…Compensating customers when things go wrong
By J. N. Halm
It goes without saying that sometimes things go wrong in the course of serving customers. Despite the very best efforts of businesses, things do not always go according to plan. That is just the way life goes. Bookings are occasionally messed up. Orders are sometimes bungled. Even the best services every so often go awry. No single business or industry is spared from this. Banks, media houses, hotels, eateries, IT firms, etc. all will, once in a while, find themselves with aggrieved customers due to the failure to deliver as expected.
When things go wrong, it is only natural to expect that the business in question does something about the situation. When things go wrong, the least customers expect is a fair resolution. Customers understand that things can go wrong. They know there is nothing like a perfect situation. Therefore, in many instances, it is not the fact that things have gone wrong that angers customers. It is the failure of the business in question to do something about the situation (and to do so quickly) that irritate customers.
When service fails, two things are actually expected by customers—a recovery of the unfortunate situation and then, a compensation of sorts for the customer. With service recovery, the business attempts to solve the problem. If it is a wrong order, for example, the business will have to redo the order and offer the customer a new order. If it is a gadget that fails to perform as expected, the gadget might be replaced. If it is luggage that is misplaced, the first thing expects is for the luggage to be found and return to the customer as soon as possible.
With compensation, the business would have to give the customer a gift of a sort just to appease the one. An example could be giving the customer a gift voucher or a coupon. The business can even tell the customer that any future purchases might receive some discount. The disappointed customer could be appeased with freebies of several kind. All these count as compensations.
It has been found that omitting any one of these two—recovery and compensation—could lead to customer dissatisfaction. For instance, resolving the problem without compensating the customer in one way or another might greatly displease the customer. On the other hand, it is almost unthinkable that a business will go ahead and compensate an aggrieved customer without resolving the issue that led to the customer becoming aggrieved in the first place. The two must necessarily go hand-in-hand.
Anything short of a good combination of recovery and compensation could lead to customers responding negatively to the service failure. Some customers might take their business to the competition. Some would not go out of their way to recommend that business to others. As a matter of fact, some aggrieved customers would go out of their way to ensure that others do not do business with that particular service provider again.
From the above, it is clear that the importance of compensation cannot be overemphasized. Compensating aggrieved customers is of great importance to the business-customer relationship. It is therefore not surprising that many studies have been done on the subject of customer compensation and many schools of thought have been propounded on the subject. Businesses have had to develop their own strategies and policies around the subject of customer compensation.
It is commonly expected that when offering compensation to customers after a service failure, the compensation has to be substantial enough to appease the customer. In fact, it is argued that the compensation should be such that it makes the customer happier than one would have been if there had not been any service failure in the first place.
Some researchers have however urged caution against this approach. There have been arguments that there are many occasions when businesses have actually overcompensated aggrieved customers. In other words, the business in a bid to appease the customer ends up spending too much money.
This is an important issue because profit-making businesses cannot afford to waste money. Therefore, if there is a possibility that businesses are spending too much on compensation, then this is an issue worth considering. These experts believe that a business can offer compensation that is not that substantial and still leave the customer happy. They claim the trick is in having the right strategy for compensation.
It is critical to remember that when things do not go according to the customer’s expectations, an apology should first action be given by the business. An apology must be sincere for it to have the desired effect. Also, an apology must be timed well for it to appease the aggrieved customer.
After the apology, the next step of the right strategy is to involve the customer in the service recovery and compensation efforts. “How can we solve (or resolve) this issue?” “What can we do to make you happy?” “How do you think we can go about handling this matter?” These are some of the questions that a customer must be asked to make that customer a part of the recovery process.
Involving customers is part of what is commonly referred to as co-production. This is the idea that creating the best experience is the job of both the business and the customer. Therefore, when things do not go according to plan and attempts are made to resolve the issue, the customer must also play a very important role. After all, the plan is to make that same customer happy, and who better to tell what will make the customer happy, than the customer himself or herself? This is why customers are to be asked what they want in a service recovery and compensation process.
Additionally, asking the customer what he or she wants also makes the customer feel very important. When customers feel important, there is a greater likelihood that they will develop a greater emotional connection to the business in question. Also, when the customer is fully involved in prescribing the solution, it becomes almost impossible for the customer to have problems with the final solution.
Involving the customer in finding the right solution to a service failure has been known to have other advantages. For instance, it is said that among the factors that affect the success of any service recovery is the personality of the customer involved. There are some customers whose personality means that they are harder to please, especially when things do not go well. However, research has shown that, even those types of customers can be appeased if they are made a part of the service recovery and compensation process.
The thing about compensation is that it is an issue of perceived fairness. When something goes wrong, the first reaction of a normal customer is to feel cheated. After all, it is the one’s own hard-earned money that is being used to pay for the service. Even if the customer has yet to part with money, the idea that he or she has spent time to attempt to enjoy the service is seen as some form of investment. Therefore, any attempt to compensate the said customer would be weighed in balance with what the customer has invested in the service. Bringing the customer in is a way of balancing the scale of fairness in the customer’s favour.
As important as it is to bring customers to the table when it comes to deciding what to do when there has been a poor service situation, there is also always the fear of customers asking for more than the business can afford. What if the customer makes a request that is impossible to be fulfilled by the business? Will that not lead to greater dissatisfaction on the part of the customer? Is the business not setting itself up for further failure by asking customers what would appease them?
Researchers from the Department of Business and Economic Studies of the University of Gavle in Sweden, argued that using the right suggestions can get customers to opt for lower compensations. In their strategy, it is the customer who demands the compensation of a specific amount. They refer to this as the Demand What You Want Strategy. Their findings were published in a paper titled, “The Demand-What-You-Want Strategy to Service Recovery: Achieving High Customer Satisfaction with Low Service Failure Compensation Using Anchoring and Precision Effects. The study results were published in the August 2023 edition of the Journal of Service Theory and Practice.
This is how the researchers went about their work. After suffering a service failure, selected customers were told that there was a standard amount (a round figure) that each customer who had that unpleasant experience would be compensated with. Thereafter, customers were asked to state the amounts they would want to feel adequately compensated. It came to light that the standard amount that it suggested to customers aided in customers mentioning amounts that were substantially lower than what they actually deserved.
The experimenters even conducted a second experiment to further corroborate their earlier findings. In the second experiment, rather than a round-figure monetary suggestion, the researchers presented the aggrieved customers with more specific amounts. According to the findings, the specific-amount suggestions made to customers resulted in customers asking for lower compensation. As a matter of fact, a higher but specific amount led to lower compensation demand compared to a lower but round figure suggestion.
If the results of this study are anything to go by, then it provides businesses with a way to save money while still retaining the business of an aggrieved customer. It prescribes a cost-effective of managing service recovery without losing valuable customers. It must therefore be given serious consideration by all businesses.
