enhancing value for chinese shoppers: the contribution of store and customer characteristics

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Journal of Retailing and Consumer Services 16 (2009) 123–134

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Journal of Retailing and Consumer Services

0969-69

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journal homepage: www.elsevier.com/locate/jretconser

Enhancing value for Chinese shoppers: The contribution of store andcustomer characteristics

Amy Wong a,�, Alison Dean b,1

a Universitas 21 Global, 5 Shenton Way, #01–01, UIC Building, Singapore 068808, Singaporeb Faculty of Business & Law, The University of Newcastle, Callaghan, NSW 2308, Australia

a r t i c l e i n f o

Keywords:

Perceived value

Customer orientation

Consumer price consciousness

Customer loyalty

Retail

China

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esponding author. Tel.: +65 6410 1316; fax: +

ail addresses: [email protected] (A

[email protected] (A. Dean).

l.: +61 2 49217393; fax: +61 2 49216911.

a b s t r a c t

This study tested the relationships between store and customer characteristics with perceived value and

customer loyalty in retailing in China. Survey data were collected from shoppers in department stores

(n ¼ 200) and supermarkets (n ¼ 200) in the tier 2 coastal city of Tianjin. Data for each type of store

were analysed separately using structural models. In supermarkets, value was predicted by quality and

price, but for department stores, only the customer orientation of the store was significant, suggesting

that customers seek different shopping experiences in each context. In each case, value mediated the

links to loyalty and, for supermarkets, choice of merchandise and consumer time pressure

demonstrated direct links to loyalty. The paper discusses the implications of the findings, and

concludes with possible future research.

& 2008 Elsevier Ltd. All rights reserved.

1. Introduction

The past two decades have seen enormous growth in retailactivity in China, facilitated by the transition to a marketeconomy, deregulation and direct foreign investment. In 1992,the central government opened China’s retail market to foreigninvestors, providing the impetus for retail development andaccess to more than a billion consumers (Wong and Yu, 2002).Since then, international retail giants such as Carrefour, Metro andWal-Mart have established and expanded their presence in themore developed areas along the east coast (Liu, 2007). The retailsector continues to grow, with projections of a 34% increasebetween 2008 and 2012, to reach a total value of over RMB7.54trillion (Business Wire, 2008). This growth has involved a shift offocus for supermarkets and department stores from overseasvisitors to the local community and a resultant increase in theimportance of these stores to the retail industry (Chain Store Age,2008; Lo et al., 2001).

In tandem with the expanding market economy in China, thespending power of urban residents has risen dramatically witha fivefold increase of real income over the past two decades(Chan et al., 2007; Veeck and Burns, 2005). Correspondingly, thestandard of living of the population has increased markedly(Wong and Yu, 2002), providing the opportunity for a ‘shoppinglifestyle’. For example, in 2005, China Resources EnterpriseLimited, which operates more than 1700 supermarkets and

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65 6410 1358.

. Wong),

hypermarkets in China, opened four ‘lifestyle’ stores offeringhigher-quality products targeting the growing middle class, withplans for an additional 20 such stores within 3 years (Robertset al., 2005), while in 2007, Solana, China’s first lifestyle centreopened in Beijing, representing a new direction in China’sburgeoning retail development scene (Hazlett, 2006). The growthin retail activity and consumer income in China has stimulatedresearch but most studies have centred on foreign retailers’international activities and the development of coastal regions(Liu, 2007). We respond to the call for consumer studies. As Wongand Yu (2002, p. 371) stated

With the largest consumer market in the world in terms ofpopulation, understanding the consumption and shoppingpatterns of China’s huge population is crucial to the successof existing retailers and potential investors.

Scholars note that China is not a single homogeneous market(Au-Yeung and Henley, 2003; Zhang et al., 2008). For instance,there exists income disparity between the coastal cities and thoselocated in central and western China, and between large cities andtowns (Au-Yeung and Henley, 2003). Zhang et al. (2008, p. 378)state that most studies use the ‘‘coastal-inland dichotomy basedon industrialization’’ and they emphasise the need to take accountof the personal values of Chinese shoppers. The influence ofexposure to a shopping lifestyle has been acknowledged for manyyears, with studies showing that consumers in the south, who aremore exposed to foreign mass media, especially from Hong Kong,demonstrate different buying behaviours to northern and centralChina (Tsang et al., 2003; Yip, 1995). Additionally, consumerneeds vary considerably with the socio-economic and cultural

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A. Wong, A. Dean / Journal of Retailing and Consumer Services 16 (2009) 123–134124

differences among markets, and they modify over time as thepersonal situation and market experiences of the consumerchanges (Kim et al., 2002; Tai, 2005; Zhang et al., 2008). Thus,the Chinese retail market presents a dynamic and complexchallenge for researchers.

Some recent consumer studies have been reported (e.g.,Chaney and Gamble, 2008; Tai, 2005; Zhang et al., 2008; Zhouand Wong, 2003) but, in general, China is a rapidly expanding andrelatively untested retail market, where ‘‘most [research andstudies] have centred on foreign retailers’ international activitiesand the development of coastal regions’’ (Liu, 2007, p. 410). Thisfocus provides much scope for research into the major prefer-ences, priorities, and future shopping intentions of Chineseconsumers. Consequently, the aim of this study is to investigatethe emerging consumption patterns in one region of China bytesting the relative effects of store and customer characteristicson perceived value and customer loyalty. Specifically, hypothesesrelating to the relationships between store characteristics (i.e.,quality and choice of merchandise, service orientation, andcustomer orientation) and customer characteristics (i.e., priceconsciousness, time pressure, and consumer relationship prone-ness) and their relative effects on perceived value and customerloyalty are examined.

The paper is organised as follows. First, we present a review ofthe literature and emergent gaps; we then develop a conceptualmodel and hypotheses, to address the gaps and guide the study.Next, we outline the methodology of the project, and providedetails of the validity and reliability of the scales. The resultssection includes the testing of the structural models andhypotheses, followed by discussion and managerial implications.The paper concludes with limitations and suggestions for futureresearch.

2. Literature review

2.1. Chinese consumers

As noted in the Introduction, China offers great retailopportunities because it is the world’s most rapidly expandingconsumer market and, over the past decade, retail purchasing hasgrown by about 13% a year (Chaney and Gamble, 2008; Editorial,McKinsey Quarterly, 2006). This retail growth is fuelled by theenlarging well-off middle class, which is expected to double insize by 2020 (Chaney and Gamble, 2008). More specifically,the emerging upper middle class is expected to increase to 520million shoppers over the next two decades, with spending powerthat will dwarf all other segments and be prevalent through-out many of China’s cities (Editorial, McKinsey Quarterly, 2006;Farrell et al., 2006). In 2006, Farrell et al. noted that 77% of urbanChinese households lived on less than 25,000 renminbi a year(below a consumer threshold) but they estimate that by 2025this figure will drop to 10%. Consequently, China is evolvingfrom a relatively monolithic, poor country into a vibrant market-place with complex and rapidly developing consumer segments(Farrell et al., 2006).

As average incomes increase in China, the spending patternsof different consumer groups are likely to evolve, both as a resultof, and leading to greater choice and changing tastes. Chan et al.(1997) suggested that the growth in income and consumptionin China is likely to follow the same pattern as in Thailand andTaiwan. That is, a shift in spending towards clothing, consumerdurables (appliances, furnishings), personal care products, andhousehold goods. Chan et al. (1997, p. 207) also projected thatspending on food would grow, with changes in the type of food(e.g., more processed and packaged food such as branded soy

sauce and frozen dumplings). Cheung and Grant (2006) reportsuch changes in the dairy industry, where China’s consumers areadopting the purchasing habits of their Asian neighbours andseeking higher value-added products such as milk beverages,cheese, and yogurt. They predict that by 2011, revenues from salesin these areas will grow by 22%, 38%, and 31% a year, respectively.These changing consumer tastes and the country’s increasingaffluence provide significant opportunities for supermarkets anddepartment stores, discussed next.

Large stores, including chains, have enjoyed success in China.The French retailer Carrefour entered China in 1995 and is nowthe leading foreign retailer with 71 hypermarkets; Wal-Mart(USA) is second and Metro (Germany) third (Chaney and Gamble,2008, p. 172). When predicting the likely success of departmentstores in China, Chan et al. (1997, p. 208) stated that ‘‘departmentstores are a well established and popular format compared withother Asian countries where department stores market penetra-tion is low’’. In general, this has proven true with modern large-scale outlets offering many goods and professional service.Cheung and Grant (2006) noted that in 2000, modern grocery-retailing formats accounted for one-fifth of packaged-goods salesin urban China and this proportion grew to about one-thirdby 2004. They predict that by 2010, nearly two-thirds of China’sdairy sales will come through supermarkets, compared with 40%in 1998. Additionally, Liu (2007) found that more and moreChinese nationals are shopping in chain stores and demonstratinggreater trust in them than before. However, the market is not justlimited to affluent women in coastal cities seeking brandedcosmetics and fashion, the chain store concept is also reachinginto the countryside where older shoppers can meet their needs inpleasant, air-conditioned department stores with greater selec-tions (Chan et al., 1997; Liu, 2007). Therefore, both supermarketsand department stores are important contributors to the in-creased consumption in China, and spreading throughout thecountry. Thus, these types of stores were selected as the contextof the current study.

One of the main issues in designing a study in China isto acknowledge, and endeavour to understand, the diversity ofconsumption behaviour throughout the nation. Scholars recognisethat China is a continental economy with substantial differencesin climate, culture, tastes, and consumer preferences acrossregions (Chaney and Gamble, 2008; Walters and Samiee, 2003).In discussing the ‘‘landscape and mindscape’’ of China’s retailindustry, Liu (2007) discusses different notions of the fragmentedmarket, including a ‘‘seven region typology’’ from earlier work.Another approach to segmentation is the tier system based onlevel of economic development. The first tier includes Shanghai,Shenzhen, Guangzhou, and Beijing; second tier cities are the next40 cities (primarily provincial capitals), while third tier are thenext 60 (Chaney and Gamble, 2008; Cheung and Grant, 2006).Significant growth is expected from the latter two groups. Forexample, Cheung and Grant (2006) project that 70% of the growthin net revenues in dairy sales will come from the second and thirdtiers. Finally, Lane et al. (2006) extend the discussion to brand andfashion conscious ‘‘aspirants’’ in China’s small cities and towns.This group, numbering 135 million, roughly equals the totalpopulation of the first and second tier cities (137 million) andtheir average household incomes are comparable. Lane et al.(2006) found that aspirants are just as likely as those in the biggercities to visit supermarkets, and that they are making largehousehold purchases.

In summary, we conclude that China is made up of many retailsegments, with characteristics and consumer behaviour that arestill being debated, but are recognised as rapidly changing.Incomes are increasing, tastes are changing, and foreign and localinvestment in chain stores is continuing with considerable

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Store characteristics• Quality of merchandise• Choice of merchandise• Service orientation• Customer orientation

Customer characteristics• Price consciousness• Time pressure• Consumer relationship

proneness

Perceived Value

Customer Loyalty

A. Wong, A. Dean / Journal of Retailing and Consumer Services 16 (2009) 123–134 125

success. Additionally, shopping plays a significant role in Chineseconsumers’ lives and consumers’ interaction with the shoppingenvironment has been shown to influence their experiences andpatronage decisions (Mai and Zhao, 2004; Zhang et al., 2008).However, most of the literature has focused on areas such asforeign investment, risks and opportunities (Liu, 2007; Wongand Yu, 2003); country of origin (Chaney and Gamble, 2008); andcorporate image reflecting status and modernity (Au-Yeung andHenley, 2003). More recently, Zhang et al. (2008) exploredpersonal value differences and buying, but few studies haveexamined consumer preferences and their implications forrepurchase behaviour. We aim to address this gap by identifyingthe factors that provide value to Chinese consumers, and the likelyimpact on their loyalty. These two aims direct us to two majoroutcome variables for the study: value and loyalty, which arediscussed in the next section.

Fig. 1. Conceptual model.

2.2. Value and loyalty in retail contexts

Scholars reinforce the importance of enhancing value indifferent contexts. For example, Lin et al. (2005) alleged thatmarketers should consider value as a focus of interest because it isa strategic imperative for firms, and Swait and Sweeney (2000)stated that creating value is a source of differentiation thatretailers can profitably utilise. Also referring to retailers, Zhanget al. (2008) noted that to increase their likelihood of successin a changing market, managers need to understand Chineseconsumers and how they interpret value. However, consumerstudies that aim to do this appear to be lacking.

Value is conceptualised for this study in terms of thecustomer’s assessment of the utility of a product, based ongive–get components (the benefits of a goods/service packagecompared to the associated sacrifices or consumer costs)(Zeithaml, 1988). Value has also been defined as the trade-offbetween performance (quality) and price (Sweeney and Soutar,2001). However, Lin et al. (2005) noted that debate is stilloccurring about how to conceive and measure value. They testedthree models and, based on their findings using eTail service valuedata, proposed a formative second-order and reflective first-order specification of value. Adopting this approach means thatwe need to identify the factors that lead to value, as perceivedby customers, as well as understanding and measuring an overallassessment of value. In previous studies, the overall assessmentof value has emphasised a ‘value-for-money’ approach (see,for example, Dodds et al., 1991; McDougall and Levesque,2000; Sweeney et al., 1999). We also adopt this approach.Therefore, we asked Chinese consumers to assess the valueof the products (goods and services) at retail stores in termsof financial costs.

Customer perceived value is also of special interest becausestudies have shown that value drives loyalty in different cultures(Sirdeshmukh et al., 2002; Wang et al., 2004). Loyalty is built onpositive intentions to repeat purchase and its importance hasbeen consistently acknowledged in a large volume of literature(Oliver, 1999). Berry (1996) identified loyalty as a key to achievinggrowth and profit in retailing, and in their recent examination ofthe four-stage loyalty model, Evanschitzky and Wunderlich (2006)emphasised its importance to financial outcomes. Thus retailers inthe emerging market economy of China are expected to have greatinterest in understanding how to gain and sustain customerloyalty. In the current study, customer loyalty is defined with abehavioural emphasis viz., ‘‘the degree to which a customerrecommends, and expresses a preference for future use of,a particular service provider’’ (developed from Caruana 2002,p. 813).

2.3. Conceptual model guiding the study

The study tests the role of store and customer characteristics ininfluencing customer perceived value and loyalty. The use of bothcustomer and store characteristics is developed from the work ofHomburg et al. (2002), with respect to business strategy in retailenvironments. Store characteristics are defined as the features ofthe retail product including the goods, services, and competitiveorientation whereas customer characteristics are defined as thepreferences and priorities of the consumer. These factors maycontribute to benefits or sacrifices or both. Understanding theimportance of store characteristics to different customer groups isvaluable, and perhaps more useful when compared to customercharacteristics, because managers have control over store char-acteristics whereas they have no control over customer character-istics (Homburg et al., 2002).

Prior work on value has largely focused on quality as the majorcontributing benefit, and price and time as the major costs(for example, Sirdeshmukh et al., 2002; Tam, 2004). The customerfactors of time pressure and price considerations emerge aspotentially important in the Chinese market (Tai, 2005), and aretherefore tested, with quality in the current study. Other factorshave been drawn from the work of Sweeney and Soutar (2001),who demonstrated that affective and social dimensions maycontribute to value in different contexts. With respect to retailsettings, Kerin et al. (1992) included shopping experienceperceptions (e.g., employee friendliness); and Berry (1996) statedthat consumer costs include price, convenience, the opportunitycosts of time, disinterested or uninformed employees, and poorlymerchandised stores, while benefits include quality merchandise,caring personal service, and a pleasant store atmosphere. Thus, awide range of factors are appropriate and, as stated above, thecurrent study groups them in terms of store and customercharacteristics. Fig. 1 provides an overview of the model guidingthe study. Hypotheses relating to each of store and customercharacteristics with perceived value and customer loyalty are nowdeveloped.

3. Development of hypotheses

3.1. Store characteristics

The first two hypotheses propose that store characteristics willbe positively related to perceived value and customer loyalty.Fig. 1 shows that store characteristics include the quality andchoice of merchandise. The quality of merchandise provided by a

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retail store has been found to be an important factor indetermining consumers’ attitudes towards the store (Mazurskyand Jacoby, 1986). Within the supermarket setting, Sirohi et al.(1998) found positive relationships between merchandise quality,perceived value, and loyalty intentions. As mentioned above,previous studies have shown that the quality of goods andservices is a major benefit sought by consumers and thus qualitycontributes to value (Cronin et al., 1997; Sweeney et al., 1999;Zeithaml, 1988). In the retail context, value also arises from thenature and variety of merchandise (Berry, 1996).

Similarly, it is proposed that quality and choice will lead tocustomer loyalty. For example, studies conducted in large retailstores reported that the enhancement of the physical environment(tangibles) can lead to increased patronage behaviours (Klemzand Boshoff, 1999; Taylor and Smalling-Archer, 1994). Specifically,the tangible elements include the quality and choice of merchan-dise, employee uniforms, as well as store decor (Taylor andSmalling-Archer, 1994). Therefore, the following hypotheses areproposed:

H1a-b. Quality and choice of merchandise are positively relatedto perceived value.

H2a-b. Quality and choice of merchandise are positively relatedto customer loyalty.

Apart from the quality and choice of merchandise, Fig. 1 showstwo other dimensions for store characteristics. Service orientationand customer orientation are based on the work of Homburg et al.(2002) in developing business strategy for clothing and furnitureretailing. Service orientation is defined as the provision of extrainformation, choices or benefits, in addition to physical goods, toenhance the retail experience (developed from Homburg et al.,2002). Service orientation includes access to advice, homedelivery and pick-up, and extended warranties; and is importantto perceived value because at least one study has shown thatChinese consumers interpret value broadly (Wang et al., 2004).Further, scholars have shown that a strong service orientation canhelp enhance customers’ valuation of the product offerings(Gronroos, 1997), build customer relationships, and increasecustomer loyalty (Homburg and Garbe, 1999). Hence, we propose:

H1c. Service orientation is positively related to perceived value.

H2c. Service orientation is positively related to customer loyalty.

Customer orientation is defined as the overall perspective of thefirm, relative to competitors, which reflects an emphasis onunderstanding and meeting customers’ needs, and creating value(developed from Homburg et al., 2002). To be customer orientedimplies that a firm is actively engaged in the organisation-widegeneration, dissemination of, and responsiveness to marketintelligence (Kohli and Jaworski, 1990). In this study, customerorientation is concerned with customers’ general responses to thesupermarket or department store and is distinguished from thespecific customer-oriented behaviours of employees. It does notmeasure the personal attributes of personnel, which are the basisof service encounter quality (Donavan and Hocutt, 2001).

Few studies appear to have tested the link between customerorientation and value but some provide suggestions of a potentialrelationship. For instance, Slater and Narver (1995) argue thatfostering a customer-oriented culture leads to the creation andmaintenance of customer value, while Kelley (1992) suggests thatservice firms with a customer-oriented culture produce morefavourable behavioural outcomes. Prior studies have also demon-strated links between customer orientation and quality, which isconsidered a major contributing benefit in the value construct. Forexample, Brady and Cronin (2001) found links between customer

orientation, customer satisfaction, and customers’ outcomebehaviours (including repurchase and recommendation inten-tions, and their feelings of loyalty). In service climate studies,customer orientation as perceived by employees, and customerperceived service quality have demonstrated a positive relation-ship (Schneider et al., 1998; Yoon et al., 2001). Similarly, marketorientation studies by both Webb et al. (2000) in business-to-business banking, and Voon (2006) in higher education, foundthat the customer orientation dimension is related to perceivedservice quality. Finally, market orientation studies, which includecustomer orientation, have been shown to result in a customer-driven company and to lead to loyalty and retention (Hoffman andIngram, 1992; Kelley, 1992; Slater and Narver, 1995). Given theabove findings, the following hypotheses are advanced:

H1d. Customer orientation is positively related to perceivedvalue.

H2d. Customer orientation is positively related to customerloyalty.

3.2. Customer characteristics

Hypotheses 3 and 4 are concerned with the relationshipsbetween customer characteristics and both perceived value andcustomer loyalty. The elements under customer characteristics inFig. 1 include the ‘traditional’ major sacrifice of price, the timefactor mentioned above and consumer relationship proneness.Price consciousness is defined as the degree to which thestore’s customers focus predominantly on paying low prices(Lichtenstein et al., 1993). Price is thought to impact value giventhat value is the trade-off between quality and price (Zeithaml,1988). In this instance, price consciousness signals consumers’responses to the amount of monetary sacrifice involved inpurchasing a product or service. Because of the expectedimportance of price to Chinese consumers (Tai, 2005), it isproposed that it will also be a predictor of customers’ futureintentions. Indeed, within a retail store setting, Cataluna et al.(2006) found a positive relationship between price and thepurchase decision process within specific product categories.Thus:

H3a. Price consciousness is positively related to perceived value.

H4a. Price consciousness is positively related to customer loyalty.

As stated previously, feelings of time pressure can be importantto shoppers (Homburg et al., 2002). Increasingly, successfulretailers are targeting their offers towards customers whoemphasise time pressure (Burden, 1998). Time pressure reflectsthe customer’s time availability, which can be seen as a cost orsacrifice and will likely be reflected in customers’ assessments ofvalue (Srinivasan and Ratchford, 1991). Recently, Heinonen (2004)found that time is an integral element of service value, and calledfor further investigation of it in retail settings. Backstrom andJohansson (2006) showed that consumers’ attitudes to time andthe existence of time pressures influence shopping behaviours.Hence, we expect a link between customers’ self-reported feelingsabout time pressure and the value construct. Similarly, wepropose that time pressure will be related to customers’behavioural intentions because it will influence their responsesto specific retail situations. That is:

H3b. Time pressure is positively related to perceived value.

H4b. Time pressure is positively related to customer loyalty.

The third customer characteristic that we investigate isconsumer relationship proneness. Mai and Zhao (2004) found

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that Beijing supermarket shoppers make small purchases andfrequent visits to the same store, suggesting that they may berelationship prone. Relationship proneness is defined as therelatively stable and conscious tendency of a consumer to engagein relationships with sellers (de Wulf et al., 2001). Scholarsidentify the inherent links between relationship proneness withvalue and loyalty. For example, Sirdeshmukh et al. (2002) arguedthat value is created from relational benefits derived frominteracting with the retail service provider, by reducing exchangeuncertainty, and helping the consumer form consistent andreliable expectations; and Ravald and Gronroos (1996, p. 23)noted that ‘‘the relationship itself might have a major effect on thetotal value perceived. In a close relationship the customerprobably shifts the focus from evaluating separate offerings toevaluating the relationship as a whole.’’ Moreover, Vazquez-Carrasco and Foxall (2006) found that consumer relationshipproneness is linked to relationship benefits as well as customerloyalty, including recommending the service provider, engaging inpositive word of mouth communications, and displaying anintention to stay in the relationship. Consequently, we proposethat:

H3c. Consumer relationship proneness is positively related toperceived value.

H4c. Consumer relationship proneness is positively related tocustomer loyalty.

Studies in a variety of settings provide persuasive evidence for adirect relationship between value and customer loyalty, measuredin terms of behavioural intentions (Cronin et al., 2000). Forexample, major works on modelling value in a consumer and/orretail context used behavioural intentions as a key outcome ofvalue (Baker, 1990; Dodds and Monroe, 1985). Other studiesdemonstrate a connection between quality and loyalty, forexample, in retail banking (Bolton and Drew, 1991; Caruana,2002) and telephone services (Ranaweera and Neely, 2003).Therefore, the following is advanced:

H5. Perceived value is positively related to customer loyalty.

Next, we consider whether store and customer characteristicsact independently on the outcome variables, perceived value, andcustomer loyalty. We propose that there will be a sequence inwhich store and customer factors will contribute to value, whichwill subsequently contribute to loyalty. This assumption arisesfrom studies such as the service profit chain (Heskett et al., 1997)and customer relationship economics (Storbacka et al., 1994) inwhich sequential links have been demonstrated. Hence, thefollowing hypotheses are tested:

H6a. Perceived value mediates the relationships between storecharacteristics and customer loyalty.

H6b. Perceived value mediates the relationships between custo-mer characteristics and customer loyalty.

In summary, this project investigates the factors that contributeto perceived value in a retail store setting in China. In doing so, thedirect and mediated effects of the factors on customer loyalty arealso tested.

4. Method

The mall intercept procedure was used to collect data inTianjin, China, identified as one of the major cities for retailspending (Samiee et al., 2004). Tianjin, a second tier city in theNorth China region (Liu, 2007), has tremendous potential for

economic development, as costs are more competitive than firsttier cities such as Beijing, with high levels of economic develop-ment and a well-established infrastructure (People’s Daily Online,2006). In addition, incomes in second tier cities average 20–30%less than first tier and consumers generally spend a greaterproportion of their income on necessities and obtaining value formoney products and services (Cheung and Grant, 2006).

Three pairs of trained interviewers from a marketing researchagency were engaged to randomly distribute the questionnaires toconsumers of three department stores (n ¼ 200) and threesupermarkets (n ¼ 200). Each pair of interviewers interceptedevery third shopper leaving a department store and a super-market. The self-administered questionnaire consisted of sixpages, and required about 15 min to complete. Department storesand supermarkets were selected as the context for this studybecause they are experiencing significant growth and are the firsttwo categories in the retail format of the Chinese government(Samiee et al., 2004). As noted earlier, department stores wereintroduced during the era of central planning to serve as the soledistribution channel for manufactured consumer goods. Thesestores command customer loyalty and are perceived as conve-nient, one-stop shops that ensure a degree of value and quality(Chan et al., 1997). Supermarkets, another attractive retail format,generate a high proportion of consumer spending due to the needfor high quality and wide availability of food and daily necessities.As a result, Chinese consumers rely on department stores andsupermarkets for a large portion of their important shopping andvisit them frequently.

To identify differences based on type of shopping experience,the data for the supermarkets and department stores have beenanalysed separately. The department store sample consisted of49.5% females, with 39.5% aged between 31 and 40 years old, and28.5% earning a monthly household income of 2001 to 3000 Yuan.The supermarket sample consisted of more females (62.5%),was younger (52.5% aged between 20 and 30 years), and oflower income (25.5% earning a monthly household income of1000–2000 Yuan).

Following Deshpande et al. (1986), the back translationmethod was adopted in the construction of a Chinese version ofthe questionnaire. This means that the original English versionwas translated into Chinese, back translated, and pre-tested withChinese individuals to ensure clarity and accuracy, and to obtainfeedback for any changes necessary. Minor changes were madeaccordingly.

4.1. Measurement scales

All the variables were adopted from established scales andassessed using seven-point Likert scales. The use of establishedscales is deemed suitable as the success of foreign stores in China,for example, Carrefour, Wal-Mart, and Metro; suggests thatparallels in consumer behaviour are possible. Further, scholarssuggest that the growth in income and consumption in China islikely to follow the same pattern as in countries such as Thailandand Taiwan (Chan et al., 2007), as seen in the shift in spendingtowards clothing, consumer durables (appliances, furnishings),personal care products, and household goods. More details arenow provided for each variable.

Store characteristics: All items in this group were developedfrom Homburg et al. (2002). A ten-item service orientation scalewas employed. Customers were asked to assess how actively retailstore XYZ emphasised service. Typical areas included: ‘‘infor-mation/advice concerning merchandise’’; ‘‘customer service/information desk’’; and ‘‘extended guarantee/warranty on mer-chandise’’. Three items were used to assess customer orientation of

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the store relative to their competitors. Respondents were asked toindicate the extent of their agreement with the items—retail storeXYZ: ‘‘Is committed to their customers’’; ‘‘Tries to create customervalue’’, and ‘‘Understands customer needs’’. Quality of merchandise

used a three-item scale to measure how retail store XYZ comparedto competitors on quality and fashionability of goods. Finally,choice of merchandise used a five-item scale to compare retailstore XYZ with competitors on numbers of products withincategories (depth of products) and number of categories (breadthof products), stock levels and variety.

Customer characteristics: Time pressure was measured using atwo-item scale, which asked customers the extent to which theyfeel pressed for time during the shopping process, and findshopping a burden. Price consciousness also used a two-item scaleand sought customers’ views on their willingness to go to extraeffort to find lower prices, and whether they are prepared to shopat more than one store to take advantage of low prices. Both scaleswere adopted from Homburg et al. (2002). Customer relationship

proneness employed a three-item scale adopted from de Wulf et al.(2001). Customers were asked to indicate whether they like to bea regular, steady customer of a particular retail store, and whetherthey would be willing to ‘go the extra mile’ to purchase at thesame retail store.

Outcome variables: Perceived value was measured by four itemsadopted from Sweeney and Soutar (2001). Customers were askedtheir opinions about whether the products at retail store XYZ arereasonably priced, offer value for money, good products for theprice, and economical. Customer loyalty was measured using fouritems adopted from Zeithaml et al. (1996). Respondents wereasked to indicate whether they would say positive things aboutretail store XYZ to other people, recommend the store to someonewho seeks advice, encourage friends and relatives to shop at storeXYZ, and consider store XYZ their first choice in the next fewyears.

4.2. Reliability and validity of measures

To verify the unidimensionality of the nine constructs in themeasurement model (Fig. 1), the items constituting them were

Table 1Results of hierarchical regression analyses (Supermarkets).

DV: perceived value

b

Block 1: Customer characteristics

Price consciousness .29��

Time pressure .26��

Relationship proneness .14

R2 change .30

Block 2: Store characteristics

Service orientation


Quality of merchandise

Choice of merchandise

R2 change

Adj R2 .29

Degrees of freedom 3, 196

� po.05.�� po.01.�� po.001.# t ¼ 1.73, po.1.

subjected to confirmatory factor analysis (CFA) using LISREL 8.72(Joreskog and Sorbom, 1993). When standardised residual covar-iances were above the absolute value of 2, items were deletedprovided that their deletion did not significantly change thedomain of the construct. This process provided the followingresults for the measurement models. For supermarkets:w2¼ 593.44 for df ¼ 288, po.001; with fit indices of GFI ¼ .82,

CFI ¼ .98, NFI ¼ .96, and RMSEA ¼ .07; and for department stores:w2¼ 618.79 for df ¼ 314, po.001; with fit indices of GFI ¼ .82,

CFI ¼ .97, NFI ¼ .94, and RMSEA ¼ .07. To establish reliability ofthe measures, composite reliability and average variance ex-tracted were calculated, using the procedures outlined by Fornelland Larcker (1981). All items and their loadings are shown inAppendices A (Supermarkets) and B (Department stores).

Appendices A and B show that all the standardised loadingsand their associated t-values for the multi-item scales aresignificant, demonstrating adequate convergent validity. Discri-minant validity was established by calculating the shared variancebetween all possible pairs of constructs and verifying that theywere lower than the average variance extracted for the individualconstructs (Fornell and Larcker, 1981). As a further assessmentof discriminant validity, a w2 difference test was conducted on allpairs of scales. In each case, the baseline model produced a betterfit, and the w2 difference was statistically significant, therebyconfirming discriminant validity (Bagozzi and Phillips, 1982).

5. Results

In performing the analysis, we used hierarchical regressionanalyses and structural equation modelling. We first ran fourhierarchical regression analyses to test the effects of customercharacteristics, prior to addition of store characteristics; and toidentify any constructs that were not significantly related to eithervalue or loyalty. Based on the findings, we then tested a structuralmodel that incorporated the significant constructs from the multi-ple regression analyses and the outcome variables (value andloyalty). These two phases of analysis are reported and discussedin turn below.

DV: customer loyalty

b b b

.19� .25�� .08

.12# .16� �.06

.00 .16� .04

.21

.20� .21�

.02 .16

.21� .08

.12 .25��

.10 .20

.37 .20 .39

7, 192 3, 196 7, 192

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Table 2Results of hierarchical regression analyses (Department stores).

DV: Perceived value DV: Customer loyalty

b b b b

Block 1: Customer characteristics

Price consciousness .35�� .22� .43�� .24�

Time pressure .09 .06 .05 .00

Relationship proneness �.02 �.04 .04 .02

R2 change .14 .21

Block 2: Store characteristics

Service orientation .05 .09

Customer orientation .20� .25��

Quality of merchandise �.01 .07

Choice of merchandise .05 .01

R2 change .04 .08

Adj R2 .13 .15 .20 .26

Degrees of freedom 3, 196 7, 192 3, 196 7, 192

� po.05.�� po.01.�� po.001.


5.1. Phase 1: Multiple regression analyses

Tables 1 (Supermarkets) and 2 (Department stores) providethe results of the multiple regression analyses in which per-ceived value and customer loyalty were regressed separatelyagainst store and customer characteristics for the two typesof stores.

Table 1 (Supermarkets) shows that when customer character-istics are considered alone, price consciousness and time pressurecontribute significantly to both value and loyalty, explaining 29%and 20% of the variance, respectively. However, when storecharacteristics are added (Block 2), the only remaining effect ofcustomer characteristics is for price consciousness predictingvalue. Table 1 also shows that service orientation predicts bothvalue and loyalty, while quality of merchandise is related to value,and choice of merchandise is related to loyalty. With respect tothe addition of store characteristics, Table 1 shows a considerableincrease in variance explained for both value (and 8% increase)and loyalty (a 19% increase). This finding suggests that theproposed model should have better explanatory power thanprevious conceptions which do not include both customer andstore characteristics. Finally, Table 1 indicates that customerrelationship proneness and customer orientation are not pre-dictors of value or loyalty for supermarkets in China for thissample.

In contrast to the findings for supermarkets, Table 2 (Depart-ment stores) shows that price consciousness is a predictor of bothvalue and loyalty for department stores, whether customercharacteristics are tested alone or with store characteristics. Alsoin contrast to the findings for supermarkets, customer orientationpredicts both value and loyalty, while surprisingly, quality andchoice of merchandise, and service orientation do not predicteither construct. Finally, the change in variance due to theaddition of store characteristics is much less marked than forsupermarkets. Hence, the regression analyses suggest that valuein department stores may not be following the expected pattern ofbenefits (e.g., quality) and sacrifices (e.g., time), and the R2 values(15% and 26%, respectively) indicate that there are otherexplanatory factors that need to be identified for both value andloyalty.

5.2. Phase 2: Structural equation modelling

To test the simultaneous effects of the factors on perceivedvalue and loyalty, separate structural models were used. Takinginto account the results in Tables 1 and 2, eight constructs wereincluded in the structural models: service orientation, customerorientation, quality of merchandise, choice of merchandise, timepressure, price consciousness, perceived value, and customerloyalty. Customer relationship proneness was excluded becauseit did not demonstrate any significant relationships but timepressure was retained because it demonstrated a relationship tovalue at po.1 (Table 1). The structural relationships were testedusing the maximum likelihood estimation method.

Fig. 2 shows the results for the supermarket sample. Fitindexes of w2

¼ 508.69, df ¼ 249; GFI ¼ .83, AGFI ¼ .78, CFI ¼ .98,NFI ¼ .96; RMSEA ¼ .072, were demonstrated, exceeding thecritical values for adequate model fit (Hu and Bentler, 1999).As seen in Fig. 2, four paths to value and loyalty are significant.Non-significant paths are not included. It is of particular interestthat service orientation is not significant even though it was apredictor in the regression analyses (Table 1). We interpret thisfinding by assuming that there is a confounding effect and whenthe store characteristics are allowed to covary in the structuralmodel, service orientation is no longer significant.

The results for the department store sample (Fig. 3) providedfit indexes of w2

¼ 763.89, df ¼ 351; GFI ¼ .79, AGFI ¼ .74,CFI ¼ .96, NFI ¼ .93; RMSEA ¼ .077, which exceeded the criticalvalues for adequate model fit (Hu and Bentler, 1999). Notsurprisingly in light of the data in Table 2, customer orientationemerged as the only significant predictor of both perceived valueand customer loyalty, while price consciousness becomes insig-nificant.

Figs. 2 and 3 show that different hypotheses are supportedfor supermarkets and department stores. Reiterating, H1a–dare concerned with the links between store characteristics andvalue, while H2a–d are concerned with the links between storecharacteristics and loyalty. Specifically, H6a and b were supportedfor supermarkets with full mediation occurring for both signifi-cant paths, while partial mediation is exhibited (H6a) for thedepartment store shoppers.

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Time Pressure

PriceConsciousness

Perceived Value

Customer Loyalty

H4b -.18 (-2.33)*

H3a 0.27 (2.89)**

H2b 0.27 (2.50)*

H1a 0.30 (2.83)**St

ore

Cha

ract

eris

tics

Cus

tom

erC

hara

cter

istic

s

Choice

Quality

H5 0.61 (7.48)***

Fig. 2. Final structural model showing path coefficients and t-value (supermarkets). Note: Numbers in parentheses represent t-values associated with each coefficient with

significance; *po.05, **po.01, and ***po.001.

Customer Orientation

Perceived Value

Customer Loyalty

H1d 0.43 (4.01)***

H2d 0.20 (2.42)*

Stor

eC

hara

cter

istic

H5 0.64 (8.52)***

Fig. 3. Final structural model showing path coefficients and t-values (department stores). Note: Numbers in parentheses represent t-values associated with each coefficient

and their significance is denoted as ***po.001.


6. Discussion and managerial implications

We have proposed a model that strives for a better under-standing of the impact of store characteristics and customercharacteristics on value and loyalty in retail settings in China.These two areas are now considered in turn.

As indicated earlier, store characteristics have special impor-tance because managers can control and change them (Homburget al., 2002). Our findings show that store characteristics areimportant but their effects vary. Customer orientation demon-strated direct, positive relationships with both perceived valueand customer loyalty for department stores (Fig. 3). Customerorientation was measured by asking respondents to consider thestore’s commitment to customers, attention to value creation, andunderstanding of needs ‘‘relative to competitors’’. Our findingsseem to imply that department store managers in China wouldbenefit from emphasising and extending activities on whichcustomer orientation is built, and the manner in which they candifferentiate themselves from competitors. In doing so, managersmight consider additional customisation, further employee train-ing and development of frontline staff, and attention to seekingand using customer feedback.

Service orientation was found to predict neither value norloyalty for both samples. Following the regression findings inTable 1, this is an intriguing result. On further examination of thesupermarket sample, we expect that the effects of serviceorientation are transmitted via quality and choice of merchandisewhen the variables are allowed to covary in the structural model,

as exemplified by the higher beta values in the structural model ascompared to the regression results. Further, the correlationcoefficients of service orientation with quality (.58) and choice(.69) suggest that this is likely.

Our study found that quality and choice of merchandise weresignificant predictors of perceived value and loyalty, respectively.We conclude that these finding have arisen first, because super-market shoppers are seeking quality, and it leads to value,consistent with previous work that emphasises quality as a majorbenefit (for example, Sweeney and Soutar, 2001). Second, super-markets are growing in importance in China and consumers willbe increasingly seeking choice in the range and depth of products.Taking this into consideration, managers of supermarketsshould pay more attention to the quality and fashionability oftheir merchandise, as well as the breadth of products, themerchandise in stock, the number of brands, and the variety ofprice levels.

The second major area of independent variables that wetested was related to customers themselves. We found significanteffects for price consciousness and time pressure in supermarketshopping but no effect for relationship proneness. While man-agers cannot change these factors, they can use an understandingof them to influence store features. Price consciousness demon-strated direct, positive relationships with both value and loyaltyfor supermarkets and department stores (Tables 1 and 2) butwhen tested simultaneously in the structural models, a significantpath was exhibited only to perceived value in supermarkets(Fig. 2). This finding makes sense, given that we interpreted value

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as ‘‘value for money’’ and price is well recognised as an importantdeterminant of purchasing of fast-moving consumer goods.

The finding with respect to price and value reinforces theimportance that Chinese consumers place on price, despiteincreasing affluence, and highlights the need for managers tokeep track of changes in the retail environment and personalsituation of Chinese consumers (Kim et al., 2002). This notion isfurther supported by findings from a study which found workingfemale consumers in both Shanghai and Hong Kong to be veryprice and value conscious, and they are always seeking practicalways to spend their money wisely (Tai, 2005). It is curiousthat price consciousness is not significant in the final structuralmodel for department stores. We interpret this by suggestingthat department store shopping is a recreational experience forChinese consumers, thereby providing other benefits to them.

Time pressure is directly related to loyalty to supermarkets,consistent with previous studies (Sirdeshmukh et al., 2002; Tam,2004). Consumers’ time-related issues provide scope for man-agers to pursue practical time-saving offering and to think ofcreative solutions for consumers. One way to improve loyalty,might be for managers to use technology to help ease the burdenon time during the supermarket shopping process. In this respect,stores can offer online shopping or self-service checkouts forshoppers’ convenience. Contrary to our expectations, value fromthe development of customer relationships did not emerge in thecurrent study. This finding appears to be in conflict with the workof Vazquez-Carrasco and Foxall (2006) and perhaps is due to theemphasis that Chinese consumers place on price, with a possiblepropensity to switch.

When considered holistically, the findings illustrated in ourstructural models (Figs. 2 and 3) highlight the importanceof specific store and customer characteristics in the factorsthat contribute to value and loyalty for Chinese consumers.Benefits arise from customer orientation in department storesbut, surprisingly, service orientation did not emerge as a predictorof value or loyalty in either of our retail settings. As expected,

within a supermarket setting, quality and choice of merchandiseare important, and time pressures and price consciousnessinfluence consumers’ attitudes. Hence, our work accentuates theneed to re-conceptualise customer perceived value in specificcontexts.

7. Limitations and future research

The cross-sectional nature of the data in this study only allowsfor correlational, rather than causal inferences to be made. Futureresearch should consider the need for longitudinal and explora-tory studies that can explore how comparison standards changeover time, as customers proceed along various phases of relation-ship development, demographic and family life cycle stages,and as China’s market economy develops. It is also noteworthythat the current research was conducted among consumers indepartment stores and supermarkets in one specific Chineseprovince. Given that China is a large heterogeneous market withdiversified consumer behaviour in different regions, wheredifferences exist between coastal and inland consumer buyingdecisions (Zhang et al., 2008) as well as first tier (i.e., Shenzhen,Guangzhou and Beijing) and second tier cities (i.e., Shenyang,Dalian, Tianjin, Harbin) (Wong and Yu, 2003), future researchshould sample a wider domain of Chinese provinces (given thepossible regional, economical, and cultural diversity within China)as well as countries (i.e., developed versus developing) and storecategories (i.e., budget stores versus high end specialty stores) tofurther investigate the generalisability of these findings. Specifi-cally, several research questions emerge. Do quality and choice ofmerchandise really matter to value in other retail formats? Iscustomer relationship proneness integral to value in high endspecialty stores? How can retailers differentiate themselves fromcompetitors with respect to service orientation and customerorientation? These questions provide interesting topics for furtherstudy.

Appendix A. Evidence for reliability and unidimensionality of measures (Supermarkets)

Construct/items
Alpha value Std. loadings
(t-values)

Composite reliability
Average variance
extracted

.81 .82 70%
� Committed to their customers
.86 (14.37)
� Tries to create customer value
.81 (13.24)
Source: Homburg

et al. (2002)

Service orientation
.91 .92 67%
� Customer service/information desk
.80 (13.48)
� Extended guarantee/warranty
.88 (15.56)
� Return on merchandise policy
.87 (15.24)
� Delivery of merchandise
.86 (16.89)
� Payment by credit cards
.77 (12.59)
� Extended store operating hours
.72 (11.56)
Source: Homburg

et al. (2002)

Relative quality
.83 .86 76%
� Quality of merchandise
.91 (15.88)
� Fashionability of merchandise
.83 (13.92)
Source: Homburg

et al. (2002)

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Relative choice
.87 .89 67%
� Breadth of products
.85 (14.66)
� Merchandise in stock
.81 (13.43)
� Number of brands
.84 (14.21)
� Variety of price levels
.77 (12.56)
Source: Homburg

et al. (2002)

Time pressure
.79 .83 71%
� Pressed for time during shopping
.93 (14.48)
� Shopping is a burden on time
.75 (11.31)
Source: Homburg

et al. (2002)

Customer relationship proneness
.88 .90 82%
� Want to be a regular customer
.93 (16.55)
� Want to be a steady customer
.88 (15.16)
Source: De Wulf et al. (2001)

Price consciousness
.78 .82 69%
� Expend extra effort to find lower prices
.86 (14.11)
� Shop at more than one store to obtain

lower prices

.80 (12.91)

Source: Homburg

et al. (2002)

Perceived value
.87 .90 74%
� Reasonably priced
.90 (16.05)
� Value for money
.85 (14.67)
� Good products for the price
.83 (13.91)
Source: Sweeney and Soutar (2001)

Customer loyalty
.90 .92 73%
� Say positive things
.89 (15.84)
� Recommend retail store
.85 (14.56)
� Encourage friends and relatives
.89 (15.80)
� Consider retail store as first choice
.79 (13.05)
Source: Zeithaml

et al. (1996)

Appendix B. Evidence for reliability and unidimensionality of measures (Department stores)

Construct/items
Alpha value Std. loadings
(t-values)

Composite reliability
Average variance
extracted

.79 .82 70%
� Committed to their customers
.83 (13.42)
� Tries to create customer value
.84 (13.66)
Source: Homburg

et al. (2002)

Service orientation
.88 .89 54%
� Customer service/information desk
.75 (11.97)
� Extended guarantee/warranty
.82 (13.85)
� Return on merchandise policy
.75 (12.15)
� Delivery of merchandise
.77 (12.55)
� Payment by credit cards
.71 (11.13)
� Extended store operating hours
.71 (11.22)
Source: Homburg

et al. (2002)

.64 (9.71)

Relative quality
.76 .81 58%
� Quality of merchandise
.80 (12.62)
� Fashionability of merchandise
.82 (13.09)
Source: Homburg

et al. (2002)

.66 (9.71)

Relative choice
.86 .89 73%
Breadth of products
.87 (15.08)
Merchandise in stock
.90 (15.71)

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Number of brands
.78 (12.72)
Variety of price levels

Source: Homburg

et al. (2002)

Time pressure
.81 .75 61%
� Pressed for time during shopping
.88 (8.31)
� Shopping is a burden on time
.66 (6.81)
Source: Homburg et al. (2002)

Customer relationship proneness
.81 .86 76%
� Want to be a regular customer
.95 (14.59)
� Want to be a steady customer
.78 (11.67)
Source: De Wulf et al. (2001)

Price consciousness
.77 .82 69%
� Expend extra effort to find lower prices
.85 (13.55)
� Shop at more than one store to obtain

lower prices

.81 (12.75)

Source: Homburg

et al. (2002)

Perceived value
.87 .89 67%
� Reasonably priced
.87 (15.11)
� Value for money
.75 (12.08)
� Good products for the price
.82 (13.63)
Source: Sweeney and Soutar (2001)
.84 (14.38)
Customer loyalty
.88 .90 75%
� Say positive things
.77 (12.58)
� Recommend retail store
.94 (17.11)
� Encourage friends and relatives
.88 (15.50)
� Consider retail store as first choice

Source: Zeithaml

et al. (1996)

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enhancing value for chinese shoppers: the contribution of store and customer characteristics

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