Service Recovery: Mcgraw-Hill/Irwin

Chapter8-1
Service Recovery 8
 The Impact of Service Failure and Recovery
 How Customers Respond to Service Failures
 Customers’ Recovery Expectations
 Switching versus Staying Following Service Recovery
 Service Recovery Strategies
 Service Guarantees
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
8-2
Objectives for Chapter 8:

Service Recovery
 Illustrate the importance of recovery from service failures in keeping
customers and 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 do complain.
 Present strategies for effective service recovery, together with examples

of what does and does not work.
 Discuss service guarantees—what they are, the benefits of guarantees,

and when to use them—as a particular type of service recovery
strategy.
8-3
Outline(1/2)
 Chapter 6
 Listen to the customers
 Customer Research
 Qualitative an Quantitative Research
 Listen to the employee
 Upward communication
 Chapter 7
 Build the customer relationship
 Treat customers to best services
8-4
Service failure is inevitable……
There is no perfect services for customers.
How to do?
How can you do if you are the firm’s CEO?
Honest is the best policy…..

8-5
Outline (2/2)
 Firms must know

 What do customers expect when service failures
occur
 What are the effective strategies for service recovery
8-6
The impact of service failure and

recovery
8-7
The impact of service failure and recovery
 In all service contexts, service failure is

inevitable.
 Service failure occurs when service performance
that falls below a customer’s expectations in
such a way that leads to customer dissatisfaction.
 The outcome maybe incorrect or poorly executed
 Employee may be rude or uncaring
 Delivered late or too slowly
8-8
Complaining Customers:
The Tip of the Iceberg
8-9
Customer Rage Study Conducted by
In collaboration with
8-10
How Customers Expressed Their Displeasure
Respondents -
Expressions of displeasure Problem
Shared the story with my friends/other people 85%
Complained to the org. that caused the problem1 84%
Decided I'd never do business/come back again 59%
Threatened to talk with/contact management 55%
Yelled or raised my voice 24%
Threatened to report the org. that caused the
16%
problem to a gov't regulatory agency
Threatened legal action 7%
Threatened to contact the media 6%
Cursed/used profanity 6%
8-11
What Customers Wanted to Get
Respondents -
Wanted to get Problem
Product repaired/service fixed 85%
Explanation of why problem occurred 78%
Non-
Assurance problem wouldn't be repeated 78% monetary
Apology 59% remedies
Chance to vent 58%
Money back 49%
Free product or service in the future 30%
Financial compensation for my lost time,
23%
inconvenience or injury
Revenge -- make them pay for the hassle
11%
and inconvenience
Other 9%
8-12
What Complainants Got:
 56% of complainants felt they got

NOTHING
8-13
Ping-Ponging (Number of Contacts

Needed to Resolve Complaint)
100%
Mean number of contacts
Complainants = 4.3
80%
% complainants
60%
40%
18% 18% 19% 21%

20% 11%
7% 6%
0%
One Two Three Four Five Six Seven or
more
8-14
Length of Time to Resolve Complaints
100%
80%
% complainants
60%
46%
40%
19%
15%
20%
4% 7% 5% 3%
0%
Immed. Less than 1 1-7 days 8-14 days 15-28 days 28 + days Still not
day, but not resolved
immed.
8-15
The impact of service failure and recovery
 The outcome of service failure

 Customers leaving
 Tell other customers
 Challenge the organization
 Consumer right organizations
 Legal channels
 Service recovery refers to the actions taken by a
firm in response to service failure.
8-16
Service Recovery Effects

8-17
 Resolve customer problem effectively

 The power of service recovery
 Customer satisfaction, loyalty
 Word of mouth, communication
 Provide information to improve service
8-18
Unhappy Customers’ Repurchase Intentions

8-19
Dissatisfied Consumers’ Behavior
 The Retail Customer Dissatisfaction Study 2006 by the

Verde Group found:
 48% of respondents reported that they avoided a store because
of someone else’s negative experience
 for those who encountered problems, 33% said they would
“definitely not” or “probably not” return
 The exponential power of storytelling:

 as people tell the story, the negativity is embellished and
grows
8-20
Doing it right the first time.
Reliability is the most important

dimension for service quality.
8-21
 Poor recovery
 Bad service experience
 Dissatisfied customers will become “terrorists”
 Pursue opportunities to openly criticize the company
 Satisfied customers will talk to an average of 8 people
 Dissatisfied customers will talk to an average of 18.5 people
 Aggravate the best employees
8-22
The service recovery paradox

8-23

 An initially disappointed customer who has experienced
good service recovery might be even more satisfied and
loyal as a result.
 The “service recovery paradox” states
 A highly effective service recovery, a service or product
failure offers a chance to achieve higher satisfaction ratings
from customers than if the failure had never happened.
 This means that a good recovery can turn angry and frustrated
customers into loyal customers.
 In fact it can create even more goodwill than if things
had gone smoothly in the first place.
8-24
Dissatisfied More satisfied

customers customers
A high level of
excellent service More likely to
recovery repurchase
Loyalty
customers
??????
8-25
What are the problems with such an approach?
 A vast majority of customers do not complain when

they experience.
 The possibility of recovery exists only in situation where the
firm is aware of a problem
 It is expensive to fix mistakes
 Re-creating or reworking a service may be quite costly to a
firm
 It would appear somewhat ludicrous to encourage
service failures
 Reliability is the most critical determination of service quality
 There is no guarantee that the customer actuallyy will
end up more satisfied.
8-26

8-27
 The key question is this:

 How is it possible that customers are more loyal after
failures of products or services than they have been
before?
 Are you aware when your customers encounter
service failures?
 Have you thought about an “emergency plan” that
can be put in action whenever your customers
encounter a service failure?
8-28
The Service Recovery Paradox:

No Excuse for Bad Service
8-29
8-30
An outstanding service recovery is a viable

strategy
 Verifying a service recovery paradox does not suggest
that ineffective service
 Recovery efforts that are perceived as very satisfying are
expensive and difficult to manage.
 It may be the uniqueness of a recovery that creates the
“wow” effect. Customer delight is achieved “from having
one’s expectations exceeded to a surprising degree” (Rust and
Oliver, 2000, p. 86). Consequently, standardized recoveries
can never create this uniqueness and surprise.
 It is very difficult to create a culture of lax initial service
delivery in which failures are accepted and yet develop a
culture of fantastic service recovery efforts.
8-31
 Recovery effort cannot overcome the negative

impression of initial experience enough to build
repurchase intensions
8-32
Dissatisfied More satisfied

customers customers
?????
Negative
impression ?????
Loyalty
customers
8-33
 If the service failure can be fully overcome

 It is not the critical and important failure
 Imitated by the competitors
8-34
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
 even though service recovery can improve satisfaction, it has
not been found to increase purchase intentions or perceptions
of the brand
 service recovery is expensive
8-35
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!
8-36
Principles of Effective Service

Recovery Systems
8-37
Components of an Effective
Service Recovery System
Increased
Do the job right the Effective Complaint
first time + Handling = Satisfaction and
Loyalty
Conduct research
Identify Service Monitor complaints
Complaints
Develop “Complaints as
opportunity” culture
Resolve Complaints Develop effective system

Effectively and training in
complaints handling
Learn from the Conduct root cause analysis

Recovery Experience
Source: For full source information, see Services

Marketing textbook, page 386.
Close the loop via feedback
8-38
Strategies to Reduce Customer

Complaint Barriers
Complaint Barriers for Dissatisfied Strategies to Reduce These Barriers
Customers
Inconvenience  Put customer service hotline numbers, e-
 Hard to find right complaint procedure mail and postal addresses on all customer
 Effort involved in complaining communications materials
 Have service recovery procedures in place,

Doubtful Pay Off
communicate this to customers
 Uncertain if action will be taken by firm
 Feature service improvements that resulted
to address problem
from customer feedback
Unpleasantness  Thank customers for their feedback

 Fear of being treated rudely  Train frontline employees
 Hassle, embarrassment  Allow for anonymous feedback
8-39
How to Enable
Effective Service Recovery
 Be proactive—on the spot, before customers
complain
 Plan recovery procedures
 Teach recovery skills to relevant personnel
 Empower personnel to use judgment and skills
to develop recovery solutions
8-40
How customers response to service

failures
8-41
How customers response to service failures
 Customers who experience service failures can

response in a variety of ways
 Anger
 Discontent
 Disappointment
 Self-pity
 Anxiety
 Regret
8-42
Why people do (and do not) complain

8-43
 Some customers are more likely to complain than others

for a variety of reasons
 Believe the positive consequences may occur
 There are social benefits of complaining
 Customer’s personal norms support their complaining
behavior
 They believe they should and will be provided compensation
 Get the fair treatment and good service
 Help others avoid similar situations
 Punish the service provider
8-44
 Some customers are unlikely to take any action

 Complaint is a waste of their time and effort
 They don’t believe anything positive will occur for
them
 They do not how to compliant
 They may feel that the failure was somehow their
fault
8-45
 Customers are more likely to complain

 Services are expensive, high risk
 Ego involving
 Vacation
 Airline travel
 Medical service
 Education service
 Customers are less to complain
 Cheap
 Fast-food service
 Cab ride
8-46
Types of customer compliant actions

8-47
 Complain on the spot to the service provider

 Give the company the opportunity to response
immediately
 Best-case scenario
 Avoid negative word of mouth
 Company has chance to recover
 Voice responses or seeking redress
8-48
 Spread negative word of mouth about company

 Reinforce the customer’s feeling of negativism
 Spread the negative impression to others
 Company has no chance to recover
 Spread through Internet-based website
 Facilitate customer complaint
 Create a platform
 Spread faster than the traditional channel
 Cause the huge damage to the company
8-49
 Complain to the third party

 Better business bureau
 Customer affairs arms of government
 Professional association
 Private attorney
8-50
8-51
Customer Complaint Actions Following Service

Failure
8-52
Type of complainers
8-53
Type of complainers
 People can be grouped into categories based on

how they respond to failures
 Passive
 Voicer
 Irate
 Activists
8-54
Passive complainers
8-55
Passive complainers
 They are unlikely to say anything to the provider

 They doubt the effectiveness of complaining
 They think the consequences of compliant won’t
merit the time and effort
 Their personal values and norms argue against
complaining
8-56
Voicer complainers
8-57
Voicer complainers
 They are less likely to

 Spread negative word of mouth
 Switch patronage
 Go to third parties
 They are viewed as the best friend of service
provider
 Actively complain and give company a second
chance
 They believe complaining has social benefits
8-58
Irate complainers
8-59
Irate complainers
 They are to engage in negative word of mouth

communication with friends and relatives
 They will switch to another service providers
 They are less to give the service provider a
second chance
 Create a blogs on the internet to share their
frustrations with others
8-60
Activist complainers
8-61
Activist complainers
 They are characterized to complain on all

dimensions
 Complain to the provider
 Tell others
 Complain to the third parties
8-62
What kind of complainers are you?
And tell/ share your experience

8-63
Customer’s recovery expectations

8-64
Customer’s recovery expectations
 Customers not only expect a response, they

expect the firm to be accountable
 Customers expect to be helped quickly
 Customers also expect to be treated nicely in the
process
8-65
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
8-66
Understanding and accountability

8-67
 Customers are looking to understand what

happen and for firms to be accountable for their
action
 How to do for firm?
 Monetary remedies
 Repair the product or fix the service (??)
 Reimburse for the hassle of having experienced a problem
 Provide a free product or service in the future
8-68
Service has specific attributes
Intangibility, inseparability, and quality

variation
We need to find other ways for firms to

be accountable for their recovery
actions
8-69
 Nonmonetary remedies
 Explanation by the firm as to what happened
 Assurance that the problem will not be repeated
 Thank you for the customer’s business
 An apology from the firm
 An opportunity for customer to vent his or her
frustration to the firm
8-70
 Nonmonetary remedies
 Provide employees the opportunity to communicate with
customers
 Customers also want to know what company is going to
do to ensure that problem does not recur
 Example
 Formosa Plastics Group
 Fire accidents in Yunlin county
 http://www.youtube.com/watch?v=RxtpSfZCVpw
 http://www.youtube.com/watch?v=IehDBhdL2UY
8-71
8-72
Gov't furious over Formosa plant fire
 Economics minister Shih Yen-shiang reportedly

was “very angry” at Formosa Plastics over the
latest blaze.
 The government safety monitoring task force is
composed of central and local government
officials charged to conduct monthly inspections
of Taiwan's major petrochemical plants, with
Formosa Plastics' plants as its priority.
8-73
Gov't furious over Formosa plant fire
 Formosa Plastics Group president Wang Wen-

yuan apologized for the latest mishap, which he
said was caused by a leak of liquefied petroleum
gas (LPG) from pipelines.
8-74
FPG`s Four Subsidiaries Suffer Sales Decline

in May
 After the fire accident, Nan Ya has suspended
operations of five plants, including an EG
(ethylene glycol) plant.
 The company posted NT$16.394 billion in sales
in May, down 14.3% from the preceding month.
8-75
Fair treatment
Outcome fairness
Procedural fairness
Interaction fairness
8-76
Customers expect JUSTICE
JUSTICE
Interactional Fairness
Outcome: appropriate compensation (cost-benefit)
Procedural: fairness of policies and practices (don’t want to
learn about fine prints at this time)
Interactional: behavior of a firm’s employees
76
8-77
Fair treatment
 Customers also want justice and fairness in

handling complaints
 Outcome fairness
 Concern the results that customers receive from their
complaints
 Procedural fairness
 The policies, rules and timeliness of the compliant
process
 Interactional fairness
 Focus on the interpersonal treatment received during the
compliant process
8-78
Outcome fairness
8-79
Outcome fairness
 Deals with the outcome or the result that the customer
receives from the service recovery process.
 It is when the customer receives the outcome in a
desired fashion.
 Therefore, the outcome should include
 An apology, a fixed problem, a helpful employee, and
anything else the customer is expecting.
8-80
Outcome fairness
 Customers expect outcomes, or compensation, that
match the level of their dissatisfaction
 Monetary compensation
 Apology
 Future free services
 Reduced changes
 Repairs
 Replacements
 Customers want to feel that the company has “paid”
for its mistakes
8-81
Outcome fairness
 Customers also appreciate it when company

gives them choices in term of compensation
 Customers can be uncomfortable if they are over
compensated
 Domino’s Pizza offer not to charge for the piazza if
the driver arrived after 30-minute
8-82
Procedural fairness
8-83
Procedural fairness
 In addition to fair compensation, customers

expect fairness in terms of policies, rule and
timeliness of the complaint process.
 They want easy access to the complaint process
 They want things handled quickly, preferably by
the first person they contact.
8-84
Procedural fairness
 Fair procedures are characterized

 Clarity, speed and absence of hassles.
 Unfair procedures
 Customers perceive as slow, prolonged and
inconvenient.
 Customers also feel it is unfair if they have to prove
their case- when the assumption seems to be they are
wrong or lying until they can prove otherwise.
8-85
Customer Satisfaction with Timeliness of Firm

Responses to Service Failures
8-86
Interactional fairness
8-87
 Customers expect to be treated politely, with

care and honesty.
 This form of fairness can dominate the others if
customers feel the company and its employees
have uncaring attitudes and have done little to
try to resolve the problem.
8-88
 Often rude and uncaring behavior of employees

is due to lack of training and empowerment
 Frontline employee who has no authority to
compensate the customer may easily respond in an
aloof and uncaring manner, especially if the customer
is angry and/or rude.
8-89
Fairness Themes in Service Recovery

8-90

8-91

8-92
Switching versus Staying following

service recovery
8-93
Switching versus Staying following service

recovery
 The satisfaction level of service recovery
 Customers who were not satisfied with service
recovery
 More likely to switch to a different service provider
8-94

recovery
 The nature of customer relationship
 True relationship
 Customers have had repeated contact over time with the
same service provider
 Forgive the service failures
 Be less to switch to other alternatives
 Pseudo relationship
 Customer gas interacted many times with the same
company, but with different service providers each time
 Be likely more to switch to another service provider
8-95

recovery
 The customer’s attitude
 Certain customers will have a greater propensity to
switch service provider
 Curiosity
8-96
Causes Behind Service Switching

8-97
Service Recovery Strategies

8-98
 Various strategies are:

 Do it right the first time
 Welcome and encourage complaints
 Act quickly
 Treat customers fairly
 Learn from recovery experiences
 Learn from lost customers
 Return to “Doing it Right”
8-99

8-100
Do it right the first time

8-101
 Customer gets what they expect

 The costs of redoing the service and
compensating for error can be avoided.
8-102
 When things go bad

 Company bear the cost
 How to avoid?
 Things do not go bad?
 Total quality management
 Create a culture of “Zero defects”
 Training
 Empowerment of employees
8-103
Total Quality Management - TQM

8-104
Total Quality Management
 TQM is a philosophy which applies equally to all

parts of the organization.
 TQM can be viewed as an extension of the
traditional approach to quality.
 TQM places the customer at the forefront of quality
decision making.
 Greater emphasis on the roles and responsibilities
of every member of staff within an organization to
influence quality.
 All staff are empowered.
8-105
Total Quality Management
Doing things right…..
….FIRST time.
Internetix (2005)
8-106
The TQM System

Objective Continuous
Improvement
Principles Customer Process Total

Focus Improvement Involvement
Leadership
Elements Education and Training Supportive structure
Communications Reward and recognition
Measurement
8-107
Elements of TQM
 Leadership
 Top management vision, planning and support.
 Employee involvement
 All employees assume responsibility for the quality of their
work.
 Product/Process Excellence
 Involves the process for continuous improvement.
8-108
Elements of TQM
 Continuous Improvement
 A concept that recognizes that quality improvement is a
journey with no end and that there is a need for continually
looking for new approaches for improving quality.
 Customer Focus on “Fitness for Use”
 Design quality
 Specific characteristics of a product that determine its value in the
marketplace.
 Conformance quality
 The degree to which a product meets its design specifications.
8-109
A fundamental concept of TQM - a ‘Process’
 “A set of inter-related resources and activities which

transform inputs into outputs.” (ISO 8402).
 “Any activity that accepts inputs, adds values to these
inputs for customers, and produces outputs for these
customers. The customers may be either internal or
external to the organization.” (BS 7850)
8-110
"The Simple Process"
Controls
Inputs Process Outputs
Resources
8-111
Changing Role of the Process Owner
Process 1
Input from As customer

supplier
Process owner Process 1
Output Input
As supplier As customer
Process owner
Output to
As supplier customer
8-112
TQM & organizational Cultural Change

Traditional Approach TQM
Lack of communication Open communications
Control of staff Empowerment
Inspection & fire fighting Prevention
Internal focus on rule External focus on customer
Stability seeking Continuous improvement
Adversarial relations Co-operative relations
Allocating blame Solving problems at their roots
8-113
Perceived quality is governed by the gap between customers’
expectations and their perceptions of the product or service
product or service
perceptions of the
Gap Gap
expectations for
the product or
expectations of
perceptions of
the product or
the product or
Customers’
Customers’
for the product

Customers’
Customers’
perceptions of
the product or
expectations
service
Customers’
Customers’
service
service
or service
service
Expectations > Expectations = Expectations <

perceptions perceptions perceptions
Perceived quality Perceived quality is

is poor good
Source: Slack et al. 2004

8-114
Additional views of Quality in Services
 Technical Quality versus Functional Quality

 Technical quality — the core element of the good or service.
 Functional quality — customer perception of how the good

functions or the service is delivered.
 Expectations and Perceptions

 Customers’ prior expectations (generalized and specific
service experiences) and their perception of service
performance affect their satisfaction with a service.
 Satisfaction = (Perception of Performance) – (Expectation)

8-115
Continuous Improvement
 Philosophy that seeks to make never-ending

improvements to the process of converting
inputs into outputs.
 Kaizen: Japanese
word for continuous
improvement.
8-116
Implementing TQM
Successful Implementation of TQM

Requires total integration of TQM into day-to-day
operations.
Causes of TQM Implementation Failures

Lack of focus on strategic planning and core
competencies.
Obsolete, outdated organizational cultures.
8-117
Obstacles to Implementing TQM
 Lack of a company-wide definition of quality.

 Lack of a formalized strategic plan for change.
 Lack of a customer focus.
 Poor inter-organizational communication.
 Lack of real employee empowerment.
 Lack of employee trust in senior management.
 View of the quality program as a quick fix.
 Drive for short-term financial results.
 Politics and turf issues.
8-118
Some criticisms of TQM
1. Blind pursuit of TQM programs

2. Programs may not be linked to strategies
3. Quality-related decisions may not be tied to
market performance
4. Failure to carefully plan a program
8-119
PDCA Cycle repeated to create continuous
improvement
Performance
Plan
Do
Act
Check
“Continuous”
improvement
Time
8-120
Recognizing and rewarding Quality
Promotion of high quality goods and services

Malcolm Baldrige National Quality Award
(MBNQA) (United States)
Deming Prize (Japan)
European Quality Award (European Union)
ISO9000 certification
8-121
Continual improvement of the quality management system
Customers Customers
(and other Management (and other
interested responsibility interested
parties) parties)
Measurement,
Resource
analysis and
management improvement
Satisfaction
Requirements
Input
Product Output
Key: Product
Value adding activity realisation
information flow
Source: BS EN ISO 9001:2000

8-122
Overview of the Excellence Model

8-123
Quality Award common elements
 All take holistic approach

 Customers/people
 Measurable characteristics
 Visible
 Basis taken from TQM
8-124
Summary
 TQM – a way of working

 Involves everyone
 High prominence on ‘customer’
 Awards based upon TQM
8-125
Welcome and encourage complaints

8-126
Welcome and encourage complaints
 Must listen to the customer

 Some companies encourage complaints
 Many customers just leave without complaining
 Must make it easy for customers to register their
dissatisfaction
 But, we have to act on their complaints
8-127
Anticipating Need for Recovery
 Listening closely to the customer allows us to

anticipate problems
 Must also be sensitive to cues that something
is wrong - being proactive
 Looking for opportunities to address problems
or to head them off really impresses the
customer
8-128
Elicit Complaints
8-129
Elicit Complaints
 Develop the mind-set that complaints are good

 Develop the mind-set that complaining customers are
the firm’s friend
 Complaints provide valuable feedback to the firm
 Complaints give the firms the opportunity
 Address the service failure
 Identify the problems
8-130
Elicit Complaints
 Make complaining easy

 Company needs to make the complaining easy for
customer to share their experiences
 Know where to go and who to talk when they
encounter service failure
 Company website
 Company e-mail address
 Toll-free customer call centers
8-131
Elicit Complaints
 Be an active listener
 Employees should be encouraged and trained to
actively listen to customers
 Understand the customer’s body lanuage and tone of
voice
8-132
Elicit Complaints
 Ask customers about specific service issues

 Avery simple, inform way to find out about any
service failure is simply to ask
 Yes or No
 Like the service or not
8-133
Elicit Complaints
 Conduct short, trailer surveys

 A follow-up telephone call to a customer still in the
midst of service experience
 Identify problems in real time
 Enable real-time recovery
8-134
Act quickly
8-135
Act quickly
 Need to respond quickly to problems

 Delay in responding makes it worse and gives
the opportunity for WOM
 Encourage staff to make on-the-spot decisions
8-136
Must Rely on the Front-Line
 Suddenly they have to make decisions

 They often don’t feel they have the power
 Response depends on degree of
empowerment
 Have to be comfortable bending rules, being
proactive, and making decisions
8-137
Act quickly
 Three Steps
• Take care of problems on the frontline
• Empower employees
• Allow customers to solve their own
problems
8-138
Act quickly
Take care of problems on the front line

 Customers expect employee to solve complaints
 Employee
 Training
 Empowerment
 Speedy handling
 Use of phones by employees
 E-mail
8-139
Act quickly
 Empower Employees
 Quick handling of complaints
 Effective handling
 Proper training
 Solve problems of customers
 Listening complaints
 Taking initiative
 Identifying solutions
 Taking decisions
‘Bending’ rules from time to time to help customers
8-140
Empowerment
8-141
Link With Empowerment
 Requires decision-making and the breaking of

rules
 Requires an acceptance of responsibility to
solve the problem, regardless of cause
 Staff have to understand the implications
 Will require effective employee training
8-142
Act quickly
 Allow customers to solve their own problems

 Some problems can be fixed by customers
 Use of technology
 Example
 Federal Express
- Encourage customers to track consignments
- Use of technology
- Most queries are answered
8-143
Provide adequate explanations

8-144
 Customers look to try to understand why the

failure occurred
 Adequate explanations are essential and
necessary to the customers
 Help to diffuse negative reactions
 Convey respect for the customers
8-145
 Two primary characteristics of adequate

explanations
 The content of the explanation must be appropriate
 Relevant facts and pertinent information
 The style of delivery of the explanation
 Personal characteristics of the explanation giver
 Sincerely
 Credibility
 Honest
8-146
Treat customers fairly

8-147
Treat customers fairly
 Fair treatment
 Discussed earlier
 Don't discriminate
 Procedural fairness
 Interaction fairness
 Customers are very particular about this
8-148
Cultivate relationships with customers
Relationship Marketing
8-149
Cultivate relationships with customers
 Develop the long-term relationship with

customers
 Long-term customer = loyal customer
 More likely to forgive the service failure of the
service provider
 Be open the accept the firm’s service recovery efforts
 Reduce the bad word-of-mouth communication
8-150
Learn from recovery experiences

8-151
 When customer complain

 You have attended
 Try to analyze
 What went wrong?
 Area needing improvement
8-152
 By track service recovery efforts and solutions

 Learn about systematic problems in the delivery
system
 Identify the sources of problems
 Modify the delivery processes
 Eliminate the need for recovery
8-153
Learn form lost customers

8-154

 Lost customers
 Find out
 Why they left
 How were they handled
 Conduct
 Market research survey
 In-depth interviews
 Senior manager
 Skilled interviewer
Customers may give a more frank option to market

researchers than to you
8-155
 Prevent the same mistakes

 Save the firm’s reputations
8-156
Return to "Doing it Right"
Return to "Doing it Right“

 The first point
 Reliability
Important aspect of service recovery

8-157
Service Guarantees
8-158
Service Guarantees
 guarantee = an assurance of the fulfillment of a condition
(Webster’s 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?)
8-159
The Hampton Inn 100 Percent

Satisfaction Guarantee
8-160
Characteristics of an Effective
Service Guarantee
 Unconditional
 the guarantee should make its promise unconditionally – no strings attached
 Does not impose any conditions
 Proof required
 Limitations
 Restrictions
 Meaningful
 the firm should guarantee elements of the service that are important to the
customer
 the payout should cover fully the customer’s dissatisfaction
8-161
Characteristics of an Effective
Service Guarantee
 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
8-162
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.
8-163
Benefits of Service Guarantees
 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.
8-164
British Airways Guarantee

8-165
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”

8-166
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
8-167
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”
8-168
Conclusion
 Service firms are unable to implement service recovery

strategies if they are not informed of their shortcomings,
therefore customers must be encouraged to complain.
 Service recovery is the key to customer satisfaction and
achieving this should be a primary goal for service
organisations
 Service recovery strategies play a crucial role in customer
satisfaction, as illustrated through the use of Zeithaml and
Bitners diagram
 Service guarantees are an incentive and a vehicle for
bringing customer complaints to the organisation.

Service Recovery: Mcgraw-Hill/Irwin

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Chapter8-1

 How Customers Respond to Service Failures

 Customers’ Recovery Expectations

 Switching versus Staying Following Service Recovery

 Service Recovery Strategies

Objectives for Chapter 8:

 Discuss the nature of consumer complaints and why people do and do

 Provide evidence of what customers expect and the kind of responses

 Present strategies for effective service recovery, together with examples

 Discuss service guarantees—what they are, the benefits of guarantees,

Service failure is inevitable……

There is no perfect services for customers.

How can you do if you are the firm’s CEO?

Honest is the best policy…..

 Firms must know

The impact of service failure and

The impact of service failure and recovery

 In all service contexts, service failure is

Customer Rage Study Conducted by

How Customers Expressed Their Displeasure

What Customers Wanted to Get

What Complainants Got:

 56% of complainants felt they got

Ping-Ponging (Number of Contacts

18% 18% 19% 21%

Length of Time to Resolve Complaints

The impact of service failure and recovery

 The outcome of service failure

Service Recovery Effects

Service Recovery Effects

 Resolve customer problem effectively

Unhappy Customers’ Repurchase Intentions

Dissatisfied Consumers’ Behavior

 The Retail Customer Dissatisfaction Study 2006 by the

 The exponential power of storytelling:

Doing it right the first time.

Reliability is the most important

Service Recovery Effects

The service recovery paradox

The service recovery paradox

The service recovery paradox

Dissatisfied More satisfied

What are the problems with such an approach?

 A vast majority of customers do not complain when

The service recovery paradox

The service recovery paradox

 The key question is this:

The Service Recovery Paradox:

An outstanding service recovery is a viable

The service recovery paradox

 Recovery effort cannot overcome the negative

The service recovery paradox

Dissatisfied More satisfied

The service recovery paradox

 If the service failure can be fully overcome

Service Recovery Paradox

Service Recovery Paradox

 Conditions must be just right in order for the recovery

Principles of Effective Service

Resolve Complaints Develop effective system

Learn from the Conduct root cause analysis

Source: For full source information, see Services

Strategies to Reduce Customer