Customer Loyalty Development: The Role Of Switching Costs

Abstract

Customer loyalty plays a crucial role in firm’s performance.  Over the last three decades the antecedents of customer loyalty in the service sector have attracted great interest by academics and practitioners alike.  This study has two key objectives.  First, we investigate how image perceptions, service quality and customer satisfaction contribute to customer loyalty.  The results show that the organizational image customers hold of the service provider and perceived service quality have a similarly strong relationship with customer loyalty.  Moreover, both, service quality and organizational image are significantly and positively correlated with customer satisfaction.  The findings highlight that it is in particular through the formation of customer satisfaction that service quality and organizational impact customer loyalty. Thus, we can demonstrate that customer satisfaction has a mediating effect between external and interactive marketing initiatives and the development of customer loyalty.  Second, we investigate the role of switching costs in the development of customer loyalty.  The findings indicate that perceived switching costs, here assessed in terms of price sensitivity, have by far the strongest, positive and direct impact on customer loyalty in comparison to the other antecedents included in the model.  The importance of switching costs is further corroborated with the finding that switching costs moderate the link between customer satisfaction and customer loyalty.