The impact of communication effectiveness and service quality on relationship commitment in consumer, professional services

Transcription

1 An executive summary for managers and executives can be found at the end of this article The impact of communication effectiveness and service quality on relationship commitment in consumer, professional services Neeru Sharma Doctoral candidate, University of Technology, Sydney, New South Wales, Australia Paul G. Patterson Associate Professor, School of Marketing, University of New South Wales, Sydney, New South Wales, Australia Keywords Marketing communications, Professional services, Relationship marketing, Service quality, Services marketing Abstract Most previous research in the domain of relationship marketing has focused on the antecedents of loyalty and commitment in industrial markets, distribution channels or consumer goods. This study, however, models the antecedents of clients relationship commitment in the context of a professional service, high in credence qualities (where customers have difficulty in confidently evaluating service quality, even purchase and consumption) i.e. personal financial planning services. The impact of four key explanatory variables (communication effectiveness, technical quality, functional quality and trust) are examined. The results support the hypothesized model and show communication effectiveness to be a key driver of all antecedent variables, and the single most powerful determinant of relationship commitment. Relationships with customers Introduction For many services, the essence of marketing is, or ought to be, the development of long-term, value-laden relationships with customers (Berry, 1983; Bejou and Palmer, 1998; Christopher et al., 1991). Despite this, it is surprising to find so little empirical research that models the nature and determinants of relationships in consumer services, especially in the context of those high in credence properties (i.e. where clients have difficulty in confidently evaluating service quality even after purchase and consumption) (Darby and Karni 1973) such as financial, legal, medical and other services delivered by highly trained and qualified professionals. The primary objective of this study therefore is to begin to fill this gap in our knowledge by modeling the antecedents of relationship commitment in the context of a professional service personal financial planning services. In doing so we examine the impact of three exogenous constructs: (1) communication effectiveness; (2) technical quality; and (3) functional quality; and one endogenous, mediating construct (trust). The results support the hypothesized model and show communication effectiveness to be a key driver of all antecedent variables, and the single most powerful determinant of relationship commitment. Background Most research to date that has examined antecedents of loyalty and commitment has primarily focused on industrial markets, distribution channels and consumer goods (Morgan and Hunt, 1994; Ping, 1993; THE JOURNAL OF SERVICES MARKETING, VOL. 13 NO , pp MCB UNIVERSITY PRESS,

2 Professional services Relationship commitment Wilson and Mummalaneni, 1989; Wind, 1970). Relationship commitment has been viewed as critical in interorganisational relationships (Anderson and Weitz, 1992; Kumar et al., 1995) and considered essential for successful long-term relationships. It is typically defined as an implicit or explicit pledge of functional continuity between exchange partners (Dwyer et al., 1987, p.19). In the channel literature, it has been associated with trust, relationship termination costs, functional social norms, opportunistic behaviour, idiosyncratic investments and communication (Table I). While research in business-to-business services associates commitment with trust, perceived value, involvement of service provider and quality of interaction between clients and service providers (Lapierre, 1997; Patterson and Spreng, 1997). However, unlike tangible goods and even business-to-business services, professional services targeted at the consumer market are often difficult for clients to confidently evaluate even following purchase and consumption. For example, how does a consumer, not trained in law, know whether they actually received the best possible legal advice? Or in the case of medical advice or psychotherapy, whether the diagnosis was accurate? Or in the context of the current study, whether the investment advice resulted in maximum return on investment at an acceptable level of risk? In such circumstances clients are being truly asked to rely on, and trust the service provider. Furthermore, such services are categorized as medium-high contact (Lovelock, 1983), and thus a high degree of interaction and interpersonal communication between client and service professional (e.g. accountant, lawyer, family doctor, psychotherapist, architect, financial adviser) is essential for successful service delivery. Hence it is not unreasonable to suggest that relationship marketing models formulated in the goods and business-to-business sectors may need modification before they can be successfully applied to consumer, professional services. Finally, past work has by and large ignored the potentially central role that effective interpersonal communications might have on perceived service quality and relationship commitment. The purpose of this study therefore is to model the impact of communication effectiveness, trust, and service quality on relationship commitment in the context of a highly intangible, complex, customised consumer service personal financial planning services. More specifically, the present study represents an attempt to resolve the following questions: What is the relative impact of technical quality and functional quality in shaping a client s relationship commitment? Does communication effectiveness of the service provider affect perceptions of technical as well as functional quality, and relationship commitment? Answers to these questions will add to our understanding of the factors underlying the foundation of long-term client-provider relationships in a consumer, professional services context. Nature of professional services As many of the professions have adopted a marketing orientation in recent times, there has emerged a strong emphasis on the need for effective management of client relationships (Lovelock et al., 1998). The professions offer services that are highly complex, intangible, and highly customized 152 THE JOURNAL OF SERVICES MARKETING, VOL. 13 NO

3 Nature of commitment Predictor variables in the Study context variable in the study conceptual model Authors Comments Buyer-seller relationships Commitment towards an exchange A conceptual paper describing a framework Dwyer et al. (1987) Commitment defined as partner for relationship development process in an implicit and explicit which commitment was identified as a pledge of relational continuity distinct phase between exchange partners Automobile tire retailers Mediating variable named as Trust, relationship termination costs, Morgan and Hunt (1994) Trust was reported as the most relationships with suppliers relationship commitment communication and shared values powerful antecedent of relationship commitment. Trust was significantly influenced by relationship termination costs, shared values and communication Distributor and manufacturer Commitment to manufacturer- Idiosyncratic investments and perceived Anderson and Weitz (1992) Idiosyncratic investments and relationships in a variety of distributor dyad commitment of the other party in exchange perceived commitment of the industries partner had a strong impact on commitment Manufacturer and distributor Commitment conceptualized as Relational social norms, opportunistic Gundlach et al. (1995) Commitment inputs are positively relationships in micro commitment inputs and intentions behavior and commitment inputs related to the development of computer industry relational social norms and longterm commitment intentions. Relational social norms may be undermined by opportunistic conduct Buyer-seller relationships Commitment measured as buyer s Environmental uncertainty and asset Norris and McNeilly (1995) Uncertainty in demand and in steel industry perception of the degree of specificity supply and investment in commitment of both buyer and transaction-specific assets caused seller to the dyad higher commitment (Continued) Table I. Previous research on relationship commitment is presented in the form of a matrix THE JOURNAL OF SERVICES MARKETING, VOL. 13 NO

4 Nature of commitment Predictor variables in the Study context variable in the study conceptual model Authors Comments Manufacturer-dealer Commitment measured as a Communication Mohr et al. (1996) Communication was found to relationships in computer dependent variable increase dealers commitment to industry relationship with their manufacturers Marketing research services Commitment to the relationship was Trust, quality of interaction, involvement of Moorman et al. (1992) User trust in service provider and included as a dependent variable in service provider perceived quality of interaction the model significantly impact on the level of commitment to the relationship Car dealers and suppliers Relationship commitment of dealers Trust and interdependence Geyskens and Steenkamp Higher trust increases affective relationships in the USA and towards their suppliers (1995) commitment but decreases The Netherlands calculative commitment. Total interdependence increases affective as well as calculative commitment The service purchaser s The concept of commitment and its Young and Denize (1995) The authors confirmed that commitment towards their underpinnings were explored commitment exists owing to accountant social and economic benefits, investments, lack of alternatives, personal friendships and also to inertia, psychological dependence and prestige of the accountant Automobile dealers Commitment was included as a Total interdependence and interdependence Kumar et al. (1995) The authors demonstrated that relationships with their dependent variable in the study symmetry total interdependence increases suppliers commitment but interdependence asymmetry has a negative impact on commitment Table I. 154 THE JOURNAL OF SERVICES MARKETING, VOL. 13 NO

5 Difficult for clients to evaluate Core service unfolds over time which are created and delivered by qualified personnel over a continuous stream of transactions (service encounters), e.g. accounting, legal, psychotherapy, financial planning, advertising services (Crosby et al., 1990). Furthermore, the traditional marketing functions can only operate at the strategic level. The personnel operating at the boundary between the firm and the external environment are the ones who have the opportunity to re-mix the service offering and add value in interaction with clients. Their technical as well as interpersonal skills thus become a critical source of differentiation, satisfaction and thus client retention. Financial planning services, the context of this study, fit the above description and depend on high levels of judgment being exercised by the service provider. Further they are at the pure services end of the goodsservices continuum. As such, they are intrinsically difficult for clients to confidently evaluate technical outcomes (i.e. the core service or what is delivered), even after purchase and consumption, because they often lack the technical knowledge and experience to do so (Darby and Karni, 1973; Zeithaml, 1981). Clients of a financial planning service/investment adviser simply lack the know-how to, for example, assess levels of risk, and know whether a higher proportion of their funds could have been better invested in property, government bonds, cash or overseas equities, and the respective tax implications. This is in stark contrast with services high in search properties (Darby and Karni, 1973) such as hairdressing, a vacation, restaurant experience, other forms of entertainment, airline services, etc., where customers can confidently evaluate the quality of what they have received immediately on consuming the service experience. Financial planning is also a situation where the core service (technical performance) only unfolds over time. It is likely to be many months or even years in some cases (if investments happen to be in long-term financial growth products such as equity trusts) before the true value of the investment advice can be assessed. Thus to be effective (from both the buyer s and the seller s perspectives) the relationship needs to endure over a considerable period of time. It is for this reason that Hatfeld (1993) claims it is necessary to develop smooth, cordial and ongoing communications between client and adviser in order to develop and sustain the relationship. After all, if clients have trouble evaluating outcomes, then it seems reasonable that interactions ( how the service is delivered) and all forms of communications will take on added significance as clients seek to minimise dissonance and uncertainty about the adviser they have chosen. Each of the antecedent variables, hypothesized to impact on the dependent variable-relationship commitment, will now be discussed along with accompanying hypotheses to be empirically tested. Conceptual model As shown in Figure 1, relationship commitment is conceptualized to be a function of communication effectiveness, perceived service quality (technical and functional) and trust. Each of these antecedent variables is briefly discussed in turn, and then specific research hypotheses presented. Trust is defined as a belief that the service provider can be relied on to behave in such a manner that the long-term interests of the buyer will be served (Crosby et al., 1990). It implies reliance on, or confidence in, the process or person (financial adviser) and implies a personal vulnerability aspect. It is especially important when uncertainty and risk are present and THE JOURNAL OF SERVICES MARKETING, VOL. 13 NO

6 Communication effectiveness Functional quality Technical quality Trust Relationship commitment Figure 1. Conceptual model of determinants of relationshp commitment warranties absent as is the case with many consumer, professional services. Trust is a key construct in most models of long-term business as well as personal relationships, and has been widely studied in the social exchange as well as the marketing literature (Fox, 1974; Morgan and Hunt, 1994; Scanzoni, 1979). Trust is decisive for continuity of a relationship. Schurr and Ozanne (1985) state that a relationship built on a buyer s feeling of trust in a salesperson enables the salesperson to better meet the needs of the buyer and it is one of the most fundamental steps in establishing a longterm relationship. Mediating variable In our conceptual model (Figure 1) trust is positioned as a mediating variable, i.e. mediating the relationships between communication effectiveness, technical and functional quality, and relationship commitment. The significance of trust on commitment has been well documented in the literature. In social psychology, the relationship between trust and commitment has appeared in several papers (Blau, 1964; Rempel and Holmes, 1986) while Hrebiniak (1974) states that the relationships characterized by trust are so highly valued that parties will desire to commit themselves to such relationships. Trust plays a critical role in financial planning services owing to the inherent credence properties and complex nature of the service which makes it difficult for many clients to determine their own investment options, and even later it is problematic whether they are able to confidently assess whether their financial returns were maximised. Clients in this vulnerable position have little alternative but to rely on their adviser. Clients are motivated to continue the relationship when they have confidence in (and trust) the competencies and abilities of their adviser. But if this trust should ever be in doubt, then so would the relationship. Trust is therefore hypothesized to be a powerful determinant of relationship commitment in consumer financial services: H1: The greater the trust in the adviser, the stronger the relationship commitment. Service quality comprises two fundamental components technical quality (the core service or what is delivered) and functional quality ( how the service is delivered) (Grönroos, 1983; Parasuraman et al., 1985). Technical quality relates to actual outcomes or the core service (Lovelock, 1996) as perceived by the customer. In this study, technical quality refers to the competency of the adviser in achieving the best return on investment for 156 THE JOURNAL OF SERVICES MARKETING, VOL. 13 NO

7 Functional quality Trust in an adviser their client, at acceptable levels of risk, thus assisting the clients to achieve their financial goals. This is the core or promised service in financial planning. While it was argued earlier in this paper that many clients will be unable to confidently evaluate technical outcomes, clients who nonetheless earn high returns (or returns that at least meet their expectations) and have assurance that their funds are invested in secure options (or whatever specified level of risk) will have higher perceptions of technical quality. The second fundamental dimension of service quality, functional quality, is concerned not with what is delivered, but rather processes of how the core or technical service is delivered. Grönroos (1978) asserts that functional quality is concerned with the interaction between the provider and recipient of service and is assessed in a highly subjective manner. It is viewed as critical to client perceptions of overall service quality, especially since many service firms find it difficult to differentiate themselves on their core service alone. Or as Leonard Berry so succinctly put it: The five dollar bills the customer gets from the teller are the same; what is different is the tellers. Furthermore, as the core service sooner or later becomes a commodity as competition increases and the industry matures, it is the functional quality dimensions that become increasingly important as a means of creating a sustainable competitive advantage. In personal financial planning services, functional quality is conceptualized as the responsive, courteous, caring and professional behaviour displayed by an adviser during the many moments of truth in the course of creation and delivery of the core service. It is concerned with the courtesy and friendliness shown to the client, making efforts towards understanding his/her circumstances, displaying empathy, giving prompt service, responding to queries and complaints in a responsible, courteous and timely manner. During qualitative interviews it was apparent that trust in an adviser develops to a large extent over time from receiving both technical and functional quality: I trust him. He has helped me get a good return on my money and My adviser understands my circumstances. He will suggest whatever is good for me are quotes that pertain directly to the quality construct. Owing to the customized and complex nature of personal financial services, adviser and client have to interact a number of times so that the adviser can effect a needs assessment and recommend options that suit each client s individual situation. A satisfactory experience with recurring interaction with an adviser strengthens the confidence in the adviser. Therefore the process of delivery and creation of service is important in forming trust. Hence both the relational qualities of an adviser and technical outcomes help foster confidence (and hence trust) in an adviser s competence. Thus: H2: The greater the perceived technical quality, the stronger the trust in the relationship. H3: The greater the perceived functional quality of the adviser, the stronger the trust in the relationship. Technical competence has been suggested as the key to financial service (Hatfeld, 1993). Technical quality (financial returns that meet expectations, at an acceptable level of risk) is the foundation stone for success in personal financial services over the longer term. Clients assess the service in terms of growth of their invested funds. This is the first and foremost criterion to form positive intentions towards the service. Thus: THE JOURNAL OF SERVICES MARKETING, VOL. 13 NO

8 Communication effectiveness Communication effectiveness and relationship commitment H4: The greater the perceived technical quality, the stronger the relationship commitment; Communications, or lack of it, is right up there as a major cause of investor planning associations complaints resolution unit (Bland, 1997, p. 7m). Communications effectiveness refers to the formal as well as informal sharing of meaningful and timely information between a client and adviser in an empathetic manner. Its purpose is to educate and keep clients informed about their investments in a language that they can understand. Morgan and Hunt (1994) suggested that an easy flow of communication is an important characteristic of a strong relationship. Moorman et al. (1993) state that timely communication fosters trust by assisting in resolving disputes and aligning perceptions and expectations. Communication effectiveness is also considered to impact on technical and functional quality. Clark (1992); Stewart (1992); and Headley (1992) assert that communication is an important ingredient for achieving high perceived service quality while Benson (1994) notes that a personal financial planning service is a blend of technical knowledge and communicative ability. Strong communication skills are needed to ensure that clients understand investments (and thus become more confident in their ability to assess financial risks and outcomes) and to help them through the inevitable ups and downs of varying investment performance. Through the timely communication of an adviser, a client receives information about the current status of their investments, possible future opportunities and risks, and whether or not they are achieving expected financial returns. Based on the nature, frequency and effectiveness of communication, they form perceptions of service quality. Though communication has been linked to commitment in channel relationships and industrial markets (Mohr et al., 1996), little effort has been made to investigate its impact in consumer services. For personal financial planning services the linkage between communication effectiveness and relationship commitment is likely to be even stronger than other service contexts because of recurring interaction between client and adviser, the risks and uncertainties involved, as well as the complex nature of the service. Furthermore, due to the high involvement nature of the purchase (and continuance of the relationship) and credence properties of financial services, an adviser has to be effective in communicating with clients to instil confidence and reduce risk perceptions. According to Bland (1997) emotional factors are equally important, and a good adviser is one a client feels comfortable with, and who listens to and understand a client s needs. As Benson (1994) notes, effective communication skills are a necessary (but not sufficient) requirement of successful financial services. Effective communication involves regular contact between adviser and client. Contacting regularly, asking questions about their investments, getting timely information from an adviser creates a sense of closeness, familiarity and ease in a relationship. Social bonds are then developed at an emotional level that make the relationship more resistant to intermittent failures (Bejou and Palmer, 1998), and thus present a psychological exit barrier. Hence the client will not dissolve the relationship unless there is a serious breakdown of service and communication. Therefore: H5: The greater the communication effectiveness, the stronger the relationship commitment. 158 THE JOURNAL OF SERVICES MARKETING, VOL. 13 NO

9 Effective communication skill is also instrumental in generating client trust. Moorman et al. (1993) emphasize that timely communication is important to align perceptions and thus fosters trust. Timely and meaningful communication assists clients to appreciate the latest developments in the market and help resolve problems and misconceptions. By contacting clients on a frequent basis, answering their questions and giving them a regular follow-up of investments helps the development of trust in the relationship. Our client interviews suggest that communication is important for the development of trust in an adviser. As one client expressed during the qualitative interviews: When my investments were dropping in value I was notified immediately. I have a regular follow-up of my investments and my adviser explains all the developments in a clear and unambiguous way. I trust them. Morgan and Hunt (1994) found that frequent and high quality communication resulted in greater trust, while Anderson and Narus (1990) stated that from both a manufacturer s and a distributor s perspective, communication was positively related to trust. Therefore it is hypothesized: H6: The higher the communication effectiveness, the greater the trust in the adviser. Franke (1988) asserts that improving communication plays a powerful role in improving customers views about service quality. Explaining various aspects of investment options, providing information about positive as well as negative features of options, giving timely information to clients and answering their queries in a language that they can understand plays a major role in forming the perceptions (technical as well as functional). Therefore it is hypothesized: H7: The stronger the communication effectiveness of the adviser, the greater the perceived technical quality; H8: The stronger the communication effectiveness of the adviser, the greater the functional quality. Cross-sectional approach Method A cross-sectional approach to data collection was used to obtain the data to test the eight hypothesised relationships. Selection of sample Two firms in the Illawarra region of New South Wales, Australia co-operated in the study by providing names and addresses of clients for the administration of a survey questionnaire. Both firms were medium-sized, independent financial planners (advisers) offering a wide range of financial services to corporate and retail clients. Their range of services included financial advising/planning[1], funds management, superannuation, life and general insurance brokerage, and one firm was also a licensed dealer in securities (equities). They provided the names of 900 clients who were using their services at the time of the survey. Both exploratory and descriptive research was used in this study. The use of exploratory (qualitative, in-depth interviews) research was appropriate to gain insights of clientfinancial planner relationship and develop research hypotheses. A total of 25 in-depth interviews were conducted in which clients gave various reasons for staying in a relationship with their current adviser. From these interviews and the literature review, a questionnaire was prepared and pretested before being sent to all clients. THE JOURNAL OF SERVICES MARKETING, VOL. 13 NO

10 Questionnaire design and administration Pretesting of the questionnaire was conducted by arbitrarily selecting 25 clients from the sample. The questionnaire was also sent to the financial planners and marketing academics to elicit their comments or opinions on the content and wording of the instrument and to assess questions for face validity. Finally, a mail survey was used as a medium for data collection. A package containing the survey questionnaire, and covering letter from the personal financial planners describing the purpose of research, and soliciting co-operation, was mailed to 900 clients. A total of 201 usable questionnaires were returned for a 23 per cent response rate. See Table II for sample characteristics. Before further analysis, the collaborating financial firms were to ascertain that the profile of the respondents was typical of their client base. Both firms confirmed that this was indeed the case. Reliability and unidimensionality Development of measures Most measures were either adopted from previous published works, or developed specifically for our analysis. The procedure for developing measures wherever needed involved the use of multi-item indicators assessed for reliability and unidimensionality. The measure of relationship commitment was developed by modifying the commitment scales of Anderson and Weitz (1992) and Morgan and Hunt (1994). The scale for trust was constructed by combining the scales of Crosby et al. (1990); Moorman et al. (1992) and a new item developed from the qualitative interviews. Owing to lack of research in the area of personal financial services, an appropriate scale for technical and functional quality could not be found in the extant literature. Therefore a new scale containing four items was developed to measure the perceived technical quality of the adviser. These items address technical quality in terms of monetary outcome and security of investments. The functional quality scale represented the friendliness, promptness and consideration of clients circumstances. The scale for communication effectiveness was a combination of existing and newlydeveloped measures. Two of the four items were adopted from Anderson and Weitz (1992) while the other two items were developed from our qualitative interviews. Appendix I shows the items that comprise each measure. Reliability was assessed using the Cronbach alpha coefficient, whereas unidimensionality was assessed by separately factor analysing the items of all constructs. In all cases a single factor emerged. Appendix II presents the results of reliability, convergent validity and unidimensionality of the scales. The measures of relationship commitment, trust, technical quality, functional quality and communication effectiveness, all displayed high convergent validity and unidimensionality. All the scales display high Relationship Age duration Percentage group Percentage Sex Percentage Occupation Percentage < 1 year years 18.7 Male 66.9 Professionals years years 39.4 Female 33.1 Self-employed years years Clerical years years 13.6 Trade years years 4.6 Home duties years 5.4 Retired Table II. Sample characteristics (n = 201) 160 THE JOURNAL OF SERVICES MARKETING, VOL. 13 NO

11 reliability coefficients (with coefficient alphas ranging from 0.84 to 0.90). Discriminant validity was assessed by comparing the alpha coefficients of scales with their correlation coefficients with other scales (Gaski, 1984). This analysis confirmed that discriminant validity is present among all constructs. Appendix III displays the correlation matrix of the variables. Causal path analysis Results Path analysis Causal path analysis was performed in order to investigate the impact of trust, communication effectiveness, technical quality and functional quality on the ultimate dependent variable, relationship commitment. The path model derived is shown in Figure 2. The path coefficients are the standardized beta coefficients taken from the regression analyses. The direct, indirect and total effects of each variable on the dependent variable, relationship commitment, are depicted in Table III. The indirect effects are calculated by multiplying the sequential beta coefficients along any given path following the method devised by Asher (1976). All hypothesized relationships are supported by the regression analysis (see Table III). Further the model explains a substantial variance in the ultimate dependent variable, relationship commitment (50 per cent) and in the mediating construct, trust (62 per cent). It will be noted from Table III that Communication effectiveness Functional quality Technical quality Trust Relationship commitment Figure 2. Path model of determinants of relationship commitment Dependent Adjusted variable Independent variable R 2 R 2 Beta T Significance F Relationship 1. Trust commitment 2. Technical quality Communication effectiveness Trust 1. Communication effectiveness Technical quality Functional quality Technical Communication quality effectiveness Functional Communication quality effectiveness Table III. Results of regression analysis THE JOURNAL OF SERVICES MARKETING, VOL. 13 NO

12 Effects on relationship commitment Technical quality and trust trust displayed a significant, positive linkage with relationship commitment with a beta coefficient of 0.31 (p < 0.000), thus supporting H1. For H2 and H3, the standardized beta coefficients imply that technical as well as functional quality exert a significant, direct influence on trust (0.32 and 0.18, respectively). Regarding H4, the regression coefficient for technical quality is 0.30 (p < 0.000) thus providing support for this hypothesis. Reference to Table III also shows support for H5 and H6, i.e. communication effectiveness has a significant, direct, positive impact on relationship commitment, as well as trust (β = 0.19 and 0.40). Communication effectiveness also displays an especially strong impact in determining perceptions of technical and functional quality (β = 0.62 and 0.70). Therefore H7 and H8 are supported. Next, Table IV shows the direct, indirect and total effects of each independent variable on relationship commitment. The indirect effects are derived by multiplying the sequential beta weights along any given path. To illustrate, the indirect effect of functional quality is = 0.06 since it is mediated via trust. Table IV shows clearly that trust and technical quality have the largest direct effects on relationship commitment but, overall, communications effectiveness has by far the greatest impact due to its large indirect effects. It can be seen from Figure 2 that communication effectiveness has several indirect effects because it was found to impact on functional as well as technical quality and trust. Its overall effect (Table IV) of 0.60 shows it to have by far the largest effect on commitment. Discussion and managerial implications This research has extended our understanding of relationship marketing for consumer, professional services by examining the relative impact of four key variables in the context of personal financial services. The results show, not surprisingly, that technical quality (outcomes) and trust have the most significant direct impact on relationship commitment. It stands to reason that clients want the best possible return (or at least in line with their expectations) on funds invested at some agreed level of risk. After all, clients stay in a relationship only when they perceive that the sum of the benefits exceeds the costs (financial and non-financial). However, personal financial advising is a service where the real outcome (investment performance) only unfolds over time. Thus it is impossible for even an experienced investor to evaluate performance in the short term. The situation is further complicated because of the credence properties of the service i.e. even after financial performance is available, a first time or inexperienced client is unlikely to be able to confidently assess technical performance (have my returns been maximised?; could I have received a better return with a different investment strategy?) simply because they lack experience and know-how. Variable Direct effect Indirect effect Total effect Trust Communication effectiveness Technical quality Functional quality Table IV. Effects of independent variables on relationship commitment 162 THE JOURNAL OF SERVICES MARKETING, VOL. 13 NO

13 Communications effectiveness Relationship commitment Further, as the industry is relatively new, clients do not know the ground rules or the warning sign-posts. In such situations clients are likely to look for cues or surrogates to assess what they should be receiving in terms of financial outcomes. Hence the various service encounters or moments of truth when the client and financial adviser interact (in person or on the telephone) take on added significance. Showing a genuine interest in the client s needs, being prompt and responsive to enquiries and complaints, educating the client, and even the appearance and feel of the office environment sends a powerful signal to clients as to quality and performance (given clients have difficulty in confidently assessing this). Because of the very characteristics of financial advising services, all interactions between provider and client are an opportunity to portray the firm in a positive or negative light. It is an old cliché but clients don t care how much you know until they know how much you care. The findings of this study highlight the critical role that effective communications plays in impacting on perceptions of technical and functional quality, trust and relationship commitment. Communications effectiveness refers to the formal as well as informal sharing of meaningful and timely information between a client and adviser in an empathetic manner. Its purpose is to shape realistic expectations, help educate clients to become more financially literate, keep clients informed about their investments in a language that they can understand, and finally show clients they care about the relationship. As shown in Table IV, effective communications had by far the greatest overall impact in explaining variations in relationship commitment. In spite of this, Communications, or lack of it is right up there as a major cause of investor discontent with financial planners, according to financial planning associations complaints resolution manager (Bland, 1997 p. 7m). In fact in 1997 some 50 per cent of all complaints against the industry related to poor communication. Communication effectiveness is instrumental for a continuing adviser-client relationship, or any personal relationship for that matter. The study findings suggest that communication effectiveness directly impacts on relationship commitment. This result is consistent with the views of Hatfeld (1993) and Bland (1997) that personal financial planning services depend on the effectiveness of listening and feedback between the adviser and client. Further, regular communications can help develop a sense of closeness and ease in the relationship, and be instrumental in building emotional and social bonds, thus making the relationship more resistant to the occasional problems that inevitably develop from time to time. Social and emotional bonds have also been shown in past research to present a psychological barrier to exiting the relationship. The Australian Financial Planners Association expressed it: It is of concern to me that financial planners don t seem to communicate. It s a relationship business. If you re not communicating, what are you basing your relationship on? (Bland, 1997, p. 6m). It seems clear that effective communications needs to address issues such as: displaying empathy and listening skills; accurately explaining fees and charges; setting realistic expectations about risk and returns; educating clients along the way so they can make more informed decisions; explaining investment options in jargon-free terms; THE JOURNAL OF SERVICES MARKETING, VOL. 13 NO

14 explaining how various investment portfolios work; regularly reviewing clients portfolios. Guidelines for managers In summary, several lessons emerge from the findings of this research that might be usefully applied not only to financial advising services, but any consumer professional service that is characterised by: (1) being at the pure services end of the goods-services continuum; (2) high credence properties; and (3) technical quality (performance) which only unfolds over time. First, sound investment performance (technical quality) is a necessary but not sufficient condition to retain clients. Because of the general lack of financial know-how among clients, the firm needs to recognise that all adviser-client interaction takes on added significance and value to clients. For such services the traditional marketing functions can only operate at the strategic level the people operating at the boundary between the firm and the external environment are the ones who must re-mix the service in interaction with clients. Their technical capabilities and interpersonal skills are the source of service differentiation, satisfaction and ultimately, client retention. Next, unlike consumer goods which are outside the marketers control once purchased, clients consume a financial planning service over an extended period, thus giving the firm a golden opportunity to rectify the service during the consumption process. Hence client satisfaction should be regularly monitored to allow corrective action to be taken where necessary. Next, regular and effective communications with clients is essential in order to reduce perceived risk and uncertainty, shape expectations, educate the client, resolve any misunderstandings and explain the options in a jargonfree way. Given the pivotal role of functional quality and communication in impacting on relationship commitment, intensive training in interpersonal and communications skills would seem warranted. Finally, it needs to be appreciated that effective interpersonal communication has the potential to, over time, result in strong social and emotional bonds between adviser and client, and thereby increase the switching barriers to exiting the relationship. Longitudinal study better Limitations First, this study has the limitation of the cross-sectional design employed. A longitudinal study could have provided for better results but, due to the time and cost constraints, it could not be employed. While the results reported here would seem to be generalizable to other consumer services which have similar characteristics (high involvement, complex, highly customised and high in credence properties), only further studies among such services will confirm this. Finally, this study only considered the impact of four antecedent variables. Other antecedents, such as knowledge of available alternatives, likeability of the adviser, length of patronage and investment (financial and non-financial) in the relationship might prove insightful. Note 1. In Australia, all financial advisers must be licensed by either the Financial Planning Association of Australia or the Australian Stock Exchange (if dealing in securities). To obtain a licence advisers must possess either a Diploma of Financial Planning (a university qualification) or a professional qualification (diploma or undergraduate certificate) from the Australian Securities Institute. 164 THE JOURNAL OF SERVICES MARKETING, VOL. 13 NO

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