Svcs Mkt Final Project

Introduction Background The importance and benefits of providing service quality are

well

business

documented

in

practitioners

the

academic

strive

to

literature,

design

and

and

implement

programmers to ensure that the customer is satisfied with his/her encounters with a service firm and, in turn, with the various dimensions of service quality. Service quality offers

a

sustainable

competitive

advantage

to

a

bank

because it creates value and customer satisfaction (Kangis and Passa, 1997). However, service quality is diminished by service breakdowns. Some real or perceived failures in the service

system

are

inevitable

according

to

Hart

et

al.

(1990) because services are characterized by simultaneous production

and

consumption

as

well

as

involvement

by

customers in the service production. Service failures in banks relate to outcome, the services offered by the bank, or

process,

(Levesque

and

breakdowns customer

how

the

McDougall,

are

customer

defection

knowledge

banking

and

the

services

1993).

The

results

dissatisfaction

depending

on

the

availability

of

are

delivered of

and

customer’s alternative

service possibly trust, service

provider (Ranaweera and Prabhu, 2003; Johnson et al., 2001; Capraro

et

al.,

2003).

In

his

discussion

of

banking

customer defection Healy (1999, p. 23) noted that “truly dissatisfied

customers

bail

out

[defect]

at

an

overwhelming. However, quality discrepancies and shortfalls are likely to occur, especially when human input is largely responsible

for

the``production''

and

delivery

of

the

offering. The problem that arises for an organization is

what happens when a service shortfall occurs; how can they recover from service failures? Service recovery: definition, importance and benefits All

service

organizations,

however

quality

driven,

will

find themselves in situations where failures occur in their encounters

with

customers

with

respect

to

one

or

more

dimensions of service quality, and where they need to deal with customer dissatisfaction. The actions that a service provider takes to respond to service failures are termed as service

recovery.

Armistead

et

al.

(1995,

p.

5)

define

service recovery as the specific actions taken to ensure that the customer receives a reasonable level of service after problems have occurred to disrupt normal service''. A growing

number

of

researchers

have

identified

service

recovery as a rather neglected aspect of service marketing and

one

which

warrants

much

greater

research

attention(Andreessen, 1999; Tax et al., 1998).The need for a

systematic

approach

in

dealing

with

customer

dissatisfaction and complaints is implied in the definition that Zemke and Bell (1990, p. 43) give of planned service recovery: ``a thought-out, planned, process for returning aggrieved customers to a state of satisfaction with the organization after a service or product has failed to live up

to

expectations''.

This

recognizes

that

the

response

from an organization to service failures needs to be the result of a conscious, co-ordinated, effort of the firm to anticipate that service flaws will occur and to develop procedures, policies and human competencies to deal with them. process

Service (or

recovery

functional)

has

outcome

dimensions

(or

technical)

(Parasuraman

et

and al.,

1988; GroÈnroos, 1984). The outcome dimension is what the customer actually receives as part of the firm's efforts to recover, whereas the process dimension of service recovery is concerned with how this is done. Berry and Parasuraman (1991) suggest that the outcome dimension is more important when the original service is delivered, but the importance of

the

process

dimension

is

accentuated

in

service

recovery. However, this may depend on the service under consideration.

Service

handling

involves:

and

recovery

is

more

interaction

than

between

complaint a

service

provider and a customer; a shortfall in the provision of the

original

service;

a

response

on

the

part

of

the

provider to the service shortfall; and a desired result, to turn a dissatisfied customer into a satisfied one. A good service

recovery

system

problems,

prevent

encourage

complaints.

will

also

dissatisfaction, Even

if

detect

and

post

be

and

solve

designed

service

to

recovery

satisfaction is below failure-free service satisfaction (as suggested

by

McCullough

et

al.,

2000),

this

does

not

detract from the observation that good service recovery can still have beneficial impact on consumer evaluations. The need for service recovery systems has emerged from elements in the business environment and factors related to patterns of customer complaining and business response. The business environment

is

characterized

by

increasing

consumer

awareness and sophistication; customers want more in terms of quality service and do more about it when they do not receive it. So, meeting both initial service expectations and also service recovery expectations becomes an element of differentiation and competitiveness (see Mitchell, 1993; Mitchelland Critchlow, 1993). Further, there is a growth of consumer

societies

and

organizations

which

represent

the

organized

expression

legislation.

of

With

consumer

respect

to

rights

and

patterns

increasing

of

customer

complaining behavior, there is now much evidence to show that

only

a

minority

(e.g.Andreasen

and

of

Best,

dissatisfied 1977;

customers

Brown,

complain

1987;Agbonifoh

and

Edoreh, 1986). However, there is also evidence of customer satisfaction

with

problem

resolution

(e.g.

Berry

andParasuraman, 1991), and that most dissatisfied customers will

do

business

satisfactorily

again

(e.g.

if

their

Brown,

problems

1987).

are

Conversely,

solved service

failure has been identified as a factor that contributes to switching (Roos, 1999) In addition; service recovery may be seen as critical for customer satisfaction and evolution of a

firm's

quality

performance.

Indeed,

GroÈnroos

(1988)

viewed service recovery as a dimension of service quality, and

Berry

and

Parasuraman

(1991)

found

in

a

study

on

banking that six of the top ten attributes of service that were

important

to

customers

involved

problem

resolution.

Further, Spreng et al. (1995) found that service recovery performance influenced overall satisfaction and behavioral intentions

such

as

word-of-mouth

communications

and

repurchase. Similarly, Alstead and Page (1992) found that dissatisfied customers were more likely to repurchase when their complaints

were

evidence

of

enhanced

repurchase

Widing

dealt

satisfactory

(1981).

These

with

problem

intentions finding

is

satisfactorily. resolution provided

simply

that

Further

resulting by

Singh

strong

in and

service

recovery may enhance customer loyalty, a conclusion which is supported by other authors (e.g. Adamson, 1991; Berry and

Parasuraman,1991).More

recently,

McCullough

et

al.

(2000cast doubt on the recovery paradox and suggest that failure free service leads to more desirable outcomes than

excellent recovery from failure. However, their results do point to service recovery being influential in mitigating the damage done to satisfaction, Suggesting

that

recovery

strategy

continues

to

be

a

significant issue for service providers. Thus, one of the most important benefits of effective service recovery is the prevention of customer defection to other providers. Customer retention is a significant business aim since it is now widely accepted that gaining new customers is more costly than keeping existing ones (see for example Power, 1992);

a

customer

is

more

profitable

the

longer

she/he

stays with the company (Reicheld and Sasser, 1990).Service recovery also facilitates the tracking of failures and the development of databases, to gain insight into failures in order

to

deal

happening

with

again.

recovery

them

Other

system

are

and

try

advantages

increased

to

prevent

of

a

them

good

opportunities

for

from

service cross-

selling to retained customers (Armistead et al., 1995), the reduction

of

enhancement

perceived of

company

risk image

for of

new both

customers,

and

employees

and

customers. Service

failures

and

customer

expectations

of

service

recovery Several researchers have investigated service failures and customer expectations of service recovery. Service failure is, typically, determined by elements such as the nature of the service encounter, the cause of the problem, and the psychographics

of

the

individuals

involved;

and

in

the

present research is defined from the customers’ perspective because this is what a company needs to recover from, i.e.

any dissatisfaction or problem that a customer perceives in relation to a service or a service provider, regardless of the sources of the cause. Bitner et al. (1990; 1994) used the critical incident technique (Flanagan, 1954) to collect service

incidents

that

generated

either

satisfaction

or

dissatisfaction for customers, which enabled classification of service incidents in relation to: Barbara R. Lewis and Sotiris retail

Spyrakopoulos banking:

Journal

of

the

Bank

Service

failures

customers'

Marketing

and

recovery

perspective

19/1

[2001]

in

International

37±47.

Employee

responses to customer needs, such as customer preferences and

admitted

service

customer

failures,

such

error; as

Employees'

unavailable

or

responses slow

to

service;

unprompted employee actions, to include attention paid to the customer and performance under adverse Circumstances; and. problem customers, encompassing lack of co-operation, classification

verbal of

abuse

and

sources

drunkenness. of

This

is

dissatisfaction

a or

satisfaction, to include elements of the original service and

responses

to

failures.

One

of

their

interesting

findings (Bitner et al., 1990, p. 80) is that ``it is not the initial failure to deliver the core service alone that causes dissatisfaction but rather the employee's response to the failure''.Since this work of Bitner, a number of other studies have been reported. For example, Armistead et al. (1995) identified three types of service failures: 1 service provider error, e.g. an airline loses luggage in transit; 2 customer error, e.g. a passenger forgets his passport; and 3

associated

organization

controllers are on strike.

error,

e.g.

air

traffic

Johnston (1994) found that sources of failure were both organizational, e.g. slow service; and from customers, e.g. misuse of electrical equipment, or buying the wrong product forth

intended

use.

Two

systematic

efforts

to

identify

classify and assess service failures from the customers' point of view are the studies of Kelley et al. (1993) and Hoffman et al. (1995), both of which group service failures into

the

classification

provided

by

Bitner

et

al.

(1990).Kelley et al. used the critical incident technique to

reveal

15

types

of

retail

failure

and

12

types

of

recoveries. It was evident that problems related to service delivery

systems

and

product

failures

were

the

most

difficult to recover from. Hoffman et al. (1995) used the critical

incident

technique

in

the

restaurant

industry,

where some failures (e.g. out-of stock, product defects) were

easier

to

recover

from

than

others

(e.g.

employee

behavior, facility problems).When a service failure occurs, both the provider and the customer will have opinions about why the failure occurred and who is to blame. Folkes and Kotsos (1986) found that buyers' and sellers' attributions in relation to a failure can differ on two points: 1 whether the failure is related to the buyer or seller (causal locus); and 2 the allocation and magnitude of the blame. They add that discrepancies in locus and blame attributions lead

to

perceived

Dissatisfaction

of

customers

resulting

from how their complaints are handled. In an earlier study, Resnik

and

Harmon

(1983)

found

that

managers

were

less

inclined than consumers to view complaints as legitimate

and

had

explanations

as

to

why

consumers

might

make

illegitimate claims. In addition, Bitner et al. (1994, p. 100)

state:

employees

are

highly

unlikely

to

describe

customer dissatisfaction as being caused by their own predispositions,

attitudes

and

spontaneous

behavior.

Customers, on the other hand, will be likely to blame the employee rather than anything they themselves might have contributed. Customers' expectations for service recovery if customers perceive a service failure, with respect to any dimensions of

service

service

quality

(outcome

expectations

are

and/or

not

met.

process), When

then

this

their

happens,

another set of customer expectations become active, service recovery expectations. Kelley and Davis (1994) researched members of a health club and found that higher levels of perceived service quality and

higher

levels

of

organizational

commitment

lead

to

higher expectations of service recovery efforts. They also found that customer satisfaction has an indirect effect on recovery

expectations

because

it

enhances

organizational

commitment. The implicit suggestion of Kelley and Davis is that the better a job a company does in keeping customers' quality perceptions high, the more effort it needs to put into recovery efforts from occasional failures in order to meet its customers' recovery expectations. One

can

then

ask,

what

should

the

content

of

service

recovery be? What does the customer expect a service firm to do to deal with service problems? Zemke and Bell (1990) and

Zemke

(1994)

concluded

from

their

research

that

customer expectations for service recovery are: to receive an apology for the fact that the

Customer is inconvenienced; to be offered a ``fair fix'' for the problem; To be treated in a way that suggests the company cares about the problem, about fixing the problem, and about the customer's inconvenience; and. to be offered value-added atonement for the inconvenience. Kelley et al. (1993)

and

retailing

Hoffman and

recoveries.

et

al.

restaurants

Johnston

(1995)

in

identified

(1994)

their

studies

in

types

of

customer

to

various

produced,

from

assess the perceptions of customers about the magnitude of service failures; to assess the perceptions of customers about

the

effectiveness

of

service

recovery

strategies;

and. to examine whether or not there are predictors of the perceptions of customers about the magnitude of different service

failures

and

recovery

strategies.

research

comprised

service

failure

the To

two

and

effectiveness

achieve

discrete

recovery

these stages.

strategies

of

different

objectives, First, were

types

the of

identified

from a number of critical incident interviews and, second, the remaining objectives were investigated through the use of a survey questionnaire. Barbara R. Lewis and Sotiris SpyrakopoulosService

failures

and

recovery

in

retail

banking: the customers' perspective International Journal of

BankMarketing19/1

[2001]

37±47anecdotes,

a

list

of

factors that led to satisfactory recovery experiences; for example,

attention,

helpfulness,

care,

responsiveness,

communication, and flexibility. These would appear to be intrinsic to the actions found by Armistead et al. (1995)in a survey of managers across the services sector, to be most effective in satisfying customer complaints; for example, immediate and speedy response, listening, courtesy, caring and

honest

responses,

getting

it

problem, and financial compensation.

right

and

solving

the

Rational of the study In this article, we will first define service recovery and highlight

its

importance

and

benefits

to

organizations.

This is followed by a discussion of service failures and customers' evidence

expectations from

previous

of

service

recovery,

research.

Then

to

an

include

empirical

investigation, in retail banking, is presented to include research objectives and hypotheses, discussion of research methods,

and

findings

that

focus

on

the

customers'

perspective and the testing of the research hypothesis

Problem statement How

do

the

Pakistani

customers

perceive

the

service

failures in the retail banks and what steps are performed by the banks in order to perform the service recovery?

Objectives of study The research project was set up to assess the significance of service failures and recovery strategies in financial services

from

the

customers'

point

of

view.

Several

objectives were set: •

To

identifies

and

classifies

service

failures

perceived by customers in Pakistani retail banks

as

•

To

identify

and

classify

the

service

strategies used by Pakistani banks

recovery

as revealed from

real-life experiences of customers

Hypothesis development A number of hypotheses were developed: H1: Customers' evaluations differ depending on the type of banking failure and the type of recovery strategy. H2:

Customers'

evaluations

of

a

particular

type

of

recovery depend on the type of failure it is used to recover from. H3: Customer's perceptions of the magnitude of a type of failure depend on their previous experience of service failures. H4: Customers' perceptions about the magnitude of service failures and the effectiveness of recovery strategies are similar among income, gender and age groups. H5:

Customers'

positively

expectations

related

to

the

for

service

length

recovery

and/or

importance of their relationship with the bank.

THEORATICAL FRAMEWORK

are

financial

Difference in customer’s evaluation

Type of failure

Previous experience of the service failure with the retail bank

Service recovery performed by the bank

Similarity of customer’s perception among various income, gender and age groups

Customer’s expectations of service recovery

(Independent variables)

(Dependent variables)

Literature review

Satisfaction with recovery efforts is enhanced when the problem is fixed; this finding is supported universally in the service recovery literature. However, the results indicate that there is no “added-value” in terms of customer satisfaction when ”atonement” is offered. Fewer than 8 percent of the respondents felt it was necessary for the bank to atone for mistakes. This finding runs counter to the idea that customers need to be compensated for the hassle of having to deal with a service failure. Merely increasing service recovery efforts does not guarantee customer satisfaction. In other words, introducing “more” recovery strategies is not the way to a “better “recovery system. Implementing non-value-added strategies, i.e. those that do not enhance consumer satisfaction, is a waste of employee time and financial resources. However, selective use of recovery strategies leads to efficient and effective enhancement of customer satisfaction (Johnston, R. (1994), Service Recovery: An Empirical Study, Warwick University Business School, Coventry). Service recovery literature indicates that the focus tends to be on customer recovery (i.e. the marketing perspective) – the majority, or employee recovery (i.e. the management/HR perspective) or process recovery (i.e. the OM perspective). Recent evidence suggests that managers need to integrate these three approaches rather than to priorities one perspective over the others. For example, although most managers might agree that learning from customer feedback is an important, efficient, and effective tool for process improvement, one of the biggest hurdles to doing so stems from the lack of information that flows between the part of the business that collects and deals with customer problems (for example, the customer Three outcomes of service Recovery 87 service department) and the rest of the organization. Research suggests that the more negative feedback the customer service department collects, the more isolated this department becomes (Beckett, A., Hewer, P., Howcroft, B. (2000), "An exposition of consumer behavior in the financial services industry", International Journal of Bank Marketing, Vol. 18 No.1, pp.15-26).it has also been argued that The recovery procedures appear to have a lower impact on customer recovery than the other outcomes. The pair of relationships with the weakest correlation is customer satisfaction and customer retention. However, for those customers who are satisfied and retained, customer recovery has a fair impact on financial performance. While customer recovery has been a key focus for many service academics and many organizations this path has the lowest overall

impact on organization’s financial performance and in case of employees the greatest impact of recovery procedures was on the employees in terms of their attitude and retention but with only a fair impact on financial performance. Those organizations with “good” complaint procedures appear to have a great impact on employees by generating positive employee attitudes and high levels of retention leading to a positive impact on financial performance(Boshoff, C.R., Leong, J. (1998), "Empowerment, attribution and apologizing as dimensions of service recovery: an experimental study", International Journal of Service Industry Management, Vol. 9 No.1, pp.24-47).Organization’s service recovery procedures lead to three distinct outcomes; customer, process, and employee recoveries. The objective of the paper is to investigate the impact of service recovery procedures (i.e. the way service recovery is managed and executed) on these three outcomes and their relative impact on an organization’s financial performance (Bowen, D.E., Johnston, R. (1999), "Internal service recovery: developing a new construct", International Journal of Service Industry Management, Vol. 10 No.2, pp.118-31). Three of the five cultural dimensions (i.e. individualism, masculinity, and long-term orientation) are associated with service recovery expectations. In particular, individualism is linked to higher expectations about empowerment and lower expectations about explanation. Masculinity is associated with higher expectations about the need for explanation and tangibles, whereas long-term orientation is linked to higher expectations about tangibles (de Jong, A., de Ruyter, K. (2004), "Adaptive versus proactive behavior in service recovery: the role of self managing teams", Decision Sciences, Vol. 35 No.3, pp.457-91). So far, much of the research on this phenomenon has departed from the disconfirmation paradigm. However, since perceptions of fairness play such an important role in service recovery situations, it seems desirable to supplement extant literature with the equity paradigm. Therefore, we designed an experimental study to assess the impact of customer equity considerations on perceived quality, satisfaction, loyalty and trust with respect to service recovery across different service industries(Bies, R.J., Moag, J.S (1986), "Interact ional justice: communication criteria of fairness", in Lewicki, R, Bazerman, M, Sheppard, B (Eds),Research on Negotiation in Organizations, JAI Press, Greenwich, CT, Vol. I). It has been argued that effective service recovery is very important in achieving customer satisfaction after a customer has been disappointed with a

service failure (Boshoff, 1997). Conversely, combining state-of-the-art employee recovery with process recovery can lead to superior customer recovery. Across-industry study that explored the effectiveness of an organic (employee-driven) versus a mechanistic (process-driven) approach to complaint handling in terms of justice, satisfaction, and loyalty showed that the effect of the mechanistic approach, which pertains mainly to distributive and procedural justice, is stronger overall, but the approaches complement each other. In other words, an over reliance on an organic approach, which considers mainly culture and is more applicable to international justice, may be shortsighted because it requires empowerment(Halstead, D., Page, T.J. (1992), "The effects of satisfaction and complaining behavior on consumer repurchase intentions", Journal of Customer Satisfaction, Dissatisfaction and Complaining Behavior, Vol. 5 pp.111).Several researchers have investigated service failures and customer expectations of service recovery. Service failure is, typically, determined by elements such as the nature of the service encounter, the cause of the problem, and the psychographics of the individuals involved; and in the present research is defined from the customers' perspective because this is what a company needs to recover from, i.e. any dissatisfaction or problem that a customer perceives in relation to a service or a service provider, regardless of the sources of the cause(Armistead, C.G., Clarke, G. and Stanley, P. (1995), Managing Service Recovery, Cranfield School of Management). Customers need to see that a bank cares about their problems, and find it unacceptable when the bank is slow to deal with problems or if too much effort is needed to get someone to deal with them; in the study, this included ``re-direction'' of problems to other employees and levels of management. This issue has implications for the role of all contact personnel, i.e. the need for them to be knowledgeable and authorized to deal with service failures (Hart, C.W.L., Heskett, J.L. and Sasser, W.E. (1990), ``The profitable art of service recovery'', Harvard Business Review, Vol. 68 No.4). Today, the main objective of health reform worldwide is to hold healthcare accountable for its resource use and the way healthcare services are delivered. This relates not only to the overall health of individuals and communities, but also to the quality of the healthcare experience (Bitner, M., Booms, B., Tetreault, M. (1995), "Critical service encounters: the employee's viewpoint", Journal of Marketing, Vol. 58 No. October, pp.95-106).

Research context and Methodology The literature reviewed has emphasized the importance for companies to establish causes of service failure and to develop recovery strategies that meet customer expectations of how the companies should handle problem situations. The majority of research to date has been carried out in the USA and the UK. Opportunity arose to investigate service Failures and recovery strategies in the banking industry in Pakistan. In Pakistani banking, service recovery has not yet, Generally, taken a systematic form of a planned process. Service failures are usually dealt with as they emerge and are revealed by complaining customers, although there are Typically

no

formal

systems

and

procedures

to

encourage

customers to voice their complaints, in particular who to contact to solve problems. So, in practice, customers Might contact the employee who ``sold'' the service to them or a

branch

manager,

perhaps

with

referral

to

a

higher

level. An exception would be credit card departments, With recurring patterns of problems and organized problem solving

procedures.

Two

major

banks

participated

in

the

study, both with extensive branch networks And operating in a de-regulated market in an increasingly competitive

environment

with

a

wide

range

of

financial

products customers to assess the perceptions of customers about

the

magnitude

of

service

failures;

to

assess

the

perceptions of customers about the effectiveness of service recovery strategies; and . To examine whether or not there are predictors of the perceptions of customers about the magnitude

of

different

service

failures

and

the

effectiveness of different recovery strategies. To achieve these stages.

objectives, First,

strategies

were

the

types

research of

identified

comprised

two

discrete

failure

and

recovery

of

critical

service from

a

number

incident interviews and, second, the remaining objectives were investigated through the use of a survey questionnaire.

References

1. Johnston,

R.

(1994),

Service

Recovery:

An

Empirical

Study, Warwick University Business School, Coventry 2. Beckett,

A.,

exposition services

Hewer,

of

P.,

consumer

industry",

Howcroft, behavior

B.

in

International

(2000),

the

"An

financial

Journal

of

Bank

Marketing, Vol. 18 No.1, pp.15-26 3. Boshoff,

C.R.,

Leong,

J.

(1998),

"Empowerment,

attribution and apologizing as dimensions of service recovery:

an

experimental

study",

International

Journal of Service Industry Management, Vol. 9 No.1, pp.24-47 4. Bowen,

D.E.,

Johnston,

R.

(1999),

"Internal

service

recovery: developing a new construct", International Journal of Service Industry Management, Vol. 10 No.2, pp.118-31 5. de Jong, A., de Ruyter, K. (2004), "Adaptive versus proactive behavior in service recovery: the role of self managing teams", Decision Sciences, Vol. 35 No.3, pp.457-91 6. Bies, R.J., Moag, J.S (1986), "Interact ional justice: communication

criteria

of

fairness",

in

Lewicki,

R,

Bazerman, M, Sheppard, B (Eds),Research on Negotiation in Organizations, JAI Press, Greenwich, CT, Vol. I 7. Halstead,

D.,

Page,

T.J.

satisfaction

and

repurchase

intentions",

Satisfaction,

(1992),

complaining

behavior

Journal

Dissatisfaction

Behavior, Vol. 5 pp.1-11

"The

and

effects on

of

of

consumer Customer

Complaining

8. Armistead, C.G., Clarke, G. and Stanley, P. (1995), Managing

Service

Recovery,

Cranfield

School

of

Management 9. Hart, C.W.L., Heskett, J.L. and Sasser, W.E. (1990), ``The

profitable

art

of

service

recovery'',

Harvard

Business Review, Vol. 68 No.4 10. Bitner, M., Booms, B., Tetreault, M. (1995), "Critical service encounters: the employee's viewpoint", Journal of Marketing, Vol. 58 No. October, pp.95-106

.