Does customer satisfaction lead to improved

brand equity? An empirical examination of two

categories of retail brands
Ravi Pappu
University of Queensland Business School, Brisbane, Australia, and
Pascale Quester
School of Commerce, University of Adelaide, Adelaide, Australia

Abstract
Purpose – The objective of the present research is to examine the relationship between consumers’ satisfaction with a retailer and the equity they
associate with the retail brand.
Design/methodology/approach – Retail brand equity is conceptualized as a four-dimensional construct comprising: retailer awareness, retailer
associations, retailer perceived quality, and retailer loyalty. Then the associative network memory model is applied from cognitive psychology to the
specific context of the relationships between customer satisfaction and consumer-based retailer equity. A survey was undertaken using a convenience
sample of shopping mall consumers in an Australian state capital city. The questionnaire used to collect data included an experimental design such that
two categories of retailers were included in the study: department stores and specialty stores, with three retailers representing each category. The
relationship between consumer-based retailer equity and customer satisfaction was examined using multivariate analysis of variance.
Findings – Results indicate that retail brand equity varies with customer satisfaction. For department stores, each consumer-based retailer equity
dimension varied according to customer satisfaction with the retailer. However, for specialty stores, only three of the consumer-based retailer equity
dimensions, namely retailer awareness, retailer associations and retailer perceived quality, varied according to customer satisfaction level with the
retailer.
Originality/value – The principal contribution of the present research is that it demonstrates empirically a positive relationship between customer
satisfaction and an intangible asset such as retailer equity.

Keywords Consumer behaviour, Customer satisfaction, Brands, Department stores, Customer loyalty, Australia

Paper type Research paper

An executive summary for managers and executive
readers can be found at the end of this article.
Introduction and background
The notion that brands add value to products has been called
brand equity. Based on the premise that branding and brand
management principles can be applied to retail brands, albeit
with certain variation (Ailawadi and Keller, 2004, p. 340), the
concept of retailer equity, whereby the name of a retailer
bestows value upon it, has recently attracted the attention of
both marketing researchers (e.g. Arnett et al., 2003) and
practitioners (e.g. Kramer, 1999; Thompson, 1998). Likewise,
brand equity has been referred to as consumer-based brand
equity (e.g. Pappu et al., 2005; Yoo and Donthu, 2001), from
a consumer or marketing perspective, we refer to the equity
consumers associate with a retail brand as consumer-based
retailer equity. The objective of the present research is to
The current issue and full text archive of this journal is available at
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Journal of Product & Brand Management
15/1 (2006) 4–14
q Emerald Group Publishing Limited [ISSN 1061-0421]
[DOI 10.1108/10610420610650837]
examine the relationship between customer satisfaction and
consumer-based retailer equity.
Building brand equity is an important strategic issue for
retailers, generating multiple benefits such as the ability to
leverage one’s name by launching private label brands and
increase revenue and profitability by insulating them from
competitors (Ailawadi and Keller, 2004). In recent years,
retailers have been facing a challenging marketing
environment in the form of more demanding consumers,
intensified competition and slow-growth markets (Bloemer
and Odekerken-Schroder, 2002; Sirohi et al., 1998). Retail
sales now represent a declining share of consumer
expenditures in several Western economies because of
factors such as ageing populations, changing consumption
patterns and saturation in demand (Webb, 2000, p. 503). As a
result, building brand equity has become increasingly
important for retailers in order to maintain or improve their
economic performance. Indeed, retailers have recognized the
power of branding and are increasingly focusing on brand
building (Feuer, 2005). For example, the US clothing retailer
Abercrombie & Fitch adopted this strategy successfully in the
late 1990s to improve sales and profitability (Nannery, 2000).
Despite this increased focus on retail branding, however, the
The authors would like to thank the Faculty of Economics, Business and
Law, University of New England for funding this research.

4
 Does customer satisfaction lead to improved brand equity?
Ravi Pappu and Pascale Quester
extant marketing literature offers little insight into the concept
of retail brand equity.
Creating customer satisfaction is another known antecedent
to a firm’s economic performance. For example, high
customer satisfaction levels have been found to lead to
customer retention (e.g. Day, 1994). Customer satisfaction is
also believed to influence consumer purchase intentions
(Cronin and Taylor, 1992) and repeat purchase behavior
(LaBarbera and Mazursky, 1983; Reichheld and Sasser,
1990). Further, researchers have also observed a positive
relationship between customer satisfaction and consumers’
willingness to pay a high price (Huber et al., 2001). According
to Homburg and Giering (2001, p. 44), achieving high levels
of customer satisfaction has become a major goal for many
companies”. Indeed, many companies spend significant
proportion of their research budgets on measuring customer
satisfaction (Wilson, 2002), particularly in the retail sector
(Sivadas and Baker-Prewitt, 2000). Hence, it is important for
marketers to develop a better understanding of the outcomes
of customer satisfaction, particularly, in the context of retail
brands as they face an increasingly challenging marketing
environment.
Customer satisfaction is one of the most widely researched
topics in marketing (Henning-Thurau and Klee, 1997; Oliver,
1999). For example, customer satisfaction has been
examined, not only at the manufacturer-level (e.g. Sony),
but also at the retailer-level (e.g. Myer) (Ewing, 2000) as well
as at the store-level (e.g. Bloemer and Odekerken-Schroder,
2002; Bloemer and de Ruyter, 1998). However, relatively
fewer studies have investigated the outcomes of customer
satisfaction (Szymanski and Henard, 2001). For example, it is
not clear from the existing marketing literature whether
customer satisfaction is linked to some intangible assets, such
as brand equity. In particular, the linkages between customer
satisfaction and retail brand equity are not satisfactorily
explained. Hence, it is important for marketers to understand
whether customer satisfaction with a retailer is linked to its
brand equity and this is the main motivation for this study.
The relationship between customer satisfaction with a
retailer and the equity consumers may associate with the
retail brand, has never, to the authors’ knowledge, been
formally investigated in previous studies. The principal
objective of the present research, therefore, is to examine the
relationship between customer satisfaction with a retailer
(hereafter called customer satisfaction) and the equity
associated by consumers with that retail brand (hereafter
called consumer-based retailer equity). This paper reports
the results of an empirical study conducted in Australia,
exploring the relationship between customer satisfaction and
consumer-based retailer equity using the associative network
memory model. The study reported here is part of a wider
project examining the dimensionality of consumer-based
retailer equity and the effects of retailer category on
consumer-based retailer equity.
The remainder of the paper is structured as follows. The
next section develops a conceptual model based on the
associative network memory model (Anderson, 1993) as well
as a series of hypotheses. This is followed by a description of
the research methodology adopted. The results are discussed
subsequently. Next, the theoretical implications and
implications for managers are provided. The limitations of
this research are outlined in conclusion, along with future
research directions.
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Volume 15 · Number 1 · 2006 · 4 –14
Conceptual model and hypotheses
Customer satisfaction
Satisfaction has been conceptualized in different ways in the
marketing literature. Some researchers have argued that
satisfaction is a transaction-specific measure (e.g. Cronin and
Taylor, 1992, p. 56). Other researchers view satisfaction as an
overall evaluation based on the total purchase consumption
and experience (e.g. Anderson et al., 1994). In general,
satisfaction has been conceptualized in terms of whether the
product/service meets consumer needs and expectations
(Zeithaml and Bitner, 2000). In this paper, we
conceptualize the satisfaction associated with a retailer
(customer satisfaction) as a cumulative experience, based on
an overall evaluation[1]. This is consistent with Oliver (1997,
p. 28), who defined satisfaction as “the summary
psychological state resulting when the emotion surrounding
disconfirmed expectations is coupled with a prior feelings
about the consumer experience”.
Consumer-based retailer equity and its dimensions
The present research conceptualizes retail brand equity from
a consumer perspective. Consumer-based retailer equity is
defined in the present research similar to Aaker (1991, p. 15)
as “the value consumers associate with a retailer, as reflected
in the dimensions of: retailer awareness, retailer associations,
retailer perceived quality and retailer loyalty”. These
consumer-based retailer equity dimensions mirror the four
brand equity dimensions (e.g. brand awareness, brand
associations, perceived quality and brand loyalty) proposed
by Aaker (1991, 1996). Both Aaker (1991) and Keller (1993)
have conceptualized brand equity based on consumers’
memory-based associations.
We define retailer awareness as “the consumer’s ability to
recognize or recall a retailer”, mirroring Aaker’s (1991, p. 61)
definition of brand awareness as “the ability of a potential
buyer to recognize or recall that a brand is a member of a
certain product category”.
Retailer associations form another dimension of retailer
equity. We define retailer associations as “anything linked to
the memory of a retailer”, a definition similar to Aaker’s
(1991, p. 109) definition for brand associations. Retailer
associations are attributes and benefits linked to the name of
the retailer, in the consumer’s mind (Keller, 1993).
Perceived retailer quality is defined as “consumer’s
judgment about a retailer’s overall excellence or
superiority”. This definition adapted from Zeithaml’s (1988,
p. 3) definition of perceived quality emphasizes consumer
perceptions over the actual or objective quality of the retailer.
Perceived quality is believed to be a type of association
warranting elevation to the status of a separate dimension of a
retailer’s (or brand’s) equity (see Aaker, 1991).
Finally, retailer loyalty is also conceptualized as one of the
dimensions of retailer equity. Loyalty has been defined both
behaviorally (e.g. Bloemer and Odekerken-Schroder, 2002;
Oliver, 1997; Tranberg and Hansen, 1986) and attitudinally
(e.g. Chaudhuri and Holbrook, 2001; Yang and Peterson,
2004; Yoo and Donthu, 2001). Both conceptualizations of
loyalty have attracted criticism and some researchers have
argued that loyalty should be measured as a combination of
both behavioral and attitudinal measures (e.g. Day, 1969;
Dick and Basu, 1994). Given that retailer equity has been
conceptualized in the present research based on consumer
 Does customer satisfaction lead to improved brand equity?
Ravi Pappu and Pascale Quester
perceptions, we define retailer loyalty as “the tendency to be
loyal to a retailer, as demonstrated by the intention to
purchase from the retailer as a primary choice”. This
definition was adapted from Yoo and Donthu (2001, p. 3),
and is akin to what Javalgi and Moberg (1997) called “latent”
loyalty.
Associative network memory model
The associative network memory model (Anderson, 1993)
provides a powerful basis for elucidating the relationships
between customer satisfaction and retailer equity. Researchers
have made use of this influential framework from cognitive
psychology to explain marketing phenomena. For example,
both Aaker (1991) and Keller (1993) have conceptualized
brand equity based on consumers’ memory-based
associations, whereas Washburn et al.(2004) recently used
the associative learning framework to examine the role of
brand equity in brand alliances.
According to the associative network memory model,
human memory consists of associative networks (Anderson,
1976; Wyer and Srull, 1986). Each associative network is
believed to consist of several nodes. Nodes are stored
information, which are linked to each other in some way
(Keller, 1993). For example, if the department store “Myer”
is a node in the consumer memory, then attributes such as
“good store atmosphere” or “good customer service” could
be other important nodes linked to the node “Myer”. That is,
these attributes (“good store atmosphere” and “good
employee service”) serve as associations to the retailer, Myer.
This notion of associations, adopted from cognitive
psychology, is popular in marketing. Consumers are known
to associate product categories with brands (e.g. Farquhar
and Herr, 1993) and countries (e.g. Roth and Romeo, 1992).
Consumers are also known to associate certain product
categories and features with specific retailers. For example,
some consumers in Australia are known to associate the
supermarket chain Woolworths with fresh produce, whereas
others associate some specialty stores, such as Country Road,
with high-quality clothing. Consumers’ memory-based
associations have both direction and strength. Farquhar and
Herr (1993), for example, have argued that brand-product
category associations are bi-directional. That is, when the
product category “pens” is mentioned, a consumer might
recall the brand name “Parker”. Also, when the brand name
“Parker” is mentioned the consumer might recall the product
category “pens”.
Furthermore, activating one node in memory leads to the
activation of other linked nodes (Collins and Loftus, 1975).
For example, when a consumer thinks of the retailer David
Jones, other linked nodes such as “convenient facilities” or
“variety of products” might be activated in the consumer’s
mind. The possibility of retrieval/activation of a related node
depends on the strength of association between two nodes
(Keller, 1993). That is, whether or not these two nodes
(“convenient facilities” or “variety of products”) are activated
when the retailer David Jones is recalled by the consumer,
depends upon the strength of the association between the
node “David Jones” and these two nodes in consumer
memory. The strength of association between two nodes
depends upon the number of times the two nodes have been
associated with each other in the past (Fazio, 1986; Till and
Shimp, 1998).
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Relationships between customer satisfaction and
retailer equity
Customer satisfaction and retailer awareness
Retailer awareness is defined in the present research as the
consumer’s ability to recognize or recall a retailer (not merely
knowing the retailer) when s/he is exposed to the relevant
retailer category. Consumers highly satisfied with a retailer
may recall the name of the retailer readily, compared to
consumers who are less satisfied with the retailer. However,
consumers who are strongly dissatisfied with a retailer may in
fact exhibit higher retailer awareness levels, quite possibly
because of their dissatisfaction. That is, both high satisfaction
and dissatisfaction levels can generate strong associations in
consumers’ minds towards a retailer. In this study, we focus
on customer satisfaction and not on their dissatisfaction. As a
result, we envisage a positive relationship between customer
satisfaction and retailer awareness.
Customer satisfaction and retailer associations
Retailers, similar to brands, are known to possess images
(Chowdhury et al., 1998; Steenkamp and Wedel, 1991). An
image is a set of the associations (organized in a meaningful
way) in consumers’ minds (Keller, 1993, p. 109). Just as
consumers develop associations between a brand and its
attributes and the benefits perceived from the brand
(Krishnan, 1996), so too would they have associations
towards a retailer based on the attributes of the retailer and
the benefits perceived from the retailer. We believe that
everything else being equal, satisfaction should impact
positively on the strength and favorability of associations
towards a retailer in consumers’ minds. For example,
consumers who are highly satisfied with the department
store Target might associate the attribute “employee service”
strongly with this retailer, compared to consumers less
satisfied with this retailer. Similarly, highly satisfied
consumers might believe more strongly that they would
receive better “after sales service” from a retailer compared to
less satisfied consumers. That is, consumers are more likely to
have favorable and strong associations towards a retailer when
they are highly satisfied with that retailer than when they
report low satisfaction levels. Hence, we expect that a positive
relationship exists between customer satisfaction with the
retailer and their retailer associations[2].
Customer satisfaction and retailer-perceived quality
Satisfaction and perceived quality are believed to be highly
correlated (Bitner and Hubbert, 1994; Olsen, 2002). Sivadas
and Baker-Prewitt (2000) found a positive relationship
between service quality and satisfaction, consistent with
previous research (e.g. Anderson et al., 1994; Bitner et al.,
1994). There are, however, two schools of thought on the
causal ordering between perceived quality and satisfaction
(Babakus et al., 2004). According to one perspective,
perceived quality is an outcome of satisfaction (e.g.
Dabholkar et al., 2000), whereas another perspective holds
that satisfaction leads to higher perceptions of quality (e.g.
Bitner, 1990). In the present study, our main objective was to
investigate the retailer equity-customer satisfaction
relationship. We believe that satisfied consumers are more
likely to hold favorable and strong perceptions of quality,
compared to less satisfied consumers. That is, we propose a
positive relationship between customer satisfaction and retailer
perceived quality. As previously mentioned, perceived quality
is a type of retailer association contributing to the retailer’s
 Does customer satisfaction lead to improved brand equity?
Ravi Pappu and Pascale Quester
brand equity. We believe that satisfaction impacts positively
the strength and favorability of the associations related to
quality towards a retailer, in consumers’ minds. For example,
highly satisfied consumers might associate the attribute “high
quality” strongly with a retailer such as Myer, compared to
consumers exhibiting low satisfaction levels with Myer.
Similarly, highly satisfied consumers might believe more
readily that they would receive products of “reliable quality”
from a retailer compared to consumers who are less satisfied
with the same retailer.
Customer satisfaction and retailer loyalty
The extant research provides mixed evidence of the nature of
the relationship between satisfaction and loyalty. Some
researchers (e.g. Cronin and Taylor, 1992; Woodside et al.,
1989) including those who conceptualized loyalty based upon
attitudes or intentions (e.g. Dabholkar et al., 2000; Yang and
Peterson, 2004), found evidence of a positive relationship
between satisfaction and loyalty. However, other researchers
(e.g. Sivadas and Baker-Prewitt, 2000) found no relationship
between satisfaction and loyalty. Furthermore, the literature
reports instances of a large proportion of satisfied consumers
not engaging in repeat purchase (e.g. Henning-Thurau and
Klee, 1997). Some researchers have noted weak correlations
between satisfaction and loyalty (e.g. Van Looy et al., 1998),
whereas others have argued that satisfaction is a necessary,
but not sufficient, condition leading to loyalty or repeat
purchase (Bloemer and Kasper, 1995). Despite this, there
seems to be a predominant belief that satisfied customers are
often loyal and that they engage in repeat business (e.g.
Cronin and Taylor, 1992; Homburg and Giering, 2001).
Given that satisfied consumers are more likely to hold
favorable attitudes and loyalty towards a retailer than their
less-satisfied counterparts, we envisage a positive relationship
between customer satisfaction and retailer loyalty.
One notable feature in the studies that have investigated the
satisfaction-loyalty relationship and found mixed results, is
that each study had used a different type of product/service.
Consumers would have different levels of personal experience
and different degrees of confidence regarding the performance
of each type of product/service/retailer. Further, consumers’
frequency of purchase/shopping, including the quantity of
merchandise purchased as well as amount of money spent on
each shopping occasion, could vary depending on the
category of retailer. For example, consumers are likely to
shop at a department store more often than they would at a
clothing store. Further, consumers perceive different levels of
risk when buying from different retailers according to the
image level of the retailers (e.g. high/low) (Sheinin and
Wagner, 2003). Hence, we expect the relationship between
customer satisfaction and retailer loyalty to vary depending on
the type of retailer.
Overall, then, consumers exhibiting high levels of
satisfaction with a retailer are likely to attach more equity to
that retailer than less satisfied consumers, leading to our core
hypothesis and several sub-hypotheses, stated as follows:
H1. In a given retailer category, the equity associated with a
retailer varies significantly as a function of consumer
satisfaction with the retailer.
H1a. Retailer awareness varies significantly as a function of
customer satisfaction.
H1b. Retailer associations vary significantly as a function of
customer satisfaction.
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Volume 15 · Number 1 · 2006 · 4 –14
H1c. Retailer perceived quality varies significantly as a
function of customer satisfaction.
H1d. Retailer loyalty varies significantly as a function of
customer satisfaction.
Method
We collected data using a cross-sectional mall intercept
survey. Systematic sampling was used to collect a total of 601
usable responses from a convenience sample of consumers at
a busy shopping mall located in the CBD of an Australian
capital city. Trained research assistants employed to collect
the data approached every tenth consumer. The questionnaire
used to collect data included an experimental design: a
between-subjects design was employed to examine the
differences in retailer equity across two consumer groups
with different satisfaction levels. The model was tested for two
categories of retailers, namely specialty stores and department
stores. The unit of analysis was the individual consumer.
Country Road, Fletcher Jones and Jeans West were the three
specialty stores and Myer, Target and David Jones were the
three department stores included in the study. All these
retailers are present on the mall where the data were
collected[3].
The questionnaire included two sections. Section one of the
questionnaire comprised items measuring various dimensions
of consumer-based retailer equity, namely: retailer awareness,
retailer associations, retailer perceived quality and retailer
loyalty. Researchers (e.g. Yoo and Donthu, 2001) have
advocated adapting or extending consumer-based brand
equity measurement methods to the measurement of retailer
equity. These measures were adapted from the literature (e.g.
Aaker, 1991; Dabholkar et al., 1996; Koo, 2003; Yoo and
Donthu, 2001; Yoo et al., 2000) and had been empirically
tested and employed in earlier studies (e.g. Arnett et al., 2003;
Pappu et al., 2005; Washburn and Plank, 2002; Yoo and
Donthu, 2002). Each item had the verbal anchors “strongly
disagree” and “strongly agree” and used seven-point scales.
Respondents were also provided with the option “not able to
rate”.
Questions dealing with the demographic information (e.g.
respondent age, gender and satisfaction with the retailer) were
included in section two of the questionnaire. Researchers have
used both attitudinal and behavioral measures to define and
assess loyalty (Oliver, 1999; Zeithaml, 2000). In the present
study, customer satisfaction was captured through an
aggregate (single-item) level of measurement capturing a
consumer’s overall or global satisfaction with a product or
service, which “may be a more accurate measure of customer
satisfaction” (Szymanski and Henard, 2001, p. 20), since
consumer repeat-purchase may be “affected by cumulative
satisfaction rather than individual episodic satisfaction” (Yi
and La, 2004, p. 354). Other researchers have followed this
approach and used measures of global satisfaction (e.g.
Babakus et al., 2004; Olsen, 2002; Sivadas and Baker-Prewitt,
2000). The single-item measure for customer satisfaction with
the retailer was adapted from the literature (e.g. Bitner and
Hubbert, 1994) and included a five-point scale anchored
from “not at all satisfied” to “very satisfied”.
The questionnaire was pretested using a judgment sample
of actual consumers, and was subsequently revised to improve
readability and understanding. Two different versions of the
questionnaire were then designed for each of the retailer
 Does customer satisfaction lead to improved brand equity? Journal of Product & Brand Management
Ravi Pappu and Pascale Quester Volume 15 · Number 1 · 2006 · 4 –14

categories included in the study: one version for each type of the high satisfaction group. The four consumer-based retailer
retailer. Each respondent in our survey was asked to complete equity variables (retailer awareness, retailer associations,
only one version of the questionnaire. All questions in the two retailer perceived quality and retailer loyalty) were
versions were similar except for the names of the retailers. computed by averaging the scores of the variables loading
onto them[4]. All of the assumptions for MANOVA (e.g.
Results and discussion absence of multicollinearity, equality of variance-covariance
matrices, linearity and normality) were met for the analysis,
The demographics of the sample were compared to those of and in all cases, the cell size was greater than the minimum
the national population. The proportion of female recommended (see Table II)[5]. Since awareness is an
respondents (64.5 percent) in the sample was much higher
essential requisite for satisfaction to occur, only responses
than that of males (35.5 percent), and well above the national
from respondents who were aware of the retailer were
proportion of 50.5 percent (Australian Bureau of Statistics,
included in the analysis. That is, respondents who had never
2002), reflecting women’s greater predilection for shopping
(see Table I). The sample was also skewed towards the heard of a given retailer were dropped, which led to smaller
younger population, with 74 percent of respondents aged sample sizes for specialty stores, as shown in Table II[6].
between 18 and 29, as opposed to the national population, The results of all multivariate hypothesis tests associated
where around 16.4 percent of people comprise this age group. with the experimental design are summarized in Table III.
Once again, this was deemed to represent the greater Several statistically significant results were obtained.
likelihood of younger consumers to engage in the sort of Table III shows that the multivariate main effect for
shopping available in this particular mall. Hence, while our customer satisfaction was significant for each MANOVA
sample does not reflect key national demographics, we believe analysis, indicating that the set of consumer-based retailer
the sample represented well the general Australian population equity dimensions varied according to customer satisfaction
of active shoppers, comprising mainly women and young levels with the retailer. Therefore, H1 was supported. The
people. multivariate main effect for customer satisfaction accounted
The principal objective of the present research was to for between 16.3 percent and 27 percent of the variance in the
examine whether consumer-based equity of a retailer varied dependent variables. The individual means for consumer-
according to customer satisfaction with the retailer. based retailer equity dimensions for high customer
Multivariate analysis of variance (MANOVA) was used to satisfaction group and low customer satisfaction group are
investigate differences in consumer-based retailer equity by shown in Table IV, for both specialty and for department
customer satisfaction. A total of six MANOVAs were stores. Respondents reporting high satisfaction levels showed
conducted, one for each retail brand. Due to the number of significantly higher ratings for all consumer-based retailer
significance tests conducted, the level of significance was set
equity dimensions, namely, retailer awareness, retailer
at the more stringent 0.01 level.
Customer satisfaction (two levels) was used as the between-
subjects factor in each MANOVA. The continuous variable, Table II MANOVA results – between-subjects factors cell sizes
customer satisfaction, was converted into a dichotomous Department stores Specialty stores
variable and the sample was split into two groups (high or
Satisfaction David Country Fletcher Jeans
low), according to consumer satisfaction levels. That is,
level Myer Target Jones Road Jones West
respondents who reported satisfaction ratings between 1 and
3 comprised the low satisfaction group, whereas respondents High 221 211 180 87 44 145
who reported satisfaction ratings between 4 and 5 comprised Low 83 93 87 74 47 92
Total 304 304 267 161 91 237
Table I Demographic profile of the sample
Sample Australian population
Table III MANOVA results – significance of multivariate tests
Demographic characteristic n % (2001 census) %
Effect Between-subjects effects
Gender (n 5 598)
Retailer category Wilks’ Exact Hypoth Error Partial
Male 212 35.5 49.4
Retailer L F df df p-value h2
Female 386 64.5 50.6
Missing 3 Customer satisfaction
Total 601 100.0 100.0 Department stores
Age (n 5 598) Myers 0.793 19.537 4 299 , 0.001 * * 0.207
18-29 years 443 74.1 16.4 Target 0.837 14.541 4 299 , 0.001 * * 0.163
30-39 years 71 11.9 15.1 David Jones 0.754 21.375 4 262 , 0.001 * * 0.246
40-49 years 35 5.9 14.7 Specialty stores
50-59 years 34 5.7 11.8 Country Road 0.799 9.804 4 156 , 0.001 * * 0.201
60 years or more 15 2.5 19.5 Fletcher Jones 0.835 4.264 4 86 0.003 * 0.165
Missing 3 Jeans West 0.730 21.434 4 232 , 0.001 * * 0.270
Total 601 100.0
Notes: *deemed significant at 0.01 level; * *deemed significant at 0.001
Source: Australian Bureau of Statistics (2002) level

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 Does customer satisfaction lead to improved brand equity? Journal of Product & Brand Management
Ravi Pappu and Pascale Quester Volume 15 · Number 1 · 2006 · 4 –14

Table IV MANOVA results – univariate tests – between-subjects effects

Retailer category Customer satisfaction
Retailer name Low High
Retailer equity dimension F (df, dferror) p-value Partial h2 Mean SD Mean SD
Department stores
Myer (n 5 304)
Retailer awareness 23.61(1, 302) ,0.001 * * 0.072 5.04 0.99 5.64 0.96
Retailer associations 60.28(1, 302) ,0.001 * * 0.166 4.40 1.23 5.40 0.90
Retailer perceived quality 64.55(1, 302) ,0.001 * * 0.176 4.64 1.11 5.57 0.80
Retailer loyalty 36.00(1, 302) ,0.001 * * 0.107 2.91 1.36 4.01 1.44
Target (n 5 304)
Retailer awareness 31.79(1, 302) ,0.001 * * 0.095 5.12 1.13 5.80 0.89
Retailer associations 35.21(1, 302) ,0.001 * * 0.104 4.54 1.21 5.29 0.91
Retailer perceived quality 50.00(1, 302) ,0.001 * * 0.142 4.26 1.25 5.20 0.98
Retailer loyalty 25.96(1, 302) ,0.001 * * 0.079 3.41 1.59 4.37 1.46
David Jones (n 5 267)
Retailer awareness 24.89(1, 265) ,0.001 * * 0.086 5.12 1.34 5.88 1.07
Retailer associations 57.75(1, 265) ,0.001 * * 0.179 4.43 1.17 5.54 1.10
Retailer perceived quality 63.73(1, 265) ,0.001 * * 0.194 4.70 1.13 5.78 0.99
Retailer loyalty 52.49(1, 265) ,0.001 * * 0.165 2.94 1.49 4.42 1.61
Specialty stores
Country Road (n 5 161)
Retailer awareness 23.99(1, 159) ,0.001 * * 0.131 4.76 1.13 5.56 0.96
Retailer associations 26.38(1, 159) ,0.001 * * 0.142 4.43 1.11 5.24 0.91
Retailer perceived quality 35.79(1, 159) ,0.001 * * 0.184 4.49 1.17 5.44 0.83
Retailer loyalty 06.09(1, 159) 0.015 0.037 3.28 1.54 3.86 1.42
Fletcher Jones (n 5 91)
Retailer awareness 13.36(1, 89) ,0.001 * * 0.131 3.48 1.57 4.68 1.55
Retailer associations 13.21(1, 89) ,0.001 * * 0.129 3.34 1.54 4.40 1.23
Retailer perceived quality 10.99(1, 89) 0.001 * 0.110 3.58 1.49 4.61 1.47
Retailer loyalty 2.42(1, 89) 0.123 0.027 2.75 1.57 3.27 1.65
Jeans West (n 5 237)
Retailer awareness 29.42(1, 235) ,0.001 * * 0.111 4.97 1.30 5.80 1.05
Retailer associations 67.84(1, 235) ,0.001 * * 0.224 4.32 1.23 5.52 0.99
Retailer perceived quality 75.93(1, 235) ,0.001 * * 0.244 4.01 1.34 5.36 1.04
Retailer loyalty 42.15(1, 235) ,0.001 * * 0.152 3.00 1.62 4.30 1.41
Notes: SD ¼ standard deviation; *deemed significant at 0.01 level; * * deemed significant at 0.001 level

associations, retailer perceived quality and retailer loyalty,
compared to respondents with low satisfaction levels.
Univariate F-tests (see Table IV), conducted as a
consequence of the significant multivariate main effect for
customer satisfaction, showed that, for department stores, all
consumer-based retailer equity dimensions varied according
to customer satisfaction level with the retailer. However, in
the case of specialty stores, only three consumer-based retailer
equity dimensions, namely retailer awareness, retailer
associations, and retailer perceived quality varied
significantly with customer satisfaction with the retailer.
Retailer loyalty did not vary significantly between high
customer satisfaction and low customer satisfaction groups
for the specialty stores[7]. In other words, only three of the
four retailer equity dimensions varied significantly with
customer satisfaction, for all the six retailers, supporting
H1a, H1b and H1c. H1d, however, was not supported in the
case of specialty stores. Hence, our results suggest that the
relationship between retailer loyalty and customer satisfaction
may be retailer category specific.
Conclusions and implications
H1 stated that consumer-based retailer equity would vary
according to consumer satisfaction levels with the retailer.
The major substantive finding from our analysis is that, for
the department stores and specialty stores included in the
study, consumer-based retailer equity does vary significantly
according to consumer satisfaction levels with the retailer, at
least in the Australian context.
For department stores, each consumer-based retailer equity
dimension varied according to customer satisfaction with the
retailer. However, for specialty stores, only three of the
consumer-based retailer equity dimensions, namely retailer
awareness, retailer associations and retailer perceived quality,
varied according to customer satisfaction level with the
retailer. Retailer loyalty did not vary significantly with

9
 Does customer satisfaction lead to improved brand equity?
Ravi Pappu and Pascale Quester
customer satisfaction for two of the three specialty retailers
included in our study. This finding leads us to conclude that
the impact of customer satisfaction on retailer loyalty might
be retailer-category specific. H1a, H1b and H1c were
supported whereas H1d was not.
While it might be intuitive to think that higher satisfaction
levels would lead to higher value being associated with the
name of a retailer, this issue had never been formally
investigated in previous research. Thus, to the best of our
knowledge, the present study is the first to demonstrate
empirically a positive relationship between customer
satisfaction and an intangible asset such as retailer equity.
The relationship between customer satisfaction and the
retailer awareness (e.g. ability to recall the retailer) is also a
contribution to existing knowledge, since the issue had never
been investigated. The positive relationship between customer
satisfaction and the consumer-based retailer equity dimension
of “retailer associations” is a further contribution to the
literature, since the issue of whether satisfaction leads to
superior retailer associations or retailer image had also never
been investigated previously.
As mentioned previously, some marketing researchers have
argued that satisfaction leads to quality (e.g. Dabholkar,
1993), which was in contrast to the belief that quality was an
antecedent of satisfaction (e.g. Peyrot et al., 1993; Woodside
et al., 1989). Our results indicated that consumers who
reported higher satisfaction ratings also had higher
perceptions of quality, compared to consumers who
reported lower satisfaction ratings. Thus, the results of the
present study support a view held in the marketing literature
that customer satisfaction is indeed an antecedent of quality
(e.g. Henning-Thurau and Klee, 1997).
As previously mentioned, several researchers (e.g. Bitner,
1990; Rust and Zahorik, 1993; Woodside et al., 1989; Yang
and Peterson, 2004) found empirical evidence of a positive
relationship between customer satisfaction and loyalty. Other
researchers (e.g. Jones and Sasser, 1995; Reichheld, 1993)
argued that even satisfied consumers may not be loyal. For
example, Sivadas and Baker-Prewitt (2000) found no
relationship between satisfaction and loyalty. Our results
suggest that the relationship between satisfaction and loyalty
could well be retailer category specific. This may explain some
of the conflicting findings from previous studies regarding the
relationship between satisfaction and loyalty. Previous
researchers examining the relationship between satisfaction
and loyalty noted conflicting results because of the different
product/service categories examined in the respective studies.
Even in the present study, there was evident heterogeneity in
the relationship between satisfaction and retailer loyalty in the
specialty store category. The reason could be that there is
something unique about these two stores (Fletcher Jones and
Country Road) that tends to decouple customer satisfaction
from retailer loyalty.
Further, Homburg and Giering (2001) found that
consumer’s personal characteristics such as variety seeking,
age and income were important moderators of the
relationship between satisfaction and loyalty. The results of
the present research would suggest that retailer category may
well be a moderator in the relationship between satisfaction
and loyalty.
There are several managerial implications from this study.
Given the relationship between consumer-based retailer
equity and customer satisfaction revealed in our results, the
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Journal of Product & Brand Management
Volume 15 · Number 1 · 2006 · 4 –14
implications for marketing managers are to manage and
measure customer satisfaction levels, and monitor how
consumer-based retailer equity and its various dimensions
are being affected. In addition to affecting a retailer’s
economic performance, improved satisfaction could lead to
improvements in their intangible assets, including consumer-
based retailer equity. Marketing managers need to consider
such potential gains when allocating resources for satisfaction
measurement in their research budgets. However, marketing
managers should also understand that satisfaction affects
various dimensions of consumer-based retailer equity
differently for different retailer categories. For example,
satisfaction with a retailer was shown to influence retailer
awareness, retailer associations and retailer perceived quality
rather than retailer loyalty for both the selected categories.
The impact of satisfaction on retailer loyalty was found to be
retailer category-specific. Since we conceptualized retailer
equity from a consumer-perspective, marketing managers
should be able to capture variations in their firm’s intangible
assets with consumer satisfaction, through consumer surveys.
Limitations and future research directions
Some limitations to the study must be considered. First, the
study reported here involved only two categories of retail
brands. Further testing is therefore required before any
generalization of these results can be undertaken, as only six
retail brands were included in the data collection process.
Given our finding that the relationship between retailer loyalty
and customer satisfaction is probably retailer category
specific, it would be useful to conduct future studies in
other categories of retail brands. Priority in further research in
this area should be given to replicating the present study for
different categories of retail brands and consumer
populations. Future studies may also use different types of
retailers such as convenience stores and hypermarkets.
The experimental design included in the present study did
not allow us to test for the combined effect of customer
satisfaction and retailer category on retailer equity. Future
researchers should employ experimental designs that would
allow the estimation of interaction effects. Furthermore,
customer satisfaction was measured in this research using a
single-item measure. Future researchers may want to use
multiple measures for measuring customer satisfaction with
the retailer.
Our results indicated that consumers’ ability to recall the
name of a retailer increased with increased satisfaction levels.
Future researchers should examine the relationship between
retailer awareness and customer dissatisfaction. Further,
retailer image is one of the most widely researched topics in
marketing and future researchers might model the
relationships between customer satisfaction and retailer
image. Brand personality is argued to be a sub-dimension of
brand associations and supposed to contribute to brand
equity (Aaker, 1996). Hence, it could be argued that store
personality, a concept proposed d’Astous and Levesque
(2003), is part of the dimension retailer associations and
contributes to retailer equity. Is there a relationship between
customer satisfaction with a store and store personality? This
could be an exciting avenue for future research.
Further, variables such as consumers’ frequency of visits to
the retailer and location of the retailer store could also
moderate the relationship between customer satisfaction with
 Does customer satisfaction lead to improved brand equity?
Ravi Pappu and Pascale Quester
the store and the equity consumers associate with the retailer.
Future researchers should examine the impact of these
variables on the relationship between customer satisfaction
and consumer-based retailer equity.
Finally, it should be noted that our study relied on a
realistic sample of consumers. Student samples have often
been used in previous research, despite criticism that they
might be atypical consumers because of their “restricted age
range, limited consumption experience, and relatively low
income” (Szymanski and Henard, 2001, p. 20). While our
Australian sample was far from perfect, our findings are based
on responses obtained from a sample of actual (non-student)
consumers. Future studies should aim to make similar use of
realistic samples including some from other countries when
examining the issue of retail equity and/or customer
satisfaction.
Notes
1 We define customer satisfaction at the retailer level, not at
the individual store level. For example, a retailer such as
K-Mart might operate several stores in a given city. We
refer to the customer satisfaction associated with the
retailer K-Mart, but not to customer satisfaction with one
of K-Mart’s stores.
2 Consumers’ country images are known to operate as a
halo as well as a summary effect (see Han, 1989). We do
not make a distinction regarding how consumers’ retailer
images operate (e.g. hallo vs summary). We only argue
that consumer retailer images are influenced by the level
of customer satisfaction.
3 We acknowledge that respondents might be more frequent
visitors to these stores given their location in the mall.
However, we believe our results would not be affected by
this, because in the present study we measure brand
equity at the retailer level but not at the individual store
level.
4 Details of confirmatory factor analysis used to examine
the dimensionality of retailer equity were not included in
this paper because of space constraints, but can be
provided upon request from the first author.
5 MANOVA requires a minimum cell size of 20 (Hair et al.,
1998).
6 To examine if there was any disproportionate impact on
the smaller stores (which is the basis of selection bias in
samples), we ran several MANOVAs for each store (e.g.
Myer/Target/David Jones) in each category (e.g.
Department stores/Clothing stores) with different sub-
samples randomly selected from the main sample. We
observed similar results in all cases.
7 We ran several MANOVAs for each specialty store with
different sub-samples randomly selected from the main
sample to examine if the conflicting results regarding
“customer satisfaction and retailer loyalty” had occurred
because of smaller sample sizes in case of specialty stores.
The results supported our original findings. In all cases,
the relationship between customer satisfaction and retailer
loyalty was significant only for one clothing store (Jeans
West) but not the other two (Country Road and Fletcher
Jones).
11
Journal of Product & Brand Management
Volume 15 · Number 1 · 2006 · 4 –14
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Corresponding author
Ravi Pappu can be contacted at: R.Pappu@business.uq.edu.au
Executive summary
This executive summary has been provided to allow managers and
executives a rapid appreciation of the content of this article. Those
with a particular interest in the topic covered may then read the
article in toto to take advantage of the more comprehensive
description of the research undertaken and its results to get the full
benefit of the material present.
Customer satisfaction builds retail brand equity
An apocryphal story, often told wherever marketers gather, is
of a retailer with a small general store in rural Virginia who
turns to a friend and says “Every time I see a customer leave
without a smile upon their face I think there goes $50,000
walking out the door.” Why $50,000? Well each customer
spends around $100 each visit, visits more or less once per
week, and remains loyal to the store for around ten years, all
adding up to a customer lifetime value figure of around
$50,000.
The logic can be argued with of course. If the relationship
was in year nine then is it only $5,000 that has been lost?
What if that customer was only passing through on a visit?
There are many ways in which a nice simple story can be
spoilt by the detail, yet the point being made is a strong one –
satisfied customers keep coming back, dissatisfied ones don’t.
If customers keep coming back they will spend more. The
customer lifetime value concept transforms how we view what
is important to our business.
Not surprisingly, customer satisfaction research has become
something of an industry for service businesses. This
Australian study, however, has addressed an under-
researched area that has implications for retail brand
managers and potentially for all in the service sector.
Carried out in a shopping mall in the Australian capital,
Canberra, this study has further reinforced the essential role
of ensuring customer satisfaction in the building of that
crucial intangible asset, brand equity.
What is retailer brand equity?
“Brand equity” is a term that is increasingly being used in
management vocabulary. It is an unsurprising development
given its increasing significance as its importance becomes
better understood. However, it is worth taking a few moments
to understand what is meant by it, particularly here in this
retail context.
Retailer brand equity can be defined as the values
consumers associate with retailers on the following
dimensions:
.
brand awareness – the consumer’s ability to recognize or
recall a retailer;
.
retailer associations – anything linked to the consumer’s
memory of the retailer;
 Does customer satisfaction lead to improved brand equity?
Ravi Pappu and Pascale Quester
.
perceived retailer quality – the consumer’s judgment
about a retailer’s overall excellence or superiority; and
. retailer loyalty – the tendency to be loyal to a retailer, as
demonstrated by the intention to purchase from the
retailer as a primary choice.
Breaking it down into these dimensions is useful. It enables it
to be better understood, enables it to be measured, and
enables brand managers to take action.
Implications for brand managers
This research has produced findings that will reinforce the
intuitive thinking of experienced brand managers, but it also
reveals some surprises. From a marketing research perspective
this survey highlights the ongoing need to invest in customer
satisfaction research given its direct correlation to bottom line
performance. There are, however, other implications too.
The study used the associative network memory model,
originating in cognitive psychology, in order to explore the
relationships between customer satisfaction and retail brand
equity, examining perceptions of both department stores and
specialist retailers:
.
consumer-based retailer equity varies significantly
according to levels of satisfaction with the retailer;
.
potentially, although further work needs to be done, the
impact of customer satisfaction on retailer loyalty may be
retailer-category specific. In the study there was some
evidence that loyalty did not vary significantly with
customer satisfaction specialty retailers;
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14
Journal of Product & Brand Management
Volume 15 · Number 1 · 2006 · 4 –14
.
the study empirically demonstrates the positive
relationship between customer satisfaction and the
intangible asset of brand equity;
.
brand managers need to measure and manage customer
satisfaction, together with how brand equity and these
identified dimensions are affected; and
.
improved customer satisfaction can lead to improved
commercial performance, including the intangible of
brand equity, but that this may vary with retail
category.
So to return to our parable of storekeeping in rural Virginia,
the storeowner can now equate each frown with an intangible
issue, a decline in brand equity, in addition to the lost dollars.
As a general store, the correlation between customer
satisfaction and all dimensions of retail brand equity is clear
– unhappy customers equates to lack of recognition of the
brand, poor associations with the brand, perceptions of poor
quality, in addition to the diminishing loyalty highlighted by
the story.
Simply put, the cash implications of levels of customer
satisfaction can be measured. Using these four dimensions,
the impact on brand equity can be measured also.
(A précis of the article “Does customer satisfaction lead to
improved brand equity? An empirical examination of two categories
of retail brands”. Supplied by Marketing Consultants for
Emerald.)