Moderating Effect of Brand Inertia on the Relationship between the
Switching Cost and Loyalty
Hsiu-Yuan Tsao1
Department of Management Information System,
Takming University of Science and Technology, Taiwan
[email protected]
1
Hsiu-Yuan Tsao Ph.D.
Department of Management Information System,
Takming University of Science and Technology,
Addr: No.56, Sec.1, Huanshan Rd., Neihu District,Taipei City 114,Taiwan
E-Mail: [email protected]
TEL: 886-2-26585801 ext 5149; FAX: +886-2-2658-2507
Moderating Effect of Brand Inertia on the Relationship between the
Switching Cost and Loyalty
ABSTRACT
As the web mail as the mostly used communication tool over Internet. This study use rarely used
concept of brand inertia to examine the past research of the impact of the satisfaction and
switching on the loyalty. The web questionnaire was employed for Yahoo web mail users. The
finding reveal that the satisfaction is crucial role on the formation of loyalty now matter the
consumer is high or low inertia. However, the impact of higher switching cost on the impact
appear only for the consumer with low brand inertia. That is, for those who attaches great
importance to brands in his choice, the impact of the high switching cost on the loyalty is stronger.
Therefore, this study suggest that the strategy to raise higher switching cost to prevent brand
switching behavior is effective only for high brand inertia consumers.
Introduction
With the advent of the Internet, a buyer has access to more information than ever before, a
situation that might lead an economist to conclude that the buyer is thus better informed than ever
before. That is, buyers can compare the offerings of sellers worldwide with minimal search
effort and expenditure. Therefore, brand equity could eventually disappear altogether in the face
of buyers simply choosing to go on-line to find the lowest available price, a phenomenon known
as cost transparency (Sinha 2000). Other studies also show that price sensitivity may actually be
lower online than offline (e.g., Degeratu, Rangaswamy, and Wu, 2000; Lynch and Ariely, 2000;
Ancarani and Shankar, 2004) and loyalty is vanished in the electronic marketplace. Thus,
developing consumer loyalty in the electronic marketplace may be more tough compared with
traditional marketplace when consumers can leave with just a mouse click away (Reichheld and
Schefter; 2001; Srinivasan and al, 2002).
School of research have been conducted in the interest of developing a better understanding of
the services satisfaction and services loyalty relationships in services industry. Most research
indicate positive relationship between services satisfaction and service loyalty (Butcher et al.
2001; Sharma and Patterson 2000; Lee and Cunningham 2001). Other research propose that
satisfaction and loyalty are not surrogates for each other (Bloemer and Kasper, 1995) and loyal
consumers are most typically satisfied, satisfaction does not universally translate into loyalty
(Oliver 1999). That is, except for the impact of the consumer’s satisfaction on the consumer
retention toward a web offered services online, whether there is possible for a customer to be
loyal without being highly satisfied due to the higher switching cost. That is, there is a moderated
effect of switching costs on the link of satisfaction and loyalty because the high switching cost
prevent brand switching even with low satisfaction (Lee and Cunningham 2001). In other words,
as perceived switching costs increase, the relationship between core-service satisfaction and
repurchase intentions will diminish.
Most research less doubt the positive role of satisfaction on the formation of loyalty. However,
some research doubt that whether the higher switching cost universally make a customer to be
loyal and diminish the relationship between core-service satisfaction and repurchase intentions.
From the theoretical perspective, previous research suggest higher switching cost diminish the
relationship between service satisfaction and repurchase intentions. Does it imply that the firm
pay more attention to raise the switching cost instead of the level of satisfaction? This study
propose that the research are required to further explore what kind of situation the loyalty are
most affected by satisfaction rather than switching cost and what kind of situation the loyalty are
mainly affected by switching cost rather than satisfaction. In other words, the firm need to know
when the firm should pay more attention to raise the level of satisfaction, on the contrary, when
the firm should pay more attention on raising the level of switching.
Odin (2001) propose that while those who attaches great importance to brands in his choice (high
brand sensitivity) is said to be brand loyal, a repeat purchasing behavior under conditions of weak
brand sensitivity is considered as brand inertia. Hence, except for satisfaction and switching cost,
the brand inertia might affect the brand loyal behavior. However, few research take the brand
inertia into account to test the satisfaction, switching cost, and loyalty model empirical. This
study attempt to involve the brand inertia into model of the impact of satisfaction and switching
cost on the loyalty to test the relative impact of satisfaction and switching cost on the loyalty
empirically.
In light of research of service satisfaction-service loyalty and switching cost-services loyalty, the
main objective of this research is to identify the role of brand inertia within the satisfaction,
switching cost, and loyalty mode. This article is structured as follows: we first briefly discuss the
concept of loyalty and introduce some factors potentially influencing loyalty. We then propose a
research model and some hypothesis to examine how those factors affect the formation of the
consumer e-loyalty toward a web site offering services. Next, we then describe the methodology
and discuss the results of an empirical study of those factors. Finally, we conclude by noting the
managerial and research implications of the study’s findings.
Conceptual Model and Hypothesis
e-Loyalty
Early views of brand loyalty focused on repeat purchase behavior. According to the behavioral
approach, customer loyalty is defined as a behavior (Cunningham, 1961; Ehrenberg, 1988; Kahn
et al., 1986). While the strengths of this approach is to offers a relatively objective measurement
in primarily panel data as a manifestation of loyalty., the weakness is, however, that the approach
does not provide any proper explanation of the existence of loyalty. Therefore, Dick and Basu
(1994) supplemented the behavioral approach to propose that loyalty is determined by a
combination of repeat purchase levels and relative attitude. In addition to attitude, it has been
argued that loyalty may also be based on cognition (Lee and Zeiss, 1980; Oliver, 1996). In
contrast to the concept of brand loyalty which is a biased choice behavior and a repeating
purchase toward a favorable brand of products, Zeithaml (1981) propose some differences in
loyalty that exist between tangible goods and untangible services. Indeed, it has been
demonstrated that loyalty is more prevalent among service customers than among customers of
tangible products (Snyder, 1986). In the services context, intangible attributes such as reliability
and confidence may play a major role in building or maintaining loyalty (Dick and Basu, 1994).
With the advent of Internet, some researchers propose the concept of e-Loyalty (Reichheld and
Schefter 2000; Anderson Srinivasan 2003; Chen and Hitt, 2002; Srinivasan et al., 2002).
Obviously, the early view of concept of brand loyalty “repeat purchase behavior” is insufficient
to describe the consumer’s behavior of retention or loyalty to a web site offering services
(Reichheld and Schefter 2000;Chen and Hitt 2002). For example, the purpose of the portal site or
search engine to offer free services such as email account, home page, and hard drive is to attract
consumer to retention the web site rather than repeat purchase. Compared to the offline
environment, the online environment offers more opportunities for interactive and personalized
marketing (Wind and Rangaswamy, 2001). Therefore, as opposition to the behavior perspective
of brand loyalty for a tangible goods, in this study, the e-loyalty is the consumer retention toward
a web site offering services rather than the repeating purchase behavior fro tangible products.
The link of services quality-services loyalty and service-satisfaction-services loyalty has also
been examined empirically. On one hand, some researchers suggest that there is no positive
relationship between service quality and repeating purchase behavior (Cronin and Taylor, 1992).
On the other hand, other researchers found positive relationships between service quality and
repurchase intentions and willingness to recommend (Boulding et al.,1993; Zeithaml et al., 1990).
In addition, some research suggest the mediating role of consumer satisfaction on the formation
of services loyalty (Caruana 2002). That is, the services quality indirectly affect the formation of
services loyalty via consumer satisfaction. However, most research agree the positive impact of
the satisfaction on the formation of loyalty. Thus, previous argument lead us to propose the
following hypothesis:
H1: The higher the satisfaction, the higher the loyalty is.
Switching Cost
Porter (1980) suggested that switching costs are “one time” costs, as opposed to the ongoing
costs associated with using a product or provider once a repeat purchase relationship is
established. Switching costs have been examined in the context of micro-economics (e.g. Ferrell
and Shapiro, 1988; Klemperer, 1987a, 1987b), market structure (Andreasen, 1982, 1985; Tsao
and Chen, 2004), interfirm relationships (e.g. Caves and Porter, 1977; Porter, 1980, 1985), and
distribution channel relationships (e.g. Heide and John, 1988; Weiss and Anderson, 1992).
Switching costs have also been associated with higher profits (Beggs and Klemperer 1992), with
inelastic response to price (Farrell and Shapiro 1988), with increased product preannouncements
(Eliashberg and Robertson 1988), and with barriers to market entry and sustainable strategic
advantage (Kerin, Varadarajan, and Peterson 1992). In addition, switching costs for services that
are intrinsically difficult to evaluate, or for which there is only a limited number of suppliers
(legal services, management consulting and medical services), are high (Brown and Swartz, 1989;
Patterson and Johnson, 1993).
Once a transaction relationship is established, one party becomes more dependent on the other as
the cost of switching transaction partners gets higher. Further, while there are few other choices is
the consequence of high switching cost, many alternatives are available is the consequence of
lower switching cost for consumers. That is, consumers often become "locked into" their current
service provider due to high switching costs. As for the discipline of marketing, in addition to
objectively measurable monetary costs, switching costs may also pertain to time and
psychological effort involved in facing the uncertainty of dealing with a new service provider
(Dick and Basu, 1994; Burnham 2003; Sharma and Patterson, 2000; de Ruyter et al., 1998). No
matter the repeat purchase or reuse the services provide, the central issue of loyalty focused not
only the current but also on the future deal with the same brand or provider. Therefore, switching
costs are the costs it is anticipated will be incurred in the future, whereas economic and
transaction costs are those incurred in the present transaction.
From the consumer perception of
switching cost rather than objectively measurable monetary costs, Burnham (2003) et al., propose
that switching costs should be defined as the onetime costs that customers associate with the
‘process of switching from one provider to another’, incurred immediately upon switching. Some
research show that in addition to satisfaction, switching cost have a significant impact on service
loyalty (Weiss and Heide, 1993). It appears that there is a positive relationship between the level
of switching costs and customer loyalty in services (Lee and Cunningham 2001). Thus, it let us to
propos the following hypothesis:
H2: The higher switching cost, the higher the loyalty is.
Brand Inertia
Why loyal consumers are most typically satisfied, satisfaction does not universally translate into
loyalty (Oliver 1999). Most research attempt to
employee the concept of switching cost to
explain why consumer dissatisfied but loyal. Thus, Burnham et al (2003) and Sharman and
Paterson (2000) suggested that satisfaction will have a stronger impact on relationship
commitment under low (rather than high) switching cost conditions. In addition to the switching
cost, Odin (2001) propose that while those who attaches great importance to brands in his choice
(high brand sensitivity) is said to be brand loyal, a repeat purchasing behavior under conditions of
weak brand sensitivity is considered as brand inertia.
Anderson and Srinivasn (2003) propos
that some customers visit the web site out of habit rather than on the basis of perceived benefits
and cost (switching cost). Thus, except for switching cost, the brand inertia also had potential
influence on the loyalty behavior with highly dissatisfied. However, the brand inertia had been
neglect with regard to the research of the impact of satisfaction, switching cost on the loyalty.
Sharma and Patterson (2000) suggest that when the perceived switching cost is low, deterioration
of service satisfaction will strongly impact on relationship commitment and could lead to client
defection. However, we propose the brand inertia act as a mediating role on the relationship of
satisfaction and switching cost on the loyalty. For those who with high brand inertia consumers,
their loyal behavior result from neither satisfaction
nor switching cost. They just seek for the
time saving and habitual behavior instead of attitude
preference. On the contrast, for those
who with low brand inertia consumers, their loyal behavior result from the highly satisfaction and
switching cost because they what their choice focus on the brand (high brand sensitive) instead of
time saving. Thus, the above argument let us propose the following hypotheses:
H3: The lower the brand inertia, the stronger impact of the switching cost on the loyalty
compared with higher the brand inertia.
H4: The lower the brand inertia, the stronger impact of the satisfaction on the loyalty compared
with higher brand inertia.
On the basis of the above argument and hypotheses, we propose the following conceptual model
as the figure 1 shown.
Research Methodology
This study employee the online questionnaire via directing email to a web questionnaire. We
randomly select 1000 Yahoo web mail user via email to direct the user to our design web
questionnaire. During the period of September 2006 and November 2006, with three times
reminding email and provide five USB flash drive for reward, the complete and useful responses
is around 18%.
The measurement used in this study were validated items used by previous researchers. While
satisfaction for online services and the switching cost for switching webs was evaluated by
Anderson and Srinivasn (2003). The concept of brand inertia were evaluated by three questions
adapted from Odin (2001).
Result
First, we us the regression analysis (Enter) to examine the impact of the satisfaction and
switching cost on the loyalty. For the all subjects, the R square value is 0.48. Thus, the power of
explanation for the model is well. As for the standard coefficient for the satisfaction and
switching cost is (B=0.49,p=0.00) and (B=0.33,p=0.00) respectively, please refer to the table 1
for group All Subjects. Therefore, the satisfaction and switching have positive relationship with
loyalty, Hence, the following hypothesis:
H1: The higher the satisfaction, the higher the loyalty is.
H2 The higher switching cost, the higher the loyalty is.
have been supported.
Second, we employee the K-means to separating all subjects into two group, High Brand Inertia
(HBI) and Low Brand Inertia (LBI). Then, the regression analysis (Enter) is used to test the
impact of the brand inertia on the relationship of satisfaction and switching on the formation of
loyalty for tow group of brand inertia. The result for two group has the following:
For LBI group, the standard coefficient for satisfaction and switching cost on the loyalty is
(b=0.49, p=0.00) and (b=0.35, p=0.00) respectively, please refer to the table 1 for the group of
low brand inertia. The result indicates for consumers of low brand inertia, the satisfaction and
switching cost have positive relationship with loyalty respectively.
For HBI group, the standard coefficient for satisfaction and switching cost on the loyalty is
(b=0.43, p=0.02) and (b=0.16, p=0.35) respectively. The result indicates for consumers of high
brand inertia, only the satisfaction have positive relationship with loyalty but switching cost.
Please refer to the table 1 for the group of high brand inertia.
Thus, the hypothesis H3, as the following
H3: The lower the brand inertia, the stronger impact of the switching cost on the loyalty
compared with higher the brand inertia
has been supported.
However, the hypothesis H4 as the following:
H4: The lower the brand inertia, the stronger impact of the satisfaction on the loyalty compared
with higher the brand inertia
has been rejected.
Conclusion and Implication
Based on the result obtained from the study, it let us conclude the following: First, No matter the
high or low brand inertia consumer, the satisfaction have positive relationship on the loyalty.
Second, only for the low brand inertia customer the switching cost have positive relationship on
the loyalty but high brand inertia. Please refer to the figure 2 for the moderating effect of brand
inertia on the relationship between the switching cost and loyalty. That is, the brand inertia have
moderating effect only on the relationship between the switching cost and loyalty but no on the
on the relationship between the satisfaction and loyalty. In other words, no matter the brand
inertia is high or low for consumers, the impact of satisfaction on the loyalty without significant
difference. However, the impact of switching cost on the loyalty is more significant when the
brand inertia is low compared with high.
On the basis of the result obtained in this study, once again, without doubt, the satisfaction is
crucial role on the formation of loyalty now matter the consumer is high or low inertia. However,
the impact of higher switching cost on the loyalty appear only for the consumer with low brand
inertia. That is, for those who attaches great importance to brands in his choice, the relationship
of the high switching cost on the loyalty is stronger. Therefore, this study suggest that the strategy
to raise higher switching cost to prevent brand switching behavior is effective only for high brand
inertia consumers.
6.Future Research
The services we chose in this study is the web mail services, it seems like a little higher switching
cost for users. For the generalization, the researchers might aim to varied perceptual level of
switching cost online services. In addition, what factors and how they influence the consumer
perceived brand inertia is also required to further exploration.
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Figures
Brand
Inertia
Satisfaction
Loyalty
Switching
Cost
Figure 1. The conceptual model
The impact on Loyalty
High
Satisfaction
Switching Cost
Low
Low
High
Brand Inertia
Figure 2. The moderating effect of brand
inertia on relationship of the
switching cost on the loyalty
Tables
Table 1. The Result of Regression
Analysis
Group
R2
All Subjects
0.48
Satisfaction
Switching Cost
High Brand Inertia
0.26
Satisfaction
Switching Cost
Low Brand Inertia
0.46
Satisfaction
Switching Cost
**:<0.005 * :<0.05
B:Standard coefficient
B
0.49
0.33
0.43
0.16
0.49
0.35
P-Value
0.00**
0.00**
0.00**
0.01*
0.02*
0.35
0.00**
0.00**
0.00**