Extending the service-profit chain: a longitudinal perspective

The Service-Profit Chain (SPC) model (Heskett et al., 1994) has been the subject of much scrutiny over the past decade, having been explored in a range of different applications, contexts and variants. The SPC model is based on a series of cause-effect relationships, combining to drive service performance. Closely related constructs including internal service quality, employee satisfaction and productivity, customer value, customer satisfaction, and loyalty are viewed as inputs, and ultimately as determinants of service profitability. Research relating to the model has included a number of empirical examinations (e.g. Silvestro & Cross, 2000; Maritz & Neiman, 2008), and conceptual extensions (e.g. Kamakura et al., 2002; Pasupathy & Triantis, 2007). Theoretical and managerial gaps however still exist, specifically the consideration of service performance over time, the application of the SPC model as a basis for segmentation, the examination of alternate constructs, and the testing of the model in a retail automotive context. These gaps are addressed through this research. The aim of the study is to extend the SPC as a framework for segmenting organisations based on their service performance. The extended framework builds on an SPC conceptualisation by Kamakura et al. (2002) and considers objective and subjective inputs, including service quality, transactional value, customer satisfaction and customer retention. A Partial Least Squares (PLS) approach is used to analyse longitudinal data taken from automotive dealerships and a PLS – Finite Mixture model is used to identify latent (performance) classes. A series of hypotheses derived from the extended SPC are tested for each class, and an Importance-Performance Analysis (IPA) is used to further examine the differences that exist. The findings of this research deepen the understanding of the relationships between service performance metrics and provide guidance for managers on how and where to allocate resources in order to improve service profitability.