PERCEIVED CUSTOMER VALUE FOR A SERVICE. Peter J. Vitartas and Carmel Herington Southern Cross University. Richard Hay Carat Australia.

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1 PERCEIVED CUSTOMER VALUE FOR A SERVICE Peter J. Vitartas and Carmel Herington Southern Cross University Richard Hay Carat Australia Abstract The findings of research examining customer value in a service setting are reported. Based on work by Sweeney, Soutar and Johnson (1997) a scale of perceived value was developed for use in a service setting. This scale was then tested on a randomly selected sample taken from the passenger list of an international air carrier operating between Australia and New Zealand. Factor analysis revealed a model consisting of three factors with the dimensions of emotional, social and functional value. These three factors have similarities to three factors identified by Sweeney, Soutar and Johnson (1997) whose work was undertaken in a goods setting. Further study is required to confirm the model and test it in other service settings. Introduction A definitive measure of customer value has remained elusive to marketers despite considerable discussion of the concept over many years. Value is a very broad term and has been used in varying ways depending on the discipline. Conceptualisations of customer value include notions such as: customer value is inherent in the use of a product, is perceived by customers alone and involves a trade-off between what is received and what is sacrificed (Woodruff 1997). Zeithaml (1988, p14) describes value as the customer s overall assessment of the utility of a product based on perceptions of what is received and what is given. In the social sciences, human values have been found to have broad existence (Rokeach 1973). Of interest is whether customer value has similar universal appeal. In particular the difference between goods and services is one area where significant differences have been found in the nature of consumer behaviour and the consumer evaluation process (Fisk, Brown & Bitner 1993; Bateson 1979; Lovelock, Patterson & Walker 1998). Yet if values are overarching concepts as suggested in the literature representing a consumer s overall assessment of a product (Zeithaml 1988), then it could be expected that consumers would use similar consumption values in their evaluation of purchases whether they be a good or a service. In this study, a scale of perceived value developed for use with products is modified and applied to a service setting in order to ascertain whether similar values exist.

2 The Study A generic scale of perceived customer value developed by Sweeney, Soutar and Johnson (1997) was reviewed and items in four of the five values were considered applicable for use in a service setting. The items in the fifth value, functional performance, however were not considered appropriate for a service. In-depth interviews were conducted with people who regularly use airlines for travel to generate items which would be substitutes for the original items and which would be appropriate in an airline setting. These were evaluated by two independent academics who categorised all the items generated into the five factors identified by Sweeney, Soutar and Johnson (1997). With the exception of functional-performance and functional-versatile the responses for the factors were judged to be identical or did not add to the existing items. In the case of functional performance, seven items replaced the original items, while two additional items were included for functional-versatile. This made a total of thirty-three items. The scale was pre-tested within a university setting among volunteers who had flown on an airline in the past 6 months. The sample size was small, however it did not highlight any inconsistencies in the questionnaire or scale items. To test the items, a survey was mailed to 1000 people who had been randomly selected from the passenger list of an international air carrier who operated between Australia and New Zealand. The passenger list was developed to select respondents who had flown in the past 12 months. A total of 260 useable responses were obtained, giving a response rate of 26%. Respondents were mainly female, (62%), travelled on a New Zealand (66%) or Australian (32%) passport, and had undertaken 2 or more international flights in the past two years. The main purpose of travel was for holidays and/or visiting friends or relatives. Only 10% indicated they travelled for business purposes. This is understandable as the airline s primary target was the holiday and discount markets. The majority of respondents were accompanied when they flew, however 43% travelled alone. Just over half indicated they were in full-time work while 16% indicated they were in parttime (less than 30 hours per week) employment. The median age was 45 and the median income was $350 per week. Results An analysis of the correlation matrix revealed correlation values ranging mainly between.3 and 7.5. One item flew to where I wanted to go had low correlation values with all other items and was removed from the analysis. Inspection of the communalities revealed ranges at.5 and above, indicating the data would be appropriate for factor analysis (Mitchell 1994). The results from Bartlett s test of sphericity, (d.f. 496, p<0) and the Kaiser-Meyer-Olkin measure of sampling adequacy of.952 also indicate that the data would be suitable for factor analysis.

3 The data was factor analysed using the principal components method and a promax (oblique) rotation for 3 factors. An oblique rotation was chosen as it is considered to be more theoretically correct since factors may not necessarily be orthogonal in nature (Loehlin, 1992). This is despite oblique rotations being subject to possible defects (Loehlin, 1992). However, the promax rotation is a two-stage procedure that starts with an orthogonal rotation and is extended to an oblique solution (Jackson, 1991). Only variables with factor loadings greater than 0.5 were considered. The selection of factor numbers was determined by comparing the eigenvalues from the data set with one developed using a corresponding data set developed from random values (Montanelli & Humphries 1976). Rather than specifying the eigenvalues at 1 as per the Kaiser-Guttman limit, the number of factors was identified as being those to be where the eigenvalues from the factor analysis of the data intersected the eigenvalues derived from the factor analysis of the random data set. This value was considered to be the noise level in the data. The intersection occurred on the third component with an eigenvalue of 1.4 for the data thereby suggesting a three factor solution. The resulting three factors were similar to three factors identified by Sweeney, Soutar and Johnson (1997); emotional, social & functional. The first factor consisted of a mix of items from Sweeney, Soutar and Johnson's emotional and functional (price) factors, although these were interspersed with a number of items from the functional (performance) factor. The items in the first factor appear to relate to emotional value, and are consistent with the emotional value identified by Sweeney, Soutar and Johnson (1997) ( the utility derived from the feelings or affective states that a product generates ). A number of items in the factor were derived from the functional - price factor, one possible explanation could be that in the context of an airline setting the price items appear to fit in with the definition. For example provided good service for the price and offered value for money are consistent with feelings or affective states. Likewise was safe, was reliable and provided friendly on board services also fit in with feelings or affective states. Thus it appears for the airline setting studied, price was construed in a similar vein to items eliciting emotional responses. The second factor consisted of items predominantly from Sweeney, Soutar and Johnson's second factor Social - acceptable. All but one of the items in the study loaded on this factor, although one was below the 0.5 level and removed. The factor also included two items from the original emotional factor scale. The third factor had four items, two based on Sweeney, Soutar and Johnson's Functional - versatility factor and two from the Functional - performance factor. The results from the analysis are presented in Table 1. The reliabilities of the factors and the scale factor scores for the items are shown in Table 1. The reliabilities show Cronbach alpha s of.95,.94 and.83 for the three factors respectively.

4 Discussion The results suggest there were three factors in operation for the services in this study, a discount airline; emotional, social and functional. The emotional function included items relating to price and functionality which suggests that because of the inseparabilty of the service, and the intangible nature of the service, people saw these items relating to emotional factors. This is understandable when you consider the purchase of a good where the consumer is more likely to focus on the performance and function of the item because it is there clearly able to be assessed. Further, because services are harder to evaluate functionally, any functional aspect reverts to an emotional value as it is believed functionality leads to emotional satisfaction (Young & Feigen 1975). This suggests that marketers of services need to consider the importance of emotional value for the customer. This paper investigated customer value in the service setting of an airline. Three factors were identified; emotional, social and functional. Further studies using another sample would be needed to confirm the model. Other research could also investigate customer value in other service settings and consider comparisons between goods and services using the same sample.

5 Table 1: Factor loadings for three factor solution 1 Emotional 2 Social 3 Functional Factor in SSJ's scale* 1 Offered value for money Provided good service for the price One I would want to use again Was one that I enjoyed Was one that I felt good about using Was reasonably priced Was one that I felt comfortable about using Was likely to give me a good return for my money Made me feel good using it Was safe na 11 Was one I felt good about buying Provided friendly on board services na 13 Was reliable na 14 Would gain me social approval Would improve the way I am perceived by others Would help me feel acceptable in front of others Would send a positive social signal Would fit in with my friends Would make a good impression on other people Gave me a feeling of well being Gave me pleasure Was flexible about changing ticketing Allowed me to do a range of things Provided convenient transport connections na 25 Provided convenient departure times na Cronbach alpha *Factors identified by SSJ: 1=Emotional, 2=Social-acceptance, 3=Functional-Price, 4=Functional- Performance, 5=Functional-Versatile. na= not included in original scale - this item replaced an item in SSJ's 4th factor Extraction Method: Principal Component Analysis. Rotation Method: Promax with Kaiser Normalization.

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