The service-profit chain : a New Zealand retail banking example : a thesis presented in partial fulfilment of the requirements for the degree Doctor of Philosophy in Marketing at Massey University, Palmerston North

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Massey University
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The notion of a service-profit chain has been prevalent in business for many years although only since the 1980s has academic research in services management emphasised such a chain. At its simplest, the service-profit chain implies that certain levels of service to customers will result in profitable transactions for the service provider. However, there are several other linkages in the chain between service and profit such as customer satisfaction and customer loyalty. One of the first of its kind in the public domain in New Zealand, this study presents an empirical analysis of an abbreviated form of the service-profit chain for one bank. It investigates the relationships in the service-profit chain with specific objectives that include identifying the factors that help generate profitable customers. Just over 1100 personal retail customers of a New Zealand regional bank were surveyed on such issues and these customers' contribution to the bank's profitability calculated using activity-based accounting procedures. In general, results support the concept of a service-profit chain in personal retail banking. However, a chain implies linearity, whereas the findings here suggest the links between service quality, customer satisfaction, customer loyalty and customer contribution may be more circular than strictly linear. The relationship between customer loyalty and customer profitability is supported, though only at the behavioural loyalty level, where customers conduct all or nearly all of their banking business with one bank. In general, the greater the share of a customer's banking business, the more profitable that customer is to the bank. Conversely, attitudinal loyalty (positive dispositions held about the bank) was not always present for profitable customers. And the study bank's most profitable customers do not always have "all their eggs in one basket" - they are both attitudinally and behaviourally ambivalent in this regard. What sets these customers apart from their peers as profitable customers is their income. They tend to be high networth customers who give the bank the chance to generate profit from their considerable funds and high transaction volume despite not having all their personal banking business consolidated in one bank. There was some support for association between customer satisfaction and profitability but no hint of a relationship between service quality issues and profitability. In general however, strong associations were common between each successive link in the service-profit chain and for an abbreviated service-satisfaction-loyalty chain. Noteworthy too is the finding that not all customers are always profitable and during this study one third of the bank's customers were unprofitable, one third hovered around breakeven and one third contributed 98% of customer profit. The study also investigated customer defection in personal retail banking and established, in agreement with other recent New Zealand research, that annual defection rates are close to 5%. From the synthesis of results and their interpretation, several issues emerged including concerns about the study's measurement of attitudinal loyalty as well as the usefulness of the family life cycle model. These, along with limitations and caveats were addressed for the benefit of future research into the service-profit chain in personal retail banking.
Customer service, Customer satisfaction, Bank profitability, New Zealand banking