Customer Complaints Behaviour, Service Recovery and Behavioural Intentions: Literature Review

Transcription

1 Customer Complaints Behaviour, Service Recovery and Behavioural Intentions: Literature Review *Mabel Birungi Komunda Lecturer, Faculty of Marketing and Hospitality Management, Makerere University Business School Abstract This research is a literature review is on customer complaints behaviour, complaints handling mechanisms and behavioural intentions (customer loyalty and word of mouth). The study is on the relationship between customer complaints behaviour, complaint handling mechanisms and customer loyalty. The dependent variable is behavioural intentions while the independent variable is CCB. This study is trying to investigate customer loyalty and word of mouth because it is more expensive to win new customers than keep the existing customers. Customer loyalty is acknowledged as an important indicator of the likely success of a business. Customer loyalty is measured by word of mouth and customer retention. Word of mouth is a powerful marketing tool and it has high credibility. WOM has been defined as informal communication between private parties concerning evaluations of goods and services. Customer retention refers to actions that a selling organization undertakes in order to reduce customer defection. A growing body of literature suggests that customer loyalty has positive impact on client retention. Companies need to make complaining worthwhile, otherwise the customer will not bother to make the effort. Unfortunately, handling complaints is not being handled well in terms of customer service and therefore 50% of the customers do not complain. Such customers take complaining as confrontation or as a load of hassle where companies don t care. Hence, customers dissatisfied by the complaining procedure may exit. Yet there is need for feedback and action to reduce the negative effect. Consequently, the company misses out on important information from feedback which may lead to problems in continuous improvement. For the companies where complaints are not handled well, customers may demonstrate their loyalty by choosing to make repeat purchases, stay with the provider (be loyal), increase their number of purchases (be clients) or may become advocates of the company through positive Word of mouth. Basing on market orientation, this is an orientation that is based on the marketing concept where the focus of the marketer is on the customer. There is a consensus that Market orientation involves the collection of market information and dissemination of the information for action. Companies need information to improve their relationship with the customers to create customer loyalty. Chapter One Customer Complaints Behaviour 1.0 Introduction Given the competitiveness and complexity of the existing service sector, there is a growing interest in understanding how customers evaluate the service experience (Stauss and Seidel, 1

2 2005). Since all organisations experience some degree of customer dissatisfaction, it makes it crucial to study post dissatisfaction behaviour of customers (Ndibusi and Ling, 2006). An understanding of how customers behave after feeling dissatisfied about the product or service received is necessary. According to Michel (2002), ninety percent of the angry customers do not complain. Thus the organization fails to get important information for solving service failure problems before the failure gets to another level (Michel, 2002). This is because many organizations still regard customer complaints as not only an unpleasant fact of business life but also as a waste of time and money in investigating these concerns (Atalik, 2007). Maxham III and Netemeyer (2003) assert that in the event that the service recovery attempt itself is also unsatisfactory, it would serve to make matters worse by exacerbating already low evaluation levels ( double deviation ), and intensify customer dissatisfaction levels. The importance of handling customer complaints and service recovery is clear, and the many issues surrounding the topic shall continue to be of great interest to academicians and practitioners of marketing. This calls for a study of these processes and service providers' responses in terms of service-recovery activities, organizational responses and implications for customer experience outcome like lack of satisfaction, lost customer lifetime value and behavioural responses (Lin, Wang & Chang, 2011). Organizations need information on how to handle customer complaints. A complaint provides an opportunity for service recovery followed by a chance to educate the customer and strengthen loyalty (Komunda and Oserankhoe, 2012). Yet, complaint behaviour represents a real challenge for organisations that wish to improve their customer service as explained by Heung and Lam, (2003), Kim et al. (2003), Ndibusi and Ling, (2006) get feedback about products and services and reduce their negative effects. Unfortunately, most disappointed customers do not complain after service failure, but exit (Tax et al., 1998). Organisations should try to understand how customers react to service failure and the providers' efforts towards recovery. This is because service failures or mistakes are unavoidable, even for the best service organization. Research has shown that more than half of attempted recovery efforts only reinforce dissatisfaction. Effective complaints handling gives benefits to the organisation of facilitation of maximization of customer loyalty; it is used in action taking; helps to seek corrective actions by the organisation and to get feedback (Tronvoll, 2012). Therefore, the channel should be viewed to be useful and effective by customers. The main themes in extant literature on customer complaint behaviour encompass issues such as complaint handling and the affective nature of satisfaction, recovery-related emotions, and negative WOM communications (Menon & Dube, 2000). The most common type of complaint behaviour includes warning family and friends and stopping patronizing the retailer (Heung and Lam, 2003). This may create a bad image for the organisation leading to disloyalty. Most research on complaint behaviour has focused on either the motivation for complaining and explanations for particular types of complaint behaviour (Bolfing, 1989). Customer Complaints Behaviour (CCB) was often treated as a static phenomenon (Hirschman, 1970; Singh, 1990) and located in post purchase behaviour 2

3 (Stephens, 2000). However, Crie (2003) regarded CCB as an immediate act, rather than a process. Tronvoll (2007) rejects the previous approach and contends that CCB should be understood as a process rather than a static phenomenon. Basing on Ballantyne and Varey (2006), CCB is tightly interwoven with the initial service interaction and the subsequent evaluation of value-in-use. It seems that the issue of effective complaint handling is still not adequately addressed by organisations and this integrated perspective of CCB has received little attention in literature. Analysis may lead to interest into further research on CCB and CBR. 1.1 Nature and Scope of Customer Complaints Complaint behaviour can be described as a behavioural expression of an unfavourable attitude toward an object, person, or situation (Johnston and Michel, 2008). Customer complaints behaviour (CCB) has often in marketing been seen as either a static and postpurchase activity or as a dynamic adjustment process. This issue is still debated. A complaint provides an opportunity for service recovery followed by a chance to educate the customer, strengthen loyalty and evoke positive WOM comments. Successful organisations encourage customers to complain (Tronvoll, 2012). It is because of the dynamic competition in the service sector that there is a growing interest in understanding how customers evaluate the service experience (Stauss and Seidel, 2004). So since all organisations experience some degree of customer dissatisfaction (Ndibusi and Ling, 2006), it makes it crucial to study post dissatisfaction behaviour of customers. Research by Casado, Nicolau and Mas (2011) suggests that consumer complaint behaviour (CCB) is a complex phenomenon. The complexity in CCB is reflected in the number of alternative taxonomies, schema and definitions proposed to explain this kind of behaviour. Tronvoll (2007) adds that higher information control and weaker ties between the consumer and the service provider enhance customer complaints. Therefore, management needs to establish the processes and service providers' responses in terms of service-recovery activities, organizational responses and implications for customer experience outcome like problems of lost customer lifetime value and behavioural intentions (Tronvoll, 2007). Complaint behaviour is not being well handled in terms of customer service (Heung and Lam, 2003; Kim et al., 2003; Ndibusi and Ling, 2006). There is need of feedback and action to reduce their negative effect. Basing on the above, marketers are today seeking information on consumer behaviour and how to handle customer complaints. Information and feedback from customers are generally acknowledged as important factors in achieving a positive marketing outcome (Maxham and Netemeyer, 2003). Unfortunately, most of the customers do not complain after service failure dissatisfaction, but exit (Tax et al., 1998). Therefore, organisations need to understand how customers react to service failure and the providers' efforts towards recovery. Customer complaint behaviour (CCB) refers to the responses triggered by perceived dissatisfaction that is neither psychologically accepted nor quickly forgotten in consumption of a product or service (Homburg & Fürst, 2005). A commonly used definition of customer 3

4 complaining behaviour was suggested by Singh (1988, p.94), who conceptualized it as a set of multiple (behavioral and non behavioural) responses, some or all of which are triggered by perceived dissatisfaction with a purchase episode. On their part, Jacoby and Jaccard (1981) had earlier defined it as an action taken by an individual that involves communicating something negative regarding a product or service. Complaining by satisfied consumers is considered outside the realm of Customer complaints behaviour (Singh 1988). Traditionally, the common determinant of complaining behaviour was described as dissatisfaction. Consumer dissatisfaction is a result of the discrepancy between expected and realized performance (Ndibusi and Ling, 2006). Dissatisfaction is based on disconfirmation of expectation (Oliver, 1980) and it is defined as a customer experience that is less than the perceived expectation. Negative disconfirmation occurs when the service performance does not live up to prior expectations. During service encounters, consumers expect zero-defects in service delivery. Despite the service provider s attempts to offer consistent, high-quality service to consumers, service failures may still occur because of the critical service characteristics of inseparability and variability. Service delivery is heterogeneous across service encounters due to the variability in situational factors and individual differences between consumers and service employees (Singh, 1990). Dissatisfaction is identified as the independent factor that is necessary to trigger consumer complaints (Heung and Lam, 2003). However, many consumers who are dissatisfied may not take any complaint actions, and those who take actions expect to get justice (Gruber, Szmigin, and Voss, 2009). For customers who feel that justice was not served, they are likely to feel angry, and may engage in negative WOM or may exit (Brodgett and Anderson, 2008). It has been argued that organisations may recover customers after one failure; however, it may be difficult to recover from multiple failures. This requires well planned communication effectiveness with appropriate dialogue and interactions. 1.2 Causes of Customer Complaints The post complaint satisfaction s occurrence can be explained by the disconfirmation paradigm (McCollough, Berry & Yadav, 2000). Satisfaction is the result of a comparison judgment between expected and actual performance (Gelbrich and Roschk, 2010). Based on the objects of judgment, satisfaction is distinguished in two constructs, transaction specific and cumulative satisfaction. Transaction specific satisfaction refers to the judgment of a single observation (Oliver, 1997) or satisfaction with recovery (Maxham III and Netemeyer, 2003). Cumulative satisfaction extends the scope of judgment to the accumulated experiences of consumers (Johnson, Anderson and Fronell, 1995). It entails a condensed judgment of a broader spectrum of experiences, which leads to a more abstract level of evaluation than does transaction specific satisfaction. 4

5 1.3 Hierarchical Classifications in Complaint Behaviour The hierarchical classifications commonly cited in the relevant literature are by Hirschman (1970); Day and Landon, (1977); and Singh (1988). Research on CCB enable academics and practitioners to gain a better understanding of the processes that emerge during and after the service (disappointing) experience to be loyal, seek redress or exit, basing on the various taxonomies. Hirschman s (1970) theory of exit, voice and loyalty was one of the first to conceptualize customer complaining behaviour and it is one of the most accepted taxonomies. Hirschman (1970) focused on political parties and the possibility of members being able to change political strategy and aims. According to Hirschman (1970), the customer has three options, namely voice a complaint to the seller or a third party; exit the relationship with the seller through switching or take no action (loyalty). Exit can be seen as an economic action and voice is more of a political statement. The model suggests that the customer's action is dependent on the degree of customer loyalty; and loyal customers use their voice when they experience a reduction in quality. Heung and Lam, (2003) agree with Day and Landon (1977). Several researchers have added to Hirschman's conceptualized model and have empirically confirmed that the three predictor s model finds reliable measures for exit, voice and loyalty (Andreasen, 1985). Hirschman's three-dimensional classification schemes have had a vital impact on complaining behaviour research and have influenced the work of political scientists, sociologists, social psychologists and marketers. His research has increased the interest and understanding of CCB and has resulted in a large collection of complaint data. It has also enlightened the conceptual structure of complaining behaviour and service recovery research. Huefner and Hunt, (2000), for example, have extended Hirschman's complaint model and included retaliation as an additional behavioural outcome. The disappointed customers who take no action have the explanation that it may not be worth the time and effort (Heung and Lam, 2003). The action taken by consumers includes complaining to the seller, stopping patronage and diverting to mass media (Heung and Lam, 2003). Hirschman (1970), Day and Landon, (1977) and Tronvoll, (2007) described CCB with terms take some action or take no action ; private or public action. Private action is a type of action that may not be brought to the attention of the organisation; there is little effort on behalf of the consumer to complain. The issue of action/no action may depend on the nature and importance of the product which is causing dissatisfaction, plus the evaluation of the effort and time required to make a complaint and the perceived outcome. Singh (1990) suggests that consumers tend to use third-parties: when other CCB options cannot be executed and when they think that direct voice to the organisation is unlikely to be successful. However, the customer dissatisfied with service recovery may take all the options by voicing a complaint to the seller and to the third party, and exiting. 5

6 1.4 Customer Complaints and Demographic Variables In the study of CCB, researchers have found significant differences and impacts of demographic variables (gender, age, education level and income) on consumer complaints (Heung and Lam, 2003). Consumers who choose to complain are found relatively younger, high income and more educated (Day and Landon, 1977; Singh, 1990). In terms of gender, majority of female complainers were more likely to voice their complaints than their male counterparts (Heung and Lam, 2003; Kau & Loh, 2006). However, these results were contradicted by the findings of Manikas and Shea (1997) who concluded that male customers complained more than their female counterparts. This contradiction needs further research. Jacoby and Jaccard (1981) found that customers with a higher level of education were more likely to complain, with the explanation that better educated customers may be more knowledgeable about their rights as consumers, and the method of seeking redress. With regards to public and private complaint defection relationship, researchers ought to study the demographic factors that could be explanatory (Kau et al, 1995). In a nutshell, CCB appears to be more complex than a simple reaction to post purchase dissatisfaction. Dissatisfaction does not always lead to complaints and vice versa. Although research has grown in this area, there are still limitations and a lack of agreement over the reasons for complaining behaviour. The diversity of variables proposed as antecedents and the partial approach of most studies makes it difficult to identify the origin of complaining behaviour with any precision. The existing complaint models are challenged because of their static and single post purchase focus and therefore the need for further research in this area. 6

7 Chapter Two Service Failure and Recovery 2.0 Introduction After service failure, some dissatisfied consumers seek redress, while others do not approach the seller with their complaints (Gruber, Szmigin & Voss, 2009) but may engage in negative WOM behaviours. This is because many organisations do not pay sufficient attention to handling complaints effectively (Stauss & Schoeler, 2004). Majority of complaining customers are dissatisfied with the organisation s complaint handling efforts (Naylor, 2003). However, when customer complaints are well-resolved and the relationship between the organisation and the customer is improved, this can lead to improvement in terms of customer satisfaction, trust and commitment to the organisation. 2.1 Service failure and Service Recovery According to Miller et al. (2000) service recovery refers to actions taken by a service provider in an attempt to resolve the problem that caused a service failure. Service failure is itself determined by elements such as the nature of the service encounter, the cause of the problem and the psychographics of the individuals involved. It is defined from the customers perspective because what an organisation needs to recover from is dissatisfaction that a customer perceives in relation to a service regardless of the cause (Komunda and Osarenkhoe, 2012). Effective service recovery has a positive impact on post recovery WOM and results in complainant satisfaction and recovery (Ndubisi and Ling, 2006). However, a growing number of researchers have identified service recovery as a rather neglected aspect of service marketing and one that warrants much attention (Kim et al., 2003; Ndibusi and Ling, 2006). Extant literature has been carried out on service recovery with both theoretical and empirical assessments by Johnston (1998); Maxham III Netemeyer, (2003); Davidow (2003). Researchers have modelled the antecedents and outcomes of service recovery (Bougie et al., 2003) from a theoretical perspective (McColl-Kennedy and Sparks, 2003) and an empirical perspective (McCollough et al., 2000). They include organizational responses to service recovery (Davidow, 2003), satisfaction and service recovery (McCollough et al., 2000), reasons for not complaining (Stephens, 2000), service-recovery and perceptions of justice (Blodgett and Anderson, 2000). A common theme in all service recovery reviews is the need for customer satisfaction with the organisation s recovery efforts (Tax et al., 1998); otherwise many negative outcomes will result, including lost sales and negative WOM and defections (Tronvoll, 2010). The operations function has the key responsibility and capacity to effectively recover from failures (Miller et al., 2000). Understanding the impact of service recovery on customer loyalty has important implications for the design of the service delivery and recovery systems (Miller et al., 2000); in problem prevention and providing superior recovery when problems occur (Parasuraman et al., 2005). Michel, Bowen and Johnston (2009) present service recovery as the unrealized potential. The research sets out to understand how effective handling of customer complaints and service recovery process 7

8 can turn angry and disappointed customers into loyal ones (Michel, 2002; Lin, Wang & Chang, 2011). Service failures are inevitable and occur in both the process and the outcome of service delivery; and are more variable in services than goods (Morrisson and Huppertz, 2010). Service failure is the problem that a customer has with a service and has been categorized as failure of the core service such as failure to get one s money from an automatic teller machine (ATM) or product and policy failures as attributable to the organization or the customers. They include situations when the service fails to live up to the customer s expectations (Johnston & Michel, 2008). If service providers recognize that the complaining process is interwoven with the co-creation process, it will be necessary to empower employees with regard to better procedures for handling negative critical incidents (Gruber, Szmigin and Voss, 2009). Organizations should use service failures to identify service system problems, reduce customer defections, increase loyalty and positive WOM communication (Spreng, Mackoy and Harrel, 1995). There are different consequences of service failures including dissatisfaction, a decline in customer confidence, negative WOM behaviour and customer defection (Miller et al., 2000; Tronvoll, 2010). This includes situations in which a service failure occurs but no complaint is lodged by the consumer (Smith et al., 1999, p.359) which leads to loss of revenue and increased costs, or a decrease in employee morale and performance. Tax et al. (1998) assert that managing complaints well and recovering customers after a service failure and a complaint, should be the cornerstone of an organisation s customer satisfaction strategy. Service recovery refers to the actions a supplier takes to seek out dissatisfaction and in response to poor service quality, like service failure (Andreassen, 2000). Service recovery has to do with those actions designed to resolve problems, alter negative attitudes of dissatisfied customers and to ultimately retain these customers (Miller et al., 2000, p.38). Poor service recovery threatens the long-term survival of the organisation (Michel & Meuter, 2008; Thwaites & Williams, 2006). Hence, if service organizations do not manage service recovery properly, it could harm their long-term success prospects. When organisations carry out effective complaint handling, this can have a great impact on customer retention rates, deflect the spread of damaging WOM, and improve bottom line performance (Morrisson & Huppertz, 2010). According to Komunda and Oserankhoe (2012), a very good service recovery has a strong impact on WOM communication, and less impact on satisfaction and repurchase intention or loyalty; which is also in agreement with Stauss and Schoeler, (2004). Successful service recovery can enhance customers perceptions of the quality of the service and the organization, lead to positive WOM communication, enhance customer satisfaction and build customer relationships (Michel, 2002). However, the degree of success may depend on the type of service involved; the type of failure that occurred and the speed of response (McDougall & Levesque, 1999). Service recovery may be poor, with the consequence that 8

9 the customer feels let down a second time. This may lead to loss of confidence in the organization which may lead to defection and negative WOM. However, effective service recovery leads to complainant s satisfaction and loyalty (Oh, 2006). 2.2 Handling Customer Complaints Complaints and the processes for handling them are important issues for service providers because they have the potential to have an adverse effect on customer satisfaction and loyalty (Anderson, 1994). Two major areas of research are on the motivation or antecedents for complaining behaviour (Bolfing, 1989); customer factors like demographic characteristics (Tronvoll, (2007); attitudes and experience with regard to complaining behaviour (Singh, 1990). Research on CCB has focused mainly on the customer s attitude towards complaining (Richins, 1983), attribution of blame and the likelihood of a successful solution (Singh, 1990). Lovelock et al., (2001) recommends effective generic guidelines in the successful resolution of complaints. They include acting expediently to resolve the issue; acknowledging mistakes without being defensive; not arguing with customers; openness in solving the problem; considering the possibility of compensation trying to regain the goodwill of customers (McCole, 2004). Despite the fact that organisations appreciate the importance of managing complaints, overall customer satisfaction after a failure has not improved (Michel, Bowen and Johnston, 2009). Organisations should encourage dissatisfied customers to complain so that they can solve the problem and retain the customer. Unfortunately, organisations that do not rise to the challenge of complaining customers are turning down the important opportunity of reclaiming and improving a relationship. Owing to the apparent importance of effective complaints handling, there is a research gap on how organisation management should treat all complaining customers to create complaint satisfaction. Organisations keep trying to improve the service quality but basing on the nature of the service, overall customer satisfaction remains a problem in organisations. A meta-analysis of satisfaction with complaint handling has identified antecedents such as expectation, performance and disconfirmation of expectations (Szymanski & Henard, 2001) while another study has looked at the affective responses to complaint handling experienced by the customer (Varela-Neira, Vazquez-Casielles & Iglesias, 2010). From the meta-analyses perspective, complaint handling is judged by post-complaint customer behaviour such as repurchase intentions and WOM activity (Gruber, 2011). Further research is needed in order to establish a clear line between an organisation s response to a complaint and the impact that that response has on post-complaint customer behaviours. There is also need to quantify the effects of each response dimension on PCB to plan an effective service recovery (Gee, Coates and Nicholson, 2008). To address this research gap, the researcher ought to develop and empirically test a model based on CCB; complaints handling mechanisms and customer behavioural responses. 9

10 Service recovery has an outcome dimension (Duffy et al., 2006), which is what? the customer receives as part of the organisation s efforts to recover, whereas the process dimension of service recovery is concerned with how? recovery is achieved. Duffy et al. (2006) suggest that the outcome dimension is more important when the original service is delivered, but the importance of the process dimension is accentuated in service recovery. However, this may depend on the service in question. Kau and Loh (2006) contends that service recovery involves interaction between a service provider and a customer; a shortfall in the provision of the original service, a response to the shortfall, and a desired result to turn a dissatisfied customer into a satisfied one. 2.3 Redress Seeking Previous research has found that dissatisfied customers choose to seek redress; engage in negative word-of-mouth behaviour, or exit. Seeking redress is based on the perceived likelihood of success (Andreassen, 2000), their attitude toward complaining, the level of product importance; and whether they perceive the problem to be stable or controllable. On deciding to seek redress, consumers usually spend a lot of effort to resolve their complaints where they first take their complaints to their manufacturer/retailer. Davidow (2003) describes redress as a benefit or response outcome that the organization provides to address a customer complaint. Such a benefit may involve more than just the purchase price and may cover additional costs of the failure. The major factor that influences the decision to seek (Blodgett and Anderson, 2000) which refers to the customer s perception of the seller s willingness to remedy the problem without a hassle. Another critical factor is one s attitude towards complaining which refers to an individual s disposition to seek redress when dissatisfied with a product or service. Consumers are assertive and will seek redress whenever dissatisfied, while some are reluctant to complain even when highly dissatisfied. Others seek redress because of the high item costs like in durable goods and costly services than in the case of non-durable items. Ways of seeking redress include refunds, exchanges, repairs, and discounts on future purchases (Orsinger, Valentini & Angelis, 2009). Dissatisfied customers will decide to seek redress or not by assessing whether the problem was stable or controllable. Stability and controllability both indicate some incompetence or lack of concern by the organisation. As for the customers who do not seek redress, they do not voice their dissatisfaction and therefore cannot get justice. Michel, (2002) and Bolton, (1998) contend that ineffective service recovery may further erode customer satisfaction and support for the organisation, and even result in customers switching to competitors. Organisations may not eliminate all service failures (Gruber, Szmigin & Voss, 2006), and service failure is one of the major reasons for the loss of existing customers (Lin, Wang & Chang, 2011). Michel, Bowen and Johnston, (2009) state that despite wide spread awareness of effective service recovery management practices; it clearly remains poorly 10

11 executed. Gruber, Szmigin & Voss, (2009) states that human interaction is important for customers to determine whether service delivery will be deemed satisfactory. Unfortunately, handling customer complaints has not been given due attention yet it is a valuable source of important market intelligence which organizations should use to improve the service. 2.4 Service Recovery Paradox (SRP) To have a SRP, customers ought to have experienced excellent post-failure recovery (Michel and Meuter (2008). SRP is a situation in which a customer s post-failure satisfaction exceeds pre-failure satisfaction (McCollough et al., 2000). Hart, Heskett, and Sasser (1990) frequently cited that a good recovery can turn angry and frustrated customers into loyal ones. It can create more goodwill than if things have gone smoothly in the first place (p.148). A superior recovery effort may induce a paradoxical scenario, that given a highly effective service recovery for a service failure, consumers may have higher rating for loyalty and satisfaction toward the service than if the failure had never happened. This finding has been supported by Magnini et al. (2007), Magnini et al. (2007), Michel and Meuter (2008). Other researchers have findings which reject the SRP (Andreassen, 2000; Maxham III Netemeyer, 2003). Basing on SRP, consumers will rate the failing organisation higher after the recovery than they rated the organisation prior to the failure (Maxham III and Netemeyer, 2003). Godwin and Ross (1992) claimed that the satisfaction levels after complaint handling can prove to be higher than previous levels of satisfaction. It is argued that the organisation s recovery effort can either reinforce customer relationships or compound the failure (McCollough et al., 2000) where a superior service recovery effort may induce a paradoxical scenario (Maxham III and Netemeyer, 2003). Godwin and Ross (1992) suggest that effective complainthandling can lead to higher than previous levels of satisfaction. The SRP has an important effect in the marketing literature. Empirical studies on SRP have produced results that vary considerably in terms of statistical significance, direction and magnitude. Although some studies provide support for the SRP, others have found no support. These conflicting results might be a consequence of a number of factors, from different methodological aspects in the studies to certain conditions moderating the paradox like the severity of the failure, prior failure with the organisation, stability of the cause of the failure and perceived control (Magnini et al., 2007). Given the inconsistencies, De Matos, Henrique and Rossi (2006) conducted a metaanalysis which showed that the cumulative mean score effect of the SRP is significant and positive on satisfaction, supporting the SRP, but non-significant on repurchase intentions, WOM and corporate image, suggesting that there is no effect of the SRP on these variables (De Matos et al., 2007). Additional analyses of moderator variables find that design (cross 11

12 sectional versus longitudinal) and service category influence the effect of SRP on satisfaction. Lin, Wang and Chang, (2011), on the contrary posed a question whether the phenomenon of the SRP still stands. In conclusion, there is strong theoretical support to explain, and some empirical support to suggest, that the paradox can be found under those scenarios where compensation is provided to the dissatisfied, and often disheartened consumer. Among those experiencing service failure, higher remuneration levels should likely result in higher levels of satisfaction with service compared to those who did not experience a service failure. Kerr (2004) asserts that SRP does not appear to exist in the online retailing context. The mixed results call for further investigation. Based on the theoretical studies, the service recoveries can further be surveyed using perceived justice theory. Chapter Three Theories of Customer Complaints 3.0 Introduction Justice theory is an important concept that helps to understand how dissatisfied customers evaluate complaint responses (Gruber, Szmigin and Voss, 2009). From surveys by Maxham III and Netemyer (2003), justice theory has been used to provide evidence to those customers who perceive the organizational response to a complaint as fair, display higher levels of post complaint satisfaction than those who perceive the response as unfair. Fairness is perceived when the ratio of an individual s output (benefits) to inputs (financial and non-financial efforts) is balanced with the ratio of the other party (Adams, 1965). Attribution theory is also used to explain CCB and Customer behaviour responses (CBR). Fairness/equity theory is relevant where exchange takes place and it can be attained through effectively handling customer complaints (Adams, 1965). 3.1 Equity Theory Consumers are prone to spread a negative WOM when they perceive an unfair response to a service failure. When customers perceive that they have not been sufficiently compensated for the damage, they may feel even more annoyed than they were subsequent to the failure. This is because a report of a service failure may imply unfair treatment of the customer; service recovery must therefore re-establish justice from the customer's perspective. With effective handling of complaints, consumers will perceive fair treatment. In the case of a service failure, individuals will perceive inequity and they will try to restore equity by complaining. According to Gruber (2011), complaining customers develop their equity or fairness perceptions by evaluating three facets of the complaint handling encounter: the fairness of the decision making criteria, procedures and polices used to accomplish the final outcome (procedural justice), the fairness of the obtained tangible outcomes (distributive justice) and the interactional justice or manner in which the service complaint handling process is carried out (Tax et al., 1998). Equity theory is relevant 12

13 where exchange takes place because it is a notion of fairness; and it is conceivable that one or both parties perceive inequity in an exchange (Adams, 1965; Maxham III and Netemeyer, 2003). Equity theory seems quite tenable in a service failure context because consumers usually perceive an inequity following a service failure. When inequities arise, equity theory provides a meaningful framework for shaping consumer perceptions of satisfaction, purchase intent and WOM. The relationship between equity sensitivity and recovery expectations has not been empirically established. Benevolent customers may hold less stringent expectations than entitled customers, but the existence of these groups has not been empirically established (Ruyter and Wetzels, 2000). Several researchers have used equity theory in the explanation of service failure and consumer responses to the failure (Maxham III and Netemeyer, 2003). The argument is that consumer ratings of failing organisations will increase when they offer fair recovery efforts. Researchers have suggested that consumers are prone to spread a negative WOM when they perceive an unfair response to a service failure. Therefore, when customers perceive that they have not been sufficiently compensated for the damage, they may feel even more annoyed than they were subsequent to the failure (Maxham III and Netemeyer, 2003). This is because a report of a service failure may imply unfair treatment of the customer; service recovery must therefore re-establish justice from the customer's perspective (Michel, Bowen and Johnston, 2009). 3.2 Perceived Justice Theory Service researchers have turned to theories of organizational justice to explain customers' reactions to service recovery (Tissot, 2003). Justice perceptions are the individual subjective assessments of organizational responses. The subjective evaluation of the response of the complainant is crucial because perceptions are the subjective, often biased, interpretation of reality that account for individual behaviour (Gelbrich and Roschk, 2010). Blodgett and Anderson, (2000) contend that prior research demonstrates that the behaviour of complainants depends largely on their perceptions of justice. Higher levels of distributive, interactional and procedural justice lead to more favourable repatronage intentions and a decreased likelihood of negative WOM (Blodgett and Anderson, 2000). Complainants who perceive that justice is not served likely become even angrier, engage in negative WOM and exit (Tax et al., 1998). Carr (2007) incorporated justice theory as the lens from which to view the relationship between the consumer, the service provider and satisfaction. Distributive justice is outcome justice. It focuses on equity issues in the mind of the customer an appraisal of the benefits received relative to the costs (money and time) associated with them. When the organisation does not deliver on expected benefits, leading to a sense of being unfairly treated, this necessitates recovery. In recovery, customers may expect a refund, an apology, or/and compensation (Michel, Bowen and Johnston, 2009). Distributive justice involves dealing with decision outcomes; namely, the principles of equity and equality (Adams, 1965; Greenberg, 1987). Every customer who initiates a complaint 13

14 expects some outcome to result from it and it is the expectation of positive outcomes that drives consumer complaint decisions (Oliver, 1997). Most often, however, dissatisfied consumers want a refund, replacement, or compensation when they complain, and most studies of post-complaint satisfaction show that distributive justice in the form of compensation has the greatest impact on customer satisfaction with recovery, repurchase intentions and loyalty (Smith et al., 1999; Tax et al., 1998). Interactional justice refers to how customers perceive the way they are treated; treatment is perceived as fair when complainants assume that information is exchanged and outcomes are communicated in a polite and respectful manner (Patterson, Colley and Prasongsurkarn, 2006). A complainant procedure is considered fair when it is allegedly easy to access, provides the complainant with some control over the disposition, is flexible and is concluded in a convenient and timely manner, (Gelbrich and Roschk, 2010). Customers should be treated as individuals whose specific requests are acknowledged (Spreng et al., 1995). Procedural justice refers to process fairness and the evaluation of the procedures and systems used to determine customer outcomes, such as the speed of recovery (Tax et al., 1998) or the information communicated (or not communicated) about the recovery process (Michel, 2002). Procedural justice involves dealing with decision-making procedures, or having a complaint procedure the customers perceive as fair (Folger and Greenberg, 1985). Consumer evaluation of the interaction dimension suggests that the quality of the interpersonal treatment and communication during the encounter are likely to be heavily weighted by consumers when evaluating service encounters (Smith et al., 1999). However, procedural fairness could be mitigated by a rude, impersonal interactional style through which information is obtained and outcomes are communicated. Therefore, employees have the task of handling customer complaints equitably. In case of unfair treatment of the customer, service recovery must re-establish justice (from the customer's perspective). This is because justice during service recovery is determined by the customer. 3.3 Interaction of distributive, interactional and procedural justice Complainants consider all three justice needs to evaluate the effectiveness of the organisations complaint handling effort, but interactional justice takes the centre stage. Blodgett and Anderson, (2000) and Karatepe and Ekiz, (2004) came to a conclusion that interactional justice has a stronger impact on satisfaction than the other two justice dimensions. Interactional justice may be a more important moderator of reactions to unfairness than procedural or distributive justice (Folger and Cropanzano, 1998). Both the immediacy and transparency of social interactions make it relatively easier for customer to assign moral accountability when contact employees violate interactional justice principles (Folger and Cropanzano, 1998). This proposition is corroborated by Collie et al. (2000), who found that customers reported significantly higher levels of satisfaction in conditions where the service provider was courteous and vice versa. Godwin and Ross (1990) indicated that 14

15 customers would be satisfied with a partial refund if they were treated kindly and respectfully. Customers who were treated unpleasantly would not continue the relationship with the retailer and would engage in negative WOM even in the case of a total refund (Gelbrich and Roschk, 2010). This stresses the importance of understanding how dissatisfied customers want to be treated by contact employees during complaint handling encounters. Davidow (2003) and Liao (2007) assert that the distinctiveness of the three justice dimensions has been called into question. They made a report on high correlations between justice dimensions. Liao, (2007) adds that perceived justice has a higher order latent variable in a confirmatory factor analysis using this construct as a single predictor of post complaint satisfaction. DeWitt, Nguyen, and Marshall (2008) include the justice dimension in one latent variable in their confirmatory factor analysis (CFA) arguing that customers use a compensatory model when forming an overall perception of justice. A possible reason for the poor discriminate validity is that consumers are unable to clearly distinguish between a favourable outcome and respectful treatment. Whether the three justice dimensions have distinctive antecedents and consequences that aid in deriving implications for marketing practitioners is questionable. Complainants consider all three justice needs to evaluate the effectiveness of the organisation s service recovery efforts, but interactional justice takes the centre stage. Furthermore, Blodgett and Anderson (2000) discovered that high levels of interactional justice can offset lower levels of distributive justice. 3.4 Attribution theory Attribution theory provides a basis for understanding how consumers respond to service failures (Folkes 1984); and predicts that the perceived reason for a service failure influences the level of consumer satisfaction. Attributions are the perceived causes of a failed service situation (Bitner 1990). Bitner, (1990) and Weiner (2000) argue that the perceived causes can be classified into three dimensions, including locus (who is held responsible), controllability and stability. Regarding controllability, it refers to causes one can control such as skills compared to causes one cannot control such as others actions (Weiner, 2000). Attribution theory is concerned with how individuals interpret events and how this relates to their thinking and behaviour. Heider (1958) was the first to propose a psychological theory of attribution; and Weiner (1986) developed a theoretical framework that has become a major research paradigm of social psychology. Attribution theory assumes that people try to determine why they do what they do, like attribute causes to behaviour. Weiner, (2000), asserts that attribution theory is the systematic study of the perception of causality. Maxham III and Netemeyer (2003) stated that extant research has found attribution to help explain consumer perceptions and intentions in regard to their service recovery experiences; influence customer communication and recovery outcome effects on satisfaction and repurchase intentions. 15

16 Bitner (1990) presents a well-founded argument in using the attribution construct as a mediator between disconfirmation and service encounter satisfaction. Smith et al. (1999) and Maxham III and Netemeyer (2003) assert that attribution has a direct effect on cumulative satisfaction and repurchase intentions. Attribution search may follow a negative and unexpected event or failure (Weiner, 2000); and attribution theory is the systematic study of the perception of causality. In a complaint behaviour context, product and service failure is the kind of negative and unexpected event that has been shown to bring about causal search; attributed to internal or external locus. When retailers are thought to have control over the cause of product failure and it is stable, consumers feel angry and desire revenge more than when the retailers are believed to lack control over the failure. The outcome of a purchase situation could be attributed to something temporary (unstable), or to something stable. Disconfirmation of an expectation acts as an important causal agent for generating attribution processing. This means that events that do not conform to expectations may trigger the search for an explanation for the event (Laufer, 2002). Attribution may follow an expected event or failure (Weiner, 2000). Weiner (2000) further reasoned that the enduring interest in attribution theory is due to its focus upon the universal concern with the explanation why a particular event or outcome has come about and the consequences of phenomenal causality. Swanson and Kelley (2001) stated that extant research has found attribution to influence customer communication, recovery expectations and recovery outcome effects on satisfaction and repurchase intentions. Attribution could help explain consumer perceptions and intentions in regard to their service recovery experiences. Bitner (1990) presents a well-founded argument in using the attribution construct as a mediator between disconfirmation and service encounter satisfaction. In conclusion, organizations need to strive to achieve perceived justice while handling customer complaints. In case of service failure, individuals will perceive inequity and they will try to restore equity by complaining and to go through service recovery. Unfortunately, many service organizations have developed reactive service failure strategies that focus on complaint management rather than service recovery issues. Just a few organizations seem to be gaining benefits of recovered customers (Johnston and Michel, 2008). The relationship between perceived justice, complaints handling and satisfaction with service recovery as they pertain to different post-complaint behavioural responses have not been investigated (Casado, Nicolau and Mas, 2011). 16

17 Chapter Four Organisational Characteristics and Customer Responses 4.0 Introduction Managing complaints effectively is still a challenge to many organisations in terms of compensation, timeliness and favourable employee behaviour. Organisations should prepare and try to recover from service failures by having good customer relationships to handle disgruntled customers during a service encounter. High levels of customer satisfaction will contribute to organisational profitability via strong relationships with customers, customer loyalty and retention. From surveys, the marketing view does not include organisational variables associated with employees (Dean, 2004). The basic premise asserts that organisational characteristics are linked to employee attitudes that are reflected in customer loyalty and positive WOM. 4.1 Organisational Characteristics Organizational characteristics are used to explain perceived justice and can be put into six (Davidow, 2003) or three (Estelami, 2000) groups. The initial reactions made by an organisation in response to a complaint can be by seeking redress, apology, attentiveness, credibility, facilitation and timeliness (Davidow, 2003). These were summarized into three constructs Estelami (2000) as employee behaviour, compensation and promptness/timeliness. Basing on the meta-analysis, the categorization of Estelami is preferred because not all six organizational responses have empirical relationships with every other construct in prior studies, and this condition is met when the three categories are used (Gelbrich and Roschk, 2010) Employee Behaviour According to Estelami (2000); Gruber, Szmigin and Voss, (2009), employee behaviour is described as emphatic, friendly, careful and informative behaviour of the service person. From the Meta analysis by Gelbrich and Roschk (2010), favourable employee behaviour is the most powerful determinant of distributive justice. Gruber, Szmigin and Voss, (2006) add that there is a need for employee s competence, friendliness and active listening skills which are particularly important for complainants. Competent contact employees should have sufficient service knowledge and prior experience for successful interactions and know what needs doing to solve the problem at hand. Also, service managers should manage consumers emotional experience during and after the service failure. After the customer has experienced service failure, employees ought to act quickly, show concern, empathy and remain pleasant, helpful and attentive. Many dissatisfied customers do not bother to complain after a service failure because of anticipating poor treatment from employees. Gruber (2011) adds that complaining 17

18 customers do not want employees who just smile to show friendliness but staff who truly mean it; and this is supported by Hennig-Thurau et al. (2006) who contend that the perceived authenticity of the employees displayed emotions, and not the amount of smiling, has a direct impact on customers emotional states and perceptions. A test failed by many organizations is the ability to take problem data from customers or staff and turn it into real improvements (Michel and Meuter, 2008). What may anger customers after a failed service recovery is both the dissatisfaction and belief that the system remains unchanged, and the problem may reoccur (Johnston and Clark, 2008). Therefore, customers want employees who have sufficient product or service knowledge; customers want employees to know about policies and procedures that relate to customer service and understanding of the organisation s services. However, there is incompetence of staff in handling complaints (Michel and Meuter, 2008) Organizational Procedures According to Gelbrich and Roschk (2010), organizational procedures (facilitation and timeliness) are the most powerful determinants of procedural justice. Promptness (timeliness) is described as an immediate and easy handling of a complaint (Gelbrich and Roschk, 2010). Customer satisfaction will be higher if a complaint is resolved in a speedy manner (Lin, Wang and Chang, 2011). Customers expect that their complaints will receive a quick response, and that mistakes will be quickly noticed and acknowledged by staff (Gelbrich and Roschk, 2010). Prompt complaint resolutions have resulted in more consumers continuing to do business with the organization (Albrecht and Zemke 1985). Employees ought to respond to the complaint as expected by the customers. However, fewer than 50% of complainants receive a reply, and those who do often view the organization s response as unsatisfactory, with slow responsiveness and rudeness (Andeassen, 2001). Such and other experiences discourage customers from seeking redress Compensation Gelbrich and Roschk (2010) carried out a Meta-analysis and contended that compensation was the most powerful determinant of distributive justice. Compensation refers to refunds, replacements and discounts which organisations provide to complainants (Davidow, 2003). Compensation represents tangible benefits in the form of monetary or cash equivalent remuneration (Davidow, 2003). Evidence of the moderating role of failure attributions has been shown in previous studies in the service failure context (Grewal et al., 2008). Rust et al. (2004) asserts that an organisation selects its best customers and develops stronger, deeper and more intimate relationships with them, creating customer equity. However, judgements of internal inequity cause dissatisfaction, but can be remedied by effective recovery actions in which compensation is offered to the person for the loss incurred (Gruber, 2011). Compensation may be fixed as a policy. Further surveys recommend that a 18

19 policy of fixed compensation from the provider may not always appease the dissatisfied customer. Complaints handling has not improved, and many managers claim their organizations cannot respond to and fix recurring problems quick enough (Michel, Bowen and Johnston, 2009). Andreassen, (2000) argues that it is not worth it to try to recover from every service failure. Grewel et al. (2008) add that compensation is necessary only when the organisation is responsible for the failure and it occurs frequently. Grewel et al. (2008) are critiqued that less frequent failure remains a dissatisfaction to the customer and should be handled both for image creation and to restore the customer to the original good feeling about the organisation. It does not matter how frequent the problem occurs, but solving it is the right thing to do. A service provider s failure to eradicate disappointment can lead to customers making strong negative judgments of the organization. Such dissatisfied clients will seek every opportunity to criticize the offending organisation and hence becoming what Heskett et al. (2003) refers to as terrorist customers. 4.2 Customer Behaviour Responses (CBR) According to Gelbrich and Roschk (2010) customer behaviour responses are measured using constructs of positive word of mouth communication and customer loyalty. Customer loyalty is in form of behavioural and attitudinal loyalty. While behavioural loyalty is expressed as repeated transactions and can sometimes be measured quite simply with observational techniques, attitudinal loyalty is defined as positive affect towards both continuance of the relationship and the desire to remain in the relationship (Morgan and Hunt, 1994). Engaging in negative WOM communication is to the detriment of the service provider because the end-result could be lost sales and profits. Consumers who receive fair service recovery are more likely to be loyal to the service provider and even engage in positive WOM behaviour, thus spreading goodwill for the service provider Word-of-Mouth Communication A retailer s resistance to listening and responding to consumer complaints increases the likelihood that consumers will complain in private in the form of negative WOM to family, friends and third parties (McAlister and Erffmeyer, 2003). WOM communication refers to the likelihood of spreading information on an organisation and the valence of this information. This can be in form of positive and negative WOM communication. Negative WOM communication refers to spread of unfavourable information about an organisation, which includes advising against the organisation and its products or services (Boldgett, Hill and Tax, 1997). The negative effects of service failures are amplified when customers spread their dissatisfying experiences across their social networks. A single WOM message can reach and potentially influence many receivers through multiple exchanges; especially, if it has a negative valence (Lau and Ng, 2001). Negative WOM communication provides an 19

20 outlet for emotion-based coping, as consumers can vent their negative emotions. Some customers tend to exhibit a positive attitude toward complaining due to perceived social benefits of WOM communication. Positive WOM communication does not occur when customers fail to complain and subsequently, do not initiate failure amends. It is because of failure persistence and lack of service recovery efforts which prevent customers from recommending the organization; but lead to switching and to lost customer lifetime value (Rust et al., 2004). On the contrary, post failure negative WOM may arise prior to a complaint as well as subsequent to ineffective recovery efforts after a complaint (Blodgett and Anderson, 2000) Customer Loyalty According to McCollough et al. (2000) increasing customer retention by 5%, a service provider may increase profits nearly 25%. Therefore, customer loyalty is critical to conducting business in today's competitive marketplace (Lin, Wang and Chang, 2011). Customer loyalty is defined as a deeply held commitment to re-buy a preferred product/service consistently in the future, thereby causing repetitive same-brand or same brand-set purchasing despite situational influences and marketing efforts having the potential to cause switching behavior (Oliver et al., 1997). Loyal customers are the backbone of any business (Gee, Coates and Nicholson, 2008), but customer loyalty is neither easy to gain nor maintain, rather it is vulnerable, where even if an organisation s customers are satisfied with the service they will continue to defect if they believe they can get better value, convenience or quality elsewhere (McIlroy and Barnett, 2000, p. 349). Thus organisations have embarked on different management strategies to promote customer loyalty (Lin, Chang and Wang, 2011). Tax et al. (1998) contend that the cost of attracting a new customer is five times that of retaining an old one. The organisations which are unable to retain existing customers face huge hurdles associated with the constant attempt to win new customers (Lin, Chang and Wang, 2011). Only 5 out of 10 dissatisfied customers complain about their experiences, and yet these customers are more demanding and less loyal than ever before (Nakibin et al., 2011). Some disappointed customers may not respond because they wish to avoid confrontation with the person responsible for the failure; they may be uncertain about their rights and obligations; and some may have concerns about the cost and time associated with complaining. Since it is inevitable to have service failure, organisations ought to have a service recovery that may turn dissapointed customers into loyal customers through use of effective service recovery. In leading the customer through a negative experience, employees should act quickly, show concern and empathy, and always remain pleasant, helpful, and attentive. 4.3 Organisation Characteristics and Customer Behaviour Relationships 20