Page 241 - DMGT522_SERVICES MANAGEMENT

Services Management

Notes and increase in customer net present value. An increase of 5 percent in retention rate by a service
firm increases the net lifetime profits from the customer. A few such instances are given below:
Table 11.2: Impact of a 5-Percentage Point Increase in Retention
Rate on Customer Net Present Value

S.No. Industry Increase in Customer NPV (%)
1. Software 35
2. Office building management 40
3. Industrial laundry 45
4. Industrial distribution 45
5. Credit card 75
6. Auto service 81
7. Auto/home insurance 84
8. Branch bank deposits 85
9. Publishing 85
10. Life insurance 90
11. Advertising agency 95

11.4.1 The Cycle of Capability

Measuring and maintaining service quality goes on to reduce variability and increase consistency
of service delivery and the total capability of the firm. This has an appreciable and positive
impact on employee satisfaction, which greatly lowers attrition levels. The higher loyalty factor
reduces training costs increasing productivity and the quality of output. The last contribute
towards raising the benchmark of performance, the maintenance and up gradation each of
which will reflect on its competitive advantages, positioning, brand value and profitability (see
Figure 11.6 below).
Figure 11.6: Service Quality and Customer Service

Productivity/
Output Quality Service Value

Employee Customer
Loyalty Satisfaction

Service Quality
Customer
Loyalty
Employee
Satisfaction
Profitability
Capability

11.5 Customer Loyalty

“Customer satisfaction is worthless, customer loyalty is priceless”. Service marketers have been less
preoccupied with creating customers than with retaining them. They have, through trial and
error – mostly the latter – sought to increase customer loyalty. It was always the customer who
forced them to do more second guessing, and was always one jump ahead. He remained cussed
in his attitude, enigmatic in his behaviour and forever demanding.
Satisfaction will measure attitudes, a predominantly transitory, passive, and benign state for a
customer, reflecting a relatively low threshold of involvement with a company. Achieving true

236 LOVELY PROFESSIONAL UNIVERSITY