Customer commitment and firm profitability

The importance of maintaining a long-term relationship with existing customers has become more pronounced with the increasing competition in globalized business environment. Firms are realizing that retaining customers within the firm is an issue of significant importance as finding new customers especially in markets saturated with alternative or competing products. Arising from such a realization are marketing concepts such as relationship marketing and loyalty marketing. Marketers in these aspects do not only want to satisfy customers but they also seek to establish a relationship with the customers. Among the factors that have been suggested to better relationship marketing are commitment and trust since they (a) enhance the preservation of existing investment in the relationship through cooperative exchange among partners, (b) influence resistance to short term benefits provided by alternatives in preference for long-run potential benefits of existing relationships, and (c) inculcate a perception of possible high risk actions as being prudent in the belief that partners in the relationship would not in an opportunistic fashion.[1] In this section, the paper discusses the different types of commitment in respect to marketing with an explanation of how commitment may be measured being presented thereafter.

Conceptualization of commitment has largely assumed two broad ways; either as an attitude or as a behavior. Both of these conceptualizations have been assessed in marketing perspectives. Whereas attitudinal commitment deals with the intrinsic tendency towards sustaining existing relationships thus focusing on the “intentions, preferences and orientation of relationship participants towards the relationships they are involved in”, behavioral commitment encompasses the efforts a party makes to strengthen the existing relationship thus concerned with the investment in the relationship as evidenced by efforts and pledges made by various partners.[2]

The attitudinal commitment is thought to arise either from affection and emotional attachment towards an entity or from a cognitive and calculative process based on the rewards and costs of the relationship.[3] Commitment could however result from a combination of both the affective and cognitive factors, involving emotions towards the entity and calculation of cost and benefits that the relationship comes with.[4] Affective commitment involves such aspects as emotional attachment, respect and a sense of belonging. Resulting from these affect features, this form of commitment is suggested to be a stronger and more effective driver of long-run relationships between an entity and its customers.[5] Such a relationship may be fueled by common beliefs in values and goals existing among the participants of the relationship, but a congruence of value or goal based relationship may not always indicate commitment e.g. an employee needs not share the goals of the organization to have a committed relationship with it.[6] In marketing however customers could identify with an organization out of its promotion of such aspects as ethical behavior thus form a long lasting relationship with the entity. Other sources of affective commitment include a feeling of belonging (e.g. customers could ascribe to a certain entity’s products out of the status it represents) and enjoyment of the relationship out of the positive sentiments that could characterize engagement in the relationship.[7],[8] An entity seeking to promote customer commitment through this way could thus focus on identifying values of the customers to align its goals to these beliefs.

A different mode of attitudinal commitment could arise following a cost-benefit appraisal of the relationship in an economic perspective. Such calculative-cognitive commitment could either be negative where the costs of switching to new relationships are high or positive where the relationship offers certain economic benefits.[9] The negative cognitive commitment represents a locked-in commitment that arises out of the costs associated with leaving the relationship rather than a liking for continuance of a relationship as is the case for affective commitment.[10],[11] In one study on accounting services clients, most of the clients for instance preferred even sub-optimal performance if the alternative was a possibility of frequent changes that would occur in search for high quality services thus aggravating the costs of the initial decision of leaving.[12] Locked in commitments manly arise from decisions that may prove difficult to move out from due to the perception of an irreversible investment in the relationship such as a case of telephone service subscribers where the change to a new provider could lead to the loss of important contacts. Positive cognitive commitment, on the other hand arises from the value derived from the relationship rather than the cost of leaving, its similarity to the negative one only being the economic calculation and the cognitive appraisal aspects of the relationship.[13] Despite the similarity, this type of commitment focuses on value creation within the relationship hence a positive motivation to the participants. In marketing, relationships where loyalty is rewarded with incentives such as enhanced discounts exemplify this form of commitment.

A different calculation commitment that does not involve economic aspect of the relationship is an obligation based one. Though no economic calculation exists in this type of commitment, a social calculation as to the moral appropriateness of continued relationship is involved.[14] Such a commitment could for instance arise out of the social pressures such as cultural standards that an individual is subject to. In such a way, organizations or individuals that ascribe to various moral doctrines may be committed to purchasing from similar entities.

Apart from the affective and calculative forms of commitment, a behavioral type of commitment could also arise. Behavioral commitment embodies aspects that demonstrate to the other parties in the relationship, of an individual’s “state of mind and signal [ones] intentions to [ones] partners that [one is] making a valuable contribution to the relationship through pledges, effort and investments.”[15] Behavioral attributes of a relationship thus go beyond the attitudes perspective in terms of investment (e.g. effort) that a partner puts to strengthen the existing relationship.

With the suggested benefits of commitment to an organization, its measurement has become a key concern of marketing discipline. Some of the studies have proposed a trust based model of commitment where satisfaction is an antecedent to trust and also leads to functional connections between the entity and its customers.[16] Subsequently trust is indicated to generate personal connections which together with the functional connections determine how the relationship commitment progresses.[17] In this perspective the measurement of customer satisfaction would thus be a core component of commitment measurement.[18] Other studies however recognize the types of commitment that may not arise from satisfaction – e.g. commitment from negative cognitive calculation. Accordingly measures that assess various forms of commitment through questionnaires formulated in a likert scale – indicating level of (dis)agreement with a posed statement have been suggested.[19],[20],[21] These questions may for instance seek the clients’ degree of agreement or disagreement that suggests the attachment between client and service provider to be out of shared values, potential costs in the event of changing provider, and perception of the providers as friends with whom acquaintance should be maintained. Such multi-component assessment of commitment has revealed that interaction among its constituents may curtail the effect of forms of commitment on relationship marketing.[22]

notes

[1] Robert M. Morgan  and Shelby D. Hunt. “The Commitment-Trust Theory of Relationship Marketing.” Journal of Marketing 58, no. 2 (1994): 20-38. http://sdh.ba.ttu.edu/commitment-trust-JM94.pdf (Accessed August 16, 2010).

 

[2] Neeru Sharma, Louise Young and Ian Wilkson, “The Structure of Relationship Commitment in Interfirm Relationships,” Paper Presented at 2001 IMP Conference Norwegian School of Management – BI Oslo, Norway (2001). http://www.impgroup.org/uploads/papers/258.pdf (Accessed August 16, 2010).

 

[3] David I. Gilliland and Daniel C. Bello,“Two Sides to Attitudinal Commitment: The Effect of Calculative and Loyalty Commitment on Enforcement Mechanisms in Distribution Channels,” Journal of the Academy of Marketing Science 30, no. 1 (2002): 24-43.

 

[4] Neeru Sharma, Louise Young and Ian Wilkson, “The Structure of Relationship Commitment in Interfirm Relationships,” Paper Presented at 2001 IMP Conference Norwegian School of Management – BI Oslo, Norway (2001). http://www.impgroup.org/uploads/papers/258.pdf (Accessed August 16, 2010).

 

[5] Ibid., 3

 

[6] Ibid., 3

[7] Ibid., 3

 

[8] Louise Young and Sara Denize, “A Concept of Commitment: Alternative Views of Relational Continuity in Business Service Relationships,” Journal of Business & Industrial Marketing 10, no. 5 (1995): 22-37.

 

[9] Neeru Sharma, Louise Young and Ian Wilkson, “The Structure of Relationship Commitment in Interfirm Relationships,” Paper Presented at 2001 IMP Conference Norwegian School of Management – BI Oslo, Norway (2001). http://www.impgroup.org/uploads/papers/258.pdf (Accessed August 16, 2010).

 

[10] Ibid., 3

 

[11] Kaj Storbacka, Tore strandvik and Christian Gronroos, “Managing Customer Relationships for Profit: The Dynamics of Relationship Quality,” International Journal of Service Industry Management 5, no. 5 (1994): 21-38.

 

[12] Louise Young and Sara Denize, “A Concept of Commitment: Alternative Views of Relational Continuity in Business Service Relationships,” Journal of Business & Industrial Marketing 10, no. 5 (1995): 22-37.

 

[13] Neeru Sharma, Louise Young and Ian Wilkson, “The Structure of Relationship Commitment in Interfirm Relationships,” Paper Presented at 2001 IMP Conference Norwegian School of Management – BI Oslo, Norway (2001). http://www.impgroup.org/uploads/papers/258.pdf (Accessed August 16, 2010)

 

[14] Ibid., 4

[15] Ibid., 4

 

[16] Jeff Hess and John story, “Trust-Based Commitment: Multidimensional Consumer-Brand Relationships,” Journal of Consumer Marketing 22, no. 6 (2005): 313-322 [Database on-line]. Available from EMERALD. doi: 10.1108/07363760510623902.

 

[17] Ibid., 319

[18]  Jean Donio, Paola Massari and Giuseppina Passiante, “Customer Satisfaction and Loyalty in a Digital Environment: An Empirical Test,” Journal of Consumer Marketing 23, no. 7 (2006): [Database on-line]. Available from EMERALD. doi:10.1108/07363760610712993

 

[19] James R. Brown, Robert F. Lusch, and Carolyn Y. Nicholson, “Power and Relationship Commitment: Their Impact on Marketing Channel Member Performance,” Journal of Retailing 71, no. 4 (1995): 363-92 [Database on-line]. Available from SCIENCEDIRECT. doi:10.1016/0022-4359(95)90019-5.

 

[20] David I. Gilliland and Daniel C. Bello,“Two Sides to Attitudinal Commitment: The Effect of Calculative and Loyalty Commitment on Enforcement Mechanisms in Distribution Channels,” Journal of the Academy of Marketing Science 30, no. 1 (2002): 24-43.

 

[21] Stephen James Kelly, “Measuring Attitudinal Commitment in Business-to-Business Channels,” Marketing Intelligence & Planning 22, no. 6 (2004): 636-651. [Database Online] Available from EMERALD. doi:10.1108/02634500410559024.

 

[22] Gordon Fullerton, “How Commitment both Enables and Undermines Marketing Relationships,” European Journal of Marketing 39, no. 11/12 (2005): 1372-1388. [Database on-line] Available from EMERALD doi:10.1108/03090560510623307

find the cost of your paper