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Service quality and customer retention: building long-term relationships

Karin A. Venetis
Vrije Universiteit Amsterdam, Amsterdam, The Netherlands

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Pervez N. Ghauri
Manchester Business School, The University of Manchester, Manchester, UK
Keywords Customer services quality, Customer retention, Business-to-business marketing Abstract The study extends the existing knowledge by taking a relationship perspective to study the effect of service quality on customer retention. We integrate business-to-business marketing literature with service quality literature to develop a model to capture relationship commitment and other inuencing factors. The model is improved with help of semi-structured interviews which is later tested through a survey of 241 companies in the advertising sector. Findings indicate that service quality indeed contributes to the long-term relationships and customer retention.

Introduction The quality of services is considered to be a critical success factor for contemporary service companies. Service qualitys close conceptual as well as empirical link to customer satisfaction turned it into the core marketing instrument, making it the most researched area in services marketing (Fisk et al., 1995; Bolton et al., 2000). In addition, the accumulated research has linked positively with protability (Fornell, 1992). This link, however, is not straightforward (Rust et al., 1995; Zeithaml et al., 1996). The contribution of service quality to protability is generally explained by two underlying processes. First, service quality is regarded as one of the few means for service differentiation and competitive advantage which attracts new customers and contributes to the market share. Second, service quality is viewed as an important means for customer retention. It has been argued that service excellence enhances customers inclination to buy again, to buy more, to buy other services, to become less price sensitive, and to tell others about their positive experiences (Anderson and Fornell, 1994; Anderson et al., 1994; Rust et al., 1995; Zeithaml et al., 1996; Bolton et al., 2000). Empirically this assumption is supported by several studies that consistently nd a positive impact of service quality on customers behavioral intentions. Bitner (1990), Bolton and Drew (1991), Boulding et al. (1993) and Cronin and Taylor (1994) nd that service quality has a positive impact on customers repurchase intentions and intentions to recommend the company to others. The most comprehensive study in this eld, by Zeithaml et al. (1996), determines that service quality inuences different intentions, such as giving recommendations, doing more business, and willingness to pay more. Our study focuses on the contribution of service quality to customer retention. We extend the existing knowledge by taking a relationship perspective to study the effect of service quality on customer retention. Generally, using behavioral intentions as a measure for customer retention implies a transaction perspective on customer

European Journal of Marketing Vol. 38 No. 11/12, 2004 pp. 1577-1598 q Emerald Group Publishing Limited 0309-0566 DOI 10.1108/03090560410560254

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retention. However, the mere intention of a customer to remain or leave does not predict very well whether the relationship is maintained in the long term. Long-term customer retention and long-term relationships with customers produce a number of important benets. Over time, exchange efciencies can be created between the parties and effectiveness can be increased. In other words, better quality can be delivered at lower transaction costs (Heide and John, 1992). The relationship paradigm has entered the services marketing literature as well (Gronroos, 1993, 2000; Berry, 1995), and authors argue that service quality not only affects subsequent service transactions, but also enhances the building and maintenance of long-term customer relationships (Rust and Zahorik, 1993; Anderson and Fornell, 1994; Harris et al., 2003). When customers perceive that they are receiving better quality service for their money, they believe they are receiving good value, which increases their loyalty to the service provider (Bolton et al., 2000). Empirically, however, very little research has been conducted to study the effects of service quality on the maintenance of long-term relationships. In business-to-business marketing, on the other hand, the establishment and maintenance of long-term business relationships has been studied for much longer. From this literature it becomes clear that relationships are not static but dynamic phenomena, and that the context and history of the relationships are important determinants for the future of the relationships (Ford, 1990; Halinen, 1996; Ghauri, 1999). Research has shown that service quality has a strong effect on the potential start of a relationship: it has a positive effect on customers repurchase intentions (loyalty), which leads to more interactions and/or transactions. Whether these transactions accumulate into a strong long-term relationship remains to be studied, and is the focus of our research. We integrate business-to-business marketing literature with the service quality literature to answer the following questions: Does service quality contribute to the building and enhancement of long-term customer relationships? If so, what is its relative contribution next to other (relationship) factors? This research contributes to existing literature in the following ways. It provides empirical evidence for the generally assumed positive effect of service quality on the establishment and enhancement of long-term customer relationships (Anderson and Fornell, 1994; Patterson, 1995; Rust and Zahorik, 1993; Bolton and Lemon, 1999). It extends the service quality literature by integrating it with business-to-business marketing literature. Liljander and Strandvik (1995) developed a model for consumer service relationships in which they used theories from business-to-business marketing literature. However, this model was not explored empirically. In business-to-business marketing, several authors have investigated business services relationships (Halinen, 1996; LaBahn and Kohli, 1997), but they have not used the service quality concept in the manner as it is used in services marketing. We thus aim to extend the service quality literature in two ways: (1) identify and explore the conceptualization of long-term customer-relationship maintenance that differs from a mere transactional relationship; and (2) identify and explore other factors that contribute to the establishment and maintenance of customer service relationships.

In this manner, we extend the knowledge of service qualitys inuence from absolute contribution of service quality to its relative contribution (relative to other factors). This enables us to develop a model portraying the factors that inuence long-term business relationships. This model is then empirically tested and discussed before drawing conclusions in the nal part of this paper.

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Theoretical background Long-term relationships Long-term business relationships are benecial to both parties involved (Berry, 1995; Szmigin, 1993; Bolton et al., 2000). From the providers point of view, these relationships create barriers against competition, decrease price competition, and generate more revenue per customer with decreasing costs. According to the PIMS studies, in some service industries the retention of 5 per cent of the current customer-base can have a prot impact as large as 125 per cent (Reichheld and Sasser, 1990; see also Reinartz and Kumar 2000, 2003 for the latest research on this topic). In business marketing literature, different kinds of relationships are identied, ranging from transactional relationships to relational exchange relationships ( Jackson, 1985; Dwyer et al., 1987; Ghauri, 1999). In pure transactional relationships the customer primarily buys on the basis of price, uses multiple sources of supply, and tends to switch suppliers frequently over time. Relational exchange relationships, on the other hand, emerge when the buyer and supplier develop a relationship with a more long-term orientation. Continuity is the key element of relational exchange, which does not necessarily mean that the exchange events are frequent or repeated but that relationship exists and is maintained. The fact that relationships are more than a mere sequence of transactions over time can be illustrated by some of the existing relationships in business services markets. Many accountancy, legal and advertising agencies have rather lengthy relationships with their customers (see, for example, Harris et al., 2003). The mere presence of a series of transactions does not mean that a real relationship is created. The establishment of a relationship is not signalled only by the (intended) behavior, but more so by the reason why the behavior occurs, i.e. the attitudes and motivations that underlie the intentions (Dwyer et al., 1987). Sharma (1994) and Yorke (1990), writing about business service relationships, conclude that relationships go through several stages before they can be called long-term. Although each author emphasises different processes that occur at each stage, they agree on the outcome that characterises the last stage: the degree of relationship commitment that has been established between the partners:
Customer retention implies a long-term commitment on the part of the customer and the rm to maintain the relationship. The development of the mutual commitment is the same process as creating long term buyer-seller relationships (Wilson, 1995, p. 8).

Commitment is regarded as the central outcome variable in business relationships, which ensures the strength, stability, durability, and even protability of a relationship (Dwyer et al., 1987; Moorman et al., 1992; Morgan and Hunt, 1994;). Since a partners relationship commitment is not built overnight, it is a good measure that reects the ongoing process of the relationship. If behavioral intentions do not stem from a

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certain degree of commitment, they indicate a transactional relationship rather than a long-term co-operative one. Relationship commitment is thus the crucial variable that determines the long-term retention of customers. Although service quality is assumed to be positively related to the retention of customers, little is known about its effect on customers relationship commitment. Commitment is a dynamic concept, and the link between service quality and customers commitment might not be straightforward. Even though business-to-business marketing literature does not study the concept of service quality, it addresses the comparable concept of satisfaction. In services marketing, service quality is dened from a customer-based perspective (cf. Parasuraman et al., 1985; Gronroos, 1984), i.e. quality is what the customer perceives as quality, and it is generally dened as the (dis)conrmation of customers service expectations. This conceptualisation makes it very similar to the conceptualisation of customer satisfaction which is also based on the disconrmation principle. Some authors use the two concepts as synonyms (see, for example, Iaccobucci et al., 1994), although conceptual differences do exist (for a detailed discussion see Oliver, 1993). Customer satisfaction does not have a direct positive link to customer retention. Reichheld (1993) found that even satised customers can switch relationships. Dissatised customers do not necessarily leave, and satised customers do not necessarily stay in a relationship. Even though it has been indisputably shown that service quality contributes signicantly to the start of a relationship, we will determine whether quality also contributes to relationship maintenance, next to other factors that have been proposed and found to inuence relationship commitment. Relationship commitment Several denitions have been proposed that reect different aspects of the commitment concept. Some stress its behavioral dimension, an explicit or implicit intention to continue the relationship (Dwyer et al., 1987; Moorman et al., 1992), whereas others refer to attitudes, for example, a desire for a stable relationship, a willingness to make short-term sacrices for the sake of maintaining the relationship, and belief in relationship stability (Anderson and Weitz, 1992; Morgan and Hunt, 1994). Some dene it as a perception of the interdependence of outcomes where both a partners outcomes and joint outcomes are expected to benet the party in the long run (Ganesan, 1994). Others dene commitment as an affective disposition that reects the desire of the parties to maintain the relationship and willingness to devote considerable effort to it (Morgan and Hunt, 1994; Anderson and Weitz, 1992). Despite the diversity, all denitions refer to the likelihood of relationship continuation in the future. Therefore, we dene relationship commitment as a partners intentional continuation of a business relationship. This denition not only refers to a partys future intentions, but also to the deliberateness of these intentions, which is exactly what makes a committed relationship different from a mere transactional one. It reects the attitude and specic motivations that underlie a partys intentions. Different motivations can underlie a partners intentions to continue the relationship. Kumar et al. (1994) and Geyskens et al. (1996) dene these intentions as different dimensions of relationship commitment. They distinguish between two commitment dimensions: affective and calculative commitment. Affective commitment is dened as a desire to continue the relationship because it is enjoyed for its own sake,

not taking into account its instrumental worth. A sense of loyalty and belongingness also plays a role. Calculative commitment refers to a more instrumental type of commitment, and is dened as the extent of the need to maintain a relationship due to signicant perceived termination or switching costs. It is a calculation of costs and benets, including investments and available alternatives to replace or make-up for foregone investment. This is close to Moorman et al.s (1992) suggestion that commitment is enduring and reects a positive valuation of a relationship. The two-dimensionality of commitment was also empirically conrmed in channel relationships (Kumar et al., 1994; Geyskens et al., 1996). Thus, we propose: H1. Both affective commitment and calculative commitment are positively related to customers intention to continue the relationship. Antecedents of relationship commitment Commitment is something that is built gradually during the development of a relationship, and parties can be committed for different reasons. Summarising earlier studies, several general antecedents to relationship commitment can be identied; relational bonds that are created between the parties during the course of the relationship, the trust that has been established between the partners, and the service quality. Relational bonds. Both the (American) marketing channels literature as well as the (European) literature of the Industrial Marketing and Purchasing Group (IMP Group) (cf. Ford, 1990; Moller and Wilson, 1995; Ghauri, 1999) argue that business relationships develop and grow by the incremental investments that are made in the relationship by the parties. Channel management literature describes this as the growing interdependency between the partners, whereas the IMP Group describes this as the creation of relational bonds between the parties. These bonds can be structural or social in nature. Structural bonds. Structural bonds are the ties created on a corporate level in a relationship that, if terminated, will result in considerable economical or nancial costs for the parties.
The creation of a structural bond happens when the two parties make investments that cannot be retrieved when the relationship ends, or when it is difcult to end the relationship due to the complexity and cost of changing sources (Turnbull and Wilson, 1989, p. 233).

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The more investments are made in a relationship, the more difcult its disengagement becomes and the more a party will be committed to continue the relationship. This concept is related to the (inter)dependency of the parties in the relationship and is similar to the power-dependence and transaction cost theories that are used in channel marketing research. A partys dependence on the other party is regarded as an important antecedent to its relationship commitment. Dependence has been dened in the marketing channel literature in different ways (Heide and John, 1988; Anderson and Weitz, 1992; Ganesan, 1994; Morgan and Hunt, 1994; Kumar et al., 1995; Andaleeb, 1996), and is largely determined by the importance of the relationship to a party and the replaceability of the partner. In service relationships, little attention has been paid to the structural bonds between the parties. Halinen (1996) argues that corporate investments are not as large in service relationships as in other business relationships. Customers have to invest in

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knowledge and information exchange to help the service provider produce the service, but hardly any tangible or heavy capital investments (e.g. machinery) are necessary in these relationships. Yet, the customer-specic expertise that is built-up over time is a valuable and costly asset that will be lost at a switch (Levinthal and Fichman, 1988). Furthermore, there can be a considerable degree of dependence on the service provider created by its importance for the partys business or by the lack of alternatives. Hence, we propose that: H2a. The strength of the structural bonds between the two parties will inuence a partys calculative relationship commitment positively. H2b. The strength of structural bonds between the two parties will inuence a partys affective relationship commitment. Social bonds. Social bonds are the ties that are created between the interacting individuals of the two partner organisations. Although the fundamental basis of a business relation is economic exchange, personal exchange is its by-product. The social bonds are the interpersonal relationships between the buyer and the seller (Turnbull and Wilson, 1989; Bendapudi and Leone, 2002), which are the glue that holds the individuals together. Personal contact enhances the inter-organisational communication and information exchange, which will enhance the development of the relationship as a whole. Wilson (1995) found that buyers who have a strong personal relationship with the sellers are more committed to maintaining the relationship than less socially bonded partners. In service relationships, there is ample opportunity to establish social bonds, and in some cases, the professional is the organization in the eyes of the customer. Seabright et al. (1992) found that the length of the personal relationship with an auditor is more indicative of a clients propensity to switch than the relationship with the organization as a whole. Also, Moorman et al. (1993), Halinen (1996) and Harris et al. (2003) found that the social ties are positively related to the strength of business service relationships. Bendapudi and Leone (2002) provide an example of a customers relationship with a particular employee, which can be stronger than the customers relation with the vendor rm. We suggest that: H3. The strength of the social bonds between the parties will inuence a partys relationship commitment positively. Trust. In the marketing channel literature, special attention is paid to the role of trust in the relationship. Because bonds and investments in a relationship expose parties to dependence and make them vulnerable to the actions of the other party, trust is needed for a relationship to develop. Only if the partner is considered trustworthy will a party be willing to invest in and become committed to the relationship. The interaction and network theorists classify trust as a social bond between the parties (Turnbull and Wilson, 1989). However, although trust is essentially a social construct, it has clear economic implications. Trust has been dened as a rms belief that another party will perform actions that will lead to positive outcomes for the rm, as well as not take unexpected actions that can lead to negative outcomes (Anderson and Narus, 1990). It can be recognized as a willingness to rely on a partner in whom one has condence (Moorman et al., 1993). This denition refers to a behavioral dimension. Trust is regarded as a valuable asset in a relationship. It reduces perceived uncertainties and

risk and is considered a key variable for relationship success (Morgan and Hunt, 1994; Kemp and Ghauri, 1998; Boersma et al., 2003). Moreover, trust is found to be an important antecedent to relationship commitment in business relationships (Anderson and Weitz, 1992; Dwyer et al., 1987; Moorman et al., 1992; Ganesan, 1994; Geyskens et al., 1996; Morgan and Hunt, 1994). Sirdeshmukh et al. (2002) conceptualize trust and provide an analysis of behaviors and practices of service providers that build or deplete trust. They also study the mechanisms that convert customer trust into loyalty in relational exchanges. For services in particular, authors argue that trust is a crucial element in the exchange because of the high perceived risk attached to the intangibility, complexity and long-time horizon of services (Crosby et al., 1990; Berry, 1995). Thus, trust is found to be an important antecedent to a partys relationship commitment (Moorman et al., 1993; Halinen, 1996; LaBahn and Kohli, 1997; Ghauri and Fang, 2001). H4. The degree of trust instilled by the partner will inuence a partys relationship commitment positively. Service quality. Business marketing literature argues that satisfaction is an important but not a necessary condition for a party to be committed to the relationship. The investments made in the relationship can be so high or the quality of the available alternatives so bad that a party is willing to continue the relationship despite deteriorating satisfaction. Ganesan (1994) found that satisfaction is directly and signicantly related to a partys relationship commitment, whereas Morgan and Hunt (1994) found that it did not contribute signicantly to a partys commitment in comparison with structural ties, trust, and shared values. Bolton and Lemon (1999) conclude that customers usage level of a particular service can be managed through customer satisfaction management. Thus, although satisfaction is positively related to a partys relationship commitment, its relative contribution, compared to the other antecedents, might be very small or non-signicant. Halinen (1996) and LaBahn and Kohli (1997) investigated the impact of service outcome satisfaction on commitment. However, they did not include the other antecedents in their study. Both found it to be positively related to customers relationship commitment. Hence, we can propose that service quality as such will be positively related to customers relationship commitment: H5. The perceived service quality will inuence a clients relationship commitment positively. Our main question is whether service quality contributes signicantly to customers commitment relative to the inuence of the relational bonds and trust between the parties. This relative contribution of service quality is explored empirically in our research. The ve hypotheses are summarised in the research model (see Figure 1), which is tested in the empirical research. Research design As a research setting we chose the advertising sector. It is a business service market where long-term relationships exist, it has been deregulated for a long period of time (in Europe), and it excludes any disturbing inuences from regulations on the

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Figure 1. Research model

agency-client relationship. We used triangulation to study the concepts and their interrelations. A two step approach was followed for empirical research. First, we conducted a qualitative exploratory study consisting of a literature review, key-informant interviews, and interviews with agencies, depicting typical agency-client relationships to understand the dynamics of agency-client relationships and the factors that play a role in their development and maintenance. The relevance and sufciency of the proposed variables were assessed, and indications were sought for their measurement. The interviews were semi-structured, conducted face-to-face at the respondents premises, and lasted between 1 and 2 hours. Both the literature review and the interviews conrmed the existence of affective commitment (Halinen, 1996; LaBahn and Kohli, 1997) and supported our hypotheses. The hypotheses that deal with antecedents of commitment were also conrmed and no new variables were added. The social bonds between the interacting individuals were found to be important. Regarding the structural bonds, different factors were identied that can form a structural bond in service relationships. Trust was conrmed to be an important aspect in the relationship, in accordance with previous empirical studies in the advertising market (Halinen, 1996; LaBahn and Kohli, 1997). Service quality has not been studied previously, but it is established that dissatisfaction with the work produced is the most important reason to terminate an agency-client relationship (Wackman et al., 1987). Most of the respondents interviewed in our research stated that the quality of the agencys work was the most important reason to maintain the relationship. In the second empirical step we conducted a large-scale eld study to test the model. The questionnaire was sent to clients of advertising agencies. Although relationships are reciprocal processes, we restricted the study to the clients side because we were not interested in the dynamics of agency-client relationships as such (Halinen, 1996) but in the importance of service quality within this process. Service quality is a

customer-based concept dened as customers quality perception (Parasuraman et al., 1985) and can only be measured from the clients side. Furthermore, it is mainly the customers opinion and attitude that determine whether a relationship is maintained in the long term. Our question focuses on the maintenance of existing relationships. Therefore, we approached clients who had a relationship with their agency for at least one year. These clients (i.e. advertisers) and their representatives were selected through two channels: First, we approached the two Dutch trade associations of advertising agencies and asked for support of our research among their members. Then we approached the member agencies of the trade association to ask for their co-operation in our research, and 33 agencies agreed to participate. These agencies identied 438 clients with whom they had at least a year-long relationship and who used at least strategic and/or creative concept services (i.e. core service of agency). Furthermore, they identied 6,111 representatives of these clients who had personal experiences with the agency and decision power over agency decisions. A questionnaire with a pre-paid return-envelope was sent to this group. Secondly, we approached the Dutch Association of Advertisers (BVA), which represents the 284 largest advertisers, and asked the Association to distribute our questionnaire among its members. BVA agreed to co-operate and sent the questionnaires with a supporting cover letter to its members. The respondents were asked to return the questionnaire in the prepaid return envelope directly to us at the university address. Since no information was available on the nature of agency relationships of the BVA members before the mailing, we asked them to indicate whether their relationships satised the same criteria as the agencies from the rst group (i.e. one year relationship, core services, personal dealings and decision power). In total 1,112 questionnaires were sent to representatives of 705 Dutch advertisers. After two weeks a reminder letter was sent to all of them.

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Sample and representativeness Finally, 241 completed questionnaires were returned, amounting to a response rate of 22 per cent of respondents and 31 per cent of companies approached. This is a reasonable response rate considering that 20 per cent is a normal response rate in comparable studies among advertisers in the US and Germany (Verbeke, 1988; Clemens, 1994; LaBahn and Kohli, 1997). Several tests of sample representativeness were conducted. Chi-square difference tests and t-tests on the ve items show that there are no signicant differences (at 1 per cent level) on any item between the total client-group selected by the agencies and the clients that responded from this group. As such pre-research information was not available for the BVA members, we compared their answers on these items to the answers of the agency clients. The BVA-members scored signicantly higher on two items, i.e the communication budget and client importance. This difference was to be expected, since the BVA represents the largest advertisers with higher budgets. Finally, we compared early (within two weeks) and late (after reminder) respondents on the same ve items, regardless of their source. The two groups did not differ signicantly on any of the items (at 1 per cent level), thus decreasing the likelihood of non-respondent bias.

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Respondent description The sample consists of FMCG producers (40 per cent), service providers (29 per cent), and business-to-business (16 per cent) companies. Retailers and non-prots were represented only marginally. This distribution across industries is comparable to the number of companies per industry in The Netherlands in 1995 according to the Central Bureau of Statistics. Large, medium, and small-sized companies are almost equally represented in the sample. Large companies, however, predominate in the sample (37 per cent). The respondents are mainly communication directors (45 per cent), marketing directors (19 per cent), and managing directors (14 per cent), with decision power ranging from important inuencer to nal decision-maker. The relationship length ranges from 1 to 75 years, with an average of 6.2 years and a median of 4 years. This is comparable to what Verbeke (1988) found in the Dutch advertising market and what Michell (1988) found in the British advertising market. Measures All measures were analyzed for validity and reliability using the conrmatory analysis proposed by Steenkamp and Van Trijp (1991) for validating social constructs. We used several measures for uni-dimensionality and scale reliability, such as item-total correlations, exploratory factor analysis (principal axis factoring), and conrmatory factor analysis using LISREL-8. The items and the scale properties after the scale analysis are summarized in Table I. Relationship commitment. The two dimensions of relationship commitment, i.e. affective and calculative commitment, were operationalised using the scales developed by Kumar et al. (1994) and Geyskens et al. (1996). The nal measures for both dimensions were valid and reliable (see Table I). Relationship intentions. The scales used by Kumar et al. (1994) were adapted to measure clients intentions to stay and to search for alternatives. The validation of these measures showed that both intentions reect two sides of one underlying construct the intention to stay. The items were merged into one scale which was found to be reliable and valid (see Table I). Structural bonds. Since structural bonds are different for business service relationships, we used the scales proposed by Wilson and Mummalaneni (1990), Heide and John (1988) and Halinen (1994), and adjusted them based on our interviews in the advertising industry. Several bonds were suggested to be relevant in these relationships: . investments in knowledge and classied information were termed investment bonds; and . considerable costs of switching due to the lack of transparency of the service market and the long start-up costs with a new agency perceived by the client were termed switch bonds. Finally, we found from our interviews that some clients were tied to their agency by company internal rules and regulations (e.g. contracts, directions from the headquarters, or shares in the agency). To reect the external nature of these bonds we termed them stuck bonds. We found reliable and valid scales for each type of structural bond (see Table I).

Mean SD 0.80 0.90 1.2 0.85 1.2 1.2 0.59 0.43 0.72 0.26 0.34 0.12 0.49 0.28 0.50 0.27 20.20 20.05 0.29 0.43 0.73 0.74 0.08 0.58 0.78 0.16 0.73 0.24 0.73 0.29 0.12 0.33 20.21 0.01 0.08 0.35 0.32 0.33 0.22 0.14 0.29 1.4 1.5 1.5 0.82 0.91 0.90 0.78 0.76 0.68 0.85 0.76 0.84

Composite reliabilitya Trust

Investment bonds

Switch bonds

Stuck bonds

Social bonds

Service quality

Affective commitment

Calculative commitment

3.5 3.6 2.3 3.7 5.3 5.2

Investment bonds Switch bonds Stuck bonds Social bonds Trust Service quality Affective commitment Calculative commitment Stay intentions

4.9

3.1 5.3

0.20

Notes: aComposite reliability is a measure of scale reliability that is preferable to the Cronbachs a measure because it takes the measurement error of each item into account; composite reliability (Sl)2/ [(Sl)2 + S(12 l 2)] (cf. Hair et al., 1995); the bonds are measured on a ve-point scale, while the other variables are on seven-point Likert scales

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Table I. Descriptive and correlation matrix

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Social bonds. We used the scales proposed by Halinen (1994) and Wilson (1990) to measure the social ties between the parties. The scale measured the social network between the parties and the degree of personal affection. After purication, two items remained that measured the frequency and intensity of interactions. Trust. Trust was measured using the scales developed by LaBahn and Kohli (1997) and Moorman et al. (1993) that were used and validated in business services markets. These measures were also found to be reliable and valid in our research (see Table II). Service quality. Service quality was measured by three items that asked for customers overall quality rating of the agency services, absolute as well as relative to their competitors. The service quality was measured by perception scores, because empirical studies consistently show that perception scores alone are a better predictor of customers service quality assessment (Parasuraman et al., 1994). The scale was valid and reliable (see Table I). Analysis and results Table I shows the means, standard deviations, and intercorrelations between the research variables. The standard deviations are relatively high (from 0.8 to 1.2 on ve-point scales and from 1.2 to 1.5 on seven-point scales), indicating that there is variation in the answers that can be explained (for the endogenous variables). The correlations in Table I give a rst test of our hypotheses. As proposed, both affective and calculative commitment are signicantly and positively correlated with the intentions to stay (0.73 and 0.20, respectively). The structural and social bonds, trust and service quality are also signicantly related to affective commitment (ranging from 0.21 to 0.78), with stuck bonds displaying a negative correlation. All proposed antecedents are signicantly and positively related to calculative commitment, with an exception of stuck bonds and trust. Before providing an interpretation of these ndings, we will test the hypotheses in more depth, using structural equation modeling. This method allows us to test all hypotheses simultaneously, accounting for measurement errors in the research constructs. The research model was tested using LISREL-8. We produced composite scale scores for each research construct using the composite reliability, which takes the

Figure 2. Proposed structural research model

measurement error into account (the scale mean is used and the error variance is xed to 1 2 reliability scalevariance; Baumgartner and Homburg, 1996). These composite measures were used in the structural model in which the causal relationships are dened as proposed in the research model (see Figure 2). The covariance matrix was used as input and the exogenous constructs were allowed to correlate freely. The t of the proposed structural model to the data is moderate (x 2 45:5, df 22, p 0:002, RMSEA 0:069, GFI 0:96, AGFI 0:89, CFI 1:0). Chi-square is signicant, indicating that this model is signicantly different from the observed interrelationships between the variables. The other t indices show a moderate t of the model to the data (both the GFI and AGFI are on or above their recommended 0.90 level). To assess the extent of this model t, we compared the t-statistics of this model to the t-statistics of the saturated model (Gerbing and Anderson, 1988). This is the model in which all concepts are allowed to correlate freely without any constraints on their causality. The t of this model is the maximum t that is possible for any structural model using the constructs as dened. Thus, it can serve as a comparison standard. A chi-square difference test between the t-statistics of both models shows a signicantly higher chi-square value, with six extra degrees of freedom. This means that the structural model does not explain the covariances between the items as is theoretically possible (Anderson and Gerbing, 1988). Adjusting the research model Analysis of the residuals shows that the interrelations of the stay intentions with both service quality and the stuck bonds are insufciently explained by the proposed model. This analysis indicates that a direct path from service quality to clients stay intentions and from the stuck bonds to the stay intentions should be added to the model. Before these paths are added for statistical reasons, their theoretical meaning has to be assessed. Stuck bonds ! stay intentions. A direct effect of the stuck bonds on the stay intentions means that the contracts and regulations that tie a customer to its agency will inuence their stay intentions directly, regardless of their degree of commitment. Contracts force/motivate a client to stay regardless of the desire or perceived need to do so. Therefore, we add this path to the model. Service quality perception ! stay intentions. Adding a direct path from service quality to stay intention means that service quality can inuence clients stay intentions directly, regardless of customers relationship commitment. This direct effect of service quality on behavioral intentions has been found in many service quality studies (see, for example, Zeithaml et al., 1996) and is thus theoretically well grounded. Since the inuence of service quality on long-term relationship maintenance is the core issue in this study, the addition of this path to the model gives us more insight into the role that service quality plays in service relationships. Therefore, we extend the model with this path as well. This alternative model was estimated using LISREL-8. The addition of each path to the initial proposed model resulted in a signicant decrease in the chi-square value of the model (at 1 per cent level). The alternative model with two added paths shows a good t to the data (see Table II). To assess the comparative t, we compared the t of this model to the initial model and to the saturated model. Table II shows that the

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alternative model ts the data signicantly better than the proposed model, and that it ts equally well as the saturated model, which means that the interrelationships between the constructs are maximally explained by the model. To increase the validity of the model, we constrained each insignicant path to zero. None of these constraints had a signicant effect on the chi-square value of the model (at 5 per cent level), indicating that these relationships should be regarded as zero (or non-) relationships. This adjusted model is presented in Figure 3 and the results are described in Table III. Table III shows that a large amount of variance in affective commitment and stay-intentions is explained by the antecedents in the model, the squared multiple correlations are 68 and 64 per cent respectively. Affective commitment is signicantly inuenced by the clients perceived service quality and trust in the agency. The stuck bonds also inuence affective commitment signicantly, but negatively. Stay intentions are inuenced by customers affective commitment and directly by the perceived service quality and the stuck bonds. Calculative commitment does not
Absolute t statistics Models Saturated model (Ms) Proposed model (Mt) Unconstrained model (Mu; two suggested paths added)

x 2 difference tests
Models Mt-Ms Mu-Mt Mu-Ms Mc-Mu Mc-Ms Dx 2 21.7 19.6 1.93 4.84 6.77 Ddf 6 2 4 11 15 p value 0.001 , 0.00 0.75 0.94 0.96

x2
23.8 45.5 25.7 30.6

df 16 22 20 31

p value 0.094 0.002 0.17 0.49

Table II. Fit statistics and difference tests of nested alternative models

Constrained model (Mc; NS relations from Mu set to 0)

Figure 3. Final structural model with estimated parameters

Antecedents Service quality Trust Stuck bonds Switch bonds Social bonds Investment bonds Affective commitment Calculative commitment Multiple R 2

Standardiseda coefcients (t-values) Affective commitment Calculative commitment 0.55 (5.75) 0.32 (3.15) 20.13 (2 2.06) 0 0 0 0.68 0 0 0 0.32 (3.91) 0 0 0.10

Stay intentions 0.32 (3.01) 0.21 (3.01)

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0.53 (4.69) 0 0.64 Table III. Results nal model

Notes: aParameters shown as 0 are proposed relationships that were found to be insignicant: their constraint to 0 did not inuence the t of the model, and therefore they shown as 0; t statistics nal model: x 2 30:6, df 31, p 0:49, RMSEA 0:0, GFI 0:98, AGFI 0:95, CFI 1:0

inuence the stay intentions signicantly, and is to some extent (10 per cent) explained by the switch bonds. Relationship commitment in service relationships. H1, which deals with the inuence of affective and calculative commitment on relationship intentions, is partly conrmed. The analysis of the measurement model showed that commitment is indeed multidimensional, and we found reliable and valid measures for both an affective and a calculative commitment dimension in these service relationships. Affective commitment has a strong positive inuence on customers stay intentions. Customers calculative commitment is signicantly correlated (see Table I), but together with affective commitment does not contribute signicantly to customers stay intentions. This indicates that this commitment dimension is not a strong motivation for clients to stay in the relationship. Antecedents to relationship commitment. Two of the three measured structural bonds inuence clients affective as well as calculative relationship commitment. In addition, we found that the stuck bonds have a positive direct inuence on customers stay-intentions. This means that although they diminish clients desire to stay, they increase the likelihood that they will stay exactly because they are stuck to the relationship. The stuck bonds are not signicantly related to calculative commitment, indicating that rules and contracts do not contribute to the perceived need to continue the relationship. The switch bonds are positively related to customers calculative commitment, as expected. The more difculties a client experiences in switching to another agency, the more s/he feels the need to continue working with the present agency. The third hypothesis, regarding the effect of the social bonds, is rejected. The social bonds do not inuence clients relationship commitment signicantly. Perhaps a different measure of this concept could have provided a better insight into the effect of this variable on relationship commitment. This nding is not consistent with earlier studies (e.g. Harris, 2002; Halinen, 1996). We believe that it is partly due to the nature of advertising sector, where the service itself and its impact/satisfaction is more important than personal relationship. However, this needs closer attention in future research.

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The fourth hypothesis, regarding the effect of trust, is conrmed by the analysis. Trust is positively and strongly related to clients affective commitment. Even though trust can be regarded as an important relationship asset that would inuence customers perceived need to continue the relationship, the analysis shows that trust is not signicantly related to customers calculative commitment. The fth hypothesis, which deals with the effect of customers perceived service quality, is also conrmed. Service quality is positively and very strongly related to customers affective commitment. Furthermore, service quality also directly contributes to clients relationship intentions, regardless of their desire or perceived need to stay in the relationship. This means that apart from its effect on customers relationship commitment, the delivered service quality can be a motivation in itself to continue a relationship. Importance of service quality. The main question concerning the relative contribution of service quality to relationship commitment can now be answered. The results in Table III show that service quality makes the highest contribution to customers affective commitment (0.55) compared to the trust (0.32), the stuck bonds (2 0.13), and the other proposed antecedents. In addition to this strong effect on commitment, it has a direct inuence on customers intentions directly. This nding conrms that quality is not only related to a potential start of a relationship (i.e. intentions) but also to its long-term maintenance (i.e. commitment). Discussion In this article we developed a model of how service quality contributes to the long-term maintenance of service relationships. The main goal was to assess the contribution of service quality to the maintenance of an existing service relationship relative to other (relationship) factors that inuence a partys commitment during a relationship. Our ndings indicate that service quality contributes very strongly to the maintenance of long-term customer relationships. Its impact on customers commitment was found to be stronger than the impact of trust, which is regarded as a key mediating variable in other business relationships (Morgan and Hunt, 1994). Furthermore, we found that service quality is not only strongly related to customers affective commitment, but also directly related to their behavioral intentions. This is an important contribution to existing research on service quality. The ndings conrm the positive effect that has been frequently found between service quality and customers stay intentions (Zeithaml et al., 1996). Our ndings suggest that even if customers do not feel affective commitment they would still be inclined to stay if their agency produces good quality work. It is, however, questionable whether the perceived quality as such is a sufcient motivation to maintain a relationship in the long term. If customers are not also affectively committed, the relationship will dissolve more easily once problems occur. Real customer loyalty originates from the part of service quality that contributes to customers affective commitment. This overriding importance of service quality in customers commitment is consistent with what LaBahn and Kohli (1997) found for service relationships. The absence of calculative motives in maintaining a relationship is underscored by the nding that neither the investment in the relationship nor the social bonds play a signicant role in clients commitment. However, we found that clients do invest in

time, effort, and knowledge and that they do perceive switching costs (means are 3.5 and 3.6, respectively, on a ve-point rating scale). Furthermore, switching costs contribute to the calculative commitment, but again this is not reason enough to keep the relationship. The investments are interpreted differently in service relationships than relationships where the investments are more tangible, for example in channel relationships (Kumar et al., 1994; Geyskens and et al., 1996). This can be explained by the fact that in services the investments are less tangible than in many other business relationships (Ganesan, 1994; Wilson, 1995). Nevertheless, the absolute contributions of both structural and social bonds to customers affective commitment were signicant with correlations ranging from 0.19 to 0.35. Our study thus conrms the ideas expressed by Halinen (1996) and Seabright et al. (1992), who argued that in service relationships the structural bonds are of a different nature and less strong than in other business relationships because of the intangibility of the investments. On the other hand, these authors and others (Harris et al., 2003) also argued that the social bonds will be more important in service relationships, which is only conrmed in our study by the correlation between social bonds and commitment (r 0:30, p , 0:05) but not by the relative contribution. In theoretical terms, the correlation analysis shows that investments play a role in service relationships even if they are of a different nature. The powerful technique of structural equation modeling shows that their effect is not signicant when other antecedents are taken into account. The inuence of service quality and trust overshadows the effect of other antecedents, which has implications for the meaning of these variables.

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Managerial implications The study reveals that service quality is the most important factor in establishing long-term customer relationships and thus customer retention. The client-specic expertise developed by the service provider is a valuable asset and personal ties between individuals involved are crucial in establishing long-term business relationship. However, service quality is relatively more important than trust and social bonds. Once such a relationship is developed, switching costs are considered to be high, and that increases the desire of the parties to stay in the same relationship. The study also reveals that efforts to keep clients by formal agreement has no positive inuence on establishing a long-term relationship. For managers, it means that creating relationship commitment through service quality is more important than binding customers in long-term contracts. In service relationships it seems that the only underlying motivation or attitude that will keep a relationship in the long term is customers affective desire to stay. This is an important nding, for it means that the perceived need to stay is not very strong and service customers cannot be locked in to a relationship. Interestingly, we found no signicant correlation between the length of the relationship and customers affective or calculative commitment, indicating that there is nothing intrinsically built during the relation that makes clients more prone to stay or committed to the relationship. Regardless of the length of the relationship, service providers should continuously make sure that customers are affectively committed. Our study shows that service quality and trustworthiness have the strongest effect on their commitment dimension.

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Concluding remarks The ndings of this research suggest several avenues for further research. First of all, this study was conducted in one service industry and replication is needed in other sectors. Some of the ndings might be particular to advertising services. Even though clients need consistency in their advertising and would benet from long-term relationships, they also need creativity and originality, which, according to customers, diminishes when the agency becomes too familiar with a client. Furthermore, clients have to invest in very few tangible assets in these relationships. It would be interesting to study service relationships where customers have to make more tangible investments in the relationship than in agency-client relationships, such as auditor-client relationship where clients use provider-specic software to make the auditing task more efcient. These investments will be lost if they switch to other auditors, and might become a motivation to keep the relationship. The weak contribution of social bonds should be studied further, since they might be of particular relevance for particular service relationships. The nal measure we used in the analysis consisted of the frequency and intensity of interactions, which is a rather limited conceptualisation of this construct. Due to operationalisation reasons, we excluded the variables that measured the interpersonal liking and friendship, or the click, between the interacting individuals, which was found to be an important aspect in agency-client relationships in other studies. A different measure of this concept might provide more insight into the effect of this variable. Furthermore, research can be done on the effect of different aspects of the service quality concept as service quality is regarded and found to be a multidimensional and complex concept (Parasuraman et al., 1985; Bolton and Drew, 1991). An interesting avenue for further research is to investigate which dimensions of customers quality perception contribute to their relationship commitment. Finally, this study raises another question regarding service relationships in general. The current fashion to lock customers in by increasing the switch barriers might not be a very successful strategy if long-term protability and deep selling are the goal of these relationships. Tying customers for reasons other than the excellence of your services might actually diminish the chance that customers develop an affective commitment to the company even if they are satised with the service.
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Erratum EJM, Vol. 38 No. 9/10

Owing to errors in the production of the article Export performance as an antecedent of export commitment and marketing strategy adaptation: evidence from small and medium-sized exporters by Luis Filipe Lages and David B. Montgomery, pp. 1186 1214, in the above issue, some of the items in Table II are misaligned. The correct table is shown in the article on the Emerald Fulltext web site. The Production Department sincerely apologises to the authors and readers for this error.