New Service Paradigms: AMA SERVSIG Conference 2003 9781845444051, 9780861769490

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Volume 14 Number 2/3 2004

ISBN 0-86176-949-X

ISSN 0960-4529

MSQ

Managing Service Quality An International Journal New service paradigms: AMA SERVSIG Conference 2003 Guest Editors:Jay Kandampully and Raymond P. Fisk

www.emeraldinsight.com

Managing Service Quality Volume 14, Number 2/3, 2004

ISSN 0960-4529

New service paradigms: AMA SERVSIG Conference 2003 Guest Editors: Jay Kandampully and Raymond P. Fisk

Contents 119 Access this journal online 120 Abstracts & keywords 124 Editorial

Guru’s view 126 It’s time to get to first principles in service design Richard B. Chase 129 Towards a better understanding of service excellence Robert Johnston 134 The almost customer: a missed opportunity to enhance corporate success James G. Barnes, Brian R. King and Gordon A. Breen 147 Complaint management profitability: what do complaint managers know? Bernd Stauss and Andreas Schoeler

157 Customer clubs in a relationship perspective: a telecom case Anders Gustafsson, Inger Roos and Bo Edvardsson 169 An integrated framework for customer value and customerrelationship-management performance: a customer-based perspective from China Yonggui Wang, Hing Po Lo, Renyong Chi and Yongheng Yang 183 Why customers stay: reasons and consequences of inertia in financial services Lesley White and Venkat Yanamandram 195 Client valuation in private banking: results of a case study in Switzerland Pascal Foehn

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Contents

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205 Reconceptualizing customer perceived value: the value of time and place Kristina Heinonen

249 Customer involvement in new service development: a conversational approach Anders Lundkvist and Ali Yakhlef

216 ICT: the creation of value and differentiation in services Benoıˆt Meyronin

258 Book reviews

226 Value across fulfillment-product categories of Internet shopping Julie E. Francis and Lesley White 235 Service quality and marketing performance in business-to-business markets: exploring the mediating role of client satisfaction Ruben Chumpitaz and Nicholas G. Paparoidamis

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problems well. Further analysis of the frequencies of mention revealed the overarching importance of dealing well with problems and queries.

Abstracts & keywords

The almost customer: a missed opportunity to enhance corporate success James G. Barnes, Brian R. King and Gordon A. Breen Keywords Customer retention, Customer relations, Customer loyalty, Customer satisfaction, Service quality assurance

It’s time to get to first principles in service design Richard B. Chase Keywords Services, Behaviour, Design, Service quality assurance Current approaches to service design and service quality have provided second order principles that fail to account for underlying cognitive processes of customers in service encounters. It is proposed that behavioral science research should be used to address this shortcoming, and five “first order” principles are presented based upon a review of the behavioral science literature.

Little attention has been paid to prospective customers who defect before buying. This paper examines the almost customer phenomenon. It reviews literature on service quality, customer satisfaction, retention, relationships, loyalty and defection. It also categorizes the causes of almost customer experiences into a series of themes. The almost customer phenomenon and its effects are presented in the context of implications for managers and for future research. The almost customer phenomenon may appear to be a study of early customer defection, but the almost customer defects before buying. The customer defection literature assumes that a firm has attracted customers. But, not every attempted transaction leads to a purchase. Sometimes, elements of the interaction have an impact on whether or not the individual buys. This paper examines defection before a customer becomes a customer. Reducing the incidence of almost customer episodes represents an opportunity for firms to optimize growth and profitability.

Towards a better understanding of service excellence Robert Johnston

Complaint management profitability: what do complaint managers know?

Keywords Service quality assurance, Customer satisfaction, Customer services quality

Bernd Stauss and Andreas Schoeler

Some organisations are becoming more concerned with delighting their customers than simply satisfying them. Yet despite an extensive literature on service quality and satisfaction little has been written about service excellence and how organisations can achieve delighted customers. The purpose of this exploratory but empirically based paper is to provide a definition of service excellence to help marketers and managers, where appropriate, design and deliver it. This paper is based on over 400 statements of excellent and poor service gathered from around 150 respondents. After categorising them, using a grounded theory approach, it is suggested that service excellence is about being “easy to do business with”. This has four key elements: delivering the promise, providing a personal touch, going the extra mile and resolving

Managing Service Quality Volume 14 · Number 2/3 · 2004 · Abstracts & keywords q Emerald Group Publishing Limited · ISSN 0960-4529

Keywords Complaints, Customer relations, Customer retention, Cost benefit analysis, Case studies, Germany Despite the great impact of complaint handling on customer retention and the beneficial usage of complaint information for quality improvements, most companies have great difficulty calculating the profitability of their complaint management. As a consequence of this knowledge deficit, complaint management is often not regarded as a profit centre but as a cost centre, which makes it a probable victim for cost reductions by cutting back its activities. Hence, there is a huge challenge to develop methods and to address this issue. This work contributes to this. It is shown how complaint management profitability (CMP) can be conceptualized and several types of benefits and costs are presented. On this basis several propositions about the current practice of CMP calculation are developed. To test these propositions a comprehensive empirical study was conducted among complaint managers of major

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Abstracts & keywords

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German companies in the business-to-consumer market. The collected information shows that the assumed CMP knowledge deficit is even higher than expected. To reduce this deficit this article provides an approach to calculate CMP on basis of the repurchase benefit.

Customer clubs in a relationship perspective: a telecom case

develops an integrative framework for customer value and CRM performance based on the identification of the key dimensions of customer value. Emphasising the customer equity-based view, the paper explores the decomposed effects of customer value on CRM performance in terms of relationship quality and customer behaviours. In doing so, a structural equation model is developed using the partial least square method supported by an empirical investigation of customers in China.

Anders Gustafsson, Inger Roos and Bo Edvardsson Keywords Customer loyalty, Customer relations, Perception, Telecommunications, Sweden

Why customers stay: reasons and consequences of inertia in financial services

Companies in the telecom industry – and in many other consumer markets – have introduced customer or loyalty clubs over a number of years. Customer clubs have been used as a loyalty-building measure following the deregulation of telecom markets in Europe. They were introduced as a strategic instrument intended to foster customer retention and to contribute to increased sales and profitability. These clubs are the most recognizable part of many CRM strategies. Their short- and long-term effects on loyalty are not obvious, however. The aim of this article is to explore the effects of the customer club on customer relationships in telecommunications by presenting results from two qualitative studies, which are quantified and reported in terms of responses to the club. The results of this empirical study in a Swedish telecom company reveal that the majority of customer-club members do not perceive their membership as adding value or contributing to higher commitment and improved loyalty. Nevertheless, there are differences between non-members and members regarding their perceptions of the service provider. The target group of club members has significantly higher satisfaction with the company than the non-member customers.

Lesley White and Venkat Yanamandram Keywords Customer retention, Financial services, Inertia This research investigated inertia in a financialservices context, with particular focus on the reasons for consumers’ dissatisfaction and inert behaviour, and studied customers’ complaining behaviours and past and future inertia. The study utilised a two-part methodology, including both qualitative and quantitative research. A total of 20 in-depth interviews provided the preliminary data required for developing a questionnaire that was subsequently completed by 410 respondents. Determinants of dissatisfaction included the number and size of account fees, whilst determinants of inertia were the perception of similarity between financial institutions and the complexity, costs and time inherent in switching. Factors differentiating future inertia and future active customers included the type of account, length of time the account had been held, membership of a number of financial institutions, income and level of consideration given to changing financial institution.

Client valuation in private banking: results of a case study in Switzerland

An integrated framework for customer value and customer-relationship-management performance: a customer-based perspective from China

Pascal Foehn Keywords Customers, Value analysis, Banking, Case studies, Switzeralnd

Yonggui Wang, Hing Po Lo, Renyong Chi and Yongheng Yang Keywords Customer retention, Relationship marketing, Customer satisfaction, Brand loyalty, Behaviour, China In the modern customer-centred era, customer value is a strategic weapon in attracting and retaining customers. Delivering superior customer value has become a matter of ongoing concern in building and sustaining competitive advantage by driving customer-relationship-management (CRM) performance. However, related studies are rather divergent, the key dimensions of customer value remain unclear, and there is no agreement on the evaluation of CRM performance. This paper

There is much evidence showing that client valuation in the service industry has come to be seen also as a central steering element and success factor in private banking. But until now, there was no specific client value model for the private banking industry developed. Thereby the value of a private client for the bank (from the provider’s perspective) can be made up of different components/factors: monetary and non-monetary, quantitative and qualitative. However, with a view to value-based management, the calculation of client margin contributions and the lifetime value of a client relationship must be supplemented by key figures representing the qualitative client value drivers. The author addressed

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the task of developing a specific client value model for private banking based on existing models and findings from general research and practice at the world’s largest private bank in Switzerland. In contrast to previous analyses, this study not only surveyed management staff, but also those who are directly responsible for shaping client relationships in their daily work, i.e. the client advisors. The survey sought to identify the criteria that make clients valuable for the private banking industry and also to what extent these criteria were actually implemented by client advisors in the valuation of their clients.

Reconceptualizing customer perceived value: the value of time and place Kristina Heinonen Keywords Customers, Value analysis, Perception, Service systems, Service quality assurance Considering the empowered customer interacting with technology-based self-services, temporal and spatial access can be argued to influence service delivery. However, service management models have not considered the value of the service delivery at various locations and time frames not controlled by the service provider. Consequently, by arguing that time and location are explicit value dimensions, this paper investigates the importance of time and location and contrasts them to traditional value dimensions. A conceptual model of customer perceived value is proposed and empirically investigated. By linking value and quality models, customer perceived value is conceptualized as a function of benefit and sacrifice of technical, functional, temporal and spatial value dimensions. The empirical findings indicate that time and location are perceived as important value dimensions and that they are even more important dimensions than outcome and process elements. Theoretical and practical implications of the findings are discussed.

ICT: the creation of value and differentiation in services Benoıˆt Meyronin Keywords Services marketing, Information, Communications, Value analysis This paper raises the question of the impact that the increasing use of information and communication technologies (ICT) has on the process of creating value and the differentiation in service activities. We shall develop the idea that electronic intermediation tends to “impoverish” service relations, insomuch as the technological interface can by no means replace the wealth of human interactions on which the creation of value and the differentiation of services are based. So it is mainly a theoretical contribution based

on American and French academic works in the field of services marketing management.

Value across fulfillment-product categories of Internet shopping Julie E. Francis and Lesley White Keywords Internet, Shopping, Value analysis, Classification schemes, Customer satisfaction The absence of a theoretically sound framework for delineating the various forms of Internet retailing may negate recognition of situation-specific issues or engender insights being drawn from, and applied to, incompatible contexts. To address this gap, the fulfillment-product classification scheme that segments Internet retailing into four categories was developed. Efforts were then directed towards providing a more detailed examination of perceived Internet shopping value than has to date been performed by examining the sources and inhibitors of utilitarian and hedonic value relative to each fulfillment-product category. The interviews with experienced Internet shoppers generated theoretical and managerial insights pertaining to value, while the classification scheme has applications beyond that of the current research topic.

Service quality and marketing performance in business-to-business markets: exploring the mediating role of client satisfaction Ruben Chumpitaz and Nicholas G. Paparoidamis Keywords Service quality assurance, Product quality, Information systems, Business-to-business marketing, Customer loyalty, Customer satisfaction Drawing on relevant literature, the authors empirically test a model of business loyalty in a sample of 234 clients of information systems suppliers, integrating the concepts of service quality, satisfaction, and loyalty. The study builds on recent advances in services marketing theory and assesses the relationships underlying the identified constructs in the specific industry. A clear pattern of service quality dimensions is established following the Gro¨nroos conceptualisation. Several important findings are reported, including the empirical verification of the mediating role of industrial satisfaction in the formation of loyalty attributes. Industrial satisfaction fully mediates the relationship between accessibility and loyalty and partially mediates latent construct’s relationship with technical assistance and delivery service. The results provide robust evidence concerning the direct effect of industrial satisfaction on loyalty. accessibility, delivery, and product reliability as antecedents of industrial satisfaction.

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Customer involvement in new service development: a conversational approach Anders Lundkvist and Ali Yakhlef Keywords Customer relations, Conversation, Service industries, Product development The expression “customer involvement” is finding increasing popularity with popular as well as academic marketing texts. Within the evolving research, customer involvement is cast in an information-processing mould that tends to reduce it to the mere transfer of information from where it exists (customers) to where it is dearly needed (the firm). Customers’ active participation is accounted

for in economic psychological (contract) terms. Drawing on case study material gleaned from an organisation that adopted a customer involvement strategy, the present paper suggests a conversational approach that regards customers’ active participation and involvement in terms of conversational exchanges between customers during which new ideas are jointly co-created and commitment to action is established. Conversation is not only the fostering ground for new ideas and knowledge, but also the source of social agency. Some theoretical and practical implications of the conversation-based customer-firm interface for involving customers are discussed.

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Editorial

New service paradigms – special issue – AMA SERVSIG Conference 2003 I am very happy to dedicate this issue to include selected best papers presented at the American Marketing Association’s SERVSIG (Services Special Interest Group) conference held at Reims Management School, France in June (12-14) 2003. This was the first time AMA’s SERVSIG conference was held in Europe. I am sure all of you who attended the conference would agree that Ray Fisk could not have picked a better place to represent Europe than Reims, “the capital of champagne”. It was an excellent conference that attracted 125 eminent services researchers from 25 countries. Reims School of Management, who hosted this conference, did an outstanding job and ensured that the conference delegates received the very best of European hospitality. By the end of the conference, we all agreed that never again would we see so much champagne flowing at every possible opportunity. It would prove difficult for any other conference dinner to match the one held in the seventeenth-century caves of the world renowned champagne “Moet & Chandon”. None of this would have been possible without the combined effort and planning of Denis Lapert, Michael Fish, Anne Julien and Anne Alips in hosting and managing this conference. In addition, the conference organizing committee consisting of: Raymond Fisk, Stephen Grove, Christopher

Managing Service Quality Volume 14 · Number 2/3 · 2004 · pp. 124-125 q Emerald Group Publishing Limited · ISSN 0960-4529

Lovelock, Barbara Lewis, Gregg Elliott, Dwayne Gremler, Olivier Furrer, Susan Keaveney, and Denis Lapert; and the Conference Scientific Committee consisting of: Stephen Brown, JeanPaul Flipo, Patrick Legoherel, Barbara Lewis, Christopher Lovelock, Steve Tax, Jay Kandampully, and Denis Lapert worked very diligently to maintain the quality and mix of both academic and professional presentations. I would also like to take this opportunity to thank various reviewers who contributed their time and expertise in selecting and reviewing papers for the special issue. MSQ is very proud to be associated with AMA’s SERVSIG conference and hopes to maintain a mutually beneficial relationship. In an endeavour to congratulate and recognise the high quality of research presented at the conference, MSQ sponsored research recognition through one best paper award and two highly commended awards. The best paper award was presented to Nichola Robertson, Deakin University, Australia and Liliana Bove, The University of Melbourne, Australia for their paper entitled “Assessing the effects of trust, commitment and power on the likelihood of customer voice behavior in customer and service worker relationships”. The two highly commended papers were presented to: Barbra Lewis and Magdalini Soureli, UMIST, UK, for their paper entitled “What are the antecedents of service loyalty? Evidence from retail banking”; and Chatura Ranaweera, Wilfrid Laurier University, Canada, and Jaideep Prabhu, Judge Institute of Management, Cambridge University, UK for their paper entitled “A preliminary investigation of effects of satisfaction, trust and switching barriers on customer retention”. Raymond Fisk, Professor and Chair of Marketing, University of New Orleans who created this SERVSIG also serves on the editorial advisory board of MSQ. Ray has very kindly provided me with a brief on the history and establishment of SERVSIG. I thought it would be appropriate to invite Ray to give us a brief on how all this began and on the future plans of SERVSIG. Jay Kandampully and Raymond P. Fisk

The AMA Services Special Interest Group In the summer of 1993, the American Marketing Association announced the creation of Special Interest Groups within the AMA Academic Council. Upon seeing that announcement, I noticed that the topic of services marketing was not included among the first SIGs. Hence, I decided to form the AMA Services Marketing Special Interest Group, which we now call SERVSIG. In the 10+

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years since that day, we have had several successful activities. Lauren Wright proposed the idea of creating a consortium for new services scholars. We held our tenth services consortium in October 2003. Roland Rust proposed the idea of creating recognition awards in services. We created the Career Contributions in Services Award and the Best Article in Services Award. The 10th awards were also given in October 2003. Liam Glynn and I started the SERVSIG research conferences. Our concept was that the conference would be hosted every two years by a different school in a different country. We held the first SERVSIG research conference in 1999 and my university – The University of New Orleans –

was the host. The second SERVSIG research conference was held in 2001 in Sydney, Australia and hosted by Macquarie University. The third SERVSIG research conference was held in 2003 in Reims, France and hosted by the Reims Management School. This issue of Managing Service Quality contains a selection of the best papers from this conference. The fourth SERVSIG conference will be held on the 2-4 June, 2005 in Singapore. Jochen Wirtz at the National University of Singapore will be the conference chair. If you are interested in attending this conference, please contact Jochen by e-mail at: [email protected] Raymond P. Fisk

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Guru’s view It’s time to get to first principles in service design Richard B. Chase

The author Richard B. Chase is Justin Dart Professor of Operations Management, Information and Operations Management Department, Marshall School of Business, University of Southern California, Los Angeles, California, USA.

Keywords Services, Behaviour, Design, Service quality assurance

Abstract Current approaches to service design and service quality have provided second order principles that fail to account for underlying cognitive processes of customers in service encounters. It is proposed that behavioral science research should be used to address this shortcoming, and five “first order” principles are presented based upon a review of the behavioral science literature.

Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/0960-4529.htm

Managing Service Quality Volume 14 · Number 2/3 · 2004 · pp. 126-128 q Emerald Group Publishing Limited · ISSN 0960-4529 DOI 10.1108/09604520410528545

For the past several years my colleague Sriram Dasu and I have been engaged in an exciting effort to transfer research findings from the behavioral sciences to service encounter design (Chase and Dasu, 2001). Our thesis is that the basic disciplines of cognitive psychology, behavioral decision theory, and social psychology have much to tell us about service design and service quality. We also contend that most of the business literature in service design and service quality suffers from a major shortcoming – its heavy reliance on empirical studies of what people say they felt about a service, not the underlying factors that shaped these feelings. As a result, principles stemming from service studies are really “second order”. In contrast, findings from behavioral science can provide the bases for “first order” principles since they are the result of in-depth analysis of the way people form perceptions and judgments of experiences. For example, a key finding by Nobel Prize winning psychologist Daniel Kahneman and his colleagues is that when people evaluate experiences retrospectively, they recall them as snapshots, not movies. The snapshots are of the highs (or lows), the ending value, and the slope (Kahneman and Tversky, 1999). It is findings such as these that have led us to propose the following principles.

Principle 1. Give the bad news first When confronted with a good news/bad news situation, most people prefer to hear the bad news first. The theory behind this is that people want to get the bad news out of the way to avoid dread, and are happy to forestall good news in order to savor the prospect of a positive outcome.

Principle 2. A miss is worse than a mile Near misses generate great anguish and often a false sense of how easily a poor outcome could have been avoided. Service providers need to be aware of this, particularly when communicating bad news to customers. For example, a ticket agent wouldn’t be doing anyone a favor by informing a sports enthusiast “if he had called just a minute earlier he could have been watching the NBA finals live instead of watching it on his television set”. Similar issues arise in virtually every type of service encounter.

Principle 3. Let the customer control the process One of the intriguing findings in the behavioral literature is that customers are far less likely to

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It’s time to get to first principles in service design

Managing Service Quality

Richard B. Chase

Volume 14 · Number 2/3 · 2004 · 126-128

complain about service quality when they themselves have control over some part of it. A study of patients’ reactions to blood tests showed that perceived pain was reduced when they were allowed to choose the arm from which the blood was to be drawn. Similar situations exist in the areas of self-service where customers are less likely to blame the system than themselves if they perform a self-service task incorrectly.

Principle 4. Segment the pleasure, combine the pain Research has shown that when an experience is broken into a series of identifiable segments, people recall the entire process as being longer than it really is. Thus, the obvious conclusion is to break up pleasant processes into clearly identifiable chunks, and unpleasant processes into a singular “get it over with” activity. These findings are counter to the common practice found in outpatient clinics, for example, of having the patient wait in multiple places. In this type of painful service encounter the wait should be consolidated into a single chunk. It also goes counter the boarding process at Southwest Airlines, where customers have to stand in two lines prior to boarding, even though a stopwatch study may show this as being a faster boarding process than with pre-assigned seats. There is some preliminary empirical evidence to suggest that customers indeed prefer a single stage queuing system to a multistage system when you control for the total waiting time and the time in the system. A roller coaster ride with distinct segments is likely to be perceived as longer (and hence of more value) than an equivalent one without the demarcation. This principle also has application to customer service help lines. Using a phone help line menu is rarely a fun experience, and smart service companies would like to have their customers remember the process as being short. As we are all well aware, getting to the department where a problem can be resolved requires the caller to listen to instructions and press (or speak) the correct number. Each such response can be viewed as a segment of the wait, thereby increasing the perceived time on line (pain). In fact, even if the actual time required to run through say four menu queries to get the desired department is less than that to run through two, people recall four as taking longer.

Principle 5. Finish strong This is the most generally agreed upon finding in behavioral research on memory. This suggests that the common wisdom that the start and the finish of the service – the so-called service bookends – are of equal importance does not stand up under research scrutiny. Given that there is a base level of competent performance at the beginning of the service, it’s not how good you start, it’s how good you finish that determines customer satisfaction. The admonition from gymnastics coach – “Stick the dismount” – captures the flavor of this principle. This principle, as well as the others, has application in cyberspace as well: Internet encounters begin at the front page of a Web site. For most companies, no expense is spared to make this opening attractive, with great thought put into graphics and information content. However, after starting strong, too many Web encounters go down hill, and end abruptly, with the last segment focusing on the action users must take, not on the quality of the final experience provided.

Conclusion The application of the above behavioral principles has potentially significant implications for interpreting existing service quality measurement approaches, as well as for service design. Take, for example, the SERVQUAL dimension of empathy. One of the principles listed above is to tell the bad news first. A person could exhibit warmth and understanding, but by simply changing the order of presentation, his empathy score may well be lowered. Similar impacts exist for conveying near misses. We are in the process of developing principles based upon other behavioral findings that pertain to such common service quality issues as failure prevention, service recovery, and waiting line management. As a final comment, the order of presentation of the principles reflects their content!

References Chase, R.B. and Dasu, S. (2001), ““Want to perfect your company’s service? Use behavioral science”, Harvard Business Review, Vol. 79 No. 6, pp. 78-84. Kahneman, D. and Tversky, A. (Eds) (1999), Choices, Values, and Frames, Cambridge University Press and the Russell Sage Foundation, New York, NY.

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Volume 14 · Number 2/3 · 2004 · 126-128

About the author Richard B. Chase is Justin B. Dart Professor of Operations Management and Director of the Doctoral Program, Marshall School of Business – University of Southern California. He has written and lectured extensively on the subject of service design. Two of his Harvard Business Review articles, “Where does the customer fit in a service operation?” and “The service factory” (with D. Garvin), have been cited as classics. His most recent Harvard Business Review article is “Want to perfect your company’s service? Use behavioral science” (with S. Dasu). His book, Operations Management for Competitive Advantage(with R. Jacobs and N. Aquilano), now in its 10th edition, has been among the most widely adopted textbooks in the field for over 25 years.

He was cited as one of the major contributors to operations management in the International Journal of Production Research in 1994, and the Journal of Retailing identified him as one of the leading scholars in services marketing in 1995. His work has been quoted in such leading books as Tom Peters’ Liberation Management, Davidow and Malone’s The Virtual Organization, and in Heskett et al.’s The Service Profit Chain. His money back service guarantee for his MBA course on service management has received international attention in the business press. He is a Fellow of the Academy of Management and the Decision Sciences Institute, and serves on the editorial boards of all of the leading operations management journals.

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Towards a better understanding of service excellence Robert Johnston

The author Robert Johnston is at the Warwick Business School, University of Warwick, Coventry, UK.

Keywords

Introduction Service excellence is both obtrusive and elusive. We know when we have received it and, rather more frequently, we know when we have not. Such service, both excellent and poor, has a strong emotional impact upon us as customers, creating intense feelings about the organisation, its staff and its services, and influencing our loyalty to it. Yet many organisations seem to find service excellence elusive, hard to grasp, and also difficult to deliver. Paradoxically, we, as individuals, instinctively know what it is and how simple it can be. The research on which this paper is based is part of a five-year study into service excellence commissioned by the Institute of Customer Service. Its purpose is to try to bridge this gap in management thinking by trying to develop a better understanding of service excellence and suggesting how to achieve it. This exploratory and initial paper makes an attempt to understand what is meant by the term “service excellence” as a first step towards helping marketers and managers, where appropriate, to design and deliver it.

Service quality assurance, Customer satisfaction, Customer services quality

Service excellence

Abstract Some organisations are becoming more concerned with delighting their customers than simply satisfying them. Yet despite an extensive literature on service quality and satisfaction little has been written about service excellence and how organisations can achieve delighted customers. The purpose of this exploratory but empirically based paper is to provide a definition of service excellence to help marketers and managers, where appropriate, design and deliver it. This paper is based on over 400 statements of excellent and poor service gathered from around 150 respondents. After categorising them, using a grounded theory approach, it is suggested that service excellence is about being “easy to do business with”. This has four key elements: delivering the promise, providing a personal touch, going the extra mile and resolving problems well. Further analysis of the frequencies of mention revealed the overarching importance of dealing well with problems and queries.

Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/0960-4529.htm

Managing Service Quality Volume 14 · Number 2/3 · 2004 · pp. 129-133 q Emerald Group Publishing Limited · ISSN 0960-4529 DOI 10.1108/09604520410528554

It has been suggested that, in the past, many organisations have been satisfied with simply appeasing their customers whereas today the emphasis is on customer satisfaction (Fisk, 2002). In the future, Fisk contends, more and more organisations will be concerned with achieving customer delight. The reason for this may be that “evidence indicates that satisfying customers is not enough to retain them because even satisfied customers defect at a high rate in many industries” (Schneider and Bowen, 1999; see also, for example, Reichheld, 1996). It should be noted that a strategy of delighting customers may not be appropriate for all organisations (Johnston, 1995a). Dube and Menon (1998), for example, suggested that in hospital contexts, managers should be more concerned with reducing the drivers of dissatisfaction. While many academics have made contributions to the now extensive literature on service quality, its attributes, dimensions and factors, its nature and how it can be improved, for example, there is much less work on service excellence and how organisations can achieve delighted customers. Although we may know when we have received excellent service, and indeed poor service, defining The research was commissioned by the Institute of Customer Service and sponsored by Britannic Assurance, FirstGroup, Lloyds TSB, RAC Motoring Services, and Vodafone.

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it, and operationalising it, appears to be more difficult. Surprisingly, little has been written defining the nature of excellent service and its outcome, delight, “Customer delight is a new concept in satisfaction research” (Oliver, 1997).

Satisfaction v. delight Satisfaction is a judgment, whereas emotions, such as delight, are human affects resulting from judgments about satisfaction with a service (Oliver, 1997). Early work on satisfaction and dissatisfaction treated (dis)satisfaction as a two state construct, for example upset or not upset (Warland et al., 1975), satisfied or dissatisfied (Day, 1980). It is now more accepted to conceptualise satisfaction as a continuum often expressed in terms of emotions. However, this emotional basis for the satisfaction response is not well documented in the literature (Oliver, 1997). Emotional anchors for the extremes of the satisfaction continuum include, for example, delight to terrible (Andrews and Withey, 1974) and delight to outrage (Schneider and Bowen, 1999). Other authors (for example, Prakash, 1991; Johnston, 1998) referred to the intensity of emotion using descriptors such as absolutely furious. Some recent research has demonstrated that emotions play a major role in perceived levels of service quality and satisfaction (Liljander and Strandvik, 1997). Dube and Menon (1998), for example, linked feelings of anger and frustration to decreases in dissatisfaction and emotions such as serenity and happiness with increases in satisfaction. Yu and Dean (2001) took this further and found that emotions are a better predictor of customer loyalty than satisfaction. Excellent service, the focus of this paper, results in feelings at one end of this emotional spectrum. Oliver suggested that delight is “an expression of very high satisfaction” resulting from “surprisingly good performance” (i.e. excellent service). It is often assumed that delight is the result of (excellent) service that exceeds expectations (see, for example, Schneider and Bowen, 1999; Gro¨nroos, 1990). However, this definition has its drawbacks. In essence, exceeding expectations may be unnecessarily costly. “If perceived quality is too high, the costs of production are probably unnecessarily high . . . Then we have an overquality, which cannot be justified for economic reasons. Moreover, an overquality may simply be perceived by the customer to exceed what is really needed, which in turn can even create bad word-of-mouth. Overquality may also give the impression that the service is overpriced, even if this is, in fact, not the case” (Gro¨nroos, 1990). Additionally, as delivered service quality increases so might customers’ expectations of subsequent service. As a result, what

might previously have been regarded as excellent service becomes simply adequate (expected) service, unless the organisation continues investing in this spiral of increasing quality and expectations in order continually to exceed expectations. “Exceeding expectations” implies that organisations have continually to do more in order to deliver excellent service and delight their customers. I would argue that this definition of excellent service is inappropriate, unachievable in the long term and difficult to operationalise. Indeed what is missing is some notion of what the customer values that leads to feelings of delight (or disgust). The purpose of this paper is to work towards a better understanding of service excellence in order to be able to operationalise this state so that marketers and managers can, where appropriate, design and deliver it.

Method The data on which this paper are based were obtained from three sets of data from around 150 individuals in total. One set was based on four focus groups (with between 20-25 people in each group) of randomly selected members of the public from two locations in the UK: St Albans and Coventry. A second set comprised a convenience sample of 20 senior managers, which aimed to capture a wide range of opinions from both public and private organisations. The organisations included Employment Services, National Westminster Bank, Daventry Council, Marks & Spencer, Modern Records Library, Conoco, Environmental Services, Thomson Travel and the project’s sponsoring organisations: Britannic Assurance, FirstGroup, Lloyds TSB, RAC, and Vodafone. The remainder were customer service managers from a variety of organisations in the UK who attended the Institute of Customer Service National Conference in May 2001. All the respondents were asked to identify organisations that they believed had a reputation for providing excellent and poor service. They were then asked what constitutes excellent and poor service as delivered by such organisations. Over 400 statements were collected and they were analysed independently by two researchers using open, intuitive and selective coding. The researchers summarised the comments into key words and phrases and identified key themes. Then, using an iterative process, they agreed on a set of characteristics of excellent and poor service. This grounded theory approach (Glaser and Strauss, 1967) was deemed the most appropriate for such an exploratory study and has been used in several recent studies (see, for example, Brignall et al., 1999; Johnston and Mehra, 2002; Johnston

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et al., 2002). Grounded theory is an interpretative, hermeneutic, qualitative approach to research that allows for an investigation of the many contextual variables (Yin, 1994). It is not based on a priori assumptions or hypotheses but derives explanations of social phenomena based on observations, deduction and interpretation. Whilst a grounded theory approach is unsuitable for drawing inferences to a larger population, the objective of such research is to use the qualitative data for explanatory purposes and to generalise back to, and refine, theory.

Table I provides some representative comments from each of these categories. The comments demonstrate the simplicity of excellent service. One interesting point was the things that respondents described as an “extra mile”. In all cases these were small touches. Some respondents mentioned the socks or the toothbrush or the ice cream half way through the film when flying Virgin Atlantic, or the sweetie or the flower on the pillow in some hotels. It is clear that small touches provide hugh leverage in terms of customers’ perceptions of a service. Figures 1 and 2 show the frequencies of mention in each of these categories. What is striking from the figures is that excellent and poor service is only in part about “normal” service delivery, i.e. delivering the promise. Simply delivering the promise (or not), was only the second most mentioned aspect of excellent (or poor) service. What makes excellent service “excellent” and poor service “poor” is very much about how the organisations dealt with problems and queries. Nearly 50 per cent of the statements describing what made excellent service “excellent” were about problem handling and 64 per cent of the statements of poor service were about problem and complaint handling. Problem handling is a key driver of people’s perceptions of excellent or poor service. The other two characteristics, how the organisations dealt with people i.e. the personal touch (which is sometimes narrowly referred to as “service”) and going the extra mile (an obvious means of exceeding expectations) were much less important.

Findings The distillation of these characteristics suggested that, in essence, service excellence was simply about being “easy to do business with” (not necessarily exceeding expectations). Excellent service was described simply as “a pleasure”. There were no hassles or difficulties. Such organisations were just easy to do business with, as one respondent reported: “it was quick and easy, they were really helpful”. Customers did not expect “the earth”; indeed one focus group member admitted, “We are easily pleased”. And, interestingly, the respondents admitted that they were quite prepared to pay extra for this. Conversely poor service organisations were a “pain to do business with”. They were often described as “a nightmare” to deal with. Several respondents reported that they felt “the customer was just a problem to them”. Their staff and systems made it difficult for customers to do business with them. They just did not care about the customers or their experiences. Customers understood when they were purchasing a low price or no-frills service and happily accepted the organisation’s business proposition; indeed some such organisations made it into the list of organisations providing excellent service. What customers would not forgive, however, was no, or poor, service appropriate to the service proposition, as one person stated “I will accept little service for a low price but not zero service”. The phrases about excellent service provided by the respondents fell into four categories: (1) Delivering the promise. (2) Providing a personal touch. (3) Going the extra mile. (4) Dealing well with problems and queries. The characteristics of poor service were in essence the opposite of the excellent ones: . not delivering what was promised; . being impersonal; . not making any effort; . not dealing well with problems and queries.

Conclusion The objective of this paper was to make an attempt to understand what is meant by the term “service excellence” as a first step towards helping marketers and managers, where appropriate, to design and deliver it. The definition of service excellence as “exceeding expectations” was considered unhelpful. The definition of service excellence proposed here may indeed exceed expectations, but requires organisations to do no more than they promise. Service excellence is about “being easy to do business with”. It simply requires organisations to do what they promise and if and when things go wrong to have good systems in place to deal with them. A personal touch and a few small extra touches may contribute to this perception. Dealing well with problems and queries appears to be a critical determinant as to whether an organisation is perceived as excellent or poor. Customers much prefer an organisation to deliver its promise but are prepared to accept problems

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Table I Some of the respondents’ comments Excellent service

They deliver the promise They do what they said They don’t let you down They give you what you want, not what they want You are not disappointed If you ask them to do it, it just happens

Poor service They don’t do what they said They didn’t have it/do it; it was wrong They let me down They work hard to get you and then when you sign, that’s it They just look at you daft when you ask for anything

They make it personal They give you the time They know about me, I don’t have to keep telling them They know who I am, or at least appear to know who I am It feels more like a relationship than a transaction They make eye contact and smile and they mean it They treat me like an individual

They are so impersonal There was no eye contact They didn’t even acknowledge me They looked like they didn’t trust me They were patronising There was no personal touch It was plastic service They are blinkered by the process I was insulted

They go the extra mile It’s the little touches They went out of their way They explain things They call you back, I didn’t have to chase them They had some nice touches quite easy but it really made the difference They fall over themselves to help

They don’t make any effort They ignored us They didn’t listen You just get a blank look They don’t care They were not interested The customer is just a problem to them

They deal well with problems They were happy and willing to sort it out They took responsibility It was quick and easy They did not pass me around They believed me They did the work They gave open and honest explanations They phoned me back They know what to do if there is a problem When it goes wrong THEY sort it out

They don’t deal with the problems They did nothing, there was no plan B They denied responsibility They make it difficult to talk to them They gave me the run around They blamed me I had to do all the work They didn’t phone me back They fobbed us off, just a couple of gift vouchers There was no apology They don’t learn from mistakes They pass the buck You have to keep repeating yourself Things go wrong too often I ring them every month and each time I have to tell them the whole story You spend half an hour trying to get through and when you do they don’t know anything

Figure 1 Characteristics of excellent service

Figure 2 Characteristics of poor service

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provided they are dealt with well. This “recovery paradox”, the creation of more delight through good recovery than normal service, is discussed elsewhere in the literature (see, for example, Johnston, 1995b; Johnston and Fern, 1999; Tax and Brown, 1998a, b). From an academic perspective, this research has demonstrated the importance of the service promise (or concept) and service recovery and complaint management. Yet surprisingly, these areas are not well researched. From a practitioner perspective, this research would suggest that there is a need for clarity about the “service promise” in order to market it (thereby setting customers expectations of what is to be delivered) and deliver it (to ensure the promise is delivered). The importance of having good recovery systems and complaint systems is critical for organisations seeking to deliver excellent service. Importantly, this work has also provided what might be considered the acid test of service excellence: are you “easy to do business with”? Additionally, do your customers use terms such as those on the left-hand side or right hand side of Table I to describe your organisation? This exploratory and grounded study has a number of limitations. Aside from the limitations of sample size and the limitations imposed by any interpretative study of the judgments made in the coding process, one key concern is the wide range of service organisations on which the data are based. It would be appropriate to repeat this work focusing on different service industries and segments and also by different strategies employed (such as delight v. satisfy) to identify differences in characteristics of excellence. While this research has focused on the “what” is service excellence, a second direction for future research would be to study the “how” – how do the successful organisations go about delivering service excellence? Indeed the next stage of this research is to study some of the most frequently cited providers of excellent service to understand how they manage to deliver it. It may also be appropriate to study some of the poorer performers.

Day, R. (1980), “Research perspectives on consumer complaining behaviour”, in Lamb, C. and Dunne, P. (Eds), Theoretical Developments in Marketing, American Marketing Association, Chicago, IL, pp. 211-15. Dube, L. and Menon, K. (1998), “Managing emotions”, Marketing Health Services, Vol. 18 No. 3, pp. 34-43. Fisk, R. (2002), Presentation to the 1st International Symposium on Service Engineering and Management, Stuttgart, November. Glaser, B.G. and Strauss, A.L. (1967), The Discovery of Grounded Theory, Aldine, Chicago, IL. Gro¨nroos, C. (1990), Service Management and Marketing, Lexington Books, Lexington, MA. Johnston, R. (1995a), “The determinants of service quality: satisfiers and dissatisfiers”, International Journal of Service Industry Management, Vol. 6 No. 5, pp. 53-71. Johnston, R. (1995b), “Service failure and recovery: impact, attributes and process”, Advances in Services Marketing and Management: Research and Practice, Vol. 4, pp. 211-28. Johnston, R. (1998), “The effect of intensity of dissatisfaction on complaining behaviour”, Journal of Consumer Satisfaction, Dissatisfaction and Complaining Behavior, Vol. 11, pp. 69-77. Johnston, R. and Fern, A. (1999), “Service recovery strategies for single and double deviation scenarios”, The Service Industries Journal, Vol. 19 No. 2, pp. 69-82. Johnston, R. and Mehra, S. (2002), “Best practice complaint management”, The Academy of Management Executive, Vol. 16 No. 4, pp. 145-55. Johnston, R., Brignall, S. and Fitzgerald, L. (2002), “The involvement of management accountants in operational process change: results from field research”, International Journal of Operations & Production Management, Vol. 22 No. 12, pp. 1325-38. Liljander, V. and Strandvik, T. (1997), “Emotions in service satisfaction”, International Journal of Service Industry Management, Vol. 8 No. 2, pp. 148-60. Oliver, R.L. (1997), Satisfaction: A Behavioral Perspective on the Consumer, McGraw-Hill, New York, NY. Prakash, V. (1991), “Intensity of dissatisfaction and consumer complaint behaviors”, Journal of Consumer Satisfaction, Dissatisfaction and Complaining Behavior, Vol. 4, pp. 110-22. Reichheld, F.F. (1996), The Loyalty Effect, Harvard Business School Press, Cambridge, MA. Schneider, B. and Bowen, D.E. (1999), “Understanding customer delight and outrage”, Sloan Management Review, Fall, pp. 35-45. Tax, S.S. and Brown, S.W. (1998a), “Customer evaluations of service complaint experiences: implications for relationship marketing”, Journal of Marketing, Vol. 62 No. 2, pp. 60-77. Tax, S.S. and Brown, S.W. (1998b), “Recovering and learning from service failure”, Sloan Management Review, Vol. 40 No. 1, pp. 75-89. Warland, R., Herrmann, R. and Willits, J. (1975), “Dissatisfied customers: who gets upset and who takes action”, Journal of Consumer Affairs, Winter, pp. 148-63. Yin, R.K. (1994), Case Study Research: Design and Methods, 2nd ed., Sage, London. Yu, Y.T. and Dean, A. (2001), “The contribution of emotional satisfaction to customer loyalty”, International Journal of Service Industry Management, Vol. 12 No. 3/4, pp. 234-51.

References Andrews, F.M. and Withey, S.B. (1974), “Developing measures of perceived life quality: results from several national surveys”, Social Indicators Research, Vol. 1 May, pp. 1-26. Brignall, S., Fitzgerald, L., Johnston, R. and Markou, E. (1999), Improving Service Performance: A Study of Step-Change versus Continuous Improvement, CIMA, London.

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Introduction

The almost customer: a missed opportunity to enhance corporate success James G. Barnes Brian R. King and Gordon A. Breen The authors James G. Barnes is Professor of Marketing, Faculty of Business Administration, Memorial University of Newfoundland, St John’s, Canada. Brian R. King is Manager, Marketing-Communications, Johnson Inc., St John’s, Canada. Gordon A. Breen is Director – Quality and Engineering, NewTech Instruments Ltd, St John’s, Canada.

Keywords Customer retention, Customer relations, Customer loyalty, Customer satisfaction, Service quality assurance

Abstract Little attention has been paid to prospective customers who defect before buying. This paper examines the almost customer phenomenon. It reviews literature on service quality, customer satisfaction, retention, relationships, loyalty and defection. It also categorizes the causes of almost customer experiences into a series of themes. The almost customer phenomenon and its effects are presented in the context of implications for managers and for future research. The almost customer phenomenon may appear to be a study of early customer defection, but the almost customer defects before buying. The customer defection literature assumes that a firm has attracted customers. But, not every attempted transaction leads to a purchase. Sometimes, elements of the interaction have an impact on whether or not the individual buys. This paper examines defection before a customer becomes a customer. Reducing the incidence of almost customer episodes represents an opportunity for firms to optimize growth and profitability.

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Managing Service Quality Volume 14 · Number 2/3 · 2004 · pp. 134-146 q Emerald Group Publishing Limited · ISSN 0960-4529 DOI 10.1108/09604520410528563

Firms are not always successful in engaging strangers and helping them become customers. If firms were able to perform this task well, visitors to a firm would never terminate a service encounter without first making a purchase – signing on as a customer. We know this is not the case. Much of what transpires during a service encounter (sometimes even before the initial contact between the prospective customer and sales person) determines whether or not a firm ever sells anything. Yet few firms invest the time and money needed to research how their actions turn away prospective customers before they have a chance to become customers. There are countless examples of individuals who visited a business with cash in hand ready and intent on making a purchase but, because of some event or service failure, abandoned their efforts to become customers. We label these individuals “almost customers” – they tried to become customers, only to be thwarted by the actions (or inactions) of the businesses with which they wanted to deal. The service failure that causes the almost customer phenomenon occurs somewhere along the continuum between pre-customer and customer (see Figure 1). At first glance, one may suggest that the almost customer phenomenon is simply customer defection wrapped in a different label. However, we argue that this is not the case. The focus on customer retention and relationship building assumes that a firm has successfully attracted customers in the first place. But, we know that not every attempted transaction leads to a purchase. Often, elements within the service encounter have an impact on whether the individual makes a purchase. The biggest difference between the two concepts is that the almost customer defects before the transaction; the lost customer after one or more transactions. Marketers who accept the value inherent in developing customer relationships would argue that many almost customers would have provided considerable long-term value to the firm. However, Barnes (2001a) argues that few firms invest the time and money needed to research how their actions turn away prospective customers before they have a chance to become customers. Barnes also notes that a view of the almost customer is lacking in most firms. We agree and maintain that even those individuals who have yet to complete a transaction and therefore are not yet accorded the title of “customer” are an extremely valuable and often overlooked market segment. This paper presents the results of a review of marketing and social psychology research relating

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Figure 1 The customer continuum

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to the almost customer concept, as well as the results of empirical research involving depth interviews with consumers focusing on their almost customer experiences. Concluding sections of this paper build a typology of almost customer causes and effects and develops a model of the almost customer phenomenon. Implications for practising managers and for future research are provided.

.

Defining the almost customer We propose the following definition of the almost customer: The almost customer is an individual who wanted and tried to conduct business with a firm for the first time but became so frustrated with one of more aspects of the firm’s value proposition that he or she terminated all attempts to deal with that firm.

Several elements of this definition are important to our understanding of the concept: . Desire. First, the individual must have a genuine desire and interest in purchasing the product or service in question. If an individual entered an auto dealership to test drive a new sports car but lacked a genuine interest in making the purchase or did not have the means to make the purchase, the individual would not be labeled an almost customer if, after the test drive, he or she left the dealership without buying the car. In this case, there was little the firm could do to stimulate the sale and there was nothing the firm did to turn off the prospective customer. . No prior transactions. The almost customer concept also presupposes that the person was not a customer of the firm in the past – otherwise the reaction of the customer to the service failure during the most recent visit would represent an example of a lost or defected customer. . Emotional involvement. To have a true almost customer experience, the individual must experience some event that ignites a negative emotion such as frustration or

disappointment. To illustrate, a prospective customer interested in buying living room furniture who leaves the store empty handed because the colour, size, or style of sofa currently in stock was not suitable would not be considered an almost customer unless this gap in the product line did in fact stimulate negative emotions directed toward the firm or sales staff. Object of the negative affect. The event causing the negative emotion can be linked to any aspect of the firm’s value proposition – that is anything that the individual receives, feels, sees or experiences, whether tangible or intangible, from the firm. This would include the performance of the service staff, elements of the servicescape, variety available, opening hours, etc. No future transactions. Finally, to fit the almost customer definition, the individual had to terminate the attempted transaction and avoid all future interactions with that firm – never returning to make a purchase. A person who terminated a transaction only to return to that same firm to buy the product (or any other product) did not fit our initial definition of the almost customer.

Existing marketing literature There is a wealth of published research that demonstrates how a firm can achieve long-term growth and profitability through the development of genuine relationships with its customers – research that can be applied to the almost customer concept. Customer retention is at the root of this research; that is, retaining customers over the long term rather than finding new ones. Customer satisfaction, value, and defection are also significant contributors to this field of study and have received considerable attention. However, an exhaustive review of the literature and conversations with authorities within the field of relationship and services marketing suggests that practising business managers and academics are not paying attention to the almost customer. In fact, there was consensus amongst those marketing experts contacted by the authors – including A. Parasuraman, Leonard Berry, Mary Jo Bitner, Susan Keaveney, Valarie Zeithaml, Susan Fournier and Ray Fisk – that there is a void in the published research on this topic. All agreed that the almost customer concept warranted further study.

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Relationship to relationships: theoretical underpinnings

Social skills. Duck (1991) cautions against placing too much emphasis on physical traits. Instead, he argues that a person’s skill in interpersonal attraction is the most important predictor of a person’s propensity to form relationships. These “relationshipping” skills depend on a range of factors such as a person’s knowledge of appropriate subject matter, as well as appropriate environments and activities for each stage of relationship development. For example, a funeral would not be an appropriate activity for a first date in the minds of most people. However, as Duck (1991) points out, many people make seemingly obvious mistakes such as this on a regular basis. Responsiveness, or being attentive and showing interest in others, is identified as a particularly important relationship skill (Duck, 1991; Fehr, 1996). In the words of Dale Carnegie (1936, p. 58):

The interactions between the firm and the prospective customer that lead to the creation of the almost customer are closely aligned with a potential dyadic interpersonal relationship that has gone off the rails during early encounters. The soon-to-be almost customer is analogous to someone who has a desire or aspirations to begin a relationship with what is seen to be a desirable relationship partner, only to be upset, angered, ignored or rejected by the prospective partner in some way. While the study of what causes potential new relationships to be terminated represents a new area of research for services marketing, social psychologists have long been examining what causes fledgling relationships to fail. Environmental factors Setting. Social psychologists have established that people who are skilled at building relationships are cognizant of the importance of the setting (Duck, 1991). In instances where we like the person and desire to develop the relationship further, we are careful to meet the relationship partner in more intimate settings. Conversely, we tend to meet with people we do not like in more sterile, “work-like” settings. Servicescape issues such as a poor or inconsistent ambience may therefore increase the potential for an almost customer experience. Proximity. People who live in close proximity to one another have been found to be more likely to form relationships than those who live further apart (Fehr, 1996). It is reasoned that with closer proximity, the frequency of interaction of relationship partners is likely to increase and so too does the potential for relationship formation. The quality of the relationship is also positively affected (Ebbesen et al., 1976). Big-box or Web-based retailers may be more likely to create almost customers than are local, neighbourhood retailers. Individual factors Physical attractiveness. Attractiveness has been found to play a role in the formation of not only romantic relationships, but also friendships (Fehr, 1996). Research has shown that we perceive attractive people to be more similar to us in terms of personality and attitudes (Patzer, 1985). We may also find it more enjoyable to interact with attractive people (Brehm, 1985). While the implication here is not only to hire the most attractive people for customer-facing roles, the research would also suggest that appropriate dress and grooming are important to relationship formation, especially at the point of initial contact.

You will make more friends in two months by showing interest in others than you will in two years while trying to make people interested in you.

Businesses that are not careful to ensure that their customer-facing employees have exceptional “relationshipping” skills will most certainly be at higher risk of creating almost customers. Situational factors Possibility of future interaction. Our expectations for seeing the individual again greatly affect our perceptions of the other person and the likelihood of friendship formation (Fehr, 1996). If we anticipate ongoing interactions with someone, we tend to emphasize the positives and ignore the negatives in the encounter so that future encounters will be as pleasant as possible (Knight and Vallacher, 1981; Miller and Marks, 1982). The almost customer effect may therefore be more likely where ongoing encounters with the service provider are not anticipated, such as in the case of one-time purchase situations or where there is high turnover of front-line staff. Familiarity. Increasing frequency of exposure positively affects our ratings of others, even if we only see them and don’t interact with them (Fehr, 1996). For example, a landmark study by Zajonc (1968) showed that, the more we are exposed to people, the greater our attraction to them, even if our exposure to them is only by means of a photograph. Again, companies which experience high staff turnover in customer-facing positions may be at higher risk of creating almost customers. Familiarity has also been shown to greatly reduce the negative affect resulting from negative feedback. Snapp and Leary (2001) showed that when new acquaintances take several minutes to “get to know” one another, subsequent negative

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feedback is much more positively received than in instances where there is no prior attempt at becoming acquainted. This finding also underlines the importance of personal interaction between employees and customers. An opportunity for acquaintance before delivering bad news regarding a stockout may mitigate the customer’s disappointment and encourage the customer to return. Dependency. A final situational factor contributing to relationship formation is the dependency of relationship partners on each other for rewards. Fehr (1996) reports that we tend to like individuals who have the power to reward (or even punish) us more than those without such power. Retailers who do not empower front line staff to use their own judgment in dealing with customers may therefore be at risk of losing prospective customers.

results in our disliking the disclosure and we may recoil from any further interaction. For the effect to bring people closer together, the exchange must gradually move from a superficial to an intimate level as the relationship progresses (Duck, 1991). Again, the implication for business is that the social skills of customer-facing employees are critical for the customer-firm relationship. Relationship moves. Just as self-disclosure must proceed in incremental steps, so too must all other interchanges in the relationship (Rodin, 1982). Consider a situation where you spend days planning a meal at your home for a new acquaintance. When asked to come, he or she may refuse the invitation or may come but not reciprocate the invitation. You have made a significant relationship move (i.e. the elaborate dinner), but the acquaintance has not reciprocated with a move of equal size or value. Consider also the example where you invite an acquaintance for a quick coffee and he or she reciprocates by sending you an expensive gift. In this instance, the move by the acquaintance is correspondingly much larger. In the above instances your decision will likely be to discontinue the relationship because of the discrepancies in the mutual “moves”.

Dyadic factors Perceived liking. It is not surprising that we tend to like those whom we believe like us, and this has been demonstrated in social psychology research (Backman and Secord, 1959). What is perhaps more surprising, however, is that if we expect to be liked by another person, there is a tendency to behave in ways that confirm this expectation. In a study by Curtis and Miller (1986), participants who believed that the partner with whom they were interacting liked them showed fewer distancing behaviours, were more pleasant, and intimate in their self-disclosure. Businesses that are not careful to provide personalized, friendly service may therefore encounter less friendly customers, thereby increasing the likelihood of the prospective customer walking away. Self-disclosure. According to Altman and Taylor (1973), when we first meet someone, we begin our interactions by disclosing information on a superficial level. If we find the interaction enjoyable, we will continue to increase the intimacy and breadth of our disclosures as long as the exchange and disclosures have a positive outcome. If the interaction becomes unpleasant, we may retreat to our earlier and more superficial mode of interaction. This model predicts that we will be attracted to people who reveal more personal information about themselves (Fehr, 1996). This finding illustrates the importance of hiring open and engaging customer-facing staff. Researchers do caution, however, that there are limits to this effect. Studies have shown that in instances when someone we have just met discloses highly personal information to us we feel uncomfortable and an opposite effect results (Archer and Berg, 1978; Cosby, 1972; Rubin, 1975). Our discomfort

Cognitive process While much of the preceding discussion describes what affects the formation of dyadic relationships, Rodin (1982) presents a rare cognitive process model for how we choose our friends. And, while this model has never been corroborated by empirical research (Fehr, 1996), it does have considerable intuitive appeal. Rodin suggests that interpersonal attraction is based on a simplification process whereby individuals act to make exclusion judgments regarding the set of relationship eligibles before making any assessment of whether or not a particular individual has likeable qualities. In other words, we first decide whom we do not want as a friend before deciding whom we do want. The selection regarding whom we want as a friend is made from the set of eligibles remaining after our exclusion judgments are made. According to Rodin (1982), individuals who meet some preconceived dislike criteria are quickly eliminated from our set of eligibles. We then further reduce the set of eligibles by eliminating those who seem unsuitable or unlikely candidates for acquaintance or friendship. We may disregard people because of their age, the way they dress, physical attractiveness, socioeconomic background, education, etc. According to Rodin, these disregard criteria provide us with the basis for a “best guess” so that our energy and attention are not expended wastefully on people we are unlikely

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to like. We do not dislike people we disregard. We just simply doubt that a relationship will work out. Perhaps Rodin’s most important observation is that individuals make these exclusion judgments quickly, in the earliest stages of acquaintanceship, long before there has been a chance for a relationship to develop. In applying this observation to the explanation of the almost customer phenomenon, we note that if some aspect of the firm’s value proposition meets the customer’s dislike or disregard criteria prior to the completion of the transaction, then the almost customer event is likely to occur. Consider a situation where a male salesperson makes a sexist statement to a prospective female customer. In this case the salesperson may immediately meet the individual’s dislike criteria and the prospective customer may quickly become an almost customer. The dislike judgment may also occur earlier on in the firm’s interaction with the individual. Consider a situation where the firm’s advertising contains what is judged by the prospective customer to be offensive graphics or even spelling errors. Or, consider instances where the prospective customer may judge the parking lot or storefront to be in a state of disrepair. In such cases, the prospective customer becomes an almost customer without the firm even knowing. The object of the almost customer’s dislike in this instance is not an individual, but rather some inanimate aspect of the value proposition. Rodin’s model also appears to confirm observations from unpublished research completed by the authors (Breen and King, 2002). While it may take many weeks or months to decide one truly likes a service provider and decide that one wants to pursue a relationship, it seemingly takes only a split second to make a decision that one dislikes a firm, brand, or salesperson.

where partners were dissatisfied, had a high degree of relationship investment and attractive alternatives. Neglect and loyalty were found to occur when there were few relationship alternatives; neglect occurs when satisfaction and investment are low. Loyalty occurs when satisfaction and investment are high. Application of this model to the almost customer phenomenon provides us with accurate predictions of consumer response.

Reactions to dissatisfaction A final insight into the almost customer phenomenon has been gleaned from research on close personal relationships. While close relationships are not directly analogous to the almost customer concept, the research described below may provide insight into consumer reactions to poor service delivery. Rusbult (1987) was able to characterize partner responses to relationship dissatisfaction into four categories: (1) exit – leaving the relationship; (2) voice – expressing dissatisfaction vocally; (3) neglect – ignoring the issue; (4) loyalty – emphasizing the positive.

Typology of causes

Rusbult found that exit responses are typical of couples with low relationship satisfaction, low relationship investment and attractive alternatives. The voice response was found in relationships

Research methodology To gain detailed insight into the perspective of the almost customer, the authors conducted two-hour personal interviews with 25 participants, selected to ensure representation from various age and lifestyle cohorts. Participants were promised a copy of the research results and were treated to a lunch or snack for their participation. All interviews and analysis were conducted by the authors to ensure that they had a complete understanding of the issues. Prior to the interviews, a discussion guide was developed to ensure that two critical and interrelated pieces of information were addressed: a first-person description of the participants’ almost customer experiences; and the implications of the experiences on their relationship with the offending firms. Stories outlining the origin and evolution of various almost customer experiences, including the factors leading up to the experiences, the specific causes, and consequences were elicited. The typology of causes and effects provided below has been developed from the interviews with these almost customers.

The almost customer phenomenon has many possible causes. The root causes are identified and analyzed in the sections that follow and summarized in Table I. Human resource management When customer-facing employees of the firm are characterized as argumentative, rude, pushy, uncaring, unknowledgeable, indifferent, dishonest or aloof by prospective customers, poor hiring practices and training may be at the root of the issue. As Duck (1991) points out, the skills and interplay of the relationship partners are the most important predictors of relationship success. If one or both of the partners are not well versed in the skills of “relationshipping”, first encounters are

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Table I Almost customer: typology of causes Root cause Human resource management

Issues Poor employee selection Poor training Poor management or incentive systems

Policies, processes and technology

Poorly designed or implemented technology Complex procedures Stupid rules Failure to address value from the customer perspective

Market maturity

Choices available in marketplace

Customer characteristics

Personality factors/individual traits Mood

Type of purchase

Level of involvement and expectations

Servicescape

Lack of cleanliness Disrepair Milestone purchases

Consumer lifecycle

doomed to go badly, bringing any potential relationship to an abrupt end. In some cases, the root cause of staff behaviour may be sales-based incentive systems or pressure from management to push certain products. When such incentives and direction are poorly conceived or not tempered with advice and training on appropriate treatment of the customer, salespeople may be overly aggressive, turning prospective customers away.

Policies, processes and technology Often, the almost customer experience is not the fault of the front-line salesperson, but instead is the outcome of policies, processes and technology which are designed with little consideration for customer needs and expectations, or which are poorly implemented. Consider one almost customer situation where a company hassled a possible new customer regarding the return of a Christmas gift because she did not have the bill, even though the item had been a Christmas gift from a friend. In this instance, the company turned the opportunity for obtaining a new customer into a negative experience and an almost customer event – all because of a rigid policy. Sometimes, procedures require customers to fill out long and complex application forms or provide detailed personal information before a sale can be completed. Consider the electronics store that does not allow a customer to purchase even a single battery without providing personal data. Also, consider Web-based businesses that will not provide product information unless one first “registers” by responding to an extensive questionnaire. Customers interviewed provided several such examples where such procedures are

clearly designed to help the company obtain marketing data, rather than to assist customers. Technology such as interactive voice response (IVR) telephone systems and Internet Web sites may also serve to frustrate the almost customer. Consider the IVR system that places the prospective customer in an infinite loop with no option to speak to an operator. Consider also the Internet site that permits a Canadian customer to complete multiple steps leading up to the completion of the purchase. Then, only after the customer has invested considerable time in completing the form, does the customer discover that the site will not accept a Canadian postal code for the shipping address. In these examples, technology has been designed with efficiency or some other company-focused purpose in mind, but it is obvious that little thought has been given to the customer perspective. In other examples, technology has been implemented correctly, but supporting processes are not. Consider the cases of almost customers who sent e-mails or left voice mails requesting product information, but received no response. In these instances, companies may be guilty of understaffing or may not have provided sufficient training or emphasis on the importance of responding to customers. Market (im)maturity Market maturity refers to the level of development of a given competitive marketplace (Barnes and Kelloway, 1980). A mature market is characterized by a relatively large number of competing firms, which offer consumers greater choice, while immature markets have relatively few competitors, the most extreme case being monopoly situations like most markets for electrical power or local phone service. While this appears to be a construct based in economics, market maturity has implications for the almost customer phenomenon as well. In this study, conducted in a relatively small and immature market, the almost customer phenomenon was not as prevalent as had been expected. The rationale for this outcome is that market immaturity strips the consumer of choice. Because there are few alternatives, the consumer begrudgingly proceeds with his or her purchase and is forced to return to the firm in the future. When the cycle of poor treatment is repeated, the customer’s dislike for the firm is only strengthened. Many of the consumers in this study were, perhaps, almost customers in mind, but not in action. They were almost certainly reluctant customers. Conversely, in a mature market, we would expect that consumers would not be as willing to

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endure unfair treatment and would simply take their business elsewhere. In a mature market, treatment of the customer would therefore be a more critical factor in the success of the firm. Customers and money would migrate to those companies with the best overall value proposition. Those factors which create the almost customer phenomenon are most certainly a critical component of this value proposition.

likely to walk away from a transaction in favour of another alternative. When the almost customer phenomenon occurs, relationships with the firm, product, and or brand will normally be weak. Consistent with Rusbult’s (1987) discussion on reactions to dissatisfaction, when the customer has low relationship satisfaction, little invested in the relationship, and attractive alternatives, an exit strategy and the almost customer outcome will be common. In the situations described above, some aspect of the firm’s value proposition is likely meeting the customer’s dislike or disregard criteria. As predicted by Rodin (1982), an abrupt end to the relationship is the result.

Customer characteristics/individual differences Customers have a widely varying tolerance for poor service. During this study, we spoke with many customers who were incredibly tolerant of rude staff, long waiting lines, and processes that do not make sense. In some cases, these consumers were willing to endure poor service – and perhaps even expected to receive poor service – in order to get a “deal”. These shoppers tended to be very price motivated and generally had very low expectations for the service encounter. A customer’s tolerance for poor service will depend not only on personality traits, but on a combination of factors including time pressures and mood at the time of the encounter, shopper sophistication, available options, and the customer’s pre-existing relationship with the firm, product, or brand. The authors noted that time pressures, in particular, were a common cause of the almost customer effect when the consumers were middle-aged parents of young children. Waiting lines in hardware stores and supermarkets were especially intolerable when “[the spouse] and the kids were waiting in the car”. In these instances, the consumers simply dropped their intended purchases and/or left their shopping carts and headed for the exit. A customer’s pre-existing mood when he or she walks or clicks into a new service encounter is outside the firm’s control. However, service personnel with positive attitudes, a customer focus and excellent relationship skills will often be able to change a customer’s initial mood for the better. Conversely, unhappy sales staff, frustrating waiting lines, poorly designed Web sites, and store policies that make no sense to customers will only serve to worsen their mood, making the potential for an almost customer result even more likely. With respect to a customer’s “sophistication”, a consumer who travels a lot and shops in many different cities will have been exposed to a broad spectrum of service experiences. As well, some shop around and educate themselves on product and service alternatives before making a purchase decision. Such sophisticated shoppers may have more clearly defined and higher expectations for a given service encounter and are, therefore, more

Type of purchase: level of involvement and expectations As Johnston’s (1995) zone of tolerance model would predict, the consumer’s emotional involvement in the purchase will have a profound effect on the potential for an almost customer experience. From the interviews conducted, it is clear that the almost customer effect is more likely when the customer is making an expensive or emotion-laden purchase such as when shopping for an engagement ring or a first mortgage. In these situations, the customer has a high level of emotional involvement and a narrow zone of tolerance for service failure. We have observed that a service failure under such circumstances will result in strong negative affect and the creation of an almost customer who may also be a vocal terrorist of the firm. Expectations play a role in the creation of an almost customer. As explained by Barnes (2001a), when shopping at a high-end boutique or other store or Web site that has a reputation for excellent service, consumers have raised expectations for the service experience. In such instances, if the service is anything less than what was expected, the customer will be disappointed and may go elsewhere. Stores with a reputation for good service are held to a higher standard by consumers. Providing service which is merely average may result in an almost customer outcome. The amount of preplanning that a customer does prior to a purchase also has implications for the creation of an almost customer. Consider an example where a couple had carefully considered the selection of a gas fireplace for a new home, only to encounter a salesperson who suggested they make an appointment to see him another day. The reason for the couple abruptly taking their business elsewhere may be explained by Rodin’s (1982) concept of relationship moves. In this example, the almost customers had invested significant effort in the relationship through the pre-selection process,

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but the salesperson had reciprocated with a discrepant move by putting them off for another day. It was the discrepancies between these relationship moves that created the negative affect and loss of business. Finally, there are mitigating factors which will tend to prevent the almost customer experience, namely the customer’s relationship with the product or the brand being purchased, as well as the customer’s desire for the product. Customers who have a strong desire for the item or service they are attempting to purchase are far more likely to endure poor service than are customers who are less committed. Consumer desire for a product or service may be driven by established brand relationships or by high price sensitivity and the related desire for a “good deal”.

encountered in the past. They are also about to make what is likely to be the largest purchase in their lives, a fact that most certainly heightens anxiety and the potential for a negative service experience. Other examples provided by interview subjects include the search for an engagement ring, the purchase of the first new car, the search for baby clothes for the “new addition”, and even the search for the first pair of glasses as eyesight fails later in life. All these milestone purchases resulted in almost customer experiences.

Servicescape issues Almost customer responses also resulted where the customers judged retail facilities to be in a poor state of repair or where the store de´cor was thought to be unappealing. “Cheap looking” was a typical complaint regarding the de´cor from almost customers visiting discount clothing stores. In these examples, the customers’ dislike of the store’s appearance far overshadowed their desire to obtain a good bargain. For these examples, Rodin’s (1982) model for selecting relationship partners may again be applied to explain what is occurring in the minds of these almost customers. In Rodin’s view, lack of cleanliness, poor state of repair and a cheap de´cor are dislike criteria for these customers. When dislike criteria are observed, the prospective customer makes a quick judgment regarding the unacceptability of the firm and goes elsewhere. Accessibility of product was another issue uncovered during the interviews. Almost customers encountered situations where merchandise was locked away, chained to racks, or located high on storage shelves. In the absence of attentive salespeople to provide them with immediate assistance, customers deemed the purchase situation to be not worth the effort and decided to discontinue their attempts to buy. Consumer lifecycle It is also observed that almost customer events will be most likely to occur at significant milestones in consumers’ lives because these tend to be times when they are evaluating certain products and services for the first time or the purchases are emotionally charged. Consider the purchase of a first home, which will result in the customers shopping for a mortgage for the first time in their lives. In this example, customers find themselves evaluating banks and mortgage lenders that they have never

Typology of effects Similar to our categorization of causes above, consumers’ responses to an almost customer event can also be categorized, allowing for a more detailed examination. The following represents a typology of outcomes gleaned from the almost customer stories provided by interview subjects (see Table II). Propensity to complain The most common response to an almost customer event is to exit the firm in silence. Consumers simply leave frustrated, never voicing their dissatisfaction to store personnel, management or head office. As a result, the firm may never know that the event has occurred. The reasons for such a passive outcome may be explained in the context of Rusbult’s (1987) examination of responses to dissatisfaction. Many almost customer experiences are characterized by situations where the customer has little invested in the relationship. In fact, the customer may have never interacted with the firm before and, therefore, has no relationship with the firm. Where there is low relationship satisfaction and where the individual judges alternatives to be good, a quiet exit from the relationship is exactly what Rusbult would predict. A vocal response is judged to be not worth the effort. Where consumers have a well-established relationship with the brand or product, a strong desire to obtain the product or service, have invested a great deal in their purchase decision, or have especially high expectations for the service encounter, more active responses to the almost customer experience are the norm. Service failures under these circumstances will tend to elicit a greater negative affect and, thus, consumers in these instances will tend to voice their concerns more openly, complaining to staff, management or third parties. The complaints may be immediate and directly to the sales staff involved, or may be delayed and more carefully planned, such as in the

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Table II Almost consumer events and consumer responses Characteristics of event

Emotional response

Response

Low involvement Little or no relationship with firm, product, and/or brand Alternatives available A well-established relationship with the brand or product, and/or A high desire to obtain the product or service, and/or High level of investment in the purchase decision, and/or Especially high expectations for the service encounter As above

Low affect

Quiet exit

Moderate affect

Complain to: Service staff Management Third parties

High affect

Vocal complainer Spreads negative word of mouth Terrorist of the firm

form of a “poison pen” letter to area managers, head office, or consumer advocacy groups. This more vocal, active response in the face of high relationship investment is, again, consistent with Rusbult’s model. An extension of the above response may be that consumers spread details of their encounter to friends and acquaintances by word of mouth. These almost customers may advise those that they inform of their experience to exercise caution in dealing with the offending firm or, worse, recommend that these prospective customers take their business elsewhere. Finally, when the factors which elicit an active response are present and the negative affect resulting from the encounter is especially strong, we have found that an almost customer experience can produce a vocal and committed terrorist of the firm. Such individuals will tell everyone in earshot of their negative service experience and will strongly advise that they take their business elsewhere. While such an outcome may seem unlikely, we offer as proof the fact that we had no difficulty finding such individuals. In earlier research (Breen and King, 2002), we found two almost customers turned terrorists of a local, highend jewellery store. Their vocal dislike of the store was intense and the effect of their dissatisfaction was substantial. The lost earnings resulting from their negative word of mouth were estimated to be in excess of $75,000.

The object of their defection Almost customer effects may also be characterized in the context of objects of the customer’s negative emotion (see Figure 2). Negative affect and the customer boycott may be directed at the firm as a whole. In this scenario, the customer boycotts all locations and related entities of the firm, including those in other locations. There is a complete and total boycott of the firm. This outcome was observed even when the root cause of the event was, perhaps, not the direct fault of the firm (e.g. a

Figure 2 Almost customer: objects of their defection

service person’s rude behaviour). A total boycott was also observed when the different locations were independently-run franchises. Almost customers may give little thought to the true root cause of the service failure (i.e. the true object of their disappointment or anger) when making decisions to boycott a firm in its entirety. Beyond this somewhat obvious and predictable reaction, this research also uncovered much more directed negative emotion and associated boycotts. Rather than avoid the firm in its entirety, some almost customers boycott a specific location of a firm, such as in a situation where they were angered or disappointed by a particular store or franchise location. Alternatively, when specific outlets or sales persons produced the negative affect, customers were found to avoid these particular people. Customers would boycott Web sites, but would still frequent company stores – or the converse would be true. Customers may also boycott IVR phone systems by opting for an operator or, where an operator option was not available, may even make the trek to the store site to request the desired information.

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When sales staff were the object of their anger, the authors found that customers may actually endure great inconvenience by avoiding the firm at times when the sales person is working. They may make several trips before they find a time when the salesperson is off duty, and will shop at inconvenient hours to avoid further confrontation.

negative reactions, including personality traits and mood at the time of the encounter. Other factors contributing to the customer’s perceptions of the experience constitute a summary of the topics discussed in this paper: . policy and processes; . store environment; . environmental factors – familiarity, frequency of interaction; . dyadic factors – interpersonal attraction, appearance of staff; . customer’s relationship with the brand or product; . customer desire to obtain the product or service; . level of investment in the purchase decision; . consumers’ knowledge of options; . market maturity; and . consumers’ expectations for the service encounter.

Likelihood of return This research has revealed that there are different degrees of the almost customer problem. Some prospective customers abort just one transaction, but return to try again at a later date, while others decide to boycott the firm forever. We label those that return transactional almost customers. Individuals who decide never to return following a bad first impression are labeled permanent almost customers. Some customers may have several transactional almost customer experiences before deciding to become a permanent almost customer. Our almost customer definition actually describes a continuum of consumer reactions to poor initial service, rather than one discrete outcome. Intuitively, the transactional almost customer event should be far more common than the permanent almost customer event and this was corroborated in this study. Consumers provided countless examples where they have walked away from their shopping carts, hung up the phone or left Internet Web sites because of long delays, inattentive staff, and confusing instructions. More often than not, however, they do not hold a lasting grudge and they come back to try again later. This is not to say that there is no net loss to the firm. In the interim, they may have purchased their desired products or services elsewhere. Repeated bad experiences also have the effect of eroding the consumer’s opinion of the firm, reducing satisfaction, and eliminating the possibility of a close relationship.

Toward an integrated model The differences in the intensity of negative feelings amongst the stories provided by permanent and transactional almost customers are striking. While the transactional almost customers found their experiences irksome, the permanent almost customers had developed a profound dislike for the store, salesperson, or sales channel involved. It would appear that the intensity of the negative affect elicited by the experience is the major determining factor in the consumer’s decision to return or not. The question of what produced this negative affect is not straightforward. There are certainly strong individual factors contributing to the

The object of the consumer’s dislike will also play a part in the decision not to return. For example, when the almost customer experience involves a dislike of the store ambiance, the consumer may return at a later date. However, when the negative experience involves a heated exchange with a salesperson, the prospective customer may never return because of embarrassment or a desire to avoid further confrontation. Figure 3 provides a foundation for a model of the almost customer experience.

Implications for business The success of service firms depends on their ability to deliver consistent, satisfying experiences to their customers. But “churn” happens, and having a process for effectively recovering lost customers (and almost customers) is vital to every company’s long-term success (Griffin, 1999). Customer retention is a critical means of improving a firm’s bottom line. The same can be said for converting or preventing almost customers. Management must take steps to become aware of critical service failures and try to minimize the number of occurrences that will chase prospective customers away. Turning prospective customers into actual customers is the goal. The future stream of revenues lost from an almost customer experience is difficult to measure and few companies actually try to calculate the cost. However, the financial impact of almost customer defections points to the need for more information. Firms need to understand which prospective customers are terminating their

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Figure 3 Four-forces model of the almost customer effect

attempted transactions and why. Only then can they take the necessary steps to put a stop to the erosion in their pool of possible future customers. Only when the company is aware that a prospective customer is at risk of abandoning the effort can they take steps to recover from whatever caused the dissatisfaction. Without question, the best way to win the almost customer is to ensure the individual is satisfied in the first place and does not abort the attempt to buy. As this individual completes his or her first transaction and enters the world of the customer, relationships with the company can begin. When these relationships continue, profitability increases. Some managers may argue that service recovery in an almost customer event is impossible because the service transaction was not completed and the data necessary for service recovery were, therefore, not obtained. We disagree and argue that a firm can often manage these almost customers and have access to the information necessary for recovery. In many cases, almost customers are in fact not anonymous customers. There is often some information left that the firm can use to better understand the person. Appointments are scheduled, introductions made, greetings

exchanged. A conversation has taken place between customer and employee. Preferences are identified. Phone numbers are recorded. This information can serve as a starting point to help overcome the barrier of anonymity. The potential for an almost customer experience highlights the need for firms to get the interpersonal and emotive aspects of service delivery right every time. To accomplish this goal, they must provide personnel with effective policies, processes and support systems for service and service recovery. Firms must also implement an effective HR strategy, one that ensures that they have people with the right attitudes, training, and incentives in customer-facing roles. But to prevent negative service experiences, firms must also deliver on the core or functional aspects of the service offering. The firm must ensure that the core product, processes, and technical performance are consistent with the expectations of customers. In addition, firms must consider the importance of expectations in their design and implementation of customer retention strategy. For companies operating in a market where prospective customers are likely to be highly involved and emotionally engaged in the service transaction, the customer’s

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zone of tolerance is extremely narrow and the potential for failure or delight is therefore high. Furthermore, if the company positions itself in the market as providing top service, the customer’s expectations are also very high. In such circumstances, the potential for service failure and dissatisfaction is much higher than the potential for exceeding expectations. As such, the potential for almost customer experiences is also high. Therefore, every aspect of service delivery must be flawless, from the core product to the emotional elements. Finally, small companies that operate in a small or niche market cannot afford to make service delivery errors like the ones described in this paper. In a small town, negative word of mouth spreads like a crack in a windshield. The effects of “terrorist” activities could potentially result in the end of the business.

research. There is an opportunity for quantitative research. As Barnes (2001b) points out, few firms have invested the time and money needed to research how their actions turn away prospective customers before they have a chance to become customers. Yet, depth interviews, focus groups, and conversations with consumers will reveal numerous instances of customers trying to become customers only to be thwarted by the actions of the businesses with which they want to deal. This under-addressed issue calls for research on the effectiveness of customer-facing processes in retail settings, but also in situations where the interaction involves technology, such as IVR systems or Web sites. Like Reichheld and Sasser’s (1990) work on customer defections, there is a need to evaluate and quantify the value of the almost customer across various industries. The primary difficulty in conducting this research will be determining who the almost customers are. However, while companies may not be able to identify their almost customers, researchers may have more success with identification through careful observation and by conducting exit interviews. Abandoned shopping carts should also be tracked and tallied; as they are by many virtual retailers. Reichheld and Sasser were able to determine that boosting retention by 5 per cent would boost profits by 100 per cent. A similar research methodology would allow researchers to arrive at a similar statistic for the almost customer phenomenon. More research is also needed into the psychosocial mechanism through which negative customer attitudes and opinions are formed. While it is generally accepted that it takes a long time to build a genuine, positive relationship, it would appear that it only takes a short time to create a strong, negative one. However, the authors could not locate research addressing this issue in the customer relationship and social psychology literature. Similar to the concept of the “rebound relationship” in interpersonal relationships, the results of this research also reveal the potential for a similar relationship to exist in the customer-firm situation. Some interview participants moved quickly from a failed fledgling relationship with a firm to a loyal relationship with a competitor. Finally, it appears that the absence of a customer relationship may be a barrier to complaining. In many cases, almost customers did not complain to the firm about their treatment, but it is difficult to believe that an established customer would not complain. While we do propose some possible explanations for the customer’s propensity to complain, this area requires

Implications for future research There is a need to apply the research conducted by social psychologists studying relationship formation to the consumer-firm context. Marketers need to study the effect of environmental, situational, and individual factors documented in the human relationship literature as it relates to the almost customer phenomenon so that we can better understand and prevent its occurrence. Also, research into consumer decision processes and, in particular, the application of Rodin’s model to the consumer-firm interaction, may provide valuable insight into why the almost customer phenomenon occurs. Related to the above, there is a need to better understand the combination of factors and cognitive processes that lead to the creation of the almost customer. While the almost customer appears to be characterized by a high level of negative affect, the cause of this negative emotion is not completely understood. While the authors often fully understood the consumer’s rationale for promising never to return to a particular firm, there were some instances in which subjects identified seemingly innocuous events which provoked very negative responses and a decision to never come back that was not clearly understood and often appeared to be an extreme reaction to a seemingly harmless infraction. This field of study requires a more complete model of the almost customer effect which identifies the relative weight or importance of the various factors that lead to the almost customer occurrence. The model presented above is only partially developed and based on qualitative

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additional study to arrive at a more complete understanding. A better understanding of this situation ultimately leading to encouraging complaints will at least give the firm an opportunity to implement service recovery and take the steps necessary to minimize the likelihood of almost customer occurrences. In addition, this phenomenon requires more study because, as the almost customer turned terrorist complains “quietly” to others, there is no opportunity for the company to manage its reaction or to recover from the poor service. This makes the almost customer turned terrorist extremely dangerous and damaging to the firm.

Curtis, R.C. and Miller, K. (1986), “Believing another likes or dislikes you: behaviors making beliefs come true”, Journal of Personality and Social Psychology, Vol. 51, pp. 284-90. Duck, S. (1991), Understanding Relationships, The Guilford Press, New York, NY. Ebbesen, E.B., Kjos, G.L. and Konecni, V.J. (1976), “Spatial ecology: its effects on the choice of friends and enemies”, Journal of Experimental Social Psychology, Vol. 12, pp. 505-18. Fehr, B. (1996), Friendship Processes, Sage, Thousand Oaks, CA. Griffin, J. (1999), “Lost customers can be returned to your fold”, Austin Business Journal, February 19. Johnston, R. (1995), “The zone of tolerance: exploring the relationship between service transactions and satisfaction with the overall service”, International Journal of Service Industry Management, Vol. 6, No. 2, pp. 46-61. Knight, J.A. and Vallacher, R.R. (1981), “Interpersonal engagement in social perception: the consequences of getting into the action”, Journal of Personality and Social Psychology, Vol. 40, pp. 990-9. Miller, N. and Marks, G. (1982), “Assumed similarity between self and other: effect of expectation of future interaction with that other”, Social Psychology Quarterly, Vol. 45, pp. 100-5. Patzer, G.L. (1985), The Physical Attractiveness Phenomenon, Plenum, New York, NY. Reichheld, F.F. and Sasser, W.E. Jr (1990), “Zero defections: quality comes to services”, Harvard Business Review, September/October, pp. 105-11. Rodin, M.J. (1982), “Non-engagement, failure to engage, and disengagement”, in Duck, S. (Ed.), Personal Relationships 4: Dissolving Personal Relationship, Academic Press Ltd, London. Rubin, Z. (1975), “Disclosing oneself to a stranger: reciprocity and its limits”, Journal of Experimental Social Psychology, Vol. 11, pp. 233-60. Rusbult, C.E. (1987), “Responses to dissatisfaction in close relationships: the exit-voice-loyalty-neglect model”, in Perlman, D. and Ducj, S.W. (Eds), Intimate Relationships: Development, Dynamics and Deterioration, Sage, Newbury Park, CA, pp. 209-37. Snapp, C.M. and Leary, M.R. (2001), “Hurt feelings among new acquaintances: moderating effects of interpersonal familiarity”, Journal of Social and Personal Relationships, Vol. 18, pp. 215-26. Zajonc, R.B. (1968), “Attitudinal effects of mere exposure”, Journal of Personal and Social Psychology, Vol. 9 (Monograph Suppl. No. 2, Pt 2).

References Altman, I. and Taylor, D.A. (1973), Social Penetration: The Development of Interpersonal Relationships, Holt, Rhinehart & Winston, New York, NY. Archer, R.L. and Berg, J.H. (1978), “Disclosure reciprocity and its limits: a reactance analysis”, Journal of Experimental Social Psychology, Vol. 14, pp. 527-40. Backman, C.W. and Secord, P. (1959), “The effect of perceived liking on interpersonal attraction”, Human Relations, Vol. 12, pp. 379-83. Barnes, J.G. (2001a), Secrets of Customer Relationship Marketing: It’s All about How You Make Them Feel, McGraw-Hill, New York, NY. Barnes, J.G. (2001b), “Let’s pay some long-overdue attention to the almost customer”, CRM-Forum Web site, October, available at: ww.crm-a.org Barnes, J.G. and Kelloway, K.R. (1980), “Consumer issues: application of the concept of market maturity”, in Thompson, D.N., Simmie, P., Heslop, L. and Shapiro, S.J. (Eds), Macromarketing: A Canadian Perspective, American Marketing Association, Chicago, IL, pp. 169-95. Breen, G.A. and King, B.R. (2002), “The almost customer – a valuable market segment”, unpublished manuscript. Brehm, S.S. (1985), Intimate Relationships, McGraw-Hill, New York, NY. Carnegie, D. (1936), How to Win Friends and Influence People, Simon & Schuster, New York, NY. Cosby, P. (1972), “Self-disclosure, reciprocity and liking”, Sociometry, Vol. 35, pp. 151-60.

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Introduction

Complaint management profitability: what do complaint managers know? Bernd Stauss and Andreas Schoeler The authors Bernd Stauss and Andreas Schoeler, are both in the Department of Services Management, Ingolstadt School of Management, Catholic University of Eichstea¨tt-Ingolstadt, Ingolstadt, Germany.

Keywords Complaints, Customer relations, Customer retention, Cost benefit analysis, Case studies, Germany

Abstract Despite the great impact of complaint handling on customer retention and the beneficial usage of complaint information for quality improvements, most companies have great difficulty calculating the profitability of their complaint management. As a consequence of this knowledge deficit, complaint management is often not regarded as a profit centre but as a cost centre, which makes it a probable victim for cost reductions by cutting back its activities. Hence, there is a huge challenge to develop methods and to address this issue. This work contributes to this. It is shown how complaint management profitability (CMP) can be conceptualized and several types of benefits and costs are presented. On this basis several propositions about the current practice of CMP calculation are developed. To test these propositions a comprehensive empirical study was conducted among complaint managers of major German companies in the business-to-consumer market. The collected information shows that the assumed CMP knowledge deficit is even higher than expected. To reduce this deficit this article provides an approach to calculate CMP on basis of the repurchase benefit.

Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/0960-4529.htm

Managing Service Quality Volume 14 · Number 2/3 · 2004 · pp. 147-156 q Emerald Group Publishing Limited · ISSN 0960-4529 DOI 10.1108/09604520410528572

Customer care managers and complaint managers face a strategic dilemma. On the one hand, there is an increasing understanding that complaint management is of strategic relevance, particularly because it has proved itself as an effective customer retention instrument (Brown et al., 1996; Smith and Bolton, 1998; Smith et al., 1999; de Ruyter and Wetzles, 2000; Levesque and McDougall, 2000; McCollough et al., 2000; Maxham, 2001; Johnston and Mehra, 2002; Stauss and Seidel, 2004). On the other hand, the actual importance of complaint management within companies does not reflect this strategic relevance. On the contrary, most of the times customer care and complaint management departments are considered as operative units that only have to handle the customer dialogue but who are not involved in strategic planning processes. Besides, they are mainly seen as a cost factor and not as a potential source of profit. This perspective leads – especially in tough economic times – to a continuous pressure to reduce costs by cutting back its activities. Complaint managers can only escape this strategic dilemma by proving the contribution of complaint management to the company’s value creation. Thus, they are confronted with the task of proving the profitability of their domain. This is a huge challenge in practice, but also an immense challenge for academic research. The latter has mostly ignored this issue and an integrated approach to complaint management profitability is still missing. Johnston (2001) belongs to the very few authors who considered this problem. In his pioneer work he proves a correlation between the financial performance of a company and complaint management. This is an important indication of the economic benefit of complaint management, but up to now many questions remain unanswered: . On the conceptual basis it is not clear what the costs of complaint management are. . It has to be settled what actual benefits result from professional complaint management activities. . In addition to that, the question has to be answered how these benefits can be operationalized and measured on a monetary basis. . There is no empirical evidence how complaint managers proceed here in practice. It is totally unknown whether they calculate the profitability of their complaint management at all, which calculation scheme they apply and whether they assess their complaint management as profitable or not.

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The aim of this work is to give answers to these questions. For this reason a conceptual approach to complaint management profitability (CMP) is defined. It examines which types of costs and benefits are related with complaint management. Afterwards the current practice of cost/benefit calculation is discussed. First, propositions concerning the measurement of CMP are developed. Then the results of a comprehensive empirical study among complaint managers of the biggest German business-to-consumer companies are presented with respect to these propositions. The results show considerable knowledge deficits, not only regarding CMP, but also concerning the methodical approaches for its calculation. The next part will then introduce a method to calculate CMP. Here the repurchase benefit will serve as an example to show how to calculate the monetary value of saved customer relationships. At the end of the paper a summary presents managerial implications and open research questions.

Defining complaint management profitability Complaint management profitability (CMP) represents the economic efficiency of the processes and instruments of complaint management systems. CMP is calculated by relating the invested capital to the profit of complaint management. The profit of complaint management is calculated by deducting its costs from its benefits. The invested capital equals the costs of complaint management activities within a period. However, in order to calculate CMP sufficient data are necessary. Furthermore, it has to be discussed which costs and benefits to include in this calculation, how to measure the costs, and how to express the benefits monetarily. Regarding the costs of complaint management, various types can be identified in the context of complaint management. These are described in the following (Stauss and Seidel, 2004): (1) Personnel costs arise from human resources that are directly concerned with complaint management processes (e.g. staff of a complaint management department). (2) Administration costs are generated by expenditures for, e.g. office space and office equipment. (3) Communication costs are all costs that are associated with necessary communication processes to solve the customer’s problem (e.g. phone costs or postage). (4) Response costs are all costs that arise in the context of the problem solution. Here three types of response costs can be differentiated:

.

.

.

compensation costs emerge from volunteer amends for the customer who experienced a problem (e.g. costs for gifts or vouchers); warranty costs cover all expenditures for performances due to contractual claims (e.g. activated guarantees); and costs for gestures of goodwill emerge from volunteer performances which are not covered by guarantees.

Regarding the benefits of complaint management, four distinct types can be identified on the basis of literature analyses and expert interviews (Stauss and Seidel, 2004): (1) The information benefit represents the value that is generated by using information from customer complaints to improve products, to enhance efficiency and to reduce failure costs. (2) The attitude benefit comprehends the positive attitude changes of the customer due to achieved complaint satisfaction. (3) The repurchase benefit arises when a complaining customer remains with a company instead of switching to a competitor. (4) Communication benefits describe the oral effect of complaint management. They are generated when complaints are solved and satisfied customers are engaging in positive word-of-mouth, that is, recommending the company and by that supporting the acquisition of new customers. To calculate CMP it is necessary to operationalize the four types of benefits and to value them monetarily. The sum of the benefits less the measured costs equals the profit of complaint management. To calculate the return on complaint management (RoCM), see Figure 1)), which is the key indicator for complaint management profitability; the profit of complaint management is set against the complaint management investments (costs). The development of this RoCM concept is based on conceptual considerations without integrating knowledge on the current calculation practice of complaint managers. To identify the current practice of CMP calculation and the role of the various cost and benefit types, an empirical study was conducted. Figure 1 Calculating the return on complaint management

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Knowledge of complaint management profitability in companies With regard to the actual CMP calculation practice in companies there is a huge knowledge deficit. It is totally unknown: . whether complaint managers calculate the profitability of their complaint management at all; . which calculation scheme complaint managers apply; . whether complaint managers have all information necessary for the calculation at hand; and . whether complaint managers assess their complaint management as profitable or not. In order to receive answers to these questions a comprehensive empirical study was conducted among complaint managers of the largest German companies in business-to-consumer markets. Based on literature analyses and explorative interviews, a number of propositions with respect to CMP calculation were developed. A comprehensive cost calculation by capturing all types of costs demands two prerequisites. On the one hand, all complaint-handling processes have to be defined clearly. On the other hand, detailed activity-based-costing must be implemented for a systematic association of cost rates with handling processes. Many companies do not fulfil these conditions. Not all complaint reception and handling processes are defined in detail and monitored continuously by a complaint management system. Especially, processing of and reaction to rarely occurring problems, which need the assistance of other internal departments or which demand complex internal investigations, are often defined incompletely. In addition to that, activity-basedcosting is not yet implemented in all companies consequently. Hence, one can expect that not all types of costs are recorded on a regular basis. This leads to proposition 1: P1. The majority of companies only calculate a single part of the actual costs and therefore have only very limited knowledge about the real costs of complaint management. The purpose of internal cost calculation is not only to measure the return on complaint management, but also to serve internal cost control. So, it can be highly important to reduce the occurrence of certain problems by charging the responsible department with the costs of complaint handling. However, despite these rational considerations it can not be expected that this is always implemented in practice. One the one hand, it can be assumed that necessary data are not available

(see P1). One the other hand, the cause of a problem is often difficult and ambiguous to assign to the responsibility of a certain department. Hence, proposition 2 reads: P2. Most of the times costs are not allocated within the company according to the responsible unit. In spite of the deficit of cost transparency in complaint management which is assumed here, much indicates that this knowledge is still much better for the costs than for the benefits of complaint management. The conventional system of cost calculation in companies does not provide corresponding data for benefit calculation. Of course further developments, e.g. the balanced scorecard, contain some satisfaction and complaint management related figures but there is no attempt to value them monetarily. One major reason for this is that there are no clear conceptions on various benefit types or methods for their monetary valuation, neither in complaint management, nor in controlling. This leads to proposition 3: P3. The majority of complaint managers do not calculate complaint management benefits. When companies deal with the challenge of measuring the benefits of complaint management, it can not be expected that all types of benefits are considered equally. The essential objectives of complaint management are to prevent dissatisfied customers from exiting the relationship and to use the information that is contained in customer complaints within the company. If complaint managers want to control whether these objectives are met, they have to estimate the repurchase and information benefit of complaint management. Compared with attitude and communication benefit, the information basis is much better here and methodical difficulties are less hindering. Furthermore, it can be expected that at least some companies have information on the retention effects of their complaint management activities from customer surveys or customer data analysis. Equally, figures based on experience of the usage of complaint information for innovation and failure reduction can be expected. These considerations result in proposition 4: P4. If benefit calculation is done, rather repurchase and information benefits are calculated than attitude and communication benefits. If the above-developed propositions hold true it is hardly possible for complaint managers to give an accurate predication of CMP. Nevertheless, they mostly know by long experience the external and internal effects of complaint management. For that reason it can be assumed that complaint

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managers are able to estimate roughly the economic performance of their complaint management. This is summarized in proposition 5: P5. Most complaint managers do not know the profitability of their complaint management exactly, but are able to give a rough profitability estimation.

Concerning the internal settlement of complaint costs, clear results can be seen, too (see Figure 3). The majority of companies (59.7 per cent) do not settle costs of complaint management internally due to responsible departments. The minority of companies which pass on costs to responsible units within their organizations proceed differently with regard to the different types of costs. To a considerable extent only costs for gestures of goodwill (36.8 per cent), warranty costs (28.5 per cent), and costs for small gifts (20.1 per cent) are passed on (see Figure 3). This supports strongly P2. Hence, a first result of the study is that in most cases cost calculation of complaint management activities is neglected. An assessment of the current practice of the measurement of complaint management benefits uncovers significant deficits, too. A narrow majority of 55.7 per cent state they calculate at least one type of complaint management benefit. Accordingly, P3 does not hold true (Figure 4). However, comprehensive benefit calculation (measurement of at least three benefit types) is only done by little more than 12 per cent. Hence, the majority of companies have no detailed picture of the benefits of their complaint management. To understand what exactly complaint managers know about the benefits of their work, more insight into the benefit calculation is needed. Figure 5 provides more details into the current benefit calculation. The four types of benefits are included differently by those companies that carry out a benefit calculation. Little more than half of all respondents (51.7 per cent) state that they calculate the information benefit of complaint management. The second most calculated benefit is the repurchase benefit. However, it is calculated by less than 20 per cent. Attitude and communication benefits are calculated by even fewer respondents. Hence, P4 holds true, especially for the information benefit. The amount of companies that calculate the repurchase benefit only differs a little from those who calculate attitude and communication benefits. As a consequence of the above shown knowledge deficits, most companies do not measure CMP (see Figure 6). Almost 70 per cent state that they do not carry out any calculation. Little more than 21 per cent state that they pursue sporadic CMP calculations. A systematic costbenefit-analysis and calculation of CMP needs a permanent recording of all relevant figures and its continuous monitoring. Only a minority of companies are able to do so: 9.5 per cent of all respondents measure CMP on a continuous basis.

The empirical study and its results The above-presented propositions were tested by a comprehensive empirical study on the state-of-theart of complaint management in Germany. The study was carried out among complaint managers of major German companies in the business-toconsumer market across various industries. A written questionnaire was developed, submitted to a pre-test and modified after the analysis. Altogether, 430 companies were contacted in a multi-stage process. A questionnaire was sent to 260 complaint managers; 149 completed questionnaires were returned, which equals a response rate of 34.6 per cent with respect to the original sample. The collected information of the empirical study now allows the drawing of a comprehensive picture of complaint management practice and profitability. With regard to the above-presented propositions the results are discussed in the following. On the cost side of complaint management it can be shown that a comprehensive cost calculation is not a rule but more an exception. Furthermore, various cost types are included differently in the cost calculation efforts of complaint managers. However, only a minority of 17.5 per cent of all companies are not calculating any costs of complaint management at all. Most frequently, costs for gestures of goodwill (46.2 per cent), direct personnel costs (44.1 per cent), warranty costs (44 per cent), and costs for small gifts (41.8 per cent) are measured. However, only 35.4 per cent are calculating administration costs and only 18.9 per cent are calculating the cost of communication. A very small minority of 6.3 per cent are calculating the personnel costs for human resources of other departments of the company who are involved in the complaint resolution process (see Figure 2). Due to this knowledge deficit more than 70 per cent of all companies that participated in this study do not know the complete costs of their complaint management. Hence, they are not able to quantify the costs per complaint. Because of this there is an impressive confirmation of P1.

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Figure 2 Calculation of costs of complaint management

Figure 3 Internal settlement of costs

Figure 4 Complaint management benefit calculation

For that reason the knowledge deficit which is part of P5 was in fact confirmed. Despite this knowledge gap, which makes it impossible for complaint managers to really prove their contribution to the overall business profitability, many have – as also assumed in P5 – a rough estimation whether their complaint management is profitable or not. A majority (89 per cent) of them are able to judge the level of their CMP on a scale from 1 (low CMP) to 5 (high CMP). The total average of 3.55 demonstrates that complaint managers are convinced of the

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Figure 5 Benefit types and calculation

benefit. Hence, a need for practicable methods to calculate it is given. For that reason a basic approach to repurchase benefit calculation is presented. Furthermore this serves as an example of how to calculate the return on complaint management as key indicator of CMP.

Figure 6 Calculation of CMP

An approach to calculating the return on complaint management

profitability of their activities. Interestingly, the estimated CMP level differs whether complaint managers actually calculate CMP or not. Those companies that in fact measure CMP on a regular basis state a higher profitability (4.28) than those who do not calculate CMP (3.43) or calculate it sporadically (3.55). This shows that companies that calculate CMP systematically, predominantly have a more positive result, which supports the evidence that complaint management actually contributes to the overall profit of a company (see Figure 7). One of the most considerable results of this study is that only a minority of companies actually try to measure CMP and – with exception of the information benefit – do not calculate the benefits of complaint management. The latter is also true for the repurchase benefit, which is of most important relevance for complaint management in the context of customer retention management. Our empirical study provides clear hints to the reasons of this neglect: 78 per cent of all respondents consider the measurement as difficult and therefore do not calculate the repurchase

A calculation of the return on complaint management that seeks the highest possible extent demands data on all relevant costs and benefits. In regard to the costs, the following example is based on the condition that information about relevant cost types can in fact be gained. First attempts to calculate the benefits have recently been made by Stauss and Seidel (2004). Regarding the information benefit, one must make out the cases in which a monetary benefit basically is possible. If the benefit can be calculated monetarily, either the cost comparison or the sales comparison method is applied. The cost comparison method compares the costs of the previous process and the processes that have been altered on the basis of complaint information. The information benefit corresponds with the cost savings resulting from the process changes. The sales comparison method compares the sales of previous products/services and the sales of changed products/services. The information benefit corresponds with the sales increase resulting from the use of complaint information. If the benefit cannot be calculated monetarily, the value of information is assessed in terms of importance and degree of improvement using a scoring model. The economic assessment is then performed by assigning an estimated monetary value to each scoring point (Stauss and Seidel, 2004).

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Figure 7 Estimated complaint management profitability

The attitude effect comes from the improvement of attitude values of complainants. The customer attitude after the resolution of a complaint case is compared to the attitude after the original occurrence of the problem. The difference represents the quantification of the attitude effect. A direct monetary assessment of this type of benefit is not possible, but can be estimated by analysing the costs of the attempt to reach a corresponding improvement of attitude by means of marketing strategies (e.g. advertising) (Stauss and Seidel, 2004). The essential part of the communication effect lies in the fact that complainants engage in positive word-of-mouth communication about their complaint experiences and thereby recommend the company and its products/services to other customers. For the economic calculation of this effect two types of data are necessary: the number of people who are addressed by customers who are delighted or very satisfied by the company’s reaction to their complaints, and an influence rate. The latter is the share of addressed people who actually became buyers as a result of the positive depiction or buying recommendation. These data can be obtained by market research. The absolute number of customer relationships initiated by word-of-mouth can be multiplied by the average customer profit on a yearly basis or under consideration of the average duration of customer relationship (Stauss and Seidel, 2004). While the calculation approach for information benefit, attitude benefit and communication benefit have been characterized only shortly, a simple approach for the calculation of the repurchase benefit is explained to a greater extent, as it is essential regarding the objective to retain customers. The repurchase benefit of complaint management is achieved when previously

dissatisfied customers, who otherwise would have migrated, remain loyal to the company as a result of complaint management activities. There are different approaches to calculate this effect. For example, a calculation on the basis of individual customer data concerning customer value is possible, or, if these data are not available, on the basis of the corresponding average. The following example is based on average data. The repurchase benefit is basically calculated in a way that the number of customers who remain loyal because of their experience with the complaint management is determined. This number is then weighted with a customer’s average profitability. To be able to do this calculation, the following data are necessary: . the total number of customers (customer base); . the number of complainants; . the share of convinced and satisfied complainants; . their loyalty quota; and . the percentage of complainants whose actual loyalty can be directly traced to complaint handling. The investigation of these data is rather easy. The volume of the customer base must be available in the marketing or controlling department, the number of complainants is known to the complaint department. The share of convinced and satisfied complainants, their willingness to keep loyal and the decisive factor of complaint experience for this loyalty can be investigated in the course of a complaint satisfaction survey. Figure 8 shows the basic model for this calculation (Stauss and Seidel, 2004). The starting point is a customer base of 100,000 customers, 24,000 of whom turn to the company with a complaint. The complaint satisfaction survey shows that complaint management managed to

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Figure 8 Basic model to calculate retained customers due to complaint management

convince 30 per cent of the complainants and satisfy 25 per cent. At the same time the results show that 95 per cent of the convinced and 65 per cent of the satisfied customers are willing to stick to the relationship. The reason for the loyalty of the convinced customers is for 65 per cent the positive complaint experience, of the satisfied customers it is 15 per cent. Resulting from that, 5,031 customers were actually retained due to complaint management. It is now possible to calculate the secured profit per year from the periodic average sales per customer and the average return on sales. An example for this calculation is shown in Figure 9: with a monthly revenue per customer of $200.00 and an 8 per cent rate of return, the secured profit per year equals $965,952.00. When the average duration of customer relationships is considered and not only one period is taken into account, the secured profit increases

significantly. Assuming an average customer relationship lasts for 20 months instead of one year, then the secured profit contribution for the remaining duration of an average relationship rises to $1,609,920 (see Figure 10). The above-introduced approach to calculate the profit of complaint management has several advantages. It makes a realistic calculation possible by building on those relationships that were secured for a company due to complaint management activities. In addition to that it is easy and practicable as the relevant data are already available in the marketing, controlling or complaint management department, or can be collected by means of complaint satisfaction surveys. If a company has insight into the costs of complaint management and information about Figure 10 Basic model to calculate the secured profit per year on the basis of the remaining duration of customer relationships

Figure 9 Basic model to calculate the secured profit per year

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monetarily valued benefits (e.g. the repurchase benefit), the (minimum) return on complaint management can be calculated. The repurchase benefit less the costs of complaint management equals the profit of complaint management (see Figure 11). After that the return on complaint management (RoCM) is calculated by setting the profit of complaint management against the complaint management investments, which are the measured costs. In Figure 12 the RoCM equals 312.8 per cent.

An empirical study among the biggest German business-to-consumer companies shows that current complaint management practice is at the beginning of the path out of this strategic dilemma. Until now no comprehensive controlling of all relevant costs of complaint management existed. In addition to this, there is only limited monetary valuation of its benefits. As a consequence, only a minority are able to back up their assumption on complaint management profitability with hard facts. These results demonstrate an explicit need for action. Complaint managers should no longer concentrate only on questions about complaint processing and the technical equipment of their customer interaction centre, but should also deal with the economic dimension of their activities. One essential part of this is to cooperate with controlling units in order to implement activitybased costing, which makes a systematic and detailed capture of the costs of complaint handling possible. Furthermore, it must be guaranteed that customer satisfaction with complaint handling is surveyed on a regular basis. This is necessary not only for judging whether complaint management is able to reach its objective to recover dissatisfied customers, but also to build an essential basis for the calculation of the repurchase benefit. The calculated profit of complaint management by taking the repurchase benefit into consideration represents a minimum only as other positive effects have been disregarded. This is why it is important to estimate the monetary value of the information benefit, attitude benefit and communication benefit as well. Customer care needs easy-to-use methods that produce credible and comprehensible results. This is a prerequisite for gaining important top management attention and for a stronger internal position of customer care units which prevents short-term and cost orientated initiatives leading to budget reductions that endanger the objectives of customer retention.

Managerial implications Complaint managers face a strategic dilemma. On the one hand, it is unquestionable that complaint management is of particular strategic importance in the context of CRM and retention management. On the other hand, the actual importance of customer care and complaint management departments does not reflect this strategic relevance. On the contrary, since it is mostly perceived as just cost producing units without a measurable contribution to the company’s value creation, complaint managers are under continuous pressure to justify their activities and are confronted with a permanent danger of budget reductions. One major solution to this strategic dilemma is to prove credibly the contribution of complaint management to the overall profit, and by that strengthening the internal position of customer care. Figure 11 Basic model to calculate the profit of complaint management

Limitations and directions of future research

Figure 12 Basic model to calculate the return on complaint management

Considering the results of the empirical study on the complaint managers’ knowledge of complaint management profitability, two major limitations have to be taken into account. First, the study is restricted to customer care managers from German companies, and second, it focuses on the business-to-consumer market only. In future research the scope should be extended to an international context and to business-to-business companies as well.

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Furthermore, research should focus more on the neglected field of costs and benefits of complaint management: . Regarding the cost aspects there are several open questions. Among those are the determination of all relevant cost elements, the development of methods to gather the required cost information, and systematic considerations on the allocation of complaint management costs within the company according to the responsible units. . With respect to the repurchase benefit of complaint management, it is necessary to complement the calculation based on average sales data by calculation concepts on the basis of individual customer values. Here the information about customer complaint behaviour and complaint (dis)satisfaction recorded in a customer database, on the one hand, and the information about individual customer value, on the other hand, have to be connected. Only then is it possible to calculate the repurchase benefit correctly on the basis of the individual customer lifetime value. . With regard to the information, attitude and communication benefits, the challenges for research are even greater. Although first calculations concepts for these benefits are already available, no reports exist on experiences with these approaches and a comprehensive assessment of these methods is missing. Here a broad and relevant field for research emerges in the related area of services marketing and controlling. Now it is necessary to test, to assess and to further develop the existing calculation approaches, and when necessary, to develop useful alternatives.

References Brown, S.W., Cowles, D.L. and Tuten, T.L. (1996), “Service recovery: its value and limitations as a retail strategy”, International Journal of Service Industry Management, Vol. 7 No. 5, pp. 32-46. de Ruyter, K. and Wetzles, M. (2000), “Customer equity considerations in service recovery: a cross-industry perspective”, International Journal of Service Industry Management, Vol. 11 No. 1, pp. 91-108. Johnston, R. (2001), “Linking complaint management to profit”, International Journal of Service Industry Management, Vol. 12 No. 1, pp. 60-9. Johnston, R. and Mehra, S. (2002), “Best-practice complaint management”, Academy of Management Excecutive, Vol. 16 No. 4, pp. 145-54. Levesque, T.J. and McDougall, G.H.G. (2000), “Service problems and recovery strategies: an experiment”, Canadian Journal of Administrative Science, Vol. 17 No. 1, pp. 20-37. McCollough, M.A., Berry, L.L. and Yadav, M.S. (2000), “An empirical investigation of customer satisfaction after service failure and recovery”, Journal of Service Research, Vol. 3 No. 2, pp. 121-37. Maxham, J.G. III (2001), “Service recovery’s influence on consumer satisfaction, positive word-of-mouth, and purchase intentions”, Journal of Business Research, Vol. 54 No. 1, pp. 11-24. Smith, A.K. and Bolton, R.N. (1998), “An experimental investigation of customer reactions to service failure and recovery encounters – paradox or peril?”, Journal of Service Research, Vol. 1 No. 1, pp. 65-81. Smith, A.K., Bolton, R.N. and Wagner, J. (1999), “A model of customer satisfaction with service encounters involving failure and recovery”, Journal of Marketing Research, Vol. 36 No. 8, pp. 356-72. Stauss, B. and Schoeler, A. (2003), Beschwerdemanagement Excellence, Gabler Verlag, Wiesbaden. Stauss, B. and Seidel, W. (2004), Complaint Management – The Heart of CRM, Thomson Publishing, Mason, OH.

Further reading Stauss, B. (2002), “The dimensions of complaint satisfaction: process and outcome complaint satisfaction versus cold fact and warm act complaint satisfaction”, Managing Service Quality, Vol. 12 No. 3, pp. 173-83.

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Customer clubs in a relationship perspective: a telecom case Anders Gustafsson Inger Roos and Bo Edvardsson The authors Anders Gustafsson and Inger Roos are Associate Professors and Bo Edvardsson is Professor and Director, all at the Service Research Center, Karlstad University, Karlstad, Sweden.

Keywords Customer loyalty, Customer relations, Perception, Telecommunications, Sweden

Abstract Companies in the telecom industry – and in many other consumer markets – have introduced customer or loyalty clubs over a number of years. Customer clubs have been used as a loyalty-building measure following the deregulation of telecom markets in Europe. They were introduced as a strategic instrument intended to foster customer retention and to contribute to increased sales and profitability. These clubs are the most recognizable part of many CRM strategies. Their shortand long-term effects on loyalty are not obvious, however. The aim of this article is to explore the effects of the customer club on customer relationships in telecommunications by presenting results from two qualitative studies, which are quantified and reported in terms of responses to the club. The results of this empirical study in a Swedish telecom company reveal that the majority of customer-club members do not perceive their membership as adding value or contributing to higher commitment and improved loyalty. Nevertheless, there are differences between non-members and members regarding their perceptions of the service provider. The target group of club members has significantly higher satisfaction with the company than the non-member customers.

Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/0960-4529.htm

Managing Service Quality Volume 14 · Number 2/3 · 2004 · pp. 157-168 q Emerald Group Publishing Limited · ISSN 0960-4529 DOI 10.1108/09604520410528581

Introduction Telecom markets have changed dramatically in recent years. Customers in many European countries who used to have only one service provider now have a wide variety to choose from. The fight to attract and keep customers has resulted in the development of relationshipmarketing strategies. The telecom companies are developing a mix of relationship-marketing tools to establish and build profitable customer relationships. One such tool is customer clubs. In this article we adopt the original view and nature of relationship management. With the concept of relationship marketing, we focus on the need for companies to be market oriented by building up the ability to manage networks, relationships and interactions (Gro¨nroos, 1983; Gummesson, 1987). In other words, the main focus has not been on attracting new customers, but on expanding the relationship with existing customers. Earlier statements regarding relationship marketing have been the starting point for companies establishing customer clubs. It has been fully accepted in marketing literature that long-term customers are more profitable than temporary customers (Reichheld and Teal, 1996; Johnson, 1998). Customer clubs are built on that logic. The more loyal the customer is and the longer he or she is retained, the more sales and profits he or she generates. Customer clubs are formed and function slightly differently in different companies, including the way customers sign up for membership, what happens over time as the relationship evolves, and ways in which more sales are generated. Some clubs openly communicate the benefits of membership not only to all of their current customers, but also as a marketing effort to potential new customers. Naturally, the more widely advertised clubs tend to be more easily recognized among customers. The opposite is also common: some clubs are virtually unknown to customers other than those who are members, let alone to customers on a more general basis. The latter design and logic implies that customers automatically position themselves as members or non-members of the club as a consequence of the extent to which they use the product. This is the case with the customer club that is the subject of this study. The way in which a customer becomes a member of the club is, once having achieved a specified volume, by making a deliberate choice to join or not. Customer clubs could be considered to lock customers into a relationship with the company and to build a switching barrier, since being a member means that future benefits accumulate in the form of rebates, products or special offerings.

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These offerings may also be seen as rewards, making the customers more willing to stay in the relationship. Loyalty programs, however, seem to have become so common that their effect on the individual consumer can be questioned. It is almost as if having a loyalty program is a prerequisite. Customers sign up in competing programs to get the price cuts, and do not become loyal or committed. As a result, we are now in a situation in which consumers participate in several loyalty programs and passively collect points out of habit rather than feeling challenged to spend more on each shopping trip or to shop more frequently. This is hardly surprising, given that most schemes even offer rewards to indiscriminate shoppers for what is, in essence, disloyal behavior if all customer relationships are considered. Customers enroll in a number of clubs since they have nothing to lose by doing so. At the same time, these clubs are expensive for a company to keep going. One of the questions a company must ask itself is – is it really worth it? Customer clubs may be viewed as one kind of relationship-marketing activity. In its early stages, relationship marketing was seen as a tool for retaining customers instead of continuously focusing on attracting new ones (Berry, 1983; Gro¨nroos, 1983). The modern view is more advanced and is expressed in the following way: “Why not seek a more balanced marketing effort to not only open the front door for new customers, but also to close the back door to existing customers?” (Berry, 2002, p. 71). Thus, we need a dual focus. We need to service existing customers and to “recruit” new ones at the same time, possibly by using different tools or finding different, well-planned and fruitful ways of using those we have in order to reach marketing objectives. It is in this context that companies must decide where the customer clubs fit – they are not the only tool. Such a club ought to be considered mainly as a tool for sharing value with customers in proportion to the value their loyalty creates for the company. This notion is captured well by O’Brien and Jones (1995, p. 75), who state: “The goal must be to develop a system through which customers are continually educated about the rewards of loyalty and motivated to earn them”.

membership on value, satisfaction and, ultimately, on loyalty. In order to achieve our aim we carried out an empirical study divided into three parts. We started by moderating focus-group interviews with respondents who were members of a customer club. We then conducted interviews among members and non-members of the club, based on the results of the focus-group discussions, and verified the results in a quantitative study. We start the article by presenting our theoretical frame of reference, which is based on two key concepts: customer satisfaction and value related to loyalty. We also consider the possible impact of commitment, and especially its communicative construct. The section following the theoretical framework gives the results of our data analysis. We conclude with a discussion on the limitations and contributions of the study, and offer suggestions for future research.

The aim and structure of the article This article focuses on how customers view a customer club and the effect this club has on the relationship with the service provider. The aim is to deliberately study how customers in a Swedish telecom company perceive their customer-club membership, and to assess the effect of

Customer clubs as a perspective on loyalty We build our theoretical reference frame on the logic that satisfaction and value affect loyalty in customer relationships (Bolton and Drew, 1991a; Bolton et al., 2000; Johnson et al., 2001). Studies with a distinct focus on customer clubs and on programs dealing with relevant loyalty influencers are rare in marketing literature. Stauss et al. (2001) present a relevant study as far as the concepts considered here are concerned. The setting is different in many respects, however. It is not a service setting but a manufacturing company, and even the service part of the product is much different. We still include their study because it points out important conceptual findings on an overall customer-perception level. Their fundamental finding that the perception and evaluation of the customer clubs have a discrete function in terms of satisfaction and loyalty may also be significant in our study. In other words, the club is evaluated separately and not merely included in the overall evaluation of the service provider.

Satisfaction and customer clubs Stauss et al. (2001) introduced a new determinant of relationship satisfaction with customer clubs, which they label “club satisfaction”. The authors studied the customer club of a German car manufacturer and learned that satisfaction with it had a major effect on relationship satisfaction. The attitude towards the club affected the customers’ attitude towards the brand more than the overall satisfaction with the dealer.

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The nature of customer clubs differs profoundly between companies, depending on the service character on the one hand, and the additional manufacturing or physical-product attribute on the other. Those in service companies often stress individuality, one aspect of which relates to the character of the service: some services, such as professional services, are more suited to individual arrangements. When the car and the telecom industries are compared, for example, the difference between continuous and discrete service is apparent. The only reminder of being a telecom customer comes in the form of bills or specific, targeted information. In other cases, customers may have to present a club card when they use the service, but this does not apply to phone services. In the case of the car, the customer makes a deliberate choice every time he or she visits the dealership to have the car serviced or to buy spare parts. Customers are also constantly reminded of the make each time they drive. In the telecom industry, the satisfactionevaluation dimension could easily be assumed to be of a technical nature. Telecommunications customers, however, perceive difficulties when they evaluate the different kinds of technical solutions included in the product (Srinivasan, 1987). Therefore, the longer customers use a service, the more monetary value is likely to ensue from the perception communicated by the provider (East et al., 1995). The role of satisfaction in customer-club membership accordingly includes not only the effect of membership, but also other complex liaisons. Such aspects may take priority in perceived dimensions of customer loyalty. For example, Srinivasan (1996) and Mittal and Lassar (1998) point out the need to reduce the complexity by introducing industry-specific perceptions and thus loosen the general connection between the concepts included in customer perception. The reason for this is that the dimensions differ in terms of their influence on the consequences. This assumption applies not only to customer clubs and their effect on satisfaction with the service provider, but also to the fact that customers may not evaluate all dimensions when considering loyalty. Stauss et al. (2001) put forward the same implication in referring not only to industry-specific details regarding customer clubs and satisfaction, but also to industry-specific customer clubs and satisfaction. Consequently, industry-specific or even club-specific studies may be needed in order to further understanding of how a customer club should work.

Value and the customer club In an early study, Bolton and Drew (1991b) considered value related to the telephone service. During the time they were studying telephony, deregulation took place in the USA and customers were in limbo. The authors found that the strategy change affected customer perceptions. When competition increases, the value concept becomes more relevant as an influencer of loyalty. Given the special situational factors, satisfaction, directly and through perceived quality, was still the most influential factor on value, while income limits were considered sacrifices. We define value as the consumer’s perception of the benefits minus the costs (sacrifices) of maintaining an ongoing relationship with a service provider (Zeithaml, 1988). In their more recent article, Bolton et al. (2000) found that competition clearly affects loyalty through membership of a loyalty program. Closely related to such a view is the theory of goal and action for understanding the mediating role of value in relationships (Sirdeshmukh et al., 2002). Sirdeshmukh et al. (2002) describe customer goals for maintaining the relationships and their actions for achieving them. Higher-level goals are considered superordinate, and the authors suggest that value has such a role in customer relationships. They also suggest that other concepts are regulated to ensure the attainment of goals at the highest level. In this context, the role of price in loyalty stands clear. Srinivasan (1987) argues further that customers do not evaluate the technology itself, because it is too complicated for most of them. The only process they may perceive is technology change, and they are still not able to evaluate it. As Simonson and Tversky (1992) put it, performance defines the goal of a purchase. Price, for example, which is a key element in telecom-customer perceptions, is merely considered to be a tool with which to achieve the goal. It is the one quality indicator that customers can fairly and easily evaluate, and the rest of the service is much more intangible. Consequently, whereas experience may be perceived as more important than price, and thus may affect choice probability, price may affect its extent. Price is converted into the language of performance. Performance uncertainty, which may appear as uncertainty related to possible wrong choices, needs to be reduced in order to facilitate choice. Customers need to feel safe in their purchasing. Nowlis and Simonson (1996) also discuss this in terms of how different kinds of attributes intrinsically compete based on the ease of comparison. Thus, satisfactory experiences are important when strong customer relationships are built in a business such as telecommunications, in

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which the competing products are rather similar and, moreover, difficult to evaluate given the rare contacts with the company (Liljander and Roos, 2002).

including producing, selling and service functions, the evaluations of members and non-members may be distinguishable.

Communication effectiveness The consequence is that communication effectiveness is imperative in perceptions of quality, including value. A further consequence for the customer club is that such a function may help in building long-lasting relationships (Sharma and Patterson, 1999). Sharma and Patterson (1999) show that communication effectiveness has a considerable impact on customer commitment to service providers. This impact stems not only from the direct effect of the technical quality, but also from several indirect effects including both technical and functional quality. In other words, the effectiveness takes hold as the quality perceptions have both direct and mediating effects on commitment. Accordingly, when customer clubs are considered in terms of special satisfaction dimensions affecting loyalty to service providers, the effectiveness of the communication becomes important. Thus, communication includes the strategy and design of the club, the effectiveness and conformity of the strategy, and customer perceptions of it. Loyalty This telecom customer club aims at influencing customers to increase their use of the services that the company offers. One important point is that an increase in use should imply a decrease in the usage of competitors’ products as a result of heightened perceptions about the possibilities on offer (Srinivasan, 1987). Johnson and Gustafsson (2000) distinguish between satisfaction regarding the evaluation of performance attributes of customer clubs and the effect on loyalty, with a view to furthering understanding of customers’ loyalty intentions. Customer evaluations of the company’s services may accordingly not always equal their evaluations of the customer club and the effects on loyalty. Moreover, the members’ evaluations may not be the same as those of non-members. Therefore, in order to understand the typical effect of this particular telecommunications company’s services on loyalty, and simultaneously to include the customer-club effect, we decided to compare the evaluations of members and non-members. The findings of Stauss et al. (2001) concerning the car industry and differences between members and non-members represent a more complex service constellation than telecommunications. Still, bearing in mind the fact that the latter is clearer in terms of performance than a constellation

Research context and method Research context The customer club in question was introduced in 1999 with a view to keeping and developing 25 percent of the most valued customers. The target group is primarily customers with a consumption value of more than e300 per year. Swedish Telecom sends information about the customer club to these most valued customers and the initiative comes from the company. In other words, the club could be considered to have a rather passive membership. To date, 617,000 customers have joined it (Swedish Telecom’s annual report for 2000). Membership is free of charge and members collect points when they use different services – one point for every crown spent. These points may be used for buying telecom-related products, and also for weekend trips and other types of recreational activities. The points expire two years after they have been earned. Members receive a quarterly magazine and information about their account (the points balance) and different offerings. The offerings most often focus on selling new services or selling more of the existing ones. Members also have access to a special service center offering something extra. The qualitative studies The qualitative part of our study was designed to include both focus-group and in-depth interviews. We included two different kinds of tools for interviewing and collecting the qualitative data in order to achieve appropriate richness in terms of understanding the variables behind the customers’ evaluations of the telecom company’s customer club. Focus-group interviewing The first part of our qualitative study involved two focus groups moderated by a research professional. Two sessions were conducted, including a twohour discussion per group, and the moderation was held in a larger Swedish city. The two focus groups consisted of seven and five customer-club members respectively. One of the provisos was that all of the members also belonged to some other club besides that of the telecom company. This criterion was set partly because we wanted to be able to compare the club under investigation to other clubs. We also wanted to know whether or not customers were able to distinguish their memberships if they belonged to several clubs.

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Furthermore, it may be easier for them to describe their membership in relation to something else. The focus-group customers were chosen on the particular basis that they were capable of both describing their membership properly, and also of comparing their experiences of the telecom customer club and of other clubs and memberships. The starting sample from the telecom company was set so that all of the respondents had the same consumption of telecom services. The company then provided us with a list of 800 names from which the respondents were chosen. The focusgroup sessions were preceded by interviews so that we could identify the respondents and confirm their willingness to participate. Age was also a significant factor in ensuring that we could communicate the necessary information, and only customers between 30 and 55 years old were included. Furthermore, the respondents were required to have been members of the telecom club for at least six months, and in addition to be members of one or more other customer clubs. They were offered an incitement of e30 each. The interviews were taped and transcribed for the analysis.

adding relevant value to their relationship with the telecom company. It appears, however, that on the whole, those in the club differed in their evaluation of the company. Accordingly, the customer club seemed to add value to the relationship indirectly rather than to influence retention.

Telephone interviews After the focus-group sessions, 24 members and non-members of the customer club were interviewed by a group of final-year MBA students under the authors’ supervision. This time we set the requirement that the respondents should be considered high consumers of telecom services. Again the telecom company gave us a list of 800 customers who fulfilled the laid down conditions, and of these 12 with customer-club membership and 12 without were randomly chosen. The objective in the telephone interviews was to find out why customers who had something to gain by joining a club chose not to. We wanted to know if this had more to do with their relationship with the company or with the set-up of the club itself. Thus a total of 36 customers were interviewed with a view to deepening our understanding of the attributes of the customer club that were brought to surface by the focus-group respondents. The reason for carrying out a two-stage empirical study was that we regarded this problem as explorative in nature, given the very limited amount of studies that have been carried out. Those conducted so far have mostly been quantitative.

Analysis and results The overall analysis indicates that the customers did not perceive customer-club membership as

Focus-group interviews (members) Customer-club members who participated in the focus groups concentrated their discussions around a variety of issues regarding their relationship with the telecom company. Some of them were not able to express their reason for joining the club, while others had more precise motives and opinions about the club program. The topics that were brought up during the sessions are summarized in Table I. The focus-group respondents were all members of the customer club. The discussion on the reasons for signing up as a member revealed that the decision was not deeply considered. Either the customers did not really know why they had signed up, or they were expecting financial benefits. In other words, they considered membership in terms of a function with “a lowering price effect”, or as an “I can’t lose anything” routine. Thus, the only more generic effect appeared to be reducing the cost rather than adding something “extra” to the service or the relationship. One could talk about loyalty bought rather than loyalty earned. When the contents of the program were discussed, the customers thought that it was rather difficult to reach the necessary levels. Some of the benefits were considered unattainable, even for heavy users of telephony, as indeed they were. In sum, the respondents thought that the bonus system was rather fair and easy to understand. Where the respondents did experience some problems was with the homepages and in keeping track of all the necessary codes to access the membership pages. They had also perceived some problems in collecting the different benefits on the Internet when using the codes. It was difficult to receive replacement codes if the original ones had been lost. It seems that the club procedures were regarded as rather complicated. The respondents did not like the procedures involving the support personnel of the company, and also found communication with the customersupport department complicated. They pointed out that communication means personal contact, which should be easy and fast. Customers were often stuck in automatic support systems that they found unhelpful. Moreover, they pointed out that they wanted reward products to be related to telecommunications, in the form of cash cards, for example. Theater evenings taking place elsewhere

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Table I Customer-expressed reasons for becoming club members, and their opinions concerning the club program Topics

Customer comments

Customer-expressed reasons for taking out membership: Benefits in terms of less costly telephony Heavy user of telecom products No specific reason, better to be a member than a non-member Better overall information about [company] Customers discussed the content of the customer-club program: The basis for collecting points The expiry dates of the points The club magazine The Web site

Customers suggested reward products: Cash cards Product-related The discussion on the particular telecom product focused on: Contact with the personnel

“It seemed to be OK. There were some advantages I could get by collecting the points.” “In some ways you might hope to get back some of the money spent on phone bills.”

“It takes a lot of points to reach even the lowest level of bonuses, but it’s reasonable enough anyway.” “When you get the phone bill the bonus points are all included so it’s not a problem.” “If I call and tell them that I’ve lost the codes among the mountain of paper that I receive, then I think it ought to be rather easy to get new ones from [company]. Instead I’m expected to call in and queue, only to find out that I’m talking to the wrong person. Then it takes weeks to get the new codes.” “Spend a little less on the magazine and make it simpler, to me it’s very expensive and useless.” “Normally I think that it’s better to get a rebate or a voucher, then you really feel that you’re saving money.” “I avoid contact with [company’s] customer support. There’s no way to get through to them.” “I want to have contact. Human contact and fast.”

and not where the customers normally lived were not really considered worthwhile. While the results of the focus-group interviews only indicate the direction of customer interest regarding the reasons for membership initialization, the content of the program, opinions concerning reward products, and the telecom product, the interviews among members and nonmembers specified the focus of interest and the possible differences among the distinct customer groups. One interesting point concerning the subject matter of the interviews was that the telecom product drew much less attention than the program itself. Loyalty issues were also discussed, and quite straightforward reasons for participating in loyalty programs were revealed, as can be seen from the comments below: The loyalty programs I care about are the ones I save money on when I use them. I don’t want any kind of club feeling, I want to have the best deals. I feel no loyalty whatever towards the company, I’m doing this for purely egoistic reasons. I don’t want any kind of club feeling, I have the cards for practical reasons.

Telephone interviews (members and nonmembers) We noticed distinct issues between the two groups in the responses regarding their perceptions of the performance of the company. Naturally, the content of the program was perceived differently.

Needless to say, the non-members had difficulties evaluating it, but their opinions about the overall performance of the company were most valuable. Table II shows the topics that were brought up during the focus-group interviews in the light of the interviews with members and non-members in the subsequent part of the qualitative study. The results of the second round imply that there were differences in perception between members and non-members. The two groups seemed to have explicit motives in terms of being a member or not. The members appeared to think that they had nothing to lose by joining, while the non-members appeared to be uninterested in the benefits that the club had to offer. The latter claimed that they really had no need for more telecom-related products, and as a consequence were not interested in membership. The question is – are they uninterested in the club, or is it the company that they want no part of? Naturally, the non-members did not know enough about the procedures and, more interestingly, even though they said that they were not interested in the benefits, they seemed to have very limited knowledge about what these actually were. The in-depth interviews with the members confirmed the findings from the focus-group sessions in that the customers felt that the club procedures were too complicated. The telecom company seems to assume that their customers want to spend time learning to cope with the technical aspects of their product. It was also interesting to find that the members of the club did not really seem to appreciate the benefits they received, but they had still chosen to be members.

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Members

1. “We can’t lose anything” 2. Price benefits 3. More information about the company Customer comments: “It’s better to be a member; I have nothing to lose by joining.”

Opinions: 1. Time-consuming to learn about the content of the program 2. “My pages” complicated to use 3. Poor knowledge about special offers 4. Subscriptions (points basis) based on family size, not personal as in the current program 5. Members want more personalized programs Customer comments: ”I tried to register on the Internet but it was too complicated so I didn’t manage it.”

Cash cards instead of event-related rewards Customer comments: “Sure the offers are nice, but I’d be more satisfied with a lower bill.”

1. Excellent network coverage 2. Negative about queuing for customer support 3. Good knowledge of the range of products and services Customer comments: “[company] is old and has existed for a long time. You know what you get from them.” “[company] has a certain level of quality in their services and they have a good network.” “My relationship with [company] is good since I never have any problem.”

Focus

Membership initialization

The content of the program

Reward products

The telecom product

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1. Positive regarding billing issues 2. Positive regarding network cover 3. Switching intentions as a consequence of customer support 4. Poor service 5. Long queues 6. High prices Customer comments: “Well, I would recommend [company] but only to someone that I know can pay the bills.” “[company] feels pretty safe. There are many new players on the market and I know very little about them.” “Relationship? Well they send a bill and I pay it.”

No experience

Differences in perception, generalization may give further answers

Differences in perception concerning the attraction of the program

Don’t know enough about the benefits Customer comments: “The offers you receive don’t really interest me, I’d prefer a rebate. I have no use for telecom-related products.”

No experience

Differences

Non-members

Table II Differences between members’ and non-members’ responses regarding the performance of the company

Customer clubs in a relationship perspective: a telecom case Managing Service Quality

Anders Gustafsson, Inger Roos and Bo Edvardsson Volume 14 · Number 2/3 · 2004 · 157-168

Customer clubs in a relationship perspective: a telecom case

Managing Service Quality

Anders Gustafsson, Inger Roos and Bo Edvardsson

Volume 14 · Number 2/3 · 2004 · 157-168

All this makes us question the design of the customer club, but it also implies other differences among members and non-members. Does a relatively poorly designed club still manage to do what it is supposed to do in terms of building a relationship? At least the communication of the club message is apparently not fully effective. From the comments in the last row of Table II, it seems that the members clearly regard the telecom company more highly than the non-members, and that this specific company is more reliable compared to others. The most interesting question, the impact of the program on loyalty, remains unanswered. Therefore, we decided to try to verify the results of the qualitative studies. A good summary of what the respondents seem to think regarding the studied customer club and its impact on the relationship is given in the quotation below:

declined to be interviewed because they were not aware that they were members. Reliability of constructs has been studied in terms of the internal consistency of the variables (coefficient alpha). Table IV shows the coefficients for each construct. Generally, the reliability is satisfactory. Peterson (1994) discusses the levels of Cronbach’s alpha: acceptable levels have traditionally been in the range 0.5-0.6. To be safe, the coefficient should be above 0.7. The values are all well above 0.8 in this study. Since there was a large difference in sample size between the groups, we tested for homogeneity of variance, and no significant differences were found. If the loyalty club were to have the effects that it was originally intended to have, we would expect that the customers who were members would give higher ratings on all of the included variables, but especially on intended loyalty. The measures of intended loyalty that we used are given in Table IV. Given the kind of the service, i.e. continuous, it is clear that customers do not choose a specific service provider every time. In other words, the nature of the service most likely plays a key role when it comes to customers and their intentions to stay loyal. Customers buying discrete services in hotels and restaurants, for example, usually decide on their service provider each time, while continuous services such as telecom and public transportation are consumed on a more regular basis, or as a routine and embedded in every day life. Accordingly, in the telecom business, a customer uses the same service provider until he/ she chooses another.

If I save money by switching to another operator, then the club membership is not really worth anything.

Verification A telephone survey was carried out in order to verify that the variables captured in the previous qualitative studies were relevant. In all, the survey covered 898 respondents, and a representative sample in terms of age and geographical spread of all of the telecom company’s customers was used. The respondents were asked to rate a number of issues on a ten-grade scale. The different questions that were used in the survey were ones that have been tested in other studies. Those regarding quality, customer satisfaction and loyalty are questions that have been used in national customer-satisfaction studies (Fornell, 1992; Fornell et al., 1996). The price variable that was used was suggested by Johnson et al. (2001). The sample (Table III) comprised 135 (15 percent) respondents who stated that they were members and 566 (63 percent) who stated that they were non-members. This would indicate that there are 600,000 members among 4,200,000 customers (14 percent), which in turn suggests that the proportions in the study are right. It was nevertheless interesting to find that, in our sample, 197 respondents stated that they did not know whether or not they were members. This supports our experience when we tried to recruit respondents for the interviews: a lot of members Table III Members and non-members of the customer club Member Non-member Do not know

n

Percentage

135 566 197

15 63 22

Loyalty The most interesting question in the quantitative part of the study was on loyalty. Concepts such as retention and re-purchasing are frequently used as indicators of loyalty (Dufer and Moulins, 1989; Reichheld and Sasser, 1990; Bolton and Drew, 1991a; Cronin and Taylor, 1992; Denison and Knox, 1993; Reichheld and Teal, 1996; Stauss et al., 2001). All the loyalty questions are given in Table IV. One of them measured the intention to switch, and three questions could be considered measures of intended loyalty. In other words, if the respondents were choosing today, would they choose the company again? Generally, the members achieved higher scores for these questions on intended loyalty, but overall the scores did not turn out to be significant. The only question on which the difference could be considered significant was whether or not the respondent had a reason to switch. The members seemed to have had less reason than the non-members. Then again, both groups thought they would continue as customers of the telecom company. These results make us

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Anders Gustafsson, Inger Roos and Bo Edvardsson

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Table IV Differences in loyalty, customer satisfaction, price and quality evaluations between members and non-members of the customer club Member

Non-member

Alpha

Sig.

Loyalty Continue as a customer of the company No reason for switching Likelihood of speaking favorably about the company to others Likelihood of choosing [company] again

7.18 8.14 7.14 6.46 6.98

6.79 7.59 6.69 6.19 6.69

0.88

0.19 0.032 0.14 0.34 0.29

Customer satisfaction Overall satisfaction Performance versus the customer’s ideal service provider in the category Expectancy disconfirmation

7.06 7.37 7.23 6.62

6.68 6.75 6.84 6.50

0.89

0.03 0.00 0.06 0.54

Price Price compared to quality Price compared to other companies Price compared to expectations

5.09 5.46 4.89 4.90

4.74 4.80 4.74 4.74

0.87

0.10 0.01 0.53 0.51

Quality Overall quality Customization Reliability

7.47 7.32 7.23 7.87

7.23 7.24 6.99 7.52

0.85

0.15 0.64 0.26 0.06

question how well the loyalty program actually works, and we need further proof as to what effects it actually has on the overall evaluation of the company. As can be seen from Table IV, measures regarding customer satisfaction, price and quality were also included in the study. Satisfaction Customer satisfaction may actually be a better indicator of actual future behavior than loyalty intentions in some contexts (Edvardsson et al., 2000). Loyalty can be bought but satisfaction cannot. Since we adopted a relationship perspective, we considered customer satisfaction as an overall evaluation of the consumption experience. Cumulative customer satisfaction as such is usually assessed on three survey measures: overall satisfaction, expectancy-disconfirmation, and performance versus an ideal product or service in the category (Johnson et al., 2001). Table IV, in fact, shows significant differences between members and non-members on customer-satisfaction measures, which in turn implies that the loyalty program actually has some effect. Members are generally more satisfied with the company as a service provider. There was no difference between the two groups when the company’s performance was compared to the respondents’ expectations, however. It is notable that the qualitative study gave the same results in this respect. Value In qualitative terms, value seemed to be a key dimension for the respondents. It is usually measured according to the perceived level of quality compared to the price or prices paid

(Zeithaml, 1988), and consequently consists of two dimensions – price and quality. It is normally claimed that price is a variable that is very difficult to measure, and researchers end up with a mix of the two, but in Johnson et al. (2001) it is shown that price can be measured separately and relevant measures can be derived. Three measures for each dimension are included in this study. The questions related to price in Table IV concerned perceived price. We used survey questions requesting customers to evaluate price relative to a variety of benchmarks, including comparisons of the actual versus the expected price, competitors’ prices, and quality. Overall, price seemed to be the variable on which the respondents gave the telecom provider the lowest ratings. Once again, the differences between the members and the non-members were mostly not significant. The only significant difference that we found was when price was measured in relation to quality. Quality was measured using one overall and two more detailed measures. Quality experts (Deming, 1981; Juran and Gryna, 1988) delineate two primary components of the quality experience, the degree to which a product or service provides key customer requirements (customization), and how reliably these requirements are delivered (reliability). If we do not look at the different dimensions of this variable, but rather focus on the combined measure, the differences in results between the members and non-members are nonsignificant, which again is somewhat discouraging. If the reliability component is considered, however, it seems as though the members of the customer club rate the telecom company’s

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performance more highly. If we go back to Table II, we see that this is logical: the members seem to be content with what they get from the company – an old, established, reliable organization.

customers and rather control the levels of membership. According to the literature (Sharma and Patterson, 1999), the communication effectiveness influences relationships both directly and indirectly. Here, the indirect influence operates through satisfaction, while a more generously communicated program could enhance the direct effect. The financial effects for the service provider would not be significant because of the reduction effect of the introduction levels. Customers would still be likely to perceive that they all had a chance, and the company could unreservedly publicize the details of the program. This would not only increase satisfaction among members, but would also strengthen inferred loyalty. In sum, we were not able to ascertain the effect on loyalty among telecom customers that Stauss et al. (2001) found among car-club members.

Discussion Both the qualitative and the quantitative parts of our study produced the same results concerning the influence of customer-club membership on satisfaction and inferred loyalty. Thus the effects of customer clubs are unclear rather than obvious. Generally the members rated the telecom company’s performance more highly, but the difference was not significant in most cases. If we had accounted for the financial costs of running the club, the results may have been even less clear. Therefore, we have good reason to question the effects of customer clubs in CRM after having carried out this three-stage empirical study, and having surveyed the relevant literature. The contribution of the study to the literature on customer clubs is twofold. First, the strengthening effect of the club on customer relationships is indistinct. We noticed some effect, but would like it to be more decisive. Second, it appears that the communicative function of customer clubs in telecommunications is important. The reason for this is not apparent based on the results of this study. However, the design of the club is likely to play a role. The role is related to the effectiveness of the communication, and the company should ensure that the customer club does not detract from other functions included in the service-provider strategy. Initial customer perceptions of customer-club programs reveal differences in opinion in terms of the perceived value of club membership. Naturally, customers who initiate membership perceive the benefits that the program offers, while those who do not believe it to be a good investment do not even rate the benefits offered highly enough to consider joining. Membership of this particular customer club was not offered to all customers included on the database. Those who were not chosen based their perceptions on more general opinions, formed as a result of media campaigns and advertised program offerings. In conclusion, we could say that the choice of target group, together with the design and communication of the customer-club benefits, may explain the poor effects of membership on inferred loyalty. While the company chooses the members of the customer club, it may hold back from openly communicating the details in deference to the customers excluded from it. Therefore, it may be more sensible to include all

Limitations of the study The approach of the study may be considered rather narrow in terms of generalization regarding customer clubs, and therefore, we cannot draw any conclusions that refer to such clubs in all services. Because of the qualitative approach employed in the first two parts, we naturally have small samples on which to base our understanding. Another approach would have been to base the quantitative questionnaire on the literature and leave out the qualitative part. However, the lack of literature on customer clubs from a relationship perspective made us include the qualitative studies in order to enhance our understanding of the club function. We still consider our research to be in progress. Future research The results of this study open up a few natural paths for future research on the role of customer clubs. Recent literature (Lemon et al., 2002, p. 11) suggests that customers “are forward-looking with respect to the decision to remain in or leave service relationships”. The future in this context, and from the customers’ point of view, concerns whether to remain a customer of the telecom provider or to change. Customers maintain a dialogue with themselves concerning their own expectations of their future behavior. These findings are in line with findings from a study on switching behavior that indicate how customers can specify their future behavior by relating to influencing factors (Edvardsson et al., 2002). The influencing factors reveal differences in customer perceptions, with implications for the relationship strength. In order to be able to base their contextrelated expectations on some facts, customers need reference points. We suggested earlier in the article that a customer-club program should

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pursue frequency of use for the same reasons. Do the programs of service providers succeed in that mission? That is our first path. The second option, which is related to some extent to the first one, is to concentrate research effort on the role of the program. How do customers perceive the club? In our qualitative study, those who were included in the program discussed it in terms of a separate entity. They chose between the benefits in a way that is comparable to choosing between providers. The choice behavior in terms of award products appeared to be detached from that related to telecom providers. The second research path focuses on the difficulty of relating the effect of the program to the relationship. Do customers relate the program at all to the relationship with the telecom company when they use the benefits? The results of this study cast doubts on this possibility. There was a heavy focus on the customer-club program among the members, which indicates a need to relate the customer-club-satisfaction dimension in telecom to what Stauss et al. (2001) suggested for the car industry.

East, R., Harris, P., Willson, G. and Lomax, W. (1995), “Loyalty to supermarkets”, The International Review of Retail, Distribution and Consumer Research, Vol. 5 No. 1, pp. 99-109. Edvardsson, B., Gustafsson, A. and Roos, I. (2002), “Understanding the trigger effect on customers’ maturity processes in telecommunications”, in Tax, S., Stuart, I., Brown, S.W., Edvardsson, B., Johnston, R. and Scheuing, E.E. (Eds), Service Quality in Service: Crossing Boundaries, Printing and Duplicating Service, University of Victoria, Victoria, pp. 256-65. Edvardsson, B., Johnson, M.D., Gustafsson, A. and Strandvik, T. (2000), “The effects of satisfaction and loyalty on profits and growth – products versus services”, Total Quality Management Journal, Vol. 11 No. 7, pp. 917-27. Fornell, C. (1992), “A national customer satisfaction barometer: the Swedish experience”, Journal of Marketing, Vol. 56, pp. 6-21. Fornell, C., Johnson, M.D., Anderson, E.W., Cha, J. and Bryant, B.E. (1996), “The American customer satisfaction index: nature, purpose and findings”, Journal of Marketing, Vol. 60, pp. 7-18. Gro¨nroos, C. (1983), Marknadsfo¨ring i tja¨nstefo¨retag, Liber Fo¨rlag, Stockholm. Gummesson, E. (1987), “The new marketing – developing longterm interactive relationships”, Long Range Planning, Vol. 20 No. 4, pp. 10-20. Johnson, M.D. (1998), Customer Orientation and Market Action, Prentice-Hall, Englewood Cliffs, NJ. Johnson, M.D. and Gustafsson, A. (2000), Improving Customer Satisfaction, Loyalty, and Profit: An Integrated Measurement and Management System, Jossey-Bass, Inc., San Francisco, CA. Johnson, M.D., Gustafsson, A., Andreassen, T.W., Lervik, L. and Cha, J. (2001), “The evolution and future of national customer satisfaction index models”, Journal of Economic Psychology, Vol. 22 No. 2, pp. 217-45. Juran, J.M. and Gryna, F.M. (1988), Juran’s Quality Control Handbook, 4th ed., McGraw-Hill, New York, NY. Lemon, K.N., White, T.B. and Winer, R.S. (2002), “Dynamic customer relationship management: incorporating future considerations into the service retention decision”, Journal of Marketing, Vol. 66 No. 1, pp. 1-14. Liljander, V. and Roos, I. (2002), “Customer relationship levels – from spurious to true relationships”, Journal of Service Marketing, Vol. 16 No. 7, pp. 593-614. Mittal, B. and Lassar, W.M. (1998), “Why do customers switch? The dynamics of satisfaction versus loyalty”, The Journal of Services Marketing, Vol. 12 No. 3, pp. 177-94. Nowlis, S.M. and Simonson, I. (1996), “The effect of new product features on brand choice”, Journal of Marketing Research, Vol. 33, pp. 36-46. O’Brien, L. and Jones, C. (1995), “Do rewards really create loyalty?”, Harvard Business Review, May/June, pp. 75-82. Peterson, R.A. (1994), “A meta-analysis of Cronbach’s coefficient alpha”, Journal of Consumer Research, Vol. 21 September, pp. 381-91. Reichheld, F.F. and Sasser, W.E. Jr (1990), “Zero defections: quality comes to services”, Harvard Business Review, Vol. 68, September/October, pp. 105-11. Reichheld, F.F. and Teal, T. (1996), The Loyalty Effect: The Hidden Force behind Growth, Profits, and Lasting Value, Harvard Business School Press, Boston, MA. Sharma, N. and Patterson, P.G. (1999), “The impact of communication effectiveness and service quality on relationship commitment in consumer, professional

References Berry, L.L. (1983), “Relationship marketing”, in Berry, L.L., Shostack, G.L. and Upah, G.D. (Eds), Emerging Perspectives on Services Marketing, American Marketing Association, Chicago, IL, pp. 25-8. Berry, L.L. (2002), “Relationship marketing of services – perspectives from 1983 and 2000”, Journal of Relationship Marketing, Vol. 1 No. 1, pp. 59-77. Bolton, R.N. and Drew, J.H. (1991a), “A longitudinal analysis of the impact of service changes on customer attitudes”, Journal of Marketing, Vol. 55, January, pp. 1-9. Bolton, R.N. and Drew, J.H. (1991b), “A multistage model of customers’ assessments of service quality and value”, Journal of Consumer Research, Vol. 17, March, pp. 375-84. Bolton, R.N., Kannan, P.K. and Bramlett, M.D. (2000), “Implications of loyalty program membership and service experiences for customer retention and value”, Journal of the Academy of Marketing Science, Vol. 28 No. 1, pp. 95-108. Cronin, J.J. Jr and Taylor, S.A. (1992), “Measuring service quality: a re-examination and extension”, Journal of Marketing, Vol. 56, July, pp. 55-68. Deming, W.E. (1981), Management of Statistical Techniques for Quality and Productivity, Graduate School of Business, New York University, New York, NY. Denison, T. and Knox, S. (1993), “Cashing in on loyal customers: the indemnity for retailers”, ESRC Seminar: Strategic Issues in Retailing, Institute for Advanced Research in Marketing, Cranfield School of Management, Manchester, pp. 225-52. Dufer, J. and Moulins, J.-L. (1989), ”La relation entre la satisfaction du consommateur et sa fide´lite´ a` la marque: un examen critique”, Recherche et Application en Marketing, Vol. 4 No. 2, pp. 21-36.

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services”, The Journal of Services Marketing, Vol. 13 No. 2, pp. 151-70. Simonson, I. and Tversky, A. (1992), “Choice in context: trade-off contrast and extremeness aversion”, Journal of Marketing Research, Vol. 29, August, pp. 281-95. Sirdeshmukh, D., Singh, J. and Sabol, B. (2002), “Consumer trust, value, and loyalty in relational exchanges”, Journal of Marketing, Vol. 66, January, pp. 15-37. Srinivasan, M. (1996), “New insights into switching behavior”, Marketing Research, Vol. 8 No. 3, pp. 27-33.

Srinivasan, T.C. (1987), “An integrative approach to consumer choice”, Advances in Consumer Research, Vol. 14, pp. 96-100. Stauss, B., Chojnacki, K., Decker, A. and Hoffmann, F. (2001), “Retention effects of a customer club”, International Journal of Service Industry Management, Vol. 12 No. 1, pp. 7-19. Zeithaml, V. (1988), “Consumer perceptions of price, quality and value: a means-end-model and synthesis of evidence”, Journal of Marketing, Vol. 52, July, pp. 2-22.

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An integrated framework for customer value and customer-relationshipmanagement performance: a customer-based perspective from China Yonggui Wang, Hing Po Lo, Renyong Chi and Yongheng Yang The authors Yonggui Wang is at Nankai University and Zhejiang University of Technology, China. Hing Po Lo is at City University of Hong Kong, Hong Kong, China. Renyong Chi is at Zhejiang University of Technology, China. Yongheng Yang is at Tsinghua University, Beijing, China..

Keywords Customer retention, Relationship marketing, Customer satisfaction, Brand loyalty, Behaviour, China

Abstract In the modern customer-centred era, customer value is a strategic weapon in attracting and retaining customers. Delivering superior customer value has become a matter of ongoing concern in building and sustaining competitive advantage by driving customer-relationship-management (CRM) performance. However, related studies are rather divergent, the key dimensions of customer value remain unclear, and there is no agreement on the evaluation of CRM performance. This paper develops an integrative framework for customer value and CRM performance based on the identification of the key dimensions of customer value. Emphasising the customer equity-based view, the paper explores the decomposed effects of customer value on CRM performance in terms of relationship quality and customer behaviours. In doing so, a structural equation model is developed using the partial least square method supported by an empirical investigation of customers in China.

Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/0960-4529.htm

Managing Service Quality Volume 14 · Number 2/3 · 2004 · pp. 169-182 q Emerald Group Publishing Limited · ISSN 0960-4529 DOI 10.1108/09604520410528590

1. Introduction Customer value is a strategic weapon in attracting and retaining customers and has become one of the most significant factors in the success of both manufacturing businesses and service providers (Gale, 1994; Zeithaml, 1988; Zeithaml et al., 1996; Woodruff, 1997; Parasuraman, 1997). Delivering superior customer value has become an ongoing concern in building and sustaining competitive advantage by driving customer relationship management (CRM) performance. As many researchers have suggested, firms should reorient their operations towards the creation and delivery of superior customer value if they are to improve their CRM performance (Jensen, 2001; Day, 1994; Slater, 1997). However, the growing body of knowledge about customer value is rather fragmented, different points of view are advocated with no widely accepted way of pulling views together and related empirical study is very limited. Furthermore, relevant studies have not yet yielded any unambiguous interpretations of the key dimensions of customer value (Zeithaml, 1988; Patterson et al., 1997; Woodruff, 1997; McDougall and Levesque, 2000; Lapierre, 2000). Little is known about the relative importance of each dimension of customer value in improving different dimensions of CRM performance. Although there is a significant body of knowledge about the concept of customer value and its relationships with service quality and customer satisfaction, there has been relatively little empirical research on the subject. Only a few studies have focused on how superior customer value is constituted in the perspective of customers and how a more reliable and valid measurement scale for such a complicated and important construct might be developed (Sheth et al., 1991; Sweeney and Soutar, 2001). Even in the latest typical study, Sweeney and Soutar (2001) seem to have considered price to be the only sacrifice of customers in measuring customer value – The authors wish to acknowledge the Research Grants Council of the HKSAR, China (Cityu 1129/ 02E), the National Science Foundation of China (NSFC) (70202002), the National Natural Science Foundation of China and China-Canada University Industry Partnership Program (NSFC-CCUIPP) (70142023), and the National Social Science Foundation of China (02CJL004). The authors thank Dr Wynne Chin of the University of Houston for kindly granting permission to use his PLS-Graph package. In addition, the authors also wish to acknowledge the editor, Professor Jay Kandampully, and the anonymous reviewers, for their helpful comments and valuable suggestions.

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although it has been widely agreed that many other kinds of sacrifices (such as opportunity cost, psychological cost, and maintenance and learning cost) can exert determining influences on the perception of customer value besides “price” (Woodruff, 1997; Slater, 1997; Day, 1994). In fact, the lack of a managerial understanding of “what constitutes superior customer value and how to operationalize it” has become one the most influential barriers for both researchers and practitioners. As more firms practise CRM, the question of how to evaluate performance remains a significant challenge, and there is a strong tendency for research to emphasise one dimension of CRM performance while ignoring others, which makes it much more difficult for managers to make a deep understanding of the practical implications of different performance measures. Few studies, if any, have been conducted to examine the differential effects of individual dimensions of customer value on the specific dimensions of CRM performance. This makes it almost impossible for managers to determine and identify those value creation and delivery processes and activities that contribute the most to the intended performance aspect of CRM to maximize customer equity of their firms. In practice, empirically investigating the effects of key dimensions of customer value is extremely important – because the delivery of superior customer value can involve significant costs for firms. In some cases, there can be concern that such costs could outweigh the potential financial benefits. In other words, although firms often acknowledge that superior customer value can lead to higher profits, they may be afraid to practise because of a concern that significant costs may reduce profits. It is, therefore, imperative that firms understand the effects of each dimension of customer value and allocate their limited resources accordingly. Besides contributing to the area of customer value and CRM performance in general as mentioned above, this paper also makes important contributions to this subject by examining the securities’ industry in the Chinese context – a country that is undergoing reforms from a centrally planned economy to a market economy since conducting such a study within the context of a transitional economy is more critical than doing that within a market economy. Market power is growing, but the market infrastructure has not yet been well developed (Peng and Health, 1996) and the application of customer value knowledge and CRM is therefore rather limited. However, in a transitional economy, firms that have a deep understanding of the key dimensions of customer value and their influences on different aspects of

CRM performance are more likely to build up sustained differential advantages and accordingly, superior firm performance. Thus, it is important to understand how a firm achieves superior CRM performance by creating and delivering superior customer value and emphasizing some dimensions of customer value based on the role they may play in influencing CRM performance. Furthermore, comparatively speaking, less related knowledge has been accumulated to provide special guidance in developing countries than that for developed economies, although more people belong to the former. This study, conducted within the context of the transitional economy of China, can help to redress this imbalance in empirical work. This study, therefore, presents an empirical investigation of an integrated framework of customer value and CRM performance by identifying the key dimensions of customer value, and by examining their differentiated effects on CRM performance in terms of the perspective of customers. By drawing on a growing body of literature on customer value, customer relation management and other highly related findings, the paper defines and measures customer value in terms of get (benefit) and give (sacrifice) components (Woodruff, 1997; Slater, 1997; Day, 1994) – thus adopting a broader concept of sacrifices rather than the simple price assessment suggested by Sweeney and Soutar (2001); and several key dimensions other than price and quality are identified conceptually and tested empirically. The evaluation of CRM performance is discussed on the basis of models of customer behaviour, customer equity/customer asset (Rust et al., 2000; Blattberg et al., 2001), and relationship quality. Furthermore, much attention is given to the empirical examination of how each dimension of customer value may influence specified aspects of CRM performance differently. It is expected that this study would help managers to understand what customers really value and where they should focus their attention to achieve this needed market space advantages and maximize the benefits of CRM. The paper is organised as follows. Following this introduction, the theoretical background, an integrated conceptual framework, and the key hypotheses are provided. The next section presents the methodology of the study. Then the empirical analysis is conducted by developing structural equation models using the partial least square (PLS) method based on a customer survey of more than 300 respondents conducted in China, and all the hypotheses proposed in this paper are tested. Finally, conclusions and implications are presented, and limitations and future research directions are discussed.

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2. Theoretical background and conceptual framework

firm and provide the revenue streams expected from establishing and maintaining profitable customer relationships. These customer behaviours are based on so called “relationship quality” (Crosby et al., 1990; Dorsch et al., 1998).

With the increasingly intense business competition and the strong trend of globalization, the role of the customer has changed from that of a mere consumer to a multi-faceted role as consumer, cooperator, co-producer, co-creator of value, and codeveloper of knowledge and competencies, which implies a much more important position of the customer than ever. As a result, there has been a substantial increase in interest in the creation and delivery of value to customers and the effective management of customer relationship. In particular, firms are seeking to retain existing customers and attract new customers by targeted value creation activities. To do so, they need an indepth understanding of the underlying dimensions of customer value, the practical implications of different performance measures of CRM and knowledge of how to improve each of them by focusing on one specific dimension of customer value or their combinations. Figure 1 illustrates an integrated framework for customer value and customer-relationship performance that can be used to achieve this purpose. On the left side of the diagram, functional value, social value, emotional value, and customer perceived sacrifices are proposed as the key dimensions of customer value. On the right side, CRM performance is depicted in terms of both tangible aspects and intangible aspects. For the former, emphasis is given to the possible customer behaviours such as customer retention (relationship length), cross buying/ repurchase (relationship depth and breadth), word of mouth, and so on, which are visible themselves with the potential to produce such tangible benefit as profit and are considered to be the ultimate focus of CRM performance in this study. In practice, it is such customer behaviours that constitute the underlying value of customers for a

2.1 Customer value Driven by demanding customers, keen competition, and rapid technological change, many firms have sought to deliver superior customer value (Band, 1991; Day, 1994; Gale, 1994; Naumann, 1995; Butz and Goodstein, 1996; Woodruff, 1997). Delivering superior customer value is now recognised as one of the most important factors for the success of any firm now and in the future because it has a significant impact on the behavioural intentions of customers and because it has an important role in providing managers with insights into how to achieve superior CRM performance. 2.1.1 Definition of customer value Although the significance of customer value is widely recognised, research about customer value is quite fragmented and there is no clear definition of the concept. Early studies on the profit impact of market strategies (PIMS) argued that value is determined by product quality, relative price, and customer expectations. Zeithaml (1988) considered value to be the customer’s overall assessment of the utility of a product based on the perception of what is received and what is given. Dodds et al. (1991) argued that buyers’ perceptions of value represent a trade-off between the quality or benefits they receive in the product and the sacrifice they perceive in paying the price. Gale (1994) considered value to be market perceived quality adjusted for relative product price. Butz and Goodstein (1996) defined it as the emotional bond established between a customer and a producer after the customer has used a

Figure 1 The integrated framework for customer value and CRM performance

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salient product or service produced by that supplier. Woodruff (1997) defined customer value as a customer-perceived preference for, and evaluation of, product attributes, attribute performances, and consequences in terms of the customer’s goals and purposes. Although these approaches differ, it is clear that there are some areas of consensus among the different concepts. Customer value is inherent in (or linked to) the use of certain products or services, and customer value is perceived by customers (rather than being objectively determined by sellers or other stakeholders). Moreover, these perception processes typically involve a trade-off between what customers receive (such as quality, benefits, and utilities) and what they sacrifice (such as price, opportunity cost, and maintenance and learning cost). The present study concurs with the majority of researchers who have defined customer value in terms of get (benefit) and give (sacrifice) components (Woodruff, 1997; Slater, 1997; Day, 1994) – in contrast to those researchers who have argued that perceived value consists only of benefits (Hamel and Prahalad, 1994). Following Woodruff (1997), the present study posits that customer value is derived from the perception, preference, and evaluation of customers, and that any consideration of customer value should take account of these factors.

not all these dimensions have equal significance at any time, although they are related in some sense. More recently, Sweeney and Soutar (2001) differentiated two aspects of functional value – quality and price – and developed the so-called “PERVAL” model. In this model, epistemic value (which relates to the surprise or novelty aspect of a product) and conditional value (which refers to the conditional effects of a specific situation on value perceptions) were excluded – because these two dimensions are not applicable (or less important) when considering the purchase of a durable good, which was the focus of their study. The present study adopts the framework suggested by Sweeney and Soutar (2001) and tests it in the securities service industry of China, in which the creation and delivery of superior customer value and the effective management of customer relationship are very important in the increasingly intense competition of this industry. However, as previously noted, sacrifices other than price are considered in the present study. The term “sacrifice” refers to what is given up to acquire or consume a product or service. This includes nonmonetary factors such as time, effort or energy (Heskett et al., 1997; Zeithaml, 1988), which may play an even more important role than price. For example, many customers count time rather than dollar cost as their most precious asset (Carothers and Adams, 1991). So it has been expected to extend the price dimension and consider both monetary costs and non-monetary costs as two important elements of customer sacrifices instead of price only in this study. Our customer focus group discussion and exploratory factor results have also confirmed such a point of view. The present study, therefore, posits that customer value can be better understood in terms of the four key dimensions previously illustrated on the left side of Figure 1, each of which may play a different role in the customer perception process and thus contribute differently to the performance of CRM. In this diagram, “emotional value” refers to the utility derived from the affective states that a product or service generates; “social value” refers to the social utility derived from the product or service, “functional value” refers to the utility derived from the perceived quality and expected performance of the product or service, and “perceived sacrifice” refers to the loss derived from the product or service due to the increment of its perceived short-term and long-term costs.

2.1.2 Key dimensions of customer value As far as the significance of customer perceived value is concerned, researchers are now paying more attention to the operationalization of this concept. Traditionally, customer value has been understood in terms of quality and price. However, other ways of creating and delivering superior customer value are now being explored. As Sweeney and Soutar (2001) have indicated, it is imperative that firms enquire about other factors that might constitute perceived benefits and sacrifices, and the managerial implications of these factors, if they are to understand the perception and evaluation process of customers and reconfigure their resources and activities accordingly. For example, Kotler (1997) argued that customer value can be understood in terms of product value, service value, employee value, and image value. However, this approach is largely derived from the standpoint of a firm, not that of customers, or at least not totally customer based. The broad theoretical framework developed by Sheth et al. (1991) was somewhat different in that they suggested five dimensions of value from the customer’s perspective (social, emotional, functional, epistemic, and conditional) as providing the best foundation for extending the value construct. However, it is worth noting that

2.2 Performance of CRM 2.2.1 Customer behaviour-based CRM performance It is believed that CRM performance should be measured ultimately in terms of customer behaviours since they are the underlying sources of

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value of current customers of a firm and have the potential to increase the future revenue streams associated with them and those prospective customers. Because the fundamental objective of CRM is to ensure steady streams of revenue and maximisation of customer lifetime value or customer equity, customer behaviours that might bring revenue streams become strategically significant (Grant and Schlesinger, 1995; Bolton et al., 2002). For example, researchers have tried to understand relationship length, depth, and breadth in terms of customer retention, intensity, or usage level of services or products over time, cross-buying or add-on purchase, and word of mouth (Blattberg et al., 2001; Reichheld and Teal, 1996; Bettencourt, 1997), which usually implies a fundamental increment of customer lifetime value or customer equity. However, little is known about how customer value affects these customer behaviours, although many theoretical studies have indicated that superior customer value, as perceived by customers, has a significant influence on the purchasing and repurchasing intentions of customers and their decisions to retain a close relationship with a firm. According to the study of Mazumdar (1993), customers are becoming more value-oriented and are not simply influenced by high quality or lower price. Rather, they tend to make a reasonable trade-off between the perceived benefits and perceived sacrifices in the process of obtaining and consuming products or services. However, not all the customers value the same potential benefits and care for the same sacrifices at any given time. The following hypotheses are therefore proposed: H1a. Emotional value has a direct and positive effect on customer behaviour-based CRM performance. H1b. Social value has a direct and positive effect on customer behaviour-based CRM performance. H1c. Functional value has a direct and positive effect on customer behaviour-based CRM performance. H1d. Perceived sacrifice has a direct and negative effect on customer behaviour-based CRM performance.

behaviour-based CRM performance, but also has indirect effects.

However, other studies have shown that such customer behaviours are also influenced by factors such as customer satisfaction and brand loyalty (Reichheld and Teal, 1996; Szymanski and Henard, 2001; Bolton, 1998; Mittal and Kamakura, 2001) and that customer value has significant influence on customer satisfaction and brand loyalty. It therefore appears that customer value not only has a direct influence on customer

2.2.2 Relationship quality Besides customer behaviour-based CRM performance we defined and emphasized above, many researchers have emphasized the role of relationship quality as an intangible aspect of CRM performance, and dimensions such as satisfaction, commitment, and trust have been used to measure the complicated concept “relationship quality” (Crosby et al., 1990; Dorsch et al., 1998). However, there is no consensus on which dimensions make up relationship quality. As shown in Figure 1, this study considered both customer satisfaction and brand loyalty – with the latter considered as a kind of lasting intention to build and maintain a long-term relationship, as the highest level of relational bonding, and as one dimension of relationship quality instead of commitment (Edvardsson et al., 2000; Reichheld and Teal, 1996). High customer satisfaction and brand loyalty means that fewer customers will defect, and the long-term effects on firm performance can be significant. For example, Reichheld and Teal (1996) showed that a 5 per cent increase in customer retention can have a 3095 per cent effect on customer net present value and a similar effect on corporate profits. 2.2.2.1 Brand loyalty. The high cost involved in the acquisition of new customers makes the early stages of a new customer relationship unprofitable (Reichheld and Sasser, 1990). Only in the later stages, with the decreased cost involved in serving a loyal customer, does such a relationship become more profitable. There are divergent streams of research on the concept of loyalty. One is the stochastic approach, in which loyalty is considered a behaviour. According to this approach, the individual who buys the same brand consistently is said to be “loyal” to this brand (Kuehn, 1962). However, this approach cannot distinguish between true loyalty and spurious loyalty. The other approach treats loyalty as an attitude, rather than a mere behaviour. For example, Assael (1992) defined brand loyalty as a favourable attitude towards a brand, thus resulting in consistent purchase of the brand over time – a view supported by Keller (1993). The present study follows the view of Assael (1992) in defining brand loyalty as a customer’s favourable attitude towards the provider, thus resulting in repurchasing behaviour. According to the findings of Zeithaml et al. (1996), loyal customers tend to build and strengthen the relationship with a firm and behave differently from non-loyal customers. By influencing directly both purchase and nonpurchase behaviours of customers, loyal customers

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contribute to the financial performance of a firm. For example, loyal customers emphasise a close relationship with a firm, with lower price elasticity. In addition, such loyal customers pass on favourable word-of-mouth referral (Brown et al., 1987). Loyal customers thus put greater emphasis on social and emotional value, and studies have found that superior customer value creation and delivery can help firms to build close emotional links with targeted customers (Butz and Goodstein, 1996). Superiority in specific dimensions of customer value can thus improve brand loyalty in such customers and influence their behaviour positively. The following hypotheses are therefore proposed: H2a. Emotional value has a direct and positive effect on brand loyalty. H2b. Social value has a direct and positive effect on brand loyalty. H2c. Functional value has a direct and positive effect on brand loyalty. H2d. Perceived sacrifice has a direct and negative effect on brand loyalty. H2e. Brand loyalty has a positive effect on customer behaviour-based CRM performance.

share and profitability, and an important indicator of a firm’s overall financial health. A satisfied customer will show a strong tendency to be loyal and repeat the purchase of the goods or services, and thus increase a firm’s market share and profits, which signifies its significance to successful competition in customer-centred era. Furthermore, it is likely that a satisfied customer will spread positive word of mouth among his or her acquaintances. Based on the above discussion, the following hypotheses can be proposed: H3a. Emotional value has a direct and positive effect on customer satisfaction. H3b. Social value has a direct and positive effect on customer satisfaction. H3c. Functional value has a direct and positive effect on customer satisfaction. H3d. Perceived sacrifice has a direct and negative effect on customer satisfaction. H3e. Customer satisfaction has a positive effect on customer behaviour-based CRM performance. H3f. Customer satisfaction has a positive effect on brand loyalty.

2.2.2.2 Customer satisfaction. Generally speaking, there are at least two different conceptualisations of customer satisfaction: transaction-specific; and cumulative (Boulding et al., 1993). From a transaction-specific perspective, customer satisfaction is viewed as a post-choice evaluative judgment of a specific purchase occasion (Oliver, 1981). Behavioural researchers have developed a rich body of literature on the antecedents and consequences of this type of customer satisfaction at the individual level (Zeithaml, 1988). In contrast, cumulative customer satisfaction is an overall evaluation based on the total purchase and consumption experiences with a product or service over time (Fornell et al., 1996; Johnson and Fornell, 1991), which is a more fundamental indicator of the firm’s past, present and future performance. Cumulative customer satisfaction motivates a firm’s investment in customer satisfaction, and this is the approach adopted in the present study. As with brand loyalty, customer satisfaction is also influenced by customer value, and the two concepts (brand loyalty and customer satisfaction) exert their effects on customer behaviour-based CRM performance simultaneously. For example, customer value contributes to an improvement in customer satisfaction (Fornell et al., 1996; Bojanic, 1996) and customer satisfaction is a consequence of customer-perceived value (Fornell et al., 1996; Hallowell, 1996). Customer satisfaction is usually perceived to be a key indicator of a firm’s market

3. Methodology 3.1 Sampling and data collection Following a pilot study to identify and refine the measurement items used in the present study, a mail survey was conducted. Two large Chinese securities firms were selected – one in Shenzhen and the other in Beijing, with their customers as respondents. A stratified sampling was used to select approximately equal numbers of customers from each firm; 400 customers were chosen randomly from each firm’s database. A copy of the finalised questionnaire (together with a pre-paid, self-addressed envelope) was sent to each of these selected customers. Subjects were asked to assess items of various constructs (such as customer value, customer behaviour-based CRM performance, customer satisfaction, and brand loyalty) on the basis of a seven-point Likert scale. The descriptors ranged from “strongly disagree”, to “somewhat disagree”, “slightly disagree”, “neutral”, “slightly agree”, “somewhat agree”, and, finally, “strongly agree”. After ten days, a telephone follow-up was conducted to remind respondents to return the completed questionnaires on time. After one month, 237 questionnaires had been returned (termed the “early responses”). A call was then made to each of the customers whose questionnaires had not been received. Twenty days later 89 more questionnaires had been received (termed the “late

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responses”). Thus, in total, 326 questionnaires were collected from customers. Six questionnaires were considered unsuitable because they contained too many missing values (four from “early respondents” and two from “late respondents”). In all, 320 questionnaires were thus considered valid and were used for empirical analysis – a valid response rate of 40.0 per cent. As suggested by Armstrong and Overton (1977), the study compared early responses with late responses. According to a t-test analysis, these two groups of respondents had no significant differences across all of the key variables. Accordingly, it seems that non-response bias did not appear to be a significant problem.

(PLS) variance analysis (Chin, 1998). Although the PLS method is not as popular as the ML method, it does provide a way to avoid problems of improper solutions and factor indeterminacy as well as the violations of distributional assumptions which can be associated with the ML method. Interest in the PLS method has been increasing in recent years because of its ability to model latent constructs under conditions of non-normality and because of the superior predictive power of its models. Given that the present study is exploratory in nature and that one of its major concerns is the predictive power of the research model, the PLS method was used to estimate the models. The adequacy of each multi-item scale in capturing its construct was assessed using a twostep approach: by checking internal consistency reliability, convergent validity, and discriminant validity; and by testing the propositions via the causal models. However, before checking the measurement model, the customers’ understanding of the concept of customer value was assessed by exploratory factor analysis on the full set of variables used to measure customer value. In total, four factors were initially identified. Taken together, they explained 86.1 per cent of the total variance. The results of this analysis confirmed that customer value can be understood in terms of emotional value, social value, functional value, and perceived sacrifices.

3.2 Measures development Measures of the constructs were developed in several stages. In the first stage, tentative measurements were adapted from the extant literature. In the second stage, a list of defined constructs and measures was submitted to a customer focus group. Following this, a pilot study was conducted among 20 customers – dealing with such matters as instructional clarity, item clarity, relevance, and the time needed to complete the questionnaire – in an attempt to establish the reliability of the measures effectively. So the research instrument in this study is based on various validated scales and some new items and they are revised on the basis of the pilot studies. The measures for each dimension of customer value were mainly adapted from Sheth et al. (1991) and Sweeney and Soutar (2001). Slight changes to wording were made with respect to perceived sacrifices on the basis of conceptual studies and the focus group of the present study. As shown in Table I, a final total of 18 items was used to measure all dimensions of customer value. On the basis of relevant studies (Blattberg et al., 2001; Reichheld and Teal, 1996; Bettencourt, 1997) and focus group discussion, three items were developed and tested in the pilot study to measure customer behaviour-based CRM performance. For customer satisfaction, three items were adapted from Wang and Lo (2002). For measures of brand loyalty, three items were used, based on Keller (1993) and Assael (1992).

4. Data analysis and structural equation model building There are two estimation techniques for structural equation modelling (SEM). The first is maximum likelihood (ML) covariance structural analysis (Bollen, 1989). The other is partial least squares

4.1 Measurement model The composite reliability for internal consistency was first demonstrated. The values for all constructs were above the suggested threshold of 0.70, with a minimum of 0.8384 (see Table I). In addition, the standardised factor loadings for all items were above the suggested cut-off of 0.60 (Hatcher, 1994) (with a minimum of 0.8603), and all were significant with strong evidence of convergent validity. The average variance extracted (AVE) of each construct in the model was more than 0.50, which meets the criterion that a construct’s AVE should be at least higher than 50 per cent (to guarantee that more valid variance is explained than error) (Fornell and Larcker, 1981). The constructs should also show high discriminant validity. According to Fornell and Larcker (1981), this can be demonstrated by the fact that the square root of AVE of each construct should be generally higher than the correlations between it and any other constructs in the model (see Table II). This demonstrated that the constructs are both conceptually and empirically distinct from each other. Finally, the R2 for the endogenous variables (such as customer satisfaction, brand loyalty, and customer behaviour-based CRM performance) were

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Table I Confirmatory factor analysis results and relevant composite reliability Constructs and items

CRM performance Behaviour-based CRM performance Q1 I would like to repurchase the offerings and buy more from this firm (y31) Q2 I would like to recommend the offerings to others (y32) Q3 I would like to keep close relationship for a longer period (y33) Relationship quality Brand loyalty Q4 I feel I am loyal to this brand/offerings of this firm (y21) Q5 The brand/offerings of this firm is my first choice (y22) Q6 Even with more choices, I will not choose other brands/offerings (y23) Customer satisfaction Q7 The offerings always meet my expectation (y11) Q8 Taking my experience with other companies, I am satisfied with our offerings and us (y12) Q9 The offerings always meet the desirable level (y13) Key dimensions of customer value Customer perceived sacrifices Q10 The brand/service of this firm is reasonably priced (x41) Q11 The brand/service of this firm offers value for money based on previous experiences (x42) Q12 The brand/service of this firm would be economical (x43) Q13 The brand/service of this firm is a good product for the price deducted by discounts (x44) Q14 The brand/service of this firm is value for money compared with that of major competitors (x45) Q15 The choice of transacting with the firm is a right decision when price and other expenses are considered (x46) Functional value Q16 The firm always delivers superior service (x11) Q17 The offerings of this firm are of high quality (x12) Q18 Consistent quality is well made (x13) Q19 The offerings of this firm make me feel confident (x14) Emotional value Q20 The brand/service of this firm is the one that I would enjoy (x31) Q21 The brand/service of this firm make me want to purchase and use it (x32) Q22 The brand/service of this firm is the one that I would feel relaxed about using it (x33) Q23 The brand/service of this firm would make me feel good (x34) Q24 The brand/service of this firm would give me pleasure (x35) Social value Q25 The brand/service of this firm would improve the way I am perceived (x21) Q26 The brand/service of this firm would help me make a good impression on other people (x22) Q27 The brand/service of this firm would give its owners the social approval (x23)

Loading

t-value

Alpha

0.8564 0.8949 0.8603

36.128 64.304 32.887

0.8384

0.9486 0.9300 0.8985

29.773 71.656 39.034

0.9143

0.9272

82.967

0.9210

0.9370 0.9259

93.513 63.039

0.9101

50.326

0.9258 0.9219

68.991 75.775

0.9186

66.319

0.9184

56.109

0.9158

73.135

0.9251 0.9086 0.8970 0.9222

75.476 62.383 58.539 72.424

0.9337

0.8998 0.9298

70.673 78.403

0.9549

0.9352 0.9098 0.9232

80.303 45.984 67.643

0.9396

90.654

0.9208 0.9068

69.093 43.357

0.9625

0.9128

Table II Correlation matrix and square roots of average variance extracted (AVE) Customer loyalty (1) Customer satisfaction (2) Functional value (3) Perceive sacrifices (4) Behaviour-based CRM performance (5) Emotional value (6) Social value (7)

(1)

(2)

(3)

(4)

(5)

(6)

(7)

0.926 0.758 0.658 20.681 0.348 0.673 0.676

0.930 0.756 20.790 0.447 0.772 0.818

0.913 2 0.719 0.469 0.804 0.652

0.918 20.636 20.713 20.723

0.902 0.744 0.725

0.920 0.676

0.925

Notes: Correlation coefficients are included in the lower triangle of the matrix, and the square root of AVE is on the diagonal

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0.7956, 0.6013 and 0.8052 respectively – which indicated a strong predictive power for the structural equation model.

4.2 Structural equation model building: hypotheses testing Having established confidence in the measurement model, an empirical structural equation model was developed and specified (as illustrated in Figure 2). All hypotheses proposed and parameters to be estimated in this paper are shown in Figure 2, and relevant equations are indicated in Table III by taking the partial least-square approach. The results of the analysis are reported in Table IV, which support H1c, H2e, and H3e. The PLS-graph path coefficients were, respectively, 0.172 (t ¼ 2:238), 0.479 (t ¼ 8:466) and 0.235 (t ¼ 2:318), which are statistically significant (at 0.05 or 0.025). These results support the hypotheses that customer satisfaction, brand loyalty, and functional value have positive effects on customer behaviour-based CRM performance. However, the study finds no significant evidence of the influence of the other dimensions of customer value on customer behaviour-based CRM performance. H1a, H1b, and H1d are therefore not

supported. In other words, in the securities market of China, brand loyalty is the most significant influence on customer behaviour-based CRM performance, with customer satisfaction the next most significant. However, among all the dimensions of customer value, only functional value has a significant direct effect on customer behaviour-based CRM performance. This dimension of customer value determines purchasing/repurchasing and word-of-mouth referral to a large extent. This might be due to customers becoming more mature since a more open and competitive market came into being after China’s reforms of 1979. Such customers might be now focusing on the core functions of the services provided by securities firms. The results in Table IV also support H3a, H3b, H3c, and H3d. The path coefficients were, respectively, 0.157 (t ¼ 1:649), 0.527 (t ¼ 7:561), 0.162 (t ¼ 2:204) and 2 0.139 (t ¼ 21:781), which are statistically significant (at 0.05 or 0.025). These results indicate that each of these dimensions of customer value has a significant direct effect on customer satisfaction. As expected, customer-perceived sacrifice has a significant negative effect on customer satisfaction, but the effect is smaller than other dimensions of

Figure 2 Structural equation model specification and relevant hypotheses based on PLS method

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Table III Structural equation model specification and relevant equations based on PLS method Latent structural equations (h 5 hB þ jG þ z)

h1 ¼ g11 j1 þ g12 j2 þ g13 j3 þ g14 j4 þ z1 h2 ¼ b21 h1 þ g21 j1 þ g22 j2 þ g23 j3 þ g24 j4 þ z2 h3 ¼ b31 h1 þ b32 h2 þ g31 j1 þ g32 j2 þ g33 j3 þ g34 j4 þ z3

Reflective measurement equations (x 5 Lxj+1x, y 5 Lyh + 1y)

x11 x12 x13 x14

¼ lx11 j1 þ 1x11 ; ¼ lx12 j1 þ 1x12 ; ¼ lx13 j1 þ 1x13 ; ¼ lx14 j1 þ 1x14

x21 ¼ lx21 j2 þ 1x21 ; x22 ¼ lx22 j2 þ 1x22 ; x23 ¼ lx23 j2 þ 1x23 ;

x31 x32 x33 x34

¼ lx31 j3 þ 1x31 ; ¼ lx32 j3 þ 1x32 ; ¼ lx33 j3 þ 1x33 ; ¼ lx34 j3 þ 1x34 ;

x41 x42 x43 x44 x45 x46

y11 ¼ ly11 h1 þ 1y11 ; y21 ¼ ly21 h2 þ 1y21 ; y31 ¼ ly31 h3 þ 1y31 y12 ¼ ly12 h1 þ 1y12 ; y22 ¼ ly22 h2 þ 1y22 ; y32 ¼ ly32 h3 þ 1y32 y13 ¼ ly13 h1 þ 1y13 ; y23 ¼ ly23 h2 þ 1y23 ; y33 ¼ ly33 h3 þ 1y33 jˆ1 ¼ vj11x11 þ vj12x12 þ vj13x13 þ vj14x14 jˆ2 ¼ vj21x21 þ vj22x22 þ vj23x23 jˆ3 ¼ vj31x31 þ vj32x32 þ vj33x33 þ vj34x34 jˆ4 ¼ vj41x41 þ vj42x42 þ vj43x43 þ vj44x44 þ vj45x45 þ vj46x46 hˆ1 ¼ vh31y31 þ vh32y32 þ vh33y33 hˆ2 ¼ vh41y41 þ vh42y42 þ vh43y43 þ vh44y44 þ vh45y45 þ vh46y46 hˆ3 ¼ vh51y51 þ vh52y52 þ vh53y53 þ vh54y54 þ vh55y55

Weight relations (jˆ 5 Vjx, hˆ 5 Vhy)

Table IV PLS path analysis results Hypotheses

Proposed relationships

1a 1b 1c 1d 2a 2b 2c 2d 2e 3a 3b 3c 3d 3e 3f

Behaviour-based CRM Behaviour-based CRM Behaviour-based CRM Behaviour-based CRM Brand loyalty Brand loyalty Brand loyalty Brand loyalty Behaviour-based CRM Customer satisfaction Customer satisfaction Customer satisfaction Customer satisfaction Behaviour-based CRM Brand loyalty

performance performance performance performance

performance

performance

, , , , , , , , , , , , , , ,

Emotional value Social value Functional value Perceived sacrifices Emotional value Social value Functional value Perceived sacrifices Brand loyalty Emotional value Social value Functional value Perceived sacrifices Customer satisfaction Customer satisfaction

Path coefficient

t-values

Assessment

0.078 0.056 0.172 2 0.024 0.103 0.108 0.076 2 0.088 0.479 0.157 0.527 0.162 2 0.139 0.235 0.460

0.691 0.441 2.238** 20.305 0.924 1.184 0.682 20.808 8.466** 1.649* 7.561** 2.204** 21.781* 2.318** 4.286**

N N S N N N N N S S S S S S S

Notes: * Significant at p , 0.05; ** significant at p , 0.025

customer value. This might be due to the fact that all securities firms are required to charge the same commission rate. Moreover, the channels for securities transactions in such larger firms are very similar. H3f is also confirmed with a path coefficient of 0.460, which is statistically significant (at 0.025). However, there was no significant evidence of the influence of the various dimensions of customer value on brand loyalty. One reasonable explanation is that not all dimensions of customer value exert a direct influence on brand loyalty. Rather, they might influence it only by affecting customer satisfaction. In other words, customer satisfaction plays a mediating role in the relationship between customer value and brand loyalty.

5. Discussion and implications Based on the SEM model described in this study, all dimensions of customer value were found to have a significant effect on customer satisfaction, although no significant evidence was found to support the direct influence of any dimensions of customer value on brand loyalty. However, each of the dimensions of customer value were found to exert an indirect influence on brand loyalty through customer satisfaction. The influences of brand loyalty, customer satisfaction, and functional value on customer behaviour-based CRM performance were statistically significant. However, apart from functional value, no evidence was found to support the effect of other

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¼ lx41 j4 þ 1x41 ¼ lx42 j4 þ 1x42 ¼ lx43 j4 þ 1x43 ¼ lx44 j4 þ 1x44 ¼ lx45 j4 þ 1x45 ¼ lx46 j4 þ 1x46

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Volume 14 · Number 2/3 · 2004 · 169-182

dimensions of customer value on customer behaviour-based CRM performance. This implies that, comparatively speaking, the intangible aspect of CRM performance (relationship quality represented by such sub-constructs as customer satisfaction and brand loyalty) outperformed the dimensions of customer value in influencing the tangible aspect of CRM performance (customer behaviour-based CRM performance). This might be due to the fact that customers in China are becoming more mature and thus prefer functional value rather than emotional value, social value, and customer-perceived sacrifice when they make their behavioural decisions. However, it should be noted that all the customer value dimensions had indirect effects on customer behaviour-based CRM performance. Moreover, the intangible aspect of CRM performance also played a mediating role in the relationship between each dimension of customer value and the tangible aspect of CRM performance – which indicates the significant role of relationship quality as one of the key measures of CRM performance in CRM. As expected, customer-perceived sacrifice, as a key dimension of customer value, did play a significant negative role in the customer-satisfaction programs of firms.

does not mean that other dimensions of customer value can be ignored. All other dimensions can exert a significant indirect effect on customer behaviour-based CRM performance – through customer satisfaction or through brand loyalty. Although the effect of customer-perceived sacrifice is relatively small in the current Chinese securities market, the situation might be different in other markets, and even in the Chinese securities market, the current situation might not apply in future. With the gradual deregulation of the securities market by the Chinese government after entry to the World Trade Organization, there might well be a change to the regulated commission rate, thus allowing for greater competition. In addition, the innovative channel transactions might decrease the delivery cost of services by firms in this market. Changes of this nature are likely to increase the influence of customer perceived sacrifices. Firms will thus have to be more careful about the changing role of customer perceived sacrifices in CRM performance if they expect to compete successfully and achieve sustainable competitive advantages by creating and delivering superior customer value in China’s market. With the rapid development of China’s economy, identifying the key dimensions of customer value and understanding their differentiated effects on customer relationship performance by taking a disaggregated approach will become a priority for all firms aiming at sustainable competitive advantage. For foreign firms that attempt to enter the China market, this study provides much needed evidence of how Chinese firms compete in a transitional economy. For researchers, the present findings are a first step towards an in-depth understanding of the operationalisation and key dimensions of customer value and their differentiated effects on CRM performance. It is true that superior customer value is very important for the successful competition of firms in customer-centred era, which has been explored and examined conceptually and empirically by many studies. However, which dimensions or elements customers value most and on which performance measures of CRM firms should focus are unsolved questions that are in urgent need to be explored. Furthermore, little is known about what is the differentiated role of each dimensions of customer value in influencing different measures of customer relationship performance and which dimensions of customer value contribute the most to the specific dimension of CRM performance. Therefore, on the basis of the present findings, researchers will be able to explore other dimensions of customer value and other factors

‘ ... The present findings are a first step towards an in-depth understanding of the operationalisation and key dimensions of customer value and their differentiated effects on CRM performance ... researchers will be able to explore other dimensions of customer value and other factors that influence the customer value in different performance measures of CRM... ‘

These findings have both academic and practical implications. For managers, the implication is that they have to strike a proper balance among different measures of customer-relationship performance. If they expect to improve customer behaviour-based CRM performance, apart from enhancing functional value their first priority must be the intangible aspects of CRM performance (that is, relationship quality) by building strong brand loyalty and improving customer satisfaction. Firms could simultaneously pay more attention to the two dimensions of customer value (functional value and social value) because the former has a significant and direct impact on customer behaviour-based CRM performance, whereas the latter has an important influence on customer satisfaction (which might drive customer behaviour-based CRM performance indirectly but significantly through brand loyalty). However, this

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that influence the customer value in different performance measures of CRM. These results need to be interpreted within the limitations of the study since it is only recently that the understanding of the operationalization and key dimensions of customer value and their impacts on CRM performance became the priority of both managers and researchers. A potential limitation of this study was the problem of common method variance – because all of the endogenous and exogenous variables were collected from the same respondents. Although this method of data collection is commonly used in most related studies, Harman’s (1967) one-factor test was used in this study. This test involves entering all the independent and dependent variables into a factor analysis. Common method variance is a substantial problem if a single factor emerges or if one general factor accounts for a disproportionately large variance. The result of this test showed that seven factors explained 86 per cent of the variance, with no single factor explaining more than 20 per cent of the variance. This implies that the problem of common method variance did not appear to be a significant problem.

present findings and would provide a basis for an external validation of the framework developed in this paper. Although the present measurement model shows good reliability and validity, there is still a long way to go in establishing well-developed scales of complex constructs such as customer value and CRM performance. Furthermore, future research is needed to examine cross-cultural differences and cross-industry differences in the dimensions of customer value and their effects on CRM performance so that scholars can more precisely understand the effects of culture and other specific factors on customer value perceptions and the relationship between each dimension of customer value and CRM performance. Finally, since there are so many other factors that might influence CRM performance besides customer value, it would be useful and practical if they were to be modelled and tested in an integrated framework. In conclusion, we note that this is a small, preliminary attempt to study a large and complex issue, albeit one in which we have provided a tested theoretical framework. Within this framework, moreover, further advances in knowledge can be made by deepening the search for sources of superior customer value and CRM performance, and also by expanding the framework across industries and national boundaries and integrating more important factors influencing CRM performance. We hope this study serves as a foundation for an effort to sharpen the understanding of the connotation and key dimensions of customer value and their influences on CRM performance.

‘ ... This is a small, preliminary attempt to study a large and complex issue, albeit one in which we have provided a tested theoretical framework ... ‘

Second, various customer behaviours were integrated into one construct – customer behaviour-based CRM performance. However, some studies have shown that marketing programs can have different effects on different customer behaviours. It would therefore be interesting to conduct further research to examine the differentiated effects of each dimension of customer value on different customer behaviours. Furthermore, the relative importance of each dimension of customer value might change over time, because customer satisfaction can also be affected by a firm’s capability to meet unknown and known customer demands and expectations, which implies that the continuously changing importance of each dimension of customer value may be due to the fact that the improved customer satisfaction may also play a certain role in affecting the perception process of customer value by customers. A longitudinal study to explore the dynamics of customer value and its relationship with customer satisfaction would therefore be useful. Replicating and extending this study in other regions and countries and other products and services would test the generalisability of the

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Hatcher, L. (1994), A Step-by-Step Approach to Using the SAS System for Factor Analysis and Structural Equation Modeling, SAS Institute, Cary, NC. Heskett, J.L., Sasser, W.E. Jr and Schlesinger, L.A. (1997), The Service Profit Chain: How Leading Companies Link Profit and Growth to Loyalty, Satisfaction and Value, Free Press, New York, NY. Jensen, H.R. (2001), “Antecedents and consequences of consumer value assessments: implications for marketing strategy and future research”, Journal of Retailing and Consumer Services, Vol. 8 No. 6, pp. 299-310. Johnson, M.D. and Fornell, C. (1991), “A framework for comparing customer satisfaction across individuals and product categories”, Journal of Economics Psychology, Vol. 12 No. 2, pp. 267-86. Keller, K.L. (1993), “Conceptualizing, measuring and managing customer-based brand equity”, Journal of Marketing, Vol. 57, January, pp. 1-22. Kotler, P. (1997), Marketing Management: Analysis, Planning, Implementation, and Control, 9th ed., Prentice-Hall, Upper Saddle River, NJ. Kuehn, A. (1962), “Consumer brand choice as a learning process”, Journal of Advertising Research, Vol. 2, March/April, pp. 10-17. Lapierre, J. (2000), “Customer-perceived value in industrial contexts”, Journal of Business & Industrial Marketing, Vol. 15 No. 2/3, pp. 122-40. McDougall, H.G. and Levesque, T. (2000), “Customer satisfaction with services: putting perceived value into equation”, Journal of Service Marketing, Vol. 14 No. 5, pp. 392-410. Mazumdar, T. (1993), “A value-based orientation to new product planning”, Journal of Consumer Marketing, Vol. 10 No. 1, pp. 28-41. Mittal, V. and Kamakura, W.A. (2001), “Satisfaction, repurchase intent, and repurchase behavior: investigating the moderating effect of customer characteristics”, Journal of Marketing Research, Vol. 38 No. 1, pp. 131-42. Naumann, E. (1995), Creating Customer Value, Thompson Executive Press, Cincinnati, OH. Oliver, R.L. (1981), “Measurement and evaluation of satisfaction process in retail settings”, Journal of Retailing, Vol. 57, Fall, pp. 25-48. Parasuraman, A. (1997), “Reflections on gaining competitive advantage through customer value”, Journal of the Academy of Marketing Science, Vol. 25 No. 2, pp. 154-61. Patterson, P.G., Johnson, L.W. and Spreng, R.A. (1997), “Modelling the determinants of customer satisfaction for business-to-business professional services”, Academy of Marketing Science Journal, Vol. 25 No. 1, pp. 4-17. Peng, M.W. and Health, P.S. (1996), “The growth of firm in planned economies in transition: institutions, organizations, and strategic choice”, Academy of Management Review, Vol. 21 No. 2, pp. 492-528. Reichheld, F.F. and Sasser, W.E. (1990), “Zero defections: quality comes to services”, Harvard Business Review, Vol. 68 No. 5, pp. 105-11. Reichheld, F.F. and Teal, T. (1996), The Loyalty Effect: The Hidden Force behind Growth, Profits, and Lasting Value, Harvard Business School Press, Boston, MA. Rust, R.T., Zeithaml, V.A. and Lemon, K.N. (2000), Driving Customer Equity: How Customer Lifetime Value Is Reshaping Corporate Strategy, The Free Press, New York, NY. Sheth, J.N., Newman, B.I. and Gross, B.L. (1991), Consumption Values and Market Choice, South Western Publishing, Cincinnati, OH.

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Slater, S.F. (1997), “Developing a customer value-based theory of the firm”, Journal of the Academy of Marketing Science, Vol. 25 No. 2, pp. 162-7. Sweeney, J.C. and Soutar, G.N. (2001), “Consumer-perceived value: the development of a multiple-item scale”, Journal of Retailing, Vol. 77 No. 2, pp. 203-20. Szymanski, D.M. and Henard, D.H. (2001), “Customer satisfaction: a meta-analysis of the empirical evidence”, Journal of the Academy of Marketing Science, Vol. 29, Winter, pp. 16-35. Wang, Y.G. and Lo, H.P. (2002), “Service quality, customer satisfaction, customer value and behavior intentions: evidence from China’s telecommunication industry”, Info – The Journal of Policy, Regulation and Strategy for Telecommunications, Vol. 4 No. 6, pp. 50-60. Woodruff, R.B. (1997), “Customer value: the next source for competitive advantage”, Journal of the Academy of Marketing Science, Vol. 25 No. 2, pp. 139-53.

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Further reading Parasuraman, A. (2000), “The impact of technology on the quality-value-loyalty chain: a research agenda”, Journal of the Academy of Marketing Science, Vol. 28 No. 1, pp. 156-74. Wang, Y.G. and Lo, H.P. (2003), “Customer-focused performance and its key resource-based determinants in dynamic environments”, The Journal of Management Development, Vol. 22 No. 6, pp. 483-526.

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Introduction

Why customers stay: reasons and consequences of inertia in financial services Lesley White and Venkat Yanamandram

The authors Lesley White and Venkat Yanamandram are both at MGSM, Macquarie University, Sydney, Australia.

Keywords Customer retention, Financial services, Inertia

Abstract This research investigated inertia in a financial-services context, with particular focus on the reasons for consumers’ dissatisfaction and inert behaviour, and studied customers’ complaining behaviours and past and future inertia. The study utilised a two-part methodology, including both qualitative and quantitative research. A total of 20 in-depth interviews provided the preliminary data required for developing a questionnaire that was subsequently completed by 410 respondents. Determinants of dissatisfaction included the number and size of account fees, whilst determinants of inertia were the perception of similarity between financial institutions and the complexity, costs and time inherent in switching. Factors differentiating future inertia and future active customers included the type of account, length of time the account had been held, membership of a number of financial institutions, income and level of consideration given to changing financial institution.

Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/0960-4529.htm

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Customer dissatisfaction diminishes an organisation’s customer base, forces the firm to rely on a more volatile customer mix and erodes the firm’s reputation (Levesque and McDougall, 1996). This is particularly true in service industries, where customer dissatisfaction is a significant problem (Singh, 1990; Fornell, 1992). Customer responses to dissatisfaction occur along a continuum of severity (Hirschman, 1970; Foxman et al., 1990; Levesque and McDougall, 1996; de Ruyter et al., 1998; Colgate and Norris, 2001) and although some defections are caused by dissatisfaction (Keaveney, 1995; Stewart, 1998), consumers may simply remain inactive and take no action at all when dissatisfied (Day, 1984; Gronhaug and Gilly, 1991; Hennig-Thurau and Klee, 1997). However, few studies in the marketing literature address why customers stay, despite being dissatisfied (see, for example, Levesque and McDougall, 1996; Colgate and Norris, 2001; Ranaweera and Neely, 2003). The objective of our study is to determine why customers choose to remain with their current service provider, despite being dissatisfied. The focus of this study is particularly on inertia (where is there is a paucity of literature) rather than on other factors such as switching barriers or service recovery, where authors have explored factors that are deterrents of defection (e.g. Jones and Sasser, 1995; de Ruyter et al., 1998; Jones et al., 2000, 2002; Lee et al., 2001; Curasi and Kennedy, 2002; Burnham et al., 2003). Semon (2001) suggests that researchers should remain alert to the reluctance of customers to change routine purchase behaviours despite expressing dissatisfaction. Colgate (1999) identifies three potential contributions from further research in the area of inertia in service industries. He suggests a focus on the “missing element in consumer research in a services context” for a study into the largely ignored dissatisfied consumer’s decision to stay and the cognitive process that precedes this. Second, he recommends that research is needed by those organisations whose customer base includes “prospective switchers”, in order to identify why these customers stay and how to dissuade them from leaving. Third, he comments that research is needed by organisations to help create strategies that overcome the inert behaviour of their competitors’ customers, that is: their prospective The authors acknowledge with gratitude the work of undergraduate students F. Jones, C. Koning, C. Hine and D. Purvis, who conducted the data collection and initial analysis.

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customers. This paper attempts to address, at least partially, this gap in the literature.

(e.g. both in consumer and business-to-business contexts) in the academic literature. Inertia has been referred to as spurious loyalty in the consumer behaviour literature (see Assael, 1998, p. 149). Dick and Basu (1994) explain that “spurious loyalty” occurs when a customer has a high repeat patronage but a relatively low attitude to the company and “no loyalty” occurs when a customer has a low repeat patronage and a relatively low attitude to the company. However, Rowley and Dawes (2000), who have based their work on Dick and Basu’s (1994) model, describe an inertial category within an attitude/behaviour matrix under “no loyalty” rather than under “spurious loyalty” (see Figure 2). Similarly, spurious loyalty according to Jacoby and Chestnut (1978) is defined as “the biased (i.e. non-random), behavioural response (i.e. purchase), expressed over time, by some decision making unit, with respect to one or more alternative brands out of a set of such brands, and is a function of inertia”. Further, Pitcher (1998) points out that in the past, “inert” customers have mistakenly been considered as “loyal”, when in fact they do not display loyal tendencies at all. Inertia is described as a consistent pattern of buying the same brand almost every time a consumer shops, where a brand is bought out of habit merely because less effort is required (Solomon, 1994, p. 240) and it is not worth the time and trouble to go through a decision process (Assael, 1998, p. 103). In this context, the consumer lacks the motivation to consider alternatives (Solomon et al., 2002). Inertia is the repeat purchase of the same brand passively without much thought. The purchase may even be in spite of the consumer having negative perceptions (Chintagunta and Honore, 1996) and reflects a non-conscious process (Huang and Yu, 1999). This non-conscious form of retention is distinguished from loyalty by the degree of consciousness involved in the decision to continue purchasing from the same service provider (Huang and Yu, 1999). Their reasoning was that those who repurchase due to loyalty do so subsequent to a conscious decision strategy and they conceptualised inertia as a single dimensional construct consisting of “passive service patronage without true loyalty”, and operationalised the

Literature review Spurious loyalty Dissatisfaction, according to Hirschman (1970), provokes two negative responses: a consumer may discontinue the relationship (exit) or communicate dissatisfaction (voice). Hirschman contends that some customers react to dissatisfaction passively, preferring to remain with a service provider in the belief that the likelihood of an improvement outweighs the cost of searching for another supplier. So, loyalty (a positive response) is one of the reactions a customer may have to a service failure. Customer loyalty has been conceptualised as an interaction of attitude and behaviour and is not one-dimensional. Dick and Basu (1994) explored the antecedents of attitude, and argue that loyalty is determined by the strength of the relationship between relative attitude and repeat patronage. On the basis of attitude-behaviour, they propose four forms related to loyalty: pure loyalty, latent loyalty, spurious loyalty and no loyalty (see Figure 1). In this context, a customer may stay with a service provider after a service failure, as they are spuriously loyal. That is, they feel trapped, are apathetic or there are no alternatives, so they do not leave (Colgate and Norris, 2001). The findings from the study conducted by Levesque and McDougall (1993, p. 52) suggested that, “even when a problem is not solved, approximately half of the respondents would remain with the firm”. Day (1984) suggests that a majority of customers do not undertake any action following a negative service experience. There are numerous possible reasons for such behaviour, including switching costs, lack of perceived differentiation of alternatives, locational constraints on choice, time or money constraints, habit or inertia (Bitner, 1990; Ennew and Binks, 1996; Colgate and Lang, 2001). Inertia The concept of inertia has been defined and discussed in varied ways and in various contexts Figure 1 Loyalty matrix

Figure 2 Attitude/behaviour matrix for no loyalty

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construct as: “. . . not ready to put forth effort required for switching”. Repeat purchase as a result of inertia is unstable, reflecting little, or no brand commitment (Solomon et al., 2002) and merely represents acceptance (Assael, 1998). Robertson (1976, p. 20) points out that under low-involvement conditions “brand loyalty may reflect only the convenience inherent in repetitive behaviour rather than commitment to the brand purchase”. If the brand achieves a certain minimum level of satisfaction, the consumer will repurchase on a routine basis and this process is referred to as spurious loyalty by Assael (1998). Even though brand loyalty and inertia lead to the same behaviour (i.e. repeat purchases), the underlying causes and marketing implications arising from the two are different. The effect of inertia is to make repeat purchasing respond to marketing variables, because the more inert the consumers, the more sensitive they are to marketing variables such as promotional tools and noticeable price reductions (Gupta et al., 1996; Huang and Yu, 1999). For this consumer, the reason for buying the same brand again might be the comfort of not being forced to make a new choice, the time saved when buying the same brand again, the feeling of indifference with the choice or the familiarity with the brand (Bloemer and Kasper, 1994). Ranaweera and Neely (2003) built a hypothesis linking inertia to customer retention; however, they found no significant linear relationship and argued that the condition of inertia was bound to be unstable. They suggested that the impact of inertia on retention would be determined by the competitive structure of the industry. Givon’s (1984) model of consumer behaviour assumes that a given consumer is either a variety seeker or a variety avoider and defines variety avoidance as “the tendency to choose the brand purchased during the previous purchase occasion simply out of inertia”. Seetharaman and Chintagunta (1998, p. 4), in their model of inertia and variety seeking with marketing variables, use the term inertia to refer to variety-avoidance. This idea parallels Bozzo’s (2002) approach where individual consumers can be involved in an inert buying pattern and show limited interest towards alternative brands on the market. McMullan and Gilmore (2003, p. 235) relate inertia “. . . to a customer’s contentment with a product or service to the degree that his or her information seeking relating to substitutes has diminished”.

their main bank annually. This may be as low as 2 per cent per annum but is approximately 4 per cent in most countries (Stewart, 1998). This may vary, however, by segment (Lewis, 1993). Research has shown that the bank customer’s loyalty and acquiescence to partake in repeat purchase is essentially influenced by their satisfaction with the bank (Albro, 1999). Over time, loyal customers build business through an increase in purchases, payment of premium prices and by spreading positive word of mouth (Ganesh et al., 2000). Colgate and Lang (2001) investigated the switching barriers that deterred dissatisfied customers from moving to an alternative provider. Using data from 1,346 respondents, the analysis identified four switching barrier factors. The first factor, labelled relationship investment, related to loyalty, confidence in the provider, receiving “the best deal” as well as being known by the bank staff. The second barrier factor, negativity, captured issues such as being locked in to a firm and the financial costs or uncertainty associated with changing. The apathy factor related to participants’ perceptions that changing involved too much time and effort and that all banks were the same. The fourth barrier factor was service recovery and was present when a complaint had been satisfactorily resolved. Both the relationship investment and service recovery factors suggest that whilst participants had considered switching, a satisfactory aspect of the firm may have been prioritised or provided a source of compensation. For instance, items associated with relationship investment reflect psychological and financial benefits that were delivered by the firm, such as recognition and “the best deal”. With regard to service recovery, McGuire (1999) highlights that a firm’s resolution of a customer complaint may turn a source of dissatisfaction into a source of satisfaction. In contrast, the switching barriers of negativity and apathy do not suggest the existence of a service element that compensated for the source of dissatisfaction. Rather, these barriers appear to relate to the perceived absence of a satisfactory alternative or to the failure to seek an alternative. Dissatisfied consumers who remain with a firm due to a perceived absence of satisfactory alternatives exhibit spurious loyalty (Zeithaml et al., 1996). The Colgate and Lang (2001) results suggest the presence of spurious loyalty, given the high proportion of participants who had actively sought information on competitive banks (over 63 per cent) combined with the reported concerns of negative financial outcomes from switching and/or lack of perceived difference between banks. Those customers who had considered switching, yet had not engaged in seeking information about

Inertia in the banking industry Colgate (1999) revealed that a predominant feature of the banking industry is that only a relatively small number of customers exit from

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alternative firms, could be considered even more inert, since for them habitual or repeat purchases are made primarily because it is faster and/or easier than considering the alternatives and switching (Solomon, 1999). With regard to banking, Warner (2001) adds that a poor understanding of financial issues may contribute to the inertia.

respondents who were “dissatisfied” or “somewhat dissatisfied” were asked to complete the remainder of questionnaire. The sample was stratified by account type. Four different versions of the survey were completed with approximately equal groups for savings, cheque, credit card and personal loan accounts. Rejection rates for the quantitative surveys varied according to the specific geographic area of collection. The range was 20-50 per cent and the estimated overall rejection rate was 28 per cent. Of the 570 people approached, 410 (72 per cent) completed the questionnaire. The survey instrument commenced with questions regarding their FI history. Reasons for dissatisfaction and inertia were investigated by asking the respondent to rate the importance of ten possible reasons for each. Five-point scales were used for both, ranging from “no importance” to “extreme importance”. Information regarding frequency of complaints and to whom any complaints were directed was ascertained. Respondents were asked whether they were thinking of changing FI within the next 12 months and if so how much consideration had been given to this decision. Finally, demographic details were elicited.

Methodology A pilot study was designed to gain preliminary insights into the decision problem. One-on-one interviews were conducted in privacy to avoid any other distractions or influences and to ensure complete confidentiality. Each interviewer used an interview guide of ten questions, and each interview took approximately 20 minutes to complete. The interview guide was designed to allow the collection of information, not only on the respondent’s behaviour patterns, but also on the attitudes and motivations underlying those behaviours as they relate to the decision problem. The interview guide was of an open-ended, semi-structured format. A convenience sample of 20 respondents was used. Each respondent was dissatisfied with their current financial institution (FI) or had been dissatisfied with a previous FI. The respondents were deliberately chosen to represent varying ages and nationalities. The interviewer documented all discussions in written format. The responses from the interviews assisted in constructing and consolidating the framework for the quantitative research. The research concentrated on the reasons for the respondents’ dissatisfaction with the current FI and the factors influencing the respondent to change FI or alternatively to remain with their current FI. This information was subsequently used to develop the questionnaire, which, following pretesting, was the basis for the quantitative stage of this research project. A hand delivered, self-administered survey was chosen because it was considered to result in less interviewer bias and has a lower cost per survey. Using this style of survey ensured the availability of someone to answer the respondent’s questions and to encourage the subjects to complete the survey. This style also allowed for the initial screening of the respondents with the qualifier: “Are you dissatisfied with your current bank/credit union/ building society?”. The structured design required less effort and time from the respondent, meaning that they were more likely to complete the survey, whilst eliminating any interviewer bias in the interpretation of the responses. The survey instrument commenced with a fivepoint screening question regarding the respondents’ level of satisfaction with their current FI. Only those

Analysis and discussion of results Demographics Of the respondents, 52.3 per cent were female and 47.7 per cent were male. There was a relatively uniform distribution of individuals between the age categories. Of the 88 per cent of the sample who indicated their age, 15.5 per cent were 18-25 years, 23.3 per cent were 25-35 years, 26 per cent were 35-45 years, 24.9 per cent were 45-55 years, and 10.2 per cent older than 55 years. The majority of the sample group earned between $20,000 and $60,000. A total of 10 per cent earned less than $20,000, 31.5 per cent earned $20,000 to $40,000, 36.8 per cent earned $40,000 to $60,000, 6.8 per cent earned $60,000 to $80,000, 2.2 per cent earned more than $80,000, and 12.7 per cent declined to provide their income; 14 per cent of respondents have held their current account for less than 12 months. Almost half of the respondents (47 per cent) have had their accounts for between one and five years. The remaining 39 per cent were approximately evenly divided between five and seven years (12 per cent), seven and ten years (13 per cent) and more than ten years (14 per cent); 58 per cent had been dissatisfied with their current account for between six months and three years. Another 20 per cent had been dissatisfied for between three and five years.

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Dissatisfaction An analysis of the reasons for dissatisfaction and the perceived importance of each is included in Table I.

Future inertia As an indicator of future inertia, the respondents were asked whether they would consider changing FIs within the next 12 months. Results are shown in Table IV.

Inertia An analysis of the reasons for inertia and the perceived importance of each is included in Table II. Complaining behaviour With respect to complaining behaviour, the survey asked respondents to state to whom complaints were made and how often. Results are provided in Table III.

Factors affecting complaint behaviour and consideration given to changing FIs Cross-tabulations were performed between all pairs of variables in the dataset. The three significant findings concerned factors affecting complaint behaviour, factors affecting the consideration given to changing financial institutions and miscellaneous results involving the

Table I Reasons for dissatisfaction Reasons for dissatisfaction Lack of branch locations High interest rates on loans etc. Low interest rates on savings Long waiting periods Number of account fees High account fees Poor counter service E-banking confusing Poor telephone banking service Other reasons for dissatisfaction

Average score

1

2.45 3.02 3.14 3.46 4.01 4.06 3.53 2.50 2.55 3.93

35.5 27.3 21.2 11.1 3.3 3.8 10.5 32.2 32.7 13.0

Percentage of valid responses for each score 2 3 4 5 17.9 13.3 16.6 11.7 8.4 8.1 13.3 19.9 18.5 8.7

17.6 15.3 17.9 24.6 16.3 14.2 22.3 24.1 23.2 8.7

15.3 18.1 20.7 24.9 28.0 25.6 20.5 13.1 12.1 10.9

13.8 26.0 23.5 27.7 44.0 48.2 33.3 10.7 13.5 58.7

Note: 1 = no importance; 5 = extreme importance

Table II Reasons for inertia

Reasons for inertia

Average score

Time required to make the change Negative prior experience in changing financial institutions Costly in terms of transfer fees Some service elements are satisfactory The switching process is too complex All FI are similar Could not be bothered changing Contractual obligations Too much risk in changing Other reasons for inertia

3.40 1.04 3.49 2.99 3.63 3.70 3.24 2.75 3.00 3.64

Percentage of valid responses for each score 1 2 3 4 5 16.4 52.7 13.1 20.7 9.8 5.1 14.6 33.5 22.2 11.3

13.9 22.9 11.6 14.5 10.3 15.4 21.9 13.2 13.5 9.4

14.4 7.8 20.2 29.0 20.6 19.5 19.3 15.2 25.4 20.8

23.4 6.1 23.2 16.6 25.3 24.6 13.0 21.3 20.0 20.8

31.8 5.1 31.8 19.2 34.0 35.4 31.3 16.8 18.9 37.7

Note: 1 = no importance; 5 = extreme importance

Table III Frequency and target of complaints Recipient of complaint The FI Banking ombudsman Family Friends Workmates Other

Percentage of respondents who complained at least once

Percentage of complainants who complained more than once

70 23 84 78 50 4

47 46 54 40 48 60

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Table IV Consideration of change of FI within the next 12 months (per cent) Definitely not Probably not Maybe Probably Definitely Total

12 22 31 20 15 100

demographic variables. Only those tests with a statistically significant result are discussed below. The length of time that the respondent had been dissatisfied was found to affect the complaint behaviour towards the three entities of financial institution, family and friends. Using chi-square analysis, it was found that the longer the period of dissatisfaction, the more likely it was that the respondent had complained “many times” to a financial institution, family or friends. Four factors were found to influence the consideration a customer had given to changing their financial institution over the last 12 months. They were the length of time with their current account, the number of financial institutions where membership had been held in the past five years, and the age and annual income of the respondent. Each of these factors is discussed below. A cross tabulation was performed between the length of time with the current account (i.e. ,12 months, one to three years, three to five years, .five years), and their consideration to changing financial institution in the next 12 months (i.e. definitely not, probably not, maybe, probably, definitely). The chi-square analysis was significant, x2 (9, n ¼ 404Þ ¼ 22:129, p , 0:05. Of those respondents who had been with their current account for more than three years, 55.3 per cent would “maybe” have considered changing within the next 12 months. A cross tabulation was performed between the consideration given to changing financial institution (i.e. very little, some, a lot), and the number of accounts held in the last five years (i.e. one, two, three or more). This revealed that 52.5 per cent of those who have held three or more accounts in the last five years indicated that they would give “a lot” of consideration to changing their financial institution in the next 12 months. In comparison, 46.1 per cent of those who have held only one account in the last five years indicated that they would give “some” consideration to changing their financial institution in the next five years. The significant result, x2 (4, n ¼ 398Þ ¼ 24:962, p , 0:05, indicates that those respondents who have changed their accounts more than three times in the last five years would give more consideration to changing again, than would those who have only held one account in the last five years.

A cross tabulation was performed between the consideration given to changing financial institution (i.e. very little, some, a lot), and the age of the respondents (i.e. 18-25, 25-35, 35-45, .45 years). Differences between the groups were statistically significant, x2 (6, n ¼ 353Þ ¼ 13:234, p , 0:05, and it was found that the older the respondent, the greater the consideration given to changing FI. For example 45.5 per cent of those who gave “a lot” of consideration were in the .45 age bracket, while only 9.9 per cent were in the 1825 age bracket. Cross-tabulation of consideration given to changing financial institution (i.e. very little, some, a lot) and the income of the respondents (i.e. , $20,000, $20,000-$40,000, $40,000-$60,000, . $60,000) also indicated significant results, x2 (6, n ¼ 349Þ ¼ 24:195, p , 0:05. Those with a higher income tended to give more consideration to changing their financial institution when dissatisfied, for example 44.4 per cent of those in the income bracket greater than $60,000 gave “a lot” of consideration to changing financial institution, while only 16.7 per cent gave “very little” consideration. This is in contrast to those in the income bracket less than $20,000, of whom 26.3 per cent gave “a lot” of consideration, while 52.6 per cent gave “very little” consideration. In addition, it was found that older respondents had been dissatisfied for a significantly longer period, with only 2.2 per cent of those customers dissatisfied for more than three years being in the 18-25 age bracket, x2 (9, n ¼ 361Þ ¼ 21:666, p , 0:05. It is probable that the younger people are less likely to have had accounts for as long as the older age groups.

Future inertia Two independent variables were created to represent inertia; both “future inertia” and “past inertia” were considered. “Future inertia” measured a customer’s intentions for the next 12 months and “past inertia” examined the customer’s actual behaviour over the past five years. A shorter period of time was chosen for measuring intended behaviour because it was considered that most customers were unlikely to know their intentions more than 12 months in the future. “Future inertia” was defined as those customers who answered “definitely not”, “probably not” or “maybe” to the question regarding whether they were considering changing FI within the next 12 months. The “maybe” respondents were included in the “won’t change” group because they were considered to have not yet deliberately decided to move away from their current financial institution.

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Of the 410 questionnaires, 374 replied to the question regarding their intended behaviour over the next 12 months. A total of 240 respondents (64.1 per cent) were therefore labelled “future inert” in comparison to the 134 (35.9 per cent) “future active” respondents, that is those planning to move FIs (“definitely” or “probably” considering changing FI within the next 12 months). Using chi-square testing, it was found that four factors differentiate between the “future inert” and “future active” customers. These are summarised below in Table V.

Once again, by our definition of “inertia” (those customers who are dissatisfied with their service provider but who do not move on), the group that we are particularly interested in from the matrix is group 4: those who have belonged to only one financial institution in the past five years, and who have stayed with that institution for more than five years. This group can be considered “past inert” and represents 112 of the 375 respondents (29.9 per cent). Our comparison group is group 1: those who have belonged to more than one financial institution but have only recently opened their current account. This group is called “past active” and represents 101/375 or 26.9 per cent. Of the other two groups, group 3 is also of interest to the study of inertia. The customers in this group have belonged to more than one financial institution yet they have been with their current account for more than five years. This group, which is 28.8 per cent of the 375, is considered “dwellers” as they open new accounts but they do not close their old ones, even if they are dissatisfied with them. The final group (group 2) of 54 respondents (14.4 per cent), have only belonged to one financial institution and have not yet been with their current account for five years i.e. they are recent customers. This group can be considered to be new bankers. In order to identify those factors that are correlated with “past inertia”, all factors were tested; however, only those found to be statistically significant are reported below (Table VI). Of those customers considered “past inert”, 63.4 per cent had only been dissatisfied for less than 12 months (92 per cent less than three years). Similarly, 87 per cent of “dwellers” had been dissatisfied for less than three years, 57.4 per cent of which had only been dissatisfied for less than 12 months. These results are in contrast to 51.5 per cent of “past active” customers who had been dissatisfied for more than three years. Of the “past active” customers, 50 per cent were in the over 45 age category. The “dwellers” were mostly in the 35-45 year group (41 per cent) and the “past inert” tended to be under 35 (53 per cent). Regarding income, “past active” people tended to earn more on average; 63 per cent earned more than $40,000, the greatest majority (44.7 per cent), in the $40,000-$60,000 category. By comparison, most “past inert” earned less than $40,000 (55 per cent) and, of the “dwellers”, 93 per cent earned less than $60,000 (an equal split between the , $40,000

Past inertia Using the results concerning the number of financial institutions where each respondent has held membership over the last five years and the length of time that they had held their current account, a matrix of four cells was generated (Figure 3). The number of financial institutions in the past five years was divided into “only one financial institution” and “more than one financial institution”. Customers who had belonged to only one financial institution in the past five years were considered “inert”. Conversely, people who had had patronage with more than one financial institution in the past five years were considered to have exhibited some form of switching behaviour. The length of time with current account was grouped into those who had been with their account for more than five years and customers who had been with their account for less than five years. Table V Factors differentiating between “future inert” and “future active” customers Independent variable Cheque account Account held for >5 years Belong to $2 FIS Income < $60,000 “A lot” or “extensive” consideration given to changing FI

x2

p

Directiona

10.644 10.155 39.278 8.881

0.014 0.017 0.000 0.031

– – – +

44.841

0.000

+

Note: a For example, respondents who hold cheque accounts are less likely to be “future inert” than those who hold other types of accounts

Figure 3 Length of membership/number of financial institutions matrix for inert consumers

Table VI Factors that correlate with “past inertia” Independent variable Length of time dissatisfied Age Income Consideration given to changing FI

189

x2

p

79.235 28.362 11.131 35.038

0.000 0.000 0.025 0.000

Directiona + – – –

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group and $40,000-$60,000 group). Of “past active” customers, 59 per cent had given “a lot” or “extensive” consideration to changing compared to the “past inert” and “dwellers” who had mostly only given “some” consideration (both 51 per cent). The reasons given for customer dissatisfaction and for inertia were tested to determine if they were identifiers of “past inert” or “past active” behaviour. Chi-square testing revealed that four of the ten reasons for dissatisfaction were significant identifiers of past inertia. These included lack of branch locations, low interest rates on savings, number of account fees, and high account fees (see Table VII). That is, there is a negative correlation between the independent variable, lack of branch locations and the dependent variable, inertia. For example, the more important the lack of branch locations is considered to be, the less likely that the respondent is inert. Of “past inert” customers, 78 per cent do not consider lack of branch locations as important compared to 50 per cent of “past active” people who do. The “dwellers” also do not find lack of branch locations an important reason for dissatisfaction, 79 per cent indicating that it is not important. Of “past inert” customers, 66 per cent do not consider low interest rates on savings as important compared to 63 per cent of “past active” people who do. The “dwellers” also do not find low interest rates on savings an important reason for dissatisfaction, 65 per cent indicating that it is not important. To investigate whether the reasons for inertia identified in the survey are useful for distinguishing customers who have demonstrated inertia in the past, the individual reasons for inertia were cross tabulated with past inertia (including dwellers), again chi-square testing was used. All FIs are considered similar (x2¼8.292, p ¼ 0.016) was significant at the 5 per cent level. The direction of correlation with the dependent variable, inertia was positive. Number of account fees and high account fees had a very similar result. Whilst the majority of all groups considered these important reasons for dissatisfaction, the degree of importance placed on these reasons were notably higher for “past active” people compared to the “past inert” customers. The “dwellers” also impacted significantly on the result, with nearly one-third of this group not finding low interest Table VII Identifiers of past inertia Independent variable Lack of branch locations Low interest rate on savings No. of account fees High account fees

x2

p

Directiona

24.918 21.968 5.971 7.930

0.000 0.000 0.050 0.019

– – – –

rates on savings an important reason for dissatisfaction, the highest result amongst the three groups in terms of lack of importance.

Implications and directions for future research Identifiers of inertia The length of time that a customer has held current account, the number of financial institutions which they have belonged to in the past five years and the consideration a customer has given to changing their financial institution in the past 12 months were all significant identifiers of customers who will exhibit “future inertia” over the next 12 months and “past inertia” over the previous five years. However, it was found that the length of time of dissatisfaction affected “past inertia” but not “future inertia”. In light of these results, further research into the effect that past behaviour has on future intentions of inertia is warranted. The identification of variables of past behaviour that can predict future intentions may go some way to further explain inertia in the financial industry and has particular implications for preventing customer defections. For example, by monitoring a customer’s behaviour, a financial institution may be able to predict those customers who are likely to become “future active”, and make an attempt to stop them before they switch. Alternatively, a competitor could use the same information to lure customers who are inert with respect to their current institution.

Complaining behaviour While complaining behaviour was not found to be a significant indicator of inertia, there were some interesting results associated with this variable. The complaint behaviour was found to differ according to the three variables of account type, length of time dissatisfied and gender. In terms of the type of account held, the complaint behaviour was found to be different for the three different entities of financial institution, family and friends. Cheque account holders complained less often to the financial institution and to their family than did the other account types and the complaints made to friends by customers with loans declined after only a few complaints were made. The length of time a customer has been dissatisfied was also found to indicate the complaining behaviour of the customer towards the financial institution, family and friends. Considering that the general trend seemed to be that complaints increased over time, the authors recommend that trend analysis be performed to confirm any relationship between the

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length of time a customer has been dissatisfied and the number of complaints they make. The final significant result for complaint behaviour concerned the gender of the respondent, where it was revealed that women make more complaints to their financial institution then men. This result is particularly interesting considering that gender was not found to be a significant indicator of either “past inertia” or “future inertia”. Further research could be conducted into why women are more inclined to complain but do not change FIs more often than men. However, the question on the survey relating to complaining behaviour could have been worded more effectively. As it exists now, there is no way of distinguishing between those people who did not answer the question and those who made zero complaints to the particular body in question. This is a possible bias that has influenced the (rather unexpected) results of insignificance in complaining behaviour on inertia. The fact that seven significant results were found regarding the complaining behaviour of the sample leads the authors to suggest that this topic is extensive enough to warrant a separate study. One possible avenue for expanding the knowledge in this area would be to ascertain precisely what customers are complaining about and whether their complaints are heeded (as perceived by both the customer and the body receiving the complaint). It would also be of interest to consider this together with the level of dissatisfaction. For example, perhaps the people who complain more often are more dissatisfied than those who only complain occasionally.

more about inertia in financial services. Further research, particularly longitudinal, may find that “bank bashing” causes a significant proportion of inertia in financial services.

Number of branches “Lack of branch locations” as a reason for dissatisfaction was found to be a significant identifier of people who have become “active” in the past five years. That is, people who placed a high importance on a lack of branch locations were more inclined to switch financial institutions. We suggest that this result may be at least partly influenced by the negative publicity banks are continuing to receive regarding branch closures. It was also found that “all financial institutions are similar” as a reason for inertia was a significant indicator of both “past inertia” and “future inertia”. It would be interesting to determine whether all financial institutions really are similar in their service offerings or if this is simply a common misconception amongst customers caused by the consistent and generally negative media that banks have recently received, particularly about branch closures and increasing interest rates. The impact of this negative media coverage on the image of the industry may reveal

Dwellers One major finding of this research was the discovery of a group which was labelled “dwellers” with respect to “past inertia”. They were found to be customers who exhibit the behaviour of both the “past inert” and “past active” customers because they are a group of people who open new accounts but do not close their old ones. The “dwellers” produced interesting results in terms of the reasons for dissatisfaction and the reasons for inertia. In both cases, the underlying suggestion is that this is a group of people who do not have a good relationship with financial institutions in general. They were found to be largely between the ages of 35 and 45 and had incomes of approximately $40,000 to $60,000. Three of the reasons for dissatisfaction that were found to be a significant indicator of “past inertia” were low interest rates on savings, number of account fees and high account fees. Interestingly, the “dwellers” group indicated the lowest importance on all three of these reasons. This suggests that they are people who possibly are not concerned with the costs associated with using a financial service. In terms of significant reasons for inertia as indicators of “past inertia”, it was found that 75 per cent of “dwellers” feel all financial institutions are similar. The “dwellers” were also found to consider that contractual obligations are unimportant exit barriers. It could be that they do not have any contracts or that they believe they can easily break contracts. Both results point to an apathetic attitude towards the financial industry in general. Further research, particularly attitudinal research, on the “dwellers” group is suggested. Demographic variables With respect to age, there were some interesting findings. The older sector of our sample is less likely to have changed their account in the last five years. Additionally, the age of the respondent is an indicator of the length of time they have been with their current account, where the older respondents have generally been with their account for longer. However, age was not a significant reason for “future inertia” but the “length of time with current account” was significant. However, in the past five years it has largely been the over-45-yearold group which has been “past active”. Yet this age demographic does not feature as prominently in the “future inertia” group. This apparent disconnect requires further study.

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Income was found to be a significant demographic variable in terms of both “future” and “past inertia”. It was revealed that people who earn more are more likely to change their financial institution when dissatisfied, i.e. be “future active”. This could be due to occupation and possibly to higher levels of education that may accompany higher incomes. The significant result for “past inertia” for income is also interesting. Perhaps people who earn less than $40,000 were “past inert” because they do not have enough money to consider changing financial institutions important. “Past active” people on the other hand may feel that they have more at stake in not changing.

other geographic regions around Australia, or indeed internationally. Dividing the survey evenly between the four chosen account types (savings, cheque, credit card and personal loan) created a bias, as there is not likely to be an even distribution of these four account types across financial institutions, also other account types were not included in the study. Finally, it should be noted that this research has been conducted in the area of business-toconsumer marketing. Research is necessary to investigate the determinants and consequences of inertia in a business-to-business context.

Future research Thus, in summary, suggestions for future research relate to the: . effect of past behaviour on future inertial intentions; . relationship between the length of time a customer has been dissatisfied and the number of complaints that they make; . gender differences in complaining behaviour and the relationship with inertia; . relationship between different bases or reasons for customer complaints and inertia; . effect of different complaint handling and service recovery strategies on the future inertial intentions; . impact of the degree of dissatisfaction on inertia behaviour; . impact of media coverage and editorial comment regarding bank branch closures on customers’ intentions regarding inertia; . longitudinal research investigating inertia in financial services; . attitudinal research regarding the interesting group, dwellers, that is those customers who maintain accounts with numerous institutions in the long term; . effect of age on past and future inertia which requires clarification; and . extension of this research to other industries, geographic regions and cultures.

Limitations The research is limited to the financial segment of the services industry. While the research provides insight into the attitudes, behaviours and motivations of inert customers in the financial sector, further studies are required in order to generalise this work to other industries. As the study undertaken was focussed on the Sydney, Western Sydney and Illawarra regions in Australia, the results of the research cannot be applied to

Conclusion This study of inertia has brought to light numerous issues of relevance to services managers. Given the importance of maintaining relationships with existing customers, it is vital that the reasons for inertia and the intentions of customers regarding their future behaviour be fully understood by managers. Inert customers should not be perceived as being a homogeneous group. Some are happily inert, aware but unconcerned that they have chosen to remain with a business that they consider to be less than ideal. Others are unwittingly inert, in that they do not even think consciously about their behavioural loyalty. The third group could be classified as concerned inerts, worried that they should be moving the business elsewhere, yet for various reasons not prepared to do so. There is a perceived risk associated with changing service providers and determinants of this risk may include the consumers’ difficulty in evaluation prepurchase (or even post purchase in credence services), their experience of purchase, their level of involvement in the service, their individual risk threshold, the brand strength and word of mouth recommendations from friends and family. The importance of a company developing a thorough understanding of all of these points cannot be overstated. Inertia is considered to result from an interaction of the consumers’ level of satisfaction, trust and commitment to the company and as such, it is necessary that each of these factors is understood by management. The degree or extent of dissatisfaction could be expected to impact on the inertial threshold. That is, at some point, the last straw is reached and a previously inert customer will have had enough, and be prepared to change service provider. It is possible that there exist different threshold values of dissatisfaction with different aspects of the service provision. That is, some aspects of the service represent

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determinant criteria and others are less critical. Investigations regarding the service quality and its determinants are therefore an essential background for an understanding of inertia and its consequences. Overall therefore, this research represents one of the first empirical studies in the area of inertia in financial services and it has established some valuable findings, making significant academic and managerial contributions. The research has raised many points worthy of further investigation in the financial sector and may also act as a basis for research regarding inertia in other industries.

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Introduction

Client valuation in private banking: results of a case study in Switzerland Pascal Foehn The author Pascal Foehn is a Doctoral Student in the Marketing Department, University of Zurich, Zurich, Switzerland.

Keywords Customers, Value analysis, Banking, Case studies, Switzeralnd

Abstract There is much evidence showing that client valuation in the service industry has come to be seen also as a central steering element and success factor in private banking. But until now, there was no specific client value model for the private banking industry developed. Thereby the value of a private client for the bank (from the provider’s perspective) can be made up of different components/factors: monetary and non-monetary, quantitative and qualitative. However, with a view to valuebased management, the calculation of client margin contributions and the lifetime value of a client relationship must be supplemented by key figures representing the qualitative client value drivers. The author addressed the task of developing a specific client value model for private banking based on existing models and findings from general research and practice at the world’s largest private bank in Switzerland. In contrast to previous analyses, this study not only surveyed management staff, but also those who are directly responsible for shaping client relationships in their daily work, i.e. the client advisors. The survey sought to identify the criteria that make clients valuable for the private banking industry and also to what extent these criteria were actually implemented by client advisors in the valuation of their clients.

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Managing Service Quality Volume 14 · Number 2/3 · 2004 · pp. 195-204 q Emerald Group Publishing Limited · ISSN 0960-4529 DOI 10.1108/09604520410528617

Private banking can be understood as a business area in which high net worth and/or high-income private individuals are offered tailor-made financial advisory, investment, and management services on a comprehensive, long-term basis (Foehn and Bamert, 2002). This business area can be described in terms of the services offered, the market environment, and the target group. The services offered in private banking include actual banking services such as investment advice or asset management (the traditional understanding of private banking) as well as services closely associated with these (Wagner, 2000; Woehle, 1999). Over the past ten years, the range of traditional products has been expanded to include services such as financial planning and alternative investments, which now come under the designation of a modern understanding of private banking (Ulrich, 2001). The rapid growth in full-service provision has resulted in the absence today of a transparent and comprehensible cost allocation on the individual client level. The market environment in private banking can still be described as favorable, even though the large Swiss banks have increasingly had to face shrinking in their return on equity (IBM, 2003). Although the annual earnings growth forecast of 10-15 percent by experts in 1998-1999 has had to be recalculated, European earnings growth of 13 percent in the onshore area and 9 percent in the offshore area are still expected for the next five years (Merril Lynch and Cap Gemini Ernst & Young, 2002). What is striking here is that the large banks on average expect higher earnings growth rates in the segment of wealthy clients than do the small and medium-sized market players, even though the latter have performed much better in Switzerland over the past several years in terms of return on equity. But the return on equity of the large banks in private banking is also expected to come under increasing pressure given intensified competition with the entry of a growing number of providers (for example private banks, Internet brokers, and insurance companies). Lucrative clients are increasingly being wooed and enticed away by competing providers. The target group of private banking is in practice often described in terms of the amount of their wealth (core affluents, high net worth individuals, ultra high net worth individuals) and how they came by it (old rich versus new rich). Aspects such as price sensitivity of the client and his/her individual needs for advice are often not included in the description of the target group (Steffensberg, 2003). This is particularly problematical since clients in private banking are

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becoming more sensitive to price and service quality. They are also increasingly better informed, less loyal to banking institutions and advisors, and thus are more likely terminate a banking relationship than they would have been even a few years ago (IBM, 2003). The relevance of a constant review of the value of each individual client and the consistent investment in a balanced client portfolio can therefore also be supported from the perspective of the target group. The numerous reasons for the increasing relevance of client valuation in private banking are summarized in Table I.

generates as much value creation for the bank as possible – should be the focal point for assessing the current and future successes in private banking. From this perspective, client value can be understood as a multi-dimensional construct in which clients are valuated not only by their monetary contributions, but also by non-monetary criteria with an indirect impact on the bank’s value creation chain.

Definition of valuable clients in private banking

The past several years have seen numerous proposals and models for calculating client value in the service industry (Eberling, 2002; Gelbrich, 2001; Cornelsen, 2000). But until now, no specific client value model for the private banking industry has yet been developed. However, with a view to value-based management, the calculation of client margin contributions and the lifetime value of a client relationship must be supplemented by figures representing the qualitative client value drivers. Factors were sought that could ascertain the value of the client in the most comprehensive and sector-specific manner possible. On this basis, three focus group interviews were conducted with a total of 23 business management representatives from a number of companies active in private banking. The interviews led in December 2002 to the client value model below, which contains the factors of present financial contributions, future financial contributions, referral potential, information potential, and guarantee potential in order to describe a valuable client for private banking (see Figure 1). The operationalization of the individual client value factors is briefly considered below.

The implementation of client value management in private banking often leads to this rule of thumb: keep those clients who consistently generate a lot of sales and lose those who occasionally perform a few transactions with the bank. But what do you do with clients who perform transactions occasionally but then go on to do many, and those who perform transactions constantly but then go on to do a few with considerable management time expended? The transaction behavior of private banking clients can be more seen like the movement of share prices – difficult to predict (Dhar and Glazer, 2003). At the same time, a pure definition of client value in terms of past sales or monetary contributions of value seems too narrowly cast, even though, in a study conducted just six years ago by PricewaterhouseCoopers among European private banking providers, the volume of assets under management was, with 83 percent, clearly the dominant success indicator for private banking (Pricewaterhouse Coopers, 1997). Instead, the composition, retention, and streamlining of a client portfolio – one that

Possible determinants for client valuation in private banking

Table I Reasons for the increasing relevance of client valuation in private banking Dimension

Reasons for increasing relevance of client valuation in private banking

Services offered

Increasing full-service orientation in private banking leads to non-transparent cost structure in client relationships Different pricing systems make it difficult to calculate the profit contributions from individual client relationships

Market environment

Increasing number of providers intensifies the battle for lucrative private banking clients Prices are coming under increasing pressure as a result of low-cost providers like Internet brokers Because of the increasingly global orientation strategies of a number of large banks, the trend is toward focusing on acquiring new clients on the basis of client value CEOs of private banking providers aim to achieve 80 percent of their future earnings growth by means of organic growth, with the largest contribution seen in the optimization of existing client relationships

Target group

It is apparent that clients in this segment are increasingly price sensitive and performance oriented Client expectations are on the rise

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Figure 1 Client value model for private banking

Table II Operationalization of present financial contributions Factor Present financial contributions

Present financial contributions Most authors (e.g. Hermann and Fruederer, 1997; Krueger, 1997) regard the “absolute transaction volume” and the “average transaction volume per bank order” as the central monetary component of client value. But the representatives of Swiss private banking regarded “relative transaction volume” as being more significant. This is because, while a client’s absolute transaction volume of US$40,000 with the bank within a given period may look high, the value of the client in relation to the other clients nonetheless becomes evident only when measured in relative terms. Referring to absolute or relative transaction volume figures in order to valuate a bank’s clients appears at first sight plausible because of the general recognition of transaction volume as a success indicator, but this still falls short. Two high net worth individuals with the same absolute or relative transaction volume can give rise to different costs for the bank. For instance, one client takes up five hours of the client advisor’s time per year and the other takes up 40 hours, without the advisory hours being billed to the client as such. Thus, in the client valuation model, the “profit contribution” per client and the “return on assets” were also included as possible indicators that also take account of the costs of the client relationship for the bank. In addition, the focus group agreed on the inclusion of “net new money”, which represents the in- and outflow on the invested assets per client. Other possible parameters included in the valuation of the present financial contribution of a client were the “share of client/wallet” (share of client’s total bankable assets at a given bank) and “actively managed share” (share of client’s assets that are actively managed) (see Table II).

Possible indicators at the level of an individual client relationship Absolute transaction volume with the bank Relative transaction volume with the bank Average transaction volume per bank order Share of client/wallet Actively managed share Net new money Profit contribution Return on assets

Future financial contributions A fundamental question is whether a past- or future-oriented figure is to be used in respect of client valuation or whether indeed both views are necessary (Mulhern, 1999; Krueger, 1997). The present- and past-oriented valuation of a client was described by various possible items above. But in the focus group interviews it was observed that a purely retrospective view makes it almost impossible to discern the future potential of a client relationship. Krafft and Marzian (2003) complain with reference to the capital goods markets that companies do not think in a forwardlooking way: only 18.3 percent of the 219 companies surveyed by them valuate their clients on the basis of estimated future monetary measures. In the above client valuation model, the “future development of client earnings” and “assets” were included as possible indicators. Also included were the “product-related development of needs”, “client’s stage of living”, “segment affiliation”, and “client’s risk appetite” (see Table III).

Referral potential “Your best salesman is a satisfied customer” (Engel, 1969). Behind this approach is the assumption that referrals rank among the most cost effective marketing instruments (Wilson, 1994). A recent study by a large Swiss bank showed that 69 percent of new clients were acquired via positive word-of-mouth referrals (UBS, 2002). Table III Operationalization of future financial contributions Factor Future financial contributions

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Possible indicators at the level of an individual client relationship Product-related development of needs Stage of living and future living phases Segment affiliation Risk appetite Future development of client earnings Future development of client assets

Client valuation in private banking: results of a case study in Switzerland

Managing Service Quality

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Volume 14 · Number 2/3 · 2004 · 195-204

Thus every client can directly or indirectly create or destroy value for a company as a result of his referrals. Referrals directly affect the awareness level and image of the private banking provider or the range of services it offers. They indirectly affect future revenue by influencing other clients in their buying decisions (Cornelsen, 2001). In the client value model for private banking, the focus groups agreed on the use of the operationalization of the referral potential, as advocated by Cornelsen (2000), by including in the model as possible indicators for client valuation the “number of referral recipients”, “assets of referral recipients”, “reference frequency of clients”, “client satisfaction with the bank”, and “the client’s opinion leadership” (see Table IV). Information potential A client’s information value (also called informative value or learning potential) results from the totality of the information that can be used by the bank and that accrues to the bank through the client (Eberling, 2002). It is important to note in this respect that the information initially has no value in itself but only acquires value when it is used in the operating process (Stauss, 2002). Two types of information are increasingly useful in this respect and thus to client value (Cornelsen, 2000): (1) Objective information. This includes factual statements by clients, such as the comment by a banking client that the morning provision of stock market information and buy recommendations does not in his view contain relevant indicators. Facts are often also described using the term “client’s innovation potential” (cf., for example, Plinke, 1997). (2) Normative information. This is subjective in nature and usually influenced by emotions. An example might be a complaint about an unfriendly client advisor. In the focus group, the information potential of a client in private banking was operationalized by the following indicators: “frequency of client feedback/complaints”, “quality of client feedback/ complaints”, “unprompted client feedback/ complaints”, and “client advisor as receiver of client feedback/complaints” (see Table V).

Table V Operationalization of information potential Factor Information potential

Referral potential

Frequency of client feedback/complaints Quality of client feedback/complaints Client advisor as receiver of client feedback/complaints Unprompted client feedback/complaints

Guarantee potential Eberling was the first author who introduced the term “guarantee potential” (Eberling, 2002). Compared with the other determining factors presented, the security value – which can also be formulated as the opposite of risk value – was only rarely discussed in the literature on client valuation (Knoebel, 1997). Only terms such as risk adjusted lifetime value (RALTV) have recently been discussed. RALTV takes into strict account the probability of all other value contributions occurring (Dhar and Glazer, 2003). The 23 business management representatives from private banking agreed with respect to the conceptualization of the security value of value contributions in the implementation of the following indicators: “duration of bank relationship”, “duration of relationship to client advisor”, “bank is main bank relationship”, “loyalty to bank and client advisor”, “confidence in bank and client advisor”, “willingness and ability of client to co-operate with bank”, “future solvency”, and “future willingness to pay” (see Table VI). It should be mentioned that the effect of this determining factor of client value is developed only in the linkage with the other determining factors. A model-based consideration of this factor as a multiplicative component would therefore certainly be worth considering.

Table VI Operationalization of guarantee potential Factor Guarantee potential

Table IV Operationalization of referral potential Factor

Possible indicators at the level of an individual client relationship

Possible indicators at the level of an individual client relationship Number of referral recipients Assets of referral recipients Reference frequency of clients Opinion leadership of client Client satisfaction

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Possible indicators at the level of an individual client relationship Duration of bank relationship Duration of relationship to client advisor The bank is main bank relationship Loyalty to bank Loyalty to client advisor Confidence in bank Confidence in client advisor Willingness to cooperate Ability to cooperate Future solvency Future willingness to pay

Client valuation in private banking: results of a case study in Switzerland

Managing Service Quality

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Empirical proceeding and key questions Finally, the above-mentioned indicators of the client value model from the focus group interviews were empirically tested at the world’s largest private banking services provider. To this end, at the beginning of 2003 a questionnaire was sent to all 75 client advisors and 21 representatives of business management of this provider’s most successful market (universe 96). The survey received 67 valid questionnaires from the client advisors and 15 from the representatives of business management (n ¼ 82, overall response rate of 85 percent). From the outset, the study’s aim was not only to survey the representatives of management, but also to include in particular those employees who in their day-to-day work carry out client valuation and organize client relationships. Thus an attempt was made not only to develop an empirically tested client value model for private banking, but also to pinpoint the model’s possible implementation gaps in the company: . implementation gaps between client valuation approach (describing what makes a private banking client valuable) and client valuation behavior (practical implementation of client valuation in one’s day-to-day work); and . implementation gaps between the viewpoint of the representatives of business management (target definition) and that of the client advisors (actual definition) regarding client valuation. A standardized written survey was used with the deliberate aim of counteracting the phenomenon whereby those surveyed regard all of the items for client valuation as important. The order of the questions was therefore randomized by using four different questionnaires. In terms of content, the questionnaire first looked into this issue: which of the indicators from the focus group interviews did business management and the client advisors assess as being important for describing a valuable client? The attitude taken by the client advisors and the business management representatives towards the importance of the various indicators was crucial. By way of example, Figure 2 reproduces an extract from the questionnaire that was used to ascertain the attitude of client advisors and business management towards the importance of the indicators for the “present financial contribution” factor. A second stage involved supplementing this question regarding attitude with specific questions on the behavior of the client advisor. Thus business management was asked which indicators, in their opinion, were included in the client valuation by the client advisors and how often

(question in the questionnaire to business management: Indicate how often, in your opinion, the client advisors actually include the following indicators in their practical work on client valuation: absolute transaction volume of the client with the bank (1 ¼ never, 4 ¼ always), relative transaction volume of the client with the bank, etc.). On the other hand, the questionnaire wanted to know from the client advisors which indicators they actually included in their practical work on client valuation and how often (question in the questionnaire to the client advisors: Indicate which of the following indicators you include in your client valuation: absolute transaction volume of the client with the bank (1 ¼ never, 4 ¼ always), relative transaction volume of the client with the bank, etc.). Figure 3 again illustrates the questionnaire’s four perspectives. In the ideal case, it is assumed that all four circles coincide. Apart from the importance and consideration of the individual indicators for the client valuation, an assessment should also be made of what the most important information sources are for the client valuation. The survey also investigated the question of how often the client advisors valuated which clients and the views of business management on how often the client advisors should valuate which clients.

Most important results of the case study Table VII summarizes the average importance and consideration given to the individual indicators in the client value model from the viewpoint of the client advisors and the representatives of business management. Interestingly, in assessing the importance of the individual indicators in the description of a valuable private banking client, there were considerable differences between the perspective of business management and that of the client advisors. The client advisors regarded the indicators on the reference, information and security potential of the client relationship as significantly more important, while the representatives of management focused much more on monetary measures (see Figure 4). A partial correlation analysis showed that private banking client advisors who had been working as a client advisor only for a few years regarded the monetary criteria for the description of a valuable client as significantly more important than did those client advisors who had already been working as advisors in the sector for several years. While the client advisors surveyed said on average that confidence in the client advisor (3.85)

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Figure 2 Extract from the questionnaire on the importance of client valuation indicators of the “present client value” factor

Figure 3 Four perspectives on the implementation of the client valuation

and client satisfaction (3.74) were the two most important of the 34 ascertained indicators for the description of a valuable client, the business management representatives said client satisfaction (3.57) and a client’s return on assets (3.54) were the most important attributes. The client advisors were in agreement with the approach of business management when it came to return on assets. This indicator was on average the most considered (3.84) by the client advisor in their client valuation. However, the survey showed that, not just with respect to this individual indicator, but also generally, the client advisors in their day-to-day work considered in the client valuation in particular those indicators that business management regarded as important but that the client advisors themselves described as fairly unimportant. In the next step, the client valuation behavior of the client advisors was compared with the image

that business management had of the client advisors. It was striking in this respect that business management generally underestimated the extent to which the client advisors were taking into consideration all the factors for client valuation (see Figure 5). The question of the frequency of client valuation has only been taken up in a few empirical works (Eberling, 2002). No results are known by the author on this area for private banking. Particularly for the middle market segment of private banking, in which clients have bankable assets of between US$250,000 and US$1 million, a frequent and regular review of the relationship costs and the value of the client relationship seems unavoidable because of the limited earnings situation (Datamonitor, 2002). While the importance of a regular and frequent review of the client value by the client advisors appeared to be recognized by business management at the bank

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Table VII Importance and consideration of client value indicators in private banking Average importance n Mgmt n

Average consideration CA n Mgmt n

Factors

Indicators

CA

Present financial contributions of the client

Absolute transaction volume with the bank Relative transaction volume with the bank Average transaction volume per bank order Share of client/wallet Actively managed share Net new money Profit contribution Return on asset

2.42 1.14 1.05 2.28 2.98 3.01 2.03 3.50

67 65 67 66 64 67 67 66

3.14 1.58 2.15 2.71 3.15 3.15 3.29 3.54

14 12 13 14 13 13 14 13

3.37

3.28 3.72 3.53 3.29 3.84

67 64 66 67 67

2.29 2.71 2.87 1.32 2.94

14 14 14 14 13

Future financial contributions of the client

Product-related development of needs Stage of living and future living phases Segment affiliation Risk appetite Future development of client earnings Future development of client assets

3.09 3.34 2.42 3.11 3.31 3.32

67 67 66 65 65 66

3.15 3.43 2.67 2.85 3.46 3.54

13 14 12 13 13 13

2.85 3.18 2.41 3.49 2.85 3.05

62 62 63 65 62 61

1.86 1.86 2.23 2.79 1.93 2.55

14 14 14 14 14 11

Referral potential of the client

Number of referral recipients Assets of referral recipients Reference frequency of clients Opinion leadership of client Client satisfaction

3.32 3.25 2.98 3.06 3.74

65 64 65 64 65

3.00 3.29 2.33 2.79 3.57

14 14 12 14 14

2.48 2.78 2.51 2.48 3.18

56 59 59 ;60 62

2.07 1.79 1.93 2.21 2.64

14 14 14 14 14

Information potential of the client

Frequency of client feedback/complaints Quality of client feedback/complaints Client advisor as receiver of client feedback/complaints Unprompted client feedback/complaints Duration of bank relationship Duration of relationship to client advisor The bank is main bank relationship Loyalty to bank Loyalty to client advisor Confidence in bank Confidence in client advisor Willingness to co-operate Ability to co-operate Future solvency Future willingness to pay

2.68 3.34

65 67

1.90 3.36

10 14

2.60 2.56

57 57

1.77 1.54

13 13

3.42 3.43 3.48 3.04 3.09 3.42 3.44 3.58 3.85 3.24 3.42 2.42 2.44

66 67 67 62 67 66 65 66 67 67 65 60 59

2.45 3.15 3.18 2.73 3.08 3.36 2.57 3.29 3.36 3.21 3.15 2.42 2.50

14 13 12 14 13 14 14 14 14 14 13 12 12

2.19 1.80 2.00 2.85 2.89 2.92 3.02 3.25 3.51 2.71 2.74 1.71 2.54

53 58 59 61 62 60 60 56 59 58 57 60 59

2.10 1.79 2.53 3.14 2.36 2.21 3.00 2.71 2.93 2.00 1.32 1.37 1.64

10 14 14 14 14 14 14 14 14 12 11 14 14

Guarantee potential of the client

participating in the survey, it is not consistently implemented by the client advisors. Only 4.6 percent of client advisors valuated their core affluent clients in their client portfolio “several times a week”, while 26.9 percent said that they valuated this earnings-critical segment only “rarely” or “never” (40.6 percent). The majority of business management (67.1 percent) saw the optimum in a “monthly” valuation of this client segment. On the other hand, business management did not agree on how often the client advisors should valuate their wealthiest clients (those with bankable assets of greater than US$30 million): four of the 15 valid answers said “rarely” on the grounds that these clients would, because of the size of their assets, generate only positive profit contributions for the bank through commissions; on the other hand, four other business management representatives said that the

66

14 n/a n/a

negotiating power of this very wealthy client group was, based on experience, so great that the bank would run the particular risk of generating negative profit contributions with this client group as a result of price discounts. In contrast, most of the client advisors said they valuated those clients “once a month” (57.6 percent). The results on the information sources used for client valuation also turned out to be surprising. The client advisors relied mainly on their personal experience with the client. CRM systems came in second place as reliable sources and personal intuition in third place. In rare cases they also obtained information on client value from the press and electronic media. Management, in contrast, would gladly see the CRM system implemented in the bank as the main source for client value information, with the client advisor’s personal experience only in second place (see Table VIII).

201

2.28

n/a n/a

Client valuation in private banking: results of a case study in Switzerland

Managing Service Quality

Pascal Foehn

Volume 14 · Number 2/3 · 2004 · 195-204

Figure 4 Importance of client value factors from the perspective of the client advisors and of management

Figure 5 Consideration of different client value factors by the clent advisors from management’s and client advisor’s perspective

Summary and managerial consequences for implementation

Table VIII Ranking of the various sources of client valuation information by importance from the viewpoint of the client advisors and the representatives of business management

Information sources for client valuation Personal experience CRM systems Personal intuition Client dossiers Others like newspapers, conversations with other clients and client advisors

Ranking of importance CA Mgmt 1 2 3 4

2 1 3 5

5

4

It was shown that, in future, client valuation will increasingly gain in significance in private banking as a central management tool for organizing client relationships. Some reasons for this are the ever more complex cost structures of the individual client relationships, the ever more intensive competition due to alternative providers, and the increasing price sensitivity and performance orientation of many wealthy private clients.

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However, the lessons learned from this conceptualization and implementation of a client value model for private banking cannot be converted into dogmatic instructions on how to act, particularly since they are subject to a range of restrictions that needs to be taken into consideration in any overall assessment (only one bank and limited sample size). But the results should help to show existing implementation gaps, based on the example of the world’s largest private banking services provider, so that successful alternative courses of action may be derived from this case study and used as points of reference and sources of guidance when implementing client value management in other banks. The individual findings obtained can be summarized as follows and turned into recommended courses of action: . The implementation of a comprehensive client value information system requires the targeted removal of content-conceptual, organizational-structural, technicaloperational and personal-cultural implementation gaps. . A comprehensive client value information system has first of all also to understand client segmentation as a strategic problem, rather than a data-mining problem. Central to this is the fusion of the benefit associated with a banking service and perceived by the (potential) client with the present and future value of the client to the bank. Possible starting points here are a stronger selfsegmentation via the price of services and the introduction of advisory fees, or a consistent prioritization of clients based on their present and future profit contributions. . It appears that consistent segmentation and organization of client relationships in terms of the client’s present and future monetary value contributions are difficult to achieve for client advisors who have already been working in private banking for some time. These client advisors see pre-financial value contributions such as referral potential, information potential, and guarantee potential as important indicators for the description of a valuable client. . A structural orientation based on valuerelated client groups is proposed for the organizational anchoring of client value management. Client advisors, who are by nature strongly oriented to pre-financial value contributions, increasingly look after clients who already generate high returns on assets or profit contributions. They focus on the consistent increase in pre-financial contributions in this client group. In contrast, sales-oriented client advisors try to acquire

.

.

clients who are financially promising for the bank and those segments that generate at the moment only low financial contributions (but have potential to generate in future high revenues). For the IT infrastructure to be able to meet all the needs of client value management, it is necessary to set up a closed CRM information system. This system must make a central and integral analysis of client value information possible (for example based on the above mentioned client value model). And it must supplement and delegate to the background personal experience and the client advisor’s intuition as sources of information for client valuation. Finally, the implementation of regular client valuation adapted to client value requires clear directions from management, training of client advisors, client value-oriented incentive systems, participatory management styles, and the early creation of a consensus between client advisors and business management regarding the indicators to be used and the frequency of client valuation per client segment.

Based on the weightings of the individual client valuation indicators and factors, it was finally possible to introduce a scoring model for the client valuation in the Swiss bank. If we assume that a client has a different, specific value – in the sense of a benefit – for each company and each sector (Eberling, 2002), then future research activities will increasingly have to take company-specific and in particular sectorspecific characteristics into account in the development of client value models. Furthermore, the scientific community has so far devoted little attention to the issue of the relevance of different client value indicators in relation to market environment and market maturity. Finally, further empirical research is required with regard to the implementation of the numerous client value models debated by the scientific community in order to develop concrete points of approach for translating client valueoriented segmentation, acquisition, retention and recovery methods from scientific theory into practice. Only if private banking service providers get a clear idea about the indicators to identify their most valuable clients will they succeed, and not count the people they get – but get the people who count.

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Introduction

Reconceptualizing customer perceived value: the value of time and place Kristina Heinonen

The author Kristina Heinonen is a Doctoral candidate at CERS Center for Relationship Marketing and Service Management associated with the Department of Marketing and Corporate Geography at Hanken Swedish School of Economics and Business Administration, Helsinki, Finland.

Keywords Customers, Value analysis, Perception, Service systems, Service quality assurance

Abstract Considering the empowered customer interacting with technology-based self-services, temporal and spatial access can be argued to influence service delivery. However, service management models have not considered the value of the service delivery at various locations and time frames not controlled by the service provider. Consequently, by arguing that time and location are explicit value dimensions, this paper investigates the importance of time and location and contrasts them to traditional value dimensions. A conceptual model of customer perceived value is proposed and empirically investigated. By linking value and quality models, customer perceived value is conceptualized as a function of benefit and sacrifice of technical, functional, temporal and spatial value dimensions. The empirical findings indicate that time and location are perceived as important value dimensions and that they are even more important dimensions than outcome and process elements. Theoretical and practical implications of the findings are discussed.

Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/0960-4529.htm

Managing Service Quality Volume 14 · Number 2/3 · 2004 · pp. 205-215 q Emerald Group Publishing Limited · ISSN 0960-4529 DOI 10.1108/09604520410528626

Value creation has been a popular area in consumer and industrial marketing research and the interest is equally extensive in academia and industry. Academic research has built on defining the value construct as well as on linking it to other constructs such as loyalty, satisfaction and repurchase behavior. Customer perceived value has been given many definitions in the marketing literature (e.g. Woodruff, 1997; Holbrook, 1994; Zeithaml, 1988) and following one of the more traditional perspectives (Monroe, 1990), perceived value has been defined as “the consumer’s overall assessment of the utility of a product based on perceptions on what is received and what is given” (Zeithaml, 1988, p. 14). In other words, value has been seen as the trade-off between benefit and sacrifice in an offering. Quality, a related construct (e.g. Rust and Oliver, 1994), has been suggested to form a part of value (Liljander and Strandvik, 1995). Dimensions that affect service quality thus indirectly affect perceived value and quality dimensions may thus be used to define perceived value. According to quality definitions found in the service management literature, perceived quality is the result of an evaluation process of the expected and experienced service (e.g. Gro¨nroos, 1982; Parasuraman et al., 1985). Although not explicitly involving sacrifice, this definition of quality involves technical and a functional dimensions as sources of quality (Gro¨nroos, 1982). Technology has been suggested to influence value creation processes (Parasuraman and Grewal, 2000), resulting in a need to broaden the value construct. Internet services, mobile services, and other self-service technologies have created empowered customers who may independently perform the service process. These technologybased services are “services delivered via technological interfaces that enable customers to produce a service independent of direct service employee involvement” (Meuter et al., 2000, p. 50). Similarly, in the marketing literature there has occurred a shift in focus towards value cocreated by the customer (Ramı´rez and Wallin, 2000). However, extant service management models have not considered the role of the empowered customer who may perform the service at various locations and time frames not controlled by the service provider. Although time and location have been implicitly noted as factors influencing customer perceptions, there are no theoretical conceptualizations that include time and location as explicit value dimensions. The aim with this paper is to reconceptualize customer perceived value including a temporal and

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spatial perspective by proposing and measuring four value dimensions. The aim is thus theory development. The empirical study points to the importance of time and location as value dimensions, and it indicates that current value models need to be broadened. The paper has the following structure. First, it begins with a presentation of quality and value literature to describe dimensions that influence value perceptions. Aspects relating to the service environment and e-service quality are presented to show the challenges that time and location pose on value perceptions. Second, the theoretical review results in a conceptualization of customer perceived value as a function of technical, functional, temporal and spatial dimensions. Then third, the discussion continues with an outline of the research design and the empirical study. Drawing from structured interviews about online bill payments, it is shown that time and location are considered to be value adding dimensions of services. This is attributable to the relative utility of the temporal and spatial dimensions in comparison to the technical and functional dimensions. The paper is concluded with theoretical and practical implications to service management and marketing.

dimensions (e.g. Gro¨nroos, 1982; Lehtinen, 1982; Parasuraman et al., 1985). Perceived service quality has been defined as a function of what customers get out of the service, i.e. a technical dimension, and how the service is delivered to them, i.e. a functional dimension (Gro¨nroos, 1982).

Customer perceived value It has been suggested that customer perceived value is formed of the trade-off between benefit and sacrifice (Monroe, 1990). Many of the conceptualizations involve quality as the benefit and price as the sacrifice. The perspective of value taken is either a multiplicative or additive function of benefit and sacrifice (Cronin et al., 1997). In the former case, value has been seen as the ratio of benefit (numerator) to sacrifice (denominator). The additive model recognizes the integrative nature of benefit and sacrifice and denotes the compensatory trade-off between benefit and sacrifice. Although the benefit and sacrifice model of value is relevant, it is not used in this study. In many respects, the benefit and sacrifice components do not denote the sources of value similar to the technical and functional quality dimensions. In contrast, acknowledging the interdependence of service value and quality (Liljander and Strandvik, 1995), it is argued in this paper that quality dimensions can be used to conceptualize perceived service value. Much of the research on service quality has focused on identifying dimensions that influence the perceived quality of a service. Quality has been conceptualized as having process and outcome

Service environment It has also been suggested that the service environment influences service evaluations (Lehtinen, 1982; Lehtinen and Lehtinen, 1991; Rust and Oliver, 1994; Brady and Cronin, 2001). Lehtinen (1982) argued that the physical resources of the service delivery system influence the service production process. He separated between physical support, i.e. physical setting and equipment, and the physical product. More recently, service quality has been described as a hierarchical service quality model based on interaction quality, environmental quality and outcome quality (Brady and Cronin, 2001). In the model, each of the fundamental dimensions included three subdimensions that specified the quality perceptions. The quality of the physical environment involved three subdimensions: ambient conditions, design and social factors. Although it could be argued that the functional dimension incorporates aspects in relation to the service environment, it has traditionally been defined with issues relating to the customer-service employee interaction, and thus the service environment has not been explicitly included. Other service management models have included the service environment as a function of time and/or location, such as servicescape, service delivery, accessibility and convenience. However, the value of time and location has not been acknowledged. One of the first conceptualizations of the service environment was Bitner’s (1992) servicescape model that involved three environmental dimensions, ambient conditions, space/function and signs, symbols and artifacts. This thinking has been used extensively. The servicescape can be seen to facilitate accessibility in terms of ease of initiation (Donabedian, 1980), ease of access (Parasuraman et al., 1985; Yale and Venkatesh, 1986) and ease of orientation (Dabholkar et al., 1996). The service environment is often included in service delivery, such as the distance between the service provider and the customer (Lovelock, 1983), accessibility (Gro¨nroos, 1982) and the availability of service outlets (Lovelock, 1983). However, although time and location are acknowledged, the value of them are excluded. Dabholkar (1994) classified technology-based service delivery based on by whom, where and how

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the service is delivered. Temporal access is frequently related to time allocations (e.g. Hendrix et al., 1979), time availability (e.g. Darian and Cohen, 1995; Kaufman Felker and Lane, 1996), and time orientations (e.g. Settle et al., 1978; Bergadaa, 1990), opening hours (e.g. Kaufman Felker and Lane, 1996), punctuality (e.g. Taylor, 1994; Brady and Cronin, 2001), and speed of delivery (Dabholkar, 1994; Zeithaml et al., 2000; Anselmsson, 2001; Jun and Cai, 2001). Convenience is a related construct that refers to temporal and spatial aspects of the service delivery (e.g. Yale and Venkatesh, 1986; Brown, 1990; Zhu et al., 2002; Peterson and Balasubramanian, 2002). Access convenience has been suggested to be especially critical for services that require customer participation because customers must be present at the right time and place (Berry et al., 2002). Time and location have not been acknowledged in e-quality models. It seems that many e-service quality models (e.g. Zeithaml et al., 2000; Kaynama and Black, 2000; Wolfinbarger and Gilly, 2003) have been conceptualized based on the SERVQUAL dimensions (Parasuraman et al., 1985). For example, Zeithaml et al. (2000) conceptualized e-service quality with 11 dimensions, i.e. reliability, responsiveness, assurance/trust and security/privacy, access, flexibility, ease of navigation, efficiency, and price knowledge. However, it may involve similar criticism as the original SERVQUAL dimensions concerning their relevance and generalizability. Likewise, the conceptualization may include problems because of their level of detail. For example, Dabholkar (1994, 1996, 2000) studied technology-based self-services and suggested a number of different attributes that customers expect from technology-based self-service options, including speed of delivery, little human interaction, time savings, perceived control and privacy. However, acknowledging the hierarchical nature of service quality (Brady and Cronin, 2001), a lower level of detail can be used to group many of these dimensions.

quality perceptions can also be used to describe value perceptions. Third, because the service environment affects service delivery, time and location may be seen to influence value perceptions. However, they have not been conceptualized as value dimensions. Hence, it is proposed that value is based on four dimensions: technical, functional, temporal and spatial dimensions[1]. The technical dimension includes technical elements of the service and is traditionally depicted by the core service. It refers to what the outcome of the service interaction is. The ability to choose between alternatives has been shown to be relevant for e-services. For example, Zeithaml et al. (2000) identified flexibility as an e-service quality dimension that denoted the customer’s choice to conduct the service, as well as the knowledge of such options. Similarly, Liljander et al. (2002) elaborated this dimension and raised the issue of service options referring to the option to choose from a fixed number of service alternatives. The functional dimension relates to an evaluation of functional aspects of the service delivery process. It denotes how the service interaction process occurs. Looking at service production as a continuum, services may be produced by firms, jointly by firms and customers and customers only (Bitner, 1992). Similarly, Meuter and Bitner (1998) distinguished between self-service, joint production and full service. Three different types of service delivery have been identified: automatic, self-service and human service (Lehtinen and Lehtinen, 1991). Zeithaml et al. (2000) suggested efficiency as a dimension of e-service quality to denote the level of customer input needed in providing necessary information. These two traditional quality dimensions form the fundamental part of services and relate to customers’ perception of the core service, as depicted in Figure 1. The service would be of little value without them. In contrast, these dimensions are influenced by the context in which they are perceived. Hence, two other dimensions that surround the fundamental dimensions affect perceptions, namely temporal and spatial

Proposed conceptualization of customer perceived value

Figure 1 Four value dimensions

Based on the discussion in the literature review above, three conclusions can be made that impact on the development of the theoretical conceptualization. First, value as defined as a trade-off between benefit and sacrifice is relevant but does not show the sources of value such as the quality dimensions. Second, because quality and value are linked, then dimensions that influence

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dimensions, and involve customers’ flexibility in relation to the service delivery. The temporal dimension is based on temporal aspects affecting value perceptions. It represents how the customer perceives the temporal flexibility relating to when the service interaction occurs. Temporal latitude, i.e. a result of flexibility in activities, has been conceptualized as a continuum ranging from complete latitude, through some latitude to no latitude (Hendrix et al., 1979). Considering that technology-based self-services are available almost independently of temporal boundaries, this issue is particularly relevant. The spatial dimension is spatially driven and related to the usage location. It denotes how the customer perceives the spatial flexibility relating to where the service interaction occurs. Dabholkar (1994) concluded that the service delivery for technology-based self-service options could occur at the service site, on a neutral site or at the customer’s site. This conceptualization is based on and similar to Lovelock’s (1983) conclusions. The customer’s site involves home or work when considering that technology-based services are based on technology that is fixed to a location, such as computers. The customer’s site can further be conceptualized as being spatially flexible, i.e. occur wherever, such as on the move, particularly when taking into account portable devices, such as mobile phones. The value in when and where thus denotes the value of service delivery at the right time and location. The value added in these two dimensions is dependent on the possibilities and limitations enabled by technology and they form surrounding but integral elements of the service. In the empirical study, the importance of temporal and spatial value dimensions is explored and they are compared to the traditional technical and functional dimensions. By empirically exploring the proposed value conceptualization in a context of online bill payment services, this study focuses on measuring the relative importance of time and location in value perceptions.

conducted to explore the relative importance of the value dimensions and to investigate the content of the value dimensions in a technology-based selfservice setting. It was based on interviews and conjoint analysis lasting approximately one hour per respondent. In this paper, only the quantitative results are reported, but additional insight is taken from the qualitative part.

The empirical study Taking a pragmatist approach that matches methods to specific research questions (Patton, 2002), the empirical study was based on a parallel mixed method model. This multiple application design is a combination of qualitative and quantitative data collection, data analysis and inference in parallel form (Tashakkori and Teddlie, 1998). It follows the logic of abductive reasoning that shifts between deduction and induction (Patton, 2002). The study was designed and

Conjoint analysis Conjoint analysis, i.e. a decompositional method for estimating the structure of respondents’ preferences in relation to the overall evaluations of a set of predetermined alternatives (Green and Srinivasan, 1978), has been used to study consumer evaluations of services (e.g. DeSarbo et al., 1994; Ostrom and Iacobucci, 1995; Carman, 2000). Considering that the aim is to measure the relative importance of the value dimensions, the choice of research technique was perceived motivated. However, in this study the focus was on depth rather than width, signifying that the objective was not generalization in its traditional meaning where large amounts of empirical data are used to verify hypothesis. Rather the aim was to use analytical tools, theoretical models and empirical findings to deepen the knowledge about a specific phenomenon. In this respect, the abductive approach to move between theoretical and empirical reasoning was aimed at creating a comprehensive understanding about the nature of customer perceived value. A first study was conducted in spring 2002 among a convenience sample of 40 respondents aged between 19 and 76 years. Senior marketing students instructed to interview a specific number of respondents collected the data among relatives and friends. The second and main study conducted by the author in winter 2002 was based on a critical case sample (Patton, 2002) of 37 Finnish online bank customers. It consisted of 20 female and 17 male respondents in ages between 21 and 33 years. Online bill payment services were chosen as the unit of analysis since customers extensively perform the service process themselves. In Finland Internet banking services are largely used to pay bills and the number of users is expected to increase. For example, Nordea, one of Finland’s leading banks, has estimated that almost half of all bill payments are performed via the Internet, and only 3 percent are performed at branch offices (Hankkila, 2003). In general, about 34 percent of all bill payments in Finland are executed via the Internet (Fogelholm, 2002). This indicates that the self-service delivery alternatives involve

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something that customers value, something that is not provided at bank branch offices and in this respect the Finnish online retail banking is appropriate for the study. Two issues were relevant to the development process of the empirical design. First, the technical and functional service quality model (Gro¨nroos, 1982) was chosen as starting point for the theoretical conceptualization. Additionally, time and location were included as value dimensions. Second, by searching existing literature the definitions of the technical and functional dimensions were specified so that they would better fit the current focus. Definitions on the added dimensions were also based on previous research. The theoretical support was beneficial because the four proposed value dimensions were operationalised by only one attribute each. The value dimensions represented the attributes and they were operationalised based on knowledge on technology-based self-services as well as on a pre-understanding of banking services. The attributes, as they were presented to the respondents, were: . possibility to choose different services (what, technical dimension); . customers’ input in the service (how, functional dimension); . possibility to choose the time of service delivery (when, temporal dimension); and . possibility to choose the place of service delivery (where, spatial dimension).

limited in the service delivery. It was operationalised as “the possibility to choose the place to perform the service” in both studies. The attribute levels in the first study were operationalised through reasoning based on existing knowledge of banking services. The technical dimension was operationalised as flexibility on two levels: “all parts of the payment are flexible” and “no parts of the payment are flexible”. The functional dimension related to the input in the payment and consisted of three levels: no customer input, equal input from customer and bank, and self-service. The temporal dimension, the time of service delivery, had two levels: “anytime” and “office hours”. The spatial dimension, the location of service delivery, consisted of three levels: at a specific place in connection with the bank, at homeground and anywhere. The findings from the first study indicated that some modifications in the attribute levels were necessary for the main study. Although the individual attribute levels were clear, the profiles with variations in levels became somewhat complex and difficult for the respondents to evaluate. This was much due to the fact that all the levels for each attribute were different. Also, the profiles were sometimes comparable to an existing service, but sometimes they were highly hypothetical. Consequently, for the main study it was decided to operationalize the attribute levels on a more abstract level in relation to the experience of the current service and not with objective levels. A benefit of using a reference service is that it is behaviorally and contextually anchored in the respondent’s consumption pattern (Liljander and Strandvik, 1993). The reference service used in the current study was the online bill payment service that the respondent was currently using. Three levels were used for all the dimensions and operationalised as “more than”, “the same as”, and “less than” compared to the current service that the respondent was using. Examples of profiles used in the conjoint task are: . “I have neither larger nor smaller possibility to choose different services.” . “My own input in the service is larger.” . “I have smaller possibility to choose time of service delivery.” . “I have neither larger nor smaller possibility to choose place of service delivery.”

What related to the possibility to choose service alternatives and it denoted how extensive the service is. In the first study it was operationalised as “flexibility in service options”. However, the qualitative findings implied that this operationalization was ambiguous, as the respondents seemed to incorporate temporal and spatial elements in this variable, rather than only focusing on the service-specific elements. A stricter definition was needed and hence it was operationalised in the main study as the “ability to choose different service options”. How referred to the level of customer involvement in the service delivery. As such, the focus of the functional dimension in this study is shifted away from the customer-service provider interaction towards the customer’s activities in relation to the service process. It was operationalised in both studies as the “customer’s effort in the service process”. When was described as the time of service delivery and it related to how much the customer is temporally bounded. In both studies, it was operationalised as “the ability to choose the time to conduct the service”. Where denoted the place of service delivery and it involved how much the customer is spatially

In the main study the functional dimension was operationalised as customers’ level of input in the service delivery without specifying the level of input from the service provider, i.e. it included only different variations of customer input. Also, the focus of the spatial dimension is more on the

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amount of flexibility in choosing the location of service delivery, rather than limiting the levels to specific locations. It was possible that the respondents would perceive the services differently and this would result in diverging reference points. Another alternative would have been to anchor the conjoint task in some fixed reference point that was consistent across respondents, for example a hypothetical scenario. This would, however, have meant that some respondents would probably not be familiar with the reference point. It was assumed that this alternative would involve a more complex reference point and it may not necessarily represent actual utility of the profiles. Hence, by anchoring the evaluations in an experienced service, the respondents had a concrete and consistent, although not necessarily comparable, frame of reference and the results would presumably be more valid. Because the levels were designed this way, it was assumed that the perceived utility of the dimensions would be linear. At the outset, it was assumed that more flexibility in choice of service options, time and location of service delivery (level 3) for the technical, temporal and spatial dimensions receives higher utility than less flexibility in service options, time and location (level 1), which includes higher sacrifice. For the functional dimension, the situation was the opposite, because more input (level 3) was assumed to involve higher sacrifice than less input (level 1). However, for simplicity, in the analysis the results for the functional dimension were reversed. Using a full profile method where each stimulus is described separately consisting of all attributes and their levels (Hair et al., 1998), the conjoint task with four attributes and three levels would include 81 possible combinations (3*3*3*3)[2]. By choosing the additive composition rule, these combinations were reduced to nine stimuli using a fractional factorial design. It means that potential independent interaction effects between attributes cannot be accounted for. However, following the conclusion of Carman (2000) that technical and functional dimensions are segregate, it was assumed that there were no interaction effects between the attributes. Three holdout profiles were included to measure the validity. The conjoint task was conducted as an interview situation where the respondents were asked to first arrange the full profile descriptions in two piles divided into the most preferred and least preferred profiles and then to sort the piles separately. They were to describe aloud the thoughts that arose from the sorting procedure. After sorting the profiles, the respondents were

asked why they had sorted the profiles in such an order.

Empirical findings on the value dimensions The purpose was to explore the importance of time and location as value dimensions, and their relative importance in comparison with technical and functional dimensions. The perceived importance of the value dimensions is described by presenting the aggregated attribute-specific results. The findings from the first study indicated that the most important attribute was the place of service delivery with 32.99 percent of the averaged importances (Figure 2). The second most important attribute was the temporal dimension, i.e. the time of service delivery, which received an averaged importance of 28.65 percent. The functional dimension had an averaged importance of 23.10 percent. The least important attribute was the technical dimension with an importance of 15.25 percent. Table I illustrates the relative importance of each value dimension in the main study. On an aggregate level, the findings show that time is the most important attribute with an average importance of 40.07 percent. Interestingly, its importance was more than the combined importance of the technical and functional dimensions. The spatial dimension follows as the second most important attribute with an average importance of 27.87 percent. The technical and functional dimensions received almost similar importance weights with 16.07 percent and 15.99 percent respectively of the average importance. Both studies indicated that the new dimensions were the most important. However, the difference in the findings on the importance of time and location may be attributable to the operationalization of the levels. An attribute that is Figure 2 Importance of the value dimensions (first study)

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Table I Importance and utility of the value dimensions (second study) Averaged importance (%)

Technical dimension More services Same services Fewer services Functional dimension More input Same input Less input Temporal dimension More time freedom Same time freedom Less time freedom Spatial dimension More place freedom Same place freedom Less place freedom

Utility

16.07 0.6036 0.2613 2 0.8649 15.99 2 0.5225 0.2072 0.3153 40.07 1.1532 0.6757 2 2.3604 27.87 1.1532 0.4054 2 1.5586

operationalised with more levels usually receives higher utility. This may explain why the spatial dimension, operationalised with three levels, received higher utility than the temporal dimension, operationalised with two levels, in the first study. In the second study, all dimensions had three levels, and then the temporal dimension received higher utility. The level utilities provide a more detailed description of how the value dimensions are perceived. Figure 3 representing the second study findings shows the part worths of the levels ranging from level 1 (“less than”) through level 2 (“same as”) to level 3 (“more than”). The most important aspect in Figure 3 is the form of the level part worths. Interestingly, none of the attribute level part worths are linear. In fact, the form of the level part worths resembles the curves of hygiene factors. Characteristic of hygiene factors is that higher levels do not provide more utility or value (Herzberg, 1968). It may indicate that the respondents are satisfied with the current level, and an improved level does not offer much additional value, whereas a lower level is perceived Figure 3 Attribute level part worth

as very negative. This is particularly true for the temporal (when) and spatial (where) dimensions. If the attribute part worths were linear they would be perceived as critical. It seems that the functional dimension (how) is the closest to being linear. Also the technical dimension (what) seems to be somewhat near linearity, at least compared to the temporal and spatial dimensions. However, considering that the difference between the level utilities is small, their importance is not critical. In other words, moving between levels 1-3 does not influence significantly the part worths. The validity measures of Pearson’s R (0.0000 and 0.0000) and Kendall’s tau (significance 0.0002 and 0.0001) indicate that the results are statistically significant (Table II). The Kendall’s tau for the holdout cards was 0.3008, which is considered sufficient in a conjoint task (Hair et al., 1998). Although the validity of the holdout stimuli is usually lower, it may indicate that there are some interaction effects between the attributes.

Discussion and contribution Traditionally, technical elements of the service outcome and functional elements of the service process have been acknowledged as important dimensions in value perceptions. However, considering the empowered customer interacting with technology-based self-services, also time and location are important dimensions influencing value perceptions. The aim with this study was to investigate the importance of time and location as value dimensions and how they are perceived in comparison to the traditional dimensions. The findings from two empirical studies revealed that the time and location of service delivery in fact influence customer perceived value and that they are perceived as important value dimensions. In this study, time and location were even more important dimensions in customer perceived value than outcome and process elements. One theoretical contribution is the proposed conceptualization that extended the scope on customer perceived value and included two new dimensions in addition to the traditional two dimensions. It incorporated four value dimensions to describe from a customer perspective the reality in which value is created through different services, service processes and service delivery times and locations. An implication of this is that time and location need to be considered as explicit value dimensions in addition to the technical and functional dimensions. Accordingly, value is not limited to the service itself, but incorporates a broader perspective of factors internal and external to the

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Table II Validity of the conjoint analysis Pearson’s R Kendall’s tau Kendall’s tau for holdouts

Study 1

Significance

Study 2

Significance

0.998 0.944

0.0000 0.0002 –

1.000 1.000 2 0.333

0.0000 0.0001 0.3008

service. Hence, value is related to some specific offering (technical value dimension), created in a wanted way (functional value dimension) and that is perceived as relevant in a specific time (temporal value dimension) and location (spatial value dimension). The study also pointed to the curvilinearity of the value dimensions. More specifically, the temporal and spatial dimensions were perceived as hygiene factors. It indicates that lower levels of temporal and spatial flexibility than the current situation are perceived as highly negative, while higher levels do not provide much additional value. Hygiene dimensions are factors that customers do not notice until they do not reach the required minimum level. The criticality of these dimensions is made explicit when they do not perform according to expectations. Then they become crucial elements that very negatively affect the perceived value. In other words, the sacrifice would be larger with reduced levels in the temporal and spatial dimensions, compared to reduced levels in the technical and functional dimensions. A practical implication of this is that the levels of temporal and spatial dimensions have to be perceived as acceptable because even minor decreases in the performance may result in a large reduction of the perceived value. These findings support Strandvik’s (1994) conclusion about the asymmetric shape of the quality function. Also the findings of Zeithaml et al. (2002) pointed to the curvilinearity of the quality function.

Limitations of the study and suggestions for future research In this study the benefit and sacrifice were viewed as one entity within the value dimension. However, considering the results from the qualitative part of the study, there is an indication that each value dimension includes different benefit and sacrifice attributes. Further research is needed in order to identify the content of each value dimension. Future research should also measure whether different aspects of the value dimensions are in fact more value adding than others. Even though this study has focused on technology-based self-services, the conceptualization is argued to be equally relevant for other service contexts. Customers perceive and

value time and location independence in technology-based services and it can be even more important for some customers compared to the service process and outcome. While further investigation is needed, it can be assumed that if customers get accustomed to this temporal and spatial flexibility, in the future they would require it for other service contexts as well. This would indicate that the time and location of service delivery are important, if not even necessary for the perceived value of other services not directly linked to technology. It would be particularly interesting to explore the perceived value of time and location in retailing services and professional business settings. Further investigation is also needed to measure how the dimension importances will evolve. Considering the findings from the qualitative part of the study, it seems as if the perceived importance of the value dimensions are dynamic and relative. For example, it appears that they differ among customers and among service settings. Looking critically at the study, then the number of respondents may seem low. Usually the number of respondents in a quantitative study is higher; the studies were based on the perceptions of 40 and 37 respondents respectively. However, considering the aim of this study, the number of respondents was deemed sufficient. The objective was not to statistically confirm the importance of each value dimension; rather the conjoint task was used to indicate whether the proposed dimensions are in fact perceived as important. This is justified in a grounded theory development type of study where the aim is to find new aspects in a phenomenon. Also, considering that conjoint analysis provides data on both individual and aggregate levels, it is not necessary to have large sample sizes. Accordingly, the empirical study was deemed as having sufficient theoretical and empirical foundation.

Managerial implications One practical implication of the importance of time and location is that service design decisions should explicitly include the time and location of service delivery. This means that it is no longer sufficient to only focus on process and outcome

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aspects of service delivery, but that service management must put considerable attention on temporal and spatial elements in services. However, this poses a challenge for service managers. Whereas outcome and process elements of the service have been relatively easy to manipulate, variation in time and location are more difficult to control due to the increased customer input and activity in the service delivery. The service delivery occurs in many cases at the customer’s choice of time and location, instead of the service provider’s site. This results in a focus on creating an enabling arena for value creation where customers can initiate and perform the service act at their own convenience, rather than only providing a value adding offering based on the service outcome and service process. A challenge for marketers is to increase the breadth of the value dimensions. The findings indicated that online banking services are perceived as convenient in terms of temporal and spatial flexibility. Considering the characteristics of the dimensions, effort should be devoted to creating adequate levels of temporal and spatial flexibility. The temporal and spatial dimensions were perceived as hygiene factors, i.e. lower levels of temporal and spatial flexibility than the current situation is perceived as highly negative, while higher levels do not provide much additional value. In other words, the sacrifice would be larger with reduced levels in the temporal and spatial dimensions, compared to reduced levels in the technical and functional dimensions. Additionally, while time and location are important dimensions, they are fairly easily copied. This means that the temporal and spatial value dimensions may become hygiene factors for all customer segments. In other words, it is necessary to find new ways to develop the content of the dimensions. For example, in addition to temporal flexibility, service providers may need to improve consumers’ time allocation. Similarly, spatial flexibility may be complemented, for example, with efficient production facilities, e.g. functioning Internet sites. Also the technical and functional dimensions should be monitored to identify possibilities to develop them. Future research needs to address this potential breadth of each of the value dimensions. In line with Swait and Sweeney (2000) who proposed a segmenting model based on customers’ value orientations, the relative importance of each value dimension provides a basis for contrasting customers. This in turn may give more insight into differences in behavior than traditional segmenting based on demographic variables. Tentative cluster analysis of the current study points to three clusters. In the same way as there are customers

that value the technical dimensions over the functional dimension, i.e. prefer the outcome over the process, there are some customers that value time and/or location of service delivery over the technical and functional dimensions. By having customers compare them between competing offerings, value profiles for different services can be created. These profiles are based on different ratings of the dimensions in reference to either competing offerings, or future offerings. They can be used in this respect to map current and future demand. An important practical implication of this is that the value dimensions can be used to target customers in a new way. In practice, this means that depending on whether customers value the temporal and spatial dimensions they may be offered time and location flexibility. In contrast, for customers that value service attributes, such as a number of different service alternatives, then the technical dimension may be accentuated in the service design.

Notes 1 It is assumed that the value dimensions include price and other forms of sacrifice that is implicitly considered. The value dimensions are seen to include an integrated function of benefit and sacrifice. Consequently, the benefit and sacrifice of each dimension were not separated in this study. 2 A full profile alternative of the pilot conjoint task with four attributes and two-three levels would include 36 possible combinations (2*3*2*2). However, using a fractional factorial design it was possible to reduce the number of profiles to nine. No holdout profiles were included.

References Anselmsson, J. (2001), Customer-perceived Service Quality and Technology-based Self-service, doctoral dissertation, Lund Business Press, Lund. Bergadaa, M. (1990), “The role of time in the action of the consumer”, Journal of Consumer Research, Vol. 17 No. 3, pp. 289-302. Berry, L., Seiders, K. and Grewal, D. (2002), “Understanding service convenience”, Journal of Marketing, Vol. 66 No. 3, pp. 1-17. Bitner, M. (1992), “Servicescapes: the impact of physical surroundings on customers and employees”, Journal of Marketing, Vol. 56, April, pp. 57-71. Brady, M. and Cronin, J. (2001), “Some new thoughts on conceptualizing perceived service quality: a hierarchical approach”, Journal of Marketing, Vol. 65, July, pp. 34-49. Brown, L. (1990), “Convenience in services marketing”, Journal of Services Marketing, Vol. 4, Winter, pp. 53-9. Carman, J. (2000), “Patient perceptions of service quality: combining the dimensions”, Journal of Services Marketing, Vol. 14 No. 4, pp. 337-52.

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study”, Journal of Professional Services Marketing, Vol. 21 No. 1, pp. 63-88. Lehtinen, J. (1982), “Asiakasohjautuva palveluiden tuotantoja¨rjestelma¨ – ka¨sitteita¨ ja kliinisia¨ sovellutuksia” (“Customer-oriented service production system – concepts and theoretical applications”), doctoral dissertation, Sarja A 1: Tutkimuksia 20, Yritysten taloustieteen ja yksityisoikeuden laitoksen julkaisuja, Tampereen Yliopisto, Tampere. Lehtinen, U. and Lehtinen, J. (1991), “Two approaches to service quality dimensions”, The Service Industries Journal, Vol. 11 No. 3, pp. 287-303. Liljander, V. and Strandvik, T. (1993), “Estimating zones of tolerance in perceived service quality and perceived service value”, International Journal of Service Industry Management, Vol. 4 No. 2, pp. 6-28. Liljander, V. and Strandvik, T. (1995), “The nature of customer relationships in services”, in Swartz, T., Bowen, D. and Brown, S. (Eds), Advances in Services Marketing and Management, Vol. 4, JAI Press Inc., Greenwich, CT, pp. 141-67. Liljander, V., van Riel, A. and Pura, M. (2002), “Customer satisfaction with e-services: the case of an online recruitment portal”, in Bruhn, M. and Stauss, B. (Eds), Yearbook of Service Management 2002 – Electronic Services, Gabler Verlag, Wiesbaden, pp. 407-32. Lovelock, C. (1983), “Classifying services to gain strategic marketing insights”, Journal of Marketing, Vol. 47, Summer, pp. 9-20. Meuter, M. and Bitner, M. (1998), “Self-service technologies: extending service frameworks and identifying issues for research”, in Grewal, D. and Pechmann, C. (Eds), AMA Winter Educator’s Conference Marketing Theory and Application, Vol. 9, American Marketing Association, Chicago, IL, pp. 12-19. Meuter, M., Ostrom, A., Roundtree, R. and Bitner, M. (2000), “Self-service technologies: understanding customer satisfaction with technology-based service encounters”, Journal of Marketing, Vol. 64, July, pp. 50-64. Monroe, K. (1990), Pricing: Making Profitable Decisions, McGraw-Hill, New York, NY. Ostrom, A. and Iacobucci, D. (1995), “Consumer trade-offs and the evaluation of services”, Journal of Marketing, Vol. 59, January, pp. 17-28. Parasuraman, A. and Grewal, D. (2000), “The impact of technology on the quality-value-loyalty chain: a research agenda”, Journal of the Academy of Marketing Science, Vol. 28 No. 1, pp. 167-74. Parasuraman, A., Zeithaml, V. and Berry, L. (1985), “A conceptual model of service quality and its implications for future research”, Journal of Marketing, Vol. 49, Fall, pp. 41-50. Patton, M. (2002), Qualitative Research and Evaluation Methods, Sage Publications Inc., Thousand Oaks, CA. Peterson, R. and Balasubramanian, S. (2002), “Retailing in the 21st century: reflections and prologue to research”, Journal of Retailing, Vol. 78, pp. 9-16. Ramı´rez, R. and Wallin, J. (2000), Prime Movers: Define Your Business or Have Someone Define It against You, John Wiley & Sons Ltd, Chichester. Rust, R. and Oliver, R. (1994), “Service quality: insights and managerial implications from the frontier”, in Rust, R. and Oliver, R. (Eds), Service Quality: New directions in Theory and Practice, Sage Publications, Thousand Oaks, CA, pp. 1-19. Settle, R., Alreck, P. and Glasheen, J. (1978), “Individual time orientation and consumer life style”, in Hunt, K. (Ed.),

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Yale, L. and Venkatesh, A. (1986), “Toward the construct of convenience in consumer research”, in Lutz, R. (Ed.), Advances in Consumer Research No. 13, Association for Consumer Research, Ann Arbor, MI, pp. 403-8. Zeithaml, V. (1988), “Consumer perceptions of price, quality and value: a means-end model and synthesis of evidence”, Journal of Marketing, Vol. 52, July, pp. 2-22. Zeithaml, V., Parasuraman, A. and Malhotra, A. (2000), “A conceptual framework for understanding e-service quality: implications for future research and managerial practice”, Report No. 00-115, Marketing Science Institute, Cambridge. Zeithaml, V.A., Parasuraman, A. and Malhotra, A. (2002), “Service quality delivery through Web sites: a critical review of extant knowledge”, Journal of the Academy of Marketing Science, Vol. 30 No. 4, pp. 362-75. Zhu, F., Wymer, W. and Chen, I. (2002), “IT-based services and service quality in consumer banking”, International Journal of Service Industry Management, Vol. 13 No. 1, pp. 69-90.

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ICT: the creation of value and differentiation in services Benoıˆt Meyronin

The author Benoıˆt Meyronin is a Lecturer in the Marketing Department, Grenoble Ecole de Management, Grenoble, France and a Researcher at the IDEFI Institute, Nice University/CNRS, Nice, France.

Keywords Services marketing, Information, Communications, Value analysis

Abstract This paper raises the question of the impact that the increasing use of information and communication technologies (ICT) has on the process of creating value and the differentiation in service activities. We shall develop the idea that electronic intermediation tends to “impoverish” service relations, insomuch as the technological interface can by no means replace the wealth of human interactions on which the creation of value and the differentiation of services are based. So it is mainly a theoretical contribution based on American and French academic works in the field of services marketing management.

Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/0960-4529.htm

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The huge implementation of information technologies has accompanied the growth of an immaterial sector of the economy and therefore the development of service activities, and those of an “informational” (De Bandt, 1995) nature in particular. Their capacities to process, stock and transfer data accelerate the production and the exchange of information, thus invigorating the development of knowledge (from human sciences to educational multimedia, from collaborative work tools to access to online databanks, etc.) It is therefore possible to demonstrate that the increase in the use of information technologies contributes to the steady tertiarisation tendency (Petit, 1999; Meyronin, 2001). Indeed if the latter were to be considered as a slow trend which is deeply engraved in developed economies and which, to this day, has shown no significant signs of relief, (Gadrey, 1999), the phenomenon has, over the past 20 years or so, been accompanied by the growing use of information technologies. Going far beyond the spheres of traditional service activities such as banking, insurance or travel agencies, which are, by their very nature, activities which process information (standing orders, reservations, dealing with premiums and insurance contracts, etc.), and which necessarily rely more and more on tele-matic infrastructures[1], the rise of an economy which is increasingly dominated by tertiary activities of the informational type is accompanied by the adoption of information technologies by a whole sector producing goods and services. Nearly all of the corporate service activities represent just as many functions for which the manipulation of increasing quantities of information and the capitalization of knowledge is becoming more and more important. A survey conducted by a French consultancy company (IDATE) concerning how SMEs are equipped in information technologies (La Lettre de l’IDATE, 2000) reveals that in terms of Internet connections, the creation of Web sites and the spread of Intranets, the sector of activity is a discriminating factor: banking-insurance, financial and especially computer services and research units have the highest levels of facilities. For the OECD (2000), it is also quite obvious that information technologies are essentially used in the services sector and in a few manufacturing industries. Tertiary activities are therefore unquestionably among those which use A primary version of this paper has been presented at the AMA Servsig Services Research Conference at Reims Management School (France), 12-14 June 2003. The author would like to thank Nancy Armstrong (Grenoble Ecole de Management) for her valuable help in translating this paper.

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information processing tools the most. (Marshall, 1990; Greenan, 1999). Within this context, one can often hear strong statements which proclaim that the nature of servuction should evolve to include an everincreasing degree of electronic intermediation: “certain observers predict that within ten years from now, the traditional bank as we know it will no longer exist and most of our transactions will be dealt with by means of electronic tellers, telephones or computers and modems . . . The relationship that a customer traditionally has with his/her bank is established by means of the branch office. Soon this relationship will probably no longer exist. One will have a bit of plastic with an electronic chip instead” (Lovelock and Lapert, 1999, pp. 44, 246). But is that really the case? Will the increasing use of information technologies in service activities go so far as to progressively replace face-to-face contact? On the contrary, it would rather appear to us that new servuction methods based on the use of ICT raise a certain number of questions and that the relationship between servuction and ICT is far from being quite so linear. As Eiglier and Langeard (1994) remind us, the quest for productivity gains through automating local services is detrimental to human relations. For Bre´geard (1996), it is indeed the perception of the service by the customer which is disturbed by electronic servuctions with all the consequences that may have in terms of the new constraints that must be borne by the customer: increased participation, rise in the perception of risk, loss of socialization, lack of flexibility in the relation with the service company, etc. Likewise, for Bitner et al. (2000) it is essential to better understand how consumers feel about the growing role of “self-service technologies” in servuction, how they use them and whether they intend to use them more in the future. In this paper, we shall therefore turn more particularly to the issue of the value creation processes and marketing differentiations in a context where ICT are widely used: will the increasing use of technology in service relations (see Eiglier and Langeard, 1994) give rise, at the same time as new servuctions, to the creation of new sources of value for (and with) customers and differentiation or, on the contrary, will it devalue service relations, rendering them commonplace? In other words, what impact does the transition from “tertiary conviviality” (Eiglier and Langeard, 1994) to a certain form of “electronic anonymity” have on the creation of value and the differentiation of service relations? If, in a bank such as the French Caisse d’Epargne, 40 percent of the operations conducted at the desk relate to cashing cheques, is this a sufficient reason for electronic disintermediation? Should the

presumed low added value alone of this type of task define the choice of servuction method? To examine this issue, we shall begin by studying, from an analytical point of view, the impact of the increasing use of ICT on the creation of value and differentiation in service relations. Second, and before concluding, we shall put forward our recommendations.

Towards a loss of value and differentiation? One of the reasons which might explain why services increasingly resort to electronic intermediation, besides endeavors to rationalize and obtain productivity gains (Aubert, 1997; Monnoyer, 1997), paradoxically lies in the role human relations have in service activities. A great deal of problems, namely to do with quality (standardization) or the stress of the operators, are “resolved” by resorting to the use of technological tools. In other words, one reassures the staff in contact with customers by undermining the confidence of the latter who are constantly confronted with new terminals, new interfaces and basically, new procedures. As Lovelock and Lapert (1999, pp. 34-5) underline, “given that a large number of service quality problems result from incidents that occur between customers and staff, service industries use new technologies more and more in order to reduce or suppress customer contact. Thus, telephone conversations have replaced face-to-face contact, and ‘human’ services are replaced by self-services which often depend on the use of computers and automatons”. Indeed, in this way, we are “distorting” the service relation to a certain degree by depriving it of its main vehicle of performance and differentiation: the direct, interpersonal relation with the customer. By “info-mediation”, we are referring here to the array of technical facilities, generally stemming from information and communication technologies (ICT) which constitute such intermediation by electronic means[2], and which give rise to just as many “servuction” methods, as per Eiglier and Langeard (1987). So here, we shall not discuss new services, but the new processes employed to deliver them. In the paragraphs below, we shall put forward an analysis of the loss of value and differentiation that the massive use of ICT can seem to engender in service activities.

The loss of value and differentiation If we retain the following definition of value: “Value only exists where there is service. To ask

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oneself about the value of a service, one must raise the question of the creation and therefore the production of that same service” (Eiglier and Langeard, 1987, p. 7), one understands the importance of taking into account the production process of a service when considering the creation of value in a service relation. Reducing servuction to a plain transaction in which the operator satisfies a request that is clearly expressed by a customer boils down to ignoring an important side to creating value in services. If an automatic bank teller can easily and less expensively replace staff in the process of handing over a certain amount of money to a customer, it cannot enhance the transaction or give it more value through human interaction, whether that be in a managerial or commercial capacity (take advantage of the opportunity to propose another service, for example, or enquire about the customer’s wellbeing, his projects, his appreciation of the services etc.) or from a social perspective (create or strengthen the “link” with the customer, as Re´my (2001) would put it). We can therefore agree with Munos (2002, pp. 64-5), in her claim that the management of interpersonal relations is inclined “to remain, even with the advent of ICT, the true expertise, the unique know-how and the major differentiating factor of services”. Vandenbosch and Dawar (2002) also underline the importance, taking all sectors into consideration, of the value created through customer-company interactions in their capacity as major factors of differentiation in a context where goods and services have become increasingly commonplace. Prahalad and Ramaswany (2000) likewise highlight the active role customers have as “co-producers” of value in their interactions with companies, in all sectors of activity and in the broad sense of corporate activity: they namely give the example of broker firms where the quality of customer contact is a key factor of success of the service (clear understanding of customer expectations, etc.)[3]. Whereas, while the primordial differentiating factor in service activities lies in their capacity to implement servuction where the relational aspects are determinant[4] (Tocquer and Langlois, 1992; Eiglier and Langeard, 1987, 1994; Munos, 2002), a great deal of services are today devalued and rendered commonplace by the “informational wall” built by automatons[5] (public terminals and vocal servers in banks, restaurants, transport, carparks, ticket-offices, etc.) and tele-matic systems (Minitel, Internet). Therefore, if services marketing is indeed “relational” by nature (Tocquer and Langlois, 1992; Eiglier and Langeard, 1994), replacing human relations that are vehicles of added value and differentiation by

techniques that are more or less automatic, could result in a decrease in the value co-produced by the company with its customers and accentuate the common or banal connotation given to the service. And we believe that the productivity gains related to info-mediation, which, as we shall see later, remain questionable, can not necessarily compensate the losses in terms of value and differentiation that are inherent to their often excessive implementation. In effect, how does one distinguish a service A from a service B through the automaton, vocal server or Web site that vehicles them? If the Web is a tool that marketing cleverly took over and embellished with the virtues of one-to-one, interactivity and ubiquity, the objective difference, for an uninitiated Internaute (the greater majority of consumers and a fact that we tend to forget), is far from obvious. Likewise, what looks more like an automaton than another apparatus installed by a competitor? Therefore, info-mediation methods in service sector activities can only withstand a minimal proportion of differentiation. While one may flatly refuse what has just been said, who would dare claim that a Web site or an automaton could offer just as many differentiation factors as a bank branch office or a book shop? Besides socialization, which is absolutely essential (Cova, 1994), the physical servuction locations and human interfaces of companies offer a wide range of well-known differentiation leverages[6]: . Differentiation through space: location, situation, interior and exterior design and architecture, sound atmosphere, lighting, colors, etc. . Differentiation through the information given to customers, sign-posting, etc. . Differentiation through a style of welcome and human relations. . Differentiation through time management (queues, presentation time, etc.). . If the segmentation has been done properly, there are differences in the interactions with other customers (which are more or less sought after). . More generally, differentiation through servuction processes: pertinence and logical sequence of events, measuring customer participation (co-production), etc. . Finally they offer a notion of quality in “experience with customers”[7] that cannot be compared with info-mediation tools (and which can be adapted indefinitely). Thus the new concepts of combined activities (coffee/ book shops, etc.) or even the new concepts in distribution[8], which offer differentiated services and atmospheres (and their various combinations), can hardly be reproduced

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online: it’s not a simple exchange of banners or “co-branding” (let’s imagine that, from the FNAC Web site, we have access to a chain of Italian coffee shops) that will enable you to really bring the two together and create value in the eyes of the customer (for example: being able to “consume” a book at the same time as a coffee in a particular atmosphere in the center of town). That being so, if service companies readily resort to info-mediation, it appears to us that they should also look towards their sources of added value and differentiation at the same time: where, when and how do they create value for their customers? But, above all, where, when and how do they create value with their customers? Segmenting their offer as they do, by progressively focusing their human resources on tasks which are supposedly of high added-value (in banking, a personalized estate advisory service, for example) indeed implies that they consider servuction time, for a wide range of services, as “idle moments”, which do not generate value. But value, in services more than elsewhere, as an indicator of service quality is judged by the value that is co-produced for, but especially with, the customer and consequently perceived by the customer too[9]. Therefore, if the customers consider that it is essential for them to have traditional access to their banking facilities and that some of them[10] are prepared to spend the time necessary, then it should be obvious that they give higher relative value to this type of servuction that any other[11]. By “objectivizing” their relations with customers via ICT, service companies are reducing themselves to a purely transactional dimension. And one could think, like Bitner et al. (2000), that a substantial proportion of those who prefer info-mediation to that type of relation, do so because they are disappointed by the traditional methods of delivering services[12]. In other words, if the relational marketing of service companies reached the expectations of their customers, one could bet that the latter would be less eager to give them up. To this effect, it appears to us that service companies should first re-think and invigorate their relational marketing before systematically replacing it with infomediation methods. In fine, the stake of a differentiation “outwith ICT” indeed lies, by default, in the systemisation of info-mediation methods: as Re´my (2001, p. 375) underlines, “ the inter-individual encounter becomes the determining factor where technical interfaces have become commonplace”. When faced with a relatively uniform world of technical interfaces, the human factor becomes a signal whereby the customer is reconsidered and which,

to some extent, testifies that his ego and specificity are being taken into account. From processing information to handling people: the importance of human interactions in service relations A large number of service companies are therefore inclined to forget that their activities are fundamentally activities which deal with both information and people[13]. Most service activities indeed revolve around one or both of these aspects. To this effect, if information technologies legitimately cover their own share, one should not forget the second aspect. As Munos (1999, p. 63) underlines, “by seeking to give added autonomy to the client, the company runs the risk . . . of undermining all the main reasons for which one may have chosen this company as opposed to another in the first place (for example pursued inter-personal relations between the client and the contact staff)”. We are thus used to assimilating banking and insurance activities to processing information. But that would be to ignore that they are also, and perhaps above all, activities where one handles people, which is demonstrated by: . Listening to and understanding the needs of customers and explaining and sharing (the) solution(s) (finance solutions, insurance cover for people and belongings, etc.) suggested, which if any, are definitely determining factors in a service relation. . Related to the above, the contact personnel’s capacity to personalize the service in real-time, which technology can certainly do more and more (cf. the Internet services) but to a much lesser extent in its current state (Bitner et al., 2000). . The way crisis situations or “critical incidents”[14] are handled; the situations which can crop up during the service relation (unavailable service, complaints, particular customer needs, disturbance of other customers, managing customer errors, etc.). The management of these situations is indeed “destabilizing” and stressful for the contact staff who are often ill-prepared for such circumstances; but during which, customers often express their sources of dissatisfaction or concern and staff can suggest original solutions. In any case, the contact personnel’s capacity to manage an unexpected situation and when appropriate, to be flexible with respect to the more or less codified procedures of the servuction, is often a determining factor in the management of a crisis situation. And when one knows that “the critical incidents that have been successfully resolved have enormous potential in terms of the increase in

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brand fidelity, because they show that the whole company is looking after its customers” (Lovelock and Lapert, 1999, p. 62), it is also clear that not managing them properly, or even at all, often leads to the definitive departure of the customer. For Eiglier and Langeard (1994, p. 13), “when one has lost one’s bank card, or worse, there has been a case of fraud by the duplication of a credit card number and the account has been debited, the management of the incident – which is traumatic for many – requires a dramatic intensification of the service relation ”. Whereas in most cases, info-mediation, which is a source of “rigidity” in the interactions with a company (Bre´geard, 1996), does not immediately offer an appropriate answer to the expression of dissatisfaction or concern during the service relation and therefore does not turn the critical incident around to benefit the company: info-mediation technologies do not, or at least only marginally, create opportunities to repair an incident (Bitner et al., 2000). On the other hand, all the positive reactions (possible comments or suggestions from clients, their satisfaction with regard to a new service, etc.) can be communicated to the contact staff while the servuction is underway. Such positive interactions offer two advantages: they contribute to motivating the personnel, to improving the service delivered (Tocquer and Langlois, 1992). The welcome and the valorization of the customer in terms of the socialization aspects[15]. As Eiglier and Langeard (1994, p. 13) recall, “an automatic post office teller is no longer a meeting place . . . The service relation is also a relation where one co-exists with other clients”. Indeed, service areas cannot be reduced to simple servuction places: a bank, a store, a hairdresser’s shop or a medical surgery are places where we live and share experiences, indeed where we socialize. Re´my (2001) develops the concept of “connecting services” (“services de lien”) to account for the importance of what he calls “the social make-up of the act of exchanging ” (Re´my, 2001, p. 374). For many clients this aspect constitutes an essential part of their motivation and an important source of satisfaction and therefore of fidelity. However, the loss of this socialization is undeniably inherent to electronic intermediation and a definite source of dissatisfaction (Bre´geard, 1996). This also recalls what Eiglier and Langeard (1994, p. 13) write when defining

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how to identify service relations: “the information exchanged during a service relation is always a mixture of data related to the production of that service and informal conversation ”. This informal part plays an important role in the valorization of the service relation by the customer. Finally, the atmosphere of confidence that can reign between the supplier and his client. Although this point deserves to be examined more closely as such, it seems difficult to create, or even maintain, an atmosphere of confidence between the consumer of a service and its supplier by means of a purely electronic relation (Bitner et al., 2000). As Veys (1996) rightly underlines, automated servuction destabilizes the consumer due to the absence of the confidence they had in the contact staff. Whereas, we know fine and well that confidence is a pre-requisite for the longterm creation of value (fidelity) and this applies to the majority of service activities, from the doctor to the chartered accountant[16].

Thereafter, as Munos (2000, pp. 10-11) indeed points out, “maintaining a certain degree of control of the services means that the service unit must have a better understanding of the needs and better control and analysis of customer reactions in order to ‘rectify its position’ and adjust to best match the content they wish to give to the service . . . By losing control over ‘its’ servuctions, the service unit loses control of the behavior and experiences of its clients. By exteriorizing the client and physically cutting him off from contact staff, the service company detaches itself from its customer and from the wealth of information that he is capable of providing in order to improve the service and the performances of the company”. By considerably diminishing the control a service company has over the service relation, infomediation tends to cancel out the positive effects related to “handling people”, to the service’s capacity to co-produce value and create differentiations with the customer. Moreover, if we pursue the ideas of Normann (1991) and Tocquer and Langlois (1992), the functions filled by clients in a face-to-face service relation can be listed. They are: . that he contributes to the diagnosis, particularly in informational services (as De Bandt (1995) puts it) (auditing, computer sciences, consulting, etc.), in the health sector; . that he contributes to a growth in productivity by himself accomplishing certain tasks that were otherwise assumed by contact staff (in banks for example, filling out the different forms himself)[17];

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that he contributes to the control and improvement of quality: production and consumption being simultaneous, he can react in real-time and put forward his suggestions; that he contributes to internal marketing via his attitude towards the personnel (gratitude, valorisation, etc.) and therefore plays an important role in terms of staff motivation; that he participates in the design and development of new services in a framework of co-innovation (Gallouj and Gallouj, 1996; Dumont, 2001); and that he participates in the company’s business development by way of positive word of mouth[18].

One can easily ascertain that by accentuating the logic of info-mediation, service activities lose value, not only in the eyes of certain customers by losing the value that the latter attribute to the way they “handle people”, but they devaluate themselves by stripping the service relation of the very value that was co-created with the customer and from which they were first to benefit (quality improvement, co-innovation, etc.). It therefore seems difficult to imagine how one could accomplish the varying degrees of handling people and the co-production of value required of every service activity simply by means of infomediation methods. How does one respond beyond the legitimate need for socialization, to implicit or badly expressed expectations, to a need to which only a human operator can be receptive and provide an unprecedented answer? How does one capitalize on customer relations and the suggestions and original solutions that human interaction can generate at the time of the servuction? And finally, how does one mobilize the customer for the real-time improvement for the quality of the service[19]? For activities such as banking or insurance (in particular), it seems rather difficult to envisage processing information without handling people by segmenting the offer to such an extent that the latter dimension be reserved for tasks considered to be of high added value. The issue raised by this paper therefore indeed lies in the way the latter is envisaged: it therefore would appear that info-mediation which in fact is static and short-term, reveals a restrictive vision of the (co-)production of value in services. It is a process whereby the client is to a certain extent “shut out”, while the servuction is reduced to a purely transactional role. By devaluating the service relation in the eyes of the customer, service companies which readily resort to info-mediation run the risk of losing their customers for the benefit of a competitor who is more attentive towards handling people and the co-production of value:

info-mediation can therefore be detrimental to client fidelity (Eiglier and Langeard, 1994). Are “technophiles” the only ones to benefit from info-mediation or the dissatisfaction of the majority of people? Moreover, the disintermediation of service relations, although it can be justified by a migration of resources towards tasks of higher added value, nevertheless penalizes large segments of clientele who do not master; and/or do not have access to the technical means required by info-mediation (mainly the Internet); or, quite simply, do not like this type of servuction[20]. There can be several reasons to this: the costs of telecommunications (vocal servers, Minitel, Internet), the lack of personalization, confusing procedures, the absence of human contacts, technical problems, poor ergonomics, a tangible risk in terms of the performance or accomplishment of the servuction, lack of control, loss of confidence, etc.[21]. We are therefore witnessing an increase in dissatisfaction which is often related to a sense of helplessness within certain segments of the clientele upon whom increasing info-mediation is thrust[22]. Indeed, in its endeavors to become “multi-channel”, the bank (for example) has multiplied sources of dissatisfaction, frustration and concern from those who did not purposefully choose info-mediation. Those clients who prefer the branch offices and socialization areas indeed have very different behavior from those who have adopted the “remote everything”. And whereas we can debate about the degree of satisfaction/dissatisfaction felt by customers when faced with info-mediation, there remains that their access, both in economic terms and with regard to their apprenticeship, is far from widespread or from becoming so in the near future. But the real fundamental question lies in finding out whether it is even desired; that is to say, desired by the customers. As Munos (1999, p. 62), underlines “more and more service companies introduce technologies to their service production processes and they do not always take the customer’s opinion into account, nor their capacity or desire to use them”. Consequently, by increasingly enforcing the use of info-mediation beyond the “technophiles” segment (who have the facilities), service companies are leaving themselves wide open to likely disappointments from those customers who do not have access to and/or who do not like such servuction methods.

Towards necessary arbitration We shall only put forward one recommendation here: it consists in comparing the productivity

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gains expected from the use of ICT with the potential impact info-mediation could have on the client’s perception of value and the factors of differentiation. Indeed not all info-mediation tools should be placed on the same level. DurrandeMoreau (2002) quite rightly points out how teletoll systems installed by motorway companies have brought true value to clients: tariff reductions, simplifications and payment flexibility, time-saving and legible invoicing. In this case, the suppression of human contact (at the toll booths) in favor of automatons resulted in tangible gains for both sides. The subscription systems made possible by these technologies also provided a differentiation factor based on the advantages it offered (the number of tele-toll lanes, indirect debit, types of reductions, etc.). Bitner et al. (2000) collected a list of many sources of satisfaction which were highlighted by a poll of consumers who readily use “self-service technologies”: availability in the case of emergencies, ease of use, saving time and money, temporal and geographical availability, etc. Not all electronic servuctions, in any case, are sources of dissatisfaction for consumers. It is therefore more appropriate to arbitrate on a case by case basis, depending on the real advantages that a given servuction method can offer. Figure 1 illustrates the opportunity of such an analysis in the banking sector with respect to two axes: the productivity gains expected from their use, and the loss of value and differentiation factors inherent to that use. The choice of the banking sector was motivated by the relatively consistent use, over the past 20 years, of infomediation methods (Bre´geard, 1996). In the absence of more precise evaluations, which remain to be established, we can assume that: . The ATMs (automated teller machines) apparently suggest fewer productivity gains, compared with vocal servers or the Internet while taking into account the hardware, software and human investments required to create and maintain a national infrastructure Figure 1 Competitive advantage vs productivity gains

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of ATMs when they are compared with those required for the creation of a tele-matic service. But, as Eiglier and Langeard (1994) underline, they are very useful for dealing with large volumes of transactions with little added value (dispensing cash). Contrary to the above, ATD (automated teller desks) result in a loss of value (they fill more elaborate functions which can give rise, when meeting in front of the desk, to more productive interactions) and fewer productivity gains resulting from the queues they create (more complex operations compared to ATMs). The Internet services should be distinguished in terms of their degree of complexity: consulting one’s accounts online (and more generally obtaining information) is close to what is offered by the vocal server (with a graphic interface instead of a vocal interface); likewise, conducting certain banking operations online (transfers from one account to another for example) is closer to the services offered by the ATD with no queues and yet with interactivity. Finally, the investments required cannot be compared with those mentioned earlier. That is why we consider that the productivity gains which might be associated with them are higher than those in the other two servuction methods driven by ICT. But the most complex operations that can be conducted on the Internet (estate management, etc.) clearly distinguish this media from the other facilities in terms of loss of value and differentiation, due to the interactions that could arise from a face-to-face contact.

One can thus evaluate the different servuction methods driven by ICT and judge their appropriateness. ATDs and advanced Internet services are problematic insofar as the losses in terms of the creation of value and factors of differentiation do not appear to be compensated by the productivity gains expected. Their increased use in the banking sector should therefore be reconsidered with respect to these two elements while endeavoring to measure them as precisely as possible. If the losses highlighted in this paper are clearly higher than the expected productivity gains, their progressive “impoverishment” is strongly recommended (replacing advanced online services with face-toface contact where it has been suppressed, without necessarily questioning all of the electronic servuction methods in place). Banks should therefore question their positioning, and the banks with branch offices should focus on the essential component of their

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competitive advantage: face to face contact with customers, leaving the specialists (new arrivals or subsidiaries) to implement marketing strategies which revolve around mediation and remote services. What is more, the question of the productivity gains related to the use of ICT is an on-going debate with economists, insofar as the promises made by ICT in this respect have been hard to demonstrate[23]. For De Wulf et al. (2001), it is also obvious that service firms must arbitrate between the benefits of the automation of servuction and the advantages which are inherent to the human interactions that are built from direct contact with the customer. It therefore seems essential that we recommend case by case arbitration on the basis of the analysis suggested in this paper: expected productivity gains, or cuts in cost can not be the sole motives behind the choice of a given type of servuction method. Such arbitration should be based on the measurement of the customer’s perception of value related to the alternative servuction/interaction methods suggested, as well as the corresponding differentiation factors (number, nature, etc.), in order to compare these data with the respective potential gains of each servuction method. Whereas it is obvious that such calculations are more than often quite difficult to make (productivity measurements, impact of ICT, etc.), they nevertheless remain necessary. At the very least one should solicit clients and ask their opinion about a given technological method and properly target the “technophile” segments. But the analysis put forward in this paper suggests that despite satisfying customer expectations, the creation of value and opportunities for differentiation are nonetheless “amputated”.

companies are inclined to forget the importance of customer participation in the servuction process, their role as co-producers of a service, coinnovators and the sole evaluators of the quality of the service given. Losing the wealth of human contact and the inherent potential of any encounters in a servuction area in favor of info-mediation seems to counter-act an increase in created value. After the French Minitel and vocal servers, info-mediation through the Internet seems to accentuate the steady tendency of service companies to abandon their commitment, and this results in a loss of coproduced value and in growing dissatisfaction among certain customers and an increase in the commonplace connotation of service relations. Moreover, the slightest gains eventually generated by servuction methods always imply more infomediation, due to the productivity gains that are sought after and to the detriment of the creation of value: service companies are therefore lured into a vicious circle which leads them to perpetually invest in new info-mediation methods in order to generate decreasing margin value. And, each time a new info-mediation method is introduced, it can lead to the creation of less value for, and with, the customer. We have therefore seen in this paper how, in service activities, the increased use of informediation methods as means of servuction can represent a risk for the service companies. Indeed it seems appropriate to reconsider the current movement in light of these elements in order to reimagine value creation processes and differentiation in service activities. In doing so, we can perhaps review the worth of certain investments with respect to the threats the company may risk in the long term. Whereas there is no point in reconsidering certain automated servuction methods, the pertinence of which is undeniable (ATMs or automated motorway toll booths, for example), urgent thought must nevertheless be given to the current tendency towards systematic info-mediation. Naturally it would be appropriate to complement our analysis with more detailed surveys and figures on this loss of value, the productivity gains related to info-mediation and the degree of satisfaction/dissatisfaction relative to the use of these methods. Have the productivity gains relating to the use of ICT to execute tasks that were once undertaken by contact staff been significant enough to compensate the loss of value that we have highlighted in this paper? If indeed we were able to illustrate, in an analytical fashion, that this is probably not the case, figures are nevertheless required to clearly evaluate the ratio. And finally, although we focused on the creation of

Conclusion Many service companies are migrating from categories of service where contact was omnipresent (in banking for example) towards an increasing “info-mediation” strategy, leaving faceto-face contact to the most qualified service areas. In doing so, it appears that they are overlooking the creation of value that emerged from this relation by transforming it into an “idle moment”, a sort of passive servuction where human interaction no longer matters. However, this interaction was the principle vehicle of the creation of value and differentiation, a moment during which the service reflected its original, and perhaps only real meaning in the minds of consumers, and what’smore involved the joint creation of value. By replacing the wealth of human interactions with the strict conformity of info-mediation, service

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value and differentiation in this paper, it is evident that other aspects of services marketing come into play in establishing an overall analysis of the impact of ICT in service relations: fidelity, customer satisfaction with regard to the role that they are given in the servuction process (degree of contribution and info-mediation), etc. Our analysis could therefore be deepened by taking these other fields of thought into account.

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1 A recent survey shows that banking and insurance sectors are clearly the leaders in the use of ICT (Greenan, 1999, p. 92): computer and network technology represent roughly 40 percent of investments, while nearly the entire staff use a computer (89 percent). 2 For a presentation of the impact of ICT and, more generally, technologies on various categories of service, refer to Lovelock and Lapert (1996). 3 For these authors, however, the Internet constitutes a favorable, as opposed to problematic, element in the development of company-customer interactions. 4 As Tocquer and Langlois (1992, pp. 116-17) underline: “The competitive advantage of these [service companies] is not defined by its content, but by the presentation of the offer, which consists in an interface between the customer and the organization. During the interface, the relation takes over the content, because it gives distinctive value to the offer . . . The relation over-rides the content ”. 5 For a typology of the different public automats (ATMs), refer to Veys (1996). 6 On the roles of the physical environment in the differentiation of services, refer to a recent paper by Hela (2002). 7 To coin the expression used by Tocquer and Langlois (1992). To pursue this idea, refer also to Prahalad and Ramaswany (2000), who use the interesting example of visiting museums to illustrate their point. 8 See, for example, the theme shops launched by the SEPHORA (a LVMH subsidiary) perfume shop, and which largely depends on sensorial marketing. 9 We all know that value is not objective: it depends on the client’s perception (Ramirez and Wallin, 2001). 10 Which is true for most of them. The launch of the pioneer in online banking, the English bank FirstDirect relied on a survey that revealed that less than a third of customers wanted to reduce the number of visits to their bank (Dumont, 2001). 11 Their survey concerning motives of satisfaction/ dissatisfaction of consumers with regard to “self-service technologies”, Bitner et al. (2000) establish indeed that only 3 percent of consumers surveyed consider losing relations with contact staff as an advantage. 12 Bitner et al. (2000, p. 8): “customer perceptions of SST benefits may also be an indicator of the failure of service providers to satisfy customers through traditional forms of interpersonal service delivery”. 13 Lovelock and Lapert (1999, p. 39) talk of activities of “processing people” to designate certain service activities such as surgery, hair-dressing, or air transportation. It seems that this dimension can be extended to be given a broader meaning as suggested in the body of the text. Moreover, as concerns activities which handle objects, we

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can consider that in fine they amount to the satisfaction of the owner or user of such goods or a person: when repairing a car, the service addresses the expectations and satisfaction of the driver. On this point, refer to Bitner et al. (1990, 2000). On this question you may also refer to a recent paper by De Wulf et al. (2001). With regard to the question of confidence in the service relation, and its impact on the creation of value and customer fidelity, refer to a recent paper by Sirdeshmukh et al. (2002). For the co-production aspect, it is true that the productivity gains inherent to a high participation level of the customer can also be found in automatic and electronic servuctions. According to Munos (1999), one can add the contribution of the customer to the co-production of corporate culture to the list. The human interactions inherent to dealing with people within a service relations framework are indeed a determinant source of progress in the organization of services and perpetual improvements: “The customer is a major contributor to the improvement of the service delivered. The client is an active training agent and perhaps the unique indicator of quality of the service delivered . . . Technologies provide information on the one side (information systems, files, “tracking”) but take it away on the other, since the contact staff and the service unit in general are deprived of valuable information: customer feedback, customer reactions following a given operation, or to an argument, to explanations, his mimics, gestures, his surprise, his satisfaction” (Munos, 2000, pp. 15-16). On the “captivity” of automated servuction users and learning problems refer to Veys (1996). On the different constraints that consumers bear in an automated servuction, refer to Veys (1996). As regards the process whereby clients choose between different servuction methods, refer to Bre´geard (2002), who in particular underlines the determinant role of contact staff in the appropriation of technological servuctions. Prahalad and Ramaswany (2000) quote the example of the unsatisfied customers of Wells Fargo when they were forced into using an online banking service. Indeed, their impact on productivity (the famous “productivity paradox” highlighted by R. Solow in 1987) is widely discussed by economists (see David, 1990; Petit, 1999; Greenan, 1999; OECD, 2000).

References Aubert, B. (1997), Les Technologies de l’Information et l’Organisation, Gae¨tan Morin Editeur, Boucherville. Bitner, M.J., Booms, B.H. and Tetreault, M.S. (1990), “The service encounter: diagnosing favorable and unfavorable incidents”, Journal of Marketing, Vol. 54, January, pp. 71-84. Bitner, M.J., Meuter, M.L., Ostrom, A.L. and Roundtree, R.I. (2000), “Self-service technologies: understanding customer satisfaction with technology-based service encounters”, Journal of Marketing, Vol. 64 No. 3. Bre´geard, H. (1996), “Servuctions en face a` face, servuctions a` distance et servuctions automatise´es: le processus de choix des clients”, 4e`me Se´minaire International Eric Langeard de Recherche en Management des Activite´s de

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Services, IAE d’Aix-en-Provence, Lalonde-les-Maures, pp. 91-110. Bre´geard, H. (2002), “Nouvelles technologies et servuctions: connaissance, conside´ration et choix par les clients du mode d’obtention d’une prestation”, Les Cahiers du Management Technologique, Vol. 12 No. 2, pp. 7-29. Cova, B. (1994), “Conception des lieux de service: une perspective ethnosociologique”, 3e`me Se´minaire International Eric Langeard de Recherche en Management des Activite´s de Services, IAE d’Aix-en-Provence, Lalondeles-Maures, pp. 178-99. David, P.A. (1990), “The dynamo and the computer: a historical perspective on the modern productivity paradox”, American Economic Review, Papers and Proceedings, Vol. 80 No. 2. De Bandt, J. (1995), Services aux Entreprises: Informations, Produits, Richesses, Economica, Paris. De Wulf, K., Odekerken-Schro¨der, G. and Iacobucci, D. (2001), “Investments in consumer relationships: a cross-country and cross-industry exploration”, Journal of Marketing, Vol. 65, October, pp. 33-50. Dumont, A. (2001), Innover dans les Services, Editions Village Mondial, Paris. Durrande-Moreau, A. (2002), “Services et tactiques de prix: quelles spe´cificite´s?”, De´cisions Marketing, No. 25, janvier-mars, pp. 17-25. Eiglier, P. and Langeard, E. (1987), Servuction: Le Marketing des Services, McGraw-Hill, Paris. Eiglier, P. and Langeard, E. (1994), “Relations de service et marketing”, De´cisions Marketing, No. 2, mai-aouˆt, pp. 13-21. Gadrey, J. (1999), “Critique du paradigme industrialiste”, L’Innovation dans les Services: Une Invitation a` l’Insurrection Intellectuelle, ANRT/Economica, Paris. Gallouj, C. and Gallouj, F. (1996), L’Innovation dans les Services, Economica, Paris. Greenan, N. (1999), “TIC, productivite´ et emploi: deux paradoxes”, in Brousseau, E. and Rallet, A. (Eds), Technologies de l’Information, Organisation et Performances Economiques, Commissariat Ge´ne´ral du Plan, Paris, pp. 75-155. Hela, M. (2002), “La contribution de l’environnement physique a` la diffe´renciation des entreprises de service”, Revue Franc¸aise de Marketing, No. 88, 3e`me trimestre. La Lettre de l’IDATE (2000), No. 26, p. 5, available at: www.idate.fr Lovelock, C. and Lapert, D. (1996), ““La technologie: maıˆtre ou esclave de la distribution des services?”, De´cisions Marketing, No. 8, mai-aouˆt, pp. 7-22. Lovelock, C. and Lapert, D. (1999), Marketing des Services, Editions Publi Union, Paris. Marshall, J.N. (1990), “The dynamics of producer services”, in Cappellin, R. and Nijkamp, P. (Eds), The Spatial Context of

Technological Development, Gower Publishing, Aldershot, pp. 167-93. Meyronin, B. (2001), “Dynamique industrielle et me´tropolisation: le paradoxe de l’Internet avec une application au cas lyonnais”, The`se pour le Doctorat de Sciences Economiques, Universite´ de Nice-Sophia Antipolis, June. Monnoyer, M.-C. (1997), L’Entreprise et l’Outil Informationnel, Editions L’Harmattan, Paris. Munos, A. (1999), “Technologies et me´tier de service”, De´cisions Marketing, No. 17, mai-aouˆt, pp. 55-65. Munos, A. (2000), “Servuction, marketing des services et technologies”, 6e`me Se´minaire International Eric Langeard de Recherche en Management des Activite´s de Service, Lalonde-les-Maures, IAE d’Aix-en-Provence, pp. 448-67. Munos, A. (2002), “Les firmes de service face aux syndromes des TICS: quels enjeux pour le marketing des services?”, Les Cahiers du Management Technologique, Vol. 12 No. 2, pp. 55-68. Normann, R. (1991), Service Management: Strategy and Leadership Service Businesses, 2nd ed., John Wiley & Sons, Chichester. OECD (2000), A New Economy? The Changing Role of Innovation and Information Technology in Growth, Les E´ditions de l’OCDE, Paris. Petit, P. (1999), “Les ale´as de la croissance dans une e´conomie fonde´e sur le savoir”, Revue d’Economie Industrielle, No. 88, 2e`me trimestre. Prahalad, C.K. and Ramaswany, V. (2000), “Mon client est tre`s compe´tent”, L’Expansion Management Review, No. 98, septembre, pp. 31-40. Ramirez, R. and Wallin, J. (2001), “Comment les clients perc¸oivent la valeur”, L’Expansion Management Review, No. 101, juin, pp. 120-6. Re´my, E. (2001), “Lien social et activite´s de service: le concept de services de lien”, International Conference on Service Management, Universite´ d’Angers, 22-23 mars, pp. 373-86. Sirdeshmukh, D., Singh, J. and Sabol, B. (2002), “Consumer trust, value, and loyalty in relational exchanges”, Journal of Marketing, Vol. 66, pp. 15-37. Tocquer, G. and Langlois, M. (1992), Marketing des Services: Le De´fi Relationnel, Editions Dunod, Paris. Vandenbosch, M. and Dawar, N. (2002), “Beyond better products: finding, building and capturing value in customer interactions”, MIT Sloan Management Review, Vol. 43 No. 4, pp. 35-42. Veys, P. (1996), “Interactions dans les servuctions automatise´es”, De´cisions Marketing, No. 7, janvier-avril, pp. 67-75.

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Introduction

Value across fulfillment-product categories of Internet shopping Julie E. Francis and Lesley White

The authors Julie E. Francis is a Doctoral student and scholarship recipient and Lesley White is an Associate Professor in Marketing, both at Macquarie Graduate School of Management, Sydney, Australia.

Keywords Internet, Shopping, Value analysis, Classification schemes, Customer satisfaction

Abstract The absence of a theoretically sound framework for delineating the various forms of Internet retailing may negate recognition of situation-specific issues or engender insights being drawn from, and applied to, incompatible contexts. To address this gap, the fulfillment-product classification scheme that segments Internet retailing into four categories was developed. Efforts were then directed towards providing a more detailed examination of perceived Internet shopping value than has to date been performed by examining the sources and inhibitors of utilitarian and hedonic value relative to each fulfillment-product category. The interviews with experienced Internet shoppers generated theoretical and managerial insights pertaining to value, while the classification scheme has applications beyond that of the current research topic.

Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/0960-4529.htm

Managing Service Quality Volume 14 · Number 2/3 · 2004 · pp. 226-234 q Emerald Group Publishing Limited · ISSN 0960-4529 DOI 10.1108/09604520410528644

The development and application of e-commerce technology has outpaced empirical research into the nature of, and participants in, Internet retailing (Francis and White, 2002; Nicholson and Sethi, 2002). While a burgeoning volume of literature is addressing the knowledge gaps (Wolfinbarger and Gilly, 2003) and delivering a more mature understanding of the retail channel (Mathwick et al., 2002), a number of fundamental issues warrant closer attention. For instance, where disparity between Internet and conventional retailing is widely acknowledged, limited recognition is afforded to the diversity of Internet retailers and shopping procedures. Also, a large proportion of research into the motives and preferences of Internet shoppers examines the views of Internet users who have never purchased a product online. Further, in this relatively new domain with a multitude of under-researched topics, initial studies dominate the literature. Collectively, these characteristics have two key implications for Internet retailing knowledge. From a broad perspective, the tendency to conceptualize Internet retailing as a single, uniform activity may negate identification of situation-specific issues or engender insights being drawn from, and applied to, incompatible circumstances. Regarding individual topics of investigation, research conclusions are oftentimes qualified by comments such as “in some situations” or “for some types of products”, yet the quest for unique insights may diminish the perceived merit and attractiveness of refining the results. Arguably, a more systematic and unified approach to advancing Internet retailing knowledge may be beneficial. For example, endeavoring to delineate the different forms of Internet retailing then re-examining the initial wave of research conclusions in the context of such tenets constitutes a meaningful avenue for advancement. Herein lie the dual objectives of this paper. Expressly, the first objective is to justify and develop a system through which to segment Internet retailing into categories with shared marketing-relevant characteristics. To this end, the underlying principles of Lovelock’s (1996) process-based system for classifying service firms will be a central consideration. The second objective is to examine Internet shopper perceptions of value relative to each of the Internet retailing categories that are identified. Preemptively, it is not anticipated that the study will unearth new sources and inhibitors of value. Rather, the goal is to build upon and clarify the work of previous researchers in this domain by

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specifying the Internet shopping situations and motives to which these sources and inhibitors of value relate.

Background Classifying categories of Internet retailing Predominantly, the extant literature implicitly conceptualizes Internet retailing as a single, relatively uniform marketing activity. This is particularly, and understandably, evident when Internet retailing is examined relative to conventional retailing (e.g. Szymanski and Hise, 2000) and in initial examinations of Internet related issues (e.g. Loiacono et al., 2002). However, this approach may negate recognition of situation specific issues or produce results with inexact qualifications such as “in some situations” or “for some types of products”. Various researchers have avoided this limitation by focusing on a single type of product that is sold online, such as groceries (e.g. Morganosky and Cude, 2000) or books (e.g. Barnes and Vidgen, 2001). While facilitating an in-depth analysis however, single industry classifications are also problematic in that insights may not be readily drawn from, or applied to, parallel situations (Lovelock, 1996). A small group of researchers have endeavored to categorize Internet retailers and shopping situations in a fashion that balances the benefits of broadly applicable insights with the need for specificity. Adam (2002) presents a spectrum of business Web use that ranges from “pure online” to “pure offline” with the mid-point of “clicksand-bricks”. While demonstrating the varying levels of online-offline integration, this system captures but one divergent aspect. Others have segregated Internet retailing where ordered goods are delivered via post or courier from those involving electronically delivered goods (e.g. Francis and White, 2002; Wolfinbarger and Gilly, 2003; Zeithaml et al., 2000), the underlying premise being that consumer requirements vary as a function of the divergent purchase and acquisition procedures. While again indicating that online-offline elements are marketing-relevant segmentation attributes, the two-category system does not account for service products that are purchased and, at times, consumed online. In the absence of a holistic framework for segmenting Internet retailers, Lovelock’s (1996) process-based system for classifying service firms provides guiding logic. Lovelock examines the customer’s role in co-producing the service and identifies four service categories. On a 2 £ 2 matrix, one axis separates services that require the customer

to be present (e.g. restaurants) from those that do not (e.g. lawn-mowing) while the second divides relatively tangible services (e.g. haircutting) from intangible services (e.g. education). When applied to Internet retailing, fulfillment and product emerge as corresponding axes. For instance, electronic fulfillment demands that the customer be present to download and, at times, consume the product online whereas offline fulfillment enables consumers to disengage from a site after placing an order. Regarding products, Internet retailers may offer primarily tangible goods or intangible service products. Noting that these variables incorporate the precedent of distinguishing between physical and electronic delivery procedures while circumventing the exclusion of service offerings, the fulfillment-product classification scheme shown in Figure 1 is hereby proposed. The fulfillment-product classification scheme segments Internet retailing into four categories. In the offline-goods category, consumers order and pay for tangible goods through a retailing Web site then wait, essentially, while the firm dispatches the goods via offline, physical distribution channels. Regarding offline services, the purchase is akin to making a booking or reservation and, depending on the core service, consumers may travel to the firm’s offline service delivery location or the firm may travel to the consumer. Where the offline categories involve a delayed payment-product exchange, the electronic categories facilitate a simultaneous payment-product exchange. In the case of electronic goods, consumers download digital versions of desired goods via the Internet then prepare the product for consumption. With electronic services, consumers establish an account or membership with an online service provider then obtain access to, and consume, the core service offering whilst online.

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Figure 1 Fulfillment-product classification scheme

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Ultimately, the fulfillment-product classification scheme builds upon concepts that have been alluded to in Internet retailing and reflects Lovelock’s (1996) widely endorsed process-based system for classifying service firms. In doing so, the framework segments Internet retailers on the basis of their primary offering or, from the consumer’s perspective, delineates the divergent forms of Internet shopping. Granted, all classification systems have limitations (Lovelock, 1996) and sub-dividing the categories would be possible to, for instance, distinguish between high and low involvement purchases. However, the fulfillmentproduct classification scheme has the potential to facilitate a more in-depth examination of Internet shopping value than has to date been performed. As such, it will be used to execute the research objective of examining the sources and inhibitors of value relative to specific Internet shopping situations.

utilitarian and hedonic value (Babin et al., 1994). For example, obtaining a desired product at a discounted price may add hedonic value to an otherwise utilitarian task. Various characteristics of the Internet environment are purported to fulfill utilitarian and shopping needs. For instance, the convenience of 24/7 trading hours and multitude of Web sites may reduce the time and effort involved in accessing stores and searching for products (Seiders et al., 2000). This source of utilitarian value is particularly advantageous when searching for unique or unusual products and when seeking to compare a range of products or prices (Wolfinbarger and Gilly, 2001; Zeithaml et al., 2000). The self-service nature of Internet shopping also offers utilitarian value by delivering a high level of control over the purchase environment. More specifically, the Internet provides freedom from sales staff and family members while shopping and allows consumers to readily abandon shopping carts or delay a purchase commitment (Wolfinbarger and Gilly, 2001). With regard to hedonically motivated Internet shopping, consumers may derive enjoyment from accessing special interest or hobby Web sites while the ability to readily compare prices or participate in online auctions supports the pastime of “bargain hunting” (Wolfinbarger and Gilly, 2001). It has also been shown that aesthetically pleasing retail sites and those containing animations, humour and the like may enhance the pleasure derived from browsing, increase the duration of a site visit and encourage repeat visits (Childers et al., 2001; Menon and Kahn, 2002). Further, Web sites that enable interaction with other consumers, such as subscriber chat sites or online forums for product users, may offer social value and a sense of community (Mohammed et al., 2002). Consistent with the generic behavioural theories, however, online hedonic shoppers tend to prioritize browsing sites over purchasing products online (Wolfinbarger and Gilly, 2001). Countering these benefits, some characteristics of the Internet retailing environment may inhibit or diminish the value of shopping online. For instance, evaluating the vast selection of products may become tedious or time-consuming (Alba et al., 1997). Not being able to see, feel or experience a product prior to purchase may be a deterrent (Zeithaml et al., 2000). The lack of sociality may become a disincentive if assistance from sales staff or the opportunity to interact with friends and family is desired (Dholakia, 1999). Also, the physical dispatch of goods may delay completion of acquisition tasks or discourage impulse shopping (Wolfinbarger and Gilly, 2001) while the absence of offline retail outlets may

Value in Internet shopping Perceived value is recognized as an important marketing construct due to its relationship with quality, customer satisfaction and loyalty (Cronin et al., 2000; McDougall and Levesque, 2000), albeit that the precise nature of the relationship is, at times, a source of conjecture. Succinctly, perceived value is defined as the consumer’s assessment of what is received relative to that which is given (Zeithaml, 1988). While such assessments may incorporate economic and experiential factors relating to money, convenience, effort and enjoyment, the importance that is attributed to the value components may vary between customers or across different purchase situations (Mathwick et al., 2002). As such, understanding consumer perceptions of value necessitates consideration of the underlying motive for shopping and the extent to which the retail environment fulfills the given shopping needs. As a starting point, consumer behaviour researchers recognize two pervading, dichotomous motivations for shopping: utilitarian and hedonic (Hirschman and Holbrook, 1982). The utilitarian motive underscores goal-oriented, rational and deliberate product acquisitions where shopping is perceived to be work or a necessity (Babin et al., 1994). In these cases, value is obtained by completing the acquisition task in a timely, efficient manner (Babin et al., 1994). In contrast, the hedonic motive relates to experiential shopping where the fun, entertainment and escapism of the shopping process may be paramount to acquiring products (Babin et al., 1994; Childers et al., 2001). Though usually prompted by one overriding motive, a shopping incident may provide both

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increase the time, effort and cost involved in returning or exchanging products (Seiders et al., 2000). Further, a consumer’s lack of trust or perception of security and privacy risks may be a prohibitive factor (Cheung and Lee, 2001). Collectively, these sources and inhibitors of value are familiar edicts in Internet retailing literature. However, absent from the related discussions are three matters that may engender inappropriate application of the tenets. The first matter concerns recruiting Internet users as participants in Internet retailing research. The majority of this group has not purchased a product online and their Web experience is confined to alternative motives for Internet use, being to surf, research or communicate (Rodgers and Sheldon, 2002). Granted, Internet users are qualified to discuss browsing and interface design matters. However, when research convention dictates that informants should have a suitable understanding of the investigated topic lest they provide misleading information (Bryman, 1989), the extent to which non-shopping Internet users provide meaningful accounts of the Internet shopping experience should be questioned. For instance, in their hedonic value studies, only 10 per cent of the Childers et al. (2001) participants had ever purchased a product online, while Menon and Kahn (2002) do not discuss the participant’s Internet purchase history. Certainly, rigorous quantitative data analyses are performed. However, by virtue of the participant’s nonshopping, or non-reported, history, the extent to which the studies provide holistic insight into the actual Internet shopping experience is questionable. Further, the authors do not establish, or examine, a correlation between liking a site and purchasing products from a site. Thus, it would have been advisable to emphasize that the hedonic value conclusions reflect the views of Web site visitors, not Internet shoppers, and that the results relate to encouraging site visitors, lest readers inadvertently infer that the identified sources of value generate online transactions and customer loyalty. The second consideration is the method of distinguishing utilitarian from hedonic shopping. Childers et al. (2001) conceived utilitarian shopping to be a function of the product, groceries in this study, while hedonic shopping was the task of searching for a gift. In Mathwick et al. (2002), the consumer’s reported level of planning prior to engaging with an online retailer was used to segment the shopping motives. For example, when the encounter was initiated with purchase intent but no specific product in mind, the incidents were classified as experiential, or hedonic. As this scenario could include searching for a gift, it

demonstrates consistency with the Childers et al. (2001) hedonic shopping. However, a substantive limitation of both studies emerges when it is recognized that consumer shopping motives should not be inferred from observable behaviour (Schiffman et al., 2001). To illustrate, for some consumers, in some situations, the task of gift shopping is a goal-directed, utilitarian necessity (Babin et al., 1994). Third, relating emergent value insights solely to utilitarian or hedonic constructs is a matter of concern. For instance, Wolfinbarger and Gilly (2001) circumvented previously discussed limitations by examining the experiences of actual Internet shoppers and directly asking focus group participants if they shopped for entertainment or to fulfill a specific need. In doing so, a theoretically rich discussion of utilitarian and hedonic value in Internet retailing is generated. Nonetheless, few concrete indicators regarding when to best apply the utilitarian and hedonic shopping recommendations are provided. Whilst understandable in an initial study, this nonetheless transfers the onus of inferring the consumer’s shopping motive to Internet retailing managers. Arguably, cross-referencing the value components with concrete constructs would increase the likelihood of eliciting theoretical, and more managerially useful, insights. Collectively, therefore, the Internet shopping value literature demonstrates three limitations that require attention. Accordingly, the following study will examine the sources and inhibitors of Internet shopping value relative to each fulfillment-product category of Internet retailing, and do so from the perspective of consumers with purchase experience.

Research methodology To execute the objective of examining perceived value relative to the fulfillment-product categories of Internet retailing, interpretive research was considered most appropriate as the methodology is conducive to elucidating motives and the details of context-bound experiences (Hudson and Ozanne, 1988). Concurrently, the research questions did not necessitate employing focus groups or in-depth interviews that inherently involve highly subjective, time-consuming data collection and analysis procedures (King, 1994). Rather, structured open-response interviews, which King (1994) describes as a spectral medium between indepth and structured interviews, emerged as the appropriate method. This option enables collection of quick, descriptive information relating to new aspects of a well defined topic while

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minimizing superfluous discussion, maximizing consistency across interviews and alleviating the need to record and transcribe lengthy dialogue (King, 1994). To qualify for inclusion, participants were required to have purchased products online for personal, non-business purposes. With the research aim of gathering insights, rather than constructing general laws, selecting a nonprobability sample is suitable, subject to discussing the limitations (McDaniel and Gates, 2002). Noting that Internet shoppers tend to be older with higher incomes than Internet users (Allen et al., 2000; Donthu and Garcia, 1999), staff and students from a graduate school of management were invited to participate and successive interviews were conducted until responses became repetitive. The sample of 40 Internet shoppers included 25 males (62.5 per cent) and 15 females (37.5 per cent) aged 25 to 53 years (mean ¼ 34:7 years). Half reported annual household incomes above AUD$100,000 and 23 per cent indicated AUD$75,000 - $99,999. Regarding each fulfillment-product category, 90 per cent of the sample had previously purchased offline goods, offline services were reported by 40 per cent, 70 per cent were experienced with electronic goods and 45 per cent indicated electronic-services incidents. A structured interview guide was developed to direct the discussions and record responses. The guide contained closed questions that captured background demographic and behavioural information as well as open, yet specific, questions that elicited succinct responses to the core research issues. As mentioned, structured interviews alleviate the need to audiotape data and the interview guide was formatted to facilitate relatively speedy and unobtrusive recording of data through hand-written notes. This involved circling pre-coded responses to closed questions, noting descriptive attributes of purchase incidents and transcribing succinct qualifying comments of particular interest verbatim. During the 30 to 60 minute interviews, various utilitarian and hedonic scenarios prompted discussion of Internet shopping incidents. Essentially, the scenarios paraphrased the previously outlined definitions of utilitarian and hedonic shopping. In the utilitarian category, participants were asked to recall incidents that were deliberate and well thought out, practical incidents motivated by saving time, money or effort and mundane or routine shopping that was considered to be a necessity. The hedonic scenarios prompted recall of incidents that were driven from being in the mood for shopping as well as shopping at an Internet store, or purchasing a

product, primarily for the experience. Paraphrasing the established definition components in this fashion enhanced the face and content validity of questions. Also, for each scenario, participants were asked to identify the relevant product and fulfillment method before describing the purchase circumstances or, alternatively, the reason why an online purchase was not made. This enabled identification of value sources and prohibitive concerns that rendered Internet retailing an undesirable option. At the conclusion of every fifth interview, a pause was taken to analyze individual data sets and to consider the accumulating results collectively. Initially, the utilitarian and hedonic purchase incidents were sorted into fulfillment-product categories before responses to the open-ended questions were examined through inductive content analysis and post-hoc coding of the key themes. After 25 discussions had been conducted, the interviewer and an expert in qualitative analysis considered the preliminary results and information gaps. Additional interviews were then conducted until it was determined that the point of theoretical saturation where responses became repetitive had been reached (Denscombe, 1998). At this juncture, the sources and inhibitors of utilitarian and hedonic shopping value were formalized relative to each fulfillment-product category of Internet shopping.

Results Prior to discussing the results for each Internet shopping category, two overall observations warrant mention. Firstly, utilitarian shopping dominated the purchase incidents described in this study, as was the case in Wolfinbarger and Gilly’s (2001) study. Where all participants recalled goaldirected shopping tasks, only 25 per cent reported incidents that were associated with enjoyment or recreation, the reasons for which were twofold. Amongst many participants, the hedonic scenarios prompted comments such as, “I don’t do that type of shopping, I’m a meticulous planner” and “Shopping on the Internet isn’t nice, it’s just something that you do”. Others however, described themselves as “serious” hedonic shoppers who explained, “I want to walk around, touch things and get the whole shopping experience. I don’t want to be sitting at home looking at a computer screen, that’s a chore” and “I’m a shopaholic who likes the experience of checking out new products with my friends”. The second overall finding was that the online purchase incidents were rarely motivated by price related factors. That is not to say that the Internet

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shoppers were not concerned about price as utilitarian shoppers sought price savings and hedonic shoppers engaged in bargain hunting. For the most part, however, participants did not believe that Internet shopping offered “value for money” and some indicated that online prices should be lower than offline prices before they would consider Internet and conventional retailing value to be on a par. The various comments relating to price included, “There’s no [price] incentive to buy online”, “Things are usually more expensive than in normal stores” and “They [Internet retailers] have lower overheads and should pass on the savings to consumers”. Also, numerous participants indicated that lower prices, loyalty schemes or free delivery would encourage them to purchase products online more frequently.

importance of on-time delivery and desire to be notified that the gift had been delivered was stressed. Offline-goods Internet retailing was also found to provide hedonic value in relation to acquiring unique and unusual items. However, unlike the utilitarian counterpart where niche products were purchased online to increase acquisition efficiency, the hedonic incidents were precipitated by recreational browsing of special-interest or hobby Web sites and from searching the Internet for novel gifts. For instance, one participant joked about an unusual shower cap that had become a talking piece, while a fishing enthusiast who had purchased lures while browsing a special-interest Web site commented, “It’s retail therapy with an immediate hit even though you haven’t got it [the product] yet”. Nonetheless, it emerged that whilst some participants searched the Internet for hedonic reasons, the likelihood of such recreational browsing leading to an actual purchase was relatively low. Not surprisingly, the key inhibitor of utilitarian and hedonic value in the offline-goods category was the delayed gratification associated with the offline delivery process. This issue was specifically discussed in relation to standard goods that were available in local stores. The qualifying comments included, “It’s the unusual that I’m after, not the routine, otherwise I want to have it straight away”, “Having to wait for the product can be really annoying” and “I’d heard about a good site so I tried it. But the delivery [of a CD] took three weeks so I won’t be doing that again”. As anticipated, the inability to examine goods prior to purchase was a deterrent in both utilitarian and hedonic situations with one participant commenting, “As much as I hate doing it, I want to see my groceries”, Also, purchasing goods online was avoided if the need to exchange or return goods was anticipated and it was explained, “There are big problems with returning products . . . so you just go to the stores”.

Offline-goods shopping In the offline-goods category, where tangible items are physically dispatched, sources of utilitarian and hedonic value were identified. Primarily, utilitarian value emanated from the ease of access to unusual items, and the value of locating rare goods overshadowed waiting for delivery. While a large proportion of these incidents involved niche products and collectors’ items, CDs, DVDs, books and branded jeans were also mentioned. However, examination of the purchase circumstances revealed that the acquisition alternatives necessitated ordering from mail order catalogues, local intermediaries or overseas retailers. For example, the CDs and DVDs were limited edition or independent items, the books were foreign language or specialty publications and the jeans were a non-standard size. Thus, despite being ostensibly standard products, conventional retailing did not facilitate pre-purchase trial or immediate gratification. Surprisingly, the second source of utilitarian value was the physical dispatch of goods. The relevant incidents were initiated by the need or desire to purchase a gift, conceived as hedonic in some studies (e.g. Childers et al., 2001), that the buyer wished to have delivered directly to the gift recipient. One participant with family interstate explained that online gift shopping was preferable to the time, effort, cost and risk associated with purchasing an item from a store then wrapping and sending it via post. When flowers or hampers were sought, the ability to view a product likeness provided additional utilitarian value, relative to ordering via telephone. In relation to flowers for instance, a participant expressed, “It’s so easy, you just click on the picture and send it”. Thus, whilst pleasure may be derived from gift sending, the Internet was selected as the purchase medium for utilitarian reasons. In such cases, the increased

Offline-services shopping In the offline-service category where services are booked and paid for online, or secured with credit card details, then provided at a future point in time at an offline location, the value sought was consistently utilitarian. Certainly, some incidents related to airline travel, hotels, concerts and sporting events that would provide enjoyment or escapism. However, even when hedonic value from the core product was anticipated, participants did not seek hedonic value from the booking process. Rather, Internet retailing was selected as the purchase medium due to the ease and speed of booking online relative to waiting in telephone queues, visiting a booking agent or contacting a

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distant service provider. For example, one participant stated, “It’s an easy way to book domestic flights in two to three minutes”, while another explained, “It’s easier to book and pay online, especially when I’m travelling in nonEnglish speaking countries”. Complementary sources of utilitarian value were obtained from the on-screen images that provided tangible cues about the service and the simultaneously delivered printable booking or reservation details. Notably, participants stressed that they did not want to be “overloaded” with slow downloading images or unwarranted information. Specifically, one participant stated, “I know what a plane looks like, I don’t need to see a picture of it”, while others suggested that images should be presented as thumbnails and that confirmations should only include core details. It also emerged that the utilitarian value of booking online diminished when the process necessitated extensive interactions or when the full range of services was not available. For example, some participants indicated that they would not book complex, multiple stage airline tickets online, while others were concerned that automated event bookings did not provide the range of seating options that would be offered during a face-to-face or telephone interaction.

hard copies of information. The concerns that reportedly diminished value in these goal-directed tasks related to interrupted or slow downloads, unclear instructions for downloading, compatibility problems and insufficient information regarding technical product attributes. Of participants who had not purchased electronic goods, the prohibitive factors included feeling uncomfortable with the download process, not meeting the technical requirements and/or preferring hardcopies of software.

Electronic-goods shopping The electronic-goods category relates to digitized goods that are purchased and downloaded over the Internet. The two key sources of utilitarian value that were associated with this form of shopping were simultaneous product acquisition and access to niche products that are not sold in conventional stores. For instance, purchasing publications, such as journals, periodicals and industry reports online had helped a number of participants in “tight” situations by eliminating the need to visit a library or to contact the supplier and wait for physical delivery. While speed of acquisition also offered value to software and electronic art (GIFs) buyers, these participants tended to emphasize the value of obtaining specialized software programs or unique images that were not available via conventional stores. No incidents were identified where electronically delivered goods were purchased in connection with hedonic shopping. The absence of hedonic shopping, and hedonic value, was seemingly a function of the highinvolvement purchase procedures and technical nature of the products. Specifically, while enabling simultaneous product acquisition, this category places greater demands on the Internet shopper’s skills and technical resources as they instigate and control the delivery processes then prepare the product for use by installing software and printing

Electronic-services shopping The electronic-service experience also places relatively high demands on the consumer’s skill and resources as the shopper purchases, produces and consumes the product while online. The simultaneous service provision offered utilitarian value, particularly with regard to online seminars and electronic banking, as it reduced the time and effort associated with travelling to an offline service delivery location. When trading shares online, value was derived from speed and control as the direct access to time-critical information and ability to submit trade orders directly to the market without the assistance a stockbroker were both cited as reasons for using the Internet. Of financial services in general, however, security was a prohibitive concern for many participants while the comment that “FAQs are important, but interaction is critical” was indicative of those who sought less autonomy and greater assistance with financial dealings. The electronic-services category was also found to satisfy hedonic shopping needs, with the incidents relating to subscriber chat sites, astrology/psychic readings and participating in online auctions. Largely, the novelty of the experience was the source of value, with one chat site subscriber explaining, “I tried it for the fun of it, and I was curious” and another stating “I did it just for laughs and I wanted to try something new”. In online auctions “the thrill of the chase” or “finding bargains” was critical. One participant, who purchased a watch from an auction site then posted it for sale on another, explained, “I wasn’t actually interested in the watch, I just wanted to try buying and selling something”. Notably, when novelty was the source of value, familiarity eroded loyalty while the value of auctions was also diminished by the risk that the other consumer in the deal may not fulfill their role. Further, having encountered difficulties when canceling accounts, some participants were no longer willing to join electronic services.

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Conclusions The first objective of this paper was to devise a system for segmenting the various forms of Internet retailing. Subsequently, the fulfillmentproduct classification scheme that divides Internet retailing into four categories was proposed. This theoretically driven system contributes to the domain by addressing a notable gap in the literature and delivering a framework through which researchers and practitioners may delineate the various Internet retailing situations. The second objective was to examine the sources and inhibitors of perceived Internet shopping value relative to each fulfillment-product category. In formulating this objective it was noted that a large proportion of the extant literature reflects the views of non-shopping Internet users and that such insights might have limited relevance to Internet retailing. Lending credence to this position, Internet shoppers in this study rarely mentioned, or indeed expressed dislike of, the hedonic Web site design features that are often recommended by Internet users. Also, the Internet shoppers tended to demonstrate utilitarian approaches to Web use while those who mentioned recreational browsing conceded that enjoying a site was not sufficient to prompt a purchase. This suggests that Internet retailing managers who wish to generate online sales and customer loyalty, as opposed to merely attracting Web site visitors, should prioritize studies that reflect the views of experienced Internet shoppers. It was also noted that some researchers presuppose or infer the shopper’s motive according to the purchased product or observable behaviour. Such practices, and the respective results, appear problematic in view of matters emerging from the current study. For instance, Internet shoppers frequently indicated that, even when acquiring hedonic products such as holidays and concert tickets, hedonic value was not sought during the purchase phase. Rather, the online acquisition was largely approached as a utilitarian shopping task. As for inferring motives from behaviour, where previous studies have classified gift shopping as “hedonic”, the current study revealed that the reasons for purchasing gifts online predominantly related to practicality or efficiency and thus, online gift shopping was approached as a utilitarian task. It was also proposed that examining value relative to fulfillment-product categories would enhance the specificity of previous research conclusions and engender insights that, by virtue of their relation to concrete constructs, could be more readily and aptly applied. The analysis of results revealed that the majority of value components were indeed context-bound and the

fulfillment-product classifications reduced the need to speculate as to the shopper’s motive. For instance, previous studies have done little beyond concluding that managers should tailor their offerings to accommodate either utilitarian or hedonic motives. However, this study purports that, largely, Internet shoppers do not seek hedonic value in the offline-services and electronic-goods categories. Further, hedonic value appears only to generate sales in relation to niche or specialty offline goods and electronic services, with the acknowledgement that the hedonic value of electronic services diminishes as the service becomes familiar. As an example of the within-category insights, it is widely recognized that the delayed gratification associated with waiting for goods to be delivered may diminish the value of Internet shopping in some situations. However, the present study classified this form of Internet retailing as offline goods then examined the circumstances surrounding relevant purchase incidents. Subsequently, it was revealed that physical product delivery: did not deter the purchase of niche or difficult to obtain goods; inhibited the online purchase of standard or locally available goods; diminished hedonic value in most situations; and was the key source of utilitarian value when sending gifts. Thus, managers of offline-goods firms would be encouraged to offer items that are not readily available in conventional stores or to improve and emphasize the reliability of their delivery services in their selling proposition. Whilst addressing problematic issues associated with previous work in the area of Internet shopping value, various limitations associated with the study should be acknowledged. For instance, while the structured interviews maximized consistency across the discussions and elicited succinct responses that were readily coded, qualitative research by nature involves subjective data collection and analysis procedures. Also, while the recruitment of experienced Internet shoppers, as opposed to Internet users, circumvented a key limitation of many Internet retailing studies, the use of a non-probability sample limits the extent to which the results are representative of the broader Internet shopping population. Furthermore, the extent to which potential covariates, such as level of involvement or online purchase experience, influenced the perceptions of utilitarian and hedonic value were not examined. This paper provides a foundation from which to perform additional research. For instance, the fulfillment-product classification scheme may be applied to various Internet related research topics, such as Internet retailing quality and customer loyalty, while the merit of developing sub-

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categories based on purchase involvement may be examined. Also, statistically examining the importance that consumers attribute to the value components when making online purchase decisions would provide quantifiable insight into Internet shopper perceptions of value and would help to consolidate the link between value and transactions. Further, given the borderless nature of Internet retailing, it would be beneficial to explore cross-cultural similarities and differences in evaluations of Internet shopping value.

propositions”, Journal of Marketing, Vol. 46 No. 3, pp. 92-101. Hudson, L.A. and Ozanne, J.L. (1988), “Alternative ways of seeking knowledge in consumer research”, Journal of Consumer Research, Vol. 14 No. 4, pp. 508-21. King, N. (1994), “The qualitative interview”, in Cassell, C. and Symon, G. (Eds), Qualitative Methods in Organizational Research: A Practical Guide, Sage Publications, London, pp. 14-36. Loiacono, E.T., Watson, R.T. and Goodhue, D.L. (2002), “WebQual: a measure of Web site quality”, in Evans, K.R. and Scheer, L.K. (Eds), Proceedings of the 2002 American Marketing Association Winter Educators’ Conference: Marketing Theory and Applications, Vol. 13, American Marketing Association, Chicago, IL, pp. 432-8. Lovelock, C.H. (1996), Services Marketing, 3rd ed., Prentice-Hall, Englewood Cliffs, NJ. McDaniel, C. and Gates, R. (2002), Marketing Research, 5th ed., South-Western, Cincinnati, OH. McDougall, G.H.G. and Levesque, T. (2000), “Customer satisfaction with services: putting perceived value into the equation”, Journal of Services Marketing, Vol. 14 No. 5, pp. 392-410. Mathwick, C., Malhotra, N.K. and Rigdon, E. (2002), “The effect of dynamic retail experiences on experiential perceptions of value: an Internet and catalog comparison”, Journal of Retailing, Vol. 78 No. 1, pp. 51-60. Menon, S. and Kahn, B. (2002), “Cross-category effects of induced arousal and pleasure on the Internet shopping experience”, Journal of Retailing, Vol. 78 No. 1, pp. 31-40. Mohammed, R.A., Fisher, R.J., Jaworski, B.J. and Cahill, A.M. (2002), Internet Marketing: Building Advantage in a Networked Economy, McGraw-Hill, Boston, MA. Morganosky, M.A. and Cude, B.J. (2000), “Consumer response to online grocery shopping”, International Journal of Retail and Distribution Management, Vol. 28 No. 1, pp. 17-26. Nicholson, C.Y. and Sethi, R. (2002), “The dimensions of brand Web site experience”, in Evans, K.R. and Scheer, L.K. (Eds), Proceedings of the 2002 American Marketing Association Winter Educators” Conference: Marketing Theory and Applications, Vol. 13, American Marketing Association, Chicago, IL, pp. 510-11. Rodgers, S. and Sheldon, K.M. (2002), “An improved way to characterize Internet users”, Journal of Advertising Research, Vol. 42 No. 5, pp. 85-94. Schiffman, L., Bednall, D., Cowley, E., O’Cass, A., Watson, J. and Kanuk, L. (2001), Consumer Behavior, 2nd ed., PrenticeHall, Sydney. Seiders, K., Berry, L.L. and Gresham, L.G. (2000), “Attention retailers! How convenient is your convenience strategy?”, Sloan Management Review, Vol. 41 No. 3, pp. 79-89. Szymanski, D.M. and Hise, R.T. (2000), “E-satisfaction: an initial examination”, Journal of Retailing, Vol. 76 No. 3, pp. 309-22. Wolfinbarger, M. and Gilly, M.C. (2001), “Shopping online for freedom, control, and fun”, California Management Review, Vol. 43 No. 2, pp. 34-55. Wolfinbarger, M. and Gilly, M.C. (2003), “e-TailQ: dimensionalizing, measuring and predicting e-tail quality”, Journal of Retailing, Vol. 79 No. 1, pp. 183-98. Zeithaml, V.A. (1988), “Consumer perceptions of price, quality and value: a means-end model and synthesis of evidence”, Journal of Marketing, Vol. 52, July, pp. 2-22. Zeithaml, V.A., Parasuraman, A. and Malhorta, A. (2000), “A conceptual framework for understanding e-service quality: implications for future research and managerial practice”, Working Paper Series, Report number 00.115, Marketing Science Institute, Cambridge, MA.

References Adam, S. (2002), “A model of Web use in direct and online marketing strategy”, Electronic Markets, Vol. 12 No. 4, pp. 1-8. Alba, J., Lynch, J., Weitz, B., Janiszewski, C., Lutz, R., Sawyer, A. and Wood, S. (1997), “Interactive home shopping: consumer, retailer and manufacturer incentives to participate in electronic marketplaces”, Journal of Marketing, Vol. 61, July, pp. 38-53. Allen, J.C., Vogt, R. and Cordes, S. (2000), “Retailing in rural Nebraska: buying locally and electronically”, Research report Number 00-5, Center for Applied Rural Innovation, Lincoln, NE. Babin, B.J., Darden, W.R. and Griffin, M. (1994), “Work and/or fun: measuring hedonic and utilitarian shopping value”, Journal of Consumer Research, Vol. 20 No. 4, pp. 644-57. Barnes, S.J. and Vidgen, R.T. (2001), “An integrative approach to the assessment of e-commerce quality”, Centre for Information Management working paper (ref. CIM2001/ 01), University of Bath, Bath. Bryman, A. (1989), Research Methods and Organizational Studies, Unwin Hyman, London. Cheung, C.M.K. and Lee, M.K.O. (2001), “Trust in Internet shopping: instrument development and validation through classical and modern approaches”, Journal of Global Information Management, Vol. 9 No. 3, pp. 23-45. Childers, T.L., Carr, C.L., Peck, J. and Carson, S. (2001), “Hedonic and utilitarian motivations for online retail shopping behavior”, Journal of Retailing, Vol. 77, pp. 511-35. Cronin, J.J., Brady, M.K. and Hult, G.T. (2000), “Assessing the effects of quality, value and customer satisfaction on consumer behavioural intentions in service environments”, Journal of Retailing, Vol. 76 No. 2, pp. 193-218. Denscombe, M. (1998), The Good Research Guide: For SmallScale Research Projects, Open University Press, Buckingham. Dholakia, R.R. (1999), “Going shopping: key determinants of shopping behaviors and motivations”, International Journal of Retail Distribution Management, Vol. 27 No. 4, pp. 154-65. Donthu, N. and Garcia, A. (1999), “The Internet shopper”, Journal of Advertising Research, Vol. 39 No. 3, pp. 52-8. Francis, J.E. and White, L. (2002), “PIRQUAL: a scale for measuring customer expectations and perceptions of quality in Internet retailing”, in Evans, K.R. and Scheer, L.K. (Eds), Proceedings of the 2002 American Marketing Association Winter Educators’ Conference: Marketing Theory and Applications, Vol. 13, American Marketing Association, Chicago, IL, pp. 263-70. Hirschman, E.C. and Holbrook, M.B. (1982), “Hedonic consumption: emerging concepts, methods and

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Introduction

Service quality and marketing performance in business-to-business markets: exploring the mediating role of client satisfaction Ruben Chumpitaz and Nicholas G. Paparoidamis The authors Ruben Chumpitaz is Associate Professor of Marketing and Nicholas G. Paparoidamis is Senior Assistant Professor of Marketing, both at the IESEG School of Management, Universite´ Catholique de Lille, Lille, France.

Keywords Service quality assurance, Product quality, Information systems, Business-to-business marketing, Customer loyalty, Customer satisfaction

Abstract Drawing on relevant literature, the authors empirically test a model of business loyalty in a sample of 234 clients of information systems suppliers, integrating the concepts of service quality, satisfaction, and loyalty. The study builds on recent advances in services marketing theory and assesses the relationships underlying the identified constructs in the specific industry. A clear pattern of service quality dimensions is established following the Gro¨nroos conceptualisation. Several important findings are reported, including the empirical verification of the mediating role of industrial satisfaction in the formation of loyalty attributes. Industrial satisfaction fully mediates the relationship between accessibility and loyalty and partially mediates latent construct’s relationship with technical assistance and delivery service. The results provide robust evidence concerning the direct effect of industrial satisfaction on loyalty. accessibility, delivery, and product reliability as antecedents of industrial satisfaction.

Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/0960-4529.htm

Managing Service Quality Volume 14 · Number 2/3 · 2004 · pp. 235-248 q Emerald Group Publishing Limited · ISSN 0960-4529 DOI 10.1108/09604520410528653

The advent of relationship marketing and the increased competition that has characterised markets over the past 30 years has resulted in consumer satisfaction and related research constructs becoming central topics in the services literature. Particular attention has been given to the conceptualisation and measurement of the variables of quality and satisfaction. These variables are central to modern marketing theory and practice as principal indicators of marketing performance (Babin and Griffin, 1998; Walker, 1995; Jones and Suh, 2000). The importance of studying and understanding these two related variables can be illustrated by their relation with behavioural intentions and loyalty (Newman and Werbel, 1973; LaBarbera and Mazursky, 1983; Cronin and Taylor, 1992; Rust et al., 1995; Singh, 1990; Taylor and Baker, 1994; Zeithaml et al., 1996). Although numerous studies have made an effort to clarify, conceptualise, and measure these constructs in a business-to-consumer environment, in a business-to-business (B2B) context there continues to be debate regarding: the identification of the variables responsible for external effects; the form and/or strength of the relationships between them; and the presence of interaction or mediational effects between them. There is a large body of contradictory empirical evidence (Schellhase et al., 1999; Parasuraman, 1998). In assessing the effects of perceived quality, many researchers have suggested its positive influence on loyalty (Carman, 1990; Parasuraman et al., 1985, 1988; Boulding et al., 1993). However, recent findings demonstrate that this correlation is either not significant or mediated by satisfaction (Cronin and Taylor, 1992; Spreng and Singh, 1993; Cronin et al., 2000). The paucity of research assessing quality and satisfaction in B2B markets has created a need for conceptual and empirical research to: establish a pattern of dimensions that formulate the quality perceptions of industrial buyers; define the concept of industrial satisfaction and clarify its role within a B2B services framework; establish theoretical and empirical links between these two constructs (in terms of industrial behavioural intentions and loyalty levels); and identify an appropriate method of measuring the constructs involved. One of the main objectives of the present research was to clarify the contradictory evidence with respect to the relationships among the concepts of service quality, industrial satisfaction, and loyalty, and to provide evidence of the mediating role of industrial satisfaction.

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In particular, the purposes of the present study were: to develop a validated instrument of loyalty measurement using the key constructs of quality perceptions and industrial satisfaction; to create the theoretical basis upon which hypotheses can be formulated concerning the variables of perceived quality, industrial satisfaction, and loyalty; to explore and identify a stable pattern of the dimensions of quality perceptions in an industrial context; and to test the hypotheses and the mediating role of industrial customer satisfaction empirically. The present paper begins with an examination of the literature pertaining to each of the concepts involved and the presentation of the study’s conceptual framework. The methodology employed in this research is then explained and the study results are presented and discussed. Finally, conclusions and managerial implications of the study are provided and a set of future research directions is examined, as are the limitations of this study.

Literature review Service quality In the services marketing literature, the servicequality construct is a controversial topic (Brady and Cronin, 2001; Zeithaml, 2000; Zins, 2001; Rust and Oliver, 1994; Lapierre et al., 1996). In the business-to-consumer literature, researchers have adopted three broad conceptualisations. The first, proposed by Gro¨nroos (1982, 1984), defined the dimensions of service quality in global terms as being functional and technical. The second, proposed by Parasuraman et al. (1988), identified service-quality dimensions using terms that describe service-encounter characteristics (reliability, responsiveness, empathy, assurances, and tangibles). The third, proposed by Rust and Oliver (1994), considered overall perception of service quality to be based on the customer’s evaluation of three dimensions of service encounters: the customer-employee interaction, the service environment, and the service outcome. It is not clear, however, which of these conceptualisations and dimensional patterns are the most appropriate to use (Brady and Cronin, 2001; Rust and Oliver, 1994). Industrial satisfaction Although manufacturers and retailers consider satisfaction to be a key variable – indicative of the success or failure of a business relationship – a review of the pertinent literature reveals: . a lack of a consensus definition for consumer satisfaction – thus posing serious problems for

.

researchers in terms of conceptualisation, operationalisation, and measurement (Babin and Griffin, 1998; Woodruff and Gardial, 1996; Giese and Cote, 2000); and a lack of a comprehensive, theoretically based, empirical research stream (Schellhase et al., 1999).

In B2B markets, the principal differences among end-consumers arise from the decision-making unit evaluating the product or service. When considering the satisfaction of an industrial client, it is necessary to evaluate the satisfaction of the different constituents of the buying centre who are in contact with the industrial supplier (Parasuraman, 1998). Even though the individual members of a buying centre are guided by the company’s objectives, they have their own motivations and objectives and evaluate the performance of the product or service according to their own reference standards. Anderson and Narus (1990), in their effort to model manufacturer-distributor relationships, defined satisfaction as a positive, affective state resulting from the appraisal of all aspects of a firm’s working relationship with another firm. This definition posits that satisfaction (understood as affective) can be contrasted with an objective summary assessment of outcomes – thereby forming a target-performance comparison mechanism. If expectations are exceeded by performance, satisfaction is generated (Churchill and Surprenant, 1982; Bearden and Tell, 1983; LaBarbera and Mazursky). Previous research has used various methods of satisfaction measurement. Objective measures of satisfaction have included the acquisition of data on variables such as market share and loyalty as indicators of client satisfaction (Oliver, 1980; Oliver and Swan, 1989). Due to the suspect validity of objective measures, information on satisfaction can alternatively be collected on a subjective basis. Attribute-oriented procedures acquire data on satisfaction indirectly by using indicators such as complaints figures (Oliver, 1980; Bearden and Tell, 1983). Explicit approaches have directly measured satisfaction using single (overall) or multidimensional scales. Using these scales, overall satisfaction is an aggregation of all previous transaction-specific evaluations and is updated after each specific transaction – in much the same way as expectations of overall service quality are updated after each transaction in a business-toconsumer environment (Boulding et al., 1993). Transaction-specific satisfaction might not be perfectly correlated with overall satisfaction – because service quality is likely to vary from experience to experience, especially in an

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industrial context. Overall satisfaction can be viewed as a moving average that is relatively stable and similar to an overall attitude (Parasuraman et al., 1994). After thorough interviews with professionals in the area under investigation, it was clear to the present researchers that none of the existing definitions depicted the elements of buying centres and relationship evolvement over time. The present researchers therefore decided to adapt the cumulative definition of industrial satisfaction of Chumpitaz (1998):

Loyalty The importance of loyalty has been widely recognised in the marketing literature (Oliver, 1999; Samuelson and Sandvik, 1997; Howard and Sheth, 1969). Reichheld and Sasser (1990) have studied the impact on profits of having a loyal customer base, and Aaker (1991) has discussed the role of loyalty in the brand-equity process, observing that brand loyalty reduces marketing costs and that the relative costs of customer retention are substantially less than those of acquisition (Fornell and Wernerfelt, 1987). Another important element of brand loyalty is the intended support of the product or service expressed in communication experiences – with positive word of mouth among loyal consumers leading to greater resistance to competitive strategies (Arndt, 1967; Oliver, 1999; Dick and Basu, 1994). Despite the clear managerial relevance of brand loyalty, conceptual and empirical gaps remain (Chaudhuri and Holbrook, 2001; Lau and Lee, 1999; Oliver, 1999; Fournier and Yao, 1997). Specifically, the concept of loyalty in a B2B context is not clearly defined and there are numerous ways of defining and measuring this matter on a consumer market basis. Oliver (1999, p. 34) defined brand loyalty as follows:

Industrial satisfaction is an overall evaluation of the total purchase, use and relationships experience with a product or service over time, as expressed by members of the buying decision centre.

This definition provided the basis for conceptualising and measuring effectively the industrial satisfaction construct in the present study. To conceptualise perceived service quality, Oliver (1993) distinguished between quality and satisfaction by noting that the dimensions underlying quality judgments are rather specific – whether they are cues or attributes (Bolton and Drew, 1991). Satisfaction judgments, in contrast, can result from any dimension – some related to quality, and some not. Expectations of quality are based on ideals or perceptions of excellence, whereas a large number of non-quality issues – including needs (Westbrook and Reilly, 1983) and equity or fairness (Oliver and Swan, 1989) – help in the formation of satisfaction judgments. Rust and Oliver (1994, p. 6) stated that “. . . quality is one dimension on which satisfaction is based”. In making this statement they were in accord with Dick and Basu (1994), Anderson and Fornell (1994), Iacobucci et al. (1995), Sivadas and BakerPrewitt (2000), and Odekerken-Schroder et al. (2000). More recently, Cronin et al. (2000), in their study of six different service industries, supported and built on the extant literature by indicating that service-quality perceptions are important determinants of satisfaction. Based on previous evidence concerning the causality of these related constructs, the present study placed service-quality perceptions as antecedents to the formation of industrial satisfaction attributes. Considerable evidence confirms that performance judgments of servicerelated issues play a significant role in the formation of satisfaction cues (Erevelles and Leavitt, 1992; Oliver, 1980; Kristensen et al., 1999; Martensen et al., 2000). This leads to the following hypothesis being proposed: H1. In a business-to business context, quality perceptions have a positive influence on industrial satisfaction levels.

. . . a deeply held commitment to re-buy or repatronize a preferred product/service consistently in the future, thereby causing repetitive samebrand or same brand-set purchasing, despite situational influences and marketing efforts having the potential to cause switching behavior.

This definition emphasises the two principal aspects of brand loyalty that have been studied in previous studies: behavioural and attitudinal (Aaker, 1991; Assael, 1998; Day, 1969; Jacoby and Chestnut, 1978; Jacoby and Kyner, 1973; Oliver, 1999; Tucker, 1964). Behavioural loyalty refers to repeated purchases of the brand, whereas attitudinal brand loyalty includes a degree of dispositional commitment in terms of some distinctive value associated with the brand. The attitude behind the purchase is important because it drives behaviour. Although brand-loyal behaviour is partly determined by situational factors (such as availability), attitudes are more enduring. Jacoby and Kyner (1973) proposed a definition of loyalty that includes six necessary conditions – that brand loyalty is the biased (that is, nonrandom), behavioural (that is, purchase) response, expressed over time, by some decision-making unit (a person or group of persons), with respect to one or more alternative brands out of a set of such brands, and is a function of psychological processes (decision-making, evaluative). Bloemer and Kasper (1995) studied the differences between

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“true” loyalty and “spurious” loyalty (the latter being due to an inertia effect). These authors found that true loyalty implies (in addition to repetitive purchasing) a true commitment to the brand. Oliver (1997, 1999) also evoked this notion of commitment in his research on satisfaction and brand-loyalty relationship. Numerous studies have established a relationship between service quality and loyalty. Some have posited an indirect influence (Andreassen and Lindestad, 1998; Ostrowski et al., 1993; Patterson and Spreng, 1997; Pritchard and Howard, 1997), whereas others have posited a direct influence (Boulding et al., 1993; De Ruyter et al., 1998). Recent research has indicated a positive and significant relationship between a customer’s perception of service quality and that customer’s loyalty (expressed as willingness to recommend the company and intentions to repurchase) (Parasuraman et al., 1988; Zeithaml et al., 1996; Cronin and Taylor, 1992; Danaher and Rust, 1996a, b; Bitner, 1990; Patterson, 1995). These scholars have suggested that the service perceptions of members of the buying centre directly influence loyalty levels of the buying centre towards the supplier firm. The following second hypothesis is therefore postulated: H2. In a business-to business context, quality perceptions have a positive influence on loyalty levels.

The relationship marketing perspective Relationship marketing has emerged as an exciting area of marketing that focuses on building longterm relationships with customers and other parties involved. As Gro¨nroos (1993) stated:

Satisfaction The role of satisfaction in predicting behavioural intentions is well established (Anderson et al., 1994; Cronin and Taylor, 1992; Zeithaml et al., 1996). The majority of studies assume transactional customer relationships – with previous experiences as primary determinants of repeated purchasing behaviour. Recent research findings offer robust evidence of this, showing the positive relationship between customer satisfaction and behavioural intentions (Oliver, 1999; Bitner and Hubbert, 1994). Similarly, Anderson and Sullivan (1993) found that stated repurchase intentions are strongly related to stated satisfaction across product categories. Given the characteristics of the B2B environment, the present authors expected this relationship to be even stronger in this environment. Researchers in the professional services area have suggested that customers of business services tend to remain with the same provider if continually satisfied (Davidow and Uttal, 1989; Woodside et al., 1992). Accordingly, the third hypothesis of the present study is postulated as follows: H3. In a business-to business context, industrial satisfaction has a positive influence on loyalty levels.

. . . establishing a relationship, for example with a customer, can be divided into two parts: to attract the customer and to build the relationship with that customer so that the economic goals of that relationship are achieved.

The fundamental principle of relationship marketing is that the greater the level of customer satisfaction with the relationship – not just with the product or service – the greater the likelihood that the customer will stay with the company providing the service or the product (Payne et al., 1995). The objective of relationship marketing is to achieve high levels of customer satisfaction through collaboration of the parties involved. Trust and commitment are both very important elements in ensuring a long-term orientation towards a business relationship. It is important that companies select their partners carefully, share common values, and maintain excellent communication during the relationship continuum. Companies should also ensure that they provide superior resources and benefits (superior to the offerings of other companies) and should avoid taking advantage of their partners (thus ensuring a mutually beneficial relationship) (Morgan and Hunt, 1994). The key factors that hold a relationship together are goal compatibility, commitment, trust, satisfaction, investment, social and structural bonding, and the comparison level of alternatives (Wilson and Jantrania, 1994). Relationship commitment exists when a partner believes the relationship is important enough to warrant maximum effort in maintaining that relationship over the long term. According to Moorman et al. (1992), relationship commitment is defined as an enduring desire to maintain a valued relationship. Commitment is considered to be of critical importance in organisational buying behaviour and, in such a context, it can lead to important outcomes – such as decreased turnover (Porter et al., 1974) and higher motivation (Farrell and Rusbult, 1981). Commitment is positively related to loyalty and repeated purchase. When relationship performance becomes critical to the repurchase decision in a relational exchange context, business loyalty becomes increasingly similar to relationship commitment (Morgan and Hunt, 1994). Anderson and Weitz (1992) understood manufacturer-distributor commitment as the adoption of a long-term orientation towards the relationship, and proposed that mutual commitment results in channel members working together to serve end customers’

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needs better. This increases mutual profitability beyond what either member could achieve operating independently. Ganesan (1994) found that long-term orientation is affected by the extent to which customers and vendors trust their channel partners, and found that each partner’s ability to provide positive outcomes to the other leads to increased commitment to the relationship. Trust is a major determinant of relationship commitment (Morgan and Hunt, 1994) and exists when there is confidence in the partner’s reliability and integrity. Moorman et al. (1993) defined trust as a willingness to rely on an exchange partner in whom one has confidence. Garbarino and Johnson (1999) and Sirdeshmukh et al. (2002) suggested that trust and value act as critical mediating variables between satisfaction and relational commitment – including future intentions to purchase and continue the relationship. In parallel with the relational approach, and on the basis of the existing research on relationship marketing, the present study aimed to demonstrate the need to complement trust-commitment relational models with service quality-satisfaction models of business loyalty. Acknowledging the importance of relational benefits associated with trust and commitment, the present authors suggest that customer satisfaction and loyalty strategies can serve as powerful barriers to firms’ switching behaviour, thereby providing a crucial competitive advantage. Industrial satisfaction as a mediator It is evident that satisfaction often plays a mediating role between perceptions of quality levels and the creation of behavioural intentions (Cronin et al., 2000; Cronin and Taylor, 1992; Gottlieb et al., 1994; Spreng and Singh, 1993). The notion of “mediating” a relationship presupposes the existence of a third variable between a dependent variable and an independent one (Baron and Kenny, 1986). The mediation can be full or partial. There is a lack of evidence concerning the role of satisfaction in the relationship between service-quality perceptions and loyalty – at both the consumer and the business level (Spreng and MacKoy, 1996; Fornell et al., 1996; Fullerton and Taylor, 2002). There is a need to clarify whether satisfaction is capable of mediating the relationship between service quality and loyalty in a B2B setting, thereby making service quality perceptions less significant predictors of behavioural intentions. This leads to the present study’s fourth hypothesis being postulated as follows: H4. In a business-to-business context, industrial satisfaction mediates the relationship

between service quality perceptions and loyalty. The conceptual model is shown in Figure 1.

Methodology The research instrument (Table I) was a questionnaire containing 22 items evaluated on a 10-item scale – from 1 (completely unsatisfied) to 10 (completely satisfied). The items evaluated the following constructs: industrial satisfaction (one Figure 1 Conceptual model

Table I The research instrument Items: please indicate your satisfaction with . . . or your intention to . . . Accessibility

The duration of the effort to find the liable person in the company The response to a message left

Delivery and installation service

The information provided before the installation of the product The actual delivery process The planning of the delivery and installation procedures The “ease of use” of the product just after installation The quality of coordination during and just after the installation

Technical assistance

The duration of intervention The duration of recovery/solution The quality of recovery/solution

Product and service reliability

The overall reliability of products and services (hardware and software)

Industrial satisfaction

How satisfied are you in general with the products and services offered by the company?

Loyalty

Recommend the supplier firm to a partner when asked Encourage partners and other companies to initiate business with the supplier firm To consider the supplier firm the premium choice as an information systems supplier To continue working in the near future with the supplier firm in the same or increased volume

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item), product and service reliability (one item), accessibility (two items), delivery and installation service (five items), technical assistance service (three items), and brand loyalty (four items). Different lists of service attributes were compiled from various sources in the literature. Several other items not mentioned in previous studies were also incorporated in the present study to give the instrument a character closer to the nature of the information technology (IT) industry. This process resulted in a survey instrument that needed to be refined through an incremental process. To confirm its content validity, colleagues from the purchasing area provided the authors with feedback concerning the relevance of certain criteria. The next step consisted of a number of interviews with several purchasing managers from the IT industry to ensure that the questions included in the survey instrument were readily interpretable. Respondents were asked to focus on the most important IT product in terms of sales volume. This questionnaire was administered by ICMA (an international consulting firm) on a sample of 800 clients of information systems firms that sell hardware and software applications (following a systematic random selection procedure out of a broader list of 3,000 firms). The survey resulted in 234 usable questionnaires. The identification of respondents in each buying centre was made on the basis of the supplier’s database, which included the names and the functions of the most influential members of each buying centre. On average, three to four respondents from each firm participated in the survey, each one answering the questions for which he/she was liable as a member of the buying centre. For instance, product users or technical managers filled in the sections of the questionnaire related to technical assistance and product and service reliability, whereas other questions were answered by the managers or the personnel in contact with the supplier’s sales service.

correlated with loyalty and that product or service reliability apparently correlates with the dimensions of technical assistance and delivery service. After refinement, a final model was developed that demonstrated good measurement properties (see Table III).

Factor analysis An initial exploratory factor analysis verified that the service-quality indicators fell under the dimensions theoretically proposed: functional (delivery and installation service, and accessibility); and technical (product and service reliability, and technical assistance service) (see Table II). The internal coherence for each latent variable was then evaluated using Cronbach’s alpha (see Table II). These ranged from 0.78 to 0.90, thus exceeding Nunnally’s (1978) threshold of 0.70. Table II demonstrates the loadings of the two single-item constructs of product or service reliability and industrial satisfaction. It is evident from these loadings that industrial satisfaction is

Confirmatory factor analysis To assess the measurement model, three analyses were conducted. First, a confirmatory factor analysis was conducted using LISREL 8.3 in an effort to demonstrate empirically that the hypothesised model fits the data reasonably well. The overall fit of the model was adequate, with a x2 of 55.91 (df ¼ 40, p ¼ 0:05), a goodness-of-fit index of 0.99, an adjusted goodness-of-fit index of 0.99, and a comparative fit index (Bentler, 1990) of 1.00. Second, evidence of convergent validity was obtained by establishing that the measurement factor loadings were all significant (t-values between 15.75 and 35.77). Moreover, the average variance extracted (Fornell and Larcker, 1981) indicated that in each case the variance captured by the construct was greater than the variance due to measurement error. Third, to test for discriminant validity, the procedure described by Fornell and Larcker (1981) was used. As an indication of discriminant validity, the average variance extracted (AVE) for each construct should be higher than the squared correlation between that construct and any other construct. In the present study, in no case was there a squared correlation between two constructs higher than either of the construct’s AVEs (Table IV). Main results Given that the proposed measurement model was consistent with the data, the first three hypotheses were tested with Lisrel 8.30, using the polychoric correlation matrix as data entry and the weighted least-squared method. With this estimation method, it was possible to liberate the observed variables from the normality condition. However, as a possible disadvantage, this method requires large-sized samples because moments of fourth order must be estimated with reasonable accuracy (Jo¨reskog and So¨rbom, 1996). Figure 2 shows the complete standardised parameters and t-values of this model. The significance of the relationship between the latent variables has been verified (x2 ¼ 80:96; df ¼ 55; p ¼ 0:013; GFI ¼ 0:99; AGFI ¼ 0:99; RMSEA ¼ 0:067; NFI ¼ 0:99; CFI ¼ 0:99). In the structural model obtained, it is obvious that client satisfaction had a significant direct impact on loyalty (b ¼ 0:64, t ¼ 10:15). H1 was thus supported. More specifically, client satisfaction and service quality dimensions

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Table II Exploratory factor analysis (VARIMAX rotation) Items

Factor 1

Loyalty Recommend the supplier firm to a partner when asked Encourage partners and other companies to initiate business with the supplier firm To consider the supplier firm the premium choice as an information systems supplier

Factor 2

Factor 3

Factor 4

0.913 0.910 0.810

Delivery service The actual delivery process The planning of the delivery and installation procedures The “ease of use” of the product just after installation

0.803 0.848 0.755

Technical assistance The duration of intervention The duration of recovery/solution

0.862 0.871

Accessibility The duration of the effort to find the liable person in the company The response to a message left

0.893 0.828

Product and service reliability The overall reliability of products and services (hardware and software)

0.349

0.450

0.467

0.184

Industrial satisfaction How satisfied are you in general with the products and services offered by the company? Cronbach Alpha

0.585 0.900

0.236 0.779

0.306 0.863

0.461 0.864

explained 41 per cent of loyalty. The service quality dimensions had a significant effect on overall client satisfaction, which supported H2. The direct impact of service quality perceptions on brand loyalty was not significant; accordingly H3 was not supported. Analysing the results in greater detail, it can be observed that the functional quality dimension (as measured by accessibility and delivery service) had a greater impact on overall client satisfaction (b ¼ 0:42, 0.36 and t ¼ 05:47, 4.68) than the technical quality dimension (as measured by technical assistance and product and service reliability) (b ¼ 0:20, t ¼ 2:72). By focusing on the indirect impact of technical assistance on overall client satisfaction, it is clear that the effect of this construct is mediated through product and service reliability. To demonstrate that product and service reliability mediates the effect of technical assistance on overall client satisfaction, it is necessary to show that its value has a significant bivariate relationship with overall client satisfaction, and that this effect is not significant when these constructs are linked to overall client satisfaction through product and service reliability (Baron and Kenny, 1986). The results confirm the mediating role of product or service reliability on the impact of technical assistance perceptions on client satisfaction. Both variables – technical assistance and product or

service reliability – have a positive impact on industrial satisfaction (b1;2 ¼ 0:286). Measuring them in the same equation, the beta-coefficient of technical assistance b3 is lower than b1, indicating mediation. However, because the coefficient of product or service reliability b4 is lower than b2, it can be concluded that product or service reliability partially mediates the relationship between technical assistance and satisfaction (Baron and Kenny, 1986) (see Table V). Mediating role of client satisfaction To explore the mediating role of client satisfaction in the formation of loyalty attributes, all possible mediating tests were undertaken, involving all variables of the structural model (Table V). The results indicate a total mediation of satisfaction between the accessibility dimension of service quality and loyalty. This relationship is less significant with the introduction of satisfaction. Both variables (accessibility and satisfaction) have a positive impact on loyalty (see Table V). However, in the same equation, satisfaction absorbs the impact of accessibility – reducing its beta to nonsignificant levels (b ¼ 0:126, t ¼ 1:108). On the contrary, the mediating role of satisfaction between product or service reliability and loyalty was not verified – with this relationship being not significant (b ¼ 0:046, t ¼ 0:571). Finally, satisfaction was found to mediate partially the

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Table III Measurement model

l

t-value

Industrial satisfaction The global satisfaction with the products and services of the supplier firm

1.00

20.49

Accessibility The duration of the effort to find the liable person in the company The response to a message left

0.83 0.84

34.97 27.48

Delivery service The actual delivery process The planning of the delivery and installation procedures The “ease of use” of the product just after installation

0.87 0.92 0.69

24.59 28.34 15.75

Product and service reliability The overall reliability of products and services (hardware and software)

1.00

20.49

Technical assistance The duration of intervention The duration of recovery/solution

0.95 0.88

30.13 30.25

0.91

35.77

0.89

31.54

0.87

24.82

Items

Loyalty Recommend the supplier firm to a partner when asked Encourage partners and other companies to initiate business with the firm To consider the supplier firm the premium choice as an information systems supplier Goodness of fit statistics Chi-squared Df p-value GFI AGFI RMSEA CFI NFI

55.91 40 0.049 0.99 0.99 0.062 1.00 1.00

relationship between delivery service and loyalty. The relationship between these two constructs was significant (b ¼ 0:328, t ¼ 3:299) and became less significant with the introduction of satisfaction (b ¼ 0:252, t ¼ 2:611). Thus H4 was partially supported. Satisfaction fully mediated the relationship of loyalty with the constructs of delivery and accessibility. However, the study failed to identify any mediation in the relationship between product or service reliability and loyalty.

Discussion The results of this survey provide strong empirical support for two of the hypothesised relationships between the service or product quality dimensions: overall client satisfaction and loyalty. The model of the present study explains 69 per cent of global satisfaction – thus providing robust evidence of the role of the service or product quality dimensions as antecedents of satisfaction in this business setting. However, only 41 per cent of loyalty was explained – which, in this case, might be due to a lack of relational variables in the research model. It would be of particular interest to incorporate a relational aspect in such a model to provide evidence concerning the existence of links between relationship marketing variables – such as trust, commitment, and dependence on the one hand, and service or product quality, satisfaction, and loyalty on the other. From a conceptual perspective, the authors propose an industrial satisfaction definition that

Table IV Discriminant and convergent validity tests Factor loading ( l)

Rho Jo¨reskog (r(Y))

Loyalty Recommend the supplier firm to a partner when asked Encourage partners and other companies to initiate business with the firm To consider the supplier firm the premium choice as an information systems supplier

0.91 0.89 0.87

0.83 0.79 0.76

Delivery service The actual delivery process The planning of the delivery and installation procedures The “ease of use” of the product just after installation

0.87 0.92 0.69

0.76 0.85 0.58

Technical assistance The duration of intervention The duration of recovery/solution

0.95 0.88

0.91 0.77

Accessibility The duration of the effort to find the liable person in the company The response to a message left

0.87 0.84

0.75 0.71

Items

Notes: Range of correlation between constructs: 0.43-0.66 Source: Fornell and Larcker (1981)

242

Reliability for the construct (rh)

Average variance extracted (rvc(h))

0.92

0.79

0.87

0.70

0.91

0.84

0.84

0.73

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Figure 2 Structural model

Table V Exploring the mediating role of industrial satisfaction Independent variable

Mediator

Dependent variable

Technical assistance

Product and service reliability

Accessibility

b1 significant?

b2 significant?

Industrial satisfaction

t ¼ 4:234 b1 ¼ 0:286 U

t ¼ 3:263 b2 ¼ 0:286 U

Industrial satisfaction

Loyalty

t ¼ 3:277 b1 ¼ 0:339 U

t ¼ 8:095 b2 ¼ 0:464 U

Product and service reliability

Industrial satisfaction

Loyalty

t ¼ 0:571 b1 ¼ 0:046 7

t ¼ 2:474 b2 ¼ 0:122 U

Delivery service

Industrial satisfaction

Loyalty

t ¼ 3:299 b1 ¼ 0:328 U

t ¼ 2:281 b2 ¼ 0:144 U

considers the buying centre as a unit of analysis. This definition allows the research instrument to be allocated to different posts inside the same firm. If the concept of satisfaction is approached from the perspective of the buying centre, the service performance evaluations of each member of the buying centre are captured, thus providing

b3 and b4 significant? and b3 < b1? t3 ¼ 3:727 b3 ¼ 0:252 t4 ¼ 2:139 b4 ¼ 0:114 b3 , b1 U t3 ¼ 1:108 b3 ¼ 0:126 t4 ¼ 3:768 b4 ¼ 0:473 b3 , b1 U t3 ¼ 0:165 b3 ¼ 0:012 t4 ¼ 4:479 b4 ¼ 0:506 b3 , b1 7 t3 ¼ 2:611 b3 ¼ 0:252 t4 ¼ 3:655 b4 ¼ 0:430 b3 , b1 U

Mediator? Yes (partial mediator)

Yes (total mediator)

No

Yes (partial mediator)

evidence that partially fills this lacuna of knowledge (Parasuraman, 1998; Schellhase et al., 1999). Although this approach was difficult methodologically (because firms were reluctant to allow all members of the buying centre to participate in the survey), the results depict with relative accuracy the whole buying process and the

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various crucial aspects that influence the buying centre’s decisions. Another important objective of this survey was to explore the mediating role of satisfaction in a model measuring loyalty attributes. The results partially support the mediating role of satisfaction and raise some important issues concerning this matter. The fact that satisfaction mediates fully the relationship between accessibility and loyalty demonstrates that, without satisfaction, the advantages of accessibility in the business context cannot significantly influence any future buying behaviour. Satisfaction not only mediates the impact of accessibility as a service-quality dimension on loyalty, but also limits its power to influence buying centres’ future decisions. This is of particular interest for practitioners trying to formulate strategies capable of generating loyal business customers. It is clear that it is not enough to focus on one service-quality dimension to achieve high rates of repeated purchases. Rather, it is vital to generate globally satisfied customers in this direction. Similarly, satisfaction plays a partial mediating role in the relationship between delivery service and loyalty. It seems that delivery service has a greater impact on the formation of loyalty attributes because it is directly linked to the buying centre and has a strategic role in the achievement of various objectives – very often related to suppliers’ performances. This shows clearly that, although satisfaction is needed to generate loyal business customers, errors and delays during the delivery service phase of the exchange can cause problems and disappointment in the client’s buying decision centre. On the other hand, satisfaction has no influence in the relationship between product or service reliability and loyalty. This can be explained, at least in part, in a B2B context. Service or product reliability is extremely important for the business client, and business centres usually choose their suppliers on the basis of quality excellence. It can therefore be assumed that, in today’s competitive business environment, core product or service reliability is the absolute prerequisite for a business relationship to exist. If the supplier firm fails to meet buyer’s requirements, this will dramatically change the status of the business relationship. The results also provide evidence in support of a multidimensional approach to the service-quality construct. Moreover, although the specific industrial set (information technology) might appear to be unsuited to service-related research, it proved to be “services-oriented”. It is evident that buying centres show significant sensitivity to service issues associated with a core product or service offering. From this perspective, the present

authors argue that services surrounding the core product or service offering – in this case hardware and software applications – have a greater influence on the creation of satisfaction than the actual product or service offering.

Managerial implications Although researchers in the service quality area have often discussed the competitive advantages that could be gained from an improvement in the quality of the service offering, very few have clearly demonstrated which of the service-quality dimensions might provide significant competitive advantages. Various studies have presented one dimension as being more important than another – without necessarily connecting the improvement in a given dimension with improvement in satisfaction ratings and behavioural intentions. The present research has demonstrated that the most crucial elements in industrial satisfaction (at least in the information technology sector) are accessibility and delivery. Those two servicequality dimensions directly influence the formation of industrial satisfaction in the buying decision centre – thus providing managers with strategic areas in which to enhance satisfaction levels. For example, two critical issues on which managers could focus their efforts are the time required to find the responsible person in the supplier’s firm, and the response of the firm to a message left by a potential buyer. Similarly, the delivery process of the core product or service offering demonstrates clearly that modern organisations need to offer consistently accurate and reliable delivery, in addition to superior product or service reliability and quality. In any B2B environment, relational aspects are always important. It is necessary to identify these relationship aspects and to improve the quality of the relationship with business partners. The present findings suggest that buying centres need to identify business partners who will be able to offer an answer to their needs in the event of a service failure. A good response is not limited to the nature of the solution at a technical level. Of particular importance is the promptness of intervention in identifying the problem and promptness in the actual problem solving. A major contribution of the present study is the mediating role of industrial satisfaction. Because service-quality perceptions fail to influence loyalty directly, industrial satisfaction exerts a partial mediational influence. This result confirms the findings of Cronin and Taylor (1992) and those of Taylor and Baker (1994) in supporting a significant interaction effect between service

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quality and satisfaction. From this perspective, service quality is an antecedent of industrial satisfaction, and exerts a stronger influence on loyalty. Thus, managers might need to emphasise total customer satisfaction programs – rather than strategies that focus solely on service quality. As stated above, it is important to identify crucial service-quality dimensions because of their capacity to assist firms to improve their service offering. In contrast, focusing solely on service quality can lead to myopic management with catastrophic results. Industrial satisfaction is the crucial element that drives longer-term client relationships, and managers therefore need to monitor satisfaction levels and understand clients’ perceptions of their total service or product offering. It is also obvious that service-quality perceptions exert a greater influence on the formation of industrial satisfaction than do core product reliability perceptions. Surprisingly enough, the service aspect in a manufacturing environment seems to be more important for buying centres. This fact emphasises the need for firms to evaluate further services associated with a product offering and establish clear quality standards. Moreover, distinguishing between service and product quality will help managers to implement more flexible strategies – because improvement plans of product quality differ significantly from those of service quality. On this basis, a means to achieve flexibility and increase significantly buyers’ satisfaction ratings would be to involve the buying centre in different phases of the transactional continuum before actually delivering the core product or service. This will give buying firms an opportunity to express their needs and establish a communication link on the basis of openness, mutual understanding, and fairness. This link will enhance the interaction aspects of the relationship – such as trust and relationship commitment.

satisfaction in a relationship according to the complexity of the service or product offering. The present model therefore fails to identify the existence of any turbulent incidents that might damage or improve the relationship between the buying firm and the supplier. Further research is necessary in the following areas. First, research is required to ascertain how customer satisfaction is created in a B2B environment and within the buying centre context. Of particular interest are potential relational interaction effects within the buying decision centre. It would be very useful to identify the way in which personnel holding key positions and roles influence the rest of the buying personnel. Psychological metrics, such as leader-member exchanges (LMXs) and group cohesion, could help practitioners to understand how their buying centres operate and to identify the key persons who influence the creation of quality and satisfaction standards. Moreover, suppliers could target these persons, resulting in enhanced satisfaction ratings. Second, there is the need for research on different product categories and services (such as e-commerce and e-banking). In addition, samples from different countries and industrial settings would help to ascertain the generalisability of the present findings. Third, future research could use different measurement scales to capture the constructs of industrial satisfaction and loyalty in the buying decision situation. The single-item constructs of industrial satisfaction and product or service reliability could be replaced with multi-item scales – thus providing alternative ways of validating the present results. Finally, relational variables (such as trust and commitment) could be used in qualitysatisfaction-loyalty models, thereby increasing the possibility of achieving greater percentages of explanation of loyalty cues.

Conclusion

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Progress, Prospects, Perspectives (No. 3), EMAC Proceedings, Warwick Business School, Coventry, pp. 1122-40. Schellhase, R., Hardock, P. and Ohlwein, M. (1999), “Customer satisfaction in business-to-business marketing: the case of retail organisations and their suppliers”, Journal of Business & Industrial Marketing, Vol. 14 No. 5/6, pp. 416-32. Singh, J. (1990), “Voice, exit and negative word of mouth behaviors: an investigation across three service categories”, Journal of the Academy of Marketing Science, Vol. 18 No. 1, pp. 1-15. Sirdeshmukh, D., Singh, J. and Sabol, B. (2002), “Impact of frontline employee behaviours and management practices on consumer trust, value and loyalty in relational service exchanges”, Journal of Marketing, Vol. 66, January, pp. 15-37. Sivadas, E. and Baker-Prewitt, J.L. (2000), “An examination of the relationship between service quality, customer satisfaction, and store loyalty”, International Journal of Retail & Distribution Management, Vol. 28 No. 2, p. 73. Spreng, R. and MacKoy, R. (1996), “An empirical examination of a model of perceived service quality and satisfaction”, Journal of Retailing, Vol. 72 No. 2, pp. 201-14. Spreng, R. and Singh, A.K. (1993), “An empirical assessment of the SERVQUAL scale and the relationship between service quality and satisfaction”, in Cravens, D. and Dickson, P. (Eds), Proceedings of the AMA Conference: Enhancing Knowledge Development in Marketing, Vol. 4, pp. 1-6. Taylor, S. and Baker, T. (1994), “An assessment of the relationship between service quality and customer satisfaction in the

formation of consumers’ purchase intentions”, Journal of Retailing, Vol. 70 No. 2, pp. 163-78. Tucker, W.T. (1964), “The development of brand loyalty”, Journal of Marketing Research, Vol. 1, August, pp. 32-5. Walker, J.L. (1995), “Service encounter satisfaction: conceptualised”, Journal of Services Marketing, Vol. 9 No. 1, pp. 5-14. Westbrook, R.A. and Reilly, M.D. (1983), “Value percept disparity: an alternative to the disconfirmation of expectations theory of consumer satisfaction”, in Bagozzi, R. and Tybout, A. (Eds), Advances in Consumer Research, Vol. 10, Association for Consumer Research, Ann Arbor, MI, pp. 256-61. Wilson, D.T. and Jantrania, S. (1994), “Understanding the value of a relationship”, Asia-Australia Marketing Journal, Vol. 2 No. 1, pp. 55-66. Woodruff, R.B. and Gardial, S.F. (1996), Know Your Customer, Blackwell, Cambridge, MA. Woodside, A.G., Wilson, E.J. and Milner, P. (1992), “Buying and marketing CPA services”, Industrial Marketing Management, Vol. 21, pp. 265-72. Zeithaml, V.A. (2000), “Service quality, profitability, and the economic worth of customers: what we know and what we need to learn”, Journal of the Academy of Marketing Science, Vol. 28 No. 1, pp. 67-85. Zeithaml, V.A., Parasuraman, A. and Berry, L.L. (1996), “The behavioural consequences of service quality”, Journal of Marketing, Vol. 60, April, pp. 31-46. Zins, A.H. (2001), “Relative attitudes and commitment in customer loyalty models: some experiences in the commercial airline industry”, International Journal of Service Industry Management, Vol. 12 No. 3, pp. 269-94.

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Customer involvement in new service development: a conversational approach Anders Lundkvist and Ali Yakhlef

The authors Anders Lundkvist and Ali Yakhlef are both at the Stockholm University School of Business, Stockholm, Sweden.

Keywords Customer relations, Conversation, Service industries, Product development

Abstract The expression “customer involvement” is finding increasing popularity with popular as well as academic marketing texts. Within the evolving research, customer involvement is cast in an information-processing mould that tends to reduce it to the mere transfer of information from where it exists (customers) to where it is dearly needed (the firm). Customers’ active participation is accounted for in economic psychological (contract) terms. Drawing on case study material gleaned from an organisation that adopted a customer involvement strategy, the present paper suggests a conversational approach that regards customers’ active participation and involvement in terms of conversational exchanges between customers during which new ideas are jointly co-created and commitment to action is established. Conversation is not only the fostering ground for new ideas and knowledge, but also the source of social agency. Some theoretical and practical implications of the conversation-based customer-firm interface for involving customers are discussed.

Electronic access The Emerald Research Register for this journal is available at www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at www.emeraldinsight.com/0960-4529.htm

Managing Service Quality Volume 14 · Number 2/3 · 2004 · pp. 249-257 q Emerald Group Publishing Limited · ISSN 0960-4529 DOI 10.1108/09604520410528662

1. Introduction Recently there has been an effusive corporate and academic interest in the notion and practice of customer involvement. Companies are rushing into the customer involvement bandwagon, viewing it as a way to achieve a more favourable cost/time product development curve (Rothwell, 1994) and to reduce uncertainty that usually surrounds the innovation process (LeonardBarton, 1995; Gales and Mansour-Cole, 1995). Such an information-processing approach assumes that new product development is a risky process, and involving the customer is expected to enable firms to reduce various types of uncertainty, such as environmental, phase-related and userrequirement uncertainty (Gales and MansourCole, 1995). The logic of the informationprocessing rests on an information asymmetry (or an independency) relationship, which is best highlighted by Thomke and Von Hippel (2002), who see product development process as difficult “because the ‘need’ information (what the customer wants) resides with the customer, and the ‘solution’ information (how to satisfy those needs) lies with the manufacturer”. Implied in this is the assumption that the necessary information for reducing uncertainty concerning the product or service development process exists and is possessed by the customer, and that product or service development is only a matter of finding where the required information is located and of communicating it from where it is to where it should be, using language. However, recent researchers have begun to shift away from a (realistic) view of language as a medium for transferring information and ideas towards regarding it as a process during which ideas and knowledge are created (Sawhney and Prandelli, 2000; Nambisan, 2002). Although the constitutive role of language is one step towards the right direction, it remains silent on what motivates customers to willingly shoulder some of the activities that have traditionally been the preserve of firms’ R&D – such as idea generation, design conceptualisation or new product and service testing. Accounts for customer motivation are mainly couched in psychological, economictransactional terms (such as self-efficacy, fun, altruism, reputation, reciprocity, etc.) (Davenport and Prusak, 1998; Kollock, 1999; Sawhney and Prandelli, 2000; Nambisan, 2002; Lundkvist, 2003a). However, motivation is only a mental state. Being so, it does not necessarily lead to, nor sustain, customers’ involvement over any longer period of time. To the extent that motivation is not a form of behaviour, nor a form of action, a conceptualisation of how customer motivation is

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translated into active participation has remained elusive in much of the literature in the field. It is still dominated by a view of language as mainly concerned with the manipulation of symbols, ideas and knowledge, overlooking its transformative, agential power – a process whereby customers are transformed into active participants, into change agents intervening in the workings of the firm. The aim of the present paper seeks to explore a conceptualisation of customer involvement in terms of a conversational idiom. From a conversational perspective, language is not only regarded as a mode of transferring meaning and information from senders to receivers. Nor is it only a process through which new forms of information and aspects of meaning are cocreated, but it also involves the transfer of intention from one participant in the conversation to another, leading to collective action. On this view, conversation is not reduced to talk about action (or involvement) but is itself a form of action, which is jointly undertaken by the participants (customers and firms’ representatives) engaged in a conversation. Hence, conversation is not merely a matter of transferring pre-existing information, ideas and knowledge from one party to another, but also an opportunity for constituting these, and the source of social agency (Taylor, 2000). Conversation is not a medium for talking about the world, but is the very fabric out of which social processes, such as customer involvement, are made, and is, at the same time, the vehicle for acting upon that world. Taking a conversational perspective to customer involvement, the aim of the present paper is to suggest a conversational framework for understanding the dynamics of customer involvement. More specifically, the paper wants to account for customer involvement conversationally (rather than psychologically or economically), showing how: conversation is a process during which new ideas and knowledge are jointly created by the parties involved in the exchange; conversation is the source of active participation and mutual commitment between the interactants; and, finally, attempts to (seriously) involve customers through conversation will transform customers into organisational change agents. Finally, the paper explores the implications of viewing conversation as constitutive of realities (rather than just representing them) for conceiving and implementing customer involvement processes in organization. The next section (section 2) makes a brief account of some emerging developments in the area of customer involvement in service and product innovation, suggesting a conversational

approach as a conceptual device for linking psychological predisposition (customer motivation) and agency (customers’ active participation). In order to illustrate the viability of the framework suggested, section 3 provides a vignette revolving around an initiative by the Swedish Post Office to involve its customers in new service/product development. Finally, section 4 is devoted to an exploration of the implications of the conversational approach for marketing management.

2. Customer involvement Companies are increasingly rethinking the fundamental ways in which they generate ideas and bring them to market (Chesbrough, 2003). Because R&D has long been a costly and inexact process (Thomke and Von Hippel, 2002), customer involvement has been widely acclaimed in management rhetoric as a means to tighten the feedback loop between the cycles of consumption and of production (Foxall, 1989; Gales and Mansour-Cole, 1995). Underlying most such views is the assumption that customers are sources of information and of knowledge (Rothwell et al., 1974; Von Hippel, 1988; Normann and Ramı´rez, 1994) and that customer involvement can enhance product concept effectiveness (Brown and Eisenhardt, 1995). With regard to customer involvement in firms’ value creation, researchers have identified five roles that these can play: customer as “resources”, “co-producers”, “buyers”, “users” and “products” (Gersuny and Rosengren, 1973; Kaulio, 1998; Finch, 1999; Nambisan, 2002). Whereas the first two are at the input side of value creation process, the last three take place at the output end of it. In this paper we focus on the customer-as-a-resource view, which regards customers as a source of innovation. By and large, within the customer-asa-resource perspective, researchers have focused on customers as a source of new product ideas. The role of the customer is relevant to product conceptualisation (Rothwell, 1976; Von Hippel, 1988). However, researchers are not at one as to the relevance of involving customers in idea generation, arguing this will only lead to imitative, unimaginative solutions (Ulwick, 2002). The role of customer in idea generation has mainly been recognised in connection with incremental, continuous innovation, but with regard to radical innovation, the value that customers can bring to the idea generation process is claimed to be limited (Christensen Christensen, 1997; O’Connor, 1998).

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Furthermore, given the difficulty of eliciting product ideas from customers through, for instance, structured inquiry mechanisms severely limits the richness and frequency of customer contributions (Nambisan, 2002). In addition, logistical and economic considerations militate against engaging in continuous and meaningful exchanges with firms (Wayland and Cole, 1997). Other challenges that firms face in involving their customers in a cost-effective manner range from the choice, the location of, and the incentives for involving customers in the appropriate infrastructure for capturing customer knowledge and ideas (Nambisan, 2002). In light of these difficulties, customer involvement has proven challenging to conceptualise and implement. For in the absence of an adequate infrastructure, even when firms succeed in assembling large amounts of customer information, it is not easy to capture the tacit insights of customers (Kaulio, 1997). Although the processing of information, its reconfiguration through sorting, re-categorising, recontextualising and combining it with internal information may lead to the generation of new ideas and knowledge, thereby uncovering explicit and latent customer needs and wants, the process is still bedevilled in that it takes place at many removes from the customers’ tacit dimension, and is carried out in abstraction from their feelings and their emotion (Schubert and Ginsburg, 2000). Customers’ latent requirements can be better understood “in their own natural settings than in artificial settings” (Leonard-Barton, 1995, cited in Nambisan, 2002, p. 395). Along the same lines, it is suggested that “longitudinal and ‘informal’ data have been found to be more beneficial than crosssectional and ‘formal’ data provided by structural inquiry tools” (Leonard-Barton, 1995, cited in Nambisan, 2002, p. 395). One of the explanations is that the transfer of tacit, sticky aspects of information and knowledge require socially richer interactions and processes of communication than the information-processing approach that dominated the literature on customer involvement (Von Hippel, 1994; Gales and Mansour-Cole, 1995). An informationprocessing view of customer involvement tends to reduce customers as carriers of information and it is only a matter of transferring that information from where it is plethoric (the customer) to where it is required (the firm). As noted above, tacit and sticky information and insights cannot be detached from the social context in which they are generated. Hence the role of language is not merely that of transporting meaning from sender to receiver, but it is to a large extent involved in the creation of information and knowledge.

The use of language in general, conversation and dialogue in particular, as a medium of knowledge co-creation and transfer has been emphasised by a number of theorists (Winograd and Flores, 1987; Davenport and Prusak, 1998; Kollock, 1999; Von Krogh et al., 2000; Normann, 2001; Lundkvist, 2003b). Sawhney and Prandelli (2000) mention the example of the Italian casualwear company, Diesel, which has established a Web site to amplify its interactions with its customers and to socialise with them through dialogue. For these authors, dialogical interaction is seen as a means for developing a shared language, which is the prerequisite for knowledge co-creation. Although the linguistic turn in customer involvement adds considerably to our understanding of how communication, dialogue and conversation constitute meaning and knowledge, it is still regarded as mainly cognitive, dealing with symbolic manipulation, leaving unprovided for such questions as why customers would be willing to share their insights, and spend solving a firm’s problem. Because, while it is obvious why firms are effusively interested in involving their customer in their product development processes, it is difficult to understand what drives customers to be interested. In addressing this issue, researchers mention a number of benefits. From a social perspective, customer involvement provides participants with a sense of belonging and identity, which are not defined by product usage but also by other group norms that the network develops over time (Nambisan, 2002, p. 405). Product-related benefits that may accrue to customers through participating in new product development, which have traditionally been considered to be the main drivers (Wayland and Cole, 1997; Nambisan, 2002), include tangible and intangible benefits. Most often, these are couched in abstract, psychological explanations such as self-repute, altruism, reciprocity, etc. (Davenport and Prusak, 1998; Kollock, 1999; Sawhney and Prandelli, 2000; Nambisan, 2002). Motivation, however significant it may be, defines mental spaces that may induce customers to get mobilized cognitively, but which may not guarantee active and sustained participation over a certain period of time. Motivation is only a mental predisposition, which does not necessarily warrant the initiation of action. Speaking from an agencytheory perspective, Nambisan (2002), referring to Mills (1996), suggests “that customers’ motivation may stem from their feeling that their active involvement is necessary to guarantee product or service quality”. By participating in new product development, the principal (customer) can

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monitor the agent’s (firm’s) fulfilment of the service contract (Larsson and Bowen, 1989). In this context, customers are led to believe or feel that they are able to influence the firm to incorporate certain product features that have some special value for them. Although the agency theory perspective is insightful since it seeks to transcend the wide gap between customers’ motivation (a psychological state of mind) and their action (behaviour) upon a firm’s products, it is important to point out that the relationship between customers and firms is not a contractual one. The present paper suggests a view of conversation that goes beyond the simple manipulation of symbols and mere cognitive processes to include an agential dimension that presumes a conversational, rather than a contractual basis for the social order. The role of conversation, as a rich mode of interaction, has long been recognized by researchers and linguists (Sacks, 1992). According to Tannen (1998), conversation is not a passive (cognitive) process where a person actively speaks then remains passive while another speaks, rather it is always engaging and active. Involvement in a conversation is created as much through a listener’s participation as through that of the interlocutor. Both listener and interlocutor become involved in the work of making sense and sharing and creating ideas. It is through conversation that members are turned into a collective actor driven by the necessity to maintain the continuity of the social order. The conversational idiom suggests that human sciences can be understood conversationally (Ryan, 1998). In contrast to contract, conversation is regarded as the basis of the social order. Whereas a contract assumes that the parties bound by it are extrinsically regulated, conversation implies intrinsic motives. In connection with a contract, the contract-receiver does not have to reveal all the reasons for agreeing on performing a task – usually the economically-based reasons are publicly known – a conversational order based on freefloating discursive exchanges (Schegloff, 1992, cited in Sacks, 1992) may reveal more than just the formal motives underlying a transaction. When we make a contract with someone else we expressly abstract from the other party’s personal, private motivation. In Ryan’s (1998) terms, a person may agree to mow your lawn for ten dollars because he likes mowing lawns, because it is the only skill he possess, because it is the only skill that anyone else is willing to purchase from that person, and so endlessly on. But all you can demand from that person is a mown lawn; it would be necessary for you to ask that the person should mow it in any particular frame of mind or for any particular reason other than because he has agreed to mow it.

In a contractual relationship, there is a separation between private motivation and economic obligations. A conversational view, in contrast, blurs this separation since all types of motivations are things to be talked about, and constituted conversationally. Conversation is not only talk about action but is in itself a form of action.This double aspect of conversation is not very well recognised in the literature since there has been a tendency to see conversation as mainly symbolic, having to do with communicative and sensemaking processes. This paper seeks to redress this deficiency, drawing on ideas from Garfinkel (1984) and Taylor (2000). What holds individuals together and what ensures the continuity of social practices over time is the mechanism of “turn-taking, the accounting practices members carry out in regard to one another, accounting practices that are reflexively tied to activities in a given setting” (Lash, 2002). Every expression in a conversation is an implicit giving of an account (Garfinkel, 1984). What makes a conversation possible is the set of accounts makings, which let “a conversation become a temporally extended activity. The duration of a conversation is just one instance of the duration of the social order in general” (Lash, 2002, pp. 1712). In a conversation, thus, problems are solved for the sake of the continuity of the social order (Garfinkel, 1984, p. 46). For Garfinkel (1984), accounts (reports, stories, glosses) are as much communications as they are entities of knowledge. Accounting for events and activities takes place reflexively, implying a form of knowledge that is tied to the socially organised occasions of their use. The form of knowledge ensuing from such accounts is practical knowledge, since accounts in a conversation are features of the activities, the settings and occasions and reflexive (Garfinkel, 1984, pp. 9-10). It is a form of knowledge that does not presuppose a separation between reason and action, and to the extent it is based on communication and telling, it puts premium on collectivity. By the same token, it is not geared towards making things intelligible to oneself, but mainly to other members, the aim being to achieve the coordination of the underlying practices and events with those of others. It is reflexive (as in reflex, rather than reflection) in the sense that it is based on a “natural attitude”, or the “attitude of daily life”, in contrast to scientific knowledge (which is based on a scientific attitude and developed in a disjointed, separate space, the lab). In a conversation, members co-orient their intention towards an environment they experience by relying less on their intellection than their intuition. It is in this intuitive, communicative

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process that new ideas emerge (ideas that do not exist ab inito, or prior to the engagement of the interactants in a conversation) and forms of social agency strike root, as discussed below. According to Taylor (1993, 2000), conversation is a form of communication; and as such, it is the site where all organisation and social agency emerge. In this regard, the role of conversation is double: First, it serves to make sense of the circumstances in which the interactants find themselves, and that is by translating those circumstances into available representations of how things are in the world; second, it serves to transform those interactants from two or several individuals into a collective purpose that “acts” on their behalf, becoming thus a sort of quasi-actor (in a Latourian sense). It is only through this transformation into a collective actor that interactants become capable of dealing with the situation, as it has been interactively defined by them. This process of translation of circumstance into a frame of knowledge, and of interactants into a collective purpose is realised in language, both in the sharing of perceptions of the situation and in generating a collective response to the circumstances where the interactants are located. The transformational role of conversation is echoed by Austin’s (1962) “speech act theory” within which speakers do things with words, but detracts from it in the sense that it is not the individual who is the basis for action, but both or all interactants involved in a speech situation. Put differently, “it is not the speaker who ‘acts’, and the listener who responds; the act of communication is, in and of itself, a joint production, collaboratively arrived at” (Taylor, 2000). Thus conversation establishes a relationship that co-orients the interactants’ focus towards some “object” in the world, leading to a joint assessment of it (in the form of accounts which representing a form of reflexive knowledge) – knowledge that is not only a representation of the situation at hand, but also a response seeking to intervene and change that situation. Such co-orientation is transactional, in the sense that any given act (making a request, giving hints, offering assistance, and so on) has semantically a correlated second act, its complement. Somebody selling an object implies somebody willing to buy that object; both are required for the transaction to take place. This co-orientation system is, according to Taylor (2000), the building-block of sociality. One of the outcomes of co-orientation is the transfer of intention (not only the transfer of meaning) from one interactant to another. When an intention has been transferred from one person to another, the result is the production of an agency relationship defining the coordination of

performance. Hence, the source of agency is not the psychological motivations or the interpersonal dynamics that occurs between interactants, but the agency relationship created through conversation. Individuals become active subjects by their joint orientation to some object and it is language that accomplishes their transformation from individuals into a collective actor (Taylor, 2000). Interactants are turned into a collective actor through the generation of their text, which is not only to be taken as a manifestation of their collective intention, a condition for acting together, each with a specific responsibility, but also as the vehicle for their self-transformation into a new kind of actor – a collective actor (Taylor, 2000). In the case of customer involvement in innovation-related activities, the text consists of the various suggestions, feedback and ideas customers and firms employees jointly construct during their conversation. This text is not to be interpreted as a mirror or representation of realities, but as a vehicle for bringing forth new ones. It is in this sense that the text acts, it sanctions action, it intervenes in the organisational realities, it does things. What this implies is that customers and employees become an active participant in the firm’s activities, a kind of hybrid actor composed of customers, employees and, not least, the text that acts as a common history legitimising the necessity to act. From this perspective, it seems to emerge that if firms are seeking to involve their customers in their innovation processes they will have to regard them as fully legitimate actors and active participants in defining the meaning of services and products and suggesting new changes. This ties well with what Nambisan (2002, p. 406) rightly says: if a firm is to involve its customers it has to “bring [them] inside the organisation’s fold and transform them into ‘employees’ or part of the extended product development team”. Customers will have to be granted a recognised voice and place in the R&D department. Involving customers means transforming them, through conversation, into a collective actor – a collective actor that acts through a text. This hybrid interactants-text constitutes a new organisational actor. Assuming that motivation only serves to ignite the process of customer involvement but does not furnish it with a sustained energy over time, the agential dimension of conversation sheds light on the link between customers’ motivation and their involvement and active participation. To the extent that, in contrast to agency theory, customers’ engagement in conversation with a firm is not based on contractual relationships, customers’ allegiance is not necessarily and only geared

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towards the firm, but also towards each other – the sense of belonging and identity that forms, as recognised in the literature (Nambisan, 2002). Hence customers’ obligation to take part in the firm’s innovation process – or not to take part – does not only stem from members’ ties to the firm, but to a large extent, from what ties them to one another and their belonging to a society at large. This implies that customers do not confine their concerns to the firm’s immediate interests, but may involve larger issues than purely business, economic ones, as we shall see in the following vignette.

transportation services offered by the different distributors. Instead of having five or six different vehicles, deliverers can collaborate using one vehicle to deliver all their services, resulting in increased cost-efficiency, less traffic hazards, and less environmental harm. Although the project is still on, some conclusions can be reached. For one thing, the company managed to improve its existing services (which now come in a streamlined just-in-time manner, and the social benefits ensuing from it). For another, it succeeded in creating a brand new service, providing an information system to the partners involved, entering into new alliances and learning opportunities with them. The company has established a bridge between its internal workings and the customer’s mind and heart, acting in tandem with them, by not only listening to them, but also acting upon with what they suggested. As from the customers’ perspective, the results are that they have managed to have an effect on the company’s thrust. They have redirected its activities so as to become environmentally friendlier, influencing its offerings, thereby growing confident and proud of their achievement. Their involvement has yielded results, which gave credit from the management of the Post Office and from their own management and colleagues. The customers were satisfied with the results of the time and attention they invested in their conversation with the company. It is through their conversation with the team that a collective actor, a socially responsible mind, emerged, intent on solving a set of problems, which were latent and vaguely defined. One of the theoretical implications that seems to emerge is that conversation is a medium through which the two parties have developed a shared repertoire, and a common understanding (a form of knowledge) of the circumstances surrounding their activities. In the process, their accounts coalesce into common environmental concerns. Subsequently, this has led to a relationship of mutual trust that eased the way towards integration of their aims and ambitions. This was only possible because the company developed routines of how to converse with customers – a structure that engages customers in a productive way. In the course of conversation, issues relating to congestion, with all their effects, have emerged contingently: neither partner was able to figure that out in isolation and in advance. Of course, the users had a sense of unease as to the situation, but they were not able to define those tacit feelings into clearly concrete terms. Traffic concerns were mainly an implicit source of worries, which took shape once they became a topic of conversation, as a result of the co-orienting of the intention of both

3. An illustration and implications In January 2000, the Swedish Post Office public sector account managers undertook an initiative to involve their customers in developing new public services, such as transport services, to schools and cre`ches in the southern regions of Sweden. The background was that the company was losing customers and wanted to find out the reasons why and how to improve present services and develop new ones. To those ends it decided to engage in face-to-face interactions with its customers about its services, their quality, delivery terms and timeliness. The project members conducted numerous discussions with users about the suitability of the services and the problems customers were experiencing. After long discussions, new ideas began to emerge. The project members were surprised to learn that users were having more urgent concerns than just transport services. That is, they were concerned with the intensification of traffic in the vicinity of the schools and the cre`ches, which implies increased rate of pollution and danger for children around the areas. In other words, they were not interested in the services per se, but rather in the consequences of modes of delivering those services. About 30 vehicles travel weekly through the densely populated area, causing congestion and an increased rate of pollution and entailing hazards for children. At this point, the conversation took another turn, revolving round new needs, namely how to solve the congestion problem and reduce traffic hazards for children? A common understanding has subsequently emerged: the development of a service to be carried out jointly by one deliverer rather than many by coordinating their various transportation schedules. This way, the number of vehicles trafficking in the area would be reduced. In order to streamline the activities of the various parties, the company has to develop an information system service, which schedules and integrates the

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parties towards the context of the customer, which was beyond the threshold of knowledge of the service provider. To the extent that the content and form of a conversation are reflexive and emergent, so must we view customer motivation. As noted above, motivation is constituted in conversation and not based on a contract. In the case under consideration, users became involved in solving a social, environmental problem, not only in helping the company to become more profitable. Users became tied to their own ethical, and to a wider social responsibility. Their motivation cannot be explained in terms of psychological or economic benefits. Their contribution was part of what it means to be a socially responsible being. In order for customers to become active participants in the construction of the circumstances surrounding both partners, their understanding has to coalesce into an “opinion”, a text that “represents” them and speaks in their stead. This text manifests itself in the form of a plan of action. It is in this sense that interactants are turned into agents, taking part in the company’s processes, triggering off a ripple of changes. Indeed, the company was able to modify its services, create new ones, transform its business processes and engaging in new partnerships. Likewise, customers’ processes have been changed, in order to adapt to the new delivery system, since now all the services are delivered simultaneously. This is so because customers have woven a pattern of ideas and insights that resulted into a common text – a text that legitimises both parties to take action. It is in this connection that conversation is to be regarded as the basis of customer action (involvement), an aspect that has been overlooked in the literature.

in conversational, rather than psychological, economic and contractual terms. On this view, conversation is a process during which ideas and knowledge are generated by the participants in a conversation and social bonds are established among them. What unites and holds together the participants is not an economic, contractual order, but their striving to maintain the continuity of their social order through the mechanisms of turn taking. In conversational turn takings, participants co-orient their attention to the context surrounding them, transferring their intention to one other. The result of co-orienting their intention is an agreement, an opinion, which is not only a description of the situation framing them, but also a response to it. Such response is an action-sanctioning attempt to seek to introduce some change to the environment. The primary function of conversation, in particular, and language, in general, is not only meant to represent and mirror that environment, but also to produce responses to it. Where does this view of conversation leave us with regard to the theory and practice of customer involvement? Theorists were undecided on the issue as to the value of customers in connection with idea generation, assuming that customers’ imagination is limited and can only make reference to existing stock of knowledge of product and services. Such a view assumes that ideas can be possessed a priori by customers, be it by customer or firms. From the perspective of the present paper, ideas do not exist in abstractum; rather they take shape in and through conversational engagement between customers and the R&D team. Conversation provides a natural knowledge capture; given that customers are in their natural habitat, informally cross-fertilising their perspective with that of the firm’s employees, new insights and un-thought-of ideas emerge. Our view tends to lend support to Leonard-Barton’s (1995) assertion that “informal conversational accounts are more useful than cross-sectional and ‘formal’ data provided by structural inquiry tools” (Leonard-Barton, 1995, cited in Nambisan, 2002, p. 395). Second, the premise that customers’ contribution is limited in the idea generation stage may be questioned, since it tends to exclude in advance the possibility that customers are not able to think outside of the “box”, of what they already know. Of course, formal enquiries and surveys may not be appropriate infrastructure for the exchange of tacit aspects of experience, which are associated with the contexts that give rise to radical innovation (Hage and Hollingsworth, 2000). The more frequent and intense communication and conversational exchanges among actors from diverse backgrounds the more likely major

4. Concluding remarks and implications Given the perception that customers are more than passive consumers, integrating customers within the fold of the organisation is attracting increased academic and corporate attention. However, the literature, apart from some exceptions, tends to take an information processing approach to customer involvement. Involving the customer is not merely a transfer of information between customers and firms. Stressing the role of language, some recent theorists view it as a process through which knowledge is jointly co-created and shared. Lacking from this perspective, however, is how to account for customers’ motivation for willingly sharing their views and collaborating with firms. To these ends, the present paper can be seen as an attempt at reframing customer involvement

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breakthroughs are to occur. Our case illustrates an example of a service that, humble though it is, is radically different from those they are acquainted with. Neither the firm nor the customers separately would have figured out the idea of developing an information system. Third, whereas previous views assumed a sort of “psychological” contract that customers enter with a firm, our approach is based on conversation as the basis of the social order. Such a view widens the range of ideas that could obtain, extending beyond the calculative concerns of firms. What ties participants together in a conversation is first and foremost their commitment to one another as social members, and secondarily as active and productive, value-creators. Any theory of customer involvement should include the agential aspect of conversation, for conversation is not only a description of the state of the world, but it is also a response to it. Conversation is to be seen as an attempt at adapting the word to the world and the world to the word. Cast in Leonard-Barton’s (1995, p. 110) terms, managers who attend to these two activities of user involvement and mutual adaptation are more likely to succeed. All of which implies that managers contemplating a customer involvement strategy have to consider the design elements that enhance the continuity of the conversation with customers (including the cost incurred) and to reframe the role of customers in terms of active change agents and integrate them within the R&D team. Adopting appropriate measures that enthuse a trust-based culture between firms’ R&D team and customers requires a cultural shift from a “weknow-best” attitude to seeing product ideation as the joint outcome of a customer-firm conversational process.

Gales, L. and Mansour-Cole, D. (1995), “User involvement in innovation projects”, Journal of Engineering and Technology Management, Vol. 12 No. 1/2, pp. 77-109. Garfinkel, H. (1984), Studies in Ethnomethodology, (originally published in 1967), Polity, Cambridge. Gersuny, C. and Rosengren, W.R. (1973), The Service Society, Schenkman, Cambridge, MA. Hage, J. and Hollingsworth, J.R. (2000), “A strategy for the analysis of idea innovation networks and institutions”, Organization Studies, September. Kaulio, M.A. (1997), “Customer-focused product development: a practice-centered perspective”, Doctoral dissertation, Chalmers University of Technology, Gothenburg. Kaulio, M.A. (1998), “Customer, consumer, and user involvement in product development: a framework and a review of selected methods”, Total Quality Management, Vol. 9, pp. 141-9. Kollock, P. (1999), “The economies of online cooperations: gifts and public goods in cyberspace”, in Smith, M.A. and Kollock, P. (Eds), Communities in Cyberspace, Routledge, London, pp. 220-39. Larsson, R. and Bowen, D.E. (1989), “Organization and customer: managing design and coordination of services”, Academy of Management Review, Vol. 14, pp. 213-33. Lash, S. (2002), Critique of Information, Sage Publications, London. Leonard-Barton, D. (1995), Wellsprings of Knowledge, Harvard Business School Press, Boston, MA. Lundkvist, A. (2003a), “Conversational realities: five studies of user interactions as sources of innovation”, Doctoral dissertation, School of Business, Stockholm University, Stockholm. Lundkvist, A. (2003b), “Learning through online conversations: the case of online support systems”, in Junghagen, S. and Linderoth, H.C.J. (Eds), Intelligent Management in the Knowledge Economy, Edward Elgar Publishing, Cheltenham. Mills, P.K. (1996), Managing Service Industries, Ballinger, Cambridge, MA. Nambisan, S. (2002), “Designing virtual customer environments for new product development: toward a theory”, Academy of Management Review, Vol. 27, pp. 392-413. Normann, R. (2001), Reframing Business: When the Map Changes the Landscape, John Wiley & Sons, Chichester. Normann, R. and Ramı´rez, R. (1994), Designing Interactive Strategy: From Value Chain to Value Constellation, John Wiley & Sons, New York, NY. O’Connor, G.C. (1998), “Market learning and radical innovation: a cross-case comparison of eight radical innovation projects”, Product Innovation Management, Vol. 15, pp. 151-66. Rothwell, R. (1976), “Marketing: a success factor in industrial innovation”, Management Decision, Vol. 14 No. 1, pp. 43-53. Rothwell, R. (1994), “Towards the fifth-generation innovation process”, International Marketing Review, Vol. 11 No. 1, pp. 7-31. Rothwell, R., Freeman, C., Horsley, A., Jervis, V.T.P., Robertson, A.B. and Townsend, J. (1974), “SAPPHO updated: Project SAPPHO phase II”, Research Policy, Vol. 3 No. 3, pp. 258-91. Ryan, A. (1998), “In a conversational idiom”, Social Research, Fall. Sacks, H. (1992), Lectures on Conversation, Blackwell Publishers, Oxford. Sawhney, M. and Prandelli, E. (2000), “Beyond customer knowledge management: customers as knowledge co-

References Austin, J.L. (1962), How to Do Things with Words, Clarendon Press, Oxford. Brown, S.L. and Eisenhardt, K.M. (1995), “Product development: past research, present findings, and future directions”, The Academy of Management Review, Vol. 20 No. 2, pp. 343-78. Chesbrough, H.W. (2003), “The era of open innovation”, MIT Sloan Management Review, Vol. 44 No. 3. Christensen, C.M. (1997), The Innovator’s Dilemma, Harvard Business School Press, Boston, MA. Davenport, T.H. and Prusak, L.P. (1998), Working Knowledge: How Organizations Manage What They Know, Harvard Business School Press, Boston, MA. Finch, B.J. (1999), “Internet discussions as a source for consumer product customer involvement and quality information”, Journal of Operations Management, Vol. 17, pp. 535-56. Foxall, G.R. (1989), “Marketing, innovation and customers”, Quarterly Review of Marketing, Autumn, pp. 14-18.

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creators”, in Sharma, Y. (Ed.), Knowledge Management, Idea Group Publishing, Hershey, PA, pp. 258-81. Schegloff, E.A. (1992), “To Searle on conversation: a note in return”, in Searle, J.R. et al. (Eds), (On) Searle on Conversation, John Benjamins, Amsterdam and Philadelphia, PA, pp. 113-28. Schubert, P. and Ginsburg, M. (2000), “Virtual communities of transaction: the role of personalisation in electronic commerce”, Electronic Markets, Vol. 10 No. 1, pp. 45-55. Tannen, D. (1998), “O talking voice that is so sweet: the poetic nature of conversation”, Social Research, Vol. 65 No. 3, pp. 631-51. Taylor, J.R. (1993), Rethinking the Theory of Organizational Communication: How to Read an Organization, Ablex, Norwood, NJ. Taylor, J.R. (2000), “Thinking about organization in a new way: an inquiry into the ontological foundations of organization”, Electronic Journal of Communication, Vol. 10 No. 1/2.

Thomke, S. and Von Hippel, E. (2002), “Customers as innovators: a new way to create value”, Harvard Business Review, April, pp. 5-11. Ulwick, A.W. (2002), “Turn customer input into innovation”, Harvard Business Review, January, pp. 91-7. Von Hippel, E. (1988), The Sources of Innovation, Oxford University Press, New York, NY. Von Hippel, E. (1994), “Sticky information and the locus of problem solving: implication for innovation”, Management Science, Vol. 40 No. 4, pp. 429-39. Von Krogh, G., Ichijo, K. and Nonaka, I. (2000), Enabling Knowledge Creation: How to Unlock the Mystery of Tacit Knowledge and Release the Power of Innovation, Oxford University Press, Oxford. Wayland, R. and Cole, P. (1997), Customer Connections, Harvard Business School Press, Boston, MA. Winograd, T.W. and Flores, F. (1987), Understanding Computers and Cognition: A New Foundation for Design, Ablex Corporation, Norwood, NJ.

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Book reviews Competing in a Service Economy: How to Create a Competitive Advantage through Service Development and Innovation A. Gustafsson and M.D. Johnson Jossey-Bass 2003 190 pp. ISBN 0-7879-6156-6 £20.95 (hardback) Keywords Service industries, Service improvements, Competitive advantage Review DOI 10.1108/09604520410528671

Designing, developing and delivering high-quality service has become important, even for manufacturing firms trying to compete in the knowledge economy and the global market. This book is a hands-on guide with illustrative examples from a number of multi-national companies such as Disney, Ericsson, and IKEA. Andres Gustafsson is a research leader at the Service Research Centre, Karlstad University, Sweden; and Michael D. Johnson is the D. Maynard Phelps Professor of Business Administration and Professor of Marketing at the University of Michigan Business School (UMBS). They are also the authors of UMBS best-selling book Improving Customer Satisfaction, Loyalty, and Profit. The book comprises six chapters, chapter by chapter notes (which is nothing but a bibliography) at the end and an Appendix (an excerpt of the article by Bo Edvardsson and Bo Enquist, “The IKEA saga: how service culture drives strategy”, Service Industries Journal, Vol. 22 No. 4, 2002, pp. 153-86). In chapter 1, first the key differences between goods and services are briefly covered followed by the reasons for the increasing importance placed on service development. The roles played by services and their development are illustrated with the aid of two case studies, before a framework is introduced for developing services to gain a competitive advantage. In chapter 2, the importance of formulating a strategy and devising a plan to gain competitive advantage is emphasized. How building a customer service culture, focusing on customer segments, and linking activities to form a seamless system, in which employees and customers interact, are employed in “creating a service advantage” are briefly described.

Service maintenance is the topic of chapter 3, in which it is shown how to view service processes from a customer’s perspective to remove defects that cause customer dissatisfaction. The steps involved in the process from commitment to eliminating things that have gone wrong, identifying and prioritizing defects, to testing and implementing selected solutions are briefly explained. How to retain customers by understanding customers’ requirements and a framework for improving service by optimizing performance are covered in chapter 4. Using the IKEA case study, the process of building the “lens of the customer” using critical incident technique to define and operationalize product and service attributes; the application of principal components regression analysis for setting priorities; and the application of quality function deployment to transform customer requirements into service features are briefly covered. The importance of the customer involvement in the co-production of new ideas and designs is emphasized in chapter 5 dealing with service innovation, a prerequisite for attracting new customers. A six-stage process from directing energy to testing ideas using consensual assessment technique, and implementing them is explained. The final chapter is devoted to recapping what is covered in the previous five chapters, by exploring the process of building culture, staying focused and linking activities in the pursuit of creating a competitive advantage. The book is well written with a brief introduction to the chapters, a summary of the chapters at the end of each chapter giving a lead into the topic of the next chapter, followed by questions to be answered about an organization’s stand and performance. A very useful book to consider by those pursuing differentiation based on service quality. K. Narasimhan Learning and Teaching Fellow, Bolton Institute, Bolton, UK

Making Sense of Data: SPC for the Service Sector Donald J. Wheeler SPC Press Knoxville, TN 2003 409 pp. ISBN 0-945320-61-2 $59.00(hardback) Keywords Service industries, Statistical process control Review DOI 10.1108/09604520410528680

The need for continual improvement in services even in manufacturing industries has been

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recognized. However, one barrier to its wide implementation has been the tendency to link concepts such as statistical process control only to the production of goods and not to the offering of services. This book by Wheeler shows very effectively, with appropriate examples, how making sense of data is equally important and can be effected using techniques used in manufacturing. Dr Wheeler is a Fellow of the American Statistical Association and has worked with Dr W. Edwards Deming and has periodically assisted him with his seminars. He has teaching experience and has provided consultancy for firms in both manufacturing and the service industry. He has also authored articles and books on processcontrol related topics. The book comprises 19 chapters by the author, an “Afterword” on the germ theory of management by Dr Myron Tribus, a consulting engineer specializing in quality management, and an ex-director of the Center for Advanced Engineering Study at Massachusetts Institute of Technology, USA. The text is supported by 233 figures, six reference tables, 62 data tables, 130 examples and case histories, glossary of symbols, appendices, bibliography, and index. In the very short chapter 1, the term quality is defined and it is emphasized that it is not enough to specify what needs to be accomplished but it is essential to specify how the objective should be accomplished and how to determine the progress towards that goal. Chapter 2 deals with the twin techniques of constructing accurate flow charts to visualize processes and cause-and-effect diagrams for representing the relationship between problems and their sources, using participation and brainstorming. Chapters 3 to 6 are respectively devoted to the topics of collecting good data over time, communicating that data in a clear and concise manner using tables, graphs and charts, the efficacy of using simple appropriate charts rather than complicated and unwieldy charts, and summarizing numerical data using measures of location (mean and median) and spread (range and deviation). Chapters 7 to 9 deal with process behavior charts for identifying predictable (routine) and unpredictable (exceptional) variations and using them effectively for continuous improvement by separating potential signals from probable noise. In chapter 10, the principles for creating good process behavior charts and the pitfalls to avoid are succinctly explained; and in chapter 11, the logic underpinning the process behavior charting technique is covered. In chapter 12, titled “Avoiding man-made chaos”, Donald very ably

demonstrates the pitfalls of using descriptive statistics without analysis and shows how to filter out noise to detect signals to ensure that efforts of improvements are not misdirected. Also introduced in this chapter are the construction of simple trend lines and trended limits for a timeseries plot. Chapters 13 to 15 deal with the differences between measurements and counts of items and events; aggregating and disaggregating data and problems encountered; how to collect good count data, chart the count data, and use them effectively. In chapter 16, the advantages, restrictions and issues surrounding average and range charts are first introduced with the aid of examples from manufacturing and then the application of these charts in services is illustrated. In chapter 17, the topic of smoothing out seasonal data using moving averages is covered. Chapter 18 is devoted to the topic of deseasonalizing data containing strong seasonal components. In chapter 19, titled “The learning way”, Donald provides two extended examples to illustrate how the plando-study-act cycle has been used to build continuous improvement into the processes in a mail order firm, and by the quality circle at a night club in Osaka, Japan. Most of the chapters include exercises (43 exercises with answers at the end of the book) to reinforce the concepts and methods covered in the chapters. I find the book extremely useful as a teaching aid on courses ranging from undergraduate and MBA courses to executive training programs. It would also be most useful as a reference text for those interested in effecting and reporting continuous improvement programs. K. Narasimhan Learning and Teaching Fellow, Bolton Institute, Bolton, UK

The Teamw Handbook, 3rd ed. P.R. Sholtes, B.L. Joiner, and B.J. Streibel Oriel 2003 421 pp. ISBN 1-884731-26-0 $39.00 (looseleaf) Keywords Team working, Learning, Problem solving, Customer satisfaction Review DOI 10.1108/09604520410528699

Learning in groups and working in teams to solve problems and satisfy customers has become one of the succeeding factors in the last two decades. Knowledge of team working is not only important for team leaders and facilitators of quality improvement schemes such as six sigma and

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“lean” methodologies, but also for team members. This revised edition of the Teamw Handbook is a valuable aid in developing effective teams both in the manufacturing and service sectors. The authors have over 30 years’ experience in facilitating organizations develop effective teams. The handbook comprises eight chapters, the preface, an 18-page introduction, and four appendices. The preface not only briefly covers what is new in this edition, but also gives an idea of how the contents of a page are structured. The introduction is quite detailed and provides information on the process excellence approach to management. The four areas covered in some depth are management by results, the process excellence alternative, how to get started on process excellence methods and the role of project teams. Each chapter is supported with a brief list of chapter’s content, background information, main points, sketches, diagrams, tables, tips, and forms that can be downloaded from their Web site. In addition, space for writing notes is also provided. The chapters conclude with an action summary. Chapter 1 deals with issues involved in using teams to respond to the changes owing to globalization and advancement in information technology. First, the context in which teams perform better than individuals is listed, then the different types of teams, their needs, and how to lead the inevitable change that is involved are briefly covered. The three sections of chapter 2 deal respectively with the roles of team members, responsibilities of sponsors, coaches, team leaders and members before, during and after the project, and leadership team reviews to monitor progress of projects to revise priorities. The flow chart of roles and responsibilities and project selection worksheet for ranking projects are very useful tools. Chapter 3 is a long one (70 pages) with two main sections (A and B) and deals with issues concerned with doing work in teams. Section A includes guidelines such as setting agendas, recording minutes and evaluating the meeting process for good meetings; skills and processes required to ensure effective discussions take place on important areas; and guidelines for making effective decisions, recording them, and planning ongoing work as a series of mini-projects. Guidelines for team leaders, which forms the topic of section B, provides ideas for preparation for the first meeting, holding regular meetings, monitoring the progress, and closing a project. The application of tools such as affinity diagrams, prioritization matrices, effort/impact grids and preparing for effective presentation are also explained.

The application of tools such as SIPOC (suppliers, inputs, process steps, outputs, and customers) diagrams, work-flow charts/diagrams, data collection methods, deployment process maps to identify people involved in each process step, a seven-step problem solving method and the application of storyboard are covered in chapter 4. A very brief insight into the application of FMEA (failure modes and effects analysis) is also given. The application of the various tools used in the seven-step process is summarized in an illustrated storyboard checklist. In chapter 5, a five-step plan for managing and improving work, the seven-step method for problem solving and the five-step six sigma improvement approach with the acronym DMAIC (define, measure, analyze, improve, and control) are covered in some depth. Sixteen improvement strategies are listed and a matrix depicting the use of these strategies at the various steps of the three methods or approaches is given. First an overview of the methods is given then the various steps are described in sequence. There is brief section on bringing a process under statistical control by identifying special causes. Learning to work together is the theme of chapter 6, which is covered in five parts. Topics covered include team dynamics, stages of team growth, ten recipes for successful team working, and guidelines for giving and receiving constructive feedback. Conflict is inevitable when people from various backgrounds are pooled together to work as a team, and dealing with this important aspect of teamwork is covered in chapter 7, in four parts. First, the benefits of conflict are highlighted followed by a brief consideration of the common responses (avoiding, smoothing, forcing, compromising, and problem solving) to conflict. How to recognize and prevent groupthink are also briefly touched upon. Ten common team problems and strategies for dealing with them are given. Chapter 8 is a new addition to this edition. It includes information on advanced tools and techniques such as “brain-writing” (a variation of brainstorming technique), challenging assumptions, asking questions, mapping ideas to create connections among multiple issues or ideas, and weighted-score matrix for prioritizing options. Appendix A is a glossary of terms; Appendix B is an illustrated example of a storyboard for the seven steps of a project; and Appendix C is a collection of seven activities that aid team building. The handbook is very well written with illustrations and is packed with useful ideas and is an asset to any organization interested in developing effective teams. K. Narasimhan Learning and Teaching Fellow, Bolton Institute, Bolton, UK

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