01 Oct Why refunds don’t work in service recovery
There are many things you can do when attempting to recover service and the practice of simply refunding a guest is commonplace; the situation gets instantly rectified, the guest has instant gratification and all is fine…or is it?
There are many different things that can be done to placate a guest who is screaming and shouting, and a lot of front of house staff are able to resolve situations without any credits or money being refunded. The problem here actually (generally) lies with management who tend to be far too swift to refund someone the cost of the room, or to give dinner for free, or even to provide goodwill credit for future stays (I will come back to this last one later!). I do not tar every manager with the same brush here, and that is not my intention; but can you really blame the manager who does this?
Let’s look at the situation objectively: Guest complains and screams and shouts, manager is busy and gets called to deal with it, simple solution = give the guest a refund or a free stay.[quote]But what does a refund actually solve?[/quote]
The fact of the situation is that a refund rarely solves any problem that a guest actually has, unless of course the problem was incorrect charges on the bill! It is of course not only hotels that suffer from this scenario and quick fix troubleshooting practice – many service industries do the same thing on a daily basis. Now here is where I begin to rant and actually relay what I think on this!
Refunds create false loyalty. The customer may seem all happy and confident to return, but what are the chances they actually will? I have no evidence to actually back me up in the form of a study, however in my years in hotels, I have never seen a complaint-refund customer actually come back to the hotel. I may just be working in the wrong hotels, and be totally wrong, but this is what I have seen. It is all too common to see a guest leaving smiling and giving their thanks for the refund, but how many times have you seen them actually walk back through that door a few months later?
Refunds lose you money. Well this one is fairly obvious to even the most unbusiness-minded person! But every refund is revenue that should have gone in to the business. It may seem small, only refunding the odd thing here and there, but a £100 room rate refund every week is over £5000 by the end of the year. This is £5000 that could be used for new furnishing, or for staff bonuses (yes… they do exist outside of the land of dreams!), or for anything else you can think of. Even if you take £10 of refunds a day, that is over £3500 a year! This also becomes a ‘retrospective revenue deduction’ – you are removing money that went on to your revenue over 1 day ago, so you are taking out money that has been budgeted. Now imagine you have a £100 a night room for 7 days and it is now the 1st of the next month – they complain about a few things and get a full refund. The refund hits on the 1st of the month, but the revenue went through at the end of last month – you have now started the month in a deficit, and will have to work to not only exceed targets, but also make up that deficit caused by the refund; instead of trying to raise £300, you could now be trying to raise £1000. Food for thought!
Refunds solve nothing. Already stated, but I will cover it again. Imagine that someone complains about dinner service being slow, and their room being below the expected standard – how is a refund going to fix those problems? Will a refund go back in time and refurbish the room or get more staff in the restaurant? In fact, you could be making the situation worse for future guests – remember me saying that refunds cost money? That refund cost could go towards another member of staff’s wages for a couple of hours and the cost of painting and putting new furnishings in the room.
Refunds provide instant gratification. But nothing more. There is nothing about a refund that actually provides a lasting impression; in fact it can make future situations more difficult. Say you refund a guest after they complain about their room, and then they write a review on TripAdvisor (see my post about TripAdvisor here if interested) and suddenly millions of people can get a free stay – because they have been told that, in essence, just complain and get your money back. Suddenly you start getting more complaints, and probably false complaints too! The original guest will also not be someone likely to return; okay so they had their money back, but generally humans are risk adverse to experiences that are bad – it is hard coded in to our primitive psychology (basically ‘stay away from prior bad experiences’).
Refunds breed bad service. If you just give a refund, it is no assurance that service or standards will change. If staff witness that a manager just instantly gives refunds, then they too will believe that this is the correct method of dealing with complaints – so then staff start to give refunds or void transactions off tills when problems occur. This may seem like it is fine, but again, it is not actually getting issues solved, and it is potentially a worse situation to be in as you can then get an increase in lost revenue.
Now I know there will be people who will bethinking “well go ahead then smart-arse, tell me how to do it differently”, but to be fair, there is no easy answer or quick-fix solution that I can dictate to you to avoid a refund – sometimes they are required, but very rarely.
When dealing with any complaint, you need to play ‘responsibility tennis’ which goes a bit like this:
1 – guest gives you the responsibility for what has happened
2 – you give the guest responsibility for their own part in any issues
3 – the guest gives you responsibility for providing a resolution
4 – you pass that responsibility back to the guest
5 – the guest passes responsibility to you to follow through on the resolution
Did you spot steps 3 and 4, where responsibility for providing a resolution shifted from the guest to you, and then back again. This is a very easy technique, and only once in my life have I had this technique used on me, and it left me speechless. I am not going to reveal the ‘magic question’ in this post (although it is covered in my book ‘How to be a Hotel Receptionist’, available on Amazon and Lulu – link on the homepage).
Anyway – the fact of the situation here is that a refund does not increase loyalty, it adds to the service recovery paradox (guest which post is waiting in the wings!), can create a poor culture in complaint handling, and costs too much! (oh dear, I have become a revenue defender… I need a lay down!).
[box style=”light-green shadow” ]Just think – is a refund really worth it?[/box]