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Marta Dapena-Barón
A DISSERTATION
in
2013
Supervisor of Dissertation:
______________________________________
Dissertation Committee:
Matthew Riggan, Adjunct Assistant Professor of Education
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THE STRATEGIC LEARNING ORGANIZATION: CONNECTING COMPANY
COPYRIGHT
2013
Marta Dapena-Barón
ACKNOWLEDGEMENTS
Her genius and vision inspire me every day. Undoubtedly, this work would not be
without hers. Thank you also to my kids, Gus and Sofia, for your support and
guiding me in this tremendously fulfilling learning journey. Both are not just great
teachers, but like many great teachers, they are exemplar human beings who
conduct their lives with great self-discipline and grace, both are role models to
me professionally and personally. Thank you also to Joe Ryan for his insightful
thinking. I also want to thank Sue Johnson, Tonya Williams, and Barbara Ford for
their friendship and their kindness and for lending key resources that allowed me
iii
ABSTRACT
CUSTOMER LOYALTIES
Marta Dapena-Barón
Matthew Riggan
customer loyalty and organizational capability building through learning processes. The
overall objective of this work is to integrate the company core capability and customer
loyalty constructs. Following a mixed methods approach, this study first develops, tests,
depending on the type of relationship they hold with the firm. The research then uses
loyalty in the firm and how loyalty conceptualizations drive capability development. The
added value of the contribution to the fields of marketing and organizational learning lies
in the integrative nature of the research. Both customer loyalty and company core
capabilities have been addressed in previous research, but the learning linkages
between these two constructs have not been studied in detail before. By connecting
company core competence to customer loyalty, the work provides specific guidance to
managers who wish to more purposefully and effectively measure and impact the loyalty
mix of the brand and promote differentiated organizational learning. This research
develops and explains three core capability types and three customer-company
The Core Capability Literature: Capabilities as the Strategic Lens of the Firm ..........20
Quantitative Methods.....................................................................................................45
Involvement ..............................................................................................................79
v
Conclusions: Managerial Implications of the Tripartite Loyalty Scale ........................80
Introduction...............................................................................................................83
Teaching Customers...............................................................................................118
Enhancing the Product through customer data: service and product failures ..........121
Bibliography.................................................................................................................183
vii
LIST OF TABLES
Table 3.10 Jeans Linear Regression of Tripartite Loyalty against Loyalty Composite ....77
Table 3.11 Shampoo Linear Regression of Tripartite Loyalty against Loyalty Composite 78
Table 3.12 Drink Linear Regression of Tripartite Loyalty against Loyalty Composite .......78
Table 4.1 Functional Titles of the Interviewees at Kitchen Co. and Extrusion Co. ..........90
viii
LIST OF ILLUSTRATIONS
Figure 1.1 Overall Conceptual Framework: Core Capabilities and Loyalties ....................6
Figure 4.1 Overall Conceptual Framework: Core Capabilities and Loyalties ..................83
ix
Chapter 1
INTRODUCTION
The notion that customers are the central assets of the firm is often attributed
to the late management guru Peter Drucker (Drucker, 1954), and has been a
major force driving marketing academic and practitioner work over the last six
the forefront of the company‟s agenda is that customers are the growth engine of
the firm. Customers‟ willingness to pay for goods converts raw economic
activity that the firm produces a profit (Drucker, 1954). Marketing academics and
Reichheld and Teal, 2001). Customer loyalty is linked to firm profitability both
directly and indirectly: loyal customers have higher repurchase rates, hold longer
relationships with their preferred brands, and are more likely to recommend their
preferred brands to others. (Reichheld and Teal, 2001; Kumar, Aksoy et al.,
can be used to estimate company value, and in some cases yield more accurate
capabilities (Day, 1994). However, having market sensing and customer oriented
hard for competitors to imitate (Barney, 1991), and related to specific attributes
that customers want to buy; these include people, capital equipment, supply
product and service providers on the basis of perceived product and service
Zeithaml et al., 1988; Hall, 1993; Porter, 1998). Product and service attributes
and Basu, 1994). Product and service attributes are also the primary point of
contact between companies and customers, and are therefore a critical conduit,
gathering channels, the intrinsic motivation to learn about the product, and the
familiarity with the product and the relative ease of evaluation of product
communicate to consumers (Hoch and Ha, 1986; Hoch and Deighton, 1989).
Similarly, within the company, the type of customer information that employees
consume influences how they think about their impact on the customer loyalty
goal of the organization and how they go about building capabilities towards that
loyalty.
4
requires distinctive capabilities and organizational learning processes. The
partly fills this gap by developing tools to categorize customer loyalty, and
already established customer goals in the firm, thus better integrating learning
into the strategic agenda of the company. We know that loyalty and capability are
brand attributes, and customer loyalty types and explicates the learning
hand, and company capabilities on the other, teasing out the organizational
loyalty and capability to life in the firm. As achieving high customer loyalty
5
requires distinctive capabilities, understanding how these concepts are linked
should help companies advanced their loyalty goals and, in turn, their competitive
and operational multi-item scale that allow firms to measure the nature of the
loyalty to their brands; and secondly, to relate company capabilities and learning
Figure 1.1:
Information
Functional Performance
Head
• R&D & product iteration Efficacy /
• Rational involvement
• Information dissemination performance
• Conditional commitment
• Effective service
Quality
The work conducted as part of this dissertation addresses two sides of this
6
discrete effort with dedicated methods. These discrete research efforts are
connected through the discussion of the literature that follows and in the
7
Chapter 2
uncovers important gaps caused in part by the siloed nature of these bodies of
work. For the last sixty years, marketing practitioners and academics have
focus, there is now a rich body of literature explicating how customers choose
brands (Kuehn, 1962; Erdem and Keane, 1996; Martensen, Gronholdt et al.,
2000), what drives their satisfaction with and loyalty to certain brands
Gronholdt et al., 2000; Olsen and Johnson, 2003; Shankar, Smith et al., 2003),
how customer loyalty is formed and evolves over the time (Fournier, 1998;
Cooil, Keiningham et al., 2007) and how it contributes to firm profitability and
growth (Heskett, Sasser et al., 1997; Reichheld and Teal, 2001; Lam, Shankar et
al., 2004). A separate body of literature deals with the organizational resources
transforming resources into products and services, to satisfy customer needs and
1993); and others have argued that competitive differentiation can be created
capabilities (Day, 1994; Slater and Narver, 1995; Slater and Narver, 2000;
customer loyalty and firm capability. In each case I argue that these concepts
remain largely discrete although posing similar arguments about the need to
argue that due to the conceptual nature of much of the literature, it is difficult for
practitioners to bring these constructs to life in the firm. I highlight how company
core capabilities can lead the firm to sustained competitive advantage but also
capabilities can degenerate into rigidities that stifle generative learning. I suggest
that anchoring core capabilities to customer benefits and customer loyalty can
potential connections between the loyalty and core capability constructs, focusing
on how companies can use those linkages to conceptually bridge the gap
learning agenda that leverages them and is therefore tied to strategic business
9
outcomes of the firm.
1985; Dick and Basu, 1994). Especially for new products, customers cognitively
evaluate alternatives prior to making a purchase decision. Once they have made
performance against their a priori expectations, being highly satisfied when brand
consumption of some products and services (Shimp and Madden, 1988; Kleine,
Kleine III et al., 1995). Brand-customer relationships can also have socio-
with the brand, consumers can develop feelings of trust and behavioral
develop relationships with brands that have similar characteristics to those they
Jacoby and Chestnut (1978) define customer loyalty as “(1) the biased
(i.e., non-random), (2) behavioral response (i.e., purchase), (3) expressed over
time, (4) by some decision-making unit, (5) with respect to one or more
1978, p. 80). Despite the requirement that loyalty contain both attitudinal and
behavioral components, most loyalty work emphasizes just one of these two
aspects of loyalty (Reichheld and Teal, 2001; Olsen and Johnson, 2003;
business outcomes but lacking the richness and detail of qualitative work.
Recently, there have been a few attempts to bridge this gap through a series of
Goode, 2004; Johnson, Herrmann et al., 2006; Cooil, Keiningham et al., 2007);
11
The marketing literature recognizes that customer loyalty is driven by
factors within and beyond managers‟ control. Managers can do little to affect
consumer‟s ego (Iwasaki and Havitz, 1998). Brands of products in categories that
in categories with low switching costs can expect lower loyalty both expressed as
switching costs (De Ruyter, Wetzels et al., 1998) For instance, in a health care
inhibitions against changing doctors even at mediocre service resulting and low
Cha (1996) find that women, older customers and customers with lower
business categories (Bryant and Cha, 1996). Another study finds that higher
incomes negatively impact satisfaction scores, and also negatively impact the
12
correlation between satisfaction and share of wallet (Cooil, Keiningham et al.,
decline as the newness wears off; for example Beck (1988) shows that
consumes‟ involvement with and care of their cars and homes decreases as
these products age and their condition deteriorates. Also, the relationship
between satisfaction ratings and share of wallet declines with the age of the
attempting to achieve high loyalty levels should recognize these effects even
when they cannot change them, and should take care to interpret satisfaction
and loyalty metrics carefully given their presence. Of greater managerial interest
are the actions that companies can take to impact loyalty. A priori, all company-
include activities traditionally associated with loyalty such as product and service
less traditional actions such as pricing and promotional actions, and distribution
these activities promote it and how. The inclusion of specific service and product
attributes as items in a loyalty scale can contribute to this process of teasing out
which specific company actions, driven by capabilities, affect loyalty and to what
extent.
13
customer to customer, evolves over time, and is partially driven by company
actions. Dick and Basu (1994) advocate a dynamic view of loyalty that is echoed
again by Oliver (1999) in what is now a seminal paper in the loyalty field. Dick
and Basu propose a loyalty framework that combines the strength of the relative
attitude and the behavioral response of the consumer towards the brand.
Advancing a view now widely accepted in the marketing literature, and first
promoted by Jacoby and Chestnut (1978); Dick and Basu define customer loyalty
imposes two conditions on loyalty: (1) a strong attitude towards the brand, and
(2) a high level of repeat purchases. These authors propose that consumers‟
relative attitudes towards brands depend on the strength of their feelings and on
including the ease with which a consumer can access information about the
brand, the confidence with which the consumer evaluates the brand, and the
relative alignment of the values espoused by the brand and those held by the
and situational factors (e.g., sunk costs, switching costs). Dick and Basu state
that attitude antecedents might impact the nature of the customer loyalty to the
14
brand, and might have managerial consequences for how to maintain or enhance
loyalty. However these authors do not carry loyalty antecedents through into
different loyalty types. Instead, Dick and Basu present loyalty as either high or
low by relating attitude and patronage behaviors. It is worth noting here, that
patronage behaviors include not just purchases but also motivation to search for
the brand, a resistance to competing offers from other brands and word of mouth
Figure 2.1:
Building on the work by Dick and Basu, Oliver offers that customer loyalty
Oliver fills an important gap in the Dick and Basu framework, by carrying loyalty
antecedents into the loyalty construct and offering that there are different loyalty
stages. In Oliver‟s framework the highest level of loyalty, action loyalty, must
15
Notice that Oliver‟s behavioral loyalty is highly-involved and inclusive of
emotional loyalty rather than routine. Other authors in the customer loyalty
literature add that the strength of the emotional attachment to the brand can be
conceptual models of both the Dick and Basu (1994) and Oliver (1999) is that
patronize some brands for which they lack a strong attitude or much rational
involvement, but they still purchase those brands assiduously and have no
intention of leaving them. This is the case not just in high switching costs
be considered loyalty. Rather, low attitude loyalty can occur because once
age (Belk, 1988); or because brands can become invisible if they are embedded
Thus, there is a type of loyalty that persists through time as consumers continue
repurchasing a brand they once loved but now are simply in the habit of using.
These relationships are sustained through inertia rather than high cognitive
16
customers display when describing their brand relationships (Nordhielm, 2012)
Target Stores in the United States caters to household routines. This firm has
behavioral patterns with an aim to identify when is the most opportune time to
engage them in the hope of changing habitual purchase patterns and acquiring
The Dick and Basu (1994) and Oliver (1999) customer loyalty typologies
are helpful in explicating how loyalty originates and evolves. However, the value
predicated on management‟s ability to: (a) diagnose the loyalty of their customers
preferences depending on the loyalty phase they are in, and (c) aid the transition
towards action loyalty. The typologies offered by Dick and Basu (1994) and
Oliver (1999) are conceptually appealing; this is in part because they echo work
capability field in regards to the capability life cycle (Helfat and Peteraf, 2003). A
big question that arises when considering the Oliver (1999) and the Dick and
Basu (1994) typologies is whether all companies should aspire to attain highly
committed action loyalty regardless of the type of products they sell. It is difficult
17
to imagine most customers of table salt developing a passionate relationship with
tools to accompany the Dick and Basu or Oliver typologies; therefore it is not yet
appropriate goal only for some brands. Nordhielm (2008) offers a much more
commitment to the brand into (a) cognitive, (b) attitudinal, and (c) habitual also
termed Head, Heart and Hand. These loyalty types may arise due to cognitive,
However, this typology promises great managerial utility due to its simplicity and
reason for purchasing the brand. While head loyal customers are convinced their
preferred brand offers the best performance for the price, the availability of data
18
to the contrary can turn a head loyal into a defector. For example, a head loyal
expected the head loyal relationship continues; but if the brand partner fails,
head loyal customers are willing to cut their losses and walk away. This makes
with brands. Some brands are known to have a fervently passionate following.
Apple devices have famously created a cultish following; as have Mini Cooper
cars, Nespresso machines, and Costco superstores. Heart loyalty often arises in
basis. These brands have many „hand‟ loyals, customers who are behaviorally
connected to the brand but exhibit little affect or cognitive involvement. These
customers are likely resistant to competitive affront for the same reason that they
are resistant to upgrade their product usage: they are just not that interested in
relationships with brands are dynamic and naturally transition through functional,
„stages‟ as being potentially persistent rather than just transitory and to cater
capabilities accordingly. Coyles and Gokey offer evidence that companies can
spending behavior, both in the upward and downward direction and linked those
customers into loyal and not loyal and further categorized loyals into deliberative,
company actions and customer loyalty types no doubt exists and seems both
conceptually and practically appealing but has not been previously documented
20
Firm
Prahalad and Hamel (Wernerfelt, 1984; Hitt and Ireland, 1985), their 1990 article
on this concept, a variety of authors have argued that the key to competitive
forces as had been suggested by Porter‟s Five Forces Model (Porter, 1979), but
Day, 1994; Kandampully and Duddy, 1999; Nonaka, Toyama et al., 2000; Slater
and Narver, 2000). The concept of core competence complements the outside-in
view of the firm with an inside-out perspective. The Five-Forces and the Core-
odds, and yet companies using one vs. the other framework to develop their
strategic plans are likely to arrive at different answers for achieving superior
performance: one by primarily adapting to the market environment, and the other
by developing internal capabilities that have the potential to also shape the
21
adaptive organizational learning, and capability overhaul, or generative learning.
succeeding when they are able to strike a balance between adaptation to their
market context and leadership of the market context. Some of the firm‟s assets
while others allow the company to execute the routine production, managerial,
Hamel (1990) designated the knowledge assets and skills critical to achieve
distinctive capabilities (Hitt and Ireland, 1985; Leonard-Barton, 1992; Hall, 1993;
Day, 1994). Prahalad and Hamel defined core competences as the „collective
skillsets and knowledge‟ that: (a) provide the foundation for a company‟s
competitive advantage, (b) are very difficult for competitors to imitate, (b) are
linked customer benefits, (c) and allow the company to gain access to diverse
provided only an equivocal definition for core competence. This concept has
seen further refinement over the last twenty years. Using the terms „core
22
have highlighted their integrated and interrelated nature (Leonard-Barton, 1992;
Day, 1994; Oliver, 1997); their knowledge and organizational aspects (Leonard-
Barton, 1992; Hall, 1993; Nonaka, Toyama et al., 2000), and their competitive
processes that enable firms to coordinate their activities and make use of their
competence and further offers that core competences are embedded in the
skills, (2) technical systems, (3) managerial system and processes, and (4)
that core capabilities must meet conditions of (a) value – enabling the firm to
competitors, (c) difficult imitation – either because they were obtained through
unique historical conditions; or because the link between them and the firm‟s
possess these capabilities cannot replace them with others that have equivalent
the reason that, as many authors and managers admit, most companies do not
know whether they in fact possess a core competence and if they do, what that
23
core competence might be. Thus, even as companies leverage their existing core
concept, it is somewhat surprising that there is little empirical work that shows
research by Leinwand and Mainardi (2010) offers that core capabilities are not
investments that leverage their core competences perform better than companies
maintain that companies who build core competence coherence into their
investment choices will outperform their rivals; and provide empirical proof by
incoherent‟ and showing that incoherent companies return lower EBIT margins
but also aligning the value proposition of the company, and product portfolio to
the core competence. These authors affirm that a core competence focus drives
company performance because: (a) it focuses the firm on what it already does
24
well and therefore promotes ever-increasing effectiveness, further distancing
average costs to serve customers in the delivery of key benefits (c) prevents
waste by keeping the company from investing in areas that are core competence
Managers who accept the conceptual appeal of the core competence construct, are
convinced of its impact on the firm‟s competitive advantage, and understand the
core capabilities. When trying to build core competencies within the context of the
market place, managers will face a series of tensions or paradoxes that were not
Specifically, several authors, most notably Leonard-Barton (1998), point out the potential
for core competences to stifle rather than promote company growth; this is because
aspect of the core competence is a key to its distinctiveness – the fact that core
competences are pervasive through the firm, the existence of a core competence
colors everything the company does: products, services, and projects. Leonard-
25
Barton performed a longitudinal research study across firms in a mix of industries
project‟s alignment with the firm‟s core competence affects its chances of
success. Notwithstanding the objective merits of the project, those projects that
were core competence „coherent‟ (i.e., with high degree of alignment to the
company core-competence) performed better than those that were relatively „in-
coherent,‟ (i.e., not aligned to the core competence). While this result validates
paradox. On the one hand, competences are critical to a firm‟s ability to achieve
competitive differentiation, but as Barton proves, they also negatively impact firm
activities if those activities are in conflict with the dominant logic of the core
Rigidity,” a perverse flip side of the core competence. We can think of these
Core rigidities work in persistent and insidious ways. In the skills and
knowledge or skill base but deter employees with other capabilities. Over time,
26
this can generate capability gaps in the firm. Technical systems can embody core
career paths get more skilled employees, more managerial attention, and are
more likely to become codified and replicated. Lastly, culture and values create
dominant domains of the firm, and also by reinforcing the status of already
dominant disciplines.
The core competence-core rigidity paradox lies in part in the fact that the
same values, skills, managerial and technical systems that worked well for a
company in the past and that became cemented as „core‟ eventually become
obsolete and confer a „rigidity‟ to the firm and an inability to renew them.
Assuming our company has achieved success due to its ability to create a core
competence, other companies in our market space will attempt to „catch up.‟
customer value propositions that are unique, rare, valuable, and hard to imitate
because they are based on their unique core competences. Along the way, they
might innovate by creating new technologies that have the potential to leapfrog
existing ways of creating customer value. For example, the advent of digital
image capture in the 1990s rendered obsolete an entire set of processes and
capabilities built around film; this impacted Kodak‟s business negatively as its
27
customers abandoned the firm in search of other, more flexible, and easy-to-use
ways of capturing images. We can expect that, over time, the core competence
that allowed a company to achieve success will become less valuable. This is not
necessarily because the core competence has been replicated, but rather
because other companies have come up with other valuable product and service
attribute combinations. Thus, the company may find that its past successes
make it ill prepared for the current and future demands of its markets. Profitably
managing a core competence requires overcoming this temporal paradox; that is,
preventing past success from preventing the adaptation required for future
success.
Porter‟s Five Forces model highlights the importance of the market context
firm highlights the potential for relative independence of the firm from its market
context. Because core capabilities are unique, valuable, hard to imitate, and non-
against competition) and towards initiatives that focus on creating new sources of
words, management must take a stance towards generative learning and away
cultivating core capabilities that help the firm execute unique strategies lies in
Leonard Barton (1988) maintains that the severity of the paradox faced by
both (1) the number and (2) the types of core capability dimensions where a
project and a capability diverge. First, projects that diverge from the core
competence paradox than projects that are only misaligned in one dimension.
Second, as the four dimensions vary in ease of change depending on the degree
to which they are tacit vs. explicit. From this perspective, values and culture are
the least easy to change, followed by employee skills and knowledge, managerial
surfaced by Christine Oliver in stating that: (1) firms can be captives of their own
history and make inappropriate resource decisions, (2) cognitive and economic
sunk costs can lead to suboptimal resource choices, (3) cultural support for
especially when those resources lack legitimacy or social approval, (5) social
29
influences exerted on firms reduced the potential for firm heterogeneity (Oliver,
1997). The core competence-rigidity paradox might explain why Xerox failed to
Organizational Learning
In order for the firm to turn competences into superior firm performance, it
must direct these bundles of integrated skills to activate firm assets in the service
(1984), capabilities and resources are two sides of the same coin. Whether
transform resources into product and service benefits. It is the result of the
echoed in the work on single loop and double-loop learning of Argerys and
Schon (Argyris, 1976) and Nonaka (Nonaka, Toyama et al., 2000) applied to
organizational learning.
children as they develop, the mirror process in the organization does not come
Senge (1993) quoting a study conducted by the Royal Dutch Shell Company,
reports that the average life of the largest industrial enterprises is less than 40
years. Jim Collins‟ book Good to Great, the 2001 bestseller, finds that only 11 of
the original S&P 500 companies survived in the late1990s. A key difference
between individual and organizational learning lies in the fact that teams not
inherent core rigidities, and team dynamics, both mediate learning and can derail
Argyris and Schon (1974) argue that the organization‟s leadership must
intervene with a change program to break out from the „rigidities‟ that limit the
interpretative frameworks (i.e., double loop learning). Yet these authors also
the hierarchical status quo. Nonaka (2000) and Senge (1993) separately offer
31
alternatives to Argyris‟ „artificial intervention‟ argument, Senge maintains that
if unchecked, can stifle generative change. Nonaka argues that the firm needs to
embed knowledge creation capabilities within the fabric of the organization, both
for the fluid transformation of tacit into explicit knowledge and vice versa, through
distinguishing between aspects of the intangible knowledge base of the firm that
is tacit vs. codified, undiffused vs. diffused, is helpful in identifying the requisite
(Boisot, 1998). However, renewal of the core competence requires more than
that relates to customers‟ latent needs. The organization must be able to develop
customer insight acquisition skills and must be able to integrate that market
32
its organizational core competence – its internal „schema‟ – and its value
proposition (i.e., its advantaged mix of product and service attributes). The
strategic intent of the company, it‟s overall long-term purpose, plays a critical
function in directing the firms‟ knowledge acquisition activities towards the data
and information that is most critical in enhancing and renewing the core
often stated in such a vague manner as to carry little meaning to the individuals
in the firm, thus these statements do not serve to direct nor inspire the teams and
drivers (i.e., service and product attributes) and the knowledge creation activities
Nonaka highlights that although the organization must work to amplify knowledge
creation through teams and formal structures, all knowledge creation requires
33
create a failure to renew the core competence. Day (1994) exhorts managers to
look for core competencies that enable the organization to sense changes in its
as follows:
(2) Customer Intimacy: capability bundles guided with the overall intent of
particularly the case if the competences are not interrelated: if they require
build more than one type of what they term „market disciplines,‟ operational
customer attributes serve as the basis for customer relationships, these different
with their customers. Heart loyalty develops over time, and is characterized by
feelings of affection, passion and connection to the brand. The company that
Four Seasons Hotel Chain is one example of a company that excels at customer
35
chop!(Phelps, 2010)”
designed to elicit feelings of affinity between the service provider and the
encounters like the one described above, which seem customized to fit the
customers‟ specific personal desires, has the potential to elevate the brand-
Harley Davidson person.” The brand both fuels and caters to these relationships
group has more than one million fervent members) and by extending the brand
allow customers to remember the brand even when not on the road. The
about the market, but those driven to create emotional connections with their
36
life-style and personal needs and must able to respond and mirror those needs
Davidson does this through the HOG community, which connects HOG
customers with each other and is actively managed and mined by the company
for product and service development purposes. This online community provides
a communication medium for consumers who have had good experiences with
the brand to generate positive word of mouth on its behalf. Some of the
communities may amplify the services of the firm, for example, Apple customer
online communities like these offer a tacit information collection medium for the
organization. As Nonaka (1994) points out, the key to acquiring tacit knowledge
communities and social media tools. Once the tacit knowledge has been
rules but empowered through tacit organizational cultural values. For example,
the Four Seasons hotels allow front-line employees to command a budget that
runs in the thousands to resolve customer issues on the spot (e.g., room
37
Knowledge creation and accumulation. The customer centric company
at converting that tacit into explicit knowledge. It is critically important that that
of the firm. For example, Harley Davidson leverages technology (IT) systems to
projects to obtain and share customer information across all areas of the
stay abreast of advances in data sharing and social networking tools for its
perceptual data on benefits which like „trust,” „passion,‟ and „self-image‟ are
difficult to assess through surveys and will need to use observational and
38
will also test customers‟ willingness to pay a price premium or to search for the
emotional loyalty with its customers will exploit and profit from customer
not just „selling‟ but is rather providing an invaluable asset to the customer,
sometimes even contributing to the customers‟ sense of self. For example, the
open road, and experiencing life to its fullest. This is what people are buying
their competitors. The customer benefits that result from these types of core
in this paper, when engaging in repetitive behaviors the human brain converts a
service customization.
customers is best done not by direct questioning but rather through analysis of
behavioral data. The analysis of behavioral data has exploded over the last two
companies that conduct all their business online and thus have lots of
through analysis of purchase data, companies like Amazon and Netflix are able
consumers.
company seamlessly translates tacit habitual data into knowledge through the
use of data analysis tools and predictive algorithms. The knowledge creation
increasing their involvement level that might potentially disrupt the relationship.
The cultural values that these types of organizations should emphasize revolve
40
suggestions. In turn, because they don‟t have to imagine what they might need
and fall into routines that play into the operational core capabilities of these
mentioned earlier, the product and service attributes that will characterize the
who hope to create functional or „head‟ loyalty need to engage at cognitive level
and benefits. Absent strategic intent, these companies might thrash with no
particular value proposition. These firms, which will emphasize innovation and
creativity capabilities inside the firm, will need to structure that creative effort to
as in the other loyalty types, but the linkages between customers and the firm are
quite different.
customers‟ latent needs and potential frustrations, and survey research, as the
41
teams seek to finalize product designs and require specific reactions from
customers.
loyal customer, the functionally loyal customer is the recipient of product and
service attributes. Products are not co-developed but rather developed at the
company, after customer latent needs are assessed, and brought to the
knowledge. Individual and team experimentation can also create knowledge that
at first might be tacit (learning by doing) but is made explicit and is dispersed
through the organization where it may be transformed into products and services
and thus exploited. The codification of knowledge and the protection intellectual
property rights are particularly important for these types of organizations. The
incentives for ideation, rewarding process over outcome. Companies like Google
and the old Bells Lab are good examples of firms that encourage ideation
their time on non-revenue generating projects and in the case of Bell Labs the
42
design of the physical work space to encourage interaction.
innovation. These two activities need not be treated as a zero-sum game but
rather combined managed so that one leads to the other. Ideally, the processes
breakthroughs.
43
Chapter 3
design, and to determine the specific methods for collecting and analyzing data.
framework to the data collection and analysis methods (Maxwell, 2005; Ravitch
customer domains in the firm, but does not examine these domains exhaustively.
Rather than explicating the detailed and intricate ways in which organizational
that connect these two constructs. The two objectives I seek with my research
are: (1) to develop a practical methodology that managers can use to understand
the customer loyalty dimensions of their brands; and (2) to develop a conceptual
informed by customer loyalty. The divergent nature of these two questions calls
44
way that is managerially relevant. My approach to this first question built on
previous research in the customer loyalty field, both quantitative and qualitative,
deductive approach to testing it. My approach to the second question was much
with company officials to build two case studies of how specific companies think
about customers and their loyalty. These case studies explore how and to what
and exploratory, it calls for a qualitative and less structured method of inquiry.
The decisions about research methodology, site selection, and the specific
methodology for data collection and analysis corresponding to the two research
separate the loyalty scale work and the work done to explore company
Quantitative Methods
conceptual (Dick and Basu, 1994; Oliver, 1999). The contribution of my work to
conceptual and qualitative work done in the customer loyalty field to uncover
attitudes to the company activities that help cultivate them. Because customer
designing and combining a set of items into a composite score. I have addressed
scales have been widely used in the psychology field, and more recently in
responses to a set of items that can be assumed to have share those latent
46
construct, by applying a well-accepted categorization of consumer attitudes to
matches the three loyalty types I have identified. In a sense, the loyalty scale
developed here consists of three separate but related scales, each measuring a
common in the assessment of attitudes because they: (a) capture their relative
richness and nuanced characteristics, (b) make fine distinctions amongst people,
well-beyond what single item measures permit, (c) yield higher reliability and
Figure 3.1
47
Step 5: Assess Validity and Finalize
-1 student pool x 3 product types
-Final reliability & validity tests
• Collected final student
data
• Three products
As recommended by Churchill (1979), my scale development work followed a
series of sequential and iterative process steps (see Figure 3.1). I detail those
steps below:
The first step in developing good scales is to clearly specify the construct
under study. The objective of my scale work was to build a tool to categorize
(Krech, Crutchfield et al., 1962; Breckler, 1984), and explored to a lesser extent
in the marketing literature (Bagozzi, Tybout et al., 1979). Despite the evidence to
support the tripartite dimensionality of attitudes, most customer work within the
marketing field treats attitudes as one-dimensional (Dick and Basu, 1994; Oliver,
abound (Batra and Stayman, 1990; Edson Escalas and Bettman, 2003;
Thomson, MacInnis et al., 2005), they fail to capture the simultaneous routine
48
review of the literature in chapter 2, the metrics companies are using today to
intimacy that may be entirely beyond their reach. A review of the relevant
construct and to ensure the items that are developed reflect the construct in
practice. The appropriate qualitative step in this case might have been a series of
timeline and the relative strength of the tripartite loyalty framework, I did not
were drawn from varying ethnic backgrounds and several geographic regions of
49
the United States.
developed a conceptual model for the loyalty scale. The going-in assumption for
this research was that for any given customer-brand relationship, there would be
conceptual model, detailed in Table 3.1, served as the basis for the first draft of
scale items.
Table 3.1
Attitude-Driven Hypothesized Customer Behavior by Purchase Cycle Phase:
Purchase Head Loyalty Heart Loyalty Hand Loyalty
Cycle Phase
Need Interest in doing Interest in learning about Lack of interest in
awareness comparative research what is new with the brand both the preferred
and overall about all brands in the Lack of interest about and the other
category category brands outside of the brands in the
research preferred brand category
Pre-purchase Research all brands in Cursory research process Very limited
research / the consideration set centered around preferred research on
Alternative on an equal footing brand specific ease of use
comparison (e.g., consumer Biased research of non- or convenience
reports) preferred brands looking benefits
for disadvantages to e.g., I look for a
reaffirm existing emotional microwave that fits
choice under my cabinet
Brand Interest in detailed Interest in points of Interested only in
comparisons feature comparisons difference to defend convenience, ease
and purchase Value-based choice continued patronage of of use (e.g., ease of
decisions preferred brand access, ease of
50
Emotionally-charged decision-making,
choice ease of transacting,
ease of use)
Habitual / routine
choice
Relative Weighed against cost High willingness to search Low willingness to
willingness to of search or wait time. Resistance to substitution wait
search or wait A cost-benefit driven High willingness to
for preferred decision substitute
brand
Core brand Transactional / Emotional Attachment/ Low involvement or
value /benefit rationally-based Ego-involved lack of choice due
focus Specific benefit/ to cognitive
Performance-driven (complex products),
liking affective (services)
or financial
switching cost
(durables with high
residual value)
Oliver 1979
„Spurious Loyalty‟
Resistance to Competitive affront Competitive affront Not interested in
competitive causes inquiry causes counter-argument competitive
affront Will consider Will not seriously consider affronts?? But if
competitive brands if competitive offers unless they are
performance/price ratio very vastly superior or „noticeable‟ enough
changes coming from a highly they might cause a
trusted source re-consideration of
the brand
preference
Service Will cause intent to Will generate a service Will cause intent to
failure switch call if serious, might be switch
For high-ticket items forgiven if not serious
service failure will
„destroy‟ loyalty and will
cause intent to switch
in next purchase
Price Highly price sensitive Low price sensitivity due Low price
sensitivity as purchase is based to emotional connection awareness and
on relationship medium price
between price and sensitivity
product benefit
Involvement Cognitive involvement Passionate involvement Low involvement
level and type with focus on functional Brand inspires good based on habitual
51
product attributes feelings purchase
Feel a connection to
others who use the brand
(socio-emotional)
Seeks self-brand value
congruence
were meant to capture adjacent loyalty dimensions to help test the convergence
and divergence of the tripartite loyalty construct. I also included additional scales
characteristics that might impact loyalty. The scales selected for this purpose
Mittal and Lee, 1989). I included the modified personal involvement inventory in
the loyalty survey in an attempt to capture the impact of category and individual
Zaichkowsky (1985) and then reviewed and modified by Mittal (1995) who tested
it against other involvement scales across the beer (n=90), camera (n=80), jeans
(n=86 and n=144) and VCR categories (n=144). The Mittal modified personal
customers who experience high loyalty for a brand will consider it important.
Also, people who have spent a lot of time and cognitive effort in making a
purchase decision, and therefore have high purchase involvement, might have a
tendency towards loyalty to the brand they eventually chose. However, there is
or results from loyalty. A study by LeClerc and Little (1997) suggests that loyalty
promotional coupons for different types of products, these authors find some
than pictures because switchers are more interested in comparing brands across
the category. However, even for high involvement products, loyal customers are
in evaluating information also goes down. For low involvement products, pictures
are more effective than words in generating positive product evaluations. These
53
authors conclude that in promoting high involvement products, different
primarily composed of highly loyal vs. less loyal customers. LeClerc concludes
that when targeting loyal customers the company should use peripheral cues
rather than cognitive information. For low involvement products, regardless of the
commitment is not loyalty. This view is shared by other authors in the marketing
field, who have broadly stated that true brand loyalty requires commitment in
addition to behavioral patronage (Jacoby and Chestnut, 1978; Dick and Basu,
consider her “loyal” is less interesting than how to cater to each type of consumer
helpful to marketers in targeting specific consumers who are a good match for
develop appropriate acquisition and retention strategies that fit with customers‟
scale from respondents to test how involvement interacts with the tripartite loyalty
product categories that impact someone‟s self-image than products that serve
more of a functional purpose (e.g., jeans vs. soda). Involvement may also
on average, people are more involved in the purchase of high-priced items, like a
car, than low-priced items, like soda because the cost of making a mistake is
much greater the greater the percent of someone‟s budget represented by the
product. Therefore both product ticket price and individual income differences
imagine that some people might care more about their brand choices in general
than others.
included a short overall loyalty scale developed by Sirgy, Johar and Samli (1991)
in the questionnaire. This brief loyalty scale is meant to help test the degree to
which each of the tripartite attitudinal constructs relate to overall loyalty, and the
were asked to indicate their agreement with different statements using a 7-point
semantic differential scale. The overall loyalty items adapted from Sirgy et al.
were: (a)”How often do you use <brand name>,” (b) “How often do you purchase
<brand name>,” (c) “ How loyal are you to <brand name>,” (d)”How does <brand
name> compare to your ideal <product type>?” For the less frequently purchased
55
item was omitted; instead respondents were asked to indicate when they last
purchased a product from their preferred brand. Sirgy, Johar, Samli report a
Cronbach Alpha of .85 (Sirgy, Johar et al., 1991) for the loyalty scale; and these
Need for Cognition. There is evidence that people‟s relative need for
cognition is predictive of the manner in which they deal with tasks and social
information (Cacioppo, Petty et al., 1984). Cacioppo, Petty et al. (1984) define
need for cognition as “an individual‟s tendency to engage in and enjoy effortful
people‟s need for cognition and head loyalty. To test this hypothesis I included
conceptual hypotheses listed in table 3.1, I generated a list of items for further
review with an expert panel. I initially developed between ten and twelve items
per intended subscale, thirty-six in total, with a goal of retaining about half of
them and ending up with about fifteen items in total for the final version of the
scale. The question of how many items to include in a scale must be answered
56
consistency reliability. Internal consistency reliability is a function of how strongly
the items correlate with each other. The more items included in the scale the
higher is the reliability, particularly if some of the items are somewhat redundant
(DeVellis, 2012). Item redundancy is also an important issue all scale developers
redundant items, the content that is common to all the items will summate
across, while their irrelevant idiosyncrasies will cancel out. (DeVellis, 2012). In
included two similar items to understand the extent to which respondents felt
their brand patronage was merely due to habit. The item, “I buy <brand name>
out of habit,” was supplemented with a similar item “I buy <brand name>
the academic experts I consulted, and after further reading on the topic, I deleted
1932; Churchill Jr, 1979) others insist that negatively worded items can cause
57
confusion, result in comprehension mistakes, and bias responses by generative
All scale items used a seven-point scale with scale anchors 1 (strongly
disagree) to 7 (strongly agree) with no verbal labels for scale points 2 through 6.
Once the initial list was developed, it was refined through conversations with four
conversations, the initial pool of thirty-six items across the three domains was
the internal consistency reliability, and editing by amending, deleting and adding
scale items (Churchill Jr, 1979; DeVellis, 2012). I review that process below.
Collect Data: Drinks and Jeans Survey One. The refined item list
including the additional scales (loyalty, involvement, and need for cognition) was
Midwestern University. Students received academic credit for taking the surveys.
58
product categories accessible and relevant to undergraduates, and thought to
vary in involvement and loyalty among them. After consultation with a professor
drinks and jeans preferences. In selecting jeans and drinks, I was attempting to
to brands in both categories, jeans are more likely to engender high emotion as
referred to as „badge‟ products. And because they are higher-priced, jeans are
likely to generate higher involvement than drinks. Drinks and jeans also offer
variability around the consumer search and purchase process; both are
less frequently (ME=2.01, SD= .37 where 2= less than once a month) than drinks
consumers‟ behavior between drinks and jeans is that, because they are often
purchased for immediate use, even loyal customers might substitute drinks if
their preferred brand is not readily available. Developing a scale that works for
Writing items that would work for both jeans and drinks was particularly difficult
for the „head‟ or functional/cognitive dimension of the scale. Not surprisingly, this
dimension proved the most challenging throughout the entire scale development
process.
59
Drinks were further subcategorized into soda, energy drinks, sports drinks,
and bottled water. Each respondent completed the 28-item loyalty questionnaire,
plus the additional loyalty and involvement scale questionnaires for each of the
two drinks and jeans categories. The survey asked students to complete the
drink survey for just one drink subcategory (soda, energy drinks, sports drinks, or
bottled water) corresponding to a type of drink to which they felt brand loyal. The
exact wording used was: “Please select one type of drink where there is a brand
that you feel strongly about. By feeling strongly, we mean that you much prefer it
over others.” The jeans survey similarly asked students to refer to their preferred
brand of jeans in responding to the loyalty items. The average reported loyalty
(“How loyal are you to < brand>?” 1 not at all loyal to 7 very loyal) to drinks
(ME=5.35 and SE=.93) in this first sample was statistically significantly higher
than that to jeans (ME=4.99 and SE=.93), (t(138)=3.280, p<.01, r=.037). This is
despite the fact that these students wear jeans (ME=6.08 and SE=.08)
significantly more (t(137)=12.12, p<.00, r=.04) often than they consume drinks
(ME=4.18 and SE=.093). A total of 246 product surveys from 143 respondents
were collected and analyzed. For purposes of the exploratory factor analysis
discussed below, responses that did not input their preferred brand as requested
in the survey were excluded from the analysis, leaving 138 data points for jeans
and 137 data points for drinks to be analyzed. The respondents consisted of 78
men and 64 women between the ages of 19 and 21. No additional demographic
60
Assess Dimensionality: 1st Student Survey. The sample was analyzed
using exploratory factor analysis to test the dimensionality of the scale. Factor
analysis requires large sample sizes; some authors recommend having ten
samples throughout the scale development process were adequate for factor
adequacy. KMO values greater than 0.5 are generally considered minimally
acceptable, values between 0.5 and 0.7 are considered acceptable, values
between 0.7 and 0.8 are considered good, and values above 0.8 are considered
very good. All my surveys had KMO values above 0.75 with some achieving
values higher than 0.90. Loyalty items for drinks loaded on six different factors
with eigen values higher than 1. Eigen values represent the amount of variation
2009). Loyalty items for jeans loaded on seven different factors with eigen values
greater than 1. Even in this early version of the survey, a core group of three
hand items and a core group of four heart items performed quite well. The hand
loyalty subscale items with high reliability scores and high factor loadings
of the items had negative loadings, and others failed to behave as predicted.
with different combination of items seven items were deleted and an additional
seven items were added to the battery, resulting in a total of 27 items for the next
61
round of testing.
extraction and continues with a calculation of the degree to which variables load
onto the factors (or components) that have been extracted. As is generally the
several factors, hence making interpretation of the output difficult. For this
along which variables can be plotted, and factor rotation gyrates those axes with
a goal of maximizing the loadings onto the main factors and minimizing loadings
with oblique rotation and found low correlation among factors (r<.29, p<.0001)
A second round of data collection, including the edited items, was conducted in
the same Midwestern University about one month after the first survey, focusing
on drinks and jeans again, but with a different sample of students. As before,
analysis, which again revealed six factors (eigen values>1) for both drinks and
62
jeans. Using this sample, I conducted iterative factor and reliability analyses to
pare down the item list. This iterative process consisted of running exploratory
factor analyses, excluding poorly performing factors, and testing the internal
refine the scale items included: (a) running exploratory principal component
analyses; (b) determining dimensionality by looking at the Kaiser and scree plots;
(c) determining which items fit into the different loyalty dimensions by looking at
the individual item factor loadings; (d) testing the internal consistency reliability of
each dimension by examining the Cronbach alphas; (e) eliminating items that
analysis.
recommended by Steven (2001), who advises that different factor loadings can
that for a sample size of 100, the loadings should be higher than 0.512 to be
greater than 0.364 and for a sample size of only 59 factor loadings should be at
the factor accounted for by a particular variable by squaring the factor loading;
63
this concept is similar to that of R2. I report this variance metric for the factor
analysis corresponding to the final version of the scale. In regards to the internal
consistency reliability target metrics, report the Cronbach‟s alpha for each
subscale; Cronbach‟s alpha coefficients greater than .70 are considered large. A
large alpha means that a large proportion of the variance in the scale score is
process corresponding to the first survey, seven items were deleted, and seven
were added. The heaviest editing was focused on the items intended to measure
the head dimension of loyalty, that is, loyalty characterized by high rational
mentioned before, the goal of generating a concise scale with items that are
balancing relevance and abstraction. For example, “I like <brand name> for very
goals but failed to perform either well. The underlying assumption that drove the
phrasing in this item is that head loyalty is based on specific knowledge about the
absence of explicit description of the information about the brand that drives
liking. This item was found to load with other head items for jeans in the initial
sample, but performed poorly in the second and third rounds of data collection. A
64
more specific item would have worked better but would have not been
generalizable. Other head items similarly failed to strike this delicate balance
At this stage of the scale development process, the need for cognition
scale was tested and found to not add any explanatory value to the analysis.
correlated to heart loyalty and positively correlated to head loyalty, the need for
cognition score (calculated by taking the average of the eighteen need items in
the Cacioppo short-form need for cognition scale) was uncorrelated to a heart
loyalty index (r = .114, p=.175) and also uncorrelated to loyalty overall “how loyal
are you to <drink brand>” (r = .049, p=.562). As a result of this finding, Need for
Further testing of the scale was conducted with a broad and large (n=400)
drinks (soda, energy drinks, bottled water, or sports drinks), jeans, and blenders.
The blender product category was added to the questionnaire to test the items on
exploratory factor analysis and reliability analysis process was used. During this
part of the scale development process it became clear that two items designed to
capture price sensitivity loaded on a different dimension than the other attitudinal
65
items. While my initial hypothesis was that the price sensitivity items would load
with the head items, the discrete nature of the price items is consistent with the
(“Switching away from <> will be an easy decision if something better becomes
available,” “If <> is not available I will try something else,” and “If another brand
together onto a single factor for jeans and drinks; and for blenders they loaded
together with items which captured consumer‟s tendency towards doing lots of
research prior to purchase (“I won‟t buy another <> without first comparing it to
other brands to make sure it is the best choice,” “Before I repurchase <>, I will do
a careful side-by-side comparison with other brands” and “Before I buy a new
blender, I will look at lots of product reviews to make sure I make the right
decision.”) and not with other loyalty items as initially hypothesized. I had
onto separate discrete dimensions helped me adjust the scale prior to my final
data collection with students. Rather than excluding these price, willingness to
search and need for research items I continued to include and refine them as
they would be valuable to test the predictive validity of the scale. This round of
66
testing was particularly helpful in identifying and purifying the head subscale.
promise keeping performed well for blenders and were carried on to the final
round of data collection. Also, three additional items were added to the head
subscale for the final data collection round. The willingness to switch items were
instrumental in the final construct validity testing and were used in a composite
The fourth and final round of data collection was carried out with
surveys. 118 students completed the questionnaire that included three surveys
for a total of 345 surveys. The first survey asked about drinks, the second asked
about jeans, and the third asked about shampoo. Shampoo was added to test
frequency lying somewhere between that for drinks and jeans. While it would
despite being a relatively inexpensive item for most students. As with the earlier
student samples, the age of the respondents ranged from 19 to 21 years of age
and respondents earned college credit for taking the survey. The final version of
the survey had 26 loyalty items, including subscales for the three types of loyalty,
67
plus the additional items that measured price sensitivity, willingness to search,
and willingness to switch. The final questionnaire also included the short overall
loyalty scale, adapted from Sirgy et al. (1991) as well as the short-form
Zaichkowsky‟s (1985) personal involvement scale but did not include the need for
All three surveys included 26 loyalty items and were analyzed using
Exploratory principal components analysis confirmed that the search, switch, and
price items should be excluded from the final scale analysis because they
consistently loaded on separate factors and not with the loyalty dimensions.
Three other items were also excluded due to inconsistent loadings across
product classes leaving sixteen items for the tripartite loyalty scale. Again, it is
worth noting that the iterative process followed to refine and improve the original
a concise scale whose items would be useful for a variety of product categories.
The resultant scale in its final form achieved these objectives. In finalizing the
scale I excluded items that worked well and added richness in one product
category but failed in others. The deletion of certain items with good but limited
psychometric properties means that the scale might have lost some specificity in
good for all three surveys. I report sampling and overall factor adequacy statistics
for the three product surveys immediately below. Appendix A shows the final
exploratory analyses for all three products had adequate sample sizes. I
computed Barlett‟s test of sphericity and the KMO statistic of sampling adequacy.
Barlett‟s test measures whether the correlation matrix of the variables to be used
whether the diagonal elements of the variance-covariance matrix are equal, and
the off-diagonal elements are close to zero. The KMO statistic measures the
degree to which it is likely that common factors explain the observed correlations
among the variables; in other words, it measures whether factor analysis is likely
to result in distinct and reliable factors. It is calculated as the sum of the squares
square of the partial correlations. The KMO statistic is higher when a common
factor model is appropriate for the data and lower if the correlations between
KMO values can range from 0 to 1, with values higher than .7 being considered
The Barlett‟s test of sphericity was significant for all product exploratory
69
factor analyses. The KMO metrics were .802 for jeans, .825 for shampoo, and
.773 for drinks. The lower KMO statistic for drinks was due to a smaller number
of responses for drinks than in the other products. The Barlett‟s test of sphericity
metrics were X(136) =844.26, p <.001 for jeans, X(105) =1517.52 , p <.001 for
shampoo; and X(120) =546.04 , p <.001 for drinks. The significance of the
Barlett‟s test indicates that the correlation in the items is sufficiently large for
factor analysis.
analysis consistently revealed three components with eigen values over Kaiser‟s
criterion of 1 in all three product categories. Given the adequacy of the sample
size and the convergence of the scree plot and the Kaiser criterion around three
extracted for the final analysis. Table 3.2 through 3.7 show a summary of the
rotation as well as the Cronbach alpha scores for each of the three dimensions of
the scale. I also show the factor loadings for each of the loyalty dimensions and
by product group It is worth noting that none of the items shown below had
significant loadings (greater than .4) for two factors simultaneously; this indicates
that the scale achieves the goal of discriminating between factors. Appendix B
70
Table 3.2 Heart Subscale Factor Loadings by Item
71
Table 3.6 Hand Subscale Factor Loadings by Item
loyalty. The high reliability and consistent factor structures across the three
product categories support the trait validity of the scale. However, high reliability
and consistent factor structures are necessary but not sufficient evidence for the
construct validity of the scale (Churchill Jr, 1979). Assessment of the construct
answering two questions: (1) does the tripartite loyalty construct well explained
upfront and logically derived from the literature? And (2) do the final scale items
capture the loyalty domain well? The literature review and the upfront discussion
included in this section explicated the tripartite loyalty construct. In regards to the
second question, the final scale items captured the primary attitudinal basis of
than with the loyalty dimensions; namely, the relative resistance to brand
switching, and the relative level of price sensitivity. This is not a failing of the
scale but rather an indication that these variables are driven by different latent
variables than the tripartite attitudinal construct. In other words, these behaviors
might or might not be characteristic of the loyalty types, however they are not
Predictive Validity
To test the predictive validity of the scale I ran a series of cluster analyses
there is high homogeneity within each group but high heterogeneity between
different groups. In the context of the tripartite loyalty scale, cluster analysis is
purpose I ran a cluster analysis to split the data into customer segments
two price sensitivity items, and the two willingness to switch items. Cluster
the extent that the tripartite loyalty scale helps segment customers who have
different attitudes towards the brand and also differ in their degree of price
the shampoo product category; Table 3.9 presents the results of the jeans cluster
number of significant clusters in the data and then performed a K-means factor
used the Euclidean method to calculate the distance between objects and Ward‟s
all three product categories. The distribution of respondents amongst the clusters
was fairly even for the two data sets. For jeans the average number of
respondents in each cluster was 22.4 (SDE=7.2) and for jeans the average
scores. These respondents‟ passionate liking for their preferred shampoo brand
is also consistent with a very low willingness to substitute. I cases in which their
74
preferred brand is not readily available, these customers will prefer to wait and
respondents who have significantly higher hand scores than the rest of the
convenience, availability and routine. Not surprisingly these customers have the
is key to retaining this group. Notice that with the exception of Cluster 2, all
clusters show very high head loyalty scores. Cluster 5 is characterized having the
highest head loyalty in the respondent sample. These customers score high on
Table 3.9 immediately below displays the same analysis for the Jeans
survey.
Cluster 1 includes respondents who have high hand loyalty scores and are
75
very willing to switch if their preferred brand is not easily accessible. These
respondents are also very concerned about price and not surprisingly have low
heart loyalty scores. Cluster 2 contains respondents who have the highest heart
loyalty scores in the sample. Notice that although head loyalty is high across the
board, Cluster 2 has slightly higher than average head loyalty. This segment of
customers is a lot less willing to purchase something else when their preferred
brand is not available and also shows a much lower concern for price than
Cluster 1. Finally Cluster 4 has the higher hand loyalty score in the sample; as
we would expect these customers report that they would probably switch to
another jeans brand if their preferred brand were not readily available.
Additional cluster testing across more data samples will increase the
analysis shown here, although not perfect, does point to promising prospects in
this area.
the tripartite loyalty scores help predict overall self-reported loyalty. As a way to
the analysis. Simply stated I establish convergent validity by proving that the
three loyalty indices are in fact related to loyalty; I establish some divergent
76
validity by including willingness to switch or substitute (switchindex) in the
different brand when the preferred brand is not easily accessed. We would
expect that if the three loyalty dimensions measure loyalty, they would have a
positive relationship with overall loyalty and their coefficients would carry the
I ran a linear regression analysis using the Sirgy and Johar (1991) overall
loyalty composite detailed earlier as a dependent variable and the three loyalty
indexes for each product type as well as the willingness to switch index as
predictors. The results by product type are shown below in tables 3.10 to 3.12.
77
Table 3.11 Shampoo Linear Regression of Tripartite Loyalty against Loyalty
Composite
The results from the regression analysis confirm the convergent validity of
the tripartite loyalty construct; the indices perform similarly across category and
expected, heart loyalty has the largest impact on overall loyalty in drinks and
jeans (.235 for drinks, .588 for jeans) although the head dimension is a bigger
78
contributor to loyalty for shampoo (.657 vs. .185) and is significant in all three
regressions. Also, for drinks and jeans, the head and the hand dimension have
more or less equal weight. Finally, the willingness to switch index variable
proof of discriminant validity. The very high adjusted R squares in the three
Involvement
inventory provides additional support for the validity of the tripartite loyalty scale.
As consistent with Quester and Lim (2003), involvement and loyalty are positively
of that link varies by type of loyalty. For jeans, the involvement index is most
highly correlated with head loyalty, explaining almost 50% of the variance in that
p<.001) and not significantly correlated with hand loyalty (r(112)= .118 p=.214).
Similar to jeans, for shampoo, involvement is highly correlated with head loyalty
(r(112)=.460 p<.001), correlated with heart loyalty (r(112)= .352 p<.001) and not
significantly correlated with hand loyalty (r(112)=-.014 p=.883). Finally, for drinks
relationship with hand loyalty (r(89)=-.064, p=.552). Note that the drinks results
79
are not as meaningful. This is because the drinks questionnaire actually included
very different types of products, which I would hypothesize inspire very different
levels of involvement. For example, energy drinks and sports drinks probably
have much higher involvement scores than soda and bottled water. Therefore my
results seem to support a link between involvement and loyalty, this link is higher
psychology and consumer behavior, but until now, the model had not been
and Chestnut (1978) who defined and operationalized brand loyalty, several
qualitatively (Fournier, 1998), and Dick and Basu (1994) and Oliver (1998) did so
Fournier also first coined the term „brand personality,‟ not only using but also
extending the relationship paradigm. Dick and Basu (1994) related the strength
brand (high or low), yielding a segmentation of loyalty into high, medium and low.
Oliver (1998) presented a more nuanced model, which categorizes affective, and
cognitive loyalty in much the same way as the tripartite model does. Despite
80
authoring important advances in the loyalty field, all these authors have
Neither of the above authors treats habitual purchasing due to convenience and
ease as loyalty. Dick and Basu (1994) call this routine purchasing of a brand
type will be in a better position to adjust brand attributes to the type of loyalty
they have or wish to obtain. The scale developed here is a helpful tool to that
effect. The tripartite loyalty scale will enable managers to discern the specific
the brand attributes that matter most. This grouping of customer attitudes and
development.
to support a hand, head, and heart tripartite model of loyalty. The hand loyalty
familiarity with a brand. Consumers who score high in the hand loyalty dimension
of the construct display a need for easy access to the product or service and for
of low-priced items like soda, but can also be found in more expensive and
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jeans. Managers catering to hand loyal consumers will therefore need to prioritize
and process changes very carefully so as not to disrupt consumer routines. The
performance attributes of the product and is associated with the expectation that
the product will „perform‟ every time as promised by the product provider.
Managers catering to head loyalty will need to ensure they make information
loyalty will also want to ensure their firms develop and enhance products
consumers who exhibit this type of loyalty feel ego-emotionally attached to the
brand. Heart loyalty also has a socio-emotional aspect, as consumers who are
heart loyal enjoy discussing their preferred brands with others. Managers who
wish to cater to this type of loyalty will want to emphasize the experiential and
psychological benefits of the products they sell and will want to facilitate
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Chapter 4
QUALITATIVE METHODS
Introduction
and service attributes; and how product and service attributes interact with
Figure 4.1. This figure illustrates the overall conceptual framework guiding this
research
Information
Functional Performance
Head
• R&D & product iteration Efficacy /
• Rational involvement
• Information dissemination performance
• Conditional commitment
• Effective service
Quality
customers as the unit of analysis. The quantitative work done as part of this
dissertation addressed the right side of the conceptual framework. That work
survey scale to measure that construct. The construction of that scale required a
work process flow for the quantitative portion of this dissertation would look like a
development, broadly exploring the existing literature, and then narrows down to
development process the funnel continues to narrow as items are tested and
iterated. Finally, the scale is applied to consumer data to test its managerial
value and to develop generalizable conclusions; and the funnel widens again.
The process followed to explicate the right side of the framework and illustrate
the relationship between the left side (capabilities) and the right side (loyalty) is
now described. This process delves more deeply into the intimate environment of
the company and its graphic representation would never widen to develop
literature review chapter, company core capabilities span multiple functions in the
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firm; they are hybrid constructs made up of knowledge, skills, processes, values
and culture. Capabilities are abstract and complex concepts and as such, it is not
surprising that there is scant applied research illustrating how they come to life in
the firm. An overall research hypothesis guiding this dissertation is that company
capabilities and customer loyalty are connected through learning processes. The
qualitative work conducted as part of this research project lends itself to delving
into how those connections work in practice. The scale work done in the
how in turn, the backflow of customer data feeds back into the creation and
This study focused on two companies located in the same Western State
appliance manufacturer. Both companies have sales between $100 million and
$300 million and both operate from just one headquarters location where they
headquarters are approximately sixty miles apart, and their management teams
belong to some of the same community groups allowing for the cross-pollination
These two companies offer a rich ground for the study of capabilities and loyalty
because they offer many parallels and also sharp points of contrast. Both
companies are privately held, both manufacture onsite, they are of similar size,
and both are very customer-focused. However, the two companies have different
business models and different cultural and capability profiles, offering a nice
counterpoint for how companies organize differently to achieve loyalty. Both firms
wish to maintain confidentiality and are identified here are Extrusion Co. and
Kitchen Co.
customer retention rates of over 90% during the last ten years whereas the US
both professional full time and hourly workers. Extrusion Co.‟s website contains a
statement about the company culture which emphasizes its focus on teamwork,
quality and individual responsibility. The statement also specifically notes that
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individual contributions are noticed and rewarded and that the Company invests
customers across a variety of industry sectors in the United States; it serves its
customers through a small and highly specialized sales force of just six
salespeople who are distributed amongst its major markets in the US, as well as
through distributors. The company also has a call-center sales force, internally
called „inside sales,‟ which targets smaller customers and also receives inbound
(OEMs) such as truck, solar panel, fitness equipment and others representing a
highly diversified mix of companies; carpet metal resellers; T-slot users; and a
variety of smaller companies, many of whom are served through distributors. The
extruder‟s customer mix is highly diverse, both in terms of industry and size. The
company has been in operation for several decades but has experienced
accelerated business growth over the last one, despite very difficult market
new president, who took over the company approximately fifteen years ago. The
new president hired new management upon arriving at the company. Although
some of that management has rotated out of the firm, the company‟s managerial
philosophy and culture have been consistent for the last fifteen years.
retail customers in the US; the company also has a small international presence
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larger, privately held, diversified manufacturing company. A manufacturing
engineer, who is also the inventor of the main product the company sells today,
founded Kitchen Co. approximately thirty years ago and is still the CEO of the
firm. The company operates in the same Western State where it was founded
and now employs approximately 200 employees. Like Extrusion Co., the
company progressed slowly initially and has more recently experienced very
rapid growth. The rapid growth is attributed to the notoriety of the firm gained
Kitchen Co.‟s sales by more than 600 percent if seven years. The viral campaign
national distribution. Initially, Kitchen Co. primarily sold its product through a Big
Box retailer chain 1following a roadshow model and through the QVC channel.
Until recently, Kitchen Co.‟s sales force consisted of approximately one hundred
demonstrations. Over the last three years, the company has started to diversify
its product portfolio, as it seeks to widen its appeal and move upmarket, from Big
Box Stores to gourmet retail stores and other kitchen supply distributors and
firm that is still considered the market leader but which has lost market share
1 The name of the specific retailer has been omitted for confidentiality purposes
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attributes its success to patented product features. In addition to still maintaining
with its customers about recipes, promotions, and product and service
being small, Kitchen Co. has a very loyal customer following with over 100,000
Facebook „likes;‟ the brand boasts engagement metrics that rival those of much
effectively convert its social media success into sustainable growth and how to
adapt the organization to drive and support that growth. For confidentiality
Kitchen Co over only two days in November 2012. A total of thirteen in-person
cultural context within which these capabilities are created. I structured the
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management across similar functions, including the company presidents, and the
Table 4.1. Functional Titles of the Interviewees at Kitchen Co. and Extrusion Co.
approximately two weeks after the other interviews. However, I held a variety of
conversations with this person during my time at Extrusion Co., including a lunch
team of the private equity firm that owns Extrusion Co. During those informal
information that has been critically important to frame the analysis of the data
gathered during the interviews. For confidentiality all interviewees are identified
my study; how it fits within the doctoral program; the overall hypothesis of my
general line of questioning I would follow during the in-person interviews. I also
explained the rigorous research process I would follow, including the oversight by
the Institutional Review Board (IRB) for the study. Finally, both firms were
offered by the Institutional Review Board and received approval on the research
project through them prior to the interviews. IRB Approval number 816821 was
granted by the IRB Board #8 on November 6, 2012 under IRB review exemption
those at Extrusion Co. lasted approximately one hour each. At Extrusion Co. I
which was not recorded or transcribed but served to frame the interviews within
the context of firm. All other interviews were recorded and later transcribed by
The protocol was broken down into four sections. The first section addressed the
about customers, customer retention and customer loyalty. The third section
probed for how the interviewee thought about company capabilities and what
differentiates the firm from other companies from a capability perspective; and
the final section probed for how customer loyalty influences the development of
companies promote a particular view of loyalty, and if they do, how that affects
advance customer loyalty, how that data is consumed by employees, and how it
specific insights given their personal experiences, yet was also helpful by binding
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the conversations within the deductive frame established by the overall
conceptual framework.
process but very productive as it helped lay the groundwork for the analytic
started at this stage. During the transcription process I used formatting features,
such as spacing, bolding text, and font color to highlight particularly relevant
codes. Also, the interviews were transcribed in the same sequence that they took
place. The sequential collection of data was replicated during the transcription
and coding phases, with transcription happening in the order of the interviews
and in long uninterrupted blocks of time. Coding followed transcription and was
was developed by selecting themes detailed in the conceptual framework and the
interview protocol and later expanded and amended after completing the
transcriptions and initial data analysis. The initial list of codes was further refined
after coding the first two interviews. Those two interviews were recoded with the
new code list. There were 44 codes in all in the final version of the code list,
including subcodes for larger more general topics, such as customers, loyalty,
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employee skills, or capabilities. The final list of codes used for qualitative data
analysis purposes are included in Appendix F. During the coding process I wrote
a number of memos about patterns in the data and emerging themes. As was
comparing how the two firms look at the same issues enabled me to draw linear
comparisons between the two firms. These comparisons shed light on the
capabilities and core capabilities of the two firms: by examining how company
officers in the two organizations speak about their core activities, goals, and
routines – particularly those that are employee and customer-related - we can get
a sense for the organizational practices that truly set the firms apart.
Despite the contextual differences there are many parallels between the
two companies. One of my analysis goals was to decipher and categorize core
across culture and values, managerial and technology processes, and employee
skills and knowledge. Specifically, I sought evidence of specific practices for the
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interviewees. The interview protocol question that asked this most directly was:
“Do you think your company is equally successful in retaining all your customers
customer insights.
that are conceptually appealing but until now had not been tested. Despite the
dissertation was conducted with college students and was limited to three
product categories that students use and purchase. Additional testing of the
scale with other populations is necessary to improve its validity and to test its
and loyalty are complex constructs and are difficult to measure. It is for this
reason that the work conducted here, while limited, is helpful to practitioners
taken the form of a true ethnography, where both subjects and their environment
are observed over an extended period of time. The resource and time constraints
complete capability study could have consisted of two phases, a more extensive
qualitative phase containing both depth interviews and focus groups and a
immersion at the company sites would also add richness and depth to my
fieldwork.
Originally I had intended to study the entire framework at the two research
sites, Extrusion Co. and Kitchen Co., assessing capabilities and applying the
tripartite loyalty scale to study the connections between the three loyalty
practice has limited my ability to do that. I hope to pursue some of these research
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Chapter 5
with consumers. In this process the firm develops service and product models
and routines of interaction with customers. The firm then exposes customers to
these outputs and uses direct means (e.g., meetings, phone conversations,
feedback forms, sales results) and indirect means (e.g, social media research,
it is transformed, and how and to what extent it is shared within the firm matters
for how the company conceptualizes its purpose and how it assesses its
effectiveness in carrying out that purpose within the context of its market.
production activity, how and to what extent listening takes place, and how
company officers who occupy similar roles at both firms enables cross-company
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purposes came from the company presidents of the two firms. Both companies
lead their industries from a growth and from a customer loyalty perspective,
however the paths taken to that leadership have been very different. At Kitchen
Co., when asked about the reasons for the company‟s success the CEO stated:
“The reasons are number one, our product. We traditionally, have not been a
marketing company... We put our money into engineering and not marketing.”
service.” These two words were repeated several times throughout many of the
interviews at that firm. When asked to explain the reasons for the company‟s
achieve growth year over year in a sustainable manner, they both require similar
efforts. They must purchase high quality raw materials, they must operate their
manufacturing facilities efficiently, and they must manage employee hiring and
training as to minimize turnover costs. In short, they must have numerous similar
both companies now insource primary medical care from the same group of
productivity and satisfaction. However, the two firms see their businesses very
engineering great products in a category where only one competitor can claim
similar performance; and Extrusion Co. attributes its success to offering great
customer service in an industry where customer service has not been prioritized.
Although they are of a similar size, they are located near each other, they employ
a similar workforce, and they both run a manufacturing operation, one of the
companies sees itself as being in the business of making great products while
the other is in the business of providing reliable and responsive service. Judging
by the two companies‟ success, both definitions of the purpose of the firm are
validated by the market. Yet, these business definitions create a very different
Employees in the firm are guided by tacit and explicit values and rules;
understanding what those are and how customer feedback influences them is
every interview I conducted at Kitchen Co. and at Extrusion Co. I asked about
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primarily as managers. Here I adapt a definition of practitioner and manager from
managers might be more concerned with higher level and less explicit outcomes
related to their company environment, the brand, customer loyalty, and their
expected, the four employees below the management team level interviewed at
manager viewed his goals as “scrap rate and efficiency” (Kitchen Co. Manager).
business outcome-related goals as well as subjective goals. This was the case,
and in comparing like roles across the two companies I found evidence of the
distinct company environments in the two firms. For example, while both vice
objectives quite differently. At Kitchen Co., the head of human resources was
goals:
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Our goal is retaining people…. And really focusing on making sure
we‟re hiring the right people, you know, through the hiring process,
background checks, through referral checks, through personalities
assessment, making sure that we get the right person, you know,
because that becomes a big expense too, if we're constantly
rehiring and turning people over... we hire people who fit the
culture... we look for people who have a drive to be successful, who
are constantly looking to learn and to grow“ (Extrusion Co.VP)
The talent managers of the two firms had fairly different objectives, at Kitchen
Co., there was a greater focus on highly specific and process-focused goals,
whereas at Extrusion Co. the goals were much more general. The overall
purpose of the firm, the definition of its business, and its goals provide a context
for everything else the firm does. Throughout the forthcoming analysis, it is
helpful to keep the business definitions and goal statements of the two firms in
mind as they provide context for the way in which customers and capabilities are
quantitative section of this dissertation proved that, for the products tested, the
differentiated relationships with their preferred brands even when the company
projects a single image to the marketplace. For example, Pantene promotes itself
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as enhancing hair shininess across the globe but some consumers feel
themselves „shine‟ because they use Pantene (heart), others simply due to
performance (head), and still others might use Pantene simply because they
have been doing so for a long time and it is part of a routine (hand). However, if
another type of loyalty will yield better results than ignoring loyalty types and
hoping all customers will be emotionally committed to the brand or all customers
will be cognitively engaged by its products and services. Good theory explains
phenomena that exist in practice; if the tripartite loyalty construct is a good theory
it should help explain the capability and loyalty picture we find in companies. This
should be the case even when companies do not explicitly use strategy, learning
found that, although its management does not use the head-heart-hand
archetype:
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The other day that I heard from (...), a hardware manufacturer.
They‟ve never gone to anybody else, from the very beginning they
bought from Extrusion Co….We always deliver just as expected. And
I think that they will always buy from us. They purchase just the small
little nail in a finished shape that they take and they punch, put holes
in and then cut it up and sell…. it‟s a little piece of hardware… very
high volume. And you know, I‟ve never been to their facility. I‟ve been
here for 15 years but I‟ve never talked with their owners. So they just
have a relationship with our sales person and I think it‟s a good
relationship. And it always comes from them, they always give us a
good price, so we„re gonna continue to work for them. (Extrusion Co.
VP)
established at the outset of the engagement, and that remain unchanged as the
described as wanting consistent service and good product quality but little
but finite in scope; there is little room for expansion due to the nature of the
Extrusion Co. supplies parts for the cabin grills that cover truck engines, in the
case of the hardware manufacturer, the customer orders a small finished metal
shape and does not have additional needs for other extrusions. A habitual no-
extrusion has to perform well as failure would damage the customers‟ brand. This
is perhaps truest in the case of a truck manufacturer: delayed supply might mean
an entire manufacturing line comes to a halt awaiting a grill piece. And a defect in
the product that is revealed after use would damage the brand reputation; a truck
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grill is a non-critical part from a functional perspective but is perhaps the most
emblematic from a brand perspective. This explains why in both cases the
low quality or inconsistent supply would be too dear. Despite this, customer-
because the parts being manufactured are relatively simple in the context of the
clients‟ business. The business context makes this „hand‟ relationship logical,
and yet, as I will show below, high-volume, reasonably priced, low complexity
market. It is in this business category, that Extrusion Co. finds its most loyal and
customers in novel value-added ways that makes these relationships unique for
Extrusion Co. and for the customers involved. The President of Extrusion Co.
states:
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The value-added services developed for one customer within a particular
relationships to denote their breadth and depth. Again, the Vice President of
differentiated value of this relationship is based not on the metal but on the
ordering and logistics processes Extrusion Co. has developed and which are now
creates momentum for the relationship between the two firms. A question that
arises when thinking about these relationships is whether the ideation preceded
or resulted from the customer intimacy. The close bond between the two firms is
enhance that relational bond between the two organizations. It is thus difficult to
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tease out the causality of this type of loyalty. Yet, clearly these relationships are
highly beneficial to both parties and can serve as catalysts for similar
capacity; Extrusion Co. must adequately recognize the key identifiers of this
so it may be used as customer targeting criteria for the marketing and sales
teams.
Other customers purchase several parts from Extrusion Co. and use them
and design decisions must be made at the outset and throughout the entire
Operations states:
Then you have some of the OEM very highly technical accounts
who are very particular about dimensions and they would probably
be more the functional type of loyalty. So it‟s a given: we have to
have perfect material supplied to them and that‟s what we do. I
mean we are on top of the dimensions, we are making sure that
very tight tolerances are achieved,.... We spend a lot of time and a
lot of money on inspection to make sure that takes place and in the
end they just want a good useful product, they are not as into
talking on the phone…not so much interested in having a personal
relationship with their supplier. They are interested in Facebook but
not necessarily with whom they are buying the product from.
(Extrusion Co. President)
The President of Extrusion Co. shares a similar account of the OEM
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relationships:
The OEMs are more matter of fact than transactional. That is not to
say that they are not price sensitive, which they are. These are
companies like … whose parts are more technical. They buy lots of
different parts, and in very large amounts, and they want us to
reduce the hassle and when they do they leave us alone. But they
have complex applications and our job is to help them design
whatever project it is they need. (Extrusion Co. VP)
As described, the OEM relationships require high functional performance and
frequent communication but there is not emotional connection between the firms.
Do these relationships remain purely functional due to the business setting within
complex business environment and are under a lot of margin pressure they might
the reason, it seems that Extrusion Co. provides value-added services for these
along the lines of hand, head, and heart relationships. Serving these types of
customers requires adjusting internal activities. Some customers (i.e., truck and
requirements than others; and some customers require more inspection and
design resources (i.e., OEM customers) while others require more customer
service and salesforce resources (i.e., carpet metals). Extrusion Co. must build
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capabilities to service all these customers simultaneously; and yet it was evident
throughout the interviews that the company differentiates itself from competition
by developing value-added solutions for its customers. For this reason, the firm is
not equally successful with all three customer types but is most successful with
those customers who value customized service; and in a sense, we can think of
the hand customers as probably paying for a level of service they do not utilize.
At Extrusion Co., the company organizes itself for flexibility. This starts
with the sales process and runs through the entire organization. How information
extrusion companies, but rather the purposeful way in which Extrusion Co. has
manufacturing facilities, and creating and capturing value more generally are all
logic that results from the company‟s purpose. At the root of that purpose is a
focus on servicing customers flexibly and reliably; this is what Extrusion Co.‟s
President calls “R2: Reliable and Responsive” (Extrusion Co. President) and
other times she refers to the company‟s business model as one that delivers
This is not to say that the company is not as focused on serving customers,
customer loyalty, satisfaction or value creation. Rather, it means that Kitchen Co.
arises and evolves. If Extrusion Co. thinks of is model internally as one that
intending to deliver „mass loyalty.‟ The firm directs its efforts to facilitate similarly
loyal relationships to that brand across the entire base of customers. The Vice
The people who buy a premium appliance are generally very loyal
to the brand.... Our customer base is relatively affluent and they
tend to be women.... The majority of the people who buy a premium
appliance are looking for a lifestyle change. (Kitchen Co. Vice
President)
Kitchen Co. has traditionally focused on making a functionally superior product.
An assumption widely held at this company is that the majority of customers who
own the product can develop an emotional connection with the brand. “This is a
core capability of the company: to create a product that people will love.” (Kitchen
Co. Marketing Manager). As a result of this dominant logic the firm engages in a
The section that follows explores how each of the companies acquires
to improve product and service offerings and plan for the future. While parallel
processes exist at both firms, distinctions can be drawn; and those differences
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are rooted in deeply held organizational conceptualizations of the purpose of the
firm and of the drivers of its success vis-à-vis its customers. These organizations
attribute their success to different factors, one to great products and the other to
how the firms approach their routine activities and how and what they learn. In
this executional and learning process, the dominant logic of what works well
works gets reinforced, enhanced, and sometimes questioned but in all cases it is
Both firms possess mental models about the ideal customer. These
activities. The sales process at Extrusion Co. can be very lengthy, sometimes
lasting years: “We called on a customer in Milwaukee for 7 years before we got
them to buy from us...” (Extrusion Co. President). Similarly, although some
others‟ research process for a premium appliance can take years. A customer
process:
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just didn't want to make anything in the right consistency. That's
when I started looking at higher-end appliances like.... I read all
about them, including a few others and decided to go with ... for the
following reasons...(“An Excellent Premium Appliance Indeed,”
Customer Review posted on Amazon.com,
http://www.amazon.com/, accessed on April 12, 2013.)
customers. At Kitchen Co., the company uses mass media to promote itself and
customers are the ones doing the research. Amazon.com and food social
products to those of its main competitor. Many of these reviews describe the
experience of use of the product, and almost all include features and benefit
comparisons between the two. Kitchen Co.‟s primary marketing activities are
Facebook postings and YouTube video postings. Through both of these channels
the company emphasizes the use experience of the product. The company
A purchase from either of these two firms requires a big commitment from
customers. In the case of Extrusion Co., the extruded metal customers buy
sometimes literally “frames” their primary products, as is the case with the
Co. customers purchase a premium appliance from that company, they are
spending four to ten times more than in purchasing from a less premium brand.
In either case, customers make a big investment and the cost of making the
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wrong decision has financial, reputational and emotional consequences. We
might imagine that for different customers the risk of loss related to making the
circumstances. How the product and the risk of loss from making the wrong
choice are experienced might dictate the amount and type of pre-purchase
that within the Kitchen Co. organization, the appliance purchase decision is
largely conceived in emotional terms. The Vice President of Sales at Kitchen Co.
states:
model. Kitchen Co. sells a functionally feature-rich product that costs several
While the product exhibition setting is not conducive to detailed feature research,
seamlessly transform raw ingredients into delicious and healthy food. Live
moment. Research supports the Kitchen Co. notion that consumers justify
spending large sums of money upfront for products if they consider them virtuous
Kitchen Co.‟s thinking about its customers drives how it sells its products.
Extrusion Co.‟s sales force looks for specific „pain points‟ as indication of a good
customer-company fit:
reliable supply in a market where those attributes are relatively rare. The CFO
states:
I think one of the best things Extrusion Co. has done is they‟ve
looked at high-end customers across different markets....Our ability
to cater to that customer, and build work cells around them.... We
build work cells that other extruders are not going to build, custom
cells, just for their products. But we can charge a lot of money for it
... (Extrusion Co. CFO)
As Extrusion Co. promotes itself on the flexibility of its service model; it also
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Our salesmen have a lot of freedom to deal with the customer. In
the case of a competitor, particularly a big one, the salesman would
go out, the customer will say we need a quote on this. He would
send it in and somebody at the corporate level will come back and
say okay you have to charge them $2.75 a pound...But when our
salesman sends it in, we say „your cost is gonna be $2 for this part‟
how much do you think we should charge?.. So the salesman
determines the pricing with a lot of talk and communication on that
(Extrusion Co. VP)
This more flexible approach to sales also results in a faster, more responsive
quoting process:
And they wanted a custom piece of carbon metal, they don‟t want
any holes, that‟s all it was. And the salesman... got the order in, and
we made the metal and shipped it to him before the other guy could
even come back with a quote... He (the customer) of course went
with us... (Extrusion Co. Vice President)
A business that organizes to deliver flexibility is more expensive to set up
and operate than one that delivers „one-size-fits-all‟ service; these extra
costs are worthwhile only if the firm is able to charge for customized
service. It seems logical that Extrusion Co. would search for customers
pay a premium for extruded metal. To a certain extent the firm cannot
growth.
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Learning from Customers
to become and to remain relevant to them. At Kitchen Co. and at Extrusion Co.
about why customers like the brand at each company. These conceptualizations
drive both the go-to-market activities and the interpretation of the outcomes of
those activities.
figuratively or literally brought inside the firm. This might be done through a plant
tour, which is always encouraged. Even when customers do not visit the plant, a
Extrusion Co. builds made-to-order parts and customizes its service protocol, the
focus of the firm and its primarily indirect go-to-market model. The only
demographics collected through warranty cards. Also, the marketing team has a
60/40 split with 60 women and 40 male...” (Kitchen Co. Marketing Manager) Yet,
expectation is consistent with how the product is marketed and sold; but it also
affects the type of information collected from customers and how it is exploited to
At Kitchen Co. learning from customers happens after the sale has been
learns from its customers, and in doing so, projects empathy and learns to be
empathic:
We have (cooking) 101, a book that has all the recipes of things
that customers do with their premium appliances. All customer
service reps have to have cooked everything in that book.
(Kitchen Co. Customer Service Manager)
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In the process of answering customer calls, the company is building its
knowledge base about its own product. In both organizations the provision of
metal in its final assembly provides Extrusion Co. with an opportunity to provide
great service but it also serves to train its employees on how to communicate
with customers, how to think broadly about their role in the supply chain all the
way to the end user of the finished product; and by engaging in this learning
as the basis of the brand meaning internally and externally. Similarly, at Kitchen
Co., learning how customers use premium appliances helps customer service
organization literally, as they add recipes to the Company‟s recipe book, a book
of practical use knowledge about the product. These calls are also the starting
point for iterative innovations and product improvements. The Vice President of
Engineering states:
... a customer was burned because he used our blender with very
hot liquids and the lid came off. We then launched a major redesign
initiative to develop a safer lid. We came back to the customer
relatively quickly and gave him the new, redesigned lid along with a
new premium appliance that he could give away to a member of his
family. Not only did we change our relationship with that customer
but also benefitted all our other customers because now we have a
better lid.
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(Kitchen Co. Vice President of Engineering)
Co. than at Kitchen Co., in a more or less explicit manner both firms recognize
Teaching Customers
relationships with customers must use its sales and customer onboarding
sales and customer onboarding processes to teach its customers how to use its
requires seamless cooperation between sales and the rest of the firm, in
manufacturing process with over three hundred different order types moving
through the same extrusion ovens, presses, and dye processes within a relatively
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did is rearrange our plant to facilitate a low volume high mix
model... We are able to deliver exactly what the customer wants
thanks to our operational set up into value streams: the value
streams own the different types of customers. We organize our
plant into value streams who handle different customers and their
requirements. So sales has to recognize the needs upfront and
operations has to deliver on those needs. I was thinking the other
day, who has more of a role in that? Sales or Operations? I don‟t
know. (Extrusion Co. President)
The operational make up at Extrusion Co., where customer archetypes are
product, not just prior to purchase, through the roadshow product demonstration,
company‟s products. Unlike Extrusion Co., Kitchen Co. customers are unlikely to
purchase any other products from the firm for years to come. Again, this focus on
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couple) feel disappointed and hurt... We have 100,000+ members
on Facebook. And every Tuesday we put out a new recipe, and the
intent is to move them from a beginner, to intermediate to advanced
user. (Kitchen Co. Manager)
satisfaction also has a more direct impact on sales through returns. An analysis
When we look at returns, we can plug the boards in and figure out
what the defect was that caused the product to be returned. Well,
by analyzing that return data we realized that less than ¼ of 1% of
the returns actually had a mechanical defect. Most of our returns
were due to people not having a good initial experience with the
premium appliance. What we also found is that if they were to use
the premium appliance at least 20 times, their likelihood to keep it
doubles. The most powerful way for us to sell is to get people to
see other people‟s premium appliances, a neighbor a family
member and be amazed by it. (Kitchen Co. Vice President)
Educating customers on how to use the product can also become a customer
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customer acquisition activities. And yet, specific differences between them, a
customer loyalty for each firm. Those drivers of success can further be explicated
by looking at the capabilities and strategic resources that propel each firm.
failures
Both firms care about customer feedback and use customer information to
process at Extrusion Co. are explicitly built into the customer onboarding
the company follows a deeply reflective process to addressing the issue and
So, they will call and talk to one of our inside sale reps... That
inside sales rep will log that and it will become a customer hassle.
And then that goes out.. to every leader in our plant. ... Usually we
take a look at that right away and determine what happened, try to
go down and track the root cause, who processed this? Why did
that happen? While we‟re working on that, our sales representative
or even myself will be working on the customer relationship side of
the issue, how are we going to take care of this, make this right?
What can we do? .. this is not typical of our business, we apologize,
of course, but immediately, we want to replace the material. If it‟s a
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situation where they have material on their floor and they don‟t
have time to deal with it, we‟ll fly out and see them. We‟re dealing
with the problem but we also are paying attention to see how
severe this impact is on our relationship, what can we do to save
our relationship? (Extrusion Co. Vice President)
The company communicates customer issues broadly and deeply in the
establishes the prioritization that customers are given in the company. Second,
management of the firm that calls on the customer to mend the overall
externally. Fourth, once the “root cause” of the service failure has been
damage control, people who are skilled at managing and containing conflict. At
Extrusion Co., the service failure is not handled cosmetically; in addressing the
one-off failure the firm is building its core capabilities at building customer
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relationships at the deepest level of the organization:
two types of knowledge: functional knowledge related to the quality issue and
deeper emotional knowledge as they develop empathy for the customer. Also,
perspective, the service recovery loop is closed when corrective action has been
(Extrusion Co., VP of Sales). And then again six months later, by asking the
customer directly to ensure the issue has not recurred (Extrusion Co., VP of
Sales)
manner and the information flow is also less distributed and more focused.
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1-800 number available through the company website and also included with the
product. This conduit for receiving complaints seems rather standard and is
certain calls are handled. Calls related to recipe failures get special attention at
usability issues of the product is driven by a deep-seated belief that the premium
lifestyle. Earlier, I noted how that Kitchen Co. views the first 20 uses of the
new customer. The Customer Service Manager added: “What is different about
Kitchen Co. is that we don‟t just sell a product. We sell a lifestyle.” (Kitchen Co.
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opportunities. The differences in how service failures are handled correspond not
just to the fact that one sells appliances and the other sells extrusions but rather
to the deeply held beliefs of how the firm uniquely creates value for its customers
In one case, it is by building deep and broad functional and emotional learning
routines, in the other, by replicating customer problems with the aim of improving
case of a service failure. In addition, there are more routine ways in which
social media tools for this purpose by reading customer reviews on Amazon and
information from the customer base in an effort to improve the usability of the
product. Here again, deeply held beliefs about how customer loyalty to the brand
arises and develops guides information collection, dissemination and use. The
The people who are most loyal to Kitchen Co. are the people who
have had the most success making lifestyle changes thanks to our
product. ... We focus on developing features into our products that
make achieving that lifestyle change easier. For example, we have
been focusing on improving the convenience of our products by
making them easier to fit under a cabinet, and easier to clean than
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any other premium appliance. We know that if the product is less
convenient to use, then people will be less likely to use it everyday
and therefore less likely to succeed in implementing those lifestyle
changes. (Kitchen Co. Vice President)
There are many ways in which Kitchen Co. could be improving its products.
specific product features that will motivate a customer to use the appliance more
Although critical to the company‟s sales growth, those efforts seem less strategic
customers on a monthly basis and with every shipment. The data from both of
those sources is used in multiple ways: (1) posted on the plant floor, (2) reviewed
into a „corrective action‟ event if scores are lower than 7 (out of 10), and (4)
The prioritization this data receives, the broad communication effort around its
Additionally, and in the way it was described earlier when discussing service
In the forgoing discussion I presented evidence that the two firms execute
routine and ad hoc activities to acquire knowledge from their customers. And in
differentiates the firm determine how information is collected and how it is used
and stored as tacit and explicit knowledge. These firms have particular learning
routines that are activated at the time of customer acquisition, retention, and
enhancement. I will now show how both firms also have a particular way in which
they acquire and develop employees; how they plan or tacitly create a cultural
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environment that reinforces the dominant logic and managerial values of the firm;
and how each firm deals with management and technology issues. Again here,
customer loyalty concepts are connected to and influence how the firm
Both companies hire carefully, yet differences in the hiring priorities of the firm
reflect the capabilities of the organization. At Kitchen Co. the company is growing
rapidly and requires specific functional knowledge to enable orderly growth. The
average tenure of the employees I interviewed at Kitchen Co. was four years,
whereas the average tenure of the employees I interviewed at Extrusion Co. was
ten years. This shows that Kitchen Co. has done a bit more hiring of managerial
positions whereas Extrusion Co. has promoted from within for similar positions.
As the company grows, Kitchen Co. is focusing on adding rigor and structure to
its internal processes and has focused on hiring practitioners, people with
specific knowledge and skills. This is particularly true in key positions within
Sales and Marketing and Engineering. Kitchen Co. has credited its success to
having a great product. The key functional area of responsibility from a product
and hires more engineers than marketing and sales people but is now also now
improving additional processes to make the product more robust. The head of
Engineering stated:
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We are also in the midst of a very significant cultural shift, and we
are looking at the manufacturing process from beginning to end and
looking for opportunities to improve on the current process. Our
macro change in the company is to improve quality and really
reduce all forms of waste. My goal is to improve value to the
customer by eliminating waste... we are eliminating process steps
in manufacturing that the customer does not see or that do not
create any value added to the customer and in doing so we will
improve our margins and either lower the price of the product or
take that margin and reinvest it in innovation so we can offer
customers a better product in the future. (Kitchen Co. VP of
Engineering)
specific skills. It is not uncommon for employees to be hired into a position that
Once an employee is hired, the training and acclimation process begins. Both
Kitchen Co. and Extrusion Co. have specific onboarding training for employees.
Both ask that employees spend time experiencing the nuts and bolts of
understand how the company creates value for its customers. Once the
department. At Extrusion Co. this also happens, but roles are less defined
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Formal training is reserved for functional knowledge. The Company focuses on
hiring for attitude and trains for the specific HR, Quality or manufacturing
Co., the Company leaves roles to the discretion of the employee. This means
that roles are fluid and the divisions between departments are porous because
And so one of the things we try to do, and you can see that with my
experience, I can fill that HR role, but I have more skills and abilities
and the President was seeing that and allowing me to grow and
expand into different areas... within six months I had HR, and then I
had a portion of our operations, one of our valued streams ... And
over time, it evolved from ... to one of our biggest industries, our T-
slot division. So, I manage all of our operations over T-slot.
(Extrusion Co. VP)
The VP of IT is also the CFO. The manager of safety is a facilitator for the
company and runs a variety of meetings at all levels in the firm. The Executive
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around the individual needs and interests of employees. In a sense, the
Our President always talks about mass customization, and so, you
know, we customize everything, for our customers, but we also do
the same for our employees. Because just like with customers,
employees have different needs at different times, so we customize
and tailor, try to do as much as we can for our employees as well
as our customers. (Extrusion Co. VP)
Organizing to deliver responsive and reliable customer service requires that
employees are highly engaged with customers and just like in the manufacturing
interactions. Instead, there are no rules. This works because employees in each
department have cross-functional roles and act on behalf Extrusion Co. and in
Role definition and training are important decisions the firm must make,
and as those they are made, the firm is continually balancing dual goals related
to goals of standardization and spontaneity. The firm would benefit from making
allowing knowledge to remain tacit. This last priority looms larger for the service-
focused than the product-focused firm, larger for Extrusion Co. than for Kitchen
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Co.. Customer Service is important at both firms, but it is conducted differently
and formal training is more important for the firm that seeks to project a rules-
based image to the market. At Kitchen Co. employees are trained around specific
policies:
company policies in the most professional and positive manner. At Extrusion Co.
there is no customer service department and there are not policies; responsive
elements are treasured and their interrelationships are nurtured. The CFO of the
firm states: “When the business is really profitable, the President’s first thought is
how to give back to the employee.” (Extrusion Co. CFO). The culture of that firm
is one that demonstrates that individual differences are cherished through the
organized in more traditional functional silos, yet the culture in that organization
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also seeks to create cohesion through other means. A production manager
states:
the lifestyle of customers, not just a simple premium appliance. This focus is
echoed internally. Employees can care for their own lifestyle through a cafeteria
that features healthy menus and gourmet food, a gym, a clinic and a dentist
available to all staff. While these amenities are common in Silicon Valley firms,
Grow at 50% per year for the next five years and be able to
complete our ESOP (Employee Stock Ownership Plan). Basically
I‟m giving the company away. We are giving our stock to our
employees. Then I‟m just going to continue to watch the strength of
the company. When the company is employee-owned people will
be more willing to throw non-performers off the bus that they are
today. (Kitchen Co. CEO)
If employees at Kitchen Co. are made to feel like the are part of a family, where
each member has a predetermined role, Extrusion Co. seeks to extend its no-
deliver that service is one that cannot be easily taught but can be hired, modeled
over 250 employees and their families. Also, by inviting employee families to
members, the company is not just creating an image of a caring environment but
is also creating a strong incentive for employee retention that is enforced by the
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encouraged at Extrusion Co.. Part of the leadership requirements for every
member of the management team is that they forge similar relationships with
their team members. Although Extrusion Co. has few rules, there are rules about
the number and quality of employee interactions, and part of all managers‟
absence of rules but rather the rules that do exist. Most senior managers at other
firms would be surprised if their CEO made them report the number and exact
nature of their interactions with subordinates. While the firm leaves customer
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intimacy mandated across the firm is part of a programmatic approach to building
Both Kitchen Co. and Extrusion Co. possess organizational cultures that
reflect and reinforce firm capabilities. As employees join these firms they note a
particular culture. The CFO at Extrusion Co. states: “I had spent six years at
Company X and then when I came to Extrusion Co. I saw that this place was
drastically different, much more flat structurally. Your ability to do things that you
think need to be done... you can get them done.” (Extrusion Co. CFO) At Kitchen
A Vice President at Kitchen Co. expressed a similar slightly frustrated view of the
managers expressed a need for more structured planning from the very
leader. One who feels most needed in an environment in which the strategic
planning process has not quite been established and therefore tends to happen
and flexibility, an ability to 'turn the ship' quickly. However, Kitchen Co. is in the
midst of a transition. The firm introducing new product lines, and it is collecting
market research to feed into its product development processes. The company
over forty-percent sales growth year over year. The benefit of not having
level of uncertainty in the upper and mid-management levels of the firm, the
potential for employee burn out, and the potential that product innovations might
In the case of Kitchen Co. the company had just purchased an integrated circuit
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board manufacturing unit, improving the usability of their appliances by adding
geared at creating visibility for product flows as material moves through the
manufacturing floor to offer even more reliable lead times to customers based on
the specific requirements of their orders. (Extrusion Co. CFO , VP of IT) Here
again, the product vs. service focus in the two firms drives the type of
investments the two firms are making. Investing in a circuit board reinforces
firm is rounding out its product focus by investing in marketing resources and
increasing the weight of customer input in the product development process, the
dominant logic that stipulates that the product is the source of company success
gets reinforced. Additionally, investing in a circuit board means that the firm will
need to train its employees to operate it; will need to increase the sophistication
of the processes that feed into and link to that manufacturing phase; and might
responsiveness. This investment is designed to help the firm better manage the
product level by value stream. This will further reduce the need for employee
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rules but will certainly heighten the sense of employee responsibility to the
customer.
differentiated skills, complementary assets, and routines that provide the basis
business” (p. 18). One of my research goals was to decipher broad capability
themes in two organizations and to investigate how capabilities drive and interact
with customer loyalty goals. The initial hypothesis about the two firms, Extrusion
Co. and Kitchen Co. was that given their industry affiliation, they would have
widely different organizational routines. Instead, what I found was that as mid-
embodied in people and systems that are most critical to their core capability.
This is logical as knowledge assets are the most unique and hardest to imitate
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strategic resources of the firm. Assets and capabilities are so intrinsically and
intimately linked that it is almost impossible to separate them. I recall here that
core capabilities are organizational skills that span several functions within the
firm and activate strategic assets and together assets and skills help the firm
achieve competitive advantage. Extrusion Co. and Kitchen Co. are both highly
successful firms, Extrusion Co. leads its industry from a profitability perspective
while Kitchen Co. has a track record of very rapid sales growth. We can broadly
define the core capabilities of these two companies as customer intimacy and
their leadership for the genesis of these firms strategic assets and core
president. In the case of Kitchen Co., the founder of the firm is an engineer and
inventor who attributes the company‟s success to technical prowess and the
engineer, but this CEO possessed superior skills and knowledge about how to
foster deep and meaningful human relationships and how to intrinsically motivate
employees.
of a firm‟s life, core capabilities and core strategic assets are one and the same
as they are embodied in a very small group of people and their intimate
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interactions. A company‟s marketing process and the process of capability
accolades, complaints, and more generalized feedback. The tools and methods
the firm uses to listen to feedback and to incorporate that feedback into its
production activity determine how and to what extent the firm enhances its
capabilities. Those tools and feedback methods and the interpretation of the
feedback are driven by the dominant logic of the firm. With a dominant logic that
a time, before and during the business relationship. The employee community at
this firm distributes information broadly and places an emphasis on learning from
its customers. This company hires managers over practitioners and relies on on-
logic of the firm is that company success is driven by superior products based on
together to enhance products but there is a lessened need for intimacy within this
than learning as it is in the process of teaching that the organization learns. This
together to learn about the product and the company has an opportunity to
for firms to sustain their performance they must strike a delicate balance between
listening and reacting, between learning and teaching. Listening too closely and
reacting too much means losing differentiation; listening too little and failing to
react can mean capitulating to core rigidities. Here too, the two companies are
context of their markets, and capabilities at balancing the listening and reacting
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Chapter 6
ORGANIZATIONS
to „Just Do It,‟ that is, exercise when we‟d rather sleep in; Huggies promises to
convenience; and the Four Seasons Hotels promise outstanding service. For
positioning for their brands. Managers select brand meanings for their firms in the
hopes that they will be able to „stand‟ out from other alternatives available to
customers‟ loyalty to the brand. Companies can only grow sustainably if they
market themselves using a brand positioning that is congruent with the product
and service attributes delivered to customers. Brands like BMW and Huggies are
positioning by having superior products; in order for brands like Fedex and
need to have superior operational processes; in order for the Four Seasons to
personal needs when they are away from home. Differentiating the customer-
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facing brand requires having differentiated capabilities that bear some
correspondence to the image the brand is attempting to create, that is, it requires
appealing but complex and difficult to operationalize. These constructs are also
obviously related, but until now we lacked a theoretical framework to tease out
study of the relationship between capabilities and loyalty and the corresponding
shed light on the connections between capabilities and loyalty in two specific
acquired by the firm is critical to the types of capabilities that the firm develops.
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capabilities. If the firm is to develop a differentiated brand positioning it will
knowledge accordingly. Table 6.1 shows the relationship between each of the
customers who score high on head loyalty support a brand because of its
based on expectations that companies will clearly state the performance benefits
of their products and services and will live up to the expectations they have
created. It logically follows that brands seeking to attract head loyalty must: (a)
managerial process, technology, and cultural skills of the firm. In the performance
oriented-firm, employees are hired for their specific skills; these companies will
market-leading product-focused skills and the firm will seek formal functional
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training when appropriate to ensure employees possess market-leading product
knowledge.
further improve the performance of its products. Employee career paths in these
clear rules for how to progress from one stage to the other while allowing for
The technology systems that support this type of firm must be product-focused
and must enable ideation and communication. Customer feedback will be used to
test emerging technologies to ensure they meet latent needs but will not be
overweighed as the firm, not its customers, will be in charge of setting the
improved. The company wishing to cater to head loyalty will benefit from
adapting its organizational learning routines to the peculiarities of the head loyal
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customer.
This dissertation has shown that customers who score high on heart
loyalty support brands which inspire passion and extroversion, making them feel
the item: “If someone says something negative about <brand>, I will feel like they
are attacking me personally.” The type of company that aspires to heart loyalty
will have a strong culture that extends beyond the employee to a community of
practice around the brand. These companies‟ walls will be porous to facilitate the
mirroring of the customer experience internally. The culture must capture the
essence of what brings customers and employees together around a brand idea.
The product will take a back seat to the customer; employees will obviously need
organizational success will require a very strong culture with highly empowered
employees at all levels of the firm. The technology supporting this type of
encourage sincere customer feedback and will use that feedback to adapt
The customer who scores high on hand loyalty is someone who probably
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made a cognitively-involved product choice some time ago but now supports the
brand out of routine. Like the other loyalty dimensions, hand loyalty implies trust
towards the brand but unlike the other loyalty dimensions that trust is based on
a high hand loyalty score support their brand of choice over others because it is
easier to use, more convenient, and more available. From a core capability
perspective, the company seeking to attract or maintain hand loyalty will deliver a
consistent rather than brilliant level of service. It will prioritize distribution over
other executional elements, making the brand ubiquitous within specific sales
with logistics and operational expertise; it will hire accordingly and will devise
will likely be rules and policy-driven leaving little room for error. These companies
will require a relatively regimented cultural environment, one that is not tyrannical
interactions will be kept to a minimum, become automated and highly time and
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Extrusion Co. and Kitchen Co. through the lens of the Conceptual
Framework
two self-sustaining activities. The strategic plan provides a blueprint for the
the firm will impact firm performance within the context of the market
tests a strategic hypothesis and records how reality differs from the strategic
relationships between variables, (b) records and communicates the results from
this dissertation can help direct the development of capabilities, the development
management agenda of the firm. Mapping specific firms‟ capability and loyalty
profiles against the conceptual framework should help generate insights for the
individual firm.
This dissertation included an in-depth study of two firms, Kitchen Co. and
Extrusion Co., and a discussion of how these two firms approach capability
manufacturing, the management of this company affirmed that it wins within its
based and one-size fits all. This firm described having three types of customers,
which roughly fit the hand-head-heart tripartite model but being most successful
with „velcro‟ accounts. These velcro accounts are companies to whom the firm is
able to offer value-added services that reach beyond the product to include
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components, Extrusion Co. management takes specific steps to establish deep
and broad personal customer relationships with these customers. The company
has a sense that it is the „heart‟ relationships that are most rewarding from a
profitability perspective but might not have the hard data to justify internal
multidimensional loyalty scale can be adapted to the needs of the B2B enterprise
to allow Extrusion Co. to measure the loyalty of its customer base. Extrusion Co.
and more general competencies. The firm might consider adding the
help test the hypotheses that the firm‟s customer intimacy capabilities are most
helpful in increasing heart loyalty and that heart loyals are more profitable than,
say, hand loyals. If these hypotheses are confirmed, then the company might feel
stakeholders. In turn, Extrusion Co. will be able to garner the energy and support
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lots of tacit strategic assets (relationship management expertise, customer
and procedures, customer service manuals). Making some of these naturally tacit
assets more explicit will enable more efficient and effective organizational
managerial); by their relative tacit or explicit nature; and by the relative dispersion
of knowledge (internal vs. external) will aid the firm as it plans how to manage,
train, and use knowledge. Figure 6.2 presents an illustrative map showing
knowledge assets of the firm and identifying the most likely key strategic assets
for the two companies in the study, Kitchen Co. and Extrusion Co.. Please note
that this chart is purely illustrative, meant to show the likely placement of the
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Figure 6.1
For example, tacit knowledge is more effectively trained through mentoring and
value; Extrusion Co. might categorize its knowledge assets and decide how and
to what extent to protect those most critical to its core capabilities. Use and
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does not mean that the firm will only find head loyal customers amongst its base,
but rather that its capabilities are naturally fitting to head loyalty. Some of the firm
drives purchase and learning happens after the product is in the kitchen and the
customer learns how to use it and its feature and benefits justify the purchase in
a super-premium product like the one sold by Kitchen Co., and that affect might
product is seen as virtuous and enabling a healthy lifestyle, we can imagine that
high affect might result from the successful use of this product, as Kitchen Co.‟s
customers attribute their ability to improve their lives to Kitchen Co.‟s premium
appliance.
In reality, it is likely that Kitchen Co. has both head and heart loyalty
amongst its customers, and some, although less, hand loyalty. Understanding
the mechanics of the head to heart transition is important because it will help the
decision process. If emotion is in fact the primary purchase decision driver, then
the firm should make customer testimonials, featuring lifestyle change success, a
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powerfully processes different food products due to its powerful motor) will be
highly valuable exercise for Kitchen Co. The use of the multidimensional loyalty
scale would provide a way to understand how consumer attitudes evolve from
Using the core capability model developed as part of this dissertation will
enable Kitchen Co. to build competences purposefully to fit its strategic intent.
The firm has been successful against its main competitor by developing a
core capabilities to support that growth. While marketing pundits might extol the
delicately balance the role of the customer. Kitchen Co. should continue to make
its products customer-friendly but should not look for customers to dictate its
innovation path, as their role is to inspire rather than decree. The firm might look
for cross-industry benchmarks from other firms who also possess a performance-
oriented core capability (e.g., BMW, Google, ). Here again, distilling the
provide management with a tool to guide its metric setting, and its training and
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development efforts.
Learning leaders today are challenged to link the learning agenda of the
firm to its strategic priorities. Adapting the learning agenda to the company
strategy is rarely done in practice, perhaps because strategic priorities are ill
knowledge, tacit over explicit rules, community over individual priorities, and
Co., owes its market position to its superior product performance must have
functional performance capabilities. This firm should favor explicit knowledge and
agenda of the firm to be integrated with the firm strategy, the management teams
need to articulate strategic priorities not only in terms of market share or other
numerical business goals but also in terms of core capabilities. Changing how
strategic value, and stature of the learning and development function in the firm.
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Directions for Future Research
tools. This practice can cause the misdiagnosis of important patterns that run
across the entire system, limiting the organization‟s opportunity for generative
to apply the capability construct in the service of loyalty. This dissertation started
with an excerpt from management thinker, Peter Drucker, who famously placed
customer loyalty at the forefront of the agenda of the firm. Placing customer
loyalty above other company goals, such as profitability, is not only good practice
loyalty we also need to advance the individual learning goals of the firm.
A key aim of my literature review and field research was to bridge the gap
testing two sides of a conceptual framework that links customer loyalty and
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company capability. This dissertation has developed a measurement tool that
relationships between capabilities and loyalties within the firm. Future research is
steps in this research agenda include the creation of more deductive research
models for capability categorization and measurement. Narver and Slater (1990)
and Kumar (1993), who developed a scale to measure not just information
that information. Here, as in the loyalty space, more typologies of capabilities are
company functions and of academic disciplines, filling the great void left by the
lack of integrative research. A virtuous byproduct of this work will be the elevation
learning and the strategic agenda of the company. More work is needed to map
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the firm‟s knowledge assets and to design specific organizational learning
routines that match, enhance, or change the core capability profile of the firm.
This work might be conducted in parallel with the quantitative capability work
tools developed here will become critically important in building the case for
greater and more specific learning investment in the firm. A related but separate
stream of work might be to explore specific ways that companies can change
capabilities and their impact on loyalty. For example, many firms undertake
social consciousness. The current loyalty profile of the firm as well as its
projects.
strategy, and loyalty but are rarely used in combination across these fields.
Future work might explore the use of psychometric measurement tools to map
transitions customers make and the key drivers of the inflection points in
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customer-company relationships.
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Appendix A
Thank you for participating in this consumer study. We are interested in your
opinion about different brands and products. We will be asking you about your
preferences, your habits, and your opinions about a particular brand. There are
no right or wrong answers; we are simply interested in your candid opinion
Please enter the name of the brand of <drink type> that you strongly prefer. We
will be asking you a series of questions about this brand.
We are interested in your opinion about <preferred drink brand>. Please indicate
the extent to which you agree or disagree with each of the following statements:
(note items 1-26 use 1-7 Likert Scale with Strongly Disagree(1) to Strongly
Agree(2) as anchors)
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6. I buy <preferred drink brand> because I don't want to go through the trouble
of finding something else
7. I will keep buying <preferred drink brand> just because it is convenient
8. My preference for <preferred drink brand>is the result of a careful side-by-
side comparison with other brands
9. I frequently compare <preferred drink brand> to other brands to check
whether <preferred drink brand> is still the best choice
10. I value <preferred drink brand> for its superior performance
11. I expect <preferred drink brand> to deliver on its promise every time
12. I do not think there is a brand of <drink type>that works better than <preferred
drink brand>
13. Switching away from <preferred drink brand> will be an easy decision when
something better becomes available
14. If another <drink type>brand comes up with an improved product, I will
probably switch
15. One key reason I prefer <preferred drink brand> is that it offers the best value
for money
16. One key reason to buy <preferred drink brand> is that it is priced well
17. For me, what the <preferred drink brand> product does is much more
important than the brand name
18. An important reason I like <preferred drink brand> is its quality
19. One key reason to repurchase <preferred drink brand> is that it works as
expected
20. I feel passionate about <preferred drink brand>
21. If someone says something negative about <preferred drink brand> I wil feel
like they are attacking me personally
22. I feel good when I think about <preferred drink brand>
23. I feel a connection to other people who also drink <preferred drink brand>
24. The fact that I drink <preferred drink brand> says something about me
25. I love sharing stories about <preferred drink brand> with other people who
also drink it
26. If <preferred drink brand> does not deliver as expected, I will be very upset
27. How often do you consume <preferred drink brand>?
a) More than Once a Day (7)
b) Every Day (6)
c) Several Times a week (5)
d) Once a Week (4)
e) Every Two Weeks (3)
f) Once a Month (2)
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g) Less than Once a Month (1)
28. How loyal are you to <preferred drink brand>? (Likert scale 1=not at all loyal,
7= very loyal)
29. How does <preferred drink brand> compare to your ideal <drink type>.
Very far away from my ideal drink (1)/ Very close to my ideal drink (7)
30. Please tell us how you feel about <drink type> on each of the following
dimensions. <Drink type>s are:
a. Unimportant to me (1) /Important to me (7)
b. Of no concern to me (1) /Of great concern to me (2)
c. Irrelevant to me (1) /Relevant to me (3)
d. Mean nothing me (1) /Mean a lot me (4)
e. Useless to me (1) /Useful to me (5)
f. Insignificant to me (1) /Significant to me (6)
31. What is your gender?
a. Male (1)
b. Female (2)
32. What is your age?
165
Appendix B
166
Jeans Heart Subscale Reliability Analysis
Reliability Statistics
Cronbach's N of Items
Alpha
.841 6
Item-Total Statistics
Scale Scale Variance Corrected Cronbach's
Mean if if Item Deleted Item-Total Alpha if Item
Item Correlation Deleted
Deleted
I feel passionate about <jeans 15.23 41.234 .683 .803
brand>
If someone says something 16.26 47.859 .453 .844
negative about <jeans brand> I
will feel like they are attacking
me
I feel good when I think about 14.32 42.627 .575 .824
<jeans brand>
I feel a connection to other 15.32 38.553 .738 .790
people who also use <jeans
brand>
The fact that I use <jeans 14.46 40.880 .588 .823
brand> says something about
me
I love sharing stories about 15.88 41.236 .686 .802
<jeans brand> with other people
who also wear them
Scale Statistics
Mean Variance Std. Deviation N of Items
18.29 58.709 7.662 6
167
Jeans - Hand Subscale Reliability Analysis
Reliability Statistics
Cronbach's N of Items
Alpha
.895 5
Item-Total Statistics
Scale Scale Corrected Cronbach's
Mean if Variance Item-Total Alpha if Item
Item if Item Correlation Deleted
Deleted Deleted
I buy <jeans brand> just out of 17.61 31.183 .772 .866
habit
I buy <jeans brand> just because 17.11 31.617 .779 .864
it is familiar
I buy <jeans brand>just because I 17.29 32.543 .790 .862
am used to it
I buy <jeans brand> as long as it 16.84 37.670 .584 .904
is easy to find
I will keep buying <jeans brand> 17.49 31.919 .793 .861
just because it is convenient
Scale Statistics
Mean Variance Std. Deviation N of Items
21.59 50.226 7.087 5
168
Head loyalty subscale Jeans Reliability Analysis
Reliability Statistics
Cronbach's N of Items
Alpha
.785 5
Item-Total Statistics
Scale Scale Corrected Cronbach's
Mean if Variance if Item-Total Alpha if Item
Item Item Deleted Correlation Deleted
Deleted
I value <jeans brand> for 21.49 16.686 .651 .717
its superior performance
I expect <jeans brand> to 21.23 15.992 .750 .685
deliver on its promise
every time
An important reason I 20.72 18.468 .567 .747
like<jeans brand>is their
quality
One key reason to 21.02 18.019 .550 .750
repurchase <jeans
brand>is that they work
as expected
If <jeans brand>} does 21.82 16.600 .395 .825
not deliver as expected I
will be very upset
169
Shampoo Factor Analysis Results
170
Shampoo Heart Loyalty Subscale Reliability Analysis
Reliability Statistics
Cronbach's Alpha N of Items
.896 6
Item-Total Statistics
Scale Scale Corrected Cronbach's
Mean if Variance if Item-Total Alpha if
Item Item Deleted Correlation Item
Deleted Deleted
I feel passionate about 14.10 47.902 .698 .881
<Sbrand>
If someone says something 15.03 47.470 .741 .875
negative about <Sbrand> I
will feel like they are...
I feel good when I think 13.38 48.873 .609 .896
about <Sbrand>
I feel a connection to other 14.54 46.039 .761 .872
people who also use
<Sbrand>
The fact that I use 14.04 45.960 .769 .870
<Sbrand>says something
about me
I love sharing stories about 14.86 47.412 .750 .874
<Sbrand>with other people
who also use it
171
Shampoo Hand Subscale Reliability Analysis
Reliability Statistics
Cronbach's N of Items
Alpha
.874 5
Item-Total Statistics
Scale Mean Scale Corrected Item- Cronbach's
if Item Variance if Total Alpha if Item
Deleted Item Deleted Correlation Deleted
I buy <Sbrand> out of 20.90 19.272 .813 .819
habit
I buy <Sbrand>just 20.88 19.858 .765 .831
because I am used to
it
I buy <Sbrand>just 20.85 19.549 .806 .821
because it is familiar
I buy <Sbrand> as 20.67 21.873 .645 .860
long as it is easy to
find
I will keep buying 20.78 23.281 .493 .894
<Sbrand> just
because it is
convenient
Scale Statistics
Mean Variance Std. Deviation N of Items
26.02 31.456 5.609 5
Reliability Statistics
Cronbach's N of Items
Alpha
.877 5
172
Item-Total Statistics
Scale Mean Scale Corrected Item- Cronbach's
if Item Variance if Total Alpha if Item
Deleted Item Deleted Correlation Deleted
I value <Sbrand> for its 21.40 18.450 .783 .832
superior performance
I expect <Sbrand> to 21.03 19.914 .795 .832
deliver on its promise
every time
An important reason I 20.95 19.403 .818 .825
like <Sbrand>} is its
quality
One key reason to 20.74 22.044 .694 .858
repurchase <Sbrand> is
that it works as expected
If <Sbrand> does not 21.75 19.907 .534 .904
deliver as expected, I
will be very upset
173
Drinks Factor Analysis Results
a
Rotated Component Matrix
Component
1 2 3
I feel a connection to other people who also drink <drink brand> .844
I love sharing stories about <drink brand> with other people who also drink it .844
I feel passionate about <drink brand> .798
The fact that I drink <drink brand>says something about me .797
If someone says something negative about <drink brand> I will feel like they .713
are attacking me personally
I feel good when I think about <drink brand> .573
I buy <drink brand> just because it is familiar .860
I buy <drink brand>out of habit .811
I buy <drink brand>just because I am used to it .776
I will keep buying <drink brand> just because it is convenient .680
I buy <drink brand>as long as it is easy to find .650
I expect <drink brand>to deliver on its promise every time .852
An important reason I like <drink brand>is its quality .808
I value <drink brand>for its superior performance .364 .671
If <drink brand> does not deliver as expected, I will be very upset .650
One key reason to repurchase <drink brand>is that it works as expected .601
Extraction Method: Principal Component Analysis.
174
Drinks Hand Loyalty Subscale Reliability Analysis:
Reliability Statistics
Cronbach's N of Items
Alpha
.811 5
Item-Total Statistics
Scale Mean Scale Corrected Item- Cronbach's
if Item Variance if Total Alpha if Item
Deleted Item Deleted Correlation Deleted
I buy <drink brand>out 20.85 20.647 .653 .757
of habit
I buy <drink brand>just 20.58 22.270 .612 .770
because I am used to
it
I buy <drink brand> 20.63 20.683 .742 .729
just because it is
familiar
I buy <drink brand>as 20.42 24.858 .474 .808
long as it is easy to
find
I will keep buying 20.73 22.716 .522 .798
<drink brand> just
because it is
convenient
Scale Statistics
Mean Variance Std. Deviation N of Items
25.80 33.172 5.760 5
175
Head Scale Drinks Reliability Analysis
Reliability Statistics
Cronbach's Alpha N of Items
.785 5
Item-Total Statistics
Scale Scale Corrected Item- Cronbach's
Mean if Variance if Total Alpha if Item
Item Item Deleted Correlation Deleted
Deleted
I value <drink brand>for 21.31 16.739 .567 .743
its superior
performance
I expect <drink 20.67 16.604 .687 .704
brand>to deliver on its
promise every time
An important reason I 20.69 17.382 .638 .722
like <drink brand>is its
quality
One key reason to 20.73 20.485 .447 .779
repurchase <drink
brand>is that it works
as expected
If <drink brand> does 21.96 15.868 .519 .770
not deliver as expected,
I will be very upset
Scale Statistics
Mean Variance Std. Deviation N of Items
26.34 25.823 5.082 5
176
Heart Drinks Scale Reliability Analysis
Reliability Statistics
Cronbach's N of Items
Alpha
.865 6
Item-Total Statistics
Scale Scale Corrected Cronbach's
Mean if Variance if Item-Total Alpha if Item
Item Item Correlation Deleted
Deleted Deleted
I feel passionate about 15.17 41.675 .751 .826
<drink brand>
If someone says something 16.77 51.051 .588 .858
negative about <drink
brand> I will feel like they
are attacking me
personally
I feel good when I think 14.42 50.717 .432 .878
about <drink brand>
I feel a connection to other 15.64 41.621 .756 .825
people who also drink
<drink brand>
The fact that I drink <drink 15.15 40.836 .731 .830
brand>says something
about me
I love sharing stories about 16.05 41.692 .737 .828
<drink brand> with other
people who also drink it
Scale Statistics
Mean Variance Std. Deviation N of Items
18.64 62.539 7.908 6
177
Appendix C
I will be recording this interview and wanted you to know that your answers will
be treated with complete confidence and will not be shared publicly. Also, you will
not be identified by name in my analysis of the interviews.
I have organized this interview into three sections, the first one delves a bit into
your role in the company. The second deals with customer loyalty more directly,
as I will try to find out your opinion on what makes a successful customer
relationship, both from the company and from the customer perspective. Finally, I
will be asking you about how your company creates capabilities to promote
customer loyalty.
Background questions
1. How long have you been with the company?
Now, I would like to know in general terms about how you perceive the
company’s track record and its goals.
180
Appendix D
181
pursuing a noble cause that motivate employees
Leadership Role of the leadership of the company
How employees feel about leaders
Great Quotes Great excerpts and quotes
Production Comments regarding the operations and production
functions of the firms
Six Sigma Specific comments about six sigma or lean initiatives
Production Initiatives designed to improve production and
Improvements operational processes
Core Strengths Sources of company strength and marketplace
differentiation
Background Interviewee background
Communication
Customer - employee Comments regarding customer-employee
communications
Internal Internal company communications
communication
Company wide Are there instances of co-wide in-person or other
meetings communication?
Company Data Internal data used to manage or asses company
performance
company environment what it's like to work here... values... what behaviors
are accepted and encouraged in the company or
discouraged
Company growth Discussions about how / why the company is
growing
Product / Service Comments regarding product or service features
generally; or compared to competitors‟
Competitors Comments regarding competitors
HR Comments regarding the HR department or function
IT Comments regarding the IT department
Customer service / Inside Discussions of customer service department or
sales inside sales department; organized processes to
deliver a great customer experience
Weaknesses Discussions of how the company is not doing
something well
Capabilities Discussion of internal company skills that lead to
excellent company performance
Strengths Discussion of company strengths
182
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