Chapter 7: Service Recovery

Topic/Sub Topics Learning outcomes Activities Timeline

Service Failure and Recovery
Complaining Customers: The Tip of
the Iceberg
The Service Recovery Paradox
Customer Complaint Actions
Following Service Failure
Types of Complainers
Service Recovery Strategies
Fixing the Customer
Treat Customers Fairly
Fixing the Problem
Service Guarantees
Characteristics of an Effective
Service Guarantee
Benefits of Service Guarantees
When to Use (or Not Use) a
Guarantee
Causes Behind Service Switching
At the end of this topic you Two 3 hours
should be able to: scenario
- Explain the importance of based
recovery from service short
failures answer
- Discuss the nature of questions
consumer complaints and
explain why customers
may or may not complain.
- Apply strategies for
effective service recovery
in terms of ‘fix the
customer’ and ‘fix the
problem’

Reading: Chapter 7 from (pp. 178-215) Zeithaml V.A., Bitner M.J. and Gremler,
D.D. (2018). Services Marketing: Integrating Customer Focus across the Firm. (7th Ed.) NY,
McGraw-Hill [course text-book]. The key source of below notes is this textbook, however, I
have simplified the concepts with more explanations and examples.

While the reliability dimension is critical in services, in all service contexts service failure is
inevitable. In addition, we also cannot say that we can totally eliminate service failures. This is
where service recovery comes in. This chapter is about service recovery and its importance in
regaining the lost customer confidence. We first look at two key definitions.

Service Failure and Recovery

Service Failure occurs when the service performance falls below customer expectations in a
way that leads to customer dissatisfaction. On the other hand while Service Recovery refers to
the actions taken by a company in responding to service failures.

However, a company can only perform service recovery when customers complain.

Figure 7.1: Complaining Customers: The Tip of the Iceberg

Source: Zeithaml et al. (2018:180)

As per figure 7.1, the complaining customers are just a tip of the iceberg. A very small
percentage of customers directly complain to top-management. A larger percentage complain to
front-line or service employees while 50 percent do not complain. In a later section of this
chapter, we will look at why this is so.

Going back to service recovery, do you think, a customer who has experienced a service failure
and later experienced an exemplary service recovery is more likely to be more satisfied or
impressed even with the service provider? So, should a firm ‘mess up’ just a little so that it can
‘fix the problem’ superbly? To answer these questions, we discuss the ‘service recovery paradox’
in the following section.

The Service Recovery Paradox

 Only a small percent of customers complain as illustrated in figure 7.1.
 An effective service recovery must be SUPERLATIVE [excellent, outstanding, the best]
and this can be done only with responsiveness [get back to the customer in timely
manner], redress [compensation], and empathy/courtesy [show care], and tangible
rewards [rewards such as tangible products eg. a broken shoe replaced by a brand new
shoe of better quality].
 Unfortunately, even though service recovery can improve customer satisfaction, it has not
been found to increase purchase intentions or perceptions of the brand. This means that it
is unlikely that the customer will increase the amount they purchase over the years and
they may also not change their views towards the brand.
 Service recovery is expensive because compensation includes providing the customer
with something extra, to compensate not only for the service failure but also for the
inconvenience or grief caused.

The service recovery paradox is more likely to occur when:

 The failure is not considered by the customer to be severe – just a minor mistake and did
not affect the customer much.
 The customer has not experienced prior failures with the firm – this was the company’s
first failure so the customer is more forgiving and understanding.
 The cause of the failure is viewed as unstable by the customer – customer knows that this
failure will not reoccur and may be a one-off mistake.
 The customer perceives that the company had little control over the cause of the failure –
eg. power outage so transaction could not be processed by the bank staff. Customer will
be understanding since power outage is not the company’s fault.
 The above conditions are the recovery paradox situations where we are not required to
make a strong effort towards recovery since customers are more understanding and
forgiving of such situations and are not that adversely affected.
 That was all on service recovery paradox. We now get back to service recovery efforts.
We nextnow look at what customers do [complain or not complain] when services
failures occur.

Customer Complaint Actions Following Service Failure

Source: Zeithaml et al. (2018:183)

As per figure 7.3, service failures stir up negative emotions and causes customer dissatisfaction.
These customers will either complain or not complain. From those who do not complain, they
may either stop purchasing or switch to competitor service companies or remain with the same
company. Those who choose to complain may complain directly to the company, or spread
negative remarks to other customers/general public or complain to third parties like consumer
councils or take the company to court. These customers may also either stop purchasing or
switch to competitor service companies or remain with the same company.
By now we know that there are customers who complain and there are those who do not. We will
discuss this further and examine on this in termsthe different of types of complainers.

Types of Complainers
 Passives: these customers are not really complainers since they are least likely to take
any action: they are least likely to say anything to the service provider, least likely to
spread negative Word of Mouth (WOM), or least likely to complain to a third party. This
is because they are doubtful of the effectiveness of complaining and feel that complains
will not be attended to, so it is no use complaining.
 Voicers: these customers actively complain to the provider but are not likely to spread
negative WOM. They believe in the positive consequences of complaining and are the
service provider’s best friends since they give the company a second chance - a chance to
improve and regain the lost customer trust and confidence.
 Irates: these customers are more likely to engage in negative WOM to friends and
relatives and are more likely to switch to other service providers. They are average in
complaints to the provider, unlikely to complain to third parties and are more angry so
less likely to give the provider a second chance.
 Activists: these customers have above average propensity to complain at all levels and
are more likely to complain to a third party. They feel most alienated from the
marketplace compared to the other groups and in extreme cases can become customer
“terrorists”, eg. may organize protests against the service provider.

It is now clear that service failures cannot be avoided and some customers may complain which
is why service providers should have recovery strategies in place to win back customer
confidence and to be fair to customers. In the next section, we discuss these recovery strategies
in detailWe next discuss such strategies in detail.
 Service Recovery Strategies

Source: Zeithaml et al. (2018:188)

According to figure 7.4, the two broader strategies involve ‘fix the customer’ and ‘fix the
problem’ strategies. In the following section, we describe these strategies further.

Fixing the Customer

 When customers take the time to complain, they generally have high expectations as
follows:
o They expect the company to respond quickly and to be accountable [to admit to
its mistakes and be answerable to the customer in explaining what led to the
mistakes and what will be done about it].
o They expect to be compensated not only for the mistake [such as of wrong meal]
but a higher compensation - one that covers for the grief and for the hassle of
being inconvenienced too [eg. correct meal with extras of free drink and desert].
 o They expect to be treated nicely [politely, in a courteous manner and not be
blamed] in the process!

Customers also expect to be treated fairly during the process. We now discuss more on this.

Treat Customers Fairly

 Outcome fairness: Outcome (compensation by the service provider) should match the
customer’s level of dissatisfaction, be in equality with what other customers receive in
such situations with choices (eg. refund with extra cash or replacement with extras such
as delivery of wrong regular meal to be replaced with correct meal in larger serve with
drinks).
 Procedural fairness: Fairness in terms of policies, rules, timeliness of the complaint
process – these should not cause extra hassle (eg. extra work – filling our confusing
lengthy forms, made to run around to different employees, asked to pay extra
fees/charges, long waits) and ask the customers to indicate their choices: “What can we
do to compensate you…?”
 Interactional fairness: Politeness, care, and honesty on the part of the company and its
employees. Rude behavior on the part of employees may be due to lack of training and
empowerment since they are the ones who customers blame or complain to and they are
the ones customers get angry with. In such situations, if they do not have any authority to
act on customer complain, they will feel helpless and frustrated.

After ‘fixing the customer’ the company should address the actual problem that created the poor
service delivery in the first place. This is about ‘fixing the problem’.

Fixing the Problem

 If the problem is likely to reoccur for other customers, then the service delivery process
may need to be fixed too. A reoccurring problem/customer complaint does signal towards
a process related problem and if this is not addressed, then customers will continue to
complain and companies will spend more on compensation.
  Strategies for fixing the problem include encouraging (genuinely request customers to
complain and have a simple procedure for this) and tracking complaints (keep a record of
all complains and note how each was addressed), learning from recovery experiences
(take note of common problems, address process related problems to reduce complain
and compensation) and from lost customers (ask/interview exit customer on why they
left), and making the service fail-safe (fail safe may not be easy but we can try to offer
services the correct way during the first service delivery).

We have now realised the different service recovery strategies that needs to be in
placeconcluded discussions on strategies. We now turn to service guarantees. In general, a
guarantee is an assurance of the fulfillment of a condition (Webster’s Dictionary). In the
following section, we define service guarantees and, look at the characteristics and benefits
of guarantees. We also discuss when to and when not to use guarantee for services.

Service Guarantees
 In a business context, a guarantee is a pledge or assurance [promise] that a product
offered by a firm will perform as promised and, if not, then some form of reparation
[compensation] will be offered by the firm.
 For tangible products, a guarantee is often done in the form of a warranty. eg. if a
warrantee is for three months, then a faulty product can be replaced or repaired within the
three months.
 Services are often not guaranteed because:
o We cannot return the service since services exist at a given point in time so is
perishable. eg. we cannot return a spoilt haircut.
o Service experience is intangible - has no physical presence (so what do you
guarantee?)

However, in current times, companies that have some faith in their quality of services have tried
offering service guarantee. However, a guarantee can only be effective if it meets four key
characteristics. We discuss this below.
Characteristics of an Effective Service Guarantee
 Unconditional: The guarantee should make its promise unconditionally - no strings
attached, no additional restrictions.
 Meaningful: The firm should guarantee elements of the service that are important to the
customer eg. reliability – timeliness of service delivery. The payout should cover fully
the customer’s dissatisfaction including the extra hassle/grief caused.
 Easy to Understand: Customers need to understand what to expect - the guarantee
should be stated in a way that is easily understood and very clear to customers.
Employees need to understand what to do. They should be trained, given clear directives
with the required level of authority to act on customer complains.
 Easy to Invoke: The firm should eliminate hoops or red tape in the way of accessing or
collecting on the guarantee – the process should be simple to act on/ to put into effect and
not cause extra work [additional paperwork], wait for the customers.

An effective guarantee can bring about various benefits as discussed below:

Benefits of Service Guarantees

 A good guarantee forces the company to focus on its customers - the company steps into
the shoes of the customer to think like customers. Customers and their satisfaction are
important to such companies.
 An effective guarantee sets clear standards for the organization – employees are well
informed on what is expected from them when customers complain and seek
compensation.
 A good guarantee generates immediate and relevant feedback from customers –
encourages the customers to complain and they belief that the company is serious about
addressing their complains and that something will be done about it.
 When the guarantee is invoked there is an instant opportunity to recover – when
customers complain, the process of recovery begins and the company gets a chance to
regain the lost customer trust.
 Information generated through the guarantee can be tracked and integrated into
continuous improvement efforts – customer feedback helps diagnose the common
 company process related problems which the company may have been unaware of. When
the company becomes aware, it can work towards improving its own processes to reduce
customer complaints and compensation.
 A service guarantee reduces customers’ sense of risk and builds confidence in the
organization – a guarantee indicates to the customer that the company is confident about
its quality and that it cares about customer satisfaction. It reassures the customers that the
company will do its best to keep customers satisfied.
However, while service guarantees are beneficial, it is not always a good idea to offer
guarantees. In line with this, we discuss ‘when not to use’ service guarantees in the following
section.

When ‘Not to Use’ a Guarantee

The reasons companies might NOT want to offer a service guarantee:
 Existing service quality is poor - guarantees should only be offered when the company
is sure of its good-quality standards and knows that complaints will be lower. If existing
quality is poor, then there will be numerous complaints and the company will have to
continually perform service recoveries which will be very costly. The company should
first improve its standards.
 A guarantee does not fit the company’s image – the company is already very well
known for its very high standards. For such companies there is no need for guarantees; a
guarantee may just confuse the customers.
 Service quality is truly uncontrollable – the quality of services can be affected by
external factors beyond the control of the company. eg. weather conditions can delay
flights, so airlines cannot offer a guarantee on departure or arrival timings.
 Potential exists for customer abuse of the guarantee – some customers will take
advantage and complain unnecessarily just for compensation.
 Costs of the guarantee outweigh the benefits – the company will lose out and not gain
much. A guarantee should be an investment to strengthen customer relationship. If there
is less of positive effects and more losses in terms of compensation, then there is no point
in offering guarantees.
  Customers perceive little risk in the service – eg. the services are inexpensive and there
are many competitors offering the same services. In such situations, guarantees are of
little value to customers.

That is all on service guarantees. In the final section, we discuss the factors that lead to
customers switching to competitors.

Causes Behind Service Switching

Source: Zeithaml et al. (2018:208)

According to figure 7.7, the factors of pricing [customers find the price/fees/charges
unaffordable or unfair], inconvenience [services are time-wasting or poorly timed for customers],
core service failures [errors by the company/staff], service encounter failures [poor interactive
quality], response to service failure [little to no response or negative response], competition
[better services offered by other companies], ethical problems [service provider is a cheat, only
concerned about making profits] and involuntary factors [customer or provider has changed
location] lead to customers switching to competitor service providers.

Overall, because service failures cannot be avoided and it is not possible to totally eliminate
service failures, companies should have some service recovery strategies in place to retain
customers and/or to win back lost customer confidence.

Reference:
Zeithaml V.A., Bitner M.J. and Gremler, D.D. (2018). Services Marketing: Integrating Customer
Focus across the Firm. (7th Ed.) NY, McGraw-Hill [course text-book].