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Lecture 4 - Service Failures

Narrator: Listen to part of a lecture in a marketing class.And that wraps up our discussion of how the retail sector, uh, ways in which retail managers deal with customer complaints.

So let’s shift now to the service sector, which markets not goods but services, intangibles like transportation, food service, career counseling…. Oh, there are literally hundreds of examples.

Service providers must, of course, constantly strive to meet customers’ needs. But as in retail, there are instances of service failure in which the customer is dissatisfied, uh, perhaps to the point of not doing business with you anymore.

Some service failures are beyond an organization’s control, like, uh, computer malfunction that leads to missed deadlines. Other failures stem from process problems, like inadequate training for newly-hired employees.

Then there’s human error. Okay, imagine you manage a car rental agency. A customer calls in a reservation, but your employee marks down the wrong date. So your customer arrives and guess what, the size car he reserved isn’t available. But your customer is less concerned about the source of the failure than the solution: what you do about it; what sort of compensation; what service recovery you give.

So if you are in the service industry, as a marketer, you always need some kind of service recovery plan. Your plan must be in place before a failure occurs and it must also be communicated promptly to everyone in your organization who deals with customers so they’ll know what to do.

Service recovery encompasses all the actions taken to get a disappointed customer back to, uh, well, back to a state of satisfaction. So if your car rental agency couldn’t provide the size car your customer wanted, but your policy is to provide a roomier car for the same price. Your customer would probably be happy, might even restore his faith in your company. Research has in fact identified service recovery as a significant determinant of customer loyalty.

Student：I see what you mean. Every year, my family goes on vacation together.

And a few summers ago, when we were in Chicago, it was really really hot. And guess what, the hotel’s air conditioning broke and everyone was complaining. What the hotel did…they actually didn’t charge anybody for that weekend. But the funny thing is that even though we had that horrible experience at that hotel, because they were so quick to appease us, we usually stay at that same hotel every time we go to Chicago.

Professor：Great example! So in this case that hotel chain might consider itself the beneficiary of the so-called service recovery paradox. Um, the paradox basically implies that customers who experience a service failure, well, they could potentially be made more loyal than customers who were satisfied in the first place if an equitable recovery occurred after the failure.

Yes, Ben?

Student：Wait a minute. If a good service recovery creates more loyalty than, um, if things went smoothly from the get-go, why don’t companies like make mistakes on purpose so?

Professor：So you could implement a recovery plan that leave your customers delighted as opposed to merely satisfied?

Look, it’s always better to do things right the first time ‘cause how can you know that the paradox will hold true in every situation?

Plus, it’s hard to predict if a good service recovery will overcome the negative effect of a service failure, and what about all those failures that never come to your attention? Because statistically about 50 percent of the customers don’t complain about service failures, at least not to the service provider. But negative word of mouth, now, that got worse implications for your business.

Also, you’d have to pay your employees to execute the service a second time.

Typically, a service recovery is gonna involve some kind of compensation, right?

So it is gonna cost your company some money that you are going have to account for in your budget.

I’ve actually been researching some of these issues myself ‘cause what we need is a deeper understanding of customers’ thought processes and their reactions to service recoveries. How do consumers form expectations? How do they react to different service recovery tactics? Can we predict how any given customer will react to a given service failure?

People’s expectations, their priorities vary. Like uh, if I am in a hurry, and the French fries I ordered at a fast food restaurant aren’t piping hot. I might not complain ‘cause I got them fast. But If I am not in a hurry, I might return the fries even if I had to wait for a fresh batch.