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Chapter 7
SERVI CE RECOVERY
Objectives for Chapter
Service Recovery

• Illustrate the importance of recovery from service
failures in 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
complain
• Provide strategies for effective service recovery
• Discuss service guarantees
Service Recovery

• Service Failure:
Service Performance < Expectation = Dissatisfaction

• Service Recovery: resolving failure / problem

• Reasons for Failure:
– No promised Service
– Delayed Service
– Poor Outcome
– Uncaring Employees
Service Recovery


• Fixing Service Failure / Customer Problem

– Customer Satisfaction

– Positive WOM communication

– Bottom Line performance
Service Recovery


• Service Paradox:
Excellent Service Recovery = More Satisfied

• Should the Company plan to Disappoint Customer
and provide good Service Recovery?
– Strategy fails

– “Doing it Right the First time” is the best option
Figure 7-3
Customer Response Following Service
Failure
Service Failure
Do Nothing Take Action
Stay with Provider
Switch Providers
Complain to
Provider
Complain to
Family & Friends
Complain to
Third Party
Stay with Provider
Switch Providers
Why people Do (Do not) complain


• People complaint

• People Do not take Action


High Involvement Service
Types Complaint Actions


• On the spot

• Negative WOM


Switching vs Staying


Remain Loyal Switch

How the Failure
is Handled




Customers’ Recovery Expectations


• Understanding & Accountability

• Fair Treatment
– Outcome Fairness
– Procedural Fairness
– Interactional Fairness

• Magnitude of the Failure

• Nature of Relationship with the Firm

• Attitude toward Switching

– Demographic Factors ( Income, Education, Age)

– Individual Factors (Risk Aversive)

• EXPERIENCE with all ENCOUNTERs
Figure 7-1
Unhappy Customers’
Repurchase Intentions
95%
70%
46%
37%
82%
54%
19%
9%
Complaints Resolved Quickly
Complaints Resolved
Complaints Not Resolved
Minor complaints ($1-$5 losses) Major complaints (over $100 losses)
Unhappy Customers Who Don’t Complain
Unhappy Customers Who Do Complain
Percent of Customers Who Will Buy Again
Source: Adapted from data reported by the Technical Assistance Research Program.
Figure 7-6
Themes underlying service switching
Service
Switching
Behavior
•Pricing
Inconvenience
Core Service Failure
Service Encounter
Failures
Response to Service
Failure
Competition
Ethical Problems
Involuntary Switching
Source: Sue Keaveney
Figure 7-5
Service Recovery Strategies
Service
Recovery
Strategies
Make the Service fail Safe

• Meeting consumer’s Expectation > Cost

• Expectation = Reliability

• How to assure Reliability? = Quality Practice
Encourage & Track Complaints

• Research
– Satisfaction Survey
– Lost Customer Research
– Toll Free number, email
– Blog Activities

• Anticipate the problem in advance
Act Quickly

• Complaining customer seek Quicker Response

• Well Prepared to Act

• Customer Problem > Solved with the First
encounter > Satisfied
Treat the Customer Fairly
Learn from Recovery Experience

• Problem Solving = Opportunities to
Create Relationship


Service Recovery Strategies
• Make the Service fail Safe

• Meeting consumer’s Expectation > Cost

• Expectation = Reliability

• How to assure Reliability? = Quality Practice
Service Guarantees
• guarantee = an assurance of the fulfillment of a
condition (Webster’s Dictionary)

• for products, guarantee often done in the form of
a warranty

• services are often not guaranteed

Table 7-7
Characteristics of an Effective Service
Guarantee
Unconditional
 The guarantee should make its promise unconditionally -
no strings attached.
Meaningful
 It should guarantee elements of the service that are
important to the customer.
 The payout should cover fully the customer's
dissatisfaction.
Easy to Understand and Communicate
 For customers - they need to understand what to expect.
 For employees - they need to understand what to do.
Easy to Invoke and Collect
 There should not be a lot of 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.
Service Guarantees
• Does everyone need a guarantee?

• Reasons companies do NOT offer guarantees:
– guarantee would be at odds with company’s
image
– fears of cheating by customers
– costs of the guarantee are too high