THE OUTCOME OF INTELLIGENCE
Studying the effects of market orientation and satisfaction
on performance in the tourism sector.
D
EC2011
SUN,
FUN
AND
PROFITS
The Outcome of Intelligence Generation: Studying the effects
of market orientation and satisfaction on performance in the
tourism sector.
December 2011
Author: Shannon M. Richardson
University of Groningen, Faculty of Economics and Businesses, Marketing department MScBA Marketing Management & MScBA Marketing Research
Ministry of TEZVT, Department of Statistics, St. Maarten
Email: shannon.richardsonm@yahoo.com
Student Number: s1947842
1st Supervisor RuG Prof. dr. Tammo H.A. Bijmolt 2nd Supervisor RuG Prof. dr. Jenny van Doorn Supervisor STAT Makini Hickinson, MBA
Abstract
Are there benefits for businesses that seek to incorporate the market orientation → customer satisfaction → performance chain? Does customer satisfaction provide a proper mediating link in this chain? Researchers have consistently perpetuated reasons for the market orientation → customer satisfaction → performance chain but few have attempted to empirically research this relationship. Additionally, while many studies have also considered the mediators of market orientation →performance relationship, only a few have actually studied the mediating role of customer satisfaction. The goal of this research was to empirically test whether customer satisfaction is a suitable mediator of the market orientation – performance relationship. This was performed by investigating the tourism industry of St. Maarten.
The current research discusses the theoretical and empirical literature relating the three constructs, provides arguments for their hypothesized relationships, and empirically examines these relationships. Furthermore, the study also investigates attribute satisfaction relationship with customer satisfaction, and whether it can enhance the expected mediating effect of customer satisfaction in the market orientation → performance link. The results from the research found no evidence that customer satisfaction fully mediated the relationship between market orientation and business performance among the studied businesses. Also, although market orientation showed no direct relationship with customer satisfaction, an indirect relationship was establish using attribute satisfaction as a mediator. Attribute satisfaction link to customer satisfaction also provided evidence for a partially mediating relationship between market orientation and performance relationship – particularly behavioral intentions and not financial performance. Using the established relationship between market orientation and the attribute satisfaction – customer satisfaction, a second model was developed using responses from 200 tourists to further verify the link between attribute satisfaction ‐ customer satisfaction → behavioral intentions. The results showed that the relationship between attribute satisfaction ‐ customer satisfaction → behavioral intentions remained constant. Plus attribute satisfaction and customer satisfaction illustrated the strongest relationship with intended word‐of‐mouth, when compared to other behavioral intention indicators. These results provided partial confirmation and generalizability of the relationships found in the first model.
3
Preface
This thesis is the final part of completing the Master of Science in Business administration Marketing Research and Management at the University of Groningen. Throughout this period, I have gathered much knowledge and new insight in both my academic and personal life. I certainly would not have been able to write this thesis and complete this master without the help of several persons, of whom in this section, I would like express my gratitude towards.
First of all, I would like to thank God for blessing me with patience and determination to achieve the necessary goals in my life. Also, I will like to thank my family for their support in every way possible, in particularly my mother. Additionally, immense thanks and appreciation goes to St. Maarten’s Ministry of Tourism, Economic Affairs, Transport and Telecommunication for the opportunity to perform my thesis internship at the Department of Statistics (STAT). Special thanks to Ms. Hickinson and the STAT team for guidance, constructive feedback, and their hospitality throughout this process.
Besides my family and colleagues, I would also like to acknowledge Prof. dr. Tammo .H.A. Bijmolt and Prof. dr. Jenny van Doorn from the University of Groningen. And thank them for their critical feedback, support, and patience throughout this process.
1 Introduction
The fundamental objective of businesses is to generate value for shareholders by profitably appeasing the needs of its stakeholders. Peter Drucker, the father of Management Science, published in 1993 “that it is the customer who provides the foundation on which every business is built. Creating customers is the primary task of businesses. To satisfy the customer, is the mission and purpose of every business”1. Knowledge of customer’s needs is therefore essential to generating valuable information and developing competitive capabilities that will create continuously superior value for customers (Day 1994, Kotler 2002, Slater and Narver 1994). Intelligence generation is one of businesses’ most valuable assets. However, its value depreciates quickly over time due to market dynamics and the time involved in intelligence dissemination (Slate and Narver 2000). One strategy through which intelligence is generated is termed as market intelligence. This strategy has become a vital part of organisations processes, and synonymous with business performance. In essence, businesses that utilize the knowledge generated from marketing intelligence, to obtain a competitive advantage and increased profits by satisfying customer needs superior to competitors, are said to be market oriented.
Drucker’s statements denote that increasing customer satisfaction directly increases profits, and businesses that create satisfied customers are inherently market oriented. The use of market orientation functions to understand and satisfy customers is a crucial means of sustaining competitive, monetary and customer‐relationship business success. These factors are more noticeable in the service industry. This is largely due to the inherent heterogeneity, intangibility, inseparability, and perishability of service (Lovelock and Gummesson 2004). Therefore, business managers must continually scan their environment in search of changing market opportunities, threats, and other factors. Quintessentially, customer satisfaction is a vital measure related to market orientation. As one of the most researched measures, it has been linked to customer loyalty, recommendations, and superior business performance (Morgan and Rego 2006, Homburg, Giering, Menon 2003). However, satisfaction is dependent on various attributable factors of which a product or service is often judged upon (quality, price, accessibility). This is even more apparent in the service industries since a number of both tangible and intangible factors contribute to a product’s perceived value, and therefore, impacts customer’s satisfaction decisions and future patronage. So it is possible that customer satisfaction is likely to be enhanced by increasing the satisfaction levels in these attributes. Therefore, customer satisfaction can be viewed as a mediator in the link between
7 market orientation and business performance, of which this is also determined by customers’ satisfaction towards individual preferred attributes of a service.
Although the mediating role of customer satisfaction in the market orientation → financial performance relationship has been proposed by academics, present research illustrates that this claim may not always be true. This is perplexing, considering that marketing orientation is said to lead to customer satisfaction and profits through repeat business (Kotler, 1991). However, in a meta‐ analytic review of market orientation literature, Kirca et al (2005) found that customer satisfaction had to be removed as a potential mediator large due multi‐correlation with other mediating variables. This Indicates that customer satisfaction may not be the most suitable measure for tracking the impact of a market orientation strategy on performance.
Due to the integrated global markets and various cultures, market orientation literature often suggests, that further research be conducted to identify profiles of best practices for implementing market orientation for both service and manufacturing firms. Nevertheless, research has constantly shown that the inherent trade‐off effects between services and customization, may lead to lower benefits from market orientation initiatives for services when compared to manufacturing firms (Lovelock and Gummesson, 2004, Anderson et al., 1997). In addition, the effect of cultural differences between employees and customers, as well as between groups of customers may have a more pronounce effects on satisfaction and performance in services (Lovelock and Wirtz, 2011, Dong, Evans and Zou, 2008). This is chiefly true in customer intensive service industries such as tourism. Especially, since tourism incorporates various service industries (e.g. commercial flights, travel agencies, restaurants, hotel & timeshare, cruises).
1.1 Problem Definition
For guidance in answering the main research question, the following sub‐questions are provided:
o What is the impact of market orientation on customer satisfaction?
o Does customer satisfaction mediate market orientation → performance relationship?
o Do attribute‐based drivers of satisfaction mediate market orientation → customer
satisfaction relationship?
o Do attribute‐based drivers of satisfaction provide assistance in customer satisfaction
potential mediating role?
1.2 Background
To perform the objectives signified above, this research will be in the form of a case study conducted for St. Maarten’s Department of Statistics. The Department of Statistics (STAT) is a public agency under the ministry of Tourism, Economic Affairs, Transport and Telecommunications (TEZVT) for the government St. Maarten2. The mission of STAT is to generate useful statistics in an independent and thorough manner, with a specific focus on five criteria ‐ professionalism, confidentiality, objectivity, accuracy, reliability and promptness. Furthermore, their vision is to build a sustainable statistical agency that is the leading provider of quality and credible statistics for the benefit of St. Maarten and its international community. In particular STAT provides useful information to St. Maarten’s residents, profit/non‐profit organizations, and other governmental departments.
1.3 Theoretical and Managerial Relevance
This report contributes in three different ways to the existing theoretical knowledge and managerial relevance of market orientation, customer satisfaction, and their relationship to business performance. Firstly, the study primarily seeks to understand the direction and strength of the relationship between market orientation and customer satisfaction, and their subsequent effects on performance. This will give an indication as to whether market orientation investments in creating satisfied customers, are justified. Thereby, allowing for businesses to choose the most suitable strategies for maximizing their resources.
Secondly, the research heeds Jaworski and Kohli (1993) and Narver and Slates (1990) call to apply the market orientation scales in different countries, cultures, and industries. While academic literature has frequently spoken of the mediating role of customer satisfaction on market orientation and business performance relationship (Kirca et al. 2005, Jaworski and Kohli 1993, 1996, Ham Kim, and Srivastva 1998, Slater and Narver 1994b), it has rarely studied this relationship. Nor
9 has it considered the enhancing effects of attribute‐level drivers of satisfaction, on customer satisfaction potential mediating role. Researching the significance of these relationships provides managers with new insight into how organizations can adjust their product‐related and customer‐ related strategies to maximise customer satisfaction and business profits.
Finally, this research uses both financial and marketing metrics to provide a holistic view of business performance. Particular, performance information will be gather using both financial measures (cost‐based and revenue based) and marketing measures (behavioural intentions). Using both types of measurements in this research will allow managers to understand the impact of market orientation and customer satisfaction investments, on the present and possibly future firm profits. In addition, it allows academics and managers to assess the individual strengths of these two measures in the market orientation → customer satisfaction → performance chain.
1.4 Structure of the thesis
2 Literature Review
In this chapter a review of the existing literature on market orientation, customer satisfaction, and their relationships with the performance measures of behavioural intentions and financial performance are investigated. This is in order to gain a better understanding of the constructs and their possible interrelated effects. The following conceptual framework will further provide a visual illustration of the proposed relationships. In section 2.1 we provide a further elaboration on the market orientation construct, after which the conceptual model is shown and shortly explained in section 2.1.2. Thereafter the dimensions of market orientation are explained and related to the conceptual model. From sections 2.1.4 till 2.1.6 the remaining variables of the model are explained in detail, as well as their correlations which are later developed into hypotheses to answer the research questions.
2.1 Market Orientation
Introduced in the early 1950s, the past two decades has shown a resurgence of research and business interest in market orientation, which has led to its widespread recognition in organisational practices as the fundamental marketing concept. The marketing concept is considered the corner stone of the marketing discipline and is essentially a business philosophy, an ideal, or a policy statement (Kohli and Jaworski 1990). This view also held by other authors (e.g. Drucker 1954, Levitt 1960, Webster 1988), was suggested to lead to long‐term business profitability and sustainable competitive advantage. Market orientation is basically, the organisation‐wide implementation of the marketing concept (Kohli and Jaworski, 1990).
11 provisions of other significant market agents and authorities (Slater and Narver 1994b, 1995). Deshpande et al. (1993) followed by also defining it as the organisation’s culture that most effectively and efficiently create the necessary behaviours for the generation of superior business performance. Although, there are a variant of definitions in literature for describing the market orientation construct, the overall consensus shows that organisations using market orientation concepts must be both internally and externally focused in providing superior customer value under changing market environments in exchange for increase profitability over competitors.
Early business literature often proposed that organisations which adapted the market orientation concept reaped larger profits than their competitors (Drucker 1954, Webster 1988). After the construction of the market orientation scales and classification of its antecedents in the 90’s, by Kohli & Jaworski and Narver & Slater, several studies have illustrated market orientation’s link to a number of factors that results in favourable business performance (Pitt, Caruana, Berthon 1996, Narver and Slater 1990, Kirca, Jayachandran, Bearden 2005). In efforts to refine the market orientation scale various versions have been produced and applied to diverse organizational settings, thus, providing a number of concepts for modelling its effects on business performance. Pitt et al. (1996) study on a cross‐section of businesses in the UK and Malta, consisting of 161 questionnaire respondents and 193 interviews, confirmed that a firm’s market orientation is related positively to better business performance over its competitors. Furthermore this result was held irrespective of cultural context and level of economic development. Similarly, research performed on businesses in India and Japan found that although there were substantive cultural and market orientation differences between companies of both countries, market orientations impact on business performance still remained significantly positive (Deshpandé and Farley 1999). Likewise many other studies confirmed a positive link between market orientation → performance relationships. However there are a number of authors that had dissimilar findings, which suggest that the relationship is not exactly straightforward (Au and Tse, 1995, Caruana et al., 1999, Sargeant and Mohamad, 1999). Although negative results are usually accompanied by the study‐specific reasons for the anomalous findings, nonetheless even supportive findings explain little of the variation in firm performance, with coefficients determinants typically being less than 0.10 (McNaughton et al., 2002).
2.1.1 Measuring Market Orientation (MARKTOR & MARKOR)
Research on market orientation is often dominated by two scales developed by Slater and Narver (1990) and Jaworski and Kohli (1993).With more or less specific knowledge of each other’s’ work, these researchers developed measurements of market orientation as elements of broader studies with somewhat different objectives (Deshpande´ and Farley, 1998a). Although both scales are meant to measure the same construct, they differed on the underlying factors that determine the degree to which a firm is market oriented. The three factors Narver and Slater (1990) recommend were described as:
1. Customer Orientation – knowledge of target customers’ present and evolving needs, which allows for the creation of superior value through constant customization. This is aimed at satisfying customer needs overtime in respects to internal and market dynamics.
2. Competitor orientation – the knowledge of respective short‐term and long‐term strength and weaknesses, as well as the capabilities and strategies of current and potential competitors.
3. Interfunctional coordination ‐ the coordinated utilization of company resources to create superior value for target customers throughout any period in the buyer’s value chain, by any individuals within the firm.
Nevertheless, Jaworski and Kohli (1993) deemed that Narver and Slater (1990) scale development failed to: (1) adopt a focused view of markets by emphasizing on customers and competition, rather than focusing on these two stakeholders and additional factors that drive customer needs and expectations, (2) does not consider the speed with which market intelligence is generated and disseminated within an organization, (3) does not account for a number of items required for specific activities and behaviours that represent a market orientation. However, Deshpande´ and Farley (1998a) research investigating the correlation between the two market orientation scales and Deshpande´ et al. (1993) customer orientation scale found that all showed similarity in terms of reliability and internal and external validity. These results were based on a multi‐firm multinational test of 82 marketing executives from 27 firms, who were also members of the Marketing Science Institute. It is reasonable to conclude that the methodologies for the scales are robust, particularly in cross‐cultural comparisons under quite different circumstances.
(1993) scale is superior to Narver and Slater’s (1990) since market orientation intelligent related behaviours can transpire without the existence of a specific organisational culture. Therefore this current research takes Jaworski and Kohli (1993) view of market orientation, its antecedents, and consequences. Consistent with Jaworski and Kohli (1993) work, the present study discusses three underlying dimensions that assist in the occurrence of market orientation: 1) Intelligence generation, 2) Intelligence dissemination, 3) Responsiveness. It is believed that by measuring improvements in these three dimensions over time, businesses should be able to gauge their level of market orientation. For information on the antecedents which support market orientation within a firm (see Jaworski and Kohli 1993). From here onwards the present research will focus on the prior mentioned dimensions and consequences of market orientation.
2.1.2 The Conceptual Model
Now that the foundation of market orientation and its general importance has been discussed, the conceptual model is now presented as a guide for the remainder of this paper. In the model the main constructs of market orientation, customer satisfaction, and business performance are depicted, as well as their proposed interrelationship.
Conceptual Framework Figure 1:
these product attributes can be used to increase profits through eliciting satisfaction. However, discussions on these relationships will be saved for later. Henceforth, the literature review will continue with market orientation and ending with customer satisfaction and performance link.
2.1.3 Dimensions of Market Orientation
Intelligence generation
15 generated through organisational collaborations. This involves the frequent communication between departments, individuals, or organizations which enables the generation of intelligence on opportunities that presents the means for creating superior customer value. Reasons for collaborations may be due to lack of resources, need for reduced time and skill constraints in production, or to reduce project risks. Hence, allowing for intelligence generation within and dissemination throughout an organizations’ network.
Intelligence dissemination
Intelligence dissemination refers to the process and extent of information exchange taking place within a given organization (Jaworski and Kohli 1993). Kohli and Jaworski’s interviews with several managers noted that for an organization to adapt to its market needs intelligence must be communicated, disseminated, and perhaps even sold to the relevant party. This exchange of intelligence not only includes all relevant organization networks, such as departments or distribution channels members, but also communication with legislative bodies and consumers. At present, the technological environment enables information exchange to be performed more rapidly, giving organizations 360 degree view of customers and encourages multi‐department interaction in response to environmental opportunities or threats. Thus, providing increased opportunities for the creation of superior customer value in exchange for increased profits.
Past research indicates that the dissemination of information occurs both laterally and horizontal, it may also have a two‐way flow depending on where it is generated. Maltz and Kohli (1996) investigation into intelligence dissemination effect on perceived intelligence quality between marketing and nonmarketing managers, characterized intelligence dissemination based on the frequency and the formality in which it is transmitted. Their study suggested that both frequency and formality have nonlinear effects on perceived intelligence quality. In addition, there was found that the frequency with which market intelligence is disseminated are related to interfunctional distance, senders' positional power, a receiver's organizational commitment and trust in the sender. It is important that all organizational cultures encourage interdepartmental trust and interfunctional cooperation, which allows for critical assessment of intelligence quality and the appropriate response to it. This is not only limited to internal organizational functions, but also relevant for external parties such as distribution channel members and governments bodies.
Responsiveness
responsive to act upon available information. Kohli and Jarworski (1990) research indicated that responsiveness to market intelligence takes the form of selecting target markets, designing and offering products/services that cater to their current and anticipated needs, and producing necessary responses that serve these needs. Furthermore, in order to be responsive two activities should be performed, (1) response design and (2) planning and implementation (Jaworski and Kohli 1993, Richey and Myers, 2001). It is response to knowledge generation and dissemination that allows for the accumulation of profit related consequences. These consequences will be described in the following section.
2.1.4 Consequences of Market Orientation
The associated benefits of a market orientation strategy have been consistently researched in the marketing and management literature. Research beginning with Kohli and Jaworski, have frequently stated four constructs which results in benefits from a market orientation strategy: 1) customer consequences, 2) business performance consequences, 3) employee consequences, and 4) innovation consequence (see Jaworski and Kohli 1996, Kirca et al. 2005). While they are all important in understanding the totality of market orientation actions on business performance, this research will nonetheless focus on only the two first consequences.
2.1.4.1 Performance consequences
17 resources to create significant value at any point within the buyer‘s value chain (Naver and Slater 1990, Day 1999). This is likely to affect customers repurchase (loyalty), likelihood to switch providers, and future recommendation intentions. As such, the linkage between improved market orientation competence and performance should be evident, since it resembles a dual emphasis on cost reduction and revenue growth. However, the fact that most companies find it challenging to institute such an orientation is a testament of how difficult and rare it is to achieve ‐ making it a potential valuable source of competitive advantage (Pelham, 1997). The discussions of Day (1999) and Shah et al. (2006) points to the challenges and suitable functional path necessary for altering companies’ internal and external activities in order to achieve market orientation. In particular Day provides applicable examples of the marketing concept across several industries and its effects on organizational process that resulted in competitive profitability. However, the rarity of the managerial leadership skills needed to align a company’s culture, structure, functions and financial processes that enable market orientation makes it harder to imitate and therefore necessary in facilitating the sustainable competitive advantages of all processes.
2.1.4.2 Customer consequences
Satisfying customers is a prime focus of marketing oriented organisations. Even the definition of the marketing concept implies the importance of organizations performing activities in which customers’ are able to derive positive satisfaction. However, satisfaction must be continuously superior to competitors if an organisation is expected consistently reap profits from a sustained competitive advantage. Only through the pillars of market orientation can organisations continuously learn about customers’ needs, and provide product mixes that are superior to competitors. Therefore it is plausible that customer satisfaction is an important outcome of market orientation, and also a mediator of the market orientation → performance relationship. This section attempts to first establish an understanding of the customer satisfaction concept, and thereafter link it to the market orientation and performance constructs.
Theory of Customer Satisfaction
Customer satisfaction, referred to also as cumulative or overall satisfaction, was defined by Johnson and Fornell (1991) as a customer’s global experiences with a product or service provider over a period of time. Customer satisfaction is arguably influenced by a number of service provider performance factors such as the customers’ prior experience with the service, frequency of use, service reliability, service quality, and accessibility (e.g. Berry et al. 2002, Parasuraman et al. 1988, Chakraborty et al. 2007, Martensen, et al. 2000). The vast majority of customer satisfaction studies resemble the disconfirmation paradigm, wherein customer satisfaction is based on a psychological state resulting from the disconfirmation between expectations and actual perception of a given service (Oliver, 1980, 1981, Churchill and Surprenant, 1982). In this light satisfaction is referred to as primarily a post‐decision based on customers’ temporal position (La Tour and Peat 1979). Therefore, satisfaction can be either a state of confirmation, positive, or negative in respects to the product functionality and lifetime costs.
19 emotions depending on whether the consumption experience is a success or failure. These perceptions are then presented as another component of customer’s post‐purchase expressions that are fed into their overall satisfaction assessments. For example, services often consist of a complex range of products that comprise of both core and supplementary attributes. While purchase decisions are usually based on the core attributes, the supplementary attributes can also evoke reactions which are injected into the overall satisfaction decision. Moreover, because customer satisfaction is a true reflection of overall satisfaction, satisfaction with different attributes can serve as an attribute‐level weighted measure of customer satisfaction with a service (Churchill and Surprenant 1982, Szymanski and Henard 2001). Thus, satisfaction is composed of two positively related levels – customer satisfaction and attributes satisfaction, of which service attributes can be viewed as drivers of customer satisfaction.
Boulding et al. (1993) further conceptually distinguished customer satisfaction as transaction‐specific and cumulative satisfaction. In which, transaction‐specific satisfaction was viewed as a post‐choice evaluative judgement of a specific purchase occasion (Hunt 1977, Oliver 1977, 1980, 1993). Transaction–specific satisfaction is considered to provide diagnostic information about a particular product or service encounter, whereas cumulative satisfaction is a more fundamental indicator of the firm’s performance ‐ past, current, and future (Anderson et al., 1994). Based the theoretical provided information, it is safe to suggest that transaction‐specific could also be considered attribute satisfaction. This further compliments the above argument that customer and attribute satisfaction are distinct but positively related (Oliver 1993, 1980), and should both be measured by organizations. This is a fact widely supported by the empirical literature in marketing (for examples see Clark 1999, Danaher & Arweiler, 1996, Geng‐Qing Chia and Qu, 2008, Hsu, 2003, Mayer et al. 1998, Oliver 1993, Ross and Iso‐Ahola, 1991, Szymanski and Henard 2001).
Satisfaction as a consequence of Market Orientation
products. They go on to consider it as a dimension of market orientation that indicates not just the immediate needs of the customers, but also the customers’ evolving value chain at present and in the future. For example, Siguaw et al. 2004 illustrated a positive relationship between an organization’s market orientation and its employees’ customer‐orientation, holding that both parties’ orientations remains aligned. In considering that many researchers have used a combination of two or more scales to measure marketing orientation, the lack of market orientation literature researching its relationship with customer satisfaction, and Deshpande´ and Farley (1998a) research which suggest that in business practice both market orientation and customer‐orientation are viewed as identical concepts. The present research will use customer‐orientation literature to imply market orientation effects on satisfaction.
Concentration of the customer‐orientation concept has been primarily at an organizational level (focusing on the concept of “market orientation” that fundamentally establishes tenets of organizational behaviour with respect to a firm’s customers and competitors) and individual level (the interpersonal contact between employees and customers) (Stock and Hoyer, 2005). Theory suggests that customer‐orientation consist of two dimensions – behaviours and attitudes. The behavioural dimension focuses on activities that evoke satisfaction, while the attitude dimension focuses on employees’ internalization of customer service beliefs. However, most research has focused on the behavioural aspect of customer‐orientation, while fewer have examined the attitude‐ related counterpart (see Stock and Hoyer 2005). Although distinct the relationship between these two dimensions is believed to be positive, since attitudes may influence behaviours (e.g., Ajzen and Fishbein 1980, Sheppard, Hartwick, and Warshaw 1988, Peccei and Rosenthal, 1997). For example, employees that have strong customer‐oriented attitudes are more perceptive of customers’ needs and reliably act to satisfy these needs. Therefore, both dimensions are necessary in developing a strong customer‐oriented employee. However, Stock and Hoyer (2005) research illustrated that high levels of employee empathy, expertise, and reliability moderates this relationship.
21 emotional contagion, emotional and attitudinal states are transferable during interpersonal contact since individuals tend to unconsciously and continuously synchronize their moods and emotions to match their immediate social environment (e.g., Barsade 2002, Gump and Kulik 1997, Hatfield et al. 1992, Rozin and Royzman 2001). This implies that employees’ emotions and moods also serve as an indicator for customers when rating services value. Thus, happy employees equal potentially happy customers. The above illustrates that both dimensions of customer‐orientation construct are necessary in eliciting high levels of customer satisfaction. Since market orientation activities allow for the development of processes, culture, structure, and incentives (see Shat et al. 2005, Heskett et al. 2008, Anderson and Mittal 2000) that elicit high levels of customer‐orientation, market orientation may positively influence customer satisfaction.
Empirical support has been shown primarily in the study of customer‐facing employees’ impact on customer satisfaction. For example, Stock and Hoyer (2005) found that customer satisfaction was influence when sales employees’ displayed customer‐oriented behaviours and/or attitudes. Also Henning‐Thurau (2004) study demonstrated how customer‐orientation focused training and recruitment procedures influence customers’ satisfaction, commitment and retention. Finally, Jones and Dacin (2003) used firm’s market orientation to illustrate how sales managers influence on salesperson customer‐orientation, through encouraging commitment to client organisations, resulted in higher customer satisfaction and reduced deflection intentions.
H1: Market orientation positively influences customer satisfaction
2.1.5 Mediator of Market‐Orientation → Satisfaction relationship
Using both the above research arguments for attribute satisfaction ‐ customer satisfaction and customer‐orientation → customer satisfaction relationships, it can be deducted that market‐ orientation will also impact attribute satisfaction. In fact attribute satisfaction is possibly a mediator of the market orientation → customer satisfaction relationship. As previously discussed, customer satisfaction composes of both aggregate and attribute levels (see Yi 1990). With the latter being an antecedent of the former. Since customer‐oriented activities are aimed at improving customers’ value perceptions of service offerings relative to competitors, which causes improvements in customer satisfaction. Then organizations must seek to understand which attributes produce the most satisfaction, and adjust their service mix accordingly.
projection, where which products are considered a bundle of core and attributes related performances. When purchasing and using products customers consider the specific and measurable abilities of each attribute in helping achieve a desired goal. Thus, they form a weighted hierarchical preference for each attribute. Likewise, market‐oriented activities are aimed at improving customers’ satisfaction with a service by continuously learning about customer purchase and usage goals, and using this knowledge to select appropriate attributes for product mix improvements. Organizations can then calculate customers’ average weighted attribute satisfaction scores and compare it against the expressed overall satisfactions scores, to identify gaps between the two measures and possible areas for improvement (Churchill and Surprenant 1982, Oliver 1997, Szymanski and Henard 2001). Hence, attribute satisfaction is a consequence of market orientation, and also provides a mediation between the market orientation → customer satisfaction relationship. H2: Attribute satisfaction positively mediates the relationship between market orientation and customer satisfaction.
2.1.6 Mediators of the Market Orientation → Performance relationship
Research that links market orientation to business performance, illustrates that it is both direct and indirect. In fact the marketing concept hints to this point, by suggesting that satisfying customers leads to increase business performance. The previous literature review provided justification for the positive relationship between market orientation and customer satisfaction. To explain the mediation process, we now focus on customer satisfaction influence on performance. In this paper, performance is represented using financial and marketing measures. This is in line with academics that advocate the need for both measures in assessing organization performance, in view that financial indicators represent a company’s present value (assets ‐ liabilities) and does not integrate the impact of marketing activities on the present or future lifetime‐value of the customer‐base (e.g., Berger and Nasr 1998, Gupta et al. 2004, Gupta 2009, Hauser et al. 1994, Ittner and Larcker 1998, Morgan and Rego 2006, Rust et al. 2004, Venkatesan and Kumar 2004, Wiesel et al. 2008). As a result of using both measurements this research hopes to achieve a holistic view of market orientation effects on performance.23 switch likelihood) are used as the preferred marketing metrics, since most consumer behaviourists consider behavioural intention to be the results of attitudes which acts as judgment of future behaviours (Oliver 1980). Academic and commercial research has primarily focused on customer repurchase, word‐of‐mouth (WOM), and switching intentions due to their relationship with indicating future business performance (Morgan and Rego 2005, Zeithaml, Berry, and Parasuraman, 1996). Anderson et al. 1994 defines repurchase likelihood as the customers’ stated probability that they will purchase a product/service in the future. WOM intentions are referred to as customers’ intent to engage in non‐solicited positive discussions about an organization’s products/services with other individuals (Anderson 1998). Finally, switch intentions is seen as the likelihood to substitute or trade the current service provider with another that is available to the consumer in the market (Bansal 1997, Saeed et al. 2011). The difference between repurchase likelihood and switch intention is that the prior focus internally on customers’ future needs for product/service, while latter focuses externally on whether customers likelihood to deflect to competitors. This research refers to switch intention in a positive light as switch unlikelihood.
Mediating Market-Orientation → Financial performance relationship
However, financial rewards from uncoordinated activities aimed at producing higher levels of customer satisfaction may increase at a decreasing rate, and even become negative. This reflects economic and traditional operations theories which argue that customer satisfaction is a function of product or service attributes, thus increasing satisfaction by producing higher value attributes will exponentially increases cost (e.g. Lancaster 1979, Bowbrick 1992, Juran and Gryna 1980, Ittner and Larcker 1998). For example, in a study of customer satisfaction in 77 Swedish firms, Anderson et al, (1994) found that the advantages deriving from customer satisfaction are expected to continue over time, but the cost of increasing both service value and customer satisfaction may be unsustainable depending the organizations’ strategy. This inverse relationship was evident in cases where short‐ term growth in market‐shares resulted in decrease financial performance, most likely the result of the overextended use of service capabilities to meet the demands in an increasing number of customer segments. They further implied that in order to take advantage of the ability to use customer satisfaction data to generate revenue, managers must first view customers as assets by implementing a customer‐asset orientation strategy which aligns the firm’s processes, resources, performance measurements, and organizational structure. Thus, market orientation ensures organizations’ long‐term financial success by coordinating functional department’s activities to efficiently allocating resources that will maximize satisfaction towards product attributes, while ensuring that product cost does not exceed the value of obtaining and maintaining a customer.
Mediating Market-Orientation → Behavioural Intentions relationship
25 positioned to estimate customers actually behaviour outcomes from behavioural intentions in responses to higher levels of satisfaction.
H3: Customer satisfaction positively influences financial performance and behavioural intentions.
H4: Customer satisfaction positively mediates the relationship between market orientation and performance.
3 Methodology
The purpose of this section is to explain the method through which data was gathered and analysed. Section 3.1 focuses and explains the chosen research design. Section 3.2 explains the general sample chosen for the research, followed by section 3.3 which describes how the data is collected and the methods of analysis chosen. In section 3.4 the scales used to measure each construct within the research are given and explained. Section 3.5 describes the methods used in analysing the data, and finally concluding with pre‐descriptive analysis (section 3.6).
3.1 Research Design
The chief intent of this research was to statistically test the relational effects between all constructs in a single model (see figure 1). However, this is not quite possible due to the small response size of businesses in the sample population. So two models were developed and tested instead of one. The first model (model 1) will estimate the relationships between all constructs as proposed in the conceptual model. The second model (model 2) will instead consist of three constructs – attribute satisfaction, satisfaction, and behavioural performance – which will serve as partial confirmation and possible generalisation of the results produced by the first model. Model 2 basically provides a foundation from which inferences pertaining to the significance and direction between the relationships in model 1 can be projected unto the general population.27 • The Model 2 focuses on the relationship between attribute satisfaction, customer satisfaction and behavioural intentions. This method also coincided with the survey developed to measure tourists’ response to items related to these constructs. Stay‐over tourists were targeted and considered non‐residential individuals that had spent more than 48 hours on the island as a visitor. Stay‐over tourist were chosen because they were more likely to have an extended interaction and robust response to the variables featured in the questionnaire, than cruise or in‐transit passengers.
3.2 Sampling Method
As mentioned above, the research questionnaires targeted principally two sample groups ‐ business owners and stay‐over tourists. The first group was obtained through a convenient sample of hotels/resorts registered in Dutch St. Maarten’s chambers of commerce. Whereas, random sampling was employed on tourists in the second group at the Princess Juliana International Airport (PJIAE) departure hall and through participating hotels service‐desk administrators. The high volume commercial flight activities at the local airport ensured a tourists sample consisting of a variety of international and regional respondents. However, due to large number of visitors from North America it is likely they will have a prevalent presence in the sample and influence over the results. Furthermore the research targets tourists (18+) of varying marital status, gender, economic and educational status.Data collection was made through the use of a personal survey designed to answer the research question and sub‐questions. To collect business respondents’ data, a questionnaire was developed and emailed to general managers/marketing managers of hotels ‐ obtained from the department of statistics database ‐ by means of Googledocs survey application. Attached to each email was a cover messages that stated the purpose of the research. These emails were later followed‐up with a phone call to determine whether the respective businesses received the surveys and to verify the confidentiality and purpose of the study. In certain cases physical copies were also delivered.
In addition, over 400 tourists were targeted in order to obtain equally sufficient representation of tourists staying at the participating hotels. Questionnaire distribution and collection took place over a two month period starting June 27th 2011, thus insuring for heterogeneity among respondents.
3.3 Data Collection
country, only hotels/resorts were applicable to take part in the research. Since most businesses have limited resources they either do not/or rarely performed all market orientation functions. As mentioned previously, unlike commodity based businesses where products can be inventoried, capacity cannot be inventoried for services (Klassesn and Rohleder, 2001). Thus hotels/resorts are often obligated to perform marketing functions that ensure demand meets capacity, by attract visitors to their establishments, to reduce the loss of profits through unused capacity.
Tourism is also one of the largest industries in the world (WTO, 2005) and the primary industry of the research destination ‐ St. Maarten. With over 60,000 commercial flights and 300,000 tourists arriving yearly3, without including cruises ships, this makes St. Maarten an excellent location of this research. Especially when considering that over 90% of the hotels are partially time‐share businesses, which ensured a good mix of 1st time and frequent visitors. Thereby, allowing for a balanced assessment and response to the surveys questions. Finally, the Likert Scale was the primary mean by which the variables were measured since statistically it is proven to be a good measurement system (Malhotra, 2004). By using this layout, the quantitative data on respondents’ beliefs will be more accurately obtained.
3.4 Measurement Scales and Surveys
This study employed a casual research design using a several scales, most of which have been verified by prior researchers. The questionnaire developed for businesses consisted of market orientation and business performance measures. While the other survey measured attribute satisfaction, customer satisfaction, behavioural intentions and demographic information of tourists. The following pertain to information concerning the use and reliability of the scales within this research.
Dependent variables
1) Performance Measures. The research employed two measured of performance ‐ behavioural intentions and financial performance indicators.
a. Financial performance was measured within the business survey using a Likert scale (1 = Great improvement and 5 = Great decline) of common used financial indicators with a reliability =.916 (adapted from Moorman and Rust, 1999, Narver and Slater, 1990, Verhoef and Leeflang, 2009) as used in Hoekstra and Verhoef, 2010.
29 b. Behavioural intentions were measured within the tourist satisfaction survey using an adapted scale from Cronin, Brady, and Hult (2000). The scale consist of a 3 items on a 5 point Likert scale (1 = Very Low and 5 = Very High), with a reliability =.87.
Mediator variable
2) Customer satisfaction. The construct of customer satisfaction has been measured numerously throughout prior studies. This research used a single measure of customer satisfaction for its ease and empirical support (Geng‐Qing and Qu, 2008) in measuring satisfaction with the entire destination experience. Respondents were asked to rate their customer satisfaction with their visit using a Likert scale (1 = Very dissatisfied and 5 = Very satisfied).
3) Attribute satisfaction. Drawing upon the most relevant tourism literature and destination attributes applicable to St. Maarten market position, this study measure the construct with a 20 item self‐constructed scale. These items were categorized as accommodations, activities, and environmental factors. Respondents were also asked to evaluate their satisfaction with each category along a 5 point Likert scale (1 = Very dissatisfied and 5 = Very satisfied). Independent Variables 4) Market Orientation. The 20 item measurement of market orientation developed by Jaworski and Kohli (1993) was used to develop the survey. Prior studies have utilised this measure of market orientation in various industries segments, thereby supporting its refinement and reliability =.71, .82, and .78 (intelligence generation, dissemination, and responsiveness). An adapted survey of marketing orientation utilising a Likert scale (1= Strongly disagree and 5 = Strongly agree) was used in capturing business’ respondents perceptions.
3.5 Method of Analysis
3.5.1 Independent constructs
The validity and reliability of the three components of the market orientation scale were tested using a reliability analysis consisting of all three factors after correcting for negative worded variables (3, 5, 11, 12, 13, 18, and 19). Cronbach’s alpha results indicated that the market orientation scale had a relatively high coefficient alpha of 0.835, which compares favourably with other studies in this field. However, variables 1 (intelligence generation #1), 8 and 10 (intelligence dissemination #2, #4), and 13, 14, & 20 (responsiveness #2, #3, #9) also appeared to be candidates for deletion (appendix 1a). Because the dataset was below the recommended observations per variable ratio of 1:5 (Hair et al. 2010) it is likely that this would result in unreliable scale loadings. In addition, deletion of the mention high cronbach’s alpha loadings would considerably deviate from the original market orientation scale, thus the study forgo these changes and constructed the scale as is.
For attribute satisfaction a principle component analysis test was also performed on the data to reveal the underlying latent constructs. After a Varimax rotation to correct for cross‐loading variables, and the sub‐sequential deletion of persistent cross‐loading variables that did not prove to be reflective of their factor loadings, a seven factor solution was identified using an eigenvalue (>1) criterion, percentage of variance explained criterion (>50%) and coefficient suppression level of 0.40. The derived loadings were labelled from component 1 – 7 correspondingly as dining attributes, environmental attributes, shopping attributes, airport infrastructure attributes, hotel service attributes, choice of accommodations and recreations attributes.
The resulting KMO value of 0.692 – which is mediocre but sufficient (Field, 2005) ‐ and the p‐value for the Bartlett’s is 0.000 (p<0.05), suffices validation for the continuation of the analysis. Cronbach’s alphas reliability test of the mentioned derived components resulted in only two of the seven loadings proving to be reliable scales for attribute satisfaction. These scales were labelled as environmental attributes and shopping attributes, with cronbach’s alphas of .710 and .711 respectively.
3.5.2 Dependent and mediating constructs
Two separate data reduction and reliability tests were also carried out on the dependent constructs4 of this study. All items of business performance loaded unto one factor loading. Similarly, behavioural intentions items loaded unto one factor loading. The KMO and Bartlett’s test values for both tests were sufficient (KMO = .719 and .770 respectively, 0.000 (p<0.05)). In addition with cronbach’s alphas = .882 and .901, suggests that all constructs are quite reliable. A further factor
31 analysis was conducted using the mean scores for the behavioural intention items and financial performance items. The results illustrated that the items of both measures were distinct and loaded on two separate factors. Therefore, further analysis of the performance construct will also model these two dimensions separately.
Before testing the hypotheses, a Kolmogorov‐Smirnov Test for normality was first conducted. It indicated that the data had significant levels of skewedness and kurtosis above the critical values of ±2 (see appendix 1.4). To adjust for bias cause by non‐normality in the datasets, AMOS Structural Equation Modelling (SEM) bootstrap regression was utilized to test the research hypotheses.
3.6 Descriptive analysis
Table 1 provides descriptive results from target sample’s responses to the market orientation and satisfaction constructs, as well as the performance items under investigation. The mean, standard deviation and frequencies of each construct are present.
Table 1: Descriptive Information main variables
Items Sample Size
Mean Std. Deviation Percentiles
Variables in model #2
Attribute Satisfaction 200 3.90 .60 2.5% 75.5% 22% Customer satisfaction 200 3.92 .78 2.5% 77% 20.5% Revisit Likelihood 200 4.20 1.053 8% 38.5% 53.5% Recommendation probability 200 4.43 .85 4% 35% 61% Switch unlikelihood 200 4.17 1.12 10% 37.1% 52.5 There appeared to be no great difference in the means of the variables attributed to each samples. However it was obvious that the data was particular skewed as previously proven in the Kolmogorov‐Smirnov Test. This surmised that the use of parametric methods in testing the research hypotheses is highly improbable.In total the two data sets totalled 274 respondents, of which the response rate for business respondents to the Market Orientation survey was 44% (28/63), whereas the satisfaction survey received a 54% (245/453) response rate (appendix 1.5). As expected for the satisfaction survey USA tourists heavily represented the sampled population (see appendix 1.6). At PJIAE 185 of the 263 surveys distributed were returned accounting for 70.3% of the total sample. However, since some hotels participants were not represented / underrepresented in the PJIAE satisfaction survey sample, additional satisfaction surveys were distributed to a sample of 10 guests (min) within these hotels. Interestingly however, this method yielded a less favourable result of 31.6% (60 out 190 distributed surveys). From the collected responses 30 items of the satisfaction survey and 2 items for the market orientation survey displayed missing cases. However the number of missing cases per item was not severe for both surveys (<10%), thus single imputation of their means were used to alleviate the issue.
33 most important source in deciding to visit the destination (36.7%). Furthermore, the length of visitors’ trip did not vary as much, with 70.3% staying for 1‐7 days (see appendix 1.7 – 1.14 for related tables and charts).
4 Analysis
The hypothesis testing will be conducted and results displayed in the following tables. As explain in the methodology, two separate structural equation models will be performed using nonparametric test in SPSS AMOS. Under the first dataset (N=20) hotels participants were chosen to be included in the modelling process based on their relatively representation within the tourist satisfaction survey. Also the mean score of attribute satisfaction, customer satisfaction and behavioural intentions were calculated for these hotels. In the second dataset (N=200) the model will focus on estimating tourists responses to attribute satisfaction ‐ customer satisfaction → behavioural intentions relationship of tourists for the same hotels in the first dataset. The resulting significance and coefficient sign (positive or negative) are later compared to those in the first model in order to provide confirmation for the generalizability of the initial findings.4.1 Hypothesis testing
Before conducting the SEM regression, previous analysis showed that the data does not meet the assumption of normality even under log transformation. Because non‐normal distributed data often results in bias results under parametric tests, the research used the Bootstrapping method available in AMOS to test the hypotheses.
Bootstrapping is a nonparametric approach to effect‐size estimation and hypothesis testing that makes no assumptions about the shape of the distributions of variables, or the sampling distribution of the statistic. This method has been suggested by many researchers as a means of circumventing the power problem introduced by asymmetries and other forms of non‐normality in sample distributions (Preacher & Hayes, 2004). Moreover, it allows for the use of the Bollen‐Stine bootstrap test of model fit. Bollen‐Stine bootstrap test permits the correction of p‐values for the chi‐square statistic in assessing overall model fit of non‐normally distributed data. It takes the place of the usual maximum likelihood‐based p‐value which may lead to false indication of model fit in other goodness‐of‐fit (GOF) associated test (Bollen and Stine 1992, Shevlin and Miles 1997).
4.1.1 Measurement of Model 1
As mentioned, model 1 was used to determine the relationships between the market orientation scale (IV) and the performance indicators (DV), including the mediating variables using mean customer satisfaction and mean attribute‐satisfaction (M). Mean customer satisfaction and attribute satisfaction5 was calculated by summing the responses of all tourists for a particular hotel and dividing this figure by the number of respondents, thereby given a meaningful indication of the hotels’ average customer satisfaction rating of guests. Although the present datasets was too small (N=20) to produce statistically meaningful projections to the general population, bootstrapping nonetheless accounts for the distortions caused by the small6 samples that may give some insight into the relationship between the model’s constructs.
