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Service quality and customer

retention: building long-term
relationships
Karin A. Venetis

Service quality
and customer
retention
1577

Vrije Universiteit Amsterdam, Amsterdam, The Netherlands

Pervez N. Ghauri
Manchester Business School, The University of Manchester, Manchester, UK
Keywords Customer services quality, Customer retention, Business-to-business marketing
Abstract The study extends the existing knowledge by taking a relationship perspective to study
the effect of service quality on customer retention. We integrate business-to-business marketing
literature with service quality literature to develop a model to capture relationship commitment and
other influencing factors. The model is improved with help of semi-structured interviews which is
later tested through a survey of 241 companies in the advertising sector. Findings indicate that
service quality indeed contributes to the long-term relationships and customer retention.

Introduction
The quality of services is considered to be a critical success factor for contemporary
service companies. Service qualitys close conceptual as well as empirical link to
customer satisfaction turned it into the core marketing instrument, making it the most
researched area in services marketing (Fisk et al., 1995; Bolton et al., 2000). In addition,
the accumulated research has linked positively with profitability (Fornell, 1992). This
link, however, is not straightforward (Rust et al., 1995; Zeithaml et al., 1996). The
contribution of service quality to profitability is generally explained by two underlying
processes. First, service quality is regarded as one of the few means for service
differentiation and competitive advantage which attracts new customers and
contributes to the market share. Second, service quality is viewed as an important
means for customer retention.
It has been argued that service excellence enhances customers inclination to buy
again, to buy more, to buy other services, to become less price sensitive, and to tell
others about their positive experiences (Anderson and Fornell, 1994; Anderson et al.,
1994; Rust et al., 1995; Zeithaml et al., 1996; Bolton et al., 2000). Empirically this
assumption is supported by several studies that consistently find a positive impact of
service quality on customers behavioral intentions. Bitner (1990), Bolton and Drew
(1991), Boulding et al. (1993) and Cronin and Taylor (1994) find that service quality has
a positive impact on customers repurchase intentions and intentions to recommend the
company to others. The most comprehensive study in this field, by Zeithaml et al.
(1996), determines that service quality influences different intentions, such as giving
recommendations, doing more business, and willingness to pay more.
Our study focuses on the contribution of service quality to customer retention. We
extend the existing knowledge by taking a relationship perspective to study the effect
of service quality on customer retention. Generally, using behavioral intentions as a
measure for customer retention implies a transaction perspective on customer

European Journal of Marketing

Vol. 38 No. 11/12, 2004
pp. 1577-1598
q Emerald Group Publishing Limited
0309-0566
DOI 10.1108/03090560410560254

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retention. However, the mere intention of a customer to remain or leave does not predict
very well whether the relationship is maintained in the long term.
Long-term customer retention and long-term relationships with customers produce
a number of important benefits. Over time, exchange efficiencies can be created
between the parties and effectiveness can be increased. In other words, better quality
can be delivered at lower transaction costs (Heide and John, 1992). The relationship
paradigm has entered the services marketing literature as well (Gronroos, 1993, 2000;
Berry, 1995), and authors argue that service quality not only affects subsequent service
transactions, but also enhances the building and maintenance of long-term customer
relationships (Rust and Zahorik, 1993; Anderson and Fornell, 1994; Harris et al., 2003).
When customers perceive that they are receiving better quality service for their money,
they believe they are receiving good value, which increases their loyalty to the
service provider (Bolton et al., 2000). Empirically, however, very little research has been
conducted to study the effects of service quality on the maintenance of long-term
relationships.
In business-to-business marketing, on the other hand, the establishment and
maintenance of long-term business relationships has been studied for much longer.
From this literature it becomes clear that relationships are not static but dynamic
phenomena, and that the context and history of the relationships are important
determinants for the future of the relationships (Ford, 1990; Halinen, 1996; Ghauri,
1999). Research has shown that service quality has a strong effect on the potential start
of a relationship: it has a positive effect on customers repurchase intentions (loyalty),
which leads to more interactions and/or transactions. Whether these transactions
accumulate into a strong long-term relationship remains to be studied, and is the focus
of our research.
We integrate business-to-business marketing literature with the service quality
literature to answer the following questions: Does service quality contribute to the
building and enhancement of long-term customer relationships? If so, what is its
relative contribution next to other (relationship) factors? This research contributes to
existing literature in the following ways.
It provides empirical evidence for the generally assumed positive effect of service
quality on the establishment and enhancement of long-term customer relationships
(Anderson and Fornell, 1994; Patterson, 1995; Rust and Zahorik, 1993; Bolton and
Lemon, 1999).
It extends the service quality literature by integrating it with business-to-business
marketing literature. Liljander and Strandvik (1995) developed a model for consumer
service relationships in which they used theories from business-to-business marketing
literature. However, this model was not explored empirically. In business-to-business
marketing, several authors have investigated business services relationships (Halinen,
1996; LaBahn and Kohli, 1997), but they have not used the service quality concept in
the manner as it is used in services marketing. We thus aim to extend the service
quality literature in two ways:
(1) identify and explore the conceptualization of long-term customer-relationship
maintenance that differs from a mere transactional relationship; and
(2) identify and explore other factors that contribute to the establishment and
maintenance of customer service relationships.

In this manner, we extend the knowledge of service qualitys influence from absolute
contribution of service quality to its relative contribution (relative to other factors). This
enables us to develop a model portraying the factors that influence long-term business
relationships. This model is then empirically tested and discussed before drawing
conclusions in the final part of this paper.

Service quality
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Theoretical background
Long-term relationships
Long-term business relationships are beneficial to both parties involved (Berry, 1995;
Szmigin, 1993; Bolton et al., 2000). From the providers point of view, these
relationships create barriers against competition, decrease price competition, and
generate more revenue per customer with decreasing costs. According to the PIMS
studies, in some service industries the retention of 5 per cent of the current
customer-base can have a profit impact as large as 125 per cent (Reichheld and Sasser,
1990; see also Reinartz and Kumar 2000, 2003 for the latest research on this topic).
In business marketing literature, different kinds of relationships are identified, ranging
from transactional relationships to relational exchange relationships ( Jackson, 1985;
Dwyer et al., 1987; Ghauri, 1999). In pure transactional relationships the customer
primarily buys on the basis of price, uses multiple sources of supply, and tends to
switch suppliers frequently over time. Relational exchange relationships, on the other
hand, emerge when the buyer and supplier develop a relationship with a more
long-term orientation. Continuity is the key element of relational exchange, which does
not necessarily mean that the exchange events are frequent or repeated but that
relationship exists and is maintained.
The fact that relationships are more than a mere sequence of transactions over time
can be illustrated by some of the existing relationships in business services markets.
Many accountancy, legal and advertising agencies have rather lengthy relationships
with their customers (see, for example, Harris et al., 2003). The mere presence of a series
of transactions does not mean that a real relationship is created. The establishment of
a relationship is not signalled only by the (intended) behavior, but more so by the
reason why the behavior occurs, i.e. the attitudes and motivations that underlie the
intentions (Dwyer et al., 1987).
Sharma (1994) and Yorke (1990), writing about business service relationships,
conclude that relationships go through several stages before they can be called
long-term. Although each author emphasises different processes that occur at each
stage, they agree on the outcome that characterises the last stage: the degree of
relationship commitment that has been established between the partners:
Customer retention implies a long-term commitment on the part of the customer and the firm
to maintain the relationship. The development of the mutual commitment is the same process
as creating long term buyer-seller relationships (Wilson, 1995, p. 8).

Commitment is regarded as the central outcome variable in business relationships,

which ensures the strength, stability, durability, and even profitability of a relationship
(Dwyer et al., 1987; Moorman et al., 1992; Morgan and Hunt, 1994;). Since a partners
relationship commitment is not built overnight, it is a good measure that reflects the
ongoing process of the relationship. If behavioral intentions do not stem from a

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certain degree of commitment, they indicate a transactional relationship rather than a

long-term co-operative one.
Relationship commitment is thus the crucial variable that determines the long-term
retention of customers. Although service quality is assumed to be positively related to
the retention of customers, little is known about its effect on customers relationship
commitment. Commitment is a dynamic concept, and the link between service quality
and customers commitment might not be straightforward. Even though
business-to-business marketing literature does not study the concept of service
quality, it addresses the comparable concept of satisfaction. In services marketing,
service quality is defined from a customer-based perspective (cf. Parasuraman et al.,
1985; Gronroos, 1984), i.e. quality is what the customer perceives as quality, and it is
generally defined as the (dis)confirmation of customers service expectations. This
conceptualisation makes it very similar to the conceptualisation of customer
satisfaction which is also based on the disconfirmation principle. Some authors use the
two concepts as synonyms (see, for example, Iaccobucci et al., 1994), although
conceptual differences do exist (for a detailed discussion see Oliver, 1993). Customer
satisfaction does not have a direct positive link to customer retention. Reichheld (1993)
found that even satisfied customers can switch relationships. Dissatisfied customers
do not necessarily leave, and satisfied customers do not necessarily stay in a
relationship. Even though it has been indisputably shown that service quality
contributes significantly to the start of a relationship, we will determine whether
quality also contributes to relationship maintenance, next to other factors that have
been proposed and found to influence relationship commitment.
Relationship commitment
Several definitions have been proposed that reflect different aspects of the commitment
concept. Some stress its behavioral dimension, an explicit or implicit intention to
continue the relationship (Dwyer et al., 1987; Moorman et al., 1992), whereas others
refer to attitudes, for example, a desire for a stable relationship, a willingness to make
short-term sacrifices for the sake of maintaining the relationship, and belief in
relationship stability (Anderson and Weitz, 1992; Morgan and Hunt, 1994). Some define
it as a perception of the interdependence of outcomes where both a partners outcomes
and joint outcomes are expected to benefit the party in the long run (Ganesan, 1994).
Others define commitment as an affective disposition that reflects the desire of the
parties to maintain the relationship and willingness to devote considerable effort to it
(Morgan and Hunt, 1994; Anderson and Weitz, 1992).
Despite the diversity, all definitions refer to the likelihood of relationship
continuation in the future. Therefore, we define relationship commitment as a partners
intentional continuation of a business relationship. This definition not only refers to a
partys future intentions, but also to the deliberateness of these intentions, which is
exactly what makes a committed relationship different from a mere transactional one.
It reflects the attitude and specific motivations that underlie a partys intentions.
Different motivations can underlie a partners intentions to continue the
relationship. Kumar et al. (1994) and Geyskens et al. (1996) define these intentions as
different dimensions of relationship commitment. They distinguish between two
commitment dimensions: affective and calculative commitment. Affective commitment
is defined as a desire to continue the relationship because it is enjoyed for its own sake,

not taking into account its instrumental worth. A sense of loyalty and belongingness
also plays a role. Calculative commitment refers to a more instrumental type of
commitment, and is defined as the extent of the need to maintain a relationship due to
significant perceived termination or switching costs. It is a calculation of costs and
benefits, including investments and available alternatives to replace or make-up for
foregone investment. This is close to Moorman et al.s (1992) suggestion that
commitment is enduring and reflects a positive valuation of a relationship. The
two-dimensionality of commitment was also empirically confirmed in channel
relationships (Kumar et al., 1994; Geyskens et al., 1996). Thus, we propose:
H1. Both affective commitment and calculative commitment are positively
related to customers intention to continue the relationship.
Antecedents of relationship commitment
Commitment is something that is built gradually during the development of a
relationship, and parties can be committed for different reasons. Summarising earlier
studies, several general antecedents to relationship commitment can be identified;
relational bonds that are created between the parties during the course of the
relationship, the trust that has been established between the partners, and the service
quality.
Relational bonds. Both the (American) marketing channels literature as well as the
(European) literature of the Industrial Marketing and Purchasing Group (IMP Group)
(cf. Ford, 1990; Moller and Wilson, 1995; Ghauri, 1999) argue that business
relationships develop and grow by the incremental investments that are made in the
relationship by the parties. Channel management literature describes this as the
growing interdependency between the partners, whereas the IMP Group describes this
as the creation of relational bonds between the parties. These bonds can be structural
or social in nature.
Structural bonds. Structural bonds are the ties created on a corporate level in a
relationship that, if terminated, will result in considerable economical or financial costs
for the parties.
The creation of a structural bond happens when the two parties make investments that
cannot be retrieved when the relationship ends, or when it is difficult to end the relationship
due to the complexity and cost of changing sources (Turnbull and Wilson, 1989, p. 233).

The more investments are made in a relationship, the more difficult its disengagement
becomes and the more a party will be committed to continue the relationship. This
concept is related to the (inter)dependency of the parties in the relationship and is
similar to the power-dependence and transaction cost theories that are used in channel
marketing research. A partys dependence on the other party is regarded as an
important antecedent to its relationship commitment. Dependence has been defined in
the marketing channel literature in different ways (Heide and John, 1988; Anderson and
Weitz, 1992; Ganesan, 1994; Morgan and Hunt, 1994; Kumar et al., 1995; Andaleeb,
1996), and is largely determined by the importance of the relationship to a party and
the replaceability of the partner.
In service relationships, little attention has been paid to the structural bonds
between the parties. Halinen (1996) argues that corporate investments are not as large
in service relationships as in other business relationships. Customers have to invest in

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knowledge and information exchange to help the service provider produce the service,
but hardly any tangible or heavy capital investments (e.g. machinery) are necessary in
these relationships. Yet, the customer-specific expertise that is built-up over time is a
valuable and costly asset that will be lost at a switch (Levinthal and Fichman, 1988).
Furthermore, there can be a considerable degree of dependence on the service provider
created by its importance for the partys business or by the lack of alternatives. Hence,
we propose that:
H2a. The strength of the structural bonds between the two parties will influence a
partys calculative relationship commitment positively.
H2b. The strength of structural bonds between the two parties will influence a
partys affective relationship commitment.
Social bonds. Social bonds are the ties that are created between the interacting
individuals of the two partner organisations. Although the fundamental basis of a
business relation is economic exchange, personal exchange is its by-product. The social
bonds are the interpersonal relationships between the buyer and the seller (Turnbull
and Wilson, 1989; Bendapudi and Leone, 2002), which are the glue that holds the
individuals together. Personal contact enhances the inter-organisational
communication and information exchange, which will enhance the development of
the relationship as a whole. Wilson (1995) found that buyers who have a strong
personal relationship with the sellers are more committed to maintaining the
relationship than less socially bonded partners.
In service relationships, there is ample opportunity to establish social bonds, and in
some cases, the professional is the organization in the eyes of the customer. Seabright
et al. (1992) found that the length of the personal relationship with an auditor is more
indicative of a clients propensity to switch than the relationship with the organization
as a whole. Also, Moorman et al. (1993), Halinen (1996) and Harris et al. (2003)
found that the social ties are positively related to the strength of business
service relationships. Bendapudi and Leone (2002) provide an example of a customers
relationship with a particular employee, which can be stronger than the customers
relation with the vendor firm. We suggest that:
H3. The strength of the social bonds between the parties will influence a partys
relationship commitment positively.
Trust. In the marketing channel literature, special attention is paid to the role of trust
in the relationship. Because bonds and investments in a relationship expose parties to
dependence and make them vulnerable to the actions of the other party, trust is needed
for a relationship to develop. Only if the partner is considered trustworthy will a party
be willing to invest in and become committed to the relationship. The interaction and
network theorists classify trust as a social bond between the parties (Turnbull and
Wilson, 1989). However, although trust is essentially a social construct, it has clear
economic implications. Trust has been defined as a firms belief that another party will
perform actions that will lead to positive outcomes for the firm, as well as not take
unexpected actions that can lead to negative outcomes (Anderson and Narus, 1990).
It can be recognized as a willingness to rely on a partner in whom one has confidence
(Moorman et al., 1993). This definition refers to a behavioral dimension. Trust is
regarded as a valuable asset in a relationship. It reduces perceived uncertainties and

risk and is considered a key variable for relationship success (Morgan and Hunt, 1994;
Kemp and Ghauri, 1998; Boersma et al., 2003). Moreover, trust is found to be an
important antecedent to relationship commitment in business relationships (Anderson
and Weitz, 1992; Dwyer et al., 1987; Moorman et al., 1992; Ganesan, 1994; Geyskens
et al., 1996; Morgan and Hunt, 1994).
Sirdeshmukh et al. (2002) conceptualize trust and provide an analysis of
behaviors and practices of service providers that build or deplete trust. They also
study the mechanisms that convert customer trust into loyalty in relational
exchanges. For services in particular, authors argue that trust is a crucial element in
the exchange because of the high perceived risk attached to the intangibility,
complexity and long-time horizon of services (Crosby et al., 1990; Berry, 1995). Thus,
trust is found to be an important antecedent to a partys relationship commitment
(Moorman et al., 1993; Halinen, 1996; LaBahn and Kohli, 1997; Ghauri and Fang,
2001).
H4. The degree of trust instilled by the partner will influence a partys
relationship commitment positively.
Service quality. Business marketing literature argues that satisfaction is an important
but not a necessary condition for a party to be committed to the relationship. The
investments made in the relationship can be so high or the quality of the available
alternatives so bad that a party is willing to continue the relationship despite
deteriorating satisfaction. Ganesan (1994) found that satisfaction is directly and
significantly related to a partys relationship commitment, whereas Morgan and Hunt
(1994) found that it did not contribute significantly to a partys commitment in
comparison with structural ties, trust, and shared values. Bolton and Lemon (1999)
conclude that customers usage level of a particular service can be managed through
customer satisfaction management. Thus, although satisfaction is positively related to
a partys relationship commitment, its relative contribution, compared to the other
antecedents, might be very small or non-significant.
Halinen (1996) and LaBahn and Kohli (1997) investigated the impact of service
outcome satisfaction on commitment. However, they did not include the other
antecedents in their study. Both found it to be positively related to customers
relationship commitment. Hence, we can propose that service quality as such will be
positively related to customers relationship commitment:
H5. The perceived service quality will influence a clients relationship
commitment positively.
Our main question is whether service quality contributes significantly to customers
commitment relative to the influence of the relational bonds and trust between the
parties. This relative contribution of service quality is explored empirically in our
research. The five hypotheses are summarised in the research model (see Figure 1),
which is tested in the empirical research.
Research design
As a research setting we chose the advertising sector. It is a business service market
where long-term relationships exist, it has been deregulated for a long period of time (in
Europe), and it excludes any disturbing influences from regulations on the

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Figure 1.
Research model

agency-client relationship. We used triangulation to study the concepts and their

interrelations. A two step approach was followed for empirical research.
First, we conducted a qualitative exploratory study consisting of a literature
review, key-informant interviews, and interviews with agencies, depicting typical
agency-client relationships to understand the dynamics of agency-client
relationships and the factors that play a role in their development and
maintenance. The relevance and sufficiency of the proposed variables were
assessed, and indications were sought for their measurement. The interviews were
semi-structured, conducted face-to-face at the respondents premises, and lasted
between 1 and 2 hours.
Both the literature review and the interviews confirmed the existence of affective
commitment (Halinen, 1996; LaBahn and Kohli, 1997) and supported our hypotheses.
The hypotheses that deal with antecedents of commitment were also confirmed and no
new variables were added. The social bonds between the interacting individuals were
found to be important. Regarding the structural bonds, different factors were identified
that can form a structural bond in service relationships. Trust was confirmed to be an
important aspect in the relationship, in accordance with previous empirical studies in
the advertising market (Halinen, 1996; LaBahn and Kohli, 1997). Service quality has
not been studied previously, but it is established that dissatisfaction with the work
produced is the most important reason to terminate an agency-client relationship
(Wackman et al., 1987). Most of the respondents interviewed in our research stated that
the quality of the agencys work was the most important reason to maintain the
relationship.
In the second empirical step we conducted a large-scale field study to test the model.
The questionnaire was sent to clients of advertising agencies. Although relationships
are reciprocal processes, we restricted the study to the clients side because we were not
interested in the dynamics of agency-client relationships as such (Halinen, 1996) but in
the importance of service quality within this process. Service quality is a

customer-based concept defined as customers quality perception (Parasuraman et al.,

1985) and can only be measured from the clients side. Furthermore, it is mainly the
customers opinion and attitude that determine whether a relationship is maintained in
the long term.
Our question focuses on the maintenance of existing relationships. Therefore, we
approached clients who had a relationship with their agency for at least one year.
These clients (i.e. advertisers) and their representatives were selected through two
channels: First, we approached the two Dutch trade associations of advertising
agencies and asked for support of our research among their members. Then we
approached the member agencies of the trade association to ask for their co-operation
in our research, and 33 agencies agreed to participate. These agencies identified 438
clients with whom they had at least a year-long relationship and who used at least
strategic and/or creative concept services (i.e. core service of agency). Furthermore,
they identified 6,111 representatives of these clients who had personal experiences with
the agency and decision power over agency decisions. A questionnaire with a pre-paid
return-envelope was sent to this group.
Secondly, we approached the Dutch Association of Advertisers (BVA), which
represents the 284 largest advertisers, and asked the Association to distribute our
questionnaire among its members. BVA agreed to co-operate and sent the
questionnaires with a supporting cover letter to its members. The respondents were
asked to return the questionnaire in the prepaid return envelope directly to us at the
university address. Since no information was available on the nature of agency
relationships of the BVA members before the mailing, we asked them to indicate
whether their relationships satisfied the same criteria as the agencies from the first
group (i.e. one year relationship, core services, personal dealings and decision power).
In total 1,112 questionnaires were sent to representatives of 705 Dutch advertisers.
After two weeks a reminder letter was sent to all of them.

Sample and representativeness

Finally, 241 completed questionnaires were returned, amounting to a response rate of
22 per cent of respondents and 31 per cent of companies approached. This is a
reasonable response rate considering that 20 per cent is a normal response rate in
comparable studies among advertisers in the US and Germany (Verbeke, 1988;
Clemens, 1994; LaBahn and Kohli, 1997).
Several tests of sample representativeness were conducted. Chi-square difference
tests and t-tests on the five items show that there are no significant differences (at 1 per
cent level) on any item between the total client-group selected by the agencies and the
clients that responded from this group. As such pre-research information was not
available for the BVA members, we compared their answers on these items to the
answers of the agency clients.
The BVA-members scored significantly higher on two items, i.e the communication
budget and client importance. This difference was to be expected, since the BVA
represents the largest advertisers with higher budgets. Finally, we compared early
(within two weeks) and late (after reminder) respondents on the same five items,
regardless of their source. The two groups did not differ significantly on any of the
items (at 1 per cent level), thus decreasing the likelihood of non-respondent bias.

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Respondent description
The sample consists of FMCG producers (40 per cent), service providers (29 per
cent), and business-to-business (16 per cent) companies. Retailers and non-profits
were represented only marginally. This distribution across industries is
comparable to the number of companies per industry in The Netherlands in
1995 according to the Central Bureau of Statistics. Large, medium, and small-sized
companies are almost equally represented in the sample. Large companies,
however, predominate in the sample (37 per cent). The respondents are mainly
communication directors (45 per cent), marketing directors (19 per cent), and
managing directors (14 per cent), with decision power ranging from important
influencer to final decision-maker. The relationship length ranges from 1 to 75
years, with an average of 6.2 years and a median of 4 years. This is comparable
to what Verbeke (1988) found in the Dutch advertising market and what Michell
(1988) found in the British advertising market.
Measures
All measures were analyzed for validity and reliability using the confirmatory analysis
proposed by Steenkamp and Van Trijp (1991) for validating social constructs. We used
several measures for uni-dimensionality and scale reliability, such as item-total
correlations, exploratory factor analysis (principal axis factoring), and confirmatory
factor analysis using LISREL-8. The items and the scale properties after the scale
analysis are summarized in Table I.
Relationship commitment. The two dimensions of relationship commitment, i.e.
affective and calculative commitment, were operationalised using the scales developed
by Kumar et al. (1994) and Geyskens et al. (1996). The final measures for both
dimensions were valid and reliable (see Table I).
Relationship intentions. The scales used by Kumar et al. (1994) were adapted to
measure clients intentions to stay and to search for alternatives. The validation of
these measures showed that both intentions reflect two sides of one underlying
construct the intention to stay. The items were merged into one scale which was
found to be reliable and valid (see Table I).
Structural bonds. Since structural bonds are different for business service
relationships, we used the scales proposed by Wilson and Mummalaneni (1990), Heide
and John (1988) and Halinen (1994), and adjusted them based on our interviews in the
advertising industry. Several bonds were suggested to be relevant in these
relationships:
.
investments in knowledge and classified information were termed investment
bonds; and
.
considerable costs of switching due to the lack of transparency of the service
market and the long start-up costs with a new agency perceived by the client
were termed switch bonds.
Finally, we found from our interviews that some clients were tied to their agency by
company internal rules and regulations (e.g. contracts, directions from the
headquarters, or shares in the agency). To reflect the external nature of these bonds
we termed them stuck bonds. We found reliable and valid scales for each type of
structural bond (see Table I).

0.80
0.90
1.2
0.85
1.2
1.2
1.4
1.5
1.5

3.5
3.6
2.3
3.7
5.3
5.2

4.9

3.1
5.3

0.82
0.91

0.90

0.78
0.76
0.68
0.85
0.76
0.84

Composite
reliabilitya

0.14
0.29

0.22

0.59
0.43
0.72
0.26
0.34

Investment
bonds

0.32
0.33

0.35

0.12
0.49
0.28
0.50

Switch
bonds

0.01
0.08

20.21

0.27
20.20
20.05

Stuck
bonds

0.12
0.33

0.29

0.29
0.43

Social
bonds

0.08
0.58

0.74

0.73

Trust

0.16
0.73

0.78

Service
quality

0.24
0.73

Affective
commitment

0.20

Calculative
commitment

Notes: aComposite reliability is a measure of scale reliability that is preferable to the Cronbachs a measure because it takes the measurement error of
each item into account; composite reliability (Sl)2/ [(Sl)2 + S(12 l 2)] (cf. Hair et al., 1995); the bonds are measured on a five-point scale, while the other
variables are on seven-point Likert scales

Investment
bonds
Switch bonds
Stuck bonds
Social bonds
Trust
Service quality
Affective
commitment
Calculative
commitment
Stay intentions

Mean SD

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Table I.
Descriptive and
correlation matrix

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Social bonds. We used the scales proposed by Halinen (1994) and Wilson (1990) to
measure the social ties between the parties. The scale measured the social network
between the parties and the degree of personal affection. After purification, two items
remained that measured the frequency and intensity of interactions.
Trust. Trust was measured using the scales developed by LaBahn and Kohli (1997)
and Moorman et al. (1993) that were used and validated in business services markets.
These measures were also found to be reliable and valid in our research (see Table II).
Service quality. Service quality was measured by three items that asked for
customers overall quality rating of the agency services, absolute as well as relative to
their competitors. The service quality was measured by perception scores, because
empirical studies consistently show that perception scores alone are a better predictor
of customers service quality assessment (Parasuraman et al., 1994). The scale was
valid and reliable (see Table I).
Analysis and results
Table I shows the means, standard deviations, and intercorrelations between the
research variables. The standard deviations are relatively high (from 0.8 to 1.2 on
five-point scales and from 1.2 to 1.5 on seven-point scales), indicating that there is
variation in the answers that can be explained (for the endogenous variables). The
correlations in Table I give a first test of our hypotheses. As proposed, both affective
and calculative commitment are significantly and positively correlated with the
intentions to stay (0.73 and 0.20, respectively). The structural and social bonds, trust
and service quality are also significantly related to affective commitment (ranging
from 0.21 to 0.78), with stuck bonds displaying a negative correlation. All proposed
antecedents are significantly and positively related to calculative commitment, with an
exception of stuck bonds and trust. Before providing an interpretation of these
findings, we will test the hypotheses in more depth, using structural equation
modeling. This method allows us to test all hypotheses simultaneously, accounting for
measurement errors in the research constructs.
The research model was tested using LISREL-8. We produced composite scale
scores for each research construct using the composite reliability, which takes the

Figure 2.
Proposed structural
research model

measurement error into account (the scale mean is used and the error variance is fixed
to 1 2 reliability
scalevariance; Baumgartner and Homburg, 1996). These
composite measures were used in the structural model in which the causal
relationships are defined as proposed in the research model (see Figure 2).
The covariance matrix was used as input and the exogenous constructs were allowed
to correlate freely.
The fit of the proposed structural model to the data is moderate (x 2 45:5, df 22,
p 0:002, RMSEA 0:069, GFI 0:96, AGFI 0:89, CFI 1:0). Chi-square is
significant, indicating that this model is significantly different from the observed
interrelationships between the variables. The other fit indices show a moderate fit of
the model to the data (both the GFI and AGFI are on or above their recommended 0.90
level). To assess the extent of this model fit, we compared the fit-statistics of this model
to the fit-statistics of the saturated model (Gerbing and Anderson, 1988). This is the
model in which all concepts are allowed to correlate freely without any constraints on
their causality. The fit of this model is the maximum fit that is possible for any
structural model using the constructs as defined. Thus, it can serve as a comparison
standard. A chi-square difference test between the fit-statistics of both models shows a
significantly higher chi-square value, with six extra degrees of freedom. This means
that the structural model does not explain the covariances between the items as is
theoretically possible (Anderson and Gerbing, 1988).
Adjusting the research model
Analysis of the residuals shows that the interrelations of the stay intentions with both
service quality and the stuck bonds are insufficiently explained by the proposed model.
This analysis indicates that a direct path from service quality to clients stay intentions
and from the stuck bonds to the stay intentions should be added to the model. Before
these paths are added for statistical reasons, their theoretical meaning has to be
assessed.
Stuck bonds ! stay intentions. A direct effect of the stuck bonds on the stay
intentions means that the contracts and regulations that tie a customer to its agency
will influence their stay intentions directly, regardless of their degree of commitment.
Contracts force/motivate a client to stay regardless of the desire or perceived need to do
so. Therefore, we add this path to the model.
Service quality perception ! stay intentions. Adding a direct path from service
quality to stay intention means that service quality can influence clients stay
intentions directly, regardless of customers relationship commitment. This direct
effect of service quality on behavioral intentions has been found in many service
quality studies (see, for example, Zeithaml et al., 1996) and is thus theoretically well
grounded. Since the influence of service quality on long-term relationship maintenance
is the core issue in this study, the addition of this path to the model gives us more
insight into the role that service quality plays in service relationships. Therefore, we
extend the model with this path as well.
This alternative model was estimated using LISREL-8. The addition of each path to
the initial proposed model resulted in a significant decrease in the chi-square value of
the model (at 1 per cent level). The alternative model with two added paths shows a
good fit to the data (see Table II). To assess the comparative fit, we compared the fit of
this model to the initial model and to the saturated model. Table II shows that the

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alternative model fits the data significantly better than the proposed model, and that it
fits equally well as the saturated model, which means that the interrelationships
between the constructs are maximally explained by the model. To increase the validity
of the model, we constrained each insignificant path to zero. None of these constraints
had a significant effect on the chi-square value of the model (at 5 per cent level),
indicating that these relationships should be regarded as zero (or non-) relationships.
This adjusted model is presented in Figure 3 and the results are described in Table III.
Table III shows that a large amount of variance in affective commitment and
stay-intentions is explained by the antecedents in the model, the squared multiple
correlations are 68 and 64 per cent respectively. Affective commitment is significantly
influenced by the clients perceived service quality and trust in the agency. The stuck
bonds also influence affective commitment significantly, but negatively. Stay
intentions are influenced by customers affective commitment and directly by the
perceived service quality and the stuck bonds. Calculative commitment does not
x 2 difference tests

Absolute fit statistics

Table II.
Fit statistics and
difference tests of nested
alternative models

Figure 3.
Final structural model
with estimated parameters

Models

x2

df

p value

Models

Dx 2

Ddf

p value

Saturated model (Ms)

Proposed model (Mt)
Unconstrained model
(Mu; two suggested paths added)

23.8
45.5

16
22

0.094
0.002

Mt-Ms

21.7

0.001

25.7

20

0.17

Mu-Mt
Mu-Ms

19.6
1.93

2
4

, 0.00
0.75

Constrained model
(Mc; NS relations from Mu set to 0)

30.6

31

0.49

Mc-Mu
Mc-Ms

4.84
6.77

11
15

0.94
0.96

Antecedents
Service quality
Trust
Stuck bonds
Switch bonds
Social bonds
Investment bonds
Affective commitment
Calculative commitment
Multiple R 2

Standardiseda coefficients (t-values)

Affective commitment
Calculative commitment
0.55 (5.75)
0.32 (3.15)
20.13 (2 2.06)
0
0
0
0.68

0
0
0
0.32 (3.91)
0
0
0.10

Stay intentions
0.32 (3.01)

Service quality
and customer
retention

0.21 (3.01)

1591
0.53 (4.69)
0
0.64

Notes: aParameters shown as 0 are proposed relationships that were found to be insignificant: their
constraint to 0 did not influence the fit of the model, and therefore they shown as 0; fit statistics final
model: x 2 30:6, df 31, p 0:49, RMSEA 0:0, GFI 0:98, AGFI 0:95, CFI 1:0

influence the stay intentions significantly, and is to some extent (10 per cent) explained
by the switch bonds.
Relationship commitment in service relationships. H1, which deals with the influence
of affective and calculative commitment on relationship intentions, is partly confirmed.
The analysis of the measurement model showed that commitment is indeed
multidimensional, and we found reliable and valid measures for both an affective and a
calculative commitment dimension in these service relationships. Affective
commitment has a strong positive influence on customers stay intentions.
Customers calculative commitment is significantly correlated (see Table I), but
together with affective commitment does not contribute significantly to customers
stay intentions. This indicates that this commitment dimension is not a strong
motivation for clients to stay in the relationship.
Antecedents to relationship commitment. Two of the three measured structural
bonds influence clients affective as well as calculative relationship commitment. In
addition, we found that the stuck bonds have a positive direct influence on customers
stay-intentions. This means that although they diminish clients desire to stay, they
increase the likelihood that they will stay exactly because they are stuck to the
relationship. The stuck bonds are not significantly related to calculative
commitment, indicating that rules and contracts do not contribute to the perceived
need to continue the relationship. The switch bonds are positively related to customers
calculative commitment, as expected. The more difficulties a client experiences in
switching to another agency, the more s/he feels the need to continue working with the
present agency.
The third hypothesis, regarding the effect of the social bonds, is rejected. The social
bonds do not influence clients relationship commitment significantly. Perhaps a
different measure of this concept could have provided a better insight into the effect of
this variable on relationship commitment. This finding is not consistent with earlier
studies (e.g. Harris, 2002; Halinen, 1996). We believe that it is partly due to the nature of
advertising sector, where the service itself and its impact/satisfaction is more
important than personal relationship. However, this needs closer attention in future
research.

Table III.
Results final model

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The fourth hypothesis, regarding the effect of trust, is confirmed by the analysis.
Trust is positively and strongly related to clients affective commitment. Even though
trust can be regarded as an important relationship asset that would influence
customers perceived need to continue the relationship, the analysis shows that trust is
not significantly related to customers calculative commitment.
The fifth hypothesis, which deals with the effect of customers perceived service
quality, is also confirmed. Service quality is positively and very strongly related to
customers affective commitment. Furthermore, service quality also directly
contributes to clients relationship intentions, regardless of their desire or perceived
need to stay in the relationship. This means that apart from its effect on customers
relationship commitment, the delivered service quality can be a motivation in itself to
continue a relationship.
Importance of service quality. The main question concerning the relative
contribution of service quality to relationship commitment can now be answered.
The results in Table III show that service quality makes the highest contribution to
customers affective commitment (0.55) compared to the trust (0.32), the stuck bonds
(2 0.13), and the other proposed antecedents. In addition to this strong effect on
commitment, it has a direct influence on customers intentions directly. This finding
confirms that quality is not only related to a potential start of a relationship (i.e.
intentions) but also to its long-term maintenance (i.e. commitment).
Discussion
In this article we developed a model of how service quality contributes to the long-term
maintenance of service relationships. The main goal was to assess the contribution of
service quality to the maintenance of an existing service relationship relative to other
(relationship) factors that influence a partys commitment during a relationship.
Our findings indicate that service quality contributes very strongly to the
maintenance of long-term customer relationships. Its impact on customers
commitment was found to be stronger than the impact of trust, which is regarded
as a key mediating variable in other business relationships (Morgan and Hunt, 1994).
Furthermore, we found that service quality is not only strongly related to customers
affective commitment, but also directly related to their behavioral intentions. This is an
important contribution to existing research on service quality. The findings confirm
the positive effect that has been frequently found between service quality and
customers stay intentions (Zeithaml et al., 1996).
Our findings suggest that even if customers do not feel affective commitment they
would still be inclined to stay if their agency produces good quality work. It is,
however, questionable whether the perceived quality as such is a sufficient motivation
to maintain a relationship in the long term. If customers are not also affectively
committed, the relationship will dissolve more easily once problems occur. Real
customer loyalty originates from the part of service quality that contributes
to customers affective commitment. This overriding importance of service quality in
customers commitment is consistent with what LaBahn and Kohli (1997) found for
service relationships.
The absence of calculative motives in maintaining a relationship is underscored by
the finding that neither the investment in the relationship nor the social bonds play a
significant role in clients commitment. However, we found that clients do invest in

time, effort, and knowledge and that they do perceive switching costs (means are 3.5
and 3.6, respectively, on a five-point rating scale). Furthermore, switching costs
contribute to the calculative commitment, but again this is not reason enough to
keep the relationship. The investments are interpreted differently in service
relationships than relationships where the investments are more tangible, for
example in channel relationships (Kumar et al., 1994; Geyskens and et al., 1996). This
can be explained by the fact that in services the investments are less tangible than in
many other business relationships (Ganesan, 1994; Wilson, 1995). Nevertheless, the
absolute contributions of both structural and social bonds to customers affective
commitment were significant with correlations ranging from 0.19 to 0.35. Our study
thus confirms the ideas expressed by Halinen (1996) and Seabright et al. (1992), who
argued that in service relationships the structural bonds are of a different nature and
less strong than in other business relationships because of the intangibility of the
investments. On the other hand, these authors and others (Harris et al., 2003) also
argued that the social bonds will be more important in service relationships, which is
only confirmed in our study by the correlation between social bonds and commitment
(r 0:30, p , 0:05) but not by the relative contribution.
In theoretical terms, the correlation analysis shows that investments play a role in
service relationships even if they are of a different nature. The powerful technique of
structural equation modeling shows that their effect is not significant when other
antecedents are taken into account. The influence of service quality and trust
overshadows the effect of other antecedents, which has implications for the meaning of
these variables.

Managerial implications
The study reveals that service quality is the most important factor in establishing
long-term customer relationships and thus customer retention. The client-specific
expertise developed by the service provider is a valuable asset and personal ties
between individuals involved are crucial in establishing long-term business
relationship. However, service quality is relatively more important than trust and
social bonds. Once such a relationship is developed, switching costs are considered to
be high, and that increases the desire of the parties to stay in the same relationship.
The study also reveals that efforts to keep clients by formal agreement has no positive
influence on establishing a long-term relationship. For managers, it means that
creating relationship commitment through service quality is more important than
binding customers in long-term contracts.
In service relationships it seems that the only underlying motivation or attitude that
will keep a relationship in the long term is customers affective desire to stay. This is an
important finding, for it means that the perceived need to stay is not very strong and
service customers cannot be locked in to a relationship. Interestingly, we found no
significant correlation between the length of the relationship and customers affective
or calculative commitment, indicating that there is nothing intrinsically built during
the relation that makes clients more prone to stay or committed to the relationship.
Regardless of the length of the relationship, service providers should continuously
make sure that customers are affectively committed. Our study shows that service
quality and trustworthiness have the strongest effect on their commitment dimension.

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Concluding remarks
The findings of this research suggest several avenues for further research. First of all,
this study was conducted in one service industry and replication is needed in other
sectors. Some of the findings might be particular to advertising services. Even though
clients need consistency in their advertising and would benefit from long-term
relationships, they also need creativity and originality, which, according to customers,
diminishes when the agency becomes too familiar with a client. Furthermore, clients
have to invest in very few tangible assets in these relationships. It would be interesting
to study service relationships where customers have to make more tangible
investments in the relationship than in agency-client relationships, such as
auditor-client relationship where clients use provider-specific software to make the
auditing task more efficient. These investments will be lost if they switch to other
auditors, and might become a motivation to keep the relationship.
The weak contribution of social bonds should be studied further, since they might
be of particular relevance for particular service relationships. The final measure we
used in the analysis consisted of the frequency and intensity of interactions, which is a
rather limited conceptualisation of this construct. Due to operationalisation reasons, we
excluded the variables that measured the interpersonal liking and friendship, or the
click, between the interacting individuals, which was found to be an important aspect
in agency-client relationships in other studies. A different measure of this concept
might provide more insight into the effect of this variable. Furthermore, research can
be done on the effect of different aspects of the service quality concept as service
quality is regarded and found to be a multidimensional and complex concept
(Parasuraman et al., 1985; Bolton and Drew, 1991). An interesting avenue for further
research is to investigate which dimensions of customers quality perception contribute
to their relationship commitment.
Finally, this study raises another question regarding service relationships in
general. The current fashion to lock customers in by increasing the switch barriers
might not be a very successful strategy if long-term profitability and deep selling are
the goal of these relationships. Tying customers for reasons other than the excellence
of your services might actually diminish the chance that customers develop an
affective commitment to the company even if they are satisfied with the service.
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Erratum
EJM, Vol. 38 No. 9/10
Owing to errors in the production of the article Export performance as an antecedent of
export commitment and marketing strategy adaptation: evidence from small and
medium-sized exporters by Luis Filipe Lages and David B. Montgomery, pp. 1186 1214,
in the above issue, some of the items in Table II are misaligned.
The correct table is shown in the article on the Emerald Fulltext web site.
The Production Department sincerely apologises to the authors and readers for this error.