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Customer Perception, Customer

Satisfaction, and Customer Loyalty
Within Chinese Securities Business
a a
Yingzi Xu PhD , Robert Goedegebuure PhD & Beatrice Van der
a b c
Heijden PhD
a
Maastricht School of Management , Endepolsdomein 150, 6229 EP,
Maastricht, The Netherlands
b
University of the Netherlands , Heerlen, The Netherlands
c
University of Twente , Enschede, The Netherlands
Published online: 25 Sep 2008.
To cite this article: Yingzi Xu PhD , Robert Goedegebuure PhD & Beatrice Van der Heijden PhD
(2007) Customer Perception, Customer Satisfaction, and Customer Loyalty Within Chinese Securities
Business, Journal of Relationship Marketing, 5:4, 79-104
To link to this article: http://dx.doi.org/10.1300/J366v05n04_06
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Customer Perception, Customer
Satisfaction, and Customer Loyalty
Within Chinese Securities Business:
Downloaded by [Radboud Universiteit Nijmegen] at 01:26 25 February 2015
Towards a Mediation Model

for Predicting Customer Behavior
Yingzi Xu
Maastricht School of Management
Robert Goedegebuure
Beatrice van der Heijden

ABSTRACT. This study proposes a mediation model that links cus-

tomer perceived service value to customer loyalty via customer satisfac-
tion. Psychometrically sound measures were selected and a survey was
undertaken among 1,200 customers of a Chinese Securities firm with
a response rate of 41%. Results show that customer satisfaction does
Yingzi Xu, PhD (E-mail: Yingzi@msm.nl), is Assistant Professor of Marketing,

and Robert Goedegebuure, PhD (E-mail: goedegebuure@msm.nl), is Associate Pro-
fessor of International Business, both at Maastricht School of Management, Ende-
polsdomein 150, 6229 EP Maastricht, The Netherlands.
Beatrice van der Heijden, PhD, is Professor of Organization Behavior, Maastricht
School of Management, Endepolsdomein 150, 6229 EP Maastricht, The Netherlands.
She is also affiliated with the Open University of the Netherlands, Heerlen, The Neth-
erlands, and the University of Twente, Enschede, The Netherlands.
Journal of Relationship Marketing, Vol. 5(4) 2006
Available online at http://jrm.haworthpress.com
© 2006 by The Haworth Press, Inc. All rights reserved.
doi:10.1300/J366v05n04_06 79
80 JOURNAL OF RELATIONSHIP MARKETING
play a mediating role upon the relationship between customer perceived

service value and customer loyalty. Our study suggests that customer
perceived service quality has a significant effect upon customer satisfac-
tion; customer perception of relational benefits has a positive impact
upon customer satisfaction, with trust being the most important indica-
tor; customer satisfaction is positively related with loyalty in terms of

positive word of mouth, willingness to pay more and to stay with the
business. Moreover, the results indicate that the five dimensions as dis-
tinguished in SERVQUAL (Parasuraman et al., 1988) are compressed
within two dimensions–IT provision and service attitude. Our outcomes
suggest that managers should initiate service policies aimed at securing
improvement in customer satisfaction. doi:10.1300/J366v05n04_06 [Arti-
cle copies available for a fee from The Haworth Document Delivery Service:
1-800-HAWORTH. E-mail address: <docdelivery@haworthpress.com> Web-
site: <http://www.HaworthPress.com> © 2006 by The Haworth Press, Inc. All
rights reserved.]
KEYWORDS. Customer perception of service quality, customer satis-

faction and customer loyalty
INTRODUCTION
Competition within China’s financial services industry is affected by

three major external forces: (1) the increasing internationalization of
all financial products and players; (2) the change in the regulatory envi-
ronment (which is removing many barriers to open competition); and
(3) the accelerating impact and pervasiveness of information technol-
ogy. These forces are highly related to China’s entry into the World
Trade Organization and its impressive economic growth. Competition
and technology upgrading have resulted in pressure upon customer ser-
vice. Consumers are becoming more sophisticated in their requirements
and they are increasingly demanding higher standards of service. As
competition increases, customers tend to be more mobile and more likely
to switch to competitors as more choices are available than before.
For various reasons, it is essential for the financial services business in
China to gain more insight in relationship marketing. In the first place,
the relative intangibility of service products has emphasized the need to
build differential advantages through improved service quality (Perrien &
Ricard, 1995). Second, as deregulation has heightened competitiveness in
the financial services’ industry, relationship marketing as a means to
protect the customer base has come to the fore (Reichheld & Sasser,
Xu, Goedegebuure, and van der Heijden 81
1990; Turnbull & Valla, 1990). Third, there are clear customer benefits
linked to a relationship marketing approach (Berry, 1995; Czepiel,
1990; Gwinner et al., 1998; Henning-Thurau et al., 2002). By engaging
with service suppliers in an effective relationship, customers are more
likely to achieve suitable service delivery (Harrison, 2000). And finally,
rapid and far-reaching technological changes urge financial services

companies to improve their understanding of customers’ needs and
buying behavior in order to be able to establish database and manage-
ment systems aimed at delivering tailored services.
Customer loyalty is claimed to be a profound consequence of rela-
tionship marketing (Reichheld, 1993, 1997; Reichheld & Kenny, 1990)
and it has replaced market share as the primary focus of marketing prac-
titioners (Gummesson, 1997). Research that integrates the role of cus-
tomer loyalty within the context of other service marketing variables
such as service quality, relational benefits and customer satisfaction is
called for. A better understanding of the effects of service quality, rela-
tional benefits, and customer satisfaction upon customer loyalty not
only facilitates the development of a model of service marketing, but
also results in managerial implications on the best use of their available
resources.
This study seeks to contribute to the development of a conceptual
framework that integrates customer loyalty, service quality, relational
benefits, and customer satisfaction. The next section provides a litera-
ture review on the core constructs and depicts relationships between the
variables within a hypothesized research model. The methodology sec-
tion describes the psychometrically sound measures that are selected
and describes the sampling approach and the data collection procedure.
Next, the outcomes of the study will be given followed by a discussion
and recommendations for further research. Implications for theory
development and management practice are taken into account.
THEORETICAL BACKGROUND
The Importance of Relationship Marketing
With the increase in competition, developing strong relationships has

become a major marketing tool for service providers to differentiate
themselves and their products, and to keep customers loyal (Berry,
1995; Day & Wensley, 1983; Evans, 2002; Payne & Frow, 2004). Com-
petition often renders good service quality inadequate for gaining a
competitive advantage (Palmer & Mayer, 1996). In consequence, the

focus has shifted from putting the major marketing resources in attract-
ing new customers, to caring for existing customers, and providing
them with relational benefits.
Building relationships of mutual value has existed since the start of
commerce (Gronroos, 1994, 1996). Berry (1995) described relationship

marketing as earning the customers’ favor and loyalty by satisfying
their wants and needs. He emphasized that attracting new customers
should be viewed as an intermediate step, that is to say, solidifying the
relationship, transforming indifferent customers into loyal ones, and
treating customers as clients should be considered as marketing as well.
The definition by Gronroos (1990) focuses on the mutual objectives of
the parties involved that are achieved by means of exchange and fulfill-
ment of promises. It implies that for a relationship to exist, both parties
must derive value out of it. A long-term relationship must be built on
mutual benefits and trust (Gronroos, 1994). Relationship marketing
emphasizes a long-term, interactive relationship between the service pro-
vider and the customer, and long-term profit.
Reichheld and Sasser (1990) from their investigation of various ser-
vice industries demonstrated that loyal customers generate more reve-
nue over more years, and that the cost of maintaining customers is often
lower than the promotion cost needed to acquire new customers. Simi-
larly, Gronroos (1991) argued that it is often much less expensive to
have a stable customer base where resell and cross-sales occur on a reg-
ular basis. As competition increases, it becomes more important for a
service company to protect its customer base, since it is harder to win
back any customers lost. Therefore, according to Gronroos (1991) the
interest in long-term customer relationship is only natural.
Relationship marketing creates value for customers, in allowing the
service provider to become aware of the customers’ needs and to deliver
services tailored to the target customers (Berry, 1995; Christopher et al.,
1991). The benefits to the customer lie in stability and endurance (Han
et al., 1993). With regard to financial services in particular, the high in-
volvement, high risk and complexity of the service cause many custom-
ers to have a strong and explicit desire for an effective relationship with
the service provider (Harrison, 2000). In addition, customers reap social
benefits from relationship marketing apart from core services (Czepiel,
1990). In line with this, Jackson (1993) argues that relationship market-
ing addresses the basic human need of feeling important. The key goals
of relationship marketing theory are the identification of the determi-
nants of the outcomes, such as customer loyalty and positive word of
mouth, and an understanding of the causal relations between these

drivers and outcomes (Henning-Thurau et al., 2002).
Service Quality
In the services literature, perceived quality, which is the result of

a comparison that customers make between their expectations about
a service, and their perception of the way the service has been per-
formed (Gronroos, 1984; Kotler, 2000; Lehtinen & Lehtner, 1982;
Lewis & Booms, 1983; Parasuraman et al., 1983, 1985, 1994; Zeithaml,
1987), appears to be the main operationalization of service quality.
Perceived service quality is therefore viewed as the degree and direc-
tion of discrepancy between customers’ perceptions and expectations
(Parasuraman et al., 1988). Service quality is of particular importance
for financial service providers who characteristically offer products that
are homogenous in nature (Stafford et al., 1998).
In operationalizing the service quality construct, Parasuraman et al.
(1985, 1988, 1994) have made use of both qualitative and quantitative
research following generally accepted psychometric procedures. This re-
sulted in the development of the original 22-item so-called SERVQUAL
(service quality) instrument that represents one of the most widely used
measurement instruments of service quality. It has provided researchers
a means of measuring service quality on the basis of five dimensions
(Parasuraman et al., 1988, p. 23):
• Tangibles: physical facilities, equipment, and appearance of per-
sonnel.
• Reliability: ability to perform the promised service dependably
and accurately.
• Responsiveness: willingness to help customers and provide prompt
service.
• Assurance: knowledge and courtesy of employees and their ability
to inspire trust and confidence.
• Empathy: caring, individualized attention that the firm provides its
customers.
Relational Benefits
The importance of developing and maintaining enduring relation-

ships with customers of service businesses is generally accepted in mar-
keting literature. The relational benefits approach (Henning-Thurau
et al., 2002) focuses on the benefits that customers receive apart from
the core service. It assumes that both parties in a relationship must bene-
fit from it in order to continue in the long run. Building on the early
work of Berry (1995), Bendapudi and Berry (1997), Gwinner, Gremler,
and Bitner (1998), Henning-Thurau et al. (2002) developed and empiri-
cally supported a typology of three relational benefits. According to

these researchers’ definitions, relational benefits include social bene-
fits, special treatment, benefits and trust. These three relational benefits
exist above and beyond the core service provided:
• Social benefits pertain to the emotional part of the relationship and
are characterized by personal recognition of customers by employ-
ees, the customer’s own familiarity with employees, and the cre-
ation of friendships between customers and employees.
• Special treatment benefits take the form of relational consumers
receiving price breaks, faster service, or individualized additional
services.
• Trust refers to perceptions of reduced anxiety and comfort in
knowing what to expect in the service encounter.
Customer Satisfaction
Customer satisfaction is defined by Oliver (1997) as a pleasurable

level of consumption-related fulfillment. Customer satisfaction is gen-
erally conceptualized as an attitude-like judgment following a series of
purchases or consumer-product interactions (Yi, 1990). It is understood
as the customer’s emotional reaction to the perceived difference be-
tween performance appraisal and expectation (Oliver, 1980).
According to the disconfirmation paradigm, expectancy disconfir-
mation is divided into two processes, the first being the formulation
of expectations towards the product or service, the second being the
comparison of the experienced performance of the product or service
with prior expectations. Disconfirmation may be positive when perfor-
mance is better than expected or negative when experienced perfor-
mance is worse than expected (Van Montfort et al., 2000). Customer
satisfaction has traditionally been regarded as a fundamental determi-
nant of long-term customer behavior (Oliver, 1980). It is the result
of a customer’s perception of the value received in a transaction or rela-
tionship (Blanchard & Galloway, 1994; Heskett et al., 1990) and can be
interpreted as the customer’s overall evaluation of the performance
(Johnson & Fornell 1991).
Customer Loyalty
Oliver (1997) defined loyalty as a deeply held commitment to re-buy

or re-patronize a preferred product consistently in the future despite sit-
uational influences. Researchers have operationalized customer loyalty
in two distinct ways. The first defines loyalty as an attitude. Different

feelings create an individual’s overall attachment to a product, service
or organization. These feelings define the individual’s purely cognitive
degree of loyalty (Hallowell, 1996). The second definition of loyalty
is behavioral. In this regard, customer loyalty has been measured as
a minimum differential needed for switching (Raju et al., 1990), recom-
mendations (Boulding et al., 1993), repurchase intentions (Anderson &
Sullivan, 1993; Cronin & Taylor, 1992), and willingness to pay a price
premium (Zeithaml et al., 1996).
Numerous studies have been conducted to identify the benefits that
customer loyalty delivers to service organizations. Those benefits in-
clude the initial cost of introducing and attracting new customers and
consist of (1) positive word of mouth, (2) increases in the number of
purchases, and (3) increases in the value of purchases. Moreover, loyal
customers can be very helpful for the service provider to improve ser-
vice quality, as they are willing to communicate with the company in a
positive way.
Positive word of mouth reflects the affective dimension of loyalty
(Gremler & Brown, 1996). It is defined as informal communications be-
tween existing and potential customers regarding evaluations of goods
or services (Hennig-Thurau et al., 2002). Because personal communica-
tion is viewed as a more reliable source than non-personal information
(Zeithaml & Bitner, 1996), word-of-mouth communication is a power-
ful force in influencing future purchase decisions. Particularly, when
the service involves high risk for the customer, it helps companies to
attract new ones (Hennig-Thurau et al., 2002).
Empirical Evidence for the Hypothesized Model
Exploratory research conducted by Parasuraman et al. (1985), sup-

ports the notion that service quality is an overall evaluation similar to
attitude. Their research findings revealed that regardless of the type
of service, customers use the same general criteria in arriving at an
evaluative judgment about service quality. They also support that cus-
tomer perception of service quality stems from a comparison of what
they feel service firms should offer, with their perceptions of the actual
performance. Correspondingly, the empirical study of Van Montfort

et al. (2000), has revealed that satisfaction can be predicted by the ser-
vice performance perceived by customers.
Social benefits are expected to have a positive impact on customer
satisfaction, as the interaction between customers and employees is cen-
tral to the customer’s quality perception in many services (Reynolds &

Beatty, 1999). Price and Arnould’s (1999) study has shown a positive
relationship between commercial friendship, as a key element of so-
cial benefits, and satisfaction. Gremler and Gwinner’s (2000) research
indicates that customer-employee rapport is positively related to satis-
faction with the service provider. Analogously, Hennig-Thurau et al.
(2002) assume that a positive relationship exists between social benefits
and customer satisfaction. However, their research did not show a
significantly positive relationship between the two variables.
Special treatment benefits are used widely as an ingredient of rela-
tionship marketing programs in order to get positive financial returns.
They may increase the cost of switching for consumers (Hennig-Thurau
et al., 2002). When an organization provides additional types of special
treatment benefits, such as economic saving or customized service,
emotional and cognitive switching barriers are increased (Fornell, 1992;
Guiltinan, 1989). This may result in increased customer loyalty (Selnes,
1993). Reynolds and Beatty (1999) made a paralleling argument that a
service firm’s offer of special treatment benefits may be perceived as
part of the service performance itself, and correspondingly such bene-
fits would be expected to positively influence the customer’s satisfac-
tion with the service.
Moorman et al. (1992) define trust as the willingness to rely on an ex-
change partner in whom one has confidence. Trust creates benefits for
the customer because the efficiency inherent in relationships decreases
transaction costs, and these benefits in turn foster customer loyalty to
the relationship (Morgan & Hunt, 1994). Berry (1995) suggested that
trust reduces uncertainty and vulnerability, especially for so-called
black-box-type services that are difficult to evaluate due to their in-
tangible, complex, and technical nature. Therefore, he proposed that
customers who develop trust in service suppliers, based on their experi-
ences with them, have good reasons to remain in these relationships
(Berry, 1995). Bitner (1995) echoed this proposition when she asserted
that each service encounter represents an opportunity for the provider to
build trust and thus increase customer loyalty.
Gronroos (1990) indicated that trust in the service provider is a par-
ticularly important dimension of the relationship from the customer’s
perspective. Shemwell et al. (1994) found trust to be important in build-

ing customer relationships as the outcome of their study also suggests
that the higher the level of trust, the greater the probability that custom-
ers will continue the relationship and the lower the level of perceived
risk inherent in the relationship. Hennig-Thurau et al. (2002) claimed
that trust has a positive impact on satisfaction, because greater levels of

trust in the interaction will result in lower anxiety concerning the trans-
action and thus greater satisfaction. The results of their study indeed
support the assertion that trust has a significant and strong positive
impact upon satisfaction.
Overall satisfaction has a strong positive effect on customer loyalty in-
tentions across a wide range of product and service categories (Fornell,
1992; Fornell et al., 1996). Heskett et al. (1994) found that customer loy-
alty differed greatly depending on the level of satisfaction. Their analysis
identified very satisfied and loyal customers, next to very unsatisfied cus-
tomers who tended to speak out against the service and the company at
every opportunity. Similarly, the study of Hallowell (1996) demonstrates
that customer satisfaction positively affects customer loyalty.
The work done by Hennig-Thurau et al. (2002) shows that of all vari-
ables customer satisfaction has the strongest direct impact upon cus-
tomer loyalty, and their outcome provide evidence for the significant
positive influence of customer satisfaction upon word-of-mouth com-
munication. Likewise, the research done by Ranaweera and Prabhu
(2003) confirms that satisfaction has strong positive associations with
positive word of mouth.
Summarized, a considerable amount of studies reveals that there are
positive relationships between customer perceived service factors with
customer loyalty, and that this relationship is mediated by customer sat-
isfaction (see Figure 1).
RESEARCH MODEL AND HYPOTHESES
Based upon the previous discussion of the literature, the research

model depicted in Figure 2 was developed. Customer perceived service
quality is identified with five dimensions: (1) tangibles, (2) reliability,
(3) responsiveness, (4) assurance, and (5) empathy (Parasuraman et al.,
1988). The customer’s perception of the relational benefits is oper-
ationalized as (1) social benefits, (2) special treatment benefits, and
(3) trust. Customer perceived service quality is supposed to be posi-
tively related with the customer’s perception of the relational benefits,
FIGURE 1. The Research Framework
Customer perceived service value

Customer Perceived
Service Quality Customer Customer
Satisfaction Loyalty
Customer Perceived
Relational Benefits
FIGURE 2. The Research Model
Respon-
Reliability siveness Assurance Company Branch
Tangibles Empathy
Customer
Positive
Perception of
Company Branch Word of Mouth
Service Quality
H1 H2
H5 Customer
Satisfaction
H4 H3
Customer
Perception of Retention
Service
Relational Benefits Employee Intention
Recovery
No Willing to
Social Trust
Special Switching Pay More
Benefits
Benefits
and both factors are hypothesized to have a positive impact upon cus-
tomer satisfaction.
Our research model implies that customer satisfaction is a predictor
for customer loyalty. Customer loyalty is indicated by (1) positive word
of-mouth, and (2) customer retention intention. In summary, in our
study, the following five hypotheses have been tested:
H1: Customer satisfaction is positively influenced by customer per-

ception of service quality.
H2: The customer perception of relational benefits has a positive im-
pact on customer satisfaction.
H3: Customer perception of service quality is positively related to

customer perception of the relational benefits.
H4: Customer satisfaction is positively related to positive word of
mouth.
H5: Customer satisfaction is positively related to retention intention.
METHODOLOGY
Measures
The service quality measures were derived from the five dimen-
sions (tangibles, reliability, responsiveness, assurance, and empathy) of
SERVQUAL (Parasuraman et al., 1988), that is, a 22-item instrument
for assessing customer perceptions of service quality in service organi-
zations. Based on their relevance to securities firms, fourteen items
were selected for our study, and one item on providing accurate market
information was added (see Appendix for a full list of the service quality
items). Perceived service quality was measured by means of these five
dimensions, all rated using a five-point rating scale. Customer percep-
tion of relational benefits was measured with three dimensions, rated on
a five-point scale as well. The three measures, that is, social benefits,
special treatment benefits, and trust were adopted from a study by
Hennig-Thurau et al. (2002, p. 244). Customer satisfaction was mea-
sured as an aggregated psychological attribute, and refers to the level of
satisfaction with the service of the company, branch or with the em-
ployee, using a five-point scale. Customer loyalty was measured by
means of two newly developed scales, one for positive word of mouth,
and one for retention intention. Based on previous studies and in-depth
interviews with managers of the securities firms, the measures for cus-
tomer loyalty were created. Positive word of mouth was measured as
“the willingness to recommend the company and the branch to others.”
For both items, a two-point rating scale has been used. Retention inten-
tion was measured by asking whether the customers would be inclined
to switch to competitors (two-point rating scale), and their willingness
to pay more–price tolerance–scored on a four-point rating scale). Please

see Appendix for an overview of all items that have been used.
Sample and Procedure

Five companies with branches across China and in business for over
five years were willing to participate to the study. Senior managers and
branch managers were then interviewed about their view on service
quality, customer satisfaction and loyalty, and about their strategies to
survive in fierce competition. One branch of a company participated in
the pilot study. One hundred customers were selected randomly when
visiting the branch, and 78 of them responded to the pilot survey.
The translation-back-translation method has been used in order to
make sure that conformity of meaning was established (see Hambleton,
1994). That is, for the already validated scales, the parameters for mea-
surement have been translated from English to Chinese and then back-
translated to English by an independent translator. The purpose of this
double translation was to allow experts to examine both versions of
each questionnaire item to establish conformity of meaning. Where in-
consistencies were encountered, the items have been reformulated. The
reliability of the scales was tested in the pilot sample of customers. For
all scales, Cronbach’s ␣ exceeded the recommended level of 0.70
(Nunnally, 1978).
As, unfortunately, in four companies, the response rates in the main
survey were too low due to time and money constraints, only the data
from one company were available for testing our hypothesized research
model. The data were gathered between November 2002 and May 2003
in this company that was listed among the top ten in Chinese securities
industry over the past five years.1
The questionnaires were distributed within each branch of the com-
pany. About 1,200 customers from 30 branches were interviewed fol-
lowing a proportionate sampling plan, with a final response of 494
customers (41%). After the data cleaning process, 476 respondents
from 26 branches were retained for the analyses for the main study.
Analyses
In order to assess the construct validity of the measures prior to model

estimation, two steps have been taken (Anderson & Gerbing, 1988;
Byrne, 2001). First, Principal Component Analysis using Varimax
Rotation has been performed in order to eliminate cross-loading items
and to optimize scale validity and reliability. Second, the validity of the
measures was evaluated by conducting Confirmatory Factor Analysis
(CFA; Arbuckle & Wothke, 2003).
After the evaluation of the validity of the measures, the hypothesized
relationships are tested simultaneously by using Structural Equation
Modeling (SEM). The maximum likelihood method has been used to

investigate the covariance matrix of the items. The goodness-of-fit of
the model was evaluated using absolute and relative indices. The ␹2
goodness-of-fit statistic and the Root Mean Square Error of Approxi-
mation (RMSEA) have been calculated as absolute goodness-of-fit in-
dices. Non-significant ␹2 values indicate that the hypothesized model
fits the data, and RMSEA values smaller than or equal to 0.08 are indic-
ative of an acceptable fit (Cudeck & Browne, 1993). As the ␹2 good-
ness-of-fit statistic tends to increase with sample size, it was decided to
use the Comparative Fit Index (CFI) as well. For the CFI, as a rule of
thumb, values of 0.90 or higher are considered to indicate a good fit
(Hoyle, 1995).
The Expected Cross-Validation Index (ECVI) is central to the next
cluster of fit statistics. The ECVI measures the discrepancy between the
fitted covariance matrix in the analyzed sample, and the expected
covariance matrix that would be obtained in another sample of equiva-
lent size. The model with the smallest ECVI value exhibits the greatest
potential for replication. As ECVI coefficients can take on any value,
there is no determined appropriate range of values (Byrne, 2001).
Finally, modification indices (MIs) have been studied in order to ob-
tain in-depth information on possible misspecification. MIs reflect the
extent to which the hypothesized model is appropriately described
(Byrne, 2001). For each fixed parameter specified, the AMOS program
for SEM provides an MI, the value of which represents the expected
drop in overall ␹2 value if the parameter were to be freely estimated in a
subsequent run. All freely estimated parameters automatically have MIs
equal to zero.
RESULTS
Descriptive Statistics
For customer perception of the service quality, the final outcome

comprized two factors, namely: (1) information technology (IT) provi-
sion, and (2) the customer perception of employee service attitude.
Regarding the customer perception of relational benefits, the final out-

come comprized three factors, that is: (1) social benefits, (2) special bene-
fits, and (3) trust. The statistics in Table 1 show that Cronbach’s ␣ for each
construct exceeds the recommended level of 0.70 (see Nunnally, 1978).
The diagonal of the matrix in Table 1 presents all scale reliabilities.
Confirmatory Factor Analysis
The CFA assessed the factor structure and Table 2 shows that the
model fit is within the recommended range of acceptability (Byrne,
2001). These outcomes imply that the measured statistics have satisfac-
tory validity. Please see Table 2 for the model statistics.
Testing the Hypothesized Research Model
Results of the SEM analysis showed that the model fits the data
(␹2 (242) = 653.98, GFI = 0.89, CFI = 0.92, RMSEA = 0.06). The origi-
nal ECVI is 1.62. In reviewing the parameters in the covariance section
of the modification indices (MI), only the parameter representing the
covariance between “satisfaction with the company” and “satisfaction
with the branch” is of interest (MI = 56.9). As the error correlations be-
tween pairs of items are often an indication of redundancy based upon
similarity in item content (Byrne, 2001), the specification of correla-
tions between error terms must be supported by a substantive or empiri-
cal rationale. The two items elicit responses reflective of the same
image set. Customers perceive the degree of satisfaction with a branch
as coinciding with the satisfaction with the company in general. It is
appropriate to re-estimate the model with the error covariance specified
as a free parameter. The outcomes of the test of the re-specified model
are depicted in Figure 3.
The re-specification of the model reflects a better fit. In comparison
with the first model, the ␹2 has dropped from 654 to 530, the GFI has in-
creased from 0.89 to 0.91, the CFI has increased from 0.92 to 0.95, the
RMSEA has dropped from 0.060 to 0.050, and the ECVI has dropped
from 1.62 to 1.36. On the basis of the MIs, there is no justification for
any further model fitting. All parameter estimates are statistically sig-
nificant and substantively meaningful. The standardized path coeffi-
cients of the model are given in Figure 3.
The results of our empirical study show that the assumed links in the
framework are supported. The customer perception of service quality in
TABLE 1. Means, Standard Deviations, Reliability Coefficients (Cronbach’s ␣), and Correlations Between the Model
Variables (N = 476)
Variable M SD Skewness Kurtosis 1 2 3 4 5 6 7 8
Customer perception 2.98 0.37 ⫺0.09 0.21 0.77*

of IT provision
Customer perception 3.20 0.40 ⫺0.36 0.53 0.42* 0.88*
of employees
Social benefits 2.88 0.38 ⫺0.25 0.50 0.29* 0.20* 0.77
Special benefits 2.26 0.71 0.17 ⫺0.72 0.19* 0.09** 0.37* 0.91
Trust 3.08 0.34 ⫺0.23 0.57 0.27* 0.39* 0.22* 0.19* 0.89
Customer satisfaction 3.11 0.33 0.13 ⫺0.11 0.5* 0.61* 0.26* 0.14* 0.49* 0.89
Positive word of mouth 0.72 0.42 ⫺0.96 ⫺0.88 0.29* 0.20* 0.18* 0.11** 0.29* 0.29* 0.85
Customer loyalty 0.46 0.46 0.87 0.46 0.16* 0.12** 0.16* 0.16* 0.13* 0.27* 0.27* 0.70
*p < 0.01, **p < 0.05.
93
TABLE 2. Model Fit of CFA Models
Chi-Square DF GFI CFI RMSEA
Customer perception of service quality 13.463 8 0.991 0.995 0.038

Customer perception of relational benefits 87.884 32 0.965 0.976 0.061

Customer satisfaction 15.492 1 0.984 0.985 0.075
FIGURE 3. Maximum-Likelihood Estimates for the Model
Customer Customer
perception of perception
IT provision of employee Company Branch
.70 .79 .83 .89
Customer
Branch Positive
Perception of Company
Word of Mouth
Service Quality
.70 .72
.87 .36
.73 Customer
Satisfaction
.12 .33
.78 .78
Customer
Retention
Perception of
Intention
Relational benefits Service
Employee
.71 Recovery .37 .61
.51
.33
No Willing to
Social Trust
Special Switching Pay more
Benefits
Benefits
Note: All factor loadings and path coefficients are significant at the p < .001 level.
terms of the perception of IT provision and the perception of employees,

do have a significant positive impact on customer satisfaction (Hypothe-
sis 1). Customer perception of relational benefits positively influences
customer satisfaction (Hypothesis 2). Customer satisfaction has a posi-
tive impact upon both customer positive word-of-mouth, and retention
intention (Hypotheses 4 and 5). Finally, customer perception of service
quality is positively associated with the customer perception of relation-
ship value (Hypothesis 3).
DISCUSSION AND IMPLICATIONS
The findings of this research indicate that the questionnaires identi-

fied to measure customer perceived service quality and relational bene-
fits, customer satisfaction, and customer loyalty exhibit acceptable
psychometric properties in terms of both reliability and validity. More-

over, the results of our study confirm the hypothesized relationships in
the research model. The relationship between perceived service value
and customer loyalty is found to be determined by customer satisfaction.
Given that service quality perceived by customers has a direct, signif-
icant effect on customer satisfaction, it is a useful exercise for Chinese
securities firms to examine their customers’ perceptions of service qual-
ity. Based on the factor analysis, the results indicate that the five dimen-
sions of the original service quality as defined by Parasuraman et al.
(1988) are compressed in two dimensions, which can be summarized
as IT provision and employee service attitude, such as willingness to
respond, and being courteous and friendly.
Employee service attitude appears to play the most important role
in the customer perception of service quality. This does not come as a
surprise, since it is the employee who actually delivers. The initial inter-
action between customers and employees, rightfully referred to as “the
moment of truth” (Norman, 1984), has a great influence on the evalua-
tion of service quality. The encounter is critical in achieving a reputa-
tion for superior service quality and keeping customers loyal (Lau,
2000). The branch managers should divert their attention to the attitude
of employees in delivering services to customers, since it strongly influ-
ences the customer perception of service quality as a whole. And they
should consider using it as a means to enhancing customer satisfaction
and, ultimately, customer loyalty.
Social benefits, special treatment benefits, and trust, as customer per-
ceived relational benefits, are also shown to have a positive impact on
customer satisfaction. Trust is considered to be the most important
assessment criterion by customers, followed by social benefits, and
special treatment benefits. This corresponds to the findings of Hennig-
Thurau et al. (2002). The results suggest that managers of Chinese secu-
rities firms should consider trust as instrumental in building bonds with
customers. Interviews with customers suggest that they perceive the
company as a trustworthy service provider in case the employees give
market information openly and regularly, and when the company has
structured transaction processes which are transparent rather than a
black box.
The findings confirm that in order to improve customer satisfaction,

managers should balance their resources aimed at increasing service
quality and improving relational benefits. Perceptions related to service
quality have been found to be a more important predictor for customer
satisfaction than relational benefits as evaluated by customers. At a
branch level, managers need to decide on the relative emphasis to put in

technology and facilities versus employee factors. Employees appear to
have a larger impact compared with technology and facilities. It is rec-
ommended to invest in the improvement of the service attitude by train-
ing employees to become aware of the importance of being responsive
and friendly to the customers. Rewarding employees with a good at-
titude toward customers appears to be an effective instrument for
improvement (Xu, 2004; Xu & Van der Heijden, 2005).
Interviews with customers and branch managers suggest that the cus-
tomers’ willingness to pay a higher price and their switching behavior
are highly related to employee service performance. Most of the cus-
tomers in our study claim that despite competitors offering lower price,
they prefer to stay with the branch because of the employee (customer
account manager) whom they trust; or they would like to switch to
another company/branch following the departure of a particular account
manager. Above all, employee factors such as service attitude during
the service delivery and building trust with customers are the keys to
customer satisfaction and loyalty. Referring the theater metaphor (Grove
& Fisk, 2001), employees serving customers can be thought of as actors
and customers as the audience that experiences the service perfor-
mance. From the customers’ point of view, employees are the service
(Zeithaml & Bitner 2003). Therefore, it makes sense for service organi-
zations to work on improving the quality of their employees as well
as service quality itself. A parallel study of our research (Xu &
Goedegebuure, 2005) confirms that improving employees’ job satisfac-
tion by providing a good working environment and employees’ well-
being will eventually increase customer satisfaction.
Securities firms in China categorize private customers according to
their resources. In the marketplace, there is a growing group of institu-
tional customers who are professional investors for pension funds and
investment institutions. The type of customer has been recorded in our
survey and our data analysis shows that there is neither a significant dif-
ference in satisfaction between them, nor a significant difference in the
perception of the relational benefits. However, the interviews with
branch managers suggest that some small customers are more profitable
in terms of repurchasing due to their number of transactions, while
some large clients are costly because of the cost involved in maintaining
the relationship. Therefore, the company should be more focused on
identifying loyal customers based on their contribution to the profit
instead of their resources.
Although a positive relationship appears to exist between customer
satisfaction and customer loyalty, in reality this relationship is not lin-

ear. Satisfying customers is not enough to ensure loyalty because even
satisfied customers may defect at a high rate. In one study, 65-85% of
the customers that defected indicated that they were satisfied (Reichheld,
1993). On the other hand, customer loyalty is not simply a result of sat-
isfaction. Satisfied customers may look elsewhere because they can get
an even better service somewhere else and dissatisfied customers may
choose not to defect, because they do not expect to receive a better ser-
vice elsewhere (Banwari & Walfried, 1998). The interviews that have
been conducted with the customers of this securities firm, indicated that
a customer might be very satisfied with the service provided by the
company or a branch, but may switch to another company/branch be-
cause of a shifting of residence. Similarly, an unsatisfied customer per-
haps chooses to stay with the company/branch, just because it is not
convenient to switch to another one that is too far away, or because there
is no time to search for a better one, or simply because he/she does not
want to give up the loyalty program. Summarized, customer loyalty is
constrained by convenience, searching costs and switching costs.
Customer satisfaction is an important indicator for customer loyalty,
yet satisfaction is not an end in itself. Improving customer satisfaction is
only useful if it results in economic success, which suggests manage-
ment should find out what key factors of satisfaction improvement can
be translated to loyalty behaviors which will link up to profit generation.
In a strict sense the results of this study only pertain to the respon-
dents from one Chinese securities firm, therefore, data from a larger va-
riety of businesses should be collected in order to determine the amount
of generalizability. Future research needs to include comparable data
from the financial service industry at large, such as banks and insurance
companies, and from other services companies from different industries
in China. Moreover, for cross-validation purposes, additional explora-
tion of the relationships in the model needs to be extended to other
markets.
It is also possible to invest in developing a richer model that incorpo-
rates other constructs beyond those used in this study and to consider
their interactive effects. As satisfaction is only one of the recognized an-
tecedents to customer loyalty, it would be useful to examine other key
variables that are likely to influence loyalty, such as switching costs,

value of convenience, and so on.
The results of this study are based on cross-sectional data. Longitudi-
nal research is needed to conclude more confidently on the validity of
the model, although this design also has limitations, such as the problem
of selecting appropriate time-intervals (Kessler & Greenberg, 1981;

Frese & Zapf, 1988).
Byrne (2001) argues that it is less risky to use SEM with maximum
likelihood (ML) estimation procedure when a variable has four or more
categories. Recent findings support that Chi-square is influenced by a
two-category response format. This effect is less pronounced as the
number of categories increases. Therefore, it would have been more ap-
propriate to measure positive word-of-mouth and customer retention
intention on five-point scales.
NOTES
1. Source: Statistics of Shenzhen Securities Exchange, 2003
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doi:10.1300/J366v05n04_06
APPENDIX
Customer Survey Questionnaires
You are
A: Institutional client/Individual client

B: Big client
M: Medium client
S: Small client
DIRECTIONS: This survey deals with your opinion about the securities com-
pany services. Please show the extent to which you think the firm offering fi-
nancial services possesses the features described by each statement. If you
strongly agree that the firm possesses a feature, circle 5. If you strongly dis-
agree that the firm possesses a feature, circle 1. If your feelings are not strong,
circle one of the numbers in the middle. There is no right or wrong answer–all
we are interested in is a number that describes best your expectations about the
firm offering the services to you.
How satisfied are you with . . . in each of the following statements:

1 = Very dissatisfied; 2 = Dissatisfied; 3 = Neutral; 4 = Satisfied; 5 = Very sat-
isfied
1. Maintaining a clean and pleasant ambience of the branch office facili-

ties
2. Providing up-to-date information facilities
3. Providing easy-to-use transaction systems
4. The staff maintain a professional appearance
5. Providing accurate market information
6. The Staff have adequate knowledge of investment products and ser-
vices
7. The staff are able to do things right in a reasonable time
8. The staff are able to follow through on their promises
9. The staff areable to properly handle any problems that arise
10. The staff are able to provide prompt service
11. The staff are willing to respond to your requests anytime
12. The staff are consistently courteous
13. The staff keep your transactions confidential
14. The staff are friendly
15. The staff give you undivided attention
APPENDIX (continued)
How do you feel with . . . in each of the following statements:

1 = Not at all; 2 = Hardly; 3 = To some extent; 4 = Yes; 5 = Very much
1. I am recognized by certain employees

2. I enjoy certain social aspects of the relationship
3. I have developed a friendship with the contacted employee(s)
4. I am familiar with the employee(s) that perform(s) the service
5. I get faster service than most customers
6. I get better prices than most customers
7. I am usually placed higher on the priority list when there is a line
8. They do services for me that they do not do for most customers
9. I get discounts or special deals that most customers do not get
10. I know what to expect when I go in
11. This branch’s employees are perfectly honest and truthful
12. This branch’s employees can be trusted
13. This branch’s employees have integrity
Overall rating of satisfaction:

1 = Very poor; 2 = Poor; 3 = Neutral; 4 = Good; 5 = Very good
1. Overall rating of the company

2. Overall rating of the branch
3. Overall rating of the attitude of employees
4. Overall rating of handling any problems that arise
Do you recommend this company to others? (0 = No, 1 = Yes)

Do you recommend this branch to others? (0 = No, 1 = Yes)
I will not take my business to a competitor that offers better prices
(0 = I will; 1 = I will not)
I will continue to do business with the company/branch if its prices increase

somewhat but no new service product is available. If you choose yes, please
select the tolerance of increase: 1%, 5% or 10%.
(0 = No, 1 = 1%, 2 = 5%, 3 = 10%)

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Journal of Relationship Marketing

Customer Perception, Customer

To link to this article: http://dx.doi.org/10.1300/J366v05n04_06

PLEASE SCROLL DOWN FOR ARTICLE

Towards a Mediation Model

Beatrice van der Heijden

ABSTRACT. This study proposes a mediation model that links cus-

Yingzi Xu, PhD (E-mail: Yingzi@msm.nl), is Assistant Professor of Marketing,

play a mediating role upon the relationship between customer perceived

tor; customer satisfaction is positively related with loyalty in terms of

KEYWORDS. Customer perception of service quality, customer satis-

Competition within China’s financial services industry is affected by

rapid and far-reaching technological changes urge financial services

The Importance of Relationship Marketing

With the increase in competition, developing strong relationships has

competitive advantage (Palmer & Mayer, 1996). In consequence, the

commerce (Gronroos, 1994, 1996). Berry (1995) described relationship

mouth, and an understanding of the causal relations between these

In the services literature, perceived quality, which is the result of

The importance of developing and maintaining enduring relation-

cally supported a typology of three relational benefits. According to

Customer satisfaction is defined by Oliver (1997) as a pleasurable

Oliver (1997) defined loyalty as a deeply held commitment to re-buy

in two distinct ways. The first defines loyalty as an attitude. Different

Empirical Evidence for the Hypothesized Model

Exploratory research conducted by Parasuraman et al. (1985), sup-

performance. Correspondingly, the empirical study of Van Montfort

tral to the customer’s quality perception in many services (Reynolds &

perspective. Shemwell et al. (1994) found trust to be important in build-

that trust has a positive impact on satisfaction, because greater levels of

RESEARCH MODEL AND HYPOTHESES

Based upon the previous discussion of the literature, the research

FIGURE 1. The Research Framework

Customer perceived service value

FIGURE 2. The Research Model

H1: Customer satisfaction is positively influenced by customer per-

H3: Customer perception of service quality is positively related to

to pay more–price tolerance–scored on a four-point rating scale). Please

Sample and Procedure

In order to assess the construct validity of the measures prior to model

Modeling (SEM). The maximum likelihood method has been used to

For customer perception of the service quality, the final outcome

Regarding the customer perception of relational benefits, the final out-

Confirmatory Factor Analysis

Testing the Hypothesized Research Model

Variable M SD Skewness Kurtosis 1 2 3 4 5 6 7 8

Customer perception 2.98 0.37 ⫺0.09 0.21 0.77*

*p < 0.01, **p < 0.05.

TABLE 2. Model Fit of CFA Models

Chi-Square DF GFI CFI RMSEA

Customer perception of service quality 13.463 8 0.991 0.995 0.038

Customer perception of relational benefits 87.884 32 0.965 0.976 0.061

FIGURE 3. Maximum-Likelihood Estimates for the Model

.70 .79 .83 .89

terms of the perception of IT provision and the perception of employees,

DISCUSSION AND IMPLICATIONS

The findings of this research indicate that the questionnaires identi-

psychometric properties in terms of both reliability and validity. More-

The findings confirm that in order to improve customer satisfaction,

branch level, managers need to decide on the relative emphasis to put in