Chapter 1 Viva

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1.1 Introduction

Customer satisfaction has emerged as one of the top priority strategies for the majority of

business organisations (Fournier and Mick 1999; Woodruff 1993). This is in line with the

customer-orientation philosophy that has become the fundamental basis of continuous

improvement of the prevailing business approach (Grigoroudis and Siskos 2002; Mittal and

Kamakura 2001). However, understanding how and why satisfaction develops remains one

of the key challenging and critical management issues today (Bloemer and Odekerken-

Schröder 2002).

Researchers regard satisfaction as the focal construct in consumer behaviour models (e.g.

Dabholkar 1996; McDougall and Levesque 2000; Oliver 1980a), whilst the practitioners

treat it as a key driver for designing successful marketing strategies. Generally, firms are

using customer satisfaction data to diagnose product quality, service problems and toimprove customer retention rates (McDougall and Levesque 2000; Olsen 2002). In fact,

increasingly many organisations admit that customer satisfaction is an important factor in

determining the success of businesses and that customers’ perceptions and judgements must

be measured (Wong and Kanji 2001). In a similar voice, Kristensen et al. (1999 p. 602)

convincingly assert that:

“Customer satisfaction is a key issue for every company wishing to increase the value of

customer assets and create a better business performance…customer satisfaction should be measured and managed.”

Furthermore, Grigoroudis and Siskos (2002, p. 148) advocate that:

“Customer satisfaction measurement may be considered as the most reliable feedback

system, consider ing that it provides an effective, direct, meaningful and objective way the

clients’ preference and expectations.”

In light of the above assertions, it is clear that customer satisfaction should be measured

and regarded as a baseline standard of performance, and a possible standard of excellence

for business enterprises. In fact, the new ISO 9000 revision requires firms to collect and act

on their customer satisfaction data. Importantly, customer satisfaction has taken on national

and international significance with the development of national satisfaction barometers or

indices (e.g. American Customer Satisfaction Index (ACSI), European Customer



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Satisfaction Index (ECSI)) utilised to reflect customers’ satisfaction levels for specific

firms, sectors or industries (Johnson et al. 2001; Juhl et al. 2002).

Research evidence has revealed that customer satisfaction is an essential determinant in

realising desired outcomes such as customer loyalty, customer retention and ultimately,

profitability (e.g. Anderson et al. 1994; Burnham 2003; Fornell et al. 1997; Kassim 2001).

For example, Bernhardt et al. (2000) suggest that there is a positive relationship between

customer satisfaction and profits. Mittal et al. (1999) reveal that maintaining customer

satisfaction is the key to retaining customers and in turn improving profitability. In view of

this evidence, it is not surprising that there was resurgent interest in understanding the

impact of customer satisfaction on a firm’s performance. The importance of customer

satisfaction to business performance was emphasised by Drucker (1988, p.76), who asserts

that:

“The single most important thing to remember about any enterprise is that there are no

results inside its walls. The result of a business is a satisfied customer,…inside an

enterprise there are only cost centres. Result exists only on the outside”

Empirically, considerable research supports the linkage between satisfaction and

behavioural intentions/loyalty. For instance, Anderson and Sullivan (1993), Fornell (1992)

and Taylor and Baker (1994) provide empirical evidence that a positive association has

been observed between customer satisfaction and loyalty. Interestingly, Rust and Zahorik

(1993) found that retention is the key driver of market share and customer satisfaction is in

fact the primary determinant of retention. Noticeably, a vital component in any customer

retention programme is satisfaction (Jones et al. 2000). Anderson and Sullivan (1993, p.

140) advocate the significance of satisfying customers by suggesting that:

“…a reputation for satisfying customers makes the firm less vulnerable to temporary

quali ty declines. I nvesting in customer satisfaction is li ke taking out an insurance policy.I f some hardship temporari ly befal ls the f irms, customers will be more likely to remain

loyal”

Fundamentally, companies that are able to deliver superior levels of satisfaction could

enhance their competitiveness (Anderson and Fornell 1994). Furthermore, nowadays, the

satisfied customer is viewed as a crucial means of creating a sustainable advantage in the



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current competitive marketplace (Patterson et al. 1997). Several studies have substantiated

that the long-term success of a business firm is closely correlated to its capability to adapt

to customer needs and unpredictable changing preferences (Eklöf and Westlund 2002). A

growing number of companies have recognised that customers often become more

profitable over time (Heskett et al. 1994); hence, this means that developing and

maintaining relationship with customer is crucial in order to increase customer retention

(Crosby and Stephens 1987; Jones et al. 2000). For marketers, the challenge is identifying

the critical factors that determine customer satisfaction, which in turn, leads to behavioural

intentions and loyalty. Indeed, recently, Ping (2003, p.237) observed that:

“It is now difficult to find a branch of marketing that does not stress the importance of

satisfaction in the creation and maintenance of exchange relationships.”

From the above, it is not surprising that there has been proliferation of satisfaction

knowledge over the last three decades. As noted by Woodruff (1993), not were only papers

associated with the satisfaction topic most frequently published in established journals, but

also there has been an entire journal (Journal of Consumer Satisfaction, Dissatisfaction and

Complaining Behaviour) specifically devoted to satisfaction-related research. In essence,

judging from the literature accumulated in journals and proceedings, one can argue that the

search for knowledge of the customer satisfaction phenomenon has dominated the field of

marketing research. It has been a major concern and important agenda of academician and

practitioners alike (Babin and Griffin 1998; Mittal and Kamakura 2001; Mittal et al. 1999;

Perkin 1993; Woodruff 1993; Yi 1990) and accordingly, is the primary focus of this study.

This thesis documents the research stages undertaken by the author in an attempt to add

empirical insights of the determinants and consequences of customer satisfaction within the

context of consumption experiences from the direct sales marketing channel. Taking a

systematic approach, research questions and objectives are formulated and examined from

the perspectives of the consumers. Accordingly, by synthesising the Expectancy

Disconfirmation Paradigm (EDP) with empirical theories a conceptual model is developed

and tested to explore, systematically explain and predict customer satisfaction and its

outcomes within the consumption setting examined.



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1.2 Research Rationale

The rationale of the current study is based on two perspectives; the research context (i.e.

direct sales marketing channel) and the theoretical framework adopted.

1.2.1 Research Context Perspective

Retailing in the 21st century undoubtedly means doing business with consumers on their

terms and conditions (Mathwick et al. 2002). In addition, Schultz (2002) points out that

today it is not a question of how the marketer wants to sell; but it is a question of how the

customers want to buy. In a similar vein, Rosenbloom (1991) convincingly asserts that a

critical fact of modern marketing is not what marketers offer to customers, but how they

offer it to them, that determines success in the marketplace. In essence, the market-place

power has shifted; customers are now in control because they have access to tremendous

amounts of market knowledge and the traditional restriction of time and geography hasdisappeared. Opportunity to access various product distribution channels, particularly

through surfing the internet has made it possible for them to shop and compare products

and prices, and even to contact marketers around the world.

In the 90s non-store retailing had been predicted to be an important trend which could

represent the next revolution in the retail marketplace (Lazer et al. 1990) and experience

growth (Bartlett 1994). Evidently, today this anticipated trend is well supported: for

instance it was observed by Crittenden and Wilson (2002), that the fundamental practice of

retailing has undergone dramatic transformation, particularly with the increase popularity

of non-store retailing (e.g. personal selling, catalogues, TV shopping, the Internet, etc.).

This burgeoning trend was fuelled by consumer’s increased willingness to purchase via

these alternative channels, greatly influenced by their changing lifestyles and work patterns

(Msweli-Mbanga and Lin 2003). In this regard, the “traditional bricks-and-mortar stores

are not necessarily a requirement in today’s retailing environment ” (Crittenden and Wilson

2002, p. 255). As a result, the famous adage of retailing success, ‘location, location,

location’ is becoming less relevant, perhaps the appropriate adage of today’s retailing

environment should be, ‘distribution, distribution, distribution’.

Noticeably, in highly competitive markets, firms all over the world are competing for the

same market share, thus to pursue customers on product differences alone is a thing of the



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past (Schlesinger 1995). Driven by this fact, most firms today increasingly focus on non-

product factors, specifically the marketing channels through which products and services

are made available to customers. Alternatively, product could be distributed via remote

selling channels such as electronic marketing, interactive television, mail order and

catalogues as well as the direct sales channel, which is the industry studied in this thesis.

Rosenbloom (1995) describes direct selling as a channel of distribution of consumer goods

and services through personal face-to-face (salesperson-to-customer) sales away from fixed

business locations (primarily in the home, workplaces or other locations). It represents an

important alternative channel of distribution of consumer products, which enables products

to be sold not just stocked, recommended not just advertised, and demonstrated not just

displayed. Considering the competition from other selling channels, the strength of direct

sales channel clearly lies in its superior personal service, its convenience (beingindependent of locations), opportunities for product trial and the innovative nature of

products (e.g. not available in shops) (Direct Selling World Survey 2000).

In this thesis, Malaysian direct sales industry is the research context and it is worth noting

that the industry grew significantly in the 90’s, but the recent 2001 sales figures have

displayed some indication of a downward trend (Figure 2.6, p. 48). According to official

statements (Ministry of Domestic Trade and Consumer Affair 2002), this decline in sales of

more than 30 per-cent was due to the restructuring of the industry (see Section 2.8).

However, as predicted, the sales revenue for year 2002 bounced back by nearly 30 per-cent

to Malaysian Ringgit 3.9 Billion (USD1.03 Billion). Similarly, a slight decline in the

worldwide sales figure for year 2000 and 2001 was reported but there was no official

statement to justify this phenomenon (see Figure 2.3, p. 44). Due to limited literature and

supporting empirical evidence, it is very difficult to establish the reasons for this

‘unexpected occurrence’. Laggos (2002), one of the industry observers convincingly

blames the recession in United States during late 2000 through 2001 as negatively affecting

the industry sales performance.

Notably, the only published empirical study that hinted there was some crucial problem

within the direct sales industry was that of Raymond and Tanner (1994). They assert that

the crucial problem facing the direct sellers is how to generate repeat business. In a similar



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voice, Reese (1999) conjectures that the slowdown of direct sales in year 2000 and 2001

was mainly due to the major issue experienced by most direct selling companies, that is

distributor and customer retention. He suggests that in a situation when recruitment1 of new

direct sellers is difficult, alternatively, more emphasis should be focused on generating new

customers and importantly on retaining the existing ones by offering greater value products

and services. Undoubtedly, the importance of repeat business to a company cannot be

overlooked. The following statement from a marketing executive (cf. Rosenberg and

Czepiel 1984, p. 45) typifies the short-sightedness of concentrating all the marketing effort

on getting new customers rather than taking care of the ones they already have:

“The many ways companies relate to customers is akin to looking for a needle in a

haystack, fi nding it, and thro wing it back to look for it again.”

Nevertheless, other factors could exacerbate this unfavourable condition, including those

consumers themselves becoming more discerning, knowledgeable and sophisticated, hence

having greater expectations related to consumption experiences. They are now spoilt with

abundant choices within and outside the industry. This ‘spoiling’ is illustrated by the fact

that in 2001 it was reported by the Ministry of Domestic Trade and Consumer Affairs that

there were more than 400 direct selling companies in Malaysia (see Table 2.2, p.48).

Furthermore, direct selling companies face increasingly severe competition, not only

among themselves, but also from other types of retail channels.

In the quest to retain customers, direct sellers and the direct selling companies have to look

one-step backward in order to unearth what are the key determinants of the customers’

satisfaction, because it has been firmly established and empirically proven that there is a

significant relationship between customer satisfaction and behavioural intentions. Prior

research suggests that satisfaction is the vital premise for customer retention (Burnham et

al. 2003; Rust and Zahorik 1993; Szymanski and Hanard 2001). Furthermore, customer

satisfaction with a company’s product or services is often seen as the key factor in

increasing customer retention, which subsequently creates and improves business

performance (Ryan et al. 1995). Similarly, Kotler (1994) forcefully emphasised that

1 Any activity conducted for the purpose of inducing a person to become a direct seller



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customer satisfaction is the key predictor to customer retention. Simply stated, only

companies that understand what and how to make their customers satisfied will prevail.

Despite the continuing and growing importance of the direct sales channel, very little

empirical study has attempted to investigate post-purchase phenomenon in this context

(Raymond and Tanner 1994; Young and Albaum 2003). Nevertheless drawing from the

limited literature, initial attempts to explore and assess consumer perceptions of this

marketing channel have been undertaken (e.g. Kustin and Jones 1995; Peterson et al. 1989;

Raymond and Tanner 1994; Sargeant and Msweli 1999). However, there was no further

advanced research from the consumer perspective was observed since then with the notable

exception of Young and Albaum (2003), who examine the measurement of trust in

salesperson-customer relationships in the direct sales setting.

In light of the above reasons, it is clearly worthwhile and timely to study customer

consumption satisfaction and its behavioural consequences pertaining to the direct sales

distribution channel. To the best of the author’s knowledge there has been no published

research undertaken or reported to address this issue within the examined context.

Admittedly, there has been an abundance of empirical research on customer satisfaction

(e.g. Oliver 1980, 1993; Patterson et al. 1997; Patterson and Spreng 1997; Peterson et al.

1996; Spreng et al. 1996; Szymanski and Henard 2001), but the direct sales context has not

been subjected to conceptual and empirical scrutiny.

1.2.2 Theoretical Perspective

Customer satisfaction is undeniably a widely researched marketing topic and has been

extensively studied in various disciplines and perspectives (Day and Crask 2000; Perkins

1993; Yi 1990). Recently, numerous researchers have attempted to apply and validate

Customer Satisfaction (CS) theories developed by consumer behaviourists in the area of

patient satisfaction within the healthcare situation (Nitse and Rushing 1996; Singh 1991);

holiday satisfaction within the tourism industry (Chu 2002; Pizam and Ellis 1999; Tribe

and Snaith 1998), retail banking (Athanassopoulos 1997; Goode and Moutinho 1996; Jamal

and Naser 2002) and student satisfaction (Athiyaman 1997; Halstead et al. 1994). Judging

from these literature, it appears that the Expectancy Disconfirmation Paradigm has been



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widely applied and has dominated consumer satisfaction research since its emergence as a

field of study in the early 1970’s (Erevelles and Levitt 1992; Parker and Matthew 2001).

1.2.2.1 Expectancy Disconfirmation Paradigm (EDP)

According to this paradigm, consumers’ satisfaction judgements are the result of a

discrepancy between prior expectation and actual performance of the product/service after

its consumption (Oliver 1980a; Parker and Matthew 2001; Tse and Wilton 1988; Yi 1990).

If the performance falls short of expectation, this will yield negative disconfirmation; on

the other hand, if performance exceeds expectation, positive disconfirmation is formed. It

has been exemplified that positive disconfirmation will be transpired into satisfaction and

negative disconfirmation translate into dissatisfaction (Oliver 1980a).

Even though EDP has been the most promising theoretical framework for the assessment of

customer satisfaction, no consensus has been reached that pertains to the impact of

disconfirmation on satisfaction formation (Erevelles and Leavitt 1992). It has been argued

that under certain conditions, disconfirmation fails to operate as an intervening variable

affecting satisfaction as postulated by the theory (Churchill and Suprenant 1982; Tse and

Wilton 1988). Notwithstanding this, the EDP was used as a theoretical foundation in

developing the present conceptual framework. The hypothesised model modifies the

traditional EDP satisfaction model (Oliver 1980a) by incorporating multiple performance

and disconfirmation to form a systematic approach, but disregard the expectation variable

(see Chapter 3). What is more, it was expanded by integrating four pertinent constructs:

perceived value, perceived equity and relational commitment and purchase decision

involvement. It is very appealing to assess the applicability of the disconfirmation paradigm

within the direct sales context.

1.2.2.2 Conceptualisation of Customer Satisfaction in the Direct Sales Context

It was noted by Singh (1991), much attention in satisfaction study was focused on

understanding the process of customer satisfaction formation, that is the antecedents and

consequences of satisfaction, but overlooked the importance of its structure

(conceptualisation, taxonomy and operationalisation). Westbrook and Oliver (1981) argued



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that the inadequate development of the satisfaction construct hinders the interpretation and

synthesis of satisfaction findings. In addition, they suggested that examining satisfaction

from various aspects and product/service may give better understanding and extend its

explanatory ability. Furthermore, Oliver and DeSarbo (1988, p. 495) observed that, “more

than others in related discipline, consumer researchers have advanced and tested the

processes underlying satisfaction, placing less emphasis on (its) content .” The lack of

emphasis of the content of satisfaction evaluation is the reason for the poor

conceptualisation and measurement of the satisfaction construct (Hunt 1977). In a similar

vein, Singh (1991, p. 242) highlighted his concern and advocated that:

“Marketing researchers pay greater attenti on to the structure of satisfaction

evaluations .” (p. 241) By doing so, “…our understanding of the process of satisfaction

would be more insightful .”

Along these lines, the direction of the current study is to emphasise the structural approach

by investigating the determinants of customers’ satisfaction and subsequently integrating

the process perspective in one comprehensive model. This study attempts to incorporate the

various aspects/subsystems of the direct sales distribution system into two major steps in

the satisfaction evaluation judgements. First is the evaluation of salient attributes and the

second evaluation of object-based judgements. As posited by Singh (1991), after the

structure of satisfaction evaluation has been clearly conceptualised and measured, the next

stage is to investigate the process of satisfaction (i.e. its antecedents and consequences).

Following Singh’s (1991) recommendations, the present investigation initially aims to

examine the structure (conceptualisation and measurement of core constructs), then

subsequently investigates the process of satisfaction formation and its behavioural

consequences.

1.2.2.3 The Consumption System Approach

Duhaime (1988) recognised that research in the area of consumer satisfaction focuses

predominantly on goods and services and has overlooked the importance of the

consumption or distribution system as a factor that could influence satisfaction evaluation

process. Research investigation from this perspective has received very little attention, with

the notably exception of these authors: Crosby and Stephens (1987), Crosby et al. (1990),



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Mittal et al. (1999) and Singh (1991). Furthermore, Duhaime (1988, p.53) argues that the

lack of attention given to the system approach could imply that:

“…an incomplete understanding of the reality of the consumption of good or services

since consumption of goods and services is a process which compr ises of the evaluation

not only of the products consumed but also the dif ferent enterpri ses which produce,

distr ibu te and service these products.”

Furthermore, Dick et al. (1995) suggest that in the conceptualisation of satisfaction, it is

inadequate to take into account just a general feeling and they further assert that it is

imperative to distinguish satisfaction judgement with respect to a particular object or

referent. In other words, it is necessary to specify that the subject is satisfied with

something. Additionally, they suggest that in the decision to base a theory or strategy on

measurement of satisfaction, it is crucial that the measures tap the appropriate object(s) of

the satisfaction. In their empirical investigation, Aiello and Czepiel (1979) outlined three

distinctive types of satisfaction: “system satisfaction” (based on operations of the company

marketing system), “enterprise satisfaction” (referring to a product/service organisation

such as retail stores), and “product/service satisfaction” (referring to the consumption of a

particular product or service). Although these three sources are associated, their magnitude

of influence on consumer overall satisfaction differs.

In addition, many business organisations are beginning to recognise the significance of

understanding customers from a system perspective (Berry and Parasuraman 1991; Mittal

et al. 1999; Rust and Zahorik 1993). They yearn to know the explicit linkages that extend

from internal processes to customer perceptions to customer satisfaction to loyalty and

ultimately to bottom line performance. In essence, these factors represent a system that

must be measured and managed as a whole if firms want to maximise profitability (Johnson

and Gustafsson 2000). Similarly, Anderson and Mittal (2000) argue that firms have to place

more emphasis on the satisfaction-profit chain approach, which follows the logic of

systematic thinking. In this perspective, it is assumed that in the initial stage, a company

must focus on improving the critical product or service attributes performance, which will

increase customer satisfaction. Subsequently, increased customer satisfaction will result in

higher customer retention and ultimately lead to greater bottom-line financial performance.



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In brief, all these factors form a chain of causes and effects that build on one another, thus

they cannot be treated separately (Johnson and Gustafsson 2000).

In response to the above notion, in seeking a better understanding of customer satisfaction,

the system approach should be adopted, thus the current study is built on a system approach

within the EDP framework. In addition, even though the previous isolated studies

contribute some useful insights, they leave many important theoretical and empirical

questions unanswered (Kustin and Jones 1995; Raymond and Tanner 1994). In view of the

relevance and the importance of the current investigation to theory and practices in

consumer marketing, this study makes an initial attempt to explore, understand and

examine the structure and process of how customers evaluate their satisfaction within the

context of direct sales distribution channel. Essentially, this attempt will provide great

challenges because unlike tangible products or pure services, the consumption experiencewithin the direct selling distribution channel is an amalgam of three factors. Those are the

product, the direct salespeople who deliver products and services, coupled with the direct

sales firm, which offer corporate customer services, and indirectly mirrors its corporate

image.

Although the direct sales company could sometimes be the manufacturer of the products

(e.g. Anway, Avon, Zhulian) that are distributed by their direct sellers, the companies

generally, have no direct contact with their retail customers. Customers are serviced

directly by direct sellers. There have been no research studies in the direct sales context that

explore the linkage between satisfaction with product, salesperson and firm, thus there is no

comparable study that could indicate that all these three components are drivers to overall

satisfaction within this particular distribution channel. The nearest domain that could be

referred to is the traditional in-store retailing, which in very few studies they attempt to

examine the relationships between the product offerings, services rendered by their sales

associates and the retail store image. It has been demonstrated empirically that through

customer-salesperson interactions, a salesperson could influence the customer’s perception

of the selling firm (Anderson and Robertson 1995; Crosby and Stephens 1987).

Undoubtedly, the company itself is important because the customer may use the company

image as a surrogate cue in their decision making process. The judgement on the company



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could comprise of the attributes of the companies’ general practices, ethics and social

responsibility. A positive evaluation creates positive outcomes; conversely, a negative one

may create uncertainty and risk to the customer. In their study, Andreassen and Lindestad

(1998) claim that corporate image impacts on customer loyalty directly and has a positive

relationship with customer satisfaction. In addition, it has been suggested that with the

transaction-driven nature of satisfaction experience, corporate image has a cumulative

effect on customer satisfaction (e.g. Bolton and Drew 1991 and Johnson and Fornell 1991).

For these reasons, it would be fertile to investigate the relationship between company and

overall satisfaction and subsequently on behavioural intentions.

In the direct sales marketing channel, there is no “store” available. Therefore, the direct

sellers with whom the customers are in personal contact are very important not only to

initiate sales, but also to generate repeat sales. Unlike the in-store retailers who hope the prospective buyers will try to find them, the direct selling firms distribute products by

utilising salespeople who make personal visits to the prospect’s home or workplace for the

purpose of product demonstrations and ultimately to close sales. The principal trading asset

of a direct selling organisation is its sales force (Berry 1998). If an established direct selling

organisation loses its sales force, it will lose its business instantly. Even the loyal retail

customers would have no accessibility to a product without a sales force. Ingram (1992)

describes the direct sellers in the direct sales organisation as playing a role somewhat like

athletes for a successful sports team. Clearly, the direct sellers play a critical role in the

success or failure of their organisations. Given the critical role of the direct sellers, their

contributions towards overall satisfaction to the direct sales channel cannot be downplayed.

1.2.2.4 The Relational Paradigm

Previous research suggests that product satisfaction is affected not only through product

evaluation and information but also through indirect peripheral influences such as

interaction with salespeople (Humphreys and Williams 1996; Petty et al. 1983). Both

practitioners and academics have shown interest in the salesperson’s role in building

customer relationships (e.g. Brown and Peterson 1993; Crosby and Stephen 1987; Johnson

et al. 2001). Direct selling being a ‘people’ business, which involves lots of personal touch

(better known as ‘high touch’), means interaction between the direct seller and customer is



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paramount (Bartlett 1994). Interestingly, Priluck (2003) provides evidence that the quality

of relationships between consumer and seller could lead to a greater level of satisfaction in

the consumer purchase experience. Understanding such relational impacts on customer

satisfaction is particularly important in the direct sales situation. Despite its importance, no

attempts have been made by prior research to investigate the selling relationship within the

direct sales consumption setting. Given the absence of empirical studies on selling

relationships in the direct sales environment, the relationship marketing literature was

consulted for guidance and directions.

Broadly speaking, many studies of customer satisfaction implicitly assume that satisfaction

is a sufficiently important and independent phenomenon that should be examined as a

single area for research (Olsen 2002; Woodruff 1993). However, some emerging evidence

suggests that satisfaction may be integral part of a larger phenomenon, which is the post- purchase evaluation process (Woodruff 1993). Accordingly, it was suggested by several

scholars, for example Anderson and Mittal (2000), Day and Crask (2000), Olsen (2002)

and Woodruff (1993) that relevant theories such as equity, value, attitude and the relational

paradigm should be included to augment the ‘traditional’ customer satisfaction framework ,

in order to address it from a broader perspective. Parallel to this suggestion, the current

investigation includes several pertinent constructs, such as perceived value, perceived

equity, relational commitment and purchase decision involvement in the aim to understand

the antecedents and outcomes of customer satisfaction within a broader scope of post-

consumption behaviour.

The relationship marketing literature reveals that some attempts have been made to extend

the customer satisfaction framework by incorporating perceived equity as an antecedent to

satisfaction (Oliver 1997; Oliver and Swan 1989a, 1989b; Morgan and Hunt 1994). Equity

has been identified as a key component in signifying whether or not the exchange is fair

(Gassenheimer et al. 1998). In addition, Oliver (1997) points out that in the interpersonal

social exchanges situation, equity becomes more salient in influencing satisfaction. In a

similar vein, Johnson et al. (2001) postulate that the feeling of being treated fairly

(perceived equity) by the salesperson is an important driver of relationship satisfaction.

More importantly, equity was reported to be positively related to customer satisfaction

(Oliver and Swan 1989) and empirical evidence supports the assertion that perceived equity



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is positively related to repatronage behaviour (Blodgett et al. 1997) which, in turn manifests

itself as commitment.

Commitment is formed when the relationship is considered important and the customer

wants to maintain it indefinitely (Morgan and Hunt 1994). A customer is less likely to be

committed to a relationship if he/she believes that he/she is not being treated equitably by

the salesperson (Anderson and Weitz 1992). Given the importance of these variables, is

surprising upon reviewing the existing literature it was found that only Johnson et al.

(2001) attempt to examine the perceived equity-relational commitment in their study.

Hence, due to very little attention given to these two relational constructs (perceived equity

and relational commitment) in the customer satisfaction framework, it is envisaged that it

would be fruitful to examine their roles in the direct sales consumption situation.

1.2.2.5 Perceived Value

It has been widely reported that determinants of customer satisfaction include expectations,

disconfirmations, performance, involvement, service quality, equity, trust, customer

familiarity and customer expertise (Anderson and Sullivan 1993; Churchill and Suprenant

1982; Halstead et al. 1994; Jamal and Naser 2002; Oliver 1980, 1993; Oliver and Swan

1989; Söderlund and Julander 2003; Tse and Wilton, 1988; Yi 1991). A review of the

existing literature found that ‘perceived value’ has become an emerging topic in the late

90’s and has a role in forming customers’ satisfaction and purchase intention (Day 2002;

Day and Crask 2000; Spreng et al. 1993; Woodruff 1997; Zeithmal et al. 1988). In fact,

Reichheld (1996, p. 57) clearly states that:

“What keeps customers loyal i s the value they received. One of the reasons so many

businesses fail is that too much of their measurement, analysis and learn ing revolve

around profit and too little around value creation.”

It is firmly established that the future of retail business lies in delivering genuine value to

customers and the survival of most retail business will depend prominently on “ selling the

right products at the right prices in the right way” (Barlett 1994, p. 3). Apparently, a new

paradigm has emerged for the nineties and beyond; which demonstrates that the customer



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will pay more for acceptable quality, but will also demand a fair price and convenience of

purchase (Barlett 1994). Additionally, Neal (1999, p. 23) asserts that:

“If you are measuring and reporting satisfaction, but not value, you may be in the right

woods but barking up the wrong tr ee.”

According to Zeithmal (1988), perceived value is derived from a customer’s overall

assessment of the utility of a product based on perceptions of what is received and what is

given. Furthermore, Holbrook (1994), Spreng and Olshavsky (1991), Woodruff (1997)

suggest that customer’s assessment of value is based on sacrifice (i.e. the money and non-

monetary cost related to using the service). A considerable amount of the literature focused

on the service setting, i.e. service value (Bolton and Drew 1991; McDougall and Levesque

2000 and Zeithaml 1988). This clearly indicates that researchers pay less attention to the

tangible product’s ‘perceived value’. While several authors have presented definitions and

conceptual models of value perceptions (e.g. Day and Crask 2000; Day 2002; Spreng et al.

1993; Woodruff 1997; Woodall 2003; Zeithaml 1988), very little empirical research has

been undertaken to explore its role within the satisfaction process, specifically in the EDP

framework. Against this backdrop, this study attempts to fill this gap by positioning

‘perceived value’ from both aspects (i.e. tangible product and services) into one

comprehensive customer satisfaction model, and to explore its relationship to customer

satisfaction and other pertinent constructs.

1.2.2.6 Consequences of Customer Satisfaction

In light of the difficulty in retaining current customers in today’s hyper -competitive market,

understanding what factors influence customer satisfaction judgement and its consequences

is not a choice but a necessity; managers have to implement decision-making processes

closer to the end customer (Tippins and Su 1998). It was noted that business firms are

increasingly demonstrating their interest to understand and investigate customer post-

purchase behaviour. It is widely acknowledged that customer satisfaction is closely linked

to some sort of behavioural intention, such as intention to repurchase, increase purchase

and disseminate favourable word of mouth (Halstead et al. 1994; Mittal et al. 1999;

Zeithaml et al. 1996).



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In addition, many studies regard customer satisfaction as the ultimate dependent variable

and fail to examine the outcomes of satisfaction. In fact, the consequences of customer

satisfaction are of higher value to the business organisation because of their impacts on

profitability (Jones and Sasser 1995). If this causal conception is true, strategically

increasing performance on antecedents of satisfaction will translate into satisfaction at the

dimensional level (e.g. product satisfaction, salesperson satisfaction) and in turn realised

global (overall) satisfaction. Consequently, satisfied customers will have high propensity to

engage in desirable behaviours (e.g. repurchase, positive word of mouth) and ultimately

this could generate profitability for the business (Rust and Zahorik 1993; Zeithmal et al.

1996). A simple generic diagram that depicts the above contention is visually illustrated in

Figure 1.1.

Figure 1.1 Generic Hierarchical View of Customer Satisfaction

Realise these

Manipulate these

Source: Adapted from Grisaffe (2000)

The relationship between satisfaction and retention has been explored and examined by a

number of researchers and interestingly, this notion has been empirically supported

(Anderson and Fornell 1992; Anderson and Mittal 2000; Anderson and Sullivan 1993;

Bolton and Drew 1994; Burnham et al. 2003; Cronin and Taylor 1992; Taylor and Baker

1994). Furthermore, there is evidence to support the assertion that high retention rates

Desired Customer Behaviours

Overall Satisfaction

Subsystem Satisfaction

Satisfaction Antecedents

Profitability $$$$$$$



17

produce significant economic returns to a company (Ryan et al. 1995). Customers who

make repeat purchases are crucial because they provide some stability to an organisation’s

bottom line performance and also act as a platform to higher sales volume by increasing the

size of order through cross purchase (buy other product category) and up purchase (buy

higher value product). The empirical evidence highlights the need to understand and

examine what makes customers ultimately form favourable behaviours such as

disseminating positive word of mouth, making cross-buy and up-purchases, being less price

sensitive and being less likely to switch to competitors or to complain. This lends support

for advanced investigation to assess the link between satisfaction and behavioural

intentions within the direct sales environment.

In summary, evidence indicates that the research topic is one worthy of investigation. The

author has identified several shortcomings of the existing literature in the area of customer satisfaction, clearly reinforcing the need for this study. Table 1.1 provides further quotes

that support the justification of the current research.



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Table 1.1 Quotes Supporting Research Rationale

Quotes References

“Future research should investigate the relationships among transaction -specificsatisfaction, overall satisfaction and other related outcomes such as word-of mouth, trust,commitment and value”

Jones and Suh(2000)

“…model should be refined to explicate the cognitive processes that link attribute -levelevaluations to satisfaction judgements”

“ a replication of the current study in different industries and settings and using different

measures to increase generalisability”

Mittal,Kumar andTsiros(1999)

“…applied Customer Satisfaction /Dissatisfaction (CS/D) research especially useful in

generating a variety of insights and potentially fruitful avenues for future academic CS/Dresearch…”

Westbrook (1997)

“Extant research on direct selling is predominantly dominated by studies conducted in the

United States on direct selling firms, direct selling salespeople and direct sellingcustomers. This research must be expanded to other market and countries and theresulting findings integrated into a comprehensive data base”

“What factors produce a strong and lasting relationship between a direct salespeople and

his or her customers?”

“Is there any link between reasons why individuals buy from direct salespeople?”

“Is it possible to construct an index of propensity to purchase through direct selling?”

Wotruba(1996)

“Consumer characteristics that enhance or inhibit the likelihood of repeat purchases

should be examined in the future”

Raymond andTanner (1994)

“…there does not yet exist a body of knowledge that needs to be “tied together” for the

purpose of understanding what direct selling is all about” Album (1992)

“…direct sellers are increasingly interested in the international market as well asdemographics, lifestyle and buying habit will differ, perhaps markedly, in differentcountries and market…..primary research into consumer behaviour is likely to be

required .”

Enis (1992)

1.3 Research Problems, Objectives and Research Questions

It is clear that despite the fact that conceptual and empirical research efforts quite

extensively addressed the customer satisfaction issues, several areas for improvement could

still be recognised. The research problems that are explored and investigated in this study

are especially focused on this specific area. The following issues will be examined:



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1) How are customer satisfaction and behavioural intentions constructed and associated

in the direct sales consumption system?

2) What are the roles of ‘purchase decision involvement’, ‘ perceived value’, ‘ perceived

equity’ and ‘relational commitment’ in influencing customer satisfaction judgement

and behavioural intentions when integrated into the traditional Expectancy-

Disconfirmation Paradigm?

The research problems as represented above form the building blocks of the current

investigation. Table 1.2 briefly illustrates how the research problems are decomposed into

nine research questions. Given the research problems as stated above, this thesis seeks to

address the research questions with the main objective of this investigation being to identify

and examine the key determinants and consequences of customer satisfaction at subsystemand overall abstraction levels in a consumption system setting. In order to accomplish this

objective, valid and reliable multidimensional measures have to be established and validated

(Churchill 1979; Gerbing and Anderson 1988; Ping 2004).

Ultimately, the thesis’ s primary goal is to develop and generate a plausible model that could

be characterised as having statistical and explanatory power (McQuitty 2004), to exemplify

the determinants of customer satisfaction and predict its consequences within the direct sales

environment . In response to the postulated research questions, Figure 1.2 visually illustrates

the hypothesised linkages among constructs in the conceptual model.

Table 1.2 The Research Questions

Research Questions

(1) What are the key attributes and factors that influence customers’ satisfaction

judgements and which of the attributes have the greatest impact on each pertinentfactor that constitutes a direct sales consumption system?

(2) What are the determinants and consequences of product, direct seller and direct



20

selling company satisfaction?

(3) How do product satisfaction, direct seller satisfaction and direct selling companysatisfaction judgements aggregate to form a global (overall) satisfaction andwhich of these aspects is the most predictive of the customers’ overall satisfactionwith the direct sales marketing system?

(4) What are the determinants and consequences of overall satisfaction and how arethese determinants interrelated to each other to provide explanation of customer s’ overall satisfaction with the direct sales channel?

(5) What are the determinants of behavioural intentions and which of thesedeterminants has the most influential impact on the intentional behaviour propensity?

(6) What is the role of Purchase Decision Involvement (PDI) in the proposed customer satisfaction model?

(7) What is the role of Perceived Equity in the proposed customer satisfaction model?

(8) What is the role of Perceived Value in the proposed customer satisfaction model?

(9) What is the role of Relational Commitment in the proposed customer satisfactionmodel?



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Figure 1.2: The Conceptual Model

direct seller performance

productperformance

companyperformance

overallsatisfaction

direct seller disconfirmation

productdisconfirmation

productsatisfaction

companydisconfirmation

direct seller satisfaction

companysatisfaction

perceivedequity relational

commitment

perceivedvalue

behaviouralintentions

Purchase DecisionInvolvement



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1.3 Scope of the Research

The research scope is described in terms of research setting and unit of analysis.

1.3.1 Research Setting

This study focuses upon customer satisfaction related to consumption experience with the

direct sales channel. Two product categories were selected (beauty and health care) for the

study, with the assumption that they are considered as ‘high purchase involvement’

products which means respondents will take into consideration the importance of their

consumption experience. Furthermore, these product categories were reported as the top

two most popular products purchased by direct sales customers (Rehanstat 1999).

The study was conducted in the context of customer consumption experience from the

direct sales channel in Malaysia, specifically within three urban districts in Klang Valley.

The direct sales channel was specifically chosen for this study because it is one of the most

prevalent and the most popular alternative shopping channels among Malaysians

particularly working women. Furthermore, despite this channel being popular and

contributing economically to the nation, academic research is relatively sparse.

Additionally, this distribution channel and the industry at large was chosen because of its

uniqueness, as it involves ‘high touch’, which means that relationships between buyer-

seller play an important role in the success of this channel. Essentially, by incorporating the

various aspects of this system, product, direct seller, and the direct sales organisation/firm,

a better understanding of the evaluation and formation of satisfaction could be formed

along with an understanding of how important these aspects are in the system in

contributing to the overall satisfaction judgements and subsequent outcomes.

1.3.2 Unit of Analysis

The research questions in this study are based on the perceptions of one single consumer

with respect to one particular product a (beauty or healthcare product that they last bought

within the twelve months prior to data collection). The product categories under study are

purchased by the consumer for their own consumption. Hence, they can be regarded as a

suitable unit of analysis for the current research purpose.



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In addition, the study investigates the consumer’s judgement of one particular direct seller,

(as clearly stipulated in the questionnaire) from whom the last purchase of the beauty/health

care product was made. With regards to the satisfaction judgement of the direct selling

company, the question on this aspect would frame the respondent’s reference to one

particular direct sales company which the direct seller represents. It is expected the validity

and reliability of a consumer’s responses to be higher for transaction specific questions.

1.5 Organisation of Thesis

The thesis is organised into 2 parts: Theoretical Framework and Empirical Research.

Figure 1.3 visualises the structure of the thesis.

Chapter 1 presented the introduction to the thesis, the rationale of the study, research

problems, objectives and research questions, the scope of study and the structure of the

thesis.

In part one the theoretical framework of the thesis is discussed. Chapter 2 provides

definitions and description of the nature of the direct sales channel and presents an

overview of the direct sales industry. Chapter 3 documents a critical review of the

satisfaction literature. Its objective is to provide a basis for selecting relevant satisfaction

constructs and to select an appropriate theory to build a model for the direct sales channel.

Finally, chapter 4 provides a conceptualisation of the constructs investigated in the study.

A conceptual model, which illustrates the proposed association of constructs, is presented.

A series of hypothesis statements for the research is presented accordingly.

In part two, the empirical research of this study is described. Chapter 5 documents the

research design and methodology utilised, which includes exploratory research and a

detailed description of quantitative data collection techniques in the main phase. Chapter 6

reveals the overview of the research sample profile and provides an account of descriptive

results on the research sample profile and of data generated from the questionnaire survey.

Chapter 7 describes the procedure undertaken in evaluating the validity and reliability of

scales employed for measurement of the constructs examined in the study and provides a



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detailed description of utilising SEM for testing the research hypotheses formulated in

chapter 4.

Chapter 8 presents the research summary, conclusions and discussions on the research

questions. Finally, Chapter 9 concludes the study by delineating the study’s contributions

and implications to the marketing theory and the industry practitioners, and subsequently

offers suggestions for future research directions.



Figure 1.3 Organisation of Thesis

Chapter 1

Part 1: Theoretical

Framework Chapter 2

Chapter 3 Chapter 3

Chapter 4

Part 2: Empir ical

Research Chapter 5

Chapter 6

Chapter 7

Chapter 8

Chapter 9

Source: Developed by author for this thesis

Introduction to Thesis

The Direct Selling Industry

- The Hidden Industry -

Part 1: Customer Satisfaction and core constructs

Part 2: Other constructs under study

Conceptual Modeland Hypotheses

Research Design

and Methodology

Descriptive Analysis

The Structural Equation Modelling

Part I: The Measurement Model

Part II: The Structural Model

Discussions and Conclusions

Contributions/ Implications and

Suggestions for Future Research

Documents

Chapter 1 Viva