Improve service climate to retain customers and increase profitability

Topic: Organizational Performance, Strategic HR
Publication: Human Resource Management (MAY/JUNE 2011)
Article: The service climate-firm performance chain: The role of customer retention
Authors: Towler, A., Lezotte, D. V., & Burke, M. J.
Reviewed by: Alexandra Rechlin

When an organization wants to improve customer retention and therefore its profitability, it will often turn to marketing. But could HR provide another option? In this study, Towler, Lezotte, and Burke (2011) tested a model of the way in which service climate (conceptualized and measured by concern for employees and concern for customers) affects profitability.

The authors hypothesized that showing concern for employees would lead to employees showing concern for customers, which in turn would lead to customer satisfaction. Satisfied customers are more likely to return, so customer satisfaction was predicted to lead to customer retention, which in turn was predicted to lead to store profitability. This model was tested using a huge sample of over 12,000 employees in 1,500 tire retail/vehicle service stores. The authors found full support for the model.

The results of this study indicate that if you want your employees to show concern for customers, you must first show concern for your employees. Their subsequent showing of concern for customers leads to more satisfied customers, who in turn become repeat customers, and that means profitability. Marketing therefore is not the only group that the organization should turn to for advice on customer retention – they should look to HR as well!

Towler, A., Lezotte, D. V., & Burke, M. J. (2011). The service climate-firm performance chain: The role of customer retention. Human Resource Management, 50, 391-406. Doi: 10.1002/hrm.20422