Modeling Customer Equity

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Modeling customer equity, SERVQUAL, and ethnocentrism: a Vietnamese case study

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Mark S. Rosenbaum Department of Marketing, College of Business Administration, Northern Illinois University, DeKalb, Illinois, USA, and

IpKin Anthony Wong Institute for Tourism Studies, Colina de Mong-Ha, Macau, China Abstract Purpose – The purpose of this paper is to explore how the return-on-marketing framework and its customer equity drivers (value, brand, and relationship) can be combined with service quality (SERVQUAL) measures to help managers develop strategies for high- and low-ethnocentric Vietnamese customers. Design/methodology/approach – The services literature is employed to propose a framework. The structure of the framework is evaluated from data obtained from self-administered questionnaires, which are mailed to an automobile firm’s customers. To explore the moderating affect of ethnocentrism, the model’s proposed relationships and fit statistics are tested by employing multi-group comparisons (high- and low-ethnocentrism) through structural equation modeling. Findings – Ethnocentrism encourages customers to express loyalty and to spread positive word of mouth about Company X, which is a local automobile manufacturer. High-ethnocentric customers are also less reactive to Company X’s value drivers, including product quality, price, and convenience, than low-ethnocentric customers. However, high-ethnocentric customers place greater importance on dealership SERVQUAL than low-ethnocentric customers. Practical implications – The findings indicate that Southeast Asian managers should consider consumer ethnocentrism a factor that influences marketing planning, as well as ways they can use the return-on-marketing and SERVQUAL frameworks for strategic planning. In addition, managers should understand that ethnocentric customers counterbalance their willingness to forgo product quality with augmented expectations of dealership SERVQUAL. Originality/value – This paper combines the product-focused return-on-marketing framework with the SERVQUAL-focused SERVQUAL framework to show how these elements influence consumers’ future behavioral intentions under the moderating influence of ethnocentrism. Keywords SERVQUAL, Automotive industry, Customer relations, Ethnocentrism, Vietnam Paper type Case study

We’re not in the transaction world anymore. The key now is building profitable relationships with customers. The winners will be those people and companies that focus their resources on the areas that will generate financial return (Rust, 2004). Journal of Service Management Vol. 20 No. 5, 2009 pp. 544-560 q Emerald Group Publishing Limited 1757-5818 DOI 10.1108/09564230910995134

Introduction As Asian economies continue to expand their service sectors, an increasing number of Asian firms will need to shift from creating marketing strategies based on

product-centered thinking to those that incorporate customer-centered thinking. Consequently, Asian managers will need to invest corporate resources in the design, implementation, and control of customer-based strategies, which require the development of unique initiatives to reach specific target markets (Rust and Zahorik, 1993). To institute customer-based marketing strategies in the twenty-first century, managers should consider applying the return-on-marketing framework (Rust et al., 2000, 2001, 2004; Zeithaml et al., 2006) to their strategic planning endeavors. This framework encourages managers to distribute valuable resources to marketing strategies that maximize customer equity, which refers to the total discounted lifetime values of a firm’s customers. In other words, managers are encouraged to engender strategies that allocate varying amounts of resources to marketing programs that pertain to three customer equity drivers – namely, value-, brand-, and relationship-related drivers – and to do so in a way that maximizes financial benefits from a specific target market. Challenge: applying the return-on-marketing framework in Vietnam Although the return-on-marketing framework is insightful and offers managers a way to engage in customer-focused planning, Rust et al. (2004) state that it remains in its infancy and that some limitations of the framework exist. First, because they developed the framework in a mature, industrialized economy, the influence of a rapidly growing economy on the three customer equity drivers is unknown. Second, Rust et al. (2004) conceived the return-on-marketing framework to forecast customer equity for companies that sell household products or routine services that consumers purchase at least once in a 12-month period, such as tissues or airline travel. Whether the framework can assist marketing managers who sell high-priced products, such as automobiles, or complex services, such as health care, is unclear. Third, the framework asks consumers to evaluate a single focal firm, rather than a focal firm and its service network. Yet channel intermediaries, such as dealers and retailers, often perform several services for product manufacturers, and from a customer’s perspective, intermediaries are an integral part of the product purchase (Zeithaml et al., 2006). For example, customers who purchase automobile brand X from dealer Y most likely consider both product and dealer service quality (SERVQUAL) when deciding whether to purchase another brand X model. Yet the relationship between customers’ perceptions of dealer SERVQUAL and the customer equity drivers remains uncertain. Fourth, cultural elements may affect the drivers of customer equity. For example, in the Southeast Asian economies that are overcoming years of economic and government suppression (e.g. China, Vietnam, Cambodia), country pride may promote a consumer’s desire to help his or her home country’s success through domestic consumption (Olsen et al., 1993). As a result, a consumer’s willingness to help local manufacturers and support domestic workers, referred to as consumer ethnocentrism (Balabanis and Diamantopoulos, 2004; Granzin and Painter, 2001; Watson and Wright, 2000), might affect how the customer equity drivers work, independently and together. Purpose and contributions This case study attempts to expand the discipline’s understanding of the return-on-marketing framework by addressing these four limitations in a Southeast

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Asian context. By working closely with one of the world’s largest automobile manufacturers (referred to as Company X) that operates an assembly factory in Vietnam, we investigate how value equity, brand equity, and relationship equity associated with Company X automobiles, as well as the perceived SERVQUAL of the firm’s authorized Vietnamese dealerships, drive future behavioral intentions of its customers. These behaviors indicate a customer’s likelihood to express loyalty to Company X and to spread positive word of mouth (WOM) about the firm, the probability that a customer will purchase his or her next car from Company X, and the likelihood that a customer will return to a Company X dealership for his or her next car purchase). Furthermore, we consider how Vietnamese consumer ethnocentrism moderates the relationships among the customer equity drivers, the perceived SERVQUAL of Company X dealerships, and the aforementioned behaviors. This case-based study contributes to marketing theory and practice by exploring how a firm can use the return-on-marketing model and SERVQUAL (Zeithaml and Parasuraman, 2004) to develop promotional strategies that appeal to consumers who display an ethnocentric country bias and those who do not. This paper diverges from Rust et al. (2001, 2004) by considering customer equity drivers measures that are related to behavioral scales of interest. The reason for this digression is twofold. First, Rust et al. proposed calculating customer lifetime value with a Markov switching matrix for household products and services that consumers purchase more than once in a 12-month period. Thus, the matrix is not ideal for predicting customer lifetime value associated with automobile ownership. Second, the matrix uses computations obtained from a probability sample of all customers in a market, rather than just a focal firm’s customers. Although automobile ownership in Vietnam is growing, with approximately one million privately registered vehicles (World Bank, 2006), it is still relegated to an elite few and is limited by an antiquated road network system and high tariffs. Thus, our goal is not to compute an improved switching matrix, but rather to explore how managers can develop initiatives that allocate different resources to programs that emphasize customer value management, brand equity, customer relationship management, and SERVQUAL management in a way that yields positive responses from high- and low-ethnocentric Vietnamese automobile owners. The remainder of this paper is as follows: we discuss Company X’s Vietnamese operation and the research questions posed by the firm’s management. Next, we discuss the use of the customer equity, perceived SERVQUAL, and consumer ethnocentrism paradigms to advance hypothesized relationships that could predict future behaviors of the firm’s customers. Then, we evaluate the fit of the proposed model and illustrate the moderating influence of ethnocentrism using AMOS 16.0 software (Arbuckle, 2007). Structural equation modeling is an ideal method for modeling data from multiple groups simultaneously and for enabling researchers to conduct additional types of analyses, such as hypothesis testing on specific relationships. We conclude with a discussion of the managerial and theoretical implications and the research limitations. Case study background: understanding Company X’s customers Company X operates an automobile manufacturing facility in Vietnam and assembles four models for the domestic market. Company X assembles these models from

complete knocked-down kits that are imported from a Southeast Asian country. In addition, the firm has 24 authorized dealerships in Vietnam. Since its commencement of operations in 1996 in Vietnam, Company X has achieved impressive recognition. The firm has won awards in Vietnam, stemming from its product quality and commitment to its support of community events. However, given the growing economic prosperity in Vietnam, which is fueling new car sales and the Westernization of the rising middle-class, a concern of Company X’s management is whether it needs to alter its marketing strategies to encourage customers to purchase a Company X vehicle on their next purchase. More specifically, senior managers are concerned that as Vietnamese consumers become less impassioned about helping the Vietnamese economy and local employment by purchasing locally manufactured automobiles, the company may lose a competitive advantage over imported vehicles. Given these concerns, Company X’s management sought input regarding four questions. First, why do some customers express loyalty to the firm and engage in positive WOM while others do not? Second, how can Company X inspire its customers to purchase their next automobile from the company? Third, how can Company X encourage its customers to return to the original Company X dealership to purchase their next automobile? Fourth, how does consumer ethnocentrism influence how Company X’s customers respond to these previously mentioned questions? To answer these questions, we drew on Rust et al.’s (2001, 2004) return-on-marketing framework and the SERVQUAL framework (Zeithaml, 1988; Zeithaml and Parasuraman, 2004). Figure 1 shows the hypothesized relationships between the theoretically driven antecedents and the managerially relevant behaviors, as well as the moderating influence of ethnocentrism. We now define the framework’s concepts.

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Ass d1 Emp

Brand drivers d2

Loyalty/ WOM d6

Rel d3

Dealer X SERVQUAL

Probability of purchasing X

0

Tan d4

Value drivers

Res

Return to dealer X d7

d5

Relationship drivers

Figure 1. Hypothesized relationships

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Literature Customer equity drivers Within the return-on-marketing framework, Rust et al. (2001, p. 3) defined customer equity as “the sum of the discounted lifetimes values of all the firm’s customers” and separated it into three components: value equity, brand equity, and relationship equity (Richards and Jones, 2008; Rust et al., 2000). The framework’s assumption is that a focal firm has one brand and one market, thus permitting the terms “firm” and “brand” to be used interchangeably. Given that Company X represents an automobile manufacturer and a brand, we consider the assumption sound for our purposes. Rust et al. (2001) deemed value equity as denoting a customer’s objective assessment of the utility of a brand, based on his or her perception of benefits to costs. In other words, customers evaluate the resources they give up for the benefits they receive (Zeithaml, 1988). The literature demonstrates that both quality and price drive overall value (Teas and Agarwal, 2000), and Zeithaml (1988) argued that convenience, which includes time costs, search costs, and effort, further influences value. Notably, the value equity literature may possess a product bias because consumers perceive product quality differently than SERVQUAL (Zeithaml and Parasuraman, 2004; Zeithaml et al., 2006). Nonetheless, drawing on the work of Rust et al. (2001), we arrived at quality, price (Teas and Agarwal, 2000), and convenience (Zeithaml, 1988) as value equity’s primary drivers because Company X’s customers most likely evaluate these drivers when considering a future automobile purchase from the firm. Compared with value equity, brand equity is a more subjective, emotional, and experiential appraisal of a corporation or a brand (Lovelock and Wirtz, 2007) and is driven by images and personal meanings (Keller, 1998). Rust et al. (2001) point out that value equity taps into a customer’s head, while brand equity addresses what lies in a customer’s heart and soul (Aaker, 2002). Regardless of whether brand equity influences a consumer’s mind or soul, it is positively linked to customer satisfaction, loyalty intentions, and positive customer attitudes toward a focal firm (Taylor et al., 2007). Although some researchers have considered value equity a subset of a larger brand equity dimension, we considered the two drivers separately to explore them in greater detail (Richards and Jones, 2008). Thus, in line with Rust et al. (2001), we view the antecedents of brand equity as brand awareness, brand attitude, and corporate ethics. Relationship-based equity involves the personal relationship elements that bond a customer to a brand beyond the customer’s objective and subjective assessments of the brand (Rust et al., 2001; Rust and Zahorik, 1993). In other words, relationship equity represents a customer’s response to corporate initiatives that try to build and maintain a base of committed customers for the organization (Zeithaml et al., 2006). These initiatives include corporate loyalty programs, special recognition and treatment, affinity programs, community-building programs, and knowledge-building efforts (e.g. personal selling relationships; McAlexander et al., 2002; Muniz and O’Guinn, 2001; Oliver, 1999; Richards and Jones, 2008; Rosenbaum et al., 2005). Perceived dealership service quality (SERVQUAL) Thus, far, we have focused on customer equity drivers based on a customer’s assessment of Company X as a corporation, a brand, or a manufacturer of automobiles. However, Company X’s authorized Vietnamese dealerships perform all the services related to the selling and operational maintenance of the firm’s automobiles. As a result,

we believe that the customers’ perceptions of their dealerships’ SERVQUAL influence their future purchase intentions of Company X’s automobiles. Zeithaml and Parasuraman (2004, p. 1) defined SERVQUAL as “the degree and direction of discrepancy between customers’ service perceptions and expectations.” Furthermore, their research shows that customers assess SERVQUAL along five perceptional dimensions – assurance, empathy, reliability, responsiveness, and tangibles – that can be evaluated by the SERVQUAL scale (Parasuraman et al., 1988). Therefore, we incorporated these five dimensions into customers’ perceptions of Company X’s dealership SERVQUAL. SERVQUAL is one of the most widely used scales in practice that measures customers’ perceptions of SERVQUAL, and it has been shown to be applicable for a wide range of service industries (Zeithaml et al., 2006). However, it is worth noting that some researchers tend to be critical of SERVQUAL, primarily regarding its use of perception versus expectation difference scores (for a review, see Coulthard, 2004; van Dyke et al., 1999). In short, many critics contend that consumers are typically unable to objectively and rationally assess the extent to which their perceptions of SERVQUAL regarding a delivered service differ from their original expectations regarding the service. To overcome this challenge, we chose to obtain respondent scores on the perceptions-only component of SERVQUAL. Our reasons for doing so are that from a strictly predictive-validity standpoint, measuring customers’ expectations is not mandated (Zeithaml and Parasuraman, 2004), and given the newness of automobile dealerships in Vietnam, customers’ expectations about them are not well developed. Vietnamese consumer ethnocentrism Although we speculate that customers’ assessments of value equity, brand equity, relationship equity, and dealership SERVQUAL will influence their future behaviors toward Company X, we also believe that their desire to “buy Vietnamese” may influence how these antecedents work together and independently. Consumer ethnocentrism evokes feelings that encourage consumers to purchase domestic products in support of their country and fellow workers (Shimp and Sharma, 1987). In general, the domestic country-of-origin bias research (Evanschitzky et al., 2008; Granzin and Olsen, 1998; Olsen et al., 1993; Watson and Wright, 2000) concludes that consumers in Western countries tend to prefer products manufactured in their home countries. However, research on Chinese consumers shows that their ethnocentric tendencies tend to weaken when they believe that locally manufactured products are of lower quality than comparable foreign imports (Wang and Chen, 2004). Because Vietnam is an emerging economy, which fought a war of independence from France colonialism and American influence, Company X’s customers might be expected to have tremendous national pride, a desire to maintain the country’s socialist aspirations, and a need to assist the welfare of society by supporting domestic workers. Accordingly, we speculate that to support Company X’s manufacturing endeavors, ethnocentric customers are probably willing to accept lower levels of SERVQUAL from the firm’s dealers and to be less concerned with its customer equity drivers. Proposed structural model and relationships This discussion supports the proposed framework, as shown in Figure 1. In this model, we hypothesize that value equity, brand equity, relationship equity, and perceived

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SERVQUAL of Company X’s automobile dealerships positively influence three behavioral outcomes. The first outcome is a customer’s likelihood to spread positive WOM about Company X and to demonstrate loyalty to the firm. The second outcome is a customer’s likelihood to purchase his or her next automobile from Company X. The third outcome is a customer’s likelihood to return to the original Company X dealership. We conceptualize perceived dealership SERVQUAL as a second-order latent factor and dealer assurance, empathy, reliability, tangibles, and responsiveness as first-order factors. We further hypothesize that consumer ethnocentrism moderates the relationships between the independent and the dependent relationships. We posit that high-ethnocentric customers will be less influenced by customer equity and dealership SERVQUAL than low-ethnocentric customers because they are more willing to support Company X’s local manufacturing. In the next section, we turn our attention to analyzing the fit of the proposed structural model. Method Sample We obtained data through a convenience sampling technique; namely, Company X mailed the questionnaire to 3,000 Vietnamese customers who purchased a Company X model at an authorized dealership. We chose this method for its convenience and affordability; thus, this study may not generalize to other populations, including the used-car market in Vietnam or local manufacturers other than Company X (Urdan, 2001). To encourage a high response rate, Company X offered respondents the opportunity to win 60 prizes that ranged in value from $6 to $200. We received appropriate responses from 1,719 customers, which represented a 57 percent return response rate. Given the high response rate and the expense of mailing in Vietnam, we did not send out additional mailings to encourage further responses. Measures Customer equity drivers. We assessed the value-, brand-, and relationship-related drivers of customer equity with items developed by Rust et al. (2004); however, we made some changes so that the items were appropriate for automobiles (Table I). For example, to evaluate value-related drivers, we used two items from Rust et al.’s (2004) three-item scale. The item we removed (i.e. “The airline flies when and where I need to go”) was inapplicable to an automobile manufacturer. However, we added one item from Rust et al. (2001) that pertained to a customer’s perspective of convenience. As mentioned previously, the three items provided an overall assessment of Company X’s quality, price, and convenience, respectively, as value equity’s primary drivers. To evaluate brand-related drivers, we used the six-item scale developed by Rust et al. (2004). Last, we used five of Rust et al.’s (2004) seven items to measure relationship-related drivers. The items we eliminated pertained to loyalty programs, which Company X does not maintain, and to knowing “this airline’s procedures” well; such procedures would be nearly impossible for an automobile customer to know. We also added a statement that we believe is essential to measuring a relationship-related driver (i.e. “I feel that I have a close relationship to Company X”). Next, we evaluated scale reliability by calculating coefficient a and analyzing item-to-item correlation. The coefficient as were 0.67, 0.88, and 0.89 for the value, brand, and relationship scales, respectively. Thus, the brand and relationship scales

Dimension

Items

Compared to these automobiles, how would you rate the overall quality of Company X automobiles? (5 ¼ very high quality, 1 ¼ very low quality)a Compared to these automobiles, how would you rate the competitiveness of the Company X automobile prices? (5 ¼ very competitive, 1 ¼ not at all competitive) Compared to these automobiles, buying an automobile from Company X is a lot easier (5 ¼ strongly agree, 1 ¼ strongly disagree) Cronbach’s a ¼ 0.67, M ¼ 10.58, SD ¼ 2.03 Source: Rust et al. (2001, 2004). One scale item was removed from Rust et al. (2004) due to an inapplicability with automobiles, “The airline flies when and where I need to go” I often notice and pay attention to Company X advertisements Brand-related drivers I often notice and pay attention to materials that Company X sends me (5 ¼ strongly agree, Company X is well known as a good corporate citizen in Vietnam 1 ¼ strongly disagree) Company X is an active sponsor of community events in Vietnam Company X has high ethical standards with respect to its customers and employees in Vietnam The image of Company X fits my personality well Cronbach’s a ¼ 0.88, M ¼ 15.29, SD ¼ 4.00 Source: Rust et al. (2004) Relationship-related drivers I receive preferential treatment from Company X because I own an automobile from the company (5 ¼ strongly agree, Company X knows a lot of information about me 1 ¼ strongly disagree) Company X recognizes me as being special I feel a sense of community with other customers who own automobiles from Company X I have a high level of trust in Company X I feel that I have a close relationship to Company Xb Cronbach’s a ¼ 0.89, M ¼ 15.63, SD ¼ 4.08 Source: Rust et al. (2004). Two scale items excluded that did not pertain to automobiles; “I have a big investment in the airline’s loyalty (frequent flier program,” and “I know this airline’s procedures well” I say positive things about Company X to other people Loyalty, WOM, switching I recommend Company X to someone who seeks my advice intentions (5 ¼ strongly agree, 1 ¼ strongly disagree) I encourage friends and relatives to do business with Company X I plan to do less business with Company X in the next few yearsc I intend to do more business with Company X in the next few years The next time that I purchase an automobile, I would consider a model from Company X as my first choice Cronbach’s a ¼ 0.84, M ¼ 14.95, SD ¼ 3.60 Source: Zeithaml et al. (1996). One item removed due to a poor coefficient loading, “likelihood of taking some of your business to a competitor that offers better prices” The next time you purchase a new automobile, what is the probability Probability of purchasing that you will purchase from these companies? Please provide a next automobile from percentage for each of company and have the percentages add Company X up to 100% Source: Rust et al. (2004) (continued)

Value-related drivers (5 ¼ strongly agree, 1 ¼ strongly disagree)

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Table I. Scale items

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Items

Likelihood of returning to original dealership for next automobile purchase

How would you rate your chances of returning to your Company X dealership to purchase you next new automobile? Please indicate your answer by circling a number (1-7) that is closest to your answer No chance – sure to go Unlikely – likely Certain not to use the dealer – certain to use the dealer Not possible – possible Cronbach’s a ¼ 0.90, M ¼ 20.73, SD ¼ 4.66 Source: Oliver et al. (1997) I will shop first at a dealer that sells automobiles that are made in Vietnam When I buy automobiles, I try to buy from locally made companies I am willing to always buy Vietnamese made automobiles I am willing to take the time to learn about different automobiles so that I know where the cars I buy were made Cronbach’s a ¼ 0.86, M ¼ 10.57, SD ¼ 2.76 Source: Olsen et al. (1993)

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Consumer ethnocentrism (5 ¼ strongly agree, 1 ¼ strongly disagree)

Table I.

Notes: aThe respondents had a list of ten automobile manufacturers that sold various models in Vietnam and that were viewed as Company X’s competitors. The respondents provided answers for each manufacturer; brepresents a new item; citem was reverse coded

showed internal consistency, and the value scale was near the recommended cutoff point of 0.70 (Nunnally, 1978). Dealership service quality. We evaluated respondents’ perceptions-only component (Zeithaml and Parasuraman, 2004) of their Company X dealership’s SERVQUAL from the 22-item SERVQUAL scale developed by Parasuraman et al. (1988). Consumer ethnocentrism. We evaluated respondents’ ethnocentrism on a four-item scale developed by Olsen et al. (1993). We modified some of the questions for an automobile context because the original scale pertained to clothing. The coefficient a for this scale was 0.86. Loyalty. We evaluated respondents’ loyalty to Company X from seven items developed by Zeithaml et al. (1996); these items measure loyalty, WOM communication, and future switching/purchase intentions. We exposed the seven items to principal axis factor analysis with a promax rotation. After we removed one item (i.e. “likelihood of taking some business to a competitor that offers better prices”), the rotation suggested a one-factor solution, which accounted for 57 percent of the variance. When we added the six items together to form a loyalty scale, the resulting coefficient a was 0.84, which demonstrated internal consistency (Nunnally, 1978). A reason respondents were unable to answer the statement addressing competitors and prices may stem from the newness of the automobile dealership network in Vietnam and respondents’ unfamiliarity with understanding how competition influences automobile prices. Next purchase. We also asked respondents to record the probability (0-100 percent) that they would purchase a model from Company X, as well as from nine other manufacturers available in Vietnam, on their next automobile purchase.

Return to dealer. We evaluated respondents’ likelihood of returning to their original Company X dealership with four items developed by Oliver et al. (1997). After we summed the items together, the resulting scale had a coefficient a of 0.90. It is worth noting here that we worked with Company X’s senior management to develop the scales and the items used in the questionnaire to ensure that they were appropriate for the firm and would be managerially relevant.

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Findings To explore Vietnamese ethnocentrism as a moderator, we exposed the four ethnocentrism items to two-step cluster analysis (for methodological review, see SPSS, 2008a; Kakati, 2003; Rosenbaum and Wong, 2007). This cluster analysis is ideal because it provides researchers with either a Bayesian information criterion (BIC) or an Akaike information criterion (AIC) to select the number of unique clusters that are present in a continuous and/or categorical data set. Based on the lowest BIC (3238.11) and AIC (3150.92), the data show that the respondents could be classified into two groups. After analyzing the means of the scale items between the groups, we classified 1,024 (60 percent) respondents into a high-ethnocentric group and 659 (38 percent) respondents into a low-ethnocentric group. Of the respondents, 36 (2 percent) could not be classified into either group. About 60 percent of the respondents were male, and the average age was approximately 35 years in both groups (low M ¼ 34.85 years, SD ¼ 9.49; high M ¼ 35.64 years, SD ¼ 9.85, ages ranged from a low of 17 years to a high of 82 years). Neither gender nor age statistically differed between the groups. Path analysis We analyzed the relationships shown in Figure 1 between respondents with a high- and low-ethnocentric level, respectively, by employing AMOS 16.0 (SPSS, 2008b). We performed a series of model comparisons between the two ethnocentric levels to determine the most parsimonious model that offered the best fit. From the lowest AIC and BIC, we determined that the effect of relationship equity on the outcomes did not differ between the groups and that its effect in the model was non-significant. This is understandable because Company X does not currently promote relationship programs, such as the opportunity to participate in a product or brand customer community. As Table II shows, the resulting models suggest appropriate fit (root mean square error of approximation (RMSEA) ¼ 0.04, comparative fit index (CFI) ¼ 0.93, Tucker-Lewis index (TLI) ¼ 0.92; Hu and Bentler, 1999) and that consumer ethnocentrism influences the relationships of the customer equity drivers and SERVQUAL on customers’ behavioral intentions. The unstandardized parameter estimates are detailed in Table II. The unstandardized estimates are reported in group comparisons because standard deviations may differ between the groups (Guo et al., 2008). We now discuss the influence of ethnocentrism on these antecedents in detail. SERVQUAL’s dimensions The results reveal that both high- and low-ethnocentric customers view SERVQUAL’s five dimensions as drivers to overall Company X SERVQUAL. Both types of customers perceive tangibles in the same manner (b ¼ 0.55, p , 0.001); however, a review of the other four unstandardized b coefficients reveals that they are significantly higher among high-ethnocentric customers than low-ethnocentric customers. Thus, although

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Table II. Parameter estimates, fit measures, and percentage of variance explained

Description

High ethnocentrism Unstandardized estimate

Low ethnocentrism Unstandardized estimate

Drivers to SERVQUAL SERVQUAL ! tangibles 0.55 * * * 0.55 * * * SERVQUAL ! reliability 0.63 * * * 0.43 * * * SERVQUAL ! responsiveness 0.67 * * * 0.56 * * * SERVQUAL ! assurance 0.62 * * * 0.52 * * * SERVQUAL ! empathy 0.67 * * * 0.53 * * * Loyalty to Company X/likelihood to spread positive WOM Dealer X SERVQUAL ! loyalty/WOM 0.10 * * * 20.18 * * * Value drivers ! loyalty/WOM 0.12 * * ns Brand drivers ! loyalty/WOM 0.62 * * * 0.37 * * * Relationship ! loyalty/WOM ns ns Probability of purchasing a Company X automobile at next automobile purchase Dealer X SERVQUAL ! purchase 6.48 * * * 3.92 * * * Value drivers ! purchase 7.16 * * * 12.56 * * * Brand drivers ! purchase ns ns Relationship ! purchase ns ns Likelihood of returning to original Company X dealership at next automobile purchase Dealer X SERVQUAL ! return to Dealer X 0.35 * * * 0.15 * Value drivers ! return to Dealer X 0.70 * * * 0.26 * Brand drivers ! return to Dealer X ns ns Relationship ! return to Dealer X ns ns RMSEA 0.04 CFI 0.93 TLI 0.92 R 2 Loyalty/WOM 0.43 0.50 R 2 Probability of purchasing 0.17 0.20 R 2 Return to original dealer 0.31 0.08 F SERVQUAL – brand equity 0.36 * * * 20.41 * * * F SERVQUAL – value equity 0.31 * * * 0.27 * * * F SERVQUAL – relationship equity 20.36 * * * 20.24 * * * F Relationship equity – brand equity 0.88 * * * 0.86 * * * F Value equity – brand equity 20.11 * * 20.15 * * Notes: *p , 0.05; * *p , 0.01; * * *p , 0.001

both high- and low-ethnocentric customers evaluate SERVQUAL’s five dimensions as a broad assessment of SERVQUAL, high-ethnocentric customers place greater emphasis on these drivers than low-ethnocentric customers. Loyalty To understand loyalty in detail, we conducted an independent-samples t-test to evaluate the relationship between loyalty (dependent variable) and consumer ethnocentrism (high and low as independent variables). The loyalty scale evaluates both a customer’s future behavioral intentions and likelihood to spread positive WOM about the firm to other people. The results illustrate that high-ethnocentric customers (x ¼ 3.90) are considerably more inclined than low-ethnocentric customers (x ¼ 2.05) to demonstrate loyalty to Company X. Among high-ethnocentric customers, brand equity (b ¼ 0.62, p , 0.001) represents the primary predictor of loyalty and a propensity to act on the firm’s behalf by spreading

positive WOM about Company X. Among low-ethnocentric customers, the strength of this predictor is significantly attenuated (b ¼ 0.37, p , 0.001). Thus, high-ethnocentric customers are more inclined than low-ethnocentric customers to be supportive of Company X’s goodwill initiatives in Vietnam, and they demonstrate their appreciation to the firm through loyalty and positive WOM. In fact, the results of an independent-samples t-test (t(1,681) ¼ 17.07, p , 0.001) reveals that the mean of the brand equity scale is significantly higher among high-ethnocentric customers (x ¼ 3.05) compared to low-ethnocentric customers (x ¼ 2.23). Low-ethnocentric customers are considerably more likely than high-ethnocentric customers to be negatively influenced by dealership SERVQUAL (b ¼ 20.18 vs b ¼ 0.10) when formulating loyalty/WOM intentions. The findings reveal that Company X’s overall SERVQUAL does not influence the manner in which low-ethnocentric customers formulate future loyalty or WOM decisions, though it plays a minor positive role among high-ethnocentric customers. In general, given that Company X has an outstanding reputation for quality products and services in Vietnam, the results reveal that SERVQUAL’s overall impact on customers’ future intentions may be somewhat diluted because customers assume that Company X’s SERVQUAL is an established norm. Among high-ethnocentric customers, value-related drivers have a significant, though milder, influence than brand and dealership quality on their loyalty/WOM intentions (b ¼ 0.12, p , 0.01). This relationship is non-significant among low-ethnocentric customers. Thus, we speculate that high-ethnocentric customers talk about the quality, price, and ease of doing business with Company X with their friends and family. Probability of purchasing We performed an independent-samples t-test to evaluate the probability that Company X’s customers would purchase another Company X automobile, based on their ethnocentric levels. The test was significant (t(1,681) ¼ 4.61, p , 0.000). Approximately, 30 percent of high-ethnocentric customers planned to purchase a Company X automobile for their next car; however, this percentage declines to 23 percent among low-ethnocentric customers. The moderating influence of ethnocentrism is evident when we explore the factors that influence customers’ propensity to purchase a Company X automobile on their next purchase. Low-ethnocentric customers are significantly more influenced by value-related drivers (b ¼ 12.56, p , 0.001) than high-ethnocentric customers (b ¼ 7.16, p , 0.001). This finding is reasonable because low-ethnocentric customers place less importance on country-of-origin effects than high-ethnocentric customers and therefore are more likely to be influenced by perceptions of quality, price, and convenience when formulating future purchase decisions. Although ethnocentrism may encourage some customers to ignore value when considering a future purchase, most customers tend to be aware of dealership SERVQUAL. The data show that high-ethnocentric customers are significantly more likely than low-ethnocentric customers to consider Company X’s dealership SERVQUAL when formulating a repurchase decision (b ¼ 6.48 vs b ¼ 3.92). Thus, high-ethnocentric customers are more likely to accept lower product quality, higher prices, and less convenience than low-ethnocentric customers to assist Company X’s domestic manufacturing production. However, high-ethnocentric customers are less willing than low-ethnocentric customers to forgo a positive service experience

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at the dealership. This finding is sensible because Company X’s dealerships have a smaller impact on the Vietnamese economy, compared with the value added in the manufacturing process. Thus, high-ethnocentric customers counterbalance value equity deficits with enhanced SERVQUAL surpluses. Return to original Company X dealership We performed another independent-samples t-test to evaluate the relationship between customers’ likelihood to return to their Company X dealership (a four-item scale) and ethnocentrism. The test was significant (t(1,678) ¼ 5.77, p , 0.001). High-ethnocentric customers (x ¼ 3.03) are considerably more likely than low-ethnocentric customers (x ¼ 2.88) to return to the original Company X dealerships to purchase their next automobile. However, both high- and low-ethnocentric customers are somewhat ambivalent about their desire to return to the original dealership for their next purchase because both groups hover around neutrality on their responses. The data show that high-ethnocentric customers are considerably more likely than low-ethnocentric customers to be influenced by perceived dealership SERVQUAL (b ¼ 0.31 vs b ¼ 0.15) and value-related drivers (b ¼ 0.70 vs b ¼ 0.26) when formulating a decision to return to their original Company X dealership. These findings are reasonable because Company X’s customers consider dealership quality, as well as price, product quality, and convenience, when considering buying from the dealership again. However, as mentioned previously, although high-ethnocentric customers may ignore some product issues to support the local economy, they are extremely sensitive to evaluating dealership SERVQUAL. In general, Company X needs to be concerned about its customers’ ambivalence about returning to the original dealers for their next automobile purchase. Promotional recommendations The results show that consumer ethnocentrism positively affects Company X because high-ethnocentric customers act as partial employees for the firm (Rosenbaum and Massiah, 2007) by demonstrating future behavioral intentions through expressed loyalty and the spread of positive WOM to family and friends. However, by definition, ethnocentric customers are aware of Company X’s domestic manufacturing capabilities and seem to have a committed, personal interest in the firm’s continued prosperity by discussing the firm with their social network. Therefore, it is intuitive that high-ethnocentric customers are more likely than low-ethnocentric customers to state that they plan to purchase their next car from Company X. High-ethnocentric customers keenly support Company X’s domestic production and, consequently, are less reactive than low-ethnocentric customers to the firm’s value drivers of product quality, price, and convenience. However, this finding does not mean that Company X can rest on its laurels when courting high-ethnocentric customers, because these customers tend to place increased importance on dealership SERVQUAL. In essence, when formulating their decision to purchase another Company X automobile, high-ethnocentric customers counterbalance value equity deficits with augmented expectations of dealership SERVQUAL. In contrast, low-ethnocentric customers consider value equity when deciding whether to purchase another Company X vehicle and are willing to forgo some dealership SERVQUAL.

A pending problem for Company X is that its customers are neutral about returning to the original dealership to purchase their next automobile. Ethnocentrism offers Company X some protection from defection, but all customers consider both dealership SERVQUAL and value when deciding whether to return to their original dealers. Thus, Company X should consider developing a relationship program at the dealership level to create some type of emotional connection between customers and dealers, not simply between customers and brand X. As a whole, when Company X targets high-ethnocentric customers with a “Made in Vietnam” campaign, it should emphasize its dealership SERVQUAL. Although these types of customers are willing to relinquish some product value, they place enhanced importance on dealership SERVQUAL. In contrast, when Company X targets low-ethnocentric customers, the firm should emphasize its products’ value-equity drivers, including quality, price, and convenience, which may include attributes such as time costs, search costs, and effort (Zeithaml, 1988). Conclusion and limitations The purpose of this case study was to explore a “how-and-why” problem (Perry, 2001). The problem focused on addressing whether one of the world’s largest automobile manufactures can employ the return-on-marketing framework in Vietnam. That is, can the framework, with its customer equity drivers, be combined with SERVQUAL measures to help Company X’ marketing managers develop marketing strategies for various target markets in Vietnam? We solved this problem by demonstrating how the firm can create strategies to target high- and low-ethnocentric customers in Vietnam and by explaining why ethnocentrism would influence a Vietnamese customer’s response to a proposed marketing mix. Given Vietnam’s recent history, which is fraught with nationalistic aspirations, it is rational that ethnocentrism would represent a powerful driver of consumption in Vietnam. However, we encourage researchers who plan to expand on this case study to consider factors other than consumer ethnocentrism that might affect behavioral outcomes, including automobile guarantees, personalized services, complaint management capabilities, e-service offerings, and so forth (Rust and Chung, 2006). Rust et al. (2004) did not conceive of the return-on-marketing framework for use in a structural equation format; doing so confounds the influence of sub-drivers while placing importance on latent drivers (e.g. value equity). As a result, we suggest that Company X should conduct focus groups to better understand both the specific sub-drivers (e.g. price) that are important to low-ethnocentric customers and the SERVQUAL sub-drivers that are important to high-ethnocentric customers. By understanding the drivers that encourage positive responses, managers can lead purposeful focus groups that yield insights at the sub-driver level to aid in the development of marketing strategies. Another limitation of this case study, which is inherent in case research, is the external validity of the findings, which, in this paper, pertains strictly to Vietnam. Despite this limitation, the benefits of this case study to the discipline are that it offers academics and practitioners a rich description of an actual managerial situation, problem, and solution that can be employed both in theoretical development and in a classroom setting for training. Indeed, case studies are ideal tools for moving marketing scholars closer to marketing managers because they show the many extant theoretical frameworks that may be adapted for real-world practice (for a discussion, see Bonoma, 1985).

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