Enhancing Customer Relationships with Retail Service Brands: The Role of Customer Engagement

Transcription

1 Enhancing Customer Relationships with Retail Service Brands: The Role of Customer Engagement This manuscript has been accepted for publication in the Journal of Service Management Kevin Kam Fung So a,, Ceridwyn King b, and Beverley A. Sparks c, and Ying Wang c a College of Hospitality, Retail and Sport Management University of South Carolina Columbia, SC 29208, USA b Fox School of Business Temple University 1810 North 13th Street Speakman Hall 306 Philadelphia, PA 19122, USA C Griffith Business School, Griffith University Parklands Drive, Southport, QLD, 4215, Australia * Corresponding author. Tel.: address: kevinso@hrsm.sc.edu (k.so) 1

2 Abstract Purpose The concept of customer engagement has emerged as an important indicator of customer- brand relationship strength. However, limited research exists to provide insight into how customer engagement enhances the effectiveness of building such a relationship in retail services. This study extends the current understanding of customer engagement through examination of its role in the development of customer-brand relationship quality. Design/methodology/approach To test the hypotheses contained in the proposed conceptual model, we used a quantitative method that included a survey questionnaire to measure customers perceptions with respect to the constructs of interest. Specifically, two studies were conducted in Australia. Study 1 was intended to empirically test the theoretical relationships among the constructs, while Study 2 aimed to replicate the proposed model with a different sample to enhance external validity. Findings In two separate studies, the results of a structural model show that the emerging concept of customer engagement plays a significant role in building customer-brand relationship quality and, subsequently, customer loyalty toward the retail brand. Research limitations/implications This study focuses on retail store brands only and used a cross-sectional design, which does not involve examination of cause and effect relationships. Practical implications From a practical point of view, the findings suggest that marketers should actively embrace strategies to foster customer engagement to enhance brand relationship quality, and ultimately, forming a loyal customer-brand relationship. Originality/value The study makes an original contribution to the retail services literature by empirically demonstrating the relevance of customer engagement in both customer relationship management as well as brand management. Key Words: customer engagement, brand relationship quality, brand loyalty, involvement, service management, and retail. 2

3 Technology has dramatically changed the landscape of retail services. In particular, the web, and what is known as Social Media or Web 2.0, have given consumers much more control, information and power over the market process, presenting important challenges to retailers (Constantinides et al., 2009). Conversely, Web 2.0 features such as interactivity and user generated content advance the potential for retailer-to-customer interactions (Rose et al., 2012), providing increased opportunities for retailers to engage with their customers outside of the service encounter through non-transactional customer activities such as writing reviews, joining a Facebook community, blogging, or similar activities collectively termed customer engagement (CE) behavior (van Doorn et al., 2010; Verhoef et al., 2010). The significance of these beyondpurchase interactions is highlighted by Verhoef et al. (2009) who posit that customer experience encompasses the total experience, including the search, purchase, consumption, and after-sale phases of the experience. Industry commentaries suggest that by implementing a social media engagement solution, retail organizations can gain insight into their company and brand, react to negative comments, and uncover the key influencers who can make or break the retail brand in the social realm (Salesforce.com, 2011). Recent academic research also supports the importance of enhancing CE. For example, Sashi (2012) argues that CE expands the role of consumers by including them in the value adding process as co-creators of value, which enhances need satisfaction of both customers as well as retailers. Wirtz et al. (2013) suggest that when delighted or loyal customers share their brand enthusiasm or delight in interactions with others via social networks, they become brand 3

4 advocates, laying a strong foundation for an enduring relationship with the retail brand. Recent research indicates that CE in social media enhances self-brand connection and brand usage intent (Hollebeek et al., 2014). Customer engagement has been found to enhance consumers evaluation and trust of a service brand, as well as their subsequent loyalty (So, King, Sparks, et al., 2014). Companies increasingly opt for co-creation by engaging customers in new product and service development processes (Verleye, 2015), as well as other forms of online interactions. Furthermore, according to the Marketing Science Institute (2010), these non-transactional activities have been increasingly seen as a route for creating, building, and enhancing customerfirm relationships, described as the expanded domain of relationship marketing (Vivek et al., 2012, p. 129). Despite these significant benefits, to date, no empirical research has been conducted to examine the role of CE in enhancing the quality of the customer-brand relationship. This is surprising considering that the quality of such a relationship has been commonly recognized as the central construct in the relationship marketing literature (Smith, 1998, p. 4). Cultivating high quality customer-brand relationships is of paramount importance, particularly for retail businesses. This is because in the context of services, customers often face considerable uncertainty, leading to greater likelihood of service failures and negative outcomes (Crosby et al., 1990). Enhanced relationship quality means that the customer is able to rely on the exchange partner s integrity and future performance because the level of past performance has consistently been satisfactory 4

5 (Wong and Sohal, 2002; Crosby et al., 1990), thus emphasizing the significance of developing quality relationships between exchange partners. In addition to customer derived benefits, the importance of developing quality relationships with customers has never been more important in retailing. The retail sector landscape has changed with a growing, albeit at a slowing pace, presence of online retailing (Suryandari and Paswan, 2014). With the emergence of this new channel, customer relationship maintenance and loyalty has the potential to become problematic, given that after viewing at a store, customers have the option to buy online, often at a cheaper price. According to Balakrishnan et al. (2014, p. 1129) recent business press refers to this browse-and-switch behavior as showrooming, and attributes to it the declining profits of brick-and-mortar retailers. With perceived value [price] being a determinant for customer use of online retailers (Suryandari and Paswan, 2014) traditional retailers have the option to consider price matching, in addition to leveraging their advantage of decreasing customer uncertainty due to product tangibility and purchase immediacy (Balakrishnan et al., 2014). In such scenarios, however, actions of both retailers and e-tailers (online retailers) seek to only amplify browsing and switching behavior, thereby intensifying competition across both channels. While Balakrishnan et al. (2014) conclude that showrooming is a prevalent consumer behavior that warrants both retailer and e-tailer attention from a pricing perspective, we argue that strategically, efforts that discourage such a behavior is both more profitable and sustainable. From this perspective, the significance of enhancing relationship quality, and thus this study, is illuminated. 5

6 Based on the wide spread adoption of CE initiatives to maintain and build customer connections, it is apparent that organizations believe there is value in CE facilitating relationships with customers. However, practitioners and academics alike lack sufficient understanding of how CE contributes to the process of enhancing customer-brand relationships. Such a wide spread acceptance and investment deserves empirical validation for the benefit of both academic theory development as well as practitioner application. Therefore, to address this gap, this study, building on the work of Brodie et al. (2011), Hollebeek (2011), So, King and Sparks (2014), So, King, Sparks, et al. (2014), van Doorn et al. (2010), and Vivek et al. (2012), seeks to understand how CE enhances the quality of customer relationships with retail brands. Through an empirical assessment of the proposed relationships, Study 1 and Study 2 contribute to the limited empirical research on CE in the retail services settings. The findings provide evidence of the significance of beyond-purchase psychological and behavioral connections (i.e., CE) with a brand in establishing customer-brand relationship quality. The remainder of this paper is structured as follows. The ensuing section presents a review of the relevant literature on CE and its potential conceptual links to several key factors underlying the development of quality customer-brand relationships, leading to the proposed research hypotheses. Next, a description of the adopted research procedures and an assessment of both the measurement model and an examination of the structural relationships within the proposed 6

7 conceptual model are presented. The final section discusses the research findings along with limitations and directions for future research. Literature Review Customer Engagement The conceptual foundations of the emerging concept of CE are rooted in theory addressing marketing relationships and interactive service experiences (Brodie et al., 2011). In particular, the service-dominant logic (Vargo and Lusch, 2008), which promotes marketing relationships characterized by customers interactive, co-creative experiences with other stakeholders such as firms and other customers, is core to the emergence of the CE concept. In consideration of this, discussions of CE in the literature have emphasized a strong behavioral focus. For example, the Marketing Science Institute (2014) has identified CE as one of the key priority areas for , describing the concept as customers behavioral manifestation toward a brand or firm beyond purchase, which results from motivational drivers including: word-of-mouth activity, recommendations, customer-to-customer interactions, blogging, writing reviews, and other similar activities (Marketing Science Institute, 2010, p. 4). Similarly, van Doorn et al. (2010) posit that CE is a behavioral construct that goes beyond transactions, and may be specifically defined as a customer s behavioral manifestations that have a brand or firm focus beyond purchase, resulting from motivational drivers, a view shared by others in the field (e.g., Bijmolt et al., 2010; Verhoef et al., 2010). 7

8 More recent work suggests that the conceptualization of CE needs to consider more than a pure action focus, incorporating both psychological and behavioral dimensions (e.g., Patterson et al., 2006; So, King and Sparks, 2014; Hollebeek, 2011; Hollebeek, 2009; Vivek, 2009; Brodie et al., 2011). In particular, to extend the conceptual domain of CE, So, King and Sparks (2014) argue that participation in CE activities does not necessarily mean true CE with a brand. For example, a customer may engage in a brand discussion forum for various reasons, such as the need for product information or reduction of perceived risks (Brodie et al., 2013), rather than from being engaged or connected to the brand. True CE, therefore, is believed to require an enduring psychological connection to the brand, in addition to behavioral participation. Therefore, a multidimensional approach is suggested to capture the full conceptual domain of the CE concept. While several multidimensional conceptualizations of CE have been proposed (e.g., Brodie et al., 2013; Hollebeek, 2011; van Doorn et al., 2010; So, King and Sparks, 2014), this study adopts the conceptualization proposed by So, King and Sparks (2014). Defining CE as a customers personal connection to a brand as manifested in cognitive, affective and behavioral responses outside of the purchase, So, King and Sparks (2014) conceptualized CE as a higher-order construct comprising five first-order factors, including enthusiasm (or vigor), attention, absorption, interaction, and identification. Enthusiasm represents an individual s strong level of excitement and interest regarding the focus of engagement, such as a brand, whereas attention describes a consumer s attentiveness and focus on the brand. In addition, absorption is characterized by being so fully concentrated and engrossed that time passes quickly and one has 8

9 difficulty detaching from his/her role while interaction refers to a customer s online and offline participation with the brand or other customers outside of purchase. Finally, identification is an individual s perceived oneness with or belongingness to a brand. The five underlying dimensions, collectively, reflect the psychological and behavioral aspects of CE. In seeking to understand how CE contributes to the development of customer-brand relationships, this study, extending the conceptual work of Hollebeek (2011), specifically examines the relationships between CE and several customer-brand relationship factors including involvement, brand relationship quality, and brand loyalty. These conceptual links are proposed on the basis of relationship marketing literature that embraces the notion of CE (Prahalad and Ramaswamy, 2004; Morgan and Hunt, 1994; Vargo and Lusch, 2008; Vargo and Lusch, 2004; Prahalad and Ramaswamy, 2003), which is described as the expanded domain of relationship marketing (Vivek et al., 2012, p. 129). While recent reviews and empirical research have suggested that CE is related to many other established consumer concepts (cf. So, King, Sparks, et al., 2014; Hollebeek, 2011; van Doorn et al., 2010; So, King and Sparks, 2014), the three constructs were selected due primarily to their critical relevance to the CE concept and brand relationship management as suggested by prior research. Specifically, brand relationship quality has been described as representing the overall nature of the relationship between firms and customers (Hennig-Thurau, 2000; Hennig-Thurau et al., 2002), whereas brand loyalty has been recognized as the ultimate goal of the marketing activities of many companies (Aaker, 1996; Dick and Basu, 1994). Furthermore, the link between involvement and CE has been consistently 9

10 described in the literature (Hollebeek, 2011; So, King and Sparks, 2014). However, this relationship is yet to be empirically examined. It is for these reasons that these three concepts, together with CE, form the foundation for this study. The ensuing section discusses each of these concepts. Involvement One of the most conceptually relevant concepts to CE is involvement (Vivek, 2009) based on their similarities in motivating the individual toward a specific object (e.g., a brand) (Hollebeek, 2009). Within the marketing literature, involvement is most frequently defined as the perceived personal relevance or importance of the object (i.e., product or brand) (Mittal, 1995; Bloch and Richins, 1983; Zaichkowsky, 1985). While researchers argue that involvement is an important antecedent of CE (Hollebeek, 2011; Vivek et al., 2012), limited empirical support for such a relationship is found in prior research. However, parallel understanding can be established from related marketing research. For example, research has found that involvement is a motivational state that leads individuals to devote more attention on advertisements, expend greater cognitive and physical effort during comprehension, focus greater attention on product-related information in the advertisements, and engage in more elaborative comprehension of product information (Celsi and Olson, 1988). This involvement potentially creates a sense of ongoing psychological commitment to a brand in respect of the customer s thoughts, feelings, and his/her subsequent behaviors (Swinyard, 1993; Gordon et al., 1998; Bowden, 2009). More recently, research indicates that involved customers tend to perceive greater gains from ongoing communications 10

11 and interactions with a firm and, therefore, are more receptive to relationship marketing programs and activities (Ashley et al., 2011). Researchers suggest that a level of involvement with respect to a focal brand is required prior to the emergence of specific customer brand engagement levels, thus involvement is considered an antecedent of CE (Hollebeek, 2011). Therefore, we propose the following hypothesis, H1. Involvement is positively related to customer engagement. Brand Relationship Quality Relationship quality is defined as a customer s perceptions of how well the relationship fulfils the expectations, predictions, goals, and desires the customer has concerning the relationship (Jarvelin and Lehtinen, 1996; Wong and Sohal, 2002). While the conceptualization and measurement of relationship quality differs from writer to writer (see Athanasopoulou, 2009, for a review), Crosby et al. (1990) propose a commonly accepted approach, suggesting that relationship quality is a higher-order construct composed of two dimensions: trust and satisfaction, a conceptualization that has been widely used in subsequent marketing studies (e.g., Bejou et al., 1996; Boles et al., 2000; Lagace et al., 1991; Lin and Ding, 2005; Liu et al., 2011). It is on this basis that the two dimensional approach to relationship quality was adopted in this study. Brand Trust 11

12 Trust is defined as a willingness to rely on an exchange partner in whom one has confidence (Moorman et al., 1992, p. 315). According to Ganesan and Hess (1997), trust enhances an individual s commitment to a relationship because it reduces the perceived risks associated with opportunistic behaviors by the partner, reduces the transaction costs in an exchange relationship, and increases the confidence of the partner that short-term inequities will be resolved over a long period. Furthermore, trust involves a calculative process grounded on the ability of an object or party (e.g., a brand) to continue to meet its obligations and on an estimation of the costs versus rewards of staying in the relationship (Doney and Cannon, 1997, p. 37). In the context of brand management, trust includes an inference that the brand will act benevolently in the best interests of the customer based on shared goals and values (Doney and Cannon, 1997; Chaudhuri and Holbrook, 2001), thus motivate exchange partners to continue the committed relationship. Satisfaction Satisfaction is an important dimension of relationship quality. Satisfaction is defined as the degree to which a consumer believes that possession or use of a service evokes positive feelings (Rust and Oliver, 1994). The extent to which satisfaction is obtained by the customer signals the health of the exchange relationship (Moliner et al., 2007). A dissatisfied customer cannot be expected to have a good relationship with the firm because the satisfaction of customer needs is at the forefront of the relationship between exchange partners (Storbacka et al., 1994; Roberts et al., 2003). The relationship quality literature also holds that customers with high-quality relationships are more satisfied with the roles assumed, as well as performed, by the individual 12

13 parties (Crosby et al., 1990; Dorsch et al., 1998), therefore emphasizing the relevance of customer satisfaction in the conceptualization of brand relationship quality in this study. Brand Relationship Quality and Customer Engagement Brand relationship quality is also thought to be conceptually related to CE. Although scholars suggest that relationship quality indicators such as trust (Brodie et al., 2011) and satisfaction (van Doorn et al., 2010) can be potential antecedents of CE, the literature appears to support that CE enhances the relationship quality between a brand and a customer. For example, marketing researchers maintain that positive interactions in extra-exchange relationship interactions enhance trust levels in the exchange relationship between partners (Ganesan, 1994; Lambe et al., 2000). The interactivity characterized by CE also facilitates the process of building enduring intimate relationships that engender trust and commitment between the consumer and the seller or brand, creating emotional bonds in relationship exchanges with them (Sashi, 2012). In addition, in proposing a conceptual model of CE, Hollebeek (2009) articulates that CE acts as a direct antecedent of relationship quality. Other investigators also suggest that CE leads to favorable attitudes toward a product, company, or brand, such as trust and affective commitment (Vivek et al., 2012). More recently, scholars found that engaged customers of a virtual brand community tend to exhibit positive relationship quality indicators such as enhanced satisfaction, trust, and commitment (Brodie et al., 2013). On the basis of the preceding discussion, higher engagement is expected to lead to stronger brand relationship quality. Therefore, the following hypothesis is advanced: 13

14 H2. Customer engagement is positively related to brand relationship quality. Brand Relationship Quality and Involvement While brand relationship quality is proposed to be influenced by CE, it can also be predicted by consumer involvement. Early conceptual work in relationship marketing describes that high customer involvement in the product or brand provides a strong basis for extending and broadening the customer-supplier relationship (Christy et al., 1996). Supporting this assertion, empirical research found that when buyers are highly involved they are more likely to value an ongoing relationship (Gordon et al., 1998), develop intrinsic proneness to engage in retail relationships (Odekerken-Schröder et al., 2003), and express greater interest in engaging in relationships with service providers (Varki and Wong, 2003). Therefore, we propose the following hypothesis: H3. Involvement is positively related to brand relationship quality. Brand Relationship Quality and Brand Loyalty Encapsulating the strength of a customer-brand relationship, relationship quality has been found to lead to a range of relational benefits such as customer retention (Hennig-Thurau and Klee, 1997; Hennig-Thurau, 2000), intention to stay in supplier customer relationships (de Ruyter et al., 2001), decreased propensity to leave the relationship (Ulaga and Eggert, 2006), relationship 14

15 continuity (Kim and Cha, 2002), and brand loyalty (Valta, 2013; Roberts et al., 2003). Furthermore, research also suggests that relationship quality elements such as trust and satisfaction are main antecedents of loyalty (Moliner, 2009). On this basis we propose that: H4. Brand relationship quality is positively related to brand loyalty. Customer Engagement and Brand Loyalty Brand loyalty represents a customer s deeply held commitment to rebuy or repatronize a preferred brand consistently in the future (Oliver, 1999). As such, brand loyalty is a purchase related outcome of an enhanced customer-brand relationship. In contrast, CE, comprising cognitive, affective, and behavioral components, summarizes customers beyond purchase connections with the brand, rather than an exchange relationship (So, King and Sparks, 2014; Vivek et al., 2012). Marketing scholars argue that CE may enhance loyalty and purchase decisions (e.g., Hollebeek, 2009; Patterson et al., 2006) through the combined effect of an enduring psychological connection as well as interactive brand experiences beyond purchase. CE with a brand influences important aspects of consumer brand knowledge, brand perceptions, and brand attitudes, and hence brand loyalty (Sprott et al., 2009). Conceptual work proposes that, given its ability to engender more favorable company or brand attitudes, CE may consequently make customers feel more loyalty to the entity (Vivek et al., 2012). Recent research also suggests that Facebook fan page engagement positively affects brand loyalty components including brand commitment, brand word of mouth communications, and brand purchase (Jahn 15

16 and Kunz, 2012). Similarly, empirical research shows that CE affects customers loyalty toward a tourism brand (So, King, Sparks, et al., 2014). On this basis, we propose that: H5. Customer engagement is positively related to brand loyalty. As evidenced in the above discussion, involvement is proposed to influence a customer s level of engagement with the brand, which in turn leads to enhanced brand relationship quality. In addition, while CE contributes directly to the formation of a loyal relationship, it also exerts an indirect effect on loyalty though brand relationship quality. On this basis, we propose the following two hypotheses for this study, H6. Customer engagement mediates the effect of involvement on brand relationship quality. H7. Brand relationship quality mediates the effect of customer engagement on brand loyalty. Methods and Results Data Collection To test the research hypotheses, we used a quantitative method that included a survey questionnaire to measure customers perceptions with respect to the constructs of interest. Specifically, two studies were conducted in Australia to evaluate the proposed conceptual model. 16

17 Study 1 was intended to empirically test the theoretical relationships among the constructs, while Study 2 aimed to replicate the proposed model with a different sample to enhance external validity. Study 1: General Consumer Product Procedure To provide an initial evaluation of the model, Study 1 investigated customer relationships with general consumer product brands. To access potential respondents, we drew a systematic random sample of 1,000 potential respondents, with equal representation of males and females, from a privacy law-compliant online consumer panel consisting of more than 500,000 members. Each person received an invitation with a click-through survey link. Upon agreement of participation, we asked respondents to indicate a general consumer product brand (such as Apple, Nike, BMW, Canon, etc.) that they find engaging, that they feel involved with, that they enjoy. They then indicated their responses to the trust, CE and brand loyalty items on a 7-point Likert scale (1 = strongly disagree, 7 = strongly agree) and their responses to involvement and satisfaction on a 7-point semantic differential scale. In a two-week data collection period, 202 respondents completed the survey, yielding a response rate of approximately 20%. We eliminated 51 cases owing to incomplete responses, leaving 151 usable cases. The sample size was in line with the level recommended in the literature for 17

18 structural equation models with similar complexity (Fabrigar et al., 2010; Bagozzi and Yi, 2012; Hair et al., 2006) and was therefore considered acceptable. Survey Instrument We developed the survey instrument using measurement items generated from the literature. The use of existing scales ensured the reliability and validity of the survey instrument. Specifically, five items, originating from Zaichkowsky s (1985) Personal Involvement Inventory (PII), were adapted from Mittal s (1995) reduced PII scale to measure customers involvement with the brand, while the 25 item scale of CE was adopted from So, King and Sparks (2014) to measure the five underlying dimensions of CE. In addition, four items were adapted from Spreng et al. (1996) to measure customers satisfaction with the brand. To measure the construct of trust, four items developed by Chaudhuri and Holbrook (2001) were adapted for this study. Finally, four items capturing both attitudinal and behavioral loyalty were adapted from Chaudhuri and Holbrook (2001) to measure the brand loyalty construct. Item wording was slightly modified to suit the context of this study. Results Of the 151 respondents, 66.9% were female and 66.2% were between age 30 and 60, with 24.1% over age 60, and 9.7% under 30. In terms of annual income, 28.2% of the sample earned under AUD$20,000, 40.1% earned between AUD$20,000 and AUD$50,000, and 31.7% earned over AUD$50,

19 Following Armstrong and Overton (1977), we evaluated non-response bias by comparing early and late respondents on demographic variables and scale measures. The results indicate no significant differences between early (top 10%) and late (bottom 10%) respondents in terms of respondent characteristics and all the measured items, suggesting non-response bias was not evident. We then analyzed the research data through structural equation modeling (SEM) following the typical two-step procedure (Anderson and Gerbing, 1988), with an initial examination of the measurement model via confirmatory factor analysis (CFA) followed by testing the hypothesized structural relationships among the four key constructs contained in the conceptual model. Measurement Model First-order CFA As the literature review suggests, CE (So, King and Sparks, 2014) and brand relationship quality (Crosby et al., 1990) are second-order reflective constructs. Analysis of the measurement model with higher-order factor structures requires the use of hierarchical (or higher-order) CFA (Byrne, 2009; Kline, 2011). In conducting such an analysis, evidence of a well-defined first-order factor measurement model is a requirement for testing higher-order structures, given that higher-order models are based on the first-order models and the fit of the first-order model defines the upper limit for the fit of subsequent higher-order models (Marsh, 1991). Therefore, we first estimated a first-order measurement model on all scales used in this study, followed by a second-order CFA to assess the proposed second-order factor structure of CE and brand relationship quality. 19

20 To assess the measurement model, we first conducted a CFA on the sample data (n = 151) using AMOS 21 with maximum likelihood estimation. As this estimation method makes the assumption of multivariate normality of the data, such an assumption needs to be evaluated prior to interpreting the analysis results (Byrne, 2009; Kline, 2011). The results show that the critical ratio for Mardia s (1970) normalized estimate of multivariate kurtosis is greater than 5 (Bentler, 2005), indicating that the data do not follow a multivariate normal distribution. Therefore, we used bootstrapping to produce parameter estimates for subsequent analysis (Byrne, 2009; Kline, 2011). The results of the first-order CFA indicated a good fit for the sample data, with χ 2 = , df = 782, χ 2 /df = 1.80, p <.05, Comparative Fit Index (CFI) =.92, Tucker-Lewis Index (TLI) =.92, Standardized Root Mean Square Residual (SRMR) =.0579, and Root Mean Square Error of Approximation (RMSEA) =.0709, as Table 1 shows. Insert Table 1 About Here Convergent validity is evident because the critical ratios for all standardized factor loadings were well above 2.57 (Netemeyer et al., 2003) and the standardized factor loadings for all items achieved the suggested threshold of.70 (Hair et al., 2006). Furthermore, the square root of the average variance extracted (AVE) for each factor was greater than its correlations with other factors, supporting discriminant validity for all pairs of constructs (Fornell and Larcker, 1981), as Table 2 shows. Insert Table 2 About Here Table 1 indicates that all composite reliability estimates exceeded the recommended level of.70 (Hair et al., 2006), and the AVEs of all constructs were well above the.50 threshold (Fornell and 20

21 Larcker, 1981), thus demonstrating construct reliability. Having examined the performance of the first-order measurement model, the next analysis tested the second-order factor structure of CE and brand relationship quality. Measurement Model Second-order CFA A hierarchical CFA with involvement, CE, brand relationship quality, and brand loyalty being modelled as correlated constructs achieved a good fit for the sample data, with χ 2 = , df = 805, χ 2 /df = 1.81, p <.05, CFI =.91, TLI =.91, SRMR =.0774, and RMSEA = Having established the construct validity and reliability of involvement and brand loyalty in the firstorder CFA, this analysis focuses primarily on the evaluation of the two second-order factors, namely CE and brand relationship quality. The results show the five CE dimensions exhibited the strong and statistically significant (p <.001) standardized factor loadings on the second-order construct of CE (i.e., identification =.75, enthusiasm =.96, attention =.82, absorption =.59, and interaction =.59). Similar results were also produced for the two brand relationship quality dimensions (trust =.93 and satisfaction =.88), suggesting that they were significant and strong indicators of the hypothesized secondorder factor (p <.001). Furthermore, the AVEs of both CE and brand relationship quality well exceeded.50 (Hair et al., 2006), therefore supporting convergent validity. Discriminant validity of the two second-order factors and two other first-order factors (i.e., involvement and brand 21

22 loyalty) was supported as the square root of the AVE for each factor was greater than its correlations with other factors (Fornell and Larcker, 1981). Common Method Variance To examine common method variance, we conducted a confirmatory factor analysis (CFA) with all 42 items loading onto a single common factor in order to test whether a single factor can account for all of the variance in the data (e.g., Baldauf et al., 2009; Mossholder et al., 1998). We compared the results of the common factor model with the CFA results of the proposed measurement model. A chi-square difference test shows that the proposed measurement model, which includes nine factors, fits significantly better than the common factor model (Δ χ 2 = , df = 37, p <.0001). The results of the analysis indicate that common method variance was not a major concern in this study. Structural Model To test the hypotheses, a structural model was estimated using maximum likelihood estimation. The results show that goodness-of-fit statistics were overall above the satisfactory level, with χ 2 = , df = 806, χ 2 /df = 1.81, p <.05, CFI =.92, TLI =.91, SRMR =.0774, and RMSEA =.073, and, therefore, indicated a good fit for the hypothesized model. The bootstrap critical ratios of the structural paths show that all the five hypothesized relationships were supported. The results indicated that involvement (H1 supported: β =.53, t = 5.25, p <.001) significantly predicts CE, explaining 28.4% of the variance in CE. Both involvement (H3 supported: β =.49, t = 4.83, p <.001) and CE (H2 supported: β =.35, t = 2.89, p <.001) are significant predictors of 22

23 brand relationship quality, explaining 55.2% of its variance. In a similar vein, CE (H5 supported: β =.51, t = 4.08, p <.001) and brand relationship quality (H4 supported: β =.38, t = 3.50, p <.001) significantly predict brand loyalty, collectively accounting for 65.2% of the variance in the outcome variable. Testing for Mediation To test the mediating effects of CE and customer-brand relationship quality, we used bootstrapping to obtain the confidence intervals of indirect effects (Efron and Tibshirani, 1994). The results of the bootstrap analysis based on 5,000 samples indicate that CE significantly mediates the relationships between involvement and customer brand relationship quality (95% confidence interval for indirect effect of involvement [.06,.20]). Similarly, the bootstrap results show that customer-brand relationship quality mediates the relationship between CE and brand loyalty (95% confidence interval for indirect effect of CE [.06,.25]). Therefore, both H6 and H7 were supported. Study 2: Retail Store Brands Procedure Following the same data collection procedure, Study 2 was conducted in the context of store brands. The prevalence of online retail has created significant challenges for retail store brands to compete, making their CE strategies even more important and therefore emphasizing the relevance of this context for the current study. Upon agreement to participate in the study, 23

24 respondents were asked to select or indicate a retail brand that they frequently use and then respond to the questions measuring the same constructs examined in Study 1. Common brand names indicated by respondents included grocery and department store brands. We used the same sample frame as Study 1. Of the 1000 invitation s, 281 respondents completed the survey, resulting in a response rate of 28%. We removed 22 cases due to incomplete responses, leaving 259 usable cases. The sample size was again in line with the complexity of the proposed model (Fabrigar et al., 2010; Bagozzi and Yi, 2012; Hair et al., 2006). Results Within the sample, 68.5% were female and 49.6% were between age 40 and 60, with 30.3% over age 60, and 20.1% under 40. With respect to income level, 27.3% of the sample earned under AUD$20,000, 39.1% earned between AUD$20,000 and AUD$50,000, and 33.6% earned over AUD$50,000. The results of a non-response bias analysis again indicate no significant differences between early and late respondents in terms of respondent characteristics and all the measured items suggesting non-response bias is not a major issue. Measurement Model First-order CFA We first estimated a first-order measurement model on all scales used in this study with maximum likelihood estimation. As Mardia s (1970) normalized estimate of multivariate kurtosis is greater than 5, we again used bootstrapping to produce parameter estimates for 24

25 subsequent analysis. The results of the first-order CFA indicated a good fit for the sample data, with χ 2 = , df = 782, χ 2 /df = 2.30, p <.05, CFI =.93, TLI =.92, SRMR =.0593, and RMSEA =.0709, as Table 3 shows. Insert Table 3 About Here Convergent validity is supported as the critical ratios for all standardized factor loadings were well above 2.57 and the standardized factor loadings for all items achieved the suggested threshold of.70. Discriminant validity was evident because the square root of the average variance extracted (AVE) for each factor was greater than its correlations with other factors, as Table 4 indicates. All composite reliability values exceeded.7, and the AVEs of all constructs were well above the.50 threshold, supporting demonstrating construct reliability. Insert Table 4 About Here Measurement model Second-order CFA A hierarchical CFA with involvement, CE, brand relationship quality, and brand loyalty being modeled as correlated constructs achieved a good fit for the sample data, with χ 2 = , df = 805, χ 2 /df = 2.34, p <.05, CFI =.93, TLI =.92, SRMR =.0705, and RMSEA = The results show the five CE dimensions exhibited the strong and statistically significant (p <.001) standardized factor loadings on the second-order construct of CE (i.e., identification =.81, enthusiasm =.95, attention =.84, absorption =.79, and interaction =.72). Similar results were also produced for the two brand relationship quality dimensions (trust =.83 and satisfaction =.81), suggesting that they were significant and strong indicators of the hypothesized second- 25

26 order factor (p <.001). Furthermore, the AVEs of both CE and brand relationship quality well exceeded.50 (Hair et al., 2006), supporting convergent validity. Discriminant validity of the two second-order factors and the two other first-order factors (i.e., involvement and brand loyalty) was supported as the square root of the AVE for each factor was greater than its correlations with other factors. Following the same analytical procedure adopted in Study 1, common method variance was examined and results suggest that common method variance was not a major issue. Structural Model The results of the structural model indicate a good fit for the hypothesized model, with χ 2 = , df = 806, χ 2 /df = 1.81, p <.05, CFI =.92, TLI =.91, SRMR =.0774, and RMSEA =.073. The critical ratios of the structural paths again show that all the five relationships were supported. Testing for Mediation Following the same bootstrap procedure, we tested the mediating effects of CE and customerbrand relationship quality. Consistent with Study 1, CE was found to have a significant mediating effect on the relationship between involvement and brand relationship quality (95% confidence interval for indirect effect of involvement [.10,.26]), with brand relationship quality also mediating the relationship between CE and brand loyalty (95% confidence interval for indirect effect of CE [.07,.27]). Thus, H6 and H7 were supported. Having tested and validated the proposed model, the results for both Study 1 and Study 2 are graphically presented in Figure 1. 26

27 Insert Figure 1 About Here Implications and Conclusion With the increasingly networked business and customer environment, CE is viewed as a necessity for retailers to maintain a connection with customers. In order to gain further knowledge of how CE affects customer-brand relationship development, this study has conceptualized and empirically tested the linkages between CE and several key factors underlying the customer-brand relationship. Supporting the proposition of Hollebeek (2011), the findings of this study suggest that perceived importance of the brand to the customer enhances a customers level of personal connection to a retail brand, as manifested in cognitive, affective, and behavioral responses outside of the purchase situation with the brand (i.e., CE). The relevance of the brand to the customer motivates them to devote time and effort to engaging and interacting with the brand beyond the service encounter, creating a psychological connection between the brand and the customer. The results also show that as the customer s level of engagement with the brand increases, they are more likely to perceive that the relationship with the brand fulfils the expectations, predictions, goals, and desires in relation to the brand (i.e., brand relationship quality), which in turn informs customer commitment to rebuy or repatronize the brand in the future (i.e., brand loyalty). This finding also serves to validate the thinking that CE helps customers form favorable attitudes toward a product, company, or brand (Vivek et al., 2012), creating emotional bonds in relationship exchanges (Sashi, 2012). The positive influence of CE on brand loyalty lends support for the argument that engaged individuals are more likely 27

28 to feel loyal to the entity (Vivek et al., 2012). The findings of this study provide evidence that underlines the important role of CE in developing favorable customer-brand relationships, which is a requirement for establishing retail brand loyalty. Theoretical Implications As a result of conducting this study, a number of important implications for customer-brand management need to be highlighted. From a theoretical perspective, the findings advance the current understanding of CE by positioning the concept in the wider nomological network of relationship marketing. Specifically, building on the conceptual work of Vivek et al. (2012) and Hollebeek (2011), this study examines the relationships proposed based on the extant literature. The fundamental contribution of this study is to provide theoretical justification, as well as empirical evidence, in support of the conceptual links between the emerging concept of CE and the key components in the process of brand relationship quality development. The results of this study demonstrate that CE enhances the customer s relationship quality with the brand, as well as their loyalty, thus emphasizing the relevance and value of incorporating CE in the customerbrand relationship domain. While investigators have traditionally studied customer-brand relationships through levels of brand loyalty (e.g., de Matos and Rossi, 2008; Schau et al., 2009), this approach is based on more direct customer outcomes and involves exchanges in the form of current or future transactions with the brand (Vivek, 2009). With this mind, such a method of gauging loyal 28

29 customer-brand relationships focuses primarily on purchase-specific actions. Although such an approach is effective particularly from an outcome perspective, the proliferation of new media channels and virtual platforms has enabled retailers to connect with their customers beyond the service encounter through meaningful non-transactional interactions. Similarly, the significantly increased usage of social media has also allowed the customer to connect with the retailer, as well as with other customers, resulting in multiple interactive customer-brand relationships. In consideration of the changing landscape in the customer environment, as well as the significant findings of this study, it becomes clearer that there are multiple ways in which firms can maintain and enhance customer relationships outside of the retail experience. These interactions, in turn, influence how a customer thinks and feels about a brand. As such, a purchase-specific approach may not facilitate a full comprehension of the consumer s various connections with the brand beyond the purchase transaction, illuminating the need to investigate CE (Bijmolt et al., 2010), and how that, in turn, affects customer evaluation of the exchange relationship. Therefore, the conceptualization and validation of the theoretical model proposed in this study contributes to the retail, brand management, and relationship marketing literature by further advancing our understanding of the customer-brand relationship that has been generally considered purchasespecific. Practical Implications This research also offers several practical implications for retail management practices. From a practical perspective, this study enhances retail managers understanding of how CE can be 29

30 important for customer-brand relationship management and well as brand loyalty to a retail brand. By proposing and testing the conceptual model, this study provides practitioners with an improved understanding of the relevance of CE to their relationship marketing and brand management strategies. This is particularly important as service firms such as retailers are increasingly incorporating CE related marketing activities, such as maintaining a Facebook page, so as to provide consumer platforms for customer-brand and customer-to-customer interactions. Thus, the findings presented here support the significant value of investment that facilitates and enhances CE activities. Enabled by the advanced online environment, retail managers are encouraged to develop marketing programs and campaigns that foster strong CE beyond the actual purchase, given its influence on both brand relationship quality and brand loyalty. What is considered to be central to practitioners consideration is not whether they should invest in CE or not, but what tactics they should use to trigger, as well as to facilitate, CE, and also how to satisfy customers primary motivations in engaging with the brand in order to sustain such engagement (e.g., gaining most updated product information or satisfying their intrinsic fulfilment need). While previous research provides strong support for the significant role of the service encounter or service experience in building a strong service brand (So and King, 2010), the findings of this study suggest that fostering CE can be an efficient approach to maintaining and enhancing customer relationships, which can complement the delivery of retail offerings that occur during the service encounter. The exponential growth of online retailers has led many brick-and-mortar 30

31 retailers to compete with their virtual counterparts through price matching or discounts. However, the costs of these practices make these tactics less sustainable in the long run because of the different cost structures for a physical store. As such, retail brands are required to foster customer allegiance from a psychological attachment perspective (So, King and Sparks, 2014), potentially discouraging browse-and-switch behavior (i.e., showrooming). Furthermore, in the current business environment, where attracting and retaining customers is seen as a marketing challenge, in addition to offering a service experience that is competitively differentiated in the market, effective adoption of CE strategies could also help retailers maintain stronger customerbrand connections and retain customers as demonstrated in this study. Such consumer outcomes have been found to lead to key financial performance indicators including profitability and revenue growth (Smith and Wright, 2004; Hallowell, 1996). Limitations, future research, and concluding remarks This study contributes to the marketing literature by demonstrating the direct effect of CE on brand relationship quality and the development of brand loyalty. However, an evaluation of the findings must acknowledge several limitations. First, although careful consideration was given to the selection of reliable measures tested in previous research, the use of surveys as the method of data collection may introduce measurement error into the research data. Examination of the reliability and validity of the measured constructs, however, yielded strong evidence indicating sound psychometric properties of the measurement scales, suggesting that measurement error did not seem to be a major issue in this study. The second limitation relates to the data collection 31