1. What is service recovery and why is it important for the long-term success of companies?<br />Introduction<br />Service recovery has drawn the attention of researchers and academicians recently. The concept of service recovery is seen as both business practice and focus of marketing study which has developed over time. Perhaps the strongest single factor that causes service failure is the nature of service products themselves, which increase the possibilities of errors, or service failures, and therefore the need for recovery. Most scholars point out that the difference between tangible products and intangible services has increased customer awareness of the possibility of service failures either from the operational perspective or from the customers’ viewpoint (Reichheld, 1990; Gronroos, 2000) and it’s difficult for marketers to understand and to meet customer expectations. Besides, service variability has been identified as on going problem both for marketing and quality managers (Ballantyne, et al., 1995; Hoffman & Bateson, 1997; Lovelock, 2001). Moreover, the customer is often required to participate in the production of the services (Gronroos, 1983; Lovelock, 1983; Zeithaml, et al., 1985).<br />In this report, the author is going to talk about the benefits of service recovery, such as better customer loyalty and positive word-of-mouth communications have been highlighted. In the 1990’s, public attention turned to the proactive, and strategic role that service recovery can play in customer retention in a competitive market place.( Lovelock, 2001) He will also detail service recovery strategies as they are some steps taken by the organizations in winning back the customers after the occurrence of service failure incidents.<br />Definition of Service Recovery<br />According to Zeithaml and Bitner (2003), “Service recovery refers to the actions taken by an organization or service supplier in response to a service failure”. This definition is supported by Andreassen (2000) and Johnston, (1995) who says “Service recovery refers to the actions a supplier takes in order to seek out dissatisfaction and as a response to poor service quality i.e. service failure”. Zemke and Bell (1990) defined service recovery as a ….”thought-out, planned process for returning aggrieved customers to a state of satisfaction with the firm after a service or product has failed to live up to expectation”.<br />Service recovery thus refers to the actions of service firms in response to service failure. The objective is to maintain the business relationship with the customer. This argument was based on the premise that customer satisfaction ensures customer loyalty, repeat sales and positive words of mouth communications (Boshoff and Staude, 2003). Effective service recovery also leads to enhance perceptions of the quality of the products and service already bought enhanced perceptions of the firm’s competence, and a favorable image in term of perceived quality and value (Kelley and Davis, 1994, Boshoff, and Staude, 2003). <br />Service recovery is an umbrella term for the whole efforts by a firm to correct a problem following a service failure, in order to retain customer’s goodwill. Service recovery effort plays a crucial role in achieving or restoring customer satisfaction (Lovelock et, al., 2002). In every organization, things may occur that have a negative impact on its relationships with customers. The true test of a firms’ commitment to satisfaction and service quality is in the way it responds when things go wrong for customers (Lovelock et, al., 2001). Effective service recovery requires thoughtful procedures for resolving problems and handling unhappy customers. It is critical for firms to have effective recovery strategies, as even a single service problem can destroy a customer’s confidence in a firm under the following conditions: <br />The failure is totally outrageous e.g. big dishonesty on the part of the supplier. <br />(2) The problem fits a pattern of failure, rather than being an isolated incident (3) The recovery efforts are weak, serving to compound the original problem rather than correct it (Berry, 1995). <br />Back to the history, in 1970’s and 1980’s service recovery was the plan for dealing with telecommunications problems or recovering particular services. Nowadays, a lot of empirical studies have pointed out service recovery in various industries in the worldwide. Interest in service recovery is growing because poor service experiences often lead to customer losing, which in turn leads to a loss in customer lifetime value. However, a favorable recovery has a positive impact on customer satisfaction, word-of-mouth behavior, customer loyalty, and, eventually, customer profitability. Although some studies indicate that good initial service is definitely better than a good recovery, other empirical work suggests that an excellent recovery can lead to even higher satisfaction and loyalty intentions among consumers than if nothing had did wrong initially. This phenomenon is usually referred to as the “service recovery paradox” which will be explained in the next parts. (Lovelock, 2001)<br />Justice Recovery<br />Recent literatures show that perceived justice is a significant factor in service recovery evaluations. Because a report of a service failure indicates, to some extent, when the “unfair” treatment of the customer generated, it’s their perspectives to justice service recovery. <br />Justice consists of three dimensions: distributive, procedural, and interactional. Distributive justice focuses on the allocation of benefits and costs that customers consider the benefit they receive from a service in terms of the costs associated with that service. When they do not receive the expected quality of a service, they are dissatisfied, which means service recovery is in need. (Lovelock, 2001)<br />However, the outcome of a service is not the only thing that matters. Because customers are often get involved in the service production and consumption process, thus, the second dimension--procedural justice is vital, especially when something goes wrong. Thus, employees must fix the customer before they solve the problem. Procedural justice relates to the evaluation of systems and procedures used to determine outcomes, for example, the speed of recovery. Another factor in many recovery incidents is the information communicated about the recovery process, or the lack thereof. Firms must describe “what the firm is doing to resolve the problem so that customers get to know mitigating circumstances and do not incorrectly attribute complaints to the service firm when it is not responsible”. (McCollough, 1995)<br />Finally, interactional justice pertains to interpersonal fairness. People are sensitive about the quality of interpersonal treatment they get due to emotions tend to be more important than cognitions in recovery situations, service managers need “to manage consumers' emotional experience during and after a service failure”. In leading the customer with a negative experience, employees should act quickly; show concern and welcome for the customers; and remain pleasant, helpful appearance. In addition, customers should be treated as individuals whose specific requests are acknowledged, because “‘token’ responses by an organization resulted in the most negative responses”.<br />All three types of justice contribute significantly to customers’ evaluations of recovery. In addition, significant interactions among the fairness dimensions indicate that poor performance on any one can dramatically affect customers’ overall satisfaction with recovery.<br />Importance of frontline employees<br />According to a point of view frequently expressed in the literature, only empowered employees can react and solve a problem right on the spot. However, research and theory on empowerment mention that the effectiveness of empowerment hasn’t been recognized by the whole world yet. For instance, customers may believe that recovery justice is best guaranteed if it is determined by superiors and policies rather than by the judgment of an individual (empowered employee). When the customers are dissatisfied about the services, they need to be fortunate enough to find the right staffs to resolve the problems to their satisfaction. Moreover, researchers have several conditions in which employee empowerment will be effective, which are always happen on the situation, including the right mix of the strategy, business environment and customer expectations. <br />There are two main problems existing in many organizations about the frontline employees nowadays<br />(1) Common wisdom is that measures focus attention and organizations obtain the employee behaviors they reward. Recovery, in practice, has little support in this sense. Traditional service quality reward systems may stop recovery by rewarding branches, employees or service centers for their low rates of complaints, which are assumed to bring high customer satisfaction. Therefore, frontline employees are always sending a dissatisfied customer away instead of admitting that it got a problem, which is considered to be the first step of recovery. <br />More broadly, traditional service quality measurement and reward systems focus on obtaining of new customers but not on providing service recovery of a potential customer loss because of a service failure. (McCollough, 1995)<br />(2) Even if empowerment of the front employees is the key for a given situation; it is often finished poorly—the right thing always done the wrong way. The thing is employees are always set free of rules and regulations to decide how to satisfy the customer but then receive little or no training, resources, or boundaries for how they might recover dissatisfied customers most appropriately. In addition, managers might think that they don’t need to invest much effort on frontline employee ((McCollough, 1995)<br />However, the author suggests organizations should empower frontline employees to recover service failures conveys responsiveness and fair policy and practice to handle service problems. Management should give frontline employees authority to recover service failures. They are the ones who may know what the problem was initially, can respond most instantly, and can recover the failure most effectively.<br />To respond more effectively to customers’ complaints, service providers should also develop various recovery practices considering the importance of situational factors. In addition, employees, especially frontline employees who handle customer complaints should be trained accordingly. Most importantly, in a service failure situation, it’s often seen that customer satisfaction evaluations (recovery satisfaction) start with customers’ complaints. This notion emphasizes the importance of creating an environment where customers are welcomed to complain. Chances are higher for retaining customers by encouraging them to complain (Spreng et al., 1995). If the customers want to complain, frontline employees should always welcome them instead of putting them away to others, and that’s why frontline employees play a crucial role in customer satisfaction. <br />Service Recovery Paradox<br />Based on personal experiences and anecdotal evidence, the idea of a recovery paradox was developed more than 20 years ago by Etzel and Silverman (1981, p. 128), who stated that “it may be those who experience the gracious and efficient handling of a complaint who become a company’s best customer.” Other research has suggested that “a good recovery can turn angry, frustrated customers into loyal ones. It can, in fact, create more goodwill than if things had gone smoothly in the first place” (Hart et al., 1990, p. 148).<br />Since then, a wide range of empirical studies have explored the service recovery paradox (see appendix table one)<br />As Table 1 shows, eight studies refute the existence of a service recovery paradox (Andreassen, 2001, Berry et al., 1990, Bolton, 1998, Brown et al., 1996, Halstead and Page, 1992, Maxham, 2001, McCollough et al., 2000, Zeithaml et al., 1996). The consensus of these studies indicates that there is no way to please customers more than with a reliable, first-time, error-free service. According to these findings, service recovery is a strategy to limit the harm caused by a service failure rather than a means to impress the customer with a special effort when something goes wrong. However, six other studies, some of them by the same authors mentioned above, indicate that the service recovery paradox is a real phenomenon (Bolton and Drew, 1992, Boshoff, 1997, Hocutt et al., 2006, Hocutt et al., 1997, Maxham and Netemeyer, 2002, McCollough, 2000, Smith and Bolton, 1998). <br />Based on this literature review, it is fair to conclude that the evidence of the existence of a service recovery paradox is mixed, at best. The question then becomes: is there a simple, yet powerful explanation for this contradictory result? There are two possible reasons for this divergence. First, the service recovery paradox is not defined uniformly in the studies mentioned above: some authors test for a between-subject effect (comparing a recovery/ complaining group with a control group) while others test for a within-subject effect (before a failure/complaint and after a failure/complaint). Moreover, the measurement of the recovery incidents is not defined uniformly nor is the dependent variable the same. In short, we have not found one single replication study on this subject but rather more than a dozen different approaches.<br />A second possible reason for the mixed finding is not related to a methodological problem but is, instead, based on the very nature of the paradox. It has been suggested that a service recovery paradox is a very rare event (Boshoff, 1997, Hart et al., 1990), which means that it is not easy to detect even if it exists. To make things worse, it is further assumed that only a minority of dissatisfied customers complains (Andreasen and Best, 1977, Singh, 1990) and that most recoveries do not lead to customer satisfaction (Hoffman et al., 1995). If this explanation is valid, one would need a very large sample to obtain a reasonably large group of customers who received a very satisfactory recovery. This requirement may explain why some studies have failed to produce significant results.<br />Impact of service recovery<br />As we have shown, productivity and customer satisfaction objectives can correlate positively, negatively, or not at all. Essential to get top management’s attention, the benefits and costs of service recovery must be measured, but common accounting systems cannot capture the value of a loyal customer. Rather, the impacts and benefits of service recovery are grounded in the assumption that it decreases customer dissatisfaction and thereby increases both customer loyalty and customer satisfaction, on another side, customer defection, destroys the customer’s lifetime value. In addition to these losses of potential future revenues, dissatisfied customers likely engage in negative word-of-mouth behavior, which deters existing and potential customers. To balance their objectives, firms should start with a simple model for calculating the “return on recovery” that would estimate the<br />1) Improvement in customer satisfaction and decrease in customer dissatisfaction as a result of customer and employee recovery;<br />2) Decrease in service failures through process and employee recovery and its impact on customer satisfaction;<br />3) Impact on loyalty of point 1 and 2 in terms of the decrease in lost customers;<br />4) Impact on word-of-mouth of point 1 and 2 in terms of the value of more positive and less negative word-of-mouth, as well as its impact of customer acquisition; and<br />5) Impact on total customer lifetime value caused by point 3 and 4.<br />For example, for a big organization, if the average customer lifetime value, defined as the discounted future contribution margin per customer, is 5000￡, and service recovery efforts can reduce the number of lost customers by 600, the gained customer equity is 300,000￡.<br />But service recovery also can have a broader effect on bottom-line performance in terms of staff attitude and retention. If employees are not able to cope with customer problems and believe they are treated unfairly by the company, the customer, or both, they may treat their customers unfairly too. (McCollough, 1995)<br />Although an exact return of recovery thus is difficult to calculate, it is important to define the key drivers for such an indicator and thereby achieve a common understanding of how service recovery impacts the company’s bottom line.<br />Recommendations<br />It’s suggested that to create a culture of Service Recovery and gain employee “Extra Effort”<br />The challenge here is to effect a dramatic cultural shift in the company business concept from a culture with the illusion of no failure to a culture of recovery. A culture of recovery requires an internally consistent message about the value of recovery from visible components of the firm, including management’s espoused values, cultural forms, and practices. Management must promote recovery as a core value and then help manage the evidence that employees and customers monitor to determine if this espoused value is being enacted. For example, stories that recount the outcomes of a successful or failed recovery incident should find their way into company conversation. <br />Furthermore, to build a culture of recovery, managers should emphasize recovery-focused performance management systems and make the complaint process visible and accessible to both employees and customers. Service recovery demands a reward structure that “gives employees positive reinforcement for solving problems and pleasing customers—not just for reducing the number of complaints”. Measuring and rewarding customer retention targets also could serve as incentives for service recovery. (McCollough, 1995)<br />When the author was working for a financial company before, the supervisor there pointed out: Better customer service means higher loyalty, more business, and more word-of-mouth. This has an impact on meeting our objectives, which in turn pays off with higher bonus payments and salary. Not all employees see this connection. It is the supervisor’s job to communicate this.<br />It’s also suggested that when organizational and employees’ values are proper, employees are more willing to exert the extra effort required in a failure and recovery situation. Recovery situations with dissatisfied customers can be very hard for employees, but employees who share the organization’s core values are more likely to persevere. Thus, firms must focus on employee selection and equip techniques that build the recovery culture and thereby facilitate extra effort. (McCollough, 1995)<br />Conclusion<br />Service recoveries were the efforts made by firms to bring back aggrieved customer to satisfaction, it the key to customer satisfaction and achieving this should be a primary goal for service organisations. Service recovery strategies play a crucial role in customer satisfaction, if they are not prompt, proper and effective, the frustrating customers will defect to competitor and then service firms lose customers and revenues. Service firms are unable to implement service recovery strategies if they are not informed of their shortcomings, therefore customers must be encouraged to complain and service recovery must be follow up whenever complaints occur due to its vital and dominant impact on business competitiveness and profitability.<br />Appendix:<br />Table One:<br />AuthorsParadoxBolton and Drew (1992)YesBoshoff (1997)YesHocutt, Chakrborty and Mowen (1997)YesSmith and Bolton (1998)YesMcCollough (2000)YesMaxham and Netemeyer (2002)YesHocutt, Bowers and Donovan (2006)YesBerry, Zeithaml and Parasuraman (1990)NoHalstead and Page (1992)NoBrown, Cowles and Tuten (1996)NoZeithaml, Berry and Parasuraman (1996)NoBolton (1998)NoMcCollough, Berry and Yadav (2000)NoMaxham (2001)NoAndreassen (2001)No<br />Reference<br />Andreassen, T.W., 2000, Antecedent to Satisfaction With Service Recovery,<br />European Journal of Marketing, Vol. 31 no1/2, pp 156-175.<br />Andreassen T.W. (2001) quot;
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