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The Role of Corporate Image for Quality in the Formation of Attitudinal Service Loyalty
Subhash Jha, George D. Deitz, Emin Babakus and Ugur Yavas
Journal of Service Research 2013 16: 155 originally published online 20 March 2013
DOI: 10.1177/1094670512466441

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Article
Journal of Service Research
16(2) 155-170
The Role of Corporate Image for Quality in ª The Author(s) 2013
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the Formation of Attitudinal Service DOI: 10.1177/1094670512466441
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Loyalty
Subhash Jha1, George D. Deitz2, Emin Babakus2, and Ugur Yavas3

Abstract
Drawing from signaling theory, this study investigates the processes through which corporate image (CI) for quality affects
attitudinal loyalty. The research hypotheses are examined using data from a cross-sectional survey and two scenario-based
experiments. Overall, findings across these three studies suggest that the effects of CI upon loyalty are channeled through cus-
tomer satisfaction and perceived value. The effects of CI on perceived value and loyalty are stronger relative to the effects of
employee interaction quality (IQ) when IQ is measured as an overall evaluation. However, when employee IQ is measured in
reference to a specific service encounter, it becomes a stronger driver of perceived value and loyalty relative to CI. Regardless
of the context of measurement (i.e., overall evaluation vs. a specific service encounter), employee IQ exerts a stronger influence
on customer satisfaction than CI. CI negatively moderates the effect of employee IQ on customer satisfaction and loyalty, render-
ing the effect of employee IQ upon customer evaluations less critical for service providers with stronger CIs. The findings highlight
the relevance and importance of CI as a signal of unobservable quality, which should be measured and closely monitored by man-
agement. Managers should also recognize the central role of customer satisfaction, especially in channeling the effects of IQ upon
loyalty, and therefore, design policies that enhance frontline employee ability and motivation to deliver satisfying customer
experiences.

Keywords
corporate image, employee interaction quality, signaling theory, attitudinal loyalty, common method bias

Introduction In addition, empirical research in this area has adopted a

With growing convergence in many markets in terms of the
relative performance, price, and availability of competing
offerings, the nurturing of corporate image (CI) as an integral
component of firms’ broader strategic planning and implemen-
tation efforts has taken on increased significance.
While an extensive literature has emerged around the image
construct, knowledge of how and when consumers’ perceptions
relating to the image of a given company influence individual
and firm-level outcomes remains in its early stages (Brown and
Dacin 1997). As noted by Brown et al. (2006), progress has been
blunted by a number of key conceptual, theoretical, and level of
analysis issues arising from the cross-disciplinary nature of the
CI construct. Although a variety of definitions exist, most con-
verge on the notion of CI as associations and meanings relating
to the firm held in the minds of its stakeholders; thus, there can
be no unanimously shared CI for any given company. Further,
work by Dowling (1986) and others (e.g., Gürhan-Canli and
Batra 2004) has shown that consumers may hold a variety of dif-
ferent associations with respect to a focal firm. That is, CI does
not refer to a generalized view of the firm, but rather relates to
associations held with respect to a particular referent (e.g., an
image for trustworthiness, quality, innovation, etc.).
host of theoretical and methodological perspectives. While
scholars broadly agree upon the importance of CI, a review
of the literature reveals a decided lack of consistency across
studies in terms of theoretic rationale and the causal ordering
of key antecedents and outcomes. For instance, findings from
Bontis, Booker, and Serenko (2007) and Walsh et al. (2009)
suggest that satisfaction favorably influences reputation, a term
often used interchangeably with CI. On the other hand,
Andreassen (1999) found empirical support for positive rela-
tionships between CI and satisfaction and loyalty.
1
Department of Marketing & Strategy, IBS-Hyderabad, ICFAI Foundation for
Higher Education, Hyderabad, Andhra Pradesh, India
2
Fogelman College of Business and Economics, The University of Memphis,
Memphis, TN, USA
3
East Tennessee State University, Johnson City, TN, USA
Corresponding Author:
George D. Deitz, Fogelman College of Business and Economics, The University
of Memphis, 302 Fogelman College Administration Building, Memphis, TN
38152, USA.
Email: gdeitz@memphis.edu

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156
Adding to this confusion, little is understood regarding the
impact of CI upon key outcomes in comparison to characteristics
of the firm’s market offering, such as employee interaction qual-
ity (IQ) (Hartline and Jones 1996), product and service perfor-
mance (Selnes 1993), and service guarantees (Ostrom and
Iacobucci 1998). Likewise, more knowledge relating to potential
positive and negative interaction effects between CI and attri-
butes of the product or service is needed.
The objective of this research is to examine the effects of CI
for quality upon consumers’ cognitive, affective, and beha-
vioral evaluations of the firm relative to the influence of
employee IQ. While a consensus has yet to emerge regarding
the dimensionality and measurement of CI (Stern, Zinkhan, and
Jaju 2001), the quality dimension is perhaps the most important
dimension for the success of a service firm (Shapiro 1983).
Therefore, we focus on CI for quality which refers to the over-
all impression of the firm in the minds of its customers as it
relates to its overall commitment to quality.
Employee IQ refers to customer experiences with frontline
employees. This construct encompasses the ‘‘relationship
component’’ of the service experience as opposed to the ‘‘core
component,’’ which refers to, for instance, the quality of food
served in a restaurant or checking account products in a per-
sonal banking context (Iacobucci and Ostrom 1993). Past
research suggests that employee IQ is a critical element of cus-
tomer assessments of service quality (Hartline and Jones 1996).
Moreover, as it is often easier to replicate elements of a firm’s
core service offering, employee IQ represents a potential
source of competitive advantage.
CI for quality differs from employee IQ in that the former
deals broadly with the company while the latter relates specifi-
cally to customers’ service experiences (Brown and Dacin
1997). This is consistent with current views in the literature that
suggest the company and its offerings exist as separate entities in
the minds of customers (Aaker 1996). Further, we note here that
IQ may be conceptualized as an overall evaluation of an ongoing
service relationship or be tied to a specific service encounter.
Over the course of the three studies presented in this article,
we examine both generalized perceptions of IQ as well as cus-
tomer perceptions relating to a specific service encounter. Our
expectation is that the relative effects of IQ will be much stron-
ger when the focus is on a specific service encounter.
The present study contributes to the literature by addressing
three key questions. First, what are the mechanisms through
which consumers’ perceptions of a firm’s CI for quality shape
attitudinal loyalty? Second, what are the relative effects of cus-
tomer perceived CI, an extrinsic cue, and frontline employee
IQ, an intrinsic cue, in facilitating these outcomes? Finally, is
the importance of IQ lessened for firms with stronger images
for quality?
In the process of addressing these questions, the study
makes several contributions. First, the article builds a parsimo-
nious theoretical framework based on the tenets of signaling
theory that examines the relative effects of CI and frontline
employee IQ upon three key customer outcomes: satisfaction,
value, and attitudinal loyalty. This model is tested using survey
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Journal of Service Research 16(2)
data from customers who have an ongoing service history with
a national bank in New Zealand. Confidence in Study 1 results
and conclusions are bolstered by a rigorous analytic approach
in which latent factor scores were used to eliminate the effects
of measurement error and common method variance. Next,
findings from the survey-based research are triangulated and
deepened through two follow-up experiments.
Conceptual Development
Signaling theory suggests that information asymmetry exists
between sellers and buyers due primarily to differences in infor-
mation availability (Spence 1973). As a result, buyers make pur-
chase decisions based on sellers’ signals that are broadly
classified as intrinsic and extrinsic cues (Olson and Jacoby
1972). Intrinsic cues are commonly thought of as built-in char-
acteristics of a product or service. Extrinsic cues, on the other
hand, are related to the offering but are not components parts
of the product or service offering. So, for example, the data plan
for a smart phone would be an intrinsic cue, whereas the brand
name would represent an extrinsic cue. Customers evaluate
extrinsic and intrinsic cues concurrently in order to infer the
overall value of the market offering (Rao and Monroe 1989).
Based upon this understanding of extrinsic and intrinsic
cues, we present our conceptual framework in Figure 1. The
underlying premise of the model is that buyers and sellers
hold differential levels of information during a market inter-
action (Spence 1973). For instance, customers may not be
able to know some aspects of the quality of a service offering
because of its experience and credence properties, which are
difficult to judge (Nelson 1970). Therefore, customers look
for information that enables them to differentiate between
high- and low-quality service providers. Firm managers, on
the other hand, seek to transmit signals targeted toward
selected customer segments in order to overcome information
asymmetries, particularly in instances in which quality is not
readily observable (Kirmani and Rao 2000). While managers
may choose from a variety of signals (e.g., warranty, price,
advertisements), we focus upon CI, as an extrinsic cue, and
frontline employee IQ, as an intrinsic cue (cf. Andreassen and
Lindestad 1998).
Overall, the present study suggests that customer percep-
tions of value and satisfaction are largely shaped through their
concurrent interpretations of extrinsic and intrinsic cues, which
ultimately influence their behavioral intentions (Purohit and
Srivastava 2001; Richardson, Dick, and Jain 1994; Zeithaml
1988). Thus, it is critical to consider relevant intrinsic and
extrinsic cues together in order to identify the processes
through which each effects customer loyalty as well as to deter-
mine potential synergistic effects.
Mediating Effects of Perceived Value and Customer
Satisfaction
Following Bolton and Lemon (1999), we conceptualize per-
ceived value as a broad construct that encompasses perceptions
Jha et al.
Corporate Image
(CI)
Interaction Quality
(IQ)
Figure 1. Research model. Dashed arrows signify the role of CI as a moderator of the effects of IQ. Control variables: gender, frequency of
face-to-face interaction, customer tenure.
of quality given price and inputs versus outputs relative to some
referent, typically a rival offering. When customers perceive
that the ratio of received benefits to cost of a focal provider’s
offering is proportionally greater than the ratio they would have
received via some alternative, it results in stronger perceptions
of value. Based upon this conceptualization, it is posited that a
strong CI for quality may favorably influence perceived value
through one of the three routes. First, research has shown that
CI may enhance perceptions of benefit (e.g., they may view the
service as more reliable; e.g., Nguyen and LeBlanc 1998). Sec-
ond, a favorable CI can serve to minimize consumer percep-
tions of overall costs (e.g., reducing search costs, perceived
risk). For instance, Helm, Eggert, and Garnefeld (2010) found
that firm reputation acts as signal that helps reduce buyers’
uncertainty pertaining to future service performance. Finally,
the strength of a firm’s CI may also lead to enhanced value per-
ceptions by shaping the basis of comparison with a given refer-
ent, or even influencing the choice of referent itself (Woodruff
1997).
Much of the research relating to customer satisfaction has
centered on the expectancy-disconfirmation paradigm (Oliver
1980), in which customers’ a priori expectations provide a
frame of reference for their subsequent evaluative judgments.
Thus, satisfaction is a function of consumers’ expectations plus
any perceived disconfirmation of these expectations during the
consumption experience. As CI, which represents consumer
associations relating to the overall quality of the provider, pro-
vides consumers with a reasonable basis for future service
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157
Perceived
Value
(VAL)
Attitudinal
Loyalty
(LOY)
Customer
Satisfaction
(SAT)
performance expectations, there is reason to expect a positive
association between CI and customer satisfaction.
Providing customers with greater value and higher satisfac-
tion is widely recognized as a means of improving customer
loyalty (Cronin, Brady, and Hult 2000; Johnson, Hermann, and
Huber 2006). Expectancy-disconfirmation theory (Oliver
1980) as well as meta-analytic results (Szymanski and Henard
2001), lead us to expect positive linkages from CI to customer
satisfaction and perceived value to customer satisfaction. Simi-
larly, there is sufficient theory (Woodruff 1997) and empirical
evidence to support expectations of a positive relationship
between CI and perceived value. Indeed, Lai, Griffin, and
Babin (2009) found that CI affected perceived value, satisfac-
tion, and loyalty; however, these authors did not examine more
complex nomological relationships, such as mediation, involv-
ing these variables. Based on the preceding discussion, individ-
uals’ perceptions of CI should enhance the perceived value and
satisfaction with the service offering, which in turn, help shape
behavioral intentions. It is proposed that:
Hypothesis 1a and b: The relationship between CI and cus-
tomer loyalty will be mediated by (a) perceived value and
(b) customer satisfaction.
Relative Impact of CI and IQ Upon Customer Attitudes
Understanding the relative importance of extrinsic and intrinsic
cues upon customer perceptions and behaviors has been an
issue of keen interest for researchers and practitioners (Olson
158
and Jacoby 1972; Purohit and Srivastava 2001). The
accessibility-diagnosticity framework put forward by Feldman
and Lynch (1988) offers some guidelines for understanding the
relative roles of extrinsic and intrinsic cues upon customer atti-
tudes, intentions, and behaviors. The framework posits that
when diagnostic inputs are accessible, consumers base their
judgments on memory-based information rather than
stimulus-based information (Menon, Raghubir, and Schwarz
1995). In other words, when two possible cues are present, the
more easily accessible cue should have greater impact upon the
decision-making process (Feldman and Lynch 1988).
Similarly, under cue utilization theory (Olson and Jacoby
1972), the relative weight of extrinsic and intrinsic cues
depends on each cues’ predictive value (i.e., the degree to
which consumers associate a given cue with product quality)
and confidence value (i.e., the degree to which consumers have
confidence in their ability to use and judge that cue accurately).
Given the risks associated with selecting a poor-quality brand,
cues that are highest in these two qualities assume the greatest
weight in the consumer assessment process. For instance,
Richardson, Dick, and Jain (1994) found that an extrinsic cue,
retail store image, was more useful than an intrinsic cue, taste
of actual product ingredients, in explaining variance in consu-
mers’ perceptions of the product quality of retailer store brands.
While both extrinsic and intrinsic cues were significant predic-
tors of product quality perceptions, these authors reasoned that
consumers had greater confidence in their ability to utilize the
extrinsic store image cue.
We argue that in situations where consumers are asked to
provide an overall evaluation of an ongoing service relation-
ship (e.g., continuing customer interactions with a particular
bank over a period of time) without reference to a specific ser-
vice encounter, CI provides a holistic summary and is a more
easily accessible cue relative to IQ. Furthermore, in a setting
such as retail banking, CI will hold stronger predictive and
confidence value for consumers in making judgments relating
to an ongoing service relationship. Based upon this frame-
work, we posit that CI acts as memory based self-schema,
information that is readily accessible in the overall evaluation
of an ongoing service offering or relationship (Selnes 1993).
Alternatively, due to the intangibility of service offerings
(Zeithaml 1988), it may be relatively more difficult for cus-
tomers to access IQ information and utilize it in subsequent
judgments of value, satisfaction, and repurchase intentions.
This is particularly plausible in evaluations of IQ as a general
construct, without reference to a particular service encounter.
Hence, we offer:
Hypothesis 2a–c: With respect to an ongoing service rela-
tionship, CI has a relatively stronger impact upon (a) per-
ceived value, (b) customer satisfaction, and (c) customer
loyalty than IQ.
Moderating Effects of CI
For consumers in an ongoing service relationship, we expect
that the effect of IQ upon customer outcomes will be
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Journal of Service Research 16(2)
diminished for firms with more favorable CI. Theoretical sup-
port for this negative interaction effect can be drawn from
research relating to anchoring and adjustment processes
(Tversky and Khaneman 1974). Anchoring and adjustment the-
ory suggests that consumers will evince a systematic selection
bias in the presence of two signals. In this case, we argue that
consumers use CI as an anchor for evaluating the service and
adjust for the effect of IQ in line with a service provider’s
image. Since adjustment is often insufficient (Nelson and Sim-
mons 2005), we posit that CI guides the effect of IQ in shaping
subsequent outcomes. For instance, Ostrom and Iacobucci
(1998) argued that guarantees work better for a budget hotel
than for a luxury hotel because image of the luxury hotel pro-
vides sufficient information about service quality for consu-
mers. These authors suggested that the CI provides service
customers with an implicit idea of receiving good service qual-
ity during consumption, which discounts the impact of any
explicit quality of the service offering (Ostrom and Iacobucci
1998).
We reason that in an ongoing service relationship, the
occurrence of a specific service failure does not immedi-
ately translate into dissatisfaction, but is instead buffered
by consumers’ favorable image of the organization. In con-
trast, a single episode of excellent IQ may not have a strong
impact on satisfaction or perceived value if CI is poor. This
argument is in line with the observation that the unique
effect of a cue is diminished when consumers can draw
inferences about a product from other cues (Biswas 2004).
Hence, we advance:
Hypothesis 3a–c: CI negatively moderates the effect of IQ
on (a) perceived value, (b) customer satisfaction, and
(c) loyalty, such that the effects of IQ will be weaker
(stronger) for customers who possess a more (less) favor-
able CI of the provider.
Empirical Studies
Study 1 is based on survey data from individual customers of a
New Zealand bank. Results from this research were triangu-
lated and extended through two subsequent experiments using
graduate student data. Study 2 sought to replicate Study 1 find-
ings in an experimental design utilizing a personal banking sce-
nario. Study 3 sought to examine the same relationships across
a more transactional restaurant context. Therefore, Study 1 is
based on an ongoing service relationship, while the experi-
ments examine hypothesized relationships using a single ser-
vice encounter.
Study 1: Bank Customer Survey
Method
Data Collection and Sample Profile. Data were collected via ques-
tionnaires mailed to customers of a national bank in New Zeal-
and. Respondents were randomly selected and given assurance
of anonymity. Of the 2,500 questionnaires mailed, 872 were
Jha et al.
returned yielding a response rate of 34.9%. Nearly 65% of
respondents were female, 60% were younger than 45 years of
age, and around 85% earned less than NZ$70,000. Approxi-
mately 40% had been a customer of the bank for more than 5
years. A comparison of sample characteristics to company
records indicated that the respondents were representative of
the bank’s customer population.
Construct Measurement. CI was measured by 5 items, 3 adapted
from Brady and Cronin (2001) and 2 new items, each using a
10-point semantic differential response format. Respondents
were asked to provide a relative evaluation of the bank on these
items after reading the following introduction: ‘‘Considering
any experiences you may have had with other banks; what you
may have heard from friends and colleagues about their experi-
ences with various banks; what you may have heard about
banking services from the media, please evaluate XYZ Bank
relative to other banks.’’ An example item reads as follows:
‘‘Compared to other banks, XYZ Bank is: poor (1)—excellent
(10).’’ IQ was measured using 5 items adapted from Cronin,
Brady, and Hult (2000). Each item was cast using 7-point
Likert-type responses, ranging from strongly disagree (1) to
strongly agree (7). We adapted Fornell et al’s. (1996) 3-item
perceived value (VAL) scale with each item reflecting per-
ceived value relative to the focal bank’s competitors. A 10-
point response format was used with anchor labels ‘‘XYZ Bank
is much worse’’ (1) and ‘‘XYZ Bank is much better’’ (10). The
use of comparative scales to measure these constructs was
based on the premise that loyalty develops, in part, as a result
of a consumer’s comparative appraisals in relation to a consid-
eration set of available brands (Gale 1994).
Customer satisfaction (SAT) was measured via 5 items.
Three were drawn from Brady and Cronin (2001) (e.g.,
happy/unhappy) and two (e.g., negative/positive) were added
for this study. In each case 10-point bipolar scales were
employed. Since satisfaction is primarily an affective construct
(Oliver 1993), the selected adjective pairs were emotive in
nature. Customer attitudinal loyalty (LOY) was assessed
though respondents’ behavioral intentions with regard to the
focal bank, using an adaptation of 6 items from Brady and Cro-
nin (2001). The items were cast using a 7-point response scale
ranging from very unlikely (1) to very likely (7).
Control Variables. In an effort to provide rigorous tests of the pro-
posed theoretical linkages, we treat gender, customer tenure,
and frequency of face-to-face interactions as control variables
in our analysis. Prior research suggests that the relative impor-
tance of CI and IQ may differ between males and females
(Babakus and Yavas 2008). For instance, it has been argued
that females value social interactions and relationships more
than males (Iacobucci and Ostrom 1993). By extension, we rea-
son that females may place greater value on IQ. Gender was
recorded as female ¼ 1 and male ¼ 2.
It has also been argued that extrinsic cues will have a greater
importance than intrinsic cues in the initial purchase situations
for consumers (Zeithaml 1988). Moreover, consistent
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159
evaluation of intrinsic cues at the time of purchase may substi-
tute the importance of extrinsic cues after certain period of time
(Selnes 1993). Thus, we control for the length of the bank-
customer relationship. Customer tenure with the bank was mea-
sured using a 5-point scale (less than a year ¼ 1; 1–2 years ¼ 2;
3–5 years ¼ 3; 6–9 years ¼ 4; more than 9 years ¼ 5). Finally,
it is believed that repeated encounters with frontline employees
enable customers to more easily evaluate intrinsic cues com-
pared to those who have less frequent employee interaction
(Ostrom and Iacobucci 1998). Thus, our third control variable
relates to the frequency of face-to-face customer interaction
with the bank employees (recorded as more than 4 times/month
¼ 4, 3–4 times/month ¼ 3, 1–2 times/month ¼ 2, less than
once/month ¼ 1).
Validation of Measures. The entire set of items comprising the
measures of study constructs was initially subjected to an
exploratory principal component factor analysis using oblique
rotation since the underlying factors were expected to correlate.
Listwise deletion of missing responses resulted in a final sam-
ple size of 777.1 The analysis initially produced a four-factor
solution, each factor with eigenvalues larger than 1.0 and in
total accounting for 80% of the variance. Satisfaction and loy-
alty items loaded heavily on the same factor. A five-factor solu-
tion was imposed in search of an underlying structure
consistent with our theoretical expectations. The five-factor
solution accounted for 84% of the variance, with the first factor
explaining 63% of the variance. A CI scale item, a satisfaction
scale item, and two loyalty scale items were eliminated as a
result of high cross-loadings (larger than .45). The remaining
20 items were reanalyzed and a five-factor solution emerged
with all items loading heavily (.82 or stronger) on their
intended factor and very small cross-loadings (largest cross-
loading was .084). The first factor explained 67% of the var-
iance and the total variance explained by the five factors solu-
tion was 89%. Table 1 presents scale items as well as the
internal consistency (coefficient a) of the measures, which ran-
ged from .94 to .97. The 20 retained items were subjected to
confirmatory factor analysis (CFA) using the sample covar-
iance matrix as input to LISREL 8.80 (Jöreskog and Sörbom
1996).
Owing to our single source data, we investigated the poten-
tial for common method variance to influence structural results
using Harman’s one-factor test. We first tested a five-factor
measurement model, followed by a single-factor model.
Results from the w2 difference test indicated that common
method bias may not be a serious problem. Although Harman’s
approach is a useful diagnostic test, it falls short of controlling
for the effects of common method variance. Hence, we incor-
porated a common method factor into the measurement model
along with the five factors of substantive interest to the study.
We specified the method factor to be uncorrelated with the
other constructs and allowed each item to load on the method
factor as well as its respective underlying factor (Podsakoff
et al. 2003). Table 1 presents CFA results with and without the
method factor.
160 Journal of Service Research 16(2)

Table 1. Confirmatory Factor Analysis—Results Without and With MF.

Scale Items Standardized Loadings t Values

Corporate Image (CI; a ¼ .96; without MF: AVE ¼ .86, F2 ¼ .44–.59; With MF: AVE ¼ .54, F2 ¼ .26–.37)
Please evaluate XYZ Bank relative to other banks (10-point scale)
CI1. Lower quality (1)–Higher quality (10) .90 (.84) * (*)
CI2. Lower standard (1)–Higher standards (10) .95 (.81) 47.6 (17.7)
CI3. Poor (1)–Excellent (10) .94 (.62) 46.5 (10.8)
CI4. Inferior (1)–Superior (10) .93 (.64) 44.7 (12.1)
Interaction Quality (IQ; a ¼ .94; without MF: AVE ¼ .79, F2 ¼ .34–.56; with MF: AVE ¼ .57, F2 ¼ .17–.40)
Employees of XYZ Bank are (strongly disagree ¼ 1 to strongly agree ¼ 7)
IQ1. Dependable .88 (.76) * (*)
IQ2. Competent .90 (.79) 37.4 (29.2)
IQ3. Knowledgeable .87 (.73) 34.5 (26.6)
IQ4. Reliable .90 (.78) 37.6 (29.3)
IQ5. Willing to provide service in a timely manner .85 (.71) 32.8 (25.2)
Perceived value (VAL; a ¼ .96; without MF: AVE ¼ .90, F2 ¼ .34–.59; With MF: AVE ¼ .63, F2 ¼ .17–.34)
Please rate XYZ Bank relative to other banks (much worse ¼ 1 to much better ¼ 10)
VAL1. The quality of service given the fees I pay .94 (.81) * (*)
VAL2. The fees I pay for the quality of service I receive .96(.81) 56.5 (42.1)
VAL3. Overall value from the service I receive .95(.76) 53.1 (37.4)
Customer satisfaction (SAT; a ¼ .97; without MF: AVE ¼ .88, F2 ¼ .42–.65; with MF: AVE ¼ .54, F2 ¼ .34–.47)
Please rate your feelings about your interactions with XYZ Bank (10-point scale)
SAT1. Unhappy (1)–Happy (10) .96 (.75) * (*)
SAT2. Displeased (1)–Pleased (10) .96 (.76) 63.6 (42.4)
SAT3. Terrible (1)–Delighted (10) .91 (.69) 51.2 (33.9)
SAT4. Dissatisfied (1)–Satisfied (10) .94 (.73) 58.0 (38.1)
Customer loyalty (LOY; a ¼ .96; without MF: AVE ¼ .85, F2 ¼ .44–.65; with MF: AVE ¼ .52, F2 ¼ .27–.47)
What is the likelihood that you (very unlikely ¼ 1 to very likely ¼ 7)
LOY1. Would recommend XYZ bank to others? .94 (.73) * (*)
LOY2. Would say good things about XYZ bank to others? .96 (.77) 56.7 (36.7)
LOY3. Encourage friends and relatives to do business with XYZ bank .92 (.72) 48.5 (32.5)
LOY4. Would choose XYZ bank if you had to choose a bank again .88 (.66) 42.1 (27.4)
Model-fit statistics without MF: w2160 ¼ 611.893, p ¼ .00, RMSEA ¼ .060, GFI ¼ .93, CFI ¼ .99, NFI ¼ .99, NNFI ¼ .99
Model-fit statistics with MF: w2140 ¼ 410.43, p ¼ .00, RMSEA ¼ .049, GFI ¼ .95, CFI ¼ 1.00, NFI ¼ .99, NNFI ¼ .99

Note. AVE ¼ average variance extracted; CFI ¼ comparative fit index; GFI ¼ goodness-of-fit index; MF ¼ method factor; NFI ¼ normed fit index; NNFI ¼
nonnormed fit index; RMSEA ¼ root mean square error of approximation.
Results without introducing method factor in the measurement model are presented first followed by results including method factor (in parentheses).
All the loadings are significant at the .01 level in both of the cases.
*Loadings were initially fixed to 1.0.

As shown in Table 1, overall fit statistics indicate that both Results

measurement models fit the data reasonably well and provide
Lance et al. (2010) have recently suggested that the inflationary
sufficient evidence of discriminant and convergent validity.
effects of common method variance on observed relationships are
However, the w2 values, standardized loadings, average var-
effectively washed out by the attenuating effects of measurement
iance extracted (AVE), and shared variance (F2) between
error. By comparing results obtained using estimated latent vari-
constructs diminished noticeably with the inclusion of the
able scores from a measurement model that includes a method
method factor. This suggests that common method variance
factor as well as composite scale scores, we can assess the validity
within the data may potentially inflate measured relationships.
of this argument by assessing differences in hypothesized struc-
In testing the measurement model with the method factor
tural paths. Thus, model testing was performed using both esti-
included, estimated latent variable scores were generated for
mated latent variable scores (free from measurement error and
each underlying construct (Jöreskog 2000). It is important to
common method variance) and composite scale scores (contain-
note that these latent variable scores were freed of both mea-
ing measurement error and common method variance) for each
surement error and common method variance, since they were
construct in the model as input to LISREL 8.80.
generated from a measurement model that explicitly modeled
both sources of bias. Table 2 presents the correlations, means,
and standard deviations of all variables used in the study. Stron-
ger correlations among composite scores relative to correla- Results Based on Latent Variable Scores
tions among estimated latent variable scores provide Hypothesis 1 states that the impact of CI on loyalty is mediated
evidence of common method–induced relationship inflation. by (a) perceived value and (b) customer satisfaction. As

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Jha et al. 161

Table 2. Correlations, Means, and Standard Deviations of Composite Scale Scores and Estimated Latent Variable Scores of Model Constructs
and Control Variables (n ¼ 777; Study 1).a,b,c

Variables CI IQ VAL SAT LOY X1 X2 X3

Corporate image (CI) 1.00 .41 .44 .50 .49 .00 .00 .06
Interaction quality (IQ) .60 1.00 .34 .58 .46 .06 .01 .05
Perceived value (VAL) .64 .53 1.00 .53 .41 .02 .02 .03
Customer satisfaction (SAT) .71 .70 .69 1.00 .64 .00 .02 .03
Attitudinal loyalty (LOY) .69 .62 .62 .77 1.00 .00 .01 .06
Customer gender (X1) .03 .02 .01 .04 .03 1.00 .03 .00
Face-to-face interaction (X2) .03 .03 .01 .06 .03 .02 1.00 .01
Customer tenure (X3) .04 .04 .03 .03 .04 .00 .01 1.00
Composite scale scores:
Mean 8.05 5.68 7.33 8.14 5.70 1.35 1.97 3.77
SD 1.39 1.09 1.80 1.56 1.41 .47 1.03 1.20
Note. Above the diagonal are the correlations based on estimated latent variable scores and below the diagonal are the correlations based on composite scale
scores of perceptual variables.
a
Composite scale scores for each construct were calculated by averaging respective item scores. A higher score indicates a more favorable response. CI, VAL, and
SAT were measured using a 10-point scale. IQ and LOY were measured using a 7-point scale.
b
Estimates of latent variable scores were generated as standardized scores (mean ¼ 0 and SD ¼ 1.0) from confirmatory factor analysis of scale items by including a
common method factor.
c
Customer tenure (for how long a customer has been associated with the bank) was measured using a 5-point scale and face-to-face interaction was measured
using a 4-point scale. Gender was recorded as (1 ¼ female and 2 ¼ male). Correlations > (.08) are significant at the .05 level.

presented in Table 3, CI significantly and positively impacts (as
indicated by the Z-test statistic values) customer loyalty
through three indirect routes (Z ¼ 2.30 for CI!VAL!LOY,
Z ¼ 3.73 for CI!SAT!LOY, and Z ¼ 2.44 for
CI!VAL!SAT!LOY) (Shrout and Bolger 2002).2 In addi-
tion, CI has a significant direct effect on loyalty (b ¼ .20, t ¼
6.45). These results show that perceived value and customer
satisfaction partially mediate the effect of CI on customer loy-
alty. This finding is consistent with Hypothesis 1a and b.
A number of studies have advanced the opposing causal
ordering of the relationships tested by Hypothesis 1a and b
(e.g., Bontis, Booker, and Serenko 2007; Hu, Kandampully,
and Juwaheer 2009). Thus, we compared the overall perfor-
mance of our proposed model with the alternative model in
which customer satisfaction and perceived value were antece-
dents to CI. An examination of the overall model-fit statistics
reveals that our proposed model fits the data, w29 ¼ 11.37,
p ¼ .25; root mean square error of approximation
(RMSEA) ¼ .018, better than the alternative model, w210 ¼
152.10, p ¼ .00; RMSEA¼ .136. Since the rival models are not
nested, a formal hypothesis test cannot be conducted. Nonethe-
less, all fit statistics favor the proposed model and provide
further support for Hypothesis 1a and b.
Hypothesis 2a–c predicts that in an ongoing service relation-
ship, the effects of CI, an extrinsic cue, upon (a) perceived value,
(b) satisfaction, and (c) loyalty will be stronger than the effects of
IQ, an intrinsic cue. In order to test our hypotheses, we sequen-
tially imposed equality restrictions on the effects of CI and IQ
on VAL (w210 ¼ 14.99), SAT (w210 ¼ 37.55), and LOY (w210 ¼
14.38) and compared each w2 value with the baseline (w29 ¼
12.01) value for a model without such restrictions. A significant
w2difference between constrained and unconstrained models was
found in just one case (SAT). Contrary to our hypotheses, IQ has a
stronger effect on customer satisfaction (SAT).
Since the main independent and dependent variables were
highly correlated, an alternative approach was used to determine
the relative influences of CI and IQ on the dependent variables.
We used the relative weight analysis procedure developed by
Johnson (2000) to provide an alternative test of Hypothesis
2a–c. This approach determines the percentage of explained var-
iance in the dependent variable that is due to each predictor.3
The relative weights for CI and IQ for predicting VAL: 65.9%
and 32.1%, for SAT: 23.9% and 40.5%, and for LOY: 21.8% and
16.8%, respectively. These results suggest that CI has a stronger
impact on VAL and LOY, while IQ has a stronger influence on
SAT. Therefore, Hypothesis 2a–c receives mixed support based
on the estimated latent variable score data.
The moderation hypothesis advanced in Hypothesis 3a–c was
tested by creating an interaction variable using the product
of CI and IQ. The moderated model fits the data well,
w29 ¼ 12.01, p ¼ .21, RMSEA ¼ .021, goodness-of-fit index (GFI)
¼ 1.00, comparative fit index (CFI) ¼ 1.00, normed fit index (NFI)
¼ .99, nonnormed fit index (NNFI) ¼ .99, and explains 23% of the
variance in VAL, 51% in SAT, and 47% in LOY. As hypothesized,
the interaction variable (CI*IQ) had significant negative impact on
SAT (b ¼ .12, t ¼ 4.69) and LOY (b ¼ .09, t ¼ 3.80), but
not for VAL (b ¼ .02, t ¼ .66). Thus, these data provide partial
support for Hypothesis 3.
Results Based on Composite Scale Scores
In order to examine the extent to which the use of latent variable
scores obtained from a method-factor imposed CFA obviates
concerns over method bias, we examined the same model using
composite scale scores as input. Table 3 shows that overall
model-fit statistics for the composite score model was more than
adequate, w29 ¼ 12.51, p ¼ .19, RMSEA ¼ .022, GFI ¼ 1.00,
CFI ¼ 1.00, NFI ¼ 1.00, NNFI ¼ 1.00, and was superior to the

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162 Journal of Service Research 16(2)

Table 3. Tests of Structural Model and Research Hypotheses Using Estimated Latent Variable Scores and Composite Scale Scores (Study 1).a,b

Structural Model Standardized Estimate T Value/Z Valuec R2

Parameter
CI ! VAL .36 (.51) 10.42 (15.18)
IQ ! VAL 19 (.23) 5.58 (6.81)
CI  IQ ! VAL .02 (.04) 0.66 (1.53) .23 (.45)
CI ! SAT .22 (.30) 7.32 (10.34)
IQ ! SAT .38 (.32) 13.51 (12.20)
VAL ! SAT .31 (.32) 10.72 (11.91)
CI  IQ ! SAT .12 (.11) 4.69 (5.52) .51 (.69)
CI ! LOY .20 (.27) 6.45 (8.31)
IQ ! LOY .09 (.08) 2.85 (2.76)
VAL ! LOY .05 (.10) 1.58 (3.26)
SAT ! LOY .44 (.42) 11.70 (11.28)
CI  IQ ! LOY .10 (.11) 3.80 (5.08) .47 (.66)
Indirect effects of CI on LOY:
Route 1: CI!VAL!LOY .02 (.05) 2.30 (3.01)
Route 2: CI!SAT!LOY .10 (.13) 3.73 (5.08)
Route 3: CI!VAL!SAT!LOY .05 (.07) 2.44 (3.73)
Model-fit statistics using estimated latent variable scores:
w29 ¼ 12.01, p ¼ .21, RMSEA ¼ .021, GFI ¼ 1.00, CFI ¼ 1.00, NFI ¼ .99, NNFI ¼ .99
Model-fit statistics using composite scale scores:
w29 ¼ 15.43, p ¼ .08, RMSEA ¼ .030, GFI ¼ 1.00, CFI ¼ 1.00, NFI ¼ 1.00, NNFI ¼ .99
Note. CFI ¼ comparative fit index; GFI ¼ goodness-of-fit index; NFI ¼ normed fit index; NNFI ¼ nonnormed fit index; RMSEA ¼ root mean square error of
approximation.
a
Results using estimated latent variable scores are presented first followed by results based on composite scale scores (in parentheses). T (or Z) values
corresponding to one-tail tests at various significance levels: t > 1.3, p < .10; t > 1.65, p < .05; and t > 2.33, p < .01.
b
Of the three control variables, only customer tenure had a marginally significant positive impact on corporate image when the model was tested using latent
variable scores (g ¼ .06, t ¼ 1.72).
c
Test statistic values for the indirect effects are Z values (based on Sobel’s test) since they are computed based on large sample assumptions (Shrout and Bolger
2002). We also used a bootstrapping procedure (Selig and Preacher 2008) to compute 95% confidence intervals for the indirect effects. The confidence interval
results and Sobel test results are in agreement.

alternative model, w210 ¼ 152.24, p ¼ .00, RMSEA ¼ .136,
GFI ¼ .96, CFI ¼ .96, NFI ¼ .96, NNFI ¼ .88. CI had a positive
indirect effect on loyalty through three indirect routes, Z ¼ 3.01
for CI to VAL to LOY, Z ¼ 5.08 for CI to SAT to LOY, and
Z ¼ 3.73 for CI to VAL to SAT to LOY.4 In addition, CI had
a significant direct effect on loyalty (b ¼ .27, t ¼ 8.31). While
the significance of hypothesized paths was consistent with the
latent variable score model, regression coefficients in the com-
posite score model tended to be larger for the direct and indirect
paths. This finding bolsters the use of method-variance free
latent variable scores in testing mediation.
In order to assess Hypothesis 2a–c, we sequentially imposed
equality restrictions on the effects of CI and IQ on VAL (w210 ¼
37.03), SAT (w210 ¼ 15.63), and LOY (w210 ¼ 30.20) and
compared each w2 value with the baseline (w29 ¼ 15.43) model
free of such restrictions. In two cases (VAL and LOY), we
found significant w2differences between constrained and
unconstrained models consistent with Hypothesis 2. The rela-
tive weight analysis was repeated using the composite scores
data. The relative importance weights of CI and IQ in predict-
ing VAL: 64.3% and 34.5%, for SAT: 31.2% and 31.7%, and
for LOY: 26.0% and 17.5%. Hence, analysis of composite
scores generated partial support for Hypothesis 2.
Hypothesis 3a–c was tested by creating an interaction vari-
able using the product of CI and IQ after centering the composite
scale scores for CI and IQ to minimize the effects of multicolli-
nearity (Aiken and West 1991). The model fits the data well
using composite scale scores (w29 ¼ 15.43, p ¼ .08, RMSEA
¼ .030, GFI ¼ 1.00, CFI ¼ 1.00, NFI ¼ 1.00, NNFI ¼ .99). The
model explains 45% of the variance in VAL, 69% in SAT, and
66% in LOY when composite scores are used as input. The inter-
action variable (CI*IQ) had significant negative impact on SAT
(b ¼ .18, t ¼ 5.71) and LOY (b ¼ .16, t ¼ 5.08). How-
ever, the effect of CI*IQ upon VAL was not significant (b ¼ .07,
t ¼ 1.53).5
Discussion
Results of Study 1 generally support the hypothesized effects of
CI and employee IQ. First, support was found for the hypothesis
that customer satisfaction and perceived value mediate the effects
of CI on customer loyalty. Second, CI showed stronger effects on
perceived value and loyalty relative to the effects of IQ, while,
contrary to our hypothesis, IQ had a stronger effect on customer
satisfaction than CI. Third, as hypothesized, CI reduced the
effects of employee IQ on customer satisfaction and loyalty.
Results obtained from latent variable scores and composite
scale scores are similar, albeit with some noteworthy excep-
tions. First, there is a significant gap between the two sets of
results in terms of the proportion of explained variance in the

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Jha et al.
dependent constructs. For instance, as shown in Table 3, R2 for
VAL generated by input based on latent variable scores is .23
while it is .45 when composite scale scores are used as input.
In addition, the magnitudes of indirect effects and the majority
of direct parameter estimates using composite scores are larger
relative to those estimated by latent variable scores (which are
free from measurement error and common method variance).
An unexpected finding in Study 1 related to the relative
influence of CI and IQ on customer satisfaction. Contrary to
our hypothesis, IQ had a stronger impact on satisfaction than
CI. A potential explanation for this finding may be tied to the
nature of these constructs. CI is defined as the sum total of
knowledge of a service provider and relates to schemas held
in customers’ minds. Such cognitive schemas are likely to have
more influence on customer’s cognitive evaluations of per-
ceived value and behavioral intentions. In contrast, IQ appears
to elicit a more emotive response. This seems to hold despite
the fact that IQ was measured within the context of an ongoing
service relationship and not in reference to a specific service
encounter. Satisfaction has been defined primarily an affective
construct (Oliver 1993); hence, the impact of IQ upon satisfac-
tion is relatively stronger compared to CI.
These results beg several questions. First, what if IQ and CI
were measured with a focus on a single service encounter? We
might expect assessments of IQ to be more emotion-laden due
to the immediacy of the encounter which, in turn, would spill
over heavily on all outcome variables, not just satisfaction. If
so, does this mean that retrieval of CI, which may be the more
distal construct under this circumstance, will be slower and sec-
ondary to the immediate experience of IQ? Second, given our
theory and results from Study 1, is it possible that the type of
service might influence the relative roles of CI and IQ? Finally,
to what extent would results of our latent variable score model,
which is free from both measurement error and method bias,
differ from experimental results in which common method var-
iance was controlled by design (i.e., by experimentally manip-
ulating the independent variables in order to control for the
effects of common method in their relationship with the depen-
dent variables)?6 We conducted two experiments in an effort to
shed light on these questions, the first replicating the personal
banking context of Study 1, and the second using a restaurant
context.
Study 2: Bank Customer Experiment
Method
We conducted a scenario-based experiment that was a 2 (CI: high,
low)  2 (IQ: high, low) between-subjects design. Participants
read a scenario about opening a bank account and then respond
to questions. The scenario is provided in the Appendix.
Pretests. Several pretests were conducted to develop the CI and
IQ manipulations. Every effort was made to ensure that the
bank scenario would be as realistic and comprehensible as pos-
sible to student samples (see Appendix). In the final pretest, 24
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163
MBA students enrolled in a marketing management class (45%
male; mean age ¼ 23 years; 95% bank account holder) received
one of the four questionnaires that differed only in the CI and
IQ manipulations. Participants were told that we were inter-
ested in their reactions to a fictitious experience at a bank. After
reading the scenario, participants indicated the realism and
comprehensibility of the scenario questions through two, 10-
point semantic differential items (unrealistic-realistic; not easy
to understand-easy to understand).
The realism (Ms > 7.83) and comprehensibility (Ms > 8.25)
ratings were high and equivalent across all four conditions
(Fs < 1). In addition, the manipulation checks were successful
and suggested independence for the CI and IQ manipulations
(Perdue and Summers 1986).7 Hence, we used them in our
main study.
Sample and Procedure. Ninety-one MBA students enrolled in a
marketing management class (51% male; mean age ¼ 23 years;
98% bank account holder) participated in the main study, a 2
(CI: high, low) by 2 (IQ: high, low) between-subjects design.
They were randomly assigned to one of the four conditions.
Participants were instructed to imagine themselves as the pro-
tagonist of the service encounter described in the scenario.
After reading the scenario, participants completed a structured
questionnaire consisting of questions for realism and compre-
hensibility, and the CI and IQ manipulations checks. Next, they
responded to the same customer satisfaction (SAT; a ¼ .96),
perceived value (VAL; a ¼ .90), and customer loyalty (LOY;
a ¼ .90) scales used in Study 1. Finally, participants completed
questions related to demographics and relayed their thoughts of
the study’s true purpose.
Results
Manipulation and Realism Checks
A 2 (CI: high vs. low)  2 (IQ: high vs. low) analysis of cov-
ariance (ANCOVA) yielded a significant main effect of CI,
F(1, 86) ¼ 102.06, p < .01, controlling for gender. Participants
perceived the overall image of Bank XYZ more favorably
in the high CI condition than in the low CI condition
(MCI_high ¼ 7.6 vs. MCI_low ¼ 4.8). The same approach was
adopted to test the IQ manipulation. The ANCOVA results
produced a significant main effect of IQ, F(1, 86) ¼ 199.42,
p < .01. Participants perceived the IQ of Bank XYZ’s staff
more positively in high IQ condition than in the low IQ con-
dition (MIQ_high ¼ 8.1 vs. MIQ_low ¼ 4.4). Thus, manipulations
of CI and IQ worked as intended. Realism (Ms > 7.8) and
comprehensibility (Ms > 8.1) ratings taken during Study 2 were
high and equivalent all across the four conditions (Fs < 1).
Tests of Hypotheses
To test whether SAT and VAL mediated the relationships
between CI and LOY (Hypothesis 1a and b), we added SAT
and VAL as covariates in separate ANCOVA models (Baron
and Kenny 1986; Wang 2011). In the first model, we included
164 Journal of Service Research 16(2)

Table 4. Effect of CI and IQ on Customer Satisfaction, Perceived Value, and Attitudinal Loyalty (Studies 2 and 3).

MANCOVA Univariate Statistics: F Values and Partial Z2

Wilks’s l F Value Partial Z2 SAT Partial Z2 VAL Partial Z2 LOY Partial Z2

Study 2
Gender 0.985 0.42 .015 0.52 .006 0.00 .000 0.13 .001
CI 0.784 7.70 .216 14.39 .143 2.49 .028 12.71 .129
IQ 0.329 57.13 .671 98.62 .534 56.50 .397 144.92 .628
CI*IQ 0.973 0.76 .027 1.96 .022 0.14 .002 0.06 .001
Study 3
Gender 0.963 1.15 .037 0.77 .008 0.67 .007 0.05 .001
CI 0.728 11.05 .272 25.84 .221 12.85 .124 29.96 .250
IQ 0.356 53.62 .644 153.63 .631 81.54 .473 110.78 .549
CI*IQ 0.761 9.37 .239 25.89 .222 7.87 .080 5.08 .053

Note. CI ¼ corporate image; IQ ¼ interaction quality; MANCOVA ¼ multivariate analysis of covariance.

*F values > 3.6 are significant at the .05 level.

SAT as a covariate between CI and LOY. SAT was significant,
F(1, 88) ¼ 155.50, p < .01; partial Z2 ¼ .63, but the direct
CI effect became insignificant, F(1, 88) ¼ .292, p ¼ .59; partial
Z2 ¼ .00, thus indicating full mediation of SAT between CI and
LOY. In the second model, we included VAL as a covariate
between CI and LOY. VAL, F(1, 88) ¼ 243.00, p < .01; partial
Z2 ¼ .73, and CI, F(1, 88) ¼ 6. 36, p < .05; partial Z2 ¼ .06,
effects were significant but the effect of CI on LOY,
F(1, 89) ¼ 7.28, p < .01; partial Z2 ¼ .07, was reduced with
inclusion of VAL as a covariate, thus indicating partial media-
tion of VAL between CI and LOY. Collectively, these results
provide support for Hypothesis 1a and b.
To examine the relative impacts of CI and IQ on SAT, VAL,
and LOY, we conducted a 2 (CI: high vs. low)  2 (IQ: high vs.
low) multivariate analysis of covariance (MANCOVA) on the
scales measuring SAT, VAL, and LOY, controlling for gender.
Results showed significant multivariate main effects of CI
(Wilks’s l ¼ .784; F ¼ 7.70; p < .01; partial Z2 ¼ .21) and
IQ (Wilks’s l ¼ .329, F ¼ 57.13, p < .01; partial Z2 ¼ .67).
Gender as a covariate was not found significant. Univariate
statistics yielded a significant main effect of CI on SAT,
F(1, 86) ¼ 14.39, p < .01; partial Z2 ¼ .14, and LOY, F(1,
86) ¼ 12.71, p < .01; partial Z2 ¼ .12, but not on VAL,
F(1, 86) ¼ 2.49, p ¼ .11; partial Z2 ¼ .02. In addition, MAN-
COVA results showed a significant main effect for IQ upon
SAT, F(1, 86) ¼ 98.62, p < .01; partial Z2 ¼ .53, VAL,
F(1, 86) ¼ 56.55, p <.01; partial Z2 ¼ .39, and LOY,
F(1, 86) ¼ 144.92, p < .01; partial Z2 ¼ .62. In all the cases (see
Table 4), the effects of IQ on SAT, VAL, and LOY were stron-
ger than that of CI based on F and partial Z2 values. Thus, in
contrast to the partial support for Hypothesis 2a–c in the Study
1, Study 2 results provide support for this set of hypotheses.
As shown in Table 4, the interaction of CI*IQ did not have
significant multivariate impact (Wilks’s l ¼ .973; F ¼ .76; p ¼
.51; partial Z2 ¼ .02) upon our dependent variables. In addi-
tion, univariate statistics did not show significant interaction
impact of CI*IQ on SAT, F(1, 86) ¼ 1.96, p ¼ .16; partial
Z2 ¼ .02; VAL, F(1, 86) ¼ .14, p ¼.70; partial Z2 ¼ .00; and
LOY, F(1, 86) ¼ .06, p ¼.80; partial Z2 ¼ .00. Thus, in contrast
to Study 1 results, the experiment failed to provide support for
Hypothesis 3a–c. Table 5 provides descriptive statistics for
study variables from Studies 2 and 3.
Discussion
The primary objective of Study 2 was to triangulate results from
Study 1’s survey-based examination of an ongoing banking ser-
vice relationship with findings from an experiment in which cus-
tomers focused upon a single banking service encounter. We
experimentally manipulated CI and IQ and investigated their
effects upon perceived value, customer satisfaction, and cus-
tomer loyalty. In using a manipulation to capture our indepen-
dent variables and survey responses for our dependent
variables, we have also controlled for method variance.
Study 2 results were consistent with Study 1 with respect to
Hypothesis 1a and b; that is, customer satisfaction and perceived
value partially mediated the relationship between CI and cus-
tomer loyalty. As expected, the tentative results from our exam-
ination of Hypothesis 2a–c in Study 1 regarding the relatively
stronger effects of CI upon customer satisfaction, perceived
value, and customer loyalty when evaluations involved an
ongoing service relationship were not upheld in Study 2, in
which individuals were forced to focus on a particular service
encounter. The mixed results from Study 1 indicated that CI had
a greater impact on perceived value and customer loyalty than
IQ. However, the magnitude of the relationship between these
variables and satisfaction were reversed. Results from Study 2,
however, showed that IQ had a greater impact on customer satis-
faction, perceived value, and customer loyalty than CI. Thus, in
a transaction-specific scenario, IQ should be the dominant vari-
able due to proximity and immediacy. These findings are consis-
tent with construal-level theory, which suggests that
psychological proximity to an event, which was created using
service scenario, should result in a stronger impact on outcome
variables (Trope, Liberman, and Wakslak 2007).

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Jha et al. 165

Table 5. Descriptive Statistics for Customer Satisfaction (SAT), Perceived Value (VAL), and Attitudinal Loyalty (LOY; Studies 2 and 3).*

Study 2 (Bank)

IQ Low IQ High

Dependent Variable CI Low (n ¼ 23) CI High (n ¼ 22) J CI Low (n ¼ 21) CI High (n ¼ 25) J

SAT 3.59 (0.80) 4.49 (0.10) 0.90 5.49 (0.88) 6.02 (0.60) 0.53
VAL 3.61 (0.83) 4.00 (1.18) 0.39 5.16 (0.89) 5.40 (0.76) 0.24
LOY 2.85 (0.84) 3.61 (1.13) 0.76 5.23 (0.98) 5.88 (0.64) 0.65

Study 3 (Restaurant)

IQ Low IQ High

CI Low (n ¼ 23) CI High (n ¼ 24) J CI Low (n ¼ 24) CI High (n ¼ 25) J

SAT 3.07 (0.81) 4.05 (0.65) 1.58 5.82 (0.89) 5.81 (0.61) 0.01
VAL 3.36 (1.04) 4.47 (0.79) 1.11 5.40 (0.81) 5.55 (0.70) 0.15
LOY 2.98 (1.00) 4.28 (0.97) 1.30 5.38 (0.92) 5.97 (0.72) 0.59
Note. CI ¼ corporate image.
Means are based on 7-point scales. A higher score indicates a more favorable response. All mean differences (J) > (.54) are significant at the .05 level.
*Standard deviations in parentheses.

With respect to Hypothesis 3a–c, we did not find a signifi-
cant negative interaction effect of CI*IQ on customer satisfac-
tion, perceived value, and customer loyalty as found in Study 1.
Although we chose a bank service setting that was relevant for
students and instructed participants to base their judgment only
on information available in the scenario, we cannot rule out the
possibility that students’ motivation and experiences with per-
sonal banking may differ from the general population. For
instance, students may have less experience with the full range
of services offered by a bank (e.g., loans). Thus, in Study 3, we
used a restaurant-based scenario to assess whether the pattern
of relationships we observed in bank setting recurred in what
should be a more familiar setting.
Study 3: Restaurant Customer Experiment
Method
Pretest. A restaurant scenario was constructed that was as sim-
ilar as possible to the bank scenario (see Appendix). We
followed pretest procedures consistent with Study 2. Twenty-
six MBA students enrolled in a marketing management class
(53% male; mean age ¼ 24 years) received one of the four
surveys that differed only in CI and IQ manipulations. Realism
(Ms > 7.2) and comprehensibility (Ms > 7.4) ratings were high
and equivalent all across the four conditions (Fs < 1). The
results also indicated that the manipulations were successful.
Sample and Procedure. Ninety-six MBA students enrolled in a
marketing management class (55% male; mean age ¼ 24 years)
participated in the study. They were randomly assigned to one
of the four conditions of CI (high vs. low) and IQ (high vs.
low). As in Study 2, participants were instructed to imagine
themselves as the protagonist in the restaurant-based service
encounter described by the scenario. After reading the scenario,
participants responded to the questions of realism, comprehen-
sibility, manipulation checks for CI (a ¼ .95) and IQ (a ¼ .94),
as well as the SAT (a ¼ .95), VAL (a ¼ .92), and LOY
(a ¼ .95) measures. Finally, participants completed questions
related to demographics and tried to guess the purpose of the
study (at which none succeeded).
Results
Manipulation and Realism Checks
A 2 (CI: high vs. low)  2 (IQ: high vs. low) ANCOVA yielded
a significant main effect of CI, F(1, 91) ¼ 100.95, p < .01, con-
trolling for gender. Participants perceived the overall image of
Restaurant XYZ more favorably in high CI condition than that
of low CI (MCI_high ¼ 7.6 vs. MCI_low ¼ 4.9). We adopted the
similar approach using ANCOVA to test IQ manipulation. The
ANCOVA results produced a significant main effect of IQ,
F(1, 91) ¼ 183.45, p < .01. Participants perceived the IQ of Res-
taurant XYZ’s staff more positively in high IQ condition than
low IQ condition (MIQ_high ¼ 8.2 vs. MIQ_low ¼ 4.8). Thus,
manipulations of CI and IQ worked as intended. Realism (Ms
> 8.2) and comprehensibility (Ms > 8.3) ratings taken during
Study 3 were high and equivalent all across the four conditions
(Fs < 1).
Tests of Hypotheses
To examine the mediation effects of SAT and VAL, we fol-
lowed the same approach used in Study 2. In the first model,
we included SAT as a covariate between CI and LOY. SAT,
F(1, 93) ¼ 254.98, p < .01; partial Z2 ¼ .73, and CI,
F(1, 93) ¼ 4.51, p < .05; partial Z2 ¼ .04, effects were
significant but the effect of CI, F(1, 94) ¼ 13.22, p < .01; partial
Z2 ¼ .12, was reduced with the inclusion of SAT as a covariate,

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166
Figure 2. Corporate image (CI) as a moderator of IQ-SAT rela-
tionship: Study 3.
thus indicating partial mediation of SAT between CI and LOY.
In the second model, we included VAL as a covariate between CI
and LOY. VAL, F(1, 93) ¼ 223.00, p < .01; partial Z2 ¼ .70, and
CI effects were, F(1, 93) ¼ 6. 80, p < .05; partial Z2 ¼ .06, signif-
icant, but effect of CI on LOY, F(1, 94) ¼ 13.22, p < .01; partial Z2
¼ .12, was reduced after including VAL as a covariate, thus indi-
cating partial mediation of VAL between CI and LOY. Hence,
these results provide support for Hypothesis 1a and b.
To test Hypothesis 2, we examined the relative impacts of
CI and IQ on SAT, VAL, and LOY using 2 (CI: high vs. low)
 2 (IQ: high vs. low) MANCOVA, controlling for gender.
Results showed significant main impact of CI (Wilks’s l ¼
.728; F ¼ 11.05; p < .01; partial Z2 ¼ .27) and IQ (Wilks’s
l ¼ .356, F ¼ 53.62, p < .01; partial Z2 ¼ .64). Gender as a
covariate was not found significant. Univariate statistics
yielded significant main impact of CI on SAT, F(1, 91) ¼
25.84, p < .01, partial Z2 ¼ .22; VAL, F(1, 91) ¼ 12.85, p
< .01, partial Z2 ¼ .12; and LOY, F(1, 91) ¼ 29.75, p <
.01, partial Z2 ¼ .24. In addition, it showed significant main
impact of IQ on SAT, F(1, 91) ¼ 154.50, p < .01, partial Z2
¼ .62; VAL, F(1, 91) ¼ 81.54, p <.01, partial Z2 ¼ .47; and
LOY, F(1, 91) ¼ 110.78, p < .01, partial Z2 ¼ .54. In all the
cases as shown in Table 4, the effects of IQ on SAT, VAL, and
LOY are stronger than that of CI based on F and partial Z2
values. Hence, collectively these results do not provide sup-
port for Hypothesis 2a–c.
Table 4 indicates that interaction effect of CI*IQ has signif-
icant impact (Wilks’s l ¼ .766; F ¼ 8.94; p < 0.001; partial
Z2 ¼ .23). In addition, univariate statistics showed significant
interaction impact of CI*IQ on SAT, F(1, 91) ¼ 25.84,
p < .01; partial Z2 ¼ .22, VAL, F(1, 91) ¼ 7.87, p <.01; partial
Z2 ¼ .080, and LOY, F(1, 91) ¼ 5.08, p <.05; partial Z2 ¼ .05.
Figure 2 graphically plots the significant interaction, illustrat-
ing that the effect of IQ on SAT, VAL, and LOY is weaker
at higher levels of CI. While not shown here for brevity, IQ has
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Journal of Service Research 16(2)
similar effects on perceived value and loyalty. Thus, the data
provide strong support for Hypothesis 3a–c.
Discussion
The objectives of this study were to replicate and extend the
findings of Study 1 and Study 2 (bank-based studies) an alter-
native restaurant-based service setting. A restaurant service
scenario was designed consistent with the Study 2 bank sce-
nario (see Appendix). Thus, Study 3 allowed us to test the gen-
eralizability of our previous findings relating to Hypothesis 1a
and b, Hypothesis 2a–c, and Hypothesis 3a–c to a service set-
ting distinct from the personal banking context.
In line with findings from Study 1 and Study 2 pertaining to
the mediating effects of customer satisfaction and perceived
value, Study 3 results again suggest that these variables play
a critical role in channeling the effects of CI to attitudinal loy-
alty. With respect to Hypothesis 2a–c and its assessment of the
relative impact of CI and IQ on customer outcomes, Study 3
results are consistent (contrary) with those from Study 2
(Study 1). That is, in the single encounter restaurant setting,
IQ had a relatively stronger impact on customer satisfaction,
perceived value, and customer loyalty than that of CI. With
respect to the interaction effect proposed in Hypothesis 3a–c,
Study 3 results, unlike those from Study 2, were consistent with
Study 1. That is, the effects of IQ were weaker for customers
who possessed a more favorable CI of the provider.
General Discussion and Implications
The current work provides worthwhile substantive and methodo-
logical contributions. Substantive results from Study 1 show that
CI for quality exerts significant direct effects upon attitudinal
loyalty as well as indirect effects through perceived value and
customer satisfaction, even after accounting for the influences
of gender, frequency of face-to-face interaction, and customer
relationship tenure. While various researchers have sought to
link CI to these outcomes, this study contributes to the literature
by examining the veracity of a more complex nomological rela-
tionship among these variables. This robustness of this partial
mediation finding was substantiated across methods as well as
across service contexts over the course of the experiments
described by Study 2 and Study 3. Moreover, the fact that CI was
a consistently significant predictor across outcomes, methods,
and contexts reinforces the notion that variable represents an
important cue in consumer judgments of service offerings.
Study findings with respect to the relative effects of CI for
quality and employee IQ were mixed, suggesting the nature and
strength of these relationships may be somewhat more complex
than hypothesized. Results from the chi-square difference tests
conducted in Study 1, in which customers were asked questions
with respect to an ongoing service relationship, provided no evi-
dence in support of our hypothesis that CI would exert stronger
effects. In fact, contrary to our expectation, the employee
IQ-customer satisfaction linkage was stronger in comparison
to the CI-customer satisfaction path. Results from the heuristic
Jha et al.
relative weight analysis procedure developed by Johnson (2000),
however, do provide some indication that CI is the more critical
factor in driving perceived value and attitudinal loyalty. As
expected, we find in each experimental study that when respon-
dents were forced to focus on a particular service experience,
employee IQ became the more important factor due to its prox-
imity and immediacy. Given differences in results between
Study 1, in which IQ was measured as a general construct in
an ongoing service relationship, compared to Studies 2 and 3,
in which IQ was experimentally manipulated with reference to
a specific encounter, scholars researching in this area would
be well advised to exercise great precision in their theorizing.
In addition, we find a significant negative effect for the CI-IQ
product term, which suggests that the effects of IQ upon perceived
value, customer satisfaction, and loyalty are diminished as CI
increases. As depicted in Figures 2, the effects of IQ on satisfac-
tion, value, and loyalty are weaker for a service provider when
customers hold high levels of CI compared to those holding low
image. This finding highlights the relevance and importance of CI
as a signal of unobservable quality. That is, customers discount
the effect of IQ if a service provider has a favorable CI. It also
implies that customers’ subsequent evaluation of multiple cues
in a service environment is biased on the evaluation of the stron-
gest cue. Our results are consistent with the premise that CI may
work as a reference point that allows the customers to perform the
relative diagnosticity of IQ of a service provider.
In terms of methodology, we gain insight regarding the
influence of measurement error and common method variance
on model estimates. Study results suggest a cautious interpreta-
tion of recent findings by Lance et al. (2010) regarding the
countervailing effects of measurement unreliability and com-
mon method variance in producing unbiased results. The large
discrepancies observed between composite score and latent
variable score models in terms of the comparative strength of
several path estimates and much higher explained variance in
each of our endogenous variables suggest that common method
bias remains a concern when using composite score variables.
Further, it is unclear whether such issues become exacerbated
in tests of more complex nomological relationships such as
mediation and moderation. Study results support the use of esti-
mated latent variables scores that are free from both measure-
ment error and common method variance as a viable response
to the skepticism regarding the use of composite scale scores in
model testing (Schumacker 2002). In particular, the approach
demonstrated here is particularly attractive as it makes it much
easier to test the effects of latent variable interactions within
structural equation models (Jöreskog 2000).
Managerial Implications
Study findings provide several key managerial insights. First,
study results reinforce earlier work which supports the role of
CI in shaping customer attitudes and behavioral intentions.
CI for quality affected customer satisfaction and perceived
value, which should lead to greater sales revenue according
to earlier findings (Anderson, Fornell, and Lehmann 1994).
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167
In addition, it is important for the managers to understand that
IQ has a direct role to play in forming service loyalty. Since CI
and IQ independently affect behavioral intentions, this suggests
that customers are able to differentiate between CI and IQ as
extrinsic and intrinsic cues.
Second, results from all three studies showed that IQ had a
stronger impact on satisfaction than CI. This finding under-
scores the importance of maintaining high levels of employee
IQ through careful selection, training, supporting, and reward-
ing of frontline employees. Given the more affective nature of
customer satisfaction, study results suggest that IQ connects
with customers on an emotional level. The centrality of satis-
faction in channeling the effects of image and perceived value
upon behavioral intentions places an onus on the design of stra-
tegic human resource management policies that enhance front-
line employee ability, motivation, and opportunity to deliver
highly satisfying customer experiences.
Third, this study offers providers an understanding of how
CI for quality and employee IQ interrelate in the formation
of customer attitudes and intentions. Based upon the significant
negative effect of product term, however, we conclude that
these variables act interactively such that the effects of one are
stronger at lower levels of the other. It is interesting that this
multiplicative effect did not hold when respondents were
forced to focus on a single banking encounter in the Study 2
banking experiment, but was supported in the Study 3 restau-
rant scenario. Again, differences found across methods and
contexts suggest that this nonlinear relationship may be more
nuanced than what might be apparent at first glance.
Limitations and Future Research
Although this study expands knowledge of the role of CI in
driving service loyalty, key limitations must be observed. For
instance, the initial study is based on a cross-sectional sample,
highlighting that the directionality of relationships must be
treated with caution. A true test of the causal structure of our
behavioral-intention model would require longitudinal data.
While our comparison of the proposed model with an alterna-
tive model sheds some light on the temporal location of CI con-
structs on service loyalty models, the temporal order can best
be addressed by longitudinal data. Nevertheless, our study pro-
vides insights compatible to other studies examining models
through cross sectional designs. In addition, over the long run,
the quality of employee interactions feeds into consumer per-
ceptions of CI. Thus, findings from this study could be
advanced by a longitudinal design that investigates study rela-
tionships over time.
Second, we acknowledge that CI is likely to have several
dimensions but the importance of those dimensions will differ
across the external stakeholders of a firm. Based upon Sha-
piro’s (1983) arguments, the overall quality dimension is an
important one for customers. As noted by Dowling (1986) and
Walsh and Beatty (2007), however, there may be other dimen-
sions of CI that play a key role in consumers judgments. Future
studies should measure other dimensions of CI as well as
168
alternative features of the service offering in order to expand
our knowledge in this context. Third, we recognize the limita-
tion of relying on behavioral intentions instead of actual beha-
vioral data. Extending our research by measuring actual
behavior would be a useful direction for future research.
This study examines only two service contexts. To broaden
the database for further generalizations, testing viability of our
model, relative impacts of extrinsic and intrinsic cues, and
moderating role of CI in other service sectors would be fruitful
avenues for further research to show if the hypothesized lin-
kages change according to service characteristics. Finally, the
unit of analysis in the present study was the individual con-
sumer in reference to a single service firm without considering
interfirm variations of image. Future studies should consider
multilevel research designs that include service organizations
as units of analysis combined with individual-level analysis
in an effort to enhance our understanding of the role of CI.
Appendix
Bank Scenario for Study 2
You are interested in opening a saving account at Bank XYZ.
You consider yourself somewhat familiar with this provider,
having visited the bank several times during the past 6 months.
The Bank XYZ charges reasonable fees that are comparable to
other banks. Based upon what you have heard from others and
your personal experience, you hold a very (a less than) favor-
able overall image of the bank.
Upon arrival, a clerk escorts you to an account manager’s
office. The bank account manager introduces himself with a
smile (without smiling) and asks how he can help you today.
The account manager expertly answers (struggles to answer)
several questions you have about some of the special types of
accounts the bank offers.
After your new account has been opened, the account man-
ager provides you with an information packet, thanks you for
coming and wishes you a pleasant afternoon.
Restaurant Scenario for Study 3
You are interested in eating lunch at Restaurant XYZ. You con-
sider yourself somewhat familiar with this provider, having
eaten at the restaurant several times during the past 6 months.
The Restaurant XYZ charges reasonable prices that are compa-
rable to other restaurants. Based upon what you have heard
from others and your personal experience, you hold a very
(a less than) favorable overall image of the restaurant.
Upon arrival, the hostess escorts you to your table. Your
waiter introduces himself with a smile (without smiling)
before taking your drink order. After returning with your
drinks, the waiter expertly answers (struggles to answer) sev-
eral questions you have about some of the special items the res-
taurant is offering.
After you have completed your meal, the server provides
you with your bill, thanks you for coming and wishes you a
pleasant afternoon.
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Journal of Service Research 16(2)
Note: Bold letters (in parentheses) are the manipulations of
high (low) corporate image and interaction quality.
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to
the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, author-
ship, and/or publication of this article.
Notes
1. An anonymous reviewer raised questions about listwise deletion of
data. A test of the MCAR (missing completely at random) assump-
tion (Little 1988) showed that the MCAR hypothesis cannot be
rejected at the .01 level, w21,655 ¼ 1,758.73, p ¼ .038. In addition,
20 cases had more than 10% missing data and none of the variables
had more than 5% missing values. The resulting sample size could
still be considered ‘‘large’’ to alleviate any concerns regarding sta-
tistical power. These factors collectively justify listwise deletion
and the resulting parameter estimates are expected to be unbiased
(Allison 2001; Hair et al. 2010).
2. Sobel’s test (Shrout and Bolger 2002) was used to determine the
significance of the indirect effects. This test is based on large sam-
ple assumptions and our sample size (777) is considered large by
any measure. However, we also used a bootstrapping procedure
(Selig and Preacher 2008) to compute 95% confidence intervals for
the indirect effects. The confidence interval results and Sobel test
results were in agreement.
3. We thank an anonymous reviewer for suggesting this alternative
approach.
4. These indirect effects were also evaluated via bootstrapping and
the resulting 95% confidence intervals were consistent with results
based on Sobel’s test.
5. We conducted a series of simple slope tests related to CI and IQ
interaction, using both composite scale scores and estimated latent
variable scores (Aiken and West 1991). For instance, using esti-
mated latent variable scores, the simple slope of IQ in predicting cus-
tomer satisfaction at the unfavorable level of CI (low CI) was .72, t
¼ 15.80, p < .01, compared to .42, t ¼ 8.38, p < .01, when CI was
favorable (high CI), which clearly show the negative moderator role
of CI. These detailed results are available from the authors.
6. We thank two anonymous reviewers and the journal editor for trig-
gering these questions.
7. Detailed statistics are available from the authors but for brevity,
they are not included here.
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Author Biographies
Subhash Jha is a doctoral candidate at IBS-Hyderabad and was a vis-
iting researcher at Fogelman College of Business & Economics at the
University of Memphis from 2010 to 2011. His research interest lies in
examining the roles of extrinsic and intrinsic cues in product and ser-
vice evaluation. He has published in the Asia Pacific Journal of Mar-
keting and Logistics. His research has also been presented in several
international conferences including those organized by the AMA, Soci-
ety for Consumer Psychology, Academy of Marketing Science,
INFORMS, and Society for Marketing Advances.
George D. Deitz is an associate professor of marketing at The Univer-
sity of Memphis. Current research interests are centered on the area of
service innovation, particularly within retail, health care, and financial
service systems. His research has been published in a number of jour-
nals, including Industrial Marketing Management, Journal of Busi-
ness Venturing, Journal of Public Policy and Marketing, Journal of
Business Research, and Journal of Business Logistics.
Emin Babakus is a Palmer Professor of Marketing at The University
of Memphis. His research has been published in the Journal of Service
Research, Journal of Marketing Research, Journal of the Academy of
Marketing Science, International Journal of Research in Marketing,
Journal of Retailing, Decision Sciences, and Journal of Advertising
Research, among others. He serves on the editorial review boards of
several journals.
Ugur Yavas is a professor of marketing and Advisory Board Faculty
Fellow at East Tennessee State University. He has contributed, among
others, to the Journal of Service Research, Journal of Marketing
Research, Journal of Retailing, Journal of the Academy of Marketing
Science, Journal of Business Research, Journal of Business and Indus-
trial Marketing, International Journal of Research in Marketing, Eur-
opean Journal of Marketing, International Journal of Service Industry
Management, Journal of Consumer Marketing, Journal of World
Business, Management Decision, Service Industries Journal, Journal
of Services Marketing, and Long Range Planning.