Service Recovery The Impact of Service Failure and

Service Recovery § The Impact of Service Failure and Recovery § How Customers Respond to Service Failures § Customers’ Recovery Expectations § Switching versus Staying Following Service Recovery § Service Recovery Strategies § Service Guarantees

Objectives Service Recovery § Illustrate the importance of recovery from service failures in keeping customers and building loyalty. § Discuss the nature of consumer complaints and why people do and do not complain. § Provide evidence of what customers expect and the kind of responses they want when they do complain. § Present strategies for effective service recovery, together with examples of what does and does not work. § Discuss service guarantees—what they are, the benefits of guarantees, and when to use them—as a particular type of service recovery strategy.

Reliability is Critical in Service but… § In all service contexts, service failure is inevitable/tdk dpt dielakkan § 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.

Complaining Customers: The Tip of the Iceberg Figure 8. 1 Source: TARP Worldwide Inc. , 2007.

Unhappy Customers’ Repurchase Intentions Figure 8. 2

Dissatisfied Consumers’ Behavior § The Retail Customer Dissatisfaction Study 2006 by the Verde Group found: § 48% of respondents reported that they avoided a store because of someone else’s negative experience § for those who encountered problems, 33% said they would “definitely not” or “probably not” return § The exponential power of storytelling: § as people tell the story, the negativity is embellished/dibumbui and grows

Customer Rage/marah Study Conducted by In collaboration with

How Customers Expressed Their Displeasure ?

What Customers Wanted to Get ? Nonmonetary remedies

What Complainants Got ? § 56% of complainants felt they got NOTHING

Ping-Ponging (Number of Contacts Needed to Resolve Complaint) % complainants Mean number of contacts Complainants = 4. 3

% complainants Length of Time to Resolve Complaints

Fairness Themes in Service Recovery H e e r e ir s g a m I r e p C t r e s n I Exhibit 8. 3

Customer Complaint Actions Following Service Failure H e e r e ir s g a m I r e p C t r e s n I Figure 8. 4

Service Recovery Paradox § “A good recovery can turn angry, frustrated customers into loyal ones. . . can, in fact, create more goodwill than if things had gone smoothly in the first place. ” (Hart et al. ) § HOWEVER: § only a small percent of customers complain § service recovery must be SUPERLATIVE § only with responsiveness, redress, and empathy/courtesy § only with tangible rewards § even though service recovery can improve satisfaction, it has not been found to increase purchase intentions or perceptions of the brand § service recovery is expensive

Service Recovery Paradox/lawan § 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 § Conditions must be just right in order for the recovery paradox to be present!

“Causes” Behind Service Switching Pricing • • High price Price increases Unfair pricing Deceptive pricing Response to Service Failure • Negative response • No response • Reluctant response Inconvenience • Location/hours • Wait for appointment • Wait for service Core Service Failure • Service mistakes • Billing errors • Service catastrophe Service Encounter Failure • • Uncaring Impolite Unresponsive Unknowledgeable Service Switching Behavior Competition • Found better service Ethical Problems • • Cheat Hard sell Unsafe Conflict of interest Involuntary Switching • Customer moved • Provider closed Figure 8. 5 Source: Sue Keaveney, “Customer Switching Behavior in Service Industries: An Exploratory Study, ” Journal of Marketing 59 (April, 1995), pp. 71 -82.

ov Ex ide pl A an de at qu io a ns te Pr k ac Tr d an ts e ain ag pl ur m co Co En Act Quickly Service Recovery Strategies Fail-safe the Service Treat Customers Fairly C ul st Figure 8. 6 Learn from Recovery Experiences Lo m rs fro me n ar usto e L C tiv w ate ith R C ela us t to ion m s er hip s s

Eight Most Common Remedies/perbaiki Customers Seek with Serious Problems § Have the product repaired or service fixed § Be reimbursed for the hassle of having experienced a problem § Receive a free product or service in the future § Explanation by the firm as to what happened § Assurance that the problem will not be repeated § A thank you for the customer’s business § An apology from the firm § An opportunity for the customer to vent his or her frustrations to the firm

Customer Satisfaction with Timeliness of Firm Responses to Service Failures H e e r e ir s g a m I r e p C t r e s n I Figure 8. 7

Service Guarantees § guarantee = an assurance of the fulfillment of a condition (Webster’s Dictionary) § in a business context, a guarantee is a pledge or assurance that a product offered by a firm will perform as promised and, if not, then some form of reparation will be undertaken by the firm § for tangible products, a guarantee is often done in the form of a warranty/garansi/jaminan § services are often not guaranteed § cannot return the service § service experience is intangible (so what do you guarantee? )

The Hampton Inn 100 Percent Satisfaction Guarantee H e e r e ir s g a m I r e p C t r e s n I Figure 8. 3

Characteristics of an Effective Service Guarantee § Unconditional § the guarantee should make its promise unconditionally – no strings attached § Meaningful § the firm should guarantee elements of the service that are important to the customer § the payout should cover fully the customer’s dissatisfaction § Easy to Understand Communicate § customers need to understand what to expect § employees need to understand what to do § Easy to Invoke/diminta and Collect § the firm should eliminate hoops or red tape in the way of accessing or collecting on the guarantee

Benefits of Service Guarantees § A good guarantee forces the company to focus on its customers. § An effective guarantee sets clear standards for the organization. § A good guarantee generates immediate and relevant feedback from customers. § When the guarantee is invoked there is an instant opportunity to recover, thus satisfying the customer and helping retain loyalty. § Information generated through the guarantee can be tracked and integrated into continuous improvement efforts. § Employee morale and loyalty can be enhanced as a result of having a service guarantee in place. § A service guarantee reduces customers’ sense of risk and builds confidence in the organization.

British Airways Guarantee e r e o l o m I r e s In C rt ir s C r e p H e ag

Why a Good Guarantee Works ? § forces company to focus on customers § sets clear standards § generates feedback § forces company to understand why it failed § builds “marketing muscle”

Does everyone need a service guarantee? § Reasons companies might NOT want to offer a service guarantee: § existing service quality is poor § guarantee does not fit the company’s image § too many uncontrollable external variables § fears of cheating or abuse by customers § costs of the guarantee outweigh the benefits § customers perceive little risk in the service § customers perceive little variability in service quality among competitors

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”