Thực trạng và giải pháp cho việc cải thiện dịch vụ tài trợ thương mại của Ngân hàng TMCP Công thương Việt Nam

vi
TABLE OF CONTENTS

ACKNOWLEDGMENTS i
ABSTRACT ii
TÓM TẮT iv
TÓM TẮT iv
TABLE OF CONTENTS vi
LIST OF FIGURES ix
LIST OF TABLE x
INTRODUCTION 1
1. Necessity of the thesis 1
2. Literature review 2
3. Objectives of the research 4
4. Research Methodology 5
5. Contribution of the thesis 8
6. Structure of the research 8
CHAPTER 1: THEORETICAL FOUNDATIONS 9
1.1. The concepts of service, customer service and service recovery 9
1.1.1. Service and customer service 9
1.1.2. Service recovery 10
1.2. Types of customer‟s response to the service failures 12
1.2.1. Types of customer actions 13
1.2.2. Types of complainers 13

vii
1.3. The reasons customers complain 14
1.4. The expectation of customers 15
1.4.1. Customers expectation of fair treatment 15
1.4.2. Companies‟ behavior 16

1.5. Service Recovery Strategies 17
1.5.1. Fail-safe your service – Do it right at the first time 18
1.5.2. Welcome and Encourage complaints 19
1.5.3. Act quickly 19
1.5.4. Treat customer fairly 21
1.5.5. Learn from recovery experiences 21
1.5.6. Learn from lost customers 21
1.5.7. Return to “Doing it right” 22
1.6. Service Guarantees 22
1.6.1. Benefits of Service Guarantees 23
1.6.2. Types of Service Guarantees 24
1.6.3. When to Use (or Not Use) a Guarantee 25
CHAPTER 2: SERVICE RECOVERY FOR TRADE FINANCE OPERATION IN
VIETINBANK 26
2.1. Overview of VietinBank and trade finance operation 26
2.1.1. History of VietinBank 26
2.1.2. Corporate Vision, Mission, Values and Ambitions 28
2.1.3. Trade finance operation of VietinBank 29
2.1.4. VietinBank‟s Trade Finance resources 36

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2.2. Analysis of VietinBank‟s current situation of Service Recovery 39
2.2.1. How customers respond to service failures in VietinBank: 40
2.2.2. VietinBank‟s Service Recovery Strategies for Trade finance operation 44
2.2.3. VietinBank‟s Service Guarantees 49
2.3. Summary of strengths and weaknesses of service recovery activities in
VietinBank 50
CHAPTER 3: RECOMMENDATIONS TO SERVICE RECOVERY FOR TRADE
FINANCE OPERATION IN VIETINBANK 53
3.1. Strategies and solutions for the development of Trade finance operation in

VietinBank 53
3.1.1. Quantitative targets: 53
3.1.2. Qualitative targets: 53
3.2. Strategies and actions plan for improvement of Service Recovery for trade
finance operation in VietinBank 54
3.2.1. Strategy for improvement of Service Recovery for trade finance operation in
VietinBank in the period of 2012-2017 54
3.2.2. Actions plan for improvement of Service Recovery for trade finance
operation in VietinBank in the period of 2012-2017 60
3.1.3. Recommendations for the improvement of Service Recovery in VietinBank 72
REFERENCES 73
ANNEX LIST 75


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LIST OF FIGURES

Figure 1.1: Unhappy customers‟ repurchase intentions 11
Figure 1.2: Customer response following service failure 12
Figure 1.3: Types of failure respondents 14
Figure 1.4. Fairness and satisfaction 17
Figure 1.5. Service Recovery strategies 18
Figure 1.6: Causes behind service switching 22
Figure 2.1: VietinBank‟s Key Financial Index 29
Figure 2.2. Commercial banks in operation in Vietnam‟s market by 31
st
Dec 2011 31
Figure 2.3: Vietnam Trade finance market shares 2010 32
Figure 2.4: Banks in Vietnam, with whom trade finance customers are transacting 34
Figure 2.5: Number of VietinBank‟s trade finance customers over 2008-2011 34

Figure 2.6: Duration (years) that customers transacting with VietinBank 36
Figure 2.7: The reasons customers do not complain 41
Figure 2.8: The reasons customers complain 42
Figure 2.9: The expectation of customers when complaining 42
Figure 2.10: Customer‟s identification of other complaining ways to a bank 45
Figure 2.11: Does VietinBank offer you service guarantees for trade finance? 50

x
LIST OF TABLE

Table 2.1: Summary of positive points and negative points of service recovery
activities in VietinBank 51
Table 2.2 Strengths and weaknesses of service recovery activities in VietinBank . 52
Table 3.1: Quantitative targets of strategies and solutions for the development of
trade finance operation in VietinBank 53
Table 3.2: Strengths and weaknesses of service recovery activities in VietinBank . 54
Table 3.3: Weaknesses of service recovery activities of VietinBank and the sub-
strategies to improve them 58
Table 3.4: Actions plan for service recovery of trade finance operation in
VietinBank 61



1
INTRODUCTION

1. Necessity of the thesis
Vietnam foreign trade activities have recorded a sharp increase in volume for over a
decade since 2000. From the time Vietnam opened door to the world market up to
now, the import-export turnover of the country has risen by more than four times.

The steady increase in trade flow between Vietnam and foreign countries opens
greater opportunities for commercial banks to provide trade finance services to
domestic enterprises. However, also as a result of international integration, a
domestic commercial bank has to cope with fierce competition from foreign bank
branches as well as other local banks in this field. This challenge is not an exception
for VietinBank, one of the four leading state-owned commercial banks of Vietnam.
Therefore, with an aim of enhancing competitiveness in this banking service,
VietinBank carried out restructuring of its trade finance activities by the
establishment of a center for centralized processing of all trade finance operation for
all VietinBank‟s branches, called VietinBank Main Operation Center (VMOC).
VietinBank was the first domestic bank in Vietnam to have this model of
centralization of trade finance processing in 2008. In spite of that, international
payment volume and market share of the bank in this sector has not shown much
progress, counting only 11.05% in 2010 and 13.89% in 2011 and numbers of lost
customers has been recognized due to service failure. This leads to a big question:
how to improve the bank‟s quality of services to keep traditional customers and
increase its turnover and market share in this trade finance operation given its
advantages of the centralization structure? There can be a variety of factors that can
have impact on this question. The role of service recovery is one of the most
important factors that need to be considered to answer this question given the
existing fact that the Bank has yet to formulate a service recovery policy for trade
finance activities. Realizing the importance of the role of service recovery for the

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bank where the author is working, the author would like to choose this topic for the
MBA thesis, with the title “Service Recovery for VietinBank Trade finance
operation: Situation and Solution for improvement”.
2. Literature review
In all service contexts – whether they be customer-to-consumer services, business-
to-customer services, or business-to-business services – service failure is inevitable.

Service recovery comes into play when something in a service delivery goes wrong.
The service delivery company ideally takes actions to ensure that their customer
gets their desired outcome anyway, and later rectifies their own process so that the
failure does not reoccur.
Service recovery has been defined by many authors, as:
“the effort an organisation expends to win back customers goodwill once it has
been lost due to service failure” (Fisk, Grove et al 2000)
“refers to actions taken by an organisation in response to some service failures”
(Zeithaml & Bitner, 2003)
“any situation where something has gone wrong, irrespective of responsibility”
(Palmer, 2001)
Service recovery has received attention for over 30 years within service
management and service marketing. In the 70‟s and 80‟s, service recovery was the
plan for dealing with telecommunications problems or recovering particular
services. Companies adopted systems that produced „zero defects‟, to produce a
high quality service and a cost effective production line approach. Zero-defect is a
definition of quality standard, indicating that if a requirement expresses what is
genuinely needed, and then any unit that does not meet requirements will not satisfy
the need and is no good. Although the idea of zero-defect in services is simply an
unattainable goal, it is implemented all over the world. From the late 1970s, since
the cost of gaining a new customer usually greatly exceeds the cost of retaining a

3
customer (it is often stated that it costs five times as much to attract a new customer
as maintaining one), managers are increasingly concerned with minimizing
customer defections.
The role of service recovery in the event of a service failure is recognised as “doing
the service very right the second time” (Brown, Cowles et al. 1996). In order to
understand service recovery, it is necessary to understand how the customer
experiences the service and the impact of the service encounter on customer

satisfaction. Effective service recovery can improve the image of the firm and also
reduce perceived risk to the customer. There is one issue of great importance in
service recovery that we can not fail to mention: it is the “service recovery paradox”.
The “service recovery paradox” states that with a highly effective service recovery,
a service or product failure offers a chance to achieve higher satisfaction
ratings from customers than if the failure had never happened. A little bit less
academically, this means that a good recovery can turn angry and frustrated
customers into loyal customers. In fact it can create even more goodwill than if
things had gone smoothly in the first place.
Nevertheless not all service recovery efforts will lead to increased satisfaction
ratings as several studies have already shown. The key is to understand that there
are certain situations when it is highly likely that a service recovery will lead to
increased customer satisfaction. Service recoveries that are likely to be efficient are
obviously those where the service failure is perceived to be not systematic or that
the company has little control over it. But even in cases when there is a systematic
failure and the company has control over the failure, there is a benefit when service
recovery activities are put into actions to ensure that one can win back customers
and that the source of failure is eliminated.
Although having several decades of implementation all over the world, service
recovery is fairly new, in comparison with other service marketing approaches. In
Vietnam, the theory of service recovery has not been given to lectures and subjects

4
at universities and has not been widely applied in all business sectors. And because
of the fact that people feel like looking for polished, positive things like marketing
communication tools, marketing mix strategies, public relations, customer relation
management etc , which bring promising results to a business, there are little
research by Vietnamese authors into service recovery. Furthermore, inadequate
understanding of service recovery has made people mistakenly consider service
recovery as only for individual customers and as not designed for corporate

customers of a bank.
With regards to improve quality of trade finance service of a bank, what a bank
needs is to carefully and fully study about service recovery to improve its skill of
listening to customer, to keep and develop sustainable relationships with customers.
It is also the reason why the author of this research doing current study on Service
recovery with the case of VietinBank Trade finance operation.
3. Objectives of the research
Due to the necessity of the issue and after the brief literature review above, the
author defines the objectives of the research as following:
- To find out about the current service recovery activities for trade finance of
VietinBank.
- To evaluate the strengths and weaknesses as well as the efficiency of the current
service recovery activities for the existing customers using trade finance products of
the Bank.
- To propose some recommendations to improve service recovery for VietinBank‟s
trade finance operation.


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4. Research Methodology
4.1. Research methodology
The research process of this thesis can be expressed by the following chart:

Based on the general observation of the trade finance performance of VietinBank in
terms of modest increase in trade finance turnover and almost unchanged trade
finance market share in the last three years, the problem for the thesis is defined as
the service recovery for trade finance of the Bank. Next, data are collected from
various sources, including desk research, qualitative and quantitative research to
identify the current situation of service recovery for trade finance from the actual
facts as well as from the point of view of the Bank‟s managers and also customers

in order to find out the strengths and the weaknesses of service recovery activities
for this banking operation. Finally, relying on the analysis of the problems,
solutions will be set out on how to improve service recovery for trade finance of
VietinBank to improve service quality, to keep traditional customers using the trade
finance products, aiming at increasing the bank‟s trade finance revenue and market
share.
4.2. Data sources
Secondary data
The sources for secondary data include (i) the internal information and data of the
Bank available from the Bank‟s website, relevant departments as well as internal
documents like surveys, statistics, annual reports and ad-hoc reports of VietinBank
on marketing activities for trade finance, the minutes of seminars or workshops with
Problem definition:
Service Recovery for
Trade finance
operation of
VietinBank
Problem analysis:
- Current status
- Evaluations by
bank managers and
customers

- Desk research
- Qualitative
research
- Quantitative
research
SOLUTIONS:
How to improve

service recovery
for trade finance?

6
customers on trade finance solutions or instructions issued by the bank on this topic
etc., and (ii) general information on the economy, market, service marketing
research etc. available on the Internet, published books, newspapers or magazines.
Primary data
Primary data for the thesis are obtained from qualitative research and quantitative
research.
Deep interviews were made with nine officials of the bank, three of them are trade
finance managers at Head Office level, the other three are branch managers and the
other three are branch trade finance staffs. The objective is to find out key issues of
service recovery situation for trade finance of the bank from the managerial and
operational points of view.
Next, a quantitative survey is made in form of a questionnaire sent to 130 enterprise
customers from 30 of Vietinbank branches locating in different areas.
The selection of responders is based on convenience sampling. The author sent the
questionnaires (30 forms) to the customers that the author has contacted with.
Besides, the author sent questionnaires (100 forms) to trade finance staffs at
VietinBank‟s branches, to whom the author has access and proposed those staff to
deliver the questionnaires to the trade finance customers with people who feel it is
convenient for the staff to contact in their daily job. These are the customers who
are using or have potential to use the bank‟s trade finance products. The objective of
the survey is to get customers‟ opinions to verify the evaluations on the matters in
question which were obtained from secondary data and the qualitative research.
In 130 delivered, 102 forms have been collected back, of which 98 forms were
qualified. The survey results used for analysis in the thesis were obtained from
those 98 responses received from the customers. The data processing was based on
Microsoft Excel software.

The questionnaire form and survey results are shown in Annex No 1 and 2.

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4.3. Research scope
According to the definition in Trade finance magazine, Trade finance is related to
international trade: “While a seller (the exporter) can require the purchaser (an
importer) to prepay for goods shipped, the purchaser (importer) may wish to reduce
risk by requiring the seller to document the goods that have been shipped. Banks
may assist by providing various forms of support. For example, the importer's bank
may provide a letter of credit to the exporter (or the exporter's bank) providing for
payment upon presentation of certain documents, such as a bill of lading. The
exporter's bank may make a loan (by advancing funds) to the exporter on the basis
of the export contract.” There are also other forms in which banks may provide
trade finance services for their customers, such as Documentary collection (in
which, banks play a role of collecting payments from the importers to pay for the
exporters based on certain arrangements or presentation of documents by the
exporters), bank guarantees or some other new forms to Vietnam‟s market like
factoring or forfaiting (purchase of account invoices/account receivables and
advance funds for the seller and recourse to the buyer on due dates) etc.
The concept of trade finance is also related to some banking operations such as
credit and foreign exchange activities to facilitate trade transactions and covers a
variety of new trade finance product types like risk participations or structured trade
other than common traditional products of import/export letters of credit,
documentary collections and international payment. To narrow down the scope of
research due to the limitations of time and space for the project, this study will
focus only on the service recovery for Letter of credit for enterprises - being a
traditional trade finance services for Vietnamese exporters and importers who trade
with foreign enterprises, without looking deeply into every aspect of the related
banking operations or all other or new types of trade finance products.

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In the thesis, the author uses reports/figures/facts in a period of 3 years from 2009 to
2011, related to the whole VietinBank trade finance system, including the Head
Office and branches nationwide.
5. Contribution of the thesis
The thesis can contribute in both theoretical and practical aspects as below:
- To introduce a comprehensive view of current service recovery activities for trade
finance of a Vietnamese commercial bank like VietinBank;
- To bring out strengths and weaknesses, point out current outstanding issues of the
current service recovery activities for the existing customers using trade finance
products of VietinBank;
- To resolve the outstanding issues and improve service quality of trade finance
operation in VietinBank, through positive solutions and recommendations which are
practical to apply in the early future.
6. Structure of the research
Beside the introduction and conclusion part, the thesis is divided into three chapters
as the following:
 Chapter 1: Theoretical Foundations
 Chapter 2: Service Recovery for trade finance operation in VietinBank
 Chapter 3: Recommendations to Service Recovery for trade finance operation in
VietinBank

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CHAPTER 1: THEORETICAL FOUNDATIONS

1.1. The concepts of service, customer service and service recovery
1.1.1. Service and customer service
There are several ways of defining “What is service?” Some mention that
a service is an intangible equivalent of an economic good; service provision is often
an economic activity where the buyer does not generally, except by exclusive

contract, obtain exclusive ownership of the thing purchased while another indicates
that services refers to a type of economic activity that is intangible, is not stored and
does not result in ownership
1
. Valarie A.Zeithaml, an internationally recognized
pioneer of services marketing who has devoted the last 20 years to researching,
consulting and teaching service quality, services management and customer equity,
provides a simple broad definition of service: Service includes all economic
activities whose output is not a physical product or construction, is generally
consumed at the time it is produced, and provides added value in forms (such as
convenience, amusement, timeliness, comfort or health) that are essentially
intangible concerns of its first purchaser.
2

It is hard to say which of these definitions is better than another or the only one
correct since service is a term with many meanings. However, for the purpose of
this thesis, Valarie‟s definition of service seems to be the best choice since its
simple meaning mentions to all industries within the service sectors. Following that,
quite big corporations like AT&T (telecommunication), Marriott International
(Hotels), American Airlines (transportation), IBM (computer manufacturers) or
Bank One (banking services) are all considered service companies. Their businesses
are to do marketing and deliver services to customers. By doing that, they are
providing customer services.


1
www.investorwords.com
2
James Brian Quinn, Jordan J.Baruch. and Penny Cushman Paquette, « Technology in Services », Scientific
American 257, no.6 (December 1987)

10
Customer service is the service provided in support of a company‟s core products.
Customer service most often includes answering questions, taking orders, dealing
with billing issues, handling complaints, and perhaps scheduling maintenance or
repairs. Customer service can occur on site, over the phone or via internet; before,
during and after a purchase, and typically charges no fees to the customers.
However, along with sales and marketing, customer service plays an important role
in an organization's ability to generate income and revenue.
1.1.2. Service recovery
Definition
Using a good customer service system and having effective service design and
communication form the foundation of corporation‟s service success. However, in
all business contexts, service failure is inevitable even for best or “world-class”
corporation and it may occurs for all kind of reasons – the service may be
unavailable when promised, be delivered late or too slowly, the outcome may be
incorrect or poorly executed, or employees may be rude or uncaring. These can
bring about negative feelings and response from customers and therefore can result
in their leaving, telling other customers about their negative experiences etc…
Not only big but also small companies do know the importance of understanding
customers‟ expectation when failure occurs and what to do to retain existing
customers. They must implement effective strategies of service recovery. Service
recovery refers to the action taken by an organization in response to a service
failure. It is not an action alone, it is a business process (a string of actions) that has
to be paid attention, created and implemented appropriately and regularly within an
organization to gain organization‟s objectives.
The impact of service recovery
Resolving customers‟ problems effectively has a strong impact on customer
satisfaction, loyalty and bottom-line performance. A customer who experiences
service failures, but is ultimately satisfied based on recovery efforts by the firm, will

11
be more loyal than those whose problems are not resolved. Data from Figure 1.1 has
verified this relationship.
Actually an effective service recovery strategy has multiple potential impacts. It can
increase customer satisfaction and loyalty, and generate positive words of mouth. A
well-designed, well-documented service recovery strategy also provides
information that can be used to improve service as part of a continuous
improvement effort. In the opposite, there are tremendous downsides to having no
service recovery or ineffective service recovery strategies. Poor recovery following
a bad service experience can lead to customers who are so dissatisfied they become
“terrorists”, actively pursuing opportunities to openly criticize the company.
Further, repeated service failures without an effective recovery strategy in place can
aggravate even the best employees. The costs in employee morale and even lost
employees can be huge, but often overlooked, costs of not having an effective
service recovery strategy.
Figure 1.1: Unhappy customers’ repurchase intentions

Source: Report by the Technical Assistance Research Program – TARP Global, America

12
The Recovery Paradox
There is a fact that customers who are dissatisfied, but experience a high level of
excellent service recovery, may ultimately be even more satisfied and more likely to
repurchase than those who were satisfied in the first place. Therefore, logically but
not very rationally, companies should plan to disappoint customers so they can
recover and gain even greater loyalty from them as a result. This idea has become
known as the Recovery Paradox.
1.2. Types of customer’s response to the service failures
When there is a service failure, customers can respond in various ways (as

illustrated in Figure 1.2). They can choose to take action or may simply do nothing.
Whether they take action or not, to some extent, the customers will decide whether
to stay with that service provider or switch to another competitor. As we have
already seen, those who do not complain are least likely to return. For companies,
customer passivity in the fact of dissatisfaction is a threat to future success.
Figure 1.2: Customer response following service failure

Source: Ralph L.Day and E.Laird Landon, Jt., - “Towards a Theory of Consumer
Complaining Behavior”, in “Consumer and Industrial Buying Behavior”, Amsterdam:
North-Holland Publishing Company, 1977.

13
1.2.1. Types of customer actions
If customers take action after a service failure, that action can be of various types. An
unsatisfied customer can choose to complain on the spot to the service provider,
giving the company the opportunity to respond immediately. This is often the best
scenario for the company because it has a second chance right at that moment to
satisfy the customer, keep his or her business in the future, and potentially avoid any
negative word of mouth. If they do not complain immediately, customer may choose
to complain later, to the provider via phone or in writing, or even to write or call the
corporate offices of the company. Again, the company has a chance to recover.
However, some customers choose not to complain directly to the provider but rather
spread negative word of mouth about the company to friends, relatives, and co-
workers. This can be extremely detrimental because it can reinforce the customer‟s
feelings of negativism and spread that negative impression to others as well.
Further, the company has no chance to recover unless the negative word of mouth is
accompanied by a complaint directly to the company.
1.2.2. Types of complainers
People can be grouped into categories based on how they respond to failures. Four
categories of response types were identified in a study

3
that focused on grocery
stores, automotive repair services, medical care, and banking and finance services.
They are Passives, Voicers, Irates and Activists and the way they respond to
services failures is illustrated in Figure 1.3:


3
Jagdip Singh, “A typology of consumer dissatisfaction response styles”, Journal of Retailing 66, no.1
(Spring 1990)

14
Figure 1.3: Types of failure respondents

Passives
Voicers
Irates
Activists
Respond to the
provider
Unlikely
Actively
Unlikely
More likely
Spread negative
word of mouth
Less likely
Less likely
More likely
More likely

Complain to a
third party
Unlikely
Less likely
More likely
More likely
Personal
values/norms
Against
complaining
Consistent w/
complaining
Unconformable
w/ complaining
Conformable
w/
complaining
Feel alienated
from the
marketplace
Less
alienated
Less
alienated
Somewhat
alienated
More alienated
Source: Jagdip Singh, “A Typology of Consumer Dissatisfaction Response Styles” –
Journal of Retailing 66. No.1 (Spring 1990, p93-107).
1.3. The reasons customers complain

Four categories described in Figure 1.3 suggest that there are several types of
customers and each type has their own reason to complain or not complain about
service. There are customers who are more likely to complain than others. These
customers believe that positive consequences may occur and there are social
benefits of complaining. They also believe they will and should be provided
compensation for their service failure in some forms. Furthermore, fair treatment
and good service is their due, and in cases of service, someone should make good.
In some cases, they feel a social obligation to complain, to help others avoid similar

15
situations or to punish the service provider. A very small number of consumers have
“complaining” personalities, they just like to complain or cause trouble.
In the opposite, people who are unlikely to take any action often see complaining as
a waste of time and effort and do not believe anything positive will occur to them or
others based on their actions. Some other people do not know how to complain, do
not understand the process or may not realize there are avenues open for them to
voice their complaints. Personal relevance of the failure can also influence whether
people complain or not. If the service failure is not very important or has no critical
consequences for the consumer, or if the consumer has little ego involvement in the
service experience, then he is less likely to complain.
1.4. The expectation of customers
When taking time and effort to complain, customers generally have high expectations.
They may expect to be helped quickly, to be compensated for their grief and for the
hassle of being inconvenienced or just simply be treated nicely in the process.
1.4.1. Customers expectation of fair treatment
Specifically, customers want several types of justice and fairness in handling their
complaints: outcome fairness, procedural fairness and interactional fairness.
Outcome fairness: Customers expect outcomes or compensation in the form of
actual monetary compensation, an apology, future free services, reduced charges,
repairs…that match the level of their dissatisfaction. They want to feel that the

company has “paid” for its mistakes in a manner at least equal to what the customer
has suffered. They want to be compensated no more or less than other customers
who have experienced the same type of service failure and also appreciate it when a
company gives them choices in terms of compensation. On the other hand,
customers can be uncomfortable if they are overly compensated. This may come
when the compensation is too much and make a customer feel uneasy about the fact
that they should or should not receive the compensation.

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Procedural fairness: In additional to outcome fairness, customers expect fairness
in terms of policies, rules, and timeliness of the complaint process. They want easy
access to the complaint process, want things to be handled quickly and preferably
by the first person they contact. In some cases, companies actually ask the customer
“What can we do to compensate you for our failure?” Many times, what the
customer asks for is actually less than the company might have expected. Fair
procedures are characterized by clarity, speed and absence of hassles. Unfair
procedures are when those customers perceive as slow, prolonged, and
inconvenient. Customers also feel it is unfair if they have to prove their case – when
the assumption seems to be they are wrong or lying until they can prove otherwise.
Interaction fairness: Above and beyond their expectations of fair compensation and
hassle-free, quick procedures, customers expect to be treated politely, with care and
honesty. This form of fairness can dominate the others if customers feel the company and
its employees have uncaring attitudes and have done little to try to resolve the problem.
This type of behavior seems to be strange but can be explained by lack of training and
empowerment. It is easy to see that a frustrated, front-line employee, who has no
authority to compensate the customer, may easily respond in an aloof or uncaring
manner, especially if the customer is angry and/or rude himself.
1.4.2. Companies’ behavior
Research suggests that customers are not generally happy with the way their
complaints are handled or with the levels of outcome, procedural and interactional

justice they receive. Figure 1.4 illustrates the percentage of customers who felt they
were fairly and unfairly treated on the three different dimensions of fairness. It is
also shown on the Figure of a majority of customers who are dissatisfied with the
way their complaints are handled overall.

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Figure 1.4. Fairness and satisfaction

Source: Stephen S.Tax and Stephen W.Brown, “Recovering and Learning from Service
failure”, Sloan Management Review, Fall 1998, p.80.
1.5. Service Recovery Strategies
Not every company is providing poor service recovery but a lot of them have
learned the importance of having excellent recovery - strategy for dissatisfied
customers. The excellent recovery strategy is said to be a combination of a variety
of strategies that must work together and tightly as shown on Figure 1.5.

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Figure 1.5. Service Recovery strategies

1.5.1. Fail-safe your service – Do it right at the first time
The best way of providing service is to do it right at the first time. By doing this,
companies do not have to recover anything since customers can get what they
expect and company can save costs of recovering and compensation for mistakes
they made as well. Doing it right the first time then become the most important
dimension of service quality across industry contexts.
Service operation expert, named Dick Chase, has mentioned in the book “Make
your service fail-safe” published in 1994 that services companies should adopt the
Total quality management notion of poka-yokes to improve the most basic and
fundamental of all service strategies – service reliability. Poka-yokes are automatic
warnings or controls in place to ensure mistakes are not made and can be devised in

service settings to “mistakeproof” the service, to ensure in the proper order and in a
timely manner. Furthermore, poka-yokes can be devised to ensure that the tangibles
associated with the service are clean and well maintained, and that documents are
accurate and up-to-date. Poka-yokes can also be implemented for employee

19
behaviors (i.e, checklists, role-playing and practice, reminder signs) and even for
ensuring that customers to perform effectively.
More fundamentally, it is important to create a culture of zero defections to ensure
doing it right at the first time although everybody knows it is hard to perform this
culture. Within a zero defections culture, everyone from the employees to managers
understands the importance of service reliability and aims to satisfy every customer.
They are appreciating the “lifetime value of customer” concept and are motivated to
provide quality service every time to every customer.
1.5.2. Welcome and Encourage complaints
Even when companies decide to perform zero defections culture, failures still occur.
Service recovery strategies therefore should have a critical component to welcome
and encourage complaints.
There are many ways to encourage and track complaints. Customer research can be
designed specifically to do this through satisfaction surveys, critical incident studies
and lost customers research. Less formally, employees can also get complaints via
listening posts, discovering sources of customer dissatisfaction and service failure
on the front line. They should be encouraged to report this type of information.
Parts of encouraging complaints also involve teaching customers how to complain,
mostly through technology (email, toll-free call centers, live chat etc…). It is best to
make the complaining process as simple as possible since the last thing a
dissatisfied customer wants from the company is not to face a complex, or difficult
to access process for complaining.
1.5.3. Act quickly
Companies must understand that complaining customers want quick response and

they must be well prepared to act on complaints quickly. Strategy of how to respond
quickly to customers contains several recipes as indicated below:
 Take care of problems on the front line

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Customers always want the first person who hears their complaints to solve their
problems whether the complaints are reflected in person, over the phone or via
Internet. Therefore, an employee who (sometimes by chance) hears a complaint
from a customer must considered himself as the owner of the complaint until he is
sure it is solved.
Another efficient way to speed up the handling of complaint is to call to customers,
even to whom that employees take time to write a complaint, rather then send
response in the mail. This strategy works well for companies not only in terms of
time but also in terms of costs since the costs of making phone calls were offset by
the reduced costs and time involved with paperwork.
 Empower employees:
Employees must be trained and empowered to solve problems on a quick and
accurate basis as they occur. Since a problem not solved can quickly escalate,
employees must be well-trained and empowered to even anticipate problems before
they arise and surprise customers with a solution. For service employees, there is a
specific and real need for recovery training. Because customers demand that service
recovery should take place on the spot and quickly, front-line employees need some
skills (hearing customers‟ problems, taking initiative, indentifying solutions,
improvising…), authority and incentives to engage in effective recovery. Not only
in need of the authority to act, employees should not be punished for taking action
and incentives are necessary in order to encourage employees to exercise their
recovery authority.
 Allow customers to solve their own problems
Another way that problems or complaints can be handled quickly is by building
systems that allow customers to actually solve their own service needs and fix their

own problems. Typically this is done through technology. Customers directly
interface with the company‟s technology to perform their own customer service,
providing them with instant answers.