2 pages summary double space for each chapter. Total 2 chapters. PPTs included.
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HRT476Ch.6ServiceRecovery.ppt
SERVICE RECOVERY
HRT476
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Chapter 6 Discussion Points:
In order to build a sound long-term relationship, customer loyalty in other words, service providers must hand service failure/breakdown situations effectively and efficiently. How to recover service failures and customer complaints? That is the focal point of chapter 6.
- What is service recovery? You try to define it.
- Why is service recovery important? Because it affects customer loyalty and the bottom line, profits. We can explain it using the “Service Recovery Paradox”
- Then, how to recover service failures? What are the desirable recovery process? The “Justice Theory” is the best theoretical framework to explain the service recovery process. There are three dimensions in Justice theory: Distributive, Procedural & Interactional Justice
- What are the action plan for service recovery? I introduce “Effective Service Recovery Actions: Five-step approach”
Chapter 6 Service Recovery is the last chapter of HRT476.
Agenda
What is service recovery?
Why is it important? – “Service Recovery Paradox”
Service recovery process: “Justice Theory”
Distributive, Procedural & Interactional Justice
Effective Service Recovery Actions
Five-step approach
- What is service recovery? You try to define it.
- Why is service recovery important? Because it affects customer loyalty and the bottom line, profits. We can explain it using the “Service Recovery Paradox”
- Then, how to recover service failures? What are the desirable recovery process? The “Justice Theory” is the best theoretical framework to explain the service recovery process. There are three dimensions in Justice theory: Distributive, Procedural & Interactional Justice
- What are the action plan for service recovery? I introduce “Effective Service Recovery Actions: Five-step approach”
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Introduction
Building long-term relationship
Attracting a new customer costs more than keeping a present one (3-5 times more)
Customer loyalty => “Profits”
Zero Defection –
Intangibility, simultaneous production and consumption (Inseparability), and high human involvement (Inconsistency=variability)
Service failures are inevitable in the service industry & effective service recovery is critical to building long-term relationship (loyalty)
unrealistic goal
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Why build a long-term relationship? The answer is “Profits”
Then, how to achieve this? Perfect service (error-free service) should be our first goal. Do you remember the “Reliability” in the five dimensions of Service Quality? Delivering service as promised (Reliability), that is the Reliability and that is the most important factor attributing to customer satisfaction and customer loyalty. Unfortunately, however, perfect service or error-free service is impossible in the context of service industry because of high human involvement. Thus, more realistic goal should be “How to handle service failure situations to customer satisfaction?”
Service Recovery
What is it?
“Actions in response to service failures to recover satisfaction” (Gronroos, 1988)
“To return ‘aggrieved customers’ to a state of satisfaction” (Zemke & Bell, 1990).
“The process of dealing with a service failure situation with the aim of restoring the customer’s satisfaction” (Lee, 2008)
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What is service recovery?
There are many text-book definitions of service recovery available. The last one is my definition of service recovery.
It is “The process of dealing with a service failure situation with the aim of restoring the customer’s satisfaction.”
You also define it by yourself.
Why Important?
- Plays a crucial role in achieving customer satisfaction by testing a firm’s commitment to satisfaction and service quality
- Impacts customer loyalty and future profitability
25-85% increase in profit by reducing defection rate by 5% (Reicheld & Sasser, 1990)
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”
Why is it important? Again, it affects customer loyalty and loyal customers are kind of money in the checking-account.
Service Recovery Paradox best explains the importance of servicer recovery for building long-term relationship.
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Service Recovery Paradox
If second service failure occurs, the paradox disappears.
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.
But, if the second service failure occurs, the paradox disappears. That means customers are willing to give you a second chance. If you make same mistake again and again, they will stop patronizing.
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Service Recovery Process
“Customer recovery satisfaction is not only based on the ultimate outcome of the service recovery, but also on the procedures used to reach the outcome”
Three Dimensions of “Justice Theory”
Procedural Justice (PJ)
Interactional Justice (IJ)
Distributive Justice (DJ)
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How to recover service failure?
We have to use three dimensions of Justice Theory for success service recovery : Procedural Justice (PJ), Interactional Justice (IJ), & Distributive Justice (DJ).
Procedural Justice (PJ)
- Policies and rules that any customer has to go through to seek fairness
- “Fair Procedures”
- Customers expect service provider to assumes responsibility
- Implement a convenient and responsive recovery process
- Flexibility of the system and consideration of customer inputs into the recovery process
- Speed of handling problems and complaints
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First PJ: Read the information in the slide above.
Interactional Justice (IJ)
Involves employees who provide the service recovery and their behavior toward the customer
Giving an explanation for the failure and making an effort to resolve the problem are important
Recovery efforts must be perceived as genuine, honest, and polite
e.g., courtesy, politeness, concern, & empathy exhibited by personnel, efforts observed in resolving the situation, and the firm’s willingness to provide an explanation why the situation occurred
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Second IJ: Read the information in the slide above.
Distributive Justice (DJ)
“Outcome Justice”
Compensation a customer receives as a result of the losses and inconvenience incurred because of a service failure
e.g., free-food, coupon, discount, replace, upgrade etc.
High level of IJ may offset lower level of DJ
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Lastly DJ: Read the information in the slide above.
Providing financial compensation (DJ) can cost a lot to the service providers, resulting in negative profitability. In order not to spend too much for financial compensation, service providers must focus on IJ. Because High level of IJ may offset lower level of DJ.
Service Recovery Process
Actual outcome
(Discount, coupons,
free service,
free upgrade etc.)
Interpersonal behavior
(Explanation, courtesy,
politeness,
empathy etc.)
Fairness of policy or
procedure used
to deliver the outcome
(Quick action,
follow-up etc.)
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Summary of Justice Theory in graphic.
Service Failure - Marketing
- Service failure(s)/Guest complaint(s) should be welcomed as an opportunity to enhance guest relations
- Guest who do not have the opportunity to complain often tell others
- They do not complain to anybody and just simply do not return
- Service failures as opportunities (Marriott Case Study)
- 35% of guests with an unsolved problem will return
- 85% of guests without a problem will return
- 97% of guests with a problem solved to their satisfaction will return
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From the marketing perspective, service providers must consider service failure as an opportunity to build a long-term relationship. Marriott case study proves that 97% of guests with a problem solved to their satisfaction will come back to the hotel.
Repurchase Intention of
Dissatisfied Customers
46%
37%
82%
70%
19%
9%
Complaints
Resolved Quickly
Complaints
Resolved
Complaints
Not Resolved
Minor complaints
Unhappy Customers
Who Don’t Complain
Unhappy Customers Who Do Complain
54%
Percent of Customers Who return to hotel
Major complaints
95%
Another example showing service failure as an opportunity to b If customer complains are resolved quickly, 82% of customers with major complains and 95% of customers with minor complaints will come back.
Again, service failure = opportunity to build a long-term relationship.
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Effective Recovery System
How to ensure effective service recovery?
1. Do it right for the first time
2. Welcome and encourage complaints
3. Act Quickly
4. Treat Customers Fairly
5. Learn from Lost Customers
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I developed aa action plan for effective service recovery. It is the summary of chapter 6:
- Do it right for the first time
- Welcome and encourage complaints
- Act Quickly
- Treat Customers Fairly
- Learn from Lost Customers
Effective Recovery System
Do it right for the first time
The first rule of service quality (Reliability)
Recovery is unnecessary
The cost of redoing the service & compensation for errors can be avoided
Crating a culture of zero defection – TQM
Everyone understand the importance of reliability
Employees and managers aim to satisfy customers and look for ways to improve service
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Step one: Do it right for the first time (Reliability). Then, no need for redoing service and providing financial compensation.
Effective Recovery System
Welcome and encourage complaints
Even in zero defection culture, service failures occur – They are inevitable!
Complaints should be anticipated and encouraged
Complaining customers = “Your friends/partners”
Teach customers how to complain
They have no idea who to speak to, what the process is
Make the process as simple as possible
New technology – easier access to service representatives
Reduce customer complaint barriers
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Step Two: Welcome and encourage complaints. Service failure is inevitable in our business. Then, let’s accept it and even welcome and encourage customer complaints. Because they are opportunities to build stronger future relationship.
Effective Recovery System
Act Quickly
Complaining customers want quick response
Take care of problems on the front line
Require systems and procedures for quick actions
Require empowered employees – Employees should not be punished for taking actions
Ritz Carlton’s “Employee Allowance ($2,000)”
Hampton Inn’s “Service Guarantee”
Build systems that allow customers to solve their own service needs and fix their own problems
Technology – Customer directly interface with the service provider’s technology (Electronic Kiosk)
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Step Three: Act Quickly. We should not ignore customer complaints. Upon receiving it, we have to act quickly. Quick resolution affects customer loyalty.
Effective Recovery System
Treat Customers Fairly
Customers expect to be treated fairly in terms of
Outcome they receive ( )
The process by which the service recovery takes place ( )
Interpersonal treatment they receive
( )
Fair treatment is essential component of an effective service recovery strategy
Distributive Justice
Procedural Justice
Interactional Justice
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Step Four: Treat Customers Fairly. When recovering service failure situations, let’s treat customers fairly in terms of PJ, IJ, & DJ. Fair treatment is essential component of an effective service recovery strategy.
Effective Recovery System
Learn from Lost Customers
Discovering the reasons customers have left is painful and difficult but it can assist in
Preventing failures in the future
Losing more customers in the future
Broad themes underlying defection;
Pricing, Inconvenience, Core service failure. Service encounter failure (Process Failure), Response to service failure, Competition, Involuntary switching
In-depth interview by skilled interviewers who truly understand this business
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Step Five: Learn from Lost Customers. Even though we do our best to recover service failure, some customers will leave and never come back. We have to learn from those lost customers to prevent the same service failure situation from happening again.
Conclusion
“Customers don’t expect you to be perfect. They do expect you to fix things when they go wrong. Nothing annoys guests more than having their complaints ignored or overlooked”
-Donald Porter, Senior VP, British Airways-
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Ending statement from Donald Porter, Senior VP, British Airways: “Customers don’t expect you to be perfect. They do expect you to fix things when they go wrong. Nothing annoys guests more than having their complaints ignored or overlooked”
Ch.6 handout is about Service Guarantee by Hampton Inn. It is the best-known service recovery tool by Hilton Hotel Corporation. Please read the case and think about your own recovery tool.
This is the end of chapter 6.
I wish you all the best luck on your individual research project and final.
