Copyright © 2013 by The McGraw-Hill Companies, Inc. All ri - PowerPoint Presentation

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Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill/IrwinSlide2

Service Recovery

The Impact of Service Failure and RecoveryHow Customers Respond to Service Failures

Service Recovery Strategies: Fixing the Customer

Service Recovery Strategies: Fixing the Problem

Service GuaranteesSwitching versus Staying Following Service Recovery

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7

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Objectives for Chapter 7: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, including ways to “fix the customer” after a service failure and to “fix the problem.”

Discuss service guarantees—what they are, the benefits of guarantees, and when to use them—as a particular type of service recovery strategy.7-3Slide4

Reliability is Critical in Service but…

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.

Service recovery

refers to the actions taken by a firm in response to service failure.7-4Slide5

Figure 7.1: Complaining Customers:The Tip of the Iceberg

Source: Data from TARP Worldwide Inc., 2007

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Unhappy Customers’ Repurchase Intentions

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Exhibit 7.1: The Internet Spreads the Story of Poor Service Recovery

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The Service Recovery Paradox

Is a customer who has experienced a service failure and exemplary service recovery more likely to be more satisfied – impressed even – with the service provider?Should a firm “screw up” just a little so that it can “fix the problem” superbly?

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The 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. 1990)HOWEVER:Only a small percent of customers complain

Service recovery must be SUPERLATIVE

Only with responsiveness, redress, and empathy/courtesy

Only with tangible rewardsEven though service recovery can improve satisfaction, it has not been found to increase purchase intentions or perceptions of the brandService recovery is expensive7-

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The Service Recovery Paradox

The service recovery paradox is more likely to occur when:The failure is not considered by the customer to be severeThe 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! 7-10Slide11

Customer Complaint Actions Following Service Failure

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Types of Complainers

Passives: least likely to take any action, say anything to the provider, spread negative WOM, or complain to a third party; doubtful of the effectiveness of complainingVoicers: actively complain to the provider, but not likely to spread negative WOM; believe in the positive consequences of complaining - the service provider’s best friends!

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Types of Complainers

Irates: more likely to engage in negative WOM to friends and relatives and to switch providers; average in complaints to provider; unlikely to complain to third parties; more angry, less likely to give provider a second chanceActivists: above average propensity to complain on all levels; more likely to complain to a third party; feel most alienated from the marketplace compared to other groups; in extreme cases can become “terrorists”

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Service Recovery Strategies

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Fixing the CustomerWhen customers take the time to complain, they generally have high expectations.

They expect the company to respond quickly and to be accountable. They expect to be compensated for their grief and for the hassle of being inconvenienced.They expect to be treated nicely in the process!

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Respond Quickly

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Provide Appropriate Communication

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Treat Customers Fairly

Outcome fairnessOutcome (compensation) should match the customer’s level of dissatisfaction; equality with what other customers receive; choices

Procedural fairness

Fairness in terms of policies, rules, timeliness of the complaint process; clarity, speed, no hassles; also choices: “What can we do to compensate you…?”

Interactional fairnessPoliteness, 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 empowerment7-

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Fixing the ProblemAfter “fixing the customer” the company should address the actual problem that created the poor service delivery in the first place.

If the problem is likely to recur for other customers, then the service delivery process may need to be fixed, too.Strategies for fixing the problem include encouraging and tracking complaints, learning from recovery experiences and from lost customers, and making the service fail-safe.

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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 firmFor tangible products, a guarantee is often done in the form of a warrantyServices are often not guaranteed

Cannot return the service

Service experience is intangible (so what do you guarantee?)

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Characteristics of an EffectiveService Guarantee

UnconditionalThe guarantee should make its promise unconditionally – no strings attachedMeaningful

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 UnderstandCustomers need to understand what to expectEmployees need to understand what to doEasy to InvokeThe firm should eliminate hoops or red tape in the way of accessing or collecting on the guarantee

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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.Information generated through the guarantee can be tracked and integrated into continuous improvement efforts. A service guarantee reduces customers’ sense of risk and builds confidence in the organization.

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When to Use (or Not Use) a Guarantee

Reasons companies might NOT want to offer a service guarantee:Existing service quality is poorA guarantee does not fit the company’s image

Service quality is truly uncontrollable

Potential exists for customer abuse of the guarantee

Costs of the guarantee outweigh the benefitsCustomers perceive little risk in the service7-23Slide24

Causes Behind Service Switching

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