service-profit-chain

What Is The Service-Profit Chain? Service-Profit Chain In A Nutshell

The service-profit chain was first proposed in a 1994 edition of Harvard Business Review by Leonard Schlesinger, W. Earl Sasser, and James L. Heskett. Three years later, the theory became the subject of a book authored by the same individuals entitled The Service Profit Chain – How Leading Companies Link Profit and Growth to Loyalty, Satisfaction and Value. The service-profit chain is a business management theory linking employee satisfaction to customer loyalty and profitability.

Understanding the service-profit chain

Many consider management, staff, customers, and other stakeholders to be the most important components of a marketing mix – and for good reason. The way a company communicates with its employees and provides a suitable workplace for them impacts those outside the organization and the relationships built. This notion was echoed by entrepreneur Richard Branson, who once suggested training people so well they could find employment elsewhere while treating them so well that they didn’t want to leave.

While the service-profit chain is a relatively simple concept, many businesses do not understand the impact of their internal functions and processes on customer interaction. To better synthesize this relationship, the chain itself is based on cause and effect and comprises various components. 

In the next section, we will take a look at these components in more detail.

The seven links of the service-profit chain

The service-profit chain consists of seven links that describe how internal processes impact customer loyalty:

  1. Employee support and enabling policies – at the start of the chain are employee rewards, incentives, programs, and policies that motivate performance and create a stronger culture.
  2. Employee satisfaction – with employees properly supported and motivated, satisfaction increases.
  3. Productive employees – satisfied employees are more likely to be productive employees. What’s more, productive employees tend to go above and beyond for the company and its customers.
  4. Service value – occupying the next link in the chain is service value, which argues productive and satisfied employees bring more value to the customer. This value may take the form of friendlier customer service or higher quality products, among many other things.
  5. Customer satisfaction – naturally, a customer who receives better service or a high-quality product is more satisfied in their dealings with the company.
  6. Customer loyalty – while satisfied customers are more likely to buy from a company multiple times, it’s important to note that the relationship between satisfaction and loyalty is not linear. Satisfaction exists on a scale, with low to moderate amounts unlikely to see the customer recommend a product to a friend or leave a positive review. At the other end of the scale, however, satisfaction becomes enthusiasm. It is this enthusiasm for a product or company that ultimately drives loyalty.
  7. Profit and revenue – at the end of the service-profit chain is profit and revenue, which increases as the number of loyal customers increases.

Key takeaways:

  • The service-profit chain is a business management theory linking employee satisfaction to customer loyalty and profitability. It was first proposed in 1994 by Leonard Schlesinger, W. Earl Sasser, and James L. Heskett.
  • The service-profit chain is a straightforward concept, but many businesses fail to recognize the relationship between their internal processes and interactions with customers.
  • The service-profit chain is based on seven links, with each link interacting with the rest of the chain through cause and effect. The seven links are employee support and enabling policies, employee satisfaction, productive employees, service value, customer satisfaction, customer loyalty, and profit and revenue.

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Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"