The Process of On-Line Store Loyalty Formation

ABSTRACT - This paper sets out to provide a framework for the investigation of store loyalty in computer-mediated environments and it develops a theoretical model of on-line store loyalty by linking the variables through propositions suitable for empirical testing. We conclude that traditional models of store loyalty provide a good starting point for the understanding of store loyalty in an electronic environment. However, due to the uniqueness of the virtual marketplace we propose that consumers will place a different degree of emphasis on various store attributes as they develop satisfaction and store loyalty.

Citation:

Michele Abbott, Kuan-Pin Chiang, and Yong-sik Hwang (2000) ,"The Process of On-Line Store Loyalty Formation", in NA - Advances in Consumer Research Volume 27, eds. Stephen J. Hoch and Robert J. Meyer, Provo, UT : Association for Consumer Research, Pages: 145-150.

Advances in Consumer Research Volume 27, 2000      Pages 145-150

THE PROCESS OF ON-LINE STORE LOYALTY FORMATION

Michele Abbott, University of Rhode Island

Kuan-Pin Chiang, University of Rhode Island

Yong-sik Hwang, University of Rhode Island

Jerry Paquin, University of Rhode Island

Detlev Zwick, University of Rhode Island

[The authors greatly acknowledge helpful comments by Prof. Ruby Roy Dholakia and three anonymous reviewers.]

ABSTRACT -

This paper sets out to provide a framework for the investigation of store loyalty in computer-mediated environments and it develops a theoretical model of on-line store loyalty by linking the variables through propositions suitable for empirical testing. We conclude that traditional models of store loyalty provide a good starting point for the understanding of store loyalty in an electronic environment. However, due to the uniqueness of the virtual marketplace we propose that consumers will place a different degree of emphasis on various store attributes as they develop satisfaction and store loyalty.

Introduction

The Internet has evolved into a hyper-competitive global marketplace. It has been argued that consumers are the winners in electronic commerce as the Internet allows them to compare prices, products and services across a wide variety of stores in a matter of minutes. Stores are then naturally concerned about consumer loyalty. Questions such as, "How can store loyalty be achieved in a virtual environment? What are its components? Are those different on the Internet versus the real world?" need to be examined. The Internet, with its low entry barriers for competitors and low searching and switching costs for consumers, has emerged as the ultimately competitive marketplace (Auger and Gallaugher 1997; Klein 1998). Attracting new customers can cost as much as five times that of retaining existing ones (Peters 1998). The issue of store loyalty in a computer-mediated retail environment is a concern as Internet retailers compete for repeat business. For the retailer, store loyalty is arguably the single most important concern, as evidenced by the fact that more than 92% of online merchants are actively building loyalty programs (International Data Corporation 1999). Marketing scholarship has to rethink some of its concepts and models to make them fit for the computer-mediated environment (Hoffman and Novak 1997).

Store loyalty has recently emerged as a significant focus of marketing research. We extend this stream of research by investigating the antecedents of store loyalty in computer-mediated environments. The contributions of this paper are twofold, first to extend Bloemer and de Ruyter’s (1998) model of store loyalty, and second to identify the differential effects of perceived store attributes on the formation of satisfaction and loyalty in an on-line environment.

Store Loyalty

Gilmore and Czepeil (1987) state that customers exhibit feelings, beliefs, and behaviors towards offerings and suppliers that act to maintain existing exchange relationships. Conceptualizing store loyalty as consisting of attitudinal and behavioral components is supported by other researchers. Following Jacoby and Chestnut (1978), Bloemer and de Ruyter (1998) defined store loyalty as the "biased (i.e., non random) behavioral response (i.e., revisit), expressed over time, by some decision-making unit with respect to one store out of a set of stores, which is a function of psychological (decision making and evaluative) processes in brand commitment."

Store Image

The notion of store image has been regarded as an antecedent of store loyalty (Bellenger, Steinberg, and Stanton 1976; Hirschman 1981; Lessing 1973, Osman 1993). This stream of research was inspired by Martineau’s (1958) early suggestion in HBR that store loyalty correlates with store image. He argued that because shopping is regarded by the consumer as a "total experience," it is not just the tangible store benefits that draw consumers to stores, they are also drawn by intangibles such as a more favorable image. Based on this idea, some researchers have argued that if consumers have a favorable image of the store, they are likely to develop a certain degree of loyalty (Doyle and Fenwick 1974; James et al 1976; Kunkel and Berry 1968; Marks 1976). Bloemer and de Ruyter (1998) found that store image has an indirect positive effect on store loyalty through store satisfaction. Extending this theory, we suggest that the effect of store image on store loyalty is mediated by latent and manifest satisfaction.

Store Satisfaction

Research has shown that customer satisfaction is an antecedent of store loyalty (Bloemer and de Ruyter 1998; Surprenant and Solomon 1987). Satisfaction, the matching of expectations and performance, can be directed toward a product, a service,or a store. In their study, Bloemer and de Ruyter (1998) found a positive relationship between store satisfaction and loyalty. The major emphasis of their study is on store satisfaction in which two types of store satisfaction were identifiedBmanifest satisfaction and latent satisfaction. Latent satisfaction occurs when the consumer is not fully aware of his satisfaction because of lack of motivation or ability to evaluate the store. Manifest satisfaction requires an explicit comparison between consumer expectation and store performance. Thus, the positive effect of manifest satisfaction on store loyalty is stronger than the positive effect of latent satisfaction.

Store Attributes

Store attributes or characteristics are a part of a store’s retail mix. Bloemer and de Ruyter (1998) suggested that consumers use attributes in their initial evaluation and store choice, leading to latent satisfaction. They also suggested that the more consumers elaborate on their choices the more they will evolve to manifest satisfaction and eventually to loyalty. Hence, store attributes are a critical factor in the movement of a consumer through the model we have proposed starting with store evaluation and leading to loyalty.

Over the years, numerous studies have been done considering the attributes that are the most critical to the retail mix. Ghosh (1990) suggested eight characteristics: location, store atmosphere, customer service, price, merchandise, personal selling, advertising and sales incentive programs. Modifying Ghosh, we identified the following attributes as critical to the development of loyalty to an on-line store: geographies, atmospherics, experiential convenience, price across brands, assortment, accessibility, speed of acquisition, security, information available, and customization/personalization. In addition, we propose an attribute called physical presence, i.e., having a related store with physical presence (e.g., Macys.com and Macy’s stores).

FIGURE 1

A PROPOSED MODEL FOR ON-LINE STORE LOYALTY

Loyalty Model for On-Line Stores

Our loyalty model for on-line stores is an extension of Bloemer and de Ruyter’s model (1998). The model shows that store image and store satisfaction lead to store loyalty. Even though Bloemer and de Ruyter distinguish latent satisfaction and manifest satisfaction, they did not identify variables causing either state of satisfaction to occur. We believe that store attributes are a significant variable in the development of store satisfactionBboth latent and manifestCand in the development of loyalty. Store attributes are important because they affect store image, which is a critical factor in the process that leads from store satisfaction to loyalty. It is important to note that the effects of virtual store attributes vary in magnitude on the formation of latent satisfaction, manifest satisfaction and store loyalty.

Furthermore, Bloemer and de Ruyter argue that the distinction between latent and manifest satisfaction depends on the consumers’ elaboration of the evaluation process. Yet, the specific process of elaboration is not clarified in their model. Moreover, the Bloemer and de Ruyter model fails to represent behavioral components, such as purchase or product evaluation, which seems to suggest that only the existence of the attitudinal component (satisfaction) is necessary to form loyalty. At this point, Bloemer and de Ruyter commit a logical breach as their definition of loyalty, following Jacoby and Chestnut (1978), requires the recognition of both attitudinal and behavioral components. Amending Bloemer and de Ruyter’s model, we propose a loyalty model for on-line stores (Figure 1) that includes first and repeat purchase as behavioral components and suggest their interaction with satisfaction as the attitudinal component.

The process of on-line store loyalty foration is initiated by search behavior in which consumers purposefully or non-purposefully engage in on-line search activities. We do not attempt to examine the process of how consumers search for on-line stores. Instead, our focus begins once the consumer enters a specific on-line store. Once consumers are in the store, they begin forming store image based on the perception of store attributes. A positive overall store image will lead to latent satisfaction and to first purchase. A negative store image will lead to rejection of the store and the consumer will return to search behavior. After the first purchase, consumers engage in an elaborate evaluation. A positive evaluation will lead to manifest satisfaction, to repeat purchase and ultimately to on-line store loyalty. A negative evaluation will lead to dissatisfaction and the consumer will return to initial search behavior.

Comparison of Attributes Across Retail Formats

Table 1 lists the attributes we have identified as being important to the development of store image and compares those attributes across three retail formats: physical stores, catalogs and on-line stores. This comparison identifies how these attributes might be evaluated and perceived by consumers as they develop store image, the first step in the process that leads to loyalty. We have included catalogs in this analysis because in-home shopping is a non-traditional format with a longer history than on-line shopping. Including it helps illustrate the difference between traditional shopping and on-line shopping.

TABLE 1

COMPARISON OF PERCEPTION ON STORE ATTRIBUTES ACROSS RETAIL FORMATS

Comparison of Perceived Store Attributes

The specific attributes noted in Table 1 are described below.

Geographics is the specific location of a physical store. Location is a very important attribute for physical stores but essentially does not exist for either catalogs or on-line stores since the physical location of those retailers does not have the same effect on the consumer. Some have suggested that geographics can be extended to include the electronic links to on-line stores, but we chose to identify that concept in a separate attribute, accessibility. Since physical location is not a meaningful attribute for an on-line store, we believe it has no effect on consumers’ perception of an on-line store.

Accessibility is the ease of reaching the retailer. For traditional stores, accessibility is affected by hours of operation, distance from consumers and available infrastructure. Catalogs and on-line stores are accessible in an entirely different way since consumers do not have to leave their homes and can usually reach the retailer at any time. Another difference is that unlike traditional stores, where accessibility is a relatively static attribute, on-line stores can change their accessibility over time by increasing the number of links or portals through which the consumer can reach them.

Atmospherics is used to describe the store space and design. Retailers use atmospherics to evoke positive emotional reactions among buyers (Solomon 1996). On the Internet, the shopping environment cannot take advantage of the traditional physical atmospheric qualities because it is an electronic environment. Therefore, atmospherics in this environment consist of the layout and design of the Internet store site.

Service/Experiential Convenience is the consumer’s perception of the store services, including search assistance, ease of order processing and returns. In a virtual environment experiential convenience would also include speed of communication and the nature of interfaces.

Speed of Acquisition is the actual time it takes to receive the products. Generally, in a traditional retail format this is immediate, while for catalogs and on-line stores there is a time lag. For digital products, though, on-line stores can provide immediate delivery.

Price across Brands is the ability to compare prices across brads between retailers. This is more difficult in traditional formats since it requires significant search time. It may be easier for catalog shoppers if they are on many mailing lists and can compare prices between catalogs. Price comparisons are very easy in an on-line environment since consumers can easily move between sites and there are sites designed specifically to provide price comparisons on the Internet.

Assortment is the consumer’s perception of the range of products carried by the retailer. This varies widely for physical stores, from megastores at one end to specialty stores at the other. Catalogs and on-line stores typically have deep, but narrow selections. On-line stores, however, are already changing their formats, in some instances now offering deep and broad assortments (e.g., Amazon.com). It is likely that in the long run, on-line retailers will demonstrate more variety than physical retailers since the processes involved in inventory investment, handling and display can be simplified.

Security is the consumer’s perception that their transaction is secure and they will not face financial risk for having executed a sale with the retailer. Currently, consumers feel less secure using on-line stores, but that perception may change if consumers make purchases without problems.

Information Availability is the amount of information offered about specific products. Typically catalogs and on-line stores have more detailed information available for the products they sell than traditional physical stores.

Customization/Personalization refers to the interaction between retailers and consumers. This will vary widely for physical stores, from virtually none at a discount store, to significant customization at specialty stores. On-line stores can project a semblance of a personal relationship by customizing their interactions with individual consumers based on past interactions and customer "cookies," or electronically gathered and stored information located on a consumer’s computer. For example, on-line stores can greet repeat customers by name and suggest products based on prior purchases or questionnaires.

Physical Presence is a meaningful attribute for non-traditional formats. Some catalogs and on-line stores have related stores with a physical presence (e.g., Barnes & Noble), while other do not (e.g., Amazon.com). Consumers may have more awareness and confidence in an on-line with a physical presence.

Effects of Perceived On-Line Store Attributes

Table 2 suggests that store attributes are perceived differently by consumers at different stages of their progression from latent satisfaction to manifest satisfaction to loyalty. The effect of store attributes is compared across the three stages relatively; we do not attempt to rank the importance of these attributes in any particular stage.

Accessibility

Accessibility is most critical in the early stages of satisfaction because it is the point where the consumer initially finds the site. Once found, the consumer will be able to return to the site via bookmarking, which is likely to happen early in the process of developing satisfaction. This implies that accessibility is particularly critical to developing latent satisfaction and diminishes in importance as the consumer revisits the site.

P1: The effect of perceived accessibility is highest for latent satisfaction and diminishes as the consumer then moves to manifest satisfaction and loyalty.

Atmospherics

Atmospherics refers to the store space and design. Consumers are more likely to be influenced by atmospherics early in their relationship with the siteBat the point of developing latent satisfaction. It is less important at the point of manifest satisfaction because the evaluation of the purchase outweighs other considerations, including atmospherics. For loyalty to occur, though, site atmospherics and purchases satisfaction are both important. If consumers are not satisfied with both factors, they are likely to develop negative attitudes about the site and lose interest in it. That is, a positive purchase experience alone is not enough to keep a consumer interested in a site long enough for that consumer to move beyond manifest satisfaction to loyalty.

P2: The importance of perceived atmospherics is highest at the latent satisfaction stage and lowest at manifest satisfaction stage.

Service/Experiential Convenience

The effect of convenience will be the same across the three stages. Consumers expect a high degree of service in all retail encounters.

P3: There is no difference for the effect of perceived convenience across three stages.

Speed of Acquisition

Speed of acquisition is the consumers’ perception of time lag between purchase and receipt of merchandise. It is not a critical variable during the development of latent satisfaction. It is very important to the consumer satisfaction with purchase; hence, it is important to the development of both manifest satisfaction and loyalty.

P4: The effect of perceived speed of acquisition will be lowest for latent satisfaction. There is no difference between manifest satisfaction and loyalty.

Price across Brands

Saving money draws shoppers online. Consumers perceive that they can save money online (Burke 1997). The effect of price is diminishes as consumers move through initial search behavior to satisfaction and finally to loyalty because as consumers become more familiar with a site and use it they are less likely to do extended searches.

P5: The effect of perceived price is highest for latent satisfaction and diminshes as the consumers moves to latent satisfaction and finally to loyalty.

TABLE 2

EFFECTS OF PERCEIVED ON-LINE STORE ATTRIBUTES ON LATENT SATISFACTION, MANIFEST SATISFACTION AND LOYALTY

Assortment

Consumers are likely to evaluate assortment of the stores during each visit, making it a critical variable to all stages of loyalty development. If they cannot find the merchandise they are looking for, they may return to search behavior.

P6: The effect of perceived assortment does not vary across the three stages.

Security

Many consumers do not shop at on-line stores as a result of security concerns, for example, possibility of credit card fraud. We assume that security will be less of an issue as consumers move from latent satisfaction stage to the loyalty stage. If consumers become loyal, then security issues will be less important because the stores have already gained credibiliy.

P7: The effect of perceived security does not vary between manifest satisfaction and loyalty. The effect of perceived security is higher for latent satisfaction than manifest satisfaction and loyalty.

Information Availability

Information availability plays a more important role in the development of latent and manifest satisfaction because these are the stages where consumers develop an opinion of the quality of the retailer’s products. It becomes less important once that opinion is formed, hence lower at the loyalty stage.

P8:  The effect of perceived information availability is the lowest for loyalty. There is no difference for the effect of perceived information availability between latent satisfaction and manifest satisfaction.

Customization/Personalization

Since direct personnel contact with the sales representative is currently impossible on-line, many virtual stores customize and personalize consumers’ needs. For example, Cdnow.com sends regular, customized e-mail to introduce new CD arrivals based on personal purchasing history. At the latent satisfaction stage consumers perceive customization and personalization as less important because it is usually not expected when just browsing. However, once consumers are at the manifest satisfaction stage, they appreciate customized e-mail and responses based on their individual purchase records. Personalization is very important as the consumer progresses to loyalty.

P9: The effect of perceived customization and personalization is the lowest for latent satisfaction and highest for loyalty.

Physical Presence

Physical presence refers to virtual stores with physical counterparts. Involving more than just name (brand) recognition, physical presence provides a sense of security for customers who may be leery of the cyber-retailer and derive some comfort from the ability to connect to a physical place with a return, a question or complaint. It is likely to influence consumer’s awareness and confidence in a store during the formation of latent satisfaction. Each successive purchase reduces the consumer’s reliance on cues from physical reality to form store image. Reliance on physical presence is the highest for latent satisfaction, lower for manifest satisfaction and lowest for loyalty.

P10: The effect of physical presence is the highest for latent satisfaction and the lowest for loyalty.

Limitations

Our model has some limitations, which need to be expressed. First, our model of on-line store loyalty does not include consumer variables and their mediating effects on the formation of latent and manifest satisfaction as well as on-line store loyalty. As research in marketing and consumer behavior in computer-mediated environments advance, more will be known about the mediating effects of consumer characteristics on attitudinal and behavioral outcomes.

Second, the disposition of on-line stores characteristics is subject to rapid change, which can never really be accounted for. For example, future improvements in bandwidth, speed of communication and programming language will increase a store’s possibilty to manipulate most of the store attributes listed in the paper. Therefore, the effect of perceived on-line store characteristics on the consumers’ latent and manifest satisfaction and loyalty might change in their magnitude over time. Be that as it may, the model’s general proposition, namely that different store attributes affect consumers’ attitude toward the store differently at various stages in the model, is still expected to be valid.

Finally, our model only looks at store loyalty as an outcome and ignores other possibilities such as search behavior or word-of-mouth communication. Research should be directed at investigating if the proposed model should be revised to account for various types of attitudinal and behavioral outcomes. Furthermore, store loyalty itself can be understood as one form of commitment, but not the only one a consumer can develop to a store. Bloemer and de Ruyter suggest that marketers should differentiate between affective, calculative, and moral store-consumer commitments. Accordingly, it should be explored whether our model can be a useful framework for contrasting the effects of on-line store characteristics on the formation of different types of commitment.

Conclusion

In recent years, retail competition has intensified on the Internet, causing increased concern for customer’s loyalty. Few entry barriers for competitors and low switching costs for consumers are but two reasons for the volatile nature of the cyber marketplace in which retailers increasingly struggle for customer retention. Therefore, store loyalty in computer-mediated environments is currently receiving a great deal of attention from marketing professionals and scholars alike. In this paper we argue that the formation of on-line store loyalty is dependent on the previous development of latent and manifest satisfaction with the store. However, the development of latent and manifest satisfaction is directly linked to the effects of perceived store characteristics. Our model explains the degree to that perceived virtual store characteristics affect the formation of latent and manifest satisfaction. Therefore, our paper makes two distinct contributions to the body of knowledge on store loyalty. First, we extend Bloemer and de Ruyter’s store loyalty model by clarifying the mediating relationship between latent and manifest satisfaction and store loyalty. Second, we suggest the effects of perceived store attributes on the formation of these two types of satisfaction as well as on-line store loyalty.

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