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Turning service failure into success

September 22, 2008

The Wall Street Journal (subscription required) has an excellent article on CRM (customer relationship management) written by academics from the Thunderbird School of Global Management, AZ and the Warwick Business School, England entitled "Making the most of customer complaints".

While noting that customer dissatisfaction is a near certain factor of any service business the authors suggest that what sets apart is the response of businesses to what they term as "service failures". In their view "customers are constantly judging companies for service failures large and small. They judge the company first on how it handles the problem, then on its willingness to make sure similar problems don't happen in the future. And they are far less forgiving when it comes to the latter" Fixing the problem is referred to by them as "service recovery" and that "has (an) enormous impact on customer satisfaction, repeat business, and, ultimately, profits and growth".

Unfortunately, the authors found that in most firms "customer service sort(s) out the immediate problem, offer(s) an apology or some compensation, and then assume all is well". Unfortunately, that merely is a palliative according to the article and does nothing to cure the problem. What they would rather see is businesses do is to look "at service recovery as a mission that involves three stakeholders: customers who want their complaints resolved; managers in charge of the process of addressing those concerns; and the frontline employees who deal with the customers. All three need to be integrated into addressing and fixing service problems". And according to them fewer than "8% of 60 organizations in their study did this well".

The study notes that customers who lodge a complaint view "fairness" as their biggest concern and they have greater tolerance for service failures than for poor service recovery particularly if the company fails them twice.

With regard to managers, the chief aim should be to ensure service failures don't recur. "Learning from failures is more important than simply fixing problems". Somewhat unsurprisingly the authors found that "many customers don't want a payoff. They simply want to have their problem fixed and to be reassured that it won't happen to other people in the future".

Frontline employees have the "greatest job satisfaction when they believe they can give customers what they expect". These employees "have the difficult task of dealing with customers who hold them responsible even when the failures in question are completely out of their control. The attitudes of customer-service workers, positive and negative, spill over onto customers. Yet companies do surprisingly little to support them". That could be said to be particularly true of almost all airlines but also some hotel companies. One suggestion the authors have is to "Give customer-service staff as much freedom as your business strategy allows". As an example, the study cites the Ritz-Carlton hotel company's policy that "authorizes personnel at the front desks of its hotels to credit unhappy customers up to $2,000 without asking a supervisor's approval".

Another suggestion is to "Collect as much data as you can, and share it widely". They urge companies to "gather more feedback about poor service, record it and make it accessible". The study does not mention it but, perhaps, making the data available to potential customers could also be a signal to them that the company takes these concerns seriously and is on the "mend continually".

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