Customer Perceived Value,
Satisfaction, and Loyalty:
The Role of Switching Costs
Zhilin Yang
City University of Hong Kong
Robin T. Peterson
New Mexico State University
ABSTRACT
It is a marketplace reality that marketing managers sometimes
inflict switching costs on their customers, to inhibit them from
defecting to new suppliers. In a competitive setting, such as the
Internet market, where competition may be only one click away, has
the potential of switching costs as an exit barrier and a binding
ingredient of customer loyalty become altered? To address that issue,
this article examines the moderating effects of switching costs on
customer loyalty through both satisfaction and perceived-value
measures. The results, evoked from a Web-based survey of online
service users, indicate that companies that strive for customer loy-
alty should focus primarily on satisfaction and perceived value. The
moderating effects of switching costs on the association of customer
loyalty and customer satisfaction and perceived value are significant
only when the level of customer satisfaction or perceived value is
above average. In light of the major findings, the article sets forth
strategic implications for customer loyalty in the setting of elec-
tronic commerce. © 2004 Wiley Periodicals, Inc.
In the consumer marketing community, customer loyalty has long been
regarded as an important goal (Reichheld & Schefter, 2000). Both mar-
keting academics and professionals have attempted to uncover the most
prominent antecedents of customer loyalty. Numerous studies have
Psychology & Marketing, Vol. 21(10):799–822 (October 2004)
Published online in Wiley InterScience (www.interscience.wiley.com)
© 2004 Wiley Periodicals, Inc. DOI: 10.1002/mar.20030
799
pointed out that two of the more effective means of generating customer
loyalty are to delight customers (Lee, Lee, & Feick, 2001; Oliver, 1999) and
to deliver superior value derived from excellent services and quality
products (Parasuraman & Grewal, 2000). In addition, some scholars
argue that switching costs, as a key moderating variable, can signifi-
cantly influence customer loyalty through such determinants as cus-
tomer satisfaction (Fornell, 1992; Lee et al., 2001; Oliver, 1999) and per-
ceived value (Neal, 1999; Woodruff, 1997).
Only a moderate amount of empirical research has been conducted to
examine the relationships among customer loyalty, satisfaction, switch-
ing costs, and customer value. No empirical study to date has investi-
gated these constructs in a single framework. The complicated interre-
lationships among these constructs have not been fully uncovered and
understood (T. O. Jones & Sasser, 1995; Reichheld & Sasser, 1990). Also,
empirical studies from the marketing and economic streams have pro-
duced contradictory findings regarding the roles of switching costs in
determining customer loyalty (Viard, 2002). Researchers argue that the
moderating effect of switching costs on customer loyalty is contingent
on situational variables such as the types of businesses, customers, and
products, and may not always be significant (C. C. Nielson, 1996). More-
over, although the moderating effect of switching costs on the satisfac-
tion–loyalty relationship has been researched, its impact on the rela-
tionship between perceived value and loyalty has essentially been ignored.
The present study attempts to reduce this gap by investigating the
interrelationships among the four constructs in the setting of business-
to-consumer electronic commerce. The approach employed by the authors
involves a consideration of customer satisfaction and perceived value as
they interact with switching costs. Specifically, the following three
research questions are examined:
• What are the roles of customer satisfaction and perceived value in
producing online customer loyalty?
• Is customer satisfaction mediating the effect of customer-perceived
value on customer loyalty?
• How do switching costs moderate the effect of customer satisfaction
and perceived value on customer loyalty?
This study may contribute to the body of relationship marketing knowl-
edge in several ways. First, it assesses the influence of perceived value
on customer loyalty and the mediating role of satisfaction in the
value–loyalty relationship. Second, it not only addresses the issue of the
ambiguous effect of switching costs on loyalty suggested by previous
work but also examines the moderating effect of switching costs on the
satisfaction–loyalty and value–loyalty relationships. The overall mod-
erating effects of switching costs upon customer loyalty have been found
to be insignificant. However, the results reveal that significant moderating
YANG AND PETERSON
800
effects do exist when the level of customer satisfaction or perceived value
is above average. Third, the study establishes a measure of online cus-
tomer satisfaction. The scale consists of five salient dimensions—cus-
tomer services, order fulfillment, ease of use, product portfolio, and secu-
rity/privacy. The study involves an application to a rapidly developed
industry, online services, to test the propositions. Researchers have
recently called for devoting more efforts to understanding customer
behaviors on online services (cf. Yang, Peterson, & Cai, 2003; Zeithaml,
Parasuraman, & Malhotra, 2002).
CONCEPTUAL FRAMEWORK AND HYPOTHESES
The conceptual framework guiding this study is presented in Figure 1.
Based on the literature review, the authors have generated four hypothe-
ses associated with the model. These hypotheses focus on the interrela-
tionships among customer satisfaction, perceived value, and customer
loyalty. In addition, the moderating effects of switching costs on the asso-
ciation of customer loyalty with customer satisfaction and perceived
value have been proposed.
Customer Loyalty
Experience indicates that defining and measuring brand loyalty is
extremely difficult. Researchers have used both attitudinal and behav-
ioral measures to define and assess this variable (Oliver, 1999; Zeithaml,
SWITCHING COSTS 801
Customer
Loyalty
Customer
Value
Perceived
Satisfaction
Switching Cost
Note:
Direct Effect
Moderating Effect
H3
H2
H4
H1
H5
Figure 1. Conceptual model.
2000). From an attitudinal perspective, customer loyalty has been viewed
by some researchers as a specific desire to continue a relationship with
a service provider (Czepiel & Gilmore, 1987). From a behavioral view,
customer loyalty is defined as repeat patronage, that is, the proportion
of times a purchaser chooses the same product or service in a specific
category compared to the total number of purchases made by the pur-
chaser in that category (Neal, 1999). The dilemma lies in the fact that
intention may not lead to action, and repeated buying behavior may not
reflect intentions.
To overcome these drawbacks, Oliver (1999) has proposed four ascend-
ing brand-loyalty stages according to the cognition–affect–conation pat-
tern. The first stage is cognitive loyalty. Customers are loyal to a brand
based on their information on that brand. The next phase is affective
loyalty, which refers to customer liking or positive attitudes toward a
brand. The third step is conative loyalty or behavioral intention. This is
a deeply held commitment to buy—a “good intention.” This desire may
result in unrealized action. The last stage is action loyalty, where cus-
tomers convert intentions into actions. Customers at this stage experi-
ence action inertia, coupled with a desire to overcome obstacles to make
a purchase. Although action loyalty is ideal, it is difficult to observe and
is often equally difficult to measure. As a compromise, most researchers
tend to employ the conative or behavioral-intention measure.
Loyalty can be of substantial value to both customers and the firm. Cus-
tomers are willing to invest their loyalty in business that can deliver
superior value relative to the offerings of competitors (Reichheld, 1996).
When they are loyal to a firm, consumers may minimize time expended
in searching and in locating and evaluating purchase alternatives. Also,
customers can avoid the learning process that may consume the time
and effort needed to become accustomed to a new vendor.
Customer loyalty is one major driver of success in e-commerce (Reich-
held & Schefter, 2000). Loyal customers often will, over time, bring in
substantial revenues and demand less time and attention from the firms
they patronize. Many customers are inclined to forgive customer-service
mishaps, display decreasing sensitivity to price, and disseminate positive
word-of-mouth about the business to others. As a result, customer loyalty
can be a major source of sustained growth and profit and a strong asset
(E. W. Anderson & Mittal, 2000).
Customer-Perceived Value
Perceived value has its root in equity theory, which considers the ratio
of the consumer’s outcome/input to that of the service provider’s out-
come/input (Oliver & DeSarbo, 1988). The equity concept refers to cus-
tomer evaluation of what is fair, right, or deserved for the perceived cost
of the offering (Bolton & Lemon, 1999). Perceived costs include mone-
tary payments and nonmonetary sacrifices such as time consumption,
YANG AND PETERSON
802
energy consumption, and stress experienced by consumers. In turn, cus-
tomer-perceived value results from an evaluation of the relative rewards
and sacrifices associated with the offering. Customers are inclined to
feel equitably treated if they perceive that the ratio of their outcome to
inputs is comparable to the ratio of outcome to inputs experienced by
the company (Oliver & DeSarbo, 1988). And customers often measure a
company’s ratio of outcome to inputs by making comparisons with its
competitors’ offerings.
Customer value is “the fundamental basis for all marketing activity”
(Holbrook, 1994, p. 22). And high value is one primary motivation for
customer patronage. In this regard, Sirdeshmukh, Singh, and Sabol
(2002) argue that customer value is a superordinate goal and customer
loyalty is a subordinate goal, as it is a behavioral intention. According to
goal and action identity theories, a superordinate goal is likely to regu-
late subordinate goals. Thus, customer value regulates “behavioral inten-
tions of loyalty toward the service provider as long as such relational
exchanges provide superior value” (Sirdeshmukh et al., 2002, p. 21). Prior
empirical research has identified perceived value as a major determi-
nant of customer loyalty in such settings as telephone services (Bolton
& Drew, 1991), airline travel, and retailing services (Sirdeshmukh et al.,
2002). Chang and Wildt (1994) report that customer-perceived value has
been found to be a major contributor to purchase intention. In light of the
preceding discussion and findings, it is proposed that:
H1: Customer loyalty will be positively influenced by customer-per-
ceived value.
The Mediating Role of Customer Satisfaction in the
Value–Loyalty Relationship
Customer satisfaction remains a worthy pursuit among the consumer mar-
keting community (Oliver, 1999). Certainly, customer satisfaction is a crit-
ical focus for effective marketing programs. However, the various defini-
tions that appear in the literature tend to diverge from one another
(Szymanski & Henard, 2001). Among the more popular measures, two
widely employed approaches are transaction-specific and cumulative or
overall satisfaction. The transaction-specific approach defines customer
satisfaction as an emotional response by the consumer to the most recent
transactional experience with an organization (Oliver, 1993). The associ-
ated response occurs at a specific time following consumption, after the
choice process has been completed. The affective response varies in inten-
sity depending upon the situational variables that are present. On the other
hand, the overall satisfaction perspective views customer satisfaction in a
cumulative evaluation fashion that requires summing the satisfaction asso-
ciated with specific products and various facets of the firm. Some researchers
(Cronin & Taylor, 1992; Parasuraman, Zeithaml, & Berry, 1988) consider
SWITCHING COSTS 803
