loyalty and the relationship between satisfaction and loyalty. Typically, online customers can more easily compare alternatives than offline customers, especially for functional products and services. A competing offer is just a few clicks away on the Internet. Because of these properties of the Web, many managers fear that the online medium may induce lower customer satisfaction and loyalty compared to the offline medium, and that increased satisfaction with a service may not lead to higher loyalty when that service is chosen online.
Some recent studies show that there may be systematic differences in customer attitudes and behavior for products and services chosen online versus offline. For example, price sensitivity may actually be lower online than offline (e.g., Degeratu, Rangaswamy,& Wu, 2000; Lynch & Ariely, 2000; Shankar,Rangaswamy, & Pusateri, 2001). Brand names (brand equity) could also have higher impact online than offline (Degeratu et al., 2000). Collectively, these studies suggest that a priori, customer satisfaction and loyalty for services may be different online (compared to offline), and not necessarily lower online. However, we do not know of any academic research that has carefully explored whether the online medium positively or negatively impacts customer satisfaction and loyalty (other things equal) and why.
Satisfaction and loyalty are not surrogates for each other (Bloemer & Kasper, 1995; Oliver, 1999). It is possible for a customer to be loyal without being highly satisfied (e.g., when there are few other choices) and to be highly satisfied and yet not be loyal (e.g., when many alternatives are available). Firms need to gain a better understanding of the relationship between satisfaction and loyalty in the online environment to allocate their online marketing efforts between satisfaction initiatives and loyalty programs. If, for example, the firm finds that loyalty is associated with increased satisfaction, it could directly focus on enhancing its loyalty programs. In this paper, we address the following questions: (1) For a given service, other things equal, are the levels of customer satisfaction and loyalty different when the service is chosen online as compared to offline? If yes, what factors might explain these differences? (2) Is the relationship between satisfaction and loyalty stronger or weaker online compared to the offline environment? To answer these questions, we develop a set of hypotheses based on a conceptual framework. To test the hypotheses, we formulate simultaneous equation models and estimate them using data from two sets of online and offline samples in the lodging sector of the travel industry. An important characteristic of industries such as online travel, entertainment (e.g., movie, theater, and concert tickets), and restaurant is that regardless of whether customers choose the service provider online or offline, the actual service is experienced by the customer