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Customer Satisfaction and Customer Loyalty: A Case Study of Retail Super

Markets in United Kingdom (UK).

Conference Paper · January 2011

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Velummailum Gobiraj Nimalathasan Balasundaram

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 Customer Satisfaction and Customer Loyalty:
A Case Study of Retail Super Markets in United Kingdom (UK).

Velummailum Gobiraja & Balasundaram Nimalathasanb

a
Post Graduate Student, School of Business, University of Greenwich, United Kingdom,
b
Department of Accounting, Faculty of Management Studies & Commerce, University of
Jaffna, Sri Lanka. e-mail: bnimalathasan@yahoo.com

Abstract

Every organization is ready to pay any means to identify and understand the customers and
their needs. It is an effective reaction of the consumers when their desires and expectations
have been either met or exceeded in the course of experiencing the service. In the context of a
retail supermarket, satisfaction could be interpreted as just meeting the expectations of the
customers, not any sort of exceeding of failing short of the expectations. Most of the retailers
try to achieve competitive advantage by taking the responses of the customers beyond the
level of ‘just satisfied’ towards ‘exceeding their expectations’. Therefore, this study attempts
to fill this gap by examining the relationship between customer satisfaction and customer
loyalty in leading super markets in United Kingdom (UK). Operational hypotheses were
formulated. The first hypothesis (H1) is supported by the results, as a positive correlation was
found between the two variables; customer satisfaction and customer loyalty. In addition, the
second hypothesis (H2) is sustained by the results, as a regression was originated between the
two variables; the result reveals that customer satisfaction has great impact on customer
loyalty. The contribution of this study to the literature is that of customer satisfaction and
loyalty outcome not only other sectors but in retail super markets in UK.
Keywords: Customer Satisfaction, Customer Loyalty, Super Markets.

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1. Introduction

Every organisation is ready to pay any means to identify and understand the customers and
their needs. It is an effective reaction of the consumers when their desires and expectations
have been either met or exceeded in the course of experiencing the service. In the context of a
retail supermarket, satisfaction could be interpreted as just meeting the expectations of the
customers, not any sort of exceeding of failing short of the expectations. Most of the retailers
try to achieve competitive advantage by taking the responses of the customers beyond the
level of ‘just satisfied’ towards ‘exceeding their expectations’. Customer satisfaction is
expected to be achieved when the value of customer service provided through a service
experience is either meeting or exceeding consumer expectations. If the expectations are not
met, the consumer will be dissatisfied. Another consequence can be that if the satisfaction
scores are very low, the service provider might be susceptible to attacks by the competitors
who are prepared to deliver superior value to the customers.
In the case of profit oriented organisation, there is less customer satisfaction compare to
service sector. However, every organisation in present tough competitive business
environment has to pay more attention on feedback from the customers over their production.
Otherwise, any firm can’t earn the profit and their existence might be questionable as well.
Marketing starts with customer (i.e. marketing research to identify the potential market
opportunities) and ends with them (by delivering goods and service after sales) as well.

Customer satisfaction has become a crucial point of differentiation in a retails store, where
consumers make weekly, fortnightly or monthly trips ( to preferred super market) and then
spend more on these trips than other times, especially in countries like ours when competition
in retailing is very fierce. Unfortunately in retail industry, most of the unsatisfied consumers
do not complain, they just go shopping somewhere else. So the lesson for the retailers is that
customer expectations always move upward and it is only the satisfied customers that are
more likely to remain loyal in the long run.

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2. Statements of the Problem
Factors determining customer satisfaction have been brought to light by marketing research.
But, this information still is far away for some producers engaging in the productions and
services. Even though, immense of information available in the marketing environment, their
success will be reached only when acting upon them. In UK, there are a variety of
supermarkets doing in retail sector. But, some of them are focusing on different status of
peoples and some of them are treating same type of consumers. However, some retailers are
very successful than their competitors even during the period of credit crunch. This emerge
us to do the research on the above. The researchers hope this research will answer the
following question regarding customer satisfaction and loyalty.
1. What are main factors determining customer satisfaction in retail supermarket?.

2. What are main factors demining the customer loyalty?.

3. Is there any relationship between customer satisfaction and loyalty?.

3. Objectives
In line with the issues identified above, the main purpose of the study is to examine the
relationship between customer satisfaction and loyalty of retail supermarkets in UK. In order
to materialize this broad objective, the following sub objectives have been considered.
1. To find out the variables determining customer satisfactions.

2. To focus on the variables determining the loyalty.

3. To identify the impacts of customer satisfaction and loyalty in UK retail sectors.

4. To suggest some measures to enhance the customer satisfaction and customer loyalty
in UK Supermarkets.

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4. Literature Review and Hypotheses Development

This section is dedicated to discuss the previous empirical research done in relation to
customer satisfaction and customer loyalty. According to Kotler, Armstrong, Wong, and
Saunders (2008) a satisfied customer will likely do good word of mouth to others about
company and its product and as a result they will have the bulk portion in marketing share.
Because, a positive word of mouth has powerful impact on customer mind and behaviour.
Customer Satisfaction with product or service however is likely to be achieve when the
performance of product or service meet/satisfy the customer expectation. Customer
expectation towards a product/service is obviously formulated by customers past experience,
recommendations of friends (loyal customer) and relatives, the information provided by the
marketer and competitors (Kotler et al., 2008). Customer retention with a particular supplier
is influenced a variety of factors such as quality of product, the price, service quality, the
credit, information available , relationship marketing and so on. However, impacts of these
factors may differ with awareness of customers. Some customer is price conscious while
some are keen about quality or service.

Spiller & Kennerknecht (2006) have studied the service quality and service feature – related
factors influencing Customer Satisfaction (CS) and Customer Enthusiasm (CE) as well as
how CS and CE are related to customer loyalty and also how CS and CE impact the
economic performance of small retailers in the organic market in different German Cities.
The study found that CS and CE impact on economic performance. According to Sivadas
and Baker – Prewitt (2000) loyalty is influenced by recommendation and repurchases
intention. The study also tested a model about four stage of loyalty: (1) Cognitive (service
quality); (2) Affective (relative attitude and satisfaction); (3) Conative (repurchase intentions
and recommendation to others) and action (share of visits).

According to Grønholdt (2000) relationship between customer satisfaction and customer

loyalty are robustly positively correlated. However, their finding also reveals that the impacts
of customer satisfaction on customer loyalty are highly influenced by the degree of
completion in the market. Discussing the marketing strategy utilized by the sample, the most
samples adopted were lower pricing strategy as major competing weapon. So they could
possibly earn much bigger loyalty compared to corresponding customer satisfaction. But the

4
companies which invested large amount of energy in their branding had higher level of
customer satisfaction than loyalty

Wong & Sohal (2003) pointed out that service quality was positively associated with
customer loyalty. Keiningham, Cooil, Aksoy &Andreassen (2007) examined different
satisfaction and loyalty metrics (satisfaction; expectations, value etc.) and tested their
relationships to customer retention, recommendation as well as share of wallet. The results
indicated that recommendation intention alone was not an indicator of customer loyalty, but
use of multiple indicators was more useful and practical and performed better in prediction of
customer recommendation and retention.

H1: There is a significant relationship between customer satisfaction and customer loyalty.
H2: Customer satisfaction has greater impact on customer loyalty.

According to Reichheld et al., (2000) found that some situation there is sometimes no
relationship between the loyalty and repurchase of goods (Cars) based on analysis of
satisfaction scores (90%) vs. repulse rate (50%). Generally, the loyal customers i.e., they
satisfied with products are expected to do repurchase. This situation is due to economic value
of customer repurchase loyalty. They study also indicated that mere analysis of customer
satisfaction is not meaningful for company’s value creation. Because, there are some factors
influencing the satisfaction doesn’t help to deliver the value for customers.

Customer loyalty with other variables such as quality, service and communication has been
done many researches. But, there are also some researches on loyalty and customer
satisfaction. But, there is no research examining the relationship between customer
satisfaction and loyalty in UK retail groceries super markets.

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6. Material and Methods
This section is divided into six sub-sections. The first sub-section presents the research
approach. In the sub-second section, the sampling strategy is discussed. The third sub-section
describes the data sources. The sub-fourth section illustrates the selection of measures and the
properties of instruments. The fifth sub-section explicates the reliability and validity whereas
the last sub-section highlights the types of statistical techniques employed to test the
hypotheses.

6.1 Research Approach

As this study is a business and management research, it has a characteristic of positivist and
interpretive and also involves in deductive approach as well as inductive approach.
Combining these two research approaches in same piece of research is perfectly possible and
advantageous for a research.

6.2 Sampling strategy

Five leading (i.e.,Asda; Iceland; Sainsbury; Somerfield and Tesco) retail supermarkets
involved in food stall around the city of London are selected as cluster sampling due to time
constraints, the travel, and other costs related to the data collections. In the case of customer
respondents, ten customers with age of 18 years and above for each sampling supermarket are
considered as purposive and random sample for the study. The sample procedure paid more
attention on selection of appropriate samples, so that samples can cover different background
of people as London is mostly multicultural city in UK.

6.3 Data Sources

The study was complied with the help of primary data. Primary data were collected through
mailed questionnaire. Moreover, the desk study covered various published and unpublished
materials on this field.

6.4 Instrumentation
The questionnaire was administrated to five leading retail supermarkets in the city of London
and ten customers for each supermarket. Based on the literatures and experts’ advice
questionnaire is to be designed. In the questionnaire, a seven point Likert summated rating

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scale from strongly disagree (-3) to strongly agree (+3) was adopted to identify the variables
of customer satisfaction and loyalty. The study has an idea of pre-test the questionnaire in
order to receive optimal outcomes from the study.

6.5 Reliability and Validity

The reliability value of our surveyed data was 0.883 and 0.897 for variables of customer
satisfaction and loyalty respectively. If we compare our reliability value with the standard
value alpha of 0.7 advocated by Cronbach (1951), a more accurate recommendation
(Nunnally & Bernstein’s, 1994) or with the standard value of 0.6 as recommendated by
Bagozzi & Yi’s (1988). Researchers find that the scales used by us are highly reliable for data
analysis.
Validation procedures involved initial consultation with expert researchers. The experts also
judged the face and content validity of the questionnaires as adequate. Based on their
comments, some contents and words were revised to make the meaning clear. Hence,
researchers satisfied content and construct validity.

6.6 Types of Statistical Techniques

In the present study, we analyze our data by employing factor analysis; correlation and
Regression. For the study, entire analysis is done by personal computer. A well known
statistical package like ‘Statistical Package for Social Sciences’ (SPSS) 13.0 Version was
used in order to analyze the data.

7. Research Findings
This section presents the findings of the study and is divided into two-sections. Section one
begins with Factor analysis. The final section presents the hypotheses testing.

7.1 Analysis of Measures

An exploratory factor analysis with an orthogonal varimax rotation and a Kaizer- Guttman
criterion of eigen value greater than 1.00 was conducted for the 24-item customer
satisfaction; 29-item customer loyalty. For 24-item customer satisfaction seven components
(or factors) with eigen value greater than 1.00 were extracted. The total variance 71.9 % and
as Hair, Anderson, Tatham and Black (1995) suggest that for social science studies, it is not
uncommon to consider a solution of about 60 percent as satisfactory. However, the general

7
criterion of eigen value greater than 1.00 may misjudge the most appropriate number of
factors (Gorsuch, 1983), thus the scree plot was carefully examined. The scree plot was also
confined to seven factors. To facilitate easy interpretation, these factors were then rotated
using the varimax criterion for orthogonal rotation. Only statements or items with factor
loadings of 0.50 and above in the rotated factor matrix was considered as significant in
interpreting the factors [Here 2-item’s (clarity of information; packaging) factor loadings is
less than 0.50, these are ignored for analysis). Table-1 shows the factor matrix indicating the
factor loadings and communality estimates (h2) of every variable on these seven factors.
Factor-1(F1) to Factor-2(F2) comprised of seven; three; three; three; two; three and one
items, respectively. By analyzing the items in the factors, some dimensions were identified
and thus, Factor-1 was labeled as “Responsiveness” and the like.
Table 1: Scale Items, Component Loading and Communality Estimates for Seven-
Factors of Customer Satisfaction Scale.

Item Factor loadings h2

F1 F2 F3 F4 F5 F6 F7
Responsiveness 0.880 0.673
Ease of finding information 0.795 0.678
Understanding your needs 0.771 0.774
Professionalism 0.735 0.801
Friendly atmosphere 0.640 0.753
Service quality 0.616 0.575 0.683
General Satisfaction 0.569 0.706
Repeat Purchase 0.783 0.822
Parking facilities 0.720 0.787
Usage experience 0.654 0.841
Price 0.770 0.828
First use experience 0.690 0.729
Quality 0.504 0.767
Choices of product 0.815 0.824
Competitiveness of Products 0.502 0.680 0.699
Ease of contacting the person 0.667 0.702
Advertising 0.755 0.702
Convenient location 0.735 0.728
Written or postal enquires 0.863 0.786
Problem solving 0.632 0.681
Environmental friendly 0.579 0.737
Overall satisfaction of product quality 0.701 0.623

Eigenvlaue 7.085 2.811 1.818 1.616 1.542 1.318 1.071

Percent of Variance 29.552 11.713 7.576 6.733 6.424 5.492 4.463
Cumulative Percent 29.552 41.234 48.810 55.543 61.968 67.459 71.922

h2 = Communality Estimates
8
 Similarly, an exploratory factor analysis with principal component analysis was conducted on
customer loyalty. However, the results for both of these scales have shown what Thurstone
(1947) referred to as ‘simple structure’ in which each of the variables loaded strongly on nine
components, and each component being represented by a number of strongly loading
variables ( Pallant,2005). As illustrated in Table-2, for both scales, all items loaded strongly
on this nine factor, 0.5 and above.

Table-2: Scale Items, Component Loading and Communality Estimates for Nine-
Factors of Customer Loyalty Scale.

Item Factor loadings h2

F1 F2 F3 F4 F5 F6 F7 F8 F9
Provision of information 0.724 0.731
Clarity of information 0.706 0.726
Written or postal inquires 0.704 0.792
Quality of brand 0.592 0.827
Easy access to employees 0.554 0.741
Management 0.801 0.754
Good employees 0.722 0.774
Problem solving 0.694 0.762
Public relations 0.645 0.896
Supermarket relationship 0.544 0.842
Access of information 0.519 0.714
Recommendation P & S 0.788 0.646
Recommendation of supermarket 0.743 0.613
Repeat purchase 0.707 0.811
Consistency of the Brand 0.579 0.684
Sales promotion 0.776 0.764
Coupons and Premiums 0.766 0.823
Loyalty schemes 0.763 0.827
Loyalty card 0.730 0.814
New brand 0.810 0.780
Manufacturer’ brand 0.710 0.803
Supermarket brand 0.616 0.838
Innovative 0.795 0.825
The Value of brand 0.723 0.783
Satisfaction with brand 0.624 0.827
Friendly organization 0.873 0.826
Benchmarking 0.879 0.811

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Eigen value 7.928 2.546 2.132 1.980 1.583 1.475 1.205 1.161 1.021
Percent of Variance 29.363 9.428 7.896 7.334 5.863 5.464 4.463 4.299 3.780
Cumulative Percent 29.363 38.792 46.687 54.022 59.884 65.348 69.812 74.111 77.891

h2 = Communality Estimates

Table-2 illustrates the factor matrix indicating the factor loadings and communality estimates
(h2) of every variable on these nine factors. Factor-1(F1) to Factor-2(F2) comprised of five;
five; four; four; three; one; two; one and one items, respectively. By analyzing the items in
the factors, some dimensions were identified and thus, Factor-1 was labeled as “Provision of
information” and the like.

7.2 Testing of Hypotheses

Correlation analysis was performed to test the strength and direction of the liner relationship
between two sets of variables; customer satisfaction and customer loyalty. Further, the
preliminary analyses were performed to ensure no violation of the assumptions of normality,
linearity and homoscedaticity.
Table-3: Pearson Product- Moment Correlation between Measures of Customer
Satisfaction and Customer loyalty

Total CS Total CL

Total CS Pearson Correlation 1 0.715**

Sig (2-tailed) 0.000
N 50 50

Total OC Pearson Correlation 0.715**

Sig (2-tailed) 0.000
N 50 50
** Correlation is significant at the 0.01 level (2-tailed)

As per the results from the table-3, there was a positive correlation between the two variables
[r= 0.715, n=50, P<0.01], with customer satisfaction and customer loyalty. The first
hypothesis, which stated that there is a significant relationship between customer satisfaction
and customer loyalty was thus supported. However, as many authors in this area suggest, the
focus should be directed at the moment of shared variance, rather than at statistical

10
significance (Pallant, 2005), the coefficient of determination was calculated for the above two
variables. With a correlation of r=0.715, it can be said that customer satisfaction has helped
explain nearly 51% of the variance ( 0.715x 0.715) in respondent’s scores on the customer
loyalty.
The second hypothesis was tested following the A enter wise variable selection is used in the
regression analysis and table-4 provides coefficients for predictors of total customer loyalty.

Table -4: Coefficients for predictors of CL

Models Unstandardized Standardized t Sig

Coefficients Coefficients

ß Std.Effor Beta
1 Constant .553 .181 3.052 .004
Total Customer Satisfaction .682 .097 .715 7.008 .000

In the above model, t value for CS is highly significant at 1 percent level. Which means that
with increasing level of CS, will be increased 7.008 levels. Hence hypothesis two is also
accepted.
8. Conclusion
The first hypothesis (H1) is supported by the results, as a positive correlation was found
between the two variables; customer satisfaction and customer loyalty. Thus, the findings are
in line with those of Keiningham et al., (2007) and Grønholdt (2000)
In addition, the second hypothesis (H2) is sustained by the results, as a regression was
originated between the two variables; the result reveals that customer satisfaction has great
impact on customer loyalty.
The contribution of this study to the literature is that of customer satisfaction and loyalty
outcomes not only other sectors but in retail super market in UK.
9. Policy Implications
This study attempts to mention policy implementation for the retail Supermarket to improve
satisfaction of their customers, to earn the loyal customers and to make the loyal customers
into more loyal, i.e. to improve along with the loyalty pyramid. In this context, the following
policy actions may be considered worthwhile.
Customer care through Service quality of the employees

11
Customer care should be improved further by enhancing the service quality to make
dissatisfied customer to satisfied customers; satisfied customers to loyal customers and loyal
customers to more loyal. As these are big super markets, most of employees worried about
the job allotted them.

More employees in shop floor

In most cases, when customers need the employee, they couldn’t find any one nearby in the
shop floor. As spending for foods items is very less in customers’ whole budget and technical
knowledge is not needed, they spend a little effort for shopping. Moreover, present customers
are busier. So, quick purchase with a little effort is highly appreciated by almost all
customers.
Training on customer care and products
It is rare to find out an employee who knows the products very well. Some employees don’t
worry about customers’ needs when that is beyond his/her duty. Thus, more staff with good
training about customer care is needed to improve the customer satisfaction and to illuminate
the unpleasant situation.
Physical facilities
Building up More spacious car park, more facilities for customers wants special needs for
instance disable persons and elderly people, supermarkets can achieve more.

10. Directions for the Future Researches

A few suggestions for further researches based on the experience of the present study are

given below.

1. A comparative study between two leading supermarkets to find out difference

customer satisfaction and loyalty.
2. A comparative study between supermarket in food sector and other industry like
motor industry in the UK
3. A comparative study different types of stores in the same organization for instance
Tesco Extra, Tesco super stores, Tesco metro, Tesco express, one stop, Tesco home
plus.

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