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MSQ
21,4

The influence of service

environments on customer
emotion and service outcomes

350

Jiun-Sheng Chris Lin and Haw-Yi Liang

Department of International Business, National Taiwan University,
Taipei, Taiwan
Abstract
Purpose Previous research on the relationship between service environments and customer
emotions and service outcomes has focused on the physical environment. Among studies exploring the
social environment, the emphasis has been on service employees, ignoring the impact of other
customers. Recent research has further called for the need to include displayed emotion within the
social environment. Therefore, this study aims to develop and test a more comprehensive model that
focuses on the relationship between the social environment (employee displayed emotion and customer
climate) and the physical environment (ambient and design factors) and resulting customer emotion
and service outcomes.
Design/methodology/approach Based on past research, a theoretical framework was developed
to propose the links between social/physical environments and customer emotion/perceptions. Extant
research from various academic fields, including environmental psychology, was reviewed, deriving
11 hypotheses. Data collected from fashion apparel retailers, using both observation and customer
survey methods, was examined through structural equation modeling (SEM).
Findings Results show that both social and physical environments have a positive influence on
customer emotion and satisfaction, which in turn affect behavioral intentions. The physical
environment exhibited more influence on customer emotion and satisfaction than social environment.
Research limitations/implications This research explains how both social and physical
environments affect customer emotion and perceptions. Future research directions are discussed, with
an emphasis on incorporating customer characteristics, industry attributes, and cultural variables to
better understand the influence of service environments in different service settings.
Practical implications Social and physical environments influence customer emotional states
within the service delivery context, which in turn affect customer service evaluations. Therefore, both
social and physical service environments should be emphasized by service firms.
Originality/value This research represents an early attempt to develop a more comprehensive
model explaining how both social and physical environments affect customer emotion and
perceptions. This study also represents the first empirical study of service environment research to
include employee displayed emotion as part of the social environment.
Keywords Service environments, Social environment, Physical environments, Customer emotion,
Service outcomes, Consumer behaviour, Customer service management
Paper type Research paper

Managing Service Quality

Vol. 21 No. 4, 2011
pp. 350-372
q Emerald Group Publishing Limited
0960-4529
DOI 10.1108/09604521111146243

Introduction
As service providers find it increasingly difficult to create a differential advantage in
service delivery, the service environment[1] itself becomes a fertile opportunity for
market differentiation. In this context of increasing competition, service firms must be
certain that their service environments appeal to customers. Recognizing the
importance of service environments to consumer behavior, service providers are

devoting considerable resources to make improvements. Simultaneously, the role of

emotion has gained attention as a central element in understanding service encounters
and experiences (Richins, 1997; Oliver, 1997; Mattila and Enz, 2002), with academic
research showing that emotions experienced in a store environment can affect service
outcomes, such as behavioral intentions (Baker et al., 1992; Donovan et al., 1994;
Sherman et al., 1997). As services are produced and consumed simultaneously,
customer affective responses to various cues within service environments have a
strong impact on perceptions and behavior (Baker et al., 2002; Chang, 2000; Tsai and
Huang, 2002). Pleasure derived from the service environment influences in-store
behaviors such as spending levels, amount of time spent in the store, and willingness to
revisit (Donovan and Rossiter, 1982; Donovan et al., 1994; Yoo et al., 1998). Therefore,
service firms have a strategic stake in understanding how service environments foster
customers positive emotions (Sherman et al., 1997).
Mehrabian and Russell (1974) offered a framework indicating that environmental
stimuli influence an individuals emotional state, which in turn affects behavioral
responses, based on the stimulus-organism-response (S-O-R) paradigm. Donovan and
Rossiter (1982) and Donovan et al. (1994) suggested store environments affect the
emotional state of consumers, which in turn affects buying behavior. However, the
stimulus factors in these models only include physical features within the environment.
Sherman et al. (1997) and Baker et al. (2002) considered social factors as part of service
environments, focusing on perceptions of employee characteristics. No previous
research has included both service employees and other customers in the social
environment milieu. Pointing out this gap, Tombs and McColl-Kennedy (2003) called
for empirical studies to explore the social servicecape, with both service employees and
customers, and further proposed using displayed emotion as a important indicator of
social environment. Addressing this research gap, the current study attempts to add to
this research stream by proposing and empirically testing a more comprehensive
model of service environments, which include employee displayed emotion and
customer climate within social environments while examining ambient and design
factors within physical environments. Building on extant research, we propose that a
service firms social and physical environment influences customer emotion and
satisfaction, which in turn influence behavioral intentions.
The remainder of this paper is organized as follows. We first review the theoretical
background and concepts that are central to our study. We next present a conceptual
model and discuss the relationships among model elements, along with research
methodology and data collection. Finally, we present the findings, discuss
implications, and suggest future research directions.
Conceptual background
Customer emotion has been regarded as a principal element in understanding
perceptions of service experiences (Mattila and Enz, 2002; Oliver, 1997; Richins, 1997).
When customers assess a specific consumption experience, they often draw on their
current emotional state (Isen and Shalker, 1982). Since emotion constitutes a primary
source of human motivation and exerts substantial influence on the thought processes
(Westbrook and Oliver, 1991), a positive emotion is likely to lead to a positive reaction
and less critical thinking when making judgments (Forgas, 1995; Barger and Grandey,
2006). This increases service performance appraisals, such as satisfaction (Gorn et al.,

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1993; Mano and Oliver, 1993; Miniard et al., 1992; Mattila and Enz, 2002). In addition,
customers experiencing more positive emotions during service encounters will also be
more likely to visit again and spread positive word-of-mouth, building loyalty
(Liljander and Strandvik, 1997; Stauss and Neuhaus, 1997; Oliver et al., 1997; Wong,
2004).
Service environments play an important role in service delivery because
environments can foster pleasant emotional reactions, while strengthening customer
perceptions and retention (Bitner, 1992; Baker et al., 2002; Sherman et al., 1997; Tsai
and Huang, 2002). Research in environmental psychology has produced a body of
knowledge examining interactions between service environments and human
behaviors. Earlier research by Mehrabian and Russell (1974) offers a
multi-dimensional perspective in environmental psychology. Their framework,
based on the stimulus-organism-response (S-O-R) paradigm, suggests environmental
stimuli lead to an emotional reaction that drives consumers behavioral responses.
Donovan and Rossiter (1982) and Donovan et al. (1994) employed the
Mehrabian-Russell (M-R) environmental psychology model to show individuals
perceptions and behaviors, within a given environment, are the result of emotional
states created by the environment. Specifically, environmental stimuli affect emotional
states of pleasure and arousal that in turn affect behaviors. In other words, the features
of environment (S) can have a measurable impact on behavior (R) while being mediated
by an individuals emotional state (O) that is influenced by the environment. In the M-R
model, emotional responses are measured using the pleasure, arousal, and dominance
(PAD) scale, three orthogonal dimensions of emotions that underlie any emotional
responses to environmental stimuli. Pleasure refers to the affective state of feeling
good, happy, pleased or joyful. Arousal is the extent to which an individual feels
stimulated, excited, alert or active, while dominance is the degree to which an
individual feels influential, in control, or important. Pleasure influences response
behavior, while arousal interacted with pleasure such that it also increased response
behaviors (Donovan and Rossiter, 1982; Donovan et al., 1994). Pleasure and arousal
both positively influence purchase behavior (Baker et al., 1992)[2]. Many studies have
also been conducted on environmental stimuli as predictors of emotional responses and
behaviors, such as time spent in a store and incremental spending (e.g. Jang and
Namkung, 2009; Sherman et al., 1997). However, these studies are quite inconsistent in
their measurement of the social environment, while customer perception variables,
such as satisfaction, are still unexplored.
Typologies of service environment elements vary widely across studies. The most
widely cited typology is Bitners (1992) servicescape, focusing on the physical aspects
of the environment, including ambient and design factors. However, for many service
firms, the influence of other individuals (i.e. customers and service employees) is also
critical often more important than physical environments (Tombs and
McColl-Kennedy, 2003). For example, a customers experience in a restaurant may
be negatively influenced by rowdy customers at a neighboring table, even though the
physical environment is excellent. This introduces a social environment, with other
people playing influential roles. The elements of service environment can thus be
categorized into social and physical environments (Baker, 1987; Baker et al., 1994;
Sherman et al., 1997), both affecting customer emotion and service outcomes (Baker
et al., 2002).

Although the social aspect of any service environment is commonly considered very
important, the topic has received limited academic attention. Research addressing
social environments has been limited and inconsistent. While a social environment
includes both service employees and other customers, no existing empirical research
has examined both simultaneously. Previous work has been asymmetrical, focusing
only on perceptions of service employees (e.g. Baker et al., 1992, 1994, 2002; Sherman
et al., 1997; Yoo et al., 1998; Harris and Ezeh, 2008) or perceptions of other customers
(Brady and Cronin, 2001). There is a large gap concerning the symmetric aspect of the
social environment that normally includes both service employees and other
customers. The current research addresses this gap by including customer climate[3]
a customers perception of the social environment shared with other customers. Tombs
and McColl-Kennedy (2003) pointed out the importance of emotional contagion from
service employees to customers, addressing the important role of displayed emotion in
social servicesape for more comprehensive empirical work. In response, we include
employee displayed emotion as part of the social environment, completing the
symmetry. Distinct from previous research, this study constructs more complete and
realistic social environments that include employee displayed emotion and customer
climate.
Moreover, previous studies tend to follow the S-O-R paradigm, with a heavy
emphasis on R (customer behavior) variables as service outcomes in developing their
research frameworks. Customer perceptions such as satisfaction are often ignored. To
address this, the current research further includes satisfaction in addition to behavioral
intentions to comprehensively explore the relationship of service environments with
customer emotion, perceptions, and service outcomes.
Social environment, customer emotion, and satisfaction
Employee displayed emotion, customer emotion, and satisfaction. Research on
emotional contagion suggests that service employees expression of emotions can
produce a corresponding emotional state in customers (Hatfield et al., 1994; Pugh,
2001; Tsai and Huang, 2002). McHugo et al. (1985), for example, reported that
exposure to smiling or frowning images produced corresponding changes in the
facial expressions of viewers. Pugh (2001) found that when service employees
smile, increase eye contact, display gratitude, and extend greetings, customers
experience more positive emotion. Tsai and Huang (2002) also show that sales
clerks positive affective delivery creates inner cues that contribute to customers
experience of positive emotions. This emotional contagion occurs outside of
conscious awareness (Pugh, 2001). When exposed to employees positive emotional
displays, customers are likely to mimic the employee expressive behavior
subconsciously during the service encounter (Barger and Grandey, 2006). This
mimicking alters the customers own emotional state (Hennig-Thurau et al., 2006),
leading to our first hypothesis:
H1. Service employees displayed emotion is positively related to customer
positive emotion.
Service encounter satisfaction is a response to an individual transaction, in contrast to
a customers general assessment of a firms service (Bitner, 1990; Mano and Oliver,
1993). In general, people appraise others who express positive emotion as more likable

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and courteous, all else being equal, when in a transactional or business relationship
(Clark and Taraban, 1991; Harker and Keltner, 2001) or service context (Grandey, 2003;
Tsai and Huang, 2002). Customers often interpret an employees emotional display as
part of the service (Grove and Fisk, 1997), suggesting customers hold expectations
about the display of positive emotions (Tsai and Huang, 2002). Thus, an employees
displayed emotions will influence a customers satisfaction. Previous research has
supported that service with a positive affective delivery impacts customer impression
of the service encounter (Bitner, 1990; Pugh, 2001; Tsai and Huang, 2002). Barger and
Grandey (2006) and Hennig-Thurau et al. (2006) also found employee smiling had a
significant impact on encounter satisfaction. Therefore, we propose:
H2. Service employees displayed emotion is positively related to customer
satisfaction.
Customer climate, customer emotion, and satisfaction. Customer climate refers to a
customers perception of the environment, shared by other customers receiving service,
in which he/she plays an integral role (Baker, 1987; Brocato and Kleiser, 2005; Grove
and Fisk, 1997). Other customers are often viewed as part of the service environment
(Martin and Pranter, 1989; Brocato and Kleiser, 2005; Huang, 2008). Customers provide
each other cues useful in service assessment (Baker et al., 2002; Hui and Bateson, 1991).
Interaction among customers within service sites influences emotions (Huang, 2008;
McGrath and Otnes, 1995; Moore et al., 2005). When other customers manners and
behaviors align with expectations, more positive emotions are encouraged. On the
other hand, a customer interfering with others tends to encourage negative feelings.
For example, noisy children screaming and running around a restaurant can lead to
negative emotions for most customers. More positive interactions among customers
can lead to a favorable service experience (Brocato and Kleiser, 2005; Huang, 2008).
Davies et al. (1999) and Moore et al. (2005) also suggest that positive
customer-to-customer interaction serves to highlight a shared experience, enhancing
enjoyment of the service. Therefore, we propose:
H3. Customer climate is positively related to customer positive emotion.
Though firms may view the behavior of customers as uncontrollable, consumers
consider firm management of customers behaviors an important component of the
service process (Bitner et al., 1994; Harris and Reynolds, 2003; Martin, 1996; Moore et al.,
2005). Past research has found the presence of other customers within a service
environment influences levels of satisfaction (Martin and Pranter, 1989; Brocato and
Kleiser, 2005; Moore et al., 2005; Wu, 2007, 2008). The appearance, behavior, and
number of other customers can affect service perception (Baker, 1987; Bitner, 1990;
Brocato and Kleiser, 2005; Harris et al., 1997; Moore et al., 2005). In addition, interaction
among customers is an important aspect of the service experience and subsequent
service evaluation (Bitner, 1990; Huang, 2008; Langeard et al., 1981; Moore et al., 2005;
Prahalad and Ramaswamy, 2000). Positive customer-to-customer experience can
increase service satisfaction (Martin and Pranter, 1989; Moore et al., 2005). Therefore,
we propose customer climate will positively influence customer satisfaction.
H4. Customer climate is positively related to customer satisfaction.

Physical environments, customer emotion, and satisfaction

Customers are likely to use physical environments as tangible cues for making
judgments ( Jang and Namkung, 2009). Many empirical studies have shown that
customers respond emotionally to a variety of physical environments (e.g. Bitner,
1992; Sherman et al., 1997; Wakefield and Baker, 1998), which include both design
and ambient factors (Baker et al., 1994; Sherman et al., 1997). Ambient factors are
nonvisual, background conditions in the environment, including elements such as
air, lighting, music, and scent, while design factors are store environmental elements
that are more visual in nature, including layout, facilities and color (Baker et al.,
1994). Prior studies have offered empirical support for the link between physical
environment and affect (e.g. Donovan and Rossiter, 1982; Donovan et al., 1994;
Wakefield and Baker, 1998). Physical environment creates in-store experiences that
are linked with customer emotion (Babin and Darden, 1996; Chebat et al., 1995;
Burns and Neisner, 2006; Morrison and Beverland, 2003). In other words, physical
environments trigger affective reactions in customers (Babin and Darden, 1996;
Baker et al., 1992; Donovan et al., 1994; Tsai and Huang, 2002; Wakefield and
Blodgett, 1999).
Past studies showed that both ambient and design factors enhance customer
positive emotion, generating excitement among customers (e.g. Harris and Ezeh, 2008;
Morin et al., 2007; Sherman et al., 1997; Wakefield and Baker, 1998). Design can create
positive visual effects, convey a sense of coziness and help consumers form a mental
picture that precedes emotional response (Jang and Namkung, 2009). Ambient cues can
create a sense of harmony with decor and make the experience more pleasant, leading
to positive emotion (Harris and Ezeh, 2008; Liu and Jang, 2009). A well-designed and
pleasant physical environment reduces pressure and evokes positive emotions (such as
being pleased or excited). Similarly, a poorly designed and unpleasant environment
makes consumers feel negative (i.e. ignored, angry, or displeased) and leads to
deterioration of customer positive emotion (Baker et al., 2002; Wong, 2004; Yoo et al.,
1998). Therefore, we hypothesize:
H5. Ambient factors are positively related to customer positive emotion.
H6. Design factors are positively related to customer positive emotion.
Service research suggested the physical environment also influences service
satisfaction (e.g. Bitner, 1990, 1992; Harrell et al., 1980). Customers rely upon
physical environments for cues in evaluating service satisfaction (Bitner, 1992;
Chang, 2000). Research in environmental psychology also indicated the physical
environment influences customer satisfaction (Darley and Gilbert, 1985; Holahan,
1986; Stokols and Altman, 1987; Chang, 2000). Specific design factors positively
impact satisfaction (Andrus, 1986; Jang and Namkung, 2009; Vilnai-Yavetz and
Rafaeli, 2006). Customers expect to find aesthetic design in a service site, and are
more satisfied when the design of the serviceape is perceived as more aesthetic.
Similarly, the ambience and atmosphere of a service place communicates its level of
concern for customers, contributing to customer satisfaction (Baker et al., 2002).
Customers often have expectations regarding the ambience of a physical
environment, and satisfaction is likely to result when expectations are met (Bitner,
1990, 1992; Zeithaml et al., 1993, 1996). Bitner (1990, 1992) asserts that both ambient
and design elements influence customer satisfaction. Countryman and Jang (2006),

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Jang and Namkung (2009) and Wakefield and Blodgett (1994) also suggested that
positively perceived ambient and design factors in physical environments lead to
greater satisfaction. We thus propose:
H7. Ambient factors are positively related to customer satisfaction.

356

H8. Design factors are positively related to customer satisfaction.

Customer emotion, customer satisfaction, and behavioral intentions
Theoretical support for the relationship between customer positive emotion and
satisfaction is strong (Oliver, 1997). In particular, when customers assess a specific
consumption experience, they draw on their current emotional state
(Hennig-Thurau et al., 2006). A change in emotion should influence satisfaction
levels (Baron, 1987; Sinclair and Mark, 1995). Past research has indicated the
positive and significant association between a customers positive affect and
satisfaction (Mano and Oliver, 1993; Oliver, 1993; Price et al., 1995; Wirtz et al.,
2000; Soderlund and Rosengren, 2004). When a customer experiences positive
emotions in a service encounter, he/she will express higher levels of satisfaction.
Therefore, we hypothesize:
H9. Customer positive emotion is positively related to customer satisfaction.
Past research has shown a link between customer positive emotions and behavioral
intentions. Donovan and Rossiter (1982) and Gardner (1985) suggest customers who
experience positive emotions tend to see the bright side of things and are more willing
to return. Such customers return in order to experience positive emotions linked to
hedonic values (Jang and Namkung, 2009; Keng et al., 2007; Tsai and Huang, 2002).
Furthermore, Nyer (1997) found people in positive emotions are more willing to engage
in positive word of mouth, while Baker et al. (1992) reported customers experiencing
more positive emotions are more willing to make a purchase. Thus, we propose that
customer positive emotion in the service encounter will lead to positive behavioral
intentions.
H10. Customer positive emotion is positively related to behavioral intentions.
Evidence for the impact of satisfaction on behavioral intentions derives from a wide
base of service research that can be summarized as: customer satisfaction has a
positive influence on behavioral intentions such as repurchase, likelihood of
recommending, purchase volume, and loyalty (Cronin et al., 2000; Dabholkar
Thorpe, 1994; Rust and Williams, 1994). A satisfied customer is less likely to search for
information on alternatives, yield to competitor overtures, resist a close relationship, or
take steps to reduce dependence on the existing service provider (Anderson and
Srinivasan, 2003). In addition, Szymanski and Henard (2001) also found that satisfied
customers do not partake in negative word-of-mouth and have higher repurchase
intention. Therefore, we propose:
H11. Customer satisfaction is positively related to behavioral intentions.
The hypothesized relationships (H1-H11) are shown in the conceptual framework in
Figure 1. Relationships among the constructs were empirically tested as follows.

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Figure 1.
Conceptual framework

Methods
Research procedures
Customers of fashion apparel retailers participated in the current research. Fashion
apparel stores were selected, following Sherman et al. (1997), to ensure that emotional
state and service environments would be relevant to the shoppers buying experience.
To ensure consistency, only fashion apparel retail stores were sampled (Sherman et al.,
1997). These stores carry the type of merchandise most amenable to this study in that
they sell high-involvement goods with sufficient interactions between customers and
social/physical environments (Flicker and Speer, 1990; Sherman et al., 1997). Prior to
the research, stores were screened to ensure that only those stores that matched the
characteristics of a fashion store or boutique were selected (Sherman et al., 1997). Ones
emotional state or perception of a store is far less likely to be a salient if one is, for
example, taking a quick trip to a drug store for cold medicines or bandages.
There are two separate data sources for this study:
(1) employee displayed emotion collected by trained observers; and
(2) customer exit interviews.
Sixteen research assistants trained by a marketing research firm were recruited for this
study. Each research assistant acted as a field observer, collecting information on
employee displayed emotions and soliciting opinions from customers (Tsai and Huang,
2002).
A random sample of fashion apparel retailers were selected for this study. Each
observer visited each store (Finn and Kayande, 1999) during regular business hours,
randomly selecting customers and time frames based on a sampling schedule that
employed various time frames based on random selection. Sample schedules were
generated based on peak/off-peak time intervals (morning, afternoon, and evening)
during weekdays and weekends. The observers next selected target customers, noting

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service interaction throughout the entire service delivery, including the employees
displayed emotions. Employees and customers were not aware of the presence of
observers during the service interaction. The observer then followed the customer
outside the retail location and formally requested cooperation in rating emotions and
various perceptions. Respondents were given a gift after completing the survey. The
total sample included 296 pairs of employees and customers (see Table I for sample
characteristics). The sample included 74.9 percent female, with the overall customer
age ranging from 18 to 65.
Measures
To empirically test the hypotheses, multi-item scales from previous studies were
adopted for this study (see Appendix). Following Pugh (2001) and Tsai and Huang
(2002), units of analysis for employees displayed emotions included greeting,
speaking in a rhythmic vocal tone, smiling, making eye contact, thanking, and
talking actively. Perceived customer climate was measured with three indicators
regarding perception of other customers derived from Brady and Cronin (2001),
including overall impression of other customers as well as other customers
influence on service provision and customer perceptions[4]. Items measuring the
design and ambient characteristics of physical environments were adopted from
Baker et al. (2002), Bitner (1992), Sherman et al. (1997), and Yoo et al. (1998). Design
factors included layout, facilities, and color, while ambient factors included air
quality, light, music, and odor.
Four emotion items were adopted from Hennig-Thurau et al. (2006), including
elated, peppy, enthusiastic, and excited[5]. Participants were asked to indicate their
level of agreement with the four items. To measure customer satisfaction, we used
three items adopted from Chiou et al. (2002). Behavioral intention was operationalized
through four items based upon Cronin et al.s (2000) study: say positive things about
them, recommend them to other consumers, remain loyal to them, and spend more with
the company.
A questionnaire was constructed and pretested in four rounds to ensure questions
were understood as intended and to assess the feasibility of the survey approach. Each
item related to the studied constructs was rated on a seven-point Likert scale, ranging
from strongly disagree (1) to strongly agree (7).

Category
Age

Gender
Education
Table I.
Sample characteristics

,20
20-29
30-39
40-49
$50
Male
Female
Junior high school or below
High school
College or university degree
Master degree or above

Customer samples (%)

22.0
48.1
18.1
8.0
3.8
25.1
74.9
2.9
13.5
76.8
6.8

Results
Test for common method bias
Common-method bias can cause problems if data from single informants are used for
dependent and independent variables. Accordingly, we employed Harmans
single-factor test as reviewed by Podsakoff et al. (2003). Common-method variance
does not appear to be a problem in the present study because the variance explained by
the first factor extracted in the factor analyses was not greater than 50 percent
(Podsakoff et al. 2003)
Total measurement model estimation
We tested our measurement model using LISREL VIII ( Joreskog and Sorbom, 1996). A
27-item CFA, including six items from employees displayed emotion, three indicators
from perception of other customers, four items from ambient factor of physical
environments, three items from design factor of physical environments, four items
from customer positive emotions, four items from service encounter satisfaction and
four items from customer behavioral intention, was employed as the primary data
analysis tool. Results suggested a good fit overall (x 2 490:93, df 294,
RMSEA 0:045, GFI 0:90, AGFI 0:87, NFI 0:97, NNFI 0:98, IFI 0:99,
CFI 0:99, SRMR 0:044).
For internal consistency, a reliability assessment was conducted using Cronbachs
coefficient a to ensure items for each factor were internally related. The final a values
all surpassed 0.7, a common threshold for exploratory research (Nunnally and
Bernstein, 1994), showing satisfactory reliability. We also evaluated reliability by
means of composite scale reliability (CR; Chin, 1998; Fornell and Larcker, 1981). For all
measures, the CR is well above the cut-off value of 0.70, exhibiting satisfactory
reliability. See Table II for details.
Further, we assessed convergent validity by first reviewing the t-tests for the factor
loadings in the CFA (Anderson and Gerbing, 1988). All factor loadings in the CFA for
the total measurement model were statistically significant (with all t values at p ,
0:01 level), demonstrating convergent validity (Kumar et al., 1998). Discriminant
validity is exhibited when the unconstrained model fits significantly better than the
constrained model (Bagozzi and Heatherton, 1994). Pairwise chi-square difference tests
indicated that in each case, the chi-square difference statistic is significant at the 0.01
level, providing evidence of discriminant validity.
Structural model results
After confirming the total measurement model, the structural model was estimated,
producing the following statistics: x 2 475:16; x 2 =df 1:59, NFI 0:97,
NNFI 0:99, CFI 0:99, IFI 0:99, GFI 0:90, AGFI 0:87, RMSEA 0:043.
Results indicated an acceptable level of fit between the hypothesized model and the
data. Estimated structural coefficients were next examined to evaluate individual
hypotheses (see Table III).
As predicted, employees affective delivery was positively related to customer
emotion (g11 0:15, t 2:67, p , 0:01) and customer satisfaction (g21 0:16,
t 2:72, p , 0:01), providing support of H1 and H2. Customer climate was also
positively related to customer emotion (g12 0:23, t 3:42, p , 0:01), thereby
confirming H3. In addition, customer climate has a positive relationship with customer

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Table II.
Confirmatory factor
analysis results

Construct and scale items

Employee displayed emotion
EDE 1
EDE 2
EDE 3
EDE 4
EDE 5
EDE 6
Customer climate
CC 1
CC 2
CC 3
Ambient factors
AF 1
AF 2
AF 3
AF4
Design factors
DF 1
DF 2
DF 3
Customer emotion
CE 1
CE 2
CE 3
CE 4
Customer satisfaction
SAT 1
SAT 2
SAT 3
Behavioral intention
BI 1
BI 2
BI 3
BI 4

Standardized
loading *

t-value

0.67
0.76
0.62
0.72
0.68
0.59

0.55
0.76
0.82

0.77
0.64
0.68
0.76

0.74
0.66
0.78

0.80
0.77
0.77
0.70

0.74
0.81
0.89

0.81
0.92
0.91
0.85

11.96
14.28
10.91
13.37
12.31
10.39

9.19
13.47
14.77

14.71
11.65
12.21
14.63

13.80
11.97
14.78

15.74
14.90
14.98
13.04

14.27
16.48
18.83

16.53
20.27
20.02
18.06

Coefficient
alpha

Composite
reliability

0.83

0.85

0.73

0.75

0.79

0.81

0.76

0.77

0.85

0.85

0.85

0.80

0.93

0.93

Notes: Chi-square (x 2) 490.93, d.f. 294, RMSEA 0.045, GFI 0.90, AGFI 0.87,
CFI 0.99; *All item loadings were significant at p , 0.01

satisfaction (g22 0:17, t 2:55, p , 0:01), supporting H4. Consistent with both H5
and H6, ambient factors were positively related to customer emotion (g13 0:28,
t 2:16, p , 0:05) and customer satisfaction (g23 0:27, t 2:21, p , 0:05). Design
factors have positive influence on customer emotion (g14 0:29, t 2:21, p , 0:05) and
customer satisfaction (g24 0:27, t 2:08, p , 0:05), providing support of H7 and H8.
Customer emotion was also positively related to customer satisfaction (b21 0:19,
t 2:42, p-value , 0:01) and behavioral intention (b31 0:24, t 2:94,
p-value , 0:01), thereby confirming H9 and H10. Results also supported H11,
where customer satisfaction had a positive relationship with behavioral intention
(g32 0:45, t 5:03, p-value , 0:01).

Relationship
H1: Employee displayed emotion ! Customer emotion
H2: Employee displayed emotion ! Service satisfaction
H3: Customer climate ! Customer emotion
H4: Customer climate ! Service satisfaction
H5: Ambient factors ! Customer emotion
H6: Ambient factors ! Service satisfaction
H7: Design factors ! Customer emotion
H8: Design factors ! Service satisfaction
H9: Customer emotion ! Service satisfaction
H10: Customer emotion ! Behavioral intentions
H11: Service satisfaction ! Behavioral intentions
Model fit
x2
df
RMSEA
GFI
AGFI
NFI
NNFI
CFI
IFI

Completely standardized
coefficient

t-value

0.15(g 11) * *
0.16(g 21) * *
0.23(g 12) * *
0.17(g 22) * *
0.28(g 13) *
0.27(g 23) *
0.29(g 14) *
0.27(g 24) *
0.19( 21) * *
0.24( 31) * *
0.45( 32) * *

2.67
2.72
3.42
2.55
2.16
2.09
2.21
2.08
2.42
2.94
5.03
475.16
298
0.043
0.90
0.87
0.97
0.99
0.99
0.99

Notes: *p-value , 0.05; * *p-value , 0.01, two-tailed

Discussion
Although the effect of service environments on consumer emotion has been well
explored by marketing researchers, a model that includes comprehensive social and
physical environments is still lacking. This has restricted the understanding of how
service environments influence customer emotion and perceptions. Therefore, this
study fills this research gap by developing a more comprehensive model that includes
both social and physical environments in order to better understand the effect of
service environments on service results. Specifically, this study contributes
theoretically and practically to existing service environment research through
empirical work that expands the conceptualization of social environments to include
both employee behavior (displayed emotion) and customer climate. This
comprehensive approach extended the M-R model by taking a further step in
understanding the distinct effects of each environmental factor on customer responses.
Additionally, distinct from past research, this research contributes methodologically to
service environment research by adopting a different survey method that utilizes
observers noting employee affective delivery in addition to customer survey method to
better investigate displayed emotion from service employees (Pugh, 2001; Tsai and
Huang, 2002). Furthermore, another contribution of this study is the extension of the
M-R environmental stimuli-emotional state-behavior paradigm by including
satisfaction in the current model, confirming that service environments not only
affect customer emotion and behavior, but also customer perceptions such as
satisfaction.

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Table III.
Path estimates for
proposed model

MSQ
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In terms of social environments, current results showed employee displayed

emotion is positively associated with customer positive emotion and satisfaction,
providing support for emotional contagion theory. Employees positive affective
delivery contributes to both customer positive emotion and satisfaction. Results also
documented customer climate is positively related to emotions and satisfaction.
Positive perception of other customers will create a pleasant shared experience while
enhancing enjoyment of the service experience, which, in turn, will positively affect
customer perception of the service (Martin and Pranter, 1989; Moore et al., 2005).
Our findings indicate both design and ambient factors of physical environments are
positively related to customer positive emotion, supporting past empirical evidence
that customers experience more positive emotions when environmental stimuli are
perceived as more attractive (Sherman et al., 1997; Yoo et al., 1998). Results also show
both design and ambient factors are related to customer satisfaction, similar to Bitner
(1992), Countryman and Jang (2006), and Wakefield and Blodgetts (1994) findings that
the environmental comfort, such as temperature level, lighting, and music, affects
overall satisfaction. Furthermore, results revealed that each of the four service
environment constructs contributes differentially to the variance in customers emotion
and overall satisfaction. From the standardized coefficient of the paths in the model, it
appeared that the physical environment is more important than the social environment.
Both ambient and design factors have almost equal influence on customer emotion and
satisfaction, and both are more influential than employee displayed emotion and
customer climate. In terms of social environment, customer climate is a more critical
contributor to customer emotion and satisfaction when compared to employee
displayed emotion.
Results show positive emotions evoked during consumption have an important
relationship to customer satisfaction. This is consistent with past research, suggesting
positive consumption emotions will exert a positive influence on satisfaction (Mano
and Oliver, 1993; Oliver, 1993; Oliver et al., 1997; Westbrook, 1987; and Westbrook and
Oliver, 1991). Findings also support the existence of positive links among customers
positive emotions and their behavioral intentions. An increase in customer positive
affect is related to customer behavioral intentions. Overall, current results support our
assertions that service environments, including both social and physical environments,
play important roles in service encounters and impact customer emotion and service
outcomes.
Managerial implications
From a practical perspective, this study can help managers of high-involvement
goods/service providers or retailers better understand the important role of service
environments in creating positive customer responses. Results from our study
identified the influence of service environments on customer emotional states and
service outcomes, providing important managerial implications for service firms.
Managers need to recognize the overwhelming benefits derived from paying particular
attention to service environments in differentiating themselves from competitors.
Competitive advantage can be gained by building on the relationship between service
environments and customer emotional states/perceptions. As these environmental
elements lie largely within the area of management control and can be manipulated to
affect customer emotions, perceptions, and behaviors, managers should actively

promote desired social and physical environments with a positive impact on

customers.
Human actors play an important role on the service environment, influencing
customer responses (Zeithaml et al., 2006). The social environment of a firm, including
employee displayed emotion and customer climate, is a vital driver of customer
positive emotion during service encounters. As customers often interpret a service
employees affective delivery as part of the service itself, customers hold expectations
about service employees display of positive emotion. Given the impact of employee
displayed emotion on customer emotion and perceptions, such social element requires
increased managerial emphasis on hiring talented and qualified frontline employees
with lively, courteous, cheerful, and extroverted personalities, which should be
included as criteria within the employee selection process (Tan et al., 2003). Such a
personality will contribute to appropriate and positive emotional displays during
service encounters (Eysenck and Eysenck, 1991; Tan et al., 2003). In addition, research
on emotional labor suggested the authenticity of emotional displays in service
encounters is critical to the appraisal of the encounter (Grandey, 2003). In other words,
emotional display is considered most effective when employees engage in deep acting,
genuinely feeling the emotions they display. As fostering employees genuine positive
display of emotion requires organizational efforts (Soderlund and Rosengren, 2004),
service firms should thus encourage deep acting strategies through appropriate
training and motivation. For example, service employees can be trained and
encouraged to demonstrate appropriate and positive emotions with empathy toward
customers (Clark et al., 2003; Gremler and Gwinner, 2008). This can be accomplished
through emotional management skills that include identifying customer pre-existing
emotions, understanding the emotional contagion between the service providers and
customers, and learning how to manage the emotions of both parties to create a
pleasant service interaction.
Customers receive services while other customers are simultaneously being served.
Therefore, other customers sharing the service experience are often considered part of
the service environment, affecting a customers appraisal of the delivered service. Such
an interactive scene presents both an opportunity and a threat. Current results provide
evidence that customer climate is a critical aspect in determining a customers emotion
and perceptions. The presence of other customers is inevitable in many service
industries. A customer may find himself compatible with some customers, while
incompatible with others (Martin, 1996). Customer management is thus an important
issue for service firms to create service environments where customers are compatible
(Brocato and Kleiser, 2005; Wu, 2007). Customer compatibility appears to be positively
related to the homogeneity of the customer group in terms of similar preferences,
sought benefits, attitudes, past experiences, and physical characteristics. Customers
are often drawn toward those social environments with which they are most
compatible (Brocato and Kleiser, 2005; Martin and Pranter, 1989). In contrast,
incompatibility creates negative affect toward the service. The more customer
characteristics can be recognized, the more likely service managers and employees can
anticipate and prevent problems, enhancing a customers perception of other
customers. This in turn affects customer experienced emotion and satisfaction during
service encounters, and ultimately behavioral intentions. Consequently, service
managers and frontline employees should engage in some form of compatibility

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364

management to avoid placing incompatible customers together (Huang, 2008; Martin

and Pranter, 1989). Service employees need to be trained with appropriate coping and
problem-solving skills to handle problem customers as well as affected customers
(Bitner et al., 1994; Harris and Reynolds, 2003). For example, employees can be taught
to recognize characteristics of difficult situations and anticipate the emotions of
affected customers so that problem situations can be avoided before escalation. More
importantly, employees should be trained to comfort and help affected customers,
alleviating any bad feelings caused by other-customers behaviors. This can be
achieved by having the employee express empathy towards the affected customer,
such as offering a heartfelt apology.
Finally, consistent with past research, current results show physical environments
play an important role in enhancing customer emotion and satisfaction. Aesthetically
pleasing and comfortable physical environments play a key role in creating customer
positive emotions and satisfying customers hedonic needs, which in turn improves
behavioral intentions. As physical environments serve to facilitate service pleasure
and customer emotion, learning what physical environment elements are preferred by
customers should be a priority for service firms when allocating business resources.
Service firms should devote efforts to the ambient and design features of
environmental design such as store layout, decoration style, lighting, and music, in
ways that appeal to the firms clientele. In other words, service managers should
consider their target customers tastes and preferences, then use various visual and
non-visual elements to create a favorable physical environment. Enjoying a
well-designed physical environment will elevate customers positive emotions and
perceptions of the service encounter, leading to enhanced behavioral intentions.
Limitation and future research
This research contains a number of limitations that suggest directions for future
research. First, our data were obtained from fashion apparel retailers, so caution must
be exercised when generalizing findings. Further cross-industry studies taking
industry attributes (e.g. degree of customer-employee, customer-to-customer
interactions, and importance of physical environment to customers) into
consideration are encouraged to enrich the theoretical and empirical foundation
while increasing generalizability. Second, we did not examine customer characteristics
that could influence perception of service environments under study. For example,
individual personality traits and motivations may affect perception of social and
physical environments, tempering the level of customer positive emotion and
satisfaction in a particular service encounter. Future research exploring such customer
characteristics will provide a more diverse context and improve generalizability.
Finally, cultural norms of service contact, aesthetics and emotions vary widely.
Another direction for future research is to test the cross cultural stability of these
findings. Additional research can examine the impact of cultural norms on social and
physical environments within the context of service encounters.
Notes
1. The term service environment used in this research was derived from servicecape
(Bitner, 1992) and store environment (Baker et al., 1994; Sherman et al., 1997) to include
more comprehensive environmental factors discovered by previous researchers.

2. While the PAD scale is simple and intuitive, it was not designed to capture the entire domain
of emotional experience (Richins, 1997). Limitations have been recognized in its use to
measure consumption-related emotions (Yoo et al., 1998). Thus, this scale is suggested as
inadequate for capturing consumer emotions during consumption (Babin et al., 1998; Jang
and Namkung, 2009). Based on these previous studies, the current research adopts the
discrete emotion approach for measuring customers emotional responses.

The influence
of service
environments

3. Psychological climate refers to an individuals perception of the environment (Dickson et al.,

2006). The concept of climate: permits investigation into complex social situations such as
service environments; simplifies the problem of measuring situational determinants by
allowing individuals to consider more integrated chunks of their experience; and serves as
a medium through which individuals interpret and understand their environment (Evans
et al., 2007). Therefore, we define customer climate as a customers perception of the social
environment that is shared with other customers.

365

4. Brady and Cronin (2001) used only the perceptions of other customers as a social factor,
excluding the role of service employees. To fit our definition of social environment, we
re-termed perceptions of other customers as customer climate which was explained in
footnote 2.
5. As mentioned previously, Jang and Namkung (2009) and Yoo et al. (1998) have suggested
that the unipolar view is more appropriate in understanding consumption emotion. The M-R
scale offers a bipolar framework for emotional responses to environmental stimuli, that
cannot not adequately characterize the nature and range of emotional experiences
encountered in service consumption (Richins, 1997; Yoo et al., 1998). The unipolar view for
investigating service experiences appears more suitable because the bipolar
conceptualization allows for ambivalence of the joint occurrence of pleasant and
unpleasant states as well as indifference or the occurrence of neither pleasant nor
unpleasant states (Jang and Namkung, 2009). Babin et al. (1998) also suggested that, despite
its convenience, the bipolar view was inadequate for capturing consumer emotions.
Therefore, this research adopted a unipolar (discrete emotion) approach to measure
consumers emotional responses instead of Mehrabian and Russells (1974) bipolar
pleasure-arousal approach. The discrete emotion approach regards all human emotions as
originating from several basic emotions. More complex emotions are the result of a mixture
or interaction of the basic emotions (Jang and Namkung, 2009). Therefore, a customer
emotion scale with four basic items adopted from Hennig-Thurau et al. (2006) was used for
this study.

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Appendix. The measures
Employee displayed emotion
EDE1:

Greeting.

EDE2:

Speaking in a rhythmic vocal tone.

EDE3:

Smiling.

EDE4:

Making eye contact.

EDE5:

Thanking.

EDE6:

Talking actively.

Customer climate
CC1:

I find that this companys other customers leave me with a good impression of its
service.

CC2:

This companys other customers do not affect its ability to provide me with good
service.

CC3:

This company understands that other customers affect my perception of its service.

Ambient factor
AF1:

Pleasant air quality.

AF2:

Comfortable lighting.

AF3:

Pleasant music.

AF4:

Pleasant odors.

Design factor
DF1: Organized layout.
DF2: Attractive facilities.
DF3: Pleasing color scheme.

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Customer emotion
CE1:

Elated.

CE2:

Peppy.

CE3:

Enthusiastic.

CE4:

Excited.

Customer satisfaction
SAT1:

Overall, I am satisfied with this company.

SAT2:

I think I did the right thing to visit this company.

SAT3:

Overall, I am happy with this company.

Behavioral intention
BI1:

I will say positive things about this company.

BI2:

I will recommend this company to other consumers.

BI3:

I will remain loyal to this company.

BI4:

I will spend more with this company.

About the authors

Jiun-Sheng Chris Lin is an Associate Professor of Marketing at National Taiwan University. He
received his PhD from Robert H. Smith School of Business, University of Maryland at College
Park. His research interests focus on service quality measurement, customer-employee
interactions, customer perceptions of various service encounters and marketing channel
relationships. His research has appeared in various journals such as Journal of Retailing, Journal
of Service Management, Journal of Business & Industrial Marketing, and Supply Chain
Management. Jiun-Sheng Chris Lin is the corresponding author and can be contacted at:
jlin@management.ntu.edu.tw
Haw-Yi Liang received her MBA from National Taiwan University. Her research interests
include consumers emotional responses to service encounters.

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