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Service Recovery The preceding discussion have given all of you an understanding of customers’ service expectations through research as well as through knowing them individuals and developing strong relationships with them. Effective service design, delivery, and communication- treated from the foundations for service success

Reliability is Critical in Service but… In all service contexts, service failure is inevitable. Service failure occurs when service performance that falls below a customer’s expectations in such a way that leads to customer dissatisfaction. Service recovery refers to the actions taken by a firm in response to service failure. 7-3

Reliability is Critical in Service but… Research suggest that only a portion (45%) of customers who experience a problem a service delivery, actually complain to the employees serving them. A very small number (1-5%) complain to management or the company headquarters. “ Tip of the Iceberg” Suggest every complaint that management actually receive represents 20-100 other customers who experience the problem and did not complain. 7-4

Figure 7.1: Complaining Customers: The Tip of the Iceberg Source: Data from TARP Worldwide Inc., 2007 7-5

Reliability is Critical in Service but… Service failure : Telling other customers about their negative experiences Even challenging the organization through customer right organization or legal channels 7-6

Unhappy Customers’ Repurchase Intentions 7-7

Service Recovery effects Resolving problem: 43% indicate they would definitely purchase again from the same provider, illustrating the power of good service recovery. Customers who were dissatisfied with the recovery process after making a complaint are less likely to re-purchase than those who do not complain. So the company increase the likelihood of “doing it right the first time” in turn this reduces costs of failures and increases initial customer’s satisfaction. 7-8

Service Recovery effects Resolving problem: 60% of customers who experiences a serious problem receive no response from the firm Consider a rental car customer who arrives to check in and finds that no automobile is available of the size reserve and the price quoted. In an effort to recover the car rental agent immediately upgrades this customer to a much better vehicle at the original price 7-9

Service Recovery Paradox Although such extreme instances are relatively rare this idea that an initially disappointed customers who has experience good service recovery might be even more satisfied and loyal as a result labeled the RECOVERY PARADOX. The following figure explain an internet spread of the story of poor service recovery: “ Yours is a very bad hotel” 7-10

The Service Recovery Paradox “A good recovery can turn angry, frustrated customers into loyal ones. ..can, in fact, create more goodwill than if things had gone smoothly in the first place.” (Hart et al. 1990) HOWEVER: Only a small percent of customers complain Service recovery must be SUPERLATIVE Only with responsiveness, rectify, and empathy/courtesy Only with tangible rewards Even though service recovery can improve satisfaction, it has not been found to increase purchase intentions or perceptions of the brand Service recovery is expensive 7-11

The Service Recovery Paradox The service recovery paradox is more likely to occur when: The failure is not considered by the customer to be severe The customer has not experienced prior failures with the firm The cause of the failure is viewed as unstable by The customer The customer perceives that the company had little control over the cause of the failure Conditions must be just right in order for the recovery paradox to be present! 7-12

Customer Complaint Actions Dissatisfaction at some level will occur for the customers. A variety of negative emotions can occur following a service failure (anger, discontent, disappointment, anxiety and regrets). The negative responses will affect how customers evaluate the service recovery effort and their ultimate decision to return to the providers. At some point the customers will decide whether to stay with that providers or switch to competitors. 7-13

Customer Complaint Actions Following Service Failure 7-14

Types of Complainers Passives: least likely to take any action, say anything to the provider, spread negative WOM, or complain to a third party; doubtful of the effectiveness of complaining Voicers: actively complain to the provider, but not likely to spread negative WOM; believe in the positive consequences of complaining - the service provider’s best friends! 7-15

Types of Complainers Irates: more likely to engage in negative WOM to friends and relatives and to switch providers; average in complaints to provider; unlikely to complain to third parties; more angry, less likely to give provider a second chance Activists: above average propensity to complain on all levels; more likely to complain to a third party; feel most alienated from the marketplace compared to other groups; in extreme cases can become “terrorists” 7-16

Service Recovery Strategies Service recovery strategy fall into two general types: The action taken by the firms to restore the relationship “ Fix the customers” The action taken to correct the problem and ideally to prevent it from recurring “ Fix the problem” Both types of actions are important 7-17

Service Recovery Strategies 7-18

Fixing the Customer When customers take the time to complain, they generally have high expectations. They expect the company to respond quickly and to be accountable. They expect to be compensated for their grief and for the hassle of being inconvenienced. They expect to be treated nicely in the process! 7-19

Provide Appropriate Communication 7-20

Provide Appropriate Communication Display Understanding Accountability: Customers are not looking for extreme action from the firm; they are looking to understand what happened and for firms to be accountable for their action. Customers expect an apology when things go wrong and a company that provides one demonstrates courtesy and respect; customer also want to know what the company is going to do to ensure that the problem does not recur. Supply adequate information 7-21

Treat Customers Fairly Outcome fairness Outcome (compensation) should match the customer’s level of dissatisfaction; equality with what other customers receive; choices Procedural fairness Fairness in terms of policies, rules, timeliness of the complaint process; clarity, speed, no hassles; also choices: “What can we do to compensate you…?” Interactional fairness Politeness, care, and honesty on the part of the company and its employees; rude behavior on the part of employees may be due to lack of training and empowerment 7-22

Cultivate Relationships with customers The firms need to establish strong relationship with the customer. The presence of rapport between customers and employees provides several service recovery benefits such as : post failure satisfaction, increased loyalty intentions, decreased negative word of mouth communication 7-23

Fixing the Problem After “fixing the customer” the company should address the actual problem that created the poor service delivery in the first place. If the problem is likely to recur for other customers, then the service delivery process may need to be fixed, too. Strategies for fixing the problem include encouraging and tracking complaints, learning from recovery experiences and from lost customers, and making the service fail-safe. 7-24

Service Guarantees Guarantee = an assurance of the fulfillment of a condition (Webster’s Dictionary) In a business context, a guarantee is a pledge or assurance that a product offered by a firm will perform as promised and, if not, then some form of reparation will be undertaken by the firm For tangible products, a guarantee is often done in the form of a warranty Services are often not guaranteed Cannot return the service Service experience is intangible (so what do you guarantee?) 7-25

Characteristics of an Effective Service Guarantee Unconditional The guarantee should make its promise unconditionally Meaningful The firm should guarantee elements of the service that are important to the customer The payout should cover fully the customer’s dissatisfaction Easy to Understand Customers need to understand what to expect Employees need to understand what to do Easy to Invoke The firm should eliminate hoops or red tape in the way of accessing or collecting on the guarantee 7-26

Benefits of Service Guarantees A good guarantee forces the company to focus on its customers. An effective guarantee sets clear standards for the organization. A good guarantee generates immediate and relevant feedback from customers. When the guarantee is invoked there is an instant opportunity to recover. Information generated through the guarantee can be tracked and integrated into continuous improvement efforts. A service guarantee reduces customers’ sense of risk and builds confidence in the organization. 7-27

When to Use (or Not Use) a Guarantee Reasons companies might NOT want to offer a service guarantee: Existing service quality is poor A guarantee does not fit the company’s image Service quality is truly uncontrollable Potential exists for customer abuse of the guarantee Costs of the guarantee outweigh the benefits Customers perceive little risk in the service 7-28

Causes Behind Service Switching 7-29