Consumer2

Journal of Marketing Management, 2004, 20, 897-917

Jackie L. M. Tam1

Customer Satisfaction, Service Quality and Perceived Value: An Integrative Model

The Hong Kong Polytechnic University

The present study examines the relationships among customer satisfaction, service quality and perceived value. These variables are increasingly recognised as being sources of competitive advantage. However, little empirical research has been conducted to examine these variables simultaneously and their relationships with post-purchase behaviour. The present study was therefore designed to develop an understanding of the relationships among these variables and their influence on postpurchase behaviour. An integrative model was developed and tested using data collected from customers in the restaurant industry. The results reveal that customer satisfaction and perceived value significantly influence post-purchase behaviour. Implications of the findings and areas for future research are discussed.

Keywords: customer satisfaction, service quality, perceived value Introduction In highly competitive markets, firms are increasingly concerned with customers’ post-purchase behaviour. It is recognised that merely satisfying customers is not sufficient to secure customer loyalty (Jones and Sasser 1995). Studies have shown that satisfied customers also express a tendency to switch to competitors (Mittal and Lasser 1998). In the past decade, quality has been recognised as a strategic tool to strengthen a firm’s competitive position and improve its profitability (Reicheld and Sasser 1990). However, as customers become more demanding, competition further intensifies, and economic and industrials growth slows down, quality might not be an adequate source of a competitive advantage. Woodruff (1997) believes that customer value is the next underlying source for competitive advantage. Consistent with this view, Weinstein and Johnson (1999) consider that customer value is the strategic driver that differentiates a firm’s offering in the crowded marketplace. Correspondence: Jackie L. M. Tam, Department of Management and Marketing, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong, Email: [email protected], Telephone: (852) 27667951

1

ISSN1472-1376/2004/7-8/00897 + 20 £8.00/0

©Westburn Publishers Ltd.

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Customer satisfaction, quality and perceived value are three prominent marketing constructs, and their relationships with post-purchase behaviour have drawn considerable interest and attention from practitioners and academics (Sweeney et al. 1997; Bloemer et al. 1999; Brady and Robertson 1999; McDougall and Levesque 2000; Cronin et al. 2000). Parasuraman and Grewal (2000) suggest that quality enhances perceived value, which in turn, contributes to customer loyalty. This quality-value-loyalty model accords with Heskett et al.’s (1997) service-profit chain which places perceived value at the centre of the chain linking employee satisfaction, loyalty, productivity and output quality with customer satisfaction, loyalty and profitability. Heskett et al. (1997) define perceived value as the ratio of process quality and results delivered to customers relative to the price and the other costs incurred in acquiring the service. According to the chain model, satisfied and loyal employees create output quality, which contributes to perceived value, and in turn directly influences customer satisfaction and loyalty, which in turn drive profit performance and growth. There is some empirical support for some of the links in the service-profit chain model (Loveman 1998; Silvestro and Cross 2000; Bernhardt et al. 2000). However, most studies have neglected the contribution of customer perceived costs to perceived value. Ravald and Grönroos (1996) consider that studies have not explicitly included customers’ perceived costs may be a shortcoming as this variable plays a significant role in determining satisfaction. In order to design effective strategies to enhance customer satisfaction and loyalty, it is imperative to understand the role of quality and costs in customer value assessment and their relationships with satisfaction and post-purchase behaviour. Thus, the present study extends the prior research by integrating quality, perceived costs, perceived value, customer satisfaction and postpurchase behaviour into a coherent model and by empirically assessing the interrelationships among them. The organisation of this article is as follows. A review of the literature is presented in order to provide a conceptual basis for the study and to develop a conceptual model that integrates customer satisfaction, quality, perceived costs, perceived value and post-purchase behaviour. The research methodology adopted to assess the model is then described, followed by a discussion of the results. Finally, the implications of the findings are discussed and the article concludes with some suggestions for further research. Literature Review Defining Customer Satisfaction The concept of customer satisfaction has drawn the interest of academics and practitioners for more than three decades in the light of the fact that

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customers are the primary source of most firms’ revenue. Customer satisfaction is a necessary precondition for customer loyalty, which is in turn a key driver of profit growth and performance (Reichheld 1993; Heskett et al. 1997). Churchill and Surprenant (1982) define customer satisfaction as an outcome of purchase and use resulting from the buyers’ comparison of the rewards and costs of the purchase in relation to the anticipated consequences. It has also been viewed as an emotional state that occurs in response to the evaluation of a service (Westbrook 1981). The former conceptualisation recognises that satisfaction is determined by a cognitive process of comparing what customers receive (rewards) against what they give up to acquire the service (costs) whereas the latter views satisfaction as an emotional feeling resulting from an evaluative process. Consistent with this view, customer satisfaction is defined as an emotional response, that results from a cognitive process of evaluating the service received against the costs of obtaining the service (Woodruff et al. 1991; Rust and Oliver 1994). Defining Perceived Service Quality The actual quality of service is difficult to define and measure (Gavin 1983; Parasuraman et al. 1988; Brown and Swartz 1989). However, researchers have reached a consensus that service quality should be defined and measured from the customer’s perspective. The most widely accepted definition of perceived service quality is that it represents the discrepancy between customers expectations and their perceptions of the service performance (Lewis and Booms 1983; Grönroos 1984; Parasuraman et al. 1988). There has been a debate regarding the inclusion of expectations in the measurement of service quality (Teas 1993, 1994; Cronin and Taylor 1994; Parasuraman et al. 1994). While Cronin and Taylor (1994) claimed that the perceived performance measure possesses a high predictive ability, Parasuraman et al. (1994) assert that the expectation measures can assist management in identifying those areas which require immediate attention. However, Parasuraman et al. (1994) concur that if the primary purpose of measuring perceived service quality is to explain the variance on some dependent construct, then a performance-based measure is appropriate. There is a growing acceptance among researchers that service quality can be tied to perceptions of service performance (Grönroos 1993; Dabholkar 1993). Defining Perceived Value The importance of perceived value in relation to purchase intentions was documented in the early literature (Zeithaml 1988) but it is only in recent years that the concept of perceived value has received increasing attention (Cronin et al. 1997; Patterson and Spreng 1997; McDougall and Levesque

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2000; Varki and Colgate 2001). The definitions of perceived value generally involve a trade-off between what customers receive and what they give up to acquire the service (Zeithaml 1988; Monroe 1991). Lovelock (2001) suggests that perceived value can be enhanced by either adding benefits to the service or by reducing the outlays associated with the purchase and use of the service. Price is often used as the key measure to represent what customers have to sacrifice to obtain the service. However, it is noted that non-monetary costs such as time, physical and psychic effort are also considered as the outlays to obtain the service (Lovelock 2001). The importance of the types of outlays may vary across individual consumers and usage situations, and in accordance with the nature of the service. In this study, perceived sacrifice includes monetary and time costs whereas perceived value is a result of customers’ evaluation of the service received against their perceptions of the costs of obtaining the service. Hypothesis Development Relationship between Perceived Service Quality and Customer Satisfaction The nature of the relationship between perceived service quality and customer satisfaction is an intriguing issue. Some researchers have suggested that perceived service quality is an antecedent of customer satisfaction (Anderson and Sullivan 1993; Ravald and Grönroos 1996; de Ruyter et al. 1997). Others have adhered to the view that customer satisfaction precedes perceived service quality (Parasuraman et al. 1988; Bolton and Drew 1991; Patterson and Johnson 1993). Teas (1993) explained that the confusion as to the causal relationship between satisfaction and perceived service quality is due to the lack of consensus on the definition and operationalisations of the two constructs. He pointed out that perceived service quality has been viewed as a global judgement in most service quality research, in contrast to the transaction-specific focus of most customer satisfaction research. It is clear that the confusion on the causal relationship is attributed to the different perspectives held by the researchers. Perceived service quality can be viewed at the level of both the transactional perspective and the global perspective (Teas 1993; Oliver 1993; Parasuraman et al. 1994). At the transaction level, perceived transaction-specific quality will influence customer satisfaction, and at the global level, the overall perception of a firm’s service quality is based on customers’ cumulative transaction-specific satisfaction with the service. The present study is interested in the relationships between perceived service quality, customer satisfaction and perceived value from an encounter perspective rather than from a global perspective. Due to the inseparability of the production and consumption of most services, the encounter provides

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an opportunity for a firm to capture customer future purchases. During the consumption of the service, consumers are able to determine the quality of the service and their satisfaction level (Grönroos 2000). It is hypothesised that in a service consumption, if consumers perceive that a service they receive is of high quality, then satisfaction results. On the other hand, if consumers perceive that a service received is of low quality, then dissatisfaction results. Thus, the first hypothesis: H1: Perceived service quality will have a positive effect on customer satisfaction. Relationships between Perceived Value with Perceived Service Quality and Perceived Sacrifice Perceived value is an important concept, as it is believed to have an influence on customer satisfaction (Heskett et al. 1997), and behavioural intentions (Cronin et al. 1997). Thus, marketers attempt to influence customer satisfaction and ultimately post-purchase behaviour may be accomplished in part, by influencing customers’ perceptions of value. Ravald and Grönroos (1996) suggest that perceived value of a service can be heightened by either delivering better service or reducing customer perceptions of the costs associated with using the service. They assert that adding value to the service at a competitive price is a potent source of competitive advantage. Customers perceive higher value in the service when they perceive the quality of service as greatly exceeding the costs they have sacrificed to obtain the service. There is some empirical evidence to support the view that quality is positively related to perceived value and perceived sacrifice is negatively related to perceived value (Brady and Robertson 1999; Teas and Agarwal 2000). It is hypothesised that the more customers perceive they have received, the higher the perceived value, whereas the more costs customers perceive themselves to have sacrificed in acquiring the service, the lower the perceived value. This leads to the following hypotheses: H2: Perceived service quality will have a positive effect on perceived value. H3: Perceived monetary costs will have a negative effect on perceived value. H4: Perceived time costs will have a negative effect on perceived value. While the literature documents a positive relationship between quality and price, studies have shown that the role of price as a cue to quality is diminished in the presence of consumer familiarity or other available cues such as brand name (Johnson and Kellaris 1988; Dodds et al. 1991). In this

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study, consumers determine the quality of a service following a consumption experience. It is suggested that their evaluation of the quality of the service is driven by their perceptions rather than by price, thus price and quality are considered as two independent constructs. There has been limited research on the relationship between price and customer satisfaction, and the relationship between price and post-purchase behaviour. Varki and Colgate (2001) found that these relationships exist in a New Zealand sample but not in a U.S. sample. Although price is one of the major factors that influences the consumer purchase decision, it is hypothesized that value is a stronger determinant of post-purchase behaviour, and that price exerts an influence on post-purchase behaviour via perceived value. Relationships between Perceived Value with Customer Satisfaction and Post-purchase Behaviour Perceived value is posited to be a determinant of customer satisfaction. The more the customers perceive the quality of service exceeds the costs of obtaining the service, the higher their perceptions of the value of the service, which in turn results in greater satisfaction. Studies have shown that perceived value exhibits a strong and significant impact on customer satisfaction, which in turn affects repurchase intentions (Patterson and Spreng 1997; Eggert and Ulega 2002). The direct linkage between perceived value and post-purchase behaviour is less clear. While perceived value was found to be a primary factor influencing purchase intentions (Cronin et al. 1997; Sweeney et al. 1997; Brady and Robertson 1999), others have provided evidence to suggest that the effect of perceived value on repurchase intentions was completely mediated via customer satisfaction (Patterson and Spreng 1997). In accordance with the previous research, it is hypothesised that perceived value will directly influence both customer satisfaction and post-purchase behaviour and indirectly influence post-purchase behaviour via customer satisfaction. This leads to the following hypotheses: H5: Perceived value will have a positive effect on customer satisfaction H6: Perceived value will have a positive effect on post-purchase behaviour H7: Perceived value will have an indirect positive effect on post-purchase behaviour via customer satisfaction Relationship between Customer Satisfaction with Post-purchase Behaviour Studies have shown a strong positive relationship between customer satisfaction and repurchase intentions (McDougall and Levesque 2000; Caruana 2002; Olsen 2002). However, some researchers have suggested that mere satisfaction is not enough to keep customers loyal in highly competitive markets (Jones and Sasser 1995). The relationship between customer

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satisfaction and loyalty may vary according to the degree of competition in the market. Customers who are satisfied with the service will also switch suppliers if they see that there is a better alternative elsewhere. On the other hand, where there is no other choice, customers will continue purchasing from the same supplier even though they are dissatisfied with the service. Recent research has examined the relationship between customer satisfaction and financial performance. Bernhardt et al. (2000) revealed that restaurants with increased customer satisfaction mean scores achieved higher percentage increases in average monthly profits than those restaurants with stable or reduced customer satisfaction mean scores. Anderson, Fornell and Lehmann (1994) found that, contrary to the general belief, there was a tradeoff between customer satisfaction and market share. Since their data were cross-sectional, they explained that in the short-run, market share might be gained by seeking customers with preferences falling outside the target market. However, in the long run, they expected customer satisfaction and market share to be positively related. In summary, customer satisfaction is an important determinant of post-purchase behaviour, which in turn is expected to affect the firm’s future profitability. From the preceding discussion, it is posited that the more satisfied customers feel with the service they receive, the more likely it is that they will repurchase the service and recommend it to other people. Thus, the eighth hypothesis is: H8: Satisfaction will have a positive effect on post-purchase behaviour

Perceived Service Quality

H1 Customer Satisfaction

H8

H2 Post-Purchase Behaviour

H5

Perceived Monetary Costs

H3 Perceived Value

H6

Perceived Time Costs

H4

Figure 1. Depicts an Integrative Model of the Relationships to be Assessed

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Research Context The study was conducted among Chinese consumers in Hong Kong in the People’s Republic of China. Family/popular chains of restaurants which offer table service and extensive menus were chosen for the study. The restaurant industry was chosen because restaurants offer both tangible and intangible elements, as most product offerings combine tangible and intangible elements. Further, competition is fierce in the restaurant industry. Diners have many choices, and if they find that the service provided is not satisfactory, they can easily find other providers at minimal or no additional cost. Thus, the present study is able to clearly depict the relationships among customer satisfaction, perceived service quality, and perceived value with post-purchase behaviour in a highly competitive market. Research Methodology Research Instrument The questionnaire included items intended to measure perceived service quality, customer satisfaction, perceived sacrifice, perceived value and intended post-purchase behaviour. The perceived service quality scale was adapted from Teas’ (1993) quality scale. Customers were asked to indicate their perceptions of the overall quality of the service received on three semantic differential scales items with bipolar adjectives addressing high quality, industry standards and best to worst respectively. Customer satisfaction was measured using three semantic differential scales with bipolar adjectives addressing satisfaction, pleasant, enjoyment and one face scale. These scales were utilised to capture both the cognitive and the emotional nature of this construct (Hausknecht 1990). Two aspects of postpurchase behaviour were particularly important; future repurchases and recommendation to others. Three items were used to measure future purchase intentions and two items were used to measure recommendation intentions. Perceived monetary costs were measured using three items and perceived time required in obtaining the service was measured by two items. Perceived value was measured by asking customers to evaluate the overall service in the light of “price paid” and “time spent”. The questionnaire was pre-tested with twenty consumers prior to the field survey. The purpose of this pre-test was to identify any ambiguous wording, and to discover whether respondents had any difficulties in answering the questions. The appendix contains a list of items used. Data Collection Data were collected by means of a consumer survey. The fieldworker selected customers prior to entering the chosen restaurants at about ten minutes interval.

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Table 1. Demographic Characteristics of the Respondents Demographics

Number

Percentages

Sex Male Female

78 131

37.3 62.7

Age 18 – 25 26 – 30 31 – 35 36 – 40 41 – 45 46 – 50

50 41 46 29 21 22

23.9 19.6 22.0 13.9 10.0 10.5

100 106 2

48.1 51.1 1.0

Education Attainment Primary or below Secondary Post-secondary Tertiary or above

27 93 25 63

13.0 44.7 12.0 30.3

Occupation Professional / Executive White Collar Student Entrepreneurs / Self-employed Managerial Blue Collar Housewife Unemployed Others

40 76 22 7 9 14 26 5 9

19.2 36.5 10.6 3.4 4.3 6.7 12.5 2.4 4.3

Personal Monthly Income $5,000 or below $5,001 - $10,000 $10,001 - $15,000 $15,001 - $20,000 $20,001 - $25,000 $25,001 - $30,000 $30,001 or above

51 44 49 23 14 13 14

24.5 21.2 23.6 11.1 6.7 6.3 6.7

Marital Status Single Married Divorced

The customers were informed about the purpose of the research, and were invited to take part in the study. If the customers agreed to take part, they were given the questionnaire with a return envelope, and a covering letter requesting them to complete and return the questionnaire within a week. A gift was used to stimulate customer participation. It was estimated that roughly one out four customers approached agreed to take part in the study.

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Analysis and Results Two hundred and fifty five agreed to participate in the study, but only two hundred and seventeen respondents returned the questionnaire. Among those returned questionnaires, eight were incomplete and were discarded. The number of responses used for the analysis was 209. The resultant sample consisted of 37.3 percent males, and 62.7 percent females. Of these 43.5 percent were aged 18 – 30, and 44.7 percent had attained a secondary education. The median personal income was between $10,001 and $15,000. Table 1 presents the demographic profile of the respondents. LISREL 8.14 was used to assess the hypotheses as it had the ability to estimate the multiple and interrelated relationship whilst accounting for the measurement errors in the estimation process (Hair et al. 1998). The measurement items identified in the Appendix were specified as the indicators of the respective constructs except post-purchase behaviour. In order to maintain parsimony in the number of indicators in the model, two indices were formed by averaging the three items measuring future purchase intentions and the two items measuring recommendation intentions respectively, and they represented the indicators of the post-purchase behaviour (Hair et al. 1998). Table 2. Results of Confirmatory Factor Analysis Items Monetary Costs λ1,1 λ2,1 λ3,1 Time Costs λ4,2 λ5,2 Perceived Service Quality λ6,3 λ7,3 λ8,3 Perceived Value λ9,4 λ10,4 Customer Satisfaction λ11,5 λ12,5 λ13,5 λ14,5 Post-purchase Behaviour λ15,6 λ16,6

Standardised Loadings

Squared (r2) Multiple Correlations

0.80 0.78 0.71

0.64 0.61 0.50

0.83 0.76

0.68 0.58

0.82 0.79 0.86

0.76 0.74 0.82

0.70 0.77

0.49 0.59

0.92 0.90 0.85 0.76

0.85 0.81 0.72 0.58

0.93 0.85

0.86 0.72

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The confirmatory factor analysis results suggested a reasonably good fit with χ2 statistic = 155.29 (88 degrees of freedom), GFI = 0.91, NFI = 0.94, and RMSR = 0.057. Although the χ2 statistic was significant, the GFI, NFI and RMSR values were acceptable (Bentler and Bonett 1980; Sharma 1996, Kelloway 1998). It is documented in the literature that the χ2 statistic is sensitive to sample size. For large sample sizes, even small differences in the sample covariance matrix are statistically significant, although the differences may not be practically meaningful (Sharma 1996). The t-statistics showed that the factor loadings were highly significant (all were greater than 1.96), thus providing evidence of convergent validity (Anderson and Gerbing 1988). The squared multiple correlations were all met the 0.50 threshold suggested by Fornell and Larcker (1981) with the exception of the value item measuring the overall service with respect to the monetary costs (r2 = 0.49). The Cronbach alpha values for the scales ranged from 0.71 to 0.92. As a rule of thumb, the Cronbach alpha value should be at least 0.70 for a scale to demonstrate internal consistency (Nunnally 1978). Table 2 presents the results of the confirmatory factor analysis. The structural model included six constructs, of which three were exogenous and three were endogenous. Table 3 presents the covariance results and correlation coefficients among the constructs. The overall fit of the model was reasonable and the r2 for the structural equations ranged from 0.59 to 0.79. The Chi-square statistic was 164.53 (p=0.00) with 93 degrees of freedom, GFI = 0.91, NFI = 0.93 and RMSR 0.06. Table 4 shows the parameter estimates of the structural equations. Table 3. Covariances and Correlations Among the Constructs Monetary Costs (I)

(I) 0.62

(II) 0.49

(III) 0.19

(IV) -0.13

(V) 0.10

(VI) -0.05

Time Costs (II)

0.45

1.37

-0.02

-0.29

-0.08

-0.21

Perceived Service Quality (III)

0.12

-0.02

0.67

0.70

0.81

0.71

Perceived Value (IV)

-0.08

-0.26

0.43

0.56

0.68

0.85

Customer Satisfaction (V)

0.08

-0.09

0.67

0.52

1.04

0.76

Post-purchase Behaviour (VI)

-0.04

-0.26

0.61

0.68

0.81

1.11

(above diagonal = correlation matrix; diagonal = variance; below diagonal = covariance matrix)

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Table 4. Parameters Estimates of the Structural Model Independent Variables Monetary Costs Time Costs Perceived Service Quality Perceived Value

Dependent Variables Perceived Value -0.16* (-0.17) -0.12* (-0.19) 0.67* (0.73)

Customer Satisfaction

Post-Purchase Behaviour

0.82* (0.66) 0.29* (0.21)

Customer Satisfaction 0.59 0.68 r2 (* significant at 5 % level, standardised parameter estimates in parentheses)

0.88* (0.63) 0.34* (0.33) 0.79

All the path coefficients were significantly different from zero with respective t-values greater than 1.96 and their signs were in the hypothesised direction. Perceived service quality was found to display a positive effect on customer satisfaction (γ=0.66, p<0.05), and perceived value (γ=0.73, p<0.05). As customers’ perceptions of the quality of the service increase, they feel more satisfied with the service and perceive higher value in the service. Thus, hypotheses one and two were supported. Monetary and time costs were found to display a negative effect on perceived value, the path coefficients were (γ= -0.17, p<0.05) and (γ= -0.19, p<0.05) respectively. These results suggest that both monetary and time costs play a significant role in customers’ assessments of the value of the service. Accordingly, hypotheses three and four were supported. Perceived value was shown to have a positive effect on customer satisfaction (β=0.21, p<0.05) and intended postpurchase behaviour (β=0.63, p<0.05). Thus, hypotheses five and six were also supported. It is interesting to note that perceived value has a stronger impact on intended post-purchase behaviour than on customer satisfaction. As customers perceive that the value of the service increases, they feel more satisfied with the service and their tendency to repurchase and recommend the service to others becomes higher. Studies have found that the effect of perceived value on repurchase intentions is completely mediated by customer satisfaction (Patterson and Spreng 1997). In order to examine whether the effect of perceived value on behavioural intentions would indeed be completely mediated by customer satisfaction, an alternative model was proposed with the parameter of the structural path between perceived value and intended post-purchase behaviour constrained to zero. A Chi-square difference test was performed to

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assess the overall fit of the theoretical model and the alternative model. Steiger et al. (1985) stated that the difference between Chi-square statistics for the nested models is itself asymptotically distributed as Chi-square, with degrees of freedom equal to the difference in the degrees of freedom for the two models. The results of the Chi-square difference test showed that the theoretical model provided a better overall fit to the data than the alternative model, the Chi-square difference was 48 with one degree of freedom (p<0.05). Thus, the notion that perceived value has both a direct and an indirect effect through customer satisfaction on behavioural intentions is supported by the data. Hence, hypothesis seven was supported. Consistent with the results of previous research, customer satisfaction displayed a significant influence on intended post-purchase behaviour (β=0.33, p<0.05). As customers feel more satisfied with the service, they will be more likely to repurchase and encourage others to use by word of mouth. Accordingly, hypothesis eight was supported. Further analyses were conducted to examine the relationships between monetary costs and quality, monetary costs and customer satisfaction, and monetary costs and intended post-purchase behaviour. Each path was evaluated in turn to determine whether monetary costs had any direct influence on quality, customer satisfaction and intended post-purchase behaviour respectively. The results showed no significant improvement in model fit, suggesting that customers’ perceptions of quality were not affected by monetary costs, and the effect of monetary costs on customer satisfaction and intended post-purchase behaviour were mediated through perceived value. Discussion and Conclusions Although customer satisfaction has been used as a means of achieving the business goals of most firms, the assumption that satisfied customers will make repeated purchases and tell others about their satisfying experiences may no longer hold in highly competitive markets. The present study shows that perceived value has relatively speaking, a greater influence on postpurchase behaviour than customer satisfaction as is evidenced by the standardised path coefficients of 0.63 for perceived value and of 0.33 for customer satisfaction shown in Table 4. Moreover, the results of this study reveal that adding the path between perceived value and post-purchase behaviour has improved the overall fit of the model. This suggests that integrating perceived value with customer satisfaction and perceived service quality in a single model can better explain and predict post-purchase behaviour. Although increasing customers’ perceptions of service quality can result in high customer satisfaction and perceived value, the effect of perceived

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service quality on perceived value might be offset by high perceived sacrifice. There are instances in which customers may feel satisfied with a service, but their perceptions of its value are low due to the high costs incurred in obtaining it. When they learn that another supplier is offering a better value service, their likelihood to switch is high. Price may play several roles in the customer purchase decision process. Prior to a purchase, customers may use price as an indicator of quality, and set expectations in regard to the service they are likely to receive (Zeithaml and Bitner 2003). Following the consumption of the service, price is one of the costs perceived by customers, and contributes to value assessment of the service (Lovelock 2001). The present study provides evidence of the contribution of price to customer assessment of a service value. As predicted, the relationship between quality and price was found to be weak. This may suggest that customers’ perceptions of quality are not driven by price perceptions in post-purchase evaluations. However, the relationship between quality and price should be not underestimated in an initial purchase. Since services lack tangible cues for customers to assess their quality prior to consumption, price might have an effect on customers’ perceptions of the quality of a service to be provided in pre-purchase evaluations. Thus, firms need to be very careful about attempting to make the service offered more appealing by lowering prices. They need to convince customers that a reduction in price is accompanied by a reduction in the quality of service. The promotional message should emphasise the benefits of the service relative to the costs and educate customers to recognise its value. In line with this view, Berry and Yadav (1996) suggest that service firms should capture and communicate value to customers in their pricing strategy. In order to stimulate customer repeated purchase behaviour, firms should design strategies to enhance customer perceptions of the value of a service. First, it is important to identify the aspects of a service which customers value most, and then make efforts in these areas to influence customer perceptions of value. When customers are confronted with more than one supplier, it is likely that they will compare the alternatives. Firms should educate and convey clearly that the service they are offering is better than that of their competitors, or that they are providing supplementary services at no extra cost to customers. Alternatively, firms can aim to reduce customer perceptions of the costs associated with using their services compared to those of using their competitors’ services (Ravald and Grönroos 1996). The literature documents that customer perceptions of costs include monetary as well as non-monetary considerations. Whilst this study reveals that monetary and time costs are the significant determinants of perceived value, the significance of such perceived sacrifices may vary among customers as well as with type of service. It is important for firms to

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determine the components that constitute value for their target customers. In summary, to succeed in the competitive marketplace, it is not necessary for a firm to offer the highest quality service or the lowest price. Perceived value can offer greater competitive leverage as it not only contributes to customer satisfaction, but also encourages repeated purchases. Limitations and Suggestions for Future Research The present study exhibits some limitations that should be noted. Firstly, female consumers were more willing to participate in the study and thus were slightly over-represented in the sample. Secondly, the study was conducted in the context of the restaurant industry; hence generalisations of the findings beyond the restaurant industry and the study population should be made with caution. Furthermore, other intangible costs such as physical and psychic costs were not examined in this study. These costs are highly relevant in services that are complex and professional such as medical services and investment services. It would therefore be worthwhile in future studies to examine how these costs affect the purchase decisions of customers and their subsequent post-purchase evaluations. Acknowledgements The author thanks the two anonymous reviewers for their comments and invaluable suggestions. References Anderson, E., Fornell, C., and Lehmann, D. (1994), “Customer Satisfaction, Market Share, and Profitability: Findings from Sweden”, Journal of Marketing, 58, (July), pp.53-66 Anderson, E. and Sullivan, M. (1993), “The Antecedents and Consequences of Customer Satisfaction For Firms”, Marketing Science, 12, (2), pp.125-143 Anderson, J. C. and Gerbing, D.W. (1988), “Structural Equation Modeling in Practice: A Review and Recommended Two-Step Approach”, Psychological Bulletin, Vol. 103, No. 3, pp.411-423 Bagozzi, R. and Yi, Y. (1988), “On the Evaluation of Structural Equation Models”, Journal of Academy of Marketing Science, Vol. 16, No.1, pp.74-94 Bentler, P. M. and Bonett, D. G. (1980), “Significance Tests and Goodness of Fit in the Analysis of Covariance Structures”, Psychological Bulletin, Vol. 88, pp.588-606 Bernhardt, K.L., Donthu, N. and Kenneth, P. (2000), “A Longitudinal Analysis of Satisfaction and Profitability”, Journal of Business Research, Vol. 47, pp.161171

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Grönroos, C. (1984), “A Service Quality Model and its Marketing Implications”, European Journal of Marketing, 12, (8), pp.588-600 Grönroos, C. (1993), “Toward a Third Phase in Service Quality Research: Challenges and Future Directions”, In: Swartz T., Bowen D., and Brown, S. (Ed.), Advances in Services Marketing and Management, Vol. 2, (Greenwich), JAI Press, pp.49-64 Grönroos, C. (2000), Service Management and Marketing – A Customer Relationship Management Approach, 2nd Edition, John Wiley and Sons Ltd Hair, J., Anderson, R., Tatham, R. and Black, W. (1998), Multivariate Data Analysis with Readings, 5th Edition, Prentice Hall Hausknecht, D. (1990), “Measurement Scales in Consumer Satisfaction/Dissatisfaction”, Journal of Consumer Satisfaction, Dissatisfaction and Complaining Behavior, Vol. 3, pp.1-11 Heskett, J., Sasser, E. and Schlesinger, L. (1997), The Service Profit Chain: How Leading Companies Link Profit and Growth to Loyalty, Satisfaction and Value, The Free Press Johnson, R. and Kellaris, J. (1988), “An Exploratory Study of Price/Perceived Quality Relationships Among Consumer Services”, Advances in Consumer Research, Vol. 15, pp.316- 322 Jones, T. and Sasser, W. Jr. (1995), “Why Satisfied Customers Defect”, Havard Business Review, November-December, pp.88-99 Jöreskog, K. (1993), “Testing Structural Equation Models”, In: Bollen, Kenneth A. and Long, Scott, J. (Ed.), Testing Structural Equation Models. Sage Publications Jöreskog and Sörbom, D. (1993), LISREL 8: Structural Equation Modeling with the SIMPLIS Command Language, Scientific Software International Jöreskog and Sörbom, D. (1996), PRELIS 2: User’s Reference Guide, Scientific Software International Jöreskog and Sörbom, D. (1996), LISREL 8: User’s Reference Guide, Scientific Software International Kelloway, K.E. (1998), Using LISREL for Structural Equation Modeling, Sage Publications Lewis, R. and Booms, B. (1983), “The Marketing Aspects of Service Quality”, In: Berry, L., Shostack, L. and Upah, G. (Ed.), Emerging Perspectives on Services Marketing, Proceeding Series, American Marketing Association, pp.99-104 Loveman, G. (1998), “Employee Satisfaction, Customer Loyalty, and Financial Performance: An Empirical Examination of the Service Profit Chain in Retail Banking”, Journal of Service Research, Vol. 1, No.1, pp.18-31 Lovelock, C. (2001), Services Marketing, fourth edition, Prentice-Hall McDougall, G. and Levesque, T. (2000), “Customer Satisfaction with Services: Putting Perceived Value into the Equation”, Journal of Services Marketing, Vol. 14, No.5, pp.392-410

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Appendix: List of the Items Perceived Sacrifice Based on this service encounter, please rate on the following scales, the time you perceive to have spent waiting to be served. (7-point semantic differential scale; little time / a long time; lower than I expected / higher than I expected) Please rate on the following scales, the price you perceive to have paid for the service received at this encounter (including food, service, and environment)? (7-point semantic differential scale; cheap / expensive; reasonable / unreasonable; lower than I expected / higher than I expected) Perceived service Quality Please rate on the following scales, the overall quality of the service you received at this encounter (including food, service, and environment). (7-point semantic differential scale; one of the worst / one of the best; low quality / high quality; lower than the standard of this industry / higher than the standard of this industry) Perceived Value (7-point semantic differential scale, not worthwhile at all / very worthwhile) Based on the service you received (including food, service, environment), how did you perceive the price you paid? Based on the service you received (including food, service, and environment), how did you perceive the time you spent waiting to be served? Customer Satisfaction How did you feel about the overall service experience (including food, service, environment) at the recent encounter? (7-point semantic differential scale; very unpleasant / very pleasant; very dissatisfied / very satisfied; I did not enjoy it at all / I enjoyed it very much) Please mark on one of the seven faces below the position, which most reflects your feelings towards this overall service experience. Post-purchase Behaviour (1=definitely will not / 7=definitely will) I will consume at this restaurant more frequently I will recommend the restaurant to others I would consider this restaurant as my first choice if I had to choose again I will say favourable things about the restaurant to others I will be a loyal customer of this restaurant

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About the Author Jackie L. M. Tam (PhD) is an assistant professor in the Department of Management and Marketing of The Hong Kong Polytechnic University. Her research work has been published in the International Marketing Review, Psychology and Marketing, and The Journal of Services Marketing. Dr. Tam’s research interests include services marketing, marketing research, and consumer behaviour.