Thesis
Explaining the relationship between innovation and loyalty: “Can innovation lead to loyalty in a highly competitive and saturated market”?
Student: Charlotte Woertman Studentnumber: 10556737 Docent: Frank Slisser Date: 24-3-2017
This document is written by Student Charlotte Woertman, who declares to take full
responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Abstract
In today’s highly competitive market it is more difficult for companies to create loyal customers. A way companies can do this is by creating positive attitudes towards the brand and by
connecting with customers on the basis of matched personal values (Keller,2001a). This research examines if product and brand innovation can lead to more loyal customers and if these relationships are mediated by social identification and an increased product quality. It is hypothesized that brand innovation will lead to the higher forms of loyalty (because of the matching value of need for innovativeness between the participant and the company) and product innovation will lead to cognitive loyalty only, because it will only increase the perceived quality of the product and will not lead to social identification with the brand. The research is conducted among 143 participants. Results show that brand innovation is a better predictor of cognitive loyalty then product innovation (z=6.33, p<.01). This relationship is mediated by the amount of social identification one felt with the innovative brand. Although brand innovation explained more of the variance on cognitive loyalty, product innovation showed a significant relationship as well (z=2.38, p<.05). This relationship was mediated by an increase in product quality. Both forms of innovation did not have a significant direct effect on the higher forms of loyalty in the total sample, but showed significant results when analyzed in combination or absence of the other form of innovation.
Index
Chapter one: introduction page 4-13
Chapter two: literature research page 14-25
Chapter three: methodological section page 26-35
Chapter four: result section page 37-48
Chapter five: discussion page 49-57
Reference list page 58- 61
Chapter 1: Introduction
In today’s highly competitive retail market, the benefits of attracting and retaining loyal
customers becomes even more important. The range of different products increases, while the consumers become more saturated (Lin, Lee, Lin & Zheng, 2013). Companies react to this with the increase of their operational excellence or product differentiation (Kim & Mauborgne, 2004). However, the stretch of operational excellence has its limits and product differentiation seems to be almost impossible in certain markets. This research investigates if innovation, and more specific, product and brand innovation can lead to loyalty in a highly competitive and saturated market, the fast moving consumer goods (FMCG). First the research gap is discussed along with the managerial and academic relevance of this research (chapter one). Second, the different effects of innovation on loyalty are examined in the existing literature (chapter two). Third the research questions and hypothesis are deducted from the existing literature (chapter three). Fourth the method of current research is discussed (chapter four) together with the results (chapter five) and the discussion (chapter six). First we will discuss the research gap and highlight why research towards this topic is important.
1.1 research gap
In the recent years a slowdown in household consumption expenditure in Europe is visible (Lin, Lee, Lin & Zheng, 2013). In fact, some European countries have presented negative average year rates in 2013 or 2014 (The World Bank, 2015). This results in more and more competition for both retailers and manufacturers, who experience problems in attracting consumers to their stores and products (Lin, Lee, Lin & Zheng, 2013). To beat the competition in a highly
competitive market, companies tried to improve their operational effectiveness to keep a higher margin and to offer products with a better price quality ratio (Kim & Mauborgne, 2004). The downfall of this focus on operational effectiveness is that companies become more similar since they use each other as benchmarks. By competing with each other on the same grounds, competition becomes “a series of races down identical paths that no one can win” (Porter, 1996). When products or brands becoming more similar, people increasingly base purchase
differentiation of the brands becomes harder (Kim & Mauborgne, 2004). Products that once were premium products become more and more commodity products. “Commodity products are products that have a high level of standardization, face intense competition with
comparable, substitutable products and are subject to major price transparency for customers” (Berger, 2014). According to Roland Berger 63% of the companies are affected by this problem, whereas 61% of the companies already acknowledge that they are caught in this commodity trap. The loyalty of customers in these markets is extremely low and companies compete with each other mainly on price promotions. This seems to be extremely the case in saturated markets where attracting new customers is difficult. Companies see their volume sales go up, while their actual revenues are decreasing (Shimp, 2007). Furthermore, the result of this emphasize on price promotion is that it makes the consumers more price sensitive in the long term and customers become “trained” to seek for deals. The loyalty towards brands becomes even less (Shimp, 2007). Besides the consequence of selling a lot of products with lower
margins, the value of the product or brand can be decreased in the mind of the consumer by the heavily use of price promotions (Shimp, 2007). By often offering the product in promotions, consumers can associate the product or brand with something inexpensive and hence with having a low quality (Till, Baack & Waterman, 2011). This is called correlational point of parity. Correlational points of parity are: “potentially negative associations that arise from the
existence of other associations” (Till, Baack & Waterman, 2011). In other words, in the mind of the consumer some associations are connected. For example, if something is low in calories, we expect that the taste of the product is lower. Or when something is inexpensive, we expect that the quality of the product is lower. When a brand does not want to position itself as an
inexpensive and low quality brand, this emphasis on price promotions can decrease the consumer based brand equity (CBBE) of a brand. CBBE can be described as: “the differential effect of brand knowledge on consumer response to the marketing of the brand” (Keller, 2011a). This decline in CBBE will further decrease the loyal behavior of customers (Keller, 2001a).
to attract customers, which ultimately led to even a lower level of loyal behavior of customers. Companies seem to be trapped in this vicious circle (figure 1).
Figure 1: Vicious circle of companies in the FMCG.
Looking at the vicious circle, we see that the lack of customer loyalty is an important variable in maintaining this problem. It is both the antecedent of price promotions as well as the result. Unfortunately, it is difficult to increase loyalty. The only way a customer, now a day, would be loyal to a brand is if that product or brand offers substantial advantages over other products in the same category (Oliver, 1999). These advantages can be product advantages and are related to product attributes or they can be brand advantages and are related to the brand image (Oliver, 1999). Oliver (1999) states that loyalty can be achieved by selling a product that has good functional attributes. This type of loyalty is cognitive based and only based on attributional superiority (Oliver, 1999). However, because customers can become satisfied with the product, they begin to start to like the product and the brand behind it. They get positive feelings
towards the brand and so affective loyalty can be created. This affective loyalty can extend to behavioral loyalty if customers keep to receive positive feelings about the brand and feel connected with the brand (Olivier, 1999).
More price
promotions
Lower
brand
equity
Less loyalty
Branding literature suggest that loyalty can exist because customers feel a personal connection towards the brand and that their values are in line with that of the company (Keller,2001a). So the two ways to increase loyalty are: having a superior product and/or creating a deep connection with the customer trough a resemblance in values (Oliver, 1999). Where having a superior product mostly results in cognitive or attitudinal loyalty. Feeling a deep connection with the brand can lead to behavioral loyalty (Oliver, 1999).
Differentiation based on functional benefits alone is a vulnerable position (Keller, 2001a). Especially in markets where competition can easily copy the functional benefits of your product, such that your competitive advantage fades away easily (Keller, 2001a). Even when the competitive advantage sustains on functional benefits, customers can still be persuaded by the marketing efforts of other companies (Oliver, 1999). A more sustainable way of creating
competitive advantage is by creating a positive and affective brand image customers can identify with (Keller, 2001a). According to Keller (2001a) and Oliver (1999) this can lead to affective and even behavioral loyalty. Companies that reached this kind of loyalty are less vulnerable to price elasticity and can ask a premium price for their products (Oliver, 1999). Research of Einwiller and colleagues (Einwiller, Fedorikhin, Johnson & Kamis, 2006) even showed, that loyal customers, who identified themselves with the brand, are less influenced by negative news over the company. Creating true loyalty seems to be the holy grail every
company wants to have and needs, to survive in this highly competitive industry. Nevertheless, creating this kind of loyalty seems to be an extremely difficult assignment but not an impossible one. The ease of which loyalty can be achieved, depends on the market you are in (Olivier, 1999). Researches argue that true loyalty cannot be reached by every company (Olivier,1999). According to them, only companies who are involved in selling products where customers are highly committed with, can achieve this state of true loyalty. When customers are low involved, true loyalty can never be achieved (Olivier,1999). In this case, cognitive loyalty is the highest level of loyalty a company can go for, so companies must focus on creating the best products. Examples of these kind of products are: toilet paper, aluminum foil, scotch tape etc. It seems to be logical to assume that consumers only invest time and effort in products which are important to them. Looking at FMCG products, it can be expected that customers are low involved with
products in these categories. Research supports this, by showing that most customers feel low involved with FMCG products (Fischer, Volckner & Sattler, 2010). The question rises if
companies in the FMCG market can achieve more than cognitive loyalty even if they try to. Earlier results creates expectations that cognitive loyalty is the highest form a company with low involvement products can reach for (Oliver,1999). But surprisingly, looking at a real live
situation, true loyalty seems to be achieved in a category which is prototypical of a low
involvement product: duct tape. Duct tape is a product that does not have special attributes. It does not really seem to matter which brand you buy, as long as it does what is promise you to do: stick. Still, Avon duck duct tape, a company that sells duct tape seems to have accomplished true loyalty. Avon duct tape, have a fan based community who promotes the duct tape, they even held special duct tape festivals (http://www.ducktapefestival.com). So if having a high involvement product is not necessarily a precedent for loyalty what is?
An aspect that can have an influence on both the perception of a product as consisting of a higher quality and on creating a connection with its consumer is innovation. Through innovation, or the fact that a customer perceives the company as innovative, customers can think the product is of better quality and has favorable attributes. Because customers see the company as innovative it can be that they think the products of this company are innovative and of better quality as well (Chernev & Blair, 2015). This can give companies an edge over other companies because customers can perceive the products as better, even if this is not the case. Research showed that the evaluation of quality of a product is influenced by the earlier
expectation of the quality of the product (Chernev & Blair, 2015; Lee, Frederick & Ariely, 2006). Therefore, it will be expected that, portraying a company as innovative and hence increasing the quality expectations of a product, can lead to a better evaluation of the real quality of the product and hence cognitive loyalty. Innovation can also lead to loyalty because people see the company as more risk taking, exiting and progressive. When this is aligned with the values of the customer it can lead to an emotional connection with the brand and thus affective and
behavioral loyalty (Bergami & Bagozzi, 2000; Brown, Thomas, Barry, Dacin & Gunst, 2005 as cited in Einwiller, Fedorikhin, Johnson & Kamins, 2006; He and Li, 2010; Marin et al., 2009 as cited in He, Li & Harris, 2011). This emotional connection can exist because the values of the
company are in line with the values of the firm (Einwiller et al. 2016). When this happens, customers can identify themselves with a company and the organization becomes
self-referential or self- defining for a person (Einwiller et al. 2016). This phenomenon is described as social identification. To feel identified with a company, a person must share some values with the company (Einwiller et al. 2016). During current research there will be investigated if a person can identify them self with an innovative company based on the value of innovativeness. By this way, the own need of innovativeness of the participants will influence the extent to which they feel connected with the innovative company.
Connecting with customers, based on the value of innovativeness, is becoming even more important, because most of the millennials and generation Z customers, characterize themselves by these values of risk taking, excitement and being progressive. So a company that can connect with these customers has the future in their hands.
Investigating if innovation can actually lead to more loyalty among consumers show that, in the telecom and airplane market, it can (Foroudi, Jin, Gupta, Melewar & Foroudi, 2016;
Naveed, Akhtar, Khaliq & Cheema, 2013). Nevertheless, these markets are prototypical markets of high involvement products. Research that investigate the relationship between innovation and loyalty in markets with low involvement products have not been conducted yet.
Additionally, research that have been conducted in other markets focused on the relationship between innovation and brand attitude and not on loyalty. Despite the fact that brand attitude is an antecedent of loyalty, it is not the same construct. Furthermore, the way through which innovation can lead to loyalty is never investigated. When innovation will lead to a connection with the consumer, through social identification, this will be a more sustainable consequence of innovation then when it leads to cognitive loyalty only. When innovation leads to social
identification and hence loyalty, the connection is more difficult to copy by competitors and hence more sustainable.
The aim of this research is to investigate if and why loyalty is the hidden weapon to defeat the amplified rise of commodity products in a highly saturated market. The research question will be: can innovation (brand and product) lead to loyalty? Furthermore, the origin of this relationship is researched. Two possible paths may explain this relationship. The first will be
the effect of brand innovation on social identification and hence loyalty. The second path will be the effect of product innovation on the perceived quality of the product and hence loyalty. In the case consumers perceive the product as better, only cognitive loyalty can be achieved instead of the higher forms of loyalty (behavioral and affective loyalty). When innovation leads to a deep connection to customer, because the company has the same values as them,
behavioral and affective loyalty will be expected. The expected relationships are displayed below in figure 2. Literature suggest that cognitive loyalty is the highest level of loyalty a company in the FMCG market can go for (Oliver,1999). Nevertheless, there are examples of where companies achieved higher levels of loyalty in a product category, which would not have been expected by current literature. This research tries to see if innovation can lead to loyalty and tries to explain the origin of this promising relationship. This will lead to the following, already mentioned, research question and hypotheses:
Research question: will (brand or product) innovation lead to loyalty and what is the origin of this relationship?
Hypothesis 1: brand innovation will lead to loyalty. Hypothesis 2: product innovation will lead to loyalty.
Hypothesis 3: brand innovation will lead to a higher social identification with that brand. Hypothesis 4: the effect of brand innovation on social identification is stronger, and hence will be moderated, by the need for innovativeness of the participant.
Hypothesis 5: the effect of brand innovation on behavioral and affective loyalty will be mediated by the amount of social identification with the brand.
Hypothesis 6: a product is perceived as holding a higher quality because it is seen as more innovative.
Hypothesis 7: the effect of innovation on loyalty will be mediated by the increased quality of the product.
Figure 2: schematic view of the possible causes of the relationship between innovation and loyalty.
The fast moving consumer goods market (FMCG) is chosen as the area of this research. There are four reasons for this. The first is that in the FMCG, the loyalty towards brands and products is low, so it will be interesting to see if innovation can make the differences. Besides that, a lot of resources are used to innovate products and relaunch existing products. When the
Social identification Cognitive loyalty Brand Innovation Social identification Increased product quality Loyalty Need for innovativeness Higher forms of loyalty Innovation Product Innovation 1 3 4 5 2 6 7
relationship between innovation and loyalty seems to exist, there is a enough support to use innovation to increase loyalty. Third, in the FMCG there is a lot of competition and competition is most heavily based on price, so it can be expected that there are a lot of commodity products in this market. Fourth, markets differ in their importance of brand image on buying decisions. When the quality of a product is more difficult to know beforehand, brands seem to be more important in the buying decision (Fischer et.al, 2010). Furthermore, when there are a lot of different product variants and new introductions come at a rapid pace, it will become harder for the customer to know the quality of the product beforehand, so brands will play a more
important role (Fischer et.al. 2010). In the FMCG there are a lot of product variants and new products are introduced at a rapid pace. So it can be argued that brands seem to play an
important role for a customer when buying a product. Research confirms this and shows that in the FMCG, brands are important for the buying decision of customers (Fischer et.al. 2010). So because product quality and brand experience are crucial in building and maintaining loyalty (Fischer et al. 2010), research is best conducted in an area were product quality is ambiguous and mostly based on brand image, which is the case in the FMCG market.
1.2 Academic and managerial relevance
Making a distinction between the origin of the relation between innovation and loyalty is important because it makes the difference how the innovations should be communicated. Furthermore, knowing through which path innovation will lead to loyalty helps managers to set priorities and to know where they should locate their resources to. When the increase of perceived quality will only lead to a more cognitive based loyalty, it can be deliberated if the expenses of using innovation as a marketing instrument is worth the costs because this form is a weaker form of loyalty and is seen as a bad predictor of real purchase decisions (Oliver, 1999). If the relationship between innovation and loyalty can be explained by brand innovation, and hence social identification with the brand, it shows that innovation will lead to more loyalty but more in individuals who see innovation as an important value. Companies who target these individuals will be better off by giving their customers the perception that they are innovative. Whereas companies who does not target these individuals can better direct their resources
An important contribution lays in the comparison of the different forms of innovation. Current research tries to give an answer to the question if the effect of loyalty is still present when only one of the two forms of innovation is present. This helps managers to calculate if they can also use innovation to create loyalty when one of the two forms of innovation is not achievable.
Besides the exploration of the relationship between innovation and loyalty, the
relationship in itself has not been researched abundantly. Most research has been conducted in emerging markets, which can lead to less generalizability to western countries. This research can be used as a way to validate the significant relationship found in earlier research. The research of Sanayei and colleagues (2013) used a questionnaire in their research. Current research will use an experimental design to generate more internal validity. Furthermore, the research of Sanayei and colleagues (2013) is focusing on brand attitude as an outcome of innovation. This research will explicitly look at the effect of innovativeness on loyalty, hoping to find a way to make customers more loyal in a highly competitive and saturated market. For this reason, the fast moving consumer goods market is being analyzed. The life cycle of products is short, loyalty is low, competition is most heavily based on price and the quality of the products is more ambiguous because the quality of the products cannot be tested before purchasing and the rapid speed of innovation and variation of products leads to more ambiguity about the quality of the product.
In the next chapter we go in depth on the relationship between innovation and loyalty and how this relationship can be explained.
Chapter 2: Literature research
In this chapter the existing literature is reviewed to see if there is a relationship between innovation and loyalty and to comprehend what the origin of this relationship is. In the current study the first focus will be on the relationship between innovation and loyalty (relationship 1 in figure 1). After that the possible causes of the relationship between innovation and loyalty will be discussed. First the concept of brand innovation and how this can result in loyalty trough social identification with the firm (relationship 2 in figure 2) will be highlighted. Third the relationship between social identification and loyalty will be emphasized. Fourth the relationship between product innovation and increased product quality will be underlined (relationship 4 in figure 2). Fifth, we will consider how increased product quality can lead to loyalty (relationship 5 in figure 2). Last, we will discuss which relationship is most plausible. 2.1 The relationship between brand innovation and loyalty
(relationship 1)
Figure 3: The direct effects of innovation on loyalty
Researchers who studied the relationship between innovation and loyalty showed promising results (Foroudi, Jin, Gupta, Melewar & Foroudi, 2016; Naveed, Akhtar, Khaliq & Cheema, 2013). Innovation is defined as the introduction or development of a new product or method, which gives a positive impact (Dachyar & Fatkurrohman, 2011). Innovation consist of creating a new product or make and implement a new process. The main purpose of innovation is to gain
1 Brand Innovation Loyalty Innovation Product Innovation 2 Behavioral and affective loyalty Cognitive loyalty
sustainable competitive advantage, improve the efficiency of the organization and to create customer satisfaction (Leonard-Barton, 1992 as cited in Naveed, Akhtar & Cheema, 2013). But innovation can have a different effect as well. When customer perceive the company as
innovative, this can have effect on the brand image (Gunday, Ulusoy, Kilic & Alpkan, 2011). The perception of brands as innovative means customers views the brand as innovative, a
forerunner in the market and as a company that place a great emphasis on developing itself and its products (Gunday et al., 2011).
Foroudi and colleagues (Foroudi, et al. 2016) show that there is a relationship between innovation and loyalty and that this relationship is mediated by the reputation of the company. They define reputation as: the results of beliefs, images, facts and experiences that an individual may encounter over time (Foroudi et al. 2016). The auteurs state the fact that a company is seen as innovative lead to the believe that the company is more successful because it has the ability to be innovative (Foroudi, Melewar & Gupta, 2014 as cited in Foroudi et al. 2016). This positive reputation also reflects to stakeholders to form positive perceptions about the corporations and thus, to retain customer loyalty (Chun, 2005 as cited in Foroudi et al. 2016). An interesting finding is that the innovation capability seems to be more predictive of loyalty then the actual technological or non-technological innovation (Foroudi et al. 2016). This shows that the perception of a brand or product as innovative will lead to loyalty, not the innovation itself.
Research of Naveed and colleagues (Naveed, et al. 2013) confirm this result and found a strong relationship between innovation and loyalty and customer satisfaction in the telecom market in Pakistan.
Dachyar found in his research in the telecom market, that there is no direct relationship between innovation and loyalty, but that innovation has a significant effect on the antecedents of loyalty namely: customer perceived quality, customer expectations, company image and customer trust (Dachyar, 2011).
Research of Sanayei and colleagues (Sanayei, Shahnin, Taherfar, 2013) found that the perception of a brand as innovative has a positive impact on brand attitude and that this relationship is moderated by the consumers own need for innovativeness. Which indicates
evidence for a relationship between innovation and loyalty based on social identification with the company.
Lin (2015) found a positive relationship between an innovative brand experience and brand equity and consumer satisfaction in the airline industry. He describes an innovative brand experience as: “the sum of total consumers’ encounters with a brand, were the customer directly observes changes which he or she regards as new, either in the sense of never being seen or experienced before, or as being new to the particular enterprise involved” (Hjalager, 2010; Chattopadhyay &Laborie, 2005 as cited in Lin, 2015).
These innovative brand experiences have profound meaning for the consumers, and serve to increase their trust and willingness to use the brand (Ha & Perks, 2005 as cited in Lin, 2015). Research of Hanashay and Hilman (2015) confirms these results. These findings reveal that innovation has a significant positive effect on overall brand equity and its dimensions namely: brand awareness, brand loyalty, brand image and brand leadership.
Van Heerde and colleagues (Van Heerde, Mela & Puneet, 2004) found different results. They showed that a new entry that represents a major innovation will make the existing brands more similar than before. The existing brands may become bunched together in consumer’s minds and the existing brands become less differentiated in consumers’ minds and because of this, are more vulnerable to price competition. The market adjusts to the new competitive pattern quickly, in about seven weeks and it is only waiting till the new innovation comes around that will make the last innovation be less differentiated and bundled with the existing brands (Van Heerde et. al. 2004). So purely focussing on innovation doesn't seem to be enough to create sustainable advantage through differentiation in a highly competitive saturated market.
Looking at the current literature it seems that innovation can lead to loyalty but that this is not always the case. It seems that innovation can lead to loyalty but the conditions under which this occurs are not clear yet. It seems that moderation/ mediating factors are involved in explaining the relationship between innovation and loyalty. In the current study, the
relationship between loyalty and innovation will be investigated and specifically the origin of this relationship. Several conducted researches, give rise to the idea, that this relationship is due
to the fact that innovation has a positive effect on loyalty because consumers can identify themselves more with the firm (Fouradi et al. 2016; Sanayei et al. 2013; Lin, 2015).
Nevertheless, research of Dachyar (2011) seems to indicate that innovation can lead to an increased perception of quality of the product and brand, which can lead to loyalty. More research is necessary to establish what the nature is of this relationship and how this relationship is mediated and which path is most predictive in the FMCG market.
Research about the relationship between innovation and loyalty is scarce and mostly conducted in other markets and countries. Research that relates to this topic focusses on the effect of innovation on brand attitude but not direct on loyalty. Furthermore, research that has been conducted on the relationship between innovativeness and brand attitude made use of a survey design, which decreased the internal validity of the research (Sanayei, Shahnin, Taherfar, 2013). Research that investigated the direct relationship between innovation and loyalty has been conducted in third world countries in the electronical industry. Results from these countries and markets are not perfectly generalizable to the FMCG market in a developed country. Second, studies that found a significant relationship between innovation and loyalty, did not investigate the origin of this relationship. Knowing how innovation can lead to loyalty helps creating effective marketing methods to increase the loyalty of customers.
Before we try to explain the cause of the relationship between innovation and loyalty, it is important to look at the different forms of innovation. During this research a distinction is made between product and brand innovation. These two forms of innovation are chosen because research from the field of brand equity and consumer behavior suggests there are two different ways innovations can lead to loyalty (Sanayei, Shahnin, Taherfar, 2013; Einwiller, Fedorikhin, Johnson & Kamins, 2006; Keller 2001).
Product innovation is defined as: “The development and market introduction of a new, redesigned or substantially improved good or service” (BusinessDictionary.com, 2017), whereas brand innovation is defined as “the extent to which consumers perceive brands as being able to provide new and useful solutions to their needs” (Pappu & Quester, 2014).
Extended from current literature we will expect that product innovation will lead to the perception of increased product quality and hence loyalty. Whereas brand innovation will lead
to social identification and hence loyalty.
To explain the relationship between innovation and loyalty better, a distinction has to be made between the different forms of loyalty. A more superficial form of loyalty, cognitive loyalty, where the customer is loyal but can easily be persuade by competitors and affective and behavioral loyalty (Oliver, 1999). Affective and behavioral loyalty is more persistent and
customers feel more connected with the brand (Oliver, 1999). It is based on having a positive feeling towards the brand. Cognitive loyalty is more objective and based on seeing a product as more valuable than other products, because of their attributes (Oliver, 1999). It can be that the two different paths have their influence on different forms of loyalty.
Cue utilization theory can be used to explain the different effects of the two paths. Cue utilization theory distinguishes two dimensions for perceived quality, extrinsic quality, that is linked to the brand and intrinsic quality that is related to internal product characteristics (Garrido-Morgado, Gonzalez- Benito & Martos- Partal, 2016). It seems that extrinsic (so the brand image) attributes are more related to affective loyalty, whereas intrensic attributes (the productattributes) are more related to cognitive loyalty (Garrido-Morgado, Gonzalez- Benito & Martos- Partal, 2016). A possible explanation can be that the identification with a company as innovative can lead to the higher forms of loyalty: affective loyalty and behavioral, whereas perceiving the product as having a higher quality is more related to cognitive loyalty. During this research we will distinguish the different forms of loyalty and how these can be influenced by the different paths.
In the next paragraph the two paths of the relationship between innovation and loyalty will be discussed. First we will discuss the relationship between brand innovation and social identification (relationship 2,3 and 4 in figure 4).
Figure 4: First path: from innovation to loyalty
2.2 The relationship between brand innovation and social identification (relationship 2 and 3) Customers can identify themselves with a firm when their values correspond to the values of the firm (Einwiller, Fedorikhin, Johnson & Kamins, 2006). Values are deeply held believes. A customer identifies with a company if the organization becomes self-referential or self-defining for a person (Einwiller, Fedorikhin, Johnson & Kamins, 2006). When a customer possesses the value of innovativeness, in the sense that he or she places great emphasis on novelty seeking behavior and is open for new experiences, the values correspond to the values of an innovative firm. The result can be a social identification with the firm. Sanayei and colleagues (Sanayei, Shahnin, Taherfar, 2013) found that the relationship between innovation and positive brand attitude was moderated by the innovativeness of the participant. This research suggests that innovation can lead to social identification, because the innovative values of the company are in line with that of the customer.
2.3 The relationship between social identification and loyalty (relationship 4)
We already saw that identifying with a firm can lead to a strong emotional connection with a company (Einwiller, et al. 2006) but it can also result in a commitment to it (Bergami & Bagozzi, 2000; Brown, Thomas, Barry, Dacin & Gunst, 2005 as cited in Einwiller, Fedorikhin, Johnson & Kamins, 2006), implying attitude strength, loyal behavior, and repeat buying (Einwiller, Brand Innovation Social identification Loyalty Need for innovativeness Higher forms of loyalty Innovation 1 2 3 4
Fedorikhin, Johnson & Kamins, 2006).
Recent studies accumulate evidence on the effects of brand identity and identification on loyalty (He and Li, 2010; Marin et al., 2009 as cited in He, Li & Harris, 2011). He and
colleagues (2011) add to these researches that brand identity does not only have a direct and indirect effects on perceived value, customer satisfaction and brand trust, but also have significant effects on brand loyalty but also an indirect effect on loyalty via its effect on perceived value (He, Li & Harris, 2011).
Furthermore, research by Sanayei, Shahin & Taherfar (2013) showed that the perceived innovativeness of a brand is related to a more positive brand attitude and that the consumer’s innovativeness moderates this relationship. Because a positive brand attitude can lead to loyalty it can be expected that perceived brand innovativeness will lead to loyalty by social
identification with the company.
Research that investigated the relationship between innovativeness and brand equity, an antecedent of loyalty, shows similar positive relationships. Brand equity refers to the
customer's subjective and intangible assessment of the brand, above and beyond its objectively perceived value (Rust, Zeithaml, & Lemon, 2000).
Establishing the relationship between brand innovation, social identification and loyalty is important because it can beat the diminishing loyalty towards brands, especially with
customers who belong to the Millennial and generation Z (people born from 1981 till now). The decrease in loyalty is even more pronounced in this segment and this trends seem to be going forward. To connect to this group and to increase their loyalty a company has to connect with their values. Competence and values which seem to be extremely important for this segment are entrepreneurship and initiative taking (GAIA insights, 2015). These generations are also attracted to organizations where technologies are at the forefront of the company’s ethos. Traditional companies are less attractive for this millennial and Z generation (GAIA insights, 2015). They appreciate a customer focus where companies find new ways to meet customer’s needs. A company that is seen as innovative can therefore, be expected to better connect to these generations and hence increase loyalty.
identification with the company, it will be expected that the effect of innovation will be higher with the Milennials and generation Z customers. The result will be that the use of innovation to increase loyalty need to be used mostly with these segments.
Beside the evidence for the link between innovation, social identification and loyalty, evidence also exist for a different explanation of the relationship between innovation and loyalty. In the next paragraph we discuss this different path and use the increased product quality as an explanation for the relation between innovation and loyalty.
Figure 5: Second path: from innovation to loyalty.
2.4 The relationship between innovation and perceived quality of a product (relationship 6) Perceived quality refers to one's judgment about the superiority or excellence of a given product (Zeithaml, 1988). This differs from objective quality, which refers to verifiable superiority of a product with regard to predetermined ideal standards (Zeithaml, 1988). Inevitably, a gap between perception and reality will exist. Jacobi and his colleagues (1971) already found in 1971 that the perceived quality of a product can be altered by the price, brand name and different product characteristics (Jacoby, Olson & Haddock, 1971). The use of other
Cognitive loyalty Increased product quality Loyalty Innovation Product Innovation 2 6 7
cues to determine the quality of a product is more pronounced when consumers are unfamiliar with the product, as is the case with a new product (Hazen, Boone, Wang & Khor, 2016).
The perception a customer has about a brand or product can alter the perceived quality of that product (Chernev & Blair, 2015; Lee, Frederick & Ariely, 2006). Chernev and his colleague refer to this principle as the Halo effect. They define the Halo effect as: “the tendency of overall evaluations of a person/object to influence evaluations of the specific properties of that
person/object in a way that is consistent with the overall evaluation” (Chernev & Blair, 2015). For example, it has been shown that health and nutrient-content claims on food packages induce a health halo that leads people to rate these products higher on other health attributes not mentioned in the claims (Andrews, Netemeyer and Burton 1998; Roe, Levy and Derby 1999; Wansink and Chandon 2006 as cited in Chernev & Blair, 2015). A similar example is that it has been shown that physically attracted people tend to be perceived as more sociable, mentally healthy and intelligent than physically unattractive people (Feingold, 1992). Chernev and his colleagues take the halo effect to the next level by claiming that the perception a customer has about a brand or product can alter the perceived quality even if they can test the quality themselves. Their results showed that the halo effect is even noticeable when consumers can directly observe and experience the product effects and attributes (Chernev & Blair, 2015).
If this effect is generalizable to the subject of innovation is not been highlighted in
research. This research tries to bridge this gap by investigating if a product is perceived as better because the brand or company is seen as more innovative and if this will lead to more loyal behavior towards the company.
2.5 The relationship between perceived quality of a product and loyalty (relationship 7) To recall the definition of loyalty: “a deeply held commitment to re buy a preferred product/ service consistently in the future, thereby causing repetitive same-brand or same brand- set purchasing despite situational influences and marketing efforts having the potential to cause switching behavior” (Oliver, 1999). Loyalty is first based on the fact that the brand attribute information available to the consumer indicates that one brand is preferable to its alternatives (Oliver, 1999). This indicates that customers can become loyal at first because the product
it becomes part of the customer’s experience and begins to take on affective overtones, what is referred to as affective loyalty (Oliver, 1999). When innovation has an influence on the
perceived quality of the product and hence loyalty we expect that positioning of a product as new or innovative will lead to more cognitive loyalty then affective loyalty. This will be the case because cognitive loyalty is based on the perception of the quality of the attributes.
Research already showed the positive relationship between perceived quality and loyalty (Fornell 1992; Fornell et al. 1996; Johnson et al. 1997 as cited in Frank, Torrico, Enkawa &
Schvaneveldt, 2014; Sweeney and Soutar, 2001). Frank and colleagues (2014) go a step further and try to explain this relationship. Their research found that the relationship between
perceived quality and loyalty consists of a four-stage model (product quality, product beliefs, customer satisfaction, customer loyalty) whereby the relationship between product quality and loyalty is mediated by the product beliefs. This research suggests that the beliefs a consumer has about a product can influence if they will be loyal to a brand besides the objective product quality. Furthermore, research showed that product innovation had a significant positive effect on relationship quality and its dimensions; brand trust, brand commitment, and brand
satisfaction (Hanaysha & Hilman, 2015). Dimyati (2011) examined the influence of product innovation on brand trust and came to the conclusion that product innovation had a positive and significant effect on brand trust, which ultimately lead to customer loyalty and enhanced commitment (as cited in Hanaysha & Hilman, 2015). How this relationship between product innovation and loyalty may exists is not highlighted yet. Furthermore, earlier research is conducted in markets where product innovation may have larger impacts and may be more important, like the telecommarket. Additionally, earlier research focused on the effect of product innovation without controlling the effect that brand innovation might have had on loyalty as well. The question rises if the effect of product innovation is still present in a market with low involvement products and when the effect is controlled for the effect of brand innovation on loyalty.
2.6 Summary of the model
Figure 2: Schematic view of the hypotheses.
Conclusion
Research indicates that there is a relationship between innovation and loyalty. It remains unclear if this relationship can be explained through the perception of the brand as innovative, which results in social identification of the brand and hence loyalty, or to the fact that the product is seen as more innovative and as a result that the quality of the product is perceived as better. It is possible that both explanations can have a different effect on loyalty. It will be expected that perceiving the product as better, because the product is seen as innovative, will lead to cognitive loyalty. Meanwhile, feeling more connected with the brand, due to social identification with an innovative brand will lead to affective or even behavioral loyalty.
Cognitive loyalty Brand Innovation Social identification Increased product quality Loyalty Need for innovativeness Higher forms of loyalty Innovation Product Innovation 1 2 3 4 5 6 7
During the current study we will try to get an answer on the question; if innovation can lead to loyalty and even to behavioral loyalty. In summary, this will lead to the following hypothesis:
Hypothesis 1: brand innovation will lead to loyalty. Hypothesis 2: product innovation will lead to loyalty.
Hypothesis 3: brand innovation will lead to a higher social identification with that brand. Hypothesis 4: the effect of brand innovation on social identification is stronger, and hence will be moderated, by the need for innovativeness of the participant.
Hypothesis 5: the effect of brand innovation on behavioral and affective loyalty will be mediated by the amount of social identification with the brand.
Hypothesis 6: a product is perceived as holding a higher quality because it is seen as more innovative.
Hypothesis 7: the effect of innovation on loyalty will be mediated by the increased quality of the product.
Chapter 3: method Participants
To determine the minimum amount of participants needed to find a statistical effect, G*power was used (see appendix for a description of G*power). A power analysis is executed to
investigate how large the sample group needs to be to reduce the chance of a type one error. With 4 groups, a power of 0.9 and an effect size of 0.3, 72 participants were needed. An effect size of 0.3 is used because this is perceived as a medium effect size in similar research (Cohen as cited in Field, 2013). A power of 0,9 is selected to minimize the change of a type one error, where a statistical effect is falsely found. Performing a power analysis provides an indication of the amount of participants needed. However, when performing a structural equation modeling, which is used in this research and explained in the result section, more participants were
needed. Current literature does not give a straightforward answer on how much participants were needed for such an analysis (Wolf, Harrington, Clark & Miller, 2013). For this reason, more participants were recruited than suggested from the deductions of the power analysis. In total 134 participants were used for this research. Participants were recruited trough social media, the personal network of the researcher, Facebook pages (such as survey sharing) and the app nextdoor, which is a communication network for neighbors. Especially because of the use of the app nextdoor a varied sample of participants is recruited. Respondents are recruited trough matching principles, to make sure participants variate on the need for innovativeness. Because the need for innovativeness is used as a moderating factor and this is high under participants under the age of 35, half of the participants that were recruited were above 35 years old. The participants had the following characteristics; 40,9% were male and 59,1% female. The average age was 36 (range 18-86). The level of education of the participants are displayed in table 1. It shows that most of the participants followed a higher form of education (HBO,VWO or WO), which is not representative for the Dutch society.
Table 1: Level of education of participants
Level of education Frequency Percent
Primary education (basisschool)
0 0
Lower vocational education (MBO)
7 4,3
Senior general secondary education (MBO, HAVO
16 9,8
Higher vocational education (HBO, VWO)
44 26,8
Higher education (WO)
97 59,1
Design
The method used for this research was a 2 (high innovativeness with product quality, low innovativeness with product quality) x2 (company innovativeness with identification, no company innovativeness with identification) between and within subject’s design. The
dependent variable was the degree of loyalty towards the company. The independent variables were: brand innovation, product innovation, product quality (mediating variable), social
identification (mediating variable) and need for innovativeness of the participant (moderating variable). Four different conditions are chosen, to investigate which path is more predictable of loyalty (including the type of loyalty). The conditions were as followed:
Table 2: Different conditions
Condition High product
innovation Low product innovation High brand innovation Condition 1 Condition 3 Low brand innovation Condition 2 Condition 4 Protocol
Participants were randomly divided in the four different conditions (see table 2). During the experiment, participants are firstly asked to read a text about a fictive brand (‘Fresh Smile’) and a fictive product called ‘Vivid White’. The text varies in the level of brand innovativeness of Fresh Smile and the level of product innovativeness of ‘Vivid White’. Then, participants were shown two different ads, which were created to promote ‘Vivid White’, with a before (before the toothpaste is used) and an after (the toothpaste is used) picture of a set of teeth. After they read the text and saw the ads, they were asked to fill In a few questions about the perceived innovativeness of the brand and the product. This was done to see if the manipulation really worked. Then, participants were asked, if they think the teeth on the picture are whiter after the use of the toothpaste (scale of 0-100). Then participants were asked to rate the level of cognitive, affective and behavioral loyalty (Likert scale 1-7). Furthermore, questions were asked about the need for innovativeness of the participants and the level of social identification (Likert scale 1-7). The two different ads and stories used to manipulate brand and product innovation are displayed in the appendix.
Materials
To measure the need for innovativeness, items are used from the questionnaire of Baumgartner and colleagues (Baumgartner, Jan-Benedict & Steenkamp 1994) which has a good internal reliability (chronbach’s alpha= .78). Brand Loyalty is measured by the questionnaire of Aydin & Gokhan (2004) which has a high internal reliability (Cronbach’s Alpha .92). Other questionnaires that were used had average or good reliability rate’s as well. The items used to test the social identification with the brand had a good internal validity (Chronbach’s Alpha .80) and were based on the questionnaire of (Tildesley & Coote, 2009). The items used to test product innovation ( Alegro,Lapiedra & Chiva, 2014) showed good reliability (Chronbach’s Alpha .80). The items used to test the perceived brand innovation (Shams, R., Brown, M & Alpert, F, 2015) displayed an average reliability (Chronbach’s alpha .76). The reliability scores of the separate questions are displayed in the appendix. No questions were deleted because it would not have led to a significant better questionnaire. The questions were stated in Dutch because this research is conducted among Dutch participants. Because Dutch is their native languish, questions are also stated in Dutch to prevent mistakes.
Pre testing
The test material used in this research was pre-tested. This was done to make sure that the conditions were different from each other and only differ on the amount of innovativeness of the brand and product. During this research no fictive brands were used to make sure existing associations did not influence the results. That is, when existing brands are used it is possible that other factors are influencing the loyalty towards that brand instead of the degree of perceived innovativeness. Participants can already have favorable or unfavorable associations for one of the two brands, which will influence the degree of loyalty independently of the degree of innovativeness. Besides that, research showed (Keller,2001a) that marketing efforts of companies are more successful when customers already have positive attitudes towards that company. Hence, the existing associations that participants may have can influence how
positive they evaluate the degree of innovativeness of a company. Therefore, for this research, fictive companies have been used.
of the different brands (likert 1-7). Besides that, participants will be asked to rate the perceived effectiveness of the whiting toothpaste before any manipulation of innovation took place. The reason for this is that we want to be sure that the variation of quality perception is due to the manipulation of innovativeness and not because the picture of the set of teeth is too
ambiguous. If there already is a high variation in quality perception between participants, before the manipulation, a picture that is less ambiguous needs to be used. Results of the pre-test are displayed below in table 3 till 6. The results show that the manipulation check worked as planned. For brand innovation, condition 1 and 3, tend to score higher on perceived brand innovation and are significantly different from condition 3 and 4. For product innovation, condition 1 and 2 tend to score higher and are significantly different from condition 3 and 4.
Table 3: scores brand innovation pre-test
Table 4: scores product innovation pre-test
Mean Standard deviation N
Condition 1 5,7 1,0 4
Condition 2 5,1 1,2 5
Condition 3 3,9 1,4 6
Condition 4 3,8 1,4 6
Mean Standard deviation N
Condition 1 6,0 ,67 4
Condition 2 3,1 1,1 5
Condition 3 4,6 ,72 6
Table 5: scores of significance product innovation pre-test
Table 6: scores of significance brand innovation pre-test
Data analysis
To investigate which relationship (product innovation or brand innovation) is more predictable of loyalty, a structural equation model is used. Through the use of this model, multiple
regression equations can be simultaneous estimated in a single model. Hence, all direct and indirect relationships in the model are estimated simultaneously, so all the interrelationships of the variables can be assessed in the same context (Oh, 1999, p. 74). The proposed model is analyzed with the program R (R, corporation, 2016) with the use of the lavaan package.
Condition 1 Condition 2 Condition 3 Condition 4 Condition 1 Condition 2 .03* Condition 3 .14 .04* Condition 4 notes: p<.05 .03* .43 .04*
Condition 1 Condition 2 Condition 3 Condition 4 Condition 1 Condition 2 .38 Condition 3 .01* .03* Condition 4 notes: p<.05 .02* .049* .69
Data preparation
During this research, missing values were reported and accounted for in SPSS 20.0 (IBM corp. 2016). The questionnaire of need for innovation consisted of counter-indicative questions. The counter-indicative questions were: 1,4,5,7 and 8. These answers are transformed so a valid average could be calculated.
The data was checked for outliers. One outlier was found on perceived brand innovation. Scores on this item are changed to the average plus two times the standard deviation. Then, a new variable was created to calculate an average score for the need of innovativeness. This was also done for the amount of cognitive and affective plus behavioral loyalty. To see if the
manipulation of the different conditions worked, five questions about the perceived product innovativeness and brand innovativeness were implemented in the questionnaire. Two questions consist of the perceived product innovation (the product ‘Vivid White’ uses a
technology that has not been used before and the product Vivid White is an innovative product and new on the market). Three questions entail the perceived brand innovativeness (the brand Fresh Smile differentiates itself from other brands, the brand Fresh Smile can be displayed as an innovative brand, Fresh Smile can be seen as a dynamic brand). The differences between
conditions are displayed in table 7. Table 7: The different conditions
Condition High product
innovation Low product innovation High brand innovation Condition 1 Condition 3 Low brand innovation Condition 2 Condition 4
Results of the product innovation manipulation are displayed in table 8. The higher the score, the more perceived innovativeness was shown. Condition one and two were exposed to an innovative product description and, as expected, show the highest level of perceived product innovation.
Table 8: Effect of manipulation
Condition Mean SD
Condition 1 4,92 0,99
Condition 2 4,41 1,41
Condition 3 3,28 1,25
Condition 4 3,88 1,30
As displayed below in table 9, conditions 1 and 3 scored significantly different on the perceived product innovation from condition 2 and 4. This indicates that the manipulation for product innovation worked.
Table 9: Significant differences in conditions.
Condition 1 Condition 2 Condition 3 Condition 4 1
.429 1
.00* .00* 1
.00* .00* 1,00 1
notes: p<.05
Results of the brand innovation manipulation are displayed in table 10. Only condition 1 significantly differs from condition 2 and 4. Condition 3 does not differ significantly from 2 and 4. This indicates that the manipulation for brand innovation worked only partially.
Table 10: Effects of the manipulation for brand innovation.
Condition Mean SD
Condition 1 4,94 0,95
Condition 2 3,94 0,81
Condition 3 3,89 1,16
Table 11: Significant differences of brand innovations.
Condition 1 Condition 2 Condition 3 Condition 4
Condition 1 1 Condition 2 .00* 1 Condition 3 .00* 1,00 1 Condition 4 .00* 1,00 1,00 1 notes: p<.05
Averages of the need for innovation and loyalty are displayed in table 12. The average of need for innovation, all forms of loyalty, and perceived brand and product innovation were calculated in SPSS and transformed into new variables. Items of all the questionnaires were investigated on reliability. All the items contributed to the overall reliability of the questionnaires, so no items were deleted. Chronbach alpha’s of all the questionnaires and the individual items are included in the appendix.
Table 12: differences in independent variables
Variables Mean SD
Need for innovation 3,83 0,84
Cognitive loyalty 3,71 1,30
Affective loyalty 3,34 1,29
Chapter 4: results
To test the hypothesized relationships, proposed in Figure 2 below, structural equation modeling (SEM) was used. The proposed model was analyzed through the program R (R
Development Core Team, 2008). with the use of the lavaan package. The relationships between brand innovation/product innovation and loyalty are analyzed in the total sample. In this model the independent variables are the average score on brand innovativeness and product
innovativeness and the dependent variables are the different variants of loyalty (cognitive and the higher form of loyalty: affective and behavioral).
Figure 2: schematic view of the hypotheses.
Cognitive loyalty Brand Innovation Social identification Increased product quality Loyalty Need for innovativeness Higher forms of loyalty Innovation Product Innovation 1 2 3 4 5 6 7
Relationship brand innovation/ product innovation loyalty (hypothesis 1 and 5) Higher levels of loyalty
First the relationships between brand innovation/product innovation and the higher forms of loyalty (affective and behavioral) are analyzed. Cognitive loyalty is analyzed separately of behavioral and affective loyalty. Cognitive loyalty can be seen as the lowest form of loyalty whereas affective and behavioral loyalty are defined as higher forms of loyalty. Fischer and colleagues state (2010) that in the FMCG a company can only realize cognitive loyalty. To investigate if this is true, a distinction between the lower and higher forms of loyalty is made instead of the difference between cognitive, affective and behavioral loyalty.
The model reports goodness of fit indices, standardized parameter estimates and their t-values for the structural model. The goodness of fit indices are within good ranges (CFI: .95). For all models the comparative fit index is chosen to estimate the goodness of fit of the model. The reason for this is that CFI is less effected by small sample sizes (Schermelleh-Engel,
Moosbrugger, & Müller, H. 2003). There is no significant direct relationship between brand innovation and the higher steps of loyalty, as is displayed in table 13. However, an indirect effect of brand innovation on the higher levels of loyalty is found, trough social identification. Furthermore, no significant direct effect is found between product innovation and the higher levels of loyalty.
Table 13: Significant effects higher types of loyalty
Relationships Estimate (B) Z-score
Higher level loyalty ~ Brand innovation
0.06 1,20
Higher level loyalty~ Product innovation~
Note: ***significant <.01, **significant <.05, * significant <.10
0.01 0.03
Lower levels of loyalty
Second the relationships between brand innovation/product innovation and cognitive loyalty are analyzed. The model reports goodness of fit indices, standardized parameter estimates and their t-values for the structural model. The goodness of fit indices are within the acceptable ranges (CFI: .93). A direct significant effect is found between brand innovation and cognitive loyalty and between product innovation and cognitive loyalty. The effect between brand innovation and cognitive loyalty is stronger (z=6.33, p<.01), than the relationship between product innovation and cognitive loyalty (z=2.38, p<.05).
To summarize, both product innovation and brand innovation has an effect on cognitive loyalty, which is not in line with our hypotheses. It was expected that product innovation would lead to cognitive loyalty and brand innovation to the higher forms of loyalty only. While both product innovation and brand innovation have a significant effect on cognitive loyalty, this effect is stronger for brand innovation and is not moderated by the need for innovativeness.
To test if both of the relationships are mediated by social identification and or product quality, the indirect effects are also analyzed. In table 14 the results of these indirect
relationships are displayed.
Table 14: Significant effects of lower form of loyalty
Direct relationships Estimate (B) Z-score
Cognitive loyalty~ Brand innovation 0.42 6.33*** Cognitive Loyalty~ Product innovation Note: ***significant <.01, **significant <.05, * significant <.10 0.15 2.38**
Relationship between brand innovation and social identifcation (hypothesis 2)
A direct relationship between brand innovation and social identification is found (z=3.90, p<.01). Whereas the same effect of social identification is not found with product innovation. This is in line with our expectations that product innovation will not lead to social identification (exact numbers are displayed in table 15).
Table 15: indirect relationships
Relationships Estimate (B) Z-score
Identification~ Brand innovation 0.35 3,90*** Identification~ Product innovation Note: ***significant <.01, **significant <.05, * significant <.10 0.05 0.56
Moderating effect of need for innovativeness on the relationship between brand innovation and social identification (hypothesis 3)
A moderating effect of need for innovativeness on the relationship between brand innovation and social identification is, unexpectedly, not found (t=1.262, p>.05). Additionally, and in line with our expectations, the relationship between product innovation, product quality and loyalty, is not moderated by the need for innovativeness (t=1.585, p>.05) as well.
Mediation of social identification (hypothesis 4) Higher levels of loyalty
A significant indirect relationship is found between brand innovation and the higher levels of loyalty trough social identification, as is displayed in table 16. In line with our expectations, a relationship between brand innovation and product quality is not found. This shows that the effect of brand innovation goes through social identification and not trough an increase in perceived product quality.
Lower levels of loyalty
The relationship between brand innovation and cognitive loyalty is significantly mediated by social identification, but not by product quality. While it was expected that the need for innovativeness would moderate the relationship between brand innovation and social identification, this was not the case (t=1.097, p>.05).
Table 16: indirect relationships
Relationships Estimate (B) Z-score
Higher levels loyalty~ Identification 0.79 17,84*** Identification ~ brand innovation 0.35 3,90*** Cognitive loyalty~ Identification 0.34 6.29*** Identification ~ brand innovation 0,42 3,63** Product quality~ Brand innovation Note: ***significant <.01, **significant <.05, * significant <.10 0.07 0.77
Relationship between product innovation and increased product quality (hypothesis 6) A trend towards a direct relationship is found between product innovation and increased product quality (z=2.29, p<.10).
Mediation of increased product quality (hypothesis 7) Higher levels of loyalty
Focusing on the path of product innovation and the higher levels of loyalty, no significant direct and indirect relations are found between product innovation and loyalty. Hence further analysis is not required.
Lower levels of loyalty
Focusing on the path of product innovation and cognitive loyalty, a trend towards an indirect significant relationship is shown. This relationship is mediated by product quality but not with social identification. This is in line with our expectations. Specific results are displayed in table 17. A trend towards an indirect relationship between product innovation and perceived quality of the product is found. A trend towards significance means that a direct relationship is not found yet, but this would probably be the case if the sample size would be larger.
To summarize the mediation effect, it is shown that the relationship between product innovation and cognitive loyalty shows a trend for a significant mediation effect of product quality. The relationship between brand innovation and cognitive loyalty is significantly mediated by the amount of identification with the brand.
Table 17: indirect relationships second path
Relationships Estimate (B) Z-score
Product quality~ Product innovation 0.23 2.29* Cognitive Loyalty~ Product quality 0.22 2,21* Identification~ Product innovation 0.05 0.56 Product quality ~ Brand innovation Note: ***significant <.01, **significant <.05, * significant <.10 0.07 0.77 Further analysis
Within the first analysis the effect of brand innovation and product innovation is tested throughout the whole sample. However, because participants were assigned to different conditions it would be interesting to see if the results are different within the different
conditions. There is a possibility that the results on one form of innovation (brand or product) are influenced by the presence of another form of innovation (brand or product). Sometimes a manager has to choose where to locate his or her resources to: product or brand innovation. To
test this assumption that the two forms of innovation influence each other and to improve the managerial relevance, the same two models for the two different dependent variables were used in every condition separately.
Results are displayed below. Condition 2
In this condition participants were exposed to an innovate product but a non-innovative brand. Results showed that product innovation has no significant direct and indirect relationships with the higher levels of loyalty (z=1.42, p>.05) which is the same as in the total sample. A significant effect between product innovation and cognitive loyalty is found (z=5.69, p>.01). This effect is stronger than in the total sample. This relationship is mediated by product quality (z=1.75, p<.05; z=1.42, p<.05). The fact that product innovation has an effect on cognitive loyalty but not on the higher forms of loyalty has been hypothesized. Brand innovation has no significant effect on the higher levels of loyalty as well (z= 0.13, p>.05), and only a trend towards significance (z:1.86, p<.10), with cognitive loyalty, which is highly mediated by social identification (z: 3.27, p<.01; z: 4,27, p<.01). This result is expected because in this condition the amount of brand innovation is low. Surprisingly brand innovation has a trend towards a significant relationship with cognitive loyalty as well. This can be explained by the fact that the average score on brand innovation in this condition is still above average. These results show that product innovation has a stronger effect on cognitive loyalty when brand innovation is absent. Probably because brand innovation can explain a part of the explanatory variance of product innovation on cognitive loyalty as well.
Condition 3
In this condition participants were exposed to a non-innovative product and an innovative brand. Unfortunately, the manipulation check showed that brand innovation was not adequately manipulated in this condition. Therefore, results of the path of brand innovation should be interpreted with caution.
