Achieving Brand and Dealer Loyalty The Case of The Automotive Industry

The International Review of Retail, Distribution and
Consumer Research
ISSN: 0959-3969 (Print) 1466-4402 (Online) Journal homepage: http://www.tandfonline.com/loi/rirr20
Achieving brand and dealer loyalty: the case of the

automotive industry
Frank Huber & Andreas Herrmann
To cite this article: Frank Huber & Andreas Herrmann (2001) Achieving brand and dealer loyalty:
the case of the automotive industry, The International Review of Retail, Distribution and Consumer
Research, 11:2, 97-122
To link to this article: http://dx.doi.org/10.1080/713770584
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Int. Rev. of Retail, Distribution and Consumer Research 11:2 April 2001 97–122
Achieving brand and dealer

loyalty: the case of the
automotive industry
Frank Huber and Andreas Herrmann
Downloaded by [Loughborough University] at 09:21 31 October 2017
Abstract
The analysis shows that customer satisfaction can be considered the central determi-
nant in all phases of the contact chain. Multi-dimensional recording of customer
loyalty reveals clear differences in the interactions, rst, with brand loyalty and,
second, with dealer loyalty. In contrast to the opinion widely held in practice,
customers in the automotive sector de nitely do not perceive the brand and the dealer
as one unit. Since similar studies in different countries come to almost the same
conclusions, it can be argued that the results are valid in several cultural settings. The
results obtained are so fundamental that they can be translated into implications even
by internationally operating companies.
Keywords
Customer satisfaction, brand loyalty, dealer loyalty, causal analysis, automotive

industry.
Customer loyalty in the automotive industry
Current passenger-car manufacturers world-wide are having to face up to deep

structural changes in their volume markets. In Western Europe, the USA and
Japan, for instance, demand is falling for the rst time after many years of steady
growth. Another factor which impacts on these sales territories, which are so
important for motor vehicle sales, is that an increasing number of manufacturers
are competing to supply a market of the same size (Simonian 1996). South-East
Asian automobile manufacturers nd Western Europe, in particular, attractive
for expanding their markets because of the comparatively low entry barriers. In
addition, the trend induced by changing values, where material factors are
becoming less important, is jeopardizing the intangible additional utility which
can be achieved through the prestige of a vehicle, thus raising the price
Frank Huber, Assistant Professor of Marketing, and Andreas Herrmann, Professor of

Marketing, Centre for Market-Oriented Product and Production Management,
University of Mainz, 55099 Mainz, Germany.
The International Review of Retail, Distribution and Consumer Research
ISSN 0959-3969 print/ISSN 1466-4402 online © 2001 Taylor & Francis Ltd
http://www.tandf.co.uk/journals
DOI: 10.1080/09593960010023841
98 The International Review of Retail, Distribution and Consumer Research
sensitivity of consumers, particularly in the higher-price segments of the

market.
At the dealership level, these developments have led to price wars, in
particular intra-brand competition, which is further exacerbated in some coun-
tries through re-imports from abroad. If one also takes into account the cost of
selling, warehousing and stocking an increasingly differentiated range of models,
it can come as no surprise that the current average pro t on sales of German
motor vehicle dealerships is less than 1 per cent.
For some time now, many motor vehicle manufacturers and dealers have seen
the development of a closer relationship to the customer as a solution to the
problems outlined above. Manufacturers and dealers hope that the economic
consequence of this will be greater customer loyalty in the long term, e.g.
through cross-selling, higher sales, success in achieving the desired price levels
and lower costs. A result of a higher percentage of loyal customers in the

purchaser portfolio is that it reduces the threat that customers will buy
elsewhere, thus jeopardizing expected sales, and – aggregated – will safeguard
substantial sales over the customer lifetime (Peppers and Rogers 1996). Loyal
customers are also likely to bring in higher pro ts in the later phases because, as
they climb up the social ladder, they often buy more luxurious vehicles and thus
vehicles which are more pro table for the motor industry. This secure share of
sales increases in line with the extent to which new customers can be locked in
through loyalty-promoting measures during the post-purchase phase. Loyal
customers also tend to make more additional purchases – an important sales
factor in the automotive business, which is heavily dependent on vehicle
servicing and accessories. It is also very likely that the price sensitivity of
demand falls with increasing loyalty and thus competition on the basis of
nancial conditions is reduced in the loyal customer segment. Additional
potential for boosting pro ts derives from the lower cost of marketing activities,
which essentially results from the possibility of producing communications
appropriate to the target group and maintaining contact with loyal customers
(McDougall 1992; Finkelmann and Goland 1991; Reichheld and Sasser 1990;
Raphael 1990).
The central determining factor of customer loyalty for dealers and manu-
facturers is customer satisfaction (Oliver 1997). The question in this context for
the protagonists in the automobile industry is which dimensions of satisfaction
determine customer loyalty and to what extent. Are there within this web of
relationships differences between loyalty to vehicle brands and loyalty to dealers?
Which purchaser characteristics can be used in practice to identify and win over
loyal potential customers, thus improving ef ciency and effectiveness in auto-
mobile marketing? This study will provide answers to these questions.
Antecedents of customer loyalty
If one attempts to answer the question of what induces customers to exhibit loyal
behaviour in respect of a product or a brand, researchers, including Howard and
Sheth (1969) and Engel et al. (1978) point to the relevance of satisfaction with
previous services as the determining feedback element in the buyer decision
Huber and Herrmann: Achieving brand and dealer loyalty 99
process. It therefore appears sensible to make a detailed analysis of customer

satisfaction as a central determinant of customer loyalty (Johnson 1997; Johnson
et al. 1997).
According to the ndings of satisfaction research, satisfaction can be de ned
as the result of an evaluation process comparing the difference between the
service the individuals expect and the actual service they perceive they have
received (Johnson et al. 1993; Johnson and Fornell 1991; Yi 1991). Satisfaction
therefore consists of four components: the speci ed, actual, evaluation and result
components, with the latter being the actual measure of satisfaction. There has
been sustained disagreement as to whether satisfaction – as a fundamentally
motivational construct – is more cognitive or emotional. However, the literature
tends to consider satisfaction as an emotionally orientated construct (Westbrook
1987; Czepiel et al. 1974).
Using central dimensions of customer satisfaction, the next task is to de ne

the impact of these on customer loyalty in the light of previous studies. In this
context, the classi cation that has proved to be successful in research work in the
automotive sector is geared to pre-purchasing, purchasing, product and after-
sales satisfaction (Burmann 1991). Longitudinal analyses have however shown
that pre-purchasing satisfaction does not have much effect on creation of
customer loyalty (Korte 1995). For this reason, this aspect has not been taken
into account in this study, whereas purchasing and after-sales satisfaction are
grouped together under the term of dealer satisfaction and analysed in greater
detail. In addition, studies show that satisfaction in the way complaints are
handled is extremely signi cant for customer loyalty in the automotive sector. It
is applied as a separate satisfaction dimension, in addition to product and dealer
satisfaction.
Customer satisfaction
In the automotive business product quality in its broadest sense is a central

determining factor in how satis ed purchasers are with their vehicle (Johnson
1997). The considerable psychological, time and nancial outlay of prospective
purchasers results in correspondingly high demands in respect of product
quality. The core criteria in the evaluation relate to technical-functional quality
such as practicality, driving comfort, performance, economy or the workmanship
and number of times the vehicle has to be repaired (Grunert 1983; Oliver 1997;
Westbrook and Oliver 1981). These criteria allow the buyer to make an objective
assessment of the vehicle. In contrast to this, intervening psychological processes
in uence the evaluation of additional utilities (Churchill and Suprenant 1982;
Bloemer and Kasper 1995).
The tremendous efforts made by the manufacturers to satisfy aspirations in
respect of the above quality dimensions were extremely successful. Conse-
quently, of all the goods and services, motor vehicles record very high levels of
product-related satisfaction (Fornell et al. 1996). As shown by Fornell’s results,
the level of satisfaction determines the depth of customers’ commitment towards
a brand (Fornell 1992).
H1: The greater the product satisfaction, the greater the loyalty to the
brand.
H2: Product satisfaction is the satisfaction dimension with the greatest

in uence on brand loyalty.
The operationalization of the dealer loyalty construct, a combination of

indicators on brand and dealer loyalty, postulated by Korte within the framework
of the study also permits the interpretation that brand loyalty, as an intervening
variable, substantiates the weak link between product satisfaction and dealer
loyalty. With regard to this relationship, studies to date have concentrated on the
impact of dealer loyalty on brand loyalty. In this context, Bloemer and Lemmink
(1992) calculated a regression coef cient of 0.6. Such an effect could not be
veri ed in Korte’s study. Veri cation appears trivial in both cases because, in
view of the dominance of dealership systems exclusive to one brand, loyalty to
the dealer is almost exclusively loyalty to the brand. A question which is more
interesting and not studied empirically is whether, conversely, pronounced
loyalty to the brand has a positive effect on a commitment to the dealer. As
customers can clearly identify the dealer as the representative of the brand, it
seems plausible that, for instance, a positive attitude to the brand will also re ect
on the dealer who represents this brand. Consequently, it could therefore be
explained for objective reasons that a high level of product satisfaction as a result
of its pronounced impact on brand loyalty would indirectly also in uence loyalty
to the dealer.
H3: The degree of loyalty to the brand has a positive in uence on the degree
of loyalty to the dealer.
Dealerships play an important role in the calculation of the customer’s overall

satisfaction. The dealer is the most important point of contact for a prospective
buyer or customer during the pre-purchase, selection, decision, waiting and
delivery phases until the vehicle is actually used. Sources of (dis)satisfaction may
be, rst, objective quality criteria. Studies, for instance by Martilla and James on
the particularly important servicing work during the initial phase when the
vehicle is used, have shown that high-quality and fault-free repairs are absolutely
crucial for customer satisfaction with dealers (Martilla and James 1977). Second,
however, subjective criteria are also extremely important. Thus Bitner, Booms
and Tetreault, Müller and Burmann have demonstrated for several service
sectors the high status accorded to ‘soft’ factors such as ful lling the customer’s
needs or the unexpectedly obliging attitude of members of staff (Bitner et al.
1990; Burmann 1991; Müller 1990).
H4: The greater the dealer satisfaction, the greater the satisfaction with the
product.
The majority of academics researching in the automotive eld also postulate

that there is a direct relationship between satisfaction with the dealer and loyalty
to the brand. Thus Bauer came to the conclusion in his study that customers
loyal to a brand were more satis ed in respect of three out of four dealer criteria
than were those who changed brands. It is interesting that this difference was
particularly great in respect of ‘soft’ factors such as the politeness and helpful-
ness of the employees (Bauer 1983). These facts support the relevance of
subjective quality criteria for dealer satisfaction. It is worth remembering that
22.3 per cent of those surveyed in the Bloemer and Lemmink study (1992) cited
reasons for brand loyalty which can be attributed to dealer satisfaction. When
analysed, a survey conducted by Ford Motor Company also showed a relation-
ship between the two constructs of interest. The results showed that the repeat
purchase rate for customers who were very satis ed with the dealer was 68 per
cent, whereas only 45 per cent of dissatis ed customers purchased the same
product again (Korte 1995). When appraising these results, it can be surmised
that satisfaction with the dealer has a direct in uence on loyalty to the brand:
H5: The greater the satisfaction with the dealer, the greater the brand
loyalty.
The migration rate in respect of dealer loyalty is even greater than for brand
loyalty. In Burmann’s study, when the level of overall satisfaction fell from an
optimum rating of 1.0 to 1.9 (on a scale which went down to 5.0), as many as 50
per cent of customers intended to change dealer. For a similar rate of migration
away from the brand, the level of satisfaction had to fall to 3.4 (Burmann 1991).
The customer study by Ford con rms these diverging sensitivities. Korte
calculated that, if satisfaction with dealers dropped from ‘very satis ed’ to ‘very
dissatis ed’, the predicted fall in sales for dealers would be 75 per cent but the
brand would suffer only a 15.6 per cent fall (Korte 1995). This shows that a
customer who is dissatis ed with the service received from a dealer will change
to another dealer but not necessarily choose another brand. Thus, the results of
the studies discussed unanimously support the following hypotheses:
H6: The higher the level of dealer satisfaction, the greater the loyalty to the
dealer.
H7: Dealer satisfaction is the dimension of satisfaction with the greatest
in uence on dealer loyalty.
Complaint behaviour
Apart from factors linked to the individual person (Richins 1987; Singh 1990;
Warland et al. 1975) and situation (Hansen et al. 1995), the attitude with regard
to complaints is particularly determined by product-related factors and cost-
bene t considerations (Ursic 1985). If these costs exceed the perceived prospects
that the complaint will succeed, the customer will not take any action. Dissatis-
faction then has an even greater impact on customer loyalty. This can express
itself, rst, in negative word of mouth propaganda (Oliver 1997; Swan and
Oliver 1989) and, second, those who do not complain are more likely to change
brands or dealers than those whose complaints have been satisfactorily resolved
(Maute and Forrester 1993; Momberger 1995).
H8: Of customers who were dissatis ed, those who did not complain are less
loyal than those who actually made complaints.
Apart from factors relating to the individual and the situation, the satisfaction
of the customer with the complaint initiated depends on the way in which the
complaint was handled and the result. If the complaint is registered in an
uncomplicated manner and is dealt with quickly on a personal basis, this is
re ected in the degree of customer satisfaction (Gilly and Gelb 1982). Satisfac-
tion with the result increases with the ability of the dealer or manufacturer to
resolve the cause of the problem or to offer adequate compensation (Hansen and
Jeschke 1995; Schmidt and Dernan 1985). If a complaint is handled satisfacto-
rily, it allows the customer to mitigate the cognitive dissonance generated by the
problem. In view of the dissonance theory, it seems plausible that this mitigation
has a positive effect on satisfaction with the dealer or product. Even the feeling
by customers that they are valued because of the action taken to resolve their
complaint will probably have a positive effect on these satisfaction dimensions.
Bruhn therefore came to the conclusion that satisfaction with the way a
complaint is handled has a positive effect on satisfaction with the dealer (Bruhn
1982; Oliver 1997).
H9: Satisfaction with the way a complaint is handled by the dealer has a
positive effect on satisfaction with the dealer.
Surveys within the context of the Technical Assistance Research Programme

(TARP) have also shown in respect of willingness to make a recommendation, a
constitutive feature of customer loyalty, that satis ed complainants tell an
average of eight other people about their positive experiences. In contrast, those
who are dissatis ed tell sixteen people about their irritation (Goodman et al.
1987). In respect of an intention to make a repeated purchase at motor vehicle
dealers, TARP calculated a rate of 69 per cent for satis ed complainants but only
32 per cent for dissatis ed complainants. The possibility of compensating for
initial dissatisfaction by resolving the complaint in a satisfactory way and
retaining loyalty is illustrated by the analysis by Peyrot and Van Doren of
consumer class litigation in the USA. In 1980 irregularities occurred in invoices
issued by some of a Japanese manufacturers’ dealers to their customers. These
customers initiated proceedings and received a nancial out-of-court settlement
which was high in comparison to the losses suffered. The purchasing behaviour
of complainants satis ed in this way remains just as loyal to dealers as customers
who were not affected (Peyrot and Van Doren 1994).
There is even a possibility that the intention to purchase another vehicle of
the same brand is in uenced by the satisfaction with the way a complaint is
handled by the dealer. In the Ford Motor Company survey it is 71 per cent for
satis ed but only 22 per cent for dissatis ed complainants (Korte 1995). This
difference is considerably less in the Hansen and Jeschke study at 81 to 67 per
cent (Hansen and Jeschke 1995). The willingness to recommend the brand to
another person is also subject to a smaller drop at 86 to 72 per cent. However,
the results of the TARP programme on dealer loyalty emphatically con rm this
study. Thus 78 per cent (repeated purchase) and 77 per cent (willingness to
recommend) of satis ed complainants remain loyal to the dealer, whereas only 43
per cent and 40 per cent respectively of dissatis ed complainants remain loyal.
These results again re ect the fact that the dealership, as the recipient of the
complaint, quite simply bears both the positive and negative consequences of the
way they deal with customer complaints, irrespective of the cause of the
problem. The statements made result in the following hypotheses:
H10: The greater the level of satisfaction with the way a complaint is handled
by a dealer, the greater is the loyalty to the dealer.
Buyer characteristics
Modern marketing in the automotive industry is geared to target groups. In

order to meet these demands and to generate detailed information, analysis of
further variables is also required which, in particular, will allow segmentation of
loyal customers. Three categories of criteria can be used for this purpose –
sociodemographic, psychographic and behavioural characteristics of customers

(Johnson and Fornell 1991). There is, however, the dilemma that socio-
demographic characteristics are seldom valid predictors of buyer behaviour, only
very few psychographic variables are observable and behavioural characteristics
do not provide any insight into processes which generate loyalty. For this reason,
this study will only focus on those buyer characteristics which, rst, have the
potential to explain customer loyalty and, second, are easy enough to observe.
These criteria satisfy the combination of one psychographic (involvement), two
behavioural (attitude to information, extent to which the vehicle is used) and
sociodemographic (social class, age) characteristics. The selected characteristics
are not only studied to ascertain how they relate directly to loyalty but, in
particular, as to how they impact on dimensions of customer satisfaction as
possible intervening variables. This is to acquire an insight into the theoretical
aspects of loyalty-generating psychological processes.
Involvement
Even if the extent to which a customer is involved cannot be observed directly,

individual elements such as knowledge of the engineering and market or an
interest in cars can easily be noted during the personal selling process.
Involvement thus embodies a possible variable to identify loyal customer
potential. Since those who are highly involved personally often act as opinion
formers (Richins and Bloch 1991), they are signi cant multipliers of not only
positive but also negative experiences. Involved buyers appear to be more
satis ed with what they have experienced. Richins and Bloch studied the
statements of 476 buyers of automobiles, dichotomized into those with high and
low involvement (Richins and Bloch 1991). In the analysis, those who were very
involved were signi cantly more satis ed (Putsis and Srinivasan 1994).
The level of knowledge among buyers of motor vehicles results, on the one
hand, in a more realistic estimate of the risks involved in purchasing the vehicle
and service and thus to fewer post-purchase dissonances and greater satisfaction
(Westbrook and Newman 1978; Straßburger 1991). On the other hand, however,
knowledge raises the standard of what is expected. The person who is deeply
involved is more aware of negative experiences after the purchase and is more
prepared to draw the necessary consequences from it. He modi es positive
experiences to a lesser extent and instead translates them into pronounced

satisfaction or even enthusiasm (Day 1977; Oliver and Bearden 1983; Miller
1977). In brief, involvement raises awareness of differences between the per-
ceived services and the original expectations. Such differences probably occur
less frequently in the case of involved buyers because they can make better
decisions on the basis of their knowledge than those who are not involved to a
great extent. It is thus possible to establish the following hypotheses:
H11: With increased involvement, satisfaction with the product, the dealer
and the complaints procedure increases.
On the basis of the greater level of satisfaction, it can be expected that

involved buyers behave more loyally to the brand and the dealer. Involvement
has an impact on brand loyalty. This is because the decision process of a person
who is involved leads to the choice of a vehicle which to a large extent
corresponds to his or her self-image and taste. In contrast to opinion followers,
the buyer also takes up, as a result of his decision, a position which has to be
defended. These factors ought to manifest themselves positively in the form of
loyalty to the brand. In comparison, the choice of dealer is less controlled by
preference so that satisfaction alone acts as a loyalty-forming criterion. Taking
the complaint procedure as the constitutive element, the considerations on
brand loyalty con rm the study by Bruhn. He identi ed that involved customers
were more willing to make complaints (Bruhn 1982). The greater level of
satisfaction expressed by involved persons participating in this study demon-
strates clearly that this result is not a manifestation of greater dissatisfaction but
of greater loyalty. On the basis of their study of personal communication after
purchasing an automobile, Richins and Root-Shaffer concluded that the greater
willingness by those who were highly involved to make recommendations was a
further constitutive element of loyalty (Richins and Root-Shaffer 1988).
H12: Brand loyalty grows with increasing involvement.
Information-gathering behaviour
Those who are buying passenger cars obtain the majority of information on
services and products from magazines, the television or personal communication.
It is the task of communications research to collect certain patterns here for
segmentation purposes. Individual identi cation of potentially loyal buyers or
interested persons – particularly at dealer level – presupposes that information
gathering can be observed or at least be easily ascertained by questions. In the
automotive industry the number of visits to alternative dealers and pronounced
interest in price before deciding to buy appear particularly suitable as buyer
characteristics which, rst, satisfy this criterion and, second, express the
information-gathering behaviour of consumers. Of course, it is important here to
take note of the direction of causality. For instance, many visits to different
dealers and ‘haggling about discounts’ can be a behavioural consequence of very
little loyalty. They can also be the behavioural expression of psychological
processes which determine a low level of loyalty.
As an example, in his empirical study Bauer found that those who were going
to change brands gathered a large amount of information as compared to
automobile buyers who remained loyal to a brand (Bauer 1983). In contrast to
this, the information-gathering behaviour of very involved persons was outlined.
Their information-gathering activities are marked by a high level of interest in
the automobile itself as a product and support loyal customer behaviour. Buyers
who visit as many dealers as possible before making a decision have, in contrast,
not formed a preference or are dissatis ed with their existing brand or the
relationship with their dealer. The importance of visiting dealers also expresses
a low level of customer loyalty and for this reason can probably be associated
negatively with loyalty.
H13a: Satisfaction with the product, dealer and the complaint procedure falls
in line with the increasing signi cance of visits to a number of dealers

before deciding to buy.
H13b: The brand and/or dealer loyalty falls in line with the increasing
signi cance of visits to a number of dealers before deciding to buy.
A developed interest in price makes differentiation necessary. It could be a

sign of purely price-orientated ‘shopping’ behaviour and be negatively linked to
customer loyalty. Also, it is conceivable that buyers who see only the price as a
differentiating characteristic are dissatis ed with the non-pecuniary aspects of
the automobile or dealer.
On the other hand, the selling price plays a central role in the purchasing
decision for satis ed buyers of motor vehicles too (Heidrich 1981). In this
context, a low price may be the prerequisite for avoidance of post-purchase
dissonances even for a loyal customer. In-depth negotiating is possibly an
expression of satisfaction with the product or dealer and indicates the desire to
maintain the relationship and not to have to change for reasons of price only.
Also, many buyers commence these concrete price negotiations only after a
decision has been made in favour of a brand and dealer on the basis on non-
pecuniary criteria. However, the last chain of arguments contradicts the theory
postulated in various quarters that price sensitivity falls with customer satis-
faction.
H14: Satisfaction with the product, dealer and the complaint procedure falls
as the interest in price increases.
Intensity of product use
Intensity of consumption or use is frequently used as a segmentation criterion

for both non-durable consumer goods and consumer durables (Hansen and
Jeschke 1995). Although it has not been veri ed empirically to date, the
assumption that intensive users exhibit different buying and post-purchase
behaviour from those who do not use the product a great deal appears feasible
for buyers of automobiles too. Particularly high yearly mileage results in the
vehicle ageing prematurely. The time sequence of maintenance work is reduced,
repairs are required at an earlier stage in the vehicle life and a new vehicle has
to be purchased sooner. In addition to this, the intensive user has more frequent
contact with the dealer because servicing is required more often. Generally this
intensive use is probably not an expression of pronounced personal involvement
but results from professional or private reliance on the car.
For this reason, it cannot be assumed that high product use indicates a high
level of satisfaction. What can be assumed is that reliance on a vehicle results in
particularly high demands concerning product and dealer quality. As cost aspects
militate against product design of motor vehicles for speci c target groups, the
dealer alone has the responsibility of satisfying the higher expectations of an
intensive user. In large dealerships, in particular, it is precisely the service
organization that is so important to the high-mileage user where there is hardly
any differentiation in respect of customer demands. Dissonances, which a low
user can still assimilate or even out, accumulate for the intensive user. They
result in less satisfaction with the product, the dealer and, if the procedure to
remedy complaints is as disappointing as the lack of differentiation in customer
service, the processing of complaints. Correspondingly negative consequences
for customer loyalty are the indirect result. An empirical examination of the
following hypothesis can provide information on the correctness of these
assumptions:
H15: Satisfaction with the product, dealer and the complaint procedure falls
as the intensity of product use increases.
Sociodemographic characteristics
Although an empirical examination of the validity of sociodemographic charac-

teristics as predictors for a certain type of buyer behaviour has generally been
disappointing to date, the criteria of social class and age produce comparatively
clear results in the automotive sector in particular. The work of Bauer, Burmann,
Bruhn, and Power & Associates (Diem 1994) draws attention to the following
relationships:
H16: The higher the social class, the less the satisfaction with the product
and dealer.
H17: The higher the social class, the greater the satisfaction with com-
plaints.
H18: Satisfaction with the product, dealer and complaints procedure in-
creases with age.
According to Bauer (1983), social class is, in all Western countries, related to
education and education enables people to understand arguments and think
logically. Therefore the author showed that people from a higher social class are
more willing to listen to explanations in the case of a poor performance and try
to understand why things went wrong (see hypothesis 17).
Empirical study of customer loyalty in the automotive industry
Data collection
The correlations postulated in the previous section can be visualized as a system

of hypotheses in the form of a structural model of determinants of customer
loyalty in the automotive industry (Figure 1).
The overall statistical veri cation of the system of hypotheses based on the
aggregated data uses the Lineal Structural Relations System (LISREL) ap-
proach. Table 1 shows the measuring model to determine the relationships of
interest.
In view of the fact that only 185 of those who provided information had
experience of complaints and thus in certain cases the sample size was reduced
by almost 70 per cent, the ULS procedure was selected to estimate the basic
model in preference to WLS (and DWLS). The empirical study of the
postulated model was based on a survey of 1,000 driving-licence holders aged
between 18 and 70. Eight hundred and fty-four of the respondents owned a car.
Of these, 239 purchased their new or used vehicle abroad or from private
individuals. In order to achieve consistency with regard to the place of purchase,
only the 615 cases who purchased their vehicle from a dealer in Germany were
included in the study. The survey was conducted in the form of telephone
interviews in December 1998. Attention is speci cally directed to the distribu-
tion of automobile brands in order to demonstrate the validity of the postulated
models independently of the supplier group under consideration. An initial
H13b
H12
involvement
H11
H11
H11
H13a
product
dealer visit H13a
satisfaction H1.
H13a H1
7
H14
H4 brand
H14
price interest H5 loyalty
H14
H15
dealer
satisfaction H6. 1 H3
H
intensity of use H15 7
H15
H16 H9 dealer
H16
loyalty
social class complaint
H17
H18 satisfaction H10
H18
age H18
H13b
Figure 1 Structural model of the relevant determinants of customer loyalty

Table 1 Results of the measurement model
Construct Measurement indicator Factor loading

Product c Satisfaction with the passenger car 1.000
satisfaction
Dealer satisfaction c Satisfaction with advice and administration 0.788
of new purchase
c Satisfaction with after-sales service 0.882
Satisfaction with c Satisfaction with complaint procedure 0.918
complaints c Satisfaction with result of complaints 0.839
Brand loyalty c Intention to make repeat purchase of brand 0.756
c Prepared to recommend brand 0.795
Dealer loyalty c Intention to make repeat purchase from 0.734
dealer
c Prepared to recommend dealer 0.893
Involvement c Interest in automobiles 0.881

c Frequency with which topic of automobiles 0.778
is raised
Visits to dealers c Signi cance of visits to various dealers 1.000
before purchasing a new vehicle
Interest in price c Signi cance of as low a purchase price as 1.000
possible
Intensity of use c Annual mileage 1.000
Social class c Index based on education, profession and 1.000
income
comparison of the brand percentages in the sample with the passenger-car

brands in the population at large (Kraftfahrt-Bundesamt 1994) showed similar
values in percentage terms. It was not possible to repudiate this assumption by
the x 2 goodness-of- t test conducted for signi cance testing at an level of 5 per
cent. Only the brand Opel appears over-represented with 120 instead of ninety-
three expected cases. With the exclusion of this brand in the test, the hypothesis
of equal distribution can be repudiated only after a signi cance level of 30 per
cent.
Descriptive results of the study
The respondents state that on average they are fairly to very satis ed with their
automobile. Satisfaction with the purchase (product 1.66; buying satisfaction
1.92) and after-sales service (2.03) at the dealer also indicate high values, whereas
the criteria for complaint satisfaction (2.77) are less pronounced. Behaviour is
similar for the characteristics of customers, which are again more distinct in
respect of the brand. The greater willingness to make recommendations (brand
1.79; dealer 2.07) as opposed to the intention to make a repeated purchase
(brand 2.34; dealer 2.78) is noticeable. This difference could be an expression of
loyalty to the brand or to the dealer, which, for reasons of the situation (e.g.
product variety or location), will not result in a repeat purchase.
Hypothesis H8 postulates a lower rate of loyalty among those customers who,
in spite of having a problem with the vehicle or dealer, do not complain when
compared to those who pursue complaints actively. To study this hypothesis we
computed the mean loyalty measurement of the thirty-three non-complainants,

the complainants and (by way of comparison) the respondents who did not
express any problems. The mean values con rm a less distinct manifestation of
all loyalty characteristics and dimensions, rst, on the part of those who do not
make complaints when compared to those who make complaints and, second, on
the part of these two groups when compared to respondents with no reason for
complaint. This difference appears particularly to apply to characteristics of
dealer loyalty.
The differences in mean values between the three groups in respect of the two
brand loyalty measures are signi cant at the 1 per cent level, in respect of dealer
loyalty indicators at the 0.01 per cent level. A further test of the mean value
differences, restricted only to the groups which complained and those who did
not complain, using the Mann-Whitney U test for independent samples did not,
however, exhibit any statistical signi cance. The thesis that loyalty is greater
among customers who did not have a reason to complain is thus con rmed
statistically. The hypothesis H8 showing greater loyalty among those who made
complaints as compared with those who did not make complaints was not
con rmed.
Explicative study results
If one now analyses the correlation between the indicators and the constructs
individually, the following can be established. The variables of intentions to make
a repeat purchase and willingness to recommend have a close link to the factors
brand and dealer loyalty. Empirically no statement can be made on the reliability
of the indicators used for product satisfaction. Studies to date and the theoretical
considerations undertaken indicate an acceptable measurement. Support for
hypothesis H1 is indicated on this basis. The structural coef cient of almost 0.7
would indicate that product satisfaction has a considerable measure of in uence
on brand loyalty and it is a gure which is broadly consistent with Burmann’s
ndings. The connection he identi ed therefore does not apply to the brand he
studied but is of signi cance for the overall market.
There is also a clear effect between brand and dealer loyalty (0.24). Hypo-
thesis H3 can therefore be accepted. Characteristics such as quality or image,
which result in loyalty to a brand apparently, extend their in uence to a person’s
attitude vis-à-vis authorized dealers. In this context, factors such as the
endeavour to create a uniform corporate design for the brand and dealerships
plays a unifying role. Product satisfaction also in uences loyalty to the dealer
indirectly because of this causality (0.17). Customers therefore attribute the
extent to which they are convinced of the quality of an automobile to the dealer,
as the representative of ‘their’ brand.
Conversely, there are grounds to presume that the impact of dealer satisfac-
tion on product satisfaction is greater (Hypothesis H4). The factor loadings of
the two indicators for measuring dealer satisfaction are high. Here, too, as in
other studies, the higher correlation with after-sales service satisfaction can be
observed. Service quality has a particularly strong in uence on the relationship
to the dealer in the post-purchase phase. If those who work for the dealership
successfully manage to keep the vehicle in good running order and if there are
no negative incidents when the customer visits the dealer, this enhances product
satisfaction (0.41). Dealer satisfaction can improve loyalty to the brand as a result
of this positive effect (0.29 indirect). This in uence is greater than the direct
effect (0.14; H5). The direct and indirect effects combined de nitely point
towards a feeling of loyalty on the part of the customer to the brand as a result
of the services provided by the dealer (0.43 total).
Satisfaction with the services provided by the dealer plays an even greater role
in the feeling of loyalty towards the dealer himself (H6). A direct effect of 0.80
is impressive proof of this. As a result of the described positive effects of dealer
satisfaction on product satisfaction and brand loyalty (0.10 ind.), its impact is
added to dealer loyalty to product a total effect of 0.9. The fact that this is of
such dominant signi cance is also con rmed by a glance at the correlation
between the two hypothetical constructs (r 5 0.95).
In spite of this, it is not only the responsibility of the dealer to secure the
customer’s loyalty through excellent service. A low level of satisfaction with
the product and diminishing brand loyalty can shatter the bond of loyalty to the
dealer. The fact that a dealer works exclusively with one manufacturer means
that currently the majority of dealers cannot offer customers who wish to remain
loyal to the dealer an alternative brand. In contrast, a manufacturer does not
have to pay the price for the poor performance of a dealer because a customer
who remains loyal to a brand can generally take his or her business to another
dealership.
Nevertheless, when it comes to processing complaints – as has been shown, an
important factor for generating loyalty – the manufacturer has to rely almost
completely on the dealer network. As the descriptive analysis has already made
clear, 95 per cent of all complaints are received by dealers, irrespective of
whether or not they refer to the services of the manufacturer or the dealer.
Satisfaction with the overall administration, for instance how a complaint is
recorded and processed, plays an important role in determining the level of
satisfaction with the way a complaint is handled. A satis ed complainant
generally also feels satis ed with the dealer (0.664; H9). This nding, which to
date has not been highlighted empirically for the automobile industry, is de nite
proof of the great potential inherent in a customer complaint to generate a bond
of loyalty. This is because the source of a complaint is deep dissatisfaction. The
customer attributes successful removal of the causes and the associated mitiga-
tion of dissonance to the dealer, with the result that the original vexation is even
transformed into satisfaction. Another point highlighted by this result is that
customers who complain are by no means ‘moaning Minnies’ who can never be
satis ed. On the contrary, they accept that manufacturers and dealers are
entitled to make mistakes as long as they rectify these when a complaint is
made.
As the detailed analysis of dependency to loyalty dimensions clearly illus-
trates, initial dissatisfaction experienced by a complainant does not have a
negative impact on loyalty. Although the direct effect of satisfaction with a
complaint only has a minimal impact on dealer loyalty (0.06), the positive
in uence on dealer and product satisfaction with strong indirect in uence of
0.60 enhances it to bring about a considerable overall effect (0.66 total; H10).
The high empirical correlation of the two constructs (r 5 0.67) also demon-
strates the core role played by a satisfactory solution of a complaint in the choice
Table 2 Effects of dimensions of satisfaction on the dimensions of loyalty
In uence on Brand loyalty Dealer loyalty

Determinants Direct Indirect Total Direct Indirect Total
Product satisfaction (PS) 0.699 – 0.699 – 0.167 0.167
Dealer satisfaction (DS) 0.140 0.289 0.428 0.796 0.102 0.899
Complaint satisfaction (CS) – 0.284 0.284 0.060 0.596 0.656
of where a automobile buyer who has made a complaint is going to make his or
her purchase. Apart from product satisfaction (0.27 indirect), satisfaction with a
complaint also has an indirect in uence on loyalty to the brand (0.28 indirect).
Since it is the dealer who is nearly always responsible for processing a complaint,
he can also have a crucial in uence on the decision to purchase another vehicle
of the same brand as a result of his actions (see Table 2).

An in-depth study of the declared variance percentages again illustrates the
gain in knowledge achieved by incorporating complaint satisfaction as a deter-
minant of customer loyalty. The assumed structures explain 50 per cent of the
variance of the dealer satisfaction construct (R2 5 0.50). This value is 12 per cent
for complaint satisfaction which is determined purely by the purchaser
characteristics in the model. It cannot be assumed that the contribution of these
characteristics to explain dealer satisfaction is considerably greater. The squared
multiple correlation of dealer satisfaction, which is considerably higher than
product satisfaction (20 per cent), thus results from the high level of dependency
on the complaint satisfaction construct.
Its explanatory value is also supported by the exceptional degree of clari ca-
tion of the variance of dealer loyalty. Only 4 per cent are not covered by the
postulated model (j 4 5 0.04). In the models proposed by Burmann and Korte
the value was 34 per cent and 51 per cent, respectively (Burmann 1991; Korte
1995). These are comparably conceptualized in respect of accommodating
product and dealer satisfaction constructs and come to similar results for these
structures as this study. The conspicuous difference in the extent to which dealer
loyalty variance is explained can be largely attributed to the construct of
complaint satisfaction.
The postulated hypotheses of the relationship between the proposed dimen-
sions of customer satisfaction and those of customer loyalty are therefore
supported by data. Moreover, the intensity hypotheses that product and dealer
satisfaction exercise the greatest in uence on brand or dealer loyalty have also
been vindicated empirically (H2I, H7I).
There are also some interesting results when analysing the in uence of buyer
characteristics on customer satisfaction and loyalty (Table 3). Thus the hypoth-
esis of a dependency between the degree of involvement and customer satisfac-
tion (H11) has been only partially con rmed. It is not possible to identify a
direct relationship in respect of product satisfaction (0.007). The indirect effect
of 0.06 is also not particularly clear. This result contradicts the study by Richins
and Bloch in which the two researchers could prove that, on the US market, the
satisfaction values for those who were very involved were signi cantly higher
than for those who were not very involved. An explanation for this discrepancy
is to focus on how the respondents perceived the item for which the satisfaction
was to be measured in the study (Richins and Bloch 1991). If they related it to
Table 3 Total effects of buyer characteristics on dimensions of satisfaction and loyalty
Product Dealer Customer Brand Dealer

Determinant satisfaction satisfaction satisfaction loyalty loyalty
Involvement 0.063 0.136 0.022 0.175 0.151
Dealer visits 2 0.047 2 0.106 2 0.295 2 0.146 2 0.180
Price interest 0.104 0.065 0.116 0.082 0.078
Intensity of use 0.081 0.086 2 0.073 0.069 0.081
Social class 0.056 0.026 2 0.053 0.043 0.028
Age 2 0.126 2 0.245 2 0.138 2 0.122 2 0.232
Note
The direction of the in uences from ‘intensity of use’ and ‘age’ are to be interpreted in
the opposite direction from the mathematical sign indicated
pure product satisfaction, a reason for the diverging results could be the cultural
context of the sample. If the German buyer is really ‘car mad’ and is therefore
generally more involved, this would lead to a higher average fund of information
than in the sample group of Richins and Bloch. This greater knowledge makes
for more realistic expectations and reduces dissatisfaction after the purchase,
which cannot really be reduced further by even greater involvement. A lower
level of involvement on average on the part of American buyers would cause a
greater difference in satisfaction between those with a low level of involvement
and those with a high level of involvement. A more plausible assumption is that
the said item is more likely to cover the overall satisfaction, in other words,
elements such as dealer satisfaction too, and involvement in uences this in a
positive manner.
This is the result provided by this study. Thus rigorous thinking on the exact
meaning of the automobile as an item probably also results in a better estimate
of what the customer can expect from a motor vehicle dealer. He or she is
therefore in a better position to assess the competence of a dealer and is more
aware when deciding where to purchase the vehicle. The result would be greater
dealer satisfaction (0.12). An involved customer cannot in uence a complaint any
more than a customer who is not particularly involved. Thus the assumption that
this advantage of knowledge, gained through involvement, only has a minimal
effect on complaint satisfaction tends to be con rmed (0.02).
Finally, although the greater competence of those who are highly involved
when choosing a vehicle does not result in greater product satisfaction, it does
make for greater loyalty to the brand (0.11; 0.18 total; H12). Once an involved
buyer has made his choice of brand, this appears to suit his particular style and
he is more likely to remain loyal to it. The level of involvement also indirectly
determines dealer loyalty (0.15), which is closely linked to dealer satisfaction.
The signi cance of visiting various dealers before deciding to buy a new vehicle
requires a differentiated evaluation of hypothesis examination (H13). As sus-
pected, a negative relationship to the brand and dealer loyalty (2 0.10 and
2 0.04) is exhibited. This is ampli ed by indirect effects to 2 0.15 and 2 0.18.
The reason for the indirect impact on dealer loyalty lies especially in a clearly
negative relationship between the signi cance of dealer visits and satisfaction
with complaints (2 0.30). This in uence can particularly be ascribed to the
intensive search for an alternative dealer if there has been disappointment in the
way the current dealer has resolved a complaint. However, even the reversal of
a direct decision in favour of a dealer if the customer nds the standard of
complaint processing convincing again underlines the great importance attached
to complaint satisfaction. It must be remembered that only approximately 30 per
cent of respondents had made a complaint. In spite of this, the calculation of the
total effect does not weight the individual effects. The total effect on customer
loyalty is therefore somewhat lower in view of those who do not make any
complaints. For them, too, there is a negative relationship between the signi -
cance of dealer visits and loyalty constructs.
In contrast, hypothesis H14 in respect of the second aspect of information
gathering – interest in price – is not con rmed empirically. Thus, instead of the
postulated negative in uence on satisfaction dimensions, the more signi cant
intensive price negotiations are before the purchase, the greater the product
(0.08) and complaint (0.12) satisfaction exhibited. The assumptions expressed

point to two opposite effects. On the one hand, intense interest in price may
indicate quite simply that the buyer is focused on price and quality. On the other
hand, a low price helps to provide a rational justi cation for a high level of
customer satisfaction and mitigate post-purchase dissonances. According to this,
a customer would enter into lively price negotiations with that dealer or in
respect of that product which proved to provide particular satisfaction. As the
results show, this chain of argumentation is the dominant one.
The assumption that customer satisfaction falls with increasing intensity of
product use is con rmed in particular for dealer satisfaction ( [ 1 ] 0.14; H15). This
gure supports the argument that a high-mileage driver, who is very dependent
on his vehicle, expects an extremely high standard of services from the dealer. As
such drivers have to call on these services more frequently, if they do not receive
better treatment by the dealer, this results in a lower level of satisfaction.
However, the picture is quite different for complaint satisfaction ([ 2 ] 0.07). It is
possible that a complaint spurs on the dealership employees to greater commit-
ment over and above what is usual and this is a positive surprise to a high-
mileage motorist who is used to dealers.
The assumption that satisfaction with the product and dealer is lower in
higher social classes can be explained by the higher expectations of those higher
up the social scale is re ected in the data (H16). The opposite effect for
complaint satisfaction is also con rmed in principle due to the fact that they are
more able to gain acceptance for their point of view if they make complaints
(H17). However, at 0.05, the calculated structure coef cients are at a very low
level so that there is no clear con rmation of the hypotheses.
The empirical results document that the dependency between age and
customer loyalty identi ed in various studies can alone be attributed to inter-
vening psychological processes. Thus satisfaction with the dealer and the
complaints process increases with age ( [ 2 ] 0.15 or [ 2 ] 0.14; H18). These values
clearly highlight the preference for stability and the value placed by older
persons on what is tried and tested. These psychological dispositions are
re ected in a high level of satisfaction which consequently has a positive effect
on brand ( [ 2 ] 0.12 total) and dealer [ 2 ] 0.23 total) loyalty. On the basis of the
high gures for satisfaction with the dealer ([ 2 ] 0.25 total) and loyalty to the
dealer it can be assumed that the relationship to the dealer is of special
importance to older customers.
In summary (Table 4), it can be established that the majority of customer

characteristics can de nitely make a contribution to the results. This is partic-
ularly prevalent in respect of the effect structures of dimensions of customer
satisfaction both in respect of each other and in relation to brand and dealer
loyalty. In particular, the high nomological validity of the model in respect of
dealer loyalty is remarkable. The selected satisfaction dimensions and buyer
characteristics provide a practically complete description of this construct. The
gures for assessing the overall model structure also document impressively the
quality of the theoretically generated image of reality (Table 5).
Group comparisons
To get some further information about the relationship between satisfaction and
loyalty, we decided to analyse the difference between the owners of different
brands and new and used car owners. The reason for this segmentation has
primarily a practical origin. As in the future European car retailers will be
allowed to sell more than one brand, it makes sense to analyse whether the
proposed model of the determinants of customer loyalty is equally valid for
purchasers of Opel and Volkswagen. For two reasons we decided to examine
these brands. First, these two companies represent a market share of more than
40 per cent in the German car. Second, in our sample we have 120 owners of an
Opel and 136 owners of a Volkswagen: a sample that is big enough to estimate the
relevant parameters.
When evaluating the difference between these two groups with LISREL, it
must be remembered that, unlike with standard hypothesis tests, the validity of
the null hypothesis concerning the equality of the measurement models is
relevant to both groups. Thus, the assumption of the equality hypothesis is not
determined by the probability of an alpha error. On the contrary, the probability
of an Ho assumption should be as small as possible in the event that it is
incorrect (in other words the beta error). This error cannot be calculated here,
however, since it would be necessary to put forward a precisely speci ed
alternative hypothesis. The alpha error serves as a substitute variable, on account
of the reciprocal relationship between these two error types. A consensus has
become established in the literature, whereby if alpha is greater than or equal to
5 per cent, a suitably low beta – and hence con rmation of the equality
hypothesis – can be assumed. Consequently, comparable measurement models
are available for the two groups. Table 6 shows the results.
The gures in the table show that the proposed model of the determinants of
customer loyalty is equally valid for purchasers of an Opel and a Volkswagen.
With respect to the strategic planning, if a retailer wants to sell different brands
this nding is unquestionably a signi cant one. The consequences of this are
re ected in the last paragraph. Other group comparisons, such as between rst
time buyers and more experienced buyers, did not reveal signi cant differ-
ences.
From a management point of view, on the other hand, it makes sense to
analyse the used and the new car market. While the new car market is stagnant,
Table 4 Results of the empirical study

Tested hypothesis Result
H1: The greater the product satisfaction, the greater the loyalty to the a.
brand.
H2: Product satisfaction is the satisfaction dimension with the greatest a.
in uence on brand loyalty.
H3: The degree of loyalty to the brand has a positive in uence on the a.
degree of loyalty to the dealer.
H4: The greater the dealer satisfaction, the greater the satisfaction a.
with the product.
H5: The greater the satisfaction with the dealer, the greater the brand a.
loyalty.
H6: The higher the level of dealer satisfaction, the greater the loyalty a.
to the dealer.
H7: Dealer satisfaction is the dimension of satisfaction with the a.

greatest in uence on dealer loyalty.
Hg: Of customers who were dissatis ed, those who did not complain n. a.
are less loyal than those who actually made complaints.
H9: Satisfaction with the way a complaint is handled by the dealer has a.
a positive effect on satisfaction with the dealer.
H10: The greater the level of satisfaction with the way a complaint is a.
handled by a dealer, the greater is the loyalty to the dealer.
H11: With increased involvement satisfaction with the product, the p. a.
dealer and the complaints procedure increases.
H12: Brand loyalty grows with increasing involvement. a.
H13a: Satisfaction with the product, the dealer and the complaint a.
procedure falls in line with the increasing signi cance of visits to
a number of dealers before deciding to buy.
H13b: The brand and/or dealer loyalty falls in line with the increasing a.
signi cance of visits to a number to dealers before deciding to
buy.
H14: Satisfaction with the product, the dealer and the complaint n. a.
procedure falls as the interest in price increases.
H15: Satisfaction with the product, the dealer and the complaint p. a.
procedure falls as the intensity of product use increases.
H16: The higher the social class, the less the satisfaction with the a.
product and the dealer.
H17: The higher the social class, the greater the satisfaction with a.
complaints.
H18: The satisfaction with the product, the dealer and the complaints a.
procedure increases with age.
Notes
a. 5 based on the empirical results the postulated hypothesis has to be accepted;
p.a. 5 based on the empirical results the postulated hypothesis has to be partially
accepted; n.a. 5 based on the empirical results the postulated hypothesis could not be
accepted
the gures for used car sales increase. In the meantime dealers in Germany sell
45 per cent of all used cars. Nevertheless consumers prefer the private market to
buy their new used car. The reason for the preference for the private market
could be that they are not satis ed with the dealers’ used-car-selling behaviour.
To give an answer to that question we made a group comparison. Table 7 shows
the results.
Table 5 Test criteria for evaluating the causal model
Criteria Condition Result

Overall t
Pretest c model is identi ed yes
c solution is consistent yes
GFI . 0.90 0.991
AGFI . 0.90 0.983
RMR . 0.10 0.035
x 2/df . 5.00 1.436
RMSEA . 0.08 0.027
NFI . 0.90 0.984
Partial t
2
Indicator reliability l x/y . 0.40
Dealer satisfaction y2 0.621
y3 0.778
Complaint satisfaction y8 0.843
y9 0.704
Brand loyalty y4 0.572
y5 0.632
Dealer loyalty y6 0.539
y7 0.797
Involvement x1 0.776
x2 0.605
2
Convergent reliability l j i/h i . 0.50
Dealer satisfaction 0.700
Complaint satisfaction 0.774
Brand loyalty 0.602
Dealer loyalty 0.668
Involvement 0.691
Fullfulled 100%
Table 6 Results of the group comparison (owners of different brands)

2 2
Step x df D x D df a -level
Same model 110.9 87 – – –
L x,y-matrix invariant 120.7 91 9.8 4 5%
G -matrix invariant 147.8 106 27.1 15 5%
B-invariant 158.1 111 10.3 5 10%
Table 7 Results of the group comparison (new and used car owners)
2 2
Step x df D x D df a -level
Same model 61.1 48 – – –
L x,y-matrix invariant 65.4 51 4.3 3 25%
G -matrix invariant 89.6 75 24.2 24 50%
B-invariant 97.2 80 7.6 5 25%
To sum up, it can be stated that the proposed model of the determinants of
customer loyalty is equally valid for purchasers of both new and second-hand
cars. In view of the separation, in terms of both organization and content, which
is preserved between marketing activities for new and second-hand cars by both
dealers and manufacturers, this nding is unquestionably a signi cant one. The
consequences of this, without doubt, surprising result for car marketing are
re ected in the next section.
Implications for customer loyalty management
The analysis shows that customer satisfaction can be considered the central
determinant in all phases of the contact chain. Multi-dimensional recording of
customer loyalty reveals clear differences in the interactions, rst, with brand
loyalty and, second, with dealer loyalty. In contrast to the opinion widely held in
practice, customers in the automotive sector de nitely do not perceive the brand
and the dealer as one unit. Since similar studies in different countries come to
almost the same conclusions, it can be argued that the results are valid in several
cultural settings. The results obtained are so fundamental that they can be
translated into implications even by internationally operating companies.
In spite of this, it is pertinent to ask the question whether, apart from the
additional theoretical information gained, additional practically orientated
knowledge can be achieved through the empirical con rmation of the model.
The selected indicators of hypothetical constructs can make a contribution to
this. For instance, the construct complaint satisfaction loses its theoretical
character if each of its attributes such as complaint processing and complaint
results serve as concrete points of departure from which to improve satisfaction
with the way in which complaints are handled. The majority of the buyer
characteristics selected under the aspect of implementation relevance also
present opportunities to enhance – through applying active segmentation
approaches – the ef ciency and effectiveness of addressing target groups. The
proposed constitutive characteristics of customer loyalty and the psychological
processes which determine this provide a basis for a strategy to secure customer
loyalty by means other than those geared just to encouraging repeat purchases.
Some elements of such a strategy are sketched out, based on the results gained
from the study.
The study again con rms the central importance of product satisfaction for
brand loyalty. The path adopted by the manufacturers towards greater technical
and functional quality should therefore be pursued meticulously. Target group
strategies to promote loyalty should speci cally promote an intensive communi-
cations process with highly involved customers and the potential to secure the
bonds of loyalty with older customers by taking into account their needs for
vehicle development and marketing.
In particular, manufacturers would be wise to see their dealers as crucial
success factors for their brand. It is important to support the dealers in all and
through all marketing activities. The dealer should also receive support from the
manufacturer in respect of processing and solving complaints by implementing
a suitable information communications and support structure. Currently the
post-purchase and after-sales communications from the manufacturer are com-

paratively sparse and closer integration with the manufacturer’s pre-sale com-
munications would appear expedient. In this context, the post-purchase and
after-sales communications should be in co-operation with the dealer. All these
measures have a crucial in uence on product satisfaction and loyalty. They also
represent a step towards active relationship management by manufacturers of
their dealers. In view of the described dysfunctional processes in this relation-
ship and the potential power which will be gained by the authorized dealer in the
future in the vertical system as a result of strategic alliances and the weakening
of the law on exclusive dealerships, it is advisable for manufacturers to improve
relationships with their dealers.
The fact that the law on exclusive dealerships is going to be weakened will
allow dealers to safeguard for their business the loyalty of those customers who
are not loyal to the brand. As this study shows, a dealer himself already largely
determines the rate of his loyal customers. The dimensions inherent in satisfac-
tion during the purchasing and after-sales process and in the event of complaints
can represent a considerable barrier to changing dealers which it is important to
develop methodically and within the context of a comprehensive overall strategic
concept. The after-sales service, in particular, has tremendous potential to secure
a customer’s loyalty. Importantly, increasing professionalism in terms of person-
nel, premises and communications and close integration with the sales area
within the context of a single point-of-contact can give emphasis to this project.
No longer should the after-sales service organization be just an ‘add on’ – it
should gain strategic signi cance as a crucial instrument for differentiation,
particularly in intra-brand competition.
Active complaint management anchored in the strategic target system must
also be recommended. Barriers to dissuade a customer from making a complaint
must be lowered, solutions found quickly and appropriately within the process
and the information gained used for a permanent improvement. This will
certainly entail a change towards an in-house dealer culture where a complaint is
highly valued as a loyalty indicator.
Furthermore, at the dealer level, it seems reasonable to question whether the
strict separation of new and second-hand car marketing or the segregation of
brands that do not unambiguously differ still corresponds to the actual or future
situation on the car market. In view of the similarities between the aspirations of
new and second-hand car buyers, it would appear advisable to extend second-
hand business far beyond the limits of pure sales. A consistent policy of
communication, customer support and, in particular, esteem for the second-
hand car buyer can help to achieve high loyalty rates in this area, which for many
dealers is more pro table than sales of new cars. In addition, the development of
competences and competitive advantages facilitates a greater degree of independ-
ence in relation to the new car brand stocked and open the door to otherwise
inaccessible customer groups.
However, a realistic assessment of the situation in the automobile industry also
allows limits to be identi ed for marketing strategies geared to loyalty. In spite of
the potential to reduce costs generated as a result of programmes to secure
customer loyalty, which will be of signi cance in the long term, a certain level of
nancial investment will also be required to initiate this, in addition to strategic
reorientation. However, many dealers cannot afford this because of their strait-
ened nancial circumstances resulting from the ruinous price-cutting competi-

tion. Since a certain time lapse is required before loyalty-boosting measures can
replace the price as the predominant differentiation characteristic, it seems
advisable for manufacturers to co-operate with their dealers to stem intra-brand
competition. A feasible option is systematic implementation of an agreed price.
As this study shows, the buyer’s interest in the price is focused less on
comparing prices between different brands and more between dealers of the
same brand. If these dealers enforce these prices systematically, the customer
will accept the price as the lowest possible price. This is supported by the
successes of one-pricing strategies in the USA (Sawyers 1993; Woodruff
1992).
The competitive situation even within one group of sellers does, however, lead
one to the conclusion that efforts along these lines are doomed to failure if the
manufacturers – in conjunction with their dealers – do not enlarge the marketing

territories and avoid overlaps. The development also requires a co-operative
culture of relationships – both an organizational and motivational transformation
with both manufacturers and the trade alike, which cannot be created in the
short term (Schnyder 1991).
There are also limits to the extent to which loyalty can be enhanced in the
relationship with the customer. First, not even pronounced satisfaction can
always prevent the customer from changing either brand or dealer (Stum and
Thiry 1991). Apart from factors related to situation, the motivational need for a
change is probably of particular relevance. This concept has entered the
literature as variety seeking (McAlister and Pessemier 1982). This phenomenon
and the dynamic nature of competition will probably also ensure that, apart from
marketing to safeguard customer loyalty, transactional marketing will always be
highly relevant. However, the risk with loyalty-based marketing is that customers
will possibly develop a reaction as a result of particularly intensive efforts to
safeguard loyalty.
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Achieving Brand and Dealer Loyalty The Case of The Automotive Industry

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The International Review of Retail, Distribution and

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Achieving brand and dealer loyalty: the case of the

Frank Huber & Andreas Herrmann

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Download by: [Loughborough University] Date: 31 October 2017, At: 09:21

Achieving brand and dealer

Customer satisfaction, brand loyalty, dealer loyalty, causal analysis, automotive

Customer loyalty in the automotive industry

Current passenger-car manufacturers world-wide are having to face up to deep

Frank Huber, Assistant Professor of Marketing, and Andreas Herrmann, Professor of

sensitivity of consumers, particularly in the higher-price segments of the

and lower costs. A result of a higher percentage of loyal customers in the

Antecedents of customer loyalty

process. It therefore appears sensible to make a detailed analysis of customer

Using central dimensions of customer satisfaction, the next task is to de ne

In the automotive business product quality in its broadest sense is a central

H2: Product satisfaction is the satisfaction dimension with the greatest

The operationalization of the dealer loyalty construct, a combination of

Dealerships play an important role in the calculation of the customer’s overall

The majority of academics researching in the automotive  eld also postulate

Surveys within the context of the Technical Assistance Research Programme

Modern marketing in the automotive industry is geared to target groups. In

sociodemographic, psychographic and behavioural characteristics of customers

Even if the extent to which a customer is involved cannot be observed directly,

experiences to a lesser extent and instead translates them into pronounced

On the basis of the greater level of satisfaction, it can be expected that

H12: Brand loyalty grows with increasing involvement.

in line with the increasing signi cance of visits to a number of dealers

A developed interest in price makes differentiation necessary. It could be a

Intensity of product use

Intensity of consumption or use is frequently used as a segmentation criterion

Although an empirical examination of the validity of sociodemographic charac-

Empirical study of customer loyalty in the automotive industry

The correlations postulated in the previous section can be visualized as a system

Figure 1 Structural model of the relevant determinants of customer loyalty

Table 1 Results of the measurement model

Construct Measurement indicator Factor loading

Involvement c Interest in automobiles 0.881

comparison of the brand percentages in the sample with the passenger-car

Descriptive results of the study

computed the mean loyalty measurement of the thirty-three non-complainants,

Explicative study results

Table 2 Effects of dimensions of satisfaction on the dimensions of loyalty

In uence on Brand loyalty Dealer loyalty

of the same brand as a result of his actions (see Table 2).

Table 3 Total effects of buyer characteristics on dimensions of satisfaction and loyalty

Product Dealer Customer Brand Dealer

(0.08) and complaint (0.12) satisfaction exhibited. The assumptions expressed

In summary (Table 4), it can be established that the majority of customer

Table 4 Results of the empirical study

H7: Dealer satisfaction is the dimension of satisfaction with the a.

Table 5 Test criteria for evaluating the causal model

Criteria Condition Result

Table 6 Results of the group comparison (owners of different brands)

Implications for customer loyalty management

post-purchase and after-sales communications from the manufacturer are com-

Using central dimensions of customer satisfaction, the next task is to de ne

The majority of academics researching in the automotive eld also postulate

in line with the increasing signi cance of visits to a number of dealers

In uence on Brand loyalty Dealer loyalty

ened nancial circumstances resulting from the ruinous price-cutting competi-