LINKING EMPLOYEE ENGAGEMENT AND CUSTOMER ENGAGEMENT TO DRIVE CUSTOMER LOYALTY: REORIENTING SERVICE PROFIT CHAIN

Abstract

The concept of engagement is being widely recognized as a way for organizations to connect with their stakeholders, as market conditions and technology advancements have created intense competition and heightened customer interaction levels. To gain a sustainable competitive advantage, organizations must adopt engagement strategies, as suggested by several studies (Qin et al., 2014; Van Doorn et al., 2010). Furthermore, recent research has highlighted the importance of engaging both customers and employees to generate revenue and reduce costs (Kumar & Pansari, 2016). The interaction between employees and customers in service encounters is essential in determining service outcomes. Both parties' actions are critical in creating personalized service experiences that align with customers' unique needs. Such personalized services yield several positive outcomes, including increased loyalty, prolonged relationship duration, and high perceived service quality. To ensure these outcomes, service firms must ensure high engagement levels of both service employees and customers during service interactions. Engaged participants during an interaction may lead to more favorable perceptions and outcomes. Service employees play a crucial role in shaping customer perceptions during their interactions, which can influence customer behavior. Therefore, it is crucial for both researchers and service practitioners to examine and comprehend the engagement behaviors of both employees and customers and how they are interconnected during service encounters. However, previous studies have not fully explored this issue. Moreover, the service profit chain (SPC) is a widely accepted theoretical framework used by both service managers and researchers. It suggests that employee outcomes are linked to customer outcomes through external service quality. While the SPC is lauded for its simple and compelling explanation of the relationships between internal and external service fronts, it has also been criticized for its theoretical basis and calls have been made for additional mechanisms or paths to be integrated. The criticism stems from the fact that the relationships between employees, customers, and firms are much more complex than the SPC implies. The SPC overlooks important variables such as relationship length, which is crucial in service relationships that span several years, and customer orientation, which refers to employees' efforts to satisfy customers. To provide a more comprehensive understanding of the SPC, this study aims to examine relationship length and customer orientation as crucial, yet missing links in the framework. This research addresses gaps in the existing literature by investigating both employee and customer engagement concurrently. Building on the SPC framework, the study examines how employee engagement affects customer loyalty through customer engagement. The aim is to provide a comprehensive model that considers the complex nature of employee and customer engagement. The study investigates the impact of employee engagement on customer engagement and its subsequent effect on customer loyalty, while also exploring the factors that moderate these relationships. Specifically, the study examines how employee customer orientation and relationship length affect the links between employee engagement and customer engagement, and customer engagement and customer loyalty, respectively. Additionally, customer engagement has been identified as important in financial services by van Doorn et al. (2010), yet there is a lack of research studying customer engagement specifically in banking (Chandni and Rahman, 2020). As far as we know, this is the first study to investigate both employee and customer engagement concurrently in the context of Indian retail banking.