The customer service recovery guide

By Amy Rigby|6 min read|Updated Jul 11, 2024

An image of a customer appeasement and an apology; two important components of an effective service recovery strategy.

Smooth service recovery isn’t just good for your brand reputation – it’s profitable.

A great service recovery plan boosts customer loyalty. More than that, it increases the likelihood customers will spend even more with your brand than they would have if the service failure had never happened.

But creating a service recovery strategy that preserves and strengthens customer relationships takes some investment.

It requires that brands have responsive, considerate customer service representatives. It requires an investment in incentives, refunds, discounts, or vouchers.

And it necessitates careful consideration of the kinds of apologies customers appreciate, how they want to be acknowledged, and when to offer this acknowledgement.

Importantly, the benefits of a good service recovery strategy far outweigh the investment in occasional refunds or incentives.

One example: Hampton Inn sees a 7x ROI on their service recovery plan (Stoller, 2005). For every dollar refunded to unhappy customers, they earn $7 in future revenue.

In this guide, we’ll detail what a great service recovery plan looks like.

A service failure is any situation or performance that fails to meet customer expectations.

They include everything from delayed orders and mediocre meals to damaged items and snarky employees. Every service failure can damage brand reputation, or even create a wave of backlash if disgruntled customers opt to air their grievances in online reviews or social media posts.

The fallout of a service failure ranges from immaterial to detrimental. Unfortunately, they happen all the time. For many companies, they’re inevitable: there isn’t much airlines can do about delayed flights, or telecommunications companies can do about service outages.

But what if you could turn these negative experiences into opportunities to build loyalty?

That’s where service recovery strategies come in.

Service recovery strategies are multi-step processes that include well-timed apologies and meaningfu customer appeasements.

A good service recovery plan can not only soften the blow of setbacks but also strengthen the customer relationship.

For companies that have a great service recovery strategy in place, service failures are actually opportunities to increase customer satisfaction.

The service recovery paradox suggests that customers are often even more satisfied and loyal to brands after a service failure than they were before.

But only if:

The service failure was minor
The recovery effort exceeds customer expectations

Another important note: companies only benefit from service recovery incidents if they offer customer appeasements along with an apology and responsive customer service.

Customer appeasements are incentives given to customers who have experienced a service failure.

They can include monetary incentives like refunds, gift cards, or direct deposits, or free products, discounts, vouchers, and physical gifts.

In one survey, 98% of consumers said that if a company resolves a service failure and offers a discount or gift card, they’ll remain loyal.

Without the offer, that drops to 63%.

But customer appeasements are only one piece of a successful service recovery strategy.

Below, we’ll outline the six steps to a service recovery strategy that creates loyal customers with higher LTV.

When faced with an angry customer, your first instinct might be to apologize immediately. Don’t.

Rushing to say sorry after a service failure isn’t the best move if your goal is to maximize customer happiness.

A 2021 study in the International Journal of Hospitality Management found that unhappy customers were more satisfied when the service provider listened to their complaints before offering an apology, not after.

Similarly, a study published in the Journal of Experimental Social Psychology revealed that later apologies are more effective because they make the recipient feel heard and understood.

Instead of rushing to apologize, take time to listen to your customer’s complaints. Once you’ve heard their concerns, you can proceed to the next step.

When a customer complains, it’s not enough to send a voucher and send them on their way. Nor is “sorry” alone sufficient.

Research finds that the most effective way to boost satisfaction during service recovery is a combination of compensation and apology.

Stanford and Harvard researchers found that verbally acknowledging another’s emotions (e.g., “You seem upset.”) increases trust. Why? It signals to the recipient that you’re willing to invest resources into them.

The researchers write: “These effects were stronger for negative than positive emotions because acknowledging negative emotions involved a greater perceived cost.”

Train your support agents to listen to customers, label emotions, and then verbalize customers’ feelings. It could boost trust in your brand.

You’ve listened empathetically and apologized sincerely.

Now comes the key ingredient: customer appeasement.

It’s time to offer an incentive to show your appreciation for that customer and encourage loyalty even after they’ve felt wronged.

You can see how this gets tricky. While many businesses quickly reach for offering free products, if a customer is unhappy with a product, it’s unlikely they’ll want more of it.

In fact, according to one study, “Recovery actions that imply a product or service replacement without providing a refund or monetary compensation … are not effective in reducing the impact of negative emotions.”

The same study found that monetary compensation, such as a refund or discount, was the only recovery action that actually relieved negative emotions.

Tremendous helps ensure that your customers get the monetary reward they actually want by offering over 2,000 redemption options. Recipients can choose from Visa prepaid cards, ACH, Venmo, and more.

Agent empowerment refers to giving an agent the ability to make the right decision for the customer – without having to jump through hurdles.

Empowered agents are able to respond more quickly and are more likely to resolve issues the first time.

An example of this is what entrepreneur Tim Ferriss did to tackle what he calls “empowerment failure.”

When he realized that more than half of his emails were from his employees just asking for permission to do things, he set a new policy: If it costs less than $100, proceed without asking for approval.

That move alone doubled his wholesale revenue and led to faster response times, which made his customers happier.

To empower your agents with a similar policy, figure out your average customer lifetime value, and set a monetary threshold below that to ensure you at least break even.

On top of that, take into account that appeasements not only preserve the individual customer relationship but also your brand reputation.

When it comes to customer appeasements, businesses might be concerned about abuse, where customers take advantage of your brand by frequently complaining merely to get incentives.

It’s wise to protect your business against abuse by setting limits on your appeasements.

Track incentives in your CRM. Then, set an incident or value limit for each customer.

For example, you might decide that if a customer complains five times within one year, or if the amount of appeasements you’ve sent them exceeds $200 in total value, you no longer send them incentives.

When you’re engaged in service recovery, the last thing you want is to accidentally send the wrong incentive or make your customers wait on compensation.

Handling multiple customer appeasements can quickly become a headache. Replace spreadsheets and emails with a dedicated software tool for sending incentives.

Tremendous simplifies customer appeasements by allowing you to track and send digital incentives all in one place for free. You can easily check reward status and send at scale.

More than 15 million people catch a ride with Uber ever day. This amounts to millions of opportunities for service failures.

Uber has invested a lot of time into perfecting their service recovery strategy given the high likelihood any number of riders may find something about their experience unsatisfactory.

Before implementing a brand-wide service recovery strategy, the company experimented until they identified the most cost-efficient and profitable method.

They ran an A/B test: one cohort was offered a customer appeasement ($5 voucher) and an apology. One cohort was offered an apology only.

The results were clear. Riders who were offered a $5 voucher with an apology were more likely to use Uber again than those who weren’t. In fact, those who were offered only an apology spent 5-10% less with Uber in the future.

Uber also saw a notable uptick in usage from customers who were offered an appeasement and an apology for up to 3 months after the service failure.

Service failures happen. It’s how you handle them that can make or break your brand reputation.

With customer appeasements, you might walk away with an even stronger relationship and improve your brand reputation.

Remember, the research shows that the most effective customer appeasement is an apology plus monetary compensation.

Ensure you get the latter right with an incentives platform built for scale. To see why brands like Amazon, Google, and Square use Tremendous, book a demo or try it for free yourself.