Thesis Master Business Administration – Marketing Track A customer at the local supermarket explores an offering “The role of customer delight in creating customer loyalty” Frédérique Beatrice Hanselaar 5940494 Final version – January 31, 2015 MSc. Business Administration – Marketing track Amsterdam Business School – University of Amsterdam Supervisor: Dr. A. Krawczyk 1 Statement of originality This document is written by Student Frédérique Beatrice Hanselaar who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents. 2 Table of contents 1. Abstract……………………………………………………………………………..p.4 2. Introduction…………………………………………………………………………p.5 3. Literature review……………………………………………………………………p.7 3.1. Customer Equity p.7 3.2. Loyalty p.7 3.3. Customer Delight p.8 3.4. Recession and loyalty p.10 3.5. Another point of view on loyalty strategy p.11 3.6. The supermarket environment in The Netherlands p.12 3.7. Interview with marketing director Jumbo, Mr. M. Moeken p.13 3.8. Research gap, research question, hypotheses and conceptual model p.14 4. Method……………………………………………………………………………..p.18 4.1. Sample p.18 4.2. Measurement of variables p.19 4.3. Statistical procedure p.22 5. Results……………………………………………………………………………...p.25 5.1. General results p.25 5.2. Correlation analysis p.26 5.3. Conditional effect: moderation p.28 5.4. Conditional effect: moderation for specific groups p.34 6. Discussion………………………………………………………………………….p.37 6.1. Theoretical and practical implications p.37 6.2. Limitations and further research p.41 7. References………………………………………………………………………….p.43 8. Appendixes…………………………………………………………………………p.48 Appendix 1: Atmosphere impression of Trader Joe’s Appendix 2: Marketing campaign Jumbo 2014: Roy Donders, #samenvierenwekerst and Top-3 ranked ‘Gouden Loeki’ commercial ‘Moestuin’ Appendix 3: Questionnaire in Dutch Appendix 4: Questionnaire in English 3 1. Abstract What should major food retailers in the Netherlands nowadays do to attract and remain loyal customers? Should they for example follow the US model and delight customers with joy, surprise and humor? To answer these questions, the moderating role of the customer delight factors; joy, surprise and humor are investigated on the effects of three types of customer loyalty strategies. These strategies are value equity (VE), brand equity (BE) and relationship equity (RE), together called the customer equity drivers (CED). The hypotheses are developed based on marketing theories and a correlation and a moderation analysis are used to test them. The results show that customer delight partly impacts customer loyalty intentions towards the retailer. Using humor in a VE- strategy will increase loyalty intentions for customers under the age of 30. Using humor in that strategy for other age groups will have an opposite effect and lower the loyalty intentions. That opposite effect is also observed for surprise in a VE-strategy and humor and BE. These findings contribute academically by attaching a new variable to the customer delight research. Humor has not been investigated in this setting before and has proved its effect. From a managerial perspective, the insight in customer delight shows that for food retailers investing in humor, next to a good price, good quality and convenience for customers under the age of 30, will be fruitful. Keywords Customer delight, joy, surprise, humor, customer equity drivers, customer loyalty, moderation, food retailing 4 2. Introduction There was a time that convenient locations, special or unique assortments, greater or better services than competitors and store credit cards were enough to keep loyalty from customers. This time has changed (Kotler & Keller, 2009). Companies need to do more to remain and attract loyal customers. True loyalty affects profitability and is therefore important to measure for future firm growth. Delighting customers seems necessary to produce consequences such as loyalty. Especially, in times of recession, having loyal customers would save firms from financial concerns. Ou et al. (2013) suggest that since low confident customers are more cautious and selective in times of recession, companies should adapt a value equity strategy; a strategy which is primarily focused on price and quality. However, some retail specialists argue that major retailers in the Netherlands nowadays are not able to surprise their customers anymore (Droge, 2014). They suggest that trying to make customers loyal works better than reducing prices (Den Hollander, 2014). An example of a grocery store in the USA that is good with customer delight is Trader Joe’s. Trader Joe’s surprises its customers with their products, atmosphere and humor. The focus is on binding customers, creating customer delight and consequently loyalty. It seems to work tremendously; in 2014 Trader Joe’s was ranked highest as favorite grocery store chain in North America (Anderson, 2014). Therefore, another strategy that focuses more on customer delight creation might be more effective for major food retailers in the Netherlands. Accordingly, it is interesting and important to investigate the following research question: “How does customer delight in food retailing impact customer loyalty intentions towards the retailer and which variables can moderate this relationship?” To investigate this research question the moderating role of customer delight on the effects of the customer equity drivers will be used: value equity, brand equity and relationship equity on customer loyalty intentions. Positive surprise and joy are the key ingredients in creating customer delight. Next to surprise and joy, humor will also be used as a variable to measure customer delight. The control variables are age, gender, education level, family- and employment situation. The research has been carried out with the help of grocery chain Jumbo and the market research bureau Kien. The results are interpreted with the software Statistical Package for Social Sciences (SPSS). A correlation analyses and the tool Process are used to test the relationships. 5 This research will be relevant from an academic and managerial perspective. First, little research has been done so far on the moderating effect of customer delight on loyalty and the variables underlining customer delight. This thesis will fill that academic gap and investigate the addition of a variable, namely humor. Second, these findings can be of magnificent relevance for management. If it turns out that the positive moderating effect of ‘customer delight’ is present and if the outcome can tell which variable within ‘customer delight’ is responsible for that outcome, managers can act accordingly and invest more money and effort in ‘customer delight’ creation. The thesis will first discuss the relevant literature. Customer equity, loyalty, customer delight, recession and loyalty and another view on loyalty strategy will be explained. The supermarket environment in the Netherlands will be discussed and the marketing director of Jumbo, Mr. M. Moeken is interviewed. This part concludes with a research gap, a research question, hypotheses and a conceptual model. Second, the method section will discuss the sample, how the variables are measured and how the research is executed statistically. Third, the results section will show the outcome of the different statistical tests of correlation and moderation. Fourth, the discussion with theoretical and managerial implications, limitations and suggestions for further research will follow. References and appendixes can be found at the end of the document. 6 3. Literature review The literature review describes the three drivers of customer equity (CE): value equity (VE), brand equity (BE) and relationship equity (RE). The concept of loyalty is described and the way loyalty is measured. Loyalty can be a consequence of customer delight, which is in turn caused by excitement factors. Different points of view on loyalty strategy are discussed. To better understand the background of food retailing, the supermarket environment in the Netherlands will be discussed. And to get more managerial and real-live marketing insight, marketing director Jumbo, Mr. M. Moeken is interviewed. The literature review concludes with a research gap, a research question, hypotheses and a conceptual model. 3.1 Customer equity The key drivers of firm growth are value equity (VE), brand equity (BE) and relationship equity (RE) (Lemon et al., 2001). VE is about the customer’s objective assessment of the utility of a brand influenced by price, quality and convenience. BE is the customer’s subjective assessment of the brand influenced by brand awareness, attitude towards the brand and corporate ethics. RE is defined as: “The tendency of the customer to stick with the brand, beyond this objectively and subjectively perceived value” (Lemon et al. 2001). For RE the key drivers are loyalty programs, special recognition and treatment, affinity programs, community-building programs, and knowledge-building programs. Together, this strategic marketing approach is called customer equity (CE). It puts the customer at the center of the corporation and is based on the total of the discounted lifetime values of all the firm’s customers. To evaluate this