Service Recovery

What is service recovery and why is it important for

the long-term success of companies?
Introduction
Service recovery has drawn the attention of researchers and academicians recently.
The concept of service recovery is seen as both business practice and focus of
marketing study which has developed over time. Perhaps the strongest single factor
that causes service failure is the nature of service products themselves, which increase
the possibilities of errors, or service failures, and therefore the need for recovery.
Most scholars point out that the difference between tangible products and intangible
services has increased customer awareness of the possibility of service failures either
from the operational perspective or from the customers viewpoint (Reichheld, 1990;
Gronroos, 2000) and its difficult for marketers to understand and to meet customer
expectations. Besides, service variability has been identified as on going problem both
for marketing and quality managers (Ballantyne, et al., 1995; Hoffman & Bateson,
1997; Lovelock, 2001). Moreover, the customer is often required to participate in the
production of the services (Gronroos, 1983; Lovelock, 1983; Zeithaml, et al., 1985).
In this report, the author is going to talk about the benefits of service recovery, such as
better customer loyalty and positive word-of-mouth communications have been
highlighted. In the 1990s, public attention turned to the proactive, and strategic role
that service recovery can play in customer retention in a competitive market place.
( Lovelock, 2001) He will also detail service recovery strategies as they are some
steps taken by the organizations in winning back the customers after the occurrence of
service failure incidents.

-1-

Service Recovery

Definition of Service Recovery

According to Zeithaml and Bitner (2003), Service recovery refers to the actions
taken by an organization or service supplier in response to a service failure. This
definition is supported by Andreassen (2000) and Johnston, (1995) who says Service
recovery refers to the actions a supplier takes in order to seek out dissatisfaction and
as a response to poor service quality i.e. service failure. Zemke and Bell (1990)
defined service recovery as a .thought-out, planned process for returning
aggrieved customers to a state of satisfaction with the firm after a service or product
has failed to live up to expectation.
Service recovery thus refers to the actions of service firms in response to service
failure. The objective is to maintain the business relationship with the customer. This
argument was based on the premise that customer satisfaction ensures customer
loyalty, repeat sales and positive words of mouth communications (Boshoff and
Staude, 2003). Effective service recovery also leads to enhance perceptions of the
quality of the products and service already bought enhanced perceptions of the firms
competence, and a favorable image in term of perceived quality and value (Kelley and
Davis, 1994, Boshoff, and Staude, 2003).
Service recovery is an umbrella term for the whole efforts by a firm to correct a
problem following a service failure, in order to retain customers goodwill. Service
recovery effort plays a crucial role in achieving or restoring customer satisfaction
(Lovelock et, al., 2002). In every organization, things may occur that have a negative
impact on its relationships with customers. The true test of a firms commitment to
satisfaction and service quality is in the way it responds when things go wrong for
customers (Lovelock et, al., 2001). Effective service recovery requires thoughtful
procedures for resolving problems and handling unhappy customers. It is critical for
firms to have effective recovery strategies, as even a single service problem can
destroy a customers confidence in a firm under the following conditions:
(1) The failure is totally outrageous e.g. big dishonesty on the part of the supplier.
(2) The problem fits a pattern of failure, rather than being an isolated incident

(3)

The recovery efforts are weak, serving to compound the original problem rather than
correct it (Berry, 1995).
-2-

Service Recovery

Back to the history, in 1970s and 1980s service recovery was the plan for dealing
with telecommunications problems or recovering particular services. Nowadays, a lot
of empirical studies have pointed out service recovery in various industries in the
worldwide. Interest in service recovery is growing because poor service experiences
often lead to customer losing, which in turn leads to a loss in customer lifetime value.
However, a favorable recovery has a positive impact on customer satisfaction, wordof-mouth behavior, customer loyalty, and, eventually, customer profitability. Although
some studies indicate that good initial service is definitely better than a good
recovery, other empirical work suggests that an excellent recovery can lead to even
higher satisfaction and loyalty intentions among consumers than if nothing had did
wrong initially. This phenomenon is usually referred to as the service recovery
paradox which will be explained in the next parts. (Lovelock, 2001)

Justice Recovery
Recent literatures show that perceived justice is a significant factor in service
recovery evaluations. Because a report of a service failure indicates, to some extent,
when the unfair treatment of the customer generated, its their perspectives to
justice service recovery.
Justice consists of three dimensions: distributive, procedural, and interactional.
Distributive justice focuses on the allocation of benefits and costs that customers
consider the benefit they receive from a service in terms of the costs associated with
that service. When they do not receive the expected quality of a service, they are
dissatisfied, which means service recovery is in need. (Lovelock, 2001)
However, the outcome of a service is not the only thing that matters. Because
customers are often get involved in the service production and consumption process,
thus, the second dimension--procedural justice is vital, especially when something
goes wrong. Thus, employees must fix the customer before they solve the problem.
Procedural justice relates to the evaluation of systems and procedures used to
determine outcomes, for example, the speed of recovery. Another factor in many
recovery incidents is the information communicated about the recovery process, or the
-3-

Service Recovery
lack thereof. Firms must describe what the firm is doing to resolve the problem so
that customers get to know mitigating circumstances and do not incorrectly attribute
complaints to the service firm when it is not responsible. (McCollough, 1995)
Finally, interactional justice pertains to interpersonal fairness. People are sensitive
about the quality of interpersonal treatment they get due to emotions tend to be more
important than cognitions in recovery situations, service managers need to manage
consumers' emotional experience during and after a service failure. In leading the
customer with a negative experience, employees should act quickly; show concern
and welcome for the customers; and remain pleasant, helpful appearance. In addition,
customers should be treated as individuals whose specific requests are acknowledged,
because token responses by an organization resulted in the most negative
responses.
All three types of justice contribute significantly to customers evaluations of
recovery. In addition, significant interactions among the fairness dimensions indicate
that poor performance on any one can dramatically affect customers overall
satisfaction with recovery.

Importance of frontline employees

According to a point of view frequently expressed in the literature, only empowered
employees can react and solve a problem right on the spot. However, research and
theory on empowerment mention that the effectiveness of empowerment hasnt been
recognized by the whole world yet. For instance, customers may believe that recovery
justice is best guaranteed if it is determined by superiors and policies rather than by
the judgment of an individual (empowered employee). When the customers are
dissatisfied about the services, they need to be fortunate enough to find the right staffs
to resolve the problems to their satisfaction. Moreover, researchers have several
conditions in which employee empowerment will be effective, which are always
happen on the situation, including the right mix of the strategy, business environment
and customer expectations.
There are two main problems existing in many organizations about the frontline
employees nowadays
-4-

Service Recovery
(1) Common wisdom is that measures focus attention and organizations obtain the
employee behaviors they reward. Recovery, in practice, has little support in this sense.
Traditional service quality reward systems may stop recovery by rewarding branches,
employees or service centers for their low rates of complaints, which are assumed to
bring high customer satisfaction. Therefore, frontline employees are always sending a
dissatisfied customer away instead of admitting that it got a problem, which is
considered to be the first step of recovery.
More broadly, traditional service quality measurement and reward systems focus on
obtaining of new customers but not on providing service recovery of a potential
customer loss because of a service failure. (McCollough, 1995)
(2) Even if empowerment of the front employees is the key for a given situation; it is
often finished poorlythe right thing always done the wrong way. The thing is
employees are always set free of rules and regulations to decide how to satisfy the
customer but then receive little or no training, resources, or boundaries for how they
might recover dissatisfied customers most appropriately. In addition, managers might
think that they dont need to invest much effort on frontline employee ((McCollough,
1995)

However, the author suggests organizations should empower frontline

employees to recover service failures conveys responsiveness and
fair policy and practice to handle service problems. Management
should give frontline employees authority to recover service failures.
They are the ones who may know what the problem was initially,
can respond most instantly, and can recover the failure most
effectively.
To respond more effectively to customers complaints, service
providers should also develop various recovery practices
considering the importance of situational factors. In addition,
employees, especially frontline employees who handle customer
complaints should be trained accordingly. Most importantly, in a
-5-

Service Recovery
service failure situation, its often seen that customer satisfaction
evaluations (recovery satisfaction) start with customers complaints.
This notion emphasizes the importance of creating an environment
where customers are welcomed to complain. Chances are higher for
retaining customers by encouraging them to complain (Spreng et
al., 1995). If the customers want to complain, frontline employees
should always welcome them instead of putting them away to
others, and thats why frontline employees play a crucial role in
customer satisfaction.

-6-

Service Recovery

Service Recovery Paradox

Based on personal experiences and anecdotal evidence, the idea of a recovery paradox
was developed more than 20 years ago by Etzel and Silverman (1981, p. 128), who
stated that it may be those who experience the gracious and efficient handling of a
complaint who become a companys best customer. Other research has suggested
that a good recovery can turn angry, frustrated customers into loyal ones. It can, in
fact, create more goodwill than if things had gone smoothly in the first place (Hart et
al., 1990, p. 148).
Since then, a wide range of empirical studies have explored the service recovery
paradox (see appendix table one)
As Table 1 shows, eight studies refute the existence of a service recovery paradox
(Andreassen, 2001, Berry et al., 1990, Bolton, 1998, Brown et al., 1996, Halstead and
Page, 1992, Maxham, 2001, McCollough et al., 2000, Zeithaml et al., 1996). The
consensus of these studies indicates that there is no way to please customers more
than with a reliable, first-time, error-free service. According to these findings, service
recovery is a strategy to limit the harm caused by a service failure rather than a means
to impress the customer with a special effort when something goes wrong. However,
six other studies, some of them by the same authors mentioned above, indicate that
the service recovery paradox is a real phenomenon (Bolton and Drew, 1992, Boshoff,
1997, Hocutt et al., 2006, Hocutt et al., 1997, Maxham and Netemeyer, 2002,
McCollough, 2000, Smith and Bolton, 1998).
Based on this literature review, it is fair to conclude that the evidence of the existence
of a service recovery paradox is mixed, at best. The question then becomes: is there a
simple, yet powerful explanation for this contradictory result? There are two possible
reasons for this divergence. First, the service recovery paradox is not defined
uniformly in the studies mentioned above: some authors test for a between-subject
effect (comparing a recovery/ complaining group with a control group) while others
test for a within-subject effect (before a failure/complaint and after a
failure/complaint). Moreover, the measurement of the recovery incidents is not
defined uniformly nor is the dependent variable the same. In short, we have not found
-7-

Service Recovery
one single replication study on this subject but rather more than a dozen different
approaches.
A second possible reason for the mixed finding is not related to a methodological
problem but is, instead, based on the very nature of the paradox. It has been suggested
that a service recovery paradox is a very rare event (Boshoff, 1997, Hart et al., 1990),
which means that it is not easy to detect even if it exists. To make things worse, it is
further assumed that only a minority of dissatisfied customers complains (Andreasen
and Best, 1977, Singh, 1990) and that most recoveries do not lead to customer
satisfaction (Hoffman et al., 1995). If this explanation is valid, one would need a very
large sample to obtain a reasonably large group of customers who received a very
satisfactory recovery. This requirement may explain why some studies have failed to
produce significant results.

Impact of service recovery

As we have shown, productivity and customer satisfaction objectives can correlate
positively, negatively, or not at all. Essential to get top managements attention, the
benefits and costs of service recovery must be measured, but common accounting
systems cannot capture the value of a loyal customer. Rather, the impacts and benefits
of service recovery are grounded in the assumption that it decreases customer
dissatisfaction and thereby increases both customer loyalty and customer satisfaction,
on another side, customer defection, destroys the customers lifetime value. In
addition to these losses of potential future revenues, dissatisfied customers likely
engage in negative word-of-mouth behavior, which deters existing and potential
customers. To balance their objectives, firms should start with a simple model for
calculating the return on recovery that would estimate the
1) Improvement in customer satisfaction and decrease in customer dissatisfaction as a
result of customer and employee recovery;
2) Decrease in service failures through process and employee recovery and its impact
on customer satisfaction;
3) Impact on loyalty of point 1 and 2 in terms of the decrease in lost customers;
4) Impact on word-of-mouth of point 1 and 2 in terms of the value of more positive
-8-

Service Recovery
and less negative word-of-mouth, as well as its impact of customer acquisition; and
5) Impact on total customer lifetime value caused by point 3 and 4.
For example, for a big organization, if the average customer lifetime value, defined as
the discounted future contribution margin per customer, is 5000, and service
recovery efforts can reduce the number of lost customers by 600, the gained customer
equity is 300,000.
But service recovery also can have a broader effect on bottom-line performance in
terms of staff attitude and retention. If employees are not able to cope with customer
problems and believe they are treated unfairly by the company, the customer, or both,
they may treat their customers unfairly too. (McCollough, 1995)
Although an exact return of recovery thus is difficult to calculate, it is important to
define the key drivers for such an indicator and thereby achieve a common
understanding of how service recovery impacts the companys bottom line.

Recommendations
Its suggested that to create a culture of Service Recovery and gain employee Extra
Effort
The challenge here is to effect a dramatic cultural shift in the company business
concept from a culture with the illusion of no failure to a culture of recovery. A
culture of recovery requires an internally consistent message about the value of
recovery from visible components of the firm, including managements espoused
values, cultural forms, and practices. Management must promote recovery as a core
value and then help manage the evidence that employees and customers monitor to
determine if this espoused value is being enacted. For example, stories that recount
the outcomes of a successful or failed recovery incident should find their way into
company conversation.
-9-

Service Recovery

Furthermore, to build a culture of recovery, managers should emphasize recoveryfocused performance management systems and make the complaint process visible
and accessible to both employees and customers. Service recovery demands a reward
structure that gives employees positive reinforcement for solving problems and
pleasing customersnot just for reducing the number of complaints. Measuring and
rewarding customer retention targets also could serve as incentives for service
recovery. (McCollough, 1995)
When the author was working for a financial company before, the supervisor there
pointed out: Better customer service means higher loyalty, more business, and more
word-of-mouth. This has an impact on meeting our objectives, which in turn pays off
with higher bonus payments and salary. Not all employees see this connection. It is
the supervisors job to communicate this.
Its also suggested that when organizational and employees values are proper,
employees are more willing to exert the extra effort required in a failure and recovery
situation. Recovery situations with dissatisfied customers can be very hard for
employees, but employees who share the organizations core values are more likely to
persevere. Thus, firms must focus on employee selection and equip techniques that
build the recovery culture and thereby facilitate extra effort. (McCollough, 1995)

Conclusion
Service recoveries were the efforts made by firms to bring back aggrieved customer to
satisfaction, it the key to customer satisfaction and achieving this should be a primary
goal for service organisations. Service recovery strategies play a crucial role in
customer satisfaction, if they are not prompt, proper and effective, the frustrating
customers will defect to competitor and then service firms lose customers and
revenues. Service firms are unable to implement service recovery strategies if they are
not informed of their shortcomings, therefore customers must be encouraged to
complain and service recovery must be follow up whenever complaints occur due to
-10-

Service Recovery
its vital and dominant impact on business competitiveness and profitability.

-11-

Service Recovery

Appendix:
Table One:

Authors

Paradox

Bolton and Drew (1992)

Boshoff (1997)
Hocutt, Chakrborty and Mowen (1997)
Smith and Bolton (1998)
McCollough (2000)
Maxham and Netemeyer (2002)
Hocutt, Bowers and Donovan (2006)
Berry, Zeithaml and Parasuraman (1990)
Halstead and Page (1992)
Brown, Cowles and Tuten (1996)
Zeithaml, Berry and Parasuraman (1996)
Bolton (1998)
McCollough, Berry and Yadav (2000)
Maxham (2001)
Andreassen (2001)

Yes
Yes
Yes
Yes
Yes
Yes
Yes
No
No
No
No
No
No
No
No

Reference
1. Andreassen, T.W., 2000, Antecedent to Satisfaction With Service Recovery,
European Journal of Marketing, Vol. 31 no1/2, pp 156-175.
2. Andreassen T.W. (2001) "From Disgust to Delight: Do Customers Hold a
Grudge?" Journal of Service Research, Vol 4 No 1, pp. 39-49
-12-

Service Recovery
3. Berry, L.L., & Parasuraman, A. (1991). Marketing services: Competing
through quality. New York, NY: The Free Press.
4. Bitner, M.J, Booms, B.M, &Tetreault, M.S., 1990, The Service Encounter:
Diagnosing Favorable and Unfavorable incidents, Journal of Marketing,
Vol. 54 no1, pp. 71-85
5. Boshof, C.R., 1999, RECOVSAT: An Instrument to Measure Satisfaction With
Transaction-Specific Service Recovery, Journal of Service Research, Vol.
1, pp. 236-249.
6. Etzel M.J. and Silverman B.I. (1981) "A Managerial Perspective on Directions for
Retail Customer Dissatisfaction Research", Journal of Retailing, Vol 57 No Fall,
pp. 124-136
7. Groonroos, C., 2000, Service Management and Marketing, A Customer
Relationship Hayes & Dredges.1998.
8. Hart C.W.L., Heskett J.L. and Sasser W.E.J. (1990) "The Profitable Art of Service
Recovery", Harvard Business Review, Vol 68 No July-August, pp. 148-156
9. Hoffman, K.D & Bateson, J.E .G., 1997, Essentiasl of Services marketing,
Dryden Press, New York.
10. Lovelock, C.,Wirtz J, & Keh, H.T., 2002, Services Marketing in Asia, Managing
People, Technology and Strategy, Prentice Hall International
Incorporation, Singapore, pp 231.
11. Maxham J.G.I. (2001) "Service Recovery's Influence on Consumer Satisfaction,
Word-of- Mouth, and Purchase Intentions", Journal of Business Research, Vol 54
No October, pp. 11-24
12. McCollough, M. A. 1995. The Recovery Paradox: A Conceptual Model and Empirical
Investigation of Customer Satisfaction and Service Quality Attitudes After Service Failure
and Recovery (Dissertation): Texas A&M.

13. Singh J. (1990) "Voice, Exit and Negative Word-of-Mouth Behaviors: An

-13-

Service Recovery
Investigation Across Three Service Categories", Journal of the Academy of
Marketing Science, Vol 18 No 1, pp. 1-15
14. Spreng, R.A., Harrell, G.D., & Mackoy, R.D. (1995). Service
recovery: Impact on
satisfaction and intentions. Journal of Services Marketing, 9(1), 15-23.
15. Sparks, B.A. & McKoll-Kennedy, J., 2001, Justice Strategy Options
for Increased Customer Satisfaction in a Service Recovery
Setting, Journal of Business Research, Vol. 54, no 3, pp. 209-218.
16. Zeithaml, V.A., & Bitner, M.J., 2003, Services Marketing, Integrating Customer
Focus Across The Firm, International Edition, Mcgraw Hill, New York.

-14-