The effects of soft and hard service attributes on loyalty: the mediating role of trust

Seigyoung Auh
Department of Management, Marketing Section, The University of Melbourne, Australia
Abstract Purpose Drawing on social exchange and similarity attraction theories, the purpose of this paper is to explore the effect of soft attributes (e.g. social and relational attributes) on hard attributes (e.g. core attribute performance) in a high contact service context, namely in the hair care service environment. Design/methodology/approach This research extends the key mediating variable model (KMVM) of Morgan and Hunt by hypothesising that, while trust fully mediates the effect of soft attributes on loyalty, trust only partially mediates the effect of hard attributes on loyalty. Data were collected using the critical incident technique from 176 students. Findings Supports the fully mediating role of trust for soft attributes and a partially mediating role of trust for hard attributes. Research limitations/implications Future research should test the model in contexts that involve less employee-customer contact and interaction. Originality/value The study underscores the practical importance of investing in non-core (soft attributes such as social and relational attributes that focus on social bonding) attributes in addition to core attributes (hard attributes such as performance excellence of key service delivered) in service marketing. Keywords Social interaction, Customer loyalty, Trust Paper type Research paper

An executive summary for managers and executive readers can be found at the end of this article.

Introduction
Despite the relevance and signicance of non-core (soft attributes such as social and relational attributes) and core attributes (hard attributes such as performance excellence of key service delivered) in service marketing, little research has been addressed to draw any denitive conclusions as to the relationship between these two types of attributes (Driver and Johnston, 2001). Moreover, little do we know how these two different kinds of attributes differentially inuence trust and loyalty within a system of cause and effect framework. To this end, the goal of this research is to ll the void in the services marketing literature on the above two research questions. In other words, does social bonding between employees and customers affect customers perceptions of the core service performance and what is the process by which these social bonding attributes such as employee-customer interaction quality and employee-customer characteristic similarity inuence customers loyalty towards the service provider? Is the process by which these social and relational attributes affect loyalty different from the way core service performance affects loyalty? We hope to address these inquiries from the present study.
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Journal of Services Marketing 19/2 (2005) 81 92 q Emerald Group Publishing Limited [ISSN 0887-6045] [DOI 10.1108/08876040510591394]

In service marketing, service providers deliver not only hard attributes but also soft attributes such as ambient atmosphere, close relationships with customers through interaction quality, and identication through creating and sharing greater similarities between employees and customers. Service managers expect and anticipate that these soft attributes, let alone the hard attributes, will exert a positive effect in retaining customers particularly in high contact and interaction service contexts. For example, hair salons provide not only a soothing and relaxing atmosphere to their customers but also train their employees to identify with and share greater similarities with their customers to continuously gain business. The successful coffee franchise, Starbucks, continuously innovates to deliver an outstanding coffee consumption experience by providing a relaxing atmosphere whereby customers can unwind and engage in a comfortable conversation (Kachra and Crossan, 1997). They also go out of the way to train their employees to obtain a condent level of coffee knowledge to engage in a quality interaction and share commonalities of the coffee consumption experience, especially, with coffee savvy customers. Drawing from social exchange theory and similarity attraction theory, this paper explores the effect of soft attributes (e.g. social and relational attributes that focus on social bonding) on hard attributes (e.g. core attribute performance) in a high contact service context, namely in the hair care service industry. This research also extends the key mediating variable model (KMVM) of Morgan and Hunt (1994) into the service sector by hypothesising that while core attribute performance and trust fully mediate the effect of soft attributes on loyalty, trust only partially mediates the effect of hard attributes on loyalty suggesting that hard attributes can directly impact loyalty. Morgan and Hunt (1994) in their seminal paper show that trust and commitment are key mediating variables (KMV) in a business-to-business relationship marketing context. We extend on this notion of trust as a key mediator and posit that 81

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the extent to which it functions as a mediator may depend on the type of antecedent under consideration. Although accumulated research exists especially in the channel and business-to-business context (Anderson and Weitz, 1989; Doney and Cannon, 1997; Ganesan, 1994; Kumar et al., 1995; Morgan and Hunt, 1994), relatively scant ndings are available in the service context (see however Crosby et al., 1990; Moorman et al., 1992, 1993 for exceptions) on the different types of antecedents of trust and how these may have a direct or indirect effect on loyalty via trust. The result of this research is expected to contribute to our understanding of the relationship between soft and hard attributes. As a result, managers can better allocate resources effectively and appropriately by knowing that the performance of soft attributes positively inuences the perceived performance of hard attributes. On the other hand, this paper is also expected to shed light on the limitation of soft attributes versus hard attributes in inuencing loyalty via the extent to which trust is a mediator between the two types of attributes and loyalty. This paper is organised as follows. The next section discusses the theoretical background, social exchange theory and similarity attraction theory, and the research hypotheses. This is followed by the empirical results of the conceptual model used to test the hypotheses. Finally, theoretical contributions, managerial implications, limitations, and directions for future studies are discussed.

expected to have a positive effect on trust and an indirect effect on loyalty via PPE and trust. In other words, the soft attributes do not have a direct effect on loyalty but only an indirect effect through PPE and trust. On the other hand, PPE is predicted to have a direct effect on loyalty in addition to an indirect effect on loyalty though trust. Loyalty in this research is consistent with behavioural intention and captures a customers predisposition to repurchase the service offering (Boulding et al., 1993; Dick and Basu, 1994; Parasuraman et al., 1991). Our loyalty construct also takes into account the resilience of this predisposition in the face of price increase (Fornell et al., 1996). The distinction between soft and hard attributes is consistent with what Gro nroos (1984) asserts as technical quality and functional quality. Similar arguments have been proposed in the service marketing literature for a distinction between functional or core service and relational or social aspects of a service (Goodwin and Gremler, 1996; HennigThurau et al., 2000). In the following sections, we discuss the relationships between the constructs of our conceptual model and derive relevant hypotheses. Interaction quality Social exchange theory argues that resources, tangible and intangible, are exchanged between individuals or between groups with the goal of enhancing, maintaining, or dismantling relationships or interactions. This theory has been used extensively to explain intimate interpersonal relationships in the family and social psychology literature (Burgess and Huston, 1979; Floyd and Wasner, 1994). In a business context, social exchange theory has been adopted to explain word of mouth communication (Frenzen and Nakamoto, 1993; Gatignon and Robertson, 1986). The concept of relationship closeness was investigated using social exchange theory in an industrial buyer-seller relationship. The idea of exchange theory is not totally new to marketing in that Bagozzi (1975) dened marketing as exchange. In this paper, social exchange theory is used to explain the relationship between interaction quality and PPE and between interaction quality and trust. Interaction quality is dened as the positive outcome derived from exchange of conversational and verbal information between the hair care provider and the customer. More often than not, during a haircut experience, the customer engages in some kind of interaction with the hair care provider. The quality and depth of this conversational interaction will obviously range from mere shallow greetings to in depth personal conversations. Thus, this construct captures the quality of interaction engagement experienced by the customer from a dialogue with the hair care provider. Albeit similar to the well known relationship quality construct that encompasses the relationship derived from various and broad perspectives, this interaction quality construct is narrower in scope and particularly taps into the quality of the relationship built from engaging in a conversational interaction. Social exchange theory suggests that reciprocal exchange of positive and valuable information enhances the trust, commitment and satisfaction with the relationship. Frequent and healthy exchange is expected to bring the parties closer to one another and foster a lasting relationship. Moreover, greater interaction quality is expected to facilitate interpersonal and social bonding, which in turn is also expected to foster trust. This implies that greater interaction quality will breed greater trust. Moreover, due to the closeness and elevated relationship 82

Theoretical background and hypotheses

We argue in this paper that there are two types of attributes that contribute to developing trust (Driver and Johnston, 2001). Driver and Johnston (2001) report that predictors of service quality can be broadly categorised into interpersonal (soft) and non-interpersonal (hard) attributes. They extend the work of Johnston (1995) who shows an exhaustive list of service quality drivers. Some of the attributes classied as soft attributes are those that involve more personal or human contact and interaction such as attentiveness/helpfulness, care, courtesy, and friendliness. On the other hand, hard attributes comprise those such as competence, functionality, and reliability. Driver and Johnstons (2001) work provide support for relaters placing more importance on soft attributes and non-relaters putting greater emphasis on hard attributes in determining their service quality decisions. We next discuss the details of the soft and hard attributes used in our study. Within soft attributes, a distinction is made between interaction quality that underscores the relational and social connectedness between employees and customers and characteristic similarity that contribute in social bonding with customers (i.e. human); and atmosphere of the store (i.e. non-human). Conversely, hard attributes are mainly concerned with the quality of the core service provided which we refer to henceforth as perceived performance excellence (PPE). According to our conceptual model depicted in Figure 1, we propose two types of human related soft attributes, interaction quality and characteristic similarity with the service provider, and one non-human related soft attribute, store atmosphere. Drawing on the principle of reciprocity, social exchange theory, and the similarity attraction paradigm, these soft attributes are expected to positively affect PPE that we use as the hard attribute in our model. These soft attributes are also

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Figure 1 Proposed conceptual model

that is expected to be cultivated from greater interaction quality, this is posited to enhance the perception of the core service performance or PPE. In the context of this study, PPE is dened as the customers perception of the hair care providers ability to perform a quality haircut. This indicates the core service that every hair salon tries to satisfactorily deliver. In the conceptual model, this PPE refers to the hard attribute or core service. Greater interaction quality is expected to increase the social and interpersonal bonding between the customer and the hair care provider, resulting in greater trust and PPE. The economic sociology literature suggests that within an exchange relationship, a party derives utility not only from the products and services exchanged but also from interpersonal relationships (Wathne et al., 2001; Frenzen and Davis, 1990). Thus, to the extent that a hair care provider makes efforts to show care and benevolence towards their customers, this is expected to foster the creation of psychological bonds that are foundations for strong relationships (De Wulf et al., 2001; Crosby et al., 1990). When customers perceive that their hair care providers are exerting efforts to enhance interaction quality, they often reciprocate in kind with good will or in our case by showing greater PPE. Bagozzi (1995) argued that according to the principle of reciprocity, people should return good for good in proportion to what they receive. Therefore the greater the customer feels that interaction quality is being met, the more favourably the customer is expected to perceive the performance of the core service delivery. Indirect support for a positive effect from interaction quality to PPE and trust comes from the work of Gwinner et al. (1998) who identied three types of relational benets (e.g. condence, social, and special treatment benets) that contribute in maintaining a strong relationship between customers and service providers. Furthermore, Beatty et al. (1996) and Reynolds and Beatty (1999) identied two primary types of relational benets derived from an exchange relationship, functional benets and social benets. Based on these categorisations, it has been shown that social benets have a positive effect on functional benets and satisfaction (Gremler and Gwinner, 2000; Hennig-Thurau et al., 2002; 83

Price and Arnould, 1999; Reynolds and Beatty, 1999). It has also been shown that rapport (in particular, enjoyable interaction) positively inuenced satisfaction with the service (Gremler and Gwinner, 2000). The work of Goodman et al. (1995) is also consistent with our argument. They found that the performance of peripheral factors had an effect on the perceived performance of core factors. Their results suggested that the performance of a peripheral factor (satisfaction with responsiveness of inquiry handling) not only had a direct effect on overall customer satisfaction but also an indirect effect through its effect on perceived performance of a core factor (satisfaction with rst class mail). Although interaction quality is expected to have a direct effect on PPE and trust, it is not expected to directly affect loyalty. We expect interaction quality to inuence loyalty indirectly through PPE and trust. Generally speaking, the likelihood that customers will visit their hair care providers simply based on satisfactory interaction quality is slim. The main impetus for patronage would still be based on the performance of the haircut and the trust that customers have towards their hair care providers in expectation of receiving a reliable and benevolent service during their next visit. The above arguments lead to the following hypotheses about interaction quality. H1. Greater interaction quality is associated with greater PPE. H1b. Greater interaction quality is associated with greater trust. H1c. Interaction quality does not have a direct effect on loyalty but only an indirect effect through PPE and trust. Characteristic similarity Research in industrial and organisational psychology has used the similarity attraction paradigm to explain the effect of homogeneous groups on work performance and turnover (OReilly et al., 1989). Social categorisation theory (Tajfel and Turner, 1986) suggests that people with greater similarity in social categories such as age, sex, race, and status interact more frequently with in-group than with out-group members.

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These arguments are consistent with the well known adage, birds of a feather ock together. Therefore it can be inferred from the similarity-attraction paradigm (Baskett, 1973; Byrne, 1971) that people have the inclination to prefer and feel more comfortable with people of similar personalities and characteristics. In this paper, the construct of characteristic similarity is employed to convey the notion of similarity that the customer has with the hair care provider in terms of tastes, conversation topic, and in more general, simply similar people. Put differently, characteristic similarity is about the commonality that the customer shares with its hair care provider. In similar light, greater homophily (Ibarra, 1992) and similar relational demography (Tsui and OReilly, 1989) is reasoned to contribute to greater attraction and preference. Nicholson et al. (2001) provided empirical support for the similarity-attraction theory. Their research showed that similarity of business value between a buyer and a sales representative had a positive effect on the buyers liking for the sales representative. In a buyerseller context, Smith (1998) reported that similarity in lifestage, sex, cultural background, work attitude, and personality had an indirect positive effect on relationship quality through relational management. Along similar lines, Boles et al. (2000) and Crosby et al. (1990) commonly found that the similarity between customer and salesperson did not have a positive effect on relationship quality. A possible nonsignicant result may be due to the fact that people have an inherently low level of trust and commitment towards sales people in general and required more than just similarity to conclude that a quality relationship exists. However, more recently, characteristics of the salesperson relationship such as likeability and similarity have proven to be signicant antecedents to the buying rms trust in the salesperson (Doney and Cannon, 1997). Thus, mixed results exist in the literature on the effect of similarity on trust. However, both the Boles et al. (2000) and Crosby et al. (1990) studies revealed that as the customer perceived greater similarity between the two parties, the salesperson was perceived to be more effective. Similar to the argument advanced for interaction qualitys indirect effect on loyalty, we also posit that characteristic similarity will only impact loyalty indirectly through PPE and trust. It seems very unlikely that just because customers perceive their hair care providers to be similar to them in terms of taste and conversational topics, they will continue to visit them. The dominant factor that drives customers loyalty towards their hair care providers should be foremost the quality of the haircut and the trust towards them. These two elements should take precedence over characteristic similarity. Therefore, greater characteristic similarity can have a direct positive effect on PPE and trust but only an indirect effect on loyalty via these two mediating constructs. Taken collectively, the above arguments contend that greater similarity between the customer and the hair care provider should enhance attraction and communication resulting in a higher level of trust and PPE. Relationships based on similar values and interests are likely to foster greater identication with one another and build the platform for trust. Based on the above arguments, we propose the following hypotheses about characteristic similarity. H2. Greater characteristics similarity is associated with greater PPE. 84

H2b. Greater characteristics similarity is associated with greater trust. H2c. Characteristics similarity does not have a direct effect on loyalty but only an indirect effect through PPE and trust. Store atmosphere The effect of the physical atmosphere and environment on human behaviour has been scrutinised in the environmental psychology literature (Mehrabian and Russell, 1974). In marketing, this concept has been successfully applied in retail settings to show that pleasure, arousal, scent, and music can all have main and interactive effects in inuencing consumer behaviour in retail outlets (Donavan and Rossiter, 1982; et al., 1995, Wakeeld and Baker, Donavan et al., 1994; Dube 1998; Mattila and Wirtz, 2001). The work of Mattila and Wirtz (2001) suggested that when congruency as opposed to incongruency existed between type of music and arousal level of scent, customers shopping experience was enhanced. In addition to our human related soft attributes (i.e. interaction quality and characteristic similarity), we had a measure of the store atmosphere that we argued previously as a non-human related soft attribute. In other words, although not part of the core service delivery, store atmosphere, along with interaction quality and characteristic similarity, is expected to have a positive effect on PPE. More specically, the expectation is that as customers more readily identify with the store atmosphere, the more positive they are to perceive the performance of the core service delivery (e.g. haircut). The rationale for this follows from the fact that the more customers can relate to and identify with their surroundings and climate, the more comfortable they will feel and hence this positive feeling is expected to carry over into the evaluations of the core service performance. Based on the above argument, the following is proposed. H3. Greater identication with the store atmosphere is associated with greater PPE.

PPE and trust Although trust has been dened in several different ways, we employ the denition of Doney and Cannon (1997) who have dened trust as the perceived credibility (reliability) and benevolence (genuinely interested in other parties interest) toward the target of interest. Although this denition assumes trust as a multi-dimensional construct, empirically trust has proven to be a global unidimensional construct (Doney and Cannon, 1997; Joshi and Stump, 1999; Nicholson et al., 2001). The unidimensionality of trust is consistent with others who view the credibility and benevolence dimensions as antecedents rather than components of trust (Mayer et al., 1995). Consistent with the view that credibility (reliability) towards the service provider is an antecedent rather than a component of trust (Mayer et al., 1995) and drawing on the consequences of service quality (Brady and Cronin, 2001), it is hypothesised that PPE or the perceived ability of the hair care provider to deliver a reliable and quality haircut is expected to enhance the level of trust and loyalty towards the hair care provider. We also posit a direct effect of PPE on loyalty in addition to an indirect effect via trust. Consistent with our argument, Gruen et al. (2000) in a professional association context found that core service performance had a direct and positive effect

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on retention. Based on the above reasoning, the following hypotheses are proposed. H4. H5. Greater PPE is associated with greater trust. Greater PPE is associated with greater loyalty not only indirectly through trust but also directly.

Trust is believed to be a critical variable that contributes to healthy and long-term relationships (Anderson and Weitz, 1989; Doney and Cannon, 1997; Garbarino and Johnson, 1999; Ganesan, 1994; Morgan and Hunt, 1994). We expect this relationship to be even stronger in service contexts that are characterised by high and close employee-customer contact such as that in the hair care service industry (Bowen, 1990). Bowen (1990) describes a taxonomy of service types whereby hair care service falls into the group characterised as high interaction and contact. Furthermore, we expect trust to be positively linked to loyalty especially when the service process is not standardised and a certain level of uncertainty is present that adds to the risk of being susceptible to vulnerability (e.g. unexpected and bad haircut that the customer will have to live with until the next cut) (Deutsch, 1962; Moorman et al., 1992). Thus, we expect trust to be positively associated with loyalty. H6. Trust has a positive effect on loyalty.

Table I shows the 13 attribute performance measures used to operationalise the benets as latent variable antecedents to trust in our model. The benet items were constructed using tenpoint disagree to agree scales. Trust and loyalty were also operationalised as latent variables using the measures listed in Table I. They were collected using ten-point semantic differential and likelihood scales. The self-administered survey was completed by 191 undergraduate business students who earned course credit for participating. A total of 12 subjects were deleted from the analysis due to an excessive number of missing values. An additional three subjects were removed because they indicated that a family member or friend acted as their hair care provider. Consequently, 176 subjects were included in the nal analysis. Males and females were about equally represented in our sample, with 51 per cent male and 49 per cent female subjects.

Results
Measurement model Lisrel 8.50 was used for all of the analysis unless specied otherwise. We rst assessed the measurement model followed by the structural model for hypotheses testing following the guidelines suggested by Anderson and Gerbing (1988). We rst report the results of our conrmatory factor analysis (CFA). According to our CFA results, our measurement model suggested good t to the data (x2 120 290:68, p , 0:001, CFI 0:93, NNFI 0:91, RMSEA 0:082). The results of the CFA with factor loadings and t-values are summarised in Table I. All factor loadings were high and signicant, providing strong evidence for convergent validity (Bagozzi and Yi, 1988). We also assessed coefcient alpha (Cronbach, 1951) and composite reliability for each of the constructs (Fornell and Larcker, 1981). Coefcient alpha ranged from 0.75 (loyalty) to 0.91 (PPE) whereas the composite reliability ranged from 0.76 (loyalty) to 0.91 (PPE and interaction quality). Table II summarises the results of the reliability tests. Discriminant validity was assessed in three different ways. The rst method involved constructing a 95 per cent condence interval around the correlation of any two constructs (Anderson and Gerbing, 1988). Discriminant validity is demonstrated when this condence interval does not include 1. According to this condence interval test, none of the condence intervals between any two constructs included 1 indicating support for discriminant validity. Our second test of discriminant validity concerned conducting multiple chi-square difference tests (Bagozzi and Phillips, 1982). This test involves taking the chi-square difference between an unconstrained model (whereby the correlation between constructs is freely estimated) and a constrained model (whereby the correlation between constructs of interest is xed to unity). Discriminant validity is demonstrated when the chi-square difference is signicant implying that the constrained model ts the data worse than the unconstrained model. Table III summarises the results for all possible pairs of constructs. According to Table III, all of the chi-square differences are signicant, providing further evidence of discriminant validity among the constructs. The last of the discriminant validity tests which is viewed as the most conservative involves calculating the average variance extracted (AVE) for any pair of constructs and comparing this to the squared correlation between the two constructs (Fornell and Larcker, 1981). All AVE exceeded the 85

Method
The hypotheses were tested using a survey with hair care services. Hair care service was selected for the following reasons. First, the nature of the service category carries a certain level of employee-customer interaction in terms of social bonding that is key to testing our conceptual model. Second, it has been used in past research on relationship building (Gwinner et al., 1998; Hennig-Thurau et al., 2002; Price and Arnould, 1999; Jones et al., 2002). Third, hair care service was a category that was sufciently familiar for our survey respondents (college students) to provide reliable and quality data. Finally, it was a service category that both males and females used on a relatively consistent basis such that our empirical results would not be biased toward either gender. The attributes and benet categories used in the survey were obtained using CIT, the critical incident technique (Bitner et al., 1990; Grove and Fisk, 1997; Hayes, 1998; Meuter et al., 2000). The CIT approach focuses on input from the customer to develop survey items (for a detailed explanation of the CIT, refer to Hayes, 1998). A convenience sample of ten doctoral students was asked to list ve to ten positive experiences (likes) as well as ve to ten negative experiences (dislikes) regarding their past or current hair care service provider. The interviews lasted approximately 15-20 minutes and were audio-taped for subsequent analysis. A total of 100 different critical incidents were obtained from these ten interviewees, ranging from 8 to 24 per interview. The critical incidents were then categorised by the author and a colleague into 39 distinct performance attributes which, in turn, were further categorised into the benet-level constructs. The classications were highly reliable (over 80 per cent agreement for both attributes and benets) and disagreements were resolved through discussion. The benets served as the antecedents of trust in our conceptual model. It should be noted that the attributes were identied by customers themselves rather than by the researchers.

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Table I Items and measurement model results

Construct Interaction quality IQ1 IQ2 IQ3 Characteristic similarity CS1 CS2 CS3 Perceived performance excellence PPE1 PPE2 PPE3 PPE4 Store atmosphere SA1 SA2 SA3 Trust T1 T2 T3 Description 1 (strongly disagree) to 10 (strongly agree)a My hair care provider remembers my name My hair care provider remembers things about me I enjoy the topics that my hair care provider and I talk about 1 (strongly disagree) to 10 (strongly agree) My hair care provider and I are similar people My hair care provider and I have similar tastes My hair care provider and I like to talk about the same topics 1 (strongly disagree) to 10 (strongly agree) My hair care provider cuts my hair evenly My hair care provider is precise My hair care provider is skilled My hair care provider is careful 1 (strongly disagree) to 10 (strongly agree) I have fun while I am at the shop I like the general atmosphere in the shop I can identify with the atmosphere in my hair care providers shop 1 (never) to 10 (always) The extent to which you are willing to rely on your hair care provider The extent to which you trust your hair care provider The extent to which you are willing to follow your hair care providers recommendations for new hair styles 1 (never) to 10 (always) The likelihood that you will visit your hair care provider again In the event that your hair care provider increased the price by 10 per cent, the likelihood that you will visit your hair care provider again at the higher price Loadings 0.95 0.97 0.70

T-value
16.64 17.19 10.54

0.87 0.91 0.78

13.82 14.79 11.88

0.72 0.90 0.90 0.88

10.74 15.10 15.03 14.63

0.83 0.94 0.65

12.65 15.06 9.29

0.83 0.92 0.62

13.08 15.34 8.73

Loyalty L1 L2

0.70 0.86

9.96 12.68

Notes: aA DK (dont know) response was included in all the scales to accommodate situations for no experience; All t-tests signicant at p , 0:001

Table II Inter-correlation and scale analysis for constructs

Variable Interaction quality (IQ) Characteristic similarity (CS) Store atmosphere (SA) Perceived performance excellence (PPE) Trust (TT) Loyalty (LOY)
c

Coefcient a 0.90 0.88 0.83 0.91 0.81 0.75

Composite reliabilitya 0.91 0.89 0.85 0.91 0.84 0.76

AVEb 0.78 0.73 0.67 0.73 0.64 0.61

IQ 1.00 0.35 0.46 0.58 0.66 0.55

CS 0.12 1.00 0.48 0.49 0.50 0.43

c

SA 0.21 0.23 1.00 0.47 0.49 0.45

PPE 0.34 0.24 0.22 1.00 0.77 0.76

TT 0.44 0.25 0.24 0.59 1.00 0.86

LOY 0.30 0.18 0.20 0.58 0.74 1.00

2 Notes: All correlations are signicant at p , 0:001 (two-tailed tests); aComposite reliability = Slxi 2 =Slxi 2 S Var1i ; bAVE=Slx2 i =Slxi SVar1i ; Shared variances are reported in the upper half of the matrix

recommended level of 0.50 and ranged from 0.61 (customer loyalty) to 0.78 (interaction quality) (Fornell and Larcker, 1981). With the exception of the discriminant validity between trust and loyalty, all AVEs were greater than the squared correlation between the two constructs of interest (refer to Table II for details). However, as mentioned before, this test is the most conservative and since discriminant validity was established based on the prior two tests, we cautiously proceeded with further analysis. Based on our reliability, convergent, and discriminant validity tests, we 86

concluded that our measurement model met most of the psychometric property requirements. Structural model We rst report the t of our proposed theoretical model to the data. Several t indices suggested good t of our model to the data (x2 123 290:38, p , 0:001, CFI 0:93, NNFI 0:91, RMSEA 0:08). One test that is very informative but often overlooked is the comparison of t between our proposed theoretical model to that of our measurement model. A

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Table III Discriminant validity test

Target F(j1, j2)a F(j1, j3) F(j1, j4) F(j1, j5) F(j1, j6) F(j2, j3) F(j2, j4) F(j2, j5) F(j2, j6) F(j3, j4) F(j3, j5) F(j3, j6) F(j4, j5) F(j4, j6) F(j5, j6)

x2(UM)b
290.68 290.68 290.68 290.68 290.68 290.68 290.68 290.68 290.68 290.68 290.68 290.68 290.68 290.68 290.68

x2(CM)c
310.57 315.42 338.67 308.93 324.01 323.07 350.43 323.36 336.40 348.58 321.41 333.16 334.74 336.44 329.74

Dx2d 19.89 24.74 47.99 18.25 33.33 32.39 59.75 32.68 45.72 57.9 30.73 42.48 44.06 45.76 39.06

Notes: aConstructs: trust (j1), loyalty (j2), perceived performance excellence (j3), store atmosphere (j4), interaction quality (j5), characteristic similarity (j 6); bUnconstrained model whereby all correlations between constructs are freely estimated (df = 120); c Constrained model whereby the correlation between constructs in column 1 are xed to unity in the phi matrix (df = 121); dSince the constrained model is nested in the unconstrained model, the chi-square difference is 1 df and the critical value is Dx2 . 10.83, p , 0.001

nding of no signicant difference between the two models provides support for the nomological validity of our theoretical model (Anderson and Gerbing, 1988). If the theoretical model is successful in accounting for the observed relations between the constructs, there will not be a signicant difference between the chi-square for the theoretical and measurement models. This is because the measurement model is in fact a saturated model in which all possible specications between constructs have been exhausted. In contrast, our theoretical model is a constrained version of this saturated model in that some of the relationships between constructs have been xed to zero. Thus, the intent of our theoretical model was to come up with a model that was more parsimonious than the measurement model, but at the same time did nearly as good a job as accounting for the covariance between the constructs. We see that this was indeed the case because the t of our theoretical model did not deteriorate compared to our measurement model (measurement model:x2 120 290:68, p , 0:001 vs theoretical model: 2 x2 123 290:38, p , 0:001, xd 3 0:30, p . 0:10). We now turn our attention to the results of our hypotheses testing. Table IV summarises the results of our hypotheses testing (H1a-H6). H1a-H1c tested the relationship between interaction quality and PPE (H1a), interaction quality and trust (H1b), and the indirect effect of interaction quality on loyalty (H1c). The path coefcient between interaction quality and PPE was positive and signicant (H1a: g11 0:40, p , 0:01). Therefore H1a was supported. The path from interaction quality to trust was also positive and signicant (H1b: g21 0:30, p , 0:01). Finally, to test for the indirect effect of interaction quality to loyalty, we ran a model that included the additional path from interaction quality to loyalty. If a direct effect exists between the two constructs, we would observe the t of this model to improve compared to our baseline model. On 87

the other hand, if no direct effect is present and only an indirect effect is at work, the new model would not improve signicantly beyond our current baseline model despite adding the additional path. Our results conrmed that adding the additional path from interaction quality to loyalty did not improve the t of the model above and beyond the current model (x2 123 290:38, p , 0:001 vs x2 x2 p . 0:30). d 1 0:67, 122 289:71, Therefore, H1c was strongly supported. Next, we report the results of H2a-H2c. H2a posited that characteristics similarity would be positively associated with PPE. As expected, the path from characteristics similarity to PPE was positive and signicant (H2a: g13 0:26, p , 0:01). The path from characteristics similarity to trust was also positive and signicant, lending support for H2b (H2b: g23 0:14, p , 0:05). For H2c, we tested the indirect effect of characteristics similarity on loyalty as we did for interaction quality. The model with the added path from characteristics similarity to loyalty did not signicantly improve the t of the model beyond the baseline p , 0:001 vs x2 model (x2 123 290:38, 122 290:22, x2 1 0 : 16, p . 0 : 50). Therefore, as was the case for d interaction quality, we found strong support for an indirect effect of characteristic similarity on loyalty through PPE and trust. Our next hypothesis involved the relationship between store atmosphere and PPE. The path coefcient between these two constructs was as expected, positive and signicant (H3: g12 0:16, p 0:05). Thus, in addition to our humanrelated soft attributes that fostered interpersonal and social bonding effects, store atmosphere also had a positive effect on how customers perceived the performance of core services. Although not hypothesised, we tested to see if adding a path from store atmosphere to trust would improve the t of our model. The results indicated that the model would not be improved by adding this additional path (x2 123 290:38, p , 2 0:001 vs x2 122 289:83, xd 1 0:55, p . 0:30) providing support for our conceptual model. H4 and H5 are concerned with the consequences of PPE. In particular, H4 stated that PPE would be positively associated with trust. Results conrmed our hypothesis in that the path coefcient between PPE and trust was positive and signicant (H4: b21 0:53, p , 0:01). Furthermore, PPE was positively associated with loyalty (H5: b31 0:27, p , 0:05). H5 also argued that in addition to PPE having an indirect effect on loyalty via trust, it would also have a direct effect. This was tested by running a model that deleted the path from PPE to loyalty and comparing it with the baseline model. If a direct effect were to be supported we would be likely to observe a signicant deterioration in t when the direct path from PPE to loyalty was deleted. Results conrmed our expectations in that when the direct path was deleted the t became signicantly p , 0:001 vs x2 worse (x2 123 290:38, 124 296:00, 2 xd 1 5:62, p , 0:02). Therefore, unlike interaction quality and characteristics similarity that had only an indirect effect on loyalty through PPE and trust, PPE had both an indirect effect and also a direct effect on loyalty. Lastly, we report the effect of trust on loyalty. The path coefcient between these two constructs was positive and signicant, providing support for H6 (H6: b32 0:64, p , 0:01).

Conclusion
Theoretical contribution The results of our study make two new contributions to the relationship and service marketing literature. The rst is the

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Table IV Structural model results

Hypothesis Coefcienta 0.40 (5.03) 0.30 (4.44) Chi-square difference test Fit indices

H1a: IQ! PPE (1 ) H1b: IQ ! TRUST (1 ) H1c: IQ ! LOYALTY (1 ) indirectly via PPE and TRUST H2a: CS ! PPE (1 ) H2b: CS ! TRUST (1 ) H2c: CS ! LOYALTY (1 ) indirectly via PPE and TRUST H3: SA ! PPE (1 ) H4: PPE ! TRUST (1 ) H5: PPE ! LOYALTY (1 ) H6: TRUST ! LOYALTY (1 )

x2(122) 289.71b x2 d (1) 0.67, p . 0.30

0.26 (3.24) 0.14 (2.08)

x2(123) 290.38 RMSEA 0.08 CFI 0.93

NNFI 0.91

x2(122) 290.22c x2 d (1) 0.16, p . 0.50

0.16 (1.96) 0.53 (6.05) 0.27 (2.42) 0.64 (5.24)

x2(124) 296.00d x2 d (1) 5.62, p , 0.02

Notes: IQ = interaction quality, PPE = perceived performance excellence, CS = characteristic similarity, SA = store atmosphere, RMSEA = root mean square error of approximation, NNFI = non-normed t index, CFI = comparative t index; aValues in parentheses indicate t-values and all coefcients are signicant at 0.05 or less; bIndicates model where an additional path from IQ to loyalty was added to the baseline model; cIndicates model where an additional path from CS to loyalty was added to the baseline model; dIndicates model where the path from PPE to loyalty was deleted from the baseline model

revelation of a positive link between soft attributes such as interaction quality and characteristics similarity and hard attributes such as PPE. The second is the degree to which trust mediates these soft and hard attributes on loyalty. Our empirical results found that interaction quality and characteristics similarity only had an indirect effect on loyalty that was mediated by PPE and trust. On the other hand, PPE had both an indirect effect and also a direct effect on loyalty bypassing trust as a mediator. Subsequently, we discuss each of the two contributions in greater detail. Although past research has shown different types of factors that determine service quality (Driver and Johnston, 2001) and the different types of benets that customers can expect to receive from a relationship with service providers (Beatty et al., 1996; Gwinner et al., 1998; Reynolds and Beatty, 1999), little has been written to show the association between interpersonal factors such as that between employees and customers and the performance of core services. Our results are also in line with what Goodman et al. (1995) found. Their ndings provided support for the performance of a peripheral (i.e. non-core) service domain having a positive effect on the performance of a core service domain. Results of our study add to the understanding of how different types of service attributes are inter-related in a high-contact/interaction environment between employees and customers. Our positive effect from interaction quality and characteristics similarity to PPE and trust can be interpreted using the framework of social exchange theory and similarity attraction paradigm. Social exchange theory argues that reciprocal exchange of positive and valuable information enhances the trust, commitment and satisfaction with the relationship. Positive exchange is expected to bring the parties closer together and foster a bonding relationship. In other words, greater interaction quality is expected to bring about interpersonal and social bonding, which in turn is also expected to foster trust. The effect from interaction quality to PPE can be viewed in light of the principle of reciprocity (Bagozzi, 1995). According to this principle, people have the tendency to return good for good in proportion to what they receive. Therefore, the greater the customer feels that 88

interaction quality is fullled, the more favourably the customer is expected to perceive the performance of the core service delivery. The results of the positive relationship between characteristics similarity and PPE and trust are consistent with the similarity attraction paradigm (Baskett, 1973; Byrne, 1971) and with social categorisation theory (Tajfel and Turner, 1986). These two theoretical arguments commonly postulate that people have the tendency to gravitate towards those of external and internal similarities. People like to be around those of greater similarity because more often than not similarity breeds comfort, relatedness, and unity. As a consequence, similarity contributes to trust and in-group vs out-group favourability. Our second contribution extends the results found in the KMV model of Morgan and Hunt (1994) beyond a businessto-business marketing context to a service marketing arena. The KMV model has shown that trust and commitment fully mediate the relationship between the antecedents and consequences of trust and commitment. However, our model supports the nding that while trust fully mediates the positive effect of interaction quality and characteristics similarity on loyalty it only partially mediates the positive effect of PPE on loyalty. This adds signicant richness to the KMV model by specifying the conditions under which trust is a full or partial mediator between its antecedents and consequences. This also extends our knowledge about the difference between soft and human related attributes that bolster interpersonal and social bonding compared to hard attributes that deal primarily with the core service delivery per se. Our results are different from what Gwinner et al. (1998) have found in this respect. In their study they found support for social benets to have a direct positive effect on loyalty. However, in their study they did not include trust in the model. We contend that this may be one of the reasons for this inconsistent result. When trust is added as an additional construct into the model, personal and relational benets were found to have a positive effect on loyalty only through trust as our model suggested. Since these factors are personal and relational in nature and have less to do with the actual

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performance of the core service activity per se, we would expect the effect of these on loyalty to diminish signicantly once trust is included in the model. This nding is consistent with the condition for a fully mediating effect suggested by Baron and Kenney (1996). Taken collectively, our model has revealed that relational and social factors as well as store atmosphere have direct effects on PPE and trust but only an indirect effect on loyalty through these mediating variables. Conversely, unlike the soft attributes, core service performance factors such as PPE have both an indirect effect and a direct effect on loyalty. Next we look at the managerial relevance of our research. Managerial implications The results of our study suggest several implications to managers who desire to build a loyal customer base based on trust in a high-contact service context. The importance of relational and social factors emerged as valuable avenues for managers to allocate scarce resources. Having a service environment that is conducive to similar characteristics and social benets can pay dividends toward increasing loyalty through enhanced PPE and trust. Our ndings are promising for managers who desire, but at times are met with resistance in the organisation, to invest in human resources to help employees better interact and serve customers. Service organisations, especially those that engage in a high level of face-to-face contact and interaction with customers can particularly benet from the ndings of our model. Interaction quality and characteristics similarity are areas where managers can consistently train and educate their employees to click with their customers. Quite often managers tend to neglect the importance of improving relationship building by focusing on only the performance of core services. This may in part be due to relational/social factors not having a direct effect on loyalty as suggested by our model. These factors work their way towards loyalty via improved PPE and trust. As a consequence, managers overlook this opportunity and focus more intensively on improving PPE as this, unlike relational/social factors, has the tendency to have a direct effect on loyalty. However, this may be overlooking and ignoring a potentially fruitful and rewarding investment strategy that can have promising payoffs. Whereas the performance of the core service may be more difcult and costly to satisfactorily deliver, relational and social benets through mechanisms such as interaction quality and characteristics similarity can be implemented with far less resource and risk. Moreover, under certain situations where it takes time to learn and deliver a satisfactory core service, it may pay dividends for the organisation to focus on the relational and social benets to retain customers while buying time to improve on its core service performance. In this research, PPE was a unidimensional construct that captured the customerss perceived hair care providers ability to deliver a quality hair cut. Our ndings suggest that of the three soft attributes, interaction quality had the greatest effect on PPE followed by characteristic similarity and store atmosphere. This provides managers to make effective resource allocations to make strategic priority decisions on the various soft attributes. Obviously, the high contact and interactive nature of the hair care industry may have dictated which soft attributes are more or less important in inuencing 89

PPE and therefore the relative effect of these soft attributes on PPE may change as a function of the service category. Finally, managers can also use relationship setup costs as a means of increasing the perceived switching costs to customers (Jones et al., 2002). Customers may be able to nd a hair stylist that can do just as good a job if not better at providing an excellent haircut but it may be more difcult to nd a hair stylist that they can connect with and build a lasting relationship. Lastly, our positive effect from store atmosphere to PPE replicates and conrms past literature on the effect of atmospheric and environmental psychology on consumer behaviour (Mehrabian and Russell, 1974; Mattila and Wirtz, 2001). This also reiterates the importance of providing an atmosphere and environment that customers can identify with and feel comfortable. Limitation and future research directions As with all research, ours is no exception when it comes to limitations. We used student subjects as our sample for testing our model. We believed that the student sample was adequate and appropriate for such a study especially in the hair care industry. Students are familiar with the service category and hair care service is a relatively high involvement experience that enhances the quality of the data collected. However, we should not lose sight of the fact that due to their economic constraints, they may have no other choice but to go to the cheapest hair stylist. This would undermine the signicance of social and relational bonds that were highlighted in this paper. Therefore, we are cautious in generalising our conclusions too broadly from this particular research and acknowledge the need for replication on a more representative sample (Peterson, 2001). Also, our model was tested in a single service industry that was considered to be very high in contact and interaction between employees and customers (Bowen, 1990). This may have contributed to the positive and signicant effect from the social/relational factors such as interaction quality and characteristics similarity to the perceived core service performance. In other service industries characterised by less interaction and relationship building activities, the likelihood of observing such an effect may be slimmer. Future studies can test this in diverse service categories according to the taxonomy suggested by Bowen (1990). For future research directions, several studies have looked at constructs such as satisfaction, commitment, trust, and loyalty simultaneously in a single model (Garbarino and Johnson, 1999; Wang, 2002). More specically, one of the interests drawn from such research has been to determine whether identical or different factors lead to satisfaction, commitment, trust, and loyalty. We see these constructs as cornerstone concepts in marketing theory and application as they get to the heart of what it takes to make customer acquisition and retention successful. Although, quite often, by assuming that satisfaction, trust, and commitment are all on identical levels of abstraction or continuum and as such used as manifest variables to operationalise relationship quality (Baker et al., 1999; Crosby et al., 1990; Dorsch et al., 1998; Hewett et al., 2002), they can also be perceived of as occupying different positions on a continuum. It could be the case that satisfaction is at the lowest level while commitment occupies the highest with trust in the middle (White and Schneider, 2000). In such a framework, we can imagine different antecedents to have effects on satisfaction,

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trust, and commitment, which all in turn should lead to greater loyalty. Our model takes a small step in such a direction by conrming that when trust and loyalty are simultaneously included in the model, relational/social factors have an effect on trust directly and on loyalty indirectly through trust whereas PPE affects both trust and loyalty directly. Future research can expand our model and others to develop an integrated framework that satises the nomological validity between the above key constructs and its antecedents. Finally, a stricter test to investigate the relationship between the two types of service attributes using longitudinal data can be considered. This is an important issue as the strong relationship between the soft and hard service attributes may be driven by common method bias-single source self reporting data (Podsakoff and Organ, 1986). Also, we need further studies to determine under what conditions relational/social factors affect core service performance. This calls for a study that examines our model across diverse service industries that differ on the degree of interaction and contact employees have with customers.

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these social and relational attributes affect loyalty differs from the way core service performance affects loyalty. The research results The research discovers that soft attributes positively affect the hard attribute of perceived performance excellence. These soft attributes also have a positive effect on trust and an indirect effect on customer loyalty through perceived performance excellence and trust. In other words, the soft attributes do not have a direct effect on loyalty, but only an indirect effect through perceived performance excellence and trust. On the other hand, perceived performance excellence has a direct effect on loyalty in addition to an indirect effect on loyalty through trust. Hair stylists who make an effort to show care and benevolence to their customers foster the creation of psychological bonds that are foundations for strong relationships. And the more the customer perceives that the stylist is striving to enhance the quality of the interaction, the more favourably the customer will perceive the performance of the core service delivery. Similarly, when the customer and stylist share a common outlook on life, they are more likely to communicate well and trust each other, and the client is more likely to believe he or she will get a decent haircut. But of course, the likelihood that the customer will visit a particular stylist simply because of good conversation, or because of sharing with the stylist similar tastes and an outlook on life, is slim. The main impetus for a client visiting a particular salon is still based on the performance of the haircut and the trust the customer has towards the stylist in expectation of receiving a reliable and benevolent service during the clients next visit. The research also reveals that the more readily the client identies with the salons atmosphere, the more positive he or she is likely to be about the performance of the haircut. This is because the more the customer can relate to the surroundings and climate, the more comfortable he or she will feel. This positive feeling then carries over into his or her evaluation of the haircut. The hair care providers perceived ability to deliver a reliable and quality haircut enhances the level of trust and loyalty towards the stylist. There is also a direct effect of perceived performance excellence on loyalty, in addition to an indirect effect via trust. Trust, meanwhile, has a positive effect on customer loyalty. How managers should react Customers may be able to nd a stylist who can do just as good a job at providing an excellent haircut, but it may be more difcult to nd a stylist with whom they can connect and build a lasting relationship. Managers should invest in helping employees better to interact with, and serve, customers. Managers should invest in training and educating their employees to click with customers. In situations where it takes time to learn and deliver a satisfactory core service, it may pay dividends for the organisation to focus on the relational and social benets to retain customers, while buying time to improve on the core service performance. Managers should provide an atmosphere and environment with which customers can identify, and in which they can feel comfortable. cis of the article The effects of soft and hard service (A pre attributes on loyalty: the mediating role of trust. Supplied by Marketing Consultants for Emerald.) 92

Executive summary and implications for managers and executives

This summary has been provided to allow managers and executives a rapid appreciation of the content of this article. Those with a particular interest in the topic covered may then read the article in toto to take advantage of the more comprehensive description of the research undertaken and its results to get the full benets of the material present.

Hard and soft service attributes The core aspects of a service are such hard attributes as the performance excellence of the key service delivered. In hair care, a high contact service context with signicant interaction between stylists and clients, they are the quality of the haircut given. In contrast, the non-core aspects of a service are soft attributes. These can be based on human factors such as the quality of the interaction between the stylist and the customer resulting from the exchange of conversation, and the similarity of personality and tastes between the customer and hair care provider. Soft attributes can also be non-human factors such the atmosphere in the salon. The research focus Auh explores whether social bonding between salon employees and customers affects customers perceptions of the core service performance the hair stylists ability to provide a quality haircut. The author also examines the process by which social bonding attributes such as the quality of conversation between employee and customer, and the similarities in the characteristics and outlook of employees and customers, inuence customers loyalty to the service provider the likelihood that a customer will return to the salon. Finally, Auh investigates whether the process by which