Beyond Customer Satisfaction:

Customer Commitment.
Praveen K. Soni
California State University
David T. Wilson
The Pennsylvania State University
Michael O’Keeffe
Monash University

ISBM Report 234996

Institute for the Study of Business Markets

The Pennsylvania State University
402 Business Administration Building
University Park, PA 16802-3004
(814) 863-2782 or (814) 863-0413 Fax
This publication is available in alternative media on
request.
The Pennsylvania State University is committed to the policy that all persons shall
have equal access to programs, facilities, admission, and employment without regard
to personal characteristics not related to ability, performance, or qualifications as
determined by University policy or by state or federal authorities. The Pennsylvania
State University does not discriminate against any person because of age, ancestry,
color, disability or handicap, national origin, race, religious creed, sex, sexual
orientation, or veteran status. Direct all inquiries regarding the nondiscrimination
poiicy to the Affirmative Action Director, the Pennsylvania State University, 201
Willard Building, University Park, PA 16802-2801; tel. (814) 863-8471; TDD (814) 865-
3175.
U.Ed. BUS 97-036
 Beyond Customer Satisfaction: Customer Commitment

Praveen K. Soni
Caiifomia State University

David T. Wilson
The Pennsylvania State University

Michael OXeeffe
Monash University

Praveen K. Soni is Associate Professor of Marketing, School of Business Administration,

California State University, Long Beach, CA 90840. (213) 9854763.

David T. Wilson is ISBM Managing Director and Alvin H. Clemens Professor of

Entrepreneurial Studies, The Pennsylvania State University, Department of Marketing, 707-D
Business Administration Building, University Park, PA 16802-3007. (814) 865-2219.

Michael OXeeffe is Executive Director, Australian Agribusiness Research Unit, Monash

University, PO Box 197, Caulfield East, Victoria 3145, Australia 61 3 573 2307.

The authors acknowledge the support of the Institute for the Study of Business Markets, The
Pennsylvania State University and the Agribusiness Research Unit, Monash University.
 BEYOND CUSTOMER SATISF’ACTION: CUSTOMER COMMITMENT

Abstract

Using concepts drawn from the relationship literature we expand the concept that
customer satisfaction leads to customer retention. Customer commitment to remain is the
relationship is proposed as fkre oriented indicator of retention as retention is a historical
measure. The enriched model provides a better prediction of commitment than the simple
satisfaction models.

2
 INTRODUCTION

Retaining customers is good for a firm’s economic health. Loyalty and customer retention can

have a direct influence upon profitability. For example, Bain & Co. has shown that a five-

point improvement in customer retention can Iead to an increase in profits from 25% to 80%

(Reichheld and Kenny 1990). The relationship between customer retention or loyalty has been

discussed by scholars for a number of years (see Cardozo 1965; Day 1977; Day and Landon

1977; Parasuraman, Zeithaml and Berry 1985; Bolton and Drew 1991 and Anderson, Forneil

and Lehmann 1994; Reichheld, 1996) as examples of this stream of research). CurrentIy,

although the concept of customer retention is applicable to alI types of businesses, banks and

tianciai firms seem to be in the forefront of studying the impact of retention on profits.

The research has mainIy focused upon the hancial impact of retention and the influence of

satisfaction and dissatisfaction upon retention. Customer satisfaction is assumed to lead to

good things,” such as attitude change, repeat purchase, and brand loyalty.” (Churchill and

Suprenant 1982), lower costs of attracting new customers, (Fornell 1992) and lower costs of

handling returns and complaints (Crosby 1979; Garvin 1988). The central theme is that

customer satisfaction is the driver for retention. This satisfaction-retention relationship is likely

the case in many consumer markets, however, in business-to-business markets we will argue

that customer retention is better modeled as a relationship model in which performance

satisfaction is one part of the overall model.

Business-to-business transactions involve trust, investment, social bonds and structural bonds

that hold the parties together in a relationship. The overall satisfaction with the relationship

may not be high but so long as the product performance satisfaction is high the customer may

2
 be retained. The goal of overall satisfaction is still important but in many business-to-business

markets the relationship between the parties is more complex than just a buying and selling

transaction.

We f&st examine the economic push for customer retention and then explore customer

satisf&on as input to developing alternative retention models. We argue that being

committed to the partner in a buying-selling relationship is an important predictor of retention.

We examine three models of customer commitment We begin with a simple model where

commitment is a function of customer satisfaction. This model is expanded to in&de

personal relationships between the firm and the customer and finally drawing upon the buyer-

seller relationship literature we develop a general model of customer retention. We test all of

these models using data from the study of a specific commitment problem of a business firm.

We conclude with a discussion of the results and implications for scholars and managers.

BACKGROUND TO THE STUDY

Economic Drivers

Payne and Richard (1993) estimate the impact of a 5% change in customer retention on

profits for a range of US businesses. They calculate and present graphical soiutions to

assumed customer retention situations which make a strong financial argument for customer

retention. Payne and Richard state, “Relationship marketing focuses on keeping customers and

buihiing a relationship with them, thus enhancing customer loyalty. It is now being

increasingly recognized that the greater the satisfaction the customer has with the firm and its

products, the more likely long term customer retention and improved profitability.”
 The twin focuses of financial impact and customer satisfaction dominate the literature

(Reichheld and Kenny, 1990, DeSouza, 1992, Naumann and Shannon, 1992). Ainslie and Pitt

(1992) use demographic data in a customer data base to attempt to predict customer

retention Not surprisingly they did not do better than chance in predicting insurance policy

lapses. Rust and Zahorik (1993) develop a, “mathematical tiework for making

accountable resource allocation to improve customer satisfaction.” The key assumption in

their model is the Iink between retention and satisfaction-dissatisfaction. They Iink the

discovery of the key loyalty factors to financial program to manage these factors. In a banking

environment this may a reasonable approach but we believe that it can be improved using

concepts from business relationship theory.

Carroll and Rose (1993) take an economic view of customer retention noting that all customers

do not generate value and suggest that fkancial institutions should focus retention strategies on

the v&e producing segment. Czepiel and Reddy (1992,1993) use the concepts of

relationship strength and relative perceived performance as mediating variables as they

attempted to predict future usage of bank setices using past usage, knowledge of the business,

bank seeks the business and price. Results of the model are mixed but they conclude that, “in

business-to-business settings, committed long term relationships between buyers and sellers

are based on a strong, economically rational foundation”.

Current work in retention is skewed towards the services area and financial services in

particular. The focus has been upon the economics and the influence of satisfaction and

dissatisfaction upon customer retention. Fredrick Reichheld (1993) citing studies by Bain &

Co. states that, “The economic benefits of high customer loyalty are considerable and, in

4
 many industries, explain the differences in profitability among competitors.” He cites the

example of MBNA where a 5% increase in retention grows the company’s profits by 60% in

the fifth year. In a later book (1996), Reichheld presents a number of economic examples of

the vaiue of customer retention over the customer life cycle. Profit from a customer increases

each year that the customer is retained.

In discussing retention he states, “ Customer satisfaction is not a surrogate for customer

retention. While it may seem intuitive that increasing customer satisfaction will increase

retention and therefore profits, the facts are contrary. Between 65% and 85% of customers

who defect say they were satisfied or very satisfied with their former supplier.”

We share this viewpoint that retention is far more complex than customer satisfaction

especially in business-to-business situations.

Customer Satisfaction

Customer satisfaction has been viewed both as transaction spectic satisfaction, which is the

post purchase evaluation of the match between expectations and actual performance (Oliver

1977,1980,1993), and cumulative satisfaction which reflects the overall evaluation based on

transactions over time and is the net sum of the customer experience with the seller (Fornell

1992, Anderson, Fomell and Lehmann 1994). Since business marketing generally involves

numerous transactions over time or a long complex buying process that seeks to reduce

uncertainty about expectations of performance we will use the overall measure of satisfaction

as the goaI of the firm.

Customer satisfaction emerged from consumer studies that sought to quantify the basic

assumption implicate in the marketing concept that satisfied customers are more likely to have

5
 a positive attitude towards the product and rebuy it Oliver (1980) conceptualized the process

as one in which in time ti expectations expressed as a multi-attribute attitude model (Fishbien

and Ajzen 1975) leads to intention to buy. Purchase leads to negative disconfirmation when

the actual experience falls below the expected or positive d&or&nation when the actual

experience falls above the expected In period ts disconfirmation directly influences

satisfaction, which in turn modifies attitude leading to a change in behavioral intentions.

Satisfaction is seen to influence both attitude and intention. The expectation, perceived

performance disconErmation, leading to a level of satisfaction has been the main paradigm in

the product satisfaction literature. The service quality literature shares many of the same

constructs as the satisfaction literature (see Parasuraman, Zeithaml and Berry 1988; Boulding,

Kalra, Staelin and ZeithamlI993 for a discussion of these constructs). We use the service

quality notion of cumulative perceptions of multiple transactions as the measure for satisfaction

in this paper.

Anderson, Fomell and Lehmann (1994, page 54) state, “Whereas transaction-specific

satisfaction may provide specific diagnostic information about a particular product or service

encounter, cumulative satisfaction is a more fundamental indicator of the firm’s past, cuxrent

and future performance. It is cumulative satisfaction that motivates a firm’s investment in

customer satisfaction” We share their view not only of the importance of cumulative

satisfaction but of the model being applicable to both product and service encounters.

MODELS OF RETENTION

The basic model of begins with the proposition that, “high customer satisfaction should

indicate increased loyalty for current customers” (Fomell and Lehmann 1994, page 55; Fomell

6
 and Werner-felt 1987; Forneil 1992; Anderson). We interpret this proposition by making the

assumption that loyal customers are ones who are committed to stay in the relationship and

continue to purchase the setices of the partner firm. We specify the model as:

Retention = f (SATISFACTIONS)

where t indicates cumulative customer satisfaction

Figure 1 shows this simple model.

Insert Figure I here

Reicheid suggests that personal relationships between sales persons and customers contributes

to customer retention (1993). He states, “empIoyees who deal directly with customers day

after day have a powerful effect on customer loyalty” (p.68) This personal interaction develop

social bonds that help hold a relationship together. Mummalanenni and Wilson (1991) found

that sale persons who had good personal relationships with buyers were accorded second

chances whenlperformance on key items slipped We extend the basic model to incorporate

customer-seller social bonds. This extended model is depicted in figure 2 and is specified as

follows:

COMMlTMENT = f (SATISFACTION, SOCIAL BONDS)

Insert Figure 2 here

 Customer Commitment: A Mom Complex View

We believe that customer commitment in business markets is more complex than two

variables; customer satisfaction and social bonds. These two factors are important but there is

a solid literature describing buyer-seller r&tionships which indicates that mnmitment to

remain is a relationship is a complex multivariable problem. Anderson, Fomell and Lehmann

(1994) include a vector of factors such as environmental trends, Errn-specific fsctors, error etc.

as things that exert influence upon customer satisfaction. We believe these external factors may

modify the models of commitment, however we see commitment a function of a more complex

relationship between the parties in which satisfaction and social bonding are only part of the

total set of variables that lead to commitment to the relationship and customer retention.

Relationships are now an accepted part of the current marketing Iiterature. The early work in

relationships by such authors as the IMP Group (Hakansson, 1982), Wilson and

Mummalaneni, (1986), Heide and John, (1988), Dwyer Schurr and Oh, (1987), Anderson and

Narus (1984) and others is described in Wilson and Moller (1988). We draw heavily upon the

work of Han and Wilson (1993) and Wilson (19%) in building the commitment model.

Long term commitment of the part of the customer and the firm to maintaining the relationship

is the precursor t retention. The development of the mutual commitment is the same process as

creating a long term buyer-seller business relationship. The maindifference may be in

situations where there is not intense personal component and high degree of personal

interaction that is present in many buyer-seller relationships. Such a more distant relationship

is the case in many banking relationships with the broad customer base. We believe that many

of the same relationship constructs are still important in situations where the parties have
 distant interaction. We will develop the rationale for the general retention model presented in

figure 3.

Insert Figure 3 here

Han and Wilson (1993) and Wilson (1995) use the concept of social and structural bonds to

describe the two main forces that hold a relationship together. Social bonds capture the

interpersonal aspects of relationships. Structural bonds capture the corporate aspects of a

relationship in that they represent variables that endure beyond the individual relationship. For

example, ifthe partners connect their computer systems to exchange electronic data (EDI)

they have created a structural bond that makes terminating the relationship more difficult as

they will have to end this data interchange. Both parties have made an investment in the

system which may not be directly recoverable. Day to day operations may depend on the

system and ending the relationship may cause disruption in operations.

It is possible to have a relationship that is based on social bonds ifmost competitors are equal

in performance and the transactions fairly simpie (Mummalaneni and Wilson, 1988, and

Czepiei and Reddy, 1993). However, most relationship have elements of the both structural

and social bonds. Social interaction is generally necessary to create the trust that precedes

investment on the relationship.

9
 The general model describes the basic elements of a relationship. There are likely unique

aspects of most relationships that need to be accounted for in modeling that relationship. Social

bonds reflect the quality of the relationship and the degree of trust that develops.

SOCIAL BONDS .

Trust

Trust or distrust has always been a part of business relationships. Trust has been measured

and described a number of ways ranging Corn a personality variable, (Rotter, 1967) to related

to relative power between the partners (Young and Wilkinson, 1989). We have taken a

sociological view that is expressed by Lewis and Weigert (1985) as, “trust is conceptualized

as a reciprocal orientation and interpretive assumption that is shared, has the rektionship as the

object and is symbolized through intentional action”. Trust is related to a partners perceptions

of the other partners abilities, knowledge, expertise, motives and intentions. It colors the

actions that partners will take in the relationship.

Quality of the Interaction

This variable measure the degree of the social interaction which may range from being a close

personal friend to a distant business relationship. Mummalaneni and Wilson (1991) in a study

cantrolling for the degree of structural bonding they found that there was little difference in

social bonding between individuals who saw their partner as a business fkiend or a close

personal fknd However, there was a difference in the positive actions a person would take

10
 to support a business tiend versus the action she/he would take to support individuals who
were perceived to be more distant and formal business acquaintance. Both buyer and selIer

would take some risk to support fiends. Personal friendship and positive social interaction

supports trust and helps to maintain commitment to relationships.

STRUCTURALBONDS

Product/Service Performance

This is the heart of the exchange relationship as the product or service must perform well for

the relationship to continue. Customers cannot be retained if their h does not provide equal

or greater value than the competitors. Performance can be measured as customer satisfaction

or as the perception of performance.

Goal Compatibiiity

Goal compatibihty is the degree to which the partners share goals that can only be

accomplished through their continuing relationship. Ifthere a no shared goals it is easy for

either partner to defect from the relationship when a more am-active opportunity appears.

Many shared goals tends to hold the relationship together as the partners perceive the need for

the other for them to achieve their goal.

The comparison level of the alternatives is derived from Thibaut and Keiley (1959) and

Anderson and Naurus (1984,199O) who introduce the concept of CL&r to the study of

relationships. The comparison level is the expected level of performance based upon the

11
 person’s knowledge and experience of performance in similar situations. The comparison level

of the alternative is the level of performance that may be obtained by changing partners.

Structural bonding may inhibit changing reiationships even when the level of CL&-r is higher

than the partner’s performance because the cost of moving to a new relationship is very high.

CL&r has a negative effect on structural bonding meaning that better the alternative

relationships weaken the structuraI bonding of the partners.

Investments

Irretrievable investments derive from the concept of transaction specific investments

(Williamson, 1975,1979) that are made to support the relationship. These irretrievable

investments tend to bond the relationship together as the cost of ending the relationship may be

so high the partners work to make the reiationship viable.

Peer Pressure

Peer pressure represents the social pressure that may be place on person by their peers to

maintain the relationship even ifit is not meeting the individual’s needs because it may be

meeting the peer’s needs. Business-to-business relationships tend to involve multiple

individuals who may experience dEerent levels of satisfaction with the relationship partner and

peer pressure tend to influence changes in the relationship. Peer pressure can have a positive

or a negative impact on the relationship.

Commitment

12
 Commitment is the degree to which a partner is committed to the continuance of the

relationship. It reflects a long term expectation that the relationship will continue. Retention of

a customer requires the customer to be committed to the relationship. We believe that

commitment is a business marketing relationship goes beyond satisfaction. It is possible to be

dissatisfied with aspects of tie relationship but to continue to buy because there is no

alternative supplier with an adequate alternative product

RETENTION, COMMXMENT, AND RELATIONSHIPS

The generaI relationship model described above is a richer model of customer retention than

customer satisfaction or dissatisfaction particularly in business-to business situations. Retention

is a post hoc measure whereas commitment predicts the future. Structural bonds may hold

customers even when they are not fully satisfied. The richer modei provides more insight into

managing relationships to retain customers.

TESTING THE MODEL

The Grain Board until recently was the legislated outlet for aiI wheat grown in a large

agricuhu&y based country. The domestic market for grain has been deregulated which

means the Grain Board must now compete to retain growers as their customers. We had the

opportunity to test the model as part of a research study that Board conducted. The down side

of this opportunity is that we were limited in the number of questions we were allowed to add

to the Board’s questionnaire. This impacted our ability to measure some of the constructs at a

level that we would desire. ‘Ihe operationahzation of the variables reflects the nature of the

13
 study. Appendix I provides independent and dependent variables and the corresponding

questions used to measure them.

METHODOLOGY

The data was collected via structured telephone questionnaires administered to a total of 600

grain growers. The sample include 120 growers Corn each of five regions and was randomly

drawn Corn the Grain Board’s mailing list. The size of the farms ranged Corn 100 acres to

over 50,000 acres. These farms are small capital intense businesses. The distribution of farm

size is shown in Table 1.

TABLE 1 Sample Distribution of Farm Size

Acres Number of Respondents

100-500 97

501-1000 159

1001-2000 172

2001-4000 119

400 l-6000 29

6000-50000 24

Total 600

ANALYSIS AND RESULTS

The basic model (Figure 1) was tested using linear regression analysis with Satisfaction as the

independent variable, and Commitment as the dependent variable. The model was structured

aS:

14
 Commitment = a + b * Satisfaction

We used a single composite measure for Satisfaction. The results of the analysis are shown in

Table 2. With an R2 of 17.4% the model is signifkant at the p=O.OOOl levei. The parameter

estimate for Satisfaction is positive and sign&ant in&&g that increasing Sdisfaction levels

result in increasing Commitment.

TABLE 2: Basic Retention Model&near Regression Results

Parameter Standard
Variable Estimate Error t-value P
Satisfaction 0.422 0.038 11.088 0.0001
R2=0.174 F value = 122.945 p - 0.0001

The extended model depicted in Figure 2 was tested using both linear regression analysis and

structural equation analysis so as to provide a comparison with both the previous basic model,

and our more complex model. Satisfaction and Social Bonds were the independent variables

while Commitment was the dependent variable. The model was structured as follow&: .

Commitment = a + b + satisfaction + c * Social Bonds

Again, we used a single composite measure of Satisfaction for the regression anaiysis, but used

two separate measures of Satisfaction for the structural equation anaiysis. The results of the

regression analysis are shown in Table 3, whereas those of the structural equation analysis are

shown in Figure 4. With an R’ of 23.8%, the extended model is significant at the p=O.OOOl

level, and shows a gain of 6.4% over the basic model suggesting a better explanation and fit.

The parameter estimates for both Satisfaction and Social Bonds are positive and also

significant at the p=O.OOOl level. This means that increasing commitment rates are likely to

occur with an increase in Satisfaction levels and development of Social Bonds between buyers

and sellers. Satisfaction seems to be the stronger variable due to its higher parameter estimate,

but the positive correlation between Satisfaction and Social Bonds detracts from the results.

15
 TABLE 3: Extended Commitment Model-Linear Regression Results

Parameter Standard

Variable Estimate Error t-value P

Satisfaction 0.369 0.043 9.85 O.oool

Social Bonds 0.298 0.037 6.97 0.001

R2 = 0.2381 F value = 90.607 p - 0.0001

The structural equation analysis of the extended model yielded a &i-square of 0.27 with 1

degree of freedom. The adjusted goodness of fit index is 0.998, the root mean square residual

is 0.003, and the associated p vaiue is 0.606, all indicating a very good fit. The coefficients of

determination for independent and dependent measures are high and close to 1 .O. However,

the coefficient of determination for structural equations is a low 0.287 indicating a somewhat

weak structure. The weakness seems to stem from the inclusion of social bonds in the model.

All t-values are significant at the 0.001 levels.

Satisfaction has both a direct effect on Retention (Gamma - 1.017) and an indirect effect on

Commitment through its impact on Social Bonds (Gamma = 0.5). Social Bonds have a direct

effect on Commitment (Beta - 0.309). All parameter estimates are positive indicating increases

in Commitment due to Satisfaction and development of Social Bonds. In this model, it

becomes obvious that Satisfaction has a greater impact on Commitment than does Social

bonds, but the signifkance of Social bonds should not be discounted as its presence serves to

deepen the relationship.

16
 A structural equation analysis (LISREL) of the entire sample was conducted to test the more

complex retention model depicted in Figure 3 using the constructs and measures appearing in

Appendix 1. Ai suggested by Joreskog and Sorbom (19&I), at first a sound measurement

model for the constructs was obtained. This measurement model was then used to test the

complex model and to obtain a best fitting structural model. ‘The model presented in Figure 3,

though theoretically sound, did not pass muster empirically. Several other theoretical models

were then analyzed through the process of elimination and selection, and the best fitting

empirical model was then selected. This complete and equally complex commitment model is

depicted in Figure 5.

The model statistics of Chi-Square = 71.89, df- 56, p = 0.075, an adjusted goodness of fit

index of 0.969, and a root mean square residual of 0.027 indicate a very good fit between the

structure and the data The coefficients of determination for the independent and dependent

measures is 0.995, and for structural equations is 0.578 indicating a strong and better structure

than the extended model. As you may recall, the corresponding coefficient for the extended

model was 0.287. Other relevant model statistics such as error variances and squared multiple

correlations are all well behaved and signify a very good model. The parameter estimates and

the t-values are shown in the model itself. All relationships depicted in the model are

significant at the p < 0.01 level as indicated by their respective T-values, except for the

relationship between CLAlt and Structural bonds. The direct ef%cts between the constructs

are shown in the model itself (Figure 5), and their total effects are tabulated in Table 4.

17
 TABLE 4: Our Model of Commitment-Total Effects

1. Between Independent and Dependent Constructs

Independent Constructs

Information

Trust communications Investments CLdt

Social Bonds 0.156 0.38 - -

Dependent StruCtWal 0.25 1 0.082 0.194 0.40

constnlcts Bonds

Satisfaction 0.294
_-- .*..
Commitment 0.492 0.106 0.085 0.175

2. Between Dependent Constructs

Social StUtd

Bonds Bonds Satisfaction

Social Bonds 0.53

Structural Bonds 0.217 0.115

Commitment 0.28 0.438 0.596

FINDINGS

Four variables - Stnztural Bonds (Beta-0143 8), Social Bonds (Beta=O. 185), Satisfaction

(Beta-0.530) and Tnrst (Gamma~O.222) have a direct effect on Commitment, our ultimate

dependent construct. Trust and Satisfaction do have a dominant impact on Commitment due to

18
 the presence of several indirect effects on Commitment that occur through the development of

Social and Stnrctural Bonds. This is evident both from Figure 5 and Table 4.

Insert Figure 4 here

Tnrst has a direct effect on Commitment (Gamma=O.222) and indirectly impacts Commitment

through its effects on Satisfaction (Gamma=O.294), and the development of Sticm& Bonds

between businesses (Gamma=O.217). In fact, the total effect of Tnrst on Commitment (0.492)

is second only to the total effect of Satisjhion on Commitment (0.596). And Tnrst is

significantly correlated with Investment at 0.345. It seems reasonable to expect that customers

and suppliers are likely not to invest resources in a relationship and create structural bonds for

the long term unless an element of trust exists between them. The impact of T&t on

Satisfaction may likely be through the modification of expectations, in that, presence of trust

might reduce expectation, or at the very least color it by explaining low performance away by

some unavoidable circumstance. (I trust Company A is not likely to act in this manner without

good reason). An absence of trust might give far less leeway to a party than the presence of

trust in the assessment of performance and thereafter satisfaction.

Satisfaction has a direct impact on Commitment (Beta=O.448), and an indirect effect through

the creation of Social Bonds between business partners (Beta-0.530). It has the highest total

effect on Commitment (0.596). Since Social Bon& are the precursor to Stnrctuml Bonds

which then effects Commitment, the overall effect of satisfaction on Commibnent is greatly

amplified due to its role in the creation and development of both Social and Strtrchrral Bonds.

One can see how Satisfaction leads to Commitment through continuous meeting of customer

19
 expectations resulting in an encouragement of repeat purchase behavior over time. But also

repeat purchase behavior is made easier by companies’ investments in Stru~t~ralBmd~

between ti so as to reduce both the time and cost associated with transacting business. This

is more likely to occur ifboth an element of Tnrst and satisfaction exists between businesses.

The development of Tnrst, satisfaction, and Social Bonds leads to a cementing of the

relationship between companies through the creation of transaction specific investments in

Strwctural Bonds. The direct and toti effect of Stnxtural Bonds on Commhent is pretty

high at a Beta of 0.438. Investments, Tnrst, and Social Bonds significantly determine the

formation of Structural Bonds. CLAlt also has an impact on the formation of Shvctural Bonds

but the relationship in this model is not significant. Peer Pressure also had no significant

impact on either Social or Stnrctural Bonds. We will deal with these results in the discussion

section. One would expect Information Communication to reduce misunderstandings and

enhance confidence between business partners resulting in the development of deep Social

Bonds. And that is what we find in our model with a Gamma of 0.380. But Satisfaction with

the business partner is another significant determinant of Social Bonds at a Beta of 0.530.

Insert Figure 5 here

DISCUSSION

The extended model provides the best description of how commitment is achieved. At it’s core
t

is customer satisfaction but in business markets just satisfying the customer is not enough to

retain the business. As one would predict from the literature, customer satisfaction had the

largest impact on commitment, however, trust also has a major impact on commitment. Trust

20
 facilitates the development of the transaction specific investments in both assets and knowledge

that creates the structural bonds that hold the relationship together

Structural bonds hold the relationship together by creating aninertia that must be overcome if

one is to leave the relationship. It is a glue that bonds the Gnns together as it is usually easier

to solve problems between the buyer and seiler than to leave the relationship and give up the

investments already made in the relationship.

It is obvious that the simple models where commitment is a function of satisfaction, which are

quite adequate for many consumer situations, do not provide the insights that modeling the

commitment process as a relationship process provides in business market situations. Trust is

important in both consumer and business markets but trust may not be operational in many

consumer markets. Consumers have long experience with many brands and trust is latent (see

Wilson, 1995) and does not enter the decision process. We take trust for granted in many

consumer situations. There are consumer markets that have strong business markets overtones

such as buying a car, new or used, that would fit modeling commitment as a relationship

process. It is said that the sales person sells the first car to the customer and the service

department determines future sales. Trust and personal reIationships are important in

developing committed customers in markets where individual action can impact the outcome of

a purchase.

We believe that commitment leads to retention. One can only measure retention historically

whereas commitment is a Ieading indicator. It is obvious that achieving commitment is a

complex process which goes way beyond satisfaction as it is generally measured This study

opens another perspective on the retention-loyalty discussion.

21
 LIhRI’ATIONS AND EXTENSIONS

The study is constrained by the measurement of satisfaction as an summary concept. Although

a number of other studies use summary measure we believe a broader measure of satisfaction

will be useM. We have tried to address this weakness in a study which is now in the field. A

more comprehensive measure of satisfaction has been developed which will allow us to test

the relationship between the overall measure of satisfaction and a more complex measure.

We were severely limited by the number of questions that we could place on the questionnaire.

We made the choice to participate as having some data is better than none and the issue we

raise is an interesting one which requires Mer work.

The research subjects are not typical business although they have the same problems as most

businesses. We believe that our conceptualization of commitment and retention as a

relationship process will be support in more traditional businesses. We expect to test this in the

fiture.

22
 mre 1: Basic Commitment Model

Q9=19A+Q9C 4

Retention = a + b * Satisfaction

Fimrre 2: Extended Commitment Model

Q9=19A+Q9C 4 b 41%
.
 Eipure 3: Extended Commitment Model USREL RwW

(6.56)
0.208
* Q9A

(8.47)
0.273
4 Q9C
4

Chi-Square with 1 degree of freedom = 0.27, p = 0.606

Adjusted gooduess of fit index = 0.998
Root mean square residual = 0.003
Coeffkient of determination for Social Bonds and Retention is 0.977
Coefficient of determination for Satisfaction is 0.719
Coefficient of determination for structura1 equations = 0.287

Note: Numbers in parentheses are t-values, and are all significant

at the p = 0.001 level
 666’0 = qqof.xm x ‘OJ uo~$tqw9)3p JO lU3!31JJ303
= qqu)Jm A JOJ uo~laquu~Pp JO lua!xJJ303

‘x 'X
mm V6Cb
 REFERENCES

Ainslie, Andrew and Leyland Pitt (1992), “Customer Retention Analysis,” Journal of Direct
Marketing, 6 (3), 3 l-43.

Anderson, Eugene W., Claes Fomell, and Donald R Lehmann (1994), “Customer Satisfkction,
Market Share, and Profitability: Findings From Sweden,” Joumai ofMarketing, 58 (July), 53-66.

Anderson, James C. and James A. Narus(1984), “A Model of Distributor’s Perspective of

Distributor Working Relationships,” Journal of Madeting, 48 (Fall), 62-74.

Anderson, James C. and James A. Nams (1990), “A Model of Distributor Firm and Manukturer
Firm Working Partnerships,” Journal ofMarketing, 54 (January), 42-58.

Bolton, Ruth N. and James H. Drew (199 I), “A Multistage Model of Customers’ Assessments of
Service Quality and Value,” Journal of Consumer Research, 17 (March), 375-84.

Boulding, William, Ajay Kalra, Richard Staelin, and Valarie A. Zeithaml(1993), “A Dynamic
Process Model of Service Quality: From Expectations to Behavioral Intentions,” Journal of
Marketing Research, 30 (February), 7-27.

Cardozo, Richard N. (1968), “An Experimental Study of Consumer Effort, Expectation, and
Satisfkction,” Joumai of Marketing Research, 2 (August), 244-9.

Carroil, Peter, and Sanford Rose (1993), “Revisiting Customer Retentiob” Journal of Retail
Banking, 15 (Spring), 5-13.

Churchill, Gilbert A. and Carol Suprenant (1982), “An Investigation into the Deteknants of
Customer Satisfkction,” Journal OfMarketing Research, 14 (November), 491-504.

Crosby, P.B. (1979), Quaky is Free. New York: McGraw-Hill.

Czepiel, John A. and Srinivas K. Reddy(1992), u Exploring the Social Geographyofthe

Marketplace: A Study of Relationships in Corporate Banking,” Paper presented at the Research
Conference on Customer Relationship Management: Theory and Practice, April 9-11,1992.
Sponsered by Emory University, Atlanta, GA.

Czepiel, John A. and Srinivas K. Reddy(1993), “Measuring and Modeling the Effects of
Buyer/Seller Relationships in Corporate Financial Services Markets,” Unpublished Working paper,
New York University

Day, Ralph L. (1977), ‘Towards a Process Model of Consumer Satisfaction,” in

Conceptuahation and Measurement of Consumer Satisfaction and Dissatisfaction, H. Keith
Hunt, ed. Cambridge, MA: Maketing Science Institute, 153-83.

Day, Ralph L. and E. Laird Landon (1977), ‘Toward a Theory of Consumer Complaining
Behavior,” in Consumer and Industrial Buying Behavior, A.G. Woodside, J.N. Sheth and P.D.
Bennett ecis. New York: North Holland, 425-37.
 Desouza, Guenin (1992), “Designing A Customer Retention Plan,” JoumaZ of Business Strategy,
13 (March/April), 24-8.

Dwyer, F. Robert, Paui H. Schurr, and Sejo Oh (1987), “Developing Buyer-Seller Relationshops,”
Journal ofMarketing, 5 1 (April), 1 l-27.

Fishbein, Martin and I&c Ajzen (1975), Belie5 Attituak, Intention, and Behavior: An
htrodkctbn to meory and Research. Read& MA: Addison-Wesley Publishing Co.

Fomell, Claes and Birger Wernerfelt (1987) “Defensive Market& Strategy By Customer
Complaint Management: A Theoretical Analysis,” Journal OfMarketing Research, 24
(November), 337-46.

Fomell, &es (1992) “A National Customer SatisfactionBarometer The Swedish Experience,”

Journal of Marketing, 5 6,6-2 1.

Ganh, David A. (1988), Managing Qua&y: The Strategic and Comptitive Edge. New York:
The Free Press.

Hakansson, H., ed. (1982) Intemational Marketing and Purchasing of hdiutrial Goti, Wiley,
New York.

Han, Sang-Lin and David T. Wilson (1993), “Antecedents of Buyer Commitment to a Supplier: A
Model of StructuraI Bonding and Social Bonding,” Unpublished paper, Marketing Department,
Pennsylvania State University, University Park.

Heide, Jan B. and George John’(l988), ‘The Role of Dependence Balancing in Safeguarding
Tmnsaction-Specific Assets in Conventional Channels,” Jountal OfMarketing, 52 (January): 20-
35.

Lewis S.D. and A. Weigert (1985), ‘Trust as a Social Reality,” social Forces, 63 (4) 967-85.

Mummalaneni, Venkatapparao (1991), “The Influence of CIose Personal Rciationships Between

the Buyer and Seller on the Continued Stability of Their Roie Relationships,” Working paper 4
1991, The Institute for the Study of Business Markets, Pennsylvania State University, University
Park.

Naumann, Earl and Patrick Shannon (1992), “What is Customer-Driven Marketing?” Busiiress
Horizons, 35(6), 44-52.

Oliver, Richard L. (1977), “Ef%cts of Expectations and DisconGrmation on Postexposure Product

Evaluation,” Journal of Applied Psychology, 62 (April), 246-50.

Oliver, Richard L. (198Oa), “A Cognitive Model of the AnteccrIeats andConsequencesof

SatisGction Decisions,” JoumaZ of Marketing Research, 17 (November), 460-69.

Oliver, Richard L. (198Ob), “Theoretical Bases of Consumer Sati&ction Research: Review,

Critique, and Future Directions,” in IXeoreticaZ Developments inMarketing, Charles W. Lamb,
Jr. and Patrick M. Dunne, eds. Chicago: American Market& Association, 1 l-4.
 Oliver, Richard L. (1993), “A Conqual Model of Service Quaiity and Service Satisfaction,” in
Advances in S&ices Marking a&Management, Theresa A. Swartz, David E. Bowen, and
Stephen W. Brown, eds. Greenwich, CT: JAI Press, 65-86.

Parasuraman, A., Valerie A. Zeithaml, and Leonard L. Beq (1985), “SERVQUAL: A Multiple
Item Scale for Measuring Comumer Perceptions of Service,” Journal of Retailing, 64 (Spring),
12-40.

Payne, Adrian and John Rickard (1993), “Relationship Market& Customer Retention and
Service Firm Profitabihty, Paper presented at the First Relationship Workshop,Marash University,
Melbourne.

Reichheld, Frederick F. and David W. Kenny (X990), “The Hidden Advantages of Customer
Retention", Jbumai of Retail Banking, 12 (‘Winter), 19-23.

Reichheld, Frederick F. (1993), “Loyalty-Based Management,” Harvard Business Review, 71

(March-April), 64-73.

Reichheld, Frederick F. (1996), The Lovaltv Effect, Boston: Harvard Business School Press.

Rotter, Julian B. (1967), “A New Scale for the Measurement of Interpersonal Trust,”Journal of
Personality, 33 (4), 65 I-65.

Rust, Roland T. and Anthony J. Zahorik (1993), “Customer Satisf%ction, Customer Retention, and
Market Share,” Journal of Retailing, 69 (2), 193-215.

Thibaut, J.W. and H.H. Kelley (1959), The Social P&hoZogy of Groups, New York: Wiley and
sons.

Williamson, Oliver E. (1975), Markets and Hierarchies, Analysis and Antitrust Imp&cations,
New York: Free Press.

Williamson, Oliver E. (1979), “Transaction Cost Economics: The Governance of Contract&

Relations,” Journal of Luw & Economics, 22 (2), 2334.

Wilson, David T. (1995), “An Integrated Model of Buyer-Seller Relationships,”Journal of the

Academy OfMarketing Sciences, Volume 23, No. 4. pp. 335-345.

Wilson, David T. and K.E. Kristian Moller (1988), “Buyer-Seller Relationships: Alternative
Conceptw&ations,” The Pennsylvania State Universit Institute for the Study of Business Market,
Report #3-1988.

Wiin, David T. and Venkat Mummalancni (1986) “Bonding and Commitment in Supplier
Rdationship: A Prehminary Conceptwhzation,” IndustriaZMarketing and Purchasing, l(3): 44.
58.

Wilson, David T. and Venkat Mummalaneni (1988), “Modeling and Measuring Buyer-Seller
Relationships” ISBM Working Series Paper 3-1988, The Institute for the Study of Business
Markets, Penn State University
Young Louise and Ian Wilkinson (1989), “The Role of Trust and Coopedon in Ahketing
Channels: A P~iimhary Study,” European Joumal ofMarkzting, 23 (2), 109422.
 Appendix 1

constnlct
1. Commitment 413-4
point scale
2. Social Bonds 4136 I would like to strengthen my relationship with the Board. 5
point scale
3. Trust 413-3 The Boardhaseamedmytrust-IfeelthatIcantnrstthe
Board completely. 5 point scale
4. stluctural Bonds 416-l ~wouldbesomt~costsformetostopusingthe
Board as a marketing option. 5 point scale
Ql6-2 Switchingfiom using the Board to not using the Board
would be easy. 5 point scale
Qga Considering eve@@, how satisfied art you with the
overall performance ofthe Board? 4 point scale
Inthedomesticmarket,howsatisfieciareyouthatthe Board
Qgc is doing its best for the &mers? 4 point Scale
6. Information Communication Qll-1 Provides information on long term market trends. 4 point
scale
Ql l-2 Provides information on grain price movements. 4 point
scale
7. Investment Q19a Approximately what proportion of your grain production can
you store on your f&n? 5 point scale
What proportion can you store in seaIed storage? 5 point
Q19b scale
Q3b What is your main method of marketing grain? Check
alternatives
Q3c What is your preferred way of marketing grain? Check
alteInatives