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Roger Hallowell: Harvard Business School, Boston, MA, USA
Introduction
This paper's purpose is to illustrate the relationship of profitability to intermediate, customer-related outcomes that managers can influence directly. It is predominantly a general management discussion, consistent with the Nordic School's view that services are highly interdisciplinary, requiring a "service management" approach (see Gronroos, 1984, 1991). Its findings support the theory that customer satisfaction is related to customer loyalty, which in turn is related to profitability (Heskett et al., 1994, and discussed in Storbacka et al., 1994). While this theory has been advocated for service firms as a class, this paper presents an empirical analysis of one retail bank, limiting the findings' generalizability.
The service profit chain (Heskett et al., 1994) hypothesizes that:
Customer satisfaction --> customer loyalty --> profitability.
The research presented here, while unable to demonstrate causality because of its reliance on OLS regression of cross-sectional data, does illustrate that customer satisfaction, customer loyalty, and profitability are related to one another. Thus:
Customer satisfaction <--> customer loyalty <--> profitability.
To this end, this research examined two hypotheses:
H1:Customer satisfaction is related to customer loyalty.
H2:Customer loyalty is related to profitability.
This research intentionally focuses at a relatively high level of abstraction in an effort to contribute to the growing body of theoretical and empirical knowledge on the relationships among customer satisfaction, customer loyalty, and profitability (see Heskett et al., 1994; Nelson et al., 1992; Rust and Zahorik, 1991; Storbacka et al., 1994, among others). Such research is called for in a paper authored by Storbacka et al. (1994) published in this journal.
Relevant literature
The literature pertaining to relationships among customer satisfaction, customer loyalty, and profitability can be divided into two groups. The first, service management literature, proposes that customer satisfaction influences customer loyalty, which in turn affects profitability. Proponents of this theory include researchers such as Anderson and Fornell (1994); Gummesson (1993); Heskett et al. (1990); Heskett et al. (1994); Reicheld and Sasser (1990); Rust, et al. (1995); Schneider and Bowen (1995); Storbacka et al. (1994); and Zeithaml et al. (1990). These researchers discuss the links between satisfaction, loyalty, and profitability. Statistically-driven examination of these links has been initiated by Nelson et al. (1992), who demonstrated the relationship of customer satisfaction to profitability...