Customer Loyalty and Disloyalty in Internet Retail Stores: Its Antecedents and Its Effect on Customer Price Sensitivity

Article excerpt

Despite growing popularity of electronic commerce, many e-retailers are exiting from cyber markets as a result of failing to gain and maintain a loyal customer base and underpressure of intensified price competition and low profitability. To cope with severe price competition and the resulting undermined profitability, this paper argues that raising customers' willingness to pay more via two-dichotomy customer management strategies (managing customers' loyal behavior and managing customers' disloyal behavior) are essential. From an empirical study, using a sample of 159 shoppers who have experiences of purchasing products from an Internet retail store, we identified that three quality factors from the perspectives of information technology, retailing, and customer service that exert significant influence on customers' loyal/disloyal behaviors. Additionally, customers' loyal behavior and disloyal behavior mediate the relationship between those Internet retail store quality factors and price sensitivity.

Introduction

With the advancement of information and communication technology and the resulting emergence of electronic commerce (EC), business players such as suppliers, manufacturers, and customers were required to change their ways of doing business. Many firms have adopted the Internet as a marketing tool to advertise their brands in the market, reach their possible customers quickly, and improve relationship with customers (Poon and Swatman, 1999). For a large number of Web sites with such characteristics, it has become possible for customers to compare and contrast various products in different Internet retail stores (IRSs) with little effort or time. Thus, the information asymmetries between sellers and buyers are becoming smaller.

Due to the reduction in information asymmetries, we are witnessing greater price competition among IRSs. For the use of the Internet and other innovations in telecommunication are drawing us ever closer to economists' concept of a perfect market, more products and services will be increasingly perceived as commodities (Srinivasan et á/., 2002). Thus, as noted by Peterson (1997), 1RS markets will lead to intensified price competition, resulting in lower profit margins. Competing against such severe market dynamics and appreciating the importance of retaining loyal customers in the IRS business are issues that have been recognized by researchers. A range of strategies has been suggested in identifying the critical features for improving our understanding of the potential success of retailing on the Internet (Lohse and Spiller, 1998; SeIz and Schubert, 1998; Jarvenpaa and Todd, 1997; Ho and Wu, 1999; Shaw, Gardner, and Thomas, 1997; Keeney, 1999; Reichheld and Schefter, 2000; Srinivasan, Anderson, and Ponnavolu, 2002). Whether or not IRSs can convert their potential customers into real ones and retain them depends to a very large extent on consumers' perception of those features of quality emanating from each 1RS (Ho and Wu, 1999).

However, despite the strategic importance of managing such critical features and retaining loyal customers, the current understanding of consumer behaviors in 1RS is limited. Reviewing the current literature, we find the following major gaps. First, most literature has focused solely on customer satisfaction or customer loyalty with bipolar approach to explain the consumer behavior. Although this approach can simplify the conceptual framework, it could limit the explanation and prediction of customer retention behaviors. second, though it is important in 1RS market to attract customers to visit the site with the desired attitude and to revisit the site periodically (SeIz and Schubert, 1998), there are few empirical studies focusing upon potential profitability of customers. Therefore, a formal empirical study focusing on these gaps is highly desirable.

Thus, our study aims to narrow these gaps. First, we extend the consumers' behavioral construct by considering the concept of customer loyalty and their disloyalty simultaneously as core constructs. …