THE MEDIATING EFFECT OF CUSTOMER SATISFACTION ON THE RELATIONSHIP BETWEEN TRUST AND BRAND LOYALTY

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1 THE MEDIATING EFFECT OF CUSTOMER SATISFACTION ON THE RELATIONSHIP BETWEEN TRUST AND BRAND LOYALTY Abdullah Kaid Al-Swidi b Oswald Aisat Igau a Abdul Wahid Bin Mohd Kassim a Wajiran Sinun a Siti Mardalinah Ardian Neezm a a School of Business and Economics, Universiti Malaysia Sabah b OYA Graduate School of Business, University Utara Malaysia Corresponding abdulwah@ums.edu.my Abstract Rapid changes of customers preference pose greater challenges to marketers especially when come to the issues related to product trust, customer satisfaction and loyalty. New knowledge on those issues offers benefits to various parties include practitioners, academicians, and policy makers and consumers group. The current study is apart from series empirical evaluation on mediating effect of customer satisfaction. In this paper also examined the relationship between trust element, customer satisfaction and brand loyalty. Data collected from working people who postulated have purchasing power. PLS software was employed for data analysis. The current findings found a significant relationship between trust and brand loyalty. The relationship between trust and customer satisfaction also found to be significant. Even the relationship between customer satisfaction and brand loyalty found to be significant. The mediation effect of customer satisfaction on the relationship between trust and brand loyalty found to be significant. In this paper includes the implication and conclusion. Keywords: trust, customer satisfaction, brand loyalty, and mobile phones 1.0 Introduction The harsh competition in today s market has forced marketers to critically evaluate factors that have been thought as a considerable contributor for sustaining the company market share and in the event of retaining costumers. One of the factor that widely accepted as a contributor for the re-purchasing exercise by customer is customer satisfaction. Even though Taylor in 1998 stated that companies began to notice that they often were losing customers despite high satisfaction (p.41). Nevertheless customer satisfaction has been widely accepted and used as a bench mark of marketing efforts in the evaluation process of company performance (Bennet & Rundle-Thiele, 2004). Satisfied customers not only helped to retain customers in the guise of loyalty but also helping in recruiting more new potential customers by positive remarks on the brand or product itself (Taylor, 1998; Bennet & Rundle-Thiele, 2004). Researcher on consumer behaviour has found that customer that satisfied with the products offered are more likely develop brand loyalty (Oliver, 1999b; Suh & Yi, 2006; Xu et al., 2006; Yi, 1990). Therefore it is widely admitted that customer satisfaction is one of the immediate antecedents to customer loyalty (Anderson & Sullivan, 1993). To maintain long term relationship relation-ship with customers or to retain a customer loyalty towards the products offered one of the important element or factors found by researcher (Reicheld & Schefter, 1

2 2000) is trust. Trust is also a confidence that makes customer choose a certain brand compared to others. Therefore it is vital for marketers to earn customers trust on their offered product if they intended to foster and create a long term relation-ship or customer loyalty. The present study empirically investigates the mediating effect of customer satisfaction on the relationship between trust and brand loyalty. 2.0 Literature Review 2.1 Brand Loyalty In general terms, loyalty is something that customers may exhibit to brands, services, stores, and product categories. In this study, the researcher uses the term brand loyalty to emphasize that loyalty is a future of something inherent in brands. Consumers often use the terms product and brand interchangeably (Myers, 2003). Anwar et al., on their study in 2011 stated that Brand loyalty is widely discussed in marketing literature and showed importance of two dissimilar dimensions of brand loyalty: behavioural and attitudinal loyalty. Frequency of repeat purchase has been considered as behavioural loyalty or percentage of purchase, and attitudinal loyalty is defined as, priority, dedication or purchase aim of the consumers. If customer is satisfied with the performance of the brand than it tends to derive a loyalty. If customer is loyal to brand then company can increase its productivity by offering brand s further extension without the fear of failure (p.75). To distinguish between the terms, Farquhar (1989) and Cobb-Walgren et al., (1995) addresses product as something that tends to offer a functional benefit, whereas a brand is a name, symbol, design or mark that enhances the value of a particular product. Similarly, Bennett (1988) defined brand as a name, term, design, symbol or any other feature that identifies one seller s good or service as distinct from those of other sellers. Oliver (1999a) defined brand loyalty as a strong commitment to rebuy or repatronize a preferred product or repatronize a service consistently in the future, thereby causing repetitive same-brand or same-brand set purchasing, despite situational influences and marketing efforts having the potential to cause switching behaviours. Further this, Oliver (1999a) suggests that ultimate customer loyalty is a function of perceived product superiority, personal fortitude, social bonding, and their synergistic effects. 2.2 Trust Gundlach and Murphy (1993) stated that trust is the most universally accepted basis of any human interaction or exchange. More recently, trust has been defined as an individual s confidence in another s conduct, when the individual is in a position of vulnerability or cannot monitor or control the other party (Hosmer, 1995). Trust is a key to a relationship commitment and customer loyalty. The efforts first have to come from a company through their marketing efforts If it then accepted by customers, they voluntarily develop a positive attitude towards product that offered by the company. Accordingly, when a customer trusts product or brand, that customer is willing to form a positive buying intention towards the offered product. Trust helps establishing and instils loyalty by affecting or changing the customer s perception on the values of the company and its product (Aydin & Ozer, 2005; Chen & Xie, 2007). 2

3 2.3 Customer satisfaction: Satisfaction is defined as an emotional post-consumption response that may occur as the result of comparing expected and actual performance (disconfirmation), or it can be an outcome that occurs without comparing expectations (Oliver, 1999a). This definition is rooted in the disconfirmation paradigm, which suggests that satisfaction judgments are formed in a process of comparison of perceived performance with pre-experience expectations. Hence, satisfaction is said to result from positive disconfirmation. (Product performances are greater than that initially expected). Customer satisfaction can also be defined using the transaction-specific perspective or cumulative perspective (Boulding et al., 1993). The transaction-specific perspective indicates that customer satisfaction is the evaluation based on the recent purchase experiences. Compared with the transaction-specific perspective, the cumulative perspective stresses overall evaluations, indicating that evaluations of customer satisfaction should be based on all the purchase experiences of the customer, disregarding any specific purchase experience (Johnson & Fornell, 1991). 3.0 Method 3.1 The Research model and Hypotheses The following research model has been used in this study as shown in Figure 1. Figure 1 The Research Model From the above mentioned model the following main hypothesis are developed: H1: There is a significant relationship between trust and brand loyalty. H2: Trust has a significant effect on customer satisfaction. 3

4 H3: There is a significant relationship between customer satisfaction and brand loyalty. H4: Customer satisfaction mediates the impact of trust on brand loyalty. 4. Research methodology 4.1 Sample profile The subjects for this study were confined to the mobile users who are working in Kota Kinabalu area. To test the proposed relationships, data from mobile phone users were collected. Subjects for the study were randomly selected people who were employed in the private and public sector within Kota Kinabalu area. In total, 150 usable questionnaires were collected. Table I displays the characteristics of the sample. Tables 1 present the sample s demographic characteristics and mobile telephony usage profile respectively. As it can be seen in Table I, the sample is rather skewed towards female, below 40-year old and not highly educated users having below RM3001 gross monthly income. The majority of the respondents currently used Nokia phone which is 56% from the total respondents of 150. This is followed by Sony Ericsson of 22.7%, others (iphone, HTC) 15.3%, LG of 4% and Samsung of 2%. Table 1: Survey respondents demographic frequencies Measure Item Frequency % Mobile phone brand Nokia Sony Ericsson LG Samsung Others Sex Male Female Age Education Monthly income (RM) SPM/Certificate STPM/Diploma Undergraduate Postgraduate RM1000 and below RM1001 RM3000 RM3001 RM5000 RM5001 and above Analysis and Results As discussed earlier, this study aims to examine the relationship between EO and organizational performance. To be able to obtain valid and reliable results, this study followed the two step approach as suggested by (Chin, 1998). Therefore, the process was to confirm the construct validity before proceeding to test the hypothesis. 4

5 5.3.1 The Measurement, outer, Model The goodness of measurement, outer, model has been established through the content validity and the construct validity The Content Validity As suggested by Hair et al., (2010) and Chin (1998), factor loading of the items could be used to confirm the content validity of the measurement model. In actual fact, each item should correlates weakly or having low loading with all other constructs apart from the one to which it is theoretically linked. If any of these items having low loadings on their respective construct, they have the probability of being deleted. Further, all the measures of the construct should be significantly loaded on their respective construct. As demonstrated in Table 2 and Table 3, all the items load highly and significantly on the constructs they were designed to measure. Similar to many researchers, the rule of thumb of only accepting items with loadings that are greater than 0.70 was employed (Dwivedi et al., 2006; Hulland, 1999; Turkyilmaz & Ozkan; 2007) Table 2: Cross-Loading of the items Items Brand Loyalty Customer Satisfaction Trust BL BL BL BL BL BL CS CS CS CS CS CS T T T T T T

6 Table 3:T value results Construct Items Loadings STDDEV T Value P Value Brand Loyalty BL BL BL BL BL BL Customer Satisfaction CS CS CS CS CS CS Trust T T T T T T The Convergent Validity The convergent validity is defined to be the degree to which a set of variables converges in measuring the concept on construct (Bagozzi& Yi, 1988; Hair et al., 2010). It is, therefore, confirmed using the item's reliability, composite reliability and average variance extracted. This means that if all the items are significantly important in measuring their constructs, composite reliability values are at least 0.7 and the average variance extracted (AVE) are at least 0.5 then the convergent validity can be confidently confirmed (Bagozzi& Yi, 1988; Hair et al., 2010). With reference to Table 4, the composite reliability value of all the constructs exceeded the 0.7 threshold and all the values of AVEs are also exceeded the 0.5 threshold. Thus, one can confirm that the measurement, outer, model possesses an adequate level of convergent validity. 6

7 Table 4: results of convergent validity analysis Construct Items Loadings Cronbach's Alpha Composite Reliability Average Variance Extracted Brand Loyalty BL Customer Satisfaction BL BL BL BL BL CS CS CS CS CS CS Trust T T T T T T a: CR = (Σ factor loading) 2 / {(Σ factor loading) 2 ) + Σ (variance of error)} b: AVE = Σ (factor loading) 2 / (Σ (factor loading) 2 + Σ (variance of error)} The Discriminant Validity The discriminant validity shows to which degree a set of items differentiate a construct from other constructs in the model. This means that the shared variance between each construct and its measure is greater than the variance shared among distinct constructs (Compeau et al., 1999). To examine the discriminant validity of the measurement model, this study followed the criterion suggested by Fornell and Larcker (1981). As in correlation matrix illustrated in Table 5 below, the diagonal elements are the square root of the average variance extracted of all the latent constructs. The discriminant validity is assumed if the diagonal elements are higher than other off-diagonal elements in their rows and columns. This situation is apparently the case in the correlation matrix and thus the discriminant validity is confirmed. 7

8 Table 5: Correlations among constructs and discriminant validity Construct Brand Loyalty Customer Satisfaction Trust Brand Loyalty Customer Satisfaction Trust Predictive Power of the Model The quality of the structural model can be assessed by R 2 which shows the variance in the endogenous variable that is explained by the exogenous variables. Based on the results reported in Table 6, the R 2 of the customer satisfaction was found to be indicating that Perceived Value can account for 34% of the variance in the customer satisfaction and both Perceived Value and Customer Satisfaction can explain 46% of the variance of the Brand Loyalty. Based on the assessment criterion suggested by Cohen (1988), 0.26 substantial, 0.13 moderate and 0.02 weak; our both values of the R 2 are considered substantial. Table 6: Prediction Power of the Model Endogneous R Square Customer Satisfaction Brand Loyalty Goodness of Fit (GoF) of the Model Unlike the CBSEM method, PLS Structural Equation Modelling has only one test of goodness of fit known as the global fit measure (GoF) (Tenenhaus et al., 2005). This measure is the geometric mean of the average variance extracted and the average R 2 for the endogenous variables. The following formula is used to compute GoF. Based on the results obtained, the GoF value was which was calculated as in the following The comparison was made with the baseline values of GoF as suggested by Wetzels et al., (2009) (small =0.1, medium =0.25, large =0.36). The results showed that the model goodness of fit measure is large an adequate of global PLS model validity. 8

9 5.3.2 The Structural, inner, Model and Hypothesis Testing Having established the validity and the reliability of the measurement model, the next step was to test the hypothesized relationship by running PLS algorithm and Bootstrapping algorithm in SmartPLS 2.0. Figure 2: Items loadings and path coefficient Figure 3: Significance of factor loadings and path coefficient 9

10 Table 7: Hypothesis testing result Hy No. Hypothesis Statement Path Coefficient Standard Error T Value P Value Decision H1 H2 H3 Trust--> Brand Loyalty Trust --> Customer Satisfaction Customer Satisfaction --> Brand Loyalty 0.337* Supported 0.680*** Supported 0.332* Supported ***:p<0.001; **:p<0.01;*:p<0.05 As indicated in Figures 2 and 3 and Table 7, all the hypotheses H1, H2, and H3 were supported by the findings of the study. Specifically, the effect of Trust on brand Loyalty, the impact of Trust on Customer Satisfaction, and the effect of Customer Satisfaction on Brand Loyalty were confirmed by the results (β=0.337, t= 2.250, p<0.05),(β=0.680, t= , p<0.001), and (β=0.332, t= 2.006, p<0.05)respectively. The Mediating effect of the Customer Satisfaction To test to what extent the customer satisfaction can mediate the effect of perceived product quality on the brand loyalty; this study employed the bootstrap method integrated in SmartPLS. The results, as illustrated in Table 8 showed that customer satisfaction is found to be a full mediator in this relationship carrying out 40% of the effect of perceived product quality on brand loyalty as calculated in Variance Accounted For (VAF). This result confirmed the mediating role of customer satisfaction to enhance the brand loyalty due to the perceived quality of the product. Hence H 4 is supported. Table 8: The Mediating Effect of Customer Satisfaction Hy No. Hypothesis Statement Path Coefficient Indirect Effect Standard Error a*b T Value P Value Decision c c' a*b H4 Trust --> Customer Satisfaction --> Brand Loyalty 0.568*** 0.337* 0.226* ***:p<0.001; **:p<0.01;*:p<0.05 Partial Mediator 10

11 Summary of Results Table 9: Result Table for the Tested Hypotheses No. Hypotheses Findings H 1 There is a significant relationship between trust and brand loyalty Supported H 2 Trust has a significant effect on customer satisfaction Supported H 3 There is a significant relationship between customer satisfaction and brand Supported loyalty H 4 Customer satisfaction mediates the impact of trust on brand loyalty Supported 6.0 Discussion and conclusions The analysis results reveal that trust in a particular mobile phone brand was found to have a significant positive impact on customer satisfaction and loyalty. This supported prior studies suggestions that trusting beliefs directly influence trusting intentions (repeat purchase intentions). Customer satisfaction has also been considered a mediating variable between trust and customer loyalty. It is confirmed that Fishbein and Ajzen s (1975) TRA, which suggested that cognitive variables (e.g., trust) are mediated by affective ones (e.g., customer satisfaction) to result in cognitive outcomes (e.g., loyalty). The current findings also indicated that satisfaction can play a crucial intervening role in the relationship of trust to loyalty. Thus, the concepts of trust and customer satisfaction do not substitute for, but complement, each other. Brand trust evolves from past experience and prior interaction (Garbarino & Johnson, 1999). It is influenced by the consumers evaluation of any direct (e.g. trial, usage) and indirect contact (e.g. advertising, word of mouth) with the brand (Keller, 1993) and (Krishnan, 1996). Among all these different contacts, the consumption experience is the most relevant and important source of trust, because it generates associations, thoughts and inferences that are more self-relevant and held with more certainty (Dwyer et al., 1987) and (Krishnan, 1996). Hence, high trustworthiness should lead to high sentiments of loyalty, since trust of a product or services justifies customers positive affect for and reliance on the mobile phone brand. In order for the customer to remain satisfied, everyone in the organization has to take the responsibility for helping the customer (Goldzimmer, 1990). Berry (1995) reveals of competing for talent in employees, setting high standards and sticking to those standards. Berry and Parasuraman (1991) emphasized the importance of bringing purpose and meaning to employees jobs and of continuously empowering them. The current study revealed that customer satisfaction in the mobile context is a consumer s total response to the purchase experiences in a mobile context environment. Therefore, in this study, customer satisfaction is regarded as the total consumption perception of consumers when purchasing a mobile phone. The ability to provide a high degree of customer satisfaction services is crucial to providers in differentiating themselves from their competitors (Lin & Wang, 2006). 11

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