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S. M. Chapter 7. SERVICE RECOVERY. © 2000 The McGraw-Hill Companies. McGraw-Hill. Objectives for Chapter 7: 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

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Chapter 7


© 2000 The McGraw-Hill Companies


objectives for chapter 7 service recovery
Objectives for Chapter 7: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
figure 7 1 unhappy customers repurchase intentions
Figure 7-1Unhappy Customers’ Repurchase Intentions

Unhappy Customers Who Don’t Complain


Unhappy Customers Who Do Complain



Complaints Not Resolved



Complaints Resolved



Complaints Resolved Quickly


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.

figure 7 3 customer response following service failure
Figure 7-3 Customer Response Following Service Failure

Service Failure

Take Action

Do Nothing

Stay with Provider

Switch Providers

Complain to Provider

Complain to Family & Friends

Complain to Third Party

Switch Providers

Stay with Provider

Welcome and Encourage Complaints

Fail Safe the Service

Service Recovery Strategies

Act Quickly

Learn from

Lost Customers

Treat Customers Fairly

Learn from

Recovery Experiences

Figure 7-5

Service Recovery Strategies

figure 7 6 causes behind service switching
  • High Price
  • Price Increases
  • Unfair Pricing
  • Deceptive Pricing
Figure 7-6Causes Behind Service Switching


  • Location/Hours
  • Wait for Appointment
  • Wait for Service

Core Service Failure

  • Service Mistakes
  • Billing Errors
  • Service Catastrophe

Service Encounter Failures

Service Switching Behavior

  • Uncaring
  • Impolite
  • Unresponsive
  • Unknowledgeable

Response to Service Failure

  • Negative Response
  • No Response
  • Reluctant Response


  • Found Better Service

Ethical Problems

  • Cheat
  • Hard Sell
  • Unsafe
  • Conflict of Interest

Involuntary Switching

Source: Sue Keaveney

  • Customer Moved
  • Provider Closed
service guarantees
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
    • cannot return the service
    • service experience is intangible
        • (so what do you guarantee?)
table 7 7 characteristics of an effective service guarantee
Table 7-7Characteristics of an Effective Service Guarantee

Source: Christopher W.L. Hart, “The Power of Unconditional Guarantees,” Harvard Business Review, July-August, 1988, pp. 54-62.

why a good guarantee works
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”
service guarantees10
Service Guarantees
  • Does everyone need a guarantee?
  • Reasons companies do NOT offer guarantees:
    • guarantee would be at odds with company’s image
    • too many uncontrollable external variables
    • fears of cheating by customers
    • costs of the guarantee are too high
service guarantees11
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”