Creating customer loyalty through service customization

Purpose – Although practitioners and scholars alike embrace service customization as a possibly powerful management instrument, its impact on customer relationships as well as contingencies for its effective application are not well understood. Drawing from relationship marketing and exchange theory, this paper aims to develop a model of customer relationship outcomes of service customization and the efficacy of service customization. Design/methodology/approach – Two large‐scale, representative, cross‐sectional studies in different service industries based on the European Customer Satisfaction Index framework are conducted, and PLS path modeling is applied to test the model. Findings – Customization increases perceived service quality, customer satisfaction, customer trust, and ultimately customer loyalty toward a service provider. Customization has both direct and mediated effects on customer loyalty and interacts with the effects of customer satisfaction and customer trust on loyalty. Research limitations/implications – Service customization is a viable instrument for relationship marketing. Its efficacy depends on customer satisfaction and customer trust. While this study solely focuses on the impact of service customization, future research could assess the relative importance of service customization in the presence of other relationship marketing instruments. Practical implications – Service providers can use service customization as an effective instrument for achieving not only higher customer satisfaction, but also higher customer loyalty. Service customization is most effective for companies that have deficits in satisfying their customers, while at the same time their customer relationships are characterized by a high level of trust. These results help managers to decide upon resource allocation to enhance customer satisfaction, trust and loyalty. Originality/value – This paper investigates the simultaneous effects of service customization on customer loyalty and other relationships variables and offers new insights relatively to the nature and size of customization effects. It fills an important gap in the knowledge of customization outcomes, and clarifies under which circumstances service customization is most effective. The paper is of great value for service providers that face the decision whether to customize their offering or not.