Determinants of Store Loyalty: An Empirical Investigation in the Latvian Grocery Market

Transcription

1 Aarhus University, Business and Social Sciences Department of Business Administration Determinants of Store Loyalty: An Empirical Investigation in the Latvian Grocery Market Master Thesis Master of Science in Marketing March 2012 Student: Anna Jansone Advisor: Ana Alina Tudoran

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3 Abstract Store loyalty is considered one of the keys in retail business success. Therefore, store loyalty concept has been largely investigated by academia during past few decades (Anic, 2006; Ray, 2009). During economical recession period, strengthening loyalty is even more important, because when income decreases, the ordinary customers may re-evaluate their loyalty behaviour. It is important for retailers to recognize those trends not just during recession period, but also in the future (post-recession), because it is expected that recession customer behaviours and patterns will continue in recovery period and beyond (Miller, 2010; Lodes, 2009). This study investigates the determinants of store loyalty in the Latvian market. As many other European countries, Latvia has also been affected by the negative consequences of the economic recession. Thus, we aim to investigate what factors continue to determine Latvian consumers store loyalty and the relative importance of these factors. Following store loyalty determinants indentified in the scientific literature, we investigated the influence of store affect, social congruity between symbolic store image and customer s social self image, and ideal social congruity between symbolic store image and customer s ideal social self image, and demographic characteristics (age, gender, income and distance) on individuals store loyalty. Furthermore, we considered store atmosphere perceptions, store merchandise value perceptions and interpersonal service quality perceptions as indirect determinants of store loyalty through the mediating effect of store affect. Results show the direct determinants of store loyalty in present study are: store affect and demographic factors (age and gender). The indirect (mediated through store affect) determinants of store loyalty in present study are: store atmosphere perceptions, store merchandise value perceptions, and ideal social congruity. The results of this study provide retailers with useful information about Latvian customers store loyalty determinants. Study results should be useful for retailers in Latvian grocery market when developing marketing strategies, when considering how retailer s best can position their stores and which store loyalty determinants marketer needs to improve, in order to maintain customer loyalty. 3

4 Table of contents Abstract... 3 Introduction... 7 Chapter 1: Theoretical background Loyalty definitions and concepts Loyalty - conceptual definition Product loyalty Store Loyalty Attitudinal loyalty and behavioral loyalty Theories on consumer loyalty behaviour Theory of Reasoned Action Expectation Disconfirmation theory Theories on Store Loyalty Cherry picking behaviour Household production theory Undermanning theory Inference theory Attribution theory Stimulus Organism Response Theory Equity theory Theories on Customers Self Concept Social Class Theory Social Comparison Theory Social Cognition Theory Theories on Gender Differences on Store Loyalty Self construal theory Interdependence and independence theory Gender schema theory Role Theory Determinants of store loyalty Store affect

5 Store atmosphere Merchandise-value perceptions Interpersonal service quality perceptions Store image Customer s self concept Store image and self concept congruity Demographic determinants Age Gender Income Distance Conceptual models on customer store loyalty Conceptual Framework of Customer Loyalty Model of Customers Store Loyalty Profiles Model of Store Loyalty Behaviour Relationship between Store Affect and Store Loyalty A Conceptual Model of Store Loyalty Intentions as a Function of Perceptual Constructs A Conceptual Model of the Pre-purchase Process of Assessing a Retail Outlet on the Basis of Environmental Perceptions Mehrabian Russell Affect Model A Path Analytic Model of Store Loyalty Chapter 2: Conceptual Model and Hypothesis Conceptual Model Hypotheses Antecedents of Store Affect Demographic Factors Chapter 3: Methodology Data collection Measures The Social Congruity and Ideal Social Congruity Measures Chapter 4: Analysis and Results Smart PLS results

6 PLS Algorithm Reliability and Validity Convergent Validity Average Variance Extracted Pearson's Correlation Coefficient Hypothesis testing SPSS Analysis Gender and Age group relationship with store loyalty Store loyalty relationship with income level Store loyalty relationship with distance Discussion Managerial Implications Limitations and future research Bibliography

7 Introduction Even though Latvian economy has showed first stabilisation signs after the economic crisis in 2009 and 2010, there is still significant decline in retailing. During crisis many people lost their jobs and faced salary cuts, which significantly affected overall purchasing power. All customers, including those who did not feel significant impact of recession, were forced to avoid unnecessary purchases and to revise their spending and focus mainly on essential grocery products. Some of them also choose other retail channels, those which offer lower price and better discounts. Retailers were forced to adjust their strategies to customers with limited purchasing power, in order to keep their customers. Supermarkets and hypermarkets continued to diversify their private label products and offer as many temporary discounts as possible. For instance, Rimi created new era in Rimi shops with reduced unit prices for more than 2000 products. Grocery retailers started to sell more non-grocery products, in order to attract more customers. In order to attract more customers and keep their market share, retailers also changed their advertising and marketing techniques, for instance, created loyalty programmes. Customers are expected to restore their purchasing habits in long term; however, as middle income layer suffered the most of recession, and it led to more distinct population polarisation, thus, the gap between high and middle income people is even more distinct, because middle income layer are seeking how to economize, while high- income layer did not cut their spending on luxury goods. That caused another trend entrance of luxury globally- known store brands, in contrast of low priced channels appearance (Country Report, 2011). Loyalty is one of the most important drivers of business growth because profitable business growth cannot be achieved without customer loyalty (Reichheld, 2003). Store loyalty is the most important factor in retail business success (Anic, 2006; Ray 2009). Therefore, store loyalty concept has been investigated a lot during the past few decades (Anic, 2006). How customers develop true store loyalty and how store loyalty can be maintained are still open questions (Anic, 2006). In order to improve store performance, marketers are interested in customer loyalty drivers and their practical usage (Anic, 2006). It requires less marketing effort and resources to keep a loyal customer than to acquire a new customer (Ray, 2009; Sreedhara, Babu & Nagendra, 2010), because the loyal customer is less price sensitive (Tsai, Tsai & Chang, 2010), and more willing to recommend company to other people, thus bringing into business new 7

8 customers (Bove, 2009; Reichheld, 2003; Tsai, Tsai & Chang, 2010). For marketers in food retailing industry, it is difficult to acquire and retain loyal customers because of low switching costs and many alternatives (Anic, 2006). During economic recession, strengthening customer s loyalty is even more important, because when the incomes in general decrease and the ordinary customers may re-evaluate their purchasing behaviour. Some studies suggest that during recession not only customer behaviour changes but also their way of thinking. For instance, Flatters & Willmott et al. (2009) suggest four key trends governing customer behaviour during recession: customer demand for simplicity, a call for ethical business governance, a desire to economize, and a tendency to flit from one offering to another (weak loyalty, Dick and Basu, 1992). Moreover, Bell and Chip (2010) show that customers are less tolerant, show no lenience for front-line employees (who cannot address their needs on the first contact) and want personalized service (Bell and Chip (2010). It is important for retailers to recognize those trends not just during recession period, but also in the future (post-recession), because it is expected that recession customer behaviours and patterns will continue in recovery period and beyond (Miller, 2010; Lodes, 2009). Therefore retailers must be aware of consumer behaviour in order to serve their customers accordingly and to be successful in keeping customers loyal. It is also important for retailers to understand that symbolic store image plays a significant role in customer store loyalty behaviour, something most retailers have not paid too much attention before (He and Mukherje, 2007). Retailers are required not only to realize how customers see their stores personality, but also how their customers see themselves, because customers tend to shop at stores whose images are similar to their own self images (He and Mukherje, 2007; Sirgy, 1985). If store personality match up to most of stores customers, then retailer has won half the battle getting customer loyalty (Sirgy, 1985, p.287). If store personality doesn t match with customer s personality, then retailer should change symbolic store images in direction of customers, through various promotional effort (He and Mukherje, 2007; Sirgy, 1985). Latvian Grocery Retailing Latvian grocery retailing is controlled by two players Maxima Latvia LTD and Rimi Latvia LTD, which both held 24% shares of value sales in 2010 (Country Report, 2011). Thus, both retailers control almost 50% of Latvian grocery retailing. Customers choose Rimi or Maxima, 8

9 because both retailers offer very wide range of products (Country Report, 2011). Closest competitor Baltstor LTD held only 7% shares of value sales in 2010 (Country Report, 2011). Both retailers operate through several retail channels (Country Report, 2011). Rimi operates hypermarkets, supermarkets and discounters, while Maxima operate several hypermarkets, supermarkets and convenience stores (Country Report, 2011). Rimi Latvia retailer is operating in Latvian market since year 1996 and has developed the biggest retail chains in country ( Rimi Latvia currently operates supermarkets, hypermarkets and discount stores (Melece, 2010; Hypermarkets are located in big cities, such as Riga, Jelgava, Ventspils, Daugavpils, Bauska, Jūrmala, while supermarkets are located in towns, all over the country (Melece, 2010; In Riga Rimi stores are present in almost all key shopping centers (Country Report, 2011). Maxima Latvija is the second largest retailer after Rimi (Melece, 2010). Maxima Latvia run hypermarkets located in Riga, supermarkets and medium sized stores located all over the country (Melece, Comparing to Rimi, Maxima is lower price level store on average and with regard to amount of stores, Maxima run 131 stores in Latvia (Melece, 2010; Thus, Maxima is Latvian market leader in terms of store amount while, Rimi is leader in terms of turnover (Skreja, 2011). The economical situation might have triggered a significant change in the Latvian consumers thinking and loyalty behaviour. Some evidence exists: almost one third of people in the Baltic States switched their usual shopping locations to others, for more than 50% of the cases the reason being the search for better prices and promotions ( then what is the reason in other 50% cases? Study objective The purpose of this study is to examine how Latvian retailer s can position their stores best and which store loyalty variables the marketers need to focus on and improve in order to maintain customer loyalty. We developed our research on Latvian consumers and their loyalty behaviour towards a Latvian hypermarket chain Rimi Latvia in Riga. Our research investigates customer store loyalty within one specific Rimi hypermarket called Spice, located in capital of Latvia - Riga. 9

10 Thesis structure Thesis is divided into six sections (see Figure 1): current part Introduction. After introductory part theoretical background is provided. Third section presents conceptual model and hypothesis. Fourth section outlines methodology, which is followed by analysis and results in the fifth section. Finally, discussion, managerial implications, limitations and further research are presented. Introduction Theoretical background Conceptual model and hypothesis Methodology Analysis and results Discusion and Managerial inplications Figure 1: Thesis structure 10

11 Chapter 1: Theoretical background 1.1. Loyalty definitions and concepts Loyalty - conceptual definition Loyalty is a complex concept (Bustos-Reyes and González-Benito, 2008). Even though loyalty has been widely investigated in recent decades, there is no best way to define and measure customer loyalty (Bustos-Reyes and González-Benito, 2008). Dick and Basu (1994, p. 99.) define loyalty as a combination of strong relative attitude and high repeat patronage. Oliver (1999, p. 34.) argues that loyalty is a deeply held commitment to re buy or re-patronize a preferred product/service consistently in the future, thereby causing repetitive same-brand or same brand-set purchasing, despite situational influences and marketing efforts having the potential to causes switching behavior. Few years later, Reichheld (2003, p. 3.) defines loyalty as willingness of someone a customer, an employee, a friend - to make an investment or personal sacrifice in order to strengthen a relationship. In other words, to stick in long term with particular supplier who gives to customer good value of product or service, even though supplier does not offer the best available price (Reichheld, 2003) Product loyalty Dick and Basu (1994) describe four categories of brand loyalty based on customers relative attitude and repeat patronage: loyalty, latent loyalty, spurious loyalty and no loyalty. Latent loyalty representing situation where attitude is strong and repeat patronage is low even though consumer prefer brand among others frequent purchases are not happening, because price is too high or person desire to try other possibilities (other restaurant) (Dick and Basu,1994). Spurious loyalty results from week attitude with strong behavior. Repeat patronage is evoked by subjective norms or situational effects (Dick and Basu, 1994). No loyalty results from low relative attitude and low repeat patronage (Dick and Basu, 1994). 11

12 Oliver (1999) presents four loyalty phases based on attitude development structure: Cognitive loyalty. Consumer prefers specific brand among accessible alternatives based on prior knowledge, recent experience or brand attribute information (Oliver, 1999). Sivadas and Baker (2000) found that loyalty in this phase can break down and cause switching, if competitor offers better price, better quality, better value for money or better service, because customer s evaluation is based on costs and benefits. This is the most shallow type of loyalty, however if satisfaction is provided, cognitive loyalty moves to affective loyalty phase, because satisfaction becomes a part of consumers experience (Oliver, 1999). Affective loyalty. In this phase customer is still in high risk of switching (Sawmong and Omar, 2004). Affective loyalty depends on consumer s mood, emotions (Oliver, 1999), and personal feelings towards shopping experience like satisfaction or disappointment (Anic, 2006). Consumer has an opinion about brand, based on his/ her previous satisfaction with product or service (Oliver, 1999). Customer s personal feelings create individuals attachment to a store, which leads to consumer purchase intentions conative loyalty (Anic, 2006). Conative loyalty. Consumer has been repeatedly satisfied with product or service. Strong commitment to brand leads to an intention to repeat patronage in future (Oliver, 1999). However, intention might not be realized in real action (Oliver, 1999), even though customer desires to repurchase it (Sawmong and Omar, 2004). In conative loyalty phase consumer is willing to recommend a store to other people (positive word-of-mouth) and there is an intention to repeat patronage (Anic, 2006). Also Sawmong and Omar (2004) found that in this phase customer is deeply committed to repeat patronage and demonstrates preference towards brand. Positive purchase intentions can lead to habitual behaviour action loyalty (Anic, 2006). Action loyalty. Consumers intention to repeat patronage have transformed to real action (Oliver, 1999). Consumer is ready to invest time and effort to search for specific brand (Oliver, 1999). More repeated purchases - deeper brand loyalty it makes (Oliver, 1999). If customer is in action loyalty phase, he/ she visits store frequently and spends higher amount of money in particular store compared to other retailers ( share of wallet ) (Anic, 2006). Action loyalty results in habit and routine response behaviour (Sawmong and Omar, 2004). 12

13 Store Loyalty Based on Bloemer and Ruyter (1998) store loyalty can be defined as non random behavioural response ( revisit), expressed over time, by some decision-making unit with respect to one store out of a set of stores, which is a function of psychological (decision making and evaluative) processes which results in brand commitment. East, Hogg and Lomax (1998) argue that store loyalty is a propensity to use the store (Doherty, 2008). Propensity can be expressed as customer s attitude towards store or customer s intention to visit store, when circumstances permit (East, Hogg and Lomax, 1998 cited by Doherty, 2008). Further, Knox and Denison (2000) define store loyalty as a customer s inclination to patronize specific store or store chain over time (Doherty, 2008). Store loyalty includes consumer attitudes, purchase intentions and actual purchasing behaviour (Anic, 2006). Most studies define store loyalty as multidimensional concept which includes behavioral and attitudinal factors (Bustos-Reyes and González-Benito, 2008; Evanschitzky et al., 2006). Attitudinal loyalty is customer s psychological attitude towards brand or store (Yavas, 2009 cited Jacoby and Chestnut, 1978). Behavioral loyalty reflects to customer behaviour: past patronage in the same store and possibility of future repeat patronage (Yavas, 2009 cited Ehrenberg, 1988). In order to understand customer long term relationships both are important, attitudinal and behavioral loyalty (Yavas, 2009). Store loyalty can also be divided into two types: long term and short run loyalty (Oliver, 1999; Tsai, Tsai and Chang, 2010). Short term loyal customers are more likely to switch to another supplier than long run (Oliver, 1999; Tsai, Tsai and Chang, 2010). Short- run loyalty can be measured in terms of word of mouth behaviour and complaints (Oliver, 1999; Tsai, Tsai and Chang, 2010). Whereas long term loyalty is divided into four different phases: cognitive, affective, conative and active loyalty (Oliver, 1999; Tsai, Tsai and Chang, 2010). This model describes intensity of customer loyalty (Reid, 2008). Reid (2008) stresses that customer loyalty should be viewed not in categorical terms like whether customer purchases or not, but in terms of intensity level and continuity instead. 13

14 Attitudinal loyalty and behavioral loyalty Relationship between attitudinal and behavioral loyalty is found to be significant and positive (Bandyopadhay and Martell, 2007; Jones, 2000). Loyalty consists of two aspects: behavioral aspect (frequency and regularity of repeat patronage) and affective aspect (customer s attitudes, feelings and beliefs towards brand, product or retailer) (Dick and Basu, 1994; Oliver, 1999; Powers and Valentine, 2008). Leingpibul (2009) cited Dimitriades (2006) suggests that behavioural and affective aspect may merge into one construct. While Leingpibul (2009) cited East et al. (2005) supports this view stating that those components stimulate each other and one component without the other is insufficient. Also Dick and Basu (1994) suggest that behavioural approach is insufficient to explain how and why loyalty develops and continues. In order to explain loyalty, attitudinal perspective is necessary (Dick and Basu, 1994). Leingpibul (2009) found that attitudinal and behavioural loyalties are two different constructs and attitudinal loyalty leads to behavioural loyalty. If object (store) meets customer s expectations, attitudinal loyalty shapes up (Leingpibul, 2009). Attitudinal loyalty leads to behavioural loyalty and further to repurchase intentions (Leingpibul, 2009). Thus, expectations and repeat patronage intent is mediated by attitudinal loyalty and affective feeling state and repeat patronage intent is mediated by behavioural loyalty (Leingpibul, 2009). Behavioural loyalty measures cannot explain why and how store loyalty occurs, it shows only static result of process (Bustos-Reyes and González-Benito, 2008; Dick and Basu, 1994; Oliver, 1997). However, composite schemes are capable to describe the antecedents, consequences, and different relationships among loyalty dimensions but do not explain the loyalty concept itself; it is also difficult to use them in practice (Bustos-Reyes and González- Benito, 2008). Different measures and approaches detect complexity of the loyalty concept and also lack of conformity of opinions about defining and measuring loyalty (Bustos-Reyes and González-Benito, 2008 cited Knox and Denison, 2000). Behavioral loyalty measures are sufficient in situations where only purchase data are involved (Bustos-Reyes and González- Benito, 2008 cited Oliver, 1997), like for grocery markets where customers tend to buy out of inertia, perceive smaller risks and show multi store purchase behaviour (Ehrenberg, 2004). True loyalty includes shopping behaviour and commitment towards particular store (Bustos-Reyes and González-Benito, 2008). If customer commitment is getting stronger 14

15 attitude dimension increases (Bloemer and Kasper, 1995; Bustos-Reyes and González-Benito, 2008; Dick and Basu, 1994; Oliver, 1999; Sivadas and Baker-Prewitt, 2000). If customers concentrate their purchases on particular store behavioral dimension increases (Bustos-Reyes and González-Benito, 2008). Lack of conformity between these two dimensions appears as consequences of different situational factors (Bustos-Reyes and González-Benito, 2008). 15

16 1.2. Theories on consumer loyalty behaviour In order to understand store loyalty, it is important to understand customer loyalty behaviour in general. Therefore, following section presents two theories which are used in literature in order to explain customer loyalty behaviour: Theory of Reasoned Action and Expectation Disconfirmation theory Theory of Reasoned Action Theory of reasoned action (Fishbein and Ajzen, 1975) can be used to understand and predict customer behaviour (Schiffman, 2008). Theory is based on assumptions that human beings are rational and they systematically use information available to them (Ajzen and Fishbein, 1975 cited by Randall, 1989). Information available for individual logically and systematically follows individual s behaviour (Ajzen and Fishbein, 1975 cited by Randall, 1989). Theory suggests that subjective norm influences customer s intention to act (Schiffman 2008). Behavioural intention is a function of attitude toward performing behaviour and subjective norm regarding to behaviour (Ajzen and Fishbein, 1975 cited by Randall, 1989). Here attitude toward performing behaviour is individual s judgment that particular behaviour is good or bad and that individual supports or does not supports specific behaviour (Ajzen and Fishbein, 1975 cited by Randall, 1989). Thus, individual believes that specific behaviour will lead to certain consequences and individual evaluates these consequences (Ajzen and Fishbein, 1975 cited by Randall, 1989). Subjective norms are individual s perceptions of whether or not relevant people to individual think that individual should perform specific behaviour (Ajzen and Fishbein, 1975 cited by Randall, 1989). The subjective norms consist of individuals beliefs whether relevant people think that individual should perform specific behaviour (approves or disapproves) weighted by individuals motivation to agree with those relevant people (Ajzen and Fishbein, 1975 cited by Randall, 1989; Schiffman, 2008). It can be assumed that theory of reasoned action suggests that behaviour can be predicted by two variables: attitude toward behaviour and subjective norm (Ajzen and Fishbein, 1980 cited by Randall, 1989). These variables are expected to vary with specific behaviour which is predicted, with conditions under which specific behaviour will be performed and with specific 16

17 individual who will perform specific behaviour (Ajzen and Fishbein, 1980 cited by Randall, 1989). Theory of reasoned action posits that loyalty intentions have direct influence on customer s behaviour (willingness to buy) (Vogel 2008). Willingness to buy is attached to customers desire to search for favourite offers even though it requires considerable effort (Vogel, 2008). Competitive offerings are not considered as alternatives in customers mind (Vogel, 2008). Expansion of the theory of reasoned action (Ajzen, 2001) suggests that customer s previous behaviour can explain their actual behaviour (Vogel, 2008). It means that customer will prefer to choose the same store they visited in previous purchase occasions, even though customer perceives that other store provides the same benefits (Vogel, 2008). It can be explained with psychological commitment to previous choices and customer s willingness to decrease their costs of decision making (Corstjens and Lal, 2000 cited by Vogel, 2008). This calls inertia effect (Vogel, 2008). It is rational, because it helps customer to reach satisfaction by saving costs of decision making (Vogel, 2008). Decision takes place automatically and without conscious thinking (Vogel, 2008) Expectation Disconfirmation theory Expectation - disconfirmation theory is widely used in customer satisfaction and loyalty studies (Lin, 2009). Expectation disconfirmation theory alone can be applied in order to predict customer loyalty through direct influence of satisfaction (Taylor and Baker, 1994 cited by Lin, 2009). Expectation disconfirmation theory suggests that level of customer s satisfaction is determined by customer s initial expectations and disagreement between performance and customer s initial expectations (Thong 2006, cited by Lin, 2009; Vogel, 2008). Expectation indicates degree of what customers predicts and what customers believe (Coye, 2004 cited by Lin, 2009). Respectively, what will happen and what should happen (Lin, 2009). According to expectation disconfirmation theory, satisfaction was originally defined as positive emotional state which results from evolution of someone s job (Locke, 1976 cited by Lin, 2009). Anic (2006) defines customer satisfaction as post consumption experience outcome in terms of rewards and costs, which indicates degree to which store meets or exceeds customer expectations (Anic, 2006). A positive customer perception of store attributes increases satisfaction, which in turn leads to positive loyalty intentions (Anic, 2006). Concept of 17

18 satisfaction includes paradigm of disconfirmation, which holds that satisfaction is related to disconfirmations experiences size and direction, where disconfirmation is related to individual s initial expectations (Anic, 2006). If product performs as customer expected, individual s expectations are confirmed; if product performs poorly than expected, then individual s expectations are negatively disconfirmed; if product performs better than expected, then individual s expectations are positively disconfirmed (Churchill and Suprenant 1982 cited by Anic, 2006). Satisfaction occurs when individual s expectations are met or exceeded, whereas dissatisfaction occurs when individual s expectations are negatively disconfirmed (Levy and Weitz, 2004 cited by Anic, 2006) Theories on Store Loyalty Consumer store loyalty can be interpreted at micro and macro level (East, 1997). Macro level includes countries retail structure, geography and cultural traditions, whereas micro level includes social and psychological factors which are involved in shopping. Macro variables can affect micro variables (East, 1997). The theory of limited resources, elaborated by Enis and Paul, 1970; Tate, 1961 and specified by Charlton, 1973, says that store loyalty is basically negative and is the result of limited resources, such as money, time and transport. Customers with limited income are more willing to visit more than one shop in order to search for best value for money and this reduces store loyalty (East, 1997). While those customers, who have limited choice of stores (lack of transport), are forced to make shopping in one and the same store and obligated to be loyal (Tate, 1961). The theory of limited resources (Enis and Paul, 1970; Tate, 1961 and specified by Charlton, 1973), says that store loyalty is basically negative and is the result of limited resources, such as money, time and transport. Customers with limited incomes are more willing to visit more than one shop in order to search for best value for money and this reduces store loyalty (East 1997). While those customers, who have limited choice of stores (lack of transport), are forced to make shopping in one and the same store and obligated to be loyal (Tate 1961). Theory of discretionary store loyalty (Dunn and Wrigley, 1984) suggests that often in large and comprehensive super markets, some store loyalty turns up as one stop shopping, which 18

19 means that the possession of appropriate resources increases store loyalty (East, 1997). Discretionary loyalty is an adaptation to circumstances which can be found among customer segments and this theory does not imply antipathies to brands and shopping comparing with Carman s theory (East, 1997). There might be store loyalty situations where more than one theory can be used to explain it, for instance, customer segment, which are loyal to specific store because they do not like shopping (negative lifestyle theory) and with one stop shopping they are reducing discomfort level (discretionary loyal customers) (East, 1997) Cherry picking behaviour Cherry picking behaviour is widely practiced among customers (Fox, 2005) and it can be explained with theory of limited resources. As mentioned above, customers with limited income are willing to patronize more than one store in order to search for best value for money (East, 1997). But it is important to mention that cherry picking behaviour reduces store loyalty. Cherry picking behaviour can be defined as selecting the best or most desirable (Merriam Webster Dictionary cited by Fox, 2005). This term describes selective buyer behaviour, which products and services they choose, at which locations and for which prices (Fox, 2005). Cherry pickers are price sensitive customers who buy only products on discounts when visiting store (Levy and Weitz, 2004 cited by Fox, 2005). Customers who switch stores have more cherry picking opportunities than those customers who are loyal to specific store (Fox, 2005). However, travelling costs from store to store are similar to store loyal customer costs (Fox, 2005). In order to explain cherry picking, multi-store shopping theory (Burdett and Malueg, 1981; Carlson and McAfee, 1984; Fox, 2005) can be used as well. Multi store theory suggests that even though customers pay lower prices for products when visiting multiple stores than single store, additional store visit (benefit search) increases customer s shopping costs, such as extra planning, travel distance and time spent on shopping and checking out (Fox, 2005). It means that customers who have high time costs might not be willing to search for better prices (Fox, 2005). If customer s shopping list is longer, it is more likely that customer will patronize multiple stores, because total savings of cherry picking increase if customer purchases more 19

20 items on discounts (Fox, 2005). This can be applied to large households which tend to buy large basket size and are more prices sensitive (Fox, 2005) Household production theory There are direct effects of time effort and psychic costs on store patronage intentions (Baker and Parasuman, 2002). Household production theory (Gary, Becker, 1993) posits that customers allocate time, money and, effort in utility producing activities, because households are constrained by income and available time (Baltas, 2010). Different household production activities (such as leisure) compete for limited time which is not spent working (Baltas, 2010). This theory considers monetary and non-monetary factors and argues that the most fundamental constraint is limited time (Baltas, 2010). Time is critical variable in many customer decisions including shopping and benefits of shopping activities are balanced against its time costs (Baltas 2010). For example, old people may use fewer stores in order to make shopping, because they are willing to reduce physical and mental effort (Baltas, 2010). It means that older people might be willing to visit fewer stores, even though they have lower time costs (Baltas, 2010). According to gender, women tend to search for uniqueness and react less negatively to waiting time at store than man (Baltas, 2010). Waiting for service in retail store might lead to customer s dissatisfaction and result with negative effects on store patronage behaviour (Grewal, 2003). Retail customers are likely to estimate how long time they have to wait before choosing to wait (Grewal, 2003). If customers believes they will spend a lot of time in specific store, they may avoid visiting store even without taking into account merchandise value or interpersonal service quality (Baker and Parasuman, 2002; Grewal, 2003) Undermanning theory Undermanning theory suggests that the number of employees present in a store is important to customer s mood and satisfaction (Baker 1992; Baker and Parasuman, 2002). Undermanning concept (called also understaffing ) has been defined in behavioural ecology theory (Barker, 1965). Undermanning occurs when in facility are less employees than a setting requires to function properly (Baker and Parasuman, 2002; Grewal, 2003). Number of employees in store influences customer s perceptions of personal service quality and customers responses; 20

21 thus, customers may become annoyed (Wicker, 1973 cited by Baker and Parasuman, 2002; Parasuraman, Zeithaml, and Berry, 1988 cited by Baker and Parasuman, 2002). This framework suggests that in order to make customer wait time shorter, more store employees should help store to function properly (Grewal, 2003). If customer can see more employees in store, customers wait expectations will be more positive, because wait is expected to feel shorter and more reasonable, if there are more store employees in the store (Grewal, 2003). Crowding affects customer s retail store selection as well (Grewal, 2003). Crowding includes two components: physical density, which are objective conditions associated with number of people per area unit; crowding, which are negative psychological reactions to physical density (Grewal, 2003) Inference theory Also Inference theory (Jones and Davis, 1965) suggests that high customer density in the store leads to expectations of longer waiting time comparing with store where low density is (Grewal, 2003). Inference theory (Jones and Davis, 1965) can be used to explain individual s perceptions (Wang 2008). Theory argues that in order to explain individuals behaviour towards object, casual attribution can be based on behaviour generated informational cues (Wang, 2008). When informational cues are generated from the behaviour in specific situation, information can be indirectly inferred from the behaviour (Wang, 2008). In other words, people make inferences (attributions) about the unknown things based on available information cues (for instance, in physical environment: music, crowding, décor, number of salespeople, layout, lightening, noise etc) (Huber and McCann, 1982; Nisbett and Ross, 1980 cited by Baker and Parasuman, 2002). These cues may influence customer s responses and behaviours (Bitner, 1992 cited by Ray, 2009; Schlosser, 1998). Process of making inferences about customers own or other people behaviour is attitude formation (Schiffman, 2008) Attribution theory Attribution theory (Heider, 1958) explains how people assign causality to events and form their attitudes based on their own or other people behaviour (Schiffman, 2008; Wang, 2008). Attributions are causes what people perceive to be behind their own behaviour, other people behaviour or events they observe (Bitner, 1990). Customers are forming attribution towards things in order to judge products and services, because they want to find out why 21

22 product or service meets or do not meet their expectations (Schiffman, 2008). Attribution theory is relevant every time when individual asks question why? about statement or action of other people (friend, family member, salesperson etc.), because by asking this question customer is trying to determine whether other persons (friend) motives are in customers interests (Schiffman, 2008). If other person s motives are favourable for customer, customer response is likely to be favourable (Schiffman, 2008). If other person s motives are not favourable for customer, he or she is likely to reject other persons words (Schiffman, 2008). Customer attributes successful performance or failure to product or service, to customers themselves, to other people, to particular situation or to some combination of those factors (Schiffman, 2008). Attributions towards others occur when customer feels that other person is responsible about positive or negative product or service performance (Schiffman, 2008). People engage in spontaneous casual thinking especially in unexpected and negative cases (Weiner, 1985 cited by Bitner, 1990). Most attribution causes can be classified in three dimensions: locus (who is responsible?); control (does responsible party have control over specific case?); stability (is the case likely to happen again?) (Bitner, 1990). For instance, if explanation is not provided, in service failure case, customers might attribute greater control to the firm (Harvey and Weary, 1984 cited by Bitner, 1990). Attributions can be influenced by employee s offer to compensate service failure to customer (Bitner, 1990). If customer sees that by this offer company confirms failure, which might cause negative beliefs about this company, this offer may lead customer to attribute greater control to the company (Bitner, 1990). It may lead customer think that company cares about customer and such failures will not happen again (Bitner, 1990). Attribution theory suggests that high expectations lead to high satisfaction level; if customer feels successful for achieving a price reduction, customers perceive higher satisfaction (Brown, 2004) Stimulus Organism Response Theory Stimulus organism - response theory (Mahrabian and Russells, 1974 cited by Baker and Parasuman, 2002) posits that physical environment influence is primarily affective, and poorly designed store environment reduces shopping pleasure and incur customers physic costs. Environmental psychologists Mehrabian and Russell (1974) have presented theoretical model on 22

23 effects of store atmosphere on shopping behaviour (Donovan, 1982). In order to describe retail setting relevant behaviour Stimulus Organism Response paradigm can be used (Donovan, 1982). Mehrabian and Russell argue that all responses to environment can be described as approach or avoidance behaviours (Donovan 1982). Approach can be described as desire or willingness to stay in specific environment (physical approach), explore it (exploratory approach), and communicate with other in the environment (communication approach) (Donovan, 1982). Avoidance can be described as desire to get out of environment (physical avoidance), tendency to avoid moving though environment or remain bored within environment (exploratory avoidance), tendency to avoid interacting with other within environment or avoid other people communications attempts (communication avoidance) (Donovan, 1982). Degree of approach or avoidance of performance, and satisfaction with task performances are performance and satisfaction approach and avoidance (Donovan, 1982). According to store environment, all aspects can be appropriate in order to describe retail environment behaviour (Donovan, 1982). Physical approach and avoidance are related to basic level patronage intentions (Donovan, 1982). Exploratory approach and avoidance relate to search and exposure to retail offerings (Donovan, 1982). Communication approach and avoidance relates to communication with sales people (Donovan, 1982). Performance and satisfaction approach and avoidance relate to repeat purchasing frequency and reinforcement of time and money spent in specific store (Donovan, 1982). Mehrabian and Russell propose that in environmental situations are three basic emotional states which lead to approach avoidance behaviours called PAD dimensions: pleasure displeasure; arousal non-arousal; dominance submissiveness (Donovan, 1982). Any environment, including store, produces an emotional state in an individual s mind, which can be characterized in three PAD dimensions (Donovan, 1982). In pleasure displeasure dimension individual feels in some degree good, joyful, happy, or satisfied with situation (Donovan, 1982). In arousal non arousal dimension person in some degree feels excited, stimulated, alert, or active within specific situation (Donovan, 1982). In dominance submissiveness dimension, individual feels in some extent in control of, or free to act in specific situation (Donovan, 1982). (See Mehrabian and Russell model in section Models on Store Loyalty ). 23

24 Equity theory Equity theory (Adams, 1965) posits that individuals evaluate number of factors which they may consider as inputs and outcomes in their evaluations of if they are treated fairly (underrewarded or over-rewarded) comparing to other individuals (Adams, 1963, 1965 cited by Bolino, 2008). In other words, individuals compare other individual s situations with their own situations when assessing fairness (Bolino, 2008). In situation when ratios are unequal, inequity occurs and individual experience cognitive dissonance act (Carrell and Dittrich, 1978; Bolino, 2008). In order to restore equity individuals are motivated to act (Bolino 2008). The equity theory key components are inputs (contribution); outcomes (rewards); referent others (individuals with whom individual compare their ratio of outcomes to inputs); equity evaluations (comparisation that individuals make in order to determine whether they perceive themselves to be in equitable or inequitable situation); and reactions to inequity (behavioural or psychological actions which individuals make to restore equity) (Adams, 1963, 1965 cited by Bolino, 2008). Equity theory is often used to explain employee motivation, but it can be applied to wide range of situations (Bolino, 2008), also satisfaction and loyalty, because perceived equity evoke positive affective states, which leads to positive attitudes (satisfaction and loyalty) (Adams, 1965 cited by Vogel, 2008). Value equity is driver of loyalty intentions, which explains what must be sacrificed for received benefit (Vogel, 2008). Customer experiences inner fairness when customers outcome input ratio match up to customers own reference outcome - input ratio (Oliver and DeSarbo, 1988 cited by Vogel, 2008). Perceived value is the customers overall assessment of the utility of a product based on perceptions of what is received and what is given (Zeithaml, 1988) or what you get for what you pay (Sirohi, 1998). Get or benefit components include perceived product or service quality, whereas give components include monetary (money) and non monetary prices (time, energy, effort) (Zeithaml, 1988). Regarding to supermarket shopping, value includes several benefit components: variety, service, facilities, quality, nutrition, convenience, freshness (Sirohi 1998). If customers are annoyed with shopping experience, they can develop feeling that they are giving up more than they are getting for specific exchange (Baker and Parasuman, 2002). For those customers whom monetary price is more important, reduction of monetary sacrifice will increase value perception in their mind (Zeithaml, 1988). Whereas for those customers whom non-monetary price is more important 24

25 everything what makes shopping less time, energy and effort consuming will increase value perceptions about store, for instance, fast checkout, ready to serve food (Zeithaml, 1988). While forming their perceptions, customers take into account competing alternatives as well (Sirohi, 1998). That s why Sirohi (1998) suggests that if competing stores value for money increases, customers value for money perceptions in main store decreases, and customer s store loyalty decreases as well. It means that stores which operating in highly competitive retail environments, value perception may have higher impact on store loyalty intentions comparing with store in less competitive retail environments (Sirohi, 1998). In other words: the higher competitive intensity, the stronger impact of value perception on store loyalty intention (Sirohi, 1998) Theories on Customers Self Concept Social Class Theory Social class theory (Warner, 1941) describes status hierarchy where groups and individuals are described in terms of esteem and prestige (Meng, 2010). Theory helps to segment customers by lifestyle and predict their purchasing patterns (Meng, 2010). Social class can be defined as the division of members of a society into a hierarchy of distinct status classes (Schiffman, 2008). Where each class members have relatively the same status, and other class members have more or less status (Schiffman, 2008). Warner (1941) identified six social classes: upper-upper, lower-upper, upper-middle, lower-middle, and lower-lower (Meng, 2010). In order to update social class levels, Coleman (1983) suggested dividing consuming public in four status groups: upper class, middle class, working class, and lower class (Meng, 2010). Social class is often measured in terms of social status (Schiffman, 2008). Each social class is defined by its member s amount of status comparing with other social classes (Schiffman, 2008). Social class measures require relative rankings of its member s status factors such as amount of economic assets, personal choice degree or influence over others, degree of recognition received from others (Schiffman, 2008). Social class membership provides customer with reference group based on which attitudes and behaviour customer develops his/her own attitudes and behaviour (Schiffman, 2008). It means that customers try to behave according to 25

26 specific social class standards, for instance, buying the same products, reading the same magazine etc. (Schiffman, 2008). Customers may purchase products which are favoured by their own or higher social class members, and customers may avoid products which they perceive as lower class products (Schiffman, 2008). However we cannot assume that each class customer will behave according to particular class standards, because some customers might be willing to save money on certain purchases in order to spend more on others (Schiffman, 2008). For example, customer might buy groceries in low-priced retail stores in order to afford luxury car which satisfy emotional needs (Schiffman, 2008). Social class is store image salient dimension and patronage is the result of customers search for self image and store image congruence (Martineau, 1958 cited by Meng, 2010). Thus, different social class has different purchase behaviours (Meng 2010) Social Comparison Theory Social comparison theory (Festinger, 1954) helps to understand how status operates with customers minds (Schiffman, 2008). Theory posits that customers are generally motivated to evaluate their abilities and opinions (Argo, 2006). In order to satisfy need for self evaluation and determine customer s relative social status, individuals compares their own and to other individuals material possessions (Festinger, 1954 cited by Argo, 2006). In marketing society status is associated with customer s purchasing power, where those with more purchasing power have more status and those who have more restrictions have less status (Schiffman, 2008). Customer might compare himself with some individual with lower possessions, in order to increase his self esteem, or compare himself with someone with higher possessions what makes him feel lower (Schiffman, 2008). Process when customer is trying to increase his/her social status through conspicuous consumption calls status consumption (Schiffman, 2008) Social Cognition Theory Social cognition theory posits that information lies in individuals mind as cognitive elements like schemas and attributions (Sirgy, 1985). Schemas are organized prior knowledge cognitive structures, which are abstracted form customers experience and guide inferences and 26