The antecedents of the employee loyalty customer loyalty relationship

THE ANTECEDENTS OF THE EMPLOYEE
LOYALTY-CUSTOMER LOYALTY RELATIONSHIP

Antony Frederick PELOSO
B. A. (Psych) UQ
Grad.Dip.Bus (Man) QUT
M.Bus (Marketing) QUT

School of Advertising, Marketing and Public Relations
Faculty of Business
Queensland University of Technology
Submitted in fulfilment of the requirements for the degree of
Doctor of Philosophy, 2004


i

Keywords
Customer loyalty
Perceived service quality
Service climate
Employee loyalty
Job satisfaction
Employee self-efficacy
Employee empowerment
Behaviour-based evaluation
Direct leadership support
Senior leadership support
Work facilitation resources
Management customer orientation

ii

Publications
Referred Conference Proceedings
Galliford, Bryan and Antony Peloso 2003. The Certain, or the Unknown? Learner
Choices and their Antecedents. In SMA Annual Conference Proceedings: In print.
New Orleans, LA: Society for Marketing Advances.
Karlsen, Cecilie and Antony Peloso 2003. The Influence of Internal Communication
Quality in the Franchisor, Franchisee, Employee and External Customer
Relationships. In SMA Annual Conference Proceedings: In print. New Orleans, LA:
Society for Marketing Advances.
Matthews, Shane, Allan Duckwitz, Christopher Davies, and Antony Peloso 1999.
Bridging the Gap Between Market Readiness and Market Entry. In Marketing in
the New Millennium, ANZMAC Proceedings. Sydney: ANZMAC.
Peloso, Antony 1998. Service Quality and Product Development Strategies. In 1998
Marketing Exchange Colloquium Proceedings, ed. Lou E Pelton and Peter Schnedlitz:
260-270. Vienna, Austria: American Marketing Society.
Peloso, Antony 1999. Business to Business New Service Development: The Roles of
Entrepreneur and Client. In AMA Educators Conference: Enhancing Knowledge
Development in Marketing, ed. Peter J Gordon and Bert J Kellerman:117-123. San
Francisco: American Marketing Association.
Sambath, Vathany, Alexander Morse, and Antony Peloso 2003. The Antecedent Role of
Individual Differences in Motivation, Perseverance and Protection of High
Involvement Goals. In SMA Annual Conference Proceedings: In print. New Orleans,
LA: Society for Marketing Advances.


iii

Abstract
Increasing and maintaining customer loyalty has been shown to enhance service firm
profitability. This research focuses on the antecedents of customer loyalty in a large
national North American banking organisation, in particular the relationship between
employee loyalty and customer loyalty, and further within the organisation, the
antecedents of the employee loyalty-customer loyalty relationship. Thus the current
research investigates the chain of events from managerial actions to customer loyalty
with the aim of identifying relevant managerial practices and their influences within the
organisation that lead to customer loyalty.
The research provides tangible evidence supporting the importance of providing
organisational resources to increase employee loyalty as a means of increasing customer
loyalty in service organisations. To achieve this goal, the study suggests that a
comprehensive set of managerial practices will enhance an organisation’s service climate,
foster positive employee attitudes and behaviours in relation to service provision, that
impact on employee loyalty, service quality, and ultimately customer loyalty. These
practices include support provided by senior leadership, the provision of resources that
facilitate effective work practices, a positive management orientation on customers, and
the use of employee evaluation and remuneration based on service-oriented behaviours
and attitudes. By instituting these managerial practices, management can increase
employee perceptions of self-efficacy, employees’ beliefs in the abilities to perform well
in their jobs, increase employee satisfaction, which in turn drive employee loyalty.
These managerial practices also enhance the favourable nature of the organisation’s
service climate so that customer perceptions of service quality are likely to be more
positive.
Overall the study provides evidence to support the existence of a chain of events from
managerial actions to employee and customer loyalty intentions. Evidence also exists to
support the relationship between employee loyalty and customer loyalty, so that higher
levels of loyalty within service a service organisation can potentially lead to higher levels
of customer loyalty.
The implications of the research are that management within service organisations can

impact customer loyalty by focussing directly on service delivery issues and by providing


iv

a favourable service climate. Managers can also influence employee beliefs about their
abilities to do their jobs and the level of satisfaction employees have within those
organisational roles.
The study also suggests that a service organisation’s service climate is an important
mechanism by which management can communicate to both employees and customers
that a customer orientation is a primary managerial imperative. Finally, the study
provides valuable insight into the processes by which employees perceive managerial
orientation and support, and how those perceptions influence customer perceptions of
service quality and impact on their loyalty intentions towards service organisations.


v

Table of Contents
CHAPTER 1 INTRODUCTION TO THE RESEARCH AND OVERVIEW OF
THE THESIS.............................................................................................................. 1
1.1
1.2

OVERVIEW OF THE RESEARCH ....................................................................... 1
THE RESEARCH QUESTIONS, OBJECTIVES AND POTENTIAL CONTRIBUTIONS OF
THE STUDY ................................................................................................................ 3
1.3
THE RELEVANCE OF THE MANAGERIAL CONTRIBUTIONS ............................... 5
1.4

THE RELEVANCE OF THE THEORETICAL CONTRIBUTIONS............................... 7
1.5
OVERVIEW OF THE THESIS ............................................................................. 9
CHAPTER 2 THE EMPLOYEE-CUSTOMER INTERFACE........................... 15
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8

OVERVIEW OF CHAPTER TWO ..................................................................... 15
PUTTING THE RESEARCH IN CONTEXT.......................................................... 17
THE CUSTOMER LOYALTY CONSTRUCT........................................................ 20
DEFINING CUSTOMER LOYALTY .................................................................. 20
THE DIMENSIONS OF THE CUSTOMER LOYALTY CONSTRUCT ....................... 20
THE LINK BETWEEN CUSTOMER COMMITMENT AND CUSTOMER LOYALTY .. 34
CUSTOMER LOYALTY IN THE SERVICES CONTEXT ........................................ 35
MEASUREMENT ISSUES RELATING TO THE CUSTOMER LOYALTY CONSTRUCT
37
2.9
THE EMPLOYEE LOYALTY CONSTRUCT ........................................................ 39
2.10 DEFINING EMPLOYEE LOYALTY................................................................... 39
2.11 THE DIMENSIONS OF THE EMPLOYEE LOYALTY CONSTRUCT ........................ 40
2.12 THE LINK BETWEEN BEHAVIOURAL INTENT AND TURNOVER BEHAVIOUR .... 49
2.13 EMPLOYEE LOYALTY IN THE SERVICES CONTEXT ........................................ 50
2.14 MEASUREMENT ISSUES RELATING TO THE EMPLOYEE LOYALTY CONSTRUCT
55

2.15 THE EMPLOYEE LOYALTY-CUSTOMER LOYALTY RELATIONSHIP .................. 56
2.16 OVERVIEW OF THE BALANCE OF THE EMPLOYEE-CUSTOMER INTERFACE .... 57
2.17 THE PERCEIVED SERVICE QUALITY CONSTRUCT .......................................... 57
2.18 DEFINING PERCEIVED SERVICE QUALITY ..................................................... 58
2.19 THE DIMENSIONS OF PERCEIVED SERVICE QUALITY ..................................... 58
2.20 MEASUREMENT ISSUES RELATING TO THE PERCEIVED SERVICE QUALITY
CONSTRUCT ............................................................................................................. 63
2.21 THE PERCEIVED SERVICE QUALITY-CUSTOMER LOYALTY RELATIONSHIP .... 65
2.22 THE JOB SATISFACTION CONSTRUCT............................................................ 66
2.23 DEFINING JOB SATISFACTION ...................................................................... 67
2.24 DIMENSIONS OF THE JOB SATISFACTION CONSTRUCT .................................. 67
2.25 MEASUREMENT ISSUES RELATING TO THE JOB SATISFACTION CONSTRUCT . 69
2.26 THE JOB SATISFACTION-PERCEIVED SERVICE QUALITY RELATIONSHIP ........ 72
2.27 THE EMPLOYEE SELF-EFFICACY CONSTRUCT ............................................... 73
2.28 DEFINING EMPLOYEE SELF-EFFICACY.......................................................... 73
2.29 DIMENSIONS OF THE EMPLOYEE SELF-EFFICACY CONSTRUCT...................... 73
2.30 MEASUREMENT ISSUES RELATING TO THE EMPLOYEE SELF-EFFICACY
CONSTRUCT ............................................................................................................. 76
2.31 THE EMPLOYEE SELF-EFFICACY-PERCEIVED SERVICE QUALITY RELATIONSHIP
76


vi

2.32

SUMMARY OF THE JOB SATISFACTION AND EMPLOYEE SELF-EFFICACYSERVICE QUALITY RELATIONSHIPS .......................................................................... 78
2.33 SUMMARY OF CHAPTER TWO, THE EMPLOYEE-CUSTOMER INTERFACE
RELATIONSHIPS ....................................................................................................... 79
CHAPTER 3 THE SERVICE CLIMATE-CUSTOMER INTERFACE............ 80

3.1
3.2
3.3
3.4
3.5
3.6
3.7

OVERVIEW OF CHAPTER THREE .................................................................. 80
THE SERVICE CLIMATE CONSTRUCT ............................................................ 81
DEFINING SERVICE CLIMATE ....................................................................... 82
DIMENSIONS OF THE SERVICE CLIMATE CONSTRUCT ................................... 82
MEASUREMENT ISSUES RELATING TO THE SERVICE CLIMATE CONSTRUCT .. 84
THE SERVICE CLIMATE-PERCEIVED SERVICE QUALITY RELATIONSHIP ......... 85
SUMMARY OF CHAPTER THREE, THE SERVICE CLIMATE-CUSTOMER
INTERFACE RELATIONSHIP ....................................................................................... 87
CHAPTER 4 THE EMPLOYEE-ROLE INTERFACE ...................................... 88
4.1
4.2
4.3
4.4

OVERVIEW OF CHAPTER FOUR .................................................................... 88
THE EMPLOYEE SELF-EFFICACY-JOB SATISFACTION RELATIONSHIP ............. 89
THE JOB SATISFACTION-EMPLOYEE LOYALTY RELATIONSHIP ...................... 90
SUMMARY OF CHAPTER FOUR, THE EMPLOYEE-ROLE INTERFACE
RELATIONSHIPS ....................................................................................................... 92

CHAPTER 5 THE MANAGERIAL PRACTICES-SERVICE CLIMATE
INTERFACE ............................................................................................................ 93

5.1
5.2
5.3
5.4
5.5
5.6
5.7

OVERVIEW OF CHAPTER FIVE ..................................................................... 93
MANAGERIAL PRACTICES IN SERVICE ORGANISATIONS ............................... 94
THE MANAGERIAL SUPPORT PRACTICES-SERVICE CLIMATE INTERFACE ....... 97
THE DIRECT LEADERSHIP SUPPORT CONSTRUCT .......................................... 99
DEFINING DIRECT LEADERSHIP SUPPORT ..................................................... 99
DIMENSIONS OF THE DIRECT LEADERSHIP SUPPORT CONSTRUCT ................. 99
MEASUREMENT ISSUES RELATING TO THE DIRECT LEADERSHIP SUPPORT
CONSTRUCT ........................................................................................................... 101
5.8
THE DIRECT LEADERSHIP SUPPORT-SERVICE CLIMATE RELATIONSHIP ....... 101
5.9
THE SENIOR LEADERSHIP SUPPORT CONSTRUCT ........................................ 102
5.10 DEFINING SENIOR LEADERSHIP SUPPORT ................................................... 102
5.11 DIMENSIONS OF THE SENIOR LEADERSHIP CONSTRUCT .............................. 102
5.12 MEASUREMENT ISSUES RELATING TO THE SENIOR LEADERSHIP CONSTRUCT
103
5.13 THE SENIOR LEADERSHIP SUPPORT-SERVICE CLIMATE RELATIONSHIP ....... 104
5.14 THE WORK FACILITATION RESOURCES CONSTRUCT ................................... 104
5.15 DEFINING WORK FACILITATION RESOURCES .............................................. 105
5.16 DIMENSIONS OF THE WORK FACILITATION RESOURCES CONSTRUCT .......... 105
5.17 MEASUREMENT ISSUES RELATING TO THE WORK FACILITATION RESOURCES
CONSTRUCT ........................................................................................................... 106

5.18 THE WORK FACILITATION RESOURCES-SERVICE CLIMATE RELATIONSHIP .. 106
5.19 THE MANAGERIAL CONTROL PRACTICES-SERVICE CLIMATE INTERFACE .... 107
5.20 THE MANAGEMENT CUSTOMER ORIENTATION CONSTRUCT ....................... 108
5.21 DEFINING MANAGEMENT CUSTOMER ORIENTATION .................................. 108


vii

5.22

DIMENSIONS OF THE MANAGEMENT CUSTOMER ORIENTATION CONSTRUCT
109
5.23 MEASUREMENTS ISSUES RELATING TO THE MANAGEMENT CUSTOMER
ORIENTATION CONSTRUCT .................................................................................... 109
5.24 THE MANAGEMENT CUSTOMER ORIENTATION-SERVICE CLIMATE
RELATIONSHIP ....................................................................................................... 110
5.25 THE EMPLOYEE EMPOWERMENT CONSTRUCT ............................................ 111
5.26 DEFINING EMPLOYEE EMPOWERMENT ....................................................... 111
5.27 DIMENSIONS OF THE EMPLOYEE EMPOWERMENT CONSTRUCT ................... 111
5.28 MEASUREMENT ISSUES RELATING TO THE EMPOWERMENT CONSTRUCT.... 114
5.29 THE EMPOWERMENT-SERVICE CLIMATE RELATIONSHIP ............................ 114
5.30 THE BEHAVIOUR-BASED EVALUATION CONSTRUCT ................................... 116
5.31 DEFINING BEHAVIOUR-BASED EVALUATION.............................................. 116
5.32 DIMENSIONS OF THE BEHAVIOUR-BASED EVALUATION CONSTRUCT.......... 116
5.33 MEASUREMENT ISSUES RELATING TO THE BEHAVIOUR-BASED EVALUATION
CONSTRUCT ........................................................................................................... 119
5.34 THE BEHAVIOUR-BASED EVALUATION-SERVICE CLIMATE RELATIONSHIP . 120
5.35 SUMMARY OF CHAPTER FIVE, THE MANAGERIAL PRACTICES-SERVICE
CLIMATE INTERFACE RELATIONSHIPS .................................................................... 122
CHAPTER 6 THE MANAGERIAL CONTROL PRACTICES-EMPLOYEE

INTERFACE .......................................................................................................... 124
6.1
6.2

OVERVIEW OF CHAPTER SIX ..................................................................... 124
OVERVIEW OF THE MANAGERIAL CONTROL PRACTICES-EMPLOYEE
INTERFACE ............................................................................................................ 125
6.3
THE MANAGEMENT CUSTOMER ORIENTATION-EMPOWERMENT RELATIONSHIP
126
6.4
THE MANAGEMENT CUSTOMER ORIENTATION-BEHAVIOUR-BASED
EVALUATION RELATIONSHIP.................................................................................. 126
6.5
THE EMPLOYEE EMPOWERMENT-EMPLOYEE SELF-EFFICACY RELATIONSHIP
127
6.6
THE BEHAVIOUR-BASED EVALUATION-JOB SATISFACTION RELATIONSHIP . 128
6.7
SUMMARY OF THE MANAGERIAL CONTROL PRACTICES-EMPLOYEE INTERFACE
129
6.8
SUMMARY OF THE LITERATURE REVIEW SECTION, CHAPTERS TWO TO SIX 130
CHAPTER 7 THE CONCEPTUAL MODEL OF THE ANTECEDENTS OF
THE EMPLOYEE LOYALTY-CUSTOMER LOYALTY RELATIONSHIP 132
7.1
7.2
7.3
7.4
7.5

OVERVIEW OF CHAPTER SEVEN ................................................................ 132
PURPOSE OF THE STUDY ............................................................................ 132
OVERVIEW OF THE CONCEPTUAL MODEL................................................... 133
THE THEORETICAL FOUNDATION OF THE CONCEPTUAL MODEL ................. 140
THE RELATIONSHIPS AND HYPOTHESES THAT UNDERPIN THE CONCEPTUAL
MODEL 142
7.6
CONCLUSIONS OF CHAPTER SEVEN ........................................................... 149
CHAPTER 8 METHODOLOGY AND RESULTS OF THE PATH MODEL 150
8.1
8.2

OVERVIEW OF CHAPTER EIGHT ................................................................. 150
OVERVIEW OF THE ANALYSIS STRATEGY................................................... 150


viii

8.3
8.4
8.5

THE MODEL BUILDING PROCESS ................................................................ 152
FIT ASSESSMENT ....................................................................................... 154
MODEL FIT INDICES: ASSESSING ABSOLUTE FIT, COMPARATIVE FIT AND
PARSIMONIOUS FIT ................................................................................................ 156
8.6
DATA COLLECTION AND ANALYSIS ........................................................... 160
8.7

DETAILS OF DATA COLLECTION AND THE DATA SOURCE; SAMPLE AND
SAMPLING ISSUES .................................................................................................. 160
8.8
MEASURE VALIDATION ............................................................................. 164
8.9
DEVELOPING AND TESTING THE MEASURES ............................................... 173
8.10 DIRECT LEADERSHIP SUPPORT ................................................................... 173
8.11 SENIOR LEADERSHIP SUPPORT ................................................................... 174
8.12 WORK FACILITATION ................................................................................ 174
8.13 MANAGEMENT CUSTOMER ORIENTATION .................................................. 174
8.14 SERVICE CLIMATE ..................................................................................... 175
8.15 EMPLOYEE EMPOWERMENT....................................................................... 175
8.16 BEHAVIOUR-BASED EVALUATION ............................................................. 175
8.17 EMPLOYEE SELF-EFFICACY ....................................................................... 176
8.18 JOB SATISFACTION .................................................................................... 176
8.19 EMPLOYEE LOYALTY ................................................................................ 177
8.20 PERCEIVED SERVICE QUALITY ................................................................... 177
8.21 CUSTOMER LOYALTY ................................................................................ 177
8.22 SUMMARY OF THE MEASURE DEVELOPMENT AND MEASURE ASSESSMENT
PROCESS ................................................................................................................ 178
8.23 CONVERGENT VALIDITY ............................................................................ 184
8.24 DISCRIMINANT VALIDITY .......................................................................... 184
8.25 CONTENT VALIDITY .................................................................................. 187
8.26 THE VARIANCE INFLATION FACTOR ........................................................... 188
8.27 TESTING THE HYPOTHESISED PATH MODEL ............................................... 189
8.28 OVERVIEW OF THE RESULTS ...................................................................... 193
8.29 THE EMPLOYEE-CUSTOMER INTERFACE RELATIONSHIPS ........................... 195
8.30 THE SERVICE CLIMATE-CUSTOMER INTERFACE RELATIONSHIPS ................ 196
8.31 THE EMPLOYEE-ROLE INTERFACE RELATIONSHIPS .................................... 196
8.32 MANAGERIAL PRACTICES-SERVICE CLIMATE INTERFACE RELATIONSHIPS . 196

8.33 THE MANAGERIAL CONTROL PRACTICES-EMPLOYEE INTERFACE
RELATIONSHIPS ..................................................................................................... 197
8.34 OVERALL CONSIDERATION OF THE RESULTS OF THE PATH MODEL............. 198
8.35 CONCLUSION TO CHAPTER EIGHT ............................................................. 198
CHAPTER 9 DEVELOPING AND TESTING A MODIFIED MODEL......... 200
9.1
9.2
9.3
9.4
9.5

OVERVIEW OF CHAPTER NINE................................................................... 200
DEVELOPING AND TESTING A MODIFIED MODEL ........................................ 200
A MODIFIED MODEL BASED ON SPECIFICATION SEARCHES ......................... 200
OVERVIEW OF THE SIGNIFICANT RELATIONSHIPS IN THE MODIFIED MODEL 205
GOODNESS OF FIT STATISTICS – COMPARING THE PATH MODEL AND THE
MODIFIED MODEL .................................................................................................. 206
9.6
DISCUSSION OF THE FIT INDICES ................................................................ 208
9.7
CONCLUSION TO CHAPTER NINE ............................................................... 209
CHAPTER 10 DISCUSSION OF THE RESULTS OF THE HYPOTHESISED
MODEL AND THE MODIFIED MODEL ......................................................... 210


ix

10.1

THE EMPLOYEE-CUSTOMER INTERFACE RELATIONSHIPS IN THE PATH AND

MODIFIED MODELS ................................................................................................ 210
10.2 THE SERVICE CLIMATE-CUSTOMER INTERFACE RELATIONSHIPS ................ 214
10.3 THE EMPLOYEE-ROLE INTERFACE RELATIONSHIPS .................................... 215
10.4 THE MANAGERIAL PRACTICES-SERVICE CLIMATE INTERFACE RELATIONSHIPS
IN THE PATH AND MODIFIED MODELS .................................................................... 217
10.5 THE MANAGERIAL CONTROL PRACTICES-EMPLOYEE INTERFACE
RELATIONSHIPS IN THE PATH MODEL AND THE INFLUENCE OF THE INTERACTIONS
BETWEEN MANAGERIAL SUPPORT AND CONTROL PRACTICES IN THE MODIFIED MODEL

10.6

219
CONCLUSION TO CHAPTER TEN ................................................................ 227

CHAPTER 11 CONCLUSION AND IMPLICATIONS .................................... 229
11.1
11.2
11.3
11.4
11.5
11.6
11.7

OVERVIEW OF CHAPTER ELEVEN .............................................................. 229
REVISITING THE RESEARCH OBJECTIVES.................................................... 229
CONCLUSIONS ........................................................................................... 232
IMPLICATIONS OF THE RESEARCH .............................................................. 235
IMPLICATIONS OF THE RESEARCH FINDINGS .............................................. 236
MANAGERIAL AND THEORETICAL CONTRIBUTIONS. .................................. 237
LIMITATIONS AND FUTURE RESEARCH POSSIBILITIES ................................ 241

REFERENCES....................................................................................................... 247


x

Table of Tables
TABLE 1.1 SUMMARY OF THE 2 STEP SEM PROCEDURE .............................................. 14
TABLE 2.1 OVERVIEW OF CUSTOMER LOYALTY RESEARCH ......................................... 22
TABLE 2.2 LOYALTY CATEGORIES .............................................................................. 24
TABLE 2.3 THE ATTITUDE STRENGTH-ATTITUDE DIFFERENCE RELATIONSHIP ............. 27
TABLE 2.4 THE RELATIVE ATTITUDE-BEHAVIOUR RELATIONSHIP ............................... 28
TABLE 2.5 COGNITIVE-AFFECTIVE-CONATIVE ATTITUDE MODEL WITH CONSTITUENT
COMPOSITION ...................................................................................................... 30
TABLE 2.6 A FOUR PHASE PROGRESSIVE LOYALTY DEVELOPMENT FRAMEWORK ........ 33
TABLE 2.7 OVERVIEW OF EMPLOYEE LOYALTY RESEARCH ......................................... 41
TABLE 2.8 SUBSTANTIVE CATEGORIES OF ORGANISATIONAL CITIZENSHIP BEHAVIOURS:
ORGANISATIONAL LOYALTY, OBEDIENCE AND PARTICIPATION............................ 52
TABLE 2.9 THE FIVE CORE DIMENSIONS OF SERVQUAL ........................................... 59
TABLE 8.1 STAGES IN THE ANALYSIS OF THE DATA: 2 STEP SEM PROCEDURE .......... 151
TABLE 8.2 FIT AND TEST OF THE COVARIANCE MATRIX ............................................ 153
TABLE 8.3 ITEM, MEASURES, CONSTRUCTS, AGGREGATION AND SAMPLE SIZES ........ 167
TABLE 8.4 CONSTRUCT DEFINITIONS ........................................................................ 172
TABLE 8.5 EMPLOYEE SCALE AND MEASURES, FACTOR LOADINGS AND ITEM SOURCE:
CONFIRMATORY FACTOR ANALYSIS RESULTS. EMPLOYEE DATA (N = 18,821).. 179
TABLE 8.6 CUSTOMER SCALE AND MEASURES, FACTOR LOADINGS AND ITEM SOURCE:
CONFIRMATORY FACTOR ANALYSIS RESULTS. CUSTOMER DATA (N = 55,335) . 183
TABLE 8.7 MEASURE CORRELATIONS: EMPLOYEE DATA (N = 18,821) ...................... 185
TABLE 8.8 MEASURE CORRELATIONS: CUSTOMER DATA (N=55,355) ...................... 185
TABLE 8.9 VIF FOR ENDOGENOUS CONSTRUCTS ....................................................... 189

TABLE 8.10 RESULTS FROM THE HYPOTHESISED MODEL (N = 59) ............................. 190
TABLE 8.11 COMPLETELY STANDARDISED SOLUTION – PATH MODEL (N = 59)......... 191
TABLE 8.12 CORRELATION MATRIX OF ETA AND KSI – PATH MODEL (N = 59)........ 192
TABLE 8.13 HYPOTHESES AND SUMMARY OF THE PATH MODEL RELATIONSHIPS ...... 194
TABLE 9.1 RESULTS FROM THE MODIFIED MODEL BASED ON SPECIFICATION SEARCHES
(N = 59)............................................................................................................. 202
TABLE 9.2 COMPLETELY STANDARDISED SOLUTION – MODIFIED MODEL BASED ON
SPECIFICATION SEARCHES (N = 59).................................................................... 203
TABLE 9.3 CORRELATION MATRIX OF ETA AND KSI – MODIFIED MODEL BASED ON
SPECIFICATION SEARCHES (N = 59).................................................................... 204
TABLE 9.4 MODEL FIT INDICES: HYPOTHESISED VERSUS MODIFIED MODEL ............... 208


xi

Table of Figures
FIGURE 1.1 OVERALL STRUCTURE OF THE LITERATURE REVIEW, CHAPTERS TWO TO SIX
............................................................................................................................ 10
FIGURE 2.1 THE EMPLOYEE-CUSTOMER INTERFACE FRAMEWORK............................... 15
FIGURE 3.1 THE SERVICE CLIMATE-CUSTOMER INTERFACE FRAMEWORK ................... 80
FIGURE 4.1 THE EMPLOYEE-ROLE INTERFACE FRAMEWORK........................................ 88
FIGURE 5.1 THE MANAGERIAL PRACTICES-SERVICE CLIMATE INTERFACE FRAMEWORK
............................................................................................................................ 93
FIGURE 6.1 THE MANAGERIAL CONTROL PRACTICES-EMPLOYEE INTERFACE
FRAMEWORK ..................................................................................................... 124
FIGURE 7.1 CONCEPTUAL MODEL OF THE ANTECEDENTS OF THE EMPLOYEE LOYALTYCUSTOMER LOYALTY RELATIONSHIP ................................................................. 134
FIGURE 8.1 PATH MODEL OF THE ANTECEDENTS OF THE EMPLOYEE LOYALTYCUSTOMER LOYALTY RELATIONSHIP ................................................................. 193
FIGURE 8.2 INTEGRATION OF THE ORGANISATIONAL INTERFACES AND THE SIGNIFICANT
RELATIONSHIPS IN THE PATH MODEL ................................................................. 195
FIGURE 9.1 MODIFIED MODEL OF THE ANTECEDENTS OF THE EMPLOYEE LOYALTYCUSTOMER LOYALTY RELATIONSHIP, BASED ON SPECIFICATION SEARCHES –

SIGNIFICANT PARAMETERS ONLY...................................................................... 205
FIGURE 10.1 COMPARISON OF THE PARAMETER ESTIMATES AT THE EMPLOYEECUSTOMER INTERFACE IN THE PATH AND MODIFIED MODELS, INCLUDING ALL
TESTED RELATIONSHIPS..................................................................................... 210
FIGURE 10.2 COMPARISON OF THE PARAMETER ESTIMATES AT THE SERVICE CLIMATECUSTOMER INTERFACE IN THE PATH AND MODIFIED MODELS ............................ 215
FIGURE 10.3 COMPARISON OF THE PARAMETER ESTIMATES AT THE EMPLOYEE-ROLE
INTERFACE IN THE PATH AND MODIFIED MODELS .............................................. 216
FIGURE 10.4 COMPARISON OF THE PARAMETER ESTIMATES AT THE MANAGERIAL
PRACTICES-SERVICE CLIMATE INTERFACE IN THE PATH AND MODIFIED MODELS,
INCLUDING ALL TESTED RELATIONSHIPS ........................................................... 218
FIGURE 10.5 COMPARISON OF THE PARAMETER ESTIMATES AT THE MANAGERIAL
PRACTICES-EMPLOYEE INTERFACE IN THE PATH AND MODIFIED MODELS – ALL
TESTED RELATIONSHIPS SHOWN ........................................................................ 220


xii

List of Abbreviations
AGFI

Adjusted Goodness of Fit Index

AIC

Ahaike Information Criterion

CFA

Confirmatory Factor Analysis

CFI

Comparative Fit Index

GFI

Goodness of Fit Index

JDI

Job Descriptive Index

NCP

Non-Centrality Parameter

NFI

Normed Fit Index

NNFI

Non-Normed Fit Index

OCB

Organisational Citizenship Behaviour

OCQ

Organizational Commitment Questionnaire

PGFI

Parsimony Goodness-of-Fit Index

PNFI

Parsimony Normed Fit Index

RMSEA

Root Mean Square Error of Approximation

SEM

Structural Equation Modeling

SRMR

Standardised Root Mean Squared Residual

VIF

Variance Inflation Factor


xiii

Declaration
The work contained in this thesis had not been previously submitted for a degree or

diploma at any other higher education institution. To the best of my knowledge and
belief, the thesis contains no material previously published or written by another person
except where due reference is made.

Signed: ________________________________
Date:

________________________________


xiv

Acknowledgments

Every major project has a captain who has the patience, foresight, skills and vision to
see the end at the beginning. For this project, Pr Charles Patti was that captain.
Through dark days and triumphs, Charles guided, chided, encouraged, championed and
supported. Without his presence, this project would not have been completed.
Similarly, without the impetus to start, nothing happens. Pr William Renforth was the
person who encouraged me to set out on this journey and gave me the courage to take
the plunge. Pr Boris Kabanoff with his broad scope made sure that obstacles in the
research work itself along the way did not become blocks. Dr Stephen Cox gave me the
gentle reminders and support to stay true to the principles. The QUT community
provided much of the financial support and the flexibility to allow me to take an
approach to my work and research that was at times unconventional but I hope fruitful.
My research mentors at Arizona State University, Dr Mike Hutt, Dr Beth Walker and
Dr Ajith Kumar committed countless hours and precious insights that gave life to the
process. My adopted family at Arizona State University, Michelle, Felicia and Dimitri,
and my whole cohort, Deb, Gabe, Kate, Mark, and Claudia inspired and sweated along
with me, as did Diane, Dr Mokwa and the whole crew at ASU.

Many people sacrificed, encouraged, fed, coffeed and endured. Cathy Neal patiently
listened and plied the coffee. My close friend Sarah Milburne believed I could do it, and
always told me so. My friends Mark and Yianni patiently endured the missed phone
calls and periods of silence. My partner Danny Keenan smiled and listened
optimistically through 14 months of typing, word games and endless drafts. My parents
and their partners, as parents do, understood the missed family dinners and visits, and
waited for the day when it would be over, ever encouraging and loving in their sacrifice.
To all these people, institutions and the many more who helped me, thank-you.


1

CHAPTER 1 INTRODUCTION TO THE RESEARCH AND
OVERVIEW OF THE THESIS

1.1

Overview of the research

What can leaders in service organisations do to enhance customer loyalty? This
question suggests a chain of events and processes initiated by leaders of a service
organisation that ends with customers of the organisation. The chain involves a service
organisation’s employees, the environment of the organisation and the organisation’s
services.
Why the focus on customer loyalty? Previous research suggests that customer loyalty is
a key driver of financial performance in service organisations (Ganesh, Arnold, and
Reynolds 2000; Jones and Sasser 1995; Reichheld and Teal 1996). Customer loyalty may
be a more important determinant of profit than market share and position (Heskett et
al. 1994). By identifying the antecedents of customer loyalty and understanding the
impact of these antecedents on customer loyalty, marketers can set in place practices

that enhance the relationships that organisations develop with their customers,
potentially resulting in higher levels of customer loyalty.
Higher levels of customer loyalty in service organisations initiate a series of economic
effects in a business system. Revenues and market share grow as loyal customers
commit to the organisation, become repeat customers, and recommend the organisation
to others (Reichheld and Teal 1996). Studies across 14 industries in the United States
suggest that a 5% increase in customer retention leads to an increase in profit of
between 25% and 95% (Reichheld and Sasser 1990; Reichheld and Teal 1996).
Customer loyalty also leads to lower costs of retention compared to the costs of
attracting new customers (Zeithaml 2000). Relationships with loyal customers are
typically less expensive to service, and loyal customers contribute to the organisation by
buying more and paying premium prices, and engaging in behaviours that are beneficial
to the organisation such as acting as advocates of the organisation (Ganesh, Arnold, and
Reynolds 2000). Other benefits also accrue. Customers who enter a relationship with
an organisation as a result of a personal referral tend to be more loyal than those who
buy because of an advertisement (Reichheld 1993).


2

Disloyal customers who defect from an organisation create costs for the organisation.
Organisations lose future revenue streams and must encounter higher costs to acquire
new customers (Keanevey 1995; Rucci, Kirn, and Quinn 1998). The costs of defections
have a higher impact on company profits than many other factors (Zeithaml 2000).
If this set of outcomes from higher levels of customer loyalty occur, then service
managers should conceivably dedicate substantial resources to enhancing and
maintaining customer loyalty. But what actions should leaders take and in which part of
the organisation should they focus?
The purpose of the current research is to investigate the chain of events from
managerial actions to customer loyalty with the aim of identifying relevant managerial

practices and their influences within the organisation that lead to customer loyalty.
Organisational behaviour literature indicates that managerial practices affect both
organisational climate and employees’ attitudes towards their jobs and the organisation.
Applied psychology literature suggests that an organisation’s climate communicates to
employees and customers the culture and values of an organisation, which influence
perceptions about the organisation. Services marketing literature suggests that the
interaction and ensuing relationship between employees and customers during service
delivery leads to customer decisions about whether or not to remain with the
organisation. These three bodies of literature underpin the domain of the current
research.


3

1.2

The research questions, objectives and potential contributions of the
study

Specifically the research questions to be addressed in this study are:
1.

Is there a relationship between employee loyalty and customer loyalty?

2.

What influence do service quality and employee role attitudes have on customers
in terms of customer loyalty to a service organisation?

3.

How does an organisation’s service climate influence service quality?

4.

How do employee role attitudes influence employee loyalty to a service
organisation?

5.

What is the set of key managerial practices in terms of service management and
how do these practices influence an organisation’s service climate?

6.

What influences do managerial practices have on employee role attitudes within
a service organisation?

7.

Overall, what is the set of managerial practices that drive customer loyalty in
service organisations and how do they operate?

The research objectives that flow from these research questions are:
1.

To make explicit the relationship between employee loyalty and customer
loyalty.

2.

To test the relationship between service quality and customer loyalty.

3.

To establish the impact of employee role attitudes on service quality.

4.

To test the relationship between an organisation’s service climate and customer
perceptions of service quality.

5.

To establish the relationship between employee role attitudes and employee
loyalty in a service organisation.

6.

To identify the set of key managerial practices that impact an organisation’s
service climate and empirically test the influence of these practices on the
organisation’s service climate.

7.

To explicate the relationship between managerial control practices and employee
role attitudes.

8.

Overall, to develop and operationalise a comprehensive organisational model
that demonstrates and explains the development and maintenance of customer
loyalty in service organisations.


4

The potential contributions of the study relate to these research objectives. There are
managerial and theoretical contributions.
Briefly, the potential managerial contributions are:
1.

That by increasing employee loyalty within a service organisation, customer
loyalty can also be expected to increase.

2.

That by focussing on positive employee role attitudes, customer perceptions of
service quality are likely to improve, and improved service quality will increase
customer loyalty.

3.

That by creating a more favourable service climate, service quality will be
improved.

4.

That when employee role attitudes are more positive then employee loyalty will
increase, prompting management to seek practices that lead to more positive

employee attitudes.

5.

That certain managerial practices are likely to create a more favourable service
climate.

6.

That certain managerial practices enhance employee role attitudes.

7.

That overall, a comprehensive set of practices and chain of events exist that
service managers can utilise to achieve the important organisational goals of
increasing and maintaining customer loyalty.

The potential contributions to marketing theory are:
1.

An explanation of the nature of the link between employee loyalty and customer
loyalty and how employee loyalty influences customer loyalty.

2.

An explanation of the set of relationships between employee attitudes and
behaviours, and their impact on service quality and customer loyalty and thus
how employee behaviours affect customer loyalty.

3.

That the psychological metaphor of an organisation’s service climate is a valid
organisational medium that communicates to both customers and employees
that service quality and a customer orientation are important strategic initiatives
of the organisation.

4.

How managerial practices influence customer loyalty via the organisation’s
service climate and through employee attitudes and behaviours

5.

That the same set of managerial practices influences both employee loyalty and
customer loyalty.

6.

That the managerial practices constructs and the service climate construct
belong in marketing literature because their impact on customer loyalty can be
demonstrated.


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1.3

The relevance of the managerial contributions

The managerial contributions of the study are relevant to service organisations in several

ways. If managers can identify the set of relationships between employees and
customers that influence customer loyalty, then they can allocate resources and set up
mechanisms that enhance these relationships in the knowledge that these resources and
mechanisms will increase and maintain customer loyalty.
Thus the first managerial contribution is a result of empirically establishing the
employee loyalty-customer loyalty link in service organisations. The contribution is to
build tangible evidence supporting the importance of providing organisational resources
to increase employee loyalty as a means of increasing customer loyalty, that is known to
increase an organisation’s long term viability (Epstein and Westbrook 2001; Fornell et
al. 1996; Heskett, Sasser, and Schlesinger 1997; Reichheld and Teal 1996).
The second managerial contribution relates to the research objectives regarding
employee role attitudes, service quality and customer loyalty. The study seeks to more
fully examine the nature of the employee-customer relationship. Disparate research
exists on the influence of service quality on customer loyalty as well as the influences of
job satisfaction and employee self-efficacy on employee loyalty. To date, these
relationships have not been examined simultaneously. The current research examines
these relationships simultaneously using customer and employee data collected in the
same service context. The study demonstrates the nature of the relationships between
employee attitudes and behaviours.
By understanding these relationships it becomes clear to what degree employee beliefs,
including perceptions about their ability to perform service roles, and satisfaction with
their jobs, influence customer perceptions of service quality and in turn customer
loyalty. The outcome is to establish which strategies are most effective to management
in the quest to focus organisational constituents on service quality. Furthermore, it
establishes which strategies enhance employee role attitudes with the aims of increasing
and maintaining customer loyalty.
The third managerial contribution of the study relates to the research objective
concerning the relationship between service climate and service quality. Service climate
has been conceptually examined in the marketing literature. However, there have been

6

few empirical studies that comprehensively explicate the nature and function of a
climate for service. By making explicit the nature and influence of the service climate,
management can more carefully support and control the service climate, which in turn
influences perceptions of service quality and signals to employee and customers the
service orientation of the organisation.
The fourth managerial contribution of the study relates to the research objective that
deals with the relationships between employee role attitudes and their loyalty intentions
to the organisation. If the influence of the relationship between employee role attitudes
and employee loyalty is clear, then management can take steps within the organisation to
ensure that these employee attitudes are favourable so that the likelihood that valued
employees will remain with the organisation is increased.
The fifth and six managerial contributions concern the research objectives relating to
the impact of managerial practices. Combined, these two contributions relate to the
research objective connected with the impact of managerial practices on the service
climate and the impact of the managerial control practices on employee role attitudes.
Together they constitute comprehensive knowledge regarding the comparative
influences of managerial practices on the organisation’s service climate that impacts
customer perceptions of service quality, and on employee beliefs about their abilities to
do their jobs and on job satisfaction. These beliefs by employees potentially influence
customer loyalty through the impact on employee loyalty, and through an influence on
service quality. Service quality is thought to influence customer loyalty. That is, the
study seeks to demonstrate to managers what actions to take to influence service quality
and employee loyalty.
The final managerial contribution relates to the research objective concerning the overall
model of the employee loyalty-customer loyalty antecedents. This contribution is more
general in that it seeks to provide an overall view of the organisational workings relating
to the development and maintenance of customer loyalty. In essence, the study allows

for the simultaneous examination of managerial influence on service quality through the
foundation conditions that support the service climate, managerial practices influence
on service quality by their impact on employee behaviours and attitudes, and the
relationship between these employee attitudes and behaviours, and service quality, and
their combined effect on customer loyalty.


7

As a result of this comprehensive examination of the influence of managerial actions,
the overall managerial contribution is that managers in service organisations can
implement an effective set of managerial practices and conditions that most thoroughly
contribute to the organisation’s health as a consequence of customer loyalty. This is a
crucial benefit to service managers because they can gauge the relative and collective
influence of a set of managerial practices on key relationships within the organisation,
and plan and allocate resources to effectively impact long term customer loyalty, and
thus organisational survival.
1.4

The relevance of the theoretical contributions

The contributions to marketing theory are important because of the deeper
understanding of how the management-employee, employee-customer and indirectly,
the management-customer relationships function in service organisations, in terms of
the processes by which management communicates its implicit and explicit service
objectives, and how employees and customers develop their perceptions of an
organisation, and the mechanisms that influence those perceptions.
The first two contributions to marketing theory relate to the employee-customer
interface. If an empirical link exists between employee loyalty and customer loyalty, and
if there is a more complex set of relationships between employee attitudes and

behaviours, customer perceptions of service quality and finally customer loyalty, then
researchers have support for the notion that customers use more than service
performance criteria when evaluating service quality and making decisions about
whether or not to remain with an organisation. In terms of organisational behaviour,
this research contributes to the understanding of the mechanisms by which
management supports and controls function within service organisations. Marketing
support and control theory suggests that management exerts influence by both support
and control mechanisms, and that these mechanisms differ in their influence and
direction (Hartline, Maxham, and McKee 2000). Which mechanisms influence which
sets of employee and customer attitudes, what are the paths of these influences, and
how do the participants garner their perceptions of these mechanisms?
The importance of these contributions is that management can gain a more precise
understanding of how customers develop their loyalty intentions as a result of
perceptions regarding both the actual service and their relationship with the


8

organisation, so that the most effective set of support and control practices can be put
in place. This is of benefit to theory because by demonstrating these relationships the
study establishes how employee behaviours and attitudes affect customer perceptions of
service quality and in turn affect customer loyalty.
The third marketing theory contribution relates to the service climate-customer
interface. If the psychological metaphor service climate is a valid concept in the context of
a service organisation that communicates to both customers and employees that service
quality and a customer orientation are important strategic initiatives of the organisation,
then researchers have a clearer understanding of the mechanisms by which managers
communicate about crucial strategic objectives to stakeholders and disseminate the
organisation’s orientation regarding service expectations. This study seeks to define and
quantify this rather slippery concept, and determine whether or not it is a separate and

discrete dimension within service organisations that affords customers and employees
an opportunity to examine the organisation’s service commitment intentions. How
employees and customers sense this climate, and how they develop their perceptions of
whether not the service climate is a favourable one, is of benefit to both theory and
practice. For theory, it would explain how in complex people-intense interactions,
individuals develop impressions of organisations that are at times in conflict with the
positions that that organisations take care to communicate. For practitioners, it would
provide more concrete evidence that organisational policies and organisational practice
need to be congruous and consistent with each other.
The fourth marketing theoretical contribution comes from the knowledge that
managerial practices influence customer loyalty via the organisation’s service climate and
through employee attitudes and behaviours. This confirmation would provide crucial
understanding of the means by which managers exercise indirect support for and
control of the service delivery process. A related contribution is the test of the theory
that the same set of managerial practices influences both employee loyalty and customer
loyalty. This suggests that not only are managerial practices explicit to employees, but
that they become explicit to customers, and that both implicit and explicit organisational
values and culture affect employees and customers. The understanding that employees
develop about the organisation is also conveyed to customers.


9

The final marketing theory contribution relates to the validity of the managerial
practices-service climate constructs and relationship in the marketing literature. If
managerial practices influence customer loyalty, and the service climate communicates
managerial strategy and values and organisational culture regarding service management,
then these constructs belong in the marketing domain and are valid aspects of marketing
theory research.
1.5

Overview of the thesis

The thesis is set out in three major sections. The first section addresses the foundation
of the study, including the literature review and the development of the conceptual
framework and research hypotheses. The second section addresses the methodology of
the research, a discussion and presentation of the data analysis process, and provides the
results of the study. The final section of the thesis includes discussion of the results and
the implications of the research.
The first section includes Chapters One to Seven and addresses the foundations of the
study. Chapter One provides an overview of the study in terms of justifying customer
loyalty as an important organisational objective, placing the study in the context of
existing research, and establishing the importance and contributions of the study.
Chapters Two to Six present a review of the literature in order to establish the set of
constructs and relationships to be tested in relation to the antecedents of the employee
loyalty-customer loyalty relationship. The constructs and relationships are the result of
a review of the organisational behaviour, applied psychology and services marketing
literature in particular, and also the more general marketing literature. These bodies of
literature relate to the examination of employee loyalty and customer loyalty in service
organisations.
The aims of the literature review are to identify the key factors that relate to the chain of
events from managerial practices to customer loyalty in the context of service
organisations and to develop a conceptual model that best describes the set of
relationships that influence customer loyalty. The literature review is organised to
reflect a set of four interfaces that occur in service organisations. The structure of the
literature review and a depiction of the interfaces are presented in Figure 1.1.


10

Managerial Practices

Support

Direct
Leadership
Support

Senior
Leadership
Support

Customer Beliefs

Service Environment
Work
Facilitation
Resources

Service
Climate

Service Climate-Customer
Chapter 3
Interface

Service
Quality
Managerial Practices-Service
Climate Interface Chapter 5

Employee Attitudes

Control

Management
Customer
Orientation

Employee
Self-Efficacy

Customer
Loyalty

Employee-Customer
Interface Chapter 2

Empowerment

Behaviour
Based
Evaluation

EmployeeRole
Interface
Chapter 4

Managerial Control PracticesEmployee Interface Chapter 6

Job
Satisfaction

Employee
Loyalty

Figure 1.1 Overall structure of the literature review, Chapters Two to Six
Figure 1.1 illustrates the set of interfaces and the relevant constructs, the chapters that
deal with each interface, and the overall structure of the literature review section,
moving from right to left.
Chapter Two examines the employee-customer interface. At this interface customer
contact employees and customers interact. As a result of these interactions customers
develop their loyalty intentions based on their perceptions of the level of employee
loyalty and of customer perceptions of the nature of service quality. Service quality is
influenced by the employees’ degree of job satisfaction and the beliefs they have about
their abilities to do their jobs. Chapter Two examines in detail the customer loyalty,
employee loyalty, perceived service quality, job satisfaction and employee self-efficacy
constructs and the relationships between these constructs.
The goal of this chapter is to investigate the literature relating to the first three research
objectives, regarding the relationships between employee loyalty and customer loyalty,
and employee role attitudes, service quality and customer loyalty.