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SERVICE GURANTEE A service guarantee is a marketing tool service firms have increasingly been using to reduce consumer risk

perceptions, signal quality, differentiate a service offering, and to institutionalize and professionalize their internal management of customer complaint and service recovery. By delivering service guarantees, companies entitle customers with one or more forms of compensation, namely easy-to-claim replacement, refund or credit, under the circumstances of service delivery failure. Conditions are often put on these compensations; however, some companies provide them unconditionally. DEFINITION FOR SERVICE GUARANTEE: A formal agreement, usually in writing, that a service will conform to specified standards for a particular period of time. MEANING OF SERVICE GURANTEE A service guarantee is a promise that a service or product will meet certain consumer expectations or standards. Many times it is provided to the consumer in writing. If the product fails to perform as promised, the vendor may offer replacement of the item, refund the purchase price, or offer other forms of reimbursement, like a store credit. The purpose of it is to instill consumer confidence. The type of promise that a merchant makes may differ, depending on the product or service. It is not uncommon for a service guarantee to be predicated on the consumer meeting specific terms and conditions. This places some of the responsibility on the customer. Stipulations to a service guarantee may prohibit tampering with a product or require that certain maintenance schedules are followed. It may also outline what the consumer is required to do in order to prevent the malfunction of a product. If the specified conditions are not met, the service guarantee may be voided. Conditional agreements often apply to automobile warranties. For example, a service guarantee for an engine may require scheduled maintenance at regular intervals, such as changing the oil change every three months. If the engine were to malfunction as a result of the oil not being changed on schedule, the service guarantee could be canceled. It is important for a customer to follow the provisions provided. A number of industries incorporate a service guarantee in the sale of their services. For instance, dry cleaning business may promise that clothing will be clean and ready within 24 hours, and a pest control company may offer assurance that bugs

will not enter the home after extermination. Many times, a service guarantee offers the customer a refund if the client is dissatisfied. A money back guarantee is sometimes offered to encourage a customer to purchase a product. If the consumer is disappointed with the item, he or she can usually return it for a full refund. This is designed to combat the customer hesitation, and make him or her feel that there is nothing to lose by purchasing the item. A price guarantee is usually made when a company wants to convey that their product will cost the same, or less, than the exact item sold someplace else. Often this provides for a cash refund of the difference, if the same item is found at another store for a lesser price. A business usually advertises this offer to help the consumer feel confident that they are not paying too much. BENEFITS OF SERVICE GURANTEE According to Christopher Hart, service guarantees provide the following powerful platforms for promoting and accomplish service quality:

By delivering service guarantees, firms are forced to focus on customers want and expectation in every aspect of the service. Guarantees establish clear standards which create a common image of what the company stands for in both customers and employees mind. Managers are motivated to seriously concern service guarantees, because they emphasize the financial expenditure of quality failures. With service guarantees, firms are required to build effective systems to generate meaningful customer feedback and develop corresponding courses of action. Guarantees require service organizations to understand reasons of failure and motivate them to identify and manage potential fail points Guarantees help customers to reduce risk in making purchase decisions and to reinforce their long-term loyalty.

For customers, service guarantees play an important role in alleviating perceived risks of the purchase. The guarantees also facilitate more ease and more likelihood for customers to complain, since they expect the front-line staff to be ready with resolutions and appropriate compensations. From companies perspectives, according to the vice President of Hampton Inn, Designing the guarantee made us

understand what made guests satisfied, rather than what we thought made them satisfied. DESIGNING SERVICE GURANTEE While no conditions are imposed on some guarantees, others have apparently been drafted by lawyers and cover many restrictions. Christopher Hart states that the following criteria should be met in designing service guarantees:

Unconditional: Promises of the guarantees must be unconditional and no elements of surprise should be made to customers Comprehensible: The guarantees must be easy to understand and communicate so that customers can have clear awareness of the benefits of the guarantees. Meaningful: Firms must make the guarantee important to the customers and provide adequate values to offset service failure. Easy to invoke: The guarantee should be less dependent on the customer and more on service provider. Easy to collect: Service providers should design an easy and problem-free guarantees collection process for customers. Credible: Guarantees must be offer in a believable manner.

TYPES OF SERVICE GURANTEE TERM GUARANTEE SCOPE EXAMPLE

Singleattribute specific guarantee

Any of three specified popular pizzas is On key attribute of the guaranteed to be served within 10 minutes of service is covered by ordering on working days between 12 A.M. the guarantee and 2 P.M. If the pizza is late, the customers next order is free. Minneapolis Marriotts guarantee: Our A few important attributes of the service quality commitment to you is to provide: are covered by the A friendly, efficient check-in guarantee. A clean, comfortable room, where

Multiattribute specific guarantee

everything works A friendly, efficient check-out

If we, in your opinion, do not deliver on this commitment, we will give you $20 in cash. No question asked. It is your interpretation. Lands' Ends guarantee: If you are not completely satisfied with any item you buy from us, at any time during your use of it, All aspects of the Fullreturn it and we will refund your full service are covered by satisfaction purchase price. We mean every word of it. the guarantee. There are guarantee Whatever. Whenever. Always. But to make no exceptions. sure this is perfectly clear; weve decided to simplify it further. GUARANTEED. Period. All aspects of the service are covered by the full-satisfaction promise of the guarantee. Explicit minimum performance standards on important attributes are included in the guarantee to reduce uncertainty. Datapro Information Services guarantees to deliver the report on time, to high quality standards, and to the contents outlined in this proposal. Should we fail to deliver according to this guarantee, or should you be dissatisfied with any aspect of our work, you can deduct any amount from the final payment which is deemed as fair.

Combined Guarantee

WHAT IS A GOOD SERVICE GURANTEE? With a good guarantee, you tell your customers where and how to complain, and that complaining is worth their time and effort. It also shows that you care. A good guarantee is: 1. Unconditional: Customers should not need a lawyer to explain the "ifs, ands and buts" of a guarantee because ideally there should not be any conditions; a customer is either satisfied or is not. If a company cannot guarantee all elements of its service unconditionally, it should unconditionally guarantee the elements that it can control. Airlines

cannot promise on-time arrival, but they can guarantee passengers will be satisfied with airport waiting areas, service on the ground and in the air, and food quality. 2. Easy to Understand and Communicate: A guarantee should be written in simple, concise language that pinpoints the promise. Customers then know precisely what they can expect and employees know precisely what is expected of them. "Five-minute" lunch service, rather than "prompt" service, creates clear expectations. 3. Meaningful: A good service guarantee is meaningful in two respects. First, it guarantees those aspects of your service that are important to your customers. It may be speedy delivery at lunch time, when many customers are in a hurry to get back to the office, but not at dinner, when fast service is not considered a priority to most patrons. Second, a good guarantee is meaningful financially. It calls for a significant and fair pay out when the promise is not kept. What should it be? A full refund? An offer of free service next time? The answer depends on factors such as the cost of the service, the seriousness of the failure, and customers' perception of what is fair. Example At one point, Domino's Pizza promised "delivery within 30 minutes or the pizza is free." Management found that customers considered this too generous; they felt uncomfortable accepting a free pizza for a mere 5- to 15- minute delay and did not always take advantage of the guarantee. Consequently, Domino's changed the guarantee to "delivery within 30 minutes or $3 off," and customers appear to consider this commitment reasonable. The important point here is that you want your customers to use your warranty as much as possible. It a sure way to discover cracks in your service or products and avoid customer defection. 4. Easy to Invoke: A customer who is already dissatisfied should not have to jump through hoops to invoke a guarantee; dissatisfaction is only exacerbated when the customer has to talk to different people, fill out forms, make telephone calls, send in written proof of purchase with a full description of the events, wait for a written reply, and go somewhere else to see someone to verify all the preceding facts, and so on.

Similarly, customers should not be made to feel guilty about invoking the guarantee. A company should encourage unhappy customers to invoke the guarantee, not put up roadblocks to keep them from speaking up. 5. Easy to Collect: Customers should not have to work hard to collect a payout. The procedure should be easy and, equally important, quick: on-the-spot, if possible. In your guarantee, you should not:
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promise something your customers already expect shroud a guarantee in so many conditions that it loses its point offer a guarantee so mild that it is never invoked

A guarantee that is essentially risk free to the company will be of little or no value to your customers, and may be a joke to your employees. WHY IS SERVICE GURANTEE IMPORTANT? A guarantee is a powerful tool - both for marketing service quality and for achieving it - for five reasons. 1. A guarantee forces you to focus on customers: Knowing what customers want is essential to offering a service guarantee. A company that wants to guarantee its service, but that lacks this knowledge, may very well guarantee the wrong things. 2. A guarantee sets clear standards: A specific, unambiguous service guarantee sets standards for your organization. It tells employees what the company stands for, and it forces the company to define each employee's role and responsibilities in delivering the service. This clarity and sense of identity have the added advantage of creating employee team spirit and pride. A guarantee is far more than a simple piece of paper that puts customers at ease. It sets the tone, externally and, perhaps more importantly, internally, for your commitment to your customers and workers. A pay out that creates financial pain when errors occur is also a powerful statement, to employees and customers alike, that management demands customer satisfaction. A significant pay out ensures that both middle and upper

management will take the service guarantee seriously; it provides a strong incentive to take every step necessary to deliver. A manager who must bear the full cost of mistakes has ample incentive to figure out how to prevent them from happening. 3. A guarantee generates feedback A guarantee creates the goal; it defines what you must do to satisfy your customers. Next, you need to know when you go wrong. A guarantee forces you to create a system for discovering errors. (The Japanese call errors "golden nuggets" because they are opportunities to learn). 4. A guarantee forces you to demand why you fail: In developing a guarantee, managers must ask questions such as the following: What failure points exist in the system? If failure points can be identified, can their origins be traced and avoided? A company that wants to promise timely service delivery, for example, must first understand its operation's capability and the factors limiting that capability. Many service executives, lacking understanding of such basic issues as system throughput time, capacity, and process flow, tend to blame workers or customers - anything but the servicedelivery process. Even if workers are a problem, managers can do several things to "fix" the organization so that it can support a guarantee, such as designing better recruiting, hiring and training processes. 5. A guarantee builds marketing muscle. Perhaps the most obvious reason for offering a strong service guarantee is that it can boost marketing: it encourages consumers to buy your product or service by reducing the risk of the purchase decision, and it generates more sales to existing customers by enhancing loyalty. DO ALL COMPANIES NEED TO OFFER A GUARANTEE? Of course, guarantees may not be effective or practical for all firms. In general, organizations that meet the following tests probably have little to gain by offering a service guarantee:

The company is perceived by the market to be the quality leader in its industry. Every employee is inculcated with the "absolute customer satisfaction" philosophy.

Employees are empowered to take whatever corrective action is necessary to handle complaints. Errors are few. A stated guarantee would be at odds with the company's image. HOW CAN I SET UP MY OWN UNCONDITIONAL GUARANTEE? To establish an effective unconditional guarantee, you must start with a vision of error-free service. Review every step of your delivery system to identify obstacles preventing you from offering an unconditional guarantee, and design your entire organization to support your guarantee. The success of "Bugs" Burger Bug Killer (BBBK), a Miami-based pestextermination company, is an example of how a company can turn its situation around by analyzing the elements of its service-delivery process. By asking, "What obstacles stand in the way of our guaranteeing pest elimination?" management discovered that clients' poor cleaning and storage practices were one such obstacle. The company now requires customers to maintain sanitary practices and, in some cases, even make physical changes to their property (such as putting in walls). By changing the process, the company can guarantee the outcome. BBBK's service guarantee to hotel and restaurant clients promises several things:

You don't owe one penny until all pests on your premises have been eradicated. If you are ever dissatisfied with BBBK's service, you will receive a refund for up to 12 months of the company's services - plus fees for another exterminator of your choice for the next year. If a guest spots a pest on your premises, BBBK will pay for the guest's meal or room, send a letter of apology, and pay for a future meal or stay. If your facility is closed down due to the presence of roaches or rodents, BBBK will pay any fines, as well as all lost profits, plus $5,000. How successful is this guarantee? The company, which operates throughout the United States, charges up to 10 times more than its competitors and yet has a disproportionately high market share in its operating areas. Its service is so outstanding that the company rarely needs to make good on its guarantee. (In 1986

it paid out only $120 000 on sales of $33 million - just enough to prove that its promises are not empty ones). While most of BBBK's competitors claim they will reduce pests to "acceptable levels," BBBK promises to eliminate them entirely because it has a delivery mechanism in place to support its warranty. HERE'S HOW YOU CAN USE CUSTOMER SERVICE GUARANTEES AS A COMPETITIVE ADVANTAGE. Chris Brown of ABC Electrical Contractors has stops to make at two electrical distributors. He placed the orders first thing in the morning, and asked Worst Electric Supply to have the order ready by 11 a.m. and asked Best Electric Supply to have the order ready by noon. He walks in the counter area of Worst Electric Supply at 11:10 a.m. Two counter salespeople are immersed in a conversation about last night's Yankees-Red Sox game. No other customers are at the counter, but when Chris looks right at them, he receives no eye contact for what seems like an eternity to him. He feels acid building in his stomach, pops a Tums and waits. He thinks of his customer waiting at the job-site. Finally, one of the counter salespeople grunts, What do you want? Chris explains that he's here to pick up his order. He adds that he telephoned at 7:30 a.m. today about this material and requested a will-call for 11 a.m. The counter salesperson casually looks around the counter and disdainfully responds that he doesn't see Chris' order. At Chris' irritated request, the salesperson finally gets around to locating his order. Chris has been at Worst Electric Supply for 28 minutes, and leaves at 11:40 a.m. It's a different story when Chris walks into Best Electric Supply at noon. The counter area is bustling with customers, but Chris is still immediately greeted at the counter. How can I help you today, Chris?, asks Sam, the counter manager. Chris tells him that he wants to pick up his will-call order. Sam looks at the willcall staging area and says, I'm sorry. Your order is not ready as we promised. I'll run back to the warehouse and bring it right out. Sam returns shortly with Chris' order and says, We're sorry that we did not meet your service expectations. Here's a $20 Service Guarantee because we didn't have your order ready. We hope to continue to earn your business in the future by doing it right 100 percent of the

time. That's our service commitment, Chris. Chris has been at Best Electric Supply for 8 minutes. He leaves at 12:08 p.m. Where do you think Chris Brown will take his future business? Obviously, he will go to the electrical distributor that makes a service commitment and stands by it, Best Electric Supply. In this economy, Worst Electric Supply not only lost a customer, but will soon end up in the corporate junkyard of electrical distributors. Farmington Consulting Group (FCG) has helped electrical distributors implement customer service guarantees since 1993. Our customer satisfaction survey research indicates service guarantees favorably influence the volume of business customers do with distributors. When asked, Does our service-guarantee program favorably influence the volume of business you do with us? 39 percent of our client survey respondents checked yes. Clearly, customer service guarantees generate more electrical distributor sales. We have found that customer service guarantees transform tertiary customers into secondary customers, secondary customers into primary customers and continues to build strong loyalty among primary customers. WHAT IS A CUSTOMER SERVICE GUARANTEE? A customer service guarantee is a set of two promises: a commitment by a company to its customers to make good on a promised level of service and a commitment to compensate its customers when the first promise is not met. Successful companies promote their service guarantees to everybody. The classic service guarantee example is Fed-Ex: If you want your package absolutely, positively to be at someone's doorstep the next day, then Fed-Ex it! The company even guarantees a specific time for their overnight deliveries to reach the customers, or the delivery is free. There are three reasons to implement customer service guarantees: Provide customer focus Customer service guarantees force everyone in your organization to focus on customers. Knowing what your customers want is essential to providing them with service guarantees. The first step is to conduct a third-party customer satisfaction survey (read Making Sure Customers Love You in Electrical Wholesaling's January issue) to determine exactly what your customers want, and how you are currently performing based upon their wants. Once your survey results are tabulated through customer satisfaction indexes (CSI) and customer dissatisfaction

indexes (CDI) for each service category, you can then design a customer service guarantee launch. Set service quality performance metrics Customer service guarantees generate feedback. A guarantee creates the goal and sets the service levels for your customers' expectations. A service guarantee compels you to create a system to discover errors. It forces you to discover why each service shortfall occurred and improve each service delivery process to prevent further service errors. Service guarantees require your company to gain control of its service quality. Create key competitive advantages Our customer-satisfaction survey research also reveals electrical distributors that implement customer service guarantees acquire two to three competitive advantages within one year. Examples of service guarantees that can help your company achieve competitive advantages are: counter will-call service; order-fill rate; order accuracy; timeliness of deliveries; emergency deliveries; invoicing accuracy; and treatment of credits and returns. 5 KEY SUCCESS FACTORS Your customer service guarantees must contain the following five key success factors: 1. Must be unconditional A good service guarantee has no conditions. They are for every customer, first-time or long-standing. If you cannot guarantee all elements of a specific service unconditionally, don't bother developing one. 2. Must be specific and easy to understand A good service guarantee is written in simple, concise language that pinpoints the promise. As with the above customer service guarantee examples, you must promise something specific, such as a 90-minute delivery guarantee, order fill-rate on 250 products, will-calls picked and staged within 25 minutes, 25-minute emergency response guarantee, all shipped orders will have both the items and the quantity 100 percent correct, etc. These are all measurable and no gray areas exist. Customers know

precisely what to expect. Customer service guarantees define each employee's role and responsibilities in delivering superior customer service. Employees know precisely what is expected of them. 3. Must be meaningful A good service guarantee process is meaningful in two respects. It guarantees those aspects of your service that are most important to your customers, and it has financial significance to your customers by providing a payout when a service promise is not kept. A payout that creates financial pain when errors occur is a powerful statement to customers and employees alike that your company demands customer satisfaction. Putting a company's profitability at risk provides every employee with a solid incentive to improve upon service shortfalls. 4. Don't over-promise It's important to offer customer service guarantees within your capacity to deliver. If you can't consistently meet your service guarantee, it will advertise to your customers that you have a service weakness. One example is how ABC Electric Supply (fictitious name for a real electrical distributor) recognized that order accuracy was of primary concern to his customer base. However, ABC Electric surmised that installing a service guarantee prematurely would be a mistake because their error rate was too high. ABC had no measurement system in place, so they installed a tracking system. ABC then combined a new tracking system with a warehouse incentive plan to provide individual and team rewards for high order accuracy. With a successful tracking system in place, they now could define root causes of most of the errors and provide solutions. Within months, the order-accuracy rate for this electrical distributor greatly improved. ABC then implemented a service guarantee the competition could not match. 5. Provide employee service guarantee training Before introducing your service guarantees to your customers, you must first provide thorough customer service guarantee training to all your employees. Every employee should be encouraged and empowered to administer customer service guarantees. Your people must cheerfully and proactively give out service-guarantee pay-outs when the service level is not what your

customers expect. This is a critical step, because your aim is to provide hassle-free service that will delight your customers. Don't ever burden your customers with having to ask for a guarantee pay-out. A customer who is already dissatisfied should not have to jump through hoops to receive his service guarantee. Recognize and even reward employees who cheerfully and proactively give them out. My firm has developed a four-hour customer service guarantee training module for electrical distributors that motivates every employee to take active ownership as a service-guarantee provider. Customer service guarantees will significantly shape the service quality of your company; improve customer satisfaction and increase sales and profitability. Don't think it's crazy to pay customers for your service failings. You will go out of business if you don't guarantee customer satisfaction. Very few customers will take advantage of you. They don't want the money; they want an electrical distributor who can deliver on the services promised by doing things right the first time, every time. Customer service guarantees make customers choose your business over your competitors. They launch a chain reaction that engenders truly break-through service for your customers and will help your company survive these difficult economic times. EXAMPLES OF CUSTOMER SERVICE GUARANTEES 25/25 will-call guarantee: Electrical contractors and other customers are continually frustrated when they arrive at a distributor to pick up a will-call order only to find out that it isn't ready. They don't want to waste valuable time sitting at the counter, waiting for their will-call order to be pulled and processed. With a 25/25 will-call guarantee, the distributor guarantees that will-call orders will be ready in 25 minutes or less. If the customers arrive in 25 minutes and the will-call order is not ready to go, the distributor issues a $25 customer service guarantee certificate. Order fill-rate service guarantee: 100 percent fill rates are the only acceptable performance level from electrical distributors. With this guarantee, distributors promise that their Top 250 products (most commonly ordered) will never be out of stock. If the distributor is out of stock on these products, the company issues customers a $25 customer service certificate. Order-accuracy guarantee: Customers should expect 100 percent order accuracy from their electrical distributors and that the items appearing on their tickets will

be the exact items ordered and in the proper quantities. If the distributor doesn't get it right, they issue a $25 customer service guarantee certificate. 90-minute delivery guarantee: On-time delivery is also the only acceptable performance level from electrical distributors. With this guarantee, delivery of orders placed between 8 a.m. and noon will be delivered within 90 minutes or the distributor issues the customer a $25 customer service certificate. 25-minute emergency service response guarantee: To guarantee 24-hour emergency service seven days a week, a distributor commits that when a customer leaves a message an on-call salesperson will be paged. That salesperson must respond within 25 minutes or the distributor issues the customer a $25 customer service certificate. Invoicing accuracy guarantee: The distributor guarantees an accurate invoice the first time. If the company fails to provide a customer with an accurate invoice, it issues that customer a $25 customer service certificate. Instant credit on returns guarantee: The distributor guarantees that it will issue customers a credit on stock material purchased and returned within one business day of receipt of material. If the distributor fails to issue an instant credit, it issues the customer a $25 customer service SERVICE GUARANTEES POWERFUL MARKETING TOOLS Our furnace died recently. Naturally, it happened during a cold snap when temperatures plunged to -15C. Fortunately, we had installed a gas fireplace a few years earlier, which allowed us to stay relatively warm and keep the pipes from freezing while we evaluated our new furnace options. One of our key decision criteria was not price but the service guarantee. We wanted to know if companies would stand behind their product and their workmanship. Service guarantees are commonly used for products. This is not always the case with services, which by their very nature are intangible and variable. Skeptics ask: How can anyone guarantee something that can't be touched or seen?

In some cases it's difficult to undo a service. A bad haircut, for example, cannot be returned like a defective product. Another complicating factor, especially for professional services, is that customers don't always have the expertise to judge if a service is up to par. Most of us wouldn't know the difference between a good root canal and a substandard one. And yet, service guarantees can be a powerful marketing tool generating awareness, loyalty and positive word of mouth. They reduce risk for customers, making them more comfortable about their decisions. Offering a guarantee shows you are willing to back your promises and stand behind what you do. For service guarantees to be effective as marketing tools, there must be some perceived risk. If you operate in an industry where customers face minimal risk in making a decision, there's minimal value in offering a guarantee. Service guarantees can help your organization to become more customer focused. Before you can offer a guarantee, you must think through what your customers need, want and value - rather than what YOU think is important, a potentially eyeopening exercise. Another benefit of service guarantees is the creation of service standards. This lets employees know what is important and can lead them to feel better about their jobs and result in improved loyalty. Maybe even more importantly, guarantees provide an opportunity for service recovery. No company is perfect. Sooner or later you are bound to have a customer invoke your guarantee. Contrary to what you might be thinking, this is not a bad thing, since a guarantee lets you focus on areas where service delivery is lacking. Let's face it, you can't fix problem areas if you are unaware they exist. By honouring a guarantee, you earn the chance to correct problems and keep customers rather than having them go away unhappy and harm your reputation through negative word of mouth. And, in all likelihood, it will be cheaper to incur the cost of the guarantee than to lose a customer. Companies sometimes resist offering guarantees for fear that customers may take advantage of them. Research shows that only two per cent of people will systematically try to cheat a company, making this fear largely unfounded.

You should carefully think through your guarantee. Ensure that it's reasonable, that you can live up to it, and that you aren't setting yourself up for failure. Some points to consider when creating guarantees are highlighted below. Guarantee Guidelines 1. Keep it simple. For example, Land's End states "Guaranteed. Period." 2. Put it in writing. It creates confidence that you live up to your promises. 3. Be meaningful. Cover elements of your service that are important to customers. 4. Don't hedge. Make your guarantee unconditional. 5. No fine print or legalese. Ensure it is easy to communicate to both staff and customers. Use language that is easy to understand. 6. Follow through. Make good on your guarantee. If you say no questions asked, don't insist on a reason when customers invoke the guarantee. 7. Respond. Resolve customer issues quickly. Let's go back to our furnace decision. The company we ended up choosing, Service Experts in Waterloo, offers a written "100% Satisfaction Guarantee." It states, "If you are not totally satisfied with our product installation work, we will promptly address and perform to your complete satisfaction those issues regarding material or workmanship or we will remove the installed equipment and refund your money." The guarantee is clear, easy to understand and a powerful marketing tool that helped cinch our new furnace decision. Regardless of whether you are a product or service based organization, you may want to consider the use of service guarantees. They offer many benefits, differentiate you from competitors and can have a positive impact on your bottom line. WHY A SERVICE GUARANTEE WORKS A guarantee is a powerful tool - both for marketing service quality and for achieving it-for five reasons. First, it pushes the entire company to focus on customers' definition of good service-not on executives' assumptions. Second, it sets clear performance standards, which boost employee performance and morale. Third, it generates

reliable data (through payouts) when performance is poor. Fourth, it forces an organization to examine its entire service-delivery system for possible failure points. Last, it builds customer loyalty, sales, and market share. A guarantee forces you to focus on customers. Knowing what customers want is the sine qua non in offering a service guarantee. A company has to identify its target customers' expectations about the elements of the service and the importance they attach to each. Lacking this knowledge of customer needs, a company that wants to guarantee its service may very well guarantee the wrong things. British Airways conducted a market study and formed that its passengers judge its customer services on four dimensions:' 1. Care and concern (employees' friendliness, courtesy, and warmth). 2. Initiative [employees' ability and willingness to jockey the system on the customer's behalf). 3. Problem solving [figuring out solutions to customer problems, whether unusual or routine-like multi flight airline tickets). 4. Recovery [going the extra yard, when things go wrong, to handle a particular problem-which includes the simple but often overlooked step of delivering an apology). British Airways managers confessed that they hadn't even thought about the second and fourth categories. Worse, they realized that if they hadn't understood these important dimensions of customer service, how much thought could their employees be giving to them? A guarantee sets clear standards. A specific, unambiguous service guarantee sets standards for your organization. It tells employees what the company stands for. BBBK stands for pest elimination, not pest control; Federal Express stands for "absolutely, positively by 10:30 A.M.," not "sometime tomorrow, probably." And it forces the company to define each employee's role and responsibilities in delivering the service. Salespeople, for example, know precisely what their companies can deliver and can represent that accurately-the opposite of the common situation in which salespeople promise the moon and customers get only dirt. This clarity and sense of identity have the added advantage of creating employee team spirit and pride. Mitchell Fromstein, president and CEO of Manpower, says, "At one point, we wondered what the marketing impact would be if we dropped our guarantee. We figured that our accounts were well aware of the guarantee and that it might not have much marketing power anymore. Our employees' reaction was fierce-and it had a lot less to do with marketing than with the pride they take in their work. They said, 'The guarantee is proof that we're a great company. We're willing to tell our customers that if they don't like our service for any reason, it's our fault, not theirs, and we'll make it right.' I realized

then that the guarantee is far more than a simple piece of paper that puts customers at ease. It really sets the tone, externally and, perhaps more important, internally, for our commitment to our customers and workers." A payout that creates financial pain when errors occur is also a powerful statement, to employees and customers alike, that management demands customer satisfaction. A significant payout ensures that both middle and upper management will take the service guarantee seriously; it provides a strong incentive to take every step necessary to deliver. A manager who must bear the full cost of mistakes has ample incentive to figure out how to prevent them from happening. A guarantee generates feedback, A guarantee creates the goal; it defines what you must do to satisfy your customers. Next, you need to know when you go wrong. A guarantee forces you to create a system for discovering errors-which the Japanese call "golden nuggets" because they're opportunities to learn. Arguably the greatest ailment afflicting service companies is a lack of decent systems for generating and acting on customer data. Dissatisfied service customers have little incentive to complain on their own, far less so than unhappy product owners do. Many elements of a service are intangible, so consumers who receive poor service are often left with no evidence to support their complaints. (The customer believes the waiter was rude; perhaps the waiter will deny it.) Second, without the equivalent of a product warranty, customers don't know their rights. (Is 15 minutes too long to wait for a restaurant meal? 30 minutes?) Third, there is often no one to complain to-at least no one who looks capable of without a guarantee, customers won't complain. Or come back. Solving the problem. Often, complaining directly to the person who is rendering poor service will only make things worse. Customer comment cards have traditionally been the most common method of gathering customer feedback on a company's operations, but they, too, are inadequate for collecting valid, reliable error data. In the first place, they are an impersonal form of communication and are usually short (to maximize the response rate). Why bother, people think, to cram the details of a bad experience onto a printed survey form with a handful of "excellent-good-fair" check-off boxes? Few aggrieved customers believe that completing a comment card will resolve their problems. Therefore, only a few customers-usually the most satisfied and dissatisfied-provide feedback through such forms, and fewer still provide meaningful feedback. As a broad gauge of customer sentiment, cards and surveys are useful, but for specific information about customer problems and operational weaknesses, they simply don't fill the bill. Service companies thus have a hard time collecting error data. Less information on mistakes means fewer opportunities to improve, ultimately resulting in more service errors and more customer dissatisfaction a cycle that management is often unaware of. A guarantee attacks this malady by giving

consumers an incentive and a vehicle for bringing their grievances to management's attention. Manpower uses its guarantee to glean error data in addition to allaying customer worries about using an unknown quantity (the temporary worker). Every customer who employs a Manpower temporary worker is called the first day of a one-day assignment or the second day of a longer assignment to check on the worker's performance. A dis-satisfied customer doesn't pay-period. (Manpower pays the worker, however; it assumes complete responsibility for the quality of its service.) The company uses its error data to improve both its work force and its proprietary skills-testing software and skills data base major elements in its ability to match worker skills to customer requirements. The information Manpower obtains before and after hiring enables it to offer its guarantee with confidence. A guarantee forces you to understand why you fail. In developing a guarantee, managers must ask questions like these: What failure points exist in the system? If failure points can be identified, can their origins be traced-and overcome? A company that wants to promise timely service delivery, for example, must first understand its operation's capability and the factors limiting that capability. Many service executives, lacking understanding of such basic issues as system throughput time, capacity, and process flow, tend to blame workers, customers, or anything but the service-delivery process. Even if workers are a problem, managers can do several things to "fix" the organization so that it can support a guarantee-such as design better recruiting, hiring, and training processes. The pestcontrol industry has historically suffered from unmotivated personnel and high turnover. Al Burger overcame the status quo by offering higher than average pay (attracting a higher caliber of job candidate), using a vigorous screening program (making those hired fee! like members of a select group), training all workers for six months, and keeping them motivated by giving them a great deal of autonomy and lots of recognition. Some managers may be unwilling to pay for an internal service-delivery capability that is above the industry average. They will never have better than average organizations, either, and they will. A guarantee uncovers errors and opportunities to learn. Therefore never be able to develop the kind of competitive advantage that flows from a good service guarantee. A guarantee builds marketing muscle. Perhaps the most obvious reason for offering a strong service guarantee is its ability to boost marketing: it encourages consumers to buy a service by reducing the risk of the purchase decision, and it generates more sales to existing customers by enhancing loyalty. In the last ten years. Manpower's revenues have mushroomed from $400 million to $4 billion. That's marketing impact. Keeping most of your customers and getting positive

word of mouth, though desirable in any business, are particularly important for service companies. The net present value of sales forgone from lost customers-in other words, the cost of customer dissatisfaction-is enormous. In this respect, it's fair to say that many service companies' biggest competitors are themselves. They frequently spend huge amounts of money to attract new customers without ever figuring out how to provide the consistent service they promise to their existing customers. If customers aren't satisfied, the marketing money has been poured down the drain and may even engender further ill will. (See the insert, "Maximizing Marketing Impact.") A guarantee will only work, of course, if you start with commitment to the customer. If your aim is to minimize the guarantee's impact on your organization but to maximize its marketing punch, you won't succeed. In the long run, you will nullify the guarantee's potential impact on customers, and your marketing dollars will go down the drain. Phil Bressler, owner of 18 Domino's Pizza franchises in the Baltimore, Maryland area, demonstrates the right commitment to customers. He got upset the time his company recorded its highest monthly earnings ever because, he correctly figured, the profits had come from money that should have been paid out on the Domino's guarantee of "delivery within 30 minutes or $3 off." Bressler's unit managers who have bottom-line responsibility, bad pumped up their shortterm profits by failing to honor the guarantee consistently. Bressler is convinced that money spent on guarantees is an investment in customer satisfaction and loyalty. He also recognizes that the guarantee is the best way to identify weak operations, and that guarantees not acted on are data not collected. Compare Bressler's attitude with that of an owner of several nationally franchised motels. His guarantee promises that the company will do "everything possible" to remedy a customer's problem; if the problem cannot be resolved, the customer stays for free. He brags that he's paid, on average, refunds for only two room guarantees per motel per year-a minuscule percentage of room sales. "If my managers are doing their jobs, I don't have to pay out for the guarantee," he says. "If I do have to pay out, my managers are not doing their jobs, and I get rid of them." Clearly, more than two guests of any hotel are likely to be dissatisfied over the course of a year. By seeking to limit payouts rather than hear complaints, this owner is undoubtedly blowing countless opportunities to create loyal customers out of disgruntled ones. He is also losing rich information about which of his motels need improvement and why, information that can most easily be obtained from customer complaints. You have to wonder why he offers a guarantee at all, since he completely misses the point.

The Effects of Service Guarantees on External and Internal Markets Despite widespread use, there is a void in our understanding of why, when, and how customers use service guarantees to evaluate service firms. Most previous research has focused on the effects of service guarantees prior to purchase, ignoring their beneficial effects on customer evaluations after the service has been experienced. This paper develops three conceptual frameworks that elaborate the psychological and economic effects of service guarantees on customers, both before and after the service has been experienced. In addition, a fourth framework explains how implementing guarantees enables firms to positively influence employees and improve performance. This rather unique perspective that examines both external (customer) and internal (employee) markets contributes to a more comprehensive understanding of service guarantee effects and provides an effective basis for the design and management of service guarantees. The takeaway is encapsulated in an inventory of propositions. A review of the literature revealed lack of consensus regarding the definition of a service guarantee. This inconsistency is resolved by considering a service guarantee as comprised of two elements, a service promise and a compensation offer. Two types of service guarantees are examined in this paper: specific and unconditional. Specific guarantees promise superior firm performance on specific attributes (e.g. price, delivery), while unconditional guarantees promise performance on all aspects of service. Compensation offers may include full or partial refunds, and token awards for punitive damages. Service guarantee research cuts across functions and disciplines, necessitating the use of multiple theoretical perspectives for inquiry. This paper utilizes four theoretical perspectives to provide deeper insights into the domain of service guarantees. Each perspective is developed into a framework containing arguments and propositions. The first three frameworks are concerned with the effects of service guarantees on customers, while the fourth describes effects on employees and firms. No specific perspective is advocated; rather we hope that these complementary frameworks will broaden and deepen the scope of future inquiry. The customer frameworks draw on signaling, social justice, and attribution theories to ascribe reasons and describe psychological processes by which guarantees influence customer evaluations. Services are typically lower in search attributes, which increases the importance of signals provided by service firms. Service guarantees allow firms to signal higher quality when the costs of meeting guarantee obligations differs significantly for high and low quality firms. In addition, service guarantees may indirectly signal better quality by lowering perceptions of performance and financial risk.

Social justice theory suggests that service guarantees with comprehensive payouts communicate distributive justice since customers perceive that equitable, deserved, and desired outcomes will occur when service fails. Guarantees may also improve perceptions of procedural justice by promising simple, fair, and hassle-free procedures for claiming compensation. Attribution theory suggests that service guarantees may be used to communicate firm responsibility, thereby increasing awareness and helping customers identify the cause of service failure and success. In addition, evaluations will be significantly influenced and customers more likely to invoke guarantees when performance is perceived to be within firm control. Further, guarantees may improve customer evaluations by communicating that service failures are an aberration. Service guarantees also act as change stimuli. Guarantees require firms to give greater attention to customer concerns and streamline internal processes. Drawing on the literature and interrelated research streams in total quality management, service recovery, and market orientation, a framework is developed to elaborate service guarantee effects on employees and firms. Firms required to empower their employees for guarantee implementation are likely to benefit from increased employee motivation and job satisfaction, and an increase in customer focus. In addition, service guarantees often require firms to reorganize and restructure to support guarantees, thereby improving organizational efficiencies. Recent research in the area of service recovery suggests that service guarantees can spur learning by requiring firms to continuously identify sources of failure and develop recovery strategies. Finally, since implementing guarantees requires firms to collect and share information and develop appropriate responses to customer complaints, this is likely to increase market orientation. EFFECTS OF SERVICE GUARANTEES ON EXTERNAL MARKETS The frameworks that explain the effects of guarantees on external markets are designed around three major constructs, the type of guarantee (specific or unconditional), the psychological effects on the customer (affective, cognitive), and the economic outcomes resulting from guarantee use (monetary, nonmonetary). In addition, each framework elaborates the conditions under which these effects occur. Since the meaning and importance of the type of guarantee was discussed earlier, the subsequent discussion focuses on psychological effects and economic outcomes.

Psychological effects may be affective, such as when guarantees improve preferences, reduce anxiety, resolve dissonance, or increase trust and confidence. In addition, guarantee effects may be cognitive, when they allow customers to attribute causes, or reduce risk and uncertainty. For instance, the Block Buster guarantee (Kadlec 1998) of finding a new movie release in stock (or getting it free) reduces anxiety of not finding a desired title and increases customer preference. Similarly, Walgreens offer to provide $5 to incorrectly billed customers may signal reduced risk and increase trust. Note that in some cases, guarantees may also negatively impact customer perceptions, e.g., when customers can blame the firm for service failure. Economic outcomes refer to financial compensation received for service failure and the reduction or elimination of search, information, and hassle costs (e.g. switching, complaining). Guarantees can reduce or eliminate monetary and nonmonetary costs of purchasing services. For instance, Circuit Citys low price guarantee suggests that the firm is committed to providing the lowest possible price at all times. From the customers perspective, it reduces information costs by promising the lowest possible price, and search costs by eliminating the need to shop around for the lowest price. The proposed frameworks collectively enhance and deepen our understanding of service guarantee effects on customers. While the signaling theory framework (see Figure 1) is used to describe guarantee effects on customer evaluations prior to purchase, the frameworks developed using social justice theory (Figure 2), and attribution theory (Figure 3) are concerned with effects on customers after service has been experienced. The social justice theory framework is specifically aimed at understanding customer expectations for restoring equity after service has failed. The attribution theory framework explains how customers assign causes for service success and failure, resulting in positive or negative effect. Each framework contains propositions and in some cases corollaries. EFFECTS OF SERVICE GUARANTEES ON INTERNAL MARKETS The framework that explains the effects of guarantees on internal markets is designed around three major constructs, the type of guarantee (specific or unconditional), enabler (e.g., increased empowerment, top management commitment), and organizational effect (e.g., higher employee motivation and job satisfaction, improved customer orientation). It draws upon the relevant literature and previous research on total quality management (TQM), market orientation, and service recovery. Note that firm level constructs are used to develop logic and

generate propositions in this framework. This aggregation was necessary to provide a more meaningful discussion and derive appropriate managerial implications. Table 1 presents the framework in terms of the constructs discussed below, i.e. type of guarantee, theory, enabler, and organizational effect. While the importance of the type of guarantee (specific, unconditional) has been discussed previously, the relevant theory is discussed during development of the organizational propositions. Enablers are elements of firm processes (e.g., interfunctional coordination, customer complaint analysis), structures (e.g., cross functional teams), or states (e.g., top management commitment, increased empowerment) necessary and antecedent to the successful implementation of service guarantees. For instance, implementation of guarantees often requires employees to ascertain and satisfy customer needs and preferences. In addition, firms may find it necessary to coordinate diverse functions, confront deficiencies, and reorganize structurally to support these guarantees. Enablers act as catalysts for the development of organizational effects. They provide the support necessary for effective guarantee execution and facilitate the achievement of desired organizational effects. In this framework, organizational effects refer to the impacts on firms and employees that occur as a consequence of implementing service guarantees. While some effects are employee related (e.g., higher motivation, job satisfaction), others are relevant to firm strategy and performance (e.g., improved efficiencies, better cost controls, improved design of service recovery strategies). For instance, service guarantees allow managers to translate their perceptions of customer expectations into service quality specifications and provide standards against which employee performance may be evaluated (Tax and Brown 1998). TABLE 1 Effects of Service Guarantees on Employees and Firms Type of Guarantee (Proposition) Unconditional guarantee (OP1a) Theory Enabler Organizational Effect

Total Quality Management Empowerment

Increased empowerment

Higher employee motivation and job satisfaction Higher Performance standards

Specific guarantee (OP1b)

Total Quality Management Organizational Reengineering Service Recovery

Inter-functional coordination Cross functional teams Customer complaint analysis

Specific guarantee (OP2)

Unconditional guarantee (OP3)

Market Orientation

Market Intelligence Top Management Commitment

Improved operational efficiencies Effective cost control Increased customer feedback Improved design of recovery strategies Improvements in service recovery processes Improved customer orientation Increased resource availability

CONCLUSION As a conclusion, we as the provider have to show that we understand the problem from the customer points of view. Seeing the problem or situations through customers eyes is the only way to understand what they think has gone wrong and why they are upset. We have to move faster to achieve the customer needs and wants. Give the services guarantees to the customers so they will still loyal with the services offered CONCLUSIONS AND FUTURE RESEARCH In conclusion, it is evident that service guarantees are more than just marketing devices for firms. They can also assist service recovery, improve operational efficiencies, and increase a firms market orientation. Our framework deepens and broadens our understanding of this critical service asset by examining the psychological processes by which guarantees affect customers before and after service is experienced.

BIBLIOGRAPHY http://en.wikipedia.org/wiki/Service_guarantee http://www.wisegeek.com/what-is-a-service-guarantee.htm http://www.scribd.com/doc/56207549/Definition-of-Service-Guarantee http://ewweb.com/mag/electric_guaranteeing_service/ http://www.customerexpressions.com/cex/cexweb.nsf/%28getpages%29/556 72f3073266f7d85257012005080c1 http://www.marketingmagic.ca/articles/ServiceGuarantees.htm

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