Service Failure and Recovery - Literature review Example

Service Failure and Recovery

Table of Contents

Introduction3

Service Delivery and customer satisfaction3

Managing services marketing failure5

Identifying Potential Service failure areas7

Opportunities presented by service failure10

Service Design10

Servicescape11

Building loyalty and customer retention12

Conclusion13

Reference List14

• Introduction

The services marketing as defined by Kotler and Keller (2011) is any activity of benefit that can be offered by one party to another which is essentially intangible in nature. Therefore a service is an activity that has a high degree of intangibility associated with it, where no physical goods are offered as the core value proposition of the company. This paper critically examines the statement which narrates that service failures can be undesirable but can present opportunities to improve the satisfaction level of the customers, which as a result makes service failure management and recovery imperative to the success of an organization.

• Service Delivery and customer satisfaction

According to Zeithaml, Bitner and Gremler (2010), defining the service offering of a company in terms of tangibility is quite challenging as there are no physical benchmark to assess its intangible aspects associated with it. However, different types of services can be categorised in the tangibility spectrum. The tangibility spectrum encompasses all types of products that range from pure tangible or physical goods to pure intangible services. The satisfaction level of the customer depends on the way in which they perceive the value offered to them and how it fulfils their needs and demands.

Figure 1: Example of tangibility spectrum.

Source: Kotler, Hayes and Bloom (2002)

The service of a company bears certain inherent characteristics that make service management prominently different from that of product management. These are heterogeneity, inseparability and perishability. The heterogeneous nature of the services makes it difficult for the service personnel to maintain standardization of quality (Kotler, Bowen and Makens, 2006). This is mostly because the service delivery is highly dependent on the human element of the firm, which impacts the uniformity of the service delivery. Secondly, the inseparability compels the consumer and the marketer or the service personnel to interact with each other at the time of service consumption. Thirdly, the perishability of services that it cannot be stored and needs to be delivered or consumed immediately or it can result in financial loss for the organization (Magnini et al, 2007). These three characters largely define how the quality of the service offered by a company is maintained. Thus it has been stated that the customer satisfaction can be enhanced by the way a service based organization is fulfilling the needs and demands of the customers while staying in line with these characters of services marketing.

According to Pulido, Stone and Strevel (2014) the customer satisfaction in the services industry is largely dependent on the consistency. The customer expects to have their needs fulfilled in the exact same manner every time he purchases a service. Maintaining consistency can be based on the grounds of values generated, emotional interaction and communication. Since the quality of service is largely, if not completely dependent on the way the personnel interact with the customers and the way in which he performs the service related activities, so his skills and abilities acts as the determining factor behind the satisfaction of the customers (Brady, Cronin and Brand, 2002).

The organizations seek out for new ways in which their service delivery can be improved that can help them to create a strong competitive advantage. In order to achieve that the firms ensure that the marketing mix strategies are designed in such a way that it helps to foster higher value generation for the customers (Kotler, Hayes and Bloom, 2002). Apart from the product, price, place and promotion strategies of the firm, a service based company also has three more factors that separate it from a product based organization, which are people, process and physical evidence. These three factors differentiate one service based organization from the other. Therefore, the firms ensure that these factors are being properly taken care of, to improve the customer satisfaction level. Any anomalies in these factors can lead to customer dissatisfaction and service failure (Brady, Cronin and Brand, 2002).

• • Managing services marketing failure

Service failure of a company can be defined by the inability of an organization to maintain customer satisfaction and loyalty (Silber, 2009). This can occur if the firm fails to keep up with the changing demands and expectations of the customers, or it has failed to maintain consistency of service delivery or the physical evidence associated with the service delivery. Moreover, the increase in the competitiveness in the global business environment has compelled the firms to seek out for new ways to create a differentiation for the customers so that they favour one brand over the other. As mentioned by Bitner, Booms and Tetreault, (1990), whenever a service failure occurs the customers can face severe inconvenience and can ask for compensation from the firm, in terms of refunds, discounts or apologies. The service failure can often lead to brand dilution and can repel the potential customers. Therefore it is essential for the firms to make sure that it can successfully manage its service failures.

The success of a firm in recovering its brand image on the grounds of service quality is dependent on how well it can influence the customers’ expectations and their perceptions about the organization. As mentioned by Weun, Beatty and Jones (2004), there are two key elements that mostly impacts the effort of a firm to manage the service failure, that are the severity of the service failure and the customer relationship strength. The relationship of the customer with the organization prior to the failure of service has a significant buffering effect over the over their behaviour. It has been found that the customers who prefer to continue with this relationship with the marketer are more likely to bear a perception of low service recovery. As a result there are more satisfied in the event of service recovery.

According to Silber (2009) the quality of service is more important for the firms to ensure customer retentions and new customer acquisition. Therefore, any mishap or anomaly in the service delivery system can have serious detrimental impact on the brand image of the company and can therefore lead to brand dilution. In this regard it has been mentioned that recovery from a service failure is essential for a company to sustain its performance level which is directly related to the success of the firm. As mentioned by Jiang, Klein and Carr (2002), the ability of a company to make repeat purchase by attracting previous customers have a critical role to play in terms of monetary significance. It has been further stated that the cost borne by a firm to preserve existing customer is about 20% of that of acquiring a new one. This is quite important in terms of the revenue of the company as only 5% increase in the return of old customers can increase the profit of firm by 25% to 125% (Kotler, Bowen and Makens, 2006).

Therefore in the event of a service failure, it is imperative for the organization that it should take care of meeting the expectations of the customers immediately and also in the near future. The willingness of a customer to return to the same organization is directly related to their satisfaction level. As mentioned by Brady, Cronin and Brand (2002) the satisfaction of the customer can be explained by the gap between the expectation and experience. In terms of simple equation, if the gap between the experience and expectation is zero (expectation=experience), then it will lead to customer satisfaction. Whereas if there is a positive gap, where experience exceeds expectations, the satisfaction level increases and contrarily in case of negative gap, where the experience is less than the expectation will eventually lead to dissatisfaction.

Bitner, Booms and Tetreault (1990) have mentioned in their study that in order to exceed the customer experience over their expectation is to have a proper and appropriate recovery from the service failures that the company has encountered in the recent time. Magnini et al (2007) have discussed about the service recovery paradox theory, which states that the customers who were exposed to the service failure and have also experienced a satisfactory recovery, exhibited signs of more satisfaction as compared to that customers who have never experienced the service failure at all. It has been found that these customers are more engaged in the spreading positive word of mouth. Furthermore, Magnini et al (2007) have also found that a significant number of the customers who were dissatisfied in the event of service failure were because there was a lack of appropriate response from the authority. Thus, it has been stated that the primary reason of major dissatisfaction was mostly due to the fact that the service recovery was poor after the service failure and not due the exposure to the failure itself.

• • Identifying Potential Service failure areas

Identifying the potential service failure areas is imperative to ensure that the firms can avoid such failures and in case of such event they can easily recover from it. Parasuraman, Zeithaml and Berry (2002) have discussed about the SERVQUAL model. This model discusses about how the service quality can be maintained and the gaps that need to be bridged in order to deliver the best possible services.

Figure 2: SERVQUAL model

Source: Jiang, Klein and Carr (2002)

The SERVQUAL model portrayed above has identified five potential gaps that need to be bridged in order to ensure that the service quality in the organization is maintained and the customers are highly satisfied. The first gap is the difference between the service that is expected by the customer and the perception of the management about the customers’ expectation. This gap often arises when the marketer fails to fully recognize all the expectations of the customers and there is a prominent difference between what the management knows about the customers’ expectation and what the customer is actually expecting (Parasuraman, Zeithaml and Berry, 2002). The second gap is the difference between the management’s perception of the customer expectation and the service quality blue print or specification. This gap occurs when the management fails to set up the service delivery specification based on their perception of what the customers expect from them.

The third gap comes from the difference of the service delivery with the service quality specification. The firms often fail to deliver the services as they have planned. It mostly occurs if there is disengagement between the service personnel and the organizational mission. The personnel may not be properly guided or trained or that the organization does not have the required infrastructure to deliver according to the specification planned by the authorities (Jiang, Klein and Carr, 2002). The fourth gap is between the service delivery and the communication with the customers. The external communication plays a vital role to attract the customers towards the firms, but making promises about the potential service delivery. The gap often arises when the firm fails to deliver the quality that has been promised to the customers, which as a result creates customer dissatisfaction.

The fifth and final gap in the SERVQUAL model occurs due to the difference between the perceived service and the expected service. This is the expectation gap that is faced by the customers (Jiang, Klein and Carr, 2002). Every customer bears certain expectations from company. However when the service quality perceived by the customer is lower than what was expected by them then it leads to customer dissatisfaction.

The SERVQUAL model described above can be used by the organizations to ensure that the service failure can be prevented by monitoring the service quality performance at five specific areas where certain gaps can arise. Moreover, this model can also be used in case of a service failure to easily identify the underlying factors and making the required changes.

According to Bitner, Booms and Tetreault (1990) there are typically three strategies that a company can take in order to recover from the service failures, which are monetary compensation, service interaction and no action strategies. In case of the service failures, depending on its type and organization may choose to adopt any of the three strategies that have been mentioned. In cases where the service quality is poor and does not match with what has been promised, the organizations often offer monetary compensation by offering discounts, or refunding the price of the service (Gremler, 2004). In certain cases the firms also take service interaction strategies where management intervention is quite common. This strategy characterized by offering free services or replacement. Thirdly the no action strategy is where there is no transfer of value in terms of service or money from the company to the buyer. In this case, the company usually asks for apologies and give future assurance to the customers.

The effectiveness of the recovery strategies largely defines the way in which the customers perceive the service performance of the organizations. The more they are satisfied by the recovery efforts of the firms, the more likely it is to ensure that the customers will make repeated purchase and will spread positive word of mouth.

• Opportunities presented by service failure

The service failure of an organization as discussed in the previous section may have negative impacts in the brand image of the firm. Moreover, it has also been found that if any suitable recovery strategy is not applied, the customer dissatisfaction is likely to increase more and will eventually lead to brand dilution and loss of revenue through reduction of customer footfall. Therefore, it is imperative for the service based firms that they should undertake sufficient recovery measures to take care of the service failures experienced by the customers (Weun, Beatty and Jones, 2004). However, as mentioned by Hess, Ganesan and Klein (2003), the service failures although may create a negative impact on the customers’ perception, can also show new opportunities for the firm to further improve their services and attract new customers and retain the old ones.

Parasuraman, Zeithaml and Berry (2002) stated that almost every service based company may face certain service failures owing to the service gaps as described by the SERVQUAL model. In this context it can be stated that the service failure opens up new opportunities to recognize the existing gaps in the service delivery system of the organization. With each service failure that surfaces up, the organization gets new opportunities to further strengthen and improve their service quality by ensuring that such failures do not occur again. This as a result makes service failure to be an essential factor that can help the firms to highlight the areas in which they can improve their service quality and performance.

• • Service Design

The success of a service based firm depends on how well it has designed its services and how efficiently it has been amended over time to recover for the service failures. The organizations needs to identify the underlying factors related to the service design that are responsible for the service failure and make the necessary changes accordingly. As mentioned by Bitner, Ostrom and Morgan (2008) the service design involves satisfying the customers by meeting their anticipated and actual needs along with their expectations from the brand. A good business idea about service delivery often fails due to the lack of proper development and design process. Some of the challenges that often surface for the firms on the grounds of service design are as follows. The service processes are more complicated as compared to that of tangible goods (Kotler, Hayes and Bloom, 2002). Owing to their intangible nature of the services it is more difficult to describe the value propositions. Moreover, the service designs are more difficult to test as there is no physical prototype. The intangible nature also makes it difficult for the organizations to patent the service design. These factors often become a contributing factor for service failure and the organizations needs to ensure they can be avoided as much as possible.

These challenges can be overcome by ensuring that the following five service components are well designed and are interconnected to each other, which are:

• Physical evidence
• Action of customer
• Action of employee
• Backstage action of employee
• Support Process

These five elements can be used to create the service blueprint which is the backbone of a successful service design (Hess, Ganesan and Klein, 2003). The service blueprint can be used in several different ways that eventually leads to customer satisfaction. It can be used to understand the customers’ perception of the service or their experience, to underpin the task allocations and how it can lead to the desired result, to understand the complexity of the process and to simplify and rationalize the service delivery. It can also be used to identify the failure points and bottlenecks in the process flow. Thus, it can be stated that developing a good service design can help in improving the service quality and the performance of the firms (Zeithaml, Bitner and Gremler, 2010). The service failures of a company helps it to identify the areas of the service design that needs to be modified thereby presenting new opportunities to improve the service performance.

• • Servicescape

The importance of servicescape can be described as the physical evidences associated with the service delivery process. It plays a vital role in the customer satisfaction by appealing to their visual and haptic senses. The attractiveness of a brand is largely dependent on how well the service delivery point is attractive visually. As mentioned by Bitner (1992), the atmospherics of a store is largely responsible for creating a positive image among the customers. This as a result can pacify the negative impact of the service failures. The customers are more likely to have a positive image about the brand that has a good store atmospherics. According to Bitner, Ostrom and Morgan (2008), it plays a vital role in visual merchandising that not only helps to attract the customers but also ensures that in case of any service failure it does not put drastic negative impact on the customers.

• • Building loyalty and customer retention

As mentioned by Bitner, Booms and Tetreault (1990), the customer loyalty is the tendency of the customer to make repeated purchase from the same company or retailer in a repeated manner. Moreover, the loyalty of the customer also drives them to create a strong bond with the firm which as a result leads to spreading of positive word of mouth. According to the studies of Zeithaml, Bitner and Gremler, (2010), the loyal customers are less likely to be affected by the service failures and they are more satisfied by the recovery attempts taken by the firms. The service recovery process of the firms also includes building a good relationship with the customers. As mentioned by Kotler, Hayes and Bloom (2002) the marketing of a product (goods or services) can be defined as the process in which the marketer tries to satisfy the needs and demands of the customers by making exchange of values. In this process the transaction can be considered as the trade of values between the marketer or seller and the customers. In context of customer loyalty, building a relationship becomes a part of the marketing process which increases the number of repeated transactions. Therefore the idea of relationship marketing plays a vital role in ensuring that the customers should return to the same marketer owing to the virtue of good relationship (Zeithaml, Bitner and Gremler, 2010). On the grounds of services marketing, relationship with the service personnel is quite vital to ensure customer retention and creating a positive word of mouth.

Due to the inherent nature of “inseparability” of the services, the customers have to come at the direct contact with the service personnel (Kotler, Hayes and Bloom, 2002). The interaction made with the service personnel becomes a contributing factor of the brand image of the company which is being perceived by the customer. Thus, as a part of the service recovery process, and for further strengthening of the service quality and performance, the face to face interaction between the customers and the personnel needs to be improved (Kotler, Bowen and Makens, 2006). In this regard the employees of the service organization needs to be guided and trained in such a manner so that their people management skills improves and they are able to create a long term relationship with the customers. Thus, it can be stated that despite of the fact that the service failures leads to negative impact on the brand image of an organization, it also can open up new opportunities to identify the weak points in the service delivery system and take the necessary actions accordingly so that it can help to improve the overall service quality and performance of the firm.

• Conclusion

The service quality is one of the determining factors that help to create a strong impact on the customers’ purchasing decision. Thus, it is imperative for the firms that they should maintain their service performance in order to enhance customer satisfaction and to foster customer loyalty. The idea of service failure has been defined by the incident where the actions of the firm lead to customer dissatisfaction. The study has further revealed that the companies need to adopt several recovery strategies in case of a service failure. The recovery strategy includes monetary compensation, service interaction and apologising. The study has revealed that these recovery strategies have a positive impact on the satisfaction level of the customers. The customers who have faced service failure and have been subsequently exposed to the recovery strategies of the firms are more satisfied than the customers who have not faced the service failures at all. Thus, it has been revealed that the initiatives taken by the firms to restore the customer satisfaction level have a reinforced effect on them. Furthermore it has also been found that that the service failures also open up new opportunities to further improve the service quality and performance of the companies. It helps to identify the weak points in the service design and allows the firms to take the necessary action so that such failures do not occur in the near future. This as a result makes it imperative for the firms to properly manage the service failures so as to ensure long term sustainability and growth.

• Reference List

Bitner, M.J., 1992. Servicescapes: The impact of physical surroundings on customers and employees. The Journal of Marketing, pp.57-71.

Bitner, M.J., Booms, B.H. and Tetreault, M.S., 1990. The service encounter: diagnosing favorable and unfavorable incidents. The Journal of Marketing, pp.71-84.

Bitner, M.J., Ostrom, A.L. and Morgan, F.N., 2008. Service blueprinting: a practical technique for service innovation. California management review,50(3), pp.66-94.

Brady, M.K., Cronin, J.J. and Brand, R.R., 2002. Performance-only measurement of service quality: a replication and extension. Journal of business research, 55(1), pp.17-31.

Gremler, D.D., 2004. The critical incident technique in service research. Journal of service research, 7(1), pp.65-89.

Hess, R.L., Ganesan, S. and Klein, N.M., 2003. Service failure and recovery: the impact of relationship factors on customer satisfaction. Journal of the Academy of Marketing Science, 31(2), pp.127-145.

Jiang, J.J., Klein, G. and Carr, C.L., 2002. Measuring information system service quality: SERVQUAL from the other side. MIS quarterly, pp.145-166.

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Kotler, P., Hayes, T.J. and Bloom, P.N., 2002. Marketing professional services: forward-thinking strategies for boosting your business, your image, and your profits. Prentice Hall Press.

Magnini, V.P., Ford, J.B., Markowski, E.P. and Honeycutt Jr, E.D., 2007. The service recovery paradox: justifiable theory or smoldering myth?.Journal of Services Marketing, 21(3), pp.213-225.

Parasuraman, A., Zeithaml, V. and Berry, L., 2002. SERVQUAL: a multiple-item scale for measuring consumer perceptions of service quality. Retailing: critical concepts, 64(1), p.140.

Pulido, A., Stone, D. and Strevel, J., 2014. The three Cs of customer satisfaction: Consistency, consistency, consistency. [Online] Available at: <http://www.mckinsey.com/industries/retail/our-insights/the-three-cs-of-customer-satisfaction-consistency-consistency-consistency> [Accessed 6 April 2016]

Silber, I., Israeli, A., Bustin, A. and Zvi, O.B., 2009. Recovery strategies for service failures: The case of restaurants. Journal of Hospitality Marketing & Management, 18(7), pp.730-740.

Weun, S., Beatty, S.E. and Jones, M.A., 2004. The impact of service failure severity on service recovery evaluations andpost-recovery relationships.Journal of Services Marketing, 18(2), pp.133-146.

Zeithaml, V.A., Bitner, M.J. and Gremler, D.D., 2010. Services marketing strategy. New Jersey: John Wiley & Sons, Ltd.