Product and service quality: The antecedents of customer loyalty in the automotive industry

Production and Operations Management, Winter 2001 by Devaraj, Sarv, Matta, Khalil F, Conlon, Edward

PRODUCT AND SERVICE QUALITY: THE ANTECEDENTS OF CUSTOMER LOYALTY IN THE AUTOMOTIVE INDUSTRY*

Prior literature has examined product quality and service quality separately as antecedents of customer loyalty. In the context of the automotive industry, we present a framework that examines the simultaneous impact of product and service quality on consumers' purchase intentions. The framework is operationalized as several hypotheses that posit relationships between service quality, service satisfaction, product quality, and customer loyalty. The hypotheses are tested using three sources of data: (i) archival data on product quality and customer purchases, (ii) consumersi responses to a survey instrument, and (iii) Consumer Reports. Results indicate general support for main hypotheses proposed.

(SERVICE QUALITY; PRODUCT QUALITY; CUSTOMER LOYALTY; AUTOMOTIVE INDUSTRY)

1. Introduction

Quality in the automotive industry has gained the attention of practitioners and academics alike ever since the U.S. car manufacturers lost significant market share to international competition in the 1980s. The importance of the car market to the national economy and the fast pace of technological progress in the automotive industry continue to spark interest in this line of research. In this paper we examine the effects of product quality and after-sale service on consumers' intentions to repurchase vehicles from the original dealer. There is strong evidence in the marketing and operations management literatures to suggest that these two factors are key determinants of consumers' purchase intentions (Taylor and Baker 1994; Archer and Wesolowsky 1996). One set of literature has found that service quality and customer satisfaction play a key role in formulating the purchase intention among consumers (Woodside, Frey, and Daly 1989; Bitner 1990; Cronin and Taylor 1992). While another set of literature indicates that product quality and price are important determinants of shopping behavior and of product choice (Zeithaml 1988; Narasimhan, Ghosh, and Mendez 1993). This paper differs from prior research in that it examines product and service quality using a model that integrates it into the prediction of repurchase behavior.

We examine product quality using an aggregate measure of satisfaction often referred to in the marketing literature as market-level product satisfaction. Service quality, on the other hand, was analyzed using an individual satisfaction measure of service delivery at the dealer facility. Both these factors were used as the determinants of customer loyalty. While there is an extensive body of literature that examines individual satisfaction (Bolton and Drew 1991; Cronin and Taylor 1992), aggregate satisfaction has received much less attention. The latter, however, does offer the opportunity to examine relationships independent of individual differences, which is particularly interesting to both marketing and product managers (Johnson, Anderson, and Fornell 1995). Further, aggregate level surveys such as Consumer Reports provide an important indicator of satisfaction with a product or service. Such indicators have been found to be strongly correlated with customer retention rates and firm profitability (Anderson, Fornell, and Lehmann 1994). Last, the repurchase decision is examined from two perspectives: actual repurchase behavior using archival data, and the customer's intention to repurchase vehicles from the dealer using a survey instrument.

While there is ample evidence to suggest that consumers' repurchase decisions are impacted by brand image, we examine in this study the effect service quality has on consumers' loyalty. We hypothesize that, in the automotive industry, customer loyalty is affected not only by the image of the brand, but also by the quality of service received at the dealership that sells the brand. This implies that the overall image of the product extends beyond the quality of the manufacturing operations to include the quality of service received after purchase. Thus, results from this study will be of interest to both manufacturers and dealers in their pursuit to retain customers.

2. Hypotheses

We discuss the antecedents affecting customer loyalty and the customer repurchase intention from two perspectives: (i) service quality and customer satisfaction with a service experience, and (ii) issues related to the quality of the product.

2.1. Service Quality, Satisfaction, and Purchase Intentions

The relationship between the purchase intention and customer satisfaction has been widely investigated (see, for example, Oliver 1980; Bearden and Teel 1983). The evidence suggests that there is a strong positive relationship between the two. Several of these studies indicate that higher levels of satisfaction lead to greater customer loyalty (Yi 1991; Anderson and Sullivan 1993; Boulding, Staelin, Kalra, and Zeithaml 1993). Anderson and Sullivan (1993) used a Bayesian approach to show how customers' choices, and thereby loyalty, are affected by the satisfaction based on prior experiences. Based on these arguments, we propose that the following: