• Document: Customer Loyalty in E-Commerce
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27 Journal of the Association for Information Systems (Volume 3, 2002) 27-51 Customer Loyalty in E-Commerce David Gefen Department of Management LeBow College of Business Drexel University gefend@drexel.edu ABSTRACT The high cost of attracting new customers on the Internet and the relative difficulty in retaining them make customer loyalty an essential asset for many online vendors. In the non-Internet marketplace, customer loyalty is primarily the product of superior service quality and the trust that such service entails. This study examines whether the same applies with online vendors even though their service is provided by a website interface notably lacking a human service provider. As hypothesized, customer loyalty to a specific online vendor increased with perceived better service quality both directly and through increased trust. However, the data suggest that the five dimensions of service quality in SERVQUAL collapse to three with online service quality: (1) tangibles, (2) a combined dimension of responsiveness, reliability, and assurance, and (3) empathy. The first dimension is the most important one in increasing customer loyalty, and the second in increasing customer trust. Implications are discussed. Keywords: E-commerce, trust, risk, customer loyalty, SERVQUAL I. INTRODUCTION Creating online customer loyalty—retaining existing customers—is a necessity for online vendors. This study examines whether this goal can be achieved to some degree through increased customer trust—the feeling of assurance—brought about through superior service quality. The study also examines which aspects of service quality contribute to this trust in an online environment. Attracting new customers costs online vendors at least 20% to 40% more than it costs vendors serving an equivalent traditional market [Reichheld and Schefter 2000]. To recoup these costs and show a profit, online vendors, even more so than their counterparts in the traditional marketplace, must increase customer loyalty, which means convincing customers to return for many additional purchases at their site. In the online book-selling market, for example, it takes over a year of repeat Customer Loyalty in E-Commerce by D. Gefen Journal of the Association for Information Systems (Volume 3, 2002) 27-51 28 purchases by a typical customer to recoup the average initial cost of attracting the customer to the website. This is no exception. Among groceries and apparel websites, the figure is also over a year; in the online consumer electronics and appliances market, it takes on average more than four years to break even. Given these timeframes, increasing customer loyalty is an economic necessity for many online vendors [Reichheld and Schefter 2000]. Customer loyalty, in general, increases profit and growth in many ways [Chow and Reed 1997; Heskett et al. 1994] to the extent that increasing the percentage of loyal customers by as little as 5% can increase profitability by as much as 30% to 85%, depending upon the industry involved [Reichheld and Sasser 1990]—a ratio estimated to be even higher on the Web [Reichheld and Schefter 2000]. The reason for this is that loyal customers are typically willing to pay a higher price and are more understanding when something goes wrong [Chow and Reed 1997; Fukuyama 1995; Reichheld and Sasser 1990; Reichheld and Schefter 2000; Zeithaml et al. 1996], and are easier to satisfy because the vendor knows better what the customers’ expectations are [Heskett et al. 1994; Reichheld and Sasser 1990; Zeithaml et al. 1996]. Indeed, the success of some well-known websites can be attributed in part to their ability to maintain a high degree of customer loyalty. Part of the success of Amazon.com, the leading online book-selling site, for example, is attributed to its high degree of customer loyalty, with 66% of purchases made by returning customers [The Economist 2000]. Loyal customers are also more inclined to recommend the vendor to other customers, increasing the customer base at no additional advertising expense [Heskett et al. 1994; Reichheld and Sasser 1990; Zeithaml et al. 1996]. The success of some well-known websites, such as eBay, has been in part thanks to their ability to cut the costs of attracting new customers through such a referral system [Reichheld and Schefter 2000]. Indeed, one of the ways trust is built is through a process of transference whereby individuals begin trusting unknown others because the unknown others are trusted by a person they trust [Doney and Cannon 1997]. Related research suggests that in a non-Internet marketplace customer loyalty is based primarily on customer trust [e.g., Fukuyama 1995; Reichheld and Sasser 1990] and on perceived service quality [e.g. Heskett et al. 1994; Reichheld and Sasser 1990]. Recent case stud

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