Chapter 4: Handling Customer Complaint and Service Recovery

❖ Introduction:

In service quality, the best approach is to "Do it right the first time." However, we must
acknowledge that service failures are bound to happen, often due to reasons beyond the
organization's control. Many interactions between customers and the service provider—
known as "moments of truth"—are at risk of breaking down.

Service failures are more likely because of the unique nature of services:

1. Real-Time Performance: Services are often delivered in real-time, leaving little

room for error correction.
2. Customer Involvement: Customers are actively involved in the service process, and
their expectations can vary widely.
3. People as Part of the Product: Employees themselves are part of the service
experience, making consistency difficult.

Given these challenges, how a company handles complaints and resolves problems is crucial.
A company that manages issues effectively can turn dissatisfied customers into loyal ones.
On the other hand, poor problem resolution can drive customers to seek alternatives.

❖ Customer Response options to service Failures:

When you’re unhappy with a service, you have a few options for how to respond:

1. Informal Complaints: Sometimes, you might just tell an employee about your issue.
This can be effective if you want a quick fix or if the problem seems minor.
2. Speaking to the Manager: If the issue is more significant or if you didn’t get the
response you wanted from an employee, you might ask to speak to a manager.
Managers often have more authority to resolve issues and might offer better solutions
or compensation.
3. Formal Complaint: Filing a formal complaint is another option. This can be done
through official channels like customer service departments or feedback forms. It’s
useful if you want to ensure that your complaint is officially recorded and addressed.
4. Indirect Response: Alternatively, you might choose to grumble to friends and family,
or simply switch to a different service provider the next time you need similar
services. This doesn’t directly address the problem with the company but may be a
way of avoiding future dissatisfaction.
 ❖ Understanding Customer Complaining Behaviour

1. Why do customer complaint?

1. Obtain restitution or compensation

2. Vent (Ventilation) their anger

3. Help to improve the service

4. For altruistic reason (concern for wellbeing of others selfish)

2. What proportion of unhappy customers complain?

3. Who is most likely to complain?

4. Where do customers complain?

5. What do customer expect once they have made a complaint?

▫ Procedural justice

▫ Interactional justice

▫ Outcome justice

To handle unhappy and complaining customers effectively, managers need to understand why
customers complain. Here are the main reasons:

[Link] do customer complaint?

1. Seeking Compensation/ Obtain restitution or compensation: Customers often

complain because they want to get back what they’ve lost, like a refund or
compensation, or to have the service fixed.
2. Expressing Anger/ Vent their anger: Sometimes, complaints are about letting off
steam. If the service was poor or employees were rude, customers might feel their
self-esteem or sense of fairness has been harmed, leading them to vent their
frustration. They may become angry and emotional.
3. Improving the Service/ Help to improve the service: Customers who are very
invested in a service (like at their bank or school) might provide feedback to help
make the service better for everyone.
 4. Helping Others/ For altruistic reasons: Some customers complain because they
want to prevent other people from having the same bad experience. They want to
make sure the problem gets fixed so others don’t face the same issues.

Understanding these reasons helps managers address complaints more effectively and
improve overall service quality.

[Link] proportion of unhappy customers complain?

Research shows that only a small number of unhappy customers actually complain about
their service issues. On average, just 5 to 10 percent of customers who are dissatisfied will
take the time to voice their complaints.

For example, consider a public bus company. Records revealed that they received only about
three formal complaints for every million passenger trips

Even though only a few unhappy customers complain, the good news is that people are
becoming more proactive. Around the world, customers are getting better at speaking up and
demanding better service when they are not satisfied. This means businesses need to be
prepared to handle complaints effectively, as more customers are now willing to make their
concerns known.

[Link] is Most Likely to Complain?

Research shows that people with higher socioeconomic status—those with better education,
higher incomes, and more social involvement—are more likely to complain. This is because
they often have the confidence, knowledge, and motivation to speak up when they face
problems.

[Link] Do Customers Complain?

Most complaints are made directly at the place where the service was received. For example:

● Face-to-Face or Phone: Studies show that over 99% of complaints are made face-to-
face or over the phone to customer service representatives.
● Email or Letters: Less than 1% of complaints are sent via email, letters, or feedback
cards.
For instance, a survey of airline passengers found that only 3% of those unhappy with their
meal complained. All of these complaints were made to the flight attendants, not to the
airline’s headquarters or consumer affairs office.

Customers generally use non-interactive methods (like email or letters) when they just want
to vent their frustration. However, when they want a problem resolved, they prefer interactive
methods like speaking directly to someone on the phone or face-to-face.

Managers often miss out on complaints made directly to frontline employees. Without a
formal feedback system, only a small number of these complaints may reach higher levels of
management.

[Link] Do Customers Expect After Complaining?

When a service fails, customers expect fair compensation. Recent studies show that many
customers feel they don’t receive fair treatment or adequate compensation, which leads to
strong and lasting negative reactions.

Three Key Areas of Fairness in Service Recovery:

1. Procedural Justice:
o Policies and Rules: Customers expect the company to have fair policies and
rules for handling complaints.
o Responsiveness: The process should be convenient and responsive, taking
into account customer feedback and allowing some flexibility.
2. Interactional Justice:
o Employee Behavior: The way employees handle the complaint matters. They
should explain what went wrong and make a genuine effort to resolve the
issue. Their behavior should be honest, polite, and sincere.
3. Outcome Justice:
o Compensation: Customers expect to be compensated for the inconvenience
and losses they’ve suffered. This includes not just fixing the immediate
problem but also compensating for any time and effort they spent on the
recovery process.
Understanding these aspects helps businesses handle complaints effectively and improve
overall customer satisfaction.

❖ Service Recovery

Service recovery refers to the actions a company takes to address and resolve problems when
a service fails or does not meet customer expectations. It involves the steps taken to rectify
the situation and restore customer satisfaction.

Service recovery aims to turn a negative customer experience into a positive one. By
effectively addressing service failures, companies can not only resolve the immediate issue
but also improve customer loyalty and enhance their reputation.

Definitions

1. General Definition:
o Service Recovery: The process by which a company responds to and rectifies
a service failure, with the goal of satisfying the customer and restoring their
trust in the business.
2. Business Context Definition:
o Service Recovery: The strategies and actions implemented by a business to
address and correct mistakes or shortcomings in service delivery. This
includes apologizing, offering compensation, and taking corrective actions to
prevent future issues.
3. Customer Perspective Definition:
o Service Recovery: The steps taken by a company to address a problem when
a service does not meet the customer's expectations. Effective service recovery
involves listening to the customer, acknowledging the problem, and providing
a solution that restores the customer’s confidence in the company.

In summary, service recovery is about fixing problems, compensating customers for their
inconvenience, and ensuring that they feel valued and respected despite the initial failure.
 • Service recovery refers to all those actions taken by an organization in response to a
service failure.
•

❖ Principles of Effective Service Recovery System:

Customer Responses to Effective Service Recovery

The idea of "Thank Heavens for Complainers" highlights how valuable customer complaints
can be. Effective service recovery not only solves the problem but also turns a dissatisfied
customer into a loyal one. Managers who handle complaints well see them as opportunities to
improve their service and keep their customers happy.

Principles of Effective Service Recovery Systems

Here are four key principles to ensure effective service recovery:

1. Make It Easy for Customers to Give Feedback:

 o Simple Channels: Provide clear and accessible ways for customers to report
problems, like easy-to-use feedback forms or contact options.
o Encouragement: Encourage customers to share their issues by showing that
their feedback is valued and important.
2. Enable Effective Service Recovery:
o Quick Response: Act quickly to address the issue. The faster you respond, the
better the chance of resolving the problem to the customer's satisfaction.
o Training: Ensure employees are trained to handle complaints effectively,
including listening to the customer and providing solutions.
3. Establish Appropriate Compensation Levels:
o Fair Compensation: Offer compensation that matches the severity of the
problem. This could be a refund, discount, or other compensation based on the
inconvenience caused.
o Consistency: Ensure that compensation policies are clear and applied
consistently to all customers.
4. Learn from Customer Feedback:
o Review and Improve: Regularly analyze feedback to identify common issues
and improve service processes.
o Adapt: Use insights from customer complaints to make lasting changes that
prevent future problems.

❖ Principles of Effective Service Recovery System

1. Make it easy for customers to give feedback

2. Enable effective service recovery
3. Service recovery should be proactive
4. Recovery procedures need to be planned
5. Recovery skills must be taught
6. Recovery requires empowered employees
7. How generous should compensation be?

⮚ What is the positioning of your firm?

⮚ How severe was the service failure?
⮚ Who is the affected customers?
[Link] It Easy for Customers to Give Feedback

Managers often wonder how to encourage unhappy customers to voice their complaints. The
best approach is to directly address the reasons why customers might hesitate to complain. To
make it easier for customers to provide feedback, companies can:

● Offer Multiple Channels: Use toll-free phone lines, links on websites, customer
comment cards, or even video terminals for recording complaints.
● Promote Responsiveness: Some companies feature service improvements in their
customer newsletters, under the motto "You told us, and we responded."

[Link] Effective Service Recovery

Recovering from service failures is not just about promising to fix problems—it requires
commitment, planning, and clear guidelines. Here are four key strategies:

1. Be Proactive:
o Act Quickly: Service recovery should start as soon as possible, ideally before
the customer even has to complain. For example, if a waiter notices a
customer hasn’t finished their meal, they can ask, "Is everything all right?"
This gives the customer a chance to mention any issues, allowing the waiter to
fix the problem before the customer leaves unhappy.
2. Plan Ahead:
o Contingency Plans: Develop plans for common service failures that can't be
avoided. For example, hotels and airlines might have a plan for overbooking.
By having predetermined solutions, frontline staff can quickly address these
issues without hesitation.
3. Train Employees:
o Confidence and Skills: Employees need training to handle service failures
effectively. Well-trained staff can turn a negative experience into a positive
one by helping customers feel cared for and valued.
 4. Empower Employees:
o Flexibility and Authority: Employees should be given the freedom to solve
problems on the spot. For example, at Ritz-Carlton hotels, staff have the
authority to make decisions and spend money to resolve issues and restore
customer satisfaction.

[Link] Recovery Should Be Proactive

● Act Early: Service recovery should happen as soon as possible, ideally before the
customer even complains. For example, if a waiter notices a guest hasn't finished their
meal, they should ask if everything is okay. This allows the restaurant to fix any
problems on the spot, preventing the customer from leaving dissatisfied.

[Link] Procedures Need to Be Planned

● Prepare for Common Issues: Businesses should have contingency plans for common
service failures that are likely to occur. For instance, overbooking is a common issue
in hotels and airlines, so they should have a standard procedure for handling it. Pre-
planned solutions make it easier for employees to quickly resolve these problems.

[Link] Skills Must Be Taught

● Train Employees: When a service failure occurs, customers often feel anxious or
disappointed. Employees need to be well-trained to handle these situations effectively.
Good training gives staff the confidence and skills they need to turn a negative
experience into a positive one.

[Link] Requires Empowered Employees

● Give Employees Authority: Employees should be empowered to make decisions and

take actions to resolve customer issues. This flexibility is crucial for handling unique
or unexpected problems. For example, hotels like Ritz-Carlton and Sheraton allow
their employees to take ownership of a situation and do what it takes to satisfy the
customer, even if it means spending money to fix the issue.
[Link] Generous Should Compensation Be?

When it comes to compensating customers for service failures, it's important to find the right
balance. Here are some guidelines:

● Firm Positioning: If a company is known for high-quality service, customers expect

significant compensation when things go wrong. For a mass-market business,
something modest like a free coffee might be enough.
● Severity of the Issue: The more severe the service failure, the greater the
compensation should be. Minor inconveniences require little compensation, but
significant issues may need a more substantial response.
● Customer Type: Long-term customers or those who spend a lot should receive more
compensation to retain their loyalty. First-time customers might expect less, but
treating them well could turn them into repeat customers.

The overall rule is "well-dosed generosity." Being stingy can make things worse, but
overcompensating can raise suspicions or encourage dishonest behavior.

❖ Dealing with Complaining Customers

Both managers and frontline employees need to be prepared to handle upset customers,
including those who might be confrontational or rude. The goal is to calm the customer down
and resolve the issue in a way that feels fair and satisfying to them.

By following these principles, companies can turn service failures into opportunities for
building stronger customer relationships and improving overall service quality.
 ❖ Service Guarantees

• Service guarantee is a statement explaining the service customers can expect (the
promise) and what the company will do if it fails to deliver (the payout).

Service Guarantees

Many customer-focused companies offer service guarantees as a way to ensure professional

complaint handling and effective service recovery. A service guarantee is a promise to
customers that if the service doesn’t meet certain standards, they are entitled to
compensation. This could be a refund, a replacement, or a credit.

A well-designed service guarantee does more than just solve problems—it helps the company
learn from its mistakes and improve its services over time.

Discouraging Abuse and Opportunistic Customer Behavior

While encouraging complaints and offering service guarantees is important, companies also
need to be aware that not all complaints are genuine. Some customers might try to take
advantage of generous service recovery policies.

Not every customer is reasonable, and some may even cause problems for other customers.
These problematic customers are sometimes referred to as jaycustomers.

What is a Jaycustomer?

The term "jaycustomer" comes from the word "jaywalker," which refers to someone who
crosses the street recklessly or in an unsafe manner. Similarly, a jaycustomer is someone who
misuses a service or behaves in a way that causes problems for the business, its employees,
and other customers.

For example:

● Disruptive Behavior: Imagine you're at a classical music concert. You expect

everyone to be quiet so you can enjoy the performance. However, if someone talks
 loudly, coughs without covering their mouth, or forgets to turn off their phone, it ruins
the experience for others.
● Abusive Behavior: At a sports event, excitement and cheering are part of the fun, but
if supporters of rival teams become too aggressive or rude, it can spoil the atmosphere
for everyone else.

Let's break down the seven types of jaycustomers in simple language:

Here's a simplified explanation of the different types of problematic customers, or

"jaycustomers,"

Seven Types of Jaycustomers

1. The Cheat: This type of customer tries to cheat the system for personal gain. They
may falsely claim they received poor service or that a product was faulty to get a
refund or free service. Cheats take advantage of service policies or guarantees to get
something for free or at a reduced cost. For example, they might wear a dress to an
event and then return it, claiming it didn’t fit right. They might also fake complaints
to get refunds or compensation. For e.g. A customer who eats most of a meal at a
restaurant and then claims it was bad to avoid paying. Example: A customer checks
into a hotel with a "satisfaction guaranteed" policy, then demands a refund by lying
about being disturbed by traffic noise, even though they had no issue. e.g. faking
insurance claims, cheating on service guarantees
2. The Thief: This customer outright steals from the business. They might take items
without paying or use services without intending to pay. Thieves steal goods or
services without any intention of paying. This could include shoplifting, sneaking into
events, or using stolen credit cards. For e.g.: Someone who sneaks into a concert
without a [Link]: A person who bypasses an electricity meter to avoid
paying for electricity or eats at a restaurant and leaves without paying the bill.
3. The Rule Breaker: This customer ignores the rules that are in place for the safety
and comfort of everyone. Rule breakers ignore or violate the rules set by a business,
which can disrupt the experience for others or create safety concerns. For e.g.: A
person who smokes in a non-smoking area or brings outside food into a movie theater.
Example: A customer who smokes in a non-smoking area or someone who brings
their own food into a movie theater where it’s not allowed.
 4. The Belligerent: Behavior: This customer is rude, aggressive, or even abusive to
staff or other [Link] customers are aggressive or abusive, often shouting or
being rude to staff and other customers. Their behavior can escalate conflicts and
make it difficult to resolve issues. For e.g. Someone who yells at a cashier because
they are frustrated with the wait [Link]: A customer who yells at a cashier
because they are upset about a mistake, even though it wasn’t the cashier’s fault.
5. The Family Feuder: This customer causes problems because they bring personal
conflicts or drama into the service setting. Family feud customers bring personal
arguments or conflicts into a public setting, disturbing other customers and staff.
Example: A couple arguing loudly at a restaurant, disturbing other diners.
6. The Vandal: This customer damages property, either out of anger or for fun. Vandals
intentionally damage property, often out of frustration, boredom, or under the
influence of alcohol or [Link]: Someone who writes graffiti on a bathroom
wall or breaks furniture in a hotel room.
7. The Deadbeat: This customer fails to pay what they owe, either by refusing to pay or
by using fake payment methods. Deadbeats don’t pay for services or goods they’ve
used, either by avoiding the bill altogether or delaying payment. For e.g. A person
who leaves a hotel without settling their bill or uses a stolen credit card.

Managing Jaycustomers

Understanding these types of customers helps businesses protect themselves and maintain a
positive environment for everyone else. By recognizing and addressing these behaviors,
companies can create strategies to prevent these issues, such as implementing stricter rules,
enhancing security, or requiring prepayment for services.