The Profitable Art of Service Recovery

Mistakes are a critical part of every service. Hard as they try, even the best service companies can’t prevent the occasional late flight, burned steak, or missed delivery. The fact is, in services, often performed in the customer’s presence, errors are inevitable. But dissatisfied customers are not. While companies may not be able to prevent all problems, they can learn to recover from them. A good recovery can turn angry, frustrated customers into loyal ones. It can, in fact, create more goodwill than if things had gone smoothly in the first place. Consider how Club Med-Cancun, part of the Paris-based Club Mediterranée, recovered from a service nightmare and won the loyalty of one group of vacationers. The vacationers had nothing but trouble getting from New York to their Mexican destination. The flight took off 6 hours late, made 2 unexpected stops, and circled for 30 minutes before it could land. Because of all the delays and mishaps, the plane was en route for 10 hours more than planned and ran out of food and drinks. It finally arrived at 2 o’clock in the morning, with a landing so rough that oxygen masks and luggage dropped from overhead. By the time the plane pulled up to the gate, the soured passengers were faint with hunger and convinced that their vacation was ruined before it had even started. One lawyer on board was already collecting names and addresses for a class-action lawsuit. Silvio de Bortoli, the general manager of the Cancun resort and a legend throughout the organization for his ability to satisfy customers, got word of the horrendous flight and immediately created an antidote. He took half the staff to the airport, where they laid out a table of snacks and drinks and set up a stereo system to play lively music. As the guests filed through the gate, they received personal greetings, help with their bags, a sympathetic ear, and a chauffeured ride to the resort. Waiting for them at Club Med was a lavish banquet, complete with mariachi band and champagne. Moreover, the staff had rallied other guests to wait up and greet the newcomers, and the partying continued until sunrise. Many guests said it was the most fun they’d had since college. In the end, the vacationers had a better experience than if their flight from New York had gone like clockwork. Although the company probably couldn’t measure it, Club Mediterranée won market share that night. After all, the battle for market share is won not by analyzing demographic trends, ratings points, and other global measures but rather by pleasing customers one at a time. Opportunities for service recovery abound. Any problem that employees who are close to the customer can discover and resolve is a chance to go beyond the call of duty and win a customer for life. We’re not talking about gas leaks in Bhopal or Tylenol poisonings, which threaten large-scale damage and demand top management’s attention. We’re talking about mistaken billings and late deliveries, the seemingly small issues that can ignite a person’s temper. The stuff angry letters to the chief executive are made of. It’s tempting to dismiss the occasional problem as petty and complaining customers as cranks, but managers should resist those easy outs. No business can afford to lose customers, if only because it costs much more to replace a customer than it does to retain one—five times more, most industry experts agree. Companies that alienate and frustrate their customers will soon have none left to bother them. Those that go out of their way to please customers will soon have many more. Good recoveries from service problems do happen, but usually because some exceptional individual like de Bortoli takes the initiative to solve a customer’s problem. Companies should not depend on such rare instances of resourcefulness. They should take steps to ensure that everyone in the organization has the skill, motivation, and authority to make service recovery an integral part of operations. The Road to Service Recovery Service companies must become gymnasts, able to regain their balance instantly after a slipup and continue their routines. Such grace is earned by focusing on the goal of customer satisfaction, adopting a customer-focused attitude, and cultivating the special skills necessary to recovery. Ironically, recovery skills come especially hard to companies that joined the quality-control movement and have spent the past decade making their service-delivery systems streamlined and efficient. Accepting admonishments to “do the right thing” and adopting manufacturing’s philosophy of “zero defects,” they developed rigid systems to achieve it. They introduced sophisticated technologies and enacted strict policies to control employee behavior. The idea was to ensure that even uneducated, unmotivated workers could consistently deliver high-quality service. By the 1980s, many such systems had been developed—to improve service in everything from scheduling airline departures and posting banking transactions to maintaining hotel rooms. All of these systems were modeled after assembly-line production systems. These production-oriented service-delivery systems have gone a long way toward achieving consistently high service standards. But they’re not bulletproof. The fact is that in services, no matter how rigorous the procedures and employee training or how advanced the technology, zero defects is an unattainable goal. Unlike manufacturers that can ad just the inputs and machinery until products are uniformly perfect, service companies cannot escape variation. Factors like the weather and the customers themselves are beyond a company’s control. The best airline reservation system can’t prevent the airport from fogging over. A restaurant that creates the most artistic food presentations can’t prevent a customer from disliking the taste. When the inevitable problems arise, customers are almost always disappointed. The typical service delivery system is completely unprepared to deal with exceptions. Studies we’ve done show that more than half of all efforts to respond to customer complaints actually reinforce negative reactions to a service. The surest way to recover from service mishaps is for workers on the front line to identify and solve the customer’s problem. Doing so requires decision making and rule breaking—exactly what employees have been conditioned against. Workers have been taught that it’s not their job to alter the routine. Even if they’d like to help the customer, they are frustrated by the fact that they are not allowed to do it. Worse yet, they don’t know how. We have all heard the typical responses: “It’s not my fault.” “It’s not in the computer.” “I’ll have to ask my supervisor.” Meanwhile, airline passengers stew over the meetings they’ve missed; restaurant patrons return home hungry and annoyed. Companies shouldn’t abandon their production-oriented systems, but they should complement them with an equal facility for service recovery. They should be as comfortable with the exceptions as they are with the rules. Developing the perspective to recognize service-recovery opportunities and the skills to act on them is clearly an effort, but one well worth making. Mistreating customers can have a devastating effect on the business, as this example shows. John Barrier, a 30–year customer of a bank in Spokane, Washington, parked his car in a lot owned by the bank while he did business across the street. An attendant told him he could get the parking validated if he did business at the bank, which was not his usual branch. Barrier cashed a check, but afterward was refused the validation because he had not made a deposit. He patiently explained to the receptionist that he was a long-time customer and that he had millions of dollars in the bank’s checking, investment, and trust accounts. She was unmoved. He less patiently explained the situation to the branch manager, to no avail. The customer paid for the parking, but he was so steamed that he drove 40 blocks to his home branch and explained the incident to his usual banker. He said if he didn’t receive a phone call by the end of the day, he would close all his accounts. The call never came, he made his first withdrawal of $ 1 million, and Americans across the country heard the story when it hit the evening news. Needless to say, the bank executives were embarrassed and worked hard to persuade the customer to give the bank another chance. Companies that want to build the capability of recovering from service problems should do these things: measure the costs of effective service recovery, break customer silence and listen closely for complaints, anticipate needs for recovery, act fast, train employees, empower the front line, and close the customer feedback loop. Measure the Costs Measurement precedes management. This is especially true for service recovery—managers often underestimate the profits lost when a customer departs unhappy, and therefore they undermanage ways of avoiding such losses. They concentrate on attracting new customers that may actually represent unprofitable business and neglect to take steps to retain more valuable existing customers. Measurement often is the only way of getting top management’s attention. What gets measured is truly what gets managed here. Errors have certain costs associated with them. Some take the form of money-back guarantees, warranty work, or replacements, which fall on the company. But dissatisfied customers almost always get stuck with certain costs—the money they spend for phone calls, the time they spend making their cases, and the aggravation they must endure throughout. The customer left stranded on the highway because her car was not repaired properly might miss an important meeting, have to pay for a tow truck, and spend time waiting for the repair to be made. Many service companies conveniently overlook these hidden costs, but the customer surely won’t. Companies known for excellent service will go the extra yard to cover all the costs a failure incurs or, if the inconvenience is so great that the company cannot completely compensate the customer, the tone of the response must signal the company’s regret. A study done for the U.S. Office of Consumer Affairs found that in households with service problems with potential costs of more than $ 100, 54 % would maintain brand loyalty if their problems were satisfactorily resolved. Only 19 % would repeat their purchase if they were unhappy with the problem resolution. For less expensive problems ( $ 1 to $ 5), 70 % would maintain brand loyalty if their problems were resolved satisfactorily; only 46 % would repurchase if the problem wasn’t fixed.1 Considering how much it costs to lose a customer, few recovery efforts are too extreme. At Club Med, one lost customer costs the company at least $ 2,400: a loyal guest visits the resorts an average of four times after the initial visit and spends roughly $ 1,000 each time. The contribution margin is 60 % . So when a Club Med customer doesn’t return, the company loses 60 % of $ 4,000, or $ 2,400. It also has to replace that customer through expensive marketing efforts. Break the Silence Every customer’s problem is an opportunity for the company to prove its commitment to service—even if the company is not to blame. The theatergoer who forgets his ticket will long be grateful if the usher slips him in. The service experiences customers rave about most are those in which they were at fault but the company responded anyway. Of course, you can’t solve a customer’s problem until you know what it is, so all good recoveries start with identifying the sore spots. Service company executives know very well that some customers make a point of being heard. They write letters, make phone calls, ask to speak to the manager—and the manager’s manager. Listening to these customers is important. But companies shouldn’t attend to just the squeaky wheels. They must also be active problem finders. Complainers are the exception; most unhappy people don’t speak up. They may think the situation is hopeless, or they don’t want to create a scene. Or they can’t be bothered to write a letter or make a phone call—it’s one more hassle in what may have been a string of many. There are many ways service businesses can encourage this “silent majority” of dissatisfied customers to identify themselves so the company can win them back. The simplest way is to make it easy for customers to complain. Many businesses have established “800” numbers so customers can report problems easily and at the company’s expense. American Express has installed such lines and estimates that it achieves responses more quickly and at 10 % to 20 % of the cost of handling correspondence. Marriott Corporation has a 24–hour “hot line” in its hotels, which makes it easy for guests to complain on the spot. It’s worth adding that hot lines should be staffed sufficiently to prevent a common shortcoming of centralized telephone systems—too few incoming lines. Repeated busy signals do nothing to improve customers’ attitudes. A more direct way to solicit complaints is to ask a simple question like, “How was everything?” Many customers who can’t be bothered filling out forms or making calls will volunteer their impressions of the service they received when asked to. And even if the customer has nothing to say, the company has sent the signal that it cares. That’s why British Airways has installed what it calls Video Point booths at Heathrow Airport in London so that travelers can tape their reactions upon arrival. Customer service representatives view the tapes and respond. Maine Savings Bank in Portland offers its patrons $ 1 for every letter they write suggesting ways to improve service. The bank averages more than 500 letters a year from customers who might have kept their ideas to themselves; it extended its lobby hours after many customers made that suggestion. An even more aggressive approach to unearthing problems is to look for trouble in the making—to listen carefully for offhand comments customers make and to tune into and anticipate their needs. An alert employee of a Marriott hotel that caters to business-people overheard a guest fretting about the lack of privacy in the concierge lounge where he wanted to hold an impromptu meeting with a few colleagues. The hotel worker called the front desk and arranged for a vacant suite so the guest could hold his meeting without distractions. A participant in a service-recovery workshop shared this striking example of a company that recognized a problem it didn’t create but nonetheless was prepared to solve: “A while back, there was a very bad fire in my house. The next day I was raking through my possessions, my family sitting on the front stoop, when a Domino’s Pizza truck pulled up. The driver got out and approached us with two pizzas. I told him I didn’t order any pizza and explained that our house had just burned. ‘I know,’ he replied. ‘I saw you when I drove by half an hour ago. I figured you must be really hungry, so my store manager and I decided to make a couple of pizzas for you. We put everything on them. If that’s not how you like them, I’ll take them back and get them made the way you like—on the house.’ “I couldn’t believe it,” the participant concluded. “Do you think I’d ever buy pizza from anyone else?” More formal “listening devices” like questionnaires and customer suggestion boxes are effective only if someone monitors them continually and acts on complaints and suggestions in a timely fashion. Stew Leonard’s, a retail dairy store in Norwalk, Connecticut renowned for its service, has a suggestion box, which pays off handsomely. One evening at about 6 p.m. , Stew Leonard, Jr. found a crisply worded complaint written by a customer just a half-hour earlier. “I made a special stop on my way home from work to buy chicken breasts for dinner, but you’re sold out. Now I’ll have to eat a TV dinner instead.” As Leonard was reading the complaint, a Perdue chicken truck happened to pull up to the store’s loading dock. Within minutes, someone was heading off to the frustrated customer’s house with a complimentary two-pound package of fresh chicken breasts. Anticipate Needs for Recovery Companies can narrow the search for problems (read “opportunities”) by monitoring certain areas of the organization and addressing them in their service-recovery strategies. Complex scheduling that involves coordinating the movement of people or equipment, for instance, tends to be problem-prone. There, one error can trigger a devastating chain reaction, as in airline flight cancellations. We were among a group of professors studying service excellence that recently felt the brunt of a failure to anticipate the need for recovery. En route from Boston to Columbus, Ohio with a stop at Washington National Airport, the group was not warned that, because of a take-off curfew at Washington National, a late departure from Boston might mean the flight would not be allowed to continue to Ohio. In fact, the US Air plane was held overnight in Washington, making it impossible for the group to make it to its meeting the next morning. Worse, the harried late-night staff at US Air counters was shorthanded, so already disgruntled passengers had to stand in line for an hour for assistance. If ever there was a problem waiting to happen, this was it. Because the company failed to anticipate it, both US Air’s frontline employees and its customers suffered. New services and products also tend to create confusion and spawn unexpected requests. When Dallas-Fort Worth International Airport first opened, it proved very confusing to passengers. Not only was the airport of unusual design and size but it also included one of the first rail systems to shuttle passengers between terminals. It took the airport months to change the layout and reposition signs to make the airport more “user friendly”—months of confusion and frustration for those who used it. Areas where turnover is high and workers are therefore inexperienced are also worth watching. The first person most air travelers encounter is the operator of the security gate. Of all airline employees travelers meet during a trip, this person is probably the lowest paid and the least experienced in handling people—yet he or she has the job of creating a positive first impression. Security is therefore a leading candidate for preparation for airline service recovery. Fixing customers’ problems as they crop up is good and is necessary. But service companies should put those isolated incidents to use by tracking problems to see where they occur most often and which ones tend to recur. They can then prepare the organization. When the CEO of an insurance company locked the keys in the trunk of his rental car at a Sheraton Hotel in Boca Raton, Florida, the staff rose to the occasion. The bellman informed the CEO that a locksmith under contract with the hotel would replace the keys within 15 minutes. Meanwhile, other staff members used a rolling auto-jack stored nearby to jack up the car and push it out of the driveway where it was blocking check-in traffic. Obviously, it wasn’t the first time someone had lost a set of car keys. Act Fast Identifying a problem quickly—even before it registers with the customer—is fruitful only if the company responds fast. Our most recent research suggests that customers who have bad experiences tell approximately 11 people about it; those with good experiences tell just 6. Service problems quickly escalate, so the opportunity to prove one’s commitment to the customer is fleeting, especially if the company is at fault. In general, the company’s first priority should be to complete the service promptly. The customer whose car breaks down because it was serviced improperly wants her car fixed. The bank customer whose account is in error wants it properly credited. Paul Hawken, CEO of Smith & Hawken, a garden supply mail-order company based in Mill Valley, California, found a simple way to speed response time: by using the phone instead of mail. Early in the company’s history, customers with routine inquiries and problems received form letters in reply. Management found that approach to be cost-effective, but the savings came at the customer’s expense. In one instance, an old and valuable customer placed an order on an American Express card, which the company mistakenly thought was invalid. It sent the usual form letter. The customer wrote back. The company sent another form letter. The customer wrote back. When a manager finally realized that the order had been held up two months because of crossed correspondence, he was horrified. The company prided itself on customer service, yet it had managed to anger and frustrate one of its best clients. The person who made the discovery immediately sent the woman her order and swallowed the $ 90 charge. And the company learned a lesson: from that moment on, Smith & Hawken stopped using the mail to handle questions or problems: now someone picks up the phone and resolves them in minutes instead of months. And the cost of the phone call is offset by the elimination of paperwork.2 The urgent resumption of service and an apology are often sufficient to make amends. But not always. Some situations call for a gesture that clearly says, “We realize there’s been a mistake, and we want to make it up to you.” Many restaurants will automatically give patrons a glass of wine or a free dessert if the wait for a table is too long. First Union National Bank in Charlotte, North Carolina sends a dozen roses to customers who have been badly inconvenienced. In some cases, branch managers or bank executives personally deliver the flowers. Such extraordinary efforts require extraordinary preparation at every organizational level. Train Employees The organization must train the people who interact directly with customers, and then it must empower them. That is, it must give them the authority, responsibility, and incentives to recognize, care about, and attend to customer needs. Empowering the bottom of the organizational pyramid can be threatening, especially to middle-level managers, who may read it as an erosion of their own authority and worth. But it is absolutely essential to good service recovery. Employees close to the customer are the first to know about problems and are in the best position to determine what can be done to satisfy the customer. Training can go a long way in developing the communications skills and creative thinking needed to deal with irate customers. Recovery training should focus on teaching employees how to make decisions on their feet and on developing an awareness of customers’ concerns. The most effective way to develop recovery skills is through simulated real-life situations and role playing. Agents for the U.S. Secret Service, who are among the world’s most highly trained recovery specialists, go through a comprehensive assortment of recovery drills before they work in the field. Agents spend hours thinking about what might happen and discussing and planning for all the possible contingencies. Each agent—no matter how senior—goes through follow-up training sessions once a year. Sonesta Hotels uses games as part of its orientation program for new employees. Trainees are divided into two teams, each of which in turn receives a description of a problem and is asked to come up with a solution. The opposing team has five possible answers to compare the response with. Points are awarded depending on how well the responses fit the general criteria of keen observation, responsiveness, care and concern, and compensation for true loss. The American Association of Homes for the Aging distributes a board game, “The Game of Aging Concerns,” which retirement homes use to give workers practice in dealing with tough issues. The game consists of a board, six playing pieces, a die, and 40 cards, each describing a real problem or role-playing situation. One card reads: “Mr. Talbot, 78, complains, ‘Your facility is too cold and makes me ill.’ He demands that you turn on the heat. Other residents want the air-conditioning left on. The heating/air-conditioning system is centrally controlled.” Another reads, “A 72–year-old man who is intoxicated walks into the dining room and acts disruptive.” As players draw cards, they read them aloud, describe how they feel, and say what they would do. The idea is to expose players to a variety of concepts, give them feedback and reinforcement, and allow them to internalize a set of criteria for evaluating real-life problems. And the spirit of the game paves the way for an ongoing dialogue among workers. To help develop recovery skills, training should also give people a sense of the whole organization. Extreme specialization of tasks gives operators tunnel vision, which makes it hard to see problems in the making. A worker who understands the entire service delivery process is more likely to understand the interconnectedness of the system and find a quick solution. The most direct way to develop this perspective is by rotating workers through different jobs and departments. Managers know how to solve customers’ problems, but people don’t want to wait for their concerns to travel through the organizational hierarchy or to bounce from one department to another. Nor can managers answer every phone, stand behind every counter, process every piece of paper. So service recovery ultimately rests on the shoulders of employees on the front line. This implies a very different role for employees who have direct customer contact. In addition to following rules, sticking to a routine, and treating every situation alike no matter what, frontline workers must be able to do the opposite: bend the rules, take initiative, and improvise. Building a staff that can do both requires rigorous and conscious effort and is at the heart of a company’s ability to recover from service mishaps. Empower the Front Line Training can give employees the perspective that service recovery requires, but the company must empower them to act. It must give employees the authority, responsibility, and incentives to follow through with customers. The authority to act refers to the set of resources the employee has access to and the decisions they are permitted to make. In most service companies, only managers can spend money or otherwise make things happen. Organizations that empower workers make it clear that they are permitted to use their judgment to make phone calls, credit accounts, or send flowers. For example, Montgomery Ward chairman Bernard F. Brennan has authorized its 7,700 salesclerks to approve checks and handle merchandise-return problems, functions that once were reserved for store managers. Responsibility goes one step further. It says that employees are supposed to recognize and attend to customers’ needs. Managers can instill that sense of purpose in many ways—through training and reminders in newsletters and by developing an overall environment that puts customers first. Responsibility means the obligation to act, not just to accept blame. One couple was visiting a resort on the coast of Mexico in the middle of August when the water main from the town broke. The heat and humidity were ferocious, and the hotel was without air-conditioning and water for most of four days. Repair attempts were feeble. The water would run for just a few hours before things would fail again. Each time the system broke, the general manager gathered the guests in the lounge and prattled on about how he took “full responsibility” for everything. When he said responsibility he meant blame. What customers wanted, of course, was action. Good service companies rely on “standard operating procedures” for problems that come up from time to time. At McDonald’s, for instance, employees know that when a customer complains that his burger is cold, they should automatically give him a fresh one, no questions asked. For other situations, management can only establish guidelines. Many of the problems at the Minneapolis Marriott City Center are one-of-a-kinds, so management has authorized employees to spend $ 10 at their discretion to satisfy guests. Once when a guest complained mildly about not being able to find a particular book in the hotel gift shop, the cashier, at the end of her shift, walked to a local bookstore, purchased the book with her $ 10, and delivered it to the guest’s room. The guest was, of course, astonished. The Minneapolis Marriott also put together a “Sweet Dreams” package consisting of a cordial, a small bud vase with a carnation, and homemade cookies. Hotel staff members are encouraged to give it to customers who are having difficulties the hotel can’t otherwise fix. When one guest mentioned that her flight was four hours late and that she was exhausted, the staff person at the front desk sent a “Sweet Dreams” package to her room. Another associate noticed a guest with a hacking cough; she included a box of cough drops with the package. A company’s reward structure must give employees positive reinforcement for solving problems and pleasing customers—not just for reducing the number of complaints. Good recoveries should be publicized and held up as examples to inspire others. Federal Express created the “Golden Falcon” and “Bravo Zulu” awards to recognize service and recovery excellence. Winners get a gold pin, recognition in the company newsletter, and a phone call from the chief operating officer as well as ten shares of company stock. As the nature of jobs with high customer contact changes, companies may find it necessary to change their hiring requirements or reassign workers. Embracing the notion of empowerment, the Marriott Desert Springs Resort revised the job description for its front-desk clerk/cashiers, room controllers, and front-desk supervisors: the major—indeed the only—goal of these positions is to ensure that “our guests experience excellent service and hospitality while staying at our resort.” The resort charges the people in those positions with learning the correct technical procedures, using their authority to do anything to keep guests happy, using their power to satisfy guests on the spot without hassle, assisting in finding the ultimate cause for guests’ problems, and informing managers of ways to improve the overall hotel, working conditions, or guests’ comfort. If this seems logical, why don’t more services do it? Many are afraid that empowered employees will “give away the store.” They overlook the fact that tying employees’ hands effectively guarantees that some customers won’t return. The cost of keeping those customers is small compared with what it takes to replace them. Close the Loop If a customer’s complaint leads to corrective measures, the company should tell the customer about the improvement. Closing the loop makes customers feel as if they’re part of an extended quality-control team. If it’s something that can’t be fixed, the company should simply explain why. In our service-management classes, we ask each student to send one letter of commendation and one letter of criticism to service companies where they had memorable experiences. All contain suggestions for service improvements. The responses to these hundreds of letters from the real world are revealing. Only about two-thirds of the companies that receive thoughtful, constructive, but critical letters bother to respond. A smaller proportion of the companies receiving praise write back. Worse yet, more than half of all responses to letters of criticism either reinforce or fail to counter the senders’ original negative perceptions. Effective ways of closing the loop include making timely telephone responses, asking the customer for even more feedback, and letting the customer know how his or her suggestions might be implemented. These efforts tend to give customers a more positive impression than various forms of remuneration. Brilliant Recoveries Recovery is a different management philosophy, one that embraces customer satisfaction as a primary goal of business. This mind-set can change the rules of the game for service companies. It shifts the emphasis from the cost of pleasing a customer to the value of doing so, and it entrusts frontline employees with using their judgment. While many organizations pay lip service to the notion of serving customers, few are wholly committed to it. Even those that see the connection between 100 % customer satisfaction and the ultimate success of the business are often ill-equipped to retain dissatisfied patrons. But recovery is fundamental to service excellence and should therefore be regarded as an integral part of a service company’s strategy. When a worker at a San Antonio hotel accidentally broke the glass vase a guest had carried from Mexico, the resident manager drove 150 miles to replace it. Customers remember such experiences. In service businesses, the old adage must be revised: To err is human; to recover, divine. 1. U.S. Office of Consumer Affairs, Consumer Complaint Handling in America: An Update Study, Part II (Washington, D.C.: Technical Assistance Research Programs Institute, April 1, 1986), p. 50. 2. From Paul Hawken, Growing a Business (New York: Simon & Schuster, 1988).

The Profitable Art of Service Recovery

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