Service Recovery

What is service recovery and why is it important for

the long-term success of companies?

Introduction

Service recovery has drawn the attention of researchers and academicians recently.

The concept of service recovery is seen as both business practice and focus of

marketing study which has developed over time. Perhaps the strongest single factor

that causes service failure is the nature of service products themselves, which increase

the possibilities of errors, or service failures, and therefore the need for recovery.

Most scholars point out that the difference between tangible products and intangible

services has increased customer awareness of the possibility of service failures either

from the operational perspective or from the customers’ viewpoint (Reichheld, 1990;

Gronroos, 2000) and it’s difficult for marketers to understand and to meet customer

expectations. Besides, service variability has been identified as on going problem both

for marketing and quality managers (Ballantyne, et al., 1995; Hoffman & Bateson,

1997; Lovelock, 2001). Moreover, the customer is often required to participate in the

production of the services (Gronroos, 1983; Lovelock, 1983; Zeithaml, et al., 1985).

In this report, the author is going to talk about the benefits of service recovery, such as

better customer loyalty and positive word-of-mouth communications have been

highlighted. In the 1990’s, public attention turned to the proactive, and strategic role

that service recovery can play in customer retention in a competitive market place.

( Lovelock, 2001) He will also detail service recovery strategies as they are some

steps taken by the organizations in winning back the customers after the occurrence of

service failure incidents.

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Service Recovery

Definition of Service Recovery

According to Zeithaml and Bitner (2003), “Service recovery refers to the actions

taken by an organization or service supplier in response to a service failure”. This

definition is supported by Andreassen (2000) and Johnston, (1995) who says “Service

recovery refers to the actions a supplier takes in order to seek out dissatisfaction and

as a response to poor service quality i.e. service failure”. Zemke and Bell (1990)

defined service recovery as a ….”thought-out, planned process for returning

aggrieved customers to a state of satisfaction with the firm after a service or product

has failed to live up to expectation”.

Service recovery thus refers to the actions of service firms in response to service

failure. The objective is to maintain the business relationship with the customer. This

argument was based on the premise that customer satisfaction ensures customer

loyalty, repeat sales and positive words of mouth communications (Boshoff and

Staude, 2003). Effective service recovery also leads to enhance perceptions of the

quality of the products and service already bought enhanced perceptions of the firm’s

competence, and a favorable image in term of perceived quality and value (Kelley and

Davis, 1994, Boshoff, and Staude, 2003).

Service recovery is an umbrella term for the whole efforts by a firm to correct a

problem following a service failure, in order to retain customer’s goodwill. Service

recovery effort plays a crucial role in achieving or restoring customer satisfaction

(Lovelock et, al., 2002). In every organization, things may occur that have a negative

impact on its relationships with customers. The true test of a firms’ commitment to

satisfaction and service quality is in the way it responds when things go wrong for

customers (Lovelock et, al., 2001). Effective service recovery requires thoughtful

procedures for resolving problems and handling unhappy customers. It is critical for

firms to have effective recovery strategies, as even a single service problem can

destroy a customer’s confidence in a firm under the following conditions:

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Service Recovery

(1) The failure is totally outrageous e.g. big dishonesty on the part of the supplier.

(2) The problem fits a pattern of failure, rather than being an isolated incident (3)

The recovery efforts are weak, serving to compound the original problem rather than

correct it (Berry, 1995).

Back to the history, in 1970’s and 1980’s service recovery was the plan for dealing

with telecommunications problems or recovering particular services. Nowadays, a lot

of empirical studies have pointed out service recovery in various industries in the

worldwide. Interest in service recovery is growing because poor service experiences

often lead to customer losing, which in turn leads to a loss in customer lifetime value.

However, a favorable recovery has a positive impact on customer satisfaction, word-

of-mouth behavior, customer loyalty, and, eventually, customer profitability.

Although some studies indicate that good initial service is definitely better than a

good recovery, other empirical work suggests that an excellent recovery can lead to

even higher satisfaction and loyalty intentions among consumers than if nothing had

did wrong initially. This phenomenon is usually referred to as the “service recovery

paradox” which will be explained in the next parts. (Lovelock, 2001)

Justice Recovery

Recent literatures show that perceived justice is a significant factor in service

recovery evaluations. Because a report of a service failure indicates, to some extent,

when the “unfair” treatment of the customer generated, it’s their perspectives to

justice service recovery.

Justice consists of three dimensions: distributive, procedural, and interactional.

Distributive justice focuses on the allocation of benefits and costs that customers

consider the benefit they receive from a service in terms of the costs associated with

that service. When they do not receive the expected quality of a service, they are

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dissatisfied, which means service recovery is in need. (Lovelock, 2001)

However, the outcome of a service is not the only thing that matters. Because

customers are often get involved in the service production and consumption process,

thus, the second dimension--procedural justice is vital, especially when something

goes wrong. Thus, employees must fix the customer before they solve the problem.

Procedural justice relates to the evaluation of systems and procedures used to

determine outcomes, for example, the speed of recovery. Another factor in many

recovery incidents is the information communicated about the recovery process, or the

lack thereof. Firms must describe “what the firm is doing to resolve the problem so

that customers get to know mitigating circumstances and do not incorrectly attribute

complaints to the service firm when it is not responsible”. (McCollough, 1995)

Finally, interactional justice pertains to interpersonal fairness. People are sensitive

about the quality of interpersonal treatment they get due to emotions tend to be more

important than cognitions in recovery situations, service managers need “to manage

consumers' emotional experience during and after a service failure”. In leading the

customer with a negative experience, employees should act quickly; show concern

and welcome for the customers; and remain pleasant, helpful appearance. In addition,

customers should be treated as individuals whose specific requests are acknowledged,

because “‘token’ responses by an organization resulted in the most negative

responses”.

All three types of justice contribute significantly to customers’ evaluations of

recovery. In addition, significant interactions among the fairness dimensions indicate

that poor performance on any one can dramatically affect customers’ overall

satisfaction with recovery.

Importance of frontline employees

According to a point of view frequently expressed in the literature, only empowered

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Service Recovery

employees can react and solve a problem right on the spot. However, research and

theory on empowerment mention that the effectiveness of empowerment hasn’t been

recognized by the whole world yet. For instance, customers may believe that recovery

justice is best guaranteed if it is determined by superiors and policies rather than by

the judgment of an individual (empowered employee). When the customers are

dissatisfied about the services, they need to be fortunate enough to find the right staffs

to resolve the problems to their satisfaction. Moreover, researchers have several

conditions in which employee empowerment will be effective, which are always

happen on the situation, including the right mix of the strategy, business environment

and customer expectations.

There are two main problems existing in many organizations about the frontline

employees nowadays

(1) Common wisdom is that measures focus attention and organizations obtain the

employee behaviors they reward. Recovery, in practice, has little support in this sense.

Traditional service quality reward systems may stop recovery by rewarding branches,

employees or service centers for their low rates of complaints, which are assumed to

bring high customer satisfaction. Therefore, frontline employees are always sending a

dissatisfied customer away instead of admitting that it got a problem, which is

considered to be the first step of recovery.

More broadly, traditional service quality measurement and reward systems focus on

obtaining of new customers but not on providing service recovery of a potential

customer loss because of a service failure. (McCollough, 1995)

(2) Even if empowerment of the front employees is the key for a given situation; it is

often finished poorly—the right thing always done the wrong way. The thing is

employees are always set free of rules and regulations to decide how to satisfy the

customer but then receive little or no training, resources, or boundaries for how they

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might recover dissatisfied customers most appropriately. In addition, managers might

think that they don’t need to invest much effort on frontline employee ((McCollough,

1995)

However, the author suggests organizations should empower frontline

employees to recover service failures conveys responsiveness and

fair policy and practice to handle service problems. Management

should give frontline employees authority to recover service

failures. They are the ones who may know what the problem was

initially, can respond most instantly, and can recover the failure

most effectively.

To respond more effectively to customers’ complaints, service

providers should also develop various recovery practices

considering the importance of situational factors. In addition,

employees, especially frontline employees who handle customer

complaints should be trained accordingly. Most importantly, in a

service failure situation, it’s often seen that customer satisfaction

evaluations (recovery satisfaction) start with customers’ complaints.

This notion emphasizes the importance of creating an environment

where customers are welcomed to complain. Chances are higher for

retaining customers by encouraging them to complain (Spreng et

al., 1995). If the customers want to complain, frontline employees

should always welcome them instead of putting them away to

others, and that’s why frontline employees play a crucial role in

customer satisfaction.

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Service Recovery Paradox

Based on personal experiences and anecdotal evidence, the idea of a recovery paradox

was developed more than 20 years ago by Etzel and Silverman (1981, p. 128), who

stated that “it may be those who experience the gracious and efficient handling of a

complaint who become a company’s best customer.” Other research has suggested

that “a good recovery can turn angry, frustrated customers into loyal ones. It can, in

fact, create more goodwill than if things had gone smoothly in the first place” (Hart et

al., 1990, p. 148).

Since then, a wide range of empirical studies have explored the service recovery

paradox (see appendix table one)

As Table 1 shows, eight studies refute the existence of a service recovery paradox

(Andreassen, 2001, Berry et al., 1990, Bolton, 1998, Brown et al., 1996, Halstead and

Page, 1992, Maxham, 2001, McCollough et al., 2000, Zeithaml et al., 1996). The

consensus of these studies indicates that there is no way to please customers more

than with a reliable, first-time, error-free service. According to these findings, service

recovery is a strategy to limit the harm caused by a service failure rather than a means

to impress the customer with a special effort when something goes wrong. However,

six other studies, some of them by the same authors mentioned above, indicate that

the service recovery paradox is a real phenomenon (Bolton and Drew, 1992, Boshoff,

1997, Hocutt et al., 2006, Hocutt et al., 1997, Maxham and Netemeyer, 2002,

McCollough, 2000, Smith and Bolton, 1998).

Based on this literature review, it is fair to conclude that the evidence of the existence

of a service recovery paradox is mixed, at best. The question then becomes: is there a

simple, yet powerful explanation for this contradictory result? There are two possible

reasons for this divergence. First, the service recovery paradox is not defined

uniformly in the studies mentioned above: some authors test for a between-subject

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effect (comparing a recovery/ complaining group with a control group) while others

test for a within-subject effect (before a failure/complaint and after a

failure/complaint). Moreover, the measurement of the recovery incidents is not

defined uniformly nor is the dependent variable the same. In short, we have not found

one single replication study on this subject but rather more than a dozen different

approaches.

A second possible reason for the mixed finding is not related to a methodological

problem but is, instead, based on the very nature of the paradox. It has been suggested

that a service recovery paradox is a very rare event (Boshoff, 1997, Hart et al., 1990),

which means that it is not easy to detect even if it exists. To make things worse, it is

further assumed that only a minority of dissatisfied customers complains (Andreasen

and Best, 1977, Singh, 1990) and that most recoveries do not lead to customer

satisfaction (Hoffman et al., 1995). If this explanation is valid, one would need a very

large sample to obtain a reasonably large group of customers who received a very

satisfactory recovery. This requirement may explain why some studies have failed to

produce significant results.

Impact of service recovery

As we have shown, productivity and customer satisfaction objectives can correlate

positively, negatively, or not at all. Essential to get top management’s attention, the

benefits and costs of service recovery must be measured, but common accounting

systems cannot capture the value of a loyal customer. Rather, the impacts and benefits

of service recovery are grounded in the assumption that it decreases customer

dissatisfaction and thereby increases both customer loyalty and customer satisfaction,

on another side, customer defection, destroys the customer’s lifetime value. In

addition to these losses of potential future revenues, dissatisfied customers likely

engage in negative word-of-mouth behavior, which deters existing and potential

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customers. To balance their objectives, firms should start with a simple model for

calculating the “return on recovery” that would estimate the

1) Improvement in customer satisfaction and decrease in customer dissatisfaction as a

result of customer and employee recovery;

2) Decrease in service failures through process and employee recovery and its impact

on customer satisfaction;

3) Impact on loyalty of point 1 and 2 in terms of the decrease in lost customers;

4) Impact on word-of-mouth of point 1 and 2 in terms of the value of more positive

and less negative word-of-mouth, as well as its impact of customer acquisition; and

5) Impact on total customer lifetime value caused by point 3 and 4.

For example, for a big organization, if the average customer lifetime value, defined as

the discounted future contribution margin per customer, is 5000￡, and service

recovery efforts can reduce the number of lost customers by 600, the gained customer

equity is 300,000￡.

But service recovery also can have a broader effect on bottom-line performance in

terms of staff attitude and retention. If employees are not able to cope with customer

problems and believe they are treated unfairly by the company, the customer, or both,

they may treat their customers unfairly too. (McCollough, 1995)

Although an exact return of recovery thus is difficult to calculate, it is important to

define the key drivers for such an indicator and thereby achieve a common

understanding of how service recovery impacts the company’s bottom line.

Recommendations

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Service Recovery

It’s suggested that to create a culture of Service Recovery and gain employee “Extra

Effort”

The challenge here is to effect a dramatic cultural shift in the company business

concept from a culture with the illusion of no failure to a culture of recovery. A

culture of recovery requires an internally consistent message about the value of

recovery from visible components of the firm, including management’s espoused

values, cultural forms, and practices. Management must promote recovery as a core

value and then help manage the evidence that employees and customers monitor to

determine if this espoused value is being enacted. For example, stories that recount

the outcomes of a successful or failed recovery incident should find their way into

company conversation.

Furthermore, to build a culture of recovery, managers should emphasize recovery-

focused performance management systems and make the complaint process visible

and accessible to both employees and customers. Service recovery demands a reward

structure that “gives employees positive reinforcement for solving problems and

pleasing customers—not just for reducing the number of complaints”. Measuring and

rewarding customer retention targets also could serve as incentives for service

recovery. (McCollough, 1995)

When the author was working for a financial company before, the supervisor there

pointed out: Better customer service means higher loyalty, more business, and more

word-of-mouth. This has an impact on meeting our objectives, which in turn pays off

with higher bonus payments and salary. Not all employees see this connection. It is

the supervisor’s job to communicate this.

It’s also suggested that when organizational and employees’ values are proper,

employees are more willing to exert the extra effort required in a failure and recovery

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situation. Recovery situations with dissatisfied customers can be very hard for

employees, but employees who share the organization’s core values are more likely to

persevere. Thus, firms must focus on employee selection and equip techniques that

build the recovery culture and thereby facilitate extra effort. (McCollough, 1995)

Conclusion

Service recoveries were the efforts made by firms to bring back aggrieved customer to

satisfaction, it the key to customer satisfaction and achieving this should be a primary

goal for service organisations. Service recovery strategies play a crucial role in

customer satisfaction, if they are not prompt, proper and effective, the frustrating

customers will defect to competitor and then service firms lose customers and

revenues. Service firms are unable to implement service recovery strategies if they are

not informed of their shortcomings, therefore customers must be encouraged to

complain and service recovery must be follow up whenever complaints occur due to

its vital and dominant impact on business competitiveness and profitability.

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Appendix:

Table One:

Authors Paradox

Bolton and Drew (1992) YesBoshoff (1997) YesHocutt, Chakrborty and Mowen (1997) YesSmith and Bolton (1998) YesMcCollough (2000) YesMaxham and Netemeyer (2002) YesHocutt, Bowers and Donovan (2006) YesBerry, Zeithaml and Parasuraman (1990) NoHalstead and Page (1992) NoBrown, Cowles and Tuten (1996) NoZeithaml, Berry and Parasuraman (1996) NoBolton (1998) NoMcCollough, Berry and Yadav (2000) NoMaxham (2001) NoAndreassen (2001) No

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