Professor Dr. Dr. h.c. Christian Homburg University of Mannheim Budapest, May 11 th 2007

1. Dynamic Perspectives on Customer Satisfaction Professor Dr. Dr. h.c. Christian Homburg University of Mannheim Budapest, May 11th 2007

2. Dynamic Perspectives on Customer Satisfaction Study 1: The Interplay of Cognition and Affect in the Formation of Customer Satisfaction - A Dynamic Perspective Christian Homburg Nicole Koschate Wayne Hoyer Study 2: Customer Satisfaction and Time as Drivers of Price Knowledge after the Purchase Christian Homburg Nicole Koschate Christian Wiegner

3. Study 1: Motivation • cognition and affect as predictors of satisfaction judgments (Oliver 1993; Kempf 1999; Smith/Bolton 2002; Szymanski/Henard 2001) • importance of a longitudinal perspective of customer satisfaction (Bolton 1998; Bolton/Lemon 1999; Oliver 1980) • focus of prior dynamic studies on • cognitive predictors of satisfaction (Mittal/Kumar/Tsiros 1999; Mittal/Katrichis/Kumar 2001; Slotegraaf/Inman 2004) • carryover effects of satisfaction judgments (Bolton 1998; Bolton/Drew 1991; Boulding et al. 1998; Mittal/Kumar/Tsiros 1999)

4. Study 1:Hypotheses (1) • newly formed attitudes have more random variation and are harder to predict (Eagly/Chaiken 1993) • certainty increases as the quantity of information about the product increases (Chandrashekaran et al. 2000; Farley/Katz/Lehmann 1978; Smith/Swinyard 1983) H1:The variance in customer satisfaction jointly explained by cognition and affect increases as experience accumulates.

5. Study 1: Hypotheses (2) • Affect Infusion Model (AIM) (Forgas 1995) • constructive, generative nature of most judgments is critical for affect infusion to occur • relevant processing strategies in our study(Forgas 1995): • substantive processing  high affect infusion • direct access strategy resistant to affect infusion H2a: As experience accumulates, the impact of cognition on customer satisfaction increases. H2b: As experience accumulates, the impact of affect on customer satisfaction decreases.

6. Study 1: Hypotheses (3) • consistency of the performance experience • as consistency of information increases, attitude certainty increases (Heslin/Blake/Rotton 1972) H3: The suggested pattern (i.e. the impact of cognition increases while the impact of affect decreases) is more pronounced in the case of consistent experiences versus inconsistent experiences.

7. Study 1: Experimental Design and Procedure • real usage experience of a CD-ROM tutorial for a pricing class • participants were given three sample chapters (trials) • solving of a pricing task and performance feedback • 8 (levels of performance) x 3 (trial) between- and within-subjects-design • consistent performance experience: (+++) or (- - -) • inconsistent performance experience: (+ - +) or (- + -) • sample: 157 participants

8. Study 1: Results (1) • H1:The variance in customer satisfaction jointly explained by cognition and affect increases as experience accumulates. • regression model: • R2 increases substantially across trials  H1 

9. Study 1: Results (2) • H2a (b): As experience accumulates, the impact of cognition (affect) on customer • satisfaction increases (decreases). • regression model with interaction effects: • b4 significant and positiveH2a ; b5 significant and negative H2b

10. Study 1: Results (3) • H3: The suggested pattern (i.e. the impact of cognition increases while the impact • of affect decreases) is more pronounced in the case of consistent experiences • versus inconsistent experiences. • regression model with interaction effects for consistent vs. inconsistent performance experiences: • consistent performance experiences (+++ or - - -): • impact of affect decreases (b5 = -0.156, p < 0.05) • impact of cognition increases slightly (b4 = 0.119, p < 0.06) • inconsistent performance experiences (+ - + or - + -): • no significant effects (b5 = 1.200, p = 0.23; b4 = -0.750, p = 0.62) • H3

11. Study 1: Conclusion • Research Issues • importance of examining customer satisfaction from a dynamic perspective • insights regarding how the inconsistency versus consistency of performance experiences impacts on the customer satisfaction process • Managerial implications • insights for managing customer satisfaction • especially for new products and in the case of inconsistent experiences, managing affective aspects is important in addition to product/service quality considerations

12. Dynamic Perspectives on Customer Satisfaction Study 1: The Interplay of Cognition and Affect in the Formation of Customer Satisfaction - A Dynamic Perspective Christian Homburg Nicole Koschate Wayne Hoyer Study 2: Customer Satisfaction and Time as Drivers of Price Knowledge after the Purchase Christian Homburg Nicole Koschate Christian Wiegner

13. Study 2: Motivation Le prix s‘oublie, la qualité reste! (Price is forgotten, quality remains, from the French Movie „Les Tontons Flingeur“) • Focus of previous studies on a limited set of drivers of price knowledge: • Impact of customer satisfaction not investigated so far Demographic, socioeconomic, and psychographic variables (e.g., McGoldrick and Marks 1987; Krishna, Currim, and Shoemaker 1991; Wakefield and Inman 1993) Product category characteristics(Dickson and Sawyer 1990; Vanhuele and Drèze 2002)

14. The Influence of Time on Post-Purchase Price Knowledge Price knowledge measured immediately after the purchase(e. g., Dickson and Sawyer 1990; Le Boutillier, Le Boutillier, and Neslin 1994; Lichtenstein, Ridgway, and Netemeyer 1993; Mazumdar and Monroe 1990, 1992; Wakefield and Inman 1993) Price knowledge measured some time after the purchase (Conover 1986; Helgeson and Beatty 1987; Vanhuele and Drèze 2002) Two types of studies Design does not allow for the analysis of the effect of time on price knowledge Limited ability to study the effect of time (focus on a very short time interval of 2 days after the purchase or subjective judgment about the length of time) Long-term effects of time on price knowledge not researched so far

15. Study 2: Research Question Price Knowledge Do customer satisfaction and time (since purchase) influence the customer‘s explicit and/or implicit price knowledge after a purchase? Explicit Price Knowledge Price information which can be consciously remembered by the customer Implicit Price Knowledge Price information which is unconsciously known by the customer

16. Study 2: Overview of Theoretical Background Effect of Customer Satisfaction on Price Knowledge Theory of Mood-Congruent-Effects InferenceTheory Effect of Time on Price Knowledge

17. Study 2: Hypotheses (I) Theory of Mood-Congruent-Effects individuals strive for cognitive congruency affect congruent information is more easily retrieved than affect incongruent information (Bagozzi, Gopinath, and Nyer 1999) Affect congruent effects occur in the context of the explicit memory (e.g., Gardner 1985; Isen et al. 1978; Teasdale and Russel 1983) do not occur in the context of the implicit memory (e.g., Danion et al. 1995; Denny and Hunt 1992; Russo, Fox, and Bowles 1999) Price as negative information about a product (e.g., Lichtenstein, Ridgway, and Netemeyer 1993) H1: Customer Satisfaction has a) a negative effect on the explicit price knowledge. b) no effect on the implicit price knowledge.

18. Study 2: Hypotheses (II) Inference Theory Competition from other memories blocks retrieval of target memory (Burke and Srull 1988) Original stimuli can be interfered by previously and/or later learned stimuli (Eysenck and Keane 2002) The more stimuli interfere with the original stimulus, the more difficult it is to remember the original stimulus Explicit memory is very fragile and higly influenced by time (e.g., Allen and Reber 1980; Goshen-Gottstein and Kempinsky 2001) Implicit memory is not strongly affected by time (e.g., Allen and Reber 1980; Mitchell and Brown 1988) H2: The length of time since purchase has a) a negative effect on the explicit price knowledge. b) no effect on the implicit price knowledge.

19. Study 2: Hypotheses (III) H3: As customer satisfaction increases, the negative impact of time on the explicit price knowledge is strengthened. Explicit Price Knowledge Customer satisfaction low Customer satisfaction high Time since purchase

20. Study 2: Data Collection (1) Data from a leading national department store chain Random selection of 1200 customers (bonus card owners) who had purchased a product in one of four predefined categories (consumer appliances, leather goods, consumer electronics & personal computing, sporting goods) - during the last 12 months bought the product by themselves bought the product for themselves Data collection from these persons via telephone interviews  response rate 26.6 % (319 interviews)

21. Study 2: Data Collection (2) time Purchase within a time intervall of 12 months Interview period of one month • Data from company records: • product category • actual price • date of purchase • Data from customer interviews: • customer satisfaction with the product • price knowledge with respect to the product • other control variables • date of interview - Dyadic nature of the data Time since purchase

22. Study 2: Measurement of Explicit Price Knowledge Price Recall Task: Please try to remember without checking the price you have paid as exactly as possible. How much was the price of the [product]?

23. Study 2: Measurement of Implicit Price Knowledge Deal-Spotting Questions (adopted from Vanhuele and Drèze (2002), JM) Question 1: Please write down the following number: [actual price + 20 %].If this was the price for the [product], how attractive would this price be for you? Question 2: Please write down the following number: [actual price - 5 %]. If this was the price for the [product], how attractive would this price be for you? Note: 6-point Likert-type scale with anchors 1 = very attractive, 6 = very unattractive

24. Study 2: Descriptive Results Regarding Price Knowledge % bad good Explicit Price Knowledge Implicit Price Knowledge intermediate

25. Study 2: Results of Logistic Regression Notes: * regression coefficient; ** level of significance; a) Leather Goods is the reference category

26. Study 2: Concluding Remarks • Broadened understanding of drivers of price knowledge • Importance of distinguishing explicit and implicit price knowledge after the purchase • Future research • - In which situations do customers tend to use their explicit vs. their implicit • price knowledge? • - Analysis of multi company samples Managerial Implications - Customers‘ post purchase price knowledge is partly under managerial control - A high level of customer satisfaction simplifies the implementation of price increases

27. Backup

28. Further Statistical Tests Regarding the Relevance of Satisfaction and Time Advanced model (including additionally the main effects of customer satisfaction and time) Baseline model (including only the control variables as predictors) Comparison of two models Explicit price knowledge: ² = 12.31 (df = 2), p < 0.01 Implicit price knowledge: ² = 4.23 (df = 2), p < 0.20

29. Additional Statistical Test Regarding the Relevance of the Interaction Term Advanced model (including additionally the interaction term between satisfaction and time since purchase) Baseline model (all the main effects of the predictors) Comparison of two models ² = 4.15 (df = 1), p < 0.05