The document discusses the service profit chain framework, which links customer loyalty and satisfaction to employee satisfaction, productivity and retention, and ultimately to profitability. It notes that research has found a direct link between superior customer experiences, loyalty and financial performance, and that a 5% improvement in customer loyalty can result in a 25-85% improvement in profits. The framework emphasizes that internal service quality, including factors like workplace design and employee training, development and rewards, drives employee satisfaction and loyalty, which then drives customer value and satisfaction.

1. Link between Profits and Customer Loyalty

2. Service profit chain
 Relation between profitability, customer
loyalty and employee satisfaction, loyalty,
productivity.
 Loyalty – direct result of customer
satisfaction
 Value created by satisfied, loyal and
productive employees.

3. Harvard University Research
 Direct link between superior service
experiences, customer loyalty and financial
performance.

4. Boundary Spanners
 Front line employees link the inside of an
organization to the outside world, operating
at the boundary of a company.

5. Framework of service profit
chain
 Profitability & Revenue Growth
 Customer Loyalty – 3Rs : Retention, Repeat
business & Referrals.
 Loyal customers result from satisfied
customers.
 External Service Value – Through a well-defined
service concept, the company creates
value for the customer.

6. Framework (Cont’d)
 Employee retention and productivity –
Frontline employees at the heart of excellent
customer service… value to business
 Satisfied employees more loyal and
productive

7. Internal Service Quality
 Engage employees
 Translate employee performance into
internal quality
 Effective workplace design
 Job design
 Employee selection and development
 Employee rewards & recognition
 Tools for serving customers

8. Research findings
 Customer loyalty is key determinant of
profitability.
 5% improvement in CUSTOMER LOYALTY
results in a 25-85% of IMPROVEMENT IN
PROFITS.

9. Customer King
 Expectations of customer change all the time.
 To maintain loyalty, a service firm has to get
better & better.
 Xerox found that customers that rated them
5 on a scale of 1 to 5 were six times more
likely to repurchase Xerox equipment versus
those at the 4 rating level.

10. What are ‘WOW’ experiences
 When a customer feels that he has got the
service that is worthy of the amount spent on
the service and when he gets emotionally
bonded with the value obtained from
services, such an experience is called as a
‘wow’ experience.

11. Apostles
 Xerox coined the term – Apostles to
characterize the customers that rated them
5.
 Apostles are MOST LOYAL CUSTOMERS.

12. Terrorist customers
 Customers who become so upset that they
make it a point to speak out about the poor
service they received at every opportunity.
 Loyal customers tell others about their
experiences and become unofficial external
brand ambassadors for the firm
 A company should not dilute its service
standards.

13. Points to ponder
 Value drives Customer Satisfaction
 Employee Productivity drives Value
 Employee Loyalty drives productivity
 Employee Satisfaction drives Loyalty
 Internal Quality drives Employee Satisfaction.

14. Internal quality
 Measured by the feelings that employees
have towards their job, colleagues and
company.
 Workplace design
 Job design
 Training & Motivation
 Rewards & Recognition

15. Service Profit Chain
Leadership
 Leader fosters a culture that focuses on
service to customers and motivation of
employees.
 Effective listeners
 Test service delivery processes
 Seek employee suggestions for improvement

16. Superior satisfaction….
 Superior satisfaction alone is not an
unconditional guarantee of profitability.
 This means 2 things :
 Satisfied employees must demonstrate behaviors
aimed at higher customer satisfaction
 Super satisfied customers must also bring in
business, be loyal, make referrals to the firm.

17.  Satisfaction must turn into loyalty and this
behavior must lead the customer to make
repeat purchases, make positive referrals
through word-of-mouth.
 Loyalty must translate into more business for
the firm.

18. Test your knowledge
 A 5% improvement in customer loyalty
results in an improvement in profits by
 5-10%
 1-2%
 15-20%
 25-85%