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Service Failure and Recovery

2. Service Failure and Recovery
Table of contents
Introduction------------------------------------------------------------------------3
Main Content
What is service--------------------------------------------------------------------4
Characteristics of Service--------------------------------------------------------5
Why service goes wrong?--------------------------------------------------------8
What is service failure?----------------------------------------------------------8
Types of service failures---------------------------------------------------------8
Service recovery-----------------------------------------------------------------10
The key of service recovery---------------------------------------------------10
Service recovery strategies----------------------------------------------------12
Relationship marketing in service--------------------------------------------14
Brand Equity in service--------------------------------------------------------17
Conclusion-----------------------------------------------------------------------20
References------------------------------------------------------------------------21
1

3. Service Failure and Recovery
Introduction
Building strong brands is of indispensable for high-tech and service areas. The
world’s overall service exports increased by 12.0% between 2000 and 2008 (Ref:
World Trade Organization 2009). At the same time, the three major exporters
experienced an export growth of commercial services of 22.8% (US), 38.2%
(Germany), and even 77.9% (UK) higher than the export growth of manufactured
goods (World Trade Organization 2009). Many people start to know service is
important, but do they know the real service? And how to serve customers. This is not
a simply smile.
This essay will introduce what is service firstly, this part includes the definition and
the characteristics of service. Secondly, the discussion is about why service goes
wrong-the service failure. After that the service recovery comes, except introduce the
definition, the author focus more on service recovery strategy. Last but not least, how
to measure the result of these strategies also will be discussed in the last part.
What is service?
Services cannot be called minor or unimportant part of western economies, but go to
the major view of value creation. The service sector is not novel, as proved by biblical
references to innkeepers and financial helpers among others. Today nearly all of the
goods we buy have an element of service somewhere. We can readily increase
activities such as accountancy, banking as being service based. Also a swath of goods
relies on service-based actions to give them usage worth, and a marketing advantage
over other competitors. Many sophisticated goods such as television sets and washing
machines pertain to service offers relying on delivery, financing, insurance and
2

4. maintenance benefits. (Palmer, 2008)
There are many definitions of constitution of service. Modern definitions are based on
the facts that a service alone is not giving any tangible output, but inturn helping in
the production of these goods. A genuine definition of a service was given by The
Economic, which states that service is "anything that cannot be dropped on your
foot." The definition that would be implemented with reference to this paper is: "Any
indispensable intangible facility, either by itself or as a significant element of a
tangible product, that is requisite in some form of exchange and satisfies an
identified need." (Palmer, 2008) While only a definition is far away to understand
what is service, the characteristics of service can not be ignored when discuss about it.
Characteristics of Service
Service has various unique characteristics that separates them from goods and have
implications how they need to be are marketed. These characteristics very often are
mentioned as intangibility, variability, non-perennial nature and the inability to own a
service. These are referred herewith: (Palmer, 2008)
Intangibility
Every pure service is assessed; it can hardly be checked or scrutinized before it is
purchased. A prospective purchaser of most goods of this category is able to scrutinize
goods for physical integrity, reliability, genuine appearance, flavor, arome etc.
However many advertising say examining these tangible properties could be possible
by inspection prior to purchase. But pure services have no tangible properties that the
customer can use to examine advertising claims before the purchasing them. The
intangible process features mentioning services, such as genuine faith, personal care,
3

5. staff behaviour, their efficacyetc., can only be scrutanized after purchasing or
consuming that service. (Palmer, 2008)
Inseparability
The production and consumption of a tangible good are very different from each other.
Production of goods takes place by companies in one central location and then they
are transported to places where there is greatest probability of customers purchasing
them. Thus, the large scale manufacturing firms can acquire economies of scale
through a centralized producing unit and can maintain centralized measures for
quality control. The manufacturing firms also have the advantage to manufacture
goods at time as per their convenience; and make them available to customers at times
that are convenient to customers. Consumption and Production are very different yet
inseparable from each other. Consumption of a service is said to be interlinked and
dependent on its means of production. The interaction of the producer offering the
goods and the consumer buying the goods is important for the benefits of the service
to be realized. There should be adequate interaction: taking in consideration the
suitability of time and place for both the parties so that the producer can directly pass
on service benefits to the consumers. However when talking about specific cases of
personal care services, the presence of the customer is necessary through out the
entire process of production: for example-a surgeon can perform an operation on a
patient only when the patient is actually present there; so the complete involvement of
the consumer is required here. In this context marketing has emerged as an excellent
means of improving complex producer-consumer interaction; it cannot be called a
mere medium of exchange in today’s context. (Palmer, 2008)
Perishability
Services differ from goods in terms of tangibility: the former cannot be stored. A car
4

6. manufacturing company can easily bring forward its excess stocks if it is unable to
sell all of its output in the current period. It is a mojor advantage for goods
manufacturing company; apart from the storage costs, financing costs and the
possibility of loss through some sort of catastrophy. On the contrary, a service
producer that cannot sell all of its output produced in the current period does not get
such opportunity to carry forward the service for sale in the subsequent financial
period. An airline offering a flight from Paris to New York at 8 AM cannot carry
forward its services ( vacant seats) once the aircraft has left at 8.00 am. The service
becomes ineffective once the scheduled time elapses and spare seats cannot be kept to
meet any increase in demand if it is anticipated the next hour. (Palmer, 2008)
Ownership
Service to a large extent depends upon the characteristics of intangibility and
perishability. Buyers have the right to thoroughly evaluate the required item while
purchasing; the final decision to purchase lies in the hands of the buyer as they are
free to what they want and can even in turn sell the product to a third party. But when
a service is provided to the customer, the ownership still remains with the seller. The
buyer/ customer is simply purchasing the right to benefit from a service process such
as the use of a public park or a solicitor's time. However; there is a difference between
the inability to own the service and the rights owned to acquire a service in future.
Example buying a theatre ticket gives the buyer a temporary right to avail the facility
at some specific time in future; it does not entitle him to avail the service always at his
beck and call. Lovelock and Gummesson 2004 have defined the concept of
rental/rights as a service where it is not possible to provide the ownership of a product
to another person through an exchange or transaction medium.
This factor of inability to own a service in turn has some specific lay out
methodologies for the architecture of distribution channels; such that the wholesaler
5

7. or retailer is not empowered to take title, as is the case with goods. Instead, the newer
direct distribution methods are popular where subsequent intermediaries are present,
very often playing the role of a co-producer with the service provider. (Palmer, 2008)
Over all, the service is a type of economic activity that is intangible, inseparable and
variable, not stored and does not result in ownership. Services are one of the two key
components of economics, the other being goods. Therefore, the service is very
important to each company, while is it go right in every organization.
Why service goes wrong:
The requirement of each person is different, therefore it is impossible for one product
to satisfy all customers. Very often services provided to the customers are not in
accordance to their requirements or the way they anticipated them to be; leaving
customers dissatisfied. A major reason for this discontentment is the inseparable and
intangible nature of services. A customer may define a service failure as an
unfavourable situation where something has gone wrong or out of the customer’s
anticipation; irrespective of responsibility. Personal and high contact services are
intertwined and interlinked; as a result service failure usually cannot be disguised
from the customer. Service failure can be a minor negligible such as a short delay or
smallinconvenience to the customer; or sometimes my also result in a grave issue,
such as a food poisoning incident. (Palmer, 2008)
What is service failure:
Service failures can be referred to a state of sheer customer dissatisfaction mainly due
to any service related mishaps or infelicitous conditions (real or perceived) that has
serious repercussions on the customer's experience with a firm (Maxham, 2001).
6

8. Depending on the characteristics, service failures can be of two types: outcome and
process. The former is pertaining to complicationswith the core service supply that the
customer is getting in the name of service; the latter one refers to some outcomes that
inturn make the service unpleasant for the customer; example service delay, a cold
attitude towards the customer etc. Smith et al support this type of classification with
special reference to the banking sector; very often it can be seen that there are
outcome failures, such as lack of reliability and folly, and process failures, such as
unhealthy communication with a bank employee.
Types of service failures
The consequences of service failures are not similar in each case since the outcome
failure consequences are way different from those in a process failure. Smith et al
(2009) has mentioned this on the basis of mental accounting principles and prospect
theory. As feelings and contentment are outcomes to specific circumstances
(Zeelenberg and Pieters,
2004 ), it can be suggested that each type of service failure
will have a distinct impact on customers’ feelings and contentment.
Bagozzi et al (1999) states that emotions/ feelings basically behave as broad classes of
positive and negative affects; which inturn means that there are two basic aspects of
emotion (Oliver, 1993; Westbrook, 1987). The division of emotions in two groups
–positive and negative is beneficial because these divisions can act as a tool to
understand and interpret a person’s attitude, and the austerity of the case (Laros and
Steenkamp, 2005 ).
In a service failure condition, buyers do not gain any positive experiences;so it is only
the negative emotions- resentment, anger, disappointment and loss of faith that need
to be considered.A detailed explanation to this would be in considering the types of
failure that result in such negative emotions and discontentment. (Neira et al, 2010)
7

9. Nicholls et al (1995) inferred that customer contentment depends on the swiftness of
the process and the employees’ intimacy, attention, proficiency and professionalism.
Smith et al (1994) has revealed that there was more discontentments among customers
who experienced process failures than those having outcome failures. Similarly
Hoffman et al’ (1995) demonstrated that failures as a result of employees’ attitude
towards the customers have most grave consequences unlike issues pertaining to
faulty systems. In another study Gwin and Lindgren (1986) were capable of proving
that for financial services the customer- service provider relationship has more
importance than the service implication. Finally, Al-Eisa and Alhemoud (2009) have
inferred that a swift and friendly service, warmth and helpfulness of employees are
requisite for strong customer bonding and contentment especially with reference to
retail banks.
Outcome failures are in fact the right plans and procedure that due to chance or
negligence result in unpleasant consequences. Thus, the customer will rate it
negatively but there is no negative emotion associated with it. On the other hand, a
process failure is in fact a wrong plan or strategy which very often appears intentional
with a favourable result. This results in the customer developing a sense of treachery
and negative thoughts towards the service provider. (Neira et al, 2010)
So al together it can be inferred that service failures develop negative thoughts and
opinion in the customers. If unresolved, it can even result in customers leaving the
service provider and suggesting other customers not to have any terms with them and
even challenging the organization through consumer rights bodies or legal channels.
8

10. Service recovery
Service failure cannot be avoided every time; so it is important to think of plans for
service recovery. Service recovery incorporates actions aimed to resolve problems,
diminish negative emotions of discontented customers and eventually retain these
customers" (Miller et al., 2000), and it encompasses conditions where a service failure
occurs but customers show no negativity towards it (Smith et al., 1999). Further,
Johnston (1994) defines it as to "seek out and approach service failures directly" the
"seeking out" differentiates recovery from complaint handling, as many discontented
customers do not complain.
The key of service recovery
Successful service recovery has significant benefits. It increases customers'
anticipation of the efficiency of the service and the company; result in positive and
healthy communication; increase customers-satisfaction; and develop customer
bonding, loyalty and eventually effect the company’s profits (Bitner et al, 1990; Hart
et al., 1990; Spreng et al, 1995; Michel, 2001).
However, the extent of success is based on:
A, the kind of service provided (Mattila, 2001)
B, the kind of service failure (McDougall and Levesque, 1990)
C, the swiftness in responding (Boshoff, 1997)
In this essay, the author already introduced the type of service and service failure,
while what is the speed of response and why it is also important to service recovery.
The swiftness in responding to service failure is the time the customer must wait to
receive a response from the service provider; be it positive or negative. It is a major
point of concern in both the complaints and the service encounters literature. (Kelley
9

11. et al, 1993; Clemmer and Schneider, 1996; Taylor, 1994). But the real or objective
time and perceived or subjective waiting time are not the same and this needs to be
shown effectively. According to Pruyn and Smidts (1998), the latter effects the
customer’s analysis to a greater extent.
The equity theory suggests that a delay in the service recovery increases the perceived
inequity in the bonding between the service provider and the buyer by adding to the
damages claimed by the customer (Maister, 1985). This is mainly due to the
importance of time in everyone’s lives. Prolonged delay in service recovery will add
to the customer dissatisfaction. Customers are very conscious that a bank is actually
concerned for their problems and needs or not and becomes disappointedwhen there is
no help available readily (Lewis and Spyrakopoulos, 2001).
Therefore, the swiftness in responding to the service failure can be inferred as an
indication to recovery status and service quality (Wirtz and Mattila, 2004). Most of
the studies on this topic support that the swiftness in responding has a major impact
on customers' evaluations of the service which involves contentment as well (Boshoff,
1997; McDougall and Levesque, 1999; Swanson and Kelley, 2001).
Thus, customers are more contented with the service recovery when there is swiftness
in responding to the service failure. But in addition to rapid response, choose the right
strategy is more important.
Service recovery strategies
Service recovery strategies involve the actions taken by the service providers in
response to the service failures; these involve an amalgamation of psychological
recoveries and tangible efforts, and are a topic of consideration for several researchers
in this area. Bitner et al. (1990) has referred to the critical incident technique or
10

12. open-ended survey which gives respondents the liberty to emphasize any service
problem they have faced in order to identify and develop service recovery strategies.
Some of the strategies and plans that were inferred after such analysis were: Pardon;
Briefing; Amendment; Empathy; Compensation; Follow-up; Acknowledgment;
Special emphasis; and Managerial intervention. The author thinks that all the recovery
strategies can be classified into below three types according to the time when they can
be used.
Acknowledgment – Apology (explanation)
An acknowledgment and apology (explanation) are usually necessary planks of
service recovery. They should be used at the first time when service failure occurs.
The propose is to appease the customer's mood, avoid the situation from deteriorating.
An acknowledgment/apology can be referred to as a psychological compensation.
Unless really is inevitable objective reasons, or too mach explanation may let person
antipathetic (Davidow, 2000). An apology is the most appropriate way of gaining
customer’s confidence and esteem (a social resource) in such conditions as in the
banking sector (Walster and Walster, 1973 ).
In accordance with equity theory providing equity in the customer- service provider
bonding after a service failure, it is acceptance of mistake is required and apology is
indispensable (Boshoff and Leong, 1998). An apology refers to the acceptance given
by the organization accepting the losses or inconvenience suffered by the customer
and inturn trying to amend in the best possible way (Kelley et al., 1993 ). This in turn
strengthens the customer’s evaluation of the recovery system (Kelley et al., 1993 ) by
revealing the concern the organization has towards the customer who was affected by
the service failure.
Jenks (1993) declares customers do expect the organization to accept the folly in case
11

13. of a service failure. Like ways, Johnston and Fern (1999) state that apologies are
essential to achieve contentment with regain of financial services. Similarly, several
authors prove that an acceptance of folly strengthens customers’ idea of contentment
and justice. (Hart et al., 1990; Bitner, et al., 1990; Goodwin and Ross, 1992; Conlon
and Murray, 1996)
Thus, there is a much higher degree of reliability and contentment in the customer’s
part when the service provider gives an apology in case of service failure
.
Compensation strategy
After the customer calmed down, how to make up the fault is need to be consider
about. For the redevelopment of equity in the exchange process, it is importantthat the
the service providershould pay for the losses suffered by the customer due to service
failure on the organization’s part. (Walster et al, 1973). A wide range of studies on the
topic reveal that customers anticipate compensation after a service failure. (Blodgett,
et al, 1997).Specifically, Lewis and Spyrakopoulos (2001) reveal that retail banking
customers on a service failure anticipate to get what was to be provided to them in the
first place to make things smooth and normal between the two parties. Thus a most
probable recovery strategy is the pay for the losses beared by the customer(Bell and
Ridge, 1992; Zemke, 1994). The key concept of a compensation strategy is to
compensate the customer for the losses du to the failue of services on the
organization’s part and try and fabricate a balance wherein there is neither loss nor
profit and contentment for both the parties(Boshoff, 1997). Thus to develop equity
again, it is imperative to compensate the customer for their losses that includes
redirecting the transaction and exchanging the good if possible or refunding the
money. Precisely saying, a compensation strategy elavates customer belief on the
organization even in case of service failures. (Miller et al, 2000, Ruyter and Wetzels,
12

14. 2000; Bitner et al, 1990; Boshoff, 1997; Duffy et al, 2006)
Thus, customer belief on the organization is higher when the service provider offers
compensation in cases o service failures than when it does not.
Correction
After the apology and compensation, it is not mean all things already finished. It is
more important to find out the reasons why lead to the service failure. Even a small
service failure event could destroy a brand. And the compensation also leads to a lost
of interest more or less. So the following work is avoid the same thing to happen
again.
Although the above strategies can be used after the service failure occurs, the real
service recovery strategy means something more than them. For example, using the
relationship marketing to build strong links with customers is a depth and long-term
strategy.
Relationship marketing in service
For the materialization of services marketing is requisite. Berry(1983) has defined
relationship marketing as “method to allure and attract customers and – in multi-service
organizations – strengthening customer relationships”. In fact relationship marketing
pertains to all marketing methodologies aimed in creating, developing and maintaining
healthy relational exchanges. Morgan and Hunt (1994)
Successful bonding between partners is a long term process; gradually fabricated with
the passage of time. Five distinct phases are present with reference to this process:
(Scanzoni, 1979). Awareness is the initial phase in this bonding cycle and states that the
consideration of second partner as an appropriate exchange partner is important. The
13

15. parties are not interacting with each other; it is just an effort to maintain a strong
relation that can elevate their attraction toward other organizations.
The next phase is exploration; it is the investigation process and initial phase in
relational exchange. Here the first step is consideration of the pros and cons, benefits
and losses, burdens and liabilities by the potential exchange partners.
The third phase is called expansion or elaboration; it involves the incessant growth of
profits achieved by exchange partners and their increasing escalating collaboration.
However the basic difference between exploration and elaboration is that here there is
mutual faith between the partners and also a sense of contentment. If relationships
develop then commitment is formed between the two business partners.
Commitment is the most requisite part of relationships and pertains to a conspicuous or
inconspicuous sense of relational development between exchange partners (Dwyer et
al., 1987). Two major factors affect the growth of ccommitment; the first is that both the
partners need to put in significant measure of inputs to their collaboration. The second
assumption is based on the reliability which is the extent to which they can rely on each
other with respect to a long term association.
The last phase of successful bonding development is dissolution. Here there is involved
a sense of intrapsychic temperament wherein one party secretly evaluates its
discontentment with the other party, deducing that the price of amendment or
modification is much more compared to the negative aspects in the association.Thus it
develops a sense of interdependence and each others importance. Dissolution is then
presented publicly.
For the above mentioned five points of successful bonding it can be said that amongst
them all the fourth point – commitment is the most requisite and plays a very crucial
role in building of a strong relationship between the buyer and the seller. Lack of
14

16. commitment between the parties will result in a major set-back to their
association.Thus, commitment should work as a major factor in the creation of a model
that relatesrelational exchanges to the service marketing. Apart from that, the
foundation of commitment is faith which is created by the third phase as discussed
above. Therefore, the next paragraphs will discuss about the trust and commitment.
Trust
Trust can be referred to as customer or organization’s faith that its requirements can be
satisfied by the help and collaboration of the other party (Anderson and Weitz, 1989).
Trust is prevalent only when either party has a sense of confidence and faith in the
working and methodologies of the other party(Morgan and Hunt, 1994). Talking in
terms of social psychology a general opinion states that trust comprises of two essential
factors: trust in the partner’s honesty and trust in the partner’s benevolence. The faith
that the other party will keep to its words is what is meant by honesty in the partner.
Benevolence in the partner is the faith that the partner is embroiled in the company’s
benefit and will not be doing actions that are unfavourable of adverse to the company’s
welfare(Geyskens and Steenkamp, 1995). However a difference between affective and
calculative commitment reveals that trust which includes honesty as well as
benevolence has an optimistic effect on affective commitment (Anderson and Narus,
1990; Anderson and Weitz, 1989; Morgan and Hunt, 1994; Geyskens and Steenkamp,
1995). But calculative commitment is pessimistically affected by trust (Geyskens and
Steenkamp, 1995). Thus it is evident that if partners in an association have faith in each
other; there is a greater emotional bonding between them thereby strengthening the
customer- service provider relationship.
Commitment
The importance of commitment in customer- service provider relationship has been
discussed above. Scanzoni (1979) has referred commitment as the highest degree of
15

17. interdependence of the two partners. A collaboration and mutual interdependence has
been accepted to provide appreciable returns and positive growth for the partners; this
has been accepted by various researchers and marketing economists world-wide. There
is mutual benefit: while the manufacturers can achieve improved product growths,
increased margins and better shares for their company in the market, distributors
receive greater market entrenchment and higher customer contentment. The fabrication
of commitment results from industrial/organizational psychology and is considered as
an indication to carry on activities that support a sense of relation building with a
business partner (Fehr, 1988). Commitment is very often referred to a conspicuous or
inconspicuous state of relational support between exchange partners (Dwyer et al.,
1987). As a result it is seen as a source to obtain positive outcomes between the parties
beneficial to both of them; so they try to develop and maintain this key factor in their
relationship (Morgan and Hunt, 1994). Commitment is often mentioned as a factor that
is very much required in the formation of a long-term association or as a probable
influential response (Kumar et al., 1995). Therefore, commitment is a psychological
aspect of human brain which is responsible for developing an attitude of association
formation and perspective growth plans by mutual association.
From this part, it is obviously to see that the relationship marketing is a useful tool to
get service recovery. A success relationship marketing will build strong links between
exchange partners. While how to know the result of relationship marketing? How can
people know the recovery strategy is success or not?
Brand Equity in service
For above questions, the answer can be found in brand equity. Brand equity means the
influential effect of brand knowledge on customers and their reactions to the
promotions of the brand (Kotler, 2009). Brand equity is crucial because of its benefits
in information productivity, cost effectiveness, lesser purchasing risk involvement,
16

18. powerful demonstration, and so on. However strong brand equity is related to the
behavioral outcomes such as the customer’s brand loyalty, identification, the service
oriented commitments, and the connectivity (Keller, 2008). So, if the brand equity of
any organization is stronger, the service oriented strategies will work positively.
The research over brand equity has two main approaches: finance oriented and
consumer oriented. This essay is based on the consumer-based brand equity which is
quite important for the industry and the organizations which are service oriented
(Berry, 2000). The main aspect is all about measuring the differential effect of a brand,
and it actually depicts the overall brand equity.
According to the brand equity can be measured in three ways - the firm level (Chu
and Hean, 2006), the product level (Ailawadi et al, 2003) and consumer level (Keller,
1993). In this essay the author discuss about the consumer level (loyalty) in the below.
Loyalty
The loyalty of customer is related to the behavior of the customer towards the services
of the organization so that he/she buys the product or services repeatedly (Andreassen
& Lindestad). The consumer who feels happy by using once the products and services
of the company, buys them again and again and also promotes the positivity through
mouth publicity (A. Selnes & Hansen)
If we take e-business for instance: The most desirable goal is to achieve the loyalty of
customers. The monetary necessity requires the increment in customer loyalty,
because there is required a long time to drive the customer for repeat purchase and
win his confidence in the product or services (Gefen, Reichheld & Schefter, 2000).
Customer loyalty is the most important part in the organizations which are service
driven (Ganesh, 2000; Jones & Sasser, Kim & Son, 2009; Mithas, Reichheld & Teal,
17

19. 1996) and may be a crucial determinant of profit in comparison with market share and
position (Heskett, 1994). Loyal customers are quite interested to appreciate the
concerned vendor to other friends who might be perspective customers, increasing the
customer base by incurring almost negligible cost in marketing (Heskett et al., 1994;
Reichheld & Sasser,). Customer loyalty is very helpful in the survival of e-businesses
because mouth publicity and support from the customers who are loyal is even more
beneficial than offline promotions (Reichheld & Schefter, 2000).
Overall, there are many ways to measure a brand. Some measurements approaches are
at the firm level, some at the product level, and still others are at the consumer level.
If some of them or all of them show a increasing trend of brand equity, it means the
service recovery strategy get the success.
Conclusion
Customer service is the most crucial part of the marketing mix that was defined for
products and services industry. Customer service always creates value for the product
which is very important. In the world of consumerism, the customers are very much
concerned about the after sales service apart from buying the products only. The basic
character of service is of being intangible and there are instances where things go
wrong so there should be extra care regarding the issue. The apology and
compensation strategy should be used as soon as possible when the service failure
occurs. What is more important, some long-term strategies such as relationship
marketing should be paid more attention. In addition, although the service is
intangible, the result of service recovery strategies still can be measured by other
aspects, for example, the brand equity, especially the customer loyalty of it.
At the moment, the competition between different companies already transfer form
the single product competition to a more comprehensive one which includes the
service quality. So it is very important to value the service which is always be ignored
18

20. before.
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