CHAPTER 2: LITERATURE REVIEW

2.1 INTRODUCTION
The field of customer satisfaction is huge and pass through a number of different
academic disciplines. The twenty first century concepts of customer intimacy, customer
centric and customer focus reconstruct the corporation as an entity that deliver value to
carefully selected market segments [ CITATION Chr02 \l 2057 ]. The literature review covers
the different literature from other authors and attempts to understand the concepts, the
definitions, theories and solutions. Moreover, it tries to include other concepts and ideas that
may prove useful in this and may help in making a platform for the research.

The literature review assesses the vital concepts of relationship marketing, service
quality and customer loyalty. The focus of these topics is on retaining the customers and to
gain long term profitability for the organisation. The concept of these terminologies in the
context of today’s retailing sector will be discussed. Furthermore, the relationship of all these
with the satisfaction of customers will be examined. The published literatures on UK retailing
sector is also analysed.

2.2 THE RETAIL INDUSTRY

In the context of modern society, retailing is considered as any business that aims its
marketing efforts to satisfy the needs of the customers based on the organisation which sells
goods and services [ CITATION Gil99 \l 2057 ]. Retailing also refers to the effective
management of all resources of the retailer in order to meet the needs of the customer
[ CITATION Dav93 \l 2057 ]. But Peterson & Balasubramanian (2002) argues that retailing has
changed a lot since the beginning of the 21st century. The authors perceive the access to
internet around the world as the main reason for this and support internet as the “foundation
for a new industrial order”[ CITATION Ham98 \l 2057 ]. Globalisation, development in
technologies and the ever changing customer behaviour also had a major influence in re-
shaping the retail industry. The increase in the market concentration is also driven by the
emergence of large national chains throughout the country [ CITATION Raf09 \l 2057 ]. The
authors points to the increased scope to import consumer goods from low wage countries and
the economies of scale in importing as the main driving forces for this. Consumers are
becoming more segmented and demanding added value and this force the retailers to provide
latest aspects in terms of goods and services.

Internet marketing or E-marketing in the context of retailing can be viewed as a

business practise associated with buying and selling goods, services, information and ideas
via the internet and other electronic means [ CITATION ElG08 \l 2057 ] while Chaffey (2010)
defines it as “achieving marketing objectives through applying digital technologies”. This
provides the retailers the flexibility to lower the prices, however Gallagher & Gilmore (2004)
identifies small businesses were slow to respond to changes brought by the internet and were
not yet making effective use of it. Also, culture is a major factor in both adapting and success
of internet marketing (El-Gohary et al., 2008; Hofacker, 2001; Luna et al., 2003; Nantes &
Glaser, 2008; Yasin & Yavas, 2007; Gong, 2009). Trust (Wang et al., 2009), security
[ CITATION Seo09 \l 2057 ] and customer acceptance and involvement [ CITATION ElG08 \l
2057 ] are yet another important aspect to be tackled by the retailers before expecting returns
from their internet businesses. However, In UK websites and other online shopping portals
are aided by the benefits provided by Royal mail and other private operators such as DHL
delivery systems and thus making them key players in the UK retail industry [ CITATION
Coo05 \l 2057 ].

2.2.1 The Buying Decision Process

The understanding of customers and their buying behaviour is a must to develop the
strategies for customer relationships and marketing procedures. According to Gilbert (2003),
the retail buying process starts with the recognition of the need and then, the individual
becomes a potential buyer.

(1). Need arousal: The buying process starts with an unsatisfied need. This could be socially,
commercially or physically stimulated and it motivates the individual to act.

(2). Recognition of the need: This is a prerequisite stage where the retailers can have a direct
impact on the stimulation. This could be done using window displays, bill boards, in store
merchandise displays and other sorts of advertising and promotional activities. This could
also help in kindling secondary needs. A smart retailer presents the customer with a total
merchandise package along with training their staff to prompt the customer about their
requirements.
(3). Level of involvement: This is the amount of time and effort spent in the decision process
and will depend upon the complexity of product, individual perceptions and the buying
situations.

(4). Search of information and identification of alternatives: Branding has got a major
influence in this part of the buying process. Advertising, promotional activities and most
importantly word of mouth are also key players here. Sales are one of the largely accepted
promotional activities and are often a very successful driving or motivational
factor[ CITATION Smi04 \l 2057 ]. Internet is aiding a lot in the search for information part.
Again, the presence of competing brands, similar retailers, time and cost also had their voice
in this important process.

(5). Evaluation of alternatives: Comparisons will be made based on the preferences of the
purchaser. The cost, reputation or performance expectation could be the criteria here.
Sometimes customers come up with a ranking of their preferences among the alternatives.
Finally the decision is of the customer as their attitudes are dynamic and unique.

(6). Decision: Choice is made after the problem solving procedure.

(7). Purchase action: Again, this depends on the availability of the merchandise.

(8). Post purchase feeling/ behaviour: This is a feeling of individual experience and will
differ from customer to customer. This stage could give an assurance if there is any doubt
about the choice in customer’s mind. This psychological stage directly relate to how satisfied
the customer is and his/ her loyalty.

In retailing industry, customer is more likely to maintain a relationship with

individuals and company itself rather than the goods they purchase (Bendapudi & Berry,
1997; Parasuraman, 2002). Thus relationship marketing within the retailing industry refers to
the relationships a customer maintains with the firm, particular branches, stores, departments
or with individual sales associates (Beatty et al., 1996). As long as the retailers are able to
keep the loyalty of customers high, it is more likely the customers to continue purchasing
from the same retailing store[ CITATION And94 \l 2057 ]. This could result in an increased
customer satisfaction and hence enhancing the overall reputation of the firm. Companies can
utilise this by introducing new products as it provide instant awareness and low buyer’s risk
of trial (Robertson & Gatignon, 1986; Schmalansee, 1978). Berry (1986) identifies that many
successful goods retailers differentiate themselves, not through the homogeneous goods they
sell, but through the service they offer. Furthermore, the immense competition in the retailing
industry forced retailers to keep up their quality standards high [ CITATION Zha02 \l 2057 ].
And these favourable perceptions of a retailer offering high quality could be transformed to
perceptions of the quality of the merchandise offered [ CITATION Ker92 \l 2057 ].

2.2.2 Sportswear Retailing

The sportswear retailing industry is still a different and to some extent a fragmented
retailing industry. The sportswear retail market generally includes sports clothing and sports
footwear. Sports wears are enjoying a high acceptance rate and it is because of its comfort,
easiness to wear and stylishness [ CITATION Min02 \l 2057 ] . Again, from the results from the
Mintel Reports (2002, 2006, 2008, 2009), it is clear that the sports wears is much more
acceptable to the younger generations. Despite the fact that the sportswear retailing has not
yet reached the mature level in the life cycle, the big players in sports wear retailing are
benefiting from their economies of scale and negotiating power. The industry had a good
time in mid to late 1990’s; since then the industry is going through a period of stagnating
sales, falling prices and very rapid consolidation [ CITATION Min06 \l 2057 ]. However, the
strong players in the sports retailing intent to expand with their multi chain retailing.
Introducing exclusive products for the customers forced them to enhance their relationship
with the suppliers [ CITATION Min02 \l 2057 ].

The UK sports goods market is worth £5.6 billion in the year 2007 [ CITATION Min \l
2057 ]. The report points to the rise of Sports Direct International as the market leaders as the
driving force for the massive consolidation of sportswear retailing. The UK retailing turnover
of the company was over £1 billion which was more than double than that of 5 years ago
[ CITATION Spo07 \l 2057 ]. Other retailers find it difficult to cope with the discount based
strategy of Sports direct. However, some retailers like JD sports have been successful while
most of the individual players in the market failed to differentiate themselves.

2.3 RELATIONSHIP MARKETING

2.3.1 Limitations of 4P’s model

After the introduction of marketing mix about 50 years ago, this concept had
dominated the marketing management decisions and thoughts. The broader recognition of
marketing mix among marketers is mainly due to the fact that 4P’s are identified as the
controllable factors likely to manipulate the customer buying process and decisions (Kotler,
2003). Moreover, the 4P’s approach is a memorable and practical framework for marketing
decision making [ CITATION Job01 \l 2057 ]. Despite the fact that marketing mix is the most
widely accepted parameter of modern marketing world, there has been doubts and opposition
raised by several scholars in time to time. Furthermore, the marketing and the overall
business environment had changed a lot since the introduction of the 4P’s model. The present
marketing methods need to cope with the huge mass markets, a highly competitive
distribution system, a commercial mass media, varied infrastructure and so on [ CITATION
Sha06 \l 2057 ].

Increased consumer power and complexity pressurise the marketers to switch from
mass marketing approach towards personalisation, interaction and maintaining relations with
customers [ CITATION Con06 \l 2057 ] that is from the product oriented approach towards a
customer oriented approach. The author argues this as the reason why the marketers
concentrated more on communicating with their customers and made them vigilant about
changes in customer expectations and to adapt themselves to those changes. Healy et al.
(2001) supports relationship marketing as the future marketing paradigm as it addresses the
elements of the marketing relationship trilogy – relationships, neo-relationship marketing and
networks. While transactional marketing focuses on increasing sales and making customers,
relationship marketing aims at creating client relationships and retaining existing customers
[ CITATION Ven02 \l 2057 ].

However, the critics of relationship marketing argue that the traditional 4P’s
marketing concept is not going to be replaced. Rather they support a cross-functional focus
on marketing strategy. Zineldin & Philipson (2007) argues that there is a considerable stake
of customers who prefer to purchase on the basis of price and quality rather than on the basis
of a long term relationships.

2.3.2 Moving towards Relationship Marketing

Berry (1983) introduced the term relationship marketing as a concept of attracting and
maintaining customer relationships. Later various scholars such as Gronroos (1990), Shani &
Chalasani (1992) and Morgan & Hunt (1994) enhanced on this idea and developed a broader
view of relationship marketing management. Gronroos (1990) defines “relationship
marketing is to establish, maintain and enhance relationships with customers and other
partners, at a profit, so that the objectives of the parties involved are met. This is achieved by
a mutual exchange and fulfilment of promises”. The past two decades witnessed the
emergence of relationship marketing as the central point of business strategy [ CITATION
Ega08 \l 2057 ] and a lot of factors acted as a driving force to its emergence. Some of them
include the rapid growth of service economy along with increased competition [ CITATION
Leh96 \l 2057 ], increasing fragmentation of markets (Palmer, 2002; Shani & Chalasani, 1992,
Bennet & Wei, 2006), more informative and sophisticated customers (Vonderembse et al.,
2006), and varying buying patterns, shorter product life cycles and the impact of information
technology on service delivery (Bitner, 2001; Kandampully, 2002).

In the current business world, customer care has got a major influence on a
company’s long term profitability. Cook (2000) identifies customer as the foundation of
business and as the factor to keep the business in existence. As a result, there is considerable
attention is being taken into account of maintaining a relationship between the service
providers and customers (Barnes, 1997; Reinartz & Kumar, 2002; Coulter & Coulter, 2002).
Relationship marketing focuses on maintaining and managing a long term marketing
relationship. The focal point of relationship marketing is customer retention rather than
customer creation. This aims to increase the customer life time value. Sheth & Parvatiyar
(1995) identify consumer choice reduction as the fundamental principle of relationship
marketing. Customer driven marketing practises, profitability and strategic marketing
practises are the three important features of relationship marketing [ CITATION Sha06 \l
2057 ].

2.3.3 Relationship Marketing Concepts

There are two primary objectives for establishing a relationship with the customer:
One is to attract the customers and the second one is to build the relationship with the
customer so that the economic goals of that relationship are achieved [ CITATION Sha06 \l
2057 ]. Relationships are usually long term but not necessarily so. Apart from the market
paradigm concept, relationship marketing mainly depends upon two significant concepts:
promise and trust.

The Promise Concept: Gronroos (2010) proposes relationship marketing as promise

management. Kotler’s view on transactional marketing was based on the exchange of values
between two parties. However, concentrating only on this will draw the concentration of
marketers towards short term values rather than creating value for customers [ CITATION
She07 \l 2057 ]. And this shows the importance of creating value for the customers for a long
term marketing success (Gronroos, 2008). Thus, promise and keeping it (trust) becomes
essential ingredients in relationship marketing.

Importance of Trust: Trust is the “willingness to rely on an exchange partner in whom

one has confidence” [ CITATION Moo93 \l 2057 ]. In order to attain customer trust, the
company needs to develop its strategy for effective communication, to take on the customer’s
relationship norms and to keep away from negative reputation [ CITATION Ada03 \l
2057 ].Thus in a relationship marketing trust leads to reliability and negates uncertainty and
vulnerability. Again, the ‘House of Knowledge’ model introduced by Sheth & Parvatiyar
(2000) identifies other important concepts in relationship marketing. Apart from promise and
trust, there are commitment, interaction and dialogue. The authors also discuss about the
importance of knowledge management between the firm and the stakeholder.

2.3.4 Relationship Marketing in the Retailing Industry

Retailing consists of the concluding actions and steps needed to place products and
services made somewhere else into the hands of the customer [ CITATION Dun08 \l 2057 ]. It
is the largest industry in most countries and includes every living individual as a consumer.
Moreover, retailing accounts for 20% of the worldwide labour force. With the emergence of
internet, retailing also cemented its place in online businesses and started a price competition
in the current business world.

Relationship marketing within the context of a retailing industry can be viewed as the
relationship the customer maintain with the organisation, its branches, several departments,
and the sales associates (Buttle, 2009; Beatty et al., 1996). Especially in the retailing industry,
customer is more likely to preserve a rapport with individuals and company itself rather than
the goods they purchase (Bendapudi & Berry, 1997; Parasuraman, 2002). However, the
customer and retail sales associates’ relationship is referred to as relationship selling and is
highly effective where the customers are looking for personalised services [ CITATION
Joh07 \l 2057 ]. The success of relationship marketing depends on two key drivers: the human
interactions and the interaction between human and computer and software system
[ CITATION Wil09 \l 2057 ]. Relationship selling summarises the human interactions part of
the above.

Relationship marketing identifies each customer as a complex mix of personality,

motivations, attitudes and needs, preferring particular kind of experiences and learning from
them [ CITATION Sto00 \l 2057 ]. The authors suggest that particularly in the circumstances of
a retailing sector, the retailer can use relationship marketing for: (1). finding the customer;
(2). Getting to know the customer; (3). Keeping in touch with the customer; (4). trying to
ensure that the customer get what they want from the retailer in every aspect of the business;
and (5). Checking that the customer is getting what they had been promised.

Acknowledging the relationship will not be materialised without the content of

emotion and closeness in it [ CITATION Bar97 \l 2057 ]. Hence relationship strength, quality,
intensity and depth come into picture [ CITATION Dag09 \l 2057 ]. Similarly, the duration of
the relationship is also an important factor as it could act as a pointer of the closeness or
strength. According to Conklin et al. (2004), the capability of an organisation to follow
through and improve its performance in weaker areas is the key for a successful customer
relationship management. All the above factors heavily depend on the actions of the sales
associates as their performance determines the degree of satisfaction and extent of the
relationship between the customer and the firm. Thus it is clear that the customer build
relations with the employees, and not directly with the firm [ CITATION Mas06 \l 2057 ].

Adjei & Clark (2010) suggest that the quality of relationship is being driven by
overall satisfaction and these two lead to customer loyalty. Hence in this context, satisfaction
can be viewed as the customers’ affective response to the relationships (Palmatier et al.,
2006). Wong & Hogg (2009) argue that relationships always tend to change over time
because of the changes in trust and the experiences. To preserve the relationship with the
customer the retailer needs to continue their contacts and characterise themselves according
to customer needs. However, it is difficult to maintain or create a relationship with the
customer in such a way as to develop a first name friendship with the staff as in the case of a
hairdresser or dry cleaner [ CITATION Bar97 \l 2057 ]. Though, employees play the main part
in creating and maintaining the relationships, management must be committed to the
employees and to the customers for the relationship marketing to work (Beatty et al., 1996).

2.4 SERVICE QUALITY

Customer Satisfaction and service quality are indispensable components of
relationship marketing and hence competitive retailing. Without these there is no existence of
relationship marketing. Gronroos (1982) defines service quality as “the outcome of an
evaluation process where the consumer compares his expectations with the service he
perceived he has received”. Service quality has a direct contribution towards the overall
satisfaction and thus indirectly towards the customer loyalty [ CITATION Car02 \l 2057 ]. So
we can say that the chances of a customer returning are directly proportional to the customer
satisfaction and service quality. Lewis (1993) observes that the definitions of service quality
focus on the needs and requirements of customers, meeting them and how well it reached the
expectations of customers; where the term expectation in the context of service quality is very
complex as it differs from individual to individual.

Service quality established itself to be a differentiator and it had developed as the

most powerful competitive weapon an organisation could possess (Berry et al., 1988).
Gronroos (1978) points out three dimensions in service quality and they are technical quality,
functional quality and corporate image. The outcome of the services provided is the key
driver in technical quality, while functional quality is derived from the interaction of the
provider and the customer. The third dimension is the corporate image and is concerned with
the perceptions on services, technical and functional qualities, price, external
communications, physical location, appearance, and the competence and behaviour of the
employees. On the other hand Parasuraman et al. (1988) described service quality on the
basis of five dimensions of tangibility, reliability, responsiveness, assurance and empathy.
Tangibles consist of the physical facilities and appearance; Reliability is the ability to deliver
the promised service efficiently and effectively; Responsiveness is the willingness to assist
customers; Assurance is the knowledge and ability of employees to enhance trust and
confidence; finally empathy is the attention providing to the customers.

Every service organisation is built around a core service (Berry, 1995), though the
customers evaluate the service quality based on this core service and the peripheral services
along with their expectations (Gronroos et al., 2000). Since services are simultaneously
provided and consumed, the time in which the customer interacts with the employee becomes
critical (Baker et al., 2009; Bitner et al., 1994; Hartline & Ferrell, 1996). Baker et al. (2009)
conclude that the customer contact employees can thus directly impact the customers’
perception of service quality and customer satisfaction.

According to the opinion of various scholars, the service quality from a single
experience can significantly impact the overall customer satisfaction and loyalty. A single
negative service encounter or service failure not only could result in a permanent lessening of
overall customer satisfaction but also the other reactions of the dissatisfaction including
negative word of mouth [ CITATION Hoc06 \l 2057 ]. Ranaweera & Prabhu (2003) and Barlow
& Moller (2009) warn that the more dissatisfied the customer is the more likely they to use
negative word of mouth. In this case the process of service recovery becomes important. Bell
& Zemke (1987) proposed five ingredients for a successful service recovery: apology, urgent
reinstatement, empathy, atonement, and follow-up. Moreover, Hocutt et al. (2006) observe an
additional interaction between courtesy and tangible rewards can also effectively function as
a service recovery method.

2.4.1 Service Quality in Retailing

The rapid increase in the number of retail outlets has initiated the price wars which
seemingly reduces the retailer profitability [ CITATION Zha02 \l 2057 ]. Superior service
quality is regarded as a vital provider in securing a greater market performance in such a way
that it is difficult for the competition to imitate [ CITATION Par00 \l 2057 ]. According to
Sivadas & Baker-Prewitt (2000), in a retailing sector service quality and customer
satisfaction is deeply inter-related. In service literature, the scholars consider satisfaction
along with service quality have a major influence on behavioural purposes (Caruana, 2002;
Cronin et al., 2000; Zeithaml et al., 1996). Customers decide on their repurchasing from a
specific firm depends entirely on their past experiences and their satisfaction with those
products or services [ CITATION Bol00 \l 2057 ]. Furthermore, Sivadas & Baker-Prewitt
(2000) observe that word of mouth or recommendations are directly being influenced by
service quality and this could be considered as an indicator of customer loyalty as well.
Therefore we can say that, while customer satisfaction can be used to predict repurchase
loyalty; service quality can be used to foresee both satisfaction and loyalty (Olsen, 2002).

In online retailing, the degree to which the retailers are able to satisfy the customers is
a vital factor in service quality. Especially in today’s business environment where more and
more companies are going online to do their businesses service quality is becoming very
important. Providing the information to meet the requirements of individual consumer is the
key for the success of an online retailer (Park & Kim, 2003; Szymanski & Hise, 2000). So in
this context, retailers have to think differently to succeed in the business. Seiders et al. (2000)
gives the example of one stop shopping. However, this selection a retailer offering to the
customer makes them a potentially powerful force in the competitive retailing industry
(Berry, 1996).

Organisations should not presume that individual customers who comprise the global
market are identical in nature (Ueltschy et al., 2007). They have to develop their products and
services in such a way to satisfy these diversified customers and to remain competitive in the
global market (Ueltschy et al., 2007). With an increased competition and a variety of
products and services, the customers are forced to compare their alternatives rather than just
selecting a product or service (Cronin et al., 2000; Olsen, 2002). Therefore an important role
of customer service has turned out to be helping the customer selecting from his/her
alternatives, to provide valuable information and to help them make decisions and thus
boosting their satisfaction level towards the product and to the retailer.

2.5 CUSTOMER SATISFACTION

Customer Satisfaction has always been in the central themes of service industry.
Zeithaml et al. (1993) proposed that customer satisfaction is a function of customer’s
evaluation of service quality, product quality and price. Ostrom & Iacobucci (1995) defines
customer satisfaction as “a relative judgement that takes into consideration both the qualities
and the benefits obtained through a purchase as well as the costs and efforts borne by a
customer to obtain that purchase”. Again, satisfaction can be regarded as the rating of
consumer’s experience with the outcome of the service [ CITATION Mit98 \l 2057 ] . Giese &
Cote (2000) after reviewing the literature about customer satisfaction from 1969 to 1997
found out that customer satisfaction consisted of three basic elements: response, focus and
time. Based on these findings, White & Yu (2005) define satisfaction as an “affective
summary response” towards the consumed product or service.

Gilbert & Veloutsou (2006) argue that customer satisfaction is derived from the
customer’s comparison of the expected and actual experience. Such expectations are obtained
from both ideal and comparative principles. Ideal principle is what the service should actually
be; while, comparative is what customer can realistically expect on the basis of their previous
experiences. However, there is no real means for measuring the customer satisfaction as it is
completely characteristic – that is it is defined uniquely from individual to individual.

Customer satisfaction with an organisation’s products or services is often seen as the

key to an organisation’s success and long term competitiveness [ CITATION Ath01 \l 2057 ].
Retaining the cost effective consumers has become increasingly complicated in the present
competitive business world [ CITATION Lev06 \l 2057 ] and hence, the marketers and
organisations are not ready to compromise on customer satisfaction. The major concepts on
which the customer satisfaction is been built upon is the wants, needs and expectations of the
customers (Kotler et al., 2008). These attributes are in turn derived from other factors such as
price, quality, choice, convenience, appeal and previous experiences. Customers’
expectations are derived from their own accumulation of contacts with services provided
them in all walks of life [ CITATION Gil06 \l 2057 ].

2.5.1 Two types of Customer Satisfaction

Jones & Suh (2000) suggest that two different types of customer satisfaction exist: the
transaction specific and overall satisfaction. Transaction specific satisfaction is associated
with an explicit encounter with the firm. This perspective by focusing on customer’s
emotional behaviour to specific service attributes or service encounters, suggests that
organisations connect the performance of precise service elements or variations of them to
specific psychological group [ CITATION Ols03 \l 2057 ] . The authors argue that overall
satisfaction is a better indicator of customer intentions and behaviour. Overall satisfaction is a
cumulative sum of satisfaction with specific services or products of the organisation along
with other factors of the company [ CITATION Gar99 \l 2057 ]. So, overall satisfaction could
be viewed as a general outlook the consumer has to the company or specific products or
services. Auh et al. (2003) suggest that this overall feeling of satisfaction is comparatively
stable over time and is less sensitive to transition specific reactions. However, Johnson
(2001) identifies these two perspectives as more complementary than competitive.

Again, there are certain characteristics that have an unhelpful impact on customer
satisfaction on not delivering them, but still only have negligible positive impact even if they
are improved to a satisfactory level [ CITATION Con04 \l 2057 ]. These features known as the
“must be” attributes have a multiplicative relationship with the overall customer satisfaction
as the failure of delivering these “must be” attributes could cause decline in the overall
satisfaction [ CITATION Con04 \l 2057 ]. Hence these could be considered as key dissatisfiers.
It is a major challenge for marketing managers to identify these and nullify the effects or
reduce it.

2.5.2 Satisfaction and Loyalty

Keeping customers satisfied is what leads to customer loyalty [ CITATION Dou06 \l
2057 ]. Customer loyalty is a big worry for managers and thus it is becoming a major topic in
marketing research. This increasing concern is due to the extreme competition in the business
field and due to the emergence of relationship marketing [ CITATION Bod08 \l 2057 ].
Customer satisfaction drives customer loyalty and customer loyalty in turn is the driving
factor of profitability and growth of the organisation (Heskett et al., 1994). Based on the
purchasing habits of customers, Srinivasan et al. (2002), divides loyalty into four different
categories: (1). Undivided loyalty, (2). Divided loyalty, (3). Unstable loyalty and (4). No
loyalty. Initially customer loyalty was considered strictly behavioural. But later on scholars
failed to explain certain characteristics of customers and were unable to distinguish true and
fake loyalty [ CITATION Bod08 \l 2057 ]. The influence of situational, intrinsic and cultural
factors in the behavioural patterns forced the marketers to add an attitudinal content in
customer loyalty (Berné et al., 2001; Bandyopadhyay & Martell, 2007). Thus Jones & Suh
(2000) designed the mediation model in which it is shown that overall satisfaction is being
derived from transaction- specific satisfaction and finally overall satisfaction leads to
attitudinal customer loyalty.

Jones & Sasser (1995) grouped three different ways for measuring customer loyalty:

(1). intend to repurchase: It is about asking the customer about the future intentions of
repurchasing. Even though these are mere indications of future and there is no assurance,
these could be used as important factors while measuring customer satisfaction.

(2). Primary behaviour: Companies have often access to transaction information of customers
and can measure factors such as recency, frequency, amount, retention and longevity. These
are indicators of genuine repurchasing actions.

(3). Secondary behaviour: Word of mouth is one of the most significant aspects in attracting
new customers. Also, customer referrals and endorsements are also part of this secondary
behaviour. However, these ‘soft’ measures of behaviour are difficult to evaluate and to link
with the actual customer loyalty and satisfaction.

According to Gremler & Brown (1996), customer satisfaction is not the only factor
which directly influences the customer loyalty; switching costs and interpersonal
relationships has also got their voice in the process. However, the authors argue that the
loyalty begins only after a certain level of customer satisfaction is reached. Reinartz &
Kumar (2002) claims that it costs less to serve loyal customers while they are willing to pay
higher prices for the same bundle of goods; and the authors identify the loyal customers can
market the company in an effective way.

Another important term associated with customer satisfaction and customer loyalty is
the profitability of the firm. Profit is an accounting figure and is revenue minus cost in simple
mathematical terms. King & Geursen (2001) developed a three domain model of cash flow in
organisation and in that the author argues the significance of cash flow from operations act as
a catalyst for other functions in the firm. Customers are the main source of cash flow in most
of the organisation and increasing them by obtaining new customers or retaining the existing
customers becomes very crucial. Hence customer satisfaction becomes an important part in
the profitability of a firm. Customer satisfaction raises the future cash flow and reduces its
variability [ CITATION Gru05 \l 2057 ]. A loyal customer is more likely to involve in repeat
purchasing (Mittal & Kamakura, 2001; Olsen, 2002). Also, pricing can be used to enhance
profitability if the firm have loyal and satisfied customers. Research proves that highly
satisfied customers are willing to pay premium prices (Luo & Homburg, 2007; Homburg et
al., 2005).

2.5.3 Customer Satisfaction in the Retailing Industry

The understanding of retail customers and their behaviour in terms of decision
making, and consumption of products is significant for a management to be effective. Over
the past few decades, there has been a rapid development in the field of retailing. These
changes have created diversity in supply, focus on selected customer segments and stimulated
high levels of demand (Gilbert, 2003). These made the firms realise that understanding,
meeting and anticipating customer needs as probably the most important factor of sustained
competitive advantage (Ueltschy et al., 2007). Customer satisfaction in retailing occurs when
the total shopping experience of the customer has been met or exceeded [ CITATION Dun08 \l
2057 ].

Researchers calculate the cost of recruiting a fresh customer is five times more than
the cost of preserving an existing customer (Barsky, 1994; Reichheld & Sasser, 1990). That is
why, even the market leaders never compromise on delivering quality services so that they
can maintain their customer loyalty (Zeithaml et al., 1996). Continuing business with retained
customers is profitable as they could save spending on a bunch of recruitment costs, such as
costs on advertising to persuade fresh customers, the costs of personnel selling to field to new
prospects; the costs of setting up new accounts; the costs of explaining business procedures to
new clients, and the costs of unproductive dealings during the customer’s learning process
[ CITATION Pep93 \l 2057 ]. Moreover a larger base of satisfied customers can prove to be an
asset by bringing in cost savings through reduced customer turnover expenses; positive word-
of-mouth; increased cross-selling success; providing a major ‘percentage’ of customers; and
reducing failure costs [ CITATION Gri98 \l 2057 ]. Moreover, there is substantial value lying in
building and keeping the relationship with customers as it helps boost the trust and
commitment that customer feels towards the business organisation [ CITATION She96 \l
2057 ]. The superior levels of trust and commitment in turn are linked with higher levels of
customer retention and without doubt, organisational profitability [ CITATION Cru01 \l 2057 ].
On the other hand, from the customers point of view, a long term relationship with the service
provider lessen risk, simplify selection, and provides a feeling of optimal satisfaction for the
customer [ CITATION Gre96 \l 2057 ]. Therefore, an organisation’s long term success is
determined by providing customer satisfaction and thus expanding and maintaining a
significant and loyal customer base.

Employees have got a major part in customer satisfaction in the retailing industry.
This critical role of employees is mainly because of their direct interaction with the customer.
In a retailing sector, the front staff or the sales associates represent the whole company or
brand to the customer. Hence a highly motivated and well trained employee is becoming an
integral part of the organisation. According to Bowers & Martin (2007), the concept of
employee as customer is a framework the firm’s could adapt. In this concept the employee is
treated or considered as a customer and all the process of attracting, developing, motivating
and retaining them becomes important in the agenda of the company [ CITATION Bow07 \l
2057 ]. Again, wages are not just pounds and pence to an employee. An incentive, recognition
or job promotion could act as motivating factors for an employee.

2.5.4 Measuring Customer Satisfaction

In this environment of extreme competition, businesses and organisations are trying
hard to survive by overcoming the growing unemployment and less disposable income of
customers. So a customer oriented approach becomes important for both the profit and non-
profit firms. To understand the customer and to change according to their requirements
companies need to analyse themselves in the eyes of customers and measuring customer
satisfaction provides this. To the question why measure customer satisfaction, Harmon
(2009) provides the following answers: (1). To understand the customer quality expectations;
(2). To improve existing products and services; (3). To foster a climate of continuous
improvement; (4). To create customer loyalty; (5). To gain recognition; (6). To substantiate
claims of success in market.

If you want to measure the customer satisfaction, you need to have a clear idea of
what is to be measured. For that the researcher need to know and feel like a customer – in a
shopping mall, on a public transport, in the bank – or anywhere. Hill et al. (2003) view
customer satisfaction as the measure of how an organisation’s total product and service
performance in the scale set by the requirements of the customer. So to measure the customer
satisfaction it is important to measure both the expectation part and the satisfaction part.

Similar to other projects, the process of measuring customer satisfaction also should
start with setting the objectives. Identifying the customer requirements is the most important
factor in this. There will be a lot of important things from the perspective of a customer, but
the key is to recognising the critical ones. The next step is to measure the satisfaction – that is
how satisfied the customers are with the performance of the organisation comparing with the
requirements. Comparing themselves with a competitor can provide a benchmark in
performance as the customers will do this either consciously or subconsciously. Hence
carrying out a customer satisfaction measurement in isolation is never complete as the results
or conclusions will not be conveying the clear picture. However, this comparison should not
necessarily be with the direct competitors, it should be with other organisations that the
customers deal with more often [ CITATION Hil03 \l 2057 ]. For example: customers going to
a particular supermarket in their neighbourhood out of three or four supermarkets; not usually
compare it with the other supermarket where they not go, but with other organisations and
services which is used to them.

2.5.5 Walk-through audit

Quality and delivery of a service should meet the customer expectations from the
beginning to the end of the experience. Being a part of the service process, the customer
impressions of all parts of the service experience is vital in the final service quality and thus
in turn to customer satisfaction and loyalty. A walk-through audit is a customer focused
survey to uncover the areas of improvement [ CITATION Fit08 \l 2057 ] . According to the
authors, it can be considered as an environmental audit which can be used as a practical
management tool for the systematic evaluation of a customer’s view of the service provided.
The first step in designing a walk-through audit is by preparing a flowchart of customer
interactions with the overall services they are receiving. In the case of this research, it starts
with approaching the Sportsdirect store in Liverpool One, walking into the store, the
cleanliness and ambience of the store, the ease of finding what the customer is searching for,
the order in which the items are showcased, the staff interactions, waiting in the queue for
making the payment and finally, paying the bill and receiving the item purchased. The
researcher needs to include all the necessary variables to analyse the customer satisfaction of
that particular service. The walk-through audit is a chance to analyse the service experience
from the customer’s point of view [ CITATION Fit08 \l 2057 ], because customers are more
likely to be aware of flaws that the managers might have ignored.

2.5.6 Mystery Customers

According to Shepherd (2004), providing the customer with a customer experience
which can create a genuine customer loyalty is the hardest battleground business had ever
faced. Mystery shopping is a form of participant observation aiming to monitor the
consistency of processes and procedures used in the delivery of system [ CITATION Wil01 \l
2057 ]. According to Market Research Society [ CITATION MRS08 \l 2057 ], “mystery
customer can be defined as the use of individuals trained to experience and measure any
customer service process, by acting as potential customers and in some way reporting back
on their experience in a detailed and objective way“. In the context of service industry,
mystery customer will be able to provide information on the service experience in the order it
unfolds and will helps develop better knowledge of the experimental nature of service
[ CITATION Wil01 \l 2057 ]. Mystery shopping not only can used to measure the quality of
service delivery but also to benchmark by sending mystery guests to branch offices of
competitors [ CITATION Van05 \l 2057 ]. Mystery shoppers will be well trained and thus will
know the procedures and will be able to critically measure the services.

2.5.7 Customer Satisfaction Survey and Focus Group

These may be the most common methods used to measure customer satisfaction
and/or service quality. These aim to draw accurate information from the customers or the
participants. In the case of a questionnaire will be designed according to the needs of the
survey and will be distributed among the participants for completion. Focus group is used for
a semi-structured interview process and will include the customers, managers, front line staff
etc.

2.6 CONCLUSION
The literature review examined the significance of relationship marketing, service
quality, customer satisfaction and customer loyalty. The relationship between these was also
discussed. And it became clear that they are very important for the health and wealth of an
organisation to survive in the present business world. With this information, the research is
trying to find out the customer satisfaction level in the sports retailing industry. For this the
researcher will concentrate on the Sports Direct retailing store in Liverpool One and a
quantitative survey will be carried out. The results from the survey will be used to analyse the
service standards, and quality provided and how it is tallying with the customer expectations.