2009 ISECS International Colloquium on Computing, Communication, Control, and Management

Study on the Impacts of Service Quality and Customer Satisfaction on Customer Loyalty in B2C E-commerce
Yangcheng Hu Department of Management Engineering Nanchang Institute of Technology Nanchang, China hyczju@126.com
AbstractIn e-commerce, loyal customers are considered extremely valuable. However, little attention has been given in the literature to understand customer loyalty and its antecedents especially in e-commerce settings. The present study empirically investigates the impacts of service quality, customer satisfaction on customer loyalty in a B2C ecommerce context. Factor analysis and structural equation modeling (SEM) are conducted based on a sample from undergraduate student respondents. Results indicate that, although the direct effect of service quality on customer loyalty is significant, the indirect effect (with customer satisfaction playing a mediating role) is a stronger driver for customer loyalty. E-commerce managers are recommended to devise operations and marketing strategies that focus on service quality dimensions in order to enhance customer satisfaction and, in turn, foster loyalty. The present study focuses only on the B2C e-commerce and uses convenience sampling method. Future research should examine other types of e-commerce settings with random sampling method. Keywords-services quality; customer satisfaction; customer loyalty; e-commerce

Although, a number of studies have documented the relationship between service quality, satisfaction and loyalty in traditional service industries and e-commerce settings, theoretical foundations as well as empirical confirmations are lacking (Kassim and Ismail, 2009). The present study deals with the question of how service quality and customer satisfaction influence loyalty in e-commerce. We first review the relevant literature leading to our research hypotheses. This is followed by discussions of the research method and results of the empirical study conducted in a city of China. We conclude the paper with the implications of the findings and give some suggestions for future research. II. CONCEPTUAL FOUNDATIONS AND HYPOTHESES

I.

INTRODUCTION

Customer loyalty is considered crucial because of its positive effect on company survival (Semejin et al., 2005). Developing and managing customer loyalty is very strongly related to the profitability and the long-term growth of a firm (Reichheld, 1993, 1995; Zee-Sun and Linda, 2007). Indeed, loyal customers that indulge in repeat purchases are the bedrock of any business (Caruana, 2002). As a result, it is urgent for e-commerce companies to create a loyal customer base (Reinartz and Kumar, 2002). Research has shown that consumers benefit a lot from internet, including enhanced control, ease of use, and reduced transaction costs (Unsal and Movassaghi, 2001; Rod et al., 2009). Clearly, all companies need to consider and evaluate e-marketing and e-purchasing opportunities (Kassim and Ismail, 2009). However, few companies can create customer loyalty successfully on the internet, and little is known about the mechanisms on how to create loyalty. In extant researches, several antecedents of customer loyalty have been argued (Srinivasan et al., 2002; Van Riel et al., 2004). Many scholars highlight the importance of service quality or customer satisfaction as preconditions for loyal behavior (Pavlou, 2003).

A. Customer Loyalty and its Definition in E-commerce The various definitions of loyalty have been discussed by some scholars for more than 40 years. Early views of loyalty focused on repeat purchase behavior. For example, Kuehn (1962) argued that loyalty should be measured by the probability of product repurchase. Day (1969) criticized previous views by arguing that there is more to loyalty than just consistent buying of the same brand (Caruana, 2002). Loyalty is now defined as repeated purchase behavior exhibited over a sustained period and driven by a favorable attitude toward the subject (Hsin and Su Wen, 2008) The concept of loyalty in e-commerce extends the traditional concept to online consumer. Anderson and Srinivasan (2003) investigated loyalty in e-commerce and defined loyalty as a customers favorable attitude toward an electronic business that leads to repeat buying behavior (Grace and Chia-Chi, 2009), including both attitudinal and behavioral aspects. Although the underlying theoretical foundations of traditional loyalty and the loyalty in ecommerce settings are generally similar, they have unique aspects related to internet based marketing and buyer behavior (Hsin Hsin and Su Wen, 2008). B. Service Quality and its Impact on Customer Loyalty Grnroos (1984) suggested that service quality was consumers perceived service quality and defined it as the outcome of an evaluation process, where customers compare their expectations with the service they perceive to have received (Yaobin et al., 2009). Service quality has also been

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defined as a global judgment or attitude, relating to superiority of the service (Parasuraman et al., 1988). Service quality has been found to be the main driver of behavior related to the development of customer loyalty (Esen Grbz, 2008). In a study of the relationship between service quality and loyalty behavior, Zeithaml et al. (1996) suggested that the favorable assessment of service quality leads to favorable behavioral intentions (Yan Lu and YooKyoung, 2008). This view is further exemplified by a study which found a positive relationship between the dimensions of service quality and customer loyalty (Wong et al., 1999). However, there are few reported studies that specifically explore the link between service quality and customer loyalty in e-commerce. Based on the above analysis, the following hypothesis is proposed: H1. Service quality positively influences customer loyalty in e-commerce settings. C. Customer Satisfaction and its Impact on Loyalty Customer satisfaction can be defined as customers evaluations of a product or service with regard to their needs and expectations (Oliver, 1980; Billy et al., 2008). Likewise, Zeithaml and Bitner (2000) defined customer satisfaction as the customers evaluation of a product or service in terms of whether that product or service has met their needs and expectations (Anand Kumar Jaiswal, 2008). Past studies found that online customer loyalty results from customers satisfaction and that the positive impact of online satisfaction on loyalty is evidenced in the context of ecommerce (Anderson and Srinivasan, 2003; Hao-Erl et al., 2009). Fornell (1992) argued that high customer satisfaction will result in increased loyalty for the firm and that customers will be less prone to overtures from competition (Sivadas and Baker-Prewitt, 2000). Anderson and Srinivasan (2003) argued that although e-satisfaction has an impact on e-loyalty, this relationship is moderated by consumers' individual level factors and firms' business level factors (Grace and Chia-Chi, 2009). Based on the above analysis, the following hypothesis is proposed: H2. Customer satisfaction positively influences customer loyalty in e-commerce settings. D. Service Quality and Customer Satisfaction Iacobucci et al. (1995) concluded that the key difference between service quality and customer satisfaction is that quality relates to managerial delivery of the service while satisfaction reflects customers experiences with that service (Sivadas and Baker-Prewitt, 2000). According to Berry et al. (1988), service has become a powerful and competitive weapon for a company in achieving customer satisfaction. Zeithaml and Bitner (2000) also stated that service quality assessment focuses primarily on dimensions of service, and perceived quality is not only a component of customer satisfaction but is also influenced by product quality, price, customer factors, and situational factors (Billy Bai et al., 2008). However, there is very little empirical research demonstrating the importance of service quality dimensions in determining customer satisfaction

(Fisk et al., 1993; Amin and Isa, 2008), especially in ecommerce setting (Hsiu-Fen Lin, 2007). Based on the above analysis, the following hypothesis is proposed: H3: Service quality positively influences customer satisfaction in e-commerce settings. E. The Mediating Role of Customer Satisfaction Ball et al. (2006) carried out an investigation in the banking industry where they studied the effect of service personalization on loyalty. They said that the effect of service quality on loyalty exists, but that the effect is not direct at all. Although, it has attracted researchers to pay attention to the formal tests of the mediation effects (Gelade and Young, 2005; Yang and Lin, 2006), to our knowledge, rare research examines the mediating effects of satisfaction between service quality and loyalty in e-commerce context. To summarize the above, the main issue is whether the indirect effect of service quality on customer loyalty (via satisfaction) is so significant as to warrant treating customer satisfaction as a required mediating construct between service quality and customer loyalty. Based on the above analysis, the following hypothesis is proposed: H4. Service quality positively influences loyalty via customer satisfaction in e-commerce settings. We present a research model for this study (see Fig. 1). III. METHODOLOGY

A. Sample Data For college students are the greatest proportion of internet users and e-commerce customers generally are younger and better educated, a total of 500 questionnaires were distributed to senior undergraduate students from five universities or colleges in Nanchang, China. The survey contained measures of service quality, customer satisfaction and customer loyalty. All responses were assessed on sevenpoint Likert scales ranging from 1 (strongly disagree) to 7 (strongly agree). Totally 213 questionnaires were recovered, including 159 valid questionnaires. The ratio of valid questionnaires recovery is 31.8%. Table I lists descriptive statistics about the sample. B. Measures 1) E-commerce Service Quality: Three attributes, namely information quality; website design; responsiveness were modified from the measures used by Lin (2007) and Ribbink et al. (2009) to depict the nature of e-commerce service quality (ESQ). Each attribute was measured with three items (information quality: alpha=0.880; website design: alpha=0.865; responsiveness: alpha=0.890). Further, we conducted confirmatory factor analysis using AMOS 5.0 (Arbuckle and Wothke 1999) to examine the ESQ attributes, and the results suggest that the three-factor conceptualization fits the data appropriately ( F 2 =54.69, df=24; GFI=0.936; NFI=0.949, TLI=0.955, CFI=0.970, RMR=0.053). Thus, the measuring instrument of ESQ which includes 3 dimensions and 9 items has good psychometric properties

IV.
Service Quality in E-commerce

ANALYSES AND RESULTS

H1 H3

Customer Satisfaction in Ecommerce

H2

Customer Loyalty in E-commerce

Figure 1. Research model

2) Custoerm Satisfaction and loyalty: The scale used by Sahadev and Purani (2008) was modified for the current study to capture customer loyalty in e-commerce, including three items (Recommend this site to other people; Consider this site to be your first choice; Do more business with this site). Also, three items (My choice to purchase from this website was a good one; I have truly enjoyed purchasing from this site; I am satisfied with my decision to purchase from this site) were modified from the measures used by Liu et al. (2008) to depict the nature of e-commerce customer satisfaction. Analysis reveals an acceptable internal consistency for the two constructs (customer satisfaction: alpha=0.924; customer loyalty: alpha=0.915). C. Statistical Analysis Method The structural equation modelling (SEM) approach was used to validate the research model. This approach was chosen because of its ability to test casual relationships between constructs with multiple measurement items (Joreskog and Sorbom, 1996). Numerous researchers have proposed a two-stage model-building process for applying SEM (Hoyle, 1995; Joreskog and Sorbom, 1996; Hair et al., 1998). Confirmatory factor analysis (CFA) was conducted to test the validity of the measurement model, and the structural model was also analyzed to examine the associations hypothesized in the research model.
TABLE I. Demographic characteristics Gender Male Female Computer skills Poor Fair Good Internet experience (years) <1 year 1-2 3-5 >5year SAMPLE CHARACTERISTICS Frequency 87 72 23 46 90 Percentage (%) 54.7 45.3 14.5 28.9 56.6 Cumulative (%) 34.4 100 14.5 43.4 100

A. Assessing Fit Between Proposed Model and Data AMOS 5.0 statistics software was utilized to conduct linear structure relation analysis. All parameter estimates for the model are statistically significant (p<0.001). Table reports the goodness-of-fit indicators of the research model. For the model, the F 2 divided by the 24 degrees of freedom yields a value of 1.63, which is better than the demanded maximum of 3.0 for a good model. The other fit indices (GFI=0.948; AGFI=0.903; NFI=0.968; TLI=0.981; CFI=0.987) and the low standardized root mean square residual (RMR=0.062) are all within acceptable ranges and show that a substantial amount of variance is accounted for by the model (Bagozzi and Yi, 1988). Hence the model is a reasonable representation of the data. B. Hypothesis Testing We use this research model for hypothesis testing. The results are given in Fig. 2 and Table . The standardized path coefficient between e-commerce service quality and loyalty shows that a positive and significant impact exists ( J 21 =0.28, p<0.01), so research hypothesis H1 is supported. The standardized path coefficient between satisfaction and loyalty shows that a positive and significant impact exists ( E 21 =0.53, p<0.001), so research hypothesis H2 is supported. The standardized path coefficient between e-commerce service quality and satisfaction shows that a positive and significant impact exists ( J 11 =0.69, p<0.001), so research hypothesis H3 is supported. Analytical results also suggest that e-commerce service quality may has indirect impact on customer loyalty via customer satisfaction ( J 11 E 21 =0.37, p<0.001), so hypothesis H4 is supported. This result implies that, though the direct effect of service quality on customer loyalty is significant, the indirect effect of service quality on customer loyalty (via customer satisfaction) appears to be a stronger driver for customer loyalty in the e-commerce context.
TABLE II. Model Mt Criteria FIT INDICES FOR STRUCTURAL MODEL GFI 0.948 >0.90 NFI 0.968 >0.90 TLI 0.981 >0.90 CFI 0.988 >0.90 RMR 0.062 <0.08

F 2 / df
1.50 <3

15 37 68 39

9.4 23.3 42.8 24.5

9.4 32.7 75.5 100

Figure 2. Hypotheses testing results

Notes: ESQ=e-commerce service quality; CS=customer satisfaction; CL=customer loyalty

TABLE III. Hypothesis H1 H2 H3 H4

PATH COEFFICIENT OF THE RESEARCH MODEL Causal Path ESQ CL CS CL ESQ CS ESQ CS CL Path Coefficient 0.28** 0.53*** 0.69*** 0.37*** t-value 3.001 5.479 8.939 Result Supported Supported Supported Supported

ACKNOWLEDGMENT Social Science Planning Project of Jiangxi Province (Grant No. 09YJ262). REFERENCES
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Notes: **means p<0.01.***means p<0.001.

V. A.

DISCUSSIONS AND SUGGESTIONS

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Discussions on the Results In the present study we find evidence to support the positive and significant link between service quality, customer satisfaction and loyalty in a B2C e-commerce context. Nevertheless, numerous researchers point out the mediators between service quality and loyalty. Our work focuses on the strategy of customer satisfaction and we have posited satisfaction in e-commerce settings as the necessary path by which service quality leads to the achievement of customer loyalty. We have evidenced that satisfaction acts as a mediator between service quality and customer loyalty. We statistically show that although the linkage between ecommerce service quality and loyalty is significant, what best accounts for enhanced loyalty is satisfaction. These results support the findings of previous research in traditional retailing contexts (Ahmad and Kamal, 2002; Lin, 2007) and extend these findings to a B2C e-commerce context. These findings indicate that the importance of service quality and customer satisfaction for loyalty is not restricted to traditional retailing settings but also applies to e-commerce settings. The implications of this study are two-fold. First, as regards implications for theory, results indicate that service quality does not operate in isolation from other sources of loyalty and emphasize the need to examine mechanisms by which service quality contributes to customer loyalty in ecommerce. Second, with regards to the management implications of this study, we can affirm that the interrelationship between service quality and customer satisfaction has been recognized as one of the key factors for customer loyalty. Given that companies could increase profits by 100 percent by retaining just 5 percent more of their customers (Reichheld and Sasser, 1990), e-commerce managers need to develop a systematic assessment program to improve service quality and customer satisfaction. B. Limitations and Future Research Directions This study had two primary limitations. First, the sample employed student as subjects, which may not be representative of the general population of online shoppers. The analytical results presented here thus may have limited generalizability. Second, since this study only considered B2C e-commerce, it is unclear whether the analytical results can be generalized to other types of e-commerce. Further research can apply the research model to examine other types of online retailers.

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