Organizational Processes for Effective Service Recovery

by

Sriram D (R07027) EFPM 2007-11

In partial completion of Term – IV course “Advances in Marketing”

MKT3-1-DC

Course Instructors: Prof. Sanjay Patro Prof. Debasis Pradhan

Executive-Fellow Programme

1

Contents

Heading Page No

Synopsis 2 Introduction 3 Theoretical framework for Service Recovery 6 Service Recovery Attributes 14 Service Recovery Outcomes 18 Moderators of Service Recovery satisfaction 20 Conceptual model for effective Service Recovery 23 Research Methodology 25 Discussion and Managerial Implications 28 Annexure-A – Summary of empirical studies involving Service Failure and Service Recovery 30

Reference 36

2

Synopsis

Services Marketing has emerged as a significant field of inquiry in the last 30 years subsequent

to the evolution of service industry. Services are simultaneously produced and consumed,

involves high degree of intangibility and therefore failures are unavoidable. However,

complaining customers do provide an opportunity to service providers to rectify their errors and

make good the service. Justice components of social exchange theory, equity theory, attribution

theory and disconfirmation theory form the theoretical basis for service recoveries. Organizations

need to implement service recovery strategies by paying attention to employee and service

process dimensions. Successful service recovery strategies ensure fairness and equity in meeting

aggrieved customer’s recovery expectations, which results in positive disconfirmation and

customer satisfaction, leading to increased repurchase intentions, loyalty and positive WOM.

3

Introduction

Services Marketing has emerged as a dominant field of study in marketing domain,

subsequent to the evolution of service industry. Services sector typically covers transportation,

telecommunications, health care, financial services, educational services, entertainment, legal

and Government services.

It is important to understand the difference between goods and services before we

proceed further. Goods are produced, then sold and finally consumed, whereas Services are sold

first, and produced / consumed simultaneously (Berry, 1980). Services are more intangible than

tangible, less standardized and uniform, and more importantly involves simultaneous production

and consumption. In other words, while goods are possessed, services are consumed.

A framework of services commonly used is the IHIP framework, where services are

defined by their Intangibility, Heterogeneity, Inseparability and Perishability. In the mid 1980s,

Parasuraman, Zeithaml and Berry, proposed a conceptual model of Service Quality through a

multiple item scale SERVQUAL, which identified Reliability, Responsiveness, Assurance,

Empathy and Tangibles as dimensions of Service Quality. It is important to note that research in

Services Marketing was an important contributor to the emergence of Relationship Marketing.

The emphasis of Relationship Marketing is on retaining customers, also called ‘defensive

marketing’, through establishing long term relations, as acquiring new customers may cost more

for organizations (Berry, 2002). Heskett et al. (1994) propose that quality of market share

measured by loyalty is more important than quantity of market share.

In order to retain customers, Relationship Marketing strategies relevant for Services

Marketing that needs to be implemented by organizations(Berry, 2002) , include – (1) Core

Service Strategy, (2) Relationship Customization, (3) Service Augmentation, (4) Relationship

4

Pricing, and (5) Internal Marketing . Heskett et al. (1994) proposed the “Service Profit Chain”,

which establishes relationship between profitability, customer loyalty & employee satisfaction,

loyalty and productivity. According to them, Profit and Growth are stimulated primarily by

customer loyalty. Customer loyalty emanates from customer satisfaction with services provided

by organization, which is dependent on value of services provided to customers. Value creation

is possible only by satisfied, loyal and productive workforce, of an organization, which

essentially means that employee satisfaction is crucial.

Mistakes are a critical part of every service and good recovery can turn angry, frustrated

customers into loyal ones (Hart et al., 1990). Road to service recovery depends on focusing on

customer satisfaction, adopting a customer focused attitude and cultivating skills necessary to

recovery. Johnston and Michel (2008) have proposed three aspects of service recovery –

customer recovery, process recovery and employee recovery. Managers need to integrate these

approaches to provide effect service recovery. Consistent with attribution theory, customers

always place the locus of control for a failure on organizations. Therefore, it is important that

organizations focus on process and employee related recovery (Johnston and Michel, 2008), to

learn from their mistakes and provide exceptional recovery to customers so as to retain them.

This article focuses on process and employee related factors that are important for

effective service recovery. It is important to understand the concept of Service Failure (SF) and

Service Recovery (SR) along with their theoretical framework in order to gain an insight into

customers’ evaluation of SF and their expectations from SR undertaken by organizations. This is

explained in the next section. Following this, an extant review of literature is undertaken which

reveals the attributes required for effective SR, specifically process and employee related

components. Effective SR may lead to satisfaction which leads to many outcomes, and is

5

reviewed in Section 4 along with moderators that affect satisfaction and outcomes. Following

this, a conceptual model of SR is developed with antecedents, process and employee related

attributes leading to customer satisfaction and outcomes. An inventory of quantitative tools

based on literature review is drawn in the subsequent section, which may be useful while

conducting empirical studies in SR. The article ends with a discussion and the managerial

implications of organizational process for effective service recovery.

6

Theoretical framework for Service Recovery

A clear understanding of SF and SR concepts is required before a discussion on the

theoretical framework for SR.

Service Failure

Whenever service performance falls below customer’s expectation, it is termed as service

failure (Hess et al., 2003). Service Failures may be due to core service problem, exceptionally

slow service or mistakes in service (Spreng et al., 1995). Two factors that complicate the

management of Service Failure include simultaneity of production and consumption, which

leaves little scope for corrective action without the customer being aware of the mishap; and

satisfactory responses may be difficult at times (Boshoff and Leong, 1998). Smith et al. (1999),

propose two dimensions of Service Failure – Type and Magnitude. Types of failure include

outcome related failure (what a customer receives), where the organization does not fulfill the

basic service need, and process related failure, which arises out of flawed or deficient service

(how a customer receives service). Similarly, magnitude of failure (severity) is critical to

understand whether SR is possible. According to Seawright et al. (2008), degree of primary

failure also influences SR and is similar to magnitude of failure. On the whole, as far as the

customer is concerned, Service Failure presents a ‘moment of truth’ (Smith and Bolton 1998),

which leads to disconfirmation of expectations and overall dissatisfaction.

Service Recovery

Service Recovery is defined as actions and activities that the service organization and

employees perform to rectify, amend or restore the loss experienced by customers from

deficiencies in service performance (Hess et al., 2003). A firm’s true test of commitment to

service quality and customer satisfaction depends on how it responds after the disconfirmation of

7

customer expectations (Boshoff and Leong, 1998). Many customers do not complain to providers

about poor service. But, those who seek redress are motivated by recovery expectations

(McCollough et al., 2000). Evidence suggests that it is possible for service organizations to

recover from SF (Spreng et al., 1995; Smith et al., 1999). In addition, appropriateness of SR

effort has been shown to influence post recovery satisfaction, future purchase intentions and

loyalty (Spreng et al., 1995). Therefore, it is worthwhile to explore the attributes and

consequence of SR process. Before a review of attributes, it is prudent to examine the theoretical

underpinnings of SR, for a better understanding of customer expectations after SF, as

organizations need to design their recovery mechanisms to mitigate the negative disconfirmation

that arises out of SF.

Theoretical framework for Service Recovery

In order to understand the reasons for dissatisfaction in a failed service and to better

understand the expectations of customers from a service recovery, Services Marketing

researchers have reviewed theories across various disciplines. Disconfirmation Theory,

Attribution Theory, Equity Theory and Justice Theory emerge as prominent theories that are able

to explain the reasons for dissatisfaction after SF and recovery expectations. A brief description

of the relevant theories with respect to service industry and SR is given below:

Equity theory

Equity theory suggests that parties involved in an exchange feel equitably treated and are

satisfied, if their amount of input to the exchange is in balance with their output of the exchange

(Andreassen, 2000). In other words, exchanges are fruitful if equity is maintained and equity

perceptions are influenced by attributions to cause of inequality (Boshoff and Leong, 1998).

Equity judgment is a two step process – (1) consumer compares his / her own outcome to input,

8

and (2) performs relative comparison of this to other exchange party. De Ruyter and Wetzels

(2000), propose that customer input into an exchange involves monetary expenses, time and

effort with service performance as the output. Similarly, service provider also spends time and

effort in an exchange and expects monetary gains, customer retention and positive Word of

Mouth (WOM) as output. Generally, customers perceive higher equity when they receive

relatively more outcomes than the provider. It is to be noted that new customers do not have any

previous experience with the provider and therefore, view failure and evaluate the provider more

seriously. SR that fails to restore feelings of equity for existing customers would have serious

effects on long term relationship variables. Further, Equity in SR is idiosyncratic to specific

service industries (DeRuyter and Wetzels, 2000). To summarize, equity judgments are crucial for

SR and customers should perceive higher equity in SR efforts of service providers in order to be

satisfied with the recovery effort, and to form intentions of repurchase.

Justice Theory

Customers always expect fairness in their dealings with service providers. Justice theory

emerges as a dominant theoretical framework with respect to Service Recovery (Mattila, 2001).

Justice theory has its roots in social exchange and three dimensions of justice theory applicable

to SR include distributive justice, procedural justice and interactional justice. Distributive justice

(DJ) deals with perceived fairness of outcomes (refund, discount etc.), Interactional justice (IJ) is

related to perceived fairness with which customers are treated (apology) and Procedural justice

(PJ) is about the perceived fairness of process used to rectify SF like organization policies, for

e.g., response speed, timeliness of response etc. (McCollough et al., 2000; Mattila, 2001). The

three forms of justice explain a large percentage of variation in post recovery satisfaction.

According to Tax and Brown (1998), being fair with customers through DJ involves refunds,

9

credit, replacement etc. Acknowledgement of SF and assuming responsibility is part of PJ and

fairness in interactions like politeness, honesty, empathy etc. is IJ. Smith et al. (1999) propose

justice elements as mediators influencing customer satisfaction with SF/SR and all three

dimensions of justice are relevant. Tax et al. (1998) have identified the various components of

justice. According to them, DJ is a function of equity, equality and need. Process control,

Decision control, accessibility, timing, speed and flexibility are components of PJ and IJ include

explanation, honesty, politeness, effort and empathy, which are relevant in interactions in a

SF/SR situation. A summary of various SR attributes that are associated with justice theory is

shown in Table 1.

Table 1 – SR Attributes related to fairness dimensions

Distributive Justice (DJ) Procedural Justice (PJ) Interactive Justice (IJ) • Tax, Brown and

Chandrashekaran (1998) - Compensation, Apology

• Smith, Bolton and Wagner (1999) - Compensation

• DeRuyter and Wetzels (2000) - Outcome

• Hocutt, Bowers and Donovan (2006) - Redress

• Tax, Brown and Chandrashekaran (1998) - Speed of response, Voice,

Responsibility, Follow-up • Smith, Bolton and Wagner

(1999) - Speed

• DeRuyter and Wetzels (2000) - Voice

• Hocutt, Bowers and Donovan (2006) - Responsiveness

• Tax, Brown and Chandrashekaran (1998) - Communication, Honesty,

Empathy, Politeness • Smith, Bolton and Wagner

(1999) - Initiation, Apology

• DeRuyter and Wetzels (2000) - Apology

• Hocutt, Bowers and Donovan (2006) - Empathy, Courtesy

Thus, majority of the literature in SR use justice theory as a theoretical base for

developing processes to mitigate the negative effects of SF.

Attribution Theory

Attribution theory suggests that customers make judgments about cause and effect

relationship that influence their subsequent emotions, attitudes and behaviors based on locus,

control and stability (Swanson and Kelley, 2001). Locus of causality is the customer’s perception

of where the responsibility for incident lies (internal vs external), i.e., customer or service

employee. Stability refers to the perception that circumstances will either remain the same

10

(stable) or are likely to change (unstable), i.e. temporary or permanent (Hess et al., 2003).

Controllability is related to credit and blame, i.e., whether the SF incident is controllable

(volitional) or non-controllable (non-volitional). Consumers make inferences about the causes of

success and failure in order to exercise control over their world. However, from a customer’s

perspective, locus of causality is external, i.e., organization is responsible for the problem (Hess

et al., 2003). Therefore, stability and controllability emerge as the dominant dimensions for

customers to gauge SR performance. Similarly, in a study by Boshoff and Leong (1998),

attributions are found to be more important than empowerment and apology, and enables

customer satisfaction in SR situations. More the customers believe that SF is due to seller

(external locus) and is likely to happen again (stable), and could have been avoided

(controllability), more likely they are to complain (Swanson and Kelley, 2001). Customer

attributions can be revised based on SR offered. Information or explanation during recovery

influences attribution (Hess et al., 2003). Similarly, informed choice improves self responsibility

perceptions while simultaneously reducing attributions of blame towards service provider

(Mattila and Cranage, 2005). To summarize, understanding of attributes that caused SF, provides

an opportunity to convert failures into successful recoveries, enabling satisfaction.

Disconfirmation theory

Disconfirmation paradigm holds that customers compare perceived product performance

with expectations. Disconfirmation of expectations is a dominant theory in satisfaction research

where actual performance of a product or service exceeding expectation leads to satisfaction

(Boshoff 1999, 2005). Performance exceeding expectations is positively disconfirmed and

performance falling short of expectations is negatively disconfirmed (McCollough et al., 2000;

Andreassen, 2000). Initial disconfirmation drives final CS/D evaluations and a successful

11

recovery mitigates dissatisfaction arising from failure. Smith et al. (1999) posit that failure

context and recovery attributes result in customer satisfaction with service encounter mediated

through disconfirmation. Maxham and Netemeyer (2002), propose that negative performance

have greater influence on satisfaction and repurchase intentions than positive performance.

Disconfirmation rather than expectations have a dominant impact on satisfaction with SR

(Andreasson, 2000). Disconfirmation theory has been used as the basis by Boshoff (1999, 2005)

to design a measurement tool (RECOVSAT) to evaluate satisfaction with SR. McCollough et al.,

(2000), posit that Satisfaction with SR is a function of initial disconfirmation and recovery

disconfirmation. Initial disconfirmation drives final satisfaction evaluation with recovery

mitigating the dissatisfaction arising from failure. To summarize, disconfirmation theory plays a

major role in ensuring satisfaction from SR efforts and mediates SR outcomes like loyalty,

WOM, repurchase intentions etc.

Interaction between the theoretical dimensions

Literature review reveals that the above theories are valid and applicable to service

recovery, and provides an understanding of SR processes from a customer’s perspective.

Substantial interactions between various attributes of the above theories exist and are relevant for

developing SR process with suitable attributes.

Boshoff and Leong (1998), while describing attributions recommend that firms should

acknowledge failures and take it “on the chin” rather than “arm wrestle” with customers. In

effect, this means that atonement is crucial for satisfaction with service recovery. Equity and

disconfirmation theories, although distinct conceptually, are complementary drivers of

satisfaction (Andreassen, 2000). Whereas disconfirmation is a function of expectation (pre and

post recovery), equity is a relational dimension. Equity has a stronger impact on satisfaction with

12

SR than disconfirmation. Perception of justice is primary to complainers than recovery itself

(Andreassen, 2000).

Interactions between DJ (outcome) and IJ (voice) during SR leads to satisfaction (De

Ruyter and Wetzels, 2000). In majority of the empirical studies, DJ assumes importance and is

critical for overcoming SF with compensation (restaurants, café etc.). Regarding types of failure,

customers are less satisfied after process failure rather than outcome failure (Smith and Bolton,

1998; Smith et al., 1999). Compensation, response speed, apology and initiation are critical SR

attributes that summarize justice theory interactions and result in SR satisfaction. Organizations

should tailor SR efforts by focusing on those resources that have the greatest impact on customer

response. In other words, appropriate justice parameters (DJ, PJ & IJ) should be used depending

on context and magnitude of failure. Similarly, care should be taken to ensure just rewards for

SF. Inequitable gain may result in feelings of guilt for customers (Smith et al., 1999).

McCollough et al. (2000) propose that disconfirmation and justice are crucial for post

recovery satisfaction. According to them, IJ is a sub element of PJ, and both DJ & PJ are

important predictors of post recovery satisfaction and interaction between them is positive. Tax,

Brown and Chandrashekaran (1998) found that all three elements of justice are relevant to

customer’s assessment of fair recoveries and sufficient interactions between DJ-PJ and DJ-IJ

exist. Fair interactions and procedures lower the cost of complaining and reduce the

compensation required to achieve justice. Similarly, in a longitudinal study of banking industry,

Maxham and Netemeyer (2002), found that customers are likely to attribute multiple failures in a

stable, internal manner to the firm. In a multiple industry setting, Mattila (2001), found empirical

evidence for various components of justice affecting satisfaction and found that their interactions

13

are industry specific. DJ is relevant for outcome oriented industries and IJ is important for

personal services. In addition, importance of fairness dimensions depends on type of SF.

Swanson and Kelley (2001), found that stability and locus attributions may act together to

influence intentions to discuss SR. Hess et al. (2003), propose that customer attributions may

change after recovery. Providing information or explanation during recovery influences customer

attributions. Marketers need to consider pre and post SR attributions to gauge efficiency of SR.

Disconfirmation of expectation and fairness of outcome of SR (equity) interact to form

SR satisfaction (Andreassen, 2000). Negative affect created by SF can be mitigated by providing

service recovery that exceeds customer expectations, through just and fair means, leading to

positive disconfirmation and resulting in satisfaction.

On the whole, the above theories provide relevant explanation for various dimensions of

SF and SR. However, no single theory provides a comprehensive explanation for service failure

and consequent recovery expectations. It can be concluded that these theories are

complementary, sufficient interactions between them exist and they combine to explain the

expectations of aggrieved customers, influence SR attributes and mediate SR outcomes.

14

Service Recovery Attributes

Johnston and Michel (2008), in their empirical study on the role of SR strategiesfind that

employee and process related SR recoveries have higher impact on the financial performance of

organization. In this section, employee and process related attributes of SR are discussed, as they

play a crucial role in ensuring fairness in SR process leading to satisfaction and effective

outcomes.

Employee Related Attributes

As stated earlier, every service encounter is a ‘moment of truth’ for the organization, and

the employee being the organization’s ambassador plays a crucial role. Satisfaction with

organization’s customer handling personnel is an important factor to ensure repurchase and

spread positive WOM (Spreng et al., 1995). Based on literature review, more than 15 employee

related attributes have been found to be effective in recovering from SF, as shown in Table-2.

Communication with the customer emerges as a crucial attribute for effectively recovering from

failures. Such communication should be polite and provide information about the cause of SF. In

an empirical study for testing effectiveness of SR using RECOVSAT (SR satisfaction

instrument), it was found that communication and explanation are critical for cumulative SR

satisfaction (Boshoff, 2005). Customer complaint handling satisfaction is significant and is

associated with trust and commitment (Tax et al., 1998). A complaining customer is seeking

emotional compensation (Tax et al., 1998) and it is the responsibility of employees to accept the

blame (attribution), empathize and initiate action to resolve the complaint. Apology and

atonement significantly contributes to customer’s judgment of the recovery process. Further,

organizations should ensure that they elicit customer response through proper feedback

mechanism and the responsibility for the same lies with the employees. Response and Response

15

speed are two different attributes that portrays an organization’s seriousness to resolve customer

complaints. It is important, not only to respond to customer complaints, but also ensure that the

response is timely. A delayed response is as good as no recovery. High levels of satisfaction are

achieved only when concern about a mistake and employee responsiveness both occur (Hocutt et

al., 2006). Similarly, compensation without empathy leads to negative WOM. Satisfaction is

maximized when SR is swiftly handled by a courteous and caring employee (Hocutt et al., 2006).

To summarize, the fifteen attributes emerge as employee related attributes, and any successful

SR strategy should include these behavioral attributes. Organizations should ensure that

employees are trained to exhibit these behaviors when they face customers, aggrieved or

otherwise.

Process Related Attributes

It is prudent to say that process related attributes is the essence of an organization’s

commitment to customer and is a driver to ensure customer satisfaction and overall

organizational performance. Process related attributes can be segregated into three broad areas –

1) Employee related processes, 2) Service Process or Customer related processes, and 3)

Organizational initiatives, to design effect service and service recovery processes. These are

summarized in Table-2.

As far as employee related processes are concerned, creating clear job descriptions and

hiring the right people are important to provide good customer service. Good customer service

needs to be rewarded and instituting reward systems ensures recognition and employee loyalty.

Training emerges as the most important employee related process. Training processes should be

instituted to enable employees to delight customers, and also to understand customer emotions

and suitably respond in case of SF. According to Bowen and Johnston (1999), frequent customer

16

complaints due to a flawed process or lack of empowerment leads to “Organizationally Induced

Helplessness”, which may result in customer apathy or low control amongst employees in a

service encounter. Internal SR including social support, empowerment and high involvement

management practices are strategies to overcome employee helplessness.

Service Process related attributes include empowerment, communication, response,

initiation, customization and standardized services. In the previous section, it was seen that DJ is

crucial to ensure SR satisfaction and compensation is an outcome which aggrieved customers

expect. Organizational processes should ensure adequate empowerment to front line employees

for compensating errors in a service, thereby mitigating SF to some extent. Organizations need to

ensure that standardized processes are available including protocols on initiation of SR, timely

response and communication to customers. Eliciting customer response through customer

feedback and complaint handling systems could help in identifying major process flaws, and

provide an opportunity for the organization to preempt the SR process before customer

complains. Technology is an important enabler in assimilating and sharing data across the

organization. Bitner et al., (2000) propose a Technology Infusion Matrix which enables

employees and customers to use technology as a driver for service encounter satisfaction

resulting in customization, effective SR and provides spontaneous delight to customers.

Effective employee related and process related attributes cannot exist unless there are

organizational initiatives which include customer service orientation, top management

commitment and overall leadership. A customer focused service organization would embrace

technology to listen to and record customer feedback / complaints, initiate process changes on a

continuing basis based on service experiences and take care of the customer facing employees

through internal SR.

17

To sum up, organizational process related attributes are critical in designing effective SR

systems and cannot exist in isolation. Organizational initiatives to design effective organization

wide processes implemented through training of empowered employees result in effective

employee behavioral attributes and successful SR. Both employee and process related attributes

are crucial for effective SR, with the latter relating to design of SR process while the former

deals with implementation of SR

Table 2 – Summary of Employee and Process Related Attributes Employee Related Attributes Organizational Process Related Attributes

• Customer focused attitude (Hart et al., 1990) • Problem solving attitude (Spreng et al., 1995) • Communication (Tax et al., 1998; Boshoff, 1999;

Mattila, 2001; Boshoff 2005) • Elicit customer response (Tax and Brown, 1998) • Politeness (Tax and Brown, 1998; Tax et al., 1998,

Hocutt et al., 2006) • Information sharing (Bowen and Johnston, 1999) • Response (Bowen and Johnston, 1999) • Feedback (Boshoff, 1999, 2005) • Explanation (Boshoff, 1999, 2005) • Response Speed (Smith et al., 1999) • Atonement (Boshoff, 1999, 2005) • Apology (Tax et al., 1998; Smith et al., 1999) • Tangibles (Boshoff, 1999, 2005) • Emotional Response – Personalization, Friendliness

(Smith and Bolton, 2002) • Initiation (Smith et al., 1999) • Honesty (Tax et al., 1998) • Empathy (Tax et al., 1998; Hocutt et al., 2006)

Employee Related • Training (Hart et al., 1990; Spreng et al., 1995; Tax

and Brown, 1998; Smith and Bolton, 2002; Boshoff and Allen, 2000)

• Hiring the right people (Tax and Brown, 1998) • Employee Rewards (Boshoff and Allen, 2000) • Clear Job Description (Boshoff and Allen, 2000) • Employee loyalty, satisfaction (Heskett et al., 1994)

Service Process Related (Customer) • Empowerment (Hart et al., 1990; Tax and Brown,

1998; Boshoff and Leong, 1998; Boshoff and Allen, 2000; Boshoff, 1999; Andreassen, 2000; Smith and Bolton, 2002; Boshoff, 2005

• Communication (Hart et al., 1990; Spreng et al., 1995; Smith et al., 1999; Mattila, 2001; Parasuraman et al., 2005; Seawright et al., 2008

• Response (Hart et al., 1990; Boshoff and Leong, 1998; Tax et al., 1998; Bowen and Johnston, 1999; Smith et al., 1999; Andreassen, 2000; Parasuraman et al., 2005; Hocutt et al., 2006

• Data assimilation and sharing (Tax and Brown, 1998) • Complaint handling system and SR process (Spreng et

al., 1995; Tax et al., 1998, Smith and Bolton, 2002) • Customization (Mattila, 2001) • Initiation (Smith et al., 1999) • Standardized service (Mattila, 2001)

Organizational initiatives • Overall leadership (Heskett et al., 1994) • Top management commitment (Boshoff and Allen,

2000) • Customer Service orientation (Boshoff and Allen,

2000) • Motivation and Teamwork (Boshoff and Allen, 2000) • Technology Infusion (Bitner et al., 2000) • Internal Service Recovery (Bowen and Johnston,

1999)

18

Service Recovery Outcomes

A well executed SR with the requisite attributes results in positive disconfirmation

mediated by fairness and equity. Positive disconfirmation enhances SR satisfaction and leads to

varied outcomes. Repurchase intentions, loyalty and positive WOM emerge as dominant

outcomes of a satisfied SR process. In a longitudinal study involving multiple SF and SR

episodes, Maxham and Netemeyer (2002), found evidence that successful recovery after

unsuccessful recovery, increases customers’ overall satisfaction with the firm, rather than

otherwise. This proves that when multiple failures occur, customers are likely to attribute the

failure in a stable, internal manner to the firm. In addition to repurchase intentions and loyalty,

commitment and trust is enhanced with successful SR. Other benefits of successful SR include

improved perception of the firm, decreased customer acquisition expense and reduced employee

intention to resign and enhanced job satisfaction. However, unsatisfactory SR leads to negative

WOM, complaining behavior and propensity to switch. A summary of SR outcomes is provided

in Table-3. ‘Service Paradox’ and ‘Double Deviation’ are two issues that warrant discussion.

Service Paradox

Service Paradox results, when customers are extremely satisfied with the SR effort, and

SR satisfaction is higher than satisfaction that arises when there was no failure. Although,

empirical evidence of Service Paradox is available in some studies, researchers caution that it is

better for firms to depend on initial service than exceptional recoveries, as most customers may

switch after initial SF. Maxham and Netemeyer (2002), posit that service paradox may exist for

one SF and SR. Service paradox does not occur after two failures. In another study, Michel and

Meuter (2008), through a survey of 11929 customers of a bank, found that only 63 respondents

confirmed that SR is better than error free services. Hence, it is advisable for firms to avoid SF.

19

Double deviation

Double deviation occurs when the SR effort results in dissatisfaction. Dissatisfied

customers experiencing failed recoveries may encourage negative WOM. Significant decrease in

cumulative satisfaction and repurchase intentions occur when customers are less satisfied with

recovery efforts (Smith and Bolton, 1998). According to Maxham and Netemeyer (2002), double

deviation does not occur after one SF and SR. However, it is significant after two failures and

unsatisfactory recovery.

Both Service Paradox and Double Deviation are avoidable and service providers should

always strive to get their initial service right, and in case of SR, ensure that they do not fail again.

Table 3 – Outcomes of Service Recovery

Outcome of Service Recovery • Repurchase Intention

Spreng et al., 1995; Boshoff and Leong, 1998; Boshoff and Allen, 2000; Boshoff, 1999; Maxham and Netemeyer, 2002

• Double Deviation Spreng et al., 1995; Maxham and Netemeyer, 2002

• Loyalty Boshoff and Leong, 1998; DeRuyter and Wetzels, 2000; Ching Liu et al., 2001; Parasuraman et al., 2005; SeaWright et al., 2008

• Word of Mouth (WOM) Spreng et al., 1995; Boshoff and Leong, 1998; Boshoff and Allen, 2000; Ching Liu et al., 2001; Swanson and Kelley, 2001; Maxham and Netemeyer, 2002; Boshoff, 2005; Hocutt et al., 2006; Michel and Meuter, 2008

• Improved perception of the firm Boshoff and Allen, 2000

• Decreased acquisition expense Boshoff and Allen, 2000

• Complaining behavior Ching Liu et al., 2001

• Negative WOM Ching Liu et al., 2001

• Reduced employee intentions to resign and enhanced job satisfaction Boshoff and Allen, 2000

• Trust Tax et al., 1998; DeRuyter and Wetzels, 2000; Boshoff, 2005

• Commitment Tax et al., 1998; Boshoff, 2005

• Value Parasuraman et al., 2005

20

Moderators of SR satisfaction

Cognitive antecedents of satisfaction include expectancy disconfirmation which depends

on expectation, performance and disconfirmation (Smith and Bolton, 2002). Service Recovery is

idiosyncratic and some of the variables that moderate the expectations of customers are

explained in this section.

Culture (Ching Liu et al., 2001): Cultural factors influence customers’ behavioral intentions in a

service quality context, by influencing perceptions of service quality. A study comparing the

effect of service quality perceptions on the cultural factors proposed by Hofstede, revealed that

people belonging to high power distance cultures exhibit lower intentions to praise even if

service is good, high intentions to switch, negative WOM and complaining behavior. Similar

behavioral intentions are exhibited by people from individualistic societies. People with high

uncertainty avoidance have higher intention to praise, lower intent to switch, spread positive

WOM and are less complaining. Similar behavior is exhibited by people from long term oriented

cultures. Accordingly, the authors have identified two cultures based on the above - Type A

(High uncertainty avoidance and long term orientation – Asian, Latin American) and Type B

(High power distance and highly individualistic – American, European) cultures. Regarding SF /

SR, Type A culture warrants solutions to failures, whereas it is better to avoid SF for Type B

culture customers. For Type B customers, service providers should immediately solve the issue

as they have high propensity to switch and spread negative WOM. High power distance and

highly individualistic customers may form a segment of the service provider’s clientele and

customized SR strategies that satisfy their needs are necessary for retaining such customers.

Brand equity (Tax et al., 1998): Accumulated goodwill and brand equity ensures that

dissatisfaction effect is smaller as prior experience is more positive. In other words, prior

21

positive service experience mitigates the effects of a poorly handled complaint. Thus, brand

equity moderates SR expectations and amplifies SR performance.

Relationship with organization (Tax et al., 1998; DeRuyter and Wetzels, 2000; Hess et al.,

2003): Existing customers maintaining a healthy relationship with the providers are more tolerant

of SF. Customers who expect the relationship to continue have lower SR expectations, which

may result in greater satisfaction with SR performance. Such customers, with high expectations

of relationship continuity may demand less of immediate compensation for failure as they

consider the balance of equity across a longer horizon of exchanges. Therefore, it is critical for

providers to develop long term relationship with customers.

Past Service Experience (Maxham and Netemeyer, 2002): Complainants may weigh past

experiences more heavily when forming SR expectation, which makes them susceptible to

recency effects. Customers adjust their expectations higher from one SF to the next, meaning;

providers have to perform SR to match the higher expectations to satisfy such customers. Several

positive performances are needed to overcome one negative event.

Emotions (Smith and Bolton, 2002): Customer Satisfaction is influenced by customers’

emotional response to SF. SF evoke strong emotional response which influences service

evaluation. Customers who respond with more negative emotions may be less satisfied with SR

encounters. SF in credence services may be more emotion laden than other services. Customers

with more emotions systematically evaluate recovery performance, which affects transaction

specific satisfaction rather than cumulative satisfaction. Effect of emotion as a moderator is

industry and context specific.

Age and Gender (Palmer et al., 2000; Hess et al., 2003): Age and Gender moderates SR effect.

Younger people are easier to please than older people and females saw recovery from a SF

22

perspective as more equitable than males. Similarly, women have higher customer recovery

expectations, although they find satisfactory SR as more equitable.

Industry and Service Setting (DeRuyter and Wetzels, 2000; Mattila, 2001): Type of industry

moderates SR expectations and evaluation of SR performance including levels of fairness in

redressing customer grievances. According to DeRuyter and Wetzels (2000), procedural fairness

is relevant for hair dresser and department stores; distributional justice is relevant for restaurants

and interactional fairness for banks. Similarly, making things right the second time is more

important for people related failures (personal services) rather than their possessions. High

degree of customization and high employee contact are relevant for personal services, whereas

standardized services are more relevant for people’s possessions.

Organizations need to consider the above factors in order to develop effective SR

strategies. Developing long term relationships mitigate SF to some extent. Developing goodwill

and brand equity creates positive affect among customers, which insulates providers to some

extent from failures. Industry specific and customized service recovery strategies addressing

different customer segments, age groups and gender moderates the disconfirmation from SR and

leads to customer satisfaction. To summarize, the above mentioned variables moderates

customer expectations from SR and provides an opportunity for service providers to customize

their offering to satisfy the aggrieved customers.

23

Conceptual model for effective Service Recovery

Fairness, equity and attribution theories provide the theoretical base for understanding

customer expectations when they receive unsatisfactory service, as detailed in the earlier section.

Subsequently, the required attributes and outcomes of effective SR were discussed. In this

section, a conceptual model is developed combining these various aspects, which may result in

effective SR recoveries and continuing relationship with customers who have experienced SF.

Type and Magnitude of service failure lead to formation of SR expectations. Process

related failures and high magnitude failures are difficult to recover from (Smith and Bolton,

1998). The various theories described in the previous section provide an understanding of

customer expectation from SF / SR and such expectations may be met through SR strategies

incorporating various SR attributes. Customer expectations of service performance are a

composite function of perceptions regarding service procedure, interaction with the employee,

anticipated outcomes and personal needs of customers (Bhandari et al., 2007). Therefore,

recovery activities should attempt to overcome SF based on both employee and organizational

responses (Hart et al., 1990; Boshoff and Leong, 1998; Davidow, 2003).

Compensation and empowerment (Hart et al., 1990; Boshoff and Leong, 1998) and

actions taken employees for resolving problems lead to customer satisfaction and effective SR

(Mattila, 2001). In addition, Tax et al., 1998 propose that response speed and apology in

acknowledging and rectifying SF are prominent employee related activities. Similarly,

managerial activities designed to bring about recovery have a larger influence on overall

satisfaction and behavioral intentions than original service outcome factors (Spreng et al., 1995).

According to Davidow (2003), managerial actions relevant for effective SR include timeliness,

facilitation, redress, apology, credibility and attentiveness. In addition, training and other

24

employee related processes are equally important for organizations to deliver good recovery.

Developing high technology complaint handling systems, data assimilation and sharing, and

eliciting customer response provides effective feedback on service processes, which can preempt

SF and provide quick SR.

Both employee and process related SR strategies should ensure fairness, create equitable

outcomes and reduce attributions of blame towards the organizations. Such SR strategies are

expected to create positive disconfirmation leading to a satisfied Service Recovery. It is

important to note that organizations should create customized or tailor made SR solutions to

customers by taking into account moderators like culture, relationship with organization, past

service experience, customer emotions etc. A successful SR and satisfied customers lead to

positive outcomes like increased repurchase intentions, positive WOM, loyalty, commitment and

trust. On the other hand, failed recovery and dissatisfied customers shows propensity to switch

and spread negative WOM.

Based on the above, the following propositions are suggested:

P1 : Type and Magnitude of Service Failure result in formation of Service Recovery expectations amongst complaining customers. P2 : SR strategy including Employee and Process related service attributes leads to perceived Service Recovery mediated by fairness and equity dimensions. P3 : Positive disconfirmation results when perceived Service Recovery exceeds customer recovery expectations, whereas negative disconfirmation results when Service Recovery fails to meet customer recovery expectations. P4 : Positive disconfirmation leads to satisfaction with Service Recovery and positive outcomes. P5 : Culture, Brand Equity, Relationship with organization, Past service experience, Emotion Age & Gender, and Industry & Service setting moderates SR disconfirmation.

The conceptual model developed is explained through Figure-1 for better understanding.

25

Figure 1 - A conceptual model for effective Service Recovery

Research Methodology

In order to empirically test the above model, a suitable research methodology needs to be

adopted. A review of 22 empirical articles was undertaken to analyze the methodology used to

test the various research hypotheses. A summary of the empirical studies involving SF and SR

including methodology, quantitative tools and significant results is listed in Annexure-A.

In the case of SF / SR studies, it is difficult to recreate SF settings in order to measure SR

expectations. Accordingly, 12 out of the 22 studies involve survey experiments with hypothetical

scenarios to evaluate expectations. Clearly these studies indicate that anectodal data and Critical

Incident Technique are not effective in measuring customer expectations due to memory effects

and change in customer perceptions due to time lag between the incident and measurement.

However, six studies were conducted involving live data - either customer complaint database or

measuring expectations during or immediately after a service encounter. Close to 60% of the

studies involved SF / SR relating to banking, airline, hotel and restaurant industries. In terms of

Service Failure • Type • Magnitude

Service Recovery Expectations

SR Disconfirmation

SR Attributes • Employee Related • Process Related

• Attribution • Fairness • Equity

Moderators • Culture • Brand Equity • Relationship • Prior Experience • Emotion • Age & Gender • Industry &

Service setting

SR Satisfaction

Outcome • Repurchase

intention • Positive WOM • Loyalty • Trust • Commitment • Value

26

the methodology, most of the research design involved multiple factor between subject design, to

measure the role of various attributes, fairness dimensions and their outcomes. Prominent

dependent variables tested include fairness dimensions, disconfirmation and satisfaction.

Majority of the outcomes involved repurchase intentions, loyalty and WOM. ANOVA,

MANOVA and MANCOVA emerged as the dominant quantitative tools that were used,

followed by regression analysis (simple least squares, weighted least squares and multiple

regression), factor analysis and Structural Equation Modeling (LISREL being the widely used

software).

In addition, the review included four exploratory studies, which set out to develop

multiple dimension scales for measuring satisfaction with recovery – RECOVSAT (Boshoff

1999, 2005). Of this, one involved developing scales for service quality involving website – E-

SQUAL (Parasuraman et al., 2005). Content Analysis for verbal protocols, Exploratory Factor

Analysis (EFA) and Confirmatory Factor Analysis (CFA) were used to optimize the items and

dimensions of the developed scale. Successive iterations using EFA and CFA were able to

reduce 83 items and 13 attributes to 13 items and 6 attributes in the development of RECOVSAT

scale (Boshoff, 1999), and 121 items and 11 dimensions was reduced to 22 items and four

dimensions in developing E-SQUAL scale (Parasuraman et al., 2005). In addition to the above,

the review also highlighted the importance of convergent validity, discriminant validity and

nomological validity for developing multi item measurement scales. Specific tools to test

heteroscedasticity like Nested model Joint F tests (Smith et al., 1999) and Variation Inflation

Factor test to test multicollinearity (Parasuraman et al., 2005) were utilized to check direct and

indirect effects of variables.

27

In order to develop a research methodology to test the conceptual model, based on the

review of empirical studies, it is proposed that live data – either by way of customer complaint

database (Maxham and Netemeyer, 2002; Michel and Meuter, 2008) or hypothetical scenarios of

SF during service encounters (McCollough et al., 2000) be used, in order to obtain a realistic

measure of expectations. While the empirical studies were conducted in the most frequently used

services (airline, hotel, restaurant and banking), other industries like courier services, insurance

services and medical services warrant more attention to get a holistic picture of SR. With the

proliferation of technology, e-commerce and e-banking have gained widespread acceptance and

SR involving websites needs to be studied further. The scales and measures used in the empirical

studies are well established and the same can be adopted to measure the impact of independent

variables (service attributes, fairness and equity dimensions, expectations) on dependent

variables (disconfirmation, satisfaction) and outcomes (repurchase intentions, loyalty and

WOM).

Out of the 22 articles, Maxham and Netemeyer’s (2002) study was the only longitudinal

study. It is prudent to note that service encounters can remain just one time exchange or can

blossom into long term relationships, depending on the effectiveness of service provided. Long

term relationships reduce acquisition and transaction costs, and organizations should strive to

develop long term relationship with customers. In order to achieve the same, service

effectiveness, service failure and service recovery have to be studied on a longitudinal basis. In

such a study, the SF / SR aspects, the remedial action taken by the organization including

changes in employee and process related attributes, resulting customer satisfaction and outcomes

can be more effectively monitored.

28

Discussion and Managerial Implications

Customers do not forget, but are willing to forgive failures (Smith and Bolton, 1998). SR

has larger influence on overall satisfaction and behavioral intentions than original outcomes. The

road to SR depends on focusing on customer satisfaction, adopting customer focused attitudes

and cultivating special skills necessary for recovery (Hart et al., 1990). The conceptual model

encompasses the above aspects. SR process should begin with understanding the type and

magnitude of failures that customers have experienced, through customer feedback / complaint

systems. ‘Fair’ process related attributes that provides solution for customer complaints,

delivered with atonement either with compensation or otherwise, enables positive

disconfirmation leading to satisfaction and positive outcomes. Such failures and subsequent

recoveries should be an important component of organizational learning through suitable process

modifications and the learning should be communicated to all customer facing units.

Customizing recovery solutions satisfies individual customers more than a one size fit all

solution, resulting in generation of loyalty and trust.

Managerial Implications

In India, service industry contributes to more than 65% of GDP and is still growing. In

the past decade, service industries including airlines, telecom, banking, hotel, transportation and

courier industries have proliferated and grown at a fast pace. However, in terms of customer

support, customer complaint management and service recoveries, a paradigm shift towards the

customer is required. Most often it is found that customer service personnel do not communicate

properly, lack information on organization’s products and services, and are not empowered to

redress customer grievances. Customer Service departments exist and provide lip service,

leaving customers dissatisfied. Are organizations too busy acquiring customers than retaining

29

existing ones? In the long run, customer retention is important and providing effective service

and recoveries after failures offers a means to this.

Recovery is a different management philosophy, one that embraces customer satisfaction

as a primary goal. Recovery is fundamental to service excellence and should be an integral part

of an organization’s strategy (Hart et al., 1990). Organizations need to identify failures, resolve

individual customer problems, communicate and classify failures, and integrate data & improve

overall services (Tax and Brown, 1998). Management should upgrade the status of SR function

within the organization, ensure that best service providers are part of SR team, create typology of

SF, give feedback to policy makers on dissatisfaction data and most importantly, always give

benefit of doubt to the customer (Andreassen, 2000). SR should be viewed as an opportunity to

gain superior access to market intelligence on the cause of customer dissatisfaction, which can

lead to more reliable service offerings (McCollough et al., 2000). Measurement tools like

RECOVSAT, SERVQUAL, E-SQUAL and E-Rec-SQUAL should be utilized to gauge customer

satisfaction after failure. RECOVSAT and E-Rec-SQUAL is relevant for measuring customer

satisfaction and service quality after Service Failure. Still better would be to develop

organization specific satisfaction measurement tool, which will enable management to study

failures and customize recovery solutions. While doing it right the first time is the best way to

satisfy customers, effective SR can woo back customers. Recoveries that are provided quickly

were found to result in significantly higher levels of praise and recommendation (Swanson and

Kelley, 2000). Organizations should depend on providing consistent, efficient and friendly

service to customers, rather than banking on recovery systems, which retain customers by

redoing the same service correctly at a cost to the organization.

30

Annexure-A – Summary of empirical studies involving Service Failure and Service Recovery

Author(s) Objective Methodology Quantitative Tools Main Results

Spreng, Harrell and Mackoy

(1995)

Evaluate relative importance of SR activities in determining overall satisfaction and consequent behavioral intentions.

• 410 consumers who used household moving service surveyed through mail questionnaires followed by telephonic interview.

• Impact of SR process attributes (IV), on overall satisfaction (DV) and repurchase intentions and WOM (O) examined.

• Structural Equation Modelling (SEM) using LISREL.

• SR process attributes are significant to achieve customer satisfaction.

• Satisfaction with claims personnel response has the highest effect.

• SR attributes has largest indirect effect on repurchase intentions and Word of Mouth mediated through CS (direct effect).

Boshoff and Leong (1998)

To determine the effects of Attribution, Empowerment and Apology as dimensions of SR.

• 239 subjects tested through hypothetical SF scenarios involving airline and banking industry.

• Effect of five independent variables towards SR attributes, namely, Attribute, Empowerment & Apology leading to Customer Satisfaction.

• 3x3x3 between subject design on varying degrees of attribution, empowerment and apology.

• Fractional factorial design and conjoint analysis using Brendon-Clarke designer software.

• Reliability measured through SAS.

• Validity measured using Maximum Likelihood factor analysis using Quartimin oblique rotation.

• Attribution and Empowerment are critical SR dimensions influencing CS

• Attribution is more important than empowerment and apology.

• SR is situation specific. Pre-service failure perceptions and attitudes do not influence SR.

• Optimal SR is full empowerment, acceptance of blame by service firms and apology.

Smith and Bolton (1998)

To develop a simple model to evaluate customer satisfaction with SF & SR leading to overall satisfaction and repatronage intentions.

• Quasi experimental study using scenarios involving hotels (n=520) and restaurants (n=344).

• 2x2x3x2x2 design involving types of SF, magnitude of SF, SR attributes – compensation, response, apology and recovery initiation.

• Verbal protocol task and battery of structured questions used.

• Least squares regression analysis .

• Average CS and repurchase intention decreases after SF & SR encounter, except in case of exceptional SR.

• SR operates indirectly as response intentions via cumulative satisfaction and directly through transaction specific satisfaction.

• Impact of CS/D with SR large for outcome failure than process failure.

• High magnitude failures are harder to recover from than low magnitude ones.

• Prior service experience significantly affects revised satisfaction and repurchases intentions.

Tax, Brown and Chandrashekaran

(1998)

To provide a comprehensive understanding of service complaint handling including justice concepts.

• Cross sectional survey design including descriptive questions, open ended complaint handling questions and extensive model testing.

• Antecedents of satisfaction with complaint handling using satisfaction as DV and justice components as IV. Similarly, antecedents to trust and commitment based on prior experience evaluated.

• SF & complaint process tested through descriptive statistics.

• Content analysis to evaluate open ended questions on complaint handling.

• Regression model using ordinary least square to evaluate satisfaction.

• Justice components – relevant theoretical framework for satisfaction.

• Customer complaint handling satisfaction is significant and associated with Trust and Commitment.

• Prior positive experience mitigated the effects of a poorly handled complaint on commitment.

31

Author(s) Objective Methodology Quantitative Tools Main Results

Boshoff (1999)

To develop SR satisfaction instrument based on disconfirmation, to measure satisfaction with SR.

• Focus group interviews, personal interviews, analysis of customer complaint records (international airline) and literature review undertaken to determine SR attributes.

• Initial study yielded 15 dimensions of SR and 83 items. Repetitive iterations undertaken to arrive at an optical scale.

• Maximum Likelihood factor analysis with direct quartimin oblique rotation for identifying relevant attributes.

• Reliability measure through SAS PROC CORR.

• Confirmatory Factor Analysis using RAMONA program to determine final list of items and SR attributes.

• Communication, Empowerment, Feedback, Atonement, Explanation and Tangibles emerge as relevant attributions to measure SR satisfaction.

• Convergent validity established – Satisfaction is the dominant outcome of SR.

• Discriminant validity present – Satisfaction, ServQual & Value are distinct but related concepts.

• Nomological validity proved – Satisfaction is moderately but positively correlated to repurchase intentions.

Bowen and Johnston (1999)

To evaluate internal SR obligation of frontline employees to overcome Organization Induced Helplessness.

• Exploratory study involving four bank branches and 14 employees.

• Free format questionnaires administered, followed by interviews.

• Response Analysis and interactions leading to insight on Organizationally Induced Helplessness.

• Social support, empowerment, high involvement management practice – strategies to overcome helplessness.

• Frontline employees deserve recovery attention from management to overcome low control & helplessness.

• Internal SR to positively correlate with customer perception of SR.

Smith, Bolton and Wagner

(1999)

Develop a model of CS with SF/SR encounters based on exchange framework and study the effects of specific SF/SR antecedents on customer evaluation.

• Mixed design experiment using survey method and hypothetical scenarios in restaurant (n=375) and hotel industry (n=602).

• 2x2 between subjects design involving type (outcome / process) and magnitude of failure (high / low). Four failure scenarios and four SR attributes manipulated (compensation, response, apology and recovery initiation).

• Open ended questions followed by structured questions.

• Weighted least squares regressions method adopted to account for scale effects, heteroscedastic disturbance and individual difference.

• Nested model joint F tests used to test the effects of additional variables of justice components and direct / indirect effects of recovery performance on SR satisfaction.

• Additional variables of perceived justice components to be included.

• Recovery performance influences satisfaction through disconfirmation and perceived justice.

• Process failures create more dissatisfaction than outcome failure.

• DJ has stronger effect on CS. Recovery attributes affects 3 types of justice differently (DJ – compensation, PJ – response, IJ – initiation & apology).

• Speedy response and compensation effective for low magnitude failures. Over rewarding may lead to distress and guilt among customers.

Andreassen (2000)

To determine antecedents to satisfaction with SR.

• Interview method (n=201) adopted to determine the antecedents to satisfaction.

• Effect of exogenous variables - Initial negative affect, SR expectations and perceived quality of SR (IV), on disconfirmation, equity and SR satisfaction (DV) evaluated.

• Two stage analyses – 1) effect of exogenous variables on disconfirmation, and 2) disconfirmation’s effect on SR satisfaction measured using Structural Equation Modelling using LISREL VIII.

• Negative initial affect has no impact on satisfaction.

• Both disconfirmation and equity have impact on SR. Equity has a stronger impact.

32

Author(s) Objective Methodology Quantitative Tools Main Results

Boshoff and Allen (2000)

Assess relationships among various variables affecting frontline employee performance in SR situations.

• 262 self administered questionnaires among frontline employees of major national retail bank on various aspects of job perceptions and managerial attitudes and its effect towards SR performance and outcomes tested in an exploratory study.

• Variables pertaining to Managerial attitudes and Frontline job perceptions and its effect on SR performance leading to job satisfaction and intention to resign tested.

• Internal reliability of instrument tested through SAS

• Non response bias tested through trends analysis suggested by Armstrong and Overton (1977).

• Discriminant validity through Exploratory Factor Analysis (ML factor analysis with quartimin oblique rotation) using BMD PAM software.

• CFA through RAMONA program.

• Organization commitment, empowerment and rewards exert strong positive influence on SR performance.

• Effective SR reduces employee intentions to resign and enhances job satisfaction.

De Ruyter and Wetzels (2000)

Role of SR including fairness and equity theory and its effect on service quality, CS, loyalty and trust examined.

• 2x2x2x4 between subjects factorial design involving outcome (DJ), apology (IJ), voice (PJ) and equity (sum of fairness dimensions) manipulated across four service sectors.

• Service sectors include hairdressers, restaurants, departmental stores and bank.

• 25 samples for each cell considered.

• MANOVA used due to correlation between four dependent variables (service quality, CS, loyalty and trust).

• Univariate homogeneity tested using Bartlett-Box F statistics tool.

• Multivariate homogeneity tested using Bartlett-Box M statistics tool.

• Power analysis done for significance testing.

• Voice(PJ) and Outcome(DJ) are significant factors in enabling SR satisfaction.

• Positive evaluations of SQ are possible if equity is high due to favorable outcome and opportunity to express feelings.

• Effect of favorable outcome is industry specific.

• Apology is necessary for generating trust. Failures and recovery are accepted and solved in restaurants & banks.

McCollough, Berry and Yadav

(2000)

Empirical investigation of CS after SF and Recovery studied.

• Two scenario based experiments on individuals who were in the midst of an actual service encounter – Airline travel.

• 1) To measure disconfirmation for SF and SP through 2x3 between subjects design manipulating recovery expectation and service performance on satisfaction.

• 2) Effects of justice theory on satisfaction using 3x3 between subjects design involving 3 levels of DJ and 3 levels of IJ.

• 615 customers of an airline tested through hypothetical scenarios.

• ANOVA used as a quantitative tool to measure disconfirmation’s role for SF & SP.

• ANOVA used to analyze main effect treatment and interactions between fairness attributes.

• SR performance exerts greater impact on disconfirmation than expectation.

• Initial disconfirmation exerts stronger impact on satisfaction than recovery disconfirmation. Recovery can only mitigate impact of failure on satisfaction.

• SP effects not supported in this study. • Higher the DJ, higher the satisfaction.

Interaction between IJ & DJ is positive if relative effects of IJ & DJ are similar.

Mattila (2001)

SF type and magnitude are examined for their effects on customer’s post failure service evaluation.

• Scenario based survey experiments through 441 subjects.

• 3x2x2 between subjects design involving type of service (restaurant, hair dresser and dry cleaning), compensation (Apology with discount and No apology / discount), and failure magnitude (low / high).

• Multiple regression analysis and ANCOVA used to evaluate the role of IVs on service satisfaction (DV) and loyalty (O).

• Justice components are relevant for SR satisfaction and are dependent on industry type.

• High degree of customization and high employee contact relevant for personal services, whereas standardized services are relevant for people’s possessions.

33

Author(s) Objective Methodology Quantitative Tools Main Results

Swanson and Kelley (2001)

To empirically test the impact of customer attributions of SF and SR and their WOM intentions.

• Scenario based experimental design across three industrial settings developed and tested on 183 subjects.

• Methodology involves testing SF attribution dimensions’ role (locus, stability and controllability) on SR (DV) and customers’ WOM intentions (O).

• Critical Incident Technique used to develop SF/SR scenarios, tested through 4 expert judges and 41 students.

• SR scale developed using feedback of 58 students.

• ANOVA used to determine effect of attributions on SR.

• Attributions for SR had no significant impact on WOM intentions.

• Stable and self initiated recoveries result in higher WOM intentions.

• Delayed recoveries result in higher negative WOM.

• Timely and simple process recoveries result in higher and favorable WOM.

Maxham and Netemeyer

(2002)

Longitudinal study (20 months) to evaluate overall satisfaction with the firm, WOM & repurchase intention involving two SF & ensuing SR.

• 1356 samples used for studying first time SF, 692 samples for SF at time period 2 and 255 sample size who faced two SF incidents. Final sample – 255.

• In addition control group of 276 customers without SF and 316 complainants who did not participate was used to compare results.

• Pre-failure DV – overall satisfaction, WOM, repurchase intentions; Post-failure DV – SR satisfaction, overall satisfaction, WOM and repurchase intent evaluated through 3 level within subject factors and 3 covariates (recovery expectations, attributions of blame and severity of SF2 vs SF1 to investigate SP / double deviation.

• 13 hypotheses develop tested through different tools.

• H1-H5 tested using RM MANCOVA.

• H6-H11 tested using ANCOVA.

• H12 & H13 tested using RM MANCOVA.

• Double deviation does not occur after one SF and recovery. Significant after two failures and unsatisfactory recovery

• SP exists for one SF & SR. Does not occur after two failures.

• Post recovery 2 scores lower than Post recovery 1 score. Unsuccessful recovery followed by successful recovery (US) better than SU.

• Expectations and attributions of blame are higher after SR1.

• Two failures in short span of time has lower post recovery 2 ratings for outcomes.

• Two failures in short span of time reduces overall satisfaction.

Smith and Bolton (2002)

Effect of customer’s emotional response to SF and their influence on post recovery satisfaction is examined.

• Self report questionnaires followed by experimentally generated scenarios of SF & SR in hotel and restaurant industry used.

• 96 SR scenarios developed based on four SF including stimulus induced emotions.

• 4x3x2x2x2 between subject design involving four emotional SF scenarios, 3 types of compensation (H/M/L), Response (P/A), Apology (Y/N) and Initiation (Employee / Customer) to evaluate SR sat.

• Content analysis of verbal protocols to determine customer expectation and emotions (five types identified).

• Glesjer’s test to check heteroscedasticity.

• Weighted Least Squares with inverse no. of thoughts as weighting factor to overcome heteroscedasticity.

• F tests for pooling of data of hotel and restaurant industry for high and low emotion groups.

• Moderated regression analysis for testing the role of emotions as a pure moderator or quasi-moderator.

• Customer’s emotional response to SF significantly influences post recovery satisfaction.

• Customers who respond to SF with more emotions may be less satisfied.

• Direct effect of emotion on SR satisfaction is low, confirming that emotion is a moderator.

• Emotion is not a moderator in restaurant sample, is a pure moderator in hotel sample and quasi-moderator in the combined sample.

• Customers with higher emotions systematically evaluate SR performance. Emotional response affects transaction specific satisfaction than cumulative satisfaction.

34

Author(s) Objective Methodology Quantitative Tools Main Results

Hess, Ganesan and Klein (2003)

Examines the role of past service performance, no. of encounters and customer’s expectation of relationship continuity on customer’s response to SF and SR.

• Scenario based experiment with 346 subjects to check causal attributions and recovery expectation’s effect on CS.

• 2x2x2x3 between subjects manipulations involving quality of SR performance (E/A/P), severity of failure (S/M), quality of past service performance (avg. / above avg.) and no. of past encounters (one vs many) to examine satisfaction (DV).

• Two stage study – Effect of past encounters, quality of past service and their interactions on 1) satisfaction, and 2) estimation of stability attributions.

• Exploratory Factor Analysis (EFA) and Confirmatory Factor Analysis (CFA) to assess the measures and find a fit of model to data.

• Hierarchical regression analysis to estimate satisfaction and stability attributions.

• Expectation of relationship continuity and longer history of past encounters cause customers to attribute SF to less stable causes.

• SR expectation increases with severity of failure and controllability attributions.

• Falling quality of SR performance has dire results for CS. Customers with high expectations exhibit greater drop in satisfaction when SR performance drops from excellent to average.

• Women in general have higher expectation of relationship continuity.

Boshoff (2005)

Psychographic assessment of RECOVSAT using post recovery satisfaction of complainants.

• Complaint database of major national bank followed by telephonic interviews using RECOVSAT scale among 702 customers of a major national bank.

• Empirical analysis of RECOVSAT scale and to re-evaluate reliability and nomological validity.

• Based on the interview response, Confirmatory Factor Analysis done using LISREL 8.54 utilizing Weighted Least Squares method.

• Reliability measured through SAS PROC CORR.

• 4 items removed due to misspecification resulting in RECOVSAT scale containing 13 items covering 6 attributes of SR.

• Cumulative satisfaction with all 6 dimensions of SR leads to loyalty.

• Communication and Explanation are critical for cumulative SR satisfaction. Empowerment and Tangibles are positively correlated but not significant.

Mattila and Cranage (2005)

Examines ‘informed choice’ as antecedent to SR satisfaction.

• Scenario based experiment with 280 subjects to determine the role of choice, compensation and apology (IV) in determining fairness (DV) leading to satisfaction with problem handling (O).

• 2x2x2 between subjects design involving different combinations of choice, compensation and apology.

• One way ANOVA and regression used to test the model.

• Informed choice improves self responsibility perceptions while simultaneously reducing attributions of blame towards service provider.

• Combining apology with compensation boost’s customer’s informational justice when choice is offered.

• All dimensions of justice relevant for customer satisfaction.

Hocutt, Bowers and Donovan

(2006)

To investigate the impact of several SR attributes on CS and WOM intentions

• Scenario based experiment to examine the effects of three components of justices on satisfaction and WOM intention in a sample of 221 subjects.

• 2x2x2 factorial design involving high and low levels of redress (DJ), responsiveness (PJ) and empathy/courtesy (IJ) and its effect on SR satisfaction

• MANOVA used to test significance of variables at univariate and multivariate levels

• Redress, empathy and responsiveness are statistically significant in aiding satisfaction after SF.

• High levels of satisfaction are achieved only when concern about mistake and employee responsiveness both occur.

• Compensation without empathy leads to negative WOM. Satisfaction is maximized when SR is swiftly handled by courteous / caring employee. SP witnessed only in ideal SR.

35

Author(s) Objective Methodology Quantitative Tools Main Results

Parasuraman, Zeithaml and

Malhotra (2005)

Exploratory study to develop and test multiple item scale for E-ServQual.

• Exploratory study to develop multi scale for ensuring quality of a customer’s interaction with web sites (e-SQ and e-Rec-SQ). 121 items identified across 11 SQ dimensions using a sample of 549 subjects.

• Reliability and validity of scale established.

• Four part empirical study to check reliability and validity undertaken for two web sites (Walmart.com, n=205; and Amazon.com, n=653) including testing of – 1) the developed scale (e-SQ), 2) dichotomous screening for SF/SR (e-Rec-SQ), 3) Multiple items measure for perceived quality and loyalty intentions, and 4) Demographic and usage questionnaire.

• EFA with principal component analysis as extraction method and oblimin as rotation method with breaks-in eigen values criterion to determine no. of factors to retain.

• CFA to validate reliability and internal consistency.

• Repetitive iterations for optimizing the items.

• Structural Equation Modelling to assess nomological validity of the scale.

• Multiple regression analysis to determine each dimension’s contribution to higher order constructs.

• Variation Inflation factor to test multicollinearity.

• Factor analysis with varimax rotation for evaluating correlation of DV.

• e-SQ scale of 22 items and 4 dimensions (efficiency, fulfillment, system availability and privacy) developed. E-Rec-SQ scale containing 11 items and 3 dimensions (responsiveness, compensation and contact) developed.

• Scales have high reliability, internal consistency and convergent validity.

• Nomological validity for e-SQ established – e-SQ influences perceived value and loyalty intentions.

• Multiple regressions to evaluate each dimension’s contribution to value and loyalty revealed that efficiency and fulfillment are critical for overall quality of website, value and loyalty.

• System availability and privacy results were insignificant due to multicollinearity.

• Factor analysis with varimax rotation revealed that all four dimensions have significant positive correlation with overall quality, value and loyalty.

Michel and Meuter (2008)

Effects of Service Paradox examined through survey of actual service encounters.

• Survey based approach to compare satisfaction levels of real customers in an actual service encounter in a large bank.

• Out of 11929 respondents, 9474 responses including 8285 satisfied respondents and 1189 respondents with one failure studied.

• Respondents with one SF divided into five sub-groups and SP effects studied and means of respondents who experienced SF / SR compared with error free encounters.

• Mann-Whitney U Test used to analyze survey results.

• Levene Test used to find homogeneity of variances.

• SP is found when initial service is just satisfying and SR episode is much better than expected.

• SP is very rare. Only 63 respondents out of 11929 respondents found that SR is much better than error free service.

• Satisfaction and WOM decrease when just satisfying service is provided.

Seawright, , DeTienne,

Bernhisel and Larson (2008)

Role of value added atonement as an antecedent for SR satisfaction examined.

• Controlled experiment with scripted SF/SR scenarios conducted on 358 subjects to determine the effects of SR system design and degree of failure on SR satisfaction.

• 4x3 between subjects design involving 4 types of SR (recovery failure, no recovery, std. recovery & value added recovery)and 3 types of SF matrix (H/M/L).

• 4x3 factorial ANOVA to determine the effects of DV on post recovery satisfaction and loyalty.

• Value added atonement emerges as an additional element in SR design.

• Degree of primary failure significantly affects SR.

• Greater recovery including communication and compensation increases CS.

• Atonement increases CS and loyalty. Abbreviations - SF – Service Failure, SR – Service Recovery, SQ – Service Quality, SP – Service Paradox, CS – Customer Satisfaction, CS/D – Customer Satisfaction / Dissatisfaction, WOM – Word of Mouth, DJ – Distributive Justice, IJ – Interactional Justice, PJ – Procedural Justice.

36

Reference Andreassen, Tor Wallin (2000), “Antecedents to satisfaction with service recovery”, European Journal of Marketing, Vol. 34(1/2), 156-175. Berry, Leonard L. (1980), “Services Marketing is Different”, Business, Vol. 30, May-June, 24-28. Berry, Leonard L. (2002), “Relationship Marketing of Services – Perspectives from 1983 and 2000”, Journal of Relationship Marketing, Vol. 1(1), 59-77. Bhandari, Mahesh S., Yelena Tsarenko and Michael Jay Polonsky (2008), “A proposed multi-dimensional approach to evaluating service recovery”, Journal of Services Marketing, Vol. 21(3), 174-185. Bitner, Mary Jo, Stephen W. Brown and Matthew L. Meuter (2000), “Technology Infusion in Service Encounters”, Journal of the Academy of Marketing Science, Vol. 28(1), 138-149. Boshoff, Christo (1999), “Recovsat: An Instrument to Measure Satisfaction with Transaction-Specific Service Recovery”, Journal of Service Research, Vol. 1(3), February, 236-249. Boshoff, Christo (2005), “A re-assessment and refinement of RECOVSAT: An instrument to measure satisfaction with transaction-specific service recovery”, Managing Service Quality, Vol. 15(5), 410-425. Boshoff, Christo and Jason Leong (1998), “Empowerment, attribution and apologizing as dimensions of service recovery: An experimental study”, International Journal of Service Industry Management, Vol. 9(1), 24-47. Boshoff, Christo and Janine Allen (2000), “The influence of selected antecedents on frontline staff’s perceptions of service recovery performance”, International Journal of Service Industry Management, Vol. 11(1), 63-90. Bowen, David E. and Robert Johnston (1999), “Internal service recovery: developing a new construct”, International Journal of Service Industry Management, Vol. 10(2), 118-131. Ching Liu, Ben Shaw, Olivier Furrer and D. Sudharshan (2001), “The Relationships between Culture and Behavioral Intentions toward Services”, Journal of Service Research, Vol. 4(2), 118-129. Davidow, Moshe (2003), “Organizational Responses to Customer Complaints: What Works and What Doesn’t”, Journal of Service Research, Vol. 5(3), February, 225-250. De Ruyter Ko. and Martin Wetzels (2000), “Customer equity considerations in service recovery: a cross-industry perspective”, International Journal of Service Industry Management, Vol. 11(1), 91-108.

37

Hart, Christopher W.L., James L. Heskett and W. Earl Sasser Jr. (1990), “The Profitable Art of Service Recovery”, Harvard Business Review, July-August, 148-156. Heskett, James L., Thomas O. Jones, Gary W. Loveman, W. Earl Sasser Jr. and Leonard Schesinger (1994), “Putting the Service-Profit Chain to Work”, Harvard Business Review, March-April, 164-174. Hess Jr., Ronald L., Shankar Ganesan and Noreen M. Klein (2003), “Service Failure and Recovery: The Impact of Relationship Factors on Customer Satisfaction”, Journal of the Academy of Marketing Science, Vol. 31(2), 127-145. Hocutt, Mary Ann, Michael R. Bowers and D. Todd Donavan (2006), “The art of service recovery: fact or fiction?”, Journal of Services Marketing, Vol. 20(3), 199-207. Johnston, Robert and Stefan Michel (2008), “Three outcomes of service recovery: Customer recovery, process recovery and employee recovery”, International Journal of Operations and Production Management, Vol. 28(1), 79-99. Mattila, Anna S. (2001), “The effectiveness of service recovery in a multi-industry setting”, Journal of Services Marketing, Vol. 15(7), 583-596. Mattila, Anna S. and David Cranage (2005), “The impact of choice on fairness in the context of service recovery”, Journal of Services Marketing, Vol. 19(5), 271-279. Maxham III, James G. and Richard G. Netemeyer (2002), “A Longitudinal Study of Complaining Customer’s Evaluations of Multiple Service Failures and Recovery Efforts”, Journal of Marketing, Vol. 66(October), 57-71. McCollough, Michael A., Leonard L. Berry and Manjit S. Yadav (2000), “An Empirical Investigation of Customer Satisfaction After Service Failure and Recovery”, Journal of Service Research, Vol. 3(2), 121-137. Michel, Stefan and Mathew L. Meuter (2008), “The service recovery paradox: true but overrated?”, International Journal of Service Industry Management, Vol. 19(4), 441-457. Palmer, Adrian, Rosalind Beggs and Caroline Keown-McMullan (2000), “Equity and repurchase intention following service failure”, Journal of Services Marketing, Vol. 14(6), 513-528. Parasuraman A., Valarie A. Zeithaml and Arvind Malhotra (2005), “E-S-QUAL: A Multiple-Item Scale for Assessing Electronic Service Quality”, Journal of Service Research, Vol. 7(3), February, 213-233. Seawright, Kristie K., Kristen Bell DeTienne, M. Preston Bernhisel and Charlotte L. Hoopes Larson (2008), “An empirical examination of service recovery design”, Market Intelligence and Planning, Vol. 26(3), 253-274.

38

Smith, Amy K. and Ruth N. Bolton (1998), “An Experimental Investigation of Service Failure and Recovery: Paradox or Peril?”, Journal of Service Research, Vol. 1(1), 65-81. Smith, Amy K. and Ruth N. Bolton (2002), “The Effect of Customers’ Emotional Responses to Service Failures on Their Recovery Effort Evaluations and Satisfaction Judgments”, Journal of the Academy of Marketing Science, Vol. 30(1), 5-23. Smith, Amy K., Ruth N. Bolton and Janet Wagner (1999), “A Model of Customer Satisfaction with Service Encounters Involving Failure and Recovery”, Journal of Marketing Research, Vol. XXXVI (August), 356-372. Spreng, Richard A., Gilbert D. Harrell and Robert D. Mackoy (1995), “Service recovery: impact on satisfaction and intentions”, Journal of Services Marketing, Vol. 9(1), 15-23. Swanson, Scott R. and Scott W. Kelley (2001). “Service recovery attributions and word-of-mouth intentions”, European Journal of Marketing, Vol. 35(1/2), 194-211. Tax, Stephen S. and Stephen W. Brown (1998), “Recovering and Learning from Service Failure”, Sloan Management Review, Fall, 75-88. Tax, Stephen S., Stephen W. Brown and Murali Chandrashekaran (1998), “Customer Evaluations of Service Complaint Experiences: Implications for Relationship Marketing”, Journal of Marketing, Vol. 62 (April), 60-76.