Chapter 13:

Achieving Service Recovery and Obtaining Customer Feedback

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 1

Overview of Chapter 13
Customer Responses to Effective Service Recovery Principles of Effective Service Recovery Systems Service Guarantees Discouraging Abuse and Opportunistic Behavior Learning from Customer Feedback

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 2

Customer Response Categories to Service Failures (Fig 13.1)

Complain to the service firm Take some form of Public Action Service Encounter is Dissatisfactory Take some form of Private Action Complain to a third party Take legal action to seek redress Defect (switch provider) Negative word-ofmouth

Take No Action

Any one or a combination of these responses is possible

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 5

Understanding Customer Responses to Service Failure

Why do customers complain?
Obtain compensation for economic loss Vent their anger Help improve the service . Ex Alumni Association For altruistic reasons Want to save prevent other customers from undergoing the trauma of poor service

What proportion of unhappy customers complain? 5-10% Why dont unhappy customers complain? time cost, uncertain outcome,
complaint process is not known, fear of confrontation etc. Who is most likely to complain? people in Higher socioeconomic circumstances Where do customers complain? To the service rep in immediate contact only. Rarely to the HQ or through email. Customer service centers are also called up.

What do customers expect once they have made a complaint?

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 6

Three Dimensions of Perceived Fairness in Service Recovery Process (Fig 13.3)

Complaint Handling and Service Recovery Process Justice Dimensions of the Service Recovery Process Procedural Justice Interactive Justice
Employees trying to resolve the issue Procedure customer has to go through Compensation that the customer receives

Outcome Justice

Customer Satisfaction with Service Recovery

Source: Tax and Brown Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 8

Customer Responses to Effective Service Recovery

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 9

How Complaint Resolution Affects Customer Retention Rates

Percent of Unhappy Customers Retained

100 90 80 70 60 50 40 30 20 10 0

95% 82% 70% 54% 46% 37%

19%
9%
Customer did not complain Complaint was not resolved Complaint was resolved
Problem cost $1$5

Complaint was resolved quickly

Problem cost > $100

Source: Claes Fornell, Birger Wernerfelt, A Model for Customer Complaint Management, Marketing Science, Vol. 7, No. 3 (Summer, 1988), pp. 287298 Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 10

The Service Recovery Paradox

Customers who experience a service failure that is satisfactorily resolved may be more likely to make future purchases than customers without problems If second service failure occurs, the paradox disappearscustomers expectations have been raised and they become disillusioned Severity and recoverability of failure (e.g., spoiled wedding photos) may limit firms ability to delight customer with recovery efforts Best strategy: Do it right the first time
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 12

Principles of Effective Service Recovery Systems

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 13

Components of an Effective Service Recovery System (Fig 13.4)

Increased Satisfaction and Loyalty

Do the job right the first time

Effective Complaint Handling

Identify Service Complaints

Conduct research Monitor complaints Develop Complaints as opportunity culture

Resolve Complaints Effectively

Develop effective system and training in complaints handling

Learn from the Recovery Experience

Conduct root cause analysis

Close the loop via feedback

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 14

Strategies to Reduce Customer Complaint Barriers (Table 13.1)

Complaint Barriers for Dissatisfied Customers
Inconvenience Hard to find right complaint procedure Effort involved in complaining

Strategies to Reduce These Barriers

Put customer service hotline numbers, e-mail and postal addresses on all customer communications materials Have service recovery procedures in place, communicate this to customers Feature service improvements that resulted from customer feedback Indicate the TAT for response Thank customers for their feedback Train frontline employees Allow for anonymous feedback

Doubtful Pay Off Uncertain if action will be taken by firm to address problem

Unpleasantness Fear of being treated rudely Hassle, embarrassment

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 15

How to Enable Effective Service Recovery

Be proactiveon 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

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 16

How Generous Should Compensation Be?

Rules of thumb for managers to consider:
o o o

What is positioning of our firm? How severe was the service failure? Who is the affected customer?

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 17

Service Guarantees

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 18

Service Guarantees Help Promote and Achieve Service Loyalty

Promising that if the service delivery fails to meet the predefined standards, the customer will be compensated for it Force firms to focus on what customers want Set clear standards, telling customer and the employees alike what the company stands for Force the companies to understand why they fail and encourage them to identify them and overcome them Require systems to get and act on customer feedback Reduce risks of purchase and build loyalty

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 19

How to Design Service Guarantees

Unconditional : No element of surprise to be there Easy to understand and communicate Meaningful to the customer Easy to invoke : More dependent on the service provider rather than the customer Easy to collect Credible

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 20

Types of Service Guarantees

Table 13.2

Single attribute-specific guarantee

o

One key service attribute is covered. Ex Dominos pizza. Time Guarantee

Multiattribute-specific guarantee
o

A few important service attributes are covered. Ex Mariotts Guarantee. 1) Friendly, efficient check in (2) Clean, comfortable room, where everything works (3) Friendly, efficient checkout
All service aspects covered with no exceptions. All service aspects are covered by the full satisfaction guarantee Explicit minimum performance standards on important attributes are included. Ex. Datapro Info syst : To deliver the report on time, to high quality std, and to the contents outlined in this proposal. Should we fail to deliver according to this guarantee, or should you be dissatisfied with any aspect of our work, you can deduct any amount from the final payment which is deemed as fair

Full-satisfaction guarantee
o o o o

Combined guarantee

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 21

Discouraging Abuse and Opportunistic Behavior

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 23

Dealing with Customer Fraud

Treating all customers with suspicion is likely to alienate them
o

TARP found only 1 to 2 percent of customer base engages in premeditated fraudso why treat remaining 98 percent of honest customers as potential crooks? Amount of a guarantee payout had no effect on customer cheating Repeat-purchase intention reduced cheating intent Customers are reluctant to cheat if service quality is high (rather than just satisfactory) Firms can benefit from offering 100 percent money-back guarantees Guarantees should be offered to regular customers as part of membership program Excellent service firms have less to worry about than average providers

Insights from research on guarantee cheating

o o o

Managerial implication
o o o

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 24

Learning from Customer Feedback

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 25

Key Objectives of Effective Customer Feedback Systems

Assessment and benchmarking of service quality and performance
Objective : To Answer How satisfied are our customers? Performance of firm wrt competition, wrt previous yr performance, investments have paid off?

Customer-driven learning and improvements

Objective : To Answer What makes our customer happy/unhappy? What are the strengths we need to maintain, and where and how do we need to improve ?

Creating a customer-oriented service culture

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 26

Travel to Final Destination Ch 14 Improving Service Quality and Productivity