Chapter

Service Recovery
The Impact of Service Failure and
Recovery
How Customers Respond to Service
Failures
Customers Recovery Expectations
Service Recovery Strategies
Service Guarantees

Chapter

Service Recovery
Doing it right the first time
When failure occurs
Customer Complaints

Figure 8.3

Customer Complaint Actions Following

Service Failure

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2006 The McGraw-Hill Companies, Inc. All rights reserved.

Figure 8.1

Unhappy Customers Repurchase Intentions

Unhappy Customers Who Dont Complain

9%

Unhappy Customers Who Do Complain

Complaints Not Resolved

Complaints Resolved

19%
54%
82%

Complaints Resolved Quickly

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.
McGraw-Hill/Irwin

2006 The McGraw-Hill Companies, Inc. All rights reserved.

Figure 8.4

Causes Behind Service Switching

Pricing

High price
Price increases
Unfair pricing
Deceptive pricing

Response to Service Failure

Negative response
No response
Reluctant response

Inconvenience
Location/hours
Wait for appointment
Wait for service

Core Service Failure

Service mistakes
Billing errors
Service catastrophe

Service Encounter Failures

Uncaring
Impolite
Unresponsive
Unknowledgeable

Service
Switching
Behavior

Competition
Found better service

Ethical Problems

Cheat
Hard sell
Unsafe
Conflict of interest

Involuntary Switching
Customer moved
Provider closed

Source: Sue Keaveney, Customer Switching Behavior in Service Industries: An Exploratory Study, Journal of Marketing, April, 1995, pp. 71-82.

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2006 The McGraw-Hill Companies, Inc. All rights reserved.

Types of Complainers
1.
2.
3.
4.

Passives- Dont Complain

Voicers- complain but dont do negative things
Irates- Angry, Negative WOM, likely to switch
Activists- beyond complaining

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2006 The McGraw-Hill Companies, Inc. All rights reserved.

Why do people complain?

Restitution
Self-Esteem
Theoretical Explanation

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2006 The McGraw-Hill Companies, Inc. All rights reserved.

Cognitive Appraisal Theory

1. The Primary Appraisal
Positive
Irrelevant
Stressful (harmful, threatening)
Goals and/or Ego

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2006 The McGraw-Hill Companies, Inc. All rights reserved.

Cognitive Appraisal Theory

1. The Secondary Appraisal (How do I deal with)
A. Assign Blame (Internal, External, Situation)
B. Assess Alternatives
C. Assess Future Expectations
D. Strategies
1. Problem Focused (Directed Externally)
2. Emotion Focused
3. Avoidance (Exit)

McGraw-Hill/Irwin

2006 The McGraw-Hill Companies, Inc. All rights reserved.

Complaining
Are there costs of Complaining?
What do complainers expect?
1. Timely response
2. Courtesy
3. Fairness
Outcome
Procedural
Interaction
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2006 The McGraw-Hill Companies, Inc. All rights reserved.

The Recovery Paradox

Many studies have supported
Excellent Service Recovery leads to higher Satisfaction
than if the failure had never occurred
Latest research shows not for repeated failure

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2006 The McGraw-Hill Companies, Inc. All rights reserved.

Service Failure Types

1. Core Service Failure
2. Customer Needs & Requests
3. Unprompted Actions
Lack of Attention
Norms, Courtesy, Respect
Fairness, Honesty, etc.

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2006 The McGraw-Hill Companies, Inc. All rights reserved.

Figure 8.5

ac
Tr
d
an ts
e ain
ag pl
ur m
co Co
En

Act
Quickly

Service Recovery Strategies

Fail-safe
the Service

McGraw-Hill/Irwin

Learn from Recovery

Experiences

st
Lo
m rs
fro m e
n o
ar st
Le Cu

Service
Recovery
Strategies

e
at
u
eq ns
Ad atio
e n
vid pla
o
Pr Ex

Treat Customers
Fairly

C
ul
tiv
wi ate
th R
C el
us at
to ion
m s
er hi
s ps

2006 The McGraw-Hill Companies, Inc. All rights reserved.

Recovery Strategies
Welcome Complaints
Act Quickly
Be Fair
Learn from Experiences
Learn from lost customers
Practical Guide
Win-Win Complaint Handling
The Person and the Problem (Process / Outcome)
The Complaint Opportunity
Physical vs Psychological Restitution
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2006 The McGraw-Hill Companies, Inc. All rights reserved.

Service Guarantees
guarantee = an assurance of the fulfillment of a condition
(Websters 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?)
McGraw-Hill/Irwin

2006 The McGraw-Hill Companies, Inc. All rights reserved.

Figure 8.2

The Hampton Inn 100 Percent

Satisfaction Guarantee

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2006 The McGraw-Hill Companies, Inc. All rights reserved.

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 customers 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.
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2006 The McGraw-Hill Companies, Inc. All rights reserved.

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.
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2006 The McGraw-Hill Companies, Inc. All rights reserved.

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

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2006 The McGraw-Hill Companies, Inc. All rights reserved.

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 companys 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

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2006 The McGraw-Hill Companies, Inc. All rights reserved.

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
its the icing on the cake, not the cake

McGraw-Hill/Irwin

2006 The McGraw-Hill Companies, Inc. All rights reserved.