The document discusses strategies for effective service recovery after a service failure. It explains that while service failures are inevitable, recovery actions are important for keeping customers loyal. It identifies different types of customer complainers and presents two main recovery strategies: fixing the customer through responsive communication, fair treatment and compensation; and fixing the underlying service problems. The document also discusses the benefits and characteristics of service guarantees as a particular recovery tool, noting guarantees help manage customer risk but are not always appropriate.

1. SERVICE RECOVERY

2. Service Recovery
 The Impact of Service Failure and Recovery
 How Customers Respond to Service Failures
 Service Recovery Strategies: Fixing the Customer
 Service Recovery Strategies: Fixing the Problem
 Service Guarantees
 Switching versus Staying Following Service Recovery
7-2

3. Objectives for Chapter 7:
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, including ways to “fix
the customer” after a service failure and to “fix the problem.”
 Discuss service guarantees—what they are, the benefits of guarantees,
and when to use them—as a particular type of service recovery
strategy.
7-3

4. Reliability is Critical in Service but…
 In all service contexts, service failure is inevitable.
 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.
7-4

5. Figure 7.1: Complaining Customers:
The Tip of the Iceberg
Source: Data from TARP Worldwide Inc., 2007
7-5

6. Unhappy Customers’ Repurchase Intentions
7-6

7. Exhibit 7.1: The Internet Spreads the Story
of Poor Service Recovery
7-7

8. The Service Recovery Paradox
Is a customer who has experienced a service
failure and exemplary service recovery more
likely to be more satisfied – impressed even –
with the service provider?
Should a firm “screw up” just a little so that it
can “fix the problem” superbly?
7-8

9. The 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. 1990)
 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
7-9

10. The Service Recovery Paradox
 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!
7-10

11. Customer Complaint Actions Following Service
Failure
7-11

12. Types of Complainers
 Passives: least likely to take any action, say anything to
the provider, spread negative WOM, or complain to a
third party; doubtful of the effectiveness of
complaining
 Voicers: actively complain to the provider, but not
likely to spread negative WOM; believe in the positive
consequences of complaining - the service provider’s
best friends!
7-12

13. Types of Complainers
 Irates: more likely to engage in negative WOM to
friends and relatives and to switch providers; average
in complaints to provider; unlikely to complain to third
parties; more angry, less likely to give provider a
second chance
 Activists: above average propensity to complain on all
levels; more likely to complain to a third party; feel
most alienated from the marketplace compared to
other groups; in extreme cases can become “terrorists”
7-13

14. Service Recovery Strategies
7-14

15. Fixing the Customer
When customers take the time to complain,
they generally have high expectations.
 They expect the company to respond quickly and to
be accountable.
 They expect to be compensated for their grief and
for the hassle of being inconvenienced.
 They expect to be treated nicely in the process!
7-15

16. Respond Quickly
7-16

17. Provide Appropriate Communication
7-17

18. Treat Customers Fairly
 Outcome fairness
 Outcome (compensation) should match the customer’s level of
dissatisfaction; equality with what other customers receive; choices
 Procedural fairness
 Fairness in terms of policies, rules, timeliness of the complaint
process; clarity, speed, no hassles; also choices: “What can we do to
compensate you…?”
 Interactional fairness
 Politeness, care, and honesty on the part of the company and its
employees; rude behavior on the part of employees may be due to
lack of training and empowerment
7-18

19. Fixing the Problem
 After “fixing the customer” the company should
address the actual problem that created the poor
service delivery in the first place.
 If the problem is likely to recur for other customers,
then the service delivery process may need to be fixed,
too.
 Strategies for fixing the problem include encouraging
and tracking complaints, learning from recovery
experiences and from lost customers, and making the
service fail-safe.
7-19

20. 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
 Services are often not guaranteed
 Cannot return the service
 Service experience is intangible (so what do you guarantee?)
7-20

21. 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
 Customers need to understand what to expect
 Employees need to understand what to do
 Easy to Invoke
 The firm should eliminate hoops or red tape in the way of accessing or
collecting on the guarantee
7-21

22. 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.
 Information generated through the guarantee can be tracked
and integrated into continuous improvement efforts.
 A service guarantee reduces customers’ sense of risk and builds
confidence in the organization.
7-22

23. When to Use (or Not Use) a Guarantee
Reasons companies might NOT want to offer a
service guarantee:
 Existing service quality is poor
 A guarantee does not fit the company’s image
 Service quality is truly uncontrollable
 Potential exists for customer abuse of the guarantee
 Costs of the guarantee outweigh the benefits
 Customers perceive little risk in the service
7-23

24. Causes Behind Service Switching
7-24