Báo cáo : Structural Equation Modeling on the Antecedents of Customer Loyalty Mohammad Muzahid Akbar1 and Md. Munir Hossain2 potx

1 Structural Equation Modeling on the Antecedents of Customer Loyalty Mohammad Muzahid Akbar1 and Md Munir Hossain2 Three conceptual frameworks had been proposed and investigated to assess the effects of perceived service quality, trust, switching cost, customer satisfaction, and corporate image on customer loyalty Structural equation modelling was employed to analyse the data collected from 322 subscribers/customers of a private telecommunication company in Bangladesh The results revealed that perceived service quality, customer satisfaction, corporate image, and trust are very powerful antecedents of customer loyalty Customer satisfaction and trust found to be important mediators between service quality and customer loyalty; corporate image and customer loyalty respectively Such study might encourage the service providers to take appropriate course of action in order to create a loyal customer base Keywords: Service quality, Trust, Switching cost, Customer satisfaction, Corporate image, and Customers loyalty Introduction In the past three decades, due to significant liberalization and privatization the entire telecommunications industry has become a dynamic service industry subject to increasing competition with huge growth potential (Graack, 1996) In recent years, in some Asian countries the number of mobile subscribers even passed the number of fixed-line subscribers (Fink, Matto, & Rathindran, 2003) Hence, the strategic behavior of telecommunications companies has attracted so much attention in recent years, both in the academic literature and in the popular press In Bangladesh the scenario is not much different as its socioeconomic profile offers the industry a tremendous opportunity to grow In Bangladesh currently six telecommunications companies (five private and one stateowned) are operating; but the aggressive competition has forced the incumbent mobile Mohammad Muzahid Akbar did his MBA from Lahore University of Management Science (LUMS) and Master of Commerce (Accounting) from University of Dhaka, Dhaka He is currently working as a Senior Lecturer (Marketing and Management) in the School of Business in the Independent University, Bangladesh Md Munir Hossain is a Senior Lecturer at the Independent University, Bangladesh (IUB) He has a Masters from the University of Central Arkansas (UCA), USA His research interests are focused on consumer behavior, cross cultural differences, advertising, green marketing and services marketing saraf@iub.edu.bd operators or telecommunications companies to reconfigure their strategy and business to sustain or improve their competitive advantage Interestingly, in Bangladesh mobile subscribers are not that loyal to any particular mobile service provider as they have the option of switching to another company for more convenient and suitable ser vice offerings Thus, the mobile service providers are pushed to undertake various strategic and tactical measures to attract new customers while retaining the existing customers Therefore, the mobile service providers must realize the necessity of studying and understanding various antecedents (viz service quality, trust, switching cost, customer satisfaction, and corporate image) of the customer loyalty which might help them to develop a loyal customer base As reported in the relevant literature high quality service helps to generate customer satisfaction and customer loyalty and growth of market share by soliciting new customers, and improved productivity and financial performance (Anderson, Fornell, & Lehmann, 1994; Lewis, 1993) Corbitt, Thanasankit, and Yi (2003) have investigated the effect of trust on customer loyalty in telecommunication sector and found trust has a strong effect on customer loyalty Aydin and Ozer (2005) in a study on telecommunication industry showed that the switching cost and corporate image have positive and direct affect on customer loyalty Hackl, Scharitzer, and Zuba (2000) had substantiated the point by adding that customer satisfaction is a prerequisite of customer retention and loyalty So the understanding of these commonly cited antecedents of customer loyalty is important for the survival and long term success of any mobile service provider Because customer loyalty ensures higher profit through enhanced revenues, reduced costs to acquire customers (Sharp & Sharp, 1997) The objective of this study is to analyze a conceptual framework empirically that considers the interrelationships of service quality, trust, switching cost, and customer satisfaction in relation to customer loyalty for a group of customers of a major private telecommunication company in Bangladesh Literature Review Service Quality Service quality by early researchers has been described as a form of attitude that is formed due to the difference between customer expectations regarding a service to be received and perceptions of the service being received (Parasuraman, Zeithaml, & Berry, 1988) Other researchers associated service quality with the extent to which a service meets customers' needs or expectations (Dotchin & Oakland, 1994; Lewis & Mitchell, 1990) It is also conceptualized as the consumer‟s overall impression of the relative inferiority or superiority of the services (Zeithaml, Berry, & Parasuraman, 1990) According to Grönroos (1983) service quality is comprised of two components – technical quality (“what” is delivered) and functional quality (“how” is delivered) In SERVQUAL Parasuraman et al (1988) identified five dimensions of service quality (viz reliability, responsiveness, assurance, empathy, and tangibles) that link specific service characteristics to consumers‟ expectations However, an alternative instrument called SERVPERF relies on customer‟s perception of service provider‟s performance while delivering service adequately and competently Experts like Parasuraman, Zeithaml, and Berry (1994) argued that the difference between SERVQUAL and SERVPERF is very little while accepting the fact that the notion „performance‟ has more predictive power Continuously provided services like telephone services should be customer‟s evaluation of performance For such services, Bitner and Hubert (1994) conceptualized service quality as customer‟s evaluation judgment regarding the degree of superiority of the service performance Asubonteng, McCleary, and Swan (1996) pointed out in their research that the number of service quality dimensions varies from industry to industry Aydin and Ozer (2005) tried to conceptualize quality of mobile services (especially in GSM sector) by incorporating the dimensions or base services typically found to be most pertinent or relevant to the subscribers (namely, coverage of network or calling area, value-added services, customer support services, the suppliers‟ services of the operator, and services in campaigns) This paper has chosen the conceptualization of Aydin and Ozer (2005) Trust In business trust is viewed as one of the most relevant antecedents of stable and collaborative relationships Researchers had established that trust is essential for building and maintaining long-term relationships (Rousseau, Sitkin, Burt, & Camerer, 1998; Singh & Sirdeshmukh, 2000) Morgan and Hunt (1994) stated that trust exists only when one party has confidence in an exchange partner's reliability and integrity While defining trust Moorman, Deshpande, and Zaltman (1993) referred to the willingness to rely on an exchange partner in whom one has confidence According to Lau and Lee (1999), if one party trusts another party that eventually engenders positive behavioral intentions towards the second party From Anderson and Narus (1990) it can be safely deduced that if one party believes that the actions of the other party will bring positive outcomes to the first party, trust can be developed Doney and Cannon (1997) added that the concerned party also must have the ability to continue to meet its obligations towards its customers within the cost-benefits relationship; so, the customer should not only foresee the positive outcomes but also believe that these positive outcomes will continue in the future In this study trust has been operationalized following Aydin and Ozer (2005) who used several contemporary definitions Switching Cost According to Porter (1998), switching cost is the cost involved in changing from one service provider to another In addition to measurable monetary costs, switching costs also include time and psychological effort involved in facing the uncertainty of dealing with a new service provider (Dick & Basu, 1994; Guiltinan, 1989; Kim, Kliger, & Vale, 2003) Jackson (1985) defined that, switching cost is the sum of economic, psychological, and physical costs Usually switching cost varies from customer to customer (Shy, 2002) Aydin and Ozer (2005) tried to conceptualize perceived switching cost for mobile phone services by assimilating notions like perceived monetary costs, uncertainty costs, evaluation costs, learning costs, and set-up costs from researchers like Burnham, Frels, and Mahajan (2003); Guiltinan (1989); and Jones, Beatty and Mothersbaugh (2002) This study has adopted the definition from Aydin and Ozer (2005) Customer Satisfaction Customer satisfaction is a well known and established concept in several areas, such as marketing, consumer research, economic psychology, welfare-economics, and economics The most common interpretations gathered from various authors reflect the notion that satisfaction is a feeling which results from a process of evaluating what has been received against what was expected, including the purchase decision itself and the needs and wants associated with the purchase (Armstrong & Kotler, 1996) Bitner and Zeithaml (2003) stated that satisfaction is the customers‟ evaluation of a product or service in terms of whether that product or service has met their needs and expectations According to Boselie, Hesselink, and Wiele (2002) satisfaction is a positive, affective state resulting from the appraisal of all aspects of a party‟s working relationship with another Previous studies have identified two aspects of customer satisfaction: transaction specific satisfaction and overall or cumulative satisfaction (Andreassen, 2000) According to Wang, Lo and Yang (2004) overall satisfaction has been used more than transaction specific satisfaction in predicting customer behavior and firm performance This paper has also focused on overall satisfaction like most of studies on customer satisfaction Corporate Image Barich and Kotler (1991) tried to define corporate image as the overall impression a firm has left on the minds of the people According to Keller (1993) corporate image is „the perception of a firm reflected in the associations held in consumer memory‟ A firm‟s various attributes eventually settle in the minds of people or customers resulting in certain mental image(s) relatable to the firm intuitively (Nguyen & Leblanc, 2001) Corporate image germinates as customers or people actively and/or passively receive and process information about a firm from various sources Kennedy (1997) said corporate image has two dimensions; functional (tangible characteristics) and emotional (feelings and attitude towards a firm) Nguyen and Leblanc (2001) said that as people or customers get exposed to the realities created by a firm they tend to construct an image or form an attitude about the firm regardless of how little or abundant information they have Aydin and Ozer (2005) borrowed several notions from Bayol, LaFoye, Tellier, and Tenenhaus (2001) in order to conceptualize corporate image pertinent to mobile services Hence, this study has employed the aforesaid notions for corporate image Customer Loyalty Pearson (1996) has defined customer loyalty as the mind set of the customers who hold favorable attitudes toward a company, commit to repurchase the company‟s product/service, and recommend the product/service to others As identified by experts customer loyalty is comprised of both customers‟ attitudes and behaviors Customers‟ attitudinal component represents notions like: repurchase intention or purchasing additional products or services from the same company, willingness of recommending the company to others, demonstration of such commitment to the company by exhibiting a resistance to switching to another or superior competitor (Cronin & Taylor, 1992; Narayandas, 1996; Prus & Brandt, 1995), and willingness to pay a price premium (Zeithaml, Berry, & Parasuraman, 1996; Narayandas, 1996) On the other hand, the behavioral aspect of customer loyalty represents- actual repeat purchase of products or services that includes purchasing more and different products or services from the same company, recommending the company to others, and reflecting a long-term choice probability for the brand (Feick, Lee, & Lee, 2001) It can be concluded that customer loyalty expresses an intended behavior related to the product or service or to the company The researchers have used the definition of Narayandas (1996) for this study Relationship between Service Quality And Customer Satisfaction In the recent past, there has been a heightened emphasis on service quality and customer satisfaction in business and academia alike Cronin and Taylor (1992) proved service quality is an important antecedent of customer satisfaction Sureshchandar, Rajendran, and Anantharaman, (2003) identified that strong relationships exist between service quality and customer satisfaction while emphasizing that these two are conceptually distinct constructs from the customers‟ perspective Spreng and Mackoy (1996) showed that higher service quality leads to higher customer satisfaction while working on the model developed by Oliver (1997) Fornell (1992) said that higher customer satisfaction is an indicator of high perceived quality Consistent with these findings, the researchers have hypothesized the following: Hypothesis 1: Perceived service quality has a positive effect on customer satisfaction Relationship between Service quality and Customer loyalty In various studies the relationship between service quality and customer preference loyalty had been examined (Boulding, Kalra, Staelin, & Zeithaml, 1993; Cronin & Taylor, 1992) In their study Cronin and Taylor (1992) focused solely on repurchase intentions, whereas Boulding et al (1993) focused on the elements of repurchasing as well as the willingness to recommend In the study by Cronin and Taylor (1992) service quality did not appear to have a significant (positive) effect on repurchase intentions (in contrast to the significant positive impact of satisfaction on repurchase intention), whereas Boulding et al (1993) found positive impact of service quality on both repurchase intentions and willingness to recommend Therefore, following hypothesis has been proposed: Hypothesis 2: Perceived service quality has a positive effect on customer loyalty Relationship between Service quality and Trust Many services marketing related studies have admitted the notion like relationship between quality of services and trust is a formidable one in context of relationship marketing Garbarino & Johnson (1999) found that service quality related features or attributes typically foster or enhance customers‟ trust or confidence on an organization that provides the service The causal link between two variables has also been supported by Hsieh & Hiang (2004) Often better services lead the customer to believe that the provider is trustworthy or dependable In other circumstances, simply the perceived quality of service may help the service providers to gain the confidence of the customers (Doney & Cannon, 1997; Singh & Sirdeshmukh, 2000) Therefore, following hypothesis has been proposed: Hypothesis 3: Perceived service quality has a positive effect on Trust Relationship between Customer satisfaction and Corporate Image Corporate image is the outcome of a process related to customer‟s experience or encounter with company (MacInnis and Price, 1987) In this process, besides intangible ideas, obscure thoughts or feelings customer‟s first-hand consumption experiences with a company eventually germinates into mental images where memory plays an important role (Yuille and Catchpole, 1977) In other words, corporate image pops out at the end of the evaluation process which relies on consumption experiences that lead the customer to realize whether s/he is satisfied before forming or articulating an impression about the company Hence, the researchers have hypothesized the following: Hypothesis 4: Customer satisfaction has a positive effect on Corporate Image Relationship between Customer satisfaction and Customer loyalty Several authors have found a positive link between customer satisfaction and customer loyalty (Anderson & Sullivan, 1993; Bolton & Drew, 1991; Fornell, 1992) Numerous studies in the service sector have also empirically validated the positive relationship between satisfaction and behavioral intentions such as customer retention and word of mouth (Anderson & Sullivan, 1993; Bansal & Taylor, 1999; Cronin & Taylor, 1992) Hart and Johnson (1999) have added that one of the conditions of true customer loyalty is total satisfaction Hence, the researchers have hypothesized the following: Hypothesis 5: Customer satisfaction has a positive effect on Customer loyalty Relationship between Trust and Customer Loyalty A number of researchers have advocated that trust is fundamental in developing customer loyalty (Moorman et al., 1993; Morgan & Hunt, 1994) The importance of trust in explaining loyalty is also supported by authors like Lim and Razzaque (1997), Garbarino and Johnson (1999), Chaudhuri and Holbrook (2001), Singh and Sirdeshmukh (2000), and Sirdeshmukh, Singh, and Sabol (2002) However, lack of trust in a market with suitable alternatives might lead to negative loyalty Corbitt et al (2003) have pointed out that a strong positive effect of trust on customer loyalty in case of telecommunications sector Therefore, following hypothesis has been formulated: Hypothesis 6: Trust has a positive effect on customer loyalty Relationship between Switching cost and Customer loyalty It has been suggested in numerous studies that the degree of switching costs may have an influence on customer loyalty in a certain industry (Anderson & Fornell, 1994; Dick & Basu, 1994; Fornell, 1992; Gremler & Brown, 1996) Andreasen (1982; 1985) found empirical support for the effect of high switching costs on customer loyalty in relation to medical services Therefore, following hypothesis has been formulated: Hypothesis 7: Perceived switching cost has a positive effect on Customer loyalty Relationship between Corporate Image and Trust In marketing literature typically reputation or image of a firm is often linked with its credibility and trustworthiness as perceived by the customers (Herbig and Milewicz, 1993; Hyde and Gosschalk, 2005) Casalo, Flavia‟n and Guinali‟u (2007) said that in the absence of physical contact (which is particularly relevant to the service providers), a firm should increase its reputation in order to diminish the perceived risk by the consumer Numerous researchers have tried to explain the connection between reputation or corporate image with consumers‟ trust in the online context (Walczuch, Seelen, & Lundgren, 2001; Jarvenpaa, Tractinsky & Vitale, 2000) The researchers have hypothesized the following: Hypothesis 8: Corporate Image has a positive effect on Trust Relationship between Corporate Image and Customer Satisfaction According to Grönroos (1990) “(corporate) image is a filter which influences the perception of the operation of the company” He also said that a favorable and well-known image of a firm should be considered as asset and may influence the perception of quality and customer satisfaction (Grönroos, 1990) Corporate image is formed in the consumers‟ mind through communication and experience, which is believed to have a halo effect on customers‟ assessment of satisfaction If the customers are s atisfied, their attitude toward the company is improved and eventually this improved attitude will shape/improve the consumers‟ satisfaction (Andreassen & Lindestad, 1998) Hence, the following hypothesis is proposed: Hypothesis 9: Corporate Image has a positive effect on Customer satisfaction Relationship between Corporate Image and Customer Loyalty Corporate image being an attitude is functionally related to customer‟s behavioral intentions such as customer loyalty (Johnson, Gustafsson, Andreassen, Lervik & Cha, 2001) Furthermore, Nguyen and Leblanc (2001) have proved that corporate image relates positively with customer loyalty in three sectors namely, telecommunication, retailing and education Kristensen, Gronholdt and Martensen (2000) have investigated and affirmed the relationship between corporate image and customer loyalty in the context of Danish postal services Hence, the researchers have hypothesized the following: Hypothesis 10: Corporate Image has a positive effect on Customer loyalty Conceptual Framework Perceived service quality, trust, switching cost, customer satisfaction, corporate image and customer loyalty are probably the most widely used variables in the domain of relationship marketing Three research models have been proposed based on literature review to analyze the relationships among these variables in order to detect the discerning impact of several antecedents on customer loyalty (Table I) Structural Equation Modeling has been applied to investigate the causal links among the studied variables as the research hypotheses suggested by testing the model for best data fit (Figure 1, Figure 2, and Figure 3) García and Caro (2008) tried to build a sound causal model to measure the relationship between attitudes and customer loyalty by examining various causal models presented by earlier researchers using various antecedents of customer loyalty This study is similar to the abovementioned study to a certain extent in its purpose; the only distinctive feature of this study is that all three models have employed the same five antecedents of customer loyalty in the context of mobile services Figure 1: Proposed research model with results Figure 2: Proposed research model with results Figure 3: Proposed research model with results Table I: Summary of Measurement Models Model Model Model Model Theoretical Models a) Paths from perceived service quality to customer satisfaction, corporate image, and customer loyalty; b) perceived service quality to customer satisfaction, and customer loyalty; c) trust to customer loyalty; and d) switching cost to customer loyalty a) Paths from perceived service quality to customer satisfaction, corporate image, and customer loyalty; b) perceived service quality to customer satisfaction, and customer loyalty; c) perceived service quality to customer loyalty; d) perceived service quality to trust, and customer loyalty; and e) switching cost to customer loyalty a) Paths from perceived service quality to customer satisfaction, and customer loyalty; b) perceived service quality to customer loyalty; c) perceived service quality to trust, and customer loyalty; d) switching cost to customer loyalty; e) corporate image to customer loyalty; f) corporate image to trust, and customer loyalty 10 Methodology Sample The researchers used the quota sampling and total 800 questionnaires were distributed among the customers/subscribers of a major private telecommunication company in Bangladesh who had been receiving its services for last one year or more T hese participants live in Dhaka metropolitan area The mode of participation was voluntary The number of usable questionnaires was 322 Thus, the response rate was 40.25% The average age of the respondents was 32 years 67 % respondents were male and 33 % were female Measures A structured questionnaire was used to collect data which was comprised of six scales borrowed from earlier researchers with properly assessed validity and acceptable level of reliability For all of these variables like the earlier researchers the authors have used point Likert scale Service quality was measured by using 21 items developed by Zeithaml, Berry, and Parasuraman (1996) Instead of SERVQUAL, perceived service quality is measured (six-item scale) by employing a unidimensional scale covering all the base services pertinent to mobile services for the sake of data collection efficiency (Bloemer, Ruyter, & Wetzels, 1998) As Aydin and Ozer (2005) pointed out in the GSM sector, the base services are- coverage of calling area, value-added services, customer support services, the suppliers‟ services of the operator, and services in campaigns This scale of service quality has reported reliability is 0.827 The trust (five-item scale) has been measured by using several complementary definitions as used in the study of Aydin and Ozer (2005) that has a reported reliability of 0.856 Customer satisfaction was measured by using items adopted from Cronin, Brady and Hult (2000) and Wang et al (2004), and the reported reliability of this scale is above 0.886 Perceived switching cost was measured by seven item scale borrowed from Burnham, Frels, and Mahajan (2003); Guiltinan (1989); and Jones et al (2002) Corporate image was measured by using five items borrowed from Bayol et al (2001) and it has reliability of 0.871 This scale‟s reported reliability is 674 To measure customer loyalty five item scale developed by Narayandas (1996) was used, and the reported reliability of this scale is 0.824 10 11 Data Analysis To assess direct and indirect (mediated) relationships among the studied variables the researchers have performed confirmatory factor analysis and structural equation modeling (Anderson & Gerbing, 1988) SPSS 14 and Amos 16.0 had been used to perform these analyses These analyses suppose to help us to understand which model fits the data best while presenting a credible assessment on the antecedents of customer loyalty of mobile subscribers Results Descriptive Statistics and Correlations Matrix The Descriptive statistics and the Reliability coefficients of the studied variables are presented in Table II The reliability coefficient or alphas for the different constructs were computed using the reliability procedure in SPSS (version 14) The reliabilities of all the constructs used in this study found to be above the standard set by Nunnally (1978), which is 0.70 The range of Cronbach alphas of all the scales used for this group of respondents was 0.71-0.84 Mean scores had been computed by equally weighting the mean scores of all the items relevant to each construct The mean scores of all the variables found to have a range of 4.07 to 4.61 and the corresponding standard deviations were ranging from 0.39 to 0.6 These mean scores reflect that the subscribers‟ perceived service quality, trust towards the service provider, and corporate image is pretty high Their perceived switching cost involved in changing the current service provider is also high but no as high as other variables Moreover, they seem pretty loyal to the company However, in isolation these descriptive statistics could be quite misleading Hence, other statistics must be consulted Table II: Reliability Coefficient and Descriptive Statistics of Service Quality, Trust, Switching Cost, Customer Satisfaction, Corporate Image, and Customer Loyalty Scales Number of items Alpha M SD Service quality Trust 0.74 0.80 4.53 4.36 0.49 0.60 Switching cost Corporate image 5 0.71 0.76 4.07 4.29 0.45 0.45 Customer satisfaction Customer loyalty 0.84 0.79 4.61 4.11 0.43 0.39 Note: n = 322 11 12 A bivariate correlation analysis had been done which was subject to two tailed tests of statistical significance at two different levels- highly significant (p