement

9. Internal complaints system10. Surveys targeted on problems and

resolutions11. Focusing staff on benefits of complaints12. Senior management attention to costs and benefits of recovery

And now, for compliments!