The Service Profit Chain of Retail Banking - How Regulation Might Promote Service Innovation
37 Pages Posted: 17 Mar 2008
Date Written: January 2008
Current regulatory changes in the financial services industry aim at ensuring customer protection in the context of investment advisory services. This study demonstrates that customer orientation as proposed by MiFID could improve the service profit chain of financial service providers. We draw on a unique dataset from a large German retail bank including the way customers and their advisors perceive the advisory process as well as internal records of customer transaction behavior and profitability. We find that using information about customers' financial sophistication and experience to make the advisory process more appropriate could significantly enhance customer satisfaction and retention. Moreover, we find a strong positive effect of customer satisfaction and retention on customer profitability.
Keywords: Service profit chain, MiFID, financial service providers, investment advisory
JEL Classification: G18, G21
Suggested Citation: Suggested Citation