Letter of Transmittal 03 April, 2012. Dr. Md.

Zakir Hossain Bhuiyan Professor, Department of Marketing Faculty of Business Studies University of Dhaka Sub: Request for acceptance of the term-paper Sir, I am very pleased to be able to submit my term-paper on Service Recovery. In developing the report I have followed the format and instructions given by you. In every sphere of my report, I have tried my level best to make a good combination of learning from Service Marketing. I also tried to match my theoretical knowledge and the direct experience gathered during the preparation of my term-paper. In this report, I have tried to be as descriptive as possible for the convenience for the reader. Any clarification required & query needed regarding my report will be gratefully acknowledged. Your obediently Mudassar Mahmood Khan ID No. 41018003 EMBA (18th batch) Department of Marketing University of Dhaka

Executive Summary:
Services marketing is a sub field of marketing, which can be split into the two main areas of goods marketing (which includes the marketing of fast moving consumer goods (FMCG) and durables) and services marketing. Services marketing typically refers to both business to consumer (B2C) and business to business (B2B) services, and includes marketing of services like telecommunications services, financial services, all types of hospitality services, car rental services, air travel, health care services and professional services. The range of approaches and expressions of a marketing idea developed with the hope that it be effective in conveying the ideas to the diverse population of people who receive it. Services are economic activities offered by one party to another. Often time-based, performances bring about desired results to recipients, objects, or other assets for which purchasers have responsibility. In exchange for money, time, and effort, service customers expect value from access to goods, labor, professional skills, facilities, networks, and systems; but they do not normally take ownership of any of the physical elements involved. There has been a long academic debate on what makes services different from goods. The historical perspective in the late-eighteen and early-nineteenth centuries focused on creation and possession of wealth. Classical economists contended that goods were objects of value over which ownership rights could be established and exchanged. Ownership implied tangible possession of an object that had been acquired through purchase, barter or gift from the producer or previous owner and was legally identifiable as the property of the current owner. Adam Smiths famous book, The Wealth of Nations, published in Great Britain in 1776, distinguished between the outputs of what he termed productive and unproductive labor. The former, he stated, produced goods that could be stored after production and subsequently exchanged for money or other items of value. But

unproductive labor, however honorable,...useful, or... necessary created services that perished at the time of production and therefore didnt contribute to wealth. Building on this theme, French economist Jean-Baptiste Say argued that production and consumption were inseparable in services, coining the term immaterial products to describe them. A recently proposed alternative view is that services involve a form of rental through which customers can obtain benefits. What customers value and are willing to pay for are desired experiences and solutions. The term, rent, can be used as a general term to describe payment made for use of something or access to skills and expertise, facilities or networks (usually for a defined period of time), instead of buying it outright (which is not even possible in many instances). There are five broad categories within the non-ownership framework 1. Rented goods services: These services enable customers to obtain the temporary right to use a physical good that they prefer not to own (e.g. boats, costumes) 2. Defined space and place rentals: These services obtain use of a defined portion of a larger space in a building, vehicle or other area which can be an end in its own right (e.g. storage container in a warehouse) or simply a means to an end (e.g. table in a restaurant, seat in an aircraft) 3. Labor and expertise rental: People are hired to perform work that customers either choose not to do for themselves (e.g. cleaning the house) or are unable to do due to the lack of expertise, tools and skills (e.g. car repairs, surgery) 4. Access to shared physical environments: These environments can be indoors or outdoors where customers rent the right to share the use of the environment (e.g. museums, theme parks, gyms, golf courses).

5. Access to and usage of systems and networks: Customers rent the right to
participate in a specified network such as telecommunications, utilities, banking or insurance, with different fees for varying levels of access.

Service recovery refers to the actions a provider takes in response to a service failure . A failure occurs when customers perceptions of the service they receive do not match their expectations. According to this definition, service recovery is not restricted to services industries. Empirical research also shows that dealing with problems effectively constitutes the most critical component of a reputation for excellent (or poor) service for a broad range of industries . Any company that serves external or internal customers must accept that failures happen and institute systems and processes to deal with them. In recent years, numerous empirical studies have addressed service recovery in various industries around the globe. Interest in service recovery has grown because bad service experiences often lead to customer switching, which in turn leads to a loss in customer lifetime value . However, a favorable recovery has a positive impact on customer satisfaction, word-of-mouth behavior , customer loyalty and, eventually, customer profitability. Although some studies show that good initial service is better than an excellent recovery, other empirical work suggests that an excellent recovery can lead to even higher satisfaction and loyalty intentions among consumers than if nothing had gone wrong in the first place. This phenomenon is usually referred to as the service recovery paradox.

Table of Contents
Table of Contents........................................................................................................ 5 Classic customer service failure: serving cold.....................................................12 Types of Complainers:...............................................................................................18 Driven by Emotions or Cognition...............................................................................21 A Suggested Customer Complaint Procedure.............................................................22 Anticipate the needs for recovery..............................................................................23 Build an organization that is fast in decision making, and fast to response................24 Empower front-line employees..................................................................................24 Train employees........................................................................................................24

1.0 Introduction:
The interdisciplinary services literature offers a rich source of research and insights on effective service recovery. In the following sections, we present some consensually held principles regarded as best practices in service recovery, structured according to what we introduce as the three types of recovery: 1) Customer recovery (reestablish customer satisfaction), 2) Process recovery (learn from failures to avoid them in the future), and 3) Employee (prepare employees to deal with failures) recovery.

1.1 Introduction of the report:

Each professional degree needs practical knowledge of the respective field of discipline to be fruitful. Our MBA program also is similar, relating to the exchange of theoretical knowledge into the real life practical situation. The report entitled Service Recovery originated from the partial fulfillment of the Service Marketing course. The main purpose of the preparation of the report is due to the partial fulfillment of the course of the EMBA Program conducted by the Faculty of Business Studies, Dhaka University.

During the course, I was under the supervision and guidance of Dr. Zakir Hossain, Assistant Professor, Department Of Marketing, Faculty of Business studies, Dhaka University.

1.2 Objectives of the report:

The General objective of the study is to provide an overview of service recovery and fulfill the course requirement. Beside the general objective, the report can be categorized into main objective and specific objectives. The objectives behind this report are mentioned below:

Main Objective:
The main objective of this study is to prepare a term paper(which is a partial requirement of the completion of this course) on the specified topic implementing the knowledge that have been gathered over the past semester at the Dhaka University (DU).

Specific Objectives:
The specific objectives of this report are as follows: To understand the service recovery process & its effects. To identify the problems faced in service recovery.

1.3 Methodology:

This report is a descriptive one, which was administered by collecting primary and secondary data. Descriptive Research has an important objective: gives description of something marketing characteristics of function (Malhotra, 2007) and also the description of phenomenon or characteristic associated with an object population (who, what, when, where and how of a topic, Copper, 2007). The report tried to discuss service recovery & various factors associated with it. Before going in to the deep study, conceptual structure visualized under which the whole study was conducted. Preparing a report about service recovery is a difficult and complicated task and no single method is appropriate for preparing the report. For this reason, a number of procedures have followed to prepare a meaningful report. The methodology of the task can be depicted as follows:

1.3.1 Sources of data:

This study covered two types of data, which are: Primary data Secondary data

Primary Data:
Primary data was collected through personal interviews.

Secondary Data:

Going through different documents and papers published from time to time are the sources of secondary data.

1.3.2. Collection procedure of data:

Personal interview technique was the primary tool used in collecting information. Interview with people already involved in service sector were done in order to discuss about the related matters before preparing the report.

1.3.3. Data Gathering Method:

Open ended question was used to collect the data from the respondents. The respondent listened to the question and based on his/her knowledge about it, provided answers.

1.3.4 Data Collection:

The data was collected through personal interviews. The answers were recorded for analysis later.

1.3.5 Coding, Tabulation and Analysis Procedure:

The response of the respondent was studied for analysis. The various business communication concepts were used to analyze the data.

1.4 Limitations:
The study is not free from some practical limitations. Following limitations have faced during the study and the time of working & data collection: Time is the main limitation for my study. Due to unavailability of sufficient time, the researcher was not able to do survey among all of the sample size. Thats why the findings of the research will not be fully but partially true. Work load during the semester at the work place was also a barrier to prepare this report. Due to lack of practical experience, some errors might have occurred during the study. Therefore maximum efforts have given to avoid mistakes.

1.5 Time Line:

March 2010
Beginning of literature review, formulating research objective, conducting

introductory chapter including detailed context of the study as well as development of research design. Data collection, emphasizing on the methodological part as its initial stage and primary data analysis and preparing data presentation. Preparing the report and prepare the ancillaries for presentation of the final report.

2.0 Literature Review:

According to Webster, preference is grant of favor or advantage to one over another. That means some criteria that create willingness to receive any product. That may be influenced by the products quality, promotional activities, organizational commitment, facility, packaging, value addition etc.

3.0 The Impact of Service Failure & Recovery:

A customer service failure, simply defined, is customer service performance that fails to meet an individuals expectations. Typically, when a service failure occurs, a customer will expect to be compensated for the inconvenience in the form of any combination of refunds, credits, discounts or apologies. The success of such customer service recovery efforts is determined by the individuals expectations and perceptions of the organization. Two key elements impact any effort to restore customer satisfaction: the strength of customer relationships and the severity of service failure. Service performance that fails to meet expectations is known as service failure. The strength of the customer relationship with the organization prior to a customer service failure has a buffering effect in the event of failure. Research suggests that customers who expect the relationship to continue actually have lower service recovery expectations, and in turn, are more satisfied with customer service performance after recovery. While this may seem counterintuitive at first glance, consider the expectations of customers with a stronger relationship with the organization. A customer who does not have much commitment to the organization tends to be more transaction-focused and expects immediate service recovery when a particular transaction fails to meet expectations. Conversely, a customer with strong commitment may demand less immediate compensations with the expectation that strong future interactions may correct the customer service failure over time.

Such findings suggest that service providers not only have measures in place to identify the strength of customer relationships but also the ability to react to customer service failures. The severity of the customer service failure moderates the relationship between customer satisfaction and commitment. Even with strong service recovery, research indicates that customers may still be upset, engage in negative word-of-mouth, and be less likely to develop trust with and commitment to the organization, if the original customer service failure was really bad. In these cases, managers may need to do more to mend the strength of customer relationships and restore commitment. To identify such cases, service organizations need to track and identify occurrences of customer service failure as well as the severity of each. The data available at the point of any customer service failure, most notably the information provided by the customer at the time of the complaint, should be viewed as critical marketing research data necessary not only for immediate service recovery but for improvement of future performance. Remember, a customer service failure is defined as a failure to meet customer expectations and the success of any recovery effort is measured by each individual customer against his/her own expectations. Therefore, managers would be well served to conduct a post-recovery assessment of customer expectations and perceptions of recovery performance against those expectations.

Classic customer service failure: serving cold

The impact of service failure recovery on customer satisfaction can be easily illustrated with a familiar example. Consider the case of a restaurant patron complaining about his meal being served cold. In all likelihood, this is not a severe customer service failure if managed properly. If the customers server fails to offer a sufficient apology and brings back a reheated meal after a 20-minute wait, a firsttime customer may be immediately deterred and never return. If this is a long-time customer who has always received excellent service, he may or may not write this failure off, but either way will expect this sub-par service to be countered with excellent service in the future. While you may expect the customer with a long history

of having received excellent service to be more demanding in the case of such a failure, in reality the new customer has the higher expectations. His perceptions of the restaurant are impacted by only this one experience where customer service performance failed to meet his expectations. Without a formal apology from a supervisor, a refund, and perhaps a future credit, this new customer may allow this experience to so alter his expectations of customer service performance at this restaurant as to prevent him from returning. The long-time customer has his expectations set by a long history of excellent dining experiences and may be easier to satisfy in the immediate wake of a customer service failure. In either case, the restaurant manager must immediately begin to turn his focus on ensuring future service delivery levels and enhancing the strength of customer relationships with each of these patrons.

4.0 Service Recovery

Service recovery comes into play when something in a service delivery goes wrong. The service delivery company ideally takes action to ensure that their customer gets their desired outcome anyway, and later rectifies their own process so that the failure doesnt reoccur. In their classic 1990 article from the Harvard Business Review, Christopher Hart, James Heskett and W. Earl Sasser Jr. share a striking example of service recovery: From the Profitable Art of Service Recovery: The vacationers had nothing but trouble getting from New York to their Mexican destination. The flight took off 6 hours late, made 2 unexpected stops, and circled for 30 minutes before it could land. Because of all the delays and mishaps, the plane was en route for 10 hours more than planned and ran out of food and drinks. It finally arrived at 2 oclock in the morning, with a landing so rough that oxygen masks and luggage dropped from overhead. By the time the plane pulled up to the

gate, the soured passengers were faint with hunger and convinced that their vacation was ruined before it had even started. One lawyer on board was already collecting names and addresses for a class-action lawsuit. Silivio de Bortoli, the general manager of the [Club Med] Cancun resort and a legend throughout the organization for his ability to satisfy customers, got word of the horrendous flight and immediately created an antidote. He took half the staff to the airport, where they laid out a table of snacks and drinks and set up a stereo system to play lively music. As the guests filed through the gate, they received personal greetings, help with their bags, a sympathetic ear, and a chauffeured ride to the resort. Waiting for them at Club Med was a lavish banquet, complete with mariachi band and champagne. Moreover, the staff had rallied other guests to wait up and greet the newcomers, and the partying continued until sunrise. Many guests said it was the most fun theyd had since college.

4.1 Why is Service Recovery Important?

Service recovery has received attention for over 20 years within service management and service marketing. Since the cost of gaining a new customer usually greatly exceeds the cost of retaining a customer (it is often stated that it costs five times as much to attract a new customer as maintaining one), managers are increasingly concerned with minimizing customer defections. The research has led to four major findings on how service failure and subsequent recovery affect customers loyalty towards a service company: 1. Service failure has a negative effect on customer loyalty intentions.

2. Failure resolution has a positive effect on loyalty intentions. 3. Customer satisfaction with the recovery has a positive effect on loyalty intentions. 4. Outstanding recovery results in loyalty intentions which are more favorable than they would be had no failure occurred. Whereas the three first findings could be expected, the fourth is somewhat of a surprise and has become known as the service recovery paradox. The service recovery paradox means that a customer might be more satisfied with a company although they didnt deliver on their first attempt than if they had delivered the service without errors, if the recovery action is perceived as very good.

4.2 How Does Service Recovery Work?

The main focus of the report is how to perform service recovery. The concepts from the service recovery literature which provide the basis for the tool are introduced briefly below. When it comes to immediate recovery after a service breaks down, the company representatives need to consider why the service delivery broke down as the reason for the break down affects the recovery expected by the company. If the breakdown occurs due to mistakes or errors by the service personnel or external sources the recovery should be psychological - the employees need to apologize for the inconvenience. If the error however is due to errors in the service architecture the recovery effort needs to be tangible and the customer should be compensated.

To be able to provide great service recovery the employees need to feel that they have the freedom to do so. Several companies pre-authorize front line employees to spend a capped amount to fix customer problems. Swisscom has a system in place where each employee is pre-authorized to spend up to $1,000 to solve a customers problem and employees at the Ritz-Carlton Hotel may spend up to $2,000 per incident. The principle behind this is that customers are more satisfied with their encounter if the first person they contact about a problem takes the initiative to fix things without having to send the request up the chain to their manager. It lets employees focus on solving problems. Having dealt with the customer recovery, a company should ask itself how it might avoid the failure reoccurring. By analyzing what happened and changing their routines the company can perform operations recovery. If the failure is bound to happen due to company procedures (like overbookings), the standard solution space for employees need to be defined. Another part of getting the organization prepared for future failures is to train their employees to provide great recovery in the future (employee recovery).

5.0 The Recovery Paradox

Theres an odd relationship between service recovery and customer loyalty from the Customer Experience Labs blog: The service recovery paradox states that with a highly effective service recovery, a service or product failure offers a chance to achieve higher satisfaction ratings from customers than if the failure had never happened. A little bit less academically, this means that a good recovery can turn angry and frustrated customers into loyal customers. In fact it can create even more goodwill than if things had gone smoothly in the first place. The service recovery paradox is a famous paradox that relates to customer satisfaction with and without a product failure. It states that with a highly effective

service recovery, a service or product failure offers a chance to achieve higher satisfaction ratings from customers than if the failure had never happened. A little bit less academically, this means that a good recovery can turn angry and frustrated customers into loyal customers. In fact it can create even more goodwill than if things had gone smoothly in the first place. Nevertheless not all service recovery efforts will lead to increased satisfaction ratings as several studies have already shown. The key is to understand that there are certain situations when it is highly likely that a service recovery will lead to increased customer satisfaction. Service recoveries that are likely to be efficient are obviously those where the service failure is perceived to be not systematic or that the company has little control over it. But even in cases when there is a systematic failure and the company has control over the failure, there is a benefit when service recovery activities are put into action to ensure that one can win back customers and that the source of failure is eliminated.

Fig: The Recovery Paradox

6.0 How Customers Respond to Service Failures:

Despite all attempts by a firm to maintain positive customer satisfaction, mistakes do happen on occasion. It is these mistakes or service failures which can make or break a firm. A customer may accidentally be overcharged for an item, a product may fail to operate to the customers expectations, a restaurant may deliver poor service or food quality and the customer complains are few of the common mistakes which tend to occur.

Types of Complainers:
Disgruntled customers are of 4 types and they act towards a service failure in 4 different ways.

Passive

These types of customers never complain for any mistake encountered by them from a companys side. The may or may not switch towards a new brand for that particular service/product but most likely to switch.

Voicers

These are the type of customers who raise there voice against the companies service/ product if they encounter any mistake from the companies side. They actively complain because they care for the brand or company. They may or may not switch towards a new brand, most unlikely to switch to a new brand.

Irates

These types of customers are mainly engaged in a negative word of mouth. After voicing ferociously if no action is taken by the company to rectify its mistake for a long period of time then they mostly switch to a new brand.

Activist

These are the type of customers who would actively complain to a third party i.e. law enforcing bodies when they encounter any mistake from the companies side. Activists are the type of customers who would surely switch to a new brand.

6.1 Emotions and Complaining Behavior Following Service Failure:

As employees deliver their services to customers, things can go wrong sometimes, and Service Failure occurs. Organizations that have service failure lose their customers, and in turn, lose millions of revenue dollars. That is why many managers feel the need to know about the nature of service failure: how it takes place, what the response of the customers are to these service failures, and how to recover these lost customers.

Service failure causes negative emotions among customers; they feel angry, frustated, and even enraged. These feelings affect their evaluation on the service given to them, and customer satisfaction is affected in a negative manner. As service failure occurs and attempts to recover suffice, the customer then engages in cognitive appraisal; that is, he assesses the situation and determines whether it is positive or negative. The customer will be angry when he appraises that the service employee could have done something to prevent the failure, and feels very satisfied if he appraises that there was not much the employee could do about the failure.

6.2 Propositions of Behavioral Response to Service Failure

The study creates a conceptual model to know the interplay of customer emotions and cognition for the service failure. The proposed model is based from the Affective Events Model, or AET. In this model, a negative affective event describes a service failure if it causes the costumer to have an affective response; for example, the customer will feel angry about it. The following are the propositions of the model. First is that a service failure triggers an affective reaction immediately. After this reaction, several appraisals from the customer will occur, with the first one being the primary appraisal, then the following appraisals are called secondary appraisals. During the primary appraisal, there are both emotional and cognitive responses from the customer. Secondary appraisal is called attitude formation, and during this time, whether a positive or negative attitude will be formed towards the service error is largely related to the response that the customer had on the primary appraisal, whether it was positive or negative. After the secondary appraisal or attitude formation, behavioral outcome, also known as complaining behavior, will occur. This will be positively related to the attitude formed by the customer towards the service failure.

6.3 Behavior Appraisals

During the primary appraisal, primary emotions are manifested; therefore, the basic emotions expressed during this stage are not yet interpreted via cognitive processes. But during the secondary appraisal, there is a cognitive appraisal of the

persons primary emotions, and assessment is on whether those emotional responses are appropriate, moderated by social beliefs, attitudes or values.

Driven by Emotions or Cognition

The proposal of this study is that the behavioral response can either be driven by emotions, or driven by cognition. When the customer copes, he is either focused on the emotions or focused on the problem. For example, if a customer is driven by cognition after a service failure, he might decide to boycott the store, if he were to assess it negatively. On the other hand, for emotionally driven response, the customer tries to alleviate the emotional discomfort, rather than try to solve the problem. Research has shown that over 75 percent of people who complain about different kinds of social interactions, 75 percent complain to vent their frustration and not really try to change their unwanted situation. Furthermore, this model also proposes that individual characteristics also affect the behavioral response to a service failure. It is important that during service encounters between the customer and provider, the customer should get the feeling of satisfaction. Sometimes, this cannot be realized, because although one knows what to expect from the other, these expectations may not be met due to moments of truth.

6.4 Types of Customer Complaint Actions:

All good managers want to hear about every complaint their customers have. only when a complaint has been expressed can the appropriate corrective action be taken. Without customer complaints management often assumes that everything is okay. It is estimated that for every customer complaint received, there at least 26 complaints that are never expressed. Futhermore, a customer with a complaint is likely to tell 20-25 other customers and potential customers about his or her complaint. Therefore as sellers and retailers you need a procedure for resolving customer complaints.

A Suggested Customer Complaint Procedure

Consider the following eight-step procedure for handling customer complaints in you organization: 1. Provide customers with the opportunity to complain. 2. Give customers your full and undivided attention. 3. Listen completely 4. Ask the key question: "What else?" 5. Agree that a problem exists; never disagree or argue. 6. Apologize 7. Resolve the complaint. (Ask again: "what else?") 8. Thank the customer for bringing the complaint to your attention. All customer service personnel need to be trained in handling customer complaints effectively and being empowered to respond in a positive manner.

7.0 Customers Recovery Expectations:

In service recovery, customers usually look for the following areas to be taken care of: 1. Understanding & accountability 2. Fair Treatment; (Outcome, Procedural & Interactional Fairness)

7.1 Service Recovery Strategies:

It is easy to focus on creating always better and more differentiated products and services when designing for remarkable customer experiences. Maybe it is simply

human, that we tend to not look at situations when a product or service fails (think positive!) your customers loyalty will be negatively impacted. I see a huge opportunity for improvement and a chance to create remarkable experiences that create word-of-mouth marketing in situations when products and services fails if sophisticated service recovery programs are in place. Every service (human or technology driven) as well as product will eventually fail one day and put your customer in a uncomfortable situation. Smart organizations will understand this and develop a service recovery program which ensures that their customers are satisfied even after things have gone wrong. When organizations plan to implement recovery programs it is helpful to differentiate between (1) the strategic initiatives that should be in place before the actual problem occurs and (2) the tactical activities that should happen after a problem has occurred and the customer contacted the company. Lets start with the strategic initiatives that will ensure that the right environment for remarkable service recovery is in place.

Anticipate the needs for recovery

Whenever you roll out a product or service, the people related with it are probably well aware of potential problems or obstacles that might occur. It is probably not so much arrogance than probably more wishful thinking that limits the ability of companies to foresee potential problems with a product. Accepting that even the best designed product or service will fail one day in specific situations is the first step. Anticipating potential problems will help organizations to be prepared when the first customer contacts the company with a problem.

Build an organization that is fast in decision making, and fast to response.

One of the key success factors to win back customers and restore their satisfaction is to act fast. While your front-line employees might be working hard (and fast) already, the whole organization that deals with service recovery has to be designed for agility. This includes clear escalation and decision-making processes. One key principle should be that the fastest decision-making happens when the front-line employee can make the decision. So the real goal is not to define better escalation processes, but to define processes that empower employees so that escalation processes are not necessary anymore.

Empower front-line employees

In most companies, the employees that are actually interacting with customers are the ones that receive the lowest salary in an organization. While increasing the salaries (compared to other competitors) is one way to attract and retain talent that is able to deliver exceptional service, empowering employees and giving them the freedom to do whatever is necessary to ensure that customers are satisfied is probably even more economically meaningful.

Train employees
Ensure that your training program includes not just lessons on delivering service when everything works out as planned but also to include lessons that teach employees to improvise or to set recovery programs into action if something goes wrong. While these strategic initiatives are important to define the long-term direction of your service recovery programs, the "moment of truth" happens when a customer contacts a company and interacts with an employee to discuss the problem and possible solutions. In these moments the following seven rules should be applied by employees that are actually interacting with your customers:

1. Acknowledgement Acknowledge that there is a problem. It doesnt matter whether the customer didnt understand certain aspects that are obvious from an organizations perspective. He is the one that has a problem and if you want to keep this customer he needs to be taken serious. If one tries to convince customers that there is no problem, you are actually telling them they are stupid. This applies also to situations when the customer is following the wrong steps to perform a task never blame the customer. 2. Empathy Understand the problem from a customers point of view and also understand that he might be upset after a problem has occurred. While it is not necessary to listen to a customer when he starts cursing at employees, front-line employees should try to create an atmosphere that supports and enables a positive solution of a problem. Confronting the customer with his anger and frustration will not lead to an escalation of the problem, communicating that one can understand his situation will. 3. Apology Saying sorry in the name of the company occurred is essential. Whether the employee should apologize in his name or in the name of his company depends on the context of the service recovery. If the employee (or a direct colleague) was involved when the problem occurred, he should apologize for himself. If the employee is in a call-center and a problem happened at a completely different location in the organization, he should apologize in the name of the organization everything else is not authentic. 4. Own the problem Taking ownership of the problem by the employee that is confronted with the problem (no matter in what position he is in) ensures that customers feel that they are taken care of. And even if your job is not to resolve the problem ultimately, telling customers to go somewhere else (and not "bringing" them there) sends the message that they dont care.

5. Fix The Problem Obviously fixing or at leasing trying to fix the problem for the customer should be the top priority. This might be easy in some situations (maybe just replacing the defect product) it becomes a challenge when the problem is not a real problem. Lets say the customer was simply using the product in a wrong way, fixing the problem in such a situation means re-educating the customer so that he uses the product or service in the supposed way. 6. Provide assurance When Customers get in touch with you to report a problem and to demand a fix their most important need is to be taken serious. Giving them a feeling of assurance that the problem will be sorted out and should (hopefully) not occur again will leave a professional impression and help rebuild the customers confidence a companys products and services. 7. Provide compensation If you want to make angry customers happy, give them money. Providing a refund, token or other compensation depending on the severity of the problem remains to be a powerful method for service recovery. Increasing the amount of money that a company pays to company to fix problems requires a rigorous control but it can indeed ensure that your customers are satisfied. It is important to note that just "handing out money" is not enough if money is handed out unfriendly or even worse, in a tedious discussion with the customers, satisfaction will not be restored.

8.0 Service Guarantees

A service guarantee is a marketing tool service firms have increasingly been using to reduce consumer risk perceptions, signal quality, differentiate a service offering, and to institutionalize and professionalize their internal management of customer complaint and service recovery. By delivering service guarantees,

companies entitle customers with one or more forms of compensation, namely easyto-claim replacement, refund or credit, under the circumstances of service delivery failure. Conditions are often put on these compensations; however, some companies provide them unconditionally.

8.1 Benefits of Service Guarantees:

According to Christopher Hart, service guarantees provide the following powerful platforms for promoting and accomplish service quality:

By delivering service guarantees, firms are forced to focus on customers want and expectation in every aspect of the service. Guarantees establish clear standards which create a common image of what the company stands for in both customers and employees mind. Managers are motivated to seriously concern service guarantees, because they emphasize the financial expenditure of quality failures.

With service guarantees, firms are required to build effective systems to generate meaningful customer feedback and develop corresponding courses of action.

Guarantees require service organizations to understand reasons of failure and motivate them to identify and manage potential fail points Guarantees help customers to reduce risk in making purchase decisions and to reinforce their long-term loyalty.

For customers, service guarantees play an important role in alleviating perceived risks of the purchase. The guarantees also facilitate more ease and more likelihood for customers to complain, since they expect the front-line staff to be ready with resolutions and appropriate compensations. From companies perspectives, according to the vice President of Hampton Inn, Designing the guarantee made us understand what made guests satisfied, rather than what we thought made them satisfied.

8.2 Designing Service Guarantee

While no conditions are imposed on some guarantees, others have apparently been drafted by lawyers and cover many restrictions. Christopher Hart states that the following criteria should be met in designing service guarantees:

Unconditional: Promises of the guarantees must be unconditional and no elements of surprise should be made to customers Comprehensible: The guarantees must be easy to understand and communicate so that customers can have clear awareness of the benefits of the guarantees.

Meaningful: Firms must make the guarantee important to the customers and provide adequate values to offset service failure. Easy to invoke: The guarantee should be less dependent on the customer and more on service provider. Easy to collect: Service providers should design an easy and problem-free guarantees collection process for customers. Credible: Guarantees must be offer in a believable manner.

8.3 Types of Service Guarantees:

TERM: Single-attribute specific guarantee GUARANTEE SCOPE: On key attribute of the service is covered by the guarantee EXAMPLE: Any of three specified popular pizzas is guaranteed to be served within 10 minutes of ordering on working days between 12 A.M. and 2 P.M. If the pizza is late, the customers next order is free. TERM: Multi-attribute specific guarantee

GUARANTEE SCOPE: A few important attributes of the service are covered by the guarantee. EXAMPLE: Minneapolis Marriotts guarantee: Our quality commitment to you is to provide:

A friendly, efficient check-in A clean, comfortable room, where everything works A friendly, efficient check-out

If we, in your opinion, do not deliver on this commitment, we will give you $20 in cash. No question asked. It is your interpretation.

TERM: Full-satisfaction guarantee GUARANTEE SCOPE: All aspects of the service are covered by the guarantee. There are no exceptions. EXAMPLE: Lands' Ends guarantee: If you are not completely satisfied with any item you buy from us, at any time during your use of it, return it and we will refund your full purchase price. We mean every word of it. Whatever. Whenever. Always. But to make sure this is perfectly clear, weve decided to simplify it further. GUARANTEED. Period. TERM: Combined Guarantee GUARANTEE SCOPE: All aspects of the service are covered by the full-satisfaction promise of the guarantee. Explicit minimum performance standards on important attributes are included in the guarantee to reduce uncertainty. EXAMPLE: Datapro Information Services guarantees to deliver the report on time, to high quality standards, and to the contents outlined in this proposal. Should we fail to deliver according to this guarantee, or should you be dissatisfied with any aspect of our work, you can deduct any amount from the final payment which is deemed as fair.

8.4 Managerial implications

According to study by Wirtz (1998), a guarantee can be introduced for many different operations/quality and marketing objectives. A company with poor quality may want to focus primarily on causes of existing quality gaps, whereas a firm with high quality standards but limited market presence and quality reputation may want to focus mainly on transforming potential customers into loyal ones. Additionally, the impact of an explicit guarantee on purchase intent was strong for the good quality provider, but there was no change in the purchase intent for the outstanding provider. There are two plausible reasons for this. First, purchase intent was already high for the outstanding provider; hence it might have been difficult to boost the ratings much further. Second, the outstanding provider might have already captured the high-end of the market, even when it did not offer an explicit guarantee. Thus, the impact of providing an explicit guarantee would be minimal and it would be difficult for, for example, a highly rated hotel to attract new customers by signaling higher quality.

8.5 Considerations in the introduction of service guarantees:

Companies should conduct careful analysis about their strengths and weaknesses in the decision of introducing service guarantees. For service providers whose reputations have been strongly established, guarantees may not be necessary since they might be incongruent with their image and might create confusion in the market. On the contrary, firms which are experiencing poor service delivery must improve their quality to the level where customers invoke guarantees on a more regular basis. In addition, service guarantees are not necessary for companies whose quality is beyond control in the presence of external factors. When realizing that there was a lack of control over its railroad infrastructure, Amtrak decided to drop a

service guarantee that included the reimbursement of train fares in the event of unpunctual service. Service guarantee is also not necessary in a market in which the perceived financial, personal or physiological risk associated with the service is little. Guarantees will then adds minor values, yet still take time and money costs to design, implement and manage. In the case where customers perceive little difference between service quality between competing firms, the first firm introducing service guarantees will be able obtain first mover-advantages and differentiate its service from the others. However, if many competitors have already employed service guarantees, introducing a highly differentiated guarantee beyond the industrys common practice is the only way to generate an impact.

9.0 Conclusion
Today, the world is evolving every second. Competition is growing harder & faster with every passing day & with the rapid advancement of technology, newer and more improved means of providing value to the customers are being found out. All types of service failure bring about negative feelings and responses from customers. Left unfixed, they can result in customers leaving, telling other customers about their negative experience and even challenging the organization through consumer right organizations or legal channels. Research has shown that resolving customer problems effectively has a strong impact on customer satisfaction, loyalty, word-of-mouth communication and bottom-line performance. As we all know that loyalty translates into profitability, every organization should strive hard to keep their customers satisfied and thus, maintain a good hold in the market.