Customer value and customer loyalty: Is competition a missing link?

Abstract

This study is aimed at providing an insight into the effects of competition on customer value delivery for customer loyalty. Data were collected using a questionnaire on dyads of service employees and customers. The techniques of ANOVA, ordinary least squares, and logistic regression were used to analyze the dyad data in terms of research purposes. Results show that competition is a moderator of the relationship between customer value and customer loyalty from the consumer perspective. Also, competition is a predictor of customer loyalty from the employee perspective. Insights into this asymmetry in the view on competition between employees and consumers are found. Findings of the moderating effects of competition on the customer value-customer loyalty relationship suggest the significance of competition in the service encounter. In addition, this study found that the predictive validity of the loyalty model for consumers is significantly higher than that for employees. This finding suggests that the factors driving customer loyalty are better captured from the consumer perspective. Findings of the impact of competition on the consumer’s experience of different types of value provide insights as to where to invest in generating customer value to achieve desired customer loyalty. This study also suggests to managers how service employees could be recruited and managed to achieve a service competitive advantage. This study extends our understanding of the customer value–customer loyalty relationship by uncovering the significant role of competition from a dyadic viewpoint.

Full text

Customer value and customer loyalty: Is competition a missing link?
Shu-Ching Chen
n
College of International Management, Ritsumeikan Asia Pacific University, 1-1 Jumonjibaru, Beppu,, Oita, 874-8577, Japan
article info
Article history:
Received 20 March 2014
Received in revised form
17 October 2014
Accepted 17 October 2014
Keywords:
Customer value
Customer loyalty
Competition
Dyad
Service encounter
abstract
This study is aimed at providing an insight into the effects of competition on customer value delivery for
customer loyalty. Data were collected using a questionnaire on dyads of service employees and
customers. The techniques of ANOVA, ordinary least squares, and logistic regression were used to
analyze the dyad data in terms of research purposes. Results show that competition is a moderator of the
relationship between customer value and customer loyalty from the consumer perspective. Also,
competition is a predictor of customer loyalty from the employee perspective. Insights into this
asymmetry in the view on competition between employees and consumers are found. Findings of the
moderating effects of competition on the customer value-customer loyalty relationship suggest the
significance of competition in the service encounter. In addition, this study found that the predictive
validity of the loyalty model for consumers is significantly higher than that for employees. This finding
suggests that the factors driving customer loyalty are better captured from the consumer perspective.
Findings of the impact of competition on the consumer’s experience of different types of value provide
insights as to where to invest in generating customer value to achieve desired customer loyalty. This
study also suggests to managers how service employees could be recruited and managed to achieve a
service competitive advantage. This study extends our understanding of the customer value–customer
loyalty relationship by uncovering the significant role of competition from a dyadic viewpoint.
&2014 Elsevier Ltd. All rights reserved.
1. Introduction
A loyal customer is regarded as a type of competitive asset for an
organization (Dekimpe et al., 1997). Customer loyalty has a tremen-
dous impact on business profits (Oliver, 1999; Olsen and Johnson,
2003) for business survival and development, and also paves the way
for an organization to achieve a sustainable competitive advantage
(Grönroos, 2009; Gummesson, 2008). Keeping a long-term customer
relation is a challenge for business practitioners and remains to yet
be researched by scholars (e.g., Grönroos, 2009).
The contribution of customer value toward the maintenance of
varied business relationships is well recognized (e.g., Bolton et al.,
2014; Floh et al., 2014; Grönroos, 2000). Consumer’s perceptions
and evaluation of the value received in an ongoing relationship
can have a definite impact on their intention to continually stay
with, or to leave, an organization (Ravald and Grönroos, 1996). This
further highlights the critical role of service employees in the
delivery of customer value for achieving customer loyalty.
“Service encounters are human interactions”(Solomon et al., 1985,
p.101). The interactions between service employees and consumers
provide a basis for developing customer loyalty (e.g., Frow and Payne,
2007), as customer loyalty to a firm can derive from customer loyalty
to the service employees (Bove and Johnson, 2009). While a service
provider makes efforts to generate value to ensure that it stands out
from its competition, the changes in competitive situations and actions
taken by competitors emphasize the need for the service provider to
consider the factor of competition in the service encounter.
Today, consumers can easily make a comparison among pro-
duct or service alternatives for making their purchase decision if
they want such as Googling of information about possible options
(Bolton et al., 2014). A consideration of competition in services is
important as it can trigger a virtual circle of the development of
mutually beneficial business relationships between consumers
and service providers. A service provider can be more productive
in value creation and delivery in serving its customers better in
order to stay competitive to retain those customers. Consumers
can benefit from receiving better service alternatives and in turn
may remain loyal to the best service provider they have access to.
This highlights the possible influential factor of competition in the
research on customer value and customer loyalty.
However,tothebestknowledgeoftheauthor,thesimultaneous
interaction of customer value, customer loyalty and competition
remains to be explored. This gap needs to be addressed as the
moment of truth, the interactions between service employees and
consumers, is critical for any business for success (Bitner et al., 1990).
With the rapid development of service industry at global level and
Contents lists available at ScienceDirect
journal homepage: www.elsevier.com/locate/jretconser
Journal of Retailing and Consumer Services
http://dx.doi.org/10.1016/j.jretconser.2014.10.007
0969-6989/&2014 Elsevier Ltd. All rights reserved.
n
Tel.: þ81 977 78 1082; fax: þ81 977 78 1123.
E-mail address: schen@apu.ac.jp
Journal of Retailing and Consumer Services 22 (2015) 107–116

the significant contribution of customer value for customer loyalty
for better business performance, it is important to understand the
effect of competition on the formation of the relationship between
customer loyalty and customer value in the service encounter. It can
help the managers in the service outlets to understand how their
service employees’perceptions of competition affect their perfor-
mance in the delivery of customer value for customer loyalty; and
understand how customers’perception of competition affects con-
sumer perceived value in the service encounter for remaining loyalty
in order to help them to do best in their business.
With the conception of competition in the service encounter and
the knowledge of the significanceofcustomervalueforimproving
business performance, this study is aimed at providing an insight
into the effects of competition on customer value delivery for
customer loyalty. In this study, the variable of customer value is
examined from varied dimensions, and the variable of customer
loyalty is examined from the consumer’sattitudesandbehaviors,as
suggested in past studies of customer value and customer loyalty
(e.g., Dick and Basu, 1994; Melnyk et al., 2009; Oliver, 1999). With
regards to the factor of competition, this study investigates its
relevance to customer value and customer loyalty from the perspec-
tives of both service employees and consumers. The variable of
competition is examined in three ways: 1) The driving force of
competition for customer loyalty; 2) the moderating effect of
competition on the relationship between customer value and custo-
mer loyalty; and 3) the impact of competition at different levels on
the efficacy of certain types of customer value for customer loyalty.
2. Theoretical background
2.1. Customer loyalty
Past studies suggest that customer loyalty can be defined from
an expression of psychological (attitudinal) and process (beha-
vioral) loyalty in a relationship between an actor and another
entity, in the presence of alternative entities (e.g., Dick and Basu,
1994; Melnyk et al., 2009; Oliver, 1999). In this study, customer
loyalty is defined as a consumer’s loyal attitude and behavior
toward a specific service firm, despite competitors providing
alternative services in the market.
The intense competition in the retail market emphasizes the need
to retain existing customers (Sirohi et al., 1998). Retaining the loyalty
ofexistingcustomersisregardedasastrategytomaintaina
competitive advantage (Grönroos, 2009). Keeping a loyal customer
also costs less than creating a new one (Reichheld, 2001). In addition,
several positive benefits can originate from the behavior of loyal
customers; lower degree of searching for alternatives (Macintosh,
2002), favorable word-of-mouth (Reinartz and Kumar, 2002), greater
stability regardless of competitor efforts (Bove and Johnson, 2009), and
more tolerance of minor mistakes (Blackman, 1985). Avoiding custo-
mer attrition should, therefore, motivate service providers to make
greater efforts to keep existing customers.
The boundary-spanning role of the service employee has a
decisive influence on the customer's perceptions of the organization,
which is vital to business success (e.g., Bove and Johnson, 2000;
Frow and Payne, 2007; Yim et al., 2008). The interactions between
customers and service employees can lead to the customer remain-
ing loyal; or not; to the organization (Bove and Johnson, 2000,
2006). Moreover, past studies suggest that the best strategy to win
loyal customers is to deliver customer value during the exchange
(Weinstein and Pohlman, 1998). An employee’s value delivery efforts
at the time of the service encounter can have a decisive influence on
customer loyalty. Indeed, most studies of the drivers of customer
loyalty highlight customer value as a significant driving force.
Customer value has been empirically found to be an antecedent of
loyalty (e.g., Parasuraman and Grewal, 2000), a powerful predictor of
purchase intention and willingness-to-buy (e.g., Zeithaml, 1988),
motivation for patronage (e.g., Holbrook, 1994), and repeat purchase
behavior (e.g., Parasuraman and Grewal, 2000).
2.2. Customer value
Customer value is regarded as being “…the fundamental basis for
all marketing activity”(Holbrook, 1994, p.22). The term value refers
to a preference judgment by consumers (Ta yl or, 19 61). Customer
value has been defined in many different ways. For example, Chen
and Quester (2005) use an integrated approach based on past studies
(e.g., de Ruyter et al., 1998; Holbrook, 1994; Weinstein and Johnson,
1999; Zeithaml et al., 1996) to conceptualize customer value. They
describe customer value in terms of rational and experiential
perspectives in an effort to capture the extrinsic and intrinsic aspects
of customer value in the service context. This study adopts their
combined view on customer value in light of the research purposes.
Customer value is definedasanobject'soverallevaluationofvaluein
relation to extrinsic and intrinsic aspects, and based on a comparison
of perceived benefits with perceived costs from both the rational and
experiential perspectives.
Customer value has been considered a source of competitive
advantage for organizations (Webster, 1988; Woodruff, 1997).
Customer value is generated and created in a reciprocal process
between two parties in a business relationship (Grönroos, 2011),
and is evaluated from the perspective of the consumption experi-
ence of consumers (e.g., Agustin and Singh, 2005; Anderson et al.,
2006; Bolton et al., 2014; Floh et al., 2014). All organizations can be
seen as service businesses (Grönroos, 1997). An organization
developing a unique competitive advantage can expect better
long-term business performance (e.g., Porter, 1985). Customer
value is a multidimensional construct (Sa´nchez et al., 2006).
Providing various value added services is stressed as a means to
differentiate and reinforce an organization’s competitiveness
(Chen and Quester 2005; Grönroos, 2009; Slater, 1997). Customers’
experience of different types of customer value in service may
have different influences on an organization’s business perfor-
mance, such as in the area of customer loyalty.
Since the value perceived and preferred by consumers can be
varied (Ganesh et al., 2000), several dimensions of customer value
should be considered in business practices. Chen and Quester
(2005) proposed eight dimensions of customer value, gener-
ated from an identical view on customer value between service
employees and consumers through dyadic data collection from both
parties in a service setting. They conducted focus group interviews
with service employees to learn what value they implement in
customer service, as well as with consumers to learn what customer
value they appraise from their perceptions of service employee
performance. The eight types of customer value include service
quality, servicescape, service episodes, service experience, service
equity, service risk avoidance, social-psychological interaction, and
consideration of service alternatives. This study adopts these eight
types of value to measure customer value, as they meet the need of
this study to acquire a suitable measurement system developed in a
similar research context. Another reason to use this measure in this
study is due to an unanswered question about the contribution of
each type of customer value toward customer loyalty. An explora-
tion of the answer to this question would uncover the importance of
certain types of customer value for customer loyalty in an inter-
active business relationship.
2.3. Competition
Competition is everywhere in markets and within an organi-
zation. Competition is a significant global term for businesses.
S.-C. Chen / Journal of Retailing and Consumer Services 22 (2015) 107–116108

The American Marketing Association defines competition as “the
rivalry among sellers trying to achieve such goals as increasing
profits, market share, and sales volume by varying the elements of
the marketing mix: price, product, distribution, and promotion. It
is the product of vying for customers by the pursuit of differential
advantage, i.e., changing to better meet consumer wants and
needs”(Competition, n.d., no page number). Competition moti-
vates an organization to outperform its competitors in the market
and, thus, it can benefit consumers with more choices and a
greater selection from competing organizations.
Past studies suggest that competition may be a driving force of
customer loyalty. Competitor orientation is one critical determinant
of an organization’s long run business success (Narver and Slater,
199 0). Organizational responses to changeable competitive situa-
tions and the reactions of competitors create alternative choices for
consumers and can easily motivate a consumer’s switching beha-
vior. Also, a customer-contacted employee’scompetitor-oriented
behavior is found to be related to the duration of a business
relationship (Roos and Gustafsson, 2007). This suggests that the
achievement of customer loyalty requires customer-contacted
employees to take the factor of competition into consideration.
In addition, past studies suggest that customer value is signifi-
cant for attracting, or luring away, consumers from competitors
(e.g., Rust and Oliver, 1994). The notion of customer value is highly
associated with the emerging concept of customer experience
(Kelleher and Peppard, 2010). Customer value is a means to generate
positive customer experience, which is created in the interaction
between consumers and service employees (Frow and Payne, 2007;
Verhoef et al., 2009; Bolton et al., 2014). The type of customer value
is varied, which can create competing alternative experiences for
customers. Among these competing alternatives, customers tend to
purchase the good, or service, that creates the most value for them.
Given the consideration of competing alternatives of customer
experience pursued by consumers through different types of
customer value, competition can be an influencing factor for
achieving customer loyalty through the means of customer value.
While customer-contacted employees make efforts to deliver
service value, customers can easily make a comparison among the
alternatives. These competing alternatives may stem directly from
the consumption experience of competitors’offers, or indirectly
from customers’consulting their reference groups of people such
as relatives and friends (e.g., Bolton et al., 2014; Chen and Quester,
2005). Even the most basic availability of alternatives from
competitors can be negatively associated with the current custo-
mer’s loyalty. On the other hand, by raising standards of service
through the delivery of customer value, competition may actually
be positively related to customer loyalty and is likely to be more
salient for customers than for service employees. This suggests
that competition can be a moderator of the relationship between
customer value and customer loyalty. Moreover, the higher the
level of competition, the higher the impact of competition could
be on the customer value–customer loyalty relationship.
3. Research model and hypotheses
According to the literature review on customer loyalty, custo-
mer value and competition in the proceeding sections, this study
proposes the research model as shown in Fig. 1. It depicts the
possible driving force of different types of customer value for
customer loyalty in the service encounter from the aspects of
(1) the employee’s efforts to keep customer loyal by means of
customer value; and (2) the consumer’s evaluation of their
perceived value from the employee’s efforts to keep loyal. In
addition, the model depicts the possible moderating effect of
competition on the relationship between customer value and
customer loyalty from the perspectives of both service employees
and consumers in the service encounter, which includes the
possible influence of competition at different levels on the efficacy
of the predictions of different types of customer value for custo-
mer loyalty in the service encounter.
Accordingly, this study develops dyadic hypotheses. Hypoth-
eses H
1
-H
8
are developed to test the predicting effect of different
types of customer value on customer loyalty in the service context
from the perspectives of employees and consumers. Hypotheses
H
m1
-H
m7
are developed to examine the influences of competition
(i.e., its moderating effect and impact at different levels) on the
relationship between customer value and customer loyalty from
the perspectives of employees and consumers.
H
1‐8
: Customer loyalty is positively influenced by the service
employee ’s efforts to implement customer value through:
Fig. 1. Research model.
S.-C. Chen / Journal of Retailing and Consumer Services 22 (2015) 107–116 10 9

(1) Service quality (H
1
); (2) servicescape (H
2
);
(3) service episodes (H
3
); (4) customized service (H
4
);
(5) service equity (H
5
); (6) service risk avoidance (H
6
);
(7) social‐psychological interactions (H
7
); and (8) considera-
tion of service alternatives (H
8
).
H
m1‐7
: The higher degree the competition, the stronger the
relationship between customer loyalty and customer value thr-
ough: (1) Service quality (H
m1
); (2) servicescape (H
m2
);
(3) service episodes (H
m3
); (4) customized service (H
m4
);
(5) service equity (H
m5
); (6) service risk avoidance (H
m6
); and
(7) social‐psychological interaction (H
m7
).
4. Methodology
4.1. Data collection
This study chose the hairdressing sector of personal care services
in that the firms in this sector have relatively high interaction
between service employees and consumers (Levy and Weitz, 1998).
The business is also more likely to be very sensitive to customer
needs due to competition. This fits in with our primary objective of
exploring competition in a highly personal interaction context. The
selected sample firm is a representative of the hairdressing sector of
personal care services in Taiwan in terms of market share, annual
sales volume, and the number of chained stores listed in Taiwan
chain store almanac (TCFA, Taiwan Chain Stores and Franchise
Association). The sample stores come from the part of company-
owned franchising chain stores of the selected sample firm.
Screening criteria were applied in recruiting qualified partici-
pants under the selected sample stores for the study. A dyad
sampling frame was designed in a similar fashion as suggested by
Hartline et al. (2000) for data collection. The term “dyad”used in
this study represents a matched set of service provider–customer
pairs from two different populations (i.e., service employees and
consumers). In order to ensure research quality, each valid dyad was
expected to be formed by at least two consumers to every sample
service employee. Key informants are drawn from two sources; high
service performance employees, and loyal customers. In terms of
research purposes, high service performance employees are better
qualified than general service employees to be informants. They
tend to be capable of keeping customers in a larger base, or
retaining customers with frequent repurchase behavior and/or
higher spending on services. Their high performance can be the
result of their efforts to deliver superior customer value in service,
given the support of a positive relationship between customer value
and business performance from past studies (e.g., Mittal and
Kamakura, 2001; Slater, 1997). Their high service performance
may also due to their awareness of, and proper actions taken
against, the competition in the market, as stated in past studies of
the contribution of competitor orientation toward a positive busi-
ness performance (e.g., Narver and Slater, 1990). On the other hand,
given the limits of resources and the allocation of employee efforts
(Jones and Sasser, 1995), recruiting loyal customers in an active
business relationship in the role of respondents allows a focus on
the issue on customer value for these valuable customers.
Accordingly, qualified informants were recruited in terms of
selection criteria. For employees, their individual annual performance
regarding the number of frequent customers and average monthly
sales were used as the criteria. For consumers, only those customers
who took the initiative of asking for service from, or making an
appointment with focal representatives (i.e., high service perfor-
mance employees) were selected as respondents. This avoided the
effect of subjectivity in selecting customers, either by the researcher,
or by the high service performance employee. These informants,
therefore, enable this study to provide an insight into customer
loyalty from the aspects of; 1) the implementation and evaluation of
customer value in service, 2) the efficacy of different types of
customer value for customer loyalty, and 3) the impact of competi-
tion on the customer value–customer loyalty relationships.
The total number of valid responses was 96 from qualified service
employees and 340 from qualified customers. The unit of analysis
was the paired sample of a service provider and her/his customers.
This study follows the suggestion of Deshpande et al. (1993) and
Hartline et al. (2000) to form a matched dyad including one service
employee and the aggregate data of his/her customers. The way to
integrate customer data was by averaging the scale scores gained
from a service provider’scustomers,foreachvariable,tofitthe
requirement of a single pair calculation (Hartline et al., 2000).
Eventually, 96 valid matched sets of data formed by employees and
consumers were obtained after data processing. In regard to the
respondent profiles, the majority of service employees were female
(90.1%). The average working year of the respondents was 7 years in
the current company and 12 years in the hairdressing sector. On the
other hand, most of customers were female (93.7%). The year of
business relationship with a specific service provider was in the
range of 2–3 years (30.6%), or 4–5 years (26.5%). Most respondents
used the service once a week (28.7%), or twice a month (24.9%).
4.2. Research instrument
Two kinds of self-administered questionnaires were developed in
a dyadic approach; one for employees, and another for consumers. In
this study, each type of customer value is composed of the matched
scale items to examine the implementation of customer value by
employees and the evaluation of customer value by consumers in the
service encounter. These matched scale items are comparable in the
data analysis for the purpose of obtaining a meaningful interpreta-
tion in light of the research purposes. The scales for customer value
are adapted from Chen and Quester (2005).Chen and Quester’s
(2005) series of examinations for the validation of the construct in an
interactive service relationship provide support for the appropriate-
ness and usefulness of applying their construct in the current
research. For customer loyalty, the items are adapted from Sirgy
et al. (1991) and Sirohi et al. (1998) in order to measure customers’
stated revisit intentions and loyal behavior. These scale items reflect
theconsequencesofconsumerevaluationofcustomervaluein
service; that is, the efficacy of different types of customer value for
customer loyalty. To measure competition, Chen and Quester’s
(2005) scales of “consideration of service alternatives”(p.788) are
employed. Competition is reflected by the degree of an employee’s
and a consumer’sperceptionofservicealternatives regarding pro-
fessionalism, public praise, flexibility in price adjustment, and
competent quality service. All constructs were measured using
multiple questions with seven-point Likert scales.
This study conducts a series of examinations for the scale
validation. A pre-test of the research instrument was conducted
using the informants of general consumers and business profes-
sionals. The purified measures then formed the final version of the
questionnaires used in the fieldwork to test the proposed hypoth-
eses. Details of the measurement items and the psychometric
properties of the measures are provided in the Appendix A.As
shownintheAppendix A,Cronbach’s alpha values were above the
suggested level of 0.70 for scale robustness (Nunnally, 1978). The
model construct reliability ranged from 0.81 to 0.97, exceeding the
standard requirement of 0.70 for theory testing research (Nunnally
and Bernstein, 1994). In addition, convergent validity can be reflected
through construct reliability (DeWitt et al., 2008). The validation of
the research constructs is also shown in Table 1.
S.-C. Chen / Journal of Retailing and Consumer Services 22 (2015) 107–116110

5. Analyses and results
This study used ANOVA to examine the efficacy of different types
of customer value for customer loyalty from the perspective of both
employees and consumers. The analysis techniques of ordinary least
squares and logistic regression were also used to test the moderating
effect of competition on the relationship between customer value
and customer loyalty. From the employee and consumer data, this
study built four models: Model 1 tested the efficacy of the predic-
tions of different types of customer value for customer loyalty from
the employee perspective; Model 2 tested the efficacy of the
predictions of different types of customer value for customer loyalty
from the consumer perspective; Model 3 tested the moderating
effects of competition on the link of customer value and customer
loyalty from the employee perspective; and Model 4 tested the
moderating effects of competition on the link of customer value and
customer loyalty from the consumer perspective.
In Model 1 and Model 2, the regression equation is:
Loyalty ¼
β
0
þ
β
1
SQ þ
β
2
SSþ
β
3
SEP þ
β
4
CSVþ
β
5
SEQ þ
β
6
SRAþ
β
7
SPI þ
β
8
CSAþ
ε
ð1Þ
where Loyalty is a measure of customer loyalty, SQ is the measure
of the Service quality, SS is the measure of Servicescape, SEP is the
measure of Service episodes, CSV is the measure of Customized
service, SEQ is the measure of Service equity, SRA is the measure of
Service risk avoidance, SPI is the measure of Social-psychological
interaction, CSA is the measure of Consideration of service alter-
natives, and εis the Normally distributed error term. With regards
to Model 3 and Model 4, both models were built by adding the
interaction terms for predictors of customer loyalty (i.e. types of
customer value) with competition. This study augments Eq. (1)
with cross-product terms to test Models 3 and 4 which also nest
hypotheses Hm1 through Hm7.
Table 1
Correlations.
Construct 1 2 3 4 5 6 7 8 9
1. Customer loyalty 1
2. Service quality 0.67 1
3. Servicescape 0.71 0.40 1
4. Service episodes 0.68 0.40 0.35 1
5. Customized service 0.71 0.35 0.39 0.43 1
6. Service equity 0.70 0.33 0.32 0.37 0.39 1
7. Service risk avoidance 0.75 0.36 0.35 0.40 0.42 0.44 1
8. Social–psychological interaction 0.74 0.39 0.31 0.36 0.36 0.36 0.39 1
9. Considerations of service alternatives 0.60 0.34 0.32 0.35 0.37 0.33 0.41 0.37 1
Mean 6.14 5.99 5.89 6.05 5.82 5.61 6.04 5.86 6.06
S.D. 0.67 0.60 0.65 0.64 0.64 0.61 0.66 0.71 0.83
Table 2
(A) Predictors of customer loyalty; (B) Moderation of competition.
Variables Employees Consumers
(A) (B) (A) (B)
Model 1 Model 3 Model 2 Model 4
H
1
: Service quality 0.10
a
(0.54)
b
0.21 (0.69) 0.01 (0.11) 0.06 (0.61)
H
2
Servicescape 0.08 (0.48) 0.22 (0.09) 0.01 (0.12) 0.27 (0.53)
H
3
: Service episodes -0.34 (1. 4 8) 0.21 (0.74) 0.06 (0.49) 0.02 ( 0.14)
H
4
: Customized service 0.07 (0.35) 0.31 ( 0.22) 0.03 ( 0.26) 0.25 (1.35)
H
5
: Service equity 0.06 (0.28) 0.23 (0.05) 0.17 (1.41) 0.48
nnn
(3.29)
H
6
: Service risk avoidance 0.33
n
(1.71) 0.42
n
(2.01) 0.24 (1.45) 0.31
n
(1.97)
H
7
: Social-psychological interaction 0.23 (1.26) 0.27 (1.42) 0.39
nnn
(3.93) 0.58
nn
(3.03)
H
8
: Consideration of service alternatives 0.55
nnn
(3.67) 0.36 (1.45) 0.09 (0.78) 0.21 ( 0.13)
H
m1
: Service quality X competition 0.03 (0.24) 0.12
n
(2.19)
H
m2
: Servicescape X competition 0.05 (0.53) 0.11
n
(2.03)
H
m3
: Service episodes X competition -0.01 (0.12) 0.09 (1.24)
H
m4
: Customized service X competition 0.04 (0.47) 0.05 (0.89)
H
m5
: Service equity X competition 0.03 (0.29) 0.15
n
(1.75)
H
m6
: Service risk avoidance X competition 0.09 (0.85) 0.03 (0.52)
H
m7
: Social-psychological interaction X competition 0.01 (0.06) 0.09 (1.21)
R
2
0.230 0.291 0.725 0.772
adj. R
2
0.159 0.169 0.700 0.740
F-ratio 3.248
nn
2.375
nn
28.76
nnn
23.49
nnn
ΔR
2
0.061
nnn
0.047
nnn
Notes: Sample size: Employees¼96; Consumers ¼340. Dependent variable customer loyalty is measured from consumer responses. Results are based on one tail t-tests.
Model 1: The results of the predictors of customer loyalty from the employee perspective. Model 2: The results of the predictors of customer loyalty from the consumer
perspective. Model 3: The results of the moderating effects of competition on the relationship between customer value and customer loyalty from the employee perspective.
Model 4: The results of the moderating effects of competition on the relationship between customer value and customer loyalty from the consumer perspective.
a
βcoefficient.
b
t-value.
n
po0.05.
nn
po0.01.
nnn
po0.001.
S.-C. Chen / Journal of Retailing and Consumer Services 22 (2015) 107–116 111

Accordingly, the results of four models are shown in Table 2.
Model 1 reflects the type of customer value provided by service
employees in order to retain customers. The results show that the
primary predictors of customer loyalty from the employee perspec-
tive are risk avoidance (
β
¼0.33, t¼1.71, po0.05) and competition
(
β
¼0.55, t¼3.67, po0.001). H
6
and H
8
are supported. This model
explains 23% of the variance in customer loyalty. Model 2 reflects
the judgment of preference of customer value by consumers to
remain loyal. This comparable model tells a different story. The
important predictor of customer loyalty from the consumer per-
spective is social–psychological interaction with employees
(
β
¼0.39, t¼3.93, po0.001), which supports H
7
. The model
explains 72.5% of the variance in customer loyalty, which is more
than three times the variance explained by Model 1. The results of
both models show the asymmetry in the views of what type of
customer value can lead to loyalty between service employees and
consumers.
Model 3 and Model 4 show the moderating effects of competi-
tion on the relationship between customer value and customer
loyalty. Model 3 explains 29.1% of the variance in customer loyalty.
The model shows that all the interaction terms were not signifi-
cant. This suggests a lack of salience in the existence of competi-
tion, which is seen by employees as simply a predictor of customer
loyalty. Model 4 tells a different story from the point of view of
consumers. The model explains 77.2% of the variance in customer
loyalty. Predictors of customer loyalty that are not previously
significant become significant; that is, service equity (
β
¼0.48,
t¼3.29, po0.001) and service risk avoidance (
β
¼0.31, t¼1.97,
po0.05) are now significant. Social–psychological interaction
remains significant (
β
¼0.58, t¼3.03, po0.01). In addition to these
significant predictors, several interaction terms; service quality,
servicescape, and service equity; are also found to be significant
from the consumer perspective.(Figs. 2–4)
To understand the impact of competition at different levels on the
relationship between customer value and customer loyalty, this study
undertook slope analysis, as suggested by Aiken and West (1991).
Hypothesis H
m1
, which posits a significant interaction between service
quality and competition, is supported (
β
¼0.12, t¼2.19, po0.05). The
slope analysis shows that when competition is low (
β
¼0.28, t¼2.70,
po0.01) and when competition is moderate (
β
¼0.37, t¼3.68,
po0.001), the regression coefficient increases. When competition is
high (
β
¼0.48, t¼4.00, po0.001), it increases even further.
The second significant interaction term is servicescape and com-
petition (
β
¼0.11, t¼2.03, po0.05). Slope analysis shows the regres-
sion coefficients when competition is low (
β
¼0.19, t¼1.96, po0.05),
when competition is moderate (
β
¼0.28, t¼3.07, po0.01), and when
competition is high (
β
¼0.37, t¼3.54, po0.001). These results mirror
those for service quality, and indicate that the relationship between
servicescape and customer loyalty is strongest when competition is
high. Hypothesis H
m2
is supported.
Lastly, the interaction term between service equity and com-
petition is negative, but significant (
β
¼0.15, t¼1.75, po0.05).
The results show the regression coefficients when competition is
low (
β
¼0.61, t¼5.07, po0.001), when competition is moderate
(
β
¼0.64, t¼5.94, po0.001), and when competition is high
(
β
¼0.66, t¼5.86, po0.01). Evidently, the regression coefficients
are approximately equal. This indicates that the effect of competi-
tion on customer loyalty becomes similar at a high level of service
equity, irrespective of the level of competition.
6. Discussion and implications
6.1. The predictors for customer loyalty: the consumer perspective
Going beyond past studies of the drivers of customer loyalty (e.g.,
Paul et al., 2009; Paulin et al., 2000), this study examines the issue
from a different aspect. This study empirically builds direct links
between different types of customer value and customer loyalty,
which is missing from previous research on customer value and
customer loyalty (e.g., Chen and Quester, 2005). Significantly, this
study uncovers the asymmetry in the view of the importance of
certain types of value for customer loyalty between employees and
consumers. The evidence of asymmetry in the drivers; that is, the
types of customer value; of customer loyalty between employees and
Fig. 2. The service quality–customer loyalty relationship at different levels of competition.
S.-C. Chen / Journal of Retailing and Consumer Services 22 (2015) 107–116112

consumers suggests that researchers should examine both sides of a
dyadic relationship whenever possible.
The findings of this study suggest that the most direct way to
understand the issue of customer loyalty by means of customer
value is to gather and examine responses from consumers. This
study found that what the employees do, and how they evaluate
their interactions with the consumer, has very limited explanatory
power on customer loyalty. On the other hand, the evaluations of
consumers explain a significant proportion of the variance in
customer loyalty. As noted by researchers in the study of customer
value (e.g., Johnson and Weinstein, 2004; Meyer and Blümelhuber,
2000; Weinstein and Johnson, 1999), customers define customer
value by themselves, and the success or failure of the value
delivery depends on consumers’judgements. Managerial implica-
tions are that a better way to direct employees’efforts to generate
value in the area of achieving customer loyalty is to capture the
factors driving customer loyalty from the consumer perspective.
The consumer results verify an important driving force of customer
loyalty; that is, social–psychological interaction. In this study, the
element of social–psychological interaction is perceived by consumers
Fig. 3. The servicescape–customer loyalty relationship at different levels of competition.
Fig. 4. The service equity–customer loyalty relationship at different levels of competition.
S.-C. Chen / Journal of Retailing and Consumer Services 22 (2015) 107–116 113

from the service employee’s practices of paying attention to recognize
and greet customers whenever they visit, valuing the customer’s needs
of expressing their opinions and receiving feedback from the service
employees, and remaining contacts with customers in a way after the
end of service time in the store. Moreover, the results show that
consumers care a great deal more about their experience of their
social–psychological interaction with service employees than they do
about the other value delivery elements. The implication of this for
managers and service employees is the issue of what managers of
service outlets should invest in, and in what way this investment
should be made. Findings from the consumer responses suggest
that the most important investment the business can make is in its
service employees. In the recruitment, selection and training of service
employees, primary consideration beyond technical competence
should be the capability of engaging consumers with attention to their
social–psychological needs and wants. Managers and service employ-
ees could pay more attention to any service-related issues addressed
by consumers, and to knowing each other better to create conditions
for stronger relationships to build in better after-service care.
6.2. The predictors for customer loyalty: the employee perspective
On the other hand, to achieve better management of the
employee–consumer relationship, it is equally important to under-
stand the service employee’sopinionsaboutthesignificance of
customer value to customer loyalty. This will help to clarify whether
or not what service employees think is the best approach to keep
customer loyalty effective, since even high service performance
employees cannot fully understand, or can misunderstand, what
experience their loyal customers look for in the critical service
encounter. In this study, risk avoidance is highlighted by employees
as an important value delivery element in service, which can
influence customer loyalty. It appears, however, that consumers do
not see this as an essential factor driving their loyalty.
Consideration of service alternatives is another important value
delivery element in terms of an employee’s responses. For employees,
it is essential to deliver value with the awareness of competition in
service. This echoes the statements of the benefits of customer value
in retaining consumers (e.g., Ravald and Grönroos, 1996)andthe
importance of competitor orientation for business performance (e.g.,
Narver and Slater, 1990). The finding also supports past studies of the
link between employees’competitor-oriented behavior and the dura-
tion of a commercial relationship (e.g., Roos and Gustafsson, 2007).
The implications from these findings provide service employees with
suggestions regarding the approach to ensure the maintenance of a
service advantage to reach higher levels of service performance.
Nevertheless, neither risk avoidance nor consideration of ser-
vice alternatives is a driving force for customer loyalty from the
consumer perspective. The possible reasons behind this might be
that consumers' views are limited by their restricted experience, or
knowledge, of business products, as noted by Woodruff et al. (1993).
This suggests that employees and/or managers of service outlets
should inform consumers about their efforts to reduce service risks
and to offer better service alternatives than competitors, with the
consumers' best interests in mind. By doing this, they can also
create good selling points for enhancing the brand image of an
organization and can arouse the consumer's awareness of the
importance of certain types of value in the service, such as risk
avoidance, which is aimed to improve customer welfare.
6.3. The moderating influence of competition
In this study, competition is found to be a moderator of the
relationships between customer value and customer loyalty from
the consumer perspective. Competition influences consumer eva-
luations of certain types of customer value, which have impacts on
their loyalty attitudes and behaviors. These types of customer
value include service quality, servicescape, and service equity.
Moreover, the findings of this study suggest that the higher the
level of competition, the more demanding consumers are in their
expectation of these value delivery elements. This highlights the
necessity of including the degree of competition in the research
models in studies of customer loyalty and customer value. The
implications of this for service employees and managers are that
they need to be aware of the impact of competition on certain
types of value delivery when making efforts to achieve customer
loyalty by means of customer value.
A number of variables associated with service quality and
customer loyalty have been empirically examined in past studies;
such as customer satisfaction, customer retention (Oliver, 1999),
personalization (Brady and Cronin, 2001), and customer value
(Brodie et al., 2009). Going beyond those past studies, this study
uncovers the influencing factor of competition in the relationship
between service quality and customer loyalty. The findings show
that the benefits of high service quality are more significant when
competition is higher than when it is lower. Greater competition
raises the demands for service quality and competition is, in that
sense, beneficial to consumers, thus encouraging their loyalty. This
study suggests that considerations about service quality in the
service encounter can include the factors of politeness, friendli-
ness, courtesy, the concern about customers’interests, attention to
service details, and consistency in service quality.
Past studies suggest that servicescape can influence the attitude
and behavior of service providers and service recipients (Harris and
Ezeh, 2008; Parish et al., 2008; Wall and Berry, 2007) and that it is an
actual promoter of employee–customer interaction (Binter, 1992).
Going beyond past studies, this study finds that competition can
moderate the relationship between servicescape and customer loyalty.
Consumers are sensitive to environmental conditions and ambience in
personal services when they perceive competition, or alternatives, in
the market. The more competition the business is exposed to, the
higher the standards expected by consumers. The implication for
managers of service outlets is that they need to ensure that they
provide consumers with a better and more competitive service
consumption environment when there is high competition, than when
competition is low. In this study, considerations about servicescape in
the service outlet can include the factors of delight in the process, easy
procedures, tidy environments, and privacy in the service.
This study also finds the influence of competition in the relation-
ship between service equity and customer loyalty. The results suggest
that when equity considerations are perceived as satisfactory by
consumers, the level of competition has no effect on customer
loyalty. In other words, whenever consumers make a positive
judgment for service equity, it will not evolve into a concern for
consumers when the competitive situation changes. The implication
from this point is that service providers need to ensure consumers
can perceive the rightness of their service performance relevant to
the issue of equity. Indeed, consumer judgment of rightness in
market exchange relationships regarding inputs and outputs is
salient to customer retention (Olsen and Johnson, 2003). This study
suggests that considerations about service equity in the service
encounter can include the factors of response to service failure,
payment for service outcome, payment for service content, time
spent on the service, promotional offerings regarding the customers’
interests, notice of sales promotion by different media, and any
assurance of low risk when participating in promotion activities.
7. Conclusions, limitations and further research
This study makes contributions to the extant research on
customer loyalty, customer value, and competition in the service
S.-C. Chen / Journal of Retailing and Consumer Services 22 (2015) 107–116114

context. A service is a source of experience from the consumer’s
perspective (Ostrom et al., 2010). This study answers the call for
more research on consumer consumption experience and prac-
tices (e.g., Helkkula et al., 2012; Solomon et al.,1985; Verhoef et al.,
2009). The value of the current research is that it extends our
understanding of the customer value–customer loyalty relation-
ship under different viewpoints.
First, this study uncovers the significance role of competition in
the formation of customer loyalty by means of customer value
from a dyadic view. Though service employees perceive competi-
tion as a critical driving force for customer loyalty, consumers do
not. Rather, consumers take certain types of value delivery
elements into consideration when choosing a service outlet from
among competitive offers. Second, this study highlights that using
service employees, or other organizational personnel, to answer
questions on the drivers of customer loyalty may be ineffective, as
their perceptions may not coincide with those of actual consu-
mers. Consumers use the available alternatives to assess certain
types of value they experience from service employees. Accord-
ingly, this study provides managers with direct insights as to what
type of customer value to invest in the creation and delivery of
services in order to achieve the desired level of customer loyalty.
Third, the study of dyads provides a unique opportunity to
investigate common themes across respondents. The results show
that there is asymmetry in the views on competition and the
driving force of loyalty by means of customer value between the
two sides of the dyad. Finally, the study raises an important issue
on, and suggests how, managers of service outlets could manage
their service employees in the critical moment of truth; that is,
during the service encounter.
The limitations and future research are discussed as follows.
This study found an absence of symmetry between the drivers of
customer loyalty by means of customer value, and the role of
competition, between service employees and consumers, and
that the drivers of customer loyalty, as seen by the employees
and consumers, differ in important respects. In the future, focus
group interviews with both parties in order to examine the
reasons behind their responses could produce further insights
into the formation of customer loyalty by means of customer
value and competition. A complementary qualitative study
addressing the perceptions of competition from the perspectives
of service employees and consumers could make a further
contribution.
In addition, the results of this study are based on cross-
sectional observations with samples from service employees and
consumers in a personal care service setting. While the sample
was adequate for the purposes of the study, a larger sample size
could have made the findings more robust. The results of this
study are valid for a specific context-the personal care services.
Nevertheless, according to the service classifications proposed by
Lovelock (1983), the results may also apply to other service
settings sharing some characteristics such as health care, beauty
salons and exercise clinics. Managers in other settings should
therefore employ the reported contents with caution. Moreover,
while the setting of personal care services is not unique, it has the
unusual feature of a long interaction between service employees
and consumers during each encounter. This setting suggests there
are more opportunities to deepen the relationship. In future
research, it could be valuable to include different types of personal
care services to allow for generalization of the research outcomes,
and in non-personal care service settings in a comparative study.
Appendix A
See Appendix Table A1.
Table A1
Scale items.
Measurement
Customer value
Service quality (Cronbach
α
¼0.93
a
/ 0.96
b
)

A show of politeness

A show of friendliness

A show of courtesy

Consideration for the customers’interests

Meticulous attitude in service details

Consistent service quality
Servicescape (Cronbach
α
¼0.84 / 0.95)
●Delight in the service process
●Ease in service procedure
●A tidy store environment
●Wide distance among seats for privacy
Service episodes (Cronbach
α
¼0.89 / 0.92)
●Service at customers’verbal requirement
●A sense of exclusive treatment achieving
●A sense of “value for money”
●Saving time on communication by a specific service provider
●Adequately delegate employee for service
Customized service (Cronbach
α
¼0.94 / 0.92)

Less commuting time to store

Flexible operating hours

Non-trainee employee service in all service

The adoption of a reservation system

Ease of self-handling hairstyle after service

Esthetics in hairstyle

Update skills for fashionable hairstyle

Fresh and new in usual hairstyle

Demonstration of esthetics in the store appearance

Freedom of selecting a hairdresser

Actively notify customers information

Free from pressure of in-store promotion

Sincerity in dealing with service complaint

Provide extra service for pleasure

Differential service in favor of frequent customers

Price allowance for frequent customers

Attractive gifts for frequent customers
Service equity (Cronbach
α
¼0.92 / 0.93)

Positive response to service failure

Fairness of the exchange of payment for service outcome

Fairness of the exchange of payment for service contents

Fairness of the exchange of payment for time spent in store

Promotional offerings regarding the customers’interests

Notice of sales promotion by different media

Assurance of low risk for participating in promotion activities
Service risk avoidance (Cronbach
α
¼0.92 / 0.97)

Assertion of high service quality

Maintain and enhance company’s reputation in service

Execute well service process prescribed for customers

The cleanness of employees’appearance

The sanitation of hairdressing utensils

Promptly deal with customers’complaints to service
Social-psychological interaction (Cronbach
α
¼0.91 / 0.96)
●Recognize and greet customers whenever visiting
●Let a customer speak his/her mind without reticence
●Maintain relationship after service
Competition/ consideration of service alternatives (Cronbach
α
¼0.81 / 0.97)
●Masterly skills in comparison with competitors
●Opinions of relatives and/or friends to the service outcome
●Match prices with competitors’short-term campaign
●A quality service with the awareness of the dynamic competitive market
S.-C. Chen / Journal of Retailing and Consumer Services 22 (2015) 107–116 115

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Table A1 (continued )
Measurement
Customer loyalty (Cronbach
α
¼0.95
b
)
●Revisit intention
●Frequency of patronage
●Consumption expenditure
●Recommendation intention
a
Employees.
b
Consumers.
S.-C. Chen / Journal of Retailing and Consumer Services 22 (2015) 107–116116