Paccar Hall, Room 295
Seminar Speaker: Masha Shunko
Affiliation: University of Washington
Area: Operations Management
Name of Presentation: A Quality Value Chain: Linking Supply Chain Quality to Customer Lifetime Value
The service profit chain framework is a powerful concept from marketing and strategy literature that links service operations to the customer satisfaction, which is in turn linked to customer retention and loyalty, which finally leads to profitability. We enrich the service profit chain concept by extending it in two dimensions: 1) we include supply chain quality that may have a direct impact on the product/service attributes that in turn have their impact on creating value; 2) we include the customer experience at all firms carrying the same brand name to address potential competition or quality spillover effects.
The extended service profit chain framework, which we refer to as the quality value chain, can be used to create value from the individual firms perspective, from the brand perspective, and from the supply chain perspective. We propose a two-stage methodology to link the supply chain quality to the customer lifetime value: First, we identify how supply chain creates value for customers by improving supply chain quality; Second, we identify how increased customer experience at all firms within the brand creates future value for all supply chain players through increased customer lifetime value.
Applying our framework to a dataset from a national restaurant chain, we find that the supply chain issues related to freshness of ingredients have the largest impact on customer experience in the downstream restaurants. We show that the customer experience offered at the surrounding restaurants carrying the same brand name has a positive quality spillover effect on the customer retention at the restaurant they visited. We quantify the impact of supply chain and customer experience improvements on the future purchasing behavior of customers. Our counterfactual studies show that a) at the individual customer level, the firm should focus on improving the experience of customers whose last visit for the restaurant was neither too long ago nor too recent and whose number of total transactions with the firm is neither too high nor too low (to optimize return on investment), and b) at the restaurant level, the firm should prioritize the supply chain improvements for the restaurants that have high quality neighbors and a high percentage of customers with the profile identified above.