Imagine your team proposes raising internal service quality, the support and policies that help employees serve customers, and external service quality, the service customers experience. The case assumes the service-profit chain runs straight to loyalty and profitability. Do you approve it?
The service-profit chain has offsetting routes to loyalty and profitability.
Data chart
Change in profitability, in standard deviations (the typical spread around the average), for a one-standard-deviation rise in external service quality, meaning how customers rate the service.
External service quality relates positively to profitability through customer satisfaction and loyalty, but its direct relationship with profitability is about as large and negative, so in total it is near zero.
Associations, not proven causes, from a model fitted to pooled correlations from an overall evidence base of 518 service-profit-chain studies published 1994 to 2015. Evidence varies by link. Customer loyalty with profitability rests on six correlations and customer loyalty with revenue on twelve. Both links vary substantially across studies; their 95% credibility intervals span zero. Exact values +.187 through customer satisfaction and loyalty and -.007 in total (not significant).
Data chart
Change in each outcome, in standard deviations (the typical spread around the average), for a one-standard-deviation rise in internal service quality, all routes combined.
Across all routes, a rise in internal service quality goes with a rise in how customers rate the service and in profitability.
Associations, not proven causes, from the same model, counting the direct route and the routes through the rest of the chain. The 518 studies are the overall evidence base; evidence varies by link. Customer loyalty with profitability rests on six correlations and customer loyalty with revenue on twelve. Both links vary substantially across studies; their 95% credibility intervals span zero. Exact values +.287 and +.158.
Key takeaway
The service-profit chain has several routes to profitability, and some offset others.
The evidence covers B2C and B2B service firms from 1994-2015, not product businesses. Loyalty's links to revenue and profitability have limited, widely varying evidence.
Source
Hogreve, J., Iseke, A., Derfuss, K., & Eller, T. (2017). The Service-Profit Chain: A Meta-Analytic Test of a Comprehensive Theoretical Framework. Journal of Marketing, 81, 41–61. https://doi.org/10.1509/jm.15.0395. Exact chart values: for a one-standard-deviation rise in external service quality, profitability changes by +.187 standard deviations through customer satisfaction and loyalty and -.007 in total (not significant); for a one-standard-deviation rise in internal service quality, external service quality rises by +.287 and profitability by +.158 standard deviations, all routes combined.