For many retailers the mantra that "the customer is always right" comes at the core of their approach to customer service. However, that statement carries with it the assumption that customers will behave reasonably and fairly. And experience – and human nature – has shown this is not always the case.
There will always be opportunists, so managers need to be aware of this and how to handle them. More importantly companies need to be aware they are not helpless in the face of outlandish claims by outraged customers.
From our studies we have seen that opportunistic customers exist in most service sectors. In one example a female customer sought more than $2,000 as compensation after a haircut that cost $30, citing a poorly-done job that she said had caused psychological and emotional damage.
In another case a power company received a claim for almost $1,000 to cover the cost of food the customer claimed had spoiled as a result of a power cut. In fact the power outage had lasted just two minutes. And in the hotel industry we came across the case of one guest insisting on an upgrade to the hotel's top suite to make up for a reservation error that had been immediately resolved.
These are just a few examples of the many extravagant demands that we uncovered in our study on the behaviour of aggrieved customers during the service recovery process.
In total we looked at 500 claims, and found three factors that influenced the way customers reacted after experiencing a service failure:
- the perceived fairness of the compensation,
- the ease and convenience of claiming procedures,
- and finally the helpfulness of the firm in the claim process - i.e. when a service recovery attempt was perceived as fair and prompt, customers tended to be less opportunistic in their claiming.
However, it is the combined effort in these three areas that really counts.
Customers were less likely to make opportunistic claims against small firms, which are likely to have limited resources
For example a friendly approach to the customer's complaint, and a general ease and convenience of communication can make up for a relatively smaller payout.
Interestingly, we also found that customers were less likely to make opportunistic claims against small firms, which are likely to have limited resources compared to large ones. Only five opportunistic claims out of the 500 we focused on were directed at small companies.
One reason opportunists tend to prey on larger companies is their sense of self-image and shame. Many know that they are doing something wrong, and few want to be seen as the bad guy looking to squeeze a payout from a small company that can ill afford it.
On the flipside, opportunistic claims against large companies (and therefore, those perceived by the customer as having deep pockets) evokes little shame. Probably because it is relatively easy for the plaintiff customer to convince his or herself that their claim, however exaggerated, will be nothing more than a pinprick on the company's balance sheet.
In our research we asked 40 people, "Have you ever asked for a refund or compensation that you thought was too much or unreasonable given the circumstances?" Of those surveyed, 17 – or almost half - admitted having made such a claim within the past six months.
However, we discovered that satisfaction did not increase even when customers received the exorbitant compensation that they asked for, because they believed it was due to their own effort and cunningness, rather than the firm's goodwill.
Our findings suggest that the most effective way to prevent opportunistic claims is for companies to be proactive and offer fair compensation upfront when things go wrong, and not wait for the customer to make a claim. Customers who have to negotiate are more likely to make excessive demands.
Firms can customise their service recovery strategies according to their size and type of customers, to balance costs and the need for customer satisfaction.
Consumers are more likely to be reasonable when dealing with a place they want to patronise again in the future
For instance, large companies can offer reasonably generous compensation upfront when dealing with service failures, as customers expect more from them, but resist paying out unreasonable sums in subsequent claims so as not to encourage misbehaviour. Rather, they should focus on being friendly, compassionate and apologise, and try their best to help the customer in other ways to solve the problem.
Small firms, in contrast, can compensate with smaller payouts or even no payout at all as customers expect less from them, but they also should focus on providing a smooth service recovery, as well as a friendly and apologetic response.
Having a manager speak with the customer immediately may also help minimise compensation beyond the specific loss. In one example, an interesting study by Taiwan academics of chain restaurants on the island found that offers of freebies, discounts, coupons, replacement items or other sweeteners ranked well below managerial attention in terms of delivering customer satisfaction.
Another important factor in determining whether an opportunistic claim is made is the relationship the customer has with the firm. Consumers are more likely to be reasonable when dealing with a place they want to patronise again in the future, and especially so if they are known personally to the service staff.
One female interviewee explained that she had over-claimed from an international hair and body products retailer, because she was not intending to return to them and hence "wouldn't have been embarrassed about having to deal with the same people again".
In a nutshell, firms must be fair and friendly, but not succumb to customer bullying. Honouring opportunistic claims will only encourage future deviant behaviour and cost more, with no significant impact on customer satisfaction.
This research was conducted in collaboration with Janet R. McColl-Kennedy of the University of Queensland, and published in Journal of the Academy of Marketing Science and Harvard Business Review.