McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Service Recovery 7 ▪ The Impact of Service Failure and Recovery ▪ How Customers Respond to Service Failures ▪ Service Recovery Strategies: Fixing the Customer ▪ Service Recovery Strategies: Fixing the Problem ▪ Service Guarantees ▪ Switching versus Staying Following Service Recovery 7-2 Objectives for Chapter 7: Service Recovery ▪ Illustrate the importance of recovery from service failures in keeping customers and building loyalty. ▪ Discuss the nature of consumer complaints and why people do and do not complain. ▪ Provide evidence of what customers expect and the kind of responses they want when they do complain. ▪ Present strategies for effective service recovery, including ways to “fix the customer” after a service failure and to “fix the problem.” ▪ Discuss service guarantees—what they are, the benefits of guarantees, and when to use them—as a particular type of service recovery strategy. 7-3 Reliability is Critical in Service but… ▪ In all service contexts, service failure is inevitable. ▪ Service failure occurs when service performance that falls below a customer’s expectations in such a way that leads to customer dissatisfaction. ▪ Service recovery refers to the actions taken by a firm in response to service failure. 7-4 Figure 7.1: Complaining Customers: The Tip of the Iceberg Source: Data from TARP Worldwide Inc., 2007 7-5 Unhappy Customers’ Repurchase Intentions 7-6 Exhibit 7.1: The Internet Spreads the Story of Poor Service Recovery 7-7 The Service Recovery Paradox ▪ Is a customer who has experienced a service failure and exemplary service recovery more likely to be more satisfied – impressed even – with the service provider? ▪ Should a firm “screw up” just a little so that it can “fix the problem” superbly? 7-8 The Service Recovery Paradox ▪ “A good recovery can turn angry, frustrated customers into loyal ones. ..can, in fact, create more goodwill than if things had gone smoothly in the first place.” (Hart et al. 1990) ▪ HOWEVER: ▪ Only a small percent of customers complain ▪ Service recovery must be SUPERLATIVE ▪ Only with responsiveness, redress, and empathy/courtesy ▪ Only with tangible rewards ▪ Even though service recovery can improve satisfaction, it has not been found to increase purchase intentions or perceptions of the brand ▪ Service recovery is expensive 7-9 The Service Recovery Paradox ▪ The service recovery paradox is more likely to occur when: ▪ The failure is not considered by the customer to be severe ▪ The customer has not experienced prior failures with the firm ▪ The cause of the failure is viewed as unstable by The customer ▪ The customer perceives that the company had little control over the cause of the failure ▪ Conditions must be just right in order for the recovery paradox to be present! 7-10 Customer Complaint Actions Following Service Failure 7-11 Types of Complainers ▪ Passives: least likely to take any action, say anything to the provider, spread negative WOM, or complain to a third party; doubtful of the effectiveness of complaining ▪ Voicers: actively complain to the provider, but not likely to spread negative WOM; believe in the positive consequences of complaining - the service provider’s best friends! 7-12 Types of Complainers ▪ Irates: more likely to engage in negative WOM to friends and relatives and to switch providers; average in complaints to provider; unlikely to complain to third parties; more angry, less likely to give provider a second chance ▪ Activists: above average propensity to complain on all levels; more likely to complain to a third party; feel most alienated from the marketplace compared to other groups; in extreme cases can become “terrorists” 7-13 Service Recovery Strategies 7-14 Fixing the Customer ▪ When customers take the time to complain, they generally have high expectations. ▪ They expect the company to respond quickly and to be accountable. ▪ They expect to be compensated for their grief and for the hassle of being inconvenienced. ▪ They expect to be treated nicely in the process! 7-15 Respond Quickly 7-16 Provide Appropriate Communication 7-17 Treat Customers Fairly ▪ Outcome fairness ▪ Outcome (compensation) should match the customer’s level of dissatisfaction; equality with what other customers receive; choices ▪ Procedural fairness ▪ Fairness in terms of policies, rules, timeliness of the complaint process; clarity, speed, no hassles; also choices: “What can we do to compensate you…?” ▪ Interactional fairness ▪ Politeness, care, and honesty on the part of the company and its employees; rude behavior on the part of employees may be due to lack of training and empowerment 7-18 Fixing the Problem ▪ After “fixing the customer” the company should address the actual problem that created the poor service delivery in the first place. ▪ If the problem is likely to recur for other customers, then the service delivery process may need to be fixed, too. ▪ Strategies for fixing the problem include encouraging and tracking complaints, learning from recovery experiences and from lost customers, and making the service fail-safe. 7-19 Service Guarantees ▪ Guarantee = an assurance of the fulfillment of a condition (Webster’s 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?) 7-20 Characteristics of an Effective Service 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 customer’s dissatisfaction ▪ Easy to Understand ▪ Customers need to understand what to expect ▪ Employees need to understand what to do ▪ Easy to Invoke ▪ The firm should eliminate hoops or red tape in the way of accessing or collecting on the guarantee 7-21 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. ▪ Information generated through the guarantee can be tracked and integrated into continuous improvement efforts. ▪ A service guarantee reduces customers’ sense of risk and builds confidence in the organization. 7-22 When to Use (or Not Use) a Guarantee ▪ Reasons companies might NOT want to offer a service guarantee: ▪ Existing service quality is poor ▪ A guarantee does not fit the company’s image ▪ Service quality is truly uncontrollable ▪ Potential exists for customer abuse of the guarantee ▪ Costs of the guarantee outweigh the benefits ▪ Customers perceive little risk in the service 7-23 Causes Behind Service Switching 7-24 McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Building Customer Relationships 6 ▪ Relationship Marketing ▪ Relationship Value of Customers ▪ Customer Profitability Segments ▪ Relationship Development Strategies ▪ Relationship Challenges 6-2 Objectives for Chapter 6: Building Customer Relationships ▪ Explain relationship marketing, its goals, and the benefits of long-term relationships for firms and customers. ▪ Explain why and how to estimate customer relationship value. ▪ Introduce the concept of customer profitability segments as a strategy for focusing relationship marketing efforts. ▪ Present relationship development strategies—including quality core service, switching barriers, and relationship bonds. ▪ Identify challenges in relationship development, including the somewhat controversial idea that “the customer is not always right.” 6-3 Relationship Marketing ▪ is a philosophy of doing business, a strategic orientation, that focuses on keeping current customers and improving relationships with them ▪ does not necessarily emphasize acquiring new customers ▪ is usually cheaper (for the firm) ▪ keeping a current customer costs less than attracting a new one ▪ thus, the focus is less on attraction, and more on retention and enhancement of customer relationships 6-4 The “Bucket Theory of Marketing” 6-5 Customer Goals of Relationship Marketing 6-6 Exhibit 6.1: A Typology of Exchange Relationships Customers as… Strangers Acquaintances Friends Partners Product offering Attractive relative to competitors On a par with industry standards Differentiated with adaptation to segments Customized, individualized offerings Source of competitive advantage Attractiveness Satisfaction Satisfaction + Trust Satisfaction + Trust + Commitment Buying activity (what customer does) Interest, exploration, trial Reduced need for search Buying without perfect information Commitment in the form of information sharing, specific investments Focus of selling activities (what firm does) Encouraging trial facilitates initial selling Familiarity and general knowledge Specific segment knowledge Specific knowledge, idiosyncratic investments Relationship time horizon None Short Medium: trust takes time to build Long: detailed knowledge, interconnections Sustainability of competitive advantage Low: must continue to attract, induce trial Low: must build unique value into standard product Medium: must understand various customer needs High: depends on uniqueness & effectiveness of interconnections Primary relationship marketing goal Acquire customer’s business Satisfy customer needs Retain customer’s business Enhance relationship with customer 6-7 Benefits of Relationship Marketing ▪ Benefits for Customers: ▪ Receipt of greater value ▪ Confidence benefits: ▪ trust ▪ confidence in provider ▪ reduced anxiety ▪ Social benefits: ▪ familiarity ▪ social support ▪ personal relationships ▪ Special treatment benefits: ▪ special deals ▪ price breaks ▪ Benefits for Firms: ▪ Economic benefits: ▪ increased revenues ▪ reduced marketing and administrative costs ▪ regular revenue stream ▪ Customer behavior benefits: ▪ ▪ ▪ ▪ strong word-of-mouth endorsements customer voluntary performance social benefits to other customers mentors to other customers ▪ Human resource management benefits: ▪ easier jobs for employees ▪ social benefits for employees ▪ employee retention 6-8 Profit Generated by a Customer over Time 6-9 Customer Loyalty Exercise ▪ Think of a service provider to whom you are loyal. ▪ What do you do (your behaviors, actions, feelings) that indicates you are loyal? ▪ Why are you loyal to this provider? ▪ What factors have influenced the formation of your loyalty? 6-10 Lifetime Value of a Customer 6-11 Figure 6.4: The Customer Pyramid Most Profitable Customers Platinum Gold Iron Lead Least Profitable Customers What segment spends more with us over time, costs less to maintain, spreads positive word of mouth? Not as profitable: discounts or less loyal Utilize capacity, but do not merit special treatment What segment costs us in time, effort and money yet does not provide the return we want? What segment is difficult to do business with? 6-12 The Customer Pyramid Platinum Tier Company’s most profitable customers, typically heavy users of the product, not overly price sensitive, willing to invest in and try new offerings, and committed customers of the firm Gold Tier Profitability levels are not as high, perhaps because customers want price discounts that limit margins or are simply not as loyal. May be heavy users who minimize risk by working with multiple vendors. Iron Tier Essential customers that provide the volume needed to utilize the firm'’ capacity but their spending levels, loyalty, and profitability are not substantial enough for special treatment Lead Tier Customers who are costing the firm money. They demand more attention than they are due given their spending and profitability and are sometimes problem customers—complaining about the firm to others and tying up firm resources. 6-13 Relationship Development Model 6-14 Strategies for Building Relationships ▪ Core Service Provision: ▪ service foundations built upon delivery of excellent service: ▪ satisfaction, perceived service quality, perceived value ▪ Switching Barriers: ▪ customer inertia ▪ switching costs: ▪ set up costs, search costs, learning costs, contractual costs ▪ Relationship Bonds: ▪ financial bonds ▪ social bonds ▪ customization bonds ▪ structural bonds 6-15 Levels of Relationship Strategies 6-16 “The Customer Is NOT Always Right” ▪ Not all customers are good relationship customers: ▪ wrong segment ▪ not profitable in the long term ▪ difficult customers 6-17 Ending Business Relationships ▪ Should firms fire their customers? 6-18
Purchase answer to see full attachment