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THE IMPACT OF SERVICE RECOVERY ON CUSTOMER LOYALTY

CHAPTER ONE

INTRODUCTION

Background of the Study

In today’s business world, competition has made it difficult for sellers to survive and every day new sellers or new products are coming to the market. In order to survive, earn high profit and avoiding customer Switching cost, customer loyalty has become a very important concept in recent years. The importance of customer loyalty cannot be ignored in both the products and services. However customer loyalty can be influenced by the human and non-human errors. These errors cannot be ignored because these errors negatively impact customer satisfaction

(Kau and Elizabeth, 2006, p.101). The errors are more common in service operations due to the complexity and heterogeneity of the consumer’s needs. According to Swanson and Kelly (2001, p.194) service failure can be defined as a variety of errors happened during the service operation. Service failure can be the unavailability of the service person, long waiting time, bank statements errors and so on. After the service failure service recovery should be done by the service provider in order to avoid the negative impacts of service failure on the customers.

According Grönroos (1988, p.10) service recovery is a process in which the Service provider offer additional services for addressing consumer’s complaints that have been resulted from service failure. Hart et al (1990, p.150) have found in their research that more than half of the all the efforts of service recovery creates dissatisfaction towards service. Gilly (1987, p.294) states that Often consumers who get proper service response become more satisfied than those who were satisfied from the Core service and did not complaint. Kau and Elizabeth (2006, p. 108) mentioned in their article that Service recovery not only increase the customer satisfaction but it also increase customer trust, word of mouth and customer loyalty. The Customer who is dissatisfied and does not complaint will have more negative words of mouth than the customer who is dissatisfied even after complaints. Original service recovery may have different impacts on customer satisfaction and customer loyalty, because observations show that customer may be satisfied but not loyal and loyalty may be due to the original service not the service recovery.

According to Johnston and Michal (2008, p.80) the importance of service recovery research can easily be observed in last twenty years, that has resulted from rapidly increase in adaptation of the customer focused strategies. Service recovery is important because it may impacts the customer loyalty which will leads to positive word of mouth and attracts more customers, and in the case of unsuccessful recovery the effect will be the opposite. Tax and Brown (1998.) have argued that service recovery influence the financial position of a company, because financial position is affected by customer loyalty that is generated by the customer satisfaction, resulted from effective service recovery procedures.

STATEMENT OF PROBLEMS

In 1999, Andreassen observed that service recovery research over the past decade only focused on why, to whom, and how customers responded to dissatisfaction. Prior to that scrutiny Goodwin and Ross (1992) concluded that less attention was directed to corporate responses to the customers’ voiced complaints and customers’ subsequent attitudinal and behavioral changes were not effectively monitored. Furthermore, Conlon and Murray (1996) argued that most of the existing service recovery studies, at that time, focused on the short-term impact of recovery efforts (i.e. compensation and quality of apology) and failed to explore the true drivers of service recovery satisfaction.

Moreover, Ruyter and Wetzels (2000) revealed that very little research had examined the relationship between service recovery and service quality variables (i.e. on-going customer satisfaction, loyalty and behavioral intentions). Consequently, service organizations were not effectively identifying or evaluating the drivers of service recovery satisfaction within the service industry; therefore, the benefits of on-going satisfaction and customer retention were not truly achieved.

Within the hospitality industry, Colgate and Norris (2001) suggested that a commitment to a continuous quality improvement process could only be achieved by tracking the number and severity of service failures. Thus, the researchers believed that a customer’s perception of service quality was directly linked to the number and severity of the failures he or she experienced. In addition, their research also showed that the organization’s quality of response and problem resolution was critical to the customer’s continuous satisfaction, loyalty and intentions to return or recommend.

Purpose of the given study is to analyse the impact of service recovery on customer loyalty by considering a Case Swedbank. Service recovery and its impact on the customer satisfaction has been focused by many authors, however customer satisfaction resulted from the service recovery may cause customer loyalty or may not cause customer loyalty. Though the customer loyalty is not possible without customer satisfaction but satisfied customer may not be loyal also. Therefore, we are interested in customer loyalty rather than customer satisfaction. Briefly the study is based on following research question.

OBJECTIVES OF STUDY

Many hospitality organizations now consider the development of a complaint management system to be a vital component to ensure service recovery satisfaction.

However, of all the efforts being made to deliver quality service, satisfy customers, engender loyalty and influence, quality service and defusing service problems are still on-going issues in hospitality.

The intent of this study was to explore

1. the relationship between the organization’s service recovery efforts and the customer’s degree of on-going satisfaction

2. the relationship between the customer’s degree of pre-failure loyalty, on-going satisfaction and post-recovery loyalty,

3. the relationship between the customer’s post-recovery emotion, loyalty and behavioral intentions

RESEARCH QUESTIONS

The primary questions were: How is the recovery satisfaction construct best defined in the context of the luxury hotel sector? What, if any, is the relationship between an organization’s service recovery efforts; satisfaction and loyalty? And what, if any, role does perceived emotion and loyalty play as a mediator in the recovery process?

RESEARCH HYPOTHESIS

H0; There is no relationship between service recovery measures and word of mouth.

H1; There is a relationship between service recovery measures and Word of mouth.

H00; There is no relationship between service recovery measures and repurchase intention of customer.

H2; There is a relationship between service recovery measures and repurchase intention.

DEFINITION OF TERMS

Attitudinal Loyalty: The point in which the customer develops a favorable or

unfavorable attitude toward the service or provider. This leads to the customer’s

intention to return or recommend (Dick & Basu, 1994).

Behavioral Loyalty: When a customer’s intentions are converted into actions; thus, the customer’s motivated intentions in the previous loyalty state has transformed or progressed to the point where the customer is ready to act upon their intentions

Consumption Emotion: The combination of both positive and negative emotions with the service encounter. This plays a significant role in the customer’s degree of satisfaction, loyalty and future behavioral intention

Service Recovery: An organization’s response to poor quality service 

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