Customer Evaluations of Service Failure and Recovery Encounters

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1.1 Background to the Research

Service failure and recovery is a critical issue for both service managers and researchers. However, until recently, research on the nature and determinants of customer satisfaction following service recovery (i.e. the actions a service provider takes in response to service failure [Grönross, 1988]) has been limited. Therefore, recovery has been identified as a neglected area requiring additional research (e.g., Andreassen, 1999; McCollough et al., 2000; Tax et al., 1998; Swanson and Kelley, 2001). As a result of the limited attendance given to recovery, little is know about how customers evaluate recovery efforts, what constitutes successful recovery, and the potential (and limits) of recovery to convert customer dissatisfaction into satisfaction. Understanding recovery is important for managers. Service failure is one “pushing determinate” that drives customer switching behaviour (Roos, 1999), and successful recovery can mean the difference between customer retention and defection. In turn, customer retention is critical to profitability (Stauss and Friege, 1999). Reichheld and Sasser (1990) maintain that, in certain circumstances, a service company can boost profits almost 100% by increasing customer retention just by 5%. For service providers, recovery has special significance. Fisk et al. (1993) argue that due to the unique nature of services

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(specifically, co-production and the inseparability of production and consumption) it is impossible to ensure 100% error-free service

1.2 Research Objectives

The rationale of this study is both academic and practical. Specifically, the research was conceived with the dual objective of both meeting the rigor of academic requirements and making a contribution towards knowledge and understanding that would be recognised and valued by services marketing scholars and practitioners.

The research problem, an investigation of customer evaluations of service failure and recovery encounters with specific reference to travel and tourism series, can be delineated by reference to a number of key questions - two primary questions and two secondary, more specific questions. Primary Research Questions: (1) What role do justice perceptions play in customer evaluations of a company’s response to their complaint? (2) How do these evaluations effect customer satisfaction and post- purchase behaviour and attitudes?

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Secondary Research Questions: (3) What is the role of perceived justice evaluations is the elicitation of emotions during and/or after service complaint handling experiences? (4) Is there evidence to suggest that satisfaction is a cognitive-affective construct?

Whilst other elements of the research plan were progressively altered and modified with time these questions remained largely unchanged throughout the research period - even if they became more focused as the were transformed into testable hypotheses. In broad terms the researcher knew what the research was about from an early stage. Perhaps this was a result of the initial effort put into the production of a simple, clear and complete research problem.

1.3 Research Context

First and foremost, travel and tourism is an extremely important research context in itself. Travel and tourism is best understood as a total market reflecting the demand of consumers for a wide range of travel-related products. It is now widely clamed that this total market in serviced by the world’s largest industry (e.g., Middleton and Clarke, 2001). In 2000, the number of jobs world wide in the international tourism industry was approximately 250 million. According to a forecast by the World Travel and Tourism Council, this figure will have risen by 32% to 330 million jobs by the year 2010. Worldwide international arrivals reached a new record level of 698 million in 2000 and are

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1.4 Research Methodology

Rather than identifying a single paradigm for the overall design of the study, this research combined qualitative and quantitative designs to overcome the weakness of each of them and at the same time realise the benefits of their strengths (Strauss and Corbin, 1998; Creswell, 1994; Greene et al., 1989; Desphande, 1983). Of combined design approaches, this research used the twophase design approach "The dominant-less dominant design" where the study is based on a single dominant paradigm (in this research the quantitative) with one small component of the overall study drawn from the alternative paradigm (the qualitative) (Creswell, 1994). This method has been used for development purposes, as it included the sequential use of qualitative and quantitative methods, where the first method is used to help inform the development of the second (Greene et al., 1989).

1.5 Research Contributions

1.5.1 Conceptual and Empirical Contributions

The section highlights the research and conceptual contributions of the present research. The areas that are addressed include: Customer Satisfaction following Service Failure and Recovery Encounters, The Role of Perceived Justice in Emotion Elicitation during Service Recovery Encounters, Cognitive-Affective Character of Customer Satisfaction Judgements, Travel and Tourism Marketing and Relationship Marketing.

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Building upon existing research, this study provides further into insight the complex linkage between service recovery and relationship development and dissolution.

1.5.2 Managerial Contributions

Understanding the impact of justice perceptions on post-purchase behaviour and attitudes has great relevance for managers who must deal with customer complaints. If the justice constructs have the proposed impact, then how complaints are handled should assume greater priority. This could include: training customer service personnel on appropriate interpersonal behaviour, allowing customers input into the decision making process, and providing outcomes which customers input into the decision making process, and providing outcomes which customers perceive as just under the circumstances. Managers who are interested in maintaining customer loyalty and building relationships should pay particular attention to developing fair procedures for handling conflicts. In this sense, a fair process for resolving disputes may be a possible competitive advantage as customers seek relationship partners. Managers should also with the costs of addressing complaints against the potential costs of negative word-of-mouth, brand switching and third-party actions. It is important to consider the complete ramifications of consumer post-purchase actions. Many recovery strategies (e.g., explaining mitigating circumstances for service failures) which employ consideration of the justice

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concepts are inexpensive relative to the cost of negative WOM or lost patronage. Overall, the study of justice and its effects on consumer decision making should be useful in helping firms improve their customer satisfaction and retention strategies.

1.6 Conclusions

This chapter outlined the central questions addressed in the thesis. In doing so, it first provided the background to the present research arguing for the need and importance of further research into customer evaluations of service failure and recovery encounters. This was followed by the explicit statement of the research objectives. The next section than justified the usage of travel and tourism services as an appropriate research context for the empirical part of this study. This, in turn, lead to the description of the methodological rationale of the study. A declaration of the contributions of this research to academia and managerial practice concluded the chapter.

Chapter 2 now goes on to present a review of several literatures relevant to the conduct of research within the field of service failure and recovery. The presentation of related exploratory interview findings in chapter 3 then leads to the development of the conceptual framework guiding the study (Chapter 4). This is followed by a detailed description of travel and tourism services as the research context for this thesis (Chapter 5). Next is the presentation of the methodology used to test the model and the associated hypotheses in Chapter 6. Chapter 7 then presents the results from an experimental study, where the

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2.1 Introduction

A basic premise of marketing is that organisational performance is improved by satisfying customers. Therefore, delivering satisfaction should be at the heart of any marketing strategy. Customer satisfaction, however, is not always achieved. As a consequence, customer dissatisfaction needs to be recognised as an outcome. This is especially important in a service context, since the distinguishing feature of services account for a large dissatisfaction potential (i.e. service failure). With services, the variability in terms of outcomes and in terms of processes of production causes a much greater problem compared to goods. Because the customer usually participates in the production process for a service at the same time as he/she consumes it, it can be difficult to carry out monitoring and control to ensure a consistent quality (Zeithaml and Bitner, 1996; Palmer, 1998).

As a reaction to a service failure, customers often engage in behaviours which may not be beneficial for a firm. Service recovery is the now well-accepted term for what service firms attempt to do to offset a customer’s negative reaction to a service failure. That is, when service firms fail to get it right the first time with the customer, what do they do the second time to “make the customer whole” (Bowen and Johnston, 1999). Effective service recovery can even produce a customer who is more satisfied, even delighted, than if he/she

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had been served right the first time (see for example, Etzel and Silverman, 1981; Hart et al., 1990). Even small gains in customer retention facilitated by service recovery can lead to significant gains in profitability (Reichheld, 1996). Given the importance of service recovery, there has been a considerable amount of research published in recent years. The aim of this chapter is to review this literature. As such, the chapter is organised around four sections. First, the nature of service failures is discussed and existing classification schemes are presented. This is followed by the presentation of responses to service failures. Section three, then discusses the process by which a firm attempts to rectify a service failure (i.e. service recovery). Finally, section 4 outlines the different levels of service recovery management.