logistics service driven loyalty: an exploratory study

LOGISTICS SERVICE DRIVEN LOYALTY: AN EXPLORATORY STUDY

by

Beth R. DavisUniversity of Louisville

and

John T. MentzerThe University of Tennessee

INTRODUCTION

In the last decade, there has been a change in both the practice and theory of business rela-tionships, i.e., establishing, developing, and maintaining successful relational exchanges (Morganand Hunt 1994). The importance of developing and maintaining enduring relationships with customersis widely accepted in the literature, and demonstrates that organizations can benefit from long-term relationships (Ganesan 1994). Thus, there is now an assumption that building and maintain-ing relationships with customers leads to long-term customer retention (Mattila 2001). Mentzer etal. (2001, p. 10) stated, “Effective SCM is made up of a series of partnerships and, thus, SCMrequires partners to build and maintain long term relationships.” Further, supply chain relation-ships can be a stable source of competitive advantage to firms in the supply chain because of theirability to create barriers to existing competition (Day 2000).

One effective tool for building closer relationships with customers involves leveraging a firm’slogistics service capabilities (Bowersox, Mentzer, and Speh 1995; Bowersox et al. 1992). Improv-ing logistics customer service is an ongoing focus for firms. Suppliers are trying to become moreproactive with their customers and anticipate customer expectations (Stank, Goldsby, and Vickery1999). However, when attempting to deliver service, suppliers do not always understand what customers expect, and customer perceptions do not always match the service actually provided(Parasuraman, Zeithaml, and Berry 1985).

Although logistics activities are performed for the purpose of conforming to customer require-ments (Langley 1980), many firms still are not in direct contact with customers, relying on inter-nally generated measures of performance to infer customer opinions (Reichheld 1996; Reichheldand Sasser 1990). Similarly, suppliers may develop basic delivery requirements, but still haveunhappy customers (Stank et al. 2003). Therefore, an important focus of supply chain research

JOURNAL OF BUSINESS LOGISTICS, Vol. 27, No. 2, 2006 53

revolves around collaborative relationships with trading partners (Bowersox and Daugherty 1995),and an important strategic outcome for firms is the attainment of customer loyalty.

While traditional logistics research approaches examined inventory levels, facility locations,and business logistics network designs, the discipline has evolved to explore influences from orga-nizational behavior, marketing, and strategic management research and practice (Dunn, Seaker,and Waller 1994; Keller et al. 2002). Further, logistics service research has been extended to includeother elements besides cycle time, on-time delivery, and inventory availability, to include any han-dling of individual customer requests beyond traditional service measures (Davis and Mandrodt 1992;Maltz and Maltz 1998; Stank, Goldsby, and Vickery 1999). For example, La Londe, Cooper, andNoordweier (1988) emphasize error correction, after-sale service, and effective handling of infor-mation requests. As pointed out by Keller et al. (2002) in an extensive review of the logistics liter-ature, less attention has been given to “soft” concepts such as customer satisfaction and loyalty. Theyfurther contend that these represent key logistics concepts that require further development andtesting. Kent and Flint (1997) also discussed how logistics is evolving to include more behavioraland boundary spanning issues, specifically customer perceptions of a firm’s logistics systems andtheir related behaviors. Therefore, logistics research should begin to explore concepts such as loy-alty to gain further insight into supply chain relationships.

RESEARCH PURPOSE

The purpose of this research is to provide an exploratory first step to build theory in order toaddress some gaps in the logistics literature. First, because of the increasing importance placed onlogistics service as a differentiating competitive tool (Mentzer, Flint, and Hult 2001), it is impor-tant to discern whether suppliers and customers have a similar understanding about logistics serviceexpectations. This research explores how loyal relationships between suppliers and customersaffect the size of the “gap” between customer expectations and a supplier’s perceptions of those expectations.

Current literature has concentrated on relational exchanges, with less attention on relationshippower and dependence. However, with a significant literature base addressing dependence asym-metry in supplier-customer relationships (Buchanan 1992; Heide and John 1988; Lusch and Brown1996), there is sufficient evidence to suspect that it does affect even the most successful supplier-customer relationships. The existing literature also does not address how suppliers respond todependence asymmetry in their logistics service delivery. Thus, another objective of this researchwas to explore how perceptions of both parties’power (and the resulting dependence asymmetry inthe relationship) affect the customer’s expectations of the logistics service provided by the supplier,as well as the actual service provided.

Although understanding how or why a sense of loyalty develops in customers remains a cru-cial management issue, the psychology behind the development of customer loyalty is not wellunderstood (Pritchard, Havitz, and Howard 1999). Further, the focus has been on the customer’s

54 DAVIS AND MENTZER

perspective. Therefore, because of the importance of collaboration between firms, a dyadic methodis used to pose theory from both parties’perspectives of loyalty in the relationship. Specifically, thisstudy explores the differences in perceptions from executives in the customer firm and several sup-pliers about what constitutes a “loyal” relationship.

The overarching exploratory research question driving this study was, “How do perceptionsof logistics service quality affect loyalty between suppliers and customers?” A dyadic qualitativeresearch design was used to address this question. Intuitively, the answer should be that the morepositive the perceptions of logistics service, the greater the loyalty. However, the findings unmaska much more complex picture of the relationship, specifically when one party is more dependent thanthe other. The findings address the research objectives, and a model (whose antecedent justificationcomes from the literature and the qualitative study) is introduced as the first step toward futureresearch in this critical area of logistics theory development and practice.

RESEARCH DESIGN

Mentzer and Kahn (1995) propose that future logistics research needs sufficient field obser-vations to provide the underlying logic necessary to justify the literature and theory used. Therefore,qualitative research should become more accepted and useful to the field of logistics (Flint andMentzer 2000). Understanding customers’ loyalty will become an increasingly important supply chainissue, but the thinking behind loyalty is much more complex with several conditions or cognitionsat work (Jacoby and Kyner 1973). Additionally, although service quality and loyalty have bothbeen well researched, dyadic research to capture how expectations affect the relationship is negli-gible, and the literature base is lacking in a supply chain context.

The purpose of this research is to take a first step toward additional theory development.Because of the gaps in the literature about how logistics service drives loyalty in asymmetric rela-tionships, we conducted a qualitative study of these relationships by integrating the literature basesrelevant to the research questions and the managerial perceptions gained from field interviews.The purpose of qualitative research is to accumulate sufficient knowledge to lead to understandingor explanation (Lincoln and Guba 1985). Depth interviews provide a powerful method becausetheir revealing nature allows the researcher to delve into the respondents’mental world (McCracken1988). Specifically, our goal was to develop an in-depth dyadic understanding of logistics servicedriven loyalty under conditions of dependence asymmetry, and to use this understanding to constructa stronger theory and develop propositions.

This research began with a review of the literature, with particular attention to research on service quality, loyalty, and dependence asymmetry. As the result of the literature review and theresearch questions, a general framework was developed, which allowed us to choose interviewparticipants based on purposive sampling guidelines. The literature review also allowed us to designthe preliminary questions for the in-depth interviews. The goal was to deeply explore managers’


knowledge in a dyadic context, and this allowed us to focus on the phenomenon, trading general-izability for internal validity and contextual understanding.

The interviews were conducted through the use of purposive sampling, where particular set-tings, persons, or events are selected deliberately in order to provide important information that can-not be captured as well from other choices (Maxwell 1996). For our study, the literature review inconjunction with the research questions suggested that we interview managers within one firmwho closely dealt with logistics service issues. A large, privately-owned Southeast United States com-pany in the oil industry (Company X) provided the foundation for one side of the dyad in thisresearch. This firm was chosen primarily because of its visibility as a powerful player in this indus-try. Interviews were conducted with the organization’s five most senior managers, each performinga very different role in the company (VP of Operations, President of Administrative Division, Pres-ident of Retail Division, President of Distributor Division, CEO). In order to gain a dyadic perspective,we asked each manager to identify his/her most critical suppliers. To ensure we did not imposeany bias into the sample, we did not specify what “critical” meant, so each manager used personaljudgment to discern which suppliers should be contacted.

We were able to interview at least one supplier that each of the managers considered critical.Six suppliers were included in the interviews. Each supplier had very different characteristics andwas used in different sourcing functions for Company X. Participating suppliers included a majoroil company, a beverage distributor, a grocery wholesaler, a fuel services company, an environmentalconsulting firm, and an independent contractor for a national canopy company. The suppliers’ rep-resentatives interviewed also considered Company X a big account, which supports the researchpremise concerning asymmetric relationships.

A total of 11 interviews were conducted, which is in line with qualitative research guidelines.McCracken (1988) states that eight respondents are sufficient for many research questions; there-fore, the number of participants for this research was sufficient to tap the domain of interest. Theinterviews were conducted in person and by phone, each lasting from 45 to 90 minutes. The ques-tions were adapted to respondents depending on whether they had the customer versus the supplierperspective. The respondents knew at the beginning of the research that the study encompassed under-standing logistics service impact on loyalty. For the purpose of discovery, we did not want to “lead”the respondents by asking direct questions about the constructs of interest. The questions did notdirectly ask about logistics service quality or dependence. We kept the questions broad, and then drilleddown into more depth about logistics service specifics, as well as details about the other constructsof interest. An outline of the questions is provided in the Appendix, which was also provided to theparticipants prior to the interviews.

Content analysis, which encompasses procedures that operate directly on text or transcripts ofhuman communications (Weber 1990), was chosen to provide insight into the research questions.This type of data analysis method is useful for studying beliefs, organizations, attitudes, and humanrelations (Harris 2001); thus it was deemed most appropriate for analyzing the interviews. Althoughthere are many ways to conduct content analysis, one commonly used process involves the steps


suggested by Harris (2001), which includes identifying the questions to be asked and constructs tobe used, choosing the texts to be examined (in this case, the interview transcripts), specifying theunit of analysis, determining the categories or themes of meaning into which responses are divided,and generating a coding scheme or coding rules. The literature was also used as a secondary sourceduring the data collection and analysis phases such that the study involved a continual referralbetween interview transcripts and literature findings.

In order to verify the believability of the results, qualitative research has a set of criteria for ensur-ing the legitimacy of the findings that is analogous to that of the criteria of internal validity, exter-nal validity, and reliability (Hirschman 1986; Lincoln and Guba 1985). The trustworthiness of thisresearch was assured by following the research design created for the study and also the qualitativeresearch guidelines as noted by previous researchers, which include having the criteria listed below(for a more comprehensive explanation, see Belk 1989; Mentzer and Flint 1997; Flint, Woodruff,and Gardial 2002; Hirschman 1986; Lincoln and Guba 1985; Wallendorf and Belk 1989),

1) Credibility: Adequate and believable representations of the constructs and relationships byemploying member checks.

2) Transferability: Propositions can also be employed in other contexts by purposive sam-pling across different supply chain relationships.

3) Dependability: Interpretation avoids instability by the primary researcher’s persistent obser-vation before, during, and after data collection.

4) Confirmability: Ability to trace a researcher’s construction of an interpretation by journal-ing the process and memoing through the duration of the study.

INTERPRETATION AND ANALYSIS OF THE FINDINGS

The purpose of the interviews was not just to explore constructs already existing in the servicequality and loyalty literature, but to also provide a deeper understanding of the interrelationships ofthe constructs in a supply chain context under the conditions of dependence asymmetry. Alongwith the existing literature, the data analysis led to a dyadic model of logistics service loyalty in asym-metric relationships (Figure 1).


FIGURE 1

LSQ AND LOYALTY DRIVERS

Dependence Asymmetry and Loyalty

Dependence asymmetry is the degree to which one firm holds substantially more or substan-tially less power (or is substantially less or more dependent) than another in a supply chain relationship(Gundlach and Cadotte 1994). The construct was tapped by asking the customers how expectationschange when a supplier counts on them for a substantial amount of business, versus when they area small account relative to others. For suppliers, the question posed was about how service levelschange if they have a big customer versus a small one “they could live without.” The idea was tosee if expectations differ in asymmetrical relationships when one party is less dependent than theother party.

While our premise was to investigate expectations, content analysis also allows for the possi-bility of new findings besides those that are pre-defined (Harris 2001). In this study, the qualitativedata revealed a “zone of tolerance,” as identified by Zeithaml, Berry, and Parasuraman (1993). Inan attempt to more clearly understand the nature of expectations, Zeithaml, Berry, and Parasuraman(1993) found different levels of expectations. The standard service expectation is desired service,which is the service the customer hopes to receive. Customers recognize, however, that this is notalways possible, so they also have a lower level expectation threshold constituted as adequate ser-vice, which is the service the customer will accept. The area between these two levels, represent-ing the difference between desired service and adequate service, is the “zone of tolerance.” They alsocontend that the zone of tolerance can expand and contract, and the fluctuation in this zone is a func-tion of changes in adequate service more than changes in desired service. When customers perceivefew alternatives, when they sense they are not fulfilling their roles, or situational factors are beyondthe control of the provider, the zone becomes wider (Parasuraman, Berry, and Zeithaml 1993).

Supplier’s Power

Customer’s

Dependence Asymmetry

Customer’s Zoneof Tolerance

of LSQ

Supplier’s Logistics Service

Delivery

Customer’s Expectations

of LSQ

Customer Loyalty

Supplier Loyalty

Service Gap Loyalty Gap

Supplier’s Perception of Customer’s Expectations

P1

P2

P3

P4

P5

Customer’s Perception

of LSQ

P2

Power


Although the aforementioned study related to a consumer setting, this study revealed a zoneof tolerance that applies to a supply chain setting as well. When Company X is a big customer, thenmost of the executives expect more. They also agreed that the actual service levels from the suppliersdiffer depending on how important they are to a supplier. As a more powerful customer, they madecomments like “Service levels are different when you’re a big guy versus a small guy. The integrityof the service has to be greater. I expect more because we are important. We get immeasurablesavings, mostly the intangibles. I can’t post a dollar sign to it, but there are monetary savings.”

When the company is a smaller customer, expectations also change, which makes the size ofthe zone between desired service and adequate service larger. They tolerate a different service leveland, in most cases, it has to do with how quickly suppliers respond to requests. The executivesalso believe that in some cases, some level of dissatisfaction is acceptable. One of the executivestalked about a situation where the balance of power was with a major lighting supplier instead ofCompany X because this supplier considered the firm a small customer compared to other nationalretailers. He discussed how service was more inconsistent and less timely, but this executive alsoacknowledged that he did not expect the same level of service. “The tolerance level is much higher,”and “My expectations are not as high. We’ll put up with more. We have to put up with more.”

The symmetry of the relationship contributes to how customers assess “tolerance” for servicelevels. This “tolerance” influences how customers develop expectations and ultimately how they per-ceive the service provided. Similar to the study uncovering a zone of tolerance (Zeithaml, Berry, andParasuraman 1993), this study revealed that what is accepted as “adequate service” changes, depend-ing on the power structure of the relationship, thus causing the zone of tolerance to expand and con-tract. When Company X is in the power position, expectations are higher, so adequate service levelsare much higher, thus making the zone of tolerance much smaller. Likewise, when power is balancedon the side of the supplier, Company X has a greater tolerance level for acceptable service levels,making the zone of tolerance larger. Therefore,

P1a: In an asymmetrical relationship where a customer perceives they have more power thanthe supplier (i.e., the supplier is more dependent on the customer), the customer’s zoneof tolerance between adequate service levels and desired service levels is narrow becausethe adequate service level is higher.

P1b: In an asymmetrical relationship where a customer perceives the supplier has more powerthan the customer (i.e., the customer is more dependent on the supplier), the customer’szone of tolerance between adequate service levels and desired service levels is widerbecause the adequate service level is lower.

The sentiment from suppliers was that bigger customers expect more, and they receive morein some areas of service. Reliability does not change, but timeliness and responsiveness might dif-fer from customer to customer. More dependent suppliers understand that customers have greaterservice expectations and are willing to make responses or changes that the customer desires (Dwyerand Walker 1981). Supplier 1 stated, “Bigger ones have a greater value from a profit standpoint.”


He explained that the integrity of the service is the same across customers, but timeliness varies. “Big-ger customers come first… Size and value of customer does affect priorities.” Supplier 5 alsoagreed that some accounts get more time and energy. Supplier 2 used the 80/20 Rule, “Eighty per-cent of the time is spent with 20% of the customers.” He focuses more time on larger customers orthe ones with the potential to be large. He added, “Larger customers do expect more. Larger cus-tomers know ‘I’m providing a lot and you need to give me more,’versus the smaller one who does-n’t expect special attention.” Since the suppliers realize that larger customers expect more in termsof service, they change their actual service levels to accommodate the most powerful customers’needs.Therefore,

P2: The supplier’s perception of the customer’s expectations mediates the relationship betweendependence symmetry and the supplier’s logistics service delivery:

a: When the power of the customer is greater than that of the supplier (i.e., when the supplieris more dependent), the suppliers’perception of the customer’s expectations, and the sub-sequent actual service levels, are higher.

b: When the power of the supplier is greater than that of the customer (i.e., when the customeris more dependent), the suppliers’perception of the customer’s expectations, and the sub-sequent actual service levels, are lower.

Logistics Service and Loyalty

In the logistics discipline, customer service has two aspects (Maltz and Maltz 1998). The firstis basic customer service, involving cycle time, on-time delivery, and inventory availability. The sec-ond aspect is responsiveness, which is any handling of individual customer requests beyond tradi-tional service measures (Davis and Mandrodt 1992). Service quality is a measure of how well theservice delivered matches customer expectations, and delivering service quality means conformingto customer expectations on a consistent basis (Lewis and Booms 1983).

The Parasuraman, Zeithaml, and Berry (1988) service quality research showed that there areseveral discrepancies, or “gaps,” implying that customers and suppliers may have different expec-tations regarding customer service. Thus, customer perceptions do not always match the service actu-ally provided. One of the gaps identified in the Zeithaml, Berry, and Parasuraman (1988) model hasbeen termed the “Service Gap” in Figure 1. While several logistics studies have attempted to empir-ically measure customer perceptions of logistics service (Bienstock, Mentzer, and Bird 1997;Daugherty, Stank, and Ellinger 1998; Mentzer, Flint, and Hult 2001; Mentzer, Gomes, and Krapfel1989; Stank et al. 2003), there has been less emphasis on understanding the gap in perceptions ofservice between suppliers and customers, which requires dyads.

In order to understand this gap, both Company X and its suppliers were asked to discuss whatit takes to gain loyalty. Another question, designed to probe deeper, asked both sides to identify theelements that would terminate a relationship, or “deal breakers.” The purpose was to examine the


gap between Company X’s expectations of logistics service and the suppliers’perceptions of Com-pany X’s expectations.

Problem resolution and reliability were the two biggest themes from the customer’s point ofview. They talked about keeping promises, honoring commitments, and having a comfort levelthat problems and issues will be addressed. These findings support the Mentzer, Flint, and Hult (2001)study, which found that complaint handling had a direct relationship to customer satisfaction. AsRespondent 4 put it, “Problems happen. Quick response is the key to good service,” and “I hate tohave to wonder if a vendor is responding to my needs.” Timeliness, availability, and communica-tion were also mentioned as important elements. The focus, however, was not as much on the tra-ditional elements of logistics service, but the “softer” concepts linked to perceptions and meetingexpectations. For instance, one executive commented that there were problems with suppliers,“Being overzealous about what you can do – then performing underneath expectations will lose thelevel of trust with them.”

Although the suppliers talked in much more depth about these questions, similar themes con-sistently arose as important to customer loyalty:

5 Reliability: Consistent with the Parasuraman, Zeithaml and Berry (1988) research, manycomments demonstrated the importance of supplier reliability in the relationship, such as,“doing it right the first time…do what you say and go the extra mile,” and “mean what yousay and then do it.” Reliability also covered the idea of repeated performance over time,and this was a significant driver of loyalty. The suppliers also considered availability animportant part of reliability. The comment that “if availability becomes a problem, then reli-ability will decrease,” demonstrates this idea. Having the products and services available whenthe customer needs them was mentioned as an element of being a reliable supplier.

5 Communication: “Communication is key,” and “Keeping the customer advised,” were pointsraised that support the importance of communication between the parties. Similarly, Mentzer,Flint, and Hult (2001) found that having personnel that are easy to work with and availableto provide information was a dimension of logistics service quality. Other communicationaspects included calling the customer after the service to ask about the experience, keepingthe customer informed about the process, as well as talking about expectations upfront.

5 Timeliness: Slightly different than Mentzer, Flint, and Hult (2001), who maintain that time-liness refers to orders arriving when promised, the suppliers recognize the “softer” side of thisservice element. Comments include, “We spend money on assets to make it efficient to useus…time is money [for the customer].” Another synonym used was promptness of service,as one supplier commented that the key is “delivering on what we say rapidly.”

5 Responsiveness: This entailed being more proactive, especially in terms of problem-solving,and is comparable to Davis and Mandrodt (1992), who use responsiveness for handling anyindividual customer requests beyond traditional service. Maltz and Maltz (1998) also adopted“responsiveness” to refer to customer service elements other than availability, on-time delivery,


and cycle time. This suggests a broader and “softer” view of logistics service, and suppliersbelieved that trying to be proactive, especially in terms of problems, influences loyalty.Responsiveness is also demonstrated by “doing simple things, like returning phone calls.”A broader view of responsiveness included “just responding to the needs of the customer, what-ever those needs may be.”

In contrast to the Parasuraman, Zeithaml, and Berry (1988) research, this study found the gapin perceptions between the customer organization and its suppliers is small, as both suppliers andcustomers had a similar understanding of important elements of service that promote loyalty. Alter-nately, the executives also indicated that when suppliers did not meet their service expectations, theywere no longer loyal. For instance, one executive talked about a relationship he had with a dairy prod-ucts supplier. This supplier was going to be the sole supplier to all the retail stores. However, whenthere was a problem with the cooler shelves staying stocked, the executive terminated the rela-tionship and found another supplier. He talked about how he expected more from them, and whenthey did not deliver, he dropped them. Consequently, the size of the service gap is related to the degreeof loyalty between supplier and customer. Additionally, elements of logistics service that instilledloyalty were not the directly measurable components, such as fill rates and on-time delivery. Rather,loyalty was driven by more intangible elements of the relationship, such as handling problems andcommunication.

P3: In a loyal supplier/customer relationship, there is a similar understanding about the impor-tant elements of logistics service, thus reducing the size of the gap between customerexpectations and supplier perceptions of customer expectations of service (the ServiceGap).

P4: In a loyal relationship between a supplier and a customer, loyalty is driven more by rela-tionship factors (i.e., handling problems and communication) than operational factors(i.e., fill rates and on-time delivery).

What Is Loyalty?

In a review of the loyalty literature, there were more than 20 different definitions for loyaltyidentified, and most definitions describe loyalty in terms of how it is measured, rather than a con-crete statement to describe what it is and what it means. Additionally, scales developed to measureloyalty abound in the literature, with inconsistencies in findings assessing loyalty behaviors and atti-tudes. Traditionally, customer loyalty focuses on a customer’s repeat purchase behavior, or behav-ioral loyalty (Hennig-Thurau, Gwinner, and Gremier 2002). A second dimension of loyalty focuseson customer affect or attitude. The idea is that the traditional dependence on repeat purchasingonly as an indicator of loyalty does not capture commitment strength (Pritchard, Havitz, and Howard1999). Kandampully (1998) proposed that true, loyal relationships between suppliers and their cus-tomers are created by the supplier organization’s ability to connect emotionally and forge long-termbonds with the customer’s representatives.


When the respondents in this study were asked to describe what loyalty meant to them, therewere distinct differences between what Company X executives considered loyalty and supplierperceptions of loyalty (the Loyalty Gap in Figure 1). The customer organization (Company X)spoke of loyalty in behavioral terms. Phrases like, “commitment to volume,” “who they spend themost money with,” and “majority of business” were common comments. Respondent 2 referred toit as, “a comfort level that we’re satisfied enough to make a commitment to volume.”

Alternately, the suppliers attached a more attitudinal dimension to loyalty. Comments includedthe importance of repeat business, but a bigger commonality was a personal connection to the cus-tomer, which yields a first consideration relative to competitors. Comments such as, “When they thinkof (his product), or have a problem or opportunity, they think of me,” and “You do the work with-out the bidding. Dollars and cents don’t come into the picture,” reflect this.

The existing literature on loyalty has only considered the customer’s perspective on loyalty. How-ever, this research revealed dyadic differences in loyalty (the Loyalty Gap) not previously consid-ered. The individual sides of the dyad have very different ideas about what constitutes loyalty,which may be one reason for mixed findings in the literature. A possible explanation for this dis-crepancy is in the nature of asymmetric relationships. Following Heide and John (1988), the sup-pliers in this case are trying to reduce their dependency by developing personal relationships withCompany X. The suppliers discussed the importance of making sure bigger customers know they“care” about them. One supplier stated, “You have to remember what is important to them. If theywant to talk about football, you talk about football; if you know their kid plays baseball, you ask themabout how the season is going. You add a personal dimension to the relationship to make sure heknows that he is important and that you care.”

Also, according to Buchanan (1992), Company X is less likely to contribute to the relationship,so the attitudinal components are less important. For instance, one executive even identified two kindsof loyalty – emotional loyalty, driven by personal relationships, and economic loyalty, with noemotions. He believes that loyalty is economically driven, and emotional loyalty plays only a verysmall part in decision-making. If the relationships were more symmetrical, however, there wouldlikely be more emphasis on the attitudinal component by the customer. Supported by the literature,the data suggest the nature of loyalty changes in asymmetric versus symmetric relationships. There-fore, the following proposition is offered, and illustrated in Figure 1:

P5: A loyalty gap (the difference in perceptions about the nature of loyalty between suppliersand customers) exists in asymmetric relationships.


IMPLICATIONS

The purpose of this research was to qualitatively explore how perceptions of logistics servicequality affect loyalty between suppliers and customers, and build theory about the relationshipsbetween dependence asymmetry, logistics service, and loyalty. While the existing literature providesinsight into these constructs, this qualitative study precipitated understanding the relationships ina dyadic context, which is lacking in logistics and supply chain research. Further, this study uncov-ered two “gaps” – a “service gap” that exists in previous research but was much smaller thanexpected, and a “loyalty gap” that demonstrates how differently suppliers and customers can viewloyalty.

The study reveals that logistics service quality has a positive effect on loyalty. When explor-ing the Service Gap (Gap 1 in the Parasuraman, Zeithaml, and Berry (1985) model), the data showeda close match between the supplier’s perception of what the customer expects and actual customerexpectations. This study demonstrates that in loyal relationships, the gap in LSQ expectations is rel-atively small, which also signals the importance of logistics service in supplier-customer relation-ships. Additionally, this study lends support to find ways to measure the “softer,” more perceptualcomponents of logistics service, such as perceptions of problem-solving, reliability, and commu-nication. While a competitive advantage through superior logistics service may be a key to success,the superiority may come from those latent, “soft” elements of service that need more researchattention.

Another contribution from this study involves assessment of the nature of loyalty. The datarevealed a “Loyalty Gap” in perceptions about what loyalty means to the customer and their sup-pliers. The more powerful customer had a very behavioral view of loyalty, while suppliers saw thephenomenon from an affective view. This loyalty gap is likely due to the dependence asymmetrybetween the parties, as evidenced when the customer did not have the motivation to put forth the sameeffort as the supplier to maintain the relationship. This reinforces the two-dimensional nature(behavioral and affective) of loyalty and calls for more development of the loyalty construct infuture research (both in theory and scale development). This finding is particularly important for under-standing and managing supply chain relationships. Mentzer et al. (2001, p. 10) stated, “Effective SCMis made up of a series of partnerships and, thus, SCM requires partners to build and maintain longterm relationships.” This building and maintaining of long term relationships between the “seriesof partnerships” that constitute supply chain management cannot exist without loyalty. Figure 1 illus-trates that such loyalty cannot be managed without further understanding of dependence asymme-try, zones of tolerance of LSQ, and customer and supplier expectations and perceptions. Theseissues are critical to supply chain managers and, thus, of considerable interest for future supply chainmanagement research.

This research also supports the idea that dependence asymmetry affects supplier-customerrelationships. Over 20 years ago, Dwyer and Walker (1981) stated that asymmetrical power distri-bution is more prevalent in supply chains than a symmetrical distribution, and this research found


evidence that power asymmetry still affects supply chain relationships today. It shapes both perceptionsof service quality and actual logistics service delivery. It also influences the size of the zone of tol-erance and the perceptions of loyalty between suppliers and customers.

This research also introduces the zone of tolerance in a supply chain (versus consumer) context. The study clarifies how the zone of tolerance expands and contracts as adequate levels ofservice differ because of the supply chain power structure. Although it is logical to assume that a pow-erful customer expects more from its supplier, empirical studies about supply chain relationships donot consider this contextual factor in service issues. Addressing the zone of tolerance introduced hereprovides measurement opportunities to gain more understanding about how expectations change inevaluating logistics service issues and the subsequent effect on loyalty. Powerful customers have anarrower zone, and suppliers differentiate service offerings in order to provide superior service to more powerful customers. As long as the adequate service level is met, however, loyaltylevels remain unchanged.

Because of the traditionally operations-based nature of logistics service, managers often spendlittle attention on customer-focused insights about what establishes customer loyalty. This study pro-vides support that managers should gain a thorough understanding about what elements of logisticsservice help retain their customer base. The original conception of service quality involves conformingto customer expectations (Lewis and Booms 1983). Service quality comes from customers’ per-ceptions, so firms that attend only to internal considerations of logistics service may not provide thespecific service characteristics that customers really need or expect. Also, relying on fill rates anddelivery times may be “order qualifiers,” but loyalty may come from such intangibles as attendingto problems and providing ongoing communication to customers. Narrowing that gap betweensupplier and customer expectations could have a strong effect on the success of dyadic supplier-customer relationships.

This study also supports the need for managers to understand the balance of power and depen-dence in a relationship. The research shows the potential for power/dependence to influence expec-tations of suppliers and customers in a relationship. In decision-making about logistics service,managers need to recognize that “standard” logistics service may not be appropriate in some situ-ations. Bigger customers may require one level of service to remain loyal, while smaller ones maynot expect or need that same level of service. Therefore, resources should be adjusted by customer,based on the value of the customer and their expectations of logistics service provided by the supplier.

Power/dependence also affects the “tolerance” of customers for inadequate service, and theimpact of the resultant levels of satisfaction on loyalty. Recognizing that dependence may bring behav-ioral loyalty in the absence of affective loyalty means managers must walk a fine line betweenmaintaining customer dependence and, when that dependence erodes, shifting to higher servicelevels to keep the loyalty (both behavioral and affective) of the now “less dependent” customer.


LIMITATIONS AND FUTURE RESEARCH

We believe this research is an important step in understanding more about the role of logisticsservice in supply chain relationships. However, since the paper is conceptual and based on findingsfrom qualitative interviews, there are limitations. Findings from qualitative research are based onthe perceptions and opinions of a limited number of participants, and although the inductive methodleads to theory development, it is limited to making theoretical propositions and is not generaliz-able to a broader population. Therefore, it has not provided verification of the proposed theoreticalrelationships, which should be accomplished through further empirical investigation. Additional short-comings also involve the sample chosen for the study. Company X is a privately held firm and allof the suppliers interviewed were from the Southeast United States. This is a very competitiveindustry with many alternate supply sources, so this may have influenced the significant impact ofthe relational logistics service on loyalty. Less competitive environments where the tangible aspectshave greater variable might lead to different insights. Further, the suppliers interviewed were in mar-keting positions, and each one had a financial stake in the success of the relationship. Finally, wealso took a very narrow perspective on power/dependence, as we looked at only the volume ofbusiness. Future research should address these limitations.

The findings from this study support the need for additional theoretical development in the areaof customer loyalty. Previous studies looked at one side of the dyad in measuring loyalty; however,the dyadic perspective provided in this research supports the notion that there may be a gap betweensuppliers and customers about the underlying nature of loyalty. Because the nature of loyaltyappears to be dissimilar in asymmetric relationships, there are some measurement issues that needto be addressed by future research. Loyalty has been measured as a first-order construct, withbehavioral and/or attitudinal items included in the scale. The results of this study suggest that loy-alty should be measured differently in future research. While both components may be necessaryto constitute loyalty (Jacoby and Kyner 1973), a first-order scale may not capture the significanceof either component individually. Loyalty could be a second order construct with the attitudinal andbehavioral components as two separate dimensions. Research initiatives concerning loyalty shouldconsider measuring loyalty as a second order construct, looking at model fit statistics and testing predictive validity.

Understanding logistics service quality and its subsequent affect on loyalty also merits addi-tional research. The research addressing service quality has focused mainly on operational defini-tions as a measurement basis. Similar to loyalty, the field also needs a better understanding of whatlogistics service quality is and what it means, rather than only how to measure it. The evidence herereflects the importance of suppliers understanding the service needs of their customers to maintainstrong relationships. Daugherty, Stank, and Ellinger (1998) focused on the outcomes of logistics ser-vice, and Stank et al. (2003) found that the relational performance of logistics service affected loy-alty through satisfaction, but operational and price performance did not. These scales, however, focusedon service performance rather than perceptions of service quality. Further empirical research shouldadd support not only to the premise that LSQ affects loyalty, but study how the size of the gap in


perceptions affects loyalty and vice versa. Future logistics service research should also take intoaccount the perceptual and behavioral elements of logistics service. While availability and deliverymay be order-qualifiers, the more relational elements of logistics service should be explored asantecedents to loyalty.

Additional future research should examine LSQ in different industry contexts. The impor-tance of the relational elements may be different in other settings. Additionally, future researchcould also explore how these expectations change when parties are engaged in contractual arrange-ments. Perhaps contractual arrangements also lower the gap in expectations, as well as also affecta customer’s zone of tolerance.

This study lends support to the research stream focusing on logistics service segmentation(Mentzer, Flint, and Hult 2001). More research about the balance of power in dyadic relationshipsshould aid researchers in the development of strategic market segmentation models. Therefore,supplier–customer relationships in the supply chain need more study from this perspective. Are rela-tionships necessary to retain customers? How does relationship length affect asymmetric relation-ships? How should firms allocate resources to support relationships? When is collaboration necessary?Should firms “fire” some customers? Because this perspective is underdeveloped, many researchopportunities exist.

The field is ripe with opportunity to investigate the zone of tolerance. Zeithaml, Berry, and Para-suraman (1993) called for additional research in ways that companies could use the zone of toler-ance to formulate effective strategies, especially in terms of segmentation decisions. They alsoaddressed measurement issues: “A need and a challenge exist for developing direct measures of thezone of tolerance, perhaps by having customers specify the range of expectations that they possessfor service” (pp. 10-11). This study underscores the importance of exploring this latent variable, and developing measures for empirical testing. Understanding how adequate levels of servicechange leads to greater understanding of expected service levels and the subsequent effect on loyalty.

Since dependence asymmetry is only one antecedent to the zone of tolerance, other antecedentsshould also be explored. For instance, Parasuraman, Berry, and Zeithaml (1993) contend thatanother factor that can widen or narrow the zone is when there are situational factors outside of theservice provider’s control. In a supply chain context, it would be insightful to see if customers’zonesof tolerance widen when they perceive that a logistics service failure is not due to lack of diligenceby the supplier, and also whether the strength of the relationship between the customer and suppliermakes a customer more “forgiving” when a service failure occurs. In another consumer study thatcould apply in a supply chain setting, Johnston (1995) found that the width of the zone of toleranceis affected by the degree of involvement, and greater levels of involvement narrow the zone of tol-erance. Future research should also explore what happens to the zone of tolerance in more symmetricalrelationships, as there is reason to argue for the zone to go in either direction. For instance, one mightargue that symmetry in a customer-supplier relationship makes the zone wide, since neither partyhas a balance of power. On the other hand, one might argue that the zone narrows because in


interdependent relationships, since there is not a power struggle, customers expect better service.Future empirical testing is needed to tease out the intricacies in this situation.

Recent research in supplier–customer relationships in the supply chain has focused primarilyon the relationship paradigm, but the power/dependence paradigm has also seen application instudies about developing and maintaining customer-supplier relationships. The two seem inherentlyconflicted, as asymmetry in a relationship is proposed to lead to higher levels of conflict and lowerlevels of trust (Kumar and Scheer 1995). This research supports the idea that dependence asymmetryaffects supplier-customer relationships, but loyal and lasting relationships can still exist in the faceof an unbalanced power structure.

Examining the effect of power must be a part of thorough and realistic supplier-customer rela-tionship research. Brown, Lusch, and Nicholson (1995) contended, “it is much too premature to closethe book on power research” (p. 385). Cadotte and Bruce (2003) also noted, “The truth is there isno post-power era, because nothing has been discovered that can take the place of power as fuel fororganizational effort. Power, like matter and energy, may change its form but cannot go out of exis-tence.” The impact of power and dependence on supplier-customer relationships, perceptions of logis-tics service, and loyalty is an area that needs considerable additional logistics research attention.

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APPENDIX

Interview Guide

1. Company X – When suppliers say they value your loyalty, what do you think they mean?In other words, what do they want from you?Suppliers – What do you mean by customer loyalty? What do you want from your cus-tomers?

2. Company X – What must suppliers do to gain your loyalty?Suppliers – What must you do to gain customer loyalty?

3. Company X – When you know you are a big customer and a supplier counts on you for a sub-stantial amount of business, versus when you are a small customer and you are a smallaccount relative to others, do your expectations differ in those two opposite situations?Suppliers – If you have a big customer that gives you a lot of business versus a small one that“you could live without,” do the two get different levels of service? Do you think that big-ger customers expect more than smaller ones?

4. Company X – What is the biggest deal-breaker? In other words, what is the one (or more)thing that a supplier could do to cause you to terminate business with him/her?

Suppliers – What is the biggest deal-breaker? In other words, what is the one (or more)thing that you could do to lose a loyal customer?

ABOUT THE AUTHORS

Beth R. Davis (Ph.D., The University of Tennessee) is an Assistant Professor at the Univer-sity of Louisville in Marketing. Her research interests include supply chain relationships, the strate-gic implications of logistics capabilities, and the effect of logistics service quality in creatingcustomer loyalty. Prior to pursuing the Ph.D., she worked in the financial services industry as bothan analyst in new product development and as a field sales representative.

John T. (Tom) Mentzer (Ph.D., Michigan State University) is the Harry J. and Vivienne R.Bruce Excellence Chair of Business in the Department of Marketing and Logistics at the Universityof Tennessee. He has published 8 books and more than 180 articles and papers in the Journal of Busi-ness Logistics, Journal of Marketing, International Journal of Physical Distribution and LogisticsManagement, and other journals. He was the 2004 recipient of the Council of Logistics ManagementDistinguished Service Award.


logistics service driven loyalty: an exploratory study

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