Service recovery is the effort that companies put forth to satisfy customers by compensating for poor experiences they’ve had with the company, its employees, or its products or services. Customers who have experienced service or product failure, and have not been compensated or helped by the company, can become disgruntled or angry toward the company. These unhappy customers often stop buying from the company or even create negative publicity for the company.
If companies collect customer feedback and act to make up for negative experiences, they can often retain these customers. They may compensate customers monetarily, with replacements and returns, or simply by apologising for negative service interactions.
Customer service expert David Tooman said, “sales without customer service is like stuffing money into a pocket full of holes.” For long-term success, businesses need to not only listen to their customers, but also solve problems that their customers experience – before they leave. Almost 91 percent of unhappy customers never do business with a company again after a negative experience.
Forrester found in a 2010 study that 81 percent of consumers who encountered problems but got great service recovery were very likely to continue doing business with the recovering company. Just 5 percent of those who got very bad service recovery were also very likely to stay; 57 percent were actually likely to leave. The difference between customer retention with good and bad service recovery is staggering.
Customer retention is much cheaper than customer attraction. And the dividends of customer loyalty are immense. Great customer service, and especially service recovery, can build customer loyalty, advocacy, and trust, which will improve the company’s bottom line.
Sometimes, unhappy customers who have been contacted and had their problems solved become more loyal to a company than they would have been if the experience had been satisfactory in the beginning. This phenomenon is called the service recovery paradox.
The service recovery paradox stems largely from the customer engagement created by service recovery. When a company reaches out after a negative experience, and makes up for that experience, the customer feels valued personally.
The recovery paradox may be true in the best of cases, but that doesn’t mean that any organisation looking to retain customers should first seek to offend them. In 96 percent of cases, customers don’t even comment on poor experiences, so the company doesn’t know enough to attempt recovery. The best approach to service recovery is to make it unnecessary in the first place.