Investment in Consumer relationship: A replication study

Abstract
This study is a critical reassessment and extension of De Wulf et al.s (2001) framework
investigating retail investments in consumer relationships. Their initial model relates four
types of relationship marketing efforts to perceived relationship investment, in turn
inuencing relationship quality and ultimately behavioural loyalty. Based upon signaling
theory, we extend this model by introducing product and service efforts as additional
antecedents. Based upon 200 consumers reporting on their relationship with apparel
retailers, the SEM results provide guidelines for retailers how to increase the quality of
their relationships with consumers by strengthening consumers perceptions of
relationship investment.
Introduction:

This study is extension of the De Wulf et al. (2001) framework. De Wulf et al. (2001)
recently developed and tested a model which differentiates four tactics of relationship
marketing for the purpose of strengthening the relationship between consumer and
retailer. Four tactics are Interpersonal communication, direct mail, tangible rewards and
preferential treatment.
The study concludes the results which show positive relationship between four tactics and
perceived relationship investment. The study also concludes that perceived relationship
investment ultimately then enhance the relationship quality as well behavioral loyalty.
No doubt this initial study identifies the relationship between two parties one is retailer
and other is consumer this was a first empirical assess which also identifies two
shortcoming which give direction for future research to overcome shortcoming of While
their study was an interesting first attempt to empirically assess the effect of De Wulf et al.
(2001) study.
First, De Wulf et al.s (2001) study hurtled with the partially captured meaning of
behavioral loyalty because its measure was self-reports. For the confidence of behavioral
loyalty can be achieved with access to behavioral data on the history of customer purchase
which are not subject to the potential recall loss. Which enable the investigation of longer
string of purchase.

Second, three additional antecedents tangible elements ( product quality, product price,
and service quality ) need to be added in relationship investment for the sake of better
capture the mechanism behind mechanisms behind the establishment of strong retailer
consumer relationships
SERVQUAL measures (Parasuraman et al. 1988; 1991) applied in context of study which
was not initially applied to any relative context of the study which examine relationship
investment.

The core objective of the study is to add additional antecedent like; product quality,
product price, service quality and then to see the impact of these on the consumer retailer
relationship. This also extend the initial model of De Wulf et al.s (2001) study. This study
also want to investigate that either retail experience is necessary for the marinating loyal
relationship earns retail investment

Literature review:

No any past research has conduct the research For the purpose of building the customer
relationship. Many author recognize the significance of relationship marketing efforts
(Dwyer etal. 1987; Ganesan 1994; Gwinner et al. 1998), service effort (Boulding et al. 1993;
Parasuraman et al. 1994) and product effort (Anderson and Sullivan 1990; Metcalf et al.
1992) simultaneously, yes research has be conducted but separately not collectively. So
this study integrate all three efforts (product, service and customer relationship) in one
single model. So this integrated model will give more reliable and valid results.

Most of the research uses single method data source which cause biasness but this study is
using multiple methods relate to attitudinal data (from customer survey) to behavioral
data (results from a customer data base).

In initial study external validity was done by consumer having different variety of retailers.
But this study focus on internal validity.
First of all we discussed the additional antecedents of perceived relationship investment in
theoretical framework of signaling theory which gives now new modified and extended
conceptual model in result. After it we elaborate the results in research design of this study
then at last we will discuss the results and implication of this study.


Theoretical background
The previous studies provide reciprocity point of view for justification of tested
conceptual model. Reciprocal action theory shape that actions are taken by one party in an
exchange relationship are reciprocated by the another party, resulting from anticipating
feelings of another party (Li, et al., 1997)). (Wulf, et al., 2001) he had applied this reasoning
to relationships between retailers and consumers. The model suggest that an investment of
time, effort and other resources in a retailerconsumer relationship creates psychological
ties, which motivates them to maintain the relationship and makes an expectation of
reciprocation. We will also relate this principle in a consumer context, on the behalf of a
retailers irrecoverable resources by the construct of perceived relationship investment.
Then following constructs of relationship quality and behavioral loyalty, representing
consumers reciprocation of a retailers investments, and reflect the extent to which
consumers want to continue their relationship.

Another contradicts theory to the reciprocity principle, signaling theory, which is emerging
from the study of economics, which can make a significant addition to examine the
development and sustainability of long-term relationships. In order to stimulate
reciprocation, indicators need to be sent out that inform the other party about its
unobservable intentions (Boulding and Kirmani 1993). Considering basic assumptions of
signaling theory, different parties passes different amounts of information, affecting the
nature of mutual relationship of retailer and consumer. Initial for consumer, there is no
reliable data for particular product. This problem of information has been reduced by both
parties when the share information (Boulding and Kirmani 1993; Kirmani and Rao
2000).when a manufacturer offer warranties to their customer for product, by providing
the customer with an suggestion of the product reliability level can be estimated.

Relationship of marketing efforts distinguished by (Wulf, et al., 2001)that easily be
understand as signals to inform customers about the retailers unobservable relationship
investment, i.e. offering discount on coming again on same restaurant, it can be considered
as a signal that the restaurant owner wants to build long term relationships with the
customers.
Conceptual model and research hypotheses:








Perceived relationship investment:

De Wulf et al. (2001) Perceived relationship investment can be defined as a perception of a
consumer for the retailers efforts like using resources, time and attention for building and
maintaining relationship with regular customers. And this relationship hasnt any outside
value as well these unable to recover if once relationship terminated. The main construct of
De Wulf et al. (2001) study is perceived relationship.

In figure: 1 perceived relationship further discussed with antecedes and consequences.
Three different signals need to be discussed in this figure; service effort (responsiveness,
reliability, empathy, assurance and tangibles), product effort (product price and product
quality) and relationship marketing efforts (interpersonal Communication, direct mail,
preferential treatment and tangible rewards) also discussed behavioral loyalty and
relationship quality the reciprocal Consequences of perceived relationship investment.

Product efforts
In product efforts examine by Corstjens and Lal (2000) show that consumer of goods can
be differentiated by the heterogeneity in their trade-offs between quality and price.
According to them, a quality segment, deriving greater the utility from perceived quality,
and a price segment is driven by low prices, can invariably be distinguished. Therefore, we
examined both types of product efforts separately in our research.

Product price

simultaneous with Dabholkar et al. (1996), we analysis product price as an significant
determinant of store loyalty, being distinctive from service quality. We describe product
price as a consumers perception of the extent to which the products selection offered by a
retailer is expensive (Dodds et al. 1991). In other words, price refers to what is given up or
gives up in exchange for a product (Ahtola 1984; Monroe and Krishnan 1985). We judge
product price as a signal of perceived relationship investment. Ceteris paribus asking a low
price may imply that the retailer is apparently willing to forgo short-term profits in return
for consumer loyalty. Consequently, we propose the following hypothesis:

H1: A lower perceived level of product price leads to a higher perceived level of
relationship investment



Product quality
We define product quality such as a consumers level of satisfaction with the products
selection offered by a retailer (Gaski and Etzel 1986; McDaniel and Burnett 1990). A high
level of products quality are generally considered to make consumers feel eager, pleased,
excited, satisfied, content, committed and loyal. Finding high-qualityof product that suit a
consumer needs often engender feelings of satisfaction and pride (Yoo et al. 1998).
However, for a store to carry high quality products, it may be required to make costly
arrangements with suppliers, higher product inspection costs, and to create other tangible
investments (Garvin 1984). Such signs involve up-front expenditures that are expected to
be recovered in the future by the benefits of strengthened the relationships with
consumers. through consequence, such expenditures may stimulate consumers confidence
that the retailer is willing to make investments in mutual relationship.

H2: A higher perceived level of product quality leads to a higher perceived level of
relationship investment.
Service efforts:
(Parasuraman, et al., 1998) Defined service quality as the extent to which consumers
perceives service offered by a retailer is superior or excellent. We assess service quality by
adapting (Parasuraman, et al., 1998)SERVQUAL scale, consisting of 22-items assessing five
different dimensions of service quality (i.e. reliability, responsiveness, assurance, empathy
and tangibles.) Tangibles mean the physical facilities, equipment, and appearance of
personnel in the retail store. Reliability is the ability of the retail store to perform the
promised services dependably and accurately. Responsiveness is described as the
willingness to help customers and provide prompt service as needed. We define Assurance
as the knowledge and courtesy of employees and their ability to inspire trust and
condence. Lastly, empathy is defined as the caring and individualized attention the rm
provides its customers with.
Many studies have operationalized SERVQUAL scale differently such as (Cronin, et al.,
1992) adopted performance based measure of service quality but (Kassim, et al., 2002)
recently relied on original five dimension construct of service quality, the one that we are
also using in our study. Despite the strong support for performance based measure of
service quality (Jr, et al., 1982) we only rely on consumer perception in order to measure
service quality in retail outlets, because of time constraint to measure service quality.
Offering service quality requires investment from retail store. Service quality is that
amount of money that is invested in order to earn customer loyalty. In other words such
investments seem to enhance customer loyalty. We hypothesize as:

H3 : A higher perceived level of service quality leads to a higher perceived level of
Relationship investment.

Relationship Marketing tools:
Direct Mail:
(Wulf, et al., 2001) considered direct mail as consumers perception of the extent to which
a retailer keeps it regular customers informed through direct mails, the one that we use in
this study. Crosby and Stephens 1987 consider direct mail necessary to keep relationship
with customer. We hypothesize as:

H4: A higher perceived level of direct mail leads to a higher perceived level of
relationship investment.

Preferential treatment:
Preferential treatment refers to a consumers perception of
the extent to which a retailer treats and serves its regular customers better than its
non-regular customers. Preferential treatment leads customers to feel important (Peterson
1995.) Thats why we hypothesize as follows:

H5: A higher perceived level of preferential treatment leads to a higher perceived
level of relationship investment.

Interpersonal communication:
interpersonal communication refers to consumers perception of the extent to which a
retailer interacts with its regular customers in a warm and personal way than as non
regular customers. The social interaction between customer and retailer determine
relationship outcomes (Lawrence A. Crosby, et al., 1990), (Kevin R Gwinner, 1998)
According we hypothesize as:

H6: A higher perceived level of interpersonal communication leads to a higher
perceived level of relationship investment.

Tangible rewards:
We dene tangible rewards as a consumers perception of the extent to which a retailer
offers tangible benets such as pricing or gift incentives to its regular customers in return
for their loyalty.Tangible rewards are often helpful in earning customer loyalty (Peterson
1995; Sharp and Sharp 1997.) As a result we hypothesize as:

H7: A higher perceived level of tangible rewards leads to a higher perceived level
of relationship investment.

Relationship Quality as a result of perceived relationship investment

(Smith, 1998); (Garbarino, et al., 1990) defined relationship quality as the strength of
overall relationship as a result of perceived relationship investment. We consider
relationship quality in line with (Wulf, et al., 2001) as construct that encompasses
relationship satisfaction, trust and relationship commitment. That means that higher level
of relationship satisfaction, trust and relationship quality are the antecedents of higher
level of relationship quality.
As we intend to replicate the (Wulf, et al., 2001) study, we applied identical
denitions and measures for each of the subdimensions of relationship quality. We
dene relationship satisfaction as a consumers affective state resulting from an
overall appraisal of his relationship with a retailer, trust as a consumers condent
belief in a retailers honesty towards this consumer, and relationship commitment as
a consumers enduring desire to continue a relationship with a retailer accompanied
by this consumers willingness to make efforts at maintaining it. Hence we hypothesize as:

H8: A higher perceived level of relationship investment leads to a higher
perceived level of relationship quality.

Behavioural loyalty:
Previous literature suggests that there is strong relationship between relationship quality
and behavioral loyalty (Bolton, et al., 1991) Accordingly we build on existing literature and
describe behavioral loyalty as a composite measure based on consumers purchasing
frequency and amount spent at a retailer compared with the amount spent other retailers
from which the consumer buys (Wulf, et al., 2001). Accordingly we hypothesize as follows:

H9: A higher level of relationship quality leads to a higher level of behavioral loyalty
Method:
Sample and Procedure
We used convenience sampling for selection of sample, leading to a sample of 300 students
of Sukkur IBA. Web survey and mail survey were used in order to collect information.
We sent a mail survey to all customers selected from the database, asking them to
provide their perceptions on their relationship with the retailer, comprising all
constructs examined in our study. After a period of two weeks, 250 respondents (83%
response rate) returned the completed questionnaire. After removing those respondents
from the sample who did not complete all questions or did not provide name and address
information, we retained 200 usable responses (66% response rate) for data analysis.
Measures:
With respect to the replication part of the model, all measures were identical to the
original study of De Wulf et al. (2001). The constructs that we added to the model
were based upon established measures: product price (Dodds et al. 1991), product
quality (Gaski and Etzel 1986) and service quality (Parasuraman et al. 1994). Table 1
provides an overview of construct means, standard deviations, and correlations.

















Table 1. Mean, Standard Deviation and Correlations
Correlations
Mean SD
SQ RQ DM PT IC TR PP PQ PR BL
SQ 4.4558 1.08724 --
RQ 4.9265 1.22243 .767
**
--
DM 3.0362 1.71768 .432
**
.310
**
--
PT 4.5131 1.41374 .667
**
.676
**
.333
**
--
IC 4.0365 1.41405 .401
**
.460
**
.162
*
.431
**
--
TR 4.3793 1.38313 .612
**
.576
**
.283
**
.582
**
.521
**
--
PP 4.6877 1.25620 .581
**
.561
**
.218
**
.639
**
.427
**
.373
**
--
PQ 5.0294 1.60659 .600
**
.661
**
.159
*
.554
**
.273
**
.435
**
.614
**
--
PR 4.9982 1.41189 .712
**
.816
**
.284
**
.596
**
.402
**
.573
**
.588
**
.749
**
--
BL 3.6542 .99903 .415
**
.573
**
.265
**
.454
**
.317
**
.341
**
.444
**
.562
**
.507
**
--
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).

Results:
Structural Model Evaluation:
Table 3 indicates that all signicant relationships between latent constructs are in the
hypothesized direction, providing initial evidence for our conceptual model and supporting
the nomological validity of the constructs. No empirical evidence was found for the
hypothesized relationship from product price (H1) to perceived relationship investment,
suggesting that consumers do not perceive product price to be signal of relationship
investment. Contrary to these ndings, service quality and product quality reveals a strong
positive impact on perceived relationship investment, providing support for H3 and H2.
With respect to the relationship marketing efforts, we only found support for tangible
rewards (H7) as signal of perceived relationship investment. No signicant relationship
with perceived relationship investment could be found for preferential treatment (H5),
Direct Mail (H4) and Interpersonal Communication (H6). The fact that consumers
perceived the retailer to make investments in their mutual relationship was convincingly
reciprocated in terms of increased relationship quality, supporting H8. Finally, we could
nd strong support for the hypothesis that higher levels of relationship quality lead to
more loyal behaviour (H9).







Table 3. Structural Model


Estimate S.E. C.R. P Label
PR <--- DM .024 .038 .629 .529 par_1
PR <--- PT .000 .064 -.006 .995 par_2
PR <--- IC .062 .050 1.228 .219 par_3
PR <--- TR .143 .060 2.398 .016 par_4
PR <--- PP .063 .069 .912 .362 par_5
PR <--- PQ .409 .050 8.128 *** par_6
PR <--- SQ .360 .087 4.149 *** par_7
RQ <--- PR .707 .037 19.262 *** par_8
BL <--- RQ .468 .049 9.524 *** par_9

Discussion and Implication:

First, our ndings indicate that product price did not qualify as signal of perceived
relationship investment. Two possible explanations could underlie this conclusion. A rst
reason for this nding could be that consumers interpret attractive levels of product price
only as minimal conditions for them to be willing to make a purchase at a store. In
consequence, they apparently do not consider this effort as an investment on behalf of the
store in a long-term relationship with them.
An alternative explanation could simply be that product price is an effort that is not
specically targeted at particular consumers. Prices in a store are the same for all
customers, thus limiting its role as signals of relationship investment. This explanation is in
line with social comparison theory (Festinger 1954: p. 127) stating that each individual
wishes to be slightly better than the others with whom they compare themselves where a
consumer perceives efforts to be equal to all consumers, which is the case for product
price, this consumer does not feel being better than others. This could be an encouraging
nding for all retailers that are undertaking efforts to customize their product offerings
such as Levis does with its custom made jeans. By doing this, they might be able to
inuence perceptions of relationship investment beyond generating mere transaction
satisfaction. Future research might be needed to further explore the role of price as
relationship marketing efforts. However Product quality does qualify as signal of perceived
relationship investment. Possible explaination for this could be, that people are more
conscious about quality rather than price.
Rust et al. (1995) introduced their return on quality approach aimed at enabling managers
to determine where to spend on service quality, how much to spend, and the likely nancial
impact from service expenditures. While our approach is not of a nancial nature, we
consider it as complementary to theirs in the sense that we empirically assess to which
extent service expenditures are considered as true investments from the viewpoint of the
consumer. As the increase in explained variance of perceived relationship investment from
.31 to .77 can mainly be attributed to the inclusion of the service quality construct, we
clearly demonstrate that consumers indeed recognize service quality to be a strong signal
of perceived relationship investment. While service quality has been shown to lead to
increased satisfaction with a transaction (e.g. Woodside et al. 1989; Parasuraman et al.
1994), we empirically supported that service quality is also a strong precursor of a more
long-term construct such as perceived relationship investment. By consequence, these
results should provide retailers with enough condence that the upfront investments in
service quality enhancement will be transformed into strengthened perceptions of
relationship investment and, as a result, in stronger relationships.
When looking at the results related to the relationship marketing efforts, preferential
treatment, direct mail and interpersonal communication did not act as signals of perceived
relationship investment.
This result is in contrary with what De Wulf et al. (2001) found in their discussion of the
Belgian apparel sample. Just as in the original study, interpersonal communication and
direct mail were important antecedents of relationship investment. However, the current
study tangible rewards revealed a signicant relationship with perceived relationship
investment, while it did not in the original study. The opposite was found for the constructs
of preferential treatment, interpersonal communication and direct mail. The reason for
these differences might reside in the fact that customer groups of different retailers hold
different expectations in terms of receiving relationship marketing tactics. Moreover, it
would enable retailers to rene the segmentation of their target market, ultimately better
responding to their specic needs and wants.
Finally, as in the original study, reciprocal action theory was supported as better
perceptions of relationship investment led to enhanced relationship quality.And
behavioural loyalty (self reported) was also affected by relationship quality in this study, as
self-reported measures of behavioral loyalty in the original study were consistently
inuenced by relationship quality. These results should provide retailers with enough
condence that stronger perceived relationship investment would lead to stronger
relationship quality and stronger relationship quality would lead to stronger behavioral
loyalty.
Refrences:

Anderson, E. W., & Sullivan, M. W. (1993). The antecedents and consequences of customer satisfaction for
firms. Marketing science, 12(2), 125-143.

Ahtola, O. T. (1984). Price as a Givecomponent in an exchange theoretic multicomponent model. Advances in
consumer research, 11(1), 623-636.

Babakus, E., & Boller, G. W. (1992). An empirical assessment of the SERVQUAL scale. Journal of Business
research, 24(3), 253-268.

Baumgartner, H., & Homburg, C. (1996). Applications of structural equation modeling in marketing and consumer
research: a review. International Journal of Research in Marketing, 13(2), 139-161.

Bejou, D., Wray, B., & Ingram, T. N. (1996). Determinants of relationship quality: an artificial neural
network analysis. Journal of Business Research,36(2), 137-143.

Vaux Halliday, S. (2003). Which trust and when? Conceptualizing trust in business relationships based on
context and contingency. The International Review of Retail, Distribution and Consumer Research, 13(4),
405-421.