- Managing Customer Complaints in the Services Industry-
research grant proposal 2013, prof. chiara orsingher
RESEARCH GRANT
“Managing Customer Complaints in the Services Industry”
Tutor: Prof. Chiara Orsingher
S.S.D. : SECS-P/08
Project Duration: 24 months
Research Headquarters: Department of Management – University of Bologna
Project Description
Glossary of key terms:
Service failure: a service performance that falls below a customer’s expectations.
Complaint: an expression of dissatisfaction on a consumer’s behalf to a responsible party.
Satisfaction with complaint handling: the customer's evaluation of how well a service company has handled a complaint.
Perceived justice: an action or decision that is perceived as morally right, according to equity.
Emotional reaction: a subjective, conscious experience characterized primarily by psychophysiological expressions, biological reactions, and mental states.
1. Scientific relevance of the topic
The share of the service sector in western economies has grown steadily in the last seventy years in from 60% in 1950 to 80% in 2010. In low-income countries, services constitute over 50% of GDP, and as these economies continue to develop, the importance of services in the economy continues to grow.
In Italy 73.3% of the GDP is generated by services (whereas 1.8% by agriculture and 24.9% by manufacturing) and 67.8% of the workforce is employed in services activities. The service economy is mostly concentrated in financial services, hospitality, retail, health, human services, information technology and education.
Despite the importance of the service sector in western economies, many service companies have not succeeded in fully managing the quality of the services they produce. Because services are intangible, and their production and consumption inseparable, the quality control tools developed in the manufacturing industry cannot be applied to service quality control. Consequently, experiencing a service failure is a highly probable event for a service customer. The 2012 U.S. Consumer Complaint Survey Report reports that among the top ten activities that generate the most complaints, eight concern services.
Complaints might cost service companies a lot of money: a study by FisherJordan (2007) shows that a complaint judged as highly severe by customers might cause a 25% revenue loss for the company, and a complaint judged as mildly severe might cause a 12% revenue loss.
Although eliminating service failures is very difficult for a company, service marketers can offer customers the opportunity to complain. An effective complaint management process can then repair the service failure and, consequently, turn dissatisfied customers into satisfied ones, improving customer relationships and preventing defection (Fornell and Wernerfelt 1987).
The managerial relevance of complaint handling is reflected in 20 years of academic research that has focused on satisfaction with complaint handling. Satisfaction with complaint handling is the customer's evaluation of how well a service company has handled a problem. Empirical research has investigated several constructs in an attempt to understand the determinants of satisfaction with complaint handling in a variety of industries and cultural settings. Drawing from social exchange theory, marketing researchers have conceptualized satisfaction with complaint handling as the result of the individual's cognitive appraisal of three dimensions of justice: distributive, interactional, and procedural.
Distributive justice occurs whenever the customer feels fairness in the type of redress (i.e. refunds, redress, exchanges, repairs, or some combination of them) offered by the company to resolve the complaint (Blodgett, Hill and Tax 1997). Interactional justice stems from the evaluation of the quality of the interactions between the service provider and the customer, and it is defined by customer's perception of the courtesy, honesty, and interest in fairness of the service provider. (Bies and Moag 1986). Procedural justice occurs whenever the customers feel that the set of procedures and policies used in the recovery efforts were fair and customer oriented (Lynd and Tyler 1988). It includes elements such as accessibility, time to complete the recovery process, flexibility of procedures in relation to customer needs.
Achieving high levels of satisfaction with complaint handling is important for service firms as both research and practice have shown that a customer that is satisfied about how his or her complaint has been managed tends to be loyal to the firm and spread positive word of mouth offline and online.
Despite the appropriateness of the perceived justice framework, a vast majority of work in this domain has disregarded the role of customers' emotional reactions in service failure/recovery situations, assuming that the evaluation of recovery efforts by the customers is primarily guided by the cognitive appraisal of justice dimensions. However, service failure and recovery situations often evoke strong emotional experiences that are likely to influence the service evaluation and subsequent behavior. Thus, emotional reactions alongside various cognitive judgments in producing satisfaction are central to understanding customers' consumption experiences (Oliver 1997).
Emotions can be defined as “mental state[s] of readiness that arise from cognitive appraisals of events or one’s own thoughts […]” (Bagozzi, Gopinath and Nyer 1999, p.184). In this view, emotions arise in response to the evaluation that people make for something of relevance (i.e. categories of events or physical circumstances) that happens to themselves. Importantly, it is not the event itself that generates the emotions, but the way individuals evaluate, appraise, the event. Thus, different people can have different emotional reactions (or no emotional reactions at all) to the same event (Bagozzi, Gopinath and Nyer 1999). In service recovery situations, this means for example that a customer who is proposed a service recovery with no apologies appraises the situation and then expresses a negative emotions. By contrast, another customer might appraise the same experience with no emotion at all.
Research in psychology also provides evidence that emotions aroused from one experience may carry over to a subsequent experience and affect behavior (Lerner, Small and Loewenstein 2004). This means that feelings of positive or negative emotions (e.g joy or anger triggered by the service recovery) are not simply the result of current circumstances but are partly determined by previous affective states (e.g. anger triggered by the service failure) (Kirkland and Cunningham 2012). In addition, psychological research asserts that the comparison between past and current emotional responses might generate different subsequent feelings, evaluations and behaviors. As Kirkland and Cunningham (2012) state, people amplify their sense of happiness by comparison with what once was. For example, an emotion can be labeled as joy or happiness when a positive event occurs especially when the positive event occurs after a negative one (p. 270). This suggests that the greater the change in the current level of emotion, the stronger the subsequent emotion.
2. Research Objectives
The aim of this project is to analyze how negative emotions following a service failure affect satisfaction and how positive and negative emotions following service recovery affect satisfaction with complaint handling.
More importantly, this projects aims at:
1. Studying if and how emotional reactions that occur after a service failure carry over to the emotions that occur after the service recovery process and how both emotions affect customer satisfaction, intention to return and to spread word-of-mouth communication.
2. Understanding if experiencing emotions both after the failure and after the recovery affects satisfaction differently than experiencing emotions only once, or not experiencing emotion at all.
3. Analyzing how the valence of each emotional or non-emotional pattern affect customers’ satisfaction level, intention to return and to spread word-of-mouth communication.
This research project holds a theoretical and managerial valence. From a theoretical standpoint, the inclusion of emotions in the satisfaction construction mechanism is relevant as it allows a more realistic understanding of how consumers react to the company’s actions. Moreover, to the best of our knowledge, no study has analyzed how customer emotional reactions carry over from one experience (i.e. the service failure) to another (i.e. the service recovery). Consequently, this research would contribute to the consumer behavior literature by showing how pairs of emotions affect customer attitudes behavioral intentions.
From a managerial standpoint, the research findings might help managers of service companies to develop solution and skills aimed at managing customers’ emotional reactions following service failure/recovery situation. For example, negative emotional reactions might become a severe problem for service firms as customers might become aggressive, engage in retaliatory behavior or disrupt the service in a manner that negatively affects the organization or the other customers. Knowing the type of emotions that a service failure evokes might help companies develop solutions to manage the set of negative feelings customers might express.
In addition, findings on how emotional reactions carry over from one experience (i.e. the service failure) to another (i.e. the service recovery) might guide companies in the planning of the service recovery process. For example, knowing that a negative emotion triggered by the service failure followed by a positive emotion triggered by a good service recovery produces satisfied customers might help companies to focus more on the quality and speed of the recovery process than on the management of the emotion.
3. Preliminary research propositions
The decision-making literature has recognized for some time that different patterns of emotions might affect customer evaluations and choice (Ross and Simonson 1991). Although this body of research has mainly concentrated on the evaluations of pairs of experiences rather than on the emotional reactions aroused from these experiences, in accordance with theories on emotions, also emotions that arise from the appraisal of one experience might combine with the emotions aroused from a subsequent experience and affect evaluations and behavior.
Psychologists provide a number of possible reasons to explain how pairs of experiences might affect evaluations and behaviors. One explanation is based on the notion of endowment and contrast. Tversky and Griffin (1990) show that a hedonically relevant event influences subsequent evaluations of well-being in two ways: through an endowment effect and a contrast effect. The first is the event direct contribution to one’s satisfaction. So, for example, a nice meal in an Italian restaurant in Rome contributes to the endowment of a German tourist visiting the city. However, this same event gives raise to a contrast effect. A later meal in the Italian restaurant in the tourist’s hometown becomes somewhat less satisfying by comparison with the experience he had in Rome (Tversky and Griffin 1990). So, the contrast effect represents the indirect contribution of an experience through its effect on the evaluation of a subsequent experience. In more general terms, a positive (negative) experience makes a customer happy (unhappy), but it also makes subsequent positive (negative) experiences appear less positive (negative). In a similar way, it is possible to infer that a negative event would make a following positive event appear even more positive (Ross and Simonson 1991). This implies that a positive outcome following a negative one is more positive than the same positive outcome that occurs in isolation.
Based on this discussion, we contend that an endowment and contrast effect operates on the emotional reactions customers experience during the service failure/recovery journey. More precisely, customers experiencing a negative emotion after the service failure, and a positive emotion following a successful service recovery will be more satisfied than customers that have not had any emotional reaction after the service failure but have felt a positive emotion after a successful recovery. We advance:
Proposition 1: A positive recovery emotion following a negative failure emotion will have a stronger effect on customer satisfaction with complaint handling compared to the same positive recovery emotion in isolation
Another explanation on how pairs of experiences affect evaluations could stem from the extension of Kahnemen and Tversky’s (1979) prospect theory. Prospect theory describes the individuals’ decision process in two stages: editing and evaluation. In the editing phase, the decision makers are predicted to edit a complicated decision into a simpler one, usually specified in terms of gains versus losses. In the second phase, decision makers choose between the edited options available to them. The choice is based on two dimensions, the apparent value of each option, and the weight assigned to those options.
Prospect theory has been developed to evaluate single events, so that a question arises when prior gains and losses are to be integrated in this framework. Thaler (1985) introduced the concept of mental accounting to explain how the editing principles are influenced by prior outcomes. Thaler’s (1985) findings show that, in presence of prior events, individuals prefer to segregate the gains and integrate the losses. For example individuals are likely to value more the different feature of a service when they are presented separately (i.e. customers value more the detailed description of hotel room amenities such as free-internet, tea/coffee making facilities, personal items rather than the presentation of a generic category “room amenities”).
Conversely, editing principles state that, adding a $50 loss to an existing $1000 loss will have little impact on customer evaluation. For example, a customer buying a car insurance will more likely accept to have the cost of an additional coverage option (e.g. windshield replacement) when the option is added on to the larger purchase.
In line with mental accounting editing principles, one should expect that customers having experienced a double deviation (i.e. a service failure plus a poor service recovery) should integrate the second loss (i.e. the poor service recovery), and evaluate the service the same way as if the poor service recovery had occurred in isolation. However, studies by Thaler and Johnson (1990) report findings that deviate from this editing principle. In two experiments, the researchers show that losing $9 upset respondents more after losing $30 than alone. Thus, respondents answered as they were not ignoring the initial loss. Rather, the initial loss increased the loss aversion associated with the subsequent loss (Thaler and Johnson 1990). The authors tentatively ascribe this deviation from mental accounting principles to negative affect. Negative affect might sensitize people to subsequent losses and exacerbate their evaluations.
In agreement with Thaler and Johnson’s (1990) findings, we propose that a poor service recovery will hurt more after a service failure than it would if experienced alone. This implies that an “emotional double deviation” will a have a stronger negative effect on satisfaction with complaint handling than an isolated negative service recovery emotion. We propose: