Customer complaints, CEOs, the Service Recovery Paradox and why it makes commercial sense to get it right first time

Scott Davidson

Did you happen to notice The Guardian article the other day “Got a complaint? Take it to the CEO”? (link to full article here…)

Basically, the article suggested that rather than deal with Customer Services, you should take your complaint to the company CEO as you were more likely to get a faster result – and possibly a better outcome. Indeed, the article had some vox-pops from CEOs in various sectors where they talked about how important customer complaints were treated (NB: no mention that this is a universally positive view that complaints are a vital source of customer insight and opportunities for a company to improve).

As someone with an interest in complaints (in part due to my years at Capita Remediation Services), happens to be a serial complainer (just ask Mrs D) and has used the described CEO route on more than one occasion (with success I may add), it did get me thinking that this ‘trend’ might be driven in part by customer experience / perception of how companies are likely to treat their complaint.

And this perception might be evident at the financial regulator too – the Financial Conduct Authority (FCA hereafter) have introduced rules changes to complaint handling recently aimed at assuring customer complaints are dealt with quickly and fairly. Firms now have 3 working days, rather than 1, to resolve a customer complaint.

At Harris, I am currently looking at how complaints-related research can benefit client companies, i.e. by bringing the customer complaint experience to life and identifying opportunities to improve their complaints handling processes and procedures so as to deliver a more positive customer experience, breathe new life into the customer relationship and protect future revenue streams. From a research perspective, I can see how a complaints research framework could be applied across companies so as to allow benchmark comparisons – indeed, maybe a complaints handling league table which allows companies to understand where they reside and, more importantly, be used to inform customers (and regulators?) just how well they treat customer complaints.

My view is that when a customer raises a complaint, they are offering you and your business the opportunity to resolve their concern and ensure you retain their business. This scenario is sometimes referred to as the ‘The Service Recovery Paradox’ …

“a situation in which a customer thinks more highly of a company after the company has corrected a problem with their service, compared to how he or she would regard the company if non-faulty service had been provided.”

Successfully resolving a customer complaint can build trust, lead to longer term relationships and make advocates of customers – but coupled with effective root cause analysis (and customer-led research & insight), it can also lead to opportunities to improve the complaints experience, from processes & procedures to front-line and back office staff.

So, successfully recovering a customer complaint might actually deliver some longer-term benefit to organisations and this must make some commercial sense, especially if you consider the life-time value of your customers. Indeed, in some sectors, companies don’t necessarily start to profit from customers immediately (think General Insurance), so holding onto them makes sense. And it’s worth considering that those who complain are probably only ‘the tip of the iceberg’ … its suggested that only 1 in 10 voice their dissatisfaction, which means the other 9 are suffering in silence and likely to let their feet do the talking instead.

But it also makes commercial sense in terms of avoiding unnecessary overheads … companies often fall into the trap of ensuring they are compliant with complaint handling regulation and often lose sight of the customer aspect. Firms who fail to deal with a customer fairly, communicate the outcome poorly, or even offer inappropriate levels of redress might find the disgruntled customer escalating to the nearest ombudsman. In fact, part of the recent complaints rules changes introduced by the FCA instructs firms to write to customers and make them aware of their right to escalate their complaint to the Financial Services Ombudsman (FOS hereafter) if they are dissatisfied with their complaint outcome. And customers can now do this immediately after receiving the firm’s final decision (whereas you previously had to wait 8 weeks!). I would imagine that this combination of raising awareness of ombudsman rights and allowing you escalate sooner rather than later might drive escalation levels significantly – and this is where the cost implications are for firms …

“For the 26th and each subsequent complaint, FOS charge a case fee of £550.

If the complaint is PPI-related, then FOS charge a supplementary case fee of £350″

In its publication of complaints opened for the 6-month period H2 2015, FOS opened almost 3,500 new cases relating to complaints escalated by customers of a UK high street bank:

  • The cost of these new cases to the bank is £1,925,000 …
  • And that’s before you consider almost 80% of these escalations were upheld in the customer favour – that’s 2,800 disgruntled customers now due redress.
  • Remember, these levels related to a 6-month period, so if we assume similar levels for the other 6 months of the year, then the ‘bill’ is likely to be in excess of £4m.
  • To compound matters, these customers, whether their escalation was successful or not are more than likely to move away from said bank
  • Finally, the bank then needs to spend to acquire new customers and top up their ‘leaky bucket’.

So what is the price for getting it right first time when it comes to handling customer complaints quickly and fairly?

To end on a positive note (and to put the commercial implications to one side for a moment), I have a very positive view on how primary research to gather the customer view coupled with internal root cause analysis can identify opportunities for improvement and set a company on the road to complaints excellence, helping to prevent future issues and help boost bottom-line profitability. Being seen to deliver complaints excellence is likely to only have a positive impact on your brand reputation, turning complainants into advocates and enhancing your organisation’s ability to attract (and retain) new customers.

Good luck!

Scott Davidson is a Research Director for Harris Interactive, a digitally enabled research agency. To find out more about how Harris can help you understand the complaints experience your company delivers to customers – or to even just chat all things complaint-related – please feel free to email Scott:


  • CEO
  • Complaint management
  • Customer Complaints
  • Customer Experience
  • Research