Services Marketing:

People, Technology, Strategy

CHAPTER 13
Complaint Handling And Service Recovery

Professor: Dr. Vu Hoang Linh, Ph.D

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 Learning Objectives
• Recognize actions that customers may take in
response to service failures
• Understand why customers complain
• Know what customers expect from firm when they
complain
• Understand how customers respond to effective
service recovery
• Explain the service recovery paradox
• Know principles of effective service recovery
systems
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 Learning Objectives
• Be familiar with guidelines for frontline employees
on handling complaining customers and on
recovering from service failures
• Recognize power of service guarantees
• Understand how to design effective service
guarantees
• Know when firms should not offer service
guarantees
• Be familiar with the seven groups of jaycustomers
and understand how to manage them effectively

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Organizing
Framework
For Managing
Complaints
And Service
Recovery

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 Customer Complaining Behavior

• Many “moments of truth” in service

encounters are vulnerable to breakdowns.
• Distinctive service characteristics can greatly
increase chance of service failures occurring
E.g. real-time performance, customer
involvement, and people as part of product
• How well a firm handles complaints and
resolves problems frequently determines
whether it builds customer loyalty
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Customer Response Options To
Service Failure

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 Customer Response Options To
Service Failure
• Courses of action a customer may take in
response to a service failure:
– Take some form of public action
– Take some form of private action
– Take no action
• Managers to be aware that the impact of a
defection can go far beyond the loss of that
customer’s future revenue stream

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 Understanding Customer
Complaining Behavior
• Studies of consumer complaining behavior have
identified four main purposes for complaining:
– Obtain restitution or compensation
– Venting their anger
– Help to improve the service
– For altruistic reasons
• Research shows that on an average, only 5% to 10%
of customers who have been unhappy with a
service, actually complain.

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 Understanding Customer
Complaining Behavior
• Customers do not complain, as many customers
see payoff as uncertain, and believe no one would
be concerned about their problem.
• Complaining behavior can be influenced by role
perceptions and social norms.
• Research findings consistently show people in
higher socioeconomic levels are more likely to
complain than those in lower levels.
• Studies show that majority of complaints are made
at place where service was received.
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Three Dimensions of Perceived Fairness
in Service Recovery Processes

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 What Customers Expect Once
Complaint Is Made
As many as 85% of variation is found in the satisfaction
with a service recovery determined by three dimensions
of fairness:
1. Procedural justice refers to policies and rules that
any customer has to go through to seek fairness.
2. Interactional justice involves employees of the firm
who provide service recovery, and their behavior
toward the customer.
3. Outcome justice is concerned with the restitution or
compensation that a customer receives as a result of
losses and inconveniences caused by service failure.
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Customer Responses To Effective
Service Recovery
Service problem under the following
conditions can destroy a customer’s
confidence:
1. The failure is totally outrageous.
2. The problem fits a pattern of failure rather
than being an isolated incident.
3. The recovery efforts are weak, serving to
compound the original problem rather
than correct it.

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Customer Responses To Effective
Service Recovery
• Service recovery is a term for systematic efforts by a
firm to correct a problem following a service failure
and to retain a customer’s goodwill.
• Service recovery efforts play important role in
achieving (or restoring) customer satisfaction and
loyalty.
• Effective service recovery requires thoughtful
procedures for resolving problems and handling
disgruntled customers.

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Impact Of Effective Service Recovery
On Customer Loyalty
• Research shows complainants who are satisfied
with service recovery experienced are 15 times
more likely to recommend a company than
dissatisfied complainants.
• If complaint is resolved to the satisfaction of the
customer, retention rate jumped to 54%.
• The highest retention rate of 82% was achieved
when problems were fixed quickly, typically on the
spot.

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 The Service Recovery Paradox
• Describes phenomenon where customers who
experience an excellent service recovery after a
failure feel even more satisfied than customers who
had no problem in the first place.
• May lead to the thought that it may be good for
customers to experience service failure so they can
be delighted as a result of excellent service
recovery.
• Whether a customer comes out delighted from a
service recovery or not also depends on severity
and “recoverability” of failure.
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 Principles Of Effective Service
Recovery Systems
• Recognize that current customers are a valuable
asset base, and managers need to develop effective
procedures for service recovery

Figure 13.7 Components of an Effective 16

Service Recovery System
 Components Of An Effective
Service Recovery System
1. Make it easy for customers to give
feedback
• E.g. special toll-free phone lines, links on
websites and social media pages, and
display customer comment cards clearly in
their branches

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 Components Of An Effective
Service Recovery System
2. Enable effective service recovery
Service recovery should be proactive, planned, trained and
empowered
Recovery procedures need to be planned
• Contingency plans to be developed for service failures, especially for
those that occur regularly and cannot be designed out of the system.
• Recovery skills must be taught
– Effective training builds confidence and competence among frontline
staff, enabling them to turn distress into delight.
• Recovery requires empowered employees
– Service recovery efforts should be flexible and employees empowered
to use their judgment and communication skills to develop solutions
that will satisfy complaining customers.
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 Components Of An Effective
Service Recovery System
3. Establish appropriate compensation levels
• What is the positioning of your firm?
ØYou charge a premium price for quality and customers expect
service failures to be rare
ØYou should make demonstrable effort and offer something of
significant value
• How severe was the service failure?
ØLet the punishment fit the crime
ØCustomers expect little for minor inconveniences and vice
versa
• Who is the affected customer?
ØLong-time customers vs. first-time user
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Strategies To Reduce Customer
Complaint Barriers

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 Dealing With Complaining
Customers
Guidelines for the Frontline (See Service Insights 13.3):
1. Act fast
2. Acknowledge the customer's feelings
3. Do not argue with customers
4. Show that you understand the problem from each
customer's point of view
5. Clarify the facts and sort out the cause
6. Give customers the benefit of doubt
7. Propose the steps needed to solve the problem
8. Keep customers informed of progress
9. Consider compensation
10. Persevere to regain customer goodwill
11. Self-check the service delivery system and improve it

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 The Power Of Service
Guarantees
• Force firms to focus on what customers want
and expect in each element of the service.
• Set clear standards, telling customers and
employees alike what the company stands
for.
• Require development of systems for
generating meaningful customer feedback
and acting on it.

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 The Power Of Service
Guarantees
• Force service organizations to understand
why they fail, and encourage them to
identify and overcome potential fail points.
• Build “marketing muscle” by reducing the
risk of the purchase decision and building
long-term loyalty.

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 Designing Service Guarantees
Service guarantees should be designed to meet the following
criteria (Hart):
1. Unconditional — Whatever promised in the guarantee
must be totally unconditional with no element of surprise
for customer.
2. Easy to understand and communicate so that customer is
clearly aware of benefits of the guarantee.
3. Meaningful to the customer — Guarantee is on something
important to the customer and compensation should be
more than adequate to cover the service failure.
4. Easy to invoke
5. Easy to collect on — If a service failure occurs, customer
should be able to easily collect guarantee without any
problems.
6. Credible
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Types Of Service Guarantees

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 Is It Always Beneficial To
Introduce A Service Guarantee?
A guarantee is not appropriate in some
situations:
• Companies with a strong reputation for service
excellence may not need a guarantee.
• A firm whose service is currently poor must first work to
improve its quality to a level above what is guaranteed.
• Service firms whose quality is truly uncontrollable due
to external forces would be foolish to consider a
guarantee.
• When consumers see little financial, personal, or
physiological risk associated with purchasing and using a
service guarantee, it adds little value.
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 Discouraging Abuse And
Opportunistic Customer Behavior
• With generous service recovery or policy
guarantees, some customers can take
advantage
• Not all complaining customers are right or
reasonable, referred to as jaycustomers
• Firms that fail to deal effectively with
customer misbehaviors risk damaging
relationships with customers they want to
keep
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 Seven Types Of Jaycustomers
1. The Cheat
Cheating ranges from writing complaint letters with sole
purpose of exploiting service recovery policies, and
cheating on service guarantees to inflating, or faking
insurance claims and “wardrobing”
2. The Thief
The thief jaycustomer has no intention of paying, and sets
out to steal goods and services
3. The Rule-breaker:
In the case of legally enforceable ones, specific courses of
action needs to be laid down explicitly to protect
employees and to punish or discourage wrongdoing by
customers
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 Seven Types Of Jaycustomers
4. The Belligerent or Angry Customer
If an employee lacks the power to resolve the problem,
the belligerent may become angrier still, to the point of
physical attack
5. The Family Feuders
People who get into arguments with members of their
own family — or worse, with other customers — make up
a subcategory of belligerents called “family feuders”
6. The Vandal
Paying customers who choose to misbehave
7. The Deadbeat
Customers fail to pay for services they have received

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 Consequences Of Dysfunctional
Customer Behavior
• Dysfunctional customer behavior affect frontline
staff, other customers and the organization itself.
• Staff morale can be hurt, with implications on both
productivity and quality.
• Consequences for customers can take both positive
and negative forms.
• Companies suffer financially when demotivated
employees no longer work as efficiently and
effectively as before.

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 Dealing With Customer Fraud
• Dishonest customers can take advantage of generous
service recovery strategies, service guarantees
• Crucial to keep track of customers who repeatedly
“experience service failures” and ask for compensation,
or invoke firm’s service guarantee.
• To effectively detect consumer fraud, maintaining a
central database of all compensation payments, service
recoveries, returned goods, and any other benefits
given to customers based on special circumstances are
needed.

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 Dealing With Customer Fraud
• Customers are reluctant to cheat if service quality
provided was truly high (vs. when it was satisfactory)
• Findings suggest important managerial implications
1. Firms should ensure that their service recovery procedures
are fair
2. Large firms should recognize consumers are more likely to
cheat and thus have robust fraud detection systems
3. Firms can implement and reap bigger marketing benefits of
100% money-back guarantees without worrying
4. Guarantees can be offered to regular customers or as part
of a membership program, repeat customers are unlikely to
cheat
5. Truly excellent services firms have less to worry about
cheating
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