Any company can make a mistake in dealing with consumers. Apologizing for the problem is important, but doing it the right way may prove vital to restoring trust and keeping the customer on board.
A recent field study involving 1.5 million Uber customers who experienced late rides found that while potentially effective, apologies are not a cure-all and not all the same. In fact, a poorly delivered apology can be worse than none at all, the study’s authors found.
One key finding: money talks. An apology delivered with a perk like a coupon appears to be the most effective, according to the working paper, which the National Bureau of Economic Research published earlier this year.
“For firms, caveat venditor should be the rule when considering apologies,” wrote the study’s authors – economists from MIT, Vassar, the University of Chicago and Lyft, two of whom previously worked in Uber’s economics unit.
Apologies are important in avoiding the collapse of personal, workplace and business relationships, the authors note. Business apologies, however, can be tricky, and it’s not always clear whether customers value them.
The researchers used a natural field experiment with Uber riders to explore a few theories, including the notion that a business, to effectively signal its trustworthiness, should issue an apology that comes with a real cost, and that a firm’s apology can backfire.
Because Uber services 15 million rides each day, “even an extremely small fraction of rides being late could have large repercussions,” they wrote, adding their analysis suggests that, absent an apology, a rider who experienced a late trip spends 5% to 10% less on the ridesharing platform.
They conducted the U.S. experiment in six large cities over several months in 2017, using real-time apology emails following late trips, defined as actual trip time compared to the estimate riders initially saw. A key goal: measuring the role of apologies in maintaining relationships with customers who received bad trips and figuring out exactly how the apologies operated.
Some riders received promo codes with varying apology messages, or no apology, while others received no coupon or promo code.
Among the findings:
- A $5 coupon for a future trip, which the researchers consider a “costly apology,” effectively signals trusworthiness and increases demand for future trips.
- An apology with no coupon “had little effect or was even sometimes counterproductive.”
- A $5 coupon or promo code sent directly after a bad ride was more effective than one applied randomly and without a relationship to the customer’s ride experience.
- The benefit of a costly apology appeared to endure three months after the bad experience, while any benefit from an apology without a coupon “quickly fades. This is especially notable because we measure the benefit as net of the coupon cost.”
- Apologies that backfire inflict a different kind of cost, especially when the company promises to do better in the future. Data suggest that “repeated apologies after several bad experiences make things worse relative to fewer apologies,” the researchers wrote, noting that those who receive apologies hold firms to a higher standard for the future.
- Apologies are effective for slightly bad and severely poor experiences, but less so for “moderately poor” experiences.
- As the researchers theorized, apologies are more effective with riders who have less experience with Uber.
“We find that the most effective apology was the provision of a $5 coupon, with or without any accompanying apology text. Giving such a coupon after a bad ride was more cost-effective than $5 coupons given at random. Yet we find that the benefits of apologizing with a coupon disappear after three months when a promise to do better in the future is made,” the researchers noted.
“Furthermore, apologizing repeatedly to the same person who had multiple bad experiences in a three-month period actually reduced future spending, relative to someone who also had repeated bad rides but did not receive repeated apologies,” they said.
While apologies can be an effective way to restore and prolong the customer relationship, firms don’t issue them more frequently “because they are costly and potentially backfire,” and “because apologizing is difficult,” the researchers wrote.
“Our data highlight that the safest way to remediate a bad experience is a simple promotion applied to future purchases.”