Relationship quality as a predictor of B2B customer loyalty

Journal of Business Research 60 (2007) 21 – 31

Relationship quality as a predictor of B2B customer loyalty Papassapa Rauyruen, Kenneth E. Miller ⁎ University of Technology, Sydney, PO Box 123, Broadway NSW 2007, Australia Received 1 September 2005; received in revised form 1 October 2005; accepted 1 November 2005

Abstract This study aims to provide a picture of how relationship quality can influence customer loyalty in the business-to-business (B2B) context. Building on prior research, we propose relationship quality as a higher construct comprising trust, commitment, satisfaction and service quality. We believe that these dimensions of relationship quality can reasonably explain the influence of overall relationship quality on customer loyalty. In addition, this study provides more insightful explanations of the influence of relationship quality on customer loyalty through two levels of relationship quality: relationship quality with employees of the supplier and relationship quality with the supplier itself as a whole. Aiming to fully explain the concept of customer loyalty, we follow the composite loyalty approach providing both behavioral aspects (purchase intentions) and attitudinal loyalty. We seek to address three main research issues: Does relationship quality influence both aspects of customer loyalty? If so, which relationship quality dimensions influence each of the components of customer loyalty? And which level of relationship quality (employee level versus organizational level) has more influence on customer loyalty? This study uses the courier delivery service context in Australia and targets Australian Small to Medium Enterprises (SMEs). We selected mail survey and online survey as the two methods of data collection, and together they received 306 usable respondents. Structural equation modeling yields insights into the influence of the dimensions and levels of relationship quality on customer loyalty. Results show that all four dimensions of relationship quality influence attitudinal loyalty, however, only satisfaction and perceived service quality influence behavioral loyalty (purchase intentions). Most remarkably, results indicate that only the organizational level of relationship quality influences customer loyalty. The employee level of relationship quality does not play a significant in influencing B2B customer loyalty in this study. © 2006 Elsevier Inc. All rights reserved. Keywords: Loyalty; Relationship quality; B2B; Service quality; Courier services; Trust; Commitment; Satisfaction

1. Introduction In a B2B environment, suppliers and/or service providers need to understand the nature and circumstances of their customers because of the unique characteristics of the customers acting as organizations. In a B2B service setting, in particularly the courier service context, business customers need customization of services, products and price structure. Each business customer also uses the service and products in a different fashion. In general cases, developing individual relationship with business customers offers supplier a secure loyal customer base and opportunities to reach a high level of profitability. As ⁎ Corresponding author. School of Marketing, University of Technology, Sydney, PO Box 123, Broadway NSW 2007, Australia. E-mail addresses: [email protected] (P. Rauyruen), [email protected] (K.E. Miller). 0148-2963/$ - see front matter © 2006 Elsevier Inc. All rights reserved. doi:10.1016/j.jbusres.2005.11.006

business customers spend large amounts of money in their purchase of products and services, managing and maintaining loyal business customers can offer greater revenue for a supplier or a service provider. The importance and benefits of attracting and maintaining loyal customers has arisen from a general acceptance that profitability follows customer loyalty (Reichheld and Sasser, 1990; Jones and Sasser, 1995; Reichheld, 1996). In this sense, a complete understanding of the concept of loyalty highlights the need to build up customer loyalty as a long-term investment as well as the need for a customer relationship management between customers and the supplier. With attempts to fulfill the needs of business customers, many supplying and selling firms see the importance of the strategic management of supplier and customer relationships (Eng, 2004) and engage in relationships with their business customers (Ryssel et al., 2004). Some authors (e.g., Woo and Ennew, 2004, 2005) view the quality of the business-to-business relationship

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as a crucial factor in building success in the market. Retaining customers over the long run yields greater profits. However, researchers have not widely explored either the development of loyalty or its potential application to the business-to-business settings. This study aims to add to the literature and provide a picture of how relationship quality can influence customer loyalty in a B2B context. We use the courier service delivery industry in Australia to test our hypotheses and choose to survey small and medium enterprises (SMEs) and measure their loyalty, perceptions of service quality, satisfaction, trust and commitment. We explore the contribution of relationship quality to a composite measure of customer loyalty – both behavioral loyalty and attitudinal loyalty, and investigate the relationship quality construct through the power of its four proposed dimensions, trust, commitment, satisfaction and service quality and two levels of relationship quality – relationship quality with employees (employee/interpersonal level) and relationship quality with the supplier itself (organizational/inter-firm level). This article has the following organization. Section 1 provides some literature background to each construct we propose in this study, then Section 2 explains our conceptual model and draws the hypotheses. Section 3 describes our research design. Section 4 provides structural equation modeling results. Finally, Section 5 concludes with managerial implications in order to improve relationship quality and enhance customer loyalty for B2B customers, and provides the limitations of the research. 2. Conceptual background 2.1. Customer loyalty Creating a loyal B2B customer base is not only about maintaining numbers of customer overtime, but it is also about nurturing the relationship with business customers to encourage their future purchase and level of advocacy. Equipped with the knowledge of their business customers' loyalty levels, a supplier will be able to figure how their endeavors to maintain good relationships can contribute to its profit levels. Many academics and practitioners consider customer loyalty to have a powerful impact on company performance. For example, some authors (Lam et al., 2004; Rust et al., 2000; Reichheld and Teal, 1996) believe that loyal customers offer a steady stream of revenue for a company by remaining with the brand/supplier and rejecting the overtures of competitors. Considering this with the nature of large purchase and transactions in a B2B setting; there are gigantic rewards for those suppliers who succeed in creating and maintaining loyal customers. Researchers have studied the concept of loyalty largely in the consumer context (e.g. Brown, 1952; Cunningham, 1956; Dick and Basu, 1994; Farley, 1964; Fournier, 1998; Jacoby, 1971; Jacoby and Kyner, 1973; Oliver et al., 1997; Sirgy and Samli, 1985) and service market (e.g. Andreassen and Lindestad, 1998; Fisher, 2001; Selnes, 1993; Zeithaml et al., 1996). There have been few studies, however, of the concept of loyalty in the B2B context. Authors have proposed a number of theories to link variables that one usually finds in relationship marketing and business

marketing to the loyalty construct. For example, Berry and Parasuraman (1991) and Czepiel (1990) provide propositions that building relationships with customers increases loyalty, favorable word of mouth communication, and purchases. In the B2B context, evidence shows that relationship elements affect customer loyalty. For example, Ricard and Perrien (1999) found that relationship practices have a direct impact on customer loyalty. Other authors also see the important of various drivers of loyalty. For example, Morris and Holman (1988) propose a framework of dyadic determinants of source loyalty whereas Jarvis and Wilcox (1977) propose additional antecedents of business-to-business loyalty such as perceived risks and absence of choice. Authors such as Chow and Holden (1997), Money (2004), Eriksson and Vaghult (2000), Boles et al. (1997), Lam et al. (2004), Bennett et al. (2005) and Gounaris (2005) provide empirical evidence linking several constructs such as relationship quality, trust, involvement, satisfaction, purchase development, organizational change, and switching costs to influence B2B customer loyalty and retention. A literature search found three main streams of research of loyalty: behavioral loyalty (e.g., Tellis, 1988; Tucker, 1964), attitudinal loyalty (e.g., Bennett and Rundle-Thiele, 2002) and composite loyalty (e.g., Day, 1969; Jacoby, 1971; Jacoby and Kyner, 1973; Chaudhuri and Holbrook, 2001). In an early school of thought, Tucker (1964) argues that behavior (past purchases of the brand/product) completely accounts for loyalty. Jacoby and Chestnut (1978) observe that behavioral loyalty studies have focused on interpreting patterns of repeat purchasing in primarily panel data as a manifestation of loyalty. Consistent with this viewpoint, Uncles and Laurent (1997) suggest that such behavioral loyalty is stochastic. In terms of attitudinal loyalty, various authors identify attitudinal concepts as providing positive word of mouth (e.g., Zeithaml et al., 1996; Andreassen and Lindestad, 1998), recommending the service to others (Zeithaml et al., 1996), and encouraging others to use the service (Bettencourt and Brown, 1997). The loyalty literature (e.g., Dick and Basu, 1994; Jacoby, 1971; Jacoby and Kyner, 1973; Jacoby and Chestnut, 1978) supports the utilization of a composite measure of loyalty having behavioral and attitudinal aspects. Day (1969) proposes a reconciliation of both behavioral and attitudinal components of loyalty and cautions that viewing loyalty solely in terms of purchase decisions may not distinguish between loyalty and spurious loyalty and indicates a need to extend typical definitions and measurement approaches of loyalty (Baldinger and Rubinson, 1996). Jacoby and Chestnut (1978), and Uncles and Laurent (1997) suggest that researchers should study the attitudinal components of loyalty for an additional understanding of the stochastic representation of behavioral loyalty. Following these suggestions, a composite approach to loyalty provides both behavioral aspects and attitudinal loyalty in order to fully explain the concept of customer loyalty. Many researchers (e.g., Bloemer and Kasper, 1995; Pritchard and Howard, 1997; Baldinger and Rubinson, 1996; Knox and Denison, 2000) follow Day's (1969) approach with attempts to explain loyalty. Basing their approach on the theory of composite loyalty, these authors explain the disadvantage of

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solely focusing on behavioral loyalty is that it will be difficult to tell which customers are loyal and to identify different degrees of customer loyalty by using only behavioral measures. We, therefore, see the necessity to combine behavioral loyalty measures with attitudinal measures. We propose customer loyalty as a composite concept combining both behavioral loyalty (purchase intentions) and attitudinal loyalty to enable maximum explanatory power of the construct. This study adopts Chaudhuri and Holbrook's (2001) definition of behavioral loyalty and attitudinal loyalty. We define behavioral loyalty for this study as “the willingness of average business customers to repurchase the service and the product of the service provider and to maintain a relationship with the service provider/supplier”, and define attitudinal loyalty for this study as “the level of customer's psychological attachments and attitudinal advocacy towards the service provider/supplier”. Because the definition of attitudinal loyalty includes customers becoming attitudinally advocates for the service of the service provider, the measurements of attitudinal loyalty incorporates Zeithaml et al. (1996), whose work includes positive word of mouth, willingness to recommend and encouraging others to use the product/service.

Building on past research, this study proposes that relationship quality comprises four different but related dimensions, which are: perceived service quality, trust, commitment and satisfaction. We have based the selection of these four dimensions on the literature and suitability to the context of B2B markets. In the literature, a number of authors (e.g., Dwyer and Oh, 1987; Moorman et al., 1992) empirically found that relationship quality comprised trust, commitment and satisfaction. While researchers have proposed a great number of relationship quality components, they have most frequently studied the variables of trust, commitment and satisfaction (e.g., Anderson and Narus, 1990; Dwyer et al., 1987; Morgan and Hunt, 1994). In addition, research has only conceptualized but not tested the use of perceived product/service quality as a dimension of relationship quality. Hennig-Thurau and Klee (1997, p. 751) argue that, because the exchange of products and/ or services is the fundamental feature of any buyer–seller relationship, including the overall products and/or servicerelated quality perception as a basic component of relationship quality is necessary; this supports the inclusion of perceived service quality as a dimension of relationship quality in this study.

2.2. Relationship quality

2.3. Perceived service quality

The concept of relationship quality arises from theory and research in the field of relationship marketing (e.g., Crosby et al., 1990; Dwyer et al., 1987) in which the ultimate goal is to strengthen already strong relationships and to convert indifferent customers into loyal ones (Berry and Parasuraman, 1991). This research looks at relationship quality in the B2B courier service context. For a better understanding of relationship quality, we also hypothesize relationship quality on two levels, relationship quality with the employees (employee/interpersonal level) and relationship quality with the supplier itself (organizational/interfirm level). Although previous research into relationship quality (e.g., Lages et al., 2005; Bejou et al., 1996; Crosby et al., 1990; Dorsch et al., 1998; Hennig-Thurau and Klee, 1997; Kumar et al., 1995; Storbacka et al., 1994; Walter et al., 2003; Wulf et al., 2001) has discussed and tested the concept of relationship quality in various research contexts, the definition and operationalisation of relationship quality differs from research project to research project. Nevertheless, these authors agree that the concept of relationship quality is a higher order construct consisting of several distinct but related components or dimensions. These components are opportunism (Dorsch et al., 1998), customer orientation (Palmer and Bejou, 1995; Dorsch et al., 1998), conflict (Kumar et al., 1995), trust in the salesperson (Crosby et al., 1990; Lagace et al., 1991), trust (Bejou et al., 1996; Dwyer and Oh, 1987; Dorsch et al., 1998; Gronroos, 1990; HennigThurau and Klee, 1997; Kumar et al., 1995; Moorman et al., 1992; Wray et al., 1994), satisfaction (Crosby et al., 1990; Dwyer and Oh, 1987; Lagace et al., 1991), commitment (Dorsch et al., 1998; Hennig-Thurau and Klee, 1997; Kumar et al., 1995; Moorman et al., 1992) and perceived quality (Hennig-Thurau and Klee, 1997; Moorman et al., 1992).

As a critical measure of organizational performance, service quality remains at the forefront of both the marketing literature generally and the service marketing literature specifically (Jensen and Markland, 1996). Both practitioners and academics are keen on accurately measuring perceived quality in order to better understand its essential antecedents and consequences and, ultimately, methods for improving quality to achieve competitive advantage and build customer loyalty (Palmer and Cole, 1995; Zahorik and Rust, 1992). A number of models of service quality have emerged in the literature. Two important service quality models are those of Gronroos (1984) and Parasuraman et al. (1985, 1988). Several authors insist that further empirical work could enhance the link between perceived quality and various outcomes. Zeithaml et al. (1996) argue for documentation of the relationship between service quality and retention, because calibration of the financial implications for a given company, or even for a given service initiative, is possible. Ruyter and Wetzels (1998) further suggest the importance of determining the nature and strength of the relationship between perceived service quality and loyalty for a firm and/or different industry levels. Firm- and industry-level assessment of the quality-service loyalty link provides useful information to shareholders on the viability of future performance. Some authors, for example, Bloemer and Kasper (1995), Brady and Robertson (2001), and Butcher et al. (2001), Cronin et al. (2000), Ennew and Binks (1999), Fullerton (2005), Lee and Cunningham (2001), Mehta and Durvasula (1998), Olsen (2002) Wong and Sohal (2001), have included service quality in their model to explain loyalty or retention. These authors strongly believe that service quality positively affects important behavioral outcomes such as loyalty. Zahorik and Rust (1992) argue that modeling perceived quality as an

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influencing factor of customer loyalty will provide significant diagnostic ability to any framework that includes customer loyalty as a dependent construct. Previous research has confirmed that the relationship between perceived quality and customer loyalty exists and is positive (Anderson and Sullivan, 1993; Cronin and Taylor, 1992; Harrison-Walker, 2001). Nevertheless, since most of the empirical research has limited itself to the area of retail and consumer services, there is a need to better understand the relationship of perceived quality and customer loyalty in other contexts, such as industrial markets and B2B markets. Boulding et al. (1993) have also emphasized this need, stating the importance of supporting an expansion of research efforts to include industrial services and even services within industries in order to test quality models and propositions. Parasuraman (1998) also points out the need for academic research – both conceptual and empirical research on quality in B2B settings – since most of the quality literature is company-to-consumer rather than company-to-company. 2.4. Trust Blois (1999) links the construct of trust with the interest in relationship marketing in general and particularly in the context of B2B markets. Understanding the nature of trust and the importance of its contribution to loyalty will leave a major impact on how businesses develop and manage their B2B relationships. Several authors regard trust as a central construct to the development of successful service relationships in B2B markets and for the achievement of customer loyalty. Parasuraman et al. (1985) introduced trust as a critical success factor in successful service relationships. Customers need to feel safe in their dealings with suppliers and need assurance that their interaction is confidential in that they are able to trust their suppliers. Berry (1995, p. 242) further suggests that “relationship marketing is built on the foundation of trust”. In relation to customer loyalty, Reichheld and Schefter (2000, p. 107) highlight the importance of trust in that “to gain loyalty of customers, you must first gain trust”. In addition, trust is an important feature or aspect in the building and development of quality relationships through a process of making and keeping promises (Dwyer et al., 1987; Gronroos, 1990; Hewett and Bearden, 2001). Past research shows a link between trust and customer loyalty. Some studies have shown customer loyalty to be a consequence of trust. Empirical evidence shows direct effects of trust on loyalty. Several research studies have demonstrated a direct link between trust and loyalty. Chaudhuri and Holbrook (2001) demonstrate that trust plays an important role in the B2C brand domain in that they link (brand) trust to brand performance through brand loyalty. Delgado-Ballester and Munuera-Aleman (2001), using customer commitment as an indicator of customer loyalty, empirically found that brand trust has a direct effect on customer commitment and thus indirectly can affect the level of price tolerance. This evidence is sufficient for the authors to conclude that trust leads to customer loyalty. For clarification of the influence of relationship quality on two aspects of customer loyalty, this study includes two levels of trust, trust in the employees of the supplier and trust in the

supplier itself as a whole. These two levels of trust will assist in identifying the importance of two levels of relationship quality, relationship quality with the employees of the supplier and relationship quality with the supplier itself. 2.5. Commitment Fullerton (2003) suggests that customer commitment to the supplier is a very important driver of customer loyalty in service industries. In fact, a number of authors regard the construct of commitment as the central construct in relationship marketing (Garbarino and Johnson, 1999; Pritchard et al., 1999). The concept of commitment has arisen from industrial and organizational psychology, Fehr (1988) viewed it as an intention to continue a course of action or activity such as maintaining a relationship with a business partner. As an important dimension of relationship quality Hennig-Thurau et al. (2002), consider commitment as an important ingredient in successful relationships (Morgan and Hunt, 1994). The buyer-and-seller relationship literature defines commitment as an implicit or explicit pledge of relational continuity between exchange partners (Dwyer et al., 1987). In simpler terms, commitment refers to the motivation to stay with a supplier (Moorman et al., 1992). In a business relationship, commitment is a psychological sentiment of the mind through which an attitude forms concerning continuation of a relationship with a business partner (Wetzels et al., 1998). Prior research suggests at least two forms of commitment (Kumar et al., 1994), calculative commitment and affective commitment. In terms of the relationship between commitment and loyalty, Dick and Basu (1994) suggest that potential consequences of commitment may include word of mouth communications – an important aspect of attitudinal loyalty. Customers who have high commitment to a product or service will buy more. In other words, commitment leads to the behavioral dimension of loyalty. In support of this notion, Pritchard et al. (1999) found a significant path from resistance to change (commitment) to loyalty. This link was particularly strong in their airline sample, this path accounting for more than half of the loyalty variance. Other authors such as Fullerton (2003), Garbarino and Johnson (1999), Geysken et al. (1996), Gilliland and Bello (2002) and Wetzels et al. (1998) also provide empirical evidence that a relationship exists between customer commitment and future purchase intentions and intention to stay in the relationship. For deeper analysis on the nature of commitment, we seek to investigate evidence of the contribution of affective commitment and calculative commitment on both aspects of customer loyalty. Similar to the concept of trust, we hypothesize commitment on two levels, commitment to employees of the supplier and commitment to the supplier itself. We take the concept of commitment further to include two dimensions of commitment, both calculative commitment and affective commitment. The inclusion of these two dimensions of commitment will allow us additional insights into the commitment-building process and the important aspects of commitment in a B2B setting. We, therefore, propose that two levels (organizational and employee levels) and two dimensions (calculative and affective commitment) contribute to both behavioral and attitudinal aspects of B2B customer loyalty.

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2.6. Satisfaction Kotler (1994, p. 20) states the important concept that “the key to customer retention is customer satisfaction”. Several theoretical and empirical evidences show the link between satisfaction and customer retention and/or customer loyalty. In theory, several authors speculate about the contribution of satisfaction to customer loyalty. For example, Aaker (1991) and Heskett et al. (1997) state that satisfaction is a key determinant to every level of brand loyalty. These authors propose that satisfaction is an important variable in explaining loyalty. Dick and Basu (1994) and Oliver (1999) suggest that satisfaction is an affective antecedent of loyalty. Furthermore, researchers often consider satisfaction as affecting the likelihood of repurchasing or reusing the service of a provider. Oliver (1999) proposes three dimensions of satisfaction: cognitive, affective and conative, which conclude in action loyalty or repeat usage. The literature shows a stream of empirical research that stresses the link between satisfaction and customer loyalty. In consumer marketing, consistent evidence explains satisfaction's contribution to repurchase intentions, behavioral intentions, customer retention and customer loyalty (e.g., Anderson and Sullivan, 1993; Bearden and Teel, 1983; Bitner, 1992; Bloemer and Ruyter, 1998; Bloemer and Kasper, 1995; Boulding et al., 1993; Burton et al., 2003; Dube and Maute, 1998; Ennew and Binks, 1999; Oliver, 1999; Ruyter and Bloemer, 1999; LaBarbera and Mazursky, 1983; Patterson, 1995; Selnes, 1993; Yu and Dean, 2001). In the context of marketing channels, Geyskens and Steenkamp (2000) empirically find that loyalty is the result of economic satisfaction, and a channel member's evaluation of the economic outcomes that flow from the relationship with its partner such as volume, margins and discount. In business-to-business research, several authors show the existence of a link between satisfaction and loyalty exists. For example, Eriksson and Vaghult (2000) found that satisfied customers stay with the firm. Their results show that as relationship satisfaction increases, so does customer retention. Their findings indicate that long-lasting and deep relationships are the result of the involved parties' satisfaction with the outcome of their work. In research they conducted in the courier industry business-to-business setting, Lam et al. (2004) measure customer loyalty using two dimensions: recommendation and patronage. These authors find that customer affective state of satisfaction has a positive effect on only one dimension of loyalty which is recommendation. Their findings, however, did not support the hypothesis that business customer satisfaction contributes to the patronage dimension of loyalty. The main driver for business customers of courier providers in recommending the service is their affective state of satisfaction. Based on this literature, we propose overall satisfaction to influence both behavioral and attitudinal loyalty.

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Relationship quality as a determinant of loyalty is a higher level construct comprising two levels of trust (trust in employee and trust in supplier), two levels (commitment in employee and commitment in supplier) and two dimensions (affective and calculative) of commitment, overall satisfaction and overall perceived service quality. Providing the theory and evidence of past research on loyalty and relationship quality, it is possible to lay out the following research issues: does relationship quality influence both aspects of customer loyalty? Which relationship quality dimensions influence each of the components of customer loyalty? Do both levels of relationship quality influence customer loyalty? The theory and past empirical evidence in the previous discussion informs the following hypotheses. Hypothesis. Relationship quality (second-order construct) relates positively with customer loyalty. The following hypotheses evidence this relationship. H1. Trust in the employees of the supplier relates positively to a) behavioral loyalty (purchase intentions) and b) attitudinal loyalty. H2. Trust in the supplier relates positively to a) behavioral loyalty (purchase intentions) and b) attitudinal loyalty. H3. Calculative commitment to the supplier relates positively to a) behavioral loyalty (purchase intentions) b) attitudinal loyalty. H4. Affective commitment to the supplier relates positively to a) behavioral loyalty (purchase intentions) and b) attitudinal loyalty. H5. Calculative commitment to the employees of the supplier relates positively to a) behavioral loyalty (purchase intentions) and b) attitudinal loyalty. H6. Affective commitment to the employees of the supplier relates positively to a) behavioral loyalty (purchase intentions) and b) attitudinal loyalty. H7. Overall satisfaction relates positively to a) behavioral loyalty (purchase intentions) and b) attitudinal loyalty. H8. Overall perceived service quality relates positively to a) behavioral loyalty (purchase intentions) and b) attitudinal loyalty. Fig. 1 shows the theoretical model.

3. Research issues and hypotheses The conceptual model includes two aspects in B2B customer loyalty, behavioral loyalty (purchase intentions) and attitudinal loyalty. Our conceptual model includes the relationship quality construct as a determinant of both aspects of customer loyalty.

Fig. 1. Theoretical model of relationship quality as predictor of B2B customer loyalty.

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sub-segment of the business-to-business customer base. Another sub-segment of business customers consists of large corporations. This study is the first to examine SMEs' loyalty in courier business-to-business services. 4.2. Research design

Fig. 2. Structural model of relationship quality as predictor of customer loyalty.

Fig. 2 shows the relationships and summary of hypotheses. 4. The study 4.1. Research setting We conducted this study in the business-to-business setting of the courier delivery service industry in Australia, and targeted the survey at business customers, in particular, Australian Small to Medium Enterprises (SMEs). This courier delivery market is very competitive, with a range of competing service providers. Business customers typically utilize multiple suppliers. Specifically, we chose the market of small to medium enterprises (SMEs) for this study. SMEs have unique characteristics and buying behavior that is different from that of many large, corporate customers. The courier service in Australia also includes parcels (packages) delivery, and consists of services that engage in express door-to-door delivery and pick up, transport of letters and mail-related articles, generally in small to medium packages and parcels. The service usually involves one or more methods of transport. Major services and activities for business customers usually involve customized delivery and pick-up, intrastate, interstate and international services. In Australia, Australia Post, UPS, Toll, DHL, Star Track Express and Allied Express, are the major courier service providers. Minor courier service providers in Australia are independent and include local service providers such as Fastway, Courier Please, and others. This study selected the courier service market and the population of Australian small to medium enterprises (SMEs) to investigate the hypotheses this research has raised. The targeted respondents for this study were owners of SMEs, financial controllers, and managers who are the decision-makers in the selection and use of courier service providers for their businesses. SMEs, the target sample of this study, represent a

We chose two methods for data collection: mail survey and online survey, and included incentives to ensure a successful response rate for both the mail and online survey. As an incentive, an Australian charity organization authorized fundraising and provided its name and logo as part of this study. The authors advised SMEs participating in the study that for each completed questionnaire they returned, we would make a small donation to the charity on their behalf. By completing the survey, SMEs would contribute to research efforts as well as to a good cause. As an additional incentive, the authors would provide a copy of the results on request to interested participants. For the mail survey, we conducted telephone recruitment prior to the survey to obtain permission and agreement to participate from potential respondents. We carried out the telephone recruitment prior to the mail survey on the assumption that SMEs' owners and decision-makers are generally busy and might disregard unsolicited mail. We distributed the mail questionnaires, together with a cover letter and reply-paid envelope, to 500 willing-to-participate SMEs that we recruited by telephone from a commercial list of 3000 SMEs. We received back 52 of the 500 questionnaires distributed in this manner. This translates into a response rate of 10.4% of total SMEs that had previously agreed to participate. For the ‘willing-to-participate’ sample, we had initial confidence that the possibility of most of the 500 participants sending back complete questionnaire was high, due to the enthusiastic tone of the respondents during the telephone recruitment. A low response rate of 52 out of 500 was not in our expectations. We recruited participants for the online survey via email notifications, designing the email letter with a link to the online survey. A professional broadcasting company carried out the email broadcast, by broadcasting emails to a list of SMEs that an audited permission-marketing database provided. This list of SMEs consisted of 4000 owners and managers of SMEs. These SMEs are registered members of an audited permissionmarketing database that also provides free web-based mobile text messaging (SMS) services to Australian mobile users. The authors audited this website for privacy and data security. It offers the ability to communicate through a free SMS service with highly targeted segments, and for this study it targeted SMEs that are registered members of this website. Once the registered members clicked on the link to the survey, they received the reward of one SMS point. This reward of mobile short messaging points served as an additional incentive to fill in this survey. Of the 4000 emails broadcast to SMEs, a total number of 1216 SMEs clicked through to the survey link. However, the total number of usable respondents who completed the survey was 254. This number translates into a 20.8% (254/

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1216) response from those who clicked onto the site. In total, the two methods of survey generated 306 usable questionnaires.

Table 1 Results of hypothesis testing using AMOS 5 Hypothesis

Proposed relationships

4.3. The data set H1a

The content of the questionnaire included two parts: part A (general information/demographic), part B (SME buying behavior). In part A, demographic questions included the respondent's position in the company, the type of industry in which the SME operates, the number of full-time employees, annual turnover and choice of supplier. Part B included all of the construct measurements. Questions in part B included overall satisfaction with the main supplier, purchase intention, attitudinal loyalty, commitment to employee, commitment to supplier, trust in employees, trust in supplier, and overall service quality.

27

H1b H2a H2b H3a

H3b

4.4. Operationalization of constructs

H4a

We developed measurement items of the two aspects of customer loyalty from the loyalty literature and modified items of purchase intentions from Chaudhuri and Holbrook (2001), Gremler and Gwinner (2000) and Sirdeshmukh et al. (2002). Further, we based our development and modification of the items for attitudinal loyalty on the work of Zeithaml et al. (1996). The attitudinal loyalty items also reflect customer advocacy, recommending others and encouraging others to use the supplier. We developed measurements for the determinants of loyalty from the relationship marketing literature and service literature, measuring relationship quality as a higher level construct comprising trust, commitment, satisfaction and service quality. We modified the measures of trust in the supplier from Geyskens et al. (1996), Macintosh and Lockshin (1997) and Roberts et al. (2003), and the measures of trust in the employees from Geyskens et al. (1996) and McAllister (1995). We drew both the calculative commitment and affective commitment to the supplier from Kumar et al. (1995) and both calculative commitment and affective commitment to employees from Hansen et al. (2003). We drew one single item overall satisfaction item from Homburg and Rudolph (2001), and developed four items of overall service quality items using the definitions of Zeithaml (1988, p. 3) as a basis: “The consumer's judgment about a product and service's overall excellence or superiority”. This study selected a two-step approach (Anderson and Gerbing, 1988) for the measurement model and structural model. We assessed construct reliability by using Cronbach's alpha coefficient. All the Cronbach's alphas are higher than 0.9 for all constructs except the calculative commitment to supplier (0.87). Confirmatory factor analysis (CFA) indicates one factor model for each construct. The CFA results show 5 items for purchase intentions, 4 items for attitudinal loyalty, 3 items for trust in supplier, 5 items for trust in employees, 3 items each for calculative commitment to employees, affective commitment to employees and calculative commitment to supplier, 2 items for affective commitment to supplier and 3 items for overall service quality. Later in the structural model, we randomly summed some constructs of the relationship quality dimensions with 3 or 5 items (i.e., trust in supplier, trust in employees, calculative

H4b

H5a

H5b

H6a

H6b

H7a H7b H8a

H8b

Trust in employees Trust in employees Trust in supplier Trust in supplier Calculative commitment to supplier Calculative commitment to supplier Affective commitment to supplier Affective commitment to supplier Calculative commitment to employees Calculative commitment to employees Affective commitment to employees Affective commitment to employees Overall Satisfaction Overall Satisfaction Overall service quality Overall service quality

→

Estimate 0.025

No

0.025

No

0.016

No

0.194⁎⁎

Yes

0.123

No

→

Attitudinal − 0.008 loyalty

No

→

Purchase intentions

→

Attitudinal loyalty

→

Purchase intentions

− 0.009

No

→

Attitudinal − 0.007 loyalty

No

→

Purchase intentions

0.099

No

→

Attitudinal loyalty

0.006

No

→

Purchase intentions Attitudinal loyalty Purchase intentions

0.151⁎⁎

Yes

0.081⁎⁎

Yes

Attitudinal loyalty

0.426⁎⁎⁎ Yes

→ → → →

→ → →

Purchase intentions Attitudinal loyalty Purchase intentions Attitudinal loyalty Purchase intentions

Hypothesis supported

− 0.08 0.246⁎⁎

No

Yes

0.408⁎⁎⁎ Yes

Notes: ⁎⁎p b 0.05; ⁎⁎⁎p b 0.01.

commitment to employees, affective commitment to employees and calculative commitment to supplier) to two items, in order to reduce the complexity of the structural model (Bagozzi and Edwards, 1998). The CFA results for a saturated model (all 6 constructs: purchase intentions, attitudinal loyalty, trust, commitment, satisfaction and service quality) show a χ2 = 386.712, df = 207, p = 0.000, TLI (0.967), standardized RMR (0.033) and RMSEA (0.053). This result indicates a good fit to the data. The CFA results for a second-order measurement model of relationship quality with 77 degrees of freedom indicate that the model fits the data well: χ2 = 90.53, p = 0.139, TLI (0.995), standardized RMR (0.017) indicate a good fit to the data. RMSEA (0.024) show an excellent fit to the data. The results also show that all measurement models of relationship dimensions achieved a satisfactory level of fit to the data.

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The authors estimated the hypothesized relationships using structural equation modeling, and estimated the structural model described in Fig. 2 using AMOS 5 with maximum likelihood estimation method. The overall goodness of fit statistics shows that the structural model fits the data well. The root mean square error of approximation (RMSEA) is 0.055, the goodness of fit index (GFI) is 0.907, the adjusted goodness of fit index (AGFI) is 0.866, the standardized root mean square residual (sRMR) is 0.037, chi square statistics (χ2) is 398.421 with 208 degrees of freedom and p value of 0.000. 5. Results Table 1 suggests that the results support only six out of sixteen paths (H2b, H4b, H7a, H7b, H8a and H8b) depicted in the conceptual model, but do not support the other ten (H1a, H1b, H2a, H3a, H3b, H4a, H5a, H5b, H6a, and H6b). According to these results, only two dimensions of relationship quality influence purchase intentions; these are overall satisfaction and overall service quality; whereas all four dimensions of relationship quality – trust in the supplier, affective commitment to the supplier, satisfaction and overall service quality – influence attitudinal loyalty. Moreover, according to the unsupported hypotheses, trust in the employees of the supplier and commitment to the employees (both calculative and affective aspects) do not significantly influence either purchase intentions or attitudinal loyalty. 6. Conclusions The SEM results support the use of a second-order relationship quality construct with trust, commitment, satisfaction and service quality as its dimensions. Most of the relationship quality research provides three primary dimensions: trust, commitment and satisfaction (e.g., Crosby et al., 1990; Dorsch et al., 1998; Moorman et al., 1992). This study included overall service quality as an additional dimension of relationship quality. The results of this study provide support for the suggestions of Crosby et al. (1990) and Hennig-Thurau and Klee (1997), who argue for the consideration of service quality as a condition for relationship quality. Furthermore, the results of a saturated second-order relationship construct confirm the inclusion of two levels of relationship quality, employee-level relationship quality and organizational-level relationship quality as sensible. We tested the conceptual model empirically, and the results support six out of sixteen hypotheses. Empirical results of this study suggested that only two dimensions of relationship quality, overall satisfaction and perception of service quality, influence purchase intentions. Results do not support that trust and commitment, at both employee and organizational level, influence purchase intentions. These results suggest that a supplier should put its efforts into enhancing customer satisfaction and designing excellent service systems in order for the customer to make continuing purchases or stay with the supplier. In terms of the relationship quality's influence on attitudinal loyalty, the SEM results show that trust in the

supplier, affective commitment to the supplier, overall satisfaction and perception of service quality influence attitudinal loyalty. Results also indicate that trust in the employees, commitment in the employees (both affective and calculative), and calculative commitment to the supplier do not influence attitudinal loyalty. In the big picture, results indicate that employee level relationship quality has no significance in influencing both purchase intentions and attitudinal loyalty. With these results, we are able to suggest that a supplier should focus on building a relationship on the basis of creating the customer's trust in the courier as an organization, maintaining the customer's affective commitment level, enhancing overall satisfaction and again providing excellent service systems in order to create and maintain attitudinal loyalty. These results also give additional insights into SMEs customers' levels of loyalty and suggest that the quality of relationship which B2B customers have with employees of their suppliers does not influence loyalty. In more specific terms, both trust and commitment factors that the customers might have with the employees do not play a significant in enhancing their loyalty to the supplier. 6.1. Managerial implications We can draw several managerial implications from this study. First and most importantly, both perception of service quality and overall satisfaction play remarkably strong roles in influencing both aspects of customer loyalty in the B2B context. B2B suppliers must pay attention to the quality control of their service delivery systems and put a lot of effort into creating high perceptions of service quality and high satisfaction. In particular, our study suggests that an excellent delivery system of courier service and package delivery is a crucial factor in building a supplier's customer base. A high perception of service quality is the most important factor leading to future business, as well as encouraging those existing customers to provide positive word of mouth and to appreciate having the buyer–supplier relationship with the supplier. Good investments in the delivery of service and the quality of the service systems will essentially enhance the quality of the buyer– supplier relationship. Secondly, our result suggests that trust in the supplier and affective commitment to the supplier contributes to attitudinal loyalty. This finding shows the importance of brand management and the importance of portraying a good image of an organization as a whole. The quality of relationship that a business customer enjoys with a supplier through the foundation of trust and affective commitment provides guidelines for a business supplier to build trust and emotional attachments. Furthermore, results do not support the influence of calculative commitment upon both aspects of loyalty. This is an implication that B2B suppliers should focus on ‘being likable’ in the eyes of the business customer to encourage customer word of mouth and to build a pleasurable working relationship. Thirdly, to understand customer loyalty, this research provides management with the ability to map out a typology of loyalty through the use of the available composite measures of loyalty, purchase intentions and attitudinal loyalty. The

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typology was introduced by Dick and Basu (1994). Suppliers likely will be able to manage their customers more effectively by seeking to segment their customer base according to customers' levels of two aspects of loyalty. The classification system can also be useful to marketers as they try to build loyalty. Marketers should identify groups of customers based on loyalty status and develop strategies that are appropriate for further building loyalty under the conditions that exist for the product and service. This study reinforces the importance of the two components of loyalty and illustrates that, while both are important in achieving loyalty, there are differing paths to achieving each component. The study finds variation in the two loyalty dimensions, both across respondents and suppliers. Management is able to identify at least four groups of loyal customers, which it can map out by using low and high behavioral loyalty (purchase intentions or possibly share-of-customer wallet) with low and high degrees of attitudinal loyalty. Management should obviously attempt to retain those customers who exhibit both a high degree of behavioral loyalty and a high degree of attitudinal loyalty. In our study the customer base of different suppliers had varying proportions of highly loyal customers. Customers who have high behavioral loyalty but low attitudinal loyalty are more susceptible to attrition and may be more responsive to offers by competitors. Management should pursue strategies that aim to increase attitudinal loyalty, and should explore the reasons for barriers to choice behavior where a customer has high attitudinal loyalty but low behavioral loyalty. Strategies improving customer satisfaction and service quality should stimulate behavioral loyalty as well other programs that encourage the customer's use of the supplier. Customers who are low on both attitudinal and behavioral loyalty represent lower priority targeting and may require longer term efforts. Overall, to maintain customer loyalty to the supplier, a supplier may enhance all four aspects of relationship quality which are trust, commitment, satisfaction and service quality. Specifically, in order to enhance customer's trust, a supplier should promote the customer's trust in the supplier. In efforts to emphasize commitment, a supplier should focus on building affective aspects of commitment rather than calculative aspects. Satisfaction appears to be a crucial factor in maintaining purchase intentions, whereas service quality will strongly enhance both purchase intentions and attitudinal loyalty. 6.2. Limitation of research and methodological implications This research has several limitations that suggest that different approaches for future research may be useful in further exploring the issues investigated in this study. First, the data in this study is from the courier service industry, which may limit the generalization to other industries and business-tobusiness settings. The study sampled only Australian SMEs. Because SMEs have different sizes and characteristics compared to larger corporate buyers, we cannot generalize their buying behavior and attitudes for the whole population of business-to-business buyers. The loyalty of larger business buyers may be different from the loyalty of SMEs.

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