1. SERVICE GUARANTEES<br /> <br /> A growing number of companies offer customers a satisfaction guarantee, promising that if service delivery fails to meet predefined standards, the customer is entitled to one or more forms of compensation, such as an easy-to-claim replacement, refund, or credit. Some firms place conditions on these guarantees; others offer them unconditionally.<br />The Power of Service Guarantee<br />Christopher Hart declares that service guarantees are powerful tools for both promoting and achieving service quality, for the following reasons:<br />Guarantees force firms to focus on what their customers want and expect in each element of the service.<br />Guarantees set clear standards, telling customers and employees alike what the company stands for. Payouts to compensate for poor service cause managers to take guarantees seriously, because they highlight the financial costs of quality failures.<br />Guarantees require the development of systems for generating meaningful customer feedback and acting on it.<br />Guarantees force service organizations to understand why they fail and encourage them to identify and overcome potential fail points.<br />Guarantees built “marketing muscle” by reducing the risk of the purchase decision and building long-term loyalty. <br /> From the customer’s perspective, the primary function of service guarantees is to lower the perceived risks associated with purchase. The presence of a guarantee may also make it easier for customers to complain and more likely that they will do so, since they will anticipate that frontline employees will be prepared to resolve the problem and provide appropriate compensation. Sara Bjorlin Liden and Per Skalen found that even when dissatisfied customers were unaware that a service guarantee existed before making their complaints, they were positively impressed to learn that the company has a pre-planned procedure for handling failures and to find that their complaints were taken seriously.<br /> The benefits of service guarantees can be seen clearly in the case of Hampton Inn’s 100% Satisfaction Guarantee, which has been extended to Embassy Suites and Homewood Suites. As a business-building program, Hampton’s strategy of offering to refund the cost of the room to a guest who expresses dissatisfaction has attracted new customers and also served as a powerful retention device. People choose to stay at a Hampton Inn because they are confident they will be satisfied. At least as important, the guarantee has become vital tool to help managers identify new opportunities for quality improvement.<br /> Discussing the impact on staff and managers, the marketing vice president of Hampton Inn stated, “Designing the guarantee made us understand what made guests satisfied, rather than what we thought made them satisfied.” It became imperative that everyone from reservationists and frontline employees to general managers and personnel at corporate headquarters listen carefully to guests, anticipate their needs to the greatest extend possible, and remedy problems quickly so that guests were satisfied with the solution. Viewing a hotel’s function in this customercentric way had a profound impact on the way the firm conducted business.<br /> The guarantee “turned up the pressure in the hose,” as one manager put it, showing where “leaks” existed and providing the financial incentive to plug them. As a result, the guarantee has had an important impact on product consistency and service delivery across the Hampton Inn chain. Finally, studies of the 100% Satisfaction Guarantee’s impact have shown a dramatically positive effect on financial performance.<br />How to Design Service Guarantees<br /> Some guarantees are simple and unconditional. Others appear to have been written by lawyers and contain many restrictions. Compare the examples in Service Perspectives and ask yourself which guarantees instill trust and confidence in you and would make you like to do business with that supplier.<br /> <br /> Both the L.L. Bean and BBBK guarantees are powerful, unconditional, and instill trust. The others are weakened by the many conditions. Hart argues that service guarantees should be designed to meet the following criteria:<br />Unconditional. Whatever is promised in the guarantee must be totally unconditional, and there should not be any element of surprise for customers.<br />Easy to understand and communicate to customers so they are clearly aware of the benefits that can be gained from the guarantee.<br />Meaningful to customers in terms of what they would find important in a guarantee with compensation that should be more than adequate to cover the service failure.<br />Easy to invoke. Less of the guarantee should be dependent on the customer and more on the service provider.<br />Easy to collect. If a service failure occurs, customers should be able to collect on the guarantee without any problems.<br />Credible. The guarantee should be believable.<br />Is Full Satisfaction the Best You Can Guarantee?<br /> Full-satisfaction guarantees have generally been considered the best possible design. Resently, however, it has been suggested that the ambiguity often associated with such guarantees can lead to discounting of their perceived value. Customers may ask: ”What does full satisfaction mean?” or “Can I invoke a guarantee when I am dissatisfied although the fault does not lie with the service firm?”<br /> In a recent study, Jochen Wirtz and Doreen Kum introduced a new guarantee: the “combined guarantee.” This guarantee combines the wide scope of a full-satisfaction guarantee with the low uncertainty of specific performance standards. The combined guarantee was shown to be superior to the pure full-satisfaction or attribute-specific guarantee designs. Should the consumer be dissatisfied with any element of the service, full-satisfaction coverage of the combined guarantee applies.<br />Is It Always Appropriate to Introduce a Service Guarantee?<br /> Managers should think carefully about their firm’s strengths and weaknesses before deciding to introduce a service guarantee. In many instances, it may be inappropriate to do so.<br /> Customers that already have a strong reputation for high quality service may not need a guarantee. In fact, it might even be incongruent with their image to offer one. A guarantee may add no value for a service company whose name alone ensures very high quality and may even confuse the market. By contrast a firm whose service is currently poor must first work to improve quality to a level above that at which the guarantee might be invoked on a regular basis by most of its customers.<br /> <br /> Service firms whose quality is truly uncontrollable because of external forces would be foolish to consider a guarantee. When it realized that it was paying out substantial refunds because it had insufficient control over its reimbursement of fares in the event of unpunctual train service.<br /> In a market where consumers see little financial, personal, or physiological risk with purchasing and using a service, a guarantee adds a little value but still costs money to design, implement, and manage. Where little perceived difference in service quality among competing firms exists, the first-company to institute a guarantee may be able to obtain a first-mover advantage and create a valued differentiation for its services. If more than one competitor already has a guarantee in place, offering a guarantee may become a qualifier for the industry, and the only real way to make an impact is to launch a highly distinctive guarantee beyond that already offered by competitors.<br />