THE RECOVERY OF THE LOGISTICS SERVICE

How companies should act when they make mistakes and how they can modify the behavior of dissatisfied customers in order to get them to remain customers

To err is human; recovering is divine. With this sentence, three of the most frequent authors on Service Management (Christopher Hart, James Heskett and Earl Sasser) concluded one of the first articles¹ written about the incidence of errors in the provision of a service and how vanguard companies act in order to avoid customer dissatisfaction, even turning them into loyal customers, despite the mistakes made¹.

Every logistics system, no matter how well equipped it is, is prone to errors. A poorly written order, a slight distraction by the person loading the delivery vehicle, a supervisor nap or uncontrollable episodes such as heavy rain blocking streets and roads, are facts that can result in a series of annoyances for customers. Late deliveries, damaged packaging, quantities delivered less than those requested, etc., are among the most frequent complaints. How does your company handle these complaints? Do you consider the failures that occurred as normal events? Do you use the fact that everyone makes mistakes as an excuse? Or it blames the customers, classifying them as annoying, grouchy or other similar adjectives.

The pressure to meet deadlines, the manipulation of a huge number of items, the lack of specialization of the workforce, deficiencies in the understanding of what quality means in a service and a series of other reasons, can justify the statement that in the provision of logistics services errors are inevitable. However, depending on the actions taken by the company in the face of errors, it is possible that customers are not dissatisfied. This is the idea that permeates the concept of service recovery. In this article we will try to explain what recovery consists of, show the reasons for the importance of having a fault recovery system and offer a set of actions for companies interested in developing an efficient service recovery policy.

WHAT IS SERVICE RECOVERY?

Service recovery is understood as the set of activities that a company performs in order to resolve complaints and try to change the attitude of dissatisfied customers, trying to keep them as customers. Despite recognizing that failures that have occurred have negative implications, the effective application of service recovery mechanisms can even increase customer loyalty. If “doing it right the first time” is one of the principles of Total Quality, service recovery can be seen as a logical extension of this principle, since in the service delivery environment “zero defects” is practically a utopia. Thus, that statement would receive a new wording: “do it right the first time and definitely right the second”. The acceptance of this principle implies, in practice, that every service provider has two opportunities to ensure that the customer is satisfied: the first, when its performance meets or even exceeds the customer's expectations. A
second, when the customer who is not satisfied with the service he receives complains, verbally or in writing, and receives a satisfactory response. This response can range from a sincere apology to actions that compensate the customer for the costs or inconvenience caused by the fault committed. Service recovery includes both the handling of complaints and the steps taken to show the customer that the company is committed to preventing errors from happening again and that it wants to keep the customer as a customer in the future.

WHY RECOVER SERVICES?

The importance of service recovery began to gain evidence from various surveys carried out in the United States, by different entities, which showed the links between failure recovery and customer loyalty and between loyalty and profitability. In the first case, we can mention the works developed by TARP (Technical Assistance, Research Program Inc.) – a North American market research company that conducts studies for consumer protection organizations. This company focuses its work on examining how customer satisfaction is influenced by the way companies handle customer complaints and their performance in recovering from errors committed. Some conclusions of such studies deserve to be mentioned:

• Only one customer in 20 will complain if they are unhappy. The others change suppliers.
• Of the customers who complain, 6 out of 10 comment with others when the result of the complaint is negative and only 3 out of 10 do so when the result is positive.
• 70% of customers will do business with the supplier again if their complaint is satisfactorily resolved. This percentage rises to 95% if the reason for the complaint is resolved on time.
• In some industries, the percentage of customer loyalty is higher for those who have had their problems resolved than for those who have never experienced problems.

Before commenting on these findings, we will present some results that relate customer loyalty to profitability. Bain & Company is a company that has carried out studies along these lines:

• Acquiring new customers costs more than keeping loyal customers.
• Customers who stay are willing to spend more; buy additional services and show a greater willingness to pay a premium price for a better service.
• Regular customers are cheaper to serve, particularly when it comes to administrative and selling costs.
• Most regular customers are in the habit of recommending the services of the company they are customers of.
• A 5% increase in investment with loyalty instruments can increase profitability by between 25 and 125%.

The two sets of results make it clear that service recovery is not just a set of attitudes of respect and consideration for the customer when the company that serves the customer makes an error. Recovery measures can modify the dissatisfied customer's behavior, making him even more attached to the company. The argument that these measures can represent a significant cost is easily contested when comparing this cost with the potential gains in future purchases of that customer. This is without taking into account the cost of the lost customer or the cost of attracting a new customer to replace the departed one. Furthermore, by doing nothing when an error occurs, the company can perpetuate this cycle of continually needing to bring in new customers to compensate for dissatisfied customers who cease to be customers.

COPPEAD's Center for Studies in Logistics has been researching in recent years the level of satisfaction of Brazilian merchants with the customer service practices of their suppliers of four types of products². One of the customer service attributes that has received research attention is the fault recovery system. In the case of perishable foods, for example, on a scale ranging from 1 (not very important) to 5 (very important), the average obtained among the traders interviewed for the importance of the Failure Recovery System was 4,3, second only to Product Availability, Lead Time Consistency, Order Cycle Time, and Delivery Frequency. It is easy to see, then, that if product is missing or deadlines are missed or deliveries are infrequent, the customer places a high value on the fallback system. In assessing the performance of suppliers, the survey showed that 66% of customers are dissatisfied with market practice and 27% are dissatisfied with best practice. It is, therefore, an attribute highly valued by customers but which not even the best distributors are satisfactorily serving. It is therefore a good opportunity for differentiation that companies prepared to provide a good service have. In the other surveyed sectors (non-perishable food, hygiene and cleaning products and paper) the results are quite similar.

SERVICE RECOVERY MECHANISMS

The service's first recovery mechanism is, of course, to encourage customer complaints and complaints so that recovery measures can be triggered. Companies that do not make it easy for customers to express their dissatisfaction lose valuable information. They will not know the cause of dissatisfaction, they will lose this customer and, worse, they will not be able to prevent other customers from following the same path simply because they ignore the reason for not being satisfied. The non-existence of a formal channel for receiving complaints can explain one of the results presented above: few customers complain; most change suppliers. By not being informed about where and how to complain, customers take the most comfortable path: they look for another company.

The complaint, seen as information about the mistake made, is also a source of learning. Research shows that customer loyalty is closer to companies where this learning is encouraged and employees, at all levels, are continually encouraged to increase their ability to listen, learn and act, creating and producing important results for the organization. This explains the fact that the companies that provide the best services are usually the ones that receive proportionally the most complaints. Obviously, it is not because they give more reasons for complaints, but because they make available to customers a greater number of mechanisms to listen to their problems. These companies work with the conviction that, with the complaints, valuable market information is collected and that this is useful to build a service provision system with differentiated characteristics.

The advantages of knowing how to deal with complaints can also be expressed in numbers, as shown in the table

Therefore, it could be said that the company should rejoice every time it receives a complaint. The normal thing, however, is that they do not arrive, as we have seen before. Another study by the aforementioned TARP sought to find out more about customers who took the initiative to file a complaint. The vast majority encountered difficulties because the complaint was received by frontline personnel who were ill-prepared or without resources or autonomy to solve the problems presented, worsening the situation, increasing dissatisfaction and feeding the contingent of those who no longer complain because they feel who wasted time complaining. Only 10% of those who filed a complaint had their problem treated by people trained to do so.

The previous paragraph introduces the second procedure on the road to service recovery: it is necessary to have a complaint resolution system, that is, it is necessary to solve the problem. A good recovery system doesn't just get information about errors. The customer doesn't just want to complain. He wants to see his complaint processed and resolved quickly. Otherwise, he will increase his dissatisfaction because he realizes that he wasted time. Responses to complaints should include the following elements:

• Listen carefully to the customer. Thank him for the information he is bringing, giving the feeling that it will be used to improve the quality of the service. The message must contain an implicit invitation for the customer to prove what is being said and thus affectively link him/her to the company.
• Apologize for what happened and for the inconvenience that the error may have caused, giving you reason (however little it may be). Incidentally, it is preferable not to enter into an argument about who is right. The learning that the process of listening to complaints will bring will allow identifying who is acting in bad faith or who is trying to harm an employee.
• Solve the problem, refunding, as far as possible, the damage caused to the customer. This is the most delicate step because it will certainly involve compensatory amounts. It must be remembered, however, that it is not fair to charge for a poorly performed service or for goods that cannot be used. On the other hand, if the mistakes made do not result in a cost to the company, there is no incentive for them not to happen again.

STEPS FOR A SERVICE RECOVERY STRATEGY

With the aim of establishing a more lasting performance in terms of recovery, the sequence of actions shown in the figure can serve as a guide for companies interested in establishing a service recovery strategy:

The first action is based on the principle that every error means some cost, either for the company that made it (return of money, replacement of goods, visit from a manager, etc.) or for the customer (some type of loss for not having received what expected, phone calls to complain, etc.). The second action has a warning character: errors can mean the loss of the customer and this has a cost for the company that will be greater the more important the customer is considering its business history. The third action criticizes methods such as complaint books or forms that accompany the delivered product.

It takes proactive action on the part of employees who must be prepared to, in contacts with customers, be interested in knowing if everything went well, if there was any deficiency in the provision of the service, reiterating that any problem must be communicated immediately for recovery actions to be applied. The fourth action draws attention to the fact that sometimes the system for listening to complaints works very well, but employees do not have time to perform the tasks required to resolve complaints. The fifth action also has a preventive character: when simulating the errors that may happen, opportunities for actions that prevent the errors from occurring will certainly arise. In the next action, the idea is to delight the customer with a quick resolution. Shipping merchandise that was mistakenly undelivered is an easy recovery. But how long after? The last two actions aim to increase the competence of employees. Creating service standards in normal cases and giving them the authority to act in unforeseen situations demonstrates the company's commitment to customer-oriented service. This freedom, in the case of lower-level employees in the organization, can be seen as dangerous. However, it is essential for an effective recovery policy. Behind this “danger” there is always the cost associated with the decision, but one hardly thinks about the value of keeping a satisfied customer.

In summary, and in closing, we would say that the service recovery process includes:

1. a) facilitate customer complaints,
2. b) solve the problems,
3. c) use the information to prevent problems from happening again and
4. d) try to neutralize possible negative references from dissatisfied customers, favoring repeat business with those customers, generating positive references on how problems are resolved.

If complaints are well resolved, customer loyalty increases surprisingly, as shown by various empirical evidence.

Notes:

1. The Profitable art of Service Recovery. Harvard Business Review, July-August 1990.
2. The Benchamark – Customer Service survey is carried out annually with hundreds of merchants in different Brazilian capitals, with the sponsorship of eleven important companies in the perishable food, non-perishable food, paper and hygiene and cleaning sectors.

This article was originally published in Tecnologística magazine, Year IV, No. 42., May/1999