Essentials of Services Marketing, 3rd edition

Abstract

Services dominate the expanding world economy as never before, and technology continues to evolve in dramatic ways. Established industries and their often famous and old companies decline and may even disappear as new business models and industries emerge. Competitive activity is fierce, with firms often using new strategies and technologies to respond to changing customer needs, expectations and behaviors. This book has been written in response to the global transformation of our economies to services. Clearly, the skills in marketing and managing services have never been more important!

Full text

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Brief Contents
Dedication v
About the Authors vii
About the Contributors of the Cases xi
Preface xxii
Acknowledgments xxxii
Part I: Understanding Service Markets, Products,
and Customers 3
Chapter 1 Introduction to Services Marketing 4
Chapter 2 Consumer Behavior in a Services Context 36
Chapter 3 Positioning Services in Competitive Markets 64
Part II: Applying the 4 Ps of Marketing to Services 89
Chapter 4 Developing Service Products and Brands 90
Chapter 5 Distributing Services through Physical and Electronic Channels 118
Chapter 6 Setting Prices and Implementing Revenue Management 152
Chapter 7 Promoting Services and Educating Customers 194
Part III: Managing the Customer Interface 235
Chapter 8 Designing Service Processes 236
Chapter 9 Balancing Demand and Capacity 268
Chapter 10 Crafting the Service Environment 298
Chapter 11 Managing People for Service Advantage 326
Part IV: Developing Customer Relationships 371
Chapter 12 Managing Relationships and Building Loyalty 372
Chapter 13 Complaint Handling and Service Recovery 412
Part V: Striving for Service Excellence 445
Chapter 14 Improving Service Quality and Productivity 446
Chapter 15 Building a World-Class Service Organization 490
Part VI: Cases 502
Glossary 641
Credits 651
Name Index 655
Subject Index 663

Preface
Services dominate the expanding world economy as never before, and technology continues
to evolve in dramatic ways. Established industries and old, illustrious companies decline and
may even disappear as new business models and industries emerge. Competitive activity is
fi erce, with fi rms often using new strategies and technologies to respond to changing customer
needs, expectations, and behaviors.  is book has been written in response to the global
transformation of our economies to services. Clearly, the skills in marketing and managing
services have never been more important!
As the fi eld of services marketing has evolved, so too has this book.  is new edition has been
revised signifi cantly since the 2nd edition. It captures the reality of today’s world, incorporates
recent academic and managerial thinking, and illustrates cutting-edge service concepts.
 is book is based on Services Marketing: People, Technology, Strategy, 8th edition (World Scientifi c,
2015). It has been signifi cantly condensed and sharpened to provide a crisp introduction to
key topics in services marketing. In addition, the case selection, visuals, and design are meant
to appeal to undergraduate and polytechnic students.
WHAT’S NEW IN THIS EDITION?
 e 3rd edition represents a signifi cant revision. Its contents refl ect ongoing developments
in the service economy, dramatic developments in technology, new research fi ndings, and
enhancements to the structure and presentation of the book in response to feedback from
reviewers and adopters.
New Structure, New Topics
u Almost all chapters are now structured around an organizing framework that provides a
pictorial overview of the chapter’s contents and line of argument.
u New applications of technolog y are integrated throughout the text, ranging from apps,
M-commerce and social networks, to robots, artifi cial intelligence, and biometrics.
u
Each of the 15 chapters has been revised. All chapters incorporate new examples and
references to recent research. Signifi cant changes in chapter content are highlighted below.
u
Chapter 1, “Introduction to Services Marketing,” now explores the nature of the modern
service economy more deeply and covers B2B services, outsourcing, and off shoring.
Furthermore, the Service-Profi t Chain was moved here to serve as a guiding framework
for the book (it was featured in Chapter 15 in the previous edition).
u
Chapter 2, “Consumer Behavior in a Services Context,” also covers the post-consumption
behaviors, including service quality, its dimensions and measurement (including SERVQUAL),
and how quality relates to customer loyalty.  is section was in Chapter 14 in the previous
edition.

u Chapter 7, “Promoting Services and Educating Customers,” is now tightly organized
around the 5 Ws model, a new section on the services marketing communications funnel
was added, and the coverage of new media (including social media, mobile, apps, and QR
codes) was signifi cantly expanded.
u
Chapter 8, “Designing Service Processes,” has a new section on emotionprints and covers
service blueprinting in more depth.
u
Chapter 11, “Managing People for Service
Advantage,” has new sections on a service-
oriented culture, how to build a climate for
service, and eff ective leadership in service
organization and leadership styles. Part
of this content was previously covered in
Chapter 15.
u
Chapter 14, “Improving Service Quality
and Productivity,” now integrates key
concepts in the main body of the chapter
instead of the appendix as in the earlier
edition.  ese are TQM, ISO 9000, Six
Sigma, and the Malcolm-Baldrige and
EFQM.
u
Chapter 15, “Building a Service
Organization that Wins,” was completely
restructured to provide a recap and
integration of the key themes of Services
Marketing, 8th edition. It now features
an auditing tool to assess the service
level of an organization. It emphasizes
the impact of customer satisfaction on
long-term profi tability and closes with
a call to action.
FOR WHAT TYPES OF COURSES CAN THIS BOOK BE USED?
 is text is suitable for courses directed at undergraduate and polytechnic students equally.
Essentials in Services Marketing places marketing issues within a broader general management
context.  e book will appeal to students heading for a career in the service sector, whether at
the executive or management level.
Whatever the job is in the services industry, a person has to understand the close ties that
link the marketing, operations, and human resources functions in service fi rms. With that
perspective in mind, we have designed the book so that instructors can make selective use of
chapters and cases to teach courses of diff erent lengths and formats in either services marketing
or services management.
In B2B markets in particular, innovative business models charge on the basis of outcomes
rather than on services provided. For example, Rolls-Royce’s Power-by-the-Hour service
does not charge for services such as maintenance, repairs, and materials. Its charges
are based on the outcome of these activities, that is, the number of flying hours.
22
In
effect, generated cost savings are shared between the provider and their client.
Price Bundling. An important question for service marketers is whether to charge
an inclusive price for all elements (referred to as a “bundle”) or to price each element
separately. If customers prefer to avoid making many small payments, bundled pricing
may be best. In other cases, itemized pricing is preferable. Bundled prices offer firms a
certain level of guaranteed revenue from each customer while providing customers a
clear idea in advance of how much they can expect to pay. Unbundled pricing provides
customers with the freedom to choose what to buy and pay for. However, customers
may be angered if they discover that the actual price of what they consume, inflated
by all the “extras,” is substantially higher than the advertised base price that attracted
them in the first place.
23
Discounting. Selective price discounting targeted at specific market segments can
offer important opportunities to attract new customers and fill capacity that would
otherwise go unused. However, unless it is used with effective rate fences that allow
specific segments to be targeted cleanly, a strategy of discounting should be approached
with caution.
Figure 6.25 Shipment of goods
are typically charged by a
combination of distance (miles,
kilometers, or zones) and
weight or size (such as cubic
volume).
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1292089959_CH01.indd 6
PART IV
to provide vouchers or refunds in certain situations when
fl ights were delayed. Neeleman also changed JetBlue’s
information systems to keep track of the locations of its crew
and trained staff at the headquarters to help out at the airport
when needed. All these activities were aimed at helping the
company climb its way back up to the heights it fell from.
By 2014, JetBlue Airways was back on the list of J. D. Power
Customer Service Champions for many consecutive years.
(J. D. Power and Associates conducts customer satisfaction
research based on survey responses from
millions of customers worldwide.) This
showed that JetBlue’s customers had
fi nally forgiven its service failure and were
supporting its efforts to deliver continued
service excellence.
A terrible ice storm in the East Coast of the United States
caused hundreds of passengers to be trapped for 11 hours
inside JetBlue planes at the John F. Kennedy International
Airport in New York. These passengers were furious because
JetBlue personnel did nothing to get them off the planes. In
addition, JetBlue cancelled more than 1,000 fl ights over six
days, leaving even more passengers stranded. This incident
cancelled out much that JetBlue had done right to become
one of the strongest customer service brands in the United
States. The company was going to be ranked number four
by Business Week in a list of top 25 customer service leaders
but was pulled from the rankings due to this service failure.
What happened?
There was no service recovery plan. No one—not the pilot, the
fl ight attendants, or the station manager—had the authority
to get the passengers off the plane. JetBlue’s offer of refunds
and travel vouchers did not seem to reduce the anger of the
passengers who had been stranded for so many hours. David
Neeleman, JetBlue’s CEO at the time, sent a personal e-mail
to all customers in the company’s database to explain what
caused the problem, apologize profusely, and detail its service
recovery efforts. He even appeared on late-night television
to apologize, and he admitted that the airline should have
had better contingency planning. However, the airline still
had a long way to go to repair the damage done.
Gradually, JetBlue rebuilt its reputation, starting with its
new Customer Bill of Rights. The bill required the airline
OPENING VIGNETTE
Too Little, Too Late—JetBlue’s Service Recovery1
Figure 13.2 JetBlue’s new Customer Bill of Rights
and publicity campaigns involving the Simpsons were
measures taken to win customers back.
WHAT ARE THE BOOK’S DISTINGUISHING FEATURES?
 e third edition of ESM retains some of the
key features that have made it successful, and
improves on other aspects of the textbook to help
students understand services marketing more
eff ectively.  ese features include the following:
u You’ll fi nd that this text takes a strongly
managerial perspective, yet is rooted in
solid academic research, complemented
by memorable frameworks. Our goal is to
bridge the all-too-frequent gap between
theory and the real world.
u
 e text is organized around an integrated
framework the reader immediately can
relate to.  e framework cascades across
the entire book. Furthermore, each
chapter provides a succinct chapter
overview in pictorial form.
u
We worked hard to create a text that is
clear, readable, and focused.
u An easy-to-read text that works
hand-in-hand with visuals that make important
concepts accessible.
u
A global perspective. Examples were carefully
selected from America, Europe and Asia.
u
Systematic learning approach. Each
chapter has clear learning objectives, an
organizing framework that that provides a
quick overview of the chapter’s contents and
line of argument, and chapter summaries in
bullet form that condense the core concepts
and messages of each chapter.
u
Opening vignettes and boxed inserts within
the chapters are designed to capture student
interest and provide opportunities for in-class
discussions.  ey describe signifi cant research
fi ndings, illustrate practical applications of
important service marketing concepts, and
describe best practices by innovative service
organizations.

What Aids Are Available for Instructors?
We have developed pedagogical aids to help instructors develop and teach courses built
around this book and to create stimulating learning experiences for students both in and out
of the classroom.
Teaching Aids within the Text
u
An opening vignette, which highlights key issues discussed in the chapter
u
Learning objectives and milestone markers for these when a section provides material that
meet these learning objectives
u
Boxed inserts throughout the chapters, which often lend themselves well to in-class discussion
u
Interesting graphics, photographs, and reproductions of advertisements, which enhance
student learning, provide opportunities for discussion, and add a visual appeal
u
Key words, which help to reinforce important terms and concepts
u
Chapter summaries, which meet each chapter’s learning objectives
u
Review Questions and Application Exercises located at the end of each chapter
CHAPTER SUMMARY
Applying the 4 Ps of Marketing to Services
145
PART
II
LO 1
u
What? How? Where? When? Responses to
these four questions form the foundation of any
service distribution strategy.
LO 2
u
What is distributed? The Flow Model of
Distribution can be mapped onto the Flower of
Service concept and includes the following fl ows
of service distribution:
o
Information and promotion fl ows (includes the
information and potentially the consultation
petals)
o
Negotiation fl ow (includes the order taking and
potentially the billing and payment petals as well)
o Product fl ow (includes the core product and
the remaining petals of the Flower of Service)
A service distribution strategy encompasses all
three fl ows.
LO 3
u
How can services be distributed? Services can
be distributed through three main modes:
o
Customers visit the service site (e.g., for people-
processing services such as an MRI scan).
o Ser vice providers go to their customers (e.g.,
for high net-worth private banking services).
o Ser vice transactions are conducted remotely
(i.e., for Skype or for buying travel insurance
online).
Some core services require a physical location
(e.g., people-processing services), and this severely
restricts their distribution. However, information-
based core services and many supplementary
services can be distributed and delivered remotely.
LO 4
u
Developments in telecommunications, online
technology, service apps, and sophisticated
logistics solutions have spurred innovations in
remote service delivery.
o
All information-based core products and
supplementary services (i.e., information,
consultation, order taking, billing, and payment)
and many possession-based services can be
delivered remotely.
o Key drivers of the growth of service delivery
via cyberspace are (1) convenience, (2) ease
of search, (3) a broader selection, (4) potential
for lower prices, and (5) 24/7 service with
prompt delivery.
LO 5
u
Customer preferences drive channel choice:
o
Customers who are technologically savvy often
prefer remote channels due to the greater
convenience they offer. Such customers usually
have confi dence in and knowledge about the
service and/or the channel.
o Howeve r, consumers rely more on personal
channels when the perceived risk is high and
when there are social motives behind the
transaction.
LO 6
u
Customers are likely to use different service
channels with the same service organization (e.g.,
bank customers use the entire gamut of channels
ranging from mobile banking apps and websites
to ATMs and bank branches). Thus, channel
integration is essential for delivering consistent
and seamless service experiences.
LO 7
u
Where should service be delivered? This is an
important decision for services that require
physical locations.
o
First, strategic location considerations are involved
as the site location is an integral part of the
overall service strategy. The location strategy
must be consistent with the fi rm’s marketing
strategy and the needs and expectations of
its target customers.
o
Second, tactical location considerations are
used to choose between specifi c sites. They
include population size and characteristics;
traffi c; convenience of access; competitors in
the area; nature of nearby businesses; availability
of labor and sites; and rental costs, conditions,
and regulation. Geographic information systems
(GISs) are frequently used to help fi rms make
specifi c location decisions.
o
Locational constraints such as a need for
economy of scale (e.g., because of high fi xed
costs such as in specialized medical facilities)
and operational requirements (e.g., airports or
distribution centers) limit a fi rm’s location choice.
o
Innovative location strategies can be at the
core of new service models. Recent trends
include ministores, the sharing of retail space
with complementary providers, and the location
of services in multi-purpose facilities (e.g.,
locating clinics in shopping malls).
LO 8
u
When should service be delivered?
o
Key factors determining opening hours of a
service channel include customer needs and
wants and the economics of opening hours
(fi xed costs of a facility, variable costs of
extending opening hours, incremental sales or
contribution expected, and potential operational
gains achieved by shifting demand from peak
periods to extended opening hours).
o
There is now a move toward extended operating
hours, with the ultimate goal of 24/7 service
every day of the year. This is often achieved
through the use of self-service technology.
3/7/17 1:
148
Chapter 5 t%JTUSJCVUJOH4FSWJDFTUISPVHI1IZTJDBMBOE&MFDUSPOJD$IBOOFMT
1.
What is meant by “distributing services?” How
can an experience or something intangible be
distributed?
2. Why is it important to consider the distribution of
core and supplementary services both separately
and jointly?
3.
What are the different options for service delivery?
What factors do service firms need to take into
account when using each of these options?
4.
What are the key factors driving the place and time
decisions of service distribution?
5. What risks and opportunities does a retail service
firm face when it adds electronic channels of delivery
(a) paralleling a channel involving physical stores or
(b) replacing the physical stores with a combined
internet and call center channel? Give examples.
6.
Why should service marketers be concerned with
new developments in mobile communications?
7. What marketing and management challenges are
raised by the use of intermediaries in a service
setting?
8.
Why is franchising a popular way to expand
distribution of an effective service concept? What
are some disadvantages of franchising, and how
can they be mitigated?
9.
What are the key drivers for the increasing
globalization of services?
10.
What factors do service companies need to
understand in order to choose a distribution strategy
for going international that still allows it to control its
intellectual property and sources of value creation?
KNOW YOUR SERVICES MARKETING
Review Questions
1.
An entrepreneur is thinking of setting up a new
service business (you can choose any specific
business). What advice would you offer regarding the
distribution strategy for this business? Address the
What? How? Where? When? of service distribution.
2.
Think of three services you buy or use either mostly
or exclusively via the internet. What is the value
proposition of this channel over alternative channels
(e.g., phone, mail, or branch network)?
3.
What advice would you give to (a) a weight
reduction clinic, (b) a pest control company, and (c)
a university offering undergraduate courses about
going international?
4.
Which strategy for entering a new international
market should (a) an architectural design firm, (b)
an online discount broker, and (c) a satellite TV
channel consider, and why?
WORK YOUR SERVICES MARKETING
Application Exercises
81292089959_CH05.indd 148

Pedagogical Materials Available from the Publisher
Case Bank: A large set of additional cases that can be used in courses that adopt this textbook.
Available in both Word and PDF versions as a resource for instructors. A table shown in the
textbook will suggest which cases to pair with which chapters.
Instructor’s Manual: A repository of detailed course design and teaching hints, including
sample course outlines; chapter-by-chapter teaching suggestions, plus discussion of learning
objectives and sample responses to study questions and exercises; suggested student exercises
and comprehensive projects (designed for either individual or team work); detailed case
teaching notes, including teaching objectives, suggested study questions, in-depth analysis of
each question, and helpful hints on teaching strategy designed to aid student learning, create
stimulating class discussions, and help instructors create end-of-class wrap-ups and “takeaways.”
Test Bank: Multiple choice True/False, short-answer, and essay questions, with page
references and diffi culty level provided for each question. Contents are classifi ed into general
and application.  is is available in TestGen format, a test-generating program, which allows
instructors to add, edit, or delete questions from the test item fi le; analyze test results; and
organize a database of exams and student results.
PowerPoint Slides:  e slides are linked to each chapter and featuring both “word” slides
and graphics. All slides have been designed to be clear, comprehensible, and easily readable.
Image Bank: A collection of images in the textbook.
Video Bank: A list of website links that features corporate videos and advertisements to relate
concept to application.
EBook: Electronic version of the text that includes useful features such as highlighting and
search. It can be viewed on a variety of browsers and devices.

PART
IV
THE ESM
FRAMEWORK
PA RT I
Understanding Service Markets, Products, and Customers
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PA RT
II
Applying the 4 Ps of
Marketing to Services
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V
Striving for Service Excellence
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Managing the Customer
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Developing Customer
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PART
IV
Developing Customer
Relationships
Part IV focuses developing customer relationships through
building loyalty and effective complaint handling and
service recovery for the long term profitability. It consists
of the following two chapters:
Chapter 12 Managing Relationships and Building Loyalty
Focuses on achieving profitability through creating relationships with customers from the right
segments and then finding ways to build and reinforce their loyalty using the Wheel of Loyalty as an
organizing framework. This chapter closes with a discussion of customer relationship management
(CRM) systems.
Chapter 13 Complaint Handling and Service Recovery
Examines how effective complaint handling and professional service recovery can be implemented.
It starts with a review of consumer complaining behavior and principles of effective service recovery.
Service guarantees are discussed as a powerful way of institutionalizing effective service recovery
and as an effective marketing tool signaling high quality service. The chapter also discusses how
to deal with jaycustomers who take advantage of service recovery policies and abuse the service
in other ways.

412 Chapter 13 t Complaint Handling and Service Recovery
CHAPTER
complaint handling and
SERVICE
RECOVERY
By the end of this chapter, the reader should be able to:
LO 1
Recognize the actions that
customers may take in response to
service failures.
LO 2
Understand why customers
complain.
LO 3
Know what customers expect from
the fi rm when they complain.
LO 4
Understand how customers respond
to effective service recovery.
LO 5
Explain the service recovery
paradox.
LO 6
Know the principles of effective
service recovery systems.
LO 7
Be familiar with the guidelines for
front-line employees on how to
handle complaining customers and
recover from a service failure.
LO 8
Recognize the power of service
guarantees.
LO 9
Understand how to design
effective service guarantees.
LO 10
Know when fi rms should not offer
service guarantees.
LO 11
Be familiar with the seven groups
of jaycustomers and understand
how to manage them effectively.
13
LEARNING OBJECTIVES (LOs)
Figure 13.1 JetBlue’s reputation
for customer service excellence
was temporarily grounded.

Developing Customer Relationships 413
PART IV
to provide vouchers or refunds in certain situations when
fl ights were delayed. Neeleman also changed JetBlue’s
information systems to keep track of the locations of its crew
and trained staff at the headquarters to help out at the airport
when needed. All these activities were aimed at helping the
company climb its way back up to the heights it fell from.
By 2014, JetBlue Airways was back on the list of J. D. Power
Customer Service Champions for many consecutive years.
(J. D. Power and Associates conducts customer satisfaction
research based on survey responses from
millions of customers worldwide.) This
showed that JetBlue’s customers had
fi nally forgiven its service failure and were
supporting its efforts to deliver continued
service excellence.
A terrible ice storm in the East Coast of the United States
caused hundreds of passengers to be trapped for 11 hours
inside JetBlue planes at the John F. Kennedy International
Airport in New York. These passengers were furious because
JetBlue personnel did nothing to get them off the planes. In
addition, JetBlue cancelled more than 1,000 fl ights over six
days, leaving even more passengers stranded. This incident
cancelled out much that JetBlue had done right to become
one of the strongest customer service brands in the United
States. The company was going to be ranked number four
by Business Week in a list of top 25 customer service leaders
but was pulled from the rankings due to this service failure.
What happened?
There was no service recovery plan. No one—not the pilot, the
fl ight attendants, or the station manager—had the authority
to get the passengers off the plane. JetBlue’s offer of refunds
and travel vouchers did not seem to reduce the anger of the
passengers who had been stranded for so many hours. David
Neeleman, JetBlue’s CEO at the time, sent a personal e-mail
to all customers in the company’s database to explain what
caused the problem, apologize profusely, and detail its service
recovery efforts. He even appeared on late-night television
to apologize, and he admitted that the airline should have
had better contingency planning. However, the airline still
had a long way to go to repair the damage done.
Gradually, JetBlue rebuilt its reputation, starting with its
new Customer Bill of Rights. The bill required the airline
OPENING VIGNETTE
Too Little, Too Late—JetBlue’s Service Recovery1
Figure 13.2 JetBlue’s new Customer Bill of Rights
and publicity campaigns involving the Simpsons were
measures taken to win customers back.

414 Chapter 13 t Complaint Handling and Service Recovery
Figure 13.3 Organizing framework for managing complaints and service recovery.
Customers expect fair treatment along three dimensions:
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Customer Expectations Once a Complaint Is Made
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Developing Customer Relationships 415
PART IV
Figure 13.4 Customer response categories to service failures.
Complain to the
Service Firm
Negative Word-of-
Mouth
Defect (switch
provider)
Take Legal Action
to Seek Redress
Complain to a
Third Party
Take Some Form
of Public Action
Service Encounter
Is Unsatisfactory
Take No Action
Take Some Form
of Private Action
Any One or a Combination of
These Responses Is Possible
CUSTOMER COMPLAINING BEHAVIOR
T
he fi rst law of service quality and productivity might be: Do it right the fi rst time.
However, we can’t ignore the fact that failures continue to occur, sometimes for
reasons outside the organization’s control (such as the ice storm that caused the JetBlue
incident in our opening vignette). Many “moments of truth” in service encounters are
vulnerable to breakdowns. Such distinctive service characteristics as real-time performance,
customer involvement, and people as part of the product greatly increase the probability
of service failures. A fi rm’s ability to handle complaints and resolve problems frequently
determines whether it builds customer loyalty or watches its customers take their business
elsewhere. An overview of this chapter is provided in Figure 13.3.
Customer Response Options to Service Failure
It is likely that you’re not always satisfi ed with some of the services you receive. How
do you respond to your dissatisfaction with these services? Do you complain informally
to an employee, ask to speak to the manager, or fi le a formal complaint? Or do you
just mutter darkly to yourself, grumble to your friends and family, and choose an
alternative supplier the next time you need a similar type of service?
If you choose not to complain to the fi rm about poor service, you are not alone. Research
around the globe has shown that most people decide not to complain, especially if they
think it will do no good. Figure 13.4 suggests at least three major courses of action a
customer may take in response to a service failure:
1)
Take some form of public action (e.g., complaining to the fi rm or to a third party,
such as a customer advocacy group, a consumer aff airs or regulatory agency, or
even civil or criminal court).
LO 1
Recognize the actions that
customers may take in response
to service failures.

416 Chapter 13 t Complaint Handling and Service Recovery
2) Take some form of private action (e.g., abandoning the supplier).
3) Take no action (Figure 13.5).
It’s important to remember that a customer can take any one action or a combination
of actions. Managers need to be aware that the impact of a defection can go far
beyond the loss of that customer’s future revenue stream. Angry customers often tell
many other people about their problems.
2
 e internet allows unhappy customers to
reach thousands of people by posting complaints on bulletin boards and blogs and
even setting up their own websites to talk about their bad experiences with specifi c
organizations.
Understanding Customer Complaining Behavior
To be able to deal eff ectively with dissatisfi ed and complaining customers, managers
need to understand key aspects of complaining behavior, starting with the questions
posed below.
Why Do Customers Complain? In general, studies of consumer complaining behavior
have identifi ed four main purposes for complaining:
1)
To obtain restitution or compensation. Consumers often complain to recover some
economic loss by seeking a refund or compensation and/or to have the service
performed again.
3
2) To vent their anger. Some customers complain to rebuild self-esteem and/or to
release their anger and frustration. When service processes are bureaucratic and
unreasonable or when employees are rude, deliberately intimidating, or apparently
uncaring, the customers’ self-esteem, self-worth, and sense of fairness can be
negatively aff ected. As a result, they may become angry and emotional.
3)
To help to improve the service. When customers are highly involved with a service
(e.g., at a college, an alumni association, or their main banking connection),
they give feedback to try and contribute toward service improvements.
4)
For altruistic reasons. Finally, some customers are motivated by altruistic
reasons.  ey want to spare other customers from experiencing the same
shortcomings, and they may feel bad if they fail to draw attention to a problem
that will raise diffi culties for others if it remains uncorrected.
What Proportion of Unhappy Customers Complain? Research shows
that on average, only 5%–10% of customers who have been unhappy with a
service actually complain.
4
Sometimes the percentage is far lower. A review
of the records of a public bus company showed that there were about three
formal complaints for every million passenger trips. Assuming two trips a
day, a person would need 1,370 years (roughly 27 lifetimes) to make a million
trips. In other words, the rate of complaints was incredibly low, especially
since public bus companies are rarely known for service excellence. However,
there’s evidence that consumers across the world are becoming better informed,
more self-confident, and more assertive about seeking satisfactory outcomes for
their complaints.
LO 2
Understand why customers
complain.
Figure 13.5 Some customers
may be frustrated but do not
take any action to complain, as
seen here in an interaction with
an online service.

Developing Customer Relationships 417
PART IV
Why Don’t Unhappy Customers Complain? A number of studies
have identifi ed some of the reasons why customers don’t complain.
Customers may not want to take the time to write a letter, send an
e-mail, fi ll in a form, or make a phone call, particularly if they don’t
see the service as being important enough to be worth the eff ort.
Many customers see the pay-off as uncertain and believe that no one
would be concerned about their problem or willing to deal with it.
In some situations, people simply don’t know where to go or what to
do. Moreover, many people feel that complaining is unpleasant and
fear confrontation, especially if the complaint involves someone they
know and may have to deal with again (Figure 13.6).
5
Who Is Most Likely to Complain? Research fi ndings consistently show
that people in higher socio-economic levels are more likely to complain
than those in lower levels.  eir better education, higher income, and
greater social involvement give them the confi dence, knowledge, and
motivation to speak up when they encounter problems.
6
Furthermore, those who
complain also tend to be more knowledgeable about the product in question.
Where Do Customers Complain? Studies show that the majority of complaints
are made at the place where the service was received. One of the authors of this book
completed a consulting project for developing and implementing a customer feedback
system. He found that an amazing 99% of customer feedback was given face to face
or over the phone to customer service representatives. Less than 1% of all complaints
were submitted via the fi rm’s website, social media pages, e-mail, letters, or feedback
cards. A survey of airline passengers found that only 3% of respondents who were
unhappy with their meal actually complained about it, and they all complained to the
fl ight attendant. No one complained to the company’s headquarters or to a consumer
aff airs offi ce.
7
Moreover, although customers tend to use interactive channels such as
face-to-face encounters or the telephone when they want a problem to be fi xed, they
use non-interactive channels to complain (e.g., e-mail or websites) when they mainly
want to vent their anger and frustration.
8
In practice, managers often don’t hear about the complaints made to front-line
employees. Without a formal customer feedback system, only a tiny proportion of
the complaints may reach corporate headquarters.9 If unhappy customers have already
used other channels of complaint but their problem has not been solved, they are more
likely to turn to online public complaining.  is is due to “double deviation.”  e
service performance already caused dissatisfaction in the fi rst instance, and the fi rm’s
attempt to resolve the problem also failed.
10
What Do Customers Expect Once They Have
MadeaComplaint?
Whenever a service failure occurs, people expect to be treated fairly. However, research
has shown that many customers feel that they have neither been treated fairly nor given
adequate compensation. When this happens, their reactions tend to be immediate,
emotional, and enduring. In contrast, outcomes that are perceived as fair have a positive
impact on customer satisfaction.
11
LO 3
Know what customers expect
from the fi rm when they
complain.
Figure 13.6 Customers often
view complaining as diffi cult
and unpleasant.

418 Chapter 13 t Complaint Handling and Service Recovery
Stephen Tax and Stephen Brown found that as much as 85% of the variation in
satisfaction with a service recovery was determined by three dimensions of fairness
(see Figure 13.7):
12
u Procedural justice refers to the policies and rules that any customer has to go
through to seek fairness. Customers expect the firm to take responsibility, which
is the key to the start of a fair procedure. is should be followed by a convenient
and responsive recovery process that takes into account the flexibility of the system
and the customer inputs into the recovery process.
u
Interactional justice involves the employees of the firm who provide the
service recovery and their behavior toward the customer. It is important to give
an explanation for the failure and to make an effort to resolve the problem.
Furthermore, the recovery effort must be seen as genuine, honest, and polite.
u
Outcome justice concerns the restitution or compensation that a customer
receives as a result of the losses and inconveniences caused by the service failure.
is includes compensation not only for the failure but also for the time, effort,
and energy spent during the process of service recovery.
CUSTOMER RESPONSES TO EFFECTIVE
SERVICERECOVERY
“T
hank Heavens for Complainers” was the provocative title of an article about
customer complaining behavior. e article featured a successful manager
exclaiming, “ank goodness I’ve got a dissatisfied customer on the phone! e ones
I worry about are the ones I never hear from.”
13
Customers who do complain give
the firm a chance to correct problems (including some the firm may not even know
it has), restore relationships with the complainer, and improve future satisfaction for
all customers.
LO 4
Understand how customers
respond to effective service
recovery.
Figure 13.7 Three dimensions of perceived fairness in service recovery processes.
Procedural
Justice
Interactional
Justice
Outcome
Justice
Complaint Handling and Service Recovery
Process
Justice Dimensions of the Service Recovery Process
Customer Satisfaction with the
Service Recovery

420 Chapter 13 t Complaint Handling and Service Recovery
research has shown that the service recovery paradox is far from universal.
20
For example,
a study of repeated service failures in a retail banking context showed that the service
recovery paradox held for the first service failure that was recovered to customers’ full
satisfaction.
21
However, if a second service failure occurred, the paradox disappeared.
is indicates that customers may forgive a firm once but become disillusioned if
failures recur. e study also showed that customers’ expectations were raised after
they experienced a very good recovery (i.e., they began to expect the same standard
of recovery for dealing with future failures).
e severity and “recoverability” of the service failure may also determine whether the
customer comes out of the service recovery process delighted. No one can replace spoiled
wedding photos or a ruined holiday, or eliminate the consequences of a debilitating
injury caused by service equipment. In such situations, it’s hard to imagine anyone
being truly delighted even when a most professional service recovery is conducted.
Contrast these examples with a lost hotel reservation, for which the recovery is an
upgrade to a better room or even a suite. When poor service is recovered by the delivery
of a superior product, the customer is usually delighted and may even hope for another
lost reservation in the future.
e best strategy, of course, is to do it right the first time. As Michael Hargrove puts
it, “Service recovery is turning a service failure into an opportunity you wish you never
had.”
22
Unfortunately, empirical evidence shows that some 40% to 60% of customers
reported dissatisfaction with the service recovery processes they experienced.
23
PRINCIPLES OF EFFECTIVE SERVICE
RECOVERYSYSTEMS
M
anagers need to recognize that current customers are a valuable asset base
and develop effective procedures for service recovery following unsatisfactory
experiences. We discuss three guiding principles to get it right: (1) make it easy for
customers to give feedback, (2) enable effective service recovery, and (3) establish
appropriate compensation levels. A fourth principle—learning from customer feedback
and driving service improvements—will be discussed in Chapter 14 in the context of
customer feedback systems. e components of an effective service recovery system
are shown in Figure 13.8.
24
Make It Easy for Customers to Give Feedback
How can managers overcome unhappy customers’ reluctance to complain about
service failures? e best way is to address the reasons for their reluctance directly.
Table 13.1 gives an overview of potential measures that can be taken to overcome the
reasons we identified earlier in this chapter. Many companies have improved their
complaint-collection procedures by adding special toll-free phone lines (see Figure 13.9
for a tongue-in-cheek example of what not to do!), links on their websites and social
media pages, and clearly displayed customer comment cards in their branches. In
their customer communications, some companies feature service improvements that
were the direct result of customer feedback under the motto “You told us, and we
responded.”
LO 6
Know the principles of effective
service recovery systems.

Developing Customer Relationships 421
PART IV
Enable Effective Service Recovery
It takes more than just pious expressions of determination to recover from service
failures or resolve any problems that may occur. Commitment, planning, and clear
Figure 13.8 Components of an effective service recovery system.
Do the Job Right the
First Time
Effective Complaint
Handling
Identify Service
Complaints
Resolve Complaints
Effectively
Learn from the
Recovery Experience
Increased Satisfaction
and Loyalty
* %$#"
* $ " !$#
*& !a
“Complaints as
!! "$%$(+%$%"
*& !$&e
System and Training
in Complaints
Handling
* %$ $
%#(#s
Close the Loop via Feedback
+=
Table 13.1 Strategies to reduce customer complaint barriers.
Complaint Barriers for Dissatisfi ed Customers Strategies to Reduce These Barriers
Inconvenience
t %JGmDVMUUPmOEUIFSJHIUDPNQMBJOUQSPDFEVSF
t &GGPSUFHXSJUJOHBOENBJMJOHBMFUUFS
Make feedback easy and convenient:
t 1VUDVTUPNFSTFSWJDFIPUMJOFOVNCFSTFNBJMBEESFTTFTUIFXFCTJUFBOE
/or postal addresses on all customer communications materials (letters,
bills, brochures, the website, phone book, yellow pages listings, etc.)
Doubtful payoff
t 6ODFSUBJOXIFUIFSBOZPSXIBUBDUJPOXJMM
be taken by the fi rm to address the issue the
customer is unhappy with
Reassure customers that their feedback will be taken seriously and will
pay off:
t )BWFTFSWJDFSFDPWFSZQSPDFEVSFTJOQMBDFBOEDPNNVOJDBUFUIJTUP
DVTUPNFSTFHJOUIFDVTUPNFSOFXTMFUUFSBOEUIFXFCTJUF
t 'FBUVSFTFSWJDFJNQSPWFNFOUTUIBUSFTVMUFEGSPNDVTUPNFSGFFECBDL
Unpleasantness
t 'FBSPGCFJOHUSFBUFESVEFMZ
t 'FBSPGCFJOHIBTTMFE
t 'FFMJOHFNCBSSBTTFE
Make providing feedback a positive experience:
t 5IBOLDVTUPNFSTGPSUIFJSGFFECBDLDBOCFEPOFQVCMJDMZBOEJO
general by addressing the entire customer base).
t 5SBJOTFSWJDFFNQMPZFFTOPUUPIBTTMFBOEUPNBLFDVTUPNFSTGFFM
comfortable.
t "MMPXGPSBOPOZNPVTGFFECBDL
From Christopher Lovelock, Paul Patterson, and Jochen Wirtz, Services Marketing: An Asia-Pacifi c and Australian
Perspective, 6th ed, Pearson Australia, 2015.
Source

422 Chapter 13 t Complaint Handling and Service Recovery
guidelines are necessary. Specifically, effective service recovery should be (1) proactive,
(2) planned, (3) trained, and (4) empowered.
Service Recovery Should Be Proactive. Service recovery is ideally initiated on the
spot, preferably before customers have a chance to complain (see Service Insights 13.1).
Service personnel should be sensitive to signs of dissatisfaction so that they can ask
whether customers might be experiencing a problem. For example, the waiter may ask
a guest who has only eaten half of his dinner, “Is everything all right, sir?” e guest
may say, “Yes, thank you, I am not very hungry,” or “e steak is well done but I had
asked for medium-rare.” e second response gives the waiter a chance to recover the
service rather than have an unhappy diner leave the restaurant and potentially not return.
Recovery Procedures Need to Be Planned. Contingency plans have to be
developed for service failures, especially for those that occur regularly and cannot
be designed out of the system.
25
For example, revenue management practices in the
travel and hospitality industries often result in overbooking. Travelers are denied
boarding, and hotel guests are “walked” even though they had confirmed seats or
reservations. To simplify the task of front-line staff, firms should identify the most
common service problems (such as overbooking) and then develop solution sets
for employees to follow. In contact centers, the customer service representatives
prepare scripts to guide them in a service recovery situation.
Recovery Skills Must Be Taught. As a customer, you may quickly feel insecure at the
point of service failure because things are not turning out as you had expected. So you
look to an employee for assistance. But are the employees willing and able to help you?
Effective training on how to handle recovery solution sets for routine service failures (as in
our hotel example in Service Insights 13.1) as well as non-routine ones builds confidence
and competence among front-line staff, enabling them to turn distress into delight.
26
Recovery Requires Empowered Employees. Service recovery efforts should be flexible,
and employees should be empowered to use their judgment and communication skills
Figure 13.9 )PXOPUUPUSFBU
unhappy customers.

Developing Customer Relationships 423
PART IV
to develop solutions that will satisfy complaining customers.
27
 is is especially true
for out-of-the-ordinary failures for which a fi rm may not have developed and trained
solution sets. Employees need to be able to make decisions and spend money in order
to resolve service problems promptly and recover customer goodwill. In this day and
age, when online public complaining is gaining popularity, employees may even be
empowered to respond online. For example, if complaints are made in the form of
tweets, employees may tweet back with solutions to resolve the problems.
28
SERVICE INSIGHTS 13.1
Effective Service Recovery in Action
 e lobby is deserted. It’s not hard to overhear the
conversation between the front-desk receptionist at
the Marriott Long Wharf Hotel in Boston and the
late-arriving guest.
“Yes, Dr. Jones, we’ve been expecting you. I know you
are scheduled to be here for three nights. I’m sorry
to tell you, sir, but we are booked solid tonight. A
large number of guests we assumed were checking
out did not. Where is your meeting tomorrow, sir?”
 e doctor tells the receptionist where it is.
“ at’s near the Omni Parker House!  at’s not very
far from here. Let me call them and get you a room
for the evening. I’ll be right back.”
A few minutes later, the receptionist returns with
the good news.
“ ey’re holding a room for you at the Omni Parker
House, sir. And, of course, we’ll pick up the tab. I’ll
forward any phone calls that come here for you. Here’s
a letter that will explain the situation and expedite
your check-in, along with my business card so you
can call me directly here at the front desk if you have
any problems.”
 e doctor’s mood is moving from exasperation toward
calm. However, the receptionist is not fi nished with
the encounter. He reaches into the cash drawer. “Here
is a $50 bill.  at should more than cover your cab
fare from here to the Parker House and back again
in the morning. We don’t have a problem tomorrow
night, just tonight. And here’s a coupon that will get
you complimentary continental breakfast on our
concierge level on the fi fth fl oor tomorrow morning
. . . and again, I am so sorry this happened.”
As the doctor walks away, the hotel’s night manager
turns to the receptionist, “Give him about 15 minutes
and then call to make sure everything went okay.”
A week later, when it is still a peak period for hotels
in that city, the same guest who had overheard the
exchange is in a taxi, en route to the same hotel. Along
the way, he tells his companion about the great service
recovery episode he had witnessed the week before.
 e two travelers arrive at the hotel and make their
way to the front desk, ready to check in.
 ey are greeted with unexpected news: “I am so
sorry gentlemen. I know you were scheduled here for
two nights. But we are booked solid tonight. Where
is your meeting scheduled tomorrow?”
 e would-be guests exchange a rueful glance as they
give the receptionist their future plans. “ at’s near
the Méridien. Let me call over there and see if I can
get you a room. It won’t but take a minute.” As the
receptionist walks away, the tale teller says, “I’ll bet
he comes back with a letter and a business card.”
Sure enough, the receptionist returns to deliver the
solution; it’s not a robotic script, but all the elements
from the previous week’s show are on display. What
the tale teller thought was pure initiative from the
front-desk receptionist the previous week turns out
to be a predetermined response to a specifi c category
of service problem.
Ron Zemke, “Knock Your Socks Off Service Recovery,” reproduced with permission of AMACOM Books.
Source

424 Chapter 13 t Complaint Handling and Service Recovery
How Generous Should Compensation Be?
Clearly, vastly different costs are associated with possible recovery strategies. How
much compensation should a firm offer when there has been a service failure? Would
an apology be sufficient instead? e following rules of thumb can help managers to
answer these questions:
u What is the positioning of your firm? If a firm is known for service excellence
and charges a premium price for quality, customers will expect service failures to
be rare. e firm should therefore make a demonstrable effort to recover the few
failures that do occur and be prepared to offer something of significant value.
However, in a mass-market business, customers are likely to accept an apology
and a rework of the service.
u
How severe was the service failure? e general guideline is: “Let the punishment
fit the crime.” Customers expect little for minor inconveniences (here, a sincere
apology will do), but a much more significant compensation is required if the
failure caused major damage in terms of time, effort, annoyance, or anxiety.
u
Who is the affected customer? Long-term customers and those who spend heavily
at a service provider expect more, and it is worth making an effort to save their
business. One-time customers tend to be less demanding and have less economic
importance to the firm. Hence, compensation can be less but should still be fair.
ere is always the possibility that a first-time user will become a repeat customer
if he or she is treated well.
e overall rule of thumb for compensation at service failures should be “well-dosed
generosity.” Being perceived as stingy adds insult to injury, and the firm will probably
be better off apologizing rather than offering a minimal compensation. Overly
generous compensation is not only expensive but may also be interpreted negatively by
customers. It may raise questions in their minds about the soundness of the business
and cause them to become suspicious about the underlying motives. ey may worry
about the implications of such generosity for the employee as well as for the business.
Moreover, excessive generosity does not seem to result in higher repeat-purchase rates
than when fair compensation is offered.
29
ere is a risk, too, that a reputation for
over-generosity may encourage dishonest customers to actively “seek” service failures.30
In fact, what customers really want is often just a satisfactory solution to their service
problem rather than bells and whistles!
31
Dealing with Complaining Customers
Both managers and front-line employees must be prepared to deal with distressed
customers, including jaycustomers who can become confrontational and behave in
unacceptable ways toward service personnel who often aren’t at fault. (Jaycustomers
will be discussed later in this chapter.)
Good interactive skills combined with training and on-the-spot thinking are critical
for front-line employees to deal with such situations. Service Insights 13.2 provides
specific guidelines for effective problem resolution. ese guidelines are designed to
help calm upset customers and to deliver a resolution that they will see as fair and
satisfying.
LO 7
Be familiar with the guidelines
for front-line employees on how
to handle complaining customers
and recover from a service
failure.

Developing Customer Relationships 425
PART IV
SERVICE INSIGHTS 13.2
Guidelines for the Front Line: How to Handle
Complaining Customers and Recover from a Service Failure
1 Act fast. If the complaint is made during service
delivery, then time is of the essence to achieve
a full recovery. When complaints are made
after the fact, many companies have established
policies of responding within 24 hours or sooner.
Even when full resolution is likely to take longer,
fast acknowledgment remains very important.
2 Acknowledge the customer’s feelings.  is
must be done either tacitly or explicitly (for
example, “I can understand why you’re upset”).
It helps to build rapport, which is the fi rst step
in rebuilding a bruised relationship.
3 Don’t argue with customers.  e goal should
be to gather facts to reach a mutually acceptable
solution, not to win a debate or prove that the
customer is wrong. Arguing gets in the way of
listening and seldom diff uses anger.
4 Show that you understand the problem
from each customer’s point of view. Seeing
situations through the customers’ eyes is the
only way to understand what they think has
gone wrong and why they’re upset. Service
personnel should avoid jumping to conclusions
with their own interpretations.
5 Clarify the facts and sort out the cause. A
failure may result from service ineffi ciency,
misunderstanding by customers, or
misbehavior by a third party. If you’ve done
something wrong, apologize immediately
in order to win the understanding and trust
of the customer.  e more the customer can
forgive you, the less he/she will expect to be
compensated. Don’t be defensive; acting
defensively may suggest that the organization
has something to hide or is reluctant to look
fully into the situation.
6 Give customers the benefi t of the doubt.
Not all customers are truthful, and not all
complaints are genuine. However, customers
should be treated as though they have a valid
complaint until clear evidence proves the
contrary. If a lot of money is at stake (as in
insurance claims or potential lawsuits), careful
investigation needs to be carried out. If the
amount involved is small, it may not be worth
haggling over a refund or other compensation.
However, it’s still a good idea to check records
to see if there is a past history of dubious
complaints by the same customer.
7 Propose the steps needed to solve the problem.
When instant solutions aren’t immediately
available, tell customers how the fi rm intends
to take action to deal with the problem.  is
also sets expectations about the time involved,
so fi rms should be careful not to over-promise!
8 Keep customers informed of progress. Nobody
likes being left in the dark. Uncertainty causes
people to be anxious and stressed. People tend
to be more accepting if they are kept informed
about what’s going on and receive periodic
progress reports.
9 Consider compensation. When customers do
not receive the service outcomes they believe
they have paid for, or when they suff er serious
inconvenience and/or loss of time and money
due to the failure of the service, either a monetary
payment or some other compensation in kind
(e.g., an upgrade on a fl ight or free dessert in a
restaurant) is appropriate.  is type of recovery
strategy may also reduce the risk of legal action
by an angry customer. Service guarantees often
lay out in advance what such compensation
will be, and the fi rm should ensure that all
guarantees are met.
10 Persevere to regain customer goodwill.
When customers have been disappointed,
one of the hardest things to do is to restore
their confi dence and keep the relationship
going. Perseverance may be required to
defuse customers’ anger and to convince
them that actions are being taken to avoid a
recurrence of the problem. Truly exceptional
recovery eff orts can be extremely eff ective in
building loyalty and referrals.
11 Self-check the service delivery system and
improve it. After the customer has left, you
should check to see whether the service failure
was caused by accidental mistakes or system
defects. Take advantage of every complaint
to perfect the whole service system. Even
if the complaint is found to be a result of a
misunderstanding by the customer, it implies
that some part of the communication system is
ineff ective.

426 Chapter 13 t Complaint Handling and Service Recovery
SERVICE GUARANTEES
O
ne way for particularly customer-focused firms to institutionalize professional
complaint handling and effective service recovery is by offering service guarantees.
In fact, a growing number of companies offer customers a service guarantee, promising
that if service delivery fails to meet pre-defined standards, the customer will be entitled
to one or more forms of compensation (such as an easy-to-claim replacement, refund,
or credit). A well-designed service guarantee not only facilitates effective service recovery
but also institutionalizes the practice of learning from service failures and ensuring
subsequent system improvements.
32
The Power of Service Guarantees
Service guarantees are powerful tools for promoting as well as achieving service quality:
33
1)
Guarantees force firms to focus on what their customers want and expect in each
element of the service.
2) Guarantees set clear standards, telling customers and employees alike what the
company stands for. Payouts to compensate customers for poor service cause
managers to take guarantees seriously, because they highlight the financial costs
of quality failures.
3)
Guarantees require the development of systems for generating meaningful customer
feedback and acting on it.
4)
Guarantees force service organizations to understand why they fail and encourage
them to identify and overcome potential fail points.
5)
Guarantees build “marketing muscle” by reducing the risk of the purchase decision
and building long-term loyalty.
From the customer’s perspective, the primary function of service guarantees is to
lower the perceived risks associated with purchase.
34
e presence of a guarantee may
also make it easier and more likely for customers to complain. ey will anticipate
LO 8
Recognize the power of service
guarantees.
Figure 13.10 Language is important in appeasing upset customers.

Developing Customer Relationships 427
PART IV
a readiness on the part of front-line employees to resolve the
problem and provide appropriate compensation.
 e benefi ts of service guarantees can be seen clearly in the
case of Hampton Inn’s “100% Hampton Guarantee”: “If you’re
not 100% satisfi ed, you don’t pay”. As a business-building
program, Hampton’s strategy of off ering to refund the cost of
the room to a guest who expresses dissatisfaction has not only
attracted new customers but also served as a powerful retention
device. People choose to stay at a Hampton Inn because they
are confi dent that they will be satisfi ed.  e guarantee has also
become a vital tool to help managers identify new opportunities
for quality improvement.
How to Design Service Guarantees
Some guarantees are simple and unconditional. Others appear to have been written by
lawyers and contain many restrictions. Ideally, service guarantees should be designed
to meet the following criteria:
35
1)
Unconditional. Whatever is promised in the guarantee must be totally un-
conditional, and there should not be any element of surprise for the customer.
2) Easy to understand and communicate.  e customer must be clearly aware of
the benefi ts that can be gained from the guarantee.
3)
Meaningful to the customer.  e guarantee must be on something that is
important to the customer, and the compensation should be more than adequate
to cover the service failure.
4) Easy to invoke. It should be easy for the customer to invoke the guarantee.
5) Easy to collect on. If a service failure occurs, the customer should be able to
easily collect on the guarantee without any problems.
6) Credible.  e guarantee should be believable (Figure 13.12).
Is Full Satisfaction the Best You Can Guarantee?
Full-satisfaction guarantees have generally been considered the best possible design.
However, it has been suggested that the ambiguity associated with such guarantees can
lead to discounting of their perceived value. For example, customers may raise questions
such as “What does full satisfaction mean?” or “Can I invoke a guarantee when I am
dissatisfi ed even if the fault does not lie with the service fi rm?”
36
Attribute-specifi c
guarantees (e.g., guaranteed delivery within 24 hours) are highly specifi c and therefore
don’t suff er from ambiguity. However, their coverage is not comprehensive, and this
limits their appeal. A hybrid version of the full-satisfaction and attribute-specifi c
guarantees, called the “combined guarantee,” addresses this issue. It combines the wide
scope of a full-satisfaction guarantee with the low uncertainty of attribute-specifi c
performance standards.  e combined guarantee has been shown to be superior to the
pure full-satisfaction or attribute-specifi c guarantee designs.
37
Specifi c performance
standards are guaranteed (e.g., on-time delivery), but the full-satisfaction coverage of
LO 9
Understand how to design
effective service guarantees.
Figure 13.11 )BNQUPO*OOT
advertising often includes its
“100% satisfaction guaranteed.”

Developing Customer Relationships 429
PART IV
Furthermore, in markets where there is little perceived diff erence in service quality
among competing fi rms, the fi rst fi rm to institute a guarantee may be able to obtain a
fi rst-mover advantage and create value diff erentiation for its services. If more than one
competitor already has guarantees in place, off ering a guarantee may become a qualifi er
for the industry. In such cases, the only real way to make an impact is to launch a
highly distinctive guarantee that goes beyond what is already off ered by competitors.
Discouraging Abuse and Opportunistic
CustomerBehavior
 roughout this chapter, we advocate that fi rms should welcome and even encourage
complaints and invocations of service guarantees. However, we have to acknowledge
that not all complaints are honest. When fi rms have generous service recovery policies
or off er guarantees, there is always the fear that some customers may take advantage
Table 13.2 Types of service guarantees.
Term Guarantee Scope Example
4JOHMFBUUSJCVUFTQFDJmD
guarantee
One key attribute of the service is covered
by the guarantee.
i"OZPGUISFFTQFDJmFEQPQVMBSQJ[[BTJTHVBSBOUFFE
to be served within 10 minutes of ordering on working
days between 12 a.m. and 2 p.m. If the pizza is late, the
customer’s next order is free.”
.VMUJBUUSJCVUFTQFDJmD
guarantee
"GFXJNQPSUBOUBUUSJCVUFTPGUIFTFSWJDFBSF
covered by the guarantee.
Minneapolis Marriott’s guarantee: “Our quality
commitment to you is to provide:
t BGSJFOEMZFGmDJFOUDIFDLJO
t BDMFBODPNGPSUBCMFSPPNXIFSFFWFSZUIJOHXPSLT
t BGSJFOEMZFGmDJFOUDIFDLPVU
If we, in your opinion, do not deliver on this
commitment, we will give you $20 in cash. No questions
asked. It is your interpretation.”
'VMMTBUJTGBDUJPO
guarantee
"MMBTQFDUTPGUIFTFSWJDFBSFDPWFSFECZ
the guarantee. There are no exceptions.
Lands’ End’s guarantee: “If you are not completely
satisfi ed with any item you buy from us, at any time
during your use of it, return it and we will refund
your full purchase price. We mean every word of it.
8IBUFWFS8IFOFWFS"MXBZT#VUUPNBLFTVSFUIJT
is perfectly clear, we’ve decided to simplify it further.
(6"3"/5&&%1FSJPEw
Combined guarantee "MMBTQFDUTPGUIFTFSWJDFBSFDPWFSFE
CZUIFGVMMTBUJTGBDUJPOQSPNJTFPGUIF
guarantee. Explicit minimum performance
standards on important attributes are
included in the guarantee to reduce
uncertainty.
Datapro Information Services guarantees “to deliver
the report on time, to high quality standards, and to
the contents outlined in this proposal. Should we fail
to deliver according to this guarantee, or should you
be dissatisfi ed with any aspect of our work, you can
deduct any amount from the fi nal payment which is
deemed as fair.”
From Jochen Wirtz and D. Kum, “Designing Service Guarantees—Is Full Satisfaction the Best You Can Guarantee?” Journal of Services Marketing 15(14): 282–299,
© 2002 Emerald Group Publishing Ltd.
Source

Figure 13.13 Dangerous skiers
are rule breakers who pose a
danger to others and need to be
policed.
Rules set by service fi rms facilitate smooth operations, avoid unreasonable demands
on employees, prevent misuse of products and facilities, protect the fi rms legally, and
discourage individual customers from misbehaving. Ski resorts, for instance, are getting
tough on careless skiers who pose risks to themselves as well as others. Collisions can
cause serious injury and even kill. Ski patrol members must be safety-oriented and
may even be required to take on a policing role. Just as dangerous drivers can lose their
licenses, dangerous skiers can lose their lift tickets (Figure 13.13).
 ere are risks attached to making lots of rules. Fewer rules help to make the most
important ones clearer.
 e Belligerent. You’ve probably seen them shouting angrily in a store, at the airport,
or in a hotel or restaurant; or perhaps with insults, threats, and obscenities. Service
personnel are often abused, even when they are not to blame. If an employee lacks
the power to resolve the problem, the belligerent may become madder still, even to
the point of physical attack. Unfortunately, when angry customers rant at service
personnel, the latter sometimes respond in kind, thus escalating the confrontation
and reducing the likelihood of resolution (Figure 13.14).
What should an employee do when an aggressive customer brushes off attempts
to defuse the situation? In a public environment, one priority should be to move
the person away from other customers. Sometimes, supervisors may have to settle
disagreements between customers and staff members; at other times, they need to
support the employee’s actions. If a customer has physically attacked an employee, it
may be necessary to summon security offi cers or the police.
Rudeness over the telephone poses a diff erent challenge. One approach for handling
a customer who continues to shout at a telephone-based employee is for the latter to
say fi rmly, “ is conversation isn’t getting us anywhere. Why don’t I call you back in a
PART IV
Developing Customer Relationships 431

432 Chapter 13 t Complaint Handling and Service Recovery
few minutes when you’ve had time to digest the information?”
In many cases, a break to think (and cool down) is exactly
what’s needed.
 e Family Feuders. People who get into arguments with
members of their own family—or worse, with other customers—
make up a sub-category of belligerents we call “family feuders.”
Employee intervention may either calm the situation or make it
worse. Some situations require detailed analysis and a carefully
thought-out response. Others, such as customers starting a food
fi ght in a nice restaurant (yes, such things do happen!), require an
almost immediate response. Service managers in these situations
need to be prepared to think on their feet and act fast.
 e Vandal. Soft drinks are poured into bank cash machines; graffi ti are scrawled on
both interior and exterior surfaces; burn holes from cigarettes scar carpets, tablecloths,
and bedcovers; bus seats are slashed and hotel furniture broken; customers’ cars are
vandalized; glass is smashed and fabrics are torn.  e list is endless. Customers don’t
cause all of the damage, of course. Bored or drunk young people are the source of
much exterior vandalism. However, much of the problem does originate with paying
customers who choose to misbehave (Figure 13.15).
 e best cure for vandalism is prevention. Improved security discourages some vandals.
Good lighting and the open design of public areas also help. Companies can choose
vandal-resistant surfaces, protective coverings for equipment, and rugged furnishings.
Educating customers to use equipment properly (rather than fi ghting with it) and
providing warnings about fragile objects can reduce the likelihood of abuse or careless
handling. Finally, there are economic sanctions: security deposits or signed agreements
in which customers agree to pay for any damage that they cause.
 e Deadbeat.  ey are the ones who delay payment. Once again, preventive action
is better than a cure. A growing number of fi rms insist on pre-payment. Any form
of ticket sale is a good example of this. Direct-marketing organizations ask for your
credit card number as they take your order.  e next best thing is to present the
customer with a bill immediately on completion of service. If the bill is to be sent by
mail, the fi rm should send it fast while the service is still fresh in the customer’s mind.
Customers may have a good reason for the delay, and acceptable payment arrangements
can be worked out.  ere may be other considerations, too. If the client’s problems
are only temporary ones, what is the long-term value of maintaining the relationship?
Will it create positive goodwill and word of mouth to help the customer work things
out?  ese decisions are judgment calls, but if creating and maintaining long-term
relationships is the fi rm’s ultimate goal, they bear exploration.
Dealing with Customer Fraud
Dishonest customers may steal from the fi rm, refuse to pay for the service, fake
dissatisfaction, purposefully cause service failures to occur, or overstate losses at the
Figure 13.15 Treating
customers like family is not
always the best response by a
service manager.
Figure 13.14 Confrontations
between customers and service
employees can easily escalate.

Developing Customer Relationships 433
PART IV
time of genuine service failures. What steps can a fi rm
take to protect itself against opportunistic customer
behaviors?
 e working assumption should be, “If in doubt,
believe the customer.” However, as Service Insights
13.3 shows, it’s crucial to keep track of customers
who repeatedly “experience service failures” and
ask for compensation or invoke the fi rm’s service
guarantee. For example, one Asian airline found
that the same customer lost his suitcase on three
consecutive fl ights. As the chances of this truly happening
are probably lower than winning the national lottery, front-line staff members were
made aware of this individual.  e next time he checked in his suitcase, the check-in
staff followed the video image of the suitcase almost from check-in to pick-up at the
baggage claim carrousel at the traveler’s destination. It turned out that a companion
collected the suitcase and took it away while the traveler again made his way to the
lost-baggage counter to report his missing suitcase.  is time, the police were waiting
for him and his friend.
In another example, Continental Airlines consolidated some 45 separate customer
databases into a single data warehouse to improve service as well as to detect customer
fraud.  e airline found one customer who received 20 bereavement fares in 12 months
off the same dead grandfather!
To be able to eff ectively detect consumer fraud, the fi rm must maintain a central
database of all compensation payments, service recoveries, returned goods, and any
other benefi ts given to customers based on special circumstances (i.e., such transactions
cannot be retained only at the local or branch level but must be captured in a centralized
system). It is important to merge customer data across departments and channels for
detecting unusual transactions and the systems that allow them.
43
Research has shown that customers who think they were treated unfairly in any way (see
our earlier discussion regarding distributive, procedural, and interactive fairness) are much
more likely to take advantage of a fi rm’s service recovery eff ort. In addition, consumers
tend to take advantage of large fi rms more often than small ones; they think that large
fi rms can easily aff ord the recovery costs. One-time customers are also much more likely
to cheat than loyal customers, and customers who do not have a personal relationship
with service employees are more likely to take advantage of service recovery policies.
Service guarantees are often used as payouts in service recovery, and it has been
shown that the amount of a guarantee payout (e.g., whether it is a 10% or 100%
money-back guarantee) has no eff ect on consumer cheating. It seems that customers
who cheat for a 100% refund also cheat for 10%, and that customers who do not
cheat for 10% don’t do so for 100% either. However, repeat purchase intention
signifi cantly reduces cheating intent. Another fi nding shows that customers are
more reluctant to cheat if the service quality provided is truly high compared to
when it is just satisfactory.
44
Figure 13.16 Installing
surveillance cameras in public
car parks can discourage
vandalism.

434 Chapter 13 t Complaint Handling and Service Recovery
 ese fi ndings suggest a number of important managerial implications:
1) Firms should ensure that their service recovery procedures are fair.
2) Large fi rms should recognize that consumers are more likely to cheat them and
have robust fraud-detection systems in place.
3)
Firms can implement and thus reap the bigger marketing benefi ts of 100%
money-back guarantees without worrying that the large payouts would increase
cheating considerably.
4)
Guarantees can be off ered to regular customers or as part of a membership
program, because repeat customers are unlikely to cheat on service guarantees.
5) Truly excellent services fi rms don’t have to worry as much about cheating as the
average service provider.
SERVICE INSIGHTS 13.3
Tracking Down Guests Who Cheat
As part of its guarantee-tracking system, Hampton Inn
has developed ways to identify guests who appeared to
be cheating. Guests showing high invocation trends
receive personalized attention and follow-up from the
company’s Guest Assistance Team. Wherever possible,
senior managers telephone these guests to ask about
their recent stays.  e conversation might go as follows:
“Hello, Mr. Jones. I’m the director of guest assistance
at Hampton Inn, and I see that you’ve had some
diffi culty with the last four properties you’ve visited.
Since we take our guarantee very seriously, I thought I’d
give you a call and fi nd out what the problems were.”
 e typical response is dead silence! Sometimes
the silence is followed with questions about how
headquarters could possibly know about their
problems.  ese calls have their humorous moments
as well. One individual, who had invoked the
guarantee 17 times in what appeared to be a trip
that took him across the United States and back,
was asked, “Where do you like to stay when you
travel?” “Hampton Inn,” came the enthusiastic
response. “But,” said the executive making the call,
“our records show that the last seventeen times you
have stayed at a Hampton Inn, you have invoked
the 100% Satisfaction Guarantee.” “ at’s why I
like them!” proclaimed the guest (who turned out
to be a long-distance truck driver on a per diem for
his accommodation expenses).

Developing Customer Relationships 435
PART IV
CHAPTER SUMMARY
LO 4
u
Effective service recovery can, in many cases,
avoid customer switching and restore confi dence
in the fi rm. When customers complain, they give
the fi rm a chance to correct problems, restore
the relationship with the complainer, and improve
future satisfaction. Service recovery is therefore an
important opportunity to retain a valued customer.
LO 5
u
The service recovery paradox describes the
phenomenon where customers who experience
an excellent service recovery after a failure feel
even more satisfi ed than customers who had no
problem in the fi rst place. However, it is important
to note that this paradox does not always apply. It
is best to get the service right the fi rst time rather
than provide expensive service recovery.
LO 6
u
Effective service recovery systems should:
o
Make it easy for customers to give feedback (e.g.,
provide hotline numbers, e-mail addresses, and
social media channels on all communications
materials) and encourage them to provide
feedback.
o
Enable effective service recovery by making it
(1) proactive, (2) pre-planned, (3) trained, and
(4) empowered.
o
Establish appropriate compensation levels.
Compensation should be higher if (1) a fi rm is
known for service excellence, (2) the service
failure is serious, and (3) the customer is
important to the fi rm.
LO 7
u
The guidelines that front-line employees should
follow to handle customer complaints and recover
the service effectively include: (1) act fast; (2)
acknowledge the customer’s feelings; (3) don’t argue
with the customer; (4) show that you understand
the problem from the customer’s point of view;
(5) clarify the truth and sort out the cause; (6) give
customers the benefi t of the doubt; (7) propose
the steps needed to solve the problem; (8) keep
customers informed of progress; (9) consider
compensation; (10) persevere to regain customer
goodwill; and (11) self-check the service delivery
system and improve it.
LO 8
u
Service guarantees are a powerful way to
institutionalize professional complaint handling
and service recovery. Service guarantees set clear
standards for the fi rm. They also reduce customers’
risk perceptions and can build long-term loyalty.
LO 1
u
When customers are dissatisfi ed, they have several
alternatives. They can:
o
Take some form of public action (e.g., complain
to the fi rm or a third party or even take legal
action).
o
Take some form of private action (e.g., switch
to another provider and/or spread negative
word of mouth).
o Take no action.
LO 2
u
To effectively recover from a service failure, fi rms
need to understand customer complaining behavior
and motivations as well as what customers expect
in response.
o
Customers typically complain for any combination
of the following four reasons: (1) to obtain
restitution or compensation, (2) to vent their
anger, (3) to help to improve the service, and
(4) to spare other customers from experiencing
the same problems (i.e., they complain for
altruistic reasons).
o
In practice, most dissatisfi ed customers do not
complain as (1) they may not know where to
complain, (2) they think it requires too much
effort and is unpleasant, and (3) they perceive
the payoffs of their effort as uncertain.
o
The people who are most likely to complain tend
to be better educated, have higher incomes,
are more socially involved, and have more
knowledge about the product.
o Customers are most likely to complain at the
point-of-service provision (face to face and
over the phone). Only a small proportion of
complaints is made via other channels such
as e-mail, social media, websites, or letters.
LO 3
u
Once customers make a complaint, they expect
fi rms to deal with it in a fair manner along three
dimensions of fairness:
o
Procedural fairness: Customers expect the fi rm
to have a convenient, responsive, and fl exible
service recovery process.
o
Interactional justice: Customers expect an
honest explanation, a genuine effort to solve
the problem, and polite treatment.
o
Outcome justice: Customers expect a compensation
that refl ects the loss and inconvenience suffered
as a result of the service failure.

436 Chapter 13 t Complaint Handling and Service Recovery
situations, while others may inconvenience and
stress front-line employees and other customers.
Such customers are called jaycustomers.
o There are seven groups of jaycustomers: (1)
the Cheat, (2) the Thief, (3) the Rulebreaker,
(4) the Belligerent, (5) the Family Feuders, (6)
the Vandal, and (7) the Deadbeat.
o
Different types of jaycustomers cause different
problems for fi rms and may spoil the service
experience of other customers. Hence, fi rms
need to manage their behavior, even if that
means keeping track of how often a customer
invokes a service guarantee or (as a last resort)
blacklisting them from using the fi rm’s facilities.
LO 9
u
Service guarantees should be designed to be:
(1) unconditional, (2) easy to understand and
communicate, (3) meaningful to the customer,
(4) easy to invoke, (5) easy to collect on, and (6)
credible.
LO 10
u
Not all fi rms stand to gain from service guarantees.
Specifi cally, fi rms should be careful offering
service guarantees when: (1) they already have
a reputation for service excellence, (2) service
quality is too low and has to be improved fi rst,
(3) aspects of service quality are uncontrollable
because of external factors (e.g., the weather),
and (4) customers perceive low risk when buying
the service.
LO 11
u Not all customers are honest, polite, and reasonable.
Some may want to take advantage of service recovery

UNLOCK YOUR LEARNING
LO 1
1 Complain
2 Defection
3 No action
4 Private action
5 Public action
6 Service failure
LO 2
1 “Double deviation”
2 Anger
3 Compensation
4 Concern for others
5 Customer complaining
behavior
6 Customer feedback
system
7 Dissatisfi ed customers
8 Interactive channels
9 Non-interactive channels
10 Online public
complaining
11 Restitution
12 Socio-economic levels
LO 3
1 Interactional justice
2 Outcome justice
3 Perceived fairness
4 Procedural justice
LO 4
1 Complaint handling
2 Customer satisfaction
3 Customer loyalty
4 Service recovery
LO 5
1 Full satisfaction
2 Repeated service
failures
3 Service recovery
paradox
LO 6
1 Affected customer
2 Complaint-collection
procedures
3 Customer complaint
barriers
4 Empowered
5 Fair compensation
6 Feedback
7 Contingency plans
8 Overly generous
compensation
9 Planned
10 Positioning
11 Proactive
12 Revenue management
practices
These keywords are found within the sections of each Learning Objective (LO). They are integral to understanding the services
NBSLFUJOHDPODFQUTUBVHIUJOFBDITFDUJPO)BWJOHBmSNHSBTQPGUIFTFLFZXPSETBOEIPXUIFZBSFVTFEJTFTTFOUJBMUPIFMQJOH
you do well on your course, and in the real and very competitive marketing scene out there.
13 Service recovery
systems
14 Severity of service
failure
15 Trained
LO 7
1 Confrontational
customers
2 Effective problem
resolution
LO 8
1 “Marketing muscle”
2 Perceived risks
3 Service guarantees
4 Standards
LO 9
1 “Combined guarantee”
2 Attribute-specifi c
guarantee
3 Credible
4 Easy to invoke
5 Easy to understand
6 Meaningful
7 Full-satisfaction
guarantee
8 Unconditional
PART IV
Developing Customer Relationships 437

438 Chapter 13 t Complaint Handling and Service Recovery
SCORE
01 – 12 Services Marketing is done a great disservice.
13 – 24 The midnight oil needs to be lit, pronto.
25 – 36 I know what you didn’t do all semester.
37 – 48 By George! You’re getting there.
49 – 60 Now, go forth and market.
61 – 73 There should be a marketing concept named after you.
Not for the academically faint-of-heart
For each keyword you are able to recall without referring to earlier pages, give yourself a
point (and a pat on the back). Tally your score at the end and see if you earned the right to be
called—a services marketeer.
How well do
you know
the language
of services
marketing? Quiz
yourself!
LO 10
1 Distinctive guarantee
2 Service excellence
3 Service quality
LO 11
1 100% money-back
guarantees
2 Customer fraud
3 Delay payment
4 Employee intervention
5 Fake returns
6 Faking dissatisfaction
7 Jaycustomers
8 Misuse
9 Physical abuse
10 Rudeness
11 Shoplifting
12 The Belligerent
13 The Cheat
14 The Deadbeat
15 The Family Feuders
16 The Rulebreaker
17 The Thief
18 The Vandal

Developing Customer Relationships 439
PART IV
1.
How do customers typically respond to service
failures?
2.
Why don’t many more unhappy customers complain?
What do customers expect the fi rm to do once
they have fi led a complaint?
3.
Why would a fi rm prefer its unhappy customers to
come forward and complain?
4.
What is the service recovery paradox? Under what
conditions is this paradox most likely to hold? Why
is it best to deliver the service as planned, even if
the paradox does hold in a specifi c context?
5.
How can a fi rm make it easy for dissatisfi ed
customers to complain?
6.
Why should a service recovery strategy be proactive,
planned, trained, and empowered?
7. How generous should compensations related to
service recovery be?
8.
How should service guarantees be designed?
What are the benefi ts of service guarantees over
and above a good complaint handling and service
recovery system?
9.
Under what conditions is it not suitable to introduce
a service guarantee?
10.
What are the different types of jaycustomers?
How can a service fi rm deal with such customers?
KNOW YOUR SERVICES MARKETING
Review Questions

440 Chapter 13 t Complaint Handling and Service Recovery
1.
Think about the last time you experienced a less-than-
satisfactory service experience. Did you complain?
Why? If you did not complain, explain why not.
2. When was the last time you were truly satisfied
with an organization’s response to your complaint?
Describe in detail what happened and what made
you satisfied.
3.
What would be an appropriate service recovery
policy for a wrongly bounced check for (a) your
local savings bank, (b) a major national bank, and
(c) a private bank for high net-worth individuals?
Please explain your rationale and also compute
the economic costs of the alternative service
recovery policies.
4.
Design an effective service guarantee for a service
with high perceived risk. Explain (a) why and how
your guarantee would reduce perceived risk of
potential customers and (b) why current customers
would appreciate being offered this guarantee
although they are already a customer of that firm and
therefore are likely to perceive lower levels of risk.
5. How generous should compensation be? Review
the following incident and comment. Then evaluate
the available options, comment on each, select the
one you recommend, and defend your decision.
“The shrimp cocktail was half frozen. The waitress
apologized and didn’t charge me for my dinner,”
was the response of a very satisfied customer
about the service recovery he received. Consider
the following range of service recovery policies a
restaurant chain could set, and try to establish the
costs for each policy:
Option 1: Smile and apologize, defrost the prawn
cocktail, return it, and smile and apologize again.
Option 2: Smile and apologize, replace the prawn
cocktail with a new one, and smile and apologize
again.
Option 3: Smile and apologize, replace the prawn
cocktail, and offer a free coffee or dessert.
Option 4: Smile and apologize, replace the prawn
cocktail, and waive the bill of $80 for the entire meal.
Option 5: Smile and apologize, replace the prawn
cocktail, waive the bill for the entire dinner, and
offer a free bottle of champagne.
Option 6: Smile and apologize, replace the prawn
cocktail, waive the bill for the entire dinner, offer a
free bottle of champagne, and give a voucher for
another dinner to be redeemed within three months.
6.
Identify the possible behavior of jaycustomers
for a service of your choice. How can the service
process be designed to minimize or control the
behavior of jaycustomers?
WORK YOUR SERVICES MARKETING
Application Exercises

Developing Customer Relationships 441
PART IV
7. John Goodman, “Basic Facts on Customer
Complaint Behavior and the Impact of Service
on the Bottom Line,” Competitive Advantage
(June 1999): 1–5.
8. Anna Mattila and Jochen Wirtz, “Consumer
Complaining to Firms: The Determinants of
Channel Choice,” Journal of Services Marketing
18, no. 2 (2004): 147–155; Kaisa Snellman and
Tiina Vihtkari, “Customer Complaining Behavior
in Technology-Based Service Encounters,”
International Journal of Service Industry
Management 14, no. 2 (2003): 217–231; Terri
Shapiro and Jennifer Nieman-Gonder, “Effect of
Communication Mode in Justice-Based Service
Recover y,” Managing Service Quality 16, no. 2
(2006): 124–144.
9. Technical Assistance Research Programs
Institute (TARP), Consumer Complaint
Handling in America: An Update Study, Part
II (Washington D.C.: TARP and US Offi ce of
Consumer Affairs, 1986).
10. Thomas M. Tripp and Yany Gregoire, “When
Unhappy Customers Strike Back on the
Internet,” MIT Sloan Management Review
52, no. 3 (Spring 2011): 37–44; Sven Tuzovic,
“Frequent (Flier) Frustration and the Dark Side
of Word-of-Web: Exploring Online Dysfunctional
Behavior in Online Feedback Forums,” Journal of
Services Marketing 24, no. 6 (2010): 446–457.
11. Kathleen Seiders and Leonard L. Berry, “Service
Fairness: What It Is and Why It Matters,”
Academy of Management Executive 12, no. 2
(1990): 8–20.
12. Tax and Brown, “Recovering and Learning from
Service Failure,” 75–88.
13. Oren Harari, “Thank Heavens for Complainers,”
Management Review (March 1997): 25–29.
14. Tom DeWitt, Doan T. Nguyen, and Roger
Marshall, “Exploring Customer Loyalty
Following Service Recovery,” Journal of Service
Research 10, no. 3 (2008): 269–281.
15. Simon J. Bell and James A. Luddington,
“Coping with Customer Complaints,” Journal
of Service Research 8, no. 3 (February 2006):
221–233.
1. “An Extraordinary Stumble at JetBlue,” Business
Week, March 5, 2007, http://www.bloomberg
.com/bw/stories/2007-03-04/an-extraordinary-
stumble-at-jetblue, accessed August 22, 2015.
2. Roger Bougie, Rik Pieters, and Marcel
Zeelenberg, “Angry Customers Don’t
Come Back, They Get Back: The Experience
and Behavioral Implications of Anger and
Dissatisfaction in Service,” Journal of the
Academy of Marketing Science 31, no. 4
(2003): 377–393; Florian V. Wangenheim,
“Postswitching Negative Word of Mouth,”
Journal of Service Research 8, no. 1 (2005):
67–78.
3. For research on cognitive and affective drivers
of complaining behavior, see: Jean-Charles
Chebat, Moshe Davidow, and Isabelle Codjovi,
“Silent Voices: Why Some Dissatisfi ed
Consumers Fail to Complain,” Journal of Service
Research 7, no. 4 (2005): 328–342.
4. Stephen S. Tax and Stephen W. Brown,
“Recovering and Learning from Service Failure,”
Sloan Management Review 49, no. 1 (Fall
1998): 75–88.
5. A large body of literature has examined
consumer complaining behavior. Important
studies include: Jean-Charles Chebat, Moshe
Davidow and Isabelle Codjovi, “Silent Voices:
Why Some Dissatisfi ed Consumers Fail to
Complain,” Journal of Service Research, 7,
no. 4 (2005): 328–342; Nancy Stephens and
Kevin P. Gwinner, “Why Don’t Some People
Complain? A Cognitive-Emotive Process Model
of Consumer Complaining Behavior,” Journal
of the Academy of Marketing Science 26,
no. 3 (1998): 172–189; Kelli Bodey and Debra
Grace, “Segmenting Service ‘Complainers’ and
‘Non-Complainers’ on the Basis of Consumer
Characters,” Journal of Services Marketing 20,
no. 3 (2006): 178–187.
6. Nancy Stephens, “Complaining,” in Teresa A.
Swartz & Dawn Iacobucci (eds.), Handbook
of Services Marketing and Management
(Thousand Oaks, California: Sage Publications,
2000), 291; Alex M. Susskind, “Communication
Richness: Why Some Guest Complaints Go
Right to the Top—and Others Don’t,” Cornell
Hospitality Quarterly 56, no. 3 (2015): 320–331.
ENDNOTES

CASE STUDY
CASE 1 Sullivan Ford Auto World 504
Christopher H. Lovelock
CASE 2 Dr. Beckett’s Dental Offi ce 510
Lauren K. Wright
CASE 3 Uber: Competing as Market Leader
in the United States versus Being
a Distant Second in China 514
Jochen Wirtz and Christopher S. Tang
CASE 4 Banyan Tree: Branding the Intangible 521
Jochen Wirtz
CASE 5 Kiwi Experience 530
Mark Colgate
CASE 6 The Accra Beach Hotel: Block Booking
of Capacity during a Peak Period 538
Sheryl E. Kimes and Jochen Wirtz
CASE 7 Revenue Management of Gondolas:
Maintaining the Balance between
Tradition and Revenue 543
Sheryl E. Kimes
CASE 8 Aussie Pooch Mobile 546
Lorelle Frazer
CASE 9 Shouldice Hospital Limited (Abridged) 556
James Heskett and Roger Hallowell
CASE 10 Red Lobster 566
Christopher H. Lovelock

CASE 11 Singapore Airlines: Managing Human
Resources for Cost-Effective Service
Excellence 568
Jochen Wirtz and Loizos Heracleous
CASE 12 Dr. Mahalee Goes to London:
Global Client Management 577
Christopher H. Lovelock
CASE 13 The Royal Dining Membership Program
Dilemma 579
Sheryl E. Kimes, Rohit Verma,
Christopher W. Hart, and Jochen Wirtz
CASE 14 Customer Asset Management at
DHL in Asia 586
Jochen Wirtz, Indranil Sen, and
Sanjay Singh
CASE 15 Starbucks: Delivering Customer Service 590
Youngme Moon and John Quelch
CASE 16 LUX *: Staging a Service Revolution
in a Resort Chain 605
Jochen Wirtz and Ron Kaufman
CASE 17 KidZania: Shaping a Strategic Service
Vision for the Future 620
James L. Heskett, Javier Reynoso, and
Karla Cabrera
CASE STUDY

LUX*: Staging a Service Revolution in a Resort Chain 605
CASE STUDY
CASE
16
LUX *: Staging a Service Revolution in a
Resort Chain
Jochen Wirtz and Ron Kaufman
LUX* was a successful hospitality group operating in the Indian Ocean as well as other locations.
In its previous incarnation, the company suffered from poor fi nancial performance, poor service
quality, and a weak brand. A change in the leadership of the company prompted a transformation
that showed positive results within 12 months. This case study describes a service revolution that
led to rapid improvements in service culture and guest experience, which in turn led to sustained
fi nancial improvements on a quarter-on-quarter basis.
INTRODUCTION
W
ith its headquarters in Mauritius, the LUX* hospitality
group operated a portfolio of eight resorts and a
private island in the Indian Ocean (Exhibit 1).  e brand
promised guests a celebration of life through its new value
proposition—luxury resort hospitality that is “Lighter.Brighter.”
What is the “Lighter.Brighter” hospitality? Established luxury
hotels had come to be associated with stiff -upper-lipped service
and stuff y opulence. Lighter hospitality meant breaking away
from these precedents to off er a more eff ervescent experience
without compromising on the hotel’s upscale sensibilities. At
the same time, LUX* wanted to brighten up guest experiences.
For example, the company signifi cantly lowered the prices of
items in the mini-bar to encourage guests to just take what
they fancied and enjoy themselves. Such measures allowed
LUX* to ensure that both guests and business would benefi t
from its operations.
Although LUX* was launched only four years ago, the group’s
resorts have been doing exceptionally well. Within a short
span of time, LUX* has successfully transformed its service
culture.  e group has seen 16 consecutive quarter-on-quarter
improvements in its fi nancial performance.  e group’s resorts
also enjoy a higher occupancy rate than the industry average
in the destinations where they operate (measured quarterly
by the Market Penetration Index, which compares the hotel’s
occupancy against its competitive set).  e group’s fi nancial
performance is refl ected in the multiple accolades it has
won for service excellence.  ese include the “Indian Ocean
Leading Hotel” award for LUX* Maldives from World Travel
Awards, the “Best Resort Hotel Mauritius” award for LUX*
Belle Mare from International Hospitality Awards, and the
“Reunion Island’s Leading Hotel” award for LUX* Ile de la
Réunion from World Travel Awards.
THE DARK AGES
However, things were not always this rosy. Before LUX* was
launched in 2011, the group was known as Naiade Resorts, and
the company suff ered from poor fi nancial health. None of its
hotels were on the list of top 10 hotels on TripAdvisor in their
geographic competitive sets. To top it off , the Naiade brand lacked
clarity. Its brand name was used for nine diff erent properties
ranging from three to fi ve stars, creating an unclear positioning in
the minds of consumers.  e problems in its positioning became
apparent when the global fi nancial crisis struck in 2008–2009,
causing a large drop in occupancy and room rates (Exhibit 2).
 e group’s troubles culminated in 2011 with a criminal case
involving the high-profi le murder of an Irish hotel guest.
Having witnessed prolonged economic turmoil and a criminal case,
the motivation and morale of hotel employees were unprecedentedly
low. Financially, the impact of these troubles cumulated in a
downward trajectory in the company’s performance from 2008
to 2010 (Exhibit 3).  e company reported a loss in 2010.
© 2018 by Jochen Wirtz and Ron Kaufman. Jochen Wirtz is Professor of
Marketing at the National University of Singapore. Ron Kaufman is founder
and chairman of UP! Your Service Pte Ltd.
The support and feedback of the management of LUX* is gratefully
acknowledged, including Paul Jones, CEO; Julian Hagger, Chief Sales&
Marketing Offi cer and Executive Director; Marie-Laure-Ah-You, Chief
Strategy Offi cer; Nicolas Autrey, Chief Human Resources Offi cer; Nitesh
Pandey, General Manager and Group Chief Innovation Offi cer; and Smita
Modak, Group Training Manager. The authors also thank Arthur Lee, who
provided excellent assistance with the data collection, analysis, and
writing of this case study.
All dollar amounts referred to in the text are in U.S. dollars unless otherwise
indicated. The exchange rate used for all currency conversions is MUR100
to US$2.845.

606 Case Study
Observing how dire the situation was, Jones commented, “e
numbers pre-2010 were alarming and the company was sinking
fast and would have been bankrupt had it not been for the
capital injection from shareholders. In addition, the properties
were in poor shape and staff morale was exceedingly low.”
Together with his team, Jones focused transformation efforts
on four main areas through an integrated and congruent
strategy (Exhibit 4). First, he looked into the company’s
core strategy as well as the company values. Naiade Resorts’
business model was shifted from one of owning hotels to one
of managing them following an asset-light strategy. is new
model would reduce the company’s cash outlay, as owning
hotels can be highly capital extensive. For example, buying a
modest-sized resort in Mauritius is estimated to cost upwards
of 15 million. e new business model would reduce the
company’s risk exposure and allow it to expand at a faster
rate. is shift provided a critical impetus for the company
to concentrate on improving its service delivery.
To decide how to go forward, Paul Jones flew in the general
managers from its resorts and the group’s senior management
from all over the world. e managers and executives from
various levels made important decisions on the company.
ese include the company’s new Vision, Purpose, and Values
After hitting rock bottom, the company’s management had to
move fast, and Naiade Resorts achieved a turnaround within
a very short span of time. By mid-2011, Naiade Resorts saw
an improvement in its service, and this quickly translated into
improved financial performance. Since then, the company
has witnessed substantive and consistent service culture
improvement and financial performance growth. How did
the group manage this turnaround so quickly?
LUX* TRANSFORMATION
e very first step in Naiade’s transformation can be traced
back to the second half of 2010. In dire straits then, the board
of directors of Naiade Resorts made changes to the company’s
leadership and appointed Paul Jones as CEO in October 2010.
Under Jones’s leadership, many changes were introduced to the
organization within the first 12 months of his appointment. ey
were aimed at rapidly improving the profitability of the business
and creating a world-class brand that could eventually expand
internationally. However, this marked a difficult transitional
period for Naiade Resorts, which was in financial doldrums. Every
month, the company struggled to pay salaries. Some employees
even wondered if the changes would sink the company further.
Exhibit 1: Some of the LUX* resorts in the Indian Ocean.
LUX
*
Belle Mare’s Pool LUX
*
Belle Mare’s Beach
LUX
*
Le Morne LUX
*
Le Morne’s Beach
LUX
*
Belle Mare’s Villa
Note: LUX* owns eight seaside resorts by the Indian Ocean. Each of them are fitted with an expansive infinity pool, stylish bars and
ocean themed furnishings.

608 Case Study
(VPV); a new name for the business; and the re-defining of
service standards. Many of these changes were implemented
almost immediately after being agreed upon. is allowed for
a progressive roll-out of the company’s new strategy.
Second, to engage and reinvigorate its staff in the
transformation, the top management decided it had to build
the company’s service culture from scratch. is included
extensive training across all levels of the organization,
an alignment of expectations of service standards, and a
psychological and tangible breakaway from the old Naiade
Resorts.
ird, Jones leveraged a fledgling spirit of innovation to build
an organization that is bold, open to ideas and experimentation,
and willing to accept failure. is was aimed at enabling LUX*
to differentiate its value proposition.
Lastly, as CEO, Jones also embedded various performance
management tools to sustain transformation. ese tools included
the measurement of service and the use of employee-incentive
schemes to re-align a transformed organization.
In the review of this four-pronged approach, the first major
change was the introduction of the new VPV.
VISION, PURPOSE, AND VALUES
Before any transformation could occur, Jones needed a guiding
compass that would provide a foundation for the new Naiade
Resorts. A professional credo would expound the company’s
aspirations and provide a fundamental rallying zeitgeist for
the staff. e Vision, “We Make Each Moment Matter” and
the Purpose, “Helping People Celebrate Life” were crafted,
and the Values of “People, Passion, Integrity, Leadership, and
Creativity” were selected. ese tied in closely with how staff
members were expected to behave and interact with guests.
Between February 2011 and August 2011, every team member
of Naiade was called upon to participate in the VPV foundation
Exhibit 4: LUX*’s four-pronged approach.
Global economic crisis affected tourism
industry severely.
Second phase of service
training was rolled out.
Training programs were rolled out 3 months before re-branding to enable
team members to achieve new service standards as well as prepare the
organization for the re-branding exercise.
New Vision, Purpose and
Values (VPV) was
introduced.
A new incentive
scheme for the
management team,
an online feedback
system, and mystery
shopping were
launched.
LUX* Innovation Challenge, was
launched to crowdsource ideas
internally. Quality Assurance
Manual was introduced.
A review of “RTG LUX*” was
completed that which strengthened
existing innovations and planted
the seeds for new innovations.
Legend to four-pronged approach:
Vision, Purpose, and Values
Measurements, Feedback, and Incentives
Innovation and Differentiation
Changing Service Culture through Training
2009 2010 2011 2012 2013 2014
Pre 2009 : Naiade resorts
acquired new resorts and
renovated two resorts.
Paul Jones was
appointed as the new
CEO.
Introduced role of Chief
Quality Assurance and
Innovation Officer.
The new incentive
scheme was cascaded
to team members.
Market Metrix was introduced
to instantaneously track
customer experience.
Internal audits and
LUX* Shining Hospitality
Standards (LSHS) were
introduced.
Rebranded as LUX* and
Reasons to Go (RTG) LUX*
were introduced.
Naiade Resorts began
seeing improvements in its
financial performance.
Note: LUX*’s service revolution can be encapsulated by a four-pronged approach. After a change of leadership, Jones and his team
swiftly introduced important changes in multiple areas that proved to be critical in turning the company around. The company has since
continued to build on this momentum to continually improve.

LUX*: Staging a Service Revolution in a Resort Chain 619
CASE STUDY
Finally, LUX* has entered into a franchise agreement to
open Café LUX*, a Reason to Go LUX* concept, outside the
hotel. With its strong service culture, LUX* aims to become
a global company with a bigger footprint.
STUDY QUESTIONS
1. What were the main factors that contributed to LUX*
Resorts’ successful service revolution?
2. What key challenges did LUX* face while carrying out
its transformation? How were they addressed, and what
else could have been done?
3.
What are the next steps that LUX* should take to cement
its strong service culture, continue service innovation,
and maintain its high profi tability?
delivering service that was distinctively LUX*. For example,
LSHS provided guidance to employees by grooming them
and training them on how they should interact with guests.
A company-wide standard, LSHS was adapted to each resort
in the form of standard operating procedures.  e company
also changed the way it tracked these new standards. For
instance, it began to use internal audits in place of mystery
shopping.
FUTURE PLANS
Having successfully revolutionized its service through a
four-pronged approach, LUX* was in a much better position
to implement its asset-light strategy in 2015. It had already
signed a number of long-term management agreements for
upcoming hotels in the Maldives and China.
By the end of 2016, LUX* expects to have almost a third of
its portfolio owned by third parties but managed by LUX*.

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Key chapters of Winning in Service
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publications in e-book and paperback:
• Vol. 1: Understanding Service
Consumers
• Vol. 2: Positioning Services in
Competitive Markets
• Vol. 3: Developing Service Products
& Brands
• Vol. 4: Pricing Services & Revenue
Management
• Vol. 5: Service Marketing
Communications
• Vol. 6: Designing Customer Service
Processes
• Vol. 7: Balancing Demand & Capacity
in Service Operations
• Vol. 8: Crafting the Service
Environment
• Vol. 9: Managing People for Service
Advantage
• Vol. 10: Managing Customer
Relationships & Building
Loyalty
• Vol. 11: Designing Complaint Handling
& Service Recovery
Strategies
• Vol. 12: Service Quality & Productivity
Management
• Vol. 13: Building a World Class
Service Organization
(Assessment Tool)
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