Chapter 8 Overheads

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Service failure and service recovery
Service failure a service performance that falls
below a customers expectations in such a way
that leads to customer dissatisfaction. Service
recovery actions taken by the organization in
response to a service failure
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Unhappy Customers Repurchase Intentions
Unhappy Customers Who Dont Complain
21
Unhappy Customers Who Do Complain
8
Complaints Not Resolved
43
Complaints Resolved satisfactory
Customers with no problem
51
No complaints
Percent of customers who will buy again
Source Adapted from data reported by the
Technical Assistance Research Program.
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Service recovery paradox
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Figure 8.3 Customer Complaint Actions Following
Service Failure
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Why do people complain or not?
DO Do not
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Type of complainers
Passive .. Voicer Irates
. Activist
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Recovery expectations

• Understanding and Accountability
• Fair treatment
• Outcome fairness
• Procedural fairness
• Interactional fairness

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Figure 8.4Causes Behind Service Switching
Pricing

• High price
• Price increases
• Unfair pricing
• Deceptive pricing

Response to Service Failure

• Negative response
• No response
• Reluctant response

Inconvenience
Competition

• Location/hours
• Wait for appointment
• Wait for service

Service Switching Behavior

• Found better service

Ethical Problems
Core Service Failure

• Cheat
• Hard sell
• Unsafe
• Conflict of interest

• Service mistakes
• Billing errors
• Service catastrophe

Service Encounter Failures
Involuntary Switching

• Uncaring
• Impolite
• Unresponsive
• Unknowledgeable

• Customer moved
• Provider closed

Source Sue Keaveney, Customer Switching
Behavior in Service Industries An Exploratory
Study, Journal of Marketing, April, 1995, pp.
71-82.
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Figure 8.5Service Recovery Strategies
Treat Customers Fairly
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Service Guarantees

• guarantee an assurance of the fulfillment of a
  condition (Websters Dictionary)
• in a business context, a guarantee is a pledge or
  assurance that a product offered by a firm will
  perform as promised and, if not, then some form
  of reparation will be undertaken by the firm
• for tangible products, a guarantee is often done
  in the form of a warranty
• services are often not guaranteed
• cannot return the service
• service experience is intangible
• (so what do you guarantee?)

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Figure 8.2The Hampton Inn 100 PercentSatisfactio
n Guarantee
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Exhibit 8.6Characteristics of an
EffectiveService Guarantee

• Unconditional
• the guarantee should make its promise
  unconditionally no strings attached
• Meaningful
• the firm should guarantee elements of the service
  that are important to the customer
• the payout should cover fully the customers
  dissatisfaction
• Easy to Understand and Communicate
• customers need to understand what to expect
• employees need to understand what to do
• Easy to Invoke and Collect
• the firm should eliminate hoops or red tape in
  the way of accessing or collecting on the
  guarantee

Source Christopher W.L. Hart, The Power of
Unconditional Guarantees, Harvard Business
Review, July-August, 1988, pp. 54-62.
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Benefits of Service Guarantees

• A good guarantee forces the company to focus on
  its customers.
• An effective guarantee sets clear standards for
  the organization.
• A good guarantee generates immediate and relevant
  feedback from customers.
• When the guarantee is invoked there is an instant
  opportunity to recover, thus satisfying the
  customer and helping retain loyalty.
• Information generated through the guarantee can
  be tracked and integrated into continuous
  improvement efforts.
• Employee morale and loyalty can be enhanced as a
  result of having a service guarantee in place.
• A service guarantee reduces customers sense of
  risk and builds confidence in the organization.

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Service Guarantees

• Does everyone need a guarantee?
• Reasons companies might NOT want to offer a
  service guarantee
• existing service quality is poor
• guarantee does not fit the companys image
• too many uncontrollable external variables
• fears of cheating or abuse by customers
• costs of the guarantee outweigh the benefits
• customers perceive little risk in the service
• customers perceive little variability in service
  quality among competitors

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Service Guarantees

• service guarantees work for companies who are
  already customer-focused
• effective guarantees can be BIG deals they put
  the company at risk in the eyes of the customer
• customers should be involved in the design of
  service guarantees
• the guarantee should be so stunning that it comes
  as a surprise a WOW!! factor
• its the icing on the cake, not the cake