Chapter 13:

Achieving Service
Recovery and Obtaining
Customer Feedback
Overview of Chapter 13
Customer Complaining Behavior
Customer Responses to Effective Service Recovery
Principles of Effective Service Recovery Systems
Service Guarantees
Discouraging Abuse and Opportunistic Behavior
Learning from Customer Feedback
Customer Complaining Behavior
Customer Response Categories to
Service Failures
Service Encounter is
Dissatisfactory
Take some form
of Public Action
Take some form
of Private Action
Take No Action
Complain to the
service firm
Complain to a third
party
Take legal action to
seek redress
Defect (switch
provider)
Negative word-of-
mouth
Any one or a combination of
these responses is possible
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?

Customers Often View Complaining as
Difficult and Unpleasant
Three Dimensions of Perceived Fairness in
Service Recovery Process
Procedural
Justice
Interactive
Justice
Outcome
Justice
Complaint Handling and Service
Recovery Process
Justice Dimensions of the Service Recovery Process
Customer Satisfaction with
Service Recovery
Customer Responses to Effective Service
Recovery
How Complaint Resolution Affects
Customer Retention Rates
9%
37%
19%
46%
54%
70%
82%
95%
0
10
20
30
40
50
60
70
80
90
100
Customer did not
complain
Complaint was
not resolved
Complaint
was resolved
Complaint was
resolved quickly
Problem cost > $100
Problem cost $1$5
Percent of Unhappy
Customers Retained
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
The Service Recovery Paradox
(inconsistent)
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
Principles of Effective Service Recovery
Systems
Components of an Effective
Service Recovery System
Do the job right the
first time
Effective Complaint
Handling
Identify Service
Complaints
Resolve Complaints
Effectively
Learn from the
Recovery Experience
Increased Satisfaction
and Loyalty
Conduct research
Monitor complaints
Develop Complaints as
opportunity culture

Develop effective system
and training in complaints
handling
Conduct root cause analysis
= +
Close the loop via feedback
Strategies to Reduce Customer
Complaint Barriers
Complaint Barriers for
Dissatisfied Customers
Strategies to Reduce These Barriers
Inconvenience
Hard to find right complaint
procedure
Effort involved in complaining
Put customer service hotline numbers,
e-mail and postal addresses on all
customer communications materials
Doubtful Pay Off
Uncertain if action will be taken by
firm to address problem
Have service recovery procedures in
place, communicate this to customers
Feature service improvements that
resulted from customer feedback
Unpleasantness
Fear of being treated rudely
Hassle, embarrassment
Thank customers for their feedback
Train frontline employees
Allow for anonymous feedback
How to Enable
Effective Service Recovery
Be proactiveon the spot, before customers complain
Plan recovery procedures
Teach recovery skills to relevant personnel
Empower personnel to use judgment and skills to develop
recovery solutions
See Service Perspectives 13.2: Guidelines For Effective
Problem Resolution
How Generous (liberal)
Should Compensation Be?
Rules of thumb for managers to consider:
What is positioning of our firm?
How severe was the service failure?
Who is the affected customer?
Service Guarantees
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
How to Design Service Guarantees
Unconditional
Easy to understand and communicate
Meaningful to the customer
Easy to invoke (call upon)
Easy to collect
Credible
Types of Service Guarantees

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
The Hampton Inn
100% Satisfaction Guarantee
What are benefits of such a
guarantee?
Are there any downsides?
Discouraging Abuse and Opportunistic
Behavior
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
Learning from Customer Feedback
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

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
Key Customer Feedback Collection Tools:
Strengths and Weakness
COLLECTION TOOLS FIRM PROCESS
TRANSACTION
SPECIFIC
ACTIONABLE
REPRESENTATIVE RELIABLE
POTENTIAL
FOR
SERVICE
RECOVERY
FIRST
HAND
LEARNING
COST
EFFECTIVENESS
LEVEL OF MEASUREMENT
TOTAL MARKET SURVEY (INCLU.
COMPETITORS)
ANNUAL SURVEY ON OVERALL
SATISFACTION
TRANSACTIONAL SURVEY
SERVICE FEEDBACK CARDS
MYSTERY SHOPPING
UNSOLICITED FEEDBACK (e.g.,
COMPLAINTS)
FOCUS GROUP DISCUSSIONS
SERVICE REVIEWS
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
Summary of Chapter 13: Service
Recovery and Customer Feedback (1)
When customers are dissatisfied, they can
Take some form of public action
Take some form of private action
Take no action
To understand customer responses to service failures, some questions to
ask are:
Why do customers complain?
What proportion of unhappy customers complain?
Why dont unhappy customer complain?
Who is most likely to complain?
Where do customers complain?
What do customers expect once they have made a complaint?
Summary of Chapter 13: Service
Recovery and Customer Feedback (2)
Effective service recovery can lead to customer loyalty
The service recovery paradox does not always hold truebetter
to get it right the first time
Components of an effective recovery system include:
Doing it right the first time
Effective complaint handling
Identifying service complaints
Resolving complaints effectively
Learning from the recovery experience


Summary of Chapter 13: Service
Recovery and Customer Feedback (3)
Guiding principles for effective service recovery include:
Make it easy for customers to give feedback
Enable effective service recovery
Focusing on how generous compensation should be
Dealing with complaining customer

Issues to consider in having services guarantees are:
Power of service guarantees
How to design service guarantees
Is full satisfaction the best a firm can guarantee?
Is it always appropriate to introduce a service guarantee?

To discourage abuse and opportunistic behavior, we need to deal with
customer fraud
Summary of Chapter 13: Service
Recovery and Customer Feedback (4)

We can learn from customer feedbackkey objectives:
Assessment and benchmarking of service quality and performance
Customer-driven learning and improvements
Creating a customer-oriented service culture

A mix of customer feedback collection tools can help to deliver needed
information to firms
Total market surveys, annual survey, and transactional surveys
Service feedback cards
Mystery shopping
Unsolicited customer feedback
Focus group discussions and service reviews
Capture unsolicited feedback

Feedback must be analyzed, reported, disseminated, and used