Vanessa Apaolaza Ibáñez Patrick Hartmann Pilar Zorrilla Calvo

1. Antecedents of Customer Loyalty in residential energy markets: Customer satisfaction, Brand associations and Switching costs Vanessa Apaolaza Ibáñez Patrick Hartmann Pilar Zorrilla Calvo

2. Purpose of the study Analyses the effect of customer satisfaction, brand associations and perceived switching costs on customer loyalty in residential energy markets

3. Reasons for this research • Insight for energy managers • Limited number of studies analysing the relationship between these variables in the energy market

4. Structure • Conceptual framework • Empirical work: Structural equation modelling techniques

5. Customer loyalty in residential energy markets Loyalty as a behaviour (Gwinner et al., 1998; Liljander y Strandvik, 1993; Loveman, 1998; Söderlund, 1998) + Loyalty as an attitude (Varela, 1991; Dick y Basu, 1994; Zeithaml et al., 1996; Barroso y Martín, 1999; De Ruyter et al., 1998; Oliver, 1997; Andreassen y Lindestad, 1998)

6. Loyalty prerequisites (Gremler y Brown, 1997; Selnes, 1993; Bitner, 1990; Butcher et al., 2001; Cronin y Taylor, 1992; Kandampully Suhartanto, 2000; Zahorik y Rust, 1992) • Customer Satisfaction • Brand Associations • Switching Costs

7. Customer Satisfaction “... an overall, post-consumption affective response by the residential energy customer.” (+) Satisfaction Loyalty (Powell, 2000; Bennington et al., 2000; Davids, 2001; Antonevich, 2002)

8. H1: Customer satisfaction has a positive effect on customer loyalty

9. Brand Building Brand value is based on strong and unique brand associations related to attributes and benefits of the service and/or corporate values (Biel, 1992; Keller, 1993; Aaker, 1996; de Chernatony & Dall’Olmo Riley, 1998, 1999)

10. Brand associations of Energy Brands Perceived Service Quality Value Added Services Environmental and Social Commitment Brand trust Price perceptions “Innovative and dynamic” corporate attributes

11. Dimensions of service quality in the field of residential energy market • Technical Quality • Functional Quality

12. Technical Quality of Core Service • Number of supply interruptions • Time it takes the company to re-establish the supply in case of interruption • Existence of electricity oscillations

13. Technical Quality of Peripheral Services • Adequate consultation services regarding the purchase of services or on energy saving and the security of the installations • Adequate information on anticipated supply interruptions, as well as the ability to adapt services to the specific needs of clients • Existence or not of billing errors • Regular control and maintenance of home installations

14. Technical Quality (Core service + Peripheral services) “what” customers receive “how” customers receive the service (prompt service, behaviour of employees, etc.) Functional Quality

15. H2: Technical Quality (core service) has a positive effect on customer loyalty mediated by customer satisfaction H3: Technical Quality (peripheral services) has a positive effect on customer loyalty mediated by customer satisfaction

16. H4: Functional Quality has a positive effect on customer loyalty, mediated by customer satisfaction H4a: Functional service quality has a greater effect on customer satisfaction than technical quality of the service

17. Brand associations of Energy Brands Perceived Service Quality Value-added services • Combined home energy and water supply • Purchase or lease of home appliances • Telecommunications • Online customer interaction • Financing and insurance services

18. Value-added services Environmental and social commitment Satisfaction Loyalty Innovative and Dynamic Reasonably priced

19. H5: Perceived value-added services have a positive effect on customer loyalty, mediated by customer satisfaction H6: The perception of the company as socially and environmentally committed has a positive effect on customer loyalty, mediated by customer satisfaction

20. H8: The perception of the company as being innovative and dynamic has a positive effect on customer loyalty, mediated by customer satisfaction H9: The perception of a reasonably price has a positive effect on customer loyalty, mediated by customer satisfaction

21. Brand Trust(Mayer et al., 1995; Gurviez, 1996; Dwyer et al., 1987; Conangla, 2002) “... the feeling of security or faith that a customer has in his/her service brand, based on the expectation that the company does not intend to lie, break promises or take advantage of the customer’s vulnerability.”

22. Trust Loyalty (Nesbit, 2001; Moorman et al., 1993; Sanzo et al., 2000; Setó, 2003; Suárez et al., 2003; Gommans et al., 2001; Garbarino y Johnson, 1999) H7: Brand trust has a positive and direct effect on customer loyalty

23. Perceived Switching Costs Costs involved in changing from one service provider to another (Porter, 1982) • Perceived risk • Opportunity Costs • Time and effort involved in the information search regarding alternative providers, as well as in the decision making process

24. Most residential energy customers perceive a high degree of switching costs (Jones y Sasser, 1995; Lewis, 2002; Watson et al., 2002; Coyles y Gokey, 2002) H10: Perceived switching costs have a positive effect on customer loyalty H10a: Perceived switching costs have a greater effect on loyalty towards the energy provider than customer satisfaction

25. Hypothesized model

26. Research Method • Data collection was conducted as part of an GfkOmnibus Survey consistent of personal interviews in the respondent’s homes

27. Sample • Studied population consisted of the whole of Spanish population of 15 years of age and older • 2020 valid interviews were carried out • Sample units were selected through stratifiedsampling by region and size of the place of residence, as well as sex and age • Households were then selected by randomsampling from each stratum out of the electoral register

28. Measurement of constructs

32. H1: Customer satisfaction has a positive effect on customer loyalty • H2: Technical Quality (Core Service) has a positive effect on customers loyalty mediated by customer satisfaction • H3: Technical Quality (Peripheral Services) has a positive effect on customers loyalty mediated by customer satisfaction

33. H4: Functional quality has a positive effect on customer loyalty mediated by customer satisfaction • H4a: Functional service quality has a greater effect on customer satisfaction than technical quality of the service

34. H8: The perception of the company as being innovative and dynamic has a positive effect on customer loyalty, mediated by customer satisfaction • H5: Perceived value-added services have a positive effect on customer loyalty mediated by customer satisfaction • H9: The perception of a reasonably price has a positive effect on customer loyalty mediated by customer satisfaction

35. H6: The perception of the company as socially and environmentally committed has a positive effect on customer loyalty, mediated by customer satisfaction • H7: Brand trust has a positive and direct effect on customer loyalty • H10: Perceived switching costs have a positive effect on customer loyalty • H10a: Perceived switching costs have a greater effect on loyalty towards the energy provider than customer satisfaction

36. Conclusions • Loyalty of residential customers in the energy market depends as much on satisfaction and brand trust, as on switching costs • To directly improve customer loyalty, brand trust should be increased through brand communications • To improve customer satisfaction it is necessary to concentrate on brand associations related to perceived functional service quality and environmental and social commitment

37. Conclusions • Functional quality can be more important than technical service quality, when technical quality is provided in a satisfactory way by all energy companies alike Employees play a very important role in the energy brand building process. All employees can have a powerful impact on customers’ perceptions of both the brand and the organisation

38. Conclusions • The environmental and social commitment of the brand is becoming an increasingly crucial factor for customer satisfaction in the residential energy market and should be communicated through staff and brand communications

39. Limitations and further research • Include a higher number of indicators for the measured constructs and replicate the study in other countries