Relationship Orientation

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406 Received January 2007 Revised May 2007 Accepted June 2007

Relationship orientation or service quality? What is the trigger of performance in financial and insurance services? Carmen Camarero Department of Business and Marketing, University of Valladolid, Valladolid, Spain Abstract Purpose – The current work aims to analyze the complementary effects of relationship and service-quality orientations on market and economic performance and their mediating role in the relationship between market orientation and performance. Design/methodology/approach – In order to test the hypotheses proposed, an empirical analysis for financial and insurance companies was conducted. Findings – The study reveals that market performance relates highly to relationship orientation and service quality as two alternative but complementary strategies, whereas the effect on economic performance is basically indirect through the market performance. Practical implications – Results suggest that applying relational policies such as preferential treatment, communication and adaptation to customers’ needs is critical for customer retention, reducing complaints and conflicts or improving the positioning. Moreover, the firms need to focus on quality service, as a consequence of relationship orientation and another requisite for market performance and, subsequently, economic performance. Originality/value – This work integrates market orientation philosophy with relationship marketing and service quality as related drivers of the firm’s performance. Few empirical works had related these concepts until now in this way. Keywords Market orientation, Relationship marketing, Service levels, Financial services Paper type Research paper

The International Journal of Bank Marketing Vol. 25 No. 6, 2007 pp. 406-426 q Emerald Group Publishing Limited 0265-2323 DOI 10.1108/02652320710820354

Introduction The study of the market orientation-performance relationship is an on-going research field (Deshpande´ and Farley, 2004). One branch of this work involves the existence of mediating variables between these two concepts, although until now few studies have emerged in this topic (Kirca et al., 2005). Previous attention has focused on the role of innovativeness, customer loyalty, customer satisfaction or quality as the routes through which market orientation affects performance (Han et al., 1998; Noble et al., 2002). From this approach, the current work examines in a more comprehensive model the complementary effects of relationship orientation and service quality as a noteworthy “missing link” (Han et al., 1998) in the market orientation-performance relationship for the case of financial and insurance services. The development of customer value through relationship marketing strategies is a prevailing theme in the marketing literature. Reichheld (1996) suggests that companies should listen to their customers and try to build lasting relationships with their most

profitable customers instead of focusing on acquiring new customers. Interactivity, integration, customization, and co-production are currently the hallmarks of a service-centered view and its inherent focus on the customer and the relationship (Vargo and Lusch, 2004). In the specific case of banking and insurance industries, relationship marketing is becoming increasingly important. Competition is driving banks to look at forms of defensive marketing rather than offensive marketing. In this idea, banks and insurance companies are looking to create more effective and efficient relationships with their customers. Although the relationship between a financial company and its customers was historically contractual and continuous (Adamson et al., 2003), creating value through relationships has become a way of developing and maintaining business in the last years. Walsh et al. (2004) state: . . .contemporary retail-bank marketing activity can involve a mix of both transaction- and relationship-marketing objectives with organizations having to balance both approaches in an effort to achieve diverse objectives.

On the other hand, efforts to quantify the impact of customer-perceived quality on performance have proliferated in recent years (Heskett et al., 1997; Rust et al., 2002). The improvement of customer-perceived quality usually increases profits through revenue expansion, whereas the improvement of the efficiency of internal processes tends to increase profits through cost reduction (Rust et al., 2002). In the context of financial services, several works have emphasized the relevance of service quality (Newman, 2001; Sureshchandar et al., 2003; Akamavi, 2005). Some of them have advanced the relationship between the perception of service quality and relationship marketing. For instance, Ndubisi and Wah (2005) indicate that customers’ perception of the quality of the relationship between them and their bank depends on the bank’s competence, commitment, communication, conflict handling and trust. Similarly, Gounaris et al. (2003) indicate that personal relationships have a direct influence on customers’ perceptions regarding the bank’s reliability. Hence, this paper draws on the literature in market orientation, relationship marketing and service marketing to suggest performance implications for service providers who adopt a market orientation. The paper tries to show not only how the pathway between a market orientation philosophy and the firm’s results happens, but also to indicate what strategy is the real trigger of performance. In doing so, this work extends current thinking by integrating market orientation, relationship orientation and service quality within the service marketing arena. We offer a theoretical model of the direct and indirect effects or relationship marketing orientation and service quality orientation on two types of performance. The empirical test of the proposed hypotheses in the context of financial and insurance services provides evidence of how relationship activities such as customization, personalization, communication and personal relationships are the real driving strategies that lead to the firm’s performance directly or throughout service quality practices, which also affect the main indicators of market and economic performance. Market orientation, relationship orientation and service-quality orientation Market orientation Marketing literature has largely focused on the definition, measurement, impact, and organizational drivers of market orientation and its enhancements

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(Jaworski and Kohli, 1996). Narver and Slater’s (1990) seminal definition of market orientation states that market orientation consists of three behavioral components: (1) customer orientation; (2) competitor orientation, and (3) inter-functional coordination. According to Jaworski and Kohli (1993), market orientation is the organization wide generation of market intelligence pertaining to current and future needs of the customers, dissemination of intelligence horizontally and vertically within the organization, and organization wide action of responsiveness to it. Several authors have criticised Narver and Slater’s and Kohli and Jaworski’s scales (Esteban et al., 2002). Touminen and Mo¨ller’s (1996) suggest the integration of the cognitive and the behavioural perspectives of market orientation. Therefore, we find support on this work to measure market orientation as a three-dimensional construct comprising: (1) customer orientation; (2) competitor orientation; and (3) intelligence generation. Our intention is to measure market orientation both from the cognitive perspective, in line with Narver and Slater’s proposal, and from a behavioural perspective, in line with Kohli and Jaworski’s proposal. Customer orientation holds that success will come to the organization that best determines the perceptions, needs, and wants of target markets, and satisfies them through the design, communication, pricing and delivery of appropriate and competitively viable offerings. Customer orientation represents the organizational culture according to which managers collect and use customer information (Kohli and Jaworski, 1990; Ruekert, 1992; Shapiro, 1988). Competitor orientation means that a service provider understands the short-term strengths and weaknesses and long-term capabilities and strategies of key current and potential competitors (Narver and Slater, 1990). As for intelligence generation, Slater and Narver (2000) indicate that intelligence (or knowledge) is generated when data are collected and given meaning with respect to changing the potential range of organization behavior. This intelligence provides a focus for the business’s product development and sales growth efforts by enabling the business to develop strong relationships with key customers and insights into opportunities for marketing development. Market orientation’s positive association with market performance provides the critical foundation (Narver and Slater, 1990). A body of research has investigated the relationship between market orientation and performance (Deshpande´ et al., 1993; Ruekert, 1992; Slater and Narver, 2000). While some studies found significant relationships, others did not, suggesting that perhaps some mediating factor may be involved. Consequently, explicating the mediators of the market orientation-performance relationship has emerged as a topic of interest in the marketing literature (Han et al., 1998; Noble et al., 2002; Kirca et al., 2005). In this line, we propose relationship marketing and service-quality orientations as two relevant and related mediators. According to Baron and Kenny (1986), a variable has a mediating function in a particular process if it explains the relation between the

antecedents and the results, therefore relationship marketing and service quality orientations are both the result of market orientation and the antecedents of performance. On the one hand, market orientation proposes to enhance customer-perceived quality of the organization’s products and services by helping create and maintain superior customer value (Brady and Cronin, 2001; Kirca et al., 2005). Therefore, customer consequences of market orientation include the firm’s bet on service quality, consumer relationships and customer satisfaction (Jaworski and Kohli, 1993, 1996). On the other hand, consumer relationship activities should have positive associations with organizational performance because, if effective, they increase repeat purchase behaviors and are associated with lower levels of customer complaints and negative word of mouth (Szymanski and Henard, 2001). Similarly, quality can influence performance through higher prices, higher market share, and/or lower costs (Fornell, 1992; Slater and Narver, 1994; Kirca et al., 2005). Relationship marketing orientation Relationship marketing concept is viewed as a philosophy of doing business successfully or as a distinct organizational culture/value that puts the buyer-seller relationship at the centre of the firm’s strategic or operational thinking (Sin et al., 2002). In the context of consumer relationships, relationship orientation could be defined as an organization engaged in proactively creating, developing and maintaining committed, interactive and profitable exchanges with selected customers over time. Jayachandran et al. (2005) affirm that customer-relationship orientation establishes a “collective mind” or a belief system for the organization that considers customer relationship an asset and drives the choice of mean (processes) to accomplish this outcome. A relationship orientation pervades all parts of the organization’s mind-set, values, and norms and thus influences all interaction with the customer – before, during, and after the sale (Day, 2000). Relationship orientation implies relationship investments. De Wulf et al. (2001) define relationship investments as resources, efforts, and attention aimed at maintaining or enhancing relationships with regular customers that do not have outside value and cannot be recovered if these relationships are terminated. In this idea, we conceptualize relationship orientation as a higher-order construct indicated by four types of relationship marketing investments: communication, customization, personalization (preferential treatment) and personal relationships. Communication is defined as the formal and informal exchanging and sharing of meaningful and timely information. Literature in relationship marketing has largely highlighted the relevance of information and communication (Mohr and Nevin, 1990; Anderson and Narus, 1990; Morgan and Hunt, 1994). Claycomb and Martin (2002) identified several practices used by firms to establish and nurture relationships with customers. Continuity of communications was one of the most mentioned practices. Company newsletters to keep customers informed about updated capabilities, new products, regularly scheduled personal letters, telephone calls were some examples. Customisation refers to the adaptation of some aspect of the service or its delivery, treating each customer as a unique individual with a unique set of service requirements (Claycomb and Martin, 2002). It means using information from customers to create product or services for individual customers.

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Zahay and Griffin (2003) define personalization as the ability to address an individual in such a way that takes into account, his or her unique response and considering a customer’s individual response to prior communication. In many companies, employees are empowered to deviate from rigid procedures when serving customers who have special needs or unique requests (Claycomb and Martin, 2002). De Wulf et al. (2001) define preferential treatment as consumer’s perception of the extent to which a retailer treats and serves its regular customers better than its non-regular customers. What is the difference between personalization and customization? Zahay and Griffin (2003) argue that while personalization capability involves individualized marketing communications, customization is developing products and services tailored to a particular customer. About personal relationships, Claycomb and Martin (2002) refer to employee relations as relationship-building practices designed to support the frontline employees who serve customers and the vital role that employees play in the service delivery and relationship-building process. Research suggests that customers’ emotional attachment to the service provider is positively related to their willingness to remain in a relationship with this provider (Shemwell et al., 1994). Nicholson et al. (2001) indicate that liking is believed to be a powerful human motivator for relationship development and maintenance. They demonstrate that liking influences the development of buyer trust. As Caruana et al. (1999) remind us, market orientation has been expressed in such terms as “close to the customer” (Webster, 1988; Shapiro, 1988). In fact, nurturing customer relationships is a paramount consideration of the market-oriented service firm. Research on market orientation has supports the assertion that customer consequences of market orientation include customer loyalty, and customer satisfaction with the organization’s products and services (Jaworski and Kohli, 1993, 1996). For this to happen, the firm’s commitment to the customer is needed. Hence, we propose that: H1. Market orientation has a positive influence on relationship orientation. Service quality orientation In Gro¨nroos’ (1993) definition of service quality, two dimensions are identified: functional service quality and technical service quality. Functional service quality relates to the nature of the interaction between the service provider and the customer and the process by which the core service is delivered. Technical service quality refers to the quality of the service output (Sharma and Patterson, 1999). According to Caruana et al. (1999), the constructs of market orientation and service quality are related. They argue that when seeking to establish, strengthen, and develop a customer orientation, the service firm must acknowledge the salient role of quality, specifically service quality. Also, Gounaris et al. (2003) indicate that once market orientation has been developed, the company’s ability to derive superior performance is attributed to the subsequent skills it builds which allow for a better understanding of the needs of its target market. Understanding the target customers’ needs permits the company to coordinate all its assets in a manner which allows it to increase the value for the customer, hence to increase the level of output quality received by the customer. The effect of market orientation on perceived quality has been evidenced by Gounaris et al. (2003), Webb et al. (2000) and Chang and Chen (1998). We focus on the previous actions in order to achieve the customer’s perception of service quality, thus, we propose:

H2. Market orientation has a positive influence on service-quality orientation. The link between relationship marketing and service quality has been analyzed in the literature from the customer’s point of view. Perceived service quality has been considered a determinant of loyalty and commitment (Gounaris et al., 2003). According to Berry (1995) when relationship marketers can offer target customers value-adding benefits that are difficult or expensive for customers to get and that are not readily available elsewhere, they create a strong foundation for maintaining and enhancing relationships. Following this reasoning, we maintain that if the firms want to develop lasting relationships with customers and to build a relationship-marketing orientation, they will need to invest in service quality. As businesses pursue long-term relationships with customers to maximize their lifetime value, they need to be particularly concerned with how the customers’ view of the service offering changes over time (Bell et al., 2005): H3. Relationship orientation has a positive influence on service quality orientation. Market and economic performance It is acknowledged that performance is a multidimensional construct, consisting of two broad measures: judgmental performance (e.g. customer service loyalty) and objective performance (e.g. ROA) (Agarwal et al., 2003). Therefore, we distinguish between market performance as the judgmental measure of performance and economic performance as the objective measure of performance. Market profitability is driven by variables such as customer retention, customer satisfaction and image and positioning on the market (Rajshekhar et al., 2005). Concretely, market performance refers to: . the improvement of the firm’s market positioning (Srivastava et al., 1999); . shaping customers’ satisfaction with the organization and their products (Rajshekhar et al., 2005); and . the rise in customer loyalty and retention (Evans and Laskin, 1994). Market positioning should be the first consequence of programs and activities addressed to retain customers (relationship orientation) and to satisfy customers (service-quality orientation); it could be considered as consumers’ affective answer to the signals that the firm sends to the market. Relationship orientation, loyalty programs and service quality can shape customers’ perceptions about the firm or the service it provides. If the customer has an image of friendly relationships, personalized treatment or service quality, we could say these activities have been successfully applied. Satisfaction is achieved when the consumer’s expectations about the performance of the product or service being consumed are met or exceeded. It is a sensation or feeling generated both by cognitive and emotional aspects of the product or service and it is a cumulative evaluation of the sum of diverse aspects of the product or service (Oliver, 1997; Vanhamme, 2000). Customer satisfaction with a service is influenced significantly by the customer’s evaluation of service features (Oliver, 1997) and by customer’s perceptions of equity and emotional responses (Zeithaml and Bitner, 2003; Rajshekhar et al., 2005). In other words, service quality and relationship orientation should have a direct impact on customer’s satisfaction.

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Finally, loyalty is the result of activities that look for interaction and customers’ repeat-purchase. Expectations of positive reinforcements induce relational behaviors. Relationship quality has been found to affect both behavioral intentions (Crosby et al., 1990) and behavioral outcomes (De Wulf et al., 2001). It is expected that buyers purchase a greater proportion of goods and services from suppliers with whom they have high-quality relationships (Berry, 1995). However, there is no unanimity about the effect of relationship programs on loyalty. According to Verhoef (2003), loyalty programs that provide economic rewards are useful both to lengthen customer relationships and to enhance customer share, however Szmigin and Bourne (1998) suggest that customers are, in the main, promiscuous when it comes to relationships with firms. Many customers do not really want a long-term approach and act out of self-interest. As for service quality, since services are intangible and heterogeneous, most consumers perceive a higher risk in consuming services than in goods. The difficulty of evaluating the quality of services makes switching service brands less likely as customers become familiar with a particular service (Javalgi and Moberg, 1997). Thus, consumers who have experienced an excellent service quality with a provider will have decreased probability of switching (Cronin et al., 2000; Rajshekhar et al., 2005). Bell et al. (2005) find empirical support for this assertion. Thus: H4a. Relationship orientation has a positive influence on the firm’s market performance. H4b. Service-quality orientation has a positive influence on the firm’s market performance. Economic performance alludes to the firm’s benefit, incomes, cost reduction and profitability that are related, directly and indirectly, to the firm’s relational strategy. Relationship orientation should have direct effects on economic performance. It has been demonstrated that it is far less expensive to retain a customer than to acquire a new one (Reichheld and Sasser, 1990) and that the longer the customer stays with a firm, the more profitable the relationship is to the firm. In fact, a close and long-lasting relationship with customers usually implies a reduction in service costs (the firm becomes more knowledgeable about its clients’ needs and thus able to provide better service at a lower cost) and marketing costs (in that the firm needs to spend less on convincing customers to repeat buying) and, in consequence, an improvement in profitability (Reinartz and Kumar, 2000; Sharp and Sharp, 1997, Sharma et al., 1999; Sin et al., 2002; Gummesson, 2004; Rust et al., 2004; Reinartz et al., 2005). Sharp and Sharp (1997) add that loyalty gives something of a guarantee of future earnings. If a loyalty program increases the certainty of future income flows, through decreasing the risk of losing customers, then it may have a real, and perhaps substantial, impact on shareholder value without affecting current revenue or market share levels. As for service quality, Bell et al. (2005) state that the contribution that a high level of service quality can make to business performance is unquestioned. Heskett et al. (1994) designate service quality as the mainstay around which internal organization and business performance revolves. Service quality has been linked to varied business performance metrics such as sales growth and market share (Rust et al., 1995). Also, Rust et al. (2002) demonstrate that financial benefits from quality may be derived from revenue expansion and cost reduction, thus:

H5a. Relationship orientation has a positive influence on the firm’s economic performance. H5b. Service-quality orientation has a positive influence on the firm’s economic performance. Finally, we hypothesize the direct effect of market performance on economic results (Camarero et al., 2005). As we have argued market and economic performance are two related dimensions. Although understanding whether market performance affect the company’s financial performance is difficult for marketing professionals (Srivastava et al., 1998), some empirical results indicate that improved non-financial performance leads to raised financial performance (Homburg et al., 2002a, b; Rust et al., 1995). Hence, we propose a positive relation between social and economic effectiveness.

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H6. Market performance has a positive influence on economic performance. In Figure 1, we show the proposed hypotheses. Method Sample and data collection As Berry (1995) stated, services are particularly well suited for relationship-building and so we test our proposed model for firms that belong to the financial and insurance industries: banks, saving banks, credit institutions, SGR and insurance firms in Spain. These sectors are particularly suited for our requirements. The evolution of these industries has, after all, led financial and insurance institutions to promote the development of stable relationships with their customers. Of all the sectors where relationship marketing has achieved popularity, it is perhaps in the financial sector that managers put most emphasis on relational and quality service strategies. As Akamavi (2005) affirms, retail banks and insurance companies are especially interested on the benefits of relationship marketing because they are under pressure of competition from other financial institutions and non financial firms. Information was collected using a questionnaire addressed to financial and insurance institutions located in Spain. The directory of financial institutions was obtained from the information provided by the Bank of Spain, and the directory of insurance companies from the information provided by the Ministry of Economy (General Direction of Insurances and Pensions). We designed a questionnaire to be placed on a web site. All the financial and insurance companies in the directories were contacted by telephone in order to identify a contact person who was best placed to

Figure 1. Conceptual model

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answer the questionnaire (we asked for CEOs of marketing and commercial departments). Once the contact person was identified, we sent them all an e-mail explaining the objective of the research and directing them to the web site with the questionnaire they had to answer. After three weeks we had received only 45 questionnaires. New phone calls were made to remind CEOs the research and to ask again for collaboration. After persisting during three more weeks we obtained 93 responses from a population of 450 firms (Table I). We compared the first and second waves of respondents along all the response items for each of the scales and no significant difference between the two groups was found. Table I shows the distribution of the population and the respondent companies. As for their clients of these companies, in the 50.0 percent of cases individuals were the main clients, in the 18.3 percent of cases firms were the main clients, and in the 31.7 percent of cases both of them. Scale development The following step was to develop scales and variables to measure the concepts proposed. The Appendix records the variables used in our study. All of the scales consisted of five-point Likert questions (ranging from 1 ¼ “completely disagree with the item” to 5 ¼ “completely agree with the item”). The measurement of market orientation reflects the three dimensions previously referred. The scales for customer orientation and competitor orientation consisted of four and two items, respectively, based on the market-orientation scales proposed in the work of Narver and Slater (1990), Deng and Dart (1994), Deshpande´ and Farley (1996), and Kennedy, Goolsby, and Arnauld (2003). The scale of intelligence generation derives from Kohli and Jaworski’s (1990) definition of a market orientation and the scale proposed by Matzuno et al. (2000). Service-quality orientation was measured by a five-item scale that reflects Gro¨nroos (1993)’s dimensions: functional service quality (trained employees, efficient service) and technical service quality (technologies, professionalism). As activities referring to relationship orientation, we measured customization by three items that allude to the company’s flexibility to adapt the offer to the needs and requests of each customer and to renegotiate the terms of a contract. Communication was measured by a four-item scale that comprises the practice of fluid, frequent and bi-directional communication with customers, based on Anderson and Narus (1990), Morgan and Hunt (1994) and Sin et al. (2002). In order to measure personalization or preferential treatment we use a formative scale based on De Wulf et al. (2001) scale that

Save banks Banks Credit institutions Reciprocal warranty society Insurance companies Table I. Population distribution

Note: Data from 2003

Population

Percentage of population

Responses

Percentage of responses

47 83 83 22 215

10.44 18.44 18.44 4.89 47.78

22 14 18 8 31

23.66 15.05 19.35 8.60 33.33

includes activities referring to making greater investment and to offering economic benefits and better service to regular customers, to customers with greater volume of trade. Finally, we followed Claycomb and Martin’s (2002) work to measure personal relationships by a two-item scale that reflects the initiative to foster personal and close relationships with customers. Market and economic performance were measured by two subjective and formative scales based on the works of Srivastava et al. (1999), Siguaw et al. (1998), Sheth and Sisodia (2002) and Homburg et al. (2002a, b). Market performance was measured as a composite index that gathers the extent to which the firm has reduced the number of complaints, has improved its positioning, has increased the number of loyal and satisfied customers and has developed a competitive advantage over the competitors based on its relationships with customers. On the other hand, economic performance was measured as the extent to which the relationship marketing activities impact on market share, competitive position, incomes, costs, and benefits. We used a subjective concept of business performance because respondents may be reluctant to provide hard economic data. We subjected each scale to a validation process. For this, we performed a confirmatory factor analysis (Lisrel 8.7), following the procedure recommended by Anderson and Gerbing (1988). To test the validity of the measurement scales of the market and relationship orientations we estimated two second-order confirmatory factor models. The results are shown in Appendix. Although the x 2 statistic was significant, the remaining goodness-of-fit indicators show adequate values, which allow us to confirm the multi-dimensionality of market and relationship orientations. The service-quality orientation scale was subjected to a confirmatory analysis. Again, the l values (10 to 2 times as large as the standard errors) and the goodness-of-fit values allow us to accept the convergent validity of this scale. For each level of relationship and market orientations, the items measuring each of the first-order factors were averaged, generating a single value for customization, communication, personalization and personal relationships. These items were modeled as indicators of relationship and market orientations in the structural model. The items with the preliminary tests are presented in Appendix. After validating the convergence of the scales, we calculated the correlation matrix of the factors resulting from each scale. Table II shows the correlation matrix of all the variables, as well as the reliability values – Cronbach a and variance extracted – in each case. As we can see, in almost all cases the variance extracted of each variable exceeds the value of its squared correlation with the other variables, which allows us to justify the discriminant validity of the scales (Anderson and Gerbing, 1988).

Results In order to verify the mediating effect of relationship and service-quality orientations a number of conditions must hold (Baron and Kenny, 1986): . market orientation should have a significant effect on relationship and service-quality orientations; . relationship and service-quality orientations should have a significant effect on performance;

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Table II. Correlation matrix

1. Consumer orient. 2. Competitor orient. 3. Intelligence gener. 4. Customization 5. Communication 6. Personalization 7. Personal relations 8. Service quality 9. Market perf. 10. Economic perf.

1

2

1.000 0.432 0.776 0.319 0.534 0.241 0.330 0.614 0.496 0.127

1.000 0.482 0.431 0.371 0.491 0.175 0.315 0.435 0.138

3

1.000 0.340 0.480 0.302 0.266 0.543 0.435 0.145

4

1.000 0.736 0.641 0.479 0.425 0.505 0.104

5

1.000 0.569 0.540 0.513 0.511 0.141

6

1.000 0.564 0.351 0.495 0.203

7

8

9

1.000 0.356 1.000 0.523 0.661 1.000 0.142 0.205 0.477

Cronbach a AVE 0.727 0.832 0.717 0.637 0.774 0.899 0.854 0.796 0.795 0.863

0.490 0.800 0.470 0.476 0.508 0.950a 0.774 0.565 0.950a 0.950a

Note: aFormative scales .

.

market orientation should have a significant direct effect on performance (model 2); and the previously significant effects of market orientation on performance should become non-significant when the path between mediating variables and performance is opened (model 3).

Therefore, we estimated three rival models: model 1, which includes the direct effect of market orientation on the mediating variables and the direct effect of the mediating variables on performance, and which allows us to examine the conditions (1) and (2); model 2, which includes the direct effect of market orientation on performance and the direct effect of mediating variables on performance, and which allows us to examine the condition (3); and model 3, which includes the direct effects of market orientation and the mediating variables on performance plus the direct effect of market orientation on the mediating variables, and which allows us to examine the condition (4). Figures 2-4 show, for the three models, that although the x 2 statistic is significant – probably a consequence of the sample size – the values of other indicators – GFI, AGFI, CFI and RMSEA – are within recommended limits, indicating a good fit. But it is model 2, the direct-effects model, which presents the worst goodness-of-fit indicators. The differences between models 1 and 3 are minimal, and the x 2 difference test is non-significant. In spite of this, there is sufficient evidence to say that the conditions are

Figure 2. Model 1 estimation

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Figure 3. Model 2 estimation

Figure 4. Model 3 estimation

present for the existence of a clear mediating effect of satisfaction in the case of the variables that predispose to dissolution (Baron and Kenny, 1986). According to model 1, the effects of relationship and service-quality orientations on performance are significant, as are the effects of market orientation on relationship and quality orientation too. The direct effect of market orientation on market performance is significant in model 2, while it is no longer so in model 3, where the paths between relationship orientation and quality orientation on performance are admitted. Table III shows the total effects of market orientation on market and economic performance. According to model 1, in examining H1 and H2, which explicate the association between market orientation and relationship orientation and service-quality orientation, respectively, we can see, that data confirm our hypotheses (b ¼ 0.495, p , 0.01; b ¼ 0.466, p , 0.01). With regards to H3, we also support that relationship orientation has a positive and significant effect on service-quality orientation (b ¼ 0.321, p , 0.01).

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However, the data provide mixed evidence about performance. As for H4, the results confirm the positive effect of both relationship orientation (b ¼ 0.382, p , 0.01) and service-quality orientation (b ¼ 0.486, p , 0.01). Observing global effects we can affirm that the impact of relationship orientation on market performance is higher as it includes both a direct and an indirect effect. On the contrary, H5, which proposes the influence of relationship and service-quality orientations on economic performance, is rejected. These orientations seem to have neither direct nor indirect effect on economic performance. Finally, we find support to H6, that is, the positive and significant influence of market performance on economic performance (b ¼ 0.718, p , 0.01). This result explains the indirect but significant effect of market orientation on economic performance. Conclusions Although the relationship between market orientation, service quality and relationship marketing appears to be evident; few studies have linked these concepts and explored the path that connects them with firm performance. In the current work, we put forward relationship marketing and service-quality orientations as two direct results of a wider and global philosophy, the market orientation. The connection between market orientation and performance through two intermediate strategies allows us to offer a greater explanation of both market and economic results. This study has been conducted in financial and insurance services, and although it does not pretend to be representative of other services, it does contribute to both theoretical and practical knowledge and to discussions about the paths that link market orientation with performance. The first implication of this study is that market orientation, considered as customer orientation, competitor orientation and intelligence generation, has a direct impact on relationship marketing and relational investments such as the customization and the adaptation of the offer, the improvement of communication, the personalization of the services or the development of friendly and personal relationships. In the same way, when a firm puts into practice a market orientation, its commitment with service quality in technical and functional aspects is also greater. These two strategies are associated. As it could be thought, the firms focused on creating close and lasting relationships with their customers, have to choose the service quality path as the necessary way or inevitable consequence in order to sustain relationships. The second implication is that the progress from relationship marketing and service quality towards performance does not follow two independent trails, but, as we have said, two related paths. A common assumption is that an improvement in customer perceived quality will increase customer satisfaction, loyalty, and profitability, while the profitability of loyalty programs is not so obvious. Even if our results confirm that service quality has a stronger direct effect on market results (market positioning, satisfaction, loyalty) than relationship marketing, we have observed that relationship Market performance Loading t-value

Table III. Total effects

Market orientation Relationship orientation Service quality orientation

0.492 0.538 0.486

5.905 5.318 5.102

Economic performance Loading t-value 0.143 0.095 2 0.149

1.958 0.769 2 1.040

investments not only act in a direct way on the performance, but also in an indirect way, as the trigger of service quality. Therefore, its global effect on performance is greater. As regards economic performance, although the link between objective and subjective performance is once again evidenced, in our study we have found the traditional difficulties that relate to market orientation and its outcomes (relationship and service quality orientations) to firm performance. From a customer’s perception, we find, as did Gounaris et al. (2003), support for the positive influence of market orientation on service quality. Market orientation influences positively the customer’s experience during the encounter with contact personnel and impacts on the customers’ perceptions regarding the physical evidence of the bank. In the same way, Ndubisi and Wah (2005) relate service quality with managers and staff acting trustworthily, showing strong commitment to service, showing signs of competence, communicating efficiently and reliably and handling conflicts satisfactorily. Implications for practitioners As regards managerial implications, the findings demonstrate, even if the real trigger is the market orientation philosophy, the strategies and the investments towards the customers, the firm’s commitment in the relationship are the foundations for a greater effort in service quality. We underline the profitability of improving meaningful communication with clients, offering a customized product, personalizing services and creating personal links. The results suggest that applying relational policies such as preferential treatment, communication and adaptation to customer needs is critical for retaining customers, reducing complaints and conflicts or improving positioning. However, Leverin and Liljander (2006) do not confirm that the implementation of a relationship marketing strategy in a bank results in relationship satisfaction and customer-perceived improvements. In effect, relationship orientation will have greater effect on performance if it culminates in service-quality orientation. The quality of the service is a pre-requisite for financial institutions’ market performance and, subsequently, economic performance. The companies that offer the best technologies and great quality in every service and that have trained and motivated its employees in order to provide an efficient service are creating the adequate framework for the success of a relationship marketing orientation. In that sense, as Colgate and Lang (2005) point out, internal marketing is essential; if relationship quality is to be improved, necessary resources and motivation from the bank’s part are crucial to ensure successful execution of a relationship strategy. Limitations of the study Limitations to the study relate to data collection. It seems evident that the firm’s perspective is needed to evaluate the strategic orientations and the performance; however the work could be substantially improved with customer’s perspective about the success or the failure in the application of service quality and relationship-marketing orientation. It would be also fruitful to compare results between the two industries here considered, as well as to other sectors in order to obtain evidence to generalize the findings obtained here. Moreover, although cross-sectional studies are common in the market orientation literature, the findings would improve if we collected longitudinal data. Finally, the generalization of these

Relationship orientation or service quality? 419

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Further reading Colgate, M. and Alexander, N. (1998), “Banks, retailers and their customers: a relationship marketing perspective”, International Journal of Bank Marketing, Vol. 16 No. 4, pp. 144-52. Cronin, J.J. and Taylor, S.A. (1992), “Measuring service quality: a reexamination and extension”, Journal of Marketing, Vol. 56, pp. 55-68. Dobni, B. (2002), “A model for implementing service excellence in the financial services industry”, Journal of Financial Services Marketing, Vol. 7 No. 1, pp. 42-53. Paulin, M., Ferguson, R.J. and Payaud, M. (2000), “Effectiveness of relational and transactional cultures in commercial banking: putting client-value into the competing values model”, International Journal of Bank Marketing, Vol. 18 No. 7, pp. 328-37. Reinartz, W.J. and Kumar, V. (2003), “The impact of customer relationship characteristics on profitable lifetime duration”, Journal of Marketing, Vol. 67, pp. 77-99.

Appendix

Variables

Mean

SD

l

t

0.810

4.584

Relationship orientation or service quality?

2

Market orientation (x (34) ¼ 58.652 ( p ¼ 0.005); GFI ¼ 0.887; AGFI ¼ 0.817; CFI ¼ 0.948; RMSEA ¼ 0.088) Consumer orientation We analyze in detail the evolution of customers (transactions, satisfaction) in order to plan future actions All the areas of the company consider that attending the interests of customers is more important than attending the own interests We try to integrate and coordinate all the functions of the firm in order to achieve the customer’s satisfaction We pay attention to the after-sales service in order to achieve a standard of zero defects or faults Competitor orientation In our company, we detect and analyze any change in the competitors’ activities In our company they are disseminated periodical reports which provide information about our competitors Generation of information We analyze the factors that influence on the customer’s decisions We encourage our employees to collect information about customers We own complete and updated information of our customers and we make use of it to our activities We consult our sales people about the current and future products commercialized Relationship Orientation (x 2 (32) ¼ 49.080 ( p ¼ 0.027); GFI ¼ 0.904; AGFI ¼ 0.834; CFI ¼ 0.957; RMSEA ¼ 0.076) Customisation The company has flexibility to adapt the offer to the needs and requests of each customer The terms of a contract or repetitive transactions could be renegotiate in case an unexpected situation occurred We have make important investments in the development of products adapted to each customer Communication We maintain fluid and frequent communication with our customers The communication with customers is valued by them The communication is bi-directional We send regularly mails to our customers with personalized information which has interest to them Preferential treatment – personalization (formative scale) We make greater investments (time, human resources and other actives) to regular customers than to non regular customers We make greater investments (time, human resources and other actives) to customers with greater volume of trade than to customers less important

4.13

0.89

0.538

–

3.53

0.88

0.481

3.700

4.13

0.73

0.835

5.148

4.02

0.87

0.863 0.564

5.194 5.139

3.74

0.93

0.975

–

3.56

1.16

0.807 0.949

12.148 –

3.70

0.88

0.762

7.947

3.83

0.92

0.685

6.905

3.79

0.92

0.518

4.906

3.80

1.06

0.750

7.778

0.878

4.918

3.79

0.80

0.611

–

3.58

1.05

0.916

5.552

3.24

1.14

0.466 0.824

3.884 6.225

3.73 3.83 3.20

0.99 0.88 1.09

0.773 0.792 0.656

– 7.153 5.968

3.65

1.20

0.617 0.519

5.599 4.656

3.35

1.18

3.23

1.18 (continued)

425

Table AI. Items

IJBM 25,6

426

Table AI.

Variables We offer a better service to regular customers and with greater volume of trade The company offers economic benefits to customers more frequent and with greater volume of trade We offer more information to regular customers and with greater volume of trade than to others We contact more frequently with regular customers and with greater volume of trade than with others .Personal relationships We foster the development of personal relationships with our customers Our employees maintain close relationships with our customers Service quality (x 2 (5) ¼ 6.075 ( p ¼ 0.299); GFI ¼ 0.974; AGFI ¼ 0.923; CFI ¼ 0.996; RMSEA ¼ 0.004) The company offers the best technologies as material support to the services Branch offices have an image of professionalism The company offers the greatest quality in every service The employees are trained to provide correctly the services to customers The customers receive an efficient service by our employees Performance In the last years . . . Economic performance (formative scale) The company has increased its market share The company has increased the volume of trade with some customers The company has increased its global benefits The company has improved its competitive position The company has reduced costs Market performance (formative scale) We have reduced the number of complaints and conflicts The company has improved its image on the market The company has increased the percentage of retained customers The company has customers committed that do not act in an opportunist way The company is satisfied with the relationship with customers The company own a competitive advantage over the competitors based on its relationships with customers

Mean

SD

2.90

1.23

3.05

1.31

2.65

1.12

3.23

1.22

l

t

0.650

5.223

3.68 3.76

1.08 1.15

0.864 0.896

– 7.200

4.01 4.08 4.00

0.92 0.90 0.72

0.434 0.830 0.890

4.175 9.429 40.500

4.00 4.01

0.76 0.78

0.833 0.681

9.495 7.147

4.24

0.93

4.21 4.34 4.19 3.81

1.00 0.91 0.87 1.02

3.59 4.02

0.88 0.97

3.88

0.90

3.78 3.77

0.90 0.83

3.94

0.93

About the author Carmen Camarero is an Associate Professor at the University of Valladolid, Spain. Her research, which focuses on business relationships and consumer relationship marketing, has been published in several national and international journals. At present, her main research interests are related to relationship marketing and consumer behavior. She has written two books and several book chapters. Carmen Camarero can be contacted at: [email protected]

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