Service Recovery

1. Service Recovery Mtg. 410 Donna J. Hill, Ph.D. Fall 2000

2. Service Recovery • Refers to the actions taken by an organization in response to a service failure

3. Figure 7-1Unhappy Customers’ Repurchase Intentions Unhappy Customers Who Don’t Complain 9% Unhappy Customers Who Do Complain 37% 19% Complaints Not Resolved 46% 54% Complaints Resolved 70% 82% Complaints Resolved Quickly 95% Percent of Customers Who Will Buy Again Minor complaints ($1-$5 losses) Major complaints (over $100 losses) Source: Adapted from data reported by the Technical Assistance Research Program.

4. Recovery Paradox • Companies should plan to disappoint customers so that they can recover and gain even greater loyalty from them as a result!

5. Figure 7-3 Customer Response Following Service Failure Service Failure Take Action Do Nothing Stay with Provider Switch Providers Complain toProvider Complain to Family & Friends Complain to Third Party Switch Providers Stay with Provider

6. Types of Complainers • Passives • Voicers • Irates • Activists

7. Fairness • Outcome (fair compensation) • Procedural (policies, rules, and timeliness) • Interactional (politeness, courtesy, honesty)

8. Welcome and Encourage Complaints Fail Safe the Service Service Recovery Strategies Act Quickly Learn from Lost Customers Treat Customers Fairly Learn from Recovery Experiences Figure 7-5 Service Recovery Strategies

9. Pricing • High Price • Price Increases • Unfair Pricing • Deceptive Pricing Figure 7-6Causes Behind Service Switching Inconvenience • Location/Hours • Wait for Appointment • Wait for Service Core Service Failure • Service Mistakes • Billing Errors • Service Catastrophe Service Encounter Failures Service Switching Behavior • Uncaring • Impolite • Unresponsive • Unknowledgeable Response to Service Failure • Negative Response • No Response • Reluctant Response Competition • Found Better Service Ethical Problems • Cheat • Hard Sell • Unsafe • Conflict of Interest Involuntary Switching Source: Sue Keaveney • Customer Moved • Provider Closed

10. Service Guarantees • guarantee = an assurance of the fulfillment of a condition (Webster’s Dictionary) • for products, guarantee 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?)

11. Table 7-7Characteristics of an Effective Service Guarantee Source: Christopher W.L. Hart, “The Power of Unconditional Guarantees,” Harvard Business Review, July-August, 1988, pp. 54-62.

12. 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”

13. Service Guarantees • Does everyone need a guarantee? • Reasons companies do NOT offer guarantees: • guarantee would be at odds with company’s image • too many uncontrollable external variables • fears of cheating by customers • costs of the guarantee are too high

14. 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”

15. Lessons from the Hampton Inn Guarantee • Focus on customer needs. • KISS • Deep management conviction is fundamental. • Empowerment is the key. • Train, train, train. Reinforce, reinforce, reinforce. • Perpetuate stories of the guarantee in action • Understand the moments of truth. • Teach customers to complain. • Develop tracking systems. • Give regular feedback on reasons the guarantee was invoked. • Use internal guarantees to support the external guarantees.