Service Guarantees

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       Service Recovery
       (Chapter 8)

     Service Failure and Unhappy Customers

     Service Switching

     Service Recovery Strategies

     Service Guarantees

                                               - Dwayne D. Gremler

      Service Recovery

     Service Recovery:

     potential impact of effective service recovery:
        increase
        generate
        provide information for

     potential impact of poor service recovery:
        causes two bad
        creation of a

        over time, can negatively impact

                                                         - Dwayne D. Gremler

            Unhappy Customers’ Repurchase
Unhappy Customers Who
Do Not Complain

Unhappy Customers Who
Do Complain
            Complaints Not Resolved                              19%

                 Complaints Resolved                                                              54%

          Complaints Resolved Quickly                                                                                    82%

                                              Percent of customers who will buy again after
                                              a major complaint (over $100 in losses)

                       Source: Adapted from data reported by the Technical Assistance Research Program.
    Figure 8.1
                                                                                                           - Dwayne D. Gremler

       Customer Complaint Behavior

 Why don’t customers complain?          Why do customers complain?
     Don’t know who to complain to         Correct the problem
     Don’t think it will do any good       Receive an emotional release
     May doubt their own subjective         (from frustration)
      evaluation                            Solicit sympathy
     May accept part of the blame          Regain some measure of
     May want to avoid confrontation        control
     May lack expertise

                                                           - Dwayne D. Gremler

     Service Recovery

     The Recovery Paradox scenario:

       customers are

       they experience

       they may ultimately be even more

                                            - Dwayne D. Gremler

    Customer Response Following Service

                                     - Dwayne D. Gremler

           Service Recovery Strategies

    Figure 8.5
                                          - Dwayne D. Gremler

                 Causes Behind Service Switching

•   High Price
•   Price Increases                                                                                            Response to Service Failure
•   Unfair Pricing                                                                                             • Negative Response
•   Deceptive Pricing                                                                                          • No Response
                                                                                                               • Reluctant Response
• Location/Hours                                                                                               Competition
• Wait for Appointment                                                                                         • Found Better Service
• Wait for Service
                                                                                                               Ethical Problems
Core Service Failure                                                                                           •   Cheat
• Service Mistakes                                                                                             •   Hard Sell
• Billing Errors                                                                                               •   Unsafe
• Service Catastrophe                                                                                          •   Conflict of Interest

Service Encounter Failures                                                                                     Involuntary Switching
•   Uncaring
                                                                                                               • Customer Moved
•   Impolite
                                                                                                               • Provider Closed
•   Unresponsive
•   Unknowledgeable

        Source: Sue Keaveney, “Customer Switching Behavior in Service Industries: An Exploratory Study,” Journal of Marketing, April, 1995, pp. 71-82.

Figure 8.4
                                                                                                                               - Dwayne D. Gremler

       Service Guarantees

     guarantee =

     for products, guarantee often done in the form of a warranty
     services are often not guaranteed
               (so what do you guarantee?)
     perhaps the most effective service recovery strategy is to:

                                                          - Dwayne D. Gremler

        What makes for an effective service

      Is Berry’s “Low Price Assurance Policy” a good
      Key features of an effective service guarantee:
           easy to invoke
           easy to understand and communicate
           meaningful to customers
           provides adequate compensation
           easy to collect on
           credible
           declaration of trust

                                                  - Dwayne D. Gremler

       A Well-designed Service Guarantee:
      is
          provides a quick payout
      is
          is
              customers know what to expect
              employees know what to do
      is
          focuses on
          is                                       (provides adequate
           compensation that fully covers the customer’s dissatisfaction)
      is
          does not require customer
      is
          focuses on
      is a declaration of

                                                               - Dwayne D. Gremler

        Unconditional Guarantees

      no specifications as to coverage, time period, or payout
      covers both
      perhaps the           type of guarantee
      however, customers may be reluctant to invoke because

         such guarantees may be perceived as being ambiguous by
          customers…and thus have little value
      examples:

                                                           - Dwayne D. Gremler

        Specific (Conditional) Guarantees

      applies to specific steps or outputs
      can focus the customer’s attention on an important benefit
      such guarantees
         lead to increased satisfaction and generation of new business
      however, customers may question

      examples:

                                                             - Dwayne D. Gremler

                                   Service Guarantee
                                    Marketing 405 – Services Marketing
                                     Dr. Dwayne D. Gremler, Instructor
                                      Bowling Green State University
                                                       Spring Semester 2007

              If you are dissatisfied with the Instructor’s performance, you are entitled to receive your money back.

                                                           -- Terms --
     1. This guarantee applies to the instructor performance behaviors specified by students the first week of class and listed
     on the course web site. The guarantee does not apply to the student’s satisfaction with his/her final course grade.

     2. A student invoking the guarantee will receive his/her earned grade and credit for the course.

     3. Anyone wishing to invoke the guarantee must be a “good student” (as defined the first week of class and listed on the
     course web site).

     4. Appropriate compensation for this three-credit course will be determined by the Dean of the College of Business

     5. The guarantee may be invoked by submitting, in person, a written request to the Instructor or to the Chair of the
     Department of Marketing (Dr. Bob Wu). Students who wish to do so may remain anonymous to the Instructor.

                                                                                            Offer void after May 31, 2007

                                                                                                             - Dwayne D. Gremler

        Service Guarantees

      A good guarantee does not:
         promise something customers
         have so            it loses
         come across as
      What happens if the service guarantee does not
             not a good option unless it was ill-advised to begin with
             likely to occur if payout is frequent and substantial
             the option most wise companies would select

                                                            - Dwayne D. Gremler

        Guarantees and Consumer Behavior

      guarantees can reduce the risk of purchase for
      major costs (of a guarantee) for the customer:
         possibility that the firm will not honor the guarantee
         time and effort involved in invoking the guarantee if
          things do go wrong
         psychological costs of invoking the guarantee if a
          dispute occurs
      guarantees encourage customer feedback when
       service is not satisfactory

                                                        - Dwayne D. Gremler

        Organizational Consequences of a
        Good Service Guarantee

      forces company to

      sets

      generates

      forces company to understand

      builds

                                       - Dwayne D. Gremler
           The Impact of a Well-Designed Service Guarantee
                                     A Well-designed Service Guarantee
                        Required Features:
                        • easy to invoke                  •   provides adequate compensation
                        • easy to understand and          •   easy to collect on
                          communicate                     •   credible
                        • meaningful to customers         •   declaration of trust

                                                                                     • perceived risk
                                                                                     • uniqueness of guarantee

      Operations & Service Quality                                        Consumer Behavior
Service Design                                                   Potential Customers
 • focuses firm on customer needs                                • reduces perceived risk
 • prompts firm to understand/improve processes                  • signals quality

Service Failure & Recovery Mgmt                                  Current Customers
                                                                 • increases brand loyalty
 • forces firm to understand and reduce fail points              • encourages positive word-of-mouth
 • encourages firm to seek customer feedback                     • allows price premium
 • encourages firm to formalize service recovery
                                                                 Dissatisfied Customers
Personnel Management                                             • encourages feedback when dissatisfied
 • encourages firm to hire/train against                         • lowers dissatisfaction at service failure
   guaranteed standards                                          • reduces negative word-of-mouth
 • sets clear standards for employees

                                                 Business Performance
                        Increase in Costs < Increase in Sales & Market Share = Increase in Profits
                          • design and implementation
Commitment                • operations and quality improvements
                          • payout costs
                                                                                              Adapted from Wirtz (1998)

        Does everyone need a guarantee?

      Reasons companies do NOT offer guarantees:
         guarantee would be at odds with
         too many                external variables
         fears of

      Risks associated with offering a service guarantee:
           may be viewed as a
           is guarantee due to failures in the past?
           customers may be too                      to invoke guarantee
           guarantee may encourage customers

                                                                 - Dwayne D. Gremler

        Service Guarantees

      service guarantees work for companies who are
      effective guarantees can be BIG deals - they

      customers should be involved in the           of
       service guarantees
      the guarantee should be so stunning that it comes as a
       surprise -- a      factor

                                                  - Dwayne D. Gremler

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