Part I: Summary
This is a summary of the article “The Effect of Customer Value, Customer Satisfaction, and Switching Costs on Customer Loyalty: An Empirical Study of Hypermarkets in Taiwan, by the authors Tsai, Ming-Tien; Tsai, Chung-Lin; Chang, and Han-Chao”. The study was conducted in Taiwan focusing on hypermarkets in retail industry sector, due to their increasing importance in the country. This paper is going to address these three aspects and their interrelationships. The retail industry in Taiwan is very competitive and as a result, the hypermarkets offer low prices to their products than the micro- retailers and convenience stores in order to attract more customers. Even though, the hypermarkets are incurring losses due to saturation of markets, thus a lot of effort is directed towards cutting on costs, retaining consumers, and widening profit margins. Tsai, Tsai, and Chang are of the opinion that satisfaction on a customer is key to success of any business.
A consumer is always reflecting on goods and services that maximize on value (Tsai, Tsai and Chang 730). According to Tsai, Tsai and Chang, a customer’s satisfaction is more likely to be increased if the value of goods and services satisfy his/her expectations, thus leading to increased consumption. Thus, an entrepreneur should look out at customer’s value from a customer’s perspective to lessen the disparity between these two perceptions. Consumer satisfaction is a dissimilar function between discernment and expectation, and it is instinctively affirmative or negative feeling.
In order to develop suitable responses, studies and researches should focus efforts on accurate measurement of the level of consumer satisfaction (Tsai, Tsai and Chang 731). Customer loyalty on the other hand refers to the likelihood of his/her continued future consumption, service contracts, less possibility of changing a brand and affirmative recommendation to the public. Two types of consumer loyalty are identified namely; long- term consumer loyalty, which is considered a genuine loyalty and short- term loyalty, which describes the likelihood of a consumer to change business operators. This describes the level of competitiveness in a liberal market economy. The fact that a loyal customer is likely to bring more customers to a business makes entrepreneurs consider loyalty a major boost. Customer loyalty could be measured in terms of recurrent intention to purchase and tolerance in price variations (Tsai, Tsai and Chang 732).
Switching cost theory generally is described as sacrifices or consequence penalties consumers sense they may sustain by changing entrepreneurs. It is considered as the substantial cost sustained as a result of switching service provider. Three main variable varieties describe switching cost theory. They include: 1) Switching costs that are inclined to time (2) switching costs that are financial in nature and related to profit; and (3) switching costs that define an emotional relationship.
Both a consumer and an entrepreneur are vital subjects in determining switching cost. Higher costs of consumer switching are have a probability of highlighting the relationship between satisfaction of a consumer and loyalty of the consumer. This connection characterizes an investment of vital aspects by a consumer linked to resources, efforts, and time involved and presents a hindrance to a dissatisfied customer who wishes to switch suppliers (Tsai, Tsai and Chang 733). This study sought to establish whether an affirmative view of the value of a consumer value would have a positive impact on satisfaction of a customer, and whether switching costs as the moderating variable would have an impact on the value of consumer relating it to the his/her loyalty(Tsai, Tsai and Chang 734). The inter-relating effects between variables (consumer satisfaction, customer values, customer loyalty and switching costs) were investigated using regression analysis to authenticate the assumptions based on cause and effect correlation(Tsai, Tsai and Chang 736). The results obtained established that the value of a customer has a considerable affirmative impact on the loyalty of a customer. Conspicuously, service value was noted to have a greater impact on customer loyalty. Tsai, Tsai, and Chang are of the opinion that a consumer will continually approximate the optimum value of goods or services.
Increasing the performance and the quality of services will not only satisfy the demand of a customer but will also appease the consumers and encourage a habitual intention to purchase and continued anticipated consumption. In addition, the study established that opportune and appropriate services, quality, and value of products provided by entrepreneurs enhance satisfaction of a customer and encourage short- term customers into long-term associations. The study also ascertained that satisfaction of a customer has considerable positive impact on the loyalty of a customer (Tsai, Tsai and Chang 737).
Part II: Critical Analysis
Tsai, Ming-Tien, Tsai, Chung-Lin, Chang, Han-Chao. “The Effect Of Customer Value, Customer Satisfaction, And Switching Costs On Customer Loyalty: An Empirical Study Of Hypermarkets In Taiwan.” Social Behavior And Personality, 2010, 38(6): 729-740. Ming-Tien Tsai is a PhD, Professor, Department of Business Administration, National Cheng Kung University, Tainan, Taiwan.
Chung-Lin Tsai on the other hand is a PhD Candidate, Department of Business Administration, National Cheng Kung University and staff member, Department of Finance while Han-Chao Chan is PhD, Instrument Technology Research Center, National Applied Research Laboratories, Taiwan. In their paper, Tsai et. al. review the aspects of customer value, customer satisfaction and customer loyalty and how they interact with each other for the better of the company. The market under study is the Taiwan market. They note that the Taiwanese retail market has become very competitive and the hypermarkets therefore have resorted to employing different strategies for the purposes of customer attraction and retention (p.
730). The hypotheses of relationships between customer value and loyalty, customer satisfaction and loyalty, customer value and satisfaction and switching costs and Customer satisfaction and loyalty was used in evaluating the Taiwanese market (p. 732-734). In their analysis of these parameters of the Taiwanese market, they use regression analysis to assess the impact of customer satisfaction. Loyalty and value, and they conclude that since the competition in the market is increasing and the other methods of tackling it are proving costly. Due to the increased competition in the market and with customers looking for the best whenever they go shopping, the supplier with additional services to the existing low prices will be most preferred.
For this reason, the hypermarkets have to look for ways that would be appealing to the customers and consumers, so that they may return more often. The only way would be by establishing customer loyalty where the hypermarkets would be guaranteed of a market for their products. They also note that switching costs play a significant role in the determination of customer base and purchasing power (p.
738). An analysis of the market will be a very good move for the hypermarkets that may want to establish good relationships with the customer. Competition will lead to the prices going down and thus different strategies have to be developed to ensure competitive market advantage. One of the ways in which they could carry this out is by countering their competition in terms of prices and after-sales services. The additional services that they provide will attract the customers and this will definitely spread to a large population of the consumers via word of mouth. In this case, it is very evident that customers are not only interested in the prices of the goods and services that they pay for, but also in the type and quality that they receive. Their satisfaction with what they receive will determine their loyalty, and if they do not get value for their, they are bound to move to a different place in search of better offers! Therefore, the hypermarkets ought to maintain customer satisfaction gauges in order to correct the areas that are a letdown to them. Hence, these companies have to set up quality assessment modules that will enable them to gauge their rating as a company and where they stand in terms of market-competition and customer loyalty.
Tsai, Ming-Tien, Tsai, Chung-Lin and Chang, Han-Chao. “The effect of customer value, customer satisfaction and switching costs on customer loyalty: an empirical study of hypermarkets in Taiwan.” Social Behavior and Personality, 38.1(2010):729-738.