Customer Satisfaction and Customer Loyalty: A Case Study of Retail Super Markets in United Kingdom (UK).
Velummailum Gobiraja & Balasundaram Nimalathasanb Post Graduate Student, School of Business, University of Greenwich, United Kingdom, b Department of Accounting, Faculty of Management Studies & Commerce, University of Jaffna, Sri Lanka. e-mail:
[email protected] a
Abstract Every organization is ready to pay any means to identify and understand the customers and their needs. It is an effective reaction of the consumers when their desires and expectations have been either met or exceeded in the course of experiencing the service. In the context of a retail supermarket, satisfaction could be interpreted as just meeting the expectations of the customers, not any sort of exceeding of failing short of the expectations. Most of the retailers try to achieve competitive advantage by taking the responses of the customers beyond the level of ‘just satisfied’ towards ‘exceeding their expectations’. Therefore, this study attempts to fill this gap by examining the relationship between customer satisfaction and customer loyalty in leading super markets in United Kingdom (UK). Operational hypotheses were formulated. The first hypothesis (H1) is supported by the results, as a positive correlation was found between the two variables; customer satisfaction and customer loyalty. In addition, the second hypothesis (H2) is sustained by the results, as a regression was originated between the two variables; the result reveals that customer satisfaction has great impact on customer loyalty. The contribution of this study to the literature is that of customer satisfaction and loyalty outcome not only other sectors but in retail super markets in UK. Keywords: Customer Satisfaction, Customer Loyalty, Super Markets.
1
1. Introduction Every organisation is ready to pay any means to identify and understand the customers and their needs. It is an effective reaction of the consumers when their desires and expectations have been either met or exceeded in the course of experiencing the service. In the context of a retail supermarket, satisfaction could be interpreted as just meeting the expectations of the customers, not any sort of exceeding of failing short of the expectations. Most of the retailers try to achieve competitive advantage by taking the responses of the customers beyond the level of ‘just satisfied’ towards ‘exceeding their expectations’. Customer satisfaction is expected to be achieved when the value of customer service provided through a service experience is either meeting or exceeding consumer expectations. If the expectations are not met, the consumer will be dissatisfied. Another consequence can be that if the satisfaction scores are very low, the service provider might be susceptible to attacks by the competitors who are prepared to deliver superior value to the customers. In the case of profit oriented organisation, there is less customer satisfaction compare to service sector. However, every organisation in present tough competitive business environment has to pay more attention on feedback from the customers over their production. Otherwise, any firm can’t earn the profit and their existence might be questionable as well. Marketing starts with customer (i.e. marketing research to identify the potential market opportunities) and ends with them (by delivering goods and service after sales) as well. Customer satisfaction has become a crucial point of differentiation in a retails store, where consumers make weekly, fortnightly or monthly trips ( to preferred super market) and then spend more on these trips than other times, especially in countries like ours when competition in retailing is very fierce. Unfortunately in retail industry, most of the unsatisfied consumers do not complain, they just go shopping somewhere else. So the lesson for the retailers is that customer expectations always move upward and it is only the satisfied customers that are more likely to remain loyal in the long run.
2
2. Statements of the Problem Factors determining customer satisfaction have been brought to light by marketing research. But, this information still is far away for some producers engaging in the productions and services. Even though, immense of information available in the marketing environment, their success will be reached only when acting upon them. In UK, there are a variety of supermarkets doing in retail sector. But, some of them are focusing on different status of peoples and some of them are treating same type of consumers. However, some retailers are very successful than their competitors even during the period of credit crunch. This emerge us to do the research on the above. The researchers hope this research will answer the following question regarding customer satisfaction and loyalty. 1. What are main factors determining customer satisfaction in retail supermarket?. 2. What are main factors demining the customer loyalty?. 3. Is there any relationship between customer satisfaction and loyalty?.
3. Objectives In line with the issues identified above, the main purpose of the study is to examine the relationship between customer satisfaction and loyalty of retail supermarkets in UK. In order to materialize this broad objective, the following sub objectives have been considered. 1. To find out the variables determining customer satisfactions. 2. To focus on the variables determining the loyalty. 3. To identify the impacts of customer satisfaction and loyalty in UK retail sectors. 4. To suggest some measures to enhance the customer satisfaction and customer loyalty in UK Supermarkets.
3
4. Literature Review and Hypotheses Development This section is dedicated to discuss the previous empirical research done in relation to customer satisfaction and customer loyalty. According to Kotler, Armstrong, Wong, and Saunders (2008) a satisfied customer will likely do good word of mouth to others about company and its product and as a result they will have the bulk portion in marketing share. Because, a positive word of mouth has powerful impact on customer mind and behaviour. Customer Satisfaction with product or service however is likely to be achieve when the performance of product or service meet/satisfy the customer expectation. Customer expectation towards a product/service is obviously formulated by customers past experience, recommendations of friends (loyal customer) and relatives, the information provided by the marketer and competitors (Kotler et al., 2008). Customer retention with a particular supplier is influenced a variety of factors such as quality of product, the price, service quality, the credit, information available , relationship marketing and so on. However, impacts of these factors may differ with awareness of customers. Some customer is price conscious while some are keen about quality or service. Spiller & Kennerknecht (2006) have studied the service quality and service feature – related factors influencing Customer Satisfaction (CS) and Customer Enthusiasm (CE) as well as how CS and CE are related to customer loyalty and also how CS and CE impact the economic performance of small retailers in the organic market in different German Cities. The study found that CS and CE impact on economic performance. According to Sivadas and Baker – Prewitt (2000) loyalty is influenced by recommendation and repurchases intention. The study also tested a model about four stage of loyalty: (1) Cognitive (service quality); (2) Affective (relative attitude and satisfaction); (3) Conative (repurchase intentions and recommendation to others) and action (share of visits).
According to Grønholdt (2000) relationship between customer satisfaction and customer loyalty are robustly positively correlated. However, their finding also reveals that the impacts of customer satisfaction on customer loyalty are highly influenced by the degree of completion in the market. Discussing the marketing strategy utilized by the sample, the most samples adopted were lower pricing strategy as major competing weapon. So they could possibly earn much bigger loyalty compared to corresponding customer satisfaction. But the 4
companies which invested large amount of energy in their branding had higher level of customer satisfaction than loyalty
Wong & Sohal (2003) pointed out that service quality was positively associated with customer loyalty. Keiningham, Cooil, Aksoy &Andreassen (2007) examined different satisfaction and loyalty metrics (satisfaction; expectations, value etc.)
and tested their
relationships to customer retention, recommendation as well as share of wallet. The results indicated that recommendation intention alone was not an indicator of customer loyalty, but use of multiple indicators was more useful and practical and performed better in prediction of customer recommendation and retention. H1: There is a significant relationship between customer satisfaction and customer loyalty. H2: Customer satisfaction has greater impact on customer loyalty. According to Reichheld et al., (2000) found that some situation there is sometimes no relationship between the loyalty and repurchase of goods (Cars) based on analysis of satisfaction scores (90%) vs. repulse rate (50%). Generally, the loyal customers i.e., they satisfied with products are expected to do repurchase. This situation is due to economic value of customer repurchase loyalty. They study also indicated that mere analysis of customer satisfaction is not meaningful for company’s value creation. Because, there are some factors influencing the satisfaction doesn’t help to deliver the value for customers.
Customer loyalty with other variables such as quality, service and communication has been done many researches. But, there are also some researches on loyalty and customer satisfaction. But, there is no research examining the relationship between customer satisfaction and loyalty in UK retail groceries super markets.
5
6. Material and Methods This section is divided into six sub-sections. The first sub-section presents the research approach. In the sub-second section, the sampling strategy is discussed. The third sub-section describes the data sources. The sub-fourth section illustrates the selection of measures and the properties of instruments. The fifth sub-section explicates the reliability and validity whereas the last sub-section highlights the types of statistical techniques employed to test the hypotheses. 6.1 Research Approach As this study is a business and management research, it has a characteristic of positivist and interpretive and also involves in deductive approach as well as inductive approach. Combining these two research approaches in same piece of research is perfectly possible and advantageous for a research. 6.2 Sampling strategy Five leading (i.e.,Asda; Iceland; Sainsbury; Somerfield and Tesco) retail supermarkets involved in food stall around the city of London are selected as cluster sampling due to time constraints, the travel, and other costs related to the data collections. In the case of customer respondents, ten customers with age of 18 years and above for each sampling supermarket are considered as purposive and random sample for the study. The sample procedure paid more attention on selection of appropriate samples, so that samples can cover different background of people as London is mostly multicultural city in UK. 6.3 Data Sources The study was complied with the help of primary data. Primary data were collected through mailed questionnaire. Moreover, the desk study covered various published and unpublished materials on this field. 6.4 Instrumentation The questionnaire was administrated to five leading retail supermarkets in the city of London and ten customers for each supermarket.
Based on the literatures and experts’ advice
questionnaire is to be designed. In the questionnaire, a seven point Likert summated rating 6
scale from strongly disagree (-3) to strongly agree (+3) was adopted to identify the variables of customer satisfaction and loyalty. The study has an idea of pre-test the questionnaire in order to receive optimal outcomes from the study. 6.5 Reliability and Validity The reliability value of our surveyed data was 0.883 and 0.897 for variables of customer satisfaction and loyalty respectively. If we compare our reliability value with the standard value alpha of 0.7 advocated by Cronbach (1951), a more accurate recommendation (Nunnally & Bernstein’s, 1994) or with the standard value of 0.6 as recommendated by Bagozzi & Yi’s (1988). Researchers find that the scales used by us are highly reliable for data analysis. Validation procedures involved initial consultation with expert researchers. The experts also judged the face and content validity of the questionnaires as adequate. Based on their comments, some contents and words were revised to make the meaning clear. Hence, researchers satisfied content and construct validity. 6.6 Types of Statistical Techniques In the present study, we analyze our data by employing factor analysis; correlation and Regression. For the study, entire analysis is done by personal computer. A well known statistical package like ‘Statistical Package for Social Sciences’ (SPSS) 13.0 Version was used in order to analyze the data.
7. Research Findings This section presents the findings of the study and is divided into two-sections. Section one begins with Factor analysis. The final section presents the hypotheses testing. 7.1 Analysis of Measures An exploratory factor analysis with an orthogonal varimax rotation and a Kaizer- Guttman criterion of eigen value greater than 1.00 was conducted for the 24-item customer satisfaction; 29-item customer loyalty. For 24-item customer satisfaction seven components (or factors) with eigen value greater than 1.00 were extracted. The total variance 71.9 % and as Hair, Anderson, Tatham and Black (1995) suggest that for social science studies, it is not uncommon to consider a solution of about 60 percent as satisfactory. However, the general
7
criterion of eigen value greater than 1.00 may misjudge the most appropriate number of factors (Gorsuch, 1983), thus the scree plot was carefully examined. The scree plot was also confined to seven factors. To facilitate easy interpretation, these factors were then rotated using the varimax criterion for orthogonal rotation. Only statements or items with factor loadings of 0.50 and above in the rotated factor matrix was considered as significant in interpreting the factors [Here 2-item’s (clarity of information; packaging) factor loadings is less than 0.50, these are ignored for analysis). Table-1 shows the factor matrix indicating the factor loadings and communality estimates (h2) of every variable on these seven factors. Factor-1(F1) to Factor-2(F2) comprised of seven; three; three; three; two; three and one items, respectively. By analyzing the items in the factors, some dimensions were identified and thus, Factor-1 was labeled as “Responsiveness” and the like. Table 1: Scale Items, Component Loading and Communality Estimates for SevenFactors of Customer Satisfaction Scale. Item
F1 F2 Responsiveness 0.880 Ease of finding information 0.795 Understanding your needs 0.771 Professionalism 0.735 Friendly atmosphere 0.640 Service quality 0.616 General Satisfaction 0.569 Repeat Purchase 0.783 Parking facilities 0.720 Usage experience 0.654 Price First use experience Quality Choices of product Competitiveness of Products 0.502 Ease of contacting the person Advertising Convenient location Written or postal enquires Problem solving Environmental friendly Overall satisfaction of product quality Eigenvlaue Percent of Variance Cumulative Percent
h2
Factor loadings
7.085 29.552 29.552
2.811 11.713 41.234
F3
F4
0.770 0.690 0.504 0.815 0.680 0.667
1.818 7.576 48.810
h2 = Communality Estimates 8
1.616 6.733 55.543
F5
F6
F7
0.673 0.678 0.774 0.801 0.753 0.575 0.683 0.706 0.822 0.787 0.841 0.828 0.729 0.767 0.824 0.699 0.702 0.755 0.702 0.735 0.728 0.863 0.786 0.632 0.681 0.579 0.737 0.701 0.623 1.542 1.318 1.071 6.424 5.492 4.463 61.968 67.459 71.922
Similarly, an exploratory factor analysis with principal component analysis was conducted on customer loyalty. However, the results for both of these scales have shown what Thurstone (1947) referred to as ‘simple structure’ in which each of the variables loaded strongly on nine components, and each component being represented by a number of strongly loading variables ( Pallant,2005). As illustrated in Table-2, for both scales, all items loaded strongly on this nine factor, 0.5 and above.
Table-2: Scale Items, Component Loading and Communality Estimates for NineFactors of Customer Loyalty Scale. Item F1 Provision of information 0.724 Clarity of information 0.706 Written or postal inquires 0.704 Quality of brand 0.592 Easy access to employees 0.554 Management Good employees Problem solving Public relations Supermarket relationship Access of information Recommendation P & S Recommendation of supermarket Repeat purchase Consistency of the Brand Sales promotion Coupons and Premiums Loyalty schemes Loyalty card New brand Manufacturer’ brand Supermarket brand Innovative The Value of brand Satisfaction with brand Friendly organization Benchmarking
h2
Factor loadings F2
0.801 0.722 0.694 0.645 0.544 0.519
F3
F4
F5
F6
F7
F8
F9
0.731 0.726 0.792 0.827 0.741 0.754 0.774 0.762 0.896 0.842 0.714 0.788 0.646 0.743 0.613 0.707 0.811 0.579 0.684 0.776 0.764 0.766 0.823 0.763 0.827 0.730 0.814 0.810 0.780 0.710 0.803 0.616 0.838 0.795 0.825 0.723 0.783 0.624 0.827 0.873 0.826 0.879 0.811
9
Eigen value 7.928 2.546 Percent of Variance 29.363 9.428 Cumulative Percent 29.363 38.792
2.132 1.980 1.583 1.475 1.205 1.161 1.021 7.896 7.334 5.863 5.464 4.463 4.299 3.780 46.687 54.022 59.884 65.348 69.812 74.111 77.891
h2 = Communality Estimates Table-2 illustrates the factor matrix indicating the factor loadings and communality estimates (h2) of every variable on these nine factors. Factor-1(F1) to Factor-2(F2) comprised of five; five; four; four; three; one; two; one and one items, respectively. By analyzing the items in the factors, some dimensions were identified and thus, Factor-1 was labeled as “Provision of information” and the like. 7.2 Testing of Hypotheses Correlation analysis was performed to test the strength and direction of the liner relationship between two sets of variables; customer satisfaction and customer loyalty. Further, the preliminary analyses were performed to ensure no violation of the assumptions of normality, linearity and homoscedaticity. Table-3: Pearson Product- Moment Correlation between Measures of Customer Satisfaction and Customer loyalty Total CS Total CS
Pearson Correlation
1
0.715**
Sig (2-tailed)
0.000
N Total OC
Total CL
50
Pearson Correlation Sig (2-tailed)
50
0.715** 0.000
N
50
50
** Correlation is significant at the 0.01 level (2-tailed)
As per the results from the table-3, there was a positive correlation between the two variables [r= 0.715, n=50, P
