The key factors impact on customer loyalty in APL logistics VIETNAM luận văn thạc sĩ

This study will help to APLL board of management can consider their operation, knowing what factor need to improve to keep their customer in the competitive market Key word: APLL, custom

Ministry of Education and Training University of Economics Ho Chi Minh City

Nguyễn Thị Hạnh

THE KEY FACTORS IMPACT ON CUSTOMER LOYALTY IN APL

LOGISTICS VIETNAM

ECONOMICS MASTER THESIS

Ho Chi Minh city - 2010

Ministry of Education and Training University of Economics Ho Chi Minh City

ECONOMICS MASTER THESIS

Supervisor: Dr Trần Hà Minh Quân

Ho Chi Minh city - 2010

appreciation to my research Supervisor, Dr Tran Ha Minh Quan for his precious guidance, share of experience, ceaseless encouragement and highly valuable suggestions throughout the course of my research

My special gratitude is extended to all instructors at Faculty of Business Administration and Postgraduate Faculty, University of Economics Ho Chi Minh City (UEH) for their support and the valuable knowledge during my study in UEH

Many thanks to all my classmates in MBA class, Batch 16 for their valuable and enthusiastic support for this research study

Last but not least, the deepest and most sincere gratitude

go to my beloved parents, my husband for their boundless support, abundant love and encouragement throughout my period of study I, therefore, dedicate this work as a gift

to them all

Tp Ho Chi Minh, 2010

This study will help to APLL board of management can consider their operation, knowing what factor need to improve to keep their customer in the competitive market

Key word: APLL, customer loyalty, service quality, proactive improvement

TABLE OF CONTENT

Acknowledgement 1

Abstract 2

Table of contents 3

List of figures 5

List of table 6

Chapter 1: Introduction 1.1 Introduction 7

1.2 Research background 10

1.3 Research questions 11

1.4 Research methodology 13

1.5 Scope and Limitation 13

1.6 Implications of research 13

1.7 Structure of the study 14

Chapter 2 Literature Review 16

2.1 Customer loyalty……… ……….… 16

2.1.1 Definition ……… ……….……… 16

2.1.2 Effect of customer loyalty ……… ….17

2.2 Factors impact on customer loyalty ……… ……… 18

2.2.1 Service quality……… ………….24

2.2.2 Proactive improvement……… ……25

2.2.3 The trust……… … 27

2.3 Research model ……… 30

Chapter 3: Methodology 31

3.1 Research process……… 32

3.2 Research design……… …… 33

3.2.1 Research object……… ……33

3.2.2 Research method……… ……… 33

3.3 Questionnaire design……… …… 34

3.3.1 Questionnaire for service quality factors…… ……….34

3.3.2 Questionnaire for proactive improvement factor……… …….35

3.3.3 Questionnaire for the trust factor………… ……….36

3.3.4 Questionnaire for customer loyalty factor………… ……… 37

3.4 Pretest interview……… ……….37

3.5 Sample……… …………38

3.6 Survey method ……… …… 38

3.7 Data analysis techniques ……… ………39

3.8 Conclusion ……… ……….39

Chapter 4: Research result ……… ……… 40

4.1 Introduction ……… ………40

4.2 Descriptive statistics of sample …… ……… 41

4.2.1 Final sample ……… ………41

4.2.2 Characteristics of sample ……… 41

4.2.3 Descriptive statistics of variable ……… ………….42

4.3 The construct measurement scale … ……….44

4.3.1 Reliability testing ……… …………46

4.3.2 Exploratory factor analysis for factor impact to customer loyalty.48 4.3.3 Verify research model ……… 51

4.3.4 Linear regression analysis ……… … 51

4.3.5 Testing the hypothesis ……… ………54

Chapter 5: Conclusion ……….56

5.1 Summary ……… ………56

5.2 Conclusion from the research ……… ………57

5.3 Discussion of the research findings ……… 58

5.4 Managerial implications ……… ………61

5.5 Recommendations for further research … ……….62

List of References ……… …………63

APPENDIX 1: Questionnaire ……… 67

APPENDIX 2: SPSS result ……… 70

LIST OF FIGURES

Figure 1.1 Logistics process ……… ……… 9

Figure 2.1: Factors impact on customer loyalty … ……… 24

Figure 3.1: Research process ……… ……… 32

Figure 4.1: The structure of chapter 4 ……… ……….40

Figure 4.2 Main business between customer & APLL .………41

Figure 4.3: Kind of APLL customer ……… ………42

Figure 4.4: Confirm model of research …… ………52

LIST OF TABLES

Table 2.1: Determinants of customer loyalty in empirical research .20

Table-3.1 Adaptation of “service quality” ………….… ……….35

Table 3.2: Adaption of proactive improvement …… ……… 36

Table 3.3: Adaption of the trust ………… ……… 37

Table 3.4: Adaption of customer loyalty ……… 37

Table 4.1: Descriptive statistics …… ……… 43

Table 4.2: Reliability statistics … ………47

Table 4.3: Exploration factors analysis ……… 50

Table 4.4: Dimension of customer loyalty ……… 51

Table 4.5: Linear regression analysis ……… 52

Table 4.5: Coefficients analys……… ….52

CHAPTER 1: INTRODUCTION

1 Introduction:

Customer loyalty is widely accepted by market as being something that's worth nurturing, with many previous analysts and researchers are showing the value of loyalty programmers in terms of greater spending and satisfaction, more profitable customer behavior, reduced defection levels, and unique competitive advantages But what are the main business factors that directly influence the loyalty of your customers?

Investigation therefore about the factors that in influent to customer loyalty gained importance then classic marketing paradigm with its instrumental and transactional oriental proved unsuitable in the context of longer term business relationship

Just like other business, logistics service provider are faced with increasing competitive pressure that urges them to concentrate is not only on operational business processes but also on an efficient and effective customer management

In Vietnam, the 3PL industry gained 15-20% GDP, GDP Vietnam in 2006 is about US 57 billion and logistics revenue is US 8 – 11 billion It can be shown that there is a big revenue in logistics industry that our business should concentrate it Therefore logistics is a major role in our industry & there are many foreign companies access to our countries to develop this field such as: DAMCO, NYK logistics, APL logistics …

APL Logistics is established from NOL group NOL began life in 1968 as Singapore's national shipping line, wholly owned by the Singapore government, just as it was becoming clear that containerization was the way of the future

In 1997 NOL bought America's oldest shipping company, American President Lines (APL)

APL was nearly twice the size of NOL and was over of 150 years old Now

fully integrated, the NOL Group has more than 10,000 staff globally and operates two core businesses: APL, a global top-10 container transportation company and APL Logistics, which provides international end-to-end logistics services in more than 130 cities and 56 countries

APL and APL Logistics serve the international transportation and logistics needs of a diverse customer base, ranging from multinationals with highly complex supply chains to small and medium-sized importers and exporters APL Logistics designs and operates global supply chains that deliver products

to everywhere you need them Our innovative end-to-end solutions use data connectivity for greater visibility and control APL Logistics provides the resources necessary to support your supply chain Services include shipment consolidation and deconsolidation, global freight forwarding and customs management, regional warehousing and distribution networks and IT solutions that increase supply chain performance and reduce costs

APL Logistics' predecessor companies pioneered trade in China and throughout Asia more than a century and a half ago and today we are recognized as a leading innovator in worldwide logistics and technology management With more than 300 offices serving over 55 countries, our 4,500 seasoned logistics professionals offer local expertise throughout a truly global

network As an independent unit, APL Logistics' revenues have grown to nearly $1.3 billion (USD) As a wholly owned subsidiary of the $8.2 billion NOL Group, APL Logistics offers strength and experience you can rely on Major customer: Nike, Gap, Deichman, Charming Shoppes, Restoration Hardware, Warner Brother, 3M, Birds-Eye, Bobcat, Colgate-Palmolive, Dell Computer, General Motors, Newell Rubbermaid, Nike, Procter & Gamble, Hornbach, …

Customer vendors: Li & Fung, Hungfung, Wellsum, Smart Elegant, …

Figure 1.1 : Logistics process

In Vietnam, APL logistics officially established in 1995 with 100 per cent foreign owned enterprise although NOL group has already entered to Vietnam market since 1992 The offices of APL logistics are located in the key markets like Hai Phong, Hanoi, Da Nang and Ho Chi Minh City Until now, the company has 13 years of local business experiences and holds 74 full time employees with average of 3 years experience and 70 per cent employees who are under the age of 30

APLL group investments in Vietnam also include Vietnam International

Container Terminals (VICT), the first dedicated container port in Ho Chi Minh City

2 Research background

Since the beginning of the 1990s, customer loyalty has gained importance both relationship marketing research and in business In business, this can be attributed to changing the market and competition-environments (Prit-chard, Havitz, and Howard 1999, p333) Due to a shift from a seller to a buyer market and because of an increasing degree to globalization, most industries find themselves confronted with new challenges In a first phase, firms tried to face these challenges by focusing on their internal processes and organizational structures, trying to achieve cost reductions by concentrating on internal improvements A second phase external focus follows, where firms directed attention to their customers, trying to retain existing ones and to win over new ones (churning) Since “acquiring new customers is much more expensive than keeping them” (Stone, Woodcock, and Wilson, 1996), loyalty customer is the bedrock of any business” (Caruana 2000, p.811) According to Fornell (1992, p.7) and Fourier and Yao (1997, p.251) market shares have to be secured by retaining customers in markets facing low growth-rates and high competition

To Aaker (1996, p.106), “a loyalty customer base represents a barrier to entry,

a basis for a price premium time to respond to competitor innovation, and bulwark against deleterious price competition.” Baldinger and Rubinson (1997, p.14) show that “loyalty is critical to brand volume, is highly correlated

to market share; consequently, understanding loyalty appears critical to any meaningful analysis of marketing strategy.”

3 Research question

This present study is making to find out the factors that influence to customer loyalty in the APLL Vietnam, and that will help APLL have a overview about their customer evaluation & expectation as well as put forward strategy to improve their service & keeping their customer in the competitive environment as well as crisis economic at the moment

Therefore, this study intends to address two issues:

Q1: What are the factors impacts on customer loyalty in APLL

Q2: Which factor is main impact to customer loyalty at APLL

3.1 Hypothesis

Until now, there are many researchers have investigated about the factors impact to customer loyalty According to Peter Clark, co-editor of The Wise Marketer and co-author of The Loyalty Guide report series, there are six major factors that play key roles in influencing the loyalty and commitment of customers There are core offering, satisfaction, and elasticity level, share of wallet, the market place and demographics Besides, Fassnacht and Daus 2004, p.5-7 have structured in three dimensions: firstly, company-related determinants refer to the supplier itself or to the goods or services offered It is

a prerequisite for the existence of customer loyalty that the offered goods or services create utility for the customer and that they are available In this respect, an assessment is usually performed by examining quality In order to evaluate the price-performance ratio, customers will pay attention to prices Customer loyalty will also be influenced by the reputation a company has and

ultimately by customer loyalty programs offered Secondly, related determinants play a significant role in long-term relationships Factors regarding the interaction between supplier and customer, such as relationship quality, previous experiences, and trust are important Commitment, which provides evidence of emotional closeness and moral or normative feelings of obligation, takes a central role in relationships Specificity and dependence can lead to economic, psychological and social switching barriers Thirdly, customer-related determinants are mainly influenced by customers’ characteristics In this respect, affect and involvement, and consequently also the importance of the good or service to the customer, are important In addition, the effects of the market environment and competition are researched, as is the link between satisfaction and loyalty, which plays an important role in the research of customer loyalty and is often placed in one of the three dimensions However, as most other determinants influence satisfaction, it cannot be clearly separated and should therefore be listed as a distinct category

relationship-Base on above analyst the importance of customer loyalty & the necessary finding the main factors, we suppose below hypothesis to service this present study:

H1 Service quality has a direct positive effect on customer loyalty in APLL

H2 Proactive improvement has a direct positive on customer loyalty in APLL

H3: Trust has a direct positive on customer loyalty in APLL

As above hypotheses, we will implement to research whether those factors are importance roles to impact on customer loyalty & what is the most importance factors to APLL to help APLL board of manager have correct strategy to keep their customers

4 Research methodology

This research is implementing through two steps: preliminary research & official research Preliminary research is making by interview to 10 customers This research will help to complete the research method & edit the suitable questionnaire Especially, official research by using questionnaire survey to interview clients for collect necessary data’s The collected data is processed

& draw the result by SPSS tool

5 Scope and limitation

Due to limit time & capacity, this research is only focus on the main internal factors impact to customer loyalty and has not yet come to external factors impact to the customer loyalty such as the situation of economic, human resource, … Besides, there has not yet compared with other competitors to know clearly about competitors Therefore, the further research in external factors & competitors will be carrying out when necessary

6 Implication of this research:

As outlined in the preceding sections, logistics industry is confronting with diverse management challenges that result from continuous growth

globalization and customer diversity The aim of the present study therefore is

to determinants the factors influent to the customer loyalty

Firstly, this present study also helps board of manager in APLL knowing the main factors that influence to their customers loyalty, have an overview about their customer evaluation about their service quality Then they will have strategy in marketing & their operation to keep & develop the customer loyalty

Secondly, the present study is positioned at the interface of marketing and logistics and is intended to contribute not only to logistics research but also to research in marketing, customer loyalty & cultural studies

7 Structure:

This research is structured into 5 chapters

Chapter 1: Introduction introduces the research including research

background, research questions, hypotheses, a brief research methodology overview, implications and limitations of research

Chapter 2: Literature Review provides a literature review of service quality,

proactive improvement, trust

Chapter 3: Methodology discusses methodology utilized in the research,

details the research methodology design, research procedures and justification

of the data analysis Chapter 3 also supplies details of questionnaire and the development of the survey

Chapter 4: Research Results describes sampling and processing data, presents

analyzing the data collected and the findings of the research

Chapter 5: Conclusion and Implication points out conclusion and implication

from the findings of this research project, based on the research questions and hypotheses This chapter also discusses the implications, contributions and limitations of the research in the world of business administration In addition, the recommendations for further research are provided

CHAPTER TWO: LITERATURE REVIEW

In this section, determinants of customer loyalty, as proposed in chapters one will be conceptualized These are service quality, ‘proactive improvement, trust Below information gives an overview of the determinants discussed in this chapter

2.1 Customer loyalty

2.1.1 Definition

As Balding and Rubinson (1997): Customer loyalty is the feelings or attitudes that would incline a customer to consider the re-purchase of a particular product, service or brand

Since the beginning of the 1990s, customer loyalty has gained importance both

in relationship marketing research and in business In business, this can be attributed to changing market- and competition-environments (Pritchard, Havitz, and Howard 1999, p 333) Due to a shift from a sellers’ to a buyers’ market and because of an increasing degree of globalization, most industries find themselves confronted with new challenges In a first phase, firms tried to face these challenges by focusing on their internal processes and organizational structures, trying to achieve cost reductions by concentrating on internal improvements A second phase of external focus followed, where firms directed attention to their customers, trying to retain existing ones and to win over new ones (churning) Baldinger and Rubinson (1997, p 41) show that “loyalty is critical to brand volume, is highly correlated to market share, and can be used as the basis of predicting future market share; consequently,

understanding loyalty appears critical to any meaningful analysis of marketing strategy”

As a result of the focus on relationships in marketing research, customer loyalty gained importance within research The next section will be shown what the affection of customer loyalty to our business

2.1.2 Effects of customer loyalty

As per Reichheld, Markey and Hopton (2000, p.135) state the following three effects that customer loyalty induces:

a “Revenues and market share grow as the best customers are swept into the company‘s book of business, building repeat sales and referrals”

b Costs shrink as the expense of acquiring and serving new customer and replacing old one decline

c Employee retention increases because job pride and job satisfaction increase, in turn creating a loop that reinforces customer retention through familiarity and better service to the customer Increased productivity results from increasing employee tenure

And we can see that customer loyalty has effects both on costs and on revenues, any company has to gear its effort towards the acquisition of new customers and retention of existing ones However, companies have to bear in mind that customer loyalty also leads to cost arising from measures aimed at increasing customer loyalty, but also product improvement that increase service quality and eventually customer loyalty (Reinartz, Thomas and Kumar

2005) Therefore, customer loyalty can only be assumed to have a positive impact on success, if its utility is in proportion to its cost (Wallenburg 2004, p.27)

So, all of manager in all companies in Vietnam should be identify the main factors that influent to their customer in our competitive economic They have development strategy to cut the cost & increase their revenue

2.2 Factors impact on customer loyalty

In order to be able to gear marketing activities towards the creation of customer loyalty, its determinants and their precise effects have to be known Accordingly, many researchers have investigated this topic In order to gain an overview of the determinants identified in these works, they can be structured

in three dimensions (Fassnacht and Daus 2004, p 5-7):

(1) Company-related determinants refer to the supplier itself or to the goods or services offered It is a prerequisite for the existence of customer loyalty that the offered goods or services create utility for the customer and that they are available In this respect, an assessment is usually performed by examining quality In order to evaluate the price-performance ratio, customers will pay attention to prices Customer loyalty will also be influenced by the reputation a company has and ultimately by customer loyalty programs offered

(2) Relationship-related determinants play a significant role in long term relationships Factors regarding the interaction between supplier and customer, such as relationship quality, previous experiences, and trust are important Commitment, which provides evidence of emotional closeness and moral or normative feelings of obligation, takes a central role in relationships

(3) Customer-related determinants are mainly influenced by customers’ characteristics In this respect, affect and involvement, and consequently also the importance of the good or service to the customer, are important

In addition, determinations impact to customer loyalty have been research in many empirical researches & listed as below:

Product and Servic

Table 2.1: Determinants of customer loyalty in empirical research

Product and Servic

de Ruyter and Bloemer (1999) X Garbarino and Johnson (1999) X x x Mittal, Kumar, and Tsiros (1999) X X X X Pritchard, Havitz, and Howard

(1999) X X X x Reynolds and Beatty (1999) X X x X Bolton, Kannan, and Bramlett

(2000) Gronholdt, Martensen, and

Kristensen X X X Chaudhuri and Holbrook (2001) x

De Wulf,

Odekerken-Schröder(2001) X X X Mittal and Kamakura (2001) X X X X Too, Souchon, and Thirkell (2001) Olsen (2002) X x X X Roehm, Pullins, and Roehm Jr

(2002) X Sirdeshmukh, Singh, and Sabol

(2002) X X x Hellier et al (2003) X X x Homburg, Giering, and Menon

(2003) x X Ranaweera and Prabhu (2003) x x X X X

Table 2.1: Determinants of customer loyalty in empirical research (cont)

Product and Servic

Yi and Jeon (2003) X X Bansal, Irving, and Taylor (2004) X X X X X x X Beerli, Martín, and Quintana

(2004) X Guenzi and Pelloni (2004) Verhoef (2003) X X x x X Harris and Goode (2004) X X X X Hennig-Thurau (2004) X Lam et al (2004) X Lewis (2004) X X Ngobo (2004) X X X Venetis and Ghauri (2004) X X X Wallace, Giese, and Johnson

(2004) Agustin and Singh (2005) X x X x X Algesheimer, Dholakia, and

Herrmann X X Bell, Auh, and Smalley (2005) X x X Borle et al (2005) X X x Fullerton (2005) X Gustafsson, Johnson, and Roos X X X Homburg and Fürst (2005) X X X Jiang and Rosenbloom (2005) x X X Lin and Ding (2005) X X X X

Table 2.1: Determinants of customer loyalty in empirical research (cont)

***Adapted from Fassnacht and Dauer 2004, pp 8-9 and extended for 2004-2005 ***

The above presented deliberations show that there is a multitude of potentially relevant factors determining customer loyalty Table 2-1 therefore provides an overview of empirical studies concerned with the analysis of customer loyalty determinants, which is based on a meta-analysis conducted by Fassnacht and Daus (2004) Determinants that were research by a considerable amount of studies which has shown that there are mainly factors impact on customer such

as product & service quality, trust and proactive improvement

Especially, in the research of David L Cahill based on Wallenburg research with topic “Customer loyalty in third party logistics relationship”, he has found out that there are two factors display the strongest effect on customer loyalty They are service quality & proactive improvement

Besides, APLL is the service company and if they want to keep their customer, they have to build the trust into their customer The trust is also play importance role in logistics business, so this study will be added one more factor, the trust to check it effect to APLL customer loyalty

Therefore, this study will base on that to use those factors to check these effects on customer loyalty in APLL

So this study is created to check if below factors impact on customer loyalty at APL Logistics in Vietnam & what does the factor play best importance to them

Service quality is a concept that has aroused considerable interest and debate

in the literature Relationship between satisfaction and service quality is the key to measure customer satisfaction ( Pitt et, al 1995)

Definition of service quality revolve around the idea that it is the result of the comparison that customers make between their expectation about a service and their perception of the way the service has been performed ( Lewis and Boom, 1983; Lehtinen and Lehtinen, 1982; Parasuraman et al 1985, 1988, 1991 & 1994)

Service quality has been considered as the link among customer satisfaction, customer loyalty & profitability

Corresponding to the conceptualization developed by Wallenburg (2004, p 98), service quality in this research is defined as the cognitive and effective evaluation of all experience made by a customer with the services provided by

an LSP Hence, service quality is assessed according to the disconfirmation paradigm (Brady and Cronin 2001, p 35) and it is independent from the

absolute and objective service level provided by the LSP Rather, service quality as perceived by the customer is considered, as only this leads to satisfaction

Besides, APLL is a service company, service quality is the internal factor which contributed its successful in competition market

Then the hypothesis is made as below:

H1: Service quality has a direct positive effect on customer loyalty in APLL

2.2.2 Proactive improvement

As delineated before, the changing market environment and increasing service requirements place new challenges on LSPs Not only do they have to operate existing logistics systems, but they also have to improve in order to become more efficient and effective, e.g because many firms today require LSPs to pass on efficiency gains in the form of price decreases at prescribed times during the relationship In order to be able to improve, LSPs have to be innovative and must be willing to incorporate their innovative abilities in the particular relationship with the customer These thoughts lead to the development of the concept of proactive improvement by Engelbrecht (2004) and Wallenburg (2004)

Even though researchers acknowledge the importance of continuous improvements in long-term relationships in general (e.g Narayandas and Rangan 2004, p 74) and in logistics outsourcing relationships in particular (e.g Boyson et al 1999, p 95), the concept of proactive improvement so far has only been studied by Engelbrecht (2004) and Wallenburg (2004) Therefore, very little indication is given on how to conceptualize proactive improvement The reason why proactive improvement has hardly been treated

in marketing literature, despite of its obvious appeal, is probably attributable to the circumstance that it is only important in long-term relationships

However, as pointed out before, the majority of the marketing literature focuses on consumer goods and retailing

Conceptually, proactive improvement can be base within the framework of social exchange theory and will have two major effects On the one hand, proactive improvement will lead to performance meliorations, as logistics systems are continuously improved Customer will achieve higher benefits from an logistics company that displays proactive improvement This will lead

to a comparative advantage for the logistic company, when the customer compares the achieved benefit

On the other hand, proactive improvement creates a positive signaling fact When an logistics conveys that it proactively improves logistics systems, this will create confidence with the customer In consequence, commitment and trust are nurtured, relational governance norms are established, and customers might be willing to forego present benefits for future benefits, when the logistics company displays proactive improvement In addition, Lemon, White, and Winer (2002, p 12-13) point out that customers are generally forward looking, such that the positive signaling effect in itself should foster a customer’s propensity to continue a relationship with an logistic company Empirically, two works so far studied proactive improvement In the customer loyalty context, Wallenburg (2004) was able to validate significant effects on service quality, additional purchases, and referrals In a study that examined success factors of logistics outsourcing, Engelbrecht (2004) found that proactive improvement significantly increases goal achievement in logistics outsourcing projects

In the sense of this study, proactive improvement is therefore defined as a customer’s affective and cognitive evaluation of an APLL’s efforts to proactively improve logistics systems Based on that, the second hypothesis was created as below:

H2: Proactive improvement has a direct positive on customer loyalty in APLL

2.2.3 Trust

According to Arrow (1975, p 24), trust is essential in all interorganizational relationships and enables companies “to focus on the long-term benefits of the relationship” (Doney and Cannon 1997, p 35), which is especially important

in markets characterized by increasing competition In order to meet competition more flexibly, many firms build collaborative relationships with buyers and suppliers In the context of professional services, however, Crutchfield (2001, p 19) points out that buyers “face considerable uncertainty due to service characteristics such as intangibility, complexity, and long-term horizon of delivery.” Trust can counteract the strong potential for service failure and negative outcomes and thus reduces the perception of risk (Lane and Bachmann 1996, p 390) As a result of trust, customers feel safe and secure in the relationship and will, in consequence, commit themselves to the continuation of the relationship (Liljander and Strandvik 1995, Doney, Cannon, and Mullen 1998) While there is no general unity about the definition of trust in the buyerseller- context, an often cited definition is again provided by Moorman, Zaltman, and Deshpandé (1992, p 315), who define trust “as a willingness to rely on an exchange partner in whom one has confidence.” This definition explicitly includes the behavioral intention to act, i.e to accept risks that would not be accepted if a partner was not trusted

(Morgan and Hunt 1994, p 23) and Moorman, Deshpandé, and Zaltman (1993, p 82) “argue that both belief and behavioral intention components must

be present for trust to exist.” Also, “[r]isk is a necessary condition for trust” (Molm, Takahashi, and Petersen 2000, p 1422) and as an antecedent to risk, Moorman, Deshpandé, and Zaltman (1993, p 82) regard ulnerability as another necessary condition, because without it, “outcomes are inconsequential for the trustor”

Another implication of this definition is its inclusion of two distinct components of trust, i.e credibility and benevolence Ganesan (1994, p 3) notes that credibility “is based on the extent to which the retailer believes that the vendor has the required expertise to perform the job effectively and reliably”, while benevolence “is based on the extent to which the retailer believes that the vendor has intentions and motives beneficial to the retailer when new conditions arise, conditions for which a commitment was not made.” This also marks the duality of trust On the one hand, trust is a result of credible and benevolent behavior by the supplier; while on the other hand, it connotes the expectation that behavior will remain credible and benevolent in the future Thus, credibility and benevolence are antecedents and consequences of trust at the same time

Lane (2000, p 3) summarizes that most concepts of trust share the following elements:

+ Interdependence between trustor and trustee Trust is only relevant, if “one’s consequential activities depend on the prior action or cooperation of another person” (Lane 2000, p 3; see also Luhmann 1973, p 43)

Risk or uncertainty in exchange relationships can be counteracted by trust Parties may be exposed to opportunistic behavior as a consequence of

uncertainty and risk and the resulting dangers can be limited by the existence

of trust (Yamagishi, Cook, and Watabe 1998, p 170)

+ Expectation that vulnerability is not taken advantage of Accepting risks may lead to vulnerability and the existence of trust reduces the involved dangers

Hence, trust “reduces the perception of risk associated with opportunistic behaviors of the vendor […], it increases the confidence of the retailer that short-term inequities will be resolved over a long period, and […] it reduces the transaction costs in an exchange relationship.” (Ganesan 1994, p 3) In the long-term, trust and the associated risk reduction bind buyers to their suppliers, as noted by Crutchfield (2001, p 20) Now that the notion of trust and its importance have been clarified, a definition must be provided as to whom trustors and trustees are There is little doubt that trustors can only be individuals Trustees, however, can be both organizations and individuals within organizations (Doney and Cannon 1997) Individuals can be trusted, as they are the key interface to an organization In addition, organizations as a whole can be trusted (Sako 2000, Sydow 2000) For instance, postal services are trusted to reliably deliver mail, independent of trust in a specific person, e.g the mail man

Thus this study will use the above stated definition of trust to investigate the third hypothesis:

H3: Trust has a direct positive on customer loyalty in APLL

2.3 Research model:

According to above three hypotheses, research model is set up following:

- The three independent variables: service quality, proactive improvement and trust

- The dependent variable: customer loyalty

For the next section, the research model will be analysis to find out the model:

Customer loyalty at APLL = f (service quality, proactive improvement, trust)

CHAPTER 3: METHODOLOGY

The previous chapter provides theoretical framework for the research This chapter provides an overview of business research and introduces research methodology used to build and assess the measurement scales, the statistical techniques employed to analyze the data, and testing the research hypotheses and research model as well

3.1 Research process: Figure 3.1

A survey of 250

customers

Reliability analysis

Exploratory Factor Analysis

Reliability analysis for new factors

Linear regression analysis

Revision Back translation

First draft

questionnaire

Pilot interview

Initial questionnaire Literature review

Test the hypotheses

Test the hypotheses

3.2 Research design

The present section will provide information on the design of data collection in this study For that, the research object, the appropriate data collection procedure, and targeted informants will be identified, before details on questionnaire design and data collection will be provided

3.2.1 Research objective

In order to find out what the factors impact on customer loyalty in APLL are and what it the most importance of factor that influence to customer service loyalty APLL

Choosing a type of research depends upon the research questions This study is designed to define what the factors impact on customer loyalty & which the main impact so “descriptive” is viewed as an appropriate research type Also, this research is designed to identify the cause-and-effect relationships between the other dimensions of brand equity and brand loyalty Thus causal research

is also implemented in combination with descriptive research In summary, a combination of descriptive and causal research is chosen for this research

3.3 Questionnaire design

The development of the questionnaire was based on the conceptualization of customer loyalty, its determinants, and relationship characteristics In order to decrease subjectivity and ensure interpersonal comparability, open questions were avoided Instead, questions were devised as statements and participants

of the survey were asked to indicate their level of agreement with each statement on a seven-point Likert-scale1

The actual survey then began with general questions about the respondents’ firms’ logistics and outsourcing activities, before continuing with questions about the relationship between customer & APLL

A third part was concerned with questions about the respondents’ situation versus its own customers, competitors, and corporate success The questionnaire closed with structural questions about the participant and its business unit The questionnaire is asked to APLL customer by emails or directly APLL customers are including in many kind of industries: garment, footwear, furniture …

Variable for three factors and variable to measure customer loyalty will be descript in next section

3.3.1 Questionnaire for service quality factors

Service quality, conceptualized as the satisfaction with the services provided

by APLL, has been subject to empirical scrutiny by a multitude of researchers Most commonly, service quality has been measured using the SERVQUAL instrument, which was developed by Parasuraman, Zeithaml, and Berry (1985, 1988) With its five-dimensional structure, the SERVQUAL instrument measures tangibles, responsiveness, empathy, reliability, and assurance In addition, several researchers who tested the SERVQUAL instrument in

different settings found that it is unapt in industrial service contexts (Bienstock, Mentzer, and Bird 1997, Mentzer, Flint, and Kent 1999) and Brown, Churchill Jr., and Peter (1993, p 138) doubt that “a scale to measure service quality can be universally applicable across industries.” Therefore, SERVQUAL is not employed in this research Instead, the instrument developed by Dabholkar, Shepherd, and Thorpe (2000, p 151) and modified

by Wallenburg (2004, pp 167-168) is used in this study

Addition, those variable will be employed Likert scale from 1 (very disagree)

to 5 (very agree) for measurement

Table-3.1 Adaptation of “service quality”

APLL do their work smoothly & efficiency s4

We are very satisfied with the way we interact with APLL s5

3.3.2 Proactive improvement

Proactive improvement is meant to measure the impetus with which APLL continually improves its customer’s logistics processes While proactive improvement is an important factor in logistics outsourcing relationships, a scale was only developed by Engelbrecht (2004) Previous logistics research,

as examined in the meta-analysis of scales used in logistics research by Keller

et al (2002), does not provide indication of a similar measurement instrument

For this reason, Wallenburg (2004, pp 182-183) modified the scale used by Engelbrecht (2004) and proposed the indicators displayed in Table 3.2

In order to measure proactive improvement, there are five items was created & measured by five point Likert scale from 1 – very disagree to 5 – very agree

Table 3.2: Adaption of proactive improvement

APLL put strong effort into continuously optimizing logistics

processes p1APLL continuously makes suggestions for improvements of activities,

even those outside its direct responsibility

p2When the situation changes, APLL by itself modifies the logistics

activities and processes, if this is useful and necessary

p3APLL shows initiative by approaching us with suggestions for

improvement

p4APLL shows a high level of innovation

p5

3.3.3 Trust:

Trustees can be both organizations and individuals For both constructs, the operationalizations are based on those provided by Wallenburg (2004), which are based on scales developed by Doney and Cannon (1997, pp 48-49) and complemented by indicators suggested by Werner (1997)

Table 3.3: Adaption of the trust

Regarding problem, APLL is always honest with us t2

APLL correctly carries out tasks that we cannot directly control

In order to measure proactive improvement, there are five items was created &

measured by five point Likert scale from 1 – very disagree to 5 – very agree

3.3.4 Customer loyalty

Finally, customer loyalty is also measure by 5 items with 5 point Likert scale

and was defined as below variable base on research of David L Cahill for “

Customer loyalty in the third party logistics”

Table 3.4: Adaption of customer loyalty

Right now, we intend to extend existing contracts with APLL L2

When we outsource additional services, we will first offer them to APLL,

3.4 Pretest interviews

Following questionnaire design, pretest interviews took place to identify

potential shortcomings of the survey instrument On this account, 10

interviews with professional experts As a consequence, minor modifications

were made regarding the wording of the questions that lead to an increased

comprehensibility and unambiguousness Overall, interviews perceived the questionnaire to be well structured and of tolerable length

3.5 Samples

The sample size is determined by the level of precision and confidence desired

in estimating the population parameters, as well as the variability in the population itself ( Canaval et al 2001) Tho & Trang (2008, page 350) suggest that the issue of “how large” has not been entirely resolved, but does depend

on the statistical methods used (e.g Maximum likelihood, generalized least squares and asymptotically distribution free), However, some researches suggest that the minimum sample size should be from 200 to 250 responses if using the Maximum Likelihood (ML) method So, the present study will be based on above suggestion to choose the sample size is 225

The questionnare is sent to almost of APLL customer such as garment company, footwear company, electronics and related instruments, industrial company Responers are almost board of manager in a company who have authorised to decide the third party logistics & im-export staff that has experience working with APLL

to encourage candidness and honesty in their responses, participants were