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2015 年 8 月第十八卷三期 • Vol. 18, No. 3, August 2015
The Effects of Reputation and Relative Low Price
on Purchase Intention: Service Quality as a
Mediated Moderator
Hung-Tai Tsou Feng-Hsu Liu Hsuan-Yu Hsu
http://cmr.ba.ouhk.edu.hk
Web Journal of Chinese Management Review • Vol 18 • No 3
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The effects of reputation and relative low price on
purchase intention: service quality as a mediated
moderator
Hung-Tai Tsou Feng-Hsu Liu Hsuan-Yu Hsu
Abstract
The study proposes to integrate consumer-related variables (reputation, relative low
price, and service quality) and purchase intention at Watsons in Taiwan and investigates
whether gender differences in purchasing intention for self-selective cosmetics and
skincare products. Data were collected from 300 consumers in an empirical survey. This
study uses the Partial Least Square (PLS) analysis to test the hypotheses. Reputation
positively affects consumer purchase intention for male and female; the relative low
price moderates the impact of reputation on purchase intention only for female;
reputation × relative low price increases purchase intentions through the mediator of
service quality. The paper is among the first attempts to examine how reputation, relative
low price, and service quality affect purchase intention. Also, this study provides the
explanatory variance missing in the literature that has not examined the black box
relationship between consumer-related variables and purchase intention in a retailer
context.
Keywords: Reputation, Relative low price, Service quality, Purchase intention
_________________________________________________________________
Hung-Tai Tsou Department of Marketing and Logistics, Ming Dao University
Feng-Hsu Liu
Department of Business Administration, Shih Hsin University
Hsuan-Yu Hsu Department of Information Management, Tatung University
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Introduction
Purchasing goods and services through retailers has become commonplace and reflects a
change in the purchasing behavior of consumers (Chen et al., 2009). In response to
changing consumer trends, retailers have begun adjusting their service strategies to
provide superior customer service to consumers. Reputation has recognized as a critical
factor in successfully marketing services (Thomas, 1978) and in consumer purchase
decision-making processes (Grewal et al., 1998). Consumers depend on a reputation to
determine the quality of services, the security of credit card transactions, and the
reliability of the store. Therefore, when consumers face differentiation and
customization environments, the reputation becomes the most competitive weapon.
In the 21st century, understanding consumer needs and devising appropriate and effective
marketing strategies in response to consumers’ purchasing motivations is imperative to
successfully promote purchase intentions. Further, consumers are become more price
sensitive in today’s digital environments. Previous studies have shown that retail price
change consumers’ purchase decisions (Inman & McAlister, 1993). Price-based
promotions are usually implemented to target consumers who are likely to increase their
purchasing activities when a greater change in price is perceived so that they pursue a
maximized reduction in cost (Ho et al., 1998). In the face of a great variety of
promotional campaigns, consumers remain most perceptive to savings in price. Retailers
have become more active in launching sales promotions, offering direct feedback in
terms of low price or coupling promotions with coupons for consumers. Accordingly,
the role of relative low price that retailer makes is important for a better understanding
of consumer purchase intention.
Service quality has been extensively researched in service marketing. Admittedly,
service quality influences customer buying behavior (Parasuraman et al., 2005). Because
the widespread availability of merchandise and information works in the consumer’s
favor, consumers seek more value from their purchasing processes. Thus, in the
brick-and-mortar retail store, service quality can have a substantial impact on the
consumer evaluation of physical services because such service encounters rely heavily
on the interaction between customer and service provider (Jang & Young, 2009).
Following Grewal et al.’s (1998) research, three important components that appear to be
key to store patronage decisions are the retailer’s service offing quality, reputation, and
price. However, the basic relationships among service quality, reputation, and pricing
have already been explored in the literature. Additionally, the simultaneous effects of
these retail cues (reputation, service quality, and relative low price) on consumer
purchase intentions are less clear. Hence, this study is designed to fill the gaps of the
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prior studies as discussed above. The study proposes to integrate consumer-related
variables and purchase intentions in a retailer context.
In addition, recently, due to changes in consumerism, male is increasingly willing to
spend money on cosmetics and skincare products. They trust that cosmetics and skincare
products can show their personalities, thus many male consumers consume cosmetics
and skincare products, resulting in increases in sales. Therefore, this research
investigates whether gender differences in purchasing intentions for self-selective
cosmetics and skincare products exist in chain stores. Three specific questions are
addressed: 1. How does reputation impact purchase intention? 2. How does relative low
price moderate the relationship between reputation and purchase intention? 3. How does
service quality mediate the moderated relationships among reputation, relative low price,
and purchase intention? Figure 1 presents the research model. We first present a brief
literature review. Following the literature review, we present our research findings. We
conclude with a discussion of the implications of the study, its limitations and
suggestions for future studies.
H3
Relative low price
× Reputation
Reputation
Service quality
H2
H1
Purchase
intention
Figure 1. Research model
Literature review and hypotheses development
Reputation and purchase intention
Reputation is an overall evaluation of the extent to which a firm is substantially “good”
or “bad” (Weiss et al., 1999). Montgomery (1975) reported that reputation was as
important as a product’s uniqueness for the promotional effectiveness for new product
purchases. Because reputation comprises the physical environment of a store, the service
levels, and the merchandise quality, and because reputation is a critical, extrinsic cue of
the store’s image, the more favorable the reputation is, the better the buyers perceive the
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store’s image. Namely, the more favorable the chain store reputation is, the better
consumers perceive the merchandise quality. A company’s reputation affects consumers’
expectations with respect to the quality of the company’s product offerings (Margulies,
1977). Therefore, the reputation of a company can be foremost in consumers’ minds as
they process an advertisement for that firm’s product.
A strong reputation increases consumers’ confidence in the products and services offered,
in the store’s advertising claims, and in consumer buying decisions (Schwaiger, 2004).
For example, Watsons and Cosmetic are two big cosmetics and skincare chain stores in
Taiwan. Watsons is famous for being a “drugstore for convenient life”; Cosmetic is
famous for being as a “drugstore for health care”. Most of consumers buy cosmetics and
skincare products in these two chain stores and experience new products. Nevertheless,
buyers care more about the reputation because the image and reputation of the brand can
help them infer the quality of the products. Hence, we propose that the reputation give
consumers more confidence in the product/service and make consumers more willing to
purchase the product/service. Accordingly, we hypothesize the following:
Hypothesis 1: Reputation has a positive effect on purchase intention.
The moderating role of relative low price
The price level is a major consideration for consumers during purchasing process. Price
promotion can increase sales (Bitta Della et al., 1981; Blattberg & Neslin, 1990).
Relative low price is defined as a lower price relative to prices of similar products in
other stores (Sirohi et al., 1998). The advantage of price cuts and coupons is that they
tend to attract consumers, inducing their intentions to purchase products. Multiple
sources, such as a price search engine and word-of-mouth communications, make it easy
for consumers to compare prices among identical products or services before making
purchasing decisions. Consumers made purchasing decisions on the bases of television
or print advertisements.
Today, with the Internet, people can share their experiences or opinions on Web sites.
Discount plans can be delivered to consumers as they process an advertisement for a
firm’s product through these marketing media. Cao et al. (2003) found that consumers
are less satisfaction with the prices they pay higher price. If consumers find and perceive
that a retailer can offer lower prices relative to similar stores, they will want to purchase
that product. For example, Watsons well-known slogans of “I dare to swear, the Watson's
cheapest” and “Expensive refund twice the difference”, Watson’s high-profile and
promotional activities, as well as advertising, continue to appear in advertising and other
media to inform consumers about exclusive promotions of goods. Accordingly, we
hypothesize the following:
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Hypothesis 2: Relative low price moderates the relationship between reputation and
purchase intention.
The mediating role of service quality in the moderated relationships
Retailers acquire a competitive advantage by providing consumers with diversified
services. Even since the arrival of the Internet, retailers have not been able to replace
brick-and-mortars (Grewal et al., 2003; Goldsmith & Flynn, 2005). Brick-and-mortars
provide personal interaction and personalized buying experiences. Consumer
expectations for service offerings are influenced by service provider at the point of
delivery (Coye, 2004). Service personnel plays an important role in shaping consumers’
perceptions of service quality (Liao & Chuang, 2004) and affecting consumer
purchasing behaviors (Froehle, 2006; Ding et al., 2010). Thus, service quality is critical
in forming consumers’ attitudes, intentions, and behaviors (Parasuraman et al., 2005).
Service quality is known to affect intended consumer behaviors in service settings
(Boulding et al., 1993; Jang & Young, 2009). Although the economic incentive
generated by certain deals can promote consumers’ purchasing intentions, discounts are
very likely to be associated with poorer perceived product quality (Raghubir & Corfman,
1999). Consumers worry about whether the price is consistent with product/service
quality. The rise in sales expected to be generated by the economic incentive of
discounts can therefore be undermined; discount promotions may trigger a negative
effect on product/service quality. Therefore, we explore whether service quality has a
mediating effect in the moderated relationships among reputation, relative low price, and
purchasing intention. This gives a great importance to the retailers’ marketing or
improving the image of the low prices as a means of increasing consumer purchase
intentions. We therefore propose the third hypothesis.
Hypothesis 3: Service quality mediates the moderated relationship among
reputation, relative price, and purchase intention.
Methodology
Sample and data collection
Due to the improvement in living standards and in the economic situation, the
consumption of cosmetics and skincare products has been popularized, and the market
scale keeps expanding. Among cosmetics and skincare products, self-selective products
play an important role in retailing. Many chain stores sell self-selective cosmetics and
skincare products that draw consumers’ attention with eye-catching marketing strategies.
Thus, a questionnaire survey was employed to test the research model with data from
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consumers at Watsons in Taiwan. Watsons was chosen because it is the world’s largest
health and beauty retailer.
The structured questionnaire was generated based on academic and practitioner-oriented
literature and interviews. The data were collected by means of a three-page
self-administered questionnaire as part of a wider examination of reputation, service
quality, relative low price, and purchase intention. Reputation was adapted from Weiss et
al. (1999). Service quality was adapted from the research of Ding et al. (2010). Relative
low price was adapted from Sirohi et al. (1998). Purchase intention was adapted and
modified from Pavlou and Gefen (2004). Following the suggestions of Churchill (1979),
the existing scales were adopted, modified, and extended. Information was gathered
through a five-point Likert-type scale which ranged from (1) strongly disagree to (5)
strongly agree. The first page of the questionnaire addressed the purpose of the study and
the length of the questionnaire; it also assured the respondent of the survey’s
confidentiality. Respondents were instructed to answer all the questions based on their
experience in buying products or services from Watsons. In total, 300 responses were
complete and valid for data analysis. The respondents in our questionnaire consisted of
300 consumers (101 men, 199 women). The respondents were primarily young; 95.3%
were under 30 years of age.
Because the data were self-reported, Harmon’s one-factor test (Podsakoff et al., 2003)
was used to examine the presence of common method bias. The items that were used to
measure the independent, moderator, and dependent variables were all entered in an
exploratory factor analysis. If common method bias had been an issue, a single factor
would have emerged to account for a large percentage of the variance in the resulting
factors. However, in the analysis of consumers, no single factor emerged. The first factor
accounted for 32.5 % of the total variance, and the four extracted factors accounted for
71.4 % of the variance. This suggests that the results were not due to common method
bias.
Data analysis and results
The internal reliability of the measurement models was tested using Cronbach’s alpha (α)
and composite reliability (ρc) (Fornell & Larcker, 1981). Cronbach’s alphas for all
constructs were above the threshold of 0.7 (range = 0.73–0.84), indicating a high degree
of internal consistency (Nunnally, 1978). Likewise, all ρc values were above the
suggested threshold of 0.8 (range = 0.83–0.93), indicating that the values were reliable.
Convergent validity was assessed using the average variance extracted (AVE), or the
ratio of construct variance to total variance among indicators. The AVE values for the
four constructs all exceeded 0.5 (Fornell & Larcker, 1981), confirming that all
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measurements demonstrated satisfactory convergent validity. The AVE can also be used
to evaluate discriminant validity. The values of the square root of the AVE for the values
in the diagonal were all greater than the correlations among the values off of the
diagonal (Fornell & Larcker, 1981). Hence, the discriminant validity was satisfactory.
The means, standard deviations, correlations, and AVE for the key constructs in the
study are shown in Table 1.
Table 1. Mean, SD, correlations and AVE
Construct
Mean SD
Reputation (RE)
(a)
3.23
.72
Service quality (SQ)
(b)
3.31
.68
Relative low price (RLP) (c)
3.59
.81
Purchase intention (PI)
(d)
3.44
.63
AVE
0.71
0.87
0.72
0.56
(a)
0.84
.46**
.21**
.52**
(b)
(c)
(d)
0.93
.27**
.47**
0.84
.45**
0.74
Notes: 1. * p < .05, ** p < .01, *** p < .001
2. Figures in shaded diagonal are values of the square root of the AVE.
Hypotheses testing
The path coefficients for the research constructs are expressed in a standardized form.
The predictive power of the research model was assessed by examining the explained
variance (R2) for the endogenous constructs (Chin, 1998). H1 predicted that reputation
would positively affect consumer purchase intention. Model 1 examines this prediction,
and the result is statistically significant (b = 0.60, p < 0.001 for male; b = 0.50, p < 0.001
for female), supporting H1. With regard to R2, reputation explained 36 % of the variance
in purchase intention for male and 25 % of the variance in purchase intention for female.
H2 predicted that the relative low price would moderate the impact of reputation on
purchase intention. We mean-centered all of the constructs before we generated the
interaction terms. Then, we added the interaction terms from Model 2 to Model 3. Table
2 shows the results of the moderation analysis. Model 1 introduced the main effects
(reputation). Model 2 and Model 3 introduced the interaction effects of relative low price.
From these results, for male, Model 3 indicates that the interaction term of reputation ×
relative low price did not have a significant positive moderating effect on the association
between reputation and purchase intention. Thus, H2 is not supported for male (b = 0.12,
p > 0.05) but is supported in the case of female (b = 0.82, p < 0.001), confirming the
moderating role of relative low price.
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Table 2. Moderation effects for male and female
Dependent Variable: Purchase intention
Model 2:
Model 3:
Path/Hypothesis
Model 1:
Moderator direct
Moderated
Main effects
effects
effects
0.60***
0.53***
0.40***
Reputation  Purchase intention
(0.50***)
(0.47***)
(-0.17)
(H1)
0.15
0.05
Relative low price  Purchase
(0.46***)
(0.00)
intention
Reputation × Relative low price
0.12
(0.82***)
 Purchase intention (H2)
R2
0.36 (0.25)
0.38 (0.46)
0.38 (0.48)
Note: 1. *** p < 0.001; ** p < 0.01; * p < 0.05; 2. The values in parentheses for female.
In addition, the findings do not identify relative low price with respect to male because
the R2 values did not change. In contrast, for female, including the moderating effects
increased the R2 value in the purchase intention from 25% in Model 1 to 46% in Model
2, and 48% in the Model 3, as expected by H2. Thus, the findings identify relative low
price. To assess further the relationship with (interaction effect) and without the
moderating effect (main effect), the R2 values of each model were compared. The effect
size1 (f 2) was computed to gauge whether the interactions had a small (0.02), medium
(0.15), or large effect (0.35) on purchase intention. For male, Model 1 explained 36% of
the variance for the purchase intention versus 38% in Model 3. The interaction had a
small effect size ( f 2  0.38  0.36 /1  0.36  0.03 ). For female, Model 1 explained 25%
of the variance in the purchase intention as compared with 48% in Model 3. The
interaction had a medium to large effect size ( f 2  0.48  0.25/1  0.25  0.30 ).
To facilitate the interpretation of the moderating effects with respect to female, Figure 2
illustrates the relationship between reputation and purchase intention for retailers with
low or high levels of relative low price. Figure 2 suggests that retailers with low levels
of relative low price promote negative purchase intentions, whereas retailers with high
levels of relative low price promote positive purchase intentions vis-à-vis reputation.
Thus, relative low price had a positive moderating effect on the relationship between
reputation and purchase intention.
Effect size f 2 = [R2 (interaction model) - R2 (main effects model)] / [1- R2 (main effects model)]
(Pavlou & EI Sawy, 2006).
1
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Figure 2. The moderation analysis for female
Results for the mediating role of service quality
H3 predicted that service quality would mediate the moderated relationships in H2. In
testing the mediating role of service quality, we followed the work of Luo and
Bhattacharya (2006), who indicated that four specific criteria must be met: (1) The
predictor variable (reputation × relative low price) should significantly influence the
mediator (service quality); (2) the mediator should significantly influence the dependent
variable (purchase intention); (3) the predictor variable (reputation × relative low price)
should significantly influence the dependent variable (purchase intention); and (4) after
we control for the mediator variable (service quality), the impact of the predictor
variable (reputation × relative low price) on the dependent variable (purchase intention)
should no longer be significant (for full mediation) or should be reduced in strength (for
partial mediation).
In Model I (see, Table 3), the significant paths suggest that the first two conditions are
met (reputation × relative low price affects service quality). Furthermore, service quality
affects the purchase intention. In addition, entering the mediator of service quality
decreases the strength of the effects of reputation × relative low price on purchase
intention (but this is still significant) (Model III), indicating partial mediation.
Correspondingly, these results suggest that the mediation effect of H3 for male and
female are partially mediated by the service quality. As such, reputation × relative low
price would increase purchase intentions through the mediator of service quality. Thus,
H3 is supported.
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Table 3. Path analysis results for mediation effect in moderated relationship
Full mediation:
PV for DV:
Non-mediation:
Path
Model I
Model II
Model III
0.60***
RE × RLP  SQ
(0.44***)
0.49***
0.26**
SQ  PI
(0.48***)
(0.22***)
0.68***
0.37***
RE × RLP  PI
(0.68***)
(0.58***)
R2
0.36
SQ
(0.20)
0.24
0.29
0.32
PI
(0.23)
(0.46)
(0.50)
Note: 1. PV for predictor variable; DV for dependent variable
2. *** p < 0.001; ** p < 0.01; * p < 0.05
3. The values in parentheses for female
Discussion and conclusions
Our study shows that (1) reputation affects purchase intention; (2) reputation can be
positive or negative depending on the level of retailers’ relative low price; (3) service
quality plays a significant role in the relationships among reputation, relative low price,
and purchase intention.
Reputation for purchase intention
Reputation is an important consideration during the purchasing decision process. It
suggests that retailers should build positive reputations, not only for their own sake, but
also because positive reputations may benefit to company. On the other hand, poor
reputations may harm decrease consumers’ purchasing intentions.
The moderating role of relative low price
Consumers are concerned with relative low price for the chain store’s services or
products. By a desire to pay lower prices for products sold by reputable chain stores,
consumers can have higher purchasing intentions. Therefore, relative low prices not only
increase consumer purchasing intention but also significantly benefit the reputable chain
store, if consumers are aware of the store.
The mediated-moderating role of service quality
Our results suggest that service quality partially mediates the influence of interaction
(i.e., reputation × relative low price) on purchase intention, indicating that service
quality is needed for a retailer to enhance consumers’ purchasing intentions through a
combination of chain store reputation and relative low price. With ever-changing
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expectations, consumers want more from the process of purchasing. Consumers will
reward superior service quality with a higher willingness to buy chain store products. In
this highly competitive age of e-commerce, delivering service quality through
brick-and-mortar stores is an imperative strategy for success, and possibly plays a more
important role than do low prices. Although male may not want to purchase a product
based on its relatively low price, they do want to do so if there is a superior service
quality involved.
Service quality associated with service operations is achieved through a series of
initiatives that may include consumer relationship management, relationship marketing,
and consumer interaction routines as well as deep embedding of a combination of both
reputation and relative low price. Superior service quality requires knowledgeable and
well-mannered service personnel and a consumer-oriented business strategy. In
particular, the characteristics of the chain store sometimes result in inconsistent service
quality among each of the different stores; such characteristics may include taking a long
time to locate new products, having incomplete information, lacking in sufficient
interaction, and missed or late responses. Hence, developing capabilities for consistent
service quality and implementing consumer service practices require significant time and
strategy building, making it easy for consumers to want to purchase products.
The issue of gender differences
Gender as a salient and conspicuous indicator, allows service representatives to
distinguish consumers’ characteristics easily and to provide tailored services. Male and
female are different in psychologically (Tannen, 1994). In this study, gender differences
affect the impact of service quality on the relationships among reputation, relative low
price, and purchase intention. According to Table 2 and Table 3, only female’s
purchasing intentions were enhanced by relative low price, while male’s purchasing
intentions were enhanced via service quality. This result indicates that females prefer
relative low price, whereas males focus more on the service quality. Male consumers
hope to feel free to ask and spend time talking and hearing information about the
products what they are buying. With superior customer service, male consumers are
emotionally-oriented. That is, females are more likely to buy products for low prices
while males tend to buy products for the superior service quality of store personnel
involved. Contrary to female consumers, who are traditionally sophisticated consumers
in products, male consumers often feel uncertain during the process of purchasing
cosmetics and skincare. Therefore, service quality is important factor in male’s
purchasing process.
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Managerial implications
Firstly, retailers should emphasize building and maintaining a superior reputation, as
consumer responses to a given offering are highly correlated with the consumers’
opinions of the company’s reputation. Retailers can have greater market responsiveness
to advertising programs and word-of-mouth advertising when the reputation is positive
and consistent with the company information regarding its product and service offerings.
In addition, retailers should collect consumers’ feedback on current service offerings.
For example, many retailers use e-mail to contact and collect data from consumers,
thereby having good reputations by spreading information through the Internet and mass
media.
Secondly, retailers should use price-promotional strategies to convey discounts or price
cuts. The findings suggest that retailers could attract consumers, especially female, with
alternating price promotions, such as discounts, rebates, and coupons that generate
purchase intentions. It is imperative for retailers to establish positive reputations, create
suitable prices, and deliver promised customer services to consumers. Thirdly, before
beginning service quality programs, retailers should focus on improving service
personnel’s service skills and implementing superior-quality services. Training and
recognition are essential for enhancing service personnel proficiency for service delivery
and customization. Frontline service personnel take on the role of both sales persons and
production workers, and thus require combined skills in serving consumers because the
marketing of cosmetics and skincare needs knowledgeable and courteous. Service
personnel should be trained on how to recognize important cues from consumers,
allowing the categorization of consumers with varying needs and desires.
Fourthly, retailers should allocate more service resources to their consumer service
programs and campaigns. They should meet or exceed consumer expectations and foster
closer relationships with consumers to generate their purchase intentions. The results can
help retailers design advertisements that contain a message about the relative low price
and high service quality. Consumers will then perceived lower risk and will be more
likely to purchase the product. Finally, retailers should be encouraged to train service
personnel. Based on the gender attribute, gender enables chain stores to plan their
service strategies and training programs effectively. If male perceive a high price
difference between two competing products, this would provide an opportunity for
retailers to differentiate their product/service qualities. Then, service personnel would
feel more comfortable serving consumers.
Limitations and future research
This research is restrained by one limitation. All of the examined consumers were
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selected from a single retailer. Other well-known retailers in Taiwan should also be
investigated. The generality of research model and findings to other retailers would
require further examination. For future research, researchers should re-investigate other
issues with respect to service design, brand management, consumer attitudes and
behaviors. It is very imperative for retailers to focus on online customer experiences.
The question of what consumer values during their online shopping could be considered
in future research. Additionally, different reputable chain store activities could result in
different consumer responses (see Figure 2). Thus, the opportunity for future research is
to identify the dimensions along which consumption styles are evaluated. For example,
the issues could be specified the impulse-buying and rational-buying behaviors in
reputable and non-reputable chain stores. We suggest that future studies attempt to
understand the consumption styles of consumers and understand how chain stores could
utilize such shopping processes effectively.
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