The Wall Street Journal featured this in depth article on handling customers this week:

Making the Most
Of Customer Complaints

Dealing with service failures means a lot more than just fixing the immediate problem. Here's how to do it right.

By STEFAN MICHEL, DAVID BOWEN and ROBERT JOHNSTON

The Journal Report

See the complete Business Insight report.

But unfortunately, most companies limit service recovery to the staff who deal directly with customers. All too often, companies have customer service sort out the immediate problem, offer an apology or some compensation, and then assume all is well. This approach is particularly damaging because it does nothing to address the underlying problem, practically guaranteeing similar failures and complaints.

What businesses should be doing is looking at service recovery as a mission that involves three stakeholders: customers who want their complaints resolved; managers in charge of the process of addressing those concerns; and the frontline employees who deal with the customers. All three need to be integrated into addressing and fixing service problems.

Tensions naturally arise in and among the groups. For example, customers can be left feeling that their problem wasn't addressed seriously, even when they've received some form of compensation. Service reps can start seeing complaining customers as the enemy, even though they point out flaws that need fixing.

More Management News & Ideas

WSJ.com has a new section devoted to management issues, with expanded coverage. Highlights this week include:

Managers in charge of service recovery, meanwhile, can feel pressure to limit flows of critical customer comments, even though acting on the information will improve efficiency and profits.

However, successfully integrating these three perspectives is something that fewer than 8% of the 60 organizations in our study did well.

Based on our research and our own years of work in service management, here is a look at the three stakeholders in service recovery, focusing on their different perspectives and the tensions that arise among them. We then make recommendations on how to address these tensions and integrate the aims of all three to achieve better -- if not perfect -- service.

anies can empower frontline service workers.

The Customer

Fairness is typically the biggest concern of customers who have lodged a service complaint. Because a service failure implies unfair treatment of the customer, service recovery has to re-establish justice from the customer's perspective.

Say a bank customer requests a deposit receipt from an ATM but the machine fails to print one. The customer becomes worried and goes to one of the bank tellers. The teller checks the account, and assures the customer that there is no problem, that the deposit was made. But if the teller only focuses on the fact that the account was credited, he or she has ignored what in the customer's view was the most severe and critical aspect of the service failure: the worry initially felt, and the extra time it took to verify the deposit.

Customers often want to know -- within a reasonable time -- not only that their problem has been resolved, but how the failure occurred and what the company is doing to make sure it doesn't happen again.

A customer's faith can be restored using this kind of approach -- once. We have even noted something referred to as a "recovery paradox," in which customers can be more delighted by a skillful service recovery than they are by service that was failure-free to start with.

But there is a flip side to this as well: Customers have more tolerance for poor service than for poor service recovery. And if a customer experiences a second failure of the same service, there is no recovery strategy that can work well. In all likelihood, that customer will be lost forever.

Our research suggests that after a failed service recovery, what annoys -- and even angers -- customers is not that they weren't satisfied, but that they believe the system remains unchanged and likely to fail again.

For Further Reading

See these related articles from MIT Sloan Management Review.

Linking Customer Loyalty to Growth

By Timothy L. Keiningham, Lerzan Aksoy, Bruce Cooil and Tor Wallin Andreassen (Summer 2008)
The authors argue that there is no single metric that equates the entire customer experience.
http://sloanreview.mit.edu/smr/issue/2008/summer/14/

Listening to the Customer: The Concept of a Service-Quality Information System

Leonard L. Berry and A. Parasuraman (Spring 1997)
The authors advocate a listening system that uses many research approaches in combination to capture, organize and disseminate information.
http://sloanreview.mit.edu/smr/issue/1997/spring/5/

Understanding Customer Delight and Outrage

By Benjamin Schneider and David E. Bowen (Fall 1999)
The authors base their conceptualization on people's needs rather than the more conventional model that focuses on customer expectations about their interactions with a firm.
http://sloanreview.mit.edu/smr/issue/1999/fall/3/

Recovering and Learning From Service Failure

By Stephen S. Tax and Stephen W. Brown (Fall 1998)
Effective service recovery is vital to maintaining customer and employee satisfaction and loyalty, which contribute significantly to a company's revenues and profitability.
http://sloanreview.mit.edu/smr/issue/1998/fall/6/

Giving Customers a Fair Hearing

By Anthony W. Ulwick and Lance A. Bettencourt (Spring 2008)
The authors studied 10,000 customer need statements from many industries and discovered that companies have not even established a definition of what a customer need is or how user input should be standardized in terms of structure and format.
http://sloanreview.mit.edu/smr/issue/2008/spring/14/

The Manager

The chief aim of managers in service recovery is to help the company learn from service failures so it doesn't repeat them. Learning from failures is more important than simply fixing problems for individual customers, because process improvements increase overall customer satisfaction and thus have a direct impact on the bottom line.

But companies generally obtain and study only a fraction of the service-failure data that could be gathered from customers, employees and managers. Even when managers agree that customer feedback is essential, there is often poor information flow between the division that collects and deals with customer problems and the rest of the organization.

In some cases, one study revealed, the more negative feedback a customer-service department collects, the more isolated that department becomes, because it doesn't want to be seen by the company at large as a source of friction. Some companies even create specialist units that can soak up customer complaints and problems with no expectation of feeding this information back to the organization. Others actually impede service recovery by rewarding low complaint rates, and then assuming that a decline in the number of reports indicates customer satisfaction is improving.

Some managers in our study saw conflicts between providing great customer satisfaction and achieving high productivity. For instance, incentive structures sometimes placed equal values on sales and on customer service. But as one manager noted: "If you want to achieve 100% [satisfaction], you don't have time for selling. It's questionable whether you can score 100% on service quality and 100% on [sales] objectives."

In any kind of business, there comes a point at which a service recovery can become excessive in the company's eyes, and be seen as giving away the store. However, many customers don't want a payoff. They simply want to have their problem fixed and to be reassured that it won't happen to other people in the future.

The Employee

Frontline service employees have the greatest job satisfaction when they believe they can give customers what they expect.

These workers have the difficult task of dealing with customers who hold them responsible even when the failures in question are completely out of their control. The attitudes of customer-service workers, positive and negative, spill over onto customers.

Yet companies do surprisingly little to support them.

To be successful, these workers need to feel that management is providing the means to deliver successful service recovery on a continuing basis. Alternatively, when employees believe management doesn't support them, they tend to feel they are being unfairly treated and so treat customers unfairly. They display passive, maladaptive behaviors and can even sabotage service.

This alienation is compounded when the workers believe that management is not improving the service-delivery process, which keeps employees in recurring failure situations. Even though complaining customers represent an opportunity to fix problems and improve satisfaction, alienated employees often see them as the enemy. In a study of a major European bank, employees in Switzerland consistently indicated that they did not consider reports of missing account statements to be complaints. As one said: "These things happen. There is nothing we can do about that."

At companies that reward low complaint rates, frontline employees become tempted to send dissatisfied customers away instead of admitting a failure has occurred.

Craig Frazier

Resolving the Tensions

Our experience with managers interested in improving service recovery indicates that most hope for a quick fix of some specific tensions. But quick fixes only treat the symptoms of underlying problems. Real resolutions should involve closer integration among the three stakeholders, such as gathering more information from customers and sharing it throughout the company, and adopting new structures and practices that make it easier to spot problems and fix them.

We suggest the following five strategies:

Create a "service logic" that explains how everything fits together. This should be a kind of mission statement or summary of how and why the business provides its services. It should integrate the perspectives of all three groups:

What is the customer trying to accomplish, and why?

How is the service produced, and why?

What are employees doing to provide the service, and why?

The results should serve as a guide both for delivering service and for help with service recovery. It should include a detailed study of internal operations; map out how the company responds to customer complaints; and describe how the company uses that information to improve service-recovery processes. Similar mapping should detail every step of customer experiences, including those of real customers with complaints, highlighting their thoughts, reactions and emotions along the way. Highly skilled managers and employees who can think outside the box are a must.

TNT NV, a Netherlands-based global delivery company, developed a service logic to help it grow in a mature market. Using a small, high-powered management team backed up by customer discussion forums, the company mapped its processes from a customer point of view, including a map of customer emotions during both regular processes and service recovery. The mapping exercise and the service logic that it produced led to a redesign of processes by managers and field staff that cut across traditional functional boundaries.

For example, previously a driver running late for a scheduled delivery had to call into the control center, which would then contact customer services, which would then contact the customer. Such calls often arrived after the delivery already had been made, thus further annoying the customer and embarrassing the driver. Since the process redesign, however, a driver running late is allowed to contact the customer directly. TNT drivers frequently visit the same customers almost every day, so their customers know them and appreciate the personal contact. The drivers also appreciate being able to make the calls directly.

Draw attention to the successes of customer-service groups. Companies use in-house publications, intranets and training programs to share stories that emphasize their values and culture. Employees who come up with cost-saving ideas, for example, are often singled out for praise. But rewards and recognition also should flow to heroes in service-recovery stories. Such heroes can be on the operations side, helping to develop cost-efficient systems for handling complaints, and on the marketing side, giving a customer extraordinarily helpful treatment after a service failure.

Recovery Mode

The Issue: Every business can expect complaints from customers. It's how a business handles the complaints that matters most, and many do so poorly.
The Problem: When companies don't give upset customers a fair hearing or some assurance that the problem won't happen again, they are putting repeat business, profits and growth at risk.
The Solution: The key is to address tensions that arise among front-line employees who handle complaints, the managers of those employees, and the customers themselves. Steps include starting a complaints database that managers can analyze and use to improve service, and rewarding service employees not for reductions in complaints but for providing exceptional solutions to problems.

Singapore Airlines Ltd., in its in-house magazines, frequently tells stories about employees who have provided not only outstanding service, but exceptional service recoveries. Senior managers, too, will not hesitate to swoop in anywhere there is an issue, creating more stories about internal vigilance.

When customer-service employees believe that their goals are in line with the organization's values, they are more willing to exert the extra effort required in a failure-and-recovery situation.

Give customer-service staff as much freedom as your business strategy allows. When a business has very few routines and its ties to customers are based on individual relations, service representatives should have more autonomy in resolving complaints. For such businesses, spending more time on service recovery -- and retaining customers -- has a clear effect on the bottom line. By contrast, in a highly standardized business with purely transactional customer relationships, such as a fast-food restaurant, employees should adhere to procedures in resolving complaints. Customer satisfaction in such businesses is closely aligned with high productivity, so there is less to be gained by customizing resolutions of complaints.

Ritz-Carlton, for example, the luxury brand of Marriott International Inc., authorizes personnel at the front desks of its hotels to credit unhappy customers up to $2,000 without asking a supervisor's approval. On the other hand, in one of our consulting projects, a client reacted very negatively to this approach, claiming that such a policy would be too expensive for his company. We replied that the high cost of poor service is exactly what makes this system work so well: It forces management to eliminate service failures in the first place.

Collect as much data as you can, and share it widely. Companies must gather more feedback about poor service, record it and make it accessible. Managers and other employees have to be armed with strong information to be effective at resolving disputes.

It should be easy for customers to file complaints. One way to achieve this is by offering many communication channels. A regional airline in Asia, for example, uses annual passenger surveys, interviews with frequent fliers, focus-group discussions, customer hot lines, critical-incident surveys, onboard suggestion leaflets and even live call-in radio shows.

Software should be used that serves as a database for both positive and negative communications with customers. Employees and managers should be trained to mine the data and put it to use easily and quickly.

Use meaningful measures of employee performance -- rewards and demerits. Positive reinforcement and incentives should be offered for solving problems and pleasing customers. A system for measuring customer satisfaction should be devised to help rate employee performance. Salary increases and promotions then should be linked to an employee's achieving certain levels. There also should be disincentives or demerits for poor handling of customer complaints. Performance reviews thus may include a balanced scorecard -- one that recognizes the need for both productivity and customer satisfaction.

—Dr. Michel is associate professor of marketing at Thunderbird School of Global Management, Glendale, Ariz. Dr. Bowen is the Robert and Katherine Herberger chair in global management and a professor at Thunderbird. Dr. Johnston is professor of operations management at Warwick Business School, University of Warwick, Coventry, England. They can be reached at reports@wsj.com.

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