SBP 13b: Rework Plus

This principle occurs because the customer is involved in the production process, by virtue of supplying his self, belongings, or information as process inputs.

Service defects often damage the attitude of customers towards the service provider. The service defect itself can often be rectified by re-running the service process (such as by having the customer back again). Rectifying the customer's attitude and regaining good will is a much more complex issue. In some cases, the good will can be regained by refunding the customer's money or giving the customer free service. Sometimes, it does not even take that. For example, a major automotive service chain reported that as a policy, customers with problems were given a coupon book for discounts on future service. However, some customers who claimed they would never return were thrilled to receive the coupon book. So perhaps their claim of “permanent” attitude damage was easier overcome than one would think!

Nevertheless, in some cases even extravagant attempts to recover the customer's attitude will be ineffective. Companies who claim they will do “whatever it takes” to satisfy customers probably use that as more of a marketing slogan than an operational policy. Some customers may never give the company another chance.

Service providers need to decide on policy for service recovery. Will all customers with a particular type of problem be given the same service recovery, or will it depend on the extent of damage done to the customer's attitude?

Estimating the extent of customer-attitude damage can be a difficult, divergent process. For this reason, it is sometimes good to rely on the judgment of more experienced employees, such as front-line managers. Since it can even be difficult for experienced employees to accurately assess the impact of a service failure on a customer's attitude, companies often employ customer compensation strategies that do not require that assessment.

The simplest service recovery strategy is to offer to not charge the customer if he or she is dissatisfied. This may takes the form of an “unconditional service guarantee” which states that the service will be free if the customer is dissatisfied for any reason. One risk is that customers with insignificant or pretended attitude damage will be overcompensated. Perhaps a greater risk is that customers who have significant attitude damage will consider free service as inadequate compensation, and will depart with the attitude damage intact.

This tradeoff of risks is similar to concepts of statistical quality control. In statistical quality control methodologies, we speak of “type 1” and “type 2” errors, which represent “producers' risk” and “consumers' risk.” The producers' risk is that a product will be inspected as faulty and reworked, when in fact it had nothing wrong with it. The consumers' risk is that a product will be inspected as okay, and sold to the customer, when in fact it had a defect.

This risk tradeoff for products is summarized in the following table. The results of each inspection are either appropriate or inappropriate , depending on congruence between the inspection and the actual product.

For example, the inspection process of computer disk drives does not identify every possible problem. If a customer gets a disk drive that passed inspection but was faulty, the customer is upset (consumers' risk). If the company scraps or repairs a drive that failed inspection but was actually okay, the company wasted money (producers' risk).

A parallel concept exists in service businesses. In this case, the customer is the inspector, and may or may not report the perceived service failure.

There surely is some statistical method for calculating the proper balance between consumers' risk and producers' risk. However, I would say that service providers are better off favoring the avoidance of consumers' risk over producers' risk, for the following reasons:

• First, consumers' risk can be much more costly to the company than producers' risk! TARP¹⁾studies reported that the average customer who experiences a service failure tell nine or ten others about the failure. That word-of-mouth is extremely powerful marketing. Further, each customer potentially represents a lifetime of service purchases, making it difficult to judge the total impact of losing their business.

• Second, the likelihood of producers' risk is extremely low. TARP studies also revealed that only about 4 percent of customers with problems report those problems as complaints. This implies that customers have a low propensity to complain, which would be especially true if there was no actual reason to complain.

• Third, we may not care whether or not a service failure actually occurred, but rather, if it was perceived by the customer to have occurred.

Thus, service providers should probably be more concerned about under-compensating complaining customers than over-compensating them.

Service providers that have concerns about producers' risk can simply track the customers who are given compensation for reported complaints. If a particular customer is repeatedly compensated for reported service failures, he or she might be politely encouraged to seek out the competitors for service.

Unconditional Service Guarantees

The above discussion implies that unconditional service guarantees can be inadequate for service recovery because simply redoing the service does not completely recover the problem. For example, a hair stylist may advertise “If within seven days you do not like your haircut for any reason, come back and we will cut and style it again without charge.” (This recognizes that haircuts can look different after the customer has washed and styled it on his or her own.) The problem is that the customer still has to come back! It can be much less costly to grumble than to execute the service guarantee.

Nevertheless, one benefit of unconditional service guarantees is that the likelihood of hearing about complaints (“voiced” complaints) is higher than without a guarantee. Another benefit is that they reduce customers' perceived risk of trying a service provider they have not tried before.

If an unconditional service guarantee is used, Christopher Hart points out that to be effective it needs to be:

• unconditional, without exceptions,
• easy to understand and communicate,
• meaningful (valued by the customer),
• easy and painless to invoke, and,
• easy to collect.

Domino's Pizza box states “If you are not completely satisfied with your Domino's Pizza® product, or service, for any reason, we'll make it right or refund your money. Guaranteed.” This is worded to limit the company's liability, since the company can select the least expensive of “make it right” or “refund your money.” If a customer does not like the arrangement of pepperoni slices on the pizza, the company can rearrange them. If the effort to make it right is too costly, the company can refund the money. The problem is when a customer has twenty hungry visitors at her house, and the delivery person takes the order to a similar address in a neighboring town. “Refunding the money” does not seem adequate for attitude recovery. In such circumstances, the store manager must decide how important it is to regain that customer's good will.

Federal Express has had a delivery guarantee in which money is refunded for late deliveries. Some customers do not care if the delivery is late, so refunded money is over-compensation. Other customers might have important meetings waiting on the delivery, and the cost of a late delivery is many times the price paid to Federal Express. As a result, judging the extent of attitude damage control in service recovery is no simple matter.

The practice of “overbooking” airline flights sometimes results in passengers not getting on their scheduled flight, even though they have a ticket. In such cases, airlines attempt to minimize the cost of attitude recovery. The following is a hypothetical procedure: First, they deny any airline employees who do not need to be on the flight (with the most expendable attitudes). Then, they ask for volunteers to take the next flight (with no attitude damage). Then, they offer coupons for free travel at a later time for waiting for the next flight (larger attitude damage). Then, if necessary, they might arbitrarily select passengers to go, such as those who have not yet boarded. (Probably, in most instances the free travel coupons gather sufficient volunteers with minimal attitude damage from being “bumped.”)

With manufacturing, the product can be reworked and the customer would never know that it previously failed to meet specifications.

1. What are common ways the service product can fail to meet specifications?
2. In the case of a failure, what does it take to meet the original specifications?
3. In the case of a failure, what might it take to rectify the customer's attitude? Does this depend on the customer?
4. If an unconditional service guarantee is appropriate, how might the guarantee be worded? How might it be executed by customers and employees?

Create a flowchart of a service recovery procedure. The procedure should start with a step for “Customer reports a complaint about the service.” Include decision steps in the flowchart which attempt to ascertain the extent of the service failure damage, and identify corresponding levels of compensation to the customer. Your procedure may include steps for determining when the front-line employee should handle the service recovery, and when the service recovery should be handed over to a manager. The procedure may also include a step or steps for identifying whether the service recovery was adequate.