Chapter 8
Service Recovery
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Reliability is Critical in Service but…
• In all service contexts, service failure is inevitable
• Service failure: when service performance falls
below a customer’s expectations to cause customer
• Service recovery: actions taken by a firm in
response to service failure.
Customer Complaining Behavior
Only 1-5% complain to management or
company headquarters
45% complain to a frontline employee
50% of those who encounter a problem, do
not complain
Unhappy Customers’ Repurchase
Dissatisfied Consumers’ Behavior
• The Retail Customer Dissatisfaction Study 2006
by the Verde Group found:
– 48% of respondents reported avoiding a store
because of someone else’s negative experience
– for those who encountered problems, 33% said they
would “definitely not” or “probably not” return
• The exponential power of storytelling:
– as people tell the story, the negativity is embellished
and grows
What Complainants Got:
A study at Arizona State University found
56% of complainants felt they got
(i.e., no satisfactory resolution of the
Customer Complaint Actions Following Service Failure
Service Recovery Paradox 1/2
• “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.)
– 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
Service Recovery Paradox 2/2
• 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
– the cause of the failure is viewed as unstable by the
– 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!
Why Customers Switch Service
- High/Unfair/Deceptive Pricing
- Inconvenience (of location, appointment, excessive wait)
- Core service failure (service mistakes, billing errors, catastrophe)
- Service encounter failure
- Poor response to service failure
- Competition (customer discovers better alternatives)
- Ethical problems (cheat, hard sell, unsafe)
- Involuntary switching (customer moved, provider closed)
Service Recovery Strategies
Eight Most Common Remedies Customers
Seek with Serious Problems
1. Have the product repaired or service fixed
2. Be reimbursed for the hassle of having
experienced a problem
3. Receive a free product or service in the future
4. Explanation by the firm as to what happened
5. Assurance that the problem will not be repeated
6. A thank you for the customer’s business
7. An apology from the firm
8. An opportunity for the customer to vent his or
her frustrations to the firm
Service Guarantees
• guarantee = an assurance of the fulfillment of a condition
(Webster’s Dictionary)
• in a business context, it 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?)
Characteristics of an Effective
Service Guarantee
• Unconditional
– the guarantee should make its promise unconditionally – no strings
• 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 and Communicate
– customers need to understand what to expect
– employees need to understand what to do
• Easy to Invoke and Collect
– the firm should eliminate hoops or red tape in the way of accessing or
collecting on the guarantee
Benefits of Service Guarantees
Force the company to focus on its customers.
Set clear standards for the organization.
Generate immediate and relevant feedback from customers.
When invoked, they provide an instant opportunity to recover, thus
satisfying the customer and helping retain loyalty.
Information generated through the guarantees can be tracked and
integrated into continuous improvement efforts.
Employee morale and loyalty can be enhanced as a result of having
a service guarantees in place.
Service guarantees reduce customers’ sense of risk and build
confidence in the organization.
Force company to understand why it failed
Build “marketing muscle”
Reasons companies might NOT want
to offer a service guarantee:
existing service quality is poor
guarantee does not fit the company’s image
too many uncontrollable external variables
fears of cheating or abuse by customers
costs of the guarantee outweigh the benefits
customers perceive little risk in the service
customers perceive little variability in service quality
among competitors
Effective Service Guarantees
• work better for companies who are already
• can be BIG deals – they put the company at risk
in the eyes of the customer
• customers should be involved in the design of
service guarantees
• the guarantee should be so stunning that it
comes as a surprise – a WOW!! factor
• “it’s the icing on the cake, not the cake”
Part 4
Key Factors Leading to Provider Gap 2
(Service Design and Standards Gap)
Service Innovation and Design
• Challenges of Service Innovation and
• New Service Development Processes
• Types of Service Innovations
• Stages in Service Innovation and
• Service Blueprinting
• High-Performance Service Innovations
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Risks of Relying on Words Alone to
Describe Services
Biased Interpretation
Types of Service Innovations
major or radical innovations
start-up businesses
new services for the currently served market
service line extensions
service improvements
style changes
New Service Development Process
- Business strategy development or review
- New service strategy development
- Idea generation
-Concept development & evaluation
- Business analysis
- Service development & testing
- Market testing
- Commercialization
New Service Strategy Matrix for Identifying
Growth Opportunities (Fig. 9-2)
Current Customers
New Customers
Existing Services
Share Building
Mkt. Development
New Services
Service Development
Service Blueprinting
Service Blueprint Components
Customer Actions
line of interaction
Visible Contact Employee Actions
line of visibility
Invisible Contact Employee Actions
line of internal interaction
Support Processes
Building a Service Blueprint
Application of Service Blueprints
• New Service Development
– concept development
– market testing
• Supporting a “Zero Defects” Culture
– managing reliability
– identifying empowerment issues
• Service Recovery Strategies
– identifying service problems
– conducting root cause analysis
– modifying processes
Uses of Blueprints
• Service Marketers
– creating realistic
customer expectations:
• service system design
• promotion
• Operations
– rendering the service
as promised:
• managing fail points
• training systems
• quality control
• Human Resources
– empowering the human
• job descriptions
• selection criteria
• appraisal systems
• System Technology
– providing necessary tools:
• system specifications
• personal preference
Benefits of Service Blueprinting
• Provides a platform for innovation.
• Recognizes roles and interdependencies among
functions, people, and organizations.
• Facilitates both strategic and tactical innovations.
• Transfers and stores innovation and service knowledge.
• Designs moments of truth from the customer’s point of
• Suggests critical points for measurement and feedback
in the service process.
• Clarifies competitive positioning.
• Provides understanding of the ideal customer
Common Issues in Blueprinting
(Exhibit 9.4)
• Clearly defining the process to be blueprinted
• Clearly defining the customer or customer
segment that is the focus of the blueprint
• Who should “draw” the blueprint?
• Should the actual or desired service process be
• Should exceptions/recovery processes be
• What is the appropriate level of detail?
• Whether to include time & cost on the blueprint
Tangible Cues or Indicators of
Exterior and Interior Design
Presentation of Food/Drinks
Appearance of Staff
Cleanliness of Tables, Utensils
Cleanliness of Restrooms
Location of Restaurant
Appearance of Surrounding Customers
Possibility of Standardization
• Hostess Greeting
• Pre-Prepared Sauces (Mild, Medium and
• Time Standards
• Food and Drink Quality Standards
• Bill Standards
Potential Fail Points and Fixability
• Bar
– train to make drinks; create ample seating space for wait area overflow
• Food
– revise food presentation; create quality control checks to ensure order is
correct before delivering to customer
• Staff
– training; set number of times to check-in on customers; behavioral and
attitude guidelines; dress code
• Billing
– standards for when to bring bill, how to deliver, when to pick-up, how
quickly to process transaction; ensure one fortune cookie per customer
• Cleanliness
– standards for amount of time it takes to clear and clean tables; regular
restroom checks
Customer-Defined Service
• Factors Necessary for Appropriate Service
• Types of Customer-Defined Service
• Development of Customer-Defined Service
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Service Standards
Standards are based on the most important customer
expectations and reflect the customer’s view of these expectations.
Customer Expectations
Customer Process Blueprint
Customer Experience
Productivity Implications
Cost Implications
Company Process Blueprint
Company View of Quality
Hard vs. Soft Standard
Things that can be counted, timed,
or observed through audits (time,
numbers of events)
Opinion-based measures that cannot
be observed and must be collected by
talking to customers (perceptions, beliefs)
What Customers Expect: Getting to
Actionable Steps
Process for Setting Customer-Defined Standards
Hard (Mostly) Service Standards at
• Appointment available within one day of
customer’s requested service day
• Write-up begins within four minutes
• Service needs are courteously identified,
accurately recorded on repair order and verified
with customer
• Service status provided within one minute of
• Vehicle serviced right on first visit
• Vehicle ready at agreed-upon time
• Thorough explanation given of work done,
coverage and charges
Soft Standards at Toyota in Japan (1 of 2)
• Standards for salespeople
patterned after samurai behaviors:
– assume the samurai warrior’s “waiting
position” by leaning five to ten
degrees forward when a customer is
looking at a car
– stand with left hand over right, fingers
together and thumbs interlocked, as
the samurais did to show they were
not about to draw their swords
– display the “Lexus Face,” a closedmouth smile intended to put
customers at ease
Soft Standards at Toyota in Japan
(2 of 2)
• Standards for salespeople patterned
after samurai behaviors:
– when serving coffee or tea, kneel on the
floor with both feet together and both
knees on the ground
– bow more deeply to a customer who has
purchased a car than a casual window
– stand about two arms’ lengths from
customers when they are looking at a car
and come in closer when closing a deal
– point with all five fingers to a car door’s
handle, right hand followed by left, then
gracefully open the door with both hands
Physical Evidence and the
Physical Evidence
Types of Servicescapes
Strategic Roles of the Servicescape
Framework for Understanding Servicescape
Effects on Behavior
• Guidelines for Physical Evidence Strategy
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Elements of Physical Evidence
Facility exterior: design, signage, parking, landscape …
Facility interior: design, equipment, layout,
atmospherics, ...
Other tangibles: business cards, stationery, billing
statements, reports, web pages, …
Roles of the Servicescape
• Package
– conveys expectations
– influences perceptions
• Facilitator
– facilitates the flow of the service delivery process
• provides information (how am I to act?)
• facilitates the ordering process (how does this work?)
• facilitates service delivery
• Socializer
– facilitates interaction between:
• customers and employees
• customers and fellow customers
• Differentiator
– sets provider apart from competition in the mind of the consumer
Guidelines for Physical Evidence
• Recognize the strategic impact of physical evidence.
• Blueprint the physical evidence of service.
• Clarify strategic roles of the servicescape.
• Assess and identify physical evidence opportunities.
• Be prepared to update and modernize the evidence.
Part 5
Key Causes of Provider Gap 3
Employees’ Roles in Service
• Service Culture
• The Critical Importance of Service
• Boundary-Spanning Roles
• Strategies for Delivering Service Quality
Through People
• Customer-Oriented Service Delivery
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Service Culture
“A culture where an appreciation for good
service exists, and where giving good
service to internal as well as ultimate,
external customers, is considered a
natural way of life and one of the most
important norms by everyone in the
- Christian Grönroos (1990)
The Critical Importance of Service
Every encounter counts
Employees are the service.
Every employee can make a difference
They are the organization in the customer’s eyes.
They are the brand.
They are marketers.
Through their actions, all employees shape the brand
• Their importance is evident in:
– the services marketing mix (people)
– the service-profit chain
– the services triangle
The Services Marketing
Aligning the Triangle
• Organizations that seek to provide
consistently high levels of service
excellence will continuously work to align
the three sides of the triangle.
• Aligning the sides of the triangle is an
ongoing process.
Making Promises
Understanding customer needs
Managing expectations
Traditional marketing communications
Sales and promotion
Internet and web site communication
Keeping Promises
• Service delivery
– Reliability, responsiveness, empathy, assurance,
tangibles, recovery, flexibility
• Face-to-face, telephone & online interactions
• The Customer Experience
• Customer interactions with sub-contractors
or business partners
• The “moment of truth”
Enabling Promise Keeping
• Hiring the right people
• Training and developing people to deliver
• Employee empowerment
• Support systems
• Appropriate technology and equipment
• Rewards and incentives
Ways to Use the Services
Marketing Triangle
• Overall Strategic Assessment
• Specific Service Implementation
– How is the service
organization doing on
all three sides of the
– Where are the
– What are the
– What is being promoted
and by whom?
– How will it be delivered
and by whom?
– Are the supporting
systems in place to
deliver the promised
Service Employees
• Who are they?
– “boundary spanners”
• What are these jobs like?
– emotional labor
– many sources of potential conflict
• person/role
• organization/client
• interclient
– quality/productivity tradeoffs
Boundary Spanners Interact with Both Internal and
External Constituents
Human Resource Strategies for Delivering
Service Quality through People
How Employee Satisfaction Drives Productivity
and Customer Satisfaction at Wegmans
The grocery chain paid over $54 million for college scholarships
for 17,500+ employees over the past 20 years.
Wegmans did not hesitate to send cheese manager Terri
Zodarecky on a ten-day sojourn to cheese makers in Europe.
The firm gives employees flexibility to deliver great customer
How can this be justified?
How does this affect
• Wegmans’ labor costs are 15-17% of sales, compared with
12% for industry.
• But annual turnover is just 6% (19% for similar grocery
• 20% of employees have 10+ years of service.
• This in an industry where turnover costs can exceed annual
profits by more than 40%.
• Wegmans’ operating margins are 7.5%, double what the big
grocers earn.
• Sales per square foot are 50% higher than industry
• Benefits:
– quicker responses to customer
needs during service delivery
– quicker responses to
dissatisfied customers during
service recovery
– employees feel better about
their jobs and themselves
– employees tend to interact with
– empowered employees are a
great source of ideas
– great word-of-mouth advertising
from customers
• Drawbacks:
– potentially greater dollar
investment in selection and
– higher labor costs
– potentially slower or
inconsistent service delivery
– may violate customers’
perceptions of fair play
– employees may “give away the
store” or make bad decisions
Traditional Organizational Chart
Customer-Focused Organizational
Customers’ Roles in Service
• The Importance of Customers in Service
Cocreation and Delivery
• Customers’ Roles
• Self-Service Technologies—The Ultimate
in Customer Participation
• Strategies for Enhancing Customer
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
How Customers Widen the Service
Performance Gap
• Lack of understanding of their roles
• Not being willing or able to perform their roles
• No rewards for “good performance”
• Interfering with other customers
• Incompatible market segments
Importance of Other (“Fellow”) Customers
in Service Delivery
• Other customers can detract from satisfaction:
disruptive behaviors
overly demanding behaviors
excessive crowding
incompatible needs
• Other customers can enhance satisfaction:
– mere presence
– socialization/friendships
– roles: assistants, teachers, supporters, mentors
Customer Roles in Service
Productive Resources
Contributors to
Service Quality and
Customers as Productive
• customers can be thought of as “partial employees”
– contributing effort, time, or other resources to the
production process
• customer inputs can affect organization’s
• key issue:
– should customers’ roles be expanded? reduced?
Customers as Contributors to Service
Quality and Satisfaction
• Customers can contribute to:
– their own satisfaction with the service
• by performing their role effectively
• by working with the service provider
– the quality of the service they receive
• by asking questions
• by taking responsibility for their own satisfaction
• by complaining when there is a service failure
Customers as Competitors
• customers may “compete” with the service
• “internal exchange” vs. “external exchange”
• internal/external decision often based on:
expertise capacity
resources capacity
time capacity
economic rewards
psychic rewards
Strategies for Enhancing customer
• Define customers’ jobs
– helping oneself
– helping others
– promoting the company
• Recruit, educate, and reward customers
recruit the right customers
educate and train customers to perform effectively
reward customers for their contributions
avoid negative outcomes of inappropriate customer
• Manage the customer mix
Delivering Service Through
Intermediaries & Electronic Channels
Service Distribution
Direct or Company-Owned Channels
Agents and Brokers
Electronic Channels
Common Issues Involving Intermediaries
Strategies for Effective Service Delivery
Through Intermediaries
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Service Provider Participants
• Service principal (originator)
– creates the service concept
• (like a manufacturer)
• Service deliverer (intermediary)
– entity that interacts with the customer in the
execution of the service
• (like a distributor/wholesaler)
Services Intermediaries
• Franchisees
– service outlets licensed by a principal to deliver a
unique service concept it has created
• e.g., Jiffy Lube, Blockbuster, Holiday Inns, McDonald’s
• Agents and Brokers
– representatives who distribute and sell the services of
one or more service suppliers
• e.g., travel agents, independent insurance agents
• Electronic Channels
– all forms of service provision through electronic
• e.g., ATMs, university video courses, Tax Prep software
Benefits and Challenges for
Franchisors of Service
• Leveraged business
format for greater
expansion & revenues
• Consistency in outlets
• Knowledge of local
• Shared financial risk &
more working capital
• Difficult to maintain &
motivate franchisees
• Highly publicized
disputes & conflicts
• Intermediaries control
customer relationship
Benefits and Challenges for
Franchisees of Service
• An established business
• International, national, or
regional brand marketing
• Minimized risk of starting
a business
• Poorly capitalized or
managed franchisor
• Encroachment of other
outlets into franchised
• Disappointing profits &
• Lack of perceived control
over operations
• High fees
Benefits and Challenges in Distributing
Services through Agents and Brokers
• Reduced selling &
distribution costs
• Intermediary’s
possession of skills &
• Wide representation
• Knowledge of local
• Customer choice
• Loss of control over
• Representation of
multiple service
Benefits and Challenges in Electronic
Distribution of Services
• Consistent delivery of
standardized services
• Customer convenience
• Wide distribution
• Customer choice & ability
to customize
• Quick customer feedback
• Price competition
• Inability to customize
• Lack of consistence due
to customer involvement
• Changes in customer
• Security concerns
• Competition from
widening geographics
Common Issues Involving
• conflict over objectives and performance
• difficulty controlling quality and
consistency across outlets
• tension between empowerment and
• channel ambiguity
Strategies for Effective Service Delivery
Through Intermediaries
• Control Strategies:
– Measurement
– Review
• Partnering Strategies:
– Alignment of goals
– Consultation and
• Empowerment
– Help the intermediary
develop customeroriented service
– Provide needed support
– Develop intermediaries
to deliver service quality
– Change to a cooperative
management structure
Managing Demand and Capacity
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Causes of Failure to Deliver Service
• Inventory and demand don’t match
• Capacity is often fixed
• Service characteristics: perishability,
simultaneous production and consumption
• Demand often can’t be controlled or
• Result: Lost business or wasted capacity
• Can’t ever be regained or resold
Results of Mismatch
• Demand is either above or below capacity
• Excess demand – turn customers away
• Demand above optimal capacity resources are stretched in the short term
• Excess capacity - resources underutilized,
often sends the wrong message
Variations in Demand Relative to Capacity
Source: C. Lovelock, “Getting the Most Out of Your Productive Capacity,” in Product Plus (Boston: McGraw Hill, 1994), chap. 16, p. 241.
Understanding Capacity Constraints
and Demand Patterns
Capacity Constraints
– Time (accounting, medical,
– Labor (law firm, post office…)
– Equipment (telecom,
utilities, delivery service…)
– Facilities (hotels, hospitals,
– Optimal versus
maximum use of
Demand Patterns
– Predictable cycles
– Random demand
– Demand patterns by
market segment
Demand versus Supply
Source: C. H. Lovelock, “Classifying Services to Gain Strategic Marketing Insights,” Journal of Marketing 47, (Summer 1983): 17.
Strategies for Shifting Demand to Match Capacity
Demand Too High
Shift Demand
Use signage to
communicate busy days
and times.
Offer incentives to
customers for usage
during non-peak times.
Take care of loyal or
“regular” customers first.
Advertise peak usage
times and benefits of nonpeak use.
Charge full price -- no
Demand Too Low
• Use advertising to increase
business from current market
• Modify service offering to
appeal to new market
• Offer discounts or price
• Modify hours of operation.
• Bring the service to the
More Strategies for Adjusting Capacity to Match
Challenges and Risks in Using
Yield Management
Yield Management: Maximizing profit from available capacity by
manipulating pricing to gain business at different times, and from
differing market segments. Yield = Actual Revenue (capacity used x average
price)/Potential Revenue (total capacity x maximum price)
Revenue Management: Maximizing profits from the sale of all goods
and services offered by the service firm
• Customer alienation
• Employee morale problems
• Incompatible incentive and reward systems
• Lack of employee training
• Inappropriate organization of the yield management function
Waiting Line Strategies
• Employ operational logic
– modify operations
– adjust queuing system
• Establish a reservation process
• Differentiate waiting customers
importance of the customer
urgency of the job
duration of the service transaction
payment of a premium price
• Make waiting fun, or at least tolerable
The Psychology of Waiting Lines
Unoccupied time feels longer than occupied time.
Preprocess waits feel longer than in-process waits.
Anxiety makes waits seem longer.
Uncertain waits seem longer than known, finite waits.
Unexplained waits seem longer than explained waits.
Unfair waits feel longer than equitable waits.
The more valuable the service, the longer the customer
will wait.
• Solo waits feel longer than group waits.
Part 6
Pricing of Services
• Ways in which Service Prices are Different
for Consumers
• Approaches to Pricing Services
• Pricing Strategies that Link to the Four
Value Definitions
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Some Issues in Service Prices
• Customers often lack reference prices for
• Service variability limits knowledge
• Providers are unwilling to estimate prices
• Individual customer needs vary
• Collection of price information by customers
is difficult
• Prices are not visible
The Role of Non-monetary Price
Time costs
Search costs
Convenience costs
Psychological costs
Three Basic Marketing Price Structures and
Challenges for Services
Four Customer Definitions of Value
Pricing Strategies When the Customer
Defines Value as Low Price
Pricing Strategies When the Customer Defines
Value as Everything Wanted in a Service
Pricing Strategies When the Customer
Defines Value as Quality for the Price Paid
Pricing Strategies When the Customer Defines
Value as All that Is Received for All that Is Given
Bid Pricing
Competition-based pricing where one bidder has little
or no knowledge of other bidders’ price. An expected
profit model is used:
Bid Price
Profit (P)
p of success
Expected Profit (P*p)
MKT 356 Services Marketing
End of Slides, Winter 2010

Customers - Wright State University