1.

Introduction
In todays time there has been an exponential rise in number of players in the service industry. This
has led to an increase in the standards being maintained for the service delivery by the service
providers. Therefore leading to an increase in the competition among all the players to provide better
service delivery to the consumers. The service providers thus closely monitor the services being
provided by them to their consumers. They try to provide their consumers with the highest quality
of service.
This is an important aspect for these service providers as it effects the consumer loyalty and positive
word of mouth from the consumers, which stand as a greater importance to the service providers. It
is argued that the cost of acquisition of a new consumer is five times as that of retaining a new one
(Maxham III, 2001). Therefore it becomes important for the service provider to keep the consumer
happy. These factors keep the service providers going as if there is any lapse in the service being
provided by them, the loyalty and word of mouth of the consumers can change and negatively affect
the service providers. It is generally said that the consumer is above all, therefore his word will matter
a lot to the organization.
So when a consumer selects a service provider, several factors are considered by him, of which the
consumer loyalty and word of mouth are important factors. Consumer loyalty towards a service
provider can be depicted by a consumer by showing favorable propensities towards that service
provider and choosing that service provider over others time and time again. This loyalty towards the
service provider can either be behavioral or attitudinal (East, Gendall, Hammond, & Lomax, 2005).
This is the basic philosophy over which the organizations in towards scenario work upon. The
consumer relationship programs were launched by the service providers so as to increase the loyalty
of the consumers towards the organization.
Word of mouth is also an important factor which matter a lot to the consumer. When someone
recommends a service provider to the consumer, it generally depicts a positive word of mouth from
the consumer. This is an important tool of promotion for the service providers. This is one on which
the service providers do not have to separately invest upon. When the consumer receives a better
service delivery from the service provider, the consumer will be overwhelmed and he will thus

circulate the same to his society. This in turn leads to a promotion of the service provider. More and
more number of consumers will therefore get attached to the service provider.
Consumer loyalty and word of mouth are factors which are achieved when the consumer is satisfied
with the service being delivered by the service provider. Therefore consumer satisfaction in an
important variable among all these. This is the root cause of the benefits which the service providers
receive upon the delivery of better service to the consumer. The consumer satisfaction thus need to
be highlighted.
Consumer Satisfaction is defined as the outcome of individuals perception derived from the
evaluation of experience associated with the consumption of the product (Maxham III, 2001). The
consumer would want to attain the benefits associated with the products which were promised by
the service provider. This in turn will lead to the satisfaction of the consumer and thus a physiological
benefit for the consumer. It is not only associated with the current benefit being attained, but is also
linked with the previous experiences associated with the service provider. Satisfaction can thus be
said as an evaluation of the service by the consumer (Komunda & Osarenkhoe, 2012).
Consumer satisfaction is highly associated with the perceived value and the perceived quality of the
product (Cronin Jr, Brady, & Hult, 2000). Therefore for the service sector consumer satisfaction
becomes important as value is being imparted to the consumers through the service being provided.
The quality of service being provided too plays a major role in providing satisfaction to the consumer.
Customer Satisfaction is more difficult to achieve in the service sector as the satisfaction is based
upon the perception of the consumer as the service is an intangible asset which is delivered by the
service provider. This perception forms the basis of the value and the quality being provided to the
consumer and it varies from consumer to consumer. This can lead to creating dissatisfaction among
the consumers, if the service provided doesnt meet their perceived value and quality.
With the advances in the service industry, even the companies with superior strategic plans and
better quality control procedures, eliminating service failure towards the consumers is not possible
(Webster & Sundaram, 1998). This service failure thus leads to consumer dissatisfaction among the
consumers. The level of dissatisfaction in the consumers, depends upon the type of service failure
which has occurred. For a service failure which causes severe loss to the consumer, the level of
dissatisfaction will be much higher than that which causes lesser amount of loss to the consumer.

After the occurrence of service failure, the attitude of the consumer becomes much more stringent.
This can thus lead to a greater level of dissatisfaction if the service failure is not resolved.
Dissatisfaction among the consumers can therefore lead them to switch to the competing
organization and spread a negative word of mouth to the other consumers (Boshoff, Hoogendoorn,
& van der Kraan, 2005). It also leads to the loss of consumer loyalty towards that product.
Dissatisfaction of the consumers is mainly influenced by two things. Firstly, it is due to the difference
between the expectation level for the service being provided and the actual performance being
provided by the service provider. Secondly, the previous experiences form the comparison standards
for the service being provided (Tse & Wilton, 1988). These factors are as a result of the service which
is being promised by the service provider and the service which is being delivered. Also the industry
standards set the tone of the service being expected by the consumers. The consumer will expect a
reliable service delivery, which if not delivered will cause dissatisfaction among the consumer.
Apart from the reasons stated, service failure is another factor which can lead to dissatisfaction
among the consumers (Chang, Lee, & Tseng, 2008). Service failure is said to occur when a consumer
perceives a loss due to the failure at the end of service provider (Patterson, Cowley, & Prasongsukarn,
2006). When this happens, the service provider will try to make amends to provide some gain to the
consumer as not everything is lost, the consumer can be recovered and the organization needs to
make an effort to recover the consumers. This is done via Service recovery, which refers to the actions
a service provider takes in response to a service failure (Gronroos, 1988). Service recovery can also
be said as a tool which if implemented properly can make the customers feel a sense of trust towards
the organization and also increase the commitment towards the organization (Gustafsson, 2009).
Thus, the factors which have been discussed in the study are service recovery, consumer satisfaction,
consumer loyalty and word of mouth. These concepts will be focused upon in further discussion.
1.1 Service Recovery
If there is persistence of service failure over a longer duration, it will harm the existence of the
organization. Therefore the service recovery efforts become all important for a service provider.
It is not only about undertaking service recovery efforts, but doing it successfully. There is
empirical evidence which states that the service recovery leads to the consumer retention and a
positive word of mouth which are the result of the consumer satisfaction which is restored back
upon the undertaking of the service recovery efforts. It also enhances the perceived quality and
perceived quality of the service delivered (Boshoff, 2005). The economic effects of service
3

recovery have also been studied and it has been found that effective service recovery is very
profitable (Stauss & Schoeler, 2004). If this does not happens, then the dissatisfaction among the
consumer will be high and will cause several negative effects such as loss of consumer, negative
word of mouth and possibly negative publicity (Berry & Parasuraman, 2004).
The possible use of service recovery becomes all important in the service sector as the quality
and the value of the service being delivered is based upon the perception of the consumer. The
consumers who have faced service failure, anticipates that service recovery efforts be
undertaken(Kuo & Wu, 2012). Therefore in any case if the service failure has occurred, the service
provider is liable to undertake the service recovery efforts. This will in turn provide them with a
positive image. It has been stated in literature that the service recovery efforts are even more
influential than the delivery of the initial service and has a better overall component of the
consumer satisfaction (Webster & Sundaram, 1998).

1.2 Consumer Satisfaction

Consumer satisfaction is the outcome of the service being delivered by the service provider,
where the service being delivered is compared with the consequences of that service (Maxham
III, 2001). Therefore it can be said that satisfaction is the outcome of the service quality being
delivered. The service being delivered to the consumer thus plays an important part in consumer
satisfaction. In the case of occurrence of the service failure, the first and the foremost impact is
on the satisfaction which the consumer was receiving from the service being delivered. This in
turn harms the rest of the factors which are a direct result of the satisfaction.
Consumer satisfaction also results in loyalty of the consumer towards the product and to a
positive word of mouth for the service provider. Therefore consumer satisfaction becomes an
important aspect for the service providers.

1.3 Consumer loyalty

Consumer loyalty has been defined by Oliver as a deeply held commitment to re-buy or repatronize a preferred service consistently in future thereby causing repetitive same brand despite
situational influences and marketing efforts having the potential to cause switching behavior
(Oliver, 1999). This definition defines the consumer loyalty as either an attitudinal aspect or a
behavioral aspect. The consumer can be attracted to the service provider in either of the ways.
This will help the organization in the process of consumer retention.
4

Consumer loyalty in the current scenario has been seen as a major target of the service providers.
With the implementation of the consumer relationship programs, the focus of the organizations
has been on the consumer retention aspect. This in turn leads to a future purchase intention of
the consumers and thus generates higher revenues by the organization (ref). It therefore helps in
developing a sustainable environment for the service providers.
It is a general notion that the consumer loyalty is over a longer period of time and is an important
factor for the service provider.

1.4 Word of Mouth

Word of mouth is the informal communication of goods and services rather than the formal
complaints to the service provider (Anderson, 1998). It is one of the most powerful tool for the
promotion of the goods or services. It has led to an exponential impact upon the sale of various
goods.
In earlier studies word-of-mouth has not received much attention but now researchers have
realized its importance in determining the firms reputation as perceived by the customers.
Earlier researchers have mostly talked about positive word of mouth but it has now been
observed that negative word of mouth holds even more importance in case of service failure and
recovery process. Especially talking in terms of service sector, the word-of-mouth information is
very crucial for the customers to have a defect free service.
Therefore the process of service recovery becomes more important as the no service recovery
will lead to a negative word of mouth which is more harmful for the organization. Word of mouth
influences the choice of service provider the mouth, as the source of information has nothing to
gain from the usage of the service to whom the word is being delivered. It is thus a reliable and
an effective source of promotion for the service provider. Therefore its importance after the
occurrence of the service failure and its rectification after the service recovery efforts.

With this background the current study is being undertaken. It is an effort to study the impact of
service recovery efforts being undertaken on the consumer loyalty and positive word-of-mouth with
consumer satisfaction as the mediating variable. This study will thus help understand as to what
extent the service recovery has been adopted by the organizations and how much impact they have
upon the consumers who have witnessed the service failures.

India is a major service oriented economy. Services sector account for 56.9% of Indias GDP (IBEF,
2013). Of all the sectors in the services sector, telecom sector is one of the fastest growing sector in
India with a CAGR of 32% (India, 2014). With the increase in number of subscribers, the telecom
companies has been trying to expand upon the services being provided by them. Due to extent of
usage of these services, there have been numerous occasions of occurrence of service failures. These
service failures thus lead to several problems for the telecom providers. Loss of subscribers is one of
them. Therefore the retention of subscribers becomes important for the service providers as the cost
of retention of consumers is much less than that for the acquisition of new consumers (Maxham III,
2001). With this fact the service recovery efforts for the telecom providers become important. There
is lack of literature which focuses on the service recovery efforts being undertaken in the telecom
sector. Therefore the current study focusses upon filling this gap in literature for the service failures
and service recovery in the telecom sector.
The current study also focusses upon the comparison between the service recovery efforts being
undertaken in Indian telecom sector and the U.S.A telecom Sector. The choice of U.S.A as the
comparison unit has been made based upon the fact that it has similar structure to the Indian
economy. U.S.A also has services sector as its major contributor to its GDP. It accounts for 79.4 of the
GDP (Government, 2013). The practices in the service sector in U.S.A are by far the best with the
stringent regulation in the sector. Along with this the top telecom companies of the world are from
U.S.A. Therefore the current study would be taken up as a comparison of service recovery effects on
consumer loyalty and word of mouth across India and U.S.A.

Review of Literature
Service Failure and Recovery

(Maxham III, 2001) There are different level of influences on the consumer satisfaction, positive word
of mouth and repurchase intention due to the service recovery efforts being undertaken by the
organization for the dissatisfied consumers. The results show that post recovery the satisfaction is
greater than the satisfaction prior to the recovery. Also the firm not also benefits from the consumer
perception of service recovery. If the service recovery efforts are too persistent, it can lead to have a
negative impact on the consumers.

(Boshoff, 1999) The impact of service failure can be really harmful for an organization. There exists
tactics which can help an organization to bring back the consumers to the state of satisfaction. The
satisfaction after the service recovery efforts depends on several variables, such as communication,
empowerment, feedback, atonement, explanation and tangibles. With the use of these variables, the
consumer satisfaction of the consumer after the service recovery efforts can be measured.

(Webster & Sundaram, 1998) in their research highlighted the failure recovery effort and criticality
had effect on the consumer attitude. Service failure had negative effect on consumer satisfaction and
consumer loyalty. The service recovery efforts had a greater impact on consumer loyalty than it had
on consumer satisfaction. The type of service recovery did not matter and did not have any effect on
consumer satisfaction and consumer loyalty. These factors are also affected by the severity of the
service failure that has occurred.

(Reichheld & Sasser Jr, 1989) The cost of losing a customer is huge. Every organization does its best
to retain the consumers, but there are defects which an organization cant avoid. They talk about
learning from the consumers who are leaving and understanding the demands of the consumers so
that no other consumer leaves for the same reason. The service recovery efforts need to be fair and
should be clear to the consumers. The issue of consumer satisfaction becomes important as it affects
the consumer loyalty, positive word of mouth and future repurchase intentions.

Service Recovery and Consumer Satisfaction

(Chuang, Cheng, Chang, & Yang, 2012) States the role of service recovery in the service process. The
study establishes a relation between service recovery efforts and consumer satisfaction. The results
of the study state that the when the service recovery efforts tend to make up for the losses of the
consumer, consumer satisfaction is higher. It is also influenced by the earlier service failure
experienced by the consumers. Service recovery efforts are also affected by the magnitude of service
failure.

(Kuo & Wu, 2012) Service recovery leads to an enhancement of the consumer satisfaction. Along
with this the positive emotions towards the organization are increased and the negatives ones are
decreased. Therefore indicating that the consumer dissatisfaction is reduced. The consumer feels a
sense of justice. The positive emotions help increase the consumer satisfaction. There are also
managerial implications of these results in the service industry.

(Gustafsson, 2009) talks about the effect of the service recovery efforts upon the consumer
satisfaction. The consumer satisfaction is different for services and the products. The consumer
behavior changes after the service recovery efforts have been undertaken by the organization. Thus
the satisfaction is effected in a positive way and favors the service provider most of the times.

(Kau & Loh, 2006) Service recovery has positive impact on customer satisfaction. The customers who
are satisfied with the service recovery efforts are more likely to trust the service providers and are
less likely to make harmful comments about the service providers. They even talk good about the
service providers. This leads to improved trust, positive word of mouth and loyalty to the service
providers.

Consumer Loyalty
(Daz, Martn-Consuegra, & Esteban, 2011) Consumer satisfaction is an important factor which leads
to consumer loyalty and positive word of mouth among the consumers. The study provides an
empirical proof which demonstrates the link between consumer satisfaction and consumer loyalty.

(East et al., 2005) Loyalty towards an object is shown by change in behavior or attitude by the
consumer. This leads to the phenomena such as recommendation, search and retention for that
object. If the consumer loyalty is high, repeat patronage will be high. Loyalty affects these outcomes
differently. It depends on the relative attitude of the consumer.

(Buttle & Burton, 2002) Consumer Loyalty has been regarded as a broader area, where customer
satisfaction is an antecedent of it. Consumer Loyalty is achieved through delivering value to the
consumers. Under the occurrence of service failure, there is an impact on consumer loyalty but the
impact is much more when the process of service recovery takes place. The consumers remain more
dissatisfied if there has been no attempt for service recovery by the organization. It was found that
consumer loyalty is affected to service recovery process, which led to satisfaction or dissatisfaction
for the consumer.

(Oliver, 1999) There is a relationship between consumer satisfaction and consumer loyalty. Consumer
satisfaction needs to be achieved before consumer loyalty is achieved. As loyalty is achieved through
other mechanisms, consumer satisfaction becomes play less role. Consumer loyalty also depends on
the individual and the surrounding. Switching incentives and consumer idiosyncrasies are the
obstacles to consumer loyalty.

Word-of-Mouth
(Casal, Flavin, & Guinalu, 2008) Word of Mouth in services sector is an influential tool. It affects
the intangibility component of services. They trust word-of-mouth because the consumers are more
objective than the information sources. Increase in satisfaction among the consumers also increases
the positive word-of-mouth.

(Anderson, 1998) A comparative study across U.S.A and Sweden which states that the level of
dissatisfaction affects the amount of word-of-mouth that a consumer indulges in. The average
word-of-mouth was found to be more for much higher and much lower satisfaction level; whereas
for medium level of satisfaction, word-of-mouth was less than the extremes.

Need for Study

From the review of literature it is evident that the process of service recovery is important for the
organization as it can restore the consumer satisfaction. It can thus reinforce loyalty among the
consumers and can affect the positive word of mouth among the consumers for the organization.
But if the process of service recovery is not undertaken by the organization it can increase
dissatisfaction among the consumers and drive them to the competing organizations. Also the
literature states that the cost of getting a new consumer is five folds than that of retaining an existing
consumer. Therefore the process of service recovery becomes important for the organization in
terms of cost too.
In todays scenario, the service sector has been evolving. Many industries in the service sector have
been experimenting with the service quality being provided by them. Telecom Sector is one of the
major sectors which has been experimenting and innovating. Also due to instability in innovation,
there are more number of service failure occurrences. This leads to the need of service recovery
actions that need to be taken up the telecom companies. Also the number of service failure in
telecom sector are more than the other sectors. Therefore service recovery actions in this sector
become important for the organization.
With this advent the current study targets this need to study the service recovery efforts being taken
up by the organizations and thus studies the further implications of the actions upon the consumer
satisfaction, consumer loyalty and word of mouth of the consumers. Also through this study the
actions taken up by the Indian telecom providers will be compared with that of the organizations of
U.S.A, which are one of the best service providers of the world.

10

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