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Customer Feedback and

Service Recovery

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 1
American Customer Satisfaction Index:
Selected Industry Scores, 2002
Score 100
(Max = 100)
90 85
79 80 79
80 74 76
71 71 70
70 66 65 62
60
50
40
30
20
10

% Change 0 3.7% 1.3% 0.0% 1.3% 2.8% 0.0% 0.0% 8.2% 2.9% -2.6% 4.8% 3.3%
2002 vs 2001
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Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 2
Key Questions for Managers to Ask about
Customer Complaining Behavior

 Why do customers complain?


 What proportion of unhappy customers complain?
 Why don’t unhappy customers complain?
 Who is most likely to complain?
 Where do customers complain?

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 3
Customer Response categories to service failures

Complain
Complainto tothe
the
service firm
service firm
Take
Takesome
someform Complain
form Complainto toaa
of public action third
of public action thirdparty
party
Take
Takelegal
legalaction
action
Service Take
Takesome
someform
ServiceEncounter
Encounter of private
form
action
to seek redress
to seek redress
isisDissatisfactory
Dissatisfactory of private action
Defect
Defect(switch
(switch
provider)
provider)
Take
Takeno
noaction
action
Negative
Negativeword-of-
word-of-
mouth
mouth

Any
Anyone
oneororaacombination
combinationof
of
these responses is possible
these responses is possible

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 4
Understanding customer responses to service
failures
• To be able to deal effectively with dissatisfied & complaining customers,
managers need to understand key aspects of complaining behavior, starting
with several questions:

1.Why do customers complain?


a.Obtain restitution or compensation: Often consumers complain to recover
some economic loss by seeking a refund, compensation, &/or have the
service performed again.

b.Vent their anger: Some customers complain to rebuild self-esteem &/or to


vent their anger & frustration. When service processes are bureaucratic &
unreasonable or when employees are rude, deliberately intimidating, or
apparently uncaring, the customers’ self-esteem, self-worth, or the sense of
fairness can be negatively affected. They may become angry & emotional.

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 5
Cont……………..

c. Help to improve the service: When customers are highly involved with a
service, they give feedback to try & contribute toward service improvements.
These customers are motivated by the prospect of getting better service in
the future.

d. For altruistic reasons: These customers want to spare other customers


from experiencing the same problems, & they might feel bad if a problem is
not highlighted.

2. What proportion of unhappy customers complain?

• Research shows that an average, only 5-10% of customers who have


been unhappy with a service actually complain.

• However, although generally only a minority of dissatisfied customers


complain, there is evidence that consumers across the world are becoming
better informed, more self- confident, & more assertive about seeking
satisfactory outcomes for their complaints.
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 6
Cont…………..

3. Why don’t unhappy customers complain?

• TARP, a customer satisfaction & measurement firm, has identified a


number of reasons why customers don’t complain.

• Some don’t wish to take the time to write a letter, fill out a form, or make a
phone call, especially if they don’t see the service sufficiently important to
merit the effort.

• Many customers see the payoff as uncertain & believe that no one would
be concerned about their problem or willing to resolve it.

• In some situations, people simply do not know where to go or what to do


• Additionally, many people may feel that complaining is unpleasant.

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 7
Cont……………

4. Who is most likely to complain?

• Research findings consistently show that people in higher socioeconomic


levels are more likely to complain than those in lower levels.

• There better education, higher income, & greater social involvement give
them the confidence, knowledge & motivation to speak up when they
encounter problems.

5. Where do customers complain?

• Studies show that majority of complaints are made at the place where the
service was received.

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 8
Customer expectations about their complaints

• When a service failure occurs, people expect to be adequately


compensated in a fair manner.

• However, recent studies have shown that many customers feel that they
were not treated fairly & did not receive adequate justice. When this
happens, customer reactions tend to be immediate, emotional & enduring.

• It was found in a research, that as much as 85% of the variation in the


satisfaction with a service recovery was determined by the 3 dimensions of
fairness:

1. Procedural justice: It deals with the policies & rules that any customer
will have to go through in order to seek fairness. Here, customers expect the
firm to assume responsibility, which is the key to the start of a fair procedure,
followed by a convenient & responsive recovery process.

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 9
Cont…………..

2. Interactional justice:

• It involves the firm’s employees who provide the service recovery & their
behavior towards the customer.

• Giving an explanation for the failure & making an effort to resolve the
problem are very important.

• However, the recovery effort must be perceived as genuine, honest &


polite.

3. Outcome justice:

• It pertains to the compensation that a customer receives as a result of the


losses & inconvenience incurred because of the service failure.

• It includes compensation for time, effort, spent during service process


recovery.
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 10
Dimensions of Perceived Fairness in Service
Recovery Process

Complaint
ComplaintHandling
Handling&&Service
Service
Recovery Process
Recovery Process

Justice Dimensions of the Service Recovery Process

Procedural
Procedural Interactive
Interactive Outcome
Outcome
Justice
Justice Justice
Justice Justice
Justice

Customer
CustomerSatisfaction
Satisfactionwith
withthe
the
Service
ServiceRecovery
Recovery
Source: Tax and Brown

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 11
Customer responses to effective service recovery

• Service recovery is an umbrella term for systematic efforts by a firm to


correct a problem following a service failure & retain a customer’s goodwill.

• Service recovery efforts play a crucial role in achieving customer


satisfaction.

• The true test of a firm’s commitment to satisfaction & service quality is not
in the advertising promises but in the way it responds when things go wrong
for the customer.

• Effective service recovery requires thoughtful procedures for resolving


problems & handling dissatisfied customers.

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 12
Impact of Effective Service Recovery
on Retention

No
Problem
84%

Problem,
but effectively 92%
resolved

Problem
46%
Unresolved

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Customer Retention
Source: IBM-Rochester study

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 13
Principles of effective service recovery systems

1. Make it easy for customers to give feedback:

• Many companies have improved their complaint- collection procedures by


adding special toll-free phone lines, links on the Web sites, prominently
displayed customer comment cards in their branches.

• In the customer newsletter, some companies feature service


improvements that were the direct result of customer feedback under the
motto “ you told us, & we responded”

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 14
Strategies to Reduce Customer Complaint
Barriers
Complaint Barriers for Strategies to Reduce These Barriers
Dissatisfied Customers
Inconvenience Make feedback easy and convenient by:
 Difficult to find the right complaint  Printing Customer Service Hotline numbers,
procedure. e-mail and postal addresses on all
 Effort, e.g., writing a letter. customer communications materials.
Doubtful Pay Off Reassure customers that their feedback will be
 Uncertain whether any action, and taken seriously and will pay off by:
what action will be taken by the  Having service recovery procedures in
firm to address the issue the place, and communicating this to
customer is unhappy with. customers.
 Featuring service improvements that
resulted from customer feedback.
Unpleasantness Make providing feedback a positive
 Complaining customers fear that experience:
they may be treated rudely,  Thank customers for their feedback.
 may have to hassle, or  Train the frontline not to hassle and make
 may feel embarrassed to complain. customers feel comfortable.
 Allow for anonymous feedback.

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 15
Cont…………..

2. Enable effective service recovery:

• Recovering from service failures take more than pious expressions of


determination to resolve any problems that may occur.

• It requires commitment, planning & clear guidance.


• Specifically, effective service recovery procedure should be:
a.Proactive: Service recovery needs to be initiated on the spot, ideally
before customers have a chance to complain. Service personnel should be
sensitized to signs of dissatisfaction & ask whether customers might be
experiencing a problem.

b.Planned: Contingency plans have to be developed for service failures,


especially for those that can occur regularly.

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 16
Cont…………….

c. Recovery skills must be taught: Customers easily feel insecure at the


point of service failure because things are not turning out as anticipated.
Effective training arms frontline staff with the confidence & competence to
turn distress into delight.

d. Recovery requires empowered employees: Service recovery efforts


should be flexible & employees should be empowered to use their judgment
& communication skills to develop solutions that will satisfy complaining
customers. Employees need to have the authority to make decisions &
spend money in order to resolve service problems promptly & recover
customer goodwill.

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 17
Cont……………

3. How generous should compensation be?

• How much compensation should a firm offer when there has been a
service failure? Or would an apology be sufficient instead?

• The following rules of thumb can help to answer these questions:


a.What is the firm’s market positioning?
b.How severe was the service failure?
c.Who is the affected customer?
•Overly generous compensation is not only expensive but may be negatively
interpreted by customers.

•It may raise questions about the soundness of the business & lead
customers to become suspicious.
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 18
Cont……………….

4. Dealing with complaining customers;

• Both managers & frontline employees must be prepared to deal with angry
customers who are confrontational & sometimes behave in insulting ways
toward service personnel.

• The following guidelines provide specific guidelines for effective problem


resolution, designed to calm upset customers & deliver a resolution.

 Act quickly
 Admit mistakes, but don’t be defensive
 Show that you understand the problem from each customer’s point of
view

 Don’t argue with customers


Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 19
Cont……………..

 Acknowledge the customer’s feelings


 Give customers the benefit of the doubt
 Clarify the steps needed to solve the problem
 Keep customers informed of progress
 Consider compensation
 Persevere to regain customer goodwill

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 20
Components of an Effective Service Recovery
System

Do
Dothe
theJob
JobRight
First
Rightthe
Time
First Time
the
+
Effective
EffectiveComplaint
Complaint
Handling
Handling = Increased
IncreasedSatisfaction
and
Satisfaction
Loyalty
and Loyalty

Conduct
 ConductResearch
Research
Identify
IdentifyService
Service Monitor
 MonitorComplaints
Complaints
Complaints
Complaints Develop
 Develop“Complaints
“Complaints
as Opportunity”
as Opportunity”
Culture
Culture

Resolve
ResolveComplaints
Complaints
Effectively Develop
 DevelopEffective
Effective
Effectively System
System andTraining
and Trainingin
in
Complaints Handling
Complaints Handling

Learn
Learnfrom
fromthe
the Conduct
 ConductRoot
RootCause
Cause
Recovery Experience
Recovery Experience Analysis
Analysis

Close the Loop via Feedback

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 21
Service Guarantees

 A growing number of companies offer customers a satisfaction guarantee,


promising that if service delivery fails to meet predefined standards, the
customer is entitled to one or more forms of compensation, such as easy-to-
claim replacement, refund or credit.

 From the customer’s perspective, the primary function of service guarantees


is to lower the perceived risks associated with purchase.

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 22
The power of service guarantees

• Guarantees are powerful tools for both promoting & achieving service quality
for the following reasons:

1.Guarantees force firms to focus on what their customers want & expect in
each element of the service.

2.Guarantees set clear standards, telling customers & employees alike what
the company stands for.

3.Guarantees require the development of systems for generating meaningful


customer feedback & acting on it.

4.Guarantees force service organization to understand why they fail &


encourage them to identify & overcome potential fail points.

5.Guarantees help in reducing the risk of the purchase decision & building
long-term loyalty.

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 23
How to design service guarantees

•Some guarantees are simple & unconditional. Others appear to have been
written by lawyers & contain many restrictions.

• Service guarantees should be designed to meet the following criteria:


1.Unconditional
2.Easy to understand & communicate
3.Meaningful to customers
4.Easy to invoke
5.Easy to collect
6.Credible

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 24
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 – like the full-satisfaction, adding
explicit minimum performance standards on important
attributes

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 25
Is it always appropriate to introduce a service
guarantee?
• Managers should think carefully about their firm’s strength & weaknesses
before deciding to introduce a service guarantee.

• Companies that have a strong reputation for high-quality service may not
need a guarantee.

• In contrast, a firm whose service is currently poor must first work to improve
quality to level above that at which the guarantee might be invoked on a regular
basis by most of its customers.

• In a market where consumers se little financial, personal or physiological risk


associated with purchasing & using a service, a guarantee adds little value but
still costs money to design, implement & manage.

• Where little perceived difference in service quality among competing firms


exists, the first company to institute a guarantee may be able to obtain a first-
mover advantage & create a valued differentiation for its services.

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 26
Key objectives of effective customer feedback
systems
• Many strategists have concluded that in increasingly competitive markets, the
ultimate competitive advantage for a firm is to learn & change more rapidly than
competition.

• Specific objectives of effective customer feedback systems typically fall into


three main categories:

1.Assessment & benchmarking of service quality & performance:


•The objective is to answer the question, How satisfied are the customers?
•This objective includes learning about how well a firm performed in
comparison to its main competitors?

•How it performed in comparison to the previous year?

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 27
Cont………………..

• Whether investments in certain service aspects have paid off in terms of


customer satisfaction?

• Often, a key objective of comparison against other units (branches, teams,


competitors) is to motivate managers & service staff to improve
performance, especially when the results are linked to compensation.

2. Customer-driven learning & improvements: The objective is to answer:

• Why our customers are unhappy?


• Where & how can we improve?
• This objective is about gaining an understanding of the things that other
suppliers do well & those that make customers happy.

3. Creating a customer-oriented service culture


Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 28
Customer feedback collection tools

• Recognizing that different tools have different strengths & weaknesses,


service marketers should select a mix of customer feedback collection tools
that jointly deliver the needed information.

1.Total market surveys, annual surveys & transactional surveys:


•Total market surveys & annual surveys measure satisfaction with all major
customer service processes & products.

•The level of measurement is usually at high level, with the objective of


obtaining a global index or indicator of overall service satisfaction for the
entire firm.

•Overall indices tell how satisfied customers are but not why they are happy
or unhappy.

•There is a limit to the number of questions that can be asked about each
individual process or product.
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 29
Cont……………

• In contrast, transactional surveys are typically conducted after customers


have completed a specific transaction & query them about this process in
some depth.

• All three types are representative & reliable when designed properly.
Representativeness & reliability are required for:

1.Accurate assessment of where the company, a process, branch or


individual stands relative to quality goals.

2.Evaluation of individuals, staff, teams, branches &/or processes especially


when incentive schemes are linked to such measures.

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 30
Cont……………

2. Service feedback cards:

• This powerful & inexpensive tool involves giving customers a feedback


card following completion of each major service process & inviting them to
return it by mail or other means to central customer feedback unit.

• Although these cards are good indicator of process quality & yield specific
feedback on what works well & what doesn’t, the respondents tend not to be
representative & are biased.

3. Mystery shopping

4. Focus group discussions & service reviews

5.Unsolicited customer feedback: E.g. Singapore Airlines prints


complaints & compliment letters in its monthly employee magazine, Outlook.

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 31
Strengths and Weakness of Key Customer Feedback
Collection Tools

Multi-level Measurement Represen Potential First


Action- Cost
Collection Tools -tative, for Service Hand
Service Process Specific able Effective
Satisfaction Satisfaction Feedback Reliable Recovery Learning

Total Market Survey (inclu.


competitors)
Annual Survey on overall
satisfaction
Transactional Survey
(process specific)
Service Feedback Cards
(process specific)
Mystery Shopping
(service testers)
Unsolicited Feedback Recd
(Online feedback system)

Focus Group Discussions

Service Reviews

Meets Requirements: Fully Moderate Little/Not at all

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 32
Entry Points for Unsolicited Feedback

 Employees serving customers face-to-face or by phone


 Intermediaries acting for original supplier
 Managers contacted by customers at head/regional office
 Complaint cards mailed or placed in special box
 Complaints passed to company by third-party recipients
 consumer advocates
 trade organizations
 legislative agencies
 other customers

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 33
Analysis, reporting & dissemination of customer
feedback
• Choosing the relevant feedback tools & collecting customer feedback is
meaningless if company is unable to disseminate the information to the
relevant parties to take action.

• Hence, to drive continuous improvement & learning, a reporting system


needs to deliver feedback & analysis to frontline staff, process owners, branch
or department managers & top management.

• The feedback loop to the frontline should be immediate for complaints &
complements as is practiced in a number of service businesses where
complaints, compliments & suggestions are discussed with the staff.

• There are 3 types of service performance reports to provide information


necessary for service management :

1. A monthly Service Performance update provides process owners with


timely feedback on customer comments. Here the feedback is provided to the
process manager who can discuss it with service staff.
Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 34
Cont…………….

2. A quarterly service performance review provides process owners &


branch or department managers with trends in process performance &
service quality.

3. An annual service performance report gives top management a


representative assessment of the status & long-term trends relating to
customer satisfaction with the firm’s services.

• The reports should be short & reader friendly, focusing on key indicators.

Slide ©2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 13 - 35

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