Impact of Service Recovery Efforts on Customer Loyalty

Service recovery refers to the ‘actions taken by an organisation in response to a service failure’. Failures occur for all kinds of reasons the service may be unavailable when promised, it may be delivered late or too slowly, the outcome may be incorrect or poorly executed, or employees may be rude or uncaring. All of these types of failures bring about negative feelings and responses from customers.

The goal of service recovery is to identify customers with issues and then to address those issues to the customers’ satisfaction to promote customer retention. However, service recovery doesn’t just happen. It is a systematic business process that must be designed properly and implemented in an organization. Perhaps more importantly, the organizational culture must be supportive of idea that customers are important and their voice has value.

Research has shown that the customers who, have had a service failure resolved quickly and properly, are more loyal to a company than the customers who have never had a service failure significantly more loyal. Service Recovery practices are a critical element in a Customer Loyalty Program.

Think about your own experiences with service or product problems. Did you get a quick acknowledgement of the problem, speedy resolution of the problem, and perhaps compensation for your troubles? (Imagine if you got a truly sincere apology and not some phony empathy?) Weren’t you more likely to buy from that company again because of the confidence you now had in their business practices? That’s the key value to effective service recovery and complaint handling customer retention.

One way to think about service recovery is that it is a positive approach to complaint handling. Complaint handling has serious negative connotations; whereas, service recovery has positive connotations. Complaint handling is placating people, minimizing a negative. Service recovery practices are a means to achieve the potential, latent value a customer holds for a company by fostering an ongoing positive relationship. Service recovery has a secondary value. It creates positive word-of-mouth about your company and minimizes the bad spin that lack of service recovery practices can create.

The Service Recovery Paradox Theory:

The recovery paradox theory advances the contention that if a service firm exhibits an excellent recovery in the event of a service failure, then the customer’s satisfaction may exceed pre-failure levels. While a number of researchers have provided evidence in support of the recover paradox, several recent studies have failed to find such support.

This study theoretically and empirically examines factors that moderate the occurrence of a ‘recovery paradox’ in the event of a service failure. Research findings indicate that, under appropriate conditions, a customer can experience a paradoxical satisfaction increase after a service failure.

Certainly, the recovery paradox is more complex than it may seem on the surface. First of all, it is expensive to fix mistakes, and it would appear somewhat ludicrous to encourage, service failures after all, we know that reliability (“doing it right the first time”) is the most critical determinant of service quality across industries. Second, empirical research suggests that only under the very highest levels of customers’ service recovery ratings we shall observe increased satisfaction and loyalty.

This research suggests that customers weigh their most recent experience heavily in their determination of whether to buy again. If the experience is negative, overall feelings about the company will decrease and repurchase intentions will also diminish significantly. Unless the recovery effort is absolutely superlative, it cannot overcome the negative impression of the initial experience” enough to build repurchase intentions beyond where they would be if the service had been provided correctly in the first place.

These conclusions are somewhat complicated by a recent study that shows no support at all for the recovery paradox. In the context of that study, overall satisfaction was consistently lower for those customers who had experienced a service failure than for those who had experienced no failure, no matter what the recovery effort was. An explanation for why no recovery paradox occurred is suggested by the magnitude of the service failure in this study a three-hour aeroplane flight delay. This type of failure may be too much to be overcome by any recovery effort. Even in this study, however, strong service recovery was able to mitigate, if not reverse, the effects of the failure by reducing overall dissatisfaction.

Given the somewhat mixed opinions on whether a recovery paradox exists, it is safe to say “doing it right the first time” is still the best and safest strategy. However, when a failure does occur, every effort at a superior recovery should be made to mitigate its negative effects. In cases where the failure can be fully overcome, the failure is less critical, or the recovery effort is clearly superlative, it may be possible to observe evidence of the recovery paradox.

Basically, how do consumers respond to service firm efforts to recover from inevitable service failures such as cable not working in a hotel room or unsatisfactory service in a rest section rant. If the service firm can put in order the situation quickly and to the satisfaction of the consumer, overall satisfaction can occur. When there are excessive service failures, it is unlikely the firm can recover.

Why does Service Recovery get no Respect?

So why service recovery part of every organizations’ business isn’t processes? No easy answer exists. Perhaps it’s the contention between operations and marketing.

(i) Customer Acquisition is Attractive: Marketing conducts expensive research, fine tunes the 4Ps that comprise its marketing strategy (Product, Place, Promotion, and Price), and penetrates new customer bases through its sales and marketing programs. Companies spend big bucks on achieving sales growth and expanding market share.

(ii) Service Recovery isn’t Attractive: It’s an operational task that involves negotiating with angry customers. The budget typically falls in the customer service department one of those loathsome cost centres that drain profit. Isn’t it easier to just dismiss these upset customers and move on to greener fields?

In some cases, probably it is easier and appropriate. Some customers cannot be recovered, only ameliorated so they don’t bad mouth the organization. This may seem like heresy from a self-proclaimed customer service nut, but customers are not always right. (Great Brook had a person from a Pacific Island nation who contacted us to buy our Customer Survey book. They weren’t willing to pay prior to shipment; they wanted to be invoiced. And they wanted an electronic copy of the book. We declined their business.)

However, most customers can be recovered through simple application of the Golden Rule, and those recovered and retained customers become profit centres. They buy more and they give positive recommendations to friends and colleagues, which is the most important form of “advertising.”

For a rough calculation on the potential value of a Service Recovery Program in your organization, find out the annual sales volume per customer, then apply the operating profit margin to find the profit per customer. Next, find out the annual customer churn, i.e., how many customers stopped buying from you—especially long-standing customers.

Multiply, the churn by the profit margin and you have the potential value of the Service Recovery Program’s annual budget. You’ll probably find that even reducing a small amount of the churn will more than pay for the program. And this doesn’t even include the reduced sales from customers who didn’t leave but still have stayed with the organization!

Stages of Service Recovery Maturity:

Service Recovery in an organization progresses through a series of stages as shown in the Figure.

(i) Stage 1: Moribund: There is no complaint handling. Angry customers are ignored. Drugstore.com is an example of a company with totally moribund service recovery practices. Letters to VPs and even the CEO about a damaged shipment go unanswered.

(ii) Stage 2: Reactive: Customer complaints are heard, and a response is made. But it’s a haphazard process with no defined goals for the response, and no one owning this business process.

(iii) Stage 3: Active Listening: At this stage, the response to issues voiced by customers is structured. Specific people have the responsibility to respond to complaints and guidelines are in place for the response. However, it is still reactive.

(iv) Stage 4: Solicitous: The critical change from Stage 3 to 4 is the move from reactive to proactive solicitation of customers with issues. The reason is that most customers don’t bother to complain. They just move on to other suppliers of products. Haven’t we all done this? It’s a lot of work to complain! The solicitous role is accomplished by encouraging customer to voice their complaints.

Event surveys (also known as transactional or transaction-driven survey) are a commonly used technique to get issues voiced. The survey design must be such that more than just high level measurement of customer satisfaction is captured. The design must allow for action to be taken. The desire for anonymity complicates the task.

(v) Stage 5: Infused: The pinnacle of Service Recovery Practices is achieved when the complaint identification merges with business process improvement or six sigma programs to support root cause identification and resolution. The owners of business processes that cause customer issues are notified of the occurrences to prompt reexamination of the process design.

In essence, we see two levels of feedback loops. First, feedback from the customer to the organization. Second, feedback from the customer-facing groups to its business partners within the organization. While company culture is clearly critical to implementing this level of feedback management, certain technologies can infuse this information sharing into business practice.