Emotional and rational motivations for customer loyalty

Emotional and rational motivations for customer loyaltyin business-to-business professional servicesBarbara Cˇater and Tomaz ˇC ˇater ÃUniversity of Ljubljana,Faculty of Economics,Kardeljeva plosˇc ˇad 17,SI-1000Ljubljana,Slovenia (Received 11January 2007;final version received 22February 2007)The purpose of this study is to add to the body of knowledge on customer loyalty inprofessional services in business-to-business markets.The authors build on theIndustrial Marketing and Purchasing group constructs and relate them to affectivecommitment,relational benefits and,through these two,to customer loyalty.Theresults show that trust and social bonds positively influence affective commitment,while adaptation and knowledge transfers positively influence relational benefits.Although both affective commitment as a more emotional construct and relationalbenefits as a more rational construct positively influence customer loyalty,emotionalmotivation seems to be much stronger than rational motivation.Theoretical andmanagerial implications are discussed on the basis of the empirical findings.Keywords:professional services;business-to-business market;business relationship;relationship management;actor bonds;activity links;resource ties;commitment;benefits;customer loyaltyIntroductionThere is a growing awareness that,especially in business-to-business markets,firm per-formance can be improved by focusing on present customers instead of concentrating on attracting new ones (Holmlund &Kock,1996).It has been argued that building relationships with customers is the essence of business-to-business marketing (Goldsmith,1999;Hutt &Speh,2004)and that relationships are the fundamental asset of a firm that determines its future more than anything else (Gordon,2000).Researchers also point out that collaborative relationships in business-to-business markets offer opportunities for firms to create competitive advantages and achieve superior results (Hewett,Money,&Subhash,2002;Jap,1999;Panayides,2002;Sharma &Sheth,1997;Ulaga,2003;Zˇuz ˇel &Z ˇabkar,2006).More recently,the discussion of relationships has been enriched by focusing on the concept of customer value as a key building block of relationship mar-keting (Holmlund &Kock,1996;Ulaga &Eggert,2005)and a relationship-based strategy in building a firm’s competitive advantage (Morgan &Hunt,1999).Since one of the main marketing goals of firms is to establish customer loyalty (Berry &Parasuraman,1991),a key question practitioners and researchers face is what is it that makes customers loyal.When discussing the reasons for customer loyalty,researchers primarily rely on different components of commitment.The majority of researchershave defined commitment similarly to Moorman,Zaltman,and Deshpande´(1992,p.316),i.e.as ‘an enduring desire to maintain a valued relationship’,and measured it as a global construct.However,in the last decade,several researchers have conceptualised ISSN 0264-2069print/ISSN 1743-9507online#2009Taylor &FrancisDOI:10.1080/02642060902764780ÃCorresponding author.Email:tomaz.cater@ef.uni-lj.siThe Service Industries JournalVol.29,No.8,August 2009,1151–11691152 B.Cˇater and T.Cˇatercommitment with two1components–affective and calculative.Affective commitment is reflected in Bagozzi’s(1975,p.316)‘social man’.It is an‘emotional,social sentiment’(Gilliland&Bello,2002,p.25)and pertains to attachment that is due to liking and identi-fication(Geyskens,Steenkamp,Scheer,&Kumar,1996;Kumar,Hibbard,&Stern,1994). On the other hand,calculative commitment is reflected in Bagozzi’s(1975,p.316)‘econ-omic man’.It relates to a‘rational,economic calculation’(Gilliland&Bello,2002,p.25) and is also addressed as an attachment for instrumental reasons(Geyskens et al.,1996; Kumar et al.,1994).Both affective and calculative commitments pertain to psychological states,yet they originate from different motivations for maintaining a relationship (Geyskens et al.,1996).While affective commitment represents a positive motivation, calculative commitment mostly represents a negative motivation for continuing the relationship(De Ruyter,Moorman,&Lemmink,2001;Geyskens et al.,1996;Gounaris, 2005;Kumar et al.,1994).Recently,however,Sharma,Young,and Wilkinson(2006, p.69)have proposed that calculative(cognitive)commitment can be negative(‘locked-in commitment’)and positive(‘value-based commitment’).Locked-in commitment refers to staying in the relationship due to a perceived lack of choice or perceived switch-ing costs,while value-based commitment involves the rational calculation of benefits from continuing the relationship(Sharma et al.,2006).Since our aim is to put forward con-structs measuring positive motivation for customer loyalty,our paper builds on affective commitment and relational benefits as two key positive motivations for customer loyalty.The purpose of our study is to add to the body of knowledge on customer loyalty in the professional service sector2in business-to-business markets.The study builds on three relationship components,i.e.actor bonds,activity links and resource ties,proposed by the Industrial Marketing and Purchasing(IMP)group of researchers,and relates them to affective commitment,relational benefits and,through these two constructs,to customer loyalty.We propose that actor bonds(as a more emotional relationship component)influ-ence affective commitment,while activity links and resource ties(as more rational relationship components)influence relational benefits.Both affective commitment(as an emotional construct)and relational benefits(as a rational construct)are hypothesised to influence customer loyalty.Based on our empiricalfindings,theoretical and managerial implications are discussed.In particular,we propose what professional service providers in business-to-business markets can do to improve their customers’loyalty by improving the relationships with their customers.By concentrating on these implications,we seek to contribute to bridging the gap between the services-based and relationship-based literature on one side and its strategic/managerial implications on the other(Harrington&Akehurst, 2000;Morgan&Hunt,1999).Conceptual frameworkAffective commitment,relational benefits and customer loyaltyAs an emotional reason for customer loyalty we hypothesise that affective commitment is the key construct.According to Sharma et al.(2006,p.65,69),affective commitment includes‘a desire to develop and strengthen a relationship with another person or group because of familiarity,friendship,and personal confidence built through interpersonal interaction over time’.It originates from identification,common values,attachment,invol-vement and similarity(Bansal,Irving,&Taylor,2004;Fullerton,2003;Geyskens et al., 1996;Gruen,Summers,&Acito,2000).In addition,affectively committed customers continue the relationship because they like their providers and enjoy working with them (Fullerton,2005a;Fullerton,2005b;Geyskens et al.,1996).Affective commitment isThe Service Industries Journal1153 therefore based on a general positive feeling towards the relationship partner(Konovsky& Cropanzano,1991).Customers with strong affective commitment will stay in the relation-ship because they‘want to’,based on their positive affect towards the provider(Kumar et al.,1994,p.4).On the other hand,we propose relational benefits as a rational motivation for customer loyalty.Sweeney and Webb(2002,p.78)suggest that relational benefits exist‘when value is added to what is received beyond the basic product,resulting in perceived consequences for the recipient’.Similarly,Gao,Sirgy,and Bird(2005,p.25)define relational benefits as ‘utilities beyond the core performance and supplementary services that the customer can obtain from the formation,development,and maintenance of a long-term buyer-seller relationship’.Relational benefits are often conceptualised within relationship value definitions as‘what you get’opposed to the sacrifices that refer to‘what you give’in a market exchange(Zeithaml,1988,p.14).The reason we include relational benefits (and not relationship value)in our model is that the operationalisation of relationship value is very complex(Ulaga&Eggert,2005,2006)and as such difficult to include in our already complex model.Different authors(Lapierre,2000;Sweeney&Webb, 2002;Ulaga,2003;Ulaga&Eggert,2005,2006)point out different groups of relational benefits.In our study,we focus on the relationship outcome benefits which explain how firms can better compete in the market due to having a long-term relationship with their partner(Morgan&Hunt,1994).Both affective commitment and relational benefits are hypothesised to influence cus-tomer loyalty.Loyalty has been defined as a construct that measures the probability that the customer will return and is ready to perform partnering activities such as referrals (Bowen&Shoemaker,2003).Some authors(Bolton,Smith,&Wagner,2003;Lapierre, Filiatrault,&Chebat,1999;Woo&Ennew,2004;Zeithaml,Berry,&Parasuraman, 1996)refer to a similar concept as behavioural intentions that include renewing the con-tract,making recommendations and increasing patronage(Bolton et al.,2003;Zeithaml et al.,1996).Researchers are not unanimous on the difference between commitment and loyalty.Still,the majority of them believe these two constructs are related but different and that commitment is an antecedent to loyalty(Bansal et al.,2004;De Ruyter et al., 2001;Fullerton,2005b;Harrison-Walker,2001;Hennig-Thurau,Gwinner,&Gremler, 2002;Pritchard,Havitz,&Howard,1999;Wetzels,De Ruyter,&Lemmink,2000; Wetzels,De Ruyter,&Van Birgelen,1998).This difference is also reflected in our study where commitment is understood as predominantly a motivation and an attitude to continue a relationship,while loyalty is a mixture of attitude and behaviour that is most often defined as repeat patronage and referral behaviour.Actor bonds,activity links and resource tiesThe model we use in our study largely builds on the IMP group’s ideas,proposing an inter-action approach to relationships which recommends that customers and providers should move away from competitive relationships and recognise the benefits of collaborative relationships instead(Durkin&Lawlor,2001).The IMP researchers identify three layers of relationship(Ha˚kansson&Snehota,1995),i.e.actors,activities and resources.A relationship between twofirms therefore has a profile in terms of actor bonds,activity links and resource ties.(1)The construct of actor bonds as part of interaction and network theory was introduced to illustrate where the stability of relationships between customers and providers arises from(Holmlund&Kock,1996).Actor bonds link actors(firms and individuals)and affect how actors perceive each other and develop their identities.1154 B.Cˇater and T.Cˇater(2)Activity links refer to the technical,administrative,marketing and other activities of a firm that we can connect to the activities of the counterpart during the development of the relationship.(3)Resource ties link the different elements of resources(technology, material,knowledge and other intangible resources)of examinedfirms.These ties are a result of relationship development and represent afirm’s resource(Ha˚kansson& Snehota,1995).On the basis of a literature review on marketing relationships in services (Halinen,1997;Woo&Ennew,2004)as well as on the basis of our in-depth interviews with clients of market research agencies that were carried out in the initial phase of our study,we use trust and social bonds as concepts representing actor bonds,adaptation and co-operation as concepts measuring activity links and knowledge transfers as a concept representing resource ties.Trust is an essential relationship model-building block(Anderson&Narus,1998)and has often been defined as a belief that one relationship partner will act in the best interests of the other partner(Wilson,1995).Based on a meta-analysis of studies about trust, Geyskens,Steenkamp,and Kumar(1998,p.225)pointed out that most of these studies build on interpersonal research and define trust as‘the extent to which afirm believes that its exchange partner is honest and/or benevolent’or some variant thereof. Moorman et al.’s(1992)definition,similarly as Doney and Cannon’s(1997),reflects two components of trust:credibility and benevolence.Credibility reflects the customer’s belief that the provider has sufficient expertise to perform the job effectively and reliably, while benevolence reflects the extent of the customer’s belief that the provider’s intentions and motives are beneficial to the customer even when new conditions arise about which a commitment was not made(Ganesan,1994).Social bonds are defined as‘the degree of mutual personal friendship and liking shared by the buyer and seller’(Wilson,1995,p.339).In the professional service context,social bonds refer to the human side of the service,including personal contacts,liking and trust (Thunman,1992).Social bonds include familiarity,friendship and personal confidence that are built through the exchange process(Rodriguez&Wilson,2002).They are created through social interactions where individuals develop strong personal relationships that can strengthen the relationship between bothfirms(Wilson,1995).Adaptation refers to‘behavioural or structural modifications at the individual,group or firm level,carried out by onefirm,which are initially designed to meet specific needs of anotherfirm’(Brennan&Turnbull,1998,p.31).Adaptation occurs when one party in the relationship adapts its processes or the product to another party.This conceptualisation is broad enough to include one-off investments that are needed tofinish a certain transaction as well as gradual adaptations that occur through time(Ha˚kansson,1982).For professional services in business-to-business markets,Halinen(1997)stresses the importance of passive adaptation that is related to the task content,results and terms of payment,the customer’s marketing strategy and task execution.It can also relate to personal relation-ships,knowledge and roles as well as positions in the relationship.Co-operation is a result of exchange episodes that take place between the customer and the provider.It refers to‘the extent that the work of buyer and seller is co-ordinated’(Metcalf,Frear,&Krishnan,1992,p.29).Kalafatis(2002)points out that the conceptu-alisation of co-operation by the IMP group that sees co-operation as a result of exchange episodes is consistent with the conceptualisation proposed by Anderson and Narus(1990, p.45)who defined co-operation as‘similar or complementary coordinated actions taken byfirms in interdependent relationships to achieve mutual outcomes or singular outcomes with expected reciprocation over time’.Similarly,Young and Wilkinson(1997,p.55)understand co-operation as‘all activities undertaken jointly or in collaboration with others which is directed towards common interests or achieving rewards’.Probably the most important resource in the professional service context is knowledge. It can be understood in several ways:as the ability of an actor to carry out the tasks that are the subject of a contract,as the knowledge that arises between actors about how to do business with each other and as the ability of an actor to draw on the knowledge base of those within the actor’s relationships(McLoughlin&Horan,2000).Relationships present an important tool for connecting the knowledge of different actors(Ha˚kansson &Snehota,1995).In a relationship,firms can co-operate and learn from each other without actually having to do all the investments themselves(De Ruyter&Semeijn, 2002).Knowledge transfers,taking place in the customer-provider interface(Gadrey& Gallouj,1998),as part of resource ties therefore encompass knowledge that is formed between the actors as to how to do business with each other and as the capability of actors to utilise the knowledge of the other actors in the relationship.Development of the hypothesesFigure1presents a model of customer loyalty in professional service relationships in business-to-business markets.Hypotheses are proposed about the relationships between the layers of substance in the relationships(as developed by the IMP researchers)and affective commitment,relational benefits and customer loyalty.Several empirical studies have discovered a positive influence of trust on affective commitment(De Ruyter&Semeijn,2002;De Ruyter&Wetzels,1999;De Ruyter et al.,2001;Geyskens et al.,1996;Gounaris,2005;Wetzels et al.,1998,2000).In addition,several empirical studies have discovered a positive influence of trust on commitment as a global construct,although a careful examination reveals that in fact the commitment in these studies has been implicitly measured as affective commitment (Friman,Gaerling,Millett,Mattsson,&Johnston,2002;Goodman&Dion,2001; Lohtia,Bello,Yamada,&Gilliland,2005;Moorman et al.,1992;Morgan&Hunt, 1994;Perry,Cavaye,&Coote,2002;Rodriguez&Wilson,2002;Tellefsen&Thomas, 2005;Walter&Ritter,2003).Research also shows that customers and providers who are bound by strong personal relationships are more committed to maintaining relation-ships than those without such relationships(Wilson,1995;Wilson&Jantrania,1994).1156 B.Cˇater and T.CˇaterTherefore,social bonds have also been found to be one of the key antecedents of commit-ment in interfirm relationships(Mavondo&Rodrigo,2001).Based on these past empirical findings,the following hypotheses were proposed for relationships between trust,social bonds and affective commitment:H1:Trust positively influences affective commitment.H2:Social bonds positively influence affective commitment.The existing literature on business-to-business relationships clearly lacks empirical support for the relational benefits.Therefore,in developing hypotheses related to relational benefits,we build predominantly on the relationship value literature.In so doing,we adopt the original terminology(i.e.‘value’instead of‘benefits’)used by the researchers and at the same time point out how theirfindings refer to relational benefits.When partners adapt processes and products or specialise their investments,this creates value for the other firm(Wilson,1995).Adaptations can create value for one or both sides to the extent that they lower costs,increase revenues or create dependence(Cannon&Perreault,1999). The more the provider adapts to the customer,the higher are the benefits for the customer. Researchers also mention co-operation as a source of value(Wilson,1995).In relation-ships where providers and customers co-operate to improve their business processes, customers perceive they get more benefits than in relationships where co-operation does not take place.Firms that enter a long-term relationship also expect that,due to the mutual contribution of knowledge,technology and other resources,value will be created that none of the partners could create on its own(Wilson&Jantrania,1994).Knowledge that a partner receives in a relationship can be the most valuable outcome of a relationship; however,it may also be the most difficult outcome to measure(Wilson,1995).Due to the acquired knowledge,customers feel less of a risk in making decisions and therefore see knowledge transfers as a relationship component that increases their relational benefits. Based on the arguments presented above,the following hypotheses were developed: H3:Adaptation positively influences relational benefits.H4:Co-operation positively influences relational benefits.H5:Knowledge transfers positively influence relational benefits.Empirical studies on relationship marketing show that affective commitment is the key driver of customer loyalty(Fullerton,2005a;Harrison-Walker,2001;Kumar et al.,1994). Affective commitment creates positive intentions to maintain and strengthen the relation-ship(Gounaris,2005).In line with De Ruyter et al.(2001),Gounaris(2005),Kumar et al. (1994),and Wetzels et al.(1998),who discovered that affective commitment positively influences customer loyalty,we developed the following hypothesis:H6:Affective commitment positively influences customer loyalty.If customers perceive value from the provider’s offering or from the relationship with the provider,they are likely to continue to be loyal to that provider(Plank&Newell, 2007).Several empirical studies in the service literature found a positive influence of relationship value on customer loyalty(Cronin,Brady,&Hult,2000;Harris&Goode, 2004;Lin&Wang,2006;Sirdeshmukh,Singh,&Sabol,2002).Based on these empirical studies,we hypothesise that in relationships where customers perceive greater relational benefits,they will be more loyal to the provider.Therefore,we developed the following hypothesis:H7:Relational benefits positively influence customer loyalty.The Service Industries Journal1157Research methodologyMeasure developmentVariables for our model were operationalised on the basis of operationalisations in past research with some modifications and developments based on nine in-depth interviews with clients of market research agencies conducted in the exploratory phase of our study.With regard to the exogenous constructs,trust was measured on a combined scale developed from the scales of Doney and Cannon(1997)and Moorman et al. (1992),which we adapted on the basis of the in-depth interviews with clients.For measur-ing social bonds,the scale of Mavondo and Rodrigo(2001)was used and adapted to the context of our study.For measuring adaptation,the scale of Cannon and Perreault(1999) was used and adapted based on thefindings of Brennan and Turnbull(1999),Halinen (1997)and the in-depth interviews with clients.We measured co-operation on a combined scale from Anderson and Narus’s(1990)scale for co-operation and Cannon and Perreault’s(1999)scale for information exchange,which we adapted to the context of our study.Since there was no explicit scale in the business relationship literature to measure knowledge transfers and since this is a typical industry-specific concept,the oper-ationalisation of this concept was achieved on the basis of a review of conceptual definitions(De Ruyter&Semeijn,2002;Ha˚kansson&Snehota,1995;McLoughlin& Horan,2000)and adapted on the basis of the in-depth interviews with clients.As for the endogenous constructs,Kumar et al.’s(1994)scale was used for affective commit-ment,while for relational benefits the scale was developed based on thefindings of Lyons,Krachenberg,and Henke(1990),Morgan and Hunt(1994),and Nowak,Boughton, and Pereira(1997)as well as on the in-depth interviews with clients.Finally,customer loyalty was measured on a scale developed by Zeithaml et al.(1996).For all scales,the respondents were asked to express their agreement with a given statement using a seven-point Likert-type scale(from1¼not at all true to7¼completely true).All variables were measured in a positive direction.In addition,we included ques-tions about the industry that thefirm operates in,thefirm’s size,the duration of the relationship and the value share of the projects carried out with the market research agency that the questions referred to.After a scale refinement in line withfive experts’opinions,the questionnaire was tested on10members of the population.Data gatheringData were gathered from managers responsible for market research in clientfirms.The context of market research was chosen because it provides a good representation of a specialised professional service industry(Boughton,Nowak,&Washburn,1996)and includes a wide continuum of relationships from transactions to partnerships,therefore providing the desired variability of relationships(Tellefsen&Thomas,2005).In addition, there has always been a solid agreement that the quality of services is inconsistent across market researchfirms(Dawson,Bush,&Stern,1994),which was a good reason to expect a wide range of opinions from the respondents.In order to ensure variability in the relationships included in the study,the respondents evaluated their relationship with the agency that carried out their most recent market research,like in the Moorman et al. (1992)research.They were instructed to answer questions about the specific relationship and to keep in mind not only the last research but also the entire relationship they had experienced with that agency.The sample framework included230firms that were clients of market research agencies.Data collection started in March2005.By the end of July2005,150telephone interviews had been completed,which means the response1158 B.Cˇater and T.Cˇaterrate was65.2%.Due to the telephone interviewing,we had a greater control over which firms were included in the sample(firms that were indeed clients of market research agencies)and who our respondents were(employees who were the most knowledgeable about the topic).Both the high response rate and control over the selection of respondents increase our confidence that we included the most relevant units.Sample characteristicsThe majority offirms responding to the questionnaire were providers of business services (24.7%),followed by manufacturing(23.3%)and tradingfirms(22.0%).The rest were providers of services for consumers(12.7%),providers of services for bothfirms and consumers(11.3%)and public organisations(6.0%).40.7%of thefirms had up to50 employees,13.3%had between51and100employees,24.7%had between101and 500employees,while21.3%of thefirms had501or more employees.Among the studied relationships(with the agency that performed the last market research),most relationships were2–4(42.0%)and5or more(42.0%)years old.Only16.0%of the relationships had lasted for less than2years.The average duration of a relationship was4.4years.We also examined what was the value share of projects done by the studied agency among all research projects carried out with outside market research pro-viders.This share was76.1%,which means the majority of respondents had described their relationship with their most important market research provider.Data analysisPrior to the LISREL analysis,a set of items for each construct was examined in the pre-test using exploratory factor analysis to identify those items not belonging to the specified domain.We used principle axis factoring with an oblimin rotation.Items with a loading of less than0.50and/or cross-loadings greater than0.35were discarded.The properties of the proposed research constructs were tested with structural equation modelling (SEM).The maximum likelihood method of estimation was adopted.The SEM procedure was appropriate to test the proposed theoretical model because it enabled us to evaluate how well a proposed conceptual model that contains observed variables and unobserved constructs explained orfitted the collected data(Bollen,1989;Hoyle,1995). Empirical analysis and resultsMeasurement modelFirst we performed confirmatory factor analysis(CFA)to test the measurement model.We used the covariance matrix as an input to LISREL8.72.We trimmed the model by discard-ing items for each construct where necessary in order to ensure the bestfitting model.In thefinal model,there were three measurement variables for trust(measuring reliability and benevolence of service provider),two measurement variables for adaptation(measuring adaptation in different aspects of service delivery),three measurement variables for co-operation(measuring working together towards common goals),three measurement variables for knowledge transfers(measuring knowledge transfers in both directions), four measurement variables for affective commitment(measuring motivation to continue relationship due to liking and identification),two measurement variables for relational benefits(measuring what the customer gets out of the relationship)and three measurement variables for customer loyalty(measuring patronage behaviour and referrals).The measurement model has a statistically significant value of the chi-square。