Does a Change in Customer Loyalty Occur When a New Car Agency Is Sold?

Author(s): Richard D. Nordstrom and John E. Swan

Source: Journal of Marketing Research, Vol. 13, No. 2 (May, 1976), pp. 173-177
Published by: American Marketing Association
Stable URL: http://www.jstor.org/stable/3150854
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 RICHARDD. NORDSTROMand JOHN E. SWAN*

Marketing theorists have assumed that changes in market structure variables

could affect consumer loyalty behavior. This report presents supportive evidence
from an ex post facto experiment showing that a change in a business' ownership
was related to significantly altered brand and store loyalty patterns.

Does a Change in Customer Loyalty Occur

When a New Car Agency is Sold?

INTRODUCTION impact of an altered situational or environmental

Consumer loyalty to brands has been the subject
of much research over the past few years [1, 2, 4,
5, 7, 9, 12, 13, 18]. Consumerloyalty to retail estab-
lishmentsalso has been examinedwidely as evidenced
by several recent studies [6, 8, 14, 17]. One of the
results of these studies has been the finding that
marketingstructurevariablesand prior purchases are
significantinfluences on both brandand store loyalty.
However, no one has evaluated any single dimension
of the market structure to determine its role as an
influencer of loyalty. Ownershipof a firm seems, at
least intuitively, to be of some importance as an
influencer of customer loyalty. Yet the impact of a
changein ownershipon loyalty has not been subjected
to analysis in past research [16]. The central element
of this report is an examination of the effects of a
change in the ownership of a new car franchise on
those customers who had developed (established)
patterns of loyalty behavior toward the firm and the
product sold by the firm.
A primary focus of the research was a retesting
of the hypothesis that repurchaseof a brand is more
likely among buyers who have demonstrated prior
loyalty to the brand.The significance of this retesting
of a brandloyalty learninghypothesis is that the study
was able to incorporate the sale of an automobile
dealershipas the main independentvariable. In con-
ceptual terms, the research included analysis of the
* Richard D. Nordstrom is Associate Professor of Marketing at
Western Illinois University in Macomb, Illinois. John E. Swan
is Associate Professor of Marketing at the University of Arkansas
in Fayetteville, Arkansas.
173
variable on consumer behavior [11, p. 46-59].
However, the study of situational variables has not
progressed to the point where the impact of such
factors is well understood[3]. The questionalso holds
relevance for businessmen. Ownership of new car
franchises or of any business is subject to change.
New owners of a businessare interestedin determining
actions they mightreasonablyexpect from customers
who have displayed some degree of loyalty toward
the firm and/or the brandcarried.
STUDY SETTING
The cornerstoneof the project was a set of brand
and dealer loyal customers. These people had demon-
strated loyalty toward one of two cooperating new
car agencies, a Ford dealership which had changed
ownership and a Chevrolet agency where no change
in owners had occurred. Brand and dealer loyalty
patterns of these people before and after the date
of the sale of the Ford agency were analyzed. Only
new car buyers who had been doing business with
one of the two firms and who still resided in the
county where the two firms conducted their business
were included in the study.
An ideal experimentaldesign would call for a set
of nearly identical new car dealers from which the
experimentorcould randomlyassign roles for a con-
tinuing ownership and a changing ownership.
However, in the business world such a situation is
impossible. Because the role of a changingdealership
was given, selection of a control group requiredcare
to assure minimumexposure to possible intervening
external variables. Preference was given to another
dealership in the same city even though it had to
be a dealership selling a different make of new car.

Journalof MarketingResearch
Vol. XIII (May 1976), 173-7

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174
May [13] showed that there was no difference in
loyalty between new car buyers on the basis of the
brandof car purchased.Therefore, it was determined
that use of a control dealer from the same city would
prevent differences in economic variables, demo-
graphic variables, and competitive variables which
would be likely if the control group were selected
from a different community.
The cooperating Chevrolet agency was selected
because of manysimilaroperatingcharacteristicssuch
as volume, numberof employees, and length of time
in the same community. Analysis of the data from
the questionnairesfurther supported the similarities
between the control and experimentalgroups. Sample
size variations reflected the sales ratio within the
county. Response rates were nearly identical, 42.4%
for the control group and 45% for the experimental
group. Loyalty rates for the two groups were similar.
Table I shows the distributionsof loyalty. A Kolmo-
gorov-Smirnovtest showed that the two groups were
similar as the maximum D was .089 for the brand
loyalty distribution and .068 for the store loyalty
distribution.The probability of difference was less
than .01 for either distribution.
Automobiledealers are well suited for a study of
the effects of a change in ownershipon loyalty. The
retail channel throughwhich most new cars are sold
in Americais somewhatunusual-at least in compari-
son with otherretailingarrangements.New car dealers
normallyoffer one or two brands under a franchise
grantedby one manufacturer.Thus, when two firms
are comparedthere need be little concern over varia-
tions in the size of assortment offered the public.
Further, the influence of a change in ownership on
brand loyalty and store loyalty can be determined
much more clearly in a retailing arrangementwhere
a limited numberof brandsare sold.
HYPOTHESES
The first underlyinghypothesis tested was a null
hypothesis that before the change in the Ford dealer-
ship's ownership there was no difference between
membersof the control group (Chevroletbuyers) and
membersof the experimentalgroup (Ford buyers) in
termsof the frequency of occurrenceof variousbrand
and dealer loyalty patterns. Because the two new car
agencies shared many common features, it was be-
lieved neither firm would be likely to attract a large
groupof customerswho woulddisplayuniquepatterns
of loyalty.
The second basic hypothesis was that people who
had demonstratedhigh loyalty before the change in
ownership would be more likely to maintain their
loyalty after the change in ownershipthanpeople who
had shown less loyal behaviorbefore the change. This
hypothesis was based on basic learning theory plus
the work of other researchers [17] who found that
loyalty patternstend to become more consistent over
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JOURNALOF MARKETINGRESEARCH,MAY 1976
time. In addition, May [13], in a study of new car
purchases,found a direct relationshipbetween repur-
chases of a brand and previous ownership of that
brand. May's findings have been validated by two
recent doctoral dissertations [9, 15]. All three re-
searchersfound that roughly 75%of the people who
had made consecutive purchasesof a brandcontinued
to purchase that brand on their next opportunityto
select a new car.
METHOD
Natural Experiment
A natural experiment was used to obtain data
suitablefor examinationof consumerbrandand dealer
loyalty patterns [16]. Patternsof loyalty were estab-
lished by respondents before any change had taken
place in the marketplacestructure. Identification of
the potential respondentswas made possible by free
access to records from two cooperating new car
agencies.
The Ford agency was sold in 1970. Therefore, only
buyers who had shown loyalty to one of the two
cooperatingfirms during the period 1960-1970 were
included in the investigation. Loyalty was defined
operationallyas evidence of two or more purchases
from one agency as determined by an examination
of the part of the data base concerning sales. People
who were qualifiedwere sent a questionnaireto obtain
their purchase history. Sales records only provided
informationon purchasesfrom two sources.
Questionnaires were color coded to signify how
many cars had been purchased from one of the
agencies. Thus, a yellow questionnairewas recognized
as coming from a person who had purchased three
Chevrolets from the cooperating Chevrolet agency.
If the history reported by the respondent disclosed
actual purchases of four Chevrolets, this response
was categorized as 100%brandloyal and 75% dealer
loyal. The purchasehistory also providedinformation
about the respondent'sactivity in the new car market
after the date of sale of the Ford agency.
When any business changes hands, the new owners
do not usually expect to retain all past customers.
In the situation examined, the impact of the sale on
old customerswas believed to be about normal.There
were no pressures on either party to the transaction.
As in many sell-out situations,every effort was made
to encourageold customersto supportthe new owners.
Old managementsent letters, newspapercoveragewas
adequate, and the new owners voiced their intention
to retain all emiployees, all policies affecting cus-
tomers, and a consistent level of customer service.
Thus, customers knew they would be able to deal
with the same people, could expect the same service,
and could expect the same procedures as before.
Consequently, observed changes in loyalty patterns
couldbe attributedlogicallyto the impactof the change
 CHANGE WHEN A NEW CAR AGENCY IS SOLD?
DOES CUSTOMERLOYALTY 175

in dealership ownership rather than to changes in
personnel, policies, or procedures.
GeographicSetting
The study was conducted in a Kansas community
of approximately16,000people. The city is in a county
with 24,000 populationand an effective tradeterritory
of roughly 40,000. Eight new car dealers operate in
the county. As is the case with national car sales,
Ford and Chevrolet account for the bulk of new car
registrationsin the county. At the time of the study
only the Ford agency had been sold. The new owners
of the Ford agency were well known in the area.
Time
The sale of the Ford franchise and the collection
of data were separated by three years. This period
of time was long enough to permit a majorityof the
subjects to re-enterthe new car market. In fact, 67%
of all respondents actually had purchaseda new car
in the period 1970-1973. The tables summarize the
data obtained only from those people who had made
a purchaseafter the date of sale of the Ford agency.
Thus the analysis is relieved of a potential criticism
of use of intentions to buy, which may or may not
coincide with actual purchases.
Pretest
Pretest of the questionnaire was conducted with
a convenience sample of 38 adults who had purchased
a new car. This test permittedan examinationof the
informationobtained from the testing instrument to
pinpoint any problems in obtaining desired informa-
tion. Two modest revisions were made as a result
of this procedure. After revision, a second pretest
was conductedwith 10people who had been customers
of a dealership 350 miles from the study area. No
further alterations were deemed necessary after the
second pretest.
Non-ResponseBias
Non-response bias was not considered a major
problem because respondents did not appear to be
differentupon comparisonwith non-respondents.Two
demographiccharacteristicswere compared, age and
education. They were selected because past research
had identified these two variables, more consistently
thanany others,as beingcorrelatedwith brandloyalty.
Because these two importantcharacteristicsseemed
uniform for both respondents and non-respondents,
the 44%response rate was considered adequate [20].
RESULTS
The first hypothesis was accepted. There was no
discernible difference between the groups in terms
of loyalty before the sale of the Ford agency. Table
I shows the distributionof loyalty toward the brand
and toward the dealership. The figures are recorded
fromresponses of personswho actuallyhad purchased
a new car after the sale of the Ford agency. The
rate of reported purchase was consistent with the
actual sales of the county. Acceptance of this
hypothesis made it possible to conclude that both
agencies were patronized by customers with similar

Table 1
RESPONDENTSCATEGORIZEDBY LOYALTY
BEFORE1970

Priorbrandloyalty Priorstore loyalty

Group 1005% 80% 75% 66% Total 100I% 75% 66% 50% 40% Total
Ford (experimental) 61 12 7 3 83 29 9 23 19 3 83
Chevrolet (control) 31 6 7 4 48 16 4 12 13 3 48

Table 2
BRAND CHOICE BY PRIORLOYALTY

Ford Chevrolet
Less than Less than Less than Less than
1005% 100K%X 100%% 100%% 100%5 100 10O% 100%
Action brand brand store store brand brand store store
after 1970 loyal loyal loyal loyal loyal loyal loyal loyal
Bought same brand 29 9 22 7
Bought other brand 32 13 9 10
Total 61 22 31 17
Bought from same dealer 6 19 11 14
Bought from other dealer 23 35 5 18
Total 29 54 16 32

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176
loyalty dispositions. Therefore, it would be logical
to assume that differences in behavior of these cus-
tomers after the sale of the Ford agency were not
due to underlyingdifferencesin basic attitudestoward
loyalty. Thus, an introduction of a change in the
marketplaceenvironment,change of ownership, can
be imbuedwith causalityof any subsequentalterations
in loyalty patternsin the experimentalgroup.
The second hypothesis introducedthe proposition
that stronger past loyalty would be a predictor of
a greaterprobabilityof future loyalty. Table 2 shows
that the Chevrolet (control) group reacted as would
be predicted from this hypothesis. Of the Chevrolet
respondentswho had displayed 100%loyalty before
1970, 71% remained loyal. This finding conforms to
rates of new car loyalty providedby other researchers
[9, 13, 15]. However, the Ford(experimental)group's
loyalty was significantly lower after the change in
the ownership of the Ford dealership. Only 47% of
the previously 100% brand loyal Ford respondents
remained loyal after the agency was sold. Ford re-
spondents who faced a change in their environment
did not react as would be expected from observations
based on purchasebehaviorassociated with historical
patterns of buying behavior. The general conclusion
drawnfrom this unexpected reduction in loyalty was
that a change in ownership had caused the purchase
patterns of previously loyal Ford buyers to undergo
some alteration. Statistical support was given this
conclusionby applicationof a Fisherexact probability
showingthatthe two groups(controland experimental)
were not similar [19].
Dealer loyalty also was determinedfrom data ob-
tainedin the study(see Table3). As with brandloyalty,
the Chevrolet (control) group reacted as would be
expected. The higher dealer loyalty subjects before
1970were the higherdealerloyalty subjectsafter 1970.
The fact that the experimentalgroup did not react
as would be expected reflects the fact that intensity
of priorloyalty is not an absolutepredictorof behavior.
Respondentsin the experimentalFord groupwho had
displayed less than 100% loyalty to the dealership
Table 3
SELECTIONSMADE BY 100% LOYALRESPONDENTS
AFTER1970
Bought Bought Bought
same same other
brand brand brand
from from from
same other other
Loyalty group dealer dealer dealer
100% brand loyal before 1970
Ford (61) 21 8 32
Chevrolet (31) 20 2 9
100% dealer loyal before 1970
Ford (29) 6 8 15
Chevrolet (16) 11 0 5
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JOURNALOF MARKETINGRESEARCH,MAY 1976
before 1970actually remainedloyal to the dealership
after the sale at a higherrate than did the respondents
who had been 100%loyal before the sale. Thus, it
was concluded that the influence of a change in the
dealership's ownership adversely affected ability to
predict continued patronageof store or brand. This
conclusionaccountsfor problemswhicharisein efforts
to predict continuedpatronageof a store or purchase
of a brandwhen the basis for predictionrelies heavily
on past loyalty behavior without regardfor environ-
mentalfactors affecting loyalty.
It was not possible to conclude that the impact of
the change of a market structure variable had been
greater on either type of loyalty. Very clearly,
however, a significant change in loyalty behavior
emerged after the shift in ownership. It should be
noted, perhapsparenthetically,thatrespondentscould
give evidence of 100%brandloyalty and not be 100%
store loyal. However, it was impossible to be store
loyal and not also brand loyal. This restriction was
inherentin the franchise system of new car distribu-
tion.
DISCUSSION
As was noted, the situation studied was not a
situationof extremes. No bankruptcy,conflict, or any
other abnormal feature surroundedthe sale of the
agency. Therefore, it was assumed that any changes
in the behavioralpatternscould be associated directly
with the change in ownershipand were not a reaction
to some other element present in the transaction.The
effects of the sale cannot be rated as above, equal
to, or below normal,as no "normal"has been estab-
lished. It was definitely apparentthat the change in
ownership resulted in altered patterns of loyalty.
Membersof the experimentalgroup displayed much
less propensityto remainloyal than did members of
the control group. A summaryof data is presented
in Table 4.
Perhaps the primaryfinding of this research con-
cerns the learning constructs which have been the
basis for prediction of a consumer's current choice
of a product given his past purchases. Predictionof
behavior on the basis of past satisfaction was found
to be reliable only for the control group and not for
the experimentalgroup. One conclusion drawn from
this discovery was that currentbrandchoice behavior
can be related to prior brandloyalty if, and only if,
marketplacefactors congruent to the choice process
remain constant over time. Alterationof any market
variableis likely to upset the probabilityof continued
loyalty. Dealerownershipwas shownto be a significant
influenceon loyalty. In particular,a change in owner-
ship had an impact on brandand source selections.
Findings developed from this research show that
future studies of loyalty toward a brand or a store
should include an identification of market structure
variableswhich may influencethe consumer'sactions.
 CHANGE WHEN A NEW CAR AGENCY IS SOLD?
DOES CUSTOMERLOYALTY 177

Table 4
SUMMARYOF OBSERVATIONS

Controlgroup Experimental
Observations (Chevrolet) group (Ford)
1. Of the respondents:the people who had purchaseda new car of any makeafter the sale of the
Ford dealershipwere 42.4% 45%
(48) (84)
2. Of the people in 1:
those who had been 100%obrandloyal before the sale were 64.6% 73.5%
those who had been 100%store loyal before the sale were 33.3% 35%
The data above indicate that there was no difference between the two groups surveyed in terms of loyalty before
the sale of the Ford agency.
3. Of those who had been 100l%brandloyal before the sale:
those who remainedbrandloyal after the sale were 71% 47%
4. Of those who had been 100%store loyal before the sale:
those who remainedstore loyal after the sale were 69% 20.7%
those who remainedbrandloyal after the sale were 69% 48%
those who did not retainloyalty to either the brandor the store were 0% 57%
Conclusion: A change in the marketingstructurevariable, ownership, had a significanteffect on behavioralpatterns
of customers. This effect was reflected in a shifting of loyalty patterns among members of the experimental
group.

At least, future researchers should be aware of the
possible effects on loyalty which could be induced
by a change in any major market structure variable
such as ownership.
An extension of this work might be a study of the
significance of market structure variables on retention
of loyalty. The effect of other market structure varia-
bles on loyalty also could be considered. A study
of the effects of changes in market structure variables
on industrial buyers might be worthwhile.
Practical implications were gleaned from the project.
It may be very important, from the dealer's viewpoint,
to seek continuity of operation as a means of holding
loyal buyers. Manufacturers will observe that the study
findings reinforce the value of emphasis on consistent
dealer representation. The findings also highlight a
need to recognize that loyalty is dependent on factors
outside the physical product.
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