Putting the Service-Profit Chain to Work

When the impact of a lifetime loyal customer is measured, it is easy for leadership management to focus their attention on customer needs. This is only achievable by empowering frontline workers through training, empowerment, and technology. The challenge is how to put a value on these soft measurements to understand the relationship between profitability and customer loyalty, employee satisfaction, loyalty, and productivity. This is where the service-profit chain comes in, helping to identify the relationship of these metrics with profitability.

For instance, 5% increase in customer loyalty can produce profit increases from 25% to 85% (Reichheld & Sasser, “Zero Defections: Quality Comes to Services,” 2014). In order to measure these relationships, companies must develop a system to track several factors including customer loyalty and satisfaction.

Positive guest service practices drive growth, customer loyalty, customer satisfaction, value, productivity, loyalty, and employee satisfaction. All these practices, when properly implemented and measure lead to incredible gains in profits. Establishing the proper metrics is key to be able to understand where change can be made. For many years, Xerox was trying to achieve 100% customer satisfaction (4 – satisfied and 5 – very satisfied) by 1993, but in 1991 they realized that the clients given Xerox 5 rating were six times more likely to repurchase Xerox products than that rating satisfaction at 4. As a consequence, Xerox upgraded its goal to reach 100% 5 ratings by 1996 (Heskett, Jones, Loveman, Sasser, & Schlesinger, “Putting the Service-Profit Chain to Work,” 2016).

The links of the service-profit chain are:

  1. Profit and growth are stimulated primarily by customer loyalty
  2. Loyalty is a direct result of customer satisfaction
  3. Satisfaction is largely influenced by the value of services provided to customers
  4. Value is created by satisfied, loyal, and productive employees
  5. Employee satisfaction, in turn, results primarily from high-quality support services and policies that enable employees to deliver results to customers

As one can realize, when looking at these links above, 3 to 5 are directly related of how satisfied and engages employees are. Customer satisfaction and customer loyalty are the consequence of how employees are empowered and treated on a corporation.

While many organizations are beginning to measure relationships between individual links in the service-profit chain, only a few have related the links in meaningful ways. Taco Bell is a good example of a company successfully measuring relationships in the service-profit chain and developing a good strategy around it. By examining employee turnover, Taco Bell discovered that the 20% of the stores with the lowest turnover rates enjoyed double the sales and 55% higher profits than the 20% of stores with the highest employee turnover rates. As a consequence, Taco Bell was able to implement financial and other incentives that help correct the situation (Heskett, Jones, Loveman, Sasser, & Schlesinger, “Putting the Service-Profit Chain to Work,” 2016).

In my opinion, one of the most important areas to influence positively guest service is to empower and engage employees. as described on this article employee loyalty drives productivity. Employee turnover not only impacts the cost of recruiting, hiring and training but also the loss of productivity and decrease of customer satisfaction. Replacing an experienced sales representative for an inexperienced one in a car dealership can cost $36,000 in sales according to ABT associates.

In 1991 a proprietary study of a property-casualty insurance company found that 30% of dissatisfied employees had an intention to leave the company. A turn over three times higher than satisfied employees. In some companies such as Southwest satisfaction levels are so high that in some of its operating locations, employee turnover was less that 5% per year. This is one of the reasons why Southwest regularly achieves the highest level of on-time arrivals, the lowest number of complaints and the fewest lost baggage claims per 1,000 passengers. Happy employees mean happy customers.

Training is an important component to keep employees engaged. When employees don’t have the information, they need and the resources they need this can leave to frustration and bad performance. Most of the time this frustration translates to poor customer management and consequently poor customer loyalty.

More research should be made in this area because in my opinion first is employee satisfaction than customer satisfaction. There are companies that enforce good guest practices, but when employees are disengaged, underpaid or not properly trained, this interaction comes through as fake and it is highly inefficient.

References

Heskett, J., Jones, T., Loveman, G., Sasser, E., & Schlesinger, L. (2016, March 28). Putting the Service-Profit Chain to Work. Retrieved May 24, 2017, from https://hbr.org/2008/07/putting-the-service-profit-chain-to-work

Reichheld, F., & Sasser, E., Jr. (2014, August 01). Zero Defections: Quality Comes to Services. Retrieved May 24, 2017, from https://hbr.org/1990/09/zero-defections-quality-comes-to-services

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