THE FINANCIAL AND

ECONOMIC IMPACT OF
SERVICE QUALITY
The Direct Relationship between
Service and Profits

Service
Quality
? Profits
 Offensive Marketing Effects of
Service on Profits

Service
Quality
Profits
Market
Share

Reputation Sales

Price
Premium
 Defensive Marketing Effects of
Service on Profit

Costs

Volume of Margins
Service Customer
Purchases

Quality Retention Price

Premium

Word of
Mouth
Profits
 Perceptions of Service, Behavioral
Intentions and Profits

Costs

Volume of Margins
Purchases
Customer
Retention Price
Behavioral Premium
Service Intentions
Word of
Mouth Profits

Sales
 Service Quality Spells Profits
Costs

Defensive Volume of Margins

Marketing Purchases

Price
Premium
Service Customer
Quality Retention
Word of
Mouth Profits
Market
Share
Sales
Offensive
Marketing Reputation

Price
Premium
 The “80/20” Customer Pyramid

Most Profitable
What segment spends more with
Customers us over time, costs less to maintain,
Best
Customers spreads positive word of mouth?

Other
Customers What segment costs us in
time, effort and money yet
does not provide the return
Least Profitable we want? What segment is
Customers difficult to do business with?
The Expanded Customer Pyramid

Most Profitable
What segment spends more with
Customers Platinum us over time, costs less to maintain,
spreads positive word of mouth?
Gold

Iron

What segment costs us in

Lead time, effort and money yet
does not provide the return
Least Profitable we want? What segment is
difficult to do business with?
Customers
 Sample Measurements for the
Balanced Scorecard
Financial Measures

Price Premium
Volume Increases
Value of Customer
Referrals
Customer Value of Cross Sales
Perspective Operational
Long-term Value of Perspective:
Customer
Service Perceptions
Right first time (% hits)
Service Expectations
Right on time (% hits)
Perceived Value
Responsiveness (% on
Behavioral Intentions: Innovation and time)
% Loyalty Learning Perspective Transaction time (hours,
% Intent to Switch days)
# Customer Number of new products Throughput time
Referrals Return on innovation Reduction in waste
# Cross Sales Employee skills Process quality
# of Defections Time to market
Time spent talking to
customers