Presented By: Jennifer Cote

1. Article #40The Effects of Severity of Failure and Customer Loyalty on Service Recovery StrategiesBy: Christopher W. Craighead, Kirk R. Karwan, Janis L. Miller Presented By: Jennifer Cote

2. Objective • To identify a means of profiling the service failures that are encountered in common service environments. • To gain some insight into how the failure types may require differential treatment. • More broadly, the current study was motivated by the lack of reported efforts that provide information relative to service recovery techniques.

3. Previous Work • Potential outcomes: Berry and Parasuraman 1991; Clark, Kaminski, and Rink 1992; Schweikhart, Strasser, and Kennedy 1993; Spreng, Harreil, and Mackoy 1995; Hays and Hill 1999 • The causes of failure: Stewart and Chase 1999 • The antecedents of recovery: Hart 1988; Bitner, Booms, and Tetreault 1990; Halstead, Droge, and Cooper 1993; Kelley and Davis 1994; Hoffman, Kelley, and Rotalsky 1995 • The phases of recovery: Hart, Heskett, and Sasser 1990; Schweikhart, Strasses, and Kennedy 1993; Spreng, Harrell, and Mackoy 1995; Tax and Brown 1998 • The specific activities involved in recovery: Bell and Ridge 1992; Clark, Kaminski, and Rink 1992; Schweikhart, Strasser, and Kennedy 1993; Zemke 1994

4. Methodology • Hierarchical and non-hierarchical cluster analysis of data from a large sample of (n=861) service failure incidents. • Two by two matrix of: derived failure types, or common situations faced by service providers, focus on customer loyalty and the severity of the failure.

5. Methodology (cont.) • Regression analysis: Used to demonstrate how effective recovery strategies and supporting activities should vary, bases on the location of the failure within the matrix. • The approach and results offer important implications for strategy and service support activities as well as a foundation for systematizing service recovery efforts.

6. Rationale • Service managers can do substantial damage to customer satisfaction, loyalty, and retention if their responses to service failures do not match what customers would expect following bad experiences. • Customer “segments” need to be recognized as quickly as possible in order to provide a response which will minimize the damage to customer satisfaction and loyalty.

7. Antecedents • There are a number of key variables which are antecedent to recovery efforts and which, therefore, have an important impact on post-event satisfaction and loyalty. • These revolve around: • Customer Loyalty- before the negative service encounter • Customer expectations- which have been created by previous encounters and available information • Situational factors

8. Pre-cursors to recovery efforts • Loyalty • Customers with the highest degree of organizational commitment also had the highest expectations for service recovery. • Quality • Customers who rated service quality highly also had the highest expectations for service recovery.

9. Severity • High scores on a failure rating variable are associated with lower scores on a recovery rating and a retention percentage variable. • Guarantee • Service guarantees allow companies to better structure service processes, correct errors in service delivery, and build customer loyalty.

11. Changes to Loyalty and Severity

12. Service Recovery Activities • Apology- Apologize to the customer • Sincere- Show sincerity in apology • Fair Fix- Provide a fair fix to the problem • Add Value- Provide additional value to the customer • Attempt- Initial contact person should attempt to solve problem • Authority- Empower the front line employees to solve the problem • Fast Find- Seek and quickly find problems • Fast Solve- Once discovered, act quickly to resolve the problem

13. Conclusion • Service providers inevitably face situations where customers are dissatisfied and feel that service failures have occurred. • Although, these failures have clear negative implications, research would suggest that effective application of service recovery techniques may enable a company to maintain customer loyalty.