Service Recovery Paradox: Turning Complaints into Loyalty

1. Think about the last time you received a less than satisfactory service-Did you complain? Why/Why not???

2. Chapter 13: Lovelock Chapter 8: Zeithaml SERVICE RECOVERY & CUSTOMER FEEDBACK

3. Reliability is Critical in Service but… • In all service contexts, service failure is inevitable. • Service failureoccurs when service performance that falls below a customer’s expectations in such a way that leads to customer dissatisfaction. • Service recoveryrefers to the actions taken by a firm in response to service failure.

4. Complaining Customers:The Tip of the Iceberg

5. Have you ever experienced any outstanding service recovery????

6. 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 • service recovery is expensive

7. 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!

8. Customer Complaint Actions Following Service Failure

9. Why Do Customers Complain? • Vent their anger • Obtain compensation • Help to improve the service • Create an impression of being more intelligent and discerning

10. Why Don’t Customers Complain? • Don’t know who to complain to • Don’t think it will do any good-waste of time • May doubt their own subjective evaluation • May accept part of the blame • May want to avoid confrontation • May lack expertise • Personal relevance of the problem

11. Type of Complainers • Passives • Least likely to take any action. • Often doubt the effectiveness of complaining. • Voicers • Actively complain to the service provider. • Less likely to spread negative word of mouth, to switch patronage or to go to third parties with their complaints. • Irates • Less likely to give the service provider a second chance. • More likely to switch to a competitor. • More likely to engage in negative word of mouth. • Activists • above average propensity to complain on all dimensions. • In extreme cases can become terrorists.

12. Service Failure/Recovery Value Proposition • Core Service Failure • Service Mistakes • Billing Errors • Service Catastrophe • Pricing • High Price • Price Increases • Unfair Pricing • Deceptive Pricing Service Switching • Service Encounter Failures • Uncaring • Impolite • Unresponsive • Unknowledgeable • Inconvenience • Location/Hours • Wait for Appointment • Wait for Service • Response to Service Failure • Negative Response • No Response • Reluctant Response • Competition • Found Better Service Others • Ethical Problems • Cheat • Hard Sell • Unsafe • Conflict of Interest • Involuntary Switching • Customer Moved • Provider Closed What Drives Customers to Switch? Source: Adapted from Susan M. Keaveney, “Customer Switching Behavior in Service Industries: An Exploratory Study,” Journal of Marketing 59 (April 1995), pp. 71–82.

14. Causes Behind Service Switching

15. Components of an Effective Service Recovery System

16. Effective Service Recovery • Service Recovery should be • Proactive • Planned • Trained • Empowered

17. Service Recovery Strategies

18. Guidelines for Effective Problem Resolution • Act fast • Admit mistakes but don’t be defensive • Understand problem from customer’s viewpoint • Don’t argue • Acknowledge customer’s feelings • Give benefit of doubt • Clarify steps to solve problem • Keep customers informed of progress • Consider compensation • Persevere to regain goodwill

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. Service Guarantees • guarantee = an assurance of the fulfillment of a condition • 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?)

21. The Hampton Inn 100 PercentSatisfaction Guarantee

22. Characteristics of an EffectiveService 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

23. Types of Service Guarantees • 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 – like the full-satisfaction, adding explicit minimum performance standards on important attributes

24. British Airways Guarantee

25. 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”

26. 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

27. Building a Customer Feedback System • Total market surveys • Post-transaction surveys • Employee surveys/panels • Focus groups • Mystery shopping • Complaint analysis

28. You ordered steak but the meat was raw. What would be an effective service recovery if you were dining out in: • Time Out • Steak House • The Westin