Self service technologies, complaining behaviour and service recovery strategies

Self service technologies, complaining behaviour and service recovery strategies

The influence on consumers’ satisfaction and retention after the recovery of a self service technology complaint

Name student: Hinke Komrij

Course: Marketing, Marketing Management

RijksUniversiteit Groningen Student number: 1677918

Completion date: October 2008

Self service technologies, complaining behaviour and service recovery strategies

The influence on consumers’ satisfaction and retention after the recovery of a self service technology complaint

Author’s name: Hinke Komrij

Department: Master of Business Administration

Marketing, Marketing Management RijksUniversiteit Groningen

Studentnumber: 1677918

Qualification: Master thesis

Completion date: October 2008

Authors address: Minnertshof 13

9251 BH BURGUM

Phone number: 06-27444251

E-mail: hinkekomrij@hotmail.com

Supervision: Dr. J.A. Voerman

Dr. J. van Doorn

Organisation: *Banking company*

Recovery after complaining

Satisfaction after service recovery

Retention-rate after service recovery

Retention-rate before service recovery Core-relatedness of a

service failure

Satisfaction before service recovery

Chance of internal Complaining behaviour

Severity of a service failure Self Service Technology

use and readiness Age

Income

Management summary

In an era of mature and intense competitive pressures, many firms are focusing their efforts on maintaining a loyal customer base. This is particularly true in the banking services sector where deregulation has created an environment that allows consumers to make considerable choices in satisfying their banking needs (Levesque and McDougall, 1996). Two important ways in which banking organisations can satisfy customers are the development of self service technologies and a good functioning complaint management system. This leads to the problem statement of this Master thesis: How do complaints on self service technologies and the recovery of these complaints influence the satisfaction and retention of banking consumers? *Banking company* is such a banking organisation which has to respond to these developments. In the theoretical framework of this Master thesis, the subjects self service technologies, service failures, complaining behaviour and service recovery strategies are analysed. After the theoretical research, the following conceptual model is developed in case of a service failure:

H

H

H

H

H

And the following conceptual model is developed in case of a complaint:

H

With this conceptual model (and these hypotheses) it is tried to measure if self service technology readiness and service failures (core-related and severe) do have an influence on the ultimate satisfaction and retention-rate of consumers. Moreover, the individual factors age and income, funding as control variables, are measured in relation with complaining behaviour and self service technologies. Finally, in the second conceptual model, the relation between service recovery and the ultimate satisfaction and retention is measured (in comparison with satisfaction and retention-rate before service recovery).

The exploratory research (depth interviews and expert interview) led to more insights in complaints on self service technologies in banking organisations and is used as input for the empirical research. The empirical research is used to obtain evidence of cause-and-effect (causal) relationships. Within this research a 2x2x2x3 between subjects factorial design was chosen. During this research, respondents are exposed to different scenarios describing different situations regarding the following independent variables: 1) the level of comfort with self service technology; 2) core or non-core service failure; 3) severity of the service failure;

and 4) service recovery. From the empirical research can be concluded that hypotheses one, two and three

are supported partly and that hypotheses four, five and six are supported fully. This can be summarized in the following conclusions:

Self service technology readiness : self service technology readiness influences the retention-rate, but don’t influence the satisfaction of consumers. The control variables age and income don’t have an influence on self service technology use, except consumers with higher incomes. Income does have an influence on internetbanking-use.

Service failures : Core-related and severe service failures do have an influence on satisfaction, but not on the retention-rate of consumers. A possible reason for this outcome can be that “banks have been able to retain customers ‘from the cradle to the grave’ (Garland, 2002) with customers more likely to change their partner than their bank (Precision Marketing, 2004)”. Customers therefore can be not very satisfied about their banking services, but can still have a high retention-rate.

Complaining behaviour : Core-relatedness and severity of a service failure do have an influence on the complaining behaviour of consumers. The more core-related or severe a service failure, the higher the complaint-ratio. Nevertheless, age and income of *Banking company* consumers don’t have any influence on the complaining behaviour of consumers.

Service recovery : The higher a service recovery, the higher the satisfaction and retention-rate of a consumer after service recovery. Moreover, the service recovery paradox (Magnini et al., 2007) is measurable in this research, because the satisfaction and retention-rate is higher after the first service recovery option (apology, assistance and compensation) in comparison with the satisfaction and retention-rate before service recovery. After the second and third service recovery options (apology or no service recovery) the satisfaction- and retention-rate is lower, because of the lower service recovery.

Moreover, the following recommendations can be summarized:

Self service technology readiness: *Banking company* has chosen to change its positioning in a more relational one. Self service technologies are therefore important to keep customers satisfied, but the personal contact should not be reduced. However, given the speed of self service technology development, it is also likely that self service facilities will continue to evolve, for example a real-time online internetbanking connection.

Service failures: *Banking company* should keep track of report all the complaint subjects. With these findings, learning’s can be made, and some common service failures can be solved.

Complaining behaviour: The more contact with the employees of *Banking company*, the earlier a consumer complains. Therefore, *Banking company* should have contact with its customers on a regularly base. Moreover, the website and a complaint-desk can simplify the complaining process.

Service recovery: Employees of *Banking company* should realize how important the recovery of a complaint is. An employee-training about recovery can result in better and more uniform recoveries.

After the analyses, the problem statement could be answered as followed: In this study three different

service recovery strategies are tested after a consumer has made its complaint about self service

technologies. Satisfaction and retention-rate is higher when a service failure is solved with apology,

assistance and compensation. When a company solves a self service technology complaint on a satisfying

way, this may lead to satisfied consumers with a higher retention-rate. This may finally lead to positive

word-of-mouth and increasing sales.

Preface

In the beginning of 2008, I was searching for a subject for my Master thesis. I did not knew which subject I wanted to study, so I consulted my new manager of *Banking company* service centre, Marco Simmers.

He told me that *Banking company* would like to introduce a complaint desk. My first thought about complaints was, “boring and not very motivating…” But, I started looking on the internet for information and I found many papers that studied complaints extensively. When I read something more about the subject, I found out complaining behaviour is a very interesting subject moreover, it is also very important for a company.

I decided to make an appointment with the director Marketing and Sales, who informed me about complaint management. He cited me later to Marga Kuipers; the new complaint manager of *Banking company*

Marga Kuipers was very enthusiastic and asked me to help her to start up the whole project. Now, eight months later, we have almost finished the introduction of complaint management at *Banking company*

and my Master thesis is ready. In the last eight months I have learned not only to write a Master thesis, but also that I needed other people’s help and support. Without these people, I could not have finished this Master thesis. Therefore, I would like to thank my direct supervisors, Marga Kuipers of *Banking company*

and Liane Voerman of the University of Groningen. These two women were both very important. They inspired me when I needed this the most. Moreover, I would like to thank my study friend, Theo Ydema, who motivated and would help me every time a day. We have had many discussions and came to interesting views about both our projects during travelling to and from the University. Last, but not least, I would like to thank my boyfriend, parents, sisters and friends who stimulated me, and helped me relax at times I needed this. Without their help I would never have finished my Master thesis in this form!

Thank you!

Burgum,

October, 2008.

Table of content

Management summary ________________________________________________________

Preface ____________________________________________________________________

Table of content______________________________________________________________

1. Introduction __________________________________________________________ - 9 - 1.1 Theoretical background ___________________________________________________________ - 9 - 1.2 Problem statement ______________________________________________________________ - 11 - 1.3 Research questions ______________________________________________________________ - 11 - 1.4 Relevance and uniqueness of this Master thesis _______________________________________ - 11 - 1.5 Company overview: *Banking company* ____________________________________________ - 12 - 1.6 Outline _______________________________________________________________________ - 12 -

2. Theoretical framework _________________________________________________ - 13 - 2.1 Service encounters ______________________________________________________________ - 13 -

2.1.1 Theoretical background of Service encounters ___________________________________ - 13 -

2.1.2 Service encounters in banking organisations _____________________________________ - 14 -

2.2 Self service technologies__________________________________________________________ - 14 -

2.2.1 Theoretical background of self service technologies _______________________________ - 14 -

2.2.1.1 Advantages of self service technologies ______________________________________- 15 -

2.2.1.2 Disadvantages of self service technologies ____________________________________- 15 -

2.2.2 Self service technologies in banking organisations ________________________________ - 16 -

2.3 Service failures _________________________________________________________________ - 17 -

2.3.1 Theoretical background of service failures_______________________________________ - 17 -

2.3.1.1 Core-relatedness of service failures __________________________________________- 18 -

2.3.1.2 Severity of service failures _________________________________________________- 18 -

2.3.2 Service failures in banking organisations ________________________________________ - 19 -

2.4 Complaining behaviour ___________________________________________________________ - 20 -

2.4.1 Theoretical background of complaining behaviour ________________________________ - 20 -

2.4.2 Silent complainers in service encounters ________________________________________ - 21 -

2.4.3 Complaining behaviour in banking organisations__________________________________ - 22 -

2.5 Service recovery ________________________________________________________________ - 22 -

2.5.1 Theoretical background of service recovery______________________________________ - 23 -

2.5.2 Service recovery in banking organisations _______________________________________ - 24 -

2.6 Conceptual model _______________________________________________________________ - 25 -

3. Methodology and measures ______________________________________________ - 27 - 3.1 Exploratory research _____________________________________________________________ - 27 - 3.1.1 Research method __________________________________________________________ - 27 - 3.1.2 Data collection_____________________________________________________________ - 27 - 3.1.3 Outcomes of the exploratory research __________________________________________ - 27 - 3.2 Empirical research_______________________________________________________________ - 30 - 3.2.1 Research method __________________________________________________________ - 30 - 3.2.2 Data collection_____________________________________________________________ - 31 -

4. Results of the empirical research _________________________________________ - 33 - 4.1 Scenarios ______________________________________________________________________ - 33 - 4.1.1 Scenario-analyses __________________________________________________________ - 33 - 4.2 Hypotheses ____________________________________________________________________ - 35 - 4.2.1 Self service technology readiness, satisfaction and retention before service recovery ____ - 35 - 4.2.2 Core-relatedness of self service technology failures and the satisfaction and the

retention-rate before service recovery__________________________________________ - 36 - 4.2.3 Severity of self service technology failure and the satisfaction and retention-rate before service recovery ___________________________________________________________ - 36 - 4.2.4 Core-relatedness of self service technology failure and consumer complaints __________ - 37 - 4.2.5 Severe related self service technology failures and complaining behaviour ____________ - 37 - 4.2.6 Service recovery and consumer satisfaction and retention__________________________ - 38 - 4.3 Control variables ________________________________________________________________ - 39 - 4.4 Additional analyses ______________________________________________________________ - 40 - 4.4.1 Changing scripts ___________________________________________________________ - 40 - 4.4.2 Complaining possibilities _____________________________________________________ - 41 -

5. Conclusions and recommendations ________________________________________ - 42 - 5.1 Conclusions ____________________________________________________________________ - 42 - 5.1.1 Self service technology readiness______________________________________________ - 42 - 5.1.2 Service failures ____________________________________________________________ - 42 - 5.1.2.1 Core and non-core related service failures ____________________________________- 42 - 5.1.2.2 Severity of service failures _________________________________________________- 43 - 5.1.3 Complaining behaviour _______________________________________________________- 43 - 5.1.4 Service recovery ___________________________________________________________ - 43 -

5.1.5 Problem statement _________________________________________________________- 44 -

5.2 Recommendations_______________________________________________________________ - 44 - 5.2.1 Self service technology readiness______________________________________________ - 44 - 5.2.2 Service failures ____________________________________________________________ - 45 - 5.2.3 Complaining behaviour ______________________________________________________ - 45 - 5.2.4 Service recovery ___________________________________________________________ - 45 - 5.3 Limitations and further research ___________________________________________________ - 46 - 5.3.1 Limitations ________________________________________________________________ - 46 - 5.3.2 Further research ___________________________________________________________ - 47 -

6. References___________________________________________________________ - 48 -

7. Appendices __________________________________________________________ - 54 - Appendix 1: Summary of the depth interviews with the complaint-manager and consumers of

*Banking company* ______________________________________________________ - 54 - Appendix 2: Questionnaire(s) _________________________________________________________ - 58 - Appendix 3: Scenario-possibilities _____________________________________________________ - 61 - Appendix 4: Self service technology readiness and the consumers satisfaction and retention after the

service recovery _________________________________________________________ - 62 - Appendix 5: Core related service failures and the consumer satisfaction and retention-rate before

complaint recovery _______________________________________________________ - 64 - Appendix 6: Severe service failures in relation with the consumers satisfaction and retention-rate

before service recovery ____________________________________________________ - 66 - Appendix 7: Core related service failures in relation with complaining behaviour ________________ - 68 - Appendix 8: Severe related service failures in relation with complaining behaviour ______________ - 69 -

Appendix 9: Service recovery in relation with consumer perceptions (analyses in comparison with

each service recovery strategy) _____________________________________________ - 70 -

Appendix 10: Service recovery in relation with consumer perceptions (before and after measures for each

recovery strategy) ________________________________________________________ - 74 -

1. Introduction

In an era of mature and intense competitive pressures, many firms focus their efforts on maintaining a loyal customer base. This is particularly true in the banking services sector where deregulation has created an environment that allow consumers to make considerable choices in satisfying their banking needs. In response, many retail banks are directing their strategies towards increasing customer satisfaction and loyalty through improved service quality (Levesque and McDougall, 1996). Nowadays, banking organisations are directing their strategies to satisfy their customers in diverse ways. Two important ways to satisfy customers in banking organisations are self service technologies and complaint management.

Both issues are important developments for banking organisations’ strategies.

In this chapter a short introduction of this Master thesis will be given. After this short introduction the inducement of the research and research questions will be addressed. Finally, a description of *Banking company*, the case study company at hand, will be given.

1.1 Theoretical background

Self service technology (SST) is a technological interface which evaluated in the last decade. This technology allows customers to produce and consume services without direct assistance from employees (Meuter et al. 2000). According to Meuter et al. Self service technologies are increasingly changing the way customers interact with firms to create a service encounter. The adoption of self service technologies by existing customers requires a shift in their behavioural patterns, which may require extensive encouragement or justification by the firm (Curran et al. 2007). For many firms the challenge is often not managing the technology, but rather getting consumers to try the technology. According to Lovelock and Wirtz (2007) the significant investment in time and money is required for firms to design, implement, and manage self service technologies. It is critical for service marketers to understand how consumers decide between using a self service technology option or keep relying on their current, personal, provider. The self service technologies which are affecting the traditional functions of the bank branch are for example ATMs (automated telling machines), internetbanking and iDEAL. The adoption of these technologies is rapidly rising. A short description of these self service technologies is given:

ATMs; ATMs are machines, often located off bank branch premises, which distribute cash and provide information services to customers on presentation of a computer readable card and keying of PIN (personal identification number) (Prendergast, 1994). The first ATMs were introduced in the Netherlands in 1987 and since this time they have become well established. At this moment 98% of the Dutch people above 18 years old have a computer readable card (publication of the Dutch Bank, 2008).

Internetbanking; Internetbanking gives consumers the possibility to do their banking via the

Internet. According to the Dutch CBS in 2006 around 10.9 billion people had the possibility to do

their banking online. Internet is therefore an important channel for banking organisations to serve

their customers in a satisfying way. An important advantage of internetbanking is that payments

can be done directly, when there is access to the internet. According to Prendergast and Marr

(1994) the largest banks give consumers access to the internetbanking program with the pin code

of the card as the identification code and the pin card writer as the ownership mark. This leads to a safe internetbanking program.

iDEAL: iDEAL gives people the opportunity to pay online purchases directly. This payment takes place in a secured internet surrounding. Everyone who has the ability to do banking online has the ability to do payments via iDEAL. The only requirement is that the banking organisation has to be connected real-time

.

The use of self service technology facilities is increasing across a range of services, from traditional high contact services, such as hotels, to low contact services, such as filling the car with petrol (Curran et al., 2003). Given the speed of technology development, it is likely that self-service facilities will continue to evolve and play an even more important role in service delivery. This development leads banking organisations to increasingly introduce self service technologies nowadays. Because of the increasing use of self service technologies a shift in consumer behaviour is wished and sometimes needed. This shift in behaviour can lead to complaints, because customers do not always want to use the technology. Moreover, the new automated process can lead to service failures, which can also lead to complaints.

Complaints and complaint management are well addressed issues in services marketing literature. For companies complaints are very important, because when customers complain, they give the firm a chance to rectify the problem and, interestingly, if the firm solves it successfully, to increase loyalty and profits (Fornell and Wernerfelt, 1987). Boshoff (2007) defines ‘service recovery’ as the actions by a service firm to restore the customer’s emotions to a state of satisfaction after a service failure. Other authors define service recovery variously as the response a provider makes to a service failure (Kelley and Davis, 1994), the actions an organization may take to rectify the service failure (Andreassen, 2001), or the second opportunity that a firm has to make it right, having failed in the first attempt to do it properly (Bowen et al., 1999). According to Steward and McCabe (2006) the received wisdom from a service recovery is that economics of customer satisfaction and retention justify the allocation of resources to customer complaint management. Research indicates that there is a correlation between service quality, customer satisfaction, increased sales, profits and customer loyalty (Dovonan and Samler 1994; Heskett et al., 1997).

In this research self service technology complaints of banking organisations are researched. Nowadays, traditional banking customers have to shift their behavioural patterns because of the increasing use of self service technologies. Traditional customers have formed attitudes towards the service delivery options they are currently using. When introducing a new option, it may be difficult to encourage switching. Customers have to shift their behaviour because of the changing services, for example when a self service technology is introduced. Research has shown that customers develop attitudes toward technologies which they have not yet tried and, when customers have positive attitudes towards currently used service delivery options, they may be reluctant to change (Curran et al., 2003). When customers have negative attitudes this will be much harder. For banking organisations it is important to introduce self service technologies to reduce employee costs and to satisfy non-traditional customers, but also to keep traditional customers satisfied and loyal. Complaint management and self service technologies are therefore very important for such organisations, to satisfy traditional and non-traditional consumers.

1 *Banking company* hasn’t real-time connection already, but it is expected that this real-time connection can be offered to the customers of *Banking company* in the course of 2008.

1.2 Problem statement

Important issues in a relation with a bank are satisfaction, loyalty and retention. For banking organisations it is therefore very important to have and to keep satisfied customers. Banks commonly try to achieve a high service quality by providing error-free services, but the bank customer interaction is influenced by many uncontrollable factors. As a consequence, service failures appear to be inevitable. A service failure is said to occur when the service encounter falls short of the customer’s expectations. Disconfirmation of service expectations caused by service failures leads to customer dissatisfaction, customer defection and negative word-of-mouth (Stefan Michel, 2004). Customer complaint management has a considerable impact on subsequent marketing science research, because it introduces the elements of interactive customer experience, continuing customer relationships, and their long term banking impact (Rust et al., 2004). An aspect in service companies, which is developed in the last decade and which may lead to complaints, is self service technology. Self service technologies are increasingly changing the way customers interact with firms to create service outcomes (Meuter et al., 2000). The adoption of self service technologies by existing customers requires a shift in their behavioural patterns, which may require extensive encouragement or justification by the firm (Curran et al., 2007). This leads to the following problem statement:

How do complaints on self service technologies and the recovery of these complaints influence the satisfaction and retention of banking consumers?

1.3 Research questions

To gain more insight into the problem statement, the following research questions will be addressed in the theoretical framework:

1. How can self service technologies lead to service failures in service encounters and how can these self service technologies lead to service failures in banking organisations?

2. What kind of service failures lead to different complaints?

3. What kind of complaints lead to different types of service recovery strategies? What is the influence of these service recovery strategies on consumers’ satisfaction and retention in general, and what is the influence of these service recovery strategies on consumers’ satisfaction and retention on self service technologies?

4. What is the difference between the satisfaction- and retention rate before and after the service recovery?

1.4 Relevance and uniqueness of this Master thesis

Complaint management and self service technologies are theoretically and socially relevant. In the literature

the importance of complaint management and the development of self service technologies are widely

addressed. Complaint management can lead to satisfied and loyal customers when the complaint is solved

to the satisfaction of the consumer. On the contrary, when the complaint is not solved satisfactorily, this

can lead to unsatisfied and a smaller amount of loyal consumers. Moreover, it can also lead to negative

word-of-mouth, which on a long term can lead to a negative banking impact. Although self service

technology leads to satisfied customers when customers are ready for it and when it is well implemented, it

can also lead to unsatisfied and angry customers when customers are not ready for it and when the

technology fails (Curran et al.,2007, Bendapudi, 2003 and Bitner et al., 2001). While complaint management and self service technologies are already addressed in literature, this thesis will examine it in the light of banking customers. The combination of self service technologies and complaint management in banking organisations has not yet been thoroughly examined and is therefore a valid and interesting subject for a Master thesis.

1.5 Company overview: *Banking company*

*Banking company* is such an organisation which has to respond on self service technologies and complaint management developments. In this paragraph a description of *Banking company*, the case study company at hand, will be given.

1.6 Outline

In this Master thesis the theoretical framework of the research is discussed in the first chapter. The relation

between self service technology, complaint management and its service recovery process will be discussed

by comparison of relevant literature. After this theoretical framework the research design follows from the

theoretical framework. This design leads to results, which will finally lead to the conclusions and

recommendations of this research. In this final chapter the research questions and problem statement will

be answered also.

2. Theoretical framework

In this chapter the theoretical framework will be described. In this theoretical framework the following subjects will be discussed:

- Service encounters - Self service technologies - Service failures

- Complaining behaviour - Service recovery strategies

After the theoretical discussion a conceptual model will be developed based on the theoretical findings of this framework. The conceptual model makes the structure of this research more clear and will help obtain the research question of this Master thesis to be answered.

2.1 Service encounters

In this first paragraph service encounters will be described. After the general description a more specific theoretical description of service encounters in banking organisations will be given.

2.1.1 Theoretical background of Service encounters

Bitner et al. (1990) define a service encounter as an encounter where consumers directly interact with service organisations and which have traditionally been conducted between front-line service employees and consumers. According to Hays and Hill (2006) this front line employees are very important for companies, especially because they have to make true the service guarantee

. This is very difficult for employees because of both the intangible nature of services and the presence of the customers in the production process. According to Bitner (1990) effective management of the service encounter involves understanding the often complex behaviours of customers that can be distinguish a highly satisfactory service encounter from a dissatisfactory one, and then training, motivating, and rewarding employees to exhibit those behaviour. In a study of McKenna (2007) is researched that 68% of leaving consumers leave a company because of an attitude of indifference by the business. Customers feel unappreciated, unimportant and taken for granted. This research also suggests the importance of involved employees.

Nowadays service encounters can also take place without any human interaction element, which is named self service technology. This self service technology takes away all risks of the human interaction with employees, but has also some disadvantages, discussed in paragraph 2.2.

In the last decade the number of customers employed at service encounters in Europe and United States has risen sharply. Coinciding with this growth have been rapid technological advances and a continual rise in the customer expectations of service professionals. The economic importance and prominence of the service sector in the economy, coupled with the rapid change it is experiencing, suggest that the competitive success of future service organisations will be strongly influenced by how

2 A service guarantee is a promise by a firm that they will perform a certain level and, if the level is not met, the firm also promises to compensate the customer in a certain way.

they understand and can respond to the changing business and economic environment (Kiely et al, 2004).

2.1.2 Service encounters in banking organisations

Banking services are often provided at a service encounter in direct contact between the bank’s employees with the customer, or by telephone, or by having the customers interacting with the bank’s ATM. Simultaneously in delivering and receiving a service is, therefore, a common characteristic in the banking services market. While banks commonly try to achieve a high service quality by providing error- free services, the bank customer interaction is influenced by many uncontrollable factors. (Michel, 2004). Although customer interaction between banking employees and customers is very important, this contact is reducing. This is because of the development of self service technologies, for example ATMs and internetbanking, where human interaction is not needed anymore. According to Bednar et al.

(1995) and Dannenberg et al. (1998) the recent changes within banking organisations can largely be attributed to the emergence, adoption and mass growth of technology. In addition to this blurring of competitive boundaries, competition has emerged from banks that use exclusively online distribution.

The Internet has considerably reduced the barriers to entry into the market, removing the necessity to have a physical presence and, in turn, lowering the set up costs (Devlin 1995; Eika and Reistadbak 1998; Long 2000; Mols 1999; Javawardhena and Foley 2000). These market space players (Rayport and Sviokla 1994) also threaten traditional retail banks’ market share and profitability.

2.2 Self service technologies

In this paragraph self service technologies will be analysed in general, including its advantages and disadvantages. After this general analysis a more specific examination about self service technologies in banking organisations will be given. Self service technologies have changed the services which are offered to customers in the last decade.

2.2.1 Theoretical background of self service technologies

The use of self service technology facilities is increasing across a range of services, from traditional high contact services such as hotels to low contact services such as filling the car with petrol (Curran et al., 2003). Given the speed of self service technology development, it is likely that self service facilities will continue to evolve and will play an even more important role in service delivery than they do currently.

According to Meuter (2000) self service technology can be defined as any facility that enables consumers to ‘produce services for themselves without assistance from firm employees’ (Meuter et al., 2005). According to Meuter (2000) self service technologies are increasingly changing the way customers interact with firms to create service outcomes. Customers had formerly more contact with employees of the firm. This human contact will be reduced, because customers have to produce services by themselves, for example money transactions with ATMs. The adoption of self service technologies by existing customers requires therefore a shift in their behavioural patterns, which may require extensive encouragement or justification by the firm (Meuter et al., 2005).

Because existing customers have to shift their behaviour nowadays, it is for many firms often the

challenge not to manage the technology, but rather getting consumers to try and adopt the technology.

It is therefore very important to make consumers ready for some self service technologies. This readiness concept is developed by Parasuraman (2000) as technology readiness to understand consumers’ use of new technologies to accomplish goals. Technology readiness is conceptualized as a propensity to embrace technology and would be expected to influence the predisposition to use new technologies. Moreover, self service technologies would be expected to influence consumer satisfaction.

Furthermore, self service technology products are more complex and therefore require the producer to educate and support customers with wide-ranging levels of expertise to achieve customer satisfaction.

Therefore, the following hypothesis is provided:

According to different authors, self service technologies have different advantages and disadvantages. In the following subparagraphs the advantages and disadvantages of self service technologies will be emphasized. In paragraph 2.2.1.1 the advantages of self service technologies will be analysed and in paragraph 2.2.1.2 disadvantages of self service technologies will be addressed.

2.2.1.1 Advantages of self service technologies

Most research investigating self service technology focuses on either a) consumers’ intentions to use self service technology; b) the role of self service technology in improving service quality; c) user profiles; or d) reasons affecting adoption and rejection of self service technology (e.g. Curran et al., 2003; Dabholkar, 1996; Dabholkar and Bagozzi, 2002; Meuter et al., 2000; Walker et al., 2002). For organisations, investments in self service technology are resource-intensive in terms of both time and money. However, the payoff for the organisation may include factors such as: a) increased speed of delivery and customisation of the service delivery process (Parasuraman, 1993); b) reduced labour costs through less staff contact (Walker et al., 2002); c) increased productivity through fewer staff and opening hour restrictions (Curran et al., 2003; Dabholkar, 1996); d) improved competitiveness (Walker et al., 2002); and e) differentiation through a technological reputation (Meuter and Bitner, 2000). Self service technologies also have the advantage of limiting two of the difficulties associated with the human element in service delivery, heterogeneity and perish ability (Curran et al., 2003).

2.2.1.2 Disadvantages of self service technologies

Self service technologies have also some disadvantages. The potential reduction in personal contact through self service technology may affect assessments of consumer satisfaction and commitment, making it necessary to investigate self service technology usage. It is well recognised that front-line employees influence consumers’ perceptions of the service encounter (Bitner 1990; Bitner et al., 1990;

Parasuraman, Zeithaml and Berry 1985, 1988). The potential loss of interpersonal contact may lead to problems such as: a) difficulties in establishing suitable service recovery strategies in the event of service failure; b) loss of social bonds; c) loss of up-selling opportunities; and d) staff resenting the technology as it may threaten their jobs (Bitner, 1998; Curran et al., 2003). As Bitner et al. (1990) states “many times (personal) interaction is the service from the customer’s point of view”. Personal

H1: The higher the self service technology use and readiness, the less difficulties to

adopt self service technologies and the higher the satisfaction and the retention-

rate of consumers (before service recovery).

interactions have been identified as dominant contributors to consumer satisfaction and consumer commitment (Bitner, 1990). Therefore, organisations must ensure they understand the full impact of self service technology on their own customer mix and staff motivation, and that the potential advantages of self service technology outweigh the potential disadvantages.

According to Lovelock and Wirtz (2007) ‘research suggests that customers both love and hate self service technologies’. They love self service technologies when self service technologies bails them out of difficult situations and when they perform better than the alternative when being served by an employee, and enabling users to get detailed information and complete transactions faster then they could with face-to-face or telephone contact. Customers hate self service technologies when they fail.

Users get angry when they find out that machines are out of service, their pin numbers are not accepted, websites are down, or tracking numbers do not work. Neeli Bendapudi and Robert Leone (2003) note that even when it is the customers own fault, they may still blame the service provider for not providing a simpler and more user friendly system, and then, on the next occasion, revert to the traditional human based system. If consumers are not comfortable with the self service technology, they may find it intimidating and may foresee service recovery issues if something goes wrong during the service delivery and they are not able to see a staff member for help (Curran et al.,2003; Meuter and Bitner,1998).

2.2.2 Self service technologies in banking organisations

According to Steward and McCabe (2006) online banking holds much market promise. For bankers it has the twin allure of cost cutting and access to an even wider market. Steward and McCabe (2006) state that customers have moved relatively slowly towards online banking and banks have been unable to shed much of the overhead of high street branches. However, the volume of bank customers moving online is increasing and can only grow further as the Internet continues its pervasion into daily life (Bigham-Bernstel, 2003; Boss et al., 2000; Yakhlef, 2001). In the research of Bigham and Bernstel (2003) and of Javawardhena and Foley (2000) is found that the characteristics of online bank customers are in comparison with traditional consumers, that online bank customers are younger, more educated and earn a higher income

.

3 Because different researchers conclude that a lower age and a higher income do have an influence on the use and readiness of self service technologies, age and income are incorporated as control variable.

2.3 Service failures

As already mentioned in paragraph 2.2, customers hate it when (self service technologies) services fail.

Users get angry when they find out that machines are out of service, their pin numbers are not accepted, websites are down or tracking numbers do not work. In this paragraph service failures will be described in general. Because it is important to know how customers perceive these service failures, two different categorisation of service failures will be emphasized (core-related and severe service failures). After this analysis the service failures in banking organisation will be described.

2.3.1 Theoretical background of service failures

A service failure is said to occur when the service encounter falls short of the customer’s expectations.

Disconfirmation of service expectations caused by service failures leads to customer dissatisfaction, customer defection and negative word-of-mouth (Michel, 2004). Hoffman et al. (1995) concluded in their research that in the case of a more serious service failure, it is generally more difficult to execute an effective service recovery. According to Zeithaml et al. (1993) companies should use the idea of a service failure pyramid in order to manage service recovery efforts. They argue that customers have expectations on two levels: an adequate service expectation and a desired service expectation. If a service is provided within this range, customers are satisfied. The authors of the study of Zeithaml et al., (1993) call this range the ‘zone of tolerance’, indicating that within this zone, satisfaction remains relatively stable. If the service failure is worse and falls below the zone of tolerance, it is regarded as

‘unacceptable’ (small deviation from the zone of tolerance) or even absolutely unacceptable (major deviation from the zone of tolerance). Conversely, if the desired levels are exceeded, customers are more than satisfied; they are delighted.

Figure 2.1: Service failure pyramid, ( Michel, 2004) Acceptable failures

Unacceptable failure Pyramid of service failure

Avoid Major

impact Very low

frequency Low frequency

Medium impact

Avoid and recover Benefit costs Minor

impact High

frequency

Strategy Impact

Frequency

absolutely unacceptable

H2: The ‘more core related’ the self service technology failure, the lower the satisfaction and ultimately the retention-rate of consumers (before service recovery).

H3: The more severe a self service technology service failure, the lower the satisfaction and ultimately the retention-rate of consumers (before service recovery).

According to different authors, customers can perceive service failures different. In the following subparagraphs two different categorisations of service failures will be emphasized. In paragraph 2.3.1.1 the core-relatedness of service failures will be analysed and in paragraph 2.3.1.2 severity of service failures will be addressed.

2.3.1.1 Core-relatedness of service failures

According to several authors, a distinction can be made between core and non-core service failures.

Core service failures are mostly mentioned, when customers identify service encounters that result in quite dissatisfying experiences (Bitner et al., 1990; Hoffman et al., 1995; Kelley et al., 1994). Core service failures are situations where the customer does not receive the basic service promised by the provider. Core service failures, which include "lost" hotel reservations and reserved tables that are occupied, are a major reason for customers switching service providers (Keaveney, 1995). Thus, core service failures are relatively serious, and consumers expect the service provider to rectify the problem (Hart et al., 1990). Core service failures are large loss situations where the service recovery strategy required would be higher than situations involving minor problems. As already mentioned, unavailability, or denial of service (e.g., no hotel room even though customer has made a reservation), and delay (e.g., table not ready even though customer has made a confirmed reservation for 6:00 p.m.) are the most interesting types of service failures. Both are core service failures, because the provider has established manifest contracts with the customers that have been broken.

2.3.1.2 Severity of service failures

It very much depends on a customer’s individual situation if a service failure is perceived as severe or not. However, the severity of the service failures are is different; denial is considerably more serious than delay. Denial is a total breach of the basic contract (e.g., a lost hotel reservation) and, relative to delay, it is a higher loss situation (Bitner et al., 1990). A study by Chung and Hoffman (2004) reveals that service failures that are mentioned more frequently are, in general, considered less severe. The study also shows that service failures that are perceived as more stable (e.g. seating or facility problems), as well as unprompted and unsolicited employee actions, are perceived as more severe.

Furthermore, customers also rated service failures as more severe if they had happened to them before. Craighead et al., (2004) show that customers are more likely to respond negative and are more dissatisfied when a service failure is perceived as more severe.

The conclusion after the analyses about the categorisation of service failures (core-relatedness and

severity) is that the type of service failure will have an influence on the satisfaction and retention of

consumers. This will lead to the following hypotheses:

2.3.2 Service failures in banking organisations

In a banking study based on experimental settings and a convenience sample, Lewis and Spyrakopoulos (2001) found that among all service failures, customers rated an ‘unwilling employee’

and a ‘wrong statement’ as the most important service failures in terms of ‘magnitude’. Customers also

rated service failures as more severe if they had happened to them before. In a retail banking context,

management cannot afford to ignore service failures (Michel, 2004). Where an improvement of the

service design and delivery system leads to major investments (e.g. computer systems), or lower

productivity (e.g. more staffing to avoid waiting lines), management is advised to optimise the

cost/benefit ratio. For unacceptable and absolutely unacceptable service failures, the costs of such

service failures increase significantly. First, high dissatisfaction is likely to cause a customer to switch

banks. Secondly, low recommendation intention (or even negative word-of-mouth) affects the bank’s

reputation, not only in the perception of one, but of many customers. As a rule, unacceptable and core

service failures are to be avoided. If such service failures happen, a good service recovery may turn a

dissatisfied customer back into a state of satisfaction. When a company knows which service failures

they have been making, the service recovery process can be made true. It is therefore that companies

should give consumers many opportunities to complain. Complaining customers offer opportunities to

the company to solve a problem and let the company know which service failures are made. Some

authors mention therefore that every interactive consumer with a complaint is a gift; because they let

the company know which service failures are made and how a service can be served in a more

satisfying way.

2.4 Complaining behaviour

It is desirable for a company that a consumer makes its complaint to the company when it is dissatisfied about a service. These complaints are very important for companies, because companies can learn from complaints internally and externally. This paragraph will theoretically describe the complaining behaviour of complainers and non-complainers. With help of the following model, developed by Krawczyk (2008, page 77), complaining behaviour will be analysed.

2.4.1 Theoretical background of complaining behaviour

When a service failure occurs and it is not directly recovered, customers can choose to complain. A complaint is every expression of dissatisfaction about the service of a firm via email, letter, telephone or face to face. Complaining customers inform the company about their dissatisfaction, and give therefore an opportunity to the company to solve a problem and to reduce the likelihood of dissatisfied customers switching to a competitor and engaging in negative word-of-mouth (Hays et al., 2006; Blodgett et al., 1995; Stauss, 1999; Heskett et al., 1997). Complaining customers can also choose to complain externally. This means according to Krawczyk (2008), that they do not complain internally to the company, but for example at an online forum, or at a consumer organisation. Because in this research the internal complaining behaviour will be researched, no further information about external complaining behaviour is given.

Customer complaint handling can have an influence on customer satisfaction and as a consequence at their retention and loyalty. (Levesque and McDougall, 1996). Customers will be satisfied if the complaint handling experience exceeds their expectations and dissatisfied if the company cannot meet their expectations. Customers will be neither satisfied nor dissatisfied but indifferent if their perceptions equal their expectations. Companies need to know what complaining customers expect and how customer contact employees can meet or exceed customer expectations to recover and strengthen the

All consumers

No negative experiences: non

complainers

Negative experience

Internal complainers External complainers

Complainers Silent

complainers

Satisfied with recovery

Satisfied with recovery

Not satisfied with recovery Not satisfied with

recovery

endangered relationship (Gruber et al.). When problems are solved in an effective, successfully and satisfying way, consumers become more loyal to a company and the retention-rate will increase.

Satisfied and loyal consumers with a higher retention-rate will finally lead to a higher profit according to Fornell and Wernerfelt (1987). Rust et al. (2006) mention in their research that customer complaint management has a considerable impact on subsequent marketing science research, because it introduces the elements of interactive customer experience, continuing customer relationships, and their long term financial impact (Rust et al. 2006). Rust et al mention in their research the importance of an interactive customer, because this customer lets a company know what consumers like and dislike about the company. Some authors mention therefore that every interactive consumer with a complaint is a gift; because they let the company know how a service can be served in a more satisfying way.

According to Fornell and Wernerfelt (1987) analyses suggest complaints from dissatisfied customers should be a maximized subject to certain cost restrictions. According to their research dissatisfied customers who do not complain are more likely to exit. This exit implies a revenue loss and complaints imply a cost. Whenever the revenue loss is greater than the costs, if a sufficient large proposition of the complainants can be persuaded to remain customers, complains should be encouraged. But still, companies invest little in terms of solving complaints and therefore retaining their customers (Cranage et al., 2004). Yet earlier research clearly supports the view that existing customers ask fewer questions, have more realistic expectations, are more familiar with company employees and products, and have lower price sensibility than new customers (Reichheld and Sasser, 1990). A good complaint management is therefore very important for each firm which wants to serve its customers in a satisfying way. Complaint management leads to more knowledge concerning the experiences of the customer, which may lead to a better service for the customer, which may finally lead to a higher profit.

It should be therefore very simple for a consumer to make a complaint to a company and therefore the many reasons for not complaining should be reduced.

2.4.2 Silent complainers in service encounters

It is possible that a consumer did not engage in complaining behaviour, even if he/she had a reason to do so (Chebat et al., 2005; Voorhees et al., 2006; Krawczyk, 2008). These non complainers are called silent complainers. Possible reasons for non-complaining have been identified. These include: a) inadequate levels of dissatisfaction (Singh and Pandya, 1991; Halstead, 2002); b)lack of customer motivation and ability to complain (Blodgett et al., 1993; Huppertz, 2003); c) the product’s or service’s relative unimportance mean it is not ‘worth complaining about’ (Huppertz, 2003); d) the expectation that complaining would result in a poor outcome (Tax et al., 1998); e) not knowing where and/or how to complain (Bearden and Teel, 1993; Day et al., 1981). Thus, it is by no means inevitable that customers complain and/or ‘vote with their feet’ when they are dissatisfied. According to several authors situational factors may influence customer responses to service problems. Customers are more likely to complaining to the service provider and others as problem severity increases (Keaveney, 1995;

Kelley and Davis, 1994; Richins, 1983, 1987; Singh and Wilkes, 1996). Furthermore, different criticality

levels, when a situation is more important or critical (Ostrom and Iacobucci, 1995), may also influence

their responses; they are more likely to complain when problems are encountered in high criticality

situations or when the basic service is not received (Richins, 1983, 1987; Webster and Sundaram,

1998). The conclusion after the analyses is that the type of service failure will have an influence on the complaining behaviour of consumers. This will lead to the following hypotheses:

Moreover, an A.C. Nelson study found that in general only 2% of dissatisfied consumers actually voice their complaint to the organization (this number was 10% in the service sector, Tschol 1994). For any organization not serious about handling complaint service recovery, the immediate implication is that they are missing at least two-thirds of their target market. (Davidow and Dacin, 1997).

2.4.3 Complaining behaviour in banking organisations

According to Steward and McCabe (2006) little is known about online complaining behaviour, particularly in banking organisations. That, together with the predicted rise in adoption of online banking (Bradley and Stewart, 2003), suggests it is appropriate to explore online banking complaining behaviour. Steward and McCabe (2006) state in their research the rates of customer switching (also called customer exit or defection) and customer complaining have been somewhat suppressed by substantial levels of customer inertia. Banks have been able to retain customers ‘from the cradle to the grave’ (Garland, 2002) with customers more likely to change their partner than their bank (Precision Marketing, 2004). Traditional banking customers have therefore a high retention-rate and are very loyal towards banking organisations. On the other hand revealed Snellman and Vihtkari (2003) in their study about the complaining behaviour of customers using self service technologies in banking organisations, that online bank customers have the highest complaint ratio. This is also confirmed by Meuter et al.

(2000) which propose that consumers using self service technology are more likely to complain than other consumers. In the research of Bigham and Bernstel (2003) and of Javawardhena and Foley (2000) is found that the characteristics of online bank customers are in comparison with traditional consumers, that online bank customers are younger, more educated and earn a higher income. This demographic is similar to that shared by consumers who are considered to be typical complainers (Broadbridge and Marshall, 1995, Singh, 1990, Warland et al., 1975, Huppertz, 2003)

.

2.5 Service recovery

Complaining behaviour is very important, because a company gets aware of its service failures and can recover those. The service recovery can have an influence on customer satisfaction and as a consequence at their retention-rate (Levesque and McDougall, 1996). In this paragraph service recovery will be theoretical analysed in general and specific for banking organisations.

4 Because different researchers conclude that a lower age and a higher income do have an influence on the chance consumers complain, age and income are incorporated as control variable.

H4: The higher the core-relatedness of the self service technology failure, the higher the chance a consumer complaints to the company.

H5: The more severe a self service technology failure, the higher the chance a

consumer complaints to the company.

2.5.1 Theoretical background of service recovery

After a complaint is made to the company, it is likely that the service failure will be recovered as soon as possible. When the service recovery is solved in a fulfilling way, the service recovery mainly leads to satisfied and loyal customers. According to Boshoff (2000) ‘Service recovery’ refers to the actions by a service firm to restore a customer to a state of satisfaction after a service failure

. Service recovery has been variously defined as the response a provider makes to a service failure (Kelley and Davis, 1994), the actions an organization may take to rectify the service failure (Andreassen, 2001), or the second opportunity that a firm has to make it right, having failed in the first attempt to do it properly (Bowen et al., 1999). In any case, the goal of service recovery is to retain existing customers, rather than attracting new ones (Andreassen, 2001).

According to Blodgett et al. (1993) the perceived justice of the service recovery is a critical factor that determines whether a complainant will repatronize that organisation or engage in negative word-of- mouth behaviour. Maxham and Netemeyer (2002) describe different types of justice in their research about service recovery. According to them distributive justice is viewed as the extent to which customers believe they have been treated fairly with respect to the final service recovery outcome.

Such outcomes may represent refunds, discounts, or other atonement offered to customers after a service failure. Thus, customers’ perceptions of distributive justice should increase when they believe the agents put forth extra effort by offering attractive compensation. Elements of procedural justice include the speed of resolving the service failure, the perceived convenience/ flexibility of the process to the complainant, and the accessibility of the firm (Tax et al. 1998). Maxham and Netemeyer (2002) argue that when employees go out of their way to handle a service recovery in a timely fashion and explain in detail the procedures involved in the service recovery effort, the customer's view of the firm's procedural justice is enhanced. Interactional justice is viewed as the extent to which customers believe they have been treated with honesty and courtesy by agents who are interested in fairness and who put genuine effort into the service recovery (Smith et al., 1999).

According to Levesque and McDougall (1996) service recovery strategies can consist of three distinct actions, either alone or in combination: a) apology (acknowledging the problem); b) assistance (fixing the problem); c) compensation (paying for the "trouble" costs of the problem). The service recovery strategy plays a role in the customer's future intentions toward the provider. For both practitioners and researchers, it is important to understand which service recovery strategy is most effective in a given situation (Bitner, Booms, and Tetreault, 1990; Hart et al., 1990; Hoffman, Kelley, and Rotasky, 1995;

Kelley, Hoffman, and Davis, 1993). The effectiveness depends on the situation and is influenced by such factors as problem severity, criticality, and the type of service. Effectiveness also depends on how the contact employee handles the problem. Responsiveness, empathy, and understanding improve the effectiveness of the strategy (Bitner et al., 1990; Hart et al., 1990; Smith, Bolton, and Wagner, 1999).

Apology is the minimum action that can be taken when a problem occurs (Bitner et al., 1990) and is recommended as a requisite for service recovery (Hart et al., 1990). However, while an apology is better than no apology (Smith et al., 1999), an apology alone is relatively ineffective when a customer

5 In this thesis service recovery takes places after a complaint is made to the company. However service recovery can also take place when the company is aware by itself that service failures have occurred. In that case complaints are not necessary.

encounters a service failure (Goodwin and Ross, 1992; Hoffman et al., 1995). Typically, customers expect some gain (e.g., assistance, compensation) for their loss (service failure) (Smith et al., 1999;

Tax, Brown, and Chandrashekaran, 1998). Therefore, assistance or compensation can take place.

Assistance involves taking actions to rectify the problem and compensation involves monetary payment for the inconvenience the customer has experienced and may be required if the service failure cannot be fixed (e.g., no room available). In terms of gain and loss, increasing compensation should lead to greater satisfaction with the service recovery.

The success of a service recovery depends on consumer perceptions after the service recovery.

Therefore, the cognitive dissonance paradigm can be mentioned in this context. Festinger’s (1962) theory of cognitive dissonance is based on the notion that individuals strive to achieve consistency in their beliefs and behaviours. Cognitive dissonance theory suggests that service failures that are perceived as “inconsistent” must generate sufficient feelings of discomfort or tension to motivate a consumer to do something about the negative state of affairs (Solomon, 1992). Customers will always try to reduce this dissonance. If a poor or ineffective service recovery is faced, this leads to undesirable outcomes such as dissatisfied customers, defections to competing firms and negative word-of-mouth.

However, excellent service recovery can lead to a higher satisfaction and loyalty- rate in comparison with the satisfaction and loyalty-rate before the service recovery. When the service recovery efforts are exceptional, the level of customers’ overall satisfaction rates can actually be higher than those of customers who have not experienced any problems in the transaction (Maxham and Netemeyer, 2002b;

McCollough and Bharadwaj, 1992; Smith and Bolton, 1998), which is called the service recovery paradox.

2.5.2 Service recovery in banking organisations

Reichheld and Sasser (1990) state in their research that a retail bank that increased its customer retention rates by five percent increased its profits by 85 percent. Important aspects are therefore satisfied and loyal consumers. When consumers do have a complaint, an effective service recovery strategy is consequently very important. Levesque and McDougall (1996) argue that a service problem which is not resolved has a substantial impact on the customer’s attitude towards the service provider.

These results confirm the importance of problem service recovery in maintaining customer satisfaction (Hart et al., 1990). Conversely, unsatisfactory problem service recovery reduces customer satisfaction and loyalty. Consumers, who experience a problem, have a significant and dramatic drop in customer satisfaction, willingness to recommend to friends, and, conversely, an increase in consider switching.

However, excellent service recovery can lead to a higher satisfaction and retention-rate in comparison with the satisfaction and retention-rate before the recovery. Based on the described theoretical part, the following hypothesis can be proposed:

H6: A high service recovery leads to consumers with a higher satisfaction and retention-rate

in comparison with satisfaction and retention before the service recovery. Medium and

low service recovery leads to even or lower satisfaction and retention-rate in comparison

with satisfaction and retention before the service recovery.