3.

Introduction

This chapter is organised into two parts, of which Part I documents an overview of the relevant theories which are incorporated within the existing literatures pertinent to customer satisfaction and demonstrates the research developments that have taken place in the field of customer satisfaction. Consequently, it reviews the conceptualisation of the core constructs (performance, disconfirmation and satisfaction) and assesses their

interrelationships within the customer satisfaction process framework. Part II focuses on other constructs that are integrated within the conceptual framework developed for the thesis. These constructs are perceived value, purchase decision involvement, perceived equity, relational commitment and behavioural intentions. A review of these constructs and an assessment of their roles in the customer satisfaction process is presented.

The overall aim of this chapter is to review the extant literature affiliated with customer satisfaction, which acts as an initial frame of reference and consequently establishes the theoretical tenets for subsequent chapters. Accordingly, it sets out a conceptual model and hypotheses as the foundation for construction of the thesis.

Figure 3.1 illustrates the outline of this chapter, in which each section is presented in the 'rectangular box' that describes its heading, section / subsection. The sequence of the sections is linked by arrows ( ). As mentioned earlier, this chapter is structured into

two parts, in which Part I is comprised of sections 3.1 to 3.3, whereas Part II consists of sections 3.4 to 3.8.

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Figure 3.1:

Outline of Chapter 3

PART I
Expectancy-Disconfirmation Paradigm
(Section 3.2) Expectations (3.2.1)

Introduction (Section 3.1)

Perceived Performance (3.2.2) Disconfirmation (3.2.3)

Satisfaction
(Section 3.3) Definitions (3.3.1)

Levels of Satisfaction (3.3.2)

PART II
Perceived Value (PV) (Section 3.5) Defining value (3.5.1) Conceptualisation of PV (3.5.2) Conceptual Differences between CS and PV (3.5.3) The role of PV in CS process (3.5.4) Purchase Decision Involvement (PDI) (Section 3.4) Defining Involvement (3.4.1) Definition of PDI (3.4.2) The Relevance of Involvement to Consumer Satisfaction (3.4.3)

Perceived Equity (PE) (Section 3.6) Conceptualisation of Equity (3.6.1) Integrating Equity into Satisfaction Model (3.6.2) The role of Equity in the CS Process (3.6.3)

Relational Commitment (RC) (Section 3.7) Conceptualisation of Commitment (3.7.1) Integrating RC into Satisfaction Model (3.7.2) Consequences of RC (3.7.3)

Behavioural Intentions (BI) (Section 3.8) Customer Retention versus Loyalty (3.8.1) Conceptualisation and Operationalisation of BI (3.8.2) Indicators of BI (3.8.3)

Source:

Developed by author for this thesis

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A particularly useful approach is to begin by discussing the underlying theoretical basis that will be utilised in the thesis in the attempts to understand customer satisfaction process: that is the Expectancy Disconfirmation Paradigm (EDP). It is noted that arising from the tremendous amount of research in customer satisfaction, several theories relating to it have emerged and introduced to the literature (see Kivela et al. 1999). Notably, EDP Theory has received the widest acceptance, and it has thus been determined that the conceptual model developed for this thesis will be built on this theory. At the end of following section, the rationale of adopting the EDP as a guiding theory in the current research is offered.

3.2

The Expectancy Disconfirmation Paradigm (EDP)

This paradigm has dominated consumer satisfaction/dissatisfaction (CS/D) research since it became a field of study in the early 1970s. For instance, a considerable amount of research in the area of consumer satisfaction has utilised this paradigm (Bolton and Drew 1991; Churchill and Suprenant 1982; Kassim 2001; Oliver 1980a, 1980b; Swan 1988a, 1988b). EDP postulates that customer satisfaction is a function of the expectations and the direction and magnitude of disconfirmation.

Accordingly, EDP assumes that satisfaction is the outcome of the four-step process. Firstly, pre-purchase expectation judgements are formed, secondly, the performance of the product /service is evaluated, thirdly, expectations are compared against perceived performance and finally, the magnitude of disconfirmation determines the level of satisfaction /dissatisfaction. Oliver (1980a) asserts that a customer would compare his/her perceived performance judgement against prior expectations. If the perceived performance exceeds expectation (P>E), positive disconfirmation occurs, which presumes that he/she would experience the feeling of being satisfied. On the other hand, if the perceived performance falls below prior expectation (P<E), then negative disconfirmation occurs, which leads to a feeling of dissatisfaction. In the situation where the perceived performance matches prior expectation (P=E), confirmation occurs and the customer will feel indifferent or neutral. Whether the consumer is satisfied or not in this situation depends on his/her level of expectation and performance. Figure 3.2 illustrates a complete overview of the ExpectationDisconfirmation Paradigm.

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Figure 3.2

The Expectancy Disconfirmation Paradigm

Product itself Prior experience Information from referents/ salesperson Marketing activities

Functional quality Technical quality Search, experience and Credence qualities

Perceived Performance

Expectations

Comparison

P>E

P=E

P<E

Positive Disconfirmation

Confirmation

Negative Disconfirmation

Satisfaction

Indifferent or neutral

Dissatisfaction

P = Perceived performance E = Expectations

Source: Adapted from Hill (1986)

The EDP Theory is the preferred guiding theory in this research, for the following reasons: Firstly, it has been widely applied and referred to in satisfaction studies (Erevelles and Leavitt 1992; Hong and Rucker 1995; Kassim 2001; Kristensen et al. 1999; Oliver 1977, 1980a, 1980b, 1981; Spreng et al. 1993; Yi 1990). Secondly, despite being extensively used, there is still room for further improvement, extension and integration with other emerging constructs (i.e. perceived value, perceived equity and relational commitment) in the effort to shed more light on the understanding of satisfaction judgements and processes. Finally, this theory has been criticised for being inconsistent in modelling relationships among key constructs in the satisfaction process (Halstead et al. 1994; Kristensen et al. 53

1999; Spreng et al. 1996), and thus warrants further investigations into its appropriateness within the current research context. The following section will discuss the core constructs of the EDP, illustrate how these constructs are interrelated with others, and demonstrate how they affect customer satisfaction judgements. Subsequently, a review of previous studies that has used and expanded the EDP approach is presented, and accordingly highlights some constructive views and evaluations pertaining to the applicability and contributions of this paradigm. A review of the extant literature has revealed that a substantial amount of customer satisfaction research has been conducted since it emerged as a legitimate field of study in the 1970s. Several theories which try to identify the factors contributing to consumer satisfaction have been developed and tested. So far, although many competing theories and approaches to understanding satisfaction have been proposed, the most promising approach appears to be the EDP. Generally, this approach views consumer satisfaction as the degree to which a product or service provides a pleasurable level of consumption-related fulfilment (Oliver 1997). Oliver (1980a) is one of the pioneering studies that looked into the cognitive processes underlying consumer satisfaction. Oliver's (1980a) model portrays three interacting constructs that play a central role, namely: expectation, performance and confirmation/disconfirmation. Following this work, a substantial body of research effort has been devoted to testing and extending this model. Figure 3.3 illustrates the relationships among the constructs in the EDP. It describes the satisfaction process as follows: First, customer satisfaction is a function of the level of a customer's expectations regarding a product or service and that person's actual experience with the product or service. Second, the customer compares perceptions of actual performance to prior expectations regarding the product or service. Finally, the comparison of the results is judged in a subjective manner. For example, if the product/service performance was better than expected, the customer will experience positive disconfirmation, if the performance is perceived to be exactly as expected they will experience confirmation, while if the performance is worse than expected, the customer will experience a negative disconfirmation.

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Figure 3.3

Expectancy Disconfirmation Structural Model

Expectation _

+ +

Disconfirmation

Satisfaction

Performance

Source: Adapted from Spreng and Page (2001)

Confirmation and positive disconfirmation bring about satisfaction while negative disconfirmation leads to dissatisfaction. Yi (1990) asserts that disconfirmation of expectations about a product or service quality plays a crucial role in determining an individuals satisfaction/dissatisfaction. In essence, this model proposes that satisfaction is a function of disconfirmation, which in turn is a function of both expectations and performance (Oliver 1997). Next, the role of the main constructs (i.e. expectations,

perceived performance and disconfirmation) in the satisfaction process as portrayed in the EDP Model (Figure 3.3) will be discussed.

3.2.1

Customer Expectations

One of the most widely studied antecedents of satisfaction is consumer pre-purchase expectations (Oliver 1980a). The EDP posits that pre-purchase "expectation" of a product serves as a comparison standard in the satisfaction formation process. Much emphasis in the EDP falls on the role of expectations, and a considerable subset of the satisfaction literature has focused on the nature of expectations and their effects on satisfaction (Oliver 1997; Kristensen et al. 1999).

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Customer expectations are unique, a very complex concept to understand, and have been the subject of several theoretical discussions and empirical verifications, mainly revolving around conceptual definitions, types of expectation (normative/predictive), measurement in respect of how and when and sources of referents (see for example Oliver 1997). Expectation simply means predictions made prior to usage of the product/service, sometimes referred to as a probability or perceived likelihood that a product possesses a certain attribute or characteristic which will lead to a particular outcome or perform at specific level (Olson and Dover 1979; Oliver 1997). It can also be defined from two perspectives; global and componential (Yi 1990).

From the global point of view, expectations are seen as pre-consumption beliefs about the overall performance of the product/service. The antecedents to these expectations are derived from product information, word of mouth and/or previous experience. In contrast, the componential perspective assumes that expectations are formed within processes internal to the customer, which raises the issue of retrieval mechanisms used by consumers when formulating expectations from memory (Rust and Oliver 1994).

Generally, product performance is compared with product expectations; however, several researchers have reported to the use of different comparison standards in order to provide expectation evaluations. For instance, Tse and Wilton (1988) identified three comparison standards, which are as follows:

The first is equitable or deserved performance. This standard is based on the expectation that the consumer ought to receive a level of performance at least of equitable value to the amount paid. It suggests that during satisfaction formation, consumers may compare input/output combinations in terms of fairness. Hence, if inequity is experienced, consumers are likely to express their dissatisfaction (DeSarbo 1988). The second comparison standard is ideal or desired performance: This standard represents the optimal product performance a consumer would hope for (Swan and Trawick 1981). In addition, Westbrook and Reilly (1983) assert that the consumer is likely to evaluate product performance based on how well they perceive the focal product fulfils their needs and wants. 56

The third standard is what the expected product performance will be: It is the most utilised pre-consumption comparison standard in consumer satisfaction research (Bearden and Teel 1983; Oliver 1980a; Westbrook and Reilly 1983). Expectation is a pre-purchase cognition about how good the product performance will be and is typically measured using a bipolar semantic differential scale such as "how good or bad did you expect the product performance would be?" In conclusion, several types of comparison standards have been identified, which suggests a research avenue to disentangle which type of the standard operates best, and perhaps more importantly to identify conditions under which a particular type of standard operates. However, the examination and determination of comparison standards and under which conditions each works best is not within the scope of the current study, and therefore we will not discuss it in further detail, but we will provide some general empirical evidence that suggest the effects of expectations on satisfaction judgement. The structure of the EDP model (see Figure 3.3) portrays the relationship between expectations and other related variables. A number of studies have demonstrated that expectations have an influence on post-purchase evaluations (Oliver 1997 and Yi 1990 for reviews). Previous research has indicated that there are two main effects of expectations; the first is its impact on disconfirmation and the second is its effect on perceived performance. Most studies have empirically shown that expectations have a significant effect on disconfirmation (e.g. Cadotte, Woodruff and Jenkins 1987; Churchill and Surprenant 1982; Spreng et al. 1996). This effect is generally found to be negative, which suggest that high expectations are more likely to be negatively disconfirmed, whereas low expectations are more likely to be positively disconfirmed (all else remaining constant). The impact of expectations on perceived performance has been well established; that it has a positive effect on performance (see summary in Appendix 3.1).

3.2.1.1

The Role of Expectation in the EDP Model

Although the Expectation-Disconfirmation model (see Figure 3.3) has been well established and accepted in many studies, the exact nature of customer satisfaction (CS) processes is not so straightforward (Yi 1993). For instance, issues have been put forward 57

pertaining to the function of expectations in the formation of satisfaction. That is, does it influence CS indirectly through disconfirmation? Alternatively, does it affect CS directly? To dissect this effect precisely, several studies have been conducted to empirically examine the relationships of expectations to CS. Hoch and Ha (1986) point out that the expectation effect exists, but is moderated by ambiguity. They discovered that when a product is seen as unambiguous, product evaluations are not affected by expectations; on the other hand, if the product is ambiguous, subjects use an assimilation-like processing, and hence product evaluation is influenced by expectations. Spreng et al. (1993) concur with this opinion, and in addition suggest that this circumstance arises when consumers are unable or unwilling to evaluate the performance of a product, often due to product ambiguity, and the role of expectation is thus dominant in the formation of satisfaction. The overall conclusion drawn from empirical evidence as to whether expectations directly affect satisfaction is mixed (Yi 1990). On one hand, some studies have found a direct effect of expectation on customer satisfaction, and on the other hand, other studies have demonstrated an indirect effect, mediated by disconfirmation, or no effect at all (see, for example, Bearden and Teel 1983; Oliver 1979; Tse and Wilton 1988). In fact, given the lack of consensus regarding its role in the satisfaction process, it has been criticised as a controversial component in the EDP (Schlentrich 2001). In essence, Kristensen et al. (1999) report that the effect of expectations on customer satisfaction, whether it is positive or negative, is typically minimal. In view of the aforementioned conflicting findings, several scholars have questioned the relevance of operationalising expectations in customer satisfaction process (see example, Churchill and Suprenant 1982; Cronin and Taylor 1992; Liljander and Strandvik 1993; Kristensen et al. 1999; Swan 1988). Gronross (1993, p.61) supports this viewpoint and asserts that it does not seems possible to make an independent measurement of customer expectationsIt seems valid, at least in certain situations, to develop measurement models based on customer experiences of quality (perceived performance) only. Kristensen et al. (1999) share the same view, and further provide empirical evidence to support the abovementioned assumption. In their study, they investigated the effect of 58

expectations on satisfaction formation across eight product categories, which in turn demonstrate the applicability of five alternative models of CS. Interestingly, they found that expectations is indeed a complex concept, that it is difficult to achieve reliable and valid measures and it is not a significant determinant in the formation of customer satisfaction. (see Appendix 3.1 for a summary of their study). In fact, as a result of their findings, they suggest that expectations be dismissed in customer satisfaction models in the future. Cronin and Taylor (1992) and Yuskel and Remmington (1998) provide additional support for this notion, by suggesting that customer satisfaction as performance only emerged as the most reliable and valid measure of satisfaction. Despite the conflicting evidence surrounding the function of expectations on satisfaction formation, the effort to obtain pre-consumption expectations is quite impractical; only in a specific research context is it feasible (i.e. restaurant, hospitality and airline scenarios). It is argued that, in most satisfaction studies, the researcher cannot identify potential respondents before consumption. Hence, the constraint of obtaining pre-purchase evaluation leads the researcher to develop retrospective expectations, in which the satisfaction judgement is assessed simultaneously (Oliver 1997). The above method of satisfaction inquiry relies heavily on the ability of the consumer to reflect back on what she/he thought the product or service would deliver (Oliver 1997). In addition, the critical issue is that, in this situation, what the customer has experienced and what he/she recalls will be confounded. In other words, the recalled expectations will probably be biased towards the experienced performance. Moreover, several studies provide evidence that the customer may modify (downgrade or elevate) his or her expectation level and this revised expectation level will be used in the satisfaction judgement (Danaher and Mattsson 1994; Ortinau and Bush 1987; Tam 2000). However, Oliver (1997) argues that the correlation between expectations and performance is depends on the characteristics of the product/ service being investigated. Homburg and Giering (2001) encourage satisfaction researchers to investigate other moderating factors in the formation of satisfaction. In response to this suggestion, some studies have attempted to incorporate involvement, confidence, familiarity and expertise, product/service experience and customers demographic characteristics (see example Babin et al. 1994; Hong and Rucker 1995; Jamal and Naser 2002; Kassim 2001; Morgan, Attaway and Griffin 1996; 59

Richins and Bloch 1991; Spreng and Page 2001) in the customer satisfaction process model. It is noteworthy to highlight the recent findings by Spreng and Page (2001), in which they discover that when expectations are held with high confidence, the expectations would have stronger effects on perceived performance than when they are held with low confidence. Interestingly, this study reveals that the effect of disconfirmation on satisfaction was insignificant for the low confidence group but significant for high confidence group. As indicated in Figure 3.3, the direct effect of confidence on CS was not examined in the study. It is interesting to discuss the research findings yielded from the work of Jamal and Naser (2002). One of the main purposes of their study was to investigate the role of customer expertise in moderating the effects of service quality and subsequently to overall customer satisfaction. They report that there was a significant negative relationship between the degree of CS and expertise. This implies that, as the level of expertise of customers increases, the less likely they are to feel satisfied with their banking services. This outcome was speculated to be due to the fact that customers may raise their expectations as they become more expert and knowledgeable. The relationship between level of expertise and expectations was not investigated in the study. In brief, the function of expectations in the customer satisfaction process is inconclusive and unstable; it depends on the context (i.e. industry/product/service) characteristics, comparison standard used and level of consumer involvement, expertise, duration of experience and confidence, as well as the personal characteristics of the customers. In addition, methods of inquiry, specifically as to how and when expectations are measured, could significantly influence the results of the findings (see summary in Appendix 3.1). Since expectation is not an explanatory determinant and had no substantive effect on satisfaction, as discussed earlier and, coupled with the difficulty of obtaining the preconsumption expectation evaluations, it was decided to exclude it as one of the constructs in the theoretical model on which the current thesis is based. Furthermore, since the proposed model of the current study is a post-consumption approach, inclusion of the expectations construct is unnecessary. Nevertheless, this is not to imply that customers do 60

not have expectations or that they are unimportant, but rather the current conceptual framework which includes perceived performance and perceived disconfirmation has been empirically proven to be sufficient (De Wulf 1999; Halstead et al. 1994; Schlentrich 2001). Next, the second construct which constantly appears in the EDP model will be described, and subsequently, evidence from previous studies of its role as predictor to customer satisfaction judgement will be provided.

3.2.2

Perceived Performance

Perceived performance represents the consumers own judgements of the performance of products or services under study. Performance is important because it creates the consumption experience. Additionally, it has been frequently modelled in the literature as having a direct effect on satisfaction formation (see Figure 3.3). Product performance is related to satisfaction through the intervening construct of disconfirmation, but it is also directly linked to satisfaction (Swan and Trawick 1981; Churchill and Suprenant 1982; Tse and Wilton 1988). Generally, it is included in the disconfirmation of expectations model as a referent against which expectations are compared. Perceived performance is affected by attributes of the product and/or service and environmental settings during its acquisition. In addition, the early satisfaction researchers pursued a cognitive approach to the measurement of expectations and used product and attribute ratings as proxy variables for expected performance (Olson and Dover 1979; Oliver 1980a). Since performance expectations and actual performance are crucial factors in the evaluation process of satisfaction, it is imperative to understand the dimensions of product/service performance. For many products, there are two dimensions of performance: instrumental and expressive/symbolic (Hawkins et al. 2001; Swan and Combs 1976). Instrumental performance relates to the physical functioning of the product, and as such, it is vital for the product to operate properly as claimed. On the other hand, symbolic performance relates to aesthetic or image-enhancement performance. However, Maddox (1981) concludes that the disparity between instrumental and expressive performance does not lead to a better explanation of satisfaction. Traditionally, only the instrumental performance is measured in consumer satisfaction/ dissatisfaction research. 61

According to Gronroos (1983), perceived performance is comprised of two separate levels of quality, functional and technical. Technical quality has to do with what product the consumer purchases, which is the tangible product, whereas the functional quality is related to how the consumer receives or purchases the product and the events surrounding the acquisition of a product. Lovelock (1983) classifies product and service attributes into core and secondary types and Czepiel et al. (1985) describe functional and performance-delivery elements in the customer satisfaction process. Despite the differences in terminology, the fundamental concept underlying the research effort across various studies is the same. However, many past research studies have not included performance as a direct antecedent of satisfaction (e.g. Bearden and Teel 1983; Cadotte et al. 1987; Oliver 1980; Oliver and DeSarbo 1988; Westbrook 1987; Westbrook and Reilly 1983). While some studies manipulate performance, and others measure the subject's perception of the product performance, few include a direct path from perceived performance to satisfaction.

3.2.2.1

Performance Influences in the EDP Model

Previous studies have found that when perceived performance is included in the model, a strong relationship between perceived performance and satisfaction has often been found. In their study, Churchill and Surprenant (1982) were among the first to validate Olivers (1980a) framework (see Figure 3.3). Two products (hybrid plants and video disc players) were used in their empirical study, in an effort to investigate the determinants of satisfaction. Their results reveal that perceived performance was a significant predictor of satisfaction for both products, but for one of the products (video recorder) perceived product performance was the only variable related to satisfaction. For the plant, the result holds true to Olivers (1980a) framework. The authors speculate that for durable products, performance alone determines satisfaction, while a combination of performance and disconfirmation produce satisfaction for non-durable items. However, there is a possibility that respondents did not actually use the products, so the external validity of the study has been questioned (Swan 1988). According to a review by Swan (1982), factors other than disconfirmation that could possibly have some influence on satisfaction have been pursued and tested, but product 62

performance has received little attention. In view of this concern, Swan (1988) conducted a study in a restaurant setting, the main purpose of which was to present an analysis of the role of product performance and disconfirmation in the satisfaction process. Initially he unravelled why product performance may determine satisfaction, in which his analysis was an extension of Westbrook and Reillys (1983) value-percept disparity model. According to this theory, customers will experience satisfaction if value judgement is enhanced, and conversely, will be dissatisfied otherwise. In other words, the extent to which a product/service meets consumer needs or value determines satisfaction. Satisfaction will decrease as the disparity in achieving values increases. In light of these viewpoints, it is clear why product performance dimensions lead to satisfaction judgements. Therefore, the ability of a product/service to fulfil consumer needs or desire and help to create values is directly related to performance. For example, if a particular weight loss product is proven to reduce weight, satisfaction is expected to increase directly with performance. Thus, the faster and more completely customers feel they are losing weight, the higher the satisfaction. In brief, Swan (1988) posits that the performance-satisfaction link could be summarised as follows: Products/services are selected in order to meet consumer needs/values The degree to which the consumer experiences needs/values depends on the product/service performance level. As product performance increases, needs/values are better met, and hence satisfaction levels will increase. Hence, as product performance increases, satisfaction increases too.

Interestingly, the results of the study reveal that performance was correlated most strongly with satisfaction with food, while disconfirmation had the highest correlation with service. The authors speculate that the reason for this is that food may be less ambiguous (i.e. delicious) and therefore quite easy to evaluate, while the service dimension (i.e. waiters friendliness) is relatively ambiguous, which makes it quite difficult to judge. Hence, evaluation on disconfirmation is more relevant in determining satisfaction with the restaurant service.

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Consistent with Swan (1988a), Tse and Wilton (1988) came to a similar conclusion and point out that whenever a product performs well, the consumer is likely to be satisfied, regardless of the levels of the comparison standard utilised and disconfirmation evaluations. They found that a model that includes perceived performance as the only antecedent of satisfaction outperformed any other single variable model, including a disconfirmation variable. Accordingly, when estimating a multiple determinant model that included performance, disconfirmation, and expectations as direct antecedents of satisfaction, performance tends to be the most influential construct in the formation of satisfaction. Similarly, Oliver and DeSarbo (1988) and Spreng and Olshavsky (1991) also found strong effects of performance on satisfaction. They concluded that the only way to increase satisfaction would be to increase product performance. Liljander and Strandvik (1993) confirm that performance alone has a strong effect on satisfaction, and later in their 1995 study, they further support the contended link between satisfaction and performance. They assert that perceived performance is a better predictor of satisfaction than disconfirmation. They suggest that business organisations should focus on influencing customer experience through greater performance evaluation rather than altering expectations. In brief, the role of performance in the EDP model is compounded by the fact that it also has some influence in disconfirmation evaluations. Given the theoretical evidence and operational problems related to expectations, some scholars doubt the validity of the disparity theories for measuring CS and consider that perceived performance is the best predictor (Erevelles and Leavitt 1992; Halstead et al. 1994; Yuskel and Remmington 1998). Nevertheless, it has been suggested that product categories, such as durables and high involvement products, may influence its effects. In conclusion, from the empirical evidence, it has been recommended by previous research that the satisfaction model should be expanded to include the direct link with perceived performance on satisfaction, as portrayed in Figure 3.3.

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3.2.3

Disconfirmation

In the early writing on consumer satisfaction, researchers (Engel, Kollat and Blackwell 1968; Howard and Seth 1969) suggested that consumers compared a products performance with their expectations, but regrettably, they did not specify the way in which this process took place. Further, Oliver (1979, p.2) wrote, The role of disconfirmation perception in satisfaction decision has had strong theoretical backing, some recent empirical support, but little conceptual development. In fact, Oliver (1979) was among the earlier scholars to attempt to explore disconfirmation at the attribute level in order to present a constructive measurement framework and compare disconfirmation perceptions and satisfaction.

According to Oliver (1979) disconfirmation occurs when the consumer compares the post purchase attributes and performance levels with their pre-purchase expectation of occurrence. Most of the literature has classified disconfirmation into three levels. First, positive disconfirmation occurs when product performance is better than expected. This situation is thought to lead to satisfaction or a pleasurable level of fulfilment. Second, is negative disconfirmation, which occurs when product/service performance is worse than expected; this situation will lead to dissatisfaction. Finally, neutral disconfirmation occurs when performance perceptions just meet expectation. Whether the consumer is satisfied or not in this situation, it largely depends on his/her level of expectation and performance. Accordingly, disconfirmation has been conceptualised to occupy the central position in the EDP (see Figure 3.3).

3.2.3.1

Types of Disconfirmation

Most of the existing literature on consumer satisfaction has identified three types of disconfirmation measurements (see Yi 1990). The first type is objective disconfirmation in which it is operationalised by measuring the disparity between objective performance (performance level assumed to be common among consumers) and expectation. The apparent advantage is that the measurement is easy to achieve but lacks in signifying the differences of individual consumer ratings. This approach is less preferable as a determinant of satisfaction because CS judgement is a very subjective psychological process (Yi 1990).

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Alternatively, the second type is subjective disconfirmation, which is based on the discrepancy of expectations and the subjective product performance, as perceived by consumers. In turn, subjective disconfirmation branches out into two types, namely inferred (subtractive) disconfirmation and perceived (direct) disconfirmation. Inferred

disconfirmation is derived from the difference between expectation and product/service performance rating. It is commonly assumed that the effect of post experience on satisfaction can be expressed as a function of the algebraic discrepancy between preconsumption ratings of expectation and post-experience ratings of perceived performance of product/service (LaTour and Peat 1979). It has been frequently measure at attribute and overall levels (Oliver and Bearden 1985; Parasuraman et al. 1988; Swan and Trawick 1981). In fact, this approach has been employed by Parasuraman et al. (1988) in their SERVQUAL scale. However, several researchers empirically established that this measurement approach is lacking in reliability and validity (Boulding et al. 1993; Cronin and Taylor 1992; McDougall and Levesque 2000; Yuskel and Remmington 1998). Yi (1990) provides some theoretical evidence that the inferred disconfirmation measure could lead to a response bias, as the scale is used twice and, inevitably, a ceiling effect might cause difficulty in capturing the disconfirmation score. In contrast, perceived (direct) disconfirmation represents a distinct psychological construct encompassing a subjective evaluation of the difference between product performance and expectations directly in a summary-judgement manner (Oliver 1980a; Churchill and Suprenant, 1982). It is frequently operationalised on a scale of better than expected to worse than expected and could be measured at attribute or overall level (Hong and Rucker 1995; Kassim 2001; Tse and Wilton 1988). From a methodological viewpoint, most researchers have employed the subjective structure established by Oliver in 1980a, which actually avoids the issue of subtraction of expectations from performance evaluations. Oliver (1980a) asserts that subjective disconfirmation is likely to offer a richer explanation of the processes underlying consumer satisfaction/dissatisfaction formation. Figure 3.4 graphically illustrates the interrelationships among the aforementioned constructs; in fact, it is the most current version of disconfirmation theory and has been named as the Expectancy Disconfirmation with Performance Model.

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Figure 3.4

The Complete Expectancy Disconfirmation with Performance Model

Expectations

Calculated Disconfirmation

Subjective Disconfirmation

Satisfaction/ Dissatisfaction

Performance Outcomes

Source: Adapted from Oliver 1997

At this point, by extracting the findings from various studies it could be concluded that the role of disconfirmation on satisfaction greatly depends on both expectations and perceived performance. In addition, the product/service type examined and the research settings are suspected to influence research outcomes, as was discussed at great length above (Section 3.2.1 and 3.2.2), and consumer involvement level is also presumed to affect the results, which will be discussed later (Section 3.4). In conclusion, it appears that disconfirmation plays a significant role in influencing customer satisfaction judgements (see Appendix 3.1). In a similar view, Swan and Martin (1980) confidently assert that disconfirmation should be incorporated into the consumer satisfaction model. Consistent with the above research findings, it is included as one of the determinants of satisfaction at the subsystem abstraction level. In addition, it will be operationalised based on perceived (direct) disconfirmation measurements, as

recommended by Oliver (1980a), of both the attributes and overall abstractions. For detailed description and discussion of the conceptualisation and measurement of the key constructs (perceived performance and disconfirmation) in the proposed conceptual model, please refer to Chapter 4. Subsequently, in the next section several definitions of customer satisfaction and discussions pertaining to the conceptualisation and level of customer satisfaction are presented.

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3.3

Satisfaction

Consumer satisfaction or dissatisfaction (CS/D) is a core concept in marketing. It is determined by the overall feelings or attitude a person has about a product or service after it has been purchased or experienced. Consumers are engaged in a constant process of evaluating the things they buy as these products are integrated into their daily consumption activities. It is a generally accepted notion that CS is the most efficient and least expensive source of market communication (Dubrovski 2001) because consumers who are satisfied with a product/service will be more likely to disseminate their favourable experiences to others. Conversely, if they are dissatisfied, they will present a danger of spreading unfavourable appraisal of the product or service they encountered. This danger is clearly illustrated in the following figures, derived from various researchers (Dasatnick 1989; Dubroski 2001):

A satisfied customer will explain his satisfaction to 10 people who could actually become customers for this product; 96% of dissatisfied customers never complain about an inadequate product or services; 90% of dissatisfied customers will no longer buy products of the same brand or return to the same seller, who will never know why; Every dissatisfied customer will describe his/her dissatisfaction with purchasing a product to at least nine other people; 13% of dissatisfied customers will explain their dissatisfaction to more than 20 people.

Given the above statistics, achieving and managing customer satisfaction is clearly a vital component of marketing strategy; as such, customer satisfaction has received substantial attention from the marketing academic and practitioner.

3.3.1

Definition of Satisfaction

Despite the overwhelming quantity of literature surrounding the CS concept since Cardozo (1965), unfortunately no consensual definition of CS was developed (Anderson and Fornell 68

1994; Giese and Cote 2000; Parker and Mathews 2001). An exhaustive review of the existing literature on customer satisfaction clearly indicates that CS has been defined and described in a wide variety of ways. Consumer satisfaction researchers consistently

emphasised that this problem is pervasive and it is an important issue to be addressed (Day 1982; Giese and Cote 2000; Yi 1990). This is based on the perception that most research gives so much attention to testing models of CS and neglects the fundamental issue, the definitional aspect of CS. Even though CS has been positioned as the key concept in marketing theory and practise, it has been criticised as an elusive concept. Additionally, Peterson and Wilson (1992) point out that studies of CS could best be regarded as suffering from a lack of definitional and methodological standardisation. The fundamental question of what satisfaction actually is remains unresolved (Anderson and Fornell 1994). They point out that the lack of agreement in the definition of the CS concept limits its contribution to the consumer research field, because the definition varies with study context; therefore, it makes measurement of the validity, comparison and interpretation of empirical results difficult. In response to this critical situation, Parker and Mathews (2001) recently devoted their efforts to shedding light on this elusive concept by examining the meaning of CS from both the perspective of academics and ordinary consumers. The conclusion of their findings is described in Table 3.1. Oliver (1997, p.13) redefined the concept of CS as the judgement that a product feature or the product or service itself provides a pleasurable level of consumption-related fulfilment. It is noteworthy to point out that this definition does not mention the comparison standard (expectations) which was an important variable in Olivers classic work, which was widely used by most studies (Schlentrich 2001). Accordingly, in the new stream of customer satisfaction research, which began in the 1990s, this changing trend could be identified (see Table 3.1). In his review of CS studies, Yi (1990) defined CS from two approaches. That is, CS as an outcome and as a process. From the process perspective, it is defined as an evaluation of consumption experience which is at least as good as it supposed to be (Hunt 1977) and as The consumers reaction to the evaluation of the perceived disparity between prior consumption expectation and post-consumption performance evaluation (Tse and Wilton 1988, p. 204). These definitions suggest that an evaluative process is a paramount element 69

underlying CS (Yi 1990). Most CS definitions focus entirely on either the evaluation process (see example Fornell 1992; Hunt 1977) or a response to an evaluation process (see, for example, Oliver 1997; Tse and Wilton 1988). In brief, from the approach of satisfaction as a process, these definitions give more attention to the antecedents to satisfaction, rather than attempting to tackle the key issue of satisfaction itself (Parker and Mathews 2001). In contrast, CS is seen as an outcome which was a result of a consumption experience, such as the buyers cognitive state of being adequately or inadequately rewarded for the sacrifices he/she has made (Howard and Sheth 1969) or an emotional response generated due to experiences provided by a service provider or product consumed. According to Parker and Mathews (2001), there has recently been renewed attention to the nature (not cause) of satisfaction. For instance, Rust and Oliver (1994, p. 4) describe satisfaction as the consumers fulfilment response. In addition, Oliver (1989) presents four satisfaction states in his framework: 1) 2) 3) 4) Satisfaction-as-contentment (a result of the product/service performing adequately) Satisfaction as a surprise, which could be positive (delight) or negative (shock) Satisfaction as pleasure (results from positive reinforcement) Satisfaction as relief (result from negative reinforcement)

Additionally, in their conclusion on the academic definitions, Parker and Mathews (2001, p. 39) viewed satisfaction as processes and outcomes; they posit that the academic definitions may be at variance with reality. They further argue that consumers may not think about the process aspects, but rather focus solely on the outcome. It is noteworthy to highlight the recent work of Giese and Cote (2000) who specifically attempt to develop a definitional framework of CS. According to them, even though the literature reflects the diversity of definition, nevertheless there are some common themes. Three common themes have been identified are as follows: First, consumer satisfaction is a response (emotion or cognitive). In fact, Swan (1983, p. 126) suggests that Satisfaction is a specific affective/cognitive post-purchase orientation that has as its focus the evaluation of the product in terms of its performance in use. More 70

recent literature portrays that satisfaction in the form of affective intensity, such as delighted, frustrated, terrible, thrill etc. Second, the response pertains to a level of specificity, such as it was commonly utilised at product level (Churchill and Suprenant 1982, Oliver and Swan 1989; Spreng et al. 1996; Westbrook 1987), with consumption experience (Bearden and Teel 1983; Mittal, Kumar and Tsiros 1999), salespersons (Swan and Oliver 1989), with a store (Oliver 1981; Westbrook 1981), with distribution system (Duhaime 1988) and service (Alford and Sherrell 1996; Cronin and Taylor 1992; Singh 1991). Third, the response occurs within a specific time frame (after consumption, after choice, accumulated experience, transaction specific, etc). For example, in our study we specifically establish that the consumption experience must occur within the twelve months prior to data collection. Apparently, satisfaction evaluation was based on post-consumption. Table 3.1 provides some definition of CS, and clearly illustrates that it is indeed inconsistently defined.
Table 3.1 Conceptual Definitions of Consumer Satisfaction
Author Parker and Mathews 2001 Conceptual Definition Customers took a holistic perspective when ask to recall a purchase or consumption activity that resulted in satisfaction. In the retail experience context, pure services were a major source of satisfaction, followed by the products themselves. Satisfaction was predominantly associated with feelings and an evaluation process. Evaluation between what was received and what was expected maintains a high profile. The concept of cost and equity (outputs should be worth inputs) and quality as antecedents of satisfaction. (p. 43) A post-consumption evaluation judgement concerning a product or service The consumer's fulfilment response. It is a judgment that a product or service feature, or the product or service itself, provided (or is providing) a pleasurable level of consumption-related fulfilment, including levels of under- or over fulfilment (p. 13) A consumers post-purchase evaluation and affective response to the overall product or services experience (p. 418) An overall judgement of satisfaction for the education program, which comprise of two domain namely Intellectual environment and employment preparation (p. 122) The consumers affective reaction to the overall experience of purchasing and using a product or service (p. 52)

Yuksel and Rimmington 1998 Oliver 1997

Patterson and Spreng, 1997 Halstead, Hartman, and Schmidt 1994

Spreng et al. 1993

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Table 3.1
Author

Conceptual Definitions of Consumer Satisfaction - continue

Conceptual Definition (Product satisfaction) is an attitude - like post consumption evaluative judgment (Hunt 1977) varying along the hedonic continuum (Oliver 1989; Westbrook and Oliver 1991) (p. 454). Examined whether satisfaction was an emotion. Concluded that satisfaction is a summary attribute phenomenon coexisting with other consumption emotions (p. 242). A post-choice evaluative judgment concerning a specific purchase selection (Day 1984) (p. 84). No conceptual definition. (With the salesperson) a function of fairness, preference, and disconfirmation (pp. 28-29). Global evaluative judgment about product usage/ consumption (p. 260) The evaluative response to the current consumption event...the consumers response in a particular consumption experience to the evaluation of the perceived discrepancy between prior expectations (or some other norm of performance) and the actual performance of the product perceived after its acquisition (p.496). Post-purchase evaluation. Cited Olivers (1981) definition: An evaluation of the surprise inherent in a product acquisition and/or consumption experience (p. 394). Conceptually, an outcome of purchase and use resulting from the buyers comparison of the rewards and costs of the purchase relative to anticipated consequences. Operationally, similar to attitude in that it can be assessed as a summation of satisfactions with various attributes (p. 493).

Mano and Oliver 1993

Oliver 1992

Westbrook and Oliver 1991 Oliver and Swan 1989

Westbrook 1987

Day 1984

LaBarbera and Mazursky 1983 Churchill and Surprenant 1982

Westbrook 1981

Conceptually, retail satisfaction is derived from two sources, namely, product experience and in-store experience (p. 75) A conscious evaluation or cognitive judgment that the product has performed relatively well or poorly or that the product was suitable or unsuitable for its use/purpose. Another dimension of satisfaction involves affect of feelings toward the product (p. 17). Favourability of the individuals subjective evaluation of the various outcomes and experiences associated with using or consuming it (product) (Hunt 1977) (p. 49). Satisfaction is the consumers post purchase evaluation of the overall service experience. The evaluation rendered that the experience was at least as good as it was supposed to be (p. 459). The buyers cognitive state of being adequately or inadequately rewarded for the sacrifices he has undergone (p. 145).

Swan, Trawick and Carroll 1980

Westbrook 1980

Hunt 1977

Howard and Sheth 1969

Source: Adapted from Giese and Cote (2000) and updated by author

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3.3.2

Levels of Satisfaction

Satisfaction was consistently described and expressed in term of two approaches, namely the individual attribute level and the transaction-specific level, also known as encounter specific (Bitner 1990; Oliver 1980, 1993). At the attribute satisfaction level, the customer can be satisfied or dissatisfied with certain attributes of the product or service offered by the business organisation. For example, a customer may be satisfied with the products packaging but dissatisfied with its effectiveness. In contrast, transaction (episode) specific satisfaction may be referred to as the post-purchase judgement relating to a particular encounter. For example, the satisfaction judgement was derived from the customers last purchase experience (as opposed to other purchase experiences prior to the latest one). Therefore, the transaction specific judgement is a discrete event, which occurs over an identifiable time period (Oliver 1980a). In addition, there has been wide discussion in the CS literature concerning a higher level abstraction, referred to as individual cumulative satisfaction, sometime known as overall, global or summary satisfaction (Anderson, Fornell and Lehmann 1994; Oliver 1997; Rust and Oliver 1994). At this point, the consumers satisfaction judgement is formed over many occurrences of the same experience. An example of this would be a consumers purchasing experiences from the direct sales channel ever since they were first exposed to this retail channel. Indeed, at an even higher level, researchers might be interested to assess consumer satisfaction at the aggregate level, which means the accumulated experience that the consumer has had with the specific firm. This is known as microeconomic satisfaction. This satisfaction level is associated with the specific firms profitability (Anderson and Fornell 1994). For instance, Avon, one of the leading direct sales companies, might be interested to investigate their customer satisfaction level. On the other hand, a higher level of satisfaction than the microeconomic is the macroeconomic, which indicates the average satisfaction level of an aggregation of an industry or sector (Anderson 1994). In other words, one might examine the differences in satisfaction level among various industries or sectors and finally, societal satisfaction, which encompasses the accumulated experience of consumers within a specific social system (Anderson and Fornell 1994).

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Accordingly, in the current study, customer satisfaction is conceptualised at the attribute level (the satisfaction judgement at attribute level performance evaluation across three aspects, namely product, direct seller and company). Subsequently, the satisfaction judgement of these three aspects will translate into overall (global) satisfaction with the direct sales channel. All measurement (satisfaction of various aspect or object) is evaluated based on a specific episode. Interestingly, Pascoe et al. (1983) point out that satisfaction evaluation will be unambiguous if the consumption context is explicit and consistent. In accord with this justification, in the current study, respondents were requested to recall their most recent purchase experience within the time frame of the previous twelve months. In brief, the thesis defines satisfaction of purchasing from the direct sales channel as an overall (global) consumption system satisfaction, which transpires from three interacting key components within the system. For further description of the conceptualisation and operationalisation of the satisfaction measurement, see Chapter 4. Next, in Part II, the conceptualisation and the roles of other constructs which are not key variables of the traditional EDP theory will be presented.

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PART II: Other Constructs Examined

3.4 Purchased Decision Involvement

The concept of involvement has been extensively studied and has a long history in the field of consumer behaviour (Bloch 1981; Laurent and Kapferer, 1985; Oliver and Bearden 1983; Mittal and Lee 1989; Theo and Cees 1995; Zaichkowsky 1985); nevertheless, it has still caused some confusion in the consumer behaviour literature. In their review paper on the literature of involvement, Theo and Cees (1995, p.448) assert that, the cumulation of knowledge on involvement is hampered by the lack of conceptual clarity, the seemingly uncontrolled application, the overlap with presumed antecedents and consequences and the unavoidable lack of inconsistent operationalisations. It has been typical for studies to examine its influence on consumers decision processes, attitudes, brand preferences and satisfaction judgement (Brisoux and Cheron 1990; Oliver and Bearden, 1983; Richins and Bloch 1988). Since involvement have been frequently mentioned as one of the factors to influence satisfaction formation (see for example Hong and Rucker 1995; Oliver and Bearden 1983; Richins and Bloch 1991), it has triggered the investigation of its function within the proposed customer satisfaction framework.

3.4.1

Defining Involvement

The concept of involvement is not easy to define and there is no commonly accepted definition (Rothschild 1984). However its role specifically as a distinctive mediating variable in consumer decision-making processes is undeniably important (see example Chaudhuri 2000; Laurent and Kapferer 1985; Richins and Bloch 1991; Quester and Smart 1998). Originally, involvement was meant to describe the intensity of mental or cognitive elaboration (see Theo and Cees 1995) and some refer it to as the personal relevance or importance of a perceived product or situation (Park and Young 1986; Theo and Cees 1995). Bloch (1982) presents the definition of involvement as ones internal state, which is manifested by the amount of interest or attention paid towards a product.

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Several researchers have proposed that consumers involvement with products could be classified into two types (see example, Bloch and Richins 1983; Laurent and Kapferer 1985). The first type is called Situational Involvement (SI), which usually occurs when significant risks or a specific situation are related to the purchase decision. The second type is Enduring Involvement (EI), which describes an ongoing concern and attention with the product class which ranges from low to high across consumers (Houston and Rothchild 1978; Zaichkowsky 1985), and is also referred to as ego involvement (Park and Mittal 1985). A significant distinction between SI and EI is their temporal nature, which suggests that SI diminishes soon after the purchase is over and the outcome is resolved, because consumer attentiveness to the product category is no longer required. It is interesting to note that in some situations, consumers are likely to show evidence of SI after purchase for some brief period due to the excitement generated by the newness of the item, or more likely the effects of the product. EI, as the name implies, reflects the continuous interest in the product by the consumer. It is independent of purchase situations and is motivated by the relatedness of the product to the self and/or the hedonic pleasure received from the product (Bloch and Richins 1983; Kapferer and Laurent 1985). For instance, EI has been indicated in the case of automobiles (Bloch 1981). When EI occurs at high levels, the product is interesting, arousing and occupies the consumer's mind. In addition, according to Laurent and Kapferer (1985), it is assumed that consumers who experience low levels of EI could probably feel high levels of SI during the purchase of the product. Several researchers have proposed that involvement could be conceptually related to objects or issues, for instance product involvement (Cohen 1983) and sometimes it is associated with behaviour, for example purchase involvement (Mittal and Lee 1989). However Mittal and Lee (1989) argued that Kapferers (1985) measurement does not differentiate both types of involvement. Zaichkowsky (1985) then developed the enduring product involvement measurement, which could also be applied as a purchase involvement measurement scale. However, scrutiny by Mittal (1989) found that the items presented in Zaichkowskys scale were comprised of product involvement rather than purchase-decision 76

involvement as she claims. Later, Mittal and Lee (1989) developed the concept of product involvement by describing it as the interest in possessing and using a product (enduring involvement) whereas purchase involvement is the interest in the brand selection (situational involvement). In the current research, Mittals (1989) PDI scale is adopted because it is applicable in a wide range of product categories and settings, which is particularly useful in this research context. Additionally, this scale has been rigorously tested for its validity and reliability.

3.4.2

Definition of Purchase Decision Involvement

The distinction between product involvement and purchase involvement was not addressed in the involvement studies until Mittal (1989) highlighted the distinction. The aim was to provide a shaper focus and to introduce a simple scale of purchase decision involvement (PDI). He further argues that this type of involvement is more valuable to marketing practitioners. Purchase decision involvement (PDI) is defined as the degree of interest and concern that the consumer brings to bear upon a purchase-decision task (Mittal 1989 p. 150). PDI is closely related to situational involvement and Mittal (1989) points out that the concept has three main criteria, namely: 1) It offers the advantage of situational differences in terms of whether the purchase took place in an emergency or regular repeat purchase manner. It concerns the consumers mindset, for instance the customers view of what the right or wrong choice would mean to him or her. Its scale measures mind-set rather than response behaviour.

2)

3)

Hence, a consumer may not use information processing if he or she already has information, if information has been acquired from a salesperson or if it is just a regular repeat purchase. It is interesting to note that the PDI scale maintains that even a routine purchase should not score low. In other words, a routine purchase process is not equivalent to a low involvement purchase. Drawing from the description and arguments presented above, PDI is the most appropriate involvement scale to be employed in the current study. Even under a routine purchase 77

situation, PDI may not necessarily score low. It is anticipated that the respondents in the current study may make a repeat purchase of a previous choice and also they might acquire information from the direct salespeople (i.e. sales demonstration) during their first purchase encounter, and thus the information processing stage might not take place.

3.4.3

The Relevance of Involvement to Consumer Satisfaction

The impetus of testing the effects of product involvement on satisfaction was initiated by Day (1977). He argued that for products of low importance, evaluations may not be triggered (see Oliver and Bearden 1983). It was noted that although consumers' involvement with products is only one of many predictors of satisfaction, however there are several grounds to focus only on involvement. First, involvement reflects a condition of excitement and has been viewed as the degree to which something occupies one's thoughts and feelings (Richins and Bloch 1988). Thus, it is assumed that highly involved consumers spend more time thinking about a product class than those with low involvement. In other words, involvement could be equivalent to motivation to process information (Bloch and Richins 1983). Satisfaction judgments are generally considered to entail evaluative processes in which expectations are compared with performance, with the resulting match or mismatch (disconfirmation) determining satisfaction level. Oliver and Gerald (1981) in their study found that the feelings of disconfirmation and satisfaction were higher among the female than the male sample. They suspect the explanation for these findings was that women are potentially more involved in making decisions pertaining to the specific product under study, that is, mens sleepwear. Second, because high product involvement implies a greater than average concern with product benefits, involved consumers may have more concern that in a given purchase situation they have made a wise choice. In other words, product involvement magnifies purchase risk and involvement. It is likely that high involvement consumers would be very motivated to avoid or reduce post-purchase dissonance and would generally report satisfaction with product choices in their area of expertise.

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Third, highly involved consumers are an important market segment from a marketers perspective because they are often heavy users of the product class as well as opinion leaders, who relate their experience to others in the market; their continued satisfaction is crucial to a product's success. Finally, consumers with high involvement with a product class have been shown to possess greater knowledge about the product class than those with low involvement (Bloch, Sherrell and Ridgway 1986). They also more frequently discuss the product class with others, resulting in more knowledge about others' experiences with and reactions to the product. This greater knowledge may lead high involvement individuals to have different and perhaps more precise expectations about product performance than low involvement consumers. It may also lead them to make product choices that better meet their needs and are therefore more satisfying. It is noteworthy to examine a study by Oliver and Bearden (1983), sought to determine how involvement affects satisfaction judgements among users of a new encapsulated appetite suppressant. In comparisons of high and low involvement groups. The overall sample revealed that disconfirmation was the only significant predictor of satisfaction, whilst expectation did not have any effect on satisfaction. In response to this result, the authors suggest that the product category under study is the strong disconfirmation variety in which the effect of expectations and performance is objective (e.g. pounds of weight lost) and as such, comparisons can be made easily in order to form satisfaction. In conclusion, the results indicate that involvement intrinsically tends to raise product ratings, and is based on the actual nature of the product rather than what was expected prior to usage. Thus, the result was speculated to be associated with the type of product being based upon in the study. In fact, there is recognition in both satisfaction research and mainstream consumer research to suggest that product differences should be considered in constructing satisfaction models (Granbois 1993). Furthermore, Antil (1984) asserts that consumers tend to differ in terms of overall involvement with a given product class. Several scholars (see, for example, Churchill and Suprenant 1982 and Patterson 1993) infer that product characteristics influence which consumer satisfaction model is deemed most appropriate within the particular study setting. For instance, that product performance would have a 79

significant impact on high involvement product satisfaction (Patterson 1993). In contrast, for low involvement products, expectations are relatively low and disconfirmation rather than performance may have a relatively high impact on satisfaction. The work of Hong and Rucker (1995) was designed to analyse the effects of two expectation antecedents (i.e. product type and fashion involvement) on product expectations and clothing satisfaction. The EDP was utilised to predict and explain customer fashion satisfaction. Two clothing types were used in the study: jackets and tights. Both of these product categories have different characteristics, buying behaviour and consuming patterns associated with them. The hypothesised clothing satisfaction model is illustrated below (Figure 3.5).
Figure 3.5 Clothing Satisfaction Model

Product Type

Expectation

Disconfirmation

Consumer Fashion involvement

Perceived Performance

Clothing Satisfaction

Source: Adapted from Hong and Rucker 1995

Hong and Rucker (1995) suggest that perceived performance is the most influential determinant of clothing satisfaction and disconfirmation effects on clothing satisfaction are small. In addition, the clothing satisfaction process varies across the clothing types (i.e. jackets and tights). Fashion involvement has a significant effect on satisfaction with jackets but not with tights. Parallel to the findings drawn from of the above study, it would be very interesting to investigate whether the results hold true for the current study, which is comprised of two consumer product categories (beauty and healthcare). Hong and Rucker (1995) used high and low involvement product classes; the current study pertains to two product types, which are both believed to fall into the high involvement product category. Accordingly, 80

the interaction between the consumers level of purchase decision involvement and product satisfaction is included in the construction of the current studys conceptual model. It is imperative to incorporate this construct in the proposed model because several studies show its importance. For instance, Oliver (1989) posited that consumer product orientation would affect subsequent satisfaction. Hence, for the present study, it is anticipated that purchase involvement would have an effect on product satisfaction and subsequently translate into overall satisfaction. Next, some definitions and conceptualisations of perceived value from the marketing discipline perspective are documented, and subsequently the relationship between perceived value and customer satisfaction is discussed.

3.5

Perceived Value

When companies face escalating competitive pressure and reduced strategic freedom to differentiate product quality and price (Muller 1991), it becomes more critical to discover the best approach in the effort to build a sustainable advantage to counteract this negative business environment. It was recognised by Butz and Goodstein (1996) that even though the quality movement has proven to be impressive, it no longer provides the basis for a competitive edge; hence, the search for competitive advantage goes on, only this time around organisations have shifted their attentions outward to markets and consumers instead of the internal perspective as practiced in the quality movement era. Accordingly, a new source of competitive advantage was proposed by Woodruff and Gardial (1996, p. 4). They point out that the emerging strategy in the 1990s and beyond will originate from creating, communicating and delivering superior value to carefully targeted customers Value has been conjectured as a key driver of customer satisfaction and loyalty. Customer value is not a new concept to the marketing discipline; for example, Sheth and Howard (1969) described it within their definition of customer satisfaction, whilst Kotler (1972) portrayed it as the key function of marketing activities. However, it did not draw much attention until in the 1990s, when it became the new source of competitive advantage (Woodruff 1997). Indeed, Day (1990) asserts that creating excellent customer value is a compulsory condition for any organisation that envisions securing a niche in a fiercely 81

competitive market environment, ultimately building a leadership position in the market. Similarly, according to Wyner (1999) it is part of several compelling strategies established in functioning as a guide to successful business practise. In fact, it has been suggested as a key component for marketing strategies in order to increase profitability as well as to achieve higher stock market value (Wyner 1999), the key to earning customer repeat purchase and loyalty (Reichheld 1996) and the force that drives customer commitment (Patterson and Spreng 1997). The significance of the value concept is obviously reflected by the prestigious Academy of Marketing Science, who prioritised value as the key theme in their 2003 Annual Conference (www.ams-web.org/). The concept of value is rooted in the early development of the exchange theory, which was pioneered by Kotler (1972, p. 48), in which he considered that the process of exchange is a key function of marketing activity: He states that: The core concept of marketing is the transaction. A transaction is the exchange of values between two parties. The things-of-value need not be limited to goods, services and money; they include other resources such as time, energy and feeling.

The above statement clearly indicates that value plays a central role in marketing exchange activity, and it does not necessarily involve the economic (money) aspect but also includes other non-monetary costs such as time, energy and feelings. This definition is consistent with several other value researchers (see example, Eggert and Ulaga 2002, Woodruff and Gardial 1996, Woodruff 1997; Zeithaml 1988). However, exchange theory does not explicate why and how value is created (see review by Payne and Holt 2001). A new stream of research in customer value focuses on these issues in an attempt to disentangle them specifically from the customers perspective (see, for example, Day 2002). In fact, the importance of understanding value is undoubtedly crucial, as Porter (1985) asserts that any company attempting to provide competitive value to its customers needs to gain a thorough understanding of the customer's needs and the activities which constitute the customer's value chain. The buyer value chain is described by Porter (1985) as a series of actions that customers carry out in the effort to realise value from their consumption within a certain context. In other words, what are the value customers are looking for from the firms offerings? Ravald and Gronroos (1996) assert that if firms fail 82

to adhere to the suggestion made by Porter (1985, p. 23), the task of providing the right value to the right customers may culminate in a hazardous game. They further argue that even if the offering is unique, the endeavour may turn out to be a waste of money and time if it does not match beneficially with the customers activities, needs and wants (Ravald and Gronroos 1996). Along these lines, Woodruff and Gardial (1996) stress that if a business organisation understands value from its customers point of view, it could provide valuable knowledge on how to deliver that value to fulfil their requirements satisfactorily. It was recognised that it is very challenging to find out precisely what it takes to satisfy customers. Similarly, Woodruff and Gardial posit (1996, p. 4) that: An understanding of how customers define value becomes the guiding force for determining what to improve.

Even though understanding and delivering value has become essential, studies embarking on the topic have encountered limitations. For example the term has been used extensively in so many different ways and from such varied perspectives that it has inevitably caused confusion as no conceptual consensus exists (Parasuraman 1997; Woodruff 1997; Woodruff and Gardial 1996; Wyner 1999; Zeithaml 1998). Furthermore, there is still very little agreement in the literature as to what constitutes value and customer value (Payne and Holt 2001; Woodruff and Gardial 1996; Woodall 2003; Wyner 1999). It remains an area clouded by continuing ambiguity (Woodall 2003). it is imperative that the concept of value from various contexts is clarified first, before marketers attempt to pursue it as a marketing and business objective. The next section will provide some definitions of customer value from various perspectives, which clearly illustrates the diversity of approaches.

3.5.1

Defining Value from Various Perspectives

As a result of reviewing the extant literature, Payne and Holt (2001) suggest that the terms customer value denotes creating and delivering customer value, for instance the strategy by which firms can add value to their customers. Whereas customer perceived value 83

specifies what the customer desired and received in terms of value in their postconsumption experience and value of the customer means customer lifetime value. Value is often mistakenly interchanged with other concepts such as quality, satisfaction, equity and values. Band (1991) succinctly clarified that quality is the means, but on the other hand, value is the consequence. In other words, quality can lead to value, but not the other way round (see Day and Crask 2000). Whilst, Zeithamal (1988) asserts that the two major differences between quality and value are that value is more individualistic and personal and value involves a trade off, namely the quality received for the price paid. There is confusion in the meanings of the terms customer value and values. Thus, it is essential to point out the difference between consumer values and value. According to Lai (1995) and Payne and Holt (2001), value (singular) refers to preferential judgement, which implies the disparity (or surplus) between benefits and costs. In contrast, values refer to the criteria by which the judgement is made, and means deeply held and enduring beliefs about desirable ways to attain personal values. In turn, even though equity and perceived value are both involved in the comparison of the trade-off between rewards and costs (Oliver and DeSarbo 1988; Oliver and Swan 1989), the major difference is that equity is derived from the comparison made based on the reward to cost ratio with the seller, or with other buyers reward to costs ratios. Whereas value is the customers evaluation of the benefit received compare to sacrifices made (Tam 2000). Value is an elusive concept, and its meaning changes with its context. For instance, according to the economic point of view, value comprises of use value and value in use, which relate to functionality and substitutability (Reddy 1991). Similarly, Hirschey and Pappas (1993) also saw value in an economic sense, which is associated primarily to monetary value, price and cost. Whereas, in other the social sciences, it is explained in the context of human values in regard to instrumental and terminal value (Patterson and Spreng 1997). Since this thesis is written from the marketing perspective, from this point onwards the discussion and conceptualisation of customer value will adhere to the marketing view, specifically from the customers point of view.

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The multifaceted concepts of value are presented by Sheth, Newman and Gross (1991), who have described it as functional value, social value, emotional value, epistemic value and conditional value. It is worth noting the work of Sweeney et al. (1996), who introduce Sweeneys Model (Table 3.2). The model has consumers perceived value differring slightly from Sheth et al. (1991), with the following amendments to their initial five consumption values; Emotional, Social (Acceptability), Functional (Price/Value for money), Functional (Performance /Quality) and Functional (Versatility).
Table 3.2 Sweeneys Model
Emotional value Social value (acceptability) Functional value (price value for money) Functional value (performance /quality) Functional value (versatility) The utility derived from feelings or affective states that a product generates The utility derived from the products ability to enhance self concepts The utility derived from the product due to its perceived short term and longer term costs The utility from the perceived quality and expected perceived quality and expected performance of the product The utility derived from the versatility and practicality of the product

Source:

Sweeny et al. (1996)

From the marketing perspective, value is seen as a price /quality relationship (Cronin, Brady and Hult 2000; Rust and Oliver 1994; Woodruff 1997; Zeithaml 1988) and usually defined from the point of view of the consumers. In her study, Zeithaml (1988) points out that some consumers may perceive value when the price of the product/service is low, while others may perceive value when quality and price are equal (balance). Alternatively, Monroe (1990) views customer value as a consequence of evaluating the perceived quality and benefits in the product or service and the perceived cost of acquiring and using them. In turn, Bolton and Drew (1991) reveal that the most important determinant of value is quality. In their empirical work, Rust and Oliver (1994) posit that value should increase when quality increases and price decreases. Similarly, Kiefer and Kelly (1995) argue that when consumers recall price paid against perceived value received, thus will result in consumer satisfaction with the purchase they made. Whereas, Woodruff and Gardial

(1996) define value as the exchange between benefits and sacrifices. Recently, Woodall (2003) used the term value for the customer (VC) to describe what is derived by the customer from the supplier, that is the demand-side perspective. 85

In the context of service, as pointed out by Bolton and Drew (1991, p.383), perceived value is a richer, more comprehensive measure of customers overall evaluation of a service than service quality. Zeithaml and Bitner (1996) refer to perceived value as a customers overall assessment of the utility of a service based on the perceptions of performance and perceived sacrifice It is worth noting the definition provided by Woodruff (1997, p. 142), who postulates that customer value is a customers perceived preference for and evaluation of those product attributes, performances and consequences arising from use that facilitate (or block) achieving the customers goals and purposes in use situations.. This definition is succinctly illustrated in the Customer Value Hierarchy Model (Figure 3.6). Figure 3.6 Customer Value Hierarchy Model
Customer Satisfaction with Received Value

Desired Customer Value

Customers goal and purposes

Goal-based satisfaction

Desired consequences in use situations

Consequence-based satisfaction

Desired product attributes and attributes performance

Attribute-based satisfaction

Source: Adapted from Woodruff 1997

The customer value hierarchy model posits that customers realise their desired value in a means-end way. Beginning from the bottom, customers perceive products as bundles of attributes and attribute level performance. At the next level, customers form preferences for 86

particular attributes based on their ability to achieved desired consequences, and finally customers learn to desire certain consequences about their ability to achieve their goals and purposes. According to Clemons and Woodruff (1992), customers will use their goals and purposes in order to determine the importance of consequences. This model explains the received value in a similar manner; customer make a judgement of the products based on attribute, consequences and goal structure (Zeithaml 1988).

3.5.2

Conceptualisation of Perceived Value

In his recent work, Woodruff (1997) argues that it is essential for management who use Customer Satisfaction Measurement to change their emphasis to unravel Customers Value that could ultimately provide a better guide to mobilising their resources to better meet ever-increasing consumers expectations and the fierce competitiveness of the marketplace. This approach is termed Customer Perceived Value. Zeithaml (1988) defines perceived value as the consumers overall assessment of the utility of a product based on perceptions of what is received and what is given. In addition, Zeithaml (1988) also implies that perceived value is greatly influenced by individual personal values, needs, preference and financial status. As such, a customer might judge the same product or service differently on different occasions. Interestingly, Day (1990 p. 142) proposes that customer value can be expressed in a value equation: Customer Perceived Benefits Customers Perceived Costs = Perceived Value (see Lai 1995). Later many researchers focus on this extended term (e.g. Parasuraman 1997; Patterson and Spreng 1997; Spreng et al. 1993; Teas and Agarwal 2000; Woodruff and Gardial 1996; Woodruff 1997). In this thesis, this term is used to define the perceived value construct in the proposed model. Several researchers have argued that the total perceived value of a product being considered for purchase is further broken down into two categories: acquisition value and transaction value (Grewal et al. 1998; Thaler 1983, 1985; Zeithaml 1988). Acquisition value is the expected benefit to be gained from acquiring the product compared to the net cost of paying for it (Thaler 1985). It can be defined as the difference between the price one would pay for acquiring a product of this quality and the current price. 87

Transaction value is derived from the feeling of experiencing a good bargain or deal without taking into account the quality aspect (Thaler 1983, 1985). Buyers are presumed to feel delighted as a result of the fact they have bought the product at a price less than the regular price, and/or less than the price of other similar products in the store (or another store). Therefore, the total value received by the consumer is assumed to be the sum of acquisition value and transaction value. Some researchers have proposed that the formation of value judgement by consumers is influenced by comparative or relative factors; as such, it depends on how the consumer compares products, personal factors (among individuals) and situational factors (within a context) (Holbrook 1996; Thaler 1985; Reddy 1991). A good example is a study by VanScoyoc (2000), who conceptualised perceived value as a favourable judgement in terms of trade off between perceived rewards and the total costs incurred when shopping from a Web site as compared to making the similar purchase via bricks and mortar retailing. Laitamaki and Kordupleski (1997) postulate that customer value is the relationship between the degree of CS with the products/service received and the satisfaction with price paid. Accordingly, they suggest that companies could create Customer Value Added (CVA) by providing products and services for their customers by offering greater value than they expect from competitive companies in similar markets. They suggested a formula for CVA, as follows: CVA = Perceived worth of the company offer Perceived worth of competitors offers

If the CVA ratio is below one, then the company does not have competitive advantage in its offers. Even a CVA ratio of one leaves customer feeling indifferent towards the companys offers. A CVA ratio above one reflects the greater competitive advantage the company offers. It clearly indicates that business leaders can develop a high CVA by improving CS with price and the quality of the company products and services. If this approach is to be operationalised, it is anticipated that the potential consumers who participate in any study should have a considerable knowledge of the market, and specifically be well-informed of the competitors offerings. In fact, in the current study, it is speculated that the customers 88

are quite experienced with regard to purchasing from both the conventional store outlets and the direct sales (non-store) channels. Therefore, it is appropriate for this thesis to conceptualise perceived value as a comparison between types of distribution channel that take into account several key characteristics of both the product and direct seller aspects, rather than specific product or service features or attributes. When a value judgment is realised, an individual will subsequently experience certain emotions. Numerous types of emotions have been distinguished (Plutchik 1980), the most basic being pleasure/joy versus displeasure/suffering. Pleasure is the result of perceived attainment of one's values, while displeasure derives from the perceived negation or lack of realisation of one's values. In essence, if this notion holds true, it clearly suggests that consumer satisfaction is the pleasurable emotional state consequent on the positive evaluation of a product, service, retail outlet or non-store retail channel, shopping trip, holiday, etc. to fulfil one's values. Conversely, consumer dissatisfaction refers to the unpleasant emotional state resulting from an appraisal that an object, action, or condition fails to meet one's values. In conclusion, from the variability of value definitions from these approaches, a number of common threads could be delineated. For example, customer value is associated with the evaluation of a product or service consumed by customers over a range of abstractions, as portrayed in Figure 3.6. In addition, customer perceived value is identified as the key outcome of the customer consumption experience and typically involves a trade-off between what the customer receives (e.g. perceived benefits) and the sacrifice entailed in order to obtain the product or service (e.g. price, time and effort), and it appears to be consistently associated with the customer satisfaction concept.

3.5.3.

Conceptual Differences Between Satisfaction and Perceived Value

Despite the escalating attention and increasingly growing body of research in the area of customer value, some researchers and practitioners still express concern; for instance, the most frequent question is What is the difference between customer value and customer satisfaction? In fact, this is the fundamental question because the two concepts seem to be related. In response to this concern, Woodruff and Gardial (1996) say, Customer value 89

describes the nature of the relationship between user and product, while customer satisfaction is a representation of the customers reaction to the value received from a particular product offering. This simply means that customer satisfaction is a reaction to value received. In essence, value provides a guideline for the firms in regard to what to do, whereas satisfaction informs the firms indication of how it is doing (report cards). Table 3.3 illustrates the distinction between customer value and satisfaction.
Table 3.3 A Comparison of Customer Value and Satisfaction
Customer satisfaction is . 1) The customers reaction or feeling about what he/she has received a comparison between the actual performance of the product and a performance standard (affective construct) 2) Tends to exhibit a historical orientation; is a judgement formed during or after product/service use or consumption (post-purchase perspective) 3) Is an evaluation directed at a particular product/service offering or supplier organisation (tactical orientation) 4) Provides a report card for the organisation: how they are doing (or how they have done with their value creation efforts (suppliers offerings)

Customer value is 1) What the customer desires from the product or service (cognitive construct)

2)

3)

Exhibits a future orientation; is independent of the timing of the product use/ consumption (pre/post purchase perspective) Exists independent of any particular product/service offering or supplier organisation (Strategic orientation) Provides direction for the organisation: what they should do to create value (Suppliers and competitors offerings)

4)

Source: Woodruff and Gardial (1996)

In light of the above comparison, it is clearly suggested that satisfaction and value are complementary, yet inherently distinct constructs (Eggert and Ulaga 2002; Woodruff and Gardial 1996).

3.5.4

The Role of Perceived Value in the Customer Satisfaction Process

Among the many issues of interest to researchers and practitioners are the customers perceptions of value and customer satisfaction. Several authors have presented definitions and conceptual models of value perceptions (e.g. Day 2002; Day and Crask 2000; McDougall and Levesque 2000; Monroe 1990; Patterson and Spreng 1997; Woodruff and Gardial 1996; Zeithaml 1988) and others have examined the nature of customer satisfaction 90

(e.g., Oliver 1980, 1997, 1999; Woodruff, Cadotte and Jenkins 1983; Churchill and Surprenant 1982). In fact, the relationship between perceived value and customer satisfaction has been examined empirically by Spreng, Dixon and Olshavsky (1993). Prevalently, the satisfaction concept has been positioned as the key construct in the marketing literature (Eggert and Ulaga 2002). However the recent research stream portrays perceived value as having the pivotal role within the exchange concept of marketing (Eggert and Ulaga 2002; Sinha and Desarbo 1998). Interestingly, it has been reported that value has challenged the most rigorously studied concept (i.e. satisfaction) as a strategic focus in marketing (Day 2002). Customer value however is not a new concept to the marketing discipline and specifically to the study of customer satisfaction. This is verified by the work of Howard and Sheth (1969) who defined satisfaction as the buyers cognitive state of being adequately rewarded for the sacrifice undergone. In a similar vein, Churchill and Suprenant (1982) suggest that satisfaction is an outcome of purchase and use resulting from the buyers comparison of the rewards and costs of the purchase in relation to the anticipated consequences. These definitions suggest that they appear to share some common theme with customer value, as was discussed above (Section 3.5.1). Despite being a growing topic, it is noteworthy that there has been little empirical investigation into the relationship between perceived value and satisfaction (Anderson et al., 1994; Patterson and Spreng 1997; Day 2002), particularly in integrating it within the EDP framework. Very few studies attempt to examine this phenomenon empirically, with the notable exception of Spreng et al. (1993) and VanScoyoc (2000). Spreng et al. (1993) explicitly addressed the role of perceived value from the pre-purchase and post-purchase approach. They investigated the relationship between perceived value and customer

satisfaction within the disconfirmation framework and later proposed that future research and model development in the area of satisfaction should integrate the role of perceived value because of its plausible impact on the formation of satisfaction or dissatisfaction. VanScoyoc (2000) incorporated perceived value in her disconfirmation model with reference to the Internet shopping context.

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According to Day (2002, p.24), even though several authors have attempted to investigate the perceived value-satisfaction link (Athanassopoulos 2000; Oliver 1999; Patterson and Spreng 1997) nevertheless there has been no unequivocal demonstration that any model is the correct one. In fact, Spreng, Dixon and Olshavsky (1993) proposed that future research and model development in the area of satisfaction should integrate the role of perceived value, because of its plausible impact on the formation of satisfaction or dissatisfaction. In view of the elaboration concerning the conceptual differences between satisfaction and value, both concepts seem to be related but distinctive. They both have the evaluative judgement property, in spite of some potential overlap in function (Woodruff 1997). A number of empirical studies have proposed to incorporate them into one coherent conceptual model (e.g. Eggert and Ulaga 2002; Spreng et al. 1993; Tam 2000; VanScoyoc 2000; Webb and Jagun 1997; Westbrook and Reilly 1983). The only studies that proposed a conceptual model that illustrates the relationship between perceived value and satisfaction integrated in the EDP were by Spreng et al. (1993) and VanScoyoc (2000). However, several studies propose and validate the perceived value-satisfaction link using different approaches. For example, Patterson and Spreng (1997) acknowledge the importance of the linkages of perceived value and satisfaction with market share, relationship marketing and purchase intentions. Employing structural equation modelling, their findings reveal that perceived value has a significant impact on satisfaction. Additionally, the impact of perceived value on repurchase intentions is completely mediated through satisfaction. In turn, Webb and Jagun (1997) examine the importance of customer care in a UK university setting. The relationship between several constructs was investigated, their findings were consistent with Petterson and Spreng (1997), which demonstrate that there was a significant positive association between perceived value and satisfaction, and in turn, strong positive impacts on loyalty. In an attempt to develop a European Customer Satisfaction Index (ECSI), Kristensen et al. (1999) investigated the determinants of customer satisfaction and loyalty. Using structural equation modelling, they found that there was a direct positive effect between perceived value and customer satisfaction. Perceived value did not have a direct impact on loyalty.

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The relationship between perceived value and customer loyalty is mediated by customer satisfaction, and customer satisfaction in turn is positively related to loyalty. Interestingly, Tam (2000) on the other hand indicated that perceived value did not have a direct impact on satisfaction, but its impact on behavioural intention was significant. Like Tam (2000), Oh (2000), whose study context (i.e. restaurants) was similar, found that perceived quality, value and satisfaction are positively correlated with each other and the value-satisfaction link is positively significant. Similarly, in her study, Schlentrich (2001) found that perceived value affects commitment indirectly through satisfaction; in other words, perceived value is directly related to satisfaction. Recently, Eggert and Ulaga (2002) in their empirical research, assessed discriminant validity between perceived value and satisfaction, and their findings indicate that both concepts can be conceptualised and measured as two distinct constructs. Additionally, perceived value is estimated to have a strong positive significant impact on satisfaction, and consequently it also has a significant impact on behavioural outcomes. In view of the above findings, with regard to the perceived value-satisfaction link, it is anticipated that an integration of perceived value into the proposed theoretical framework is a worthwhile and timely endeavour. The detailed operationalisation of this construct and its interrelationship with other constructs will be elaborated and documented in chapter 4. Originating from Days (1990) empirical work, customer perceived value can be expressed in a value equation: Customer Perceived Benefits Total Perceived Costs = Perceived Value (see Lai 1995). Hence, if PB > TPC, then PV is positive, if PB< TPC, then PV is negative. From above a Value Equation (Figure 3.7) specifically relating to application to demonstrates its application within the direct sales distribution channel is shown. The total cost includes all the costs the buyer faces when making a purchase, which include: purchase price, value for money, amount of time and effort spent in the purchasing process and risk of failure or poor performance. The perceived benefits are some combination of product performance, which is related to product quality, service attributes and technical support available in relation to the particular use of the product, convenience in term of obtaining the product, purchasing atmosphere (i.e. enjoyable), salespersons product knowledge and value of information received from salesperson. It is proposed that 93

in order to maintain favourable (positive) perceived value, the perceived benefits must always be in balance or slightly heavier (greater) than the perceived total cost.
Figure 3.7 Value Equation in the Direct Sales Channel

Perceived Benefits

Perceived Total Cost

Quality of product/service Convenience/ Enjoyment Valuable information P

Price Risk of product failure Effort / Time T Time

PERCEIVED VALUE
Source: Developed by author for this thesis

Drawing from the review of the pertinent marketing literature, it appears that there have been some attempts to address the perceived value-satisfaction association, but the majority of the studies from the 1990s are operationalised within the service sector (see, for example, Bolton and Drew 1991; Patterson and Spreng 1997; Spreng et al. 1993; Tam 2000). As such, the empirical evidence suggested by the authors may not be applicable in this study; however, it would be interesting to investigate the role of perceived value within a consumption system which is comprised of both tangible goods and service dimensions. In response to the call for additional empirical research to examine the perceived value satisfaction link, this thesis explores and investigates this linkage and examines its role with other variables list within the proposed conceptual framework. In line with the suggestions made by several authors to include perceived value as an antecedent to satisfaction processes (see, for example, Athanassopoulos 2000; Cronin et al. 2000; Fornell et al. 1996; Hallowell 1996; VanScoyoc 2000), the current research takes the position of addressing this specific phenomenon. It is anticipated that this endeavour could offer additional evidence of this link and perhaps unearth the strength of the perceived 94

performance-perceived value link, and ultimately its impact on satisfaction. In the next section literature on equity (fairness), its definitions and its role in the customer satisfaction process is reviewed.

3.6

Perceived Equity

Perceived equity is believed by some to be another variable that could contribute to satisfaction judgements. Several pieces of empirical evidence suggest that equity is one of the significant factors in social interactions (i.e. buyer-seller) satisfaction that subsequently assist in building long-term relationships and other favourable behavioural consequences (Johnson et al. 2001; Oliver and DeSarbo 1988; Oliver and Swan 1989a, 1989b; Olson and Johnson 2003: Patterson et al. 1997; Szmigin and Bourne 1998; Teo and Lim 2001). A convergence of theoretical approaches established in the social science literature pertaining to the exchange process, and the satisfaction/dissatisfaction realised from an exchange, has given birth to equity theory (Mowen and Grove 1982). Research in the field of customer satisfaction has long recognised the importance of exchange equity as a key determinant of marketing activity. Equity theory was pioneered by Adam (1965) and has been identified as having potential when linking consumers perceived inputs and outcomes to their satisfaction/dissatisfaction with the marketing exchange process (Moven and Grove 1982). In fact, Bagozzi (1975) suggests that the equity (fairness) concept should be integrated as a mediating variable in an effort to enhance the understanding of customer satisfaction formation. In addition, many studies have advocated that equity was highly related to satisfaction (Oliver and Swan 1989a, 1989b; Oliver and DeSarbo 1988; Olson and Johnson 2003: Teo and Lim 2001). Despite the fact that equity has been acknowledged as a dominant determinant of customer satisfaction, it is very disappointing to discover that empirical research that explicitly focuses on this topic within the marketing discipline is relatively sparse, apart from the notable contributions from Fisk and Coney 1982; Mowen and Grove 1983; Oliver and Swan (1989a, 1989b), Olsen and Johnson 2003; Swan and Oliver 1984). Within the marketing literature, equity theory has typically been utilised as a tool to analyse the buyerseller relationship (Oliver and Swan 1989a, 1989b; Mowen and Grove 1982; Swan and 95

Oliver 1984-1985; Teo and Lim 2001) and service usage (Armstrong and Tan 2000; Bolton and Lemon 1999; Oliver and DeSarbo 1988; Olsen and Johnson 2003; Patterson, Johnson and Spreng 1997). Equity theory suggests that a person perceives a relationship to be equitable provided that he/she perceives his/her rewards to be proportionate to his/her costs in comparison with the other party involved in the transaction. In contrast, if the customer perceives that they are inequitably rewarded they will feel distress (Szmigin and Bourne 1998). Some definitions of the equity concept and conceptualisation of equity within the customer satisfaction process follow. The equity concept in included in the current study in an attempt to provide a diverse range of determinants of satisfaction formation judgements. As such, it will offer a holistic view by illustrating how perceived equity complements other determinant variables in the customer satisfaction model, specifically within the EDP framework.

3.6.1

Conceptualisation of Equity Concept

Swan and Mercer (1981) posit that equity is a feeling of well-being, fairness, or distributive justice, whereas inequity is generally a feeling of distress. Inequitable relationships are thought to cause distress because individuals have preconceived norms that prescribe both what is equitable and how one should feel and act if inequity arises. Additionally, Oliver (1997, p. 196) defines equity as a fairness, rightness or deservingness comparison to other entities, whether real or imaginary, individual or collective, person or non-person, whilst Olsen and Johnson (2003, p. 184) define perceived equity as, a customers psychological reaction to the value that a service company provides. Drawing upon the existing literature on equity theory, in general the theory attempts to analyse exchange relationships between individuals in terms of inputs and outcomes (see example Oliver and Swan 1989; Swan and Mercer 1981; Teo and Lim 2001). The inputs and outcomes play the central role in generating the phenomenon known as an equitable relationshp. This relationship will transpire when the participant (consumer) perceives the outcomes from their inputs are to be equal to other consumers or any individual that has 96

participated in the exchange transaction. Conversely, perceived inequity is postulated to cause distress, negative affect and a degree of dissatisfaction (Patterson et al. 1997). Furthermore, from the point of view of the respondents, what is received or the outcome could be closely related to product features, service or salesperson interactional quality, which implies that these factors are related to performance. On this basis, previous research has linked perceived performance to perceived equity (Armstrong and Tan 2000; Patterson et al. 1997). Here the conception of equity is based on the overall (summarised) evaluation, rather than addressing specific cost (inputs) and benefits (outcomes) from the consumers perspective. For example, buyers were asked whether they feel that they are fairly treated by the direct seller and whether the purchase made is fair (see example Oliver and Swan 1989a, 1989b; Patterson et al. 1997). According to Day (1982), satisfaction is the positive or negative feeling (affect) in response to or as the result of a specific consumption experience. Hence, in the situation when the exchange is believed to be inequitable, the focal person (consumer) will experience distress, which is a type of negative post-transaction affect. The widely known interpretation of this form of negative feeling is known as dissatisfaction (see Oliver and Swan 1989b). In essence, the absence of inequity will result in positive feeling (satisfaction). In light of the above assumptions, it is noteworthy to highlight the research evidence from Swan and Oliver (1984-1985). This has revealed that at the positive inequity point (the customer receives more than the salesperson) it appears that satisfaction is not lowered, but conversely increases, which contravenes the equity theory assumption that stipulates that inequity yields dissatisfaction. In addition, the positive inequity group had a significantly higher level of satisfaction (mean = 5.8) than the equity group (mean = 5.50). Figure 3.8 depicts the functional relationship between Satisfaction and Equity.

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Figure 3.8

Functional Relationship between Satisfaction and Equity

Satisfaction Related to Equity

satisfaction

7 6 5.5 5 4 4.33 3.4 4.36 5.81 5.68 5.82

dissatisfaction

3 2 1 0

1. Negative equity

4. Equity

7. Positive inequity

Note:

* Satisfaction Scale (Satisfaction = 57, Neutral = 4 and Dissatisfaction = 3 to 1)

Source: Adapted from Swan and Oliver (1984)

The inequitysatisfaction results showed that only respondents who experienced extreme negative inequity (the salesman came out ahead) were dissatisfied (See Figure 3.8). Intermediate levels of negative inequity were associated with low levels of (positive) satisfaction. While buyers who experienced equity were also satisfied, satisfaction actually increased slightly as inequity became positive. The authors speculate about some possible explanations for these findings. One is that the respondents might have some "tolerance" level for moderate levels of negative inequity. In fact, this phenomenon also appears in the disconfirmation construct, and is known as the zone of indifference (see figure 6.2). This may be due to respondents generally accepting the fact that some commercial exchanges do not necessarily need to be exactly equitable (each party benefits equally) to be "fair." A second possibility is that moderate inequity does not violate a norm because either side can decline to complete the sales transaction if they perceive it as it being unfair.

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3.6.2

Integrating Equity into a Satisfaction Model

Several theoretical and empirical approaches have been used in the attempt to understand the consumer satisfaction process, in this regard by integrating the elements of equity and disconfirmation theory (e.g. Oliver and Swan 1989a and b; Swan and Oliver 1984). Fundamental to this view is the argument that satisfaction is a product of both disconfirmation and the buyer's perception of the marketer's fairness. The latter is realised when an exchange is perceived to be equal in terms of the buyer's inputs and outcomes compared to those of the salesperson (Swan 1984). The equity/disconfirmation approach integrates a number of distinctive concepts in a coherent model. Swan and Oliver (1984) in their empirical research provide evidence that both of these concepts are distinctive; hence, the theoretical structure implied in the post purchase equity/disconfirmation model is supported. Additionally, they further conclude that satisfaction was determined by both disconfirmation and inequity, in that both variables were independent and, therefore, additive predictors of satisfaction. The basic disconfirmation model has received empirical support (see review by Yi 1990). The essential finding in prior research is that while satisfaction has been related to disconfirmation, it is clear that disconfirmation alone has not been able to completely explain satisfaction (see Appendix 3.1 for summary of findings in customer satisfaction study). Given that disconfirmation may have only a partial effect on satisfaction, marketing scholars also consider the possibility that equity would have a significant complementing influence as well.

3.6.3

The Role of Equity in the Customer Satisfaction Process

In an effort to provide some evidence of the relationship between equity and satisfaction and other related issues, several insights provided by previous studies within this specific area of interest will be described and discussed. In their empirical work, Swan and Oliver (1984) hypothesised that disconfirmation and equity would be joint antecedents of satisfaction with the automobile salespersons. They report that both equity and disconfirmation were significant predictors of satisfaction, disconfirmation appears to be the more influential predictor and, in contrast to equity 99

theory assumptions, positive inequity increases satisfaction levels. The implication of these findings is that both equity and disconfirmation constructs complement each other and both could be included as part of a more coherent concept of satisfaction. In an attempt to add new insights to the emerging literature on interpersonal equity in the exchange process, Oliver and Swan (1989a) engaged in a study of customer perceptions of equity and satisfaction with the salesperson in an automobile purchase context. In their

study, the equity construct is comprised of two components (fairness and preference). Fairness measures the proportional equity, as in equity formula, whereas preference measures ones own outcome relative to that of the other party involve in the sales transaction. The satisfaction equation findings lead to two interesting observations. The data reveal that: (1) fairness is significantly related to satisfaction but not preference (2) fairness is a more important contributor to interpersonal satisfaction than disconfirmation. Perhaps these findings imply that in the interpersonal exchange context, the disconfirmation construct will be less influential as compared to its role in the product satisfaction setting. In a similar vein, Oliver and DeSarbo (1988) demonstrated that equity was the fourth significant determinant of satisfaction, after performance, expectations and disconfirmation, and argued that equity might have more influence if the study was framed in term of satisfaction with the broker, as their study was within the stock market context. Even though the current study comprises of three components (product, salesperson and company), the equity construct is proposed to be associated with the salesperson dimension. Oliver and Swan (1989b) argue that previous studies suggest that disconfirmation was typically found to be the most significant predictor of satisfaction among other variables in the product satisfaction context, but at that point, no study had attempted to investigate interpersonal or exchange satisfaction. They further point out that disconfirmation might have much less influence in the interpersonal or institutional exchange research setting. In their study, they report that equity processes are parallel with disconfirmation in terms of having a joint impact on satisfaction. In addition, they assert that even though both of the constructs deal with comparison processes, nevertheless they coexist as distinctive dimensions in consumer satisfaction judgement. The same results were supported by Oliver and DeSarbo (1988), Oliver and Swan (1989a); Armstrong and Tan (2000) and Olsen and Johnson (2003). These findings suggest that both equity and 100

disconfirmation should be integrated in order to increase researchers understanding of satisfaction determinants and offer the ability to predict satisfaction. Clearly, both disconfirmation and equity are different processes, and are therefore viewed as conceptually distinct and provide complementary but not competing rationalisations for the satisfaction formation (Swan and Mercer 1981). Teo and Lim (2001) point out that previous literature in consumer marketing has predominantly focused on customer satisfaction/dissatisfaction in respect to products and they anticipate that there is a possibility that consumers perceived justice (a sense of being treated fairly) could contribute to their satisfaction judgements. Building upon this argument, they conducted a study to examine the impact of perceived justice on retail satisfaction and post purchase behavioural intentions in the computer business. They conceptualised justice into three dimensions: (1) (2) (3) distributive justice (i.e. quality of product, price charged, amount of service) procedural justice (i.e. service quality) interactional justice (i.e. friendliness, honesty, concern for customer)

All the three justice dimensions are positively significant to customer satisfaction with retailers, and distributive justice is the most important predictor of retail satisfaction. There is no evidence that distributive justice directly affects the repatronage intentions and as anticipated, retail satisfaction is positively related to repatronage intentions and less probability of engaging in negative word of mouth. It was assumed that even though the perception of fairness with the core product is the most important predictor to satisfaction, it would not yield loyalty to the retailer. A possible reason is that consumers perceive computers as a relatively standardised product and the market is crowded with computer retailers, hence there are many choices available. There will be less future intention to purchase with the same retailer unless in the retailer could provide a better service quality and interaction quality than others in the market. For these reasons, it is not surprising that there is evidence that service quality and interaction quality fairness contribute to repatronage intentions. These results reflect the fact that retailers should give more attention to maintaining and improving service and interaction quality, because these factors could be a source of competitive advantage.

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The most recent study was by Olsen and Johnson (2003), in which they argue that most of equity research has focused on the customers satisfaction from the transaction-specific approach and overlooked the different impact that equity might have on satisfaction and loyalty from the cumulative (overall) experience judgement. Hence, they introduce two competing models that link equity, satisfaction and loyalty (see Figure 3.9) which are employed to explore the role of that equity and satisfaction contribute in enhancing the understanding of customer loyalty for bank services.
Figure 3.9 Competing Equity, Satisfaction and Loyalty Models

The Equity-First Model

Perceived Equity

The Satisfaction-First Model

Customer Satisfaction

Customer Satisfaction

Perceived Equity

Customer Loyalty

Customer Loyalty

Transaction-specific Equity
Source: Adapted from Olsen and Johnson (2003)

Cumulative Equity

The equity-first model is consistent with existing research which portrays that equity is the determinant of customer satisfaction in a specific transaction (Oliver and DeSarbo 1988; Oliver and Swan 1989a 1989b; Teo and Lim 2001; Swan and Oliver 1984) and satisfaction in turn has significant impact on loyalty. Hence, satisfaction acts as a mediator of equity and behavioural intentions (see, example, Bolton and Lemon 1998: Teo and Lim 2001; Oliver and Swan 1989a; Patterson et al. 1997). In contrast, the satisfaction-first model demonstrates that equity bridges the gap between satisfaction and loyalty, and this phenomenon typically occurs as a result of the consumers cumulative satisfaction experience. Apparently, in this model, perceived equity is not a starting point in the satisfaction process, thus it is relevant when consumers approach the repurchase decision.

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The results of the study reveal that in the transaction specific samples, there is evidence to confirm the traditional equity-first model (which is consistent with previous studies Bolton and Lemon 1999; Teo and Lim 2001; Oliver and DeSarbo 1988; Oliver and Swan 1989a, 1989b; Swan and Oliver 1984). The equity first model is also significant in the customer segment that provides cumulative judgement and has reason to complain. Nevertheless, the satisfaction-first model better explains the cumulative satisfaction sample having no reason to complain. In essence, the equity-first model is more relevant if the study attempts to examine the determinants or driver to customer satisfaction, whilst the satisfaction first model, on the other hand, becomes more dominant if the study objective is to determine the predictors of customer loyalty intentions. Clearly, since the current research aims to investigate the determinants of customer satisfaction, the equity-first model, which takes into account transaction-specific experience of the respondents, would be more appropriate. This study lends support to the thesis conceptual framework which integrates perceived equity as a driver to customer satisfaction within the direct sales consumption experience. Interestingly, Armstrong and Tan (2001), in their study to investigate the determinants of corporate-customer satisfaction in the Singapore banking industry, reveal findings that contravene the traditional equity-satisfaction link. They found there was no evidence that fairness has a significant impact on satisfaction. However, there is evidence to support the relationship between fairness and perceived performance. The deviation is speculated to be due to higher expectation among corporate businesses, thus the perception of fairness in the transaction is relatively neutral. Finally, it is noteworthy that Johnson et al. (2001), examining the effect of the customers relationship with the salesperson on defection intentions in a business-to-business context, suggest that buyers who perceive their relationship with the salesperson to be equitable appear to be more satisfied with the salesperson and subsequently become more committed to them. This finding lends support to the current studys intention to incorporate perceived equity as a determinant of satisfaction towards the salesperson and ultimately to the satisfaction with the consumption experience with the direct sales channel.

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In conclusion, most existing studies that integrate equity into the customer satisfaction model have generally provided substantial evidence to support the contention of the equitysatisfaction relationship. Furthermore, there is empirical evidence that associates equity in the customersalesperson interpersonal relationship (see, for example, Johnson et al. 2001; Oliver and DeSarbo 1988; Oliver and Swan 1989a, 1989b). In line with the empirical work of Johnson et al. (2001), the consequence of perceived equity, or to be precise, the perceived equity-relational commitment link is interesting. Therefore, in the next section, literature pertaining to determinants of relational commitment, its function in the customer satisfaction process and its impacts on behavioural intentions will be discussed.

3.7

Relational Commitment

In stagnating market conditions, where product or service differences, if any, are limited, retaining existing customers becomes an emergent strategy to the future survival of business entities (Gronroos 1994). In response to this market condition, Kotler (1991) suggests that the marketers must shifts from marketing mix manipulation for the purpose of immediate exchange transactions to those that emphasise longer-term exchange relationships. This suggestion simply means that marketers should focus their efforts on relationship marketing, which has been advanced as the new paradigm of marketing (Gummesson 1994; Martin 1998; Sheth 2000). Relationship marketing is defined as a customer-centred approach whereby a firm seeks long-term relationships with prospective and existing customers (Kotler 1991). Accordingly, relationship marketing emphasises customer satisfaction and retention (Reichheld and Sasser 1990). This new paradigm has been widely embraced by many business organisations as a mechanism for developing customer loyalty and ultimately profitability (Priluck 2003). The emergence of relationship marketing stems, in part, from the assumption that building strong relationships yield positive returns to the firms in the form of customer satisfaction and loyalty (Reynolds and Beatty 1999). In fact, it has been widely documented that service providers that develop strong relationships with their customers enjoy the benefits of a stable supply of future revenue, positive word-of-mouth recommendations, lower marketing and operating costs, more satisfied and productive employees and insulation against price competition. This ultimately improves profitability and promotes future 104

growth (Reichheld 1993, 1996; Reichheld and Sasser 1990). In turn, as the relationship becomes more valuable to customers, subsequently their commitment increases (Liljander and Strandvik 1995). Therefore, this favourable condition acts as a barrier to entry mechanism and provides powerful competitive advantage for a company (Dwyer et al. 1987; Hsekett et al. 1990). Martin (1996b) proposed four categories of relationship marketing linkages, namely: (1) (2) (3) (4) The customer and the companys personnel, The business and its personnel, The customer and other customers, and The customer and the companys products and services

Among the linkages above, the relationship between customers and the companys personnel, specifically salespersons, is most relevant to the present study. The distribution of products via direct sales channel seems to suggest that relationship marketing is inevitable between the buyers and sellers as previously discussed in Chapter 2. According to social exchange theory, consumers will enter into a relationship if the benefits (outcomes) they receive are greater than the cost involved, which subsequently results in relationship satisfaction (see, for example, Kotler and Armstrong 1987; Lund 1985). Rationally, it is easier for the consumer to purchase from the same shop or salesperson because of familiarity with the product offering and service available, which makes the purchasing task easier. Possibly when a customers relationship with his/her salesperson is strong, this would extend to stronger sentiment, which ultimately encourage the effort to develop and maintain the relationship (i.e. develop commitment). In fact, relationship marketers have predominantly assumed that the future of buyer-seller relationships depends on the commitment made by the parties involved in the relationship (Beaton and Beaton 1995; Bowen and Shoemaker 1998). Commitment is suggested to be an essential element in building successful long-term relationships and has become a focal point of the marketing discipline as it moves away from the transactional approach to a relational view (Gundlach et al. 1995). In response to this reason, it is not surprising that commitment topic has been receiving increasing attention and concern among both academics and practitioners.

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3.7.1

Conceptualisation of Commitment

Commitment is a complex concept that has been poorly understood and is subject to a variety of forces (Kumar et al. 1995b). Even though it has been conceptualised in a variety of ways and from various contexts, the most cited definition of relationship commitment is the one proposed by Morgan and Hunt (1994). They defined relationship commitment as a buyers enduring desire to continue a relationship with a seller accompanied by his willingness to make efforts at maintaining it. Whilst, Dwyer et al. (1987, p. 19) observe it as, an implicit or explicit pledge of relational continuity between exchange partners and place as the highest stage of relationship bonding. Anderson and Weitz (1992, p.19) suggest that relationship commitment may be formulated as a desire to develop a stable relationship, a willingness to make short-term sacrifices to maintain the relationship, and a confidence in the stability of the relationship. On a similar note, Gudlach et al. (1995, p.79) define it as an enduring intention by the parties to develop and maintain a stable long-term relationship. In addition, Samuelson and Sandvick (1997) further offer their conception of commitment, which is framed as an attitudes strength. In the retailing literature, the one-to-one relationship between customers and salespersons is referred to as relationship selling (Beatty et al. 1996). Drawing from the work of Beatty et al. (1996), there are two common threads which are appropriate for the current study. These are as follows: 1) First, relationships are likely to persist in the situation when both parties obtain

benefits which are greater than the costs. For instance, the company and salespersons benefits include increased sales, positive word-of-mouth, customer loyalty and retention. On the other hand, buyer receives both functional and social benefits. In regards to functional benefit, consumers are busy and less keen to shop, and hence desire for time saving and convenient ways of shopping. Evidently, the sales channel in this study offers to fulfil this desire of the customer. Additionally, when both parties involved in the transaction derive satisfaction, the closeness of the buyer-seller relationship could form a strong driver of satisfaction and subsequent commitment to the relationship (Johnson et al. 2001). 2) Maintenance of a relationship is highly dependent on the actions of the salespersons,

who play the role of part-time marketers (Beatty et al. 1996) or relationship managers 106

(Crosby et al. 1990). This is true, for instance, in the direct sales situation, where the direct seller (salesperson) plays a very important role in communicating to the potential customer and then serving them by obtaining and delivering orders. Customers perceptions of the direct sellers personal characteristics, selling and servicing qualities might determine their satisfaction with the seller and extend to the institution that the seller represents. Following Czepiel (1990) and Reynolds and Beatty (1999), this type of relationship from the perspective of the direct sales scenario, is a customer-direct seller relationship established upon an ongoing series of interactions between a direct seller and a customer, and indirectly upon the institution the direct seller represents. Interestingly, the motivation underlying the relationship commitment results either from dedication (affective commitment) or constraints (calculative commitment). Affective commitment is observed as the desire to continue a relationship because of noninstrumental factors, and relies on the enjoyment of a satisfying object or relationship (Kumar et al. 1995b, p. 351). In contrast, calculative commitment means the buyers commitment to a seller because they need to, because of the constraints the buyer might face if they were to change to another seller (Geyskens et al. 1998). In a way, the customer is forced to remain committed, possibly because of a lack of alternatives or high personal sacrifice (de Ruyter et al. 1998; Zins 2001). Affective and calculative commitment are sometimes described as dedication-based versus constraint-based relationship maintenance (Bendapudi and Berry 1997). However, De Wulf (1999) argues that even though distinguishing two components is relevant, to avoid complicating the construct, the commitment construct should be maintained as one which may be comprised of affective and/or calculative drivers, but it is not necessary for both be present in order for the buyer to be committed. Therefore, the conceptualisation of relational commitment for this thesis was framed as the customers desire to develop and maintain a relationship with their direct seller. This definition implies that both components are integrated as a condition for commitment to take place (Anderson and Weitz 1992; Gundlach et al. 1995; Johnson et al. 2001). Although a loyalty construct was not included in the studys conceptual framework, the commitment concept has been consistently associated with loyalty. Hence, it is important to clarify their interrelationship. Although they emanate from different research roots, the 107

concepts of commitment and loyalty are consistently integrated in conceptual models (De Wulf 1999; Johnson et al. 2001). Loyalty is often defined as a composite measure comprising both behavioural and attitudinal dimensions (i.e. commitment). Past researchers argue that, in determining customer loyalty measurements, they must not only exhibit behavioural aspects (such as repeat purchase, word of mouth etc) but must include a favourable attitude towards a companys offering (Dick and Basu 1994, Nguyen and LeBlanc 1998). According to Bloemer and de Ruyter (1998) the behavioural dimension in the loyalty measurement often fails to explain how and why customer loyalty is formed, hence it is insufficient on its own to conceptualise customer loyalty. Further, they assert that an attitudinal dimension must therefore be incorporated in an attempt to offer a complete conceptualisation. Parallel to this argument, Oliver (1997, p. 392) points out that, Customer loyalty is a deeply held commitment to repurchase or repatronise a preferred product or service consistently in the future, despite situational influences and marketing efforts having the potential to cause switching behaviour. In short, the concept of commitment has been proposed as central to the definition of loyalty.

3.7.2

Integrating Relational Commitment into a Satisfaction Model

There has been considerable conceptual and empirical evidence to support the conception that commitment is the eventual outcome in relationships with causal precedence of satisfaction and trust (Bloemer and Odekerken-Schrder 2002; De Wulf 1999; Morgan and Hunt 1994). In fact, Geyskens et al. (1998) arrived at the conclusion that the trustcommitment link has been over-researched and that the findings related to its relationships are almost undisputed. They further assert that future study should investigate under which conditions these relationships do not hold. For instance, the direct impact of customer satisfaction on the desire to continue a relationship and a willingness to make efforts to maintain it has been given less attention. In other words, the research evidence for the customer satisfactionrelational commitment link is relatively sparse, with the notable exception of Garbarino and Johnson (1999) and Johnson et al. (2001).

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As the most prevailing relationship link, is between trust and commitment, it is essential to bring to light what trust is and why it is important in this link. Trust, as a concept, is predominant and has attracted extensive attention in the business-to-business context, yet very little research has investigated it within the consumer market environment, with the notable exception of contributions by Bloemer and Odekerken-Schrder, (2002) De Wulf (1999) Garbarino and Johnson (1999) and Macintosh and Lockshin (1997). Geyskens et al. (1998) assert that satisfaction and trust develop in the relatively short term, whereas commitment develops in the longer run and is future oriented. It is posited by several scholars that relationships based on trust are highly regarded, because it ultimately leads to commitment (Bloemer and Odekerken-Schrder 2002; Macintosh and Lockshin 1997; Morgan and Hunt 1994). Morgan and Hunt (1994) define trust as the exchange partners confidence in their partners reliability and integrity, and De Wulf (1999, p.67) observes it as a buyers confident belief in a sellers honesty towards the buyer. In response to Geysken et als (1998) call for advanced investigation of the trustcommitment link, Garbarino and Johnson (1999) in their empirical work provide one of the most notable pieces of evidence that the trust-commitment relationship is dominant only for high relational customers and not for weak relationship customers. Similarly, De Wulf, (1999) in his study on the retail environment, argues that a buyers perception of a sellers endeavour to develop and maintain a relationship is possibly influenced by the buyers s ocalled proneness to engage in the relationship. Consequently, he proposes that high relationship proneness buyers perceive the seller to be more relationship-oriented than buyers who are less relationship prone. It is assumed that the buyers commitment to a relationship is dependent upon the sellers relationship orientation. In view of this, his findings support the significant direct impact of relationship satisfaction on relationship commitment, in the case of high buyer relationship proneness. In addition to this, his findings also reveal that customer involvement with the focal product category positively correlates with relationship satisfaction and relationship commitment. Having briefly discussed the empirical findings from De Wulf (1999) and Garbarino and Johnson (1999), and Geyskens et al. (1998), it would be fruitful to conceptualise the direct link between satisfaction and commitment (with the absence of trust as the mediator construct) in the current research. It would be interesting to validate whether the prior research findings hold true within the current research context. This study attempts to 109

examine the relationship between relational commitment and its antecedents, namely direct seller satisfaction and perceived equity, and ultimately its impact on behavioural intentions. All these links are hypothesised in the conceptual framework (see Figure 4.2, p. 134). It is noteworthy to highlight that this studys aim is to determine the significance of the satisfaction-commitment relationship (see, for example, Johnson et al. 2001), but not to offer a competing model which would include the trust construct in the conceptual framework as was presented by several other authors (see, for example, DeWulf 1999; Garbarino and Johnson 1999). Furthermore, this studys core focus is on customer satisfaction with the direct sales consumption system; hence, it does not attempt to frame extensive coverage of the relational aspects within the proposed conceptual model. Accordingly, the relational (commitment and equity) aspect of the current thesis is proposed to be directly related to the direct seller dimension only among two other dimensions (product and company) which are simultaneously incorporated within the consumption system investigated (see Figure 4.2, p. 134).

3.7.3

Consequences of Relational Commitment

A review of the literature on relational commitment suggests that committed customers may have a greater propensity towards developing and maintaining their relationships with their sellers; thus, we can assume that this might lead to the customers engaging in intentional or actual behaviour in order to remain coherent with their commitment (Moorman et al. 1992). Several researchers provide evidence that relationship commitment motivates the buyer to engage in certain behaviours (Bloemer and Odekerken-Schrder 2002; Hennig-Thurau and Klee 1997; Johnson et al. 2001). Morgan and Hunt (1994) found a significant association between the buyers relational commitment and behavioural intentions, such as propensity to leave and cooperate. Similarly, Liljander and Strandvik (1993) point out that commitment is closely related to behavioural loyalty, whilst Johnson et al. (2001) examine the effect of the customers relationship with the salesperson on defection intention in a business-to-business setting, and demonstrate that a highly committed buyer would be less likely to develop defection intentions. Further, they also provide support for the assertion that commitment to the 110

salesperson is a more important predictor of customer defection intention than satisfaction with the salesperson. Macintosh and Lockshin (1997), examining the linkages between trust in the salesperson and trust in the store and repeat purchase behaviour, found that interpersonal relationships, trust and commitment to the salesperson are directly related to repurchase intention. Along these lines, their findings also confirm and reinforce the assertion that commitment positively influences store loyalty both in terms of positive attitudes toward the store and repurchase intention. Similarly, Bloemer and Odekerken-Schrder (2002), in their study

concerning supermarket customers, provide evidence that relational commitment has the strongest impact on purchase intentions, followed by price-insensitivity and word of mouth. In conclusion, having presented evidence of the relationship between customer satisfaction and relational commitment and its behavioural consequences, which was supported by considerable conceptual and empirical findings, it is anticipated that it will be fruitful to investigate these relationships within the current study. It is important to note that in the current study, it is conceptualised that the consequence of direct seller satisfaction is thought to be the relational commitment construct. Next, the present literature pertinent to behavioural intentions will be reviewed in the attempt to find support for the relationship between satisfaction and behavioural intentions.

3.8

Behavioural Intentions (BI)

In Sections 3.1 to 3.6 the focus has been on identifying determinants of customer satisfaction towards a direct sales channel, and in sections 3.7 to 3.8 the emphasis has changed towards distinguishing the consequences of satisfaction, which are proposed to be relational commitment and behavioural intentions. These two constructs have been identified and proposed as the consequences of customer satisfaction and BI is the last construct in our conceptual framework. Following an extensive search, it could be concluded that there had been relatively very little conceptual and empirical study of the outcomes of satisfaction, as compared to the antecedents of satisfaction. Indeed, Mittal, et al. (1999) assert that although much work has been conducted to comprehend the processes underlying the antecedents of satisfaction, the impact of satisfaction on future intentions 111

still remains poorly understood. It is worth noting that little research has directly examined critical issues such as the conceptualisation and operationalisation of the behavioural intentions construct, with the notable exception of Cronin et al. (2000), Foxall (1984), Tam (2000) and VanScoyoc (2000). There is a broad range of consumer behaviours that relate to the quality of performance of an organization. Some directly affect typical company performance measures such as sales, market share and profits but may include consumer intentions to repurchase, next repurchase, repeat buying and loyalty. Others have more indirect effects, the most important of which are word-of-mouth, compliments (to the seller), and complaints. There may be other important consumer behaviours as well. Inevitably, the satisfaction and loyalty/retention link is apparently more prevalent than the satisfaction intention link in many studies (see example, Andreassen and Lindesstad 1998; Bloemer and Odekerken-Schrder 2002; Lien and Yu 2001; Hallowell 1996; Kassim 2001; Kristensen et al. 1999; Schlentrich 2001; Sivadas and Prewitt 2000; European Customer Satisfaction Index). Even though customer loyalty, retention and intention constructs have been incorporated in many satisfaction models, the conceptualisation of these constructs is rather confusing and might cause misunderstandings. In fact, at times, there have been no clear distinctions among them. The behavioural intentions concept was rather unclear and at one time perplexing. For example in some studies, loyalty/retention was measured widely by indicators such as intention to repurchase and recommend (Jones et al. 2000; Kassim 2001), whereas the behavioural intention construct was measured by indicators such as the likelihood of I will be loyal to focal restaurant (Tam 2000).

As such, could these terms be use interchangeably or are they distinctively different? Some suggestions on the definitions of loyalty, retention and behavioural intentions drawn from selected studies, which ultimately highlight the distinctiveness of the behavioural intentions construct utilised in the current conceptual framework are discussed. The nature of retention and loyalty will be described briefly in the attempt to clarify the situation.

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3.8.1

Customer Retention versus Customer Loyalty

Faced with intense competition and the high costs of attracting new customers, more companies are adopting the defensive marketing approach in their effort to retain customers (Fornell 1992; Jones et al. 2000). Defensive marketing is concerned with minimising customer turnover by reducing customer exit and brand switching. Defensive marketing strategists take the position that satisfaction and loyalty can be restored through an effective customer retention strategy (Cronin and Taylor 1992).

In many publications and reports, satisfaction has been treated as the necessary underlying principle for the retention of customers and most researchers have repositioned it at the forefront of relational marketing paradigm (Andreassen and Lindestad 1998; Rust and Zahorik 1993). In fact, Kotler (1994, p. 20) forcefully argues that, The key to customer retention is customer satisfaction. Cronin and Taylor (1992) and Hennig-Thurau and Klee (1997) express similar opinions. In addition, LaBarbera and Mazursky (1983) assert that satisfaction/dissatisfaction significantly influences repurchase behaviour, which was investigated by most of the research in customer retention. Yet, very few researchers have attempted to examine the nature and extent of the relationship between satisfaction and retention itself (Bloemer and Poiesz 1989). The customer retention construct itself has rarely been implicitly examined; with some notable exceptions (e.g. Reichheld and Sasser 1990; Rust and Zahorik 1993).

The terms loyalty and customer retention are often used interchangeably or as surrogates for one another with no distinction made between these two constructs (e.g. Bolton et al. 2000; Boulding et al. 1993; Fornell 1992; Singh and Sirdeshmukh 2000). The customer retention literature frequently focuses on repeated patronage of the seller or service; hence, it is closely associated with the repeat purchase variable and the brand loyalty construct. Hennig-Thurau and Klee (1997) point out that these constructs are in fact different on the conceptual level, based on the following rationale: most would agree that the loyalty construct is comprised of both behavioural and attitudinal dimensions (Jacoby and Chestnut 1978), but customer retention clearly does not contain any attitudinal aspects.

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From the customer retention perspective, the marketer is seen as playing the proactive (i.e. retaining) role in the buyer-seller dyad, whereas repeat purchase behaviour pays no attention to the factors that drive that action. As such, customer retention aims at repeatpurchase behaviour that is initiated by the marketers activities; therefore, this approach focuses on the managerial aspects. Bolton et al. (2000) provide a good example of this conception. In their study on the effectiveness of a loyalty program, they identify that the program acts as a vehicle to achieve customer retention and provide extra value to their customers. It appears, then, that loyalty is an antecedent to retention strategies. Anderson and Mittal (2000) observe that most companies envision that their customer satisfaction programs should demonstrably show positive impacts on the key outcomes such as retention. Hence, here it seems that customer retention is the goal that most organisations desire to achieve, whilst loyalty functions as the means to reach this goal. A review paper by Anderson and Mittal (2000) based on the recent development pertaining to the nature of links between satisfaction and profit chain suggest the following.
Figure 3.10 The Satisfaction Profit Chain

Attribute Performance

Customer Satisfaction

Customer Retention

Profit

Source:

Adapted from Anderson and Mittal (2000)

Anderson and Mittal (2000) argue that customer satisfaction management has become an important tool for most companies (Oliver 1997). At the same time, satisfaction programmes have been improved, and are becoming result oriented. On top of this, firms have placed more emphasis on the satisfaction-profit chain approach (see Figure 3.10). Intuitively, the model seems to follow the logic of systematic thinking. For instance, it suggests that in the first stage, the company must focus on improving its product or service attributes, which should increase customer satisfaction. It is anticipated that increased customer satisfaction will result in higher customer retention, and in turn, improved customer retention will ultimately lead to greater profitability. Empirical support for these linkages (in part) has been described in various reports and pieces of research (Fornell 1992; Mittal et al. 1999, Rusk et al. 1995).

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According to Bitner (1990), customers may continue to purchase from a company or retailer for many reasons other than loyalty, such as convenience, lack of choices or habit; indeed, customers may seem to be loyal but in reality may be merely retained. Furthermore, O Malley (1998) argues that mere customer retention without an inherent positive attitude such as commitment is not equivalent to loyalty. Interestingly, all committed customers are retained customers; nevertheless, not all retained customers are committed.

Several consequences of loyalty have been reported in the marketing literature, such as positive word of mouth (Bearden and Teel 1983; Reichheld and Sasser 1990; Reynold and Beatty 1999; Swan and Oliver 1989; Westbrook 1987), increased share of wallet (Griffin 1995; Reynold and Beatty 1999; Zeithaml et al. 1996), lower price sensitivity (Anderson 1996, Fornell 1992), which are not merely customer retention (Schlentrich 2001). De Wulf (1999) points out that in most studies; behavioural loyalty has been measured in fours ways, namely: 1. 2. 3. 4. Patronage ratios based upon number of purchases made Switching ratios upon the number of successive purchases made Budget ratios based upon the proportion of total expenditure within a product class Composite measure of the first three ratios mentioned above.

It is important to note that intentions to repurchase are not listed as loyalty indicators, as it is argued that this is not considered as an actual behaviour. It is conceptualised to be only a tentative measure of loyalty (Dick and Basu 1994). Nevertheless, quite a number of researchers investigating the antecedents of customer retention have operationalised it as behavioural intentions (see example Anderson and Sullivan 1993; Fornell 1992; Taylor and Baker 1994). Anthanassopoulos (2001) adds to this issue by asserting that the effect of customer satisfaction on behavioural responses is considered as the antecedent of customer loyalty. Therefore, in the current thesis, the behavioural intentions construct is conceptualised as an antecedent to loyalty, which is comprised of various behavioural intentions that are anticipated to occur as a result of the customers overall consumption satisfaction with the direct sales channel (see, for example, Athanassopoulos 2001; Zeithaml et al. 1996).

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3.8.2

Conceptualisation and Operationalisation of Behavioural Intentions (BI)

Theorist and researchers in the satisfaction field of study generally agree that satisfaction is a function of expectations, performance and disconfirmation, and further extend the concept by including intention, which is a function of satisfaction (see, for example, Anderson et al. 1994; Cronin et al. 2000; Fornell 1992; Oliver 1980; Oliver and Gerald 1981; Oliver and Swan 1989). Oliver (1980b) found that a high level of consumer satisfaction increased the favourability of brand attitude, which in turn increased intention to repurchase the brand. Bearden and Teel (1983) also found that for customers of automobile services, satisfaction influenced patronage intentions indirectly, being mediated by attitudes. There is also considerable evidence of a direct influence of customer satisfaction on repurchase intentions. For example, in a longitudinal study on grocery products, LaBarbera and Mazursky (1983) found that the influence of customer satisfaction on repurchase intention was fairly strong, but the importance of satisfaction in predicting repurchase behaviour decreased with high brand loyalty. Oliver and Swan (1989b) found a very strong influence of customer satisfaction on intentions to repurchase automobiles, while Halstead and Page (1992) found that satisfied customers had higher repurchase intentions than dissatisfied customers. In addition, some empirical research on services has yielded the same direct relationship between customer satisfaction and patronage intentions. In a study on consumer perceptions of banking, fast food, and other services, Cronin and Taylor (1992) found that customer satisfaction significantly influenced patronage intentions. It appears that most studies have focused on determinants or antecedents of customer satisfaction, while the consequences of satisfaction (i.e. behavioural intentions) have been neglected. It is imperative for researchers to explicitly describe the nature of behavioural intentions in the endeavour to enrich the understanding of consequences of customer satisfactions. On a similar note, Richins (1979) and Ortinau (1979) proposed that the conceptual framework of the satisfaction model should be extended by incorporating behavioural intention to find the predictive effect on satisfaction. The consequences of satisfaction decisions are important to marketers as well as public policy makers, as it is necessary to find out how satisfaction with a product or service will influence consumers future 116

intentions. Furthermore, by investigating the behavioural consequences of customer satisfaction with a specific service, product or distribution channel, it could assist marketers to better understand the link between customer satisfaction and estimated financial outcomes of the organisation (Zeithaml et al. 1996). Many researchers and practitioners argue that the relationship between satisfaction and profits is a very complex one and it includes many intermediate links. One such link is behavioural response, specifically the consumers behavioural intentions, which be examined explicitly in this research.

The behavioural intentions model stemmed from the work devised by Martin Fishbein (1967) and drawing from this approach, he asserts that behavioural intentions reflect the subjective probability that an individual will perform a specific behaviour appropriate to the strength of his verbally-expressed intention to act accordingly (cf. Foxall 1984). In other words, it could be described as the fact that, prior to actual behaviour, consumers might hold intentions of how they will behave in future. Intentions have been generally associated with the concept of attitudes (Fishbein and Ajzen 1975; LaTour and Peat 1979) and identified as the conative components of attitude (Fishbein and Ajzen 1975). As pointed out by Foxall (1984), BI is itself a function of the individuals overall judgement of (affect or attitude towards) the act and beliefs in regards to expectations held by significant others; hence conforming to those expectations (subjective norms).

Some researchers point out that there is some similarity between satisfaction and attitude variables. In response to this concern, Oliver (1980a) posits that satisfaction is an evaluation of the surprise effects experience during the purchase (i.e. the immediate response to the purchase outcome) and over time, this effect decays into attitude.

In their empirical study, LaBarbera and Mazursky (1983) postulate that the determinants of revised intention (as described by Oliver 1980b) varied depending on whether the individual has switched products or has repurchased. For instance, intention to repurchase in future was largely determined by previous experience, whereas for the switcher, purchase intentions were influenced largely by dissatisfaction. In addition, Anderson and

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Sullivan (1993) provide evidence that demonstrates the links between satisfaction and purchase intentions. Hence, they define repurchase intentions as:

Intentions = f (satisfaction)

This means that intention is a function of satisfaction. In other words, satisfaction could lead to higher repurchase intentions. In fact, they have found that satisfaction judgement was a significant driver of intentions, and firms that report higher levels of satisfaction tend to have higher retention rates. Since then, many pieces of applied research have adopted this approach, based on its predictive and explicative powers, and it is sometimes known as the theory of reasoned action. The main attraction to the research practitioner of adopting this model is its ability to predict actual behaviour precisely, but with the condition that the specific behavioural intention examined must refer to specific action in a given situation and time in order to achieve high correlation between intention and actual behaviour (Foxall 1984). In conclusion, Foxall (1984) points out that the application of the BI model will work effectively if the study uses large samples.

In response to Foxalls (1984) speculation concerning the effectiveness of large samples as mentioned above, Mittal and Kamakura (2001) provided empirical evidence that contravenes this notion. Mittal and Kamakura (2001) conducted an empirical study to investigate the impact of satisfaction on the repurchaseintent relationship and subsequently repurchase behaviour for the automobile industry, by utilising a large sample of 100,040. The results reveal that the relationship between satisfaction ratings and repurchase behaviour was not asymmetric and nonlinear. Additionally, the relationship between satisfaction and intent was asymmetric but nonlinear. The satisfaction intent link exhibited decreasing returns, while the satisfaction-behavioural link conversely revealed increasing returns. Therefore, they argue that intention and behaviour should not be used interchangeably because of their different nature of nonlinearity (Anderson and Mittal 2000, p. 115). Nevertheless, they suggest that for preliminary research, repurchase intention can be a fruitful attempt for analysing customer satisfaction data, as it is easier to measure than behaviour. 118

In line with this suggestion, You (1986) in his conceptual framework, integrates Chinese cultural values, as his study was conducted in the context of the consumer market in Hong Kong. The operationalisation of behavioural intention construct was based on a questionnaire asking the respondents the likelihood of purchasing the focal product if it was available in the market with the price indicated by the researcher. A 6 point-scale was utilised, where 1 represents I would definitely not buy it and 6 represents I would definitely buy it. In their published work Oliver and Swan (1989b) hypothesised that intention was a function of satisfaction and found that this assumption holds. They also indicated that direct effect tests of other antecedent variables confirmed the strong mediating link of satisfaction to intentions. Similarly, Dabholkar and Thorpe (1994) investigated the possible relationships between satisfaction and post-purchase intentions of shoppers. They examined the effects of both levels of satisfaction, which are patronage intentions and intentions to recommend the store to others. The results further reinforce the assertion of a satisfaction intention link; they specifically revealed that overall satisfaction has a strong positive influence on post-purchase intentions. In turn, Mittal et al. (1999) developed a theoretical model in the context of the automobile industry by conceptualising satisfaction within the consumption system approach and empirically studying 5206 automobile owners. They proposed two subsystems within the framework: the product subsystem and the service subsystem. The results clarify the process by which satisfaction in T1 (initial consumption period) influences intentions in T2 (later consumption period, 21 months after T1). Accordingly, the product subsystem showed stronger results for the satisfaction-intention relationship. The intention construct was measured by asking the respondents how likely they would be to recommend the companys product and the dealership to others in future. Choi and Chu (2001) undertook a study to examine the relative importance of hotel factors to travellers overall satisfaction levels with their hotel stays in Hong Kong and the likelihood of returning to the same hotels on subsequent trips. They demonstrated that overall satisfaction levels and likelihood of returning was positively significant. This finding indicates that satisfaction acts as a reinforcement that leads to favourable intentions to repatronage the same hotel again. The measurement of intention was based on a questionnaire which asked travellers to rate their likelihood of returning to the same hotel on subsequent trips. 119

Tams (2000) study reveals a notable finding that contravenes the previous notion of the inevitable satisfaction-intention link. By utilising a structural equation modelling analytical approach, she found that the satisfaction construct was marginally associated to behavioural intentions. However, when she re-specified her conceptual framework by repositioning the perceived value construct directly to BI, the satisfaction and BI relationship turned out to be insignificant, whereas perceived value was strongly asssociated to BI. It could be speculated that satisfaction is a less influential determinant of consumers behavioural intentions, whereas perceived value becomes a more prominent driver of customers intentions and consequent loyalty. This finding concurs with the contention that satisfaction is not a surrogate for buyer intention, as advocated by Reichheld (1993). In light of this interesting phenomenon, it was thought that it would be constructive to validate Tams (2000) finding within the conceptual framework of this study.

3.8.3

Indicators of Behavioural Intentions

Halstead (1989) argued that satisfaction is not desirable as an end but rather as a means to understand future customer responses. She proposed that the post purchase model should integrate variables such as complaining behaviour, word of mouth and purchase intentions in order to completely understand the satisfaction process. In response to this call, a considerable amount of customer satisfaction study has gone beyond satisfaction (Armstrong and Tan 2000; Fornell 1992; Oliver 1980; Sderlund 1998). For example, several studies have extended the satisfaction model to include constructs such as behavioural intentions, loyalty, retention and profitability. Halstead (1989) further asserted that consumer satisfaction is important to business organisations because, evidently, consumer satisfaction judgments affect several post purchase outcomes which are of great interest to researchers and managers. For example, complaining behaviour (Bearden and Teel 1983; Day 1984), word-of-mouth

communication (Foster and Cadogan 2000; Richins 1983; Sirdeshmukh et al. 2002; Westbrook 1987), brand loyalty (Fornell 1976; Howard and Sheth 1969; Sirdeshmukh, et al. 2002), and purchase intentions (Cronin et al. 2000; LaBarbera and Mazursky 1983; Armstrong and Tan 2000), price tolerance (Anderson 1996; Fornell 1992) have all been found to be determined at least in part by consumer satisfaction or dissatisfaction. 120

The indicators of behavioural intentions are the final set of items included in the current thesis. Research focusing on antecedents of consumer satisfaction has extended the proposed research framework by integrating the consequences of consumer satisfaction judgments as well (Athanassopoulos 2001; Choi and Chu 2001; Bearden and Teel 1983, LaBarbera and Mazursky 1983, Mai and Ness 1999; Slama and Williams 1991, Westbrook 1987). Specifically, repeat purchase/patronage intention (Choi and Chu 2001; LaBarbera and Mazursky 1983, Oliver 1980 and 1987; Mai and Ness 1999), complaint activity (Bearden and Teel 1983, Oliver 1987; Slama and Williams 1991; Westbrook 1987), and word-of-mouth transmissions (Westbrook 1987) have all been investigated as responses to consumer satisfaction judgements. Additionally, from the perspective of the service industry, Zeithaml, Berry and Parasuraman (1996) posit that favourable behavioural intentions will engender a service providers ability to get its customers to: 1) 2) Say positive things about them Recommend them to others

The above behavioural intentions could be categorised as the word of mouth (WOM) communication activities. Word of mouth communication is probably the oldest mechanism by which opinions on products, brands, sellers or organisation are initiated, expressed and spread. It has been found to be very important in consumers decision making (Reichheld and Sasser 1990; Sderlund 1998). In addition, Tax et al. (1993) and Tax et al. (1998) postulate that business organisations are particularly interested in WOM because of its impact on both customer acquisition and retention. 3) Remain loyal to them (i.e. repatronage or repurchase)

Consumer satisfaction theory and research have consistently supported a positive relationship between product satisfaction and repurchase intention (Howard and Sheth 1969; LaBarbera and Mazursky 1983; Oliver 1980). Intention to repurchase has not been given as much attention by researchers as it might deserve. Hunt (1988) posits that intention to repurchase is a simple and close substitute for consumer satisfaction. Furthermore, intention to repurchase is the satisfaction measure most salient to managers,

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and for this reason it merits consideration as an objective in CS/D studies which have implications for managers. 4) Spend more with the company (cross buying)

In their empirical work, Verhoef et al. (2001) assert that in previous literature, most researchers and practitioners have primarily focused on retaining customers and a new emerging marketing approach has to identify the important aspect of creating value by cross selling additional products or services to customers. There was no evidence to support the anticipated positive relationship between satisfaction and cross buying. However, it was found that the differences between price of the focal supplier and price offered by competing suppliers affects cross buying. The findings suggest that the satisfaction level experienced by customers alone might not be sufficient to influence cross buying. These results contradict the earlier findings by Bolton (1998), Bolton and Lemon (1999) and Mittal and Kamakura (2001). 5) Pay price premium/price tolerance

Price tolerance has been described as follows: the excess of the price which a man would be willing to pay rather than go without having a thing over what he actually does pay is the economic measure of his satisfaction surplus (Marshall 1890, cited from Anderson 1996, p. 266). It is intuitively logical to assume that customers experience greater price tolerance for products that deliver greater satisfaction. Parallel to this assumption, Anderson (1996), in his empirical study, examined the relationship between customer satisfaction and price tolerance (the maximum price increase satisfied customers are willing to pay or tolerate before switching) by using a large database on a wide variety of industries. Interestingly, the findings suggest that increasing customer satisfaction is likely to decrease price elasticity of demand. Specifically, the findings indicate that a 1 percent increase in customer satisfaction should be associated with a 0.60 percent decrease in price sensitivity. It is worth noting that this study also found that the greater the competitiveness of the industry, the lower the price tolerance (i.e. greater price sensitivity), and at the same time, greater competitiveness is associated with higher levels of customer satisfaction. Beside the above indicators, the current thesis items such as propensity of customers to complain and switch, and items particularly relevant to the direct sales industry, such as the 122

likelihood of customers to join the direct sales business, was also incorporated. The potential of this indicator as one of the outcomes of customer satisfaction is widely speculated by the practitioners of the direct sales industry. This phenomenon is somewhat quite similar to loyalty cards scheme, that is when customers are satisfied with the particular services or firms they will sign up for the scheme (club) in order to receive some financial or non-financial incentives (Mgi 2003). Whilst in the direct sales industry, customers who sign up as member (direct seller) could purchase products at the wholesale price and furthermore they themselves could give personal testimonial about the products to others and return enjoy some financial benefits (Laggos 1998).

3.9

Concluding Remarks

The main purpose of this chapter is to present a review of the extant literature on satisfaction theories, pertinent constructs and their interrelationships as a foundation to provide justification for integrating them in the current studys conceptual framework in the attempt to address the research problem. Drawing from the discussion of the literature it is clear that there is a considerable amount of supporting evidence to indicate the appropriateness of employing the EDP as a basis of the thesis framework and the importance of several pertinent constructs and the linkages between them in the formation of customer satisfaction. However, there is still a fair amount of disagreement concerning the relationship among these constructs, which have not reached general acceptance among researchers and practitioners. This would include, for instance, the relationship between perceived value, satisfaction and behavioural intentions and the significant direct effect of performance on satisfaction, as well as the elimination of the expectation construct in satisfaction models.

It was also identified that some areas in the study of satisfaction which have been given less emphasis by researchers and practitioners. For example, despite the pervasiveness of perceived value as an emergent concept in marketing literature, very few empirical studies incorporate it in their satisfaction models. In addition, very few studies have attempted to extend the traditional EDP with the prevalent relational marketing variables such as commitment and equity. Similarly, it was discovered that most studies tend to focus on a specific product or service, and therefore there has been a lack of attention to examining 123

customer satisfaction within a system approach, thus leading to an incomplete understanding of the reality of the consumption process. In brief, the aforementioned neglected area of study warrants further empirical research effort.

In conclusion, this chapter has attempted to establish the structure for the subsequent chapters, and it provides the theoretical rationale for the present research. Against this backdrop, it is highly appropriate to incorporate the constructs suggested in the literature to explain the determinants and consequences of customer satisfaction in a consumption system approach. In the next chapter the conceptual framework and a series of research hypotheses will be presented.

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