This journal will critically analyse the above statement by reference to books and journals. Authors from the mid 1980’s through to the current year 2009 who agree and disagree with the statement will be used throughout. The area has been extensively researched, as Woo and Fock (2004 p. 189) highlight, “Positive relationships between attribute satisfaction, overall satisfaction, and other constructs, such as customer loyalty and profitability, have been well documented in the academic literature (e. g.Heskett et al. , 1994; Hallowell and Schlesinger, 2000)”.
In order to critically discuss the statement, the model developed by, Heskett, et al, 1994, ‘The Service Profit Chain’ will be analysed. Zeithaml (2000 p. 73) states that, “research on the direct relationship between service quality and profits has shown both positive effects in a limited number of studies and no effects in other studies” and so the strengths and weaknesses of the links will be discussed.
Storbacka, Strandvik and Gronroos (1994 p.21) argue that, “in the service quality literature a number of assumptions are made about how quality leads to profitability. These should be verified in empirical research. ” Therefore, this journal will also use empirical research to support statements that are made. The statement being discussed is mostly concerned with the right hand side of the model from External Service Value through to Revenue Growth and Profitability. Three relationships of the Service Profit Chain will be analysed; Value and Satisfaction, Satisfaction and Loyalty, Loyalty and Profitability.
The statement argues that if you provide good service quality you will have a profitable customer for life. By contrast the model suggests that to successfully create a profitable customer for life an organisation requires passing through each stage of the chain in order to develop from value to profitability. Service Quality and Customer Satisfaction Relationship Service quality is crucial to customer satisfaction. “Service quality is a measure of how well the service level delivered matches customer expectations.
Delivering quality service means conforming to customer expectations on a consistent basis”. (Lewis and Booms (1983) in Ziethalm and Berry 1985 p. 42) Liljander and Strandvik (1997 p. 148) describe how customers assess service quality by reference to different criteria. “A cognitive process where customers consider the goodness/badness of different components of the service, by evaluating the perceived performance only, or by comparing the service performance with some predetermined standard”.
As Gronroos (1984 p.37) states, “The quality of the service is dependant on two variables: expected service and perceived service”. The perceived service is” the result of a consumer’s view of a bundle of service dimensions, some of which are technical and some of which are functional in nature” (Gronroos 1984 p. 39). Gronroos (1984 p. 42-43) goes on to make clear that In order to achieve customer satisfaction, the firm has to match the expected service and the perceived service”.
Gronroos (1984) argues that, technical quality is “what the customer gets” (Gronroos 1984 p.39), whilst functional quality is “how he gets it” (Gronroos 1984 p. 39). In order to measure customers’ perceptions of service, Parasuraman, Zeithaml and Berry(1988) developed the ‘Five SERVQUAL Dimensions’. It is used for “measuring customer perceptions of service quality” (Parasuraman, Zeithaml and Berry, 1988 p. 5)The dimensions allow customer perceptions about service quality to be monitored and compared to retail competitors. “(Parasuraman, Zeithaml and Berry 1988 p. 5).
As a customer’s expectations and perceptions have been met, an organization can then move onto the next stage, making sure the consumer is ‘very satisfied’ with the level of service that they have received. The limitations to SERVQUAL are that they are “not the only determinants of, service quality. “(Rust 1994 p. 77). Research about the relationship between service quality and profitability began academically with the Profit Impact of Marketing Strategies (PIMS) cross-sectional company database” (Zeithaml, 2000 p. 71).
“The major benefits of the PIMS database is that it allowed researchers to examine the impact of service quality on financial outcomes after controlling for the effects of other variables such as price. ” (Zeithaml,2000 p. 71). One of the major criticisms of PIMS research is that, “perceived service quality is reported from the firm’s perspective rather than the customer’s perspective. ” (Zeithaml 2000 p. 74). Seminal studies using the PIMS database uncovered significant associations among service quality, marketing variables, and profitability (Zeithaml 2000 p. 74).