1. 8 Service Recovery Chapter The Impact of Service Failure and Recovery
How Customers Respond to Service Failures
Customers’ Recovery Expectations
Switching versus Staying Following Service Recovery
Service Recovery Strategies
Service Guarantees
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Objectives for Chapter 8: Service Recovery
Illustrate the importance of recovery from service failures in keeping customers and building loyalty.
Discuss the nature of consumer complaints and why people do and do not complain.
Provide evidence of what customers expect and the kind of responses they want when they do complain.
Present strategies for effective service recovery, together with examples of what does and does not work.
Discuss service guarantees—what they are, the benefits of guarantees, and when to use them—as a particular type of service recovery strategy.

3. 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.

4. Complaining Customers: The Tip of the Iceberg

5. Unhappy Customers’ Repurchase Intentions

6. Dissatisfied Consumers’ Behavior
The Retail Customer Dissatisfaction Study 2006 by the Verde Group found:
48% of respondents reported that they avoided a store because of someone else’s negative experience
for those who encountered problems, 33% said they would “definitely not” or “probably not” return
The exponential power of storytelling:
as people tell the story, the negativity is embellished and grows 6

7. Customer Rage Study Conducted by
In collaboration with 7

8. How Customers Expressed Their Displeasure

9. What Customers Wanted to Get
Non-monetary remedies

10. What Complainants Got:
56% of complainants felt they got NOTHING

11. Ping-Ponging (Number of Contacts Needed to Resolve Complaint)
Mean number of contacts
Complainants = 4.3
% complainants

12. Length of Time to Resolve Complaints
% complainants

13. Fairness Themes in Service Recovery

14. Customer Complaint Actions Following Service Failure

15. 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.)
HOWEVER:
only a small percent of customers complain
service recovery must be SUPERLATIVE
only with responsiveness, redress, 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

16. 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!

17. Causes Behind Service Switching

18. Service Recovery Strategies

19. Eight Most Common Remedies Customers Seek with Serious Problems
Have the product repaired or service fixed
Be reimbursed for the hassle of having experienced a problem
Receive a free product or service in the future
Explanation by the firm as to what happened
Assurance that the problem will not be repeated
A thank you for the customer’s business
An apology from the firm
An opportunity for the customer to vent his or her frustrations to the firm

20. Customer Satisfaction with Timeliness of Firm Responses to Service Failures

21. 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?)

22. The Hampton Inn 100 Percent Satisfaction Guarantee

23. 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

24. 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.

25. British Airways Guarantee

26. 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”

27. Does everyone need a service 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

28. 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”