CHAPTER TWO

By Ahmadrawi

The writer can be contacted at :

scholars.assist@gmail.com

LITERATURE REVIEW

LEVERAGING PRODUCT INNOVATION TO GAIN COMPETITIVE

ADVANTAGE : A SURVEY OF IMPACT OF INNOVATION ON CUSTOMER

SATISFACTION AND BRAND LOYALTY AMONG SAMSUNG TABLET USERS IN

MALAYSIA

1. Introduction

In this chapter, the researcher will discursively review literature on the conceptual and

theoretical frameworks of the constructs involved in this research.

2. Discussion

2.1. Competitive Advantage

The term competitive advantage, despite its widespread use and popularity, has no uniformly

acceptable definition (Peteraf 2005, pg 178). Most often, it is described (as opposed to

defined) in term of superior financial performance (Winter, 1995 cited in Peteraf 2005, p.

179). Michael Porter (1985, p.3 cited in Bredrup 1995,p. 43), the strategic management guru

who popularised the term described competitive advantage as:

“Competitive advantage grows out of value a firm is able to create for its buyers that

exceeds the firm's cost of creating it. Value is what buyers are willing to pay, and

superior value stems from offering lower prices than competitors for equivalent

benefits or providing unique benefits that more than offset a higher price. There are

two basic types of competitive advantage: cost leadership and differentiation.”

Echoing Porter’s definition above, Saloner, Shepard and Podolny (2001) say that

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“most forms of competitive advantage mean either that a firm can produce some service or

product that its customers value than those produced by competitors or that it can produce its

service or product at a lower cost than its competitors.” They also say that “In order to

prosper, the firm must also be able to capture the value it creates.In order to create and

capture value the firm must have a sustainable competitive advantage.”

In Peteraf and Barney (2003, p.314 cited in Peteraf 2005,p. 179), competitive

advantage has been described as follows :

“An enterprise has a competitive advantage if it is able to create more economic value

than the marginal (breakeven) competitor in its product market.”

The following paragraphs will discuss further into the conceptual relationship between a

firm’s service and product innovation and the firm’s potential to create more economic value

(i.e. gaining competitive advantage).

2.2. Innovation

Innovation, as an academic construct, has been given various definitions in the

literature. Innovation leading theoretician is Joseph Schumpter (1883-1950). Schumpter has

a broad vision of the concept of innovation. According to Schumpter, innovation

encompasses new products, new production processes, new markets, new raw material and

new forms of organizations. However, to Schumpter, there is a common thread between all

these changes in that they involve carrying out new combination which are qualitatively

important and introduced by dynamic business leaders or entrepreneurs (OECD,2006,p.86).

There has been no significant change to the definition which is linked to any particular

theorist up to recent times (OECD,2006,p.86).

Among the newer definitions which is still anchored on Schumpter definition is that

innovation is the generation of a new idea and its implementation into a new product, process

or service leading to the dynamic growth of the national economy and the increase in

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employment as well as to a creation of pure profit for the innovative business enterprise

(Urabe, Child and Kagono,1988,p.3).

2.3. Customer Satisfaction

As has been pointed out in the preceding paragraphs, the common theme in the definitions of

competitive advantage is value creation- and topical in our research is how innovation create

this value to the business. In the final analysis, it is the consumer who will be the judge of the

value this innovation is supposed to create (OECD,2006,p.86). The relationship between

these variables (i.e. innovation, competitive advantage and the consumer as arbiter of value)

is succinctly explained by Jean-Paul Flipo (2001 cited in OECD,2006,p.86) when he states

that :

“(Innovation) is a process of creating new value (which is) geared first towards

customers, as the main arbiters of business competitiveness, but one that can also involve

other stakeholders as major beneficiaries, such as the organization itself

(employees),shareholders (profitability), external partners, etc.”

What this mean is that in today’s economy, to be successful, business must provides

customers with the service or product they want in any form, at any time and in any place and

in order to accomplish this, the business must be a customer oriented company

(Poza,2010,p.182). According to Poza further, what matters most to customer oriented

companies is the outcome from the perspective of the customer who is using their product or

service (i.e. whether customers are satisfied or not with their product or service).

Oliver (1997, cited in Andaleeb and Conway,2006,p.4) defines customer satisfaction

as the consumer’s fulfilment response. It is a judgment that a product or service feature, or

the product or service itself, provides a pleasurable level of consumption related fulfilment .

In other words, it is the overall level of contentment with a service/product experience.

Granted, this is not the only available definitions of customer satisfaction, but it is among the

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more pragmatic one, as can be seen from the review of the work of Lee and Joshi (2007)

discussed below.

2.4 Brand Loyalty

According to Mohammad (2012,p.113), there is no academic consensus in the

literature as to the single and uniform of brand loyalty. However, among the most oft-cited

definition of brand loyalty is that provided by Jacoby and Chestnut (1978). According to

Jacoby and Chestnut (1978 cited in Kotler and Pfoertsch,2010,p.311) brand loyalty is defined

as “biased (i.e. non-random) behavioral response (i.e. act of purchasing something) expressed

over time (i.e. repetitively) by some decision making unit with respect to one or more brands

out of a set of such brands”. The said definition also provides that brand loyalty is a “function

of psychological (decision-making, evaluative) processes.

Mohammad (2012,p.115) has surveyed various definitions of brand loyalty apart from

the definition offered by Jacoby and Chestnut (1978) above. Among definitions surveyed by

Mohammad (2012) are as follows :

- Brown (1952) who indicated in his study of loyalty that loyalty is a sequence

(repetition) or selection (purchase) of the same brand in all cases of purchase;

- Jalab (1952) who defined loyalty as a preference of customers to buy specific

products;

- Guest (1964) who pointed out that preference is the only basis for judging the loyalty

of the customer;

- Najem (1952) who defined loyalty to brand as a measure of the degree of repurchase

of a particular brand by the customer;

- Oliver (1999) who defined loyalty as a deep internal commitment to repurchase the

product or service on an ongoing basis in the future.

- Cunningham (2000) defined loyalty as a percentage of overall purchases of a specific

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brand in comparison with other competitor brands.

- Mowen and Minor (2001) referred to loyalty as the extent in which a customer holds

positive attitudes towards the brand, commitment and intention to repurchase this

brand in the future.

- Tawfeq (2007) suggested that loyalty is determined because of customer purchasing

habits i.e. a customer is loyal to the organization if he or she limited their transactions

and purchases to this organization even if other organizations provide better products.

2.5 Theoretical Framework on the Relationship of the Construct

A theoretical framework of the relationship of innovation with customer satisfaction

and brand loyalty has been proposed by Nemati, Khan and Iftikhar (2010,p.303) as follows :

Figure 1: Relationship of innovation with customer satisfaction and brand loyalty

The above diagram is based on the hypothesis that innovation has positive

relationship with customer satisfaction and brand loyalty. The diagram further indicates that

customer satisfaction and brand loyalty are dependent variables whereas innovation is an

independent variable and relationship between them is positive (Nemati, Khan and Iftikhar,

2010,p.303).

Customer satisfaction and brand loyalty has long been acknowledged as among the

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INNOVATION

CUSTOMER SATISFACTION

BRAND LOYALTY

sources of competitive advantage of firms - see for example Muller (1991) on competitive

advantage and Gommans,Krishnan and Scheffold, 2001 on brand loyalty. Based on the above

we proposed a refinement of the theoretical framework of relationship of innovation with

customer satisfaction, brand loyalty and competitive advantage represented by the following

diagram :

Figure 2: Relationship of innovation with customer satisfaction, brand loyalty and

competitive advantage

2.6 Methods of Measuring Customer Satisfaction and Brand Loyalty

Hallowell (1996,p.30) in his empirical study on the relationship of customer

satisfaction, customer loyalty and profitability measured customers satisfaction in his study

by using two distinct ways. The first measurement methodology to indicate customer

satisfaction consists of responses to a single question :’Overall, how satisfied are you with…

[subject of the research]?” Responses for all satisfaction questions were made on 1-7 Likert-

type scales labelled “very satisfied” and “very dissatisfied” at each extreme with “1” denoting

“very satisfied” and “7” denoting “very dissatisfied”. According to Hallowell (1996) further,

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INNOVATION

CUSTOMER SATISFACTION

BRAND LOYALTY

COMPETITIVE ADVANTAGE

the problems associated with the use of a single response variable were mitigated by the

simplicity of the question. Yi (1990, p.71 cited in Halliwell, 1996,p.30) suggested that a

single overall satisfaction measure scored as this one is “reasonably valid”.

The second indicator of customer satisfaction used by Hallowell (1996,p.30) was

satisfaction with service (Hallowell’s study is on customer satisfaction of service however

this can be contextually modified for application to study on satisfaction of product as well)

and satisfaction with price which he developed from theories found in the service

management literature in particular the works of Heskett et. al. (1994) and Schneider and

Bowen (1995). According to Hallowell (1996,p.30), these theories in a nutshell state that

perceived value is a function of perceived quality and price and that differing levels of

perceived value result in differing levels of customers satisfaction. In this regard, in

innovation intensive business segment such as consumer electronic goods, the statement of

Jean-Paul Flipo (2001 cited in OECD,2006,p.86) which equates innovation with value is

relevant to the present research.

Measurement of price is an important element in customer satisfaction measurement.

Andaleeb and Conway (2006,p.5) in their empirical study on customer satisfaction found that

the price of the item can also greatly influence customers because price has the capability of

attracting or repelling the customers, especially since price functions as indicator of quality.

According to Lee and Joshi (2007,p. 19) most of the definition of satisfaction in

marketing literature are based on disconfirmation theory which postulates that the feeling of

satisfaction is a result of the comparison between perceptions of a product’s performance and

expectations. According to Lee and Joshi (2007,p.17) further, this theory, representing

psychological evaluation processes, provides an understanding of expectations,

desires, experiences, and performances that may affect customer attitudes, however it is not

suited for general application for all product categories. As such, Lee and Joshi (2007,p.19)

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recommended adopting the typology of approaches suggested by Giese and Cote (2000) i.e.

the context-specific satisfaction measures which is intended for application on a case-by-case

basis. Approaches belonging to this typology rely on a customer’s affective or emotional

response to form the basis for the measurement of customer satisfaction specific to a context,

rather than assessing disconfirmation. In other words, context-specific measurements does

not entail comparisons between perceptions of a product’s performance and expectations

whereas the reverse is true for disconfirmation theory based measurements.

Mohammad (2012) has provided a summary on how customers loyalty to a brand is

measured. According to Mohammad (2012,p.115), there are three ways through which brand

loyalty can be measured i.e. (1) the behavioural measure, (2) the attitudinal measure and (3)

the composite of the behavioural and attitudinal measure. The Behavioral measure is defined

as the desire of the customer to repurchase the same brand (Chaudhuri and

Holbrook,2001,p.83 cited in Mohammad,2012,p.115). Behavioral loyalty indicators include

the occurrence of regular repurchase behaviour (Dick and Basu, 1994 cited in

Mohammad,2012,p.115), which is not the result of the customer’s psychological commitment

towards the brand (Tepeci,1999 cited in Mohammad, 2012,p.115). Where customer’s

repurchase behaviour is the result of customer’s psychological commitment towards the

brand, it is known as attitudinal loyalty and is measured by the attitudinal measure. According

to Mohammad (2012,p.115) further, attitudinal loyalty reflects an emotional relationship

towards the brand, product or service and its dimensions include the intent to repurchase and

recommendation. The third measure of loyalty is the composite of both behavioural and

attitudinal measures. According to Mohammad (2012,p.115), the main benefit of the

composite measure is that it consists of two dimensions (behavioral and attitudinal). In

addition, it measures the customer loyalty through product and brand preferences, repurchase,

the total purchased quality, and changing the brand (Hunter, 1998; Pritchard & Howard, 1997

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cited in Mohammad, 2012,p.115). Therefore, the composite measure can gauge brand loyalty

more accurately.

In this current research, in designing the questionnaire to measure customer

satisfaction and brand loyalty of Samsung tablet owners, the researcher has drawn guidelines

from the above reviewed literature on customer satisfaction and brand loyalty measurement.

2.7 Research Survey Questionnaires Design Based on Literature Review

In the scope of the presented research, customer satisfaction and brand loyalty is

determined by evaluating the users answers to a questionnaire. Drawing from the literature

reviewed, this research has come out with a 24 questions Likert-type questionnaire which

seeks responses from Samsung Tablet users. For this research, the research had limited the

survey only to users of the seven models of the current range of Samsung Galaxy Tab i.e.

Galaxy Tab 7.7, Galaxy Tab 7 Plus, Galaxy Tab 8.9, Galaxy Tab 10.1 Wifi, Galaxy Tab 10.1,

Samsung Galaxy Tab Wifi (GT-P1010) and Samsung Galaxy Tab (GT-P1000). These are the

current Samsung tablet models as listed down by Samsung website

(http://www.samsung.com/my/consumer/mobile-devices/tablet/viewall)

3. Synthesis of the Literature Review and Conclusion

Competitive advantage of a product is closely connected to its value in the perception

of the consumer (i.e. the customer value). What this mean is that, to be successful, business

must be a customer oriented company . What matters most to customer oriented companies is

the outcome from the perspective of the customer who is using their product or service (i.e.

whether customers are satisfied or not with their product or service). Customer satisfaction

will lead to brand loyalty which in turn will lead to the company gaining competitive

advantage over its competitors. There is a dearth of literature on whether innovation is a

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factor leading to customer satisfaction and brand loyalty in innovation-centric market such as

market for consumer electronic gadgets, especially in the Malaysian context. Hence, research

is carried out to fulfil this gap.

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