airline loyalty model

5/28/2018 Airline Loyalty Model

1/147

TheAirlineCustomerLoyaltyModel

Arelationalapproachtounderstandingantecedents

ofcustomerloyaltyintheairlineindustry

Masterthesis

Cand.merc.(MCM)

DepartmentofMarketing

CopenhagenBusinessSchool

SubmittedonApril17,2009by

JudithBenner


2/147

Abstract

The objective of this thesis is to contribute to the understanding of drivers of customer

loyaltybyexploringthedynamicsofcustomerbrandrelationshipsandtheroletheyplayfor

thecreationandmanagementofcustomerloyaltyintheairlineindustry.

The particular relevance of the research objective arises from the intensification of

competition in the airline industry and the extensive consolidation that is expected to

accompany it. These market challenges make the retention of valuable customers an

essential prerequisite for the achievement of a sustainable competitive advantage and,

hence,theairlinesoverallsuccess.

Relevantliteraturefromrelatedfields,suchasrelationshipandservicemarketing,formthe

foundation for the development of the conceptual airline customer loyalty (ACL)model.

Centeredontheconceptofrelationalbenefits,thismodeldepictsimportantantecedentsto

customer loyalty intheairline industry.Relationalbenefitsaretherebydefinedasbenefits

customers receiveasaresultof theirengagement incustomerbrand relationships. In the

courseofthisstudy,threetypesofrelationalbenefitsareidentifiedasbearingrelevancefor

theairlineindustry:social,psychological,andfunctionalbenefits.

TheACLmodelisempiricallytestedemployingstructuralequationmodelingonprimarydata

collectedfromanonlinesurveywith276participants.Theresultsrevealthatthreedistinct

pathstoairlinecustomerloyaltycanbedistinguishedwitheachbeingcharacterizedbyone

of the observed relational benefits. Accordingly, they are defined as the social, the

psychological,andthefunctionalpathtoairlinecustomerloyalty.Eachpathoriginatesfrom

distinct brand performance characteristics,moves along the respective type of relationalbenefits,andresultsincustomerloyaltyeitherdirectlyand/ormediatedbythedimensions

of relationship quality customer satisfaction and relationship commitment.Managerial

implicationsonhowtomanageairlinecustomerloyaltyareinferredalongthesethreepaths,

accentuating the particular relevance of socialpsychological aspects of customerbrand

relationships for the management of airline customer loyalty. By combining important

brand and relationshiprelatedconcepts, this thesisprovidesaholisticperspectiveon the

management of customer loyalty in the airline industry that has to date beenmissing.


3/147

Tableofcontents

I

Tableofcontents

Listoffigures................................................................................................. IV

Listoftables................................................................................................... V

Listofappendices......................................................................................... VII

Listofabbreviations.................................................................................... VIII

1 Introduction............................................................................................. 1

1.1 Researchquestion.......................................................................................................3

1.2 Subquestions..............................................................................................................4

1.3 Definitions....................................................................................................................4

2 Methodology............................................................................................ 5

2.1 Methodologicalorientationandresearchapproach..................................................5

2.2 Overallresearchdesign...............................................................................................7

2.3 Thesisoutlineanddemarcation..................................................................................7

3 Theairline

industry

..................................................................................

9

3.1 Airlineindustryspecificities.........................................................................................9

3.2 Keybusinessmodelsintheairlineindustry..............................................................11

3.3 Customersegmentation............................................................................................13

3.4 Loyaltyprograms.......................................................................................................15

3.5 Industryoutlook........................................................................................................16

3.6 Chaptersummary......................................................................................................17

4 Conceptualandtheoreticalfoundationforthedevelopmentofthe

airlinecustomerloyaltymodel................................................................ 17

4.1 Theconceptofcustomerloyalty...............................................................................18

4.1.1 Theinfluenceofcustomerloyaltyonafirmsprofitability................................18

4.1.2 Definingcustomerloyalty...................................................................................19

4.1.3 Customerloyaltythroughrelationshipmarketing.............................................22

4.2 Customerloyaltythroughrelationshipsbetweencustomersandairlinebrands.....23

4.2.1 Theservicedominantlogicofmarketingintheairlineindustry........................23


4/147

Tableofcontents

II

4.2.2 Theservicebrandasarelationshippartner.......................................................26

4.2.3 Relationalbenefitsasabasisofairlinecustomerloyalty...................................27

4.2.4 Relationshipqualityasmediatorbetweenrelationalbenefitsandcustomerloyalty..................................................................................................31

4.3 ChaptersummaryidentificationofconceptstobeincludedintheACLmodel....33

5 Theairlinecustomerloyaltymodel......................................................... 35

5.1 Theinfluenceofairlinebrandperformancecharacteristicsonrelationalbenefits.35

5.1.1 Theinfluenceofsocialbrandperformanceonrelationalbenefits....................36

5.1.2 Theinfluenceofairlineimageonrelationalbenefits.........................................37

5.1.3 Theinfluenceofbrandselfcongruenceonrelationalbenefits.........................39

5.1.4 Theinfluenceoftrustworthinessonrelationalbenefits....................................40

5.1.5 Theinfluenceofservicequalityonrelationalbenefits......................................42

5.1.6 Theinfluenceofperceivedvalueonrelationalbenefits....................................43

5.1.7 Theinfluenceofcocreationofvalueonrelationalbenefits..............................44

5.1.8 Theinfluenceoftheairlinescountryoforiginonrelationalbenefits...............45

5.1.9 TheinfluenceofFFPattractivenessonrelationalbenefits................................46

5.2 Consequencesofrelationalbenefits.........................................................................47

5.2.1 Consequencesofsocialbenefits.........................................................................475.2.2 Consequencesofpsychologicalbenefits............................................................49

5.2.3 Consequencesoffunctionalbenefits..................................................................51

5.3 Theinfluenceofrelationshipqualityoncustomerloyalty........................................52

5.3.1 Theinfluenceofcustomersatisfactiononcommitmentandcustomerloyalty 52

5.3.2 Theinfluenceofrelationshipcommitmentoncustomerloyalty.......................53

5.4 GraphicalillustrationoftheproposedACLmodel....................................................54

6 Empiricaltestingoftheproposedairlinecustomerloyaltymodel...........54

6.1 PLSasresearchmethod.............................................................................................54

6.1.1 SelectionofPLSasresearchmethod..................................................................54

6.1.2 ApplicationofPLS...............................................................................................55

6.2 Datacollection...........................................................................................................56

6.2.1 Internetsurveyasdatacollectionmethod.........................................................57

6.2.2 Questionnairedesign..........................................................................................57

6.2.3 Courseofdatacollectionanddescriptivedataofsample..................................58

6.3 Operationalizationofconstructsandvalidationofmeasurementmodel................59


5/147

Tableofcontents

III

6.3.1 Exploratoryfactoranalysis..................................................................................59

6.3.2 Operationalizingbrandperformancecharacteristics.........................................60

6.3.3 Operationalizingrelationalbenefits...................................................................64

6.3.4 Operationalizingrelationshipquality..................................................................66

6.3.5 Operationalizingcustomerloyalty......................................................................66

6.3.6 Validationofmeasurementmodel.....................................................................67

6.4 Validationofstructuralmodelandsubgroupcomparison......................................68

6.5 Discussionofempiricalfindings................................................................................70

7 Managerialimplications.......................................................................... 78

7.1 Thesocialpathtoairlinecustomerloyalty...............................................................79

7.2 Thepsychologicalpathtoairlinecustomerloyalty...................................................82

7.3 Thefunctionalpathtoairlinecustomerloyalty........................................................85

8 Conclusion............................................................................................... 86

References.................................................................................................... 90

Appendices.................................................................................................

100


6/147

Listoffigures

IV

Listoffigures

Figure1:MosttravelledseatingclassbyUKbusinesstravelersin2007................................14

Figure2:Loyaltymatrix............................................................................................................21

Figure3:Theexchangeversustherelationshipperspectiveinthemarketingprocess..........24

Figure4:ConnectionsbetweentheidentifiedconceptstobeincludedintheACLmodel....34

Figure5:TheACLmodel...........................................................................................................54

Figure6:Thethreepathstoairlinecustomerloyalty..............................................................78

Figure7:Thesocialpathtoairlinecustomerloyalty...............................................................79

Figure8:Thepsychologicalpathtoairlinecustomerloyalty..................................................82

Figure9:Thefunctionalpathtoairlinecustomerloyalty........................................................85

Figure10:ThestructuralACLmodel......................................................................................133

Figure11:DifferencesintheACLmodelbetweenbusinessandleisuretravelers................137


7/147

Listoftables

V

Listoftables

Table1:Comparisonoflowcostcarriersvs.networkcarriers...............................................12

Table2:Overviewofdefinitionsofcustomerloyalty..............................................................19

Table3:Operationalizationofairlinereputation....................................................................60

Table4:Operationalizationofbrandselfcongruence............................................................61

Table5:Operationalizationoftrustworthiness.......................................................................61

Table6:Operationalizationofservicequality.........................................................................62

Table7:Operationalizationofperceivedvalue.......................................................................62

Table8:Operationalizationofcocreationofvalue................................................................63

Table9:Operationalizationofairlinecountryoforigin...........................................................63

Table10:OperationalizationofFFPattractiveness.................................................................64

Table11:Operationalizationofsocialbenefits.......................................................................64

Table12:Operationalizationofpsychologicalbenefits...........................................................65

Table13:Operationalizationoffunctionalbenefits................................................................65

Table14:Operationalizationofcustomersatisfaction............................................................66

Table15:Operationalizationofrelationshipcommitment.....................................................66

Table16:Operationalizationofcustomerloyalty....................................................................67

Table17:HypothesistestingfortheACLmodel......................................................................68

Table18:Qualitycriteriaforthemeasurementmodel.........................................................100

Table19:Qualitycriteriaforthestructuralmodel................................................................102

Table20:Summaryofsurveyparticipantssociodemographiccharacteristics...................117

Table21:Summaryofsurveyparticipantssituationalcharacteristics.................................117

Table22:Overviewofconsultedstudies...............................................................................118

Table23:Studiesconsultedwithrespecttosocialbrandperformance.............................119

Table24:Studiesconsultedwithrespecttoairlineimage..................................................119

Table25:Studiesconsultedwithrespecttobrandselfcongruence...................................120

Table26:Studiesconsultedwithrespecttotrustworthiness.............................................121

Table27:Studiesconsultedwithrespecttoservicequality................................................122

Table28:Studiesconsultedwithrespecttoperceivedvalue.............................................122

Table29:Studyconsultedwithrespecttococreationofvalue.........................................122

Table30:StudyconsultedwithrespecttoFFPattractiveness............................................122

Table31:Studiesconsultedwithrespecttosocialbenefits................................................123


8/147

Listoftables

VI

Table32:Studiesconsultedwithrespecttopsychologicalbenefits...................................123

Table33:Studiesconsultedwithrespecttofunctionalbenefits.........................................124

Table34:Studiesconsultedwithrespecttocustomersatisfaction....................................124

Table35:Studiesconsultedwithrespecttorelationshipcommitment..............................125

Table36:Studiesconsultedwithrespecttocustomerloyalty............................................125

Table37:Measurementitemsincludedinquestionnaire.....................................................127

Table38:KMO andBartletttestforconstructsofbrandperformancecharacteristics......128

Table39:Rotatedcomponentmatrixforconstructsofbrandperformancecharacteristics128

Table40:KMO andBartletttestforconstructsofrelationalbenefits.................................129

Table41:Rotatedcomponentmatrixforconstructsofrelationalbenefits..........................129

Table42:KMO andBartletttestforconstructsofrelationshipquality...............................129

Table43:Rotatedcomponentmatrixforconstructsofrelationshipquality........................129

Table44:KMO andBartletttestforcustomerloyaltyconstruct.........................................130

Table45:Componentmatrixforcustomerloyaltyconstruct................................................130

Table46:Latentvariablecorrelations....................................................................................130

Table47:Correlationmatrixforformativevariableservicequality....................................130

Table48:Calculationofvarianceinflationfactor(VIF)forservicequality..........................131

Table49:Coefficientsofdetermination(R)forendogenousconstructs.............................131

Table50:Calculationofvarianceinflationfactors(VIF)forstructuralmodel.......................132

Table51:StoneGeisserQforendogenousconstructs........................................................132

Table52:Criteriafortheevaluationofsignificantdifferencesbetweensubgroups...........134

Table53:Calculationoftvaluesforsubgroupcomparison.................................................134

Table54:Hypothesistesting;subgroupcomparisonofbusinessandleisuretravelers......135

Table55:ComparisonofRforbusinessandleisuretravelers.............................................136


9/147

Listofappendices

VII

Listofappendices

Appendix1:QualitycriteriaforthevalidationoftheACLmodelinPLS...............................100

Appendix2:Questionnaire....................................................................................................104

Appendix3:Descriptivedataofsample................................................................................117

Appendix4:Measurementscalesreviewedforoperationalizationofconstructs................118

Appendix5:Measurementitemsincludedinquestionnaire.................................................126

Appendix6:Resultsofexploratoryfactoranalysis................................................................128

Appendix7:Calculationsforvalidationofmeasurementmodel..........................................130

Appendix8:Calculationsforvalidationofstructuralmodel.................................................131

Appendix9:Subgroupcomparison.......................................................................................134


10/147

Listofabbreviations

VIII

Listofabbreviations

ACL Airlinecustomerloyalty

AirRep Airlinereputation

AMOS AnalysisofMomentStructuresAVE Averagevarianceexplained

Bsc Brandselfcongruence

cf. Confer(compare)

Comm Commitment

CoO Countryoforigin

CoV Cocreationofvalue

e.g. Exempligratia(forexample)

etal. Etalli(andothers)FFP Frequentflyerprogram

FunBen Functionalbenefits

i.e. Idest(thatis)

IATA InternationalAirTransportAssociation

LISREL LinearStructuralRelationship

LMU LudwigMaximiliansUniversitt,Munich

Loy Loyalty

p. PagePerv Perceivedvalue

PLS Partialleastsquare

pp. Pages

PsyBen Psychologicalbenefits

Sat Satisfaction

Sbp Socialbrandperformance

SEM Structuralequationmodeling

Servq Servicequality

SocBen Socialbenefits

SPSS StatisticalPackagefortheSocialSciences

SQ Subquestion

Trustw Trustworthiness

VIF Varianceinflationfactor


11/147

1

1 Introduction

Runningairlinesprofitablehasalwaysbeenagreatchallenge(cf.Doganis,2006).Inaddition

tointensecompetitiondiminishingairlinesprofits,airlinesareexposedtomarketvolatility,

legalregulationsrestrictingoperations,andadisadvantageouscoststructurewithhighfixed

costs(Delfmann,2005,p.12;Shaw,2007,p.54).Theongoingderegulationandliberalization

of the industryover thepast years,whichhas, inter alia, resulted in the removalof fare

restrictions,havefurtheralteredthecompetitivelandscapebyencouragingtheentryofnew

competitorsinthemarket.Inparticular,lowcostcarriershavebecomeadrivingforceinthis

competitivelandscape.Incontrasttotraditionalnetworkcarriers1,whichtypicallypursuea

servicedifferentiationstrategy, lowcostcarriersfocusprimarilyonkeepingtheiroperating

costs low, thus taking over cost leadership. These developments have had extensive

repercussions on the European airline industrysmarket structure, resulting in increased

price competition. In an industry that has always beenmarked bymarginal profitability

(Doganis,2006),thiscompetitiononpricehasledtofurtherprofitdecline.Today,numerous

airlines in Europe are struggling tomake profits or are facing bankruptcy, implying that

extensiveconsolidationactivitiesare forecast for theEuropeanmarket.At thesame time,

therelentlesspricecompetition,especially intheshorthaulsegment,putsairlinesservice

atrisktobeperceivedbycustomersasarathergenericoffering.

In such a highly competitive environment, customer loyalty has become an increasingly

effectivemeansforsecuringafirmsprofitability(e.g.Reichheld&Sasser,1990;Reinartz&

Kumar,2002).Customerloyaltyreferstoacustomersrepeatedsamebrandpurchasewithin

a given category,basedon a favorable attitude toward andpreference for theparticular

brand.Empirical findingshave revealed that increasedmarket shareanddecreasingprice

sensitivity among customers are particular contributions of customer loyalty to a firms

profitability (Chaudhuri&Holbrook,2001).Theestablishmentandmaintenanceofa loyal

customer base should, therefore, be (and inmany cases already is) a key objective for

airlines, since it promotes a sustainable competitive position in the market place.

Consequently, the retentionofvaluable customers isan importantobjectiveand requires

airlinemanagement tounderstand theunderlying factors thatreinforceairlinecustomers

loyaltytowardagivenairlinebrand.

1 Thesecarriersareoftenalsoreferredtoaslegacyorflagcarriersastheywereformerlystateowned.Foradetaileddescription,pleaserefertoChapter3.2.


12/147

2

Customerloyaltyrestsinparticularonthebrand,whichplaysanimportantroleincustomer

retention.Abrand canbedescribedasaclusterof functionalandemotionalvalues that

promises a unique andwelcome experience (de Chernatony et al., 2006, p.819) for its

customers.Bycreatinguniqueassociationsandfeelingsamongcustomersthataredirectlyand exclusively connected to the given airline, the brand helps airlines differentiate

themselves from their competitors. In addition to its differentiation function, the brand

servesasapotentialrelationshippartnerforthecustomer.Thecustomerbrandrelationship

canevolveanddevelopthroughcontinuouspositiveinteractionsbetweenthecustomerand

thebrand (e.g.Grnroos,2007,p.331)andprovidesairlineswith theopportunity tooffer

theircustomersbenefitsthatgobeyondthecoreairtransportservice(cf.HennigThurauet

al.,2002,p.234).Insuchrelationships,customersperceivetheairlinebrandasalegitimate

partner in the relationship dyad (Sweeney&Chew, 2000; cf. Fournier, 1998). Customers

constructrelationshipswithbrandssothattheyprovideandaddmeaningandvaluetotheir

lives (Sweeney & Chew, 2000; Fournier & Yao, 1997). This value is generated by the

relational benefits resulting from the relationship with the brand as perceived by the

customer (cf. Aaker, 2002, p.95; HennigThurau et al., 2002, p.234). Ultimately, the

customer decides whether the relationship with a given brand generates value or not.

Hence, it is fundamental for the establishment of customer loyalty to understandwhat

potential and existing customers expect from their relationship with an airline brand.

However,sincecustomerspersonalitiesandlifestylesdiffer,asdoestheirevaluationofthe

relationshipwiththebrand,customercharacteristicsmustalsobetakenintoaccount.

Withtheobjectiveoffosteringcustomer loyalty,airlines introduced loyaltyschemes inthe

1980sand1990s.Thesesocalledfrequentflyerprogramsawardcustomersforflightstaken

with the given airline.While theseprogramsattractagreatnumberofairline customers,

skepticismhasbeenexpressedwhethersuchprogramsinfactleadtotruecustomerloyalty

basedon apositive attitude toward andpreference for thebrand.Critics assert that the

reasonwhycustomersrepurchaseatickettotravelwiththegivenairlinerestsaloneonthe

rationalandeconomicbenefitstheairlinesfrequentflyerprogramoffers(cf.Plimmer,2006;

Dowling&Uncles,1997).Givenfrequentflyerprogramsquestionableeffectwithreference

to the creation of customer loyalty, other drivers of customer loyalty in the commercial

airlineindustrymustbeconsidered.Severalstudiesontheantecedentsofcustomerloyalty

in theairline industryhavebeencarriedout (e.g.Ostrowskietal.,1993;Parketal.,2006;


13/147

3

Zins, 2001). This thesis, however, takes a different approach and argues that the

considerationof thedynamics that result fromcustomerbrand relationshipscangenerate

newknowledgeabouthowcustomer loyaltycanbecreatedandmaintained in theairline

industry.

1.1 Researchquestion

Basedonthepreviousdiscussion,thisthesisresearchobjective istogain insights intothe

dynamicsof customerbrand relationships in theairline industryand theeffect these can

have on customer loyalty. To achieve the stated objective, the research focuses on the

identificationofimportantdriversofairlinecustomerloyalty.Thisfurtherestablishesamore

profound understanding of customers appraisal of specific airline brand characteristics.

Furtherconsiderationofcustomers influentialrole inrelationalexchangeselicitstheneed

topayspecialattentiontothosecharacteristicsthatdifferentiateairlinecustomersfromone

another.The knowledge gained from this research studyprovides a foundationonwhich

recommendations directed at airline managers can be built. Consequently, this thesis

approachestheresearchquestionfromamanagerialperspective.

Inconsiderationof thepreviously formulatedresearchobjective, theoverarching research

questionofthisthesisis:

Whatkindofbenefitsdocustomersseekwhentheyengageinrelationshipswithairline

brands,andhowcantheserelationshipsstrengthenairlinecustomerloyalty?


14/147

4

1.2 Subquestions

Basedon thisoverall researchquestion, the following subquestions (SQ) tobeanswered

are:

1.3 Definitions

Themostimportantconceptsmentionedintheresearchquestionandthesubquestionsare

brieflydefinedbelow.Moredetaileddefinitionsareprovidedinthefollowingchapters.

First,theinterchangeableuseofthetermsairline,airlinebrand,andairline/brandimagein

this thesismust be addressed. The term airline in general relates to the company that

provides the actual air transport service. However, this thesis concentrates on the

relationshipbetweenagivenairlineanditscustomers.Customersprimarilyperceiveairlines

asbrands, i.e., in termsofthebenefitstheairlineprovidesthem.Thebrand,ontheother

hand,cannotbecreatedbytheairlineperse,butisbuiltbythecustomer(Grnroos,2007,

p.331).Brandimagethusrelatestotheassociationsacustomerlinkstoaparticularairline.

Inthiscontext,customer loyaltyisdefinedasacustomersrepeatedsamebrandpurchase

withinagivencategory,basedonafavorableattitudetowardandpreferenceforthespecific

brand.Amoreelaboratedefinitionofcustomer loyalty ispresented inChapter4.1.2. It is

worth mentioning that several different descriptions of loyalty are discussed in the

literature,e.g.,customer loyalty,brand loyalty,orservice loyalty.Here,thetermcustomer

loyaltywasexplicitly chosen toemphasize that this research study focuseson the loyalty

customersexhibittowardaspecificairlinebrand.

SQ1:Howdorelationalbenefitsaffectcustomerloyaltytowardaspecificairlinebrand?

SQ2:Howdofundamentalairlinebrandperformancecharacteristicsinfluencethe

relationalbenefitsperceivedbyairlinecustomers?

SQ3:Howdodifferencesinairlinecustomercharacteristicsmoderatetheairlinecustomer

loyaltymodel?

SQ4:Whatmanagerialimplicationscanbeinferredfromtheresultsofthisstudy?


15/147

5

Therelationalbenefitapproachassumes thatboth thecustomerand theserviceprovider

mustbenefit from the relationship if it is topersist in the long run.From the customers

perspective, themaintenance of this relationship depends primarily on the existence of

relationalbenefits.Theserefertobenefitsthatgobeyondthebasicservicesofferedbytheservice provider. This thesis distinguishes between three different types of relational

benefits:social,psychological,andfunctionalbenefits.

Itshould furtherbenoted that,whenever it isreferred to thecustomer, femaleandmale

customersareconsidered.However,forsimplicityandeasinesstoread,onlyheandhim

willbeused.

2 Methodology

Thischapterdiscusses themethodologicalorientationapplied in this thesis toanswer the

researchquestion.Furthermore, the roleof theorywithin thiscontext isassessed.Finally,

theoutlineanddemarcationofthethesisarepresented.

2.1 Methodologicalorientationandresearchapproach

With regard to theoverall researchquestionand theproposed subquestions, this thesis

objectivesare(1)togainnewinsightsintotheeffectcustomerbrandrelationshipscanhave

onairlinecustomerloyalty.Thesefindingsarearrivedatbyreviewingandexploringrelevant

literatureoncustomerloyalty,relationshipandservicemarketing,andbrandmanagement.

Bysynthesizingthemostimportantconceptsidentifiedinthedifferentfieldsofresearch,(2)

a conceptual model is developed which depicts the causal relationships between the

identified concepts and their influenceon airline customer loyalty. (3)Thismodel is then

empiricallytested.

Tomeettheobjectivesdescribedabove,thisthesisadoptsapositivistresearchphilosophy;

relevant literature is reviewed toestablisha suitableconceptual framework, including the

constructionofhypotheses(cf.Saundersetal.,2007,p.103).Hypothesesreferto ideasor

propositionsabouttherelationshipbetweentwoormoreconceptsthatcanbetestedusing

statistical analysis (cf. Saunders et al., 2007, p.117; Collis & Hussey, 2003, p.55). The

hypotheses formulated and subsequently tested here concern the proposition of causal

relationshipsbetweendifferentconceptsthatleadtoairlinecustomerloyalty.Consequently,


16/147

6

thefirstpartofthestudy,whichaimstounderstandtherelevantconceptsandconstructsof

customer loyalty,relationshipmarketing,andservicemarketing in literature, isexploratory

(cf.Malhotra&Birks,2007,p.70).Thepurpose is todeducehypothesesfrom theexisting

literature and fromprevious studies (cf.Ghauri&Grnhaug,2005,p.15;Gill& Johnson,2002, p.34). The second part of the study is explanatory,with its focus on testing the

postulated hypotheses and examining the causal relationships between the concepts (cf.

Malhotra&Birks,2007,p.70;Saundersetal.,2007,p.134),tobeabletoinfermanagerial

implicationsfromtheempiricalresultsobtained.

Since themain objective of this study is to explore the underlying causal relationships

betweenvariables thatresult inairlinecustomer loyalty,adeductive researchapproach is

employed. That is, hypotheses on the causal relationships are deduced from existing

knowledge(literature),subjectedtoempiricalscrutiny(testing),and,basedonthefindings

are either accepted or rejected (Ghauri&Grnhaug, 2005, p.15). Saunders et al. (2007,

pp.117118)drawattentiontoseveralimportantcharacteristicsofthedeductiveapproach.

First, resulting from the formulation of hypotheses that need to be tested, deduction is

usually associated with the collection of quantitative data which lend themselves to

statistical analysis (Saunders et al., 2007, p.104). Becausemeasurement is an essential

elementoftheanalysisofquantitativedata,itmustbeconductedwithprecisiontoensure

themeasurementsaccuracy(Collis&Hussey,2005,p.7).Inordertoensureobjectivedata

collection, the researcher should be impartial to the subject matter being measured

(Saunders et al., 2007, p.118). Furthermore, to make the measuring of the concepts

possible,theyhavetobepresented inoperationalterms(Ghauri&Grnhaug,2005,p.15;

Saundersetal.,2007,p.118).

Finally, this research study takesamanagerialperspective.Theobjective is tounderstand

the underlying reasons for why customers remain loyal to a specific airline brand. The

insights gained can be transformed into distinctive initiatives by airlinemanagers,which

contribute to the strengtheningofairline customers loyalty.Hence, this thesisgoal is to

proposerecommendationsforairlinemanagersonhowtointensifythebondsbetweenthe

customersandtheairlinebrand.


17/147

7

2.2 Overallresearchdesign

While deduction describes the general approach applied here to answer the research

question,theresearchdesigndetailsthenecessaryprocedurestoobtaintheinformationto

answerit.Itfurtherspecifiestheroleoftheoryandtheunitofanalysis.

Theemploymentofadeductiveresearchapproachrequiresthecollectionofaconsiderable

amount of representative quantitative data. Consequently, a survey is themost suitable

researchstrategyforthisstudy,sincethecollectionofa largeamountofstandardizedand

structured data is thereby possible, which, in turn, allows for a quantitative analysis

(Saundersetal.,2007,p.138;Malhotra&Birks,2007,p.266).Adetaileddiscussionofthe

typeofsurveyconductedandthedataanalysisprocessispresentedinChapter6.

This thesismain research question necessitates profound knowledge on what kinds of

benefitscustomersseekinarelationshipwithaselectairlinebrand.Intheconceptualpart

of this thesis, theory, i.e., a system for organizing concepts in a way that produces

understanding and insights (Zaltman et al., 1977 in: Ghauri& Grnhaug, 2005, p.39) is

appliedto identifytheframeworkskeydependentand independentvariables. Inaddition,

theoryprovides guidanceon theoperationalizationof the key variables identified. In the

analyticalpartofthisthesis,thetheoryonwhichtheairlinecustomerloyaltymodelisbuilt

guidesthedataanalysisstrategyandtheinterpretationofresults.Furthermore,thefindings

arrivedatareinterpretedonthebasisoftheliteraturereviewedandpreviousresearchand

areintegratedintheexistingbodyofknowledge(cf.Malhotra&Birks,2007,p.51).

Concentrating on customers particular attitudes and behavior toward airline brands, the

researchquestionclearlyidentifiesairlinecustomersasthedesignatedunitofanalysis.For

reasonsofgeneralization,thisstudyaimstocoveraheterogeneousconsumerbase.Airline

customersingeneral,therefore,constitutetheunitofanalysis.

2.3 Thesisoutlineanddemarcation

Thissectionbrieflyintroducesthecontentsofeachoftheindividualchapters.Italsodepicts

thisthesislimitations.

ChapterThreeprovidesabrief introduction to theairline industry, its current challenges,and its twomost prominent businessmodels: network carriers and lowcost carriers. In


18/147

8

addition,dimensionsforcustomersegmentationarediscussed.Furthermore,frequentflyer

programs(FFPs),a loyaltyschemespecifictotheairline industry,are introduced,andtheir

advantagesanddisadvantageshighlighted. Itmustbenotedherethatthechapter focuses

onairline industryspecificitiesand forecasts thatweremadeprior to theoutbreakof thefinancial and economic crisis. What effect the current developments will have on the

industryinthelongtermisdifficulttoassessandbeyondthescopeofthisthesis.

Chapter Four concentrates on the review of existing literature in the fields of customerloyalty, relationship and servicemarketing.With reference to customer loyalty, various

definitionsdiscussedinacademicliteraturearepresented,andthedifferentcomponentsfor

definingtrueloyaltyareassessed.Asthefocusofthisstudyisontheidentificationoffactors

thatinfluencecustomerloyaltyratherthanontheanalysisofcustomerloyaltyassuch,anin

depth analysis of different levels of loyalty or a comprehensive discussion of loyaltys

influence on a companys profitability is beyond the scope of this thesis. By considering

relationshipmarketingsprimaryobjective,namelybuildingandstrengtheningrelationships

withcustomers,thisstudyintendstocontributetothecurrentunderstandingofthedrivers

ofcustomer loyalty.To furthercontemplate thenatureof servicesand the specificitiesof

service marketing, analyzing customerbrand relationships is a feasible approach. Here,

specialattention isgiven to the relevanceof relationalbenefitsandrelationshipquality in

the longterm maintenance and enhancement of such relationships. By processing and

evaluatingexistingknowledgeandsynthesizing it, the focusof theresearch is refinedand

conceptsforinclusionintheconceptualmodelaredetermined.

Based on the insights gained from the literature review and the results from studies

previouslyconductedinthefieldsofrelationshipmarketingandcustomerloyalty,theairline

customer loyalty (ACL) model is conceptualized in Chapter Five. Hypotheses on causalrelationships that existbetween thedifferent constructsof themodel arepostulated for

subsequentempiricaltesting.

Chapter Six focuses on the empirical testing of the airline customer loyaltymodel. Theanalyticalapproachisintroduced,anddetailsonthedatacollectionprocedureareprovided.

Furthermore,theoperationalizationoftheconstructsisdescribed.Followingthevalidation

ofthemodel,theresultsoftheempiricalstudyarepresented.Thechapterconcludeswitha


19/147

9

discussionon theempirical findingsbasedon the inferencesarrivedatbyanswering sub

questionsone,two,andthree.

ChapterSevencombinesthetheoreticalinsightsgainedfromtheliteraturereviewwiththeempirical findings based on the conclusions to subquestions one, two, and three to

deliberatemanagerialimplications.Thus,subquestionfourisaddressed.

ChapterEightpresentsfinalconclusionsandsuggestsdirectionsforfutureresearch.

3 Theairlineindustry

Thischapterprovidesabriefoverviewonthespecificitiesofthepassengerairlineindustry.

First,anoutlineofhistorical,legal,andeconomicfactorsispresentedbeforetheindustrys

twodominantbusinessmodels,networkcarriersandlowcostcarriers,areintroduced.The

chapter further addressesmarketingrelated aspects that characterize the airline industry

such asdimensions for customer segmentation and frequent flyerprograms.The chapter

concludeswithaconcisefutureoutlookoftheindustry.

3.1 Airlineindustry

specificities

Until themid1980s, thehighlyregulated airline industrywasdominatedby international

airlineswhichwere fully,or at leastmajorityownedby theirnational governments.This

was primarily because governments realized that air transport would be of major

significance for economic and social development, as well as for trade (Doganis, 2006,

p.223).Topromote their countryspower, status,andprestige (Hanlon,2007,p.7),each

statedesignatedoneairline,thecountrysflagcarrier,tooperateflightsonbilateralroutes

between thosecountrieswithwhichair traffic rightshadbeenexchanged (Doganis,2006,

p.223).Sincethemid1980s,thesuccessiveliberalizationoftrafficrightsandregulationshas

facilitatedtheprivatizationofstateownedairlines.Today,mostareeitherfullyorpartially

privatized,orare in theprocessofbeingprivatized (Doganis,2006,p.225;Hanlon,2007,

p.15).However,alargenumberofformerlystateownedcarrierscontinuetocommemorate

their historical heritage in their names and in the colors of their corporate design (e.g.,

BritishAirways,AirFrance).Whileliberalizationinitiallyspurredtheprivatizationofairlines,

italsotriggeredtheentryofnewcarriersinthemarket.Facedwithincreasingcompetition

and, simultaneously, decreasing government subsidies traditional carrierswere forced to


20/147

10

abandon old market practices and become more competitive and customeroriented

(Doganis, 2006, p.224). At the end of the 1990s, traditional flag carriers faced new

challenges from the emergence of lowcost, lowfare carriers2 entering themarket and

alteringthecompetitivelandscape.Again,traditionalcarriershadtorethinktheirstrategiesandincreasetheirflexibilityinordertoadapttothechangesinthemarketplace.

Theairline industryhasbeencharacterizedbyheavyregulationswhich limitairlinesroom

formaneuver.Whileother industrieshavepavedthewayforcompaniestotransform into

global players, the principle that airlines should be substantially owned and effectively

controlledbynationalsfromthegivenstateinwhichtheairlineisregistered,hasprevented

airlines from becoming truly global businesses by obstructing crossborder merger and

acquisition activities (Hanlon, 2007, p.9; Doganis, 2006, p.54; Shaw, 2007, p.53). To

overcometherestrictionsimposedbythisnationalityrule,airlinesformedglobalalliancesas

ameanstosecuresomeofthebenefitsalargersizeandscopeoffer(e.g.greaterpurchasing

power,betterdistributionofmaintenancecosts,etc).Whilethe1990switnessedanoutright

alliancebuilding frenzy, three major alliances, namely Star Alliance, oneworld, and

SkyTeam3, now dominate the competitive landscape (cf. Doganis, 2006, p.85,99). Shaw

(2007,p.110)assertsthattheformationofallianceswasnotameansinitself;rather,itwas

an indispensable detour, since crossborder consolidation activities continue to be

restricted by regulations.Moreover, Hanlon (2007, p.10) argues that the existing airline

alliances may prove to be precursors to actual crossborder mergers, considering that

governmentimposed constraints and regulations on foreign ownership are progressively

beingrelaxed.

Thecyclicalnatureoftheairlineindustry,withitsgrowthcyclescloselylinkedtochangesin

theworldeconomy,isoneofitsmajoreconomicidiosyncrasies(Doganis,2006,p.4;Mason,

2005,p.19;Shaw,2007,p.64).However,thisdirectrelationshipbetweeneconomicgrowth

andairtraveldemandseemstohaveweakened,mainlyasaresultoflowcostairlinesthat

offer lower fares and thus stimulate demand irrespective of the economic situation

2 Lowcostcarriersareprimarilycharacterizedbytheirlowoperationalcosts,enablingthemtoofferlowfaretickets.

3 StarAlliancehas19memberairlines.AmongthemareAirCanada,AirChina,Lufthansa,Scandinavian

Airlines,SingaporeAirlines,Thai,andUnited(StarAlliance,2009).oneworldhas10memberairlines,includingAmericanAirlines,BritishAirways,CathayPacific,JAL,andQuantas(oneworld,2009).SkyTeamhas11

memberairlines,includingAirFrance,Alitalia,SouthernChinaAirlines,DeltaAirLines,KLM,andNorthwestAirlines(SkyTeam,2009).


21/147

11

(Doganis, 2006, p.18). Airlines furthermore have to cope with marginal profitability

(Doganis,2006,p.4;Hanlon,2007,p.5).Theairlineindustryscoststructurewithhighfixed

costs relative to variable costsmakes volume a crucial factor for securingprofits (Taneja,

2003in:Tiernanetal.,2008,p.213).Whiletheconstantemergenceofnewcompetitorsandthe simultaneouspulloutor failureofothers intensify the industrysdynamics, additional

pressure isexertedby the customer,who isgainingpower inan increasingly transparent

market made possible by the easily accessible information on the Internet on prices,

conditions, and consumer rights (Mason&Alamdari, 2007, p.303; Delfmannetal., 2005,

p.12).

3.2 Keybusiness

models

in

the

airline

industry

Ingeneral, four fairlygenericbusinessmodelscanbe identified in theairline industry: (1)

network airlines, (2) lowcost airlines, (3) charter airlines, and (4) regional airlines

(Bieger&Agosti, 2005, p.50). Since network airlines and lowcost carriers represent the

dominantbusinessmodelsintheinternationalairlineindustry,onlythesetwomodelswillbe

furtherelaboratedon.

Networkcarriersare firstandforemost characterizedbyanextensiveinternationalroute

network with a complex hubandspoke system that includes short and longhaul

connections(e.g.Doganis,2006,p.149;Franke,2004,p.15;Tiernanetal.,2008,p.214).In

mostcases,networkcarriersevolvedfromformerlystateownedflagcarriers.Traditionally,

they have pursued a full service differentiation strategy. Different seating classes and

corresponding preflight, inflight, and postflight services function as a means for

differentiation and further facilitate the targeting of multiple customer segments

(Pompletal., 2003, p.6; Tiernanetal., 2008, p.214). Offering loyalty schemes such as

frequent flyer programs and belonging to one of the threemajor airline alliances (Star

Alliance,oneworld,andSkyTeam)complementnetworkcarriersdifferentiationstrategy(cf.

Tiernanetal.,2008,p.214).Yetnetworkcarriersprofitabilityonshorthauloperationshas

beenheavilyunderminedbytheexpansionoflowcostcarriersandtheirimpactonpricing.

Airlinebusinessexperts(e.g.Mason&Alamdari,2007,p.306;4Doganis,2006,p.266)argue

thatthefuturebusinessmodelofmajornetworkcarrierswillbebasedonanextensivelong

4MasonandAlamdari(2007)conductedaDelphistudywith26airtransportexpertsinordertodetectfuturetrendsconsideringEUnetworkcarriers, lowcostcarriers,andconsumerbehavior.


22/147

12

haulnetworkbackedbyalliancestoprovideaglobalspread,andsupportedbyashorthaul

anddomesticnetworkreducedsignificantlyinsizeandimportance.

Incontrast tonetwork carriersbusinessmodel,which isbasedon servicedifferentiation,

lowcost carriers pursue a strategy of cost leadership. The traditional low cost model

concentratesonmaximumaircraftutilization, theoperationofa singleaircraft typeonly,

andkeeping toshort turnaround timesatsecondaryor lesscongestedairportswith lower

fees (e.g. Bieger&Agosti, 2005, p.53; Doganis, 2006, pp.147; Hanlon, 2007, pp.58). An

overview of themost important operation and product features distinguishing lowcost

carriersfromnetworkcarriersisprovidedinTable1.

Operation/product feature Low-cost carriers Network carriers

Airports Secondary, less congested (by andlarge)15-20 minute turnarounds

Primary (hubs)Higher turnaround times due tocongestion and labor regulations

Aircraft Single aircraft type (e.g. Boeing 737,Airbus A320)High utilization (over 11 hours/day)

Multiple aircraft typesModerate utilization

Connection Point-to-pointNo interliningNo baggage transfer

Hub-and-spokeInterliningCode share, global alliance

Distribution Mostly direct via Internet booking Travel agentsInternetCall center

Fares LowSimple structure

Complex structure

In-flight Single classNo seat assignmentPay for amenities, onboard selling

Multiple classSeat assignmentComplimentary amenitiesIn-flight entertainment

FFP No (by and large) Yes

Target group Leisure, price sensitive businesstravelers

Leisure and business

Table1:

Comparison

of

low

cost

carriers

vs.

network

carriers5

Owingtotheirsignificantlylowercostbase,lowcostcarriersareabletoofferpointtopoint

services at substantially lower fares than network carriers. This introduction of lowfare

servicesonEuropeanrouteshasbroughtaboutanincreaseinleisuretravel,ahighertraffic

volume,anda lossofmarketsharesforbothnetworkcarriersandcharterairlines(Mason,

2005;LufthansaConsulting,2008,p.22). Initially targeting leisure travelers, recentstudies

indicatethat lowcostcarriershavebeensuccessful in increasing theirnumberofbusiness

5Ownillustrationbasedon:WensveenandLeick(2009,p.6);Doganis(2006,p.157);Hanlon(2007,pp.58).


23/147

13

travelersinEuropeaswell(Mason&Alamdari,2007,p.302).ThoughEuropeexperienceda

virtual lowcost boom in 2002/2003with over a dozen new airlines entering themarket

(Doganis,2006,p.161),severalofthemhadtopulloutofthemarketsoonthereafter,since

they couldnotoperateprofitablyorwere takenoverby competitors (Anonymous, 2006,p.19).Thusfar,itseemsthatthelowcostcarrierbusinessmodelisonlysuccessfulonshort

haulroutes.Thoughseveralcarriershavetriedtoadoptthelowcostbusinessmodeltolong

haulinternationalroutes,suchattemptshavetodatebeenunsuccessful(cf.Simon,2008).

3.3 Customersegmentation

In order to define distinct target groups, customers are typically segmented along

demographic, psychographic, and/or behavioral dimensions (cf. Peter & Olson, 2008,

pp.370;Solomonetal.,2006,p.9).Shaw(2007,p.24)specifiesthreevariablesalongwhich

passengers in the airline market are traditionally segmented: (1) passengers journey

purpose(reasonfortravel),(2)thelengthoftheirjourney,and(3)theircountryorcultureof

origin.Oyewole&Choudhury (2006),on theotherhand,contend thatpurchase situation

factors also represent useful segmentation dimensions. Accordingly, they differentiate

betweenreasonfortravel,frequencyoftravel,classoftravel,andtypeofairlineused.6Since

thereasonfortravelconstitutesthemosttraditionaldimensionalongwhichcustomersare

segmented in theairline industry (cf.Teichertetal.,2008,p.229), it isdescribed inmore

detailinthefollowingsection.

Airlinecustomerscanessentiallybedividedintobusinessandleisuretravelers.Whilethere

maybesomeexceptionstothesetwodimensions(e.g.pilgrimage,medicaltransport)most

of the trips takenby airlinepassengers fit intooneof these two categories (Shaw,2007,

p.24).Businesstravelershavelongbeenthemostimportantcustomersegmentforairlines

duetotheirrelativeprice inelasticity(Hanlon,2007,p.35).Whilebusinesstravelers inthe

pastgaveemphasistoflexibilityandserviceoverpriceand,therefore,generallypurchased

firstandbusinessclasstickets,alargeproportionofthiscustomersegmentseemstonowbe

givingpreference topriceoverservice,andseemswilling tosacrifice flexibilityandfrills in

returnfor lowerfares(Mason&Alamdari,2007,p.302).Thisdevelopment iscorroborated

byrecentstudieswhichrevealthatinparalleltothedecreaseofbusinesstravelerswhofly

6 Intheirstudy,Oyewole&Choudhury(2006)analyzetheinfluencethefourdifferentpurchasesituationscanhaveontheimportanceconsumersattachtoservicesintheairlineindustry.


24/147

14

business class on shorthaul routes the proportion of passengerswho choose lowcost

carriersforbusinesstravelroseto71%in2004/2005fromonly28%in1998/1999(Company

Barclaycardin:Mason&Alamdari,2007,p.302).Indicatorsusedinthesestudiesshowthat

businesstravelcontinuestoexpand,butthattheexpendituresforbusinesstravelareunderincreasing scrutiny (Barclaycard Business, 2008, p.3). In 2007/2008, 55% percent of UK

businesstravelersstatedthattheyflyeconomyclassmostoften(cf.Figure1)ascompared

to46% in2006/2007.While41%of thebusiness travelersparticipating in theBarclaycard

survey cited business class as being their main class of travel in 2001, their number

decreasedtoonly11%in2007(BarclaycardBusiness,2008,p.5).

Figure 1:Mosttravelled seating class byUK business travelers in

20077

IATAs (2007) CorporateAir Travel Survey found that the keydeterminants forbusiness

travelersairlinechoice forshorthaul flights included frequent flyerprograms,convenient

departureandarrivaltimes,aswellaspunctualityofflights.On longhaulflights,themain

factorsinfluencingbusinesstravelersairlinechoicewerefrequentflyerprograms,nonstop

flights,andseatcomfort.

Air travel demand in the leisure travel segment is primarily influenced by ticket price,

travelersdisposableincome,andtheiravailablefreetime(Graham,2006,p.16),wherethe

amountofdisposableincomeisprincipallydeterminedbyeconomicwealth.Graham(2006,

p.16)pointsout that greaterjobpressure and concernsoverjob security actuallydeters

employees from taking leave for extended periods, which has contributed to the trend

towardshortervacations.Lowerfares,ontheotherhand,implythatfrequentshortertrips

7Ownillustrationadaptedfrom:BarclaycardBusiness(2008,p.5).

55%

15% 14%11%

5%

0%

10%

20%

30%

40%

50%

60%

Economy Premium

economy

Low cost First/business Not stated


25/147

15

arenotnecessarilymoreexpensivethanthetraditionalannualleave(Mason,2005,p.303),

which has led to an increase in the frequency of shorter trips taken by leisure travelers

(Graham,2006,p.16).Inrecentyears,theleisuretravelmarkethasgrownmorerapidlythan

thebusinesstravelmarket(Hanlon,2007,p.35;Dresner,2006,p.30).Hanlon(2007,p.35)estimates that the current breakdown of theworldwide demand for air travel between

leisureandbusinessliesatapproximately80/20.

3.4 Loyaltyprograms

Considering thishighly competitive landscape, airlinesneed toundertake great efforts to

retaintheirprofitablecustomers.Shaw(2007,p.241)suggeststhatrelationshipmarketing,

i.e., putting equal or greater emphasis on the maintenance and strengthening of

relationships with existing customers than on the acquisition of new customers, is an

effectiveconcepttobepursued inordertoretaincustomers.Loyaltyprogramsthatcenter

on passengers whose air travel demands are generally less price elastic (e.g. business

travelers) (Hanlon, 2007, p.85) and expected to be so in the longterm, constitute an

importantcustomerrelationshipmanagementtool(Liu&Yang,2009,p.104).

Liu and Yang (2009, p.94) define loyalty programs as longtermoriented programs that

allowconsumers toaccumulate some formofprogram currency,whichcanbe redeemed

laterforfreerewards.Frequentflyerprograms(FFPs)representloyaltyprogramstypicalof

theairline industry.Consumersaccumulatefrequentflyerpointsforeachpurchasedflight,

with thenumberofpointsawardedusuallyequaling thedistanceof the flight (Lederman,

2007,p.1137).Theseaccumulatedpointscaneventuallyberedeemedforrewards,themost

commonofwhichisafreeflightorafreeupgradewiththegivenairlineoroneofitsalliance

partners (IATA, 2007,p. 73; Lederman, 2007, p.1137; Carlsson&Lfgren, 2006, p.1470).

Duetotheawardschemesnonlineardesign,customershaveevenmoreincentivestostick

tooneparticularairline (Carlsson&Lfgren,2006,p.1470).Furthermore,airlines seek to

make their competitors appearmore expensive by emphasizing the opportunity costs of

forgoneloyaltyrewards(Palmer,2005,p.161).Hence,frequentflyerprogramsconstitutean

importanteconomicswitchingbarrier(Hanlon,2007,p.85;Dowling&Uncles,1997).

Seriousdoubts,however,havebeenraisedaboutthesuccessoffrequentflyerprogramsand

theircontribution to truecustomer loyalty.DowlingandUncles (1997), forexample,claim


26/147

16

thatcustomersendupassociatingtheirloyaltytoaparticularrewardsprogramratherthan

totheactualairlinebrand.Furthermore,Doganis(2006,p.277)arguesthatfrequentflyers,

who often are highyield passengers, tend to be members of several airlines FFPs.

Accordingly,FFPsrelevance intermsofsecuringcustomer loyaltyforaparticularairline isdiminishing. A recent study conducted by Liu and Yang (2009) analyzed the success of

competing loyaltyprograms intheairline industryandfoundthat loyaltyprogramsdidnot

always leadtobeneficialoutcomes,andthatonlyairlineswithhighmarketsharesenjoyed

salesincreasesonaccountoftheirloyaltyprograms.

3.5 Industryoutlook

Consideringthedownwardtrendinairlineyields,primarilyowingtoairlinederegulationand

liberalization,increasedcompetition,excesscapacity,downgradingactivity,andtheadvance

of lowcost carriers (cf. Mason, 2005, p.19; A.T. Kearney, 2003, p.8), industry experts

predictthatconsolidationactivitiesintheairlinebusinesswillincrease(Doganis,2006,p.20;

A.T.Kearney,2003,p.8).Suchactivitiesmayincludemergersandacquisitionsandwillmost

likelytranslateintostrongairlinesacquiringtheirweakorfailingcompetitors(Doganis,2006,

p.21).Suchascenariowillresultinamarketthatischaracterizedbyasmallnumberofvery

large network carriers (Mason&Alamdari, 2007, p.310). Consolidation, however, is not

predicted to remain limited to network carriers alone. Rather, the trend toward

consolidationwillaffectallsectorsoftheindustry,includinglowcostairlines(Doganis,2006,

p.21; Mason&Alamdari, 2007, p.310). The challenges network carriers face in the

competitionwith lowcost airlines on shorthaul routes have already beenmentioned in

Chapter3.1.Sincethenetworkcarriersbusinessmodelprecludestheachievementofcost

structures similar to thoseof lowcost carriers (e.g.complexhubandspoke system, labor

issues,unions),networkcarriersareexpected to increasinglyshift their focus to longhaul

routeswhichwilldeliversustainableprofitstreams(Mason&Alamdari,2007).Thecurrent

trend among business travelers,who are increasingly becomingpricesensitive, is further

forecasttoleadtotheterminationofbusinessclassserviceonshorthaulroutes,whilemore

leisuretravelerswilltakeadvantageof lowfarestotravelmorefrequentlybothwithinthe

EUandabroad(Mason&Alamdari,2007,p.310).


27/147

17

3.6 Chaptersummary

The airline industry,whichhistoricallywas statesubsidized todemonstrate and sustain a

countrysstatusandpower,hasundergoneextensivetransitionssincethemid1980s.These

changes were initiated in particular by gradual liberalization and deregulation. The

emergence of lowcost carriers, the increasing power of customers, aswell as a general

economicdownturnappliedpressureonairlinemanagerstorethinktheirbusinessstrategies

yetagain.Forecastspredictthatthenetworkcarriermodelwillonlyremainsustainableon

internationalroutes,whilecontinentalandshorthaulrouteswillincreasinglybedominated

byasmallnumberoflargelowcostcarriersandafewnichecarriers.Withregardtoairline

specificcustomersegments,akeydifferentiatorbetweenbusinessandleisuretravelershas

longbeen thehigherpriceelasticity for leisure travelers (cf.Hanlon,2007,p.35;Dresner,

2006,p.29).However,theintroductionoflowfareticketsbylowcostcarriershasweakened

the direct relationship between economic growth and air travel demand. Especiallywith

respect to network carriers, experts advise airline managers to focus on individual

customers needs, brand distinction, and the differentiation of services (Lufthansa

Consulting,2008,p.9).Onlythoseairlinesthatfindwaystoattractandretaincustomersby

offering a differentiated service concept visvis competitors will succeed to operate

profitable on the grounds of a valuable customer base. The strengthening of customer

loyalty,therefore,isanimportantobjectiveforachievingprofitabilitythroughtheretention

ofvaluablecustomers.

4 Conceptualand theoretical foundation for thedevelopmentof

theairlinecustomerloyaltymodel

Thepreviouschapterfocusedoncurrentchallenges intheairline industryandemphasized

theimportanceofaloyalcustomerbase.Thischaptersetsthetheoreticalframeworkforthe

developmentoftheairlinecustomerloyalty(ACL)model.Introducingcustomerloyaltyasan

effectivemeans for theachievementofacompanysoverallobjectivesofprofitabilityand

differentiation,thischapterfirstdiscussesdifferentnotionsofcustomerloyaltytoestablish

ageneralunderstandingoftheconcept.Second, it isarguedthatthebuildingofcustomer

loyaltyiscloselylinkedtotheestablishmentandmaintenanceofrelationshipsbetweenthe

customer and the firm, i.e., to relationship marketing. Furthermore, considering the

specificities of the service industry, special attention is given to the management of


28/147

18

customerbrand relationships and the meaning of relational benefits and relationship

quality. The chapter concludes with a synthesis of the theories reviewed and the

identificationofconceptstobeACLmodel.

4.1 Theconceptofcustomerloyalty

This chapterexplainshow customer loyalty can influence a firmsprofitability, introduces

definitionsofcustomerloyaltyasdepictedintheliterature,anddiscussestheprerequisites

for the establishment of true loyalty. It furthermore advocates the consideration of

relationshipmarketingtobetterunderstandthedriversofcustomerloyalty.

4.1.1The

influence

of

customer

loyalty

on

a

firms

profitability

Several authors contend that adirect relationship existsbetween a firms loyal customer

baseanditsprofitability(Reichheld&Sasser,1990;Heskettetal.,2008;Reinartz&Kumar,

2002;Aaker,2002;Knox,1998;Andreassen&Lindestad,1998;Berry,1995).Moreprecisely,

aloyalcustomerbaseimpliesincreasedrevenuesforthefirm(Reichheld,1993,1996;Berry,

1995; Schlesinger & Heskett, 1991). On the one hand, customer loyalty leads to higher

repurchaserates,ontheotherhandloyalcustomersdisplayagreatertendencytopurchase

additional goods, for example through crossselling opportunities. Moreover, customer

loyalty results in ahigherpredictabilityof sales andprofit streams (Aaker, 2002;Clark&

Payne,1994;Reichheld,1996).Typically, loyalcustomersgenerate lowcustomer turnover

(Reichheld&Sasser,1990),andoftenintroducenewcustomerstothefirmthroughwordof

mouthrecommendations(Reichheld,1996;Reichheld&Sasser,1990;Schlesinger&Heskett,

1991;Zeithamletal.,1996). Inaddition,aloyalcustomerbasecan leadtodecreasedcosts

(Reichheld,1993;Berry,1995), since itcosts less toprovideservices to loyalandsatisfied

customers (Reichheld, 1996) and because sales, marketing, and setup costs can be

amortizedoveranextendedperiod, i.e., throughoutthecustomer lifetime(Clark&Payne,

1994). Customer loyalty is furthermore essential, as it represents an important basis for

developingasustainablecompetitiveadvantage(Dick&Basu,1994,p.99)overcompeting

brandsininter andintramarketcompetition.


29/147

19

4.1.2 Definingcustomerloyalty

Customer loyalty and its advantages for the firm have been extensively discussed in

marketingliterature.Theresultisaplethoraofdefinitions.Table2providesanoverviewof

definitionsthatarefrequentlycitedintheliterature.

Author(s) Definition

Cunningham (1956) Single-brand loyalty is the proportion of total purchases representedby the largest single brand used. Dual-brand loyalty is theproportion of total purchases represented by the two largest singlebrands used.

Day (1969) There is more to brand loyalty than just consistent buying of thesame brand attitudes, for instance (p. 29)

Jacoby & Kyner (1973) Brand loyalty is (1) the biased (i.e., nonrandom), (2) behavioralresponse (i.e., purchase), (3) expressed over time, (4) by somedecision-making unit, (5) with respect to one or more alternativebrands out of a set of such brands, and (6) is a function ofpsychological (decision-making, evaluative) processes. (p. 2)

Dick & Basu (1994) Customer loyalty is the strength of the relationship between anindividuals relative attitude and repeat patronage, mediated bysocial norms and situational factors.

Oliver (1999) a deeply held commitment to rebuy or repatronize a preferredproduct/service consistently in the future, thereby causing repetitivesame-brand or same brand-set purchasing, despite situationalinfluences and marketing efforts having the potential to causeswitching behavior (p. 34)

Table2:Overviewofdefinitionsofcustomerloyalty

As the comparison of the different definitions of customer loyalty illustrates, two key

dimensions exist: a behavioral (cf. Cunningham, 1956) and an attitudinal (cf. Day, 1969)

dimension. Both are described below inmore detail and an equal consideration of both

dimensionsisadvocated,iftrueloyaltyistobeachieved.

Behavioralloyaltyreferstothecustomersactualbehaviorofrepurchasingaspecificbrand

withinagivencategoryovertime(e.g.,Day,1969;Chaudhuri&Holbrook,2002).Kumarand

Shah (2004,p.318)describebehavioral loyaltyasloyaltyofacustomerasobserved from

the customers purchase behavior. This explicitly means that the customer repeatedly

choosesthesamebrandwhenheneedsaspecificproductorservice.Thisbehaviormaybea

resultofatruepreferenceforthebrand.However,repeatpurchasesofthesamebrandmay

alsobeattributabletomereconvenience,habit,orbecausethebarrierstochange(i.e.the

switching barriers) are too high.While proponents of the onedimensional construct of

customerloyaltyarguethatattitudeisirrelevantindeterminingloyaltytowardabrandand

consider thedebateon thenotionof true loyaltya wasteof time (Sharpetal.,2002)

opponents claim that behavioral definitions of customer loyalty are inadequate for


30/147

20

explaininghowandwhycustomersare loyaltoaspecificbrand,andcallforananalysisof

theindividualsdispositionalbasisforrepeatedpurchase(Dick&Basu,1994,p.100). Zins

(2001,p.270) further criticizes that the observationof behavioral loyalty alone does not

leave room todraw any substantiated conclusions about customers future actions.Onlymeasuringbehavioral loyaltyactuallyoverestimates theshareof true loyalty,since itdoes

notaccount for those customerswhobuyabrand simplybecausenootheralternative is

availableorbecauseaparticularbrandisofferingaspecialpromotion(Day,1969).

Considering the deficiency of behavioral loyalty to provide insights into the underlying

motivesandprocessesthat leadtocustomer loyalty,researcherspromotethe inclusionof

attitude,inadditiontobehavior,toadequatelydefinecustomerloyalty.Day(1969,cf.Table

2)wasperhapsthefirsttorecognizeandarticulatethisnecessity(Bandyopadhyay&Martell,

2007,p.37).A customers attitudebasicallyperforms anobject appraisal function.Keller

(2003,p.392)referstobrandattitudeastheoverallevaluationofthebrandintermsofits

quality and the satisfaction it generates. Dick and Basu (1994) assert that the attitude

toward a brand has to bemeasured in relation to other brands that are perceived by

consumersasbeingrelevantinaspecificconsumptioncontext.Onlywhenaparticularbrand

isassociatedwith a strong attitude and is clearlydifferentiated fromotherbrands in the

customersminddoesthegivenbrandexhibitahighrelativeattitudevisvisotherbrands

in theconsumptioncontext. JacobyandChestnut (1978) refer toattitudinal loyaltyas the

consumerspredisposition towardabrandasafunctionofdecisionmakingandevaluative

processes.Basedonastrongpreferenceforthegivenbrandrelativetootherbrandsinthe

category, attitudinal loyalty helps companies build an invisible exit barrier for their

customers,especially innoncontractual situationswhere switching costsandbarriersare

low(Shapiro&Vivian,2000in:Kumar&Shah,2004,p.322).

In consideration of the attitudebehavior relationship, four specific conditions related to

loyalty,asillustratedinFigure2,areidentifiable.Lowattitudinalloyaltycombinedwithlow

behavioralloyaltyindicatesanabsenceofloyalty(cf.Dick&Basu,1994,p.101).Day(1969,

p.30) categorizes those customers as spuriously loyalwho exhibit high repeat purchase

behavior,butlackanyattachmenttothebrandandcaneasilybecapturedbyanotherbrand

offering a better deal. Latent loyalty, in contrast, is reflected by high attitudinal loyalty

combined with low repeat purchase. True loyalty, firms preferred condition, can be


31/147

21

conceptualizedasanattitudebasedbehavioral loyaltytowardthegivenbrand(seeKimet

al.,2008,pp.99100).

Figure

2:

Loyalty

matrix

8

Ashasbeenarguedabove,thetwodimensionalunderstandingofcustomerloyaltyallowsa

moreprecisemeasurement and analysisof customer loyalty.This view is supportedby a

widespectrumofmarketingresearchers(e.g.Day,1969;Jacoby&Kyner,1973;Dick&Basu,

1994; Oliver, 1999; Jones & Taylor, 2007) and has come to be accepted as the basic

understandingof customer loyalty inmarketing research.Accordingly, customer loyalty is

definedinitstwodimensionalunderstandingas:

repeatedattitudebasedbehavior(Kimetal.,2008,pp.99100)towardabrand,

drivenbyapreferenceforthisspecificbrand(cf.Jacoby&Chestnut,1978)vis

vis competingbrands relevant in thegiven consumption context (Dick&Basu,

1994).

A direct relationship between customer loyalty and relationship marketing has been

proposedbyanumberofauthors.Webster(1994,p.26)claimsthatCustomerloyaltyhas

meaningonlywithin the contextof relationshipmarketing. Similarly,Aaker (2002,p.23)

proposes that one approach for enhancing customer loyalty is the development or

strengthening of customers relationship with the brand, which constitutes the basic

objectiveof relationshipmarketing.Relationshipmarketing thus serves as a concept that

contributestotheunderstandingofthefactorsthatdrivecustomer loyalty.Theconcept is

furtherelaboratedinthenextchapter.

8AdaptedfromDay(1969);DickandBasu(1994).

True loyalty

Spurious loyalty No loyalty

Latent loyalty

High Low

Low

High

Behavioral loyalty

Attitudinalloyalty


32/147

22

4.1.3 Customerloyaltythroughrelationshipmarketing

The term relationshipmarketingwas initiallymentionedbyBerry in1983 in the service

marketing literature (Bitner, 1995, p.246; HennigThurau et al., 2002, p.230). It can be

definedas:

theattraction,maintenance,andenhancementofcustomer relationships (Berry

1983in:Berry,1995,p.236)thatshouldgenerateprofitandfulfilltheobjectives

ofallpartiesinvolved(Grnroos1994,p.9).

Relationshipmarketingis,therefore,astrategicorientationthatfocusesonretainingexisting

customers(Sheth&Parvatiyar,2002,p.4;Zeithaml&Bitner,2003,p.157;Grnroos,2007,

p.43)andenhancing their loyalty (Berry,2002,p.71).While theemphasis isoncustomer

retention, new customer acquisition is also critical for a companys longterm economic

success and cannot be achieved by exclusively focusing on existing customers (Hennig

Thurau et al., 2002, p.232). However, attracting new customers is considered an

intermediatestepinthemarketingprocess(Berry,1995,p.237)ratherthanagoalinitself.

Theunderlyingobjective istoattractthosecustomerswhodemonstrate thepotentialand

likelihoodofestablishinga loyalrelationshipwiththecompany inthelongrun(Zeithaml&

Bitner,2003,p.158).Acompanysprimaryobjective in termsof relationshipmarketing is,

consequently,tocreatecustomerloyaltyandtoestablishaprofitablelongtermrelationship

(Ravald&Grnroos,1996,p19).9Forcustomers, themain reasons forbecoming involved

andstayinginarelationshipwithacompanyareriskreductionandsimplificationofchoice

(DallOlmo Riley& de Chernatony, p.138). Relationship customers knowwhat to expect

fromtheirbrandand,therefore,donothavetospendtimedecidingwhichbrandtochoose.

Arelationshipdevelopsthroughaseriesofencountersbetweenacustomerandacompany

(Bitner,1995,p.248;Coulter&Ligas,2004,p.483;Grnroos,2007,p.8).Suchencounters

arecharacterizedby interactivebehaviorsataspecificpoint in time involvingbothparties

(Bitner, 1992; Lovelock, 1983 in: Coulter & Ligas, 2004, p.483; Czepiel, 1990). Fournier

(1998,p.346)summarizestheseaspectsofrelationshipsinherdefinition:

9 HennigThurauetal.(2002,p.230)describecustomerloyaltyasanimportantrelationshipmarketingoutcome.


33/147

23

Relationships are constituted of a series of repeated exchanges between two

partiesknowntoeachother:theyevolveinresponsetotheseinteractionsandto

fluctuationsinthecontextualenvironment.

During each encounter (moment of truth [Bitner, 1995, p.248];moment of interaction

[Coulter&Ligas,2004,p.483]),customershavethepossibilityoftestingthefirmsabilityto

fulfill its promises. For the firm, each encounterprovides an opportunity to increase the

customersoverallsatisfactionandwillingness tocontinuedoingbusinesswith the firm in

thefuture(i.e.tobuildarelationshipandtherebystrengthencustomerloyalty).

Several authors (e.g. Grnroos, 2007; Berry, 2000; Czepiel, 1990) argue that the

establishmentandmaintenanceofcustomerrelationshipsandtheachievementofcustomer

loyalty (e.g.Gremler& Brown, 1999; Bloemer et al., 1999) are especially important and

applicable inservice industries. Inthefollowingchapter,thisaspect,aswellasthespecific

roleoftheservicebrandintheformationofrelationshipswithcustomers,isexplained.

4.2 Customer loyalty through relationshipsbetween customersand airline

brands

The previous chapter touched upon the relevance of customer loyalty and relationship

marketingintheservicecontext.Now,acloserlookistakenatthenatureofservicesandthe

specificities that need to be considered in terms ofmarketing services, especially in the

airlinemarket. Inaddition,theservicebrand is introducedasan importantrelationalasset

thatcanfurtherfostercustomerloyaltybyactingasalegitimatepartnerintherelationship

withthecustomer.

4.2.1 Theservice

dominant

logic

of

marketing

in

the

airline

industry

AccordingtoGrnroos(2006,p.323),servicescanbedefinedas:

processes that consist of a set of activities which takeplace in interactions

between a customer and [] the service provider [], which aim at solving

customersproblems.

Services exhibit two distinctive characteristics. First, services have a processual nature

(Grnroos,2007,p.330;2006,p.319;Vargo&Lusch,2008a,p.258),thatis,servicesemerge

in processes and are directly influenced by the further evolvement of these processes.


34/147

24

Second, customers are involved in the production of the given service through their

interactionwiththeserviceprovider.Consequently,theyparticipateascoproducersinthe

productionprocessandinfluencethenatureoftheservicethatisproducedandconsumed.

Likewise, they determine the actual value of the service experience (Grnroos, 2006,pp.326327),i.e.,whethertheirexpectationsweremet.

Accordingtotheabovestateddefinitionofservices,airlinescanclearlybedefinedasservice

providers: (1) passenger airline travel can be understood as a process that is directly

influencedbythefurtherevolvementof thisprocess(e.g.rebookingafterflightdelays)(2)

passengers consume their travelexperiencewhile it isbeingproduced.Furthermore, the

notionofairlinesofferingaserviceiswidelyacceptedinthemarketingandairlineliterature

(e.g.Andersonetal.,2008;Oyewole&Choudhury,2006).Hence,thefollowing theoretical

discussionon relationshipsbetween customersandairlinesneeds to take the specificities

thatapplytotheconceptofservicemarketingintoconsideration.

Traditionally,themarketingprocesshasfocusedontheexchangeofgoodsinwhichvalueis

embedded and distributed through transactions (Grnroos, 2006, p.323). The service

centered approach, in contrast, places the provision of services rather than the

manufacturedgoodatthecenterofattention(cf.Vargo&Lusch,2004,p.1;2008a,p.254).

ThisshiftinperspectiveisillustratedinFigure3.

Figure 3: The exchange versus the relationship

perspectiveinthemarketingprocess10

10Ownillustrationadaptedfrom:ShethandParvatiyar(1995a,p.412);Grnroos(2007,p.27).

Process

(intangibl e resources)

Valuecreation

Outcome

(tangi ble resources)

Valuedistribution

Relationship

perspective

Exchange

perspective


35/147

25

The servicecentered perspective on marketing, therefore, focuses on value cocreation

through the interaction between the customer and the service provider (cf. Prahalad &

Ramaswamy,2004,p.6;Wikstrm,1996),withtheroleofthecustomertransformingfrom

one inwhichhe represents a recipientof a service toone inwhichhe coproduces thatservice (Vargo&Lusch,2004,p.7).Thecustomer thusbecomesanevenmoresignificant

driving force in the cocreationprocess (Rajahet al.,2008,p.367;Andersonetal.,2008,

p.366).Theserviceprovider,incontrast,increasinglyadoptsasupportfunctionbycreating

anddevelopingtheresources,means,orcompetencethatthecustomerrequires(Vargo&

Lusch, 2004; Grnroos, 2006, p.324; Rajah et al., 2008, p.367). Value is created when

services are used or consumed by the customer. That is, value is the outcome of the

subjective, personalized consumption experience characterized by the customers active

involvement in itsdesign,delivery,andcreation (Shethetal.,2000 in:Rajahetal.,2008,

p.367).

As Anderson et al. (2008; see also: Gummesson, 2008, p.16) point out, differences in

customer characteristics inevitably lead todifferences inwhat customers value.Resulting

fromtheirresearchaboutthemoderatingeffectsofairlinepassengercharacteristicsonthe

relationship between service components and overall service satisfaction, the authors

conclude that, in linewithVargoandLuschs (2008b,p.9)premise thatvalue isuniquely

and phenomenologically determined by the customer, it is important to consider

customersvaryingdemographicandsituationalcharacteristics.

The circumstance that individual customers appreciation of different service factors

diverges considerably constitutes a major challenge for airlines, considering that they

interactwithcustomersfromverydiversenationalandculturalbackgrounds.Thenatureof

airlinesservicechain,inwhichprocessescanbroadlybedividedintopreflight,inflight,and

postflight activities, further complicates the building of personal relationships between

serviceemployeesandthecustomer.Thisisduetothechangingcontactpersonsfromone

activity to the next. In such an environment, the service brand should be considered an

essentialrelationshippartner.Thisargumentisbroughtforwardinthefollowingchapter.


36/147

26

4.2.2 Theservicebrandasarelationshippartner

While branding has long been a central issue in the marketing of physical products,

awarenessoftheimportanceofcreatingservicebrandshasonlyevolvedinthelast20years

(Grnroos, 2007, p.329). Today, however, it is widely recognized that branding plays afundamental role and signifies a principal success driver for service organizations and

representsacornerstoneforservicemarketing(Berry,2000,p.128).

Ambler and Styles (1997, pp.222223) define a brand as the promise of the bundlesof

attributes that someonebuysand thatprovides satisfaction.Accordingly,Berry (2000,p.

129) describes a service brand as a promise of future satisfaction, a blend ofwhat the

companysaysthebrandis,whatotherssay,andhowthecompanyperformstheserviceall

fromthecustomerspointofview.Theservicebrandsinherentsignificanceisderivedfrom

services specificnature.As services areproducedonlyonce the interactionbetween the

customer and the service provider is initiated, services are difficult to appraise prior to

consumption. Here, the service brand, i.e., the image resulting from accumulated

experiences as perceived by the customer, can reduce customers perceived monetary,

social,andsafetyrisks.Theservicebrandsubsumesawidespectrumofdimensionstocreate

acomprehensiveimageinthecustomersminds.

11

In the brands conceptualization as a risk reducer, simplifier of choice, and guarantor of

quality, DallOlmo Riley and de Chernatony (2000, p.138) identify similarities with the

conceptualizationofrelationshipmarketing.Consequently,theauthorsclaimthatthebrand

isa relationshipbuilder inthattheservicebrand isaholisticprocessbeginningwiththe

relationshipbetweenthefirmanditsstaffandcomingaliveduringtheinteractionbetween

the staff and customers (p.138).Brodieet al. (2006,p.375) support thispropositionby

identifyingtheservicebrandasarelationalasset.

A theoretical foundation of customerbrand relationships has been laid by Fourniers

relationship theory. Fournier (1998, p.344) contends that a brand is legitimized as a

relationship partner when it is animated, humanized, or to some degree personalized.

Anthropomorphizationreferstotheprocessofprojectinghumanqualitiesandpersonalities

onto brands (Patterson & OMalley, 2006), which facilitates their interaction with the

11ForthecreationoftheACLmodel,thesedifferentdimensionsarereferredtoasbrandperformancecharacteristics.


37/147

27

immaterialworld(Fournier,1998,p.345).The legitimizationofthebrandasarelationship

partner can furtherbe achieved through interactive anddirectmarketing communication

activities, which can be construed as behaviors performed by the brand acting in its

relationshiprole (Fournier,1998,p.345).Similarstudiesconducted in theservicedomainby Sweeney and Chew (2000), have verified Fourniers assertion of the brand as a

relationshippartnerthatisespeciallyrelevantforservicebrands.

The consideration of the brand as a relationship partner and the contribution of this

relationship to customer loyalty are of great relevance for the airline industry. Changing

travelenvironmentsandchangingpersonalcontactsprevent thedevelopmentofpersonal

relationshipswith theairline.Here, thebranddepictsaconstantand familiar relationship

partnerforthecustomer.Eachencounter,ormomentofinteractionwiththeairline,addsto

how the customer perceives the airline brands image and reinforces the brand and the

relationshipthecustomerhaswithit.Whileasinglecontactbetweenthecustomerandthe

airlinemay not constitute a relationship per se, each contact contributes to the overall

relationshipbetweenthecustomerandtheairlinebrand.Thisnotionfurtheremphasizesthe

decisiverelevanceofeachcustomerairlineinteraction.

Whether the relationshipbetweencustomersandbrands is strongand leads to customer

loyaltyinthelongrundependsontheattractivenessoftherelationshipfromthecustomers

point of view. This, in turn, is influenced by the benefits the customer enjoys from the

relationshipwith thegivenbrand.These socalled relationalbenefitsareexplained in the

nextchapter.

4.2.3 Relationalbenefitsasabasisofairlinecustomerloyalty

Accordingtotherelationshipapproach,longtermrelationshipsonlyexistifboththeservice

providerandthecustomerbenefitfromtherelationship(HennigThurauetal.,2002,p.231;

Gwinneretal.,1998,p.101;MarzoNavarroetal.,2004).While theprimaryadvantageof

customerbrand relationships for the firm is customer loyalty and the consequences

resulting from it (cf.Chapter 4.1.1), relationalbenefits refer to those that customers are

likelytoreceiveasaresultofhavingcultivatedalongtermrelationshipwithaservicebrand

(Guteketal.,1999;Gwinneretal.,1998;Reynolds&Beatty,1999;HennigThurau,2002;

Zeithaml&Bitner,2003).Relationalbenefitsrefertobenefitsthatgobeyondthe inherent

advantages provided by the actual service. Those perceived by the customer have been


38/147

28

identifiedasadrivingforceforconsumerstoengageinlongtermrelationshipswithservice

providers and are positively associatedwith satisfaction,wordofmouth communication,

andrepeatedpurchases(Reynolds&Beatty,1999).

Empiricalresearchconductedonthetypesofrelationalbenefitscustomersgainfromlong

termrelationshipswithaspecificserviceproviderputforthdifferentperspectivesonhowto

categorizerelationalbenefits.First,basedonastudyanalyzingdifferentservice industries,

Gwinneretal.(1998)classifiedrelationalbenefitsintothreedifferentcategories.According

totheauthors,confidencebenefitsrefertotheperceptionofcomfortorfeelingsofsecurity,

reduced anxiety, and trust in the service provider. Social benefits include feelings of

understanding, familiarity, and even friendship between the customer and service

employees. Special treatment benefits include economic and customization benefits that

onlyrelationshipcustomersenjoy(incontrasttononrelationalcustomers),suchasspecial

treatment(Gwinneretal.,1998;HennigThurauetal.,2002;Chang&Chen,2007).Alongall

service industries studied, Gwinner et al. (1998) concluded that confidence benefits

representthemostimportantbenefits,ifcustomersaretoremaininlongtermrelationships

withaspecificserviceprovider,followedbysocialbenefitsandspecialtreatmentbenefits,

respectively. In an exploratory study of the retail industry, Beatty et al. (1996; see also:

Reynolds & Beatty, 1999) identified two categories of relational benefits: social and

functional benefits. While functional benefits, according to Reynolds and Beatty (1999,

p.13), compriseGwinneret al.s (1998) confidence and special treatmentbenefits, social

benefitsrefertothespecificbenefitsthatresultfromthe interactionwiththesalesperson.

These twocategoriesof relationalbenefitshavealsobeenproposedbyotherauthors (cf.

Adelmanetal.,1994;Berry,1995;Bitner,1995;Dwyeretal.,1987;Gwinneretal.,1998in:

Reynolds&Beatty,1999,p.13). Inastudy investigating theeffectof relationshipbenefits

for companies in businesstobusiness settings, Sweeney andWebb (2007) differentiated

betweensocial,psychological,andfunctionalbenefits.

Here,inaccordancewiththefindingspresentedabove,threetypesofrelationalbenefitsare

proposed to be relevant: social, psychological, and functional benefits. They will be

describedinthefollowingsection.

airline loyalty model

Documents

relationship commitment

research objective

abstractthe objective

intensification ofcompetition

understanding of drivers

extensive consolidation

market challenges

observed relational