Perspective

Service recovery: When and how it works best

Srikanth Beldona and Kesh Prasad

Srikanth Beldona

Kesh Prasad

Although specifics vary, there is wide consensus in marketing circles that the cost of acquiring a new customer is relatively much higher than retaining an existing one. This is especially problematic for services, which are process- driven phenomena performed with human participation at both employee and customer ends. 'Zero defects' are near to impossible in human interaction-based service delivery and the negative impact of service failures on customer satisfaction, re-patronage intentions and customer advocacy are a matter of concern for most firms. One predominant countermeasure taken to alleviate concern over service failures is to implement a service recovery strategy.

Service recovery is an imperative when it comes to hospitality-based services. Hospitality-based services have stronger personal and emotional characteristics embedded in them and service failure tends to draw greater customer ire. Add to this, word-of-mouth is stronger when compared with several other types of services. However, implementing a service recovery program without addressing the broader issue of customer retention is to not see the forest for the trees. This article aims to broaden this perspective by proposing a service-oriented customer retention model that integrates service excellence, recovery and service feedback mechanisms.

Some evidence first

Let us start with a snapshot of results that highlight how the key parameters of customer satisfaction, re-patronage intentions and customer advocacy varied based on different scenarios. We set out by using data collected over one full year from four hotels in the Orlando area in Florida, USA. An electronic internet-based feedback system was used wherein customers were sent an email upon checkout from the hotel. These surveys are quick to elicit feedback and capture the customer's post-consumption state of mind in a timely and effective manner. The email message requested customers to click on a link that opened a survey that sought feedback specific to their stay. A total of 1,427 surveys were analysed.

We also elicited responses (23.76 per cent of the sample) from those customers who had a problem but did not report it during their stay. Most studies examining service recovery find it difficult to elicit responses from this group, and this is unique to this study. The summary of these results are:

• A problem-free stay should be the primary objective for hotel firms to enhance customer satisfaction, re-patronage intentions and positive customer advocacy. Additionally, excellent service recovery does not lead to greater satisfaction and re-patronage intentions compared to a problem free stay. Put differently, we did not find generalisable evidence to support the presence of a service recovery paradox. Note that the service recovery paradox is a much researched phenomenon that portends that excellent service recovery is far more superior to a problem-free stay in enhancing customer loyalty. This leads to a false notion that at some subliminal level, customers understand that services can fail, and that professional recovery is adequate to induce their re-patronage. These findings support previous research that debunks the myth of a service recovery paradox. In other words, firms have to first strive towards service excellence, i e, fewer service failures.
• Poor service recovery can be more damaging than not acting at all. Satisfaction, re-patronage intentions and customer advocacy were the lowest for the group that reported the problem and perceived service recovery efforts to be poor. This is significantly lower than the group that did not report the problem or seek resolution. This is not meant to understate the problem pertaining to a firm's inability to act as a result of customers not reporting the problems. Firm inaction here (where customers did not report the problem) can be largely attributed to the lack of a response mechanism that encourages feedback at the time of service consumption. Therefore, firms need to have a strong service recovery strategy that works in a service-oriented customer retention model.

Interdependencies at play

At the Trident Mumbai

The findings of our study above highlight the interdependencies between service recovery, service excellence and service feedback mechanisms. We highlight these interdependencies in our service-oriented customer retention model.

At the outset, we substitute the key components with what needs to be done. Service excellence is substituted with the ‘need to reduce service failures’, service recovery with the ‘need to recover effectively’ and lastly, service feedback mechanisms with the ‘need to reach out proactively’. Not to sound cliché, but for simplicity's sake, we term these as the three ‘Rs’ of service-oriented customer retention: Reducing service failures progressively, Recovering effectively and Reaching out to customers using all available options to elicit feedback.

• The first imperative is that firms should aim towards consistently reducing service failure rates. Using diagnostics such as service blueprints that help identify potential weak points of service delivery, firms can develop effective recovery mechanisms. In addition to this, firms also need to continuously analyse service performance across all potential weak points and readjust strategies. For example, the time taken to approach a customer for drinks orders after "greet and seat" can be repeatedly inconsistent in a restaurant. Identifying such issues through continuous observation and also adjusting service delivery to reduce failures is vital.
• The second imperative to get service recovery right. As such, it's the second chance and there is no room for a third. Effective service recovery requires an operating service philosophy that visibly warns employees about the pitfalls of poor service recovery. Poor service recovery has an adverse impact on how customers perceive commitment of a firm towards good service. Firms need to actively empower employees to own complaints and resolve them. Recovery guidelines should be consistent and commensurate with the seriousness of the service failure. Remember, empowerment without controls is like keeping a tiger for a pet without rules and procedures on how it is tamed.
• The third imperative is to have mechanisms and procedures in place to effectively reach out to customers so that they bring to hotel manager's attention, cases of service failures. These mechanisms should encourage customers to talk about problems experienced during the stay as well as after the stay. There are several mechanisms that can enable firms to reach out proactively. Service guarantees, empowered frontline staff equipped with adequate resources and a highly visible communications strategy aimed at reaching guests are some of them. Post consumption, hotels can use mechanisms such as e-mail surveys to encourage those customers to give feedback, who hitherto did not do so during their hotel stay. As evidenced in this study, nearly 25 per cent of responses were people who experienced a problem but did not complain during their stay.

In addition to the three imperatives viewed independent of one another, it is their interdependencies and their alignment that is integral towards successful service-oriented customer retention. This is better understood by looking at the resultant effects of alignment that are illustrated in the model along the three sides of the triangle. These are:

• Reliability: Put differently, if either (reducing failures or recovering effectively) of these falter, it will have a direct impact on the reliability of a service's offering. The alignment and coordination of these two components should be smooth. Over time, not only will customers be assured to greater consistency in service delivery, they will also get a sense of comfort that recovery will be positively commensurate with the nature of service failure if and when it happens. Note that although we put greater importance on getting service right the first time, we emphasise the need for an effective recovery platform as a second line of defense.
• Commitment: Again, the co-ordinated effort of recovering effectively and reaching out proactively enhances the commitment to service excellence of a firm. Customers want to alleviate concerns that recovery is a one-time incident. Therefore when customers are guaranteed of effective service recovery in the event of failure and also observe proactive efforts to seek customer feedback, their belief in a firm's commitment towards good service is strengthened.
• Focus: The lack of reaching out to customers proactively and eliciting feedback will significantly diminish a firm's understanding of innate customer needs, even if service failures are kept to a minimum. This means that a service delivered with perfection in process loses its effectiveness if customer needs have evolved far and beyond what is being delivered. Conversely, merely reaching out and not progressively reducing service failures indicates that the firm's customer orientation is suspect. Therefore, the co-ordination or alignment of progressive service failure reduction and reaching out proactively enhances the focus of a firm to meet the needs of its customers.

Hospitality managers face significant customer driven challenges because of the wide range of reviews and social networking websites prevail on the Internet. We recommend that hospitality-based service firms work towards crafting balanced customer retention strategies that are driven by a culture of service excellence (progressively reducing service failure rates), empowering the front-line to solve customer problems in case of service failures and deploying customer feedback systems such as guarantees, email surveys etc where customers feel encouraged to bring their problems to the attention of management. Most importantly, the processes need to be aligned to meet the broader goals of service-oriented customer retention.

Srikanth Beldona is an assistant professor in the Alfred Lerner College of Business and Economics at the University of Delaware, USA. Kesh Prasad is president, Differential Web Solutions, based out of Virginia and is adjunct professor at University of Delaware and George Washington University, USA.