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Service Failure and Recovery
Neeli Bendapudi
May 16, 2005
The Company can influence expectations via
Advertising—Kevin M and Saturn CSR Sales Promotion— Mark S and Amazon
Tangibles— Mine and Speedway/Amul and Old Navy
Price— Bill and Turbo Tax/ Rachelle and SWPersonnel— Kavita and Heritage apts
Aaron and StAaron and Statler arms
Top 10 Service Complaints
10. Misplaced priorities— Colleen and OBMVJennifer and AE Outfitters
9. Auto pilot— Bharatwaj and BMV 8. I just work here.— Vijay and Kroger7. Don’t ask, don’t tell— Keith and Student insurance 6. Keep you guessing—Ian and Brooks Brothers
Top 10 Service Complaints
5. Big wait. Ryan and Continental /Anil and Health center
4. Big chill. Mike H. and AOL3. Red Alert. Jessica and Stauffs2. Broken promises. Poornima and United
Adam L and the plumber! 1. True lies. Jeremy and MAG
The Profitable Art of Service Recovery
orTo Err is Human; To Recover,
Divine.
AndLearning from Failure
orFixing both the Car and the
Customer.
•Though errors are inevitable, dissatisfied customers are not!
•Using recovery to discover root causes of failure
•The service recovery paradox….and the limits to it!
•The link to employee satisfaction and loyalty
Mistakes are inevitable, especially in serviceswith a high human component.
The Seven Steps on the Road to Service Recovery
Flexibility and grace in getting up after a fall!
But, first, identify failures!• Setting performance standards
Stephanie and Earthlink
Suzanne and Chicago cabs
1. The service system as a gymnast.
•Communicate importance of recovery toenhance vigilance
ECHO, “Run to a problem”
Sunita and Pella
•Next, try to anticipate failures and Need for Recovery
New products or services
Uncontrollable factors
Inexperienced employees
David W and Ordering checks
• What are the costs and benefits?CARESS the customer.
• The Problem-Impact Tree approach
• Think about “Getting Customers Back”versus “Fixing Problems.”
2. Measurement precedes management.
Lanson and McDonalds
What is the customer worth?
Lifetime value of the customer
Indirect effects of W-O-M
Trading up Honda CivicHonda AccordHonda Acura
Ana and Dollar Rent-a-car
Problem Impact Tree
Frequency of complaint versus seriousnessImpact
Low HighLow
Frequency
High
Ignore ConsiderImprovementsVery importantto some
Consider SOLVEImprovements NOW!!!Small effectsmay add up
Diane and Wendy’s
All guests
No problem Have problem
Report Don’tproblem report
Problem Notresolved resolved
All guests (100%)
No problem Have problem(75%) (25%)
Report Don’tproblem(50%) report (50%)
Problem Notresolved resolved(70%) (30%)
All guests
No problem Have problem(95%)
Report Don’tproblem report (75%)
Problem Notresolved resolved(90%) (50%)
Relationship to Satisfaction (A+B)
All guests
No problem Have problem(95%)
Report Don’tproblem report (80%)
Problem Notresolved resolved(90%) (60%)
Relationship to Repurchase Intention
Assume lifetime value of customer=$200
Value of no problem=$200*0.95=$190Value with problem
=$200* weighted average retention =$200* (.5x.7x.9)+(.5x.3x.6)+(.5x.8)=$200* (.805)=$161
It is worth $29 to avoid the problem!
The value of recovery---using lifetime value
Expected value when resolved=$200* 0.9=$180
Expected value when not resolved=$200* 0.60=$120
It is worth $60 to resolve the problem.
Value of resolving a problem| complaint made
Value of customer with unreported problem=$200* .80= $160
Value of customer with reported problem=(.70* .90*$200)+ (.30*.60*$200)=$162
In this case, not much more value.Why? Percentage of unresolved complaints…Focus on resolving complaints not increasing #
What do we gain if the customer complains?
3. Break the silence, aggressively
How many complain?
Why so few?
How can you make it easier forconsumers to complain?
Pro-activityTrainingAccess: Video Point boothsRewards!
Jane and Williams Sonoma
The longer the ‘fix’ takes, the higher theexpectations
Focus on fairnessOutcomeProcedureInteraction
4. Act Fast and Effectively
Greg W and Macy’s
5. Train and empower frontline
Hiring and training are criticalSafe zones and standards:
Recovery must be personalized
Recovery must be quick
Recovery at the first point of contact (orsoonest)
6. Close the loop
Get the information into the system
Communicate with the customerWhat happened, why, how problemswill be addressed and prevented
Improve the System.Chronic problem versus chronic
complainer
Manish and ColumbusPD
7. Recovery Paradox
For customers……..
For employees…….
What are the limits to this paradox?
1. Speed with a human face2. Tease out complaints3. No-blame culture4. Create closure5. Pro-active top-level involvement6. Complaints as strategic input7. Centralized and decentralized8. Focus on communication and
improvement
9. Internal complaints system10. Surveys targeted on problems and
resolutions11. Focusing staff on benefits of complaints12. Senior management attention to costs and benefits of recovery
And now, for compliments!