Significance of Service Quality to Retain Retail Customers - Research Paper Example

An Investigation into the Significance of Service Quality to Retain Retail Customers Introduction Customer satisfaction has become a major concern for business organisations that strive to succeed in the present day environment characterised by stiff competition. Firms that pay less attention to customer satisfaction and quality service no longer find customer loyalty and market share in a climate where customer is acknowledged as the king. Modern organisations are striving to establish enduring relationship with customers through techniques such as Customer Relationship Management (CRM). Quality of service is one of the various determinants of customer satisfaction, especially for service organisations. This is the reason why majority of the studies of customer satisfaction is associated with measurement of quality (East, 1997). The measurement enables one to assess how satisfied the customers of a service is and decide how influential the service quality to generate satisfied customers and market potentials. At this juncture, the present study investigates in to the ways in which the quality of customers’ service/care provided by an organization/firm can be improved. The research is carried out, basically to investigate in to the significance of service quality to retain customers with special reference to retail businesses. The study does not take into account the retail background of any particular business; instead it explores the factors that determine the service quality of retailers in general through an empirical study. Literature Review The literature review for the present study includes those associated with relationship between service quality and customer satisfaction, significance of service quality and factors that decide the service quality of retailers. The relationship between customer satisfaction and service quality has been a major research area for many years (Bolton and Drew, 1994). However, there are evidences that the literature is not very clear as to the difference between service quality and customer satisfaction or is there any customer dissatisfaction and a cognitive or affective reaction emerges as a response to single or prolonged set of service encounters or not (Anderson and Fornell 1994). It has been observed through studies that customer satisfaction is experience felt after consumption of a certain service and it can be examined by comparing the perceived quality with expected quality (Anderson and Fornell, 1994 and Parasuraman et al., 1985). Since the time studies undertaken in the field of service quality, researchers have found difficulties in defining and measuring it as there has been no consensus among the scholars as to how service quality is checked and measures (Wisniewski, 2001). In a significant study by E W Anderson and Fornell C entitled ‘A Customer Satisfaction Research Prospectus’, it has been concluded by the authors that quality is one of the various dimensions of customer satisfaction (Anderson and Fornell, 1994). Another study signifies that customer satisfaction is dependent on preexisting or contemporary attitudes of customers about service quality (Bonton and Drew 1994). It has been argued by Zeithaml and Bitner (1996) that the relationship between a customer and a company can be strengthened when that customer has a favourable assessment of the firm’s service quality and weakened when he/she has unfavorable assessment. Authors like Parasuraman, Cronin and Taylor describe that service quality assessment is the outcome of the comparison between the perceived and expected quality of a firm (Parasuraman et al., 1985 and Cronin and Taylor, 1992). The same argument has been put forward by C. Gronroos in the study ‘A Service Quality Model and its Marketing Implication’ (Gronroos, 1982). It has also been argued by authors like Crosby, Buzzell and Gale, Zahorik and Rust, and Rust and Zahorik) that service quality is directly associated with costs (Crosby, 1979), profitability (Buzzell and Gale, 1987; Zahorik and Rust, 1992 and Rust and Zahorik, 1993), customer satisfaction (Bolton and Drew, 1991), customer retention (Reichheld and Sasser, 1990). Thus, quality can be considered the most significant factor that decide the purchase decision and it has the strategic power to contribute market share and return on investment (ROI), and lowering cost of production and improving productivity (Philip et al., 1983). Objectives of the Study The main purpose of the present study is to examine the significance of service quality as an important factor in deciding the relationship between customers and retail businesses. The study focus on the factors that decide the customers satisfied with the service and how influential these factors are in determining the retention of customers with the same firm. The objectives can be outlined as below: 1. To develop a model of service quality; 2. To demonstrate the relevance of service quality to customer commitment; and 3. To ascertain whether service quality can retain the relationship with customers Theory for the Conceptualization of the Model Quality of Goods/Merchandise Perceived quality of any good may be interpreted as the consumer's judgment about the extent of superiority or excellence of the product after its consumption (Zeithaml, 1988). It is a widely believed fact that consumers use different cues to infer quality such as flavour and colour in beverages and others which are controllable (for example, price and brand name). Extrinsic cues are relevant in a retail setting for several reasons. Relative Price Price quality relationship has been well researched by many to develop a relationship between the two. In a significant study by Monroe and Krishnan (1985), the authors have established a positive correlation between the perceived price and perceived quality. Therefore, it is expected that price has a vital role to play in deciding quality of goods purchased. This leads to the development of the following hypothesis: H1: There exists a positive relationship between relative price and goods quality. Service Quality Service Quality (SQ) may be defined as the perception of customers of the superiority or excellence of the service over that of similar firms. Here, three constructs used to develop the relationship as remarked by Sirohi et al., (1998) are used: Store Operations (SOP): Operational issues like store hours, training and staffing of employees Store Appearance (SAP): Physical appearance and facility organization Personnel Service (PSP): Services provided by department managers, clerks, cashiers, baggers, etc These three SQs constructs have distinct cues about service quality. The customers’ perceptions of the appearance of store, which base upon the physical attributes of the service delivery system, provide tangible clues about service quality. Likewise, customers’ perceptions on personnel service were found to create an impact on evaluations of service quality and value (Bolton and Drew, 1991). This effect can work in different ways and the following hypothesis has been fixed in this regard: H2: A higher level of service quality leads to a higher level of merchandise quality. Retailer's Retention Orientation The relationship between buyer-seller is the outcome of the satisfied buying of quality goods and service (Smith and Barclay, 1997). The relationship satisfaction can be defined as the consumer's affective state resulting from an overall appraisal of his relationship with a retailer (Anderson and Narus, 1984). It has been proved that customers are found to be more satisfied with sellers who are ready to put efforts to keep them happy by rendering high quality service and products ( Baker et al., 1999). This has resulted in the development of the following hypothesis: H4: A higher level of customer retention orientation of the retailer leads to a higher level of relationship satisfaction. Trust The establishment of trust between the buyer and seller has been considered to be important in the dyadic buyer-seller relationships (Gundlach et al., 1995). In conformity to the remarks of Morgan and Hunt (1994), trust can be defined as a belief of a customer in a retailer's honesty towards him/her. This leads to the hypothesis that: H5: A higher level of relationship satisfaction leads to a higher level of trust. Commitment Many authors have remarked that trust contributes to commitment and the relationship between business and customers characterised by trust are so highly valued (Beatty et al., 1996). This relationship has been proved conceptually as empirically (Andaleeb, 1996; Ganesan, 1994; Morgan and Hunt, 1994). Trust is believed to generate the following results: It reduces the perception of risk; It increases the confidence of the buyer that short-term inequities will be resolved over a long period, and It reduces the transaction costs in an exchange relationship. H6: A higher level of trust leads to a higher level of relationship commitment. Research Methodology This study is related to the consumers in the U.K. (please select a particular city or region). The study involves retailers selling grocery items, beauty products, processed meat and vegetables. Grocery and food departments of department stores were investigated. In order to increase internal validity, mail order buying, drug stores, supermarkets, and pharmacies were excluded. Moreover, it is believed in the study that testing the model in this context is appropriate since consumers tend to purchase grocery and food items relatively frequently, which is conducive to our purposes as repeated contact enables consumers to better assess a retailer's retention efforts. Sample and Data Collection A total of 350 mall intercept personal interviews via a questionnaire were administered in a large shopping mall. It is admitted here by the researcher that this sample, conducted in a regional mall of the UK, is obviously neither truly random, nor necessarily a representative of any larger population. Given the researcher’s interest in the relationships between variables, rather than population descriptions, it is felt that this is not a major problem, although it is kept in mind. The following statistics are related to the samples: Age-wise distribution of Sample Respondents Age Group Percentage 18-25 19.9 26-40 29.3 41-55 24.4 55 and above 26.4 Sex-wise Distribution of Sample Gender Percentage Male 30.001 Female 69.999 The customer information was obtained from the database provided by the retailing firm, and the questionnaire was mailed to them. They were requested to participate in the survey by responding to the questionnaire. All the responses were collected on the five-point scale. The survey was administered using a two-step procedure. In the first phase, the questionnaire was mailed to them, and in the second phase, a follow-up letter was mailed to them, reminding them to return the filled questionnaire in time. A total of 250 responses were received. The early respondents were compared with respondents at a later stage along all the response items, for each of the scales. Analysis and Discussion Correlation analysis was employed to test the structural equations model. Measurement Model Evaluation The research reported in the remainder of this study involves the development and measure of various variables to service quality and outcome of service quality in the retail context. First, the procedures used to generate and purify our initial pool of items are described. The evidences from these studies for the content validity of the items have been provided. Data from Study 1 (n = 150) is used to select items based on factor analysis. Subsequently, confirmatory factor analysis is used on data obtained in Study 2 (n = 215) to examine the factor structure, as well as provide evidence of dimensionality, scale reliability, and validity. Finally, the results of Study 3 (n = 250) are presented, which was designed to test the scale generalizability of service quality and its outcome with data collected from customers. Item Generation and Content Validity It is aimed to build a model of retail service quality showing the factors affecting service quality and outcome of service quality. In this study, various dimensions of service quality have been identified and have found how service quality in association with goods quality leads to commitment. All these elements were identified from the literature study. Initially, a total of 57 items were identified to measure these factors. All these items were pre-tested by a group of experts, consisting of three Professors from the Marketing Department, and eight students pursuing PhD in Marketing. In their analysis, all the 11 experts were exposed to the definition of various factors and their related links and contribution to the study. They were then asked to mark an applicable category to the accepted items and non-applicable category to all non-accepted ones. Their analysis led to the omission of 12 items, therefore leaving only 45 items in the questionnaire. Item Purification In order to test the internal consistency of the scale and reduce the number of items to a manageable size, a pilot survey was conducted before the implementation of the main study. In the pilot study, 150 customers of a retail store were interviewed. Each participant was asked to indicate, on a five-point scale, their opinion about the service quality aspect of the retailer, where they shop; and finally, they were asked if they would continue to shop with the same retailer or think of a change. With exploratory factor analysis, altogether 16 items with cross loadings were deleted, resulting in a 29-item scale to measure service quality and its impact in a retailing context. Subsequent factor analysis was carried out on the 29 items (Table 1). The coefficients for the service quality, goods quality, satisfaction, trust and commitment dimensions were 0.847, 0.865, 0.833, 0.847 and 0.853, respectively, all of which were recommended by Nunnally (1978). But the coefficient for relative price was 0.25, which was very low. Table Showing the Results of Exploratory Factor Analysis   Variable RP SQ GQ RCO CS CT CC CC1: I am willing 'to go the extra mile' to remain a customer of this store. 0.774             CC2: I feel loyal towards this store. 0.710             SQ1: Quality of operations(hours, training, and staffing of employees).   0.808             SQ2: Staffing enough employees to meet customer needs.   0.742           SQ3: Offering convenient hours of operation.   0.709           SQ4: Providing adequate training of employees.   0.706           SQ5: Ability of manager to resolve questions and problems.   0.700           SQ6: Overall quality of services provided by personnel the customer interacts with.   0.682           SQ7: Customer orientation of the retail chain.   0.675            SQ8: Provision of friendly and responsive service by the retail chain.   0.608           SQ9: Rating of overall appearance of store with respect to in-store-displays.   0.599           SQ10: Having wide, open aisles (A passage way for inside traffic, as in a department store, warehouse, or retail chain, layout).   0.516           SQ11: Having various departments in appropriate places in the store.   0.469           SQ12: Providing a pleasant shopping environment (light, music, etc.).    0.462           GQ1: Overall quality of merchandise purchased.     0.762            GQ2: Quality of grocery items.       0.754            GQ3: Wide brand selection of grocery items.     0.748               GQ4: Variety of grocery items.       0.705             RCO1: This store makes efforts to increase regular customer's loyalty.          0.802          RCO2: This store makes various efforts to improve its tie with regular customers.          0.774          RCO3: This store really cares about keeping regular customers.          0.763          CS1: As a regular customer, I have a high quality relationship with this store.             0.774       CS2: I am happy with the efforts this store is making towards regular customers like me.         0.682     CS3: I am satisfied with the relationship I have with this store.         0.657     CT1: This store gives me a feeling of trust.           0.746   CT2: I have trust in this store.           0.732   CT3: This store gives me a trustworthy impression.           0.712    RP1: Comparison with charges made by alternative retail chain for similar products.             0.339 RP2: Comparison of produce prices with other retail chains.             0.334 Eigen value 4.739 3.982 3.786 2.869 2.756 2.707 2.618 Percentage of variance 20.605 18.325 15.52 12.77 11.925 10.203 8.736 Note: (SQ = service quality, GQ = goods quality, RP = relative price, CT = customer's trust, CS = customer's satisfaction, RCO = retailer's retention orientation, CC = customer's commitment). Discussion of the Result The study makes a contribution to the literature of service quality by developing a model of service quality and linking it to customer commitment to remain with the same firm. The findings of the study suggest that the correlation between relative price and goods quality is very low, as against our hypothesis. We expected that price plays a very important role for the consumer to decide the quality of the retail product. The findings bring to light that, given the availability of other controllable variables like service quality, the importance of price gets reduced. There exists a strong relationship between service quality and goods quality. The large and significant impact of service quality indicates that designed facilities and service provision by customer-contact employees leads to enhanced perceptions of overall merchandise quality. Thus, service quality plays an important role in retailing. Based on the quality of service, customers determine the quality of goods. The dependence of goods quality to service quality is 0.78, which is remarkable. The relationship between good qualities to consumer satisfaction is 0.73. When the consumers find that the quality of the goods is good, they are satisfied. Satisfaction comes when the goods perform as per the requirement of the customer. Hence, our hypothesis is tested correctly that quality of goods has a positive relationship with consumer satisfaction. The magnitude of the effect of perceived relative price is the smallest of all effects on merchandise quality perception. There exists a strong relationship between customer satisfactions to trust (0.74). Satisfaction leads to trust, since trust means belief that the exchange partner will fulfil all the promises. When all the promises in the form of goods quality are fulfilled, the consumer will be satisfied and will start trusting the exchange partner. This trust will reduce the risk of transaction with the exchange partner, and thus pave the way for future transactions. Correlation between trust and commitment to remain with the same vendor is 0.77, which is the second highest after service quality 0.78. It can, therefore, be inferred that when customers trust a vendor that when customers trust a vendor, he/she becomes committed to continue to exchange with the vendor in the future. The relationship between service quality to goods quality is 0.78, whereas the relationship between goods quality to customer satisfaction is 0.73. This shows that customer satisfaction while shopping in a retail chain depends on factors like rewards, customization and such other tactics employed by retailers. But the impact of all these factors is lower than service quality, which plays a major role in determining satisfaction. Moreover, satisfaction is what is being perceived by customers until they perceive it they do not get it. Finally, the hypothesis that relationship satisfaction positively influences trust, which, in turn, positively affects relationship commitment, has been accepted. Conclusion Service quality is an important determinant in business success and survival. Service quality in turn is related with many variables such as goods quality, trust, commitment and so on. The present study has dealt with the various variables of service quality of retailers perceived by customers through a questionnaire survey. The results indicate that many of the hypotheses set by the researcher were apt and found accepted. The study was relevant and novel as it touches the perceptions of customers as well as academicians on their perception on service quality and retailers. 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