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Page 1: THE RELATIONSHIP BETWEEN CUSTOMER SATISFACTION … · concept “customer satisfaction” attracted the researcher to embark on a research whether customers can be satisfied by eateries

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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

COPY RIGHT © 2014 Institute of Interdisciplinary Business Research 110

JANUARY 2014

VOL 5, NO 9

THE RELATIONSHIP BETWEEN CUSTOMER SATISFACTION AND

LOYALTY: A STUDY OF SELECTED EATERIES IN CALABAR, CROSS

RIVER STATE

NSOBIARI FESTUS AWARA

University of Calabar, Calabar- Nigeria

ANYADIGHIBE, JOSEPH AMAECHI

University of Calabar, Calabar- Nigeria

Abstract

The research work focused on the relationship between customer satisfaction and

loyalty: A study of selected eateries in Calabar, Cross River State. The study aimed at

examining the significant relationships between customer satisfaction and loyalty;

customer satisfaction and customer patronage; and customer satisfaction and customer

retention. The study adopted survey and descriptive research designs. Datawere

analyzed using the Pearson Product Moment Correlation (PPMC) method. The study

revealed that there subsist significant relationships between customer satisfaction and:

loyalty, customer patronage and customer retention. It is recognized that with

improvement of customer satisfaction a firm will find customers that are more loyal.

Based on the study, firm managers are advised to satisfy and better manage their

relationships through quality product and service offerings to their customers as a

competitive policy in the marketplace. These offerings are required to meet or

surpassconsumers’ expectations.

Key words: Customer satisfaction, loyalty, patronage, retention andservice quality

1. Introduction

In an increasingly competitive and dynamic environment, every firm needs to

identify, anticipate and satisfy consumers to maximize profit. Customer satisfaction is

one of the most important issues concerning business organization of all types, which

is justified by the customer oriented philosophy and the principles of continuous

improvement in modern eateries. Customer satisfaction is a collective outcome of

perception, evaluation, and psychological reactions to the consumption expectation

with a product or service. It is a customer’s overall evaluation of the performance of

an offering. This overall satisfaction has strong positive effect on customer loyalty

intentions across a wide range of product and service categories. Customer

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satisfaction is a person’s feelings of pleasures or disappointments resulting from

comparing a product perceived performance (or outcome) in relation to his/her

expectation (Veloutsou et al, 2005 and Kotler & Armstrong, 2010). Without the

customer it is impossible for any business to sustain itself. Achieving the desired

results is frequently a result of customer actions. Therefore, any business without a

focus on customer satisfaction will remain irrelevant in the market place, observe low

customer patronage, poor customer retention and loyalty. Owing to the rapid increase

of eateries in all nocks and crannies of our society, it is pertinent for firms to imbibe

the concept of customer satisfaction in their operation to achieving customer loyalty,

retention, patronage, recommendation and increase in sales volume. This research

work shall try to examine the relationship between customer satisfaction and customer

loyalty towards firms (Mac Bite and Crunches) offerings.

As customer needs and expectations are changing all the time, this study intends to

reveal whether customer satisfaction towards a firm’s offering can lead to customer

retention, patronage and in turn increase its sales volume. An appeal towards this

concept “customer satisfaction” attracted the researcher to embark on a research

whether customers can be satisfied by eateries (Mac Bite and Crunches). Also,

whether customer satisfaction can result to customer loyalty, retention, patronage,

recommendation, increase in sales volume and market share.

Without the customer it is impossible for any business to sustain itself. Achieving the

desired results is frequently a result of customer actions. Therefore, any business

without a focus on customer satisfaction is at the mercy of the market. Also it has

been observed that little or no research work has being conducted in Nigeria as it

relate to the relationship between customer satisfaction and loyalty in eateries. It is the

backdrop that has led to this research work.

1.1 Statement of the problem

The ability to satisfy consumers remains one of the greatest task for any firm to

achieve as customer needs and expectation are changing at all time. Customer

satisfaction can be experienced in a variety of situations and connected to both goods

and services. It is a highly personal assessment that is greatly affected by customer

expectations.

Customer satisfaction differs depending on the situation and the product or service. A

customer may be satisfied with a product or service, an experience, a purchase

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decision, a sales person, store, service provider, or an attribute or any of these.

Customer satisfaction is a measurement of the degree by which a product or service

offered by a company either fails to meet, or goes beyond their customers’

expectations. A large factor in determining the likelihood of success and profits in an

organization is customer satisfaction. Through critical observation it has been noticed

that the fast food sector is becoming competitive as many eateries are being set up at

all nocks and crannies of the society. How then is it possible to satisfy consumers and

make them loyal customers towards a firm’s product and services? This study intends

to examine the effect of customer satisfaction on loyalty, patronage, retention of

customers.

1.1.1 Objectives of the study

The research objectives for this study include:

To examine the significant relationship between customer satisfaction and

loyalty.

To determine significant relationship between customer satisfaction and

customer patronage.

To access the significant relationship between customer satisfaction and

customer retention.

1.1.2 Research hypotheses

The research hypotheses for the study include:

Ho: There is no significant relationship between customer satisfaction and loyalty.

Ho: There is no significant relationship between customer satisfaction and

customer patronage.

Ho: There is no significant relationship between customer satisfaction and

customer retention.

2. Literature review

2.1 Theoretical framework

The underpinning theoretical framework is drawn from Oliver (1977 and 1980)

expectation disconfirmation theory. This theory posits that expectations, coupled with

perceived performance, lead to post-purchase satisfaction. This effect is mediated

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through positive or negative disconfirmation between expectations and performance.

If a product/service outperforms expectation post-purchase satisfaction will result

(positive disconfirmation). If a product/service falls short of expectations the

consumer is likely to be dissatisfied (negative disconfirmation). The dominant model

of customer satisfaction is the expectation disconfirmation theory. Disconfirmation

theory declares that satisfaction is mainly defined by the gap between perceived

performance and expectation which is promising approach to explain satisfaction. The

Expectation Confirmation Theory (ECT) also known as expectation disconfirmation

theory (EDT) has satisfaction as main dependent factor and expectation and perceived

performance, as main independent factors. Customer satisfaction is the collection

outcome of the customer’s perception, evaluation, and psychological reaction to the

consumption experience with a product or service (Khalifa & Liu, 2003). It leads to

repeat purchase, loyalty, retention, positive word of mouth and increases long term

profitability for the organization and customer (Wirtz, 2003).

Fig. I: Expectation disconfirmation theory

Source: Oliver, 1980

Expectations are formed by personal experience and understanding of environment,

taking into account practice feasibility based on expectancy theory. Perceived

performance is a relatively less influenced estimation of performance based on

objective judgement rather than emotional reactions.

Expectation disconfirmation occurs in three (3) forms:

i) Positive disconfirmation: Occurs when perceived performance exceeds

expectations.

ii) Confirmation: Occurs when perceived performance meets expectations.

iii) Negative disconfirmation: Occurs when perceived performance does not meet

and is less than the expectations.

It is more probable for customers to be satisfied if the service performance meets

(confirmation) or exceeds (positive confirmation) their expectations. On the contrary

Expectation

Perceived

performance

Disconfirmation Satisfaction

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customers are more likely to be dissatisfied if the service performance is less than

what they expected (negative disconfirmation). Khalifa & Liu (2003) discuss that

taking expectation disconfirmation as the only determinant of satisfaction; this theory

does not cause the fact that if high expectations are confirmed, it would much more

lead to satisfaction than confirmation of low expectations. To resolve this drawback

perceived performance is included as an additional determinant of satisfaction. In

other words, the only way to really ensure satisfaction is to empirically create

disconfirmation by manipulating expectations and performance.

2.1.1 The concept of service quality

Parasuraman et al., (1988) defined service quality as “the global evaluation or attitude

of overall excellence of services”.So, service quality is the difference between

customer’s perception and perceptions of services delivered by service firms or as

“the customer’s satisfaction or dissatisfaction formed by their experience of purchase

and use of the service” (Gronroos, 1984 and Parasuraman et al., 1988). Also, Nitecki,

et al., (2000) defined service quality in terms of “meeting or exceeding customer

expectations or as the expectations of service” Oliver (1977) reported that service

quality is a causal antecedent of customer satisfaction, due to the fact that service

quality is viewed to be at the transactional level and satisfaction is seen to be an

attitude.

Dabhalker et al., (1996) and Zeithaml et al., (1996) reported that the service quality

divisions are related to overall service quality and/or customer satisfaction. Fornell et

al., (1996) opined that there is a casual relationship between service quality and

satisfaction and that the perceptions of service quality affect the feelings of

satisfaction and/or dissatisfaction by the customer.

2.1.2 Dimension of service quality

Parasuraman et al., (1988) studied four different types of services including banking

industry, credit card companies, motor repair shops and long distance

telecommunication companies and the results show that service quality had ten (10)

dimensions such as reliability, responsiveness, competence, access, courtesy,

communication, creditability, security, understanding/knowing the customers and

tangibility. However, in 1988, these ten dimensions were cut down to five namely,

tangibility, reliability, responsiveness, assurance and empathy.

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Figure 2: Sourced from Parasuraman (1988)

Five Dimensions of Service Quality (SERVQUAL)

1. Reliability: It is the ability to perform the promised services dependably and

accurately. The elements of reliability are speed, willingness to respond, accuracy and

dependability.

2. Responsiveness: It is the willingness to help customers, and provide prompt

service. Its elements include that of reliability.

3. Assurance: It is the knowledge and courtesy of employees and their ability to

convey trust and confidence. The dimension of assurance may be measured using

elements of knowledge trained professional, communications and caring for the

customer.

4. Empathy:It is the provision of caring individualized attention to customers. Its

elements are the same as assurance.

5. Tangibles: This dimension includes the appearance of physical facilities, equipment

personnel and communication materials used to communicate with customers.

Elements within the tangibles dimension are cleanliness, space, atmosphere,

appearance of server and location.

Zeithaml et la., (1990) proposed a comprehensive perception of quality assessment

and claimed that there are other factors apart from the dimension of Parasuraman et

al., (1988). These dimensions of service quality according to him are;

Tangibles

Assurance

Reliability

Responsiveness

Empathy

Service Quality

SERVQUAL

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1. Access: It includes how easy it is to come into contact with the supplier. This

is where position, opening hours, supplier availability and other technical

facilities belong.

2. Communication: It is the ability to communicate in an understandable way

that is natural to customer.

3. Credibility: This refers to the ability of being able to trust suppliers.

4. Courtesy: This refers to the suppliers’ behaviour. Examples are politeness and

kindness.

However, Parasuraman et al., (1988) assurance dimension is a combination of

credibility and courtesy dimension of Zeithaml et al, (1990).

2.1.3 Classification of service quality

Lewis (1987) suggested that service quality can be classified as;

1. Essential subsidiary

Essential refers to the service offered and subsidiary includes factors such as

accessibility, convenience of location, availability, timing and flexibility, as

well as interactions with the service provider and other customer.

2. The core (Contractual) of the service

The core or the outcome quality refers to what is delivered to the customer.

3. The related (customer-employee) relationship of the service

This refers to process quality. It is how the service quality is delivered which is the

most important element for most services (Gronroose, 1985; McDaugall &Levesque,

2000 and Parasuraman et al., 1988). McDougall and Levesque (2000) in their direct

approach investigation on four services firms (Dentist Clinics automobile shop,

restaurant, and haircut salon). He demonstrated that both core rational service quality

classes have significant impact on customer satisfaction. Heskett et al., (1997)

conducted studies for several service providers such as airline, restaurants etc, and

reported that service quality solely defined as rational quality, has consistent effect on

satisfaction and is regarded as key factor in delivering customer satisfaction.

Furthermore, Sureschander et al., (2001) identified five factors of service quality

which were core service or service product, human element of service delivery,

systematization of service delivery, tangibles of services and social responsibility.

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2.1.4 Benefits of service quality

The benefits of service quality include;

1. Retaining customer: High quality builds loyal customers and creates positive word

of mouth. It is an important factor in the purchase decision. It determines customer

satisfaction, which affects business and word-of-mouth. Studies have shown that it

costs four to six times as much to create a customer as it does to maintain an existing

one.

2. Avoidance of price competition: A restaurant with a reputation for good quality

food and service has a much stronger competitive position than one with a reputation

for inconsistent or poor quality. The restaurant with good image can count on positive

word-of-mouth of its satisfied customers.

3. Retention of good employees: Employees appreciate working in operations that are

well run and produce high quality products. When an operation has good quality, it

can retain good employees, recruiting is easier and training costs are reduced.

4. Reduction of costs:

a. Internal costs: They are those costs that are associated with correcting

problems discovered by firm before the product reaches the customers.

b. External costs: They are those costs associated with errors that the customers

experience.

c. Quality system: This cost is viewed as investment in the future of the company

to ensure that customers return.

2.1.5 Categories of service quality

There are three (3) categories of service quality. These include;

1. Technical quality: This refers to what the customer is left with after the

customer-employee interactions have been completed.

2. Functional quality: It is the process of delivering the same service or product.

3. Societal (ethical) quality: It is a credence quality, it cannot be evaluated by the

customer before purpose and is often impossible to evaluate after purchase.

2.1.6 The concept of customer satisfaction

It is well known that no business can exist or remain relevant in the market place

without customers. Thus it is imperative for firms to imbibe the concept of customer

satisfaction in their operations. Customer satisfaction is the degree to which customer

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expectations of a product or service are met or exceeded. Customer satisfaction means

that the customers’ needs are met, product and services are satisfactory, and

customers’ experience is positive (Friday and Colts, 1995; Gitomer, 1998). Firms are

required to offer product/services that meet or surpass consumers’ expectations. This

in turn will lead to customer satisfaction. Customer satisfaction is a post choice

evaluation judgment concerning a specific purchase decision. Customer satisfaction is

the necessary foundation for firms to retain the existing customers. The customers

who are unsatisfied with the received products/services would not be expected to have

long run relationships with the firm (Guo, Xiao & Tang, 2009 and Lin & Wu, 2011).

In the buyer behavior model developed by Howard and Sheth (1969), consumer

satisfaction is defined as the point at which expectation and reality coincide.The

concept of satisfaction embraces not only what is gained in the use of a product, but

also consumers feeling about the effectiveness of their own decision process.

Customer satisfaction is the level of a person’s perceived performance or outcome in

relation to his/her own expectation.

2.1.7 Customer satisfaction and customer loyalty

Khan (2012) in his research work concluded that customer satisfaction has significant

impact on customer loyalty. Similarly likeKim and Yoon (2004) they give evidence

that the source ofcustomer loyalty is customer satisfaction. Yen and Gwinner(2003)

find that satisfaction has positive and significanteffect on customer loyalty. Lin and

Wang (2006) alsoexamine that satisfaction have significant and positiveimpact on

loyalty. An empirical research conducted by Bassey, Okon & Umorok (2011) on

effective customer service: A tool for client retention among stock broking firms in

Nigeria revealed that satisfied customer would promote more loyalty behavior, and

opined amongst others thatcustomer satisfaction has direct impact on loyalty.

2.1.8 Customer satisfaction and patronage

According to Dominici & Guzzo(2010)research on the topic of guest satisfaction,

which translates into the consideration of whether or not customers will return to a

hotel or advise it to other tourists, is pivotal to the success of the hospitality business.

Neglecting to pay attention to those hotel attributes considered most important by

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guests leads to negative evaluations of the hotel, thus restricting the chance of repeat

patronage.A customer that derives satisfaction from a firm’s product/service tends to

patronize such offerings.

2.1.9 Customer satisfaction and retention

Customer retention is the continuity of the business relations between the customer

and company. Customer retention refers to customer’s stated continuation of a

business relationship with the firm (Gerpott, Rams & Schindler, 2001; Timothy,

Bruce, Lerzan, Tor & Jaw, 2007; and Awara, 2010). Numerous metrics have been

employed by researchers, and firms to measure customer retention; for instance,

customer recommendation intention (Reichheld, 1996), share of the wallet (Jones and

Earl, 1995), customer repurchase intention and (Chandon, Morwitz, Renartz, 2005).

Of all these metrics, customer satisfaction is by far the most commonly used and best

(Reichheld, 1996). Researches have shown a relationship between customer

satisfaction and client retention (Oyenihi & Abiodun, 2008; Jones & Earl, 1995 and

Timothy et al., 2007).

3. Methodology

Research design: The study adopted survey and descriptive research designs

Instrumentation: The instrument used for data collection is the questionnaire

developed todetermine the relationship between customer satisfaction and loyalty: a

study of selected eateries in Calabar, Cross River State. , A five point scale of strongly

agreed (5), agreed (4), undecided (3), disagreed (2) strongly disagreed (1) were used

to measure the responses for the respondents.

Data analysis: Data were analyzed using the Pearson Product Moment Correlation

(PPMC) method.

Reliability: The reliability was tested using Cronbach’s Alpha. The Cronbach’s Alpha

coefficient of 0.873 indicated a high reliability of the instrument.

4. Result and discussion

From table 1 Correlation coefficient of 0.95 shows that there is a positive relationship

between customer satisfaction and loyalty. This is further testify by the r2

= 0.9025.

Since the tcal of 5.27 is greater than tcrit of 3.182 at 0.05 significant level it therefore

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shows that there is a significant relationship between customer satisfactionand loyalty.

The result is in tandem with Khan (2012) in his research work that customer

satisfaction has significant impact on customer loyalty. Similarly like Kim and Yoon

(2004) they give evidence that the source of customer loyalty is customer satisfaction.

Also, an empirical research conducted by Bassey, Okon & Umorok (2011) on

effective customer service: A tool for client retention among stock broking firms in

Nigeria revealed that satisfied customer would promote more loyalty behavior. Again,

Awara, 2010, emphasized strengthening customer retention through effective

management of service relationships.

From table 2 Correlation coefficient of 0.94 shows that there is a positive relationship

between customer satisfaction and customer patronage. This is further testify by the r2

= 0.8836. Since the tcal of 4.78 is greater than tcrit of 3.182 at 0.05 significant level it

therefore shows that there is a significant relationship between customer satisfaction

and customer patronage. The result is in support with Dominici & Guzzo(2010)

research on the topic of guest satisfaction, which translates into the consideration of

whether or not customers will return to a hotel or advise it to other tourists, is pivotal

to the success of the hospitality business. Neglecting to pay attention to those hotel

attributes considered most important by guests leads to negative evaluations of the

hotel, thus restricting the chance of repeat patronage.

From table 3 Correlation coefficient of 0.96 shows that there is a positive relationship

between customer satisfaction and customer retention. This is further testify by the r2

= 0.9216. Since the tcal of 5.94 is greater than tcrits of 3.182 at 0.05 significant level it

therefore reveals that there is a significant relationship between customer satisfaction

and customer retention. In support of is result Oyenihi & Abiodun (2008), Jones &

Earl (1995) and Timothy et al (2007) opined that research have shown a relationship

between customer satisfaction and client retention. Numerous metrics have been

employed by researchers, firms to measure customer retention, customer satisfaction

is by far the most commonly used and best (Reichheld, 1996).

5.Conclusion

Customer satisfaction is the degree to which customer expectations of a products or

services are met or exceeded. Therefore, any business especially service providers in a

competitive environment without a focus on customer satisfaction will remain

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irrelevant in the marketplace, experience low customer patronage, poor customer

retention, loyalty and recommendation. Customer satisfaction increases firms’ market

shares and assists eateries to enhance customer loyalty, customer patronage as well as

sales volume.

6. Implication of findings

On the bases of the above analysis, it is recognized that with improvement of

customer satisfaction firms will find customers that are more loyal. By thereferring of

loyal customers a firm can also attract more customers. Based on the study, firm

managers are advised to satisfy and better manage their relationships through quality

product and service offerings to their customers as a competitive policy in the

marketplace. Firms are required to offer products/services that meet or surpass

consumers’ expectation.

Variables ∑x

∑y

∑x2

∑y2

∑xy

r

r2

tcal

tcrit

Customer satisfaction (x) 240 29170

23400

0.95

0.9025

5.27

3.182

Loyalty (y) 240 20386

Sig. Level = 0.05; df = 3

Table 1: Pearson Product Moment Correlation result between customer satisfaction

and loyalty

Variables ∑x

∑y

∑x2

∑y2

∑xy

r

r2

tcal

tcrit

Customer satisfaction (x) 240 29170

23212

0.94

0.8836

4.78

3.182

Customer Patronage (y) 240 20346

Sig. Level = 0.05; df = 3

Table 2: Pearson Product Moment Correlation result between customer satisfaction

and customer patronage

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Variables ∑x

∑y

∑x2

∑y2

∑xy

r

r2

tcal

tcrit

Customer satisfaction (x) 240 29170

23424

0.96

0.9216

5.94

3.182

Customer Retention (y) 240 20346

Sig. Level = 0.05; df = 3

Table 3: Pearson Product Moment Correlation result between customer satisfaction

and customer retention

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