University of International Business and Economics
School of Business
Value co-creation & customer loyalty:
Cases of Ethiopian airlines on line check-in.
Summited to: Professor Yonggui Wang
Prepared by: Biftu Mohammed Ibro, DE201865016
The main business capabilities are not in the value chain but in the points of interaction between customers and ?rms. The primary task is a values co-creator in any cases (Gong & Yi, 2012). In this perspective, Lusch & Vargo (2008) considering that all parties are involved in an exchange of relationship that performs common function: to co-create values through the integration of provision services and resources. Value co-creation is a mechanism in which increases value for the customer and the service supplier (Lusch & Vargo, 2004). Basically, the customers role in this process mainly centered upon carrying out series of activities in order to achieve a specific goal (Manuela Vega-Vazquez, et al., 2013, Payne et al., 2008). Moreover, Customer involvement has been shows to deliver values to firms and customers (Dong, Evans, & Zou, 2008; Auh, Bell, McLeod, & Shih, 2007; Chan et al., 2010; Yim, Chan, & Lam, 2012), and customer who perceived value through their co-producing service tends to be more satis?ed (Ouschan, Sweeney & Johnson, 2006; Dong et al., 2008; Chan et al., 2010; Yim et al., 2012). However, previous ?ndings about the effects of customer involvement on service results, including customer satisfaction and loyalty. To this end this study aims to examine customer involvement which enhances customer loyalty, (intrinsic and extrinsic value co-created, customer satisfaction and customer loyalty). Moreover, it also intended to see whether service quality has a moderating role on the interplay between customer satisfaction and customer loyalty. Considering Ethiopian Airlines, specifically in Bole international airport, Addis Ababa, using convenience sampling technique the sample respondents will be selected. To the most of its part, the study will depend on primary data collected from the respondents using survey method (through questionnaire). Using SPSS, the collected data will be analyzed by employing structural equation modeling technique. Accordingly findings will be identified, conclusion will be drawn and appropriate recommendation will be forwarded for Ethiopian Airlines.
Table of content Page
1. Introduction 3
2. Literature Review .. 5
2.1 Theory and Hypotheses Development .. . 6
2.1.1 Customer involvement & co-created values .. . 6
2.1.2 Co-created values & customer satisfaction … 8
2.1.3 Customer satisfaction & customer loyalty . 10
2.1.4 Service quality as moderator . . 12
2.2 Conceptual Frame work 13
3. Research Design and Methodology . 14
3.1 Sampling Methods .. . .. 14
3.2 Data Collection Method . . 14
3.3 Conceptual model.. ………. 15
3.4 Construct measurement .. . 15
3.4.1 Customer loyalty ……………………… 15
3.4.2 Customer involvement .. 15
3.4.3 Customer involvement & co-created value .. 16
3.4.4 Co-created values & customer satisfaction 16
3.4.5 Service quality 16 3.4.6 Control Variables 25
3.5 Data analysis Method … 17
3.6 Reliability Analysis . 17
4.1 Theoretical implication 17
4.2 Managerial implication 17
5. Limitation & future research direction . 18
Globally airline industry is extremely competitive, over 1000 airlines. In 2017 the yearly expansion rate of worldwide air travel was about 7.5% (International Air Transport Association, 2017). The World Tourism and Travel and Council 2015, stated as traveling is one of the fastest and largest growing worldwide service industries, and its entire contribution to global economy in 2017 rose to $2.9 US trillion. This increase was mainly due to the changing of business development and lifestyles. As a result the number of airlines passenger globally was estimated in 2017 at over 4 billion (International Air Transport Association, 2017).
Thus, technology has extensively transformed the interactions between consumer and service providers, self-service technology is substituting employee in numerous counter operations, which enabling customers to involve in the service process, without employees participation (Ostrom, Bitner & Meuter, 2002; Roundtreeet al., 2000). Therefore, this allows the company to provide services anywhere and anytime (Yoo & Lyytinen, 2002).
For example, self-service technologies, online check in system, are broadly employed in air transport industry. These self-service technologies system in self-check in service not merely allow airlines to reduce their operating costs and optimize space, but also help travelers to save money and time through the faster and better interactions they allow between their customer and service providers (Ching-Fu Chen, Jing-Ping Wang, 2016).
In addition to airline’s readiness to implement the self-service technology, the benefits and success of such technologies depend on critically on customers involvement (Ching-Fu Chen, Jing-Ping Wang, 2016). According to Kulwant Pawar & Christopher Durugbo, (2014), Airline online self-check in system are one of the characteristic of businesses to customer. Through customer involvement, the values shared by passengers and the airline can be co-created.
Moreover, in dynamic business environment customer involvement enables product quality improvement, sales promotion, decrease in risk and costs, increases customer satisfaction and increase competitive advantage (Di Gangi & Wasko, 2009; Brodie, Ilic, Juric & Hollebeek, 2013). According to Vargo and Lusch (2004), Prahalad and Ramaswamy (2004), value created jointly by companies and customers is a foundation for forthcoming competition. The results determine corporate value that can be influenced by customer involvement (Jurate Banytea & Aiste Dovaliene, 2014).
Ethiopian Airlines is a publicly owned company, which was established in 1945. Progressively, it started to provide international and domestic flights to cities (Civil Aviation Authority, 2007). The last ten years, on average the development of Ethiopian Airlines estimated around 28%, which makes it the fastest rising airline in Africa and the most profitable one (International Air Transport Association, 2017). In 2015, Ethiopian Airline was voted as No.1 airlines in Africa and also given a 4-star ranking (SKYTRAX, 2017). Furthermore, this rating certifies the airlines are providing on board services and highest standard of airport (Gary L.Frankwick, Osama Sam Al-Kwifia, & Zafar U. Ahmed, 2018)
Some prior studies have conducted to explore the circumstances in which firms gain pro?t from consumer co-creation (Storback, & Frow, 2008; Nambisan 2008; Vargo Maglio & Akaka 2008; Schau, Mu~niz, Payne & Arnould, 2009). For example, Nambisan (2008) forward different strategies which are implemented by company managers for better bene?ts from consumer co-creation, such as scheming co-creation platform that facilitates customer innovation, building direct relationship between inside product development team and outside customers and incorporating the co-creation process with the consumers relationship management framework.
On the other hand, some studies have explore the influence of co-creation on shaping consumers behavior and psychology, including, brand loyalty and community commitment (Zhang, Luo & Liu, 2015), loyalty, expenditures and satisfaction with the company (Stokburger-Sauer & Grissemann, 2012), brand awareness (Hsiao, Yang, Yichuan Wang & Hajli, 2016). Furthermore, some scholars have examined the drivers of co-creation. Numerous range of drivers give the impression to attracts consumer into co-creation activities, including learning benefits, social integrative bene?ts and perceived customer bene?ts (Guoxin Li & Xue Yang, 2016), challenges and opportunities of value co creation (Yonggui Wang et al., 2017).
According to Kulwant Pawar & Christopher Durango (2014), there is still a gap how co-creation is actually conducted, which poses fundamental questions for practices and research (Hennala, Parjanen & Konsti-Laakso, 2012). In general, even though the concept of service-dominant logic and value propositions are increasingly in use, little empirical research has been previously indicates the business-to customers context (Chan et al., 2010) has examined how customer participations affect customer perceived value and how the perceived value affects customer satisfaction and loyalty, the main bene?t that are required by the ?rm that use such technology. (Ching-Fu Chen, Jing-Ping Wang, 2016). As value co-creation are a vital principle of service dominant logic & the key premise of customer involvement (Davey, Fitz Patrick, Muller & 2013; Chan et al., 2010).
Besides, researchers have tried to elucidate the unique nature of airlines service industries, which are significantly di?erent from other service industry, (Muhammad Shoaib Farooqa et al., 2017) that warrants further research to explore the value co-creation and its impacts on overall customer satisfaction and customer loyalty online check-in system (Radovic-Markovic et al., 2017; Farooq et al., 2017).
Considering the above discussed gap the aims of this study will be to investigate how customer involvement, service quality enables customers to co-create intrinsic and extrinsic values and loyalty, which then affects their satisfaction in an airlines online check-in system service perspective, which will be measures the passenger’s co-created values through their involvement in using an online check-in systems in Ethiopian airlines industry.
Therefore, this study will try to answers the following three main questions:
1. What is the effect of value co-creation in customer satisfaction and customer loyalty in terms of online check in system in Ethiopian airlines industry?
2. What is the relationship between customer involvement, intrinsic and extrinsic value co-creation, customer satisfaction and loyalty in online check-in system in Ethiopian airlines industry?
3. What is the moderating effect of service quality on the relationship between customer satisfaction and customer loyalty in Ethiopian airlines industry online check-in system?
This research will be significant for Ethiopian airlines as well as other airlines industry in managing intrinsic and extrinsic value co-creation. The findings of this study will also help aviation industry to propose more effective service strategy, which used to increase customer experience and service quality.
Moreover, it will used as a reference for airlines industry to be aware of the impacts of value co-creation on customer satisfaction and customer loyalty. Therefore, understandings about value co-creation, service quality, customer satisfaction and customer loyalty are very essential for airlines industry, as well as for passengers who engage in value co-creation service process in online check-in system.
Finally, this study will investigate how customer involvement enables to co-create intrinsic and extrinsic values, increase customer satisfaction and loyalty in online check-in system in Ethiopian airlines industry. The following section will discuss about the previous researchers arguments, findings and suggestions or literature review which are relevant to customer involvement including value co-creation, customer satisfaction, customer loyalty, and also the moderating role of service quality. Then it will describe the methodology used to conduct the research, including research framework, data collection and analysis techniques and measurements.
2. Literature Review
Different academic perspectives and disciplines have different de?nition of co-creation. Ginsberg, Kambil and Bloch (1996) ?rst it was de?ned co-creation as how customers cooperate with their suppliers to produce the expected value, often passing it to another customer. Prahalad and Ramaswamy (2000) suggested that consumers become a new source of competence for the corporation and pointed out the changing the role of customers, from passive audience to active co-creator of value. Furthermore, Nambisan (2002) argued that customer can create idea for the developments of new product, to test companies ?nished product and to offer end users product support. Firms can gain creative thoughts and ideas, product feedback and suggestions, product solutions and support from their customer through co-creation activities (Baron, & Nambisan, 2007).
Moreover, technological tools can help consumers to participate in the challenging process of co-creation and effectively to share their idea and thought with firms (Wamba, Aditya, Akter & Bhattacharyya, 2016; M?hlbacher, F?ller, Matzler & Jawecki, 2010; Yonggui; Wang & Li, 2016). Thus, customer can serve as product conceptualizer, product designer, product tester, product support specialist and product marketer in the co-creation process (Nambisan 2002; Nambisan & Nambisan 2008). In addition to providing innovative product solution and idea, co-creation can also be contributed to customer relationship managements, including enhancement of customer satisfaction and customer loyalty (Van Dolen & Lee, 2015; Nambisan & Baron, 2009).
Accordingly, this idea is centered on the concept that the main business capabilities are not in the value chain but in the points of interaction between customers and ?rms. The primary task is a values co-creator in any cases (Gong & Yi, 2012). In this perspective, Lusch & Vargo (2008) considering that all parties are involved in an exchange of relationship that performs common function: to co-create values through the integration of provision services and resources. Subsequently, the organization must understand about the impossibility of adding values to the offer without combining or gathering resource that go beyond the entities itself (Ramaswamy & Prahalad, 2004). Therefore, value co-creation is considered to be a mechanism in which increases value for the customer and the service supplier (Lusch & Vargo, 2004). Basically, the customers role in this process mainly centered upon carrying out series of activities in order to achieve a specific goal (Manuela Vega-Vazquez, et al., 2013, Payne et al., 2008).
Thus, the main outcome of co-creation process is value which is depends on the use of service itself (Maglio, Vargo & Akaka, 2008) and experience of customer (Ramaswamy & Prahalad, 2004). In some cases, including the aviation sector, co-creation considered as a valuable opportunity for enhancing environmental sustainability, through knowledge exchange between individuals passenger and airlines (Kallgren, G?ssling, Haglund, Revahl & Hultman, 2009). Various examples of real-world application of co-creation (by ?rms like Cisco IKEA Sony, Coca-Cola, Microsoft, Apple, Dell, TiVo, Disney, Dell, eBay, Alcatel-Lucent, Steelcase, Toyota Scion, Osram, Mazda, Endemol, and Aloft).
On the other hand, companies such as Starbucks, Samsung, IBM, Nike, LEGO, BMW and Microsoft, have all been effective in leveraging original and unique ideas that contributed by their consumers (Van Dolen & Lee, 2015; Nambisan & Nambisan, 2008). Take Starbucks’ online co-creation community, customer-generated content as an example. ‘Starbucks Ideas’ had received 46,536 popular ideas regarding to coffee and espresso drink until 2016 ( Though the economic pro?t of that popular idea might not be apparent immediately, but evidence show that firms may finally increase their bene?ts (Lee & Van Dolen, 2015). Online co-creation community gets new opportunity to improve consumer relationship and enhance business process ef?ciency (Ramaswamy & C.K. Prahalad, 2004).
In spite of the broadly recognized value or bene?ts of the co-creation process (e.g. Vargo et al., 2008; Prahalad & Ramaswamy, 2004; Zwass, 2010), limited involvement postures a signi?cant problems for the achievement of co-creation, and insight into co-creation involvement have shed attention on experience that encourage customers to virtually and physically submit ideas (Hutter, F?ller, & Faullant, 2011). On the other hand, other researchers have focused on challenges related to geographical proximity or personal interactions to classify brokerage function for facilitating co-creation (Parjanen et al., 2012). Moreover, exploiting customers to generate a new source of surplus value (Jurgenson & Ritzer 2010). According to Christopher Durugbo and Kulwant Pawar (2014), the co-creation process is depends on the openness and willingness of customer involvements in working together (Fueller, Mueller, Hutter, Hautz, & Matzler, 2011).