With all the customer service woes tearing through industries over the past year—from airliners to wireless providers—companies would do well to revisit a concept first published in 1994 by Harvard Business Review as “The Service-Profit Chain.”
Research by James Heskett and team shows that it isn’t merely good PR to excel at serving customers. It’s good business too. Further, profitability isn’t only achieved by focusing on end users. Engaged employees also contribute to positive customer relationships.
Links in the Chain Illustrated
The Service-Profit Chain emphasizes the value of people—both inside and outside of the organization.
The authors present the major links in the chain (above). Internal service quality is the first link, impacting employee satisfaction.
Next, employee retention and productivity link to service value. Customer satisfaction results from these.
Penultimate in the chain, customer loyalty (recurring business) ultimately drives revenue growth and profitability.
The Real Value in the Chain
Heskett and team note:
Customers often become more profitable over time. And loyal customers account for an unusually high proportion of the sales and profit growth of successful service providers. In some organizations, loyalty is measured in terms of whether or not a customer is on the company rolls. But several companies have found that their most loyal customers—the top 20% of total customers—not only provide all the profit but also cover losses incurred in dealing with less loyal customers.
Key to this discussion (and why you should care), companies that focus attention on the needs of the service-profit chain can realize increases in profit of 25-85 percent.
How will you improve your service-profit chain?
Featured image: Getty/iStock