The Effect of Internet Service Quality on Internet Store Loyalty: Mediating Role of Internet Store Satisfaction and Internet Store Image

ABSTRACT - The advent and continuous increases of online shopping and the unprecedented rate of growth in the number of Internet shops in Korea have created an extremely competitive marketplace. In the beginning many executives of e-retailing have believed that low price and attracting new customers rather than retaining customers are keys to success. They often neglect customer satisfaction and customer loyalty. Unfortunately thousands of members they have recruited have not been converted into a profit. Many e-business managers try to find the solutions by improving the service quality performance. This study explores the relationship between service quality and Internet store loyalty. Empirical study of a sample of 380 Internet store consumers shows that the effect of service quality on Internet store loyalty is fully mediated by factors such as Internet store image and Internet store satisfaction. So the managers should not only try to improve service quality performance but also carefully monitor the store image and the store satisfaction level.

Citation:

Euehun Lee and Dong-Il Lee (2005) ,"The Effect of Internet Service Quality on Internet Store Loyalty: Mediating Role of Internet Store Satisfaction and Internet Store Image", in AP - Asia Pacific Advances in Consumer Research Volume 6, eds. Yong-Uon Ha and Youjae Yi, Duluth, MN : Association for Consumer Research, Pages: 386-392.

Asia Pacific Advances in Consumer Research Volume 6, 2005      Pages 386-392

THE EFFECT OF INTERNET SERVICE QUALITY ON INTERNET STORE LOYALTY: MEDIATING ROLE OF INTERNET STORE SATISFACTION AND INTERNET STORE IMAGE

Euehun Lee, Information and Communications University, Korea

Dong-Il Lee, The Catholic University of Korea, Korea

[The authors wish to thank Jin-hwa Bang for data collection.]

ABSTRACT -

The advent and continuous increases of online shopping and the unprecedented rate of growth in the number of Internet shops in Korea have created an extremely competitive marketplace. In the beginning many executives of e-retailing have believed that low price and attracting new customers rather than retaining customers are keys to success. They often neglect customer satisfaction and customer loyalty. Unfortunately thousands of members they have recruited have not been converted into a profit. Many e-business managers try to find the solutions by improving the service quality performance. This study explores the relationship between service quality and Internet store loyalty. Empirical study of a sample of 380 Internet store consumers shows that the effect of service quality on Internet store loyalty is fully mediated by factors such as Internet store image and Internet store satisfaction. So the managers should not only try to improve service quality performance but also carefully monitor the store image and the store satisfaction level.

INTRODUCTION

The advent and continuous increase of online shopping and the unprecedented rate of growth in the number of Internet shops in Korea have created an extremely competitive marketplace. In the beginning many executives of e-retailing believed that low price and attracting new customers rather than retaining customers are keys to success. They often neglect customer satisfaction and customer loyalty. Unfortunately thousands of members they have recruited haven’t been converted into a profit. The cost of acquiring new customers in electronic commerce is even higher than that of traditional retail channels. In order to compensate for the higher cost, e-shops should have tried to retain more of their acquired customers more. As a result, many of them have failed in the market, as we saw in the dotcom meltdown era (Pryweller 2002; Karlgaard 2003; Thornton 2003).

The focus has shifted to how to make a profit, and few e-retailers have now started to turn a profit. Research in the field of satisfaction and loyalty has accumulated evidence that retention of customer is a key to success in business. The importance of Internet store loyalty has been suggested and supported empirically (Gommans, Kreshnan, and Scheffold 2001; Smith 2000; Reichheld and Schefter 2000). "The unique economics of e-business make customer loyalty more important than ever (Reichheld and Schefter 2000, p. 105)."

There are other well-known variables for the keys to success. Research has shown that service quality by service providers is one of the most important antecedents for success. Even though the types of service quality provided in e-retailing are different from traditional ones, delivering high level of service quality may be even more important in e-retailing because otherwise customers will visit traditional shops which have various advantages. So e-retailers should develop the unique service-output-demand for their installed customers (Coughlan et. al. 2001) In addition, store image is known to be one of the most important determinants of the success of retail shops. Good store image plays a major role in retaining loyal customers. The role of store image in e-retailing may be more important because hundreds of similar e-stores enter in virtual spaces every month and it is easy for customers to navigate around e-shops.

Our objective is to provide the theoretical background and empirical evidence for the relationship between Internet service quality and Internet store loyalty in the Internet retail environment. Though the direct relationship between them seems to be not conclusive, Internet store satisfaction and Internet store image are considered as mediators. Most research in this field has been confined to developing the conceptual models based on theoretical reasoning (Gommans, Kreshnan, and Scheffold 2001) and to practitioner-oriented suggestions on how to build loyalty to e-retailing (Smith 2000; Reichheld and Schefter 2000). Little empirical research has been done so far. We examine and document the role of Internet store loyalty and the determinantsBstore image and customer satisfactionBand that of service quality of e-retail shops, which is considered to be one of the major determinants on store image and customer satisfaction.

We rely on the literature review in the field of consumer satisfaction and retention as well as service quality and e-retailing to construct the model. We then test the model across a broader group of online shoppers. We close the study by discussing implications of the findings and directions for future research.

RESEARCH MODEL AND HYPOTHESES

Based on a review of the literature review, a research model has been constructed as in Figure 1. In brief, we posit that Internet store loyalty is influenced by a consumer’s Internet store satisfaction and an Internet store image. Internet store satisfaction and Internet store image are depicted as the outcomes of Internet service quality with e-shops. We discuss each of the major links in the proposed model. Interestingly, the relationships captured in the model also tend to be the ones discussed in the literature, but their connections have not been well established nor examined until now.

Internet store loyalty as the target variable of the model

The concept of Internet store loyalty(e-loyalty) extends the traditional brand loyalty concept and store loyalty concept to e-retailing consumer behavior (Gommans et al. 2001; Corstjens and Lal, 2000). Schultz (2000) describes Internet store loyalty as an evolution from the traditional conceptBproduct-driven and marketer-controlledBtowards a distribution-driven, consumer-controlled, and technology-facilitated concept.

When marketers get the higher loyalty of customers, they can expect increases in frequencies and volumes of purchases, cost reduction, and favorable word of mouth (Zeithaml, Berry, and Parasuraman 1996). Loyal customers are more likely to give the company a larger share of their business. In addition "losing a customer means losing more than a single sale. It means losing the entire stream of purchases that the customer would make over a lifetime patronage (Kotler and Amstrong 2004, p. 16)." Loyalty is particularly important in e-retailing because customers have a great variety of choices and are easy to navigate around in the e-retailing environment. Our focus on Internet store loyalty results from the fact that traditional evidence that increasing customer retention rate is the key to increase profit turns out to be exaggerated even more in e-retailing (Reichheld and Schefter 2000). As a result, Internet store loyalty becomes more important in the environment of e-retailing.

FIGURE 1

PROPOSED RESEARCH MODEL

Internet store satisfaction as the determinant on Internet store loyalty

Internet store satisfaction is based on the overall experience with an e-retail shop, not just the individual attributes. As a satisfied customer tends to be more loyal to a brand/store, satisfaction with retailing is considered the key to a company’s success and long-term competitiveness. Satisfied customers make repeated purchases and tell others about their good experiences with the product or the service.

Often consumer satisfaction is viewed as a central determinant of customer loyalty or customer retention. Generally speaking, loyalty implies satisfaction, but satisfaction does not necessarily lead to loyalty. Few empirical investigations in this area indicate that a direct relationship between these variables is weak or even nonexistent (Hennig-Thurau and Klee 1997). But this relationship could be stronger in e-retailing. As dissatisfied customers have a great variety of choices and are able to collect a large amount of information in a relatively short time, they have no reason to stay with unsatisfactory e-retail shops.

H1: Increased Internet store satisfaction will increase Internet store loyalty

Internet store image as the determinant on Internet store loyalty

Consumers develop store images based on service quality they experienced, advertising and opinions of friends and relatives (Assael 1998). As store image is the total perception formulated by consumers’ experience, knowledge, and belief, it has a strong effect on consumers’ buying behavior. It helps consumers evaluate the differences between shops and choose one among them. Retailers have tried to establish a positive image, as their image is directly tied to sales results. Image building as a strategic tool for developing loyalty has been discussed a lot in both theoretical and managerial perspectives in the literature (Bhat and Reddy 1998; Yoo, Donthu, and Lee 2000). Traditionally retailers have tried to develop store loyalty by building store image through mass media communications.

Even though little research regarding Internet store image has been conducted, the importance of Internet store image in building Internet store loyalty has increased because the number of competitive e-shops has exploded in a relatively short period of time. We believe that the relationship between two variables may be stronger in the environment of e-retailing.

H2: Increased Internet store image will increase Internet store loyalty

Internet service quality as the determinant on Internet store satisfaction and Internet store image

Internet service quality includes unique aspects of e-retailing environment as well as general aspects of service providers. Website and related-technology such as easy navigation, fast page loads, and well-structured navigation and customer service such as order fulfillment and rapid delivery systems are included in Internet service quality (Gommans et al. 2001). Our concept of Internet service quality is similar to attribute satisfaction while Internet store satisfaction is overall satisfaction with e-retailing.

Since the concept of service quality was developed by Parasuraman, Zeithaml, and Berry (1985), subsequent research has found out that delivering quality service is considered an essential strategy for success and survival in competitive environments (Dawkins and Reichheld 1990; Reichheld and Sasser 1990; Zeithaml, Parasuraman, and Berry 1990, Zeithaml et al. 1996).

Even though the direct relationship between service quality and profits is not clear, service quality has been linked to satisfaction. Szymanski and Hise (2000) showed that some aspects of Internet service quality (convenience, product offerings, product information, site design, and financial security) turned to be significantly related to Internet store satisfaction. We assume that Internet service quality and Internet store satisfaction are distinct, though related, constructs, like argued in works by Oliver (1999) and Spreng, Mackenzie, and Olshavsky (1996).

H3: Increased Internet service quality will increase Internet store satisfaction.

In addition, the relationship between service quality and favorable intention (image) is positive (Zeithaml et al. 1996). As Internet store image is a total perception and is accumulated through experience of service quality, which is one of the most important benefits provided by e-retail shops, it may be said that service quality is one of the key determinants of Internet store image.

H4: Increased Internet service quality will increase Internet store image

RESEARCH METHODOLOGY AND DATA ANALYSIS

Measurement Development and Data Collection

In order to verify the conceptual framework, this study collected data through a questionnaire survey based on the previous researches. Because the focus of the study is customers’ perceptions and their intention toward the Internet store, we define the population as the customer who has purchasing experience with the Internet store. We first check the customer’s previous purchasing experiences to verify the respondent’s qualification of purchasing experience. Then we measure the service quality based on the SERVPERF items (Cronin and Taylor 1994). The original items are modified because the Internet store has unique characteristics compared to general service settings. Especially the 'tangibles’ dimension could not be applied to the Internet store setting. So we modify this dimension into 'web service capability,’ measuring ease of website use, processing speed and well-structured navigation. And some items of the original SERVPERF measures are removed because they are not suitable for the Internet store context. As a result 14 items are measured for 5 Internet service quality sub-dimensions. Then we measured the Internet store image (3 items), Internet store satisfaction (3 items) and Internet Store Loyalty (3 items).

The data come form a survey of 380 consumers in Korea. The sample was 45% male and 55% female. The respondents were younger (20s: 72.8%, 30s: 20.5%, 40+s: 5.5%) as in other samples of the Internet shopper studies, because the main Internet store users tend to be young. 46.3% of the respondents had the purchase experience 2-5 times, and 20% had 6 times or more.

Item reliability is checked. Table 1 summarized the results. Most of Cronbach’s alpha values are greater than 0.70 except assurance dimension in service quality (.5333).

Validity Check of Service Quality

In addition, for the construct of service quality, convergent and discriminant validity were checked. Figure 2 showed the result of the confirmatory factor analysis to check convergent and discriminant validity. The measure of model fit in the figure 2 is acceptable (c²(67)=195.386 (p=0.000), GFI=0.934, AGFI=0.897, NFI=0.906, IFI=0.936, RMR=0.074, RMSEA=0.071). For convergent validity, all factor loadings are significant. For discriminant validity, all the correlation passes the criteria that estimated correlation between any constructs " 2 S.E. should not include 1 (Anderson and Gerbing, 1988). Thus, the result can say that each construct has valid measurements. So we average the item score for each service quality sub-dimension for the simplicity of the measurement model.

Results

In order to validate the model proposed at the Figure 1, this study conducted structural equation model analysis. The result is in the Figure 3.

The likelihood ratio Chi-square value indicates that there is a significant difference in overall model fitness (c²(73)=230.137 (p=0.000)). Generally, Chi-square value is very sensitive to the number of samples (Cochran, 1952; Gulliksen and Tukey, 1958; Jeoreskog, 1969; Bentler and Bonnett, 1980; Browne and Mels, 1992; Arbuckle, 1997). Thus the other measures of fit are considered like GFI(0.921), AGFI (0.886), RMR (0.057), RMSEA (0.075), NFI (0.907) and IFI(0.934). Overall model fit indexes are acceptable. So the model is used for hypothesis testing.

Figure 3 also shows the results of hypotheses testing. All the hypotheses (H1, H2, H3, and H4) are significant. As expected, Internet store image and Internet store satisfaction is fully mediating the effect of Internet store service quality on the Internet store loyalty. All the path coefficients are positive and statistically meaningful.

But some of the previous research stated the direct effect of service quality on loyalty (Zeithaml et. al 1996). So we performed additional analysis on the direct effect. The result is shown in Figure 4.

The measure of model fit in the figure 2 is acceptable (c²(72)=229.694 (p=0.000), GFI=0.921, AGFI=0.884, NFI=0.907, IFI=0.934, RMR=0.056, RMSEA=0.076). But the direct effect is not accepted and the expected sign of the path coefficient is not supported. Furthermore c² difference test shows that losing degree of freedom by adding direct effect path is not meaningful (c²(1)=0.443, p>.05). So the result supports additional evidence that the effect is fully mediated by Internet store image and Internet store satisfaction.

IMPLICATIONS AND DIRECTIONS FOR FUTURE RESEARCH

Many people have believed that the Internet service quality is a critical factor to build Internet store loyalty in Internet markets. The results of this study confirmed this belief. But the effect is indirect. It was fully mediated by the mediating factors such as Internet store image and Internet satisfaction. Thus, in order for the e-business company to get customers’ loyalty to the Internet store, managers should carefully examine their store’s image and satisfaction level. By doing that, they can guarantee their stores’ service quality and keep their customers loyal to the store. Unlike the mediating factors, service quality has no direct effect on the Internet store loyalty.

The result gives us an important implication. The primary implication concerns how to set up e-business strategies. Most managers believe that improvement of the store’s service quality directly leads to the creation of loyal customers. This attitude has a risk. They should carefully monitor the image and the satisfaction, because the service quality performance itself does not make the customers loyal to the Internet store. Thus, as in most of the marketing situations, performance improvement alone does not guarantee results; image and customer’s satisfaction level are also important paths to results.

In this study, we identified the role of Internet store satisfaction and Internet store image as mediators. But there may be more mediators such as trust, customization, and commitment. Including such mediators in future Internet store loyalty studies may prove fruitful. In addition, it may be necessary to find out the relative importance of dimensions of service quality. That result may be able to help marketers manage service quality more efficiently and effectively.

TABLE 1

MEASURES AND RELIABILITY

FIGURE 2

CONFIRMATORY FACTOR ANALYSIS (SERVICE QUALITY)

FIGURE 3

RESULTS FOR THE STRUCTURAL EQUATION MODEL (FULLY MEDIATING EFFECT MODEL)

FIGURE 4

RESULTS FOR THE STRUCTURE EQUATION MODEL (DIRECT EFFECT MODEL)

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