Variety-Seeking Behavior and Recommendationsbempirical Findings and Consequences For the Management of the Service Profit Chain

ABSTRACT - Variety-seeking behavior occurs if customers derive utility from the change of service providers. In this case customer satisfaction does not lead to customer loyalty. As high customer loyalty is assumed to lead to higher profits, variety-seeking behavior is a disturbing factor in the service profit chain. This article will show variety-seeking behavior in a more positive light. Variety-seekers are satisfied customers and therefore they are likely to engage in positive word-of-mouth communication. Recommendations will help to attract new customers and thus increase profits. As a consequence, customer satisfaction is central for realizing profits.

Citation:

Herbert Woratschek and Chris Horbel (2003) ,"Variety-Seeking Behavior and Recommendationsbempirical Findings and Consequences For the Management of the Service Profit Chain", in E - European Advances in Consumer Research Volume 6, eds. Darach Turley and Stephen Brown, Provo, UT : Association for Consumer Research, Pages: 82-87.

European Advances in Consumer Research Volume 6, 2003      Pages 82-87

VARIETY-SEEKING BEHAVIOR AND RECOMMENDATIONSBEMPIRICAL FINDINGS AND CONSEQUENCES FOR THE MANAGEMENT OF THE SERVICE PROFIT CHAIN

Herbert Woratschek, University of Bayreuth, Germany

Chris Horbel, University of Bayreuth, Germany

ABSTRACT -

Variety-seeking behavior occurs if customers derive utility from the change of service providers. In this case customer satisfaction does not lead to customer loyalty. As high customer loyalty is assumed to lead to higher profits, variety-seeking behavior is a disturbing factor in the service profit chain. This article will show variety-seeking behavior in a more positive light. Variety-seekers are satisfied customers and therefore they are likely to engage in positive word-of-mouth communication. Recommendations will help to attract new customers and thus increase profits. As a consequence, customer satisfaction is central for realizing profits.

INTRODUCTION

The service profit chain consists of the relationships between employee satisfaction, perceived service quality, customer satisfaction, customer loyalty and higher long-term profits. Research on the service profit chain has shed light on the fact that these relationships are not always simple (Zeithaml, Berry, and Parasuraman 1996; Olsen and Johnson 2003).

The following paper addresses variety-seeking behavior as one disturbing factor in the service profit chain. Variety-seeking behavior of consumers has received considerable attention in marketing literature (Faison 1977; Givon 1984; Hoyer and Ridgway 1983; McAlister and Pessemier 1982). The focus of past research has been on consumer goods. Although Hirschman and Wallendorf (1980) state that people may exhibit variety-seeking behavior in several areas of their lives, there are relatively few approaches to transfer variety-seeking behavior to other areas. Variety-seeking behavior in services markets has not received very much attention yet. However, we believe that variety-seeking behavior might be even more important for services management. Variety-seeking behavior has some negative consequences for the firm. This paper contributes to the existing literature as we will discuss recommendations of customers as one instrument to reduce these negative consequences, thereby shedding some positive light on the phenomenon variety-seeking behavior.

THE SERVICE PROFIT CHAIN

The impact of service quality on profit and other financial outcomes of a firm has received considerable attention in marketing theory (Rust, Zahorik, and Keiningham 1995). It is often argued that high service quality leads to a high degree of customer satisfaction (Zeithaml and Bitner 2000). Satisfied customers repeatedly buy products and services. They become loyal customers. Customer loyalty and the development of long-term customer relationships will lead to higher revenues and lower costs, thus profits will increase (Berry 2002; Bruhn 2003). The service quality dependsBamong other thingsBon the employee’s abilities and willingness to perform well. Therefore, employee satisfaction is necessary to reach customer satisfaction, customer loyalty, and increased profits (Topolosky 2000). Further, there is wide belief that highly satisfied customers are likely to engage in positive word-of-mouth communication (Bloemer and De Ruyter 1995; Cornelsen and Schober 1997; Harrison-Walker 2001). We further assume that recommendations increase with higher customer loyalty, because loyal customers feel more attached to the service provider (Zeithaml et al. 1996; Harrison-Walker 2001). Positive recommendations lead to higher revenues and hence, to higher long-term profits.

However, these relationships are not always straightforward. Investment of companies in improvements of service quality have not always led to improved economic success (Zeithaml et. al. 1996). There are factors which disturb the causalities shown in Figure 1. In this article we will have a closer look on variety-seeking behavior as one of those factors. If variety-seeking behavior occurs, the relationship between customer satisfaction and loyalty is ambivalent, because variety-seeking tendency is negatively correlated with customer loyalty. Therefore, the influence of customer satisfaction on recommendations is not clear, because loyalty is positively correlated to customer satisfaction but negatively to variety-seeking tendency. We assume that the effect of customer satisfaction on recommendations is stronger than the effect of variety-seeking tendency, because there is also a positive correlation between the degree of satisfaction of variety-seekers and recommendations.

DETERMINANTS OF VARIETY-SEEKING BEHAVIOR

Suppliers on a number of markets are facing the problem that customers are satisfied with the products or services offered but switch to another supplier for the next purchase. There might be several reasons for such behavior, such as external factors (e.g. stock availability), or a change of situation-specific preferences. But as research has shown it might as well result from the simple desire for change. To Givon (1984) variety-seeking (or avoidance) behavior is "the phenomenon of an individual consumer switching brands (or repeat buying) induced by the utility (or disutility) she derives from the change itself irrespective of the brands she switches to or from" (p.2).

The central theoretical explanation for the phenomenon of variety-seeking behavior is provided by the theory of the Optimum Stimulation Level (Berlyne 1960). Each individual has its own specific optimal level of stimulation, which is relatively constant over time (Helmig 1997). In situations containing an increased level of arousal, further stimulation will be avoided. In situations where the level of stimulation is below the optimum, individuals will seek additional stimulation.

A purchasing situation may provide a less than optimal level of stimulation for a consumer, thus leading to a state of boredom. As a consequence, the consumer will try to increase the arousal potential of the situation, for example, by exhibiting variety-seeking behavior (Helmig 1997; Menon and Kahn 1995).

Other explanations for variety-seeking behavior are for example the uncertainty about future preferences (Kahn and Lehmann 1991) as well as the belief of people that no one item provides desired levels of all attributes (Farquhar and Rao 1976).

Personal factors seem to influence the optimal level of stimulation of an individual and hence the degree of variety-seeking behavior (Hoyer and Ridgway 1983) the individual shows. The age of an individual plays an important role. 'Childhood’ and 'Youth’ are characterized by a higher level of curiosity than retirement age mainly due to more experience of life. Generally, the desire for change decreases as people grow older, although this cannot be applied to all areas of life and to all purchasing situations. Furthermore, people’s cultural backgrounds, ideological attitudes and their lifestyles influence their variety-seeking tendency. People dedicated to a rather spartan life are less likely to engage in variety-seeking behavior than people living a hedonistic lifestyle (Van Trijp, Hoyer, and Inman 1996). Venturesome, spontaneous and extrovert people will as well have a higher tendency to show variety-seeking behavior than riskavers, rational people. The degree of education and the level of income are also assumed to be positively correlated with variety-seeking behavior (McAllister and Pessemier 1982; Raju 1980). The degree of variety-seeking behavior even appears to depend on gender: men are more likely to exhibit variety-seeking behavior than women (McAllister and Pessemier 1982; Tscheulin 1994).

McAlister and Pessemier (1982) suggest that there are also motives like the desire for group affiliation or individual identity that influence variety-seeking behavior because social pressures for conformity create the need to express individuality in subtle ways.

FIGURE 1

THE SERVICE PROFIT CHAIN

RECOMMENDATIONS

Antecendents of Recommendations

Past research on word-of-mouth communication mainly focused on its effects on the receivers attitudes and behaviors (Anderson 1998). Relatively few researchers have paid attention to potential antecedents of recommendations (Anderson 1998; Harrison-Walker 2001). Anderson (1998) found that word-of-mouth activity increases as either satisfaction or dissatisfaction of customers increases.

As variety-seeking consumers will choose another service provider at the next purchase, one could argue that it is unnecessary to provide hih service quality to these consumers. High service quality leads to high costs and variety seekers will not generate future revenues, thus profits are decreasing. However, past research revealed that high service quality positively affects word-of-mouth communication behavior of customers. (Bone 1992; Helm 2000; Harrison-Walker 2001). Positive word-of-mouth communication will attract new customers and, hence, lead to higher revenues. Therefore customer satisfaction is central for realizing profits. Moreover, extremely dissatisfied customers are even more likely to engage in word-of-mouth than satisfied customers (Anderson 1998; Harrison-Walker 2001). Negative word-of-mouth will probably lead to lower customer loyalty and negative consequences for the attraction of new customers.

Past research further revealed that customer loyalty is positively related to word-of-mouth communication (Zeithaml et al. 1996; Harrison-Walker 2001). Not only loyal customers are satisfied with the service but also they feel attached to the service provider.

Empirical Study

Research Design. The empirical study was one part of a larger research project in the popular German destination Garmisch-Partenkirchen in Winter 2001/02. The objective of the overall study was to get a better understanding of the influences of tourists’ decision for a destination. Further satisfaction of the tourists with their vacation in Garmisch-Partenkirchen should be analyzed. Moreover, factors that influence the duration of stay of tourists at a destination should be investigated. Determinants of customer loyalty were another main part of the study.

This part of the study will focus on the relevance of variety-seeking behavior and recommendations within the service profit chain. Within two periods of time a total of 428 personal interviews with tourists were conducted, whereby standardized questionnaires were used. The age quota was linked to the official registration statistics.

Research Hypotheses. In our empirical study we focus on one part of the service profit chain. The following hypotheses are of interest.

H1: Customer Satisfaction is positively correlated with recommendations.

H2: Customer Loyalty is expected to increase as customer satisfaction increases.

H3: Recommendations are expected to increase as customer loyalty increases.

H4: Variety-seeking tendency should be negatively correlated to customer loyalty.

H5: The influence of customer satisfaction on recommendations is stronger than that of variety-seeking tendency.

Table 1 contains the indicators used to measure the variables.

TABLE 1

INDICATORS FOR VARIABLES

FIGURE 2

CORRELATION COEFFICIENTS

As we conducted the study in only one period of time, our indicators for the variables measure only behavioral intentions instead of observed behavior. As the original objective of the overall study was different from the focus of this article, we can only measure one indicator for each variable.

Results. All variables were measured on a 5-point scale (not satisfied at all to extraordinarily satisfied for overall customer satisfaction and strongly agree to strongly disagree for customer loyalty, recommendations and variety-seeking tendency).

Hypotheses 1 to 4 were tested using correlation analysis. All correlations are statistically significant (p<0,001), thus supporting the hypotheses. Figure 2 shows the correlation coefficients.

A regression model was used to investigate hypothesis 5. Recommendations was used as the dependent variable and customer satisfaction and variety-seeking tendeny as the independent variables. The model was highly statistically significant. Table 2 contains the regression coefficients.

An examination of the results shows that the influence of customer satisfaction on recommendations is stronger than that of variety-seeking tendency, thus supporting hypothesis 5. Although the influence of variety-seeking tendency is significantly negative, the influence of satisfaction is much stronger. A high satisfaction level will always lead to positive recommendations.

Table 3 shows the distribution of the tourists in our example on the basis of the variables "customer satisfaction" and "variety-seeking tendency".

Over 30 percent of the tourists have been relatively dissatisfied with their vacation in Garmisch-Partenkirchen. A medium degree of satisfaction (3) is not enough to induce customer retention, if the degree of competition is very high (Bhote 1966). There is no doubt that in tourism there is intense competition. In addition dissatisfied customers are assumed to engage in negative word-of-mouth communication. However, dissatisfied inertia tourists might not spread very much negative word-of-mouth. Although they are unsatisfied, they still come back, which might decrease the probability that they tell something negative about the destination. Dissatisfied movers are probably the most problematic group, because they are dissatisfied and do not feel attached to the destination. Hence, it is very likely that they spread negative word-of-mouth.

TABLE 2

REGRESSION RESULTS

TABLE 3

DISTRIBUTION OF TOURISTS

Consequences for Management

Our empirical example confirms our assumed correlations in the service profit chain. Further our results show that satisfaction management is central for realizing profits! This is why satisfied variety seekers and satisfied inertia tourists give recommendations. Another argument emphasizing the importance of satisfaction management is that dissatisfied customers are likely to engage in negative word-of-mouth communication, which can cause severe damage.

In addition, one could argue that a variety-seeking tourist meets more people because he spends every holiday in another destination. In general, variety-seekers might meet more people because they change shopping locations more frequently, go to many different places to spend their spare time, etc. This is consistent with previous research that revealed that variety-seeking consumers seem to be more extrovert, spontaneous, venturesome, etc., thus possibly they are more communicative (Raju 1980; McAllister and Pessemier 1982).

If variety-seekers really are more communicative, one could assume that they have more contacts with potential customers of the firm to which they could give a recommendation. As figure 3 shows, the number of relevant recommendations a satisfied customer gives might as well depend on the number of potential customers the person meets as on the personal probability of this person to engage in positive word-of-mouth communication.

Variety-seekers are valuable word-of-mouth communicators because they probably have more contacts with potential customers. In our example, variety-seeking tourists are traveling around more and hence meet a lot of other tourists that prefer the same type of destination. As a consequence, high service quality should be provided, even to variety-seekers, to generate positive word-of-mouth communication.

In order to estimate how valuable recommendations are, it would be necessary to know how many of the relevant recommendations lead to the acquisition of a new customer. In our study, the proportion of people who came to Garmisch-Partenkirchen because of a recommendation of friends or relatives was relatively high (37.9%). However, probably the total mix of communication instruments as well as other factors (e.g. family) will influence the decision to spend vacation in one particular destination, or in general, to buy a particular product or service. Therefore, further research is necessary to better understand the weight of the influence of recommendations.

FIGURE 3

INFLUENCES ON RELEVANT RECOMMENDATIONS

CONCLUSION

This paper discusses variety-seeking behavior as one disturbing factor in the service profit chain. We have shown that customer satisfaction and positive word-of-mouth communication are positively correlated. Moreover, we have shown that the influence of satisfaction on recommendations is stronger than the influence of variety-seeking tendency. Therefore, management of customer satisfaction is central for realizing profits.

We have discussed that recommendations of variety-seekers might be valuable for gaining new customers. Although they will change the service provider at the next purchase, they have been satisfied with the service quality offered and are likely to engage in positive word-of-mouth communication. As they probably meet more potential customers, they can give a lot of relevant recommendations. This sheds a more positive light on variety-seeking behavior of consumers.

As we have shown, variety-seeking behavior has important influence on the relationships in the service profit chain. However, positive recommendations of variety-seekers will reduce the negative consequences of such behavior.

Several limitations of our empirical example in the tourism industry must be recognized. The results may not be true for other service industries. Further, the variables were mainly behavioral intentions rather than actual behavior, and hence, the results of this study must be interpreted with caution.

Future research concerning recommendations as an instrument to reduce the negative consequences of variety-seeking behavior is necessary. The value of recommendations for the acquisition of new customers should be investigated, because the weight of the influence of recommendations on acquisition determines profits. Moreover, empirical research as well as deeper theoretical research is necessary to find out whether variety-seekers are really more communicative. If this were true variety-seekers could be better word-of-mouth communicators than loyal customers.

If recommendations are valuable, it remains a question, what management can do to induce customers to spread positive word-of-mouth. Therefore, deeper insights on the antecedents of word-of-mouth communication behavior are necessary.

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