Recovering and Learning from Service Failure

Is your company doing its best to address customer com-plaints and learn from mistakes?

Keeping and developing relationships with current customers is a key business strategy.1 Yet problems and complaints are bound to occur over the lifetime of customer relationships. Handling these effectively is vital to maintaining customer satisfaction and loyalty, as the example of Saturn illustrates. When faced with the need to repair a problem on 350,000 of its vehicles, the company chose to do whatever was necessary to satisfy customers: it set up an 800 number, went directly to some owners’ homes, and opened its checkbook to dealers. According to Joseph Kennedy, Saturn’s vice president of sales, service, and marketing, the goal was “to fix both the car and the customer. We want Saturn to be a 100-year car company.” Saturn has achieved high levels of customer loyalty and in 1996 was rated number one in sales and dealer satisfaction in its class.

The impact of recovery strategies on a company’s revenue and profitability is dramatic. Hampton Inn hotels, for example, realized $11 million in additional revenue from the implementation of its service guarantee and scored the highest customer retention rate in the industry.2 General Electric has found that, on average, customers buy fifteen major appliances in their lifetimes. Committed to maintaining customer loyalty, the company has invested heavily in the GE Answer Center to manage customer relationships and ensure that problems are addressed efficiently and effectively.

The majority of customers are dissatisfied with the way companies resolve their complaints.

The ability to deal effectively with customer problems is also closely related to employee satisfaction and loyalty, which are critical concerns in industries where customer relationships are more closely associated with the individual service provider than with the organization.3 American Express pays careful attention to the job satisfaction of its investment advisers, since it estimates that more than 30 percent of an adviser’s clients would defect if the adviser left the company. In addition, customer complaints provide valuable insights into root causes of operations failures. Many quality-award winners, including Federal Express, Xerox, and Ritz-Carlton, use failure data when making decisions on process improvements, coupling service recovery with initiatives to increase customer satisfaction in the future.

Despite the benefits offered by effective service-recovery strategies, our research shows that the majority of customers are dissatisfied with the way companies resolve their complaints.


1. Focusing marketing efforts on current customers is referred to as “customer satisfaction” or “defensive” strategy. For insights into the benefits of such a strategy, see: C. Fornell, “A National Customer Satisfaction Barometer: The Swedish Experience,” Journal of Marketing, volume 56, number 1, 1992, pp. 6–21; A. Griffin, G. Gleason, R. Preiss, and D. Shevenaugh, “Best Practices for Customer Satisfaction in Manufacturing Firms,” Sloan Management Review, volume 36, Winter 1995, pp. 87–98; and F.F. Reichheld and W.E. Sasser, Jr., “Zero Defections: Quality Comes to Services,” Harvard Business Review, volume 68, September–October 1990, pp. 105–111.

2. B. Ettorre, “Phenomenal Promises that Mean Business,” Management Review, March 1994, pp. 18–23; and R.T. Rust, B. Subramanian, and W. Wells, “Making Complaints a Management Tool,” Marketing Management, volume 1, number 3, 1992, pp. 41–45.

3. The importance of frontline employees in delivering service quality is developed in: L.A. Schlesinger and J.L. Heskett, “Breaking the Cycle of Failure in Services,” Sloan Management Review, volume 32, Spring 1991, pp. 17–29.

4. C.W.L. Hart, J.L. Heskett, and W.E. Sasser, Jr., “The Profitable Art of Service Recovery,” Harvard Business Review, volume 68, July–August 1990, pp. 148–156.

5. L. Dube and M. Maute, “The Antecedents of Brand Switching, Brand Loyalty and Verbal Responses to Service Failures,” in T. Swartz, D. Bowen, and S. Brown, eds., Advances in Services Marketing and Management, volume 5 (Greenwich, Connecticut: JAI Press, 1996), pp. 127–151; and Technical Assistance Research Program, Consumer Complaint Handling in America: An Update Study (Washington, D.C.: Department of Consumer Affairs, 1986).

6. J. Singh, “A Typology of Consumer Dissatisfaction Response Styles,” Journal of Retailing, volume 66, number 1, 1990, pp. 57–99.

7. Dube and Maute (1996).

8. T. Levitt, “Marketing Success through Differentiation — of Anything,” Harvard Business Review, volume 58, January–February 1980, pp. 83–91.

9. T.W. Firnstahl, “My Employees Are My Service Guarantee,” Harvard Business Review, volume 67, July–August 1989, pp. 28–32.

10. J. Kelly, “From Lip Service to Real Service: Reversing America’s Downward Service Spiral,” Vital Speeches of the Day, volume 64, number 10, 1988, pp. 301–304.

11. B. Rossello, “Customer Service Superstars,” ABA Banking Journal, volume 89, number 10, 1997, pp. 96–104.

12. J.L. Heskett, W.E. Sasser, Jr., and C.W.L. Hart, Service Breakthroughs: Changing the Rules of the Game (New York: Free Press, 1990); and C.L. Martin and D.T. Smart, “Consumer Experiences Using Toll-Free Corporate Hotlines,“ Journal of Business Communications, volume 31, number 3, 1994, pp.195–212.

13. S.S. Tax, S.W. Brown, and M. Chandrashekaran, “Customer Evaluations of Service Complaint Experiences,” Journal of Marketing, volume 66, April 1988, pp.60–76; and E.C. Clemmer and B. Schneider, “Fair Service,” in Swartz et al. (1996), pp. 109–126.

14. C. Boshoff, “An Experimental Study of Service Recovery Options,” International Journal of Service Industry Management, volume 8, number 3, 1997, pp. 110–130.

15. “On Achieving Excellence,” December 1995, pp. 2–3.

16. J. Carlzon, Moments of Truth (New York: Balligen, 1987).

17. Schlesinger and Heskett (1991).

18. L.L. Berry and A. Parasuraman, Marketing Services: Competing through Quality (New York: Free Press, 1991).

19. “Federal Express Uses a Three-Level Recovery System,” The Service Edge, December 1990, p. 5.

20. For a review of the use of empowerment in service recovery and other aspects of service management, see: D.E. Bowen and E.E. Lawler, “Empowering Service Employees,” Sloan Management Review, volume 36, Summer 1995, pp. 73–84.

21. Ibid.

22. Ibid.

23. E.C. Nevis, A.J. Dibella, and J.M. Gould, “Understanding Organizations as Learning Systems,” Sloan Management Review, volume 36, Winter 1995, pp. 73–85.

24. C.H. Lovelock, Product Plus (New York: McGraw-Hill, 1994).

25. G.S. Day, “Continuous Learning about Markets,” California Management Review, volume 36, Summer 1994, pp. 9–31.

26. L.L. Berry and A. Parasuraman, “Listening to the Customer — The Concept of a Service-Quality Information System,” Sloan Management Review, volume 38, Spring 1997, pp. 65–76.

27. Ibid.

28. R.T. Rust, A.J. Zahorik, and T.L. Keiningham, “Return on Quality: Making Service Quality Financially Accountable,” Journal of Marketing, volume 59, number 2, 1995, pp. 58–70.

29. J.L. Heskett, T.O. Jones, G.W. Loveman, W.E. Sasser, Jr., and L.A. Schlesinger, “Putting the Service-Profit Chain to Work,” Harvard Business Review, volume 72, March–April 1994, pp. 164–174.

30. M.A. McCollough and S.G. Bharadwaj, “The Recovery Paradox: An Examination of Consumer Satisfaction in Relation to Disconfirmation, Service Quality, and Attribution-based Theories,” in C.T. Allen et al., eds., Marketing Theory and Application (Chicago: American Marketing Association, 1992), pp. 102–107.

31. Heskett et al. (1994).

32. Technical Assistance Research Program (1986).

33. Heskett et al. (1994).

34. V. Zeithaml, L.L. Berry, and A. Parasuraman, “The Nature and Determinants of Customer Expectations of Service,” Journal of the Academy of Marketing Science, volume 21, Winter 1993, pp. 1–12.

35. F.F. Reichheld. “Loyalty-Based Management,” Harvard Business Review, volume 71, March–April 1993, pp. 64–74; and T.A. Oliva, R.L. Oliver, and I.C. MacMillan, “A Catastrophe Model for Developing Service Satisfaction Strategies,” Journal of Marketing, volume 56, number 3, 1992, pp. 83–95.

36. Fornell (1992); Reichheld (1993); Heskett et al. (1994); Griffin et al. (1995); and Reichheld and Sasser (1990).

37. M.J. Bitner, B.H. Booms, and M.S. Tetreault, “The Service Encounter: Diagnosing Favorable and Unfavorable Incidents,” Journal of Marketing, volume 54, number 1, 1990, pp. 71–84.


The authors thank Michael Hutt, David Bowen, and Mary Jo Bitner (all from Arizona State University), Lance Bettencourt (Indiana University), and Rebecca Grant and David McCutcheon (University of Victoria) for helpful comments on an earlier version of the manuscript. The authors also thank the Center for Services Marketing and Management at Arizona State University for funding the research.

2 Comments On: Recovering and Learning from Service Failure

  • debra netherton | January 26, 2015

    I am not sure how to get help, but I was enjoying reading this paper but don’t think I can access the remainder of the paper. The last paragraph visible is ‘Being Fair with Customers.’ Any help would be appreciated.

    In respect to the paper and its valid recommendations, it is extremely disappointing that management in large, profitable organisations are still failing their customers and employees by not managing increasing levels of complaints, in 2015!.

  • Leslie Brokaw | October 26, 2015

    Hello Ms. Netherton — Thank you for letting us know about the missing section of this article. We have updated this page so that the article is now complete. — Leslie Brokaw, Digital Contributing Editor, MIT SMR

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