Recovery Strategies for Service Failures

AndreeaBudeanu Ph.D. student, Faculty of Economics and Business Administration, Management Department, Babeș-Bolyai University of Cluj-Napoca, Romania suciu_andre@yahoo.com

Abstract: Internationally, services represent the most important sector of the economy both in terms of economic performance and labor utilization. Becoming essential part of today society, they are considered the basis of a healthy economy, fact that has increased the importance of services and the research in the field.Through this work we intend to address a number of issues that require clarification and are relevant to this sector. Increased competition and customers higher demands lead to difficulties in service delivery, so managers of service organizations must work hard towards developing appropiate strategies that can lead to improved customers satisfaction and to increased efficiency. Because it is inevitably for service providers to face situations in which service failure occurs and their customers are not satisfied, understanding the nature of service failures and the ways in which an organization can recover after a failure are considered key factors for achieving customer satisfaction. Since the data suggests that over 50% of customers who are facing problems are not satisfied with the way they were resolved, we consider appropriate to approach this topic. We intend to draw attention to service providers to the importance of proper management of service failure. They can find ways to recover from these failures and even to turn them into some very pleasant situations that can contribute to customer loyalty. This paper begins by highlighting the various features specific to services which contribute to the increased chances of failure, it continues by presenting the concepts of service failure and service recovery and then it presents some links that exist between service recovery and other aspects of providing services that are demonstrated in the literature. We hope that this paper will significantly contribute to the knowledge and development of the sector under analysis and will highlight some practices that will lead to improved customer satisfaction and organizational performance. Key words: Recovery strategies, service failures, customers perception JEL classification: M100

Introduction „Companies may not be able to prevent all problems but they can learn to recover from them" (Hart et al., 1990). Internationally, services represent the most important sector of the economy both in terms of economic performance and labor utilization. Becoming essential part of today society, they are considered the basis of a healthy economy, fact that has increased the importance of services and the research in the field. Through this work we intend to address a number of issues that require clarification and relevant to the sector. Increased competition and customers higher demands lead to difficulties in service delivery, so managers of service organizations must work hard towards developing appropiate strategies that can lead to improved customers satisfaction and to increased efficiency. Because it is inevitably for service providers to face situations in which service failure occurs and their customers are not satisfied, understanding the nature of service failures and the ways in which an organization can recover after a failure are considered key factors for achieving customer satisfaction. Since the data suggests that over 50% of 1055 customers who are facing problems are not satisfied with the way they were resolved, we consider appropriate to approach this topic. We intend to draw attention to service providers to the importance of proper management of service failure. They can find ways to recover from these failures and even to turn them into some very pleasant situations that contribute to customer loyalty. This paper begins by highlighting the various features specific to services which contribute to the increased chances of failure, it continues by presenting the concepts of service failure and service recovery and then it presents some links that exist between service recovery and other aspects of providing services that are demonstrated in the literature. Services industry involves a high degree of interaction between employees and customers, which contributes to an increase number of opportunities for various errors to occur. The experince of purchasing a service is greatly influenced by the actions of frontline staff whose experience and commitment may be limited or differ from one time to another of the day or of the week. Inseparability of production and consumption is another factor contributing to increased opportunities for an error to occur because corrective measures generally cannot be taken without the client knowing. The problem is compounded by the fact that there is an increased competition in most service industries and so, the client has several options to choose from. So, in a market with intense competition and numerous chances of failure, we consider recovery strategies of great importance for the future of organizations in this field. Service quality is a topic of great interest for researchers, so that numerous studies have been conducted to identify factors that influence the quality of service and the effect on customer perceptions (Parasuraman et al., 1988; Zeithaml, 1988). The importance of customer perception it is emphasized by the fact that studies have shown that attracting new costumers is much more expensive than keeping the old costumers. Customer dissatisfaction adversely affect loyalty and the reputation of the company. A major cause of dissatisfaction is solving problems in an unsatisfactory manner. Approximately 50% of customers who are facing problems are not satisfied with the recovery strategy applied (Levesque & McDougall, 2000).

SERVICE FAILURE Berry &Parasuraman (1992) argue that organizations should consider failure as an opportunity to create satisfied customers and not as a problem and that a proper attitude leading to correct these situations will positively influence the long-term performance. In a study made by Johnston (1995) on services companies, it was found that most pleasantly surprising situations were the result of error correction actions. Service failure relates to events that can lead to unsatisfactory experiences from the point of view of the customer (Bitner et al., 1990). Chung & Hoffman (1998) mention three categories of failures in the case of services: • Service system failure (eg unavailable services, unfriendly customer treatment policy etc.) • Customer requests failure (eg employees are not able to meet individual customer needs) • Failure on slow and inappropriate actions of employees (eg rudeness, wrong delivery, incorrect billing, etc.) Lewis & McCann (2004) mention the following consequences of service failure dissatisfaction: • low costumer confidence • transmission of negative information to other potential customers 1056 • loss of customers • loss of revenues • increased costs • decrease in employee morale and performance.

SERVICE RECOVERY Service recovery consists in the actions taken to deal with the possibility of failure (Zeithaml and Bitner, 2000), actions meant to solve problems, to change negative attitudes of customers and to keep them (Miller et al., 2000: 38). These situations occur when quality of service is poor, but the client does not make any complaint (Smith et al., 1999: 359). In the quality model he proposed, Grönroos (1988) emphasize the beneficial effect of service recovery by saying that it affects customers behavior and that they can anticipate that the service provider shall immediately take the necessary measures to remedy unpleasant situation and find a new acceptable solution. So, if management gives importance of correcting these service failures, customers will have a better perception of the organization. Service failure and recovery can be understood as a trade in which the costumer suffers a loss due to the failure and the company is trying to offer him a gain to compensate his loss (Smith et al., 1999, Levesque & McDougall, 2000). The evaluation of failure and how the problem was solved depends on the type and amount of resources lost and won during the exchange. Recovery strategies have many advantages, Lewis & McCann (2004) listing the following: • improve customer perception of service quality and organization • lead to a positive communication from customers • contribute to improved customer satisfaction • customer loyalty and the impact on profits are positively affected The way customers evaluate corrective actions of the organization is based generally on the principle of justice (Lewis & McCann, 2004 Tax et al., 1998, Smith et al., 1999) and includes three dimensions: • distributive justice: perceived fairness of outcomes (eg compensation, repair or replacement) • interactional justice: perceived fairness related to how the client is treated (eg, apologising) • procedural justice: the perceived fairness of the actions used to correct failure (eg, response speed, accessibility and flexibility of procedures, organizations policies ) In 1999, Boshoff proposes an instrument (RECOVSAT) designed to measure customer satisfaction according to specific elements of recovery after service failure. This tool includes six dimensions: • Communication: refers to the manner in which employees address to customers who have a problem or a complaint • Empowerment: refers to the resources that employees have access to and the decisions they are allowed to make. 1057 • Feedback: refers to the fact that once the issue is resolved, the company provides information about the problem and what is being done to resolve it. • Atonement: refers to the compensation that company is giving to the customer to make