Levesque, Terrence JAuthor InformationView Profile; McDougall, Gordon H GAuthor InformationView Profile. Revue Canadienne des Sciences de l'Administration; Montreal Vol. 17, Iss. 1, (Mar 2000): 20-37.
Increased customer loyalty is a critical driver of a firm's long-term financial performance (Jones & Sasser, 1995). Customer dissatisfaction reduces loyalty and erodes the firm's reputation. A major cause of dissatisfaction is unsatisfactory problem resolution (Hart, Heskett, & Sasser, 1990) and up to 50% of customers who experience problems are not satisfied with the recovery strategy (Best & Andreasen, 1976; Zeithaml, Berry, & Parasuraman, 1990).
When customers experience a problem with a service provider, they may respond by switching to a new supplier (exit), attempting to remedy the problem by complaining (voice), or staying with the supplier anticipating that "things will get better" (loyalty) (Hirschman, 1970). They may also talk to other consumers about the experience, and this negative word of mouth can also influence a firm's profits and reputation (Richins, 1987; Singh, 1990; Singh & Wilkes, 1996). It is thus important for the firm to develop a recovery strategy to respond to service problems. Interestingly, in spite of the importance of service recovery, according to Kelley and Davis, "a dearth of empirical research confines any theoretical discussion to anecdotal reports" (1994, p. 52).
The objective of this paper is to provide empirical evidence on the effects on customers' future intentions toward the provider of different recovery strategies after a service failure (Figure 1). Using hospitality industry scenarios, subjects were presented with a new purchase situation where the provider's quality was known only by reputation. Purchase decisions varied according to the importance of the purchase to the consumer. Purchase outcomes included service failures where service was either denied or delayed. The service provider offered the following recovery strategies: (a) apology only, (b) apology and assistance, (c) apology and compensation, or (d) apology, assistance, and compensation. Subjects' intentions toward the provider were measured, including their propensity to voice their dissatisfaction and the likelihood that they would continue to do business with the provider. The study provides insight into the threats to the loyalty-building process and an opportunity to determine the value of a contingency approach in designing a service recovery strategy.
Background
Service firms spend substantial resources to deliver a consistent offering that meets customers' expectations. Two major challenges to maintaining consistency are variability, due to the human element involved in delivery, and inseparability, because the customer often has to be present to receive the service. Service firms recognize that failures will occur and develop recovery strategies to meet the challenges (Hart et al., 1990). Of interest here are core service failures that are manifest problems caused by the service provider's failure to deliver a service that had been contracted for (e.g., delay or denial).
In general, service recovery strategies can consist of three distinct actions, either alone or in combination: (a) apologize (acknowledging the problem), (b) assistance (fixing the problem), and (c) compensation (paying for the "trouble" costs of the problem). The recovery strategy plays a role in the customer's future intentions toward the provider. For both practitioners and researchers, it is important to understand which service recovery strategy is most effective in a given situation.
Customers' response to service failures include: loyalty, exit, and voice (complaining to the service provider, friends and relatives, or third parties) (Day & Landon, 1977; Hirschman, 1970; Singh, 1988; Singh & Wilkes, 1996). Considerable research has been conducted into complaining and switching behaviour (see Richins, 1987; Singh & Howell, 1985; and Singh & Wilkes, 1996, for reviews). Few research studies have investigated the extent to which service recovery strategies moderate these customer responses.
Situation variables may also influence customers' responses to service problems. Customers are more likely to engage in switching and complaining to the service provider and others as problem severity increases (Keaveney, 1995; Kelley & Davis, 1994; Richins, 1983, 1987; Singh & Wilkes, 1996). Different criticality levels, when a purchase situation is more important or critical (Ostrom & Iacobucci, 1995), may also influence their responses; they are more likely to complain when problems are encountered in high criticality situations (Richins, 1983, 1987; Webster & Sundaram, 1998). The following sections elaborate on service recovery strategies, problem severity, and criticality.
Service Recovery Strategies
Service recovery strategies describe the actions that service providers take to respond to defects or failures (Gronroos, 1988). The most common and frequently used actions are apology, assistance, and/or compensation (Bitner, Booms, & Tetreault 1990; Hart et al., 1990; Hoffman, Kelley, & Rotasky, 1995; Kelley, Hoffman, & Davis, 1993). Their effectiveness depends on the situation and is influenced by such factors as problem severity, criticality, and the type of service. Effectiveness also depends on how the contact employee handles the problem: responsiveness, empathy, and understanding improve the effectiveness of the strategy (Bitner et al., 1990; Hart et al., 1990; Smith, Bolton, & Wagner, 1999). Thus, both what is done (e.g., compensation) and how it is done (e.g., empathetically, quick response) contribute to the effectiveness of the recovery strategy. For this investigation, the primary focus is on what was done in terms of the relative effectiveness of assistance and compensation. Apology, a how strategy, is also included because it is the minimum action that can be taken when a problem occurs (Bitner et al., 1990) and is recommended as a requisite for service recovery (Hart et al., 1990). In this investigation, apology is regarded as the baseline and will be offered in all recovery strategies.
Underlying the effectiveness of recovery strategies is the concept of exchange. The service failure and recovery can be viewed as an exchange, in which the customer experiences a loss due to the service failure, and the firm attempts to provide a gain, in the form of a service recovery, to make up for the customer's loss (Smith et al., 1999). Customer evaluations of the service failure and recovery depend on the type and amount of resources lost and gained during the exchange.
While an apology is better than no apology (Smith et al., 1999), an apology alone is relatively ineffective when a customer encounters a service failure (Goodwin & Ross, 1992; Hoffman et al., 1995; Webster & Sundaram, 1998). Typically, customers expect some gain (e.g., assistance, compensation) for their loss (service failure) (Smith et al., 1999; Tax, Brown, & Chandrashekaran, 1998). An apology offers little gain but may be effective when minor service problems are encountered. As this study examined core service failures (large loss), it would be expected that offering an apology only (small gain) would not be an effective recovery strategy.
Assistance involves taking actions to rectify the problem. Assistance is possibly the most effective single recovery strategy, because it can bring the customer back to the original purpose of buying the service. In the case of certain manifest core failures (e.g., denial or unavailability of service), it is argued that the service firm has little leeway; it must fix the problem quickly (Parsuraman, Berry, & Zeithaml, 1991). Here, the gain is fulfilling the basic promise, which may equal the loss from the failure.
Increased customer loyalty is a critical driver of a firm's long-term financial performance (Jones & Sasser, 1995). Customer dissatisfaction reduces loyalty and erodes the firm's reputation. A major cause of dissatisfaction is unsatisfactory problem resolution (Hart, Heskett, & Sasser, 1990) and up to 50% of customers who experience problems are not satisfied with the recovery strategy (Best & Andreasen, 1976; Zeithaml, Berry, & Parasuraman, 1990).
When customers experience a problem with a service provider, they may respond by switching to a new supplier (exit), attempting to remedy the problem by complaining (voice), or staying with the supplier anticipating that "things will get better" (loyalty) (Hirschman, 1970). They may also talk to other consumers about the experience, and this negative word of mouth can also influence a firm's profits and reputation (Richins, 1987; Singh, 1990; Singh & Wilkes, 1996). It is thus important for the firm to develop a recovery strategy to respond to service problems. Interestingly, in spite of the importance of service recovery, according to Kelley and Davis, "a dearth of empirical research confines any theoretical discussion to anecdotal reports" (1994, p. 52).
The objective of this paper is to provide empirical evidence on the effects on customers' future intentions toward the provider of different recovery strategies after a service failure (Figure 1). Using hospitality industry scenarios, subjects were presented with a new purchase situation where the provider's quality was known only by reputation. Purchase decisions varied according to the importance of the purchase to the consumer. Purchase outcomes included service failures where service was either denied or delayed. The service provider offered the following recovery strategies: (a) apology only, (b) apology and assistance, (c) apology and compensation, or (d) apology, assistance, and compensation. Subjects' intentions toward the provider were measured, including their propensity to voice their dissatisfaction and the likelihood that they would continue to do business with the provider. The study provides insight into the threats to the loyalty-building process and an opportunity to determine the value of a contingency approach in designing a service recovery strategy.
Background
Service firms spend substantial resources to deliver a consistent offering that meets customers' expectations. Two major challenges to maintaining consistency are variability, due to the human element involved in delivery, and inseparability, because the customer often has to be present to receive the service. Service firms recognize that failures will occur and develop recovery strategies to meet the challenges (Hart et al., 1990). Of interest here are core service failures that are manifest problems caused by the service provider's failure to deliver a service that had been contracted for (e.g., delay or denial).
In general, service recovery strategies can consist of three distinct actions, either alone or in combination: (a) apologize (acknowledging the problem), (b) assistance (fixing the problem), and (c) compensation (paying for the "trouble" costs of the problem). The recovery strategy plays a role in the customer's future intentions toward the provider. For both practitioners and researchers, it is important to understand which service recovery strategy is most effective in a given situation.
Customers' response to service failures include: loyalty, exit, and voice (complaining to the service provider, friends and relatives, or third parties) (Day & Landon, 1977; Hirschman, 1970; Singh, 1988; Singh & Wilkes, 1996). Considerable research has been conducted into complaining and switching behaviour (see Richins, 1987; Singh & Howell, 1985; and Singh & Wilkes, 1996, for reviews). Few research studies have investigated the extent to which service recovery strategies moderate these customer responses.
Situation variables may also influence customers' responses to service problems. Customers are more likely to engage in switching and complaining to the service provider and others as problem severity increases (Keaveney, 1995; Kelley & Davis, 1994; Richins, 1983, 1987; Singh & Wilkes, 1996). Different criticality levels, when a purchase situation is more important or critical (Ostrom & Iacobucci, 1995), may also influence their responses; they are more likely to complain when problems are encountered in high criticality situations (Richins, 1983, 1987; Webster & Sundaram, 1998). The following sections elaborate on service recovery strategies, problem severity, and criticality.
Service Recovery Strategies
Service recovery strategies describe the actions that service providers take to respond to defects or failures (Gronroos, 1988). The most common and frequently used actions are apology, assistance, and/or compensation (Bitner, Booms, & Tetreault 1990; Hart et al., 1990; Hoffman, Kelley, & Rotasky, 1995; Kelley, Hoffman, & Davis, 1993). Their effectiveness depends on the situation and is influenced by such factors as problem severity, criticality, and the type of service. Effectiveness also depends on how the contact employee handles the problem: responsiveness, empathy, and understanding improve the effectiveness of the strategy (Bitner et al., 1990; Hart et al., 1990; Smith, Bolton, & Wagner, 1999). Thus, both what is done (e.g., compensation) and how it is done (e.g., empathetically, quick response) contribute to the effectiveness of the recovery strategy. For this investigation, the primary focus is on what was done in terms of the relative effectiveness of assistance and compensation. Apology, a how strategy, is also included because it is the minimum action that can be taken when a problem occurs (Bitner et al., 1990) and is recommended as a requisite for service recovery (Hart et al., 1990). In this investigation, apology is regarded as the baseline and will be offered in all recovery strategies.
Underlying the effectiveness of recovery strategies is the concept of exchange. The service failure and recovery can be viewed as an exchange, in which the customer experiences a loss due to the service failure, and the firm attempts to provide a gain, in the form of a service recovery, to make up for the customer's loss (Smith et al., 1999). Customer evaluations of the service failure and recovery depend on the type and amount of resources lost and gained during the exchange.
While an apology is better than no apology (Smith et al., 1999), an apology alone is relatively ineffective when a customer encounters a service failure (Goodwin & Ross, 1992; Hoffman et al., 1995; Webster & Sundaram, 1998). Typically, customers expect some gain (e.g., assistance, compensation) for their loss (service failure) (Smith et al., 1999; Tax, Brown, & Chandrashekaran, 1998). An apology offers little gain but may be effective when minor service problems are encountered. As this study examined core service failures (large loss), it would be expected that offering an apology only (small gain) would not be an effective recovery strategy.
Assistance involves taking actions to rectify the problem. Assistance is possibly the most effective single recovery strategy, because it can bring the customer back to the original purpose of buying the service. In the case of certain manifest core failures (e.g., denial or unavailability of service), it is argued that the service firm has little leeway; it must fix the problem quickly (Parsuraman, Berry, & Zeithaml, 1991). Here, the gain is fulfilling the basic promise, which may equal the loss from the failure.
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