the Relative Role of Service Quality - Engineering Economics (PDF)

83 ISSN 1392-2785 ENGINEERING ECONOMICS. 2006. No 1 (46) COMMERCE OF ENGINEERING DECISIONS Marketing Service Relationships: the Relative Role of Service Quality Tomas Palaima, Jūratė Banytė Kauno technologijos universitetas K. Donelaičio g. 73, LT-44029, Kaunas Increasingly, firms recognize the value of close rela- tionships with their customers because customer reten- tion in intensifying competition is more and more impor- tant. The paper analyses services quality in the new rela- tionship marketing paradigm. The article is focused on Anglo-Australian approach to relationship marketing. In this research approach the integration of quality man- agement, services marketing concepts and customer rela- tionship economics are emphasized. The article is organized in six parts. The first part is introduction. In this part research problem, the aim ant the objectives are presented. In the second part different services quality models are analyzed in order to determine how these models are adequate to changing relationship marketing paradigm. The Adequacy of service quality GAP model, the per- ceived service quality model and the Gummeson 4Q model of offering quality is analyzed. The analysis re- veals that service quality models and instruments are limited to evaluation of a service episode and are static while relationship marketing paradigm requires dynamic approach which could help to assess service quality in long-term perspective along with other relationship qual- ity dimensions. In the third part V. Liljander – T. Strandvik rela- tionship quality model (1995) is analyzed in order to identify its worth, weaknesses and strengths. The analy- sis reveals that this model is useful and helps to under- stand the main relationship quality formation princi- ples. Service quality in this model is treated not as a single variable, but as a loyalty determinant belonging to the system of determinants influencing customer loy- alty and interacting with each other. Moreover, another advantage is inclusion of customer behavior variables in addition to the perceptual variables. However, the constructs of this model are vaguely defined, there are only several loyalty determinants, and model is theo- retical. Literature analysis showed that there are more significant loyalty drivers therefore further analysis is required. In the fourth part are presented the main relation- ship quality dimensions (loyalty drivers) identified ana- lyzing and synthesizing scientific literature. In the fifth part different empirically tested models are analyzed in order to determine relative importance of these determinants on customer loyalty and to analyze the interaction of theses determinants. Keywords: services marketing, relationship marketing, quality. Introduction Tertiary economy sector is becoming more and more important, because more than 80 % percent of work force in the USA was concentrated in service (or tertiary) sec- tor. The contribution of service sector to the GDP was more than 78 % percent (M. Bitner, V. Zeithaml, 2003). Competition intensifies, consumer behavior is chang- ing, requirements for service quality is growing and tech- nologies develop very quickly. All these factors influence inadequacy of traditional marketing principles (R. Vir- vilaitė, A. Dovalienė, 2003) and provoked marketing paradigm change from transactional marketing to rela- tionship marketing (M. Christopher, A. Payne, D. Ballan- tyne, 2002). There are three broad approaches to relationship mar- keting (M. Christopher, A. Payne, D. Ballantyne, 2002): The Anglo-Australian approach, the Nordic approach and the North American approach. The first approach empha- sizes the integration of quality management, services marketing concepts and customer relationship economics. This paper will focus on this research tradition. According to R. Virvilaitė and A. Dovalienė (2002), marketing goal in this research tradition is “to maximize efficiency of service delivery and relationships between service provider and customer by managing service qual- ity and relationship quality.” The authors explain that service quality drivers and relationship quality drivers as well as customer life-time value and internal marketing are very important to this research tradition. The value to the customer is provided by perceived service quality improvements, moments-of-true management, and rela- tionship with customer’s development. In the relationship marketing paradigm quality is the concern of all and customer service along with quality of interaction are paramount. Customer satisfaction is as- sured by trading relationships (R. Varey, 2002). Accord- ing to R. Virvilaitė, A. Dovalienė (2002) and I. Gordon (1998), long-term and dynamic perspective is essential to relationship marketing. Ch. Grönroos (2000) points out that “most service quality models and instruments are basically static” while “services are processes and inherently oriented and cus- tomer’s quality perceptions develop and undergo change over time”. T. Strandvik and V. Liljander agree to this point of view (1995). T. Strandvik and V. Liljander (1995) point out that service quality models should be replaced by relationship quality models as service quality is only one construct of upper structure called relationship quality. Knowledge  84 about relationship quality dimensions or loyalty drivers are very fragmented (K. Roberts et al., 2000; ). T. Hen- nig-Thurau (2002, 2000) explains that studies of loyalty determinants-drivers (or relationship quality dimensions) can be separated into two groups: univariate and multi- variate. Univariate studies analyze relationship between loyalty and a single driver, while multivariate studies analyze relationships between loyalty and several drivers. However, the vast majority focuses on few of them. The research problem solved in this article is the determination of service quality models adequacy to the changing relationship marketing paradigm, identification of the main relationship quality dimensions (loyalty driv- ers), and determination of relative impact of services quality on loyalty along with others determinants. The aim of this work is to determine the relative im- pact of service quality to the consumer loyalty and the interaction of service quality with other consumer loyalty drivers (relationship quality dimensions). In this work service quality is analyzed not as a sin- gle driver, but as one of the dimensions of relationship quality system. The aim of this work emphasizes a sys- tematic approach to solving the problem. The objectives of this work are: 1) To analyze ser- vice quality models and to determine its adequacy to fit the relationship marketing conception., 2) To analyze the Liljander-Strandvik relationship quality model and to determine its strengths and weaknesses, 3) To identify the main relationship quality dimensions, 4) to determine the relative impact of service quality to the consumer loyalty, 5) to determine the interactions between relationship quality dimensions. The research object is service quality along with other loyalty drivers and their relative impact on loyalty. Service quality gap model Service quality research by Parasuraman and his col- leagues has led to the development of a gap model (see figure 1) that shows five kinds of quality gaps or potential breaks in the relationship linkages that lead to quality shortfalls. The management perception gap (GAP 1). This gap means that management perceives the quality expecta- tions inaccurately. This gap is due to: • Inaccurate information from market research and demand analyses. • Inaccurately interpreted information about expecta- tions. • Nonexistent demand analysis. • Bad or nonexistent upward information from the firm’s interface with its customer to management. Too many organizational layers which stop or change the pieces of information that may flow up- ward from those involved in customer contacts. • Insufficient relationship focus. • Inadequate services recovery. Figure 1. Service quality gap model (M. Bitner, V. Zeithaml, 2003) An inadequate marketing research orientation is one of the critical factors. When management or empowered employees do not acquire information about customers’ expectations, gap 1 is large. Formal and informal meth- ods to capture information about customer expectations must be developed through market research. Another key factor that is related to gap 1 is lack of upward communication. Front-line employees often know a great deal about customers; if management is not in contact with front-line employees and does not under- stand what they know, the gap widens. Also related to gap 1 is a lack of company strategies to retain customers and strengthen relationships with them, an approach called relationship marketing. When organizations have strong relationships with existing cus- tomers, GAP1 is less likely to occur. When companies focus too much on attracting new customers, they may fail to understand the changing needs and expectations of their current customers. The final key factor associated with GAP1 is lack of Word of mouth communication Personal needs Past experience Expected service Perceived service Service delivery Customer-driven service designs and standards External communications to consumers CONSUMER MARKETER GAP 4 Customer gap Company perceptions of consumer expectations GAP 2 GAP 3  85 service recovery. Even the best companies, with the best of intentions and clear understanding of their customers’ expectations, sometimes fail. It is critical for organization to understand the importance of service recovery – why people complain, what they expect when they complain, and how to develop effective service recovery strategies for dealing with inevitable service failures. The quality specification gap (GAP2). This gap means that service quality specifications are not consis- tent with management perceptions of quality expecta- tions. The quality specification gap is result of: • Planning mistakes of insufficient planning proce- dures. • Bad management of planning. • Lack of clear goal-setting in the organization. • Insufficient support for planning for service quality from top management. • Unsystematic new service development process. • Vague, undefined service designs. • Failure to connect service design to service posi- tioning. • Lack of customer defined service standards • Absence of process management to focus on cus- tomer requirements. • Inappropriate physical evidence and serviscape. The service delivery gap (GAP3). This gap means that quality specifications are not met by performance in the service production and delivery process. The service delivery gap is due to: • Specifications which are too complicated and / or too rigid. • Employees not agreeing with the specifications and therefore not fulfilling them. • Specifications not being in line with the existing corporate culture. • Bad management of service operations. • Lacking or insufficient of internal marketing. • Technology and systems not facilitating perform- ance according to specifications. • Deficiencies in human resource policies: ineffective recruitment, role ambiguity and role conflict, poor employee-technology job fit, lack of empowerment, perceived control and teamwork. • Failure to match supply and demand: failure to smooth peaks and valleys of demand, inappropriate customer mix, overrealiance on price to smooth demand. • Customers not fulfilling roles: customer ignorance of roles and responsibilities, customer negatively af- fecting each other. • Problems with service intermediaries: channel con- flict over objectives and performance, Channel con- flict over costs and rewards, difficulty controlling quality and consistency, tension between empow- erment and control. The market communication gap (GAP4). This gap means that promises given by market communication activities are not consistent with the service delivered. This gap is dues to: • Market communication planning not being inte- grated with service operations. • Lacking or insufficient coordination between tradi- tional external marketing and operations. • The organizations failing to perform according to specifications, whereas marketing communication campaigns follow theses specifications. • An inherent propensity to exaggerate and, thus, promise too much. • Lack of integrated marketing communications: ten- dency to view each external communication as in- dependent, not including interactive marketing in communications plan. Customer gap or perceived service quality gap. This gap means that the perceived or experienced service is not consistent with the expected service. Key factors leading to the customer gap are: • GAP1: not knowing what customers expect. • GAP2: not selecting the right service designs and standards. • GAP3: Not delivering to service standards. • GAP4: not matching performance promises. Perceived services quality gap results in: • Negatively confirmed quality and a quality prob- lem. • Bad word of mouth. • A negative impact on corporate or local image. • Lost business. The perceived service quality model In the perceived service quality model (see figure 2) functional and technical quality dimensions are con- nected. The functioning of technical and functional qual- ity and influencing factors is modeled. Figure 2. The perceived service quality model (Ch. Grönroos, 1998, 2001) Technical quality variable or outcome variable is WHAT customer gets while functional service variable or Image Expected quality Functional quality Technical quality Functional quality Image Total perceived quality Marketing com- munication; Sales; Image; Word of mouth; Public relations; Customer needs and values.  86 process – related variable refers to HOW customer gets. Good perceived quality is obtained when the experi- enced quality meets the expectations of the customer; that is; the expected quality. If expectations are unrealistic, the total perceived quality will be low, even if experi- enced quality measured in objective way is good. The expected quality is a function of a number of factors: marketing communication, sales, image, word of mouth, public relations, customer needs and values. When qual- ity programs, which may even include functional quality aspects, are implemented, perceived service quality may be low, or even deteriorate if the firm simultaneously runs over-promising advertising campaign The Gummeson 4Q model of offering quality The model is illustrated in Figure 3. The model inte- grates goods and services and goods are treated as part of services offered because in modern services economy it is difficult to keep goods and services apart. The model has expectations, experiences, and image and brand variables. As in perceives service quality model image refers to company image as in perceived service quality model developed by Ch. Grönroos. The brand variable adds new aspect to models of perceived quality. Whereas image is related to customers’ view of a firm, brands refers to the view of a product that is created in the minds of customers. The term “brand image” is sometimes used for this phenomenon. According to the Gummesson 4Q model of offering quality, customers’ perception of the total quality, on the other hand influ- ences image of the firm, but on the other hand it also con- tributes in a decisive way to the brand that is emerging in the minds of the customers. Figure 3. The 4Q model of offering quality (Gummesson, 1993, 2003) The two first quality concepts in the model are sources of quality. Design quality refers to how well the combination of goods and services are developed and designed. Design quality errors result in poor perform- ance and negative experiences. Production and delivery quality refers to how well services and goods are deliv- ered compared to design. The two other quality concepts form the result of the goods production and services delivery. Relationship quality refers to how the customer perceives quality dur- ing the services processes. Relational quality is closely connected to the functional quality dimension. The Lijander – Strandvik relationship quality model There are four basic ideas behind the model (see fig- ure 4): • One important aspect is the division into two levels, an episode and a relationship level. These will be discussed in detail following the description of the model. • Another issue is the relation between service qual- ity, satisfaction and service value. • The third aspect is the extended disconfirmation framework that the model is based on. • The fourth aspect is the inclusion of variables de- scribing customer behavior variables in addition to the perceptual variables. The lower part of the model is related to the percep- tion of service quality in a single service encounter or episode. An episode can be defined as an event of interaction which has a clear starting point and an ending point and represents a complete service exchange. Within the epi- sode there can exist several interactions (acts). It is clear that the operationalization of episodes vs. acts should be service-specific. The term episode is defined as having four elements: a) product or service exchange; b) infor- mation exchange; c) financial exchange and d) social ex- change. The service experienced in a service encounter can be compared to any comparison standard, not only to pre- dictive expectations as is traditionally the case in service quality models, or it can be compared to no comparison standard, depending to what seems to generate most valid result. Episode performance can be within tolerance zone or it can drop below adequate service – the minimum level considered acceptable. If episode performance is out of adequate service level, the customers will be frustrated. By comparing the episode quality that emerges with the customer perceived sacrifice the customer forms his (or organization’s) perception of value for him provided by the episode. This in turn leads to satisfaction or dissatis- faction with the service. The satisfaction with a given service encounter (episode) influences the future behav- ior of the customer. The customer-perceived episode-level value, as well as bonds that exists, influence the customer’s image of the service provider. The image incorporates the custom- ers’ old and recent experiences with the firm and builds a bridge to the relationship level of the model. The image functions as a filter when customer perceives the next episode or service encounter. Perceptions of quality and value of episodes or service encounters following each other accumulates into per- ceived quality of the relationship Expectations Image, Brand Experiences Design quality Production and delivery quality Relationship quality Technical quality Customer immediate and long – term perceived quality  87 Figure 4. The Liljander – Strandvik relationship quality model (V. Liljander, T. Strandvik, 1995) According to the Lijander – Strandvik model the cus- tomer compares the firm’s ongoing performance in sub- sequent service encounters (relationship performance) with a comparison standard and, based on that compari- son to customer-perceived long-term sacrifice (relation- ship sacrifice) the value of the relationship at a given point in time is perceived (relationship value). This af- fects long-term satisfaction with the service provider (re- lationship satisfaction), which in turn feeds into the im- age on the on hand and into future behavior (loyalty and commitment) on the other hand. This influence the for- mation of bonds between customer and service provider. There are: economic, technological, geographic, time, knowledge, social, cultural, ideological and psychological bonds. The model very well explains the principles of rela- tionship quality formation, but only interactions of qual- ity, satisfaction and value are analyzed. Moreover, the model is theoretical and not tested empirically. According to T. Hennig-Thurau et. al (2002) and R. Brodie et al (2003), the analysis of loyalty drivers should be based on multivariate approach, because there are many different loyalty drivers. In the next section of this article con- sumer loyalty drivers (or relationship quality dimensions) will be analyzed. The analysis of relationship quality dimensions (consumer loyalty drivers) Relationship benefits. The existing literature on re- lationship benefits is predominantly of an exploratory kind (T. Hennig-Thurau, 2002). According to V. Lil- jander (2002), relationship benefits are perceived advan- tages that the regular customer receives over and above the core service. These are rewards that the individual has gained over the time by being a regular customer. The benefits tie customer to the company by making it unat- tractive to switch service providers. An empirical study of different services by Gwinner et al. (1998) identified a number of relationship benefits that were reduced to three main categories: 1) confidence / trust, 2) social benefits, 3) special treatment benefits. Confidence / trust benefits were found to be most impor- tant, followed by social benefits and special treatment. According to Berry (2000) relationship marketing relies primarily on social bonds (or benefits), which involve regular communication with customers and service conti- nuity through personal service representative. According to T. Hennig – Thurau (2000), social benefits pertain to the emotional part of the relationship and are characterized by personal recognition of customer Episode value Relationship value Relationship quality Comparison stanydard Zone of tolerance Relationship quality Relationship sacrifice Relationship satisfaction BEHAVIOR • Loyalty • Commitment BONDS IMAGE / COMMITMENT Relationship performance Episode quality Comparison standard Zone of tolerance Episode quality Episode sacrifice Episode satisfaction Episode performance  88 by employees, the customer’s own familiarity with em- ployees, and the creation of friendships between custom- ers and employees. Confidence benefits refer to percep- tions of reduce anxiety and comfort in knowing what to expect in the service encounter. Special treatment bene- fits take the form of relational consumers receiving price breaks, faster service, or individualized additional ser- vices. These benefits exist above and beyond the core service provided. Trust. V. Liljander and Morgan and Hunt (1994) de- fine trust as “confidence in an exchange partner’s reli- ability and integrity. K. Roberts, S. Varki and R. Brodie (2003) classify it into trust in partner’s honesty and trust in partner’s benevolence. Trust in partner’s honesty is described as “one party’s belief that their needs will be fulfilled by the other party in the future” and requires a judgment as to the integrity and reliability of an exchange partner. Trust in partner’s benevolence is described as “extend to which the firm is concerned for the customer’s welfare and has intentions ant motives beneficial to the customer when new conditions arise for which a com- mitment has not been made”. R. Varey (2001) explains that “trust is confidence of desirable outcomes from in- teracting with another, based on predictability, depend- ability, and faith”. The marketing task is to engender a feeling of reliance. V. Liljander (2002) and Johnson and Grayson (2000) list four different sources of trust and distrust: 1) general- ized trust, based on the firm’s reputation, 2) personality – based trust, 3) system based trust, focused on regulating authorities, 4) process–based trust, arising from interper- sonal or customer – firm interaction. Finally V. Liljander classifies trust into calculus based trust, knowledge based trust and identification based trust and gives qualitative examples derived from qualitative study: • Calculus based trust. Customers with calculus based trust have trust in the service provide because they believe in to be in the provider’s best interest not to suffer the loss of reputation and profits that a violation of trust would lead to. They believe in the benevolence of the provider, but the belief is based on the cost of deterrence. Even small inconsisten- cies in performance could have a large detrimental effect on trust perceptions. Calculus based trust may take different forms for different services, but we feel that it is unlikely to be combined with high af- fective commitment. • Knowledge based trust. According V. Liljander, knowledge based trust is based on knowing the ser- vice firm well and being able to anticipate its ac- tions. This type of trust can be related to knowledge bonds in Liljander–Strandvik relationship quality model (1995) (see Figure 5) and confidence bene- fits, described by Gwinner et al. (1998). V. Lil- jander point out that effective two-way communica- tion is important to knowledge related bonds be- cause it ensures that parties exchange information about their preferences and approaches to problems. It means that customers have to be willing to share information with the company, and the company has to be willing to learn about customers’ needs and problems and to develop it services accord- ingly. • Identification based trust. V. Liljander explains that customers with identification-based trust have full confidence in the service company and believe that it will act in their best interests. The service pro- vider has in-depth knowledge of customers’ needs and desires and customer perceive that their desires are fulfilled. V. Liljander explains that shared val- ues characterize this type of trust, and customers tend to defend the company against criticism. Iden- tification based trust can be linked to the cultural and ideological bonds in the Lijander-Strandvik model of relationship quality (see Figure 5). According to T. Hennig – Thurau (2002), trust cre- ates benefits for the customer (e.g., relationship effi- ciency through decreased transaction costs) that in turn foster his or her commitment and loyalty to the relation- ship. J. Crotts and G. Turner (1999) point out that there are five types of trust: 1) blind trust, 2) calculative trust, 3) verifiable trust, 4) earner trust, 5) reciprocal trust. The authors explain that blind trust is related with the lowest degree of commitment while reciprocal trust has the highest degree of commitment. Blind trust is based upon a lack of knowledge or per- haps some other irrational basis. The antecedents of blind trust are: reputation and interdependence / power. Power imbalance is defined as the ability of one partner to get the other partner to do something they would not nor- mally do. Power imbalance is directly related to the de- gree of one partner’s dependence on the other partner. Calculative trust is based upon the costs and or bene- fits of cheating or staying in a relationship. The antece- dents of calculative trust are interdependence/power and mutual goals. J. Crotts and G. Turner (1999) define the concept of mutual goals as “the degree to which partners share goals that can only be accomplished in an environ- ment of trust where joint action and maintenance of the relationship is desired by both parties”. These mutual goals provide a strong reason for trust and relationship continuance. Verifiable trust is based upon the ability of one firm to verify the actions of another. The antecedents of this type of trust are: mutual goals and adaptation. According to J. Crotts and G. Turner, adaptation Adaptation occurs when one party in a relationship alters its processes or the item exchanged to accommodate the other party. They expect that adaptation behavior will vary over the life of the intra-firm relationship. In the early states it will be a means to develop trust, and in the mature stage it will expand and solidify the relationship. Earned trust is based upon some experiential basis. That is, one party trusts the other because the other party trusts them. The antecedents of earned trust are: adapta- tion, non-retrievable investments, performance satisfac- tion and communication. Non-retrievable investments are defined as the relationship specific commitment of re- sources which a partner invests in the relationship. These non-retrievable investments (capital improvements, train-  89 ing, and equipment) cannot be recovered if the relation- ship terminates. The existence not only of these non- retrievable investments, but also of the amount at stake, creates hesitancy within the parties to terminate a rela- tionship. Reciprocal trust. Finally, reciprocal trust is based upon the participants possessing mutual trust. That is, one party trusts the other because the other party trusts them. The antecedents of reciprocal trust are: communication, cooperation, social bonds and structural bonds. Co- operation has been defined as, similar or complementary coordinated actions taken by firms in interdependent rela- tionships to achieve mutual outcomes or singular out- comes with expected reciprocation over time. Structural bonds develop over time as the level of the investments and adaptations grows until a point is reached when it may be very difficult to terminate a relationship. Commitment. Morgan and Hunt (1994) and C. Crotts and B. Turner (1999) define relationship commit- ment as: “an exchange partner believing that an ongoing relationship with another is so important as to warrant maximum efforts at maintaining it; that is, the committed party believes the relationship is worth working on to ensure that it endures indefinitely”. R. Varey (2001) ex- plains that commitment motivates effort to preserver a relationship and to resist alternative offers, while viewing high-risk action as prudent in the absence of opportunistic behavior – founded on satisfaction and investment. It may be influenced by the actions of third parties (compet- ing others, etc.). M. Wetzels et al. (1998) points out that there are two types of commitment: affective commitment and calcula- tive commitment. According to M. Wetzels et al. (1998) affective com- mitment is an affective state of mind an individual or partner has towards relationship with another individual or partner. Affective commitment is based on a sense of liking and emotional attachment to the partnership. Other type of commitment according M. Wetzels et al. is calculative commitment. The others point out that calculative commitment is based on inputs like invest- ments and allocation of recourses specifically for rela- tionship between two business partners. M. Wetzels et al. suggests that affective commitment is the most effective for developing and maintaining mu- tually beneficial relationships between partners because affective commitment has strong positive influences on: 1) intention to stay in a relationship, 2) desire to stay in relationship, 3) performance, 4) willingness to invest in relationship. Also affective commitment has negative influences on developing of alternatives for a relationship and opportunistic behavior while calculative commitment has positive impact on development of opportunism and alternatives and therefore has negative impact on rela- tionships. V. Liljander and I. Roos (2002) point out that there are spurious customer relationship and true customer re- lationship. According to V. Liljander and I. Roos (2002), a true customer-service relationship “is (1) the biased (i.e. no random) (2) behavioral response (purchase, word of mouth, information sharing, and other positive behav- iors), 3) expressed over time, 4) by some decision making unit, 5) with respect to one services provider out of a set of such providers, which (6) is a function of psychologi- cal (cognitive and affective) processes, including pres- ence of trust, relationship benefits and the absence of negative bonds, resulting in service provider commite- ment”. Figure 5. Customer relationship levels matrix (V. Liljander, I. Roos, 2002) Spurious service-relationship is defined by the au- thors as “the biased (i.e. non random) (2) behavioral re- sponse (i.e. purchase), 3) expressed over time, (4) by some decision-making unit, (5) with respect to one or more alternative service providers out of a set of provid- ers, which (6) is a function of inertia, trust deficit, weak or absent relationship benefits and/or the existence of negative bonds.” V. Lijander and I. Roos states that customers in both true and spurious relationships may be equally satisfied, but with a different degree of commitment expressed as the number of service providers and affective commit- ment. In the figure 5 is presented customer relationship lev- els matrix. The matrix created by V. Liljander and I. Roos integrates affective commitment, trust and rela- tional benefits. There are 8 customer relationship levels depending on commitment, trust and relational benefits interconnections configuration. Quadrants 2 and 3 in the matrix represent true ser- vice-relationship with strong attachment based on rela- tional benefits and trust while other quadrants could be looked on as opportunities for development towards a stronger relationship. Satisfaction. Service quality and customer satisfac- tion terms are used interchangeably, but consensus are growing that the two concepts are fundamentally differ- ent in term of underlying causes and outcomes (T. Hen- nig-Thurau et al, 2002). The predominant view is that “quality is the logical predecessor to satisfaction” (Iacobucci et al., 1996). T. Strandvik and V. Liljander (1995) defines satisfac- tion as customer’s cognitive and affective evaluation based on their personal experience across all service epi- sodes of within the relationship. K. Roberts et al. explains that satisfaction is a summary measure that provides an evaluation of the quality of the quality of all past interac- tions with the service provider and, in doing so, shapes expectations about the quality of future interactions.  90 M. Bitner and V. Zeithaml (2003) point out that ser- vice quality focuses specifically on dimensions of service and is component of customer satisfaction whereas satis- faction is a broader concept. Figure 6 illustrates distinctions between the two con- cepts. Service quality is a focused evaluation that reflects the customer’s perception of elements of service such as interaction quality, physical environment quality and out- come quality. These elements are evaluated based on ser- vice quality (SERVQUAL) dimensions: reliability, assur- ance, responsiveness, empathy and tangibles. From the figure 6 it is clear that satisfaction is influenced by per- ception of service quality, product quality and price. There are situational and personal factors, which have influence on satisfaction. Figure 6. Customer perceptions of service quality and satisfac- tion (M. Bitner, V. Zeithaml, 2003) R. Rust, A. Zahorik and T. Keningham (1996) agree that service quality is antecedent of customer satisfaction. The model of chain effects of service quality on profits through retention explains this relationship. There are seven elements in the chain: 1) spending on service qual- ity, 2) Improved service performance, 3) Increased cus- tomer satisfaction, 4) increased customer retention, 5) increased market share, 6) Increased revenues and 7) in- creased profits. The model explains the chain of effects from spending on service quality to increased profits. The analysis of relationship quality dimensions interactions and services quality influence on loyalty An integrative model of the determinants of key rela- tionship outcomes suggested by T. Hennig-Thurau et al. (2002), explains more than 81 % of the variance in the customer loyalty construct and more than 35 % of the variance in the word-of-mouth construct. Numbers in the model (see Figure 7) are path coefficients. Path coeffi- cients show the impact of one construct onto another con- struct. It is clear that in this model four constructs have significant direct impact on loyalty: satisfaction, com- mitment, confidence benefits / trust, and social benefits. Path coefficients show that satisfaction has the strongest impact on consumers loyalty, followed rather closely by commitment, social benefits and confidence benefits / trust. It is clear that special treatment benefits have no significant direct impact on loyalty. Satisfaction has the strongest influence on word-of-mouth followed by com- mitment. The model created by T. Hennig-Thurau et al. sup- port confidence benefits having a strong impact on satis- faction, whereas satisfaction is not influenced by either social or special treatment benefits. Commitment is significantly influenced by social benefits and special treatment benefits. Satisfaction has the strongest impact on loyalty both directly and indirectly through confidence benefits. Trust / confidence benefits have a limited direct im- pact on loyalty, but they have the second strongest total effect on loyalty. Social benefits influence loyalty indi- rectly through commitment construct. Special treatment benefits don’t influence loyalty neither directly nor indi- rectly via mediating variables. Figure 7. An integrative model of the determinants of key rela- tionship marketing outcomes (T. Hennig-Thurau, K. Gwinner, D. Gremler, 2002) U. Hansen, T. Hennig-Thurau and F. Larsen (2001) suggested the relationship quality based student loyalty model (See figure 8). In this model between 74 % and 78 percent of student loyalty is explained through the sug- gested constructs of the model therefore the results broadly confirm the proposed structure of RQSL model. The model and its structure are based on linear structural equation approach. Figure 8. The relationship quality-based student loyalty model (T. Hennig-Thurau, M. Larsen, U. Hansen, 2001) Trust in institution’s personnel Perceived quality Cognitive commitment Integration into academic system Emotional commitment Goal commitment Integration into social system Job commitment Family commitment Commitment to non- university activities LOYALTY -.00 .16 .56 .38 .72 .39 -.08 .29 .08 .01 .08 -.11 .11 SERVQUAL dimensions Service quality Physical environment quality Outcome quality Product quality Price Satisfac- tion Situational factors Personal factors Interaction quality  91 The model explains, that service quality is determi- nant which has the strongest impact on loyalty construct, followed by emotional commitment to the institution. The path coefficient of this relationship is the strongest (0,56). Trust construct has no direct influence on loyalty, but trust has influence on emotional commitment which is above average. Emotional commitment has strong influ- ence on loyalty therefore it possible to make deduction that trust has rather small indirect influence on loyalty through commitment construct. Interestingly, emotional commitment has rather small impact on loyalty construct. The authors of the model explains that that if a customer of university services (student) is locked in a relationship against his or her will, then his or her loyalty to the rela- tionship partner declines after that student is “set free”. Goal commitment has weaker impact on loyalty than ser- vice quality and emotional commitment, but the influence is still positive and strong. Model explains that both academic and social inte- gration has a positive impact on emotional commitment. The path coefficient explaining relationship between emotional commitment and academic integration con- structs is positive and significant (0.29), therefore it is possible to make deduction that this construct is impor- tant sub-driver of emotional commitment. In contrast social integration has positive but rather small impact on emotional commitment, therefore this construct has lim- ited impact on emotional commitment. It is clear that neither student’s job commitment nor family commitment has no significant negative impact on emotional commit- ment, therefore these constructs are not negative sub- drivers of emotional commitment. Interestingly, com- mitment to non-university activities construct has signifi- cant negative impact on emotional commitment. It means that this construct is significant negative sub-driver of emotional commitment. Another model based on linear structural equation method, which models the impact of different determi- nants of loyalty and the interrelationships of these differ- ent constructs is conceptual model suggested by M. Wet- zels, K. Ruyter and M. Birgelen (25) (see Figure 9). The model proves that significant positive relationship between satisfaction and affective commitment exists (path coefficient=0.19). Furthermore, satisfaction has significant impact also on calculative commitment construct. Model explains that higher technical quality of the service will result in higher commitment because techni- cal quality construct has strong impact on commitment (path coefficient=0.16). Interestingly, there is no signifi- cant impact of functional quality on commitment. Both technical and functional dimensions of quality have no significant impact on calculative commitment. A positive relation exists between technical quality and satisfaction (path coefficient=0.33). The same applies to functional quality (path coefficient=0.16), but technical quality has stronger impact. The model explains that there is strong positive rela- tionship between trust (benevolence) and affective com- mitment (path coefficient=0.28). Trust also has signifi- cant impact on calculative commitment (path coeffi- cient=0.40. It is proved that honesty is significant deter- minant of affective commitment (path coefficient=0.33) and lowers the level of calculative commitment, because there is a significant negative relationship between these two constructs (path coefficient=-0.23). The more a cus- tomer depends on its service provider, the higher its cal- culative commitment in the relationship with that partner, and therefore the more it will be balancing gains and losses of that relationship. This is proved by relationship between dependence and calculative commitment con- structs (path coefficient=0.30). Figure 9. Conceptual model (M. Wetzels, K. de Ruyter, M. van Birgelen, 1998) Interestingly, there is no relationship between satisfac- tion and intention to stay. This fact contradicts to the rela- tionship between satisfaction and loyalty in the model sug- gested by T.Hennig-Thurau et al. (2002) (see Figure 7). In this model both types of commitment do influence the in- tention to stay, but affective commitment has stronger im- pact (path coefficient 0.39 and 0.14 respectively). To compare relationship quality and services quality impact on loyalty K. Roberts, S. Varki and R. Brody (2003) developed conceptual model (see Fugure 10). Four Items for measuring consumer loyalty were adapted by authors from Zeithaml, namely, consumer in- tention to say positive things about service provider, inten- tion to encourage friends and relatives to do business with service provider, intention to keep purchasing services from service provider, and intention to purchase additional services from service provider. 5 items for measuring rela- tionship quality were derived from various authors. Theses dimensions were analyzed in previous sections of this pa- per. Service quality was measured using SERVQAUL di- mensions, suggested by V. Zeithaml, V. Berry and L. Parasuraman: Tangibles, reliability, responsiveness, assur- ance, and empathy. The model explains that service quality influences relationship quality (path coefficient=1.36). Relationship quality in turn has significant impact on loy- alty (path coefficient=0.52). Interestingly, there is no direct effect of service quality on loyalty (path coefficient=-0.1), but direct effect is completely mediated by relationship quality, therefore its possible to make deduction that rela- tionship quality scale completely subsumes the effect of the service quality scale. Intention to stay Technical quality Functional quality Satisfaction Trust benevolence Trust honesty Dependence Affective commitment Calculative commitment  92 Figure 10. The influence of service quality on relationship quality and loyalty (R. Brodie, K. Roberts, S. Varki, 2003) Conclusions 1. In the literature published service quality models have serious weaknesses. Service quality models and instruments are limited to evaluation of a ser- vice episode and are static. Relationship marketing paradigm requires dynamic approach, which could help to assess service quality in the dynamic long- term perspective along with others relationship quality dimensions. The perceived service quality model is basically static, although image factor gives the model dynamic aspect. The Gummeson 4Q model of offering quality is basically static too, but relationship quality and image variables gives model dynamic aspect. The advantage of servqual or gaps model is that that this model explains very clearly service quality and its dimensions on the episode level. Also the sources of bad service quality at the episode level are explained very clear. These models should be integrated into more advanced loyalty models as dimensions, having in- fluence on consumer loyalty. 2. The analysis of theoretical relationship quality model suggested by V. Liljander and T. Strandvik (1995) showed that this theoretical model is useful and helps understand main relationship quality formation principles. The model is dynamic and focusing on long-time approach. Service quality in this model is treated not as a single variable, but as a loyalty determinant belonging to the system of determinants influencing customer loyalty and in- teracting with each other. Another advantage is the inclusion of variables describing customer behav- ior variables in addition to the perceptual vari- ables. However, model has weak points. The con- structs of the model is very vaguely defined and there is only several loyalty determinants while literature analysis showed that there are more pos- sible significant loyalty drivers. Another weak point of this model is that the model is theoretical and there is no accompanying measurement scale similar to servqual and gaps model. 3. The analysis of fundamental research works helped identify these main possible relationship quality dimensions: functional and technical ser- vices quality, satisfaction, social benefits, special treatment benefits, calculus based trust, knowledge based trust, identification trust, calculative and af- fective commitment. 4. The analysis of fundamental research works showed that services quality is fundamental rela- tionship quality dimension and consumer loyalty driver having the biggest influence on it. No one loyalty determinant has strongest influence on it (0.56). Empirically tested the relationship quality based student loyalty model suggested by T. Hen- nig – Thurau prooved the main hypothesis of theo- retical V. Liljander and T. Strandvik (1995) model that service quality is main consumer loyalty driver. Second by importance customer loyalty driver is satisfaction. Interestingly both constructs have direct impact on loyalty and indirect through commitment construct. Exception is model sug- gested by M. Wetzels et al. where satisfaction has only indirect impact on loyalty through affective commitment. This difference may exist because of very different services were tested. Services qual- ity also is important antecedent of trust and trust / confidence benefits have very significant impact on satisfaction. It means that services can influ- ence satisfaction indirectly through trust. References 1. Berry, L. Relationship marketing of services – growing interests, emerging perspectives: Handbook of relationship marketing. London: Sage publications, p. 149-170. 2. Brodie, R. Measuring the quality of relationships in consumer ser- vices: an empirical study/ R. Brodie, K. Roberts, S. Varki // European Journal of Marketing, 2003, No 37, p. 196-196. 3. Christopher, M. Marketing relationship: creating shareholder value/  93 M. Christopher, A. Payne, D. Ballantyne. Oxford, 2002. 242 p. ISBN 0-7506-4839-2. 4. Crotts, J. Determinants of intra-firm trust in buyer-seller relationships in the international travel trade / J. Crotts, G. Turne // International Journal of contemporary hospitality management, 1999, No 2, p. 116-123. 5. Gordon, Ian H. Relationship marketing: new strategies, techniques, and technologies to win the customers you want and keep them for- ever. Toronto etc, 1998. XX. 314 p. ISBN 0-471-64173-1. 6. Grönroos, Ch. From marketing mix to relationship marketing-- towards a paradigm shift in marketing // Management Decision. 1997, No 3/4, p. 322. ISSN: 0025-1747. 7. Grönroos, Ch. Marke...