Customer satisfaction and loyalty in a digital environment: an empirical test

Jean Donio
University of Paris II, Paris, France

Paola Massari and Giuseppina Passiante

e-Business Management School, ISUFI, University of Lecce, Lecce, Italy
Abstract Purpose The purpose of this paper is to explore the links between customer loyalty attitude, customer loyalty behaviours (measured by customer purchase behaviours) and protability. The aim is to dene a conceptual framework within which to analyse the relationships between attitudes, behaviour, and protability of the customers. Design/methodology/approach Reference was made to earlier studies which argued that loyal customers constitute competitive asset of business organizations. Several authors noted that customers generally vary in terms of loyalty behaviours and attitudes and highlighted that differences about customers loyalty levels affect a rms protability results. Customer loyalty, its antecedents and outcomes, and the links between customer satisfaction, customer loyalty and protability have been analyzed at a customer level. Findings The results showed support for all but one of the ve hypotheses, the exception being H2. Originality/value The results of the study provide evidence that a Loyalty Index can give managers an adequate support for market segmentation. This means that actual market segment strategies, based on geographical, demographical and/or psychographic variables, should take into account also loyalty measurement models. Keywords Customer satisfaction, Customer loyalty, Electronic commerce, Customer relations, Marketing intelligence Paper type Research paper

Introduction
Research on factors that inuence customer satisfaction and loyalty has made considerable progress within the last years (Szymanski and Henard, 2001; Oliver, 1999). Customer loyalty is seen to be crucial to the success of business organizations, since attracting new customers is far more expensive than retaining existing ones (Dick and Basu, 1994; Saren and Tzokas, 1998; Fournier, 1998). It has been suggested by many authors that loyal customers are a competitive asset and that a way of increasing customer retention is through secure and collaborative relationship between buyers and sellers (Chaudhuri, 1999; Chaudhuri and Holbrook, 2001; Fournier, 1998; Oliver, 1999). Several authors pointed out that customers generate different levels of protability (Cooper and Kaplan, 1991; Peppers and Rogers, 1993; Shapiro et al., 1987; Slywotzky and Shapiro, 1993), and not all customers generate acceptable cost and revenue streams (Carroll, 1991; Storbacka et al., 1994). It has been suggested, therefore, that the rm should actively develop relationships with protable customers and try to end relationships with unprotable customers (Jones and Sasser, 1995; Peppers and Rogers, 1993; Shapiro et al., 1987; Slywotzky and Shapiro, 1993). Tailoring marketing efforts to segments that
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differ in current and/or future protability makes a rms strategy more effective, by identifying protability customer tiers, and offer products and services customized for the specic tier, and therefore capturing its nancial value. The purpose of this empirical study is to explore the links existing between customer loyalty attitude (as his consistently favourable set of stated beliefs towards the brand purchase), customer loyalty behaviours (in terms of his pattern of past purchases) and protability. To this end, customer loyalty, its antecedents and outcomes, and, thus, the links between customer satisfaction, customer loyalty and protability have been analyzed at a customer level. Specically, the study has focused on the following issues: . What are the main antecedents and outcomes of customer loyalty? . What are the links between customer satisfaction, customer loyalty and protability? . How can loyalty be evaluated in a rms customer base? Is there any model that can assess customer loyalty based on specic variables and indexes? Do characteristics exist which determine whether customers attain high levels of customer loyalty? Our approach is based on a framework put forward by Costabile (2001) to analyse the relationship existing between the act of purchase of the customer, his satisfaction, his trust and commitment and, at the end, his loyalty. In this study, we have extended the single act of purchase to the complete purchase behaviour of the customer, and we have also explored the relationship existing between the customer loyalty and his protability. The paper is organized as follows. The rst section presents the theoretical framework and the main hypotheses. The second section illustrates the method adopted. The main 445

Journal of Consumer Marketing 23/7 (2006) 445 457 q Emerald Group Publishing Limited [ISSN 0736-3761] [DOI 10.1108/07363760610712993]

Customer satisfaction and loyalty in a digital environment Jean Donio, Paola Massari and Giuseppina Passiante

Journal of Consumer Marketing Volume 23 Number 7 2006 445 457

results are described and discussed in section three. The nal section presents conclusions and a future research agenda.

Theoretical framework and main hypotheses

Customer loyalty: antecedents and outcomes Customer loyalty is a concept that has enjoyed wide currency and usage within the eld of consumer behaviour for many years. Dick and Basu (1994) viewed customer loyalty as the strength of the relationship between an individuals relative attitude towards an entity (brand, service, store, or vendor) and repeat patronage. Three conceptualizations of customer loyalty have been identied in the literature: 1 loyalty as primarily an attitude that sometimes leads to a relationship with the brand; 2 loyalty mainly expressed in terms of revealed behaviour (i.e. the pattern of past purchases); and 3 buying moderated by the individuals attitudes. Loyalty as primarily an attitude that leads to a relationship with the brand Researchers argue that there must be a strong attitudinal commitment to a brand for true loyalty to exist (Day, 1969; Jacoby and Chestnut, 1978; Foxall and Goldsmith, 1994; Mellens et al., 1996; Reichheld, 1996). This is seen as taking the form of a consistently favourable set of stated beliefs towards the brand purchased. These attitudes may be measured by asking people how much they like the brand, feel committed to it, will recommend it to others, and have positive beliefs and feelings about it relative to competing brands (Dick and Basu, 1994). The strength of these attitudes is the key predictor of a brands purchase and repeat patronage. This is what Oliver (1997, p. 392) has in mind when he denes customer loyalty as: A deeply held commitment to re-buy or re-patronize a preferred product/ service consistently in the future, thereby causing repetitive same-brand or same brand-set purchasing despite situational inuences and marketing efforts having the potential to cause switching behaviour. In the elds of advertising and brand equity research this model received some support (e.g. Aaker, 1996; de Chernatony and McDonald, 1998). The approach also appealed to many practitioners in advertising and brand management because it is empathetic with the search for strategies to enhance the strength of consumers attitudes towards a brand. Ahluwalia et al. (1999) have shown that attitudinally-loyal customers are much less susceptible to negative information about the brand than non-loyal customers. Also, where loyalty to a brand increases, the revenue-stream from loyal customers becomes more predictable and can become considerable over time as shown in analyses of cases such as Federal Express, Pizza Hut franchises, and Cadillac dealerships (Gremler and Brown, 1999). An extension of the attitudes dene loyalty perspective is to suggest that consumers form relationships with some of their brands. A good example of this perspective is provided by Fournier (1998), who sees loyalty as a committed and affect-laden partnership between consumers and brands. It is a partnership that will be even stronger when supported by other members of a household or buying group, and where consumption is associated with community membership or identity. Examples include Skoal smokeless tobacco among some North American cowboys, loyalty to particular European soccer teams (Arnould et al., 2002), the Beanie Babies craze (Morris and Martin, 2000), Jeep brand 446

fests (McAlexander et al., 2002), and the classic case of Harley-Davidson bikers (Schouten and McAlexander, 1995). Despite the psychological and sociological richness of the attitudes drive behaviour and relationship approaches to understand customer loyalty, these conceptualizations of loyalty are not without drawbacks (e.g. Dowling, 2002). They are thought to be less applicable for understanding the buying of low-risk, frequently-purchased brands, or when impulse buying or variety seeking is undertaken, than for important or risky decisions (Dabholkar, 1999). Also, as Oliver (1999) has noted, there is little systematic empirical research to corroborate or refute this perspective of customer loyalty. The examples above are isolated cases, often cited as illustrative of the revenue-effects that might be achieved, rather than the prot impacts that have been achieved. Loyalty mainly expressed in terms of revealed behaviour This conceptualisation is arguably the most controversial but the best supported by data. The controversy comes out because loyalty is dened mainly with reference to the pattern of past purchases with only a secondary interest in consumer motivations or commitment to the rm (Ehrenberg, 1988; Fader and Hardie, 1996; Kahn et al., 1988; Massy et al., 1970). Researchers have gathered impressive amounts of data about these purchase patterns over many years across dozens of product categories and for many diverse countries (Uncles et al., 1994). They have found that few consumers are monogamous (100 percent loyal) or promiscuous (no loyalty to any brand). Rather, most people are polygamous (i.e. loyal to a portfolio of brands in a product category). From this perspective, loyalty is dened as an ongoing propensity to buy the brand, usually as one of several (Ehrenberg and Scriven, 1999). These researchers tend to adopt a market focus as opposed to an individual focus (e.g. key performance measures are purchase amount and frequencies, repeat-buying for a dened period). Stochastic modelling techniques describe the observed patterns of customer buying. Given these descriptions, loyalty is inferred to operate in the following manner: through trial and error, a brand that provides a satisfactory experience is chosen. Loyalty to the brand (measured by repeat purchase) is the result of repeated satisfaction that in turn leads to weak commitment. The consumer buys the same brand again, not because of any strongly-held prior attitude or deeply-held commitment, but because it is not worth the time and trouble to search for an alternative. If the usual brand is out of stock or unavailable for some reason, then another functionally similar (or substitutable) brand (from the portfolio) will be purchased (e.g. East, 1997; Ehrenberg et al., 1997, 2004). There is little reason to spend much effort weighing up the alternatives when all are likely to be satisfactory. However, over repeated purchases a weak commitment to the (limited) number of brands bought in a product category can form. All these studies are grounded in considerable amounts of market research data and analysis. But, despite the weight of empirical evidence, controversy persists. Those who subscribe to the attitudes drive behaviour and relationship approaches expressly rule out revealed behaviour as a dominant measure of loyalty. That, they argue, may merely reect happenstance. Even combined measures of revealed behavior and satisfaction may not probe deeply enough for us

Customer satisfaction and loyalty in a digital environment Jean Donio, Paola Massari and Giuseppina Passiante

Journal of Consumer Marketing Volume 23 Number 7 2006 445 457

to be sure there is true loyalty (Arnould et al., 2002; Oliver, 1999). Buying moderated by the individuals attitudes This conceptualisation argues that the best conceptualization of loyalty is to allow the relationship between attitude and behaviour to be moderated by time. The reasons for incorporating buyers attitudes into a denition of loyalty have been put forward by various authors over the past 20 years are two: 1 Distinguishing between attitudinally loyalty and non-attitudinally loyal customers is useful because it indicates who and how many customers are vulnerable to a change in the spurious environmental causes of their loyal behaviour. Hence, it gives an indication of how long customers are likely to stay loyal. 2 A purely behavioural denition of loyalty fails to explain the causes of loyal behaviour. The dynamic approach is based on a dynamic model that has been dened in order to interpret the customer-rm relationship life-cycle as a continuum, along which cognitive and behavioural constructs overlap. In this way through successive sedimentation the multidimensional construct of customer loyalty is dened. The model is founded on empirical evidence and experiments realized in the different elds of study. Specically, it refers to: studies on customer satisfaction, its determinants and consequences (Iacobucci et al., 1992; Oliver, 1997); empirical evidence on trust, as well as studies that are the connection with the propensity to repurchase and the consolidation of the relationship (Bitner, 1995; Blois, 1999); and the studies of the relationship life-cycle and the different forms of loyalty, whose basic conguration is simple repurchase, but with an evolution path towards true loyalty on the base of the attitudinal constructs interacting with the behavioural one (Jacoby and Chestnut, 1973, 1978; Ford, 1980, 1998; Iacobucci and Zerrillo, 1997). In Figure 1, the dynamic model of customer loyalty is described. The anchor points are customer trust and customer commitment. In this model, satisfaction with past purchases, and any consequential habit formation, explains most of a persons Figure 1 A dynamic model of customer loyalty

ongoing propensity to buy one or a product from a specic rm. All these patterns prole customers, not brands per se; that is, consumers of a rms products could be distributed across segmentation criteria with respect to their loyalty level to a brand/rm. As shown in Figure 1, trust is considered as an outcome of customer satisfaction and as antecedent of customer commitment and customer loyalty. The reason why many authors regard trust as an antecedent of customer loyalty is underlined by Moorman et al. (1993). According with Schurr and Ozanne (1985) trust has been dened as the belief that a partys word or promise is reliable and that a party will full his/her obligation in an exchange relationship. Commitment expresses the extent to which a partner is willing to maintain a valued relationship (Moorman et al., 1992), and similarly to trust, is critical to the study and management of customer loyalty (Morgan and Hunt, 1994, p. 31). Trust is seen as a key determinant to commitment (e.g. Morgan and Hunt, 1994; Gruen, 1995; Geyskens et al., 1996). Morgan and Hunt (1994) state that trust is so important to relational exchange . . . because relationships characterized by trust are so highly valued that parties will desire to commit themselves to such relationships. Conceptualising customer protability Customer protability is a customer-level variable which refers to the revenues which one particular customer generates over a given period of time. Customer protability appears in two temporal forms in marketing literature. First, it appears as an historical record. In this sense, a customer protability analysis is similar to the rms analysis of its prots and losses. The main difference is that a customer protability analysis refers to one particular customer, whereas a prot and loss statement refers to all customers. A history-oriented customer protability analysis can be made at several levels. A common point of departure is to calculate the contribution margin (gross contribution margin), based on sales revenue less all product-related expenses for all products sold to an individual customer during one particular period of time (cf. Wang and Splegel, 1994). Then, depending on the availability of data, sales, general and administrative expenses traceable to the individual customer are subtracted (Cooper and Kaplan, 1991; Howell and Soucy, 1990). The result of this calculation is the operating prot generated by the customer. An extension of this line of thinking is the computation of customer return on assets, i.e. customer protability divided by, e.g. the sum of accounts receivable and inventory (Rust et al., 1996). Second, customer protability is also referred to in a future sense in the literature. In this case, it often takes the form of the output from a net present value analysis. The output is sometimes referred to as the lifetime value of a customer (cf. Heskett et al., 1997; Peppers and Rogers, 1993; Petrison et al., 1993; Rust et al., 1996). It has been dened, for example, as the stream of expected future prots, net of costs, on a customers transactions, discounted at some appropriate rate back to its current net present value (Peppers and Rogers, 1997, p. 32). A similar concept is customer equity which is seen as a function of the customers volume of purchases, margin per unit of purchase and acquisition, development and retention costs traceable to this customer (Blattberg and Deighton, 1996; 447

Customer satisfaction and loyalty in a digital environment Jean Donio, Paola Massari and Giuseppina Passiante

Journal of Consumer Marketing Volume 23 Number 7 2006 445 457

Wayland and Cole, 1997). Several authors have also noted that customers generally vary in terms of protability (Cooper and Kaplan, 1991; Peppers and Rogers, 1997; Shapiro et al., 1987; Slywotzky and Shapiro, 1993). It has been argued that one particular customer does not generate the same costs and revenues over time as another customer. Moreover, not all customers generate acceptable cost and revenue streams. For example, in retail banking, some 50-60 percent of customers may be unprotable (Carroll, 1991; Storbacka et al., 1994). It has been suggested, therefore, that the rm should actively encourage relationships with protable customers and attempt to terminate relationships with unprotable customers (Jones and Sasser, 1995; Peppers and Rogers, 1997; Shapiro et al., 1987; Slywotzky and Shapiro, 1993). Customer protability and customer loyalty An increased focus on protability at the customer level is a reection of a movement within the marketing discipline towards a less aggregate view of markets. In other words, the individual customer rather than segments of customers is increasingly stressed as the unit of analysis. This movement has given birth to labels such as one-to-one marketing and micro marketing. Seen from this perspective, customer protability is emerging as an important dimension in which each (unique) customer can be described. A focus on customer-level protability can also be conceived of as a reection of marketings changing role within the rm (cf. Webster, 1992). An important aspect of the new role is that marketing is too important to be left to the marketing department. Consequently, at least in marketing literature, other departments are encouraged to deal with marketing issues. This can be seen particularly in terms of cost control, in the sense that marketing performance measures are being introduced in cost accounting literature and practice. For example, activity-based costing and balanced scorecard techniques often include dimensions which are highly relevant to marketing (cf. Cooper and Kaplan, 1991; Kaplan and Norton, 1992). In this context, it is worth noting that marketing has traditionally lagged behind other functional areas of business with respect to the implementation of cost control systems (Dunne and Wolk, 1977; Morgan and Morgan, 1980). Another factor behind the interest in customer protability (and its links to behaviour and attitudes) is the development of information technology, e.g. in terms of data warehouses, which allows for a detailed analysis of each customer. Despite the growing interest in customer protability, identifying protable customers is likely to be easier said than done for most rms. The main reason is that few rms have an internal accounting system which allows for an analysis of protability at the individual customer level. At least this is what many academicians claim (Howell and Soucy, 1990; Myer, 1989; Reichheld, 1996; Slywotzky and Shapiro, 1993). However, given that several computerized systems which facilitate an analysis of customer protability are commercially available on the market, there are reasons to believe that practitioners are experimenting with such data to an extent that is not yet reported in academic journals. In any case, protability data on the customer level are generally not collected in empirical studies carried out by marketing scholars. This is not likely to advance marketing theory. After all, protability lies at the heart of the marketing concept (Kohli and Jaworski, 1990; Narver and Slater, 1990). Similarly, 448

marketings link to protability is stressed in the denitions of marketing offered by the Chartered Institute of Marketing and the American Marketing Association (cf. Buttle, 1996). However, attention in the marketing literature has instead been focused on other customer-level variables than customer protability which provide marketers and market researchers with an easier access to data, particularly in terms of customer surveys, and are assumed to be carriers of information about customer protability. Customer satisfaction and customer loyalty are a variable of this type. The attention devoted to these particular variables can be seen in the light of the current interest in relationship marketing. It is assumed, in brief, that it is more protable to keep existing customers than to attract new customers, and it is commonly assumed that customer satisfaction serves as a particularly important antecedent of customer retention and thus long-term customer relationships (cf. Anderson et al., 1994; Buttle, 1996; Rust et al., 1995). However, due to the lack of data on customer protability, the nature of the satisfaction-loyalty-protability link has rarely been analyzed in empirical terms. Hypotheses development Figure 2 presents the model that guided our hypotheses development. Following the Bagozzi (1974) holistic construal, the conceptual meaning of our focal concept (loyalty) is obtained through specication of antecedents (purchase behaviour, satisfaction, trust, commitment) and the outcomes (protability). As shown in Figure 2, following Blattberg and Deighton (1996), Wayland and Cole (1997), we consider customer protability as a performance outcome (from the suppliers point of view) of customers purchase behaviour. We assume customers purchase behaviour to affect protability by effects on both revenues and costs. First, as the customer continues to purchase from the same supplier, the suppliers revenues increase. In addition, as the purchases continue, the customer may discover, and purchase, additional products in the suppliers assortment. In other words, the potential for crossselling may increase over time which affects revenues positively (Kalwani and Narayandas, 1995). Second, a high level of repeated purchases is likely to go hand in hand with having contacts with the supplier at several occasions. H1. Customer purchase behaviour is positively and signicantly related to customer protability. As pointed out by several authors (Jones and Sasser, 1995; Chaudhuri and Holbrook, 2001; Fournier, 1998; Oliver, 1999), we suggest that customer satisfaction (a mental state) can have an impact on customer protability: indeed, the University of Michigan found that for every percentage increase in customer satisfaction, there is an average increase of 2.37 percent of return on investment (Keiningham and Vavra, 2001). Moreover, the cost of gaining a new customer is ten times greater than the cost of keeping a satised customer (Gitomer, 1998). Following Costabile (2001) we consider satisfaction as a possible antecedent of customer loyalty. Research about inuencing factors of customer satisfaction on loyalty has made considerable progress within the last years (Fournier and Mick, 1999; Oliver, 1999; Anderson et al., 1994; Buttle, 1996; Rust et al., 1995; Szymanski and Henard, 2001; Oliver, 1999). Indeed, the most commonly applied conceptual models of loyalty begin from the well-established notion that customers who have satisfying experiences with products will

Customer satisfaction and loyalty in a digital environment Jean Donio, Paola Massari and Giuseppina Passiante

Journal of Consumer Marketing Volume 23 Number 7 2006 445 457

Figure 2 Predicted links between customer loyalty attitude, purchase behaviour and customer protability

buy those products or will intend to buy them again (Jacoby and Kyner, 1973; Szymanski and Henard, 2001; Jacoby and Chestnut, 1973, 1978; Ford, 1980, 1998; Iacobucci and Zerrillo, 1997). Finally, we hypothesize that, as the customer loyalty enhances, customer protability increases (Reichheld and Sasser, 1990; Kohli and Jaworski, 1990; Narver and Slater, 1990). Improvements in customer loyalty and retention by even a few percentage points have in some cases increased prots by 25 per cent or more (Grifn, 1995). H2. Customer satisfaction is positively and signicantly related to customer protability. H3. Customer loyalty attitude is positively and signicantly related to customer protability. H4. Customer satisfaction is positively and signicantly related to customer loyalty attitude. We have also included two variables, which are assumed to be consequences of customer satisfaction and predictors of protability, as they have been suggested by the literature (Costabile, 2001; Garbarino and Johnson, 1999; Anderson et al., 1994; Peppers and Rogers, 1997; Reichheld, 1996). Variables are trust and commitment that inuence reciprocity and co-operation between the rm and its customers (Stern and El Ansary, 1992; Bucklin and Sengupta, 1993; Bitner, 1995; Blois, 1999). We have added to the previous hypotheses the analysis of trust and commitment as determinants that develop as customers gain experience and adopt relational orientations, and their connection with the customer propensity to repurchase and to consolidate of the relationship, following the suggestions of Bitner (1995), Blois (1999) and Garbarino and Johnson (1999). More specically, trust has been considered as an outcome of customer satisfaction (Schurr and Ozanne, 1985) and as an antecedent of customer commitment and customer loyalty (e.g. Morgan and Hunt, 1994; Gruen, 1995; Geyskens et al., 1996; Scheer and Stern, 1992). 449

H5.

Customer satisfaction, trust and commitment are positively and signicantly related to purchase behaviour.

Research method
In order to test our hypotheses, we have conducted an empirical study in the agri-food sector. The point of departure for the case study was to match customer satisfaction and customer loyalty attitude data (at the customer level) with purchase behaviour and protability data (also at the customer level). The rst step has been to identify a rm which had kept track of costs and revenues over time at a customer level, and was willing to provide access to this data. We identied one rm. For condentiality issues we cannot name it. The rm is based in Italy and sells food products (pasta, olive oil, wine, vegetables, bread, sauces, cakes, honey and other typical foods) through direct marketing activities. Its current range consists of about 50 different items. Most relevant sales channels used are: telephone, internet, television, catalogue mail. The most important direct marketing instrument is based on the telephone, which develops alone 52 per cent of sales purchase. Television instrument develops 27 per cent of sales, catalogue mail 18 per cent of sales, and internet just 3 per cent of sales. The customer base is spread throughout the national territory. Products are delivered through a national courier directly to the houses of its customers. The cost accounting system allows for a detailed analysis of customer behaviour, as well as analyses of protability at several levels (customers, products, sales persons, etc). This technology has been complemented with a telephone survey submitted to the customers.

Customer satisfaction and loyalty in a digital environment Jean Donio, Paola Massari and Giuseppina Passiante

Journal of Consumer Marketing Volume 23 Number 7 2006 445 457

Data collection The data used in this study have been derived from two sources: a telephone survey of the rms customers; and the rms customers database. In order to collect data on customer satisfaction and customer loyalty attitude, a telephone survey was developed. The scales used by respondents have been measured on balanced ve-point Likert-type scales, ranging from strongly disagree to strongly agree, where 1 strongly disagree and 5 strongly agree. The telephone survey was chosen because of its relevant advantages such as monitoring of interviews for improved quality control, higher response rates, less bias due to non-response, shorter time requirements for completion, reasonably low cost (Dutka, 1993; Leland and Bailey, 1995). Customer satisfaction was measured as the weighted mean of three items[1] dened during a previous the market survey, based on global satisfaction, congruence between expected and perceived value, value perception. Customer Loyalty Attitude was measured with nine items adapted from Morgan and Hunt (1994), Moorman et al. (1992, p. 82), Pearson (1996), Schijns and Schroder (1996), Anderson and Narus (1984, p. 66), Selnes (1993), Crosby et al. (1990), Anderson and Weitz (1989). Two main dimension of customer loyalty attitude were investigated: customer trust and customer commitment. Customer Trust was measured with one item adapted from Hess (1995) and Moorman et al. (1992). Customer Commitment was measured using a multiitem scale adopted and modied from Mowday et al.s (1979) Organizational Questionnaire, and Beatty and Kahles (1988) brand commitment scale. In particular, the following most relevant dimensions of customer commitment were examined: exclusive purchase intention, word-of-mouth[2], expectation of continuity, price sensitivity. Indicators and items capturing customer satisfaction and the attitudinal dimensions of customer loyalty are described in Table I. Data on customer purchase behaviour and protability were collected from the rm database. Thus, the behavioural

dimension of customer loyalty was measured by ten indicators as shown in Table II. Data on purchase behaviour and customer protability were collected from the rm database. The rm provided us the access to its records for the period December 2002-June 2004. The sample selection was based on the rms retained customers (those customers who made at least one purchase annually after the initial sale), who participated to the telephone survey with a useful response rate (in total, 4,397 customers). Data from these records were then entered into the same database as the survey responses. The client code was the key to matching the purchase behaviour and protability records kept by Firm A on each customer with the survey responses. Several attempts were made to examine the quality of measurements. Internal consistency of the scales used was ascertained by both calculating Cronbachs coefcient alpha and conducting an item analysis (through item-whole and inter-item correlation, as suggested by Spector, 1992). First, Cronbachs alpha results were largely higher than Malhotras (1993, p. 308) 0.60 limit for acceptable reliability in terms of internal consistency. The customer attitudinal loyalty measure, consisting of nine items, has an alpha value of 0.910. The customer satisfaction measure, consisting of three items, has an alpha value of 0.798. The customer purchase behaviour measure, consisting of ten items, has an alpha value of 0.92. Content validity for the customer loyalty attitude, customer satisfaction, customer behaviours and customer protability measures was ascertained by examining the scale composition throughout measure purication. The resulting scales demonstrate good reliability, as evidenced by Table III, in addition to being content valid. Data analysis The data gathered from the customer survey (data capturing attitudinal loyalty and customer satisfaction) and the rms data base (data capturing customer behaviours and protability) were entered into a computer database and

Table I Variables and items capturing attitudinal loyalty and customer satisfaction
Variables Attitudinal Loyalty Indicators Trust Commitment Surveys items Trust attitude (1-5) I feel that I completely trust this rm activities and its products

Willingness to invest in the relationship (1-5) As a consumer to this rm/brand, I am willing to put in extra effort to buy product from this rm Exclusive purchase intention (1-5) As long as the product is similar I could just as well be buying from a different rm/branda Word-of-mouth attitude (1-5) I am proud to tell others that I buy product from this rm. I would recommend this brand to others Exclusive purchase Intention (1-5) For me, this brand is the best alternative Expectation of continuity (1-5) I expect to stay with this brand for a long period of time Price sensitivity (1-5) As a consumer to this brand, I feel that I am prepared to pay more for higher quality products Loyalty perception (1-5) I feel very little loyalty to this rm/branda Global satisfaction (1-5) I am completely satised with the products of rm A Congruence between expected and perceived Performance expectations after purchasing rm As products exceed value (1-5) expectations prior to the purchase Value perception (1-5) Firm As products benets are more important with respect to the costs and sacrices related to the product purchase

Satisfaction

Satisfaction

Note: a Reverse coded items

450

Customer satisfaction and loyalty in a digital environment Jean Donio, Paola Massari and Giuseppina Passiante

Journal of Consumer Marketing Volume 23 Number 7 2006 445 457

Table II Variables and items capturing customer purchase behaviour and protability
Variables 1. Sales purchases value (1-5) 2. N. of orders (1-5) 3. Frequency of purchases (1-5) 4. Returns (1-5) 5. Debt (1-5) 6. Interactions (1-5) 7. Way of payment (1-5) 8. Way of order (1-5) 9. Loyalty programs membership (1-5) Composition of purchase (1-5) Customer protability (1-5) Denitiona The amount of sales purchases (Euros) during a period of time of 18 months The number of orders during a period of time of 18 months The frequency of purchase, expressed in days (n. orders/days) The percentage of products returns with respect to overall sales purchase value (returns/total sales purchase value expressed in %) The % of debt with respect to overall sales purchase All kind of interaction with the rm, intended ad communications, compliments, complaints The way of payment usually chosen by the customer (credit card, anticipated to the courier, at moment of delivery, anticipated through the bank, after 30/60 days) The order could be done in outbound way (the rm contact the client, during a direct marketing campaign) or in inbound way (the client contact the rm for the order) The client shares some personal information with the rm in order to participate in Loyalty Programs The composition of purchase, expressed in %, could be based more on special offers and discount or could be based more on purchase with normal conditions of price According with Cooper and Kaplan (1991) and Howell and Soucy (1990), customer protability was operationalised for each customer in the sample as sales revenue all product related expenses for all products sold to an individual customer during one particular period of time, sales, general and administrative expenses traceable to the individual customer for the same period of time. The currency is EU currency (Euro) and a period of 18 months is included in the analysis. Thus, the protability observations for each customer consist of the operating prot generated by each customer during this period of time

Note: a Variables denition is based on literature review (Kelley, 1967; Raj, 1982; Tate, 1961, Farley, 1968; Fournier and Yao, 1997; Kahn et al., 1986; Rao, 1969; Carman, 1970; Enis and Paul, 1970; Goldman, 1977-1978; Jacoby and Chestnut, 1978; Cooper and Kaplan, 1991; Howell and Soucy, 1990; Kaplan and Norton, 2004) and on the results of an Expert Analysis (survey to 30 managers of the agri-food sector)

Table III Scale summary

Constructs scale Satisfaction Customer loyalty attitude Customer purchase behaviour Customer protability

n
3 9 10 1

a 0.798 0.910 0.92 0.944

N
4,397 4,397 4,397 4,397

Std dev. 0.42 0.54 3.9 4.2

Notes: n number of items; a = Cronbachs alpha; N number of cases; Std dev. standard deviation

then analyzed using the Statistical Package for the Social Sciences (SPSS). Factor analysis, cluster analysis, ANOVA, canonical correlation analysis, multiple regression, path analysis, and t-tests were employed to test the research hypotheses on the relationships among the variables. A logistic regression analysis was used in order to identify the stronger predictors of customer protability and customer loyalty, using all available measures, including both behavioural and attitudinal variables. The regression coefcients of each model equation related to the main hypothesis were elaborated. A particular attention was given to standardised coefcients calculation. This, because the magnitude of a regression coefcient isnt necessary related to how good a predictor the variable is, since the size of the coefcient depends in large part on the units of the measure for the variable. One way to make the coefcients easier to compare is to compute what are known as standardised coefcients (Beta coefcients). 451

ANOVA analysis summarized the results of variances analysis. The sum of squares and mean square were analysed, for two sources of variation, regression and residual. The output for Regression displayed useful information about the variation accounted for by each model. The output for Residual displayed information about the variation that was not accounted for by each model. R, R squared, adjusted R squared, and the standard error were analysed. Among the initial hypothesis, the model that accounted for most of variation in the dependent variable, with a good large regression sum of squares in comparison to the residual sum of squares, was highlighted. Some observations should be made before we examine the outcome with regard to the hypotheses. First, the standard deviations for customer protability conrm what was claimed about this variable in the introduction. That is to say, customers clearly do vary in terms of the protability they generate. For example, in this case study, the top ten customers (2.4 per cent of the sample) who ranked highest in terms of customer protability generated 20 per cent of the total customer protability in the sample. This is in line with most relevant theoretical approaches and empirical evidences. Second, the analysis of the most relevant behavioural loyalty variables (customer n of orders and sales purchases value) reveals a positive and strong correlation with customer protability that has been conrmed by the Beta coefcients computation. The detailed results of these computations are summarised in Table IV.

Customer satisfaction and loyalty in a digital environment Jean Donio, Paola Massari and Giuseppina Passiante

Journal of Consumer Marketing Volume 23 Number 7 2006 445 457

Table IV Results of the computations

Unstandardized coefcients B Std error Standardized coefcients Beta

Sig.

H1 Dependent variable: protability (Constant) Customer purchase behaviour (REGR factor score 1 for analysis 1) H2 Dependent variable: protability (Constant) Customer satisfaction H3 Dependent variable: protability (Constant) Customer loyalty attitude (REGR factor score 1 for analysis 2) H4 Dependent variable: loyalty attitude (Constant) Customer satisfaction H5 Dependent variable: purchase behaviour (Constant) Customer trust Customer commitment Customer satisfaction

0.015 0.736

0.007 0.015

0.964

2.164 48.329

0.031 0.000

0.431 0.446

0.010 0.007

0.684

45.308 62.010

0.000 0.000

0.018 0.325

0.021 0.035

0.822

0.875 10.022

0.381 0.000

0.015 0.058

0.002 0.005

0.725

6.138 0.039

0.021 0.000

2.386 0.230 1.254 2 0.061

0.500 0.060 0.023 0.054

0.760 0.823 0.621

2 12.430 12.208 32.342 1.778

0.000 0.000 0.000 0.000

As shown in Table IV, all the hypotheses of conceptual framework were conrmed by the empirical results.

Discussion: the governance of customer loyalty

The results showed support for all but one of the ve hypotheses, the exception being H2. Purchase behaviour (behavioural dimension of customer loyalty) was found to be positively and signicantly associated with customer protability. This result was conrmed by t statistics method results, that identied sales purchase value and number of orders as some of the best predictors of customer protability. Customer satisfaction was found to be positively associated with customer protability, but it was considered not statically signicant. The results conrm what was claimed about this variable in the introduction: customer satisfaction (a mental state) has not any direct impact on customer protability. Thus, our results seem to conrm the hypotheses of Fournier and Mick (1999) and Oliver (1999) that it is the behaviour of the customer, which may follow from a certain level of satisfaction, trust and commitment that affects customer protability. Customer loyalty attitude was found to be positively and signicantly associated with customer protability. Our model then relates customer attitudinal loyalty measures (intent to repurchase, willingness to recommend and other probable market actions) to the expected protability of each customer: estimating the customer expected protability, basing on his attitudinal loyalty level, could be extremely useful for a manager for setting-up a customized marketing strategy, such 452

as maintaining a price advantage and/or providing additional services to offer value. To this end, in the literature some categorization of customers are suggested, useful for identifying, motivating, serving a customer according to his/ her expected differential levels of prots (e.g. Zeithaml et al., 2001) Customer satisfaction was found to be positively related to customer loyalty attitude, explaining 43 per cent of the variance of the latter. However, multiple linear regression and ANOVA analysis have shown that the model fails to explain a lot of the variation in the dependent variable, and it needs for additional factors that help account for a higher proportion of the variation in the dependent variable. This is in line with many theoretical approaches that highlighted how apparent high levels of satisfaction may not result in a behaviour characterised by high loyalty due to the many intervening variables of customer loyalty development process (Jones and Sasser, 1995; Oliver, 1999). Satisfaction, trust and commitment were found to be positively and signicantly associated with purchase behaviour. Three variables were entered the model, but two of them resulted most relevant according with t statistic method: customer trust and customer commitment. Figure 3 shows the links between purchase behaviour and the main customer loyalty attitude enablers. Customer trust and customer commitment resulted the most important variables positively and signicatively related to purchase behaviour. In particular, customer commitment, with the large t statistics value, resulted to be the main driver for customer purchase behaviour.

Customer satisfaction and loyalty in a digital environment Jean Donio, Paola Massari and Giuseppina Passiante

Journal of Consumer Marketing Volume 23 Number 7 2006 445 457

Figure 3 Links between customer loyalty attitude enablers and purchase behaviour

Our study has identied several signicant associations between variables in the customer satisfaction-customer loyalty attitude-purchase behaviour (behavioural loyalty)customer protability chain. The associations between the two latter types of variables should not be surprising, since it is the actual acts by customers, not their attitudes that affect the rms performance (cf. Storbacka et al., 1994). However, the results of our analysis show that customer loyalty variables are related to what customers do in terms of purchase behaviour: these relationships are commonly missing in many parts of the marketing literature. Segmentation literature, and particularly the literature on segmentation of business markets, is one area in which these results are relevant. Many segmentation variables have been described as candidates for the segmentation of business markets, but they are generally related to other characteristics of the buyer than customer loyalty (cf. Shapiro and Bonoma, 1984; Webster, 1984). The results of the study provide evidence that a Loyalty Index can give managers an adequate support for market segmentation. This means that actual market segment strategies, based on geographical, demographical and/or psychographic variables, should take into account also loyalty measurement models. Literature review and empirical results have also shown cost savings associated with a loyalty building strategy in at least six areas (Reichheld, 1996): 1 reduced marketing costs customer acquisition costs more; 2 lower transaction costs, such as outbound efforts and order processing; 3 reduced customer turnover expenses (fewer lost customers to replace); 4 increased cross-selling success, leading to larger share of customer; 5 more positive word of mouth; and 6 reduced failure costs (reduction in returns, debt, claims and complaints). To obtain these cost savings, we believe that is necessary to measure and manage customer loyalty effectively, by using both leading and lagging indicators: . Attitudinal measures, such as customer commitment (intent to repurchase, willingness to recommend and other probable market actions) provide the basis for developing leading indicators of customer loyalty. . Behavioural measures, such as repeat purchasing, volume or frequency of purchasing, returns, debt, complaints and 453

interactions, customer retention and longevity, furnish key lagging indicators of customer loyalty. As suggested by Kaplan and Norton (1992), without effective leading indicators, it may be difcult to establish how outcomes are achieved. Moreover, an organization lacking leading indicators of key performance outcomes or results has no early warning mechanism to signal the need for corrective action. By relying exclusively on outcomes or results, organizations may not detect the need for action until it is too late. The link between the attitudinal and behavioural indicators pointed out in this paper allow to use attitudinal measures for the purpose of estimating future results, as well as developing models that enable an organization to examine alternative what-if scenarios.

Conclusions
In this paper we have explored links between variables concerning the customer satisfaction the customer attitudinal loyalty the customer behavioural loyalty the customer protability chain. We have included both attitudinal (such as intent to repurchase, willingness to recommend and other probable market actions have been included in order to provide the basis for developing leading indicators of customer loyalty) and behavioural measures (such as repeat purchasing, volume or frequency of purchasing, returns, debt, complaints and interactions, customer retention and longevity, have been included as lagging indicators of customer loyalty). Our model also has veried some relations existing between attitudinal measures and behavioural measures, in order to use attitudinal measures for estimating the customer expected protability; this estimation can be used for setting-up a customized marketing strategy, such as maintaining a price advantage and/or providing additional services to offer value. As a conclusion, some limitations of our study should be emphasised. Firstly, data were collected in one single rm. Secondly, the study focused on a single industry, namely that of agri-food. While useful in controlling for potential extraneous inuences unrelated to the study, the limitation involved in studying a single industry constrains the possibility to generalize these ndings. Future research should seek to replicate the study into different rms and business sectors in order to assess whether the linkages identied here still exist in different industrial and consumer populations. Another limitation is related to the time periods used in the study. It is not clear to what extent the time periods have provided a

Customer satisfaction and loyalty in a digital environment Jean Donio, Paola Massari and Giuseppina Passiante

Journal of Consumer Marketing Volume 23 Number 7 2006 445 457

proper context for an analysis of the relationships between attitudinal variables and behavioural variables. However, it does seem clear that attitudinal variables such as customer satisfaction do not remain constant over time (cf. Peterson and Wilson, 1992). Future research should seek to replicate the study into different period of time, more than one. It means, among other things, that the timing of the survey becomes a key issue. One may consider as time unit the year, but if customer relationships are viewed as investments, a longer period may be needed to determine the extent to which one particular customer is protable (cf. Reichheld, 1996).

Notes
1 Items capturing customer satisfaction have been adapted from Pearson (1996), Oliver (1993), Holbrook (1999), Costabile (2001), Westbrook and Oliver (1991). 2 Word-of-mouth can be dened as oral, person-to-person communication between a receiver and a communicator (Arndt, 1967, p. 189).

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Further reading
Crosby, L.A. and Stephens, N. (1987), Effects of relationship marketing on satisfaction, retention, and prices in the life insurance industry, Journal of Marketing Research, Vol. 24 No. 4, pp. 404-11.

Customer satisfaction and loyalty in a digital environment Jean Donio, Paola Massari and Giuseppina Passiante

Journal of Consumer Marketing Volume 23 Number 7 2006 445 457

Dowling, G.R. and Uncles, M.D. (1997), Do customer loyalty programs really work?, Sloan Management Review, Vol. 38 No. 4, pp. 71-82. Ehrenberg, A.S.C., Mark, D.U. and Goodhardt, G. (2004), Understanding brand performance measures: using Dirichlet benchmarks, Journal of Business Research., Vol. 57 No. 12, pp. 1307-25. Fournier, S. (1996), The consumer and the brand: an understanding within the framework of personal relationships, working paper 97-024, Harvard Business School, Boston, MA. Heskett, J.L., Jones, T.O., Loveman, G.W., Sasser, W.E. and Schlesinger, L.A. (1994), Putting the service prot chain to work, Harvard Business Review, Vol. 72 No. 2, pp. 164-74.

OBrien, L. and Jones, C. (1995), Do rewards really create loyalty?, Harvard Business Review, Vol. 73 No. 3, pp. 75-82.

About the authors

Jean Donio, is a Full Professor at the University of Paris II, France. He is the corresponding author and can be contacted at: jdonio@easynet.fr Paola Massari is a Researcher at e-Business Management School, ISUFI, University of Lecce, Lecce, Italy. Giuseppina Passiante is a Full Professor of Innovation Management at the e-Business Management School, ISUFI, University of Lecce, Lecce, Italy.

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