CUSTOMER LOYALTY, SATISFACTION AND MARKETING MIX:
EMPIRICAL EVIDENCE FROM INFANT FORMULA INDUSTRY
By
KHOO KHAY HOOI
Research report in partial fulfillment of the requirements for the degree of Master of Business Administration
Universiti Sains Malaysia
2012
ACKNOWLEDGEMENT
“Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma - which is living with the results of other people's thinking. Don't let the noise of other's opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary”.
Steve Jobs
It would not be possible for me to complete the three years of MBA journey and this master thesis without the support of many people. First of foremost, I wish to express my sincere gratitude to my supervisor, Associate Professor Dr Nabsiah Abdul Wahid who was abundantly helpful and offered invaluable assistance, support and guidance.
Deepest gratitude are also due to Dr Loh Lay Hean, Dr Yong Cheang Sun, Dr Yeow Hoe Guan, Dr David Teh and Dr Yu Chong Choo without whose support this study would not have been successful. In addition, I would like to thank both the academic and non academic staff from Graduate School of Business and School of Management for their knowledge and assistance. Last but not least and most importantly, I would like to extend my deepest appreciation to my wife, Nicole Yong Sheue Fang for her great patient, tolerance and personal support to me at all times and her willingness to sacrifice for the family and take care of our beloved daughter, Khoo Yan Yee when I was not around. To my wife, my daughter (Yan Yee) and my son (Yan Xi), I dedicate this thesis to them.
Table of contents
Page
Acknowledgement i
Table of contents ii
List of tables vi
List of figures viii
Abstrak ix
Abstract x
Page Chapter 1 INTRODUCTION 1
1.0 Introduction 1
1.1 Background of the study 3
1.2 Problem statement 10
1.3 Research objectives 11
1.4 Research questions 12
1.5 Significance of study 12
1.6 Scope of study 15
1.7 Definitions 15
1.8 Structure of report 16
Chapter 2 LITERATURE REVIEW 18
2.0 Introduction 18
2.1 Customer loyalty 18
2.2 Defining customer satisfaction 27 2.3 Defining marketing mix and the four Ps 35
2.4 Theoretical framework 54
2.5 Hypothesis development 55 2.6 Summary of chapter 60
Chapter 3 RESEARCH METHODOLOGY 61
3.0 Introduction 61
3.1 Research design 61
3.2 Sample and population 62
3.3 Data collection procedure 64
3.4 Instrumentation 65 3.5 Statistical analysis technique 68
Chapter 4 RESULTS AND ANALYSIS 74
4.0 Introduction 74
4.1 Profile of characteristics of respondent 74 4.2 Goodness of measures 77
4.3 Reliability test 81 4.4 Descriptive analysis 81 4.5 Correlations 82
4.6 Hypothesis testing 83
4.7 Summary of findings 86
4.8 Summary of the chapter 87
Chapter 5 DISCUSSION AND CONCLUSION 89
5.0 Introduction 89
5.1 Recapitulation 89
5.2 Discussion 90
5.3 Implications of the study 96
5.4 Limitations of study 100
5.5 Directions of future research 102
5.6 Conclusion 102
References 104
Appendices
Appendix 1: Frequencies 114
Appendix 2: Factor analysis 119
Appendix 3: Reliability analysis 146
Appendix 4: Correlations 156
Appendix 5: Regression analysis 158
Appendix 6: Questionnaires 174
List of tables Page
Table 2.1 Key classifications of customer loyalty 22
Table 2.2 The marketing mix and proposed extensions of 4Ps 40
Table 2.3 Marketing strategy implications of consumer goods classification 45
Table 3.1 Items of marketing mix 65
Table 3.2 Items for satisfaction 67
Table 3.3 Items for customer loyalty 67
Table 4.1 Demographic profile of respondent 75
Table 4.2 Current brand of infant formula of respondents 76
Table 4.3 Factor analysis for marketing mix 78
Table 4.4 Factor analysis for customer satisfaction 79
Table 4.5 Factor analysis for customer loyalty 80
Table 4.6 Reliability analysis 81
Table 4.7 Descriptive statistics on variables 82
Table 4.8 Pearson correlation coefficients for all variables 83
Table 4.9 Regression analysis between marketing mix and customer loyalty 84
Table 4.10 Regression analysis between customer satisfaction and customer loyalty 85
Table 4.11 Regression analysis of customer satisfaction, marketing mix and
customer loyalty 85
Table 4.12 Results of hypothesis testing 86
List of figures Page
Figure 2.1 The relative attitude‐behavior relationship 20
Figure 2.2 The loyalty construct (1950‐199) 21
Figure 2.3 Phases in the development of customer loyalty and associated
characteristics 25
Figure 2.4 Schematic of theory 29
Figure 2.5 Six representations of satisfaction and loyalty 32
Figure 2.6 Decisions within the four elements of the marketing mix 37
Figure 2.7 Customer buy benefits, not products 44
Figure 2.8 Theoretical framework of marketing mix, customer satisfaction
and customer loyalty 54
ABSTRAK
KESETIAAN PELANGGAN, KEPUASAN DAN CAMPURAN
PERMASARAN: BUKTI EMPIRIKAL DARI INDUSTRI RUMUSAN BAYI
Tujuan utama kajian ini dijalankan adalah untuk meneroka konsep rangka kerja campuran pemasaran - dengan 4P dan kepuasan pelanggan sebagai antisiden kesetiaan pelanggan dalam persekitaran B2C bagi industri rumusan bayi.
Berdasarkan model kognitif-afektif-konatif, kesetiaan pelanggan (konatif) diandaikan dipengaruhi oleh kedua-dua komponen kognitif (diwakili oleh elemen 4P dari campuran pemasaran) dan afektif (diwakili oleh kepuasan pelanggan). Kajian ini berbentuk kuantitatif dan bukan eksperimen. Respons survey daripada ibu-bapa dengan anak dalam lingkungan umur 0-3 tahun dari lima klinik pakar kanak-kanak swasta di negeri Pulau Pinang yang dianalisis menggunakan model regresi berganda mendapati andaian hipotesis bahawa kedua-dua campuran permasaran dan kepuasan pelanggan akan mempengaruhi secara positif kesetiaan pelanggan disokong dari segi rekomendasi, pembelian semula dan kesediaan untuk membayar lebih. Implikasi dapatan kajian kepada industri adalah bergunanya model kognitif-afektif-konatif dalam perancangan strategi pemasaran ke atas pelanggan (ibu bapa) jenama rumusan bayi.
ABSTRACT
CUSTOMER LOYALTY, SATISFACTION AND MARKETING MIX:
EMPIRICAL EVIDENCE FROM INFANT FORMULA INDUSTRY
The main purpose of this study is to explore the conceptual framework of marketing mix elements - the four Ps and customer satisfaction as antecedents of customer loyalty in the B2C environment of the infant formula industry. Based on the cognitive-affective-conative model, customer loyalty (conative) is assumed to be influenced by both the cognitive (represented by the 4Ps) and affective (represented by customer satisfaction) components. This study employs a quantitative method and non experimental. Survey responses from parents with infants at 0-3 years obtained from five private pediatrics’ clinics in Penang analyzed using multiple regression model supported the hypotheses that marketing mix elements and customer satisfaction have positive influence on customer loyalty in terms of recommendation, re-patronage and willingness to pay more. The findings confirm that brand’s marketing mix elements and customer satisfaction were positively correlated to customer loyalty. Findings implication to industry is on the usefulness of the cognitive-affective-conative model in the strategic marketing planning of infant formula brands on the customers (parents).
CHAPTER 1
INTRODUCTION
1.0 Introduction
Customer loyalty can have positive impact to the firms’ performance and profitability (Heskett et al, 1994). Hence, firms with higher number of loyal customers are considered to have competitive advantage over the others (Heskett et al., 1997; Rust et al., 2000; Woodruff 1997). According to Reichheld and Sasser (1990), customers with high level of loyalty are relatively more cost-effective to serve as compared to others. This is because; loyal customers know the product or service’s features and benefits better and therefore expect lesser information than others. In addition, customer loyalty can reduce marketing costs and study showed that profits can be increased by increasing customer loyalty (Bowen and Chen 2001).
According to Reichheld (1993), Wright and Sparks (1999) and Zeithaml et al.
(1996) customers with high level of loyalty are willing to increase purchases, pay premium price and provide positive word-of-mouth, hence the relationship between loyalty and profitability are established. Besides that, Oliver (1997) stressed that customer loyalty retains a group of faithful consumers for the company’s product or service that make the earnings sustainable overtime. As a result of the benefits, customer loyalty is regarded as the critical aim of many marketing strategies and an underlying objective for strategic marketing planning (Jacoby and Chestnut 1978;
Kotler 1997).
In order to understand customer loyalty fully, one cannot deny the strong linkage between customer satisfaction and customer loyalty. The mediating role of customer satisfaction to customer loyalty and customer value has been confirmed by Lam, Shankar, Erramilli, and Murthy (2004) in the business-to-business (B2B) environment. Customer satisfaction is also an important driver for re-patronage and customer loyalty (Liao et al., 2009; Eggert and Ulaga 2002). In addition, Nam, Ekinci and Whyatt (2011) have confirmed the brand equity and brand identification on brand loyalty are fully mediated by customer satisfaction in the hotel and restaurant industry.
Oliver (1991) refers customer satisfaction as the response or feedback from the customer as the results of the customer’s emotions or feelings based on the past purchase experience and their expectations towards the product or service purchased.
On the other hand, American Marketing Association (2011) defined marketing as “the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large”. Besides that, according to the textbook of Mullins and Walker (2010), marketing is vital for a company’s ongoing success and to achieve sustainable profit for long term. This is because marketing is trying to anticipate and get to know the requirements of customers by customizing goods or services that will satisfy their needs. In order to achieve this, there are 6 criteria to be observed:
i. Needs of customer groups to be targeted should be in-line with the company’s capabilities and resources.
ii. Customize services or products to address the needs of the customers.
iii. Products/ services should be available to customers.
iv. Company’s offerings should be able to create customer awareness and enhance value of appreciation.
v. Continue to innovate and renovate products/ services to enhance the quality of the firm’s offerings based on the feedback from the market.
vi. Customer loyalty is paramount, hence secure long-tem relationships with the customers.
In short, marketing is simply the activities which the firm is doing in order to find out the need and want of the targeted customers by customizing the right mix of their products’ offerings with the right pricing that the customers are willing to pay, key messages that are easy to understand, and the right distribution channels to ensure availability at the location where the customers preferred (Rosenbloom and Dimitrova 2011). Based on the principle of parsimony, the core marketing strategies were further streamlined to four strategies: product, pricing, promotion and distribution (place) which are referred as the famous “4Ps” of the marketing mix by McCarthy (1960).
In this study, the relationships between marketing mix, customer satisfaction and customer loyalty for the infant formula industry are to be investigated. Based on the cognition-affect-conation (CAC) model (Oliver 1999), the cognitive and affective stimuli in this study refer to the marketing mix elements and customer satisfaction respectively which ultimately will have an impact towards the consumer behavior or customer loyalty to be specific in this context.
1.1 Background of study
Mothers around the world should breastfeed their babies exclusively for the first 6
(American Academy of Pediatrics (AAP); World Health Organization (WHO).
Thereafter, semi-solid or solid food should be introduced as complementary food and continue breastfeeding up to the age of two years and beyond. In fact, there have been numerous studies that have associated the beneficial effect of breastfeeding in infants which including lowering the risk of childhood obesity (Armstrong and Reilly 2002), asthma, allergies, respiratory illnesses and atopic diseases (Gdalevich and Mimouni 2001; Dell and To 2001; Saarinen and Kajosaari 1995). Besides that, Howie et al (1990) had proven that breast-feeding significantly lowers the risk of getting systemic infection in preterm infants. To further encourage breastfeeding, WHO and UNICEF initiated Baby Friendly Hospital Initiative in 1992 in order to promote and support breastfeeding. In Malaysia, the Ministry of Health supports breastfeeding. In Malaysia, majority government hospitals are certified as Baby-Friendly Hospitals based on the requirements of the UNICEF and WHO. With this Baby-Friendly initiative, there are a total of 122 public hospitals and 6 private hospitals accredited as Baby-Friendly Hospitals since 1993.
According to Salim et al. (2006), the Malaysian Exclusive Breastfeeding rate at 4 months and 6 months is only at 19% and 14.5% respectively. This statistics indicated that the breast-feeding rate for Malaysian is lowered than the global rate, which is 38% exclusively breastfeeding at 6 months (Moccia P, 2008). Looking back to the past 10 years, the exclusive breastfeeding rates have decreased from 29% at 4 months, even though there are more efforts in promoting breast-feeding and had higher initiation rates. Some of the factors associated with unsuccessfully breastfeeding for 6 months are mothers are not committed to give breast milk for 6 months, smoke 20 cigarettes or more per day during pre-pregnancy, maternal obesity (Forster 2006), return to work, doubts on the quality and quantity of their breast milk
and spouse’s attitude which will directly affect the perception of the mother on breast feeding (Arora 2000). In addition, not supportive family members, ignorance of the benefits of breast milk and the availability of commercial infant formulas are some of the factors identified (Euromonitor 2010).
Due to the factors mentioned and coupled with the fact that there is only a maximum of 60 days of confinement leave for private sectors in Malaysia (Employment Act 1955), women will tend to choose infant formula as the substitution to breast milk once they resume back to work (Euromonitor, 2010). As a result of the current situation, infant formula like Enfalac A+, S26 Gold, Infacare and others are playing an important role in supplementing breastfeeding. Furthermore, the extensive promotion in the private hospitals and pediatrics’ clinics by the manufacturers through direct marketing and health talks by healthcare professionals have increased the awareness of the consumers towards infant formulas that is of superior quality which is on par with breast milk in terms of the benefits to the infants (Euromonitor, 2010).
Hence, there is a huge potential for infant formula manufacturers to market their products in Malaysia. According to King and Ashworth (1987), the increasing demand of breast-milk substitute or infant formula in Malaysia are due to urbanization, female participation in work force, increased availability of processed milk, extensive coverage of promotional activities by infant formula companies and healthcare professionals and regimentation of breast feeding.
In formula feeding, there are numerous guidelines available for mothers to ensure the nutritional intake for infants are optimized. Codex (1997) defined infant formula as food that is derived from approved sources either from the cow’s milk, other animals, fish or plant origin which should provide sufficient nutrients and
Under 21 U.S.C. 321(z), infant formula is defined as an alternative to breast milk which is able to provide complete or partial nutrition to the infants as a sole source of nutrition or supplementing the insufficient of breast milk. On the contrary, the Malaysian Food regulations (1985) defined infant formulas as food that serves as an alternative to human milk. Based on the definition by Code of Ethics for the Marketing of Infant Foods and Related Products (Ministry of Health 2008), the formulas marketed for infants and children in Malaysia can be categorized into 3 categories. They are the infant formula for infant 0-12 months of age which including the ready-to-feed formula, follow-up formula for infant 6 months to 3 years of age including ready-to-feed formula and special formula (special products for infants with unique requirements or feeding intolerance such as lactose intolerance or medical purposes) including ready-to-feed formula. Example of the formulas marketed under the 3 categories by Mead Johnson Nutrition and Pfizer Nutrition are Enfalac A+ and S26 Gold as the infant formula for infants 0-12 months; Enfapro A+ for 6-18 months and Promil Gold for 6-12 months babies as follow-up formula; Enfagrow A+ and Progress Gold for 1-3 years as children formula. As for the special formulas like Enfalac A+ AR, Enfalac A+ Premature formula, Enfalac A+ LactoFree, Wyeth-LBW and so on. Furthermore, the infant formula market can be further segmented into premium and value-brand or economy category. The differences between these 2 categories are price and formulation. For formulation, premium brands are modified cow’s milk based formulas with nutrient contents similar or on par with the nutrients found in human breast milk. In contrast, value brand formulas are unmodified cow’s milk based formulas which contain the recommended amount of essential nutrients that meet the nutritional needs of an infant.
1.1.1 Infant formula market
The infant formula market is growing at tremendous fast rate. According to Nielsen retail audit (2010), the value growth for infant formula companies for overall market which included both infant (0-12 months) and children (1 year and above) formulas in 2010 is ranged from 3.7% to 21% while for volume growth is from 3.1% to 12.3%.
Euromonitor (2010) conducted a comprehensive research on the outlook of baby food in Malaysia and according to them baby food posted a strong growth in 2010 with 8%
rose in current value terms, to reach RM1,317 million for baby food category, despite the birth rate in Malaysia continues on the downward trend (Department of Statistics, 2009). Although the birth rate is not in favorable to the infant formula market, the baby food consumption in Malaysia is continued on the rise for the period of 2005- 2010 and it is expected to grow at a constant value of compound annual growth rate (CAGR) at 4% over the forecast period of 2010-2015. This situation in Malaysia is attributed to the rising disposable incomes and parents are more willing to give their children the best products (Euromonitor, 2010).
Due to the aggressive promotion through above the line marketing, powder toddler formula posted the strongest growth in current value terms in 2010 as compared to other categories and it is expected to have the strongest growth as well over the forecast period of 2010-2015 at a constant value of CAGR of 5.3%. The improved economy in 2010 and higher disposable incomes were identified as the main attributes to the current situation as parents are more willing to feed their toddlers with formula milk instead of fresh milk which they believe that formula milk is of better quality with the added nutrients that can support the growth and development (Euromonitor, 2010).
In order to have competitive advantage over the others, infant formula manufacturers are investing heavily into the product development by having extensively research and development as to formulate formulas that resemble to human milk to provide an alternative for parents to look breast milk substitute. The latest development is the supplementation of docohexaenoic acid (DHA) and arachidonic acid (ARA). Throughout the years, numerous studies have shown that the benefits of supplementation of DHA and ARA can enhance the problem solving skill, neurodevelopmental performance, visual acuity for infant at different ages (Birch 1998, 2000 and Willatts 1998). Furthermore, researchers also start looking into the benefits of prebiotics and probiotics into the infant formulas. Prebiotics is having bifidogenic effects which will enhance the growth of good bacteria in the colon of the infant that have beneficial effect towards the infant. On the other hand, probiotics are good bacteria that will improve the intestinal health of the infant (Alles et al , 2004).
In addition, by supplementing probiotics in the formula, it can reduce the allergic manifestations in infants (Kankaanpää et al., 2002). Besides that, according to Aggett et al (2003), supplementation of nucleotides in infant formula increased the immunology and gastrointestinal effects in babies during the early years.
In Malaysia the top players in the infant formula market are Danone Dumex (M) Sdn Bhd, Nestle (M) Bhd, Dutch Lady Milk Industries Bhd, Mead Johnson Nutrition (M) Sdn Bhd, Abbott Laboratories (M) Sdn Bhd, Wyeth (M) Sdn Bhd, Fonterra Brands (M) Sdn Bhd and Snow Brand Marketing Sdn Bhd. In 2009, Danone Dumex (M) Sdn Bhd registered the highest value share at 28% while Nestle (M) Bhd had the largest decrease in 2009 due to the strong competition in toddler milk category (Euromonitor 2010). As stated by the Code of Ethics for the Marketing of Infant Foods and Related Products (Ministry of Health 2008), infant formula
marketed for 0-1 year, advertising in any representation whatsoever (written, audio, visual or electronic) is strictly prohibited in Malaysia. Hence, one of the ways infant formula companies market their formulas is through direct marketing where pregnant mothers and regular consumers are offered club membership which members will have the privilege to receive information booklets, newsletters and samples through direct mailing. On top of that, members will get to attend the parenting events organized by the respective companies and be rewarded through their loyalty program as well. To stay competitive, infant formula companies invest heavily in the product development and therefore many new products had been launched in the recent years.
For instance, Nestle (M) Bhd launched their premium brand of NAN Pro infant formula and NAN HA special formula with the supplementation of active probiotic BL Bifidus in 2009 which is aimed to strengthen the immune system of the infants. In addition, NAN Pro 3 and NAN HA 3 for toddlers aged 1-3 years old have been added into the company’s portfolio as well. As for Mead Johnson Nutrition (M) Sdn Bhd, they launched their Enfagrow A+ (for 1-3 years old) and Enfakid A+ (for 4 years and above) with DHA Plus and Triple Protection Guard in June 2011. The new product offers an increased level of DHA which helps to meet the FAO/WHO recommended levels of DHA as well as other nutrients like anti-oxidants for the development of brain, eyes and immune system.
In summary, the prospects for the business of infant formula remain lucrative and will enjoy steady growth over the forecast period. Sales are expected to grow despite a falling birth rate in Malaysia due to the rising affluence and growing awareness towards the nutritional benefits of infant formulas. Thus, many parents will choose to feed their babies with formula milk instead of normal diary milk or fresh
of consumption for formulas in Malaysia, formula milk manufacturers are expected to engage in fierce competitions. Hence, they will implement and undertake various forms of marketing strategies, promotions and launch products enhancements in order to secure the highest number of loyal customers as to gain highest market share.
1.2 Problem Statement
Infant formula is playing an indispensable role as an alternative to breast milk and supplementing the insufficient of breast milk due to the increasing demand for infant formula. The situation is similar in United States where according to Chezem (2004), 54% of infants in US received infant formula feeding during hospitalization and 40%
of mothers planning to breastfeed their babies resorted to infant formulas during the first month after delivery due to insufficient of breast milk. This situation has led to
“Milk Wars” among the manufacturers of infant formula as to secure higher market share. To make the situation more challenging, manufacturers are required to abide to the International Code of Marketing of Breast-milk Substitutes (WHO Geneva, 1981) and the Code of Ethics for The Marketing Infant Foods and Related Products (Ministry of Health Malaysia, 2008) when comes to formulate their marketing strategies.
With intense competition coupled with the stringent rules implemented by Ministry of Health, whichever manufacturers able to formulate and customize their marketing strategies that can secure the highest number of loyal customers at the same time in line with the code of ethics will be able to stand tall among other competitors.
Hence, in order to have an insight of the customer behavior when comes to the selection of infant formula, we need to have the answers to following questions: i. To
what extend the brand’s marketing mix elements particularly the four Ps (product, place, price and promotion) affect the customer loyalty in the business to consumer (B2C) environment in the infant formula industry? ii. Is customer satisfaction playing an important role in influencing the customer loyalty in the B2C environment towards the selection of an infant formula? Therefore, the objective of this research is aimed to investigate the effects of marketing mix elements particularly the 4Ps (price, product, place and promotion) and the customer satisfaction on customer loyalty in the B2C environment in the infant formula industry.
1.3 Research Objectives
According to previous studies that cognitive and affective components can proceed concurrently, independently, interactively and as well as exists together (Burke and Edell, 1996; Ruiz and Sicilia, 2004). Hence, the objectives of this study are to provide answers to the following questions which will examine the cognitive and affective components independently and when they exist together.
i. To determine whether the brand’s marketing mix (product, place, price and promotion) will have any influence on customer loyalty such as recommendation, patronage and pay more.
ii. To determine whether customer satisfaction on the brand will have any influence on customer loyalty such as recommendation, patronage and pay more.
iii. To determine whether brand’s marketing mix (product, place, price and promotion) and customer satisfaction will have any influence on customer loyalty such as recommendation, patronage and pay more.
1.4 Research Questions
In this study, we provide answers to some of the questions aroused from the three major categories:
i. Does the brand’s marketing mix elements (product, place, price and promotion) having any influence on customer loyalty (recommendation, patronage and pay more)?
ii. Does the customer satisfaction on the infant formula’s brand have any influence on customer loyalty
iii. Does the brand’s marketing mix elements (product, place, price and promotion) and customer satisfaction have any influence on customer loyalty?
1.5 Significance of Study
This study enables us to examine and analyze empirically a framework raised based on the cognition-affect-conation model that consider marketing mix and customer satisfaction as antecedents of customer loyalty in the context of infant formula industry. In addition, we should be are able to comprehend the significance of marketing mix particularly the 4 Ps and customer satisfaction on customer loyalty.
The findings from this study will be important within the B2C environment particularly in the infant formula industry. Furthermore, with the outcomes identified, both academician and manufacturer are able to have a better insight on the determinants that will lead to customer loyalty in the infant formula industry. Hence, managers are able to formulate marketing strategies that comply with the International Code of Marketing of Breast-milk Substitutes (WHO Geneva, 1981) and the Code of
Ethics for The Marketing Infant Foods and Related Products (Ministry of Health Malaysia, 2008) to secure higher loyal customers which eventually will bring higher profit to the company.
1.5.1 Theoretical Contributions
Customer loyalty is considered to be one of the factors that will have significant impact to the firm’s performance and profitability. In addition, one of the key drivers to maintain the long-term relationship between suppliers and consumers is to ensure customer satisfaction. Hence, it is not surprise that it is being studied extensively in both the business-to-consumer (B2C) and business-to-business (B2B) environment.
Throughout the years, there were only two studies found in Malaysia context that were related to infant formula industry. They were Ramayah et al (2004) which was conducted to investigate the relationships between belief, attitude, subjective norm, intention and behavior towards the choice of infant formula based on the Theory of Reasoned Action (TRA) and Chye and Chin (2007) which was aimed to examine the perception and the attitudes of parents in East Malaysia pertaining to the infant formula and the infant feeding approaches. Therefore, the motivation to conduct this study is to extend the understanding of consumer behavior in the infant formula industry by examining the interrelationships of marketing mix elements, particularly the four Ps, customer satisfaction and customer loyalty in the B2C environment.
In addition, this study also aims to examine the conceptual framework which
marketing mix elements, customer satisfaction and customer loyalty constructs. From the aforementioned model, marketing mix is regarded as cognition-based construct while customer satisfaction is regarded as affection-based construct which both of the constructs were having positive influence towards customer loyalty.
1.5.2 Practical Contributions
This study contributes to the companies of infant formula as from the results they will be able to understand and identify the important factors that are related to customer loyalty. Once managers realize and embrace the factors, it will facilitate them to initiate and implement customized strategies and initiatives involving those identified factors towards the monitoring and enhancing customer loyalty more effectively. The effects of having higher levels of customer loyalty have been associated to increased revenue, reduced customer acquisition costs and lower costs of serving regular customers which eventually will lead to higher profit margin. Furthermore, with the understanding of the impact of marketing mix especially the 4Ps (price, product, promotion and place) and customer satisfaction towards loyalty, managers are able to develop their product offerings according to the preferences of the customers. Thus, reducing unnecessary wasting of company’s resources to do promotion and at the same maximize the company’s profit. The findings are paramount to manufacturers as those who understand the outcomes of the study will be able to formulate more effective marketing plans that can contribute towards the brand-building activities and have competitive advantage over the others.
1.6 Scope of study
The infant formula industry in Malaysia is chosen for the empirical analysis through quantitative study. This approach is in-line with the previous research focus on the customer loyalty and satisfaction which only one particular industry is being selected (Shankar et al., 2003; Lam, Shankar, Erramilli and Murthy, 2004; Deng et al., 2010;
Liu, 2011). In addition, by selecting only one industry, items in the questionnaire can meet the characteristics of the studies industry and provide proper responses.
Moreover, single industry also enables us to reduce the consequences of variance not due to the measured constructs and improve internal validity. Thus, the power of our hypothesis testing can be improved. The targeted respondents for this study are parents with children aged 0-3 years which will be randomly selected in private clinics situated in Penang state. Penang state is being chosen as it is the most urbanized state in Northern region (Department of Statistics 2010). As mentioned earlier by King and Ashworth (1987), urbanization is one of the contributing factors that lead to increasing demand for infant formula. Hence, we can expect there will be a lot of parents in Penang choose to use infant formula as alternative to breast milk which will enable us to obtain higher number of respondents to increase the generalizability.
1.7 Definitions
Customer Loyalty: Both attitudinal and behavioral loyalty is categorized under loyalty. To simplify, behavioral loyalty is about customer’s receptiveness to continue to buy the product and maintain a good buyer-seller relationship with the supplier. For
attitudinal loyalty, it is the degree of the customer’s mental affection and support with the supplier (Chaudhuri and Holbrook, 2001; Rauyruen and Miller, 2007).
Customer Satisfaction: The response or feedback from the customer as the results of the customer’s emotions or feelings based on the past purchase experience and their expectations towards the product or service purchased (Oliver 1991).
Product: It is a solution provided to the purchaser which can be measured in terms of the distribution services, performance, support services and physical attributes. (van Riel et al, 2005)
Price: The perceived value in the purchaser’s mind which can be an indicator of the product benefits and quality. (Yoo, Donthu and Lee, 2000)
Place: The location where the customer can buy the product and service with reliability and easiness. (van Riel et al, 2005)
Promotion: Tools used to enhance the levels of customer awareness towards a service or product (Yoo et al, 2000)
1.8 Structure of report
Chapter one is the introductory chapter with the objective to provide an overview to the infant formula industry in Malaysia. Besides that, it also highlights the research objectives, research problem, research questions and the settings.
Chapter two is the literature review that details customer loyalty, customer satisfaction and the marketing mix particularly the 4Ps (price, product, promotion and place). Besides, it also further elaborates on the relationships of the antecedents on
customer loyalty. In addition, this chapter also details the theoretical framework and research hypotheses.
Chapter three details the research methodology of the intended study. This chapter also explains the questionnaire design and statistical techniques employed in the data analysis.
Chapter four is about data and analysis. The findings from the study through the data collection and the results from the survey will be discussed.
Chapter five that provides detailed the outcomes, managerial and theoretical implications from the study. Furthermore, it also provides the limitations of the study and suggestions for future research.
CHAPTER 2
LITERATURE REVIEW
2.0 Introduction
This ultimate goal of literature review is to critically review current knowledge including substantive findings as well as theoretical and methodological outcomes based on the secondary data. In this context, the antecedents of loyalty which include marketing mix particularly the 4Ps (price, product, promotion and place) and customer satisfaction and customer loyalty in the infant formula industry will be in focus for the rest of the sections in this particular chapter.
2.1 Customer loyalty
In this increasingly competitive markets, having secured the highest number of loyalty customers are seen as winning over the battles. This is because by capturing a huge pool of loyalty customers, it is associated to a sustainable competitive advantage and winning market share (Luarn and Lin, 2003; Nasir, 2005). By retaining an old customer, it is considered much more cost effective than recruiting or attracting a new customer. Hence, loyal customers are crucial to the success of a business (Reichheld and Schefter, 2000). Due to this reason, firms maximize customer retention with the aim to increase their market share. Moreover, loyal customers not only willing to buy more, they are also less price sensitive and willing to pay a higher price as compared to new customers. Besides that, loyalty and profitability are the results of positive word of mouth from the loyal customers (Reichheld, 1993; Wright and Sparks, 1999;
Zeithaml et al., 1996). Therefore, to be able to retain a stable pool of customers whose are loyal to the brand has becoming one of the core competencies that companies are looking forward. By having this core competency, companies will have a competitive advantage over the others.
2.1.1 Defining customer loyalty
The loyalty concept has been evolved throughout the years with the first appeared in the 1940s that proposed loyalty as the measurement perspective interpreted by the researcher which is a uni-dimensional construct. During that time, two separate loyalty concepts appeared; they were “brand preference” by Guest (1944, 1955) and
“share of market” by Cunningham (1956) which was later referred as attitudinal loyalty and behavioral loyalty respectively. According to Brown (1952), brand loyalty focused on purchase patterns of consumers which are further classified into four different categories, they are undivided loyalty, divided loyalty, unstable loyalty and no loyalty. Later, loyalty was measured as the probability of product repurchases (Lipstein, 1959; Kuehn, 1962). On the other hand, scholars like Day (1969) and Jacoby and Chestnut (1978) suggested that it is insubstantial by just having behavioral as the definition for loyalty. The justification from them was that the definition does not differentiate between true loyalty and spurious loyalty which could be resulted from insufficient of choices for the consumer. With the criticism, scholars proposed to incorporate attitudinal dimension and behavioral dimension when comes to measuring loyalty. In fact, Thiele (2005) suggested in his study that marketers should monitor attitudinal loyalty as it is considered as the most important construct or aspect. Dick and Basu (1994) conceptualized loyalty as the relationship between the relative
study, they are cross-classifying the relative attitude with repeat patronage which leads to the four specific conditions related to loyalty as shown in the Figure 2.1.
Figure 2.1: The relative attitude-behavior relationship (Dick and Basu, 1994)
Below are the summary of the four conditions:
i. No loyalty: A low relative attitude coupled with low repeat patronage signifies a nonexistence of loyalty. This situation refers to a recent brand introduction and/or inability to communicate the brand’s competitive advantages. Besides that, this situation could refer to the similarity of the competing brands in a dynamics market place.
ii. Spurious loyalty: A low relative attitude combined with high repeat patronage .It is characterized by nonattitudinal influences on behavior. This concept is similar to the notion of inertia by Assael (1992) which mentioned that consumers purchase the same brand based on the situational cues for low involvement product as they perceive all the brands are similar. On top of that, social influence also plays the role in spurious loyalty.
High Low
Loyalty
Latent loyalty
Spurious l lt
No loyalty High
Low Relative Attitude
Repeat Patronage
iii. Latent loyalty: This phenomenon is a serious concern for marketing managers.
It is characterized by high relative attitude with low repeat purchase. This situation is attributed to a marketplace where nonattitudinal influences are similar or more influential than attitudes in determining patronage behavior.
iv. Loyalty: It is the most preferred conditions among the others which are characterized by a strong linkage between relative attitude and repeat purchase.
Day (1969) further concurs that loyalty may be more complex than it is. Thus, it may include both attitudinal and behavioral loyalty. To simplify, behavioral loyalty refers to the customer’s receptiveness to continue buying the product and to maintain a good relationship with the supplier. While the level of customer’s mental affection and attitudinal support face-to-face with the supplier is referred to attitudinal loyalty (Chaudhuri and Holbrook, 2001; Rauyruen and Miller, 2007). Since then, the bi- dimensional concept has been incorporated and referred as composite loyalty (Jacoby 1971). Based on Jacoby and Chestnut (1978), the composite definition of loyalty should include favorable attitudes, intentions and repeat purchase. This evolution of loyalty can be illustrated as below:
Figure 2.2: The loyalty construct (1950-1990)
To better understand customer loyalty and it contributions, Table 2.1 summarizes and enhances the explanation and knowledge of customer loyalty by quoting some of the studies conducted previously. Based on the studies, we can understand that some studies are focused more towards defining the constructs whilst the rest focused on its measurement. Besides that, the focal point for some studies is surrounding on the use of multi-item measurement scales with the aim to identify and understand the antecedents of customer loyalty.
Table 2.1: Key classifications of customer loyalty Author(s), year Contribution
Jacoby and Chestnut (1978) 3-fold classification characterizing approaches to measuring brand loyalty:
Behavior
Psychological commitment Composite indices
Dick and Basu (1994) Study concentrate on the relative attitude and potential moderators of the relative attitude to repeat-patronage based on social norms and situational factors.
Relative attitude is the degree to which the consumer’s evaluation of one alternative brand dominates over another.
True loyalty only exists when repeat patronage coexists with high relative attitude.
Classification including spurious, latent and sustainable categories of loyalty.
Christopher et al. (1993) The loyalty Ladder
Examined the progress up or along the rungs from prospects, customers, clients, supporters and advocates.
Progression requires increased discussion between exchange parties, commitment and trust, which develops within a consumer’s attitude based on their experiences including dialogue.
Baldinger and Ruben (1996) A composite approach.
Examined customer loyalty in five different sectors on the predictive ability of behavioral and attitudinal data.
Hallowell (1996) Investigated the relationships between customer loyalty, customer satisfaction and profitability.
O’Malley (1998) Focus on the loyalty programmes and their effectiveness.
Raju (1980) Measurement for loyalty with scale developed within the Exploratory Tendencies in Consumer Behavior Scales (ETCBS).
Beatty et al. (1988) Commitment is assumed to be similar to loyalty and scale was developed to measure commitment which includes items that reflected brand commitment, ego involvement and purchase involvement.
Pritchard et al. (1999) Based on Psychological Commitment Instrument (PCI), customer loyalty in a commitment loyalty measure is conceptualized.
Gremler and Brown (1999) The concept of customer loyalty is extended to intangible goods and termed as service loyalty. They suggested a 12-item measure; with a seven-point scale.
Oliver (1999) The notion of situational influences is being emphasized.
A four-phase model of customer loyalty development building on previous studies is developed with the addition of the fourth action phase.
Jones et al. (2000) Extended the investigation for customer loyalty which is termed as “cognitive loyalty”. It is regarded as higher order dimension as it was referring to the consumer’s conscious decision making process when
The switching/repurchase intentions are considered one of the aspect of cognitive loyalty, which focused on the analysis for segmentation and prediction purposes that is beyond satisfaction.
Knox and Walker (2001) The measurement of customer loyalty was developed based on the empirical study of grocery brands.
Finding revealed that for customer loyalty to exist, brand commitment and brand support were necessary and sufficient conditions.
Classification-loyals, habituals, switchers and variety seekers was produced.
Guidance for mature brand rather than emerging or new brands was provided.
2.1.2 The cognition-affect-conation (CAC) model
Oliver (1999) hypothesized that in the process of developing customer loyalty, it should include four different phases (cognitive, affective, conative and action).
According to him, each phase has their unique characteristics and dimensions which act as either sustainers or vulnerabilities. Sustainers signify attracting the customer to be loyal while vulnerabilities indicate retaining the customer towards an alternative.
According to McMullan (2005) whose aim is to examine the 4th phase of the model in his study on the complex linkages between the attitudinal and behavioral dimensions of customer loyalty was being investigated, the characteristics of the first three phases are based on existing validated research, while the fourth phase is remained untested. Figure 2.3 illustrates the associated characteristics and the development of customer loyalty. As observed from the diagram, the mediating factors are sustaining and vulnerability which allow modeling of the continued
influence of competitors, advertising, service failure and other external influences. All the factors mentioned are either make or sustain an existing customer’s loyalty development vulnerable. The sustainers and vulnerability is varied to reflect the degree of involvement when one graduated through the phases of customer loyalty development. This can be theorized that once customers are comfortable with the product or service they chose, they will continue to use it and become less sensitive to other alternatives and advertisement on the similar product (Oliver 1999).
Phase Antecedents Sustainers Vulnerabilities
Cognitive Accessibility Confidence
Centrality Clarity
Cost Benefits Quality
Cost Benefits Quality Affective Emotions
Moods Primary Satisfaction
Satisfaction Involvement Affect Liking Preference Cognitive Consistency
Dissatisfaction Persuasion Trial
Conative Switching costs
Sunk costs Commitment Cognitive Consistency
Persuasion Trial Action Inertia
Sunk costs
Persuasion Trail
Persuasion Trail
Figure 2.3: Phases in the development of customer loyalty and associated characteristics (Oliver 1999)
Based on Oliver (1993), marketing mix is referred as cognition-based dimension which implies the benefit-sacrifice difference, whereas customer satisfaction is about the emotional and evaluative reaction.
On the other hand, Burke and Edell (1996) refuted that affective is an outcome of the cognitive element. They explained that cognitive and affective processing systems may proceed concurrently, independently and as well as exist together.
Hence, one shouldn’t focus on which system is more important or dominant, rather it will be more meaningful for us to understand the interaction between the cognitive and affective systems. Furthermore, Ruiz and Sicilia (2004) provide us with additional proves that cognitive and affective processing systems can operate independently and also interactively in their study to investigate the consumer’s processing style on advertising effectiveness, in terms of attitudes and intentions.
Although cognition-affect-conation is based on Oliver’s (1999) proposed of cognition-affect-conation model. However, a different model of cognition and affect influence on conation can also be tabled based on the findings of Burke and Edell (1996) and Ruiz and Sicilia (2004). According to the opinions of these researchers, they proposed that the first two components within CAC model i.e. cognitive and affective can be treated as independent entity which happens concurrently or they can exist together on the conation component. Hence, it is important for us to find out the individual effect of cognitive and affective components on conation component and also the effect when they exist together or as a composite towards the conation component.
2.1.3 Dimensions of loyalty
With the numerous studies focus to investigate and define customer loyalty, it is not wrong for us to summarize that customer loyalty comprises of behavioral and attitudinal loyalty. Generally, behavioral loyalty refers to frequency of repeat purchase, customer’s receptiveness to continue buying the product and to maintain a good rapport with the supplier. As for attitudinal loyalty, it is the consumer’s intention to purchase and recommend to others which is generally referred to the emotional
loyalty towards the same supplier (Chaudhuri and Holbrook, 2001; Jacoby, 1971;
Rauyruen and Miller, 2007).
In this study, we will adopt the dimension of customer loyalty formulated by Zeithaml et al., (1996) in which the validity of the construct and the nomological of this dimension have been presented by them. The dimension adopted consists of four items which are related to recommendation and repurchase intention. Basically, two items were adopted as measures for recommendation dimension which can be categorized as attitudinal loyalty and two items as measures for the patronage dimension which is classified as the behavioral loyalty. Furthermore, we incorporated two more items as the measures for willingness to pay more (pay more) dimension into the study as to examine the behavior of the customers when the product commands a premium price.
2.2 Defining customer satisfaction
Customer satisfaction is a core element in the modern marketing as it is playing an important role in delivering customer’s needs and wants which will eventually lead to higher profits (Yi, 1990). In the critical review of the research on customer satisfaction in three key areas (definition and measurement; antecedents or determinants of customer satisfaction and consequences of customer satisfaction) by Yi (1990), she concluded that customer satisfaction is the response from the customers in evaluating the discrepancy between the product’s standard and the perceived performance of the product. In addition, customer satisfaction is the product of pre-experience comparison standard and disconfirmation. In fact, there are
interrelationships into comprehensive model (Bearden and Tell 1983; Churchill and Surprenant 1982; Oliver 1980). With their contributions, the consequences and antecedents of customer satisfaction were greatly understood.
Hunt (1977) defined satisfaction as an assessment that based on the past consumption experience which is able to meet the expectations of the particular consumer, whereas Engel and Blackwell (1982) conceptualized satisfaction as an assessment that the selected product or service is in line with the expectations rendered previously based on the cognitive content of the consumer. Although there is difference between the two aforementioned studies, Han and Ryu (2009) pointed out in their study in the restaurant industry that both agreed the customer satisfaction is the general conclusion resulting from the gap of the consumer’s perception between past belief and the real buying experience.
Fornell (1992) simplified the definition of satisfaction as an overall attitude formed after the total consumption process towards a product or service. Fornell’s (1992) definition is in line with the definition from Oliver (1981) which he refers customer satisfaction to the response or feedback from the customer as the results of the customer’s emotions or feelings based on the past purchase experience and their expectations towards the product or service purchased. From their definitions, we won’t be surprised that many regard customer satisfaction as the driver of repurchase intention and customer loyalty (Eggert and Ulaga 2002; Liao, Palvia and Chen 2009).
According to Holbrook and Corfman (1985), market researchers tend to distinguish between customer satisfaction with respect to a particular deal and their universal assessment of a service. However, Oliver (1981) shared a different opinion on customer satisfaction. He argues that satisfaction is distinguished by the response
from the post purchase experiences of a customer and this response will eventually transforms into an input to a less dynamic attitude. As a result, satisfaction is further considered to impact the consumer’s assessment of the quality of service, aim of buying and behavior (LaBarbera and Mazursky 1983). Commensurate with the Expectancy-disconfirmation theory (Oliver 1977, 1980), customer satisfaction or dissatisfaction is the result of the disconfirmation originating from the differences between past belief and real buying experience. The theory posits that post-purchase satisfaction is resulting from the expectations and perceived performance. This phenomenon between expectations and performance are mediated by positive or negative disconfirmation. For example, if the performance of a product outperforms the expectations (positive disconfirmation) post-purchase satisfaction will result.
However, if the performance of a product falls short of expectations (negative disconfirmation) the consumers are likely to be dissatisfied (Oilver 1980). Figure 2.4 illustrates the theory contains of four different constructs; they are expectations, performance, disconfirmation and satisfaction. According to Churchill and Suprenant (1982), expectations reflect anticipated behavior and Spreng et al. (1996) further elaborates that they are predictive in nature. It is indicating the expected product attributes at some point of time in the future.
Expectations
Perceived Performance
Disconfirmation Satisfaction
From the previous literature, customer satisfaction can be categorized into two different categories: overall or cumulative satisfaction and service encounter or transaction-specific satisfaction (Cronin and Taylor 1994; Bolton and Drew 1991;
Shankar et al. 2003). Service encounter or transaction-specific satisfaction implies to the evaluation of the consumers which is resulted from a specific purchase experience which may serve as a diagnostic approach to specific product or service encounter. On the contrary, overall or cumulative satisfaction is referred to the satisfaction that is resulted from the chain of deals or service encounters that have been accumulated. As overall satisfaction is the result from all prior consumption’s experiences, it is regarded as a result from all past transaction-specific satisfaction (Parasuraman et al.
1994; Teas 1993). Furthermore, Boulding et al. (1993) concurred that overall satisfaction is the average results of the past assessment based on the consumption experiences which is the accumulation of individual particular deal over time. This situation is similar to the expectations on the overall quality of the service or product from individual purchase experience. According to Jones and Suh (2000), overall satisfaction is relatively stable as compared to transaction-specific satisfaction. One of the examples quoted by them is a passenger who lost his baggage from a flight experience may have unpleasant experience which resulted low transaction-specific satisfaction. However, the passenger is still very much satisfied with the airline because of numerous previous good experiences with the company. Hence, it is considered as high overall satisfaction. They further suggest that overall satisfaction is a better predictor than transaction-specific satisfaction. Besides that, the company’s past, current and future experience can be indicated by the overall satisfaction (Bitner and Hubbert 1994; Oliver 1996; Rust and Oliver 1994). Hence, in this study overall satisfaction is in focus.
2.2.1 The Relationship between Customer Satisfaction and Customer Loyalty Oliver (1999) emphasized that the satisfaction-loyalty relation is not well specified until now. According to him, the relation of satisfaction-loyalty can be divided into six possible representations which are shown in Figure 2.5.
Panel 1: Satisfaction and loyalty are similar.
Panel 2: Satisfaction is the core element for loyalty which without its existence, loyalty can’t exist alone.
Panel 3: Satisfaction is the nucleus for loyalty.
Panel 4: Satisfaction and “simple” loyalty are components of ultimate loyalty.
Panel 5: Satisfaction is part of the loyalty but not playing the role as core element for loyalty.
Panel 6: Satisfaction is playing the role as the early part of a series of alteration or transformation which ends up in different loyalty state. This phenomenon also implies that the opposite side of satisfaction experience or dissatisfaction will have no impact towards the loyalty state. Hence, it simply means that loyalty may not be related to satisfaction.
Figure 2.5: Six representations of satisfaction and loyalty (Oliver 1999)
Throughout the years, many scholars have provided empirical evidence of a positive relationship between customer satisfaction and loyalty. For example, Fornell et al. (1996) found that by enhancing customer satisfaction level, it will lead to enhancing customer loyalty in terms of re-patronage and price sensitivity towards a given purchase. Furthermore, Cronin and Taylor (1992) concurred that in various service sectors like banking, dry cleaning and fast food, satisfaction will attribute to the positive behavioral intentions. Heskett et al (1994) in his study of service profit chain hypothesizes the framework as customer satisfaction will lead to customer loyalty and then to profitability. They strongly believe that in order to drive profitability for a firm, highly satisfied customers are the answer. Hence, they suggest to organizations to focus on their internal service quality with the aim to increase their
customer’s satisfaction which will then enhance their loyalty and eventually their profitability.
Hallowell (1996) further concurred the theory by Heskett et al (1994) in his empirical study in a retail banking to examine the relationships of customer satisfaction, customer loyalty and profitability, his findings supported the theory that customer satisfaction has a linkage to customer loyalty, which eventually will lead to profitability. According to him, it would be wise for the bank to profile, target and serve customers whose needs it can fulfill better than its rivals in a money-making approach. This is because, these are the customers who will be able to generate positive recommendation to their friends and relatives, at the same time continue to purchase several products and services from the bank and of course stay loyal to the bank for a long periods. All these will eventually contribute towards superior returns to the bank’s shareholders.
In a study of mobile instant messages in China provided by Deng et al (2010) confirmed that customer satisfaction, trust and switching cost directly enhanced customer loyalty. Among the three factors mentioned, customer satisfaction has the greatest impact towards customer loyalty. Hence, it is paramount for a mobile instant messages service supplier to be a leading brand by enhancing the quality of their service and emphasize on customer value as to increase customer loyalty. Besides that, they should also provide superior and reliable functions and a more user-friendly interface to the customers as to satisfy customer’s value.
In a similar vain, Liu et al (2011) suggests that satisfaction has a positive effect on loyalty in their study of the effects of relationship quality and switching barriers on customer loyalty in the mobile telecommunication services in Taiwan. In
addition, they also mention that satisfaction is one of the antecedents of customer loyalty. They suggest that in order to retain customers, we need to use both techniques of pull-in and push-back forces. They further elaborate that to maintain long-term customer relationships; we need to apply pull-in forces which are implied to customer satisfaction and trust. As for the short-term strategy, we need to use push-back forces, for example switching barriers.
Han and Ryu’s (2009) study in the restaurant industry shows that to enhance customer loyalty, high level of customer satisfaction level is needed. To achieve high level of customer satisfaction, price perception of the customers is playing an important role and this price perception is greatly affected by the physical environment. From the mentioned relationships of all variables, we get to know how customers develop their intentions to re-patronage, recommend and spend more than they planned. Hence, they suggest that researchers should include these dimensions into loyalty studies.
Lam et al (2004) hypothesizes that customer value and customer loyalty are mediated by customer satisfaction and that customer satisfaction and customer loyalty have significant mutual effect on each other. According to them, the proposed conceptual framework was based on the model of cognition-affect-conation model by Oliver (1999). In this study from a courier service provider in the business-to-business (B2B) context, the authors confirm their model through structural equation modeling by using LISREL 8.30. The results showed that customer satisfaction has a positive effect on both recommendation and patronage dimensions which are categorized as the attitudinal loyalty and behavioral loyalty respectively. On top of that, the results also confirmed the mediating role of customer satisfaction in their conceptual framework. Based on the authors, they suggest that in order to ensure higher customer
acquisition, it is important for marketers to monitor customer satisfaction scores rather than customer value scores due to fact that the customer satisfaction directly influences the recommend dimension. In addition, the authors concluded that both switching cost and satisfaction are important strategies to promote customer loyalty.
Besides that, Nam et al (2011) aims to investigate the mediating effects of customers satisfaction on the relationship between consumer-based brand equity and brand loyalty in the hotel and restaurant industry has confirmed the role of customer satisfaction as mediator. Their findings show that customer satisfaction partially mediates the effects of staff behavior, ideal self-congruence and brand identification on brand loyalty.
According to Geyskens et al. (1999), customer satisfaction is the key driver of long tem relationship between suppliers and buyers. Furthermore, a satisfied customer is having higher chances to have continuous intention to repurchase and to recommend the products or services to their friends and relatives (Zeithaml et al 1996). Thus, it is very crucial for a firm to create more loyalty by satisfying the needs of the customer better than its rivals (Oliver 1999).
From the literature review, we propose that overall or cumulative satisfaction has a positive effect on customer loyalty.
2.3 Defining Marketing Mix and the Four Ps
According to Kotler and Keller (2006), the marketing mix stands for the various approaches which the firm applies to achieve its advertising and promotion objectives.
