Putting the Service – Profit Chain to Work

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Introduction: Factors that drives profitability
Investment in people

Leadership Vision – Patina of spirituality, importance of mundane Profitability

Technology supporting frontline workers

Successful service companies: Banc One, Intuit, Southwest Airlines, Service Master, USAA, Taco Bell, and MCI

Compensation linked to performance

Recruiting and training practices

The Service - Profit Chain
• Establishes relationships between profitability, customer loyalty, and employee satisfaction, loyalty and productivity • Measure and management techniques

Support services and policies

Employee loyalty, satisfaction, productivity

Value and service

Customer satisfaction

Customer loyalty

Profit and growth

The Links in the Service-Profit Chain

•The service profit chain is also defined by a special leadership •Examples: Herbert Kelleher – Southwest (Patina of spirituality), William Pollard – ServiceMaster (Teacher-learner managers, servant’s heart), John McCoy- Banc One (Uncommon Partnership, system of support)

Customer Loyalty that drives Profitability and Growth
• 5% increase in customer loyalty can produce profit increases from 25% to 85% • Quality of market share in terms of customer loyalty as important as quantity of share in the market • Example: Banc One • Measures of Customer retention • No. of services used by each customer – depth of relationship • Level of customer satisfaction


Customer satisfaction Drives Customer Loyalty
• Polled 480,000 customers per year • Five point scale – satisfaction(product and service) • Relationships between the scores - actual loyalty differed greatly between 5s and 4s apostles • Terrorists – unhappy customers

Value drives Customer Satisfaction
• Value – related to the total costs (price and other costs incurred) • Example: • Progressive – insurance company
– Quick processing and payment to claims – Little policy holder effort – CAT (catastrophe) team

Employee Productivity Drives Value
• Southwest Airlines
• • • •
• • • •

7th largest US domestic carrier 86% of employees unionized (total 14,000) Employees can perform several jobs Schedules, routes and company practices to enable speedy boarding and deplaning (15 min.) 40% more pilot (70hr/month) and aircraft utilization Fare charges 60-70% lower Customer perceptions of value are very high without additional facilities 14,000 employees – marketing research unit

Employee loyalty drives productivity
• Study of automobile dealer’s sales personnel • More employee turn over more loss

Employee Satisfaction drives Loyalty
• Propriety study of a property and casualty insurance company • Southwest – highest retention (95%) • USAA – Insurance and financial services provider

Internal Quality drives Employee Satisfaction
• Working environment • USAA – telephone sales and service representatives • Information system • Training

• ServiceMaster
• Attitudes of people toward one another • Cleaning and maintenance • Importance to mundane

Leadership Underlies the Chain’s Success
• Corporate culture centered on service • Willingness and ability to listen • Examples

Relating Links in the chain for management Action
• Few have links in meaningful way • Examples
• Property and casualty insurance company • MCI • Taco Bell » Employee participation » Periodic round table meetings, interviews

Service – Profit Chain Audit
• How do we define loyal customers? • Do measurements of customer profitability include profits from referrals? • What proportion of business development expenditures and incentives directed to the retention of existing customers? • Why do customers defect?

Service – Profit Chain Audit
• Are customer satisfaction data gathered in an objective, consistent, and periodic fashion? • Where are the listening posts for obtaining customer...
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