Factors That Affect Customer Loyalty Towards Retail Sector Marketing Essay

According to previous study by Rajaguru and Matanda, (2006), they concluded that store attributes (store appearance, service quality and convenience of store) and product attributes (product’s quality, product’s price and availability of new products) affect customer loyalty. Product’s quality, product’s price, availability of new products and product value are the product attributes influence customer’s buying decision (Miranda, Konya and Havrila, 2005). In addition, the result of study found that product’s price has no positive effect on customer loyalty. However, different country has different custom and buying behavior. Therefore, in this research will again use product’s price as variable to test whether there are relationship between product’s price and customer loyalty in order to obtain accurate information.

Alternatively, previous researcher Chang and Tu, (2005) and Marandi, Little and Sekhon, (2006), they stated that the product attributes will influence customer loyalty. Hence, Mitchell and Kiral (1998) proposes that store attributes will affect customer loyalty differ across country, time, and retail format. Store location, store atmosphere, parking facilities and the friendliness of the salesperson can be consider as factors that affect customer’s support to the store (Bearden, 1977). Therefore, Chang and Tu, (2005) declared that facilities of a store, convenience of a store, activities of a store and services provided by a store will directly influence the customer loyalty toward a store.

In customer’s perception, desired product attributes vary across product’s nature and economic background of customer (Uusitalo, 2001). Customer chooses to repurchase the product that provides maximizing utility on product attributes and fit to budget constraint (Gwin and Gwin, 2003). Additionally, customer makes buying decision based on the essential product attributes (Vishwanathan and Childers, 1999). The essential product attributes are product’s price, product’s quality, variety of product, collection of product and value of the product (Gwin and Gwin, 2003).

Although there are a lot of factors that affect customer loyalty, it is impossible to study all the factors together in a single research. Therefore, this study will focus on the factors that commonly used variables in investigating customer loyalty in retail business such as product’s price, store’s location, product’s quality and brand image as factors to be studied. All the factors mention above had been used by many previous researchers in different country. For example, research on the consumers’ perception of store and product attributes and customer loyalty in Indian context (Rajaguru and Matanda, 2006). However, the result of research can’t be applied 100% in Malaysia because of different custom, different education level, different income level and different religion. A similar research is needed to carry out again in Malaysia in order to get more accurate information and how the theory of customer loyalty applies into the Malaysian context. As a result, the following sections will highlight all the factors construct based on previous research studies namely (product’s price, store location, product’s quality and brand image).

2.4.1 Product’s Price

Price is value that a customer willing to give and the value that require by the seller in order to sell a product (Padula and Busacca, 2005). Thus, price is the acquisition value that accepted by a customer, whereby engaging both ‘give’ and ‘get’ elements (Padula and Busacca, 2005). Zeithaml (1988) point out that acquisition value can be define as the scale that customers use to evaluate the utility of a product based on the awareness of what is sacrifice and what is received. From the statement above, it can conclude that price demonstrates what we need to sacrifice or let go in order to acquire a desired product (Ahtola, 1984; Monroe and Krishnan, 1985; Zeithaml, 1988). Furthermore, when the quality of a product is difficult to quantify (Zeithaml, 1988), it will act as a pointer to show how much benefit can we receive (Olson, 1977; Zeithaml, 1988).

One of the crucial product attribute that affect customer loyalty and repurchase behavior is product’s price (Romaniuk and Dawes, 2005). Price can be considered as the important factor that influences buying behavior among the various offerings in the different category of products. Initially, product’s price is a generally realistic proposition that customer needs to show evidence of heterogeneity over time. To satisfy these needs, a customer may have to purchase at different price levels from a category. For example, in terms of shoes, a buyer may buy a reasonably priced pair of shoes for daily usage and buy a luxury, more expensive pair of shoes for special occasions such as annual dinner. Thus, less expensive red wine may be suitable for normal home consumption, but better quality wine could be bought by the same person for when special event or special guests are invited. Such states of affairs are the basis of occasion based segmentation (e.g. Dubow, 1992). Another possible reason for making different purchases over price levels is variety seeking, whereby consumers intentionally experiment with different products to satisfy an aspiration for variety (Givon, 1984; McAlister and Pessemier, 1982).

Yavas (2003) declared that price as an imperative indicator that affects store choice. Hence, product choice greatly depends on price of a product, and varies across different product (Engel et al., 1990; Bronnenberg, 1996). For example, an individual who is sensitive to the price of a product, he definitely won’t pay for few hundred ringgits for a non-branded watch. Conversely, he will use the same price to buy a branded watch like Seiko, Titus or Lado which is more worthy and trendy. However, customers may irregularly buy a product which out of their normal range of price to satisfy special desire (Romaniuk and Dawes, 2005).

Customers perceive price of a product in both positive and negative roles that can influence the customer’s intention to buy a product (Moore and Carpenter, 2006). When the price recognized as positive prompt, it indicate status, quality and reputation of a customer (Lichtenstein et al., 1990; Monroe and Krishnan, 1985). For example, in terms of clothing, a customer may buy an expensive tuxedo for a special event to represent his higher status quo or his high income level. However, if a price perceived as negative prompt, it signifies price conscious, value conscious, and coupon proneness. Regardless of positive or negative role, perception of price act as mechanism that assist customers to make decision on purchasing within the more and more competitive market situations (Dodds, 1995).

Moreover, Festinger (1957) stated that if a price of a product is not consistent with the customer’s expectation, then disagreement will be happens. Customer’s price expectations on a product or service do influence customer’s buying behavior (Oliver and Winer, 1987; Kalwani and Yim, 1992). In summary, if a price of a product is not parallel with the expectation price of a customer, customer will refuse to buy the product. On the other hands, customer use price as the determinants of product’s quality, brand image and store’s quality (Brucks et al., 2000; Zeithaml, 1988). The price quality scales can be defined as a customer’s trusts that the price’s level can be refers to the quality of product (Lichtenstein et al., 1993).

On the other hands, price of a product has been identified as a vital factor that affect the sales of the new product or services produced by a company, however the price or new product or service is very difficult to determine (Foxall, 1984). Pricing is very important to the life cycle of a product or sustainability of a product (Principles of Marketing). A company needs to pay attention in setting the product’s price because price of a product directly affect the customer’s buying intention and customer’s value awareness (Biswas et al., 2002). Therefore, a clear understanding on the customer’s perception over price is needed in order to create a correct pricing decision over the product or service (Munnukka, 2005).

Price is the only one element of marketing mix that produces revenue and others elements represent cost (Kotler and Armstrong, 2005). Price of a product can directly affect the sales of a product or the life cycle of a product. For examples, when Ireland’s Ryanair airlines company offers the lowest fares among other competitors, the airline company enjoys high revenues of $1.7 billion and become the leader in European airline industry. Thus, Air Asia Airlines Company offers the zero fares, whereby the price of the ticket is much lower than other competitors, the airline company become the most popular choice of Asia customers.

Lastly, a study by Lichtenstein et al. (1993) indicated that product’s price plays a vital role that may influence consumer buying in all purchasing situations. Customers are sensitive to product’s price and often make buying decision based on product’s price (Romaniuk and Dawes, 2005). According to Link (1997), price consciousness is a synonym of price elasticity. Price consciousness is related to the acceptable price level by a customer toward a product (Lichtenstein et al., 1988). A company can increase its loyal customer or preserve its existing customers by lowering the price consciousness (Prajogo, 2007). Price elasticity is the changes of quantity demanded response to a change in a product’s price (Hamzah et al., 2005). Elasticity of demand refers to the responsiveness of a customer toward a change in product price (Munnukka, 2005). It can measure as:

Price Elasticity = Percentage change in quantity demanded for a product percentage change in a product’s price

Source: Adapted from Hamzah et al., (2005)

Figure 2.1: Calculation of Price Elasticity

2.4.2 Store Location

In addition, Omar (1999) stated that the major factor that affects the success and sustainability of a store is the store environment. Store environments include store location, store design, and in-store stimuli, will affect customer loyalty toward a particular store (Yee and Sidek, 2008). As mentioned by Rowley (2005), there are four types of customer loyalty which are contented, convenience-seeker, captive and committed. Convenience-seeker means that a customer has no special commitment toward the store or company but yet, just because the store location is nearby and convenience then the customer makes repetitive purchase (Rowley, 2005).

On the other hand, Rowley (2005) had declared that convenience-seekers’ loyalty is determined by few convenience factors. It is mainly dictated by the store location, but yet it can also influenced by other factors, such as facilities that provided by the retail firm. Nowadays, retail firms are unable to differentiate themselves on the dimensions such as product’s price, and product’s quality, or to find the most strategic and convenient place as store location. Convenience means the store is easy to access, with plenty of parking space, and if possible within ten to fifteen minutes of drive. However, a customer might stay loyal to an on-campus canteen, the local library, local health centers or 24-hour petrol filling stations. This is because they are loyalty to store or service outlet, rather than to a particular brand of store. A customer who is travelling or located at a new place may choose to visit the brand of store that their have make previous purchase before because they are familiar with the service that they have in mind with that particular brand of store. Therefore, a convenient-seeker may lose their loyalty to other brand of store that offers greater convenience. In other word, convenient is the most importance factor that affects a convenient-seeker to switch to other brand of store.

Carpenter & Moore (2006) claimed that the ability to provide customers a convenience store location is the key to win competitive advantage among other alternative competitors. Convenient store location is the primary concern that determines the customer’s repurchases behavior of their intention to buy in future time (Rowley, 2005). As a result, a company needs to be careful in selecting the store location before they built the particular store (Hernandez and Bennison, 2000). For examples, a cyber cafe, if it open at the area where there are a lot of elderly, for sure it’s business won’t be good due to most of the elderly don’t know to function a computer or to play games.

Furthermore, where to build a store are highly depend on the four factors which are internal environment, external environment, understanding of property, and the domestic management activity (Clarke et a., 1997). Four of these are interrelated whereby the domestic management takes care of the external environment circumstance through internal environment such as planning and controlling; and understanding of property refers to the knowledge of the landscape and how much land is needed to build store in different size (Clarke et a., 1997).

The concept of central place stated that location of a store is the most important factor that affects customer to make purchase in a particular store and customer loyalty (Kim & Jin, 2001; Craig et al., 1984; Bruner & Masson, 1968; Nevin & Houston, 1980). However, sometimes the customers willing to go a more far-away store because of something that are not available in an ordinarily store (Burns and Warren, 1995). For examples, a customer who stay at Seremban would willing to visit a shopping mall at Kuala Lumpur just because of the availability of unique products or the variety product brand.

Additionally, store location and number of outlets available can affect the customer buying behavior and visitation to the particular store (Yee and Sidek, 2008). To cut a long story short, if consumers find the store to be easily reached and feel contented with the store’s facilities and services provided by the salesperson, then the consumers may become loyal to the particular store (Evan, Moutinho and Raaij, 1996).

Lastly, a company needs to understand the factors that affect its customers to switch to buy the product of other competitors that offer the similar product or services (Seiders and Tigert, 1977). There are three factors: product’s price, store location and differentiation of ways a company offers its products (Findlay and Sparks, 2008). For examples, the different grocery shop open in area A, both of it are similar in term of product offers and product’s price, but yet just different in distant. A customer will choose to visit the grocery shop that nearby his house compare to another shop which is more distant.

2.4.3 Product’s Quality

Quality means that the intrinsic beauty that a product has (Sebastianelli and Tamimi, 2002). Quality must be unlimited and recognizable by all people around the globe (Sebastianelli and Tamimi, 2002). Product quality means that the characteristics of product that fit to the needs and wants of a customer (Russell and Taylor, 2006). According to Fandos and Flavian (2006), quality is the factors the customer use to make purchase decision or to consume the products. Additionally, quality can also be defined as the information and cues that a customer obtains during the time he make purchases or when he make use of the products (Becker, 2000). Customers weigh up the utility and value of the products based on their basic desired needs (Fandos and Flavian, 2006).

The model of product’s quality can divide into two major groups: the subjective quality and the objective quality (Brunso et al., 2005). The subjective quality refers to the values conclusions or sensitivities they place on the quality of products (Brunso et al., 2005). On the other hands, the objective quality can determined as the identify nature of the products, the process making and the quality control of a company use in their production line (Brunso et al., 2005). However, Olson and Jacoby (1972), Szybillo and Jacoby (1974), Zeithaml (1988), Oude Ophuis and Van Trijp (1995) and Steenkamp (1997) proclaimed the differentiation of both of the groups are highly rely on the intrinsic and extrinsic attributes. The intrinsic attributes are the physical outlook of the products (e.g. shape, colour, taste and appearance (Espejel et al., 2007)); however, the extrinsic attributes refer to the non-physical part of the products (e.g. country of origin, product’s price, product’s wrapping, and brand name (Bernues et al., 2003)).

Due to the increasingly competitive markets, a company requires to decrease its cost of production and gain competitive advantage among other competitors in turn to sustain (Ardalan et al., 1992; Millar, 1999). In recent times, there are a lot of news review that products are not safe to be use, electric shock when using the electrical machine and the side effect of low cost medicine (Herrmann, 2008). For case in point, harmful toys from China, children get hurt because of the low quality material use and often not durability. Herrmann (2008) proclaimed that companies around the world seem to have lost their responsible toward the customers and create such lousy products in turn for high revenues or profits.

According to Ruyter and Wetzels (1997), the perceived product’s quality is often viewed as a primary concern for loyalty and that perceived product’s quality contributes positively to increase loyalty. They also stated that the influence of quality on preference loyalty varies in different industry. Boulding et al. (1993) found positive relationships between qualities and repurchase intentions and willingness to recommend to others. Because product quality perceptions influence value, efforts of marketers have focused on improving product quality in order to enhance perceptions of value, and consequently purchase intentions leading to loyalty (Grewal and Munger, 2001). The loyal customers, who gave indication that they would return, will be the internal level for managers to improve their quality in order to increase customer loyalty (Bowen and Chen, 2001).

Quality of product can be defined as the determinant of a company success and gain competitive advantage among other competitors that offer the similar product (Gale and Klavans, 1985). A company can differentiate itself from other competitor and gain competitive advantage by using differentiation strategy (Prajogo, 2007). According to Porter (1980), differentiation strategy means that a company adds in inimitable features, performance or quality into their products. For examples, Ferrari automobile, even the price may cost million of ringgit, a customer will purchase it due to the good performance of the car and the unique design of the car. With all these additional and one and only features, customers are willing to pay higher price to purchase the particular company products and continuous to buy the company’s product in future time (Prajogo, 2007).

The importance of product quality in determining the customer loyalty is also supported by the researchers Hee-Su and Yoon (2004). They used a binary logistic model to determine that a mobile telephone subscriber would recommend the carrier to others. They allowed for a yes or no response to the customer loyalty question. Their statistical results found that call quality, service quality, and customer mobile equipment type (product quality and features), were the variables that had significant positive effects on customer loyalty.

However, quality of a product has positive relationship with the price of the product (Fawcett et al., 2000; Luchs, 1986). It means that the higher the quality the higher the price of the product. For instances, Nokia cell phones, cell phones with a lot of unique functions, matchless features and first-class performance will cost more or more expensive. This is because a company needs to put a lot of efforts or a lot of cost to produce a high quality product. Therefore, a company will charge higher price for a good quality products.

Customer’s repurchase decision depends greatly on the quality performance of products or services (Chaudhuri and Holbrook, 2001). Customers may repurchase the particular brand of product due to the tangible quality of the product sold (Yee and Sidek, 2008). As a result, a company needs to keep it mind on the quality of product so that a customer can feel confident with the product and willing to pay more to purchase its products compare to other alternative brand of similar products (Herrmann, 2008).

Last but not least, customers should have quality consciousness, whereby customer should understand the desired characteristics of a product and able to make the best purchase than buying other alternatives brand of similar product (Sproles and Kendall, 1986). It means that customers should know what the desired function of the product is; material that used to build the product is it safe; compare to other alternatives product is it better in terms of quality; and last is it the product worthy for the price offer. For examples, if a customer has no information or does not know anything about the product, he probably will get cheated by the sales person, when they use the product in daily life, they just figure out that the product is not as good as the sales person said.

2.4.4 Brand Image

Crompton (1979) affirmed that image can be a sign of the amount of beliefs, understanding and feelings that customers have toward a product or service. Brand image can be defined as the impression of a customer toward a particular brand of product (Barich and Kotler, 1991; Dichter, 1985; Finn, 1961; Kotler, 1982). Brand image declared to be what the customers come in mind when they hear the brand name (Nguyen, 2006). For examples, when you hear McDonald, you will know McDonald is a fast food restaurant and it serves foods to its customers within a short period.

Moreover, brand image can also be explained as the customer’s insight toward the brand tangible and intangible involvements (Faircloth et al., 2001). According to Aaker (1991), brand involvements are anything that a customer can link with a particular brand and yet, brand image is a set of brand involvements that are absolute. In short, brand image is a set of brand involvement that a customer has over the particular company and it contains benefit that a customer can gain (Keller, 1993; Srinivasan, 1976; Biel, 1993; Pak & Srivinasan, 1994).

Brand image and branding are getting more and more important (Motameni and Shahrokhi, 1998). Brand image today is an important marketing tool for manufacturers to increase their loyal customer or preserving the existence customers. The values of a brand and the perceptions of it determines the purchasing patterns of customers toward a particular brand of products and services (Kotler et al. 2001). Thus, Forney et al. (2005) argued that a strong brand image would reduce the expenses of introducing a new product, by building on customers’ familiarity and knowledge of an already existing brand. Another benefit would be that companies could enter a new market segments without the cost of launching a new brand. This can reduce the costs of acquirement of distribution and/or boost the effectiveness of promotional costs.

Brand image helps a company to build loyalty on the existing customers (Bloemer and de Ruyter, 1998; Nguyen and Leblanc, 2001; Pan and Zinkhan, 2006). Brand image is general described as the ways that a customer perceives a brand (Pan and Zinkhan, 2006). Johnson et al., (2001); Helgesen and Nesset, (2007) acknowledged that brand image has positive relationship with customer loyalty. It means that the greater the brand images perceive by a customer, the more loyal the customer will be. For instances, Toyota automobile company, recently, the company recalling all the model year 2007-2010 Camry due to the problem of accelerator pedal. Through this action, the company can regain the confidence of the existing customers and not breach their brand image.

Post-purchase experience is very important in determining the customers whether want to purchase the particular brand of product in future time (Yun and Good, 2007). Brand image is developed based on the post-purchase experience (Griffin, 1995). According to Mowen (1987), customer’s post purchase attitude build up by the use of products, services provided by the salesperson, and facilities that available in the store. For instances, a canned drink, for the first time a customer buy a particular brand of drink and the customer notices that the particular canned drink is not tasty and smelly, definitely the particular customer won’t buy the brand of drink again.

On the other hands, brand image can divide into functional and emotional aspects (Kennedy, 1977). The functional aspect refers to the concrete characteristics of a product can be quantify, at the same time as the emotional aspect is related to the psychological widths that cannot be measured or touchable such as behavior, likelihood and attitude of a customer toward the particular company (Kennedy, 1977). Customers built up these feeling based on the past experience that they obtain from doing business with the company in previous time (Nguyen and LeBlanc, 2001).

According to Barich and Kotler, (1991); Zeithaml, (1981), brand image and corporate reputation plays an important role in customer repurchase buying behavior. These two factors are crucial to retain and to preserve existing customer or develop loyalty on customers (Dick and Basu, 1994; Porter, 1985; Raj, 1985; Reynolds et al., 1974-1975). The impression or image of brand that form by the customers greatly affects the repurchase buying behaviors (Doyle and Fenwick, 1974/1975; James et al., 1976; Lutz, 1991; Mazursky and Jacoby, 1986). For examples, in the research of Kandampully and Suhartanto (2000), image of a hostel has a positive relationship with the hostel’s guests re-purchase or re-visitation.

A study by Kandampully and Suhartanto (2000) point out that brand image plays an important role in marketing activities. It can positively or negatively influences the outcomes of marketing actions or customer’s perception toward the products and services offered (Zeithaml and Bitner, 1996). For the reason of that, brand image will has a great impact on customer’s buying behavior. On the other hands, Heung et al. (1996), they founded out that brand image is an important factor that retain and increase loyal customers. Brand image is positively related with customer loyalty in hotels industry (Mazanec, 1995). In short, a pleasing brand image leads customer to stay loyal while an unpleasing brand image may leads to customer to switch to other retail firms or to make purchase with other competitor.

Furthermore, one of the ways to preserve customer loyalty is to construct and to sustain a positive brand image inside the mind of customers (Tepeci, 1999). The consumer may prefer to make purchase with one product brand than its competitor’s due to the difference in image (Schiffman and Kanuk, 1991).The brand image is an imperative factor that affects product choice because nowadays consumers try to underpin their self-image by purchasing products that are fitting with their self-image. For example, a consumer may purchase a Sony Ericsson hand phone rather than a generic brand such as CSL (Local hand phone manufacturer) because the Sony Ericsson reveals the style and stylishness that the consumer sees in his or her personality.

At last, Fredericks and Salter (1995) claimed that image of a brand is part of the customer’s perceptions toward the company together with product’s price, product’s quality, product’s performance and innovative design of the product, to determine whether to continue on-going business with the company in future. Image affects customer loyalty and customer perceived quality (Bigne et al., 2001). Thus, European Satisfaction Index (EPSI) includes image acts as an important factor that affects the customer loyalty and intention to repurchase inside (Eskildsen et al., 2004). In other word, the company will increase its market shares if its customers satisfy with its image (Faullant et al., 2008).

Product’s Quality

2.5 Theoretical Framework

Product’s Price

Store Environment (Store Location)

Brand Loyalty

Brand Name

Promotion

Source: Adapted from Yee and Sidek (2008)

Figure 2.2: Theoretical Framework