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Journal of Retailing 80 (2004) 139–158 The four levels of loyalty and the pivotal role

Journal of Retailing 80 (2004) 139–158

Journal of Retailing 80 (2004) 139–158 The four levels of loyalty and the pivotal role of

The four levels of loyalty and the pivotal role of trust:

a study of online service dynamics

Lloyd C. Harris , Mark M.H. Goode

Sir Julian Hodge Chair in Strategic Marketing, Cardiff Business School, Cardiff University, Colum Drive, Cardiff CF10 3EU, UK

Abstract

A four-dimension scale of loyalty that reflects Oliver’s [Satisfaction, a Behavioral Perspective on the Consumer, McGraw-Hill, New York, 1997] conceptualization of a sequential loyalty chain is proposed, operationalized, and tested. Further, through both synthesizing and building on existing research into loyalty, trust, satisfaction, value, and service quality, a framework is proposed and tested that positions trust as a pivotal driver of loyalty. Data is collected and analyzed from two surveys of online customers, the first being purchasers of books and the second being a study of online flight purchasing. Analysis suggests that the hypothesized cognitive-affective-conative-action loyalty sequence is statistically most likely out of all possible variations. Although some differences emerge in the two studies, structural modeling largely supports the hypothesized framework and positions trust as central to service dynamics. © 2004 by New York University. Published by Elsevier. All rights reserved.

Keywords: Loyalty; Trust; Satisfaction; Perceived value; Service quality; E-tailing

Introduction

While some organizations are content with focusing on simply achieving customer satisfaction, gaining and sustain- ing customer loyalty constitutes the ultimate aspiration of many contemporary service providers. Loyal customers buy more, are willing to spend more, are easier to reach, and act as enthusiastic advocates for our firms. Predictably, for these and other reasons, ‘ultimate’ loyalty has been described as an elusive (and arguably unattainable) corporate objective of the new millennium. Given the widespread acceptance of the causal link between loyalty and firm performance, it is perhaps not surprising to find that customer loyalty for brick-and-mortar firms has been linked to antecedent factors ranging from relationship duration, to service reliability, to servicescape attributes. Although e-commerce 1 is expanding exponentially both in the US and elsewhere (up to 49 percent per annum), sec-

Corresponding author. Tel.: +44 29 2087 5066; fax: +44 29 2087 4419. E-mail address: Harris@Cardiff.ac.uk (L.C. Harris). 1 ‘Electronic commerce’ refers to all electronically assisted business processes that facilitate transaction or exchange (see Barnes-Vieyra & Claycomb, 2001). In contrast, the Internet may be viewed as an electronic medium that facilitates a range of transactions principally through the World Wide Web (WWW). This definition is deliberately generic and is designed to incorporate a variety of electronic channel transactions such as emails, intranet, and other network-assisted transactions although there

tor analysts have observed that only a very small minority of web site visitors (1.3–3.2 percent) return to make purchases (Boston Consulting Group, 2000; Shop.org, 2001). Never- theless, recent research indicates that such rare, loyal online customers are highly profitable (Nielsen, 1997; Scheraga, 2000). In this regard, it may be claimed that generating loyal customers online is both more difficult and more im- portant than in offline retailing. These and other findings lead prominent theorists to argue that establishing online loyalty is dependent on first generating consumer trust in the procedural rigor and operational abilities of the sup- plier (e.g., Reichheld, Markey, & Hopton, 2000; Reichheld & Schefter, 2000; Stewart, 2003). In this sense, establish- ing and maintaining consumer trust with online suppliers is of paramount importance. These insights have led com- mentators in the field to argue that too little is known of the nature and drivers of online loyalty (e.g., Gans, 2002; Grewal, Lindsey-Mullikin, & Munger, forthcoming-b; Re- ichheld, 2001; Shim, Eastlick, Lotz, & Warrington, 2001). Indeed, the Marketing Science Institute rates research into e-commerce and specifically into the determinants of on- line loyalty as its top priority. However, studies consistently demonstrate that online shoppers distrust not only the

is a greater focus on web-based transactions. Electronic commerce is also frequently called ‘e-commerce’ (see Hamilton, 2001; Kickul & Gundry, 2001; Lee & Whang, 2001).

0022-4359/$ – see front matter © 2004 by New York University. Published by Elsevier. All rights reserved.

doi:10.1016/j.jretai.2004.04.002

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e-tailers themselves (e.g., Fukuyama, 1995; Urban, Sultan, & Qualls, 2000) and their payment systems (e.g., Baker, 1999; Hoffman, Novak, & Peralta, 1999a), but also the very nature of the Internet and online shopping (e.g., Hoffman, Novak, & Peralta, 1999b; Schoder & Yin, 2000). The present research project is designed to contribute in- sights into these issues in three main ways. First, an objec- tive of our research is to develop and extend existing con- ceptualizations of service dynamics through incorporating the construct of trust and evaluating its role and importance in driving loyalty after accounting for the well-established antecedent links with service quality, perceived value, and satisfaction. Second, we aim to propose, operationalize, and test a four-dimension scale of loyalty that reflects Oliver’s (1997) conceptualization of a sequential loyalty chain. Third, given the centrality of loyalty and trust to (in particular, on- line) retailing we intend to test our theory in online contexts and thus contribute additional insights into overall service frameworks and dynamics as well as specific insights into the idiosyncrasies of e-tailing. This article is structured in the following way. First, we briefly outline existing frameworks that incorporate quality, satisfaction, value, and loyalty. Second, we present a con- ceptual model of the antecedents of online loyalty that high- lights the fundamental and central role of trust in retailing. Thereafter, we describe the research design, methodology, and the approach adopted. After presenting our results and evaluating our framework, we conclude with a discussion.

Established frameworks of service

In ongoing attempts to understand the dynamics of ser- vice, services researchers continue to devote considerable attention to loyalty intentions, perceived value, satisfaction, and service quality (e.g., Bolton, Kannan, & Bramlett, 2000; Rust & Oliver, 2000; Sirdeshmukh, Singh, & Sabol, 2002; Szymanski & Henard, 2001). Through building on and extending earlier research (no- tably, Aaker, 1991; Anderson, Fornell, & Lehmann, 1994), Oliver (1997) forwards a framework of service that presents quality which leads to satisfaction which in turn affects loyalty. The conceptual roots of this view are evident in the subsequent framework of Anderson and Mittal (2000) who argue that such issues are best modeled as a sequential chain of attribute performance leading to customer satisfac- tion, further affecting customer retention, and subsequently producing profit. In contrast, Parasuraman and Grewal (2000) build on their earlier studies (Baker, Grewal, & Parasuraman, 1994; Grewal, Monroe, & Krishnan, 1998) and the work of Heskett, Sasser, and Schlesinger (1997) to forward what they label ‘an expanded model of customer loyalty’ that presents a sequential chain of quality-value- loyalty. However, it is the work of Cronin, Brady, and Hult (2000) that constitutes the most comprehensive study of

the issues, through testing four different models of service. Briefly, they find the strongest support for a framework that models behavioral intentions as anteceded by value, quality, and satisfaction, with value and satisfaction also mediating the quality-intention link. The endorsed frame- works reflect conceptual and empirical work that support associations between service quality and perceived value (e.g., Parasuraman & Grewal, 2000; Standifird, 2001), ser- vice quality and satisfaction (e.g., Heskett, Jones, Loveman, Sasser, & Schlesinger, 1994; Lynch & Ariely, 2000), ser- vice quality and loyalty (e.g., Cronin et al., 2000; Sirohi, McLaughlin, & Wittink, 1998), perceived value and loyalty (e.g., Peterson, Balasubramanian, & Bronnenberg, 1997; van Riel, Liljander, & Jurriens, 2001), perceived value and satisfaction (e.g., Bolton & Lemon, 1999; Mathwick, Malhotra, & Rigdon, 2002), and satisfaction and loyalty (e.g., Berné, Mgica, & Yagüe, 2001; Reibstein, 2002).

A conceptual framework of loyalty, trust, value, satisfaction, and service quality

In order to steer the subsequent review and discussion, a figure identifying the key constructs included in the study is provided in Fig. 1. Our framework presents loyalty as a consequence of direct and indirect relationships with trust, perceived value, satisfaction, and service quality. The con- ceptual framework outlined in Fig. 1 presents a series of associative links (denoted by solid lines) that have been previously described as well-established in extant litera- ture. However, in incorporating the construct of trust, and positioning trust as pivotal to service dynamics, Fig. 1 also depicts a series of novel, hypothesized associations (denoted by broken lines). Our principal contention centers on our proposal that the framework of loyalty and its antecedents supplied in Fig. 1, constitutes a reliable and valid depiction of the drivers of online loyalty. Briefly, the rationale for the forwarded conceptual model is generalized, in part, from the theories and findings of previously-discussed frameworks of service developed in offline contexts (in particular, Cronin et al., 2000; Dabholkar, Shepherd, & Thorpe, 2000; Oliver, 1997; Parasuraman & Grewal, 2000), as well as research into the nature of specific service constructs in other contexts (e.g., Cronin & Taylor, 1992; Parasuraman et al., 1994), and spe- cific studies of e-commerce (e.g., Anderson & Srinivasan, 2003; Grewal et al., forthcoming-b; Knights, Noble, Vurdubakis, & Willmott, 2001; Szymanski & Hise, 2000). Our rationale for linkages between individual concepts and further details of theory, on which we rely, is outlined below.

Customer loyalty

With a focus on repeat purchasing, Brown (1952) for- wards a taxonomy of customer loyalty that classifies loyalty into undivided, divided, unstable, and no loyalty. Although

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M.M.H. Goode / Journal of Retailing 80 (2004) 139–158 141 Fig. 1. A conceptual framework of

Fig. 1. A conceptual framework of loyalty, trust value, satisfaction, and service quality.

such an emphasis on consumer behavior met with initial ac- ceptance (e.g., Lipstein, 1959), later researchers argued that such views concentrated excessively on behavioral elements to the detriment of the more attitudinal facets of loyalty (e.g., Day, 1969; Jacoby, 1971). Indeed, Gremler (1995) argues that a meaningful measure of customer loyalty cannot omit the measurement of either attitude or behavior. Although Jacoby and Chestnut (1978) and Dick and Basu (1994) make seminal contributions to exploring and elabo- rating the phases of loyalty, it is the work of Oliver (1997) that constitutes the most comprehensive evaluation of the construct. By building upon and extending earlier work in conceptualizing loyalty, Oliver (1997) forwards a detailed framework of loyalty that presents loyalty as comprising four distinct, sequential phases. First, cognitive loyalty refers to the existence of beliefs that (typically) a brand is preferable to others. Second, affective loyalty reflects a favorable attitude or liking based on satisfied usage. Third, conative loyalty constitutes the development of behavioral intentions characterized by a deeper level of commit- ment (e.g., Hennig-Thurau, Gwinner, & Gremier, 2002; Janda, Trocchia, & Gwinner, 2002; Zeithaml, Berry, & Parasuraman, 1996). Finally, action loyalty relates to the conversion of intentions to action, accompanied by a will- ingness to overcome impediments to such action. Hence, contemporary researchers appear to support frameworks of loyalty that incorporate and integrate both behavioral and attitudinal components (e.g., Aaker, 1991, 1999). However, the Oliver (1997) view has yet to be empirically evaluated. Thus:

H1. There are four sequential levels of loyalty (respectively; cognitive, affective, conative, and action loyalty).

Trust and loyalty

Gundlach and Murphy (1993, p. 41) contend that “the variable most universally accepted as a basis of any hu- man interaction or exchange is trust”. This view reflects the breadth of perspectives adopted in discussions of trust, in- cluding; contractual relations theory (Macneil, 1980), inter- action theory (Håkansson, 1982), organizational theory (e.g., Bradach & Eccles, 1989), psychology (e.g., Rushton, 1980), social psychology (e.g., Blau, 1964), transaction cost eco- nomics (e.g., Nooteboom, Berger, & Noorderhaven, 1997), trust theory (e.g., Gambetta, 1988), and more recently in the study of online exchange (e.g., Lynch, Kent, & Srinivasan, 2001; Stewart, 2003). The emergence of the relational paradigm has contributed to highlighting the importance of trust in buyer-seller re- lationships in both industrial (Dwyer, Schurr, & Oh, 1987; Morgan & Hunt, 1994) and consumer markets (e.g., Bennett, 1996; Lau & Lee, 1999). In the study of exchange, the con- struct of ‘trust’ is most often portrayed as the outcome of reflexive consideration/s of the ability of an actor (e.g., a firm or brand) to meet set obligations (see Chaudhuri & Holbrook, 2001; Doney & Cannon, 1997). As such, trust has been presented as a central attribute in relationship initi- ation, formation, and maintenance in a variety of exchange contexts (e.g., Sirdeshmukh et al., 2002; Verhoef, Francis, & Hoekstra, 2002). Trust has been linked to a variety of outcomes in both the psychology (e.g., Hennig-Thurau & Klee, 1997) and the marketing literatures (e.g., Chaudhuri & Holbrook, 2001). Hennig-Thurau and Klee (1997) theorize that relational at- tributes will play important roles in repurchasing decisions. Such arguments are supported by the empirical findings of

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Eriksson and Vaghult (2000) who find a strong relation- ship between relationship satisfaction and retention, while Sirdeshmukh et al. (2002) positions trust as directly linked to loyalty. Lau and Lee (1999) examine the link between consumers’ trust in a brand and their brand loyalty and find a significant positive association. These insights are extended by Chaudhuri and Holbrook (2001) who find strong evi- dence in support of a significant association between brand trust and both purchase and attitudinal loyalty. Sultan and Mooraj (2001, p. 42) argue that trust is cen- tral to exchange “whether the business is offline or online”. However, indications are emerging that suggest that trust is more important in the online environment than in con- ventional offline contexts. Reichheld and Schefter (2000, p. 107) contend that “to gain the loyalty of customers, you must first gain their trust. That’s always been the case, but

it’s truer than ever”, while Grewal et al.

(forthcoming-b, p. 18) conclude that “customers are asked to trust Internet firms more than their bricks and mortar counterparts”. The high importance of trust online appears intensified by the absence of physical contact with online firms and the ‘lack of touch’ inherent to online exchange (see Lynch et al., 2001; Reichheld & Schefter, 2000). In- deed, the pivotal nature of online trust is acknowledged not only by buyers (see Grewal, Iyer, & Levy, forthcoming-a) and suppliers (see Benassi, 1999), but also by government regulators (e.g., U.S. Federal Trade Commission, 1998) and those concerned about the erosion of constitutional rights (see Shapiro, 2000). In this sense, the importance of trust in electronic con- texts has also been consistently argued (e.g., Grewal et al., forthcoming-b; Knights et al., 2001; Reynolds, 2000; Stewart, 2003). In particular, strong evidence has emerged that consumers are especially concerned about payment security and potential fraud (e.g., Hoffman et al., 1999a; Ratnasingham, 1998). Stewart (2003) finds a strong asso- ciation between trust and intentions to buy, while Lynch et al. (2001) finds that trust is consistently, significantly associated with online loyalty in a number of contrasting national contexts. However, it is the work of Reichheld et al. (2000) and Reichheld and Schefter (2000) that has been the most influential in highlighting the significance of trust in establishing and maintaining loyalty. These views lead to:

on the Web

H2. Trust has a positive influence on loyalty.

Trust and satisfaction

The customer satisfaction literature is firmly grounded in the ‘disconfirmation paradigm’ (see Oliver, 1997). While significant advances in our understanding of satisfaction have been made, Szymanski and Hise (2000) call for more research into the range of drivers of online satisfaction and in particular the trust-satisfaction link. Indeed, such com- ments appear pertinent regarding both business-to-business (e.g., Bauer, Grether, & Leach, 2002) and consumer (e.g.,

Sirdeshmukh et al., 2002) relational quality. Certainly, a number of commentators have observed or theorized, in accord with social exchange theory (see Blau, 1964), that trust evaluations will exert a direct influence on percep- tions of satisfaction (e.g., Gwinner, Gremler, & Bitner, 1998; Singh & Sirdeshmukh, 2000). Such claims reflect the findings of Szymanski and Hise (2000) that position online financial security as the second most important fac- tor driving online satisfaction. However, with some notable exceptions, to date, empirical research that focuses on ex- ploring the trust-satisfaction link have largely been limited to studies of fraud or theft (e.g., Furnell & Karweni, 1999; Ratnasingham, 1998). Thus:

H3. Satisfaction has a positive influence on loyalty.

Perceived value and trust

Perceived value in brick-and-mortar contexts has re- ceived much attention in recent years (e.g., Parasuraman & Grewal, 2000; Sirohi et al., 1998; Sweeney, Soutar, & Johnson, 1999). Indeed, Cronin et al. (2000) argue that the study of perceived value (along with service quality and satisfaction) has dominated research in the services litera- ture. While a number of conceptual models of value have been put forward (e.g., Holbrook, 1994; Sweeney & Soutar, 2001), value is most typically presented as acquisition, transaction, in-use, or redemption-based (see Parasuraman & Grewal, 2000; Woodruff, 1997). Some conceptual support and limited empirical evidence also emerges for an association between perceived value and trust (e.g., Singh & Sirdeshmukh, 2000). Indeed, Anderson and Srinivasan (2003) argue that online perceived value and trust exert similar influences with regard to linkages between satisfaction and loyalty. In contrast, Grewal et al. (forthcoming-b) deconstruct online value into ‘perceived convenience benefits’ on the one hand and ‘perceived risk’, to denote the sacrificial element of value, on the other. The importance of trust is explored by Grabner-Kraeuter (2002) who theorizes that through generating trust in online pur- chasing, retailers add value for consumers through reducing complexity and thus (in part) diminish the uncertainty linked with transactions (a view in accordance with Ratnasingham, 1998). However, it is the work of Sirdeshmukh et al. (2002) that provides the most detailed empirical evaluation of perceived value-trust, to date. Sirdeshmukh et al. (2002) find some support for direct associations between trust and value, although they are forced to conclude that more re- search is needed to evaluate the nature of the link between value and trust. Thus:

H4. Perceived value has a positive influence on loyalty.

Service quality and trust

Through developing the earlier work of Lehtinen and Lehtinen (1982) and Grönroos (1984) presents a disconfir-

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mation model of technical and functional quality intervened by corporate image. However, it is the seminal studies of Parasuraman, Zeithaml, and Berry (1985, 1988, 1991, 1994) that are widely recognized as the most comprehensive eval- uations of service quality. Briefly, Parasuraman et al. (1988, 1991) identify reliability, responsiveness, assurance, empa- thy, and tangibles as the core dimensions of service quality. These developments have aided research into the conse- quences of service quality for both suppliers and buyers (e.g., Cronin et al., 2000; Dabholkar et al., 2000). The issue of service quality appears especially important in online contexts, where it is estimated that online retail- ers lose nearly $21 billion per annum due to poor service (Datamonitor, 2001) and where service complaints double in number each year (N.A.C.A.A., 2001). The importance of online service quality is, in part, driven by research that associates service quality with trust. A number of studies have attempted to integrate measures of perceptions of trust and security into broad measures of overall e-service quality (e.g., Janda et al., 2002; Kaynama & Black, 2000; Liljander, van Riel, & Pura, 2002; Zeithaml, Parasuraman, & Malhotra, 2000a). However, existing studies have also ex- plored the direct links between quality and trust (e.g., Chen et al., 2002; Sultan & Mooraj, 2001). In the business- to-business context, Sultan and Mooraj (2001) find links between a number of service quality factors and trust while arguing that service quality issues contribute to each of the 10 major, online ‘trustbusters’. In contrast, Chen et al. (2002) find that service quality is not significantly linked to trust, in the online pharmacy sector, and suggest that prod- uct category effects influence the link between quality and trust. Nevertheless, a broad range of earlier studies have argued that overall relationship quality is driven by service quality (see Anderson & Sullivan, 1993; Hennig-Thurau & Klee, 1997). In this regard, Hennig-Thurau and Klee (1997) theorize that perceptions of overall quality drive online trust. Thus:

H5. Service quality has a positive influence on trust.

Data collection and sampling

We tested our framework by surveying customers in two distinct key online markets. This research design reflects our desire to pursue a robust testing of hypothesized relation- ships and is similar in approach to the study of Sirdeshmukh et al. (2002). A review of extant literature leads to the con- clusion that the online markets for books and flights are not only the largest and fastest-growing online markets (e.g., Brynjolfsson & Smith, 2000; Forrester Research, 2000; Li & Gery, 2000), but that they also constitute two of the few con- texts wherein initial growth expectations have been matched by subsequent, substantive market growth (Listanti, 2001; Wingfield, 2001). Hence, in Study One, we surveyed online purchasers of books while in Study Two we studied online buyers of flights.

While the justification for the study of online books and flights shoppers is grounded in a conceptual rationale, the

differences between these two distinct contexts, potentially, generates practical complications for the study of service dynamics. For example, a number of leading commentators have suggested that service dynamics can vary tremendously from industry to industry (e.g., Jones & Sasser, 1995), prod- uct category to category (e.g., Wolfinbarger & Gilly, 2001), country to country (e.g., Lynch et al., 2001), and especially so in e-commerce (e.g., Chen et al., 2002). In this regard, theorists have argued that the relative importance of par- ticular constructs (such as satisfaction) may vary from one context to another depending on the nature of markets and exchange (e.g., Grewal et al., forthcoming-b; Oliva, Oliver,

& MacMillan, 1992). Further, the relationship between ser-

vice dynamics constructs may also be affected by the id- iosyncrasies of the sectors concerned (see, e.g., Szymanski

& Hise, 2000; Wolfinbarger & Gilly, 2001). Finally, recent

structural and operational changes within markets may also produce context-specific findings. This is especially the case in the study of the flights market, wherein consumers and op- erators have experience substantial changes in recent years (largely following the tragic events of September 11th). In each of the two studies, a different, single, online sup- plier was surveyed. In Study One, the company is identi- fied by the pseudonym ‘Books.com’ while in Study Two, the pseudonym ‘Flights.com’ is used. Books.com is one of the market leaders for online books purchasing while Flights.com is one of the top three online flight retailers, re- tailing tickets for a wide variety of airlines. Currently, sales for both firms are growing notably faster than the market average. Our rationale for focusing on the customers of a single online supplier is based on the conclusions of re- search into customer service and loyalty (e.g., Pedersen & Nysveen, 2001; Sirohi et al., 1998), online consumer behav- ior (see Rothaermel & Sugiyama, 2001; Standifird, 2001), and retailing (e.g., Garretson, Fisher, & Burton, 2002; Sirohi et al., 1998) which indicates that focusing on single suppli- ers may lead to insights that are missed in surveys of mul- tiple suppliers.

Study One: customers of Books.com

In Study One, a sample of 750 potential respondents was obtained from a research agency from its pre-existing database of online book purchasers. Potential respondents were randomly drawn from those customers who had pur- chased online repeatedly and had purchased at least one book from Books.com within the last six months. Prospective re- spondents were contacted by telephone to obtain agreement for involvement and to arrange a mutually convenient date, time, and location for a face-to-face meeting to administer the questionnaire. The survey instrument was administered to respondents in a face-to-face meeting with one of a team of four researchers. These researchers were experienced in

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field research and were trained by one of the authors over

a two-day period. The same author also supervised the first

five administrations of each researcher. Of the 750 respondents contacted, 342 customers ini- tially agreed to participate. Of the 342, 11 respondents later withdrew their support, 23 were unable to finish the entire questionnaire while 12 questionnaires were spoiled or inap- propriately completed. Eventually, 294 completed question- naires were obtained, yielding a response rate of just over 44 percent (using the calculation method recommended by C.A.S.R.O., 1982).

Study Two: Flights.com

To improve the generalizeability of findings and the va- lidity of conclusions and implications, Study Two adopted

a slightly different survey approach, although each used the

same research instrument (albeit tailored to either books or flights—see Appendices A–C). In Study Two, a randomly selected sample of 1000 recent online purchasers of flights from Flights.com was purchased from a different data bro- kerage agency from that used in the first study. The sample for the second study was compared (by name and by zip code) to the sample of the first study to ensure that the sam- ples did not overlap (three cases were found and excluded from the second sample). Without any prior contact to elicit support, each of the remaining respondents was mailed a

personalized, individually signed letter of introduction, the survey instrument, and a pre-paid return envelope. To im- prove response rates, participation was encouraged with el- igibility for inclusion in a prize draw for $150. Reminder cards were mailed to eligible non-respondents 15 days after the initial mailing. Of the questionnaires mailed, 244 questionnaires were re- ceived from eligible respondents, of which 40 were unusable due to incomplete or inadequate responses. After account- ing for undeliverable packets, this generates a response rate of over 24 percent (C.A.S.R.O., 1982). This compares fa- vorably to response rates of mailed surveys conducted on similar issues (e.g., Jones, Mothersbaugh, & Beatty, 2000; Tax, Brown, & Chandrashekaran, 1998). The differences be- tween the response rates of the two studies is most probably

a reflection of the data collection processes, with the higher

useable response rate for the face-to-face administered sur- vey in Study One reflecting the comparative success of a personalized and guided approach.

Sample evaluation

Given the research focus on consumers of a single on- line retailer in each industry, it was deemed necessary to evaluate potential sample selection bias. First, the obtained samples of customers of Books.com and Flights.com were

compared to non-customers of both firms. 2 To enable mean- ingful comparisons to be made, 50 fully-completed surveys were obtained by administering the questionnaire to non- customers of Books.com, while 53 fully-completed postal surveys were received from non-customers of Flights.com (both randomly selected from a commercial database of on- line consumers). Subsequently, the socio-demographic char- acteristics and the developed key constructs (loyalty, satis- faction, perceived value, service quality, and trust) of the samples of customers and non-customers of both compa- nies were compared first via chi-squared for categorical data, and second by Student t-tests for the continuous data. These tests revealed no statistically significant differences between these samples at the 1 percent level. Following the recommendations of Armstrong and Overton (1977), in both studies, the responses of early and late respondents were compared to gauge non-response bias and no significant differences (p < .01) were found among any of the variables or factors used in later analyses. To gauge the authenticity of respondents, a randomly selected sample of useable questionnaires was taken from both sam- ples and evaluated. This evaluation involved re-contacting respondents by telephone and requesting confirmation of socio-demographic data. This evaluation found no signifi- cant discrepancies. Analysis of responses indicates that the demographic characteristics were comparable across the books and the flights samples (although flight purchasers tended to be slightly older and wealthier). For the total sample, the gender split was fairly equally divided between males and females (52.1 percent male). Just under half of the sam- ple were currently married (47.3 percent) while over half of the sample had children (53.2 percent), were over 35 years of age (78.3 percent), and had a family income of over $120,000 per year (72.2 percent). Over 16 percent used their workplace computer to purchase online goods (compared to 76.1 percent at home and 1.4 percent at an Internet café). Purchasing online was almost exclusively through credit cards (96.7 percent) while average weekly online hours were a surprisingly high 8.5 hr per week, as measured by the median.

Measures and measurement properties

Following similar approaches in other studies of multiple industries (e.g., Jones et al., 2000), the items used in the two surveys were identical with the exception of changes of the firm names, industry names, and other minor re-

2 While this approach to evaluating sample selection bias gauges po- tential bias from all online customers to customers of the single retailers, bias involved in going from all customers to online customers is not examined. This constitutes a limitation of the study that future studies could overcome through the employment of multiple sample selection bias evaluations.

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wordings (largely to the anchor questions—see Appendices A–C). Although a considerable body of research into loyalty, satisfaction, value, service quality, and trust has been un- dertaken (see earlier), in order to gauge these concepts in an online context, scale development and adaptation was required. The scales employed were developed using con- ventional psychometric procedures (Anderson & Gerbing, 1988; Churchill, 1979) and were based on existing scales (largely in offline contexts) as well as on scale develop- ment work conducted during pre-testing. Briefly, our scale development procedure involved the development of sur- vey instruments containing measures of loyalty, satisfaction, value, service quality, and trust derived largely from exist- ing measures (see below). First, the questionnaire was sub- jected to critical review by a panel of 10 senior Internet managers and 5 academicians. After a number of suggested amendments (largely to item wording but also to question order and layout), the modified survey instruments were pretested on consumers. In total, 50 questionnaires were administered regarding Flights.com and 50 for Books.com, with detailed notes taken regarding difficulties, criticisms, and suggestions. After a final critical review, senior faculty members concluded that there were no substantive concerns and the instruments were deemed suitable for final data collection. As discussed earlier, the concept and construct of service quality has been extensively studied, largely in brick-and- mortar contexts (e.g., Cronin et al., 2000; Cronin & Taylor, 1992; Dabholkar et al., 2000), although more recent work has also been conducted regarding online service quality (e.g., Zeithaml, Parasuraman, & Malhotra, 2000b, 2002). A review of such literature supports a focus on perceptions of performance in service quality measures (see Zeithaml et al., 1996). Accordingly, the 22 item scale of Cronin and Taylor (1992) was adapted to the online context, involving extensive rewording and the omission of one item that was inappropriate for this context. The perceived value scale is constructed to measure on- line purchasers’ overall assessments of product and service utility based on what is exchanged (a view of perceived value grounded in the conclusions of Zeithaml, 1988). The scale used in the current study is adapted from the scales of Brady and Cronin (2001) and Mathwick et al. (2002). Satis- faction was measured using the scale of Cronin et al. (2000) since it was felt that the two item scale use by Szymanski and Hise (2000) did not sufficiently encapsulate the con- cept of online satisfaction. Thus, an adaptation of the five item Cronin et al. (2000) scale of satisfaction was adopted. The trust scale is designed to gauge the extent to which customers have confidence and faith in the integrity, ser- vice, and brands of Books.com or Flights.com. In the cur- rent study, the scale of online trust employed is based on the trust measure of Hess (1995) that was originally designed to gauge customers’ trust in car sales. A review of the avail-

able trust measures 3 found that Hess’s (1995) measure of perceived brand trust was not only the most applicable to the focus of the studies on specific company brands, but also was explicitly perceptual in nature, designed to gauge consumers’ trust (and not, e.g., managers’ trust of another firm), and the most easily transferable and adaptable to an online context. Loyalty has been measured from a variety of perspectives, although recent studies appear biased toward the behavioral intention phase of loyalty (e.g., Cronin et al., 2000; Zeithaml et al., 1996). In this regard, extant measures of customer loyalty are unidimensional, uni-phased/staged, and typically overly-focused on what Oliver (1997) conceives as the early stages of loyalty. As detailed earlier, we find the arguments and view of Oliver (1997) both compelling and convincing. Thus, guided by the view of Oliver (1997), the items for capturing loyalty mirror this four-stage loyalty framework with four items each designed to evaluate cognitive, affec- tive, conative, and action loyalty (see Appendix C). The pre- cise wording of these items is grounded in our qualitative data and pretesting procedures. Reliability was examined through Confirmatory Factor Analysis (CFA) and the calculation of Cronbach alpha co- efficients (Cronbach, 1951). CFA was conducted for both surveys. In both studies, each indicator loaded significantly on its designated factor (p < .01). Overall, in Study One (of Books.com) CFA produced chi-squared-degrees of free- dom ratio well below the criterion of Marsh and Hocevar (1985) with adjusted goodness-of-fit (AGFA) significantly better than a one factor model. Similarly, in Study Two (of Flights.com) CFA generated a chi-squared-degrees of free- dom ratio that again was well below the criterion of Marsh and Hocevar (1985) matched by an AGFA significantly bet- ter than a one factor model. Reliability was also gauged via the Cronbach alpha coef- ficient (Cronbach, 1951) that Nunnally (1978) and Churchill (1979) suggest should be over .7 for a scale to be consid- ered reliable. The Cronbach alpha coefficients range from .69 to .97 (see Appendices A–C). Although for cognitive and conative loyalty for the flights survey, the .70 threshold is just missed (at .69), in both cases the variables are very close to the threshold value of .70 and far above the ‘cri- terion in use’ level of .60 reported by Peterson (1994) and Slater (1995) and considerably higher than the .50 threshold originally advocated by Nunnally (1967). The assessment of the validity of each scale was conducted via item-total correlation analyses (Nunnally, 1967), the conditions of ac-

3 A review of the trust literature finds a wide variety of trust measures including the Larzelere and Huston (1980) measure of interpersonal trust (adapted by Morgan & Hunt, 1994 to measure interorganizational trust), the Sirdeshmukh et al. (2002) measure of employee and management policy trustworthiness, the Cummings and Bromily (1996) long (62 item) and short (12 item) Organizational Trust Inventory, as well as a host of less comprehensive measures (e.g. Chaudhuri & Holbrook, 2001; Lynch et al., 2001).

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ceptance being that correlations were significantly high and in the expected direction (Cook & Campbell, 1979). In all cases, the correlations met these criteria. Hair, Anderson, Tatham, and Black (1998) note that con- struct validity (convergent and discriminant validity) can be gauged in a variety of ways. Given that our research ap- proach involved two studies using slightly differing methods but with both measured the same multiple traits, construct validity was first gauged using the multitrait-multimethod approach (see Hair et al., 1998). The results of this analy- sis provide evidence of convergent validity through finding that the correlations between the key constructs measured are sufficiently large, positive and all significant at the .01 percentage level. Discriminant validity is indicated by (1) the results in the heteromethods block that demonstrate that entries in the validity diagonal are higher than the coef- ficients in the same column and row of the heteromethod block (Campbell & Fiske, 1959), (2) the finding that the validity coefficients are larger than the correlations in the heterotriat-monomethods triangles, and (3) evidence of dis- criminant validity is found in the similarity of patterns (rank and direction) of the correlations in the heterotrait triangles (Churchill, 1979; Ford, Walker, & Churchill, 1975). However, more robust evidence of discriminant validity was found through the analysis of chi-squared difference tests, in which the correlations between all possible pairs of constructs are once freely estimated and once set to unity (Gerbing & Anderson, 1988). All chi-square differences for first-order constructs were significant at the .05 level, sug- gesting that these measures are not collinear. The lowest dif- ferences were between conative and affective loyalty in both studies (Study One of Books.com χ (1) 2 = 13.41, Study Two of Flights.com χ (1) 2 = 5.32). These results suggest that, in both studies, the constructs under analysis are distinct and discriminately valid.

Results

H1 states that there are four sequential levels of loyalty (respectively; cognitive, affective, conative, and action loy- alty). To test this hypothesis a three-stage approach was adopted in the analysis of both Study One and Study Two. First, preliminary correlation analysis was undertaken to ex- plore potential linear relationships between each loyalty con- struct (see Table 1a and b). In both studies, the links between the four loyalty measures were positive and statistically sig- nificant. However, while these basic tests provide tentative sup- port for associations between the loyalty constructs, such bi- variate analyses often over-estimate links between concepts and further do not gauge sequentiality or causality. Con- sequently, the second phase utilized a form of path analy- sis, recommended by both Duncan (1975) and Pendhazur (1982). This approach involves the calculating of a series of regression equations between each phase of loyalty in

Table 1

Correlation table

 

Cognitive

Affective

Conative

Action

loyalty

loyalty

loyalty

loyalty

(a)

Study One: Books.com

 

Cognitive loyalty

1.00

Affective loyalty

.52

1.00

 

Conative loyalty

.45

.69

1.00

Action loyalty

.43

.21

.24

1.00

(b)

Study Two: Flights.com

 

Cognitive loyalty

1.00

Affective loyalty

.57

1.00

 

Conative loyalty

.47

.70

1.00

Action loyalty

.49

.46

.34

1.00

Statistically significant at the 5% level: two-tailed test. Statistically significant at the .1% level: two-tailed test.

both studies. In Study One, the estimated parameters be- tween cognitive-affective loyalty, affective-conative loyalty, and between conative-action loyalty are positive in each case (β .49, .70, .25, respectively) and statistically significant (p < .01). In Study Two, a similar pattern of results was found (β .59, .68, .26, respectively; p < .01). Such findings support

H1.

Although the simple path analysis plotted constitutes a more rigorous evaluation of the relations between the loy- alty constructs than simple correlation analysis, to evaluate the sequentiality and causality of loyalty, structural equation modeling was required. James, Mulaik, and Brett (1983) and Jöreskog and Sörbom (1989) both recommend that to eval- uate the sequential order of constructs, structural equation modeling should be undertaken for each potential order se- quence. Thus, for both studies, all possible sequential mod- els of loyalty were mapped (a total of 24 structural equations for each study, 48 in total). In Study One (of Books.com), the results of this analysis indicate that the theorized sequence of loyalty phases (cognitive-affective-conative-action loyalty) produced the most robust and valid model of all the 24 mod- els evaluated (through comparative analysis of chi-squared). These results are replicated in Study Two (of Flights.com) where the hypothesized sequential order is the best-fit when compared to the other 23 alternative models. The procedure adopted to evaluate H1 provides much sup- port for the hypothesized sequential relationships. In partic- ular, the finding that the theorized loyalty sequences produce the best fit with the data in both Study One and in Study Two when compared to the 46 other potential sequences (see James et al., 1983; Jöreskog & Sörbom, 1989), strongly sup- ports H1. Thus, H1 is found to be supported and is accepted.

Service dynamics

Given the nature of the associations between the four components of loyalty (see H1) it was deemed appropriate to estimate a second-order factor of loyalty that incorpo- rated cognitive, affective, conative, and action loyalty. CFA generated a robust overall loyalty factor that conformed to

L.C. Harris, M.M.H. Goode / Journal of Retailing 80 (2004) 139–158

 

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Table 2

Correlation table

 

Loyalty

Service

Perceived

Satisfaction

Trust

 

quality

value

 

(a)

Study One: Books.com

 

Loyalty

1.00

Service quality

.41

1.00

 

Perceived value

.66

.34

1.00

 

Satisfaction

.69

.51

.59

1.00

Trust

.72

.44

.61

.66

1.00

(b)

Study Two: Flights.com

 

Loyalty

1.00

 

Service quality

.28

1.00

 

Perceived value

.76

.24

1.00

 

Satisfaction

.18

.17

.03

1.00

Trust

.76

.23

.78

.04

1.00

Statistically significant at the 5% level: two-tailed test. Statistically significant at the .1% level: two-tailed test.

For both the structural equation models these goodness of fit indices are close to or above the minimum recommend levels. Therefore, based on these diagnostic tests, both mod- els exceed the recommended validity thresholds and are ac- cepted.

Established relationships

First, the link between service quality and perceived value has been demonstrated to be consistently significant

Table 3 Standardized LISREL estimates for Study One and for Study Two

Structural links

Study One:

Study Two:

Books.com

Flights.com

Hypothesis 2 Trust to loyalty

.36

.39

Hypothesis 3 Trust to satisfaction

.54

n/s

Hypothesis 4 Perceived value to trust

.51

.75

Hypothesis 5 Service quality to trust

.27

n/s

Established relationships Perceived value to loyalty Satisfaction to loyalty Service quality to perceived value Service quality to satisfaction

.28

.48

.29

n/s

.34

.35

.27

n/s

Diagnostic statistics Chi-squared Degrees of freedom Probability level (p) Number of observations Incremental fit index (IFI) Comparative fit index (CFI) Root mean squared residuals

9.96

4.72

2

2

.007

.000

294

204

.968

.989

.966

.994

.089

.011

n/s: positive but not statistically significant. Statistical significance at the 1% level. Statistical significance at the .1% level.

reliability and validity requirements. The discriminant valid- ity of the constructs used in structural modeling was found through the analysis of chi-squared difference tests (Gerbing & Anderson, 1988). All chi-square differences were sig- nificant at the .05 level, suggesting that these measures are not collinear. The lowest differences were between trust and loyalty in both studies (Study One of Books.com χ (1) 2 = 14.33, Study Two of Flights.com χ (1) 2 = 15.49). To facilitate the analysis of both the previously established and the hypothesized relationships, the data generated during Study One (of Books.com) and Study Two (of Flights.com) were first tentatively explored using correlation matrices and later analyzed using structural equation LISREL models. Data from Study One and Study Two were not pooled, since analyses 4 suggested that such an approach may disguise sig- nificant sectoral differences and obscure empirical complex- ities. Although in some regards this approach may constrain generalizeability, the analysis of two separate models gener- ates deeper and contextually more complete understanding of service dynamics in these two very different sectors. To explore potential associations between constructs, data for Study One (of Books.com) and Study Two (of Flights.com) were first analyzed via the study of bivari- ate zero-order correlation coefficients. The results of these equations are shown in Table 2. However, as zero-order correlation analysis can lead to an over-estimation of the importance of the relationships within the model, a structural equation technique, LISREL, was employed to test associations. Structural equation mod- els overcome the limitations of bivariate analyses through the simultaneous analysis of all the complex relationships between the constructs. The results of this approach are pre- sented in tabular form (see Table 3) as well as modeled di- agrammatically in Fig. 2. The chi-squared divided by the degrees of freedom ratio for each of the research models were 4.98 for Study One (Books.com) and 2.36 for Study Two (Flights.com). Both these values are acceptable as they are below the recom- mended level of 5 suggested by the Marsh and Hocevar (1985). A number of goodness of fit indices for both models are also reported, namely Bollen’s (1989) incremental fit in- dex (IFI) and Bentler’s (1990) comparative fit index (CFI).

4 The data for the two e-commerce sectors was evaluated to ascertain whether the responses to the two studies should be pooled, or whether two separate models should be used (Bass & Wittink, 1975; Gujarati, 1988). The major advantage of pooling the data in this way is to improve the precision of the estimated parameters (Gujarati, 1988) and widen generalizeability. However, such an approach, potentially, obscures sig- nificant sectoral differences and disguises empirical complexities. In this regard, as the two studies analyze very different sectors (namely flights and books) it would be very surprising if there were no sector-specific differences. As expected, Student t-tests between the same construct for the two surveys were, in all cases, statistically significant at (p < .01). These results indicate that the constructs in the two different sectors are not similar and that therefore, as anticipated, two individual structural equation models should be used to model these two sectors.

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M.M.H. Goode / Journal of Retailing 80 (2004) 139–158 Fig. 2. The empirical result for Flights.com

Fig. 2. The empirical result for Flights.com and Books.com studies.

in a variety of contexts (e.g., Parasuraman & Grewal, 2000; Rothaermel & Sugiyama, 2001; Standifird, 2001; Walsh & Godfrey, 2000). The results of both Study One and of Study Two strongly support this view. Preliminary analysis leads to positive and significant coefficients between quality and perceived value in the studies of both Books.com and Flights.com (see Table 2). Structural equation modeling corroborates the stability of this link through confirming positive, significant links (p < .01) (see Table 3) between service quality and perceived value for both Study One and Study Two (see Fig. 2). Similar results also emerge for the linkage between the constructs of perceived value and loyalty that are well- established in the existing literature (e.g., Cronin et al., 2000; Peterson et al., 1997; Sirdeshmukh et al., 2002). Cor- relation analysis for Study One and for Study Two indicates a strong and positive association between perceived value and loyalty (see Table 2). Subsequent multivariate analysis generally supports these findings with a positive link to loyalty (see Table 3). However, the results are less clear in the cases of the well-established relationships between service quality and satisfaction (see e.g., Heskett et al., 1994; Lynch & Ariely, 2000; Szymanski & Hise, 2000), and between satisfaction and loyalty (see e.g., Berné et al., 2001; Reibstein, 2002; van Riel et al., 2001). In Study One (Books.com), correlation analysis finds significant coefficients between service qual- ity and satisfaction and between satisfaction and loyalty (see Table 2). Further support emerges during structural equation modeling (see Table 3 and Fig. 2) with significant linkages found. However, this pattern of results is not found in Study Two (of Flights.com). The analysis of Study Two using both correlation and structural equation modeling finds the links

between service quality and satisfaction and between satis- faction and loyalty to be non-significant. The lack of statistically significant links between service quality and satisfaction and between satisfaction and loy- alty in Study Two is contrary to a range of extant theo- ries and findings (e.g., Berné et al., 2001; Lynch & Ariely, 2000; van Riel et al., 2001). However, given the context of Study Two (of Flights.com), such results are both pre- dictable and understandable. Oliva et al. (1992) observe that for firms in the flights sector (such as Flights.com), service quality is not necessarily linked to satisfaction and loyalty since consumers’ expectations regarding service are capri- cious, fickle, and unpredictable. More recently, Grewal et al. (forthcoming-b, p. 14) argue that the flights market (includ- ing Flights.com) is dominated by loyalty-schemes and is a good example of a market wherein “consumers are apt to ex- hibit loyalty across lower levels of satisfaction”. Such find- ings and theories provide a coherent and logical explanation for the results of Study Two and the lack of significant as- sociations between service quality and between satisfaction and loyalty through demonstrating that such findings can be attributed to the market dynamics and online context of the study of Flights.com.

Predicted relationships

H2 argues that there is a positive and direct association between trust and loyalty. The provisional evaluation of po- tential linkages using correlation analysis (see Table 2) indi- cates strong support for this claim, with trust positively and significantly correlated with loyalty in both Study One and in Study Two. Structural equation modeling also broadly supports H2, producing significant parameter estimates. In

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Study One (of Books.com), some support is found for H2, as trust is significantly linked to loyalty (see Table 3 and Fig. 2). For Study Two, the structural equation modeling (see Table 3 and Fig. 2) produces unequivocal results in support of H2. Trust is found to be directly associated with loyalty, corroborating the theories that suggest that trust is central to service dynamics (e.g., Hoffman et al., 1999a; Stewart, 2003), is a key driver of customer loyalty (e.g., Lynch et al., 2001; Reichheld & Schefter, 2000; Reynolds, 2000), and is especially important in online contexts (e.g., Grewal et al., forthcoming-b; Sultan & Mooraj, 2001). Hence, sufficient evidence is found to claim that H2 is supported. H3 reasons that trust is positively and directly linked with evaluations of satisfaction. In Study One, this contention is strongly supported. Initial investigations using correlation analysis find trust to be positively (r = .66) and significantly (p < .001) linked (see Table 2). Further, structural equation modeling confirms the stability of the association within a broader framework of service dynamics (see Table 3 and Fig. 2), producing a positive significant relationship (β = .54, p < .001). In this regard, Study One supports H3. However, the results of Study One (of Books.com) are not replicated in Study Two (of Flights.com). In Study Two, trust and sat- isfaction are not significantly correlated (see Table 2) and structural links are not found (see Table 3 and Fig. 2). There- fore, given the varied results, H3 is only partially accepted. The finding of associations in the study of Books.com and not in the study of Flights.com deserves further investi- gation. Our findings in the study of books conform to early theory that suggests that trust drives satisfaction, especially in online contexts (Reichheld et al., 2000; Szymanski & Hise, 2000). However, in the study of Flights.com (Study Two), trust appears not to be directly linked. There are four main explanations for this finding. First, as mentioned ear- lier, Grewal et al. (forthcoming-b) theorize that the flights market, in which Flights.com operates, is dominated by loyalty programs that downgrade the relative importance of customer satisfaction (and arguably strengthen trust- loyalty linkages—see H2). Second, Szymanski and Hise (2000, p. 319), two of the leading commentators regarding e-satisfaction, conclude that online satisfaction may not be stable in all contexts and that further research is needed to evaluate the efficacy and generalizeability of the concept. In Study Two, our results cast doubt on the importance of satisfaction for Flights.com, in a manner consistent with the earlier comments of Oliva et al. (1992) regarding the broader flights market. Third, in recent years both the gov- ernment (Power, 2002) and airline and airport operators (Prada, 2002a) have made considerable, high-profile, and widely-publicized efforts to increase consumers’ overall trust. While such efforts appear to engender trust, many of these procedures erode reflexive evaluations of satisfaction (e.g., longer check-in times, additional searches, passenger photographing, etc.) (e.g., Alexander, 2003; Barnes, 2003). Thus, although customers may trust Flights.com, such trust may not drive satisfaction. Finally, the results in Study Two

may reflect a trend identified by Oliver (1999), wherein satisfaction is downgraded in relative importance when compared to other service constructs (particularly loyalty but in the current studies, also trust). H4 argues that there is a positive and direct relationship

between perceived value and trust. Preliminary correlation analysis appears to support this suggestion in both studies. In Study One, perceived value and trust are positively (r

= .61) and significantly (p < .001) correlated (see Table 2).

Similarly, in Study Two (of Flights.com) value and trust are

very strongly linked (r = .78, p < .001). These findings are

corroborated in the structural equation models in both stud- ies (see Table 3 and Fig. 2). In Study One and in Study Two perceived value is found to be positively (respectively; β

= .51, .75) and very significantly (p < .001) associated with

trust. These results directly support the earlier theoretical work by Singh and Sirdeshmukh (2000), Grabner-Kraeuter (2002), and Urban et al. (2000). Hence, overwhelming evi- dence is found to declare H4 supported. H5 contends that there is a positive and direct relation- ship between service quality and trust. Study One generates strong support for this view with a positive (r = .44) and significant (p < .001) bivariate association (see Table 2), confirmed in structural modeling results (β = .27, p < .01). Thus, consistent with a range of existing studies (e.g., Hennig-Thurau & Klee, 1997; Liljander et al., 2002; Sultan & Mooraj, 2001), in the study of Books.com, service qual- ity appears to be an important driver of trust as well as indirectly linked with loyalty (see H2, Fig. 2). However, as in H3, these results are not replicated in Study Two (of Flights.com). In Study Two, although service quality and trust significantly correlate (r = .23, p < .05), structural modeling (see Table 3 and Fig. 2) suggests that the co- efficient may be an over-estimation, since no significant structural link is found (p > .05). Therefore, given the mixed results, H5 is only partially accepted. The lack of a consistent significant link between service quality and trust in the study of Flights.com merits further evaluation. Briefly, four key reasons appear to contribute to this finding. First, although a number of researchers have theorized that service quality drives trust online (e.g., Hennig-Thurau & Klee, 1997), recent conceptual work has questioned the universality of this link (e.g., Wolfinbarger & Gilly, 2001) while empirical work has found contrary results (see Chen et al., 2002). Second, the precise nature of the context of Study Two may explain the differentiated results regarding quality-trust. Flights.com retails a wide range of tickets for a variety of airline operators, some of which focus on very low cost, low service, but perceived high value strate- gies (Boyfield, 2001; Prada, 2002b). Thus, a proportion of customers of Flights.com are more attentive to value than to service quality. Hence, service quality evaluations are down- graded in relative importance when compared to perceived value (a view supported by the strength of associations be- tween perceived value and both loyalty and trust in Study Two). Third, as mentioned previously, recent changes to the

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overall flights market (including Flights.com) have seen a va- riety of service changes that have increased overall trust but eroded service quality (see Barnes, 2003). Finally, stemming in part from September 11th, over-capacity and falling rev- enue in the flights market has led to widespread cost-cutting, particularly in the form of service personnel cutbacks and reduced flight frequencies, and routes serviced (McCartney, 2002; Prada, 2001). Such strategies have dramatically reduced costs but have also eroded customer choice and overall service quality. In this regard, it would ap- pear that many firms in the airline industry (such as Flights.com) have prioritized trust and value above service quality.

Discussion

The review of extant research positions trust as a piv-

otal driver of loyalty which is central to the understand- ing and modeling of service encounters. However, while

a number of prominent commentators (e.g., Grewal et al.,

forthcoming-b; Hoffman et al., 1999a; Reichheld & Schefter, 2000; Reynolds, 2000) have repeatedly emphasized the im- portance of loyalty and trust, empirical research into their dynamics remains in its infancy (e.g., Srinivasan, Anderson, & Ponnavolu, 2002; Stewart, 2003). The current study con- stitutes one of the first tentative steps toward a greater ap- preciation of these issues. In this regard, we forward and test a framework of loyalty and hypothesize a series of as- sociations with trust, as one of the key drivers of loyalty. Analysis of the results of two surveys of online purchas- ing reveals a variety of positive and statistically significant relationships. The remainder of the text is devoted to a review of the implications of these findings as well as to a discussion of the limitations of the study and the implications for future research. The first contribution of this study stems from the suc- cessful operationalization of a four-facet measure of loyalty

based in the original perspective of Oliver (1997). In what is already a seminal text, Oliver (1997) develops a conception of loyalty comprising sequential phases of cognitive, affec- tive, conative, and action loyalty. While this view of loyalty has been commended before the current study, no attempt had been made to operationalize this construct in a con- ventional context let alone in an online environment. Thus,

a contribution of the current work is the development and

successful testing of measures of cognitive, affective, cona- tive, and action loyalty. Indeed, analysis of the results of our two studies indicates that our four, four item loyalty mea- sures appear both reliable and valid. While it is acknowl- edged that our research design and LISREL methodology precludes causal claims of sequential phases of loyalty, the results of simple path analysis (Duncan, 1975; Pendhazur, 1982) as well as analysis procedures advocated by James et al. (1983) and Jöreskog and Sörbom (1989) both strongly

support the a priori sequential, causal model presented, as well as the theory of Oliver (1997). Our second contribution centers on our finding that trust plays a pivotal role in service dynamics and, in particular, in directly and indirectly driving loyalty. While a number of sector commentators have previously highlighted the impor- tance of trust online (see Bauer et al., 2002; Reichheld et al., 2000) and found consumers to be deeply concerned about online fraud (see Furnell & Karweni, 1999; Hoffman et al., 1999a), to date, empirical studies of the links between trust and loyalty have been limited in scope (cf. Stewart, 2003). The results of the current studies strongly support the view that trust is a key and central factor during exchange, after accounting for previously established antecedents, namely; perceived value, satisfaction, and service quality (see Table 3). In this sense, not only do these findings support a number of earlier studies that have argued that trust is central to ex- change (e.g., Nooteboom et al., 1997; Verhoef et al., 2002) but also our results support the contentions of a number of theorists who have suggested that trust may be more impor- tant online (e.g., Grewal et al., forthcoming-b; Reichheld & Schefter, 2000). This in turn appears supportive of the over- all view of online exchange as relational rather than trans- actional in nature. Indeed, it could be argued (somewhat contentiously) that loyalty is inherently relational in charac- ter, especially when contrasted to the (comparatively) more transactional constructs of satisfaction and (to some extent) perceived value. Third, we contribute insights into the idiosyncrasies of online e-tailing service dynamics. Our study finds that, con- sistent with studies of offline exchange, service quality ex- erts an indirect influence on loyalty, while perceived value exhibits both direct and indirect associations with online loyalty. However, differentiated results are found in relation to satisfaction. In Study One (of Books.com) our results are broadly concordant with earlier brick-and-mortar stud- ies (e.g., Anderson & Mittal, 2000; Dabholkar et al., 2000; Oliver, 1997) and find a quality-satisfaction-loyalty chain. However, in Study Two, our results do not support this view. These results are attributable to sector differences, in a man- ner consistent with a number of leading commentators (e.g., Grewal et al., forthcoming-b; Jones & Sasser, 1995; Lynch et al., 2001; Oliva et al., 1992). Such findings add support to the argument of Oliver (1999) that satisfaction is often over-emphasized and bolster suggestions that service fac- tors (including satisfaction and trust) are both market- and context-sensitive. Our results also provide empirical support to a number of existing studies that have emphasized the importance of examining, concurrently, a range of online service factors, including; perceived value, trust, satisfaction, and service quality (e.g., Mathwick et al., 2002; Szymanski & Hise, 2000; Zeithaml et al., 2002). In this regard, our study con- tributes a holistic view of service dynamics (see Fig. 1) that incorporates the main service factors into a tested frame- work of service. In doing so, our study draws on extant

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studies of online exchange, as well as research into offline environments, culminating in the (tentative) affirmation of the model. In this sense, general support is found in defense of theories that have drawn parallels between on- and offline service dynamics. The results also support and build on existing research into loyalty and further extend the general- izeability of such research into the context of online service. Thus, the results corroborate existing frameworks of service that typically present some variation of a service quality- value/satisfaction-loyalty chain or model (e.g., Cronin et al., 2000; Dabholkar et al., 2000; Parasuraman & Grewal,

2000).

In terms of practice, the results of the study also have implications. In the first instance, our study indicates that firms should critically evaluate both their e-servicescape (see Koernig, 2003) and their non-visible customer service mechanisms (typically, physical distribution, and return policies). In order to ensure service consistency, online claims and promises need to be matched with physical delivery to develop trust and therefore loyalty. However, a firm’s e-servicescape constitutes its online presence, and most easily controllable means of influencing the customer. Thus, firms should continuously maintain, manage, and improve their online servicescapes, to best meet the needs, wants, and demands of both current and potential cus- tomers. In this regard, creating and developing websites that generate perceived value and satisfaction, while maintain- ing appropriate service quality would appear to be fruitful avenues for those firms interested in enhancing factors linked with customer loyalty. In this respect, it would ap- pear that online customers are similar to their offline coun- terparts. Further, our study suggests that the conveyance of trust- worthiness is of paramount importance. Indeed, such is the importance of online trust in the current studies, that it seems prudent for firms to develop strategies, systems, and sites that recognize customers’ concerns and that further build and maintain trust (a view also strongly advocated in Urban et al., 2000). Nevertheless, it is crucial that firms recognize that, in addition to the controllable factors to which we have already alluded, other less controllable factors are also criti- cal. Such findings are concordant with our emphasis on trust and, in our view, promote the relative importance of ‘e-trust’. Thus, practitioners should develop policies, procedures, and, systems that are designed to generate trust while recogniz- ing that loyalty is not easily achievable. In this regard, it is arguable that the integration of online and traditional offline channels may well prove a productive and complementary approach. As with all research projects, the studies presented are characterized by limitations that restrict the extent to which the results and implications of the research can be reli- ably generalized. In particular, three main limitations de- serve highlighting. First, the LISREL methodology should be viewed with appropriate caution. While this methodology provides for the simultaneous analysis of multiple variables,

the results per se, should not be viewed as definitive evidence of causal links. In contrast, the results of the study (largely) support the a priori causal model (presented in Fig. 1). In this regard, causal effects cannot be inferred, although support for a causal model is found. Second, while the developed framework of service features a number of constructs, the developed model focuses on the incorporation of the main factors that have been theorized to be (principally) directly related to loyalty. As such, the studies are limited in the breadth of their focus. Future studies should incorporate a wider range of covariates that influences one construct but not another (thus broadening the scope of the model and assisting in conceptually and empirically distinguishing as- sociations between constructs). Third, care should be taken when generalizing the results of the study. Although data was collected in two contexts, enhancing generalizeability, any generalization must be undertaken with extreme caution and in a manner that, as has been observed previously, respects the complexities of differences and similarities in domain (see Chen et al., 2002), product category (see Wolfinbarger & Gilly, 2001), industry (see Jones & Sasser, 1995), and national context (see Lynch et al., 2001). The implications and limitations of this study also high- light a number of potentially interesting future research projects. First, additional research is needed into the nature and dynamics of trust. While trust has long been viewed as a core concept, with notable exceptions, the central- ity of the concept within service dynamics has previously been understated, overlooked, or ignored. Future studies could profit from a re-evaluation of the concept and its position within extant frameworks, models, and theories. Second, although this research has incorporated a variety of constructs into the developed framework of service pre- sented in Fig. 1, it seems probable that other factors may also exert an influence, particularly in different markets (e.g., computer hardware and grocery shopping online). As such, the exploration of differentiated service dynam- ics in alternative contexts seems a potentially fruitful av- enue for research. Future studies might also profit from focusing on a wider range of variables, possibly explor- ing the effect of online servicescape, privacy and security issues, customer location, environmental contingencies, as well as switching inducements and deterrents. Third, this research also illuminates the need for longitudinal, causal research into the antecedents and consequences of service both on- and offline. To date, research is largely limited to cross-sectional studies that, while analyzed with increasing complexity and depth, are restricted to supporting a priori models rather than confirming causal links. Fourth, this study has demonstrated that scales, originally developed to explore service in an offline or conventional context, can be successfully adapted and employed in alter- native contexts. This is not to suggest that such scales can be universally generalized across all contexts, but rather indicates that after careful adaptation, such scales may be

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judiciously employed. In this regard, in the current study, the adaptation of existing trust, perceived value, customer satisfaction, and service quality scales to an online con- text provides a successful illustration of such an approach and also supplies a tentative starting point from which subsequent studies can explore online service dynamics. Finally, while additional research into electronic service is clearly needed, this study also suggests that additional benefit could be derived from further exploring and ap- plying the developed four-stage loyalty scale originally conceived in Oliver (1997). Indeed, we believe that the operationalized scale, with relatively minor adaptations, could profitably be applied to a wide range of service contexts.

2. Conclusions

The three main aims of this research project were (1) to develop and extend existing conceptualizations of ser- vice dynamics through incorporating the construct of trust, (2) to propose, operationalize, and test a specifically- developed four-dimension scale of loyalty that reflects Oliver’s (1997) conception of a sequential loyalty chain, and (3) to test our theory in online contexts and thus con- tribute additional insights into overall service frameworks and dynamics. A review of existing literature regarding service encounters and online consumer behavior led to

the proposal of a framework of service that positions trust as the pivotal factor in driving loyalty. Analysis of the results of two studies of online purchasing supports the hypothesized relationships, presenting loyalty as a sequen- tial, four-stage framework that is directly and indirectly related to trust, perceived value, satisfaction, and service quality. Overall, we provide evidence that supports a view and a framework of service dynamics that positions trust as the central driver of loyalty, concurrent with the direct and indirect forces of perceived value, satisfaction, and service quality. While the research design of the study precludes causal claims, the empirical results confirm associations and largely support the conceptualized model. In this regard, the evidence forwarded constitutes a preliminary attempt to understand online service dynamics. The results highlight the importance of each of these constructs, demonstrating that not only is each fundamental to understanding service but also that each must be considered simultaneously for a clearer understanding to emerge. Thus, a central conclusion must be that future evaluations of on- and offline service should incorporate not only a broad range of constructs and variables but also an array of covariates to contextualize, illuminate, and elucidate the complexities of service dy- namics. Indeed, without such holistic research, our under- standing of service would be doomed to sporadic, subject- and context-specific insights that raise more questions than answers.

Appendix A. Exogenous variables used in the models tested

Service quality (21 item scale using 9-point rating scales)

Study One: Books.com .97 a

Study Two: Flights.com .95 a

Please indicate how important each of the following is when buying books/flights online from Books.com/Flights.com: b

1.

Providing services as promised

2.

Dependability in handling customers’ service problems

3.

Performing services right the first time

4.

Providing services at the promised time

5.

Keeping customers informed about when services will be performed

6.

Prompt service to customers

7.

Willingness to help customers

8.

Readiness to respond to customers’ requests

9.

Web site should instill confidence in its customers

10.

Making customers feel safe when buying online

11.

The web site is polite and courteous

12.

Web site provides useful information to answer customer questions

13.

Individual attention is given

14.

That the web site is designed to provide a caring service

15.

Having the customer’s best interest at heart

16.

The web page should understand the needs of their customers

L.C. Harris, M.M.H. Goode / Journal of Retailing 80 (2004) 139–158

Appendix A (Continued )

153

Study One: Books.com .97 a

Study Two: Flights.com .95 a

18. Visually appealing pages are used

19. The web site is well designed and has a professional appearance

20. The site is visually appealing

21. The web site is easily accessible

This scale was adapted from the article by Cronin and Taylor (1992).

a Cronbach alpha.

b The terms ‘Books.com’ and ‘books’ included only for the survey of book buyers and ‘Flights.com’ and ‘flights’ included only for the survey of flight buyers.

Appendix B. Intermediate variables used in the models tested

Study One: Books.com .72 a

Study Two: Flights.com .73 a

Satisfaction (five item scale using 7-point rating scales)

Please indicate your level of agreement with the following statements: b

1. When purchasing products from Books.com/Flights.com I feel surprised, amazed or astonished

2. When purchasing products from Books.com/Flights.com I sometimes feel angry, enraged or annoyed c

3. I continue to use Books.com/Flights.com because other firms aren’t as good

4. My choice to purchase from Books.com/Flights.com was a wise one

5. I think I did the wrong thing when I purchased book/flights from Books.com/Flights.com

This scale was adapted from the article by Cronin et al. (2000).

Study One: Books.com .83 a

Study Two: Flights.com .83 a

Perceived value (five item scale using 7-point rating scales)

Please indicate your level of agreement with the following statements: b

1. Books.com/Flights.com products are excellent value for money

2. Books.com/Flights.com services are excellent value

3. I am happy with the value for money I get at Books.com/Flights.com

4. The goods I purchase from Books.com/Flights.com are worth every cent

This scale was adapted from the articles by Brady and Cronin (2001) and Mathwick et al. (2002).

Study One: Books.com .77 a

Study Two: Flights.com .80 a

Trust (eight item scale using 7-point rating scales)

Please indicate your level of agreement with the following statements: b

1. Books.com/Flights.com is interested in more than just selling me goods and making a profit

2. There are no limits to how far Books.com/Flights.com will go to solve a service problem I may have

3. Books.com/Flights.com is genuinely committed to my satisfaction

4. Most of what Books.com/Flights.com says about its products is true

5. I think some of Books.com/Flights.com’s claims about its service are exaggerated c

6. If Books.com/Flights.com makes a claim or promise about its product, it’s probably true

7. In my experience Books.com/Flights.com is very reliable

8. I feel I know what to expect from Books.com/Flights.com

This scale was adapted from the article by Hess (1995).

a Cronbach alpha.

b The terms ‘Books.com’ included only for the survey of book buyers and ‘Flights.com’ included only for the survey of flight buyers.

c These questions are reverse coded.

154

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Appendix C. Endogenous variables used in the models tested

Study One: Books.com Study Two: Flights.com

.83 a

.69 a

Cognitive loyalty (four item scale using 7-point rating scales)

Please indicate your level of agreement with the following statements: b

1. I believe that using Books.com/Flights.com is preferable to other companies

2. I believe that Books.com/Flights.com has the best offers at the moment

3. I believe that the features of Books.com/Flights.com are badly suited to what I like c

4. I prefer the service of Books.com/Flights.com to the service of competitors

Study One: Books.com Study Two: Flights.com

.75 a

.73 a

Affective loyalty (four item scale using 7-point rating scales)

Please indicate your level of agreement with the following statements: b

1. I have a negative attitude to Books.com/Flights.com c

2. I dislike the Books.com/Flights.com offering c

3. I like the features of Books.com/Flights.com services and offers

4. I like the performance and services of the Books.com/Flights.com

Study One: Books.com Study Two: Flights.com

.72 a

.69 a

Conative loyalty (four item scale using 7-point rating scales)

Please indicate your level of agreement with the following statements: b

1. I have repeatedly found Books.com/Flights.com is better than others

2. I nearly always find the offer of Books.com/Flights.com inferior c

3. I have repeatedly found the features of Books.com/Flights.com inferior c

4. Repeatedly, the performance of Books.com/Flights.com is superior to that of competitor firms

Study One: Books.com Study Two: Flights.com

.74 a

.78 a

Action loyalty (four item scale using 7-point rating scales)

Please indicate your level of agreement with the following statements: b

1. I would always continue to choose Books.com/Flights.com before others

2. I will always continue to choose the features of Books.com/Flights.com before others

3. I would always continue to favor the offerings of Books.com/Flights.com before others

4. I will always choose to use Books.com/Flights.com in preference to competitor firms

Study One: Books.com Study Two: Flights.com

.87 a

.88 a

Overall loyalty (16 item scale using 7-point rating scales) The Overall loyalty scale is a second-order factor and includes all 16 items from the cognitive, affective, conative, action loyalty scales

The above scales were adapted from the article by Oliver (1997).

a Cronbach alpha.

b The terms ‘Books.com’ included only for the survey of book buyers and ‘Flights.com’ included only for the survey of

flight.

c These questions are reverse coded.

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155

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