1. 8 Chapter Service Recovery  The Impact of Service Failure and Recovery  How Customers Respond to Service Failures  Customers’ Recovery Expectations  Service Recovery Strategies  Service Guarantees

2. © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Figure 8.1 Unhappy Customers’ Repurchase Intentions 82% 54% 19% 9% Complaints Resolved Quickly Complaints Resolved Complaints Not Resolved Unhappy Customers Who Don’t Complain Unhappy Customers Who Do Complain Percent of customers who will buy again after a major complaint (over $100 in losses) Source: Adapted from data reported by the Technical Assistance Research Program.

3. © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Complaining Behavior  Don’t Complain  Waste of time  Don’t know how  Self blame  Social norms  Do Complain  Positive consequences  Social responsibility  Revenge  Social norms  PASSIVES  NO ACTION  VOICERS  2 ND CHANCE  IRATES  EMOTIONAL  ACTIVIST  SOCIAL OUTCOMES

4. © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Figure 8.3 Customer Complaint Actions Following Service Failure

5. © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Figure 8.4 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, “Customer Switching Behavior in Service Industries: An Exploratory Study,” Journal of Marketing, April, 1995, pp. 71-82.

6. © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Learn from Recovery Experiences Act Quickly Treat Customers Fairly Fail-safe the Service Cultivate Relationships with Customers Encourage and Track Complaints Provide Adequate Explanations Learn from Lost Customers Service Recovery Strategies Figure 8.5 Service Recovery Strategies

7. © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 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?)

8. © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Figure 8.2 The Hampton Inn 100 Percent Satisfaction Guarantee

9. © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Exhibit 8.6 Characteristics of an Effective Service Guarantee  Unconditional  the guarantee should make its promise unconditionally – no strings attached  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 and Communicate  customers need to understand what to expect  employees need to understand what to do  Easy to Invoke and Collect  the firm should eliminate hoops or red tape in the way of accessing or collecting on the guarantee Source: Christopher W.L. Hart, “The Power of Unconditional Guarantees,” Harvard Business Review, July-August, 1988, pp. 54-62.

10. © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin 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, thus satisfying the customer and helping retain loyalty.  Information generated through the guarantee can be tracked and integrated into continuous improvement efforts.  Employee morale and loyalty can be enhanced as a result of having a service guarantee in place.  A service guarantee reduces customers’ sense of risk and builds confidence in the organization.

11. © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Why a Good Guarantee Works  forces company to focus on customers  sets clear standards  generates feedback  forces company to understand why it failed  builds “marketing muscle”

12. © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Service Guarantees  Does everyone need a guarantee?  Reasons companies might NOT want to offer a service guarantee:  existing service quality is poor  guarantee does not fit the company’s image  too many uncontrollable external variables  fears of cheating or abuse by customers  costs of the guarantee outweigh the benefits  customers perceive little risk in the service  customers perceive little variability in service quality among competitors

13. © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Service Guarantees  service guarantees work for companies who are already customer-focused  effective guarantees can be BIG deals – they put the company at risk in the eyes of the customer  customers should be involved in the design of service guarantees  the guarantee should be so stunning that it comes as a surprise – a WOW!! factor  “it’s the icing on the cake, not the cake”