Service Failure and Recovery: Synopsis

SERVICE FAILURE AND RECOVERY: SYNOPSIS

INTRODUCTION

        The main purpose of marketing is to achieve customer satisfaction, enhance customer loyalty and achieve profitability. In the face of cutthroat competition, more and more emphasis is being placed on customer satisfaction and retaining customers has become a primary concern. However, marketing effort cannot be truly gauged through a brand’s physical supremacy and the promotion mix but is essentially dependent on effective service recovery strategies firms adopt. Since services are heterogeneous, intangible, perishable, and simultaneously produced and consumed, zero defects service is therefore, impossible. Service industries such as healthcare and tourism which are purely ‘people based’ are more prone to service failures and customer dissatisfaction. When dissatisfaction with the service encounter occurs, customers are likely to leave, switch, complain and/or engage in negative word of mouth and other damaging activities, thus negatively impacting overall customer loyalty and commitment.

TARP (1979) found that problematic experiences reduce customer loyalty across all industries by 15 to 30 %. On average, customer loyalty will drop by about 25 % (Figure 1) if the customer has

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Figure 1: Impact of Problem Experience on Loyalty

encountered a problem. Consequently, out of every five customers who experience a problem, one will leave or purchase services/products from another institution when visiting the marketplace in future.

Dissatisfying service encounters influence organization’s profitability as well. Specifically for a service firm, a 1 % decrease in customer satisfaction corresponds to a 5 % decrease in return on equity (Hart, 1988).  Reichheld’s (1993) data indicated that MBNA credit card company increased profits by 60 % in 5 years due to increasing customer retention by 5 %. It has been projected that it costs five times more to recruit a new customer than to retain an existing one (Reichheld and Sasser, 1990).

Further, research into complaint behavior reveals that only a fraction of dissatisfied consumers complain. It has been found that only 5 to 10 % of unhappy customers complain (Dube and Maute, 1996). The “silent dissatisfieds” simply leave, and more than 50% of customers who do complain feel worse about the company’s service delivery after lodging their complaint (Hart, Heskett, and Sasser, 1990).

TARP (1986) research, on average, across all industries, indicates that 50 % of all consumers with problems never complain. They often take their business elsewhere. The results also show that among the customers who register a complaint, 30 % will not buy again. The below mentioned chart calculates sales lost over a 5 year period from customers who encounter a problem and do not buy again. It can be observed that the largest number of customers (78,750) is lost from those who never contact the organization and along with complainants who do complain but will not purchase, the total loss becomes 1.28 million sales. Multiplying this figure to a small dollar value means a huge loss in terms of profitability (Figure 2).  

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Figure 2: Sales Lost from Dissatisfied Customers

Consequently, if service failures are impossible to avoid and their impact is huge on overall image of the brand and the profitability then it becomes increasingly important for firms to understand how to manage such occurrences and minimize their adverse effects by developing sound service failure recovery frameworks. In order to do so, it is essential to understand the phenomenon of service failure by researching existing literature.

The services marketing research literature spread over almost three decades, which guides theory, methodology, and practice for service failure and recovery is of immense importance in understanding the service failure and recovery phenomena. Published research regarding the effect of consumer perceptions about a service failure and various recovery paradigms have thoroughly examined consumer complaint behavior and is therefore very useful in highlighting major aspects of consumer psychology towards a service failure and recovery.

1. SERVICE FAILURES

Organizations always strive hard to provide optimum service and spend substantial resources to deliver quality service that meets customer satisfaction. Service failures occur when customers are dissatisfied because the service is not delivered as promised and therefore fall short of their expectations. It is important to understand that service failures are judged from the perceptions of the customers rather than organization’s point of view. In other words, it is the customer who decides if the service has failed.

Different industries experience different types of service failures. However, their classification is a useful step in understanding the consumer behavior and formulating effective recovery strategies. One of the most popular classification of service failures has been the Critical Incident Technique (CIT) presented by Bitner et al. (1990). The CIT consists of a set of specifically defined procedures for collecting observations of human behavior and classifying them in such a way as to make them useful in addressing practical problems. This model has been widely adopted by other researchers such as Kelly et al. (1993), Hoffman et al. (1995) etc.  Accordingly, service failures can be classified into the following three categories:

1. Service System Delivery Failures

The service delivery failures are classified into three types of failures: (a) unavailable services (b) unreasonably slow service, (c) and core service failures. Unavailable service means that services which were promised to be available were absent such as an out-of-order ATM or a non-responding mobile phone company complaint number. Unreasonably slow service relates to the delays that customers encountered such as delayed flight departure at the airport, delayed medical attention at the hospital, slow meal service at a restaurant. Other core service includes critical incidents that were due to mistakes or other technical problems with the service itself. The concept of core service failure has been well highlighted by Keaveney (1995) in which core service failure has been categorized into (a) mistakes (b) billing errors and (c) service catastrophes. Core service failure includes longitudinal problems in which a series of mistakes occurred or deterioration of service overtime is faced by customer. This also includes multiple mistakes that occurred within the context of a single service encounter. The second subcategory of billing errors includes incorrect billing and failures to correct billing in time. The service catastrophes includes incidents where the service was inappropriate but it also led to damage to customer’s belongings or caused the customer to lose time or money. According to her research, core service failure, price and service encounter failures are the most frequently mentioned causes of dissatisfaction.