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Enhancing Customer Loyalty Through Effective Service Recovery Strategies

This study examines the relationship between the severity of service failures and customer loyalty, providing insights into the necessary adjustments in recovery strategies. By analyzing a sample of 861 service failure incidents, it highlights how different types of failures require tailored responses to minimize damage to customer satisfaction. Key findings suggest that effective recovery efforts, including sincere apologies and timely problem resolution, can significantly influence customer loyalty. The research underscores the importance of adapting service recovery techniques to match customer expectations following negative experiences.

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Enhancing Customer Loyalty Through Effective Service Recovery Strategies

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  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.

  10. Changes to Loyalty and Severity

  11. 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

  12. 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.

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