This document provides an overview and summary of key topics from Chapter 12 of the marketing textbook, including managing customer relationships and building loyalty. It discusses the importance of customer loyalty for a firm's profitability, strategies for developing loyalty bonds like deepening relationships, implementing reward programs, fostering social bonds, and offering customization. Graphs and figures are referenced to explain concepts such as the customer satisfaction-loyalty relationship, measuring customer lifetime value, and effective customer tiering. Case studies from companies like Harrah's and British Airways are also mentioned.

1. JAN 2013 Semester
1
Service Quality
MKTG 1268
Lecture Nine
• Managing Relationships
and Building Loyalty (Chapter
12)
• Complaint Handling and
Service Recovery (Chapter 13)

2. Overview of Chapter 12
2
 The Search for Customer Loyalty
 The Wheel of Loyalty
 Building a Foundation for Loyalty
 Strategies for Developing Loyalty Bonds with
Customers
 Strategies for Reducing Customers Defections
 CRM: Customer Relationship Management
Systems
 What a Comprehensive CRM Strategy
Includes

3. 3
THE SEARCH FOR
CUSTOMER LOYALTY

4. Opening Case Study – Harrah’s Entertainment’s
Customer Relationship Management (read page 359)
4

5. How Much Profit a Customer Generates
Over Time (Fig 12.3)
5
5

6. Why Is Customer Loyalty Important to A
Firm’s Profitability?
6
 Customers become more profitable the longer they
remain with a firm:
 Increase purchases and/or account balances
 Customers / families purchase in greater quantities as they grow
 Reduced operating costs
 Fewer demands from suppliers and operating mistakes as customer
becomes experienced
 Referrals to other customers
 Positive word-of-mouth saves firm from investing money in sales and
advertising
 Price premiums
 Long-term customers willing to pay regular price
 Willing to pay higher price during peak periods

7. Why Customers Are More Profitable
Over Time (Fig. 12.4)
7
7

8. Assessing the Value of a Loyal Customer
• Must not assume that loyal customers are always
more profitable than those making one-time
transactions
 Large customers may expect price discounts in return for
loyalty
 Revenues don‘t necessarily increase with time for all types
of customers
• Tasks:
 Determine costs and revenues for customers from different
market segments at different points in their customer
lifecycles
 Predict future profitability
8 © Pearson Education South Asia Pte Ltd 2013. All rights reserved

9. Charging different prices for different customer
market segments
9

10. Measuring Customer Equity:
Lifetime Value of Each Customer
10
 Value of referrals
 Percentage of customers influenced by other customers
 Other marketing activities that drew the firm to an
individual‘s attention
 Net Present Value
 Sum anticipated annual values (future profits)
 Suitably discounted each year into the future
See Worksheet on page 363 of
the text

11. Why are Customers Loyal? (1)
(Service Insights 12.1)
11
 Customers stay loyal when we create value for them
 Value can be created for customers through
 Confidence benefits
 Confidence in correct performance
 Ability to trust the provider
 Lower anxiety when purchasing
 Knowing what to expect and receive

12. Why are Customers Loyal? (2)
(Service Insights 12.1)
12
 Social benefits
 Mutualrecognition and friendship between
service provider and customer
 Special treatment
 Better price
 Discounts not available to most customer
 Extra services
 Higher priority when there is a wait

13. The Wheel of Loyalty
13
The Wheel of loyalty (Figure 12.6) shows that arriving
at customer loyalty involves 3 components:
 Building a foundation for loyalty
 Creating loyalty bonds
 Reducing churn drivers
 The rest of the chapter is organized around these 3
components.

14. The Wheel of Loyalty (Fig. 12.6)
14
14

15. Targeting the Right Customers and
Searching for Value, Not Volume
15
 Target the right customer and match them to what firm can
deliver
 How do customer needs relate to operations elements?
 How well can service personnel meet expectations of
different types of customers?
 Can company match or exceed competing services that are
directed at same types of customers?
 Focus on number of customers served as well as value of each
customer
 Some customers more profitable than others in the short term
 Others may have room for long-term growth
 ―Right customers‖ are not always high spenders
 Can come from a large group of people that no other
supplier is serving well

16. Targeting the Right Customers and
Searching for Value, Not Volume
16
 Service companies should consider the financial value to the
firm of each customer, rather than just count how many
customers can be served. Heavy users (who buy more
frequently and in larger volumes) are generally more
profitable than occasional users. And because customers
interact with each other in many services, managers need to
think about whether different target segments are compatible
with one another.
 Attracting the right customers is important as they bring in
long-term revenues, continued growth in referrals, etc. Emphasis
must also be given to prevent attracting the wrong customers
that typically results in costly churn, a diminished company
reputation and disillusioned employees.

17. Effective Tiering of Service :The Customer Pyramid (Fig 12.8)
17
17

18. Effective Tiering of Service :The Customer Pyramid
(Fig 12.8)
18
 Service tiering, building loyalty bonds, and creating
membership programs are three of the strategies.
 Customer tiers can be developed around different levels of
profit contribution, needs (including sensitivities to variables
such as price, comfort, and speed), and identifiable
personal profiles such as demographics. Each customer tier
requires significantly different service levels based on
customer requirements and customer value to the firm.
 Slicing the customer base per se allows the firm to see
clearly where the profits and the loss making segments are
and tailor their marketing accordingly in response.
Read up on the four tiers of customers (platinum, gold, iron
and lead (page 369)

19. Relationship between Satisfaction and Loyalty
19
The satisfaction-loyalty relationship can be divided
into three zones:
 zone of defection—occurs at low satisfaction levels
 zone of indifference—found at moderate
satisfaction levels
 zone of affection—occurs at very high satisfaction
where customers do not find the need to seek
alternative service providers

20. The Customer Satisfaction Loyalty Relationship (Fig. 12.10)
20
20

21. Strategies for Developing Loyalty Bonds with
Customers (1)
21
 Deepening the relationship
 Bundling/Cross-selling services makes switching a
major effort that customer is unwilling to go through
unless extremely dissatisfied with service provider
 Customers benefit from buying all their various
services from the same provider
 One-stop-shopping, potentially higher service
levels, higher service tiers etc

22. Strategies for Developing Loyalty Bonds
with Customers (2) See example of rewards used by British
Airways in Service Insights 12.4 on page
22
375 of the text (see Table 12.1)
 Reward Based Bonds
 Can be financial or non-financial bonds or a
combination of both
 Financial bonds
 Discounts on purchases, loyalty program rewards (e.g. frequent
flier miles), cash-back programs
 Non-financial rewards
 Priority to loyalty program members for waitlists and queues in
call centers; higher baggage allowances, priority upgrading,
access to airport lounges for frequent flyers
 Intangible rewards
 Special recognition and appreciation
 Reward-based loyalty programs are relatively easy to
copy and rarely provide a sustained competitive
advantage

23. 23
Service Insight 12.4

24. Strategies for Developing Loyalty Bonds
with Customers (3)
24
 Social Bonds
 Based on personal relationships between providers
and customers
 Harder to and takes a longer time to build, but also
harder to imitate and thus, better chance of
retention in the long term
 Customization Bonds
 Customized service for loyal customers
 e.g. Starbucks
 Customers may find it hard to adjust to another
service provider who cannot customize service

25. Building Strong Customer Bonds
25

26. Strategies for Developing Loyalty Bonds
with Customers (4)
26
 Structural Bonds
 Mostly seen in B2B settings
 Align customers way of doing things with supplier‘s own
processes
 Joint investments in projects and sharing of information,
processes and equipment.
 Can be seen in B2C environment too
 Airlines - SMS check-in, SMS email alerts for flight arrival and
departure times
 Difficult for competition to draw customers away when
they have integrated their way of doing things with
existing supplier

27. Analyze Customer Defections and Monitor
Declining Accounts
27
 Understand reasons for customer switching
 Churn Diagnostics common in mobile phone
industry
 Analysis of data warehouse information on
churned and declining customers
 Exit interviews:
 Ask a short set of questions when
customer cancels account; in-depth
interviews of former customers by third
party agency

28. What Drives Customers to Switch? (Fig 12.14)
28
28

29. Address Key Churn Drivers
 Deliver quality service
 Reduce inconvenience and non-monetary costs
 Have fair and transparent pricing
 Industry specific drivers
 Cellular phone industry: handset replacement a common
reason for subscribers discontinuing services – offer handset
replacement programs
 Take active steps to retain customers
 Save teams: specially trained call center staff to deal with
customers who want to cancel their accounts
 Be careful about how save teams are rewarded (see Service
Insights 12.5) 29

30. Other Ways to Reduce Churn
30
 Implement Effective Complaint Handling
and Service Recovery Procedures
 Increase Switching Costs
 Natural switching costs
 e.g. Changing primary bank account – many
related services tied to account
 Can be created by instituting contractual
penalties for switching
 Must be careful not to be perceived as holding
customers hostage
 High switching barriers and poor service quality
likely to generate negative attitudes and bad
word of mouth

31. 31
CRM: CUSTOMER
RELATIONSHIP MANAGEMENT
SYSTEMS

32. Common Objectives Of CRM Systems (1)
32
 Customer perspective
 Unified customer interface that delivers
customization and personalization
 Vast service improvement and increase customer
value
 Company perspective
 Better segment, tier customer base and target
promotion
 Implement churn alert systems if customers are in
danger of defecting

33. Common Applications Of CRM Systems (1)
(Service Insights 12.6)
33
 Data collection
 Customer data such as contact details, demographics,
purchasing history, service preferences, and the like
 Data analysis
 Data captured is analyzed and categorized
 Used to tier customer base and tailor service delivery
accordingly
 Sales force automation
 Sales leads, cross-sell and up-sell opportunities can be
effectively identified and processed
 Entire sales cycle from lead generation to close of sales
and after- sales service can be tracked and facilitated
through CRM system

34. Common Objectives Of CRM Systems (2)
(Service Insights 12.6)
34
 Marketing automation
 Mining of customer data enables the firm to target its market
 Goal to achieve one-to-one marketing and cost savings, often in
the context of loyalty and retention programs
 Results in increasing the ROI on its marketing expenditure
 CRM systems also allows firms to judge effectiveness of
marketing campaigns through the analysis of responses
 Call center automation
 Call center staff have customer information at their finger tips
and can improve their service levels to all customers
 Caller ID and account numbers allow call centers to identify the
customer tier the caller belongs to, and to tailor the service
accordingly
 For example, platinum callers get priority in waiting loops.

35. Comprehensive CRM Strategy (Fig 12.14)
35

36. What a Comprehensive CRM Strategy Includes
Integrated Framework for CRM Strategy
Development
Strategy Development
• Assessment of business strategy
• Business strategy guides
development of customer strategy
36 © Pearson Education South Asia Pte Ltd 2013. All rights reserved

37. What a Comprehensive CRM Strategy Includes
Integrated Framework for CRM Strategy – Value Creation
Value Creation
• Translates business and customer strategies
into specific value propositions for both
customers and firm
• Customers benefit from priority, tiered
services, loyalty rewards and
customization
• Company benefits from reduced
customer acquisition and retention costs,
and increased share-of-wallet
• Dual creation of value: customers need to
participate in CRM to reap value from firm’s
CRM initiatives
37 © Pearson Education South Asia Pte Ltd 2013. All rights reserved

38. What a Comprehensive CRM Strategy Includes
Integrated Framework for CRM Strategy – Multi-Channel
Integration
Multi-channel Integration
• Serve customers well across many
potential interfaces
• Offer a unified interface that
delivers customization and
personalization

39. What a Comprehensive CRM Strategy Includes
Integrated Framework for CRM Strategy – Performance
Assessment
Performance Assessment
• Is CRM system creating value for
key stakeholders?
• Are marketing and service
standard objectives being
achieved?
• Is CRM system meeting
performance standards?

40. What a Comprehensive CRM Strategy Includes
Integrated Framework for CRM Strategy – Information
Management
Information Management
• Collect customer information from all
channels
• Integrate it with other relevant
information
• Make useful information available to the
frontline
• Create and manage data repository, IT
systems, analytical tools, specific
application packages

41. Collecting customer information at different
touchpoints
41

42. Common Failures in CRM Implementation
42
 Unfortunately, there is a high failure rate for CRM
implementations
 Common reasons for failures
 Viewing CRM as a technology Initiative
 Lack of customer focus
 Not enough understanding of customer lifetime value
(CLV)
 Inadequate support from top management
 Lack of coordination
 Failure to reengineer business processes
 Underestimating the challenges in data integration

43. Implementation of CRM- key questions to ask when
defining customer relationship strategy:
43
 How should our value proposition change to increase
customer loyalty?
 How much customization or one-to-one marketing and
service delivery is appropriate and profitable?
 What is the increase in profit from increasing share-of-
wallet with current customers? How much does this vary
by customer tier and/or segment?
 How much time and resources can we provide to CRM
right now?
 If we believe in customer relationship management, why
haven‘t we taken more steps in that direction in past?
 What can we do today to develop customer
relationships without spending on technology?

44. Summary of Chapter 12: Managing Relationships
and Building Loyalty (1)
44
 Customer loyalty as an important driver of profitability for service firms so
firms need to
 Assess value of loyal customer
 Narrow gap between actual and potential customer value
 Wheel of Loyalty shows how firms can:
 Build a foundation of loyalty
 Create loyalty bonds
 Reduce churn drivers
 Building a foundation of loyalty involves
 Good fit between customer needs and capabilities
 Searching for value, not just volume
 Tiering services effectively
 Obtaining customer satisfaction through service quality

45. Summary of Chapter 12: Managing Relationships
and Building Loyalty (2)
45
 Customer loyalty bonds include
 Reward-based bonds
 Social bonds
 Customization bonds
 Structural bonds
 Strategies for reducing customer defections include
 Analyzing customer defections and monitoring declining
accounts
 Addressing key churn drivers
 Implementing effective complaint-handling and service
recovery procedures
 Increasing switching costs

46. Summary of Chapter 12: Managing Relationships
And Building Loyalty (3)
46
 Customer relationship management (CRM) is a whole process
by which relations with customers are built and maintained.
 An integrated CRM system includes
 Strategy development process
 Value creation process
 Multichannel integration process
 Performance assessment process
 Cresting a successful CRM program requires understanding
common failures in CRM implementation and knowing how to
get it right

47. Overview of Chapter 13
47
 Customer Complaining Behavior
 Customer Responses to Effective Service
Recovery
 Principles of Effective Service Recovery
Systems
 Service Guarantees
 Discouraging Abuse and Opportunistic
Customer Behavior

48. Opening Case : JetBlue Service Recovery
48

49. 49
CUSTOMER
COMPLAINING BEHAVIOR

50. Customer satisfaction formula: linking the topics
50
Service Quality Chapter 12
This chapter (13)
(chapter 14)

51. Customer response to service failures
51
1. Do nothing
2. Complain in some form to the service firm
3. Take some kind of overt action with a third
party (e.g. complain to a consumer claims
tribunal)
4. Defect and simply not patronise this firm again

52. Customer Response Categories to Service Failures (Fig. 13.3)
52

53. Why some customers take NO action
53

54. Consumer complaint behaviour
How often do people complain?
54

55. Why do customers complain?
55
 Compensation for a monetary loss—either in the
form of a refund and/or by having a service
performed again.
 Complain to rebuild self-esteem. When customers
feel service employees have mistreated them,
their self-esteem, self-worth, or sense of fairness
may be negatively affected.
 Help to improve the service
 Because of concern for others

56. Key issues to investigate regarding customer
complaining behavior:
56
 What proportion of unhappy customers
complain?
 Why don‘t unhappy customers complain?
 Who is most likely to complain?
 Where do customers complain?

57. Why unhappy customers often don’t complain:
57
 Customers usually give the following three reasons for
not complaining: (1) they don‘t think it‘s worth their time
and/or effort; (2) they don‘t believe the service
provider will be concerned about their problem and/or
resolve it; or (3) they don‘t know where to go and what
to do.
 Cultural and social norms may also affect complaining
behavior. In some European and Asian countries,
customers feel awkward or embarrassed about making
a complaint. Social norms may discourage criticisms of
professional service providers, because they are viewed
as experts in their fields

58. 58

59. What do customers expect once they have made a
complaint?
59
 Once a complaint is made, customers expect to be
adequately compensated in a fair manner.
 The firm is expected to assume responsibility in having
a convenient and responsive recovery process. Not only
must the employees of the firm be able to explain and
resolve the failure, they have to come across as genuine,
honest, and polite throughout.
 Lastly, the compensation given has to cover the losses
incurred by the customer both in terms of actually
monetary loss and other potential cost incurred as a
result of the failure (e.g., time, effort).

60. The types of ‘justices’ (see page 342 and Figure
13.7)
60
 Procedural justice
 Concerns policies and rules that customer has to go
through in order to seek service recovery
 Interactional justice
 Dealing with employees of the firm; their behaviors
towards the aggrieved customer
 Outcome justice
 Compensation received by the customer

61. 3 Dimensions of Perceived Fairness in Service Recovery
Process (Fig. 13.6)
61

62. Rage behaviours evolving over time as complaints are poorly handled
despite multiple opportunities to enact good service recovery
62

63. Dealing with Complaining Customers and
Recovering from Service Failure
63
 Take complaints professionally and not personally
 Be prepared to deal with angry customer who may
behave in an insulting way to service personnel who
may not be at fault
 Take the perspective that customer complaints allow
firm a chance to
 Correct problems,
 Restore relationships
 Improve future satisfaction for all
 Develop effective service recovery procedures

64. Service recovery
64
Service recovery involves actions taken
by the organisation to put things right
for the customer following a service
(core or supplementary) failure.

65. Importance of Service Recovery
65
 Plays a crucial role in achieving customer
satisfaction
 Tests a firm‘s commitment to satisfaction and
service quality
 Employee training and motivation is highly
important
 Impacts customer loyalty and future
profitability
 Complaint handling should be seen as a profit
center, not a cost center

66. The Service Recovery Paradox
66
 Customers who experience a service failure that is
satisfactorily resolved may be more likely to make
future purchases than customers without problems
(Note: not all research supports this paradox)
 If second service failure occurs, the paradox
disappears—customers‘ expectations have been
raised and they become disillusioned
 Severity and ―recoverability‖ of failure (e.g.,
spoiled wedding photos) may limit firm‘s ability to
delight customer with recovery efforts
 Best strategy: Do it right the first time

67. Components of an effective service recovery system
67

68. Principles of effective service recovery systems
68
 Table 13.1 recommends some strategies companies can
adopt to reduce customer complaint barriers. The activities
suggested have three main objectives;
 (1) Making feedback easy and convenient—make feedback
tools easily accessible to customers,
 (2) reassuring customers that their feedback would taken
seriously and acted upon—publish feedback from customers
and subsequent actions in company newsletters/publications,
and
 (3) make the feedback process a positive experience for the
customers—training frontline staff to make customers feel
comfortable giving feedback; thanking customers for
feedback.

69. 69

70. Strategies to Reduce Customer Complaint Barriers (Table 13.1)
70
70

71. How to Enable Effective Service Recovery
71
 Be proactive
 On the spot, before customers complain
 Plan recovery procedures
 Identify most common service problems and have
prepared scripts to guide employees in service
recovery
 Teach recovery skills to relevant personnel
 Empower personnel to use judgment and skills to
develop recovery solutions

72. How Generous Should Compensation Be?
72
 There is not hard and fast rule to how much to compensate,
but there are some rule of thumb that companies can turn to
for reference.
 (1) Position of the firm—are you a service leader or
laggard? The higher you are, the more customer expect
from the service recovery.
 (2) How severe was the service failure—naturally the
greater the damage caused, greater the cost to the
consumer (e.g., monetary cost, time, effort, distress), the
greater the amount of the compensation.
 (3) Relationship between the affected customer and the
firm—if it is a long-term customer, naturally more is
demanded, at the same time, it pays to retain loyal
customers. On the other hand, first time customers can
become loyal if treated right.

73. How Generous Should Compensation Be?
(‘rule-of-thumb’)
73
 The rule-of-thumb for recovery policies should be that
customers should be compensated with ‗well-dosed
generosity.‘
 On the one hand, the firm cannot be perceived as
stingy and calculating, and on the other hand, it should
not be seen as overcompensating.
 Overcompensation does not only fail to increase
satisfaction much further beyond a recovery perceived
as fair, it also may give the wrong incentives to the
wrong customers (jaycustomers?) to complain too much.

74. Service Insights 13.2 : guidelines companies can use to handle
complaining customers and recover from a service failure (read page 406)
74
1. Act fast
2. Acknowledge the customer‘s feelings
3. Don‘t argue with the customer
4. Empathize with the customer
5. Clarify the truth and sort out the cause
6. Give customers the benefit of doubt
7. Propose the steps needed to solve the problem
8. Keep customers informed of progress
9. Consider compensations
10. Continue to regain customer goodwill
11. Self-check the system and improve it

75. The Power of Service Guarantees
75
• Force firms to focus on what customers want
• Set clear standards
• Require systems to get & act on customer
feedback
• Force organizations to understand why they fail
and to overcome potential fail points
• Reduce risks of purchase and build loyalty

76. Service Guarantees
76

77. How to Design Service Guarantees
77
 Unconditional
 Easy to understand and communicate
 Meaningful to the customer
 Easy to invoke
 Easy to collect
 Credible
See Service Insights
13. 3 on page 408

78. Types of Service Guarantees
78

79. 79

80. Is it Always Suitable to Introduce a Guarantee?
80
 It is not appropriate to introduce guarantees when:
 Companies have a strong reputation for service
excellence
 Company does not have good quality level
 Quality cannot be controlled because of
external forces
 Consumers see little financial, personal or
physiological risk associated with the purchase

81. Discouraging Abuse and Opportunistic Customer
Behavior
 Jaycustomer: A customer who behaves in a
thoughtless or abusive fashion, causing problems
for the firm, its employees, and other customers
 More potential for mischief in service businesses,
especially when many customers are present
 No organization wants an ongoing relationship
with an abusive customer
81

82. Seven Types of Jaycustomers: (1)
The Cheat and Thief
82
 The Cheat: thinks of various way to cheat the firm
 The Thief: No intention of paying--sets out to steal or
pay less
 Services lend themselves to clever schemes to
avoid payment
 e.g., bypassing electricity meters, circumventing TV
cables, riding free on public transportation
 Firms must take preventive actions against thieves,
but make allowances for honest but absent-minded
customers

83. Seven Types of Jaycustomers: (2)
The Rulebreaker
83
 Many services need to establish rules to guide
customers safely through the service encounter
 Government agencies may impose rules for health
and safety reasons
 Some rules protect other customers from dangerous
behavior
 e.g. ski patrollers issue warnings to reckless skiers
by attaching orange stickers on their lift tickets
 Ensure company rules are necessary, not should not
be too much or inflexible

84. Seven Types of Jaycustomers: (3)
The Belligerent
84
 Shouts loudly, maybe mouthing insults, threats and curses
 Service personnel are often abused even when they are not to be
blamed
 Confrontations between customers and service employees can
easily escalate
 Firms should ensure employees have skills to deal with difficult
situations
 In a public environment, priority
is to remove person from other
customers
 May be better to support
employee’s actions and get
security or the police if
necessary if an employee has
been physically attacked
Confrontations between Customers and Service Employees Can Easily Escalate

85. 85

86. Seven Types Of Jaycustomers: (4)
Family Feuders And Vandals
86
 Family Feuders: People who get into arguments with
other customers – often members of their own family
 The Vandal:
 Service vandalism includes pouring soft drinks into
bank cash machines; slashing bus seats, breaking
hotel furniture
 Bored and drunk young people are a common
source of vandalism
 Unhappy customers who feel mistreated by service
providers take revenge
 Prevention is the best cure

87. Discouraging Vandalism
87

88. Seven Types Of Jaycustomers: (5)
The Deadbeat
88
 Customers who fail to pay (as distinct from ―thieves‖
who never intended to pay in the first place)
 Preventive action is better than cure--e.g., insisting
on prepayment; asking for credit card number
when order is taken
 Customers may have good reasons for not paying
- If the client's problems are only temporary ones,
consider long-term value of maintaining the
relationship

89. Consequences of Dysfunctional Customer Behavior
89
 Employees:
 Mood or temper negatively affected
 Long-term psychological damage
 Staff morale will fall, affecting productivity
 Other Customers:
 Positive – rally to support an employee who is perceived to
be abused
 Negative – Contagious bad behavior might escalate the
situation

90. Dealing with Customer Fraud
90
 If in doubt, believe the customer
 Keep a database of how often customers invoke service
guarantees or of payments made for service failure
 Insights from research on guarantee cheating:
 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)

91. Dealing with Customer Fraud
91
 Managerial implications:
 Firms can benefit from offering 100 percent money-
back guarantees
 Guarantees should be offered to regular customers as
part of membership program since regular customers
are unlikely to cheat
 Excellent service firms have less to worry about than
average providers

92. Summary of Chapter 13 –Service
Recovery and Customer Feedback (1)
92
 When customers are dissatisfied, they can
 Take some form of public action
 Take some form of private action
 Take no action
 To understand customer responses to service failures, some
questions to ask are
 Why do customers complain?
 What proportion of unhappy customers complain?
 Why don‘t unhappy customer complain?
 Who is most likely to complain?
 Where do customers complain?
 What do customers expect once they have made a
complaint?

93. Summary of Chapter 13 –Service
Recovery and Customer Feedback (2)
93
 Effective service recovery can lead to customer loyalty
 The service recovery paradox does not always hold true—
better to get it right the first time
 Guiding principles for effective service recovery include
 Make it easy for customers to give feedback
 Enable effective service recovery
 Focusing on how generous compensation should be
 Issues to consider in having services guarantees are
 Power of service guarantees
 How to design service guarantees
 Is full satisfaction the best a firm can guarantee?
 Is it always appropriate to introduce a service guarantee?

94. Summary of Chapter 13 –Service
Recovery and Customer Feedback (3)
94
 There are seven types of jaycustomers
 The Cheat
 The Thief
 The Rule Breaker
 The Belligerent
 The Family Feuders
 The Vandal
 The Deadbeat
 To discourage abuse and opportunistic behavior, we
need to deal with customer fraud

95. Practice Exam Question
95
 You are the chief marketing officer at XCel Pte Ltd.
From your perspective, for the benefit of the
organization, it is worthy to have service guarantees in
place. However, you need approval from the executive
board before you proceed with designing the service
guarantees. Explain to the executive board:
(a) the power of service guarantees
(b) how to design a service guarantee
(c) present the different types of service guarantees to the
board for consideration

96. Practice Examination Questions
96
 The implementation of profitable service strategies
can include building relationships and customer
loyalty as well as putting effective complaint
handling/service recovery processes in place.
Describe the various strategies for building customer
loyalty (10 marks) and complaint handling/service
recovery (10 marks)

97. Practice Examination Question
97
 As a graduate who has undertaken and successfully
completed the MKTG 1268 Service Quality course,
and a potential manager and owner of your own
service business, you know the importance of
building customer loyalty for the long-term success
of your business, as well as good service recovery
strategies when ‗things go wrong‘. Recall and list the
key theories and concepts you have learnt that are
important to building customer loyalty and
implementing good service recovery, and give
examples of how these may be implemented.

98. Practice Examination Question:
98
 Research suggests that many dissatisfied
customers never complain but simply defect to
a competitor. What are the management
implications of this finding and how might
managers try to minimise such defections?

99. Practice Examination Question:
99
 Using the most appropriate theory/conceptual
model taught in this course, explain why a
customer may be ‗satisfied‘ with consistently
poor levels of service (quality) they experience
from the same service provider.

100. Practice Exam Question
100
 Café Rende is a small café well known among the locals for its delicious
cakes, well blended coffee and nice décor. To cater for rising customer
expectations, the owner has decided to update her shop by painting the
walls, changing the furniture and also installing credit card payment
facility because she noted that more customers ask to pay by credit
card. She also introduced, due to popular demand, a series of cake
baking classes. She also introduced home delivery service for locations
within a 3 km radius and for purchases of more than $50.
 Question: Discuss the customer feedback collection took from which the
owner‘s service improvement ideas evolved and suggest TWO other
feedback collection tools that can potentially be implemented in the
future (by a small business like Café Rende), identifying each of their
strengths and weaknesses.