Applying the Service-Profit Chain to Internet Service Businesses

Abstract

Service-profit chain (SPC) is a powerful tool for evaluating the relationship between the degree of service effort and profit. This framework has been empirically tested in the banking, hospital, retail, and other brick and mortar service verticals. This paper extends the applicability of SPC to Internet-based businesses. The paper also investigates the moderating roles of customer satisfaction and advertising spending on the service operation efficiency (SOE) and profit relationship. Analysis of U.S. Internet service providers during a seven year period from 2000 to 2006 indicates that service operations efficiency is positively associated with a firm's profit. However, the customer satisfaction and advertising spending constructs are negative moderators of the relationship between service operations efficiency and profit.