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The impact of e-service quality,

customer satisfaction and loyalty on
e-marketing: Moderating effect of
perceived value
a b a
Hsin Hsin Chang , Yao-Hua Wang & Wen-Ying Yang
a
Department of Business Administration, College of Management,
National Cheng Kung University, No. 1, University Road, Tainan
City, 70101, Taiwan
b
Department of Nursing, College of Medicine, National Cheng
Kung University, No. 1, University Road, Tainan City, 70101,
Taiwan
Version of record first published: 20 Apr 2009.

To cite this article: Hsin Hsin Chang , Yao-Hua Wang & Wen-Ying Yang (2009): The impact of e-
service quality, customer satisfaction and loyalty on e-marketing: Moderating effect of perceived
value, Total Quality Management & Business Excellence, 20:4, 423-443

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 Total Quality Management
Vol. 20, No. 4, April 2009, 423 –443

The impact of e-service quality, customer satisfaction and loyalty

on e-marketing: Moderating effect of perceived value
Hsin Hsin Changa
, Yao-Hua Wangb and Wen-Ying Yanga
a
Department of Business Administration, College of Management, National Cheng Kung
University, No. 1, University Road, Tainan City 70101, Taiwan; bDepartment of Nursing, College
of Medicine, National Cheng Kung University, No. 1, University Road, Tainan City 70101,
Taiwan

Since the online market has been growing rapidly over the past several years, electronic
marketing activities have drawn a lot of attention. Many companies generated customer
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loyalty by improving electronic service quality (e-service quality) but the effects needed
to be further examined. The first purpose of the study is to integrate relevant literature and
develop a comprehensive research model of electronic commerce to identify its
antecedent and consequential research variables. This study tests the interrelationships
among the perception of e-service quality, customer satisfaction and customer loyalty.
The second purpose of this study is to examine the moderating effect of customer
perceived value on the relationship between customer satisfaction and loyalty.
Through a questionnaire survey, the results of this study indicated that e-service
quality has influence on customer satisfaction and then generates customer loyalty,
which is consistent with Bagozzi’s appraisal!emotional response!behaviour
framework. Another key finding is the relationship between customer satisfaction and
loyalty, which is stronger for customers with high perceived value than low perceived
value. Conclusions indicate that website owners should not only improve e-service
quality, but also emphasise customer perceived value.
Keywords: e-service quality; perceived value; customer satisfaction; customer loyalty

Introduction
The business-to-customer online market has been growing rapidly over the past few years.
Reichheld and Schefter’s survey (2000) shows that consumers have increasingly favoured
online shopping. In the consumer marketing community, customer loyalty has long been
regarded as an important issue. In 2006, according to Market Intelligence Center industry
analysis, the online shopping market in Taiwan amounted to $59.8 billion last year with
54% growth rate compared to the former year. In 2007, the Taiwanese online shopping B2C
market reached a scale of $108 billion, 1.3% of the retail sector (Yang, 2008). Numerous
studies have pointed out that two of the more effective means to generate customer loyalty
are to delight customers (Oliver, 1999) and to deliver superior value, originating from excellent
services and quality products (Chang, 2006a; Kanji, 1998; Parasuraman & Grewal, 2000).
Similar to retail storefronts and travel agencies, the electronic service quality
(e-service quality) provides significant information and feeling to current and prospective
target-market customers. Thus, whether the service can achieve what users want in a
website constitutes an important area for study. Developing a website that is responsive

Corresponding author. Email: easyhhc@mail.ncku.edu.tw

ISSN 1478-3363 print/ISSN 1478-3371 online

# 2009 Taylor & Francis
DOI: 10.1080/14783360902781923
http://www.informaworld.com
 424 H.H. Chang et al.

to user needs is critical for all site designers and managers. For website retailers to be
successful and customers to be satisfied, excellent e-service quality is essential. There
are several factors to be considered, including website design, reliability, security and
customer value (Aladwani & Palvia, 2002; Slater & Narver, 2000; Wolfinbarger &
Gilly, 2002; Yang & Peterson, 2004; Zhan & Alan, 2003). Furthermore, it would be
interesting to determine if these characteristics of e-service quality have potential
influences on customer satisfaction and create loyalty.
Cronin and Taylor (1992), Oliver (1999), van Riel et al. (2004) and Woodside et al.
(1989) have attempted to confirm the relationship between satisfaction and loyalty in
their research. The relationship seems almost intuitive. However, the strength of the
relationship between satisfaction and loyalty has been found to vary significantly under
different conditions (Anderson & Srinivasan, 2003). Customer perceived value has
recently gained much attention from marketers and researchers because of the important
role it plays in predicting purchase behaviour and achieving sustainable competitive
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advantage (Bolton & Drew, 1991; Parasuraman, 1997; Zeithaml, 1988). Customer
perceived value involves a ‘get’ component – i.e. the benefits a buyer derives from a
seller’s offering – and a ‘give’ component – i.e. the buyer’s monetary and non-monetary
costs in acquiring the offering.
Researchers have also established a positive relationship between perceived value and
intention to purchase/repurchase (Dodds et al., 1991; Parasuraman & Grewal, 2000). When
perceived value is low, the customer will be inclined to switch to competing businesses in
order to increase perceived value, thus contributing to a decline in loyalty. Even satisfied
customers are unlikely to repurchase on the same website, if they do not feel like they
are getting the best value. Instead, they will seek out other websites in an ongoing effort
to find better value (Anderson & Srinivasan, 2003; Chang, 2006b; Kanji, 2002).
It is only a mouse click away in electronic commerce (e-commerce) settings, so it is
critical that companies understand how to build customer loyalty in online marketing.
Since e-service quality and customer perceived value of internet websites are regarded
as the key influential factors of internet marketing, a more detailed evaluation of
e-service quality and customer perceived value may become necessary. Although previous
studies have recommended the importance of perceived quality in experiential marketing,
few studies have empirically developed a framework to measure e-service quality and
value of experiential marketing in internet websites and distinctly interpreted the effect
of different levels of customer satisfaction and perceived value on customer loyalty.
There are three objectives in this study. First, to use Bagozzi’s (1992) apprai-
sal!affective response!behaviour framework to develop and test research hypotheses
linking e-service quality, customer satisfaction and customer loyalty. Second, to
examine the moderating effect of customer perceived value on the relationship between
customer satisfaction and customer loyalty. Third, to integrate relevant literature and
develop a comprehensive research model of experiential marketing to identify the
interrelationships among relevant research constructs.

Literature review and research hypotheses

After reviewing existing attitude theories (Theory of Reasoned Action, Theory of Planned
Behavior and Theory of Trying, for example), Bagozzi (1992) and Bagozzi and Yi
(1988) argued that attitudes and subjective norms are not sufficient determinants of inten-
tions, and intentions are not sufficient determinants of behaviour. Bagozzi proposed that
self-regulating processes, emotional reactions and coping responses also have a significant
 Total Quality Management 425

influence on behaviour. Bagozzi’s appraisal!emotional response!behaviour framework,

described self-regulating processes in terms of distinct appraisal with various past, present
and future outcomes. This appraisal is based on past encounters with the goods and services
provided by a focal company and its competitors. These outcomes produce particular
emotions, and subsequently lead to various coping responses (behaviours).
This research is based on Bagozzi’s (1992) reformation of attitude theory and then
adopts e-service quality, customer satisfaction, customer loyalty as our research con-
structs. On the other hand, we also adopt customer perceived value as our fourth research
construct to test the moderating effect. Each construct is elaborated as follows.

E-service quality
The first formal definition of website service quality or e-service quality was provided by
Zeithaml et al. (2001). In their opinion, e-service quality can be defined as the extent to
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which a website facilitates efficient and effective shopping, purchasing, and delivering
of products and services. As stated in the above definition, the meaning of service is
comprehensive which includes both pre- and post-website service aspects.
Academic research has identified a number of criteria that customers use in evaluating
websites in general and service quality delivery through websites, in particular. These
include: information availability and content, ease of use, privacy/security, graphic style
and fulfilment (Babakus et al., 2003; Chang, 2007; Chiu et al., 2005; Zeithaml et al., 2002).

Measurement of service quality delivery through websites

Based on concepts from both the service quality and retailing literature, Wolfinbarger and
Gilly (2002) used online and offline focus groups, a sorting task, and online survey of a
customer panel to develop a scale named .comQ with four factors: website design, reliability,
privacy/security and customer service. Contents of each dimension were: (1) Website
design: involving the expected attributes associated with design, as well as items dealing
with personalization; (2) Reliability: involving accurate representation of the product, on-
time delivery and accurate orders; (3) Privacy/security: feeling safe and trusting of the
site; (4) Customer service: combining interest in solving problems, willingness of personnel
to help and prompt answers to enquiries. Using concepts and attributes from both the service
quality and retailing literatures, the scale contains 14 attributes in these four factors.
After extensive literature review, Zeithaml et al. (2001, 2002) developed the
e-SERVQUAL measure of e-service quality to study how customers judge e-service
quality. This new model was drawn up through a three-stage process involving exploratory
focus groups and two phases of empirical data collection and analysis. It contains seven
dimensions: efficiency, reliability, fulfilment, privacy, responsiveness, compensation and
contact. The first four dimensions are classified as the core service scale, and the latter
three dimensions are regarded as a recovery scale, since they are only salient when online
customers have questions or problems. Contents of each dimension are shown below:
(1) Core service scale in e-SERVQUAL. (a) Efficiency: the ability of customers to get to
the website, finding their desired product and information associated with it, and
checking out with minimal effort. (b) Fulfilment: accuracy of service promises,
having products in stock, and delivering the products in the promised time. (c)
Reliability: associated with the technical function of the site, particularly the
extent to which it is available and properly functioning. (d) Privacy: assurance
that shopping behaviour data are not open and that credit card information is secured.
 426 H.H. Chang et al.

(2) Recovery service scale in e-SERVQUAL. (a) Responsiveness: measures the

ability of e-retailers to provide appropriate information to customers when a
problem occurs, having mechanisms for handling returns, and providing online
guarantees. (b) Compensation: involves receiving money back and returning ship-
ping and handling costs. (c) Contact. The need of customers to be able to speak to a
living customer service agent online or on the phone.

E-service quality is defined as the consumer’s judgement about an entity’s (service’s)

overall excellence or superiority (Zeithaml, 1988). Pakdil and Harwood (2005) found
the e-SERVQUAL model to be useful in revealing the differences between patients’
preferences and their actual experience.
This study compared the two scales of .comQ and e-SERVQUAL as shown in Table 1.
According to Table 1, the two scales have many similar aspects. In order to simplify
our dimensions, this study adopts .comQ scales (website design, reliability, security and
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customer service) as our measurment variables of e-service quality.

Table 1. The comparison of .comQ and e-SERVQUAL (this study).

.comQ (Wolfinbarger & Gilly, 2002)
† Website design
† Reliability
† Security/privacy
† Customer service
e-SERVQUAL (Zeithaml et al., 2002)
† Efficiency
† Fulfilment, reliability
† Privacy
† Responsiveness, compensation and contact

Customer satisfaction
The conceptualisation of customer satisfaction as an evaluation of emotion (Hunt, 1977),
has been consistently used over time. Rust and Oliver (1994) further suggest that customer
satisfaction reflects the degree to which a consumer believes that the possession or use of a
service evokes positive feelings. It is important to note that satisfaction could be further
conceptualised in two broad ways. When satisfaction is seen as an emotional response
to performance on specific attributes of a service encounter, it is conceptualised as trans-
action specific satisfaction. Alternatively, when satisfaction is more likely to depend on
factors that occur over repeated transactions, it is conceptualised as a cumulative
outcome or overall satisfaction (Shankar et al., 2003). Hence, in an online context,
when consumers make one time purchases from a new service provider, such as making
a hotel reservation at a holiday resort, website satisfaction is likely to be transaction
specific; whereas, in the case of repeating customers who have been buying from the
same online service provider, satisfaction is likely to be a cumulative outcome. Chang
(2005), Cronin and Taylor (1994), Parasuraman et al. (1988) and van Riel et al. (2004)
consider overall satisfaction to be primarily a function of perceived service quality.
Compared to transaction specific satisfaction, overall satisfaction reflects customers’
cumulative impression of a firm’s service performance. In turn, it may serve as a better
predictor of customer loyalty.
Oliver (1981) states that satisfaction is a summary of psychological state originating
when the emotion surrounding disconfirmed expectations is coupled with the consumer’s
prior feelings about the consumption experience. Kotler (2000) also expresses that satis-
faction is a person’s feelings of pleasure or disappointment resulting from comparing a
product’s perceived performance (or outcome), in relation to his or her expectations.
 Total Quality Management 427

Customer satisfaction generally means customer reaction to the state of fulfilment, and
customer judgement of the fulfilled state (Oliver, 1997). Customer satisfaction, mean-
while, is defined as an overall positive or negative feeling about the net value of services
received from a supplier (Barnes et al., 2004; Schmit & Allscheid, 1995; Woodruff, 1997).
Anderson and Srinivasan (2003) investigate the impact of customer satisfaction on loyalty
in the context of e-commerce, and e-satisfaction is defined as the contentment of the
customer with respect to his or her prior purchasing experience with a given e-commerce
firm. Wangenheim (2003) also has the similar definition of customer satisfaction, defining
it as the outcome of a comparison between expected and perceived performance
throughout the customer relationship.
Based on the definitions in the literature (Barnes et al., 2004; Chang, 2007, Oliver,
1981; Shankar et al., 2003), we define customer satisfaction as ‘the psychological reaction
of the customer with respect to his or her prior experience with the comparison between
expected and perceived performance.’
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Oliver (1997) and Taylor and Baker (1994) conclude that service quality and customer
satisfaction are different constructs, but satisfaction and service quality are highly inter-
correlated. Rust and Oliver (1994, p. 6) offer support for this position in their suggestion
that quality is ‘one of the service dimensions factored into the consumer’s satisfaction judg-
ment’, as do Parasuraman et al. (1985, 1988, 1991) who specifically suggest that service
quality is an antecedent of customer satisfaction. Oliver (1997) argued that the quality–
satisfaction–behavioural intentions link is conceptually the strongest, and it is consistent
with the generally accepted cognitive evaluations–emotional responses–behavioural out-
comes causal chain. Most marketing researchers also seem to accept a theoretical framework
in which quality leads to satisfaction (Chang, 2006a; Dabholkar et al., 2000), which in turn
influences purchasing behaviour (Chiu et al., 2005; Johnson & Gustafsson, 2000; Oliver, 1999).
These arguments suggest that e-service quality is likely to affect customer satisfaction.
This leads to the first research hypothesis:
H1: E-service quality is positively associated with customer satisfaction.

Customer loyalty
Approaches to the study of customer loyalty fall into three broad categories: the beha-
vioural approach, the attitudinal approach and the integrated approach (Oh, 1995). The
behavioural approach examines the customer’s continuity of past purchases, and then
measures customer loyalty by rate of purchase, frequency of purchase and possibility of
purchase. The attitude approach infers customer loyalty from psychological involvement,
favouritism, and a sense of goodwill towards a particular product or service. It intends to
include positive word of mouth (WOM). Finally, the integrated approach takes account of
both behavioural and attitudinal variables, in order to create its own concept of customer
loyalty.
While drivers of purchase or repeat purchase intentions can be numerous, both commit-
ment and WOM reflect a true, attitudinal form of loyalty. WOM communication has tra-
ditionally been defined as oral, person to person communication between a receiver and
a communicator, whom the receiver perceives as non-commercial, regarding a brand, a
product or a service (Arndt, 1967; Bansal et al., 2004). In order to measure true consumer
loyalty, we adopt repurchase intention and WOM as our dimensions of customer loyalty.
Generally, assessing customer loyalty to a seller, manufacturer or service provider
has often consisted of using either actual purchase behaviour or customer self-reports.
Oliver (1999, p. 34) defined customer loyalty as ‘a commitment to re-buy or re-patronize
 428 H.H. Chang et al.

a preferred product/service consistently in the future’. Neal (1999) thinks customer

loyalty is a behaviour and defines customer loyalty as:
the proportion of times a purchaser chooses the same product or service in a specific category
compared to the total number of purchases made by the purchaser in that category, under the
condition that other acceptable products or services are conveniently available in that
category. (Neal, 1999, p. 21)
Anderson and Srinivasan (2003, p. 125) investigate the impact of customer satisfaction on
customer loyalty in the context of e-commerce, and customer loyalty is defined as ‘the
customer’s favorable attitude toward an e-business resulting in repeat buying behavior.’
Based on this literature, we here adopt a definition of customer loyalty as: ‘A commit-
ment of repeatedly buying a preferred product/service and positive WOM consistently in
the future.’
Satisfaction is a necessary prerequisite for loyalty but is not sufficient on its own to
automatically lead to repeat purchases or brand loyalty (Bloemer & Kasper, 1995).
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Some studies have tested the relationship between quality, satisfaction and intention-
based loyalty (Agus, 2004; Gotlieb et al., 1994; Taylor & Baker, 1994), and assumed
these relationships to be positive but to vary between products, industries and situations
(Barnes et al., 2004; Johnson & Gustafsson, 2000; Mittal & Kamakura, 2001). Research
in customer satisfaction found that satisfied customers are more likely to purchase the
same product/service repeatedly. The ability to keep customers is related to the intensity
of customer satisfaction. Therefore, it is reasonable to predict that satisfied users of a
website will have a higher loyalty intention toward its services.
H2: Customer satisfaction is positively associated with customer loyalty.

Customer perceived value

Perceived value has its root in equity theory, which considers the ratio of consumer’s
outcome/input to that of the service provider’s outcome/input (Oliver & DeSarbo,
1988). The equity concept refers to customer evaluation of what is fair, right, or deserved
for the perceived cost of the offering (Bolton & Lemon, 1999). Perceived costs include
monetary payments and non-monetary sacrifices such as time consumption, energy con-
sumption and stress experienced by consumers. In turn, customer perceived value
results from an evaluation of the relative rewards and sacrifices associated with the offer-
ing. Customers are inclined to feel equitably treated if they perceive that the ratio of their
outcome to inputs is comparable to the ratio of outcome to inputs experienced by the
company (Oliver & DeSarbo, 1988; Pakdil & Harwood, 2005). Also, customers often
measure a company’s ratio of outcome to inputs by making comparisons with its compe-
titors’ offerings. In other words, the value is conceptualised as a customer’s perceived net
trade-off received from all relevant benefits and costs or sacrifices delivered by a product
or service or supplier and its use.
The common denominator of different authors’ definitions concerning customer
perceived value is that: value for a consumer is related to his expertise or knowledge,
of buying and using of a product; value for a consumer is related to the perception of a
consumer and cannot be objectively defined by an organisation; the customer perceived
value is a multidimensional concept; and it presents a trade-off between benefits and
sacrifices perceived by customers in a supplier’s offering. Based on a synthesis of previous
definitions, customer perceived value is defined here as ‘a consumer’s perception of the
net benefits based on perception of what is received and what is given.’
 Total Quality Management 429

Researchers have also established a positive relationship between perceived value and
intention to purchase/repurchase (Chiu et al., 2005; Dodds et al., 1991; Parasuraman &
Grewal, 2000). Perceived value contributes to the loyalty of an e-business by reducing
an individual’s need to seek alternative service providers. When the perceived value is
low, customers will be more inclined to switch to competing businesses in order to
increase perceived value, thus contributing to a decline in loyalty. Even satisfied customers
are unlikely to patronise an e-business, if they feel that they are not getting the best value
for their money. Instead, they will seek out other sellers in an ongoing effort to find a better
value (Anderson & Srinivasan, 2003; Chang, 2006b). The relationship between customer
satisfaction and customer loyalty appears strongest when the customers feel that their
current e-business vendor provides higher overall value than that offered by competitors.
Therefore, this study proposes that there are significant moderating effects of customer
perceived value on the relationship between customer satisfaction and customer loyalty.
This leads to the third research hypothesis:
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H3: Customer perceived value has a significant moderating effect on the relationship between
customer satisfaction and customer loyalty.
The research model is presented in Figure 1. The model of this research is based on
Bagozzi’s (1992) reformulation of attitude theory and then adopts e-service quality,
customer satisfaction, and customer loyalty as our research constructs. On the other hand,
we also adopt customer perceived value as our fourth research construct to test the
moderating effect. This framework begins with the .comQ measurement scale, consisting
of a four-dimensional structure (website design, reliability, privacy/security and customer
service), to assess if e-service quality is positively associated with customer satisfaction.
Then, this paper develops a set of hypotheses between customer satisfaction and customer
loyalty to test that satisfied users will have a higher loyalty intention.
Furthermore, this study attempts to investigate the influence of the degree of customer
perceived value to interfere with the relationship between customer satisfaction and
customer loyalty. The supporting literature is shown in Table 2.

Figure 1. Research framework.

Research design and methodology

Questionnaire development and sampling plan
The questionnaire development, pilot test and sampling plan are described in this section.
To ensure the content validity of the scales, the items selected represent the concept about
which generalizations are to be made. Therefore, items selected for the constructs were
mainly adapted from prior studies to ensure content validity.
 430 H.H. Chang et al.

Table 2. Hypotheses and support working.

Hypotheses Supporting literature
H1: E-service quality is positively associated Babakus et al. (2003), Dabholkar et al. (2000),
with customer satisfaction Oliver (1997), Parasuraman et al. (1988), Rust
and Oliver (1994), Taylor and Baker (1994),
van Riel et al. (2004), Wolfinbarger and Gilly
(2002)
H2: Customer satisfaction is positively Anderson and Srinivasan (2003), Bloemer and
associated with customer loyalty Kasper (1995), Gotlieb et al. (1994), Taylor
and Baker (1994), Yang and Peterson (2004),
Zeithaml et al. (1996)
H3: Customer perceived value has a significant Anderson and Srinivasan (2003), Chiu et al.
moderating effect on the relationship (2005), Dodds et al. (1991)
between customer satisfaction and
customer loyalty
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A questionnaire initially including 29 items was generated, consisting of 14 items for

e-service quality, three items for customer satisfaction, eight items for customer loyalty
and four items for customer perceived value. Likert scales (1 – 7), with anchors ranging
from ‘1 ¼ strongly disagree’ to ‘7 ¼ strongly agree’ were used for all questions. The
research questionnaire was made up of four parts that measure different constructs.
Demographic variables were employed in the study including gender, age, education
and employment, average surfing time within a week, average spending and payment
methods. On the other hand, which websites, purchasing times within six months and
purchasing goods are also employed in the study. The construct reliability of each
measurement scale will be further clarified after conducting the pilot study.

Pilot test
An instrument with multiple scaled items for the constructs of interest was developed as
described in the previous section. The questionnaire needed to be pre-tested through a
pilot study. Online shoppers were selected as pretest sample respondents. Based on
their feedback, the questionnaire was further revised and finalised. The process of pilot
testing was as follows:
(1) Sample responses: the questionnaire of 29 statements is designed to explore
respondents’ perception of each construct. The pilot test had 70 responses, all
from a paper-based survey. Ten invalid questionnaires were eliminated and 60
questionnaires retained for analysis. The response rate is 85.71%.
(2) The results of the pilot test: one e-service quality item (e-SQ1) (communalities
0.5), and two customer loyalty items (CL1, CL8) (communalities 0.5). The three
statements were deleted after the pilot test. Ultimately, a final 26-item survey ques-
tionnaire contained four parts: e-service quality measurement (13 items), customer
satisfaction measurement (three items), customer loyalty measurement (six items)
and customer perceived value measurement (four items).

Sampling plan
The people who have an online shopping experience are our research subjects. In order to
maximise the questionnaire’s coverage, the internet is believed to be the most effective
 Total Quality Management 431

way to assure respondents’ variety and quantity. On the other hand, Tan and Teo (2000)
suggested that online field surveys have several advantages over traditional paper-based
mail-in-surveys. For instance, they are cheaper to conduct, elicit faster responses and
are geographically unrestricted (Hsu & Lu, 2004). Such surveys have been widely used
in recent years. Thus, all samples are expected to be collected from the online website
and expected to generate 350 respondents. The online questionnaire also confirms that
our sample have experience of using the internet. The internet questionnaire survey was
hosted in Chungwa Telecom Co., Ltd. The questionnaire collection was kept running
continuously for two weeks in the survey period.

Data analysis procedure and methods

In order to investigate the objectives of this study and test the hypotheses, LISREL 8.52
was employed to help us analyse the collected data. Five main statistical analyses were
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described as followed.
(1) Descriptive Statistical Analysis: in order to summarise the characteristics of
respondents and better understand each research variable, descriptive statistical
analysis was used to illustrate the means, and standard deviations of each research
variable.
(2) Confirmatory Factor Analysis: CFA is used to test the reliability and validity. A
reliability test for each construct was applied to assess the internal consistency
from composite reliability. The composite reliability must be larger than 0.7
(Hair et al., 1998). Convergent validity can be assessed by the average extracted
variances and were all above the recommended 0.5 level, and it can also
be assessed by factor loading which should be greater than 0.5 (Hair et al.,
1998).
(3) Structural Equation Modelling: SEM is used to verify the goodness of fit of
the research framework and to describe the relationships among the construct
variables. The LISREL 8.52 software package is used to analyse the relationships
in the entire research model to find out the relationships among variables in this
model.
(4) Fisher’s Z-transformation and ANOVA analysis: used to test the moderating effect
of different customer perceived value on the relationship between customer
satisfaction and customer loyalty.

Data analysis and results

Descriptive analysis
The data were gathered through the internet questionnaire of Chungwa Telecom Co., Ltd
in Taiwan. For the final survey, a total of 350 survey questionnaires were collected, 20
invalid questionnaires were eliminated and 330 questionnaires retained for analysis. The
response rate is 94.3%.
The basic attributes of respondents are shown in this section, including seven major
items in this study: gender, age, education, occupation, average surfing time within a
week, disposable income on average each month, and payment for internet purchases. In
the aggregate sample, 44.8% of respondents are men and 55.2% are women. More than
85% of the respondents belong to the Y generation, defined as people born between
1976 – 1985. Almost 95% of the respondents’ education is at institute/college level and
 432 H.H. Chang et al.

above. Of the respondents, 45.7% are students and 54.3% are workers. Approximately
48.6% of the respondents use the internet more than 20 hours each week. In disposable
income, about 71.1% of the respondents have less than US$350 on average to spend
each month. More than 67% of respondents pay for internet purchases by credit card or
ATM transfer account.
In addition, the respondents also show some interesting characteristics. The top three
products purchased online in our study are computer equipment (100), books (87) and
clothes (79). The top three online shopping websites are Yahoo.com (175), Books.com
(58) and PChome.com (36). Further descriptive statistics by questionnaire items for the
respondents are discussed here. These include 13 items of e-service quality, three items
of customer satisfaction, four items of customer perceived value, and six items of customer
loyalty. All variables adopt a 7-point scale. The result of means and standard deviations
indicated that, for the construct of e-service quality, respondents tend to perceive high
levels of agreement on the measurement items with mean scores over 4.9. These results
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seem to indicate that the respondents have positive evaluations that describe the website
design, reliability, security/privacy and customer service. The results also indicate that
the respondents tend to have high levels of satisfaction, with most mean scores at
around 5. These results seem to indicate that the respondents are satisfied with their
shopping experiences on websites.
For the construct of customer loyalty, respondents tend to evaluate the research items
with very favourable opinions, with most of the items greater than 4.5. These results
seem to indicate that the respondents have positive evaluations that describe the repurchase
intention and WOM, and the websites tend to evoke feelings of loyalty in the respondents.
Finally, for the construct of customer perceived value, respondents tend to evaluate the
research items with favourable opinions, with all four items greater than 4.9. These results
seem to indicate that respondents are having high perceived value during online shopping.

Reliability and validity test

A CFA using LISREL 8.25 was conducted to test the measurement model. Reliability and
convergent validity of the constructs were estimated by composite reliability and average
variance extracted (see Table 3). The composite reliability for all constructs was above the
recommended 0.70 level (Hair et al., 1998). Convergent validity can be assessed by the
average extracted variances (AVE) and all were above the recommended 0.50 level
(Fornell & Larcker, 1981), which meant that more than half of the variances observed
in the items were accounted for by their hypothesised constructs. Convergent validity
can also be assessed by factor loading.
Following Hair et al.’s (1998) recommendation, factor loadings greater than 0.50 were
significant. A stricter criterion of loading greater than 0.70 was proposed by Fornell
(1982). All of the factor loadings of the items in the research model were greater than
0.50, with most of them above 0.70. Each item loaded significantly (p , 0.01 in all
cases) on its underlying construct. Therefore, all constructs in the model had adequate
reliability and convergent validity.
To examine discriminant validity, we compared the shared variances between con-
structs with the AVE of individual constructs. According to Fornell and Larcker (1981),
this can be demonstrated by the fact that the square root of AVE of each construct
should generally be higher than the correlations between it and any other constructs in
the model (see Table 4). On the other hand, set variance of each pair constructs to 1,
and then the differences of chi-square were all larger than 3.84 (Joreskog & Sorbom,
 Total Quality Management 433

Table 3. Results of reliability tests.

Factor Composite Ave. var.
loading reliability extracted
Research construct and research items .0.5 .0.7 .0.5
E-service quality
Website design 0.836 0.565
PQ1: This website has a good selection 0.83
PQ2: The site doesn’t waste my time 0.82
PQ3: The level of personalisation at this site is 0.69
about right, not too much or too little
PQ4: It is quick and easy to complete a 0.65
transaction at this website
Reliability 0.736 0.543
PQ5: The product is delivered by the time 0.73
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promised by the website

PQ6: The product that came was represented 0.72
accurately by the website
PQ7: I get what I order from this website 0.76
Security/privacy 0.904 0.759
PQ8: I feel that my privacy is protected at this 0.82
site
PQ9: I feel safe in my transactions with this 0.93
website
PQ10: This website has adequate security 0.86
features
Customer service 0.801 0.575
PQ11: This website offers diversiform contact 0.64
channels (FAQ, email, toll-free number,
etc.)
PQ12: This website offers the information about 0.77
customers’ policies (privacy and dispute
details)
PQ13: I can always enquire online about the 0.85
delivery of my orders

Customer perceived value 0.892 0.677

CPV1: Products purchased at this website are 0.77
very good value for money
CPV2: I get what I pay for at this website 0.68
CPV3: Products purchased at this website are 0.90
worth the money paid
CPV4: Compared to alternative websites, the 0.92
website charges me fairly for similar
products/services
Customer satisfaction 0.866 0.686
CS1: I am satisfied with my decision to 0.78
purchase from this website
CS2: If I had to purchase again, I would feel 0.89
differently about buying from this
website
CS3: My choice to purchase from this website 0.81
was a wise one

(Continued)
 434 H.H. Chang et al.

Table 3. Continued.
Factor Composite Ave. var.
loading reliability extracted
Research construct and research items .0.5 .0.7 .0.5
Customer loyalty
Repurchase intention 0.850 0.596
CL1: When I need to make a purchase, this 0.56
website is my first choice
CL2: I like using this website 0.81
CL3: To me this site is the best retail website to 0.88
do business with
CL4: I believe that this is my favourite retail 0.80
website
Word of mouth 0.783 0.640
CL5: I would recommend the website to those 0.77
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who seek my advice about such matters

CL6: I would encourage friends and relatives to 0.83
use the website

1993). All results confirm discriminant validity. In summary, the measurement model
demonstrated adequate reliability, convergent validity and discriminant validity.

Structural equation model (SEM)

This study aims to identify the relationships among e-service quality, customer satisfac-
tion, customer loyalty and customer perceived value. To achieve this objective, the
SEM is employed to test the interrelationships among all the research constructs, and to
compare the modelled relationships with the observed scores. The proposed structural
equation model is shown in Figure 2.
Before evaluating the structural models, the overall model fit must be assessed to
ensure that the model adequately represents the entire set of causal relationships (see
Table 5). x2 statistic was not used because of its sensitivity to large sample size.
Instead, the ratio of x2 to degree-of-freedom (df) was used, and a value of 3 was obtained,
in keeping with the suggested value of  3 (Carmines & McIver, 1981). Also the goodness
of fit index (GFI) and adjusted goodness-of-fit index (AGFI) were 0.922 and 0.882,
respectively. The normalised fit index (NFI), non-normalised fit index (NNFI) and com-
parative fit index (CFI) are three other indices of fit. Values typically range from 0 to 1,
with values greater than 0.9 representing reasonable model fit. For the measurement
model, we observed values of 0.962, 0.965 and 0.973 for NFI, NNFI and CFI, respectively,
all indicating good model fit. Finally, root mean square residual (RMSR) provides an indi-
cation of the proportion of the variance not explained by the model, whereas root mean
square error of approximation (RMSEA) describes the discrepancy between the proposed
model and the population covariance matrix. RMSR and RMSEA values were 0.083 and
0.079, which was within the recommended cut-off values of 0.10 (RMSR) and 0.08
(RMSEA) for good fit (Byrne, 1998). Therefore, we could proceed to examine the path
coefficients of the structural model.
Figure 2 shows the estimated path coefficients of the structural equation model and the
squared multiple correlations (SMC) for dependent latent constructs, which provide an
estimate of variance explained. As the overall goodness of fit is promising, it is encouraged
to further identify the magnitude and significance of the path structural coefficients of the
Downloaded by [Dalhousie University] at 23:51 07 January 2013

Table 4. Discriminant validity.

Variables 1 2 3 4 5 6 7 8
1. Web design 0.565
2. Reliability 0.436 (111.29
) 0.543
3. Security 0.292 (352.21
) 0.462 (121.81
) 0.759
4. Customer service 0.303 (199.72
) 0.462 (112.28
) 0.533 (94.33
) 0.575
5. Customer perceived 0.490 (320.68
) 0.449 (125.17
) 0.449 (480.85
) 0.449 (213.39
) 0.677
value
6. Customer satisfaction 0.348 (98.78
) 0.372 (76.32
) 0.260 (181.8) 0.260 (107.89
) 0.608 (95.14
) 0.686
7. Repurchase intention 0.423 (296.65
) 0.292 (125.17
) 0.292 (467.74
) 0.270 (218.58
) 0.624 (274.96
) 0.548 (129.93
) 0.596
8. Word of mouth 0.336 (90.49
) 0.281 (193.34
) 0.336 (58.89
) 0.325 (59.99
) 0.706 (25.78
) 0.593 (16.66
) 0.960 (14.41
) 0.640

Total Quality Management

Notes: correlation coefficients are included in the lower triangle of the matrix, and the square root of AVE is on the diagonal.


: p , 0.05; values below the diagonal are correlation estimates.

435
 436 H.H. Chang et al.
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Figure 2. Results of structural modelling analysis.

Notes: Chi-square ¼ 180.59, df ¼ 60, p-value ¼ 0.000, RMSEA ¼ 0.078;
¼ p , 0.05.

Table 5. Fit indices for the measurement model.

Recommended Structural
Measure criteria model Scholars
Chi-square/df %3.0 180.59/6063 Carmines and
McIver (1981)
Goodness-of-fit (GFI) .0.9 0.922 Scott (1994)
Adjusted goodness-of-fit (AGFI) .0.8 0.882
Normalised fit index (NFI) .0.9 0.962 Hu and Bentler
Non-normalised fit index (NNFI) .0.9 0.965 (1999)
Comparative fit index (CFI) .0.9 0.973
Root mean square residual (RMSR) ,0.1 0.083
Root mean square error of ,0.08 0.079 Byrne (1998)
approximation (RMSEA)

model. Table 6 indicates that e-service quality has a significant impact on customer
satisfaction (b , 0.43
).
A further evaluation of the model indicates that customer satisfaction has significant
impact on customer loyalty (b ¼ 0.32
), and with, customer perceived value having a
significant positive impact on customer satisfaction and customer loyalty (b ¼ 0.45
,
b ¼ 0.47
). These results seem to indicate that the interrelationships among e-service
quality, customer satisfaction, customer loyalty and customer perceived value are specifi-
cally significant. Customer satisfaction is significantly impacted by e-service quality
(supporting H1). Customer loyalty is significantly affected by customer satisfaction
(supporting H2) and customer perceived value has significant association with customer
satisfaction and customer loyalty. These results are in conformity with the theories of
experiential consumer behaviour.
 Total Quality Management 437

Table 6. The results of SEM.

Variables/relations Standardised coefficients C.R.


Perceived quality Website design 0.82 A
Reliability 0.84
15.88
Security 0.69
12.79
Customer service 0.64
11.86
Customer perceived value Cpv1 0.82
A
Cpv2 0.92
20.22
Cpv3 0.86
18.82
Cpv4 0.57
10.74
Customer satisfaction Sat1 0.74
A
Sat2 0.69
11.20
Sat3 0.77
12.24
Customer loyalty Repurchase intention 0.75
A
Word of mouth 0.92
12.75
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Paths:
E-service quality!Customer satisfaction 0.43
6.28
Customer satisfaction!Customer loyalty 0.32
3.92
Customer perceived value!Customer satisfaction 0.45
6.62
Customer perceived value!Customer loyalty 0.47
5.80
Notes: C.R.: Critical ratios.
Critical ratios are significant at p , 0.05 when the critical ratios exceed 1.96. A: The
parameter compared by others is set as 1, therefore there is no C.R. It is determined as significant. The coefficients
are a standardised value.

Moderating effects of customer perceived value

Fisher’s Z-transformation analysis
The objective of this section is to examine if customer perceived value will influence the
relationship between customer satisfaction and customer loyalty. Since the construct of
customer perceived value is measured by a 7-point Likert scale, we use cluster analysis
to divide respondents into two groups according to their perception of customer perceived
value. The result of cluster analysis shows that the centre at 5.61 points forms the high
customer perceived value group, and those at 3.86 points form the low customer perceived
value group. Of the 330 respondents, 167 are assigned to the high customer perceived
value, and 163 are the low customer perceived value.
To verify the moderating effect of customer perceived value, the correlation coeffi-
cient between customer satisfaction and customer loyalty of the high customer perceived
value and the low customer perceived value were tested by simple regression. Table 7
shows the R for the high customer perceived value is 0.675 and for the low customer per-
ceived value is 0.484. Then, we use the coefficient R from the result of regression analysis
and the sampling N to conduct the following Fisher’s Z-transformation analysis.
The Z-transformation coefficient of high customer perceived value is 0.820 and the low

Table 7. Fisher’s Z-transformation analysis.

High customer Low customer Significance test
Satisfaction!Loyalty perceived value perceived value (,1.96)
Correlation coefficient R (N) 0.675(167)


0.484(163)


–
Z-transformation coefficient 0.820 0.528 2.625
Notes:


represent that coefficients are significant at 0.001 or above. The critical value for Z is 1.96 for
p , 0.05.
 438 H.H. Chang et al.

customer perceived value is 0.528. The Fisher’s Z-value is 2.625 . 1.96, the one-tailed
test shows that the correlation coefficients are not significantly different at the 95%
significant level (Baron & David, 1986). The result means these data provide strong
evidence that customer perceived value has a significant moderating effect on the
correlation between customer satisfaction and customer loyalty (supporting H3).

ANOVA analysis
In order to test how the different levels of customer perceived value influence the relation-
ship between customer satisfaction and customer loyalty, we use cluster analysis to divide
customer satisfaction and customer perceived value into high and low groups. Then, we
cross these groups and get four alignments (see Table 8). The first group is low perceived
value and low customer satisfaction (n ¼ 111); the second group is low perceived value
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and high customer satisfaction (n ¼ 52); the third group is high perceived value and
low customer satisfaction (n ¼ 39); and the fourth group is high perceived value and
high customer satisfaction (n ¼ 128).
The ANOVA analysis and Scheffe post-hoc test are illustrated in Table 8, and the F
value and p value are all significant (F ¼ 210.414, p , 0.001). According to the results
of Duncan and Scheffe post-hoc, the four groups have significant difference and customer
loyalty of the fourth group is the highest. The customer loyalty of the third group is
higher than the second group, and the customer loyalty of first group is the lowest.
According to Figure 3, we can confirm that when perceived value is low, even high
satisfied customers will have lower customer loyalty than low satisfied customers, who
have high perceived value. So we support H3, that customer perceived value has a signifi-
cant moderating effect on the relationship between customer satisfaction and customer
loyalty.

Table 8. ANOVA analysis.

Low perceived value High perceived value
Low High Low High
satisfaction satisfaction satisfaction satisfaction Scheffe
(n ¼ 111) (n ¼ 52) (n ¼ 39) (n ¼ 128) Duncan post-hoc
Customer 3.799 4.321 4.884 5.729 (1,2,3,4) 1,2,3,4
loyalty
F 210.414
p 0.000



Notes:


: p , 0.001. Duncan (1,2,3,4) reveals the 4 groups are significantly different from each other.

Conclusions and suggestions

The major objectives of this study were to identify the interrelationships among e-service
quality, customer satisfaction, customer loyalty and customer perceived value. Based on
the SEM model and Fisher’s Z-transformation described in this study, there are three
primary conclusions of e-commerce research.
The first conclusion of this study is to examine the effect of e-service quality on
customer satisfaction. The result of the SEM analysis is consistent with our hypothesis.
Several authors state that e-service quality acts as an antecedent of customer satisfaction,
 Total Quality Management 439

Figure 3. The moderating effect of perceived value.

deriving from prior experience (Dabholkar et al., 2000; Oliver, 1997; Parasuraman et al.,
1985, 1988; Rust & Oliver, 1994; Taylor & Baker, 1994). Our results also support a
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positive association of e-service quality with customer satisfaction (H1 is supported),

consistent with previous research.
The second conclusion is the effect of customer satisfaction on customer loyalty. The
result of the SEM analysis is consistent with our hypothesis. Many researches also state
that customer satisfaction acts as an antecedent of customer loyalty (Chang & Wildt,
1994; Cronin et al., 2000; Gale, 1994; Johnson & Gustafsson, 2000; Oliver, 1997,
1999). This study concludes that customer satisfaction has significant association with cus-
tomer loyalty, supporting H2.
The third conclusion of this study is the moderating effect of customer perceived value
on the relationship between customer satisfaction and customer loyalty. The results of the
Fisher’s Z-transformation and ANOVA analysis are consistent with our hypothesis. Ander-
son and Srinivasan (2003) state that customer perceived value has a moderating effect on the
relationship between customer satisfaction and customer loyalty. Our results also support a
moderating effect of customer perceived value on customer satisfaction and customer
loyalty (H3 is supported), consistent with previous research. We also find an interesting
discovery that low satisfied customers who have high perceived value will have higher
customer loyalty than high satisfied customers who have low perceived value.

Managerial implications
From a managerial standpoint, this study provides website designers or owners a broad
theoretical basis that designing successful online shopping businesses should emphasise
on website design, reliability and security/privacy and customer service. As for website
design, the website’s search functions, download speed and organisation all need to be
considered. When customers are shopping online, they can easily find their desired pro-
ducts and information and even complete the order efficiently. Reliability is associated
with accurate presentation of the product and delivery of products on time. Therefore,
improving technical functions of the site to possess accurate presentation and credit
administration is necessary. Website owners also should pay high attention to privacy
or security. Security is a key evaluative criterion in online shopping. When customers
believe it’s safe to transmit private information, they will shop online. Finally, customer
service is another key point that requires consideration. Offering diversified contact
channels is vital so customers can easily and efficiently communicate with the vendor.
Moreover, our study has confirmed that customer satisfaction has a direct and positive
relationship with customer loyalty. We found that satisfied customers are more likely to
 440 H.H. Chang et al.

purchase repeatedly and have positive WOM. In order to maintain a good long-term
relationship, website owners should enhance service quality to satisfy customers and
naturally acquire loyal customers.
The most interesting issue we discovered was the moderating effect of customer per-
ceived value on the relationship, between customer satisfaction and customer loyalty.
When both customer satisfaction and customer perceived value are high, website
owners will have high customer loyalty. In order to improve e-service quality, however,
website owners need to spend much on maintenance and renewal, which may cost too
much in order to earn a profit. From the result of moderating effect of customer perceived
value, we discover that when website owners offer acceptable e-service quality and
emphasise improving customer perceived value (that is, higher level product quality or
lower price), they will gain higher customer loyalty than offering higher e-service
quality but having low perceived value. According to this finding, we infer that customer
perceived value is a key factor to affect customer loyalty under acceptable e-service
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quality. The managerial implication here is that website owners can reduce costs and
increase revenues by offering an acceptable e-service quality and reflect cost reduction
on the price to raise customer perceived value, then raise customer loyalty.

Research limitations and future research

There are several limitations of this research that should be considered when interpreting
its findings. Firstly, we did not research the moderating effect of the relationship between
e-service quality and customer satisfaction due to time and complexity. This limitation of
the study would be interesting for future research.
Secondly, application of this research in different business and settings such as
business-to-business in both cross-sectional and longitudinal studies could also help
extend the validity of these findings.
Thirdly, not all of the diverse factors that moderate the relationship between customer
satisfaction and customer loyalty were discussed in this study. Besides customer perceived
value, further studies might also benefit from focusing on a wider range of variables, poss-
ibly exploring the effect of involvement, convenience orientation, and switching costs for
example. In addition, a more comprehensive model might be developed.
Fourthly, repurchase intention and WOM were integrated into customer loyalty.
However, some studies have shown that marketing programmes can have different
effects on different customer behaviours. It would therefore be interesting to conduct
further research to examine the different behaviours of customer loyalty.
Finally, within the broad business-to-customer grouping, this study considers
e-commerce in general and does not focus on any particular type of website. Any gener-
alisation must be undertaken with extreme caution and in a manner that respects the
complexities of differences and similarities in product category, industry and national
context. This limitation of the study highlights a number of potentially interesting
future research projects, in which, researchers could narrow down the range of product
category or industry, to verify the fit of this conceptual framework.

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