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The art OR science of the Service Recovery Paradox.

April 16, 2009

In any customer facing organization, things are never perfect. Try as we might, by error of omission,commission and yes even deliberate design, there is a real or perceived discrepancy in the delivery of customer service.

A severe enough dissatisfaction, as we are all painfully aware – can sometimes result in a lost customer along with the investment put into acquiring and maintaining them as well as  the loss of future profit. To add insult to injury there is also the specter of negative Word of Mouth.

Academia has been trying to answer the question of whether a successful recovery from a service failure can ‘paradoxically” lead to a stronger customer bond. In other words can failure lead to success?

There have been many studies with various sample sizes, longitudinal and cross sectional in design and so its not really surprising that some studies will affirm the paradox, others not.

I recently came across this downloadable study of online banking customers at a Swiss Bank which stands out for its sheer size and scope.

Key sample sizes:
Total customers involved in study: 11929
Customers reporting no service failure: 9166 (8174 in study, 452 non response)
Customers reporting one failure: 2638 (1189 in study, 1025 resolution pending, 424 non response)
Customers reporting two failures: 125

Its key findings:
1) consumers are accepting of minor deviations in service
2) service failures are relatively rare
3) Customer Satisfaction impact hierarchy: exceptional service is better than exceptional recovery is better than nondescript service
4) Recommendation intention hierarchy: exceptional service is equal to exceptional recovery in scoring high intent to recommend and both are better than nondescript service

Other studies (Service Recovery Paradox: A Meta-Analysis) have pointed out that recovery is possible if the failure is not too severe, if the customer has a longer term relationship, if the customer perceives that procedural changes will be forthcoming as a result.

So at the end of the day it seems the studies agree on a few key points, namely that

To Err is Human…but divine forgiveness depends on sincerity and severity.

Many companies have therefore tried to implement process standardization at every critical juncture, but in the view of Hall and Johnson at Harvard Business Review

“The movement to standardize processes has gone overboard.
Some require an artist’s judgment—and should be managed accordingly.”

In their view when a ‘standard’ input is inherently variable (ie wood to make a violin), or when output variability is desired by the customer, the process needs to be managed from an ‘artistic’ perspective allowing for judgment and context while ensuring frequent feedback and mentoring oversight.

So what’s your experience with the service recovery paradox, is it something that needs to be managed scientifically or artistically?

What is your incidence of service failure?
What escalation processes do you have?
Do you allow front line staff to resolve issues directly?
Do you have (financial) limits on the resolution, or do you follow the Nordstrom rule “do what is right for the customer”?
What about preemptive measures, are you proactively informing customers about deviations that they may not even be aware of and the steps you took to correct the situation?

looking forward to the discussion.

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