Designing a New Model for Determining Customer ... - EuroJournals

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127 European Journal of Economics, Finance and Administrative Sciences - Issue 28 (2011) Keywords: Customer loyalty, customer value, satisfaction, banking sector, Iran. 1. Introduction Satisfaction and loyalty of customers are important factors having effect on managerial thoughts in 1990’s. Notably, to understand, satisfy and forecast needs of customers were considered most important competitive advantages for companies (Vilares and Coelho, 2003). Nowadays, in competitive economy there is no warranty for business companies to survive. Loyal customers can be of great help to companies to survive and improve. Therefore, companies need to concentrate on loyalty of customers and enjoy customers' loyalty as a main strategy for future. Although, many companies have accepted loyalty as a key strategy to survive they do not seem understand the meaning and apply it effectively. Many researchers believe that loyalty antecedents are complex and dynamic, changing and evolving over time (Johnson, Herrmann, and Huber, 2006). There are still a number of important gaps in understanding of the loyalty and other relationship marketing constructs (Taylor, Hunter, and Longfellow, 2006). Reichheld and Sasser (1990) stress the importance of customer loyalty in sharpening a firm’s competitive edge. Customer loyalty will eventually become visible in a company’s bottom line through increased revenue, decreased customer acquisition costs, reduced costs of serving repeat customers, and increased profits. Consumer’s behavioral motivation of loyal relationship is assumed from their satisfaction level. Customer satisfaction is understood as an evaluative process of consumption experiences. The role of creating customer value is meeting a target customer’s needs and thus, increasing customer satisfaction (porter, 1985). Thus, it can be argued that the objective of loyalty marketing, which is achieved through keeping and nurturing customers, rests upon delivering customer value and customer satisfaction. This article develops a model for determining customer value, satisfaction and loyalty using several important constructs together to determine their impacts on loyalty and also considering the relations among these antecedents. While the main effects of trust, commitment and cooperation are quiet apparent, and have indeed been supported in existing literature, their interaction effects have rarely been examined. this paper attempts to build a more complete model that incorporate the main effects of customer value, satisfaction, trust, commitment, cooperation and complaints handling on loyalty together with the interaction effects between these items. Indeed this study tries to explain the relationship between three components of marketing endeavors in the banks including: customer value, satisfaction and loyalty. 2. Literature Review 2.1. Customer Value In today’s competitive environment, creating superior customer value is necessary to protect a company’s market niche (Day, 1990). Porter (1985) notes that a company can adopt one of two generic market strategies: product differentiation or cost driven competitiveness. Day (1990) argues with porter’s position, explaining that both strategies bear the same objective: creating superior customer value. He points out that each strategy should be based on significant customer value. Otherwise, regardless of what strategies are taken, achieving market leadership will fail. Many marketing strategists and much management literature suggest that creating superior customer value is a key element for a company’s success (Porter, 1996; Woodruff, 1997). However, the definition of customer value is quite diverse and varies with academic field and from researcher to researcher even within the same field. Huber, Herman and Morgan (2001) express diverse definitions of customer value. They note: “the value concept is multifaceted and complicated by numerous interpretations, biases, and emphasis”. The concept of value is used not only different in diverse fields, such as finance, economics, management, information system, justice, ethics, etc., but also in streams
128 European Journal of Economics, Finance and Administrative Sciences - Issue 28 (2011) of marketing literature, including relationship marketing, consumer behaviour, pricing, and strategy (Khalifa, 2004). The definition of customer value that theorists share is that customer value reflects how the customers perceive products or services, not what a firm wants to objectively deliver to its customers. Customer value is linked to use of a product or service. Customer value is related to the trade off between what the consumer pays in exchange for acquiring and using a product or service from the seller, and what the customer perceives he or she has received (woodruff, 1997). Three models of the customer value definitions are proposed by Khalifa (2004). These are: value components models, utilitarian or benefits/costs ratio models, and means- end models. Each modeling category emphasizes certain dimensions of customer value, paying little attention to others. Thus, taken separately, each of these three models are imperfect by themselves, and their usefulness is limited (Khalifa, 2004). 2.2. Customer Loyalty Engaging in loyal relationship between individual consumers and their product/service provides is beneficial for both parties. Oliver (1999) argues that firms have shifted their strategies away from an emphasis on simply satisfying consumers to an emphasis on keeping and nurturing them, due to the profit impact of having loyal customers. Nurturing profitable customers through various types of relationships has emerged as an important issue. Through loyal relationships, consumers can receive higher level of their preferred service or products from their providers. Also, the market paradigm shift from mass marketing centric to customer centric marketing stimulates firms to adapt customized service. The customer- centric marketing encourages firms to seek individual customer’s needs and wants. This trend will ultimately lead to firm’s increasing marketing productivity and market diversity in household and business markets (Sheth et al, 2000). Considerable discussion exists in the academic literature over the definition and dimensions of loyalty or similar constructs such as commitment (e.g., Ball, Coelho, and Vilares, 2007; Oliver, 1999; Dick and Basu, 1994). Customer loyalty is an important objective for strategic marketing planning (Kotler, 1984) and represents an important basis for developing a sustainable competitive advantage (Maydeu- Olivares and Lado, 2003). Some researchers state that a positive relation exists between loyalty of customers and performance of companies. Customer loyalty leads to increase business value and remain business costs low as well. Increase in value and save money means lower time when companies seek for new customers. Many definitions about loyalty have two points in common; that is, behavioural aspect and attitudinal aspect (Oliver, 1999). Behavioural loyalty is customer’s repeated transaction and researches usually measure this aspect by observational techniques. Attitudinal loyalty is both positive affect toward the relationship’s continuance, and the tendency to continue to remain in the relationship (e.g. Morgan and Hunt, 1994). The method for measuring attitudinal loyalty is usually questionnaire-based. These two kinds of loyalty are both highly prized because they are intertwined and influence company’s profit (Oliver, 1999). Several definitions, based on attitude and also behavioural intentions, exist for loyalty. Some researchers define two factors in loyalty items: active loyalty (word-of-mouth and intention to use) and passive loyalty (not switching even under less positive conditions) (Ganesh, Reynolds, and Arnold, 2000). The theory of transaction cost (Williamson, 1975) introduces three major advantages of keeping customers loyal: first, acquisition costs will decrease because fewer dissatisfied customers have to be replaced; second, long-standing customers are not as price sensitive and, third, loyal customer can provide more feedback to the supplier (wong, Chan, Ngai, and Oswald, 2009). Loyalty forms when a customer thinks a benefit he receives from a company is more than other companies (Mirhadi, 2006). The current study measures attitudinal loyalty, first because of a focus on behavioural loyalty alone may masks any causes in which customers are loyal for reasons of convenience or habit (Ball, Coelho, and Macha´s, 2004). Second, Strong attitudinal loyalty makes customers more resistant to other’s attempts to steal them away (Gundlach, Achrol, and Mentzer, 1995) and also more resistant to counterpersuasion and search for alternatives (Dick and Basu, 1994). Furthermore, Iran’s baking sector has
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