Does Employee Performance Affect Customer Loyalty in

Pharmacy Services?
Abstract
Purpose Employees in community pharmacies play a far significant and distinct role compared
to the employees in traditional retail stores. This paper examines the effects of employee
performance on customer loyalty of pharmacy services.
Design/methodology/approach Data were collected through a self-administered survey filled in
by the customers of 25 community pharmacies. A total of 679 completely filled-in questionnaires
were analysed. The proposed model was tested through structural equation modelling using
AMOS 22.
Findings Employee performance positively affects pharmacy customers perceived value, trust
and loyalty. Perceived value and trust fully mediates the relationships between employee
performance and customers attitudinal and behavioural loyalty. Unlike short term customers, the
long term relational customers perceived value was found to have significant impact on their trust
and behavioural loyalty.
Research limitations This study is based on the Australian community pharmacy industries;
hence, caution must be exercised in the generalization of the results to other countries. The study
has considered only perceived value and trust in examining the link between the employee
performance and customer loyalty. Other variables such as commitment could possibly influence
the link, which has not been considered in this study.
Originality/value The study contributes to the existing literature by focusing on how employee
performance influences both attitudinal and behavioural loyalty of pharmacy customers. It shows
empirical evidence that employee performance influences customers perceived value and trust enroute to influencing their loyalty. The study measures employee performance based on both
empathy and service provider performance covering a broader spectrum of the construct.
Keywords Employee performance, loyalty, perceived value, trust, and community pharmacy
Paper type - Research paper

Does Employee Performance Affect Customer Loyalty in

Pharmacy Services?
Introduction
Employee performance is an essential part of customers assessment of service quality and their
relationship with service provider (Bitner, 1990; Gwinner, Gremler, and Bitner, 1998; HennigThurau, 2006). Examining

employee attitudes and behaviours remains an important topic of

study for retail scholars and store managers (Berry, Wall, and Carbone, 2006; Netemeyer et al.,
2010). A rich body of literature emphasizes on the quality of the interaction between employees
and customers, which is a key determinant of customer outcome (Bitner, Booms, and Tetreault,
1990; Heskett, Sasser, and Schlesinger, 1997). Thus, service employees play a pivotal role in
creating and delivering high quality service for an organization (Liao and Chuang, 2004); and
thus, ensure customer satisfaction (Evanschitzky, Sharma and Prykop, 2012).
Most of the research on the effects of employee performance on customer loyalty has essentially
focused on retailing in general. However, there are retailing contexts such as community
pharmacies where employees play a far significant and distinct role compared to the employees in
traditional retail contexts. Yet, there is a dearth of research that examines the effects of employee
performance on customer loyalty in context of community pharmacies. The need for examining
the effects of employee performance on customer loyalty in community pharmacies emanates
from the fact that community pharmacies play a dual role as a retail business as well as a health
care provider (White and Klinner, 2011). The employees of the community pharmacies carry out
their responsibilities in a polychromic environment due to varied, extremely harried, and
demanding nature of the retail store (Arndt, Arnold and Landry, 2006). Pharmacy consumers place
a high value on close patient-pharmacist relationships and demand availability of the pharmacist
for advice (Xu, 2002; Larson, 1998). Evidence also indicates that pharmacy customers want their
pharmacists to be more involved in advising about complementary medicines such as vitamins,
other supplements, etc. (Offord, 2013).
2

In addition, community pharmacies are facing hyper-competition worldwide due to the entry of
new competitors (Brooks, Klepser, Urmie, Farris and Doucette, 2007). In Australia, the situation is
critical due to the growing dominance of discount pharmacies in the market (Singleton and Nissen,
2014). Focusing on just selling medicine by playing the role of medicine dispenser is not
sustainable any more (Shuai et al., 2012). Traditional community pharmacies are losing their
market share as they do not have adequate economies of scale to compete with the discount
pharmacies based on price. Besides, the introduction of the Expanded and Accelerated Price
Disclosure mechanism and subsequent price reduction in many prescription drugs contributed to a
decline in the profit of the Australian community pharmacies (Thurecht, 2012; Singleton and
Nissen, 2014). Moreover, consumers are less willing to pay extra dollars for additional benefits
such as service and professional advice. This is because, pharmacy consumers are often served by
pharmacy assistants who are either not trained or if they are, often they do not ask the appropriate
personalized questions to the customers (Singleton, 2013).
Despite the above facts, there is limited research on the customer/patient perspective of the
Australian pharmacy services (White and Klinner, 2012; McMillan et al., 2013). Ensuring a
patient (i.e. customer) centred care in community pharmacies contribute to its customer outcome
(McMillan et al., 2013). Pharmacy employees can play the pivotal role in rendering such customer
centric care on behalf of the community pharmacies. Thus, the key purpose of this study is to
focus on the effects of employee performance of the community pharmacies on customer loyalty.
In doing so, we also focus on customers perceived value and trust and show how employee
performance influence customers perceived value and trust en-route to loyalty. Services provided
by the community pharmacies are directed towards enhancing customers perceived value
(Hamilton 2009). A front line employee is expected to contribute to customers perceived value
and should act in a way that builds trust when interacting with customers (Hochshild, 1983; Sing,
2000). In the context of community pharmacies, offering professional services do not guarantee

customer loyalty; rather, patients trust needs to be developed through employee sincerity and
competence (Singleton, 2013).
This study contributes to the existing relationship marketing and loyalty literature in the following
ways: first, it focuses on the influence of employee performance on both the attitudinal and
behavioural loyalty of pharmacy customers. Second, it provides empirical evidence that perceived
value and trust mediates the relationship between employee performance and customer loyalty
(both attitudinal and behavioural) in pharmacy context. Finally, unlike existing literature, this
research measures employee performance through a composite measure including both empathy
and service provider performance covering a broader spectrum of the construct. The following
sections of the paper are organized as follows: first, we discuss the relevant literature and generate
hypotheses; second, we elaborate the data collection method; third, we discuss the data analysis
and results followed by the discussion of the results, implications and future research directions.
Literature and Hypotheses
Community pharmacy in Australia includes about 5000 community pharmacies (Hamilton, 2009)
representing about $12.3 billion of the health care industry with about 50,000 employees (The
Pharmacy Guild of Australia, 2008; Kotey et al., 2011). Traditionally, community pharmacies have
been regarded by the consumers delivering unquestioned services. However, the situation has
become more critical in recent times due to increasingly informed consumers (White and Klinner,
2011), effects of Government regulations and emergence of the discount pharmacies in the
industry (Singleton and Nissen, 2014). Community pharmacies have lost their pricing power and
competitive position due to lack of indistinguishable services in compare to discount pharmacies
and super markets (Singleton, 2013). Consumers usually look for best value for money and they
no longer are willing to pay more for the same product and indistinguishable services. This has
contributed further to the erosion of the community pharmacies competitiveness (Villako and
Raal, 2007). The role of the employees can become really vital for the success of the community
4

pharmacies as effective employee performance can help the community pharmacies differentiating
their service from the discount pharmacies and the supermarkets.
Research relating to the employee performance in service industries primarily focused on the
effects of empathetic and caring behaviour of employees (Gorry and Westbrook, 2011; Tax, Brown
and Chandrashekharan, 1998; Wieseke et al., 2012), customer-employee rapport (Biedenbach et al.
2011), employee-customer relationship (Gremler, Gwinner and Brown, 2001; Wang and Groth,
2014) and creating a service climate (Salanova, Agut and Peiro, 2005) on achieving customer
loyalty, customer satisfaction (Evanchitzky, Sharma and Prykop, 2012), and customer
organizational citizenship behaviour (Bove et al., 2009). Singh (2000) offered a conceptual
distinction between frontline employees productivity and quality and focused on their antecedents
and consequences from employee view point (employee commitment and turnover intent as the
outcome variables). In addition, a wide body of service recovery literature emphasized on
courteous and apologetic behaviour of service employees that were found to be a successful
strategies to gain customer loyalty following a service failure (e.g. Liao, 2007). However, there is
a lack of literature focusing on whether and how employee performance contributes to achieving
customer loyalty in context of community pharmacies. Next, we discuss the theoretical aspect of
different constructs used in the study such as employee performance, perceived value, trust and
loyalty.
Employee Performance
Employee performance refers to employee activities and behaviours that are relevant to
organizational goals and that are under the control of individual employees (Campbell, McCloy,
Oppler, and Sager, 1993). In case of service settings, customers opinion is an important factor
about how employee performance is defined (Bowen and Waldman, 1999; Liao and Chuang,
2004). Customers perception of service quality of a firm largely depends on employee activities
and behaviour. Considering customers expectation as the key basis of the employee performance
5

standards encourages employees' engagement in behaviours that are particularly functional in

achieving desirable customer outcomes (Bowen and Waldman, 1999; Liao and Chuang, 2004). We
focus on quality of employee performance of the community pharmacies. Unlike other service
organizations, the pharmacist often work as frontline employees and their role is very critical and
delicate due to nature of their job and customer demand. Hence their performance quality is a
major issue of concern for the customer response in terms of their trust and loyalty.
The performance quality is concerned with how the service is delivered (Sing, 2000). The desired
performance quality from the employees of a community pharmacy demands for both functional
and emotional dimensions, whereby employees render expert health consultation as well as
express socially desirable emotions during service transactions that follow some display rules
mandated by the organization (Ashforth and Humphrey, 1993). They are expected to express
positive and behave in such a way that build trust, demonstrate reliability and also give a sense of
personal attention (Hochschild, 1983).
Perceived Value
Perceived value refers to the consumers overall assessment of the benefits of a product based on
perceptions about what is received and what is given up (Zeithaml, 1988). Customers obtain
perceived value from the trade-off between what they receive and what they give in return
(Zithaml, 1988). Perceived value is relative to competition, i.e. offering better value than
competitors will help a company to create competitive advantage (Eggert and Ulaga, 2002).
Consumers who receive value for money tend to report higher levels of satisfaction than those
who did not (McDougall and Levesque, 2000). Customer value is the fundamental basis for any
marketing strategy (Holbrook, 1994). High value is a primary motivation for customer patronage
(Yang and Peterson, 2004).

In pharmacy context, customer receives value not only from the goods that they buy from the
pharmacy but also from the counselling service and professional advice that they receive from the
pharmacist. Kamei et al. (2000) mentioned that attitude and behaviour of the pharmacist is one of
the most important factors that influence selection of a pharmacy. Customers often prefer to
purchase prescriptions in pharmacies where they receive more drug information (Whitehead et al.,
1999). In particular elderly consumers place a high value on close patient-pharmacist relationships
in case of community pharmacies (Xu, 2002). Hence we hypothesize that
H1: Employee performance influences consumers perceive value positively.
Trust
Trust is the confidence one party (the consumer) has in the exchange partners (the firms)
reliability and integrity (Morgan and Hunt, 1994). It is the willingness of a party (consumer) to be
vulnerable to the actions of another party (the firm) based on the expectation that the trustee will
perform a particular action important to the consumer (Mayer et al., 1995). For trust to exist,
consumers must believe that the seller has both the ability and the motivation to reliably deliver
goods and services of the quality expected by the consumer (Jarvenpaa et al., 2000). Trust has
been described as a construct comprising of two different dimensions cognitive and affective
(Johnson and Grayson, 2005). Cognitive trust possesses a rational view that can be described as
the willingness of the partner to rely on service providers competence and reliability; on the other
hand, affective trust holds emotional view described as the perception about partners actions that
intrinsically motivate the other to stay in relationship (cf. Ramaseshan et al., 2012).
We consider that trust in pharmacy context involves both cognitive and affective dimension.
Consumer trust plays a significant role as the pharmacies requires developing patients (i.e.
customers) trust through sincerity and competence (Singleton, 2013) so that the patients can
depend on the pharmacists advice, feel enticed and confident to visit in future. Two notable
factors that influence customer perception of good service quality of a community pharmacy is
7

whether the medicines being dispensed accurately (Tam and Lim, 1997) and whether the
customers receive useful advice from the pharmacist (Offord, 2013). Both of these factors relate to
operational aspect of a community pharmacy, which effectiveness largely depends of the
performance of the employees of the community pharmacy. Hence, we hypothesize that
H2: Employee performance influences customer trust positively.
Customers perceived value is the fundamental basis for all marketing activity (Holbrook, 1994,
p. 22). Customers perceived high value is one primary motivation for customer patronage (Yang
and Peterson, 2004). Existing research found a strong and consistent relationship between
perceived value and purchase intention (Grewal et al., 1998; Chen et al., 1998; Dodds et al., 1991;
Persaud and Azhar, 2012). Again, trust creates an exchange relationship that is perceived valued
by the partners (Morgan and Hunt, 1994) and involves an inference regarding the benevolence of
the firm to act in the best interest of the customers (Doney and Cannon, 1997). Moorman, Zaltman
and Deshpande (1992) argued that trust leads to commitment of partners in an exchange
relationship. Hence, we hypothesize that H3: Perceived value influences customer trust positively.
Loyalty
Loyalty refers to a favourable perception and/or a biased behavioural response (i.e. revisit) of the
customers expressed over time with respect to a particular store, which is a function of cognitive,
and affective process (Dick and Basu, 1998; Bloemer and Ruyter, 1998). It is a deeply held
commitment to re-patronise a preferred store (Oliver, 1999). Increased store loyalty has numerous
positive effects including positive word-of-mouth and increased customer retention (Rabbanee et
al., 2012). Loyal customers tend to pay less attention to competing brands and advertising, are less
price sensitive and create positive word-of-mouth (WOM) (Desai and Mahajan, 1998). Dick and
Basu (1994) pointed out two key dimensions of loyalty attitudinal and behavioural. Attitudinal
loyalty stems from the consumers favourable perception about the product or store; whereas,
8

behavioural loyalty focuses on actual favourable behaviour of the consumers such as actual wordof-mouth (Ramasehsan et al., 2013). Many researchers (e.g. Ehrenberg, 2000; Ehrenberg et al.,
1990; Kahn et al., 1986; Sharp et al., 2002) suggested that attitude is not relevant to determine
loyalty rather repeat purchase capture the loyalty of consumers. On the contrary, many other
researchers (Day, 1969, Dick and Basu, 1994; Rundle-Thiele, 2005) felt the necessity of including
attitude to define loyalty considering that it is a psychological decision making process that
results in a biased response. We take both the view points and argue that in community pharmacy
context research should take both attitudinal and behavioural aspect of loyalty into account as
consumer involvement with pharmacy products and services is usually high and their loyalty is
likely to be the outcome of both cognitive and affective processes.
Existing research showed adequate evidence that perceived value is one of the key determinants of
customer loyalty (Bolton and Drew, 1991; Salegna and Goodwin, 2005; Rabbanee et al., 2012).
Higher perceived value is a primary motivation for customer patronage (Young and Peterson
2004). Parasuraman and Grewal (2000) argued that one of the most effective means of generating
customer loyalty is to deliver superior value derived from excellent services and quality products.
Customer value leads to their behavioural intentions toward the service provider as long as such
relational exchanges provide superior value (Sirdeshmukh et al., 2002).
H4: Perceived value positively influences customers attitudinal loyalty.
H5: Perceived value positively influences customers behavioural loyalty.
Understanding the nature of trust and its contribution to obtaining loyalty are of particular interest
to managers in order to grasp the phenomenon of how commercial relationships are developed and
managed (Rauyruen et al., 2009). Existing research (e.g. Singh and Sirdeshmukh, 2000;
Ramaseshan et al., 2013) support a positive effect of trust on customer loyalty. Trust induces
customers repeat purchases based on the evidence of reliability of the firm in delivering expected
value over time (Sirdeshmukh et al., 2002). Hence,
9

H6: Trust positively influences customers attitudinal loyalty.

H7: Trust positively influences customers behavioural loyalty.
Researchers (Day, 1969, Dick and Basu, 1994; Rundle-Thiele, 2005) opined that as loyalty is a
biased response and is the outcome of psychological process (decision making and evaluative
process), attitude should precede the behavioural response. Bandyopadhyay and Martell (2007)
found empirical evidence in case of consumer goods (toothpaste) that consumers attitudinal
loyalty has positive impact on their behavioural loyalty. Hence, we hypothesize that
H8: Attitudinal loyalty has positive influence on behavioural loyalty.
The model depicting the hypothesized relationships discussed above is presented in Figure 1. Our
study empirically tests the model on the role of employee performances on perceived value and
customer trust en-route to the attitudinal and behavioural loyalty.
Figure 1: Conceptual Framework

Methodology
In order to conduct this research, the researchers collaborated with a leading community pharmacy
chain (franchisor), which has 26 franchisee in Western Australia. The data were collected through
self-administered survey using a structured questionnaire. Each of the 26 franchisee community
pharmacies received 40 questionnaires with paid return envelopes. The community pharmacies
10

were requested to approach their customers to fill in the questionnaires and return it to the counter.
The data collection was taken place over a period of two weeks. A total of 679 filled in
questionnaire were received from 25 participating franchisee pharmacies. 43.7 percent of the
respondents were more than 55 years old. 47 percent of the respondents had been as a customer of
the community pharmacy for more than 5 years and 21.5 percent of the respondents had been with
the pharmacy from 3 to 5 years.

The survey questionnaire consists of two sections: the first section includes measuring items of the
constructs and the other section includes the demographic characteristics of the respondents. The
constructs used in the study were measured using established scales after minor changes for
contextual adjustments. Such minor changes in the scale items for contextual adjustments are
widely practised in the marketing literature (see, Vogel, Evanchitzky, and Ramaseshan, 2008;
Ramaseshan, Ishak and Rabbanee, 2013). Perceived value (PV) was measured through a 5 item
scale developed by Yang and Peterson (2004). Following Salanova, Agut and Peiro (2005), we
measured employee performance (EP) based on two aspects empathy and service provider
performance using a composite of five items. The items for empathy and service provider
performance were adapted from Parasuraman, Zeithaml and Berry (1988) and Price, Arnould, and
Tierney (1995) respectively. The items for measuring trust were taken from Hess (1995), which
was used by Harris and Goode (2004). The items for attitudinal loyalty (AL) were adapted from
Beatty and Kahle (1988), which was used by Yoo et al. (2000). Behavioural loyalty (BL) was
measured in terms of word-of-mouth behaviour and was measured using a three item scale
developed by Maxham III and Netemeyer (2002). All the scale items were anchored in 7 point
likert scale.

All the constructs used in the study were assessed for their reliability and validity (Anderson and
Gerbing, 1982). We followed the two-step approach to structural equation modelling (Gerbing and
Anderson, 1988) a measurement model to assess the convergent and discriminant validity prior
11

to estimating the path relationship from a structural model and a confirmatory factors analysis
(using AMOS version 22.0). We tested the convergent validity of the constructs by checking the
substantial factor loading of all items (Hair, Anderson, Tatham, and Black, 1995; Raimondo,
Miceli, and Costabile, 2008) which significantly (at the .01 level) loaded onto the expected latent
construct. The values of Cronhachs alpha and composite reliability (see, Table 1) for all the
construct are above the required threshold level (0.7) suggesting adequate internal consistency of
the scale items used in the study. Further, the average variance extracted (AVE) for all the
constructs used in the study are greater than 0.50 (see, Table 1), which also supported convergent
validity of the constructs (Fornell and Larcker, 1981). The correlation values between the
constructs were within the acceptable limit that supported discriminant validity of the constructs
(Kline, 2005). In addition, the goodness of fit measures for the measurement model show a good
fit (2 = 458.30; df = 154; RMSEA = 0.054; CFI = 0.97; NFI = 0.96; TLI = 0.97), showing that the
constructs in the model were different from each other (Garson, 2011).
The cover letter of the questionnaire assured respondents anonymity and requested for their
honest responses, which reduced respondents evaluation apprehension and thus controlled
possible sources of common method bias (Podsakoff, Mackenzie, Lee, and Podsakoff, 2003).
Also, based on Harmans single-factor test (Podsakoff et al., 2003), the un-rotated factor solution
was run for all the items used in the study. This generated more than a single-factor suggesting that
common method bias is not an issue in this study. Although it is difficult to identify the exact
source(s) of the method bias, these procedural remedies help minimize the common method bias
in this study (Sharma, 2011; Ramaseshan et al., 2013).

Table 1: Descriptive statistics, and factor loading of the scale items

Scale Items

Factor
Loading

Mean

SD

12

Employee Performance ( = 0.91; AVE = 0.72;CR = 0.95)

EP1

0.85

6.47

0.87

0.80

6.26

1.01

EP3

Employees of this store understand specific needs of

customers.
Employees are able to put themselves in the customers
place.
Employees are able to tune in to each specific customer.

0.84

6.27

0.99

EP4

Employees surprise customers with their excellent service.

0.92

6.16

1.10

EP5

Employees deliver an excellent service quality that is difficult

to find in other organizations.
Perceived Value ( = 0.90; AVE = 0.60; CR = 0.94)

0.80

6.26

0.94

PV1

Compared to alternative stores, this store offers attractive

prices for their product and services.
Compared to alternative stores, this store charges me fairly
for similar products/services.
Compared to alternative stores, this store provides me more
free services.
Comparing what I pay to what I might get from other
competitor stores, I think the company provided me with
good value.
Comparing what I pay to what I might get from other
competitor stores, I think this store will provide me good
value in future.
Trust ( = 0.88; AVE = 0.78; CR = 0.95)

0.77

3.10

1.70

0.74

5.62

1.21

0.64

5.74

1.21

0.93

5.75

1.29

5.85

1.15

5.95

1.12

0.79
0.78

5.94
5.99

1.25
1.05

0.93
0.91

6.33
6.29

0.86
0.91

EP2

PV2
PV3
PV4
PV5

Tr1
Tr2
Tr3
Tr4

There are no limits to how far this store will go to solve a

service problem I may have.
If this store makes a claim or promise about goods/services
its probably true.
In my experience, this store is very reliable.
I feel I know what to expect from this store.

0.92

Attitudinal Loyalty ( = 0.87; AVE = 0.83; CR = 0.93)

Al1
Al2
Al3

I consider myself to be loyal to this store.

This store is my first choice.
I will not buy from other stores if I find my products in this
store.
Behavioural Loyalty ( = 0.94; AVE= 0.90; CR = 0.96)

0.95
0.90
0.70

6.11
6.12
5.68

1.20
1.21
1.47

Bl1
Bl2
Bl3

I spread positive word-of-mouth about this store.

I recommend this store to my friends.
If my friends are looking for a pharmacy store, I tell them to
try this store.

0.91
0.90
0.93

5.96
5.87
6.02

1.17
1.17
1.16

Data Analysis and Results

13

The hypotheses were tested for the structural path relationships using AMOS 22. The fit indices of
the structural model showed excellent fit with the data (2 = 484.01; df = 158; RMSEA = 0.055;
CFI = 0.97; NFI = 0.96; TLI = 0.96). The structural path relationships and the corresponding
coefficients are shown in Table 2 and Figure 2. All the hypotheses are supported with p - value
less than 0.05. The standardized coefficients of the links between EP and PV; EP and Trust; PV
and Trust; PV and AL; PV and BL; Trust and AL; Trust and BL; and AL and BL are 0.67; 0.73;
0.15; 0.26; 0.12; 0.63; 0.23; and 0.58 respectively. Hence, employee performance positively
influence consumers perceive value and trust on the community pharmacy which ultimately leads
to consumers attitudinal and behavioural loyalty.
Table 2: Standardized coefficients, t-values, and p-values of the structural model.
H1:
H2:
H3:
H4:
H5:
H6:
H7:
H8:

Hypotheses
EP => PV
EP => Trust
PV => Trust
PV => AL
PV => BL
Trust => AL
Trust => BL
AL=> BL

0.67
0.73
0.15
0.26
0.12
0.63
0.23
0.58

t-value
17.06
15.36
4.14
7.29
3.59
14.93
5.18
12.32

P-value
0.001
0.001
0.001
0.001
0.001
0.001
0.001
0.001

Conclusion
H1 supported
H2 supported
H3 supported
H4 supported
H5 supported
H6 supported
H7 supported
H8 supported

14

Figure 2: Structural path relationships

We tested the mediating role of PV and trust on relationship between EP and AL; and, EP and BL.
Following Reimann et al. (2010), the mediation was examined based on both direct and indirect
effects from the EP to AL and EP to BL via PV and Trust. The direct effects of EP on AL and EP
on BL was found to be insignificant; whereas the indirect effects of EP on AL ( = 0.69; t = 23.06)
and EP on BL ( = 0.66; t = 20.90) was found to be significant. Hence, the links between EP to AL
and EP to BL is fully mediated by PV and trust. Further, we also examined the mediating role of
PV on the links from EP to trust; and, mediating role of trust on the links from PV to AL and BL in
the same way. The indirect links from EP to trust via PV is found to be significant ( = 0.09; t =
3.3). The direct link between EP to trust is significant. Hence, PV partially mediates the
relationship between EP and trust. The indirect effects of PV on AL ( = 0.09; t = 3.32) and BL (
= 0.24; t = 5.48) via trust was found to be significant. The direct links between PV to AL and PV
to BL is significant. Hence, trust partially mediates the links between PV to AL and PV to BL.
We further examined whether duration of relationship (i.e. duration of stay as customer) moderates
any of the path relationships shown in Figure 1. For this purpose, we ran a multi-group analysis
(using AMOS 22) based on two groups short relationship (taking the respondents who had been
with the pharmacy less or equal to three years) and long duration (taking the respondents who had
been with the pharmacy more than or equal to five years). We followed the procedure of running
15

multi-group analysis adopted by Walsh et al. (2008). We compared the Chi-square values and
degree of freedom of fully constrained (FC) model (by restricting all the paths of the model) and
totally free (TF) model (without restricting any of the paths of the model). The fit indices of the
TF model was found to be satisfactory with 2 = 741.55, df = 316, 2/df = 2.34, RMSEA = 0.046,
CFI = 0.96, TLI = 0.95 and NFI = 0.93. The fit indices of the FC model was found to be
satisfactory with 2 = 796.38, df = 341, 2/df = 2.33, RMSEA = 0.046, CFI = 0.96, TLI = 0.95 and
NFI = 0.93. The Chi-Square and degrees of freedom difference between the constrained and
unconstrained model is: 2 = 54.83 (796.38 741.55); df = 25 (341-316) and the corresponding
p-value is <0.05. Hence, it is evident that consumers responses towards their pharmacy store
differ significantly based on the duration of stay. Now we checked the path relationships of the
model for both the short duration customers as well as the long duration customers. The
comparative structural path relationships are shown in the Table 3.
Table 3: Comparative structural path relationships based on duration of relationship

Hypotheses
EP => PV
EP => Trust
PV => Trust
PV => AL
PV => BL
Trust => AL
Trust => BL
AL => BL

0.63
0.72
0.13
0.32
0.03
0.56
0.29
0.62

Short Duration
t-value
P-value
8.44
0.001
7.24
0.001
1.78
0.075
4.64
0.001
0.57
0.569
6.78
0.001
3.79
0.001
7.57
0.001

Long Duration

t-value
P-value
0.67
13.82
0.001
0.74
12.68
0.001
0.14
3.23
0.001
0.23
5.46
0.001
0.18
4.29
0.001
0.65
12.67
0.001
0.16
2.90
0.004
0.57
9.74
0.001

Table 3 shows that the links from perceived value to trust and behavioural loyalty is insignificant
for consumers having short term duration of relationship with their community pharmacies;
whereas, these two links are found to be significant in case of consumers with long term duration
of relationship. The rest of the links between the constructs of the model are found to be
significant for both the groups; although the strengths of the links vary between the two groups.

16

This clearly shows that relationship duration affects the relationships among the constructs of our
interest.
Discussion
The key purpose of this research is to investigate the effects of employee performance on
customer loyalty in pharmacy services. The paper also focuses on how employee performance
affects pharmacy customers perceive value and trust en-route to their attitudinal and behavioural
loyalty. The results show that employee performance positively influences perceived value and
trust. The study revealed that the effects of the employee performance on attitudinal and
behavioural loyalty are mediated by perceived value and trust. Employee performance was also
found to have both direct and indirect (mediated by perceived value) impact on trust. Trust is
found to partially mediate the links of perceived value to attitudinal loyalty and perceived value to
behavioural loyalty. Besides, attitudinal loyalty is found to influence customers behavioural
loyalty. The study further revealed that the duration of relationship has moderating impact on the
relationships among constructs of our interest.

The key finding of the study that employee performance influences customer loyalty is in line with
the findings of Salanova et al. (2005), Liao and Chuang (2004) and Bitner et al. (1990), who
observed that employee performance or the quality of interaction between employees and
customers influences key customer outcomes such as customer loyalty. While past research
focused mainly on hotel and restaurant context and measured loyalty primarily through attitudinal
items (e.g. Salanova et al., 2005; Liao and Chuang, 2004; Bitner et al., 1990); our studys focus is
on pharmacy services and considers both attitudinal and behavioral aspect of customer loyalty.
Although Lee et al. (2012) examined the link between employee reaction and customer loyalty in
hospital context; their study also focused only on the attitudinal aspects of customer loyalty.

17

Further, our study found that employee performance affects all the three customer outcomes viz.
perceived value, trust and loyalty.

The findings that the effects of employee performance on customer trust and loyalty are somewhat
consistent with Liao (2007) who found that employee performance positively influence customer
satisfaction and repurchase intention. The findings that perceived value and trust mediates the
relationship between employee performance and loyalty is consistent with previous studies such as
such as Sirdeshmukh et al. (2002). Ramaseshan et al. (2013) also found evidence that trust
mediates the relationship between company efforts and customer loyalty. Therefore, a high-quality
performance of the frontline employees contributes to customer loyalty. The finding that
attitudinal loyalty positively influences customers behavioural loyalty is somewhat consistent
with Huang et al. (2014), who showed empirical evidence that customers attitudinal attachment
positively influence their behavioural loyalty. The moderating effects of duration relationship
connotes that the respondents of the two groups (customers with short duration of relationships vs.
customers with long duration of relationship) differ from each other in terms of the strength of
relationships among the constructs of our interest. This finding is consistent with the findings of
Tsai, Yang and Cheng (2014), who found that the type and nature of relationship that customer
have with their service provider affects their intensity of satisfaction with the service provider. The
strength of the effects of employee performance on perceived value and trust were found
significant for both the groups, which reinforces our findings about the significant effects of
employee performance on perceived value and trust both in case of short and long duration of
relationships. Perceived value was found to have non-significant effects on trust and behavioural
loyalty in case of customers having short duration of relationships with their community
pharmacy, but not in case of the customers having long duration of relationship. Therefore,
although customers with short duration of relationships perceive value from employee
performance; such perceived value neither contributes to trust nor to behavioural loyalty.
18

Customers with short duration of relationships are likely to put more emphasis on perceiving value
through other sources (such as discounted price) than employee performances. Hence, they are
less likely to trust the pharmacy and become behaviourally loyal.

Implications
This research extends existing relationship marketing theory and loyalty literature by focusing on
how employee performance influences both attitudinal and behavioural loyalty of pharmacy
customers through the mediating effects of perceived value and trust. The study is also unique in
nature as it applies current relationship marketing theory and loyalty literature in the context of
pharmacy services. As pointed out earlier, pharmacy stores are distinct from other regular stores
and play the role of both a retail store as well as a health care provider. This in essence raises
consumer expectations and makes the consumers to be far more demanding. Also, consumers have
wide choices with regards to which pharmacy store to patronize; especially with the emergence of
discount pharmacies is posing a serious threat to the community pharmacies. On top of this, recent
research shows that customers are less likely to pay additional dollars to their community
pharmacies as they often face lack of personalized behaviour of the community pharmacies
(Singleton, 2013). This shows that pharmacies cannot afford to take consumer loyalty for granted.
Rather, gaining customer trust and loyalty is possible through high quality of service and
employees' personal relationships with customers. These to a great extent depend on the
performance of the employees of the pharmacy stores (including the pharmacists) and on meeting
consumer expectations of receiving desired value from their services. Also, all employees in a
pharmacy may not necessarily be able to develop personal relationships with customers and meet
consumer expectations of service quality without having appropriate skills, knowledge and
motivation. Hence, this research emphasizes on employee performance in attaining trust and
loyalty of pharmacy customers. In doing so, unlike past research, this study measures employee
performance based on both empathy and service provider performance covering a broader
19

spectrum of the construct, which is a significant methodological contribution.

The findings of the study have several managerial implications. Our findings that employee
performance influence pharmacy customers perceived value, trust and loyalty emphasize that
owners/managers of the community pharmacies should invest on employee training. Unlike in the
general retailing contexts, customers of community pharmacies share sensitive, emotional
personal information with the front line employees and expect expert advices as well as
empathetic responses. They are likely to re-visit pharmacy store only if they find the employees of
the store trustworthy and can rely on their expertise. Hence, effective employee training on
improving employees interpersonal competences, skills in empathy, customer service capabilities,
problem solving skills, product knowledge and perspective taking skills help employees attain
customer trust and loyalty (Liao, 2007; Liao and Chuang, 2004). Serving customers with empathy
and smile has been found to be an effective way to offer better service experience (Kim and Yoon,
2012; Pugh, 2001) leading to attaining their loyalty. Also, such employee training is imperative for
community pharmacies due to the threats posed by the discount pharmacies. As community
pharmacies are losing market share to the discount pharmacies due to lack of adequate economies
of scale and price competition (Singleton and Nissen, 2014); investing on employee training could
be an effective strategy in order to ensure high quality employee performance and thus create a
sustainable differentiation with the discount pharmacies. This will also contribute to the long term
competitiveness of the community pharmacies as such strategy is not imitable. Besides, as this
study suggests, the carryover effect of employee performance is likely to engender customer
perceived value, trust and loyalty.

The findings that perceived value and trust fully mediates the relationships between employee
performance and loyalty suggest that pharmacy owners/managers should not overlook the role of
offering value and gain trust if they wish to attain customer loyalty. Hence, the pharmacies should
20

focus on other ways (other than the employee performance) of offering perceived value and
gaining customer trust. For example, pharmacy owners/managers may consider focusing on
availability of merchandises and informing the local customers about the key features or values of
their products/services in order to offer perceived value and retain the customers (Rabbanee et al.
2012). Again pharmacy owners/managers may consider focusing on communication (Ndubisi et
al., 2007), service quality and satisfaction (Caceres and Paparoidamis, 2007) in order to attain
customer trust. In addition, our findings that duration of relationship moderates the path
relationships of our structural model suggest that community pharmacies should not treat all
customers as homogenous. Rather, the long term customers should be treated in a personalized
way as they perceive value from the employee performances, which leads to customer trust and
behavioural loyalty. For the short duration customers, although the links of perceived value to trust
and behavioural loyalty are found insignificant, yet pharmacy owners/managers should try to
retain them for longer period of time by focusing on different ways to offer better perceived value.

In summary, implementation of professional services through trained employees (including the

pharmacists) will enable the community pharmacies providing valuable add-on services with
personalized touch by treating customers different based on their length of relationships. Such
strategy will ensure distinct differentiation for the community pharmacies compared to the
discount pharmacies and super markets; and thus, will contribute enhancing their competitive
edge.
Limitations and Future Research Directions
The study has few limitations. The findings of the study are based on the Australian community
pharmacy industries. Although our model produced statistically acceptable and meaningful
findings, it limits the generalization of the results. Future research could, therefore, use different
industries and different cultural settings to validate the model further. While our model considers
21

employee performances, perceived value and trust as the antecedents of pharmacy customers
loyalty, there are other constructs such as service quality, commitment, etc., which are relevant but
are not considered in the model. Hence, future research could consider focusing on the effects of
employee performance on these relevant constructs. The study used self-reported data to measure
customers attitudinal and behavioural loyalty, which may lead to unavoidable response bias (even
though steps were taken to reduce such biases). Future research may focus on collecting actual
loyalty data from company sources. Our study considers word-of-mouth as a proxy to measure
customers behavioural loyalty. Future research may consider other measures of behavioural
loyalty such as actual referrals, cross selling and upselling numbers from actual company
database. Finally, we examined the moderating role of duration of relationship and found that the
effects of employee performance on perceived value, trust, and loyalty vary based on short vs long
duration of relationships that customers have with community pharmacies. Future research may
consider investigating the moderating effect of the demographic variable such as age on the
relationships among these constructs.

22

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