Keep your client relationships afloat

By MorgenWitzel

The passengers of the Aurora had every right to be angry. The round-the-world cruise for which they had paid thousands of pounds was this month cancelled after persistent engine problems. After a series of delays, the top-of-the-line ship sailed no further than the Isle of Wight from Southampton.

Yet there was little rancour among the passengers. While the ship was held off the south coast of England, the passengers remained calm and even cheerful. Though many expressed regret as they finally disembarked, they were not hostile towards the ship's operators, P&O.

Some observers put this down to simple British stoicism. Yet it may also have much to do with P&O's management of the crisis.

Dealing with a service failure is a formidable task for any marketing manager. If poorly handled, the consequences can be bad public relations, desertion by customers and even lawsuits. The Aurora story shows how managers, if they move quickly, can avoid some of the worst effects of service failures.

While high-profile cases such as the stricken cruise ship are relatively rare, companies everywhere may regularly suffer small service failures. Plumbers fail to fix leaking drains, restaurant meals are undercooked or holidaymakers find their hotel room is directly above an all-night disco. Every failure creates a dissatisfied customer, which in turn creates other problems for the company.

Disgruntled customers tend to tell others of their experience, becoming what Radhika Chadha, the Indian business writer, calls "ambassadors of ill will". Studies in the US have shown that dissatisfied customers tend to tell around ten other people of their bad experience; even worse, they can take their stories to the press.

Dissatisfied customers also defect to rival businesses. In a 1995 study in the Journal of Marketing, Susan Keaveney, an associate professor at the University of Colorado at Denver, suggested that service failure is the single most common cause of customers switching to a rival.

Although every service failure will be different, some basic principles can assist in recovery. The first is early recognition of the problem. In P&O's case this was easy: everyone involved knew that the large lump of metal floating in the Solent was not going anywhere. Other failures are harder to detect, especially when management is asleep at the wheel. In their work on service failures, John Bateson of London Business School and Doug Hoffman of Colorado State University cite the example of a US bank that refused to validate the parking ticket of a customer who cashed a cheque, stating that it was policy to provide this service only to customers making deposits. The customer complained to head office, but received no reply. The following day he closed his account, worth more than a million dollars. Smart service marketers monitor complaints and act on them quickly.

The second principle is acceptance of responsibility. Many companies prefer, in the style of Basil Fawlty, John Cleese's accident-prone character, to argue with customers over where responsibility lies, without realising that damage is being done regardless of who is at fault. Although there are limits to the responsibilities companies should accept - such as accidents and injuries that were not the company's fault - there is usually little profit in scoring moral victories over customers. Hence clothing retailers often have a no-questions-asked policy on returned goods, believing that the harm done by the occasional dishonest customer is more than outweighed by the satisfaction created among the rest.

Once responsibility is accepted, the two most urgent needs for the company to address are communication and compensation. Transparency is vital. Academic studies have shown that when faced with product or service failure, companies that communicate truthfully and promptly with their customers receive a favourable response. These customers feel their concerns are being addressed and taken seriously. In the Aurora case, senior P&O managers were often on hand to provide information to passengers, who regarded this as a positive feature.

Compensation must be carefully matched to the customer's dissatisfaction. Too small an amount trivialises the customer's experience and can give offence, but it is also possible to go too far the other way. Researchers in the US found an example of a hotel chain that had a policy of instantly refunding the full room rate to any guest with a genuine complaint, no matter how trivial. Yet many customers - against expectations - found it embarrassing to be given hundreds of dollars in compensation when they had merely complained about a faulty light fixture or a dripping tap.

Service industries often have compensation benchmarks. In the holiday sector, the standard was set by the 19th-century inventor of the package holiday, Thomas Cook, who made it his policy to refund in full the money paid by any customer whose holiday was curtailed or cancelled, and offer a discount on their next booking. P&O's policy would have pleased Cook - the company reportedly offered the same level of compensation to the passengers of the Aurora. Not every package holiday company follows this example.

Following these principles should please most customers most of the time. Research across a variety of service industries over the past 20 years confirms that a successful service recovery operation reduces or even eliminates any consumer dissatisfaction.

One study of US hotel customers found that some actually became more loyal after they experienced a service failure followed by a recovery, appreciating the hotel company's "human face" and timely response.

The aborted cruise of the Aurora was disappointing for P&O passengers. But the consequences could have been far worse. Many of the passengers said they planned to travel on a P&O cruise in the future. Of course, whether they will actually do so - and with P&O's engineers and shipbuilders permitting - remains to be seen.

HOW TO PREPARE FOR THE DAY WHEN THINGS GO BADLY WRONG

• Ensure that monitoring systems are efficient and flag up failures as they occur. Encourage customers to complain, and process complaints quickly.
• Take failures seriously and listen to customer views. Concede responsibility where necessary and appropriate. Arguing with customers seldom produces a happy result, even if the customer is wrong. Winning moral arguments does not help the bottom line.
• Ensure staff at all levels know what to do in the event of a service failure. Such failures are inevitable, even in the best-designed systems, and everyone should know what to do when they happen.
• Communicate quickly and effectively. Where the failure is serious, senior management should get involved at an early stage. Be honest and do not fob customers off with excuses; they will soon get wise to these. Talk directly to your customers rather than taking refuge behind a desk.
• Customers expect to be compensated for their loss of time, money and/or expectations. Compensate customers fairly but not over-generously. Provide incentives for them to come back, such as offering discounts on future purchases. When they do come back, feather-bed them to make sure no further failures occur, as recovery from a second successive failure is far harder than the first.

Date: 2015-02-16; view: 1519