Towards a zero-defect customer experience
Published on: Sunday, August 18, 2019
By: Dr Tan Ai Ling
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Apart from consistently satisfying customers’ expectations and handling the failures, the hospitality industry is also continuously challenged to find ways to reduce costs without sacrificing quality standards.
Since service recovery requires costs and not all customers contribute equally to the organisation’s profit, the manager is faced with two big tasks: to identify “which are the profitable customers to retain” and “how to remain cost-effective without compromising on the guests’ perceptions of value”.
Although companies are encouraged to recover every customer — arguing that long-term relationships with customers will ultimately lead to profit — in a real business situation, operations-wise, it is neither practical nor applicable, since recovery service might involve high costs.
Undeniably, there is anecdotal evidence of the importance of effective service recovery, which leads to improved profitability and other financial outcomes.
For example, Tax et.al., (1998) argued that an effective service recovery can have a dramatic impact on customers’ retention rate, avoidance of the spread of negative word-of-mouth and ultimately, improved profitability of the company.
Although the idea of service recovery is persuasive, the question of how to allocate a firm’s limited resources effectively to achieve quality goals remains a challenge for managers.
To resolve this issues, it is critical for managers in the hospitality industry to pause and think, “Should we recover every customer with equal amounts of the resources available?” This is a pertinent question as some customers are just too costly to maintain in the business and have little potential to become profitable, even in the long term.
Thus, to develop an effective service recovery model, analysing your customer profile to identify the profitable customers segment is critical.
Research has shown that one-third of loyal customers accounted for two-thirds of a company’s business profit.
In other words, not all customers bring profits equally to the company. Managers should consider whether the “one-size-fits-all’ recovery strategy is suitable in today’s business environment and, instead, consider adopting a customised strategy in service recovery since each individual customer may have unique demands.
Thus, offering a recovery strategy that is tailored to individual customers or customer groups will lead to higher chances of winning the consumers’ hearts.
But not to forget, apart from taking into account customers’ current profitability in determining the recovery resources to allocate, their potential profitability and other criteria that might influence the customers’ importance to the firm should not be neglected.
Additionally, managers should look into what and how we should compensate to satisfy the customer and determine who (employee) should be held accountable for the service failure, and a proactive strategy should be taken by the top management to prevent a repetition of the failure.
An effective service recovery should not be an after-thought, but rather be a designed part of the service delivery system, that is well planned and built into the service design in support of the service concept.
The first step is by effectively classifying service failures based on the types (process or output) and magnitude of various failures (low or high). Systematic analysis of service failures will help management to identify common situations.
The information gathered on the common failures may assist management to improve service recovery efforts through employees training programmes so as to minimise the occurrence of service failures in the future.
In conclusion, a well-planned recovery strategy consolidates the organisation’s ability to survive and grow in a highly competitive environment despite the service challenges it faces.
Such a strategy not only delivers on the brand or organisation’s promise but helps to reduce customers’ perceived risk in engaging with it.
The underlying principle for effective-ness is quite simply to differentiate customers across tiers, especially in terms of profitability levels, to ensure we retain the right customers at the right cost.
The correct strategy mitigates negative perceptions and turns around what could have easily been a disaster into positive public relations for the company – this is worth investing in.
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