CUSTOMER SATISFACTION AND CUSTOMER LOYALTY OF ONLINE

BUSINESS

A Research Paper Presented to the

Faculty
of AGUSAN NATIONAL HIGH
SCHOOL
Senior High School
Butuan City,
Philippines

In Partial Fulfillment of the Requirements for the Subject

Practical Research 2

ETCHIN ANUNCIADO
KIVEN KYLE HAVANA
KATHLEEN MOHINOG
GRANVILLE MORALES

December 2020
 Chapter 1
THE PROBLEM AND REVIEW OF RELATED LITERATURE

Background of the Study

Customer satisfaction and customer loyalty are vital in any business industry. It has
a positive impact on business growth and success. On the other hand, maintaining
and increasing the satisfaction and loyalty of online customers is complicated for
online retailers as consumers are still hesitant to purchase online because of the
legitimacy and product quality. Customers are those people who consume a product
or services from the business, and customer satisfaction are obtained from meeting
their needs, wants and expectations. Njei (2018) believes that the loyalty of a
customer is totally influenced by how much they are satisfied. Therefore, businesses
must determine and understand customers’ needs. (Sankaran & Ali, 2010) states
that the success of the business is measured and reflected from how they satisfy
and how loyal their customers are.

According to Muhammad, A., et. al (2020), In the globalization era, digital marketing
platforms has become an aspect where entrepreneurs can extend their marketing
campaigns to a wider range of consumers. It becomes an ever-increasing
phenomenon in the online business world. Digital marketing plays a vital role in
increasing customer loyalty and has a significant effect on the economic growth of a
community.

The study will cover the student’s satisfaction and loyalty towards online business.
The study is limited to Senior High School students of Agusan National High School
who purchases online products and services and at the same time determination of
their needs, wants and expectation towards online business. The study will be
conducted in Agusan National High School – Senior High Department in Butuan City.

The purpose of this study is to measure customer satisfaction and customer loyalty
regarding online business and aims to determine their expectations, needs and
wants towards purchasing online and analyze how these components impact the
success of the business. The findings of this research can also benefit online
entrepreneurs to improve their services, quality of the product, and interactions with
customers for building up trust in the marketplace.
Review Related Literature

Thorough research is a requirement to complete this section. This is a critical

analysis of the results of the related studies conducted. Concepts are based on the

variables of the study or as presented in the statement of the problem. To strengthen this

section, argumentation is a key element by elaborating through examples, comparing and

contrasting results of previous studies and giving personal observation. To avoid plagiarism,

researchers must take extra care in citing literatures. To avoid this, the following must be

carefully observed:

Customer Expectation

Customer expectation are pretrial belief about a product or services. In reality

customer have so much information that lead to expectation about upcoming services

encounter with a particular company. The service are through the exposure of service such
as words of mouth , opinion of other customer and publicity as well as the advertising

personal selling and the price.

Customers will have both explicit and implicit expectation regarding the

product or service when they have purchased ( Willot, 2019). They will have performance

expectation which include a dynamic element due to anticipated changes to the product or

service over time.Todays costumer are more anatical than before. To meet their expectation

business and organization need to understand their changing needs to have effective

strategy that will ensure high level of costumers satisfaction in the future (Willot, 2019).

Customer expectation refers to the wants and needs of the people to attract

customer in product and services marketing should be largely based on costumers

expectation which means that the qualities of product and service are attractive to target

customers ( Quain, 2018). In business , it is number of needs to understand that there are

service expectation to a company must meet to become successful. Many business uses

marketing strategies to promote their customer service and how it will meet the customers

expectation

Product Legitimacy and Quality

Online shopping has become one of the most important customer channel ( Zhu,

2020) especially on today’s time that all people have experience pandemic . That is why

online business becomes famous nowadays. However in online business product legitimacy

and quality is a common problem upon buying online because customer have no guarantee

of a product quality (Mittal, 2017) . Reviews are not always reliable and all the research

cannot assure customers of a product quality. Additionally, the issue of getting the correct

size remains a serious drawback for buying clothing and footwear online . Sizes vary from

brand to brand and since customer cannot try out, selecting the size always gamble.
 However , even though online shopping makes shopping easier with out even going

outside the house it is also convenient for criminals to carry out their cleaning antics

( Crawford, 2018) by using personal information and uses personal purchases. In addition ,

service quality is different from customers expectations for service priorities the service

encounters and their expectation about service performance prior to the service offering

( Mohammad, 2015). In online business sometimes customers expectation vary from

product quality since customer only see the product through online and reviews are

unreliable that is why it is the main problem since customers expectation vary from product

quality and product legitimacy.

Customer Satisfaction

According to Philip Kotler, customer satisfaction is identified as a

business that fulfills consumer desires and defines a person's feelings, The

effect by measuring the perceived success or results of a commodity to its

expectations. Online shopping is the biggest part of customer attraction as

well as customer satisfaction. In this technological world, most companies use

online shopping to satisfy the customer and to attract more customers as well.

Online shopping imparts a huge impact on customer satisfaction. It uses

Customer Loyalty To calculate how pleased the consumer is with every

product, its efficiency, and overall experience. It indicates whether or not the
consumer is happy to communicate with some organization. It is also an

integral part of Measuring a business's success. Oliver described satisfaction

as the reaction of the customer to fulfillment." It is a decision that a function of

a product or service, or the product or service itself, gives a “Pleasurable

level of satisfaction related to consumption" (Mattsson, 2009).

Companies are now aware of wooing their former clients by delivering

better offerings. A temporary process is to draw buyers with an attractive bid.

A business will win a customer forever by delivering better services and

rewarding clients. It will improve the brand's popularity and will also affect the

company's results. On the other hand, if the consumer is disappointed, it may

adversely affect the business and also lead to losses. Customer satisfaction,

according to Hasemark and Albinsson's (2004) argument, essentially refers to

an emotional response to the difference between what consumers get and

what they want. They further explain that an overall attitude towards a product

supplier is happiness. Hoyer & MacInnis also agrees with this declaration and

clarifies that customer satisfaction corresponds to how satisfied a person is

with the service or the product. They also claimed, moreover, that satisfied

Customers promote the buying of goods or services to their friends and family.

The primary component of Consumer satisfaction is one of the company's

major financial successes.

Online Business Industry

 E-business is more than just establishing an Internet presence or

conducting e commerce transactions, it concerns redefining old business

models and maximizing business value (Kalakota and Robinson, 1999). E-

business is defined as the application of information and communication

technologies to facilitate the execution of related functions like marketing

management, strategy leverage, information systems, logistic management,

customer relationship management, and human resources management

(Simpson and Docherty,2004)

E-business is a corporation that and the option to swap values (goods,

services, money, and knowledge) Electronically. For this modern way of doing

so it has properly planned business processes Company conducting. In

addition, it recognizes the complexities of human success not just within its

corporate limits, but also for other entities in its business network: consumers,

associates, and suppliers. organizational characteristics have significant

impacts on quality and effectiveness of the planning process of information

systems. The planning method of information systems must match the

organizational characteristics (Premkumar and King, 1994; Walker and

Johnson, 2001; Kao and Decou, 2003).

More and more retailers are incorporating e-commerce into their business

models in the Philippines. They are either setting up their own channels, with

most home shopping and direct sales distributors being the case, or
collaborating with existing e-commerce websites such as Lazada and

Shopee.

Theoretical Framework

Albert Bandura (1999), Social Cognitive Theory is a learning theory based on the

ideas that people learn by observing others. Vicarious learning, or the process of learning

from the other people’s behavior, is a central idea of social cognitive theory and self-

efficacy.

Social Cognitive Theory (SCT), used in psychology, education, and communication

holds that portions of an individual’s knowledge acquisition can be directly related to

observing others within the context of social interactions, experience and outside media

influences. Because of the bidirectional of influence between behavior and environmental

circumstances, people are both products and producers of their environment. They affect

the nature of their experienced environment through selection and creation of situation.

People tend to select activities and associates from the vast range of possibilities in terms of

their acquired preferences and competencies. (Bandura and Walters, 1959, Bullocks and

Merril, 1980, Emmons and Dioner, 1988). Through their actions, people create as well as

select environments.

The Dissonance Theory suggests that a person who expected a high-value

product and received a low-value product would recognize the disparity and experience a
cognitive dissonance (Cardozzo, 1965). That is, the disconfirmed expectations create a

state of dissonance or a psychological discomfort (Yi, 1990). According to this theory, the

existence of dissonance produces pressures for its reduction, which could be achieved by

adjusting the perceived disparity. This theory holds that "post exposure ratings are primarily

a function of

the expectation level because the task of recognizing disconfirmation is believed to be

psychologically uncomfortable. Thus consumers are posited to perceptually distor

expectation-discrepant performance so as to coincide with their prior expectation

level"(Oliver, 1977, p. 480). For instance, if a disparity exists between product expectations

and product performance, consumers may have a psychological tension and try to reduce it

by changing their perception of the product (Yi, 1990). Cardozzo argues that consumers

may raise their evaluations of those products when the cost of that product to the individual

is high. For example, suppose that a customer goes into a restaurant, which she or he

expects it to be good, and is confronted with an unappetizing meal. The consumer, who had

driven a long distance and paid a high price for the meal, in order to reduce the dissonance,

might say that the food was not really as bad as it appeared or she likes overcooked meal,

etc.

The Contrast Theory suggests the opposite of the Dissonance Theory. According to

this theory, when actual product performance falls short of consumer’s expectations about

the product, the contrast between the expectation and outcome will cause the consumer to

exaggerate the disparity (Yi, 1990). The Contrast theory maintains that a customer who

receives a product less valuable than expected, will magnify the difference between the

product received and the product expected (Cardozzo, 1965). This theory predicts that
product performance below expectations will be rated poorer than it is in reality (Oliver &

DeSarbo, 1988). In other words, the Contrast Theory would assume that "outcomes

deviating from expectations will cause the subject to favorably or unfavorably react to the

disconfirmation

experience in that a negative disconfirmation is believed to result in a poor product

evaluation, whereas positive disconfirmation should cause the product to be highly

appraised" (Oliver, 1977, p. 81). In terms of the above restaurant situation, the consumer

might say that the restaurant was one of the worst he or she had ever been and the food

was unfit for human consumption, etc.

If the Contrast Theory were applied to a consumption context, then the poor

performance would be worse than simply poor, and good performance would be better than

a rating of good would suggest (Oliver, 1997). Under the dissonance theory, the opposite

effects occur, perceived performance, whether it is less or more favorable than the

consumer's expectations, is drawn to the original expectation level. It is important to note

that these theories have been applied and tested in laboratory settings where the customer

satisfaction was tightly controlled, situation specific and individually focused. For instance,

researchers investigated the ability of these theories in predicting customer satisfaction with

a pen (Cardozzo, 1965), a reel-type tape recorder (Olshavsky & Miller, 1972), ball-point pen

(Anderson, 1973), and a coffee brand (Olson & Dover, 1975). Thus, it is curious whether

hypotheses held by these theories could be accepted or rejected when applied in a field

survey research study of hospitality and tourism services (Oh & Parks, 1997). It is, for

instance, not clear whether all purchase decisions in tourism and hospitality services result
in dissonance.Drawing on the shortcomings of the above early theories of consumer

satisfaction,

Oliver (1977; 1980) proposed the Expectancy-Disconfirmation Paradigm (EDP) as the

most promising theoretical framework for the assessment of customer satisfaction. The

model implies that consumers purchase goods and services with pre-purchase expectations

about the anticipated performance. The expectation level then becomes a standard against

which the product is judged. That is, once the product or service has been used, outcomes

are compared gainst expectations. If the outcome matches the expectation confirmation

occurs. Disconfirmation occurs where there is a difference between expectations and

outcomes. A customer is either satisfied or dissatisfied as a result of positive or negative

difference between expectations and perceptions. Thus, when service performance is better

than what the customer had initially expected, there is a positive disconfirmation between

expectations and performance which results in satisfaction, while when service performance

is as expected, there is a confirmation between expectations and perceptions which results

in satisfaction. In contrast, when service performance is not as good as what the customer

expected, there is a negative disconfirmation between expectations and perceptions which

causes dissatisfaction.

This type of discrepancy theory has a long history in the satisfaction literature

dating back at least to Howard’s & Sheth’s (1967) definition of satisfaction which states that

it is a function of the degree of congruency between aspirations and perceived reality of

experiences. Porter (1961) can be credited with early empirical applications of this

comparative model of customer satisfaction in the field of job satisfaction (cf. Oliver, 1997).
In his study, Porter, for instance, compared the worker’s perception of how much of a job

facet (for example, pay) there should be to the worker’s perception of how much is the facet

here now. In support of Porter’s view, Locke (1965) proposed that this discrepancy

methodology could be employed in assessing employees’ job satisfaction.

This literature review demonstrates that in addition to job satisfaction literature

this model has found great degree of support from researchers in other disciplines, and has

been widely used to evaluate satisfaction with different products and services, for example

with flu treatment (Oliver, 1980), with restaurant services (Bearden & Teel, 1983; Cadotte,

Woodruff & Jenkins, 1987; Swan & Trawick, 1981), with automobiles (Oliver & Swan, 1989;),

with record players (Tse & Wilton, 1989) with stock market services (Oliver & DeSarbo,

1988), with video disc player (Churchill & Surprenant, 1982) with hotel and holiday

destination services (Barsky, 1992; Barsky & Labagh, 1992; Pizam & Milman, 1993; Tribe &

Snaith, 1998; Weber, 1997)

 Conceptual Framework

Independent Variable Mediator Dependent

Service Quality
Variable
a. Product Legitimacy and Customer
Quality  Customer Loyalty
Satisfaction
b. Customers Expectation
c. Customer Satisfaction
d. Online Business Industry

Figure 1. Research Paradigm

The conceptual framework above shows us the relationship of the independent variables,

mediator variable and dependent variable used in the study. The independent variable is the

service quality with the factors such as product legitimacy and quality, customer
expectations, and etc…. Since these factors were used in determining how service quality

affect customer satisfaction and how customer satisfaction affects customer loyalty.

STATEMENT OF THE PROBLEM:

The objective of this research is to determine the significant relationship of service quality of

online business industry towards customer satisfaction and customer loyalty. The main

problem of the study is: Are customers satisfied by the service quality provided by online

industry and how it will affect their loyalty.

HYPOTHESIS:

This study is designed to assess the hypothesis that the increase of customer

satisfaction is also the increase of the customer loyalty. Customers who are fully

satisfied are the customers who will become loyal. There is a significant relationship

between customer satisfaction and customer loyalty of online business industry.