The effect of value co-creation on customer relationship outcomes

The effect of value co-creation on

customer relationship outcomes

Eva de Meijier, 6102638 29th of June 2015 Thesis, final version Supervision of Carsten Gelhard

MSc Business Administration, Strategy-Track

Statement of Originality

This document is written by Student Eva de Meijier 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

This study has contributed to the literature on value co-creation by assessing factors of influence on the customer relationship outcomes of customer satisfaction and customer loyalty after customers have participated in different manifestations of value co-creation. For firms, enhancing customer satisfaction and customer loyalty is crucial because these increase a firm’s value capture in the marketplace. Moreover, due to a changing strategic focus, firms increasingly engage in value co-creation and therefore the effect of these practices on

customer relationship outcomes was examined, together with additional factors of influence. The research has been conducted through a self-administered survey for consumers that have participated in different manifestations of value co-creation. Regarding the results, firms can either achieve customer satisfaction directly after customers have participated in value co-creation or through a high-perceived value by customers of the value co-co-creation practices. Furthermore, participants of value co-creation become loyal either because they perceive the firm as very innovative or because they are satisfied in the first place and in turn become loyal. Additionally, two multiple mediation paths, prior to achieving customer satisfaction as mediator, for customer loyalty were also evident; through perceived value and through perceived innovativeness. Firms can take these results into account and focus on these factors that lead to customer satisfaction and customer loyalty. When done properly, the firm is able to appropriate more value and this enhances the firm’s competitive position. Therefore, valuable implications concerning value co-creation for the theoretical field as well as for the managerial field can be derived from these findings.

Keywords: value co-creation; customer relationship outcomes; customer satisfaction;

Table of contents

1. Introduction ... 5

2. Theoretical Development ... 9

2.1 The Resource Based View ... 9

2.2 Extending the RBV ... 10

2.3 Servitization ... 12

2.4 Value Co-creation ... 14

Value creation & value appropriation ...15

Value creation through value co-creation ...17

Value appropriation in value co-creation ...20

2.5 Customer Relationship Outcomes ... 21

2.6 Antecedents of Customer Relationship Outcomes ... 23

Perceived Value ...24

Relational Benefits ...25

Perceived Innovativeness ...26

2.7 Personal Characteristics Of Participants ... 27

3. Hypothesis Development ... 29

3.1 Consumer Participation in Value Co-creation ... 29

3.2 Customer Relationship Outcomes ... 29

3.3 Perceived Value ... 32 3.4 Relational Benefits ... 33 3.5 Perceived Innovativeness ... 34 3.6 Personal Characteristics ... 35 4. Methodology ... 37 4.1 Sample Description ... 37 4.2 Measurements ... 37 Independent variable ...37 Dependent variables ...38 Mediators ...38 Moderators ...40 Control variables ...41 4.3 Statistical Procedure ... 41 5. Results ... 45 5.1 Correlation Analysis ... 45 5.2 Direct Effects ... 48 5.3 Mediation Effects... 51

5.4 Multiple Mediation Effects ... 55

5.5 Moderation Effects ... 58

6. Discussion ... 61

6.1 Theoretical and Practical Implications ... 61

6.2 Limitations ... 66

6.3 Further Research ... 67

7. References ... 69

8. Appendices ... 80

1. Introduction

In the last decades a major development in the strategic field has taken place that extends the conventional Resource Based View (RBV). In the conventional RBV strategic resources within a firm are sources of a competitive advantage. But multiple scholars have extended the RBV by stating that strategic resources can also lie beyond firm boundaries, in strategic alliances and collaborative relationships among supply chain partners (e.g. Daugherty et al., 2006; Kanter, 1994), among firms (e.g. Das & Teng, 2000; Powell, Koput, & Smith-Doerr, 1996) and between a firm and its customers (e.g.Hogan & Armstrong, 2001). These

collaborative relationships can also generate strategic resources that can lead to a competitive advantage for firms. Also it is argued that relational competencies developed in these

relationships can lead to strategic advantages for firms (Dyer & Singh, 1998; Kale, Singh, & Perlmutter, 2000; Lorenzoni & Lipparini, 1999).

In this research the focus is on collaborative relationships between a firm and

customers, in which they jointly create value through customer participation in a firm’s value creating process. This practice is called Value Co-creation. In agreement with the rationale of the extended RBV, customers are then seen as a source of competence that can be exploited to achieve a competitive advantage (Prahalad & Ramaswamy, 2000). But to enable these

collaborative relationships with customers, the strategic focus of firms has changed. Firms have become service-focused, instead of product-focused, in which intangible output,

relationships and exchange processes with customers are central instead of products (Vargo & Lusch, 2004). This is known as the Service-Dominant logic, in which service is the

fundamental basis of exchange (Vargo & Lusch, 2004). This development, the ‘servitization’ of business (Vandermerwe & Rada, 1988), is largely customer driven because customers demand broader offerings than a firm’s core business activities in order to establish and

maintain a relationships with the firm (Vandermerwe & Rada, 1988). In addition, customers also increasingly demand enhanced value around the core product and reliable service to support the product (Grönroos, 1996). Moreover, customers have become more powerful and this also pushes the trend of servitization (Vandermerwe & Rada, 1988).

The new strategic focus that emphasizes collaborative relationships with customers has also led to the development of a new firm-wide strategy that evolves around the specific needs and wishes of individual customers while improving a firm’s financial position. This approach is called Customer Relationship Management (CRM). The goal is to make each customer more valuable to the firm by increasing their satisfaction and their loyalty towards the firm (Peppers & Rogers, 2004). This can be achieved by treating each customer

differently by better customizing the products and service offerings to the needs of individual customers. To enable this, firms must also employ a strategy in which open innovation is made possible (Chesbrough & Appleyard, 2007). Open innovation allows partners to use, pool and exchange each other’s resources that would otherwise remain inaccessible. Value co-creation is such an open innovation approach and enables better customization for

customers because customers participate in a firm’s value creating process. This practice has changed the conventional way of creating and appropriating value for firms.

Prahalad and Ramaswamy (2004) argue that in value co-creation, the value is jointly created through personal and unique interactions between the consumer and the firm in which the experience of the consumers is the basis for unique value for every consumer. This is also in line with CRM and with the Service-Dominant logic in which the value is ‘defined by and cocreated with the consumer rather than embedded in output’ (Vargo & Lusch, 2004, p. 6). Customers have thus transformed from passive audiences to active players in creating value (Prahalad & Ramaswamy, 2000). Furthermore, the created value is measured through the benefits perceived by a customer in its own context (Gronroos, 2000; Grönroos, 2011b), by its

value-in-use (Vargo & Lusch, 2004). Firms can only make value proposition and not deliver value (Vargo & Lusch, 2004). Moreover, due to these collaborative relationships, relational rents can also be generated by either lower transaction costs due to effective governance or through value creating incentives (Dyer & Singh, 1998).

But besides the act of creating value to achieve a competitive advantage, value appropriation is just as important for firms because it determines the sustainability of a competitive advantage. Mizik & Jacobson (2003) state that a firm’s value appropriation is its ability to restrict competitive forces in the marketplace so that the focal firm can capture more value. A way of accomplishing this is by employing a defensive strategy with the goal of reducing customer exit and switching (Fornell, 1992). This can be achieved by improving customer satisfaction and customer loyalty (Fornell, 1992), which are also the preferred customer relationship outcomes.

This study will research the effect of customer participation in value co-creation on the customer relationship outcomes of customer satisfaction and customer loyalty because these influence a firm’s value appropriation. The topic is highly relevant because co-creating value with customers is a practice that is happening more and more in business nowadays. And accomplishing customer satisfaction and customer loyalty is crucial for a firm’s value capture, which is in turn essential for every firm. Therefore it is interesting for firms to know how value co-creation influences the satisfaction and loyalty of their customers and thus their value capture. Participants of different value co-creation practices will be examined by filling in a self-administered survey. Relational benefits perceived by customers are also taken into account due to the increasing importance of relationships in business. Furthermore, the perceived value of customers, which is subdivided into symbolic and functional value, is researched as well as mediator of the focal relationships. And since value co-creation is a relatively new phenomenon and people tend to like being involved in new practices,

perceived innovativeness of the firm by customers is also researched as a mediator. Thus by researching the customer-side in value co-creation, conclusion can be drawn concerning the factors that influence customer satisfaction and customer loyalty and in turn about a firm’s value appropriation when engaging in value co-creation. Firms can anticipate on the findings and increase their capture of value to sustain their competitive advantage. Therefore, this study delivers a valuable contribution to the managerial field. Furthermore, it is an interesting subject for empirical research because there has been little prior empirical research done on co-creation mainly because it is a relatively new trend. Especially its effect on customer satisfaction and customer loyalty and indirect on a firm’s value appropriation has not been studied yet. Therefore this study also offers a valuable contribution to the academic field of value co-creation. Furthermore, customers may participate in value co-creation due to their altruistic personality leading in turn to more satisfaction and loyalty intentions towards a firm, or because they have more self-esteem to participate in value co-creation. These two

characteristics are researched as moderators of the focal relationship. Therefore, the

overarching research question of this study is; what is the effect of customer participation in

value co-creation on customer satisfaction and customer loyalty?

First the theoretical developments that have led to value co-creation practices will be discussed in depth. Then value co-creation will be discussed in great detail, and the

corresponding value creation and appropriation processes when customer participate in value co-creation. Next, the customer relationship outcomes of customer satisfaction and customer loyalty will be discussed as factors that influence a firm’s value appropriation. Then the mediators and moderators of this research are examined. Additionally the hypotheses are developed and the methodology is explained. Finally the results and discussion of this research are presented.

2. Theoretical Development

In the strategic field two dominant views regarding the sources of competitive advantage exist. The first, the industry structure view of Porter (1980) suggests that firms gain supernormal returns when it operates in an industry with favorable characteristics (e.g. relative bargaining power, barriers to enter etc.). The other dominant view, the Resource Based View (RBV) is grounded in Edith Penrose’s theory about the growth of a firm, written in 1959 and focuses on a firm’s resources instead of the firm’s market structures to achieve imperfect competition and gain super-normal returns (Fahy, 2000). The RBV is based on two assumptions; firms own and control heterogeneous resources (tangible or intangible) and second, these resources are imperfectly mobile. With these heterogeneous resources every firm tries to achieve a competitive advantage, which is sustained by the immobility of the resources (Barney, 1991). These resources should be Valuable, Rare, Inimitable and Non-substitutable to achieve a competitive advantage over competing firms (Barney, 1991,

Dierickx & Cool, 1989, Rumelt, 1984). In this view, the firm is the focal unit of analysis and a single firm owns and controls its resources. Consequently, the search for a competitive advantage in the conventional RBV has focused on the resources within a firm (Dyer & Singh, 1998).

As a reaction to this static theory, the dynamic capabilities view emerged which builds upon the RBV. The dynamic capabilities perspective emphasizes the responsiveness of firms to their changing business environment by renewing competences and the key role of strategic management is ‘appropriately adapting, integrating, and reconfiguring internal and external organizational skills, resources and functional competences to match the requirements of a changing environment’ (D. J. Teece, Pisano, & Shuen, 1997, p. 515). The dynamic

capabilities perspective is thus internally and externally oriented. While this development is still rooted within the RBV, another development in the strategic field has taken place that extends the RBV.

2.2 Extending the RBV

In the last decades, multiple scholars have claimed that strategic resources can also lie beyond firm boundaries. They extend the conventional RBV by focused on the growing importance of strategic collaboration among supply chain partners (e.g. Daugherty et al., 2006; Kanter, 1994), among firms (e.g. Das & Teng, 2000; Powell et al., 1996) or between the firms and customers (e.g. Hogan & Armstrong, 2001). Also it is argued that relational competencies between firms can generate strategic advantages (Dyer & Singh, 1998; Kale et al., 2000; Lorenzoni & Lipparini, 1999).

According the RBV rationale, a strategic alliance or collaboration is seen as a value maximizing strategy ‘used to access other firms’ resources, for the purpose of garnering otherwise unavailable competitive advantages and values to the firm’ (Das & Teng, 2000, p. 36). Strategic alliances are thus formed to access resources that are not tradable (Chi, 1994) and imperfectly mobile. Therefore complementary resource combinations can be formed between partnering firms (Kogut, 1991). According to Lippman & Rumelt (1982), due to causal ambiguity, which is the lack of transparency about which resources are responsible for a competitive advantage, another firm is constrained in its ability to imitate resources or employ substitutes for achieving the same advantage. Thus, strategic alliances between firms can generate strategic resources leading to a competitive advantage. Moreover, multiple scholars state that collaborative relationships between firms are viable methods of knowledge creation and transfer (Hamel, 1991; Nonaka, 1994; Powell et al., 1996). Anderson (1995)

argues that ‘value creation and value sharing are the raison d’etre of collaborative customer-supplier relationships’ (p. 348).

However, this research focuses on collaborative relationships between a firm and customers. Hogan and Armstrong (2001) argue that collaborative relationships between suppliers and customers can be a source of competitive advantage because ‘they provide a mechanism for delivering superior customer value for both the buyer and the seller’ (p.8). And this competitive advantage is sustainable, because these relationships are difficult to imitate (Hogan & Armstrong, 2001). In these relationships, firms collaborate strategically with customers.

Relational competencies developed in collaborative relationships between partners can also generate strategic resources. Dyer and Singh (1998) discuss relational rents that can be achieved due to a cooperative strategy between partnering firms. They call this the relational view of competitive advantage and define relational rents as ‘a supernormal profit jointly generated in an exchange relationship that cannot be generated by either firm in isolation and can only be created through idiosyncratic contributions of the specific alliance partners’ (p. 662). These rents can be either the result of lower transactions costs due to effective

governance or by providing incentives for value-creating practices. These incentives are investments in relation-specific assets, substantial knowledge exchange between the partners and combining complementary and scarce resources or capabilities (Dyer & Singh, 1998). Thus relational rents can be generated when partners invest, combine and exchange assets, knowledge and resources/capabilities or lower the transactions costs due to effective governance mechanisms or through synergies created by combinations of resources,

capabilities and assets (Dyer & Singh, 1998). These relational rents can also be generated in collaborative relationships between a firm and customers.

Thus whereas the conventional RBV focuses on how an individual firm achieves a competitive advantage that is based upon in-house resources, capabilities and assets, in the extended RBV, strategic resources can also lie beyond firm boundaries, due to collaborative relationships with partners, which can be either firms or customers. Relational rents can also be jointly generated and can greatly enhance the competitive position of a firm. But to enable collaborative relationships with customers a new strategic approach for businesses evolved, one that is based on co-operation and trusting relationships with customers and other stakeholders (Grönroos, 1996). One of the strategic implications of this is, as identified by Grönroos, (1996) is defining the firm as a service business and refers to an ongoing holistic service offering of a firm, offering much more than the initial product. Firms have

transformed from being product-focused to being service-focused. This development is called the ‘servitization’ of business (Vandermerwe & Rada, 1988).

2.3 Servitization

Firms have increasingly become service businesses in which intangible outputs, exchange processes and relationships with customers are central instead of tangible output and discrete transactions (Vargo & Lusch, 2004). The product-oriented approach wasn’t sufficient

anymore to deal with the increasing competition and firms could no longer satisfy the demands of customers (Grönroos, 1996). Customers increasingly demand enhanced value around the core product, reliable service to support the product and a trustworthy relationship with the firm, suppliers and distributors (Grönroos, 1996). Furthermore, customers have become more critical, better informed and thus more powerful (Vandermerwe & Rada, 1988). Also the increasing competitive forces, deregulation, technology and globalization have pushed firms towards becoming service-focused (Vandermerwe & Rada, 1988).

Therefore firms have increasingly focused on broader offerings than their core business activities by adding services and these services are accountable for a large component of the added value in these offerings (Vandermerwe & Rada, 1988). This movement is called the ‘servitization’ of business, introduced by Vandermerwe & Rada in 1988. Vargo and Lusch (2004) concur with this new strategic focus in which service is the fundamental basis of exchange. They have introduced the Service-Dominant Logic, as opposed to the Goods-Dominant logic, and define it as a ‘continuous series of social and economic processes that is largely focused on operant resources with which the firm is constantly striving to make better value propositions than its competitors’ (p. 5). Operant resources are typically human, relational, organizational and informational resources such as skills, knowledge and relationships, while operand resources are mainly physical resources such as raw materials and products. Operant resources solve problems, fulfill needs and produce the customer experience (Vargo & Lusch, 2004). This development has created new opportunities for firms to become competitive because competition now evolves around the total service offering. Goods are now only seen as service appliances, as mechanisms for distributing value, and the service value is determined at the time of its use, value-in-use, not the value-in-exchange (Vargo & Lusch, 2004). This service-centered view is ‘inherently customer oriented and relational’ (Vargo & Lusch, 2008, p. 8) and leads to new relationships with customers (Vandermerwe & Rada, 1988).

This new strategic focus that emphasizes collaborative relationships with customers has also led to a new firm-wide strategy, called customer relationship management (CRM), which evolves around the specific needs and wishes of individual customers while improving a firm’s financial position. The overall aim of these new business practices is making each customer more valuable to the firm. This is achieved when a firm understands and influences customer behavior through interactions to improve the satisfaction and retention of every

individual customer (Peppers & Rogers, 2004). Customer value and relationships with customers are put first in organizations. By better customizing services and products for individual customers, the customer retention (Parasuraman & Grewal, 2000; Srinivasan, Anderson, & Ponnavolu, 2002) and profitability of firms (Ryals & Knox, 2001) can be increased.

To enable this, firms must also employ an open strategy. An open strategy ‘balances the tenets of traditional business strategy with the promise of open innovation’ (Chesbrough & Appleyard, 2007, p. 58). In open innovations, partners can pool, share and exchange resources and thereby access the partner’s resources that would otherwise remain

inaccessible. As a result, open innovations with customers can generate strategic resources. In addition, a premise of the Service-Dominant logic is ‘The customer is always a co-creator of value’ (Vargo & Lusch, 2008, p7), referring to value co-creation between a firm and

customers. Value co-creation with customers is such an open innovation approach and is based on collaborative relationships and interactions between a firm and its customers. Value co-creation will be my main research topic.

2.4 Value Co-creation

In value co-creation customers jointly create value with a firm. Because, in agreement with the rationale of the extended RBV, customers can be seen as a source of competence leading to a competitive advantage for the firm, by offering their knowledge, skills, willingness to learn and experiment and their ability to interact with the firm (Prahalad & Ramaswamy, 2000). Value co-creation is a strategic collaboration between the firm’s resources and the customer’s resources. It is as a value-maximization approach for firms and in line with the rationale of the RBV of bundling and exploiting valuable resources to maximize value (Das & Teng, 2000).

For firms, both processes of value creation and appropriation are crucial for achieving a sustained competitive advantage. The strategic task for firms is to balance the two processes and this requires strategic prioritizing and trade offs (Mizik & Jacobson, 2003). But open innovation approaches bring along new business models for value creation and appropriation (Chesbrough & Appleyard, 2007). First the conventional value creation and value

appropriation process will be discussed in order to explain the new business models for value creation and appropriation when firms co-create value with customers.

Value creation & value appropriation

First of all, value is an elusive term and the nature of value has been discussed and debated since Aristotle. He was the first to distinguish between use-value and exchange-value

(Fleetwood, 1997). Adam Smith (1976/2000) was the first to introduce the discussion of value and value creation into economics and in the study of market exchange and concurred with the different meanings of value. Value-in-exchange is the value measured at the moment of exchange when a buyer buys the product. It refers to the monetary price paid by the buyer for the perceived usefulness of the product or service and it is used in the Goods-Dominant logic. Value-in-use refers to the customer’s perceived usefulness of a product or service in relation to a customer’s needs (Bowman & Ambrosini, 2000). Therefore it is a subjective judgment of an individual consumer (Bowman & Ambrosini, 2000). In monetary terms, it is the price customers are prepared to pay for the product or service (Bowman & Ambrosini, 2000). This perception of value is used in the Service-Dominant logic and is most important in CRM.

According to Peteraf & Barney (2003), firms have a competitive advantage if ‘it is able to create more economic value than the marginal (breakeven) competitors in its product market’ (p.314). And the economic value generated by a firm is ‘the difference between the perceived benefits gained by the purchasers of the good and the economic costs to the

enterprise’ (p. 314), either achieved through superior differentiation or through lower costs (Peteraf & Barney, 2003). The perceived benefits of customers are then reflected in

customers’ willingness-to-pay, in their value-in-use.

These definitions are resembled in the value creation framework of Brandenburger & Stuart (1996) which concerns the conventional value creation process of a firm by following Porter’s theory in considering the vertical supply chain of suppliers, firms and buyers. Firms acquire resources such as raw materials and capital from suppliers and turn these into

products and services, which are in turn bought by buyers (Brandenburger & Stuart, 1996). The total value created is dependent on all the players that are involved in the supply chain; on the ‘willingness-to-pay’ of the buyer and the ‘opportunity costs’ of the supplier. The customers’ willingness-to-pay is the amount of money a buyer is willing to pay for the product so that the new situation (product bought) is equivalent to the original status quo (no product bought) (Brandenburger & Stuart, 1996). The opportunity costs of the supplier is the amount of money for which a firm buys a quantity of resources from a supplier in which the suppliers perceives the new situation (money minus resources) as the equivalent to the

original status quo (Brandenburger & Stuart, 1996). The opportunity costs of the suppliers are the economic costs of the firm, as referred to by Peteraf & Barney (2003). The total value created in the supply chain is the customers’ willingness-to-pay minus the opportunity costs present in the supply chain. But due to the presence of more players, both the willingness-to-pay and opportunity costs are defined in respect to the opportunities elsewhere in the

economy, outside the supply chain.

But who appropriates the created value? In the theory of Brandenburger & Stuart (1996) the shares of the players are determined by the added value of each player and their bargaining power. The share each player appropriates is not greater than the added value of that player. Because otherwise the other two players would receive less than their added value

and would have missed out on other favorable deals (Brandenburger & Stuart, 1996). This possibility is ruled out by the assumption that players actively look for favorable opportunities and therefore ‘unrestricted bargaining’ can take place between the players. Thus the added value of players indicates the ‘chances’ of capturing value and bargaining determines the exact amount captured by each player (Brandenburger & Stuart, 1996). Coff (1999) has developed a framework that combines the RBV with bargaining theory and assumes that the firm is a nexus of contracts, that generates rent while people, the firm’s stakeholders,

appropriate it because they have bargaining power.

Mizik & Jacobson (2003) define value appropriation as the firm’s ability to restrict competitive forces in the marketplace so that the focal firm can extract more of the value created in the market. Because once value is created three major players can capture this value. The innovating firms will acquire some of this value in the form of economic profit, the customers will gain a consumer surplus and competitors will gain a slice through profits received by imitation or development cost savings (Mansfield, Rapoport, Romeo, Wagner, & Beardsley, 1977). Value appropriation processes of a firm determine the sustainability of a competitive advantage of a firm (Mizik & Jacobson, 2003). But due to the new strategic focus that emphasizes collaborative relationships with customers, the processes of value creation and appropriation have changed. Customers now want to interact with firms and exert influence on the business system of firms to co-create value with them.

Value creation through value co-creation

When firms engage in value co-creation, customers participate in the value creating process of a firm and jointly create value with a firm. Customers are seen as a source of competence, offering their knowledge, skills, willingness to learn and experiment and their ability to interact with the firm (Prahalad & Ramaswamy, 2000). To exploit this source of competence,

firms have developed collaborative practices with customers and increasingly co-create value with them. Value co-creation can be described as the tendency of firms to involve their customers in the creational process by encouraging them to become part of this process (Prahalad & Ramaswamy, 2002). Customers thus have transformed from ‘passive audiences’ to ‘active players’ (Prahalad & Ramaswamy, 2000) . According to Prahalad & Ramaswamy (2004a), this changing role of customers is the result of the increasing access to information on which customers base their informed decision, the global view of customers, the

networking culture in which customers share their ideas and feelings, the experimentation with using and developing products online and customer’s activism in providing unsolicited feedback to firms. Thus in the last decades, many companies have involved customers in the value creation processes, in both defining and creating value (Prahalad & Ramaswamy, 2004a). Furthermore due to these practices, firms know what customers deem most valuable, and when firms are most successful at adapting to those needs, they will achieve a

competitive advantage (Prahalad & Ramaswamy, 2004a). This is in line with CRM. According to Prahalad & Ramaswamy (2004b), the value is co-created through personal and unique interactions between the consumer and the firm and the consumer’ experience is the basis for unique value for every consumer. Therefore, the created value is measured through the benefits that are experienced by the customer in its own context, not around the offered value by the firm (Gronroos, 2000; Grönroos, 2011b). Vargo and Lusch (2004) state that ‘value is defined by and cocreated with the consumer rather than embedded in output’ (p. 6). The authors refer to value-in-use, instead of value-in-exchange, because the firm and the consumers are both resource integrators, there is reciprocal service provision and value is dynamically created with customers in its use (Vargo & Lusch, 2004). Firms can only make value propositions, not deliver value. Instead, the consumer determines the value in a unique and phenomenological way, by engaging with the firm (Vargo & Lusch, 2008).

Therefore, value co-creation is only possible when there are interactions between the firm and a customer (Grönroos, 2011a). In addition, Prahalad and Ramaswamy (2004) have argued that ‘the future of competition lies in an altogether new approach to value creation, based on an individual-centered co-creation of value between consumers and companies’ (2004a, p.5). This is in line with the CRM approach that emphasizes the individual consumer. Moreover, this way of creation value could lead to the generation of relational value, next to economic value. Relational value refers to the derived value from emotional or relational bonds between customer and service employees (Chan, Yim, & Lam, 2010) and leads to relational rents as discussed by Dyer and Singh (1998) due to lower transaction costs between firm and customer or through value creating incentives of the partners.

To enable value co-creation, managers have to encourage active dialogue with customers, mobilize customer communities, manage customer diversity and co-create

personalized experiences with them (Prahalad & Ramaswamy, 2000). This turns the market in a forum in which customers actively create and compete for value (Prahalad & Ramaswamy, 2000). Customers are now both collaborators and competitors for the capture of economic value (Prahalad & Ramaswamy, 2004b).

Furthermore, Vargo and Lusch (2006) state that value creation is comprised of

co-creation of value and co-production. Co-co-creation of value refers to the customer that creates

and determines the value through use, while co-production ‘involves the participation of the customer in the creation of the core offering itself’ (Lusch & Vargo, 2006). Both forms involve customer participation. Etgar (2008) concurred with this distinction by stating that co-production takes place in the production process and co-creation takes place in the final consumption stage. Prahalad & Ramaswamy (2002) also state that customers can influence the entire value chain when firms engage in value co-creation. Therefore, in this study value

creation is in line with these scholars, comprising of both value creation and co-production, as a result of interaction between the firm and the customer.

Value appropriation in value co-creation

Teece (1986) wrote about value appropriation in co-specialization between firms that can be compared to value creation of firms and customers. Teece’s argument is that

co-specialization is often necessary to effectively use an innovation, but could also lead to

problems of bargaining due to this dependence. Jacobides, Knidsen and Augier (2006) extend the work of Teece by arguing that co-specialization is comprised of two distinct components: asset complementarity and factor mobility. Complementarity of assets is the extent to which two mutually adapted factors can yield superior returns in combination and mobility refers to ‘the number of assets that can potentially enter a combination, with negligible switching costs’ (Jacobides, Knudsen, & Augier, 2006). Complementarity of assets determines the size of the value created, while mobility determines the bargaining power of the asset holders, the division of the value (Jacobides et al., 2006). For Teecian co-specialization with bilateral dependence to occur, the complementarity of the assets should be high while these assets should be relatively immobile (Jacobides et al., 2006). The firm and the customer in value co-creation can be seen as having complementary assets that in combination yield superior returns, determining the size of the value created. Thus on one hand, managers should reduce the mobility of customer to appropriate more of the total value created. On the other hand, substantial mobility might ‘induce freer competition and entry in these assets or parts of the production process’, which offers the firm more choice (Jacobides et al., 2006).

According to Fornell (1992), firms can increase the total value appropriated by employing an offensive strategy that focuses on customer acquisition or a defensive strategy that secures and protects its present customer base. Most firms employ a combination of the

two. An offensive strategy focuses on the competition in order to maximizing market share and a defensive strategy focuses on customers and aims at ‘reducing customer exit and switching’ (Fornell, 1992, p. 8), and thus reducing customer mobility as suggested by

Jacobides et al. (2006). This can be accomplished by improving the satisfaction and loyalty of customers (Fornell, 1992), which are also the preferred outcomes of CRM (Peppers & Rogers, 2004). Mizik and Jacobson (2003) state that a loyal customer base is a mechanism that

influences ‘the ability of competitors to dissipate a firm’s advantage’ (p. 66), because

competitive forces in the marketplace are restricted. This will thus increase the value capture of a firm compared to the value capture of competitors. These customer relationships

outcomes will be discussed next in detail.

2.5 Customer Relationship Outcomes

The desired outcomes of CRM are customer satisfaction and customer loyalty. In this way, the customer becomes more valuable to the firm because a steady stream of sales can be achieved from satisfied and loyal customers. This enhances the financial position of the firm because more value can be appropriated compared to its competitors. Therefore, increasing customer satisfaction and winning customer loyalty is crucial for the firm’s long-term

survival, innovativeness and financial returns. Additionally, Aaker (1996) states that; ‘ a loyal customer base represents a barrier to entry, a basis for price premium, time to respond to competitor innovations, and a bulwark against deleterious price competition’ (1996, p. 106).

In the literature, there are three distinctive approaches of measuring loyalty; the behavioral, attitudinal and cognitive approach (Gremler, Brown, & others, 1996; Ko de Ruyter, Martin Wetzels, & Josée Bloemer, 1998). The first approach is based on behavioral measurements in which loyalty was interpreted as customer behavior referring to consistent and repetitious purchase behavior. However, repurchasing a product doesn’t always mean

physiological commitment. Therefore, Dick & Basu (1994) have complemented the

behavioral approach with the concept of relative attitude towards the brand. They argue that true loyalty only exists when repeating purchases coexists with a positive attitude in which a customer values one service over another, resulting in the attitudinal approach. This is reflected, for instance, in the willingness to recommend a service provider to other customers (Gremler & Brown, 1996). And in addition, some scholars have been arguing that loyalty is also based on cognition {e.g. Lee & Zeiss 1980 in Gremler & Browm, 1996), meaning that true loyal customers do not actively seek out or seriously consider purchasing from

competitors (Dick & Basu, 1994; F. D. Reynolds, Darden, & Martin, 1974). Gremler et al. (1996) define service loyalty as being comprised of all these three dimensions.

The other customer relationship outcome is customer satisfaction. Customer satisfaction is the post-purchase evaluation and the affective response to the product or service experience (Oliver, 1992). However, customer satisfaction is also a commonly

assumed perquisite of consumer loyalty (Bitner, 1990; Gremler et al., 1996; John T. Bowen & Shiang‐ Lih Chen, 2001) but research showed mixed results. While some scholars indeed found evidence that satisfaction leads to consumer loyalty (Bitner, 1990; John T. Bowen & Shiang‐ Lih Chen, 2001), other scholars argue that satisfaction alone is not enough to achieve customer loyalty and support Reichheld's (1993) argument that customer satisfaction doesn’t necessariliy lead to increased customer loyalty. In this research, customer loyalty and customer satisfaction will be the customer relationship outcomes researched for value co-creation participants in order to analyze the difference between them. But customer

satisfaction will also be analyzed as an antecedent of customer loyalty. Other antecedents will be discussed next.

2.6 Antecedents of Customer Relationship Outcomes

Besides customer satisfaction, some other key determinants that have been studied for customer loyalty are customer commitment (Morgan & Hunt, 1994), service quality (Jones, Mothersbaugh, & Beatty, 2002; Ko de Ruyter et al., 1998; Lemon, Rust, & Zeithaml, 2001; Zeithaml, 2000; Zeithaml, Berry, & Parasuraman, 1996) and trust (Agustin & Singh, 2005; Sirdeshmukh, Singh, & Sabol, 2002). In addition, Lemon, Rust & Zeithaml (2001) present a proposed strategic framework that incorporates many antecedents of consumer’ loyalty intentions but mainly emphasize service quality by focusing on customer equity, which is ‘the total of the discounted lifetime values of all the firm’s customers’ (p.1). The three key drivers of customer equity are value equity, brand equity and relationship equity (Lemon et al., 2001) and can be seen as antecedents of customer loyalty. This framework is used as guidance for this study because it puts the customer at the heart of an organization by focusing on customer equity and this is in line with CRM.

In the framework, Value equity forms the fundamental basis of the relationship between customer and firm as it is; ‘the customer’s objective assessment of the utility of the brand, based on perceptions of what is given up for what is received’ (Lemon e.a., 2001,p. 1). The quality, price and convenience of the offered product or service influence this driver. Fullerton (2004) calls this the outcome quality. In the proposed framework of Sirdeshmukh, Singh and Sabol (2002) consumer’s trustworthiness influences the consumer value construct. Additionally, trust is regarded as one of the main determinants of loyalty intentions in

relational exchanges in the study of Agustin & Singh (2005), and define it as: ‘consumer’s confident beliefs that he or she can rely on the seller to deliver promised services’ (p.97), which is consistent with previous studies on trust of multiple scholars (e.g. Sirdeshmukh, Singh, & Sabol, 2002). According to Lemon et al. (2001), the second driver of customer equity is Brand equity, formed by image and meaning and it is ‘the customer’s subjective and

intangible assessment of the brand, above and beyond its objectively perceived value’ (Lemon e.a., 2001, p.2). And the last driver is Relationship equity, which represents the glue between the customer and firm (Grönroos, 1996). Relationship equity is defined as ‘ the tendency of customers to stick with the brand, above and beyond the customer’s objective and subjective assessments of the brand (Lemon e.a., 2001, p.2). Relational benefits influence this driver. Agustin and Singh (2005) call this Relational value; ‘the consumer’s perceptions of the benefits enjoyed versus the costs incurred in the maintenance of an ongoing exchange

relationship’ (p.97), which is consistent with studies of Neal (1999) and Woodruff (1997) and with the affective commitment construct of Fullerton (2005).

In this research, the drivers of service quality and relationship equity will, next to customer satisfaction, also be researched as antecedents by measuring respectively the customers’ perceived value of the value co-creation practices and the relational benefits obtained in the collaborative relationship.

Perceived Value

Customers perceive a high value of a product or service when what they receive outweighs the monetary and non-monetary costs they have sacrificed. And when a high value is perceived, customers tend to stay in a relationship with the firm. Empirical evidence proofs that perceived value is positively related to service quality (e.g. Michael K. Brady &

Christopher J. Robertson, 1999; Teas & Agarwal, 2000) and thus the service quality could be determined by researching the perceived value of customers. According to Zeithaml (1988, p.14); ‘perceived value is the overall assessment of the utility of a product based on

perceptions of what is received and what is given’. But a simple trade off between price and quality is not a sufficient conceptualization of the concept (Timo Rintamäki, Antti Kanto, Hannu Kuusela, & Mark T. Spence, 2006). Multiple scholars argue that the concept of

perceived value is complex and encompasses a multi-dimensional approach. In the literature, it appears that two subdivisions of the concept are identified as universal value perceptions: the functional and the symbolic value perception. The functional value perception is formed by the perceptions of quality, price and convenience and corresponds with the value equity driver in the study of Lemon et al. (2001). The symbolic value perception is based on the customers’ self enhancement and sensory pleasure needs (Subodh Bhat & Srinivas K. Reddy, 1998). Symbolic value is defined as the ‘overall representation of the experiential value perceptions from the social, emotional, aesthetic and reputation aspects’ (Chen & Hu, 2010, p. 406). This value perception can be compared to the brand equity driver in the study of Lemon et al. (2001). When participating in value co-creation, customers perceive a certain functional and symbolic value and this could influence their satisfaction and loyalty and in turn the firm’s appropriated value.

Relational Benefits

Also the relational benefits obtained from a relationship between a firm and its customers could influence a customer’s satisfaction or loyalty. Additionally, it is widely acknowledged in the strategic and marketing literature that developing and maintaining enduring

relationships with customers is very important for firms. Moreover, Hogan and Armstrong (2001) argue that collaborative relationships between suppliers and customers are a key resource for achieving a competitive advantage. Besides, multiple scholars argue that a relational exchange generates superior value for the parties involved compared to a transactional exchange (Annika Ravald & Christian Grönroos, 1996; Gummesson, 2004; Kumar, 1999; Sharma, Tzokas, Saren, & Kyziridis, 1999). Relational benefits are benefits that a customer receives due to long-term relational exchanges (Gwinner, Gremler, & Bitner, 1998), due to their commitment with the firm. It is argued that when firms produce relational

benefits for customers, the future development of existing relationships can be predicted (Hennig-Thurau, Gwinner, & Gremler, 2002). Relational benefits largely determine the relational equity present in a relationship.

Multiple scholars have divided relational benefits in three sort of benefits; social benefits, which refer to the emotional part of the relationship such as recognition by

employees, customers’ familiarity and relationship with the employees; confidence benefits, which refers to knowing what to expect and reduced anxiety; and special treatment benefits like price deals, faster service and extra services (e.g. Berry, 1995; Gwinner et al., 1998). Relational benefits thus ‘exist above and beyond the core service provided’ (Hennig-Thurau et al., 2002, p. 234) and could thus play an important role in value co-creation and its effect on customers’ satisfaction and loyalty.

Perceived Innovativeness

Another important factor that could influence customer satisfaction and loyalty is the perceived innovativeness of a firm by a customer. In general people like to be involved or participate in activities that are perceived as new and innovative and this could thus influence their satisfaction and loyalty. And since value co-creation is a relatively innovative way of creating value, perceived innovativeness is incorporated in this research. Firm innovativeness is ‘the notion of openness to new ideas as an aspect of the firm’s culture’ and reflects the perceptions of internal stakeholders (Hurley & Hult, 1998, p. 44). But the customer’s perceived innovativeness of a firm is a subjective consumer perception and based on

consumer information, knowledge and experience and it refers to an enduring characteristic of a firm (Kunz, Schmitt, & Meyer, 2011). Thus perceived innovativeness of a firm can be conceptualized as ‘consumer’s perception of an enduring firm ability that results in novel, creative and impactful ideas and solutions for the market’ (Kunz et al., 2011, p. 817).

Moreover, personal characteristics of participants in value co-creation could also influence their satisfaction and loyalty.

2.7 Personal Characteristics Of Participants

Customers could participate in value co-creation with the motive of helping a company, for instance when providing feedback to the company, because they are more altruistic than others. This personal characteristic could therefore also possibly lead to being more satisfied with or loyal to a company after participating in value co-creation. Having an altruistic

personality could thus moderate the relationship between customer participation and customer satisfaction and loyalty. In the literature about altruism two opposing viewpoints about the consistency of altruistic behavior are present. Some scholars have argued that altruistic

behavior is specific for a situation (e.g. Krebs (1978), Latane & Darley (1970) and Hartshorne & May (1928-1930) in Philippe Rushton, Chrisjohn, & Cynthia Fekken, 1981) while others argue that an altruistic personality exist, resulting in consistent altruistic behavior

(Dlugokinski & Firestone, 1974; Philippe Rushton et al., 1981; Strayer, Wareing, & Rushton, 1979). In this study it is believed that there is indeed a trait of altruism, because it is argued that scholars opposing this view have misinterpreted their results in their studies (Philippe Rushton et al., 1981).

Also, it seems logical that customer’s self-esteem could play a role when participating in value co-creation and in turn on customer’s satisfaction and loyalty. Because when

customer co-create value with a firm, they have to contribute to the value creation process and people can be more or less comfortable with this. This could influence a customer’s

satisfaction and loyalty intentions. Measuring a person’s self-esteem is a longstanding issue in psychology. Many researchers have developed self-esteem measures; such as ‘experience sampling measures’ (Savin-Williams & Jaquish, 1981), a pictorial scale for kids (Harter &

Pike, 1984), peer ratings (Demo, 1985) and reaction time measures (Greenwald, McGhee, & K, 1998). But the most used (Gray-Little, Williams, & Hancock, 1997) and validated measure (Gray-Little et al., 1997; Wylie, 1989) is the self-report scale of Rosenberg (1965). According to Rosenberg (1979, in Gray-Little et al., 1997), a person having self-esteem is considered to have self-respect and see itself as a person of worth and this could influence his/her satisfaction with the practices and loyalty towards the firm.

3. Hypothesis Development

3.1 Consumer Participation in Value Co-creation

In the literature, several scholars argue that the value co-creation behavior of customers is comprised of two different types of behavior: customer participation and customer

citizenship. Customer participation is regarded as an in-role behavior because it is necessary for successful value co-creation, while customer citizenship is regarded as extra-role

behavior, which refers to additional, not necessarily required behavior of customers for the service delivery (Yi & Gong, 2013). Extra-role behaviors are enacted voluntary and is

referred to as customer organizational citizenship behaviors. In research, the different types of behavior have different antecedents, consequences and follow different patterns (Groth, 2005; Yi, Nataraajan, & Gong, 2011) and therefore they are examined differently. In this research, the focus will be on customer participation in value co-creation since this is essential in value co-creation. Yi & Gong (2013) state that consumers are involved with the firm through the service-value chain, in which they are active participants and collaborative partners in relational exchanges (Yi & Gong, 2013).

3.2 Customer Relationship Outcomes

The link between consumer participation and customer relationship outcomes can be

explained by discussing several studies. First of all, According to Fuchs and Schreier (2011), a parallel can be made between consumer empowerment in New Product Development (NPD) and empowerment in a political system. Zero customer empowerment in NPD, when the company creates and decides on the new product, can be linked to a totalitarian regime. In a totalitarian regime, people have to comply with the decisions made by the government and are

not allowed to interfere with their ideas. This situation denotes to a monopoly in which all customers can only buy from one firm and therefore accept the products, price and quality offered by that firm (Fuchs & Schreier, 2011). But zero empowerment can also be linked to an indirect democracy in which people can vote on multiple parties but they do not have an active role in making changes. When comparing this to the business world, customers possess the power to choose from which company to buy (Fuchs & Schreier, 2011). In both scenarios the customers are not empowered to co-create value in NPD; consumers cannot directly influence the products that are offered (Fuchs & Schreier, 2011). In more direct democracies, ‘power is delegated in part to the people’ (empowerment) (Fuchs & Schreier, 2011, p. 7). In these democracies, people can put issues on the agenda, introduce new product ideas, and people can vote on what they want to be realized (Fuchs & Schreier, 2011). Empowerment can thus be linked to the right of individual participation (Dalton, 1994). Moreover, it is acknowledged in the economic literature that people who living in more participative

democratic systems are generally more satisfied (e.g. Frey & Stutzer, 2002). In systems with the highest degree of customer participation, economic indicators that measure overall ‘happiness’ are the greatest as well (Frey & Stutzer, 2000). And regardless of the actual participation of people, they feel less under control of politicians (Frey & Stutzer, 2002). Individual participation of customers is expected in when engaging in value co-creation.

Furthermore, Von Hippel (2005, p. 64) refers to democratizing innovation by arguing that ‘users of products and services, which are firms and consumers, are increasingly able to innovate for themselves’. These users can develop exactly what they want, instead of relying on manufacturers and they benefit from innovations developed and shared by others (Hippel, 2005). This leads to an increase in social welfare for customers due to an increase of

consumer surplus because user innovations ‘tend to fill small niches of high need left open by commercial sellers’ and therefore complement the innovations done by manufacturers

(Henkel & Hippel, 2005, p. 50). This could lead to improved satisfaction and loyalty of consumers because their preferences are better matched due to user innovations.

Moreover, the link between customer participation in value co-creation and customer satisfaction can also be supported by the study of Gilmore & Pine II (1997) about

customization. Customization is one form of creating value with customers through co-production that improves customer satisfaction because it meets customer needs at the lowest possible cost (Gilmore & Pine II, 1997). Customization possibilities fill up a customer

sacrifice gap, which is the ‘difference between a company’s offering and what each customer

truly desires’ (Gilmore & Pine II, 1997, p. 95). Furthermore, Borle, Dholakia, Singh, & Westbrook (2007) have studied the effect of survey participation on subsequent customer behavior. Survey participation is also a form of value co-creation. They have found a substantial positive relationship between satisfaction survey participation and the customer behaviors studied (Borle et al., 2007). This means that when customers participate in satisfaction surveys, their behaviors change in a positive way; consumers tend to purchase more service, are more responsive to promotions, have a higher purchase frequency and spend more money each time they visit after they have participated in a satisfaction survey (Borle et al., 2007). Consumers feel more engaged. Furthermore, in the literature it is largely

undisputed that customer satisfaction can also be an antecedent of customer loyalty.

Therefore, the direct relationship between customer satisfaction and customer loyalty is also researched. The hypotheses are:

H1: Customer participation in value co-creation positively influences customer satisfaction

H2: Customer participation in value co-creation positively influences customer loyalty

3.3 Perceived Value

In this study, perceived value is regarded as antecedent of the customer relationship outcomes to measure the service quality. In the experience-centric view of value co-creation,

personalized co-created experiences form the basis for value creation (Prahalad & Ramaswamy, 2004b). These experiences are formed through personalized interactions between customer and firm (Prahalad & Ramaswamy, 2004b). Schmitt (2003) takes this experience-centric view further and states that experience marketing can deliver emotional, sensory, cognitive, behavioral and relational value to customers. Also Payne, Storbacka, & Frow (2007) emphasize the customer’s co-created relationship experience in which the emotional, contextual, symbolic and non-utilitarian aspects of experiential consumption are included. These authors refer to the perceived symbolic value derived from these interactions. Furthermore, customization possibilities fill up the gap between what companies offer and what the customer desires (Gilmore & Pine II, 1997) and this contributes to the functional value perceived by customers. Therefore it is expected that customer participation in value co-creation positively influences both value perceptions and thus the overall perceived value of customers.

Moreover, it is believed that customers’ perceived value influences their satisfaction and in turn their loyalty (Andreas Eggert & Wolfgang Ulaga, 2002a; Paul G. Patterson & Richard A. Spreng, 1997) or directly their customer loyalty (e.g. Chang & Wildt, 1994; J. Joseph Cronin, Michael K. Brady, Richard R. Brand, Roscoe Hightower Jr, & Donald J. Shemwell, 1997; Woodruff, 1997). Empirical evidence in the restaurant industry has also proven a positive relationship between perceived value and purchase intention (Oh, 2000; Tam, 2004) and the link can also be justified by the study of Chen & Hu (2010) in which the perceived value has a strong positive effect on customer loyalty. Therefore it is hypothesized that this is also true for customers that have participated in value co-creation;

H4: Perceived value of customers mediates the relationship between customer participation

in value co-creation and the customer relationship outcomes, so that customer participation

in value co-creation leads to an increase in perceived value of customers (4a), which in turn

positively influences customer satisfaction (4b) and customer loyalty (4c)

3.4 Relational Benefits

When customers participate in value co-creation, the development of customer-firm relationships through interaction and dialogue is emphasized. Prahalad & Ramaswamy (2004a) argue that value is co-created through personal and unique interaction between the consumer and the firm and Grönroos (2011) states that value co-creation is not possible without interaction between the firm and customer. Therefore it can be assumed that participating in value co-creation results in relational benefits for customers due to the high level of interaction between the customer and the firm.

Furthermore, in the relational benefit approach it is assumed that both parties must benefit in a relationship for it to continue in the long run (Hennig-Thurau et al., 2002). Therefore, customers must be satisfied. And consequently, customers tend to remain loyal to the company. Loyalty and positive word-of-mouth are key outcomes of relationship

marketing (Hennig-Thurau et al., 2002). Besides, multiple studies have proven that relational benefits and relational exchanges lead to superior value for both parties, to customer loyalty and positive word-of-mouth (Berry, 1995; Bitner, 1995; Morgan & Hunt, 1994; Price & Arnould, 1999; K. E. Reynolds & Beatty, 1999) and to satisfaction (Andaleeb, 1996;

Anderson & Narus, 1990). Therefore it is hypothesized that relational benefits also positively contribute to consumer loyalty and satisfaction when consumers participate in value co-creation. The hypothesis is:

H5: Relational benefits mediate the relationship between customer participation in value

creation and the customer relationship outcomes, so that customer participation in value

co-creation leads to an increase in relational benefits (5a), which in turn positively influences

customer satisfaction (5b) and customer loyalty (5c)

3.5 Perceived Innovativeness

The link between customer participation in value co-creation and perceived innovativeness can be justified by multiple studies that show that products designed by users are considered more innovating and commercial attractive than products designed by a firm (Franke & Hippel, 2003; Franke, Schreier, & Kaiser, 2009; Franke & Shah, 2003; Urban & von Hippel, 1988). Schreier et al. (2012) have also proven empirically that firms are perceived as more innovative when they empower consumers in New Product Development (NPD), which is a form of consumer participation in value co-creation. According to these authors this is due to four factors. First of all, when consumers participate in NPD customers perceive that a larger and a more diversified group of people are involved in creating new products than just expert designers. Second, ideas that fulfill more diversified needs are taken into account. Thirdly, consumers identify themselves more with companies that engage in value co-creation because the people involved in value co-creation belong to the same consumer group and are thus perceived as more knowledgeable of their needs. And finally, consumers that participate in value co-creation are not held back by company constraints. They let creativity flow and more innovative products are the result.

Perceived innovativeness also influences consumer loyalty and satisfaction as seen in the study of Szymanski, Kroff, & Troy (2007). They argue that more innovativeness could generate ‘customer excitement and the concomitant positive word-of-mouth, greater

satisfaction and heightened loyalty’ (p. 38). Also Chun and Davies (2006) have found that in retailing perceived innovativeness leads to higher customer satisfaction. Moreover, Kaplan (2009) has showed a strong connection between the innovativeness of a brand and positive emotional responses of customers. When a brand is perceived as more innovative, consumers show enthusiasm, softening and attraction (Kaplan, 2009). And finally, Kunz et al. (2011) have also proved that the perceived innovativeness of a firm has a positive and highly significant total effect on consumer loyalty.

Furthermore, many studies have shown that customers indeed rely on their perceptions when evaluating products (Gürhan-Canli & Batra, 2004). And according to Schreier et al. (2012) these perceptions influence customers’ attitudes, intentions and behavior and not the actual offering of the firm. Therefore, it is hypothesized that:

H6: Perceived innovativeness mediates the relationship between customer participation in

value co-creation and the customer relationship outcomes, so that customer participation in

value co-creation leads to an increase in perceived innovativeness of customers (6a), which in

turn positively influences customer satisfaction (6b) and customer loyalty (6c)

3.6 Personal Characteristics

Both the characteristics of altruism and self-esteem are expected to positively influence the relationship of customer participation in value co-creation on customer satisfaction and customer loyalty. Customer’s motive for participating in value co-creation could be to help a company because they are more altruistic and this could in turn positively influence their satisfaction and loyalty towards the firm. Also one’s self-esteem could play a role when participating in value co-creation because as it is expected of customers to contribute in the value creation process of a firm. When someone is more comfortable with participating in

value co-creation, due to more self-esteem, this could possibly influence their satisfaction and loyalty towards the firm. Therefore it is hypothesized that;

H7: Altruism will moderate the relationship between customer participation in value

co-creation and the customer relationship outcomes, so that customers with a more altruistic

personality will be more satisfied (7a) and more loyal (7b) after participating in value

co-creation than customers with a less altruistic personality

H8: Self-esteem will moderate the relationship between customer participation in value

co-creation and the customer relationship outcomes, so that customers with more self-esteem

will be more satisfied (8a) and more loyal (8b) after participating in value co-creation than

customers with less self-esteem.

This leads to the following conceptual model:

Figure 1 Conceptual model

Customer Participation in value co-creation Perceived value Relational benefits Perceived innovativeness Altruism Self-esteem Customer satisfaction Customer loyalty

4. Methodology

In this chapter a description of the sample used to conduct this research is discussed, as well as the scales used to measure the variables and the corresponding reliabilities are presented. Furthermore the executed statistical procedure is explained.

4.1 Sample Description

The survey was distributed to the social network of the researcher through email and social media. Of the 135 respondents that have started the survey, 93 respondents have filled in the whole survey (response rate 68.9%). Of these respondents 47.3% were men and 52.7% were female. The youngest respondent was 17 years old, while the oldest respondent was 62 years old (Mage = 25.3, SDage = 6.8). Moreover, 92.5% of the respondents were Dutch, while 7.5%

were of a different nationality. Furthermore, the sample covered mostly respondents with higher education (higher applied sciences HBO & university), namely 91,4 % while the rest of the respondents, 8,6%, finished lower applied sciences (MBO) or high school.

4.2 Measurements

Independent variable

Customer participation in value co-creation is measured by using the scale of Chan, Yim and Lam (2010). The construct is initially comprised of five statements that are to be answered on a five point likert scale (1 = strongly agree, 5= strongly disagree). In these statements the time and effort put in participating, the willingness to provide suggestions, the level of

measured. However, item 3 was reversed and in turn discarded based on principal component analysis of this scale (see table 1).

Dependent variables

Customer loyalty is measured by using the scale present in the study Fullerton (2005), which is developed by Zeithaml et al. (1996a) for measuring favorable behavioral intentions. In Fullerton’s study (2005), the construct is measured in two industries (grocery and clothing) and is comprised of advocacy intentions (Cronbach’s α = 0.96 & 0.98), switch intentions (Cronbach’s α = 0.94 & 0.98) and willingness to pay more (Cronbach’s α = 0.96 & 0.98).. Furthermore, this construct has been chosen because it measures all three approaches, the behavioral, attitudinal and cognitive approaches, of measuring loyalty. The items are

measured on a five point likert scale (1= strongly disagree, 5 = strongly agree). The construct of ‘Value to customer’ of Tu, Vonderembse, & Ragu-Nathan (2001) is used to measure the customers’ overall degree of satisfaction with the provided product or service (Cronbach’s α = 0.80). This construct covers different aspects, namely the perceptions of the value of product variety, the satisfaction with the quality and features of the product or service and customer loyalty and referrals. The items are also measured on a five point likert scale (1= strongly disagree, 5 = strongly agree)

Mediators

For measuring the perceived value of customers of a product or service, the scale of Chen & Hu (2010) is used, in which the Cronbach’s alpha coefficients for symbolic and function value are respectively 0.88 and 0.84. These two components are also evident in the principal component analysis. These authors have mainly adapted the measures from the studies of Petrick (2002) and Sweeney & Soutar (2001), and one aesthetic dimension for symbolic value