Chapter 13: Achieving Service Recovery and Obtaining Customer Feedback

1. Chapter 13: Achieving Service Recovery and Obtaining Customer Feedback

2. 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.

3. American Customer Satisfaction Index: Selected Industry Scores, 2002 Score 100 (Max = 100) 90 85 80 79 79 76 80 74 71 71 70 66 70 65 62 60 50 40 30 20 10 0 % Change 3.7% 1.3% 0.0% 1.3% 2.8% 0.0% 0.0% 8.2% 2.9% -2.6% 4.8% 3.3% 2002 vs 2001 Hotels Airlines Personal computers IRS (tax) Fast food Restaurants Express mail, parcels Hospitals Soft drinks Broadcasting (natl. news) Industry: Life insurance Comm. banks Cars, vans, etc.

4. Key Questions for Managers to Ask about Customer Complaining Behavior • Why do customers complain? • What proportion of unhappy customers complain? • Why don’t unhappy customers complain? • Who is most likely to complain? • Where do customers complain?

5. Why Do Customers Complain? • Obtain compensation • Vent their anger • Help to improve the service • For altruistic reasons • Create an impression of being more intelligent and discerning

6. Why Don’t Customers Complain? • Don’t know who to complain to • Don’t think it will do any good • May doubt their own subjective evaluation • May accept part of the blame • May want to avoid confrontation • May lack expertise

7. Causes Behind Service Switching Pricing • High Price • Price Increases • Unfair Pricing • Deceptive Pricing Response to Service Failure • Negative Response • No Response • Reluctant Response Inconvenience Competition • Location/Hours • Wait for Appointment • Wait for Service Service Switching Behavior • Found Better Service Ethical Problems Core Service Failure • Cheat • Hard Sell • Unsafe • Conflict of Interest • Service Mistakes • Billing Errors • Service Catastrophe Service Encounter Failures Involuntary Switching • Uncaring • Impolite • Unresponsive • Unknowledgeable • Customer Moved • Provider Closed • Core service failure was the cause of switching for 25% of the respondents. • Service encounter failure was the cause for switching services for an additional 20% Source: Sue Keaveney, “Customer Switching Behavior in Service Industries: An Exploratory Study,” Journal of Marketing, April, 1995, pp. 71-82.

8. Complain to the service firm Take some form of public action Complain to a third party Take legal action to seek redress Take some form of private action Service Encounter is Dissatisfactory Defect (switch provider) Take no action Negative word-of-mouth Any one or a combination of these responses is possible Courses of Action Open to a Dissatisfied Customer

9. Type of Complainers • Passives • Least likely to take any action. • Often doubt the effectiveness of complaining. • Voicers • Actively complain to the service provider. • Less likely to spread negative word of mouth, to switch patronage or to go to third parties with their complaints. • Irates • Less likely to give the service provider a second chance. • More likely to switch to a competitor. • More likely to engage in negative word of mouth. • Activists • above average propensity to complain on all dimensions. • In extreme cases can become terrorists.

10. Customer Feedback and Word-of-Mouth • The average business only hears from 4% of their customers who are dissatisfied with their products or services. Of the 96% who do not bother to complain, 25% of them have serious problems. • About 60% of the complainers would stay as customers if their problem was resolved and 95% would stay if the problem was resolved quickly. • A dissatisfied customer will tell between 10 and 20 other people about their problem. • A customer who has had a problem resolved by a company will tell about 5 people about their situation.

11. Unhappy Customers’ Repurchase Intentions Unhappy Customers Who Don’t Complain 9% 37% Unhappy Customers Who Do Complain 19% Complaints Not Resolved 46% 54% Complaints Resolved 70% 82% Complaints Resolved Quickly 95% Percent of Customers Who Will Buy Again Minor complaints ($1-$5 losses) Major complaints (over $100 losses) Source: Adapted from data reported by the Technical Assistance Research Program.

12. 95% 100 82% 90 80 70% 70 54% 60 46% 50 37% 40 30 19% 20 9% 10 0 Customer did not Complaint was Complaint Complaint was complain not resolved was resolved resolved quickly Problem cost > $100 Problem cost $1 - 5 Unhappy Customers’ Repurchase Intentions Source: TARP study

13. Complaint Handling & Service Recovery Process Justice Dimensions of the Service Recovery Process Procedural Justice Interactive Justice Outcome Justice Customer Satisfaction with the Service Recovery Source: Tax and Brown Dimensions of Perceived Fairness in Service Recovery Process

14. Justice Dimensions of the Service Recovery Process • Procedural justice • Process • Flexibility of system, consideration of customer input, time etc. • Interactional justice • Human content • empathy, friendliness, genuineness • Outcome justice • Outcomes • compensation for the loss or inconvenience • Compensation for time , energy and effort.

15. Fairness Themes in Service Recovery

16. Fairness and Satisfaction Source: Reproduced from S.S. Tax and S. W. Brown, “Recovering and Learning from Service Failure, “ Sloan Management Review, Fall 1998, p. 80.

17. Components of an Effective Service Recovery System

18. Service recovery paradox Customers who experience a service failure and then have it solved to their full satisfaction are sometimes more likely to make future purchases than are customers who have no problem in the first place.

19. 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. • Recent studies have challenged the existence of recovery paradox. • Empirical evidence shows that some 40% to 60% of customers report dissatisfaction with the service recovery process.

20. Strategies to Reduce Customer Complaint Barriers

21. 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

22. Act fast Admit mistakes but don’t be defensive Understand problem from customer’s viewpoint Don’t argue Acknowledge customer’s feelings Give benefit of doubt Clarify steps to solve problem Keep customers informed of progress Consider compensation Persevere to regain goodwill Guidelines for Effective Problem Resolution

23. Service Guarantees • guarantee = an assurance of the fulfillment of a condition • for products, guarantee 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?) • too many uncontrollable external variables • fears of cheating by customers • costs of the guarantee are too high

24. Service Guarantees Help Promote and Achieve Service Loyalty • Force firms to focus on what customers want • Set clear standards • Highlights cost of service failures • Require systems to get & act on, customer feedback • Reduce risks of purchase and build loyalty

25. Types of Service Guarantees • Single attribute-specific guarantee – one key service attribute is covered • Multiattribute-specific guarantee – a few important service attributes are covered • Full-satisfaction guarantee – all service aspects covered with no exceptions • Combined guarantee – like the full-satisfaction, adding explicit minimum performance standards on important attributes

26. What are the benefits of such a guarantee? Are there any downsides? The Hampton Inn 100% Satisfaction Guarantee

27. British Airways Guarantee

28. Key Objectives of Effective Customer Feedback Systems • Assessment and benchmarking of service quality and performance • Customer-driven learning and improvements • Creating a customer-oriented service culture

29. Building a Customer Feedback System • Total market surveys • Post-transaction surveys • Ongoing customer surveys • Customer advisory panels • Employee surveys/panels • Focus groups • Mystery shopping • Complaint analysis • Capture of service operating data

30. Collection Tools Multi-level Measurement Action-able Represen-tative, Reliable Potential for Service Recovery FirstHandLearning Cost Effective Service Satisfaction Process Satisfaction Specific Feedback Total Market Survey (inclu. competitors) Annual Survey on overall satisfaction Transactional Survey (process specific) Service Feedback Cards (process specific) Mystery Shopping (service testers) Unsolicited Feedback Recd (Online feedback system) Focus Group Discussions Service Reviews Meets Requirements: Fully Moderate Little/Not at all Strengths and Weakness of Key Customer Feedback Collection Tools Selection of a cocktail of effective customer feedback collection tools.

31. 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.

32. 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”