THE STRATEGIC LEARNING ORGANIZATION: CONNECTING COMPANY

CAPABILITIES AND CUSTOMER LOYALTIES

Marta Dapena-Barón

A DISSERTATION

in

Work-Based Learning Leadership

Presented to the Faculties of the University of Pennsylvania

in Partial Fulfillment of the Requirements for the

Degree of Doctor of Education

2013

Supervisor of Dissertation:
______________________________________

Matthew Riggan, Adjunct Assistant Professor of Education

Dean, Graduate School of Education:

______________________________________
Andrew C. Porter, Dean and Professor

Dissertation Committee:
Matthew Riggan, Adjunct Assistant Professor of Education

Angela Lee, Mechthild Esser Nemmers Professor of Marketing, Kellogg School

of Management

Joseph Ryan, Adjunct Professor of Management

Jonathan Supovitz, Associate Professor

 UMI Number: 3592271

All rights reserved

INFORMATION TO ALL USERS

The quality of this reproduction is dependent upon the quality of the copy submitted.

In the unlikely event that the author did not send a complete manuscript
and there are missing pages, these will be noted. Also, if material had to be removed,
a note will indicate the deletion.

UMI 3592271
Published by ProQuest LLC (2013). Copyright in the Dissertation held by the Author.
Microform Edition © ProQuest LLC.
All rights reserved. This work is protected against
unauthorized copying under Title 17, United States Code

ProQuest LLC.
789 East Eisenhower Parkway
P.O. Box 1346
Ann Arbor, MI 48106 - 1346
THE STRATEGIC LEARNING ORGANIZATION: CONNECTING COMPANY

CAPABILITIES AND CUSTOMER LOYALTY

COPYRIGHT

2013

Marta Dapena-Barón
 ACKNOWLEDGEMENTS

My deepest gratitude goes to my intellectual and life partner, Christie Nordhielm.

Her genius and vision inspire me every day. Undoubtedly, this work would not be

without hers. Thank you also to my kids, Gus and Sofia, for your support and

patience throughout this process.

I am particularly thankful to my teachers, Angela Lee and Matt Riggan, for

guiding me in this tremendously fulfilling learning journey. Both are not just great

teachers, but like many great teachers, they are exemplar human beings who

conduct their lives with great self-discipline and grace, both are role models to

me professionally and personally. Thank you also to Joe Ryan for his insightful

comments during the proposal process; which served to guide my integrative

thinking. I also want to thank Sue Johnson, Tonya Williams, and Barbara Ford for

their friendship and their kindness and for lending key resources that allowed me

to conduct this research. Your generosity is deeply appreciated.

iii
 ABSTRACT

THE STRATEGIC ORGANIZATION: CONNECTING CAPABILITES AND

CUSTOMER LOYALTIES

Marta Dapena-Barón

Matthew Riggan

This research study offers a multidisciplinary and integrative perspective of

customer loyalty and organizational capability building through learning processes. The

overall objective of this work is to integrate the company core capability and customer

loyalty constructs. Following a mixed methods approach, this study first develops, tests,

and validates a multidimensional psychometric scale to measure customer loyalty. This

multidimensional loyalty categorizes customer-company relationships in a way that

provides operational guidance to managers regarding how to serve customers

depending on the type of relationship they hold with the firm. The research then uses

qualitative methods to examine the organizational learning capabilities that contribute to

loyalty in the firm and how loyalty conceptualizations drive capability development. The

added value of the contribution to the fields of marketing and organizational learning lies

in the integrative nature of the research. Both customer loyalty and company core

capabilities have been addressed in previous research, but the learning linkages

between these two constructs have not been studied in detail before. By connecting

company core competence to customer loyalty, the work provides specific guidance to

managers who wish to more purposefully and effectively measure and impact the loyalty

mix of the brand and promote differentiated organizational learning. This research

develops and explains three core capability types and three customer-company

relationship types and explores their linkages.

iv
 TABLE OF CONTENTS

Chapter 1: Introduction ....................................................................................................1

Chapter 2: A Review of the Capability and Customer Loyalty Literature ..........................8

A Review of Customer Loyalty .......................................................................................10

The Head, hand, heart loyalty typology ....................................................................18

The Core Capability Literature: Capabilities as the Strategic Lens of the Firm ..........20

Competences and Capabilities .................................................................................22

Core Capabilities as drivers of firm performance. .....................................................24

Paradoxes in the Capability Model ................................................................................25

Core Competences as Derailers of Company Performance ...........................................29

Activating Capabilities by Operationalizing Customer Loyalty: The Role of

Organizational Learning ................................................................................................30

Chapter 3: The Tripartite Loyalty Scale..........................................................................44

Quantitative Methods.....................................................................................................45

Step One: Specify the construct ...............................................................................48

Step Two: Generate scale items ...............................................................................56

Step Three: Purify the Scale .....................................................................................58

Additional Data Collection and Reliability Tests: 2 nd Student Survey. .............62

Step Four: Further Purify ..........................................................................................65

Step Five: Assess Validity and Finalize Scale ...........................................................67

Final Scale Results ...................................................................................................68

The Evidence Supporting a Tripartite Loyalty Construct: Content Validity. ................72

Predictive Validity. ....................................................................................................73

Convergent and Discriminant Validity .......................................................................76

Involvement ..............................................................................................................79

v
 Conclusions: Managerial Implications of the Tripartite Loyalty Scale ........................80

Chapter 4: Qualitative Methods .....................................................................................83

Introduction...............................................................................................................83

Research Sites and Description of Interviewees .......................................................85

The Interview Protocol and Data Collection ..............................................................91

Coding and Analysis Methodology ............................................................................93

Chapter 5: Customer Loyalty and Organizational Capabilities .......................................97

The Business Definition and Goal Setting as Company Context ...............................97

Customer archetypes in practice ............................................................................101

Identifying Winning Relationships ...........................................................................110

Learning from Customers .......................................................................................115

Teaching Customers...............................................................................................118

Enhancing the Product through customer data: service and product failures ..........121

Learning from Customers as Routine .....................................................................125

Customer Loyalty and Employee Skills ...................................................................127

Employee Hiring and Training.................................................................................128

Culture and Values of the Firm ...............................................................................133

Managerial Processes and IT .................................................................................137

Chapter 6: Improving Capability Development and Loyalty in Organizations ...............144

The Capability Implications of Customer Loyalty.....................................................145

Appendix A: Final Version of the Loyalty Survey .........................................................163

Appendix B: Final Factor Analysis and Reliabiity Analysis Results ..............................166

Jeans Factor Analysis Results ................................................................................166

Jeans Heart Subscale Reliability Analysis ..............................................................167

Head loyalty subscale Jeans Reliability Analysis ....................................................169

Shampoo Factor Analysis Results ..........................................................................170

Shampoo Heart Loyalty Subscale Reliability Analysis.............................................171

vi
 Shampoo Hand Subscale Reliability Analysis .........................................................172

Drinks Factor Analysis Results ...............................................................................174

Head Scale Drinks Reliability Analysis ....................................................................176

Appendix C: Qualitative Interview Protocol ..................................................................178

Appendix D: Qualiative Analysis Codes .......................................................................181

Bibliography.................................................................................................................183

vii
 LIST OF TABLES

Table 3.1 Attitude-Driven Hypothesized Customer Behavior by Purchase Cycle Phase 50

Table 3.2 Heart Subscale Factor Loadings by Item .......................................................71

Table 3.3 Heart Subscale Internal Consistency Reliability .............................................71

Table 3.4 Head Subscale Factor Loadings by Item........................................................71

Table 3.5 Head Subscale Internal Consistency Reliability .............................................71

Table 3.6 Hand Subscale Factor Loadings by Item........................................................72

Table 3.7 Hand Subscale Internal Consistency Reliability .............................................72

Table 3.8 Shampoo Cluster Analysis .............................................................................74

Table 3.9 Jeans Cluster Analysis...................................................................................75

Table 3.10 Jeans Linear Regression of Tripartite Loyalty against Loyalty Composite ....77

Table 3.11 Shampoo Linear Regression of Tripartite Loyalty against Loyalty Composite 78

Table 3.12 Drink Linear Regression of Tripartite Loyalty against Loyalty Composite .......78

Table 4.1 Functional Titles of the Interviewees at Kitchen Co. and Extrusion Co. ..........90

Table 6.1 The Capability Implications of Customer Loyalty by Organizational Learning

Phase ..........................................................................................................................146

viii
 LIST OF ILLUSTRATIONS

Figure 1.1 Overall Conceptual Framework: Core Capabilities and Loyalties ....................6

Figure 2.1 Dick and Basu (1994) Loyalty Typology ........................................................18

Figure 3.1 Loyalty Scale Development Proceess Steps .................................................44

Figure 4.1 Overall Conceptual Framework: Core Capabilities and Loyalties ..................83

Figure 6.2 Mapping of Company Strategic Knowledge Assests ...................................155

ix
 Chapter 1

INTRODUCTION

The notion that customers are the central assets of the firm is often attributed

to the late management guru Peter Drucker (Drucker, 1954), and has been a

major force driving marketing academic and practitioner work over the last six

decades. Drucker‟s primary justification for setting customer-based objectives at

the forefront of the company‟s agenda is that customers are the growth engine of

the firm. Customers‟ willingness to pay for goods converts raw economic

resources into products and services, and it is as a result of this production

activity that the firm produces a profit (Drucker, 1954). Marketing academics and

practitioners‟ focus on understanding and cultivating customer loyalty is not

surprising considering the evidence supporting the connection between customer

loyalty and long-term company profitability (Anderson, Fornell et al., 1994;

Reichheld and Teal, 2001). Customer loyalty is linked to firm profitability both

directly and indirectly: loyal customers have higher repurchase rates, hold longer

relationships with their preferred brands, and are more likely to recommend their

preferred brands to others. (Reichheld and Teal, 2001; Kumar, Aksoy et al.,

2010). Loyalty is such a direct driver of profitability that loyalty-derived metrics

can be used to estimate company value, and in some cases yield more accurate

estimates of long-term stock price performance than traditional valuation

methods (Gupta and Lehmann, 2005). Although the relationship between

customer loyalty and firm profitability has been credibly established, an

1
operational understanding of loyalty is still emerging (Jacoby and Chestnut,

1978; Dick and Basu, 1994).

In addition to focusing on customer-based metrics, marketing academics extol

the creation of market sensing and market-oriented knowledge management

capabilities as a way to achieve superior company performance (Day, 1994;

Slater and Narver, 2000). Day encourages managers to develop a market-based

orientation requiring the acquisition and dissemination of external market

information throughout the firm, and the development of customer intimacy

capabilities (Day, 1994). However, having market sensing and customer oriented

capabilities is a necessary but not sufficient condition for sustaining performance.

Sustaining competitive advantage requires that those capabilities are unique,

hard for competitors to imitate (Barney, 1991), and related to specific attributes

that matter to customers (Prahalad and Hamel, 1990).

Companies employ a variety of resources to create products and services

that customers want to buy; these include people, capital equipment, supply

materials, knowledge, and technology. Resource heterogeneity helps explain

why firms in the same market, producing substitutable products or services, do

so differentially and thus attract customers seeking different types of benefits.

Customer idiosyncrasies, product category characteristics, and firm capability

differences account for the emergence of diverse types of company-customer

relationships. It seems logical that companies seeking to achieve competitive

differentiation and superior performance will want to purposefully manage their

2
resources to cater to customers with specific needs, which in turn will give rise to

distinctive company-customer bonds. While the connection between customer

relationship types and company capabilities is conceptually appealing, we do not

currently possess a field-tested framework that details it. The aim of my

dissertation is to fill this important void.

Linking capabilities and customer loyalty makes practical sense: given a

choice of suppliers able to satisfy generic customer needs, customers select

product and service providers on the basis of perceived product and service

attributes, which arise from specific company capabilities. In markets where

customers have a choice of suppliers, companies with an advantaged mix of

product and service attributes (e.g., ease of use, reliability, performance,

availability…) relative to price will enjoy “competitive advantage”(Parasuraman,

Zeithaml et al., 1988; Hall, 1993; Porter, 1998). Product and service attributes

constitute the direct expression of company capabilities to customers and drive

customer satisfaction, which is an antecedent to loyalty (Gronroos, 1982; Dick

and Basu, 1994). Product and service attributes are also the primary point of

contact between companies and customers, and are therefore a critical conduit,

or linkage, for the exchange of information between the two.

Superior company-customer bonds require the development of specific

learning processes on both sides of the relationship. Customers learn about

potential suppliers through company advertising and communication, through

word-of-mouth or other third-party communications, and by directly assessing the

3
attributes of the products and services they consume. Companies learn about

customers through direct interaction, through research instruments, and through

loyalty metrics. Different types of customers are interested in different types of

product attributes. Individual differences also drive the use of information-

gathering channels, the intrinsic motivation to learn about the product, and the

relative involvement during the research and purchase process. Consumers‟

familiarity with the product and the relative ease of evaluation of product

performance also drive differences in involvement levels. Further, the company‟s

competitive position in a market place, as either an underdog or a market leader

drives whether it is advantageous to promote consumer learning by diffusing

information or to dissuade learning by limiting information sharing (Hoch and

Deighton, 1989). Individual differences, relative market share, and category

characteristics generate diverse optimal tactics for companies trying to efficiently

communicate to consumers (Hoch and Ha, 1986; Hoch and Deighton, 1989).

Similarly, within the company, the type of customer information that employees

consume influences how they think about their impact on the customer loyalty

goal of the organization and how they go about building capabilities towards that

goal. Thus, it seems logical that companies seeking to achieve a differentiated

market position will need to develop and disseminate differentiated customer

metrics, in an effort to adapt their capabilities to a specific type of customer

loyalty.

Creating products or services that match specific customer preferences

4
requires distinctive capabilities and organizational learning processes. The

knowledge acquisition, generation, exploitation and accumulation processes that

underpin the learning capacity of the organization need to be carried out

differentially depending on the type of customer loyalty desired by the firm.

However, most companies lack a customer-based learning agenda that

acknowledges the needs of different customer loyalty segments. My dissertation

partly fills this gap by developing tools to categorize customer loyalty, and

shedding light on the practical link of loyalty to corporate capabilities. An aim of

my work will be to raise the visibility of organizational learning by linking it to

already established customer goals in the firm, thus better integrating learning

into the strategic agenda of the company. We know that loyalty and capability are

linked, but understanding this link requires a nuanced understanding of these

relatively abstract concepts. Explicating the linkages between customer loyalty

and company capabilities requires that we first develop an operational

understanding of these concepts. My research endeavors to provide empirical

support for a capability-loyalty framework that links company capability types,

brand attributes, and customer loyalty types and explicates the learning

relationships required to cater to different loyalty segments of the firm. Please

see Figure 1.1 for a graphical representation of the conceptual framework

guiding this research. Categorizing customers‟ loyalty to brands, on the one

hand, and company capabilities on the other, teasing out the organizational

learning requirements associated to each type of loyalty is a key to bringing the

loyalty and capability to life in the firm. As achieving high customer loyalty
5
requires distinctive capabilities, understanding how these concepts are linked

should help companies advanced their loyalty goals and, in turn, their competitive

position. Specifically, the goals of my dissertation are two-fold: first, to develop

and operational multi-item scale that allow firms to measure the nature of the

loyalty to their brands; and secondly, to relate company capabilities and learning

routines to particular loyalty types in the firm.

Figure 1.1:

Overall Conceptual Framework

Core Capabilities and Loyalties

Core Capability Types Brand Attributes Loyalty Types

Customer Intimacy Image Heart

• Relationship building
Community
• Emotional /Socio-emotional
• Customization involvement
• Personalized service Support • Passionate commitment

Information
Functional Performance
Head
• R&D & product iteration Efficacy /
• Rational involvement
• Information dissemination performance
• Conditional commitment
• Effective service
Quality

Operational Excellence Availability

• Distribution and Logistics Hand
Ease of use • Low involvement
• Automation
• Efficient Service Consistency • Habitual commitment

The work conducted as part of this dissertation addresses two sides of this

conceptual framework separately. As capabilities and loyalty are

multidimensional and abstract concepts, each requires separate focus and a

6
discrete effort with dedicated methods. These discrete research efforts are

connected through the discussion of the literature that follows and in the

discussion of implications in the final chapter of this document.

7
 Chapter 2

A REVIEW OF THE CAPABILITY AND CUSTOMER LOYALTY LITERATURE

A review of the marketing and organizational development literature

uncovers important gaps caused in part by the siloed nature of these bodies of

work. For the last sixty years, marketing practitioners and academics have

focused on understanding what drives consumer behavior. As a result of this

focus, there is now a rich body of literature explicating how customers choose

brands (Kuehn, 1962; Erdem and Keane, 1996; Martensen, Gronholdt et al.,

2000), what drives their satisfaction with and loyalty to certain brands

(Andreassen and Lindestad, 1998; Mittal and Lassar, 1998; Martensen,

Gronholdt et al., 2000; Olsen and Johnson, 2003; Shankar, Smith et al., 2003),

how customer loyalty is formed and evolves over the time (Fournier, 1998;

Johnson, Herrmann et al., 2006); how to measure loyalty (Reichheld, 2003;

Cooil, Keiningham et al., 2007) and how it contributes to firm profitability and

growth (Heskett, Sasser et al., 1997; Reichheld and Teal, 2001; Lam, Shankar et

al., 2004). A separate body of literature deals with the organizational resources

and capabilities employed by the company to perform its production activity,

transforming resources into products and services, to satisfy customer needs and

return a profit. Authors in the strategy and the organizational development

literature have argued that companies can achieve differentiation by carefully

developing distinctive capabilities and leveraging heterogeneous resources

(Leonard-Barton, 1992; Day, 1994; Kandampully and Duddy, 1999; Nonaka,

8
Toyama et al., 2000; Slater and Narver, 2000). Separately, authors in the

marketing literature have argued that companies can achieve competitive

differentiation and sustained performance by creating strong loyalty(Reichheld,

1993); and others have argued that competitive differentiation can be created

through the development of market sensing and external learning orientation

capabilities (Day, 1994; Slater and Narver, 1995; Slater and Narver, 2000;

Srivastava, Fahey et al., 2001).

In the discussion that follows, I briefly summarize the literature on both

customer loyalty and firm capability. In each case I argue that these concepts

remain largely discrete although posing similar arguments about the need to

create brand differentiation to achieve sustained corporate performance. I also

argue that due to the conceptual nature of much of the literature, it is difficult for

practitioners to bring these constructs to life in the firm. I highlight how company

core capabilities can lead the firm to sustained competitive advantage but also

highlight that, as they become the dominant logic in organizations, core

capabilities can degenerate into rigidities that stifle generative learning. I suggest

that anchoring core capabilities to customer benefits and customer loyalty can

offer a solution to the core rigidity paradox in organizations. I then examine

potential connections between the loyalty and core capability constructs, focusing

on how companies can use those linkages to conceptually bridge the gap

between these bodies of knowledge and to design an integrated corporate

learning agenda that leverages them and is therefore tied to strategic business

9
outcomes of the firm.

A Review of Customer Loyalty

Customer loyalty is a complex concept including cognitive, emotional, and

behavioral aspects (Jacoby and Chestnut, 1978; Parasuraman, Zeithaml et al.,

1985; Dick and Basu, 1994). Especially for new products, customers cognitively

evaluate alternatives prior to making a purchase decision. Once they have made

that decision, they evaluate their consumption experience by comparing brand

performance against their a priori expectations, being highly satisfied when brand

performance matches or exceeds their pre-purchase expectations

(Parasuraman, Zeithaml et al. 1985(Olsen and Johnson, 2003). Consumer-

brand interactions can also have emotional aspects as individuals become

emotionally aroused during consumption or afterwards, as they recall

consumption of some products and services (Shimp and Madden, 1988; Kleine,

Kleine III et al., 1995). Brand-customer relationships can also have socio-

emotional aspects when consumers experience feelings of improved social

acceptance as a result of their association with a brand (Jacoby and Chestnut,

1978; Fournier, 1998). Over time, as a result of repeated satisfactory interactions

with the brand, consumers can develop feelings of trust and behavioral

commitment (Dwyer, Schurr et al., 1987). Generally based on the perceived

congruence between consumer beliefs and brand meaning, consumers can

develop relationships with brands that have similar characteristics to those they

develop with other humans. Like human relationships, brand-consumer

10
relationships evolve as the individual and the brand change through repeated

interaction. Similar to human relationships, Fournier (1998) describes brand-

human relationships as evolving through dynamic stages of initiation, growth,

maintenance, deterioration and dissolution (Fournier, 1998).

Jacoby and Chestnut (1978) define customer loyalty as “(1) the biased

(i.e., non-random), (2) behavioral response (i.e., purchase), (3) expressed over

time, (4) by some decision-making unit, (5) with respect to one or more

alternative brands out of a set of such brands, and (6) as a function of

psychological (decision-making, evaluative) processes.”(Jacoby and Chestnut,

1978, p. 80). Despite the requirement that loyalty contain both attitudinal and

behavioral components, most loyalty work emphasizes just one of these two

requirements. Studies of brand-consumer relationships with an attitudinal

emphasis tend towards a micro and ethnographic approach (Fournier, 1998;

Coupland, 2005) offering rich descriptive illustrations of customer loyalty. On the

other hand, quantitative loyalty measurement studies tend to focus on behavioral

aspects of loyalty (Reichheld and Teal, 2001; Olsen and Johnson, 2003;

Keiningham, Aksoy et al., 2008), adding generalizability and linking loyalty to

business outcomes but lacking the richness and detail of qualitative work.

Recently, there have been a few attempts to bridge this gap through a series of

papers that combine aspects of loyalty in a quantitative setting (Harris and

Goode, 2004; Johnson, Herrmann et al., 2006; Cooil, Keiningham et al., 2007);

more research in this area is needed to operationalize the loyalty construct.

11
 The marketing literature recognizes that customer loyalty is driven by

factors within and beyond managers‟ control. Managers can do little to affect

category characteristics and consumer characteristics, yet both determine

customer loyalty. Products viewed as utilitarian or mundane by consumers tend

to generate lower levels of loyalty (Belk, 1988). A consumer‟s brand involvement

within a category is dependent on the relative centrality of that category to the

consumer‟s ego (Iwasaki and Havitz, 1998). Brands of products in categories that

are more frequently purchased or in categories that represent a large financial or

emotional investment tend towards higher behavioral loyalty. Conversely, brands

in categories with low switching costs can expect lower loyalty both expressed as

low preference and as price sensitivity, as compared to industries with high

switching costs (De Ruyter, Wetzels et al., 1998) For instance, in a health care

setting, Andreasen (1982; 1985) finds that patients exhibit psychological

inhibitions against changing doctors even at mediocre service resulting and low

satisfaction. Similarly, De Ruyter finds that in a high switching costs service

industry, when there is a dissatisfactory service experience, only a small

segment of customers switch relative to industries with low switching costs.

Consumer characteristics also impact loyalty. For example, Bryan and

Cha (1996) find that women, older customers and customers with lower

educational attainment all tend towards higher satisfaction ratings across

business categories (Bryant and Cha, 1996). Another study finds that higher

incomes negatively impact satisfaction scores, and also negatively impact the

12
correlation between satisfaction and share of wallet (Cooil, Keiningham et al.,

2007). Just like in human relationships, customer-brand relationships tend to

decline as the newness wears off; for example Beck (1988) shows that

consumes‟ involvement with and care of their cars and homes decreases as

these products age and their condition deteriorates. Also, the relationship

between satisfaction ratings and share of wallet declines with the age of the

customer-company relationship (Cooil, Keiningham et al., 2007). Managers

attempting to achieve high loyalty levels should recognize these effects even

when they cannot change them, and should take care to interpret satisfaction

and loyalty metrics carefully given their presence. Of greater managerial interest

are the actions that companies can take to impact loyalty. A priori, all company-

customer interactions represent loyalty-enhancement opportunities. These might

include activities traditionally associated with loyalty such as product and service

development, direct sales and customer service, advertising and

communications, participation and fostering of consumer communities; as well as

less traditional actions such as pricing and promotional actions, and distribution

activities. A key to operationalizing and measuring loyalty is identifying which of

these activities promote it and how. The inclusion of specific service and product

attributes as items in a loyalty scale can contribute to this process of teasing out

which specific company actions, driven by capabilities, affect loyalty and to what

extent.

Customer loyalty is best viewed as a dynamic construct that changes from

13
customer to customer, evolves over time, and is partially driven by company

actions. Dick and Basu (1994) advocate a dynamic view of loyalty that is echoed

again by Oliver (1999) in what is now a seminal paper in the loyalty field. Dick

and Basu propose a loyalty framework that combines the strength of the relative

attitude and the behavioral response of the consumer towards the brand.

Advancing a view now widely accepted in the marketing literature, and first

promoted by Jacoby and Chestnut (1978); Dick and Basu define customer loyalty

as having attitudinal and behavioral components. Dick and Basu‟s framework

imposes two conditions on loyalty: (1) a strong attitude towards the brand, and

(2) a high level of repeat purchases. These authors propose that consumers‟

relative attitudes towards brands depend on the strength of their feelings and on

the degree of perceived competitive differentiation. Further, they maintain that

cognitive, affective, and conative or behavioral antecedents drive attitude

strength. For example, these authors discuss attitude strength processes as

including the ease with which a consumer can access information about the

brand, the confidence with which the consumer evaluates the brand, and the

relative alignment of the values espoused by the brand and those held by the

consumer. Dick and Basu discuss affective antecedents of loyalty as being

emotional – as in driven by states of arousal, related to primary affect as in those

connected to a sensory experience, and related to satisfaction. The conative or

behavioral antecedents of loyalty include social (e.g., peer pressure, acceptance)

and situational factors (e.g., sunk costs, switching costs). Dick and Basu state

that attitude antecedents might impact the nature of the customer loyalty to the
14
brand, and might have managerial consequences for how to maintain or enhance

loyalty. However these authors do not carry loyalty antecedents through into

different loyalty types. Instead, Dick and Basu present loyalty as either high or

low by relating attitude and patronage behaviors. It is worth noting here, that

patronage behaviors include not just purchases but also motivation to search for

the brand, a resistance to competing offers from other brands and word of mouth

referrals. Figure 2.1 illustrates the Dick and Basu typology.

Figure 2.1:

Dick and Basu (1994) Loyalty Typology

Building on the work by Dick and Basu, Oliver offers that customer loyalty

grows progressively in stages going through cognitive, affective, and conative

phases and culminating in action loyalty. Action loyalty encompasses cognitive,

affective, conative characteristics as well as purposeful repurchase of the brand.

Oliver fills an important gap in the Dick and Basu framework, by carrying loyalty

antecedents into the loyalty construct and offering that there are different loyalty

stages. In Oliver‟s framework the highest level of loyalty, action loyalty, must

include emotional attachment to the brand in addition to repurchase behavior.

15
Notice that Oliver‟s behavioral loyalty is highly-involved and inclusive of

emotional loyalty rather than routine. Other authors in the customer loyalty

literature add that the strength of the emotional attachment to the brand can be

measured in terms of feelings of connection, affection, and passion (Flanagan,

Bowes et al., 1998; Oliver, 1999; Thomson, MacInnis et al., 2005).

From a practitioner perspective a shortcoming of the widely accepted

conceptual models of both the Dick and Basu (1994) and Oliver (1999) is that

they impose high emotional commitment on behavioral loyalty; this is inconsistent

with the reality of many customer-brand relationships. In reality, most consumers

patronize some brands for which they lack a strong attitude or much rational

involvement, but they still purchase those brands assiduously and have no

intention of leaving them. This is the case not just in high switching costs

categories, as relationships in which switching costs „lock-in‟ customers cannot

be considered loyalty. Rather, low attitude loyalty can occur because once

behavior becomes habitual customers‟ purchase experiences can loose their

cognitive dimension (Assael 1992); because emotional loyalty wanes as durables

age (Belk, 1988); or because brands can become invisible if they are embedded

or absorbed into the consumers‟ household system (Assael; Coupland, 2005).

Thus, there is a type of loyalty that persists through time as consumers continue

repurchasing a brand they once loved but now are simply in the habit of using.

These relationships are sustained through inertia rather than high cognitive

involvement. This type of loyalty is evident in ethnographic study of the gestures

16
customers display when describing their brand relationships (Nordhielm, 2012)

and is acknowledged in the strategic plans of some companies. For example,

Target Stores in the United States caters to household routines. This firm has

developed a strategic capability in predictive analytics to study individual

behavioral patterns with an aim to identify when is the most opportune time to

engage them in the hope of changing habitual purchase patterns and acquiring

them. (Duhigg, 2012)

The Dick and Basu (1994) and Oliver (1999) customer loyalty typologies

are helpful in explicating how loyalty originates and evolves. However, the value

of all marketing work in the academy must be measured in terms of its

managerial usefulness. The practical value of the Oliver loyalty framework is

predicated on management‟s ability to: (a) diagnose the loyalty of their customers

at a particular time, (b) respond operationally to customers‟ particular

preferences depending on the loyalty phase they are in, and (c) aid the transition

towards action loyalty. The typologies offered by Dick and Basu (1994) and

Oliver (1999) are conceptually appealing; this is in part because they echo work

done in economics and marketing with regards to the product life-cycle

(Anderson and Zeithaml, 1984; Klepper, 1996) and in the organizational

capability field in regards to the capability life cycle (Helfat and Peteraf, 2003). A

big question that arises when considering the Oliver (1999) and the Dick and

Basu (1994) typologies is whether all companies should aspire to attain highly

committed action loyalty regardless of the type of products they sell. It is difficult

17
to imagine most customers of table salt developing a passionate relationship with

their habitual brands, or customers of large US Banks ever feeling emotionally

attached to their financial institutions. Additionally, to date there are no diagnostic

tools to accompany the Dick and Basu or Oliver typologies; therefore it is not yet

possible to measure and operationalize loyalty using their frameworks.

Given the limitations imposed by certain product categories and

differences amongst customers, emotional commitment seems like an

appropriate goal only for some brands. Nordhielm (2008) offers a much more

pragmatic loyalty typology, classifying loyalty types by the type of attitudinal

commitment to the brand into (a) cognitive, (b) attitudinal, and (c) habitual also

termed Head, Heart and Hand. These loyalty types may arise due to cognitive,

affective or conative antecedents as suggested by Dick and Basu (1994); due to

individual differences; to category differences, and to social pressures. The

Nordhielm typology is not revolutionary, as it leverages well-established concepts

such as the attitudinal, situational, and behavioral antecedents to loyalty.

However, this typology promises great managerial utility due to its simplicity and

logical fit with organizational capabilities.

The Head, hand, heart loyalty typology

Conceptually, a cognitive or „head‟ relationship is founded on a functional

reason for purchasing the brand. While head loyal customers are convinced their

preferred brand offers the best performance for the price, the availability of data

18
to the contrary can turn a head loyal into a defector. For example, a head loyal

customer to Cascade dishwashing detergent based on its superior cleaning

power can be persuaded to switch if a trusted source provides evidence that a

competitive product cleans better. As long as the brand partner performs as

expected the head loyal relationship continues; but if the brand partner fails,

head loyal customers are willing to cut their losses and walk away. This makes

head loyals relatively vulnerable to competitive attack.

In contrast to the rational nature and performance-benefits focus of head

loyalty, heart loyalty is based on an emotional commitment or ego involvement

with brands. Some brands are known to have a fervently passionate following.

Apple devices have famously created a cultish following; as have Mini Cooper

cars, Nespresso machines, and Costco superstores. Heart loyalty often arises in

connection with products that are consumed in public or in connection with

services. For services, a heart loyalty is helped due to the existence of a

personal relationship with the brand through the service provider.

As discussed, some brands fail to inspire much of an emotional response

or cognitive involvement and yet they „thoughtlessly‟ repurchased on a regular

basis. These brands have many „hand‟ loyals, customers who are behaviorally

connected to the brand but exhibit little affect or cognitive involvement. These

customers are likely resistant to competitive affront for the same reason that they

are resistant to upgrade their product usage: they are just not that interested in

specific features of the product.

19
 Firms leverage knowledge and skills of different types to achieve

competitive differentiation. The reason they do this, is to attract customers and

thus achieve corporate growth and profitability. Undoubtedly, customers‟

relationships with brands are dynamic and naturally transition through functional,

emotional and habitual stages. However, as presented by Coyles and Gokey

(2002) and Nordhielm (2008) there is an opportunity to consider each of these

„stages‟ as being potentially persistent rather than just transitory and to cater

capabilities accordingly. Coyles and Gokey offer evidence that companies can

increase profitability by segmenting customers leveraging this typology and

customizing capabilities accordingly. In a study of 1,200 households participating

in 16 different product categories, Coyles and Gokey focused on transitions in

spending behavior, both in the upward and downward direction and linked those

behavioral transitions to customer attitudes. Coyles and Gokey segmented

customers into loyal and not loyal and further categorized loyals into deliberative,

inertial or emotive. In their management consulting practice, these authors

reported a 20 to 30% decrease in downward purchase migration by loyal

customers when companies tailored loyalty tactics to the specific needs of

deliberative, emotive and inertial customers. This critical relationship between

company actions and customer loyalty types no doubt exists and seems both

conceptually and practically appealing but has not been previously documented

in the academic literature.

The Core Capability Literature: Capabilities as the Strategic Lens of the

20
Firm

Although the resource-based view of the firm precedes the work of

Prahalad and Hamel (Wernerfelt, 1984; Hitt and Ireland, 1985), their 1990 article

popularized competences and catalyzed further research into the internal

workings of the firm as a source of sustainable competitive advantage. Building

on this concept, a variety of authors have argued that the key to competitive

advantage lies in the firm‟s ability to accumulate and operationalize distinctive,

hard to imitate, firm-wide resources and capabilities. This resource-based view of

performance suggests that companies need not be completely subject to market

forces as had been suggested by Porter‟s Five Forces Model (Porter, 1979), but

can in fact shape their competitive position by carefully developing distinctive

capabilities and leveraging heterogeneous resources (Leonard-Barton, 1992;

Day, 1994; Kandampully and Duddy, 1999; Nonaka, Toyama et al., 2000; Slater

and Narver, 2000). The concept of core competence complements the outside-in

view of the firm with an inside-out perspective. The Five-Forces and the Core-

Competence/ Core-Capability views of corporate strategy are not completely at

odds, and yet companies using one vs. the other framework to develop their

strategic plans are likely to arrive at different answers for achieving superior

performance: one by primarily adapting to the market environment, and the other

by developing internal capabilities that have the potential to also shape the

market environment. The dynamics of adaption, or followership, and anticipation,

or market leadership are connected to processes of capability enfacement, or

21
adaptive organizational learning, and capability overhaul, or generative learning.

Thus strategy and organizational learning are intrinsically linked.

Competences and Capabilities

Companies use a variety of resources, skills, and assets to operate,

succeeding when they are able to strike a balance between adaptation to their

market context and leadership of the market context. Some of the firm‟s assets

and capabilities are critical to establishing a differentiated market positioning,

while others allow the company to execute the routine production, managerial,

and commercialization activities required to stay in business. Prahalad and

Hamel (1990) designated the knowledge assets and skills critical to achieve

brand differentiation Core competences. Other authors call these core or

distinctive capabilities (Hitt and Ireland, 1985; Leonard-Barton, 1992; Hall, 1993;

Day, 1994). Prahalad and Hamel defined core competences as the „collective

skillsets and knowledge‟ that: (a) provide the foundation for a company‟s

competitive advantage, (b) are very difficult for competitors to imitate, (b) are

linked customer benefits, (c) and allow the company to gain access to diverse

markets (Prahalad and Hamel, 1990).

Although hugely popular, Prahalad and Hamel‟s 1990 seminal article

provided only an equivocal definition for core competence. This concept has

seen further refinement over the last twenty years. Using the terms „core

competence‟ and „core capabilities‟ generally interchangeably, several authors

22
have highlighted their integrated and interrelated nature (Leonard-Barton, 1992;

Day, 1994; Oliver, 1997); their knowledge and organizational aspects (Leonard-

Barton, 1992; Hall, 1993; Nonaka, Toyama et al., 2000), and their competitive

uniqueness (Barney, 1991). Day (1994) defines core competence as “complex

bundles of skills and accumulated knowledge, exercised through organizational

processes that enable firms to coordinate their activities and make use of their

assets”(Day 1994, p. 38). Leonard-Barton also takes a knowledge-view of core

competence and further offers that core competences are embedded in the

organization through four distinct dimensions: (1) employees knowledge and

skills, (2) technical systems, (3) managerial system and processes, and (4)

values and norms of the organization (Leonard-Barton, 1992). Barney focuses on

the connection between core competences and competitive advantage specifying

that core capabilities must meet conditions of (a) value – enabling the firm to

neutralize threats or exploit opportunities in its environment, (b) rarity amongst

competitors, (c) difficult imitation – either because they were obtained through

unique historical conditions; or because the link between them and the firm‟s

competitive position is „causally ambiguous;‟ and because they are socially

complex, and (d) non-substitutability, meaning that companies who do not

possess these capabilities cannot replace them with others that have equivalent

differentiating value (Barney, 1991). The core competence construct as

explained by these authors is multi-layered and somewhat ambiguous. This is

the reason that, as many authors and managers admit, most companies do not

know whether they in fact possess a core competence and if they do, what that
23
core competence might be. Thus, even as companies leverage their existing core

competences to advance performance, management is unable to articulate why

exactly they are able to do so.

Core Capabilities as drivers of firm performance

Given the large body of literature available on the core competence

concept, it is somewhat surprising that there is little empirical work that shows

how core competences impact company performance. Recent managerial

research by Leinwand and Mainardi (2010) offers that core capabilities are not

only conceptually appealing, but also have a measurable impact on financial

performance. These authors find evidence that companies who make

investments that leverage their core competences perform better than companies

who invest in core competence divergent initiatives. Leinwand and Mainardi

maintain that companies who build core competence coherence into their

investment choices will outperform their rivals; and provide empirical proof by

categorizing companies into „core-competence coherent‟ and „core competence

incoherent‟ and showing that incoherent companies return lower EBIT margins

(earnings before interest and Tax as a percent of dollar sales).

Core competence coherence requires not only leveraging core capabilities

but also aligning the value proposition of the company, and product portfolio to

the core competence. These authors affirm that a core competence focus drives

company performance because: (a) it focuses the firm on what it already does

24
well and therefore promotes ever-increasing effectiveness, further distancing

companies from their competitors in key performance areas, (b) creates

economies of scale in specific highly-skilled pockets of capability, lowering the

average costs to serve customers in the delivery of key benefits (c) prevents

waste by keeping the company from investing in areas that are core competence

incoherent and therefore likely to be subject to higher failure rates.

Paradoxes in the Capability Model

Managers who accept the conceptual appeal of the core competence construct, are

convinced of its impact on the firm‟s competitive advantage, and understand the

intricacies of its organizational multidimensionality might still be challenged in managing

core capabilities. When trying to build core competencies within the context of the

market place, managers will face a series of tensions or paradoxes that were not

immediately apparent in the original construct proposed by Prahalad and Hamel.

Specifically, several authors, most notably Leonard-Barton (1998), point out the potential

for core competences to stifle rather than promote company growth; this is because

competences can create rigidity in the firm.

As discussed in Leonard-Barton‟s 1998 paper, the multidimensional

aspect of the core competence is a key to its distinctiveness – the fact that core

competences are so integrally linked across multiple functions of the firm

provides a natural protection against competitive imitation. Because core

competences are pervasive through the firm, the existence of a core competence

colors everything the company does: products, services, and projects. Leonard-

25
Barton performed a longitudinal research study across firms in a mix of industries

(automotive, chemical, manufacturing, and technology) and showed that a

project‟s alignment with the firm‟s core competence affects its chances of

success. Notwithstanding the objective merits of the project, those projects that

were core competence „coherent‟ (i.e., with high degree of alignment to the

company core-competence) performed better than those that were relatively „in-

coherent,‟ (i.e., not aligned to the core competence). While this result validates

the virtuous value of the core competence as a source of differential

performance, later validated by Leinwand and Mainardi, it also creates a

paradox. On the one hand, competences are critical to a firm‟s ability to achieve

competitive differentiation, but as Barton proves, they also negatively impact firm

activities if those activities are in conflict with the dominant logic of the core

competence. (Leonard-Barton, 1992) Leonard-Barton coins this tendency for

incoherent projects to underperform coherent projects regardless of merit “Core

Rigidity,” a perverse flip side of the core competence. We can think of these

potential “rigidities” (Leonard-Barton, 1992) having the following dimensions: (a)

skills and knowledge, (b) temporal, and (c) market orientation.

The Skills and Knowledge Core Competence Paradox

Core rigidities work in persistent and insidious ways. In the skills and

knowledge dimension, the company‟s reputation for having a particular

knowledge base will differentially attract employees who have a similar

knowledge or skill base but deter employees with other capabilities. Over time,
26
this can generate capability gaps in the firm. Technical systems can embody core

rigidities as the technology embedded in hardware and software obsolesces over

time. Managerial systems embody rigidities because core competence-aligned

career paths get more skilled employees, more managerial attention, and are

more likely to become codified and replicated. Lastly, culture and values create

rigidities through the individual empowerment of employees aligned to the

dominant domains of the firm, and also by reinforcing the status of already

dominant disciplines.

The Temporal Core Competence Paradox

The core competence-core rigidity paradox lies in part in the fact that the

same values, skills, managerial and technical systems that worked well for a

company in the past and that became cemented as „core‟ eventually become

obsolete and confer a „rigidity‟ to the firm and an inability to renew them.

Assuming our company has achieved success due to its ability to create a core

competence, other companies in our market space will attempt to „catch up.‟

Successful competitors will prevail thanks to an ability to create differentiating

customer value propositions that are unique, rare, valuable, and hard to imitate

because they are based on their unique core competences. Along the way, they

might innovate by creating new technologies that have the potential to leapfrog

existing ways of creating customer value. For example, the advent of digital

image capture in the 1990s rendered obsolete an entire set of processes and

capabilities built around film; this impacted Kodak‟s business negatively as its
27
customers abandoned the firm in search of other, more flexible, and easy-to-use

ways of capturing images. We can expect that, over time, the core competence

that allowed a company to achieve success will become less valuable. This is not

necessarily because the core competence has been replicated, but rather

because other companies have come up with other valuable product and service

attribute combinations. Thus, the company may find that its past successes

make it ill prepared for the current and future demands of its markets. Profitably

managing a core competence requires overcoming this temporal paradox; that is,

preventing past success from preventing the adaptation required for future

success.

The Market Leadership vs. Market Adaptation Paradox

Porter‟s Five Forces model highlights the importance of the market context

in determining company success. The resource or capability-based view of the

firm highlights the potential for relative independence of the firm from its market

context. Because core capabilities are unique, valuable, hard to imitate, and non-

substitutable they are logically developed by taking a contrarian view of the

market. Management can only create a unique value proposition by diverting

resources away from competitive initiatives (i.e., initiatives executed to defend

against competition) and towards initiatives that focus on creating new sources of

differentiation, ignoring the strategic direction of other market actors. In other

words, management must take a stance towards generative learning and away

from simply enhancing current capabilities (adaptive learning). However,

28
completely ignoring the market place, lacking a market orientation can derail a

firm‟s performance(Slater and Narver, 2000). Thus the challenge inherent in

cultivating core capabilities that help the firm execute unique strategies lies in

delicately balancing market adaptation and market leadership or disruption skills.

Core Competences as Derailers of Company Performance

Leonard Barton (1988) maintains that the severity of the paradox faced by

project managers working in the shadow of a core competence depends upon

both (1) the number and (2) the types of core capability dimensions where a

project and a capability diverge. First, projects that diverge from the core

competence in several dimensions (skills, management processes, technical

systems, culture/values) will be more negatively impacted by the core

competence paradox than projects that are only misaligned in one dimension.

Second, as the four dimensions vary in ease of change depending on the degree

to which they are tacit vs. explicit. From this perspective, values and culture are

the least easy to change, followed by employee skills and knowledge, managerial

systems and technical systems. A similar concept to that of core rigidity is

surfaced by Christine Oliver in stating that: (1) firms can be captives of their own

history and make inappropriate resource decisions, (2) cognitive and economic

sunk costs can lead to suboptimal resource choices, (3) cultural support for

resource investments may be an important determinate of their success, (4) firm

may be unwilling rather than unable to imitate resources and capabilities

especially when those resources lack legitimacy or social approval, (5) social
29
influences exerted on firms reduced the potential for firm heterogeneity (Oliver,

1997). The core competence-rigidity paradox might explain why Xerox failed to

successfully commercialize two technologies that might have helped the

company escape doom as its traditional core competence – based on image

copying technology – was becoming obsolete. Xerox‟s graphical user interface

and bitmapping technologies, once in the hands of Apple Computers, propelled

the latter to great commercial success (Isaacson, 2011).

Activating Capabilities by Operationalizing Customer Loyalty: The Role of

Organizational Learning

In order for the firm to turn competences into superior firm performance, it

must direct these bundles of integrated skills to activate firm assets in the service

of some strategic purpose that matters to customers. As observer by Wernerfelt

(1984), capabilities and resources are two sides of the same coin. Whether

resources or capabilities are the starting point, capabilities are necessary to

transform resources into product and service benefits. It is the result of the

consistent, intimate, and ever-improving way in which companies deliver

customer benefits that customer relationships and loyalty arise. Regardless of

industry classification or desired loyalty type, companies can sustain their

competitive advantage only if they are able to differentially activate resources

while simultaneously developing new resources and capabilities that go against

the dominant logic of existing core competences. This difficult balancing of

enhancement or adaptation and renewal or assimilation mirrors the cognitivist

30
developmental and learning models first popularized by Piaget which were later

echoed in the work on single loop and double-loop learning of Argerys and

Schon (Argyris, 1976) and Nonaka (Nonaka, Toyama et al., 2000) applied to

organizational learning.

While the process of adaptation and assimilation occurs naturally in

children as they develop, the mirror process in the organization does not come

naturally as evidenced by the relatively short lives of successful companies.

Senge (1993) quoting a study conducted by the Royal Dutch Shell Company,

reports that the average life of the largest industrial enterprises is less than 40

years. Jim Collins‟ book Good to Great, the 2001 bestseller, finds that only 11 of

the original S&P 500 companies survived in the late1990s. A key difference

between individual and organizational learning lies in the fact that teams not

individuals are the learning unit in organizations. Organizational structure, with

inherent core rigidities, and team dynamics, both mediate learning and can derail

the organization‟s capacity for capability renewal or generative learning- a key to

sustaining competitive advantage.

Argyris and Schon (1974) argue that the organization‟s leadership must

intervene with a change program to break out from the „rigidities‟ that limit the

organization‟s ability to question and reconstruct existing processes and

interpretative frameworks (i.e., double loop learning). Yet these authors also

acknowledge that the firm‟s organizational hierarchy might be incented to protect

the hierarchical status quo. Nonaka (2000) and Senge (1993) separately offer
31
alternatives to Argyris‟ „artificial intervention‟ argument, Senge maintains that

managers and employees of the organization need to develop skills at systems

thinking: recognizing organizational archetypes and recurring mental models that,

if unchecked, can stifle generative change. Nonaka argues that the firm needs to

embed knowledge creation capabilities within the fabric of the organization, both

formally by altering the traditional top-down organizational structure and

replacing it with a middle-up-down organizational structure which empowers

middle-management; and through knowledge management systems that allow

for the fluid transformation of tacit into explicit knowledge and vice versa, through

processes of externalization and internalization; and the augmentation of tacit

and explicit knowledge through processes of socialization and combination.

Mapping the strategic assets, and capabilities of the firm, clearly

distinguishing between aspects of the intangible knowledge base of the firm that

is tacit vs. codified, undiffused vs. diffused, is helpful in identifying the requisite

paths to organizational renewal required for sustained corporate performance

(Boisot, 1998). However, renewal of the core competence requires more than

mapping strategic assets, as it requires that the organization actively reads,

interprets and anticipates the external environment by acquiring and transforming

knowledge that is tacit and diffused (Nonaka,1994) – in particular, knowledge

that relates to customers‟ latent needs. The organization must be able to develop

customer insight acquisition skills and must be able to integrate that market

information within its operational processes in a way that is uniquely reflective of

32
its organizational core competence – its internal „schema‟ – and its value

proposition (i.e., its advantaged mix of product and service attributes). The

strategic intent of the company, it‟s overall long-term purpose, plays a critical

function in directing the firms‟ knowledge acquisition activities towards the data

and information that is most critical in enhancing and renewing the core

competence. However, traditional strategic vision and mission statements are

often stated in such a vague manner as to carry little meaning to the individuals

in the firm, thus these statements do not serve to direct nor inspire the teams and

individuals acquiring information. Developing the capacity for core competence

renewal requires establishing informational linkages between customers‟ loyalty

drivers (i.e., service and product attributes) and the knowledge creation activities

of cross-functional teams responsible for the processes of capability and

strategic asset renewal. In the differentiated learning organization the core

competence and the specific customer orientation, drive the acquisition,

generation, accumulation, and exploitation of knowledge activities of the firm.

Nonaka highlights that although the organization must work to amplify knowledge

creation through teams and formal structures, all knowledge creation requires

individual commitment, and requires individual intention, autonomy, and some

level of environmental fluctuation.

As discussed before, customer loyalty arises when the firm is able to

provide advantaged product and service attributes versus the competition as

perceived by customers. Conversely, a lack of a customer orientation is likely to

33
create a failure to renew the core competence. Day (1994) exhorts managers to

look for core competencies that enable the organization to sense changes in its

market environment and to establish customer linkages. In particular, Treacy and

Wiersema (1993) maintain that successful companies tend to focus on one of

three customer-oriented disciplines. They categorize those customer disciplines

as follows:

(1) Operational excellence: pursued by companies that focus on business

process excellence to minimize overhead, transaction costs and

maintain a consistent level of service and manufacturing. These

companies build process excellence systems and place great

emphasis on painless and ubiquitous distribution.

(2) Customer Intimacy: capability bundles guided with the overall intent of

creating and sustaining profitable customer relationships by

customizing product and services based on open lines of

communications with customers. The companies that possess this type

of core competence will build internal processes to facilitate flexibility

and responsiveness. Hiring and training programs emphasize

empowerment of front-line employees and creative decision-making.

(3) Product leadership: competences that enable the firm to constantly

update products and services. Organizational capabilities are built to

achieve fast commercialization and rapid product iteration.

As discussed, core competencies are very resource consuming and

34
scarce and organizations cannot build more than a small number, this is

particularly the case if the competences are not interrelated: if they require

orthogonal skills. As discussed by Treacy and Wiersema organizations cannot

build more than one type of what they term „market disciplines,‟ operational

excellence, customer intimacy, or product leadership. I posit that these large

competency types product different types of product and service attributes. As

customer attributes serve as the basis for customer relationships, these different

types of competencies must result in different types of customer loyalties.

Connecting Capabilities and Loyalties through Learning Processes

Customer Intimacy Capabilities and Heart Loyalty. Companies

possessing a core competence at customer intimacy will develop emotional ties

with their customers. Heart loyalty develops over time, and is characterized by

feelings of affection, passion and connection to the brand. The company that

seeks to generate emotional attachment in their customers will emphasize

customer service and relationship management capabilities. Hiring and training

programs will emphasize empowerment of front-line employees so that they can

problem-solve and be responsive to customers‟ feedback and complaints. The

Four Seasons Hotel Chain is one example of a company that excels at customer

intimacy. A customer of the hotel chain reports:

At the end of my stay at the Four Seasons in Singapore, they gave me my

own personal “chop” – a stamp with my own insignia on it. Chinese
tradition is for all documents to be “stamped” with the
owner‟s/writer‟s/artist‟s chop. If I can find it, I‟ll end my note to you with my

35
 chop!(Phelps, 2010)”

The hand stamp (especially for a Westerner) is perceived by the customer

to be personalized, rare and unique. This token of service appreciation is

designed to elicit feelings of affinity between the service provider and the

customer. The repeated support of the customer through a series of service

encounters like the one described above, which seem customized to fit the

customers‟ specific personal desires, has the potential to elevate the brand-

customer relationship to a level at which the brand becomes embedded in the

customers‟ sense of self. Many Harley Davidson customers view their

relationship with their motorcycle as being intrinsic to their self-image “I am a

Harley Davidson person.” The brand both fuels and caters to these relationships

by for example, sponsoring Harley motorcycle owner communities (the “HOG”

group has more than one million fervent members) and by extending the brand

beyond motorcycles to lifestyle accessories (e.g., clothing, perfumes, etc.) that

allow customers to remember the brand even when not on the road. The

knowledge acquisition, creation, transformation, accumulation and exploitation

activities of these types of organizations should be highly differentiated based on

a single-minded focus on developing long-term and deep relationships with

customers in the hopes of generating heart loyalty.

Information acquisition. All companies collect many types of information

about the market, but those driven to create emotional connections with their

customers will prioritize the acquisition of specific information about customer‟s

36
life-style and personal needs and must able to respond and mirror those needs

with customized services establishing intimate conversations with them. Harley

Davidson does this through the HOG community, which connects HOG

customers with each other and is actively managed and mined by the company

for product and service development purposes. This online community provides

a communication medium for consumers who have had good experiences with

the brand to generate positive word of mouth on its behalf. Some of the

communities may amplify the services of the firm, for example, Apple customer

communities provide customer service on behalf of the firm. As importantly,

online communities like these offer a tacit information collection medium for the

organization. As Nonaka (1994) points out, the key to acquiring tacit knowledge

is shared experience through a „socialization‟ process, as is done through online

communities and social media tools. Once the tacit knowledge has been

socialized it can be converted into explicit knowledge as it is shared through

technology tools, meetings, and conversations and is reconfigured for use in

organizational innovation and programmatic customer service activities. A key

skill of the customer intimacy organization is that it allows front-line employees to

respond to customer requests – partly based on explicit company values and

rules but empowered through tacit organizational cultural values. For example,

the Four Seasons hotels allow front-line employees to command a budget that

runs in the thousands to resolve customer issues on the spot (e.g., room

upgrades, free meals, etc.) without having to escalate them to supervisors.

37
 Knowledge creation and accumulation. The customer centric company

needs to be skilled at generating tacit knowledge from customer information, and

at converting that tacit into explicit knowledge. It is critically important that that

explicit knowledge is shared cross-functionally to feed the innovation processes

of the firm. For example, Harley Davidson leverages technology (IT) systems to

do this programmatically. The company frequently launches cross-functional

projects to obtain and share customer information across all areas of the

company: sales, marketing, operations, and finance. Harley invests in information

technology internally and also leverages technology partners, such as SAP, to

stay abreast of advances in data sharing and social networking tools for its

customers, dealers and employees. Joel Janke, a senior business intelligence

analyst at Harley-Davidson, stated:

“two different data centers keep Harley-Davidson‟s customer info flowing.

SAP Business Objects sits on top of the data centers and delivers reports
to Harley-Davidson dealerships around the world. All of these global dealerships
have the ability to access SAP Business Objects content and run reports actively,
with data pulled from the company‟s SAP CRM system which includes hundreds
of different customer touch points, including information obtained from the HOG
community.” (Clark, June, 29, 2011).

The organization trying to create emotional loyalty will also accumulate

knowledge differentially: its market research efforts will be focused on collection

perceptual data on benefits which like „trust,” „passion,‟ and „self-image‟ are

difficult to assess through surveys and will need to use observational and

projective data collection techniques to augment its customer knowledge base. It

38
will also test customers‟ willingness to pay a price premium or to search for the

product when unavailable.

Knowledge exploitation. The company that is attempting to achieve

emotional loyalty with its customers will exploit and profit from customer

knowledge by providing personalized products and services that are priced at a

premium to functionally comparable alternatives. Emotional brand relationships

are characterized by relative price insensitivity, this is because the company is

not just „selling‟ but is rather providing an invaluable asset to the customer,

sometimes even contributing to the customers‟ sense of self. For example, the

Vice President of Marketing of Harley Davidson states: “Harley-Davidson stands

for independence, freedom, individuality, expressing one‟s self, adventure on the

open road, and experiencing life to its fullest. This is what people are buying

when they buy a Harley.” (Clark, June, 29, 2011)

Operational Excellence Capabilities and Hand Loyalty. Companies

who display operational excellence capabilities will develop processes to more

efficiently source, manufacture and commercialize products and services than

their competitors. The customer benefits that result from these types of core

capabilities relate to ubiquitous painless distribution and availability, or and ease

of use in consumption. Humans are creatures of habit and as mentioned earlier

in this paper, when engaging in repetitive behaviors the human brain converts a

sequence of actions into automatic routines. The organization that excels at

executing operational processes consistently will align its managerial and

39
technical processes to eliminate errors, emphasizing service operations over

service customization.

Information Acquisition. Information acquisition of habitually loyal

customers is best done not by direct questioning but rather through analysis of

behavioral data. The analysis of behavioral data has exploded over the last two

decades, thanks in great part to its availability through the proliferation of

companies that conduct all their business online and thus have lots of

transactional data which is attributable to specific consumers. For example,

through analysis of purchase data, companies like Amazon and Netflix are able

to build predictive algorithms by aggregating the transactional data of millions of

consumers.

Knowledge Creation and Accumulation. The operationally efficient

company seamlessly translates tacit habitual data into knowledge through the

use of data analysis tools and predictive algorithms. The knowledge creation

focus in these organizations is on how to make the purchase and consumption

experience so seamless as to never wake up the consumer, keeping them from

increasing their involvement level that might potentially disrupt the relationship.

The cultural values that these types of organizations should emphasize revolve

around error-free processing and consistent delivery and commercialization.

Knowledge exploitation. The companies who vie for customers‟ routine

purchases will seek to exploit behavioral customer data to make purchase

40
suggestions. In turn, because they don‟t have to imagine what they might need

next, company suggestions enable customers to more quickly automate behavior

and fall into routines that play into the operational core capabilities of these

companies further catalyzing their operational improvement. From an operational

perspective logistics and delivery capabilities need to be honed to avoid service

disruptions as they might raise the customers‟ cognitive involvement. As

mentioned earlier, the product and service attributes that will characterize the

types of brand-customer relationships resulting from these repeated interactions

are availability, ease of use, thoughtlessness and habit.

Functional Performance Capabilities and Head Loyalty. Companies

who hope to create functional or „head‟ loyalty need to engage at cognitive level

with their customers by creating a relatively steady stream of product features

and benefits. Absent strategic intent, these companies might thrash with no

particular value proposition. These firms, which will emphasize innovation and

creativity capabilities inside the firm, will need to structure that creative effort to

ensure it is productive. The customer-creative team connection here is as critical

as in the other loyalty types, but the linkages between customers and the firm are

quite different.

Information acquisition. The processes the firm should use to acquire

customer information include observational research, as cross-functional product

and service development teams seek to acquire a deep understanding of

customers‟ latent needs and potential frustrations, and survey research, as the
41
teams seek to finalize product designs and require specific reactions from

customers.

Knowledge creation and accumulation. Unlike in the case of the heart-

loyal customer, the functionally loyal customer is the recipient of product and

service attributes. Products are not co-developed but rather developed at the

company, after customer latent needs are assessed, and brought to the

customer for feedback and cognitive engagement. From a strategic knowledge

asset management perspective, it is critical for these companies to develop skills

at „combining‟ explicit knowledge. Nonaka (1994) poses that knowledge

combination processes are triggered by coordination between team members

across company functional areas and by processes of documentation of

knowledge. Individual and team experimentation can also create knowledge that

at first might be tacit (learning by doing) but is made explicit and is dispersed

through the organization where it may be transformed into products and services

and thus exploited. The codification of knowledge and the protection intellectual

property rights are particularly important for these types of organizations. The

culture of these types of organizations needs to encourage creativity by engaging

employees in constant cross-functional information sharing and should provide

incentives for ideation, rewarding process over outcome. Companies like Google

and the old Bells Lab are good examples of firms that encourage ideation

structurally by in the case of Google allowing employees to use up to 20% of

their time on non-revenue generating projects and in the case of Bell Labs the

42
design of the physical work space to encourage interaction.

Knowledge exploitation. The company that attempts to exploit functional

loyalty profitably will need to develop capabilities at launching products rapidly,

establishing a cadence between continuous improvement and breakthrough

innovation. These two activities need not be treated as a zero-sum game but

rather combined managed so that one leads to the other. Ideally, the processes

of capability combination described above will result in a steady stream of

communications, service and product improvements and, less often, innovation

breakthroughs.

43
 Chapter 3

THE TRIPARTITE LOYALTY SCALE

My research questions have served to frame and bind the research

design, and to determine the specific methods for collecting and analyzing data.

My approach follows a well-accepted process for integrating the conceptual

framework to the data collection and analysis methods (Maxwell, 2005; Ravitch

and Riggan, 2011). My research seeks to provide evidence for a conceptual

framework that is comprehensive, in that it addresses both the organizational and

customer domains in the firm, but does not examine these domains exhaustively.

Rather than explicating the detailed and intricate ways in which organizational

learning connects to customer loyalty, I seek to address two specific questions

that connect these two constructs. The two objectives I seek with my research

are: (1) to develop a practical methodology that managers can use to understand

the customer loyalty dimensions of their brands; and (2) to develop a conceptual

understanding of how company internal learning processes contribute to and are

informed by customer loyalty. The divergent nature of these two questions calls

for different methodological approaches and analytical methods.

The first research question requires collecting and making sense of

customer attitudes and intentions towards brands. As companies can have

thousands of customers, a customer-loyalty measurement tool will be most

helpful if it can aggregate customer attitudes and behavioral intentions and in a

44
way that is managerially relevant. My approach to this first question built on

previous research in the customer loyalty field, both quantitative and qualitative,

to develop a theoretically sound conceptualization of loyalty and then followed a

deductive approach to testing it. My approach to the second question was much

more inductive, and leveraged a vastly different methodology, using interviews

with company officials to build two case studies of how specific companies think

about customers and their loyalty. These case studies explore how and to what

extent tacit and explicit shared conceptualizations of customer loyalty influence

the development of specific employee and process-based capabilities in the firm.

As my first research question seeks to aggregate and summarize in order to

draw general insights, it requires a quantitative, highly structured, and largely

deductive research methodology. As the second question is much more inductive

and exploratory, it calls for a qualitative and less structured method of inquiry.

The decisions about research methodology, site selection, and the specific

methodology for data collection and analysis corresponding to the two research

questions were taken independently. Therefore, the discussion that follows

regarding my methodological choices and the results of my analyses will

separate the loyalty scale work and the work done to explore company

capabilities. A later chapter will link these disparate research efforts, by

leveraging the lens of my conceptual framework.

Quantitative Methods

As discussed in the literature review in chapter two, much of the loyalty

45
categorization work that exists is qualitative (Fournier, 1998; Coupland, 2005) or

conceptual (Dick and Basu, 1994; Oliver, 1999). The contribution of my work to

the marketing and managerial fields is to offer a quantitative way to categorize

loyalty that captures some of the most actionable nuances of company-customer

relationships, accounting for both attitudinal and behavioral components. The

measurement work I conduct in this dissertation is novel because it leverages the

conceptual and qualitative work done in the customer loyalty field to uncover

specific customer attitudes; it then builds on that work by linking customer

attitudes to the company activities that help cultivate them. Because customer

loyalty is a relatively abstract concept that includes attitudinal and behavioral

components, it can be more appropriately represented and measured by

designing and combining a set of items into a composite score. I have addressed

my first research question by developing an attitudinal loyalty scale. Survey

scales have been widely used in the psychology field, and more recently in

marketing, to measure abstract, or latent, variables. Latent variables cannot be

accurately measured directly, but can be indirectly measured by assessing the

responses to a set of items that can be assumed to have share those latent

drivers as a common cause. As survey scales measure abstract phenomena and

do so indirectly, they must be based on theory. Strong theory can be developed

through a thorough review of the literature and solidified through consultation

with relevant experts.

My research has sought to demonstrate the validity of a tripartite loyalty

46
construct, by applying a well-accepted categorization of consumer attitudes to

customer loyalty. I have built a multi-dimensional psychometric scale that

matches the three loyalty types I have identified. In a sense, the loyalty scale

developed here consists of three separate but related scales, each measuring a

different aspect of customer-brand relationships. Multi-item measures are

common in the assessment of attitudes because they: (a) capture their relative

richness and nuanced characteristics, (b) make fine distinctions amongst people,

well-beyond what single item measures permit, (c) yield higher reliability and

lower measurement error than single-item measures (Churchill Jr, 1979).

Figure 3.1

Loyalty Scale Development Process Steps:

Step 1: Specify construct

• -Review literature
• -Select adjacent scales

Step 2: Generate sample items

• -Develop items by subscale
• -Incorporate expert input

Step3: Purify the scale

• -2 student pools x 2 product types
• -Iterative analysis and editing

3.1. Collect data 3.2.Assess

dimensionality

3.3 Assess 3.4 Delete, edit

reliability and add items
Step 4: Further Purify
-Test with broader shopper panel
-Adjust

47
 Step 5: Assess Validity and Finalize
-1 student pool x 3 product types
-Final reliability & validity tests
• Collected final student
data
• Three products
As recommended by Churchill (1979), my scale development work followed a

series of sequential and iterative process steps (see Figure 3.1). I detail those

steps below:

Step One: Specify the construct

The first step in developing good scales is to clearly specify the construct

under study. The objective of my scale work was to build a tool to categorize

customer relationships using a tripartite attitudinal construct. This tripartite

construct holds particular appeal because it is directly linkable to brand attributes

that arise from company competences. My work builds on well-established

constructs, including the traditional tripartite conceptualization of attitudes as

cognitive, affective, and conative used extensively in the psychology literature

(Krech, Crutchfield et al., 1962; Breckler, 1984), and explored to a lesser extent

in the marketing literature (Bagozzi, Tybout et al., 1979). Despite the evidence to

support the tripartite dimensionality of attitudes, most customer work within the

marketing field treats attitudes as one-dimensional (Dick and Basu, 1994; Oliver,

1999). While quantitative explorations of affective customer-brand relationships

abound (Batra and Stayman, 1990; Edson Escalas and Bettman, 2003;

Thomson, MacInnis et al., 2005), they fail to capture the simultaneous routine

and cognitive components of attitudes towards brands. As discussed in the

48
review of the literature in chapter 2, the metrics companies are using today to

track customer loyalty provide impoverished representations of customers‟

expectations of brands. An assumption that all loyalty is or can be emotional

drives companies in the most utilitarian business categories to market

themselves exceedingly emotively in an attempt to create a type of customer

intimacy that may be entirely beyond their reach. A review of the relevant

psychology and consumer behavior literature supports the existence or a

multidimensional attitudinal construct, yet up until today, psychometric

measurement work in this field is relatively scarce.

In addition to reviewing the relevant literature, it is good practice in scale

construction to conduct qualitative research to deepen the understanding of the

construct and to ensure the items that are developed reflect the construct in

practice. The appropriate qualitative step in this case might have been a series of

depth interviews with customers. Given the constraints of the dissertation

timeline and the relative strength of the tripartite loyalty framework, I did not

conduct customer interviews. In place of interviews, I reviewed video footage

from qualitative interviews collected as part of an ethnographic study by two

academic authors (Nordhielm, 2012). Participants in the ethnographic video

sample discussed their brand loyalty across a variety of product categories

including fresh and shelf-stable foodstuffs, clothing, household supplies,

electronics, durable goods, and services. Participants in the ethnographic study

were drawn from varying ethnic backgrounds and several geographic regions of

49
the United States.

As an output to my reading of the literature, informal discussions with

marketing experts and practitioners, and viewing of the video ethnographies, I

developed a conceptual model for the loyalty scale. The going-in assumption for

this research was that for any given customer-brand relationship, there would be

just a dominant attitude, whether cognitive, habitual or affective, and this

dominant attitude would bias consumer experiences of the brand as well as

customer behavior at several stages of the consumer-brand purchase cycle. This

conceptual model, detailed in Table 3.1, served as the basis for the first draft of

scale items.

Table 3.1
Attitude-Driven Hypothesized Customer Behavior by Purchase Cycle Phase:
Purchase Head Loyalty Heart Loyalty Hand Loyalty
Cycle Phase
Need Interest in doing Interest in learning about Lack of interest in
awareness comparative research what is new with the brand both the preferred
and overall about all brands in the Lack of interest about and the other
category category brands outside of the brands in the
research preferred brand category
Pre-purchase Research all brands in Cursory research process Very limited
research / the consideration set centered around preferred research on
Alternative on an equal footing brand specific ease of use
comparison (e.g., consumer Biased research of non- or convenience
reports) preferred brands looking benefits
for disadvantages to e.g., I look for a
reaffirm existing emotional microwave that fits
choice under my cabinet
Brand Interest in detailed Interest in points of Interested only in
comparisons feature comparisons difference to defend convenience, ease
and purchase Value-based choice continued patronage of of use (e.g., ease of
decisions preferred brand access, ease of

50
 Emotionally-charged decision-making,
choice ease of transacting,
ease of use)
Habitual / routine
choice
Relative Weighed against cost High willingness to search Low willingness to
willingness to of search or wait time. Resistance to substitution wait
search or wait A cost-benefit driven High willingness to
for preferred decision substitute
brand
Core brand Transactional / Emotional Attachment/ Low involvement or
value /benefit rationally-based Ego-involved lack of choice due
focus Specific benefit/ to cognitive
Performance-driven (complex products),
liking affective (services)
or financial
switching cost
(durables with high
residual value)
Oliver 1979
„Spurious Loyalty‟
Resistance to Competitive affront Competitive affront Not interested in
competitive causes inquiry causes counter-argument competitive
affront Will consider Will not seriously consider affronts?? But if
competitive brands if competitive offers unless they are
performance/price ratio very vastly superior or „noticeable‟ enough
changes coming from a highly they might cause a
trusted source re-consideration of
the brand
preference
Service Will cause intent to Will generate a service Will cause intent to
failure switch call if serious, might be switch
For high-ticket items forgiven if not serious
service failure will
„destroy‟ loyalty and will
cause intent to switch
in next purchase
Price Highly price sensitive Low price sensitivity due Low price
sensitivity as purchase is based to emotional connection awareness and
on relationship medium price
between price and sensitivity
product benefit
Involvement Cognitive involvement Passionate involvement Low involvement
level and type with focus on functional Brand inspires good based on habitual

51
 product attributes feelings purchase
Feel a connection to
others who use the brand
(socio-emotional)
Seeks self-brand value
congruence

During the first phase of scale development I also selected additional

constructs for inclusion in the customer questionnaire. These additional scales

were meant to capture adjacent loyalty dimensions to help test the convergence

and divergence of the tripartite loyalty construct. I also included additional scales

in an attempt to capture product category effects on loyalty, as well as individual

characteristics that might impact loyalty. The scales selected for this purpose

include involvement, overall loyalty and need for cognition.

Involvement. Product involvement can be defined as commitment to a

product on the part of the consumer or “perceived importance of an object to a

consumer based on inherent needs, values and interests” (Zaichkowsky, 1985;

Mittal and Lee, 1989). I included the modified personal involvement inventory in

the loyalty survey in an attempt to capture the impact of category and individual

involvement differences on loyalty. The inventory was originally developed by

Zaichkowsky (1985) and then reviewed and modified by Mittal (1995) who tested

it against other involvement scales across the beer (n=90), camera (n=80), jeans

(n=86 and n=144) and VCR categories (n=144). The Mittal modified personal

involvement inventory was an abbreviated version of the original inventory and

measures both purchase decision involvement and product involvement while

52
retaining adequate evidence for unidimensionality and internal consistency. The

modified inventory contains five semantic differential items measured on a 7-

point scale anchored by: important-unimportant, means a lot to me- means

nothing to me, matters to me- does not matter, significant-insignificant, and of no

concern-of concern to me.

The link between involvement and brand loyalty is conceptually appealing:

customers who experience high loyalty for a brand will consider it important.

Also, people who have spent a lot of time and cognitive effort in making a

purchase decision, and therefore have high purchase involvement, might have a

tendency towards loyalty to the brand they eventually chose. However, there is

no conclusive evidence in the literature regarding whether involvement precedes

or results from loyalty. A study by LeClerc and Little (1997) suggests that loyalty

interacts with product involvement. In an experimental study involving

promotional coupons for different types of products, these authors find some

evidence that when a high involvement product is evaluated by a switcher

(defined as a customer who engage in regular switching behavior within the

category), verbal information leads to a more positive evaluation of the product

than pictures because switchers are more interested in comparing brands across

the category. However, even for high involvement products, loyal customers are

less likely to want to evaluate information. As involvement decreases, the interest

in evaluating information also goes down. For low involvement products, pictures

are more effective than words in generating positive product evaluations. These

53
authors conclude that in promoting high involvement products, different

approaches are more effective depending on whether the target audience is

primarily composed of highly loyal vs. less loyal customers. LeClerc concludes

that when targeting loyal customers the company should use peripheral cues

rather than cognitive information. For low involvement products, regardless of the

level of loyalty, peripheral cues are preferable.(Leclerc and Little, 1997)

Implicit in LeClerc‟s (1997) conclusion is that habitual purchase with low

commitment is not loyalty. This view is shared by other authors in the marketing

field, who have broadly stated that true brand loyalty requires commitment in

addition to behavioral patronage (Jacoby and Chestnut, 1978; Dick and Basu,

1994; Oliver, 1999). Yet, from a practitioner‟s perspective, the theoretical

definition of just how much cognitive investment is required from a consumer to

consider her “loyal” is less interesting than how to cater to each type of consumer

depending on his or her preferences. A richer understanding of the attitudinal

composition of loyalty, as promised in this scale work, can be tremendously

helpful to marketers in targeting specific consumers who are a good match for

their organizational capabilities. This understanding will help those practitioners

develop appropriate acquisition and retention strategies that fit with customers‟

attitudinal preferences. I collected the modified personal involvement inventory

scale from respondents to test how involvement interacts with the tripartite loyalty

construct, as this type of knowledge can greatly advance marketing practice.

In selecting which products to include in the loyalty survey, I attempted to

54
include high and low involvement products. Involvement is naturally higher for

product categories that impact someone‟s self-image than products that serve

more of a functional purpose (e.g., jeans vs. soda). Involvement may also

depend on the cost of a product purchase as a percentage of someone‟s budget;

on average, people are more involved in the purchase of high-priced items, like a

car, than low-priced items, like soda because the cost of making a mistake is

much greater the greater the percent of someone‟s budget represented by the

product. Therefore both product ticket price and individual income differences

might impact involvement. Finally, involvement is also a personal trait. We can

imagine that some people might care more about their brand choices in general

than others.

Overall Self-Reported Loyalty. For purposes of convergent validity testing, I

included a short overall loyalty scale developed by Sirgy, Johar and Samli (1991)

in the questionnaire. This brief loyalty scale is meant to help test the degree to

which each of the tripartite attitudinal constructs relate to overall loyalty, and the

strength of that relationship. As with the rest of the questionnaire, respondents

were asked to indicate their agreement with different statements using a 7-point

semantic differential scale. The overall loyalty items adapted from Sirgy et al.

were: (a)”How often do you use <brand name>,” (b) “How often do you purchase

<brand name>,” (c) “ How loyal are you to <brand name>,” (d)”How does <brand

name> compare to your ideal <product type>?” For the less frequently purchased

products in my questionnaire (i.e., blenders and jeans), the purchase frequency

55
item was omitted; instead respondents were asked to indicate when they last

purchased a product from their preferred brand. Sirgy, Johar, Samli report a

Cronbach Alpha of .85 (Sirgy, Johar et al., 1991) for the loyalty scale; and these

authors used it as an internally reliable composite measure of loyalty. I used it

similarly as an aggregate measure of loyalty.

Need for Cognition. There is evidence that people‟s relative need for

cognition is predictive of the manner in which they deal with tasks and social

information (Cacioppo, Petty et al., 1984). Cacioppo, Petty et al. (1984) define

need for cognition as “an individual‟s tendency to engage in and enjoy effortful

cognitive endeavors.” Given this, I expected to find some correlation between

people‟s need for cognition and head loyalty. To test this hypothesis I included

Cacioppo‟s short-form need for cognition scale in the scale development

questionnaires. This scale consists of eighteen items.

Step Two: Generate scale items

As an output of the review of relevant customer loyalty literature and the

conceptual hypotheses listed in table 3.1, I generated a list of items for further

review with an expert panel. I initially developed between ten and twelve items

per intended subscale, thirty-six in total, with a goal of retaining about half of

them and ending up with about fifteen items in total for the final version of the

scale. The question of how many items to include in a scale must be answered

by carefully balancing dual but divergent goals of conciseness and internal

56
consistency reliability. Internal consistency reliability is a function of how strongly

the items correlate with each other. The more items included in the scale the

higher is the reliability, particularly if some of the items are somewhat redundant

(DeVellis, 2012). Item redundancy is also an important issue all scale developers

must contend with. Some redundancy is desirable as it can help capture a

construct in different ways and provides convergent validity. In discussing item

redundancy, DeVellis (2012) explains that by using multiple and seemingly

redundant items, the content that is common to all the items will summate

across, while their irrelevant idiosyncrasies will cancel out. (DeVellis, 2012). In

writing my items, I attempted to capture some useful redundancy by probing

aspects of the tripartite loyalty construct in different ways. For example, I

included two similar items to understand the extent to which respondents felt

their brand patronage was merely due to habit. The item, “I buy <brand name>

out of habit,” was supplemented with a similar item “I buy <brand name>

because I am used to it.”

Initially I included both negative and positive question formats, however, in

successive versions of the development questionnaire, at the suggestion of one

the academic experts I consulted, and after further reading on the topic, I deleted

all negative-worded items. The scale development literature is inconclusive

regarding negative and positive word formatting. While some authors

recommend including negatively-formatted items to avoid agreement bias (Likert,

1932; Churchill Jr, 1979) others insist that negatively worded items can cause

57
confusion, result in comprehension mistakes, and bias responses by generative

negative emotions (Wason and Johnson-Laird, 1972; DeVellis, 2012) .

All scale items used a seven-point scale with scale anchors 1 (strongly

disagree) to 7 (strongly agree) with no verbal labels for scale points 2 through 6.

Once the initial list was developed, it was refined through conversations with four

psychology and marketing academics and three marketing practitioners. These

experts were sourced through personal connections. As a result of these

conversations, the initial pool of thirty-six items across the three domains was

paired down to twenty-eight. The deleted items were judged to be either

confusing or insufficiently discriminatory across the three domains.

Step Three: Purify the Scale

In the development of a survey scale, the researcher is to follow an

iterative approach to purifying, assessing the dimensionality of the scale, testing

the internal consistency reliability, and editing by amending, deleting and adding

scale items (Churchill Jr, 1979; DeVellis, 2012). I review that process below.

Collect Data: Drinks and Jeans Survey One. The refined item list

including the additional scales (loyalty, involvement, and need for cognition) was

administered to an undergraduate student subject pool drawn from a large

Midwestern University. Students received academic credit for taking the surveys.

As the intent of the survey was to demonstrate the generalizable applicability of

the tripartite attitudinal loyalty construct, I focused the questionnaire on two

58
product categories accessible and relevant to undergraduates, and thought to

vary in involvement and loyalty among them. After consultation with a professor

from the University, I decided to survey students regarding their non-alcoholic

drinks and jeans preferences. In selecting jeans and drinks, I was attempting to

capture a range of customer-brand relationships. While students might feel loyal

to brands in both categories, jeans are more likely to engender high emotion as

they reflect consumers‟ self-image. In marketing, these types of products are

referred to as „badge‟ products. And because they are higher-priced, jeans are

likely to generate higher involvement than drinks. Drinks and jeans also offer

variability around the consumer search and purchase process; both are

„experienced‟ frequently by undergraduates, with jeans being purchased much

less frequently (ME=2.01, SD= .37 where 2= less than once a month) than drinks

(ME=3.80, SD=1.505 where 4= once a week). Another expected difference in

consumers‟ behavior between drinks and jeans is that, because they are often

purchased for immediate use, even loyal customers might substitute drinks if

their preferred brand is not readily available. Developing a scale that works for

varied types of products is obviously appealing, although what is gained in

generalizability may be partly lost in specificity and managerial usefulness.

Writing items that would work for both jeans and drinks was particularly difficult

for the „head‟ or functional/cognitive dimension of the scale. Not surprisingly, this

dimension proved the most challenging throughout the entire scale development

process.

59
 Drinks were further subcategorized into soda, energy drinks, sports drinks,

and bottled water. Each respondent completed the 28-item loyalty questionnaire,

plus the additional loyalty and involvement scale questionnaires for each of the

two drinks and jeans categories. The survey asked students to complete the

drink survey for just one drink subcategory (soda, energy drinks, sports drinks, or

bottled water) corresponding to a type of drink to which they felt brand loyal. The

exact wording used was: “Please select one type of drink where there is a brand

that you feel strongly about. By feeling strongly, we mean that you much prefer it

over others.” The jeans survey similarly asked students to refer to their preferred

brand of jeans in responding to the loyalty items. The average reported loyalty

(“How loyal are you to < brand>?” 1 not at all loyal to 7 very loyal) to drinks

(ME=5.35 and SE=.93) in this first sample was statistically significantly higher

than that to jeans (ME=4.99 and SE=.93), (t(138)=3.280, p<.01, r=.037). This is

despite the fact that these students wear jeans (ME=6.08 and SE=.08)

significantly more (t(137)=12.12, p<.00, r=.04) often than they consume drinks

(ME=4.18 and SE=.093). A total of 246 product surveys from 143 respondents

were collected and analyzed. For purposes of the exploratory factor analysis

discussed below, responses that did not input their preferred brand as requested

in the survey were excluded from the analysis, leaving 138 data points for jeans

and 137 data points for drinks to be analyzed. The respondents consisted of 78

men and 64 women between the ages of 19 and 21. No additional demographic

information was collected from the student participants.

60
 Assess Dimensionality: 1st Student Survey. The sample was analyzed

using exploratory factor analysis to test the dimensionality of the scale. Factor

analysis requires large sample sizes; some authors recommend having ten

respondents per item. Despite having a smaller number of respondents, my

samples throughout the scale development process were adequate for factor

analysis, as indicated by the Kaiser-Meyer-Olkin (KMO) measure of sampling

adequacy. KMO values greater than 0.5 are generally considered minimally

acceptable, values between 0.5 and 0.7 are considered acceptable, values

between 0.7 and 0.8 are considered good, and values above 0.8 are considered

very good. All my surveys had KMO values above 0.75 with some achieving

values higher than 0.90. Loyalty items for drinks loaded on six different factors

with eigen values higher than 1. Eigen values represent the amount of variation

explained by a factor, and a value of 1 is generally considered substantial (Field,

2009). Loyalty items for jeans loaded on seven different factors with eigen values

greater than 1. Even in this early version of the survey, a core group of three

hand items and a core group of four heart items performed quite well. The hand

loyalty subscale items with high reliability scores and high factor loadings

addressed repurchase merely due to familiarity; those corresponding to the heart

subscale alluded to emotional and social-emotional involvement. However, some

of the items had negative loadings, and others failed to behave as predicted.

After iteratively running a series of reliability and principal component analyses

with different combination of items seven items were deleted and an additional

seven items were added to the battery, resulting in a total of 27 items for the next
61
round of testing.

As discussed above, the analysis of scale dimensionality starts with factor

extraction and continues with a calculation of the degree to which variables load

onto the factors (or components) that have been extracted. As is generally the

case in principal-component analysis, initially items had high factor loadings on

several factors, hence making interpretation of the output difficult. For this

reason, I used an orthogonal varimax rotation. A factor is a classification axis

along which variables can be plotted, and factor rotation gyrates those axes with

a goal of maximizing the loadings onto the main factors and minimizing loadings

on secondary factors, thus simplifying the interpretation of the analysis output.

Orthogonal varimax rotation is the most commonly used rotation and is

recommended when factors can be assumed to be uncorrelated. To test the

assumption of factor independence, I also ran a principal components analysis

with oblique rotation and found low correlation among factors (r<.29, p<.0001)

confirming the adequacy of the varimax orthogonal rotation method.

Additional Data Collection and Reliability Tests: 2 nd Student Survey.

A second round of data collection, including the edited items, was conducted in

the same Midwestern University about one month after the first survey, focusing

on drinks and jeans again, but with a different sample of students. As before,

dimensionality was assessed through exploratory principal components factor

analysis, which again revealed six factors (eigen values>1) for both drinks and

62
jeans. Using this sample, I conducted iterative factor and reliability analyses to

pare down the item list. This iterative process consisted of running exploratory

factor analyses, excluding poorly performing factors, and testing the internal

consistency reliability of the resulting subscales. The iterative process used to

refine the scale items included: (a) running exploratory principal component

analyses; (b) determining dimensionality by looking at the Kaiser and scree plots;

(c) determining which items fit into the different loyalty dimensions by looking at

the individual item factor loadings; (d) testing the internal consistency reliability of

each dimension by examining the Cronbach alphas; (e) eliminating items that

lowered the subscale alphas; (d) re-running exploratory principal component

analysis.

In interpreting the significance of factor loadings I used the target values

recommended by Steven (2001), who advises that different factor loadings can

be considered significant depending on the sample size. Stevens recommends

that for a sample size of 100, the loadings should be higher than 0.512 to be

considered statistically meaningful, for a sample size of 200 factors loadings of

greater than 0.364 and for a sample size of only 59 factor loadings should be at

least 0.722 to be considered meaningful. The student samples I collected were

all greater than 100, so I considered loadings of 0.512 as being meaningful

(Stevens, 2001). Further, to assess the substantive importance of a variable

(representing a scale item) to a factor we can assess the amount of variance in

the factor accounted for by a particular variable by squaring the factor loading;

63
this concept is similar to that of R2. I report this variance metric for the factor

analysis corresponding to the final version of the scale. In regards to the internal

consistency reliability target metrics, report the Cronbach‟s alpha for each

subscale; Cronbach‟s alpha coefficients greater than .70 are considered large. A

large alpha means that a large proportion of the variance in the scale score is

attributable to the true score (DeVellis, 2012).

Editing, Deleting and Adding Items. During the scale purification

process corresponding to the first survey, seven items were deleted, and seven

were added. The heaviest editing was focused on the items intended to measure

the head dimension of loyalty, that is, loyalty characterized by high rational

involvement and based on a specific benefit or performance attribute. As was

mentioned before, the goal of generating a concise scale with items that are

meaningful across a variety of brand contexts created the challenge of carefully

balancing relevance and abstraction. For example, “I like <brand name> for very

specific reasons” is an item that was selected in an attempt to balance these

goals but failed to perform either well. The underlying assumption that drove the

phrasing in this item is that head loyalty is based on specific knowledge about the

brand. Yet this knowledge arises from category-specific performance attributes of

a brand, making it difficulty to capture this type of brand preference in the

absence of explicit description of the information about the brand that drives

liking. This item was found to load with other head items for jeans in the initial

sample, but performed poorly in the second and third rounds of data collection. A

64
more specific item would have worked better but would have not been

generalizable. Other head items similarly failed to strike this delicate balance

between relevance and abstraction.

At this stage of the scale development process, the need for cognition

scale was tested and found to not add any explanatory value to the analysis.

Despite an initial hypothesis that need for cognition would be negatively

correlated to heart loyalty and positively correlated to head loyalty, the need for

cognition score (calculated by taking the average of the eighteen need items in

the Cacioppo short-form need for cognition scale) was uncorrelated to a heart

loyalty index (r = .114, p=.175) and also uncorrelated to loyalty overall “how loyal

are you to <drink brand>” (r = .049, p=.562). As a result of this finding, Need for

Cognition was dropped from subsequent analyses.

Step Four: Further Purify

Further testing of the scale was conducted with a broad and large (n=400)

US consumer panel of grocery shoppers who completed a revised survey about

drinks (soda, energy drinks, bottled water, or sports drinks), jeans, and blenders.

The blender product category was added to the questionnaire to test the items on

a durable product, adding to the generalizability of the scale. Again, an iterative

exploratory factor analysis and reliability analysis process was used. During this

part of the scale development process it became clear that two items designed to

capture price sensitivity loaded on a different dimension than the other attitudinal

65
items. While my initial hypothesis was that the price sensitivity items would load

with the head items, the discrete nature of the price items is consistent with the

finding during the development of the PERVAL scale. PERVAL measures

consumer perceived value using a multi-dimensional construct including Quality,

Emotional, Price and Social components (Sweeney and Soutar, 2001).

Additionally, while items that capture consumer‟s willingness to switch

(“Switching away from <> will be an easy decision if something better becomes

available,” “If <> is not available I will try something else,” and “If another brand

comes up with an improved product I will probably switch”) consistently loaded

together onto a single factor for jeans and drinks; and for blenders they loaded

together with items which captured consumer‟s tendency towards doing lots of

research prior to purchase (“I won‟t buy another <> without first comparing it to

other brands to make sure it is the best choice,” “Before I repurchase <>, I will do

a careful side-by-side comparison with other brands” and “Before I buy a new

blender, I will look at lots of product reviews to make sure I make the right

decision.”) and not with other loyalty items as initially hypothesized. I had

hypothesized both sets of items (willingness to switch and tendency to search) as

being characteristic of „head‟ or rational loyalty, however their consistent loading

onto separate discrete dimensions helped me adjust the scale prior to my final

data collection with students. Rather than excluding these price, willingness to

search and need for research items I continued to include and refine them as

they would be valuable to test the predictive validity of the scale. This round of

66
testing was particularly helpful in identifying and purifying the head subscale.

Three items measuring liking driven by perceptions of quality, performance, and

promise keeping performed well for blenders and were carried on to the final

round of data collection. Also, three additional items were added to the head

subscale for the final data collection round. The willingness to switch items were

instrumental in the final construct validity testing and were used in a composite

index by taking the average of the responses to the three questions.

Step Five: Assess Validity and Finalize Scale

The fourth and final round of data collection was carried out with

undergraduates in the same Midwestern University as the earlier student

surveys. 118 students completed the questionnaire that included three surveys

for a total of 345 surveys. The first survey asked about drinks, the second asked

about jeans, and the third asked about shampoo. Shampoo was added to test

the generalizability of the scale using a product category with purchase

frequency lying somewhere between that for drinks and jeans. While it would

have been preferable to include a kitchen appliance or a blender survey, the

questionnaire was constrained by the typical experience and budgets of

students. I hypothesized that shampoo would have medium to high involvement

despite being a relatively inexpensive item for most students. As with the earlier

student samples, the age of the respondents ranged from 19 to 21 years of age

and respondents earned college credit for taking the survey. The final version of

the survey had 26 loyalty items, including subscales for the three types of loyalty,
67
plus the additional items that measured price sensitivity, willingness to search,

and willingness to switch. The final questionnaire also included the short overall

loyalty scale, adapted from Sirgy et al. (1991) as well as the short-form

Zaichkowsky‟s (1985) personal involvement scale but did not include the need for

cognition scale to minimize respondent fatigue. As explained earlier, need for

cognition did not correlate with loyalty.

Final Scale Results

All three surveys included 26 loyalty items and were analyzed using

exploratory principal components analysis with orthogonal varimax rotation.

Exploratory principal components analysis confirmed that the search, switch, and

price items should be excluded from the final scale analysis because they

consistently loaded on separate factors and not with the loyalty dimensions.

Three other items were also excluded due to inconsistent loadings across

product classes leaving sixteen items for the tripartite loyalty scale. Again, it is

worth noting that the iterative process followed to refine and improve the original

questionnaire was guided by empirical analysis and by the objective of obtaining

a concise scale whose items would be useful for a variety of product categories.

The resultant scale in its final form achieved these objectives. In finalizing the

scale I excluded items that worked well and added richness in one product

category but failed in others. The deletion of certain items with good but limited

psychometric properties means that the scale might have lost some specificity in

exchange for generalizability.

68
 The metrics for sample adequacy and item correlation were adequate to

good for all three surveys. I report sampling and overall factor adequacy statistics

for the three product surveys immediately below. Appendix A shows the final

format of the tripartite loyalty scale.

Sample Adequacy and Significance of the Factor Analysis. Even with

a smaller number of respondents in the final version of the survey, the

exploratory analyses for all three products had adequate sample sizes. I

computed Barlett‟s test of sphericity and the KMO statistic of sampling adequacy.

Barlett‟s test measures whether the correlation matrix of the variables to be used

in the factor analysis is proportional to an identify matrix. Specifically, it tests

whether the diagonal elements of the variance-covariance matrix are equal, and

the off-diagonal elements are close to zero. The KMO statistic measures the

degree to which it is likely that common factors explain the observed correlations

among the variables; in other words, it measures whether factor analysis is likely

to result in distinct and reliable factors. It is calculated as the sum of the squares

of the simple correlations between pairs of variables divided by sum of the

square of the partial correlations. The KMO statistic is higher when a common

factor model is appropriate for the data and lower if the correlations between

pairs of variables cannot be accounted for by common factors. As noted earlier,

KMO values can range from 0 to 1, with values higher than .7 being considered

adequate and above .8 being considered very good.

The Barlett‟s test of sphericity was significant for all product exploratory
69
factor analyses. The KMO metrics were .802 for jeans, .825 for shampoo, and

.773 for drinks. The lower KMO statistic for drinks was due to a smaller number

of responses for drinks than in the other products. The Barlett‟s test of sphericity

metrics were X(136) =844.26, p <.001 for jeans, X(105) =1517.52 , p <.001 for

shampoo; and X(120) =546.04 , p <.001 for drinks. The significance of the

Barlett‟s test indicates that the correlation in the items is sufficiently large for

factor analysis.

Factor Structure and Internal Consistency Reliability. Exploratory factor

analysis consistently revealed three components with eigen values over Kaiser‟s

criterion of 1 in all three product categories. Given the adequacy of the sample

size and the convergence of the scree plot and the Kaiser criterion around three

components across all product categories, this is the number of components

extracted for the final analysis. Table 3.2 through 3.7 show a summary of the

exploratory principal component analysis factor loadings across products after

rotation as well as the Cronbach alpha scores for each of the three dimensions of

the scale. I also show the factor loadings for each of the loyalty dimensions and

by product group It is worth noting that none of the items shown below had

significant loadings (greater than .4) for two factors simultaneously; this indicates

that the scale achieves the goal of discriminating between factors. Appendix B

contains full exploratory factor analysis results and reliability outputs.

70
Table 3.2 Heart Subscale Factor Loadings by Item

Heart Items Shampoo Jeans Drinks

I feel passionate about <brand> .769 .762 .798
If someone says something negative about <brand> .823 .639 .713
I will feel like they are attacking me personally
I feel good when I think about <brand> .711 .659 .573
I feel a connection to other people who also .852 .819 .844
drink/use/wear <brand>
The fact that I drink <brand>says something about .840 .638 .797
me
I love sharing stories about <brand> with other .851 .797 .844
people who also <drink it, wear them, use it>

Table 3.3 Heart Subscale Internal Consistency Reliability

Cronbach’s Alpha Shampoo Jeans Drinks

.896 .841 .865

Table 3.4 Head Subscale Factor Loadings by Item

Head items Shampoo Jeans Drinks

I expect <brand>to deliver on its promise every time .896 .837 .826
An important reason I like <drink brand>is its quality .899 .757 .778
If <brand> does not deliver as expected, I will be .618 .492 .692
very upset
I value <brand>for its superior performance .863 .833 .677
One key reason to repurchase <brand> is that it .840 .725 .538
works as expected

Table 3.5 Head Subscale Internal Consistency Reliability

Cronbach’s Alpha Shampoo Jeans Drinks

.877 .785 .785

71
Table 3.6 Hand Subscale Factor Loadings by Item

Hand Items Shampoo Jeans Drinks

I buy/will repurchase <brand> out of habit .928 .822 .813
I buy/will repurchase <brand> just because I .912 .855 .772
am used to it
I buy/will repurchase <brand> just because it is .845 .853 .861
familiar
I buy/will repurchase <brand> as long as it is .694 .729 .649
easy to find
I will keep buying <brand> just because it is .555 .874 .678
convenient

Table 3.7 Hand Subscale Internal Consistency Reliability

Cronbach’s Alpha Shampoo Jeans Drinks

.874 .895 .811

The Evidence Supporting a Tripartite Loyalty Construct: Content Validity

The empirical evidence supports the existence of a tripartite construct for

loyalty. The high reliability and consistent factor structures across the three

product categories support the trait validity of the scale. However, high reliability

and consistent factor structures are necessary but not sufficient evidence for the

construct validity of the scale (Churchill Jr, 1979). Assessment of the construct

validity or face validity of a scale is a qualitative task, and can be done by

answering two questions: (1) does the tripartite loyalty construct well explained

upfront and logically derived from the literature? And (2) do the final scale items

capture the loyalty domain well? The literature review and the upfront discussion

included in this section explicated the tripartite loyalty construct. In regards to the

second question, the final scale items captured the primary attitudinal basis of

the three loyalty types. Some of the behavioral tendencies hypothesized to

72
correspond to the different types of loyalty loaded onto discrete factors rather

than with the loyalty dimensions; namely, the relative resistance to brand

switching, and the relative level of price sensitivity. This is not a failing of the

scale but rather an indication that these variables are driven by different latent

variables than the tripartite attitudinal construct. In other words, these behaviors

might or might not be characteristic of the loyalty types, however they are not

part of the same psychometric scale.

Predictive Validity

To test the predictive validity of the scale I ran a series of cluster analyses

and regression analyses. Cluster analysis is a statistical technique that forms

segments by grouping respondents with similar characteristics together such that

there is high homogeneity within each group but high heterogeneity between

different groups. In the context of the tripartite loyalty scale, cluster analysis is

useful to understand whether respondents‟ scores across the three loyalty

dimensions will generate managerially relevant customer segments. For this

purpose I ran a cluster analysis to split the data into customer segments

including respondents answers to the loyalty dimension questions as well as the

two price sensitivity items, and the two willingness to switch items. Cluster

analysis is helpful in understanding the operational implications of the scale. To

the extent that the tripartite loyalty scale helps segment customers who have

different attitudes towards the brand and also differ in their degree of price

sensitivity and willingness to switch or substitute when their preferred brand is

73
not readily available. Table 3.8 below presents the results of a cluster analysis for

the shampoo product category; Table 3.9 presents the results of the jeans cluster

analysis. In both cases I followed a hierarchical factor analysis to assess the

number of significant clusters in the data and then performed a K-means factor

analysis, extracting that number of clusters found to be significant through

hierarchical clustering. As is commonly accepted, the cluster analysis procedure

used the Euclidean method to calculate the distance between objects and Ward‟s

method to evaluate the distances between clusters. The hierarchical clustering

and interpretation of the corresponding dendrogram suggested five clusters for

all three product categories. The distribution of respondents amongst the clusters

was fairly even for the two data sets. For jeans the average number of

respondents in each cluster was 22.4 (SDE=7.2) and for jeans the average

number of respondents in each cluster was 22.2 (SDE= 5.3).

Table 3.8 Shampoo Cluster Analysis

Final Cluster Centers

1 2 3 4 5
Sheartindex 4.91 2.04 1.76 3.81 2.51
Sheadindex 5.52 4.28 5.36 5.50 5.66
Shandindex 4.43 6.10 4.55 5.39 5.64
Spriceindex 4.25 6.55 3.72 5.33 5.10
Sswitchindex 3.36 6.33 5.78 5.67 3.67

Cluster 1 is made up of respondents who display very high heart loyalty

scores. These respondents‟ passionate liking for their preferred shampoo brand

is also consistent with a very low willingness to substitute. I cases in which their

74
preferred brand is not readily available, these customers will prefer to wait and

continue to look rather than select an alternative. Cluster 2 is composed of

respondents who have significantly higher hand scores than the rest of the

population; they base their preference for a certain shampoo brand on

convenience, availability and routine. Not surprisingly these customers have the

highest score on the willingness to switch index; ensuring consistent distribution

is key to retaining this group. Notice that with the exception of Cluster 2, all

clusters show very high head loyalty scores. Cluster 5 is characterized having the

highest head loyalty in the respondent sample. These customers score high on

price sensitivity, which is consistent with a concern for the price-value

relationship we would expect in head loyal customers. Cluster 5 respondents are

also characterized by a low willingness to switch, although slightly higher than

Cluster 1 – the high heart loyalty cluster.

Table 3.9 immediately below displays the same analysis for the Jeans

survey.

Table 3.9 Jeans cluster analysis

Final Cluster Centers

1 2 3 4 5
Jhandindex 5.20 4.21 2.68 5.54 3.95
Jheadindex 5.10 5.56 5.40 5.22 5.00
Jheartindex 2.50 4.37 1.75 3.18 2.27
Jswitch index 6.00 4.59 6.43 3.43 4.68
Jprice index 5.65 3.84 4.03 5.73 2.03

Cluster 1 includes respondents who have high hand loyalty scores and are

75
very willing to switch if their preferred brand is not easily accessible. These

respondents are also very concerned about price and not surprisingly have low

heart loyalty scores. Cluster 2 contains respondents who have the highest heart

loyalty scores in the sample. Notice that although head loyalty is high across the

board, Cluster 2 has slightly higher than average head loyalty. This segment of

customers is a lot less willing to purchase something else when their preferred

brand is not available and also shows a much lower concern for price than

Cluster 1. Finally Cluster 4 has the higher hand loyalty score in the sample; as

we would expect these customers report that they would probably switch to

another jeans brand if their preferred brand were not readily available.

Additional cluster testing across more data samples will increase the

managerial usefulness of the scale by helping operationalize the loyalty construct

as it relates to pricing, intensity of distribution, and contracting. The limited cluster

analysis shown here, although not perfect, does point to promising prospects in

this area.

Convergent and Discriminant Validity

To establish the convergent validity of the loyalty scale, I tested whether

the tripartite loyalty scores help predict overall self-reported loyalty. As a way to

provide some discriminant validity, I included the willingness to switch index in

the analysis. Simply stated I establish convergent validity by proving that the

three loyalty indices are in fact related to loyalty; I establish some divergent

76
validity by including willingness to switch or substitute (switchindex) in the

regression. This variable measures a customers‟ willingness to purchase a

different brand when the preferred brand is not easily accessed. We would

expect that if the three loyalty dimensions measure loyalty, they would have a

positive relationship with overall loyalty and their coefficients would carry the

different sign than the switch index in the regression equation.

I ran a linear regression analysis using the Sirgy and Johar (1991) overall

loyalty composite detailed earlier as a dependent variable and the three loyalty

indexes for each product type as well as the willingness to switch index as

predictors. The results by product type are shown below in tables 3.10 to 3.12.

Table 3.10 Jeans Linear Regression of Tripartite Loyalty against Loyalty

Composite

Jean Loyalty Predictors Unstandardized Standardize t Sig.

Coefficients d
Coefficients
B Std. Error Beta
(Constant) .193 .790 .244 .807
Jswitchindex -.170 .082 -.147 -2.081 .040
Jhandindex .344 .078 .296 4.393 .000
Jheadindex .281 .111 .173 2.543 .012
Jheartindex .588 .096 .457 6.108 .000
a. Dependent Variable: Average Jean Loyalty
b. Adjusted R square is .531 F value is 32.398
p<.001

77
Table 3.11 Shampoo Linear Regression of Tripartite Loyalty against Loyalty
Composite

Shampoo loyalty Unstandardize Standardized t Sig.

predictors d Coefficients Coefficients
B Std. Beta
Error
1.72 .797 2.160 .033
(Constant) 2
Sheartindex .185 .074 .190 2.492 .014
Sheadindex .657 .090 .545 7.322 .000
Shandindex .002 .083 .002 .027 .979
Sswitchindex - .073 -.164 -2.101 .038
.153
a. Dependent Variable: Average Shampoo Loyalty
b. Adjusted R square is .461, F value is 24.514 p<.001

Table 3.12 Drink Linear Regression of Tripartite Loyalty against Loyalty

Composite

Drinks Unstandardized Coefficients Standardized Coefficients t Sig.

B Std. Error Beta
(Constant) 3.598 .713 5.044 .000
Dhandindex .134 .075 .151 1.796 .076
Dheadindex .172 .089 .174 1.929 .057
Dheartindex .235 .080 .303 2.953 .004
Dswitchindex -.240 .068 -.341 -3.524 .001
a. Dependent Variable: Average Drink Loyalty
b. Adjusted R square is .377, F value is 14.291 and ***p<.001

The results from the regression analysis confirm the convergent validity of

the tripartite loyalty construct; the indices perform similarly across category and

in all cases they are highly correlated to overall self-reported loyalty. As

expected, heart loyalty has the largest impact on overall loyalty in drinks and

jeans (.235 for drinks, .588 for jeans) although the head dimension is a bigger

78
contributor to loyalty for shampoo (.657 vs. .185) and is significant in all three

regressions. Also, for drinks and jeans, the head and the hand dimension have

more or less equal weight. Finally, the willingness to switch index variable

(switchindex) had a negative coefficient in all three regressions providing some

proof of discriminant validity. The very high adjusted R squares in the three

regressions indicate that the loyalty dimensions explain a substantial portion of

the variation in the self-reported loyalty index.

Involvement

Inclusion of the Zaichkowsky (1985) modified personal involvement

inventory provides additional support for the validity of the tripartite loyalty scale.

As consistent with Quester and Lim (2003), involvement and loyalty are positively

correlated. My research contributes to the literature by showing how the strength

of that link varies by type of loyalty. For jeans, the involvement index is most

highly correlated with head loyalty, explaining almost 50% of the variance in that

index (r(112)=.477 p<.001), somewhat correlated to heart loyalty (r(112)=.326

p<.001) and not significantly correlated with hand loyalty (r(112)= .118 p=.214).

Similar to jeans, for shampoo, involvement is highly correlated with head loyalty

(r(112)=.460 p<.001), correlated with heart loyalty (r(112)= .352 p<.001) and not

significantly correlated with hand loyalty (r(112)=-.014 p=.883). Finally, for drinks

I found higher correlations between involvement and heart loyalty (r(89)=.404,

p<.001) than head loyalty (r(89)=.186, p<.001) and again no significant

relationship with hand loyalty (r(89)=-.064, p=.552). Note that the drinks results
79
are not as meaningful. This is because the drinks questionnaire actually included

very different types of products, which I would hypothesize inspire very different

levels of involvement. For example, energy drinks and sports drinks probably

have much higher involvement scores than soda and bottled water. Therefore my

results seem to support a link between involvement and loyalty, this link is higher

for head than heart loyalty.

Conclusions: Managerial Implications of the Tripartite Loyalty Scale

The preceding analysis has presented evidence for a tripartite

categorization of loyalty. A tripartite model of attitudes is well recognized in

psychology and consumer behavior, but until now, the model had not been

extended to understanding customer loyalty. Since the seminal work of Jacboy

and Chestnut (1978) who defined and operationalized brand loyalty, several

authors have contributed to the different dimensions of loyalty. Fournier did so

qualitatively (Fournier, 1998), and Dick and Basu (1994) and Oliver (1998) did so

conceptually. Fournier‟s work is seminal in the field because it provides empirical

proof that the relationship paradigm is applicable to human-brand relationships.

Fournier also first coined the term „brand personality,‟ not only using but also

extending the relationship paradigm. Dick and Basu (1994) related the strength

of consumer attitude (high or low) to the type of behavioral patronage of the

brand (high or low), yielding a segmentation of loyalty into high, medium and low.

Oliver (1998) presented a more nuanced model, which categorizes affective, and

cognitive loyalty in much the same way as the tripartite model does. Despite
80
authoring important advances in the loyalty field, all these authors have

contributed to narrowing it as well by placing the spotlight so squarely on

emotional loyalty to the detriment of other types of company-customer bonds.

Neither of the above authors treats habitual purchasing due to convenience and

ease as loyalty. Dick and Basu (1994) call this routine purchasing of a brand

„spurious‟ loyalty. However, it is important to recognize that regardless of whether

loyalty is high or low, spurious or genuine, marketers who measure loyalty by

type will be in a better position to adjust brand attributes to the type of loyalty

they have or wish to obtain. The scale developed here is a helpful tool to that

effect. The tripartite loyalty scale will enable managers to discern the specific

attitudinal dimensions that anchor customers‟ relationships to their brands and

the brand attributes that matter most. This grouping of customer attitudes and

brand attributes will have obvious operational implications for capability

development.

The quantitative work conducted as part of this dissertation finds evidence

to support a hand, head, and heart tripartite model of loyalty. The hand loyalty

dimension is characterized by habitual repurchase as part of a routine due to

familiarity with a brand. Consumers who score high in the hand loyalty dimension

of the construct display a need for easy access to the product or service and for

convenience. I found evidence that routine purchasing is not only characteristic

of low-priced items like soda, but can also be found in more expensive and

functionally-richer products like shampoo; and expensive badge products like

81
jeans. Managers catering to hand loyal consumers will therefore need to prioritize

consistency in delivery and intensive distribution, and should consider product

and process changes very carefully so as not to disrupt consumer routines. The

head loyalty dimension is characterized by a focus on the functional, quality, and

performance attributes of the product and is associated with the expectation that

the product will „perform‟ every time as promised by the product provider.

Managers catering to head loyalty will need to ensure they make information

appropriately available to enable cognitive performance evaluations by

consumers. Product managers seeking to generate or increase this type of

loyalty will also want to ensure their firms develop and enhance products

consistently and have a focused communications strategy around the primary

performance advantage of a brand over other alternatives. The heart loyalty

dimension is characterized by a need for brand-personal value congruence, as

consumers who exhibit this type of loyalty feel ego-emotionally attached to the

brand. Heart loyalty also has a socio-emotional aspect, as consumers who are

heart loyal enjoy discussing their preferred brands with others. Managers who

wish to cater to this type of loyalty will want to emphasize the experiential and

psychological benefits of the products they sell and will want to facilitate

conversations about their brands to catalyze positive word of mouth.

82
 Chapter 4

QUALITATIVE METHODS

Introduction

The conceptual framework guiding my work is comprehensive: it spans

internal capabilities; the market-based evidence of capabilities, which are product

and service attributes; and how product and service attributes interact with

customers‟ attitudes and eventually form differentiated company-customer

relationships. My conceptual framework (see Figure 4.1), at least on paper, has

clearly delineated structures and units of analysis.

Figure 4.1. This figure illustrates the overall conceptual framework guiding this
research

Core Capabilities and Loyalties

Core Capability Types Brand Attributes Loyalty Types

Customer Intimacy Image Heart

• Relationship building
Community
• Emotional /Socio-emotional
• Customization involvement
• Personalized service Support • Passionate commitment

Information
Functional Performance
Head
• R&D & product iteration Efficacy /
• Rational involvement
• Information dissemination performance
• Conditional commitment
• Effective service
Quality

Operational Excellence Availability

• Distribution and Logistics Hand
Ease of use • Low involvement
• Automation
• Efficient Service Consistency • Habitual commitment

On the left side it presents company capabilities, with entire organizations

83
being the unit of analysis; on the right side customer-company relationships, with

customers as the unit of analysis. The quantitative work done as part of this

dissertation addressed the right side of the conceptual framework. That work

started with a deductive categorization of loyalty, and then built a psychometric

survey scale to measure that construct. The construction of that scale required a

cross-brand study and very large diverse samples of consumers for

development, purification, validation and testing. A graphic representation of the

work process flow for the quantitative portion of this dissertation would look like a

double-sided funnel. The process of building a scale starts with theory-

development, broadly exploring the existing literature, and then narrows down to

specify a domain or construct to be studied deductively. Throughout the scale-

development process the funnel continues to narrow as items are tested and

iterated. Finally, the scale is applied to consumer data to test its managerial

value and to develop generalizable conclusions; and the funnel widens again.

The process followed to explicate the right side of the framework and illustrate

the relationship between the left side (capabilities) and the right side (loyalty) is

now described. This process delves more deeply into the intimate environment of

the company and its graphic representation would never widen to develop

universal generalizations, and is thus cylindrical. In my research I focus on two

organizations and study how their conceptualizations of company capabilities

affect customer loyalty, and how their conceptualizations of customer loyalty

drive the development and enhancement of capabilities. As discussed in the

literature review chapter, company core capabilities span multiple functions in the
84
firm; they are hybrid constructs made up of knowledge, skills, processes, values

and culture. Capabilities are abstract and complex concepts and as such, it is not

surprising that there is scant applied research illustrating how they come to life in

the firm. An overall research hypothesis guiding this dissertation is that company

capabilities and customer loyalty are connected through learning processes. The

qualitative work conducted as part of this research project lends itself to delving

into how those connections work in practice. The scale work done in the

quantitative portion of my research demonstrates the existence of persistent

customer loyalty archetypes. The research that follows presents a general

discussion of how conceptions of customer loyalty guide the creation of company

capabilities; how company capabilities help cultivate customer relationships; and

how in turn, the backflow of customer data feeds back into the creation and

enhancement of capabilities that further enhance customer-company bonds.

Research Sites and Description of Interviewees

This study focused on two companies located in the same Western State

of the US, a business-to-business (B2B) aluminum extruder and a small kitchen

appliance manufacturer. Both companies have sales between $100 million and

$300 million and both operate from just one headquarters location where they

have both manufacturing facilities and administrative offices; the company

headquarters are approximately sixty miles apart, and their management teams

belong to some of the same community groups allowing for the cross-pollination

of specific successful activities. The companies were selected because I

85
hypothesized both possess relatively high loyalty amongst their customers; and

because in both cases, through personal although unbiased connections, I was

able to gain access to the management team, including company presidents.

These two companies offer a rich ground for the study of capabilities and loyalty

because they offer many parallels and also sharp points of contrast. Both

companies are privately held, both manufacture onsite, they are of similar size,

and both are very customer-focused. However, the two companies have different

business models and different cultural and capability profiles, offering a nice

counterpoint for how companies organize differently to achieve loyalty. Both firms

wish to maintain confidentiality and are identified here are Extrusion Co. and

Kitchen Co.

Extrusion Co. delivers customized start-to-finish aluminum extrusion

services to a variety of business customers throughout the continental United

States. The company focuses on the delivery of responsive and reliable

service to ensure customer satisfaction with each service encounter, the

company‟s loyalty track record is unmatched in its industry as it boasts average

customer retention rates of over 90% during the last ten years whereas the US

average amongst manufacturers is approximately 85%. The company employs

approximately two hundred and forty employees from a variety of backgrounds,

both professional full time and hourly workers. Extrusion Co.‟s website contains a

statement about the company culture which emphasizes its focus on teamwork,

quality and individual responsibility. The statement also specifically notes that

86
individual contributions are noticed and rewarded and that the Company invests

to achieve customer success. The company serves approximately 600

customers across a variety of industry sectors in the United States; it serves its

customers through a small and highly specialized sales force of just six

salespeople who are distributed amongst its major markets in the US, as well as

through distributors. The company also has a call-center sales force, internally

called „inside sales,‟ which targets smaller customers and also receives inbound

calls. The customers of the extruder include original equipment manufactures

(OEMs) such as truck, solar panel, fitness equipment and others representing a

highly diversified mix of companies; carpet metal resellers; T-slot users; and a

variety of smaller companies, many of whom are served through distributors. The

extruder‟s customer mix is highly diverse, both in terms of industry and size. The

company has been in operation for several decades but has experienced

accelerated business growth over the last one, despite very difficult market

conditions. The decade-long growth in sales and profitability is attributed to a

new president, who took over the company approximately fifteen years ago. The

new president hired new management upon arriving at the company. Although

some of that management has rotated out of the firm, the company‟s managerial

philosophy and culture have been consistent for the last fifteen years.

Kitchen Co. sells professional and home appliances to commercial and

retail customers in the US; the company also has a small international presence

in the commercial market. Kitchen Co. is an independently managed division of a

87
larger, privately held, diversified manufacturing company. A manufacturing

engineer, who is also the inventor of the main product the company sells today,

founded Kitchen Co. approximately thirty years ago and is still the CEO of the

firm. The company operates in the same Western State where it was founded

and now employs approximately 200 employees. Like Extrusion Co., the

company progressed slowly initially and has more recently experienced very

rapid growth. The rapid growth is attributed to the notoriety of the firm gained

through a viral video marketing campaign, which humorously illustrates the

effectiveness of the company‟s products. The impact of the viral campaign on

sales is somewhat disputed internally, although some credit it to have increased

Kitchen Co.‟s sales by more than 600 percent if seven years. The viral campaign

and resulting awareness prompted Kitchen Co.‟s management to seek broader

national distribution. Initially, Kitchen Co. primarily sold its product through a Big

Box retailer chain 1following a roadshow model and through the QVC channel.

Until recently, Kitchen Co.‟s sales force consisted of approximately one hundred

independent contractors charged with selling the product through in-store

demonstrations. Over the last three years, the company has started to diversify

its product portfolio, as it seeks to widen its appeal and move upmarket, from Big

Box Stores to gourmet retail stores and other kitchen supply distributors and

retailers. Kitchen Co. competes in a high-priced market segment with another

firm that is still considered the market leader but which has lost market share

steadily since Kitchen Co.‟s national launch. The company‟s management

1 The name of the specific retailer has been omitted for confidentiality purposes
88
attributes its success to patented product features. In addition to still maintaining

a YouTube channel, Kitchen Co. now leverages Facebook extensively to interact

with its customers about recipes, promotions, and product and service

information. The company estimates that maintaining its social presence,

including YouTube, takes up approximately three full-time employees. Despite

being small, Kitchen Co. has a very loyal customer following with over 100,000

Facebook „likes;‟ the brand boasts engagement metrics that rival those of much

larger firms. A challenge facing Kitchen Co.‟s management is how to most

effectively convert its social media success into sustainable growth and how to

adapt the organization to drive and support that growth. For confidentiality

purposes the product of Kitchen Co. is identified as premium appliance

throughout this discussion.

I interviewed the management teams of both Aluminum Extruder Co. and

Kitchen Co over only two days in November 2012. A total of thirteen in-person

interviews were conducted at the two companies‟ headquarters and main

manufacturing facilities. In both cases I toured the manufacturing facilities and

received an explanation of the manufacturing and operations processes of each

company. Onsite interviews provided an opportunity to record management‟s

approach to creating and fostering capabilities and customer loyalty in the

cultural context within which these capabilities are created. I structured the

qualitative work to facilitate cross-case comparisons by interviewing

89
management across similar functions, including the company presidents, and the

vice presidents of sales, marketing, human resources, finance and operations.

Table 4.1. Functional Titles of the Interviewees at Kitchen Co. and Extrusion Co.

Kitchen Co. Interviewees Extrusion Co. Interviewees

CEO CEO and President
Vice President of Sales and Vice President of Sales and
Marketing Marketing
Vice President of Engineering Vice President of Operations
Vice President of HR Vice President of HR
Customer Service Manager CFO and Vice President of
IT
Production Manager
Director of Retail Sales
Director of Residential
Marketing
Director of Social Media
Marketing

The formal interview with the CEO of Extrusion Co. happened

approximately two weeks after the other interviews. However, I held a variety of

conversations with this person during my time at Extrusion Co., including a lunch

roundtable discussion where I also met a senior member of the management

team of the private equity firm that owns Extrusion Co. During those informal

discussions I obtained additional background on the firm as well as contextual

information that has been critically important to frame the analysis of the data

gathered during the interviews. For confidentiality all interviewees are identified

only by title and I omit their functional area of responsibility.

Prior to gaining access to the companies for interviewing purposes, I held

a phone conversation with people in the marketing teams of both organizations

90
for approximately thirty minutes. During the call I explained the overall purpose of

my study; how it fits within the doctoral program; the overall hypothesis of my

conceptual framework and a high level overview of my methodology; and the

general line of questioning I would follow during the in-person interviews. I also

explained the rigorous research process I would follow, including the oversight by

the Institutional Review Board (IRB) for the study. Finally, both firms were

assured of confidentiality towards their brands and towards the individuals

participating in the study. I completed the required human subjects training

offered by the Institutional Review Board and received approval on the research

project through them prior to the interviews. IRB Approval number 816821 was

granted by the IRB Board #8 on November 6, 2012 under IRB review exemption

authorized by 45 CFR 46.101, category 2.

The Interview Protocol and Data Collection

Interviews at Kitchen Co. lasted approximately forty-five minutes each and

those at Extrusion Co. lasted approximately one hour each. At Extrusion Co. I

also held a one-and-one-half hour round table discussion with management,

which was not recorded or transcribed but served to frame the interviews within

the context of firm. All other interviews were recorded and later transcribed by

myself. The interviews followed a semi-structured format, allowing for the

adaptation of the protocol to incorporate learnings from successive interviewing.

The protocol was broken down into four sections. The first section addressed the

background of the interviewee and general company environment, overall

91
company and functional goals, and work climate. The second section asked

about customers, customer retention and customer loyalty. The third section

probed for how the interviewee thought about company capabilities and what

differentiates the firm from other companies from a capability perspective; and

the final section probed for how customer loyalty influences the development of

company capabilities and vice versa. In developing the interview protocol I

worked to maintain an inductive approach to the data collection process.

Although my conceptual framework stipulates a particular definition of loyalty and

capabilities, and a particular categorization of capability types and loyalty types,

the interview questions on these topics were purposefully open-ended and

inquisitive rather than highly structured. A goal of these interviews was to

understand conceptualizations of loyalty and capabilities rather than to impose a

particular theoretical construct.

An overarching goal of the interviews was to understand whether the

companies promote a particular view of loyalty, and if they do, how that affects

employee skill-building and information made available to employees and

company processes. A particular area of focus was developing an understanding

of the customer data that is made available throughout the organization to

advance customer loyalty, how that data is consumed by employees, and how it

affects capability development. The semi-structured interview format offered the

flexibility to overweigh particular topics with those interviewees who offered

specific insights given their personal experiences, yet was also helpful by binding

92
the conversations within the deductive frame established by the overall

conceptual framework.

Coding and Analysis Methodology

Conducting all interviews myself and transcribing them was a painstaking

process but very productive as it helped lay the groundwork for the analytic

process. In fact, given my involvement in the transcription, formal data analysis

started at this stage. During the transcription process I used formatting features,

such as spacing, bolding text, and font color to highlight particularly relevant

quotes, and to call attention to emergent themes and potential categorization

codes. Also, the interviews were transcribed in the same sequence that they took

place. The sequential collection of data was replicated during the transcription

and coding phases, with transcription happening in the order of the interviews

and in long uninterrupted blocks of time. Coding followed transcription and was

only interrupted by the writing of short memos to capture emerging insights or

relationships between the data for later use.

I developed codes both deductively and inductively. An initial list of codes

was developed by selecting themes detailed in the conceptual framework and the

interview protocol and later expanded and amended after completing the

transcriptions and initial data analysis. The initial list of codes was further refined

after coding the first two interviews. Those two interviews were recoded with the

new code list. There were 44 codes in all in the final version of the code list,

including subcodes for larger more general topics, such as customers, loyalty,
93
employee skills, or capabilities. The final list of codes used for qualitative data

analysis purposes are included in Appendix F. During the coding process I wrote

a number of memos about patterns in the data and emerging themes. As was

mentioned earlier, interviewing similar roles in the two organizations and

comparing how the two firms look at the same issues enabled me to draw linear

comparisons between the two firms. These comparisons shed light on the

capabilities and core capabilities of the two firms: by examining how company

officers in the two organizations speak about their core activities, goals, and

routines – particularly those that are employee and customer-related - we can get

a sense for the organizational practices that truly set the firms apart.

Despite the contextual differences there are many parallels between the

two companies. One of my analysis goals was to decipher and categorize core

capabilities and given the multidimensional nature of company capabilities, I

looked for evidence of distinctive routines across capability dimensions. As

defined by Leonard-Barton (1992) evidence of core capability can be found

across culture and values, managerial and technology processes, and employee

skills and knowledge. Specifically, I sought evidence of specific practices for the

acquisition, augmentation and enhancement, exploitation, and inter-functional

dissemination of knowledge in the companies that resulted in particular

company-customer bonds as hypothesized in the Literature Review Chapter of

this paper. Also, I sought evidence of different types of customer-company bonds

by asking general questions and by soliciting specific examples from the

94
interviewees. The interview protocol question that asked this most directly was:

“Do you think your company is equally successful in retaining all your customers

or more successful with some?” One concrete outcome of the qualitative

interviews is a conceptual account of how each company self-describes its

current capabilities and the extent to which those capabilities depend on

customer insights.

Limitations of the Research

By bridging two academic disciplines, my research has uncovered relationships

that are conceptually appealing but until now had not been tested. Despite the

value of my work to the academic and practitioner fields of marketing and

organizational learning both the quantitative and qualitative fieldwork suffered

from limitations. The quantitative work conducted here was successful in

delivering a loyalty measurement instrument capable of teasing apart the

attitudinal dimensions of loyalty. The final data collection as part of this

dissertation was conducted with college students and was limited to three

product categories that students use and purchase. Additional testing of the

scale with other populations is necessary to improve its validity and to test its

robustness with a broader range of product categories. Customer preferences

and loyalty are complex constructs and are difficult to measure. It is for this

reason that the work conducted here, while limited, is helpful to practitioners

attempting to improve the development, measurement and management of

loyalty for their brands.

95
 A broad and deep research study on company capabilities could have

taken the form of a true ethnography, where both subjects and their environment

are observed over an extended period of time. The resource and time constraints

germane to the dissertation process made this impossible. Also, a more

complete capability study could have consisted of two phases, a more extensive

qualitative phase containing both depth interviews and focus groups and a

quantitative survey-research-based phase to collect anonymous feedback from

employees on capabilities. Finally, given the evolutionary nature of both

relationships and capabilities, a longitudinal study with longer periods of

immersion at the company sites would also add richness and depth to my

fieldwork.

Originally I had intended to study the entire framework at the two research

sites, Extrusion Co. and Kitchen Co., assessing capabilities and applying the

tripartite loyalty scale to study the connections between the three loyalty

archetypes and company capabilities. However, the messiness of the world of

practice has limited my ability to do that. I hope to pursue some of these research

avenues after graduation.

96
 Chapter 5

CUSTOMER LOYALTY AND ORGANIZATIONAL CAPABILITIES

We can conceive of the marketing process as a reflective conversation

with consumers. In this process the firm develops service and product models

and routines of interaction with customers. The firm then exposes customers to

these outputs and uses direct means (e.g., meetings, phone conversations,

feedback forms, sales results) and indirect means (e.g, social media research,

market research) to listen to feedback. As that feedback is digested, interpreted,

and internalized, organizational learning occurs. How feedback is collected, how

it is transformed, and how and to what extent it is shared within the firm matters

for how the company conceptualizes its purpose and how it assesses its

effectiveness in carrying out that purpose within the context of its market.

Conversely, conceptualizations of the purpose of the firm affect the firm‟s

production activity, how and to what extent listening takes place, and how

feedback is interpreted and shared.

The Business Definition and Goal Setting as Company Context

I used the interviews to understand how and to what extent

conceptualizations of the purpose of the firm drive decision-making and

organizational learning processes at Kitchen Co. and Extrusion Co.. Speaking to

company officers who occupy similar roles at both firms enables cross-company

comparisons. In this regard, some of the most revealing excerpts for my

97
purposes came from the company presidents of the two firms. Both companies

lead their industries from a growth and from a customer loyalty perspective,

however the paths taken to that leadership have been very different. At Kitchen

Co., when asked about the reasons for the company‟s success the CEO stated:

“The reasons are number one, our product. We traditionally, have not been a

marketing company... We put our money into engineering and not marketing.”

(Kitchen Co. President) Extrusion Co.‟s motto is “reliable and responsive

service.” These two words were repeated several times throughout many of the

interviews at that firm. When asked to explain the reasons for the company‟s

success, the CEO described:

In the last ten years we have been successful by focusing on mass

customization. That means: Focusing on our customers needs
rather than interacting with them in a transactional way. Customers
have individual needs and we do what we can to meet them. In our
industry companies have a lot of rules: you must buy so many
pounds, you must order this way, you must wait this long, etc.
Basically, you come to us, you follow our rules, you get your
product. We don‟t have any rules at Extrusion Co.... You come to
us, we find out what your needs are, and we try to deliver them
consistently over time. (Extrusion Co. CEO)

These two companies are involved in the business of manufacturing, and to

achieve growth year over year in a sustainable manner, they both require similar

efforts. They must purchase high quality raw materials, they must operate their

manufacturing facilities efficiently, and they must manage employee hiring and

training as to minimize turnover costs. In short, they must have numerous similar

competences. Geographic proximity and membership to the same business

community has brought cross-pollination of successful initiatives from one firm to

98
the other. For example, as a result of a conversation between the two CEOs,

both companies now insource primary medical care from the same group of

doctors, effectively lowering insurance premiums while improving employee

productivity and satisfaction. However, the two firms see their businesses very

differently. Kitchen Co. management attributes its success to a focus on

engineering great products in a category where only one competitor can claim

similar performance; and Extrusion Co. attributes its success to offering great

customer service in an industry where customer service has not been prioritized.

Although they are of a similar size, they are located near each other, they employ

a similar workforce, and they both run a manufacturing operation, one of the

companies sees itself as being in the business of making great products while

the other is in the business of providing reliable and responsive service. Judging

by the two companies‟ success, both definitions of the purpose of the firm are

validated by the market. Yet, these business definitions create a very different

context for the development of capabilities and company-customer bonds.

Employees in the firm are guided by tacit and explicit values and rules;

understanding what those are and how customer feedback influences them is

critical to understanding the influence of customers on firm capabilities. During

every interview I conducted at Kitchen Co. and at Extrusion Co. I asked about

individual, functional and company-wide goals. How individuals answered that

question helped me understand whether they prioritized individual or group

objectives; and whether they saw themselves primarily as practitioners or

99
primarily as managers. Here I adapt a definition of practitioner and manager from

Schön (1984). Roughly, practitioners are more focused on applying their

knowledge and skill in the service of explicit business outcomes; whereas

managers might be more concerned with higher level and less explicit outcomes

related to their company environment, the brand, customer loyalty, and their

legacy as well as the legacy of the organization (Schon, 1984). As can be

expected, the four employees below the management team level interviewed at

Kitchen Co. expressed mostly functional goals. For example, a production

manager viewed his goals as “scrap rate and efficiency” (Kitchen Co. Manager).

However, as most of the interviews were conducted with members of the

management team of the two firms, I expected to find a mix of objective,

business outcome-related goals as well as subjective goals. This was the case,

and in comparing like roles across the two companies I found evidence of the

distinct company environments in the two firms. For example, while both vice

presidents of HR have employee retention goals they expressed their overall

objectives quite differently. At Kitchen Co., the head of human resources was

primarily concerned with payroll accuracy and termination conversations:

I measure success with payroll accuracy – out of 3,900 paychecks

we have only had 5 paychecks with errors on them. I also look at
the turnover rate – which has gone from 35% 7 years ago to less
than 9%. I also measure success on how termination conversations
go, how frequently they explode and also if they ever result in a
government complaint.” (Kitchen Co. VP)
At Extrusion Co. the head of human resources prioritized different, broader,

goals:
100
 Our goal is retaining people…. And really focusing on making sure
we‟re hiring the right people, you know, through the hiring process,
background checks, through referral checks, through personalities
assessment, making sure that we get the right person, you know,
because that becomes a big expense too, if we're constantly
rehiring and turning people over... we hire people who fit the
culture... we look for people who have a drive to be successful, who
are constantly looking to learn and to grow“ (Extrusion Co.VP)

The talent managers of the two firms had fairly different objectives, at Kitchen

Co., there was a greater focus on highly specific and process-focused goals,

whereas at Extrusion Co. the goals were much more general. The overall

purpose of the firm, the definition of its business, and its goals provide a context

for everything else the firm does. Throughout the forthcoming analysis, it is

helpful to keep the business definitions and goal statements of the two firms in

mind as they provide context for the way in which customers and capabilities are

addressed in the two firms.

Customer archetypes in practice

A central thesis in my dissertation is that because customer loyalty is a

complex phenomenon loyalty measurement requires a nuanced multidimensional

approach that classifies company-customer relationships by type. The

quantitative section of this dissertation proved that, for the products tested, the

tripartite loyalty construct exists and is identifiable by asking customers a series

of questions. Different customers experience brands differently and hold

differentiated relationships with their preferred brands even when the company

projects a single image to the marketplace. For example, Pantene promotes itself

101
as enhancing hair shininess across the globe but some consumers feel

themselves „shine‟ because they use Pantene (heart), others simply due to

performance (head), and still others might use Pantene simply because they

have been doing so for a long time and it is part of a routine (hand). However, if

the tripartite loyalty construct is to have managerial usefulness, catering to one or

another type of loyalty will yield better results than ignoring loyalty types and

hoping all customers will be emotionally committed to the brand or all customers

will be cognitively engaged by its products and services. Good theory explains

phenomena that exist in practice; if the tripartite loyalty construct is a good theory

it should help explain the capability and loyalty picture we find in companies. This

should be the case even when companies do not explicitly use strategy, learning

or marketing vernacular to run their businesses. In the case of Extrusion Co. I

found that, although its management does not use the head-heart-hand

vocabulary, they do describe a customer typology that resembles this tripartite

construct. Some customers are described as transactional, wanting timely no-

hassle and non-interactive service. The President of Extrusion Co. explains:

Our truck manufacturers tend to be very transactional. These are

very large companies like .... They are some of our biggest and
longest relationships but we couldn‟t tell you who the buyer is
because they rotate people in and out of those positions all the time.
All they want is that whatever they buy from you has to be on spec
and on time and with no hassle. (Extrusion Co. President)
Another member of the management team describes a similar customer

archetype:

102
 The other day that I heard from (...), a hardware manufacturer.
They‟ve never gone to anybody else, from the very beginning they
bought from Extrusion Co….We always deliver just as expected. And
I think that they will always buy from us. They purchase just the small
little nail in a finished shape that they take and they punch, put holes
in and then cut it up and sell…. it‟s a little piece of hardware… very
high volume. And you know, I‟ve never been to their facility. I‟ve been
here for 15 years but I‟ve never talked with their owners. So they just
have a relationship with our sales person and I think it‟s a good
relationship. And it always comes from them, they always give us a
good price, so we„re gonna continue to work for them. (Extrusion Co.
VP)

These are long-term relationships, which operate based on routine processes

established at the outset of the engagement, and that remain unchanged as the

company evolves and personnel changes. Customers in these relationships are

described as wanting consistent service and good product quality but little

communications from Extrusion Co., only when absolutely necessary. These

„transactional‟ relationships described by both company officers are high volume

but finite in scope; there is little room for expansion due to the nature of the

application required from Extrusion Co.. In the case of truck manufacturers,

Extrusion Co. supplies parts for the cabin grills that cover truck engines, in the

case of the hardware manufacturer, the customer orders a small finished metal

shape and does not have additional needs for other extrusions. A habitual no-

hassle relationship is efficient from a client perspective. In both cases, the

extrusion has to perform well as failure would damage the customers‟ brand. This

is perhaps truest in the case of a truck manufacturer: delayed supply might mean

an entire manufacturing line comes to a halt awaiting a grill piece. And a defect in

the product that is revealed after use would damage the brand reputation; a truck

103
grill is a non-critical part from a functional perspective but is perhaps the most

emblematic from a brand perspective. This explains why in both cases the

customer is reported to be relatively price-insensitive; it is because the cost of

low quality or inconsistent supply would be too dear. Despite this, customer-

supplier exchanges occur infrequently on an as-needed basis, perhaps in part

because the parts being manufactured are relatively simple in the context of the

clients‟ business. The business context makes this „hand‟ relationship logical,

and yet, as I will show below, high-volume, reasonably priced, low complexity

applications do not always result in hand loyalty.

Extrusion Co. supplies low-complexity extrusions to the floor-covering

market. It is in this business category, that Extrusion Co. finds its most loyal and

closest relationships. Although the products Extrusion Co. supplies to these

customers are relatively simple to manufacture, it is its ability to serve these

customers in novel value-added ways that makes these relationships unique for

Extrusion Co. and for the customers involved. The President of Extrusion Co.

states:

Then there is the floor covering market. Relationship based-business,

kind of, as long as you have superlative products and services but
then you have a different relationship with them. We help their
business grow; we take them on trips to the Dominican Republic (...)
Rather than encouraging them to order more, during specific months
we have promotions that take into account that inventory turns are
key to their business success. Rather than pushing big lot sizes, we
actually discount for smaller lot sizes; why shouldn‟t they get
shipments every week instead of one big shipment a month? This is
one way in which we help them grow. (Extrusion Co. President)

104
The value-added services developed for one customer within a particular

business segment can be extended and exploited to other customers in the

segment. As a result, Extrusion Co. has a number of these intimate value-added

relationships, which internally are called „velcro‟ (Extrusion Co. VP of Operations)

relationships to denote their breadth and depth. Again, the Vice President of

Operations at Extrusion Co. echoes the description of this customer archetype:

You hear constantly from a number of customers, “you are best

supplier. We love Extrusion Co.; we will never switch from
Extrusion Co.” …. So we have markets like the carpet metal
industry. ... These are customers that come and take trips, you
know, with our president and sales people. They are laughing and
joking together. We know them intimately, we have a great
relationship...quality expectation is not nearly as severe as some of
our OEM accounts. (Extrusion Co. VP)
Carpet metal customers require simple and consistent extrusions. However, the

differentiated value of this relationship is based not on the metal but on the

ordering and logistics processes Extrusion Co. has developed and which are now

so critical to these customers. We can imagine that once a carpet metal

customer is able to order in small lot sizes at a discount, it will develop

dependence on this arrangement as warehouse space and logistics processes

are changed to take advantage of the inventory savings. This dependence

creates momentum for the relationship between the two firms. A question that

arises when thinking about these relationships is whether the ideation preceded

or resulted from the customer intimacy. The close bond between the two firms is

conducive to generative ideation; concurrently, this type of service is likely to

enhance that relational bond between the two organizations. It is thus difficult to
105
tease out the causality of this type of loyalty. Yet, clearly these relationships are

highly beneficial to both parties and can serve as catalysts for similar

relationships. A key to replicating this success lies in the organization‟s learning

capacity; Extrusion Co. must adequately recognize the key identifiers of this

successful customer-company relationship archetype and codify that knowledge

so it may be used as customer targeting criteria for the marketing and sales

teams.

Other customers purchase several parts from Extrusion Co. and use them

in complex applications. These relationships require collaboration, as tolerances

and design decisions must be made at the outset and throughout the entire

order-manufacture-delivery process. But many of these relationships do not

result in deep engagement. In fact, both senior leaders describe functionally-

focused relationships as a third customer archetype. The Vice President of

Operations states:

Then you have some of the OEM very highly technical accounts
who are very particular about dimensions and they would probably
be more the functional type of loyalty. So it‟s a given: we have to
have perfect material supplied to them and that‟s what we do. I
mean we are on top of the dimensions, we are making sure that
very tight tolerances are achieved,.... We spend a lot of time and a
lot of money on inspection to make sure that takes place and in the
end they just want a good useful product, they are not as into
talking on the phone…not so much interested in having a personal
relationship with their supplier. They are interested in Facebook but
not necessarily with whom they are buying the product from.
(Extrusion Co. President)
The President of Extrusion Co. shares a similar account of the OEM

106
relationships:

The OEMs are more matter of fact than transactional. That is not to
say that they are not price sensitive, which they are. These are
companies like … whose parts are more technical. They buy lots of
different parts, and in very large amounts, and they want us to
reduce the hassle and when they do they leave us alone. But they
have complex applications and our job is to help them design
whatever project it is they need. (Extrusion Co. VP)
As described, the OEM relationships require high functional performance and

frequent communication but there is not emotional connection between the firms.

Do these relationships remain purely functional due to the business setting within

which OEMS operate? We can imagine that as OEM customers operate in a

complex business environment and are under a lot of margin pressure they might

be reluctant to engage on a relationship-basis with their suppliers as a way to

maintain objectivity should they need to replace a particular supplier. Whatever

the reason, it seems that Extrusion Co. provides value-added services for these

customers on a purely transactional basis whereas a similar service relationship

in the carpet metals market engenders transformational relationships.

This description of three types of customers across industries is drawn

along the lines of hand, head, and heart relationships. Serving these types of

customers requires adjusting internal activities. Some customers (i.e., truck and

hardware tool manufacturers) have simpler and less resource-intensive

requirements than others; and some customers require more inspection and

design resources (i.e., OEM customers) while others require more customer

service and salesforce resources (i.e., carpet metals). Extrusion Co. must build

107
capabilities to service all these customers simultaneously; and yet it was evident

throughout the interviews that the company differentiates itself from competition

by developing value-added solutions for its customers. For this reason, the firm is

not equally successful with all three customer types but is most successful with

those customers who value customized service; and in a sense, we can think of

the hand customers as probably paying for a level of service they do not utilize.

At Extrusion Co., the company organizes itself for flexibility. This starts

with the sales process and runs through the entire organization. How information

is collected, utilized, stored, shared, and augmented to improve capabilities is

done in a particular way because of the shared internal conceptualization of

these customer archetypes. This is not an industry-wide requirement for all

extrusion companies, but rather the purposeful way in which Extrusion Co. has

chosen to operate. The resulting approach to acquiring and organizing tangible

and intangible resources: gathering intelligence from the marketplace, operating

manufacturing facilities, and creating and capturing value more generally are all

interdependent activities that occur in a particular way because of the dominant

logic that results from the company‟s purpose. At the root of that purpose is a

focus on servicing customers flexibly and reliably; this is what Extrusion Co.‟s

President calls “R2: Reliable and Responsive” (Extrusion Co. President) and

other times she refers to the company‟s business model as one that delivers

“mass customization.” (Extrusion Co. President)

In interviewing the corresponding company officers at Kitchen Co., I did

108
not find evidence that the tripartite customer archetype is prevalent at that firm.

This is not to say that the company is not as focused on serving customers,

customer loyalty, satisfaction or value creation. Rather, it means that Kitchen Co.

personnel hold a different conceptualization of why and how customer loyalty

arises and evolves. If Extrusion Co. thinks of is model internally as one that

delivers „mass customization,‟ we might think of the Kitchen Co. strategy as

intending to deliver „mass loyalty.‟ The firm directs its efforts to facilitate similarly

loyal relationships to that brand across the entire base of customers. The Vice

President of Engineering at Kitchen Co. states:

The people who buy a premium appliance are generally very loyal
to the brand.... Our customer base is relatively affluent and they
tend to be women.... The majority of the people who buy a premium
appliance are looking for a lifestyle change. (Kitchen Co. Vice
President)
Kitchen Co. has traditionally focused on making a functionally superior product.

An assumption widely held at this company is that the majority of customers who

own the product can develop an emotional connection with the brand. “This is a

core capability of the company: to create a product that people will love.” (Kitchen

Co. Marketing Manager). As a result of this dominant logic the firm engages in a

variety of activities designed to catalyze these types of relationships.

The section that follows explores how each of the companies acquires

information, interprets and distributes that knowledge internally, and leverages it

to improve product and service offerings and plan for the future. While parallel

processes exist at both firms, distinctions can be drawn; and those differences

109
are rooted in deeply held organizational conceptualizations of the purpose of the

firm and of the drivers of its success vis-à-vis its customers. These organizations

attribute their success to different factors, one to great products and the other to

customized service. These perceived sources of company success in turn drive

how the firms approach their routine activities and how and what they learn. In

this executional and learning process, the dominant logic of what works well

works gets reinforced, enhanced, and sometimes questioned but in all cases it is

a determinant of how organizational learning occurs.

Identifying Winning Relationships

Both firms possess mental models about the ideal customer. These

mental models drive differentiated customer research, promotional, and sales

activities. The sales process at Extrusion Co. can be very lengthy, sometimes

lasting years: “We called on a customer in Milwaukee for 7 years before we got

them to buy from us...” (Extrusion Co. President). Similarly, although some

customers might purchase a premium appliance on the spur of the moment;

others‟ research process for a premium appliance can take years. A customer

posted the following comment on Amazon.com regarding his purchase research

process:

I went from a $50 appliance to a $500 premium appliance, yup,

that's right, and it is worth every dollar! The old appliance of 8 years
(which I hardly use) was atrocious from day one but I didn't think
much of it until I became a huge fan of special foods, and for years
... I got the recipes and the old appliance did nothing other than
spinning things around and making loud noise. It isn't broken, but it

110
 just didn't want to make anything in the right consistency. That's
when I started looking at higher-end appliances like.... I read all
about them, including a few others and decided to go with ... for the
following reasons...(“An Excellent Premium Appliance Indeed,”
Customer Review posted on Amazon.com,
http://www.amazon.com/, accessed on April 12, 2013.)

A business-to-business organization, Extrusion Co seeks out new

customers. At Kitchen Co., the company uses mass media to promote itself and

customers are the ones doing the research. Amazon.com and food social

network sites contain hundreds of reviewer comments comparing Kitchen Co.‟s

products to those of its main competitor. Many of these reviews describe the

experience of use of the product, and almost all include features and benefit

comparisons between the two. Kitchen Co.‟s primary marketing activities are

Facebook postings and YouTube video postings. Through both of these channels

the company emphasizes the use experience of the product. The company

website complements that information with comprehensive model listings

including features for each specific product model.

A purchase from either of these two firms requires a big commitment from

customers. In the case of Extrusion Co., the extruded metal customers buy

sometimes literally “frames” their primary products, as is the case with the

shower door industry company, or might become emblematic of the quality of

workmanship, as is the case with truck manufacturers. Similarly, when Kitchen

Co. customers purchase a premium appliance from that company, they are

spending four to ten times more than in purchasing from a less premium brand.

In either case, customers make a big investment and the cost of making the
111
wrong decision has financial, reputational and emotional consequences. We

might imagine that for different customers the risk of loss related to making the

wrong choice might be experienced differently, in emotional, socio-emotional,

financial, or simply functional terms depending on individual characteristics and

circumstances. How the product and the risk of loss from making the wrong

choice are experienced might dictate the amount and type of pre-purchase

research a customer conducts prior to committing to the brand. It is interesting

that within the Kitchen Co. organization, the appliance purchase decision is

largely conceived in emotional terms. The Vice President of Sales at Kitchen Co.

states:

We have extremely passionate users in both the commercial and

residential segment...For consumers the purchase of a premium
appliance is an emotional decision. ... Consumers purchase a
premium appliance as a result of an emotional reaction to the
product demonstration rather than as a result of careful product
research. (Kitchen Co Vice President)
This conceptualization of the source of liking for the product and the type of

upfront research conducted by consumers, in turn, drive of the Company‟s sales

model. Kitchen Co. sells a functionally feature-rich product that costs several

hundred dollars primarily through product demonstrations at Big Box superstores.

While the product exhibition setting is not conducive to detailed feature research,

it is an ideal setting to demonstrate the experiential benefits of a product that

seamlessly transform raw ingredients into delicious and healthy food. Live

product demonstrations, or roadshows as they are called internally, are ideal

emotional customer acquisition environments as they serve to engage customers

112
in a socio-emotional setting; this can motivate large purchases on the spur of the

moment. Research supports the Kitchen Co. notion that consumers justify

spending large sums of money upfront for products if they consider them virtuous

as opposed to vicious (De Ruyter, Wetzels et al., 1998; Wertenbroch, 1998).

Kitchen Co.‟s thinking about its customers drives how it sells its products.

In contrast, in seeking customers through an extended sales process,

Extrusion Co.‟s sales force looks for specific „pain points‟ as indication of a good

customer-company fit:

When I‟m talking to a potential customer, when we come in and sit

down, any typical salesman would just say “Let me see your part
and I will quote you and we can do this and that.” But we don‟t do
any of that, what we do is we will go sit down and say: “Talk to me
and tell me what your program is now, tell me what kind of
inventory turns you are getting. How would you like things to
change? What‟s not working for you? What can improve? What if
we did this? Is there something else that could go better?”
(Extrusion Co. Vice President of Sales)
Generally, the firm differentiates itself by providing value-added service and

reliable supply in a market where those attributes are relatively rare. The CFO

states:

I think one of the best things Extrusion Co. has done is they‟ve
looked at high-end customers across different markets....Our ability
to cater to that customer, and build work cells around them.... We
build work cells that other extruders are not going to build, custom
cells, just for their products. But we can charge a lot of money for it
... (Extrusion Co. CFO)

As Extrusion Co. promotes itself on the flexibility of its service model; it also

organizes its sales force to embody a flexible approach to doing business:

113
 Our salesmen have a lot of freedom to deal with the customer. In
the case of a competitor, particularly a big one, the salesman would
go out, the customer will say we need a quote on this. He would
send it in and somebody at the corporate level will come back and
say okay you have to charge them $2.75 a pound...But when our
salesman sends it in, we say „your cost is gonna be $2 for this part‟
how much do you think we should charge?.. So the salesman
determines the pricing with a lot of talk and communication on that
(Extrusion Co. VP)
This more flexible approach to sales also results in a faster, more responsive

quoting process:

And they wanted a custom piece of carbon metal, they don‟t want
any holes, that‟s all it was. And the salesman... got the order in, and
we made the metal and shipped it to him before the other guy could
even come back with a quote... He (the customer) of course went
with us... (Extrusion Co. Vice President)
A business that organizes to deliver flexibility is more expensive to set up

and operate than one that delivers „one-size-fits-all‟ service; these extra

costs are worthwhile only if the firm is able to charge for customized

service. It seems logical that Extrusion Co. would search for customers

who need these additional services as others would be less compelled to

pay a premium for extruded metal. To a certain extent the firm cannot

control its customer relationships; by their very nature, relationships are

unpredictable. Yet, the company‟s ability to learn from the customer

relationships it already has, understanding what determines success for

both sides, is a key to developing capabilities that propel sustainable

growth.

114
 Learning from Customers

Companies routinely collect information about their customers in an effort

to become and to remain relevant to them. At Kitchen Co. and at Extrusion Co.

processes of information acquisition happen in parallel; however differences

between the specific activities correspond to differences in the dominant logic

about why customers like the brand at each company. These conceptualizations

drive both the go-to-market activities and the interpretation of the outcomes of

those activities.

At the outset of a customer relationship at Extrusion Co., customers are

figuratively or literally brought inside the firm. This might be done through a plant

tour, which is always encouraged. Even when customers do not visit the plant, a

purposeful effort is made to understand the customer‟s business deeply. As

Extrusion Co. builds made-to-order parts and customizes its service protocol, the

company must collect product specifications, design information, and service

preferences. However, Extrusion Co. goes well beyond collecting functional

dimensions and service requirements, as described in the following excerpt:

We get as much information from the customers as we possibly

can. We build products for the shower industry, and we called a
new customer and said: “hey do you have any prints or any
assembly drawings so that we can look at how all of these pieces
that we make for you fit together? ...We have six different surfaces
of the material, so we want to know which surfaces are exposed,
and which are not.” So when I‟m looking at it, as it‟s being
processed I can say, “I want to stack that surface on that surface as
opposed to on a finished surface.” (Extrusion Co. Vice President)
At Kitchen Co., little individualized information about retail customers is
115
known prior to their purchase decision; this is not surprising given the consumer

focus of the firm and its primarily indirect go-to-market model. The only

information known about customers immediately after purchase is basic

demographics collected through warranty cards. Also, the marketing team has a

sense for the demographic and psychographic characteristics of potential

customers: “our target demographic is women between 25 to 60 year old and a

60/40 split with 60 women and 40 male...” (Kitchen Co. Marketing Manager) Yet,

despite a lack of exhaustive data collection, there is a fairly well-established

conceptualization of what makes the company successful with customers. This

sentiment echoed by several company officers is here stated by the Customer

Service Manager: “Our customers see our products as enablers of a lifestyle

change.” (Kitchen Co. Marketing Manager). As was already discussed, this

expectation is consistent with how the product is marketed and sold; but it also

affects the type of information collected from customers and how it is exploited to

improve the product and to communicate to customers.

At Kitchen Co. learning from customers happens after the sale has been

completed; through its customer service listening processes, the organization

learns from its customers, and in doing so, projects empathy and learns to be

empathic:

We have (cooking) 101, a book that has all the recipes of things
that customers do with their premium appliances. All customer
service reps have to have cooked everything in that book.
(Kitchen Co. Customer Service Manager)

116
In the process of answering customer calls, the company is building its

knowledge base about its own product. In both organizations the provision of

customer service possesses a dual servicing and knowledge acquisition role. It

serves to create or reinforce loyalty and it also enables the enhancement of

capabilities. Understanding how a shower door manufacturer uses extruded

metal in its final assembly provides Extrusion Co. with an opportunity to provide

great service but it also serves to train its employees on how to communicate

with customers, how to think broadly about their role in the supply chain all the

way to the end user of the finished product; and by engaging in this learning

process repeatedly it serves to create an organizational process that can serve

as the basis of the brand meaning internally and externally. Similarly, at Kitchen

Co., learning how customers use premium appliances helps customer service

representatives become more knowledgeable and better able to help other

customers. Customer service calls add to the body of knowledge of the

organization literally, as they add recipes to the Company‟s recipe book, a book

of practical use knowledge about the product. These calls are also the starting

point for iterative innovations and product improvements. The Vice President of

Engineering states:

... a customer was burned because he used our blender with very
hot liquids and the lid came off. We then launched a major redesign
initiative to develop a safer lid. We came back to the customer
relatively quickly and gave him the new, redesigned lid along with a
new premium appliance that he could give away to a member of his
family. Not only did we change our relationship with that customer
but also benefitted all our other customers because now we have a
better lid.
117
 (Kitchen Co. Vice President of Engineering)

While the process of learning from customers is more programmatic at Extrusion

Co. than at Kitchen Co., in a more or less explicit manner both firms recognize

the value of customer feedback as a tool for knowledge acquisition. Successful

relationships are established when a process of mutual learning is established

from the outset.

Teaching Customers

The service-focused company that wins by establishing intimate

relationships with customers must use its sales and customer onboarding

processes as learning opportunities. The product-centric organization will use its

sales and customer onboarding processes to teach its customers how to use its

products successfully. For Extrusion Co., understanding customers‟ needs during

the sales process is a key to establishing a successful relationship. This process

requires seamless cooperation between sales and the rest of the firm, in

particular Operations. Extrusion Co. manages an incredibly complex

manufacturing process with over three hundred different order types moving

through the same extrusion ovens, presses, and dye processes within a relatively

small plant footprint. The Company President explains:

So how do we manage this high-mix environment and still deliver

consistent lead times to our customers and on-time delivery, not
just on time by consistent lead times? It takes an awful amount of
attention to detail... In the old days we had departments: extrusion,
anodizing, fabrication, packing, machining… so things would move
through the plant in batches from process to process... So what we

118
 did is rearrange our plant to facilitate a low volume high mix
model... We are able to deliver exactly what the customer wants
thanks to our operational set up into value streams: the value
streams own the different types of customers. We organize our
plant into value streams who handle different customers and their
requirements. So sales has to recognize the needs upfront and
operations has to deliver on those needs. I was thinking the other
day, who has more of a role in that? Sales or Operations? I don‟t
know. (Extrusion Co. President)
The operational make up at Extrusion Co., where customer archetypes are

handled by different „value streams‟ made up of different employees, goes

beyond „reflecting‟ customer diversity to an almost mirroring of the customer

archetypes inside the firm.

At Kitchen Co., customers are consciously educated in how to use the

product, not just prior to purchase, through the roadshow product demonstration,

but especially afterwards. It is notable that the company expends such

considerable resources in training people who have already purchased the

company‟s products. Unlike Extrusion Co., Kitchen Co. customers are unlikely to

purchase any other products from the firm for years to come. Again, this focus on

customer‟s emotional involvement with the brand is a result of shared internal

conceptualizations of what it means to be successful with a customer. A

marketing manager echoes this conceptualization:

... most of our marketing effort is geared to getting people to love

the product once they‟ve opened the box. We put instructions of
use in the jar and beautiful recipe books in the box. This is all
because we have this strong belief that people need to start using
our product right away... Twenty cycles is enough to prove to the
skeptic in the recipe that the investment was worth it... If in twenty
cycles, the premium appliance has not delivered then both (in a

119
 couple) feel disappointed and hurt... We have 100,000+ members
on Facebook. And every Tuesday we put out a new recipe, and the
intent is to move them from a beginner, to intermediate to advanced
user. (Kitchen Co. Manager)

Spending most of the marketing budget on „retaining‟ rather than acquiring

customers in a company that makes its money from selling infrequently

purchased products might initially seem counterintuitive. However, Kitchen Co.

sells premium and infrequently-purchased products and believes its long-term

success is predicated on existing customers‟ advocacy for its products. Customer

satisfaction also has a more direct impact on sales through returns. An analysis

of return data performed by Kitchen Co. corroborates the need to focus on

marketing to customers after they have purchased the product:

When we look at returns, we can plug the boards in and figure out
what the defect was that caused the product to be returned. Well,
by analyzing that return data we realized that less than ¼ of 1% of
the returns actually had a mechanical defect. Most of our returns
were due to people not having a good initial experience with the
premium appliance. What we also found is that if they were to use
the premium appliance at least 20 times, their likelihood to keep it
doubles. The most powerful way for us to sell is to get people to
see other people‟s premium appliances, a neighbor a family
member and be amazed by it. (Kitchen Co. Vice President)
Educating customers on how to use the product can also become a customer

acquisition tool. The customer service manager at Kitchen Co. explains:

Yesterday I spent half an hour educating an older lady on how our

products worked, and all the different jars and recipes. At the end of
the call, the lady said that we had taken the time to educate her and
that support was the reason she would buy our product instead of
the competitive product. (Kitchen Co. Customer Service Manager)

Both companies possess a thoughtful and disciplined approach to sales and

120
customer acquisition activities. And yet, specific differences between them, a

focus on teaching vs. learning, are apparent and can be traced to

conceptualizations of the drivers of success in the company and the roots of

customer loyalty for each firm. Those drivers of success can further be explicated

by looking at the capabilities and strategic resources that propel each firm.

Enhancing the Product through customer data: service and product

failures

Both firms care about customer feedback and use customer information to

improve product and production processes. As was already discussed, these

process at Extrusion Co. are explicitly built into the customer onboarding

process. Additionally, when there is a customer complaint or a quality problem,

the company follows a deeply reflective process to addressing the issue and

improving production and quality assurance processes to ensure similar issues

do not recur. Quality assurance is prioritized through broad communication of

customer complaints. The Vice President of Operations at Extrusion Co.

described the process for handling a customer complaint:

So, they will call and talk to one of our inside sale reps... That
inside sales rep will log that and it will become a customer hassle.
And then that goes out.. to every leader in our plant. ... Usually we
take a look at that right away and determine what happened, try to
go down and track the root cause, who processed this? Why did
that happen? While we‟re working on that, our sales representative
or even myself will be working on the customer relationship side of
the issue, how are we going to take care of this, make this right?
What can we do? .. this is not typical of our business, we apologize,
of course, but immediately, we want to replace the material. If it‟s a

121
 situation where they have material on their floor and they don‟t
have time to deal with it, we‟ll fly out and see them. We‟re dealing
with the problem but we also are paying attention to see how
severe this impact is on our relationship, what can we do to save
our relationship? (Extrusion Co. Vice President)
The company communicates customer issues broadly and deeply in the

organization. In many firms customer complaints are handled by a single

department working in isolation. Customer complaints and service recovery

incidents, if handled well by the firm, represent an opportunity to increase

customer loyalty (Spreng, Harrell et al., 1995), so from a loyalty perspective

alone isolated service recovery is justified. However at Extrusion Co., service

recovery is used as an organizational learning tool. Learning happens at several

levels. First, communicating service issues to the leadership of the firm

establishes the prioritization that customers are given in the company. Second,

the cross-departmental nature of the communications encourages cross-

functional problem solving; as described, Sales and Operations work

cooperatively to resolve issues. Third, when appropriate it is the very top

management of the firm that calls on the customer to mend the overall

relationship reaffirming the prioritization of the issue both internally and

externally. Fourth, once the “root cause” of the service failure has been

identified, it is the party physically closest to issue who is exposed to the

customer. In contrast, most firms employ customer service experts to conduct

damage control, people who are skilled at managing and containing conflict. At

Extrusion Co., the service failure is not handled cosmetically; in addressing the

one-off failure the firm is building its core capabilities at building customer
122
relationships at the deepest level of the organization:

Plus we try to make it painful on ourselves too, we don‟t want to do

that again. ... When you are not involved, it‟s not that painful. When
you have to go to customer, that‟s different. When there is a
problem, we send two people out. Monday this week, it was for an
issue of flatness on some metal so, Ricco from the dye shop went
and the quality manager went... We don‟t send the salesman...You
have to be careful because the salesman can go in and can take
over the whole process and that‟s not the intent here. The intent is
for this guy from manufacturing to work with their guy in
manufacturing to resolve this issue and to develop some kind of
relationship. And sometimes we send an engineer if it‟s something
more like an issue over how to inspect metals something like that.
(Extrusion Co. VP of sales)
In visiting the customer directly, engineering and dye shop employees acquire

two types of knowledge: functional knowledge related to the quality issue and

deeper emotional knowledge as they develop empathy for the customer. Also,

when out on a service recovery customer visit, the employees‟ absence

establishes an exemplar for everyone else on the floor, building organizational

memory around the pain of service failure. From a process operations

perspective, the service recovery loop is closed when corrective action has been

incorporated in the value-stream processes corresponding to the quality issue.

(Extrusion Co., VP of Sales). And then again six months later, by asking the

customer directly to ensure the issue has not recurred (Extrusion Co., VP of

Sales)

The parallel process at Kitchen Co. happens in a more compartmentalized

manner and the information flow is also less distributed and more focused.

Customer complaints are directed to the customer service department through a

123
1-800 number available through the company website and also included with the

product. This conduit for receiving complaints seems rather standard and is

common practice in a variety of industries. However, what is striking is how

certain calls are handled. Calls related to recipe failures get special attention at

Kitchen Co. A customer service manager explained:

If a customer ever calls with a problem in using their blender we run

to the store and buy the ingredients they were using to replicate
whatever problem they are having. We always call the customer
back and the customers are happy that we always follow up.... And
everyone in customer service gets that knowledge. We all learn
from customer service issues. (Kitchen Co. Customer Service
Manager)
Beyond using service calls as an opportunity to add to the company‟s knowledge

base, they are also used to diagnose recurring problems.

For example, we had a problem with the power switches and if we

found it by categorizing the service calls. ... Customer service
categorizes customer feedback, then engineering tracks those
problems and try to diagnose the specific problem that is causing
the customer complaint. (Kitchen Co. Customer Service Manager)

This emphasis that customer service department places on resolving recipe

usability issues of the product is driven by a deep-seated belief that the premium

appliance product is a tool to enable customers‟ success in changing their

lifestyle. Earlier, I noted how that Kitchen Co. views the first 20 uses of the

product as critically important for establishing a successful relationship with a

new customer. The Customer Service Manager added: “What is different about

Kitchen Co. is that we don‟t just sell a product. We sell a lifestyle.” (Kitchen Co.

Customer Service Manager). Both companies use service failures as learning

124
opportunities. The differences in how service failures are handled correspond not

just to the fact that one sells appliances and the other sells extrusions but rather

to the deeply held beliefs of how the firm uniquely creates value for its customers

and how information needs to be shared to accelerate that value-creation activity.

In one case, it is by building deep and broad functional and emotional learning

routines, in the other, by replicating customer problems with the aim of improving

the usefulness of the product as a tool to enable lifestyle change.

Learning from Customers as Routine

I discussed how organizational learning is accelerated at both firms in the

case of a service failure. In addition, there are more routine ways in which

customer information is acquired in both companies. Kitchen Co. leverages

social media tools for this purpose by reading customer reviews on Amazon and

by observing customer conversations in social media sites. Currently, these

learning processes occur on an ad hoc basis, particularly as the company seeks

information from the customer base in an effort to improve the usability of the

product. Here again, deeply held beliefs about how customer loyalty to the brand

arises and develops guides information collection, dissemination and use. The

Vice President of Engineering explains:

The people who are most loyal to Kitchen Co. are the people who
have had the most success making lifestyle changes thanks to our
product. ... We focus on developing features into our products that
make achieving that lifestyle change easier. For example, we have
been focusing on improving the convenience of our products by
making them easier to fit under a cabinet, and easier to clean than

125
 any other premium appliance. We know that if the product is less
convenient to use, then people will be less likely to use it everyday
and therefore less likely to succeed in implementing those lifestyle
changes. (Kitchen Co. Vice President)

There are many ways in which Kitchen Co. could be improving its products.

However, the company follows a particular innovation path by focusing on the

specific product features that will motivate a customer to use the appliance more

often. The assumption is that use frequency drives loyalty. The VP of

Engineering and the VP of Marketing also discussed other types of product

development efforts focused on diversifying go-to-market channels:

Now we have had to develop a designer series and a pro series

and have those come in different colors and casings... to
differentiate our product and go to other retailers... We are also
changing other product specifications to try and create some true
differentiation. (Kitchen Co. VP of Engineering; Kitchen Co. VP of
Marketing).

Although critical to the company‟s sales growth, those efforts seem less strategic

from a customer loyalty and a capabilities-development perspective.

Extrusion Co. follows a more routine but no less purposeful approach to

collecting and disseminating customer data. The VP of HR explains that the

company conducts customer satisfaction surveys with a random sample of

customers on a monthly basis and with every shipment. The data from both of

those sources is used in multiple ways: (1) posted on the plant floor, (2) reviewed

in a monthly management meeting (Extrusion Co. VP of Operations), (3) turned

into a „corrective action‟ event if scores are lower than 7 (out of 10), and (4)

analyzed for trending purposes.

126
 Every month we run twenty random customer satisfaction surveys.
Those customer satisfaction surveys go in the front door... Monthly
results are posted in the plant...Then we have customer comments
cards, those go in the back door with every shipment. It‟s a 3 by 5
card and it goes up with every shipment...It has happy faces and
sad faces and a neutral rating. The people who fill them out get
prizes...So we get 85% of these cards, and we log the responses in
a spreadsheet by customer and we distribute them once a quarter.
But if everything comes back less than a happy face we
immediately spring into action. We had one recently for a distributor
in California and the salesperson visited the customer to see what
was wrong. And the customer was like, „nothing is wrong, I don‟t
know why I answered that way.‟ He was shocked that would be
following up...(Extrusion Co. President)

The prioritization this data receives, the broad communication effort around its

use as a catalyst for corrective action sends a message to everyone in the

organization about the importance of customer service within the organization.

Additionally, and in the way it was described earlier when discussing service

recover, these activities serve to build organizational capabilities.

Customer Loyalty and Employee Skills

In the forgoing discussion I presented evidence that the two firms execute

routine and ad hoc activities to acquire knowledge from their customers. And in

executing those activities, conceptualizations about customer loyalty and what

differentiates the firm determine how information is collected and how it is used

and stored as tacit and explicit knowledge. These firms have particular learning

routines that are activated at the time of customer acquisition, retention, and

enhancement. I will now show how both firms also have a particular way in which

they acquire and develop employees; how they plan or tacitly create a cultural

127
environment that reinforces the dominant logic and managerial values of the firm;

and how each firm deals with management and technology issues. Again here,

customer loyalty concepts are connected to and influence how the firm

approaches these routines.

Employee Hiring and Training

Both companies hire carefully, yet differences in the hiring priorities of the firm

reflect the capabilities of the organization. At Kitchen Co. the company is growing

rapidly and requires specific functional knowledge to enable orderly growth. The

average tenure of the employees I interviewed at Kitchen Co. was four years,

whereas the average tenure of the employees I interviewed at Extrusion Co. was

ten years. This shows that Kitchen Co. has done a bit more hiring of managerial

positions whereas Extrusion Co. has promoted from within for similar positions.

As the company grows, Kitchen Co. is focusing on adding rigor and structure to

its internal processes and has focused on hiring practitioners, people with

specific knowledge and skills. This is particularly true in key positions within

Sales and Marketing and Engineering. Kitchen Co. has credited its success to

having a great product. The key functional area of responsibility from a product

perspective is Engineering. The company continues to emphasize engineering

and hires more engineers than marketing and sales people but is now also now

improving additional processes to make the product more robust. The head of

Engineering stated:

128
 We are also in the midst of a very significant cultural shift, and we
are looking at the manufacturing process from beginning to end and
looking for opportunities to improve on the current process. Our
macro change in the company is to improve quality and really
reduce all forms of waste. My goal is to improve value to the
customer by eliminating waste... we are eliminating process steps
in manufacturing that the customer does not see or that do not
create any value added to the customer and in doing so we will
improve our margins and either lower the price of the product or
take that margin and reinvest it in innovation so we can offer
customers a better product in the future. (Kitchen Co. VP of
Engineering)

At Extrusion Co. hiring is less functionally driven. Although openings are

advertised by role, the company preferences an attitudinal profile rather than

specific skills. It is not uncommon for employees to be hired into a position that

represents a big shift from their previous role:

Well we have an HR position, so I said hold on, maybe you hadn‟t

been listening to me, but I sell sporting goods equipment to football
coaches and basketball coaches and HR?... like I‟m not sure if the
two related. “Well,” she said, “that it doesn‟t matter”, and she said, “
You have your own business? And you have employees. Who hires
them?”, I said “I do,” she says, “Who fires them? Who trains them?
Who manages them?” I said “I do,” and she says, “Well that‟s HR.
You can learn all of the skills and the laws and all of that, but that‟s
the position we have.” And really, her focus is developing and
finding the right people, people who fit the culture. (Extrusion Co.
VP of HR)
The Extrusion Co. President further states:

We hire for R2 [reliability and responsiveness] so when we are

interviewing we have specific questions to figure out how R2 the
candidates are. R2 people are unique in that they solve problems in
the organization, they don‟t bring problems; they take a lot of
initiative... If you match someone with the right nature with the
culture who brings everyone together around a common purpose,
then it‟s amazing. And if you hire the other kind of people
mistakenly, it is a nightmare until they leave or get fired. So, it starts
with the people. We think that our core competence is to identify,
129
 hire, develop and retain R2 people. It is not how we schedule our
runs or how we organize our plant; if we do that creatively it is as a
result of having R2 people. And it is because if you hire the right
people, the R2 people, care, they pay attention to detail, they know
what is on the drawing of the part that a certain customer has
ordered and that it always has to have this particular process. And
they make sure the process is in place to always have it done. How
can you create a managerial process to police that everything is
always done right? You cannot. If the people are not taking care of
it themselves, you can‟t get it right.

Once an employee is hired, the training and acclimation process begins. Both

Kitchen Co. and Extrusion Co. have specific onboarding training for employees.

Both ask that employees spend time experiencing the nuts and bolts of

manufacturing. At Extrusion Co. anyone who is hired to work off the

manufacturing floor spends two weeks on the manufacturing floor; and, at

Kitchen Co. everyone spends one week manufacturing premium appliances to

understand how the company creates value for its customers. Once the

onboarding training is complete, Kitchen Co. employees join their functional

department. At Extrusion Co. this also happens, but roles are less defined

upfront. The President of the Company stated:

We hire bootstrap people – people who make it happen. If those

people cannot build relationships they will get fired. Training is
great in theory, but if you train bootstrap people really formally, then
you can train the creativity out of them. We do training around lean,
and quality; but we are careful to nurture what people come to us
with. Does that make sense? For example, one of the biggest hiring
mistakes we ever made was a guy we brought in to run quality and
lean. We hired this guy who was West Point graduate and a Black
Belt; but he just sat around waiting for us to tell him what to do. ...In
the end probably blamed us when he got fired....If you are the head
of quality, we let you work in the plant for two weeks, but after that,
you need to figure out what your job is.

130
Formal training is reserved for functional knowledge. The Company focuses on

hiring for attitude and trains for the specific HR, Quality or manufacturing

knowledge an employee requires. As remarked by the President of Extrusion

Co., the Company leaves roles to the discretion of the employee. This means

that roles are fluid and the divisions between departments are porous because

roles are dynamic as people change.

So, we do have job descriptions but as someone leaves or as we

develop a job, you kind of have, if we use an analogy of a round
hole, right, this is what that person did, so we have to find another
person that can fill that role, and it‟s gonna be difficult. And now you
have a square peg in a round hole, and you have to beat it in.
Right? ... but, all of those corners...are skills and talents and
abilities that that person possesses; you shave them off, and beat
them into that role. Now you‟re hurting that person and the
company as well because they have a lot more to offer. (Extrusion
Co. VP)
At Extrusion Co. the VP of HR is also in charge of one of the biggest operational

teams in the company. He states:

And so one of the things we try to do, and you can see that with my
experience, I can fill that HR role, but I have more skills and abilities
and the President was seeing that and allowing me to grow and
expand into different areas... within six months I had HR, and then I
had a portion of our operations, one of our valued streams ... And
over time, it evolved from ... to one of our biggest industries, our T-
slot division. So, I manage all of our operations over T-slot.
(Extrusion Co. VP)

The VP of IT is also the CFO. The manager of safety is a facilitator for the

company and runs a variety of meetings at all levels in the firm. The Executive

Secretary is in charge of customer research and analysis... Roles are defined

131
around the individual needs and interests of employees. In a sense, the

customization of service offered to customers is replicated with employees:

Our President always talks about mass customization, and so, you
know, we customize everything, for our customers, but we also do
the same for our employees. Because just like with customers,
employees have different needs at different times, so we customize
and tailor, try to do as much as we can for our employees as well
as our customers. (Extrusion Co. VP)
Organizing to deliver responsive and reliable customer service requires that

employees are highly engaged with customers and just like in the manufacturing

floor the firm tries to achieve a seamless workflow of product; managerially it

targets a seamless handoff between departments. The Company could have

opted to develop policies and procedures to regulate cross-functional

interactions. Instead, there are no rules. This works because employees in each

department have cross-functional roles and act on behalf Extrusion Co. and in

the service of customers rather than representing a particular department and

competing for resources to advance that department‟s functional agenda.

Role definition and training are important decisions the firm must make,

and as those they are made, the firm is continually balancing dual goals related

to goals of standardization and spontaneity. The firm would benefit from making

knowledge explicit so it can be easily dispersed throughout the organization to

ensure consistency; and the need to allow for spontaneous problem-solving,

allowing knowledge to remain tacit. This last priority looms larger for the service-

focused than the product-focused firm, larger for Extrusion Co. than for Kitchen

132
Co.. Customer Service is important at both firms, but it is conducted differently

and formal training is more important for the firm that seeks to project a rules-

based image to the market. At Kitchen Co. employees are trained around specific

policies:

We do role-playing. We train new employees on the computer to

understand the technical systems. We do a lot of side-by-side
listening and mentoring. Once they have done a lot of side-by-side
listening, they start running the calls on their own and we listen and
train them that way. Then of course, Mary listens into calls
sporadically and provides feedback constantly. (Kitchen Co.
Customer Service Manager)
The customer service department at Kitchen Co. is prepared to administer

company policies in the most professional and positive manner. At Extrusion Co.

there is no customer service department and there are not policies; responsive

improvisation is valued over consistent application.

Culture and Values of the Firm

Extrusion Co. possesses a culture that prioritizes customers. Internally, however,

customers and employees are seen as part of an ecosystem where both

elements are treasured and their interrelationships are nurtured. The CFO of the

firm states: “When the business is really profitable, the President’s first thought is

how to give back to the employee.” (Extrusion Co. CFO). The culture of that firm

is one that demonstrates that individual differences are cherished through the

assignment of roles and responsibilities. At Kitchen Co., employees are

organized in more traditional functional silos, yet the culture in that organization

133
also seeks to create cohesion through other means. A production manager

states:

I have been to other companies before but this place is different. I

feel like I am part of a family. Maybe its because the founder is so
involved. Also, we are employee-owned now. I am not sure how
that is going to work; it‟s been going on for the last two years. But
even before that… it was great place to work. (Kitchen Co.
Production Manager)
An integral part of the company culture is a focus on delivering a tool to improve

the lifestyle of customers, not just a simple premium appliance. This focus is

echoed internally. Employees can care for their own lifestyle through a cafeteria

that features healthy menus and gourmet food, a gym, a clinic and a dentist

available to all staff. While these amenities are common in Silicon Valley firms,

they are rare in manufacturing environments. Additionally, the firm as family

concept is formalized through a process by which the company will become

employee-owned. The CEO recapped his goals:

Grow at 50% per year for the next five years and be able to
complete our ESOP (Employee Stock Ownership Plan). Basically
I‟m giving the company away. We are giving our stock to our
employees. Then I‟m just going to continue to watch the strength of
the company. When the company is employee-owned people will
be more willing to throw non-performers off the bus that they are
today. (Kitchen Co. CEO)
If employees at Kitchen Co. are made to feel like the are part of a family, where

each member has a predetermined role, Extrusion Co. seeks to extend its no-

rules culture to the families of its employees.

The President handwrites a birthday card to every employee, she

handwrites a card for their review. A personalized card specific to
134
 their review or specific to, she knows their family, and I don‟t know
how she does it... how many companies, have you ever met the
CEO of a company, other places you‟ve worked, and if you‟ve met
them, do you think they‟d recognize you and know your name, and
remember you and your birthday? (Extrusion Co. VP of HR)
Another Vice President adds:
In addition to the training, there are so many ways that we try to
bond ourselves to employees. Just like we do to the customers, we
try to velcro ourselves to employees and the families. When the
President sends a letter, she doesn‟t give it to the employee at
work, she sends it to the home and addresses it to the wife and the
husband or to the spouse, to the partner, whatever it is. When we
have company meetings, we invite the spouse, invite whoever is
their family. For the benefit meeting that we are going be doing this
week, we invited members of the families to come, because if the
employee goes home and they have had a rough week and they
are like, „you know I‟m tired of that company,‟ we want their spouse
to pull them aside, or their children, and say „that‟s a great company
you can‟t leave there‟ or „think about the great thing that had
happened, the clinic, our family can come down and use the clinic.
That‟s a great benefit, not necessary just to the employee but to the
family. (Extrusion Co. VP of Operations)
At Extrusion Co. the company is in the business of establishing intimate

service relationships with customers. The expertise and training required to

deliver that service is one that cannot be easily taught but can be hired, modeled

and developed. Customer intimacy is modeled at the highest levels in the

organization by the President who establishes and manages relationships with

over 250 employees and their families. Also, by inviting employee families to

benefit meetings and extending benefits (clinic visits, scholarships) to family

members, the company is not just creating an image of a caring environment but

is also creating a strong incentive for employee retention that is enforced by the

employee‟s family. Forging intimate relationships is implicitly and explicitly

135
encouraged at Extrusion Co.. Part of the leadership requirements for every

member of the management team is that they forge similar relationships with

their team members. Although Extrusion Co. has few rules, there are rules about

the number and quality of employee interactions, and part of all managers‟

responsibilities include having a certain number of conversations with their

subordinates. The Vice President of Operations stated:

On the management side, we have standardized work. On

mine, I want to interact at least twice a week with specific
people in the plant. And I want to talk with so many people in
each area. And the goal be by the end of the month is that I
have talked with everybody in my area by name, I‟ve gone
and I‟ve talked to them, asked them how their family doing. All
the leaders have it. For example, here is one. This would be
twice a week: I want to go out and talk to somebody and I
write down who, who did I see? This specific day, I was in the
plant all day, so I saw Todd at the die shop, Jamie at the
press and so I now I go back and see who I haven‟t visited.
These are the leaders that I have in my area, so once a week,
have I met with them? Have we gone over the performance
card? Have I looked at their standardize work? And then any
reviews, I have plant reviews, all of the review for anybody in
the plant, I will look at, Spencer, Will and Sue will approve.
(Extrusion Co. VP of Operations).
Although Extrusion Co. management likes to talk about having a no-rules

environment, what is unique about the culture in this organization is not an

absence of rules but rather the rules that do exist. Most senior managers at other

firms would be surprised if their CEO made them report the number and exact

nature of their interactions with subordinates. While the firm leaves customer

service at the discretion of the employee, the high level of leader-employee

136
intimacy mandated across the firm is part of a programmatic approach to building

a culture that models intimate relationships.

Managerial Processes and IT

Both Kitchen Co. and Extrusion Co. possess organizational cultures that

reflect and reinforce firm capabilities. As employees join these firms they note a

particular culture. The CFO at Extrusion Co. states: “I had spent six years at

Company X and then when I came to Extrusion Co. I saw that this place was

drastically different, much more flat structurally. Your ability to do things that you

think need to be done... you can get them done.” (Extrusion Co. CFO) At Kitchen

Co. the Vice President of Engineering stated:

Our company is very stereotypically entrepreneurial, there is a lot of

passion and energy but we need more structure... For the product
development side of the company, we are trying to take a delicately
balanced approach – allowing for the entrepreneurial style of
management at Kitchen Co. while also following a rigorous and
process-driven approach... I am trying to create small successes. I
am working on a few projects that follow a structured approach, and
hope that their success will be noticed by my engineers; and it will
create momentum amongst them for a more structured approach. It
is interesting because I am following a non-structured approach to
creating more structure in the organization. This is probably
something I should consider more carefully.

A Vice President at Kitchen Co. expressed a similar slightly frustrated view of the

managerial processes within Kitchen Co.:

This is an organization that doesn't do a lot of budgeting or does

long-term planning.... There is great interest in investing in plant and
machinery. For example, we now have ... the best circuit board
assembly line of any manufacturer in the industry, but ... we don‟t do
enough planning; we don‟t analyze enough data. (Kitchen Co. Vice
137
 President)

Both companies are small and both work to preserve an entrepreneurial

environment while enhancing their service-based capabilities in one case, and

their product-based capabilities in the other. At Kitchen Co., some senior

managers expressed a need for more structured planning from the very

leadership of the firm. A traditional view of leadership development might be that

it requires an orderly, disciplined process, with planned experiences along the

way. However, entrepreneurial environments attract and breed a different type of

leader. One who feels most needed in an environment in which the strategic

planning process has not quite been established and therefore tends to happen

more ad hoc. The benefit of this less planning-heavy environment is nimbleness

and flexibility, an ability to 'turn the ship' quickly. However, Kitchen Co. is in the

midst of a transition. The firm introducing new product lines, and it is collecting

market research to feed into its product development processes. The company

seems to be experiencing a cultural shift at a very rapid pace while maintaining

over forty-percent sales growth year over year. The benefit of not having

stringent long-term planning processes is nimbleness; the downside is a high

level of uncertainty in the upper and mid-management levels of the firm, the

potential for employee burn out, and the potential that product innovations might

not occur consistently.

Both companies talked about infrastructure and technology investments.

In the case of Kitchen Co. the company had just purchased an integrated circuit

138
board manufacturing unit, improving the usability of their appliances by adding

additional programs and simplifying product operation (Kitchen Co. VP of

Engineering). In the case of Extrusion Co., the technology investment was

geared at creating visibility for product flows as material moves through the

manufacturing floor to offer even more reliable lead times to customers based on

the specific requirements of their orders. (Extrusion Co. CFO , VP of IT) Here

again, the product vs. service focus in the two firms drives the type of

investments the two firms are making. Investing in a circuit board reinforces

Kitchen Co.‟s commitment to building functionally superior products. Even as the

firm is rounding out its product focus by investing in marketing resources and

increasing the weight of customer input in the product development process, the

dominant logic that stipulates that the product is the source of company success

gets reinforced. Additionally, investing in a circuit board means that the firm will

need to train its employees to operate it; will need to increase the sophistication

of the processes that feed into and link to that manufacturing phase; and might

need to hire employees with specific skills. This investment in particular

communicates to everyone in the organization the importance of product over

other disciplines. Extrusion Co.‟s technology investment is clearly different. It is

designed to improve the visibility of materials running through the plant,

shortening the product to cash cycle, improving service reliability and

responsiveness. This investment is designed to help the firm better manage the

complexity of its manufacturing environment by estimating lead times at the

product level by value stream. This will further reduce the need for employee
139
rules but will certainly heighten the sense of employee responsibility to the

customer.

Conclusions: Managerial Implications of the Core Capability Typology

Teece, Pisano and Shuen (1994) define core capabilities as “a set of

differentiated skills, complementary assets, and routines that provide the basis

for a firm's competitive capacities and sustainable advantage in a particular

business” (p. 18). One of my research goals was to decipher broad capability

themes in two organizations and to investigate how capabilities drive and interact

with customer loyalty goals. The initial hypothesis about the two firms, Extrusion

Co. and Kitchen Co. was that given their industry affiliation, they would have

widely different organizational routines. Instead, what I found was that as mid-

sized privately held firms engaged in manufacturing, they shared a number of

common processes. Given this, a parallel process of inquiry – talking to like-

officers in the two companies – served to highlight key differences in the

organizations driven by distinctive and strategic capability dimensions. The

interviews specifically teased out the separate components of capabilities –

assets, skills, and routines.

Both firms utilized tangible and intangible resources to carry their

commercial activity. Amongst these strategic assets, it is the knowledge assets

embodied in people and systems that are most critical to their core capability.

This is logical as knowledge assets are the most unique and hardest to imitate

140
strategic resources of the firm. Assets and capabilities are so intrinsically and

intimately linked that it is almost impossible to separate them. I recall here that

core capabilities are organizational skills that span several functions within the

firm and activate strategic assets and together assets and skills help the firm

achieve competitive advantage. Extrusion Co. and Kitchen Co. are both highly

successful firms, Extrusion Co. leads its industry from a profitability perspective

while Kitchen Co. has a track record of very rapid sales growth. We can broadly

define the core capabilities of these two companies as customer intimacy and

functional performance. As both firms are very entrepreneurial we can look at

their leadership for the genesis of these firms strategic assets and core

capabilities. Each firm‟s distinctive resources are embodied in the company

president. In the case of Kitchen Co., the founder of the firm is an engineer and

inventor who attributes the company‟s success to technical prowess and the

broader organization‟s skill at engineering, at the expense of marketing.

Interestingly, Extrusion Co. also went through a turnaround at the hands of an

engineer, but this CEO possessed superior skills and knowledge about how to

foster deep and meaningful human relationships and how to intrinsically motivate

employees.

Understanding the strategic resource profile of the management team is a

key to understanding the core capability profile of an organization. At the outset

of a firm‟s life, core capabilities and core strategic assets are one and the same

as they are embodied in a very small group of people and their intimate

141
interactions. A company‟s marketing process and the process of capability

enhancement happen simultaneously and interact with each other. The

marketing process includes the projection of a particular message to

marketplace, a message that creates customer expectations and motivates

purchases. The process of capability enhancement occurs on the backside of

that conversation, as purchases elicit reactions from customers in the form of

accolades, complaints, and more generalized feedback. The tools and methods

the firm uses to listen to feedback and to incorporate that feedback into its

production activity determine how and to what extent the firm enhances its

capabilities. Those tools and feedback methods and the interpretation of the

feedback are driven by the dominant logic of the firm. With a dominant logic that

states that company‟s success is due to a superior ability to offer customized

services, at Extrusion Co., listening happens in an intimate way, one customer at

a time, before and during the business relationship. The employee community at

this firm distributes information broadly and places an emphasis on learning from

its customers. This company hires managers over practitioners and relies on on-

the-job training through seemingly informal but highly disciplined methods

including visualizing end-customer‟s applications. At Kitchen Co., the dominant

logic of the firm is that company success is driven by superior products based on

engineering excellence, and causes the firm to focus on listening to customers in

a more public forum as they discuss product-based experiences. The company

collects information in functional areas, customer service and marketing

primarily, and shares that information as needed to improve product

142
performance. This firm hires practitioners over managers; employees come

together to enhance products but there is a lessened need for intimacy within this

company‟s culture as the output of the organization is a product with concrete

attributes and company-customer interactions are mediated by the product and

its performance characteristics. For this organization teaching is more critical

than learning as it is in the process of teaching that the organization learns. This

is perhaps most evident in the product roadshows, where customers come

together to learn about the product and the company has an opportunity to

observe customer reactions and feedback. Ultimately, learning from customers

is at the core of sustainable growth driven by capability enhancements. In order

for firms to sustain their performance they must strike a delicate balance between

listening and reacting, between learning and teaching. Listening too closely and

reacting too much means losing differentiation; listening too little and failing to

react can mean capitulating to core rigidities. Here too, the two companies are

similar, as both have stricken a balance between listening and leading

customers. Companies need core capabilities to differentiate themselves in the

context of their markets, and capabilities at balancing the listening and reacting

functions of the firm.

143
 Chapter 6

IMPROVING CAPABILITY DEVELOPMENT AND LOYALTY IN

ORGANIZATIONS

A well-managed brand conveys a clear promise to its consumers. BMW

promises to deliver ultimate driving performance; Nike promises to empower us

to „Just Do It,‟ that is, exercise when we‟d rather sleep in; Huggies promises to

keep our babies dry; Fedex promises reliability; McDonalds promises

convenience; and the Four Seasons Hotels promise outstanding service. For

decades academics have encouraged managers to achieve differentiated

positioning for their brands. Managers select brand meanings for their firms in the

hopes that they will be able to „stand‟ out from other alternatives available to

consumers in a market place that is increasingly complex and competitive. And

proof that a brand is differentiated can be established by identifying the degree of

customers‟ loyalty to the brand. Companies can only grow sustainably if they

market themselves using a brand positioning that is congruent with the product

and service attributes delivered to customers. Brands like BMW and Huggies are

positioned on promises of functional performance and will deliver on their

positioning by having superior products; in order for brands like Fedex and

McDonalds to deliver on their reliability and convenience positioning they will

need to have superior operational processes; in order for the Four Seasons to

deliver on its customer service promise it will need to understand customer‟s

personal needs when they are away from home. Differentiating the customer-

144
facing brand requires having differentiated capabilities that bear some

correspondence to the image the brand is attempting to create, that is, it requires

core capabilities. Companies develop capabilities to produce loyalty and in turn

financial results. The loyalty and capabilities constructs are conceptually

appealing but complex and difficult to operationalize. These constructs are also

obviously related, but until now we lacked a theoretical framework to tease out

their linkages. This dissertation provides a conceptual framework to guide the

study of the relationship between capabilities and loyalty and the corresponding

impact of loyalty on capabilities. The quantitative research conducted as part of

the dissertation has generated a tool to measure the multidimensional loyalty

construct. The qualitative research conducted as part of this dissertation has

shed light on the connections between capabilities and loyalty in two specific

organizations. I now use the theoretical framework to conceptually connect these

two research efforts.

The Capability Implications of Customer Loyalty

We can view organizational learning and capability development as

parallel and interrelated processes including information acquisition, knowledge

creation and capability development; information interpretation and product and

service development; and information exploitation. The type of information that is

acquired by the firm is critical to the types of capabilities that the firm develops.

Faced with a multidimensional construct such as loyalty, measuring only

satisfaction ratings impoverishes organizational learning and the building of

145
capabilities. If the firm is to develop a differentiated brand positioning it will

require capturing multidimensional loyalty data and interpreting and building

knowledge accordingly. Table 6.1 shows the relationship between each of the

loyalty dimensions and company capabilities by organizational learning phase.

Table 6.1 The Capability Implications of Customer Loyalty by Organizational

Learning Phase
Head/ Functional Hand / Operational Heart/ Customer
Performance Efficiency Intimacy
Information  Conduct product  Conduct behavioral  Conduct projective
acquisition benchmark research or observational customer
 Gather Customer research research
feedback  Gather
community-
generated
feedback
Capability  Hire practitioners  Supply chain  „Bring‟ the
and  Manager for cross- visibility customer into the
Knowledge functional  Prioritize organization
Creation cooperation operational control  Leverage
 Encourage dissent  Process and customer
 Train for Individual systems-based knowledge across
knowledge knowledge the org
 Community-based
knowledge
Product and  Adopt a systematic  Constant process  Customer-
service innovation focus optimization collaborative
innovation (e.g., Bell Labs  Skill at process innovation
 Skill at launching new innovation Focus  Innovate for
products on process and customization and
 Innovate for improved „stealth‟ innovation engagement
performance or  Innovate for ease
quality of use and
availability
Knowledge  Skill at launching new  Use service data to  Collect detailed
Exploitation / products anticipate needs customer service
Commercializ  Engage with and avoid data
ation customers through disruptions  Provide
data and  Provide easy to personalized
performance- use support support
enhancement  Automate and  No (apparent)
features simplify customer rules
 Few, clear and fair service  Empower front-
146
 customer service  Automate line employees to
policies customer engage with
interactions customers

As demonstrated by the multidimensional loyalty scale developed here,

customers who score high on head loyalty support a brand because of its

uniquely superior quality and performance attributes. These customers‟ loyalty is

based on expectations that companies will clearly state the performance benefits

of their products and services and will live up to the expectations they have

created. It logically follows that brands seeking to attract head loyalty must: (a)

consistently demonstrate performance and quality superiority vis-à-vis

competitive substitutes; (b) must have a differentiated ability to communicate

performance. The functional-performance driven company will, in turn, require

distinctive internal capabilities that enable a performance positioning. Because

core capabilities are multidimensional, performance-oriented brands will require

the support of performance-oriented capabilities that span all functions in the

company. These core capabilities should be evident by examining the employee,

managerial process, technology, and cultural skills of the firm. In the performance

oriented-firm, employees are hired for their specific skills; these companies will

hire practitioners with functional skills over relationship-oriented managers.

Because the firm needs to innovate consistently, employees must possess

market-leading product-focused skills and the firm will seek formal functional
147
training when appropriate to ensure employees possess market-leading product

knowledge.

We can imagine that the performance-centric organization will scan the

academic and practitioner landscape to identify technology trends that can

further improve the performance of its products. Employee career paths in these

organizations might be tied to their demonstrated technological prowess. The

managerial processes to support employee‟s growth should be methodical with

clear rules for how to progress from one stage to the other while allowing for

flexibility to encourage ideation. Where possible, incentives should be tied to

processes rather than outcomes to encourage innovation; this type of

organization should be highly tolerant of failed innovations. Organizationally, the

performance-centric company will maintain clearly delineated functional areas

but will ensure cross-functional teamwork by rewarding cooperative behavior.

The technology systems that support this type of firm must be product-focused

and must enable ideation and communication. Customer feedback will be used to

test emerging technologies to ensure they meet latent needs but will not be

overweighed as the firm, not its customers, will be in charge of setting the

direction of innovation. Feedback will be used ensure that innovation is

customer-appropriate rather than customer-centric. Customer feedback will be

solicited again as technologies are launched and need to be iterated and

improved. The company wishing to cater to head loyalty will benefit from

adapting its organizational learning routines to the peculiarities of the head loyal

148
customer.

This dissertation has shown that customers who score high on heart

loyalty support brands which inspire passion and extroversion, making them feel

good about themselves and eager to share consumption stories within a

customer community. Customers‟ ego involvement with the brand is captured in

the item: “If someone says something negative about <brand>, I will feel like they

are attacking me personally.” The type of company that aspires to heart loyalty

will have a strong culture that extends beyond the employee to a community of

practice around the brand. These companies‟ walls will be porous to facilitate the

mirroring of the customer experience internally. The culture must capture the

essence of what brings customers and employees together around a brand idea.

The product will take a back seat to the customer; employees will obviously need

to be functionally competent, but the company will prioritize hiring outstanding

relationship managers. A critical component of the managerial processes in

these firms will be a disciplined approach to managing with few rules;

organizational success will require a very strong culture with highly empowered

employees at all levels of the firm. The technology supporting this type of

enterprise will enable customization by customer, recording customer

preferences, facilitating the delivery of customized service. The company will

encourage sincere customer feedback and will use that feedback to adapt

internal organizational processes.

The customer who scores high on hand loyalty is someone who probably
149
made a cognitively-involved product choice some time ago but now supports the

brand out of routine. Like the other loyalty dimensions, hand loyalty implies trust

towards the brand but unlike the other loyalty dimensions that trust is based on

familiarity rather than cognitive or affective commitment. Customers who display

a high hand loyalty score support their brand of choice over others because it is

easier to use, more convenient, and more available. From a core capability

perspective, the company seeking to attract or maintain hand loyalty will deliver a

consistent rather than brilliant level of service. It will prioritize distribution over

other executional elements, making the brand ubiquitous within specific sales

channels as expected by its customers. This company will require employees

with logistics and operational expertise; it will hire accordingly and will devise

internal training to ensure seamless workflow from sourcing to manufacturing and

distribution. Production and development systems will be designed to ensure

ease of use superiority over competitive alternatives. Its managerial processes

will likely be rules and policy-driven leaving little room for error. These companies

will require a relatively regimented cultural environment, one that is not tyrannical

but rather orderly and efficiency-minded. Technology will be used to enable

supply chain visibility, to manage margins and tight delivery timeframes.

Technology will also enable customers to self-service; customer service

interactions will be kept to a minimum, become automated and highly time and

energy efficient for the customer.

150
 Extrusion Co. and Kitchen Co. through the lens of the Conceptual

Framework

In an effective and healthy organization, strategy and execution represent

two self-sustaining activities. The strategic plan provides a blueprint for the

prioritization of the activities of the firm, and a hypothesis as to how actions by

the firm will impact firm performance within the context of the market

environment. With each of the activities involved in execution the organization

tests a strategic hypothesis and records how reality differs from the strategic

model. During a process of strategy-to-execution integration, assumptions are

validated, and corrected when necessary. The process of execution thus

enables continuous learning as long as the organization (a) articulates the

strategy in a way that facilitates „testing,‟ by clearly formulating assumptions and

relationships between variables, (b) records and communicates the results from

implementation in a format the permits the disconfirmation of a priori

assumptions, (c) maintains the flexibility to change organizational routines and

processes based on market feedback. We can conceive of execution and

strategy as processes of organizational integrity, meaning the consistency of

strategies, organizational values, actions, metrics and outcomes.

By extrapolating the specific items of the multidimensional loyalty scale

onto internal capabilities we can develop a capability blueprint. Establishing a

correspondence between the tripartite loyalty dimensions and the performance-

intimacy-operational core capability categories provides an outline for the

151
integration of strategy and execution, presenting a toolset for managers who wish

to run their companies purposefully. In today‟s complex and performance-driven

business environment, management teams‟ attention is divided amongst a

multitude of priorities. Leveraging the conceptual framework developed within

this dissertation can help direct the development of capabilities, the development

and testing of loyalty hypotheses and the elaboration of the knowledge

management agenda of the firm. Mapping specific firms‟ capability and loyalty

profiles against the conceptual framework should help generate insights for the

individual firm.

This dissertation included an in-depth study of two firms, Kitchen Co. and

Extrusion Co., and a discussion of how these two firms approach capability

development and loyalty measurement. Viewed through the lens of the

conceptual framework, Extrusion Co. possesses a customer-intimacy core

capability. Although most extruders in the US would describe their business as

manufacturing, the management of this company affirmed that it wins within its

market by offering customized service in an environment where service is rules-

based and one-size fits all. This firm described having three types of customers,

which roughly fit the hand-head-heart tripartite model but being most successful

with „velcro‟ accounts. These velcro accounts are companies to whom the firm is

able to offer value-added services that reach beyond the product to include

logistics, design, and working capital management. In addition to de-

commoditizing the extrusion business model by adding these service

152
components, Extrusion Co. management takes specific steps to establish deep

and broad personal customer relationships with these customers. The company

has a sense that it is the „heart‟ relationships that are most rewarding from a

profitability perspective but might not have the hard data to justify internal

resource allocation accordingly. Aligning business metrics to the company‟s

service model is critical to making the service model self-sustaining. The

multidimensional loyalty scale can be adapted to the needs of the B2B enterprise

to allow Extrusion Co. to measure the loyalty of its customer base. Extrusion Co.

already collects customer satisfaction and specific order satisfaction data

consistently and uses it effectively to adapt specific customer service protocols

and more general competencies. The firm might consider adding the

multidimensional loyalty scale to its metrics set as well as consistent

measurement of profitability by customer. The addition of these two metrics will

help test the hypotheses that the firm‟s customer intimacy capabilities are most

helpful in increasing heart loyalty and that heart loyals are more profitable than,

say, hand loyals. If these hypotheses are confirmed, then the company might feel

emboldened to reinforce its service model internally and to its external

stakeholders. In turn, Extrusion Co. will be able to garner the energy and support

required to further consolidate its strategy by explicitly targeting these types of

relationships through its sales efforts.

The company that cultivates heart loyalty and therefore is invested in

developing core capabilities related to customer intimacy will naturally possess

153
lots of tacit strategic assets (relationship management expertise, customer

communities, emotional loyalty) with fewer explicit knowledge assets (policies

and procedures, customer service manuals). Making some of these naturally tacit

assets more explicit will enable more efficient and effective organizational

learning and capability enhancement. As suggested by organizational learning

theorist, (Boisot, 1998), the overt categorization of knowledge assets by

competency dimension (values, culture, employee knowledge, technology,

managerial); by their relative tacit or explicit nature; and by the relative dispersion

of knowledge (internal vs. external) will aid the firm as it plans how to manage,

train, and use knowledge. Figure 6.2 presents an illustrative map showing

knowledge assets of the firm and identifying the most likely key strategic assets

for the two companies in the study, Kitchen Co. and Extrusion Co.. Please note

that this chart is purely illustrative, meant to show the likely placement of the

knowledge assets for these two companies.

154
Figure 6.1

Mapping of Company Strategic Knowledge Assets

company market
explicit Patents, E-communi es
Func onal IP
Kitchen Co.
Technology
Supplier e-
processes Licenses
communi es
Managerial
Processes & Brand
incen ve systems Reputa on
Internal cer fica ons /
manuals Channel Distributor
Rela onships know-how
Extrusion Co. Employee Org Culture Employee
knowledge & values cross- Customer Customer
Employee func onal rela onships know-how
tacit loyalty knowledge

Un-diffused Func onal Cross-func onal Market

diffuison diffui on Diffui on

For example, tacit knowledge is more effectively trained through mentoring and

role modeling and shared through communities of practice. Explicit knowledge

can be recorded and transferred through more formal in-class or online

training(Smith, 2001). Widely dispersing knowledge might threaten its strategic

value; Extrusion Co. might categorize its knowledge assets and decide how and

to what extent to protect those most critical to its core capabilities. Use and

further detail of the conceptual framework should be helpful in making this

determination of what knowledge to disperse, perhaps by making it explicit as

much as is possible, and what knowledge to protect by transmitting it only tacitly.

Kitchen Co. largely fits the model of a product-focused or functional

performance capability company. As with Extrusion Co., fitting a capability type

155
does not mean that the firm will only find head loyal customers amongst its base,

but rather that its capabilities are naturally fitting to head loyalty. Some of the firm

management interviewed for this dissertation believe that consumers‟ purchases

of premium appliances correspond to a feel-do-learn model, where emotion

drives purchase and learning happens after the product is in the kitchen and the

customer learns how to use it and its feature and benefits justify the purchase in

retrospect. We might expect that consumers will do research prior to purchasing

a super-premium product like the one sold by Kitchen Co., and that affect might

follow learning and behavior, in a learn-do-feel sequence. Because Kitchen Co.‟s

product is seen as virtuous and enabling a healthy lifestyle, we can imagine that

high affect might result from the successful use of this product, as Kitchen Co.‟s

customers attribute their ability to improve their lives to Kitchen Co.‟s premium

appliance.

In reality, it is likely that Kitchen Co. has both head and heart loyalty

amongst its customers, and some, although less, hand loyalty. Understanding

the mechanics of the head to heart transition is important because it will help the

firm decide what to communicate at each stage of the customers‟ purchase-

decision process. If emotion is in fact the primary purchase decision driver, then

the firm should make customer testimonials, featuring lifestyle change success, a

key component of its customer acquisition communications. If rational cost-

benefit analysis is the primary method used for customers contemplating a

premium appliance purchase, then product performance benefits (e.g., how it

156
powerfully processes different food products due to its powerful motor) will be

used as key messages to acquire customers. Measuring the prevalence of the

different loyalty dimensions at different phases in the purchase cycle (pre-

purchase, at purchase, immediately post-purchase, and after use) would be

highly valuable exercise for Kitchen Co. The use of the multidimensional loyalty

scale would provide a way to understand how consumer attitudes evolve from

research to post-purchase and enable the adaptation of not just communication

tactics but all sales and customer service tactics.

Using the core capability model developed as part of this dissertation will

enable Kitchen Co. to build competences purposefully to fit its strategic intent.

The firm has been successful against its main competitor by developing a

functionally superior product. If Kitchen Co. is to continue leading its business

category thanks to great product performance it will need functional performance

core capabilities to support that growth. While marketing pundits might extol the

role of the customer in product development, market-leading innovation must

delicately balance the role of the customer. Kitchen Co. should continue to make

its products customer-friendly but should not look for customers to dictate its

innovation path, as their role is to inspire rather than decree. The firm might look

for cross-industry benchmarks from other firms who also possess a performance-

oriented core capability (e.g., BMW, Google, ). Here again, distilling the

implications of the conceptual framework for capability development would

provide management with a tool to guide its metric setting, and its training and

157
development efforts.

Learning leaders today are challenged to link the learning agenda of the

firm to its strategic priorities. Adapting the learning agenda to the company

strategy is rarely done in practice, perhaps because strategic priorities are ill

defined, in constant flux, or expressed in abstract terms. However, if the firm is

to achieve brand differentiation, organizational learning must be focused not just

on building general capabilities but must be intrinsically linked to delivering

specific customer-focused attributes. A company that, like Extrusion Co., centers

its competitive advantage on great customer service requires customer intimacy

capabilities. This company should prioritize shared knowledge over individual

knowledge, tacit over explicit rules, community over individual priorities, and

customer engineering over product engineering. A company that, like Kitchen

Co., owes its market position to its superior product performance must have

functional performance capabilities. This firm should favor explicit knowledge and

rigorous product-based research and development; and innovation-based skills

over empathic relationship-building skills. In order for the organizational learning

agenda of the firm to be integrated with the firm strategy, the management teams

need to articulate strategic priorities not only in terms of market share or other

numerical business goals but also in terms of core capabilities. Changing how

strategic priorities are communicated will likely improve the effectiveness,

strategic value, and stature of the learning and development function in the firm.

158
 Directions for Future Research

Practitioners in today‟s complex business environment face important challenges

as they attempt to solve systemic problems in organizations leveraging functional

tools. This practice can cause the misdiagnosis of important patterns that run

across the entire system, limiting the organization‟s opportunity for generative

learning (Senge, 2002). Due to the cross-functional nature of core capabilities

and the similarly multidisciplinary nature of the resources required to achieve a

high level of customer loyalty, practitioners are in need of cross-functional tools

to apply the capability construct in the service of loyalty. This dissertation started

with an excerpt from management thinker, Peter Drucker, who famously placed

customer loyalty at the forefront of the agenda of the firm. Placing customer

loyalty above other company goals, such as profitability, is not only good practice

but also represents an ethical stance. Effective and efficient cultivation of

customer relationships requires an aptitude for organizational learning, and that

requires a focus on the fulfillment and motivation of individual employees.

Organizational learning is highly dependent on individual learning, and individual

learning cannot be achieved absent a sense of purpose and self-esteem. Thus in

advancing the dual goals of organizational capability development and customer

loyalty we also need to advance the individual learning goals of the firm.

A key aim of my literature review and field research was to bridge the gap

between Marketing and Organizational Learning by developing and rigorously

testing two sides of a conceptual framework that links customer loyalty and
159
company capability. This dissertation has developed a measurement tool that

captures the multidimensionality of customer loyalty. It has also uncovered key

relationships between capabilities and loyalties within the firm. Future research is

needed to more rigorously and comprehensively measure capabilities. Next

steps in this research agenda include the creation of more deductive research

models for capability categorization and measurement. Narver and Slater (1990)

developed a scale to measure organizational market orientation, primarily

focused on a self-assessment of organizational practices around customer and

competitive intelligence gathering. That work was augmented by Kholi, Jaworsky

and Kumar (1993), who developed a scale to measure not just information

acquisition but also its dissemination and the organizational responsiveness to

that information. Here, as in the loyalty space, more typologies of capabilities are

needed to capture the diversity of organizational competences. Follow-on work

would include the creation of an capability scale to provide much needed

evidence in support of the Treacy and Wiersema (1997) capability categorization

used in this dissertation and so often referenced in business schools everywhere,

but which until now lacks academic rigor.

My work creates knowledge where it is most lacking, at the intersection of

company functions and of academic disciplines, filling the great void left by the

lack of integrative research. A virtuous byproduct of this work will be the elevation

of the learning discipline in the company through tighter integration between

learning and the strategic agenda of the company. More work is needed to map

160
the firm‟s knowledge assets and to design specific organizational learning

routines that match, enhance, or change the core capability profile of the firm.

This work might be conducted in parallel with the quantitative capability work

outlined above as a way to continue adding practical relevance to both

capabilities and organizational learning. My hope is that the loyalty measurement

tools developed here will become critically important in building the case for

greater and more specific learning investment in the firm. A related but separate

stream of work might be to explore specific ways that companies can change

capabilities and their impact on loyalty. For example, many firms undertake

corporate social responsibility or sustainability initiatives in an effort to impact

their brand perceptions and match consumers‟ increased environmental and

social consciousness. The current loyalty profile of the firm as well as its

capability profile should be considered in deciding how to approach these

projects.

The use of mixed methods research is relatively rare in the fields of

marketing and organizational learning but it is critical to studying multidisciplinary

and cross-functional topics such as loyalty and capabilities. Quantitative and

qualitative methods have been applied to the study of organizational learning,

strategy, and loyalty but are rarely used in combination across these fields.

Future work might explore the use of psychometric measurement tools to map

company core capabilities and of ethnographic methods to map the loyalty

transitions customers make and the key drivers of the inflection points in

161
customer-company relationships.

162
 Appendix A

Final Version of the Loyalty Survey

Thank you for participating in this consumer study. We are interested in your
opinion about different brands and products. We will be asking you about your
preferences, your habits, and your opinions about a particular brand. There are
no right or wrong answers; we are simply interested in your candid opinion

We are interested in understanding your opinions and brand preferences within

the energy drink, coffee, or sports drink category. Please take a look at the types
of drinks that we have listed below. Then select only one type of drink where
there is a brand that you feel strongly about. By feeling strongly, we mean that
you much prefer it to others. If you don't ever consume any of the drink choices
given, please select 'None/ Not Applicable'

 Energy Drink (1)

 Coffee (2)
 Sports Drink (3)
 None/ Not Applicable (4)
(respondents answering “none” skip to jeans survey)

Please enter the name of the brand of <drink type> that you strongly prefer. We
will be asking you a series of questions about this brand.

Text entry: preferred drink brand

We are interested in your opinion about <preferred drink brand>. Please indicate
the extent to which you agree or disagree with each of the following statements:

(note items 1-26 use 1-7 Likert Scale with Strongly Disagree(1) to Strongly
Agree(2) as anchors)

1. I buy <preferred drink brand> out of habit

2. I buy <preferred drink brand> just because I am used to it
3. I buy <preferred drink brand> just because it is familiar
4. I buy <preferred drink brand> as long as it is easy to find
5. I will keep buying <preferred drink brand> because I don‟t care to try a
different <drink type>

163
6. I buy <preferred drink brand> because I don't want to go through the trouble
of finding something else
7. I will keep buying <preferred drink brand> just because it is convenient
8. My preference for <preferred drink brand>is the result of a careful side-by-
side comparison with other brands
9. I frequently compare <preferred drink brand> to other brands to check
whether <preferred drink brand> is still the best choice
10. I value <preferred drink brand> for its superior performance
11. I expect <preferred drink brand> to deliver on its promise every time
12. I do not think there is a brand of <drink type>that works better than <preferred
drink brand>
13. Switching away from <preferred drink brand> will be an easy decision when
something better becomes available
14. If another <drink type>brand comes up with an improved product, I will
probably switch
15. One key reason I prefer <preferred drink brand> is that it offers the best value
for money
16. One key reason to buy <preferred drink brand> is that it is priced well
17. For me, what the <preferred drink brand> product does is much more
important than the brand name
18. An important reason I like <preferred drink brand> is its quality
19. One key reason to repurchase <preferred drink brand> is that it works as
expected
20. I feel passionate about <preferred drink brand>
21. If someone says something negative about <preferred drink brand> I wil feel
like they are attacking me personally
22. I feel good when I think about <preferred drink brand>
23. I feel a connection to other people who also drink <preferred drink brand>
24. The fact that I drink <preferred drink brand> says something about me
25. I love sharing stories about <preferred drink brand> with other people who
also drink it
26. If <preferred drink brand> does not deliver as expected, I will be very upset
27. How often do you consume <preferred drink brand>?
a) More than Once a Day (7)
b) Every Day (6)
c) Several Times a week (5)
d) Once a Week (4)
e) Every Two Weeks (3)
f) Once a Month (2)
164
 g) Less than Once a Month (1)
28. How loyal are you to <preferred drink brand>? (Likert scale 1=not at all loyal,
7= very loyal)
29. How does <preferred drink brand> compare to your ideal <drink type>.
Very far away from my ideal drink (1)/ Very close to my ideal drink (7)
30. Please tell us how you feel about <drink type> on each of the following
dimensions. <Drink type>s are:
a. Unimportant to me (1) /Important to me (7)
b. Of no concern to me (1) /Of great concern to me (2)
c. Irrelevant to me (1) /Relevant to me (3)
d. Mean nothing me (1) /Mean a lot me (4)
e. Useless to me (1) /Useful to me (5)
f. Insignificant to me (1) /Significant to me (6)
31. What is your gender?
a. Male (1)
b. Female (2)
32. What is your age?

165
 Appendix B

Final Factor Analysis and Reliabiity Analysis Results

Jeans Factor Analysis Results

KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .802
Approx. Chi-Square 844.226
Bartlett's Test of Sphericity df 136
Sig. .000

Rotated Component Matrixa

Component
hand heart head
I will keep buying <jeans brand> just because it is convenient .869
I buy <jeans brand> just because it is familiar .849
I buy <jeans brand>just because I am used to it .849
I buy <jeans brand> just out of habit .809
I buy <jeans brand> as long as it is easy to find .741
I feel a connection to other people who also use <jeans brand> .819
I love sharing stories about <jeans brand> with other people who .797
also wear them
I feel passionate about <jeans brand> .762
I feel good when I think about <jeans brand> .659
If someone says something negative about <jeans brand> I will feel .639
like they are attacking me
The fact that I use <jeans brand> says something about me .638
I expect <jeans brand> to deliver on its promise every time .837
I value <jeans brand> for its superior performance .833
An important reason I like<jeans brand>is their quality .757
One key reason to repurchase <jeans brand>is that they work as .725
expected
If <jeans brand> does not deliver as expected I will be very upset .492
Eigen values
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.
a. Rotation converged in 5 iterations.

166
Jeans Heart Subscale Reliability Analysis

Reliability Statistics
Cronbach's N of Items
Alpha
.841 6

Item-Total Statistics
Scale Scale Variance Corrected Cronbach's
Mean if if Item Deleted Item-Total Alpha if Item
Item Correlation Deleted
Deleted
I feel passionate about <jeans 15.23 41.234 .683 .803
brand>
If someone says something 16.26 47.859 .453 .844
negative about <jeans brand> I
will feel like they are attacking
me
I feel good when I think about 14.32 42.627 .575 .824
<jeans brand>
I feel a connection to other 15.32 38.553 .738 .790
people who also use <jeans
brand>
The fact that I use <jeans 14.46 40.880 .588 .823
brand> says something about
me
I love sharing stories about 15.88 41.236 .686 .802
<jeans brand> with other people
who also wear them

Scale Statistics
Mean Variance Std. Deviation N of Items
18.29 58.709 7.662 6

167
Jeans - Hand Subscale Reliability Analysis
Reliability Statistics
Cronbach's N of Items
Alpha
.895 5

Item-Total Statistics
Scale Scale Corrected Cronbach's
Mean if Variance Item-Total Alpha if Item
Item if Item Correlation Deleted
Deleted Deleted
I buy <jeans brand> just out of 17.61 31.183 .772 .866
habit
I buy <jeans brand> just because 17.11 31.617 .779 .864
it is familiar
I buy <jeans brand>just because I 17.29 32.543 .790 .862
am used to it
I buy <jeans brand> as long as it 16.84 37.670 .584 .904
is easy to find
I will keep buying <jeans brand> 17.49 31.919 .793 .861
just because it is convenient

Scale Statistics
Mean Variance Std. Deviation N of Items
21.59 50.226 7.087 5

168
Head loyalty subscale Jeans Reliability Analysis

Reliability Statistics
Cronbach's N of Items
Alpha
.785 5

Item-Total Statistics
Scale Scale Corrected Cronbach's
Mean if Variance if Item-Total Alpha if Item
Item Item Deleted Correlation Deleted
Deleted
I value <jeans brand> for 21.49 16.686 .651 .717
its superior performance
I expect <jeans brand> to 21.23 15.992 .750 .685
deliver on its promise
every time
An important reason I 20.72 18.468 .567 .747
like<jeans brand>is their
quality
One key reason to 21.02 18.019 .550 .750
repurchase <jeans
brand>is that they work
as expected
If <jeans brand>} does 21.82 16.600 .395 .825
not deliver as expected I
will be very upset

169
Shampoo Factor Analysis Results

KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .825
Approx. Chi-Square 790.040
Bartlett's Test of Sphericity df 105
Sig. .000

Rotated Component Matrixa

Component
heart head hand
I feel a connection to other people who also use <Sbrand> .852
I love sharing stories about <Sbrand>with other people who also .851
use it
The fact that I use <Sbrand>says something about me .840
If someone says something negative about <Sbrand> I will feel .823
like they are attacking me personally
I feel passionate about <Sbrand> .769
I feel good when I think about <Sbrand> .711
An important reason I like <Sbrand> is its quality .899
I expect <Sbrand> to deliver on its promise every time .896
I value <Sbrand> for its superior performance .863
One key reason to repurchase <Sbrand> is that it works as .840
expected
If <Sbrand> does not deliver as expected, I will be very upset .618
I buy <Sbrand> out of habit .908
I buy <Sbrand>just because it is familiar .874
I buy <Sbrand>just because I am used to it .873
I buy <Sbrand> as long as it is easy to find .779
I will keep buying <Sbrand> just because it is convenient .631
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.
a. Rotation converged in 5 iterations.

170
Shampoo Heart Loyalty Subscale Reliability Analysis

Reliability Statistics
Cronbach's Alpha N of Items
.896 6

Item-Total Statistics
Scale Scale Corrected Cronbach's
Mean if Variance if Item-Total Alpha if
Item Item Deleted Correlation Item
Deleted Deleted
I feel passionate about 14.10 47.902 .698 .881
<Sbrand>
If someone says something 15.03 47.470 .741 .875
negative about <Sbrand> I
will feel like they are...
I feel good when I think 13.38 48.873 .609 .896
about <Sbrand>
I feel a connection to other 14.54 46.039 .761 .872
people who also use
<Sbrand>
The fact that I use 14.04 45.960 .769 .870
<Sbrand>says something
about me
I love sharing stories about 14.86 47.412 .750 .874
<Sbrand>with other people
who also use it

171
Shampoo Hand Subscale Reliability Analysis

Reliability Statistics
Cronbach's N of Items
Alpha
.874 5

Item-Total Statistics
Scale Mean Scale Corrected Item- Cronbach's
if Item Variance if Total Alpha if Item
Deleted Item Deleted Correlation Deleted
I buy <Sbrand> out of 20.90 19.272 .813 .819
habit
I buy <Sbrand>just 20.88 19.858 .765 .831
because I am used to
it
I buy <Sbrand>just 20.85 19.549 .806 .821
because it is familiar
I buy <Sbrand> as 20.67 21.873 .645 .860
long as it is easy to
find
I will keep buying 20.78 23.281 .493 .894
<Sbrand> just
because it is
convenient

Scale Statistics
Mean Variance Std. Deviation N of Items
26.02 31.456 5.609 5

Shampoo Head Subscale: Reliability Analysis

Reliability Statistics
Cronbach's N of Items
Alpha
.877 5
172
Item-Total Statistics
Scale Mean Scale Corrected Item- Cronbach's
if Item Variance if Total Alpha if Item
Deleted Item Deleted Correlation Deleted
I value <Sbrand> for its 21.40 18.450 .783 .832
superior performance
I expect <Sbrand> to 21.03 19.914 .795 .832
deliver on its promise
every time
An important reason I 20.95 19.403 .818 .825
like <Sbrand>} is its
quality
One key reason to 20.74 22.044 .694 .858
repurchase <Sbrand> is
that it works as expected
If <Sbrand> does not 21.75 19.907 .534 .904
deliver as expected, I
will be very upset

173
Drinks Factor Analysis Results

KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .773
Approx. Chi-Square 546.043
Bartlett's Test of Sphericity df 120
Sig. .000

a
Rotated Component Matrix

Component
1 2 3
I feel a connection to other people who also drink <drink brand> .844
I love sharing stories about <drink brand> with other people who also drink it .844
I feel passionate about <drink brand> .798
The fact that I drink <drink brand>says something about me .797
If someone says something negative about <drink brand> I will feel like they .713
are attacking me personally
I feel good when I think about <drink brand> .573
I buy <drink brand> just because it is familiar .860
I buy <drink brand>out of habit .811
I buy <drink brand>just because I am used to it .776
I will keep buying <drink brand> just because it is convenient .680
I buy <drink brand>as long as it is easy to find .650
I expect <drink brand>to deliver on its promise every time .852
An important reason I like <drink brand>is its quality .808
I value <drink brand>for its superior performance .364 .671
If <drink brand> does not deliver as expected, I will be very upset .650
One key reason to repurchase <drink brand>is that it works as expected .601
Extraction Method: Principal Component Analysis.

Rotation Method: Varimax with Kaiser Normalization.

a. Rotation converged in 4 iterations.

174
Drinks Hand Loyalty Subscale Reliability Analysis:

Reliability Statistics
Cronbach's N of Items
Alpha
.811 5

Item-Total Statistics
Scale Mean Scale Corrected Item- Cronbach's
if Item Variance if Total Alpha if Item
Deleted Item Deleted Correlation Deleted
I buy <drink brand>out 20.85 20.647 .653 .757
of habit
I buy <drink brand>just 20.58 22.270 .612 .770
because I am used to
it
I buy <drink brand> 20.63 20.683 .742 .729
just because it is
familiar
I buy <drink brand>as 20.42 24.858 .474 .808
long as it is easy to
find
I will keep buying 20.73 22.716 .522 .798
<drink brand> just
because it is
convenient

Scale Statistics
Mean Variance Std. Deviation N of Items
25.80 33.172 5.760 5

175
Head Scale Drinks Reliability Analysis

Reliability Statistics
Cronbach's Alpha N of Items
.785 5

Item-Total Statistics
Scale Scale Corrected Item- Cronbach's
Mean if Variance if Total Alpha if Item
Item Item Deleted Correlation Deleted
Deleted
I value <drink brand>for 21.31 16.739 .567 .743
its superior
performance
I expect <drink 20.67 16.604 .687 .704
brand>to deliver on its
promise every time
An important reason I 20.69 17.382 .638 .722
like <drink brand>is its
quality
One key reason to 20.73 20.485 .447 .779
repurchase <drink
brand>is that it works
as expected
If <drink brand> does 21.96 15.868 .519 .770
not deliver as expected,
I will be very upset

Scale Statistics
Mean Variance Std. Deviation N of Items
26.34 25.823 5.082 5

176
Heart Drinks Scale Reliability Analysis

Reliability Statistics
Cronbach's N of Items
Alpha
.865 6

Item-Total Statistics
Scale Scale Corrected Cronbach's
Mean if Variance if Item-Total Alpha if Item
Item Item Correlation Deleted
Deleted Deleted
I feel passionate about 15.17 41.675 .751 .826
<drink brand>
If someone says something 16.77 51.051 .588 .858
negative about <drink
brand> I will feel like they
are attacking me
personally
I feel good when I think 14.42 50.717 .432 .878
about <drink brand>
I feel a connection to other 15.64 41.621 .756 .825
people who also drink
<drink brand>
The fact that I drink <drink 15.15 40.836 .731 .830
brand>says something
about me
I love sharing stories about 16.05 41.692 .737 .828
<drink brand> with other
people who also drink it

Scale Statistics
Mean Variance Std. Deviation N of Items
18.64 62.539 7.908 6

177
 Appendix C

Qualitative Interview Protocol

I am pursuing a doctorate in learning at the University of Pennsylvania and my

dissertation topic deals with how companies organize to learn about their
customers to create and enhance their loyalty. As part of my research, I am
conducting interviews with people at companies who have high loyalty with their
customers. The purpose of this interview is to better understand how people
inside companies collect and use information about customers and how that
drives their actions.

I will be recording this interview and wanted you to know that your answers will
be treated with complete confidence and will not be shared publicly. Also, you will
not be identified by name in my analysis of the interviews.

I have organized this interview into three sections, the first one delves a bit into
your role in the company. The second deals with customer loyalty more directly,
as I will try to find out your opinion on what makes a successful customer
relationship, both from the company and from the customer perspective. Finally, I
will be asking you about how your company creates capabilities to promote
customer loyalty.

Do you have any questions before we get started?

Background questions
1. How long have you been with the company?
Now, I would like to know in general terms about how you perceive the
company’s track record and its goals.

2. What has made the company so successful? (are customers mentioned

right off? Or is it products? Or discipline/process? Or employees??)
3. What are the goals of this organization (long-term/vision, shorter-
term,/tactical…) (again, are customers at the forefront of the co’s
agenda?)
4. What is your role in the company?
(which functions really drive the business??/ how truly cross-
functional or siloed is the company?)
5. Do you interact with customers directly in your role? How?
Listen for - How does that compare to other manufacturing companies for
people in similar functions?
Customer Loyalty

1. How successful do you think you are in retaining customers?

178
 a. How do you know? What makes you think that? (are the reasons
for their opinion based on anecdotal evidence or data/metrics-
driven?)
b. What does the organization do specifically to retain customers?
(does this person see customer retention as a company-wide
responsibility or is it the responsibility of a few
people/departments? Which ones?)
How loyal do you think customers are to your brand? Why?
2. What aspects of the blender ownership experience helps the most in
cultivating loyalty? (product performance, viral marketing, customer
service, communications … ) Is it about the product, the service,
price/warranty?
3. Do you think your company is equally successful in retaining all your
customers or more successful with some?
a. Does your organization discuss this sort of thing internally? (What
is the ideal customer?)
b. Can you provide specific examples?

4. (describe the customer experience as an intro to this question?)How

is the customer experience different from the experience they would have
with another manufacturer?
(use this last question to pivot into competences… see below)
5. How do you measure or track customer loyalty?
a. Does your organization collect any specific data or information
about its customers on a regular basis?
b. What type of data do you collect?
c. Who in the organization sees that data? How is that customer
information shared in the organization?
d. What system is built around this data? (formal and informal,
technology based and process-based)
6. How is customer loyalty data or information used in the organization? (
- to develop new skills/identify gaps,
- long-term vs short-term use?,
- shared widely vs viewed only by a few people?

Competences and Organizational Learning

(you just told me about … drivers of loyalty….what is it your people need to

know to be able to create that customer experience?)
7. What do people in your organization need to know to keep customers‟
loyalty?
8. What does your organization do to ensure they learn it?
e. Formal training
f. Diffusion of information
g. Collaboration
179
 h. Hiring
i. Follow up on complaints…
Listening for terms like…:
o Training
o Engineering
o Technology/systems
o Managerial processes
o Culture/values
o Customer intimacy/relationships
o Resolving complaints

Include aspects of core competency…. Culture/values; performance metrics; ops

metrics; systems…

Relating Customers to Capabilities

1. What drives the skills of your company?
2. What drives skills or capability changes in your organization? Please
describe as specifically as is possible how each of these factors affects
changes in the capabilities of the company.
(listen for.. competition, customers (retailers vs end-users),
technology, social media conversations, …)
3. In thinking about the last five to ten years in the life of the company, how
have corporate capabilities evolved?
4. How do you expect corporate capabilities to evolve in the next five years?
5. How do customers influence the creation or enhancement of core
capabilities?
6. How are those core capabilities or skill in the organization transmitted,
stored and used across the company?
7. Who is responsible for creating the core capabilities of the organization?
Is it a joint effort/cross-functional or more departmental/siloed? Are
capabilities seen a company-wide competences

180

Qualiative Analysis Codes
Social Media
Strategic Planning
Engineering
Customers
 Customer Loyalty
 Customer Data
 Acquiring customers
 Retaining customers
 Frontend service
Management Processes
Marketing
Employees
 Employee Skills
 Employee benefits
 Employee Hiring
 Roles and
responsibilities
 Employee personal
growth
Training
Goals
 Company Goals
 Functional Goals
Purpose
Appendix D
Comments regarding social media channels and
communities
Comments regarding planning and the collection and
use of market data to run the firm
Comments regarding the engineering function at the
firm
Comments related to customers
Comments regarding customer loyalty
Types of customer relationships. Any way in which
the firm segments customers
Customer regarding the collection, use, and
distribution of customer data
Comments regarding the customer acquisition;
prioritization, processes used...
Comments regarding the customer acquisition;
prioritization, processes used...
Customer facing service protocols, attitudes,
incidents.
Comments related to managerial processes at the
firm
Comments related to the marketing function
Comments regarding employees
Discussion of employees knowledge and skills
Discussions regarding employee benefits (health,
retirement,...)
Comments regarding hiring criteria and processes
Employees roles and responsibilities
Working at the company makes an employee feel
about themselves
Formal and informal training
Personal functional and company goals
Goals of employees that relate to the entire company
Employee goals that relate to their functional area of
responsibility
Goals related to the firm having a higher purpose or
181
 pursuing a noble cause that motivate employees
Leadership Role of the leadership of the company
How employees feel about leaders
Great Quotes Great excerpts and quotes
Production Comments regarding the operations and production
functions of the firms
 Six Sigma Specific comments about six sigma or lean initiatives
 Production Initiatives designed to improve production and
Improvements operational processes
Core Strengths Sources of company strength and marketplace
differentiation
Background Interviewee background
Communication
 Customer - employee Comments regarding customer-employee
communications
 Internal Internal company communications
communication
 Company wide Are there instances of co-wide in-person or other
meetings communication?
 Company Data Internal data used to manage or asses company
performance
company environment what it's like to work here... values... what behaviors
are accepted and encouraged in the company or
discouraged
Company growth Discussions about how / why the company is
growing
Product / Service Comments regarding product or service features
generally; or compared to competitors‟
Competitors Comments regarding competitors
HR Comments regarding the HR department or function
IT Comments regarding the IT department
Customer service / Inside Discussions of customer service department or
sales inside sales department; organized processes to
deliver a great customer experience
Weaknesses Discussions of how the company is not doing
something well
Capabilities Discussion of internal company skills that lead to
excellent company performance
Strengths Discussion of company strengths

182
 Bibliography

Anderson, C. R., & Zeithaml, C. P. (1984). "Stage of the product life cycle, business
strategy, and business performance." Academy of Management Journal: 5-24.

Anderson, E. W., Fornell, C., & Lehmann, D. R. (1994). "Customer satisfaction, market
share, and profitability: findings from Sweden." The Journal of Marketing: 53-66.

Andreassen, T. W., & Lindestad, B. (1998). "Customer loyalty and complex services:
The impact of corporate image on quality, customer satisfaction and loyalty for
customers with varying degrees of service expertise." International Journal of Service
Industry Management 9(1): 7-23.

Argyris, C. (1976). "Single-loop and double-loop models in research on decision

making." Administrative Science Quarterly: 363-375.

Assael, H. "Consumer Behavior and Marketing Action, 1992." PWS-KENT, Boston.

Bagozzi, R. P., Tybout, A. M., Craig, C. S., & Sternthal, B. (1979). "The construct validity
of the tripartite classification of attitudes." Journal of Marketing Research: 88-95.

Barney, J. (1991). "Firm resources and sustained competitive advantage." Journal of

management 17(1): 99-120.

Batra, R., & Stayman, D. M. (1990). "The role of mood in advertising effectiveness."
Journal of Consumer Research: 203-214.

Belk, R. W. (1988). "Possessions and the extended self." Journal of consumer research:
139-168.

Boisot, M. (1998). Knowledge assets : securing competitive advantage in the information

economy. New York, Oxford University Press.

Breckler, S. J. (1984). "Empirical validation of affect, behavior, and cognition as distinct

components of attitude." Journal of personality and social psychology 47(6): 1191.

Bryant, B. E., & Cha, J. (1996). "Crossing the threshold: Some customers are harder to
please than others, so analyze satisfaction scores carefully." Marketing Research 8.

Cacioppo, J. T., Petty, R. E., & Kao, C. F. (1984). "The efficient assessment of need for
cognition." Journal of personality assessment 48(3): 306-307.

Churchill Jr, G. A. (1979). "A paradigm for developing better measures of marketing
constructs." Journal of Marketing Research: 64-73.

Clark, T. (June, 29, 2011). Harley Davidson goes Whole HOG with customer insight.
Forbes Magazine (http://www.forbes.com/sites/sap/2011/06/29/harley-davidson-goes-
whole-hog-with-customer-insight/0.

183
Cooil, B., Keiningham, T. L., Aksoy, L., & Hsu, M. (2007). "A longitudinal analysis of
customer satisfaction and share of wallet: Investigating the moderating effect of
customer characteristics." Journal of marketing 71(1): 67-83.

Coupland, J. C. (2005). "Invisible brands: An ethnography of households and the brands

in their kitchen pantries." Journal of consumer research 32(1): 106-118.

Day, G. S. (1994). "The capabilities of market-driven organizations." The Journal of

Marketing: 37-52.

De Ruyter, K., Wetzels, M., & Bloemer, J. (1998). "On the relationship between
perceived service quality, service loyalty and switching costs." International Journal of
Service Industry Management 9(5): 436-453.

DeVellis, R. F. (2012). Scale development: Theory and applications, Sage Publications,

Inc.

Dick, A. S., & Basu, K. (1994). "Customer loyalty: toward an integrated conceptual
framework." Journal of the academy of marketing science 22(2): 99.

Dick, A. S., & Basu, K. (1994). "Customer loyalty: toward an integrated conceptual
framework." Journal of the academy of marketing science 22(2): 99-113.

Drucker, P. (1954). The principles of management, Harper-Collins Publishers, New York.

Dwyer, F. R., Schurr, P. H., & Oh, S. (1987). "Developing buyer-seller relationships."
The Journal of Marketing: 11-27.

Edson Escalas, J., & Bettman, J. (2003). "You Are What They Eat: The Infulence of
Reference Groups on Consumers' Connections to Brands." Journal of Consumer
Psychology 13(3): 339-348.

Erdem, T., & Keane, M. P. (1996). "Decision-making under uncertainty: Capturing

dynamic brand choice processes in turbulent consumer goods markets." Marketing
Science 15(1): 1-20.

Field, A. (2009). Discovering statistics using SPSS, Sage Publications Limited.

Flanagan, C. A., Bowes, J. M., Jonsson, B., Csapo, B., & Sheblanova, E. (1998). "Ties
that Bind." Journal of Social Issues 54(3): 457-475.

Fournier, S. (1998). "Consumers and their brands: Developing relationship theory in

consumer research." Journal of consumer research 24(4): 343-353.

Gronroos, C. (1982). Strategic management and marketing in the service sector,

Marketing Science Institute Cambridge, MA.

Gupta, S., & Lehmann, D. (2005). Managing customers as investments the strategic
184
value of customers in the long run, Wharton School Publishing.

Hall, R. (1993). "A framework linking intangible resources and capabiliites to sustainable
competitive advantage." Strategic management journal 14(8): 607-618.

Harris, L. C., & Goode, M. M. H. (2004). "The four levels of loyalty and the pivotal role of
trust: a study of online service dynamics." Journal of retailing 80(2): 139-158.

Helfat, C. E., & Peteraf, M. A. (2003). "The dynamic resource‚Äêbased view: capability
lifecycles." Strategic management journal 24(10): 997-1010.

Heskett, J. L., Sasser, W. E., & Schlesinger, L. A. (1997). The service profit chain: How
leading companies link profit and growth to loyalty, satisfaction, and value, Free Pr.

Hitt, M. A., & Ireland, R. D. (1985). "Corporate distinctive competence, strategy, industry
and performance." Strategic management journal 6(3): 273-293.

Hoch, S. J., & Deighton, J. (1989). "Managing what consumers learn from experience."
The Journal of Marketing: 1-20.

Hoch, S. J., & Ha, Y. W. (1986). "Consumer learning: Advertising and the ambiguity of
product experience." Journal of consumer research: 221-233.

Isaacson, W. (2011). Steve Jobs: The Exclusive Biography, Hachette Digital.

Iwasaki, Y., & Havitz, M. E. (1998). "A path analytic model of the relationships between
involvement, psychological commitment, and loyalty." Journal of leisure research 30(2):
256-280.

Jacoby, J., & Chestnut, R. W. (1978). Brand loyalty measurement and management,
Wiley New York.

Johnson, M. D., Herrmann, A., & Huber, F. (2006). "The evolution of loyalty intentions."
Journal of marketing: 122-132.

Kandampully, J., & Duddy, R. (1999). "Competitive advantage through anticipation,

innovation and relationships." Management Decision 37(1): 51-56.

Keiningham, T. L., Aksoy, L., Cooil, B., & Andreassen, T. W. (2008). "Linking customer
loyalty to growth." mIt Sloan management review 49(4): 51-57.

Kleine, S. S., Kleine III, R. E., & Allen , C. T. (1995). "How is a possession" me" or" not
me"? Characterizing types and an antecedent of material possession attachment."
Journal of consumer research: 327-343.

Klepper, S. (1996). "Entry, exit, growth, and innovation over the product life cycle." The
American Economic Review: 562-583.

Krech, D., Crutchfield, R. S., & E. L. Ballachey (1962). "Individual in society: A textbook
185
of social psychology."

Kuehn, A. A. (1962). "Consumer brand choice as a learning process." Journal of

Advertising Research 2(4): 10-17.

Kumar, V., et al. (2010). "Undervalued or overvalued customers: Capturing total

customer engagement value." Journal of Service Research 13(3): 297.

Lam, S. Y., Shankar, V., Erramilli, M. K., & Murthy, B. (2004). "Customer value,
satisfaction, loyalty, and switching costs: An illustration from a business-to-business
service context." Journal of the academy of marketing science 32(3): 293-311.

Leclerc, F., & Little, J. D. (1997). "Can advertising copy make FSI coupons more
effective?" Journal of Marketing Research: 473-484.

Leonard-Barton, D. (1992). "Core capabilities and core rigidities: A paradox in managing

new product development." Strategic management journal 13(S1): 111-125.

Likert, R. (1932). "A technique for the measurement of attitudes." Archives of

psychology.

Martensen, A., Gronholdt, L., & Kristensen, K. (2000). "The drivers of customer
satisfaction and loyalty: cross-industry findings from Denmark." Total Quality
Management 11(4-6): 544-553.

Maxwell, J. A. (2005). Qualitative research design: An interactive approach, Sage

Publications, Inc.

Mittal, B., & Lassar, W. M. (1998). "Why do customers switch? The dynamics of
satisfaction versus loyalty." Journal of Services Marketing 12(3): 177-194.

Mittal, B., & Lee, M.-S. (1989). "A causal model of consumer involvement." Journal of
Economic Psychology 10(3): 363-389.

Nonaka, I., Toyama, R., & Nagata, A. (2000). "A firm as a knowledge-creating entity: a
new perspective on the theory of the firm." Industrial and corporate change 9(1): 1-20.

Nordhielm, C., & Williams, T. (2012). "Head, Hand, Heart, Functional and Emotional
Aspects of Brand Relationships." Working Paper.

Oliver, C. (1997). "Sustainable competitive advantage: Combining institutional and

resource-based views." Strategic management journal 18(9): 697-713.

Oliver, R. L. (1999). "Whence consumer loyalty?" The Journal of Marketing: 33-44.

Olsen, L. L., & Johnson, M. D. (2003). "Service equity, satisfaction, and loyalty: from
transaction-specific to cumulative evaluations." Journal of Service Research 5(3): 184-
195.

186
Parasuraman, A., Zeithaml, V. A., & Berry, L. L. (1985). "A conceptual model of service
quality and its implications for future research." The Journal of Marketing: 41-50.

Parasuraman, A., Zeithaml, V. A., & Berry, L. L. (1988). "Servqual." Journal of retailing
64(1): 12-37.

Phelps, S. (2010). Four Seasons literally leaves their mark in customer service.
Customer Think Blog
(http://www.customerthink.com/blog/four_seasons_literally_leaves_their_mark_in_custo
mer_service). 2012.

Porter, M. E. (1979). How competitive forces shape strategy, Abril.

Porter, M. E. (1998). Competitive strategy: techniques for analyzing industries and

competitors: with a new introduction, Free Pr.

Prahalad, C. & Hamel, G. (1990). "The core competence of the corporation (HBS
Reprint)." Harvard Business School (Hrsg.), Competitive Strategy, S: 11-24.

Ravitch, S. M. & Riggan, M. (2011). Reason & Rigor: How Conceptual Frameworks
Guide Research, Sage Publications, Inc.

Reichheld, F. F. (1993). "Loyalty-based management." Harvard business review 71: 64-

64.

Reichheld, F. F. (2003). "The one number you need to grow." Harvard business review
81(12): 46-55.

Reichheld, F. F., & Teal, T. (2001). The loyalty effect: The hidden force behind growth,
profits, and lasting value, Harvard Business Press.

Schon, D. A. (1984). "The reflective practitioner: How professionals think in action."

Senge, P. M. (2002). The leader's new work.

Shankar, V., Smith, A. K., & Rangaswamy, A. (2003). "Customer satisfaction and loyalty
in online and offline environments." International Journal of Research in Marketing 20(2):
153-175.

Shimp, T. A., & Madden, T. J. (1988). "Consumer-object relations: A conceptual

framework based analogously on Sternberg’s triangular theory of love." Advances in
Consumer Research 15(1): 163-168.

Sirgy, M. J., Johar, J. S., Samli, A. C., & Claiborne, C. B. (1991). "Self-congruity versus
functional congruity: predictors of consumer behavior." Journal of the Academy of
Marketing Science 19(4): 363-375.

Slater, S. F., & Narver, J. C. (1995). "Market orientation and the learning organization."
The Journal of Marketing: 63-74.
187
Slater, S. F., & Narver, J. C. (2000). "The Positive Effect of a Market Orientation on
Business Profitability:: A Balanced Replication." Journal of Business Research 48(1): 69-
73.

Smith, E. A. (2001). "The role of tacit and explicit knowledge in the workplace." Journal
of knowledge Management 5(4): 311-321.

Spreng, R. A., Harrell, G. D., & Mackoy, R. D. (1995). "Service recovery: impact on
satisfaction and intentions." Journal of Services Marketing 9(1): 15-23.

Srivastava, R. K., Fahey, L., & Christensen, H. K. (2001). "The resource-based view and
marketing: The role of market-based assets in gaining competitive advantage." Journal
of management 27(6): 777-802.

Stevens, J. P. (2001). Applied multivariate statistics for the social sciences, Lawrence
Erlbaum.

Sweeney, J. C., & Soutar, G. N. (2001). "Consumer perceived value: The development
of a multiple item scale." Journal of retailing 77(2): 203-220.

Thomson, M., MacInnis, D. J., & Park, C. W. (2005). "The ties that bind: Measuring the
strength of consumers' emotional attachments to brands." Journal of Consumer
Psychology 15(1): 77-91.

Wason, P. C., & Johnson-Laird, P. N. (1972). Psychology of reasoning: Structure and

content, Harvard University Press.

Wernerfelt, B. (1984). "A resource-based view of the firm." Strategic management

journal 5(2): 171-180.

Wertenbroch, K. (1998). "Consumption self-control by rationing purchase quantities of

virtue and vice." Marketing Science 17(4): 317-337.

Zaichkowsky, J. L. (1985). "Measuring the involvement construct." Journal of consumer

research: 341-352.

188