Health Marketing Quarterly

ISSN: 0735-9683 (Print) 1545-0864 (Online) Journal homepage: http://www.tandfonline.com/loi/whmq20

The Behavioral Consequences of Service Quality:

An Empirical Study in the Chinese Retail Pharmacy
Industry

Yuwen Chen & Frank Q. Fu

To cite this article: Yuwen Chen & Frank Q. Fu (2015) The Behavioral Consequences of
Service Quality: An Empirical Study in the Chinese Retail Pharmacy Industry, Health Marketing
Quarterly, 32:1, 14-30, DOI: 10.1080/07359683.2015.1000706

To link to this article: http://dx.doi.org/10.1080/07359683.2015.1000706

Published online: 09 Mar 2015.

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 Health Marketing Quarterly, 32:14–30, 2015
Copyright # Taylor & Francis Group, LLC
ISSN: 0735-9683 print=1545-0864 online
DOI: 10.1080/07359683.2015.1000706

The Behavioral Consequences of Service

Quality: An Empirical Study in the Chinese
Retail Pharmacy Industry

YUWEN CHEN
Shenyang Pharmaceutical University, Shenyang, China

FRANK Q. FU
Department of Marketing, College of Business Administration,
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University of Missouri–St. Louis, St. Louis, Missouri

This study focuses on the impacts of service quality and examines

the mediating effects of customer satisfaction and customer loyalty
on willingness to pay more. The authors collected survey data from
479 actual retail pharmacy customers in China and used the
structural equation modeling approach to test the hypotheses. The
results reveal six dimensions of service quality and the differential
impact of these dimensions on customer satisfaction and
behavioral intentions. This study contributes to the existing litera-
ture by exploring the dimensionality of the service quality construct
and mediating effects of customer satisfaction and customer
loyalty in a non-Western setting.

KEYWORDS service quality, customer satisfaction, customer loyalty

In the past decade, the retailing pharmacy industry in China has been grow-
ing rapidly. According to an online data source, there were approximately
320,000 pharmacy stores in China in 2006 and the number has grown to
365,578 in 2008.1 Recently, the Report of Chinese Pharmaceutical Retail Mar-
ket, published in January of 2012, estimated that there were over 400,000
retailing stores that hired over 3 million employees in 2011.2 The explosive
growth in the number of stores has led to intense competition. Indeed, when
one walks down the streets in many Chinese cities and townships, you can-
not help but notice the proximity of the pharmacies. Sometimes there are

Address correspondence to Frank Q. Fu, Department of Marketing, College of Business

Administration, University of Missouri–St. Louis, St. Louis, MO 63121-4499. E-mail: fuf@umsl.edu

14
 The Behavioral Consequences of Service Quality 15

four or five retailing pharmacies within one block, and all of them have
almost identical store layouts and product assortments. This type of commo-
ditization inevitably reduces profitability. Some researchers estimate that less
than one third of Chinese retailing pharmacy stores are making a profit.3 To
make matters worse, most Chinese retailing pharmacies do not carry cos-
metics and other merchandise, which account for a significant proportion
of sales and profit generated by Western retailing pharmacy chains, such
as CVS and Walgreens.
How does a retailing pharmacy succeed, or at least survive, in such a
challenging market? More specifically, how do managers ensure customer
satisfaction and maintain customer loyalty in such an environment? Using
survey data collected from retailing pharmacy customers in China, we tested
a model that focuses on service quality and its behavioral consequences. The
model extended our understanding of the nomological relationships of ser-
vice quality, customer satisfaction, customers’ loyalty, and willingness to
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pay in a collectivist society. Our study offers both theoretical and managerial
contributions.

THEORETICAL DEVELOPMENT AND RESEARCH HYPOTHESES

Service quality has been studied extensively in the literature (Brady, Cronin, &
Brand, 2002; Cronin & Taylor, 1992; Parasuraman, Zeithaml, & Berry, 1988).
The impressive growth of service quality research has been funded by the
consensus among researchers and managers that customers’ willingness to
maintain a relationship with a firm is contingent upon their perception of
the benefits and values of the firm’s high-quality service (Patterson, Cowley,
& Prasongsukarn, 2006; Sirdeshmukh, Singh, & Sabol, 2002). Indeed, many
empirical researchers have confirmed the positive impact of service quality
on a variety of behavioral outcomes, such as customer satisfaction, customer
loyalty, and purchase intentions (e.g., Cronin, Brady, & Hult, 2000; Taylor,
Nicholson, Milan, & Martinez, 1997; Wallace, Giese, & Johnson, 2004).
Despite the volume of the service quality literature, inconsistencies
remain. Specifically, researchers disagree on the number of service quality
dimensions. Although many scholars follow the tradition set by Parasuraman
et al. (1988), who initially proposed a five-dimension structure, the actual
number of service quality dimensions revealed by empirical studies ranges
from 1 to 13 (Greenland, Coshall, & Combe, 2006; Ueltschy, Laroche, Zhang,
Cho, & Ren, 2009). The consensus view is that the dimensionality of service
quality varies from industries to industries and from nations to nations.
Therefore, the first goal of this study is to test the structure of service quality
in the retail pharmacy industry in China.
Most extant studies in the service quality literature focus on Western
cultural contexts (Carrillat, Jaramillo, & Mulki, 2009). It is typically difficult
 16 Y. Chen and F. Q. Fu

and not necessarily appropriate to apply Western-developed theoretical

frameworks directly to other cultures. In fact, many researchers believe
that patterns and strengths of relationship may differ across cultures due to
idiosyncratic characteristics (Clark, 1990). It is especially challenging when
marketers try to apply Western-developed theory in China, as Chinese
consumers’ behavior has been shaped by both rapid changes in recent
economic and social transitions and a unique culture with thousands of years
of history (Zhou, Flynn, & Roth, 2006).
Second, many extant studies have only examined the effects of
overall service quality, although both theoretical foundations and
empirical evidence lead to the well-accepted belief that service quality
is a multidimensional construct. Specifically, some extant studies aggre-
gate and average the multiple dimensions into a summed index, while
testing the predictive values of overall service quality on behavioral out-
comes (Carrillat et al., 2009; Olorunniwo, Hsu, & Udo, 2006). There are
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potential problems related to this approach. By doing so, researchers

make a dubious assumption that individual dimensions contribute equally
to the construct of service quality. It is not necessarily the case. On the
contrary, different dimensions of service quality may have differential effects
on outcomes (Zhou, 2004). Further, these differential effects have meaning-
ful implications for managers in their endeavor to efficiently allocate limited
resources to achieve organizational goals. In this study, we examine the
differential effects of service quality dimensions.
In addition, we explore the impact of service quality on consumers’
willingness to pay more. In a highly competitive market, the extent to which
a store is able to charge a premium reflects an important outcome of service
quality. To fully understand the nomological relationships, we test the
mediating effects of customer satisfaction and willingness to pay more. We
summarize the proposed relationships among service quality, customer
satisfaction, customer loyalty, and willingness to pay a premium in a conceptual
model, which is depicted in Figure 1.

Service Quality and Customer Satisfaction

Service quality is among the most important and widely researched
constructs in the service literature (Zeithaml, 2000). Parasuraman et al.
(1988) proposed SERVQUAL as a measurement framework, which is based
on customers’ comparisons of their expectations and perceptions of service
encounters. For over two decades, the gap-based paradigm of SERVQUAL
has dominated the field of service quality (Carrillat et al., 2009). Despite its
popularity, the SERVQUAL paradigm has not been without criticism. Cronin
and Taylor (1992) were the first to argue against the expectation portion of
SERVQUAL. Instead, they proposed SERVPERF to measure service quality
based only on customers’ perceptions of the performance of a service
 The Behavioral Consequences of Service Quality 17
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FIGURE 1 Conceptual model. Note. The dotted line represents the control variable.

provider. The SERVPERF framework has thereafter been widely tested and
adopted by researchers and practitioners due to its conciseness and validity
(Brady et al., 2002).
In contrast to the debates around the conceptualization and measure-
ment of service quality construct, most researchers share the notion that it is
service quality that drives customer satisfaction (Dabholkar, 1995). As an
example, Fornell, Johnson, Anderson, Cha, and Bryant’s (1996) report
perceived service quality as one of the top determinants of customer
satisfaction. The theoretical basis of such a relationship stems from the
framework of Appraisal ! Emotional Response ! Coping proposed by
Bagozzi (1992) and Lazarus (1991). In essence, service quality represents
a cognitively orientated construct, whereas customer satisfaction represents
an emotionally orientated one. Both theoretical reasoning and empirical
evidence supports the belief that the cognitive process and value appraisals
(i.e., service quality) lead to emotional responses (i.e., customer satisfac-
tion), which in turn lead to coping (i.e., loyalty; Chenet, Tynan, & Money,
1999; Ennew & Binks, 1999; Gotlieb, Grewal, & Brown, 1994; Woodruff,
1997). Further, the framework of Quality ! Satisfaction ! Loyalty link
has been tested and obtained empirical support across different cultures
(Brady & Robertson, 2001).
According to the frameworks of SERVQUAL and SERVPERF (Cronin &
Taylor, 1992; Parasuraman et al., 1988), there are five dimensions of service
quality. The tangible dimension refers to the appearance of the physical
surroundings and facilities, equipment and personnel of a service provider.
 18 Y. Chen and F. Q. Fu

The reliability dimension refers to a firm’s ability to perform the promised

service dependably and accurately. The responsiveness dimension refers to
the willingness of the firm to help its customers in providing them with good,
high quality and prompt service. The assurance dimension refers to the
extent to which a firm’s employees have adequate knowledge and courtesy
with which to gain the trust and confidence of customers. The empathy
dimension refers to the extent to which a firm cares and gives individualized
attention to its customers.
Although the five dimensions are likely to be correlated to one another,
they focus on different aspects of the service quality constructs. Customers
may pay greater attention to certain dimensions of service quality under
some circumstances, however, they may rely more on other dimensions
under different circumstances. The strengths of the relationships between
multiple dimensions and customer satisfaction may differ. There is no reason
to expect that customers’ perception of a store’s external appearances has
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exactly the same impact on customer satisfaction as their perception of

store employees’ knowledge to fulfill the service. Therefore, we have the
following hypothesis:

H1: Specific dimensions of service quality have positive but differential

effects on customer satisfaction.

Behavioral Intentions: Customer Loyalty and Willingness to

Pay More
The concept of customer loyalty has evolved over the years and has eventu-
ally become a comprehensive construct that includes both psychological and
behavioral dimensions (e.g., Dick & Basu, 1994). However, most researchers
treat behavioral loyalty as the ultimate concern in their conceptualization
(Oliver, 1999). This notion is shared by many practitioners (Mittal, Ross, &
Baldasare, 1998). After all, customer loyalty (e.g., repurchase intention)
strongly correlates with a firm’s sales revenue and profitability (Gronroos,
1990; Gummesson, 1999; Reichheld, 1996). In this study, we used the
Behavioral Intention Index developed by Zeithaml, Berry, and Parasuraman
(1996) and selected the dimensions of customer loyalty and willingness to
pay more (i.e., price sensitivity). Specifically, we defined customer loyalty
as customers’ behavioral intention to purchase continuously from a retail
pharmacy, recommend friends=relatives to buy from the retail pharmacy
and spread positive words about the retail store.
Following the literature, we posit that customer satisfaction has
a positive effect on customer loyalty (i.e., a behavioral outcome). After all,
researchers find that service quality has positive relationships with a number
of behavioral intentions, either directly or through the mediating effect of
 The Behavioral Consequences of Service Quality 19

satisfaction (Cronin et al., 2000). Specifically, many empirical studies find

positive and significant links from customer satisfaction to customer loyalty
(e.g., Ennew & Binks, 1999; Fornell et al., 1996; Hallowell, 1996). However,
it is unclear whether service quality also has direct positive effects on
customer loyalty. A group of researchers argue that service quality influences
customer loyalty indirectly and only through satisfaction (e.g., Gotlieb et al.,
1994; Patterson & Spreng, 1997; Roset & Pieters, 1997). This suggests that cus-
tomer satisfaction mediates the effects of service quality on customer loyalty.
Further, Jaiswal, and Niraj (2011) find support for a fully mediating role
of customer loyalty in the relationship between satisfaction and behavioral
intentions including customers’ willingness to pay more. According to Dick
and Basu (1994), satisfaction is an affective antecedent of behavioral inten-
tions and customer loyalty serves as a conative variable. It is consistent with
Ajzen and Fishbein (1980), as they argue that conative variables mediate the
relationship between affective constructs (i.e., satisfaction) and behavioral
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constructs (e.g., willingness to pay more). This suggests that customer loyalty
mediates the effects of customer satisfaction on customers’ willingness to pay
more.
It is worthwhile to test these effects on the Chinese retail pharmacy
setting, as customers may not become loyal the same way in different
cultures. For example, Kim, Park, and Jeong (2004) reported that service
quality had a direct impact on the loyalty of Korean consumers. Similarly,
Lee and Ulgado (1997) found service quality positively affected U.S. con-
sumer loyalty. However, Aydin and Ozer (2005) found service quality was
insufficient to create loyalty among Turkish mobile communications consu-
mers. There is also evidence that different dimensions of service quality
may influence customer loyalty differently. For example, Mattila (1999) found
that, in Asian cultures, tangible characteristics of service were less important
than the intangible dimensions. We propose the following:

H2: Customer satisfaction has a positive effect on customers’ loyalty.

H3: The effect of customer satisfaction on customers’ willingness to pay
more is mediated by customers’ loyalty.
H4: The effects of service quality on customers’ loyalty (H4a) and
willingness to pay more (H4b) are meditated by customer satisfaction.

METHODOLOGY

Sample and Data Collection

We collected survey data from actual consumers to test the hypotheses.
Business graduate students were sent to 174 retailing pharmacies to conduct
a survey using mall-intercept techniques in Shenyang, the largest city in
 20 Y. Chen and F. Q. Fu

TABLE 1 Customer Characteristics

Demographic category Designation Frequency %

Gender
Female 277 57.8
Male 202 42.2
Total 479
Education
Junior high school 146 30.5
Senior high school 115 24.0
Associate degree 88 18.4
College degree and above 129 26.9
Not reported 1 0.2
Total 479
Age
11–24 63 13.2
25–35 110 23.0
36–49 119 24.8
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50–64 106 22.1

65þ 80 16.7
Not reported 1 0.2
Total 479
Annual expenditure on medicine
Below 200 RMB 116 24.2
200–499 RMB 135 28.2
500–999 RMB 108 22.5
1,000–2,000 RMB 53 11.1
Above 2,000 RMB 67 14.0
Total 479

Northeast China and the fifth largest in the nation. In each store, three
customers were randomly selected after they made their purchases. The
efforts resulted in a convenient sample of 479 usable customers. Of the
479 respondents, 46.2% were 35 years old and younger; 57.8% were females
and 42.2% were males; and 54.5% of the respondents had a high school
education and below. The demographic variables including annual expendi-
ture on medicine of the 479 customers are reported in Table 1.

Measures
We measured all constructs with 7-point, Likert-type scales. The question-
naire was first written in English and then translated into Chinese. Two
researchers who are fluent in both languages compared the two versions
to ensure consistency. Based on the results of the pretest, we included 28
SERVPERF items to measure service quality (Babakus & Boller, 1992; Brady
et al., 2002; Cronin & Taylor, 1992). The scale was modified reflecting the
context of the Chinese retailing pharmacy industry. To measure customer
satisfaction, we used three items scored on a 7-point scale, with larger values
associated with higher levels of customer satisfaction. Customer loyalty
 The Behavioral Consequences of Service Quality 21

measures were based on the Behavioral Intention Index developed by

Zeithaml et al. (1996, p. 38). We modified their items to fit into our study.
Specifically, we measured customer loyalty with four items and willingness
to pay more with three items.

DATA ANALYSIS AND RESULTS

Assessment of Measurement Model

The model was analyzed using structural equation modeling (Byrne, 2010).
As the first step, we investigated the dimensionality of service quality by con-
ducting an exploratory factor analysis (EFA). The analysis revealed six factors
with Eigenvalues greater than 1. We deleted several items due to cross load-
ing issues. The remaining items accounted for 71% of the cumulative vari-
ance. We also conducted an EFA to examine the customer loyalty index
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measures. The results show that the seven items implied two factors with
Eigenvalues greater than 1 and confirmed our expectation of two dimen-
sions, a customer loyalty dimension with four items and a dimension of will-
ingness to pay more with three items. We then specified and tested a
nine-factor measurement model (confirmatory factor analysis; CFA). The
nine factors refer to the six dimensions of service quality and three inten-
tional outcomes (i.e., customer satisfaction, customer loyalty, and willingness
to pay more). There were cross-loading problems and correlated errors
related to several items. Deleting these items based on modification indices
led to significant improvement, as all remaining items had satisfactory load-
ings on their prespecified factors (see Table 2). These results indicated suf-
ficient convergent validity (Anderson & Gerbing, 1988).
The measurement model had a good overall fit. The v2 statistic for the
whole model was 515.03, with 239 degrees of freedom. The comparative
fit index (CFI) and Tucker Lewis Index (TLI) were 0.96 and 0.95, respectively.
Similarly, the goodness of fit index (NFI) was 0.93 and the incremental fit
index (IFI) was 0.96. All of these indices were above the critical value of
0.90. In addition, the root mean square of approximation (RMSEA) was
0.049, which suggests a close fit of the model in relation to the degrees of
freedom. Therefore, we concluded that the overall fit of the measurement
model was acceptable. The summary of the CFA results and items of the nine
constructs are reported in Table 2.
Several steps were taken to control for potential common method bias,
as suggested by Podsakoff, MacKenzie, Lee, and Podsakoff (2003). First,
before surveying the customers, we pre-tested the scales and deleted
ambiguous and potentially confusing items based on their feedback. Second,
we conducted an exploratory factor analysis (EFA) on all items. We found
that, although the nine factors accounted for more than 78% of the variation,
the first factor explained only 13.74% of the variance. Further, we conducted
 22 Y. Chen and F. Q. Fu

TABLE 2 Summary of Confirmatory Factor Analysis Results (Measurement Model)

Loadings

Tangible appearance (alpha ¼ 0.88)

1. The exterior of this store is neat. 0.87
2. The interior of this store is appealing. 0.91
Tangible product (alpha ¼ 0.82)
1. The store offers high-quality products. 0.79
2. The store offers a great variety of products. 0.83
3. The store charges reasonable prices. 0.71
Reliability (alpha ¼ 0.84)
1. The reps of this store are consistently courteous. 0.77
2. The reps of this store are trustworthy. 0.83
3. The reps of this store keep their promises. 0.80
Responsiveness (alpha ¼ 0.81)
1. The reps of the store make sure the order is right. 0.78
2. The cashier of the store provides prompt service. 0.75
3. The store takes action to ensure prompt service. 0.76
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Empathy (alpha ¼ 0.74)

1. The store maintains a ‘‘health document’’ for each customer (purchase 0.72
records).
2. The store provides ‘‘shopping guide’’ service. 0.64
3. The store provides delivery service. 0.74
4. The store offers 24=7 service. 0.51
Accessibility (alpha ¼ 0.82)
1. The store is conveniently located. 0.80
2. The store is close to public transportation. 0.86
Overall satisfaction (alpha ¼ 0.89)
1. Overall, I am satisfied with the store. 0.91
2. I know I can trust the store. 0.87
Willingness to pay more (alpha ¼ 0.90)
1. I will buy from the store, even if competitors charge a slightly lower price. 0.93
2. I will buy from the store, even if it charges a slightly higher price than 0.94
competitors.
3. I am willing to pay a higher price than competitors charge for the service I 0.73
receive from the store.
Loyalty (alpha ¼ 0.93)
1. I will recommend the store to someone who seeks my advice. 0.91
2. I will encourage friends and relatives to purchase from the store. 0.95
3. I will say positive things about the store to other people. 0.85
Fit indices
Chi-square statistic 51.5.03
df 239
RMSEA 0.049
CFI 0.96
NFI 0.93
IFI 0.96
TLI 0.95
Note. All factor loadings are standardized and significant at p < .01. RMSEA ¼ root mean square of approxi-
mation; CFI ¼ comparative fit index; NFI ¼ goodness of fit index; IFI ¼ incremental fit index; TLI ¼ Tucker
Lewis Index.

the Harmon one-factor test but failed to identify any general factor that
accounted for the majority of covariance among all measures (Podsakoff
 The Behavioral Consequences of Service Quality 23

et al., 2003). Therefore, we believe that a common method bias was less
likely to be a significant threat to our analyses.

Hypotheses Testing
Before testing the hypotheses, we further investigated the dimensionality of
service quality. Specifically, we compared a second order model with a first
order model. The first order model consists of the six factors we identified. In
contrast, the second order model adds an extra factor at the second level in
addition to the six identified first-order factors. The second order model satis-
fies the following conditions: (a) each item has a nonzero loading on its cor-
responding first-order factor but zero loadings on the other five first-order
factors, (b) all error terms are uncorrelated, and (c) covariation among the
six first-order factors is fully explained by their regression on the
second-order factor (Byrne, 2010).
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The first-order CFA test demonstrated an excellent overall fit. With 89

degrees of freedom, the v2 statistic for the model was 197.51. Other fit indices
include the CFI (0.97), the TLI (0.96), the NFI (0.95), the IFI (0.97), and
RESEA (0.051), all indicating a close fit. In contrast, the second-order CFA test
resulted in a v2 statistic for the model of 274.51 with 99 degrees of freedom.
Compared to that of the first-order CFA model, the second-order model was
significantly inferior in terms of the fit indices. First, the incremental v2 stat-
istic of 77.0 with 10 degrees of freedom (chi) was significant (p < .01).
Second, the other fit indices that include the CFI (0.95), the TLI (0.94), the
NFI (0.93), the IFI (0.95), and RESEA (0.061) of the second-order CFA model
were all inferior to those of the first order CFA model. Based on the results,
we decided to use the first order model as the basis of subsequent analyses.
A structural equation modeling approach was then used to test the
hypothesized model. The v2 statistic was 574.88, with 251 degrees of free-
dom. The CFI was 0.96, the TLI was 0.95, the TIL was 0.95, and the NFI
was 0.93, respectively. All of these indices were above the cutoff value of
0.90. In addition, the RMSEA of 0.052 was also satisfactory, since a value
below 0.08 is expected for an adequate fit. The results of the estimated coef-
ficients and fit indices are reported in Table 3.
Although the fit was adequate, modification indices suggested several
paths that may potentially improve the model. In addition, since the hypothe-
sized relationship of Satisfaction on Loyalty was insignificant, we deleted this
path to explore a more accurate and parsimonious representation of the data
(Brown & Peterson, 1994; McCallum, 1986). Estimation of the revised model
resulted in an improved fit. As reported in Table 3, the v2 statistic was 522.42,
with 248 degrees of freedom. The incremental v2 statistic of 52.46 (p < .001;
df ¼ 3) was highly significant. The CFI was 0.96, the TLI was 0.96, the IFI was
0.96, and the NFI was 0.93. In addition, the RMSEA of 0.042 suggested a close
fit. We therefore used results of the revised model for hypotheses testing.
 24 Y. Chen and F. Q. Fu

TABLE 3 Standardized Estimates and Goodness-of-Fit Statistics (n ¼ 479)

Estimate Critical ratio Estimate Critical ratio

Relationships Hypothesized model Revised model

Tangible appearance on satisfaction 0.08 1.44 0.08 1.40

Tangible product on satisfaction 0.09 1.64 0.07 1.19
Reliability on satisfaction 0.39 (5.38) 0.41 (5.65)
Responsiveness on satisfaction 0.35 (6.99) 0.36 (6.87)
Empathy on satisfaction 0.11 (2.45) 0.08 (1.75)
Accessibility on satisfaction 0.11 (2.98) 0.10 (2.59)
Satisfaction on loyalty 0.71 (16.05) 0.45 (6.86)
Satisfaction on willingness to pay more 0.01 0.23
Loyalty on willingness to pay more 0.62 (9.66) 0.50 (10.46)
Tangible product on loyalty 0.18 (2.91)
Empathy on loyalty 0.18 (3.42)
Accessibility on loyalty 0.09 (2.10)
Empathy on willingness to pay more 0.26 (4.83)
Chi-square 574.88 522.42
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df 251 248
CFI 0.96 0.96
IFI 0.96 0.96
NFI 0.93 0.93
TLI 0.95 0.96
RMSEA 0.052 0.048
Note. CFI ¼ comparative fit index; IFI ¼ incremental fit index; NFI ¼ goodness of fit index; TLI ¼ Tucker
Lewis Index; RMSEA ¼ root mean square of approximation.

Significant at p < .10.  Significant at p < .05.  Significant at p < .01.

H1 posits that service quality has positive impact on customer satisfac-

tion. Specifically, the different dimensions of service quality have differential
effects on customer satisfaction. By arbitrarily setting the coefficients of the
six service quality dimensions on customer satisfaction to be equal, we
retested the revised structural model. The v2 statistic was 547.28, with 253
degrees of freedom. The incremental v2 statistic of 24.88 (p < .001; df ¼ 5)
was highly significant. These results supported H1. Specifically, as indicated
in Table 3, neither of the two tangible dimensions had significant effect on
customer satisfaction. In contrast, both reliability (b ¼ 0.41, p < .01) and
responsiveness (b ¼ 0.36, p < .01) had positive and significant effects on cus-
tomer satisfaction. Similarly, empathy and accessibility also had positive but
weaker effects on customer satisfaction than reliability and responsiveness.
Specifically, empathy had a marginally significant effect on customer satisfac-
tion (b ¼ 0.08, p < .10), whereas accessibility had a significant effect at 0.05
level (b ¼ 0.10, p < .05).
H2 states that customer satisfaction has positive impact on customer loy-
alty. This hypothesis was supported. As shown in Table 3, customer satisfac-
tion had a positive and significant impact on customer loyalty (b ¼ 0.45,
p < .01). Further, we found evidence that the effect of customer satisfaction
on customers’ willingness to pay more was mediated by customer loyalty,
 The Behavioral Consequences of Service Quality 25

a finding that supports H3. To test the mediating effect of customer loyalty,
we tested and compared the fit of two models (Jaiswal & Niraj, 2011). The
first model allowed a direct effect of customer satisfaction on willingness
to pay more (partially mediated model), whereas the second model did
not (fully mediated model). The partially mediated model yielded a v2
statistic of 520.26 with 247 degrees of freedom and the fully mediated model
yielded a v2 statistic of 522.42 with 248 degrees of freedom. Since the
incremental v2 of 1.96 (p > .05 with df ¼ 1) was insignificant, we chose the
more parsimonious fully mediated model and concluded that H3 was
supported. As shown in Table 3, customer satisfaction had no direct effect
on willingness to pay more. Instead, we found that customer loyalty had
a positive and significant effect on willingness to pay more (b ¼ 0.50, p < .01).
H4 states that effects of service quality on customer loyalty and
willingness to pay more are mediated by customer satisfaction. This
hypothesis was automatically rejected with the aforementioned process of
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choosing the revised model over the hypothesized model. As demonstrated

in Table 3, the hypothesized model was a fully mediated model, as none
of the service quality dimensions was allowed to have direct paths on
customer loyalty and willingness to pay more. In contrast, the revised
model allowed several paths to be estimated. To further test the differential
effects of the specific service quality dimensions on customer loyalty, we
conducted additional analyses by comparing two structural models. In
the first model, we allowed the coefficients of the six service quality
dimensions on customer loyalty to be freely estimated (v2 ¼ 520.00,
df ¼ 245), whereas, in the second, we arbitrarily set the paths to be equal
(v2 ¼ 531.58, df ¼ 250). Since the chi-square difference between the two
models was significant (Dv2 ¼ 11.58, Ddf ¼ 5, p < .05), we concluded that
all paths were not equal and found support for H3. Specifically, we found
that tangible product (b ¼ 0.18, p < .01), empathy (b ¼ 0.18, p < .01) and
accessibility (b ¼ 0.09, p < .05) all had positive and significant impact
on customer loyalty. In addition, empathy had a direct positive impact
on willingness to pay more (b ¼ 0.26, p < .01).

DISCUSSION AND MANAGERIAL IMPLICATIONS

Our study delineates the nomological relationships of service quality

with customer satisfaction and behavioral intentions in a Chinese retail
pharmacy context. The findings reveal a six-dimensional model of service
quality and suggest that the six dimensions have differential effects on
customer satisfaction and behavioral intentions. Further, we find a mediat-
ing role played by customer loyalty. Specifically, the effect of customer
satisfaction on customers’ willingness to pay more is completely mediated
by customers’ loyalty.
 26 Y. Chen and F. Q. Fu

This study supports the applicability of the dimension-specific service

quality model among Chinese consumers in the retail pharmacy industry.
The findings of a six-dimensional model echo the observation that dimen-
sionality of the service quality construct is context specific and the univer-
sality of the five-dimensional framework originating from the SERVQUAL
rarely prevails in different cultures. However, the six dimensions of service
quality in the Chinese retail pharmacy industry do not deviate significantly
from the five-dimensional framework. All of these represent theoretical
contributions to the literature.
Documenting the differential effects of service quality benefits store
owners and managers in their endeavor to identify optimal customer service
strategies. The fact that the relative importance of each dimension on
important customer consequences, such as loyalty and willingness to pay
a premium, differs suggests that managers should pay differential attention
to various aspects of service quality and allocate resources accordingly. For
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example, both reliability and responsiveness have strong and positive effects
on customer satisfaction, whereas the two tangible dimensions do not. This
highlights the importance of well-trained and professional store sales clerks.
Even though the Chinese retail pharmacy industry is highly competitive,
courteous and capable sales clerks who are able to provide prompt service
have significant impact on customer satisfaction.
In addition, both accessibility and empathy have positive impact on
customer satisfaction. The positive relationship between accessibility and
customer satisfaction is not surprising as location has always been an
important factor in the retailing industry. Similarly, it is understandable that
customers are satisfied with the extra services provided by the stores (i.e.,
empathy). From delivery services to shopping guides, these extra services
make customers’ purchasing experience more convenient and less stressful.
These, in turn, lead to a positive predisposition toward the stores and
enhance satisfaction.
In contrast, the store environment and products carried have very little
influence on customer satisfaction. This may reflect the fact that products in
the retail pharmacy industry have become commodities. When nearly all
retailing pharmacies offer almost identical products with similar assortments,
tangibles are hardly influential in forming customer satisfaction. They may
serve as hygiene factors in the sense that they do not create satisfaction,
but the absence of these factors may lead to dissatisfaction. In other words,
store owners and managers should invest in improving interior and exterior
environments up to a threshold at which customers find the tangibles to be
acceptable. Any additional investments beyond that threshold have no
impact on customer satisfaction.
In sum, this study provides specific guidance to store owners and man-
agers in their endeavor to compete in the Chinese retail pharmacy industry.
First and foremost, the managers should value the most important assets they
 The Behavioral Consequences of Service Quality 27

have (i.e., their employees). Reliability, responsiveness, and empathy are the
three dimensions of service quality that have significant and positive impact
on customer satisfaction. All three are related to store clerks’ knowledge,
skill, and attitude. Managers should pay particular attention to employees
who have personality and attributes that fit the job, and they should invest
in training, coaching, and motivating these employees to be professional
service providers. Second, stores should provide value-adding services such
as free delivery and keeping a purchase record for each customer. These
services are well appreciated by customers and in turn enhance customers’
loyalty and willingness to pay more. Last, both store location and products
offered are important, but their influence is limited.

LIMITATIONS AND FUTURE RESEARCH

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We caution readers that our study may be subject to several limitations. First,
the model was tested in a Chinese retail pharmacy setting, which represents
both a limitation and a strength. The unique cultural and economic factors
embedded in this industry enabled us to test the context-specific service
quality model. However, it also deterred us from fully applying the findings
to other settings. Second, although we surveyed the 479 customers from 174
different stores, all stores were located in one city. This may further limit the
external validity of our findings. Future studies should collect data from other
cities in China, especially from the Southern and Western parts of the nation,
to cross-examine and validate our findings.

NOTES

1. http://www.hyey.com/data/Dynamics/201001/173558.html.
2. http://wenku.baidu.com/view/0c83e71fff00bed5b9f31d58.html.
3. http://www.chinairn.com/news/20120223/958278.html.

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