Perils of Managing the Service Profit Chain: The Role of Time Lags and Feedback Loops

The tendency of managers to focus on short-term results rather than on sustained company success is of particular importance to retail marketing managers, because marketing activities involve expenditures which may only pay off in the longer term. To address the issue of myopic management, our study shows how the complexity of the service profit chain (SPC) can cause managers to make suboptimal decisions. Hence, our paper departs from past research by recognizing that understanding the temporal interplay between operational investments, employee satisfaction, customer satisfaction, and operating profit is essential to achieving sustained success. In particular, we intend to improve understanding of the functioning of the SPC with respect to time lags and feedback loops. Results of our large-scale longitudinal study set in a multi-outlet retail chain reveal time-lag effects between operational investments and employee satisfaction, as well as between customer satisfaction and performance. These findings, along with evidence of a negative interaction effect of employee satisfaction on the relationship between current performance and future investments, show the substantial risk of mismanaging the SPC. We identify specific situations in which the dynamic approach leads to superior marketing investment decisions, when compared to the conventional static view of the SCP. These insights provide valuable managerial guidance for effectively managing the SPC over time.     

Consumer relationship fading

This paper explores the phenomenon of consumer relationship fading with a series of three adjacent studies. Analyzing two longitudinal behavioral datasets, Study 1 shows that about one-third of the relationships could be described as fading. Drawing on prior work in the marriage disaffection literature, Study 2 defines relationship fading for the consumer marketing context as a process of gradual decline in consumers' intention to continue their relationship with a brand, generally manifested in negative feelings toward the brand, diminishing frequency and/or volume of transactions with it, and initiation of switching intentions. It further identifies disillusion, disaffection, and crossroads as three distinct fading stages, and outlines boundary conditions. Study 3 observes relationship fading through a diary study approach and finds attitude movement in both positive and negative directions between the stages. Further, while positive attitudes generally decline over the course of the fading trajectory, negative emotions peak at the penultimate fading stage and then level off at the final, crossroads stage. By defining and analyzing consumer relationship fading, we improve understanding of an under-researched, large segment of consumers.     

Relational retention

This paper uses a repeated-game model to study the retention of talented workers in the face of competition for talent. When the job benefits that workers value are non-contractible, retention cannot be achieved by a sequence of spot contracts, but must be based on self-enforcing long-term agreements, which we call relational retention contracts. Retention then is successful only if workers trust their employers' promises. We demonstrate that relational contracts are valuable even if there are no incentive problems inside firms and that firms with a relatively low valuation for talent may be able to retain talented workers.     

Rule-governed behavior in evolution and human society

I present a conceptual framework and analytical tools for generalizing existing theory in order to investigate imperfect choice that does not always make optimal decisions based on available information. The resulting analysis implies imperfect choice creates incentives forrule-governed behavior that is adapted only to recurrent situations (rather than adjusting optimally to all conditions), thereby producing a tendency to ignore relevant and even costlessly available information. These principles are applied to recent analysis on the foundations ofconstitutional economics. They are also applied to nonhuman evolution, and to human behavior within exchange environments in order to illustrate the pervasiveness of rule governed behavior, and to suggest a constitutional perspective about the importance of developing rules for governing peoples' ongoing economic and political decisions. I conclude by briefly discussing a basic tradeoff between reaching initial agreement over constitutional rules and the stability of future compliance to them once they are put into practical application. I wish to thank Kenneth Arrow, James Buchanan, Del Gardner, Robert Clower, Andrew Schotter, Giovani Dosi, Mark Machina, Howard Racklin for helpful comments and criticisms, as well as participants in a Liberty Fund conference on constitutional economics during June 1989 in Bonn, West Germany. Of course, I am responsible for the paper's content.