302_tqm-brand equaity, relationship quality, relationship value and customer loyalty- evidence from...

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Brand equity, relationship quality,relationship value, and customerloyalty: Evidence from thetelecommunications servicesChing-Fu Chen a & Odonchimeg Myagmarsuren ba Department of Transportation and Communication ManagementScience, National Cheng Kung University, 1 University Road,Tainan City, 70101, Taiwan, Republic of Chinab Institute of International Management, National Cheng KungUniversity, 1 University Road, Tainan City, 70101, Taiwan, Republicof China

Available online: 06 Sep 2011

To cite this article: Ching-Fu Chen & Odonchimeg Myagmarsuren (2011): Brand equity, relationshipquality, relationship value, and customer loyalty: Evidence from the telecommunications services,Total Quality Management & Business Excellence, DOI:10.1080/14783363.2011.593872

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Brand equity, relationship quality, relationship value, and customerloyalty: Evidence from the telecommunications services

Ching-Fu Chena and Odonchimeg Myagmarsurenb∗

aDepartment of Transportation and Communication Management Science, National Cheng KungUniversity, 1 University Road, Tainan City 70101, Taiwan, Republic of China; bInstitute ofInternational Management, National Cheng Kung University, 1 University Road, Tainan City70101, Taiwan, Republic of China

The paper aims to examine customer loyalty and explore the interrelationships betweencustomer equity variables, namely brand image, company image, relationship quality andrelationship value, and customer loyalty. The study conceptualises an integrated customerloyalty model and applies it to Taiwan’s telecommunications services industry in thebusiness-to-customer environment. The structural equation modelling technique isemployed to empirically test the proposed hypotheses using a sample of 236 customerscollected by a questionnaire survey. The findings indicate that brand and companyimages significantly influence relationship quality, and relationship quality has asignificant influence on relationship value. However, customer loyalty is not affectedby either dimensions of images and relationship quality directly; rather images andrelationship quality affect customer loyalty mediated by relationship value. This studyalso reveals that relationship marketing variables (i.e. relationship quality andrelationship value) act as mediators in the link between brand equity (i.e. brand imageand company image) and customer loyalty towards telecommunications services.

Keywords: brand equity; relationship quality; relationship value; customer loyalty;telecommunications service

Introduction

Both scholars and practitioners accept that collaborative buyer–seller relationships represent

a source of competitive advantage (Barry & Terry, 2008; Ulaga & Eggert, 2006b). Customer

relationship management (CRM) is a core organisational process that concentrates on estab-

lishing, maintaining, and enhancing long-term associations with customers (Jayachandran,

Sharma, Kaufman, & Raman, 2005; Roos, Friman, & Edvardsson, 2009; Verhoef, 2003).

Past studies, by and large, support that CRM leads to greater customer loyalty (Izquierdo,

Cillan, & Gutierrez, 2005; Rigby, Reichheld, & Schefter, 2002) and business performance

(Javalgi, Martin, & Young, 2006; Kamakura, Mittal, Rosa, & Mazzon, 2002).

The concept of customer equity provides a way to effectively measure the benefits of

investments in CRM (Richards & Jones, 2008). Customer equity is viewed as the dis-

counted lifetime value of a firm’s customer base and is driven by three factors: brand

equity, value equity, and relationship equity (Rust, Lemon, & Zeithaml, 2004; Rust,

Zeithaml, & Lemon, 2000). Brand equity is defined as the differential effect of brand knowl-

edge on consumer response to the marketing of a brand (Keller, 1993). It can be driven by

brand awareness, brand image, and corporate ethics (Johnson, Herrmann, & Huber, 2006).

ISSN 1478-3363 print/ISSN 1478-3371 online

# 2011 Taylor & Francis

DOI: 10.1080/14783363.2011.593872

http://www.informaworld.com

∗Corresponding author. Email: [email protected]

Total Quality Management

2011, iFirst Article, 1–18

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Value equity is the customers’ evaluation of what is given and what is received so as to

determine this aspect of equity (Vogel, Evanschitzky, & Ramaseshan, 2008). In other

words, value equity is to measure the customer-perceived value of the relationship

(Ulaga & Eggert, 2006a). Relationship equity represents the customer’s view of the strength

(or quality) of the relationship between customer and company (Sublaban & Aranha, 2008).

The potential relationship equity drivers include trust (Bitner, 1995; Schurr & Ozanne,

1985), satisfaction (Hewett, Money, & Sharma, 2002; Macintosh, 2007), and commitment

(Anderson & Weitz, 1992; Morgan & Hunt, 1994).

A common goal of CRM and customer equity concerns understanding customers and

realising the greater value from customers over the long term. Following this line of reason-

ing, customer equity leads to customer loyalty which develops long-term and profitable

relationships in marketing discipline (Leone et al., 2006; Raimondo, Miceli, & Costabile,

2008). Moreover, customer equity drivers have been found to be key antecedents of custo-

mer loyalty (Johnson et al., 2006). Hence, previous research largely focuses on the directs

effects of customer equity on customer loyalty, but overlooks the interrelationships between

various customer equity drivers. A closer look into the interrelationships between customer

equity drivers and, subsequently, their impacts on customer loyalty can enhance our under-

standing about CRM practices. To build successful relationships with customers, for

instance, it is essential for managers to find out how customer equity drivers affect each

other and how they influence customer loyalty. Managers who have successful relationships

with selected customers tend to reap the benefits of higher profitability through reduced

marketing and administrative costs and better sales growth compared with supplier firms

that use a transactional approach to serving customers (Low & Johnston, 2006).

To address these intriguing but unanswered questions, the present study empirically

examines a comprehensive model that includes customer equity and relationship variables

at the same time and shows how these variables are interrelated and to produce strong cus-

tomer loyalty in business-to-customer (B2C) service context. To do so, the study hypoth-

esises that firm’s brand equity (conceptualised as brand image and company image) have

positive effects on customer loyalty through the mediation effects of relationship equity

(conceptualised as relationship quality) and value equity (conceptualised as relationship

value). The research setting of this study is the telecommunication services industry in

Taiwan. The rapid development of mobile telecommunication services industry encoun-

ters fierce competition between companies. Taiwan’s mobile carriers have a full awareness

of the importance of customer-oriented business strategy as a condition for continuing

their competitive edge and maintaining a stable profit level and, indeed, for their very

survival. When the number of subscribers reaches its saturation point, creating and secur-

ing new customers is not only difficult but also costly in terms of marketing practices.

Hence, it becomes an industry-wide belief that the best core relationship marketing strat-

egy for the future is to retain existing customers by enhancing their customer loyalty.

The rest of the paper is structured as follows. Conceptual development based on litera-

ture review is presented in the second section. Next section describes the research method,

followed by empirical results. Finally, the implications of this study and suggestions for

future research are discussed in the last section.

Conceptual background and research hypotheses

Relationship marketing highlights the establishment, development, and maintenance of

long-term exchanges. Such relationships are thought to be more profitable than short-

term relationships as a result of exchange efficiencies. This is particularly true of

2 C.-F. Chen and O. Myagmarsuren

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business–customer relationships (Myhal, Kang, & Murphy, 2008). Further relationship

marketing is based on generating a foundation of shared interests, in which firms and cus-

tomers commit to each other. Firms strive to use interactions with customers to generate

commitment, which includes trust, customer desire to maintain a valued relationship, and

readiness to rely on an exchange partner. Some marketing scholars advocate firms formally

defining and managing the value of their customers. The concept of customer equity is

useful in that regard (Leone et al., 2006). Customer equity is concerned with identifying

the value of a customer to the selling firm. Measuring customer equity addresses two impor-

tant concerns of today’s marketers: customer relationships and financial accountability. In

calculating customer equity, individual customer lifetime values (CLVs) are determined for

each customer. Ultimately, customer equity relates to a return on a marketing measure. CLV

is the net present value of a single customer’s value, and customer equity is the discounted

sum of all customers’ lifetime values (Rust et al., 2004).

Rust et al. (2000) have proposed three components and key drivers of customer equity:

value equity, brand equity, and relationship equity. Value equity is the customer’s apprai-

sal of the brand based on its utility. Customers evaluate what is given and what is received

so as to determine this aspect of equity (Vogel et al., 2008). Value equity concerns factors

such as price, quality, and convenience. This type of equity is fundamental to establishing

long-term relationships. Brand equity refers to the differential effect of brand knowledge

on consumer response to the marketing of a brand (Keller, 1993). Brand equity is driven by

brand awareness, brand image, and corporate ethics (Johnson et al., 2006). Each of these

elements serves to enhance the customer’s perception of the brand and increase attraction

and retention rates. Relationship equity involves the special relationship elements that link

the customer to the brand and serve to cement the relationship above and beyond value and

brand equity. Relationship equity represents the customer’s view of the strength of the

relationship between her/him and a particular company or firm to operate retention pro-

grams (Sublaban & Aranha, 2008).

Vogel et al. (2008) have asserted that the major strength of Rust et al.’s (2000) model is

its ability to relate a company’s perceived marketing strategy and marketing investments

to customers’ reactions to those investments and the economic output generated by the

related customer behaviour. The model is one of the first attempts to connect the research

streams on brand equity and customer equity, yet their model does not consider some key

aspects of customer loyalty. Thus, their study conceptualises the integration between

customer equity and customer loyalty. On the other hand, a common goal of CRM and

customer equity focuses on an understanding of customers and realising greater value

from customers over the course of a long-term relationship. In marketing literature,

customer loyalty develops long-term, profitable relationships. Thus, this study assumes

that customer loyalty plays an important role in building a long-term relationship that is

measured by customer equity and relationship marketing perspectives in a B2C environ-

ment. To assess the conceptual model, we focus on three sets of variables that we believe

must be of concern for both researchers and practitioners: brand equity variables that treat

customers’ perception of brand image and company image; relationship variables that

measure by relationship quality (relationship equity) and relationship value (value

equity); and behavioural outcome variable that assess consumer loyalty behaviour.

Brand image

The literature indicates that brand equity has functional and experiential components

(Keller, 1993; Zaltman, 2003). The functional component reflects a brand’s intrinsic,

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objective, utilitarian, and tangible aspects. The experiential components reflects a brand’s

extrinsic, intangible, emotive, and subjective aspects, such as perceived image (Broyles,

Schumann, & Leingpibul, 2009; Keller, 2003). Consumers who do not have any specific

ideas about a product or service use the brand image (or name) to infer the quality of a

product (Lee & Ganesh, 1999). Thus, brand image refers to the understanding that consu-

mers derive from the sum total of brand-related activities engaged in by the firm (Park,

Jaworski, & MacInnis, 1986). It is the set of all associations linked in the consumer’s

memory of a brand (Aaker, 1991; Keller, 1993).

Brand image is a subjective perception, a mental representation of functional and

non-functional information regarding the product or service. One important part of subjec-

tive perception for brand image is the symbolic concepts brand personality (Parker, 2009).

Brand personality is a set of human characteristics associated with a brand (Aaker, 1997).

Thus, a brand’s advertisement processes or external communications create and influence

conceptions of brand personality. In interpersonal relationships, people extend their

personalities to incorporate the desirable traits attributed to their partners. The members

of high-quality relationships are more satisfied with the roles assumed and performed

by the individual parties and are more committed to the relationship (Dorsch, Swanson,

& Kelley, 1998). Consequently, relationship quality develops and translates to consumers’

relationships with products and brands. Similarly, a strong brand image helps to control or

stabilise the quality and value perceptions of a branded product or service (Grewal, Krish-

nan, Baker, & Borin, 1998). The previous studies indicate that brand name (image)

appears to serve as a ‘shorthand’ for quality by giving consumers a bundle of information

about the product (Brucks, Zeithaml, & Naylor, 2000; Teas & Agarwal, 2000). Hence,

studies suggest that brand image (or name) may be a stronger cue for evaluating overall

quality in product and service. Kressmann et al. (2006) argue that a product’s image

should be an antecedent construct to brand relationship quality. When a brand image

becomes popular, in their minds visitors link it to an array of benefits and positive expec-

tations (quality, reliability, trust, etc.; Broyles et al., 2009).

Webb, Green, and Brashear (2000) underscore brand image as a driver of value. It has

been argued that brand image has not only immediate value but also long-term value by

guaranteeing future revenue streams (Aaker, 1991, 1997). Exchange aspects of a personal

relationship involve economic factors and offer primarily utilitarian benefits. For this line

of thinking, relationship values are quid-pro-quo: people are concerned with how much

they receive for what they give. If a comparable reward is not forthcoming, a person is

less likely to be responsive to the person. The primary positive outcome of an exchange

relationship is benefit. Hence, in a service context, relationship value may be defined as

a cognitive evaluation of whether or not the exchange relationship with the relationship

is rewarding (Esch, Langner, Schmitt, & Geus, 2006).

In addition, recent literature examines brand image as another driver of customer loyalty.

Existence of customer loyalty is a good supporting evidence of brand images’ importance in

consumer evaluation of products and services (Lee & Ganesh, 1999). As a result of weakening

brand image/loyalty, little differentiation, and intense price competition, some consumers are

no longer intensely loyal and will not switch companies to get a particular brand (Davis-

Sramek, Droge, Mentzer, & Myers, 2009). Kwon and Lennon (2009) explain that brand

image, in turn, affects various attitudinal and behavioural responses of the consumers

towards the company such as customer loyalty that may create a strong company patronage

intention, great willingness to pay a price premium, and a strong feeling of affiliation or liking.

In the context of relationship marketing, consumers’ perceived image of a brand can poten-

tially affect consumers’ loyalty towards the telecom company. Thus, we hypothesise that


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H1: Brand image has a positive impact on relationship quality.

H2: Brand image has a positive impact on relationship value.

H3: Brand image has a positive impact on customer loyalty.

Company image

Company image can be subcategorised into product reputation, customer relations,

employer role, ethical reputation, and/or the perception of an organisation reflected in

the associations held in the consumer’s memory (Keller, 1993). Company image affects

a customer’s choice of a company when service attributes are difficult to evaluate and

also influences a customer’s perception of the goods and services offered (Andreassen

& Lindestad, 1998; Zeithaml & Bitner, 1996). Recent studies conceptualise a company

image as a corporate social responsibility that refers to the company’s approach to

social issues (e.g. investment in philanthropic activities, environmentally responsibility;

Bravoa, Montanerb, & Pina, 2010; Brodie, Whittome, & Brush, 2009). In this regard, a

company’s good image is likely to stand out in the marketplace because it draws

both repeat customers and trial users (Fombrun & Shanley, 1990). For instance, in the

telecom industry, a favourable image separates and distinguishes the company from its

competitors. The more favourable a telecom company’s image is, the more likely the con-

sumers will assume that the services tendered by that firm are better or of higher quality.

In service marketing literature, a common link between reputation and satisfaction is

perceived quality. A reputation for high quality means more customers, fewer dissatisfied

customers, and increased profitability (Bennett & Barkensjo, 2005). Zins (2001) have

reported that company image is an outcome of the accumulated attitudes derived from

experience and/or direct or indirect market communication. Because of this relationship,

company image should be seen as independent of perceived quality and satisfaction. Con-

versely, company image has a direct relationship on customer behaviour, whether this

relationship is mediated by satisfaction and perceived service quality (Raimondo et al.,

2008). Understanding the role of company image in relationship quality and customers’

perceptions of relationship value is a key issue that has received little attention in the

relationship marketing area. Based on the above studies, this study proposes that

company image affects relationship quality and relationship value.

Building a strong corporate image may lead to consumer preference and loyalty to the

company, generating credibility and, eventually, enabling the firm to obtain a sustainable

competitive advantage (Andreassen & Lindestad, 1998; Fombrun & Shanley, 1990). Park,

Robertson, and Wu (2004) argue that as company image is an important factor that influ-

ences customer loyalty, the role and the effect of company image should be investigated.

Company associations may also play an important role, not only in attracting customers

but also in retaining customers (Andreassen & Lindestad, 1998). As a result, the following

hypotheses are proposed.

H4: Company image has a positive impact on relationship quality.

H5: Company image has a positive impact on relationship value.

H6: Company image has a positive impact on customer loyalty.

Relationship quality

Relationship quality represents a general evaluation of relationship strength and the extent

to which a relationship meets the needs and expectations of the parties involved based on a

history of successful or unsuccessful encounters or events (Crosby, Evans, & Cowles,


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1990). Previous literature measures relationship quality between service firms and their

customers, between manufacturers/suppliers and distributers/resellers (Chenet, Dagger,

& O’Sullivan, 2010), and between salespeople and customers (Bejou, Wray, & Ingram,

1996). The measurement of relationship quality is crucial to organisational development

in an industrial context, as well as a service context, so that both researchers and

practitioners might better understand and handle relationships. Since many academic

and managerial resources have been invested in better understanding relationships, it is

essential to develop ways of evaluating their quality before ultimately assessing their

impact on other key variables, such as performance (Han & Sung, 2008).

Relationship quality is a combination of commitment, satisfaction, and trust (Ulaga &

Eggert, 2006a). On the other hand, relationship quality (trust, benevolence, and commit-

ment) is a distinct construct that differs significantly from service quality (Ward & Dagger,

2007) and is also a better predictor of behavioural intentions than service quality (Bennett

& Barkensjo, 2005). Other studies, such as Ivens (2004), have examined the impact of

relational behaviours on relationship quality in professional service relationships. His

empirical study conducted on 206 purchasers of market research information provides

evidence that supplier behaviours, such as role integrity, flexibility, and solidarity, have

an important impact on different dimensions of customer-perceived relationship quality

(satisfaction, trust, and commitment).

Ural (2009) has examined the effect of relationship quality, in terms of satisfaction,

communication quality, information sharing, and long-term orientation, on export per-

formance. Ulaga and Eggert (2006a) have suggested that relationship value is a perform-

ance-based construct that is the outcome of relationship quality. From a cost-effective

perspective, rather than a perceptual or processing perspective, quality is one of the

major relationship marketing factors affecting a customers’ decision to maintain, build,

or withdraw from a relationship. Further, Cater and Zabkar (2009) have investigated the

relationship quality of the professional service industry examining the effects of trust,

social bonds, satisfaction, and commitments on loyalty intention in Central and European

companies. In the retail environment, investments in marketing relationships influence the

quality of marketing relationships which, in turn, influence customer loyalty (Vesel &

Zabkar, 2010). Therefore, we hypothesise that

H7: Relationship quality has a positive impact on relationship value.

H8: Relationship quality has a positive impact on customer loyalty.

Relationship value

The idea of relationship value has roots in business and service marketing, where relation-

ship value is a higher-order construct that has both transactional and relational dimensions

(Barry & Terry, 2008). Ulaga and Eggert (2006a) define different aspects of the value

concept and identified several recurring features. First, the value is a subjectively per-

ceived construct. Different customer segments perceive different values in the same

product. Second, the customer-perceived value is a trade-off between benefits (what

you get) and sacrifices (what you give) perceived by the customer in a supplier’s offering.

The distinctions between these definitions exist in the different terms used (utility,

worth, benefits, quality, etc.) and the point of time when the perception of value is

created. Ulaga and Eggert (2006b) have suggested that the relationship value, a cognitive

performance-based construct, measures the buyer–seller relationship. Consistent with

this, the customer value examines a customer’s evaluation of product attributes, the attri-

butes’ performances, and consequences arising from its use. Previous studies have found a


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linkage between relationship value and the notion of future intentions or customer loyalty

(Dolnicar & Rossiter, 2008; Ravald & Gronroos, 1996). Hence, this study offers the fol-

lowing hypothesis.

H9: Relationship value has a positive impact on customer loyalty.

Based on the above-mentioned hypotheses, Figure 1 depicts the conceptual model of

this study.

Methodology

Sample and procedure

We drew our sample from Taiwan’s telecom service companies. Taiwan’s telecom market

is highly competitive, and the companies in our study are representative of this market in

terms of size and success. Responses were collected from a sample of university students

who were actual consumers of telecom services. Even though a student sample is often

viewed with doubt due to their inexperience as consumers compared with adult subjects,

they are at least as likely as adults to have service experiences in the telecommunication

segment. Additionally, students are widely and successfully employed as research subjects

in previous studies in other academic fields (Esch et al., 2006; Ryu, Han, & Jang, 2010;

Taylor & Bearden, 2002). A total of 300 surveys were distributed, and after discarding

questionnaires that were unusable because of unanswered items, 236 useful samples

were obtained, yielding a 78.6% response rate.

Among the 236 usable samples, females made up a majority of the respondents

(51.3%). Almost half of the respondents were 18–25 years old (48.7%), and about one-

third were 26–30 years old (36%) accounting for the biggest portion of the sample. The

length of the majority of respondents’ relationships with their telecom operators was

found to be more than 5 years (36.4%), followed by 2–3 years (19.5%) and then those

with at least 3–4 years (16.5%). Finally, respondents’ telecom service monthly usage

costs were $6–12 (33.5% of users), $13–18 (25.8%), and $19–24 (15.3%).

Figure 1. Conceptual model and hypotheses.


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Measures

We developed the items for measuring the constructs of the study, drawing on prior research

in the literature. English questionnaires were professionally translated into Chinese and

then translated back to ensure conceptual equivalence (Mullen, 1995). A sample of univer-

sity students pre-tested the questionnaire before the fieldwork. This procedure led to the

final survey instrument for the main study. We used multi-item five-point Likert scales

with endpoints of ‘strongly disagree (¼1) ’ and ‘strongly agree (¼5)’.

Brand image is a consumer’s evaluation of a brand, which an organisation transfers to

the consumer through integrated marketing communication channels such as advertising

and the sponsorship processes. Brand image was measured using six items adapted from

a scale that was developed and validated by Brodie et al. (2009). Sample items read,

‘The telecom service provider’s communication programs are warm and engaging’ and

‘The telecom service provider’s communication programs are imaginative’. Scale

reliability based on Cronbach’s a is high (i.e. a ¼ 0.81) and larger than the cut-off

criterion of 0.7 recommended by Hair, Black, Babin, Anderson, and Tatham (2006), indi-

cating that there is a high degree of internal consistency among the construct items.

Company image items are chosen to reflect customers’ overall attitude towards the

telecom service companies’ reputation, customer relations, employer role, and ethical

reputation. Hence, six-item scale was adopted from Cretu and Brodie (2007). Sample

items read, ‘The telecom service provider’s service/product is well managed’ and ‘The

telecom service provider works successfully’. The Cronbach a is 0.74, indicating internal

consistency among the construct items is acceptable.

Relationship quality measures the customer’s experience about trust, commitment, and

satisfaction. Seven-item measures developed and validated by Ural (2009). Sample items

read, ‘I have the feeling that the telecom service provider is trustworthy’, ‘I have a clear

commitment towards the telecom service provider’, and ‘I am very satisfied with the

telecom service provider’. The Cronbach a for this scale is 0.71, indicating internal con-

sistency among the construct items is acceptable.

Relationship value measures customers’ judgements about the trade-off between

benefits (a customer’s perception of the quality of the service features that determine

the service offered) and costs (a customer’s perception of the monetary and non-monetary

costs of the service offered). Hence, consistent with previous research, three-item

measures are used to assess the customers’ judgement of ‘worth what paid for’ (Ulaga

& Eggert, 2006b). A sample item reads, ‘Compared with other telecom service providers,

the relationship with this telecom service provider is more valuable’. The Cronbach a is

0.70, indicating internal consistency among the construct items is acceptable.

Customer loyalty is likely to influence a customer’s willingness to stay, repurchase

probability, and likelihood that they will recommend the brand (Johnson et al., 2006).

A two-item scale was adopted from Vogel et al. (2008). A sample item reads, ‘I would

repurchase this telecom service provider’s services’. The Cronbach a is 0.72, indicating

internal consistency among the construct items is acceptable.

The items of all constructs are referred to in Appendix.

Results

Measurement model

To assess the constructs, confirmatory factor analysis (CFA) was conducted to analyse the

validity and reliability of the constructs. An initial CFA was implemented. However, due to


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their factor loadings being ,0.5, three items were eliminated including one company image

item (i.e. ‘innovative service of the telecom company’) and two relationship quality items

(i.e. ‘certainly like the telecom company’ and ‘have a favourable opinion about the telecom

company’). The modified CFA with remaining items was then estimated. According to the

goodness-of-fit indices from CFA, the modified measurement model proves parsimonious.

More specifically, although the chi-square statistic (x2 ¼ 195, df ¼ 125) is significant, the

ratio of the chi-square value to degrees of freedom (x2/df ¼ 1.56) is less than the cut-off

value of 3. Furthermore, other indices such as CFI (0.94), NFI (0.90), and GFI (0.92) are

greater than the recommended value of 0.9. The root-mean-square error of approximation

(RMSEA) is 0.049, which is ,0.10 (Hair et al., 2006). Table 1 reports the CFA results. The

t-values for all the standardised factor loadings of the items are significant (p , 0.01).

Construct reliability estimates range from 0.70 to 0.83, which exceed the critical value of

0.7. The average extracted variances of all constructs range between 0.69 and 0.88 and

are all above the suggested value of 0.5. These results indicate that the measurement

model has good convergent validity. In addition, Table 2 shows the inter-construct corre-

lation, whereby a squared root of AVE for each construct is greater than the correlation

Table 1. Convergent validity.

Constructs Items

Item reliability

Constructreliability

Averagevarianceextracted

Factorloading

t-value

Brand image(BI)

BI1: Think outside the box 0.69 0.83 0.82BI2: Warm and engaging 0.61 6.63BI3: Daring 0.76 8.18BI4: Spirited 0.76 7.95BI5: Imaginative 0.72 7.59BI6: Up-to-date 0.75 7.85

Company image(CI)

CI1: Is well managed 0.60 0.75 0.69CI2: Is a sponsor of

community events0.71 5.69

CI3: Has high ethicalstandards

0.75 6.01

CI4: Works successfully 0.71 5.88CI5: Has a good image 0.72 6.21

Relationshipquality (RQ)

RQ1: Feeling of confidence 0.88 0.71 0.79RQ2: Trustworthy 0.82 6.10RQ3: Courteous and

friendly0.77 5.83

RQ4: Commitment towards 0.87 5.87RQ5: Certainly like 0.63 6.37

Relationshipvalue (RV)

RV1: Company adds valueto the relationship

0.77 0.70 0.79

RV2: The relationship ismore valuable

0.81 7.45

RV3: Creates more value,when comparing all costsand benefits

0.79 7.27

Customerloyalty (CL)

CL1: Repurchase 0.88 0.73 0.88CL2: Recommend to others 0.88 8.04


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coefficients of the corresponding inter-constructs, confirming discriminant validity (Fornell

& Larcker, 1981).

Structural model and hypothesis tests

A structural equation model was applied to estimate the relationships between brand image,

company image, relationship quality, relationship value, and customer loyalty using the

maximum likelihood procedure. Figure 2 shows the estimated model, with standardised

path coefficients. For clarity, only significant paths (p , 0.01) are shown in this figure.

The fit measures indicate that the proposed model fits the data well: x2 (d.f ¼ 208, n ¼

126) ¼ 1.65, GFI 0.91, NFI 0.91, CFI 0.93, and RMSEA 0.048.

The effects of both brand image and company image on relationship quality are found to

be significantly positive (i.e. b ¼ 0.38, t ¼ 3.96 and b ¼ 0.59, t ¼ 5.01, respectively),

indicating that H1 and H4 are supported (Table 3). In contrast, the effects of both brand

image and company image on relationship value are found to be insignificant (i.e. b ¼

0.01, t ¼ 0.01 and b ¼ 0.11, t ¼ 0.64, respectively), indicating that both image con-

structs have no direct effects on relationship value, and yielding rejection of H2 and H5 .

Table 2. Inter-construct correlations (n ¼ 236).

Variables Mean SD 1 2 3 4 5

1. Brand image 4.04 0.43 0.612. Company image 4.14 0.41 0.26∗∗ 0.643. Relationship quality 4.15 0.37 0.34∗∗ 0.45∗∗ 0.594. Relationship value 4.09 0.40 0.29∗∗ 0.41∗∗ 0.49∗∗ 0.605. Customer loyalty 4.20 0.48 0.21∗∗ 0.40∗∗ 0.44∗∗ 0.52∗∗ 0.66

Note: Square root of average variance (AVE) is shown on the diagonal of the matrix; inter-construct is shown offthe diagonal.∗∗Correlation is significant at the 0.01 level (one-tailed).

Figure 2. Estimated results of the model (t-values in parentheses).Notes: Standardised estimates with t-values in parenthesis. ∗∗Significant at p , 0.01.


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Interestingly, however, relationship quality is found to have a significant positive effect on

relationship value (i.e. b ¼ 0.32, t ¼ 4.36), supporting H7 and revealing the mediating

roles of relationship quality in the paths: brand image � relationship value and company

image � relationship value. Furthermore, relationship value is found to have a significant

positive effect on customer loyalty (i.e. b ¼ 0.57, t ¼ 2.65), thus supporting H9, while

the direct effect of brand image, company image, and relationship quality are found insig-

nificant, thus not supporting H3, H6, and H8. The finding also reflects the indirect effect of

relationship quality on customer loyalty through the mediation of relationship value. In

summary, the path: brand equity (i.e. brand image and company image) � relationship

quality � relationship value � customer loyalty is found evident based on the

results of the estimated model.

Total, direct, and indirect effects on customer loyalty

Table 4 reports the measured the effects on customer loyalty relationships. The total effect

– the sum of direct and indirect effects – of company image and brand image on customer

loyalty is insignificant, as the latter (0.52) is greater than the former (0.14). The direct link

between relationship quality and customer loyalty is not significant as well, relationship

quality still has an indirect effect on customer loyalty as meditated by relationship

value (0.59). After all, the direct effect of relationship value on customer loyalty (0.52)

is identified.

In this study, the relationships between the brand equity (brand image and company

image), relationship quality, and relationship value, which are commonly supported in

the literature, are noteworthy. Relationship quality and relationship value play crucial

roles as mediators in the relationship between images and customer loyalty. If the level

of images perceived by customers lead to increase relationship quality, then this in turn

Table 4. Total, direct, and indirect effects on customer loyalty.

Path Direct effect Indirect effect Total effect

Brand image � Customer loyalty – 0.14 0.14Company image � Customer loyalty – 0.52 0.52Relationship quality � Customer loyalty – 0.59 0.59Relationship value � Customer loyalty 0.52 – 0.52

Table 3. Key parameters of the structural model.

HypothesisStandardisedcoefficient t-value Significance

H1: Brand image � Relationship quality 0.38 3.96∗∗ SupportedH2: Brand image � Relationship value 0.01 0.01 RejectedH3: Brand image � Loyalty 20.09 20.85 RejectedH4: Company image � Relationship quality 0.59 5.01∗∗ SupportedH5: Company image � Relationship value 0.11 0.64 RejectedH6: Company image � Loyalty 0.11 0.85 RejectedH7: Relationship quality � Relationship value 0.71 3.02∗∗ SupportedH8: Relationship quality � Loyalty 0.22 0.85 RejectedH9: Relationship value � Loyalty 0.52 2.55∗∗ Supported

∗∗Cutoff of t-value is 1.96 (p , 0.01).


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increases the level of relationship value. If relationship quality does not increase relation-

ship value, then relationship quality does not affect customer loyalty.

Discussion and conclusion

This study investigates the relationship marketing model using a customer equity perspec-

tive to gain a better theoretical and practical understanding of how customers’ perceptions

of brand image and company image influence relationship marketing perspectives

(relationship quality and relationship value) and loyalty. From a theoretical point of

view, the main contribution of this study lies in the development and testing of inter-

relationships of the customer equity model with relationship quality and relationship

value in a B2C environment. Past studies on customer equity primarily focused on

brand equity, value equity, and relationship equity and generally did not incorporate the

relationship marketing perspective. This study develops and tests additional theoretical

linkages between the antecedents of relationship quality and relationship value. The

present study also shows how the customer equity and relationship marketing concepts

further influence customer loyalty.

The influences of brand image and company image on perceptions of relationship

quality and relationship value differ in importance. Brand image has a strong influence

on relationship quality, but does not influence relationship value. Similarly, company

image also has a strong influence on relationship quality, but does not influence relation-

ship value. The relationship marketing frameworks suggest that established models of

buyer–seller relationships might insufficiently reflect a managerial emphasis on a seller

performance evaluation. Indeed, customers monitor sellers periodically to track seller per-

formance over time. Seller performance evaluation tools are important, because they

trade-off the benefits and costs incurred in a purchasing relationship. Such tools

measure the customer-perceived value of the relationship (Ulaga & Eggert, 2006a).

Thus, the present study assumes that customer’s perceptions of brand image and

company image are first evaluated by perceived quality of the relationship. Because

relationship quality is the degree to which a relationship fulfils the needs of the customer

(Henning-Thurau & Klee, 1997), customer satisfaction with, and trust in, the relationship

leads customer perceptions of relationship value (Macintosh, 2007). A feeling of famili-

arity, personal recognition, and trust are also factors why buyers like to develop

ongoing relationships with their service companies (Low & Johnston, 2006).

Findings also indicate that brand image and company image do not prove a determinant

of customer loyalty. Relationship quality also seems to have insignificant impact on customer

loyalty. In contrast, relationship quality significantly influences relationship value, while

relationship value affects customer loyalty. Bloemer, Ruyter and Peeters (1998) revealed

that image is indirectly related to loyalty. Research evidence shows that brand images and

company images are extrinsic quality cues. Thus, it effects on consumers’ perceptions of

product/service quality (Teas & Agarwal, 2000). In this study, consumers perception of

brand equity via brand image and company image firstly evaluates by their perceived

relationship quality such as satisfaction, trust and commitment. Moreover, brand equity is

mediated by relationship quality to affect loyalty in the telecom services industry. For

instance, Kwon and Lennon (2009) mentioned that in order to enjoy benefits of customer

loyalty such as reduced customer acquisition costs, increased base revenues, and positive

word-of-mouth; firms should not buy customer loyalty through loyalty schemes such as

loyalty cards and company image, but achieve it through excellent service quality and

customer satisfaction.


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Ural (2009) considered relationship quality to be the quality of interaction between a

customer and supplier, and interpreted this in terms of accumulated values. In the same

sense, Ravald and Gronroos (1996) stated that during the first stages of a relationship

the quality of each transaction is of great importance, while in later stages it is relationship

value that counts. In fact, in the relationship marketing research domain, creating customer

value has gradually become more and more regarded as the next source of competitive

advantage (Woodruff, 1997), whereas customer-perceived quality is commonly recog-

nised as a significant and positive antecedent (Bennett & Barkensjo, 2005). According

to Izquierdo et al. (2005), in customer–seller relationships, customers benefit in terms

of higher value, better quality, and increased satisfaction with their purchases, while

firms benefit from greater sales volumes, better operating efficiencies, positive

word-of-mouth publicity, improved customer feedback, and decreased marketing

expenses. Research indicates that relationship quality is a positive function of relationship

value. In turn, purchase intentions, which represent a consumer’s willingness to buy, are

also influenced by relationship value (Taylor & Bearden, 2002). Considering the signifi-

cant causal relationships in the study, the findings show the following sequences:

images � relationship quality � relationship value � customer loyalty. These

sequences highlight the importance of having a coordinated marketing programme that

integrates the external communications, which build customers’ perceptions of brand

image and company image, with relationship quality in terms of relationship processes

based on customer trust, customer commitment, and customer satisfaction. As a result,

customer perception of relationship quality contributes to relationship value through

customer loyalty.

Managerial implications

From a managerial point of view, this study has some implications for managing the

relationships of telecom services companies with their customers. Collaborative relation-

ships between firms and customers represent a significant trend in the current competitive

business environment (Cater & Zabkar, 2009). Brand equity (brand image and company

image) is of primary importance in maintaining relationship quality. Thus, the results

suggest that a firm should control external marketing communications (particularly

from advertising and sponsorship) and maintain promises about the company’s image

(is involved with the community, is well managed, is successful, etc). When a brand is per-

ceived as attractive and unique, customers are less likely to switch (Rosenbaum & Wong,

2009; Vogel et al., 2008). For this reason, managers should concentrate on creating and

maintaining brand equity in order to directly influence relationship quality. In creating

brand equity, managers can improve brand image and verify the stability of delivery of

a company’s promises (company image) at a level that exceeds the customer’s

expectations.

The findings also reveal that relationship equity (relationship quality) is important to

relationship value in predicting loyal customers. Alternatively, relationship quality is

one of the key strategic issues for managers to consider when establishing and maintaining

long-term relationships with their customers. Relationship quality in the B2C markets is

shaped by multiple factors. For long-term relationship success, relationship quality vari-

ables such as trust, satisfaction and commitment play an important role in buying behav-

iour. Therefore, managers are well advised to use measures of relationship quality in

addition to brand equity measures. They should also develop strategic and tactical initiat-

ives that ensure that consumers are satisfied with the service, trust it and feel attached to it.


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This may require that managers employ not only standard marketing mix and communi-

cation techniques but also experiential marketing techniques, which result in increased

interactions and emotional connections between the customer and the company (Esch

et al., 2006).

This study further reveals that value equity (relationship value) is a significant driver of

customer loyalty. The result suggests that firms should meet customers’ expectations by

considering the evaluations of costs and benefits within a relationship (Ulaga & Eggert,

2006a). Generally speaking, value equity represents a customer’s evaluation of what is

given up (price) and what is received in return (value). A firm can consider delivering

different aspects of value to the customer including brand equity, brand image, company

image, relationship quality, price, service quality, and product quality. Finally, the

purpose of relationship marketing, to managers, is to help remove some of the uncertainty

in decision-making with regards to customers. Relationship marketing is gaining in impor-

tance as markets become ever more competitive and firms in competitive markets become

increasingly concerned about customer retention and maintaining long-term relationships.

Relationship marketing managers may be able to develop relationships equipped with

knowledge of critical antecedents and consequences of relationship quality and relationship

value. Adopting an evolutionary perspective, we suggest that customers’ perceived

relationship quality and relationship value should be considered as instrumental to building

relationships. We advise managers to consider the idea of differentiating their company

image and brand image to build long-term relationships and loyalty.

Limitations and further research

The substantive findings of this study should be viewed in light of its limitations. First, the

present study analyses particular telecom service firms from one industry. Therefore,

caution should be exercised in generalising our findings to other telecom companies or

industries. For an industry in which relationship quality differs among providers, relation-

ship value might be a source of competitive advantage, whereas in industries or telecom

settings in which involvement is low, establishing brand communities might not be a good

investment. Second, further research is required to extend structural equation modelling in

order to provide a richer description of different types of markets. A relationship is a criti-

cal phenomenon related to interaction between social units and social capital formation.

Brand image and company image can help build up some types of social relationship

between customers and telecom service firms. For instance, membership programs can

consider maintaining long-term development plans that benefit the involved parties. On

the other hand, researchers could also propose a relationship quality construct separated

by trust, commitment, and satisfaction. This would help to develop clearer understanding

of relationship quality, which affects customer loyalty in different ways.

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Appendix. Questionnaire used to measure the constructs

Brand image The telecom service provider’s communication programmes think outside thebox

The telecom service provider’s communication programmes are warm andengaging

The telecom service provider’s communication programmes are daringThe telecom service provider’s communication programmes are spiritedThe telecom service provider’s communication programmes are imaginativeThe telecom service provider’s communication programmes are up-to-date

Company image The telecom service provider’s service/product is well managedThe telecom service provider is an active sponsor of community eventsThe telecom service provider has high ethical standards with respect to its

customers and employeesThe telecom service provider works successfullyThe telecom service provider is innovative in its serviceIn my opinion, the telecom service provider has a good image in the minds of

customersRelationship

qualityThe telecom service provider gives me a feeling of confidence (trust)I have the feeling that the telecom service provider is trustworthy (trust)The telecom service provider has always been courteous and friendly

(commitment)I have a clear commitment towards the telecom service provider (commitment)I certainly like the telecom service provider (satisfaction)I am very satisfied with the telecom service provider (satisfaction)I have a favourable opinion about the telecom service provider (satisfaction)

Relationship value Compared with other telecom service providers, this telecom service provideradds more value to the relationship

Compared with other telecom service providers, the relationship with thistelecom service provider is more valuable

Compared with other telecom service providers, this telecom service providercreates more value, when comparing all costs and benefits in the relationship

Customer loyalty I would repurchase this telecom service provider’s servicesI would recommend this telecom service provider’s services to others


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302_tqm-brand equaity, relationship quality, relationship value and customer loyalty- evidence from...

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