1. THE FINANCIAL AND ECONOMIC
IMPACT OF SERVICE
ISHA CHAMAN (15-MBA-11)
ISHA BANDRAL (16-MBA-11)
KARNIDH KAUR (17-MBA-11)

2. 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.

3. HOW DO SERVICE QUALITY
IMPROVEMENTS WILL BE A GOOD
INVESTMENT?
WHERE IN THE COMPANY SHOULD
THE MONEY BE INVESTED TO
ACHIEVE HIGHER RETURNS?

4. 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.

5. The Direct Relationship between
Service and Profits
“Will service improvement result in Profitability?”
Service
Quality
? Profits

6. 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).

7. 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.

8. Offensive Marketing Effects of
Service on Profits
Service
Quality
Profits
Market
Share
Reputation Sales
Price
Premium

9. • 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.

10. 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.

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

12. Defensive Marketing Effects of
Service on Profit- CUSTOMER RETENTION
Costs
Volume of Margins
Service Customer
Purchases
Quality Retention Price
Premium
Word of
Mouth Profits

13. Effects of Service on Behavioral
Intentions and Profits
Costs
Volume of Margins
Purchases
Customer
Retention Price
Behavioral Premium
Service Intentions
Word of
Mouth Profits
Sales

14. 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?

15. The Key Drivers of Service Quality, Customer
Retention, and Profits
Key Drivers Service Encounters
Service
Encounter
Service
Encounter
Service Behavioral Customer
Quality Intentions Retention Profits
Service
Encounter
Service
Encounter

16. 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

17. Company Performance
Measurement
WHAT YOU MEASURE IS WHAT YOU
GET
‘MEASUREMENT MOTIVATES’

18. BALANCED SCORE CARD
(A performance measurement system)
 Term coined by ART SCHNEIDERMAN(1987)
 Devised by ROBERT S KAPLAN & DAVID P NORTAN

19. DEFINITION
The balanced scorecard is a strategic
planning and m anagem system that
ent
is used extensively in business and
industry, governm and non-profit
ent
organizations worldwide to align
business activities to the vision and
strategy of the organization, im prove
internal and external com unications,
m
and m onitor organization’s
perform ance against strategic goals.

20. 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.

22. Financial Measures
Price Premium
Volume Increases
Value of Customer Referrals
Customer Value of Cross Sales Operational
Perspective Perspective
Long-term Value of Right first time (% hits)
Service Perceptions Customer
Defection rate
Service Expectations Right on time (% hits)
SAMPLE MEASUREMENTS FOR
Perceived Value BALANCED SCORECARD Responsiveness (% on time)
Transaction time (hours,
Behavioral Intentions:
Percentage of Loyalty Innovation and days)
Percentage of Intent to Switch Learning Perspective
No. of Customer Referrals
Number of new products Throughput time
No. of Cross Sales
No. of Defections
Return on innovation Reduction in waste
Employee skills
Process quality
Time to market
Time spent talking to
customers

23. 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.

24. 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.

25. 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.

26. THANKYOU!
!!