The service recovery paradox

How businesses can turn service failures into success and boost customer satisfaction by tapping into the hidden opportunities that mistakes presents.

By Richard Shotton, Guest contributor

Last updated September 1, 2022

Every cloud has a silver lining.

It’s a long-standing proverb that suggests that unfortunate events come with an upside.
And the sentiment crosses borders. The Italians, remarkably, have a similar phrase that behind every cloud there is a ray of sunshine.

The Swedes are even more optimistic, for them, every cloud has a gold lining.

The Japanese proverb, if there is pain, there is another gain, drops any meteorological imagery but has the same underlying meaning.

Again and again folk wisdom suggests that problems often come with hidden opportunities. It’s a sentiment that businesses would do well to embrace. That’s not speculation–but a reflection of the idea called the service recovery paradox. This is the finding that if a company makes a mistake but deals with it well, this can boost a customer’s satisfaction.

In the words of Christopher Hart, a professor at Harvard Business School:
A good recovery can turn angry, frustrated customers into loyal ones. It can, in fact, create more goodwill than if things had gone smoothly in the first place.

Recent evidence comes from Basil Halperin from MIT and John List from the University of Chicago. In 2021, they analysed the behaviour of 1.5 million Uber customers whose ride had turned up more than five minutes late.The customers were randomly allocated into one of three groups: a third were sent an apology; a third were sent a $5 voucher; and a third were sent the voucher and an apology.

The researchers then tracked the Uber customers’ activity for the next 84 days. A clear pattern emerged–if people just received an apology, their usership of the service declined. For Uber, this meant a decline in net revenue of 6.4% over the next few months. In contrast, those who were given the apology and the voucher increased their usership-net revenue was boosted by 2.7% (even excluding the free ride).

The Uber study isn’t a one-off. In 2007, Celso de Matos, a psychologist at the University of Rio Grande do Sul in Brazil, conducted a meta analysis of 21 studies and found that the service recovery paradox was a consistent finding in terms of boosting customer satisfaction (although he found no such pattern for other metrics, such as positive word of mouth).

At first, this seems counter-intuitive. Why would a customer be happier after a mistake? However well that error is dealt with, surely faultless service is best? But psychologists argue that there is a logic: if a company deals well with a minor mistake, it puts a customer’s mind at rest. They now believe that any other errors-which will inevitably occur sooner or later-will be dealt with well. Customers who have had perfect service don’t have that peace of mind.

Whatever the underlying rationale, the service recovery paradox has important implications for businesses. First, for the business owner, customer service is not just a cost that you have to bear. If you deal well with problems, you can boost your income. So, make sure you have invested in a well-trained team with great tech support before that mistake arises. Unfortunately, many companies could do more in this area–only 30% of service agents feel empowered to do their job well according to the Zendesk 2022 CX trends report.

Second, for those who work in customer service, don’t shy away from a mistake. All is not lost. Once the error has occurred you still have a chance to rectify–and even improve–the situation.

Look for that silver lining.

Or as the Italians might say

Dietro ogni nuvola c’è un raggio di sole

This article first appeared on the author’s LinkedIn profile.

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