Escalation of Loyalty and the Decreasing Impact of Perceived Value and Satisfaction over Time

ABSTRACTThis paper examines the shifting role of perceived value and satisfaction in the formation of loyalty over the duration of a relationship life cycle. Drawing on a sample of online shoppers in Taiwan, the results show that the association between loyalty intention and shopping experiences conforms to an S-shaped growth curve. Customers' intentions to stay with a website appear to be influenced by the perceived value and satisfaction formed during the most recent transaction; however, the strength of action inertia gradually declines after the maturity stage. The sample was classified into three segments (i.e., relationship driven and variety seeker; relationship neutral and value seeker; relationship averse and satisfaction seeker), which show distinct behaviors in terms of preferences, relationship status, sex, switching, and e-WOM inclination. Satisfaction is the most powerful driver of loyalty for the first shopping experience. Above and beyond satisfaction, perceived value has a strong impact on motivating new customers to switch from other stores. As for customers with a longer-term relationship with an online store, the effects of perceived value and satisfaction turn out to be moderate. Overall, perceived value and satisfaction have decreasing effects on loyalty in the later stage of a relationship life cycle.Keywords: Perceived value; Satisfaction; Customer loyalty; Customer relationship; Latent class regression1. IntroductionAccording to Institute for Information Industry reports [2009; 2011], the number of business-to-consumer (B2C) online stores in Taiwan was 26,891 in 2010 and 28,499 in 2011. Internet B2C sales were US$8.6 billion in 2010 and US$10.7 billion in 2011, and sales are expected to rise by 20% in 2012 and another 20% in 2013. Almost half (49%) of the stores have multiple operations, including both virtual and physical channels, and 62% of these stores find their online operations to be more difficult to manage than their physical operations. Most of the online stores are newly established, small- and medium-sized enterprises (83% have less than three employees, and 77% were established within the previous five years). Entry barriers are low, and price competition is the primary competition strategy, leading to deteriorating profit margins. Close to 67% of the stores earned no profits in 2010. Further, a prominent cluster effect blurs competition boundaries. Since most of the stores are densely located in urban areas, online customers often search and compare products online but make their purchases in physical stores. Indeed, online shopping offers temporal and spatial advantages over conventional brick-and-mortar stores [Heinonen 2006], Intriguingly, the online industry as a whole may appear to be prosperous, but individual stores may still be unprofitable. In fact, 95% of Internet users shop online, but their repurchase rate is extremely low; 54% of stores have a repurchase rate of less than 10%. Overall, a consequence of escalating competitive intensity is vanishing customer loyalty [Srinivasan, Anderson & Ponnavolu 2002],Online loyalty is defined as a customer's favorable attitude toward an online store that results in repeated buying behavior, willingness to pay more, less searching for alternatives, positive word-of-mouth and, ultimately, a store's profitability [Srinivasan et al. 2002], Customer loyalty represents an enduring asset from which a store can reap long-term benefits [Pan, Sheng & Xie 2012], The long-term relationship orientation highlights the importance of customer loyalty [Morgan & Hunt 1994], and service providers have followed strategies aimed at strengthening customers' intentions to maintain relationships with them. A better understanding of the mechanism that leads to customer loyalty is needed.Cognitive-based perceived value and affective-based satisfaction are two of the most important driving forces of customer loyalty [Palmatier, Dant, Grewal & Evans 2006; Pan et al. …