THE FINANCIAL AND ECONOMIC IMPACT OF SERVICE

ISHA CHAMAN (15-MBA-11)

ISHA BANDRAL (16-MBA-11)

KARNIDH KAUR (17-MBA-11)

OBJECTIVES• Examine the direct effects of service on profits.

• Consider the impact of service on getting new customers.

• Evaluate the role of service in keeping customers.

• Discuss what is know about the key service drivers of overall service quality, customer retention and profitability.

• Discuss the balanced performance scorecard to focus on strategic measurements other than financials.

HOW DO SERVICE QUALITY IMPROVEMENTS WILL BE A GOOD

INVESTMENT?

WHERE IN THE COMPANY SHOULD THE MONEY BE INVESTED TO ACHIEVE HIGHER RETURNS?

Return On Service Quality

Assumptions:• Service Quality is an investment.

• Service Quality efforts must be financially accountable.

• It is possible to spend too much on service quality

• Not all service quality expenditures are equally valid.

The Direct Relationship between Service and Profits

“Will service improvement result in Profitability?”

Profits?ServiceQuality

STRATEGY FOR IMPROVING PROFITABILITY

1. Reduce costs: focus on cost cutting and efficiencies.

2. Build revenues through improvements to customer service, customer satisfaction, and customer retention.

3. Combine (1) and (2). 

Offensive Marketing Effects of Service

Service quality can help companies attract more and

better customers to a business, through 

OFFENSIVE MARKETING Attracting more and better customers

-involves market share, reputation, and price premiums

-PIMS (profit impact of marketing strategy)

 

Example: There are several auto repair shops in a three block area. One of the shop owners decides to extend his operating hours until 10:00pm Monday-Thursday and provide a pick-up and delivery service, and guarantee all repairs for six months. 

Offensive Marketing Effects of Service on Profits

ProfitsMarketShare

Reputation Sales

PricePremium

ServiceQuality

• When service is good, a company gains a positive reputation and through that, a higher market share and ability to charge more than its competitors for services.

Profit Impact of Marketing Strategy

• Companies offering superior service achieve higher than normal market share growth and that service quality influences profit through increased market share and premium prices as well as lowered costs and less rework.

• Satisfied customers spread positive word of mouth, which leads to the attraction of new customers and then to higher market share.

Defensive Marketing Effects of Service on Profit- CUSTOMER RETENTION

Margins

Profits

CustomerRetention

Costs

PricePremium

Word ofMouth

Volume ofPurchasesService

Quality

Effects of Service on Behavioral Intentions and Profits

CustomerRetention

Costs

PricePremium

Word ofMouth

Margins

Profits

Volume ofPurchases

Service BehavioralIntentions

Sales

The “80/20” Customer PyramidThe “80/20” Customer Pyramid

Most ProfitableCustomers

Least ProfitableCustomers

What segment spends more withus over time, costs less to maintain,spreads positive word of mouth?

What segment costs us intime, effort and money yetdoes not provide the returnwe want? What segment isdifficult to do business with?

OtherCustomers

BestCustomers

The Key Drivers of Service Quality, Customer Retention, and Profits

Key Drivers

ServiceQuality

ServiceEncounter

ServiceEncounter

ServiceEncounter

Customer Retention

BehavioralIntentions Profits

ServiceEncounter

Service Encounters

Service Quality Spells ProfitsService Quality Spells Profits

ServiceQuality

CustomerRetention

Costs

PricePremium

Word ofMouth

Margins

Profits

Defensive Marketing

Volume ofPurchases

MarketShare

Reputation

Sales

PricePremium

Offensive Marketing

Company Performance Measurement

WHAT YOU MEASURE IS WHAT YOU GET

‘MEASUREMENT MOTIVATES’

  BALANCED SCORE CARD (A performance measurement system)

Term coined by ART SCHNEIDERMAN(1987)

Devised by ROBERT S KAPLAN & DAVID P NORTAN

DEFINITION The balanced scorecard is a strategic planning and management system that

is used extensively in business and industry, government and non-profit organizations worldwide to align

business activities to the vision and strategy of the organization, improve

internal and external communications, and monitor organization’s

performance against strategic goals.

BALANCED SCORE CARD DOES WHAT

• Translates vision and strategy into action;

• Defines the strategic linkages to integrate performance across organizations;

• Communicates objectives and measures to a business unit, joint venture, or shared service;

• Aligns strategic initiatives;

• Aligns everyone within an organization so that all employees understand how and what they do supports the strategy;

• Provides a basis for compensation; and

• Provides feedback to the senior management if the strategy is working.

Innovation andLearning Perspective

CustomerPerspective

Service Perceptions

Service Expectations

Perceived Value

Behavioral Intentions:

Operational Perspective

Right first time (% hits)

Right on time (% hits)

Responsiveness (% on time)

Transaction time (hours, days)

Throughput time

Reduction in waste

Process quality

Financial Measures

Price Premium

Volume Increases

Value of Customer Referrals

Value of Cross Sales

Long-term Value of CustomerDefection rate

Percentage of Loyalty Percentage of Intent to Switch No. of Customer Referrals No. of Cross Sales No. of Defections

Number of new products

Return on innovation

Employee skills

Time to market

Time spent talking to customers

SAMPLE MEASUREMENTS FOR BALANCED SCORECARD

BALANCED SCORE CARD IN PRACTICE

• Implemented not only in corporations but also in government and non profit organizations.

• In 2001, the UNIVERSITY OF VIRGINIA LIBRARY, a system of 11 different libraries with holdings of 4 million volumes, became the first library in North America to  implement balanced score card to improve its performance.

LIMITATIONS One fact is that it is not easy to implement this tool because it involves a lot 

of subjectivity. 

Also, the tool is much more complex compared to the other tools. The measures that need to be taken are contingent upon the kind of environment, industry and the business the organization is in. 

The tool has tried to fill up the void that exists in most management systems. However, a lot of refinement is still required, so that it becomes 

understandable to every stakeholder associated with the organization and removing subjectivity to a large extent.

CONCLUSION The balanced scorecard is a very important strategic management tool 

which helps an organization not only to measure performance, but also decide/manage the strategies needed to be adopted/modified so that the 

long-term goals are achieved.

 In other words, the application of this tool ensures the consistency of vision and action which is the first step towards the development of a 

successful organization.

Also, proper implementation can ensure the development of competencies within an organization which will help it in developing a 

competitive advantage, without which it cannot be expected to outperform its rivals.

THANKYOU!!!