THE ROLE OF PERCEIVED PRODUCT QUALITY AND CUSTOMER SATISFCTION ON BRAND LOYALTY AMONG MOBILE PHONE USERS

THE ROLE OF PERCEIVED PRODUCT QUALITY AND CUSTOMER SATISFCTION ON BRAND LOYALTY AMONG MOBILE PHONE USERS Abdul Wahid Bin Mohd Kassim a Oswald Aisat Igau a Abdullah Kaid Al-Swidi b Sulaiman Bin Tahajuddin a Siti Mardalinah Ardian Neezm a a School of Business and Economics, Universiti Malaysia Sabah b OYA Graduate School of Business, University Utara Malaysia Abstract The study is to investigate the relationship between perceived quality and customer satisfaction on brand loyalty. Further the study is also focused on finding out the mediating role of customer satisfaction on the relationship of perceived product quality and brand loyalty. The analysis results reveal that perceived product quality of a specific mobile phone was found to have a significant positive impact on customer satisfaction and loyalty. Overall, the research findings indicate that there is a significant relationship between perceived product quality on brand loyalty. While, customer satisfaction is found to partially mediates the relationship between perceived product quality and brand loyalty. Keywords: perceived product quality, customer satisfaction, brand loyalty, and mobile phones 1.0 Introduction According to Petruzzellis (2010) mobile phone is now perceived as a social necessity and various factors have contributed its extraordinary industry growth rate such as technological change, market demand and the stiff competition. Thus, in today s mobile phone market, businesses are facing wider range of competitors who offer similar product to same customers. One effective strategy can be employed by businesses is maintaining their market share through loyalty. According to Dick and Basu (1994), the majority of marketing activities of a business are related to expansion, preservation or improvement of customer loyalty. In fact, Darsono & Junaedi (2006) and Dick and Basu (1994) believe that the strategy for attaining sustainable competitive advantage begins from customer loyalty. A loyal customer base is an invaluable asset to the business (Darsono & Junaedi, 2006) which helps a business managing switching behaviour and lessens the need to search for new customers (Rowley & Dawes, 2000; Ruyter & Bloemer, 1999). Furthermore, previous research has indicated the relationship between profitability and customer loyalty (Duncan & Elliot 2002; Kish, 2000); consecutively it leads to considerable competitive advantage (Yap et al., 2012). Thus, the study on brand loyalty, customer satisfaction, and perceived product are crucial and valuable for businesses in designing their strategies for superior market share and customer retention. Hence, the objective of this study are to test (1) the relationship between perceived product quality, customer satisfaction and brand loyalty, and (2) whether customer satisfaction mediate the relationship between perceived product quality 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 (Darsono & Junaedi, 2006). Nevertheless, a great deal of the literature on 1

customer loyalty has looked at brand loyalty (Rowley & Dawes, 1999). Consumers often use the terms product and brand interchangeably (Myers, 2003). To distinguish between these terms, Farquhar (1989) and Cobb-Walgren (1995) clarify 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. Brands play an important role in the consumer decision process due to their presence in a huge diversity of products (Duarte & Raposo, 2010). The main purposes of brands are to differentiate sellers offers is a sign of guarantee for consumers. Brands are composed of many different elements, both tangible and intangible (Keller, 2003). While, loyalty or in this instance brand loyalty is defined by Oliver (1999) as a deeply held commitment to repurchase or repatronize a preferred product/service consistently in the future, thereby causing repetitive same-brand purchasing, despite situational influences and marketing efforts having the potential to cause switching behaviour. Aydin et al., (2005) affirm that customers favourable attitude towards a particular product as opposed to its alternative is influenced by the existence of some degree of satisfaction. Previous studies have indicated that customer satisfaction is correlated with loyalty, and satisfaction has been claimed to be a leading factor in determining loyalty (Ehigie, 2006). Further this, Oliver (1999) suggests that ultimate customer loyalty is a function of perceived product superiority or quality, personal fortitude, social bonding, and their synergistic effects. 2.2 Perceived product quality Churchill and Surprenant (1982) defined quality as belief statements or attribute performance. Meanwhile, perceived quality is defined as the consumers judgment about an entity s (service s) overall excellence or superiority (Rowley, 1998; Zeithaml, 1988). Perceived quality is basically the overall customer s perception about the quality of a product. Evidence from prior studies has indicated that there is a positive and direct relationship between perceived quality and customer satisfaction (Ha et al., 2011, 2009; Parasuraman, et al., 1994). Anderson et al., (1994) noted that quality as a significant predictor of customer satisfaction and that this relationship, over the long term, was an important predictor of superior economic returns through repeat sales. Perceived quality of a product or service is related to but not the same as satisfaction resulting from comparison of expectations with a perception of performance (Rowley, 1998). It also suggested that when the perceived quality of a particular product rises, customer satisfaction is expected to increases (Fornell et al., 1996) and ultimately can lead to brand loyalty (Ha et al., 2011, 2009). In short, satisfied customers are more loyal. 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, 1999). Customer satisfaction can also be defined using the transaction-specific perspective or cumulative perspective (Boulding et al., 1993). The transactionspecific 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). Consumers who have different level of perception are also different in their level of satisfaction (Tsiotsou, 2005). Santouridis and Trivellas (2010) believe that customer satisfaction has been considered as a primary factor for customer loyalty. Furthermore, Ha 2

et al., (2011) claimed that satisfaction also can act as a mediator among the relationship of brand loyalty and perceived quality. 3.0 Methodology 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: H 1 : There is a significant relationship between perceived product quality and brand loyalty. H 2 : Perceived product quality has a significant effect on customer satisfaction. H 3 : There is a significant relationship between customer satisfaction and brand loyalty. H 4 : Customer satisfaction will mediate the impact of perceived value on brand loyalty. 4.0 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 from people who were employed in the private and public sector within Kota Kinabalu area. In total, 150 usable questionnaires were collected. Tables 1 present the sample s demographic characteristics and mobile telephony usage profile respectively. As it can be seen in Table 1, 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 used Nokia 3

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 84 56.00 Sony Ericsson 34 22.70 LG 6 4.00 Samsung 3 2.00 Others 23 15.30 Sex Male Female 58 92 38.70 61.30 Age 20 29 30 39 40 49 50-59 49 49 30 22 32.70 32.70 20.00 14.70 Education SPM/Certificate 40 26.70 STPM/Diploma 43 28.70 Undergraduate 56 37.30 Postgraduate 11 7.30 Monthly income (RM) RM1000 and below 20 13.30 RM1001 RM3000 88 58.70 RM3001 RM5000 34 22.70 RM5001 and above 8 5.40 5.0 Analysis and Results As mentioned earlier, this study aims to examine the relationship between three variables namely perceived product quality, customer satisfaction and brand loyalty. In order to obtain valid and reliable results, this study followed the two steps approach as suggested by (Chin, 1998). Therefore, the process was to confirm the construct validity before proceeding to test the hypothesis. 4

5.1 The Outer Model (The Measurement Model) The goodness of measurement, outer, model has been established through the content validity and the construct validity. 5.1.1.1 The Content Validity Hair et al., (2010) and Chin (1998) both agreed that the content validity of the measurement model can be confirmed by the items factor loading. Ideally, 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. Moreover, as shown in Table 2 and Table 3, all the items factor loadings should register significant and higher value on their respective construct. in this study consistent with other 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 Perceived Product Quality BL1 0.831 0.462 0.454 BL2 0.837 0.507 0.548 BL3 0.814 0.443 0.527 BL4 0.822 0.563 0.431 BL5 0.827 0.435 0.439 BL6 0.893 0.402 0.410 CS1 0.471 0.913 0.572 CS2 0.462 0.909 0.599 CS3 0.463 0.873 0.572 CS4 0.517 0.899 0.577 CS5 0.442 0.847 0.558 CS6 0.567 0.769 0.626 PPQ1 0.426 0.613 0.834 PPQ2 0.342 0.507 0.718 PPQ3 0.556 0.573 0.867 PPQ4 0.468 0.467 0.783 5

Table 3: T-value Results Construct Items Loadings STDDEV T Value P Value Brand Loyalty BL1 0.831 0.031 26.817 0.000 BL2 0.837 0.030 27.619 0.000 BL3 0.814 0.043 19.033 0.000 BL4 0.822 0.052 15.888 0.000 BL5 0.827 0.039 21.033 0.000 BL6 0.893 0.021 41.572 0.000 Customer Satisfaction CS1 0.913 0.019 48.257 0.000 CS2 0.909 0.019 48.001 0.000 CS3 0.873 0.028 31.660 0.000 CS4 0.899 0.021 41.997 0.000 CS5 0.847 0.032 26.848 0.000 CS6 0.769 0.037 20.562 0.000 Perceived Product Quality PPQ1 0.834 0.033 25.603 0.000 PPQ2 0.718 0.070 10.224 0.000 PPQ3 0.867 0.027 31.619 0.000 PPQ4 0.783 0.034 22.742 0.000 5.1.1.2 The Convergent Validity The convergent validity is defined to be the degree to which a set of variables converges in measuring the concept of construct (Bagozzi & Yi, 1988; Hair et al., 2010). It is, therefore, confirmed using the items 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).Referring to Table 4, the composite reliability value of all the constructs exceeded the cut-off value of 0.7 and all the values of AVEs are more than the 0.5 threshold. Thus, one can confirm that the measurement, outer, model possesses an adequate level of convergent validity. 6

Construct Table 4: The Results of Convergent Validity analysis Items Loadings Cronbach's Alpha Composite Reliability Average Variance Extracted Brand Loyalty BL1 0.831 0.915 0.934 0.702 BL2 0.837 BL3 0.814 BL4 0.822 BL5 0.827 BL6 0.893 Customer Satisfaction CS1 0.913 0.935 0.949 0.757 CS2 0.909 CS3 0.873 CS4 0.899 CS5 0.847 CS6 0.769 Perceived Product Quality PPQ1 0.834 0.814 0.878 0.644 PPQ2 0.718 PPQ3 0.867 PPQ4 0.783 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)} 5.1.1.3 The Discriminant Validity The measurement model s discriminant validity is examined based on the criterion suggested by Fornell and Larcker (1981). The discriminant validity represents the extent to which a set of indicators discriminate a construct from other constructs in the model. This implies that good discriminant validity is achieved when the items share more variance with their constructs than the constructs share with other constructs more (Compeau et al., 1999). Table 5 showed the correlation matrix, the diagonal indicators are the square root of the AVE of the entire latent variables or constructs. Discriminate validity can be assumed if the diagonal indicators are greater than other offdiagonal indicators in their columns and rows. For this case, the discriminant validity is confirmed as 7

exhibited in the in the correlation matrix. Construct Table 5: Correlations among Constructs and Discriminant Validity Brand Loyalty Customer Satisfaction Perceived Quality Product Brand Loyalty 0.838 Customer Satisfaction 0.565 0.870 Perceived Quality Product 0.564 0.675 0.802 5.1.2.1 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 0.456 indicating that perceived product quality can account for 46% of the variance in the customer satisfaction and both perceived product quality and customer satisfaction can explain 38% 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; both values of the R 2 are considered substantial. Endogneous Table 6: Prediction Power of the Model R Square Customer Satisfaction 0.456 Brand Loyalty 0.380 5.1.2.2 Goodness of Fit (GoF) of the Model Tenenhaus et al., s (2005) global goodness of fit (GoF) index was applied to the model. It is the only GoF available for PLS Structural Equation Modelling. 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 0.541 which was calculated as in the following Then, the result of the model is compared with Wetzels et al., s. (2009) baseline values of GoF (small =0.1, medium =0.25, large =0.36). It can be concluded that the model s GoF measure is large and adequate of global PLS model validity. 8

5.2 The Inner Model (The Structural Model) and Hypothesis Testing After successfully confirming the measurement model s validity and reliability, the next stage is to run PLS algorithm and Bootstrapping algorithm in SmartPLS 2.0 in order to test the hypothesized relationship. Figure 2: Items loadings and path coefficient Figure 3: Significance of factor loadings and path coefficient 9

Table 7: Hypothesis Testing Result Hypothesis Path Hy No. Statement Coefficient Standard Error T Value P Value Decision H1 H2 H3 Perceived Product Quality-- > Brand Loyalty Perceived Product Quality - -> Customer Satisfaction Customer Satisfaction --> Brand Loyalty 0.336** 0.138 2.434 0.007 Supported 0.675*** 0.070 9.586 0.000 Supported 0.338* 0.148 2.284 0.011 Supported ***:p<0.001; **:p<0.01;*:p<0.05 As indicated in Figures 2 and 3 and Table 7, the effects of product perceived quality and customer satisfaction on brand loyalty were found to be significant at the 0.001 and 0.01 levels of significance(β=0.675, t= 9.586, p<0.001) (β=0.336, t= 2.434, p<0.01) respectively. These results supported H 1 and H 2 as hypothesized in the study. In addition to that the effect of customer satisfaction on brand loyalty was found to be significant at the 0.05 level of significance (β=0.338, t= 2.284, p<0.05) supporting H 3. 5.2.1The 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 partial 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. Hy No. Table 8: The Mediating Effect of Customer Satisfaction Hypothesis Indirect Standard Path Coefficient Statement Effect Error a*b T Value P Value Decision c c' a*b H4 Perceived Product Quality --> Customer Satisfaction --> Brand Loyalty 0.572*** 0.336* 0.228* 0.114 2.000 0.023 Partial Mediator ***:p<0.001; **:p<0.01;*:p<0.05 10

6.0 Summary of Results Table 9: Result Table for the Tested Hypotheses No. Hypotheses Findings H 1 There is a significant relationship between perceived product quality and brand loyalty Supported H 2 Perceived product quality has a significant effect on customer satisfaction Supported H 3 There is a significant relationship between customer satisfaction and brand loyalty Supported H 4 Customer satisfaction mediates the impact of perceived product quality on brand loyalty Supported 7.0 Discussion and conclusions This study set out to examine the relationship between perceived product quality, customer satisfaction and brand loyalty by proposing customer satisfaction as a mediator for the relationship within the Malaysian mobile phone market sector. All the four hypotheses of the study were confirmed, indicating that the proposed model had an adequate fit. Perceived product quality and customer satisfaction had a direct positive effect on brand loyalty. The study verifies that customer satisfaction act as a mediator between perceived product quality and brand loyalty. Thus, perceived product quality and customer satisfaction can be used as predictors of brand royalty. The analysis results reveal that perceived product quality of a specific mobile phone was found to have a significant positive impact on customer satisfaction and loyalty. Successful businesses define their strategy around the pursuit of quality. Marketers have to recognize the central role of perceived product quality and customer satisfaction in order to be able to anticipate brand royalty and consequently purchase behaviour. Businesses should employed strategies that put emphasis on product features and cues that will enhance customers perceived product quality. Prior studies have found cues such as brand name, price, and objective quality information to be related to perceived product quality (Dodds, 2002; Rao &Monroe, 1989; Tsiotsou, (2006). Businesses should utilize these cues to enhance customers perceptions of product quality. Furthermore, the widely accepted theory that there is a link between satisfaction and loyalty was supported (Bontis et al., 2007). Thus, the ability to provide a high degree of customer satisfaction services is crucial to businesses in differentiating themselves from their competitors (Lin & Wang, 2006). In this study, loyalty was also a factor that may influence the choice of a mobile phone brand. The findings of this study show that perceived product quality is vital for developing brand loyalty. The statement about what drives loyalty should be understood whereby loyalty is not entirely divorced from satisfaction (Mittal & Lassar, 1998). Loyalty is built through a positive differentiation that is usually achieved by providing superior products and services. Reference Anderson, E. W., Fornell, C., & Lehmann, D. R. (1994). Customer satisfaction, market share, and profitability: Findings from Sweden. Journal of Marketing, 58, 53 66. Aydin, S., Özer, G., & Arasil, Ö. (2005). Customer loyalty and the effect of switching costs as a moderator variable: A case in the Turkish mobile phone market, Marketing Intelligence & Planning, 23(1), 89 103. 11

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