SERVICE GUARANTEES - Principles of service marketing management

A small but growing number of companies offer customers an unconditional guarantee of satisfaction. These guarantees promise that if service delivery fails to meet predefined standards, the customer is entitled to one or more forms of compensation such as an easy-to-claim replacement, refund, or credit.

Service Guarantee Examples Hotel

Christopher Hart argues that service guarantee is a powerful tool for promoting and achieving service quality, citing the following reasons:

  1. Guarantees force firms to focus on what their customers want and expect in each element of the service.
  2. Guarantees set clear standards, telling customers and employees alike what the company stands for. Compensating customers for poor service causes managers to take guarantees seriously, because they highlight the financial costs of quality failures.
  3. Guarantees require the development of systems for generating meaningful customer feedback and acting on it.
  4. Guarantees force service organizations to understand why they fail and encourage them to identify and overcome potential fail points.
  5. Guarantees build "marketing muscle" by reducing the risk of the purchase decision and building long-term loyalty.

Many firms have enthusiastically leapt on the service guarantees bandwagon without carefully thinking through what is implied in making and keeping the promises of an unconditional service guarantee. Compare the four examples of service guarantees in the box on page 130 and ask yourself how much is covered by each guarantee, how much each contributes to reducing risk for the customer, and how much pressure each puts on its respective organization to maintain service standards.

Building Strategy Around a Hotel Service Guarantee Hampton Inn's 100 percent Satisfaction Guarantee has proved to be a very successful business-building program. The strategy of offering to refund the cost of the room for the day on which a guest expresses dissatisfaction has attracted new customers and also served as a powerful guest-retention device. People choose to stay at a Hampton Inn because they are confident they will be satisfied.

At least as important, the guarantee has become a vital tool to help managers to identify new opportunities for quality improvement and to make those improvements happen. In this regard, the 100% Satisfaction Guarantee "turned up the pressure in the hose," as one manager put it, showing where "leaks" existed, and providing the incentive to plug them. As a result, the guarantee has had an important impact on product consistency and service delivery across the Hampton Inn chain, dramatically improving on financial performance.

100% Satisfaction Guarantee

However, fully implementing a 100 percent Satisfaction Guarantee is no easytask, as some competitors who have tried to imitate it can attest. Successful implementation of a 100 percent Satisfaction Guarantee requires that its underlying philosophy of guest satisfaction be embraced by every employee, from senior management to hourly workers.

This has proved challenging even for Hampton Inn, where the guarantee has faced both resistance and skepticism from hotel managers in spite of its proven benefits. The box "How Unconditional Is Your Guarantee?" illustrates just how challenging it is for other hotels to imitate the concept of a truly unconditional guarantee.

Designing the Guarantee The first step in designing the guarantee at Hampton Inn was to answer a key question: "What would guests want in a guarantee?" Research revealed that they were most interested in the quality and cleanliness of their accommodations, friendly and efficient service, and a moderate price. They also wanted a guarantee that was simple and easy to invoke if necessary.

In-depth guest interviews yielded 53 "moments of truth" critical to guests' satisfaction with their Hampton Inn stays. These moments of truth translated into concrete and controllable aspects of Hampton Inn's product and service delivery. Throughout the guarantee design process, an important new mindset was reinforced: Listen to the guests, who knew best what satisfied them.

According to the vice president of marketing for Hampton Inn, "Designing the guarantee made us understand what made guests satisfied, rather than what we thought made them satisfied." It became imperative that everyone, from front-line employees to general managers and personnel at corporate headquarters, should listen carefully to guests, anticipate their needs to the greatest extent possible, and remedy problems quickly so that guests were satisfied with the solution. Viewing a hotel's function in this customer-centric way had a profound impact on the way the parent company conducted business.

Even among those who fully supported the guarantee concept in principle, pressing concerns remained:

  • "Will guests try to cheat and rip us off?"
  • "Will our employees give the store away?"
  • "What will be the return on our efforts to increase customer satisfaction?"

The Pilot Test To prepare for the launch of the guarantee, a pilot test was conducted in 30 hotels that already had high customer satisfaction. Training was seen as critical. First, general managers were trained in the fundamentals of the guarantee what it was and how it worked. Then the general managers trained their employees. Managers were taught to take a leadership role by actively demonstrating their support for the guarantee and helping their employees gain the confidence to handle guest concerns and problems. Finally, the guarantee was explained and promoted to guests.

After learning basic guarantee concepts and reviewing the Hampton Inn 100 percent Satisfaction Guarantee, general managers were asked to form groups of 10 to 12. Their charge was to list the positive and negative aspects of the guarantee on a flipchart. Few groups could come up with more than one or two pages of positives, but they had little difficulty creating lists of negatives; one such list was 26 pages long! Senior corporate managers went through each negative issue, addressing managers' concerns one by one.

The concerns remained relatively consistent and centered on management control. There were also worries about guests abusing the guarantee and cheating (those nasty "Jaycustomers" that were described in Chapter ). For a discussion of how the company identifies such guests, see the box "Tracking Down Guests Who Cheat."

The pilot test produced some interesting results. Even at hotels that already had a high-satisfaction culture, corporate management found that front-line employees weren't always fully empowered to do whatever was needed to make a guest 100 percent satisfied. Further, employees did not always feel they had explicit responsibility for guest satisfaction. So they had to be taught that their j o b responsibilities now extended beyond the functional roles for which they were initially hired (i.e., property maintenance, breakfast staff, front desk).

Managers and employees discovered that the guarantee was not about giving money away it was about making guests satisfied. They learned that satisfying guests by correcting problems had to be a priority. Employees were encouraged to creatively fix problems "on the spot," and rely on the guarantee as a "safety net" to catch guests who were still dissatisfied.

Ongoing Experience Now that the 100 percent Satisfaction Guarantee has become standard practice at Hampton Inn, the company provides reports every quarter that show the top five reasons for guarantee payouts. Managers are encouraged to develop clear action plans for eliminating the sources of guarantee payouts at their hotels. Once the sources of problems are systematically eliminated, payouts become less frequent.

Guest satisfaction has increased substantially at those hotels where the guarantee has been most strongly embraced. Hampton Inn has also implemented an employee-awards program for employees who have undertaken exceptional acts of customer service. When this "cycle of success" occurs at a specific hotel, its employees become "guarantee advocates" who spread word of their success throughout the chain.

Over time, hotel managers have recognized two things. First, the number of people invoking the guarantee represents only a small percentage of all guests. Second, the percentage of cheaters in this group amounts to a ridiculously small number. As one manager admitted, "It occurred to me that I was managing my entire operation to accommodate the half of one percent of guests who actually invoke the guarantee. And out of that number, maybe only 5 percent were cheating. Viewed this way, I was focused on managing my business to only 0.025 percent of total revenues."

Experience has shown that guests are not typically looking for a refund—they just want to be satisfied with what they pay for. And because the 100 percent Satisfaction Guarantee promises just that, it's a powerful vehicle for attracting and retaining guests. The guarantee was subsequently extended to several of Hampton Inn's sister brands, Hampton Inn and Suites, Embassy Suites, and Homewood Suites. A subsequent survey found that:

  • Fifty-four percent of guests interviewed said they were more likely to consider Hampton Inn (or one of its sister brand hotels) because of the guarantee.
  • Seventy-seven percent of guests interviewed said they would stay again at the same hotel.
  • Ninety-three percent of guests interviewed said they would stay at another hotel in the same chain.
  • Fifty-nine percent of guests interviewed have already returned.

Among the reasons for the success of the Hampton Inn service guarantee are careful planning, listening to employee and manager concerns, an emphasis on training, and a willingness to delegate more authority to employees. The company has evaluated the possibility that customers would abuse its service guarantee namely, making fraudulent claims to obtain a free night in a hotel and has determined that the incidence of such fraud is confined to a tiny fraction of its customers.

So customers are trusted when they register a complaint and a refund is cheerfully given on the spot. However, the firm's management is not naive: There is careful tracking after the fact of all claims against the guarantee and any suspicious-looking pattern of repeated claims is followed up.

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