Customer loyalty and the role ofrelationship length

Chung-Yu WangDepartment of Business Administration,

National Kaohsiung University of Applied Sciences, Kaohsiung, Taiwan, and

Li-Wei WuDepartment of International Business, Tunghai University, Taichung, Taiwan

Abstract

Purpose – The objective of this study is to examine the effect of corporate image, perceived value,and switching costs on customer loyalty in customer/provider relationships of different length.

Design/methodology/approach – Five key constructs, namely: corporate image, perceived value,switching costs, customer loyalty, and length of relationship, were employed. Using a systematicsampling technique, student interviewers randomly approached customers exiting hair salons. Thefinal survey sample consisted of 279 respondents.

Findings – This paper supports a contingency model with regard to customer loyalty and itsantecedents. The results suggest that corporate image impacts customer loyalty in both newer andolder relationships. Whereas in newer relationships, corporate image has a cardinal influence onswitching costs, in more-established relationships switching costs are influenced primarily byperceived value. In both cases, switching costs influence customer loyalty.

Research limitations/implications – As extant research claims that relationship quality, and notlength, moderates the relationship between loyalty/repurchase behavior and their antecedents, futureresearch could adopt relationship quality as a moderator to test the model of the present study.

Practical implications – The results support the importance of enhancing corporate image toretain newer customers. In longer-established relationships, corporate image remains a determinant ofrepurchase decisions. However, customer value also has a significant influence on switching costs andloyalty.

Originality/value – The current study moves beyond customer-perceived value, switching costs,and corporate image to demonstrate that relationship length has a significant influence on customerloyalty.

Keywords Customer loyalty, Length of relationship, Switching cost, Corporate image, Perceived value

Paper type Research paper

IntroductionService providers generally consider customer loyalty as an important source ofcompetitive advantage (Woodruff, 1997). Enhanced customer loyalty in service firmshas been demonstrated to increase profitability by numerous extant studies examiningthe connection between customer loyalty and its antecedents (e.g. Aydin and Ozer,2005; Cronin et al., 2000; Ibanez et al., 2006; Liu et al., 2005; Sirdeshmukh et al., 2002;Woodruff, 1997). However, past research throws minimal light on how this connectionmay evolve over time as the customer-provider relationship matures (e.g. Chiao et al.,

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This work’s authors sincerely appreciate the precious comments from the two anonymousreviewers and the financial aid from the National Science Council, Taiwan (NSC 97-2410-H-366 -005).

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Received February 2011Revised May 2011August 2011September 2011Accepted October 2011

Managing Service QualityVol. 22 No. 1, 2012pp. 58-74q Emerald Group Publishing Limited0960-4529DOI 10.1108/09604521211198119

2008; Liu et al., 2005; Sabiote and Sergio, 2009). Potential customer loyalty antecedentsinclude: corporate image, perceived value, and switching costs. Switching costs areoften strategically advocated as a means of encouraging customer loyalty, because thecosts associated with switching to an alternative store often deter customers fromdoing so (Jones et al., 2000). Customers may also remain loyal to a company that theyperceive offers superior value (Lam et al., 2004) or a more positive corporate image(Nguyen and Leblanc, 2001) than its competitors. Although researchers haveattempted to elucidate the connection between customer loyalty, corporate image,perceived value, and switching costs, the complex interrelationships between theseconstructs are still not fully understood. To the best of the authors’ knowledge, noprevious study has empirically investigated these constructs within a singleframework. Thus, this paper proposes, and empirically analyzes, a conceptualframework that considers customer-perceived value, corporate image, and switchingcosts as antecedents of customer loyalty. Specifically, this paper examines themediating role played by switching costs on perceived value and corporate image and,by extension, on customer loyalty, as well as the direct effect that perceived value andcorporate image exerts on customer loyalty. Therefore, the present study compares therelationships of the proposed model in the context of short vs. long customer/providerrelationship length.

Corporate image is a salient element in the proposed model. To reduce theuncertainty associated with early service encounters, consumers will look for signs, orevidence, of service quality (e.g. corporate image) from which to draw conclusions(Gronroos, 1984). Patterson (2000, p.143) indicates that:

[. . .] new or first-time clients without concrete experiences are forced to rely onword-of-mouth, marketer communications, or assessment of various tangible cues (such asthe consultant’s brochures, office decor and layout, and the professionalism of the writtenproposal) to form weaker, less-stable expectations.

Patterson (2000) concludes that experience moderates the relationship betweenperformance, disconfirmation (the tendency to refute evidence challenging one’sbeliefs), and satisfaction. Therefore, this paper proposes that a positive corporate imagewill facilitate the drawing of more positive inferences in a new customer/providerrelationship. However, as customers make more purchases over time, they startperceiving value as overridingly important. Flint et al. (2002) ascertain that thephenomenon of customer desired value change typically occurs in an emotional context.Matos et al. (2009) demonstrate that the mediating effect of switching cost is stronger inthe relationship between satisfaction and attitudinal loyalty. This raises the question:Does the impact of perceived value, switching costs, and corporate image on customerloyalty evolve over the course of a customer/provider relationship? Specifically, thispaper theorizes whether consumers enter into a new exchange relationship by virtue oftheir favorable perception of a provider’s corporate image. With regard tolonger-established relationships, this paper surmises whether perceived value willhave a pivotal effect on customer loyalty as a result of switching costs.

To answer this question, the authors propose and empirically analyze a conceptualframework that considers perceived value, switching costs, and corporate image asantecedents of customer loyalty. In particular, the authors examine the relationshipbetween customer loyalty and its antecedents in customer/provider relationships ofvarying length. A better understanding of loyalty and the boundary conditions of

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customer relationships could support managerial efforts to galvanize customer loyaltythrough initiatives that leverage customer retention antecedents. For example, a usefulclarification for providers would be whether perceived value and switching costs havea stronger effect on loyalty in long-standing customer relationships versus newer ones.If this theory is proven correct, managers will be more likely to appreciate theimportance of perceived value and switching costs to longer-term customers and paymore attention to both growing their firm’s perceived value and creating switchingcosts. However, it should be noted that creating switching costs, in lieu of increasingcustomer-perceived value and corporate image, would prove to be an unwise, long-termstrategy and may cause customers to be spurious loyalty (Dick and Basu, 1994).

Conceptual framework and hypothesis developmentCustomer loyalty can be defined as a buyer’s overall attachment or deep commitmentto a product, service, brand, or organization (Oliver, 1999). The concept of loyalty issimilar in definition to relationship commitment, which is described as an enduringdesire to be in a valued relationship (Morgan and Hunt, 1994). Customer loyaltymanifests itself in a variety of behaviors. The more common behaviors constitute therepeated patronizing of the service provider and word-of-mouth referral to othercustomers (e.g. Lam et al., 2004; Zeithaml et al., 1996).

Customer valueCustomer value is a comparison of weighted “get” attributes with “give” attributes(Heskett et al., 1994). Customer-perceived value is operationalized as a ratio betweentotal benefits received to total sacrifices made (Buzzell and Gale, 1987). These sacrificesmay be based on price, but can also include non-financial aspects, such as time, searchcosts, and physical or mental effort expended by the customer consuming the service(Dodds et al., 1991). Moreover, initial conceptualizations of value have shown atendency to measure value as a single, overall value construct, e.g. fair price,” “goodvalue” (Baker et al., 2002), and “value for money” (Grewal et al., 1998). Anothertendency is to use a multi-item scale to measure perceived value as a unidimensionalconstruct that has traditionally emphasized price perceptions (e.g. Grewal et al., 1998).Despite these tendencies, Sigala (2006) suggests that a need has been recognized toconceptualize customer value as a multidimensional construct in terms of both its“give” and “get” attributes. Extant service management literature argues that customersatisfaction results from customer’s perception of value received, where value equalsperceived service quality relative to price (Hallowell, 1996, p. 29). Naturally, acustomer’s perception of value received from a service provider could motivate thecustomer to patronize the provider again. Therefore, customer-perceived value ispositively related to customer loyalty (Bolton and Drew, 1991; Bove and Johnson, 2000;Cronin et al., 2000; Lai et al., 2009; Sirdeshmukh et al., 2002; Woodruff, 1997; Yang andPeterson, 2004).

Providing customers with superior value is one approach to building exit barriers(Wathne et al., 2001). Flint et al. (2002) suggest that value judgments are reassessedperiodically and become richer, more elaborate, and more accurate over time. Bove andJohnson (2000) propose that the longer a relationship between a customer and anindividual service representative endures, the stronger it will be: such relationshipsinduce customer loyalty. Therefore, as the service relationship progresses, so does the

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impact of “offer-related” service representative characteristics (e.g. competence,customization, and reliability) on trust (Coulter and Coulter, 2002). This, in turn,engenders loyalty (Gundlach and Murphy, 1993). Hence, this study hypothesizes that:

H1a. Customer value positively influences customer loyalty.

H1b. Customer value has a stronger positive effect on customer loyalty inlonger-term relationships than in shorter-term relationships.

Corporate imageCorporate image can be described as the overall impression made on the public psycheabout a firm (Barich and Kotler, 1991). Corporate image can be a multifacetedphenomenon: specific groups may hold various, divergent images of a single firm, as aresult of their distinct experiences and contacts with the company (Dowling, 1988).Corporate image is related to the physical and behavioral attributes of a firm, such asbusiness name, architecture, variety of products/services offered, and interactions(Nguyen and Leblanc, 2001). Corporate image is derived from a process (MacInnis andPrice, 1987) stemming from ideas, feelings, and consumption experiences related to acompany that are retrieved from memory and transformed into mental images (Yuilleand Catchpole, 1997). Corporate image may be considered as, “a function of theaccumulation of purchasing/consumption experience over time” (Andreassen andLindestad, 1998, p. 84). Therefore, corporate image essentially results from anevaluation process (Aydin and Ozer, 2005). Previous studies have found that the effectsof corporate image on customer loyalty can be both direct (Nguyen and Leblanc, 2001;Souiden et al., 2006) and indirect (Ball et al., 2006; Bloemer and de Ruyter, 1998). Extantresearch has demonstrated that service relationships evolve both during specificservice encounters (Crosby et al., 1990), as well as during the gradual process of“getting to know” a service provider. “Getting to know” a service provider implies theacquisition of information. Early in the customer/provider relationship, consumers areoften confronted with not knowing what to expect from the service. With insufficientknowledge about a company, a customer may be forced to obtain information fromdifferent sources (e.g. via advertisements and word-of-mouth), which will affect thecorporate image formation process (Aydin and Ozer, 2005). Due to the intangibilityfactor, customers often perceive services as risky and consequently need to gain initialconfidence in a service provider before starting a relationship. To reduce theuncertainty associated with early service encounters, consumers will search in advancefor signs, or evidence, of service quality. Examples of these signs are perceivedcorporate image (Gronroos, 1984), place, people, equipment, communication materials,symbols, and price (Kotler, 1997, p. 469). It is from these tangible, corporate featuresthat customers draw inferences about service quality. In the early phases of arelationship, customers rely primarily on the provider’s perceived trustworthiness,placing faith in the reliability and quality of the services they deliver (Garbarino andJohnson, 1999). Companies strive to build customer-perceived trustworthiness by usingadvertising, brand names, and other signals that may also help boost corporate image.In the early stages of a service relationship, a service representative’s similarity to acustomer (e.g. education level, social class, etc.), level of politeness, and empatheticattitude will all facilitate the drawing of more positive customer inferences and helpbuild trust (Coulter and Coulter, 2002). Consequently, these inferences will influence

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customer loyalty (Gundlach and Murphy, 1993). As a service representative’s personalcharacteristics may also help to form a corporate image, this paper proposes thatcorporate image constitutes a sign that will facilitate the drawing of more positiveinferences in a new relationship, which in turn, will positively influence customerloyalty. Hence:

H2a. Corporate image positively influences customer loyalty.

H2b. Corporate image has a stronger positive effect on customer loyalty inshorter-term relationships than in longer-term relationships.

Switching costsSwitching costs can be defined as the costs involved in changing from one supplier toanother (Heide and Weiss, 1995). The domain of switching costs includes bothmonetary and non-monetary costs (e.g. time and psychological effort expended) (Dickand Basu, 1994). Furthermore, this domain includes the loss of loyalty benefits incurredby a firm when a customer takes their business elsewhere (Heide and Weiss, 1995). Forexample, customer familiarity with a provider’s service procedures constitutes a typeof switching cost, because these costs will become worthless to the provider should thecustomer terminate the relationship. Previous studies have conceptualized customervalue in two dimensions: “give” and “get” (Heskett et al., 1994). The “give” dimensionsinclude costs such as: time, search costs, and the physical or mental effort employed inconsuming a service. By contrast, switching costs are the, “one-time costs facing thebuyer switching from one supplier’s product to another” (Porter, 1980, p. 10). Based onthese, Liu (2006) concludes that economic value and the value obtained from relationaland support aspects of a service both exert a strong positive influence on switchingcosts, and thus serve as barriers to exit. As the customer-perceived switching costs ofan activity increase, the likelihood of consumers engaging in such behavior willdecrease. Urbany (1986) demonstrates that, as the cost of information gatheringincreases, the extent of information search diminishes. Therefore, perceived switchingcosts have a positive effect on customer loyalty (Burnham et al., 2003; Lam et al., 2004).

Because customers make a series of purchases over time, they face increasinglyhigh costs when switching to a new supplier and will therefore come to view theircommitment level to a particular supplier as relatively stable ( Jackson, 1985). Weissand Kurland (1997) demonstrate that the relationship between switching costs andrelationship continuation is strengthened by relationship age. Thus, as switching costsincrease over time, they will become an increasingly important factor in customerrepurchase decisions (Liu et al., 2005). Hence:

H3a. Switching costs positively influence customer loyalty.

H3b. Switching costs have a stronger positive effect on customer loyalty inlonger-term relationships than in shorter-term relationships.

Interrelationships of customer value, corporate image, and switching costsCustomer evaluation of service provider interactions becomes more significant inlonger-term relationships. Coulter and Coulter (2002) indicate that, as the length ofservice relationship increases, so does the impact on customer trust levels ofoffer-related characteristics, such as: competence, customization, reliability, and

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promptness. This, in turn, will generate higher switching costs (Aydin and Ozer, 2005).High-value services may result from customer exposure to the above-mentionedoffer-related characteristics. Over the course of a relationship, customers become moreaccustomed to interacting with a service provider and more familiar with theirprocedures. Grayson and Ambler (1999) conclude that the higher thecustomer-perceived quality of these provider interactions is, the more assured theirpatronage of the service would be. Heskett et al. (1997) describe how companies candeliver high-value services (i.e. quality services at a reasonable price) to theircustomers in order to satisfy their needs. Providing customers with providerheterogeneity, product complexity, and superior value is one way of developingswitching costs and building exit barriers (Burnham et al., 2003; Liu et al., 2005;Wathne et al., 2001). This is because switching costs may reflect a buyer’s dependenceon a vendor (i.e. a buyer’s need to maintain a relationship with a supplier to achievedesired goals (Frazier, 1983)). For example, service offers delivered in a reliable anddependable manner by a long-term service provider will fortify customer-providerrelationships and may even create higher switching costs. By contrast, in a newexchange relationship, a customer may have insufficient knowledge about a firm, andso garner information from various sources (e.g. via advertisements andword-of-mouth), which will influence the corporate image formation process. Morespecifically, as it is difficult for new customers to base their behavior on their limitedexperience of a provider, they may instead allow the latter’s perceived corporate imageto determine the level of confidence they place in the service’s reliability and quality.Jackson (1985) indicates that psychological cost – which constitutes a type ofswitching cost – is perceived by customers as the cost resulting from theuncertainty/risk of trying a brand for the first time. This risk exists inherently withinthe service industry, because service quality cannot be evaluated in the pre-purchasephase (Sharma et al., 1997). Therefore, in the early stages of a provider relationship,customers may perceive switching costs based on a positive corporate image. Thus:

H4a. Customer-perceived value positively influences switching costs.

H4b. Customer-perceived value has a stronger positive effect on switching costs inlonger-term relationships than in shorter-term relationships.

H5a. Corporate image positively influences switching costs.

H5b. Corporate image has a stronger positive effect on switching costs inshorter-term relationships than in longer-term relationships.

Based on the preceding considerations, this paper proposes the following conceptualmodel (see Figure 1).

MethodsMeasurementThe authors designed a questionnaire with measures of the relevant constructs(corporate image, perceived value, switching costs, customer loyalty, and length ofrelationship), based primarily on scales from previous research. All measures useseven-point Likert scales except length of relationship (1 ¼ ”strongly disagree,” and7 ¼ ” strongly agree”). Length of relationship was measured by a single item question,

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which asked respondents to indicate the amount of time they had been associated withtheir hairstylist/barber’s firm. A five-item scale regarding the patronage dimension ofcustomer loyalty was drawn from Lam et al. (2004). Based on the measures of Joneset al. (2000), three items were used to measure switching costs. In addition, a two-itemscale regarding perceived service value was drawn from Cronin et al. (2000). Croninet al. investigated six service industries and demonstrated the reliability and validity ofall five above-mentioned constructs. Consistent with the measures of Liu et al. (2005),Sharma and Patterson (2000), and Davis and Mentzer (2008), one item was used tomeasure relationship length. The work of Jones and Suh (2000) indicates thatapproximately 75 percent of respondents have used the services of their currenthairstylist/barber for at least one year. One year is considered a suitable referenceperiod for short- and long-term relationships because hairstylists/barbers representservice firms with higher than average levels of customer contact ( Jones et al., 2000)and frequency of use. In an attempt to compare the two groups in question,respondents in relationships of less than 1 year were classified in one group ðn ¼ 62Þ;while those in relationships of 1 year or more ðn ¼ 217Þ were classified in a secondgroup. Finally, five items were adopted as measures for corporate image (Souiden et al.,2006). As the process view has been applied in numerous, previous research projects onservice firm image, this view was also adopted for the present study (e.g. Aydin andOzer, 2005; MacInnis and Price, 1987; Souiden et al., 2006; Yuille and Catchpole, 1997).Each respondent was categorized according to which hairstylist/barber theypatronized and surveyed on the above items.

SampleTo test the hypotheses, in line with Yim et al. (2007) and Bove and Johnson (2001), thepresent study selected the hairstyling industry for empirical analysis, due to itseasily-identifiable switching costs. Hair salons and barber shops are representative ofcustomized, high-contact service firms (Bove and Johnson, 2001). A single service

Figure 1.Conceptual research modelused in the present study

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category focus offered improved internal validity, reduced error variance, and moreeffective hypothesis testing (Voss and Voss, 2000). In line with Yim et al. (2007),Souiden et al. (2006), and Patterson and Smith (2003), the present study sought theassistance of undergraduate night school college students to survey non-students overthe age of 18. Ten hairstyling businesses studied were located in residentialneighborhoods in Kaohsiung City, Taiwan. Using a systematic sampling technique,the authors adhered to a skip interval of two when selecting respondents from thoseexiting the hair salons (Omar and Ali, 2000). The questionnaire was originally writtenin English and later translated into Mandarin Chinese. The questionnaire was thentranslated back into English, in the interests of accuracy (Douglas and Craig, 1983).Respondents were surveyed according to which hairstylist/barber they patronized.Thus, a self-report survey was utilized to collect the required data. The present studycollected a total of 287 responses. Eight questionnaires were excluded due torespondent failure to rate every item. Thus, analysis was performed on data from the279 subjects who provided complete, model-related information. The demographics ofthis sample are as follows: approximately 51 percent were female, 76 percent were over35 years old, and 60 percent were college graduates.

Reliability and validityIn order to distill the data into a smaller and more meaningful set, several purificationsteps (confirmatory factor analyses and item-to-total) were taken. Table I listscomposite reliabilities, AVE (Average Variance Extracted), items, and loadings for thefinal multi-item measures. Amos 5.0 software was employed and confirmatory factoranalysis performed to assess the measurement model, consisting of all items designed

Constructs and items (composite reliability, AVE) Loading

Customer-perceived value (0.88, 0.78)Overall, the value of the hairstylist/barber firm’s services to me is high 0.90Compared to what I had to give up, the overall ability of the hairstylist/barber’s firm tosatisfy my wants and needs is high 0.86

Switching costs (0.83, 0.66)In general it would be an inconvenience to switch to another hairstylist/barber’s firmservice 0.81It would take a lot of time and effort to switch to another hairstylist/barber’s firm service 0.94For me, the cost in time, money, and effort to switch hairstylist/barber’s firm is high 0.66

Customer loyalty (0.91, 0.68)I consider the hairstylist/barber’s firm as my first choice of hairstyling/barber service 0.76I will continue to patronize this hairstylist/barber’s firm over the next few years 0.82I have said positive things about the hairstylist/barber’s firm to colleagues 0.87I have recommended the hairstylist/barber’s firm to colleagues who seek my advice 0.86I have encouraged others to patronize the hairstylist/barber’s firm 0.82

Corporate image (0.92, 0.69)The hairstylist/barber’s firm is innovative and pioneering 0.75The hairstylist/barber’s firm is successful 0.83The hairstylist/barber’s firm is persuasive and shrewd 0.90The hairstylist/barber’s firm does business in an ethical way 0.82The hairstylist/barber’s firm is open and responsive to consumers 0.86

Table I.Overview of the

multi-item measures

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to measure four of the constructs: perceived value, switching costs, customer loyalty,and length of relationship (x2 ¼ 377.07, df ¼ 84, RMR ¼ 0.05, GFI ¼ 0.91,AGFI ¼ 0.87). With regard to reliability, the alpha values were higher than 0.7(Nunnally, 1967) for all constructs. The AVE for all constructs ranged from 0.65 to 0.78,which is greater than 0.5, and thus demonstrates convergent validity (Fornell andLarcker, 1981). The correlation of a construct with its indicators (i.e. the square root ofAVE) should exceed the correlation between that construct and any other construct.The square root of AVE for four constructs ranged from 0.81 to 0.88, which exceeds thecorrelation between that construct and any other ranging from 0.43 to 0.79, meaningthat four constructs have adequate discriminant validity (Fornell and Larcker, 1981). Insummary, the overall measurement properties are considered acceptable. Table II. listsscale means, standard deviations, and correlations among latent constructs.

ResultsA two-group model was employed, with group membership assigned based onrelationship length (i.e. less than 1 year ðn ¼ 62Þ and 1 year or more ðn ¼ 217ÞÞ: Becausethe number of items in the scales and the sample size of the new relationship group weresimilar to those examined by Liu et al. (2005), the sample size may be considered sufficientto run a two-group model. For structural comparisons across groups to be meaningful, themodel was specified to be invariant across groups. This model fits the data well(x2 ¼ 872.22, df ¼ 179, RMR ¼ 0.07, GFI ¼ 0.89, AGFI ¼ 0.83, RMSEA (Root MeanSquare Error of Approximation) ¼ 0.09. Compared with other two-group model analyses,the GFI (Goodness-of-Fit Index) value was better than that produced by Liu et al. (2005)ðGFI ¼ 0:84Þ: The AGFI (Adjusted Goodness-of-Fit Index) value exceeded 0.80 and wasconsidered acceptable, based on the work of Taylor and Todd (1995). The RMSEA was0.09, which is less than 0.1 (Browne and Cudeck, 1993; Hair et al., 2006). Statistical tests ofhypothesized, non-zero parameters were conducted by examining the associatedparameter scores (see Table III). In the shorter-term relationship group, all but twoparameters were found to be significant. Corporate image positively influenced switchingcosts ðg ¼ 0:92; p , 0.05) and customer loyalty ðg ¼ 0:76; p , 0.05). Based on the datamentioned above, corporate image and switching costs have adequate discriminantvalidity and multicollinearity is not considered an issue. In the longer-term relationshipgroup, corporate image was found to be positively related to customer loyalty ðg ¼ 0:36;p , 0.05). Customer value was identified as positively related to switching costs(g ¼ 0.48, p , 0.05) and customer loyalty ðg ¼ 0:33; p , 0.10). Finally, switching costswere found to be positively related to customer loyalty ðg ¼ 0:15; p , 0.05).

Although the findings suggest that antecedents of customer loyalty differ acrossshorter- and longer-term relationship groups, further analysis was conducted to test

Mean SD 1 2 3

Customer-perceived value 5.85 0.96Switching costs 5.38 1.26 0.43 *

Corporate image 5.60 0.98 0.79 * 0.43 *

Customer loyalty 5.64 0.97 0.65 * 0.47 * 0.71 *

Note: *p , 0.05

Table II.Scale means, standarddeviations, andcorrelations among latentconstructs

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group differences by systematically constraining structural parameters to be equalacross groups (see Table III). Findings indicate that the relationship between customervalue and switching costs is stronger for those in a longer-term relationship with theirhairstylist ðDx2 ¼ 5:12;Ddf ¼ 1; p , 0.05, H4b). By contrast, the relationship betweencorporate image and switching costs is stronger for those in shorter-term relationshipsðDx2 ¼ 9:18;Ddf ¼ 1; p , 0.05, H5b). Finally, the relationship between corporateimage and customer loyalty is stronger for those in shorter-term relationships(Dx2 ¼ 2.73, Ddf ¼ 1, p , 0.10, H2b) (See Figure 2). The results of hypotheses testingare summarized in Table IV.

Group I Group II(Short relationship) (Long relationship) Dx2

Perceived value ! Switching costs 20.20 0.48 * * 5.12 * *

Corporate image ! Switching costs 0.92 * * 0.00 9.18 * *

Perceived value ! Customer loyalty 0.03 0.33 * 1.56Corporate image ! Customer loyalty 0.76 * * 0.36 * * 2.73 *

Switching costs ! Customer loyalty 0.11 0.15 * * 0.07

Note: *p , 0.10; * *p , 0.05

Table III.Path coefficients of a

two-group model(standardized estimate)

Figure 2.Summary of findings

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DiscussionThe results of the present study highlight the effect that relationship length has oncustomer loyalty. Whereas customer-perceived value, corporate image, and switchingcosts are important determinants of loyalty, length of relationship was found to becritical. The impact of corporate image on customer loyalty is heightened whencustomers have used a service provider for only a short period (i.e. one year or less).Although several studies (e.g. Hsieh et al., 2004; De Ruyter and Wetzels, 2000; Souidenet al., 2006) have concluded that corporate image affects consumer behavior andperceptions of a company’s product quality and credibility, previous research has notclearly identified whether corporate image has a direct influence on switching costs. Thepresent study establishes that corporate image can directly affect switching costs inshorter-term relationships. By contrast, the impact of customer value and corporateimage on customer loyalty is greater for customers in longer-term provider relationships.

The results demonstrate the need to incorporate constructs beyondcustomer-perceived value and corporate image in models of customer loyalty andalso suggest the need to extend existing theories of behavioral intentions byincorporating contingency relationships (e.g. Ball et al., 2006; Nguyen and Leblanc,2001; Sirdeshmukh et al., 2002; Woodruff, 1997). Failure to incorporate contingencyrelationships is likely to result in the underestimation of the role played by length ofrelationship in the customer retention process. Moreover, failure to incorporateswitching costs is likely to result in the undervaluation of the mediating role played byswitching costs in the customer retention process.

Managerial implicationsThe authors’ contingency perspective and results suggest a number of important,practical implications for service firms. Specifically, the findings have importantimplications in terms of which service provider characteristics should be emphasizedat particular points in a customer/provider relationship. The results support the

Hypothesis Results

H1a: Customer value positively influences customer loyalty Not supported

H1b: Customer value has a stronger positive effect on customer loyalty inlonger-term relationships than shorter-term relationships

Not supported

H2a: Corporate image positively influences customer loyalty Supported

H2b: Corporate image has a stronger positive effect on customer loyalty inshorter-term relationships than longer-term relationships

Supported

H3a: Switching costs positively influence customer loyalty Not supported

H3b: Switching costs have a stronger positive effect on customer loyalty inlonger-term relationships than shorter-term relationships

Not supported

H4a: Customer-perceived value positively influences switching costs Not supported

H4b: Customer-perceived value has a stronger positive effect on switching costsin longer-term relationships than shorter-term relationships

Supported

H5a: Corporate image positively influences switching costs Not supported

H5b: Corporate image has a stronger positive effect on switching costs inshorter-term relationships than longer-term relationships

SupportedTable IV.Results of hypothesestesting

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importance of building a positive corporate image in order to retain recently-acquiredcustomers. During the early stages of a service relationship, while the customer is stillunfamiliar with the provider, corporate image becomes an important cue upon whichcustomer repurchase decisions are made. Corporate image is more strongly linked toswitching costs in relatively new customer/provider relationships. This suggests thatnew customers assess the costs of shifting business away from a service providerbased, at least partially, on the relative image that the service provider projects in themarketplace. However, neither customer value, nor switching costs, were found to berelated to customer loyalty. Therefore, when customer/provider relationships arerelatively new, perceived value seems to be of only minimal significance to customersmaking repurchase decisions. Likewise, switching costs may be relatively nonexistent,and thus inconsequential, in those repurchase decisions.

As noted earlier, this study views corporate image from a process perspective; thatis: corporate image is considered to be formed gradually, with judgments accumulatingover time. Customers consider corporate image as a global impression of the firmregarding its ability to meet their needs (Barich and Kotler, 1991). Managers of serviceorganizations should consider intrinsic attributes, such as innovative, responsive intheir communication strategy. These intrinsic attributes are generally translated intocustomer satisfaction (e.g. Lai et al., 2009) or service quality (e.g. Lai et al., 2009; Fornell,1992), which are considered the predominant antecedents of customer loyalty (Nguyenand Leblanc, 2001).

In the case of customer/provider relationships that have matured and become moreestablished, the findings of the present study suggest that a gradual increase independence may occur. In longer-term relationships, corporate image remains adetermining factor in repurchase decisions; however, customer value plays anotherimportant role in directly determining and indirectly influencing loyalty via switchingcosts. In addition, customer value is more strongly linked to switching costs inlonger-term relationships. Thus, as consumers and service providers continue to bond,the customer’s perceived value of the provider becomes diagnostic in relation torepurchase decisions. Furthermore, this perception will duly become a barrier toswitching providers. To improve customer-perceived value, a service provider shouldidentify its strengths and weaknesses on the value components relative to itscompetitors (Liu et al., 2005). By focusing on attributes with a customer rating of highimportance, a service provider can address the critical weaknesses that severelyhamper its efforts to enhance customer-perceived value.

The findings of the present study stress the importance of viewing exchangerelationships as contingent and ones that therefore must be effectively managed. Therelative impact of corporate image on customer loyalty suggests that, for serviceproviders striving to increase the odds of customer repurchase in newer relationships,the cultivation of a favorable corporate image is critical. However, the relative impactof perceived value on customer loyalty – as a result of switching costs – suggests that,for service providers striving to increase the likelihood of customer repurchase inlonger-term relationships, the tracking and measurement of customer valueperceptions and the building of switching costs are of paramount importance.Examples of how providers can enhance customer switching costs include: helpingcustomers learn how to more effectively use a product/service, emphasizing anyunique features on offer, providing valuable bonus points, and engaging customers in a

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more meaningful relationship. Because customer value in an exchange relationshipmay change over time (Flint et al., 2002), service providers should continuously assessand refine the value they provide to their customers.

Limitations and suggestions for future researchNaturally, the present study has certain limitations. These are discussed below,together with recommendations for future research directions. First, consistent withPatterson and Smith (2003), the present study collected data on only one type ofservice. Generalizability would be greatly enhanced by replications of the presentstudy’s model across a range of service types. Future research could assess whetherdifferences/similarities exist across various service types. Second, with regard toantecedents of customer loyalty, the present study focused on customer value andcorporate image, while future works could supplement with the inclusion of servicequality. This assumption is based on the conclusions of Coulter and Coulter (2002),who imply that the length of relationship moderates the association between servicequality factors, such as reliability, competence, and trust. Third, this study employedthe dichotomous measurement of relationship length to demonstrate the effect ofcorporate image, perceived value, and switching costs on customer loyalty inrelationships of different length. The dichotomous measurement is a significantlimitation of this study. Future research may consider utilizing a continuousmeasurement of relationship length to better demonstrate the above-mentioned effect.Fourth, in this study, the sample structure was consistent with Jones and Suh (2000).As mentioned above, one year is deemed a suitable reference period for shorter- andlonger-term relationships, as hairstylists and barbers represent service providers withabove average levels of customer contact ( Jones et al., 2000) and frequency of use.Therefore, in an attempt to compare the two groups, relationships of less than oneyear were classified as one group ðn ¼ 62Þ; and relationships of one year or moreðn ¼ 217Þ were classified as a second group. Although the sample size of the newerrelationship group was similar to Liu et al. (2005), future research may considerincreasing the sample size for better comparison between groups. Finally, across-sectional research design does not offer the same insight into the dynamics ofcustomer relationships within a firm, compared with that of a longitudinal design.Seiders et al. (2005) conclude that customer, relational, and marketplacecharacteristics moderate the relationship between customer satisfaction andrepurchase behavior. They further demonstrate that these moderating effectsemerge if repurchase is measured as an objective behavior and not as a repurchaseintention. Therefore, should future studies adopt repurchase behavior as a dependentvariable, this variable should be measured as an objective behavior. To better assesscausality, future research could test the present study’s model by using a longitudinaldesign. Bell et al. (2005) indicate that, as a customer-provider relationship deepens,consumers increase their expertise in the firm’s product line and industry. Bell et al.(2005) conclude that, as this level of customer expertise increases, technical servicequality becomes a more important determinant of customer loyalty than functionalservice quality. Palmatier (2008) demonstrates that the positive association betweencontact authority and customer value increases proportionally with relationshipquality. Therefore, further research could also adopt relationship quality as amoderator to test the present study’s model.

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Further reading

Jap, S.D. (1999), “Pie-expansion efforts: collaboration processes in buyer-supplier relationships”,Journal of Marketing Research, Vol. 35 No. 4, pp. 461-75.

Corresponding authorChung-Yu Wang can be contacted at: wcuwcu@kuas.edu.tw

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