634806

research-article2016

OAEXXX10.1177/1086026616634806Organization & EnvironmentSangroya and Nayak

Empirical Research

Will Indian Industrial Energy

Consumer Continue to Buy Green
Energy?

Organization & Environment

122
2016 SAGE Publications
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DOI: 10.1177/1086026616634806
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Deepak Sangroya1 and Jogendra Kumar Nayak1

Abstract
In India, a change in the consumption pattern has been observed among the industrial energy
consumer since the past few years as they are shifting towards renewable energy sources
for fulfilling their energy requirement. This study has used the theory of customer value to
determine factors supporting development of industrial consumers relationship with green
energy. Under the current scenario of climate change, it has become inevitable to maintain
customers loyalty towards green energy. Perceived switching cost is a vital strategic tool for
increasing customer loyalty towards a product or service. Therefore, in this study, the effect of
various dimensions of customer value on perceived switching cost is examined in an industrial
green energy market setting. Structural equation modelling technique is used to analyse data
collected from 126 organisations by questionnaire survey. The results show that conditional
value of green energy is having highest impact on perceived switching cost followed by functional
value, social value, and emotional value.
Keywords
industrial consumer, green energy, consumer behaviour, customer value, conditional value,
functional value, social value, emotional value, perceived switching cost
After the 1970s oil crisis, Indian government started to concentrate earnestly on renewable
sources of energy with the aim of becoming self-sufficient in energy (Sharma, Srivastava, Kar,
& Kumar, 2012). Since then, the Indian government has implemented various policies and
launched several programmes, such as Indian solar loan programme, Rajiv Gandhi akshay urja
diwas, Jawaharlal Nehru national solar mission, and so on, to encourage investment in this sector (M. Bansal, Saini, & Khatod, 2013; Khare, Nema, & Baredar, 2013). It is owing to these
initiatives that the green energy1 sector is growing considerably in India and attained the sixth
position in the world, after China, the United States, Germany, Spain, and Italy (Renewable
Energy Policy Network for the 21st Century, 2014). However, India is uniquely different from
other leading renewable energy generating countries; as in India, the foremost producers of
renewable energy are private companies, these companies are investing in this sector for fulfilling their captive requirement (Sovacool & Ratan, 2012). More than 80% of the renewable
1Indian

Institute of Technology Roorkee, Uttarakhand, India

Corresponding Author:
Deepak Sangroya, Department of Management Studies, Indian Institute of Technology Roorkee, Roorkee,
Uttarakhand 247667, India.
Email: dl586ddm@iitr.ac.in

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Organization & Environment

energy generation in India is utilised for fulfilling the requirement of captive power in industrial
sector (Ghosh, Shukla, Garg, & Ramana, 2002). Indian government is now aiming to increase
the share of renewable energy further to 15% of the total electricity by 2020 from the share of
5.5% in 2012 (Shrimali & Tirumalachetty, 2013). For achieving this objective, Indian government is offering number of monetary benefits such as Accelerated Depreciation, GenerationBased Incentive, Renewable Energy Credits, Income Tax Exemptions, and Clean Development
Mechanism to those companies which are generating renewable energy. Most of the researchers
who are carrying out research on energy sources feel that the above-mentioned economic benefits are sufficient for providing necessary environment to develop green energy (Muoz, de la
Nieta, Contreras, & Bernal-Agustn, 2009; Sovacool & Ratan, 2012; Tsoutsos, Drandaki,
Frantzeskaki, Iosifidis, & Kiosses, 2009). These studies are based on the assumption that profit
maximisation is the only motive of an investor who is making investment in green energy
(Fleten, Maribu, & Wangensteen, 2007; Kangas, Lintunen, Pohjola, Hetemki, & Uusivuori,
2011). However, for better understanding of the investors motivation behind their investments
in green energy, other non-economic variables also should be considered (Bergek, Mignon, &
Sundberg, 2013). Porter and Reinhardt (2007) in their study showed that organisations have
various motivations for investing in activities which protect environment and address climate
change issue. For example, a leading Indian manufacturer, Brakes India Ltd. has been using
green energy since 1999, when there was no compulsion or economic incentives to consume
green energy. Thus, the first aim of this study is to take forward the debate started by Bergek
etal. (2013), and provide a multi-dimensional framework for understanding the various economic and non-economic motivations of industrial green energy consumer, as it is crucial for
the successful development of green energy market.
This study supports the idea of Papista and Krystallis (2013) that the industrial consumer
behaviour should be studied in a more realistic choice situation in which organisations analyse
different benefits and costs while taking decision related to purchasing of green energy. Customer
value approach can provide a meaningful framework for the exploration of the relationship
between consumer and green products (Papista & Krystallis, 2013). For the promotion of sustainable practices in an organisation, the role of value creation is widely recognised in the existing
literature (Hrisch, Freeman, & Schaltegger, 2014). Hence, conducting a systematic study of the
behaviour of industrial consumers towards the usage of green energy will be useful to policy
makers, manufacturers, and marketers who aspire to increase its demand (Bergek etal., 2013; Lin
& Huang, 2012).
Indian governments target of increasing the share of renewable energy in total energy to
15% by 2020 can only be achieved if the existing customers who prefer using green energy
stay loyal, as the growth of any industry largely depends on the existing customers (Tsoukatos
& Rand, 2006). The reason behind it is that a loyal customer is more likely to re-purchase,
make business referrals, and provide positive word of mouth (Tam, 2004). Many times, organisations adopt the strategy of perceived switching cost for increasing customer loyalty (Deng,
Lu, Wei, & Zhang, 2010) because it is positively associated with consumer retention (Barroso
& Picn, 2012). Perceived switching cost is a widely researched topic in industrial market, and
it is found to be positively affected by customer value (Liu, 2006; Liu, Leach, & Bernhardt,
2005). However, the effect of customer value on perceived switching cost is not empirically
studied in the existing literature on green energy. Thus to address this gap in the literature, the
second aim of this study is to measure the effect of various dimensions of customer value on
perceived switching cost in the industrial green energy market. In the current scenario of climate change, government and manufacturers in their effort towards enhancing consumer loyalty on usage of green energy can make use of perceived switching cost to complete this
objective (Beerli, Martin, & Quintana, 2004; Bell, Auh, & Smalley, 2005; Lam, Shankar,
Erramilli, & Murthy, 2004).

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Sangroya and Nayak

Literature Review
With the aim of increasing the existing knowledge on green energy, this article takes inspiration
from the available literature related to customer value in industrial market, environmental consumer behaviour, and energy marketing. This study develops customer value framework in the
specific context of green energy and measures the effects of different dimensions of customer
value on perceived switching cost with the objective of examining the sustainability of consumer
behaviour towards green energy. In business-to-business (B2B) literature, the theory of customer
value has been noted as the most effective tool that enhances the understanding of the importance
of the different motives of an industrial consumer (Fiol, Alcaiz, Tena, & Garca, 2009; Ulaga &
Eggert, 2006). Hence, on the basis of these studies, hypotheses are drawn in this article regarding
the buying behaviour of industrial consumers towards green energy. Subsequently, the relationship between various dimensions of customer value and perceived switching cost is identified
through empirical research because customer value is considered as an imperative element in the
field of research related to industrial consumers for increasing loyalty and bringing down switching intentions (Kumar & Grisaffe, 2004).

Perceived Switching Cost

According to Jones, Mothersbaugh, and Beatty (2002), switching costs are the perceived economic and psychological costs associated with changing from one alternative to another, and
thus can be viewed as barriers that hold customers in service relationships (p. 441). Switching
cost has multiple dimensions in both monetary and non-monetary terms (Barroso & Picn, 2012).
It is not only limited to economic cost but also includes search cost, transaction cost, learning
cost, emotional cost, as well as financial and social risk involved in facing the uncertainty of
switching to a new supplier (Burnham, Frels, & Mahajan, 2003). Social pressures and institutional norms are the critical factors which affect consumers switching intention and behaviour
(Woisetschlger, Lentz, & Evanschitzky, 2011). Most of the times, consumers act in accordance
with social pressures that promote environment sustainability (Watson, Boudreau, & Chen,
2010). The costs associated with perceived switching are widely used as a tool for keeping customers loyal to the organisations irrespective of their satisfaction (Jones, Reynolds, Mothersbaugh,
& Beatty, 2007). Because of the direct and positive impact of switching costs on customer loyalty, it offers numerous advantages to the supplier, for instance, it weakens customers sensitivity
to the price and benefits offered by other suppliers. Yang and Peterson (2004) concluded that for
increasing switching barriers, service provider should focus on improving various dimensions of
the customer value.

Customer Value
In the B2B market, customer value is of primary concern for researchers and practitioners.
According to Eggert and Ulaga (2002), customer value is the trade-off between the multiple
benefits and sacrifices of a suppliers offering, as perceived by key decision-makers in the customers organization (p. 107). In this perspective, the perceived value in industrial market often
has been addressed primarily through economic and functional considerations. For many years,
the objectives of the organisation and the strategic importance of purchasing goods and services
in B2B market has been favoured by the predominance of a utilitarian perspective on value
(Hansen, Samuelsen, & Silseth, 2008; Lynch & De Chernatony, 2004). This conceptualisation
has led to very little scope being given to the more emotional, social, and symbolic aspects of
value (Fiol, Alcaiz, Tena, & Garca, 2011). Prior (2013), Leek and Christodoulides (2012), and
Mencarelli and Rivire (2014) suggested that values other than functional ones play a vital role

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Organization & Environment

in the industrial market. Hence, a holistic approach incorporating both balanced emotional and
functional dimensions is required (Lynch & De Chernatony, 2004). However, in B2B literature,
there are very few studies which dealt with the dimensionality of perceived value that prevails in
the industrial market (Lindgreen & Wynstra, 2005; Ulaga & Eggert, 2006). Exceptions include
Arslanagic-Kalajdzic and Zabkar (2015) and Fiol etal. (2011), which identified functional, emotional, and social elements as important dimensions of perceived value in an industrial context.
Contemporary researchers have advised to use advance research of business-to-customer
(B2C) for better understanding of the diversity of value dimensions in an industrial framework
(Mencarelli & Rivire, 2014). It is true that the characteristics of buyers in industrial settings are
not identical to the characteristics of consumers in B2C, nevertheless, there is some overlap
(Barnes, 2003; Fiol etal., 2011). Connecting individual-level determinants to organisation-level
determinants is vital for explaining companies sustainable behaviour because it is the outcome
of a complex set of individuals behaviour within and outside the organisation (Llfs & Hahn,
2014). Fiol etal. (2011) used the customer value model developed by Sheth, Newman, and Gross
(1991) for B2C in industrial market and concluded that customer value in B2B markets is a
multi-dimensional construct which constitute of three dimensions: functional, social, and emotional. This study builds on the foundations provided by Fiol etal. (2011), Arslanagic-Kalajdzic
and Zabkar (2015) after adjusting for green energy market characteristics and suggests that functional, emotional, social, and conditional dimensions of customer value motivates industrial consumer to use green energy for their captive use.
Functional Value. Functional value refers to the perceived utility of a product or service resulting
from its ability to perform its functions, it has been created to provide and also includes the benefits of owning it (Whittaker, Ledden, & Kalafatis, 2007). An industrial customer determines
functional value of a product or service on the basis of certain traits, such as quality, reliability,
durability, and price (Sweeney, Soutar, & Johnson, 1999). This dimension of consumer value is
a rational and economic analysis of the comparison between benefits and sacrifices, wherein the
quality of product or service is its benefits and the price along with other non-economic variables
are the sacrifices (Berry, Seiders, & Grewal, 2002). In the industrial market, the functional benefits to the organisation are the primary consideration at the time of deciding on green products.
At the time of conducting surveys on companies, P. Bansal and Roth (2000) observed that there
is a belief among the top management that their efforts towards improving energy management
in an environment-friendly manner will ultimately improve their long-term profitability. For
example, in 2006, Walmart launched Sustainability 360 programme, where the organisations
primary aim was to target purchasing of 100% renewable energy, generating zero waste, reducing
emissions of greenhouse gases, and selling environment-friendly products. With the assistance of
this programme, Walmart is saving approximately $200 million per annum as well as reducing
200,000 tons of greenhouse gas emissions per year (Lubin & Esty, 2010).
With technological advancement in some of the developed renewable energy technologies
such as wind and solar photovoltaic, the cost of energy generation reduced which is even less
than the generation cost from conventional energy sources (Renewable Energy Policy Network
for the 21st Century, 2014; Sovacool & Ratan, 2012). In addition to the reduction in the cost of
energy generation, an organisation is secured from the uncertainties that are associated with the
sole accessibility of conventional sources of energy by supplementing its energy demand with
captive generation from renewable energy sources (Cowan etal., 2010). Joseph (2010) mentioned that the decision of industrial consumers related to the setting up of captive power plant is
largely based on the quality of electricity that they receive. Hence, these advantages of using
green energy along with its environmental benefits may increase consumers intention to stay
with the product and prevent them from switching supplier. These arguments lead to the following hypothesis.

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Sangroya and Nayak

Hypothesis 1: Functional value of green energy consumption positively influences its perceived switching cost.
Social Value. Social value results from the perception of the purchase and consumption of product by consumer in different stakeholders. This dimension relates to the social perspective of
the organisations. Social projection of self among various stakeholders is a matter of concern
in both consumer and industrial market (Sweeney & Soutar, 2001). Customers, employees,
shareholders, nearby communities, and associations are prime stakeholders for an organisation
(Rivera-Torres, Garcs-Ayerbe, Scarpellini, & Valero-Gil, 2015). Societal expectation is
observed to be one of the prime motivations of organisations for implementing sustainability
programmes, such as energy conversation, renewable energy purchase, and waste disposal
(Epstein & Buhovac, 2014). Environmental responsibility is viewed as a motivation factor by
many organisations and this responsibility stems from the concern that an organisation has for
its social values (P. Bansal & Roth, 2000). The social value also includes benefits user can feel
when they get associated with one or more social groups by using green energy. Institutional
factor plays a major role in influencing organisations decision to adopt environment-friendly
practices (Delmas & Toffel, 2008). Many industrial associations promote environmental
awareness among the members by transferring information about the best practices (P. Bansal
& Roth, 2000). Specifically, investment in renewable energy by peer group member first act as
a source of information and then becomes a pressure which exerts influence on other group
members for making investment in renewable energy project (Masini & Menichetti, 2013).
Hence, this social pressure may make it difficult for consumers to leave green energy group
(Orsato, Garcia, Mendes-Da-Silva, Simonetti, & Monzoni, 2015), thereby increasing exit barrier of green energy. Hence, based on this understanding of literature, this study reaches the
following hypothesis.
Hypothesis 2: Social value of green energy consumption positively influences its perceived
switching cost.
Emotional Value. Emotional value of a product is related to the feelings and emotions that a buyer
attaches to the product while purchasing it. Recent development in B2B literature has emphasised the effect of emotions in industrial market. For example, Leek and Christodoulides (2012)
noted that it is worth considering the role of emotions for explaining organisational buying
behaviour. Geraerdts (2012) mentioned that emotional value attached to a product is vital for the
development of brand equity in industrial market, Friedrich and Wstenhagen (2015) have studied the effect of emotions on management decision making while responding to sustainabilityrelated issues. Paetzold and Busch (2014) discussed the influence of various non-financial
aspects like warm glow or positive feelings on the decision related to investing in sustainable
activities. The top management team and owner of an organisation are becoming more receptive
towards the changes taking place in the organisational process in case these changes advance
development of their business in green areas, because these changes are in line with their own
personal green values (L. M. Anderson & Bateman, 2000; Backer & Clark, 2008). Many companies top management believe that climate change is a threat, and so it is their fundamental
responsibility to take elementary actions that are essential for environmental development (EgelsZandn & Rosn, 2015). Not only top management but also the middle managers with a green
mind-set will tend to take green decisions (Cordano & Frieze, 2000). However, the top management is the prime interest group best placed for influencing firms adoption of environmentally
friendly behaviour (Rojek, 2001), their concern and commitment for environmental safety is the
primary driver of firms success towards adopting green practices relevant to their organisation
(Hendry & Vesilind, 2005; Yen & Yen, 2012).

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Organization & Environment

Emotional switching cost involves emotional discomfort and stress, which arises due to breakage of emotional bonds that customers have with the product (Burnham etal., 2003). Many
times, organisations are highly committed towards purchasing green product. The adoption of
green products and practices sometimes incur extra cost, nonetheless the top management feels
it is worth the cost, as they feel proud about their role in preserving the environment (Hosmer,
2003). Thus, this study hypothesizes that:
Hypothesis 3: Emotional value of green energy consumption positively influences its perceived switching cost.
Conditional Value. Conditional value is a utility that is derived from a specific situation such as
governments offer of incentives, subsidies, and legislations. In India, tax and financial incentives coupled with opportunities related to captive consumption of green energy have resulted in
the development of necessary environment for its market acceptance (Sovacool & Ratan, 2012).
Previous researchers have noted that the adoption of green product is affected by specific changes
in consumers situation variable (Gadenne, Sharma, Kerr, & Smith, 2011). In addition to organisations social value and owners individual concern, the subsidies and promotions provided by
government and other agencies motivate consumers to adopt green practices and products
(Hrisch etal., 2014). Sarasini and Jacob (2014) noted that financial incentives provided by the
government motivate companies to invest in renewable energy projects. Various international
studies have highlighted how government incentives have brought investment in wind energy
market development (Kamp, Smits, & Andriesse, 2004; Mitchell, Bauknecht, & Connor, 2006).
Indian government along with providing incentives to green energy consumers also put penalty
on industrial consumer who does not meet their renewable purchase obligation also known as
RPO (Shrimali, Nelson, Goel, Konda, & Kumar, 2013). In this way, government is trying to stop
industrial consumers from going back to the consumption of conventional energy sources which
lead us to the following hypothesis:
Hypothesis 4: Conditional value of green energy consumption positively influences its perceived switching cost.

Methodology
Measurement Instrument
A questionnaire was designed to collect information about the four dimensions of customer value
and switching cost. The preliminary list of measurement items was created through reviewing
literatures related to customer value and switching cost (Barroso & Picn, 2012; Burnham etal.,
2003; Jones etal., 2007; Sweeney & Soutar, 2001). Thereafter, these items were reviewed by
panel of experts, which included 4 professors of marketing, 1 professor of renewable energy
discipline, and 17 managers of various companies that deal with renewable energy for examining
the suitability of items in collecting the information related to customer value and switching cost
related to green energy (Chen, 2010; Mu, 2015). The measurement items were modified according to the comments given by the reviewers to ensure their content validity.
For examining the reliability of the measurement items, the survey instrument was tested with
25 green energy consumers. The respondents were clearly informed that this study is targeted
towards analysing the effect of different dimensions of consumption value of green energy on
perceived switching cost. This pretesting also addressed issues related to instructional clarity,
item clarity, and relevance. Since the study was planned to carry out with large samples, the result
of this pretesting was useful in conducting further processes.

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Sangroya and Nayak

The switching cost scale consists of 10 measurement items that represented economic, social,
relationship, and evaluation cost adapted from Barroso and Picn (2012), Burnham etal. (2003),
and Jones etal. (2007). The measure items of functional, social, and emotional dimension of
customer value were adapted from the study of Sweeney and Soutar (2001), and the conditional
value was adopted from Lin and Huang (2012). All items were measured on a 5-point Likert-type
scale, where 1 indicated strongly disagree, 3 neutral, and 5 strongly agree.

Data Collection
This study intended to examine the influence of various dimensions of consumption values on
the increase of the perceived switching cost of green energy. To achieve this objective, in the
preliminary phase of research, a database of target respondents was created. The contact details
of companies consuming green energy and their senior officials were collected from various
sources, such as Wind Power Directory, Indian Renewable Energy Development Agency, Central
Electricity Authority, and Maharashtra Renewable Energy Development Authority. Overall, a
database of 350 companies was developed, which were consuming green energy from different
renewable energy sources like wind, solar, and biomass. Among the various renewable energy
sources, most of the companies were using green energy generated from wind, which is not surprising, as wind energy is having the highest share in renewable energy. The survey was administered online by sending a personal e-mail to the companies. Before sending the questionnaire
via e-mail, the purpose of the research project was explained over the telephone. To maximize the
accuracy of responses, the respondents were assured about the confidentiality of the information
provided by them.
In total, data from 137 respondents were collected for this survey. Out of these, 11 responses
were removed because they were incomplete and much crucial information was missing. Finally,
data gathered from 126 questionnaires were coded for further analysis.

Statistical Analysis
Structural equation modelling (SEM) was used to test the model and hypotheses. SEM is a multivariate statistical technique, wherein both factor analysis and path analysis are integrated and
applied simultaneously. This technique incorporates two sub-models: one is measurement model
and the other is structural model. Data reliability, convergent validity, and discriminant validity
were examined before using confirmatory factor analysis (CFA).

Results
Profile of Respondents
Descriptive statistics of the respondent companies are presented in Table 1. The statistics show
that the sample is well diversified with respect to the type of renewable energy technology used,
experience of using green energy, and profile of the companies. It has already been mentioned
above that wind energy is the most preferred renewable energy technology with over 71% of the
respondents using the energy generated from wind. Biomass occupies the second place with 18%
respondents using this energy source, and solar energy is used by 10% of the respondents. With
respect to companies location, the sample collected is a good representation of India. The data
were gathered from all parts of the country, that is, North India, West India, East India, and South
India. All the companies in the sample are manufacturing companies, and they manufacture textile, metal, auto ancillaries, food processing, and so on. Amongst the sample collected, over 83%
of the companies are having more than 5 years of experience with usage of green energy. Out of

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Organization & Environment

Table 1. Descriptive Statistics of Respondents.

Research sample

Purchase of green energy by technology

Wind
Solar
Biomass
Experience in purchasing green energy
Less than 5 years
5-10 Years
10-15 Years
More than 15 years
Company profiles
Food processing industries
Alloys manufacturing
Forging industries
Thermal power generation
Heavy metal manufacturing
Textile industries
Other
Respondent location
North India
South India
West India
East India

90
13
23

71
10
18

22
87
15
2

17.46
69.04
11.90
1.6

7
11
18
13
15
26
36

5.56
8.73
14.29
10.32
11.90
20.63
28.57

18
67
31
10

14.29
53.17
24.60
7.93

this 83%, 12% of the companies are having 10 to 15 years of experience in using green energy,
while two companies have been using green energy for past 15 years. The remaining 17% of the
companies were having less than 5 years of experience in using green energy. This is not surprising because the renewable energy market in India has witnessed a significant growth after 2004
with huge contribution from wind energy (Ministry of New and Renewable Energy, 2015).
The demographic profile of respondents (presented in Table 1) indicates that majority (86.5%)
of the respondents were male. Moreover, after considering their age group, it can be noted that
84% of the respondents were older than 40 years, out of which 41% are older than 50 years, and
8.73% are older than 60 years. In terms of the level of education, more than 83% of the respondents completed graduation. Furthermore, approximately 78% of the respondents were among
the top decision makers, including CEOs (4.76%), company owners (23.02%), managing directors (18.25%), and other top-level directors (31.75%), which enhanced the credibility of the
survey data, as these respondents were responsible for business planning and decision making.

Descriptive Analysis of Variables

For the purpose of refining the data, it was analysed for missing value, normality, outliers, and
multi-collinearity. The results of these analyses revealed no major issue. During examination of
the standard deviation, no outliers were found. After the examination of skewedness and kurtosis,
it is found that all the variables are normally distributed. The descriptive statistics of the data
showed the mean value of customer value and switching cost items. Table 2 shows the descriptive analysis of customer value and switching cost items. The mean value of all the customer

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Sangroya and Nayak

Table 2. Descriptive Analysis of Green Energy Perceived Value Items.
Perceived value variables
Green energy perceived value variables
Quality of green energy is consistent
Green energy is well made for reducing environment distortion
Green energy has an acceptable level of standard of quality
Green energy will not last a long time
Green energy would perform consistently
Green energy is reasonably priced
Using green energy offers value for money
Green energy is a good energy source for the price
Using green energy would help my company feel accepted by
others
Using green energy would improve the way my company is being
perceived by others
Use of green energy would make a good impression on others
Use of green energy would give my company social approval
Top management enjoys using green energy
Company want green energy industry to be developed
Top management feel relaxed after using green energy
Use of green energy would make top management feel good
Company would use green energy over conventional energy if
offered at a discount or with other promotional incentives
Company would use green energy over conventional energy if
offered at subsidised rate
Company would use green energy when it is easily available
Company would use green energy over conventional energy
under unsustainable environmental conditions
Green energy switching cost
Company worries that services offered by conventional energy
providers would not work as expected
Company likely to end up with a bad deal financially if it switches
to a conventional energy provider
Top management could not afford the time to get the information
to fully evaluate conventional energy service providers
Comparing the benefits of green energy provider with the benefit
of conventional energy provider takes too much time/effort
Learning to use the features offered by conventional energy
provider would take time
The process of starting up with a new service is quick/easy
Company will lose benefits of being a long-term customer if
company leaves green service provider
Employees of our company are more comfortable interacting
with the people working for green energy service provider
than company would be if it switched to conventional energy
providers
Top management likes the public image green energy service
provider has
Top management supports green energy service provider as a
firm

Mean

Standard deviation

4.39
4.56
4.13
1.35
4.27
3.97
4.88
4.07
4.43

0.509
0.613
0.713
0.705
0.656
0.812
0.527
0.729
0.881

4.73

0.759

4.55
4.07
3.57
4.31
3.83
4.03
4.55

0.962
0.713
0.892
0.722
0.829
0.758
0.627

4.36

0.725

3.91
4.08

0.674
0.727

3.37

0.886

4.64

0.583

4.45

0.994

4.47

0.715

3.71

0.749

2.95
3.53

0.857
0.872

4.09

0.658

4.31

0.597

4.27

0.815

Note. Perceived value: 1 = strongly disagree, 5 = strongly agree, and 3 = neutral; Satisfaction: 1 = not at all satisfied,
5 = very satisfied, and 3 = neutral: Loyalty: 1 = strongly disagree, 5 = strongly agree, and 3 = neutral.

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Organization & Environment

Table 3. Reliability Analysis.

Customer values

Cronbachs alpha

Functional value
Conditional value
Social value
Emotional value
Switching cost

.83
.87
.76
.81
.85

value items was above 3 on the 5-point Likert-type scale, which indicates that purchasing green
energy is considered valuable. The highest customer value items were the following: Purchasing
green energy offers value for money (M = 4.88), purchasing green energy would improve the way
my company is perceived by others (M = 4.73), purchasing green energy would make a good
impression on others (M = 4.55), and company want green energy industry to be developed (M =
4.31). In switching cost construct, the highest valued items were the following: Company
likely to end up with a bad deal financially if it switch to a conventional energy provider (M =
4.64) and comparing the benefits of green energy provider with the benefit of conventional
energy provider takes too much time/effort (M = 4.47).

Data Analysis
Reliability tests of each variable were conducted before examination of the hypotheses. The
results of these tests are shown in Table 3, and as per the results, the value of Cronbachs alpha
has varied between .71 and .86 for the constructs, which is considered acceptable for conducting
an exploratory study (Hair, Black, Babin, Anderson, & Tatham, 2006).

Factor Analysis, Validity, and Reliability

After examining the reliability of measurement scales, exploratory factor analysis (EFA) was
carried out with varimax rotation to find out the dimensions of scale. EFA identified the factors
that were used as exogenous constructs in the procedure of SEM. These variables were used as
indicators for evaluating constructs. All the items with factor loading more than .40 were included
in each factor. Eigenvalue of 1.0 was used as the cutoff point for factor inclusion. KaiserMeyer
Olkin benchmark for sample adequacy was 0.856, and Bartletts test of sphericity (p < .001)
showed that it is appropriate to conduct factor analysis.
As shown in Table 4, the factor analysis divided 20 value items into four factors, which
explained 79.7% of the variance. These factors were labelled as functional value (eigenvalue =
3.50, variance explained = 20.9%), conditional value (eigenvalue = 3.29, variance explained =
27.3%), social value (eigenvalue = 2.93, variance explained = 16.1%), and emotional value
(eigenvalue = 2.89, variance explained = 15.4%). After carrying out the factor analysis, it is
observed that the factor loadings of the three items of perceived value, that is, Green energy will
not last a long time, Green energy would perform consistently, and Top management enjoy
using green energy and two items of switching cost were less than 0.40; hence, these items were
removed from further analysis.
After carrying out EFA, it was concluded that the perceived value of green energy includes
functional value, social value, conditional value, and emotional value as four dimensions. These
factors were used as exogenous constructs in the procedure of SEM. Thereafter, the properties of
five research constructsfour exogenous and one endogenousswitching cost were tested
using Amos 20.0 software.

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Table 4. Factor Analysis of Green Energy Perceived Value.
Factor
loading

Factors
Factor 1: Functional value
Quality of green energy is consistent
Green energy is well made for reducing environment
distortion
Green energy has an acceptable level of standard of
quality
Green energy will not last a long time
Green energy would perform consistently
Green energy is reasonably priced
Using green energy offers value for money
Green energy is a good energy source for the price
Factor 2: Conditional value
Company would use green energy over conventional
energy if offered at a discount or with other
promotional incentives
Company would use green energy over conventional
energy if offered at subsidised rate
Company would use green energy when it is easily
available
Company would use green energy over conventional
energy under unsustainable environmental
conditions
Factor 3: Social value
Using green energy would help my company feel
accepted by others
Using green energy would improve the way my
company is being perceived by others
Use of green energy would make a good impression
on others
Use of green energy would give my company social
approval
Factor 4: Emotional value
Top management enjoys using green energy
Company wants business of green energy to be
increased
Top management feels relaxed after using green
energy
Use of green energy would make top management
feel good

Eigenvalue
3.50

Explained
variance

.791
.797

20.9%

.474

.381
.362
.415
.692
.453
.848

27.3%

.843

.756

.713

3.29

.742

2.93

16.1%

.895

.627

.753

.371
.655

2.89

15.4%

.613

.735

Note. Bartletts test of sphericity, p < .001. Total explained variance = 67.7%. KaiserMeyerOlkin measure of sample
adequacy = 0.856. Cronbachs coefficient of 19 perceived value items = .92.

Measurement Model
The two-step procedure proposed by J. C. Anderson and Gerbing (1988) was used to confirm an
appropriate measurement and structural model. Before testing the structural model, a measurement model was developed and examined by using CFA. The measurement model identifies the
relationship that exists among the observed variables and their underlying constructs.

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Table 5. Goodness-of-Fit Measures for Measurement Model (N = 126).

Absolute
fit measures

Incremental
fit measures

Parsimonious fit
measures

GFI

RMSR

RMSEA

AGFI

NNFI

PNFI

CFI

IFI

RFI

Green energy perceived

value
Overall measurement
model

0.92

0.03

0.03

0.93

0.99

0.57

0.99

0.97

0.94

0.91

0.02

0.03

0.91

0.95

0.63

0.94

0.95

0.91

Note. GFI = goodness-of-fit index; RMSEA = root mean square error of approximation; RMSR = root mean square
residual; AGFI = adjusted goodness-of-fit index; PNFI = parsimonious fit index; NNFI = non-normed fit index;
CFI = comparative fit index; RFI = relative fit index; IFI = incremental fit index.

The maximum likelihood method proposed by J. C. Anderson and Gerbing (1988) was used for
testing the model. In the process of EFA analysis, the four dimensions of consumer value
intended for green energy were tested in the measurement model because this model should be
assessed and re-specified before studying the appropriate measurement and structural model (J.
C. Anderson & Gerbing, 1988). Therefore, each construct was studied individually, and subsequently, the complete model for consumption value in green energy was examined.
During CFA, items with coefficient alpha less than .4 were removed from further analysis
(Jreskog & Srbom, 1993). First, 2 was used as a benchmark to test the overall fit of the model,
wherein the criterion decided for fitness related to 2 was that it should be small and should not reach
the significance level. But in case of large sample size, it can easily reach the significance level and
lead to rejection of the model (Bentler & Bonett, 1980). Hence, in this study, three types of measures
were used for estimating the fitness of the model. An absolute fit index shows that the hypothesized
theoretical model appropriately fits with the sample data. Incremental fit index compares the target
model with more constrained baseline model, while a parsimonious fit index examines whether
model fit has been attained through over-fitting the data with fewer coefficients (Hu & Bentler,
1995). The CFA presented in Table 5 revealed that overall fit index has an acceptable level of fit. The
value of 2 of the model is 217.15 (degrees of freedom = 23, p < .05). The values of absolute fit
measures, goodness-of-fit index (GFI = 0.92), root mean square error of approximation (RMSEA =
0.03), and root mean square residual (RMSR = 0.03) show appropriate fit. Incremental fit was measured through adjusted goodness-of-fit index (AGFI = 0.93) and non-normed fit index (NNFI =
0.99), and parsimonious fit is examined using parsimonious normed fit index (PNFI = 0.57), comparative fit index (CFI = 0.99), incremental fit index (IFI = 0.97), and relative fit index (RFI = 0.94).
Moreover, most of the indicators exceeded the critical value, 2.58; at p < .01 level with completely standardised loadings. After this process, there were 13 indicators of consumption value
and 5 indicators of switching cost, and these indicators were included in the examination of the
overall measurement model with switching cost. As depicted in Figure 1, the functional value
constituted of four indicators, whereas the emotional value, social value, and conditional value
constituted of three indicators each. These 13 indicators of the four constructs were used as exogenous constructs in the study (Figure 2).

Overall Measurement Model

The complete measurement model with four latent constructs (functional value, emotional value,
conditional value, and social value) and one endogenous construct (switching cost) was analysed
for examining the fitness of hypothesized model with the sample data collected. This model was
tested using Amos 20.0 software by employing maximum likelihood method.

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Sangroya and Nayak

Figure 1. Conceptual model of relationship between customer value and perceived switching cost.

After refinement, CFA indicated that the hypothesized model fits well with the data as shown
in Table 5. The overall fit indices were appropriate. All the three types of goodness-of-fit indices
indicate that the model fits appropriately with the sample data: 2(132) = 107.01, p < .02, GFI =
0.91, RMSR = 0.02, RMSEA = 0.03, AGFI = 0.91, NNFI = 0.95, PNFI = 0.63, CFI = 0.94, IFI =
0.95, RFI = 0.91. Hence, an appropriate and statistically fit model was attained, and this overall
measurement model defines the relationship among the five latent constructs and their 18 measurement items (refer Table 6).

Structural Model
After testing the appropriate fitness of the proposed measurement model with the collected data,
a structural model was created for empirically testing the consistency of the theoretical model in
relation to the data. In this process, the maximum likelihood estimation procedures were applied
for testing the hypothesized relationships among the four dimensions of consumption value and
switching cost. As mentioned above, 2 is heavily influenced by the sample size, hence, other
goodness-of-fit indices were used for evaluating the model (Bentler, 1990). After examining the
model, the indices of fitness were GFI = 0.95, RMSR = 0.01, RMSEA = 0.03, AGFI = 0.94,
NNFI = 0.93, PNFI = 0.65, CFI = 0.97, IFI = 0.96, RFI = 0.94. The results of this analysis are
presented in Table 7.
The given fitness parameters indicated the appropriateness of the model fit. The hypotheses
were evaluated by examining the estimated path coefficients of the model. The standardised path

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Figure 2. Results of confirmatory factor analysis of customer value.

coefficients are shown in Figure 3. The exogenous variables showed more than 40% variance in
the endogenous construct, thereby, concluding the adequate reliability of this model (Fornell &
Larcker, 1981).

Results of Structural Model

All the procedures of SEM indicated that the theoretical model fits appropriately; and the results
were used for analysing the relationships among the constructs. By employing maximum likelihood method, the standardised coefficients were calculated. Figure 3 presents the path coefficients analysis of the conditional value ( = .34, t = 3.25), functional value ( = .31, t = 3.25),
emotional value ( = .25, t = 2.96), and social value ( = .28, t = 3.59) to switching cost. All the

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Table 6. Measurement Scale of Green Energy Perceived Value and Perceived Switching Cost.
Variable
FV1
FV2
FV3
FV4

CV1
CV2
CV3

SV1
SV2
SV3

EV1
EV2
EV3

PSC1
PSC2
PSC3
PSC4
PSC5

Factors
Factor 1: Functional value
Green energy is well made for reducing environment distortion
Green energy has an acceptable level of standard of quality
Green energy is reasonably priced
Using green energy offers value for money
Factor 2: Conditional value
Company would use green energy over conventional energy if offered at a discount or
with other promotional incentives
Company would use green energy over conventional energy if offered at subsidised rate
Company would use green energy over conventional energy under unsustainable
environmental conditions
Factor 3: Social value
Using green energy would help my company feel accepted by others
Using green energy would improve the way my company is being perceived by others
Use of green energy would give my company social approval
Factor 4: Emotional value
Company wants business of green energy to be increased
Top management feels relaxed after using green energy
Use of green energy would make top management feel good
Perceived switching cost
Company likely to end up with a bad deal financially if it switches to a conventional energy
provider
Comparing the benefits of green energy provider with the benefit of conventional energy
provider takes too much time/effort
Company worries that services offered by conventional energy providers would not work
as expected in reducing environment distortion.
Top management likes the public image green energy has
Top management supports green energy service provider as a firm

four hypothesized relationships proved to be statistically significant, thereby, resulting in the

acceptance of all the three hypotheses. The path coefficient analysis indicated that all the four
dimensions of perceived valueconditional value, functional value, social value, and emotional
valuepositively affect switching cost.

Discussion and Conclusion

The empirical evidence found in this study shows that customer value is the function of functional value, emotional value, conditional value, and social value, whereas conditional value has
the largest impact on the perceived switching cost, followed by functional value, social value,
and emotional value. Conditional value includes variables related to discount, subsidies, incentives, and unsustainable environment conditions out of which incentives and subsidies have
found to be showing the largest effect. This result support the idea found in the literature that
incentives provided by government plays a major role in development of green energy (Carley,
2009; Menz & Vachon, 2006; Sangroya & Nayak, 2015; Shrimali & Kniefel, 2011; Yin & Powers,
2010). According to Herbes and Ramme (2014), these promotional incentives makes green
energy competitive with the conventional energy sources in the short to medium term, thus
increasing its acceptance among consumers. However, these researchers have analysed only the

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Organization & Environment

Table 7. Goodness-of-Fit Measures for Structural Equation Model (N = 126).

Absolute
fit measures

Incremental
fit measures

Parsimonious fit
measures

GFI

RMSR

RMSEA

AGFI

NNFI

PNFI

CFI

IFI

RFI

Overall model

0.95

0.01

0.03

0.94

0.93

0.65

0.97

0.96

0.94

Note. GFI = goodness-of-fit index; RMSR = root mean square residual; RMSEA = root mean square error of
approximation; AGFI = adjusted goodness-of-fit index; NNFI = non-normed fit index; PNFI = parsimonious fit index;
CFI = comparative fit index; IFI = incremental fit index; RFI = relative fit index.

incentives variable, whereas this study has also included two other variables, that is, discount and
unsustainable environmental conditions into the main construct of conditional value. Considering
organisations price sensitivity, economic incentives offered by the government can motivate
them to adopt a positive attitude towards consumption of green energy. Subsequently, organisations who are more aware of climate change and its possible consequences will purchase green
energy as they will feel that by purchasing green energy they are providing solutions to climate
change.
This study found that functional value is also having a significant role in increasing the perceived switching cost among industrial green energy consumers. In this respect, our results are
consistent with the recent studies that increase in functional value of a product positively affects
switching cost (Pick & Eisend, 2014). Functional value includes the price, durability, reliability,
and perceived quality of product or service. However, according to Liu (2006), only price cannot
be used as a tool for competitive advantage, high-functional value offered by existing supplier
can positively increase the perception towards switching cost, and as a result prevent customers
exit. Barroso and Picn (2012) mentioned that companies wish to stay with existing supplier
when they get quality at a reasonable cost. In the case of consumption of green energy, functional
utility also includes environmental soundness, and high factor loading of this variable indicates
that organisations make a cognitive analysis of this trait as well. Hence, owner and top management having protective feelings towards the environment will prefer green energy in comparison
to conventional energy. Extant literature have confirmed the influence of this perceived environmentally utilitarian benefits of green products, such as reduction in greenhouse gas emission on
consumers purchase intention (Hur etal., 2013).
Additionally, this study found that social value significantly affects switching cost. This may
be because some respondents feel that their purchase of green energy will increase their social
approval or make a good impression on stakeholders. Respondents feel that purchasing green
energy for their energy requirement will improve the way the company is perceived by customers, employees, and other social groups. According to Ozaki (2011), perceived switching cost
developed through social value is not likely to diminish, as this is associated with social image
and social relationship with a group. This value being based on the image of reputation and its
repercussions, the perception of a negative effect on the reputation of a company in case of leaving green energy group will stop customers from using conventional energy again.
In line with the previous research in green consumer marketing, this study found the significant positive influence of emotional value on perceived switching cost (Ibez etal., 2006). The
empirical verification of emotional value confirms that top management feel that by buying
green energy they are supporting the cause of protecting the environment and experience positive
emotions by doing good for the society. This result provides opportunities to the government and
suppliers, who can increase the consumption of green energy by promoting the message that
green energy is good for the environment. Driven by high emotional value attached to green

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Sangroya and Nayak

Figure 3. Structural equation model for green energy customer value.

*Significant at 10%. **Significant at 5%. ***Significant at 1%.

energy, consumers will perceive themselves as environmental defenders when they increase their
intake of green energy.
This study makes two vital contributions to the marketing literature: First, this study empirically verifies the research gap mentioned by Bergek etal. (2013), and confirms the role of noneconomic motivations, that is, social value and emotional value of industrial consumer for using
green energy. Second, this studys empirical results for the first time have shown the effect of
underlying dimensions of customer value on perceived switching cost in the industrial green
energy market, thereby can enrich knowledge and understanding of sustainable energy consumption within the organisations. The confirmation of multi-dimensional nature of green customer
value in the B2B market opens various avenues of research and future studies can examine its
relationship with other consumer behaviour constructs such as green trust, consumer loyalty, and
green satisfaction. The emotional motivation of top management for supporting the sustainable
energy consumption to save environment has been suggested by various studies in the past
(Egels-Zandn & Rosn, 2015), but hardly any study was found which has empirically verified
the effect of emotional value in industrial marketing prior to this research. More research can be
done in future on the emotional elements in the B2B buying behaviour.
This study has important implications for management and policy makers. In the first place, it
concludes that consumption of green energy improves the perception of organisation in the society. Organisations could consider marketing their sustainable energy consumption to the stakeholders including customers. This study may also encourage organisations to look for competitive
advantages in improving their environmental performance by using the functional benefits of
green energy. Organisation could seek out improvements that have spin-off benefits to other parts
of their operations. For instance, using green energy should prove beneficial and generate many
cost savings. This research will encourage organisations in using sustainable energy consumption
and thereby contribute something to the pursuit of sustainability. The success of green energy

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Organization & Environment

business depends on cooperative efforts between government and organisations. Although some
studies have mentioned that incentives and regulation are costly, inefficient, and difficult to
implement (Raines & Prakash, 2005), policy makers should provide frameworks and support to
encourage firms to include sustainable energy consumption in their action plans.
In addition, there is also a need for support from industry groups for increasing green energy
consumption. They should stress the significance of environment for subsequently increasing the
social and emotional value of green energy, and thereby get the most out of the growing environmental concerns among organisations. Renewable energy suppliers should also assist in increasing the knowledge of consumers in relation to their buying of green energy. They should use
more promotional activities for informing consumer about the need and benefits of using green
energy. This article believes that by using these recommendations, usage of green energy will
increase and consumers will change their source of energy consumption from conventional to
green energy.
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or
publication of this article.

Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.

Note
1. Green energy is defined as electricity generated from renewable energy sources such as wind, solar,
and small hydro and biomass.

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Author Biographies
Deepak Sangroya is a PhD student at the Indian Institute of Technology, Roorkee, India. His research
interests include Corporate Sustainability, Renewable Energy, Industrial Consumer Behaviour and
Marketing Research. Prior to joining IIT Roorkee, he worked with RRB Energy Limited, Kenersys India
Private Limited and KM Co Ltd in business development of large grid connected wind energy projects.
Jogendra Kumar Nayak, PhD in Industrial Marketing from the Indian Institute of Technology, Kharagpur,
is an Assistant Professor in the area of Industrial Marketing and Market Research in the Department of
Management Studies at the Indian Institute of Technology, Roorkee. He has published widely (IIMB
Management Review, Frontiers in Energy, Journal of Hospitality and Tourism Research, International
Jounral of Conflict Management). His main areas of interest are marketing research, industrial marketing,
consumer behaviour, renewable energy and tourism management.

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