Service Profit Chain - Explained
What is the Service Profit Chain?
Written by J. Mance Gordon
Updated at November 8th, 2023
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
-
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
- Courses
What is a Service-Profit Chain?
The service profit chain is a representation of the internal service quality in a firm and how it links with other internal service elements to affect revenue growth and profitability.
The service profit chain helps managers identify the factors important to improve the profitability as well as the revenue growth.
What are the Elements of the Service-Profit Chain?
The primary elements of the Service Profit Chain include:
- internal service quality
- employee satisfaction
- employee productivity
- Employee retention
- Employee service value
- Customer Satisfaction
- Customer Loyalty
- Revenue Growth and Increased Productivity
What is Internal Service Quality?
The first link is the internal service quality which includes the internal factors of an organization such as the workplace, employee selection, various tools used for serving customers, and the various employee development programs.
What is Employee Satisfaction?
The service quality factors lead to greater employee satisfaction.
What is Employee Productivity?
If employees are satisfied in your organization, it leads to increased employee productivity and thus they will be able to provide much better service to the customers.
What is Employee Retention?
A satisfied employee is an asset to a company and this satisfaction also prevents the employee from defecting i.e. leads to employee retention.
What is External Service Value?
If the above links are nurtured well, they enhance the external service value provided to the customer but if the previous links are not nurtured well it may even weaken the next link.
External service value is what a customer feels he is getting for what he is paying, if the gap between customer's expectations and the company's offerings is minimum then the customers feel that they are getting a high service value.
What is Customer Satisfaction?
Greater service value leads to greater customer satisfaction. Customer satisfaction is increased by the frequency of good service and also it has to be maintained in order to keep the customers happy and thus the internal employees play a big role in increasing customer satisfaction.
What is Customer Loyalty?
If a customer is satisfied with the service provided, it means that if given a chance he will choose the same service again the next time. Customer Loyalty depends on customer satisfaction, research has shown that people who were satisfied and very satisfied showed a significant difference in customer loyalty. The results showed that a very satisfied customer can be as 6 times as loyal as a satisfied customer.
What is Revenue Growth and Increased Profitability?
More loyal customers directly lead to faster revenue growth and increased profitability. Good quality of sales leads to more profitability than a high number of low-quality sales.