SM

Chapter 7

SERVICE RECOVERY
 Objectives for Chapter
Service Recovery

• Illustrate the importance of recovery from service

failures in 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
complain
• Provide strategies for effective service recovery
• Discuss service guarantees
 Service Recovery

• Service Failure:
Service Performance < Expectation = Dissatisfaction

• Service Recovery: resolving failure / problem

• Reasons for Failure:

– No promised Service
– Delayed Service
– Poor Outcome
– Uncaring Employees
 Service Recovery

• Fixing Service Failure / Customer Problem

– Customer Satisfaction

– Positive WOM communication

– Bottom Line performance

 Service Recovery

• Service Paradox:
Excellent Service Recovery = More Satisfied

• Should the Company plan to Disappoint Customer

and provide good Service Recovery?
– Strategy fails

– “Doing it Right the First time” is the best option

 Figure 7-3
Customer Response Following Service
Failure

Service Failure

Take Action Do Nothing

Switch Providers Stay with Provider

Complain to Complain to Complain to

Provider Family & Friends Third Party

Switch Providers Stay with Provider

 Why people Do (Do not) complain

• People complaint

• People Do not take Action

High Involvement Service

 Types Complaint Actions

• On the spot

• Negative WOM
 Switching vs Staying

Remain Loyal Switch

How the Failure

is Handled
 Customers’ Recovery Expectations

• Understanding & Accountability

• Fair Treatment
– Outcome Fairness
– Procedural Fairness
– Interactional Fairness
• Magnitude of the Failure

• Nature of Relationship with the Firm

• Attitude toward Switching

– Demographic Factors ( Income, Education, Age)

– Individual Factors (Risk Aversive)

• EXPERIENCE with all ENCOUNTERs

 Figure 7-1
Unhappy Customers’
Repurchase Intentions
Unhappy Customers Who Don’t Complain 9%
Unhappy Customers Who Do Complain 37%

19%
Complaints Not Resolved
46%

54%
Complaints Resolved
70%

Complaints Resolved Quickly

82%
95%

Percent of Customers Who Will Buy Again

Minor complaints ($1-$5 losses) Major complaints (over $100 losses)

Source: Adapted from data reported by the Technical Assistance Research Program.
•Pricing Figure 7-6
Themes underlying service switching
Inconvenience

Core Service Failure

Service Encounter
Failures Service
Switching
Response to Service Behavior
Failure

Competition

Ethical Problems

Involuntary Switching
Source: Sue Keaveney
 Figure 7-5
Service Recovery Strategies

Service
Recovery
Strategies
 Make the Service fail Safe

• Meeting consumer’s Expectation > Cost

• Expectation = Reliability

• How to assure Reliability? = Quality Practice

 Encourage & Track Complaints

• Research
– Satisfaction Survey
– Lost Customer Research
– Toll Free number, email
– Blog Activities

• Anticipate the problem in advance

 Act Quickly

• Complaining customer seek Quicker Response

• Well Prepared to Act

• Customer Problem > Solved with the First

encounter > Satisfied
Treat the Customer Fairly
 Learn from Recovery Experience

• Problem Solving = Opportunities to

Create Relationship
 Service Recovery Strategies

• Make the Service fail Safe

• Meeting consumer’s Expectation > Cost

• Expectation = Reliability

• How to assure Reliability? = Quality Practice

 Service Guarantees

• guarantee = an assurance of the fulfillment of a

condition (Webster’s Dictionary)

• for products, guarantee often done in the form of

a warranty

• services are often not guaranteed

 Table 7-7
Characteristics of an Effective Service
Guarantee
Unconditional
 The guarantee should make its promise unconditionally -
no strings attached.
Meaningful
 It 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
 For customers - they need to understand what to expect.
 For employees - they need to understand what to do.
Easy to Invoke and Collect
 There should not be a lot of 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.
 Service Guarantees

• Does everyone need a guarantee?

• Reasons companies do NOT offer guarantees:

– guarantee would be at odds with company’s
image
– fears of cheating by customers
– costs of the guarantee are too high