Parameters and their Interrelationships

including employee satisfaction, product quality, retail service quality, customer satisfaction, and customer loyalty. Table 5.1 is a summary of key parameters considered in the literature. With reference to Table 5.1, it is found that there was a list of key parameters identified for CRM, but the existing models had not included all of them, thus are unable to provide an overview towards the whole picture of CRM. For example, Chen and Chuang (2008) focused on customer satisfaction and product quality but neglected retail service quality, order lead time and employee satisfaction. Yiannis and Denton (1997) considered employee and customer satisfaction as well as product and retail service quality, but overlooked and the impacts of order lead time and advertising. Reinartz and Kumar (2003) related customer retention and loyalty to sales volume, yet they fail to show how other key parameters such as product and retail service quality affect customer relationship. To address the gap, all the key parameters identified in Table 5.1 are considered for the ECSM derived in this study so as to make this module more comprehensive and to distinguish it from the existing models. Since customer satisfaction is the essence of a CRM model, the major parameters affecting customer satisfaction are key considerations in this study towards constructing the ECSM.

Table 5.1 Parameters studied in the literature and the proposed model Authors Parameters The Proposed ECSM Steven and Thoma s (1994) Yiannis and Denton (1997) Rucci et al. (1998) Anderson and Narus (1998) Reinartz and Kumar (2003) Chen and Chuang (2008) Employee satisfaction Customer satisfaction Customer loyalty Retail service quality Advertising Product quality Order completion efficiency Order lead time Number of customers Customer acquisition Customer retention Sales volume

In many CRM models, customer satisfaction is a core part as it helps build customer relationship, retain customer loyalty, and bring profits to the company. For instance, Harness and Harness (2004), Steven and Thomas (1994), Yiannis and Denton (1997), Rucci et al. (1998), Chen and Chuang (2008) (see Table 5.1) identified it as the key element in building and maintaining the companies’ competitiveness. In addition to key parameters identified in Table 5.1, the relationships among them are also needed to construct the ECSM for the window fashions retail industry.

Retail service quality is the customer’s perception of how well their expectations are met during the service encounters (Zeithaml et al., 1990). As discussed earlier, retail service quality is a key element of customer satisfaction (Bolton and Drew,

1991; Cronin and Taylor, 1992; Anderson and Sullivan, 1993; Buttle, 2004). These studies provide justifications to include retail service quality in CRM models. From the factor analysis conducted in Chapter 4, there are five key factors affecting retail service quality, which are personal interaction, reliability, physical aspects, policy, and problem solving. Thus these factors need to be taken into account when developing the proposed ECSM.

Product development is an essential starting point to deliver value to customers and thus delight customers (Eduardo et al., 2008) while product quality plays an important role in satisfying customers. The positive relationship between product quality and customer satisfaction has been proved by many researchers (Brewton, 1990; Edwards, 1992; Hirst, 1992). They showed that products of high quality can enhance customer satisfaction and in turn result in increased profits. There are three factors influencing product quality, namely product features, aesthetics, and customer-perceived quality. These factors are justified by the factor analysis in Chapter 4 and are included in the ECSM derived.

Advertising is another element influencing customer satisfaction in the proposed CRM model. It raises customers’ awareness of the products and thus motivates customers to make purchases, thereby satisfying their needs (Rucci et al., 1998). Advertising is a critical part of the marketing strategies used to stimulate demand and aims to achieve three benefits:-

(i) Increasing sales of the promoted products,

(ii) Increasing sales of complementary products within a store, and (iii) Increasing in-store traffic (Blattberg et al., 1990; Kim, 1992).

The effectiveness of advertising is often directly proportional to the spending on advertising and to customer satisfaction (Rajeev et al., 1995). Spending on advertising is therefore considered when constructing the ECSM.

Suggested by the focus group consisting of customers and managers from Hunter Douglas Gallery, “order completion efficiency” is also identified as another key driver in creating happy customers. It was found that order completion efficiency will often increase when employees are satisfied with their jobs and thus will perform such operational tasks effectively. Nelson (1970) indicated that the efficiency with which employees are able to fulfil orders in the business-to-customer transactions is a significant determinant of customer satisfaction and retention. Heim and Sinba (2001) also found a significant positive association between order completion efficiency and customer satisfaction. In a similar vein, Lee and Whang (2001) suggested that the ability to fulfil and deliver orders on time could determine business success. In the light of the above, there is growing evidence to suggest the inclusion of order completion efficiency in the proposed ECSM.

To summarise, there are four key dimensions affecting customer satisfaction to be considered when developing the ECSM. These are retail service quality, product quality, advertising, and order completion efficiency (see Figure 5.2).

Figure 5.2 Key factors affecting customer satisfaction

For a window fashions retailer, employee satisfaction is a direct factor to influence order completion efficiency and interaction with customers; both link to customer satisfaction (see Figure 5.3). This is because when employees are not satisfied with their jobs, their working performance will be affected. For example, they will not take much initiative to interact with and take care of customers and this may affect their efficiency to deal with customer orders. As shown in Figure 5.2, order completion efficiency and personal interaction are the factors influencing customer satisfaction. If the order lead time is long and customers find the staff unhelpful and impolite, they will be unhappy. Therefore, employee satisfaction is an indirect factor in affecting customer satisfaction (see Figure 5.3). This viewpoint is supported by Berry (1981) and Coleman (1990) who identified that companies should pay special attention to employees’ needs, which in turn

will help satisfy their customers’ needs. Comm and Mathaisel (2000) suggested that employees’ satisfaction with their jobs is an important contributor to customer satisfaction. The attitude that employees have is, in general, a key variable affecting customer satisfaction (Adsit et al., 1996) and, more specifically, this satisfaction affects customers’ perceptions of quality (Schneider and Bowen, 1985). Reichheld (1996), Heskett et al. (1997) and Tompkins (1992) indicated that higher levels of employee satisfaction and motivation yield greater customer satisfaction. These studies showed that employees’ motivations are particularly a key factor in a repurchase decision. The managers of the focus group from Hunter Douglas Gallery identified three factors, namely training, working environment, and monetary issues, which are the keys to employees’ satisfaction. The relationship between employee satisfaction and customer satisfaction is shown in Figure 5.3.

Figure 5.3 The relationship between employee satisfaction and customer satisfaction

Does customer satisfaction then automatically lead to intentions to purchase? The link between customer satisfaction and customer acquisition has been researched by Bearden and Teal (1983), Oliver and Swan (1989), and Yi (1990). Others (Woodside et al. (1989) and Cronin and Taylor (1994)) directly identified that retail service quality is an antecedent of customer satisfaction, and will lead to customer acquisition. It is understood that customers who are satisfied are more likely to make repeated purchases and also word-of-mouth referral, building

customer loyalty and expanding the customer base. Building customer loyalty helps secure future revenue streams, create barriers to competitive efforts, inhibit customer defections, and reduce future transaction costs (Homburg and Rudolph, 2001). In fact, customer loyalty is the direct result of customer satisfaction (Bolton, 1998; Lam et al., 2004; Jones et al., 1994; Estelami and Hurley, 2003). Customer satisfaction and customer loyalty therefore become the essence of CRM and are included in the proposed ECSM. The relationship among customer acquisition, customer retention, customer satisfaction and customer loyalty is shown in Figure 5.4.

From Figure 5.4, both customer acquisition and retention could increase sales volume and finally generate profits for the company. More specifically, customer loyalty leads to greater profitability year after year (Reicheld and Sasser, 1990) and the cost of customer retention is much less than that of customer acquisition (Reinartz and Kumar, 2003; Chan et al., 2010). The importance of customer retention and customer loyalty is highlighted as they can maintain business growth. In return, the company would be more competitive and allocate more resources to further enhance customer satisfaction through the continuous improvements of retail service quality, product quality, advertising, and employee satisfaction (in terms of working environment, training, and monetary reward). The above discussion explains the linkage among sales volume, customer acquisition and customer retention, as well as how the company makes use of the profit gained from sales to boost customer satisfaction in return so that better customer loyalty is achieved (see Figure 5.4).

Figure 5.4 The relationship among customer satisfaction, customer acquisition, customer retention, sales volume, and customer loyalty