Customer Behavior and the Service Industry Failures

In any industry, understanding customer behavior is the heart of marketing. Within the service industry, it is especially important because so often the service delivered is intangible until it’s experienced. Furthermore, the service industry can be targeted at a person or at their possession(s).

Examples of tangible service industries directed toward the person would include food and beauty salons. Services directed at their possession(s) would include freight transportation, repairs, and maintenance services. Intangible services directed toward the person would be psychotherapy, management consulting or advertising, while intangible services directed towards possessions would include banking, legal services or data transmission.

In addition to the four broad categories mentioned above, a further distinction needs to occur between services requiring high customer contact, meaning face to face interactions; and low customer contact in which services or problems can be accomplished via telephone, mail or email.

Customer Decision Making

Customer decision making can be divided into three broad categories:

Pre-Delivery – An arousal of a need or want (unaware to aware)
Service Delivery – Experiencing the service
Post Delivery – Evaluation

Customers determine service quality through the comparison of their expectation to actual service received. Services exceeding their expectations are viewed as exceptional. If the service was delivered at an expected level, then a secondary evaluation occurs in the customer mind as to whether price matched the value and the customer sees the service as average. If not, then the customer views the service as lacking and usually will not return to the service provider. Finally, if the customer is dissatisfied customer loyalty is lost.

When a breakdown or failure in services occurs, customers want the organization:

To assume responsibility and acknowledge their dissatisfaction
Provide an explanation for the failure and make every effort to resolve it
To adequately compensate them for the time, effort, and energy spent during the service recovery process

Customer Loyalty

How well the provider handles complaints literally determines whether they retain customer loyalty or watch the customer transfer their business to another provider. Research studies consistently reveal dissatisfied customers who complainwith the complaint remaining unresolved tend to return to the service provider between only 9 and 19 percent, where a dissatisfied customer who has their complaint resolved to their satisfaction returns to the provider around 54 percent of the time. But when the complaint is resolved quickly and on the spot customer retention jumps to around 82%.

In all this, there is a silver lining which was discovered through a study of the retail banking industry that became known as the “Service Recovery Paradox.” It basically demonstrates that a customer who has experienced a service failure but has it resolved to their satisfaction is more likely to make additional purchases than a customer who never experienced a service failure. However, if the customer experiences a second service failure, the service recovery paradox disappears. Apparently, customers are willing to forgive an organization once but become disillusioned with repeated failures.