The Relationships Among Perceived Quality, Customer Satisfaction and Customer Retention

This research constructs a scale to measure the perceived quality of Haidilao hot pot restaurant, and then evaluates the relationships among perceived quality, customer satisfaction and customer retention by the structural equation model and multiple regression analysis. The main findings are as follows: (1) Both perceived service quality and perceived product quality positively influence customer satisfaction significantly, moreover, perceived service quality imposes greater impact on customer satisfaction than perceived product quality in the hot pot industry. (2) Customer retention is significantly directly influenced by perceived service quality and customer satisfaction, but there was no significantly direct effect between perceived product quality and customer retention. (3) Service empathy is the most vital dimension of perceived quality to influence customer satisfaction and customer retention, which followed by service responsiveness and assurance, special product, service tangibles, and general product

The Relationships Among Perceived Quality,

Customer Satisfaction and Customer Retention: An

Empirical Research on Haidilao Restaurant

Jing WANG School of Economics and Management

Beihang University Beijing, China Jim08@buaa.edu.cn

Lijuan CHENG School of Economics and Management

Beihang University Beijing, China Chenglijuan1985@hotmail.com

Abstract—This research constructs a scale to measure the

perceived quality of Haidilao hot pot restaurant, and then

evaluates the relationships among perceived quality, customer

satisfaction and customer retention by the structural equation

model and multiple regression analysis

The main findings are as follows: (1) Both perceived service

quality and perceived product quality positively influence

customer satisfaction significantly, moreover, perceived service

quality imposes greater impact on customer satisfaction than

perceived product quality in the hot pot industry (2) Customer

retention is significantly directly influenced by perceived service

quality and customer satisfaction, but there was no significantly

direct effect between perceived product quality and customer

retention (3) Service empathy is the most vital dimension of

perceived quality to influence customer satisfaction and customer

retention, which followed by service responsiveness and

assurance, special product, service tangibles, and general product

Keywords- Perceived quality; Customer satisfaction; Customer

retention

I INTRODUCTION Haidilao restaurant is a very famous brand of the hot pot

catering industry in China, because it can offer customers the

extraordinary perceived quality, especially the perceived

service quality Some researchers of marketing have paid

attention to this restaurant from the perspective of case study;

however, they just describe the successful phenomenon

qualitatively but not analyze the inherent principles

quantitatively

In recent years, perceived quality has attracted the

considerable interests of both practitioners and researchers

mainly in services marketing (Cronin & Taylor, 1992;

Parasuraman, Zeithaml & Berry 1996) Most of them believe

that high perceived quality contributes to higher customer

satisfaction and leads to the customer retention Previous

studies of marketing have presented that the core competitive

advantage of the enterprise is the enhancement of customer

satisfaction and customer retention (Patterson & Spreng, 1997;

Landrum & Prybutok, 2004) Thus better understanding the

relationships among perceived quality, customer satisfaction

and customer retention will not only help academics develop

the model of customer decision making but also provide suggestions to practitioners for acquiring more customers Since the number of academic studies on perceived quality

of the Haidilao restaurant is still limited, this study attempts to design a scale for measuring the perceived quality of it and further examines the relationships among perceived quality, customer satisfaction, and customer retention to find out which dimensions of perceived quality are significantly correlated with customer satisfaction and customer retention The results can provide valuable reference information for the whole catering industry or other service providers to enhance their perceived quality and customer satisfaction

II LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT

2.1 Perceived quality

As quality is a multidimensional concept that cannot be easily defined or measured, a distinction can be made between objective quality and perceived quality Objective quality refers

to the actual technical excellence of the product that can be verified and measured (Monroe & Krishman 1985) In contrast, perceived quality is the consumer’s judgment about a product’s overall excellence or superiority (Zeithaml 1988) Most of the definitions in the marketing literature stress that quality are consisted of tangible product quality and intangible service quality Hence the perceived quality can also be classified as perceived product quality and perceived service quality Product quality can be measured by some specific criterions varying with different industries The focus of this article is to measure the perceived quality of the hot pot industry Though the hot pot product is highly homogeneous, various restaurants can also supply some special products Hence, the product quality can be classified into two dimensions, that is, general product and special product

Service quality is very difficult to be defined and measured due to the intangibility, and the prevailing instrument is called SERVQUAL model which is developed by Parasuraman et al (1988) This model measures service quality by calculating discrepancy between customers’ expectations and their perceived

978-1-4577-2025-3/12/$26.00 ©2012 IEEE

performance of a service, including five dimensions, namely

tangibles, responsiveness, reliability, assurance, and empathy

Although the model has drawn attention from the academic

and the practical circles, many scholars have questioned about

the conceptual framework and measurement method of this

model For instance, Cronin and Taylor (1992) pointed out that

using SERVPERF model (the perceived service performance in

SERVUQAL) to measure service quality produces better

results of reliability, validity, and predictive power than using

SERVQUAL Some other scholars (Boulding et al.,1993;

McAlexander et al.,1994; Zeithaml et al.,1996) also verified

that SERVPERF is more accurate than SERVQUAL in the

measurement of service quality So, this study will apply

SERVPERF scale to measure the perceived service quality of

Haidilao restaurant, moreover, the service quality is composed

of the same five dimensions as the SERVUQAL model

It can be concluded that the measurement of perceived

quality are consisted of seven dimensions, which are general

product, special product, service tangibles, service

responsiveness, service reliability, service assurance, and

service empathy respectively (See Figure1)

Figure 1 Components of perceived quality

2.2 The effect of perceived quality on customer satisfaction

The importance of customer satisfaction and perceived

quality to service firms is evident (Jones and Sasser, 1995)

And the terms perceived quality and satisfaction have been

used interchangeably, especially among practitioners However,

Rust and Oliver (1994) proposed that perceived quality and

satisfaction differ in two ways: perceived quality is a more

specific concept based on product and service features, while

satisfaction can result from any dimension (e.g loyalty,

expectations) In addition, perceived quality can be controlled

to a certain degree by a company while satisfaction can not

Thus, it is suggested that “when perceived quality and

satisfaction are regarded as overall assessments, perceived

quality is understood as an antecedent of satisfaction and

therefore precedes it” (Llusar, Zornoza & Tena 2001, p.721)

Previous studies of conventional retailing have pointed out

that perceived service quality positively influences customer

satisfaction (Cronin et al., 2000; Johnson & Fornell, 1991)

Similar conclusions have been proposed in the studies on the

relationship between perceived product quality and customer

satisfaction (Bei & Chiao, 2001; Tsiotsou, 2005) Thus,

Hypothesis 1 and Hypothesis 2 are proposed as follows:

H1: Perceived service quality positively influences customer

satisfaction

H2: Perceived product quality positively influences customer

satisfaction

2.3 Customer retention

Customer retention can be regarded as the favorable behavioral intentions that consumers will purchase the goods or services at the same store and deliver their use experiences to friends and relatives (Cronin et al., 2000; Zeithaml et al., 1996) Zeithaml et al.(1996) compiled a list of specific favorable behavioral intentions, including loyalty, switching intentions, willingness to pay more, external response, and internal response Boulding et al (1993) used repurchase intention and word of mouth (WoM) to evaluate customer behavioral intentions Repurchase intention is the process of an individual purchasing goods or services from the same firm (Hellier et al 2003), and the reason for repurchase is primarily based on past purchase experiences Compared with attracting new customers, enterprises can spend less on marketing to retain old customers WoM is a process in which consumers who have used a certain product or service pass their experiences through word of mouth to consumers planning to purchase the product or service (Westbrook, 1987) Consumers who have not experienced or fully understood the properties of a certain product or service may usually rely on WoM to acquire information (Bansal & Voyer, 2000) Therefore, compared with external marketing strategies, WoM is more important and influential to customer’s attitude and behavior (Harrison-Walker, 2001)

Therefore, this paper conceptualizes customer retention as a higher-order construct consisting of positive word of mouth, and repurchase intention

The significance of perceived quality also derives from its beneficial impact on customer retention, although different research findings have been reported Some scholars support a positive direct effect of perceived quality on customer retention (Boulding, 1993; Parasuraman et al 1996), others report only

an indirect effect through satisfaction (Cronin & Taylor 1992) and yet others argue that both relationships exist (Tsiotsou 2006) In summary, there are various opinions about the relationships between the perceived quality and customer retention, but most of marketing scholars agree that a positive influence exists between these two constructs Hence, Hypothesis 3 and 4 are presented as follows:

H3: Perceived service quality positively influences customer retention

H4: Perceived product quality positively influences customer retention

Furthermore, many studies of customer satisfaction have demonstrated a positive relationship between customer satisfaction and customer retention (Brady et al., 2001; Cronin

et al., 2000) Consumers with a higher level of satisfaction tend

to have a stronger intention to repurchase and recommend the product or service That means when customer satisfaction is enhanced, repurchase will happen more frequently Thus, Hypothesis 5 is stated as follows:

H5: Customer satisfaction positively influences customer retention

Figure 2 shows the proposed structural model based on the above literature review

Perceived

Quality Composed Or

Perceived Product Quality

Perceived Service Quality

general product special product

tangibles responsiveness reliability assurance empathy

Perceived service

quality

Perceived product

quality

Customer satisfaction Customer retention H1

H2

H3

H5 H4

Figure 2 Structural model III RESEARCH METHODOLOGY

3.1 Questionnaire design and construct measurement

The questionnaire used in this article was constructed on

the basis of many related literatures Several scales were

borrowed from previous studies and minor modifications were

made to some items to suit the context of Haidilao hot pot

restaurant Particularly, SERVPERF scale is the most

important reference for measuring the perceived quality

After the draft was completed, a pretest was conducted on

customers familiar with Haidilao restaurant to modify items

with ambiguous expressions The formal questionnaire was

composed of three sections: the first section intended to obtain

every subject’s basic personal data, making use of nominal

measurement scales; the second section measured the subject’s

perception of the perceived quality constructs in the structural

model, including service quality and product quality All scale

items were assessed by seven-point Likert scale ranging from 1

= “strongly disagree” to 7 = “strongly agree”; the third section

was used to investigate the respondent’s overall evaluation to

customer satisfaction and customer retention Similarly, the

seven-point Likert scale was adopted

Owing to the superiority of the SERVPERF model in

performance-based measures, it is used widely in various fields

and the content validity of the questionnaire could be ensured

The detailed operationalizations of the research constructs are

as follows

(1) Perceived quality: The construct of perceived service

quality was initially grounded on the five dimensions (tangibles,

responsiveness, reliability, assurance, and empathy) and was

measured by 22 items adapted from Zeithaml et al.(1988) to

Han et al.(2008) After the pretest was performed, these items

were purified to 19 items for the same five dimensions and

modified to match the services context of Haidilao restaurant

The construct of perceived product quality was measured

based on the two dimensions (general product, special product)

and 7 items which derived from the quality definition of hot

pot product made by Li et al (2010)

(2) Customer satisfaction: Customer Satisfaction is

customers’ cumulative impression on the service performance

of a firm (Johnson & Fornell, 1991) In terms of catering

industry, customer satisfaction is the post-purchase evaluation

and affective response to the overall product and service

experience in a restaurant In this paper, the perception of

customer satisfaction was measured by two-item measures

including product satisfaction and service satisfaction

(3) Customer retention: Customer retention construct was measured by two-item measures adapted from the previous literature (Cronin et al.,2000), which were repurchase intention and positive word of mouth as mentioned in section 2.3

3.2 Sample selection and data collection

This survey was conducted in Beijing because the Haidilao restaurant has a huge impact on the catering industry of this city The heated discussion about its superior perceived quality not only exists among consumers by word of mouth, but also spreads across the internet users mainly by microblog According to the interview with the managers of Haidilao restaurant and the consuming experiences, Haidilao is a medium-grade restaurant and most of the consumers are the white-collar employees from various industries in the age group of 25-40 Therefore, if this group of customers were selected for samples, the results would be representative of the population to some extent

We delivered a number of questionnaires to the white-collar employees from different companies who had ever experienced the product and service in Haidilao restaurant The internet tools were fully applied, such as E-mail address, online survey website and microblog etc Moreover, the purpose of this study and notices were explained in advance and the necessary assistance was further provided to the respondents during the survey to reduce the occurrence of invalid response

A total of 250 questionnaires were distributed, and the response rate was 100% Excluding the respondents not in the selected age group (age 25-40) and those who didn’t answer the questions completely, finally 199 valid questionnaires were obtained Among the samples collected, male respondents (55.7%) were the majority In terms of education background, bachelor degree or above accounted for 95.1% In terms of purchase times, 82.3% of them purchased 2 times or above With respect to the occupations, there were various types ranging from information technologist to administrative personnel, and the technologist ranked first by 35%

In general, the demographical characteristics of the samples can meet the research requirements and then specific data analysis and results will be presented in the following section

IV DATA ANALYSIS AND DISCUSSION

4.1 Factor analysis of the measurement model

This article adopted structural equation modeling (SEM) to verify the proposed model and hypotheses, meanwhile, selected SPSS17.0 and AMOS17.0 as the analysis tools Thus the reliability and validity must be tested by factor analysis in order to ensure the accuracy of construct measurement

Firstly, the exploratory factor analysis (EFA) was performed to purify the scale of perceived quality for the sake

of deleting the “garbage items” which do not have the common core The Bartlett sphericity test revealed that KMO value was 0.94, which signified that the data was appropriate for factor analysis Then the Principal Component Analysis, with varimax rotation, eigenvalue greater than 1 and factor loadings greater than 0.4, was used to proceed the EFA It means that

the items which factor loadings are less than 0.40 would be

deleted This process was iterated until an optimal result was

obtained Then Cronbach’s Alpha coefficients were calculated

to test the reliability of the dimensions

The results of EFA showed that 2 items were removed, and

the rest of 17 items of perceived service quality converged into

3 common factors with eigenvalue greater than 1 Namely, the

original five dimensions were simplified into 3 dimensions

which were renamed as “service tangibles”, “responsiveness

and assurance”, and “service empathy” respectively The only

change was that responsiveness, reliability and assurance were

integrated into one dimension, and the other two dimensions

remained constant Likewise, the 7 items of perceived product

quality were also analyzed by EFA and successfully converged

into 2 common factors, that is, “general product” and “special

product”, which were consistent with the original proposals

In summary, the measurement of perceived quality should

be modified to 5 dimensions, which were “service tangibles”,

“responsiveness and assurance”, “service empathy”, “general

product” and “special product” respectively The Cronbach’s

Alpha coefficients for all five dimensions exceeded 0.70

(ranging from 0.77 to 0.92), providing evidence of reliability

The final measurement items and factor analysis results were

presented in Table 1

The validity of the measurement model was verified by

confirmatory factor analysis (CFA) in AMOS17.0 Firstly, the

overall model fit indices can be gained as follows: χ2 =

320.316 (df=301 p=0.000; χ2/ df = 1.064), GFI = 0.925, AGFI

= 0.850, RMR= 0.053, RMSEA = 0.041, CFI= 0.908 All the

model-fit indices exceeded the respective common acceptance

levels, indicating that the measurement model of perceived

quality had a good match with the data collected

CFA can also be used to measure the convergent validity,

and discrimination validity of measurement model As shown

in Table 1, the factor loadings of all the items reached the level

of significance (t>5, p<0.001), meaning that a good convergent

validity could be obtained Meanwhile, the discrimination

validity was adequate which could be seen from the correlation

matrix of all the latent constructs

4.2 Structural model fitting and hypotheses test

After verified the reliability and validity of the

measurement model, we input the sample data and the

structural model into the AMOS17.0 The model-fit indices

were estimated with the maximum likelihood, and the results

were stated as follows: χ2 = 490.536 (df=326 p=0.000; χ2/ df =

1.505), GFI = 0.913, AGFI = 0.820, RMR= 0.065, RMSEA

=0.05, CFI= 0.932 A good model fit was revealed by

comparing all the fit indices with the recommended values

Furthermore, the path coefficients of the structural model

were estimated to verify the hypotheses Figure 3 shows the

standardized path coefficients and t-values of the latent

variables It can be seen that most of the hypotheses were

strongly supported, except for hypothesis H4 (c = 0.221; t =

0.819)

The discussions are stated as follows

Table 1: EFA and CFA results of perceived quality scale

Dimension Items factor loading t-value Standardized

Service tangibles (SQ1) Alpha=0.766

The restaurant's appearance and internal decoration are attractive 0.661 The dinner area is comfortable

and the toilet is clean 0.809 5.943*** The employees are well dressed

Responsiveness and assurance (SQ2) Alpha=0.920

Accurately record demand and provide the correct bill 0.878 Make the customers feel the

service safe and dependable 0.907 11.746*** Help customer solve the

problem they encountered in the restaurant with enthusiasm 0.907 12.068*** The employees always are polite 0.841 11.096*** The personnel are good trained

The restaurant can provide their services at the time they promise 0.853 9.880*** The employees can respond the

requests promptly even when

They can tell the customers exactly when services will be

Service empathy (SQ3) Alpha=0.912

Provide special services such as poker game and beauty nail when customers wait in line 0.876 The employees actively transfer

the hand sanitizer and polish shoes in the bathroom 0.910 10.485*** Provide apron, sleevelet, and

glasses cloth etc to make consumers better taste the hot

pot

0.816 8.753*** The restaurant can adjust the

service time to meet the needs of

The employees can give customers personal attention 0.818 5.816*** The employees are willing to

introduce the menu and cooking

General product PQ1 Alpha=0.902

Basic products (such as meat, vegetables, staple food and beverage) are delicious 0.872 There are a variety of food to

The food is healthy and fresh 0.916 11.659*** Tableware is clean and beautiful 0.854 8.455***

Special product PQ2 Alpha=0.820

There are many special products (such as noodle performance,

Additional product are various (such as free fruit and cold dish) 0.879 11.812*** The product quantity is flexible

to be adjusted (such as half of the order, return the vegetables

ordered)

0.718 7.220*** Notes: ***p<0.001

Perceived service

quality

Perceived product

quality

Customer satisfaction Customer retention

0.646***

(5.36)

0.181***

(3.72)

0.372***

(4.87)

0.824***

(8.015) 0.221

(0.819) *** p<0.001 indicates the path relationship is

insignificant Values within the bracket is t-value

Figure 3 Hypotheses testing results (1) The effect of perceived quality on customer satisfaction

Perceived service quality had a positive direct effect on

customer satisfaction (c1 = 0.646; t1= 5.36) Hence H1 was

verified successfully In other words, when the hot pot

restaurant provides good service quality, customer satisfaction

can be enhanced significantly H2 was also supported strongly

owing to perceived product quality had a positive direct effect

on customer satisfaction (c2 = 0.181; t2= 3.72)

It can be noted that c1 > c2, indicating perceived service

quality will impose greater impact on customer satisfaction

than perceived product qualityd in the hot pot industry The

main reason is that the products of hot pot are homogeneous, so

the customers attach more importance to the service quality in

different restaurants Therefore, the hot pot enterprises should

endeavor to improve the perceived service quality so as to

acquire more customer satisfaction

(2) The effect of perceived quality and customer

satisfaction on customer retention

As expected, customer retention was significantly directly

influenced by perceived service quality (c3 = 0.372; t3=4.87)

and customer satisfaction (c5 = 0.824; t5 =8.015), so H3 and

H5 were supported It was no doubt that customer satisfaction

was strongly correlated with customer retention And the

perceived service quality not only indirectly influenced the

customer retention through customer satisfaction, but also

imposed some direct effect on customer retention The

importance of perceived service quality was quite obvious in

the hot pot industry

It implies that when customers have high perceptions of

service quality and high levels of satisfaction in a hot pot

restaurant, they are more likely to repurchase the products and

service of this restaurant or to recommend their friends and

relatives to do so

However, perceived product quality had no significantly

direct effect on customer retention (c4= 0.221; t4 = 0.819), so

H4 was not supported As mentioned above, the competitive

advantage of hot pot industry has been converted from product

into service; consequently, the impact of perceived product

quality is decreasing gradually, but it still could indirectly

impact the customer retention through customer satisfaction

4.3 The effects of different dimensions of perceived quality on

customer satisfaction and customer retention

As verified in the path analysis (Fig 3), perceived quality

had significant and positive impact on customer satisfaction

and customer retention However, which dimension of perceived quality would most significantly influence the two latent constructs was unknown Thus multiple regression analysis was used to identify the influential dimensions The results were shown in table 2

Table2 The results of regression analysis

Path relations Regression weights Standardized t-value

service tangibles ==> customer

responsiveness and assurance ==>

service empathy ==> customer

general product ==> customer

special product ==>customer

service tangibles==> customer

responsiveness and assurance ==>

service empathy==> customer

general product==> customer

special product ==> customer

Notes: *p<0.05, **p<0.01, ***p<0.001 According to Table 2, the five dimensions of perceived quality all had significantly positive effects on customer satisfaction Moreover, the effect of “service empathy” ranked first (0.627), followed by “responsiveness and assurance” (0.536), “special product” (0.272), “service tangibles” (0.239), and “general product” (0.103)

Customer retention was also influenced significantly by the three dimensions of perceived service quality, but the two dimensions of perceived product quality had no significant effect on it That was consistent with the analysis results of above hypotheses test Therefore, the effects of perceived quality on customer retention were as follows: the “service empathy” ranked first (0.385), followed by “responsiveness and assurance” (0.301), “service tangibles” (0.153)

In a word, service empathy was the most vital dimension of perceived quality to positively influence the customer satisfaction and customer retention It means that the hot pot restaurant needs to pay more attention to the customer’s individual preference and inner demands Even when the food may be completely ordinary, but if the waiters and waitresses are very friendly and attentive, customers are willing to come back and repurchase the food frequently Besides that, service responsiveness and assurance played an important role in the process of satisfying and retaining the customers Meanwhile, the improvement of special product quality could also enhance the customer satisfaction obviously

V CONCLUSION The purpose of this study was to analyze the relationships

among perceived quality, customer satisfaction and customer

retention in the hot pot industry, especially in the Haidilao

restaurant Some prevailing research methodologies were

adopted, such as questionnaire survey, structural equation

model (SEM), factor analysis and multiple regression analysis

Firstly, this article designed a scale for measuring the

perceived quality of Haidilao hot pot restaurant Then the scale

was purified through exploratory and confirmatory factor

analysis, which identified five dimensions of perceived quality,

including service tangibles, responsiveness and assurance,

service empathy, general product and special product The final

measurement model was verified with adequate reliability and

validity

Furthermore, a structural model was proposed to examine

the relationships among perceived service quality, perceived

product quality, customer satisfaction, and customer retention

in Haidilao restaurant The research model was strongly

supported by the data collected from the white collar

employees of various firms in Beijing The results showed that

both perceived service quality and perceived product quality

positively influenced customer satisfaction significantly, and

perceived service quality imposed greater impact on customer

satisfaction than perceived product quality in the hot pot

industry Therefore, the hot pot enterprises should endeavor to

improve the perceived service quality so as to acquire more

customer satisfaction

Meanwhile, customer retention was significantly directly

influenced by perceived service quality and customer

satisfaction, but there was no significantly direct effect between

perceived product quality and customer retention The reason is

that the competitive focus of hot pot industry has been

converted from product into service and the impact of

perceived product quality is decreasing gradually

Finally, it was further discussed about the effects of

different dimensions of perceived quality on customer

satisfaction and customer retention The results of regression

analysis revealed that service empathy is the most vital

dimension of perceived quality, which followed by service

responsiveness and assurance, service tangibles, special

product and general product

In terms of the limitation of our study, there are some issues

Even if this article succeeds in validating the measurement

scale of perceived quality in Haidilao restaurant, but the

original seven dimensions of perceived quality were modified

into five dimensions, which may raise doubts about the content

validity of the scales In addition, some respondents’

characteristics may affect the results of multiple regressions,

such as gender, education background, and the purchase times

The model of this paper didn’t consider these variables

For future research, it is suggested that the measurement

scale should be further modified with the survey context and

tested by a large number of samples Moreover, the research

model can be improved by considering the demographic

characteristics as the moderator variables

This research was supported by the National Natural Science Foundation of China (Grant No: 71172016)

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