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An examination of the effect of product performance on brand reputation, satisfaction and loyalty

Selnes, Fred
European Journal of Marketing; 1993; 27, 9; ABI/INFORM Research
pg. 19

11

An Examination of the
Effect of Product Performance
on Brand Reputation,
Satisfaction and Loyalty
Fred Selnes

The Effect of
Product
Performance

19
Received January 1993
Revised May 1993

Norwegian Institute for Research in Marketing,


Norwegian School of Management, Oslo
Introduction
Many companies have recently developed defence strategies for retaining
customer accounts through quality products and services, both in business and
consumer markets[l ]. Many large companies have also developed measurement
programmes where customers evaluate quality of products and services.
Customer satisfaction has become one of the pillars in the work on total quality
management[2]. In parallel with the development in quality, researchers and
managers have become interested in strong brand names which has driven
companies to reconsider the importance of established brands[3]. The motivation
for the increased emphasis on brand names and quality is that they both have
a strong effect on customer loyalty[4].
A brand has been defined as a distinguishing name or symbol intended to
identify both goods and services[3, p. 7]. SAS, Citibank, McKinsey and others,
are several examples of strong brands in typical service companies. There is
also a growing number of companies such as IBM, Toyota and ABB, which
sell combinations of physical products and services. Even though brand names
are important for service companies, the empirical published studies of brand
names[5] appear to have focused on consumer products only and neglected
services. Similarly, most research on quality of services has focused on customer
satisfaction and paid little attention to brand replitation[6-13]. If then, as argued
in this article, loyalty is also driven by strong brand names, remedies other
than quality improvements may also be appropriate. Brand reputation can, for
example, be managed to adjust expectations in line with the disconfirmation
of expectation paradigm (i.e. [14,15]).
The objective of this research is to explore the relationship between
satisfaction, brand reputation and loyalty. It is suggested that both customer
satisfaction and brand reputation are important antecedents of intended loyalty.
Although both brand reputation and satisfaction have been found to affect loyalty
separately, very little is known about the interaction effect. Under what
conditions should the company be particularly concerned about their brand's
reputation? It is the ambition of this article to provide theoretical insight and
practical advice as to how loyalty may be improved through working on ''internal''

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European Journal of Marketing,


Vol. 'l:I No. 9. 1993, pp. 19-35.
MCB University Press. 0309-0566

European

Journal
of Marketing
27,9
20

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quality improvements on the one hand, and the more traditional ''external''
marketing-mix variables on the other hand.
After presenting the theory and hypotheses, research methods and results
are described. Findings are then discussed and their implications for management
and future research are explored.

Theory and Hypotheses


Brand Repu,taJion
It has been debated whether brand reputation and customer satisfaction are
the same constructs[16]. The more dominant view in the literature appears to
be that attitude towards the brand (i.e. reputation) or service provider, is a
more long-run and overall evaluation than the satisfaction construct[6,7,17} Brand
reputation has been defined as a perception of quality associated with the
name[18]. A key function of a brand is that it facilitates choice when intrinsic
cues or attributes are difficult or impossible to employ[19,20]. Intrinsic cues
involve the physical or technical composition of a product. Brand name has been
defined as an extrinsic cue, that is, as an attribute related to the product but
not part of the physical product itself. A brand will thus have a perception of
overall quality not necessarily based on knowledge of detailed (intrinsic)
specifications associated with it[3, p. 19].
Zeithaml[21] and Shapiro[22] suggest that the perceived quality of a product
or service is related to the reputation associated with the brand name. In some
situations, customers will only associate one product or one service with the
brand (i.e. Pepsi, Avis, Federal Express, McKinsey, etc.), and thus the brand
reputation is only measurable at the product level. In other situations, customers
identify a bundle of products and services with a brand name (i.e. Philips, IBM,
Citibank, etc.). The major point is that brand reputation is not necessarily limited
to a focal product or service. In services and business-to-business industries,
the brand appears to be more often connected to the reputation of the company
rather than individual products or services.

Product Performance
Products and services are, for several reasons, often acquired based on an
evaluation of extrinsic cues only (i.e. brand name, price, package)[21 ]. One reason
suggested, is that intrinsic cues are not available at the time of purchase. A
second reason may be that evaluation of intrinsic cues requires more effort
and time than is perceived as worthwhile. And, finally, intrinsic cues may not
be used because quality is difficult to evaluate. The first opportunity to judge
the intrinsic qualities of the service, is often at the point where the product
is consumed. In some cases, for example, in insurance, the intrinsic qualities
are only revealed when a "damage" occurs. Although the consumption
experience gives the customer an opportunity to inspect intrinsic qualities of
the product or service, this does not mean that all elements will, or may be,
evaluated. The consumption experience will, however, usually reveal several
qualities of the product or service which were not salient at the moment of
purchase or acquisition.

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In order to evaluate performance of a product or service, customers need


The Effect of
some kind of norm for what is good or acceptable. The brand name may create
Product
certain expectations in that direction[lS]. There is, however, very little theoretical
Performance
reason to believe that customers use focal brand expectations to judge
performance after purchase. Customers are, therefore, very likely to use other
kinds bf performance standards in the post-purchase evaluation[23]. Cronin and
Taylor[6] found that a direct assessment of performance criteria gave a better
21
fit of the theoretical model than using expectation measures. Customers may - - - - - - thus employ other standards of comparison in forming disconfirmation and
satisfaction feelings. Cadotte et al. [11] suggest two different norms customers
may use as the "ideal" for comparison. First, the norm might be the typical
performance of a particular brand such as the most preferred, the last purchased,
the most popular, or other. A second possibility is that the norm might be an
average performance which a customer believes is typical for a group of similar
brands within a product category, thus a product-norm. Experience with and
knowledge of the product class or related products may, therefore, be an
important determinant of how customers judge product or service performance.

Customer Satisfaction
Customer satisfaction has been defined in various ways, but the conceptualization
which appears to have achieved the widest acceptance, is that satisfaction is
a post-choice evaluative judgement of a specific transaction[6,17]. Fomell[l]
suggests that satisfaction can be assessed directly as an overall feeling. In
addition, he suggests that customers have an idea about how the product or
service compares with an ''ideal'' norm. Thus a person may be satisfied with
the focal product or service and at the same time evaluate the performance
as mediocre, compared with what it should or could have been.

Customer Loyalty
Customer loyalty expresses an intended behaviour related to the product or
service. This includes the likelihood of future purchases or renewal of service
contracts or, conversely, how likely it is that the customer will switch to another
brand or service provider[3]. Customers may be loyal owing to high switching
barriers related to technical, economical or psychological factors, which make
it costly or difficult for the customer to change supplier. Customers may also
be loyal because they are satisfied with the supplier or product brand, and thus
want to continue the relationship. As most barriers appear to be of limited
durability, companies tend to approach satisfaction as the only viable strategy
in the long run [1].
Another important element of loyalty is the intended support of the product
expressed in communicating one's experiences, that is positive word-ofmouth[24]. One of the most powerful sources in persuasion is personal wordof-mouth. When a company's customers recommend the product to others,
this reflects a high degree of loyalty.

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European

Performance and Satisfaction

Journal

The expected positive relationship between performance quality and customer


satisfaction is in line with the Rational Expectation Theory (i.e. [16]) and well
documented in several studies such as Fomell[l] and Cronin and Taylor[6].
Fomell[l] found, in a survey of Swedish customers, a correlation between
perceived quality (performance) and satisfaction, in the range between 0.43
(gas companies) to 0.79 (property insurance). Cronin and Taylor[6] found strong
and positive casual paths between overall service quality and satisfaction, in
a study of four industries (banks, pest control, dry cleaning and fast food). These
results suggest the following relationship:

of Marketing
27,9

22
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HJ: Performance quality will have a positive effect on satisfaction.

Performance and Brand Reputation


Brand reputation was defined earlier as a perception of quality associated with
the brand[18]. Attitude research has found that attitudes increase in predictive
value as they become more accessible in memory[25,26]. Direct experience
has a strong impact on brand reputation because the attitude is more accessible.
The accessibility is a function of frequency of interaction or use with a product
or service. Thus consumption will make attitudes more accessible and, hence,
make the brand reputation more directive for future behaviour.
An attitude is generally defined as an overall evaluation of an object based
on a sum of belief expectations on a set of attributes[27]. As experienced
performance gives the person more information on this set of attributes, attitude
should by definition, be affected. In addition, the experience of consuming may
reveal new attributes which were not salient or important earlier. Oliver[l5]
suggested that attitude towards a product is a function of initial attitude at the
time of purchase, and satisfaction with the transaction. It is, therefore, important
to distinguish brand reputation at the point of purchase and attitudes at later
stages in the post-purchase process.
Performance quality is thus, in addition to the effect on satisfaction (HJ),
expected to affect a global and more general evaluation of the brand. The
perception of quality associated with the brand is either reinforced or
strengthened when the customer experiences high quality performance, or
disconfirmed when the customer experiences poor quality[4]. Products or
services perceived as inferior, will thus have a negative effect on the perceived
global quality of the brand.
H2: Performance quality will have a positive effect on brand reputation.

Satisfaction Brand Reputation and Loyalty


It has been earlier argued that satisfaction (an attitude towards the transaction),
and brand reputation are related but different constructs. They both, however,
are expected to affect future behaviour or customer loyalty[15]. The relationship
between satisfaction and loyalty has been observed in several studies. Fomell[l]
examined 27 different businesses and found strong correlations between
satisfaction and loyalty in the range of 0.17 (department stores) to 0.66 (television

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Ill

broadcasting). Cronin and Taylor[6] examined four businesses and found strong
The Effect of
correlations between satisfaction and loyalty in the range from 0.36 (fast food)
Product
to 0.837 (dry cleaning).
Performance
However, the relationship between satisfaction and loyalty is expected to be
dependent on the characteristics of the focal products or services. The studies
reported above did not control for brand reputation (or a similar global evaluation
of the brand). Thus, the observed effect between satisfaction and loyalty may
23
be due to a third variable (brand reputation). The ambiguity in the intrinsic - - - - - - quality of the product or service is expected to work as a moderator on the
effect between satisfaction and loyalty[19,20].
When consumers have access to unambiguous product information, judgements
are to a large extent determined by objective physical evidence. Only when the
evidence is ambiguous is brand found to have a dramatic effect on perceptions
of quality[20]. Thus the ambiguity in the quality of the core product may affect
the importance of building a strong brand reputation. When, however, customers
are able to have the opportunity to evaluate the quality of the delivered service
or product, satisfaction is expected to have an effect on loyalties. Customers
have better information on the intrinsic cues and are thus better able to judge
the quality of the products or services. A telephone subscriber will, for example,
easily observe when the service is not functioning as it should. In situations
where the customers, for various reasons, lack this opportunity, satisfaction with
product performance will have less, if any, effect on loyalty because the customer
is unable to appreciate the value of the core product or service. In these situations
the reputation of the brand is expected to operate as an indicator of core product's
quality, and thus loyalty is expected to be driven by brand reputation.
H3: Ambiguity in the intrinsic cues of the experienced performance will
moderate the effect of satisfaction on loyalty.
Oliver[15] suggested a casual path from satisfaction to post-experience attitude
(i.e. reputation). Oliver's argument is that the post-experience attitude is a
result of a cognitive comparison conducted between the anticipated satisfaction
(represented by a pre-experience attitude) and the received satisfaction. This
is in effect a disconfirmation at the more abstract effect level, rather than the
more objective attribute level. Oliver[15] found a significant path from satisfaction
to post-experience attitude towards the product. A limitation of this study is
that the measure of attitude is related to the specific product (sum of beliefs
on attributes) and not to the brand. The focal product was a federal influenza
shot programme and thus not a commercial company with a brand name. With
respect to a branded product (or service) the following relationship is expected:

H4: Satisfaction will have a positive effect on brand reputation.


Attitudes are of specific interest to social scientists because they often are
important determinants of future behaviour[27]. Researchers in marketing have
long debated the definition of brand loyalty, but there is consensus regarding
the strong effect of brand reputation on loyalty[5]. Thus, brand reputation is
expected to be an important determinant of loyalty.

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European
Journal
of Marketing
27,9
24

Figure 1.
A Theoretical Model
for the Relationship
between Quality,
Customer Satisfaction,
Brand Reputation and
Intended Loyalty

H5: Brand reputation will have a positive effect on loyalty.


On the basis of the preceding discussion, Figure 1 represents a general model
of the constructs and their relationship to be tested.

Method

Overview
Data were collected from four different companies. The objective was to collect
a set of companies from businesses expected to be different with respect to
the ambiguity of the intrinsic cues in the product of service. Life insurance
is a business where customers are expected to lack the ability to evaluate the
quality of the core product. First, customers' knowledge of insurance products
are generally low[28]. Second, the quality of an insurance product is often first
evidenced when the conditions in the agreement come into operation (age, injury,
death, etc.). Contrary to life insurance, the quality of telephone services is
expected to be more easily observable. The third business included is a business
college where we expect the quality of the teaching within the school to be
quite unambiguous to the students. Students have numerous experiences with
the performance of the college and are probably well capable of judging the
quality of the delivered product. The fourth business included was a salmon
feed supplier. The customers of the salmon feed supplier have limited opportunity
to evaluate the effect of a premium food product. The health and growth of
farmed salmon is, to a large extent, determined by other factors than the feed,
such as water temperature and viruses. In order to isolate the effect of different
feed products the farmers would need to conduct controlled experiments. Such
experiments are carried out by the competing suppliers, and thus the farmers
must trust the results presented to them.

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111

The selection of businesses also balance business customers and private


customers. The salmon feed supplier and the telephone services serve business
customers; and the insurance company and the business college private customers.
It was sought, also, to balance the companies' distance to their customers. The
salmon feed supplier operates in a market with relatively few customers, whereas
the telephone company operates within a mass market and thus with a more
distant interaction with its customers. A similar type of difference exists between
the business college and the insurance company, where the former has a high
degree of personal interaction with its customers. A description of the samples
is provided in Table I.

The Effect of
Product
Performance

25

Measures
The measures employed in the four studies are shown in Table II. The measures
needed for the study were perception of performance quality, brand reputation,
satisfaction and loyalty. Performance quality was assessed with three indicators
reflecting various aspects of the service. In order to secure a subjective norm[29],
respondents were asked to express their degree of satisfaction on a set of
performance issues. One could argue that the word ''satisfaction'' may cause
the performance construct to be confounded with the satisfaction construct.
Because the satisfaction measures address the overall and global satisfaction with
the transaction, and the performance measures address elements of the
transaction, they are expected to tap different constructs. The three indicators
of performance quality were chosen from a larger set based on their high loadings
on the first factor in a principal component analysis.
Customer satisfaction was measured with three indicators. Overall satisfaction
was measured before and after the performance evaluations. Thus, the first
measure is a kind of "unaided" recall, and the second is a form of "aided"

Life insurance

Telephone
company

College sample 3

Salmon feed
supplier

Length
(minutes)

Responses

Telephone with
two call-backs

20

187

Telephone with
two call-backs

30

395

Mail questionnaire

30

325

Sample

Method

Random sample
of consumer
customers with life
insurance
Random sample
of business
customers from
major city
Random sample of
college students in
one-year full-time
programme
Population of
business
customers

Telephone with
four call-backs

15

125

The customers (students) were measured at the end of a one-year full-time programme
in business administration. Students had the option to continue studies at the same college
in a two-year programme, as the college provides a 1+2 year programme.
a

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Table I.
Description of
Sampling Procedure.
An Additional
Number of
Questions of
Interest to the
Companies was
Addressed in
Each Survey

European

Journal
of Marketing
27,9
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Table II.
The Measures
Employed in the
Four Samples

Performance quality
PQl: How satisfied are you with ..... (element l)?
PQ2: How satisfied are you with ..... (element 2)?
PQ3: How satisfied are you with ..... (element 3)?
Each item in the scales contained questions with six intervals anchored "Very little
satisfied" to "Very satisfied"
Loyalty
LI: How likely is it that you will buy products/services from XYZ in the future?
In the business college setting, we asked: If you were to continue studies in business
administration, how likely is it that you would continue the studies at XYZ?
L2: If another person asked your advice, how likely is it that you would recommend XYZ?
The six-point scale went from 0 to 100 per cent with 20 per cent intervals, thus, the interval
points were labelled 0 per cent, 20 per cent, 40 per cent, 60 per cent, 80 per cent and
100 per cent.
Customer satisfaction
Cl and C2: What is your overall satisfaction with company XYZ?
Cl and C2 were measured on a ten-point scale anchored with "Very little satisfied"
and "Very much satisfied", and each interval point were labelled 1 through 6
C3: On a scale from 1 to 10, how close do you think XYZ is delivering product/services
of an optimal company? (1 = XYZ is far from the perfect; 10 = XYZ is perfect)
Brand reputation
Bl: What reputation has XX among your collegues/friends and family?
B2: How do you rate XX's reputation compared to their competitors?
Bl and B2 were anchored "Very negative" to "Very positive" on a six-point scale
Bl was related to colleagues in business samples and family and friends in consumer
samples

recall after the respondent has thought through his or her relationship with
the company. The third indicator is an evaluation of the company's distance
from an ideal product or service provider[!]. Behavioural intention or loyalty
was measured with two indicators. The first indicator was the likelihood that
the customer will continue the relationship with the vendor[l]. The second item
addressed the degree to which respondents would recommend their supplier
to others, creating positive word-of-mouth[24].
Brand reputation was assessed with two indicators reflecting the company's
overall reputation[21,22]. The first item assessed the absolute level of reputation
(positive-negative). The second item addressed the relative reputation as
compared with competitors.
The mean, standard deviation, skewness and kurtosis for the ten measures
in each of the four samples are shown in Appendix 1. It is observed that a
large proportion of the measures are negatively skewed, thus the distribution
is more dense at the higher values. The kurtosis measures indicate that most
of the measures have distributions, with fatter tails than normal. Overall, these
measures are fairly close to normal distributions, and the small deviations should
not affect the consistency of the estimators[30, p. 418].
The four correlation matrixes are reported in Appendix 2. In order to assess
construct validity a maximum likelihood LISREL VII was used[31 ]. The approach
suggested by Anderson and Gerbing[32] was employed in order to assess

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II

convergent and discriminant validity. Convergent validity is expected when each


indicator's estimated pattern coefficient on its posited underlying construct factor
is significant. Table III reports the standardized coefficients for the ten indicators,
and t-values for the free estimators. As can be seen they are all high and
significant.
Discriminant validity can be assessed for two estimated constructs by
constraining the estimated correlation parameter (phi) between them to 1.0
and then performing a x2 difference test on the values obtained for the
constrained and unconstrained models. A significantly lower x2 value for the
model in which the trait correlations are not constrained to unity, would indicate
that the traits are not perfectly correlated and that discriminant validity is
achieved. Anderson and Gerbing[32] recommend that the test should be
performed for one pair of factors at a time. The x2 values for each pair of
factors is reported in Table IV. All x2 differences are significant at the 0.001
level except for brand reputation with satisfaction and brand reputation with
loyalty in the insurance sample. The difference in the latter is significant at
10 per cent and 15 per cent. The indicators of satisfaction, loyalty and brand
reputation in the insurance data could thus tap the same construct. In order
to rule out this possibility the x2 difference was estimated between a one and
a three factor solution to the seven items. The x2 dropped 15.57 (from 44.82
to 29.25) with three degrees of freedom. This difference is clearly significant
<.p = 0.002), and thus, three factors give a better fit to the data than one factor.
Thus the tests performed indicate that both convergent and discriminant validity
was achieved.

bl
b2
cl

c2
c3
11
12

ql
q2
q3

Salmon

Telephone

College

Insurance

0.82
0.86
(t= 9.43)
0.30
0.74
(t=2.88)
0.76
(t=2.88)
0.87
0.69
(t=5.08)
0.76
0.64
(t=6.52)
0.75
(t= 7.53)

0.77
0.76
(t= 13.99)
0.63
0.85
(t= 12.83)
0.81
(t= 12.51)
0.80
0.73
(t= 11.41)
0.51
0.61
(t=8.14)
0.63
(t= 8.25)

0.72
0.74
(!=8.15)
0.75
0.62
(t= 10.44)
0.82
(t= 13.35)
0.73
0.84
(t=ll.54)
0.76
0.70
(t=ll.22)
0.52
(t= 8.43)

0.60
0.71
(t= 7.59)
0.61
0.87
(t=8.70)
0.79
(t= 8.27)
0.52
0.91
(t= 6.29)
0.73
0.83
(t= 10.80)
0.88
(t= 11.30)

The Effect of
Product
Performance

27

Table III.
Estimated Standardized
Loadings of Each
Indicator on Respective
Factor. T - Values are
Provided for the Free
Elements

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European
Journal
of Marketing
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College

Insurance

36.35
21.57
14.78

25.15
11.3
13.85

94.63
42.14
52.49

8.29
3.09
5.2

67.53
10.48
57.05

9.42
1.15
8.27

32.18
1.87
30.31

66.94
1.69
65.25

10.36
7.75
2.61

44.3
9.03
35.27

68.6
4.7
63.9

44.3
0.44
43.86

12.00
4.9
7.1

34.4
0.1
34.3

56.8
0.1
56.7

54.2
0.1
54.1

6.4
4.7
1. 7

38.5
2.2
36.3

42.
4.9
37.1

69.
4.8
64.2

41.1
23.2
17.9

Quality and satisfaction


One factor
35.41
12.45
Two factor
Difference
22.96
Quality and brand reputation
One factor
22.06
Two factor
2.13
Difference
19.93
Satisfaction and brand reputation
One factor
34.43
Two factor
7.3
Difference
27.13
Loyalty and satisfaction

One factor
Two factor
Difference
Loyalty and brand reputation
One factor
Two factor
Difference
Loyalty and quality
One factor
Two factor
Difference
Table IV.
Estimated X2 Values in
Test of Discriminant
Validity

Telephone

Salmon

Differences above 10.8 are significant at the 0.001 level. Differences larger than 2. 7 are
significant at 0.10 with 1 d.f. The corresponding critical values for 5 per cent and 1 per
cent are 3.84 and 6.63 respectively (d.f. = 1)

Results
Maximum likelihood LISREL VII[31] was used to examine the overall adequacy
of the theoretical model and to test the hypothesized relationships of interest
(Hl-H5). The operationalized model is shown in Figure 2.
The four estimated models are shown in Table V. The measurement model
was standardsized by fixing the values of Cl, Ll, Bland PQl to 1.0[31]. The
results from the test of the model were encouraging. The x2 test with 30
degrees of freedom for overall model fit were all non-significant, except for the
insurance sample. In the latter case the x2 value was quite high, and a
substantial proportion of this can probably be attributed to the poor fit of the
satisfaction, brand reputation and loyalty measures (see above). In the insurance
model, adjusted goodness of fit was 0.831 and the root mean square error was
0.048, which both indicate a moderately good fit.

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11

The Effect of

Product
Performance

29

Key:
q 1-q3:
b1 -b2:
c1 -c3:
I 1 -I 2 :
GA (1, 1):

Performance quality measures


Brand reputation measures
Customer satisfaction measures
Loyalty measures
Effect of performance quality on
brand reputation

Salmon
Q->B
GA(l,l) ........
Q->S
GA(2,1) ........
S->B
BE(l,2) ........
B->L
BE(3,l) ........
S->L
BE(3,2) ........

x?- (30)
P-value
AGF
RMSE
R2 eta 1
R2 eta 2
R2 eta 3

0.67
(t=4.21)
0.68
(t=2.71)
0.18
(t= 1.13)
0.50
(t= 3.36)
0.11
(t=0.70)
40.37
0.098
0.897
0.045
0.65
0.46
0.34

GA (2, 1): Effect of performance quality on


customer satisfaction
BA (1,2): Effect of customer satisfaction on
brand reputation
BA (3, 1): Effect of brand reputation on loyalty
BA (3,2): Effect of customer satisfaction on loyalty

Telephone

College

0.34
(t=2.43)
0.43
(t=3.12)

0.44
(t=2.06)
0.86
(t= 10.10)
0.17
(t=0.83)
0.27
(!=3.23)
0.61
(t=6.98)

36.22
0.201
0.967
0.027
0.85
0.69
0.54

23.29
0.803
0.974
0.021
0.35
0.74
0.61

0.71
(t= 3. 72)

0.83
(t= 7.26)

0.24
(t= 1.49)

Figure 2.
The Operationalized
Model for the
Relationship between
Quality Performance,
Customer Satisfaction,
Brand Reputation and
Intended Loyalty

Insurance
0.17
(t= 1.38)

0.78
(!=6.86)
0.77
(!=4.58)
1.161
(t= 1. 78)
-0.30
(t= -0.50)
106.01
0.000
0.831
0.048
0.83
0.61
0.82

T-values above 2.57 are significant at the 0.001 level. Critical value at the 10 per cent level
is 1.645 (given the large sample sizes)

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Table V.
Estimated
Parameters
(Standardized) in
the Four Models

Performance quality had significant effects on customer satisfaction in all four


models, and thus HJ was supported. Performance quality also affected brand
reputations in three of the four models. In the insurance sample the coefficient
was positive, but not significant. Thus H2 was partly supported.
The expected effect of satisfaction on loyalty, when the effect of brand
reputation was controlled (H3), was, as expected, significant only in the two
models with the least ambiguity in intrinsic cues of the product, that is the
30
telephone and college models. Support in the salmon feed supplier and the
- - - - - - - insurance models was not found. Thus H3 was supported.
The anticipated effect from satisfaction on brand reputation (H4) was only
significant in the insurance model. The effect of quality on brand reputation
appears to work through satisfaction for the insurance sample, whereas the
effect from satisfaction to brand reputation is non-significant in the other samples.
A possible explanation may be found in the difference in the variety of products
associated with the brand. For the salmon feed supplier, the telephone company
and the business college customers most likely associate only one line of products
or services, whereas the insurance company is associated with a series of
financial services, like damage insurances, pension insurances and so forth.
Admittedly, this explanation is speculative and post-hoe, and the research design
chosen can properly test this proposition.
Perhaps most important, the casual path from brand reputation on loyalty
was significant in all four models and thus H5 was supported. Loyalty is clearly
driven by brand reputation in the companies examined.

European
Journal
of Marketing
27,9

Discussion
The major objective of this research was to investigate the effect of product
quality on brand reputation, satisfaction and loyalty. Brand reputation was found
to have a consistent and strong effect on loyalty in all four models tested. The
effect of customer satisfaction on loyalty appears to be contingent on the context,
and it is suggested that satisfaction will only have a direct effect on loyalty when
customers are able to evaluate product quality through their experience with
the product or service.
The strong empirical correlation between perceived quality and satisfaction,
and in turn loyalty, found in several studies, could be biased, as these studies
have not controlled for the effect of the brand. Perceived quality and reputation
of the brand are theoretically different constructs and should, therefore, not
be mixed together. The formation of a brand reputation is a different process
than the creation of perceived quality, and the two constructs behave differently
with respect to other variables. As they are correlated and are both expected
to affect loyalty (however, by different mechanisms), they should both be included
when factors driving satisfaction and loyalty are analysed.
Similarly, the strong positive relationship between brand reputation and loyalty,
could be overestimated, as these have not been controlled for the effect of
experienced quality and satisfaction. It follows, from the presented hypotheses,
that the effect of quality on satisfaction will be substantially less when controlling
for brand, and also that the effect between satisfaction and loyalty will be less
when controlling for the effect of the brand reputation on loyalty.

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111

Managerial Implications
The presented study has several implications for management. The strategic
role of brand name in creating loyalty is important not only for physical products,
but also for services and combined product-service industries. One implication
is that loyalty is not only driven by internal quality-improvements, but also by
the more traditional external activities familiar to marketing managers (i.e.
advertising, public relations, packaging, and so on).
Where customers have limited ability to evaluate product quality, brand
reputation and not customer satisfaction, should be emphasized. In some
industries, market segments could be defined on the basis of the customer's
ability to evaluate quality or product-expertise. Thus in some segments loyalty
may be driven through brand reputation, whereas in other segments loyalty
may also be driven by customer satisfaction.
Another important managerial implication is related to what measures
companies should monitor in their loyalty programmes. This study indicates
that in addition to performance and satisfaction, companies should monitor brand
reputation. The presented models varied in their ability to explain variations
in loyalty from 34.6 per cent for the salmon feed supplier, to 81.5 per cent for
the insurance company. Thus tracking experienced quality, brand-attitude and
customer satisfaction should provide most companies with a substantial amount
of diagnostic information.
Limitations and Future Research
Although the ambition of this article was to minimize limitations, a major limitation
of the presented study is internal validity[33]. All data was collected from a
cross-sectional study and thus other explanations could explain the relationship
between the tested constructs. In the future, researchers should try to test
models employing longitudinal data or experiments. Another limitation is that
the data was collected from only four companies. The model should be tested
out in more industries and on multiple companies within the same industry.
As the managerial implications of the findings in this study is quite substantial,
future research is clearly warranted.
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The Effect of
Product
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31

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of Marketing

27,9

32

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Salmon feed
supplier

Telephone
services

Business
college

The Effect of
Product
Performance

33

Life insurance

Means
bl
b2
cl
c2
c3
11
12
ql
q2
q3

5.06
5.15
8.41
8.42
8.22
5.43
5.41
4.99
4.85
5.15

4.56
4.26
7.59
7.24
6.99
4.58
4.79
4.97
4.26
3.88

4.66
4.22
6.99
5.35
6.50
4.49
4.31
4.28
3.97
4.19

4.64
4.65
6.56
6.88
6.52
4.64
4.65
4.64
4.65
4.17

0.81
0.76
1.42
1.08
1.45
0.83
0.80
0.66
0.85
0.80

0.87
1.04
1.59
1.38
1.51
1.63
1.18
0.77
0.99
0.87

0.86
1.05
1.58
1.94
1.48
1.42
1.21
0.71
0.71
0.85

0.83
0.92
1.83
1.57
1.65
0.83
0.92
0.82
0.86
0.87

-1.04
-0.96
-1.32
-0.21
-0.76
-1.41
-1.28
-1.42
-1.44
-0.96

-0.40
-0.51
-0.66
-0.58
-0.59
-0.67
-1.03
-0.97
-0.33
-0.31

-0.41
-0.32
-0. 75
-0.25
-0.73
-0.89
-0.62
-0.35
-0.46
-0.30

-0.44
-0.60
-0.30
-0.81
-0.62
-0.44
-0.59
-0.46
-0.62
-0.64

Standard deviation
bl
b2
cl

c2
c3
11
12
ql
q2
q3

Skewness
bl
b2
cl
c2
c3
11
12
ql
q2
q3

(Continued)

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.

Appendix 1.
Means, Standard
Deviations, Skewness
and Kurtosis for
Indicators in the Four
Data Sets

European
Journal
of Marketing
27,9

1.55
1.83
3.56
0.45
0.59
1.24
0.97
3.13
3.28
0.67

cl

c2

Appendix 1.

Business
college

Life insurance

0.20
-0.12
0.67
-0.19
0.73
-0.18
0.01
0.21
0.75
-0.01

-0.09
0.63
0.30
1.12
0.80
-0.09
0.64
0.08
0.24
0.48

Kurtosis
bl
b2

34

Telephone
services

Salmon feed
supplier

c3
11
12
ql
q2
q3

0.32
0.20
1.03
1.18
1.01
0.08
0.74
1.77
-0.15
0.30

Continued
12

ql

q2

bl

b2

cl

c2

c3

11

1.00
0.71
0.18
0.28
0.43
0.52
0.40
0.48
0.39
0.43

1.00
0.22
0.42
0.44
0.34
0.28
0.58
0.42
0.54

1.00
0.25
0.16
0.16
0.12
0.19
0.21
0.24

1.00
0.58
0.32
0.21
0.32
0.27
0.45

1.00
0.26
0.17
0.39
0.33
0.40

1.00
0.60
0.31
0.29
0.29

1.00
0.33 1.00
0.29 0.50 1.00
0.23 0.56 0.49 1.00

1.00
0.59
0.39
0.56
0.52
0.42
0.39
0.33
0.42
0.45

1.00
0.39
0.52
0.52
0.41
0.39
0.34
0.44
0.43

1.00
0.55
0.49
0.35
0.31
0.41
0.33
0.31

1.00
0.68
0.46
0.41
0.40
0.39
0.44

1.00
0.50
0.43
0.35
0.39
0.41

1.00
0.58
0.27
0.31
0.38

1.00
0.24 1.00
0.32 0.32 1.00
0.32 0.26 0.42 1.00

q3

Salmon
bl
b2
cl

c2
c3
11
12
ql
q2
q3

Telephone

Appendix 2.
Estimated Correlation
Matrixes for the Four
Data Sets

bl
b2
cl
c2
c3
11
12
ql
q2
q3

(Continued)

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.

II

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.

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