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MKT B365F
Services Marketing
Lecture 8

Complaint Handling and Service Recovery

Lecturer/ Tutor
Mr. Andy LAI
Summer 2023
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Lecture outline

1. Customer Complaining Behavior

2. Customer Responses to Effective Service
Recovery
3. Principles of Effective Service Recovery Systems
4. Service Guarantees
5. Discouraging Abuse and Opportunistic
Customer Behavior

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How customers respond to service failures
Example: HSBC, in HKET, 16 Aug 2021

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Understand why customers complain?
• Why do customers complain?
– Obtain compensation

– Release their anger

– Help to improve the service

– Out of concern for others

• What proportion of unhappy customers complain?

• Why don’t unhappy customers complain?
• Who is most likely to complain?
• Where do customers complain?
• What do customers expect once they have made a complaint?
– Procedural, interactional, and outcome justice
What customers expect when they 6

complain
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What customers expect when they
complain
1. Procedural justice – policies and rules that
any customer has to go through to seek
fairness. Flexibility of the system and
consideration of customer inputs into the
recovery process

2. Interactional justice – involves the

employees of the firm who provide the
service recovery and their behaviors
toward the customer. Recovery effort must
be seen as genuine, honest and polite

3. Outcome justice – compensation that a

customer receives as a result of the losses
and inconveniences caused by the service
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failure
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The 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 (Note: not all
research supports this paradox)

• If second service failure occurs, the paradox

disappears—customers’ expectations have
been raised and they become disillusioned

• Severity and “recoverability” of failure (e.g.,

spoiled wedding photos) may limit firm’s
ability to delight customer with recovery
efforts

• Best strategy: Do it right the first time

The principles of effective service 9

recovery systems

1st Polling
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The principles of effective service
recovery systems
1. Make it easy for customers to give feedback
• Service firm need to overcome unhappy customer’s reluctance to complain
about service failures
2. Enable effective service recovery
• Effective service recovery should be proactive, planned, trained and empowered
3. Establish appropriate compensation levels
• Compensation for service failures should be “well-dosed” generosity

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Example – Chatbot function

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The principles of effective service
recovery systems
1. Make it easy for customers to give feedback
• Complaint barrier: Inconvenience
• Difficult to find the right complaint procedure
• Effort e.g. writing or mailing a letter

• Strategy to reduce this barrier: Make feedback easy

and convenient
• Put customer service hotline numbers, e-mail and/or postal
addresses on all customer communications materials (bills,
brochures, website, etc)

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The principles of effective service

recovery systems
1. Make it easy for customers to give feedback
• Complaint barrier: Doubtful payoff
• Uncertain whether any or what action will be taken by the firm to
address the issue the customer is unhappy with

• Strategy to reduce this barrier: Reassure customer that

their feedback will be taken seriously and will pay off
• Have service recovery procedure in place and communicate this to
customer, e.g. in customer newsletter and website
• Feature service improvements that resulted from customer
feedback
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The principles of effective service

recovery systems
1. Make it easy for customers to give feedback
• Complaint barrier: Unpleasantness
• Fear of being treated rudely
• Fear of being hassled
• Feeling embarrassed

• Strategy to reduce this barrier: Make providing feedback

a positive experience
• Thank customers for their feedback (can be done publicly and in
general by addressing the entire customer base)
• Train service employee not to hassle and to make customers feel
comfortable
• Allow for anonymous feedback
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The principles of effective service
recovery systems
2. Enable effective service recovery
© Pearson Education South Asia Pte Ltd 2013. All rights reserved

• Be proactive
• Recovery should be ideally done on the spot, preferably before
customers complain. Service personnel should be sensitive to
signs for dissatisfaction and ask whether customers might
experience a problem

• Plan recovery procedures

• Contingency plans to be developed for service failures, especially
for those that occur regularly and cannot be designed out of the
system
• Identify most common service problems and develop solution
sets for employees to follow
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Guest Room Notice

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Sample letter
Letter of Apology
1 February, 2020

Dear Mr. Guest Name,

I regret to inform you that due to an overbooking situation in our hotel [Mention hotel name], we have to
relocate you to our partner hotel which provide the same level of service to guarantee a pleasant stay.

We have arranged a Superior room for you at the [Mention the alternate hotel name], which has a great
location and excellent services.

I apologise for the inconvenience you have experienced, but I am sure that your will have a great stay in
our partner hotel.

Yours sincerely,

General Manager
Email: [email protected]

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The principles of effective service
recovery systems
2. Enable effective service recovery
• Teach recovery skills to relevant personnel
• When things are not turning out as customers and employees had
expected, they easily feel insecure at the point of service failure
• With effective training of how to handle recovery for routine or non-
routine service failures, frontline staff can turn distress into confidence
and skill
• https://www.youtube.com/watch?v=vjSenw6PgrM

• Empower personnel to use judgment and skills to develop recovery

solutions
• Employees need to be able to make decisions and spend money in order
to resolve service problems promptly and recover customer goodwill

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The principles of effective service
recovery systems
3. Establish appropriate compensation level
• Rules of thumb for managers to consider:
• What is positioning of our firm? If a firm is known for service
excellence and charges a premium price for quality, firm should
offers something of greater value

• How severe was the service failure? Less for minor

inconveniences and much more if there was major damage in
terms of time, effort, annoyance or anxiety

• Who is the affected customer? Long-term customers and those

who spend heavily at a service provider expect more, is worth
making an effort to save the business

• Overgenerosity may lead customers to become suspicious and also

encourage dishonest customer to “seek” failure
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The power of service guarantees

Service guarantee – promising that if service delivery fails to
meet pre-defined standards, the customer can have one or
more forms of compensation e.g. refund

Powerful tool for achieving service quality:

• Force firms to focus on what customers want
• Set clear standards
• Require the development of systems to get meaningful
customer feedback and act on it
• Force organizations to understand why they fail and to
overcome potential fail points
• Reduce risks of purchase and build loyalty 2nd Polling
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Designing effective service guarantees

• Whatever is promised in the guarantee
must be totally unconditional.
• The customer must be clearly aware of
the benefits that can be gained from the
guarantee.
• The guarantee must be on something
that is important to the customer; the
compensation should be more than
adequate to cover the service failure.
• It should be easy for the customer to
invoke the guarantee.
• If a service failure occurs, the customer
should be able to easily collect on the
https://www.youtube.com/watch?
guarantee.
v=ANh_GKLU8Kw
• The guarantee should be believable
Other Examples
• Hotels.com
• https://www.hotels.com/customer_care/pillar/price_guarantee.html?intlid=
%5BInsight%5D+Trust+module+%3A%3A+PG+CTA+clicked

• Hong Kong Flower Shop

• https://www.hongkongflowershop.com/pages/satisfaction-guarantee

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Good vs. Bad Customer Service
Example
• https://www.youtube.com/watch?v=Zy1h49_L8ME

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Example : Handling Complaint
• https://www.youtube.com/watch?v=WphIXqTp_es
• https://www.youtube.com/watch?v=T20hV4ynU7o

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When firms should NOT offer service

guarantees
• Companies that already have a strong reputation for service
excellence may not need a guarantee.

• A firm whose service is poor must first work to improve

quality to a level above what is guaranteed.

• Service firms whose quality is truly uncontrollable should not

offer a guarantee.

• If consumers see little risk associated with a service, a

guarantee adds little value.
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The seven types of jaycustomers
Jaycustomer: A customer who behaves in an abusive fashion, causing problems
for the firm, its employees, and other customers

https://www.youtube.com/watch?v=HGyMGRc32QI
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 The seven types of jaycustomers
• The Cheat: exploiting service recovery policies and
cheating on service guarantees
• The Thief: those who have no intention of paying e.g.
free riding on public transportation
• The Rulebreaker: e.g. dangerous skiers who pose a
danger to others and need to be policed
• The Belligerent: those impolite customers who like
to shout angrily or mount insults, threats or curses to
service employees
• The Family Feuders: people who get into arguments
with members of their own family or other
customers
• The Vandel: making physical abuse to service
facilities
• The Deadbeat – those delay payment
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The seven types of jaycustomers

Dealing with Customer Fraud
• If in doubt, believe the customer
• Keep a database of how often customers invoke service
guarantees or of payments made for service failure
• Insights from research on guarantee cheating
• Amount of a guarantee payout had no effect on customer
cheating
• Repeat-purchase intention reduced cheating intent
• Customers are reluctant to cheat if service quality is high
(rather than just satisfactory)
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The seven types of jaycustomers

Dealing with Customer Fraud
Managerial implications
 Firms can benefit from offering 100 percent money-
back guarantees
 Guarantees should be offered to regular customers
as part of membership program since regular
customers are unlikely to cheat
 Excellent service firms have less to worry about than
average providers

3rd Polling
THANK YOU & SEE YOU!

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