International Journal of

Homepage: http://ijmres.pk/
Management Research E-ISSN: 2313-7738, ISSN: 2223-5604
and Emerging Sciences Vol 10, No 3, 2020 September, PP. 42-49

IMPACT OF LOYALTY ON RETAIL SALE: AN EMPIRICAL

INVESTIGATION OF SERVICE OPERATIONS AND CUSTOMER BEHAVIOR
AS MEDIATORS
1
Tehmina Fiaz Qazi, 2Kamran Yousef Sandhu, 3Abdul Basit, 4Shazia Bashir
1
Hailey College of Banking and Finance, University of the Punjab, Lahore, Pakistan. Email: tehmina.qazi@gmail.com
2
Institute of Business and Management, University of Engineering and Technology, Lahore, Pakistan. Email: dr.k.sandhu@hotmail
3
Lahore Institute of Science & Technology, Lahore, Pakistan. email: abasit_shahbaz@yahoo.com
4
Institute of Business and Management, University of Engineering and Technology, Lahore, Pakistan. Email: doloroussoul@gmail.com

ARTICLE INFO ABSTRACT

Article History: This paper is a step towards verifying a retail sale model in Pakistan. To have
Received: 22 Aug 2019 the competitive edge, retailers have started increasing value by loyalty and
Revised: 02 Dec 2019 efficiency through focusing on service operations. This study further seeks
Accepted: 19 Jul 2020 understanding of retail network and its connection with services and value
Available Online: 15 Sep 2020
added by retailers. It follows positivist philosophical approach. Overall design
Keywords: consists of literature review, data collection through field survey and analysis.
Customer behavior, Loyalty, Structure Equation Modeling (SEM) has been employed as technique of data
Retail network performance and analysis. Adanco 2.0.1 has been used as a tool of applying SEM. Results
Service operations. showed that sales operations affect customer behavior and ultimately retail sale
whereas loyalty of customer also affect the retail sale. Middle class is expanding
JEL Classification: in Pakistan and buying behavior of shoppers is changing therefore it has become
O14, M31 imperative to build the capacities in retail markets. This study provides insight
to retailers for building managerial capabilities. It is subject to limitations like
surveying limited number of customers only in Lahore, Pakistan.
© 2020 The authors, under a Creative Commons Attribution-Non-Commercial 4.0

1. INTRODUCTION
From the past few decades the passive role of retailer has changed, as their role now is not like as it was few
years back. Now situation is different, there is change of influence from producer to retailer, due to different added
value given or introduced by retailer (Ramanathan &Ramanathan, 2013). Various big names like Lucky One in
Karachi and Packages Mall and Emporium Mall in Lahore, Pakistan, in the field of retailer proved their management
competencies like in sale and operational attributes in order to compete in the market. At the present time, retail stores
have started offering sale discounts on mostly branded and non-branded things. Retail firms’ management capabilities
help them to be competitive in market (Bititci et al., 2011). Moreover from the literature we can easily see that
satisfaction plays an important role in retaining the customer and ultimately improve the sale of customer (Au, Ngai,
& Cheng, 2002). As in the competitive market, loyalty and satisfaction of the customer is very hard to achieve through
the customer services (Krishna & Dangayach, 2012). As loyal customer is always ready to purchase more and play a
role of advocate for the firm, so basically losing the customer is more costly than creating the new one (Harris &
Goode, 2004). Therefore, now the main concern is that in which ways the resources of retail network are used to have
customer in their pockets. The efficiency in retail can be got through providing unique services to customer viz display
of items and location of retail stores. Some customer wants to have best operational services provided by retailers
while some have the priority to go to shopping areas whether the places have a long distance.
Simultaneously western retailers placing an eye on developing countries wanted to find ways of investment in
potential areas where growth is possible. The ways of spending of customer has changed in developing countries
which has pushed the retailers to do the changes in the strategic priorities (Diallo & Cliquet, 2016). As old and
traditional western markets have got their saturation point due to competition, emerging markets which have fewer
tariffs rates, rising incomes are more attractive (Cao & Pederzoli, 2013). Therefore, in developing countries, Pakistan’s
market is showing positive growth towards the retail sector. Retail business in Pakistan is contributing 18.5% in GDP
(www.sbp.org.pk).When entering in the emerging market, international retailers don’t always get success due to local
competitors having experience related to their local context (Diallo& Cliquet, 2016). For that reason, this study helps
the retail managers in understanding the complexities of emerging markets having their own distinct culture and
geographic needs like Pakistan. Moreover in the last years, there is great improvement in the promotion schemes given

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Qazi et al. Impact of Loyalty on Retail Sale . . .

by the Pakistani retail stores, which can be observed by cross shopping behavior. We confirm the idea by using the
survey data collected from retail sector located in Lahore, Pakistan. This paper helps in creating the managerial
abilities by understanding the behavior of customer and understanding of retail network values. Application of this
paper helps in generating the abilities of managers by understanding the role of customer behavior through the loyalty
schemes and service operation attributes in the retail sector. The rest of the paper is organized into literature review
and hypotheses development, methodology, analysis, discussion and conclusion.
2. LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT
At present time customer is of leading importance, especially in the field of retail network. Different sales offer
with good discount can highly attract the customer towards the retail sector and eventually create the potential loyal
customers. In long term, customer loyalty affects the company’s profitability (Dewani, Sinha, & Mathur, 2016). At
the same time different theories related with the capability suggested that firms capabilities make them perform better
financial wise by outpace their competitors (Barney, 1991; Winter, 2000). Capability is the ability of entrenching the
resources by organization in providing the output (Makadok, 2001; Teece, 2007).
Service Operations
Conceptual model in this study is based on the affect theory of social exchange (Lawler, 2001) that during a
social joint exchange venture by different partners , gain of implicit and explicit benefits defines the sensitivity and
nature of experience (Lawler, 2001). If either of the partner feels a non-beneficial exchange then bad emotions arises
and as a result negative relation builds but when exchange is beneficial for both partners like for customer and retailer
then relationship strengthens (Raggio & Folse, 2009). In the literature, customer satisfaction is totally dependent on
the customer service (Krishna & Dangayach, 2012). As we can easily see that friendly workers helping customers to
locate items and store workers greeting the customer by showing helpful attitude that definitely create the liking
towards the store that create the loyalty. The studies viz (Baker, Grewal, & Parasuraman, 1994; Pugh, 2001; Tsai &
Huang, 2002) have shown that affective purchase behavior of customer can be influenced by the combination of the
measures of positive employee means like the availability and positive response towards the customer. There is lot of
literature that surpassed about wide variety of traditional techniques of attracting customers e.g. television
advertisement, magazine advertisement, pamphlets, and billboards which are still in action. But in view of changing
scene the techniques have also been changed like advertisements on social media and information through reference
groups. Introduction related to brand through new techniques plays pivotal role (Ramanathan, Subramanian, Yu, &
Vijaygopal, 2017). Store location is also an important aspect as the elderly customer wants to visit that store having
less distance from their houses and then there are customers, whose priority is to go to that retailer which is near to
their office while coming back to homes. Some retailers prefer to have convenient display strategy of product which
appeals to customer, similarly convenient way of payment of cash is also an edge, as some young families wants to
pay through credit cards or debit cards. Service operations and convenience factors such as access, transaction and
benefit play a considerable role in customers’ perceptions about the retail outlet (Belvedere, 2014 Nguyen, Dewitt, &
Russell-Bennett, 2012). Based on this discussion, we posit our first main research hypothesis.
H1: Service operations are positively related to customer behavior.
Loyalty
There is a wide variety of models about customer loyalty in literature. Macintosh and Lockshin (1997) developed
a model of multilevel relationship between customers and stores. They are of the view that to create relationship with
a customer that can result in commitment and create trust level will ultimately increase shopping attitude towards
retail outlet (Macintosh & Lockshin, 1997). Ramanathan et al. (2017) asserted that loyalty is also related with financial
status and education level. For some customers, it is very tough to change their loyalty from one brand to another
brand although promotional sale is given by many retailers. In early times customers had few retailer store options
and limited number of brands therefore, purchase intention toward the same product was there. But now situation has
changed number of brands are more, options of retail stores are more, offering sale discount are available that is
creating competition. These types of competition prompt the customers to switch to another retailer which is offering
better options (Ramanathan et al., 2017). Under the huge competition the retailers are introducing the different loyalty
schemes / loyalty store cards. To understand the behavior of customers towards these types of activities conducted by
different retailers, academic research is in progress. Due to internet, customer is saving time and price in search of the
brands they want to purchase. As competition has increased, it is difficult to retain customer because different type of
price discount scheme has entered by different retailers. The above statement is established with attachment theory
that proposes that the physical and psychological satisfaction of customer is fulfilled by the brand value will ultimately
increase the willingness of customer to get purchase-related objectives (Feeney & Noller, 1990). The willingness of

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customer to buy the same brand is being influenced by the satisfaction gained through reduction of price, creates
perception of additional utility without paying extra. This utility creates greater level of customer hope and decreased
level of perceived risk (Hallowell, 1996), which produced a result of comfort with the same brand (Jones & George,
1998). Based on above discussion, the second hypothesis is:
H2: Loyalty has the positive impact on retail sale.
Customer behavior
Service operations (e.g. display, location), customer satisfaction and the loyalty, created through different
techniques say loyalty scheme, price dependency, etc. certainly affect the behavior of customers. As the equity theory
suggested that exchange partners (customers and the retailer) creates the equal ratio between the input and the benefits
of the relation (Walster, Berscheid, & Walster, 1976). If the customer is satisfied from the store then the customer
wants to visit again, and this shows the customer loyalty towards that particular store. Impact of convenience features
in customer behaviors is measured through their intention to visit again and recommend the shop and their favorite
items to friends and relatives (Ramanathan & Ramanathan, 2013). Therefore it can be hypothesized as follows:
H3: Customer buying behavior is positively linked to retail sales
H4: Service operations mediates the relationship between loyalty and customer behavior
In this study the development of the hypotheses is based on the model given by Ramanathan et al. (2017). From
hypothesis developed above and the model referred herein there are four variables under investigation namely loyalty
(independent), service operations (mediator), customer behavior(mediator) and retail sale (dependent).It is not out of
context to reiterate the definitions of variables before embarking on to operationalization of variables.

Loyalty is a characteristic of that customer who shows willingness to engage with the
1 Loyalty company and continue to do business with it (Zineldin, 2006).
The system in which different ventures and process carryout to attain business success
2 Service Operation
(Johnston, 2005).
Customer behavior is defined by the values of customer that has significant influence on the
3 Customer Behavior purchasing and repurchasing intentions and to have a close relation with the firm (Wang,
Lo, Chi, & Yang, 2004).
Retail sale is defined as the sale or re-sale of real or tangible, new and used personal property
4 Retail Sale through the physical format of ware house clubs and super centers (Hortaçsu & Syverson,
2015).

Based on the data collected from the Pakistan retail sector, the model of relations as hypothesized has been tested
in methodology section.
3. METHODOLOGY
The philosophy of this research is positivism and deduction approach is applied. It is a cross-sectional
independent quantitative research. The behavior of customer towards purchasing has been analyzed by getting
information through survey questionnaire. Data have been collected at the spot from the shoppers of leading stores
located in Lahore, as it is metropolitan city of Pakistan. In order to collect the data non-probability technique (i.e.
convenience sampling) has been used. To get the data from customer of retailers, 380 questionnaires were distributed
among shoppers and out of which 250 valid responses have been used for further analysis. As Krejcie and Morgan
(1970) proposed that when the population size is greater than 20,000 than sample size must be 377. In the
questionnaire, Likert scale 1 (strongly disagree) to 7 (strongly agree) has been used. All questions in questionnaire are
adopted (Ramanathan et al., 2017). Mall intercept has been used as a method of data collection (Emporium mall and
packages mall) through survey questionnaire. Survey data has been typed manually in Microsoft Excel. Structure
Equation Modeling (SEM) has been employed as technique of data analysis. Adanco 2.0.1 has been used as a tool of
applying SEM.
To do the analysis of measurement model one has to start from the validity and reliability test. For reliability and
convergent validity one has to evaluate Dijkstra-Henseler's rho (ρA), Average Variance Extracted (AVE) and factor
loading values (Dijkstra & Henseler, 2015; Henseler, Hubona, & Ray, 2016). Construct scores are reliable if the ρA
value is greater than 0.707 (Sitgreaves, 1979). In the Table 1 given below, values of ρA of service operations (0.7487),
loyalty (0.8186), customer behavior (0.7525) and similarly retail sales (0.7618) are greater than 0.70 that proves our
convergent validity. To measure the reliability of construct “Cronbach's alpha (α)” is used and “Composite Reliability”
is used as a replacement (Bagozzi & Yi, 1988). Table 1 is showing all values of “Cronbach's alpha (α)”.

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Qazi et al. Impact of Loyalty on Retail Sale . . .

Table1. Reliability of Construct

Construct Dijkstra-Henseler's rho (ρA) Jöreskog's rho (ρc) Cronbach's alpha(α)
Service Operations 0.7487 0.8300 0.7450
Loyalty 0.8186 0.8587 0.8145
Customer Behavior 0.7525 0.8580 0.7520
Retail Sales 0.7618 0.8933 0.7611

The values of factor loading must be greater than 0.707 at 95 % level of significance. Moreover the value of
AVE is the accepted measure for the convergent validity of the proposed model and its’ value should be greater than
0.5 (Fornell & Larcker, 1981). AVE value of customer behavior (0.6683) and retail sale (0.8071) is more than 0.5 so
convergent validity holds. The factor loading values of indicators are ranging from 0.7 to 0.9 that shows they are
reliable.
Table2. Reliability and Validity Test Findings
Latent Variables Indicators Loadings CR AVE
SL1 0.6332
SL2 0.6608
SL3 0.6348
0.8145 0.4321
Loyalty Bl1 0.6648
Bl2 0.6286
SLO1 0.6884
SlO2 0.6985
SlO3 0.6464

cS1 0.6970
cS4 0.7485
Service operation lnt1 0.6963 0.7450 0.4943
disp2 0.6738
disp3 0.6976

cB1 0.8011
cB2 0.8244 0.7520 0.6683
Customer Behavior
cB3 0.8268

rS1 0.9023 0.7611 0.8071

Retail Sales
rS2 0.8944

Constructs are different theoretically; this is being checked by the discriminant validity test. For that reason
constructs should be different statistically. In the HTMT ratio of correlation criteria, discriminant validity of factors
hold if the factor value is greater or lower than 0.850 but it should not be 1 (Dijkstra & Henseler, 2015). We can see
in the Table 3, the value between loyalty and retail sale is less than 0.850, similarly the value of HTMT between
customer behavior and retail sale is also greater than 0.850 not 1 shows that discriminant validity holds.
Table 3. HTMT Ratio
Construct service operation Loyalty customer behavior Retail sales
Service Operation
Loyalty 0.7425
Customer Behavior 0.8767 0.6219
Retail Sales 0.7913 0.6039 0.9518

In the latest studies, researchers check the discriminant validity of the constructs through Fornell-Larcker
criterion (Fornell & Larcker, 1981),the HTMT ratio (Dijkstra & Henseler, 2015) and cross-loadings evaluation. In the
Fornell-Larcker criterion the one factor must have relation with the others factors lower than square root of AVE
(Fornell & Larcker, 1981). In other words the latent construct must shows better variance with its’ own indicator rather

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than with other construct. In Table 4 the value of service operation with its’ own construct is having more value
(0.4943) than with the other construct such as with loyalty (0.2569), customer behavior (0.3396) and retail sales
(0.2354).
Table 4. The Fornell-Larcker Criterion
Construct Service Operation Loyalty Customer Behavior Retail Sales
Service Operation 0.4943
Loyalty 0.2569 0.4321
Customer Behavior 0.3396 0.1548 0.6683
Retail Sales 0.2354 0.1604 0.3369 0.8071

Above analyses confirmed the reliability and validity (convergent and discriminant) of the constructs. The
coefficient of determination (R2) of customer behavior is 34% that means service operation shows variance of 34 %
towards the customer behavior. Customer behavior and retail sale together, they show variance of 37.2 %.
Table5. Coefficient of Determination R2
Construct Coefficient of determination (R2) Adjusted R2
Service Operation 0.2569 0.2533
Customer Behavior 0.3396 0.3363
Retail Sales 0.3720 0.3658

Table 6. Hypotheses Analysis

Path T- Significant
Hypotheses Suggested Confirmed
Coefficient Statistics @ 10% level
Service operations are positively related
H1 + 0.583 12.1859 Yes(P<0.01) Supported
to customer behavior
Loyalty have the positive impact on the
H2 + 0.204 2.3157 Yes(P<0.01) Supported
retail sale
Customer buying behavior is positively
H3 + 0.500 4.7088 Yes(P<0.01) Supported
linked to retail sales
Service operations mediates the
H4 relationship between loyalty and + 0.507 8.6902 Yes(P<0.01) Supported
customer behavior

As model shows that service operation attributes (0.583) has strong effect on the customer behavior so it is
significant, similarly customer buying behavior (0.500) has strong effect on the retail sale. The relation of loyalty with
retail sale is significant as path coefficient is more than 0.1.

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Qazi et al. Impact of Loyalty on Retail Sale . . .

4. DISCUSSION AND CONCLUSION

As competition in the retail market is getting harder and harder so research on customer attitude towards the
store loyalty is important to study in context of the economy of Pakistan. Aim of the study was to investigate that how
the value added capabilities in Pakistani retail stores can affect the attitude of customer by implementing the service
operations skills. Retail customers are more loyal to stores and brands as long as they have convenience during
shopping. This study shows that simple store loyalty will not attract the buyers. This research finding is in line with
the findings of Su & Geunes (2012). Buyers influenced by loyalty schemes may tend to change their loyalty if they
do not find the store as convenient for the shopping. In methodology section, it can be seen that the loyalty has shown
less significance with retail sales. This proves that the hypothesis which shows relation of services operation with
customer behavior is significant as mediator. While doing the managerial decision about the firm performance in
increasing the retail sale, this paper will provide the solid base. The findings of the study also show that in Pakistani
retail sector, customers’ main preference is the convenience. Loyalty cannot directly increase the retail sale but giving
satisfaction through operation services can improve the retail sale in Pakistan. The main driver of retail sale is service
operations and customer behavior and it affects the retail sale finally. One of the limitations of this study is that it has
been conducted only in Lahore city therefore, suggested to conduct similar studies in different contexts to have further
insights. Secondly, it is a cross sectional study hence, recommended to conduct longitudinal studies in future. In future
data must be collected from retailers as well to have better perspective of retail sale. Thirdly, as technology has entered
in our lives so, with e-commerce point of view, its’ impact is changing the consumer behavior. Therefore, in future,
one can collect the data from online shoppers as well to get better insight. When entering in Pakistani retail sector;
strategies should be made in such a way that operation services should be the center of focus while dealing with the
customer behavior.
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Appendix 1

MEASURES

Survey responses to loyalty, service operations, customer behavior and retail sales measures are based on a 7-point
Likert-type scale (1= strongly disagree, 7 = strongly agree). The measurement scales used in the study are given below:
Loyalty
Sl1 – Generally low price for all items
Sl2 – I can save money by shopping in this store
Sl3 – I get my favorite items cheaper in this store
Bl1 – I always buy my favorite brand
Bl2 – I prefer buying any item if there is promotion
Sl1 – I buy only favorite brands even the price is high
Sl2 – I buy favorite brands even the promotion price is high
Service Operations
cS1 – It is easy to return the products
cS4 – I get good customer support to choose items
int1 – My friend/relative/media introduced this shop to me
disp2 –I can see a clear display of price of items
disp3 – Shopping in this store helps to improve my lifestyle
Customer Behavior
cB1 – I will visit again the shop again
cB2 – I will recommend this shop to my friends (social media)
cB3 – I will recommend my favorite item (social media) to my friends
Retail Sales
rS1 – I bought all items i wanted from this store today
rS2 – I am happy with today’s purchase of products

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