Abstract
Purpose – This study examines how firm strategy may affect customer satisfaction in
relationship to service the characteristics of quality, servicescape and value. Specifically, this
research utilizes Porter’s depiction cost leaders and differentiation strategy to suggests customers
may be satisfied even if they rate value or quality lower than for another similar firm.
Design/methodology/approach – This research utilizes survey data gathered from 179
customers of four services representing two industry segments. Analysis of variance is utilized
to test four hypotheses proposing firm strategy may affect customer rating of a service
characteristic, while customers may still remain loyal with high levels of customer satisfaction.
Findings – The results support the assertion that customer expectations of firm strategy may
enable firms in the same industry to receive very different ratings on service characteristics such
as value, quality and servicescape, while having equally loyal and satisfied customers.
Practical implications – The results point to the importance of aligning firm strategy and
operational decisions when seeking to maximize customer satisfaction. Decision-makers benefit
from understanding how strategy matters in service operational choices.
Originality/value – This research connects strategy and operations academic disciplines,
highlighting the importance of linking firm competitive strategy with service operation choices
to enhance customer satisfaction. The model developed here, supported with empirical results,
provides decision makers with an important tool to help determine the competitive payoff for
investment in service dimensions.
Keywords – Service Strategy, Service Characteristics, Empirical Research, Servicescape
Paper type – Research paper
Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
Patti C. Miles
Assistant Professor of Operations Management
Maine Business School
University of Maine
Orono, Maine
Office: (207) 581-1994
[email protected]
Introduction
For many years, much of the general literature on management of services has been
derived from the foundation theory and literature in the Operations Management (OM) field.
While many attempts to delineate service-specific characteristics have been made, what has
largely prevailed are various modifications of seminal OM typologies and taxonomies. Early
efforts in this vein sought to differentiate services from manufacturing (Chase, 1978, 1988) and
then to segment services into different categories based on factors such as their technology,
amount of interaction with customers and/or the nature of the service output (Mills, Chase, &
Margulies, 1983; Schmenner, 1996, 2004; Larsson & Finkelstein, 1999; Bowen & Lawler, 1992;
Collier & Meyer, 1998). Schmenner, for example, utilized the Product Process Matrix (Hayes &
Wheelwright, 1979a) to create a 4-cell typology based on the degree of labor intensity (process)
and the degree of interaction (volume) and customization. While a number of authors challenged
this particular categorization scheme, which incorporates the idea of first separating services into
particular categories and then studying the nature of each category, it remains a common theme
within the literature today (Pantouvakis & Bouranta, 2013; Dadfar, Brege, Sarah, & Semani
2013; Schmenner, 1986, 2004). A potential problem with such an approach, however, is that
broad categorizations do not necessarily capture the nuances of particular competitive actions,
since two firms that are ostensibly in the same category may in fact have very different
operations. In a revision to his 1986 service process matrix, Schmenner (2004) acknowledges
this issue. He notes, for example, that restaurants may be classified in at least two and as many
as four matrix quadrants, depending on the particular type of restaurant considered. A similar
argument can be made for retail stores (e.g. a discount clothes store versus Neiman Marcus),
furniture stores (e.g. made-to-order versus IKEA), and many other types of businesses.
Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
While such complexities create general categorization challenges for service firms, they
also create problems for those trying to identify particular characteristics that might lead to
success for each unique service organization category. Trying to apply these ideas to broad
industry categories of services becomes problematic if the categorizations are incomplete or
fraught with exceptions. For example, determining the optimal nature of the service process,
related service quality characteristics, servicescape and expectations for value a customer may
have for a particular restaurant or department store is difficult when there are a variety of
different types of restaurants and department stores.
An alternative to this problem is to focus on firm characteristics rather than trying to
characterize entire industries or industry segments. Early research in Operations Management
emphasized the important relationship between firm level strategy, business functions and day to
day operations (Hayes & Wheelwright, 1984; Wheelwright & Hayes, 1985; Skinner, 1969).
Researchers in strategy and organization theory, for example, have noted that firms within a
given industry are likely to differ on a number of dimensions and that different packages of
characteristics can all be equally profitable provided that there is a fit or consistency among the
characteristics (Miles & Snow, 1984). This notion is beginning to make inroads within the
operations literature. It recognizes that a firm’s strategy may have as much, if not more,
influence on the appropriate characteristics of a firm than does the particular industry or industry
segment in which the firm operates (Naslund, 2013; Metters & Vargas, 2000).
To illustrate the value of such an approach, the current research examines several
different service characteristics and applies them to multiple organizations within the retail
industry. In particular, this research assesses customer perceptions of servicescape, service
quality and perceived value as related to customer loyalty and satisfaction. Rather than focusing
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Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
on how these service characteristics might differ with respect to a firm’s industry segment, the
current research focuses instead on the strategies of the firms and how these influence the
relationship between service characteristics and customer loyalty and satisfaction.
Literature Review
While the notion of strategy influencing operations decisions continues to gain credence
within the operations research field, it is worth briefly reviewing before proceeding to describe
particular service operations characteristics and the influence of these on firm level outcomes.
Thus, I first introduce and then briefly describe the generic strategies typology (Porter, 1980,
1985). Next, I elaborate on the Service Process matrix (Schmenner, 1986, 2004) developed in
1986 and modified in 2004. Then the service operation characteristics of servicescape, value,
and service consistency as related to loyalty and perceived customer service is developed as
related to firm level strategy. Finally the three are combined: Strategy, Service Operations, and
Customer Preference to create a strategic service matrix and specific hypotheses.
Generic Strategies
Strategy literature has long suggested a linkage between firm level strategy and
operations is necessary for success in today’s market. Several generic strategies, including
Porter’s generic competitive strategies model, have been suggested over the years (Porter, 1980,
1985). This model suggests firms can choose one of three strategies in which to compete:
overall cost leadership, differentiation, and focus. This research focuses on the former,
recognizing of course the necessity of the later, but choosing to parse the research into clear
separate groups.
A Cost Leadership strategy seeks to gain competitive advantage by being the lowest cost
producer in the industry. This often involves creating efficient scale facilities, rigorous pursuit of
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Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
cost reductions, and tight controls on overhead, as well as cost minimizations on R&D, service
and advertising. This strategy obtains returns because its adherents lower prices to match
competitors, and still obtain profits. Cost leadership often entails large scale facilities and
economies that constitute aggressive pricing to maximize economies of scales, designing product
for ease of use and manufacturing, and using state of the are technology to enhance efficiency.
As this study suggests, cost leadership by its nature provides some defense against
competition. Customers look for high value or low cost and are less concerned with product
uniqueness, and high levels of individualized service. This strategy generally requires a large
capital investment, aggressive pricing and state-of-the-art equipment. In this strategic type
success is reached in a variety of ways: through seeking low –cost customers, standardizing
service setting, reducing the personal element in service delivery, reducing network costs, and
sealing off portions of the service to enhance efficiency (Köseoglu, Topaloglu, Parnell, & Lester,
2013).
The Differentiation strategy on the other hand, attempts to create a service that is
perceived as being unique. This can be accomplished through brand image, technology,
customer service, atmosphere or other attractive features. Firms differentiate themselves in
several ways: service quality, servicescape and product uniqueness. The primary thrust lies in
creating customer loyalty and subsequent price inelasticity. This can lead to larger a sales
margin, and moderate the power of buyers who lack acceptable substitute products. This
strategy is often associated with costly activities such as extensive product research and training,
unique product design, and substantial marketing expenses (Porter, 1980), generally preventing
differentiators from being low cost leaders.
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Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
As this analysis will assert, the essential components of the differentiation strategy is the
customer’s willingness to pay for the uniqueness. Since most services are intangible, firms
attempt to make services unique through brand recognition, customized standard products, and
achieving high quality through consistent delivery of the service and a pleasing environment.
Since services are often produced and consumed simultaneously service providers must
differentiate themselves through personalized touches such as product give away, make-to-order
processes, building trust with customers, and generating peace of mind, and through consistently
delivering all aspects of the customer’s definition of quality.
The Service Process Matrix
The work of many Operations Management researchers has acknowledged the
importance of linking firm strategies with specific operation priorities (Skinner, 1969). Other
researchers have noted the importance of aligning product lifecycles, business functions and
operations process best suited to complement one another (Dasu & Chase 2010; Allmendinger,
& Lombreglia, 2005). Still others have attempted to apply operations management principles to
services and create service typologies that maximize throughput, flow, or productivity
(Schmenner, 1986, 2004). While these are certainly steps in the right direction, they fall short of
capturing the nuances of services that generate competitive advantage. Unlike their
manufacturing counterpart services do not always increase productivity through increased
output; and they cannot always be categorized by the amount of labor intensity (Balsam,
Fernando, & Tripathy, 2011).
The early work of Skinner (1969) suggests manufacturing plants need consider the
environment and ability of the organization, and then create a strategy, production process and
operations plan. He cautions that manufacturing plants should not allow specialists (engineers,
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Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
and technocrats) to make decisions about strategy.
A few years later two other Operations
Management researchers suggested the importance of considering the Product Process Lifecycle
when creating manufacturing processes (Hayes & Wheelwright, 1979b). They suggested a
model involving the product process on the Y-axis (which determines throughput, and volume),
and process variation on the X-axis (which determines process variation, and flexibility) which
taken together form an efficiency diagonal. Movement up the diagonal increases throughput and
decreases variation, leading to efficiency and subsequently productivity and profit. Conversely
firms ‘off the diagonal’ may have increased throughput and increased variety, leading to
inefficiencies, and lowered productivity. Firms, they posit, should work towards the diagonal to
maximize profitability (Lu, Betts & Croom, 2011). Later, a services researcher applied this
logic to the service industry creating the Service Process matrix (Schmenner, 1986). Much like
the product process lifecycle he suggests two axes: the Y-axis is throughput (much like process)
and the X-axis is labor intensity (much like the degree of variation). He asserts a firm’s
movement towards the diagonal will increase productivity and ultimately profit.
Schmenner (2004) acknowledges that his original matrix, while largely correct, is in need
of minor revision, specifically he notes that not all service firms need to be on the diagonal. He
proposes the Theory of Swift Flow, a theory based on the notion that the faster materials flow
through the process the more profitable a company will be. Productivity for any process: labor,
machine, materials or total factor productivity holds a positive relationship with the speed by
which materials flow through the process, and an inverse relationship with respect to the
variability associated with the flow. He illustrates this theory through associating the
relationship between increased productivity and profitability of Wal-Mart and McDonalds over
the years between the matrixes. Later in the paper he acknowledges that a service can be hugely
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Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
profitable anywhere on the matrix, and the diagonal is but one method. Much like Porter, he
suggests in order to benefit from quick throughput times a firm must make large investments in
equipment, new technology, and demand management. He does not delineate, however, that
these investments are best utilized by executing a cost leadership strategy. Nor does he mention
how the differentiator might best approach service operations (Kumar & Subramanian, 2011).
In an effort to fill the existing gap within the literature, the purpose of this research is
twofold. Firstly, this research explains why some firms are better suited to compete on the
diagonal, and why other firms may derive greater benefit by staying off the diagonal. Secondly,
this research delineates which service characteristics may be associated with loyalty in different
strategic groups. This outcome will help practitioners and researchers understand more
completely the service characteristics that are most likely to lead to repeat business.
Service Characteristics
Because this empirical investigation rests on Porter’s generic strategies, it is necessary to
delineate the strategic choice variables used in this research to categorize the firms. Product
differentiation variables concern product or service uniqueness (in the product or service), the
relative product quality, relative service quality and the product image. Cost leadership variables
generally refer to price and efficiency, but can also extend to the age of the plant and equipment
and to product value. However, because of service intangibility, it was also necessary to attempt
to understand how consumers perceive service quality. Research in this area suggests service
providers are able to influence customer perception of a service and, as such, may be critical in
influencing a customer perception of quality (Ravald & Grönroos, 1996; Grönroos, 1984). Thus,
when a firm considers a differentiation strategy they must understand the desired service
characteristics that determine customer’s perceptions of quality. Likewise, when a firm
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Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
considers a cost leadership strategy, they must understand that the customer is seeking value,
rather than product uniqueness (Kuo, Wu, & Deng, 2009). As such, aligning firm choice about
such service characteristics may be desirable (Briggs & Grisaffe 2010).
Quality
Quality is a relatively enduring affective orientation for a product, store or process
(Dadfar et al., 2013; Parasuraman, Zeithaml, & Berry, 1994a) and may be perceived as a method
to obtain differentiation depending on the service in question (Martensen & Gronholdt, 2010;
Brown, Churchill & Peter, 1993). Previous research asserts that individual service quality
elements have a positive affect on both customer satisfaction and customer loyalty. However,
some cost-cutting executives have suggested managers justify their investment in quality. Thus,
some research has suggested that return on quality is based on four assumptions: quality is an
investment, quality efforts must be financially accountable, it is indeed possible to spend too
much on quality and not all quality expediters are necessary or even valid (Rust, Zahorik, &
Keiningham, 1995). Later research began to suggest the firms investing in quality under the
umbrella of ‘revenue expansion’ were more likely to see increased firm profitability (Rust,
Moorman, & Dickson, 2002). And still later research proposing investment in quality can be
quantified using a cost benefit analysis model by which financial profitability linearly related to
quality investments (Coelho & Vilares, 2010). However, no literature to date suggests that the
strategic orientation of the firm may in fact affect the outcome or investment in quality. In
particular a firm’s investment in service quality, servicescape and perceived value may yield
greater or lessor return on investment depending on if they compete as a cost leader or a
differentiator.
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Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
Thus, quality is broadly designed to elicit the consumer impressions of the knowledge,
helpfulness, skill, friendliness, consistency, and reliability of the service encounter. To this end
several measures were combined to capture the entire construct. The present research utilizes the
service quality measure defined by Parasuraman, Zeithaml and Berry (1988), as a starting point.
Then, following the recommendations of recent research, which assess the fit, and stability of the
service quality measure (Stafford, Prybutok, Wells, & Kappelman, 2011) two other measures are
utilized: service consistency (Chase, 1985) and perception of service reliability (Parasuraman,
et.al, 1994b).
The final measure queries the customer’s perceptions of service consistency,
which includes timeliness and reliability of the service, service consistency, facility appearance,
store promptness, décor and shopping experience.
Service Quality
Service quality assesses the customer’s perception of employee knowledge, skill and
training. This construct emphasizes the overall ability of the firm to provide a desirable service
level. Specifically this construct addresses the customer’s perception of the service personnel to
perform the promised service dependably and accurately (Parasuraman et. al., 1988). In a
general sense, the construct emphasizes the overall facility cleanliness, décor and shopping
experience, yet it also captures the customer perception of the service complexity in relationship
to service timing and appropriate communication between the customer and service provider
(Chase & Zhang, 1998). Research suggests variable communication and service timing that is
inconsistent with the complexity of the task will affect the customer’s perception of quality
(negatively). Specifically, inconsistency in service delivery time can have the largest impact on
perceptions of quality service. As the variability in the service encounter increases, perceptions
of consistency of service will decrease.
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Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
Servicescape
The effect of atmospherics, or physical design and décor elements, on consumers and
workers is recognized as important to customer perceptions of quality and has been labeled as
Servicescape (Bitner, 1992). The ability of the physical environment to influence behavior and
to create an image is particularly apparent for service businesses. Bitner suggests the physical
environment in which the service is performed includes dimensions such as: posters,
advertisements, signs, music, lighting, and décor. Servicescape also referred to as the service
encounter has been shown to increase customer satisfaction across industries (Pareigis,
Edvardsson, & Enquist, 2011).
It is particularly relevant to consider the effects of this factor on the customer since the
nature of services lends itself to placing the customer in the service factory. Over the years
researchers have posited that, generally speaking, the physical surroundings are more important
in service settings because customers and employees often experience the firm’s facility (Katzan,
2011; Bitner, 1992). It is important to note, however, that the importance of the service
encounter may vary with the nature of the services offered. Several researchers note
servicescape may play a more prominent role in services that have more elaborate physical
complexity such as hotels, restaurants, and health clinics.
Value
Value is an abstract concept with meaning that varies according to context. In
economics, value is equated with utility or desirability, while in social sciences it is more likely
to be understood in the context of human values such as the instrumental and terminal values
suggested by (Patterson & Spreng, 1997). Other researchers suggest that service quality
positively influences perceived value and customer satisfaction, perceived value positively
10
Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
influenced customer satisfaction and customer satisfaction positively influences post purchase
intentions and perceived value (Kuo, Wu, & Deng, 2009). Since we all value things differently,
we will be motivated differently for repeat purchase based on our perceptions of value. The
basic premise here is that value is one of the key linkages between the cognitive element of
perceived quality or performance and behavioral intentions, primarily because it incorporates a
perceived monetary sacrifice (Hutchinson, Lai, & Wang, 2009).
Linking Strategy and Service Characteristics: The model
While the discussion of service characteristics argues for the broad importance of service
quality, the notion of Porter’s generic strategies suggests that the relative importance of different
aspects of service quality may differ depending on the firm’s strategy. That is, rather than
reasoning that servicescape would be equally important for all companies in a given industry
(e.g. servicescape for hotels), a more detailed analysis would delineate the importance of each
characteristic depending on whether a firm was pursuing a cost leadership or a differentiation
strategy (e.g. Motel 6 vs. The Ritz). Thus, the conceptual model for this analysis
Cost Leadership
Strategy
Service Quality (-)
Servicescape (-)
Value (+)
Customer Loyalty/Satisfaction (=)
Differentiation
Strategy
Service Quality (+)
Servicescape (+)
Value (-)
Customer Loyalty/Satisfaction (=)
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Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
Hypotheses Development
Historically researchers have agreed that service quality expectations differ depending on
the complexity of the service task (Malhotra & Malhotra, 2013), the service being delivered, the
customer expectations, and most recently through the technology involved in the service (Bitner,
Zeithaml, & Gremler, 2010). To this end, the goal of the present research is to extend and
connect this reasoning with the strategy literature asserting that service expectations may differ
within industries. For example, when a firm competes as a cost leader, customers may recognize
that the cost leadership comes at a price and therefore be willing to trade service quality a lower
price while still considering themselves satisfied customers. Conversely, for the service firm
competing as a differentiator, customers are likely to demand a higher level of service quality in
exchange for the higher prices paid. Said more formally:
H1: Customer perceptions of service quality will be lower for firms following a cost
leader strategy than for those following a differentiation strategy.
Historically researchers have noted that the importance of servicescape may differ
depending on the nature of the service and the impact of service technology on service
expectations (Bitner et al., 2010). However, such distinctions do not account for potential
differences between firms within the same industry segment when said firms follow different
strategies. As is the case with service consistency, customers of a firm pursuing a cost leader
strategy are likely to recognize that servicescape elements come at a price and be willing to forgo
some of the pleasantries in exchange for lower costs. For the differentiator, however, customers
will be more likely to demand an atmosphere appropriate to the differentiation. That is:
H2: Customer perceptions of servicescape will be lower for firms following a cost leader
strategy than for those following a differentiation strategy
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Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
The next construct to be considered is a customer’s perception of value; and for this, the
distinction may not be as clear. As noted, perceived value is an abstract quality that depends on
context. Thus, a customer may perceive value at a cost leader service differently from a
differentiation service, because of the price difference. That is, the customer perception of value,
or the actual components of the value equation are likely to differ based on firm strategy; even
though an individual’s overall perception of value may be similar, price is likely to trump other
influences. Therefore, it is hypothesized that:
H3: Customer perceptions of value will be higher for firms following a cost leader
strategy than for those following a differentiation strategy.
Finally, attention turns to the important outcome of customer loyalty and satisfaction. In
general, it is argued that increased service quality should be associated with increased customer
satisfaction and loyalty. Such an argument, though, does not consider the components that make
up the perception of service quality. As argued above, we expect service quality, servicescape
and value perceptions and to differ based on strategy but to be consistent with customer
perceptions. If for example a customer expects and receives high value, fast service and without
servicescape, one might expect loyalty. Likewise if a customer expects and receives high service
quality and low value, one again may expect loyalty. Therefore, it is plausible to argue that
customer satisfaction and loyalty may not differ based on the service characteristics alone
(service quality, servicescape & value) rather based on the combination of characteristics as
related to customer expectations. That is, customer satisfaction and loyalty do not necessarily
depend on the strategy the firm is following, instead that the firm is following a strategy
consistent with ones expectations. As such:
H4: Customer perceptions of satisfaction/loyalty will consistent across strategic groups:
those following a cost leader or differentiation strategy.
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Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
Methods
To examine the hypotheses, four firms in two industries are identified. First, two firms
competing as differentiators are identified as Starbucks and Target. Then, two firms competing
as cost leaders are identified as Wal-Mart and McDonalds.
The industry segments are
identified as the restaurant and general merchandise industries. Firm choice was based on
several criteria, including: 1)Firms had reached institutionalization (DiMaggio & Powell, 1983),
which was necessary for facilitating data collection based on customer perceptions; and 2) Ease
of placement in Porter’s typology was also necessary. Thus, after considering a number of firms
Wal-Mart, Starbucks, Target, and McDonalds were chosen. These firms are known by most of
the general population and are held up as benchmarks within their respective industries, yet each
takes a very different approach to satisfying customers. Wal-Mart and McDonalds follow a cost
leader strategy, focusing on efficiencies in the supply chain and minimizing labor costs in order
to keep prices low. While Starbucks and Target, seek to differentiate themselves through image
and quality, providing significant training and benefits to its employees in order to provide an
enhanced experience for its customers. Thus, these firms will provide sufficient variance in the
variables of interest to allow for hypothesis testing.
Sample
The population of interest for this study is all adult customers of McDonalds, Starbucks,
Target, and Wal-Mart living in three states within the Southwest region of the United States
between the dates of 1 March 2009 and 1 September 2009. Additionally, individuals within this
target population met the following criteria: 1) they shopped at one of the locations at least 1
times in a four week period; 2) they were between the ages of 21 and 50; 3) had an annual net
income between $50,000 and $150,000; 4) were willing to fill out the questionnaire without
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Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
reservation. In an effort to match the general demographics of these three states the sampling
frame was obtained from three specific groups: part time working people (30%), full time
working people (50%) and members of the armed forces (20%).
The questionnaire was distributed to 250 customers in a two state area in the Southwest
region of the United States. On average the sample ranged in age from 21 to 51 with a mean age
of 32. The income of the sample ranged from $56,000 to $150,000 per year, with a mean of
$65,000 per year and they reported visiting these service firms surveyed between 1 and greater
than 10 times in the last four weeks. The sample was 52% male and 48% female, and 20% were
from the armed forces. Of the 250 questionnaires distributed 179 were usable. On the selfreport questionnaire, individuals within the sample cited that they visited these locations once per
week (or 4 times in four weeks). The measure was designed to solicit perceptions of several
aspects of service quality, overall satisfaction, and loyalty to that service firm.
Respondents were screened to insure they had visited the service firm 1 time in the last 4
weeks. Once this criterion was met, potential respondents were given one randomly chosen
survey from McDonalds, Starbucks, Target, or Wal-Mart. In total, this resulted in 179 responses.
The sample cannot be considered representative of the original population of interest, however
generalizability was not a primary goal; the major purpose of this study was to determine
whether a specific firm strategy drove specific service characteristics and priorities.
Measures
To the extent possible, survey items were taken from existing instruments. Where
necessary, items were modified for the particular context of this study and/or created based on
the extant literature. Initial items were pre-tested with a different subject population and minor
modifications made to ensure reliability and validity. All scales utilized a 7-point Likert scale
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Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
where 1 was ‘strongly disagree’ and 7 was ‘strongly agree’. Therefore, a higher score indicated
more of a given characteristic while a lower score equated to less of that characteristic. Each
measure was adapted (wording only) to fit the service establishment in question. The reliability
of each measure in discussed within each measure description below. In the final paragraph of
measures a brief discussion of construct validity of the measures is discussed. A complete
measurement instrument can be found in Appendix 1.
Independent Variable Measure
Service Quality (α = .95). The service quality factor was adapted previously established
service characteristic measures (Parasuraman et al., 1994b) with wording specifically adapted to
fit the service establishment in question. The questions elicited consumer impressions of the
knowledge, helpfulness, skills and friendliness of the service personnel as well as the timeliness
of the service. The original ten items were utilized as a base and five additional items were
added based on additional research. Service consistency or reliability has been suggested across
the literature (Parasuraman et al., 1994; Chase, 1978b, 1985). The items queried customer
perception of service consistency, including timeliness and reliability of the service as well as the
overall consistency of facility appearance, and store promptness. In all, 12 items were extracted
accounting for 21% of the total explained variance.
Finally, this construct assessed the overall
perception of the facilities cleanliness, décor and shopping experience.
Servicescape (α = .90). The servicescape measure was adapted from Bitner (1992).
This measure begins to enlighten the researcher as to the perceptions of the customer as related
to the environment; lighting, décor, background music and signage. Utilizing the eleven items
recommended by the servicescape literature, nine items were extracted. These items generated
two separate factors: store-scape and servicescape. Individually they had a reliability of .89 and
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Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
.88 respectively; however together they returned a reliability of .90. Thus, the results were tested
with both factors independently and as a combined factor. No significant differences were
found.
Perceived Value (α = .80) The measure of perceived value began with questions around
utility or desirability associated with instrumental and terminal values (Patterson & Spreng,
1997). Additional research suggests perceived value should also consider customer perception
of service utility based on the difference between what is received and what is expected in the
service environment (Parasuraman et al., 1994a). To that end several additional items were
included. Once the factor analysis was conducted, it was clear that the construct was most
reliable when four of the five items were utilized (α = .80) Thus the results were tested using the
highest reliability of the factor.
Dependent Variable Measures
Customer Loyalty and Satisfaction (α = .93). The measure of customer loyalty and
satisfaction was adapted from the customer loyalty and satisfaction work several researchers
(Parasuraman et al., 1994; Wakefield & Blodgett, 1996). This measure sought to determine the
consumer’s intentions of continuing to utilize this service. Specifically, the questions elicited
responses to questions concerning ones personal perception of loyalty to that store, their future
buying intentions and whether they intend to recommend this store to friends. The customer’s
feelings of satisfaction while shopping were also considered, and while this query was originally
intended as a separate construct, it built on/contributed to the customer loyalty factor. These
questions were more general in nature, asking about one’s feelings while shopping, and the
overall level of satisfaction with the service.
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Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
Factor Analysis
To examine construct validity of the measures a varimax rotated principal components
exploratory factor analysis was conducted. An exploratory, rather than confirmatory, factor
analysis was conducted because this was the first study using the measure as constructed.
Principle components analysis attempts to account for the maximum amount of variance in the
set of variables. Since the diagonal of a correlation matrix represents standardized variances,
each principle component can be though of as accounting for as much of the remaining diagonal
variation as possible. Each principle component represents the amount of variance in the
variables that is accounted for by a component (or factor).
As shown in Table 1, four distinct components were extracted from 38 items,
accounting for 74% of the total variance. For interpretation purposes, items with a factor loading
of at least .40 were considered to load on that factor. In general the factors corresponded
conceptually to the four subscales utilized in this study. Specifically, ten of the items making up
the service loyalty and satisfaction subscales loaded on factor 1: Loyalty/Satisfaction. This
factor accounts for 20% of the variance extracted. All eight service quality items loaded on the
second factor: Quality; accounting for 19% of the variance. The third factor consists of eight
Servicescape factors and accounts for 19% of the variance. The final factor consists of four
measures for value, and is labeled: Value, accounting for 8% of the variance.
-------------------------------- Insert Table 1 about here -----------------------------------------There were 179 participants in the study’s final sample. Participants were divided into
four groups comprised of 34 to 50 participants per group. These data were analyzed to ensure
that all items loaded on the expected factors and that there was both discriminate and convergent
validity. All variables behaved as expected with the customer satisfaction and loyalty measure
18
Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
exception noted above. Reliabilities were all above the normally accepted level of .70 on
Cronbach’s alpha. Given this, the items for each variable were averaged to create a single score
on each of the variables and these scores were used for subsequent analysis.
Assumptions and caveats about data
The purpose of this study is to test the differences between the three service
characteristics (service quality, servicescape, value) on four stores: McDonalds, Starbucks,
Target, and Wal-Mart. The sample represents two stores from similar industries that are
normally grouped together in service typologies (Schmenner, 2004). Since the objective of this
research is to determine differences among service firm groups, a single metric dependent
variable called loyalty/satisfaction has been developed.
Given that a one-way analysis of variance (ANOVA) test was the method of choice, it
was necessary to ensure the data met the assumptions of this test. To that end, the data was
checked to ensure homogeneity of variance across the service characteristics in question: quality,
servicescape and value. As can be seen in Table 2 (lack of significance) this assumption is met
and an attention was turned to analysis. As is the case in many ANOVAs a two-step process was
utilized. First an ANOVA was conducted to determine if there were differences between groups,
and second a post hoc analysis enabled the researcher to determine where the differences occur
(Kutner, Nachtsheim, Neter, & Li, 2005). All hypotheses were examined in a similar fashion
and each is explained in detail in the subsequent paragraphs, and descriptive statistics for the
computed factors are in Table 3.
---------------------------------------- Insert Table 2 and 3 here -------------------------------------------
19
Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
Results
Broadly, all hypotheses are supported. As hypothesized, customer expectations of
service quality and related characteristics and expectations varied depending on the firm strategy.
Each hypothesis is discussed in detail in the subsequent paragraphs.
Hypothesis 1 is supported. The first hypothesis suggested that perceptions of service
quality would be lower for cost leader service firms (Wal-Mart & McDonalds) than for
differentiation service firms (Starbucks & Target). As expected the ANOVA (Table 5) results are
significant, suggesting a statistically significant difference exists between the two groups. For
example, the average customer rating for service quality at McDonalds was 3.9, while at
Starbucks it was 5.6. Likewise, the average quality for Wal-Mart was 3.6, while for Target this
rating was 5.1. Given the ANOVA results that indicated a significant difference existed (F =
22, p < .01) Table 4, it was necessary to conduct Post Hoc analysis to see where the differences
existed. As expected the analysis suggests the differences are significant between firms that
have differing strategies, but the differences are not significant between firms that compete
similarly. In particular the difference between the customer perception of quality for the cost
leader, and the differentiator is so large that the likelihood of this occurring by chance is less than
1% (F = 120 p <. 01), Table 5.
Hypothesis 2 is supported. The second hypothesis suggests perceptions of servicescape
will be lower for firm following a cost leader strategy (Wal-Mart & McDonalds) than for those
following a differentiation strategy (Starbucks & Target). As expected the ANOVA (Table 5)
results are significant, suggesting the presence of a statistical difference between the groups with
respect to servicescape (F = 30, p < .01). Although not surprising given that the average
servicescape rating for McDonalds was 4.2, Starbucks 5.7, Wal-Mart 4.0, and Target 5.3, it was
20
Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
necessary statistically assess these results further. To this end a Tukey Post Hoc test was
conduced and confirmed that the differences were indeed from the differences between the
strategic groups, and it is very unlikely that these results had occurred by chance (F= 97,
p<.01).
Hypothesis 3 is supported. The third hypothesis suggests perceptions of value will be
higher for firms following a cost leader strategy (Wal-Mart & McDonalds) than for those
following a differentiation strategy (Starbucks & Target). As expected the ANOVA (Table 5)
results are significant (F= 24, p < .01), suggesting the presence of a statistical difference
between the groups with respect to value. As an example, the average perception of value for
McDonalds was 4.5, while for Starbucks it was 3.2, Wal-Mart was 5.6 and Target’s rating was 4.
Like the previous hypothesis it was necessary to conduct post hoc analysis to ensure the
differences were between the hypothesized groups. To this end a Tukey Post Hoc test was
conduced and confirmed that the differences were indeed from the differences between the
strategic groups, and it is very unlikely that these results had occurred by chance (F= 30, p<.01).
Hypothesis 4 is broadly supported (three of four firms). The fourth hypothesis suggests
that customer satisfaction and loyalty will be consistent across all four firms, regardless of firm
strategy. Initial observations of the ANOVA revealed results that were consistent with the
hypothesis, specifically suggesting there were no statistically significant differences between
firms pursuing different strategies (Table 4). However, post hoc analysis revealed the presence
of statistical differences (F = 30.8, p < .01). Indeed the results suggest customer satisfaction is
in the expected direction (as can be seen by the lower F test), however, the difference is
statistically significant, which was not hypothesized. It should be noted that three of the four
firms (Starbucks 5.2, Wal-Mart 4.8, & Target 5.2, Table 4) and there is a considerable amount of
21
Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
overlap between the lower and upper bounds (F = 1.8, p<0.22). However, the ratings for loyalty
and satisfaction for McDonalds do not overlap with the other three firms, suggesting that
customers are not as loyal and satisfied with McDonalds (F = 3.3, p<0.02).
Discussion
As efforts continue to create service firm typologies and a better understanding of
operations differences faced by various types of firms, there comes an increasing concern that
such an approach tells only part of the story. Any typology is likely to face the problem of firms
that are ostensibly in the same category, yet choose to pursue approaches that differentiate them
from the “ideal” category type. As noted above scholars such as Schmenner (2004)
acknowledge these issues, noting that restaurants might fit into any one of three of his four
categories depending on the particular approach taken.
The current study is in line with the increasingly popular view, which considers firms
individually rather than as part of a larger industry category. By focusing on the strategic
orientation of the firm, a finer-grained distinction is made that may ultimately provide greater
insights. In the present case, this approach allowed for analysis of differences between two sets
of seemingly similar retail firms that take very different approaches to satisfying their customers.
As expected, results indicated significant difference between the firms on each of the
service quality characteristics. In line with the hypotheses, Wal-Mart and McDonalds were rated
higher on perceived value while Starbucks and Target were consistently rated lower in value, but
higher in service quality and the perception of servicescape characteristics. At one level, such
results are not surprising and would fit with common stereotypes of the four stores. What is
interesting to note, though, is the lack of significant differences between the two firms with
respect to customer satisfaction and loyalty. That is, although the firms of interest were seen as
22
Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
different in terms of their service characteristics, customers apparently recognized what they
could expect from each of the stores on the service characteristics and the outcomes met with
their expectations. The one exception to this finding was that of McDonalds. As suggested in
the results, customer loyalty to McDonald’s was lower than that of the other three service firms.
This finding is not so unexpected given the disposable reputation in the fast food industry.
Finally, these results suggest that generic prescriptions claiming that increased service
quality across the board will lead to increased customer satisfaction and loyalty may be
shortsighted. Instead, this study indicates the need to consider the firm strategy when
considering the investment in quality. Indeed, insuring the level of quality matches customer
expectations may actually be as important. Such an approach is a shift from the broad
characterizations of typologies of service organizations. Adapting such a method may cause
researchers to incorporate both dimensions of service: the firm and the customer. Similarly,
typologies that posit high productivity is the best path to profitability may not always be
applicable; indeed, as in this model, all four firms are profitable, but in different ways.
Clearly, the current study is not conclusive; however it is the first to suggest that service
competencies are not generic. Rather each organization must carefully align the service it
provides with organizational strategy, and customer expectations. This small-scale research
provides a limited analysis of a broader typology. Further analysis of the current data is possible
and will be conducted. In addition, efforts are underway to include additional stores in the
sample.
23
Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
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27
Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
Table 1: Principle Component Factor Analysis
Principle Component Factor
Analysis
a
Gran
d
Mea
n
4.53
Loyalty/Satisfaction 29
Loyalty/Satisfaction 28
Loyalty/Satisfaction 30
Loyalty/Satisfaction 26
Loyalty/Satisfaction 15
Loyalty/Satisfaction 25
Loyalty/Satisfaction 2
Loyalty/Satisfaction 27
Loyalty/Satisfaction 39
Loyalty/Satisfaction 3
0.95
Quality 19
Quality 20
Quality 17
Quality 21
Quality 23
Quality 24
Quality 22
Quality 38
Quality 18
Quality 9
0.90 4.56
Servicescape 35
Servicescape 36
Servicescape 34
Servicescape 37
Servicescape 8
Servicescape 7
Servicescape 5
Servicescape 6
0.89 4.90
1
.833
.815
.770
.768
.729
.712
.701
.698
.638
.615
2
3
4
.873
.854
.849
.818
.809
.754
.744
.690
.665
.580
.813
.796
.737
.627
.667
.638
.634
.578
Value 11
0.81 4.63
.893
Value 10
.815
Value 12
.706
Value 14
.616
Extraction Method: Principal Component Analysis, converged in 7 rotations; Varimax with Kaiser
Normalization.
28
Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
Table 2: Test of Homogeneity of Variances
Quality
Loyalty/Satisfaction
Servicescape
Value
Levene
Statistic
2.279
.609
.089
.729
df1
3
3
3
3
df2
175
173
173
173
Sig.
.081
.610
.966
.536
29
Table 3: Descriptive Statistics of computed Factors
Descriptive Statistics
Store
McDonalds
Starbucks
Target
Wal-Mart
N
MQuality
MSerScape
MValue
SQuality
SSerScape
SValue
TQuality
TSerScape
TValue
WQuality
WSerScape
WValue
Statistic
43
43
43
34
34
34
52
52
52
50
50
50
Std.
Deviation
Mean
Statistic
3.920
4.186
4.534
5.683
5.929
3.305
5.125
5.211
4.591
3.637
3.680
5.640
Std.
Error
0.153
0.164
0.179
0.125
0.105
0.218
0.092
0.113
0.156
0.174
0.158
0.171
Statistic
1.008
1.078
1.159
0.702
0.613
1.224
0.665
0.893
1.189
1.253
1.109
1.265
Variance
Statistic
1.017
1.163
1.344
0.493
0.378
1.511
0.443
0.666
1.272
1.509
1.221
1.602
Skewness
Statistic
-0.454
-0.407
-0.407
0.108
-0.145
0.259
-0.016
-0.229
0.005
0.363
0.167
-1.652
Kurtosis
Std.
Error
0.361
0.361
0.361
0.403
0.403
0.403
0.330
0.330
0.330
0.337
0.337
0.337
Statistic
-0.515
0.560
0.881
-0.449
-0.524
-0.497
-0.162
-0.514
-0.552
-0.513
-0.235
3.549
Std.
Error
0.709
0.709
0.709
0.788
0.788
0.788
0.650
0.650
0.650
0.662
0.662
0.662
Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
Table 4: Mean differences between services
Std.
Std. Lower
N
Mean Deviation Error Bound
Value
McDonalds 43
4.535
1.159
0.177
Starbucks
34
3.213
1.133
0.194
Target
52
4.591
1.128
0.156
Wal-Mart
50
5.645
1.266
0.179
Total
179 4.610
1.427
0.107
Quality
McDonalds 43
3.921
1.008
0.154
Starbucks
34
5.686
0.702
0.120
Target
52
5.125
0.666
0.092
Wal-Mart
50
3.637
1.229
0.174
Total
179 4.527
1.244
0.093
Store Scape
McDonalds 43
4.243
0.998
0.152
Starbucks
34
5.739
0.656
0.112
Target
52
5.306
0.763
0.106
Wal-Mart
50
4.016
1.092
0.154
Total
179 4.772
1.140
0.085
Loyalty/Satisfaction McDonalds 43
3.235
1.349
0.206 2.820
Starbucks
34
5.212
1.165
0.200 4.805
Target
52
5.213
1.043
0.145 4.923
Wal-Mart
50
4.748
1.553
0.220 4.307
Total
179 4.608
1.515
0.113 4.384
Satisfaction
McDonalds
Starbucks
Target
Wal-Mart
Total
43
34
52
50
179
3.587
5.235
5.125
4.335
4.556
1.207
0.864
0.931
1.283
1.268
0.184
0.148
0.129
0.181
0.095
3.216
4.934
4.866
3.970
4.369
Upper
Bound
3.650
5.618
5.504
5.189
4.831
3.959
5.537
5.384
4.700
4.743
31
Competitive Strategy: The link between Service Characteristics and Customer Satisfaction
Table 5: ANOVA for Two Strategic Groups utilizing Factor Scores
Quality
Service Scape
Value
Loyalty/Satisfaction
Between Groups
Within Groups
Total
Between Groups
Within Groups
Total
Between Groups
Within Groups
Total
Between Groups
Within Groups
Total
Sum
Squares
19.778
158.222
178.000
25.776
150.224
176.000
24.081
151.919
176.000
16.542
909.958
926.500
df
1
177
178
1
175
176
1
175
176
1
175
176
Mean Square
19.77
.89
F
22.12
Sig.
.000
25.776
.85
30.02
.000
24.08
.86
27.74
.000
5.514
1.725
3.326
.022
Table 6: ANOVA Post Hoc
ANOVA
Value
Quality
Loyalty/Satisfaction
Servicescape
Satisfaction
Low Cost
Differentiators
Low Cost
Differentiators
Low Cost
Differentiators
Low Cost
Differentiators
Low Cost
Differentiators
Mean
5.13
4.05
3.76
5.35
4.05
5.21
4.12
5.48
3.99
5.17
1.33
1.31
1.13
0.73
1.64
1.08
1.05
0.75
1.29
0.90
F
30.07
Sig.
0.00
120.32
0.00
30.82
0.00
97.43
0.00
49.12
0.00
32
SURVEY OF CUSTOMER PERCEPTION OF SERVICE
This survey is a part of an academic research project and will not in any way be disclosed, or made public. The information will be used to better
understand the perceptions of customers of different types of services.
Service Name Here
Strongly
Disagree
Strongly Agree
Strongly Disagree
Strongly Agree
Strongly Disagree
Strongly Agree
Strongly Disagree
Strongly Agree
Strongly Disagree
Strongly Agree
Strongly Disagree
Strongly Agree
Servicescape
Wal-Mart associates have a neat and professional appearance
Facilities are always kept neat and attractive
The décor at Wal-Mart is attractive
The stores have attractive signs and displays
The aromas and scents at Wal-Mart are soothing and pleasant
The lighting is set at an appropriate level
I enjoy the background music at Wal-Mart
I truly enjoy a shopping trip to Wal-Mart
Value
Wal-Mart offers products at a good value
Given the quality of the merchandise, Wal-Mart offers low prices
When I am looking for low price merchandise I shop at Wal-Mart
Wal-Mart offers better value than other general merchandise shops
Satisfaction
I am very satisfied with customer services at Wal-Mart
I am delighted with the Wal-Mart shopping experience
Wal-Mart is my first choice of general merchandise shops
I have good feelings when shopping at Wal-Mart
Loyalty/Satisfaction
I consider myself a loyal customer of Wal-Mart
I intend to remain a Wal-Mart customer long in to the future
I purchase more products at Wal-Mart than I do at Target
I plan on continuing to shop at Wal-Mart
I recommend Wal-Mart to my friends and family
I go to Wal-Mart for all my general merchandise needs
Service Quality
I consistently receive the level of service I expect at Wal-Mart
Wal-Mart associates have the skills necessary to help me
I receive prompt service when I shop at Wal-Mart
Wal-Mart associates give caring and individual attention
Wal-Mart associates consistently go out of their way to help me
Wal-Mart associates are consistently courteous and pleasing
I am normally satisfied with the time it takes to check out at Wal-Mart
The time I wait in line at Wal-Mart to check out is similar to my expectations
I do not have to wait in long lines at Wal-Mart
Store-scape
The layout of Wal-Mart allows me to take any path I like when browsing
There is ample space between displays to browse comfortably
All merchandise at Wal-Mart stores is easily accessible
All merchandise is organized at Wal-Mart
I will continue to shop at Wal-Mart for general merchandise
Wal-Mart is always clean
General Information
In the last 4 weeks I have been to Wal-Mart _____ number of times
My gross annual household income is:
1-2
3-4
<40,000
41,000 to
55,000
4-5
6-7
8-9
56,000 to
75,000
76,000 to
90,000
91,000
to
90,000
10-11
91,000
to
100,000
>11
101,000
to 50,000
34