Chapter 7

Service Recovery

PP Presentation by
Dr. Shaikh Rafiqul Islam
Ph.D(Malaysia), MBA(Australia), M.Com(DU)
Professor & Chairman
Department of Marketing
Jagannath University
Visiting Faculty NSU
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 Chapter

Service Recovery 7

 The Impact of Service Failure and Recovery

 How Customers Respond to Service Failures
 Service Recovery Strategies: Fixing the Customer

 Service Recovery Strategies: Fixing the Problem

 Service Guarantees
 Switching versus Staying Following Service Recovery

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Objectives for Chapter 7:
Service Recovery
 Illustrate the importance of recovery from service failures in keeping
customers and building loyalty.

 Discuss the nature of consumer complaints and why people do and do

not complain.

 Provide evidence of what customers expect and the kind of responses

they want when they do complain.

 Present strategies for effective service recovery, including ways to “fix

the customer” after a service failure and to “fix the problem.”

 Discuss service guarantees—what they are, the benefits of guarantees,

and when to use them—as a particular type of service recovery
strategy.
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 Opening Story: JetBlue and the Valentine’s
Day Ice Storm at JFK
 JetBlue Airways began flying daily in 2000 from New York City to
Fort Lauderdale, Florida, and Buffalo, New York,
 It promised fares that would be as much as 65 percent lower than
their competitors’.
 The low fares were an immediate hit with passengers, as they
found friendly, well dressed flight attendants who served animal
crackers, Oreo cookies, and blue potato chips on flights very
appealing.

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 Opening Story: JetBlue and the Valentine’s
Day Ice Storm at JFK
 Indeed, by early 2007 JetBlue had 9,300 employees and 125
jetliners, operating about 575 daily flights to 52 destinations in the
United States and the Caribbean.
 Customers had come to love the airline. It had won many awards
for its service and had regularly been ranked near the top of airline
satisfaction ratings by J.D. Power and Associates, among others.

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 Opening Story: JetBlue and the Valentine’s
Day Ice Storm at JFK

 JetBlue’s reputation for excellent service was

challenged on Valentine’s Day, February 14, 2007,
when a severe storm dumped two inches of ice at
New York’s JFK Airport.

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Opening Story: JetBlue and the Valentine’s
Day Ice Storm at JFK

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OPENING STORY: JETBLUE AND THE
VALENTINE’S DAY ICE STORM AT JFK
Why did JetBlue receive such attention when
airlines such as Delta and American had had similar
problems?
Customers had come to expect more from JetBlue
than from other airlines.
Reliability is Critical in Service but…

 In all service contexts, service failure is inevitable.

 Service failure occurs when service performance that

falls below a customer’s expectations in such a way
that leads to customer dissatisfaction.

 Service recovery refers to the actions taken by a firm in

response to service failure.

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 Reasons of Service Failure
 Service recovery refers to the actions taken by an Organization
in response to a service failure. Failure occurs for all kinds of
reasons:
1. The service may be unavailable when promised
2. It may be delivered late or too slowly
3. The outcome may be incorrect or poorly executed
4. Employees may be rude or uncaring

 All of these types of failures bring about negative feelings and

responses from customers. Research suggests that a very small
number (1–5 percent) complain to management or the
company headquarters.
 This phenomenon, commonly referred to as the “tip of the
iceberg”.
Figure 7.1: Complaining Customers:
The Tip of the Iceberg

FIGURE 7.1
Complaining
Customers: The
Tip of the
Iceberg

Source: Data from TARP Worldwide Inc., 2007

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The Impact of Service Failure & Recovery
An effective service recovery strategy has multiple
potential Positive impacts:
1. It can increase customer satisfaction and loyalty
2. Generate positive word of mouth
3. A well designed, well-documented service recovery
strategy also provides information that can be used to
improve service as part of a continuous improvement
effort.
4. Making adjustments learned from recovery
experiences, companies increase the likelihood of
“doing it right first time”.
5. This ultimately reduces costs of failures and increases
initial customer satisfaction.
 The Impact of Service Failure & Recovery
Negative impact of poor or no service recovery:
1. Customers who are dissatisfied with the recovery process
after making a complaint are far less likely to repurchase
than those who do not complain—suggesting the power of
poor service recovery.
2. Poor recovery following a bad service experience creates, in
effect, two poor experiences (often referred to as a “double
deviation”) and can lead to customers who are so
dissatisfied that they actively pursue opportunities to
openly criticize the company.
3. A bad service experience can make the customer
“terrorists”.
 The Impact of Service Failure & Recovery
Negative impact of poor or no service recovery:
4. When customers experience a service failure, they talk about
it to others, no matter what the outcome. Research has
found that customers who are satisfied with a firm’s
recovery efforts tell an average of nine people, whereas
those customers who are dissatisfied with the response tell
an average of 22 people.
5. Repeated service failure without an effective recovery
strategy in place can aggravate even the best employees.
The reduction in employee morale and even the loss of
employees.
6. This ultimately results in huge amount of costs.
Unhappy Customers’ Repurchase Intentions

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The Service Recovery Paradox

 Is a customer who has experienced a service

failure and exemplary service recovery more
likely to be more satisfied – impressed even –
with the service provider?

 Should a firm “screw up” just a little so that it

can “fix the problem” superbly?

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The Impact of Service Failure & Recovery
The Recovery Paradox

1. Some researchers have suggested that customers

who are dissatisfied, but experience a high level of
excellent service recovery, may ultimately be even
more satisfied and more likely to repurchase than are
those who were satisfied in the first place.
The Impact of Service Failure & Recovery
The Recovery Paradox

2. The logical, but not very rational, conclusion is that

companies should plan to disappoint customers so
they can recover and gain even greater loyalty from
them as a result. This idea has become known as
recovery paradox. This is more complex because:

a. It is expensive to fix mistakes

b. Research suggests that only the highest level of
service recovery results in increased customer
satisfaction and loyalty.
 The Recovery Paradox
What are the problems with such an approach?

 The possibility of a recovery exists only in situations in

which the firm is aware of a problem and is able to
recover well; if customers do not make the firm aware
of the failure—and most do not—dissatisfaction is
most likely to be the result.
 It is expensive to fix mistakes; re-creating or reworking
a service may be quite costly to a firm.
 It would appear somewhat foolish to encourage
service failures—after all, reliability (“doing it right the
first time”) is the most critical determinant of service
quality across most industries.
 The Recovery Paradox
What are the problems with such an approach?

 Research suggests that even if a customer’s

satisfaction with the firm increases as a result of the
great service recovery, repurchase intentions and
image perceptions of the firm do not increase—that is,
customers do not necessarily think more highly of the
firm in the long run.

 Although the recovery paradox suggests that a

customer may end up more satisfied after
experiencing excellent recovery, there is certainly no
guarantee that the customer actually will end up
more satisfied.
 The Recovery Paradox
It is context driven

 The recovery paradox is highly dependent on the

context and situation; although one customer may
find it easy to forgive a restaurant that provides him
with a gift certificate for a later date for having lost
his dinner reservation, another customer who had
planned to propose marriage to his date over dinner
may not be all that happy with the same recovery
scenario.
 The Recovery Paradox
Support for the recovery paradox

 The very highest levels of customers’ service recovery

ratings resulted in increased satisfaction and loyalty.
 Customers weigh their most recent experiences heavily
in their determination of whether to buy again.
 If the most recent experience is negative, overall
feelings about the company will decrease, and
repurchase intentions will diminish significantly.
The Service Recovery Paradox
Support for the recovery paradox
 The service recovery paradox is more likely to occur
when customer perceive:
 The failure is not severe
 The customer has not experienced prior failures with the firm
 The cause of the failure is viewed as unstable by The
customer
 The customer perceives that the company had little control
over the cause of the failure

 Conditions must be just right in order for the recovery

paradox to be present!

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 The Recovery Paradox
Doing it right the first time

 Given the mixed opinions on the extent to which the

recovery paradox exists, “doing it right the first time”
is still a firm’s best and safest strategy in the long run.
However, when a failure does occur, then every effort
at a superior recovery should be made to mitigate its
negative effects.
HOW CUSTOMERS RESPOND TO SERVICE FAILURES
Customer Complaint Actions Following Service Failure

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Why Do (And Don’t) People Complain?

 People taking action believe they will and should be:

 Provided compensation for the service failure in some
form.
 They believe that fair treatment and good service are their
due.
 In some cases they feel a social obligation to complain.
Why Do (And Don’t) People Complain?

 People who are unlikely to take any action have

opposite beliefs:
 They often see complaining as a waste of time, don’t
believe anything positive will occur.
 Sometimes they don’t know how to complain, may engage
in “emotion focused coping”. This type of coping involves
self-blame, denial etc.
 They may feel failure was somehow their fault and they
don’t deserve redress.
Why Do (And Don’t) People Complain?

 Personal relevance of failure can also influence

whether people complain. If service failure is not
important, don’t have critical consequences, don’t
have that much ego involvement- in these cases
people normally don’t complain. People normally
complain about services that are expensive, risky and
ego involving. e.g. vacation, medical service.
 Types of Customer Complaint Actions

 A dissatisfied customer can

choose to complain on the spot
to the service provider, giving the
company the opportunity to
respond immediately.
 Some customers choose not to
complain directly to the provider
but rather spread negative word
of mouth about the company to
friends, relatives and coworkers.
 Customers may choose to
complain to third parties like
CAB, Professional association,
private attorney etc.
 Consumer right protection ACT
2009
Types of Complainers

Research suggests that people can be grouped into four

categories based on how they respond to failures:
 Passives,
 Voicers,
 Irates, and
 Activists.

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Types of Complainers
Types of Complainers

 Passives: least likely to take any action, say anything to

the provider, spread negative WOM, or complain to a
third party; doubtful of the effectiveness of
complaining
 Voicers: actively complain to the provider, but not
likely to spread negative WOM; believe in the positive
consequences of complaining - the service provider’s
best friends!

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 Types of Complainers

 Irates: more likely to engage in negative

WOM to friends and relatives and to
switch providers; average in complaints
to provider; unlikely to complain to
third parties; more angry, less likely to
give provider a second chance.

 Activists: above average propensity to

complain on all levels; more likely to
complain to a third party; feel most
alienated from the marketplace
compared to other groups.
Activists
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Service Recovery Strategies

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Fixing the Customer

 When customers take the time to complain,

they generally have high expectations.
 They expect the company to respond quickly and to
be accountable.
 They expect to be compensated for their grief and
for the hassle of being inconvenienced.
 They expect to be treated nicely in the process!

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Respond quickly

 Complaining customers want quick responses.

Thus, when the company has service failures or
receives complaints from customers, it must be
prepared to act on them quickly.
 Research conducted on service customers has
found that more than one-third of all customers
who have problems resolved immediately or
within 24 hours are “completely satisfied” with
the action taken by the company.
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Respond quickly

 When customers take the time to complain,

they generally have high expectations.
 They expect the company to respond quickly and to
be accountable.
 They expect to be compensated for their grief and
for the hassle of being inconvenienced.
 They expect to be treated nicely in the process!

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Respond quickly

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Respond Quickly

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 Provide Appropriate Communication
 Display Understanding and Accountability
 Supply Adequate Explanations

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Provide Appropriate Communication

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

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Cultivate relationships with
customers
It may be easier to “fix the customer” if the firm has
established a strong relationship with that
customer; indeed, research suggests that strong
customer– firm relationships can help shield the
firm from the negative effects of failures on
customer satisfaction.
 Service Recovery Strategies
Fixing the Problem
 After “fixing the customer” the company
should address the actual problem that
created the poor service delivery in the
first place.
 If the problem is likely to recur for other
customers, then the service delivery
process may need to be fixed, too.
 Strategies for fixing the problem include
encouraging and tracking complaints,
learning from recovery experiences and
from lost customers, and making the
service fail-safe.
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Encourage and Track Complaints
A critical component of a service recovery strategy is thus to
encourage and track complaints.
•Customer research can be designed through satisfaction surveys.
•Use toll-free call centers and e-mail, social media to complain.
For example, Amazon uses artificial intelligence to identify key
words in online complaints and then suggests an appropriate
response to the complainer.
•Technology can anticipate problems and complaints before they
happen, allowing service employees to diagnose problems before
the customer recognizes they exist.
•For example, IBM, Caterpillar, “smart” systems have been
implemented to anticipate equipment failures and to send out an
electronic alert to the local field technician with the nature of the
problem as well as which parts and tools will be needed to make the
repair—a repair the customer does not yet know is needed.
Learn from Recovery Experiences
• Tracking service recovery efforts and solutions,
managers can often learn about systematic problems in
the delivery system that need fixing.
• Conducting root-cause analysis, firms can identify the
sources of the problems and modify processes,
sometimes almost eliminating the need for recovery.
Example-At RitzCarlton Hotels, all employees carry
service recovery forms called “instant action forms”
with them at all times, so that they can immediately
record service failures and suggest actions to address
them.
LEARN FROM LOST CUSTOMERS

•Learn from the customers who defect or decide to

leave.
•Formal marketing research to discover the reasons
customers have left can assist in preventing failures
in the future.
Make the Service Fail-Safe—Do It Right the
First Time!
 The first rule of service quality, and arguably the
best service recovery strategy, is to do it right
the first time.
 In this way recovery is unnecessary, customers
get what they expect, and the costs of redoing
the service and compensating for errors can be
avoided.
Service Guarantees

 A guarantee is a particular type of recovery tool that can be

used to both “fix the customer” and “fix the problem.”
 In a business context, a guarantee is a pledge or assurance that a
product offered by a firm will perform as promised and, if not,
then some form of reparation will be undertaken by the firm

 For tangible products, a guarantee is often done in the form of a

warranty

 Services are often not guaranteed

 Cannot return the service
 Service experience is intangible (so what do you guarantee?)

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Service Guarantees
Service Guarantees 3C
Characteristics of an Effective
Service Guarantee
 Unconditional
 The guarantee should make its promise unconditionally – no strings
attached
 Meaningful
 The firm should guarantee elements of the service that are important to
the customer
 The payout should cover fully the customer’s dissatisfaction
 Easy to Understand
 Customers need to understand what to expect
 Employees need to understand what to do
 Easy to Invoke
 The firm should eliminate hoops or red tape in the way of accessing or
collecting on the guarantee

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Causes Behind Service Switching

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