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Introduction

The service industry, commonly known as tertiary sector of industry by economists, involves the provision of services to businesses as well as final consumers (Terill and Arthur, 2000). Schneider and Susan (2004) continues to expound on this by explaining that such include accounting, trademanship (like mechanic or plumber services), computer services, restaurants and tourism, just to mention a few.

To differentiate between the different types of industries, a service industry can be defined as one where no goods are produced whereas primary industries are those that extract minerals and oil, among other things, from the ground and secondary industries are those that manufacture products (Terill and Arthur, 2000). To understand this further, the author explains that service industry companies are involved in retail, transport, distribution, food services, as well as other service-dominated businesses (Terill and Arthur, 2000).

Service industries categories

• Economics of the service industry
• Financial industry
• Advertising
• Entertainment
• Healthcare
• Marketing
• Hospitality industry
• Public services
• Real estate
• Insurance
• Travel
• Service companies
• Tourism

The service industry in the UK

The service sector is the dominant sector of the UK economy, and continues around 73% of GDP (Office for National Statistics, 2006).

Aim

Understand service quality and customer loyalty in the service sector in UK

Objectives

• Briefly understand and analyze the service industry in the UK
• Find out what drives customer satisfaction
• Establish the relationship between the service quality and customer loyalty in service businesses in UK

Justification for study

Customer service is an area that has been of concern to researchers and other practitioners since it plays an important role in improving the performance of businesses and encouraging customers to remain loyal. Customers have different orientations and this may lead them into attaching varying importance dimensions to service delivery. Many scholars have been conducting research on the importance of service delivery emphasizing its importance in satisfying customers, reducing costs and building the loyalty of customers in an organization (Berndt & Brink, 2004)

In the UK, it has been discovered that provision of service quality is one of the most critical requirements for service businesses. It is a tool that provides corporate advantage in addition to functioning as competitive strategies since businesses that perfect service quality win the loyalty of customers. However, service delivery in the service sectors is a complex issue as many researchers and scholars have not agreed on what should drive effective service delivery. This makes the topic of the importance of service delivery in establishing customer satisfaction in the UK a really important topic for my dissertation.

Research Questions to be answered

Service quality is very important to any organization since the financial success of any organization highly depends on how the loyalty of customers to the organization. The financial output of any organization will not be relevant if the customers are not loyal to the organization since this has an impact of reducing the profits. Many businesses in the UK have discovered the importance of using service quality to establish customer loyalty and they have made this endeavor one of their valued priorities (Charter Uk, 2011). For this to be effective, it is important for companies to be conversant with how consumers behave. The first question that this research will seek to answer is finding out what drives customer satisfaction. The other question to be answered is to find out the relationship between the service quality and customer loyalty in service businesses in UK.

Literature review

Service quality

Introduction

According to Lewis and Boom (1983), quoted in Lewis (1999) service quality involves a comparison of expectations with performance, and is a measure of how well a delivered service matches the customers expectations. A customers encounter with a service is encountered when it is provided and delivered when and where the customer needs it. The main focus of service quality is to meet a customers expectations and needs, and at the same time do so at a cost that makes economical sense. This means that a company is dependent on its customers satisfaction to progress and develop, since more satisfied customers translate to more financial gains for it.

Quality practice in a business results in various outcomes. The first outcome involves understanding, and ultimately improving a business operations. The second outcome is being able to identify problems and inconsistencies in a timely and systematic manner. These two outcomes are dependent on a business ability to encourage communication and feedback from its customers. The third outcome of quality practices is establishing valid and reliable service performance measures (Fuller, 2007). The fourth and last outcome is measuring satisfaction, which is also only realized through feedback and well-established performance measures.

Criteria of service quality

Gansler and Hans (2004) explain that word-of-mouth, personal needs and past experiences create an expected service (expectation of service). A customers expectations will be measured against the perceived service, to measure the service quality. A gap occurs when there is a difference between the perceived service, and what was expected by a customer. Factors that cause these gaps have been identified. Among them is access, which measures the ease at which a customer can reach the services.

Another cause of gaps is competence, which measures the skills a service possesses. It also measures how easily the providers of a service can be reached to offer support. Security is a crucial factor of consideration when measuring a services quality. The security factor determines a products freedom from risks and the amount of confidentiality it offers a customer. Other significant factors include credibility, reliability and responsiveness, among others. These factors determine the ability to be trusted, give accurate results, and perform respectively.

Consumer brand loyalty

If any brand has to survive competitively in the market, the brands value has to be maximized. Managing a consumer-brand value is not possible without understanding consumer-brand bonds and market principles. Much research in the market is based on suppliers and manufactures or sellers and buyers. Little research and effort have been put to understand the relationship between consumers and brands, an essential relationship that determines how and which products move in the market. Developing and maintaining a brand loyalty is at the heart of many companies marketing plans today and this is especially so in the face of unpredictable and changeable market environments and highly competitive markets (Haugtvedt and Karen, 2002).

An established brand loyalty is important to a company since it makes it more harder for new products to gain a market share, it increases a companys ability and strength to respond to competitive threats, it allows a business greater sales and revenues and it creates a consumer market base which is less sensitive to competitors efforts to gain a market share. Knowing this, it is no wonder that companies are putting in effort to understand consumer-brand relationships, something that has been neglected for a long time. Most of the studies are based on a psychological orientation which looks at the cognitive process responsible for the development of a brands strength and attitude (Fournier, 1999). Attention is centered on the relationships between loyalty of consumers, their satisfaction and a brands quality. Other studies are based on a sociological view, trying to understand the meanings and emotional aspects of brand loyalty (Harrison and Edward, 2007).

History of brand loyalty

It is a well-known factor that one of the ways in which consumers express their satisfaction with a product is through their loyalty to it. It is therefore not surprising that for many years one of the key objectives of many businesses has been to give their customers overall satisfaction. Loyalty can be defined as a customers repurchase intention (Hein, 2010). A customers overall satisfaction will determine their commitment to the brand, will determine their motivation for a repurchase which is what amounts to a brand reputation. The perceived quality of a brand which is to a large extent dependent on a brands reputation is important as it is responsible for motivating a first-time buyer (Holtzman, 2011). A first-time buyer then has to take time to interact and experience the brand, a period which is important in deciding their level of satisfaction with it and the cycle continues. A brand trust then creates a long-term relationship with the consumer and it is not easy for them to be convinced to try out new brands.

Trust is critical in developing and sustaining an enduring long-term relationship between a consumer and a brand. It plays a big role in predicting the future intentions of both high and low relational consumers and it also derives implications which are of importance to any manufacturer (Copenhagen Business School, 2002). First, trust in a brand by customers means that a brand has characteristics which make it more than just a mere product and sometimes it could mean that it gives customers more than they expect. Secondly, a long-term relationship between a brand and a consumer means that the everyday execution of marketing plans by a company are working. Finally, trust and a long-term relationship between a brand and customers imply that it has been able to create value and go beyond customers satisfaction with its attributes and functional performance (Vashisht, 2005).

Trust concept in the brand loyalty domain

In a brand domain, trust is about customers feeling secure that a brand will meet their expectations and satisfy their consumption needs (Teas, 1994). The feeling is based on the brands reliability and what it intends to do for the customer. A brands reliability is based on an assumption that it has the required capacity to respond to the consumers needs by offering what they need and by offering a quality level (Maclnnis and Park, 2008). It also requires that a brand gives the consumer a promise of future performance which then has to be fulfilled if the company has to establish and maintain the customers trust on the brand and repurchase intentions the next time the same need arises.

Brand intentions are considered more abstract due to their emotional and effective origin, taking into consideration the fact that in consumption and buying, the customer is vulnerable to a companys decisions and actions with the belief that the company will not take advantage of this vulnerability to exploit customers (Franzen and Sandra, 2009).

This may be in the form of breaking promises made on purchase of the brand or making products that are totally incapable of meeting the needs they promise to meet. Customers trust on a brand is therefore very dependent on how the brand will behave when circumstances and situations not expected, or experienced before, occur.

Apart from the dynamic nature of a market, perceived risks associated with a brand play an important role in gaining loyalty from its customers (Woodside, 2005). This is because risks create situations in which a customer faces ambiguity or uncertainty in the satisfaction of their expectations. Information available on a brand plays a critical role in how customers deal with such situations and how they make their decisions concerning holding to their loyalty on the brand or seeking alternatives in the market. Complete lack of information leads to a gamble which can be very disappointing to a consumer while comprehensive information leads to rational decisions meaning that a consumer uses a brand with an informed mind, and is well aware of any disappointments that may occur (Akbar and Noorjaham, 2009).

Sources of trust

According to Ballester and Jose (2000), the process by which an individual attribute a trust image to the brand is based on her/his experience with the brand and an experience attributes will be influenced by the customers evaluation on any direct or indirect contact with the brand. In order for a customer to develop trust for a brand, the consumption experience has to have more relevance to their lives. The experience is responsible for creating a feeling of association and relevance of the brand (Werther and David, 2011). It also gives the brand a chance to prove its consistency and fulfillment of the promises it comes with. Furthermore, it is a chance for the customer to verify the products ability to satisfy his/her needs, interests and welfare. The overall satisfaction of a brand is therefore tested by the process of purchasing the brand and consuming it.

The most important source of trust for a brand is its level of satisfaction to a consumer (Bejou, Wray and Ingram, 1996). The more a consumer is satisfied with a brand, the more they will trust it. Nevertheless, it is important to take into consideration the fact that a first-time consumer needs motivation to involve themselves with a brand, before they can get the experience. This means that a company has to be able to motivate a consumer to try out the product for the first time and maintain their level of involvement with it. Customers who are constantly involved with a product will be able to make loyal decisions even in the face of uncertainties and possible inconsistencies. The biggest source of information consumers has about a brand is their own experience with it.

The other source of trust on a brand is consistency of a brand. The more consistent a brand is, the more likely a customer is going to be dependent on it (Berry and Parasuraman, 1991). In the tourism industry for example, it is important that a company is able to stay constantly updated on the needs of the market to ensure it gives updated products as per the needs of its clients. Even with the changes, a brand should be able to maintain what sold it to the customer in the first place. In the financial industry for example, a companys brand may have attracted a huge clientele due to its market rates on loans, quality of services offered to customers, availability of information and a warm treatment of customer, among many other factors. This therefore means that even when trend in the banking industry are changing to fit into the current market trends, it still should have the same qualities which its old clientele expects. A restaurant company that targets travelers for example might want to maintain portability of its products and proper packaging methods.

Another important source of trust on brands is reward for loyalty. This allows consumers to feel appreciated and feel as part of the team. It could include discounts on quantities purchased, pricing considerations for long time customers and promotions, just to mention a few. It could also include conducting surveys to get customers opinions on the brand and what more they would expect from it. Rewarding loyalty could also happen by paying good dividends to shareholders in a company, who many at times will be consumers of the companys brands.

Strategies for developing brand loyalty

Today we find many different types of products in the service industry, some new and some which have stood the test of time to exist many years later. The sector is considered among one of the most competitive, exiting and diverse. It is also a constantly changing sector with new market trends and products coming up each day. In such a competitive sector, introducing a new brand in the market is a risk which should be properly analyzed and considered. Developing brand loyalty is not easy and especially on a new brand. Any new brand would only succeed with a business strategy that is strong enough to penetrate a market that is almost saturated.

The big brands in different industries of the sector have developed strong foundations and it would therefore not be easy to build a market share or develop brand loyalty. A good example is the wholesale and retail trade industry in the UK, where five companies own 80% of the market share. Tesco, the biggest retailer in the country is also ranked as third-largest in the world by revenues. For a new or even an existing small brand to succeed in such an environment, the basic requirements in any brand development must be in place and there should be enough funds to implement them. Businesses today have to spend large amounts of money on building brands and making sure that their customers stick to the brands. Retailers and distributors now are required to be alert and recognize the dangers of operating a business in such a fast changing business environment and consumer preferences. The service industry environment is usually a very unpredictable, making it hard for businesses to achieve and maintain stability.

Building a brand name and loyalty requires that a company starts by defining their specific market and having a clear knowledge of what they want to achieve in that market. When a target market is not defined, there are high chances of having contrasting market activities, sometimes attracting many customers who may not last for long. There is a need for a company to distinguish between their strategic planning and tactical planning to help explain how their marketing will differ at different levels and areas. A business needs to be able to clearly identify and describe the environmental characteristics which may influence strategic decisions about their brand. Finally the business needs to be able build and explain how they intend to enhance their customer satisfaction. This can be done by use of marketing, having a solid and well organized strategic plan and by use of healthy customer relationships.

Marketing

Marketing can be defined as the art of acquiring customers for products and keeping them satisfied and it means more than just getting more awareness on products out there (Kuenzel, 2008). A companys marketing plan must be able to explain how the brand will create its utilities and describe how it is going to achieve its targets in satisfying customers. The purchasing and marketing departments are responsible for this part of business and its success is very dependent on coordination between the two. It is supposed to be focused on getting customers to use, experience a product and repurchase it.

Marketing has many advantages when creating a brand loyalty and brands today cannot do without it. It allows designers of a product and distributors to have available goods in the market whenever customers want them, an important factor when trying to develop a good relationship between a brand and its consumers. It also allows businesses to locate the most convenient place and time to avail its products. Its marketing that gives a business the ability to transfer goods and services to the buyer or the consumer. Since it involves a long process of analyzing customers needs, it will allow the business to design and produce only those products which match a consumers expectations building trust towards the brand.

In the process of satisfying customers preferences, a brand is then able to create and maintain relationships with its consumers. In todays business environments and especially in the service industry where there are new brands each day, brand-consumer relationships are very important to a business to ensure that it is constantly updated on consumers expectations and dissatisfaction, which will then allow it to work on them before the customers shift their preferences. The emergence of a marketing concept therefore must be customer oriented, have long-term ambitions and help develop and maintain effective relationships with customers (Pommerening, 2007). It should also give them an avenue to air their complaints before they try out new options which distracts the trust relationship that may have been developing for the brand.

Strategic planning

Strategic planning means being able to anticipate future events and conditions of a brand and determine the best ways to achieve medium or long term objectives (Paapu, 2005). It entails being able to identify a brands primary objectives and adopting courses of action that will allow the brand satisfy the needs it claims to and fulfill the promises given to a consumer. It is an important tool when making long-term directions for decision making and gives a business the advantage of being able to view the market ahead of time and therefore effectively prepare, which is very important especially for a new brand (Nash, 2010).

Strategic planning has the advantage of being able to address current, short and long term expectations of a customer. Its essential purpose is to differentiate one brand from the other and therefore guides the development of solutions for that particular brand (Bolton and Drew, 1991). It is an important tool when dealing with big competitors, and is a determining factor of how much strength competitors can have over a particular brand. It will also help the brand be able to take advantage of customers new needs and opportunities that may arise in future. This however will happen if the strategic plan allows for flexibility, adaptability and efficient resources for implementation of the plan towards creating and maintaining a positive relationship between a brand and its consumers.

Customer relationship

Customer relationship in one among the most important relationships in a business, and is one of the strongest strategy for many big brands. The whole brand loyalty theory is based on the relationship between a brand and the consumer. It is responsible for how the big brands identify and enhance their customers satisfaction ability. Customer satisfaction is one of the strongest tools used in maintaining customers and acquiring more through word of mouth from existing ones, and from their experience with a brand. Customer relationships have the ability of allowing a brand to develop, grow and maintain short and long-term relationships with customers (Aaker, 2001).

It allows customers to view themselves as equal partners in any transaction and development of a brand, and hence allow them to feel valued. It encourages confidence in a customer which allows him or her to make repetitive purchases and sometimes multiple brand purchases from the same company. The collaborative exchanges that take place between the business and buyers then serve as an effective tool for the business to collect information and data which is very important in brands development (Murphy, 2005). With first hand information, a brand is then able to have its qualities and solutions as close to the customers preferences as possible.

Key elements in the market that help understand brand-consumer relationships

A market analysis is aimed at determining the attractiveness of a market and to understand its evolving threats and opportunities as they relate to those of a business (Mathisen, 2003). It is performed to help determine who the customers are in the market and what they want from a brand. Even if not everyone involved in the brand development process is asked to participate in the process, everyone in a company must be able to make decisions using the data collected during market analysis. Several areas of interest in data evaluation include market research, sales forecasting and market strategies. The dimensions of a market analysis when trying to understand or create brand loyalty include the market size of the brand, its growth and consumption rate, trends, profitability, its cost structure, success factors, weaknesses and distribution channels.

A market size can be evaluated on the basis of present or potential sales if a brands uses were expanded (Azevedo, 2005). Different sources are relevant in determining the market size of a brand and can range from governmental data on brands in a specific industry, customers preference surveys, trade associations data on exchanges of similar brands, financial data from major brands and many other sources which prove relevant. To decide on how big any brands market size, correct customers must be targeted in terms of income levels, demographics, sex and any other factor which may prove relevant in choosing customers for a specific brand. In the service sector, it is clear that price and relevance of a product are big factors. This helps choose the right clientele for a brand and decide on which solutions the brand should offer to the market. It is also important when selecting selling and promotional strategies which will have a lasting impact on the targeted clientele.

The market growth rate is useful to a brand in predicting future expansion of a market and how the growth will affect a brands competence. The best and most commonly used method of forecasting is extrapolation of historical data into the future (Loveman, 2010). However, Bhattacharya and Sankar (2007) argue that while this method is very good in providing first order estimates, it is not efficient when predicting important turning points in future. This is the reason why some companies choose to use another method which involves study of drivers in the complementary products such as sales growth and demographic information. Such a study serves as a growth indicator which has proved to be more accurate than simple past data extrapolation.

The service sector changes so rapidly that historic trends may not be very relevant in predicting where the future is headed. Certain trends in the industry have tendencies of coming back after many years and observing the trends by which this happens may help understand what is to be expected. The brands which have stood the test of time in the industry are those which have been able to go through the trends without losing their quality and appeal to its customers.

Product diffusion curves can be used in this industry to predict important inflection points and growth rate (Liu, 2005). The author further explains that by studying the adoption rate of a similar product such as a loan product in a past period, it is easy to estimate or predict the shape of the product diffusion curve. Kessler (2000) points out that ultimately, each product will reach its maturity stage and a decline period. However, how long that takes is dependent on several factors is including ability to fight price pressure from a competing brand, ability to maintain brand loyalty, how well it can hold with emergence of new products, how soon the market gets saturated amongst many other factors. Lack of growth drives however has negative effects on a brands performance in a market regardless of its quality or how well it can cope with pressure and competition in the market.

Market profitability is very important in deciding where to grow a brands loyalty. While profitability of different brands will vary in the same market, a brands average profit potential is used to give guidelines on how easy or difficult it is to do well in it (Karami, 2007). A markets profitability is influenced by several factors among them being the existing brands power, buyer power, threat of substitute brands, new entry barriers and rivalry among different brands. It helps to identify a markets potential and the benefits a brand will enjoy by entering the market. This then allows a company to decide on which brands to sell in the market how to sell and how to price them in a way that favors both the brand and the consumers.

The distribution channels of a brand play a big role on how the consumers relate with it. For example, a brand that is only distributed in affluent neighborhoods may not attract any attention from a customer who is price conscious regardless of its quality or affordability. Distribution channels are important in helping a company decide on the best methods to distribute their brands and ones which will ensure that they are accessible to as many of its loyal consumers as possible. In any market, there are existing distribution channels, emerging channels, trends and a power structure for the channels. Existing channels are more direct to the customers as customers are used, are more comfortable getting products from them and can easily access the brands. Emerging ones however offer brands an opportunity to develop a more competitive advantage as each brand has a chance to come in with a new one. The power str

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