Perceived Retailer Innovativeness

The Service Industries Journal
ISSN: 0264-2069 (Print) 1743-9507 (Online) Journal homepage: https://www.tandfonline.com/loi/fsij20
Perceived retailer innovativeness and brand

equity: mediation of consumer engagement
Nor Asiah Omar, Ahmad Sabri Kassim, Syed Shah Alam & Zuraidah Zainol
To cite this article: Nor Asiah Omar, Ahmad Sabri Kassim, Syed Shah Alam & Zuraidah Zainol
(2018): Perceived retailer innovativeness and brand equity: mediation of consumer engagement,
The Service Industries Journal, DOI: 10.1080/02642069.2018.1548614
To link to this article: https://doi.org/10.1080/02642069.2018.1548614
Published online: 26 Nov 2018.
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THE SERVICE INDUSTRIES JOURNAL
https://doi.org/10.1080/02642069.2018.1548614
Perceived retailer innovativeness and brand equity: mediation

of consumer engagement
感知零售商创新性与品牌资产：消费者参与的调节
Nor Asiah Omara, Ahmad Sabri Kassimb, Syed Shah Alamc and Zuraidah Zainold
a
School of Management, Faculty of Economics and Management, Universiti Kebangsaan Malaysia, Selangor,
Malaysia; bMajlis Amanah Rakyat, Kuala Lumpur, Malaysia; cGraduate School of Business, Universiti
Kebangsaan Malaysia, Selangor, Malaysia; dFaculty of Management and Economics, Universiti Pendidikan
Sultan Idris, Perak, Malaysia
ABSTRACT ARTICLE HISTORY

The relationship between customers and retailers is more complicated Received 30 March 2018
nowadays due to the sophisticated trends of the current service retail Accepted 5 November 2018
landscape and consumers’ high expectations. This study investigates
KEYWORDS
how perceived retailer innovativeness (PRI) influences consumer Perceived retailer
engagement (CE) and brand loyalty. Based on the wheel of retailing innovativeness; consumer
theory and signaling theory, we empirically analyzed these engagement; brand equity;
relationships based on 723 customers who patronize service SMEs
retailers. The empirical findings suggest that product innovativeness
has the strongest impact on CE, followed by service innovativeness 关键词
and experience innovativeness. However, only product and 感知零售商; 创新性消费
experience innovativeness influence brand equity. Further results 者参与; 品牌资产; 中小企
业
imply that CE not only contributes directly to the brand building, but
also significantly mediates the relationship between product
innovativeness–brand equity, service innovativeness-brand equity,
and experience innovativeness-brand equity. The research adds new
insights to the retail innovativeness literature and provides
managers with new ways to customize SME retail services.
摘要
由于当前服务零售格局的复杂趋势和消费者的高期望，顾客和零
售商之间的关系变得更加复杂。本研究调查了感知零售商创新性
如何影响消费者参与度和品牌忠诚度。基于零售轮转理论和信号
传递理论，我们以732位光顾服务零售商的顾客为基础，对这些
关系进行了实证分析。实证结果表明，产品创新对消费者参与度
的影响最大，其次是服务创新和体验创新。然而，只有产品和经
验创新才会影响品牌资产。进一步的结果表明，消费者参与度不
仅直接促进了品牌塑造，而且显著地调节了产品创新与品牌资
产、服务创新与品牌资产及体验创新与品牌资产之间的关系。本
研究对零售创新提出了新的看法，并为管理者定制中小企业零售
服务提供了新的途径。
Introduction
The small- and medium-sized enterprise (SME) sector is crucial to today’s economy. In
many countries, SMEs have played a major role in providing social stability through the
CONTACT Nor Asiah Omar norasiah@ukm.edu.my School of Management, Faculty of Economics and Manage-
ment, Universiti Kebangsaan Malaysia, Selangor, Malaysia
© 2018 Informa UK Limited, trading as Taylor & Francis Group
2 N. A. OMAR ET AL.
development of the middle class, provision of employment opportunities, and mainten-

ance of sustainable economic growth (Hyz, 2006; OECD, 2017). It is reported that more
than 95% of enterprises across the world are SMEs, which account for more than half of
all formal jobs in many countries (Ayyagari, Demirgüç-Kunt, & Maksimovic, 2011; World
Bank, 2016). Most developing countries that have historically concentrated on manufactur-
ing are now experiencing fast growth in the service sector (Castro, Montoro-Sanchez, &
Ortiz-De-Urbina-Criado, 2011; Vargo & Lusch, 2016). This intense growth and the continu-
ous development of large-format stores have intensified competition in this sector
(Ahmad, Abdul Rani, & Mohd Kassim, 2010). In Malaysia, the service, manufacturing, and
construction sectors were the key drivers increasing SME performance in the year 2015,
with a share of 86.4% of the total SME gross domestic product (GDP). As the result of
an expansion in domestic investments, service sector investments in particular increased
by 9.5% annually to RM125.3 billion in 2013 (Economic Planning Unit, 2015). The prime
movers of SMEs in the service sector have been wholesale and retail trade and the food
and beverage, accommodation, finance, insurance, and real estate subsectors (Depart-
ment of Statistics, 2016).
Empirical evidence (e.g. Bessant & Tidd, 2007) shows that to build and sustain a com-
petitive advantage in the marketplace, a company should implement creative ideas and
place value on innovation. Several researchers have identified innovativeness as one of
the most important factors in developing a competitive advantage, as well as a niche strat-
egy (Anselmsson & Johansson, 2009; Lin, Marshall, & Dawson, 2013). Interest in innovation
studies has rapidly increased in several industries other than manufacturing (Anić, Mihić, &
Kursan Milaković, 2018; Castro et al., 2011; Nardelli, 2017). SMEs, which are known for
having a less hierarchical structure than large enterprises and positive interfirm collabor-
ations and partnerships, have a higher propensity for innovation (Quinn, McKitterick,
McAdam, & Brennan, 2013). SMEs also help to create value by adapting to different situ-
ations by making incremental changes in products or services in response to diverse cus-
tomer needs (OECD, 2017). As part of this view, some scholars have noted that market
power, firm size, and competition can discourage or nurture innovation (Rubalcaba,
2011). For instance, some service subsectors in Europe such as business and finance
were found to have a stronger inclination towards innovation. In contrast, firms involved
in services such as transportation and traditional communications were less likely to focus
on innovation (Rubalcaba, 2011). The emergence of social media also has brought about
major changes in customer relationship management initiatives and the ways in which
retailers interact with their customers (Diffley & McCole, 2015). A study of Malaysia’s
SME retail businesses (Norazlan, Noranita, Mohd Faisal, Ju, & Arfizawati, 2011) found
that problems faced by these outlets in introducing new methods of service delivery
include inadequate knowledge about and skill in performing retail procedures, difficulty
in finding competent employees for stores, and lack of skill in managing marketing activi-
ties, among others (Hamid, Baharun, & Hashim, 2006). All of the above-mentioned pro-
blems could contribute to poor service delivery and, consequently, could affect the
brand equity of the SME retail outlets (Lichtenstein, Drumwright, & Braig, 2004). For this
reason, this study focuses on SME retailers’ innovativeness in the context of service.
The terms innovation and innovativeness are often used interchangeably because both
describe approaches that can benefit SME retailers. Kunz and Hogreve (2011) used inno-
vativeness to refer to a firm’s capability to offer new products and services as well as other
THE SERVICE INDUSTRIES JOURNAL 3
kinds of promotions. This concept is hereafter referred to as perceived retailer innovative-

ness (PRI) in this study. Past studies have identified retailers as being co-innovators with
customers in supply chains that influence the retailers’ performance and brands (Hollan-
der, 1960). To ensure that SMEs’ retail innovations will be competitive in the long run, a
consumer-centric approach focusing on consumers’ perceptions of retailer innovativeness
is vital; previous studies have been largely restricted to the manufacturing sector (Kunz,
Schmitt, & Meyer, 2011).
PRI has become an important subject in numerous studies, as more retailers have been
progressively investing in service innovations to create an attractive environment, value-
added offerings, and new private brand products (Hristov & Reynolds, 2015; Lin, 2015;
Yang, Tu, & Yang, 2009). Although several studies have discussed PRI in the retail sector
(Lin, 2016) and have investigated the effects of innovativeness on loyalty (Lin, 2015;
Pappu & Quester, 2016), unplanned purchases (Anić et al., 2018), sustainable growth, com-
petitive advantage (Gawel, 2012), and satisfaction (Dai, Luo, Liao, & Cao, 2015), empirical
evidence is still insufficient to fully understand PRI in the context of the service sector.
Other extant studies of innovativeness have primarily investigated the high-technology
and manufacturing industries rather than the service industries (Kim, Tang, & Bosselman,
2018). Den Hertog (2010), in his study, indicated that a comprehensive model for service
innovation or a general model that can be applied to the services sector has yet to emerge.
Given that most SMEs are part of the service sector, research on PRI in this sector is there-
fore essential.
The general relationship between innovativeness and branding has been previously
studied (Anselmsson & Johansson, 2009; Abecassis-Moedas & Benghozi, 2012). Most of
those studies have used a unidimensional approach or second-order approach (Lin,
2016; Saura, Molina, & Contrí, 2014), or they have focused on one particular type of inno-
vativeness (i.e. service and product) (Truong, Klink, Simmons, Grinstein, & Palmer, 2017);
however, they have overlooked the empirical evidence of retailer innovativeness in
different categories (e.g. services, products, experiences, and promotions) and its
impact on the brand equity of SMEs. Whereas Lin (2015, 2016) measured the perceptions
of retailer innovativeness using four dimensions, namely, perceived product, service,
promotion, and experience-related innovations, the author has regarded PRI as a
second-order factor.
Innovativeness is crucial for brand-equity development among retailers and is a stra-
tegic tool for differentiation (Lin, 2015). Despite the views of White, Joseph-Mathews,
and Voorhees (2013) and Kwon and Lennon (2009), most brand-equity research has
focused on physical goods. But retail branding is recognized as being different than
product branding (White et al., 2013). This suggests the need for research on innovative-
ness in retail settings, adding weight to the study by Flores and Vasquez-Parraga (2015).
Grissemann and Stokburger-Sauer (2012), on the other hand, called for research in the
context of the service sector. We are answering that call with this study.
Recently, Zhang, Lu, Torres, and Chen (2018) and Bowden, Conduit, Hollebeek,
Luoma-aho, and Solem (2017) called for further research in value derived from service
innovation. Hollebeek and Andreassen (2018), who explored the theoretical foundations
of service innovation and consumer engagement through a “hamburger” model of
service innovation, suggested that perceive value from service innovations, will lead
to interactions and engagement with the service (Tuzovic, Wirtz, & Heracleous, 2018).
4 N. A. OMAR ET AL.
For example, Starbucks emphasizes on creating unique experience and making the cus-
tomers feel welcome in order to engage with the customers (Berry, Wall, & Carbone,
2006). Scholars have proposed that consumer engagement, referred to as consumer
engagement (CE) in this study, may constitute a new perspective for building a better
customer relationship in the marketing domain (Brodie, Hollebeek, Jurić, & Ilić, 2011;
Hapsari, Clemes, & Dean, 2015; Vivek, 2009). Once a service innovation has been success-
fully introduced, customers will interact with the service and will trigger CE (Hollebeek,
Srivastava, & Chen, 2016), thereby creating brand equity (Brodie et al., 2011; Hapsari
et al., 2015). Codesigning is another method that has been argued to improve CE with
a product when it is launched (Füller, 2010).
Highly engaged customers tend to take an active role in product or service trials and
develop favorable attitudes towards a product, company, or brand (Moliner, Monferrer,
& Estrada, 2018; Vivek, Beatty, & Morgan, 2012). In line with past studies, this study basically
agrees that engagement involves the relationship between an actor or subject of engage-
ment, normally the individual customer (Bowden, 2009) or consumer (Brodie et al., 2011).
Based on a psychology perspective, this study conceptualizes CE as a second-order model
defining CE as consumers’ positive, fulfilling, service-use-related state of mind that is
reflected by first-order dimensions of vigor, dedication, and absorption (Schaufeli, Sala-
nova, González-Romá, & Bakker, 2002; Dwivedi, 2015).
Several researchers, such as Brodie, Whittome, and Brush (2009) and Prahalad and
Ramaswamy (2004), have explained that CE should be considered an important construct
in mediating brand loyalty and that it may affect the brand equity of a company. In
another study, Hapsari et al. (2015) stated that CE has mediated the relationship
between customers’ perceived value of airline services and an airline brand. Recently, Har-
rigan, Evers, Miles, and Daly (2017) empirically demonstrated that the relationship
between customer involvement and brand loyalty is mediated by CE. Similarly,
Sembada (2018) called for more research on how codesigning encourages CE and
further suggested that it is advantageous for managers to empower consumers through
codesigning activities to elicit a positive attitude towards an offering.
Following Lin’s (2015) study and suggestions, the current research will test the direct
and indirect effects of PRI using first-order factors. Thus, this study contributes empirical
evidence by examining the effect of PRI and CE on brand equity. Using SMEs in the
service context and the diffusion of innovations theory, wheel of retailing theory, and sig-
naling theory of brand equity, this study aims to investigate the perceived retailer innova-
tiveness–consumer engagement – brand equity (PRI-CE-BE) relationship. Because the
consumer’s perception of retailer innovativeness regarding a retail service is a dynamic
one that occurs between the retailer and the consumer, the study will also investigate
how CE mediates the relationship between the PRI and the brand equity.
Literature review
Perceived retailer innovativeness (PRI)
Retail innovation, among SMEs, is relatively new and fragmented; this adds to the difficulty
in defining retail innovativeness, as compared to other innovation studies. Innovation is of
pivotal importance in the retail context, however, in practice, the retail context is no less
innovative than any other sector. Several scholars have studied various innovation prac-
tices in the retail industry, such as retail characteristics (Reynolds, Howard, Cuthbertson,
& Hristov, 2007), retail innovation output, and retail technologies (Medina & Rufín, 2009).
Retailer innovativeness refers to a retailer’s ability to introduce new products (Reinartz,
Dellaert, Krafft, Kumar, & Varadarajan, 2011) and private brand products (e.g. Anselmsson &
Johansson, 2009). Goldsmith and Hofacker (1991) defined consumer innovativeness as a
predisposition to buy new products in a specific category. Based on diffusion of innovation
theory, individuals react differently to new products or services (Goldsmith & Foxall, 2003).
Besides introducing new products, there is a range of definitions for innovation. For
example, Tajeddini, Altinay, and Ratten (2017) suggested innovativeness in the service
industry consists of multiple activities, including supportive leadership, improved services
and safety, new technologies, new strategy development, communication technologies
interaction, and a new friendly environment. This definition covers all aspects of inno-
vation in service management, which is beneficial to retailers who wish to compete effec-
tively with other service providers. Hirschman (1980, p. 285) conceptualized
innovativeness in terms of novelty-seeking and defined it as “the desire to seek out the
new and different.” PRI is conceptualized as emotions, cognitions, and behavior responses
induced by store-related stimuli that are part of a store’s offerings, services, design, and
activities (Lin, 2015). It consists of four dimensions: product-related, service-related, pro-
motion-related, and experience-related innovation capabilities (Lin, 2015). Although Lin
(2015, 2016) developed a multidimensional scale for measuring perception of retail inno-
vativeness, this researcher treated PRI as a second-order factor. This research suggests that
innovativeness is highly related to a retailer’s service offering strategy and to a consumer’s
perception of a retailer’s capability to provide new products, services, experiences, and
promotions to satisfy customers (Abril & Martos-Partal, 2013; Lin, 2015). These four attri-
butes are the primary predictors of a retailer’s degree of innovativeness (Lin, 2015).
Perceived product-related innovativeness (PROD) refers to a consumer’s perception of
retailers’ ability to offer new products or services and novel brands (Lin, 2016). Perceived
service-related innovativeness (SERV) refers to a consumer’s perceptions regarding retai-
lers’ capability to offer new selling methods, new service delivery process, and creative
business value systems (Zolfagharian & Paswan, 2009). Perceived experience-related inno-
vativeness (EXP) refers to consumer’s perceptions related to new experiences in the crea-
tive surrounding environment (Lin, 2015). Perceived promotion-related innovative (PRM)
capability refers to a consumer’s perception regarding retailers’ ability to offer a new pro-
motion mix (Slotegraaf & Pauwels, 2008). Hollander (1960) concluded that retailers are co-
innovators with customers in the supply chain, and innovations practices influence retai-
lers’ performance and brands. For this reason, Hristov and Reynolds (2015) more recently
added that retailer innovativeness has been discussed widely in many studies to further
develop retailers’ competitiveness. Therefore, this issue should be emphasized in the
SME context so that SMEs may differentiate themselves from and be competitive with
giant retailers.
Effects of PRI on CE
Innovation and innovativeness both play important roles in allowing firms to be competi-
tive in the retail industry (Kunz et al., 2011). Several notable studies (e.g. Levy, Grewal,
6 N. A. OMAR ET AL.
Peterson, & Connolly, 2005; Sorescu, Frambach, Singh, Rangaswamy, & Bridges, 2011) have
examined modern retailing from an institutional change perspective by exploring drivers
and patterns of retail model innovation (Hollander, 1960). Dotzel, Shankar, and Berry
(2013), however, postulated that innovativeness is more related to service-offering strat-
egy and the capability of retailers to introduce new products. Several scholars have
stated that innovation requires a significant change to work practices, capabilities, and
R&D to allow firms to access new prospects and their competitors’ customers (Fuglsang,
Sundbo, & Sørensen, 2011). Innovation embedded in business practices also plays the stra-
tegic role of a value co-creation process in the business value chain (Grayson, 2011).
Hristov and Reynolds (2015) suggested that innovation in the retail industry is active
and complex because it involves an innovation in co-creating services rather than adop-
tion, which requires retailers’ capabilities to practice co-creation as intermediaries in a
value chain. Innovative pricing strategies such as discounted and competitive prices
attract customers’ attention in exhibition settings, thus leading to consumers’ engage-
ment in their present retail experiences (Rittichainuwat & Mair, 2012). Hence, consumer
PRI can also help predict how a consumer engages with a retailer. Further, Liao and
Rice (2010) found that innovation is related to engagement and performance. Studies
on social media engagement suggest that personal innovativeness is also related to
engagement (Haridakis & Hanson, 2009; Guo & Chan-Olmsted, 2015). Based on the
extant literature, it is therefore reasonable to assume that PRI predicts emotional and
behavioral attachment of the consumer via CE. Hence, this study proposes the following
hypotheses:
H1a: Perceived retailer product innovativeness is positively related to consumer engagement.
H1b: Perceived retailer service innovativeness is positively related to consumer engagement.
H1c: Perceived retailer experience innovativeness is positively related to consumer engagement.
H1d: Perceived retailer promotion innovativeness is positively related to consumer engagement.
Effects of PRI on brand equity

Retailers’ innovativeness is perceived as one of the most important capabilities to develop
competitive advantage and provide a niche strategy (Anselmsson & Johansson, 2009).
Recently, numerous calls have been made to focus more on mechanisms for brand
equity appraisal and association since they remain an unexplored and still debatable
area for SMEs (Mitchell, Hutchinson, Quinn, & Gilmore, 2015). For good-centric products,
the major brand and communication strategies are based on the primary brand (Brodie
et al., 2009). However, in terms of service offering, the company becomes the primary
brand or is termed the “service brand” (Brodie et al., 2009). Hence, customers’ encounters
with a company will create an experience that plays pivotal role in building brand equity
and forming brand meaning of the company to the consumer. Two well-established
models of brand equity are based on Aaker’s (1991) and Keller’s (1993) customer-based
brand equity. Aaker (1991) defined brand equity as the “set of brand assets and liabilities
linked to a brand, its name, and symbol, that add to or subtract from the value provided by
product or service to a firm and/to that firm’s customers” (p. 15). Keller (1993), on the other
hand, presented a conceptual model of brand equity from a customer-based perspective,
which he defines as “differential effect of brand knowledge has on consumer response to

the marketing of that brand.” In the retail industry, the name of the brand is equivalent to
the name of the store. Scholars have even suggested the measurement used to measure
brand equity can be extended to measure store equity (Yoo & Donthu, 2001). Similar to
brand equity conception, the equity that consumers associate with a store can be referred
to as the consumer-based store equity (Pappu & Quester, 2008). Various terms have been
used to label brand equity for stores in previous literature, including retailer equity (Pappu
& Quester, 2008), retail/retailer brand equity (Pappu & Quester, 2008), and brand equity
(Dwivedi, Merrilees, Miller, & Herington, 2012). For ease of exposition, this study chooses
to use the term brand equity in place of the brand equity of the SME.
Several studies in retail innovation have also found that innovation impacts retailers’
strategic orientations, including branding practices (Reynolds et al., 2007; Medina &
Rufín, 2009). For instance, Wang (2012) found that innovation influences a retailer’s com-
petitive advantage, while studies by Jones and Runyan (2013) demonstrated that the
strength of the consumers’ innovative experience with a brand influences brand identifi-
cation and the company’s brand equity. For hotel services in the tourism industry, innova-
tiveness in the online brand experience influences brand satisfaction (Lee & Jeong, 2014),
while positive tourism innovation affects a firm’s image, profitability, and customer satis-
faction (Jacob, Tintoré, Aguiló, Bravo, & Mulet, 2003). Based on the assumption that retai-
lers’ capacity to innovate depends on their capability to offer new private brand products,
Anselmsson and Johansson (2009) clarified that innovation influences retailers’ brands in
the broader consumer-goods sector. Lin et al. (2013) found that retail innovations help
enhance customers’ perceived value towards a retail brand and improve loyalty. In
addition, a study by Pappu and Quester (2016) also found that brand innovativeness
has a significant impact towards brand loyalty, which will create a strong brand equity
for that product or service. The findings are in line with Spence and Hamzaoui Essoussi
(2010) in their study of SME brand performance, which indicated that incremental inno-
vations support SMEs’ brand equity. It can thus be assumed that a consumer’s perception
of a retailer’s capability to innovate products, services, experiences, and promotions will
influence that retailer’s brand equity. Consequently, this study examines the direct
effect of PRI to brand equity, and speculates the following hypotheses:
H2a: Perceived retailer product innovativeness is positively related to brand equity of retailer.
H2b: Perceived retailer service innovativeness is positively related to brand equity of retailer.
H2c: Perceived retailer experience innovativeness is positively related to brand equity of retailer.
H2d: Perceived retailer promotion innovativeness is positively related to brand equity of retailer.
Effects of CE on brand equity

Numerous studies in the marketing domain have proposed that consumer engagement is
a new perspective for building a better customer relationship (Brodie et al., 2011; Hapsari
et al., 2015; Van Tonder & Petzer, 2018; Vivek, 2009). The concept of engagement is pre-
sently evolving amongst practitioners and academicians. Despite the increasing use of
the term “engagement,” however, several scholars have endeavored to define the term
or examine how the term differs/is similar to related terms, such as co-creation,
8 N. A. OMAR ET AL.
participation, and involvement (Brodie, Ilic, Juric, & Hollebeek, 2013; Jaakkola & Alexander,
2014). Brodie et al. (2013) indicated customer interactive activities with others, as illus-
trated in S-D logic, as being CE. Many researchers are in consensus that CE involves the
connection and relationship between the customer and the product or services, but
due to the differences in perspective and research emphases, the measurement and the
dimensions used differ among scholars (refer to Table 1). Several researchers have
defined CE in the academic marketing literature to develop a working definition of CE
in virtual and retail environments (Brodie et al., 2013; Dessart, Veloutsou, & Morgan-
Thomas, 2016; Dwivedi, 2015). Patterson, Yu, and de Ruyter (2006), for instance, defined
CE as “the level of a customer’s physical, cognitive and emotional presence in their
relationship with a service organization.” Meanwhile, Vivek, Beatty, Dalela, and Morgan
(2014) defined CE as “the intensity of an individual’s participation and connection with
the organization’s offerings and activities initiated by either the customer or the organiz-
ation.” Within the broadened relationship marketing domain, Vivek (2009) and Dessart
et al. (2016) suggested that firms’ focus is on existing and prospective customers, as
Table 1. Consumer engagement constructs and definitions.

Sources Definitions Measurement
Dessart et al. Consumer The state that reflects consumers’ Cognitive, affective, behavioral
(2016) engagement individual dispositions toward
engagement foci, which are context-
specific
Dwivedi (2015) Consumer brand Consumers’ positive, fulfilling, brand-use- Vigor, dedication, absorption
engagement related state of mind that is characterized
by vigor, dedication and absorption.
Jaakkola and Customer Customers voluntary resource contributions Augmenting behavior, co-
Alexander engagement that have a brand or firm focus but go deveploping, influencing
(2014) behaviour beyond what is fundamental to behavior, mobilizing behavior
transactions, occur in interactions (conceptual)
between the focal object and/or other
actors, and result from motivational
drivers
Brodie et al. Consumer A virtual brand community involves specific Cognitive, behavioral, and
(2013) engagemenr interactive experiences between emotional
consumers and the brand, and/or other
members of the community.
Patterson et al. Consumer The level of a customer’s physical, cognitive Absorption, dedication, interaction,
(2006) engagement and emotional presence in their vigor
relationship with a service organisation
Vivek et al. Customer The intensity of an individual’s participation Cognitive, emotional, behavior,
(2014) engagement and connection with the organisation’s and social
offerings and activities initiated by either
the customer or the organisation, which
is manifested cognitively, affectively,
behaviorally, or socially.
Hollebeek Consumer brand The level of an individual customer’s Cognitive, emotional, and
(2014) engagement motivational, brand-related and context- behavioral
dependent state of mind characterised by
specific levels of cognitive, emotional and
behavioral activity in direct brand
interactions
Brodie et al. Consumer A psychological state that occurs by virtue Cognitive, emotional, and
(2011) engagment of interactive, cocreative customer behavioral
experiences with a focal agent/object
(e.g. a brand) in focal service
relationships.
well as consumer communities and their organizational value co-creative networks. This is
in line with the concept of CE as suggested by Vivek (2009), that CE is not merely confined
to firms’ offerings because consumers may engage with firms’ activities, brands, or insti-
tutions. As such, Vivek (2009) proposed several constructs, including enthusiasm, con-
scious participation, and social interaction, to define CE.
Vargo and Lusch (2008), in their proposition of S-D logic, stated that “the customer is
always co-creator of value,” which implies that all value creation is interactional and is
achieved through “active, explicit and ongoing dialogue and interactions” (Hollebeek,
2011, p. 556). The CE concept is centered on specific interactive consumer experiences
as suggested by Lusch and Vargo (2010), where interactive consumer experiences are
co-created with other actors that can be interpreted as the act of “engaging.” Jaakkola
and Alexander (2014) also conceptualized the role of CE behavior (CEB) in the value co-cre-
ation perspective as the customer provision of resources during non-transactional, joint
value processes that occur in interactions with the focal firm and/or other stakeholders,
based on the four CEBs identified – augmenting, co-developing, influencing, and
mobilizing.
In recent studies, CE has been considered as a leading variable in service relationships
derived from the concepts of interactive, experiential, and co-creative properties (Moliner
et al., 2018). Nammir, Marane, and Ali (2012), on the other hand, defined CE as a higher
order construct compared to customer participation and customer involvement,
because it not only deals with the physical presence but also psychological presence.
Van Doorn et al. (2010) depicted CE in terms of a behavioral perspective, defining the
term as a customer’s behavioral manifestations towards products and services that go
beyond purchase, arising from motivation drivers. The examples of behavior related to
CE are blogging, word of mouth (WOM), customer ratings, recommendations, and partici-
pation in brand communities (Van Doorn et al., 2010).
Based on the psychology perspective, this study conceptualizes CE as a second-order
model defined as consumers’ positive, fulfilling, service-use related state of mind that is
reflected by first-order dimensions of vigor, dedication, and absorption (Schaufeli et al.,
2002; Dwivedi, 2015), which relate to behavioral, emotional, and cognitive aspects
(Brodie et al., 2011; Hollebeek, 2011; Yoo & Arnold, 2014). Vigor refers to the high level
of energy and mental resilience when interacting with a service, and the willingness
and the ability to invest effort in such interactions (Schaufeli et al., 2002; Dwivedi, 2015).
Dedication indicates the sense of significance, enthusiasm, inspiration, pride, and chal-
lenge (Schaufeli et al., 2002; Dwivedi, 2015). Absorption denotes the sense of being fully
concentrated and happily engrossed in service interactions and in which time passes
quickly (Schaufeli et al., 2002; Dwivedi, 2015). In the service context, highly engaged cus-
tomers can be an important source of knowledge and actively involved customers can
give ideas ranging from idea development of new products/services to modifying existing
brands and taking an active role in products/services trials (Moliner et al., 2018). For
instance, in SMEs’ service context, CE incorporates the interactive (dyadic) element
whereby the consumers may willingly invest efforts to maintain a degree of interaction
with the service firm (i.e. vigor), are pleasantly occupied in the interaction (i.e. absorption),
and feel enthusiastic and inspired in doing so (dedication). By considering cognitive,
emotional, and behavioral perspectives, the present study adopts CE as an existing user
perspective to the service firm (Dwivedi, 2015).
10 N. A. OMAR ET AL.
A number of researchers have considered the consequences of CE, such as trust, loyalty,
and brand equity (Hollebeek, 2011; Vivek et al., 2012). It is clear that an engaged individual
may develop more favorable attitudes toward a product, company, or brand with which
they associate or engage, and consequently, may perceive more loyal to the entity
(Hapsari et al., 2015; Vivek et al., 2012). Brodie et al. (2011) suggested that, among other
advantages, CE may result in an improvement to the organization’s brand equity, custo-
mer retention, customer value, and new product development. A recent study by
Hapsari et al. (2015) found that whenever consumers engage with a brand, they are
more likely to recommend the brand to other people, which in return creates value for
both consumers and retailers. In a similar vein, Spence and Hamzaoui Essoussi (2010) pro-
posed that the process of brand equity creation, development, and enhancement in SMEs
is built upon relationships and engagement with buyers. Meanwhile, Vivek et al. (2012)
and France, Merrilees, and Miller (2015) clarified that CE is positively associated with an
individual’s loyalty to the brand, organization, or offering. Hence, this research proposes
that:
H3: Consumer engagement is positively related to brand equity of the retailer.
CE as a mediator
In an empirical study, Jaakkola and Alexander (2014) proposed four types of CE behavior
that mediate the relationship of innovativeness and stakeholders’ interest, including firms.
The first type is augmenting behavior, which is defined as customer contributions of
operant resources such as skills, time, and knowledge to make new offerings to fit their
needs. Second is co-developing behavior, which is the contribution of resources to facili-
tate a firm’s development of its offerings. Third is influencing behavior, which is the con-
tributions of resources that can affect an actor’s perceptions, preferences, or knowledge
regarding the firm’s brand. Lastly is mobilizing behavior, which is the ability to mobilize
other stakeholders’ contribution actions toward the firm (Jaakkola & Alexander, 2014).
These types of behavior clearly indicate how CEB could mediate and improve a firm’s inno-
vation and new offerings, which consequently could improve the brand’s image.
Jaakkola and Alexander (2014) further added that the expansion of customer roles and
the growing importance of customer communities suggest that firms might not be able to
create products, services, or brands alone, but they could achieve this through CEB. Simi-
larly, scholars (Brodie et al., 2013; Prahalad & Ramaswamy, 2004) have also suggested that
CE should be considered as an important construct in boosting loyalty, because the more
knowledgeable customers there are in interactions between customers and firms, the
easier it is for both parties to create value. In addition, a study by Hapsari et al. (2015)
found that CE mediates the relationship between perceived value and brand loyalty
among airlines passengers. In more recent work by Harrigan et al. (2017), it was empirically
proven that CE plays an important mediating role in the relationship of customer involve-
ment and brand loyalty.
The wheel of retailing theory and signaling theory of brand equity are related to retai-
lers’ tendencies to innovate new offerings, create new service environments, and signal to
their consumers to co-create with them in a more positive manner. The wheel of retailing
theory may explain retailers’ motivation to introduce new products and services, as well as
innovate a new environment for their retail outlets (Goldman, 1975). The signaling theory
is for service providers to convey positive signals to their customers to make them respond
and engage to the firm (Farquhar, 1989). As emphasized by Zhang, Jiang, Shabbir, and Du
(2015), joint value creation with customers “is a critical mediator enabling the conversion
of firm’s capabilities into a superior outcome in terms of customer value and brand equity.”
Empirically, the study proposes that customer value improvement is mediated by the
value co-creation process between value-focused capability and company branding, inno-
vation does not directly affect brand performance, and that companies may sustain
superior innovation capacity by using value co-creation processes to improve customer
value and brand equity. Consumer-PRI has the natural disposition to express positive
emotions and suppress negative ones in service encounters (Babakus, Yavas, & Ashill,
2009). Consequently, this relationship requires further investigation, and as such, this
study includes CE as a potential mediator in the relationship of PRI and brand equity.
Thus, this research proposes that:
H4a-H4d: Consumer engagement mediates the effect of perceived retailer innovativeness
(product, service, experience, and promotion) on brand equity of the retailer.
Methodology
Sampling design and procedures
The research setting of this study is SMEs involved in services. The target population is cus-
tomers who patronize retailers involved in services and operated at selected business
complexes in six different locations. All six business complexes are located in four major
cities in Peninsular Malaysia, including the Central area (Kuala Lumpur and Shah Alam),
Southern area (Johor Bahru), Northern area (Kangar), and East Coast area (Kota Bharu).
The study chose Selangor because it is the most populous state in the country, with a
population of 5.46 million people, while Kuala Lumpur is the most densely populous,
with a density of 6,891 people per kilometer (Department of Statistics, 2012). Johor
Bahru, Kangar, and Kota Bharu are major cities in the northern, east coast, and southern
areas, and they are regarded as major cross-boarding trade cities with Singapore in the
southern area and Thailand in the northern area (Tam, 2013; Anon, 2016). All items
were derived and adapted directly from their original scales; therefore, they came in
their original language, which is English. As the respondents in this research were Malay-
sian, the items were translated into Bahasa Melayu using a backward and forward (back-to-
back) translation approach (Hayashi, Suzuki, & Sasaki, 1992). The researcher made a first-
stage translation to clarify the context of the conversations and to determine that their
reliability and validity was sufficiently high before passing them to proofreaders for
review. To improve the questionnaires, which include the duration of time taken to com-
plete answering, items appropriateness for the study, the wording, and level of difficulty,
as well as to detect any problems encountered by respondents while answering the ques-
tionnaires, a two-stage pre-test was conducted with a group of experts and customers. For
the first stage, three experts were appointed to improve the content validity of the ques-
tionnaire (Malhotra & Peterson, 2006). The second stage pre-test was conducted in the
Medan MARA business complex (one of the six business complexes involved in this
study) with 20 customers selected from a convenient sampling approach. Several
modifications were made, such as improving the instruction on the cover letter and sec-
tions, changing the terms used in instruction for every section, and rearranging the ques-
tion sequence to avoid mono-respondent bias.
This study used purposive sampling because the research objects conform to certain
criteria that fit into the research purpose (Bernard, 2002), and it is a common approach
in consumer studies, particularly in the retail industry, where sampling conforms to
certain criteria (Cooper & Schindler, 2014). The data were collected using self-administered
questionnaires distributed via the drop-and-collect technique. To reduce bias, the
researcher traveled and hand-delivered the questionnaires to all the six business com-
plexes that are located in four major cities in Peninsular Malaysia, including (1) Medan
MARA Kuala Lumpur, (2) Busana@Menara MARA Kuala Lumpur, (3) Anggerik Mall Shah
Alam, (4) Plaza Larkin Johor Bahru, (5) Kayangan Square Kangar, and (6) MARA Complex
Kota Bharu, which represent the Central area (Kuala Lumpur and Shah Alam), Southern
area (Johor Bahru), Northern area (Kangar), and East Coast Area (Kota Bharu) of Malaysia.
The sample was approached in the business premises. The drop-and-collect technique
involved researchers and/or trained field assistants delivering the questionnaires directly
to the owners or managers of the business to be distributed to the customers and later
collecting the completed questionnaires (Ibeh, Brock, & Zhou, 2004). To increase the
number of responses, the researchers called the person-in-charge (owner or managers
of the business) one week after the initial distribution. The questionnaires were to be col-
lected after two weeks. Of the 1,000 questionnaires that were distributed, 723 completed
questionnaires were received, representing a response rate of 72.3%.
Measures
A survey was designed based on the measures adapted from previous studies, making
only minor changes in the wording to suit the target context. The measurement
content was validated with the help of academic and industry experts. PRI was operatio-
nalized with four dimensions, consisting of perceived product-related, service-related, pro-
motion-related, and experience-related innovation capabilities (Lin, 2015). The items for CE
were adapted from the research by Dwivedi (2015) as a reflective first-order and reflective
second-order model (Type 1) (Hair, Sarstedt, Ringle, & Gudergan, 2017). CE is considered a
second-order reflective construct whose items are reflective first-order constructs. These
items are vigor, dedication, and absorption. The antecedents of CE are first-order reflective
constructs. Brand equity was measured using the scale proposed by Gil-Saura, Ruiz-Molina,
Michel, and Corraliza-Zapata (2013) as a unidimensional construct that involves four reflec-
tive indicators. All items were measured on a five-point Likert scale ranging from 1
“strongly disagree” to 5 “strongly agree.”
The research model was analyzed using Partial Least Squares-Structural Equation Mod-
eling (PLS-SEM) using SmartPLS 3.0 software. We opted for using PLS-SEM as a tool that is
useful for developing and extending existing theory in marketing research (Elkaseh, Wong,
& Fung, 2016; Hair et al., 2017). According to Henseler, Hubona, and Ray (2016), PLS-SEM
has also been deployed in many fields such as marketing, behavioral science, organization,
strategic management, and management information systems. PLS path modeling is pre-
ferred over covariance-based SEM (CBSEM), because the software works well with a
complex model to capture many factors that are particularly related to attitudes, opinions,
and behaviors (Chin, 2010) and has strong features for testing mediating effects (Hair et al.,
2017; Sarstedt, Ringle, & Hair, 2017).
Common method bias

As the data of this study were self-reported and collected from a single source (customers
of SMEs) via self-reported questionnaires, several tests were used to assess the threat of
substantial common method bias (CMB). Both procedural and statistical remedies were
used to reduce method bias (Podsakoff, MacKenzie, Lee, & Podsakoff, 2003). First, all the
scale items were carefully checked for double-barreled items, unfamiliar terms, and
vague concepts. The cover letter of the questionnaire also guaranteed respondents’ anon-
ymity (Tsai & Yang, 2014).
Second, psychological separation in the instrument was included with an introduction
mentioning that said the study was examining consumer behavior, and not suggesting
any link between the predictor and dependent variables (Das & Joshi, 2007). Third, the
questionnaire was organized so that the questions representing the independent and
dependent variables were interspersed (Podsakoff et al., 2003). Fourth, at various sections
in the questionnaire, respondents were reminded that there were no “right or wrong”
answers, thus reducing the chance of obtaining socially desirable responses (Podsakoff
& Organ, 1986). Moreover, the questionnaire was also pre-tested to avoid problems
with ambiguous or complex items that may cause method biases (Podsakoff et al.,
2003). To deal with the resulting issues of artificial covariance, statistical remedy was
used. Having met most of the procedural remedies, Harmon’s one-factor test was used
(Podsakoff et al., 2003). With a result of 34.5%, the first factor did not account for a substan-
tial amount of common method variance (Podsakoff & Organ, 1986).
Data analysis and results

The majority of the 723 samples were female (52.1%). The major age group was 30–39
years old, which is 34.3% of total respondents. The majority of the respondents were
Malay, which accounted for almost 72.3%. Respondents who were married with children
numbered 359, which is 49.7% of total respondents. Twenty-five percent of respondents
had a monthly income bracket between USD $510 to USD $1,020. The results also show
that almost half of the respondents (316) choose SME retailers in food and beverages,
which is 43.7%, while 132 respondents choose ICT and mobile retailers. In terms of custo-
mer-service-provider-relationship duration, 30.6% have been customers of these SMEs for
one to two years.
Measurement model assessment

The measurement model was tested before we assessed the structural model in order to
evaluate the validity and the reliability of the measurements (Venkatesh, Thong, & Xu,
2012). In the measurement model, we tested the Cronbach’s alpha, factor loadings, com-
posite reliability (CR), and average variance extracted (AVE) for all the constructs and the
indicators. First, the Cronbach alpha for all the variables were evaluated, and all were
above the threshold value of 0.7, indicating acceptable reliability (Hair et al., 2017).
Second, we delved into the loadings and cross-loadings values to track any problematic
items Table 2.
We set a cut-off value for loadings to be significant at 0.6 (Chen & Myagmarsuren, 2010).
Any items that had a loading value higher than 0.6 on two or more factors would be
deemed to have significant cross loadings. After the screening process, three items
were deleted. The third step was to test the measurement model by evaluating the con-
vergent and discriminant validity of the scales (Hair et al., 2017). Convergent validity is
achieved if the AVE values for each factor are greater than 0.50, and the CR of all the con-
structs exceeds 0.70 (Hair et al., 2017). The CR, which estimates the degree to which the
indicators represent the respective latent construct, ranged from 0.82–0.92, which
exceeded the recommended value of 0.70. In addition, the value of AVE, which measures
the overall amount of variance in the indicators explained by the respectively latent con-
struct, were in the range of 0.54–0.80, and all exceeded the cut-off level of 0.50.
CR and AVE measures were used to assess the reliability of CE. CR and AVE for CE
equaled 0.903 and 0.500, respectively, values which are well above the recommended
Table 2. Result of measurement model.

Latent Variable Items MV SD Std.Loadings Std.error Cronbach’s alpha CR AVE
Brand Equity
BE_13L 3.59 0.86 0.88 0.03 0.84 0.90 0.75
BE_14L 3.50 0.90 0.86 0.03
BE_15L 3.68 0.83 0.87 0.03
Vigor
CE_10si 3.64 0.85 0.86 0.03 0.81 0.89 0.73
CE_8si 3.64 0.86 0.82 0.03
CE_9si 3.45 0.90 0.89 0.03
Absorption
CE_1e 3.18 0.97 0.72 0.04 0.71 0.82 0.54
CE_2e 3.67 0.79 0.70 0.03
CE_3e 3.59 0.76 0.79 0.03
CE_4e 2.96 0.98 0.72 0.04
Dedication 0.79 0.88 0.71
CE_5cp 3.36 0.86 0.84 0.03
CE_6cp 3.55 0.85 0.84 0.03
CE_7cp 3.32 0.89 0.85 0.03
Experience Innovation
PRI_10e 3.49 0.88 0.79 0.03 0.87 0.91 0.73
PRI_11e 3.38 0.89 0.89 0.03
PRI_12e 3.38 0.87 0.89 0.03
PRI_13e 3.46 0.85 0.83 0.03
Promotion Innovation
PRI_14m 3.37 0.93 0.89 0.03 0.87 0.92 0.80
PRI_15m 3.30 0.89 0.90 0.03
PRI_16m 3.35 0.89 0.89 0.03
Product Innovation
PRI_1p 3.44 0.87 0.85 0.03 0.89 0.92 0.70
PRI_2p 3.40 0.86 0.87 0.03
PRI_3p 3.38 0.87 0.85 0.03
PRI_4p 3.39 0.84 0.83 0.03
PRI_5p 3.54 0.83 0.79 0.03
Service Innovation
PRI_6s 3.37 0.87 0.79 0.03
PRI_7s 3.37 0.89 0.84 0.03 0.85 0.90 0.69
PRI_8s 3.43 0.84 0.82 0.03
PRI_9s 3.39 0.90 0.86 0.03
Note: Mean value (MV); Standard deviation (SD); Composite reliability (CR); Average variance exchange (AVE).
thresholds of 0.70 and 0.50, respectively, providing evidence of a reliable construct. More-
over, the loadings of CE on the first-order constructs exceed 0.80 (0.804 for vigor, 0.900 for
dedication, and 0.904 for absorption) and are significant at p = 0.01. This finding suggests
consumer engagement is reflected by pre-specified sub-dimensions, namely vigor, dedi-
cation, and absorption. Finally, the assessment of the discriminant validity of the measured
constructs was examined by comparing the square root of the AVE construct with the
inter-construct correlation (Chin, 2010; Fornell & Larcker, 1981). As depicted in Table 3,
the square root of the AVE for each construct was greater than its correlations with
other constructs, indicating that discriminant validity was achieved.
Structural model
The next step after assessing the measurement model is to evaluate the structural model.
Before assessing the structural model, this study first calculated the variance inflation and
the tolerance values to evaluate the multicollinearity issue. The result indicated that the
values calculated for variance inflation factors (VIFs) were in the range of 2.174–3.328.
Therefore, the values were less than the suggested threshold of 5 (Venkatesh et al.,
2012). Hence, the testing indicates that collinearity is not a major problem in this research.
To test the structural model and hypotheses, the variance explained (R2), path coeffi-
cient, effect size (f2), and predictive relevance (Q2) were used (Hair et al., 2017). A boot-
strapping procedure (5,000 samples) was applied in this study to estimate, using t-
values, the significance of the path coefficients. The values of R2 for CE and brand
equity are 0.540 and 0.348, respectively. R2 values at 0.67, 0.33, and 0.19 are, respectively,
considered as substantial, moderate, and weak (Chin, 1998). The above-mentioned results
indicated that, the model has a moderately strong explanatory capability.
The structural model results in Figure 1 specify that the main driver of CE is product
innovation (β = 0.356, t = 6.975), followed by service innovation (β = 0.247, t = 3.913) and
experience innovation (β = 0.156, t = 3.446). Therefore, hypotheses H1a, H1b, and H1c
are confirmed. On the other hand, the impact of promotion innovation on CE is insignifi-
cant (β = 0.062, t = 1.180). As such, H1d was not supported. The results further revealed
that these four exogenous constructs collectively explained 54% of the variance in the
endogenous construct (i.e. CE).
Table 4 also demonstrates that the main driver of brand equity is CE (β = 0.327, t =
6.745), followed by experience innovation (β = 0.163, t = 2.513) and product innovation
(β = 0.140, t = 2.380). Thus, hypotheses H3, H2c, and H2a are supported. The effect,
Table 3. Discriminant validity assessment.

Ab BE De EXP PROD PRM SERV Vi
Absorption (Ab) 0.732
Brand Equity (BE) 0.507 0.868
Dedication (De) 0.755 0.494 0.841
Experience Innovation (EXP) 0.557 0.485 0.539 0.852
Product Innovation (PROD) 0.626 0.494 0.593 0.637 0.839
Promotion Innovation (PRM) 0.526 0.458 0.528 0.76 0.634 0.892
Service Innovation (SERV) 0.620 0.462 0.598 0.674 0.785 0.688 0.828
Vigor (Vi) 0.576 0.41 0.548 0.449 0.569 0.438 0.531 0.853
Note: AVE for each construct is given at the diagonal entries.
Figure 1. Results of the model.
however, of service innovation (β = -0.032, t = 0.504) and promotion innovation (β = 0.078,

t = 1.301) are insignificant, not supporting H2b and H2d.
The test of the mediation hypotheses H4a-H4d used the procedure proposed by
Preacher and Hayes (2008). The procedure implements bootstrapping (with 5,000 resam-
ples) to test the statistical significance of the mediation effect. As shown in Table 5, the
total indirect effect of PROD on BE (β = 0.116, t = 4.547), SERV on BE (β = 0.163, t = 2.513),
and EXP on BE (β = 0.163, t = 2.513) are statistically significant at the 5% level, since no
95% confidence interval contains zero. The findings showed that CE partially mediates
the PROD-BE and EXP-BE link, since the relevant effects are also statistically significant,
while CE fully mediates the SERV-BE link. Therefore, H4a, H4b, and H4c are supported.
However, the total indirect effect of PRM on BE (β = 0.02, t = 1.123) is not significant.
Hence, H4d is not supported. To provide a deeper insights into mediation analysis,
the Variance Accounted For (VAF) was calculated. VAF is the calculation of the ratio
of the indirect-to-total effect (Hair et al., 2017). According to Hair et al. (2017), VAF is
only useful when the researcher is interested in determining the extent to which the
variance of the dependent variable is directly explained by the independent variable,
and how much of the target construct’s variance is explained by the indirect relationship
via the mediator variable. The results for the VAF are presented in Table 5. The results
Table 4. Results of the structural model analysis.

Hypothesis Relationship Std Beta Std Error t-value Decision R2 f2 q2
H1a PROD -> CE 0.356 0.051 6.975*** Supported 0.540 0.099 0.260
H1b SERV -> CE 0.247 0.063 3.913*** Supported 0.042
H1c EXP -> CE 0.156 0.045 3.446*** Supported 0.020
H1d PRM -> CE 0.062 0.053 1.18 ns 0.003
H2a PROD -> BE 0.140 0.059 2.38** Supported 0.010
H2b SERV -> BE −0.032 0.064 0.504 ns 0.000
H2c EXP -> BE 0.163 0.065 2.513** Supported 0.015
H2d PRM -> BE 0.078 0.06 1.301 ns 0.003
H3 CE -> BE 0.327 0.048 6.745*** Supported 0.348 0.075 0.250
Notes: *Significant at p < 0.05; **p < 0.01; ***p < 0.001; ns = not significant.
Table 5. Mediation analysis results.

Std Std p 95% Confidence
Hypothesis Relationship Beta Error t-value values VAF Interval Decision
H4a PROD -> CE -> 0.116 0.026 4.547*** 0.00 0.459 (0.07, 0.18) Supported
BE
H4b SERV -> CE -> BE 0.081 0.022 3.681*** 0.00 1.669 (0.04, 0.13) Supported
H4c EXP -> CE -> BE 0.051 0.017 2.95** 0.003 0.238 (0.02, 0.09) Supported
H4d PRM -> CE -> BE 0.02 0.018 1.123 0.261 0.198 (−0.01, 0.06) ns
Notes: *Significant at p < 0.05; **p < 0.01; ***p < 0.001; ns = not significant.
indicate a typical partial mediation for a VAF value of 0.459, or 45.9% and 0.238, or
23.8% for H4a and H4c, respectively, as the range of VAF is larger than 20% and less
than 80% (Hair et al., 2017). For H4b and H4d, the VAF value is over 80% and less
than 20%, respectively. Hence, the mediation results could be characterized as full
mediation and no mediation. However, the explanation of VAF is clear only for consist-
ent or complementary mediating effects where the direct effect c’ and the indirect effect
a*b point in the same direction (positive or negative) (Baron & Kenny, 1986). In this
study the relationship of SERV-CE-BE, has a VAF value that is greater than one, and
the direct effect c’ is not significant. According to Hair et al. (2017), there is no strong
indication that suppression is present. Shrout and Bolger (2002) noted that, VAF
equals one, represent a full mediation. However, some researchers are advised of the
calculation VAF is only applied when the absolute value of the standardized total
effect c = a*b + c’ is at least 0.20 (Hair et al., 2017).
Discussion
Theoretical implications
The framework used in this study is drawn from a retailer innovativeness study by Lin
(2015) and a study on CE by (Brodie et al., 2011; Hapsari et al., 2015). Our study tested
the direct and the indirect effects of PRI using first-order factors. The integration of the
four dimensions of PRI in the SME service context has not yet been fully explored.
Another contribution is the demonstration of the role of CE as a mediating factor
between PRI (product, service, experience, and promotion) and brand equity of SMEs.
Among all the four dimensions of PRI, product innovativeness (β = 0.356) has the strongest
impact on CE, followed by service innovativeness (β = 0.247) and experience innovative-
ness (β = 0.156). This finding is supported by prior empirical evidence, which has proposed
that innovative service offerings could influence customers to foster a better relationship
with retailers and subsequently facilitate the engagement process (Vivek, 2009). In this
regard, the researcher believes that CE is one of the behavioral outputs from the co-inno-
vation process, as has been proposed by various scholars (Ayuso, Ángel Rodríguez, García-
Castro, & Ángel Ariño, 2011).
In addition, innovation practices was found capable of increasing service delivery
quality and improving customer experiences, which become factors for better engage-
ment with customers and, consequently, could impact the company brand (Ponnam &
Balaji, 2015). This study also supports the idea by Lin (2015) that innovation influences con-
sumers’ relation to service providers, as they are more attracted to highly capable retailers
offering new private service brands, which is in line with proposition by the wheel of retail-
ing theory.
Moreover, the results suggest that among all the four types of PRI, experience inno-
vation (β = 0.163) has the strongest impact on brand equity, followed by product inno-
vation (β = 0.140). Meanwhile, CE is also found to be positively related to brand equity
(β = 0.327). This result is consistent with prior findings in studies by Lee and Jeong
(2014), Reynolds et al. (2007), and Medina and Rufín (2009), who emphasized the assump-
tion that innovative practices could enhance customers’ perceived values towards
business brands. Surprisingly, this result shows that promotion innovativeness is not a
sufficient condition in building CE and brand equity. This is in line with Mattila’s (2006)
and Omar, Mohd Ramly, Shah Alam, and Nazri’s (2015) research finding that benefits invol-
ving point redemption (economic benefits and monetary rewards) are not significantly
related to loyalty. Furthermore, Omar et al. (2015) argued that process-oriented and
experiential aspects through nonmonetary benefits such as custom-tailored and differen-
tiated services can create bonding among store loyalty program members. Recent report
also found that pleasant customer experience through relevant offerings and compelling
experiences do drive increased spend and loyalty (Yasav, 2015). Smith, Sparks, Hart, and
Tzokas (2003) further suggested that to create loyalty, companies need to focus on the
social means or on how one is treated rather than on the economic “outcome.” Therefore,
it is no longer sufficient for an SME to operate in a conventional manner by enticing con-
sumers merely with pricing strategies (e.g. discounts and promotions) or transactional
tactics. Instead, the service and experience aspects of innovation, which include elements
of convenience, and specialized services, play an important role in developing brand
equity.
Overall, our findings offer new insights on the importance of an innovation environ-
ment and service settings that can influence customers to act beyond loyalty and be
willing to co-create a service with service providers. Moreover, it is crucial to pay attention
to developing innovative retail offerings and surroundings, as this could influence SMEs’
strategic competitiveness, as found by Wong and Merrilees (2008). This finding also
enhances our understanding of Aaker and Keller’s (1993) brand association model,
which relates the innovativeness with strategic brand development.
An interesting result in our study is the mediating effect of CE on PRI (product, service,
experience, and promotion) and brand equity. The results show that CE fully mediates the
relationship between service innovativeness and BE, and partially mediates the relation-
ship between product innovativeness and BE, as well as the relationship between experi-
ence innovativeness and BE. These findings are in line with Brodie et al. (2009) and
Prahalad and Ramaswamy (2004), who suggested that CE is a crucial element to enhancing
brand strength, and thus could influence SME retailers’ brand equity. The mediating effect
of CE is in line and supports the previous finding of Hapsari et al. (2015), which verified that
CE mediates the relationship between customer behavioral perceived values and brands.
Accordingly, this study specifically emphasizes three behavioral values, one of which is the
innovativeness behavioral as signaled by retailers to their potential customers and buyers.
Moreover, the finding of the relationship between PRI and CE could extend our under-
standing on the wheel of retailers theory by looking into retailers’ readiness to offer new
services to customers. This is also a part of the proposition of service-dominant logic, as
proposed by Vargo and Lusch (2008). Theoretically, this study also provides an insight
into CE as a mediator in the studied framework, as suggested by social exchange theory

and service-dominant logic. Empirically and statistically, it is proven that CE fully mediates
the relationship of service innovation and BE, as well as partially mediates the relationship
between product innovation and BE, and experience innovation and BE. This finding con-
tributes to deepening our understanding on CE and is consistent with prior findings, such
as those by Brodie et al. (2009) and Hapsari et al. (2015). Furthermore, this finding is also in
line with the proposition proposed by Prahalad and Ramaswamy (2004), who suggested
that CE is a crucial element to enhance the innovativeness of retailers in relation with
brand building (Hapsari et al., 2015)
Practical implications
The findings of this study have a number of important implications for future practice, as
services are key drivers to any modern economy. First, the main major implication is that
this study delivers a clear perspective to practitioners to focus on service, as compared to
product branding as a brand. Moreover, this study benefits SME retailers and other associ-
ated stakeholders by emphasizing the brand development programs of service retail
organizations. Currently, most SME retailers seem to focus more on product brands and
place more attention on meeting the business inventory with popular brands even
though the profit margin might be lower than less popular brands. By improving the inno-
vativeness of the retailer and developing a deeper emotional connection with customers
through unique and valuable experience, SME retailers may be able to improve customers’
loyalty and engagement, and consequently retain the customers as well.
Second, the findings of this study enhance our understanding of the importance of
retailer innovativeness (product, service, and experience) in building a better relationship
and engagement with customers. The evidence of this study suggests that retailer innova-
tiveness is an important signal to customers to be engaged (Erdem, Swait, & Valenzuela,
2006) and consequently induces them to co-create services, which will contribute to
strengthening brand building of SME retailers. Thus, SME retailers, particularly frontline
managers, should focus on creating innovative products, services, and ambiances that
can increase the level of customers’ loyalty to the company (Lin, 2015). Thus, the
aspects of implementation and management and the ability to innovate should also be
emphasized to offer customized services or “customerization,” which is based on customer
needs. Additionally, SME retailers need to focus on people-related competencies to equip
themselves with the appropriate skills and knowledge to meet customer expectations
(Altinay, Altinay, & Gannon, 2008). Therefore, it is important to train frontline managers
and customer service employees to create a memorable experience for customers
during service encounters. Innovation is the central issue that should be addressed by
SME retailers in order to attain CE by offering unique services, new in-store offerings, cus-
tomized items, attractive ambiance, flexible pricing, and new private brand products
(Hristov & Reynolds, 2015; Lin, 2015).
Another practical implication related to CE is that retailers should focus on the engage-
ment process, as this approach is important to improve the branding of a private retail
brand. This is empirically supported by this study, as CE not only contributes directly to
the brand building, but also significantly mediates the relationship. The relational
aspects, particularly in the service sector, are among other critical success factors that
should be focused by SME retailers. A strong relationship with customers will enable SME
retailers to meet customers’ specific demands and customize service for those customers.
The interaction between customer and retail offerings happens all the time, whether the
customer realizes it or not, but the challenge for retailers is to make that interaction enga-
ging through positive experience. Therefore, SME retailers should manage their customers’
profiles and information systematically in order to keep them close and engage with them.
For example, retailers could organize sponsored activities and programs designed to
create daily or special interaction, provide online activities and programs intended to
engage customers directly or indirectly with firm activities, and create a pleasant atmos-
phere designed to influence emotional and behavioral responses. For that reason, it is criti-
cal for SME retailers to have their own computerized customer management system (CMS)
software to systematically manage information, as the software is becoming cheaper and
more easily available in modern times. SME retailers should also leverage the emergence
of social media where frontline employees able to engage and achieve a greater under-
standing of their customers.
Conclusion
SMEs in service sectors are experiencing fast growth. It is easier for SME retailers to inno-
vate and make new product or service offerings due to the availability of new technology
and close relationships with targeted clients as compared to big hypermarkets. However,
scholars have suggested that innovation in service industries, including retailing, has
received less attention in literature. The present study investigates the effect of consumer
PRI on CE and brand equity with a particular focus the different effects associated with
product, service, experience, and promotion-related innovativeness. Besides the direct
examination between PRI on CE and brand equity, this study contributed to the literature
by examining the extent to which CE mediates the link between PRI and brand equity for
the SMEs service context, whereas existing literature has so far presented a rather direct
link between retailer innovativeness – intention and engagement – loyalty.
In the SMEs service context, the mediation revealed that among all the four types of PRI,
product-related, service-related, and experience-related innovativeness influenced brand
equity through CE. Nonetheless, customer mediation does not mediate the effect of pro-
motion-related innovativeness and brand equity. The results suggest that, out of the four
types of PRI, only product-related and experience-related innovativeness have a direct
effect on brand equity. This explains the nascent stream of research on the concept of
CE and the need to further investigate other factors that augment the customer PRI –
brand equity link.
Limitations and suggestions for further research

This study is not without limitations. First, the study selected a sample size of 723 Malay-
sian consumers who patronize SME retail outlets in selected business complexes using
purposive non-probability sampling method; therefore, the sample population may not
be representative of the overall Malaysian population. However, a significant limitation
of this study is that it is confined to a certain area in five regions. Thus, the validity and
generalizability of this finding may be limited. It is also not possible for us to generalize
the findings beyond the studied population. To enhance the validity and generalizability
of this study, the researcher suggests replicating this study to other service contexts in
different nations, service segments, and industries. Second, most of the respondents
patronized retailers who are involved in food and beverages (F&B) and computerless
service (hybrid of product and service) business segments. Further research should be
carried out to investigate the SME retailers in other industries that are not so well-explored
from a relationship marketing perspective, such as fashion design and tailoring, technical
service providers (such as automotive workshops, machine maintenance, construction,
and electrical and mechanical work), as well as creative industries, such as interior
design or landscaping services. Third, the current study is a cross-sectional study. A longi-
tudinal study is required to conclude a causal relationship between the variables.
Acknowledgement
This work was supported by the MARA research and innovation grant scheme (grant number: EP-
2016-002). We would like to thank the two reviewers of the original manuscript who provided con-
structive comments. The usual disclaimer applies.
Disclosure statement
No potential conflict of interest was reported by the authors.
Funding
This work was supported by Mara research and innovation grant scheme [Grant Number EP-2016-
002].
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Perceived retailer innovativeness and brand

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Perceived retailer innovativeness and brand equity: mediation

ABSTRACT ARTICLE HISTORY

development of the middle class, provision of employment opportunities, and mainten-

kinds of promotions. This concept is hereafter referred to as perceived retailer innovative-

H1b: Perceived retailer service innovativeness is positively related to consumer engagement.

H1c: Perceived retailer experience innovativeness is positively related to consumer engagement.

H1d: Perceived retailer promotion innovativeness is positively related to consumer engagement.

Eﬀects of PRI on brand equity

which he defines as “differential effect of brand knowledge has on consumer response to

Eﬀects of CE on brand equity

Table 1. Consumer engagement constructs and deﬁnitions.

Common method bias

Data analysis and results

Measurement model assessment

Table 2. Result of measurement model.

Table 3. Discriminant validity assessment.

Figure 1. Results of the model.

however, of service innovation (β = -0.032, t = 0.504) and promotion innovation (β = 0.078,

Table 4. Results of the structural model analysis.

Table 5. Mediation analysis results.

into CE as a mediator in the studied framework, as suggested by social exchange theory

Limitations and suggestions for further research

Lin, C. Y. (2015). Conceptualizing and measuring consumer perceptions of retailer innovativeness in

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