Customers Switching Intentions Behavior in Retail Hypermarket Kingdom of Saudi Arabia: Customers Switching Intentions Behavior in Retail Hypermarket

Copyright © 2019 by Samrena Jabeen Abu Bakar Abdul Hamid.

ISBN:                Softcover                  978-1-5437-5202-1

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I dedicate this dissertation to my father

ABSTRACT

Retail Service Quality is a vital driver in determining customer satisfaction, which in turn promotes customer loyalty and reduces switching intentions. Based on disconfirmation theory, the difference between expectations and delivered service quality, decides the level of a customer satisfaction (CS). Service quality is a solution to build customer satisfaction which could lead to customer loyalty (CL) hence reducing switching intentions (SI). The concept of switching intentions has received significant attention in the field of marketing, however, little is known about the application of this concept in the context of retail business. Consumer research has neither verified the relationships among such constructs like retail service quality, customer satisfaction, customer loyalty and switching intentions, in a single framework, nor explored the possible influence of store ethnicity and price discounts on customer satisfaction and customer loyalty to switching intention. The current study has investigated the interrelationship between service quality, customer satisfaction, customer loyalty with switching intentions of customers, and the moderating role of price discounts and store ethnicity, in a single framework. Random sampling was used by administering standardized questionnaires personally to 450 hypermarket customers located in the Eastern Province of Saudi Arabia. Quantitative data was analyzed using Structural Equation Modeling (SEM), SPSS 18 and AMOS 20.The study extended the existing body of knowledge by introducing new moderators of price discounts and ethnic store on the relationships between satisfaction and switching intentions, and loyalty and switching intentions. The results confirmed that retail service quality has significant positive influence on customer satisfaction, and the positive effect of customer satisfaction on customer loyalty. Besides that, the study verified in marketing literature that store ethnicity and price discounts acted as moderating mechanism for explaining the switching intentions of satisfied and loyal customers. The results of the study may serve as a guideline for top managers of the hypermarkets to design appropriate policies and strategies in terms of retail service quality, price discounts and identifying the needs of ethnic groups in a particular region. This will help to enhance customer satisfaction and customer loyalty hence reducing switching intentions of customers.

TABLE OF CONTENTS

DEDICATION

ABSTRACT

TABLE OF CONTENTS

LIST OF TABLES

LIST OF FIGURES

LIST OF ABBREVIATIONS

LIST OF APPENDICES

1     INTRODUCTION

1.1   Introduction

1.2   Background of the Study

1.3   Preliminary Study

1.4   Problem Statement

1.5   Research Questions

1.6   Research Objectives

1.7   Research Scope

1.8   Significance of the Research

1.9   Definitions of Key Terms

1.9.1   Hypermarket

1.9.2   Retail Service Quality Scale (RSQS)

1.9.3   Physical Aspect Dimension

1.9.4   Reliability Dimension

1.9.5   Personal Interaction Dimension

1.9.6   Problem Solving Dimension

1.9.7   Policy Dimension

1.9.8   Customer Satisfaction

1.9.9   Customer Loyalty

1.9.10   Switching Intentions

1.9.11   Store Ethnicity

1.9.12   Price Discounts

1.10   Organization of the book

2     LITERATURE REVIEW

2.1   Introduction

2.2   Hypermarket

2.2.1   Background of Hypermarket Consumer Behavior

2.2.2   Overview of KSA Retail Industry

2.3   Expectation Disconfirmation Theory (EDT)

2.4   Social Identity Theory

2.5   Switching Intention Concept

2.6   Customer Loyalty Concept

2.6.1   Store Loyalty Factors

2.7   Customer Satisfaction Concept

2.8   Service Quality Concept

2.9   Importance of Retail Service Quality

2.10   Service Quality Models

2.10.1   SERVQUAL

2.10.1.1   Criticism on SERVQUAL

2.10.1.2   SERVPERF

2.10.2   Hierarchical Service Quality Model (HSQM)

2.11   Retail Service Quality Scale (RSQS)

2.11.1   Physical Aspects Dimension

2.11.1.1   Appearance

2.11.1.2   Convenience

2.11.2   Reliability Dimension

2.11.3   Personal Interaction Dimension

2.11.4   Problem Solving Dimension

2.11.5   Policy Dimension

2.12   Conceptual Framework

2.13   Retail Service Quality and Customer Satisfaction

2.14   Customer Satisfaction and Customer Loyalty

2.15   Customer Satisfaction and switching Intention

2.16   Customer Loyalty and Switching Intentions

2.17   Moderation Effects

2.17.1   Store Ethnicity Concept as Moderator

2.17.2   Price Discount Concept as Moderator

2.18   Summary of the Chapter

3     RESEARCH METHODOLOGY

3.1   Overview

3.2   Research Paradigm

3.3   Research Design

3.4   Unit of Analysis

3.5   Time Horizon: Cross-Sectional

3.6   Population

3.6.1   Major Hypermarkets in Saudi Arabia

3.6.2   Sampling Design

3.6.3   Size

3.7   Data Collection

3.7.1   Research Instrument

3.7.2   Structure of the Questionnaire

3.7.2.1   Demographic Information

3.7.2.2   Retail Service Quality Scale

3.7.2.3   Physical Aspect

3.7.2.4   Reliability

3.7.2.5   Personal Interaction

3.7.2.6   Problem Solving

3.7.2.7   Policy

3.7.2.8   Customer Satisfaction

3.7.2.9   Customer Loyalty

3.7.2.10   Switching Intentions

3.7.2.11   Ethnic Store

3.7.2.12   Price Discounts

3.8   Pre-Testing

3.9   Pilot Test

3.10   Data Analysis

3.10.1   Data Screening

3.10.2   Missing Value Analysis

3.10.3   Detection of Multivariate Outliers

3.10.4   Multivariate Statistical Assumptions

3.10.5   Normality Test

3.10.6   Linearity

3.10.7   Homoscedasticity

3.10.8   Multicollinearity Test

3.10.9   Common Method Bias

3.10.10   Exploratory Factor Analysis

3.10.11   Reliability Analysis

3.10.12   Confirmatory Factor Analysis

3.10.13   Fitness Criteria

3.10.14   Discriminant Validity

3.10.15   Descriptive Analysis

3.10.16   Pearson Correlational Analysis

3.11   Structural Equation Modelling

3.12   Summary of the Chapter

4     DATA ANALYSIS

4.1   Introduction

4.2   Data Screening and Missing Values

4.2.1   Detection of Outliers

4.3   Assessment Normality

4.3.1   Univariate Normality

4.4   Multivariate Normality Assumptions

4.4.1   Normality

4.4.2   Multicollinearity

4.5   Sample Description

4.6   Common Method Variance (CMV)

4.7   Descriptive Statistics

4.8   Reliability Analysis

4.9   Confirmatory Factor Analysis (CFA)

4.9.1   Retail Service Quality

4.9.2   Customer Satisfaction

4.9.3   Customer Loyalty

4.9.4   Customer Switching Intentions

4.9.5   Price Discounts

4.9.6   Ethnic Stores

4.10   Measurement Model

4.10.1   Convergent Validity

4.10.2   Discriminant Validity

4.11   Hypotheses Testing

4.12   Mediation Effect

4.12.1   Moderation Effect

4.13   Summary

5     DISCUSSION AND CONCLUSION

5.1   Introduction

5.2   Overview of the Study

5.3   Discussion on Findings

5.3.1   Research Question: What is the effect of retail service quality (RSQ) (with five dimensions) on customer satisfaction (CS) among the hypermarket of KSA?

5.3.2   Research Question: What is the effect of customer satisfaction (CS) on customer loyalty (CL) among the hypermarket of KSA?

5.3.3   Research Question: What is the effect of Customer Satisfaction (CS) on Customer Switching Intentions (SI) among the Hypermarket of KSA?

5.3.4   Research Question: What is the effect of Customer’s Loyalty (CL) on Switching Intentions (SI) among the Hypermarket of KSA?

5.3.5   Research Question: What is the Mediating Role of Customer Loyalty (CL) between the Customer Satisfaction (CS) and the Switching Intentions (SI) among the Hypermarket of KSA?

5.3.6   Research Question: What is the Moderating Role of Ethnic Stores (ES) on the Relationship between Customer Satisfaction (CS) and the Customer Switching Intentions (SI) among the Hypermarket of KSA?

5.3.7   Research Question: What is the moderating role of Ethnic Stores (ES) on the Relationship between Customer Loyalty (CL) and the Customer Switching Intentions (SI) among the Hypermarket of KSA?

5.3.8   Research Question: What is the Moderating role of Price Discounts (PD) on the Relationship between Customer Satisfaction (CS) and the Customer Switching Intentions (SI) among the Hypermarket of KSA?

5.3.9   Research Question: What is the Moderating Role of Price Discounts (PD) on the Relationship between Customer Loyalty (CL) and the Customer Switching Intentions (SI) among the Hypermarket of KSA?

5.4   Implications of the Study

5.4.1   Theoretical Implications

5.4.2   Managerial implications

5.4.3   Limitations of the Study

5.5   Conclusion

5.6   Future Directions and Recommendations

REFERENCES

LIST OF TABLES

Table 2.1: Service Quality Definitions

Table 2.2: Service Quality Dimensions

Table 2.3: Replicated Studies of RSQS Tested with Customer Satisfaction and Customer Loyalty

Table 3.1: Quantitative, Qualitative, and Mixed Methods Procedures

Table 3.2: Hypermarkets in KSA

Table 3.3: Region wise Hypermarkets Presence

Table 3.4: Questionnaire Distribution

Table 3.5: Questionnaire Design

Table 3.6: Cronbach Alpha of Pilot Study

Table 3.7: Fit indices and their acceptable thresholds

Table 4.1: Observations farthest from the centroid (Mahalanobis distance) (Group number 1)

Table 4.2: Univairate Normality

Table 4.3: Tests of Normality

Table 4.4: Multicollinearity Statistics among Independent Variables

Table 4.5: Demographic Description of Participants

Table 4.6: Descriptive Statistics

Table 4.7: Initial Reliability

Table 4.8: Threshold Values

Table 4.9: Overall Measurement Model of All Constructs

Table 4.10: Convergent Validity Analysis

Table 4.11: Discriminant Validity Analysis

Table 4.12: RSQS and Customer Satisfaction

Table 4.13: Direct Effects of Independent and Dependent Variables

Table 4.14: Mediation Analysis

Table 4.15: Moderation Analysis Ethnic Stores

Table 4.16: Interaction Effect of ES (Customer Loyalty and Switching Intentions)

Table 4.17: Interaction effect (Customer satisfaction and switching intentions)

Table 4.18: Interaction effect of PD (customer loyalty and switching intentions)

Table 4.19: Summary of Hypothesis Results

LIST OF FIGURES

Figure 2.1: RSQS Model adapted from Dabholkar (1996) Page (6)

Figure 2.2: Proposed Research Model for the Study

Figure 3.1: Cluster Sampling Procedure

Figure 4.1: Regression Stand ardized Residual of Independent and Dependent Variables

Figure 4.2: Normal P-P Plots of Regression Stand ardized Residual of Switching intentions

Figure 4.3: Measurement Model

Figure 4.4: CFA for Retail Service Quality Construct

Figure 4.5: CFA for Customer Satisfaction Construct

Figure 4.6: CFA for Customer Loyalty Construct

Figure 4.7: CFA for Switching Intentions Construct

Figure 4.8: CFA for Price Discount Construct

Figure 4.9: CFA for Ethnic Store Construct

Figure 4.10: Overall Measurement Models of all Constructs

Figure 4.11: Structural Model for RSQS and Customer Satisfaction

Figure 4.12: Structural Model

Figure 4.13: Mediation Effect

Figure 4.14: Moderation Effect of ES

Figure 4.15: Moderation Analysis Ethnic Stores

Figure 4.16: Moderation Effect of ES

Figure 4.17: Moderation Effect of ES

Figure 4.18: Moderation Analysis Price Discounts

Figure 4.19: Interaction Effect PD

Figure 4.20: Moderation Effect of PD

Figure 4.21: Interaction Effect PD

Figure 5.1: Revised Study Model

LIST OF ABBREVIATIONS

LIST OF APPENDICES

A     QUESTIONNAIRE

B     OUTLIERS ANALYSIS

CHAPTER 1

INTRODUCTION

1.1   Introduction

First chapter provides an introduction to the thesis, which is divided into ten sections. First section is an introduction followed by second section that explains background of the research study. Third section presents problem statement of the research work which ends in section four that identifies research questions. Fifth section formulates research objectives. Scope of the research is explained in section six. Section seven discusses significance of the study which is followed by section eight that describes definitions of terms whereas, section nine concludes with the outline of the thesis.

1.2   Background of the Study

Saudi Arabia is one of the largest and most successful countries in the region for retail where the retail sector remains very strong (January 19, 2016, The National). In the last five years, Saudi Arabia’s retail food has been rapidly expanding in response to growing food consumption, increased competition and changing consumer preferences. In 2013, Forty five hypermarket and supermarket outlets and 525 neighbour stores were added to the growing retail food network in Saudi Arabia. In 2013, the total number of retail outlets was estimated at more than 41, 000 units. In 2012, the total value of Saudi retail food sale was estimated at about $31 billion, an increase of about 26 percent compared to sales in 2010.The overall retail food market is forecasted to grow by about 16 percent annually for the next few years, exceeding $40 billion in 2015.The retail units are divided into three categories: hypermarkets, supermarkets and bakalas (convenience stores). The number of hypermarkets is relatively small, around 90 units, but they account for about 18 percent of total retail food sale. With the expected expansion in the number of food outlets, mostly hypermarkets and supermarkets, the overall retail food sale is forecast to reach $40 billion by 2015 (Gain Report, 2013). The retail industry in the KSA is very competitive with the strong presence of some major retail giants like Carrefour Saudi Arabia, Panda Hypermarket etc. (Zawya, 02 July 2015). Thus, the retail sector in Saudi Arabia is believed to be a high-potential market for domestic as well as for foreign participants (Zawya, 02 July 2015).

Retail industry is chosen for the present study for its importance and valuable contribution to Saudi economy. Over the years, the retail industry has implemented programs to improve service quality to satisfy the customers and to make them loyal. Services offered by supermarkets are the determinant of success of store (Moraga et al., 2008) and service quality is considered as key factor to customer value (Arun et al., 2012). Purchasing behaviour of consumers of hypermarket is difficult to analyze due to the fact that; besides emphasizing on product quality, consumers particularly care about intangible service quality which infers that the quality of services offered by a hypermarket/supermarket is of prime importance to the formation of purchasing behaviour of the existing consumers (Kumar et al., 2012). However, despite its effectiveness in delivering quality service, retail industry is facing a real challenge of switching instigated even by a satisfied and loyal customer. Bowen and Chen (2001) reported that only satisfied customers are not enough, there is a need to have extremely satisfied customers.

The focus of conventional marketing was more on the quality of merchandise but later due to continued research studies, the importance of service quality in retail offerings was emerging and recognized by retailers (Bougoure and Lee, 2008). The role of service quality in retail outlets cannot be compared with pure service or product oriented companies, due to the unique nature of retail organizations, which offer a combination of goods and services (Finn, 2004). According to experts, delivery of high service quality in retail setting is the main source of getting and sustaining competitive advantage (Reichinhheld and Sasser, 1990; Dabholkar et al., 1996) and perceived as a source of positioning in intense competition (Mehta et al., 2000) to have satisfied customers (Sivadas and Baker-Prewitt, 2000) with the positive effect of retention and patronage (Yavas et al., 1997). Consequently retailers should have the capacity to offer high quality in services and products to facilitate and to delight them by offering beyond their expectations. Retailers should have more emphasis more on service quality as compared to product quality (Dabholkar et al., 1996) as customer perceives services more important than products (Tsai et al., 2010). On the contrary, factor of product quality cannot be ignored, quality should be perceived as combination of services and products to measure this construct accurately (Mehta et al., 2000) and due to fundamental changes in retail environment, retailers should focus on critical marketing decisions addressing the issues related to target customer, product variety, store atmosphere, services offered by store, pricing strategies, advertising and location decisions while setting their marketing strategies (Kotler Philip, 2003; Keller, 2009).

The findings revealed that there was a positive and significant relationship between service quality, customer satisfaction and customer loyalty (Apondi, 2016). Customer satisfaction is positively related to customer loyalty and negatively associated with customer’s intentions to switch (Mohsan et al., 2011). It is found that even satisfied customers show switching behavior to get better option, exhibiting the instability of loyalty, so, it can be concluded that customer satisfaction cannot predict customer loyalty accurately (Story and Hess 2006, Reichheld, 2003; Mohsan et al., 2011). The high selection power of consumers of hypermarkets has made it extremely difficult for hypermarkets to devise effective strategies to prevent their customers to switch to alternative service channels (Torlak et al., 2010). It is very important for a firm to understand the reasons of consumer switching to generate zero defection culture (Nikbin et al., 2012). Despite the awareness of hypermarkets regarding the importance and value of retaining existing customers by preventing from switching to other service channels, they do not exactly know how to predict the purchasing behaviour of existing consumers, and to be successful in avoiding the customers to switch, particularly in emerging countries (Allaway et al., 2011; Demirci and Kara, 2014). For example, although some retailing service providers perceived that by measuring the consumer satisfaction and ensuring that the satisfaction score is good, the consumer will stay with them. However, it was observed that even highly satisfied customers can easily switch to competitors providing good offers (Almossawi, 2012). The trend paves the way for greater attention to the understanding. Therefore, hypermarkets have to advance their tactics and strategies in order to make their consumer loyal and not to switch. Although the consumer’s loyalty is relatively well-studied in marketing context, however, majority of prior studies focused on e-marketing environment (Kwon and Kim, 2012; Lewis, 2006; Seo et al., 2008), and there is a significant lack of understanding on the mechanism by which customers are made loyal to particular retailers (Reynolds and Arnold, 2000; Vesel and Zabkar, 2009). To the best of the researcher’s knowledge, less attention has been given to the switching intentions of loyal customers.

It can be concluded from the research of Ouellet (2005) that buying behavior of consumers also depends on ethnicity of the product’s company or company owners as the basis of their judgments on country of origin and ethnicity which is emerging as an influential determinant of consumer behavior (Ouellet, 2007). Customers, who closely identify themselves with service providers (Coulter and Coulter, 2002) experience more comfort and less interpersonal barriers during service encounter. While investigating the consumer behavior towards foreign owned hypermarket chain in relation to their cultural background, ethnic identity and level of consumer ethnocentrism, the negative relationship was found between consumer ethnocentrism and support for foreign retail outlets (Zarkada-Fraser and Fraser, 2002). It is suggested there is scope for mainstream retailers to woo ethnic consumers by taking ethnic attributes as serious options for making a positive impression and establishing a service relationship with ethnic consumers (Huang et al., 2013).Similarly ethnic groups of foreign customers in Saudi Arabia are getting attracted to the store which possesses same ethnic factors as possessed by the consumers.

Previous studies examined the relationship of store performance and sale promotion effect (Freo, 2005), price and promotion strategies (Bolton and Shankar, 2003), use of store flyers as complimentary promotional techniques compared to price promotions and discounts (Kumar et al., 2004) and consequences of promotions on brands (Gedenk and Neslin, 2000). In store, decisions are greatly influenced by the factors which are in store promotions, price mark downs, store atmospheres, displays, stock outs, store layout and services (Jin and Kim, 2003; Dawes, 2004; Alvarez and Casielles, 2005). In-store marketing is declared as more important factor compared to external marketing in retailer’s promotion budgets (Fam, Merrilees and Miller, 1996). According to Miranda (2009) in-store promotions fascinating impulse buyer and price markdowns are the sources of pleasure for customers (Shi et al., 2005).

The current research endeavours to study, how retail service quality influences the customer’s satisfaction and tends to be loyal, and how ethnic store and price discounts shape the switching intentions of satisfied and loyal customers. Oliver’s disconfirmation theory framework is applied to understand the retail service quality effect on customer’s satisfaction which leads to customer’s loyalty.

1.3   Preliminary Study

Customer satisfaction is the outcome of service quality but it is not always the true predictor of customer loyalty. Positive relationship of customer satisfaction and customer loyalty/retention is identified by many empirical studies (Chi, 2005; Oh, 1999; Alegre and Cladera, 2009; Cronin et al., 2000; Chi and Qu, 2008; Han and Ryu, 2009) but there is an evidence that satisfied customers also show deflection and switch to another brand (Jung and Yoon, 2012; Han and Hyun, 2011; Chuang, 2011). (Jung and Yoon, 2012) found that customer loyalty is negatively associated with switching intention. Although loyalty might be the strongest determinant of purchase behaviour (Tellis, 1988), there is no guarantee that loyal customers never switch. For example, Keavency (1995) found that better prices and service delivery from competitors might break down loyalty. Hypermarket customers in Saudi Arabia were found to be satisfied with the service quality provided by their stores, still a possibility of customer shift to a competitor retailer exists (Mahfooz, 2014).

Saudi Arabia is one of the largest and most successful countries in the region for retail where the retail sector remains very strong (January 19, 2016, TheNational). Hypermarkets are facing problems in Saudi Arabia due to huge investment in retail sector and intense competition. Due to this, customers do not remain loyal even they are satisfied with services and they intend to switch for better price (Mohammad, personal communication, May 15, 2012). Today’s customer is aware of different offers every week offered by hypermarkets every week which makes it difficult to remain loyal with us (Abdullah, personal communication, June 01, 2012). Customer also seeks for its ethnic group and feels more comfortable while doing shopping in store where he can associate him with his ethnicity. For this reason there is a need to open ethnic stores where customers could find all brands including ethnic brands (G. abdulrahman, personal communication, May 02, 2012). It’s very important for us to make our customers satisfied and loyal for repetitive visits (A. Qahtani, personal ommunication; May 18, 2012; Waleed, personal communication, May 28, 2012). Customers’ switching is main issue now days for hypermarkets (Hammad, personal communication, May 15, 2012). Based on these issues we need to devise new strategies to control the factors to remain our customers loyal and not to switch to other stores.

Due to inconsistent results of prior researches and lack of studies in Saudi Arabia identifying the link among satisfaction, loyalty and switching intentions, this study is conducted to identify the relationship in the context of retail industry.

1.4   Problem Statement

In the past few decades, retail service quality in hypermarket has become a quite sensitive issue to get the customers satisfied, and make them loyal to reduce switching intentions. Service quality is more difficult to measure than product quality, because of certain unique characteristics of services. The first theoretical gap is inconsistent results in previous studies for the applicability of RSQS Model in different economies (Kaul, 2007, Leen and Ramayah, 2011, Mahfooz, 2014, Tepanon & Thatriroth, 2016; Kumar et al., 2012). Due to the emerging importance of retail service quality, RSQS Scale is being explored in various regions and economies. Moreover, the applicability of retail service quality scale (RSQS) is tested in different cultures and proven its pertinence fully (Dabholkar et al., 1996; Boshoff and Terblanche, 1997) and partially (Kim and Jin, 2002; Lee et al., 2009) in developed economies. The scale is also tested in developing economies (Leen and Ramayah, 2011; Torlak et al., 2010; Ibrahim et al., 2013). Some researchers proved that RSQS is not fit completely (Kaul, 2007) or partially (Ellis et al., 2003) in some cultures. For this reason, researcher gave the call to researchers in other economies to replicate the study in other retail settings and test the applicability of RSQSs scale (Das et al., 2010; Kumar and Sikdar, 2014) and to widen the choice of retail formats by including mass merchandisers like hypermarkets as well as departmental stores (Leen and Ramayah, 2011). Quite few studies have examined the applicability of scale to measure retail service quality in Western Province of Saudi Arabia (Mahfooz, 2014) and found it applicable there with all of its dimensions. For this reason current research examines the applicability of Retail Service Quality Scale (RSQS) with all of its dimensions in the context of Saudi Arabia.

The second theoretical gap is that only few studies have examined the effect of dimensions of RSQS on customer satisfaction and the results are inconsistent in terms of most or least effective