Aaron R Brough and Dr. Kristie Seawright, Business Management

Service failures are inevitable. When firms fail to deliver a service as promised, customers will generally be dissatisfied. Such customers will not likely do business with the company in the future. Some companies may shrug their shoulders and look for new customers. However, research shows that in many cases it is considerably more profitable for a company to keep customers who have experienced failures than to try to find new customers. Service recovery is anything companies do to recover the satisfaction and loyalty of customers who have experienced a service failure.

The following two pages summarize an article that is currently under second review for publication in Academy of Management Executive. Based upon a classification system that integrates customer profitability and expectations, this article challenges the notion that all customers should be recovered. This is a significant contribution to existing literature in the field of service recovery because companies can significantly boost profits by focusing recovery efforts on profitable customers who have low expectations of service recovery quality. A second contribution of the article is a model of service recovery that assists executives in designing and implementing cost-effective service recovery systems that lead to long-term profitability.

The way a customer responds to service recovery efforts is a function of what the customer expects the company to do and the level of quality the customer perceives in the service recovery effort (customer satisfaction = level of quality elements / level of customer expectations). Research suggests one set of requirements for returning the customer to an initial level of satisfaction, and another set for delighting the customer. Simply satisfying a customer can be accomplished through the presence of essential quality elements, but attractive quality elements must be present to delight the customer. Attractive quality elements provide more to the customer than what fair restitution demands, restoring customers beyond their pre-failure state. Together, the essential and attractive quality elements determine the overall quality of a service recovery effort.

Research further reveals two components of service recovery quality: psychological and tangible. Tangible components are what a company does to recover a customer’s satisfaction and loyalty following a service failure; psychological components are how this is done. In Table 1, the psychological and tangible components of essential and attractive quality elements are displayed.

Because customers respond differently to various quality element levels, some customers are more easily satisfied and delighted. Customers with high expectations may be only satisfied with the same recovery effort that would delight customers with low expectations. Thus, it is more expensive for companies to recover customers with high expectations. However, companies should not seek to recover only those customers with low expectations, because some customers with high expectations are profitable customers.

Companies can appropriately classify customers in order to target the customers who deserve the greatest recovery efforts. The following recovery candidate classification approach is based on two levels of expectations and two levels of profitability. We have labeled the four customer groups Angels, Royalty, Paupers, and Prima Donnas. The four groups are presented in Table 2 and discussed individually following the table.

Angel

—Angels are profitable customers with low service recovery expectations. Because of the high profitability of this customer segment, accompanied by low costs required to exceed the customers’ expectations, we recommend that recovery efforts for Angels reach a level that will certainly delight the customer.

Royalty

—This group has high expectations, but also contributes to the firm’s bottom line. Because recovery costs for this group will be offset by future revenue, retaining Royalty is good for business. Where delight can be reached through reasonable cost, recovery efforts to delight the customer are recommended. In cases where excessive efforts are required to delight the customer, bringing the customer to the level of satisfaction is generally more appropriate. Failure to recover Royalty is a mistake.

Pauper

—Although expectations—and thus recovery costs—of this group are low, Paupers contribute little to firm profitability. However, the low level of expectations qualifies many customers in this group for recovery efforts. We recommend, therefore, that an ideal target for Paupers is a level of service recovery quality that simply satisfies them.

Prima Donna

—Satisfying the demands of this group can be extremely expensive, yet the costs are not recovered through increased revenue. Prima Donnas can also have a negative impact on employee morale as their excessive demands can frustrate and anger employees. Since reasonable recovery efforts will not be effective with this group, and the effects of losing these customers are minimal, efforts to reach even the recovery satisfaction level may not be practical. We recommend, therefore, that service recovery efforts for this customer segment attempt to reach the level that would have originally satisfied the customer prior to the failure.

In conclusion, customers do not all merit the same recovery efforts. Executives should first understand how customers respond to service recovery quality. Then, they should evaluate customer expectations and profitability to know which customers they want to keep. Finally, following the above recommendations for each group, executives can successfully design and implement cost-effective recovery systems.