Effective Management Strategy Which Stakeholders

Published Date: 02 Nov 2017

1.0 Introduction

Customer satisfaction has become an effective management strategy which stakeholders in business use nowadays to attract customers, win the heart of customers and consequently retain customers. This research work focuses on customer satisfaction and loyalty with electronic shopping. Relevant literature was reviewed and related academic paper. However it is worth indicating that the literature review of this dissertation is related directly to the objectives of the dissertation which are:

Identifying issue that influence customer satisfaction and loyalty

To examine the connection between satisfaction and loyalty

To identify the risk related to electronic shopping (product, financial and privacy risks).

Effect of electronic shopping orientation on customer satisfaction and loyalty

Primarily, a general review on customer satisfaction and loyalty as it relates to past studies will be highlighted and presented. This discussion will give various definitions of customer satisfaction, customer loyalty and how to measure customer satisfaction, relationship between customer satisfaction and customer loyalty.

2.0 Customer Satisfaction

Consumer satisfaction is seen as important goal in the pursuit of profit in retail business (Pekka et.al, 2011). One critical aim of retailer is to increase consumer market response outcome, such as trust, satisfaction and loyalty (Shankar et.al 2003). Customer contentment has gained much attention over the last two decades (Danaher and Gallagher 1997). Customer satisfaction is defined as a general state of feeling toward a brand (Olsen et al., 2005). Buttle (2009) also defined customer satisfaction as the contentment response to a customer experience, or some part thereof. Hsu and Hsu, (2008) discussed that "Customer satisfaction has been a critical research area for more than forty years". Cardozo (1965) conducted the first research on customer satisfaction in mid-1960s, he argued in his first study that some factor have deep influence on customer when shopping. Baines, Fill and Page (2008) stated some key drivers of customer satisfaction which includes the feature of a product or service, support service and to the extend customer are cared for. In addition, Fornell et al, (1996) state that customer satisfaction can be influenced by perceived value or performance. Furthermore, customer satisfaction is influenced by the expectation of the quality of service and good (Anderson, Fornell& Lehmann 1994).

According to Andreson, Fornell and Lehmann (1994) customer satisfaction can be determined by customer’s expectation. Customer expectation includes information about quality and quantity of services from dependable sources such as word of mouth, newspaper and general media (Anderson, Fornell& Lehmann 1994). In addition to the previous experience, the customer expectation includes prediction of the future performance. Customer use previous information and experience to predict the company or brand ability to deliver the expected quality in the future (Anderson, Fornell& Lehmann 1994).Hence expectations cover both past and future experience and have positive effect on customer satisfaction generally.

The expectancy and disconfirmation theory (Oliver 1977) is one of the most studied models in this literature. This model departs from the theory of level of adjustment (Helson, 1948) and suggests that satisfaction depend on difference between the initial expectation and the real performance. However satisfaction arises when expectations are confirmed, whereas dissatisfaction arise when those expectation are not met (Oliver, 1980).

According to Patterson et al, (1997) customer satisfaction has been regarded as a significant part in the marketing theory and the basic principle of business is that profit comes through customer satisfaction. Through customer satisfaction, organisations are able to get feedback about their various market activities. (Goode et.al, 2005).

Early research has defined satisfaction as an evaluative judgment concerning a specific purchase decision (Bearden & Teel, 1983). Traditional models assume customer satisfaction as the result of a pertaining process, while new developed models also suggest that affective processes also contribute to the prediction of customer satisfaction (Oliver, 1997).

Affect and cognition are two types of psychological responses customer can have in any shopping situation. Although the affective and cognitive systems are distinguished, but they are connect with one another. They can influence and be influenced. Affect can be referred to feeling responses, while cognition consists of mental (thinking) responses (Youn, 2000). Customers’ affective and cognitive systems are present in every environment, but only some internal activity is conscious, a great deal of activity may occur without much awareness.

According to Parker and Mathews (2001) there are two principle interpretations of satisfaction with the literature- satisfaction as a process and satisfaction has an outcome. Earlier satisfaction has been defined as post- choice evaluative judgment concerning a specific purchase decision (Oliver, 1980; Churchill and supernant, 1992). The most widely recognized model, in which satisfaction is a function of disconfirmation, which is also a function of both expectation and performance (Oliver, 1997). Poisz and Von Grumbkow (1988) stated that satisfaction is the difference between the observed and the desire. This is constant with value-percept disparity theory (Westbrook and Reilly, 1983) which was established in response to the problem that customer could be satisfied by aspect for which expectation never existed (Yi, 1990). According to Wilton and Nicosia (1986) satisfaction should be viewed as a judgment based on the cumulative experience made with a brand or company rather than a specific purchase occurrence

According to Kotler (2000), satisfaction is a person’s feeling of pleasure or displeasure resulting from relating a product’s perceived performance in relation to his or her expectation.

Based on the review customer satisfaction can be define as the result of intellectual and emotional evaluation, where recognize performance is compared to expectation. If the recognize performance is lower than expectations, customer will be dissatisfied. However if the recognize performance is greater than expectations, customer will be fully satisfied, otherwise, If performance is equal to recognize expectation, then customer will be at indifferent stage.

3.0 Measuring Customer Satisfaction To a marketing manager increasing customer satisfaction is a priority and the major responsibility, but how to measure customer satisfaction is less clear. The study of customer satisfaction has been done from individual customer point of view and factors that cause their satisfaction (Fournier and Mick 1999) as well from an industry-wide point of view (Mittal and Kamakura 2001) while other research has examined customer satisfaction in a single organization or across several organizations . SERVQUAL was developed in the past as a tool for measuring customer satisfaction (Parasuraman, Berry, and Zeithaml, 1991). In order to measure customer satisfaction, attribute might have different implication on different customer and market segments – the usage context, segment population, and market environment can influence satisfaction and product use (Anderson and Mittal 2000). A company may not target or focus on the right customer if segment-specific variation is not taking into consideration (Anderson and Mittal 2000). However customers repurchase behaviour might be different even when customer has similar satisfaction rating but have different characteristic (Mittal and Kamakura 2001). From the above it can be concluded that market and customer segment are major factors to be considered when measuring customer satisfaction and its implications.

4.0 Customer Loyalty

According to Best (2005), customer loyalty is a psychological commitment that a customer has towards a specific brand or company. Customer loyalty index can be used to measure customer loyalty (Best, 2005). Customer will only recommend a product when he or she is fully trust the product and quality of the service. Therefore, customer satisfaction, customer recommendation and customer retention are seen as components of customer loyalty (Best 2005).

Johnson, Gustafsson, Andreasson, Lervik& Cha (2001), stated that customer loyalty is an emotional quality that inspires the customer to make repeat purchase from a certain product or company. Customer satisfaction is a result of customer loyalty and decreased in customer complain.

A company customer is also a customer to its rivals because customer needs varies at different time and they are loyal to a company that can meet their demand and needs always. According to Carroll &Broadhead (2001), in an online business the most important thing is building trustworthiness and reliability, in order for customer not to hesitate to share his or her personal information or card details.

Customer loyalty can be built when the online business focuses on providing excellent customer service and exceeding the expectations of the customer. Such an excellent customer service will help in retaining customers. For example, online businesses offer special discounts, promotional offer for customers who have a personal shopping account with them.

Figure6. Source: Windows clip organizer graphic files.

Some website includes discussion group in their website to pull and retain targeted customers. Customer tend to visit the website again when the website contain important information about the product and services. Grahame R. Dowling (1997) says, ‘In any business, customer loyalty is a result of excellent personal services and exceeding customer expectations and it also applies to online business as well. Customers can be brand loyal if they are offered convenience, ease of use and choice coupled with high quality, good price and service.

A loyal customer is more likely to find the service encounter and the general experience with a brand or company more satisfying than a non-loyal customer. However, the familiarity-link theory (Rindfleisch and Inman 1998) suggests that an individual’s loyalty to a brand or company can influence his or her extent of satisfaction with the service. In view of this theory a loyal customer may be more satisfied with a service than a disloyal customer due to the following factors; (1) mere exposure to the service, (2) information availability about the service,(3) its social desirability. For example a customer who is loyal to a particular store more expose to the services of the store and have remarkable information about the store and may want to adapt to the expectation of other customer. Thus, the customer may be more convenient with the store’s services, and be more satisfied with his/her service experience at that store as well as with the overall relationship with the store. Prospect theory also supports this argument (Mittal, Ross and Baldasare 1998). According to this theory, losses loom larger than gains. In the context of the relationship between loyalty and satisfaction, this theory applies as follows; loyal customer might be dissatisfied when a brand or company does not meet their expectation. Then they will switch to a new brand but might lose their loyalty benefit compare to non-loyal customer, loyal customer might view that the benefit of switching to a new brand will be lesser than the lost. When a loyal customer experiences a setback in services they tend to be more forgiving than non-loyal customer (Rust et al. 1999). Loyal customers may be more tolerance than non-loyal customers (Zeithaml, Berry and Parasuraman, 1993), which allow them to enjoy higher levels of satisfaction than non-loyal customers. Thus, as the loyalty to the brand increased, the more satisfied the customer will be with the brand.

According to Brown (1952), loyal customer can be divided into four categories based on their purchasing behaviour the four categories include: (a) undivided loyalty, (b) divided loyalty, (c) unstable loyalty, and (d) no loyalty. Loyalty can be measured by ability of customer repurchasing a product (Lipstein 1959). Early interpretations of brand loyalty concentrated ability of customer to purchase a brand over and over again. Some researchers (Jacoby & Chestnut, 1978) argued that these behavioural-based definitions are not enough because they do not differentiate between true loyalty and false loyalty because of factors such as lack of consumer choice. For example, lack of transportation and distance of preferred store may lead to customer loyalty to a particular store or brand. In response to these criticisms, researchers have proposed assessing both the attitudinal component and the behavioural component.

Engel, Kollat & Blackwell (1982) defined brand loyalty as "the preferential, attitudinal and behavioural response toward one or more brands in a product category expressed over a period of time by a consumer." Attitudinal loyalty can be defined as customer state of mind. Customer experience with a company or brand determines if they will be loyal to that brand or company, when a customer like a company or band they will buy from them rather than buying from competitors. For instance a customer preferred to buy a Louis Vuitton bag for £2000 rather than buying a Zara bag for £100. Behavioural loyalty can be defined as brand preference (Peppers.D&Rogers.M, 2004).

Jacoby (1971) believes that loyalty is a biased behavioural purchase process that results from a psychological process. Other researchers have defined loyalty as "a positive attitude toward a brand resulting in consistent purchase of the brand over time" (Keller, 1993). Keller stated that loyalty is present when positive attitudes for the brand are manifested in repeat buying behaviour. Gremler (1995) argued that both attitudinal and behavioural dimensions needed to be integrated in measuring loyalty. Therefore, for present research purposes, e-loyalty is defined as the customer’s positive attitude toward an electronic business or brand resulting in repeat buying behaviour.

Act of PurchaseFigure 1. A Dynamic Model of Customer Loyalty.

Behavioural dimension of customer loyalty

Customer Satisfaction

Customer Trust

Attitudinal dimension of customer loyalty

Customer Commitment

Customer Loyalty

Sources:ADAPTED FROMCOSTABILE (2001)

Loyal customers are certainly very important because they are the greater asset of any company and sources of profit to the company (Anderson and Mittal, 2000). Loyal customers tend to patronise company than non–loyal customers and the operating cost of serving them may be reduced. They do voluntary advertisement for the company through word-of-mouth (i.e. recommendation). In a recent research on e-loyalty, Reichheld and Schefter (2000, p.107) argued that contrary to current beliefs ‘trust rule the web; price does not’. According to the researchers, referrals are very important in e-services and may count for half of the acquired customers for some services. However loyal customer give advice and guidance to customer they referred to a brand or company, therefore reducing company cost of providing help.

According to Jones and Sasser (1995:94) in loyalty segmentation there are three loyalty measures:

• Customer’s primary behaviour– regency, frequency and amount of purchase;

• Customer’s secondary behaviour– customer referrals, endorsements and spreading the word;

• Customer’s intent to repurchase– is customer ready to repurchase in the future.

5.0 Relationship between customer satisfaction and customer loyalty

Bowen and Chen (2001) explain that customer must be highly satisfied because it is not enough to have satisfied customers. However highly satisfied customer will lead to customer loyalty. Bansal and Gupta (2001) stated that building customer loyalty is not a choice any longer with businesses but it only way of building sustainable competitive advantage. Building loyalty with key customers has become a major aspect of marketing objective shared by key players in all industries.

The strategic methods for building a loyal customer base include:

• Focus on key customers

• Proactively generate high level of customer satisfaction with every interaction

• Assume customer needs and respond to them before the competitor does

• Build closer relationship with customers

• Create a value perception.

Customer satisfaction can be measured through customer loyalty (Sivadas and Baker-Prewitt, 2000). Fornell (1992) argued that high customer satisfaction will result to increased loyalty for the company and that customers will be less attracted to advances from competitors. Anton (1996) also argued that Satisfaction leads to repeat buying intentions, recommendation of brand or firm, loyalty and profitability. Evans and Berman (1997), customers that are satisfied and turns out to be a loyal customer will buy from the company for a very long period, even when they don’t meet her demand at times.

Thus Satisfaction cannot transform into loyalty by itself. However satisfaction will improve loyalty to the level of maintaining a positive attitude, commending and repeat purchase from the company. When customers recommend a company, it will increase patronage and loyalty of customers towards the company or brand (Sivadas and Baker-Prewitt 2000). Best organisation and best e-business model might not survive without customer loyalty. In order for some company to increase and develop their customer loyalty, the company need to able to sustain customer satisfaction and create a long-time relationship with the customer (Health, 1997).

However, satisfaction measures looks to be an important way of measuring how customers are likely to behave in the future; there are two issues to consider:

1. Satisfaction measures are likely to be positively biased (Peterson & Wilson, 1992).

2. Creating the relationship between satisfaction and repurchase behaviour has been elusive for many firms (Mittal & Kamakura, 2001).

The relationship between satisfaction and loyalty seems almost intuitive, and several researchers have attempted to confirm this in their research (Cronin & Taylor, 1992).The relationship between Customer satisfaction and customer loyalty varies under different condition regardless of the intuitive appeal. For instance Jones and Sasser (1995) revealed that the competitive structure of the industry determine the strength of the relationship between customer satisfaction and customer loyalty. In a recent research, Oliver (1999) stated that satisfaction brings about loyalty but when fixed social network exist true loyalty can be achieved. In an electronic-commerce setting the distance between two competing company is just only one click away, therefore it is significant for companies to know how to build customer loyalty in the electronic-shopping markets.

Customer satisfaction is not an assurance for customer loyalty. 75% of customers who switch from a particular brand to another were contented or even very contented with the pervious brand. Customer may change brand because of price and quality or because competitors are providing new product (Storbacka and Lentinen, 2001).

Loyalty is defenceless because even when customers are highly satisfied they still change brand because human want cannot be satisfied totally and they belief they can get a better value for money, convenience and quality from other competitors. Therefore, customer satisfaction is not exact measure for customer loyalty. Satisfaction is not the only condition for loyalty but also important factor that increases loyalty. Therefore, it is possible to have satisfaction without loyalty, but it is rare or impossible to have loyalty without satisfaction (McIlroy and Barnett, 2000).

6.0 Antecedents of Customer Loyalty

Numerous loyalty researchers have done extensive research on identifying the determinants of customer loyalty (Chiou, 2004).Different factors have been recommended as antecedent of loyalty, the factor includes satisfaction, value, resistance to change affect and trust (Singh and Sirdeshmukh, 2000). However customer loyalty can be study using the following four factors; corporate image; trust, perceived service quality and perceived switching cost

6.1 Corporate Image

Corporate image is the impression the general public have about a company or brand (Barich and Kotler, 1991). Corporate image is the physical attribute of a company, which includes business name, architecture, variety of products/services, and to the impression of quality communicated by each person interacting with the firm’s clients (Nguyen and Leblanc (2001).

6.2 Trust

Anderson and Narus (1990) defined trust as the ability of a party to belief in the opinion of others, that their decision or action will be positive and will be of benefit to them. However, in order for a customer to trust a brand or company, they must be provided with quality product and services always. In order to keep customer for a long-time and loyal, the company must be trust worthy (Singh and Sirdeshmukh, 2000). Trust can reduce the perceived risk of using a service can therefore be considered as the consequence of positive evaluations of services and an antecedent of customer loyalty.

6.3 Service Quality

In order to determine factors that lead to customer satisfaction, the term ‘service quality’ became important and dominates academic literature (Oliver, 1999). According to Parasuraman et.al.(1988 pp12-40)"service quality is a function of ability to deliver the assured services accurately, the readiness to help customer and provide quick service, the knowledge and politeness of employees and their ability to encourage trust and confident, the individualized attention the firm provide its customers and the physical facilities, equipment and appearance of personnel." From the definition we could identify five vital determinants of perceived service quality which includes: dependability, responsiveness, assurance, empathy and tangibility

6.4 Switching Costs

Switching costs refers to "the technical, financial or psychological factors which make it difficult or expensive for a customer to change brand" (Beerli et al. 2004). From consumers point of view, "switching costs include those that are monetary, behavioural, search, and learning related" (Yang and Peterson 2004). Investing on loyalty program is one of the best ways of reducing switching cost for most company. Therefore customer loyalty is determined by switching cost as commented by Dick and Basu (1994).

Figure 2. The Antecedents of Customer Loyalty

Trust

Service Quality

Customer Loyalty

Corporate Stage

Switching Cost

Source: Dwayne Ball, Nabraska.

7.0 Risk Related to Electronic Shopping

According to Jacoby & Kaplan (1972), there are six risk associated to shopping which includes; physical, social, product, convenience, financial, and privacy risk. For the purpose of this study the product, financial and privacy risk will be discussed in details.

7.1 Product risk

Peter &Tarpey, 1975 defined product risk as the failure of a product meeting the original requirement. The inability of an online customer to be able to physically examine a product may lead to product risk in an online shopping (Garbarino&Strahilevitz, 2004). Product features may not be displayed as they may be in physical due to lack or inconsistency of infrastructure required for enabling online shopping. However increase the uncertainty in customer when making decision about online shopping. Bhatnagar, Misra, &Rao, 2000suggested that online shopping intension may be affected by uncertainty in product.

7.2 Financial risk

Jacoby & Kaplan, 1972 defined financial risk as the monetary lost from a buying. If customer expectation is not met by a product purchase online, customer tend to suffer for monetary lost. The primary concern of an online shopper is the credit card fraud. There has been high increase in the report of financial lost in the online transactions, as reported by Caterinicchia (2005). Competitive price is the major benefit of online shopping, some customer find it reluctant to buy online due to the extra expenses such as shipping cost.

7.3 Privacy risk

Garbarino & Strahilevitz (2004) defined privacy risk as the likelihood of having personal material released as a result of online shopping. Chapell’s survey (2005) found out that 69% of US online shopper would limit their online buying because they feel their personal information is not safe. Another survey on US online shopper also found that 84% of US online shopper feel that online retailer don’t really protect their personal information and 76% will want to know how they can protect their personal information themselves when shopping online (TRUSTe, 2005). Online shopper may refuse to realise the personal information required for online operation because they do not know how secure their personal information will be and they do not have control over it.

8.0 Direct marketing

In late 1880s direct marketing found its way in national magazines of United States. Direct marking is establishing relationship between the brand and the customer. This includes direct mail, money back guarantee, cut out coupons etc. Mail order success with the toll free number is a great business success that has reached mass acceptance (Jones 2009). Direct marketing has its own advantages and disadvantages and the online marketers can research more and get into the details direct marketing. Direct marketing target the consumer of specific interest, age group or income level which make the product and services get to the customer. However Internet marketing is one of the most popular means of reaching large targeted population and it is not a replacement of direct marketing. Internet marketing is cost in compare to direct marketing because there is no physical contact.

9.0 Online marketing

Marketing is made easy and effective through online marketing because marketer can communicate with many customer at the same time effectively. Furthermore, the perception of customer must be well understood by online marketer and the profile of an online shopper is different from the traditional retail customer (Ranganathan&Ganapathy 2002). Online marketing has been made effective means of reaching customer through the global reach of the internet and it competencies. The basic benefit of online marketing is that it does not depend on time and space. Online marketing is a means of communication and direct marketing channel. The impact of internet marketing to the product is instant, cheap and effective.

The tendency of an online shopper should be understood first by a business in online marketing. An online shopper is not only price conscious but also quality conscious, i.e. they are information oriented not only looking for cheap or less priced product but also looking for best quality and value. The website design and content at time tell a shopper the quality of the product and make them decide to visit or not to visit the website again. A well designed website makes it easy for customer to access the product (Carroll &Broadhead 2001).

In an online business identifying a potential customer is not easy neither is it cheap and it is time consuming process. Advertisement is very important in gaining some specific customer and good services will lead to repurchases and customer loyalty (Carroll &Broadhead 2001).

Gray, Charlesworth & Esen (1997) opined that the following are advantages of online marketing

1. Cost of marketing through the internet is low.

2. It is a fast and flexible channel for marketing

3. No opening, closing hours for business

4. It is a two way channel wherein the views of the customer can be easily gathered.

The two ways communication helps in acquiring new customers as well as customer retention. The future is challenged by online marketing. Businesses sought after internet as a new means of marketing their product, Internet shopper information is been skilful obtained and analysed by online marketer

10.0 Summary

This chapter briefly review various literatures related to the subject of study. Lot of theories on customer satisfaction and loyalty have been discussed in full detail in this chapter, also the relationship between customer satisfaction and loyalty have been critically analysis and evaluated. In addition the antecedent of loyalty was discussed and the risk related to online shopping was also point out.