SERVICE RECOVERY

Service recovery refers to the actions taken by an organizationin response to a service failure.
Failures occur for all kinds of reasons – the service may be unavailable when promised, it may be
delivered late or too slowly, the outcome may be incorrect or poorly executed, or employees may be
rude or uncaring. All of these types of failures bring about negative feelings and responses from
customers. Left unfixed, they can result in customers leaving, telling other customers about their
negative experiences, and even challenging the organization through consumer rights organisations or
legal channels.
Research has shown that resolving customer problems effectively has a strong impact on
customer satisfaction, loyalty, and bottom line performance. That is, customers who experience
service failures, but are ultimately satisfied based on recovery efforts by the firm, will be more loyal
than were those whose problems are not resolved. Data from the Technical Assistance Research
Programme (TARP) verifies this relationship, as shown in Fig. 3.2. Those who complain and have
their problems resolved quickly are much more likely to repurchase than are those whose complaints
are not resolved. Who never complain are least likely to repurchase.

Fig. 3.2
 Similar results were reported in a study of 720 HMO members, in which re-searchers found that
those who were not satisfied with service recovery were much more likely to switch to a different
health care provider than were those who were happy with how their problems were addressed. The
study also found that satisfaction with service recovery was the second most important factor out of 11
service attributes in predicting overall customer satisfaction. The most important factor not
surprisingly, was perceived medical outcome.
There are tremendous downsides to having no service recovery or ineffective service recovery
strategies. Poor recovery following a bad service experience can lead to customers who are so
dissatisfied they become “terrorists”, actively pursuing opportunities to openly criticize the company.
Further, repeated service failures without an effective recovery strategy in place can aggravate even
the best employees. The costs in employee morale and even lost employees can be huge, but often
overlooked, costs of not having an effective service recovery strategy.
Managing Service Failures and Recovery Strategies
 Despite the benefits offered by effective service recovery strategies, research shows that the
majority of customers are dissatisfied with the way the companies resolve their complaints.
 The vast majority of companies do not take advantage of the learning opportunities offered
through service failures.
 Hence, firms should desing an effective service Recovery Strategy.
Service Recovery Strategies
Not all companies are doing poorly at service recovery. Many have learned the importance of
providing excellent recovery for disappointed customers. In this section we examine their strategies
and share examples of benchmark companies and what they are doing.
Managing Service Failures and Recovery Strategies
 Handling Service failures and complaints effectively is vital to maintaining satisfaction and
loyalty.
 E.g. Saturn to repair 3.5lk vehicle set up 800 number service shop, went directly to owner’s
homes and opened its check centres to dealers,
 E.g. GE found on an average customer buy 15 major appliances in their lifetime, and invested
heavily in the GE Answer Centre to manage customer relationships and ensure that problems
are addressed effectively and efficiently.
 E.g. American Express pays attention to the job satisfaction of its investment advisers, as
found that more than 30% of an adviser’s client would leave if the adviser left the company.
 E.g. Federal Express, Xerox, Ritz Carlton use failure data when making decisions on
process improvements, coupling service recovery with initiatives to increase customer
satisfaction in failure.
Fail-safe Your Service – Do It Right the First Time!
The first rule of service quality is to do it right the first time. In this way recovery is unnecessary,
customers get what they expect, and the costs of redoing the service and compensating for errors can
be avoided. As you have already learned, reliability, or doing it right the first time, is the most
important dimension of service quality across industry contexts. As the figure suggests, elements of a
total service recovery strategy will lead in a circular fashion back to this most basic and fundamental
of all service strategies – service reliability.
What specific strategies do firms employ to achieve reliability? TQM, or total quality
management, practices aimed at “zero defects” are commonly used. However, given the inherent
differences between services and manufactured products, these tools typically require considerable
adaptation to work well in service contexts. Firms that blindly adopt TQM practices, without
considering services implications, often fail in their efforts.
Dick Chase, noted service operations expert, suggests that services adopt the TQM notion of
poka yokes to improve service reliability. Poka yokes are automatic warnings or controls in place to
ensure mistakes are not made; essentially they are quality control mechanisms, typically used on
assembly lines. Chase suggests that poka yokes can be devised in service settings to “mistakeproof”
the service, to ensure that essential procedures are followed, and to ensure that service steps are carried
out in the proper order and in a timely manner. In a hospital setting numerous poka yokes ensure that
procedures are followed to avoid potentially life-threatening mistakes. For example, trays for surgical
instruments have indentations for specific instruments, and each instrument is nested in its appropriate
spot. In this way surgeons and their staff know that all instruments are in their places prior to closing
the patient’s incision.
Similarly, poka yokes can be devised to ensure that the tangibles associated with the service are
clean and well maintained, and that documents are accurate and up to date. Poka yokes can also be
implemented for employee behaviours (checklists, role-playing and practice, reminder signs) and even
for ensuring that customers perform effectively. Many of the strategies we discuss in Parts 3 and 4 of
the text (“Aligning Strategy, Service Design, and Standards” and “Delivering and Performing Service”)
are aimed at ensuring service reliability and can be viewed as applications of the basic fail-safing
notion of poka yokes.
Even more fundamentally, it is important to create a culture of zero defections to ensure doing it
right the first time. Within a zero defections culture, everyone understands the importance of reliability.
Employees and managers aim to satisfy every customer and look for ways to improve the service.
Employees in a zero defections culture fully understand and appreciate the “lifetime value of a
customer” concept that was presented. Thus, they are motivated to provide quality service every time
and to every customer.
Welcome and Encourage Complaints
Even in a zero defections organization that aims for 100 per cent service quality, failures occur. A
critical component of a service recovery strategy is thus to welcome and encourage complaints.
Complaints should be anticipated, encouraged, and tracked. The complaining customer should truly be
viewed as a friend.
There are a number of ways to encourage and track complaints. Customer research an be
designed specifically to do this through satisfaction surveys critical incidents studies, and lost
customer research as discussed earlier. In a less formal manner, employees can be important listening
posts, discovering sources of customer dissatisfaction and service failure on the front-line. They
should be encouraged to report this type of information. For example, at Ritz-Carlton hotels, all
employees carry service recovery forms called “instant action forms” with them at all times so that
they can immediately record service failures and actions to address them. Each individual employee
“owns” any complaint that he or she receives and is responsible for seeing that service recovery occurs.
In turn, the employees report these sources of service failure and the remedies. If common themes are
observed across a number of failure situations, changes are made to service processes or attributes.
Part of encouraging complaints also involves teaching customers how to complain. Sometimes,
they have no idea whom to speak to, what the process is, or what will be involved. It is best to make
this process as simple as possible – the last thing customers want when they are dissatisfied is to face a
complex, difficult-to-access process for complaining.
One way that the complaining process has been simplified for customers is through technology.
New technologies have resulted in easier access for customers to sales and service representatives.
Toll-free call centres, e-mail, and pagers are all used to facilitate, encourage, and track complaints.
Software applications in a number of companies also allow complaints to be analyzed, sorted,
responded to, and tracked automatically.
Customer Complaining Behaviour (CCB)
 The firm need to understand CCB and motivations of what customer expect in response.
 Customer typically complains (5%) for any combination of the following 4 responses:
– Restitution or Compensation (refund, Service again)
– To vent out their anger (hurt self-esteem, become emotional)
– Help to improve the service (Bank, CUJ)
– To spare other customers from experiencing the same problem (Altruistic reason)
Act Quickly
Complaining customers want quick responses. Thus, if the company welcomes, even encourages,
complaints, it must be prepared to act on them quickly. This requires systems and procedures that
allow quick action, as well as empowered employees.
Take Care of Problems on the Front-line
Customers want the persons who hear their complaints to solve their problems whether a
complaint is registered in person, over the phone, or via the internet. In the example given earlier, the
Ritz Carlton insists that the first person to hear a complaint from a customer “owns” that complaint
until he or she is sure it is resolved. That means that if a maintenance employee hears a complaint
from a customer while the employee is in the middle of fixing a light in the hotel corridor, he owns
that complaint and must be sure that it is handled appropriately before returning to his work.
Another obvious way to speed complaint handling is to call (or in some cases electronically
respond to) customers, rather than send responses in the mail. Even customers who take the time to
write can be called back. Smith and Hawken, a garden supply mail-order company based in California,
found that this strategy of phoning customers worked well for them – they were quicker to respond to
their customers, and the costs of the phone calls were offset by the reduced costs and time involved
with paperwork.
Empower Employees
Employees must be trained and empowered to solve problems as they occur. At Advance PCS, a
large pharmacy benefits provider covering 75,000,000 patients, the goal is to solve the customer’s
problem on the first call. The company uses customer knowledge databases as the key source for
immediate problem-solving by its customer-service representatives. These representatives are
empowered to solve the customer’s problem, but at the same time they must adhere to stringent
requirements necessary in the health and pharmaceutical administration business.
A problem not solved can quickly escalate. Take, for example, a true story of a corporate vice-
president who sent an e-mail to his bank to register a complaint as he was attempting a transaction
through its internet banking service. The e-mail was never answered. The customer then sent an e-mail
directly to the president of the bank. That e-mail was never answered either. Ultimately, the customer
withdrew his approximately $70,000 account because his complaint was not handled in a timely
manner. In this case the technology was not effectively linked to other systems, nor ultimately to
employees. The internet access encouraged the complaint, but the response never occurred.
 Sometimes, employees can even anticipate problems before they arise and surprise customers
with a solution. For example, flight attendants on a flight severely delayed due to weather anticipated
everyone’s hunger, particularly the young children. Once in flight, they announced to the harried
travellers, “Thank you for your extreme patience in waiting with us. Now that we’re on our way, we’d
like to offer you complimentary beverages and dinner. Because we have a number of very hungry
children on board, we’d like to serve them first, if that’s OK with all of you”. The passengers nodded
and applauded their efforts, knowing that hungry, crying children could make the situation even worse.
The flight attendants had anticipated a problem and solved it before it escalated.
For service employees, there is a specific and real need for recovery training. Because customers
demand that service recovery take place on the spot and quickly, frontline employees need the skills,
authority, and incentives to engage in effective recovery. Effective recovery skills include hearing the
customer’s problems, taking initiative, identifying solutions, improvising, and perhaps bending the
rules from time-to-time.
Employees not only need the authority to act (usually within certain defined limits), but they
should not be punished for taking action. In fact, incentives should exist that encourage employees to
exercise their recovery authority. At the Ritz Carlton, employees are authorized to spend $2,000 on
behalf of the customer to solve a problem. This amount of money is rarely needed, but knowing that
they have to encourages employees to be responsive without fear of retribution.
Allow Customers to Solve Their Own Problems
Another way that problems or complaints can be handled quickly is by building systems that
allow customers to actually solve their own service needs and fix their own problems. Typically this is
done through technology. Customers directly interface with the company’s technology to perform
their own customer- service, providing them with instant answers. This is the case with FedEx’s
package tracking services, for example. Our Technology Spotlight features a company that is a master
at online customer-service – Cisco Systems.
Treat Customers Fairly
In responding quickly, it is also critical to treat each customer fairly. As discussed in an earlier
section, customers expect to be treated fairly in terms of the outcome they receive, the process by
which the service recovery takes place, and the interpersonal treatment they receive. Examples,
strategies and results of research focused on fairness in service recovery were discussed earlier. Here
you are reminded that this fair treatment is an essential component of an effective service recovery
strategy.
Learn from Recovery Experiences
“Problem-resolution situations are more than just opportunities to fix flawed service and
strengthen ties with customers. They are also a valuable –but frequently ignored or underutilized –
source of diagnostic, prescriptive information for improving customer-service”. By tracking service
recovery efforts and solutions, managers can often learn about systematic problems in the delivery
system that need fixing. By conducting root-cause analysis, firms can identify the sources of the
problems and modify processes, sometimes eliminating almost completely the need for recovery. At
the Ritz Carlton, employees record every service recovery opportunity and how it was handled; the
employee who gets the complaint is required to do this. This information is then entered into the
customer database and analyzed for patterns and systemic service issues that need to be fixed. If
needed, a project team is assigned to a problematic area to develop a solution. In addition, the
information is entered into the customer’s personal data file so that when that customer stays at the
Ritz-Carlton again (no matter what hotel), employees can be aware of the previous experience,
ensuring that it doesn’t happen again for that particular customer.
Learn from Lost Customers
Another key component of an effective service recovery strategy is to learn from the customers
who defect or decide to leave. Formal market research to discover the reasons customers have left can
assist in preventing failures in the future. This type of research is difficult, even painful for companies,
however. No one really likes to examine their failures. Yet this is essential for preventing the same
mistakes and losing more customers in the future.
As presented chapter earlier lost customer research typically involves in-depth probing of
customers to determine their true reasons for leaving. This is most effectively done by depth
interviews, administered by skilled interviewers who truly understand the business. It may be best to
have this type of research done by senior people in the company, particularly in business-to-business
contexts where customers are large and the impact of even one lost customer is great. The type of
depth analysis often requires a series of “why” questions or “tell me more about that” questions to get
at the actual, core reason for the customer’s defection.
In conducting this kind of research, it is important to focus on important or profitable customers
who have left – not just everyone who has left the company. An insurance company in Australia once
began this type of research to learn about their lost customers, only to find that the customers they
were losing tended to be their least profitable customers anyway. They quickly determined that depth
research on how to keep these unprofitable customers would not be a good investment!

Fig. 3.4 Causes Behind Service Switching

 Although the specific causes of customer defection will surely vary across industries and
companies, some common themes have been observed in academic research. In a study of
approximately 500 service-switching incidents, eight broad themes underlying the decision to defect
were identified. These themes (pricing, inconvenience, core service failure, service encounter failure,
response to service failure, competition, ethical problems, and involuntary switching) and their sub-
themes are shown in Fig. 3.4. In more than 300 of these switching incidents, more than one theme was
represented. For example, one of the largest categories was “core service failure”. In fact, 25 per cent
of the incidents with only one cause cited core service failure as the reason for switching. In incidents
where there were two themes, 29 per cent had core service failure as one of the causes for switching,
and 22 per cent of the three-theme incidents included this cause.
Return to “Doing It Right”
The set of strategies described follows Figure 3.4 and leads directly back to the beginning: “fail-
safe the service and do it right the first time”. By integrating all of the strategies, companies will find
less and less of a need for service recovery. Yet, when those situations do occur, they will be prepared
to impress the customer and keep their business any way.

COMPLAINT HANDLING
Handling Consumer Complaints
It is hard to imagine a customer transaction not vulnerable to problems and complaints, be it
buying groceries, connecting to cable service, purchasing a car or having a home repair done. Nor is it
hard to see why businesses benefit from making concerted efforts to prevent and respond to customer
complaints.
Research shows, in fact, that companies attract and keep customers when they follow customer-
service standards and policies that prevent problems from arising, and are honest, fair and responsive
when things go wrong. Customer complaint management (CCM) encompasses techniques, processes
and systems that lessen the chance of customers having problems and allow businesses to respond
fairly, efficiently and effectively when complaints arise.
Although many firms and industry sectors already carry out some form of customer complaints
management, surveys suggest that many Canadian customers are not satisfied with how businesses
respond to customer problems.
Complaint management systems and company policies on refunds, exchanges and product
service vary widely depending on the nature of the product or service, the terms of purchase, consumer
use patterns, and so on. There is no single formula that will provide universal relief for dissatisfied
consumers.
The commitment and continuing involvement of company management is critical to successful
complaint resolution and to the optimum use of complaints as a management tool. Managers will help
discover new ways to improve both the complaint-management system and the fairness of remedies
offered to consumers.
Complaints are a Goldmine of Information
Complaints offer businesses an opportunity to correct immediate problems. In addition, they
frequently provide constructive ideas for improving products, adapting marketing practices, upgrading
services, or modifying promotional material and product information.
While occasional problems with service of merchandise are, to some extent, inevitable,
dissatisfied customers are not. Companies can learn to recover from mistakes. A good recovery can
turn angry, frustrated customers into loyal ones.
Recognizing the importance of responding fairly and efficiently to buyer disappointment in the
marketplace, many businesses have established effective and innovative systems for resolving
consumer complaints. Within any industry, those companies with a positive philosophy and a
reputation for fair complaint-management have a competitive edge.
A management philosophy that embraces customer satisfaction as a primary goal of business,
instead of defending the company in the face of complaints, can change the rules of the game for
companies. It shifts the emphasis from the cost of pleasing a customer to the value of doing so, and
trusts front-line employees to use their judgment.
British Airways’ customer-relations department can claim to be a true champion of the customer.
The retention rate among those who complain to customer relations has more than doubled, while its
return on investment (the value of business saved plus increased loyalty and new business from
referrals relative to the department’s total costs) has risen 200%. British Airways employees are never
happy to have service failures but are eager to hear about them when they occur because they know
that ignorance is anything but bliss.
Why is Complaints Handling Important?
Generate Loyalty, Goodwill and Word-of-Mouth
By talking back when they believe they have not received their money’s worth, consumers give
businesses an opportunity to correct the immediate problem and restore goodwill. Experience shows
that consumers who complain about products and services continue to frequent the businesses and buy
the products they complain about if they believe the complaint was resolved fairly.
Research into complaint behaviour reveals that only a fraction of dissatisfied consumers
complains to business and, thereby, gives the company an opportunity to correct the problem. There is
evidence that some consumers do not complain because they are skeptical about business’s
willingness or ability to resolve disputes fairly. Consumers simply withdraw their patronage and
criticize the company or the product to others.
Such findings underscore the importance to business of a complaint management system that is
well-publicized and easily accessible. An unregistered complaint may do as much harm as one that is
mismanaged or not resolved.
Careful complaint management can save business unwanted costs. For example, negative word-
of-mouth publicity from dissatisfied consumers means lost revenue and necessitates additional
investment in advertising to attract replacement customers.
Complaints and complaint trends tell business how to do its job better by alerting management to
problems that need prompt attention and correction. Furthermore, they indicate long-range
opportunities for product innovation and problem prevention. A well-planned system for screening
and recording complaint data can provide business owners and managers answers to such important
questions as the following:
 Are products “oversold” or “over advertised?”
 Is advertising clearly understood?
 Are salespeople overzealous?
 Do product disclosures (such as labelling, warranty information and service agreements) need
to be improved?
 Are user’s manuals clear, complete and easy-to-read?
 Would changing warranty coverage reduce complaints?
Complaints also provide information about product
quality:
 Are there opportunities for product improvements or better quality control?
 Are there indications of safety defects that should be reported and corrected, or that justify a
recall?
To get this valuable feedback, complaint-reporting must generate information swiftly and
systematically to the appropriate managers or departments. Initial screening should trigger immediate
action, when necessary, and statistical summaries should identify trends and long-range courses of
action.
Consequences to Business of Dissatisfied Customers
The results of a US survey showed that unhappy customers, even when they don’t complain,
have a negative effect on a business.
 About half the time, customers who have a problem with a product or service are not likely to
tell the company about it.
 Nine out of ten of these “silent critics” will probably take their future business to a competitor.
 One out of every two customers who complain are not thoroughly satisfied with the
company’s efforts to solve the problem.
 Dissatisfied customers typically tell between seven to nine other people about an
unsatisfactory experience with a company.
 Negative information has twice the impact of positive information on purchasing decisions.
Word-of-mouth is one of the most important factors influencing a customer’s decision to buy
from a company.