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Unit 5: Customer Relationship Management in Services
Notes
Figure 5.2: The Service-Profit Chain
Profit and
growth
Customer
loyalty
Customer
satisfaction
Service
value
Employee
productivity
Employee
loyalty
Employee
satisfaction
Internal quality of work life
(internalising the firms brand)
The service-profit chain model has certain limitations that need to be considered before adopting
it wholeheartedly. The limitations of this model are:
Relationship between satisfaction and loyalty is not always linear.
The relationship depends on the type of industry. Where the choices for the customer are
very high, the relationship is very strong and customer migration is possible; in
monopolistic competition (utilities, public transportation, government/public service,
etc.), the relationship is weak.
5.1.2 Benefits of a Successful Customer Retention Programme
1. Customer retention is cheaper than customer acquisition
2. Reduces communication costs for customer acquisitions like advertising and other
promotions.
3. Loyal customers tend to do repeat purchase, reducing marketing costs but increasing
revenues.
4. Loyal customers tend to avoid substitutes and other competition and perform repeat
purchases even if the price of the service is more - increasing revenue and profit.
5. Satisfied customers who metamorphose into advocates or apostles perform the role of
unpaid salesmen, promoting the service of their own free will.
6. Repeat customers are less expensive to serve than first time customers, as they are well
aware of the offer and do not require customer support, education, guidance and training.
LOVELY PROFESSIONAL UNIVERSITY 83
