The Service Profit Chain  by James L. Heskett, W. Earl Sasser, Jr., & Leonard A. Schelsinger
 

These three Harvard Professors have written one of the most excellent books that links the bottom line to the human side of the business equation.

Featured in the book are: British Airways, Marriott, Nordstrom, Ritz Carlton, Service Master, Southwest Airlines, Taco Bell and Wal-Mart, to name a few.

The core concept of the book is captured in the figure below.

  1. Customer loyalty is what leads to high levels of growth and profit.
  2. High levels of customer satisfaction lead to customer loyalty.
  3. Customer satisfaction results from the value of services delivered vs. what customers expected.
  4. Employee loyalty, effectiveness & satisfaction are the keys to service value.

 

Here are some key thoughts from the book that you will find interesting:

  1. Treat customer problems like opportunities to build customer relationships.
  2. It is key to get your front line workers to understand their impact on the business.
  3. Xerox found that a very satisfied customer is 6 times more willing to buy from you again vs. a satisfied customer.
  4. If front line employees can’t manage themselves, there is no way you can have very satisfied customers.

Figure 2 below captures a key relationship between service quality and its impacts on growth and profitability.

 

Figure 3 supports Figure 2 by showing that poor service leads to significantly greater customer turnover. The significance of this is that the cost of acquiring new customers is much higher than the added costs associated with retaining existing customers through good service. Hence a great impact on profitability.

This relationship is displayed in figure 4 below.

What a company needs to do to:

    Mobilize people for breakthrough service Use service recovery to build loyalty with customers
    Understand the lifetime value of customers
    Develop your staff so it meets the needs of service profit chain equation.

The authors’ research showed a strong relationship between customer retention and profitability.

  • Sewell Cadillac, the most profitable Cadillac dealer in the world, calculated that customers buy 15-20 cars in a lifetime.

Keys to Sewell’s success:

  • Building bonds with customers through their service department, they are the ones that see the customer repeatedly
  • Make sure employees know that people satisfied with service will spread positive word of mouth and buy from you again
  • Driving down operating costs because there is less need for advertising and you can succeed with a smaller sales force, due to customer loyalty.
  • Sewell was able to triple in size.

 

 

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