Recovery and Obtaining Customer Feedback Chapter 13: Achieving Service Recovery and Obtaining Customer Feedback

Overview of Chapter 13 Customer Complaining Behavior Customer Responses to Effective Service Recovery Principles of Effective Service Recovery Systems* Service Guarantees Discouraging Abuse and Opportunistic Behavior Learning from Customer Feedback

1. Customer Complaining Behavior

American Customer Satisfaction Index: Selected Industry Scores, 2006 Express mail, parcels Cars, vans, etc. Life insurance Fast food Restaurants Broadcasting (natl. news) Industry: Soft drinks Comm. banks Hotels Personal computers Airlines Hospitals 83 81 75 77 65 74 69 10 20 30 40 50 60 70 80 90 100 -3.5% 2.5% -7.4% 1.4% 0.0% -1.3% -9.7% -4.1% 11.6% -10.4% % Change 2006 vs. 2005 Score (Max = 100) Source: www.theacsi.org, Accessed 9.11.2006

Customer Response Categories to Service Failures (Fig 13.1) Complain to the service firm Take some form of Public Action Complain to a third party Take some form of Private Action Take legal action to seek redress Service Encounter is Dissatisfactory Defect (switch provider) Take No Action Negative word-of-mouth Any one or a combination of these responses is possible

Understanding Customer Responses to Service Failure Why do customers complain? What proportion of unhappy customers complain? Why don’t unhappy customers complain?* Who is most likely to complain? Where do customers complain?* What do customers expect once they have made a complaint? (Figure 13.3)

Customers Often View Complaining as Difficult and Unpleasant (Fig 13

Three Dimensions of Perceived Fairness in Service Recovery Process (Fig 13.3) Complaint Handling and Service Recovery Process Justice Dimensions of the Service Recovery Process Procedural Justice Interactive Justice Outcome Justice Customer Satisfaction with Service Recovery Source: Tax and Brown

2. Customer Responses to Effective Service Recovery

Importance of Service Recovery Plays a crucial role in achieving customer satisfaction Tests a firm’s commitment to satisfaction and service quality Employee training and motivation is highly important Impacts customer loyalty and future profitability Complaint handling should be seen as a profit center, not a cost center

How Complaint Resolution Affects Customer Retention Rates Percent of Unhappy Customers Retained 9% 37% 19% 46% 54% 70% 82% 95% 10 20 30 40 50 60 70 80 90 100 Customer did not complain Complaint was not resolved Complaint was resolved resolved quickly Problem cost > $100 Problem cost $1–$5 Source: Claes Fornell, Birger Wernerfelt, “A Model for Customer Complaint Management,” Marketing Science, Vol. 7, No. 3 (Summer, 1988), pp. 287–298

The Service Recovery Paradox Customers who experience a service failure that is satisfactorily resolved may be more likely to make future purchases than customers without problems (Note: not all research supports this paradox) If second service failure occurs, the paradox disappears— customers’ expectations have been raised and they become disillusioned Severity and “recoverability” of failure (e.g., spoiled wedding photos) may limit firm’s ability to delight customer with recovery efforts Best strategy: Do it right the first time

3. Principles of Effective Service Recovery Systems

Components of an Effective Service Recovery System (Fig 13.4) Do the job right the first time Increased Satisfaction and Loyalty + Effective Complaint Handling = Conduct research Monitor complaints Develop “Complaints as opportunity” culture Identify Service Complaints Resolve Complaints Effectively Develop effective system and training in complaints handling Learn from the Recovery Experience Conduct root cause analysis Close the loop via feedback

Strategies to Reduce Customer Complaint Barriers (Table 13.1) Complaint Barriers for Dissatisfied Customers Strategies to Reduce These Barriers Inconvenience Hard to find right complaint procedure Effort involved in complaining Put customer service hotline numbers, e-mail and postal addresses on all customer communications materials Doubtful Pay Off Uncertain if action will be taken by firm to address problem Have service recovery procedures in place, communicate this to customers Feature service improvements that resulted from customer feedback Unpleasantness Fear of being treated rudely Hassle, embarrassment Thank customers for their feedback Train frontline employees Allow for anonymous feedback

How to Enable Effective Service Recovery Be proactive—on the spot, before customers complain (ex: Ritz Carlton) Plan recovery procedures Teach recovery skills to relevant personnel Empower personnel to use judgment and skills to develop recovery solutions

4. Service Guarantees

Service Guarantees Help Promote and Achieve Service Loyalty Force firms to focus on what customers want Set clear standards Highlight cost of service failures Require systems to get and act on customer feedback Reduce risks of purchase and build loyalty

The Hampton Inn 100% Satisfaction Guarantee (Fig 13.5) What are benefits of such a guarantee? Are there any downsides?

Types of Service Guarantees Table 13.2 Single attribute-specific guarantee One key service attribute is covered Multiattribute-specific guarantee A few important service attributes are covered Full-satisfaction guarantee All service aspects covered with no exceptions Combined guarantee All service aspects are covered Explicit minimum performance standards on important attributes

How to Design Service Guarantees Unconditional Easy to understand and communicate Meaningful to the customer Easy to invoke Easy to collect Credible

5. Discouraging Abuse and Opportunistic Behavior

Dealing with Customer Fraud Treating all customers with suspicion is likely to alienate them TARP found only 1 to 2 percent of customer base engages in premeditated fraud—so why treat remaining 98 percent of honest customers as potential crooks? Insights from research on guarantee cheating* Amount of a guarantee payout had no effect on customer cheating Repeat-purchase intention reduced cheating intent Customers are reluctant to cheat if service quality is high (rather than just satisfactory) Managerial implication Firms can benefit from offering 100 percent money-back guarantees Guarantees should be offered to regular customers as part of membership program Excellent service firms have less to worry about than average providers

6. Learning from Customer Feedback

Key Objectives of Effective Customer Feedback Systems Assessment and benchmarking of service quality and performance Customer-driven learning and improvements Creating a customer-oriented service culture

Customer Feedback Collection Tools Total market surveys Post-transaction surveys Ongoing customer surveys Customer advisory panels Employee surveys/panels Focus groups Mystery shopping Complaint analysis Capture service operating data

REPRESENTATIVE RELIABLE Key Customer Feedback Collection Tools: Strengths and Weakness (Table 13.3) POTENTIAL FOR SERVICE RECOVERY LEVEL OF MEASUREMENT FIRST HAND LEARNING COST EFFECTIVENESS TRANSACTION SPECIFIC REPRESENTATIVE RELIABLE COLLECTION TOOLS FIRM PROCESS ACTIONABLE TOTAL MARKET SURVEY (INCLU. COMPETITORS) ANNUAL SURVEY ON OVERALL SATISFACTION TRANSACTIONAL SURVEY SERVICE FEEDBACK CARDS MYSTERY SHOPPING Brown: Fully yes; white: Not at all UNSOLICITED FEEDBACK (e.g., COMPLAINTS) FOCUS GROUP DISCUSSIONS SERVICE REVIEWS Source: Adapted from Jochen Wirtz and Monica Tomlin, “Institutionalizing Customer-Driven Learning Through Fully Integrated Customer Feedback Systems.” Managing Service Quality,10, no.4 (2000): p. 210.

Entry Points for Unsolicited Feedback Frontline employees Intermediaries acting for original supplier Managers contacted by customers at head/regional office Complaint cards deposited in special box or mailed Telephone or e-mail Complaints passed to company by third-party recipients Consumer advocates Trade organizations Legislative agencies