Customer loyalty at Educational Music Institutes: An Empirical Study on the Relationship between Relationship Quality, Relationship Duration, Customer Engagement, and Customer Loyalty

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Customer loyalty at Educational Music Institutes:

An Empirical Study on the Relationship between

Relationship Quality, Relationship Duration, Customer

Engagement, and Customer Loyalty

RAYA AL QADDUORI

University of Groningen Faculty of Economics and Business

Department of Marketing MSc Marketing Thesis

Supervisor: Prof. J.C. Hoekstra Second Supervisor: Bianca Harms

Nieuwe Sint Jansstraat, 8 9711 VJ, Groningen Tel: +31 (0)6-40205230

E-Mail: r.al.qadduori@student.rug.nl

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pg. 2 Table of Contents Abstract……… ……3 Acknowledgement………4 1. Introduction ………... ……5 2. Literature Review………... ……7 2.1 Conceptual Model……….. ……7

2.2 Relationship Quality and Customer Loyalty………..……9

2.3 Relationship Duration, Relationship Quality &Customer Engagement…11 2.4 Customer Engagement and Customer Loyalty……….. …...12

2.5 Customer Engagement as a Mediator………..…..14

3. Methodology………..15

3.1 Participants’ Selection and Design………... 15

3.2 Measures………...16

3.3 Data Analysis………. ……18

4. Results……… ……19

4.1 Descriptive Statistics………..……19

4.2 Correlations………....……20

4.3 Factor Analyses and Reliability Analyses………. …....20

4.4 Test of Hypothesis and Regression Analysis………. ……22

5. Discussion and Conclusion………... ……24

5.1 Discussion of the Findings………... ……24

5.2 Managerial Implications ………27

5.3 Limitations and Future Research………... ……28

Literature……….. ……30

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pg. 3 Abstract

The purpose of this research is to investigate the moderating effects of relationship duration on relationship quality and customer engagement, as well as the mediating link between customer engagement and customer loyalty, and the direct link between relationship quality and customer loyalty, to find potential solutions in the growing decline in customer loyalty across service industries. Specially, this thesis examines existing literature on customer loyalty, relationship quality, customer engagement and relationship duration to identify and understand the missing link between these components. The core idea is to deduce the main drivers that influence customer loyalty, in order to have a better understanding of why customers switch brands and why there is a rapid growth in the trend of customer loyalty decline. This gap is important to address as it could potentially extrapolate the components and drivers of customer loyalty. An empirical study is conducted based on data obtained from two music centers, both located in the United Arab Emirates. A customer satisfaction measurement instrument in form of a survey is handed to customers of the aforementioned music centers. The outcomes of the study indicate that the hypotheses are not fully supported, however, further research may enhance or change the direction of the research results. Further research could test whether these findings may potentially be generalized across different industries and locations. Considering the change, of how positive or negative the engagement is perceived by customers may also be interesting for future research, potentially investigating whether that aforementioned change influences the relationship between customer engagement and customer loyalty.

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pg. 4 Acknowledgment

This research was supported by many people and I want to acknowledge all of them who have helped me and supported me through this journey. First of all, I would like to thank my supervisor for her patience, understanding, guidance and invaluable contributions through all these months of writing. Second, I would like to thank Furat Qaddouri Music Center and the Music Chamber for being very persistent with helping me gain as many responses as possible and mostly I would like to thank our hard-working front desk officer and assistant Maria. Most of all, I want to acknowledge my parents for being my rock and my inspiration throughout my entire academic career and especially for being there for me and helping me get through my stress and workload. And also a special thank you to all my friends who have supported me with a shoulder to cry on when I did not know how to proceed.

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pg. 5 1. Introduction

Service providers perceive customer loyalty as a valuable source of competitive advantage (Woodruff, 1997). Increased customer loyalty in the service industry has proven to increase profitability by many abiding studies examining the connection between customer loyalty and its drivers (e.g. Aydin and Ozer, 2005; Cronin et al., 2000; Ibanez et al., 2006; Liu et al., 2005; Sirdeshmukh et al., 2002; Woodruff, 1997). “Close friendships can form between service providers and customers (Goodwin, 2000), as well as among customers” (Schouten and McAlexander, 1995). The rapid growth of the declining trend in customer loyalty has been very problematic in the service industry. Mainly due to the reason that nowadays customers are constantly switching between service providers regardless of the customer loyalty and relationship quality offered by a certain service provider (Oliver, 1999). It is safe to state that the service industry currently is a ‘’red-ocean’’ due to the high rivalry and competition in all markets (Rust and Huang, 2014). “Red Oceans” is a metaphor used to describe a current market. Red ocean markets mainly already contain a high number of rivalry and competitors. The color red is used in the term to help create a visualization of the bloodbath which a highly competitive marketplace is able to represent (Kim and Mauborgne, 2005).

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pg. 6 loyalty and a long-lasting relationship with those customers. Bagozzi and Dholakia (2006) argue that customers that become active members who positively engage in the online word-of-mouth, have a higher tendency to become loyal and committed customers of the company. Therefore cementing the customer base, growing it, and ensuring a sustainable business model.

An empirical study is conducted based on data obtained from Furat Qaddouri Music Center and The Music Chamber; both located in the United Arab Emirates. A music center is an educational institution which offers music lessons in various instruments. Some music centers also offer dance classes, arts, and handicrafts, in an attempt to diversify business and cater for larger target markets. In the past years, service providers such as organizations like music centers have been fighting to build customer loyalty and customer retention. Customers tend to switch from one music center to another and the precise reason behind this is unclear yet (Oliver, 1999). Therefore, it is of great importance to assess the reason behind the customer decline happening in the educational music industry. This is done by examining whether the relationship duration between the music institutes and their customers effects the relationship quality and customer engagement of service providers, in this case the music institute. And whether the relationship quality and the customer loyalty are truly affected by customer engagement.

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pg. 7 and manipulating factors such as relationship duration, customer engagement, relationship quality and customer engagement. This advanced research measure would be heavily valuable for adoption not only by managers but also by marketing scholars who are in constant search for insights to advance the domain customer loyalty (Verhoef et. al., 2010).

This research gap is important to address because it could potentially identify newly found components and drivers of customer loyalty. In order to address the deficiency in existing research, the focus of this paper will aim to interpret the link between relationship quality and customer engagement and relationship duration, another potential factor that may affect this relationship. As a result, this study aims to bridge the gap existing in research by creating a link between relationship quality and relationship duration, customer engagement and customer loyalty, as well as the direct link relationship quality and customer loyalty.

The purpose of this research is to answer this question and to investigate the mediating and moderating effects of certain variables in order to help solve the problem of customer loyalty decline.

Research Question: To what extent do Relationship-Duration, Relationship Quality, and Customer Engagement influence Customer Loyalty?

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pg. 8 The structure of this thesis is constructed as follows: the first chapter (1), offers an introduction to the overall topics of the paper. The next chapter (2), reviews current and previous topics relating to the domain customer loyalty, relationship quality, relationship duration and customer engagement, used for this research paper. Enclosed is the conceptual model and the theory behind the variables that are in the hypotheses. The following chapter (3) explains the methodology and the research design. Chapter (4) presents the results of the analyses done in the methodology chapter. The paper concludes with an overview of key research limitations and implications in chapter (5).

2. Literature Review 2.1 Conceptual Model

Fundamentally, the conceptual model (figure1) states that the use of relationship duration as a moderator could lead to a stronger effect of the variable relationship quality on customer engagement, which in turn results in customer loyalty. All these variables play unique roles in affecting customer loyalty. In order to achieve higher business outcomes and reach optimal customer loyalty, it is essential that organizations improve relationship quality and customer engagement to establish customer loyalty (Anderson and Weitz, 1989). However, in order to establish a great relationship quality, customer's expectations and needs must be met and exceeded to build customer satisfaction, trust, and commitment (De Wulf, Odekerken-Schröder, and Van Kenhove, 2003). Considering the duration of the customer relationship could potentially grant more insights on the reasoning behind the current stages of customer loyalty (Anderson and Weitz, 1989).

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pg. 9 a survey handed to two service providers in the educational music industry is used to develop the model. Specifically, this model is based on variables which are already tested in current literature, except for relationship duration as a moderator which has not been tested yet in this combination of variables, and acts as the main added value in this research paper.

FIGURE 1: CONCEPTUAL MODEL

2.2 Relationship Quality and Customer Loyalty

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pg. 10 (1999) argues that in order to maximize customer loyalty, customer value and satisfaction must be delivered. It is of great importance to developing superior customer value and satisfaction due to the fact that satisfied customers tend to develop strong customer loyalty that helps create a greater business performance (Kotler, 1999). In the literature, many researchers suggest different outcomes, some state that “trust” is the most critical relational mediator (W. Palmatier et. Al., 2006). If customers trust a company, this will result in a more likely positive relationship quality, as trust is the cornerstone of a long-lasting relationship (Spekman, 1988). This statement is tested by the direct effect of relationship quality on customer loyalty due to the fact that the main drivers of relationship quality are trust, commitment, and satisfaction (De Wulf, Odekerken-Schröder, and Iacobacci, 2001). Furthermore, other authors have argued that trust can be an important predictor for customer loyalty (Palmatier et al., 2006). The greater focus of the following conceptual model is based on the Meta-Analysis of Robert W. Palmatier et. Al., (2006).

Customer loyalty can be a direct effect from either the complete satisfaction over a certain time-period or extreme positive emotion. Customer loyalty over a longer time period is suggested to result in higher repurchase intentions, which entails a long-term relationship (Gustafsson et al., 2005). In other words, a positive relationship quality between seller and customer is assumed to lead to higher customer loyalty. The extreme positive emotions of customers have shown to not always hint towards long term relationship. Although this is the case, research has shown that customer loyalty may be the outcome of abiding relationships regardless of emotional bonds (Sashi, 2012).

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pg. 11 was found that relationship quality management efforts improve business performance and customer loyalty through bonds of a stronger relationship between the company and its customer (De Wulf, Odekerken-Schröder, and Icobucci, 2001).Variables in reviews and existing literature mostly focus on trust, satisfaction and commitment as “commitment is the long-term desire of maintaining a valued relationship” (Moorman, Zaltman, and Deshpande, 1992). Those are strong drivers for relationship quality according to the definition that it is a “customer’s emotional or affective state towards the relationship” (W. Palmatier et. Al., 2006). In other words, trust, satisfaction, and commitment are the main drivers for relationship quality and therefore, those factors influence the strength of the affectional relationship to the company.

Relationship quality is enhanced through benefits or rewards, such as, loyalty-programs in which customers can purchase the service with more convenience for time and effort saving, collecting points for a greater discount at the end of each month/ year and companionship benefits (Morgan and Hunt, 1994; Reynolds and Beatty, 1999). Following the above-mentioned findings, this research expects to explore the relationship between relationship quality and customer loyalty and tests the following hypothesis.

H1. Relationship Quality has a positive direct effect on Customer Loyalty.

2.3 Relationship Duration, Relationship Quality, and Customer Engagement

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pg. 12 and Van Kenhove, 2003). Therefore, it is of great importance that the quality and frequency of the information shared between the two parties is addressed in a well-structured way. (Mohr, Fischer, and Nevin, 1996). This means that both exchange partners need to be actively sharing information for a positive outcome (Mohr, Fischer, and Nevin, 1996). Through bilateral communication, a better understanding can be gained to deliver the necessary needs of the customers. If both parties engage in delivering qualitative information, this allows customers to partake in goal realizations of the company (Morgan and Hunt, 1994).

The moderator, relationship duration, is the period of time in which the relationship between the organization and the customer has existed (Anderson and Weitz, 1989). As customers partake in more purchases over a longer period of time, they start recognizing value as highly important (Flint et al., 2002). In order to acquire new customers and to enhance customer engagement and loyalty, customer relationship management is indeed a beneficial principle (Kracklauer et al., 2001). Customer needs are compensated by the traditional relationship management, which equips service providers with solutions to these customer needs which are intended to help attain higher profits, by investigating and acquiring customer-based data (Gummesson, 2004). Customer relationships have a potential to support managerial efforts to motivate customer loyalty through advantages that grasp customer loyalty antecedents. A practical explanation for service providers is whether switching costs and perceived value have a more powerful outcome on customer loyalty in long-term customer relationships in comparison to newer ones (Dick and Basu, 1994). Bove and Johnson (2000) suggest that the longer a relationship between a customer and a service provider persists, the more powerful it will be: such relationships influence customer loyalty.

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pg. 13 outcome of the longer the relationship the more confidence, trust, and commitment are established. Therefore, relationship Management strategies differ in either help maintain or create trust and satisfaction, which are the main drivers of successful relationship quality (Anderson and Weitz, 1989). Hence, if relationship duration is longer between customer and company, it is likely that this strengthens the effect of relationship quality on customer engagement (Anderson and Weitz, 1989). Customer engagement is a method through which organizations such as service providers establish a relationship with their customer base to stimulate brand awareness and loyalty (Zeithaml, Valerie, Leonard, Berry and Parasuraman, 1996). This can be achieved through various marketing communication tools such as marketing campaigns, newly released content created for websites and via social media platforms (Brodie et al., 2011)

Also, the effect of the quality of the relationship on customer engagement might be strengthened if customer and company engage in a relationship for a longer period of time (Zeithaml, Valerie, Leonard, Berry and Parasuraman, 1996). Customer reward programs help focus on delivering special rewards for customers who frequently purchase the services offered. Companies nowadays offer “frequency marketing programs” which are specifically created for long-term customers who are active (Kotler, 1999). According to the findings, this research also expects to find a positive relationship between relationship quality and customer engagement; which in this case is expected to be influenced by relationship duration and therefore tests the following hypothesis.

H2. Relationship Duration strengthens the effect of Relationship Quality on Customer Engagement.

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pg. 14 Brodie et al., (2011) propose that the theoretical source of customer engagement may be analyzed by drawing on theory addressing reciprocal experience and the value co-creation among marketing relationships. Van Doorn et al. (2010) label ‘‘customer engagement behaviors,’’ as the outcome of motivational drivers such as customer-to-customer interactions, word-of-mouth activity, and/or blogging activity. It is suggested that ‘‘customer engagement behaviors go beyond transactions’’ (cf. MSI 2010), and therefore may be defined as ‘‘customers’ behavioral manifestations that have a brand- or firm-focus, beyond purchase, resulting from motivational drivers’’ (p. 254). Other examples of such are, recommendations, purchases, store visits, online reviews, and word-of-mouth. The number of customers partaking in these activities, the number of times they engage with it in a specific time period, along with their preference, satisfaction or "willingness to serve as customer references" are tracked and adapted to measure customer engagement (Sashi, 2012).

This aspect not only broadens customer engagement to the complete experiences and stakeholders but further along also proposes that customer engagement is a progress that is established over the process of a relationship. Alone in the case in which interactions between a service provider and a customer result in satisfaction, will they remain connected and continue the interaction with one another and thus the process approaching engagement? (Mittal and Kamakura, 2001). The relation between relationship quality and customer engagement during a purchase procedure may anticipate the purchase behavior, along with the dissatisfaction at either stage can rattle the process and can develop to an outcome of customer exit. Customer engagement, thus may not necessarily develop an outcome of repurchase, and hence, the establishment of a long-term relationship may not arise (Sashi, 2012).

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pg. 15 Herrmann, 2005; Bagozzi & Dholakia, 2006; Shang et al., 2006 ). Furthermore, loyalty is seen as a key factor in achieving company success and long-term retention and sustainability (Casalo et al.,2007; Flavian et al.). Bowden (2009) argues that customer engagement is the main predictor of customer loyalty in comparison with other traditional marketing tools. And lastly, studies of Cheung et al. (2011), confirm that a customer who has intentions and the willingness to partake in physical, cognitive and emotional activities on platforms of those service providers, is more willing to recommend and share information, also known as partaking in word-of-mouth to other friends and family members. The above-mentioned findings conclude that this research seeks to find a positive relationship between customer engagement and customer loyalty and therefore tests the following hypothesis.

H3. Customer Engagement has a positive direct effect on Customer Loyalty.

2.5 Customer Engagement as a Mediator

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pg. 16 One of the methods advocated from relationship marketing is customer engagement (Vivek, Beatty, & Morgan, 2010). The concept customer engagement emphasizes on the importance of consumers’ driven participation in co-designing their personalized perceived value and experiences with the service provider through direct and continuous, active interactions and dialogue. (Vargo & Lusch, 2008). Co-designing the perceived value’ is interpreted as “the extent of perceived value created in the mind of the customer emerging from interactive, communal and/ or personalized activities for and with service providers”, which is expected to contribute to building and maintain a successful relationship quality between the customer and the service provider (cf. Dall’Olmo-Riley & DeChernatony, 2000; Prahalad & Ramaswamy)

Customer engagement helps develop the understanding of customer loyalty and/or retention dynamics (Bowden, 2009). Amazon has recently re-branded their slogan ‘serving the world’s largest engaged online community’, and Customer Loyalty Engagement Index (Brand Keys, 2011), suggests that leaders in the market are those organizations who have the power to engage consumers, create and maintain loyalty and drive profitability across organizational departments, and deliver added illustrations of the increase in business performance.

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pg. 17 platforms such as social media platforms or the review website of those service providers, in which users interact with the organization and fellow customers, can be beneficial for the organization’s communication and interaction with customers to provide one another with experiences and information along with gaining customer contribution (Tikkanen et al., 2009). Customer engagement is expected to contribute to customer loyalty through affecting the customer experience (Verhoef et al., 2010). In conclusion, this paragraph suggests that the effect of relationship quality on customer loyalty is manipulated by customer engagement, and therefore the following hypothesis is tested:

H4. The effect of relationship quality on customer loyalty is mediated by customer

3. Methodology

3.1 Participants’ selection and Research design

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pg. 18 differences across the centers/ institutes. The results may potentially have implications of great importance for those companies’ marketing strategy used to create customer loyalty and retention.

The participants for the present study are customers from two music centers in the United Arab Emirates; Furat Qaddouri Music Center and The Music Chamber. The survey provides more insights about the relation between relationship quality and customer loyalty and the role of customer engagement as a mediator.

3.2 Measures

The dependent variable in the model, customer loyalty, is measured using a scale developed by Harris, Lloyd C and Mark M.H. Goode (2004) and Oliver, Richard L. (1997). The scale is adapted to the context of the present study. The questions which will be placed in the survey are listed in the table number (1). Customer engagement is measured using the scales which are validated and found in most of the recent research papers in marketing, by Zeithaml, Valerie A., Leonard L. Berry (1996), also the survey questions of this variable are found in the table below.

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pg. 19 TABLE 1: MEASUREMENT SCALES, ITEMS, SCALES, AND FACTOR LOADINGS

Measurement Items Scales FA loadings

Customer Loyalty

Harris, Lloyd C and Mark M.H. Goode (2004). ‘The four levels of loyalty and the pivotal role of trust: a study of online service dynamics’, JR, 80 (2),

139-158. Oliver, Richard L. (1997).

Satisfaction: a behavioral perspective on the consumer, New York:

McGraw-Hill.

1. I believe that using __________ is preferable to other companies.

2. I believe that __________ has the best offers at the moment.

3. I believe that the features of __________ are badly suited to what I like. (r)

4. I prefer the service of __________ to the service of competitors. 1 = disagree, 5 = agree Item 5 = .877 Item 6 = .814 Item 7 = -.053 Item 8 = .877 Relationship quality (3 dimensional) De Wulf, K., Odekerken-Schröder, G. and Van

Kenhove, P. (2003). Investments in consumer

relationships: a critical reassessment and model

extension. The International Review of Retail, Distribution and Consumer Research,

13(3), pp.245-261

Satisfaction:

1. As a regular customer, I have a high-quality relationship with this music center

2. I am happy with the efforts this music center is making towards regular customers like me

3. I am satisfied with the relationship I have with this music center

Trust:

1. This music center gives me a feeling of trust 2. I have trust in this music center

3. This music center gives me a trustworthy impression Commitment:

1. I am willing ‘to go the extra mile’ to remain a customer of this music center

2. I feel loyal towards this music center

3. Even if this music center was less easy to reach, I would still remain a customer here

1 = disagree, 5 = agree Item 1 = .765 Item 2 = .699 Item 3 = .806 Item 4 = .783 Item 5 = .860 Item 6 = .866 Item 7 = .824 Item 8 = .817 Item 9 = .688 Customer engagement

Zeithaml, Valerie A., Leonard L. Berry, and A. Parasuraman (1996), “The Behavioral Consequences of Service Quality,” JM,

60 (April), 31-46.

1. I say positive things about … to other people. 2. I recommend … to someone who seeks my advice. 3. I encourage friends and relatives to do business with

…

4. I would recommend this … to others.

5. I do not encourage friends to do business with this … (r) 1 = disagree, 5 = agree Item 6 = .860 Item 7 = .885 Item 8 = .815 Item 9 = .865 Item 10 = .286 Relationship Duration

How long have you been a customer at the music center? In months (interval)

- City (control

variable)

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pg. 20 3.3 Data analysis

The data are analyzed using multiple regression models to estimate hypothesized effects. In order to test the first and third hypothesis that relationship quality has a positive direct effect on customer loyalty and customer engagement has a positive direct effect on customer loyalty, customer loyalty is regressed on customer engagement, relationship quality, and the control variable geographical location. This results in the regression equation presented below:

CL = Constant (B0) + β1 CE + β2 RQ + β3 City + εi,

Where the dependent variable is customer loyalty (CL), Β0 is the constant, β1 is the first regression slope for customer engagement (CE), β2 is the regression slope for relationship quality (RQ), β3 is the regression slope for the control variable geographical location (City), and εi is the residual error term.

The second hypothesis that relationship duration strengthens the effect of relationship quality on customer engagement is also tested using multiple regression. Customer engagement is regressed on relationship quality, relationship duration, the interaction term of relationship duration and relationship quality, and the control variable geographical location. The regression equation is presented below:

CE = Constant (B0) + β1 RQ + β2 RD + β3 RQ*RD + β4 City + εi,

The dependent variable is customer engagement (CE) in this second regression model. The constant is B0, β1 is the first regression slope of relationship quality (RQ), β2 is the second slope of relationship duration (RD), β3 is the slope of the interaction term of relationship quality and relationship duration, β4 is the regression slope of the control variable geographical location (City), and ε is the residual error term.

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pg. 21 the mediation effect the first estimation is the model which predicts customer engagement from relationship quality, relationship duration, the interaction between relationship quality and relationship duration, and the control variable city. The effect of relationship duration on customer engagement in this model has to be significant in order for mediation to take place. The next step is to estimate the model with customer loyalty as a dependent variable which is predicted by customer engagement (the mediator) and relationship quality (the independent variable). In this regression model, the effect of customer engagement is expected to be significant and the effect of relationship quality on customer loyalty to be insignificant. If this is true in the estimated models, a conclusion that the effect of relationship quality on customer loyalty is mediated by customer engagement can be established.

4.Results

4.1 Descriptive statistics

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pg. 22 4.2 Correlations

TABLE 2: DESCRIPTIVE STATISTICS, CRONBACHS ALPHA (in parentheses along the diagonal), CORRELATION TABLE

Mean SD 1. 2. 3. 4. 1. Customer loyalty 4.36 .68 (.818) 2. Relationship quality 4.52 .56 .683** (.918) 3. Customer engagement 4.68 .57 .590** .703** (.717) 4. Relationship duration 20.48 20.47 .132 .157* .187* - *significant at p = 0.05, **significant at p = 0.01

Table (2) presents that customer loyalty and relationship quality are positively related to one another. This means that customers scoring higher on relationship quality also score higher on customer loyalty and vice versa. The correlation of .683 represents a strong association. Also, customer loyalty is positively associated with customer engagement. This initially means that people who score higher on customer engagement score higher on customer loyalty. The correlation of .590 represents a strong positive association between the variables. There is no significant correlation between relationship duration and customer loyalty. The positive correlation of .132 is quite weak. This indicates a positive association between the variables, but not a significant one. All other variables in the model are positively associated with one another. The strongest correlation is between customer engagement and relationship quality. The positive correlation of .703 is strong. Both relationship quality and customer engagement are positively associated with relationship duration (.157 and .187 respectively).

4.3 Factor analysis and Reliability analysis

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pg. 23 item clearly does not belong to the customer loyalty scale. The factor loading is -.053, way lower than the critical value of .500, it is therefore excluded from further analyses. There is only one factor extracted from this scale with an eigenvalue of 2.204 and an explained variance of 55.1 percent. The reliability analysis showed in table 2 that when leaving the low loading item out the Cronbach’s alpha is .818, which is good. The three remaining items are combined into customer loyalty.

The second variable consisting of multiple items is relationship quality. The results of the factor analysis show that KMO and Bartlett’s are good, both KMO is higher than the critical value of .5 and Bartlett’s is lower than its critical value .05. When we turn to the factor loadings, we observe that every item has a loading higher than .5, which means that all items belong to the same scale of relationship duration. There is one factor extracted from these data and the eigenvalue of the factor is 5.648 with an explained variance of 62.8 percent. Reliability analysis has shown that the Cronbach’s alpha is .918, based on these 9 items, which is excellent, as shown in Table 2.

Turning to the customer engagement scale, KMO and Bartlett’s are good (KMO = .800 and Bartlett’s < .001). The factor loadings show that item 10 does not belong to the customer engagement scale, its loading of .286 is lower than the critical value of .5. Therefore this item is excluded from further analyses. There is one factor extracted from the data with an eigenvalue of 3.017 and with an explained variance of 60.3 percent. Reliability analysis shows that the items have a high level of internal consistency, with a Cronbach’s alpha of .717 (based on 4 items, excluding item 10), as shown in table 2.

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pg. 24 planned to investigate through the survey and customer responses, in which city they live to control for possible differences between these two cities.

4.4 Test of Hypothesis- Regression Analysis

In order to test the proposed hypotheses, two multiple regression models are estimated using Andrew Hayes' Process Model 7 in SPSS 25. First, a model with a dependent variable customer engagement for hypotheses 2 and 4 is estimated. The interaction effect of relationship quality and relationship duration was tested in this first model. The dependent variable of the second multiple regression model that is estimated by Process Model 7 is customer loyalty. We used this model for hypotheses 1, 3, and 4. The results of the regression model are displayed in Table 3 below. P-values for the complete analyses at a cutoff value of 0.05 are considered significant.

TABLE 3: REGRESSION RESULTS MODERATED MEDIATION MODEL FOR CUSTOMER LOYALTY Hypothesis (Effect) Model 1a Model ₂b Main Variable Relationship Quality 1 (+) .87** .73** Control variable City Mediator Customer Engagement 2 (+) 4 (+) .02 .08 .18 Moderator Relationship Duration .04** Interaction Effects Relationship Quality * Relationship Duration 3 (+) -.01** R2 _.56 _.51 F-value 57.47** 62.02** Note: a_{dependent variable is customer engagement,}b _{dependent variable is}

customer loyalty **Significant by p < 0.01

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pg. 25 Support is found for the first hypothesis in the data, as shown in Table 3. The effect of relationship quality on customer loyalty is significant and positive (b = 0.73, p < 0.01), controlled for all other variables in the model. Which means that in the case of customers perceiving their relationship with the music center as better, this results in more/higher customer loyalty. The effect can also be considered as quite strong, since a one-point increase in relationship quality results in a 0.73 increase in customer loyalty. This is quite large considering the 1 to 5 scale of the dependent variable customer loyalty.

H2: Relationship duration strengthens the effect of relationship quality on customer engagement.

This hypothesis cannot be supported by the data, instead, opposite results for this hypothesis are found. There is a minimal significant interaction effect of relationship quality and relationship duration on customer engagement, yet it is slightly negative (b = -0.01, p = 0.01). Resulting in the opposite effect of what was expected from the theory. Results of the analysis indicate that the effect of relationship quality on customer engagement is weakened by relationship duration, where it is expected that this effect would be strengthened by relationship duration. However, the effect is very small considering the scale of the dependent variable. The effect of relationship quality on customer engagement is less strong for customers that have a long relationship with the music center compared to a customer whose relationship duration is lower.

H3: Customer engagement has a positive direct effect on customer loyalty.

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pg. 26 given that the other variables in the model remain constant. A positive effect in the data for customer engagement on customer loyalty was found, but it is not strong enough to have a significant effect.

H4: The effect of relationship quality on customer loyalty is mediated by customer engagement. The mediation hypothesis cannot be supported. Following Baron and Kenny (1986) steps of mediation analysis, first, an estimation of a model where customer engagement is predicted, using relationship quality as an independent variable. This effect of relationship quality on customer engagement is significant (b = 0.87, p < 0.01). The next step in the mediation analysis is to use both the independent variable relationship quality and the mediator customer engagement to predict customer loyalty. If the effect of relationship quality on customer loyalty is mediated by customer engagement, an insignificant regression coefficient for relationship quality in this model is expected and a significant effect of customer engagement on customer loyalty. From the regression results presented in Table 3, one can conclude that there is no mediation in this model. First, the effect of customer engagement on customer loyalty is only marginally significant (b = 0.17, p = 0.06). Second, the effect of relationship quality on customer loyalty remains significant in the final model (b = 0.73, p < 0.01). The mediation hypothesis that the effect of relationship quality on customer loyalty is mediated by customer engagement cannot be supported by the data.

5. Discussion and Conclusion 5.1 Discussion of Findings

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pg. 27 loyalty through customer engagement and the influence of the relationship duration. Furthermore, the conceptual model proposes that there is a positive relationship between relationship quality and customer loyalty, also a positive relationship between customer engagement and customer loyalty. Furthermore, this study contributes to the academic relevance in the field of customer loyalty by exploring new variables which were not implemented in this manner in previous research papers. The conceptual model predicts that relationship duration may influence, in other words moderate the effect of relationship quality on customer engagement and that customer engagement mediates the positive effect of relationship quality on customer loyalty.

Existing research suggests that relationship quality has a positive direct effect on customer loyalty, and after attaining the results from the implementation of the regression model, it is safe to confirm that the first hypothesis is indeed supported. The reasoning behind the outcome of the first hypothesis (H1) is that when the relationship quality between the customer and the service provider is perceived as positive and of high quality, the loyalty of such customers is simultaneously high and strong as well. The findings do confirm the literature and previous studies as mentioned in the literature review of chapter (2). Relationship quality refers to the resources, time and efforts which were sacrificed for those relationship-building strategies. Qualities of such; usually create the expectation that customers will "return the favor" which can help build and maintain a greater relationship which, therefore, has a positive influence on customer loyalty (Anderson and Weitz, 1989).

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pg. 28 proposing opposite results to what was hypothesized. An alternative reason behind this result is the hype and the relevance of loyalty programs in the niche of companies researched in this paper. Customer are hyped to engage in word-of-mouth when they first encounter a service. They are part of something new and exciting, and therefore are more willing to speak about it and perhaps may also engage in referring this ‘new’ service provider to friends and family. After a certain period, customers are not as engaged as in the beginning due to the fact that the excitement of ‘something new’ has decreased, and it has become a normal activity they are partaking in, in regard of the music lessons at a music institute.

Customer engagement is proposed to have a positive direct effect on customer loyalty in the conceptual model presented in the second chapter (2). The hypothesis is not fully supported due to the fact that the effect resulted in marginal significance in the regression model, regardless of the fact that it is positive. This indicates that the hypothesis which is based on previous literature is not fully supported, such as the argument of Bowden (2009). The argument states that customer engagement is the main predictor of customer loyalty in comparison with other traditional marketing tools. Furthermore, loyalty is seen as a key factor in achieving company success and long-term retention and sustainability (Casalo et al.,2007; Flavian et al.). The alternative reason behind this outcome could be for instance that when customer engagement with the company is negative, repurchase and loyalty decrease as well. In that sense, the effects of, in other words ‘bad’ or ‘good’ word-of-mouth leads to a decrease in repurchase and customer loyalty. Another reason could be the fact that my research sample is insufficient compared to prior research studies. According to the ‘power analysis’, each research requires a different sample size.

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pg. 29 cannot be supported by the data. The findings propose that relationship quality is not affected by customer engagement and the literature used is therefore aligned with the findings of Sashi (2012) and (Tikkanen et al., 2009), who suggest that the relation between relationship quality and customer engagement during a purchase procedure may anticipate the purchase behavior, along with the dissatisfaction at either stage. This relation can rattle the process and can develop to an outcome of customer exit. Customer engagement, thus may not necessarily develop an outcome of repurchase, and the establishment of a long-term relationship may not arise (Sashi, 2012). An alternative reason for this result is that, relationship quality is not necessarily influenced by customer engagement. Customer engagement is built by a bilateral communication, and the co-design of a customer’s personal experience, and value. Most customers perceive the value of a service as positive, solely through the one-sided communication by the organization’s discounts, loyalty programs and other preferential treatment (Mohr, Fischer, and Nevin, 1996).

5.2 Managerial Implications

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pg. 30 social communication activities. For managers, this confirmation is related to the fact that service providers should indeed offer preferential treatment to their long-term customers, to make them feel special and appreciated and to eliminate the chance of decrease in the loyalty. Yet, most importantly, managers of services need to remain innovative to remain ‘relevant’, and keep customers interested in their products, and therefore engaged. It is also of great importance to attain new customers to lower churning costs by finding a balance between retaining long-term customers with preferential treatment, offers, and loyalty programs, but also to attract and attain new customers by creating offers and loyalty programs for both types of customers respectively to maintain a balance financially as well by eliminating high churn-costs.

5.3 Limitations and Future Research

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pg. 31 of the survey, resulting in a decrease in the truthfulness of the survey responses. Another shortcoming of the experiment could be that it only included educational music institutes from the United Arab Emirates. Therefore, findings might not be generalizable to companies outside of the United Arab Emirates.

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pg. 32 Literature

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De Wulf, K., Odekerken-Schröder, G. and Van Kenhove, P. (2003). Investments in consumer relationships: a critical reassessment and model extension. The International Review of Retail, Distribution and Consumer Research, 13(3), pp.245-261

Fraering, M. and S. Minor, M. (2013). Beyond loyalty: customer satisfaction, loyalty, and fortitude. Journal of Services Marketing, 27(4), pp.334-344.

Groves, R. (2004). Survey errors and survey costs. Hoboken, NJ: Wiley-Interscience.

Gummesson, E. (2004), “Return on relationships (ROR): the value of relationship marketing and CRM in business-to-business contexts”, Journal of Business & Industrial Marketing, Vol. 19 No. 2, pp. 136-148.

Harris, Lloyd C and Mark M.H. Goode (2004). ‘The four levels of loyalty and the pivotal role of trust: a study of online service dynamics’, JR, 80 (2), 139-158.

Oliver, Richard L. (1997). Satisfaction: a behavioral perspective on the consumer, New York: McGraw-Hill.

Hollebeek, L. (2011). Exploring customer brand engagement: definition and themes. Journal of Strategic Marketing, 19(7), pp.555-573.

Kang, J. and Kim, J. (2017). Online customer relationship marketing tactics through social media and perceived customer retention orientation of the green retailer. Journal of Fashion Marketing and Management: An International Journal, 21(3), pp.298-316.

Kim, W. and Mauborgne, R. (2005). Blue ocean strategy.

Kotler, P. and Armstrong, G. (n.d.). (1999). Principles of marketing.

Kracklauer, A., Passenheim, O. and Seifert, D. (2001), “Mutual customer approach: how industry and trade are executing collaborative customer relationship management”, International Journal of Retail & Distribution Management, Vol. 29 No. 12, pp. 515-519. Malthouse, E.C., Haenlein, M., Skiera, B., Wege, E. and Zhang, M. (2013), “Managing customer relationships in the social media era: introducing the social CRM house”, Journal of Interactive Marketing, Vol. 27 No. 4, pp. 270-280.

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pg. 33 O'Leary, C., Rao, S. and Perry, C. (2004). Improving customer relationship management through database/Internet marketing. European Journal of Marketing, 38(3/4), pp.338-354. Oliver, R.L. (1999), “Whence consumer loyalty”, Journal of Marketing, Vol. 63, pp. 33-44. Oliver, R.L. and Burke, R.R. (1999), “Expectation processes in satisfaction formation”, Journal of Service Research, Vol. 1 No. 3, pp. 196-214.

Palmatier, R., Dant, R., Grewal, D., and Evans, K. (2006). Factors Influencing the Effectiveness of Relationship Marketing: A Meta-Analysis. Journal of Marketing, 70(4), pp.136-153.

Rust, R. and Huang, M. (2014). The Service Revolution and the Transformation of Marketing Science. Marketing Science, 33(2), pp.206-221.

Sashi, C. (2012). Customer engagement, buyer-seller relationships, and social media. Management Decision, 50(2), pp.253-272.

Shankar, V., Smith, A., and Rangaswamy, A. (2003). Customer satisfaction and loyalty in online and offline environments. International Journal of Research in Marketing, 20(2), pp.153-175.

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pg. 34 APPENDIX

The detailed outcome of the results:

Factor analysis for scale ‘Customer Loyalty’

KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. ,702

Bartlett's Test of Sphericity Approx. Chi-Square 214,649

df 6

Sig. ,000

KMO and Bartlett’s are good. KMO should be above 0,5 and Bartlett’s should be below 0,05, both are true here.

Commonalities

Initial Extraction

I believe that using the services of this music center is preferable to other music centers.

1,000 ,770

I believe that this music center has the best offers at the moment.

1,000 ,662

I prefer the service of this music center to the service of competitors.

1,000 ,769

Q5reversed 1,000 ,003

Extraction Method: Principal Component Analysis.

Total Variance Explained

Component

Initial Eigenvalues Extraction Sums of Squared Loadings

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pg. 35

1 2,204 55,100 55,100 2,204 55,100 55,100

2 ,999 24,981 80,082

3 ,482 12,045 92,127

4 ,315 7,873 100,000

Factor loadings are presented below:

Component Matrix

Component 1 I believe that using the

services of this music center is preferable to other music centers.

,877

,814

,877

Q5reversed -,053

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pg. 36 a. 1 components extracted.

Reliability Analysis of Customer Loyalty:

Reliability Statistics Cronbach's Alpha N of Items ,466 4 Item-Total Statistics Scale Mean if Item Deleted Scale Variance if Item Deleted Corrected Item-Total Correlation Cronbach's Alpha if Item Deleted I believe that using the

services of this music center is preferable to other music centers.

12,0653 4,051 ,486 ,225

12,2412 4,194 ,434 ,269

12,1307 4,175 ,471 ,246

Q5reversed 13,0251 4,388 -,029 ,818

Without Q5reversed, the reliability of customer loyalty is .818 (with it .466, which is too low).

Factor analysis for relationship quality output:

KMO and Bartlett's Test

df 36

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pg. 37 KMO and Bartlett’s are good. KMO should be above 0,5 and Bartlett’s should be below 0,05, both are true here.

Communalities

Initial Extraction

As a regular customer, I have a high-quality relationship with this music center.

1,000 ,585

I am happy with the efforts this music center is making towards regular customers like me.

1,000 ,488

I am satisfied with the relationship I have with this music center

1,000 ,650

This music center gives me a feeling of trust.

1,000 ,614

I have trust in this music center.

1,000 ,740

This music center gives me a trustworthy impression.

1,000 ,750

I am willing 'to go the extra mile' to remain a customer of this music center.

1,000 ,680

I feel loyal towards this music center.

1,000 ,668

Even if this music center was less easy to reach, I would still remain a customer at this music center.

1,000 ,473

Component

Total % of Variance Cumulative % Total % of Variance Cumulative %

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pg. 38 2 ,775 8,609 71,362 3 ,639 7,098 78,460 4 ,469 5,211 83,671 5 ,433 4,812 88,483 6 ,368 4,094 92,577 7 ,290 3,224 95,801 8 ,206 2,287 98,088 9 ,172 1,912 100,000

Component Matrixa

Component 1 As a regular customer, I

have a high-quality relationship with this music center.

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pg. 39

I am happy with the efforts this music center is making towards regular customers like me.

,699

I am satisfied with the relationship I have with this music center

,806

This music center gives me a feeling of trust.

,783

I have trust in this music center.

,860

This music center gives me a trustworthy impression.

,866

I am willing 'to go the extra mile' to remain a customer of this music center.

,824

I feel loyal towards this music center.

,817

Even if this music center was less easy to reach, I would still remain a customer at this music center.

,688

a. 1 components extracted.

only extract one factor and therefore cannot rotate the matrix orthogonally, which is normally the case. But all factor loadings are above 0.5, so that’s good.

Reliability analysis relationship quality scale.

Reliability Statistics

Cronbach's

Alpha N of Items

,918 9

The reliability is 918, which is excellent. None of the items are removed from the original nine items.

Factor analysis for customer engagement.

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pg. 40

df 10

Sig. ,000

Both KMO and Bartlett’s test for sphericity are good here (KMO is above 0,5 and Bartlett’s is below 0,05).

Communalities

Initial Extraction

I say positive things about this music center to other people.

1,000 ,739

I recommend this music center to someone who seeks my advice.

1,000 ,783

I encourage friends and relatives to do business with this music center.

1,000 ,664

I would recommend this music center to others.

1,000 ,749

Q24reversed 1,000 ,082

Component

Total % of Variance Cumulative % Total % of Variance Cumulative %

1 3,017 60,334 60,334 3,017 60,334 60,334

2 ,959 19,172 79,507

3 ,459 9,174 88,680

4 ,351 7,013 95,694

5 ,215 4,306 100,000

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pg. 41 Factor loadings:

Component Matrixa

Component 1 I say positive things about

this music center to other people.

,860

I recommend this music center to someone who seeks my advice.

,885

I encourage friends and relatives to do business with this music center.

,815

I would recommend this music center to others.

,865

Q24reversed ,286

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pg. 42 Reliability analysis for customer engagement (active loyalty)

Reliability Statistics

Cronbach's

Alpha N of Items

,717 5

The Cronbach’s alpha is .717, this is good. However, by deleting Q24reversed from the scale it increases to .878. Therefore, we decided to exclude Q24reversed from further analyses. Descriptive statistics

Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

CustomerLoyalty 199 1,33 5,00 4,3417 ,69827

RelationshipQuality 189 1,11 5,00 4,5250 ,55554

CustomerEngagement 198 1,00 5,00 4,6629 ,57135

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pg. 43

Relationship duration Pearson Correlatio n ,132 ,157* ₁ _,187** Sig. (2-tailed) ,066 ,033 ,009 N 195 185 195 194 CustomerEngagemen t Pearson Correlatio n ,590** _,703** _,187** ₁ Sig. (2-tailed) ,000 ,000 ,009 N 198 188 194 198

**. Correlation is significant at the 0.01 level (2-tailed). *. Correlation is significant at the 0.05 level (2-tailed).

Survey Flow

Standard: Block 4 (1 Question)

Block: Customer loyalty (cognitive) (4 Questions) Standard: Relationship quality (9 Questions)

Standard: Customer engagement (active loyalty) (5 Questions) Standard: Relationship duration and control variables (2 Questions) Standard: Block 5 (1 Question)

Page Break

Start of Block: Block 4

Q25 Welcome to the survey about customer loyalty at music centers in the United Arab Emirates. This research is conducted by the University of Groningen located in the

Netherlands. This survey is anonymous and all the answers you will provide will be kept in the strictest confidentiality.

As a thank you for partaking in this survey, you will have the chance to win a brand new guitar for ages 11 years and above. Kindly do leave your e-mail address at the end of this survey to enter the lottery.

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pg. 44 Page Break

End of Block: Block 4

Start of Block: Customer loyalty (cognitive)

Q1 I believe that using the services of this music center is preferable to other music centers.

o

Strongly disagree (1)

o

Somewhat disagree (2)

o

Neither agree nor disagree (3)

o

Somewhat agree (4)

o

Strongly agree (5)

Q4 I believe that this music center has the best offers at the moment.

o

Somewhat agree (4)

o

Strongly agree (5)

Q5 I believe that the features of this music center are badly suited to what I like.

o

Somewhat agree (4)

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pg. 45 Q6 I prefer the service of this music center to the service of competitors.

o

Somewhat agree (4)

o

Strongly agree (5) Page Break

End of Block: Customer loyalty (cognitive) Start of Block: Relationship quality

Q11 As a regular customer, I have a high-quality relationship with this music center.

o

Somewhat agree (4)

o

Strongly agree (5)

Q12 I am happy with the efforts this music center is making towards regular customers like me.

o

Somewhat agree (4)

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pg. 46 Q13 I am satisfied with the relationship I have with this music center

o

Somewhat agree (4)

o

Strongly agree (5)

Q14 This music center gives me a feeling of trust.

o

Somewhat agree (4)

o

Strongly agree (5)

Q15 I have trust in this music center.

o

Somewhat agree (4)

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pg. 47 Q16 This music center gives me a trustworthy impression.

o

Somewhat agree (4)

o

Strongly agree (5)

Q17 I am willing 'to go the extra mile' to remain a customer of this music center.

o

Somewhat agree (4)

o

Strongly agree (5)

Q18 I feel loyal towards this music center.

o

Somewhat agree (4)

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pg. 48 Q19 Even if this music center was less easy to reach, I would still remain a customer at this music center.

o

Somewhat agree (4)

o

Strongly agree (5) Page Break

End of Block: Relationship quality

Start of Block: Customer engagement (active loyalty)

Q20 I say positive things about this music center to other people.

o

Somewhat agree (4)

o

Strongly agree (5)

Q21 I recommend this music center to someone who seeks my advice.

o

Somewhat agree (4)

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pg. 49 Q22 I encourage friends and relatives to do business with this music center.

o

Somewhat agree (4)

o

Strongly agree (5)

Q23 I would recommend this music center to others.

o

Somewhat agree (4)

o

Strongly agree (5)

Q24 I do not encourage friends to do business with this music center.

o

Somewhat agree (4)

o

Strongly agree (5)

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pg. 50 Q8 How long have you been a customer at this music center? Please state your answer in months.

________________________________________________________________

Q10 Which city do you travel from to visit the music center?

o

Dubai (1)

o

Sharjah (2)

o

Ajman (3)

o

Other (4) ________________________________________________ Page Break

End of Block: Relationship duration and control variables Start of Block: Block 5

Q26 Thank you for participating in this survey!

If you want to partake in winning a guitar, please do leave your email below.

________________________________________________________________