A STUDY OF SERVICE RECOVERY EFFORTS IN BANKS

A STUDY OF SERVICE RECOVERY EFFORTS IN BANKS JO ANN M. DUFFY, JAMES E. BEXLEY, JOHN MILLER Department of Management and Marketing College of Business Administration Sam Houston State University Huntsville, TX 22341-2056 U.S.A Abstract: The study examines banks service recovery efforts. Frequencies, chi-square analysis and correspondence analysis are used to analyze the data. The findings show no significant differences in recovery methods or satisfaction by customer age, gender, or tenure with bank. However, satisfaction is strongly linked to various recovery responses. Key-Words: service recovery, banking, customer satisfaction 1 Introduction The level of a company s commitment to service quality is shown by how it responds to a system failure. The International Journal of Retail and Distribution Management [1] reports that banking customers who have complained and are satisfied with the service recovery efforts of the bank are three times more likely to recommend the bank to someone else and to do increased business with the bank. Similarly, the ABA Banking Journal [2] summarizes research findings that indicate that the issues most highly correlated to overall satisfaction involve complaint management. Developing a successful service recovery strategy is not an easy task; Best and Andreasen [3] found only a 50% satisfactory recovery rate in terms of customer satisfaction. In the previously mentioned banking study, 63% of the customers were dissatisfied with the bank s service recovery efforts. Service recovery, composed of tangible and psychological aspects, has been divided into three phases: pre-recovery, immediate recovery and follow-up recovery [4]. Pre-recovery is the time following the service failure when the customer determines his/her expectations for the service recovery [5,6]. Immediate recovery begins when the service attempts to remedy the service failure using psychological or tangible techniques such as showing empathy by listening to the complaint, apologizing, fairly fixing the problem and perhaps providing something extra in atonement [7,8]. The sooner this phase occurs the better since waiting increases the customer s negative feeling [9]. The final follow-up phase does not always occur, but when it does it is used to ensure that the immediate recovery techniques were sufficient to restore a positive attitude. Miller, et al. found varying likelihoods of repeat patronage by customers who had been through the service recovery process. Ninety percent returned to the service when they received both an apology and a fair fix to their problem while nearly 100% returned when they were also given a tangible value-added atonement. In this study we expect to find a similar link between recovery techniques and customer satisfaction. According to Hart et al., the surest way to recover from service mishaps is for workers on the front line to identify and solve the customer s problem [10]. Front line workers have the advantage of being directly in contact with the customer and perhaps better understanding the problem. They are also able to give the quickest response. Since the speed of service recovery appears to reduce customer negativity, we expect that service recovery efforts conducted by front line employees would tend to result in high levels of customer satisfaction. 2 STUDY DESIGN This study focuses on service recovery, i.e., efforts to fix or remedy a problem identified by a customer. Service recovery

techniques include: doing nothing, listening empathically, apologizing, fairly fixing the problem, and providing something extra of value as atonement. The intent of the study was: 1. To see if there is a difference by gender, age and length of time as customer in the way service recovery is perceived. 2. To determine if satisfaction is linked to who handles the service recovery effort. 3. To determine how the various service recovery techniques enhance banking customer satisfaction following service failure. The service recovery questions were included in a larger scope questionnaire about customers use and reaction to banking services. The questions were pre-tested with a group of community bank CEO s. Their input was used to refine the questions. A packet of 150 questionnaires was delivered to 34 USA community banks located in both rural and urban settings. Every 10 th customer to the motor bank and bank lobby was given a survey to ensure a random sampling of the bank s customers. Surveys were returned via US mail directly to the researchers. This was done to ensure confidentiality and to distance the study from the local bank. Descriptive statistics, chi-square analyses, and correspondence analyses were used to analyze the data. 3 RESULTS Fifty-four percent of the 390 respondents were female, 46% were male. Ages varied from under 25 years to over 65. Four percent were younger than 25, 10% were between 25 and 34; 20% were between 35 and 44; 31% were between 45 and 54; 17% were between 55 and 64; and 18% were over 65. Thirty-two percent had been customers at the bank for 1-5 years, 16% for 6-10 years, and 44% for more than 10 years. A total of 187, or 41%, of the respondents reported having a problem relating to their accounts or other banking matters. Chi-square analyses showed neither gender or age differences in the frequency of reporting of problems, nor any relationship of length of time with the bank to problem occurrence. Most (87%) of the customers were satisfied with the way the banks dealt with their problems, and over three-fourths (77%) were very satisfied. (Table 1) Again, there was no statistically significant difference between the genders or with tenure with the bank. There was some tendency for middle-aged (35 to 44) persons to be less satisfied than either older or younger patrons.. Table 1 Gender Age of Respondent Tenure with Bank Very satisfied Not very satisfied Question: Note: Total Male Female < 35 35-44 45-54 >= 55 Under 5 10 Over 5 yrs years 10 yrs 77.7% 77.1% 78.2% 85.7% 61.1% 80.8% 81.8% 72.7% 90.9% 76.2% 22.3 22.9 21.8 14.3 38.9 19.2 18.2 27.3 9.1 23.8 8.a How satisfied were you with the manner in which the problem was handled? Percentages based on those with a problem. While customers who approached the teller with their problem were most likely to be very satisfied, there was no statistical significant differences in the level of satisfaction between those who approached different bank employees. (Table 2)

Table 2 Who Was Seen About the Problem Total Teller Customer Bank Officer Service Very Satisfied 77.1% 82.8% 77.5% 73.6% Not Very Satisfied 22.9 17.2 22.5 26.4 Customers were given an array of possible actions that the bank might have taken with regard to their problem. Two out of three (68.4%) said their bank had fixed the problem, not including those (21.3%) who said their bank had gone further to do something extra. Most (84.5%) said their bank had listened and a sizable minority (40.4%) said their bank had apologized. (Table 3). Table 3 Gender Age of Respondent Tenure with Bank Total Male Female Under 35 35-44 45-55 & Under 5 10 Over 10 54 older 5 yrs years yrs Nothing 7.1% 5.7% 7.5% 4.8% 8.3% 9.4% 4.4% 10.4% 8.7% 3.2% Listened 84.5 83.1 82.5 90.5 69.4 90.6 86.7 79.1 91.3 87.3 Apologized 40.0 40.0 41.3 61.9 44.4 37.7 28.9 41.8 43.5 36.5 Fixed the 68.4 75.7 62.5 76.2 69.4 66.0 66.7 70.1 78.3 61.9 problem Extra 21.3 18.6 23.8 14.3 22.2 20.8 24.4 19.4 26.1 22.0 Question: Note: 8.b Check everything the bank did to handle your problem: Percentages based on those with a problem. Multiple responses were allowed. The relationship between the steps taken by the bank and the response of the customer ( satisfaction ) was explored in a series of correspondence analyses. Generally, the more the bank did, the more satisfied the customer was. But, the pattern of improved response was not uniform with each added level of service. We note, first, that the actions can be placed in an ordered pattern. Starting with nothing proceeding up to doing something extra according to the listing in the questionnaire is one reasonable ordering. The variable was recoded to a single value according to the highest value reached among the multiple responses given by the respondent. In fact, we tried alternative patterns (putting apologize above fixing ) but the questionnaire order seemed to give the best results. Secondly, the satisfaction scale is also ordinal in nature. The essence of these ordinal scales is that the categories can be placed into some sort of order, but the distance between the categories cannot be pre-determined [11]. The approach of correspondence analysis [12,13,14] is to make only the minimal rank-order assumption about the structure of the scales and to let the data determine the optimum re-scaling. The results are shown in Table 4. Note that the satisfaction scale has been truncated to about three distinct points: very satisfied is not far from the tied value of somewhat satisfied and neutral, while both of the dissatisfied points are spaced out above. The interpretation of the summary action scale is clear: doing something is far preferable to doing nothing; listening and apologizing have nearly the same effect on satisfaction, and doing something extra is not far

above fixing the problem in terms of increasing customer satisfaction. Optimal Re-scoring for Satisfaction Very Satisfied Somewhat Satisfied Table 4 Neutral Somewhat Dissatisfied Quantification -0.387 0.368 0.368 1.973 4.225 Very Dissatisfied Optimal Re-scoring for Bank Action Nothing Listened Apologized Fixed the Extra Problem Quantification -5.115-0.935-0.935 0.402 0.446 Graphically, the re-scorings are as follows: 5 Category Quantifications for Satisfaction Transformation Plot 1 Category Quantifications for Summary Action Transformation Plot Quantification of Satisfaction 4 3 2 1 0-1 Very satisfied Somewhat satisfied Neutral Very dissatisfied Somewhat dissatisfie Quantification of Summary Actioin 0-1 -2-3 -4-5 -6 Nothing Listened Apologized Fixed the Porblem Extra Satisfaction 4 DISCUSSION AND IMPLICATONS Service breakdowns are expected because of the nature of service, but this study indicates that banks may be prone to unexpectedly high levels of problems. In this study 41% of the respondents reported having problems. Even though the questionnaire wording allowed respondents to give their own definition of problems, the service breakdown had to be perceived as severe enough to cause them to take action. The high frequency of service failures supports the premise that service recovery must be an inherent part of the total service operations system. It is equally important to note that gender, age and tenure with bank did not influence reporting problems. Similarly, gender, age and tenure with bank were not related to satisfaction with how the recovery was handled. These findings refute commonly held beliefs that women have more Summary Action problems receiving good service; middle age people are more demanding; and people who are long standing customers are more forgiving of mistakes made by the bank. Only the belief that middle-aged individuals are more demanding received weak support in the results. Surprisingly, 90% of the respondents were satisfied with the way the bank dealt with service breakdown. This percentage is much higher than what earlier studies found. For example, Best and Andreasen [3] found only 50% were satisfied with recovery efforts. Perhaps an explanation for the high numbers of satisfied customers in this study lies in the low expectations these customers had. They expected the bank do very little: less than 40% expected the bank to listen to their problems or fix them. However, over 80% reported that the bank actually did listen to them and nearly 70% said the bank fixed the problem. The results indicate that customer satisfaction cannot be linked to a special group of bank employees. Moreover, tellers, the front line employees, are infrequently the ones who handle the

recovery process. The customer service employee is most frequently responsible (45% of the time) for service recovery. The complexity of banking procedures may account for the fact that tellers are not the ones who tend to handle service recovery. Furthermore, community banks tend to have a customer service department that is easily--and quickly--accessible to customers. This transforms the customer service employee into a front line employee. Banking customers appear, also, to have the ability to go directly to managers. In this study bank officers addressed customer complaints over 34% of time. The issue of who manages service recovery needs to be investigated in a study that includes large banking institutions to determine if this manner of handling service recovery is a unique characteristic of community banks. In terms of how types of service recovery responses affect satisfaction, the findings are particularly intriguing. Satisfaction does not appear to increase if the customer receives an apology; what is critical to customer satisfaction is that the customer is at least listened to. Satisfaction is enhanced when the problem is fixed, but little is added when an atonement is offered. This finding runs counter to the idea that people expect something in atonement for the hassle of having to deal with a service failure. Less than 8% of the respondents felt it is necessary for the bank to atone for mistakes. If these findings can be replicated, optimal service recovery will be able to be simply described as listen and fix. Whether this simplicity will apply across industries will also need to be carefully studied since it is likely that the characteristics of quality service recovery is as idiosyncratic to an industry as characteristics of quality service delivery. The study s limitations are a low response rate, the inclusion of only community banks, and relatively small n used in some of the analyses. The study s value lies in its empirical test of the relationship between service recovery and satisfaction and types of customers and introduction of correspondence analysis to the study of service recovery. 5 References [1] Anonymous, Complaints Map the Royal Bank of Scotland s Road to Service Recovery, International Journal of Retail and Distribution Management, 1995, 23(11): viii-ix. [2] Anonymous, What s Most Important to Customer Satisfaction? ABA Banking Journal, 1997, 89(9): 73-74. [3] Best, A. & Andreasen, A.R., Consumer Response to Unsatisfactory Purchases: A Study of Perceiving Defects, Voicing Complaints and Obtaining Redress, Law and Society, 1976, 11: 701-742. [4] Strasser, S., Kennedy, M.R. & Schwiekhart, S.B. Service Recovery in Health Services Organizations, Hospital and Health Services Administration, 1993, 38(1): 3-21. [5] Kelly, S.W. & Davis, M.A., Antecedents to Customer Expectations for Service Recovery, Journal of Academy of Marketing Science, 1994, 22(1): 52-61. [6] Halstead, D., Droge, C. & Cooper, M.B., Product Warranties and Post Purchase Service, Journal of Services Marketing, 1993, 7(1): 33-40.. [7] Zemke, R. Service Recovery, Executive Excellence, 1994, 11(9): 17-18. [8] Hoffman, K.D., Kelley, S.W. & Rotalsky, H.M., Tracking Service Failures and Employee Recovery Efforts, Journal of Services Marketing, 1995, 9(2): 49-61. [9] Miller, J.I., Craighead, C. & Karwan, K.R., Service Recovery: An Integrated Framework and Empirical Investigation, 1997 Proceedings Decision Sciences Institute, 1997, 3: 1550-1552. [10] Hart, C.W.L., Heskett, J.L. & Sasser W.E., The Profitable Art of Service Recovery, Harvard Business Review,1990, 68(4):148-156. [11] Steven, S. S., Measurement, Statistics and Psychophysics in Handbook of Experimental Psychology, 1951, ed. S.S. Stevens, New York: John Wiley and Sons. [12] Benzecri, J., L Analyse des Donnees: 1.La Taxonomie; 2. L Analyse des Correspondances, 1973, 2 nd ed., Paris: Dunod. [13] Hill, M., Correspondence Analysis: A Neglected Multivariate Method, Applied Statistics, 1974, 23: 340-354. [14] Greenacre, M. Theory and Applications of Correspondence Analysis, 1984, London: Academic Press.