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 Smith’s 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 didn’t 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 Contents1.0 Introduction:.......................................................................................................................................7

1.1 Introduction of the report:................................................................................................................7

1.2 Objectives of the report:....................................................................................................................8

1.3 Methodology:......................................................................................................................................8

1.3.1 Sources of data:...............................................................................................................................9

1.3.2. Collection procedure of data:.....................................................................................................10

1.3.3. Data Gathering Method:..............................................................................................................10

1.3.4 Data Collection:.............................................................................................................................10

1.3.5 Coding, Tabulation and Analysis Procedure:.............................................................................10

1.4 Limitations:.......................................................................................................................................11

1.5 Time Line:.........................................................................................................................................11

2.0 Literature Review:...........................................................................................................................11

3.0 The Impact of Service Failure & Recovery:..........................................................................................12

Classic customer service failure: serving cold....................................................................................13

4.0 Service Recovery..................................................................................................................................14

4.1 Why is Service Recovery Important?...................................................................................................15

4.2 How Does Service Recovery Work?.....................................................................................................15

5.0 The Recovery Paradox.........................................................................................................................16

6.0 How Customers Respond to Service Failures:......................................................................................18

Types of Complainers:...............................................................................................................................18

6.1 Emotions and Complaining Behavior Following Service Failure:.........................................................19

6.2 Propositions of Behavioral Response to Service Failure......................................................................20

6.3 Behavior Appraisals.............................................................................................................................20

Driven by Emotions or Cognition...............................................................................................................21

6.4 Types of Customer Complaint Actions:................................................................................................21

A Suggested Customer Complaint Procedure............................................................................................21

7.0 Customers’ Recovery Expectations:.....................................................................................................22

7.1 Service Recovery Strategies:................................................................................................................22

Anticipate the needs for recovery.............................................................................................................23

Build an organization that is fast in decision making, and fast to response..............................................23

Empower front-line employees.................................................................................................................24

Train employees........................................................................................................................................24

8.0 Service Guarantees..............................................................................................................................26

8.1 Benefits of Service Guarantees:...........................................................................................................26

8.2 Designing Service Guarantee...............................................................................................................27

8.3 Types of Service Guarantees:..............................................................................................................28

8.4 Managerial implications......................................................................................................................29

8.5 Considerations in the introduction of service guarantees:..................................................................29

9.0 Conclusion...........................................................................................................................................30

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. That’s 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 product’s 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

individual’s 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 individual’s

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 customer’s

server fails to offer a sufficient apology and brings back a reheated meal after a 20-minute wait, a first-

time 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 doesn’t 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 o’clock 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 they’d 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 didn’t 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 customer’s 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

There’s 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 customer’s 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 company’s 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 person’s 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 customer’s 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.

Let’s 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 doesn’t matter whether the customer didn’t understand certain

aspects that are obvious from an organization’s 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 customer’s 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 don’t 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. Let’s 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 customer’s

confidence a company’s 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 GuaranteesA 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

easy-to-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 GuaranteeWhile 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 customer’s 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 Marriott’s 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' End’s 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, we’ve 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 industry’s common practice is the only way to

generate an impact.

9.0 ConclusionToday, 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.