BRM Topic 47 Report

8/7/2019 BRM Topic 47 Report

http://slidepdf.com/reader/full/brm-topic-47-report 1/19

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By:

Karan Arora 10IB-037

Kaustuk Tendolkar 10FN-053

Mukul Garg 10DM-089

Nikhil G. Pai 10DM-094

Institute of Management Technology, Ghaziabad (March 2011)



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ABSTRACT

Purpose: The purpose of this research is to find out the factors responsible for customer

loyalty towards internet retailing and contrast them to those for traditional retailing.

Approach: Five attributes affecting customer loyalty and satisfaction were identified on the

basis of literature. Online questionnaires were circulated among students and professionals,and were analysed. One-sample t-tests (non-parametric) were conducted to test the

significance of each of the five attributes, in internet and traditional retailing.

Findings : Price and customization were identified as the most important factors valued by

internet shoppers and hence directly determined customer loyalty towards internet retailing.

Research limitations: Due to time constraints, only a limited sample size (87) could be tested.

By increasing the sample size, better insights of customer preferences can be gained.



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ACKNOWLEDGEMENT

We are extremely thankful to Dr. Roma Mitra Debnath for her valuable inputs, constant

support and guidance, throughout the making of this project, without which this project

would not have been possible.

We also acknowledge the effort and time devoted by the respondents in filling

the questionnaire and providing us with valuable data and insights.



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TABLE OF CONTENTS:

Introduction.................... ..........................................................................................................5

Literature Review............................................................................................................ .........6

Research Design........................................................................................................................9

Statistical tools............................................................................................................ ............11

Hypotheses................................................................................................................... ...........12

Data analysis............................................................................................... ............................14

Conclusion............................................................ ...................................................................15

Appendix............................................................................. .............................. ......................17

References................................................................................................................... ............19



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INTRODUCTION

The Internet and the Price-Value-Loyalty Chain

y Price is what is given up or sacrificed to obtain a product.

[Valarie A.Zeithaml, (1988), ³Consumer perceptions of price, quality and value : A

means-end model and synthesis of evidence´, J ournal of Marketing, Vol. 52, Pg 2-22]

y Customer Value is the ratio of attributes weighted by their evaluation to the price

weighted by its evaluation.

[Dickson, Peter and Alan Sawyer, (1984), ³ Point-of-Purchase behaviour and price

perceptions of supermarket shoppers´, Marketing Science Institute Working Paper

series]

y Customer loyalty is viewed as the strength of the relationship between an

individual's relative attitude and repeat patronage.

[Dick, Alan S. and Kunal Basu (1994), ³Customer Loyalty: Toward and Integrated

Conceptual Framework´, J ournal of the Academy of Marketing Science, Vol. 22, No.

2, pp. 99-113 ]

Further, linkages between price factors and perceived value were established by Dodds et al.,

1991 & Grewal et al., 1998, as well as between price and customer loyalty by Voss et al.,

1998. In addition, literature supports the general notion that pricing factors affect perceived

value, which, in turn, contributes to customer loyalty (Reichheld, 1996)

Therefore, Internet lowers the overall product/service price by reducing both transaction costs

and information-acquiring costs and thus, information asymmetry. Moreover, consumers

place great importance in the role of privacy and security. Internet retailers providing detailed

assurances to the consumer on their privacy and security policies will be perceived as

providing greater value as compared to those not providing such assurances.Finally, internet supports customer loyalty through enhancements in perceived value. Hence,

these 3 parameters, being directly affected by internet, form a framework calledPrice-Value-Loyalty Chain.

When the value perceived by customer is more than the price paid by them then it leads to the

customer satisfaction. Customer satisfaction is an essential element in building customer

loyalty. Prior to internet availability the customer was not aware of the price differentials

prevailing in the market. Also they were unable to take the advantage of customer to

customer business. Internet made the information freely available and changed the scenario.

Customers now know about the price charged by various vendors in the market for the same

product. Hence, it has affected the marketer¶s ability to differentiate solely on the basis of

price. Therefore marketer¶s will now have to review the customer perceived value of the

product again and enhance the way of generating and delivering such value with the use of

internet. [Dhruv Grewala, Gopalkrishnan R. Iyerb, R. Krishnanc, Arun Sharmad (2003), ³The

Internet and the price±value±loyalty chain´, J ournal of Business Research, Volume 56; Pg

No: 391±398]



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LITERATURE REVIEW:

1) ³Customers in long-term relationships experience three primary types of benefits beyond

the core service: confidence benefits; social benefits; and special treatment benefits.

Confidence benefits describe the reduction of uncertainty in transactions and the increase in

realistic expectations for the service encounter. Social benefits describe the emotional aspects

of relationships and focus on personal recognition of customers by employees and the

development of friendships between customers and employees. The third type of benefit,

special treatment benefits, includes both economic and customization advantages for the

consumer. This benefit gets at the notion that relational partners get special deals and

treatment that is unavailable to non-relational customers.

Regardless of the service type, confidence benefits have been found to be the most important

type of benefits in face-to-face encounters (Gwinner et al., 1998), and its effect on loyalty

primarily occurs through satisfaction (Hennig-Thurau et al., 2002). Given that security and

privacy issues in online transaction are a primary concern for consumers (Zeitheraml et al.,

2000), the perception of confidence benefits in online transactions is predicted to have a positive effect on one's intent to stay in the relationship. Because Internet-based self-service

technology by definition excludes interactions with others, there is no opportunity to develop

social relational benefits of the form described in prior studies.

Four attributes are important in the adoption and continued use of Internet-based self-service

applications:

1. Perceived control: is based on one's judgment of their own ability to ³determine/design the

service for themselves rather than uniformly take what is offered´.

2. Performance: Consistent with Dabholkar (1994), we conceptualize the performance

attribute of Internet-based self-service technology as the extent to which the technology

operates accurately and dependably.

3. Convenience: refers to the ability to use self-service technology to make the procurement

and delivery of goods and services that fit the consumer's needs in terms of timing and

location.

4. Efficiency: is based on the notion that transaction times can be reduced over traditional

person-to-person exchanges when utilizing Internet self-service technologies (ISST)´

[Hsiu Ju Rebecca Yen and Kevin P. Gwinner (2003), ³Internet retail customer loyalty: the

mediating role of relational benefits´, International J ournal of Service Industry Management ,

Vol. 14, No. 5, pp 483-500]



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2) ³The impact of internet on the price-value-customer loyalty chain can be studied by

putting forward the following 11 propositions:

Proposition 1a: Market price variation is likely to be reduced in product categories carried by

Internet retailers as compared to categories predominantly sold by traditional retailers.

Proposition 1b: Market price variation is likely to increase in product categories carried by

Internet retailers as compared to categories predominantly sold by traditional retailers.

Proposition 2: Consumers will use the monetary price information provided by Internet

retailers to a greater extent for commodity-like products as opposed to non commodity

products.

Proposition 3: Consumers are less likely to compare monetary prices for products that are

perceived or marketed as highly differentiated, even though the actual differences may be

nominal.

Proposition 4: Consumers are more likely to engage in online shopping when they perceive

significant reductions in information search costs.

Proposition 5: Consumers are less likely to purchase products over the Internet that require

experience, trial, inspection or judgment, especially when engaging in such

product/brand/website transactions for the first time.

Proposition 6: Consumers desiring immediate possession of the product will be less likely to

transact over the Internet.

Proposition 7: Consumers offered appropriate privacy protection and guarantees with respect

to the use of personal information would perceive a reduction in their nonmonetary prices,

and, therefore, a decrease in their costs of transacting over the Internet.

Proposition 8: Consumers would view the offerings of Internet retailers real-time trial (in

terms of downloads, read/listen on the web) as greater in terms of perceived value, and,

therefore, are more likely to be repeat consumers as compared to other Internet retailers who

do not offer such trials.

Proposition 9: Internet retailers providing detailed assurances to the consumer on their

privacy and security policies will be perceived as providing greater value as compared to

those not providing such assurances.

Proposition 10: Internet retailers offering no-cost or relatively low-cost after-sales support

and service will be perceived to offering greater value as compared with retailers who do not

offer such support .

Proposition 11: Internet retailers customizing their offerings to their customers are likely to

create greater loyalty.´

[Dhruv Grewala, Gopalkrishnan R. Iyer, R. Krishnanc, Arun Sharmad (2003), ³The Internet

and the price±value±loyalty chain´, J ournal of Business Research, Volume 56; Pg: 391±398]



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3) In the consumer marketing community, customer loyalty has long been regarded as an

important goal. In a competitive setting, such as the Internet market, where competition may

be only one click away, has the potential of switching costs as an exit barrier and a binding

ingredient of customer loyalty become altered. Although the moderating effect of switching

costs on the satisfaction±loyalty relationship has been researched, its impact on the

relationship between perceived value and loyalty has essentially been ignored. This studyattempts to reduce this gap by investigating the interrelationships among the four constructs

in the setting of business to-consumer electronic commerce. The approach employed by the

authors involves a consideration of customer satisfaction and perceived value as

they interact with switching costs. Specifically, the following three research questions are

examined:

�What are the roles of customer satisfaction and perceived value in producing online

customer loyalty?

� Is customer satisfaction mediating the effect of customer-perceived value on customer

loyalty?

� How do switching costs moderate the effect of customer satisfaction and perceived value on

customer loyalty?

This study establishes a measure of online customer satisfaction. The scale consists of five

salient dimensions²customer services, order fulfilment, ease of use, product portfolio, and

security/privacy. The study is subject to various drawbacks such as intention not leading to

action and repeated buying behaviour not reflecting intentions.

[Zhilin Yang and Robin T Peterson, (October 2004), ³Customer Perceived Value,

Satisfaction, and Loyalty: The Role of Switching Costs´, Psychology & Marketing , Vol.

21(10):799±822]

So, based on the literature review, five attributes have been extracted, that determine the

customer loyalty:

y Price (asymmetry, information search costs and switching costs)

y Physical Interaction (with product & employee)

y Customization

y Convenience (saves time & effort, urgency, order tracking, after-sales support &

service)

y Security & Privacy



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RESEARCH DESIGN:

Problem statement:

Are internet retailers able to gain a competitive advantage over brick-and-mortar firms

(traditional retailers)?

Research Questions:

1.What is the influence of perceived price asymmetry that affects customer buying behavior

between internet retailers and traditional retailers?

2.Which attributes are valued more by customers in internet retailing than traditional

retailing?

Research Objectives:

1. To determine the attributes influencing customer loyalty towards internet retailers.

2. To determine the attributes influencing customer loyalty towards traditional retailers.



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Target Population:

Age: 18 to 26 yrs

Occupation: engineering students, management students & IT professionals

Family income: > Rs.50,000/month

Sampling plan: Probabilistic Sampling: Simple random sampling

A database of 300 names will be created from the social networking sites¶ friends lists and

100 names (as minimum sample size, calculated below, is 69) will be randomly selected and

will be included in the sample for the questionnaire.

Sample size:

In this study confidence level of 90% is taken. Since the population sample which can bereached is small due to limitation of time. Probability of type II error is higher. Hence, the

confidence level of 90% is taken. Margin of error has been kept at 0.1.

Since the population proportion is not known and even standard deviation of population is not

known we take p=0.5, as p(1-p) can never be larger than when p=0.5.

Applying the formula: - n=p*(1-p)*(z/E)2

Where, p=0.5, E=0.1; Z= 1.65 for 90% confidence interval.

Therefore n = 69.



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STATISTICAL TOOL:

Objective Hypothesis# Questions* Statistical tool

1. To determine the

attributes influencing

customer loyalty

towards internetretailers.

H0a, H0b, H0c, H0d,

H0e,

H1a, H1b, H1c, H1d, H1e

Q 1, 2, 3, 4, 5

( each has 3 sub-

questions each)

One sample t-test:

Non-parametric

(using likert scale)

2. To determine the

attributes influencingcustomer loyalty

towards traditional

retailers.

H0f, H0g, H0h, H0i,

H0j,

H1f, H1g, H1h, H1i,

H1j

Q 6, 7, 8, 9, 10

( each has 3 sub-questions each)

One sample t-test:

Non-Parametric(using likert scale)

#Refer Hypotheses on Page 12 for hypothesis statements.

*Refer Questionnaire on Page 17 for questions.



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HYPOTHESES

Null Hypotheses:

H0a : Price is not an important factor for customer loyalty for internet retailers.

� 3 (where 3 stands for neutral in the question 1)

H0b : Physical interaction is not an important factor for customer loyalty for internet retailers.


H0c : Customization is not an important factor for customer loyalty for internet retailers.


H0d : Convenience is not an important factor for customer loyalty for internet retailers.


H0e : Privacy & security is not an important factor for customer loyalty for internet retailers.


H0f : Price is not an important factor for customer loyalty for traditional retailers.


H0g : Physical interaction is not an important factor for customer loyalty for traditional

retailers.


H0h : Customization is not an important factor for customer loyalty for traditional retailers.


H0i : Convenience is not an important factor for customer loyalty for traditional retailers.


H0j : Privacy & security is not an important factor for customer loyalty for traditional

retailers.




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Alternate Hypotheses:

H1a : Price is an important factor for customer loyalty for internet retailers.

< 3 (where 3 stands for neutral in the question 1)

H1b : Physical interaction is an important factor for customer loyalty for internet retailers.

< 3 (where 3 stands for neutral in the question 2)

H1c : Customization is an important factor for customer loyalty for internet retailers.

> 3 (where 3 stands for neutral in the question 3)

H1d : Convenience is an important factor for customer loyalty for internet retailers.


H1e : Privacy & security is an important factor for customer loyalty for internet retailers.


H1f : Price is an important factor for customer loyalty for traditional retailers.


H1g : Physical interaction is an important factor for customer loyalty for traditional retailers.


H1h : Customization is an important factor for customer loyalty for traditional retailers.


H1i : Convenience is an important factor for customer loyalty for traditional retailers.


H1j : Privacy & security is an important factor for customer loyalty for traditional retailers.


Research Questionnaire: 2 sets of questions were administered, depending upon the preferred shopping medium

(internet or traditional) of the participant. Each set had 15 statements and used 5-point Likert

scale (1: strongly disagree, 5: strongly agree). Therefore, a total of 30 statements were made.

No. of Responses received = 87 (43 for internet and 44 for traditional)



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DATA ANALYSIS

1. Normality test was undertaken for each of the sample (internet & traditional).

It was found that both the samples are not normally distributed.

Therefor non-parametric test ± one sample t-test has been used. ( = 0.01)

2. Results:

A) One sample t-test for Internet retailing participants

Attributes Mean S.D. p

Price 4.23 0.60 0.007

Physical Interaction 4.10 0.74 0.025

Convenience 4.16 0.59 0.017

Security & Privacy 3.62 0.82 0.023

Customization 4.26 0.56 0.000

So for = 0.01,

Price 0.007 (p < ) Reject H0a

Physical Interaction 0.025 (p > ) Fail to reject H0b

Convenience 0.017 (p > ) Fail to reject H0d

Security & Privacy 0.023 (p > ) Fail to reject H0e

Customization 0.000 (p < ) Reject H0c

B) One sample t-test for traditional retailing participants

Attributes Mean S.D. p

Price 4.37 0.46 0.034

Physical Interaction 4.17 0.48 0.005

Convenience 1.93 0.60 0.007

Security & Privacy 2.15 0.47 0.003

Customization 3.64 0.41 0.032

So, for = 0.01,

Price 0.034 (p > ) Fail to Reject H0f

Physical Interaction 0.005 (p < ) Reject H0g

Convenience 0.007 (p < ) Reject H0i

Security & Privacy 0.003 (p < ) Reject H0j

Customization 0.032 (p > ) Fail to Reject H0h



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CONCLUSION

We found that:

For internet buyers:

- Price is an important factor for customer loyalty.

- Customization is an important factor for customer loyalty.

For traditional buyers:

- Physical Interaction is an important factor for customer loyalty.

- Convenience is an important factor for customer loyalty.

- Security & Privacy is an important factor for customer loyalty.

Therefore, f rom the various hypotheses proven we can draw the following conclusions:

As internet marketing space is becoming extremely competitive, e-marketers are investing their effort

in making customers loyal to their particular portal. Therefore it becomes important for them to

develop the core competencies in such areas where customers of such web portals pay maximum

attention.

Though the literature suggests that price asymmetry has been reduced with the advent of e-marketing,

buyers survey points out that they are still looking at the price as one of the most important

differentiating factor. Therefore, rather than charging fixed price or similar price as that of

competitors it will generate more revenue for the e marketers if they can charge lower prices or

differential prices as per the buyers choice. Also it appears that buyers are using internet

simultaneously for price discovery while making purchase. Hence e-marketers are further advised to

provide the buyer with the pricing information to help them in buying process which in the long term

will earn customer loyalty for them.

Traditional marketers, on the other hand, should facilitate physical interaction of the buyers with the

potential material to be purchased. They should also try to provide the buyers with the maximum

convenience. Security and privacy to the desired extent should be arranged for the buyer. With the

advent of e-marketing, the traditional marketers should focus on these aspects as buyers have

manifested them to be the most crucial factors while making the buying decision in brick and mortar

retailing format.

Also, as pointed out by the hypothesis regarding customization, buyers try to exploit the

technological advantage of using various software and web tools to customize the product according

to their own need. Therefore those companies which are in the production of easily modifiable

products with flexible production capacities should make good use of this opportunity. They should

make customization option available to buyer. As more and more buyers use this opportunity, it will

also help e-marketers to charge premium price for the customized product and create a price

differential as mentioned above.



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Hence by paying due attention to the buyers preference in e marketing environment the e-marketer

can adapt companies strategy suitably. This conscious effort of aligning the buyers preferences and

company strategy as historically observed, results into the enhancement of the perceived value by the

customer. Such enhanced customer perceived value leads to customer satisfaction and ultimately

results into the customer loyalty which is very crucial for the profitability of any business.



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APPENDIX

CUSTOMER LOYALTY QUESTIONNAIRE (SAMPLE)

Link: https://spreadsheets.google.com/viewform?formkey=dGI1dFRHS3RPdnRwc3NP WHJVcnlCTGc6MQ

Instructions: All the information will be used for academic purpose only. The confidentiality of the personal information will be maintaine d.

The questionnaire consists of two sections - General Information and Customer Buying Preferences.We kindly ask fo r your truthful participation in this research. All the questions are compulsory. We appreciate your help and thank you for your participatio n.

________________________________________________________________________________________________________________

Section ± 1 (General Information)

Name

Gender

Age

Occupation

Education

Preferred Medium of Purchasey Internet

y Traditional retailers - Shops, Malls etc.

* Depending upon the option chosen in the above question, the participant would be directed to :

- internet : Page 2

- Traditional : Page 3

___________________________________________________________________________

Page 2 of the questionnaire

Customer Loyalty Questionnaire (For Internet Shoppers)

Section ± 2

(1: Strongly Disagree; 2: Disagree; 3: Neutral; 4: Agree; 5: Strongly Agree)

Q1.Price

I am relieved that I don¶t have to compare prices between different online retailers for the same product.I shop online regardless of the lower prices being offered in the shops.

The price charged online for a product reflects its true worth, however high it may be.

Q2.Physical Interaction

I can easily make a buying decision by going through the product specification given online.

I rely on my own judgement rather than somebody else¶s while buying a product.

I rarely regret my decision after I get the physical possession of the product .



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Q3.Customization

I modify a product my own way to suit my needs.I trust that the retailer will use genuine parts to make changes in the product.

I seek retailers who give me choice to add/remove features from a product.

Q4. Convenience

I like to minimize the time and effort while shopping.

I like to keep a track of the order I placed till it reaches me.

I prefer to shop from the comforts of my home.

Q5. Security & Privacy

I trust the retailer to keep my personal in formation confidential.

I seek privacy while I am shopping for a product.

I generally check the seller's credentials before dealing with him.

Page 3 of the questionnaire

Customer Loyalty Questionnaire (For Traditional Shoppers)

(1: Strongly Disagree; 2: Disagree; 3: Neutral; 4: Agree; 5: Strongly Agree)

Q6. Price

I visit a no. of shops to ascertain whether I am getting the best possible price for a product.

I am willing to spend some extra money to know if the other shops are charging less.

I will switch to another shop if it is offering a better price for a product.

Q7. Physical Interaction

I like to touch and feel the product before I buy it.

I feel the salesperson plays an important role in helping me make a buying decision .I believe the store's ambience has an influence over my buying behaviour.

Q8. Customization

I modify a product my own way to suit my needs.

I trust that the retailer will use genuine parts to make changes in the product.

I seek retailers who give me choice to add/remove features from a product.

Q9. Convenience

I like to minimize the time and effort while shopping .

I like to keep a track of the order I placed till it reaches me.

I prefer to shop from the comforts of my home.

Q10. Security & Privacy

I trust the retailer to keep my personal information confidential .

I seek privacy while I am shopping for a product.

I generally check the seller's credentials before dealing with him.



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REFERENCES

y Valarie A.Zeithaml, (1988), ³Consumer perceptions of price, quality and

value: A means-end model and synthesis of evidence´, J ournal of Marketing,

Vol. 52, Pg 2-22

y Dickson, Peter and Alan Sawyer, (1984), ³ Point-of-Purchase behaviour and

price perceptions of supermarket shoppers´, Marketing Science InstituteWorking Paper series

y Dick, Alan S. and Kunal Basu (1994), ³Customer Loyalty: Toward and

Integrated Conceptual Framework´, J ournal of the Academy of Marketing

Science, Vol. 22, No. 2, pp. 99-113

y Dhruv Grewala, Gopalkrishnan R. Iyer, R. Krishnanc, Arun Sharmad (2003),

³The Internet and the price±value±loyalty chain´, J ournal of Business

Research, Volume 56; Pg: 391±398

y Hsiu Ju Rebecca Yen and Kevin P. Gwinner (2003), ³Internet retail customer loyalty: the mediating role of relational benefits´, International J ournal of

Service Industry Management , Vol. 14, No. 5, pp 483-500

y Zhilin Yang and Robin T Peterson, (October 2004), ³Customer Perceived

Value, Satisfaction, and Loyalty: The Role of Switching Costs´, Psychology &

Marketing , Vol. 21(10):799±822

___________________________________________________________________________

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BRM Topic 47 Report