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Service Profit Chain

The Service Profit Chain is a model by Heskett et al. (2008) that illustrates the link between employee satisfaction and loyalty, customer loyalty, productivity, and efficiency.

The model is based on the following logic

  • The company is seeking increased sales, profitability, and growth. The way to reach this is through customer loyalty, which in turn is dependent upon customer satisfaction.
  • Customer satisfaction and loyalty depends highly on the service and the quality they experience when interacting with the company.
  • The value of the service and quality that the company provides is dependent upon internal relations at the company. Employees who are more engaged and loyal increase the value of the service and the quality provided. Furthermore, lower absenteeism and lower employee turnover may further increase productivity and the service level provided.

Many of the individual relations from the Service Profit Chain have been investigated in academic research. For example, Salanova et al. (2005) show that work engagement affects employee performance and customer loyalty. The argument is that when employees feel vigorous, involved, and happy in the workplace (i.e., engaged), they experience positive perceptions about their work characteristics and service climate. The researchers show that this has a positive influence on both employee performance and customer loyalty.

Subsequently, the relation with profitability has been investigated by Williams and Naumann (2011), who show that customer loyalty results in repurchases, purchasing in greater volume, and referrals of the service firm to others, thereby enhancing the long-term profitability of the firm.

The Service Profit Chain has been empirically tested comprehensively by Yee et al. (2010 and 2011). They find significant relations between all components in the model.