THREE ESSAYS ON ADVERTISING, CUSTOMER SATISFACTION, AND CUSTOMER LOYALTY ...

224 Pages·2013·1.58 MB·English

THREE ESSAYS ON ADVERTISING, CUSTOMER SATISFACTION,
AND CUSTOMER LOYALTY

Carolyn Samuel Taylor

A dissertation submitted to the faculty of the University of North Carolina at Chapel Hill in
partial fulfillment of the requirements for the degree of Doctor of Philosophy in the Kenan-
Flagler Business School, Department of Marketing.

Chapel Hill
2013

Approved by:
Katrijn Gielens
Jan-Benedict E.M. Steenkamp
Tarun Kushwaha
Christine Moorman
Valarie Zeithaml
ABSTRACT

CAROLYN SAMUEL TAYLOR: Three Essays on Advertising, Customer Satisfaction, and
Customer Loyalty
(Under the direction of Katrijn Gielens and Jan Benedict E.M. Steenkamp)

This dissertation focuses on the attitudinal metric of customer satisfaction and its
consequence of customer loyalty. While the merits of customer satisfaction and customer
loyalty are widely studied and recognized, less is known about how the firm should go about
using its resources to optimize these constructs, and how the optimization of these constructs
may affect firm value.
The first essay examines the effect of advertising effort on customer satisfaction and
its implications for firm value. The second essay delves into analyzing the conceptual
components of customer loyalty by exploring the effect of a firm’s resource allocation
choices on its loyalty capability, which is defined in this dissertation as a firm’s ability to
convert its resources into customer loyalty. In these first two essays collectively, I argue that
the efficient optimization of both customer satisfaction and customer loyalty will positively
impact a firm’s performance in the market. The final essay examines customer satisfaction
within a global context, and explores the extent to which market familiarity and experience
contributes to a multinational corporation’s (MNC’s) ability to provide valuable offerings
with which consumers in the host country express satisfaction.
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The results of Essay I suggest that firms can over- or underadvertise with respect to
optimizing customer satisfaction. This advertising ineffectiveness, particularly
overadvertising, is detrimental to firm value. Moreover, this study shows that analyzing the
impact of advertising on market value without accounting for effectiveness may lead to
biased results. The findings from Essay II demonstrate that loyalty capabilities may vary
across firms and over time due in part to the firms’ advertising allocations, level of
innovation, category characteristics, and portfolio strategy. The findings also suggest that
loyalty capability contributes to firm performance. Finally, the results of Essay III indicate
that a firm’s experience in the market has a positive effect on its ability to provide value to
the customer. However, the results are mixed as to whether experience helps a MNC
overcome differences between the country of origin and the host country, and cope with the
volatility of those differences.

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TABLE OF CONTENTS

LIST OF TABLES…………...…………………………………….………………..……vii
LIST OF FIGURES………...……………………………………….…………………...viii

CHAPTER
I. INTRODUCTION…….……..…………………………………………….….……1
Overview…………………………………………………………………………….1
Literature Overview of Customer Satisfaction……………………………………...2
Dissertation Structure and Preview………………………………………………...20
References………………………………………………………………………….26
II. ESSAY I: THE IMPACT OF ADVERTISING ON CUSTOMER
SATISFACTION AND THE EFFECT ON FIRM VALUE…………………...30

Introduction……………………………………...………………………….……...30
Conceptual Framework……………………...……………………………………..33
Customer Satisfaction..…………………………………………………………….36
Relationship between Advertising and Customer Satisfaction…………….38
The Impact of Advertising Effort, Effectiveness, and Efficiency
on Firm Value...............................................................................................41

Data………………………………………………….……………………….…….48
Methodology……….……………………..…………………………….………….52
Results……………………….……………………………………..……...……….56
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Validation Analysis…………………………………………...………..…………....63
Discussion…………………………………………………………………....….…..69
Limitations..………………………………….…………………………..………….71
References…………………………………………………………………………...73
III. ESSAY II: AN ANALYSIS OF LOYALTY CAPABILITY………...………….79
Introduction………………………………………………………………………....79
Conceptual Framework of the Drivers of Loyalty Capability...……………..……...85
Methodology…………………..……………………………………………….…....98
Sample……………………………………………………………………….99
Step 1: Measuring Loyalty Capabilities……………………………………..99
Step 2: Relating Drivers to Loyalty Capability…...………………………..108
Step 3: Relating Loyalty Capability to Firm Sales...…….…….…………...113
Results……………………………………………………………………………...115
Step 1: Measuring Loyalty Capabilities…………………….….…………..115
Step 2: Drivers of Loyalty Capability………..……………...…..…………120
Step 3: The Impact on Firm Sales………………......………………….…..123
Discussion………………………………………………………………………….126
Future Research……………………………………………………………………140
References……………………………………………………………………….…142
IV. ESSAY III: MARKET EXPERIENCE AND INTERNATIONAL
CUSTOMER SATISFACTION…………………………………….…………...151

Introduction.……………………………………………………………………….151
Conceptual Framework…………………….………………………………………154
The Impact of Cultural Distance on Customer Satisfaction….……………158
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The Impact of Economic Distance on Customer Satisfaction….………….164

The Impact of Experience on Customer Satisfaction and its
Moderating Effects on Cultural and Economic Distance………..……...…168

Control Variables..……………………………………...………………….171
Data…………………...……………………………..……………………………..174
Measures………………………………..……………………………..…....174
Methodology……………………………………………………………………….179
Results……………………………………………………………………………...182
Discussion.………………..……………………………………………….……….187
Future Research………………………………………………….…………………190
References………………………………………………………………………….211

APPENDIX A...………………………………..…………………….………………...191
APPENDIX B…………..…………..……………………………...……………….….193
APPENDIX C...………………………………..…………………….…………….…..194
APPENDIX D…………..…………..……………………………...…………………..207
APPENDIX E...………………………………..…………………….……….………..208

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LIST OF TABLES
1.1 Literature Review of the Antecedents and Consequences of Customer
Satisfaction………………………………………………………………………...4

1.2 Corresponding Constructs of the ACSI Framework and the Focal Framework.....18
2.1 Results of Random Parameters Stochastic Frontier Estimation: Impact
on ACSI……………………………………………………………………….….57

2.2 Descriptive Statistics of Derived Advertising Efficiency………………………...60
2.3 Impact of Efficiency, Effectiveness, Advertising Effort, and
Moderating Effect of Products/Services on Tobin’s q…………………………....61

2.4 Validation Analysis: Model Comparison Statistics……………………………….63
2.5a Validation Analysis: Latent Class Selection Statistics……………………………65
2.5b Validation Analysis: Results of Latent Class Stochastic Frontier
Estimation: Impact on ACSI……………………………………………………...65

2.6 Validation Analysis: Latent Class Membership…………………………………..66
2.7 Validation Analysis: Results of Alternative Models: Impact on ACSI…………..68
3.1 Data Operationalizations………………………………………………………...112
3.2 Results of Random Parameters Stochastic Frontier Estimation:
Impact on Customer Loyalty……………………….……………………………116

3.3 Random Parameter Results by Firm……………………………………………..119
3.4 Loyalty Capability Statistics by Firm……………………………………………119
3.5 Results of Tobit Model: Impact on Loyalty Capability………………………….122
3.6 Regression Results: Impact on Sales………………………………………….....125
4.1 Descriptive Statistics………………………………………………………….....177
4.2 Impact on Customer Satisfaction..………………………………………………185
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LIST OF FIGURES
1.1 Model of the Antecedents and Consequences of Customer Satisfaction..…………9
1.2 The ACSI Framework……...……………………………………………………..17
2.1 Advertising Value Chain………………………………………………………….35
2.2 Proposed Relationship between Advertising Effort and Customer Satisfaction:
Implications of Advertising Ineffectiveness and Advertising Inefficiency………42

2.3a Distribution of ACSI Scores across Companies and over Time………………….50
2.3b Distribution of Time-Averaged ACSI Scores across Companies………………...50
2.4 Relationship between Advertising Effort and Predicted ACSI Based on
Aggregate Parameter Results……………………………………………………..58

2.5 Proportional Distribution of Derived Advertising Efficiencies:
Products vs. Services……………………………………………………………....59

3.1 Overview of Research Approach…..……………………………………………...84
3.2 Distribution of ACSI Loyalty Scores across Companies and over Time………...100
3.3a Impact of Advertising Effort on Customer Loyalty……………………………..118
3.3a Impact of New Product Introductions on Customer Loyalty…………………....118
3.4 Evolution of Loyalty Capability over Observations……………………………..129
4.1 Conceptual Framework…………………………………………………………..157

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CHAPTER I -- INTRODUCTION

1.1 Overview
This dissertation focuses on the attitudinal metric of customer satisfaction and its
consequence of customer loyalty. While the merits of customer satisfaction and customer
loyalty are widely studied and recognized, less is known about how the firm should go about
using its resources to optimize these constructs, and how the optimization of these constructs
may affect firm value. This dissertation explores multiple aspects of customer satisfaction
through two distinct research initiatives.
The first research stream examines how and to what extent the efficient optimization
of both customer satisfaction and customer loyalty will positively impact a firm’s
performance in the market. The first essay examines the effect of advertising effort on
customer satisfaction and its implications for firm value. The second essay delves into
analyzing the conceptual components of customer loyalty, by exploring the effect of a firm’s
resource allocation and diversification choices on loyalty capability, which is defined in this
dissertation as a firm’s ability to convert its resources into customer loyalty.
In the second research initiative, customer satisfaction is examined in a global context
in order to evaluate the extent to which multinational corporations (MNCs) are able to
provide valuable offerings with which consumers in the host country express satisfaction.
Essay III explores how this ability may vary across markets based on the psychic distance
between the home and host markets, which refers to the sum of such factors that may hinder
the flow of market information (Johanson and Vahlne 1977).
To provide a brief outline of what has already been done, I first present a review of
the literature that addresses the antecedents and consequences of customer satisfaction,
including customer loyalty. Next, a framework of customer satisfaction is developed based
on existing research. Finally, the objectives of each of the three dissertation essays are
outlined, and I describe how each essay contributes to the existing literature on customer
satisfaction.

1.2 Literature Overview of Customer Satisfaction
Oliver (1999, p. 34) defines customer satisfaction as fulfillment in that,
“…consumption fulfills some need, desire, goal, or so forth and that this fulfillment is
pleasurable.” Satisfaction is the result of a postconsumption evaluation which contains both
cognitive and affective elements (Oliver 1997). The cognitive state reflects the buyer’s
perception of whether the outcome was an adequate or inadequate reward for the customer’s
sacrifice. This evaluation is a response to the perceived discrepancy between prior
expectations and the performance of the product as perceived after consumption (Tse and
Wilton 1988). The affective element refers to the consumer’s subjective positive or negative
feelings surrounding the consumption experience (Westbrook 1987). According to
Parasuraman et al. (1988), incidents of satisfaction combine to result in perceptions of
quality. Over time, “satisfaction soon decays into (but nevertheless greatly affects) one’s
overall attitude toward purchasing products” (Oliver 1981, p. 27). These attitudes anticipate
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