Abstract
Research Objective – The main objective of this research paper is to identify the relationship of customer experience in service quality, word-of-mouth, product quality, and customer satisfaction leading to customer loyalty in GlobalHealth Asia of Hong Kong.
Research Design and Methodology – By applying related literature review, the conceptual model and hypothesis framework were constructed and setup to identify the relationship of Service quality, word-of-mouth, Product quality, and Customer satisfaction leading to Customer loyalty. Quantitative research approach was taken for this study. Sample size (n = 150) was drawn from the population (active insured members with GlobalHealth policies) using random sampling method. Online survey which published on GlobalHealth website was distributed to the 150 members via email. Data were collected and analyzed from questionnaire to find out the relationship and implications between the above variables.
Findings – After studying and analysis the collected data by using different methodologies, the correlation and regression analysis both indicated the significant and positive relationship in between the five variables. And based on the previous findings from other empirical researches, it is identified that the positive inter-relationship between service quality, word-of-mouth, product quality, and customer satisfaction leading to customer loyalty.
Research limitations – Due to the limited resources and time in conducting the primary research data collection, a small sample size of data was collected from the population to reflect the association between service quality, word-of-mouth, product quality, customer satisfaction and customer loyalty. However there may have other variance against the whole picture of GlobalHealth Asia according to the full population of active members in the company. In the future, researchers could elaborate to make use of more independent variables for measurement purpose.
Practical implications – The result of this research was proved that Service quality, Word-of-mouth and Product quality are directly affecting Customer satisfaction. Lastly, Customer satisfaction influences Customer loyalty intention directly. By applying the findings to GlobalHealth Asia, improvements in different aspects were recommended in the last chapter which included to redefine the existing product lines to meet customer needs, develop training program for internal staffs in order to enrich and straighten the customer service quality etc.
Table of Contents
1.1.1 – Definition of Insurance. 10
1.1.1 – Marketing trend of insurance industry in Hong Kong. 10
1.1.2 – Overview of GlobalHealth’s business. 11
1.2 – Motivation and Aims of this study. 12
1.3 – Research questions and objectives. 13
1.3.1 – Research objectives. 14
1.3.4 – Research Procedure. 15
1.3.8 – Analytical Outcome. 17
1.3.9 – Research Navigation. 17
1.3.10 – Research process overviews. 19
Chapter 2 – Review of Literature. 20
2.2 – The Role of Insurance in Economic Growth. 20
2.3 – Trends and Development of Global Insurance Market. 21
2.4 – The market trends of Hong Kong Insurance Industry. 22
2.5 – Literature Review of Service Quality. 23
2.5.1 – Relationship between Service Quality and Customer Satisfaction. 25
2.6 – Literature Review of Word-of-mouth. 26
2.6.1 – Relationship between Word-of-mouth and Customer Satisfaction. 28
2.7 – Literature Review of Product Quality. 28
2.7.1 Relationship between Product Quality and Customer Satisfaction. 30
2.8 – Literature Review of Customer Satisfaction. 30
2.9 – Literature Review of Customer Loyalty. 32
2.9.1 – Relationship between Customer Satisfaction and Customer Loyalty. 35
Chapter 3 – Research Methodology. 38
3.2.2 – Research Hypothesis. 42
3.5.3 – Process of Data Collection. 47
3.11 – Data Analysis Procedures. 50
3.12 – Reliability and Validity. 50
3.14 – Potential Sources of Error or Biases in Sampling and Collection Design. 53
Chapter 4 – Analysis and Result. 55
4.1 – Overall Response Summary. 55
4.1.1 – Data Description on Demography. 56
4.1.2 – Description on Gender and Age Range of Respondents. 56
4.1.3 – Description on Education Level of Respondents. 57
4.2.1 – Coding of Variables. 57
4.2.2 – Description Statistics for the Variables. 58
4.3.1 – V1: Service Quality. 59
4.3.3 – V3: Product Quality. 61
4.3.4 – V4: Customer Satisfaction. 63
4.3.5 – V5: Customer Loyalty. 64
4.4 – Correlation Analysis. 65
4.4.1 – Correlations on Service Quality, Word-of-mouth, Product Quality and Customer Satisfaction 67
4.4.2 – Correlations on Customer Satisfaction and Customer Loyalty. 69
4.5 – Linear Regression Analysis. 70
4.5.1 – Correlations on Service Quality, Word-of-mouth, Product Quality and Customer Satisfaction 70
4.5.2 – Customer satisfaction and customer loyalty. 73
4.6.1 – Service Quality and Customer Satisfaction ANOVA analysis. 76
4.6.2 – Word-Of-Mouth and Customer Satisfaction ANOVA analysis. 77
4.6.3 – Product Quality and Customer Satisfaction ANOVA analysis. 78
4.6.4 – Customer Satisfaction and Customer Loyalty ANOVA analysis. 79
4.7 – Conclusion on Correlation and Regression Analysis. 79
4.8 – Conclusion on Hypothesis Testing. 80
Chapter 5 – Conclusions and Recommendations. 82
6.3 – Recommendations for Future Researchers. 85
6.4 – Recommendations to GlobalHealth. 86
6.5 – Limitations and Potential Error or Biases. 88
Appendix I – Survey Question. 106
Chapter 1 – Introduction
This chapter explains the rationale, research background, aims and objectives, and why this subject was being researched into. Moreover, a brief navigation on the dissertation sessions are stated with all chapters outlined.
1.1 – Research Background
1.1.1 – Definition of Insurance
Insurance is a risk-transfer mechanism that ensures full or partial financial compensation for the loss or damage caused by event beyond the control of the insured party (Oxford, 2015). Under an insurance contract (policy), a party (the insurer) indemnifies the other party (the insured) against a specified amount of loss, occurring from specified eventualities within a specified period, provided a fee called premium is paid. In general insurance, compensation is normally proportionate to the loss incurred (Oxford, 2015).
1.1.1 – Marketing trend of insurance industry in Hong Kong
The insurance industry in Hong Kong has a long history of 170 years (Choi, 2015). There are currently 159 authorized insurers and over 88,000 corporate/individual intermediaries providing a wide range of insurance and risk management services (Choi, 2015).
Hong Kong has one of the most developed insurance markets in the region, with the per capita insurance premium standing at high levels (Chan, 2014). In 2013, total gross premiums increased 13.9% to HK$290.7 billion (US$37.4 billion) where 86% represented long-term insurance business, while general business accounted for the remaining 14% (Chan, 2014).
Hong Kong had 159 authorized insurers, about half of which were incorporated overseas as of 2 April 2014 (HKTDC, 2014). Among the overseas-incorporated insurers, the US and the UK took the lead (HKTDC, 2014). According to the 2012 OCI annual report, the top 10 leading players of general business insurance included HSBC Insurance (Asia), Zurich Insurance, Chartis Insurance, Bank of China Group Insurance, Bupa, CNOOC Insurance, Lloyd’s Underwriters, Asia Insurance Company, MSIG Insurance and China Taiping Insurance. They accounted for 41.6% of the total market share (HKTDC, 2014).
On the other hand, insurers are kept growing their business by getting benefit from the Chinese mainland’s WTO liberalization measures, which can benefit from the CEPA agreement to gain enhanced access to the mainland’s insurance market (HKTDC, 2014).
1.1.2 – Overview of GlobalHealth’s business
GlobalHealth Asia was formed in 1997 by a team of insurance professionals with over 25 years of experience in international healthcare management, committed to providing individuals, families and corporations based in Asia with comprehensive international health insurance solutions (GLOBALHEALTH, 2013). GlobalHealth Asia, as an established health insurance specialist develops, administers and supports international health insurance programs on behalf of its principals, who are among the largest insurers in the world (GLOBALHEALTH, 2013).
GlobalHealth Asia headquartered in Hong Kong and operations in Singapore, Vietnam and Shanghai, plus local underwriting partners across Southeast Asia (GLOBALHEALTH, 2013). GlobalHealth Asia provides a full range of professional health insurance services ranging from marketing, product development, distribution, underwriting, policy administration to claims adjudication (GLOBALHEALTH, 2013).
GlobalHealth Asia’s customers today include many multinational and regional corporations, individuals, families and expatriates who have come to call Asia home. The vision of GlobalHealth Asia is to become the best personal and family medical insurance service provider in Asia (GLOBALHEALTH, 2013).
As a company based in Hong Kong focusing business in Asia market, the performance of GlobalHealth Asia, 2014 production increased by US$2,499K (0.75%) compared with 2013 (GLOBALHEALTH, 2013). Although the profit of the company was increased in 2014 compared with previous year however the targeted performance was not achieved. In addition, the growth rate and performance were running behind the market and competitors.
1.2 – Motivation and Aims of this study
The management of GlobalHealth identified the following problems by looking into detail of the figures in different areas.
- Production of new policy slightly increased 1.1%, however the production of policy renewal dropped by 0.2% in 2014
- 81% of insured policyholder who didn’t renew policy in 2014, the age was between 35 and 55.
- 13% of total claimants who was not renewed the policy in 2014 and complained high turnover time (over 5 days) in processing claim.
In order to address the above problem, GlobalHealth seeked to assess satisfaction levels of existing customers with its services as well as it likes to know the profile, understanding and expectations of customers.
The aim of this study was to understand the relationship of service and product quality, word-of-mouth and customer satisfaction leading to customer loyalty. How service quality, product quality and word-of-mouth affect customer satisfaction and customer loyalty. The study also provided an evidence-based solution developed by a methodologically sounded investigation process, as required by modern business research requirements. Data and information are collected from the respondents and conceptual model were tested. The outcomes of this study including conclusions were used to provide company-specific recommendation as a reference for the management of GlobalHealth Asia for better business practices.
Thus, the significance of this study lies in solving and compassing GlobalHealth’s long-term competition especially in the rapidly demanding insurance industry.
1.3 – Research questions and objectives
With the increase of competition in the insurance industry, the aims and objective of this study is to evaluate the relationships among service quality, word-of-mouth, product quality, customer satisfaction and customer loyalty in GlobalHealth, which achieving the product and service quality, word-of-mouth and customer satisfaction that will increase or maintain customer loyalty and lead to succeed in GlobalHealth of Hong Kong. It was also used to confirm the suggestions that service and product quality, word-of-mouth were the important role in Globalhealth. The result of this study should be able to add the values on the reference of management decision makings and marketing in Globalhealth Hong Kong.
Thus, the significance of this study was to understand the relationship of customer experience on product and service quality, word-of-mouth and customer satisfaction leading to loyalty in GlobalHealth. Overall aim of this study was to provide an evidence-based solution developed by a methodologically sound investigation (Gallarza, 2006) process. Empirical data and information were collected from the respondent and conceptual model was tested. And there were also several research questions and objectives of this paper as below:
The aim of this study intended to answer the following specific questions:
- What are the factors contributing to customer satisfaction?
- In what ways do these factors related and influence customer satisfaction?
- What is the relationship between customer satisfaction and customer loyalty?
- What actions and recommendations are suitable for the management of GlobalHealth Asia to improve customer satisfaction and loyalty?
1.3.1 – Research objectives
The research objectives of this study were to fulfill the followings
- To conduct a thorough literature review in related fields for better understanding of relevant prior knowledge.
- To develop a conceptual model for hypothesis testing.
- To devise a sound research design for the collection and analysis of the data (what data to collect, how to collect, how much to collect, how to analysis)
- To produce meaningful analytical output for interpretation of results. (explain the data result)
- To provide sound recommendation for practitioner to improve these practices bared on research findings
- To suggest future research direction for forthcoming investigator to improve the findings
1.3.2 – Research Boundary
This paper was to assess the relationship among service and product quality, word of mouth, customer satisfaction and customer loyalty by using questionnaire to carry out a online survey to Globalhealth’s insured members.
Therefore, the framework with different aspects involved in this research is summarized as below:
| Research Title: | A study of customer loyalty: a case study of GlobalHealth Asia. |
| Targets of Study: | Active insured members in GlobalHealth Asia |
| Relevant Variables: | Product Quality and Service Quality, Customer Satisfaction and Customer Loyalty. |
| Research Methods: | Primary – (Online Survey and Post Survey review), Secondary – (Literature Review, Journals, Officials and other credible sources). |
| Analysis Tool: | SPSS (Statistical Software) and MS Excel |
1.3.3 – Conceptual Model
In this study, the potential relationship between (Service Quality, Product Quality and Word-of-mouth), Customer Satisfaction and Customer Loyalty were examined and analyzed through gathering information from targeted customers. Detail of conceptual model is discussed in the next chapter.
1.3.4 – Research Procedure
A logical procedure was followed in this study in order to conduct the research in an effective way. A topic and relevant variables were firstly defined based on the identification of inadequacy on related areas and then the research aims and objectives were recognized, and achieved meaningfully. Literature review relating to research variables were carried out providing solid and convincing foundation for the whole study.
After that, a questionnaire was set to gather information for examining the variables proposed. The sample frame and size were decided carefully with a Pilot Test ensuring the reliability between parts of question. By using SPSS tool, data description and analysis were done in a systematic and efficient way.
1.3.5 – Research Approach
In order to examine and analyze the relationships between variables including Product Quality, Service Quality, Word-of-Mouth, Customer Satisfaction and Customer Loyalty, a well-scaled customer survey and hypotheses were conducted and set (Amaratunga, et al., 2002). Therefore, the main approach of this study was using quantitative research involving testing hypotheses and applying theories on GlobalHealth insurance Hong Kong.
On the other hand, qualitative research is about exploring insights and interpreting meanings so that it is not applicable in this case comparing to positivism (Silverman, 1998). A online survey was conducted to support the findings in the well-scaled customer survey and the important points in the survey were summarized.
In conducting quantitative research, primary and secondary data were collected and analyzed respectively depending on several criteria which were stated in the following parts.
1.3.6 – Primary Data
Primary data in this study refers to the information collected from the online survey about customers’ preferences and experiences on GlobalHealth’s product and services. Questionnaire was set to ask for questions relating to variables that could be found in secondary sources.
Through gathering and using both data, the research was supported in a solid and convincing way.
1.3.7 – Secondary Data
Secondary data were the first information collected and accessed conveniently from relevant textbooks, credible newspapers and journals. These data were used to identify the performance of industry market in Hong Kong and integrate theories into analyses to support related arguments. These data were further explained in the Literature Review section.
1.3.8 – Analytical Outcome
For generating meaningful implications to meet research objectives, analysis was conducted on the proposed survey to test the correlations and regressions between variables. The aim was to ensure that there were significant and affirmative relationships affecting factors from each one to another.
1.3.9 – Research Navigation
A brief navigation of the whole research is provided to outline below:
Chapter 1: Introduction
In Chapter 1, research background, objectives and aims were introduced. The framework and procedures of study were also outlined to provide a clear picture of all the following steps.
Chapter 2: Literature Review
Chapter two was the discussion and review of variables on relationship analysis using past literatures. Different journals in terms of Product Quality, Service Quality, Word-of-mouth, Customer Satisfaction and Customer Loyalty were integrated and discussed on their potential correlations. Literatures on insurance market and recent market trends were also provided.
Chapter 3: Research Methodology
An overall research design was stated in Chapter three together with hypotheses set which were tested in the later chapter. It consists of types and methods on data collection, analysis approaches including sampling, pilot test and testing of targeted samples on reliability and validity. On the other hand, limitations and adjustments on analysis were also provided.
Chapter 4: Data Analysis and Result
This chapter is about making corresponding descriptions on data collected, for example, number of respondents, gender and response rate. Other general information was described. This chapter is also very critical as all data related to research variables were analyzed on statistical variations, correlations and regressions. The ultimate goal was to test the pre-set hypotheses and prove that there was a certain high degree of relationships between the variables meeting the research objectives.
Chapter 5: Conclusions and Recommendations
In Chapter 5, findings on analysis were concluded to see whether hypotheses set are valid in the study and the consistency with past academic papers. For recommendations, valuable suggestion and recommendation were provided for GlobalHealth Asia.
Chapter 6: Limitations
Limitations on this study and research approach were stated in this chapter such as sample size and time frame. Reasons behind these limitations were explained to give suitable adjustments on the study.
1.3.10 – Research process overviews
- (Population): This study targets GlobalHealth as the sole population for investigation. Specifically, this study focuses on all active insured policyholders with GlobalHealth.
- (sampling): A sample from the population is to be drawn using methodologically sound and sampling procedure to ensure the validity and reliability.
- The research approach of this study is quantitative in nature with the objective of developing testable hypotheses which represent the nature of the research problem.
The reason for employing quantitative techniques is that general understanding and theories were available but there were little known about this specific context. Based on the outcomes of hypothesis-testing, specific recommendations were provided hypothesis-testing were conducted by means of statistical techniques, particularly with multivariate analysis, such as correlation analysis, multiple regression, and factor analysis.
Chapter 2 – Review of Literature
In this chapter, literatures and past materials on the development of global and Hong Kong Insurance industry were reviewed. On the other hand, the proposed five variables (Service Quality, Word-of-Mouth, Product Quality, Customer Satisfaction and Customer Loyalty) were examined separately one by one, and then study with preceding relationships and interrelationships among all variables. Rationales and inadequacies behind the information were pointed out.
2.1 – What is insurance?
Insurance is a risk-transfer mechanism that ensures full or partial financial compensation for the loss or damage caused by event beyond the control of the insured party. Under an insurance contract (policy), a party (the insurer) indemnifies the other party (the insured) against a specified amount of loss, occurring from specified eventualities within a specified period, provided a fee called premium is paid. In general insurance, compensation is normally proportionate to the loss incurred (Oxford, 2015).
2.2 – The Role of Insurance in Economic Growth
Several studies establish that financial development is an important determinant of national economic growth, understanding the relationship between insurance market growth and economic development is important (KING, Robet; LEVINE, Ross;, 1993).
- Francois OUTREVILLE identified links between an economy’s financial and insurance market development. It shows a positive relationship between economic expansion and insurance sector growth. Insurance markets also are shown to depend significantly on a country’s financial development (OUTREVILLE, 1997).
Damian Ward and Ralf Zurbruegg also examined the relationship between insurance industry growth and economic growth, recognizing that the economic benefits of insurance are conditioned by national regulations, economic systems, and culture (WARD, Damian; ZURBRUEGG, Ralf;, 2000).
According to Geert Hofstede, the insurance level within an economy will depend on the national culture and how it affects individual willingness to use insurance contracts to handle risk (HOFSTEDE, 1995). Francis Fukuyama confirms that heterogeneity is likely to be conditional on the cultural context of a given economy. Insurance will offer important economic benefits when activities generally are seen as risky and when the possibility of adversity is managed optimally through insurance contracts rather than other risk transfer mechanisms (FUKUYAMA, 1995). Francis Fukuyama connects these cultural differences with the level of trust in the economy (FUKUYAMA, 1995).
2.3 – Trends and Development of Global Insurance Market
Swiss Re identifies several important factors determining growth of the insurance business, including the distribution of wealth, the legal system and property rights, insurance product availability, regulation and supervision, trust, and risk awareness (SWISS, 2004). Other non-economic factors that have an impact on the development of insurance are religion, culture, and education (SWISS, 2004). For non-life insurance, they include regulation (for example, compulsory coverage), claim awards, exposure to natural disasters, and the public sector’s role in health (SWISS, 2004).
Second, insurance business failure can stem from several potential sources. Most of the theoretical research has focused on the problems of adverse selection and moral hazard in the insurance market. (Rothschild & Stiglitz, 1976) show that asymmetric information between the insurer and the policy-holder inhibits the design of an efficient contract when the buyers are heterogeneous in their accident probabilities (which is private information for the buyer). Yet, the empirical evidence for asymmetric information in insurance markets is decidedly mixed.
2.4 – The market trends of Hong Kong Insurance Industry
In Hong Kong, life premiums continued their moderate growth, driven largely by individual life and annuity (non-linked) business, which remained the dominant class of new long-term business (OECD, 2012).
In Hong Kong, premiums grew substantially for both new and in-force life business. In Hong Kong, new insurance business comprised, for a large part, non-linked life insurance business. For in-force business, significant growth was observed in individual life and annuity (non-linked) business and retirement scheme insurance business (OECD, 2013). In Hong Kong, the driving force behind the increase in non-life insurance premiums was notably an increase in the general liability business (including Employee Compensation business), and accident and health business (OECD, 2013).
Hong Kong has one of the most developed insurance markets in the region, with the per capita insurance premium standing at high levels. In 2013, total gross premiums increased 13.9% to HK$290.7 billion (US$37.4 billion) where 86% represented long-term insurance business, while general business accounted for the remaining 14% (Chan, 2014).
Hong Kong also experienced sizable growth in the number of gross claims paid in the non-life insurance sector (OECD, 2013).
Insurers are kept growing their business by getting benefit from the Chinese mainland’s WTO liberalization measures, which can benefit from the CEPA agreement to gain enhanced access to the mainland’s insurance market (HKTDC, 2014).
Dr. C. Rajesham & Dr. K. Rajendra(2006) reported that the insurance companies are required to come up with multi-benefit policies through innovative products, smart marketing and aggressive distribution with internet facility to increase the quality and volume of insurance business.
A study by Parasuram A, Zelthaml V.A. and Berry L.L (1990) reveals that, over two-third of the dissatisfaction is because of perceived indifference to their problem or concerns on the part of service providers. Cristopher and Ba llntyne (1991) reported that it is the relationship marketing that brings quality, customer service and marketing.
Brown and Swartz (1989) reported that the consistent delivery of superior service is the key to the service provider to position themselves more effectively. Parasuraman, Zithmal and Berry (1988) provide a terse definition of service quality. They defined service quality as “a global judgment, or attitude, relating to the superiority of the Service”, and explicated it as involving evaluation of the outcome (i.e. what the customer actually receives from the service) and process of the service act (i.e. the manner in which service is delivered).
In line with the propositions put forward by Gronroos (1982), Parasuraman, Zithmal and Berry (1985, 1988) posited and operationalized service quality as a difference between consumer expectations of “what they want” and their perceptions of “what they get”.
2.5 – Literature Review of Service Quality
Quality has been defined as fitness for use, or the extent to which a product successfully serves the purposes of consumers (Beverly et al., 2002). Customer service is one of the organizational processes which companies perform considering the growing competition and for attracting entrepreneurial opportunities for increasing profitability and better access to the market and increasing the customer satisfaction and loyalty level (Calif, 1987).
According to Goofin and Price (1996) customer service has importance because it ends in increasing product quality, gaining competitive advantage, gaining profitable opportunities, and as a result increasing sales and income. According to Newby & McManus (2000) excellent quality of customer services is based upon not just the knowledge and skills of the individual but also upon the way that the organization as a whole, from top management downwards, pulls in the same direction and presents a clear, positive message to customers.
Service Quality has long been studied widely from various past literatures. Parasuraman et al. (1988) define it as the comparison between outstanding and actual services by customer. Rust and Oliver (1994) agree that it is a definition representing the core meaning of service quality. Hubbert (1994) further suggests it is an overall feeling on whether the service provided by the organization is better or not.
Recent research by V.N. Bhat (n.d.), Mudie and Pirrie (2006) and Dharmadikari (2010) pointed out that the difficulties in defining and measuring the service quality against product quality. First of all, service quality is hard to judge due to the intangible nature of service quality. (Brown et al., 1991) It is because service are said to be performance rather than objects and it is hard to be touched or seen as the same manner as goods. The only judges of service quality are customers (Parasuraman et al., 1991). Palmer (2000) also stated that the customer is the one who defined the service quality and occurs only when services provided by an organization that to satisfy those needs from customers.
Saha and Theingi (2009) stated that customers perceive service quality based on a construct with multi-dimensions which conform to Parasuraman’s view. In measuring the customer perceived service quality, most of the research suggests the very well-known measuring instrument called SERVQUAL (Saha and Theingi, 2009; Sultan and Simpson, 2000; Flck and Ritchie, 1991). The instrument is proposed by Parasuraman et al (1988) in accordance with the concept of service quality. There are five factors used to measure by SERVQUAL, reliability, responsiveness, assurance, empathy and tangibles. SERVQUAL aims to make intangible nature of service more tangible and quantify. The gap between customers perceived or expected service and the actual performance of the service providers is the measurement of the degree of the satisfaction of service quality. Therefore, the dimensions of service quality were adopted for this study.
2.5.1 – Relationship between Service Quality and Customer Satisfaction
The relationship between Service Quality and Customer Satisfaction is investigated by Cronin and Taylor (1992) across four service industries and the result shows that the two are positive related (Rust and Oliver, 1994; Hubbert, 1994; Parasuraman et al., 2005 and Robinson and Malhotra, 2005). Moreover, the difference between these two variables is distinguishable which should not be confused (Oliver, 1993). Taylor and Baker (1994) agree and suggest that service quality is more detailed than customer satisfaction which can be resulted from wider dimensions rather than quality.
In addition, several researchers suggest that perceived quality no matter product or service is the prerequisite and perception of value by customers for customer satisfaction (Hallowell, 1996; Fornell et al. 1996 and Athanassopoulos, 2000). Newer researchers have also put efforts into this relationship based on the theories of forerunners and the results are positive (Hu et al., 2009; Kuo et al., 2009; Kassim and Abdullah, 2010).
It has been proven from past researches on service quality and customer satisfaction that Customer satisfaction and service quality are related from their definitions to their relationships with other aspects in business. Some authors have agreed to the fact that service quality determines customer satisfaction. Parasuraman et al., (1985) in their study, proposed that when perceived service quality is high, then it will lead to increase in customer satisfaction. Some other authors did comprehend with the idea brought up by Parasuraman (1995) and they acknowledged that “Customer satisfaction is based upon the level of service quality that is provided by the service providers” (Saravana &
Rao, 2007, p. 436, Lee et al., 2000, p. 226).
In 1990s the relationship between perceived Service Quality and Customer Satisfaction has been discussed by Anderson and Sullivan (1993), Ravald and Grönroos (1996) and de Ruyter et al. (1997). Grönroos (2000) further suggests service quality can be identified by customers during consumptions. Tam (2004) agrees the statement of Grönroos (2000). To summarize the above findings in relationship between service quality and customer satisfaction, here the first hypothesis was developed as:
H1: Service Quality is positively related to and leaded to improve Customer Satisfaction.
2.6 – Literature Review of Word-of-mouth
There are several definitions of Word-Of-Mouth. In early scholars defined Word-Of-Mouth as an oral, person to person communication between a receiver and a communicator whom the receiver perceives as non-commercial, concerning a brand, a product or a service.
Word-of-mouth is a communication tool which can spread messages quickly but not limited to face to face communication, it can create through the internet or telephone (Dellarocas, 2003; Smith and Vogt, 1995). Word-of-mouth is defined as consumer to consumer communication about goods and services. It is a powerful persuasive force in the spread of information about new service (Dean and Lang, 2008). Communication between suppliers and consumers has been characterized over centuries from which the aim of building long-term customer relationships (Schmidt, 2009; Oetting, 2006b).
Word-of-mouth is defined as an interpersonal communication that is specifically independent of the organization’s marketing activities, organizational substance, and its products (Bone, 1995). Word-of-mouth is the flow of informal communication and word-of-mouth can be global through the internet (Datta et al., 2005)
The most influential sources are between friends and acquaintances; these are the most effective forms of Word-of-mouth (Brooks, 1957). “Customers who are acquired via word-of-mouth (WOM) are more likely to be loyal than customers via traditional marketing media” (Villanueva, 2008). Nowadays, word-of-mouth plays an important role in distributing information to others and consumers feel that it is a reliable source for them to make decisions. Thus, consumers’ decision-making processes are significantly influenced by Word-of-mouth, especially during the service information search stage. Therefore, positive word-of-mouth is very important for a company. Otherwise, it will bring a bad image to the products or services and reduce the customer loyalty. In order to understand the importance of word-of-mouth, the relevant literatures were summarized in the next section.
Word-of-mouth is very importance because it exerts a strong influence on consumer purchasing behavior influencing in short-term and long-term judgments (Bone, 1995; Burzynski and Bayer, 1977; Herr et al, 1991). The way of word-of-mouth that includes the personal email, recommendation to friends, relatives, etc. This is a good and free advertise tool. Moreover, its communication must be conducted by customers given to customers who have not many experiences to share with another and have not convincing enough (Lindberg-Repo, 1999). Word of mouth exerts a strong effect on consumer choice, so that companies have a good opportunity to increase their market share by developing positive Word of mouth among customers (Casalo et al., 2008).
The above findings showed how communication channels influence interpersonal communication and the psychological drivers of word-of-mouth popularly. Based on above findings, it suggests to retain or attract customers effectively for companies can be keep by the positive word-of-mouth.
2.6.1 – Relationship between Word-of-mouth and Customer Satisfaction
In order to apply Word-of-mouth for Insurance companies, word-of-mouth is about making emotional connections with insured members, service providers, producers (agents or brokers), staffs and prospects. Producers seemed to be the key influences on word-of-mouth communications with their customers. If policyholders and insured members were happy, the insurance companies can ‘sold itself’ through informal communications, so it cited the need for producers’ involvement in order to increase the likelihood of satisfaction and referrals (Stokes, 2002). It also found that the most effective marketing strategies consisted of the producers’ involvement in the insurance company which improved the word of mouth recommendations and influencing such recommendations by marketing. Written communication is a better form of word-of-mouth because it leads people to mention more interesting products and brands (Berger and Iyengar, 2013). For insurance, word-of-mouth is only promotions, and relies on recommendations to attract new customers (Barclays Review, 1997). The use of word of mouth communications to positive images of company is a particularly important subject in implementing strategies in order to raise customer satisfaction (Stokes, 2002). To summarize the above findings in relationship between word-of-mouth and customer satisfaction, the second hypothesis was developed as:
H2: Word-of-mouth is positively related to and leaded to improve Customer Satisfaction.
2.7 – Literature Review of Product Quality
Product quality is the basic requirement that a customer looks for to satisfy intended needs which can be shown through product features (Russell and Taylor, 1995; Klein, 1998; ISO, 2001; Kotler and Armstrong, 2007 and Oulasvirta et al., 2011). Product feature is suggested by Kotler and Armstrong (2007) as an attribute that customer needs can be satisfied via a combination of possessing, using and utilizing on products. Chow et al. (2012) agree and further supplement that nowadays the satisfaction level of customers is diversified a lot leading to different product features.
Product-based approach is based on its economical roots which the differences of the elements or attributes infatuated by the product are being considered as reflecting to the differences in quality (Garvin, 1984). The user-based approach is where quality of products and services meets or surpasses customers’ expectation. Quality was of two parts namely, the quality of design and also the quality of conformance (Juran, 1951). Providing satisfaction to customers by the design the products to the needs of customer is referred to the “quality of design” (Juran, 1974).
Athma. P and kumar. R (2007) in the research paper has identified various products and non-product related factors and their impact on insurance purchase decision. Girish kumar and eldhose (2008), published in insurance chronicle ICFAI
monthly magazine august 2008 in their paper titled “customer perception on insurance services: a comparative study of public and private sectors”, explained the importance of quality services and its significance in raising customer satisfaction level. Jayakar (2003) in his study emphasized that new products innovation; distribution and better use of technology are helping the new private insurers to take market share. Bapat Harish et al (2009), revealed in their study that the quality of services will determine the performance of overall sector and not only a single company. Narayan. H. Jai (2009), explained in phase of growing market competition, there is an intense need to go beyond more efficiency in designing products. Praveen kumar tripathi (2008), revealed in his research focused on buying pattern in the insurance industry.
The main similarity is that it needs to be experienced as a prerequisite of customer satisfaction. Researches in recent years further suggest the changing needs of customers requiring catch-ups for product features and qualities (Kim et al., 2007; Beauregard and Corriveau 2007; Kang et al, 2011 and Khan, 2012).
2.7.1 Relationship between Product Quality and Customer Satisfaction
In case of tablet experience, product quality is the preliminary concern in customer satisfaction as experience cannot continue once malfunction exists that customer expectation is not met (Joseph et al., 2005). To be specific, the relationship between product quality and customer satisfaction has been concerned by Fornell et al.(1996) using the latter one as the measurement to calculate the influence of perceived quality on economic performances and the result is positive. Cho and Pucik (2005) agree this statement and further consider the mediation effect on qualities which can be both product and service and it is correlated to customer satisfaction at a certain degree.
Kupiec and Revell (2001) in the earlier days address the relationship between purchase intention and customer satisfaction. Kotler and Armstrong (2007) further suggest the feature of product towards customer satisfaction level while Oulasvirta et al. (2011) adds more values in it such as built-in functions. In here the third hypothesis was developed as:
H3: Product Quality is positively related to and leaded to improve Customer Satisfaction.
2.8 – Literature Review of Customer Satisfaction
In early days, the general definition of Customer Satisfaction is about emotional reactions elicited by experiences on products or services leading to disconfirmation from customer expectations (Oliver, 1981; Swan and Oliver, 1989; Mano and Oliver, 1993; Machleit et al., 2000 and Machleit and Mantel, 2001).
Customer satisfaction has been very well-known in marketing where as it is as the basic focus in achieving business objective, vision and also mission (Anderson e
t,al, 1994 and Yi,1990). This is being proved by business articles from different varieties which show that customer satisfaction is an arousal to special acknowledgements (Anton, 1997). Customer satisfaction is customer evaluation or felt towards a product after usage that does the product itself differs from some of the features or factors through the expectation and also the presentation of the product itself (Yi, 1990; Day, 1984; Kotler, 1991; Parasuraman et al., 1985, 1988; and Tse and Wilton, 1988).
Customer satisfaction a fresh thoughts that is used to be the representative to the wholly after purchasing effects on the products after a duration (Anderson et al., 1994; Fornell, 1992; Johnson and Fornell, 1991). On the other hand, customer is not basically a value or price oriented. Hence, when customer satisfaction is at a certain level, it does base on price (Caruana et al, 2000; De Ruyter et al, 1997; Howard and Sheth, 1969; Kotler and Levy, 1969; Rust and Oliver, 1994) because price is a medium which can be used together as a conceptual framework where it can be very comparable (Fornell
et al., 1996; Lancaster, 1971). As for distinguished value, quality partnering with price (Bolton and Drew, 1991; Dodds et al., 1991; Holbrook, 1994; Zeithaml, 1988) because most of the time, customer counts both price and quality to product’s value (Fornell, 1992; Fornell et al., 1996). Price, product features, and product reliability as the factor in effecting on customers toward a product in satisfying themselves (M
adu et al, 1995).
Customer satisfaction perceived as high has quite a number of benefits whereas it in enhance customer loyalty, improved reputation, lower down price elasticity, lower the cost in future transaction and also increase employees competence (Anderson et al., 1994; Fornell, 1992; Swanson and Kelly 2001). Customer satisfaction is resulted from the comparison of service and also the performance with expectation in determination (Barsky, 1992; Hill, 1986; Oliver, 1980). It is a mindset where customers’ needs, wants and also expectations on a product or services has met or exceeded, in which it resulted in repeating in purchasing and also loyalty (Anton, 1997). Customer‟s arousing responses to the usage of product or services is defined as customer satisfaction (Oliver, 1981). In other words, customer satisfaction is a complicated human thought that is involving cognitive and effecting procedures together with the further psychological and physiological influences (Oh and Parks, 1997). Traditionally, customer satisfaction pursuing the disconfirmation paradigm of consumer satisfaction or dissatisfaction by proposing that satisfaction or dissatisfaction resulted by the contact between consumer’s pre-purchase expectation and post-purchase evaluation (Berkman and Gilson, 1986; Czepiel and Ronsenberg, 1997; Engel et al., 1990; Handy, 1977).
On the other hand, the satisfaction view can be measured from a point of view
or evaluation in performance, and with addition on the unnecessary disconfirmation process (Churchull and Surprenant, 1982; Cronin and Taylor, 1992; Olshavsky and Miller, 1972). Hence, measuring customer satisfaction is a vital part in the effort to enhance product’s quality, company competitive advantage (Garvin, 1998) repurchasing and positive word-of-mouth advertising (Fornell, 1992).
Customer satisfaction in total is equal to the emotional perception (Wong, 2000). Customer satisfaction resulted as an evaluation which is being reflected after product or services usage. Therefore, customer satisfaction is evaluated by positive perception perceived which have similarity to the meaning of customer value package that are from price, product quality, service quality, innovation and corporate image (Fredericks and Salters, 1995) Price is one of the elements in measuring customer satisfaction where price or value is a similar in considering it is a important factor in influencing and assisting in building up customer satisfaction (Getty and Thompson, 1994).
2.9 – Literature Review of Customer Loyalty
Customer Loyalty is perhaps the most complicated variable to be achieved in the model requiring emotional bond to be created between customers and company for sustainable relationship (Jacoby and Chestnut, 1978; Hassenzahl, 2005; Chiou and Droge, 2006; Lin and Wang, 2006 and Khan, 2012). Jacoby and Chestnut (1978) in the earlier has already considered a strong attitudinal attachment is necessary to achieve customer loyalty. In reaching customer loyalty, the degree of customer satisfaction is a critical factor to be considered (Li and Yeh, 2009). A long period of time is also taken for studying on the relationship between these two variables which reveals it is a key factor to profitability (Keiningham et al., 2007). Therefore, the path of influence on customer loyalty should be focused and improved. It is also addressed that trust is associated with loyalty by more comprehensive researches (Chiou and Droge, 2006).
Yi (1990); Hallowell (1996); Homburg and Giering (2001) noted that initially, customer loyalty has been perceived to be a behavioral concept entailing repeat buying of product or service measured as the series or share of purchases, referrals, magnitude of relationship or all of the above mingled together. Day (1969) found the behavioral conceptualization of loyalty insufficient for distinguishing true loyalty from fake one and suggested that loyalty should be evaluated through both behavioral and attitudinal measures. Researchers such as Jacoby and Kyner (1973), Dick and Basu (1994), Oliver (1997) and Berne ́ et al. (2001) highlighted the attitudinal dimension of loyalty.
The need of incorporating an attitudinal component of loyalty has been emphasized by Bandyopadhyay and Martell (2007) who revealed that situational factors like unavailability of stock, individual factors like resistance to change and socio-cultural factors like social bonding form a cause to differentiate behavioral loyalty from attitudinal loyalty. Referring to Oliver (1997), Walsh et al. (2008) defined loyalty as a “deeply held commitment to re-buy or re-patronise a preferred product or service consistently in the future, which causes repetitive same-brand or same-brand set purchasing, despite any situational influences and marketing efforts that might cause switching behavior” (p. 982). Baumann et al. (2011) expressed loyalty as attitude and behavior. Ladhari et al. (2011) conceptualized loyalty as a customer’s continued patronage of a particular bank.
Different literatures show the importance and relationship of variables mentioned above while there are still potential gaps for further researching. The Loyalty Model stated attempts to fill the gap with more focused variables and deeper analysis.
Guillen et al. (2008) noted that the number of empirical studies on customer loyalty in the insurance sector is low. They contended that it is important to monitor customer loyalty and business risk for the insurance companies due to reasons such as access to information related to the quality of portfolio, effective handling of customer recruitment and retention strategies, evaluation of market’s competitiveness in the insurance sector and company’s position in that market.
Durvasula et al. (2004); Tsoukatos and Rand (2006) described insurance services are highly intangible. Crosby et al. (1990) pointed that insurance is primarily sold by insurance agents, who are the only touch point for the customers in most cases. According to Lombardi (2005), keeping the customers is crucial for life insurers as a long-lasting association with the customers results in greater instances of cross-selling and positive recommendation intentions. Zeithaml et al. (1996) pointed that the insurance provider gets to recover the selling cost of an insurance policy only when the policy is renewed for three to four years. Moore and Santomero (1999); Diacon and O’Brien (2002) posited that high retention rates are correlated with better financial performance.
Formation of customer loyalty is a thorough process that involves a series of customers’ evaluative judgements and other psychographic variables that stem from these service evaluations. Dick and Basu (1994); Oliver (1999) noted that researchers have been identifying and examining many antecedents of customer loyalty towards stores, companies, and brands over the years. Beerli et al (2002) indicated that factors affecting customer loyalty have been attracting a lot of attention in the recent years from academicians as well as marketers in service industry.
2.9.1 – Relationship between Customer Satisfaction and Customer Loyalty
The relationship between Customer Satisfaction and Customer Loyalty is examined from various past literatures showing that the former variable is an antecedent to the latter one (Fornell, 1992; Dick and Basu, 1994; Anderson and Srinivasan, 2003 and Wu and Wang, 2005). Kim et al. (2006) address that customers who are satisfied with product, service or brand will demonstrate loyalty. Hu et al. (2009) also agree that Customer Satisfaction is of a preceding nature for Customer Loyalty.
There are a number of past researches concerning the relationship between Customer Satisfaction and Customer Loyalty. Bitner (1990), Dick and Basu (1994) and Oliver (1999) are scholars claiming that Customer Loyalty is affected by Customer Satisfaction; Yoon and Uysal (2005) agree with this statement. In this case, the last hypothesis was developed as:
H4: Customer Loyalty is positively influenced by Customer Satisfaction.
2.10 Interrelationship between Service Quality, Word-of-Mouth, Product Quality, Customer Satisfaction and Customer Loyalty
Regardless of whether customer satisfaction is a direct factor to customer loyalty, most researchers and service managers believe that satisfaction could help explain the relationship between word-of-mouth and service quality (Cronin et al., 2000)
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