Service Recovery Mtg. 410 Donna J. Hill, Ph.D. Fall 2000

Service Recovery b Refers to the actions taken by an organization in response to a service failure

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.

Recovery Paradox b Companies should plan to disappoint customers so that they can recover and gain even greater loyalty from them as a result!

Figure 7-3 Customer Response Following Service Failure Service Failure Do Nothing Take Action Stay with Provider Switch Providers Complain to Provider Complain to Family & Friends Complain to Third Party Stay with Provider Switch Providers

Types of Complainers b Passives b Voicers b Irates b Activists

Fairness b Outcome (fair compensation) b Procedural (policies, rules, and timeliness) b Interactional (politeness, courtesy, honesty)

Figure 7-5 Service Recovery Strategies Learn from Recovery Experiences Treat Customers Fairly Learn from Lost Customers Welcome and Encourage Complaints Fail Safe the Service Act Quickly Service Recovery Strategies

Figure 7-6 Causes Behind Service Switching Service Switching Behavior High Price Price Increases Unfair Pricing Deceptive Pricing Pricing Location/Hours Wait for Appointment Wait for Service Inconvenience Service Mistakes Billing Errors Service Catastrophe Core Service Failure Uncaring Impolite Unresponsive Unknowledgeable Service Encounter Failures Negative Response No Response Reluctant Response Response to Service Failure Found Better Service Competition Cheat Hard Sell Unsafe Conflict of Interest Ethical Problems Customer Moved Provider Closed Involuntary Switching Source: Sue Keaveney

Service Guarantees b guarantee = an assurance of the fulfillment of a condition (Webster’s Dictionary) b for products, guarantee often done in the form of a warranty b services are often not guaranteed cannot return the servicecannot return the service service experience is intangibleservice experience is intangible –(so what do you guarantee?)

Table 7-7 Characteristics of an Effective Service Guarantee Source: Christopher W.L. Hart, “The Power of Unconditional Guarantees,” Harvard Business Review, July-August, 1988, pp

Why a Good Guarantee Works b forces company to focus on customers b sets clear standards b generates feedback b forces company to understand why it failed b builds “marketing muscle”

Service Guarantees b Does everyone need a guarantee? b Reasons companies do NOT offer guarantees: guarantee would be at odds with company’s imageguarantee would be at odds with company’s image too many uncontrollable external variablestoo many uncontrollable external variables fears of cheating by customersfears of cheating by customers costs of the guarantee are too highcosts of the guarantee are too high

Service Guarantees b service guarantees work for companies who are already customer-focused b effective guarantees can be BIG deals - they put the company at risk in the eyes of the customer b customers should be involved in the design of service guarantees b the guarantee should be so stunning that it comes as a surprise -- a WOW!! factor b “it’s the icing on the cake, not the cake”

Lessons from the Hampton Inn Guarantee b Focus on customer needs. b KISS b Deep management conviction is fundamental. b Empowerment is the key. b Train, train, train. Reinforce, reinforce, reinforce. b Perpetuate stories of the guarantee in action b Understand the moments of truth. b Teach customers to complain. b Develop tracking systems. b Give regular feedback on reasons the guarantee was invoked. b Use internal guarantees to support the external guarantees.