International Journal of Bank Marketing

Banking customers' varied reactions to service recovery strategies

Jo Ann M. Duffy John M. Miller James B. Bexley

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Jo Ann M. Duffy John M. Miller James B. Bexley, (2006),"Banking customers' varied reactions to service
recovery strategies", International Journal of Bank Marketing, Vol. 24 Iss 2 pp. 112 - 132
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Barbara R. Lewis, Sotiris Spyrakopoulos, (2001),"Service failures and recovery in retail banking:
the customers perspective", International Journal of Bank Marketing, Vol. 19 Iss 1 pp. 37-48 http://
dx.doi.org/10.1108/02652320110366481
Anna S. Mattila, (2001),"The effectiveness of service recovery in a multi#industry setting", Journal of
Services Marketing, Vol. 15 Iss 7 pp. 583-596
Tor Wallin Andreassen, (2000),"Antecedents to satisfaction with service recovery", European Journal of
Marketing, Vol. 34 Iss 1/2 pp. 156-175

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IJBM
24,2

Banking customers varied

reactions to service recovery
strategies

112

Jo Ann M. Duffy, John M. Miller and James B. Bexley

College of Business Administration, Sam Houston State University,
Huntsville, Texas, USA
Abstract

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Purpose Through means of an empirical study of service recovery in US retail banking this paper
aims to examine the link between satisfaction and various recovery strategies.
Design/methodology/approach A total of 310 bank customers responded to a survey addressing
customer demographics, levels of satisfaction, types of recovery strategies, and service recovery
employees. Frequencies, chi-square analysis and correspondence analysis were used to analyze the
data.
Findings The findings show no significant difference in recovery strategies or satisfaction by
customer age, gender, or tenure with bank. However, the degree of customer satisfaction was strongly
influenced by the type of recovery strategy used by the bank. The results indicate that recovery efforts
are best directed toward empathic listening and fixing the problem rather than apologizing or making
atonement.
Originality/value This study of service recovery in US retail banking provides useful information
on the link between satisfaction and various recovery strategies.
Keywords Banking, United States of America, Service failures, Service improvements,
Customer satisfaction
Paper type Research paper

International Journal of Bank

Marketing
Vol. 24 No. 2, 2006
pp. 112-132
q Emerald Group Publishing Limited
0265-2323
DOI 10.1108/02652320610649923

Introduction
Service quality offers a sustainable competitive advantage to a bank because it creates
value and customer satisfaction (Kangis and Passa, 1997). However, service quality is
diminished by service breakdowns. Some real or perceived failures in the service
system are inevitable according to Hart et al. (1990) because services are characterized
by simultaneous production and consumption as well as involvement by customers in
the service production. Service failures in banks relate to outcome, the services offered
by the bank, or process, how the banking services are delivered (Levesque and
McDougall, 1993). The results of service breakdowns are customer dissatisfaction and
possibly customer defection depending on the customers trust, knowledge and the
availability of alternative service provider (Ranaweera and Prabhu, 2003; Johnson et al.,
2001; Capraro et al., 2003). In his discussion of banking customer defection Healy (1999,
p. 23) noted that truly dissatisfied customers bail out [defect] at an overwhelming
rate.
Successful recovery effort is a prerequisite for customer retention following a
service failure (Strauss, 2002). Researchers have clearly demonstrated that effective
service recovery efforts ameliorate the dissatisfaction associated with service failure
and save the cost related to replacing a dissatisfied customer (Maxham, 2001; Bitner
et al., 1990). According to Hart et al. (1990) it costs five times more to replace a customer

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than to retain one. Successful service recovery can not only save the bank money
through customer retention, but also generate more revenue through increased
customer loyalty (Kelley et al., 1993). Customer loyalty translates into a customer doing
more business with the bank and advocating for the bank through positive word of
mouth comments (Press et al., 1997).
Developing a successful service recovery strategy is not an easy task; Best and
Andreasen (1976) found only a 50 percent satisfactory recovery rate in terms of
customer satisfaction. Data from technical assistance research programs revealed that
63 percent of the customers who complained were dissatisfied with the banks service
recovery efforts (Press et al., 1997). Banks use various recovery strategies such as
empathic listening, apologies, remediation (fixing the problem), and compensation
(atonement) in response to service breakdowns. These strategies are deemed successful
if they result in customer satisfaction.
Literature review
Consumer satisfaction can be put into operation as a transaction specific measure
(Bitner et al., 1990; Parasuraman et al., 1988) or as a cumulative evaluation, mainly
determined by service quality (Cronin and Taylor, 1994; Duffy and Ketchand, 1998;
Maxham, 2001). Maxham (2001, p. 11) defined consumer satisfaction as an
individuals subjectively derived favorable evaluation of any outcome and/or
experience associated with consuming a product.
The connection between service recovery and satisfaction has been well
documented (Oliver and Swan, 1989; Kelley and Davis, 1994; McCollough and Berry,
1996; Singh and Wilkes, 1996; Tax et al., 1998; Zemke and Bell, 1990; Maxham, 2001).
Zemke and Bell (1990) found that swift and effective service recovery enhances
customer perceptions of the companys competency and the quality of all the products
or services offered by the company. Similarly, Brown et al.s (1995) experiment showed
significantly higher levels of satisfaction in the recovery treatment group than the
control group. Dove and Robinsons (2002) research indicated that banking customers
have much higher satisfaction levels when they believe their problems with the bank
have been resolved. The International Journal of Retail & Distribution Management
(1995) reported that banking customers who have complained and are satisfied with
the service recovery efforts of the bank are three times more likely to recommend the
bank to someone else and to do increased business with the bank. Moreover, positive
word of mouth is associated with an effective recovery while negative word of mouth
follows recovery failures (Blodgett et al., 1993; Maxham, 2001). Press et al. (1997) noted
that the issues most highly correlated to overall satisfaction involve complaint
management. Efficiently handling problems, being attentive to concerns, and being
able to resolve problems over the telephone emerged as critically important to bank
customer satisfaction. When the service recovery was perceived to be effective, loyal
customers were likely to maintain or increase their loyalty toward the firm according to
the findings of Craighead et al. (2004).
Although studies have associated demographic variables with customer satisfaction
with services in general (Howcroft et al., 2002) few studies have linked consumer
evaluations of service recovery to gender, age, or tenure with the service. There is recent
evidence, however, that gender does influence consumers perceptions of the service
recovery process. McColl-Kennedy et al. (2003) studied the reactions of over 700 hotel

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114

patrons to videos depicting various scenarios of service recovery. They found

significant differences in the perceptions of men and women of how service recovery
should be handled. Women, more than men, wanted to be able to voice their concerns
during the service recovery period. There is also some linkage between the length of the
customer relationship and satisfaction. According to the findings from research
completed by Hess et al. (2003) a customers reaction to service failure and service
recovery is affected by the relationship of the customer to the firm. Higher satisfaction
and lower service recovery expectations were found among customers with higher
expectancy of a continuing relationship. However, Lewis and Spyrakopoulos (2002)
discovered that customers with long relationships are more demanding of the service
recovery; this may also mean that it takes more to satisfy them.
According to Hart et al. (1990, p. 148) the surest way to recover from service
mishaps is for workers on the front line to identify and solve the customers problem.
Front-line workers have the advantage of being directly in contact with the customer
and thus having a better understanding of the problem. They are also able to give the
quickest response. The fact that the speed of service recovery appears to reduce
customer negativity (Miller et al., 2000; Kelley et al., 1993; Hart et al., 1990) may explain
to a large degree why service recovery efforts conducted by front-line employees are
associated with high levels of customer satisfaction.
The service recovery process has been divided into three phases: pre-recovery,
immediate recovery and follow-up recovery (Strasser et al., 1993). This study focuses
on the immediate recovery phase since that is the phase involving the recovery
encounter. The immediate recovery phase includes one or a combination of four types
of service recovery strategies: showing empathy by listening to the complaint,
apologizing, fairly fixing the problem and compensation, i.e. providing something
extra in atonement (Zemke, 1994; Hoffman et al., 1995; Goldstein et al., 2002). These
strategies are not mutually exclusive.
Different banking recovery strategies were more effective for various types of
service failure according to Lewis and Spyrakopoulos (2001) findings. Boshoff and
Leong (1998) focused on apologizing as a strategy; they found that apology was an
essential first step in any recovery effort. Johnston and Fern (1999) also studied service
recovery in banks. The results of their experimental study indicated that all customers
required that the problem be fixed and most said they wanted an apology. While
McDougall and Levesque (1999) found that none of the recovery strategies led to
positive future intentions to use a service, Miller et al. (1997) found varying likelihoods
of repeat patronage by customers depending on their experience with various types of
service recovery strategies. A total of 90 percent returned to the service when they
received both an apology and a fair fix to their problem while nearly 100 percent
returned when they were also given a tangible value-added atonement. Johnston and
Fern (1999) studied banking customers expectations and found that annoyed
customers thought the bank should offer an apology and fix the problem while
victimized customers expected compensation, greater responsiveness, an apology,
intervention by higher level managers as well as explanations and assurance the
problem would not reoccur. In another study of banking customers, Boshoff and
Staude (2003) discovered that satisfaction was impacted positively by communication,
explanation, and atonement in that order while loyalty was only associated with
communication and atonement during the service recovery. This review of the research

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on banking service recovery recognizes the conceptual importance attributed to

finding links between recovery strategies and satisfaction, but shows no definite
linking patterns.
Study design
Definitions
This study focuses on service failure and service recovery efforts. For the purposes of
this research service failure is defined as the real or perceived breakdown of the service
in terms of either outcomes or process. This study focused on service strategies, not on
the nature of the service failure. For our purpose it was sufficient to know that the
problem was severe enough to warrant action on the part of the customer: he or she
was motivated to either call the bank or approach a bank employee. In terms of the
construct perceived failure acceptability which is a measure of failure criticality
tested by Michel (2004), these service failures would be considered unacceptable.
Service recovery refers to the organizations response to a service failure. Types of
service recovery strategies include: doing nothing, listening empathically, apologizing,
fairly fixing the problem, and providing something extra of value as atonement. These
strategies are not mutually exclusive. Satisfaction with the recovery effort is defined as
the individuals subjectively derived favorable evaluation of the service recovery
experience, and was put into operation by the response given by the respondents to the
five-point Likert scale question: How satisfied were you with the manner in which the
problem was handled? (We note here for future reference that responses were
inverse-coded, so that a very satisfied response was coded a 1 while very
dissatisfied received a 5.) We assume that the evaluation is based on the perceived
quality of the recovery effort. Consumer characteristics that may be linked to
satisfaction with service recovery are gender, age of the consumer and length of
customer relationship defined as the time an individual has been banking at a specific
bank. The exact wordings of questions are included as footnotes to the tables of results.
Hypotheses
Customer characteristics are expected to be associated to some degree with satisfaction
with service recovery. The review of empirical studies lends weak support to the idea
that gender and customer relationship with the firm affects satisfaction with service
recovery efforts (McColl-Kennedy et al., 2003: Hess et al., 2003). Prior research leads us
to expect that women will be more satisfied than men with a recovery strategy
designed to listen to consumer input. We also expect satisfaction with the recovery
effort to be associated with the length of time the customer has had a relationship with
a specific bank. Although the relationship between satisfaction and the age of the
customer has not been examined, we predict that there will be differences between
young and older banking customers because of their generational differences in terms
of values and expectations. For example, Generation X (1961-1981) tends to be more
skeptical and have lower expectations than older Baby Boomers (1946-1964)
(OBannon, 2001). The expectation regarding customer characteristics is hypothesized,
in the alternative form, as follows:
H1. Customer perceptions of service failures and their satisfaction with service
recovery efforts will vary by gender, age, and length of relationship.

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116

Nothing in the literature refutes Hart et al.s (1990) contention that service recovery
efforts are best handled by front-line employees. Moreover, we find support for their
contention in the findings linking satisfaction with the immediacy of response to a
service failure (Miller et al., 2000; Kelley et al., 1993; Hart et al., 1990). In the present
study we expect to find that satisfaction with recovery efforts will be highest when
front-line employees (tellers) are the recovery providers. This expectation is
hypothesized, in the alternative form, as follows:

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H2. Customers will report greater satisfaction with recovery efforts provided by
tellers than by other bank employees.
There are numerous empirical studies on the topic of the relationship between
satisfaction and various recovery strategies including listening, apologizing, fixing the
problem and compensation or atonement. These strategies are not mutually exclusive.
The literature shows that some researchers have not found a link between satisfaction
and recovery efforts. Among the studies that do show a link there is no consensus on
the nature of the relationship between satisfaction and recovery efforts. Some studies
show that all the strategies add to a positive consumer evaluation while others report
that some strategies are useless. Without a consistent pattern in the research results,
we chose to test the following null hypothesis:
H3. There will be no difference in the level of customer satisfaction with various
types of recovery strategies.
Method
The service recovery questions were included in a larger scope study of customers use
and preferences for community banking services (Bexley and Maniam, 2003). The
wording of each question is given as a footnote to each of the tables in the following
section. Bank customers were asked to reflect on the banks response to their
complaints (made within the past year) about the banking service. We assumed that
the service failure was severe since the customer took time to phone or visit the bank
and lodge a complaint. Our focus was on their reaction to what they perceived as a
breakdown (severe enough to complain about) rather than on the type of service failure.
The Likert-scaled items in the survey were pre-tested with a group of community bank
officers. Their input was used to refine the questions. Thirty-four Texas community
banks located in both rural and urban settings were instructed to distribute the survey
to every tenth customer to the motor bank and bank lobby to ensure a random
sampling of the banks customers. Approximately 2,400 surveys were distributed.
Completed surveys were returned via US mail directly to the researchers. This was
done to ensure confidentiality and to distance the study from the local bank.
Descriptive statistics, chi-square analyses, and correspondence analyses were used to
analyze the data.
Results
From the 390 surveys which were returned 54 percent of the respondents were female
and 46 percent were male. A total of 4 percent of respondents were younger than 25, 10
percent were between 25 and 34; 20 percent were between 35 and 44; 31 percent were
between 45 and 54; 17 percent were between 55 and 64; and 18 percent were over 65. Of
the respondents, 40 percent had been customers of the bank for one to five years; 16

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percent for six to ten years, and 44 percent for more than ten years. A total of 74 percent
of the respondents conducted business at the bank four or more times a month; 54
percent used the drive-in banking facilities most frequently; 42 percent the lobby and 4
percent, the automated teller machine. A majority of the respondents ranked service
quality as the most important reason for choosing the bank.
Respondents were asked about problems they had had with their banks.
Specifically, they were asked if within the past year they had ever had to call or go to
their bank with a problem relating to your account or another banking matter. A
total of 187, or 41 percent, of these customers had had problems severe enough for the
customer to take time to complain. The chi-square analyses showed neither gender nor
age differences in the likelihood of reporting of problems nor any relationship between
length of time with the bank and problem occurrence (Table I).
Most (87 percent) of the customers were satisfied with the way the banks dealt with
their problems, and over three-fourths (77 percent) were very satisfied. Again, there
was no statistically significant difference between the genders or with tenure with the
bank. There was some tendency for middle-aged (35 to 44) customers to be less
satisfied than either older or younger patrons (Table II).
The bank employee who provided the recovery was usually the customer service
employee (45.3 percent) or one of the bank officers (34.7 percent). Only one-fifth (20.0
percent) approached a teller with their problem. Neither gender, age nor tenure was
associated with the type of bank employee approached (Table III).
While customers who approached the teller with their problem were most likely to
be very satisfied, there was no statistical significant difference between their level of
satisfaction and those who approached different bank employees (Table IV).
Customers were given an array of possible actions that the bank might have taken
with regard to their problem. On average customers listed two actions made by the
bank; only 7.1 percent claimed that their bank had done nothing. Two out of three (68.4
percent) said their bank had fixed the problem, not including those (21.3 percent) who
said their bank had gone further to do something extra. Most (84.5 percent) said their
bank had listened and a sizeable minority (40.4 percent) said their bank had apologized
(Table V).
Customers were also asked what the bank should have done (Table VI). A majority
(58.1 percent) did not volunteer anything that the bank should have done. The
prevailing opinion among those who did answer the question was that the bank should
at least listen (31.6 percent of all those with problems, or 75.4 percent of those who
answered this question) and fix the problem (37.4 percent, or 89.3 percent of those who
answered).
The relationship between the recovery strategies taken by the bank and customer
satisfaction was explored in a series of correspondence analyses. Generally, the more
the bank did, the more satisfied the customer was. However, the pattern of improved
response was not uniform with each added stage of service.
We note, first, that the actions can be placed in an ordered pattern. Starting with
nothing proceeding up to extra according to the listing in the questionnaire is one
reasonable ordering. The variable was recoded to a single value according to the
highest value reached among the multiple responses given by the respondent. In fact,
we tried alternative patterns (e.g. putting apologize above fixing) but the
questionnaire order seemed to give the best results. Second, the satisfaction scale is

Reactions to
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117

41.4
58.6

39.8
60.2

40.4
59.6

40.5
59.5

Yes
No

Table I.
Problems requiring
assistance
Under
35
(%)
46.8
53.2

45.3
54.7

34.6
65.4

Age of respondent
55 and
35-44 45-54
older
(%) (%)
(%)

45.0
55.0

Under 5
years
(%)

39.7
60.3

37.7
62.3

Tenure with bank

5-10
Over 10
years
years
(%)
(%)

118

Question 6. During the past year, have you called

Gender
or gone to a bank for assistance with a problem
relating to your account or another banking
Total Male Female
matter?
(%) (%)
(%)

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77.7
22.3

Very satisfied
Not very satisfied

Note: Percentages based on those with a problem

Total
(%)

Question 8a. How satisfied were you with the

manner in which the problem was handled?
77.1
22.9

Male
(%)
78.2
21.8

Female
(%)

Gender

85.7
14.3

Under
35
(%)
61.1
38.9

35-44
(%)
80.8
19.2

45-54
(%)

Age of respondent

81.8
18.2

55 and
older
(%)

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72.7
27.3

90.9
9.1

76.2
23.8

Tenure with bank

Under
5-10
Over
5 years
years
10 years
(%)
(%)
(%)

Reactions to
service recovery
strategies
119

Table II.
Satisfaction with
assistance

Note: Percentages based on those with a problem

20.0
45.8
34.2

Teller
Customer service
Bank officer

Table III.
Bank employee
approached with problem
Total
(%)
15.7
42.9
41.4

Male
(%)
23.8
47.5
28.8

Female
(%)
23.8
57.1
19.0

Under
35
(%)
19.4
47.2
33.3

35-44
(%)

13.2
47.2
39.6

45-54
(%)

Age of respondent

26.7
37.8
35.6

55 and
older
(%)

17.9
43.3
38.8

30.4
34.8
34.8

19.0
50.8
30.2

Tenure with bank

Under
5-10
Over
5 years
years
10 years
(%)
(%)
(%)

120

Question 7c. To whom at the bank did you talk

about your problem?

Gender

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also ordinal in nature. The essence of these ordinal scales is that the categories can be
placed into some sort of order, but the distance between the categories cannot be
pre-determined (Steven, 1951).
The approach of correspondence analysis (Benzecri, 1973; Hill, 1974; Greenacre,
1984) is to make only the minimal rank-order assumption about the structure of the
scales and to let the data determine the optimum re-scaling. This basic approach is not
too different from ordinary regression in which a linear relation is assumed and the
coefficients are found which optimize the linear relation. In fact, the same least
squares principle used to derive the coefficients is used in an alternating least
squares algorithm to find the optimum re-scoring (de Leeuw et al., 1970). This process
has been re-invented numerous times and the Greenacre (1984) work demonstrates the
essential equivalence between it and the homogeneity analysis of Gifi (1990), the
reciprocal averaging of Hill (1974), the dual scaling of Nishisato (1980), and even
the canonical correlations of Hotelling (1936) and Fisher (1942). The current perspective
on these techniques is in Krzanowski and Marriott (1994). Our analysis was conducted
using the Statistical Package for the Social Sciences (SPSS).
The results are tabulated in Tables VII and VIII and graphically shown in Figures 1
and 2. Note that the satisfaction scale has been truncated to a three-point scale. Very
satisfied is not far from the tied value of somewhat satisfied and neutral and is one
point, while both the somewhat dissatisfied and very dissatisfied points are spaced out
as the second and third points on this reformulated scale. Those familiar with z-scores
might profitably interpret the quantifications as measures on a unit normal deviate.
Further, note that the inverse coding has been maintained by the re-scaling.) The
interpretation of the summary action scale is clear: doing something is far preferable to
doing nothing; listening and apologizing have nearly the same effect on satisfaction,
and doing something extra is not far above fixing the problem in terms of increasing
customer satisfaction.
Graphically, the re-scorings are as shown in Figures 1 and 2:
These interpretations are not particularly unexpected. What is useful is that it is
this particular spacing, which maximizes the correlation between the two scales. Using
this spacing, the monotonic correlation coefficient (Kimeldorf and Sampson, 1978) is
2 0.715, well above the 2 0.571 obtained by the common practice of using the integer
codes as the scale values.
To summarize, the results do not support H1 and H2 stated in the alternative form
meaning that consumer characteristics gender, age, and length of relationship are
not significantly related to satisfaction. The third hypothesis stated in the null form:
There will be no difference in the level of customer satisfaction with various types of

Question 8a. How satisfied were you with the

manner in which the problem was handled?

Total
(%)

Very satisfied
Not very satisfied

77.1
22.9

Note: Percentages based on those with a problem

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service recovery
strategies
121

Who was seen about the problem?

Teller Customer service Bank officer
(%)
(%)
(%)
82.8
17.2

77.5
22.5

73.6
26.4

Table IV.
Satisfaction with
different bank employees

5.7
83.1
40.0
75.7
18.6

Male
(%)
7.5
82.5
41.3
62.5
23.8

Female
(%)
4.8
90.5
61.9
76.2
14.3

Notes: Percentages based on those with a problem. Multiple responses were allowed

7.1
84.5
40.0
68.4
21.3

Nothing
Listened
Apologized
Fixed the problem
Extra

Table V.
Recovery strategy
performed
Total
(%)

Under
35
(%)
8.3
69.4
44.4
69.4
22.2

35-44
(%)

9.4
90.6
37.7
66.0
20.8

45-54
(%)

Age of respondent

4.4
86.7
28.9
66.7
24.4

55 and
older
(%)

10.4
79.1
41.8
70.1
19.4

8.7
91.3
43.5
78.3
26.1

3.2
87.3
36.5
61.9
22.0

Tenure with bank

Under 5
5-10
Over 10
years
years
years
(%)
(%)
(%)

122

Question 8b. Check everything the bank did to

handle your problem

Gender

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58.1
31.6
18.1
37.4
7.7

No answer
Listened
Apologized
Fixed the problem
Extra

58.6
32.9
12.9
35.7
4.3

Male
(%)
55.0
32.5
23.8
41.3
11.3

Female
(%)

Notes: Percentages based on those with a problem. Multiple responses were allowed

Total
(%)

Question 8c. Go back to question *b and circle

everything you think the bank should have done for you

Gender

57.1
33.3
14.3
38.1
9.5

Under
35
(%)
52.8
25.0
27.8
41.7
11.1

35-44
(%)
54.7
35.8
18.9
39.6
5.7

45-54
(%)

Age of respondent

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66.7
31.1
11.1
31.1
6.7

55 and
older
(%)

55.2
31.3
19.4
41.8
7.5

52.2
43.5
21.7
43.5
8.7

61.9
28.6
15.9
31.7
7.9

Tenure with bank

Under 5
5-10
Over 10
years
years
years
(%)
(%)
(%)

Reactions to
service recovery
strategies
123

Table VI.
Recovery strategy
expected

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124

Table VII.
Re-scoring for
satisfaction

Table VIII.
Re-scoring for action

Figure 1.
Category quantifications
for satisfaction
transformation plot

recovery strategies was not supported. There were significant differences in the
association of certain strategies related to satisfaction.
Discussion and implications
Service breakdowns are expected because of the nature of service. In this study 41
percent of the respondents reported having problems within the previous year. The
questionnaire wording allowed respondents to use their own definition of problems.
The service breakdown was perceived as severe enough to cause them to take action
by phoning or visiting the bank. The experience of banking failure in this US banking
study is between the 34 percent (Johnston and Fern, 1999) and the 48 percent (MORI,
1994) found in two recent British bank studies. These high frequencies of service
failures support the premise that service recovery must be an inherent part of the total
service operations system.
Gender, age, and tenure with bank did not influence their experience of service
failures, nor satisfaction with how service recovery was handled. These findings refute
commonly held beliefs that women have more problems receiving good service and
that customers who are loyal, long-standing customers are more forgiving. Only the

Very
satisfied
Quantification

Quantification

2 0.387

Optimal re-scoring for satisfaction

Somewhat
Somewhat
satisfied
Neutral
dissatisfied
0.368

0.368

1.973

Nothing

Optimal re-scoring for bank action

Listened
Apologized
Fixed the problem

2 5.115

20.935

20.935

0.402

Very
dissatisfied
4.225

Extra
0.446

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Figure 2.
Category quantifications
for summary action
transformation plot

belief that middle-aged individuals are more demanding of service recovery efforts
received weak support from the results.
It is surprisingly in light of the recent occurrence (within the past 12 months) of
the service failure and the fact that the failure was perceived to be severe enough for
customers to take time to contact the bank and complain that 87 percent of the
respondents were satisfied with the way the bank dealt with service breakdown. This
is a far higher percentage than the 30 percent found in Andreassens (2001) study and
the other earlier studies previously discussed. Perhaps an explanation for the high
percentage of satisfied customers in this study lies in the low expectations these
customers had. They expected the bank to do very little: less than 40 percent expected
the bank to listen to their problems or fix them. However, over 80 percent reported that
the bank actually did listen to them and nearly 70 percent said the bank fixed the
problem. Applying the disconfirmation paradigm used by Parasuraman et al. (1988)
(i.e. quality is measured by the degree actual service meets or surpasses expectations of
what service should be), it follows that customers in this study would tend to be a
highly satisfied group. They could be described as delighted customers, a term
coined by Oliver et al. (1997) to describe customers whose expectations are exceeded by
their experience. Another explanation for the high percentage of customers who were
satisfied with their banks service recovery efforts may lie in the size of community
banks. Community banks tend to be small which enables them to provide fast,
personalized responses to service failures.
The results indicate that tellers, the front-line employees, are infrequently the ones
who handle the recovery process. The customer service employee is most frequently
responsible (45 percent of the time) for service recovery. The complexity of banking
procedures may account for the fact that tellers are not the ones who tend to handle
service recovery. Furthermore, community banks tend to have a customer service
department that is easily and quickly accessible to customers. Moreover, these
bank customers appear to have the ability to go directly to bank officers. In this study,
bank officers addressed customer complaints over 34 percent of time. The issue of who
manages service recovery needs to be investigated in a study that includes large
banking institutions to determine if this manner of handling service recovery is a
unique characteristic of community banks. It is possible that having managers as

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accessible as front-line employees is a source of competitive advantage for community

banks since it is unlikely that either customer service personnel or bank officers are so
readily accessible to customers in larger financial institutions.
Regardless of who provided the service, the bank customer was likely to be very
satisfied. This finding may indicate that empowerment of front-line employees is not
the critical dimension of service recovery; instead, it is the rapidity of the corrective
action. What appears to be important to satisfaction with service recovery efforts is not
who responds, but how immediate is the response to the service failure. Gronroos
(1988, p. 13) maintained that service recovery is a process-related criterion; thus
customers expect immediate and active corrective action when a service failure
occurs.
In terms of how various service recovery strategies affect satisfaction, the findings
are particularly intriguing. Satisfaction does not appear to increase if the customer
receives an apology. What is critical to customer satisfaction is that someone listens to
the customers complaint. The customer needs to be heard but does not necessarily
need to hear the words, Im sorry during the recovery process. This finding differs
from Johnston and Ferns (1999) study of British banking customers which showed
that apologies are critical to service recovery satisfaction. However, it is not without
precedent to find that apologies do not add to satisfaction with service recovery (Kelley
et al., 1993; Johnston, 1995; Webster and Sundaram, 1998, Darida et al., 1996) and that
empathetic listening is critical to effective service recovery (Bell and Zemke, 1987;
Johnston, 1995).
Satisfaction with recovery efforts is enhanced when the problem is fixed; this
finding is supported universally in the service recovery literature. However, the results
indicate that there is no added-value in terms of customer satisfaction
whenatonement is offered. Fewer than 8 percent of the respondents felt it was
necessary for the bank to atone for mistakes. This finding runs counter to the idea that
customers need to be compensated for the hassle of having to deal with a service
failure. The respondents in this study had the hassle of taking time to call or to
actually visit the bank to make their concerns known. However, the finding does
mirrors the British banking study (Johnston and Fern, 1999) finding that customers
want the error corrected but do not require any atonement. While managers in other
industries cannot assume that atonement is a nonessential recovery strategy, they are
reminded that compensation (atonement) is not a guarantee to higher service recovery
satisfaction. The fact that people commonly consider it serious business when
mistakes are made with their money may heighten the criticality attributed to banking
mistakes, and help to explain why compensation does not contribute to their
satisfaction level since in high criticality situations Webster and Sundaram (1998)
found fixing the problem was more effective than providing added compensation.
The findings from this banking study resonate with the findings from Maxhams
(2001) study of student satisfaction with varying recovery levels. High and medium
levels of recovery were linked with higher levels of satisfaction with the recovery
experience. The results showed no significant difference in satisfaction between
moderate and high service recovery efforts defined as levels of compensation. This
result indicates that . . . service firms may not benefit (in terms of heightened
satisfaction and purchase intent) from expending recovery efforts beyond the moderate
level . . . There may be a recovery threshold, per se, whereby recoveries over and above

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this level go unnoticed or unrewarded by the customer (Maxham, 2001, p. 21). The
present study also found that there are threshold levels in using recovery strategies, i.e.
compensating for the failure did not add to the satisfaction already experienced when
the service failure was fixed. This finding has important resource utilization
implications since it indicates that it is unproductive to expend labor or financial
resources beyond what is needed to fix the problem.
The study is limited by the relatively small sample size used in some of the analyses
and the lack of consideration of moderating variables. For example, it appears that
service failure severity may have a moderating influence on satisfaction (Weun et al.,
2004). Zhu et al. (2004) suggest other potential moderators such as customers
sensitivity to value losses due to failures and value gains from recovery, and variations
in those factors across customers and contexts.
The exploratory nature of the statistical technique chosen for the analysis also
limits the generalizability of the results although the results are strengthened when
they are viewed in relation to the Johnston and Fern (1999) British banking study
which used an experimental design. The only difference between the two banking
studies results lay in the importance attributed to apologies as a service recovery
strategy. It is possible that different cultural mores account for the difference in how
apologies are perceived by bank customers in the two countries. Donthu and Yoo
(1998) found that culture influences service quality expectations so it is not unlikely
that culture will also influence what types of recovery strategies customers expect. In
fact, Lorenzoni and Lewis (2004) recent comparison of British and Italian airline
personnel showed significant differences in attitudes toward service recovery by
nationality, and Wongs multinational comparison revealed apology improved
satisfaction in the Chinese and Australian students but not the US student
respondents while compensation improved satisfaction in all three samples. The lack
of consistency in the research points to the need for more comparative international
study of customer reaction to service recovery practices.
Future study of service recovery strategies would also benefit from exploring other
channels, such as e-mails, for voicing a complaint about the banking service and by
introducing additional variables which could possibly influence the success of the
service recovery process, such as dimensions of process affect, follow-up service
recovery strategies, atmospherics, and timing of recovery efforts (Goldstein et al., 2002)
or the dimensions of consumer behavior matrix: level of consumer confidence and level
of consumer involvement (Beckett et al., 2000).
Managerial implications of this study center on the need for service managers to
make careful decisions about the design and implementation of service recovery
efforts. A quote from the McKinsey Quarterly sums up implications for managers:
Clearly, banks must reexamine their broader service-recovery processes if they are to address
the lapses that turn disgruntled customers into former ones (Nunaz and Yulinsky, 2005, p. 30).

While there is still insufficient research on which to base decisions about service
recovery design, we do know with surety that all recovery strategies do not affect
customer satisfaction in the same way. Service managers are tasked with discovering
the most effective mix of service strategies for their customer base. The results of this
study should cause bank managers to consider if doing more than carefully listening

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and fixing the problem is necessary for their customers satisfaction with the service
recovery process.
Summary
This study provides an empirical test of the relationship between service recovery
strategies and satisfaction and types of banking customers. Long-term customers do
not appear to experience service failures, or service recovery any differently than other
customers. Age, gender and time with the company are not linked with satisfaction.
However, by introducing correspondence analysis to the study of service recovery, we
have been able to determine that certain types of recovery strategies listening and
fixing the problem add value to the banks service recovery encounter and that
apologies and compensation do not increase satisfaction. Merely increasing service
recovery efforts does not guarantee customer satisfaction. In other words, introducing
more recovery strategies is not the way to a better recovery system. Implementing
non-value-added strategies, i.e. those that do not enhance consumer satisfaction, is a
waste of employee time and financial resources. However, selective use of recovery
strategies leads to efficient and effective enhancement of customer satisfaction
following a service failure.
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Wong, N.Y. (2004), The role of culture in the perception of service recovery, Journal of Business
Research, Vol. 57 No. 9, pp. 957-63.
Corresponding author
Jo Ann M. Duffy can be contacted at: mgt_jxd@shsu.edu

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