Chapter 7: Service guarantees, service failure and service recovery

Question 1

I. Service failure

Service quality as the basis for a sustainable competitive advantage

Answer 1

• Reliability as a starting point for the reputation as a provider with high service quality (always a good service without failure). It is the core of quality.
• Customers assess the value of an intangible service based on service promise (on-line reviews) and service quality
• Two types of loyalty: service loyalty (commit always to give superior quality) as a prerequisite for customer loyalty (this is the objective)
• Empowerment of employees to provide quality of service
• But: mistakes in service provision are unavoidable: (depends on people)
  . Customer perspective (i.e. food was good or not)
  . Service process (perhaps a minimum moment don’t work good in all moments of truth)

Question 2

Sources and challenges of Service failure

Answer 2

Sources of service failure:

• Core service (comida)
• Service providers (waiter is not polite)
• Uncontrollable circumstances (the avocado did not arrive on time)
• Customer (other people speaking in theater)

Challenges in detecting and handling service failures:

• “Silent mass” of customers (requires time and effort to complaint)
• To have an effective feedback and incentive systems from customers and employees (online review read and respond)

Question 3

II. Service guarantees

Service guarantees reduce the perceived risk

Answer 3

Service purchases go to new customers with increased perceived risk:
. Services can not be tested in advance
. Services can not be changed (i.e. I want Auto in another color)
. Services can not be returned

To reduce the perceived risk at the customer, many service companies offer service guarantees:
. Promise that service delivery meets the service promise
. Promise that the customer receives a short-term compensation

Question 4

Meaning and properties of effective Service guarantees

Answer 4

• Service guarantees create mutual trust between the service company on the one hand and the internal and external customers on the other.
• Service guarantees can be a particularly effective tool for receiving customer feedback

Effective service guarantees are:

• Unconditionally
• Easy to understand and communicate
• Significant for the customer
• credible
• Easy to activate
• Easy to fulfill
• Service guarantees are a way for service companies to turn unsatisfied customers into satisfied customers by immediately correcting mistakes.

Question 5

Advantages of Service guarantees

Answer 5

1. Ensure reliability of service and generate sales
2. Clarify expectations by showing everyone the expected quality of service
3. Received immediate customer feedback
4. Improve service delivery systems
5. Identify sources of error in the service system
6. Increase customer satisfaction
7. Improve employee performance through training and education programs
8. Develop a service-oriented culture throughout the enterprise
9. Maintain competitiveness in the market

Service guarantees fulfill both a marketing function and an operational function (double role).

Question 6

The use of service guarantees is not always reasonable

Answer 6

• New companies that still require a lot of organizational learning (firms must be sure that their processes work perfect).
• Strong dependence of service provision on external circumstances (e.g. weather)
• Low value of a guarantee when customers perceive little financial, psychological or physical risk
• A company with a strong reputation where a guarantee does not match the image (i.e. a 5 star hotel)
• Guarantees can promote harmful behaviors that risk the quality of service, employees or customers (i.e. pizza delivery in 30 min. could be dangerous).

Question 7

III. Service recovery

Service recovery is more than complaint management

Answer 7

• Customer satisfaction is the key to customer loyalty
• Businesses need to maintain the loyalty of their current customers
• Service recovery is a systematic and proactive process of a business with the goal of bringing back dissatisfied customers after a service has failed.
• Errors should be proactively identified and compensated before a customer complaint (it is proactive)
• “Double failure” (do it right second time, service recovery has a second chance) if the company fails to make up for a service failure

Possible positive effects of successful service recovery:

• Customer loyalty
• Higher customer satisfaction compare with the satisfaction before the error (“Service Recovery Paradox”)

Question 8

Possibilities and Success Factors of Service recovery

Answer 8

Possibilities (types) of service recovery: apology, correction, empathy, compensation, renewed contact, recognition, explanation, exceptional treatment, intervention of the management

Success Factors of Service Recovery (Justice Theory):
. Distributive justice (what customer receives as outcomes)
. Procedural justice (process use to resolve the failure)
. Interactional justice (manner of employees to deal with the failure)

Question 9

Steps of service recovery

Answer 9

1. To apologize,
2. To take responsibility,
3. Specify time window,
4. Involve the customer,
5. Offer conversation with the management
   And then: 6. Learning from the experience

Question 10

Complementary strategies for sustainable Competitive advantage

Answer 10

• Effective service recovery = includes service guarantees and employee empowerment
• These three strategies reinforce each other and fit the “three phases of the service experience” :
  . Pre-purchase communication — Service guarantee
  . Provision of services — empowerment of employees
  . Relationship after purchase — Service recovery

Five steps to creating an “effective and coordinated service system”:

1. Identification of failure -susceptible areas
2. Establishment of quality standards
3. Imparting required knowledge and skills to employees
4. Develop a service recovery strategy
5. Get feedback

Question 11

Summary of Service guarantees, service failure and service recovery

Answer 11

Errors in service delivery are unavoidable, they are valued from a customer perspective and may concern a single aspect within the service process

Service failure can have various sources (core service, service providers, uncontrollable circumstances, customers); problematic is the “quiet mass” of customers who are not actively complaining

Service guarantees include the promise that (1) service delivery meets the service promise, and (2) that the customer otherwise receives compensation in the short term, and can effectively reduce the perceived risk of purchasing services

Service recovery is a systematic and proactive process of a business with the goal of bringing back dissatisfied customers after a service failure has occurred

Service recovery, service guarantees and employee empowerment are complementary strategies that can work together to create a sustainable competitive advantage