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Impact of Relationship Marketing Tactics (RMTs)
on Switchers and Stayers in a Competitive Service
Industry
Leong Yow Peng & Qing Wang
Published online: 01 Feb 2010.
To cite this article: Leong Yow Peng & Qing Wang (2006) Impact of Relationship Marketing Tactics (RMTs) on
Switchers and Stayers in a Competitive Service Industry, Journal of Marketing Management, 22:1-2, 25-59, DOI:
10.1362/026725706776022263
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Journal of Marketing Management, 2006, 22, 25-59
ISSN1472-1376/2006/1-2/00025 + 34 8.00/0 Westburn Publishers Ltd.


Leong Yow Peng
1
and
Qing Wang
2


Impact of Relationship Marketing
Tactics (RMTs) on Switchers and
Stayers in a Competitive Service
Industry










Warwick Business School,
The University of Warwick

Businesses today have shifted their strategic focus
from emphasising customer acquisition (i.e.
targeting switchers) to emphasising customer
retention (i.e. targeting stayers) with the objective
of creating sustainable and mutually beneficial
relationships. However, current knowledge is
limited in providing insights to firms regarding
which marketing tactics are effective to achieve
such objective. This research aims to explore and
empirically test the questions as to what, why and
how various relationship marketing tactics
(RMTs) differentially influence consumers
decision to stay, or to switch their service
providers? It examines customers perceived level
of impact of the various RMTs on their decision to
choose service providers. As theory suggests and
as empirically validated in this study, switchers
and stayers differ significantly in their perceived
level of impact of the various marketing tactics on
their choice of service providers. The findings offer
new insights for both practitioners and
researchers


Keywords: Relationship Marketing Tactics, Price Perception, Reputation,
Marketing Communication, Service Quality, Value Offers

Introduction

For more than a decade, businesses have recognised that improving the
retention rate of profitable customers can reduce the levels of customer
churn (Reichheld and Sasser 1990; Webster 1992). The move towards

1
Correspondence: Leong Yow Peng, Warwick Business School, The University of
Warwick, Coventry CV4 7 AL, United Kingdom, Tel: + 44 (0) 24 7652 2546, Fax: + 44
(0) 24 7652 4650, e-mail: Yow.Leong02@wbs.ac.uk
2
Qing Wang, Warwick Business School, The University of Warwick, Coventry CV4
7AL, United Kingdom, Tel: + 44 (0) 24 76522819, e-mail: msmqw@wbs.ac.uk

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26 Leong Yow Peng and Qing Wang

deregulation and liberalization of markets has resulted in greater customer
turnover due to competitions from both incumbents and new entrants. For
example, since the UK electricity deregulation started in 1989, 51% of
domestic consumers have switched their service provider (OFGEM 2004) and
competition has led to a 25 percent real price reduction for domestic
electricity customers (OFGEM 2002). Payne and Frow (1997) highlighted the
major challenges facing the UK utility companies, and service companies in
general. These include: (1) minimising the impact of the price war; (2)
keeping existing customers loyal; (3) differentiating their services; and (4)
attracting new customers. These companies will need to develop two sets of
strategies; one aimed at keeping existing customers (customer retention) and
the other aimed at acquiring new customers (customer acquisition).
Consumers are bombarded with a plethora of marketing activities
ranging from aggressive sales tactics, telemarketing, direct mail, doorstep
selling, radio advertisement, TV advertisement, direct mail via internet to
customer loyalty programmes. However, there is little evidence regarding
the effectiveness of these marketing tactics towards the target customer
groups.
A basic assumption of our research is that relationship marketing can help
companies achieve customer retention as well as customer acquisition.
Drawing upon the diverse definitions of relationship marketing by different
authors (Berry 1983; Gronroos 1990; Christopher, Payne and Ballantyne 1991;
Morgan and Hunt 1994) we define relationship marketing as all marketing
activities directed towards building customer loyalty (keeping and winning
customers) by providing value to all the parties involved in the relational
exchanges.
A number of empirical studies have provided evidences on the impact of
RMTs on behavioural loyalty which affects customer retention (Bawa and
Shoemaker 1987; Bolton, et al. 2000; De Wulf et al. 2001; Verhoef 2003). Other
studies link RMTs, such as service quality, to attitude towards switching,
perceived switching cost, satisfaction and switching intention (Bansal and
Taylor 1999). Recently, Bansal, Taylor and James (2005) shows the impact of
RMTs, or what they call the push effects (quality, satisfaction, value, trust,
commitment, price perception), the pull effects (alternative attractiveness)
and the moor effects (attitude towards switching, subjective norms,
switching costs, prior switching experience, variety seeking) on switching
intentions and switching behaviour. However, despite empirical evidence
suggesting critical differences between switchers and stayers in terms of their
satisfaction, involvement and loyalty behaviours (see Ganesh et al. 2000),
little research has been done to differentiate the impact of RMTs on the
switching and loyalty behaviours upon the two distinct customer groups.
Therefore our research aims to fill this gap by proposing that, at its most
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Relationship Marketing Tactics (RMTs) 27

fundamental level, a firms customer base can be thought of as comprising
two groups of customers: (1) customers who have switched from other
service providers, i.e. switchers and (2) customers who have not switched
(i.e. stayers). In addition, we propose that certain RMTs are more effective at
achieving customer acquisition and others at achieving customer retention
due to the differences in customers perceived level of impact of each RMTs
on their decision to choose a service provider. We therefore ask the following
research questions:

1. What RMTs influence customers to remain loyal to or switch their
service providers?
2. What are the differences in the perceived level of impact of service
providers RMTs between the switchers and the stayers?

Next, we develop research hypotheses pertaining to the objectives of the
study. Then we describe the research methodology of our empirical study.
Subsequently, the empirical results are presented. We conclude with a
discussion and an assessment of managerial implications, limitations and
directions for future research.

Theoretical Foundation and Research Hypothesis - Customer perceived
level of impact of various RMTs on their decision to choose service
providers

In the previous section, we reviewed extant literature on various RMTs and
their influence on customer switching behaviour. In this section, we aim to
explore the underlying mechanisms for the differential effect of RMTs on
customer acquisition and customer retention. We postulate that this is likely
to be due to differences in the level of impact of RMTs perceived by
switchers and stayers group.
Next, we develop the research hypotheses on the links between specific
RMTs and their relative level of impact as perceived by the two customer
groups.

Service Quality
Parasuraman et al. (1988, p.15), defined Service Quality as the consumers
judgment about a firms overall excellence or superiority. Service quality
results in favourable behavioural intentions and leads to customer retention
(Zeithaml et al. 1996). In addition, Bansal and Taylor (1999) developed a
service provider switching model in the financial industry and empirically
determined the impact of service quality on satisfaction, customer switching
intentions and switching behaviour. A higher perceived level of service
quality leads to a higher perceived level of satisfaction. Other studies
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28 Leong Yow Peng and Qing Wang

revealed that satisfaction affects customer retention (Bolton 1998; Bolton et al.
2000). The underlying principle is that customers aim to maximise the
personal utility they obtain from a particular supplier (Oliver and Winer
1987) e.g. among other things, depending on the customers satisfaction level
and as a result, customers who are more satisfied are more likely to remain
with the service provider. Therefore the following hypothesis is proposed:

H1: Compared to switchers, stayers perceive the level of impact of Service
Quality more highly in deciding the service provider.

Value Offers
Value is considered to be an important constituent of relationship
marketing, and the ability to provide superior value to customers is regarded
as one of the most successful competitive strategies (Ravald and Gronroos
1996). In this study we adopt the perception of value offers as the
consumers overall evaluation of the utility of the service provision based on
perceptions of what one gets for what one gives (Zeithaml 1988, p.14).
Ravald and Gronroos (1996) suggest that firms providing superior value
through enhanced offers can improve customer satisfaction by increasing the
customers perceived benefits and reducing the sacrifice so that customer
retention is improved.
Firms provide value offers through relationship marketing instruments
such as loyalty programmes and direct mail to maximise customer
relationship management (Hart et al. 1999; Roberts and Berger 1999; Verhoef
2003). Verhoef (2003) investigates the differential effects of relationship
marketing instruments on customer retention and customer share
development. This empirical evidence indicates that loyalty programmes
providing economic incentives positively affect customer retention, and
direct mailings influence market share development. Bolton et al. (2000)
show that loyalty programmes have a significant, positive effect on customer
retention and service usage. Thus a firms value offers will enhance customer
retention through various relationship marketing instruments. The following
hypothesis is proposed:

H2: Compared to switchers, stayers perceive the level of impact of Value
Offers more highly in deciding the service provider.

Reputation
We adopt the definition of reputation from Weiss et al. (1999, p.755) as an
overall judgement regarding the extent to which a firm is held in high esteem
or regard. Brand image and reputation plays a special role in service
companies because strong brands and reputation increase customers trust
and enable customers to better visualize and understand intangible products.
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Relationship Marketing Tactics (RMTs) 29

They also reduce customers perceived monetary, social or safety risk in
buying services which are difficult to evaluate prior to purchase. Brand
image is a blend of what the company says the brand is, what others say, and
how the company performs the service (Berry 2000). Ranaweera and Prabhu
(2003) empirically tested the positive impact of building trust, reputation,
developing customer satisfaction and increasing switching barriers on
customer retention in a competitive telephone industry. Trust is generally
viewed as a key element for successful relationships (Berry 1995; Morgan and
Hunt 1994). Thus, firms perceived with better reputation in delivering trust
and offering higher satisfaction in their products and services will retain
more customers. The following hypothesis is proposed:

H3: Compared to switchers, stayers perceive the level of impact of
reputation more highly in deciding the service provider.

Price Perception
In the existing literature, perceived price is what a consumer gives up or
sacrifices in order to obtain a product (Zeithaml 1988). Lichtenstein et al.
(1993) suggest that perceptions of price positively correlate with price
seeking. The negative role of price perception comprises four dimensions
namely price consciousness, value consciousness, sale proneness and coupon
proneness. Price is mentioned as unquestionably one of the most important
marketplace cues due to its presence in all purchase situations. Higher prices
negatively affect purchase probabilities. Relevant to the context of this
research, price consciousness refers to the degree to which the consumer
focuses exclusively on paying low prices; value consciousness refers to the
concern for price paid relative to quality received; whereas sale proneness
refers to an increased sensitivity to price in its negative role, which is related
to the price being in sale form or discounts from their regular selling price;
coupon proneness refers to a price reduction in coupon form as an increased
propensity to respond to a purchase offer because the coupon form of the
purchase offer positively affects purchase evaluations. In a study by Brigham
and Waterson (2003) on the UK utility market, 21% of consumers will switch
their service provider with a saving of 48 in their annual electricity bill; 67%
will switch for savings of 120. Results from another study indicated that
customers choice of their service provider is strongly influenced by price,
perceived costs of switching and reputation of the company (Waterson 2003).
In an exploratory study by Keaveney (1995) across 45 service industries, 30%
of the respondents switched because of pricing issues e.g. high price or
unfair/deceptive pricing practices. Therefore, the following hypothesis is
posited:

H4: Compared to stayers, switchers perceive the level of impact of Price
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30 Leong Yow Peng and Qing Wang

more highly in deciding the service providers.

Marketing Communication
The primary aim of relationship marketing is to decrease the exchange
uncertainty and to create customer collaboration and commitment (Andersen
2001). Several relationship marketing scholars agree that communication is a
fundamental aspect of relationship development and is the essence of
coordinating behaviour in any organisational setting and marketing
relationships (Cummings 1984; Hutt and Speh 1995).
The specific focus on marketing communication has a direct impact on the
central aspects of relationship marketing such as commitment (Haekansson
et al. 1976), trust (Mohr and Nevin 1990) and coordination (McQuarrie 1993).
It also has a positive impact on consumer satisfaction. Information
satisfaction is defined as the consumers subjective satisfaction judgment of
the information used in choosing a product or service (Spreng et al. 1996).
Information satisfaction is the result of the consumers evaluation of the firms
marketing communication efforts (i.e advertising or personal selling). In
Keaveneys (1995) exploratory study, 50% of customers found a new service
provider through word of mouth communication, reference, and referrals.
Another 20% were persuaded by marketing communications that included
direct sales, promotional offers, or advertising media (e.g. yellow pages,
newspapers). The following hypothesis is posited:

H5: Compared to stayers, switchers perceive the level of impact of
Marketing Communication more highly in deciding the service
provider.

Research Method

Research Setting
The research was carried out in the UK utility services industry. We chose
the UK utility industry because it was deregulated more than ten years ago.
Since then, intensified competition has resulted in high incidences of
customer switching. Companies have increasingly recognised the importance
of building mutually beneficial relationship with valued customers. Berry
(1983) states that the practice of relationship marketing is most applicable to
a service firm when each of the following conditions exists: 1) ongoing desire
for the service; 2) customer has choice in choosing their suppliers; and 3)
competition exists in the market where there are multiple suppliers and
customer switching is common. Key results from an OFGEM (2004) report
on domestic competitive market highlighted a number of interesting
findings, which have provided preliminary support for our main research
propositions (see Appendix A for detailed information).
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Relationship Marketing Tactics (RMTs) 31

Instrument Design and Data Collection
Scale development measures following Churchills (1979) and Steenkamp
and van Trijp (1991) approach were adopted. The questionnaire was
developed following extant literature review and exploratory interviews
with five service providers and a small group of consumers in the West
Midland region of the UK.
The research instrument was pre-tested on a convenient sample of 28
consumers living within a UK University. The pretest helped to provide face
and content validity on the measures and to improve readability and clarity
of the scales. Analysis of the pretest results found that the scale items
required some revision of wordings for readability. The services from a
member of the Royal Literary Fund (RLF) Fellowship were utilised to check
for any grammatical errors in the revised questionnaire before conducting
the large scale survey.
The revised self-administered questionnaire from the pretest was
administered to a random sample of 1000 domestic consumers. The
questionnaires were randomly distributed to all the parents of pupils at two
primary schools and one secondary school in the West Midland region.
Respondents were asked a screening question requesting a member of the
household who is solely or jointly responsible for choosing the energy
supplier to fill in the questionnaire. The survey resulted in a useful sample of
172 responses (14 returned with empty responses and 15 were unusable
because of missing values). This provided a useful sample (effective response
rate of 17.2%) to test the measurement scales for each of the constructs and a
general overview on the characteristics of the two main groups of consumers
(i.e switchers and stayers) with regards to their choice of their service
provider.
A quantitative approach was applied to analyse the responses from the
questionnaire survey. Descriptive statistics, exploratory factor analysis using
SPSS 13.0 and confirmatory factor analysis using LISREL 8.54 were first
conducted to test and validate the measurement model. We then tested our
research hypotheses using multivariate analysis of variance, MANOVA.

Measures and Constructs
In order to categorise customers into the stayers or switchers group,
respondents were asked the question how many times have they switched
their service provider? A response of none is categorised as belonging to the
stayers group, whereas a response of one or more is categorised as
belonging to switchers group. We hypothesize that these two groups differ
in their perceived relative level of impact of various RMTs on their decision
to choose service providers. The items used to measure the latent variables,
i.e. the five RMT constructs, were obtained from a combination of prior
studies relevant to the current research setting and new scales developed
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32 Leong Yow Peng and Qing Wang

from the exploratory interviews.
Several researchers have argued for the addition of items to SERVQUAL,
the measure for service quality, with more specific variables in order to
increase the validity of service quality measurement (Brown et al. 1993;
Bresinger and Lambert 1990; Mentzer et al. 2001). On the basis of prior
research measures (Parasuraman et al. 1988; Taylor and Baker 1994;
Bettencourt and Brown 2003), we define service quality as the consumers
judgment about the entitys overall excellence or superiority. We measure
service quality in three dimensions. First, we obtained a global measure of
service quality by means of two items: Overall I consider the service
provided to be excellent, and I believe that the general quality of the
services is low. Second, to measure reliability and responsiveness
dimensions, we employed a scale comprising 8 items, 4 of which were
adopted from Parasuraman et al. (1988) SERVQUAL measures for reliability
and responsiveness and 4 new items from exploratory interviews with the
consumers. Finally, measures for service delivery comprised 3 items
developed by Bettencourt and Brown (2003) and all items were measured on
a seven-point Likert scale that ranged from strongly disagree to strongly
agree.
Perceptions on value offers measures were adopted from prior studies
(Zeithaml 1988; Petrick 2002; Youjae and Ho 2003). A total of 7 items were
used to measure the value offers construct, and all items were measured on a
seven-point Likert scale that ranged from strongly disagree to strongly
agree.
Perceived price measures were adopted from Lichtenstein et al. (1993). 11
items were used; 4 items from price consciousness measures; 3 items from
value consciousness measures; and 4 items adapted from the exploratory
interviews with consumers in line with sale proneness dimensions.
All items were measured on a 7-point Likert scale ranging from strongly
disagree to strongly agree.
A total of 11 items were used to measure reputation for this research. 9
items were adopted from Fombrun et al. (2000) study and includes the
dimensions of emotional appeal, products and services and social and
environment responsibility. Two new items from the exploratory interviews
with the consumers were added.
Marketing communication by the service provider is evaluated by
customers information satisfaction measures (Spreng, Mackenzie and
Olshavsky 1996) using 7 items. Respondents were asked about their
satisfaction with the information for each aspects of the product or service on
a 7 point Likert scale anchored by very dissatisfied and very satisfied. A
total of 49 items were used to measure all the latent variables (detailed
measures and items are listed in Appendix B).
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Relationship Marketing Tactics (RMTs) 33

Results and Analysis

The results of the large scale mail survey were analysed using descriptive
statistics, exploratory factor analysis (in SPSS) and confirmatory factor
analysis (in LISREL) to validate the measures (check for reliability and
validity) and to test the hypotheses. Missing data for the scale measures were
replaced with the series mean except for the demographic variables (Hair et
al. 1998; Verhoef et al. 2002). Details of the results are described next.

Measurement Properties
Of the 172 respondents, 32.4% were stayers and 67.6% were switchers
(38.2% switched once, 20.6% switched twice, 7.6% switched three times and
1.2% switched more than three times). Overall the data indicated good
variance in the responses for all the items measured. The correlation matrix
for all the constructs is shown in Table 1.

Demographics
Respondent demographics were measured by gender, age, employment
status, education, current energy consumption (gas and electricity), payment
type, type of house, ownership of the house and gross household income per
year. In total, 52.1% of the respondents were male and 47.9% were female.
Majority of the respondents were employed (73.8%). Detailed figures are
provided in Appendix C.

Nonresponse Bias
Testing of nonresponse bias was done by assessing the differences
between the early and late respondents with regard to the mean of all the
variables for the two samples (Amstrong and Overton 1977). Late
respondents were defined as the last 25 % of the returned questionnaires,
while early respondents were the first 75% of the returned questionnaires.
These proportions approximate the actual way in which questionnaires were
returned (Lages, Lages and Lages 2005). The t-test of group means revealed
no significant differences between the early and late respondents, suggesting
that response bias was not likely to be a critical problem in this study.

Testing of Hypotheses
One of the main challenges of our research lies in the development of a
comprehensive scale measures for the five RMTs relevant to the research
hypotheses. As we have discussed in the literature review and methodology
sections, previous studies linking marketing tactics and customer switching
tended to focus only on a specific RMT, such as reputation, or on one
particular dimension of a RMT like trust. Consequently, existing measures
for various RMTs were only tested separately with different customer
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34 Leong Yow Peng and Qing Wang

Table 1. Summary Statistics and Correlation Matrix Among Constructs

Constructs Mean Stdev 1 2 3 4 5 6 7 8
1.Pcons 4.35 1.40 1
0.80
(**) 0.13 0.12 -0.06 -0.16
0.41
(**)
0.29
(**)
2.Saleprone 5.12 1.27
0.53
(**) 1 0.03 0.13 0.00 0.09
0.41
(**)
0.36
(**)
3. Social 4.41 1.13 0.08 0.02 1
0.70
(**)
0.43
(**)
0.24
(*)
0.33
(**)
0.20
(*)
4.Tproduct 5.52 1.06 0.08 0.09
0.46
(**) 1
0.59
(**)
0.60
(**)
0.33
(**)
0.30
(**)
5. Comm 4.83 1.06 -0.04 0.00
0.30
(**)
0.42
(**) 1
0.72
(**) 0.11
0.18
(*)
6.Servqual 5.19 0.98 -0.12 0.07
0.17
(*)
0.45
(**)
0.57
(**) 1
0.28
(**)
0.34
(**)
7.Pvalue 4.11 1.22
0.29
(**)
0.30
(**)
0.23
(**)
0.24
(**) 0.08
0.22
(**) 1
0.84
(**)
8.Monetary 4.45 1.24
0.22
(**)
0.29
(**)
0.16
(*)
0.24
(**)
0.15
(*)
0.29
(**)
0.73
(**) 1

Note: Means and standard deviations are based on summated scale averages.
** Correlation is significant at the 0.01 level (2-tailed).
* Correlation is significant at the 0.05 level (2-tailed).

Off Right Diagonal : Correlation matrix corrected for attenuation of measurement
errors.
Off Left Diagonal : Correlation matrix without correction for attenuation of
measurement errors.

Legend:

Pcons : Price Consciousness
Saleprone : Sale Proneness
Social : Social Responsibility
Tproduct : Trusting Products
Comm : Marketing Communication
Servqual : Service Quality
Pvalue : Perceived Value
Monetary : Monetary Value

samples and in different industry context. Therefore, before testing the
research hypotheses we carried out a rigorous scale development and
validation in conformance with the psychometric test required. The process
is described in some details next.
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Scale Development
Prior to hypotheses testing, we engaged in a scale purification process
following basic descriptive analysis (normality, skewness, kurtosis, means
and standard deviation). We then subjected the purification data to
exploratory factor analysis (EFA) using SPSS and confirmatory factor
analysis (CFA) by means of LISREL 8.54 (Joreskog and Sorbom 1996;
Joreskog et al. 1999). In this analysis, items were grouped into a priori
conceptualised scales. Modification indices (i.e initially greater than ten),
standardised residuals (i.e greater than four), and fit statistics (CFI) drew to
our attention potentially problematic items.
We then analysed these items within the theoretical context of each scale
and deleted items based on substantive and statistical grounds (Anderson
and Gerbing 1988; Mac Cullum 1986; Mentzer, Flint and Hult 2001). As a
result we eliminated 17 items from an initial pool of 49 items. After the
measurement analysis, we proceeded to the hypotheses testing using the
refined scales.

Measurement Model
A 3 phase analysis was performed for the measurement model. In the first
phase, exploratory factor analyses (EFA) using principal component analysis
with varimax rotation was carried out to purify the scales. For the second
phase, the scales were subjected to a confirmatory factor analysis (CFA)
using LISREL 8.54 with maximum likelihood (ML) estimation (Joreskog and
Sorbom 1996) to assess construct validity and convergent validity. In the
third phase, discriminant validity for all the possible pairs of constructs was
performed.
Because the chi-square statistic is sensitive to sample size, in concurrence
with current research using CFA, additional fit indices were used, namely:
the Tucker-Lewis Index (TLI or NNFI); the Comparative Fit Index(CFI); the
Normed Fit Index(NFI), the root mean squared approximation of error
(RMSEA). These indices are all scaled on a pre-set continuum (0-1) for easy
interpretation and are all relatively independent of sample size effects.
Standardised data were used in the analysis because measures can be
sensitive to differing scales (Hair et al. 1998, p. 489; Bansal and Taylor 1999).
The resultant pool of items from the initial exploratory factor analysis for all
the constructs were subjected to CFA using LISREL 8.54 with covariance
matrix as input. A unidimensional factor structure was found for the Service
Quality construct with 6 items and Information Satisfaction construct with 5
items. Similar procedures resulted in a two factor structure for Price
Perception with two dimensions namely Price Consciousness with 4 items
and Sale Proneness with 3 items; Value Offers with two dimensions namely
Perceived Value with 3 items and Monetary Value with 4 items; and
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Reputation constructs with two dimensions namely Social Responsibility
with 3 items and Trusting Products with 4 items. Details of the reliability
analysis are shown in Table 2.

Table 2. Results from Reliability Analysis - Cronbach Alpha




Construct



Reliability

Items

Corrected
Item-Total
Correlation

Cronbach
Alpha if
Item
Deleted

Service Quality Opinion on the various
aspects of service quality
provided that influenced
your decision to choose
your current service
provider

Service Quality 0.885 1. The service provider
follows up in a timely
manner to customer
requests
.729 .848
2. Regardless of
circumstances, the
employees are
exceptionally courteous
and respectful to
customers
.669 .858
3. The service provider
follows through in a
conscientious manner on
promises to customers.
.547 .887
4. The service provider
provides accurate billing
on a regular basis.
.790 .839
5. The service provider
employees are always
willing to help me.
.737 .848
6. When something goes
wrong, the problem gets
resolved swiftly.
.691 .854


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Construct



Reliability

Items

Corrected
Item-Total
Correlation

Cronbach
Alpha if
Item
Deleted

Price Perception Opinion on the various
aspects of pricing that
influenced your decision
to choose your current
service provider

Price
Consciousness
0.761 1. I am willing to make
every effort to find lower
prices.
.592 .659



2. The money saved by
finding low prices is
usually worth the time and
effort.
.591 .652
3. The time it takes to find
low prices is usually not
worth the effort.*
.258 .754
4. I would never look
around to find low prices.*
.290 .730

Sale Proneness 0.778 1. If the price is cheaper,
that is an important reason
to stay with the service
provider.
.358 .719
2. I am more likely to stay
with the service provider
that offers price savings.
.433 .650
3. When I choose a service
provider that is offering a
cheaper rate, I feel that I
am getting a good deal.
.361 .720

Marketing
Communication
Satisfaction with the
information provided by
the service provider in
helping you to choose
your current electricity
supplier

Information
satisfaction
0.831 1. Information on the
pricing of electricity.
.363 .809
2. Regular billing
information.
.421 .794
3. Regular updates on new
products and services.
.289 .825
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Construct



Reliability

Items

Corrected
Item-Total
Correlation

Cronbach
Alpha if
Item
Deleted

4. Accurate billing
information.
.577 .779
5. Your satisfaction overall
with the information
provided.
.578 .771

Value Offers Underlying reasons for
selecting the promotional
offers

Perceived Value 0.851 1. The loyalty scheme
offered has a high cash value
.487 .814
2. It is highly likely that I
will achieve the proposed
reward.
.565 .762
3. The proposed rewards
were what I wanted.
.519 .796

Monetary Value 0.955 1. The promotional offer was
reasonably priced
.844 .935
2. The promotional offer was
worth the money.
.843 .935
3. The promotional offer was
a good buy.
.858 .929
4. It is easy to get the
benefits from the
promotional offer.
.689 .961

Reputation I choose the service
provider that..

Social
Responsibility
0.731 1. I have a good feeling
about.
.283 .687
2. Supports good causes. .294 .680
3. I admire and respect. .392 .551

Trusting
Products
0.829 1. I can trust.
.438 .788
2. Offers high quality
products and services.
.476 .780
3. Keeps its promises. .507 .764
4. Is honest .406 .805
* Reverse coded items
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The measurement model for each of the constructs suggested good fit to
the data. Our findings are supported by the limited number of modification
indices not exceeding the recommended cut-off value of 5 (Marsh and
Hocevar 1985). Details of the goodness of fit indices are shown in Appendix
D. The results of the CFA with standardised factor loadings, t-values,
cronbach alpha, composite reliability, average variance extracted are shown
in the Table 3.

Table 3. Results from Confirmatory Factor Analysis

Construct

Items
Factor
Loading
T-
values
Squared
Multiple
Correlation


Cronbach
Alpha
Composite
Reliability
Average
Variance
Extracted
Reputation 1 0.66 - 0.434


0.731 0.73 0.64
Social
a

Responsibility

2 0.64 5.842 0.415


3 0.78 6.116 0.611


Trusting
a

Products 1 0.73 - 0.526


0.829 0.79 0.69
2 0.84 10.037 0.709


3 0.71 7.816 0.511


4 0.58 4.987 0.340


Service
a

Quality

1 0.79 - 0.62


0.885 0.90 0.82
2 0.74 8.680 0.55


3 0.58 14.327 0.34


4 0.97 8.315 0.94


5 0.79 11.515 0.62


6 0.73 9.372 0.53


Marketing Communication 1 0.61 0.374


0.831 0.86 0.76
Information

Satisfaction
b
2 0.69 8.385 0.478


3 0.54 6.822 0.287


4 0.83 7.541 0.683


5 0.84 7.931 0.705


Value Offers 1 0.73 - 0.535


0.851 0.84 0.79
Perceived Value
a
2 0.85 9.886 0.726


3 0.84 10.378 0.699

Contd
















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Construct

Items
Factor
Loading
T-
values
Squared
Multiple
Correlation


Cronbach
Alpha
Composite
Reliability
Average
Variance
Extracted
Monetary
a

Value



1

0.94

-

0.887

0.958

0.95

0.94
2 0.94 28.005 0.878


3 0.95 28.254 0.902


4 0.84 15.373 0.713


Price
Perception 1 0.82 - 0.656


0.761 0.74 0.64
Price Consciousness
a
2 0.91 12.621 0.842


3 0.43 4.390 0.168


4 0.46 5.448 0.189


Sale
a

Proneness 1 0.71 - 0.500


0.778 0.77 0.69
2 0.80 7.136 0.636


3 0.70 7.043 0.486


a. measured using a seven point Likert items anchored by Strongly
Disagree/Strongly Agree
b. measured using a seven point Likert items anchored by Very Dissatisfied/Very
Satisfied

All the constructs are above the desirable levels of composite reliability
(i.e above 0.7, Bagozzi 1980). Discriminant validity of the constructs were also
stringently assessed using Fornell and Larcker (1981) test. 27 out of the 32
items factor loadings are relatively high (i.e. above 0.60, Bagozzi and Yi,
1988), and 26 out of the 32 items have substantial shared variance (i.e. above
0.40, Taylor and Todd 1995) providing strong evidence of convergent
validity. The high average variance extracted (AVE) for all the constructs
and dimensions demonstrated support for convergent validity (Bagozzi and
Yi 1988). All values exceeded the recommended level of 0.5 ranging from
0.64 to 0.94. In examining the reliability, we assessed coefficient alpha
(Cronbach 1951) and composite reliability for each of the constructs (Fornell
and Larcker 1981). Coefficient alpha and composite reliability range from
0.73 to 0.958 indicating our measures are reliable exceeding the
recommended level of 0.70
Discriminant validity was evaluated by calculating AVE for all pairs of
constructs and comparing this value to the squared correlation between the
two constructs of interests (Fornell and Larcker 1981) and no correlation
includes a value of 1 (Anderson and Gerbing 1988). The highest correlation
corrected for attenuation due to measurement errors is 0.84 between
perceived value and monetary value. Taking tables 1 and 3 into account, all
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Relationship Marketing Tactics (RMTs) 41

AVEs were greater than the squared correlation between the two constructs
of interest. On the basis of the reliability, convergent and discriminant
validity tests, we concluded that the measurement model satisfied all the
psychometric requirements.

Validation of Hypothesis
All five hypotheses H1-H5 aim to compare the differences between the
two groups with regard to their perception of RMTs on their choice of service
provider. H1-H3 postulate that stayers have a higher perception on the level
of impact of service quality, value offers and reputation, whereas H4-H5
postulate that switchers have a higher perception on the level of impact of
price and marketing communication.
Scales for each of the RMT constructs were developed by averaging
responses of the individual items. The composite scales were computed to
accommodate the estimation technique employed in the analysis (Taylor and
Todd 1995; Bell et al. 2005; Hair et al. 1998). To test these hypotheses, a
comparison of the group means was carried out using multivariate analysis
of variance (MANOVA).
The Boxs M test in Table 4a indicates we have homogeneity of variance-
covariance matrices because this test is not significant at an alpha level of
0.001 ( p>0.001) and the univariate Levenes test of equality of error variances
in Table 4b for homogeneity assumption has not been violated, i.e the
population variance for each group are approximately equal ( p>0.05). The
multivariate tests of significance in Table 4c reveals that there are significant
differences in the dependent variables (RMTs) across switchers and stayers
( p < 0.05).

Table 4a. Box's M Test of Equality of Covariance Matrices(a)

Box's M 20.270
F 1.300
df1 15
df2 47536.8
43
Sig. .192

Tests the null hypothesis that the observed covariance matrices of the dependent
variables are equal across groups.
a Design: Intercept+switch supplier



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Table 4b. Levene's Test of Equality of Error Variances(a)

F df1 df2 Sig.
Price 2.158 1 170 .144
Reputation .001 1 170 .982
Communication .030 1 170 .863
Service quality .044 1 170 .834
Value offers .074 1 170 .786
Tests the null hypothesis that the error variance of the dependent variable is equal
across groups.
a Design: Intercept+switch supplier


Table 4c. Multivariate Tests of Significance

Effect Value F
Hypothesis
df Error df Sig.
Intercept Pillai's Trace .980 1663.692(a) 5.000 166.000 .000
Wilks' Lambda .020 1663.692(a) 5.000 166.000 .000
Hotelling's
Trace
50.111 1663.692(a) 5.000 166.000 .000
Roy's Largest
Root
50.111 1663.692(a) 5.000 166.000 .000
Group Pillai's Trace .127 4.815(a) 5.000 166.000 .000
Wilks' Lambda .873 4.815(a) 5.000 166.000 .000
Hotelling's
Trace
.145 4.815(a) 5.000 166.000 .000
Roy's Largest
Root
.145 4.815(a) 5.000 166.000 .000
a Exact statistic ; b Design: Intercept+switch supplier

Subsequent examination of the univariate F-tests for each RMTs in Table
4d indicates which individual variable contribute to the significant
multivariate effect. It shows that price and service quality differs significantly
across the switchers and stayers when significance is measured at an alpha
level of 0.05. However, at the alpha level of 0.01, customers decision to
switch is significantly influenced by price. A graphical illustration of the
differences between switchers and stayers are shown in Figure 1.




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Table 4d. Test of Difference Between Perceived Level of Impact of RMTs

Mean Scores
Difference
Between
Means
Sig.
Measure Relationship
Marketing Tactics
STAYERS SWITCHERS
Communication 4.91 4.79 0.12 0.487
Reputation 5.05 4.92 0.13 0.421
Price
a
4.22 4.98 -0.76 0.000
Service Quality
a
5.42 5.08 0.34 0.037
Value Offers 4.32 4.26 0.06 0.769
a The difference between group means were all significant at p < 0.05



4.00
4.25
4.50
4.75
5.00
5.25
5.50
0 1 2 3
1= STAYER , 2= SWITCHERS
M
E
A
N
S
COMMUNICATION
REPUTATION
PRICE
SERVICE
QUALITY
VALUE OFFERS


Figure 1. Comparison of Customer Group Perception of the Level of
Impact of RMTs

The results reveal that the two groups of customers differ in their
perceived level of impact for all five RMTs. However, of the three RMTs (i.e.
service quality, value offers and reputation) that we hypothesised to have
higher perceived level of impact by the stayers group, only service quality is
statistically significant ( p-value=0.037 <0.05). Similarly, of the two RMTs (i.e.
price and marketing communication) that we hypothesised to have higher
perceived level of impact by the switchers group, only price is statistically
significant (p-value=0.000 <0.05). The results for Marketing Communication,
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Value Offers and Reputation indicate no significant difference in the
perception between the two customer groups. The mean scores for Service
Quality supports hypothesis H1, that stayers (mean score = 5.42) perceive the
level of impact of Service Quality on their decision to choose service provider
more highly than switchers (mean score = 5.08). The mean scores for Price
Perception supports hypothesis H4, that switchers (mean score = 4.98)
perceive the level of impact of Price Perception on their decision to choose
service provider more highly than stayers (mean score = 4.22).

Discussion And Implications

Major Findings
Relationship marketing refers to all marketing activities directed towards
building customer loyalty by providing value to all the parties involved in
the relational exchanges. Organisations benefit from relationship marketing
in terms of increased purchase, reduced costs, free advertisement through
word of mouth communication, employee retention and the life time value of
customers (Zeithaml and Bitner 1996).
However, effective use of relationship marketing activities or tactics
implies some degree of knowledge about the level of impact they exert on
different customer groups, such as stayers and switchers. The research
presented here provides a much needed perspective on relationship
marketing in terms of how various relationship marketing tactics differentially
influence consumers decision to stay, or to switch their service provider. The
findings and contributions of this research include the following:

1. The paper showed that the two groups differ in their perception of
the level of impact of various RMTs on their decisions to switch or
stay with current service provider. The results indicate that among
all five RMTs, stayers perceived Service Quality, Value Offers,
Reputation and Marketing Communication as having a higher level of
impact on their decision to choose service providers, although only
the effect of Service Quality is statistically significant. On the other
hand, switchers perceived Price as having a higher level of impact
on their decision to choose service providers.
Thus, as theory suggests and as empirically validated in this
study, switchers and stayers differ significantly in their perceived
level of impact of Service Quality and Price, and marginal difference
has been found between the two customer groups on their perceived
level of impact of Marketing Communication, Value Offers and
Reputation.
The above findings concur at a general level with Berrys (1995)
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Relationship Marketing Tactics (RMTs) 45

three levels of RMTs that service providers utilise to keep and win
customers, namely: 1) Level one RMTs relies on pricing incentives
which is considered the weakest level as competitors can easily
imitate price; 2) Level two RMTs that focuses on the social aspects of
a relationship which are exemplified by regular communication
with consumers; and 3) Level three RMTs offering structural
solutions to consumer problems e.g. providing excellent service
quality.

2. The paper also developed and statistically tested a comprehensive
and parsimonious measure of all major RMTs. Many researchers
have argued for the addition of items e.g. SERVQUAL measure with
more specific variables in order to increase the validity of service
quality measurement (Brown, Churchill and Peter 1993; Bresinger
and Lambert 1990; Mentzer et al. 2001). Meanwhile, when all RMTs
are combined in one instrument in the scale development, scale
items are simplified and purified, and reliability and validity of the
measures improved. On the basis of our reliability, convergent and
discriminant validity tests, we concluded that our measurement
scales are parsimonious and satisfied all the psychometric
requirements (see Table 3 for the refined scales).

3. The paper finally indicates that for utility service, which is
classified as a low involvement product/service, customers perceive
the risk of switching service providers as low.

Implications
A deeper understanding of the impact of RMTs for customer retention as well as
for customer acquisition. Although all marketing activities are potentially
useful for building customer loyalty, i.e. keeping and winning customers,
depending on the status of the customers (i.e. switchers or stayers), some
RMTs exert more influence than others. This is because these two groups of
customers differ in their perception of the relative level of impact of the
various RMTs. Among all five RMTs, service quality has been found to exert
the greatest influence on the stayers group, whereas price has been found to
exert the greatest influence on the switchers group.
A wider understanding of the profiles of the two customer groups. Since we
found that switchers are more sensitive to price, whereas stayers are more
sensitive to service quality, one would assume that customers who are price
sensitive tend to be in a low income group than customers who are service
quality conscious. However, our findings indicate that compared to 59.6% of
stayers who have household income of 25,000 or below, only 40.4% of
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switchers belong to the same income band. In other words, switchers are
overall higher earners than stayers. The difference in their income level
however does not imply that one customer group is better educated than the
other. The educational profiles of the two customer groups are very similar.
Furthermore, in terms of house type, 43.6% of switchers live in terraced
houses, whereas only 26.4% of stayers live in terraced houses.
In terms of considerations for managing the customer groups, the findings
suggest that service providers in the utility industry are fundamentally faced
with managing two distinct customer groups stayers and switchers that
differ in their perceived level of impact of various RMTs. What is needed, in
the light of the research presented here, is an effort to recognise the
heterogeneity inherent in a firms customer base and treat those segments
differently with regard to relationship marketing tactics. As the demographic
profile indicate that these two groups of customers can be identified and
targeted differently. Next, service firms in the utility industry are faced with
low involvement customers who perceive the risk of switching as low. A
critical question for retaining customers is how to increase the level of
involvement and the perceived switching cost.

Limitations and Future Research Directions
This research provides detailed investigation on relationship marketing
tactics and their influence on two customer groups. The research makes
contributions to knowledge and has important implications for managers.
However, several limitations and future research directions deserve
mentioning.
First, we caution that these results are confined to the utility service
industry, and further research is needed to validate and generalise these
results to broader settings. However, despite this limitation, the findings and
the measures we developed could be applicable to services, such as land line
telecommunication and internet services, that share some of the following
common features with the utility service industry: (1) switching is largely
initiated by the service providers as a competitive poaching tactic and (2)
consumer involvement with the product/service is low.
Second, this is a cross sectional study on the impact of RMTs on two
customer groups. Other important variables such as switching costs,
switching intention, attitude towards switching, satisfaction and loyalty,
which are likely to influence customer switching behaviour, have not been
included in the study. Lehmann (1999) calls for the development of a
conceptual and structural model that brings together all the important
variables concerning marketing tactics, consumer attitude, intention,
satisfaction, preference and loyalty. Therefore future studies that extend to
longitudinal data and incorporate a more comprehensive list of consumer
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Relationship Marketing Tactics (RMTs) 47

variables would be desirable. This will enable the researcher to gain better
insight into the causal relation between the variables instead of a one off
cross sectional study as customer attitude changes over a period of time
(Elisabeth 2002).
Third, the sample is regional based, future studies that utilise a
nationwide sample from the customer database of service providers would
reduce the sample bias.

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Appendix A:

Key Findings from OFGEMs Domestic Market Review

93% of 26 million domestic customers are aware that they can procure
their electricity from suppliers other than their local electricity supplier.
69% are highly satisfied with their current electricity supplier as
provider of services to their home.
61% perceive the switching process to be easy or very easy.
51 % had switched their electricity supplier.

Among the 51% customers who had switched, the main reasons cited for
leaving their previous electricity supplier were:

Price/cost,
Convenience for having gas and electricity with one supplier,
Persuaded by salesman,
Better customer service, and
Moved area.

Among the 49% who stayed with their current electricity supplier, the main
reasons for staying were:
Price
Resistance to change,
Power quality and reliability,
Satisfied with current supplier, and
Better customer service.



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Appendix B:

Measures Adopted/Adapted from Existing Scales

Service Quality

Taylor and Baker (1994); Bansal, Taylor and James (2005)

1. Overall, I consider the service provided to be excellent.*
2. I believe that the general quality of the services is low.*

Parasuraman, Zeithaml and Berry (1988): Reliability and Responsiveness
dimension

1. When the service provider promises to do something it does so.*
2. When you have a problem, the service provider is sympathetic and
reassuring.*
3. The service provider employees are always willing to help you.
4. The service provider employees are never too busy to respond to
customer request promptly.*

Bettencourt and Brown (2003): Service delivery dimension

1. The service provider follows up in a timely manner to customer
requests.
2. Regardless of circumstances, the employees are exceptionally courteous
and respectful to customers.
3. The service provider follows through in a conscientious manner on
promises to customer.

New scale items from exploratory interviews adapted from Parasuraman,
Zeithaml and Berry (1988): Reliability, Responsiveness and Assurance
dimensions

1. The service provider is dependable to provide continuous electricity
supply.*
2. The service provider provides accurate billing on a regular basis.
3. The electricity supply provided is safe.*
4. When something goes wrong, the problem gets resolved swiftly.


Value Offers

Youjae and Ho (2003): Perceived Value dimension

1. The loyalty scheme has a high cash value.
2. It is highly likely that I will achieve the proposed reward.
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3. The proposed rewards were what I wanted.

Petrick J.F.(2002): Monetary Value dimension

1. The promotional offer was reasonably priced.
2. The promotional offer was worth the money.
3. The promotional offer was a good buy.
4. It is easy to get the benefits from the promotional offer.

Price Perception

Lichtenstein, Ridgway and Netemeyer (1993) Price Consciousness dimension

1. I am willing to make every effort to find lower prices.
2. The money saved by finding low prices is usually worth the time and
effort.
3. I would never look around to find low prices.
4. The time it takes to find low prices is usually not worth the effort.

Lichtenstein, Ridgway and Netemeyer (1993) Value Consciousness dimension

1. I am very concerned about low prices, but I am equally concerned about
service quality.*
2. I compare prices from different suppliers to be sure I get the best value
for money.*
3. When choosing a service provider I always try to maximise the quality I
get for the money I spend.*

New scale items from exploratory interviews adapted from Lichtenstein,
Ridgway and Netemeyer (1993) Sale Proneness dimension.

1. I am more likely to stay with the service provider that offers savings.
2. When I choose a service provider that is offering a cheaper rate, I feel
that I am getting a good deal.
3. I f the price is cheaper, that is an important reason to stay with the
service.
4. I will continue to stay with the service provider unless the price is
significantly higher for the same service.*

Marketing Communication

Spreng, Mackenzie and Olshavsky (1996) information satisfaction: thinking just
about the information from the service provider, how satisfied are you with the
information provided in deciding your service provider:

1. Information on the pricing of electricity.
2. Regular billing information
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Relationship Marketing Tactics (RMTs) 55

3. Regular updates on new products and services.
4. Information about the benefits of products and services.*
5. Ease of contact points for queries.*
6. Accurate billing information.
7. Your satisfaction overall with the information provided.

Reputation

Fombrum, Gardburg and Sever (2000)

Emotional Appeal dimension: I choose a service provider that

1. I can trust
2. I have a good feeling about.
3. I admire and respect.
4. Keeps its promises.**
5. Is honest.**

** items from exploratory interviews.
Product and Services dimension: I choose a service provider that

1. Develops innovative products and services.*
2. Offers high quality products and services.
3. Offers products and services that are a good value for the money.*

Social and Environmental Responsibility dimension: I choose a service provider
that..

1. Supports good causes.
2. Is environmentally responsible.*
3. Maintains high standards in the way it treats people.*

* deleted items after scale purification



Appendix C:

A Comparison of the Demographic Profiles between Stayers and Switchers

STAYERS SWITCHERS TOTAL
Frequency % Frequency % Frequency %
Gender
Female 26 48.1% 55 47.8% 81 47.9%
Male 28 51.9% 60 52.2% 88 52.1%

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STAYERS SWITCHERS TOTAL
Frequency % Frequency % Frequency %
Age
<25 4 7.4% 6 5.2% 10 5.9%
25-35 10 18.5% 24 20.7% 34 20.0%
36-45 19 35.2% 44 37.9% 63 37.1%
46-55 11 20.4% 32 27.6% 43 25.3%
56-65 7 13.0% 8 6.9% 15 8.8%
> 65 3 5.6% 2 1.7% 5 2.9%

Household
Income

< 10,000 7 14.9% 10 9.2% 17 10.9%
10,000 - 25,000 21 44.7% 34 31.2% 55 35.3%
25,001 - 50,000 13 27.7% 44 40.4% 57 36.5%
50,001 - 100,000 4 8.5% 18 16.5% 22 14.1%
> 100,000 2 4.3% 2 1.8% 4 2.6%

Education
High School 6 11.5% 27 24.3% 33 20.2%
College 12 23.1% 27 24.3% 39 23.9%
University (degree) 11 21.2% 33 29.7% 44 27.0%

Higher degree
(graduate/
postgraduate)

23

44.2%

24

21.6%

47

28.8%

Job Status
Top Executive 5 9.1% 11 9.4% 16 9.3%
Professional 15 27.3% 31 26.5% 46 26.7%
Self Employed 2 3.6% 11 9.4% 13 7.6%
Office/Clerical 10 18.2% 27 23.1% 37 21.5%
Craftsman 1 1.8% 1 .9% 2 1.2%
Manual Worker 4 7.3% 12 10.3% 16 9.3%
Student 6 10.9% 4 3.4% 10 5.8%
Housewife/Husband 3 5.5% 10 8.5% 13 7.6%
Retired 6 10.9% 7 6.0% 13 7.6%
Others 3 5.5% 3 2.6% 6 3.6%

Type of House
Detached 14 26.4% 24 20.5% 38 22.4%
Flat 7 13.2% 9 7.7% 16 9.4%
Terrace 14 26.4% 51 43.6% 65 38.2%
Others 1 1.9% 1 .9% 2 1.2%

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STAYERS SWITCHERS TOTAL
Frequency % Frequency % Frequency %
Annual
Electricity Bill

< 120 2 3.8% 3 2.6% 5 3.0%
120- 239 12 23.1% 23 20.2% 35 21.1%
240 - 359 12 23.1% 28 24.6% 40 24.1%
360 -479 9 17.3% 25 21.9% 34 20.5%
480 - 719 9 17.3% 18 15.8% 27 16.3%
720 - 959 2 3.8% 6 5.3% 8 4.8%
> 960 1 1.9% 2 1.8% 3 1.8%
na 5 9.6% 9 7.9% 14 8.4%

Payment Type

cash 8 14.8% 13 11.2% 21 12.4%
direct debit 22 40.7% 62 53.4% 84 49.4%
standing order 10 18.5% 10 8.6% 20 11.8%

cheque/postal
order/giro
7 13.0% 8 6.9% 15 8.8%
telephone banking 0 .0% 5 4.3% 5 2.9%
prepayment 5 9.3% 14 12.1% 19 11.2%

inclusive in
rent/paid by DSS

1

1.9%

0

0%

1

.6%
via internet 1 1.9% 4 3.4% 5 2.9%

Appendix D:

Goodness of Fit Statistics

CONSTRUCT
Price
Perception
Marketing
Communication Reputation
Service
Quality
Value
Offers
Root Mean
Square Error of
Approximation
(RMSEA) 0.0625 0.083 0.000 0.0519 0.000
Normed Fit
Index (NFI) 0.962 0.961 0.975 0.965 0.981
Non-Normed Fit
Index (NNFI) 0.964 0.943 0.989 0.960 0.981
Comparative Fit
Index (CFI) 0.979 0.971 0.994 0.976 0.989
Incremental Fit
Index (IFI) 0.980 0.972 0.994 0.976 0.989
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58 Leong Yow Peng and Qing Wang

CONSTRUCT
Price
Perception
Marketing
Communication Reputation
Service
Quality
Value
Offers
Relative Fit
Index (RFI) 0.933 0.921 0.956 0.942 0.969
Root Mean
Square Residual
(RMR) 0.106 0.0862 0.0678 0.0508 0.0557
Standardized
RMR 0.0346 0.0459 0.0378 0.0347 0.0296
Goodness of Fit
Index (GFI) 0.962 0.960 0.973 0.948 0.954
Adjusted
Goodness of Fit
Index (AGFI) 0.912 0.881 0.938 0.879 0.900

Note:
Bentler (1990) developed the CFI as a non centrality parameter-based index
to overcome the limitation of sample size effects with a value of 0.90 and
above as acceptable fit. TLI seems to be resilient against variations in sample
size and the acceptable threshold for this index is 0.90 or greater (Marsh,
Balla and McDonald 1988; Garver and Mentzer 1999). Additional fit indices
like the Incremental Fit Index (IFI); and Adjusted Goodness of Fit Index
(AGFI) were reported (Joreskog and Sorbom 1996). Acceptable model fit are
indicated by values of AGFI exceeding 0.8, though higher values are
preferable (Taylor and Todd 1995; Bansal and Taylor 1999), CFI values
exceeding 0.90 and RMSEA values below 0.10 with values lower than 0.08
suggestive of reasonable fit (Browne and Cudeck 1993). RMSEA was also
assessed because high fit indices can give a false impression that the model
explains much but in reality it was the effect of freeing parameters to be
estimated from the data (Jap 1999, 2001). Assessing fit using RMSEA
incorporates a penalty for lack of parsimony, i.e accounts for potential
artificial inflation due to the estimation of many parameters. Models with
RMSEA of 0.08 or below present a satisfactory fit while values over 0.10
should be rejected (Steiger 1980).

About the Authors

Leong Yow Peng is a Doctoral Researcher affiliated to the Warwick Business
School, Marketing and Strategic Management Group, at the University of
Warwick (UK). He obtained a BSc in Electrical Engineering from University
of Missouri-Columbia and an MBA from University of Ohio-Athens, USA.
He has over 20 years of work experience in the utility industry. His research
interest is in the area of Relationship Marketing in Service Industries.
Presented papers on Relationship Marketing in Building Customer Loyalty at
ESRC Seminar Series on Relationship Marketing, 2003; EIASM Seminar on
Relationship Marketing, 2004; and EMAC Doctoral Colloquium, 2004.
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Relationship Marketing Tactics (RMTs) 59

Dr Qing Wang is Lecturer in Marketing and Innovation at Warwick Business
School, University of Warwick (UK). She obtained a B.Sc. in Engineering
from Xian University of Technology, M.Sc. in Management Science from
Tianjin University, and PhD in Marketing from Warwick Business School,
University of Warwick. Her research areas are: innovation and consumer
adoption of really new products; consumer knowledge and expertise; cross-
functional interface between R&D and marketing; co-evolution of firm's
innovative capabilities and user capabilities. Held visiting posts at Fuqua
School of Business, Duke University; Tsinghua Economics and Management
School, Tsignhua University; and SPRU, Sussex University. Published
articles in journals including Research Policy, Advances in Consumer Research,
International Journal of Technology Management,Structural Change and Economic
Dynamics and Economic Applique.
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