Effectiveness of Service Recovery for Customer Satisfaction - Essay Example

?Topic: What are the impacts of service recovery on satisfaction and loyalty in the hotel industry? Executive Summary The purpose of this report is to analyze relationship between effectiveness of service recovery (as determined by the time needed to restore the service and the quality of the restored service) and customer satisfaction and retention. The research uses data collected from 100 respondents through email survey and analyses it using SPSS. The findings indicate that service recovery does impact on customer satisfaction and retention in the hotel industry; moreover, it is also found that type of service failure too impacts on post recovery customer satisfaction and retention. Table of Contents 1. Introduction --------------------------------------------------------4 1.1 Research Questions--------------------------------------------4 1.2 Research Aim---------------------------------------------------4 1.3 Research Objectives -------------------------------------------4 1.4 Research Hypothesis------------------------------------------5 2. Literature Review--------------------------------------------------------6 2.1 Service Recovery -----------------------------------------------6 2.2 Customer satisfaction-------------------------------------------7 2.3 Customer loyalty------------------------------------------------7 2.4 Service Recovery, Customer Satisfaction and Customer Retention 3. Research Methodology ----------------------------------------------------9 3.1 Research Approach ----------------------------------------------9 3.2 Research Methods------------------------------------------------9 3.3 Research Design---------------------------------------------------9 3.4 Ethical considerations--------------------------------------------11 4. Findings and Analysis ---------------------------------------------------12 5. Conclusion and Recommendations------------------------------------17 6. Limitation--------------------------------------------------------------------18 List of figures and tables Figure 1: Customer retention-------------------------------------------------------12 Figure 2: Percentage of customers who experienced failure -----------------12 Figure 3: Type of service failure ------------------------------------------------- Table 1: Time of recovery and customer satisfaction and customer retention----13 Table 2: Quality of recovery and customer satisfaction and customer retention--14 Table 3: Type of service failure and customer satisfaction -------------------15 Table 4: type of service failure and customer retention------------------------15 List of Appendices Appendix A: Research Questionnaire--------------------------------------------------19 Appendix B: Findings from SPSS-----------------------------------------------------------------------21 Appendix C: Correlations from SPSS-------------------------------------------------23 References------------------------------------------------------------------------------------------------24 1. Introduction This report aims to evaluate the impacts of service recovery on customer satisfaction and loyalty in the hotel industry in the UK. Efficient and quick service recovery has been found to have a positive impact on customer loyalty and satisfaction in several researches (Bowen and Chen, 2001). However, it has also been found that service recovery’s impact is mediated by several factors like the type of industry, and the type of service failure that may have occurred (Matos, Henrique and Rossi, 2007). The current research aims to understand how service recovery impacts the customer loyalty and satisfaction in the hotel industry, which is predominantly a service intensive industry. The following research questions are used to guide the research: 1.1 Research Questions 1. How does service recovery enhance customer satisfaction in the hotel industry? 2. How does service recovery enhance customer loyalty in the hotel industry? 3. What is the relationship between the impacts of service recovery and the type of service failure? 1.2 Research Aim The research aim is to evaluate the impact that service recovery has on customer satisfaction and customer loyalty in the hotel industry. 1.3 Research Objectives -To evaluate if there is a mediating effect of the type of service failure and customer satisfaction post service-recovery -To evaluate if there is a mediating effect of the type of service failure and customer retention post service-recovery -To explore if there is a link between time taken for service recovery/ quality of service recovery and overall customer satisfaction -To explore if there is a link between time taken for service recovery/ quality of service recovery and overall customer satisfaction 1.4 Research Hypothesis A review of the preliminary literature has revealed that there is a general perception of what is known as service recovery paradox – which presumes that an effective service recovery leads to better satisfaction than pre-failure (Michel and Meuter, 2005). However, there are contradictory researches that also postulate that though there is a direct relationship between service recovery and customer satisfaction and retention, it is not possible to have an enhanced customer satisfaction and loyalty post failure (Maxham, 2001). The current research does not delve into the service recovery paradox; instead it aims to analyze the factors associated with service delivery that may lead to an impact on customer retention and satisfaction in the hotel industry. As such, the following hypotheses are designed for validation: Hypothesis1: service recovery time and quality impacts on customer loyalty and retention Hypothesis 2: customer satisfaction and customer retention post recovery is dependent on the type of service failure 2. Literature Review 2.1 Service Recovery - What is service recovery? Service recovery is defined as the actions or processes that an organization follows when there is a service failure, or when any mishap occurs during the customer experience (Michel and Meuter, 2008). Service recovery is of great significance in times when the competitive pressures in the market make the organizations stretched for resources to remain viable. Service recovery delivery is also one of the ways in which an organization can portray itself as better than its competition (Mohsin and Lockyer, 2010). While it is presumed that it is best to have a service delivery model that is failure proof, real life circumstances do not allow this as there are innumerable ways that service delivery may fail or be lower than what the customers expect. As such, it is important to consider service recovery as an essential part of service delivery and to focus on its effectiveness and efficiency. In the service delivery literature it is rare to find mention of service recovery or its importance to the overall perceived quality of service. This is because service delivery quality is largely restricted to the concepts of reliability, assurance, tangibility, empathy and responsiveness (Lages and Fernandes, 2005). This method of assessing service delivery has been traditionally considered to be the most reliable and effective method (Nyeck, Morales, Ladhari, and Pons, 2002). There is substantial literature dedicated to how these five dimensions of service delivery are essential and can inform the organization about the gaps in customer expectations and perceptions. On the other hand there is relatively less work undertaken that considers service recovery as an essential part of service delivery quality. 2.2 Customer satisfaction Customer satisfaction, in the case of service industry like the hotel industry is considered to be defined by a large variety of tangible and intangible factors (Nadiri and Hussain, 2005). The dimensions of service delivery quality as mentioned above or a variation of these factors, is presumed to provide an adequate measure of customer satisfaction (Nadiri and Hussain, 2005). Customer satisfaction is also considered to be an indicator of customer loyalty and intention (Mohsin and Lockyer, 2010). This means that satisfied customers are more likely to return and also indulge in word of mouth advocating for the service or the product. While a large amount of literature is available on the factors that impact on the customer satisfaction in the case of hospitality industry (Mohsin and Lockyer, 2010; Nadiri and Hussain, 2005; Kandampully and Suhartanto, 2000), there is relatively little research that has explored if service recovery post service failure, impacts on customer satisfaction. There is some research which indicates that while it can be expected that service failure would have a negative impact on satisfaction, an effective and timely recovery may actually raise customer satisfaction post the incident (Michel and Meuter, 2008). Researchers call this phenomenon the service recovery paradox, and it has been documented in several researches (Magnini et al, 2007; Michel and Meuter, 2008; Matos, Henrique, and Rossi, 2007). 2.3 Customer loyalty Customer loyalty is reflected in the customer attitude and behaviour toward the organization. For example, loyal customers can be expected to undertake repeat purchases as well as become advocates for the firms and encourage others to buy from the organization. Customer loyalty, especially that translates in customer retention, is considered to be of importance to the firm as it creates dependable revenue stream over the long term without the investment that would otherwise be needed in prospecting new customer (Ramanathan and Ramanathan, 2011). There have been numerous researches undertaken to explore the antecedent factors that lead to customer retention. A prominent theme that has emerged is that customer satisfaction is an indicator of customer loyalty (Bowen and Chen, 2001; Kandampully and Suhartanto, 2000). More specifically, it has been found that hotel customers who experience good service related to reception, housekeeping, food and pricing, are more inclined to revisit (Kandampully and Suhartanto, 2000). 2.4 Service Recovery, Customer Satisfaction and Customer Retention Some researchers have explored implications of service recovery on customer satisfaction and retention. For example, one study found that there was a direct positive relationship between different levels of service recovery and customer satisfaction, intention to purchase and inclination to indulge in word of mouth (Michel and Meuter, 2008). Another research by Magnini et al (2007) found that customer satisfaction increases post recovery when the customers have had no prior failure with the same firm or when they perceived the failure to be not very important or severe. Kau and Loh (2006) found that service recovery plays a direct role in predicting if the customers would become loyal or dissatisfied with the organization. According to Kau and Loh (2006), the customers who perceive low quality recovery are more likely to engage in negative word of mouth for the organization. These researches indicate that there is a possible link between service recovery and customer satisfaction and retention, and that service recovery can be made an essential factor that can be employed for increasing the organization’s image and value. Research Methodology 3.1 Research Approach This research uses a positivistic approach where the aim is to assess the impact of specific variable, service recovery quality, on outcomes like customer satisfaction and customer loyalty. A positivistic approach enables the researcher to collect data in an objective manner (Aronowitz and Ausch, 2000) and to discard extraneous variables and hence prevent the context from affecting the quality or the integrity of the collected data (Barker, 2005). 3.2 Research Methods This research uses both secondary and primary data collection methods for testing the research hypothesis. The secondary research consists of an exhaustive literature review that contains a critical analysis of the available literature and research on service recovery and customer satisfaction and retention. It also covers the theories on these variables and discusses any linkages between them. The primary research is undertaken through a survey of 100 respondents from among the hotels in region X. 3.3 Research Design The research design consist of the sample size, sampling method and the data collection, and analysis techniques. Sample unit: people customers of ten hotels in and around X area. Sample size: 100 An initial sample of 250 customers was selected (who had an email id) but the response rate from the selected respondents was only 60% or 125. Finally, only 100 respondents had provided a full and completed survey. Sample selection method: random sampling The sample was selected from among the existing and the previous customers of hotels in X region. The names were obtained from the databases of the hotels, and a random selection of customers was made using the criteria that they have visited the hotel between 2010 and 2011. A random sampling method ensures that the selected sample is representative of the population under study (Bryant and Charmaz, 2007). Data collection method: survey The data collection was undertaken by developing a questionnaire and then sending it to the selected respondents using their emails. The respondents were asked to mark the answers from the multiple choice options and then to resend the completed form back to the researcher. A survey method if found to be most appropriate when a large number of respondents need to be contacted (Cho and Trent, 2006) and when only quantitative data that is amenable to statistical analysis is to be collected (Creswell, 2007). Data collection instrument: survey questionnaire (Appendix A) A survey instrument was developed using the available literature as guidance. The questions relate to aspects of service recovery – time needed to restore the service and the quality of restoration; and aspects of customer satisfaction (reliability, assurance, tangibles, empathy and sensitivity) and customer retention (as depicted by repeat visit). Data analysis: Statistical Analysis The collected data was subjected to SPSS analysis. The research hypothesis guided the analysis as the aim was to assess how dimensions of service recovery impacted on the overall dimension of customer satisfaction and customer retention. 3.4 Ethical considerations The research employed all the ethical considerations that are required for studies involving human participants, namely, informed consent, privacy of participants and integrity of data (Fisher, 2004; Bell and Opie, 2002). The respondents were provided with full details about why the data is being collected and what is the purpose of the research and their informed consent was taken. Next, the researcher kept all the data collected confidential and promised never to disclose the demographic details of the participants to anyone. 4. Findings and Analysis The findings revealed that 42 out of 100 had visited the hotel more than once, hence showing customer retention of 42 %. Figure 1: Customer Retention The research findings show that out 100 respondents, 34 had experienced service failure Figure 2: Percentage of customers who experienced failure The next set of analysis was undertaken using the data from the 34 respondents who had experienced some form of service failure at the hotel. The first research Hypothesis: “service recovery time and quality impacts on customer loyalty and retention” was tested using correlation analysis. It was found that the scores on time of recovery (which was taken as the independent variable) and the level of customer satisfaction (which was the dependent variable) had a correlation coefficient of 0.23 which indicates a positive relationship. Moreover, the correlation coefficient between recovery time and customer retention was found to be 0.07 while between recovery quality and customer retention was found to be 0.023. Table 1: Time of recovery and customer satisfaction and customer retention Level of customer satisfaction Customer retention Time of recovery Pearson correlation +0.23 0.07 Sig 0.04 0.039 N 34 34 Also, the scores on quality of recovery (which was taken as the independent variable) and the level of customer satisfaction (which was the dependent variable) had a correlation coefficient of 0.21 which indicates a positive relationship. And between quality of recovery and customer retention was 0.05 Table 2: Quality of recovery and customer satisfaction and customer retention Level of customer satisfaction Customer retention Quality of recovery Pearson correlation +0.21 0.05 Sig 0.029 0.01 N 34 34 As such, the Hypothesis: “service recovery time and quality impacts on customer loyalty and retention”, is proved to be correct. For the next hypothesis, “customer satisfaction and customer retention post recovery is dependent on the type of service failure”, the 34 respondents who had experienced a service failure at the hotel, the following types of failure were reported: Figure 3: Type of service failure The analysis also involved finding a relation between type of service failure and customer satisfaction and customer retention. The following table shows that customers who with different experiences of service failure report their satisfaction levels differently. For example, the following table shows that people who had experienced ‘booking’ failure, were satisfied at an ‘average’ or above level post recovery. On the other hand, people who had experience with service failure in the areas of hygiene and cleanliness or room service, were predominantly less satisfied post recovery as well. Table 3: Type of service failure and customer satisfaction satisfaction post recovery booking hygiene and cleanliness staff attitude room services restaurant service other facilities total respondents reporting level of satisfaction very high 2 0 0 0 1 0 3 high 3 0 2 1 2 2 10 Average 3 1 3 3 0 0 10 Low 1 6 0 2 0 0 9 very low 0 1 0 1 0 0 2 total respondents reporting service delivery 9 8 5 7 3 2 34 Next, it was also assessed if the type of service failure impacted on customer retention post recovery. The following table shows that the type of failure did have an impact: Table 4: type of service failure and customer retention Retention booking hygiene and cleanliness staff attitude room service restaurant service other facilities Yes 4 1 3 2 3 2 Retention 15 no 5 7 2 5 0 0 19 Total customers experiencing service failure 9 8 5 7 3 2 34 The above table shows that for service failure issues related hygiene and room service the retention level is much lower, while for failures related to booking, restaurant or other facilities, there is no impact on retention. As such, Hypothesis 2: “customer satisfaction and customer retention post recovery is dependent on the type of service failure”, is proved to be correct. Type of service failure and corresponding recovery seem to impact if the customer is satisfied and if he or she will return. It is also seen from the above table 2, and the graph 1 that out of the 34 customers who experienced service delivery, 15 returned to the same hotel which is equal to a 44.11 % rate of retention. On the other hand, overall, out of 100, 42 customers had been repeat visitors. This is a strong indication of the fact that customer retention positively increases with service recovery. 5. Conclusion and Recommendations The research was conducted successfully and the two research hypotheses were proved correct. The research questions were answered as it was established that customer recovery has a direct and positive impact on customer satisfaction and retention in the hotel industry. It was also found that the type of service failure too impacted on customer satisfaction and retention, though this relationship is rather weak. There is also an indication of the service delivery paradox being true to some extent as the research found that customer retention rates were higher for the group of customers who have gone through service failure and service recovery processes. The research findings have wide implications as these indicate toward a missed opportunity for the hotel industry. While service failures are unavoidable, the hotel industry can benefit from making service recovery in the case of factors like bookings, restaurant service, staff attitude and other facilities more effective. It is also recommended that it is more sensible to ensure that there is no service failure in sensitive areas like hygiene and cleanliness or room service, as customers do not seem to regain their confidence or satisfaction even after a successful recovery. 6. Limitation This research suffers from the limitation that it was undertaken taken only in one city and this narrows the e context. Also the research instrument was not tested for reliability and validity. Any future research is suggested to have more expansive region covered as well as employ research questionnaires that are tested for validity and reliability so that research credibility can be increased. Appendix A: Research Questionnaire Name Please tick the answers that apply to you. 1. You have stayed at the same hotel how many times in the past 5 years? a. once b. twice c. three or more times 2. Have you experienced a service failure during your last stay at a hotel ? 3. What was the service failure related to: (TYPE OF SERVICE FAILURE) a. Bookings b. Hygiene and cleanliness c. Staff attitude d. Room service e. Restaurant service f. Other facilities 4. Do you think that the problem was resolved quickly by the hotel? (TIME OF RECOVERY) a. Strongly agree b. agree c. neutral d. disagree e. strongly disagree 5. Was the problem resolved as per your satisfaction? (QUALITY OF RECOVERY) a. Strongly agree b. agree c. neutral d. disagree e. strongly disagree 6. Do you think you were satisfied with the hotel after your problem was resolved? (CUSTOMER SATISFACTION). Please give a rating between 1 to five for the following, with 1 being the lowest score and 5 being the highest. a. The hotel is very reliable b. The hotel provides assurance c. The hotel is well-kept and has the necessary equipment d. The hotel staff is empathetic e. The hotel is very responsive 7. Did you visit, or intended to visit the hotel the next time after you had experienced a service failure? (CUSTOMER RETENTION) a. Yes b. No Appendix B: Findings from SPSS Table 1: Customer retention No. of Visits Number of Respondents Once 58 Twice 31 three or more times 11 Total 100 Table 2: Customers faced Service failure experienced service failure Yes 34 No 66 100 Table 3: Quick resolution time quick resolution time strongly agree 4 Agree 15 Neutral 9 disagree 4 strongly disagree 2 Total 34 Table 4: quality of recovery High quality recovery strongly agree 8 Agree 11 Neutral 13 Disagree 2 strongly disagree 0 34 Table 5: customer satisfaction High customer satisfaction strongly agree 9 Agree 11 Neutral 8 Disagree 5 strongly disagree 1 34 Table 6: customer retention customer retention post recovery strongly agree 12 Agree 3 Neutral 12 Disagree 5 strongly disagree 3 35 Appendix C: Correlations from SPSS Table 1: Time of recovery and customer satisfaction and customer retention Level of customer satisfaction Customer retention Time of recovery Pearson correlation +0.23 0.29 Sig 0.04 0.039 N 34 34 Table 2: Quality of recovery and customer satisfaction and customer retention Level of customer satisfaction Customer retention Quality of recovery Pearson correlation +0.21 0.05 Sig 0.029 0.01 N 34 34 References Aronowitz, S. and  Ausch, R. 2000. 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