About six years ago I was on a late night flight from Pittsburgh to Hartford for an audit of an insurance company which was to commence early the next day. It was after 11:00 PM when my taxi dropped me off at the hotel. I couldn’t wait to get to my room and collapse in bed to make the most of what was going to be a short night. Alas, when I reached the front desk to check in the receptionist informed me that the hotel was overbooked and that there were no rooms available in spite of my reservation. The look on my face was probably frightening to the young man. After expressing my mild displeasure with the situation, the receptionist turned his back to me, made a couple of phone calls, wrote something down on hotel stationary, pulled some documents out of a drawer, and then turned back to me in the manner a nervous juror might present a guilty verdict. The young man revealed to me that he had found me a room in a nearby four-star hotel (my reservation was at a three-star), agreed to arrange transportation not only to that hotel, but to the client that I was auditing, and presented me with a free voucher for a breakfast buffet and a certificate good for a free nights stay at any of the company’s hotels in the continental United States. Still tired, I was extremely pleased not only at the level to which I didn’t have to yell at someone, but at the expediency to which the young man took action to not only resolve my issue, but compensate for it. I didn’t realize it at the time, but I was the recipient of a service recovery strategy. It was also the best four hour sleep I ever had in what turned out to be a suite with a California king size bed, but I digress.
Service recovery is defined as “actions that service providers take in response to service defections or failures in service delivery to return aggrieved customers to a state of satisfaction by addressing customers’ problems.” (Back et al., 2007). The customers’ evaluation of the effort to which satisfaction is achieved is grounded in Equity Theory, specifically (1) the quality of the tangible outcomes (e.g., discounts, free meals, credits, etc.), (2) the way in which the rewards are allocated, and (3) the process used in arriving at the resolution.
If the process used in arriving at the resolution is extremely successful or goes above and beyond the customers’ expectations, the phenomenon known as the service recovery paradox can occur. The service recovery paradox is described as “when service recovery efforts are exceptional, the level of customers’ overall satisfaction rates can be actually higher than those of customers who have not experienced any problem in the transaction” (Back et al., 2007). On the other hand, a poor recovery can lead to a “magnification of negative evaluation”. Chip Bell, author of the book Knock Your Socks Off Service Recovery, states that service recovery works best if “a front line employee apologizes, fixes the problem, and offers something of value before an unhappy customer leaves the premises”. Such was the case with my hotel experience in Connecticut. Service recovery is not a new concept, but service providers seem to be focusing more on such strategies as the battle over customer loyalty is intensifying.
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| Graphical illustration of the Service Recovery Paradox source: wikipedia.org |
Using a convenience sample of 286 casual restaurant customers, Kansas State University and University of Houston researchers wanted to test the merits of the paradox in the context of various levels of recovery. The researchers results indicated that the recovery efforts must be “exceptional” rather than just “good” to achieve a higher customer satisfaction than would have been present had the failure not have occurred in the first place. The researchers invite the reader to view service recovery as an opportunity to repair and build lasting customer relationships in light of the costs to do so. Critics of the service recovery paradox state that if you can achieve even higher satisfaction ratings, why not just fail in the first place? “Too risky”, respond the researchers. First, service providers typically have little or no control over the issue giving rise to the failure. Second, recovery efforts can be costly and third, the researchers reiterate that only “exceptional” efforts achieved higher ratings and such an achievement may not always be realistic or feasible.
Of course, not everyone buys into the idea of service recovery. Author Betsy Kruger criticizes the service industry for allocating too many resources to pacifying disgruntled customers and not placing enough emphasis on rewarding their best customers. Ms. Kruger states, “It’s wrong to reward complainers”. In her book Top Market Strategy: Applying the 80/20 Rule, Ms. Kruger invites service providers to adopt the following three principles:
1. Identify the top 20% of customers – they are your true profit generators.
2. Discontinue marketing to the bottom 80% and, when possible, automate all interactions to that group
3. Allocate some resources to identifying and attracting prospects whose characteristics are similar to that of the top 20% of existing customers.
No matter which position is preferred, service providers need to understand their customers and meet their needs. While 100% satisfaction is always the goal, is it more often than not far from the reality. With this being the case I believe that it is imperative for some recovery strategy to be in place and communicated to front line employees. In the long run, the benefits are likely to outweigh the costs.
Resources:
Back, Ki-Joon, et al., “Mixed Findings on Service Recovery Paradox: An Illustration from an Experimental Study” Kansas State University Department of Hotel, Restaurant, Institution Management & Dietetics: 2007.
Loftstock, John, “CSD: Are Customers Always Right?” Retailwire January 26, 2012 (accessed January 29, 2012), http://www.retailwire.com/discussion/15778/csd-are-customers-always-right
“Service Recovery Paradox” Wikipedia.org (accessed January 29, 2012) http://en.wikipedia.org/wiki/Service_recovery_paradox
Stoller, Gary, “Companies give front line employees more power” USA Today, June 26, 2005 (accessed January 29, 2012), http://www.usatoday.com/money/companies/management/2005-06-26-service-usat_x.htm
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