Customer Value Based Management Framework-An Analysis

Of Value, Satisfaction, Loyalty and Switching Behaviour

Prof. Neetu Andotra, Professor, Department of Commerce, University of Jammu, India
Ms. Pooja, Research Scholar, Department of Commerce, University of Jammu, India

ABSTRACT
Designing value based management through measurement of customer behaviour leads to future
profitability, lower costs, higher levels of custom retention and loyalty etc. The paper examines value
delivering strategies of 103 SSIs based on 200 customer responses reflecting satisfaction, loyalty and
brand switching behaviour in Kathua district of J&K State. The construct after purification through
factor analysis was subject to Friedmans analysis of variance tests, Kendalls W test, multiple regression
analysis and conjoint model for analyzing consumer responses. The paper identified intrinsic value and
product configuration as vital predictor of consumer value. Switching bahaviour is influenced by
complaint handling and previous experience followed by brand recognition and least by product cues.
Keywords: Value based management, customer satisfaction, loyalty, switching behaviour and Small
Scale Industries (SSIs)
INTRODUCTION
Organisations world-wide are recognizing the approach of value based management to achieve
business excellence through `simultaneous measurement of customers (Ruekert 1992, Kohli & Jaworski
1990, Deshpande et. al 1993 and Narver and Slater 1990), employee satisfaction (Berry 1994) and
profitability (Slater and Narver 1995). An organization value reflects what it stands for and what it
believes in. The shared value act as guideposts for managerial decisions and actions (Hayes 1990),
shaping employee behaviour and communicating what the organization expects of its members
(Donaldson & Preston 1995),influences marketing efforts and are a way to build team spirit in
organization ( Harrison and John 1992).A customer based value management has been found to lead to
higher future profitability (Anderson, Fornell and Lehmann 1994), lower costs related to defective goods
and services (Anderson, Fornell and Rust 1997), increased buyer willingness to pay price premiums,
provide referrals, use more of the product (Reichheld 1996, Anderson and Mittal 2000), and higher levels
of customer retention & loyalty (Fornell 1992, Anderson and Sullivan 1993, Bolton 1998). Customer
satisfaction, as measured by the American Customer Satisfaction Index (ACSI), has two antecedents:
customer complaints and, ultimately, customer loyalty. Empirical studies have found evidence that
redress of customer complaints, in fact, improved customer relation due to reduction in defective goods,
product re-work, etc. (Fornell 1992; Anderson, Fornell, and Rust 1997). Increasing loyalty, in turn, has
been found to lead to increased future revenue (Anderson, Fornell and Lehmann 1994) and reductions in
the cost of future transactions (Reichheld 1996; Srivastava, Shervani, and Fahey 1998).

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The Journal of Human Resource and Adult Learning Vol. 3, Num. 1, July 2007

Fig 1:

Customer Value Management Framework

Customer Value
Intrinsic value
Product performance
Durability
Perceived reliability
Corporate image
Customer satisfaction
Attractiveness
Price management

Customer
Value

Customer intimacy

Management

Customer loyalty
Product selection
Price reasonability

Brand recognition
Golden vanaspati
Shahzada vanaspati

Customer brand switching

Product cues
Better quality
Less price
Brand switching factors
Complaint handling
Previous experience

Research into switching behavior attributed satisfaction to be a significant determinant of loyalty to a

brand or product (Bitner 1990, Keaveney 1995) and found that past satisfaction with a firm or brand
influences future satisfaction with a purchase and attitudinal loyalty to the same brand (Cadotte,
Woodruff and Jenkins 1987; Gardial et al.1994; Halstead, Hartman, and Schmidt 1994; Tse and Wilton
1988; Woodruff, Cadotte and Jenkins 1983).Empirical researches have suggested that consumers are
more likely to switch if they perceive their current service providers prices to be high and discrepancy
exist with regard to various aspects of product quality, price inventory availability, range of product
choice, etc. Business performance is contingent on the satisfaction of the internal counterpart (Berry 1994)
supported by Lichtenthal and Wilson (1992),which is one who is supplied with products or services by
others in an organization and includes healthy workable employer-employee relationship, employee
commitment, esprit de corps (Jaworski and kohli 1993), job satisfaction and human resource policies
(Diamantopoulos and Hart 1993). Corporate responsiveness to `greening is based on sufficient profit
generation and simultaneously preserving their competitive edge (Harrison & John 1996).

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Data and Empirical Methods

The research evidence on customer value management strategies and related dimensions were tested
empirically on 200 customers (2.5% of 8066 households (Census 2001) i.e., 203 were selected
using systematic random sampling technique, of which 200 were retained on the basis of
quality of information obtained) exhibiting responses for the products of small businesses through
self developed schedules. It consisted of 16 items falling within the domain of customer value based
management of which 12 items were considered for analysis after the scale purification. The first set of
items touched with overall customer value, followed by questions about the customer satisfaction and
loyalty and then the respective brand switching behavioural items such as brand recognition, product cues
and brand switching factors. Dimension-wise responses obtained from customers on a five point Likert
scale (5<---->1) ranged from -2 to +2 strongly agree to strongly disagree after scale purification were
analyzed using Friedmans ANOVA test, Kendalls W test, multiple regression analysis, averages on
SPSS (version 13.0) and Conjoint model on Marketing Engineering Software (version 1.1).The data was
collected to test following hypotheses and objectives:
1. The customer values for goods and services are largely associated with the retail stores brands,
customer services offered therein and differs across generations in the long run. (Ofek Elie 2002).This
prompts SSI sector to enhance customer value drivers or sources including product related factors such
as product quality, and product customization, quality-related factors such as responsiveness,
flexibility, reliability and technical competencies and relationship related factors such as corporate
image, time/effort/energy and solidarity. (Bolton and Drew 1991, Zeithaml 1988).Thus the first
hypothesis formed is tested by the responses obtained from two groups of customers to represent
difference in mean ranks for most of the positive benefit drivers of customer value.
H1: There are significant mean differences in the responses of old and new group of customer for value
delivering strategies adopted by SSIs.
O1: To analyse difference in opinions of two groups of customers for customer value constructs.
2. Customer intimacy is the outcome of customer satisfaction and customer loyalty: customer
satisfaction is determined by product attractiveness, product performance as per expectations and price
management whereas customer loyalty is determined by product warranty, price reasonability, product
selection, follow up services (Anderson and Mittal 2000, Oliver 1997, Yi 1990& Bolton 1998) and word
of mouth (Anderson and Narus 1998). The behavioural components of customer satisfaction and loyalty
construct have been assessed using customer intimacy construct variables (Dick and Basu 1994, Johnson
et al. 1997, Narayandas 1997).Extrapolating from these associations, the following hypotheses and
objectives have been formed:
H2: Customer satisfaction and loyalty is positively related to customer intimacy among the group of new
customers.
O2: To assess and analyse the strength of relationship between customer intimacy and various dimensions
of customer satisfaction and loyalty for SSI products as opined by new group of customers in urban
Kathua block.
H3: Customer satisfaction and loyalty is positively related to customer intimacy among the group of old
customers.
O3: To assess and analyse the strength of relationship between customer intimacy and various dimensions
of customer satisfaction and loyalty for SSI products as opined by old group of customers in urban
Kathua block

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3. Consumers may switch brands due to poor service quality (Yavas, Benkenstein, & Stuhldreier 2004),
price (Gerrard and Cunningham 2004), behavioural reasons such as variety seeking (Givon 1984),
impulse (Stern 2002), quality of life (Boyle et al 1998) and situational context (Skoglan and Siguaw et
al. 1998). Patton (1990) through brainstorming exercises generated factors that might induce switching
and found that when a consumer perceives low service quality and value, experiences low satisfaction
with the service provider, has low trust and commitment to that service provider, and perceives the
price to be high, he or she is more likely to feel pushed to switch. Conjoint analysis is commonly found
in behavioral studies (Green & Srinivasan 1978) and in marketing studies (Green, Rao 1971& Bajaj
1998) where the predictor variables are called attributes, and the dependent variable is often an overall
evaluation of a product. Given that research has found that brand switching behaviour is influenced by
brand recognition, product cues and brand switching factors such as complaint handling and previous
experience, the relevant hypotheses (H4, H5 and H6) and objectives (O4, O5 and O6) are:
H4: Customer brand switching behaviour is affected by brand recognition.
O4: To determine the contributions of predictor variable of brand recognition and their respective values
(or levels) to the dependant variable (usually overall evaluation).
H5: Customer brand switching behaviour is affected by product cues.
O5: To determine the contributions of predictor variable of product cues and their respective values (or
levels) to the dependant variable (usually overall evaluation).
H6: Customer brand switching behaviour is affected by complaint handling and previous experience as
brand switching factors.
O6: To determine the contributions of predictor variable of brand switching factors and their respective
values (or levels) to the dependant variable (usually overall evaluation).
EVALUATION PROCEDURES AND ANALYSES
Purification of Strategic Value Based Management (SVBM) Measurement Scale
The raw data obtained from 200 customers after proper editing and adjustments was purified and
reduced using factor analysis SPSS (version 13.0). Visual inspection of the correlation matrix and antiimage matrix was performed in which Bartletts test yielded a chi-square value of 915.971 (p-value =
0.000) indicating sufficient common variance and correlation matrix significantly different from an
identity matrix to render factor analysis appropriateness. The appropriateness of using factor analysis was
further supported by the KMO-measure of Sampling Adequacy (MSA), for which a value of 0.802 was
obtained falling into the range of meritorious (MSA>0.80-.89) indicating a very satisfactory level (Dess
et al. 1997, Field 2000). Exploratory factor analysis (EFA) gave as many as 16 statements falling within
the domain of strategic value based management (SVBM) framework using R-Mode Principal
Components Analysis (PCA) with varimax rotation which finally resulted into 12 items of customer
behavioural variables after the scale purification. Initially the 1st exercise failed in providing any stable
factorial framework with 6 iterations and 56.78% of the total variance explained because 3 items of fourfactor solution were not having appropriate factor loading values and commonalities indicating their weak
interconnectedness with other variables. In the 2nd exercise of 1st round, 3 items got dropped as the fourfactor solution was not able to attain traditional component loading of 0.5 as a cut off for significance
(Hultink and Robben 1999). This round got converged in 7 iterations with four-factor solution explaining
62.50% of the total variance. Since the criteria for the study was finalised at FL0.55 as the statements
within each factor were not from one dimension and also the respondents were greater than the variables,

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another round was needed to assess the extent to which the judgments for the constructs shared a common
structure. Hence, the final factorial design with four-factor solution using Kaiser Criteria (i.e
eigenvalues1) accounted for 65.19% of the total variance with the deletion of only one item in 6
iterations (Kakati and Dhar 2002). The values of Kaisers Measure of Sampling Adequacy (MSA) and
Bartletts test of Sphercity were also satisfactory at 0.784 and 2 (66) = 629.660, p<.001 respectively. In
this round factor loadings were consistent with conservative criteria although the statements obtained
within each factor were not related to only one dimension. The component loadings, commonalities and
% of variance explained by each factor by an orthogonal varimax rotation are displayed in Table 1.
RELIABILITY AND VALIDITY
Reliability was arrived after the scale purification which resulted in 4 factors viz., F1, F2, F3 and F4.
Table 1 presents the factor-wise Cronbach alpha reliability coefficients, cumulative variance explained
(CVE), Eigen-values and KMO value for all the 4 factors. The Alpha reliability coefficients of the 12
scale items within all the four factors ranged from 0.53 to 0.75. The reliability coefficient for F 1 was at
0.75 indicating high consistency for being nearby to the criteria of 0.77 obtained by Gordon and
Naryanan (1984). Nevertheless F2 (0.64), F3 (0.57) and F4 (0.53) also obtained satisfactory internal
consistency which was at a minimum acceptable level of 0.50 as recommended by Nunnally (1978).
However, the composite reliability score for all the factors was very much satisfactory at 0.74. The value
of Kaiser-Meyer-Olkin measure of sampling adequacy of 0.78 and all factor loadings between items and
their respective constructs being greater than equal to 0.60 also demonstrated adequacy and reliability of
sample size to yield distinct and reliable factors.
Validity: The F1, F2, F3 and F4 yielded reliability coefficients higher and equal to 0.50 and KMO
value was also very much satisfactory at 0.784, indicating high construct validity of the construct (Hair et
al. 1995).
Measurement of customer value
Friedmans analysis of variance (ANOVA) test and Kendalls W` test (Burgess et al. 1998 and
Ahmed and Hassan 2003) has been conducted to analyse the mean difference in ranks assigned by new
and old group of customers to various dimensions of customer value such as intrinsic value, product
performance, durability, perceived reliability and corporate image (table 2). The highest chi-square value
and Kendalls W coefficients of concordance (2 = 15.511; K-S = 0.155) was generated for intrinsic
value and lowest (2 = 2.848; K-S = 0.028) for perceived reliability that was insignificant thereby
declaring significant statistical differences in the mean ranks obtained from two groups of customers for
all the five customer value dimensions except for perceived reliability. Hence, the results offer full
support to the first hypothesis (H1).
Relationship of customer intimacy with customer satisfaction and loyalty
In order to investigate the link between dependent variable of customer intimacy and two
independent variables i.e., customer satisfaction and loyalty, the sum of customer intimacy scale was
regressed with the sum for two aforementioned independent variables for two groups of new and old
customers (Leyland et al. 1996) The results of the regression analysis shows two independent variables
of customer loyalty as significant in the regression model i.e., product selection variable of customer
loyalty among new as well as old group of customers and reasonable prices as significant only among

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The Journal of Human Resource and Adult Learning Vol. 3, Num. 1, July 2007

the old group of customers. The value of R as 0.536 (new customers) and 0.497 (old customers) signify
positive correlation between predictor and the outcome. Product selection has emerged as the strongest
predictor whereas price management was found to be the weakest as confirmed by their relative tvalues. The total variability in customer intimacy accounted for by new and old group of customers for
three independent variables was 28.7% and 24.7% respectively. Change in R was also found to be
significant as the values of F are well below 0.05 percent significance level. The value of Durbin-Watson
being above 2 is also indicative of the fact that errors in regression are independent. The results (as given
in the table 3) revealed that product selection and price reasonability as loyalty constructs predict
customer intimacy for SSI products. Therefore, this offers partial support for H2 and H3.
Inter-attribute trade-off to evaluate factor importance
Conjoint analysis to estimate or determine how respondents develop preferences for products or
services, and to measure the trade-offs people make when making a decision (Hair et al. 1995) was
carried out mathematically as well as using Marketing Engineering Software (version 1.1) by assigning
weights to three attributes namely, brand recognition, product cues and brand switching factors. First,
three attributes with six related options (2 each) were edited. Thereafter utility assessment was done by
assigning weights to each attribute and underlying options (in order of merit) followed by
operationalisation resulting into 8 possible stimuli combinations. These combinations were given weights
as per customer responses obtained in the form of Likert scale items (5<--->1 coded as +2, +1, 0, -1, -2).
After the completion of utility assessment, part worth file was loaded from coded excel file and conjoint
matrix was generated as per responses obtained from 200 customers from urban Kathua block. The results
of analysis revealed that at each factor level golden vanaspati with better quality and due to complaint
handling nature of SSIs emerged as optimal product choice whereas in terms of attribute importance
brand switching factors were given highest weightage followed by brand recognition and least
important attributes were product cues as evident from Table 4. This led to the complete acceptance of
H6 and partial agreement to H4 and H5.
Managerial and Academic Implications
Customers are value maximizers. Recognizing that intrinsic product value leads to high customer
value, many small firms today are aiming for delivering superior customer value. For such companies,
customer value enhancement is both a goal and a marketing tool. Customer value also depends on product
performance, durability, and corporate image that bear on its ability to satisfy stated or implied needs.
Small firms need to understand products perceived reliability that carried less importance while
analysing customers value attainment. The key to customer intimacy lies in strengthening its relationship
with customer satisfaction and loyalty. The survey demonstrated the outstanding importance of customer
intimacy which is closely connected with wider product choice at reasonable prices as customer loyalty.
This invites more efforts from small businesses towards wider availability of products keeping into view
cost factor. However, customer intimacy was not found to be very closely linked with customer satisfaction
in terms of performance equals satisfaction and price management efforts by small businesses. This
enforces further research efforts. Moreover the survey indicated that determinants customer satisfaction
was not interlinked to customer intimacy that may vary for broader sample. An understanding of the
relative impact of brand switching variables and interactions affords marketers the opportunity to design
more effective customer acquisition and/or retention programs. Our results underscored the importance of
alternative attributes such as brand recognition and product cues in consumers decisions to switch.

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This survey is not very comprehensive as being limited to only 200 customers. More important, this study
suggested that switching behaviour is influenced less by customer evaluations of brands and product cues
than by alternative attributes of complaint handling and past experience. As discussed here, the migration
literature has much to offer to those interested in understanding customer switching behavior.
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38

0.865
0.860

0.762
0.743

4.04
4.08

0.671
0.520

0.708
0.652

0.632
0.627

3.10

1.413

0.604

0.513

3.81

0.952

3.760

1.493

24.739

15.523

Comm-onality

0.796
0.668
0.658

24.739

40.262

Alpha coefficient

Cumulative variance %

Variance explained %

Factor loadings

3.88
4.11
4.07

Eigen value

Standard deviation

F1
Intrinsic Value
Product
performance
Durability
Reasonable
prices
Perceived
reliability
F2

Mean

Factor-wise dimension

Table 1: Summary of Results Showing Factor Loadings and Variance Explained After Scale
Purification (Using Rotated Component Method) for Kathua Town/Block

0.7524

0.6403

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 Price
3.97 0.715 0.784
0.644
management
Performance
3.85 1.008 0.740
0.611
equals
Expectations
Corporate
3.61 1.134 0.646
0.597
image
F3
3.42 1.140
1.425 12.904
53.165
0.5681
Complaint
3.50 1.139 0.827
0.710
handling
3.34 1.150 0.748
0.589
Previous
experience
F4
4.10 0.609
1.145 12.022
65.187
0.5300
Customer
4.10 0.551 0.808
0.712
care/Intimacy
4.10 0.666 0.784
0.681
Product
selection
Grand Total
3.80 0.874
0.7442
Footnotes: K MO Value = .784; Bartletts test of sphercity = 629.660, df = 66, sig. = .000.
Extraction Method: Principal Component Analysis Varimax with Kaiser Normalization.
Rotation converged in 2 rounds and 6 iterations.
Table 2: An Analysis of Difference in Mean Ranks for Customer Value Between Two Groups
Using Friedmans ANOVA and Kendalls W test
Constructs

New customers
Old customers
Mean
Std.
Mean
Std.
ranks
ranks
Intrinsic value
1.37
0.649
1.63
0.650
Performance
1.40
0.618
1.60
0.683
Durability
1.44
0.672
1.56
0.661
Perceived reliability 1.42
1.44
1.58
1.44
Corporate image
1.42
1.10
1.58
1.16
Footnotes: *p>0.01 and ** p>0.05
S stands for significant and NS for not significant

15.511* (S)
8.805* (S)
3.789** (S)
2.848 (NS)
4.129* (S)

Kendalls
W

Asymptive.
sig.

0.155
0.088
0.038
0.028
0.041

0.000
0.003
0.052
0.091
0.042

New customers

S.E

p-value

Beta coefficient

S.E

t-value

p-value

Customer
satisfaction

0.050

0.083

0.537

0.592

-0.112

0.085

-1.208

0.230

-0.037
0.479

0.081
0.081

-0.402
5.351*

0.688
0.000

0.132
0.382

0.087
0.075

1.347
4.368*

0.181
0.000

Customer
loyalty

Performance equals
expectations
Price mgt.
Product
selection

Old customers

t-value

Independent variables

Beta Coefficient

Table 3: Regression Model Summary (with coefficient) of Customer Satisfaction and Customer
Loyalty Variables as Predictors of Customer Intimacy with Customer Care as Dependent Variable
(Enter Multiple Regression Method) Among New and Old Customers

The Journal of Human Resource and Adult Learning Vol. 3, Num. 1, July 2007

39

Reasonable prices
0.055 0.097 0.593
0.554 0.331 0.138 3.375* 0.001
Constant
0.612 3.252* 0.002
0.613 1.290
0.200
R
0.536
0.497
R2
0.287
0.247
Adj. R2
0.257
0.215
F
9.552*
7.772*
Durbin-Watson
2.071
2.109
Footnotes: 1. * Values Significant at p 0.05.
2. Group 1: Dummy Variable Reference Categories: Performance equals Expectations,
Adequate Price Management and Reasonable prices.
3. Group 2: Dummy Variable Reference Categories: Performance equals Expectations and
Adequate Price Management.
Table 4: An Analysis of Consumer Inputs and Estimated Part-Worth Using Conjoint Analysis
Attributes
Consumer inputs
Factor levels
Utility scores
Range of
(equals 100% total)
(Part-worth)
utility Scores
H4: Brand
28.6%
1.512
Brand
recognition
Golden vanaspati
+ 0.756
H5: Product cues

H6: Complaint
handling &
previous experience

14.3%

57.13%

Shahzada vanaspati
Product Cues
Better quality

- 0.756
0.756
+ 0.378

Less price
- 0.378
Brand switching factors
Complaint handling
+ 1.511
Previous experience

3.022

- 1.511

The utility range was used as a measure of importance for the attributes of loyalty programs included
in the conjoint analysis. The utility range is calculated by subtracting the part-worth utilities of the least
preferred level of each attribute from the part-worth utilities of the most preferred level of each attribute.
Relative importance (on the basis of inter-attribute tradeoffs) is expressed in percent of total range.
Mathematical formulation of conjoint is as under:
1. Averages ranking (xrs) across these 8 stimuli were obtained and then their deviations from overall
mean scores were taken. These deviations were squared (d 2) after reversing them at each factor level.
2. Standardised value was obtained (S.V) = fl/d2 , here fl stands for number of factor levels and d 2
stands for sum of squared deviations. These squared deviations (d 2) were multiplied with S.V.
3. EPW = St.D, here EPW stands for estimated part worth and St.D for standardised deviation.
4. RPW = (HPv-LPv), here RPW stands for range of part worth, HPv for highest part worth or utility
score within each factor level and LPv for lowest part worth or utility score within each factor level.
5. FI = RPW/RPW*100, here FI stands for factor importance.

40

The Journal of Human Resource and Adult Learning Vol. 3, Num. 1, July 2007