Chapter 13:

Achieving Service Recovery and Obtaining Customer Feedback

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 13 - 1

Overview of Chapter 13 1. Customer Complaining Behavior 2. Customer Responses to Effective Service Recovery 3. Principles of Effective Service Recovery Systems* 4. Service Guarantees 5. Discouraging Abuse and Opportunistic Behavior 6. Learning from Customer Feedback
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 2

1. Customer Complaining Behavior

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 13 - 3

American Customer Satisfaction Index: Selected Industry Scores, 2006

Score
(Max = 100)

100 90 80 70 60 50 40 30 20 10

83

83

81

75

75

75

77 65

74

77 69

% Change 0 -3.5% 2.5% 2.5% -7.4% 1.4% 0.0% -1.3% -9.7% -4.1% 11.6% -10.4% 2006 vs. 2005

Industry:
Source: www.theacsi.org, Accessed 9.11.2006 Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 4

Customer Response Categories to Service Failures (Fig 13.1)

Complain to the service firm Take some form of Public Action Complain to a third party Take legal action to seek redress Defect (switch provider) Negative word-ofmouth

Service Encounter is Dissatisfactory

Take some form of Private Action

Take No Action

Any one or a combination of these responses is possible

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 5

Understanding Customer Responses to Service Failure

Why do customers complain?

What proportion of unhappy customers complain?

Why dont unhappy customers complain?*

Who is most likely to complain?

Where do customers complain?*

What do customers expect once they have made a complaint? (Figure 13.3)

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 13 - 6

Customers Often View Complaining as Difficult and Unpleasant (Fig 13.2)

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 13 - 7

Three Dimensions of Perceived Fairness in Service Recovery Process (Fig 13.3)

Complaint Handling and Service Recovery Process
Justice Dimensions of the Service Recovery Process Procedural Justice Interactive Justice Outcome Justice

Customer Satisfaction with

Service Recovery
Source: Tax and Brown Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 8

2. Customer Responses to Effective Service Recovery

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 13 - 9

Importance of Service Recovery Plays a crucial role in achieving customer satisfaction Tests a firms commitment to satisfaction and service quality Employee training and motivation is highly important Impacts customer loyalty and future profitability Complaint handling should be seen as a profit center, not a cost center
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 10

How Complaint Resolution Affects Customer Retention Rates

Percent of Unhappy Customers Retained

100 90 80 70 60 50 40 30 20 10 0

95% 82% 70% 54% 46% 37% 19% 9%

Customer did not complain Complaint was not resolved Complaint was resolved
Problem cost $1$5

Complaint was resolved quickly

Problem cost > $100

Source: Claes Fornell, Birger Wernerfelt, A Model for Customer Complaint Management, Marketing Science, Vol. 7, No. 3 (Summer, 1988), pp. 287298 Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 11

The Service Recovery Paradox

Customers who experience a service failure that is satisfactorily resolved may be more likely to make future purchases than customers without problems (Note: not all research supports this paradox) If second service failure occurs, the paradox disappears customers expectations have been raised and they become disillusioned Severity and recoverability of failure (e.g., spoiled wedding photos) may limit firms ability to delight customer with recovery efforts Best strategy: Do it right the first time
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 12

3. Principles of Effective Service Recovery Systems

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 13 - 13

Components of an Effective Service Recovery System (Fig 13.4)

Do the job right the first time Effective Complaint Handling Increased Satisfaction and Loyalty

Conduct research
Identify Service Complaints Monitor complaints Develop Complaints as opportunity culture Develop effective system and training in complaints handling Conduct root cause analysis

Resolve Complaints Effectively

Learn from the Recovery Experience

Close the loop via feedback

Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 14

Strategies to Reduce Customer Complaint Barriers (Table 13.1)

Complaint Barriers for Dissatisfied Customers
Inconvenience Hard to find right complaint procedure Effort involved in complaining Doubtful Pay Off Uncertain if action will be taken by firm to address problem Unpleasantness Fear of being treated rudely

Strategies to Reduce These Barriers

Put customer service hotline numbers, e-mail and postal addresses on all customer communications materials Have service recovery procedures in place, communicate this to customers Feature service improvements that resulted from customer feedback Thank customers for their feedback Train frontline employees

Hassle, embarrassment
Slide 2007 by Christopher Lovelock and Jochen Wirtz

Allow for anonymous feedback

Services Marketing 6/E Chapter 13 - 15

How to Enable Effective Service Recovery Be proactiveon the spot, before customers complain (ex: Ritz Carlton) Plan recovery procedures Teach recovery skills to relevant personnel Empower personnel to use judgment and skills to develop recovery solutions

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 13 - 16

4. Service Guarantees

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 13 - 17

Service Guarantees Help Promote and Achieve Service Loyalty Force firms to focus on what customers want Set clear standards Highlight cost of service failures Require systems to get and act on customer feedback Reduce risks of purchase and build loyalty
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 18

The Hampton Inn 100% Satisfaction Guarantee

(Fig 13.5)

What are benefits of such a guarantee?

Are there any downsides?

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 13 - 19

Types of Service Guarantees

Table 13.2

Single attribute-specific guarantee

One key service attribute is covered

Multiattribute-specific guarantee
A few important service attributes are covered

Full-satisfaction guarantee
All service aspects covered with no exceptions

Combined guarantee
All service aspects are covered Explicit minimum performance standards on important attributes
Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 13 - 20

How to Design Service Guarantees

Unconditional Easy to understand and communicate Meaningful to the customer Easy to invoke Easy to collect

Credible

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 13 - 21

5. Discouraging Abuse and Opportunistic Behavior

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 13 - 22

Dealing with Customer Fraud

Treating all customers with suspicion is likely to alienate them
TARP found only 1 to 2 percent of customer base engages in premeditated fraudso why treat remaining 98 percent of honest customers as potential crooks?

Insights from research on guarantee cheating*

Amount of a guarantee payout had no effect on customer cheating Repeat-purchase intention reduced cheating intent Customers are reluctant to cheat if service quality is high (rather than just satisfactory)

Managerial implication
Firms can benefit from offering 100 percent money-back guarantees Guarantees should be offered to regular customers as part of membership program Excellent service firms have less to worry about than average providers

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 13 - 23

6. Learning from Customer Feedback

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 13 - 24

Key Objectives of Effective Customer Feedback Systems Assessment and benchmarking of service quality and performance Customer-driven learning and improvements Creating a customer-oriented service culture

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

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Customer Feedback Collection Tools

Total market surveys Post-transaction surveys Ongoing customer surveys Customer advisory panels

Employee surveys/panels
Focus groups Mystery shopping Complaint analysis Capture service operating data
Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 26

Key Customer Feedback Collection Tools: Strengths and Weakness (Table 13.3)
LEVEL OF MEASUREMENT POTENTIAL FOR SERVICE REPRESENTATIVE TRANSACTION ACTIONABLE RELIABLE RECOVERY SPECIFIC PROCESS FIRST

HAND
LEARNING

COST EFFECTIVENESS

COLLECTION TOOLS TOTAL MARKET SURVEY (INCLU. COMPETITORS) ANNUAL SURVEY ON OVERALL SATISFACTION

FIRM

TRANSACTIONAL SURVEY

SERVICE FEEDBACK CARDS MYSTERY SHOPPING UNSOLICITED FEEDBACK (e.g., COMPLAINTS) FOCUS GROUP DISCUSSIONS SERVICE REVIEWS Source: Adapted from Jochen Wirtz and Monica Tomlin, Institutionalizing Customer -Driven Learning Through Fully Integrated Customer Feedback Systems. Managing Service Quality,10, no.4 (2000): p. 210. Slide 2007 by Christopher Lovelock and Jochen Wirtz Services Marketing 6/E Chapter 13 - 27

Entry Points for Unsolicited Feedback

Frontline employees

Intermediaries acting for original supplier

Managers contacted by customers at head/regional office Complaint cards deposited in special box or mailed Telephone or e-mail Complaints passed to company by third-party recipients
Consumer advocates Trade organizations Legislative agencies

Slide 2007 by Christopher Lovelock and Jochen Wirtz

Services Marketing 6/E

Chapter 13 - 28