RELATIONSHIPS AMONG EXPERIENTIAL MARKETING, EXPERIENTIAL VALUE, AND CUSTOMER SATISFACTION Yi-Hua “Erin” Yuan Chihkang “Kenny” Wu Texas Tech University Although experience is recognized as a major benefit the hospitality and tourism industry offers, the use of experiential marketing in this industry is not well documented. Therefore, this study aims to examine experiential marketing in regard to hospitality and tourism operations. Ten hypotheses were developed to examine relationships among experiential marketing, experiential value, and customer satisfaction. Self-reported questionnaires were distributed at four Starbucks in different districts in Taipei, Taiwan, in January 2003. Results of the linear structural relation analyses (LISREL 8.5) indicate that both the measurement and structural equation models have good overall model fit. Moreover, the overall outcome suggests that experiential marketing should induce customer satisfaction through emotional and functional values provided by feel perception, think perception, and service quality. Hospitality managers can use the outcome of this study to gain in-depth understanding of customer experiences, develop effective marketing strategies, and further stage the operational environment that can maximize customers’ perceived experiential value. KEYWORDS: customer satisfaction; experiential marketing; experiential value; structural equation modeling

What did consumers bring back from several days of total relaxation and enjoyment of the wonderful views, great facilities, and delicious food on a prestigious cruise line to the Caribbean? Besides a few souvenirs, “experience” would be the most important benefit of the vacation. Although consumers’ needs and wants differ, gaining some positive or negative experiences is an inevitable result of consuming the products/services they purchase. Experience, or more specifically consumption experience, refers to “the total outcome to the customer from the combination of environment, goods, and services purchased” (Lewis & Chambers, 2000, p. 46) . The nature of these experiences is critical for the hospitality and tourism industry because intangible experience is the core of the products/services offered by businesses. In other words, the products of this industry are always experiential (Williams, 2006) and can be classified as a total experience (Lewis & Chambers, 2000).

Journal of Hospitality & Tourism Research, Vol. 32, No. 3, August 2008, 387-410 DOI: 10.1177/1096348008317392 © 2008 International Council on Hotel, Restaurant and Institutional Education

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Moreover, Schmitt (1999) suggested that the experiences a company delivers to its customers are vital to success of the company. Creating memorable experience is critical to retaining old customers and attracting new ones (Yelkur, 2000). Experiential marketing can be seen as a marketing tactic designed by a business to stage the entire physical environment and the operational processes for its customers to experience. Schmitt (1999) further defined experiential marketing from the customers’ perspective as customers developing recognition and purchasing goods or services of a company or a brand after they get experiences from attending activities and perceiving stimulations. Experiential marketing, an emerging form of marketing, focuses not only on a product or a service but also on an entire experience that a company creates for its customers. Compared with traditional marketing, experiential marketing is focused more on the customers’ experience creation processes, including pre-purchase, moment-of-truth, and post-purchase (Schmitt, 1999). Experience is the main component of experiential marketing. Businesses usually create special stages for customers to experience through different stimulations, including environments, atmospheres, and layouts. As a result of experiencing, customers have different perceptions and react to these stimulations. When they walk into these stores, or even close to them, they develop varied perceptions about them. Customers’ perceptions should be the outcome of marketing efforts that businesses have made. Therefore, in this study, the performance of experiential marketing was examined by measuring customers’ perceptions. Customers define experiential value from different kinds of experiences obtained through encountering service providers. This value is important to induce customer satisfaction (Cronin, Brady, & Hult, 2000; Ennew & Binks, 1999; Kristensen, Martensen, & Gronholdt, 2000). In addition, creating and retaining satisfied customers is essential for the success of businesses. Fonvielle (1997) argued that high customer satisfaction is a competitive advantage for businesses because it contributes to repetitive purchasing. Researchers have pointed out that the higher customer satisfaction is, the higher will be customer loyalty, intention of repetitive purchasing, positive word of mouth, and market share (Bearden & Teel, 1983; Fornell, 1992; Fornell, Johnson, Anderson, Cha, & Bryant, 1996). In this regard, a study connecting experiential marketing, experiential value, and customer satisfaction and further discussing the relationship among these factors by developing a model, would be beneficial to marketing practitioners. The concept of experiential marketing has been applied to many areas, such as retailing, branding, and event marketing. Managers and scholars in the hospitality and tourism industry have not, however, paid it much attention (Williams, 2006). Indeed, because experiential marketing is a relatively new concept in the marketing field, about which little research has been conducted, it is important that empirical studies be designed and implemented to verify this new concept and to provide a solid foundation for further research. The main purpose of this study was to empirically test the congruency of the theory that experiential marketing can induce customer satisfaction through

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experiential value in the hospitality and tourism industry. Based on the research purpose, three general research questions were posed: (1) Can experiential marketing induce experiential value? (2) Can experiential value induce customer satisfaction? (3) Can experiential marketing induce customer satisfaction through experiential value? The outcomes of this research can advance the body of knowledge of experience and experiential marketing, as a tool to modernize the hospitality industry. These outcomes will also benefit both managers and customers. Results will help managers improve their understanding of customer experiences and further develop effective marketing strategies, as well as allowing for managers and businesses to better realize what experiences customers actually desire. Businesses can stage environment and processes to maximize customers’ perceived experiential value. LITERATURE REVIEW Experience Economy and Experiential Marketing

Economic offerings have continuously evolved over time. Pine and Gilmore (1998) provided a classification to explain the evolution of economic offerings. According to this classification, requiring commodities is the first stage. Next, companies make these commodities into goods by further processing, which constitutes the second stage, the product stage. Tangible goods and intangible services are combined during the service stage. The final stage, the experience stage, occurs following the evolution of services. In the end, society moves into the “experience economy” as a result of this evolution. On entering the age of experience economy, customers do not always focus on products. Rather, they pay more attention to experiences; therefore, creating valuable experiences for customers becomes a vital challenge for businesses. Classification and evolution of economic offerings range from commodities and goods to services and experiences. The economic benefit is increased by the progress of this evolution. Businesses create values by charging their customers for special experiences. Thus, companies sell not just products but, more importantly, good memories and experiences. The profit they obtain is significantly improved in the experiences stage compared with the commodity stage. For example, one pound of coffee beans is worth only one dollar at a plantation, but a cup of coffee sells for a couple of dollars at Starbucks (Pine & Gilmore, 1998). To develop marketing strategies to focus on creation of valuable experiences is becoming a key point for businesses’ success in the experience economy. Pine and Gilmore (1998) divided experiences into four types according to their positions related to two axes: passive/active and absorption/immersion. These experiences are entertainment (passive/absorption), educational (active/ absorption), escapist (active/immersion), and esthetic (passive/immersion). The degree to which customers influence performance of activities decides whether they are engaging in passive or active participation, whereas absorption and

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immersion refer to the desire with which they engage in experiences. At one extreme, absorption refers only to customers receiving some information or stimulation; at the other, immersion means customers being completely involved in an experience. Examples of the entertainment experience are watching television and going to a show. In these experiences, customers passively receive different stimulation through their senses. The escapist experience is opposite to the entertainment experience; for example, an escapist experience would be to act in a show or play in an orchestra. On the other hand, taking a swimming lesson is an example of the educational experience by which students can learn only by actively participating. In the esthetic experience, individuals totally immerse in the environment. For example, art lovers appreciate art exhibits in a gallery; they are completely immersed but do not influence the environment. Customers create new identities and realities by these experiences (Williams, 2006). Generally speaking, the most beautiful experience, the sweet spot, contains qualities of all four types of experiences (Pine & Gilmore, 1998). For example, visiting Disneyland can be considered a sweet spot experience because it includes all the aspects of these experiences. Successful businesses create repeat and loyal customers by providing unforgettable experiences. These are memorable activities created by a business through its products and services to customers (Pine & Gilmore, 1998). Schmitt (1999) argued that experiences are formed from the interaction among different events and mental states; Prahalad and Ramaswany (2000) further argued that creating personal experience would be the future competitive edge for companies. Experiential marketing is critical for businesses, especially in the hospitality and tourism industry. Williams (2006) argued that products of this industry are always experiential. In addition to products/services, people get experiences from staying at a hotel, dining in a restaurant, or visiting a travel destination. Instead of buying new products that they do not have, people desire experiences that they have never had. Driver and Toucher (1970) separated experience into five different phases: planning, leaving for the destination, experiencing the destination, returning, and remembering. Customers’ experiences in these phases are subject to change, especially in the third phase because customers’ experiences are complex and affected by many factors (Ittelson, 1978), including controllable and noncontrollable factors by businesses. Therefore, creating unforgettable experiences is critical to the success of businesses in the hospitality industry. Traditional marketing provided useable strategies, tools, and concepts that helped businesses succeed in an earlier age. Responding to today’s much more complicated society and consumers, a features-and-benefits approach of traditional marketing may not, however, be the most appropriate. Williams (2006) argued that experiential marketing is one of the approaches providing a solution to respond to society and customers. Experiential marketing differs from traditional marketing in four major ways—marketing focus, product categories and competition, customer characteristics, and research method (Schmitt, 1999).

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Schmitt (1999) defined experiential marketing as customers’ developing recognition of and purchasing goods or services from a company or brand after they experience activities and perceive stimulations. These experiences enhance the value of a product, a brand, or a company. Nevertheless, experiential marketing does not overlook the quality and functions of products and services; rather, it enhances customers’ emotions and sense stimulation. The main point of experiential marketing is extracting the essence of products and then applying it to intangible, physical, and interactive experiences that increase the value of products or services and helps customers make their purchasing decisions (Williams, 2006). Experiential marketing will become a main concept and tool in the marketing field in the future as the world adopts a more experiential economy (McNickel, 2004); as a strategy, it may be the future direction of marketing (Craig, 2002). Experiential marketing can also be applied to different businesses in different industries, from Ford Motor Company to the North Hawaii Community Hospital (Hill, 2001). Experiential marketing motivates customers to make faster and more positive purchasing decisions (Williams, 2006). In the hospitality and tourism industry, from providers’ points of view, they use products and services to create a stage for customers (experiential marketing); from customers’ points of view, they have their own expectations and perceptions. The process of experiencing connects experiential marketing and customers’ perceptions. Simply put, the process can be formed as a procedure of staging, experiencing, and perceiving. During or after experiencing, customers’ perception can be considered the outcome of experiential marketing. Therefore, the performance of experiential marketing was examined by measuring customers’ perception in this study. Customer Value and Experiential Value

Blattberg (1998) pointed out that customers are the most critical asset for businesses, so businesses should focus on long-term management of customer value and attract, develop, and maintain their relationships with their customers. Understanding what factors create customer value is an obviously important concern in the marketing field. To maintain a competitive advantage, creating special and innovative customer value is necessary (Kotler & Armstrong, 2000). Customer value has been defined divergently. Monroe (1991) defined it as the comparison between recognized benefits and sacrifices; whereas, Strauss and Frost (2002) suggested that it is a combination of customers’ belief, attitude, and experience of a product. Regardless of different perspectives, the main concepts of customer value are that it is subjective to customers, perceived after an evaluation process, and developed by a balance between benefits and sacrifices. Experiential value refers to customers’ perceptions of products or services through direct use or indirect observation (Mathwick, Malhotra, & Rigdon, 2001).

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This value gives customers internal and external benefits (intrinsic/extrinsic values) (Babin & Darden, 1995; Batra & Ahtola, 1991; Mano & Oliver, 1993). The internal benefit is that of starting and finishing a task or a job, whereas the external benefit comprises the pleasure and happiness of completing a process (Babin, Darden, & Griffin, 1994). In addition to the intrinsic/extrinsic dimension, Holbrook (1994) added a dimension, active/reactive, to experiential value. The active value comes from the increasing collaboration between customers and businesses; the reactive value derives from customers’ evaluations, responses, and understanding of the services or products they want to purchase. Interactions between perceptions (intrinsic/extrinsic) and the active dimension (active/reactive) further classify experiential value into four different categories: consumer return on investment (extrinsic/active), service excellence (extrinsic/reactive), aesthetics (intrinsic/ reactive), and playfulness (intrinsic/reactive). Consumer return on investment includes customers’ assertive input of finances, time, and emotion. When service providers accomplish their commitments, they create the value of service excellence (Zeithaml, 1988). Aesthetics mainly reflects two aspects: visual characteristics and wonderful service, which both provide pleasure and help customers to finish their jobs (Deighton & Grayson, 1995). Playfulness is the feeling that attracts customers. It is also a way to achieve escapism, temporarily escaping from real life (Huizinga & Ludens, 1955; Unger & Kernan, 1983). Customers can get experiential value from different kinds of experiences. Compared with customer value, experiential value focuses on the value that customers retain from these experiences. There are many similarities between customer value and experiential value; however, the research on experiential value is limited. Measurement of experiential value developed in this study was based on the literature of customer value (Table 1) because most scholars have agreed that emotional and functional features are the main components of customer value. Consequently, the measurement of experiential value in this article is constituted by these two concepts. In general, functional value can be considered a basic value delivered to customers (Berry, Carbone, & Haeckel, 2002; Schmitt, 1999). Does the coffee taste good? Does the hotel provide a clean room and comfortable bed? On the other hand, emotional value refers to the feeling or emotional reaction that customers gain during and after experiencing (Berry et al., 2002; Schmitt, 1999). For example, does the waiter or server of the restaurant really care about customers? Does the tour guide have a passion to help people learn something? To summarize the aforementioned definitions on value, the operational definitions of emotional and functional values in this article are presented in Table 3. Service Quality

Parasuraman, Zeithaml, and Berry (1985) developed a widely accepted conceptual model of service quality. They argued that customer satisfaction comes from the differences between customers’ perceptions and their expectations of

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Table 1 Summary of the Literature Findings on the Integration of Customer Value Measurement

Scholar Sheth, Newman, & Gross (1991) Burns (1993) Holbrook (1994) Lai (1995) Naylor (1996) Lapierre (2000) Overby (2000) Mathwick, Malhotra, & Rigdon (2001) Sweeney & Soutar (2001)

Emotional Value

Functional Value

Sociable Value

3

3 3 3 3 3 3 3 3 3

3

3 3 3

3 3

3 3 3 3 3

the service. Expectations are established from word of mouth, personal needs, past experiences, and external communication; whereas the perceived service quality is created through the moment of truth. When the perceived service is beyond a customer’s expectations, the customer is satisfied; when the service is below expectations, the customer is dissatisfied. Service quality has been defined in different ways. Garvin (1984) believed that service quality derives not from customers’ objective evaluation but from subjective recognition of service. It is also considered an attitude about an overall evaluation of service. Bitner, Booms, & Mohr (1994) proposed that service quality comes from customers’ subjective decisions. Adapted from these concepts, service quality in this research is defined as a subjective perception referring to the evaluation of the service that customers encountered, and focusing especially on interactions with the service provider. Customer Satisfaction

Pursuing customer satisfaction is a critical goal for organizations, especially for the highly competitive hospitality and tourism industry. There are many alternatives consumers can choose from, and the cost of switching from one service provider to another is modest (Sandvik & Grønhaug, 2007). Kotler (1991) argued that satisfying customers’ needs and desires is the only constant principle in organizations. Customer satisfaction, furthermore, plays an important role in achieving customer loyalty and profitability (Barsky & Nash, 2003). Therefore, learning how to define and measure customer satisfaction are the major tasks for managers in the hospitality and tourism industry. Scholars define customer satisfaction from two different perspectives: transaction-specific and cumulative aspects (Johnson, Herrmann, & Gustafsson, 2002). The transaction-specific aspect refers to customers’ assessment of the value they obtain after they finish one specific transaction (Howard & Sheth, 1969; Engel, Blackwell, & Miniard, 1995; Oliver, 1980). The cumulative aspect

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is the customers’ overall measurement of all their purchasing and consuming experiences related to an organization’s past, present, and future performance (Churchill & Surprenant, 1982; Fornell, 1992; Patterson & Spreng, 1997). Before experiencing products and services, customers have their expectations and/or past experiences. These components are part of the whole experience and also affect the level of customer satisfaction during and after the process of experiencing (Berry et al., 2002; Oliver, 1997). Therefore, the cumulative aspect is more consistent with the concept of experiential marketing. According to literature of the cumulative aspect, customer satisfaction is defined in this study as after purchase, the evaluation and emotional recognition of the completely purchasing process. THEORETICAL FRAMEWORK AND HYPOTHESES

Based on above discussions, experiential marketing induces experiential value and customer satisfaction. The theoretical framework of this study (Figure 1) was developed according to relevant literature to examine this argument. Concepts of experiential marketing and experiential value were further divided into several areas to be effectively measured. Experiential marketing is measured by sense perception, feel perception, think perception, and service quality; experiential value is measured by emotional value and functional value. The definition and measurements of each construct are presented in Table 3. Constructs of Experiential Marketing

Experiential marketing is further separated into five concepts: sense, feel, think, act, and relate marketing (Schmitt, 1999). Sense refers to how customers get perception and information from sight, sound, scent, taste, and touch. Feel means customers get emotional perception and information about company and brand via experience. Think can be described as engaging in creative thinking that may result in a reevaluation of the company and its products. Act means to create experiences related to the customers’ physical body, longer-term patterns of behavior, and lifestyles. Finally, relate, beyond the individual level, refers to the connection with other people, groups, or society, which often leads to sense, feel, think, and act experiences. Based on the definitions above, three of these five concepts (sense, feel, and think) were selected to constitute the theoretical framework. The respondents selected in this research were the current customers of Starbucks who have adopted Starbucks as part of their lifestyles. This adaptation can be considered the outcome that customers responded to Starbucks’ act strategies. Because the major portion of the Starbucks experience focuses on the individual level, it is hard to measure relate experience in this specific subject. Act and relate were not included, therefore, in the experiential marketing construct in this study. Consequently, sense, feel, and think were emphasized in this research because they match the characteristics of the research subjective and help to achieve research purposes.

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Figure 1 Theoretical Framework of Experiential Marketing, Experiential Value, and Customer Satisfaction

Experiential Marketing

Sense perception

Experiential Value

Customer Satisfaction

H1 H2 H3

Feel

Emotional value H9

perception H4 Customer Satisfaction

H5 Think perception

H6 Functional value

H7 Service quality

H10

H8

In addition to these three constructs, perceived service quality was added to the framework because it is one of the important components of experience (Lewis & Chambers, 2000) and supports the overall congruency of the theory of experiential marketing. It also significantly affects experiential value and customer satisfaction (Brand, Cronin, & Routledge, 1997; Cronin et al., 2000; Ennew & Binks, 1999; Fornell et al., 1996; Gooding, 1995; Sweeney, Soutar, & Johnson, 1999). Thus, a theoretical model consisting of four constructs—sense perception, feel perception, think perception, and service quality—was developed to represent experiential marketing in this research. Experiential Marketing and Experiential Value

Schmitt (1999) suggested that experiential marketing should deliver emotional and functional value and positive customer satisfaction. This argument also applied to each component of experiential marketing. Customers can also obtain positive values through special experience. Berry et al. (2002) mentioned that an experience can bring emotional and functional values to customers. Many researchers have asserted, moreover, that different environmental factors create different customers’ responses. These factors include music (Areni & Kim, 1993; Hui, Dube, & Chebat, 1997; Milliman, 1982), color (Bellizzi, Crowley, & Hasty, 1983), smell (Spangenberg, Crowley, & Henderson, 1996),

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and level of crowding (Eroglu & Machleit, 1990; Hui & Bateson, 1991). In addition, Li (2001) found that color, brightness, music volume, and customers’ emotions affect customer satisfaction and time perception. Therefore, six hypotheses were developed to test the relationships among experiential marketing and experiential value. H1: Sense perception induces positive emotional value. H2: Sense perception induces positive functional value. H3: Feel perception induces positive emotional value. H4: Feel perception induces positive functional value. H5: Think perception induces positive emotional value. H6: Think perception induces positive functional value.

Many researchers have suggested that service quality affects customer value. In other words, different service quality leads to different evaluations (Andreassen & Lindestad, 1998; Cronin et al., 2000; Fornell et al., 1996; Hartline & Jones, 1996). Service quality is also an important factor in influencing the value customers place on services (Brand et al., 1997; Gooding, 1995; Sweeney et al., 1999). Therefore, two hypotheses (H7 and H8) were proposed to test the relationship between service quality and experiential value. H7: Service quality induces positive emotional value. H8: Service quality induces positive functional value. Experiential Value and Customer Satisfaction

A number of research findings have supported the relationship between values and customer satisfaction (Cronin et al., 2000; Ennew & Binks, 1999; Fornell et al., 1996; Kristensen et al., 2000; Patterson & Spreng, 1997). Two hypotheses relating to experiential value and customer satisfaction were developed to test the relationship between experiential value and customer satisfaction. H9: Emotional value induces positive customer satisfaction. H10: Functional value induces positive customer satisfaction. METHODOLOGY Survey Instrument

Survey development. A self-reported questionnaire was developed to test relationships among the three main concepts: experiential marketing, experiential value, and customer satisfaction as shown on the theoretical model (Figure 1). A set of 10 questions regarding experiential marketing was adapted from Schmitt (1999) and translated into Chinese. Sixteen questions were translated from Brady and Cronin (2001) on service quality, Sweeney and Soutar (2001) on emotional values, Mathwick et al. (2001) on functional value, and Parasuraman, Zeithaml, and Berry (1988) on customer satisfaction. Respondents were asked to indicate their levels of agreement with a five-point Likert-type scale, where

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1 = extremely disagree and 5 = extremely agree. Five demographic questions were also included in this questionnaire. Content validity. The original questionnaire was examined by a panel of experts to evaluate validity of the questions and appropriateness of translation further tested by a small group of customers to verify the effectiveness of measuring customer’s attitudes. Data Collection

Starbucks was selected as the research site in this project. Starbucks is an international company that has focused its marketing strategy on applying the concept of experiential marketing (Fan, 2003; Williams, 2006). The “Starbucks experience” is distinct from others in two ways: unique corporate culture and passing value to its partners (Michelli, 2007). The company emphasizes deliverance of a positive and pleasurable experience to its customers from Seattle, Washington, to all over the world, including Taiwan. Starbucks is also the most successful chain of coffee shops in Taiwan (Chuang, 2001). The first Starbucks coffee store was established in 1998 in Taipei. As of this writing, there are more than 170 stores in Taiwan (Starbucks Coffee Company, n.d.). “More emotional, less rational” is the main marketing message promoted by Starbucks in Taiwan; this message is further communicated through employees, for example, by hosting coffee-tasting sessions every morning to build the strong relationship between the brand and employees. As a result, employees are willing to spread the message to customers. For Taiwanese, Starbucks brings not only good coffee but also a new idea of coffee experience (Chuang, 2001). An increasing number of Taiwanese go to Starbucks and enjoy the experience, including the atmosphere, music, smell, good coffee, and sense of community. It has become an excellent venue for testing the outcomes of experiential marketing. The purpose of experiential marketing is to design a stage for customers to experience through different stimulations. The stimulations of each component of experiential marketing in Starbucks in Taiwan are shown in Table 2. Field workers. Four fieldworkers were trained to participate in the process of collecting data and were separated into two groups. Each group was in charge of two stores. The training focused on the understanding of all items in the questionnaire and the consistency of asking participants to respond. Data collection. Questionnaires were distributed at four Starbucks in four different districts of Taipei, Taiwan, in January 2003. Convenient samples were collected. The survey was distributed to customers walking out of Starbucks stores and collected by those fieldworkers on site. Respondents were usually standing outside these stores while responding to the survey and spent about three minutes to complete the survey. A total of 420 questionnaires were collected;

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Table 2 Characteristics of Starbucks in Taiwan Sense perception stimulations

Feel perception stimulations Think perception stimulations Service Products Price

Visual (e.g., building, product, uniform, interior design, publication); Auditory(e.g., music); Smell (e.g., coffee); Taste (e.g., coffee, dessert); Touch (e.g., product, furniture) Atmosphere (e.g. brand, interior design, product, people) e.g., coffee seminars, events, community service, social responsibility, surprise events Product making and check-out service Mainly unique products / intangible Relatively high

46 were uncompleted or unusable and excluded from data entry. Therefore, 374 questionnaires were used for the data analysis. The usable rate was 89%. Statistical Analysis

Variable Definition. The definition and measurements of each construct are shown in Table 3. Hypotheses testing. The model and the hypotheses were simultaneously tested by the linear structural relation analyses (LISREL 8.5). The LISREL model consists of a measurement model and a structural model. According to Diamantopoulos and Siguaw (2000), the measurement model specifies how the latent variables are measured in terms of the observed variable and describes measurement properties of the observed variable; the structural equation model specifies causal relationships among the latent variables and describes the causal effects and amount of unexplained variances (Diamantopoulos & Siguaw, 2000; Jöreskog & Sörbom, 2001). Three steps were developed to test the hypotheses. First, internal consistency reliability, convergent validity, and discriminant validity were examined. Second, a measurement model with confirmatory factor analysis was used to validate the proposed measurement indexes. Third, the structural equation model was estimated with LISREL 8.5. RESULTS Profile of Participants

The profile of participants’ gender, age, occupation, income, and education are reported (Table 4). As shown in the table, there were more female respondents (55%) than males (45%). The majority of respondents were ages 20- to 30-years-old (77%). Most of the respondents were research assistants, sales representatives, managers, supervisors, professionals, or students. The respondents’

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Table 3 Definition and Measurements of Each Concept Construct Sense Perception

Feel Perception

Think Perception

Service Quality

Emotional Value

Functional Value

Definition Messages that customers get from businesses through visual, auditory, smell, and touch stimulations Emotional and inner messages businesses delver to customers, such as sincerity and care Different ways that businesses make their customers think and feel curious A subjective perception referring to the evaluation of the service that customers encounter, especially focusing on the interactions with service people Customers’ feelings and attitude toward some products, businesses, and brands Some financial or mental rewards that customers get from their input

Measurement • • • • •

After purchasing, the evaluation and emotional recognition of whole purchasing processes

Schmitt (1999), Parasuraman et al. (1988)

• certain mood • emotional mood • care

Schmitt (1999), Parasuraman et al. (1988)

• thinking • curiosity

Schmitt (1999)

• • • •

reliability timely response attire need and want

Brady & Cronin (2001)

• • • • • • • •

enjoyment return relaxation good feeling satisfaction effectiveness convenience shopping desirability satisfactory price good choice satisfactory product satisfactory service

Sweeney & Soutar (2001)

• Customer Satisfaction

visual attention auditory attention taste attention smell attention easy use

Reference

• • •

Mathwick, Malhotra, & Rigdon (2001), Sweeney & Soutar (2001)

Parasuraman et al. (1988)

incomes were in the middle range; almost half of them (48%) earned US$7,500 to US$15,000 in a year (compared with 2003 annual per-capita income of US$14,821). This income range combined with the no fixed income (29%) range accounted for the largest category. The probable reason for the high percentage

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Table 4 Demographic Profile of Respondents Variable Gender Male Female Age 19 years and younger 20~25 26~30 31~35 36~40 41~45 45 years and older Occupation Manager / Supervisor Assistant / Professional Student Unemployed / Housewife Service sector Others Income No fixed income Less than $7,500 $7,500~$11,250 $11,250~$15,000 $15,000~$18,750 $18,750~$37,500 More than $37,500 Education High school / General equivalency diploma Certificate of graduation College degree Postgraduate degree

Frequency

%

168 206

45 55

28 167 121 39 14 4 1

7 45 32 10 4 1 0.3

16 144 151 2 23 38

4.2 39 40 0.5 6 10

108 53 95 85 24 6 3

29 14 25 23 6 2 0.8

27 60 216 71

7 16 58 19

of the no fixed income group is that a number of the respondents were students. Finally, the majority of respondents had college degrees (77%). Demographic characteristics of respondents of this research are in accord with research of several Starbucks in Taiwan (W. L. Chen, 2002; Y. H. Chen, 2001; Chi, 2004). All indicated that Starbucks’ customers are young and welleducated and, furthermore, a high percentage of them are students. However, because the researchers of this study found no reference regarding the unique customer characteristics of Starbucks in Taiwan, they inferred the following reasons to explain the results. First, because Taipei is the largest city in Taiwan, a large number of universities are located there. Second, students usually have more free time and higher purchasing ability than other people do (Starbucks’ price is relatively high in Taiwan). Finally, because drinking coffee is a relatively

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Table 5 Results of Reliability and Convergent Validity on Experiential Marketing, Experiential Value, and Customer Satisfaction

Concept Experiential Marketing

Experiential Value Customer Satisfaction

Sub concept Sense perception Feel perception Think perception Service quality Emotional value Functional value Customer satisfaction

Cronbach alpha

Average Variance Extract (AVE)

0.7111 0.7478 0.7412 0.8153 0.8807 0.7586 0.8074

0.50 0.60 0.58 0.53 0.59 0.60 0.58

new trend in Taiwan, it is easier for young people to accept the trend than it is for older people. Not surprisingly, students and professionals are major customers of Starbucks in Taipei. Reliability and Validity Analyses

Before testing the overall measurement model, internal consistency reliability, convergent validity, and discriminant validity were examined. Cronbach’s alpha for each construct was calculated to assess reliability. Each value should be above 0.7 for the construct to be reliable (Hair, Anderson, Tatham, & Black, 1998). If Cronbach’s alpha of a construct is below the standard, it should be dropped. Results of this assessment are shown in Table 5. The Cronbach’s alpha of each construct is between 0.71 and 0.88. The results show high reliability. Exploratory factor analysis was used to structure measurements of each concept. Factor loadings should be greater than 0.5 (Nunnally, 1978). All factor loadings of these measurements were greater than 0.55 and less than 0.86 except easy use and care. Therefore, easy use of sense perception and care of feel perception were eliminated from the original questionnaire. All measurements were constructed alike as the theoretical model developed through in-depth literature review. The average variance extracted (AVE) was also used to examine convergent validity of each construct. The AVE was checked to see if constructs accounted for more than 50% of the corresponding items (Fornell & Larcker, 1981). Results of the AVE fell between 0.5 and 0.6 (Table 5). The results suggested convergent validity. Discriminant validity is the trait difference between constructs. To test the validity in LISREL, the difference between a limited model and an unlimited model was checked in which the larger the difference, the higher the discriminant validity. The constructs were compared with each other. Among the 21 pairs of constructs tested, the differences between each pair were statistically significant. The results suggested good discriminant validity.

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Table 6 Results of Overall Model Fit on Experiential Marketing, Experiential Value, and Customer Satisfaction

Index Chi-square (χ2) Goodness-of-Fit Index (GFI) Adjusted Goodness of Fit Index (AGFI) Root Mean Square Residual (RMR) χ2 ratio Incremental Fit Index (IFI)

Results of Measurement model

Results of Structural equation model

p = 0.00 0.93 0.91

p = 0.00 0.93 0.90

The less, the better

0.018

0.020

Less than 3 More than 0.9

1.86 0.96

1.80 0.96

Recommended level

p > .05 More than 0.9 More than 0.9

The Measurement Model

Results of the measurement model were derived from the confirmatory factor analysis (CFA) using LISREL. Several indices describe overall model fit of a model in LISREL to assess the fitting level between observed data and a model, including chi-square (χ2), goodness-of-fit index (GFI), adjusted goodness-of-fit index (AGFI), root mean square residual (RMR), χ2 ratio, and incremental fit index (IFI). Squared multiple correlations (SMC) can determine the reliability of each indicator in LISREL. This value is between 0 and 1. Bagozzi and Yi (1988) suggested that SMC should be beyond 0.5. Because SMC of taste attention and smell attention of sense perception, effectiveness, and convenience of functional value did not achieve the standard, and deleting these measurements did not affect the overall model, the four indicators were dropped. Therefore, 20 measurements and 7 latent variables were entered into the LISREL analysis. Results of the measurement model evaluation are displayed in Table 6. In this model, most of these indices were beyond the recommended standard, GFI=0.93, AGFI=0.91, RMR=0.018, χ2 ratio= 1.86, and IFI=0.96; these outcomes suggested a good measurement model. The model’s chi-square value was not significant at the 0.05 significance level (χ2 =272.23, p = 0.00). However, the chi-square value is strongly affected by a sample size. If a sample size is large, the chi-square value is often significant. Instead of chi-square value, χ2 ratio and other fit indices may be more representative. The Structural Equation Model

Generally, the structural equation model had good evaluation results in overall model fit (Table 6) because the results of indices were beyond the recommendation level, GFI=0.93, AGFI=0.90, RMR=0.020, χ2 ratio=1.80, and IFI=0.96. The model’s chi-square value was significant at the 0.05 significance level (χ2 =284.24, p = 0.00). However, χ2 ratio and other indices exhibited good model fitting results.

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Among the model’s 10 hypotheses, seven hypotheses are supported (Figure 2), including H3 (t = 5.01, p < 0.01), H5 (t = 1.96, p < 0.05), H6 (t = 2.00, p < 0.05), H7 (t = 6.88, p < 0.01), H8 (t = 4.31, p < 0.01), H9 (t = 10.43, p < 0.01), and H10 (t = 9.12, p < 0.01); three hypotheses were not supported, including H1 (t = −1.46, p > 0.05), H2 (t = −1.32, p > 0.05), and H4 (t = 0.42, p > 0.05). From the results of hypothesis testing, several paths of this model were supported: feel perception affects customer satisfaction by means of emotional value; service quality affects customer satisfaction by means of functional and emotional values; and think perception affects customer satisfaction through emotional and functional values. The results also showed that think perception and service quality have stronger effects than sense perception and feel perception because of the larger coefficients of think perception and service quality in the model. In addition, the results demonstrated that think perception and service quality are very important factors when a company attempts to implement experiential marketing. CONCLUSIONS AND IMPLICATIONS

A theoretical model was proposed to explore the relationship between experiential marketing and customer satisfaction in a hospitality setting in Taiwan. Performance of experiential marketing was examined by measuring customers’ perception because the process of experiencing connects experiential marketing and customers’ perception. Results of this article show that 7 of the 10 hypotheses were supported. Generally, this study concludes that experiential marketing could partially induce customer satisfaction because Hypotheses 3, 5, 6, 7, 8, 9, and 10 were supported. More specifically, experiential marketing can induce customer satisfaction through emotional and functional value provided by feel perception, think perception, and service quality. Based on these results, several suggestions were constructed for further research. Outcomes on sense perception differ from the results reported by other researchers (Areni & Kim, 1993; Bellizzi et al., 1983) who argued that sense perception should play an important role in experiential marketing. Hypotheses related to sense perception were not supported in this research. Consequently, investigating the possible reasons behind this incongruence in the theoretical model will be appropriate for future research. The researchers propose several possible explanations regarding the incongruence in the hypotheses related to sense perception. First, repeat customers may not pay too much attention to the decoration, music, or layout of the store because they are familiar with the establishment. Second, the threshold of sense perception may be another cause. When an environment achieves a certain threshold, customers will not perceive minor differences. Third, other measurement tools might be more appropriate to assess the perception of sense than questionnaires, for example, interviews or focus groups. Fourth, because of a surplus of information at the time of data collection, respondents may have omitted less important sense information. Finally, sense stimulation may be a

404

Needs and wants

Attire

0.73**

0.68**

0.74**

0.75

Reliability

Timely Response

0.77**

Curiosity

Service Quality

Think Perception

–0.12

H8

H7 0.83

Functional Value

H10

Shopping desirability

0.34**

0.44**

Satisfactory Price

0.72**

0.56**

Satisfactory Service

Satisfactory Product

Good Decision

**p < .01

*p < .05

Hypothesis not supported

Hypothesis supported

0.8**

0.72**

Customer satisfaction

0.15*

0.56**

Satisfaction

Good feeling

0.76

H9

0.75**

0.78**

Emotional Value

0.8**

0.72**

Relaxation

0.04

0.43**

0.8

Enjoyment

–0.16

H1

H6 0.22*

H5

0.76

Emotional manner

Thinking

H4

H3

0.77**

Feel Perception

0.78

Certain mood

H2

0.7**

Auditory attention

Sense Perception

0.7

Visual attention

Return

Figure 2 Conceptual and Structural Modeling: Experiential Marketing, Experiential Value, and Customer Satisfaction

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hygiene factor that may not lead to satisfaction but is necessary to attract customers, similar to the two-factor theory proposed by Herzberg, Mausner, and Snyderman (1959), which has been widely accepted to explain employees’ job satisfaction within an organization. One practical implication based on the results of sense perception in this study is that hospitality operators should be advised to reallocate their monetary investment on decoration and other facilities, which had been thought to provide customers with strong stimulation that could overcome the intangible characteristics of service products. If indeed sense perception can be verified to be not as important as previously thought, hospitality businesses could allocate more money to the core operations, such as design and higher-quality products, or hire and train better personnel to deliver better services. In this sense, they could use their capital more efficiently and the return on investment would be higher. No doubt Starbucks has invested in a considerable effort to create a good environment for its customers regarding the experiential marketing concept. Based on results of this research, Starbucks should consider the role of sense perception in its business. As mentioned above, sense perception may not be an important factor for attracting customers to Starbucks. Although Starbucks was chosen to be the research site, the researchers believe that the results of this research may be applied to other hospitality operations. Experience audit and experience motif proposed by Berry et al. (2002) may be good tools for operations to improve the management of its total customer experience. That is, managers can use videotape or in-depth interviews to increase understanding of customers or potential customers’ perception of their experiences, especially on sense perception. Based on results of the experience audit, businesses could develop an experience motif reflecting their core values. They could further examine whether every clue or element of their customers’ experiences matches the motif to help modify or improve customers’ experiences. This study empirically supports the theory that experiential marketing induces customer satisfaction through experiential value. In addition, the synergetic effects of experiential marketing and experiential value simultaneously contributing to customer satisfaction have not been reported by other researchers. Therefore, this study can serve as the basis for future study regarding experiential marketing and customer satisfaction. This article can provide managers with a new look at marketing, especially in the hospitality industry. Most managers have not considered experiential marketing because they assume their customers are rational and make decisions based on functional product features, for example, price and quality. This assumption is not entirely valid today; managers should, therefore, take account of “excellent and unique experiences” for customers. The outcome of this research also provides empirical supports for managers to implement experiential marketing strategies. In conclusion, the outcomes of this article should help marketing managers develop appropriate strategies to design and stage operational processes and physical environments to satisfy their customers. On the other hand, customers also benefit from the unforgettable experiences they desire.

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RECOMMENDATIONS FOR FUTURE RESEARCH

Several suggestions have been drawn for future study. First, the research model can be applied to other hospitality settings such as lodging and/or foodservice operations. New results can be compared with the outcomes suggested in this study to examine any differences between industries. Second, future research can focus on sense perception to discover the possible reasons why the two hypotheses related to sense perception were not supported. Third, Williams (2006) argued that getting feedback beyond questionnaires would be more creative and innovative solutions when businesses deal with the issue of customer experiences. Thus, using qualitative methods to conduct a research about experiential marketing may be another good direction. Finally, the research model can also be connected with other important concepts in the marketing field, such as customer loyalty. Therefore, the relationship among experiential marketing, customer satisfaction, and customer loyalty can be developed and may be supported. RESEARCH LIMITATIONS

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Submitted October 20, 2006 Final Revision Submitted March 1, 2007 Accepted May 15, 2007 Refereed Anonymously Yi-Hua “Erin” Yuan (e-mail: [email protected]), is a doctoral student in the Department of Nutrition, Hospitality, and Retailing at Texas Tech University, Box 41162, Lubbock, Texas 79409-1162. Chihkang “Kenny” Wu (e-mail: [email protected]), is an assistant professor in the Department of Nutrition, Hospitality, and Retailing at Texas Tech University, Lubbock, Texas 79409-1162.