The Impact of Customer Service and Product Value on

Customer Loyalty and Purchase Behavior

KWOKLEUNG WAI-KWANLr
Chinese University of Hong Kong University of Texas. Pan American
Shaiin. Hong Kong

YUK-FAIAu
Chinese University of Hong Kong
Shatin. Hong Kong

Based on research and theories on justice, it was predicted that customer service would be
as important as, or even more important than perceived product value in determining cus-
tomer loyalty and purchase behavior. This general hypothesis was tested by surveying 324
respondents who had just patronized several retail outlets. Results indicated that customer
service was indeed more important than perceived product value in predicting customer
loyalty, the amount of money spent in the visit, and the range of products purchased. In
addition, customer service was a significant predictor of all 3 variables, whereas perceived
product value was able to predict customer loyalty only. It was also found that for females
and respondents with a higher income, customer loyalty was more influenced by customer
service.

Stimulated by the growth of the service industries in recent years, research on

the marketing of services has proliferated at a tremendous rate (e.g., Zeithaml,
Parasuraman, & Berry, 1990). The present study adds to this literature by exam-
ining the importance of perceived customer service on purchase behaviors.

Relative Importance of Customer Service and Product Value

How important is customer service? One way to answer this question is to

contrast its effects with those of product value, which represents “the consumer’s
overall assessment of the utility of a product based on perceptions of what is
received and what is given” (Zeithaml, 1988, p. 14). However, the service iitera-
ture seems to provide little clue about the relative impact of perceived product
value and customer service on purchase behavior. Fortunately, it may be possible
to draw upon current psychological research on justice to shed some light on this
issue.

‘Correspondence concerning this article should be addressed to Kwok Leung, Department of

Psychology, The Chinese University of Hong Kong, Shatin NT, Hong Kong.

1731

Journal of Applied Social Psychology, 1998, 28, 18. pp. 1731-1741.

Copyright 0 1998 by V. H. Winston 8 Son, Inc. All rights reserved.
1732 LEUNG ET AL.

Thibaut and Walker ( 1 975) introduced the concept of procedural justice to

the literature and have shown that the perception of fairness and satisfaction is
not only determined by the quality of the outcome people receive, but also by the
nature of the procedure used to generate the outcome. Subsequently, Tyler and
Bies (1990) have argued that the perception of justice and satisfaction is also
affected by the nature of the interaction between the recipient and the decision
maker who is in charge of resource allocation. Current research on justice has
shown that under a wide variety of situations, people's behavior, perceptions of
justice, and attitudes toward decision makers are more affected by the quality of
the interpersonal treatment received and the nature of the procedure used for
resource allocation than by the quality of the outcome they receive (e.g.,
Greenberg, 1990; Leung, Chiu, & Au, 1993; Leung & Li, 1990; Moorman, 1991;
Tyler, 1990).
To justify the application of justice theories to the realm of consumer behav-
ior, it is necessary to draw a parallel between product value and tangible out-
comes, and between customer service and procedures and interpersonal
treatment. When customers purchase a product, the perceived value of the prod-
uct can be argued to represent their tangible outcome in this exchange. Obvi-
ously, high perceived product value represents a positive outcome and should
lead to a high level of satisfaction. With regard to customer service, interpersonal
treatment often represents a central theme in the conceptualization of customer
service. For instance, the concept of service encounters obviously centers on
interpersonal treatment (Solomon, Surprenant, Czepiel, & Gutman, 1985). In the
SERVQUAL scale developed by Parasuraman, Zeithaml, and Berry (1988) for
measuring customer perceptions of service quality, many items are concerned
with interpersonal treatment. Procedural elements can also be discerned in cur-
rent conceptualizations of service. For instance, in Parasuraman, Zeithaml, and
Berry's (1 985) conceptualization of service quality, at least one dimension
involves some procedural elements, and it is concerned with understanding the
needs of customers and providing them with individualized attention. To achieve
this goal, some sort of service procedures governing the interaction between the
customer and the seller has to be established and enacted. In sum, the concept of
service seems to overlap substantially with the concepts of procedures and inter-
personal treatment in justice research.

Consequences of Perceived Product Value and Customer Service

The correspondence between perceived product value and tangible outcomes,

and between service and interpersonal treatment and procedures makes it possi-
ble to rely on results from justice research to generate a general hypothesis about
the relative importance of perceived product value and customer service:
 CUSTOMER SERVICE 1733

Hypothesis I . The impact of customer service should be as strong

as, or even stronger than, perceived product value on purchase
behaviors examined in the present study.

Customer Loyalty

The service literature suggests that higher service quality usually leads to
stronger purchase intention and customer loyalty (e.g., Bitner, 1990; Bolton &
Drew, 1991; Cronin & Taylor, 1992; Oliva, Oliver, & MacMillan, 1992). Like-
wise, a higher level of perceived product value is also related to stronger pur-
chase intentions and customer loyalty (e.g., Oliver, 1980; Zeithaml, 1988).

Hypothesis 2. A favorable evaluation of product value and cus-

tomer service should be related to a higher level of customer loy-
alty, which is defined as the frequency of repeated purchases.

Purchase Behaviors

Although service quality is believed to be related to purchase behavior (e.g.,

Bitner, 1992; Bolton & Drew, 1991), most published works are concerned with
satisfaction, evaluation of the service received, and future purchase intention
only. The omission of actual purchase behavior in the literature is distressing
because the financial returns of service-improvement programs have already
been queried under some situations (e.g., Coyne, 1989; Zeithaml et al., 1990). To
clear such doubts, it is necessary to show that service quality not only enhances
customer satisfaction, but also stimulates more purchases.
The amount of purchase is directly reflected by the amount of money spent in
a visit, and this variable is examined in the present study. Weitzel, Schwankopf,
and Peach (1989) studied 80 stores of a retail chain and found that, across the
stores, the quality of customer service as perceived by employees accounted for
12% of the sales of the retail stores. In a longitudinal study of the industrial sales
of a sizable organization over a period of time, Ozment and Chard (1986) found
that both price of a product and customer service were related to sales volume.
Based on the empirical results reviewed previously, the third hypothesis can be
stated as follows:

Hypothesis 3. Perceived product value and customer service

should be related to the doliar amount of purchase in a visit.

Another variable that should reflect the profitability of a retailer is the range of
product categories that consumen purchase in each visit. Obviously, it is to the
1734 LEUNG ET AL.

advantage of a retailer that customers purchase a wide range of products. Similar

to the amount spent in a visit, the fourth hypothesis can be stated as follows:

Hypothesis 4.Better perceived product value and customer service

should lead to the purchase of a wider range of products.

Demographic Differences

Because there is no previous research on the impact of demographic variables

on the relative importance of service quality and product value, the following
hypotheses must be regarded as quite tentative.

Gender

It is well established that women are more concerned with interpersonal rela-
tionships and are more sensitive about the emotional state of other people (e.g.,
Hall, 1984; Maccoby & Jacklin, 1974). Thus, it is possible that females may be
more sensitive to service quality, which is primarily interpersonal in nature.

Hypothesis 5. Female respondents should be more influenced by

service quality than should male respondents. Specifically, a
higher level of perceived service quality should be related to a
higher level of loyalty, a wider range of produced purchased, and a
larger amount of spending in a visit for female consumers.

Income

People generally expect that others treat them in accordance with their status
(Berger, Rosenholtz, & Zelditch, 1980). Individuals with higher status expect to
be treated with more dignity and respect. As income is a major component of
socioeconomic status, it follows that people with higher incomes should be more
concerned with the treatment they receive. As customer service is primarily con-
cerned with interpersonal treatment, people with higher incomes should be more
influenced in their purchase behavior by their perceptions of service quality.

Hypothesis 6. Respondents with higher incomes should be more

influenced by perceived customer service than should those with
lower incomes. Specifically, a higher level of perceived service
quality should be related to a higher level of loyalty, a wider range
of products purchased, and a larger amount of spending in a visit
for consumers with higher incomes.
 CUSTOMER SERVICE 1735

Method

The data were collected with a questionnaire designed to measure customer

service, product value, and purchase behavior. The measurement of customer
service followed the proposal of Parasuraman et al. (1 988), which covered the
five key service dimensions: tangibles, reliability, responsiveness, assurance, and
empathy. To generate the specific items that are relevant to the retail operation
under study, a focus group meeting was held involving a group of experienced
sales staff from the retail chain. Based on the results of the meeting, 10 items
were constructed: (a) service manners, (b) appearance of sales staff, (c) whether
customers feel at ease while shopping, (d) advice given to customers, (e) decora-
tion of the shop, (f) consistency of service quality, (g) product knowledge,
(h) services related to the alteration of pants and jeans, (i) try-on services, and
6 ) services at the cashier. The measurement of product value was based on the
conceptualization of Zeithaml (1988), which included three items: design and
style of the products, quality, and price. Customer loyalty was measured by an
item concerning how frequently respondents shopped at the retail chain. All of
these items were based on 5-point scales, and respondents had to choose a num-
ber on the scale to represent their response. The amount spent was measured by
the monetary amount of the purchase in the visit. The range of product categories
purchased was measured by asking the respondents how many different types of
products they had purchased. The products inside the shop were grouped into
nine categories for this purpose.
Respondents were intercepted and interviewed while on their way out of eight
major stores of the retail chain. A total of 324 respondents was successfdly inter-
viewed, with 44.3% males, and 55.7% females. Among the respondents, 23.8%
were younger than 20 years of age, 59.3% were between 20 and 30, and 17.0%
were older than 30.

Results

Internal Consistency of Measures

The 10 items tapping customer service were averaged to form a customer ser-
vice index. This procedure was justified by its high internal consistency
(Cronbach’s a = .75) and the possibility that perceived customer service may be
unidimensional in nature (Cronin & Taylor, 1992). Product value was measured
by averaging the three items on design, quality, and price. The internal consis-
tency for this scale is only moderate (a = .60), but this level should be acceptable
because there is no reason why these three aspects of product value should corre-
late highly with each other.
1736 LEUNG ET AL.

Table 1

Regression Analysis of Loyalty, Range of Products Purchased, and Amount Spent

Dependent variable
Range of
Independent Amount products
variable Loyalty spent purchased

Product value .172** -.075 .004

Customer service .196** .146* .144*
Multiple R .304 .I38 .145
Note. Entries are standardized beta coefficients.
*p<.05. **p<.Ol.

Regression Analyses

Multiple regression was used to contrast the relative impact of customer ser-
vice and product value. Results were clearly in support of Hypothesis 1 and
showed that across the three dependent variables, the beta weights for customer
service were larger than those for product value. Hypothesis 2 was fully
supported because both product value and customer service were significant pre-
dictors of customer loyalty. On the other hand, Hypotheses 3 and 4 were only
partially supported, as product value showed a nonsignificant effect on the range
of products purchased and the amount spent. This surprising finding will be
explored in more detail in the Discussion section. See Table 1 for results.

Eflects of Demographic Variables

Hierarchical regression was used to test whether gender and income level
would moderate the effects of customer service and product value for each of the
dependent variables. To examine the moderating effect of a demographic vari-
able, customer service, product value, and the demographic variable were first
entered in a regression equation for each of the three dependent variables. In the
second step, the interaction involving either the demographic variable and cus-
tomer service or the demographic variable and product value was entered, and
the increase in multiple R was assessed. If an interaction term can lead to a signif-
icant increase in the multiple R, the interaction between the two variables consti-
tuting the interaction term is significant.
With regard to gender, no significant interaction effects were found for the
range of products purchased and the amount spent. For customer loyalty, the
 CUSTOMER SERVICE 1737

Table 2

Means of Customer Loyalty as a Function of Gender and Customer Service and

as a Function oflncome Level and Customer Service

Gender Income
Customer service Male Female Low High
~ ~~~

Low 3.18 2.9 1 2.95 3.06

High 3.35 3.42 3.16 3.54
Difference 0.17 0.5 1 0.21 0.48
Note. The larger the number, the higher the customer loyalty.

interaction effect between gender and customer service was marginally signifi-
cant (p < .07). To scrutinize the nature of this interaction effect, respondents were
split into two groups that are approximately equal in size based on their scores on
customer service. One group perceived a higher level of customer service and the
other group a lower level of customer service. A 2 x 2 table was formed by cross-
ing these two groups with the two gender groups. In support of Hypothesis 5, the
means presented in Table 2 show that the effect of customer service on loyalty
was smaller for males than for females.
With regard to income, no significant interaction effects were found for the
range of products purchased and the amount spent. However, the interaction
between income and service was significant at the .05 level for customer loyalty.
To scrutinize this effect, respondents were split into a high customer service
group and a low customer service group as before. Respondents were also split
into a high-income group and a low-income group, and a 2 x 2 table was formed
by crossing customer service and income level. In support of Hypothesis 6, the
means presented in Table 2 show that the impact of customer service on loyalty
was larger for respondents with a higher income.

Discussion

In the arena of justice, current research has been focusing on the importance
of procedures with which decisions are made and interpersonal treatment during
the enactment of the procedures. Counterintuitiveas it may seem, procedural and
interpersonal factors are often found to be more important than tangible out-
comes in determining people’s attitudes, behavior, and evaluation of decision
makers. This pattern of results seems to generalize to consumer behavior as well.
The present results suggest that customer service is more important than
1738 LEUNG ET AL.

perceived product value in determining customer locality, range of products

purchased, and amount of money spent in a visit. These results may seem surpris-
ing, but they lend strong support for the “service revolution” that has swept
across numerous organizations throughout the world.
It was originally hypothesized that perceived product value should have an
impact on customer loyalty, range of products purchased, and amount spent. Sur-
prisingly, the effect was found for customer loyalty, but not for the other two
variables. Some speculation can be offered to explain these unexpected results.
Customer loyalty is probably built up gradually by a number of repeated pur-
chases and by the postpurchase performance of the products. Thus, loyalty
should be quite stable and less prone to situational fluctuations, and this charac-
teristic may account for its stronger relationship with product value. On the other
hand, the range of products purchased and the amount spent in a single visit are
likely to be affected by a whole host of situational factors, such as mood, current
needs, time pressure, current financial conditions, in-store variables including
display and promotional activities, and the current offerings of competitors. Thus,
the predictive power of product value would be much lower for these two vari-
ables. Consistent with this argument, the multiple R for customer loyalty is larger
than the multiple Rs for the range of products purchased and the amount spent.
One important implication of these results is that we should make a distinc-
tion between actual purchase behavior and covert variables such as attitudes and
behavioral intentions. As mentioned before, the field is dominated by studies on
covert variables, and, in light of the present results, a stronger emphasis on actual
purchase behavior is warranted in future work.

Why Customer Service Is So Important

In the justice area, there are two general hypotheses which can explain why
procedures and interpersonal treatment are so important (Lind & Tyler, 1988).
First, the self-interest model suggests that the concern for procedures and inter-
personal treatment represents an attempt to enhance one’s self-interest. The
choice of procedures obviously affects the outcome of a decision, thus people are
concerned about procedures in order to safeguard against the occurrence of an
unfavorable outcome. Likewise, the nature of the interpersonal treatment during
an exchange is a form of reinforcement in its own right, and it is easy to under-
stand why people show a desire for positive interpersonal treatment. Second, the
group value model suggests that people are concerned with procedures and inter-
personal treatment because of the values that they manifest. For instance, a dem-
ocratic procedure of decision making implies equal rights among participants,
and positive interpersonal treatment grants a favorable social standing to the
recipient. People’s desire for democratic procedure and positive interpersonal
 CUSTOMER SERVICE 1739

treatment can be explained by their endorsement of egalitarianism and by their

pursuit of a positive self-identity.
These two models also seem applicable in explaining the importance of cus-
tomer service. It is possible that consumers regard customer service as important
due to reasons of self-interest. Customer service may act as a signal for the per-
ceived value of the product, and consumers may believe that good service goes
with good products. In addition, good service creates a pleasant feeling in cus-
tomers and is a positive reinforcer in its own right. On the other hand, it is also
possible that the importance of customer service is due to group-value mecha-
nisms. The quality of customer service one receives may be seen as reflecting
one’s social status. Thus, the importance of customer service may be explained
by people’s desire for a positive self-image and social status.
Lind and Tyler ( I 988) have concluded that there is support for both mecha-
nisms and that a full explanation probably requires a successful synthesis of
these two mechanisms. Again, this conclusion seems applicable in the explana-
tion of the importance of customer service as well. The synthesis of the effects of
customer service and product value should definitely be a major topic in future
research.

Efects of Gender and Income

As predicted, female respondents and respondents with higher incomes were

more affected by customer service, but the effect was only found in customer
loyalty. This result supports the argument that the effect of customer service is
not uniform across consumers. Future research should continue to delineate the
characteristics of consumers that are more attracted to good customer service.

Applied Implications

The present results confirm the conviction of many successful organizations

in the benefits of excellent customer service. The long-term benefit comes from a
higher level of customer loyalty, thereby increasing repeated purchases, whereas
the short-term benefit arises from more sales as a result of the purchase of more
and a wider range of products. In addition, the results also show that the use of
customer service as a marketing tool is likely to be more successful if targeted at
females and consumers with higher incomes.

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