1 Introduction

In the automotive industry, loyalty to a vehicle brand, such as GM or Ford, is often retained through generations with offspring more likely to purchase the same brand as their parents [1]. Loyalty to the automotive dealership for repair and service, however, significantly declines after a vehicle’s warranty period expires and many people turn to independent service and repair shops that provide fluid changes and other services recommended by the vehicle manufacturer [2].

Service suppliers include dealerships, third-party auto repair and service shops, self-employed mechanics, car care centers and garages [3]. The majority of third-party shops (i.e. those businesses not affiliated with a vehicle manufacturer) are individually or family owned [3]. These shops are keen to build customer loyalty not only to sustain themselves but also to ensure growth and profitability [4]. Customer loyalty refers to behaviors where customers repeatedly obtain a particular service from only one service provider. The reasons for staying include satisfaction with services, reasonable costs, familiarity with employees, trust and ease of use [5]. In Canada, nearly half of all Canadians have their vehicles serviced at local third-party shops with 70% repeatedly returning to the same shop for services [6].

Regardless of the type of automotive service shop, customers universally fear this segment of the automobile industry due to the number of scams that are reported in the media [7]. Scott [7] argues that customers are becoming increasingly vigilant in their selection due to trust issues. Many automotive repair and service centers aim to provide credible and reliable services, and thereby increase customer loyalty, but there are limited studies on the actual perception of customers using third-party automotive service shops. Although surveys have shown that women (76%) are more likely than men (66%) to return to the same service center year over year, the factors which influence this loyalty in the Canadian automotive service sector is unknown [6].

The aim of this research is to address the current gaps in knowledge by identifying the main factors that influence customer loyalty to third-party automotive repair shops and provide strategies so customer loyalty and retention can be improved. The research question is what factors influence customer loyalty in the context of third party automotive service shops.

The structure of this paper is as follows. The next section is a review of the literature that aims to put the present study in context and outline the research gaps that this study will fill. Section three explains the research methodology, which is followed by the results in section four. Section five is a discussion, including limitations and suggestions for future research. The final section is the conclusion.

2 Literature Review

Third-party automotive shops co-exist and compete with car dealerships and automotive service chains such as Midas, Wal-Mart and Canadian Tire. Most of these third-party shops have maintained their businesses because customers are comfortable with receiving services from a shop where they are recognized, the service is reliable, the parts are dependable, and customer demands are met [8]. Generally, third-party automotive shops are more interactive with their clients and directly reveal the price they charge for a given automotive service. Furthermore, automotive service shops have kept pace with improvements in technologies offering these to their customers [9].

Chain service centers and car dealerships have an advantage over third-party shops in that they are certified by the major automobile manufacturers. Third-party shops, however, have an advantage in terms of customer recognition and trust due to personal interactions over the course of many encounters [10]. The customer is valuable for all businesses and thus customer loyalty should not be taken for granted. The intention of this literature review is to outline some factors that influence customer loyalty towards third-party automotive shops.

2.1 Service Quality

Service quality can be defined as a consumer’s expectation for a given service. It is positive when expectations are met and negative when the reverse occurs [11]. Service quality consists of a broad spectrum of factors, all of which make a customer feel satisfied and increase the possibility of them returning [11]. These include reliability, responsiveness to a customer’s needs, competence in carrying out the necessary work, and employing people who are approachable, courteous, trustworthy and who exhibit strong communication skills [11].

In a study conducted by Yee and Faziharudean [12], their measure of service quality was geared towards a virtual website. They modified ES-QUAL [13] adding questions related to web design, quickness of loading pages, ease of navigation, and promptness of customer service. These measures can be applied to the context of this study. For example, quickness of loading pages is equivalent to waiting time prior to service; and ease of navigation is equivalent to clarity of service provided.

The quality of service that customers receive from auto service shops directly influences customer loyalty [14]. Quality, in this case, means that customers have their vehicles serviced with care, quality parts are used and customers leave feeling satisfied having received good value [15, 16]. Service quality is important to all service organizations and it is key for developing client loyalty. It is in the interest of any business organization to evaluate the quality of services often, as this can impact customer loyalty. In one study, the authors evaluated a loyalty model by surveying 495 customers of 15 Nissan, Toyota and Mitsubishi repair centers [14]. They discovered that the service quality affected consumer loyalty more than the price of the service. Hence, our first hypothesis:

  • H1: Service Quality positively influences Customer Loyalty in third-party automotive shops.

2.2 Perceived Value

Perceived value can be defined as a customer’s perception of the differences between the service they receive and the sacrifice they make to obtain the service [17]. Sacrifices include the effort to research potential service providers, duration of time spent in the shop, inconvenience of not having use of the vehicle during the service and the financial outlay for the service. When a consumer feels that the offering’s value is fair and equitable, and is similar or better to a competitor’s, the perceived value is higher, leading to loyalty and repeat business [18].

For automotive repair shops, similar services are offered by various companies and, together with an explosion of Internet reviews that describe services and costs, customers can compare and be more aware of the value received for their expenditure. In urban areas, drivers have multiple alternatives [19, 20], leading to low switching costs, which makes it ever more important for service shops to focus on factors that will increase customer loyalty [21]. For example, when businesses sell their replacement parts at fair prices and make honest service recommendations, customers will deem that they have received fair value. An emotional bond develops and customers will hesitate to switch to a different provider [21]. Our next hypothesis is:

  • H2: Perceived Value positively influences Customer Loyalty in third-party automotive shops.

2.3 Trust

Trust is defined as “a psychological state comprising the intention to accept vulnerability based on positive expectations of the intentions or behaviors of another” [22]. This is directly applicable to the vulnerability that customers experience when they give their car for service, due to media reports about shops who defraud customers [23, 24]. Examples include charging for new premium parts but using older lower quality ones, overcharging for labour and recommending services that are not required [7, 25]. Underlying the importance of trust in the automotive service business is that the customer cannot return the oil or the filter that has been replaced [26].

Generally speaking, women are less confident in their knowledge about automobile repairs and services, with some service centers taking advantage by overcharging them [27]. However, once trust is gained, female customers are more loyal than their male counterparts [6]. Women place more emphasis on the social skills that reflect how they are treated [21, 28]. Trust, therefore, is critical to cultivate and sustain. It leads to loyal customers who repeatedly patronize the business and recommend the shop to friends [29].

  • H3: Trust positively influences Customer Loyalty in third-party automotive shops.

2.4 Consumer Habit

Nearly half of people’s behavior is repeated daily and is “a specific form of automaticity in which responses are directly cued by the context” [30]. This tendency to repeat behavior is further compounded because of time pressures, so that when customers are comfortable with a particular business, they may readily form habitual behavior to frequent that business [31].

Consumer habit is behavior that is automated and repeated [32]. Habit formation requires an initial investment of research: the service shop has to be found in a convenient location and a trial appointment set up with associated risks of unsatisfactory quality of service. When a business earns trust at this first encounter, repeat visits are encouraged because their customers do not need to expend additional energy to search for and try the services of another establishment [33]. Habitual behavior is therefore reinforced [34].

Darley, Luethge and Thatte [35] have noted that habit results from behavioral preferences while Rai and Srivastava [36] have noted that habitual behavior allows for the continuation of the same purchase intents, ideally strengthening the position on each occasion [35, 36].

  • H4: Habit positively influences Customer Loyalty in third-party automotive shops.

2.5 Reputation

Reputation can be defined as “a concept related to image, but one that refers to value judgments among the public about an organization’s qualities, formed over a long period, regarding its consistency, trustworthiness, and reliability [37]. The reputation of a business often precedes it before a consumer sets foot into the premise or agrees to the services. A positive reputation is difficult to build and requires consistent effort, over the long term, to maintain trustworthy service of high quality. Once built, reputation is able to withstand adverse publicity or a finite lag in quality of service [38].

Previous literature suggests that the third-party automobile service industry is heavily reliant on positive word-of-mouth, which necessitates the importance of a good reputation, while a bad reputation can reduce the number of loyal customers [39]. Third-party automotive shops are able to build and maintain their reputation through their close interactions with their clients, which in turn wins them loyalty [40]. A good reputation protects a business from those rare occasions when there is a service failure and customers are dissatisfied [41]. By having a reputable business, loyalty is created and this in turn brings an increased number of customers while also retaining the present ones.

  • H5: Reputation positively influences Customer Loyalty in third-party automotive shops.

2.6 Servicescape

Servicescape describes the physical attributes associated with a business: for example, its location, its physical layout, the cleanliness of the premises, odor, the lighting conditions and sounds [42]. In the context of a third-party automotive shop, servicescape refers to the appearance and layout of the service bays, the location, the sounds and the associated industrial smell. This environment where the service takes place can play a significant role in explaining people’s behavior [42].

Traditionally, the basics of marketing products or services has been described by the four P’s: product, price, promotion, and place [16]. Using this model for an independent garage, the product is the entire experience, from the time the customers see the shop, enter it, interact with the employees and then depart with their vehicle serviced. Servicescape is an integral component, where a customer’s reaction is stimulated cognitively, emotionally and physiologically (Wakefield and Blodgett 1994). Bitner [42] suggests that organizations should think of their physical environment as a resource that could further their goals.

Servicescape can help to positively alter perceptions and behaviours of customers [43], encouraging them to approach and frequent the business [44]. Clients may still perceive an overall positive experience, even when the service itself may be less than adequate [45]. Servicescape influences a customer’s belief about whether a firm is successful or unsuccessful, trustworthy or untrustworthy [45, 46] and, as such, it can play a critical role in customer loyalty [47].

  • H6: Servicescape positively influences Customer Loyalty in third-party automotive shops.

2.7 Research Model

Yee and Faziharudean [12] investigated the factors that influence customers’ loyalty towards banking websites. They found that service quality, perceived value, trust, habit and reputation influenced customer loyalty. In this study, we have adopted their model and extended it with the construct of servicescape. See Fig. 1.

Fig. 1.
figure 1

adapted from [12].

Extended conceptual model

Full size image

3 Research Methodology

3.1 Survey Instrument

For the purpose of collecting data for this study, an online survey was constructed with a software tool [48]. The questions asked for opinions and judgements about service quality, perceived value, trust, habit, reputation, and servicescape. A 7-point Likert Scale was used, ranging from strongly disagree (= 1) to strongly agree (= 7) and is more sensitive to measuring a respondent’s actual views as compared to a 5-point item scale [49].

3.2 Sampling

Prior to administering the survey to customers, approval was sought and received from the Research Ethics Board of Ryerson University. Recruitment was done in-person by approaching customers who were visiting a third-party repair shop in order to have services performed on their vehicle. An Apple iPad was provided to each customer to take the survey. All of the customers who were approached were provided an instant $10 discount on their invoice, whether they chose to participate or not.

The sampling procedure utilized convenience sampling, which is a non-probability sampling strategy used to obtain a reasonable response rate [50]. The population of interest are consumers who visit third-party automotive repair shops for services. For this study, the locations selected were two of the most significant players in the automotive repair and service business, Jiffy Lube and Pennzoil, both of which are owned by Royal Dutch Shell. To ensure a representative sample size and statistically significant data set (one in which type I and type II errors are reduced), 306 surveys were distributed [50]. Convenience sampling and the use of iPads allowed the data to be obtained in a timely, cost-effective manner.

The respondent size of 300 people represented a statistically significant sample of the customers visiting the service shops [51, 52]. Specifically, given that there are six exogenous variables with paths to the endogenous variable, customer loyalty, 130 observations are required to achieve a statistical power of 80% for detecting R2 values of at least 0.1 [53]. Therefore, a sample size of 306 participants in this study is adequate to realize a statistically significant result.

3.3 Operationalization of Variables

All constructs were operationalized based on extant literature. A major source was the work done by Yee and Faziharudean [12]. They had adopted ES-QUAL [13]. In the context of this study, service quality was operationalized in a similar manner. For example, “ease of navigation” became “how easy was it to find our location?”, and “quickness of loading pages” became “was the wait time acceptable?”. Asking if “the service is performed properly the first time” [12] is as applicable to a website as it is to the repair shop. The indicator asking if the website projects an image of reliability and trustworthiness [12] became “do the employees and environment of the service center project an image of reliability and trustworthiness?”

3.4 Data Analysis

In this study, SmartPLS was used to analyze the data [54]. Smart PLS is a software application used for Partial Least Squares Structural Equation Modeling (PLS-SEM). There are two steps performed in SmartPLS analysis: confirmation of the measurement model and the calculation of the coefficients in the path model [55]. Four assessments were conducted: composite reliability, outer loadings of indicators, the average variance extracted (AVE) and the Fornell - Larcker criterion [56]. The composite reliability examines the internal consistency; outer loadings show the indicator reliability for each construct; AVE examines convergent validity; the Fornell - Larcker criterion and the Heterotrait - Monotrait ratio of correlations (HTMT) examines discriminant validity. The second part of the analysis was the calculation of the path coefficients followed by bootstrapping with 5000 samples to calculate the t-statistic and p-values for each path.

4 Results

4.1 The Sample

306 total customers were approached. After cleaning the raw data, 16 surveys were discarded, resulting in 290 completed surveys, representing a response rate of 94.7%. This high response rate was due to the business being local and family owned, with the researcher interacting with the customers. In addition, participants could take the survey while their car was being serviced so there was no extra time involved. Surveys with low response rates are not necessarily inaccurate as compared to surveys with higher response rates [57].

Of the 290 surveys, 51.2%, (n = 152) were male and 48.8%, (n = 145) were female. The majority (54.2%) were between the ages of 18–40. The next largest group was those between the ages of 41–52 (27.6%) with the remainder (18.2%) being over 52.

4.2 Testing the Measurement Model

Outer Loadings

The SmartPLS algorithm calculates the outer loadings of each variable. All indicators were convergent, as their correlation coefficients were greater than 0.708 [58].

Internal Consistency and Validity

Cronbach’s alpha is a tool that assesses how closely related a set of items or variables are as a group [59]. A Cronbach’s alpha value of 0.70 or higher is considered acceptable in most research studies [60]. In the present study, the Cronbach’s value ranged from 0.716 to 0.954 (Table 1). Composite reliability is another measure of internal consistency. This measurement takes into account different outer loadings of the indicator variables of each specific construct [61]. Values greater than 0.70 are considered adequate in exploratory research [53]. The Average Variance Extracted (AVE) is a measure of the variance explained by the latent variables relative to the variance due to error measurement. The threshold for an adequate AVE is 0.50 [53]. Results are shown in Table 1.

Table 1. PLS construct reliability and validity
Full size table

Discriminant Validity

It is necessary to assess the discriminant validity in all research pertaining to latent variables to prevent multicollinearity issues. The Fornell and Larcker criterion is the most widely used method [56]. For our empirical data, the AVE square root of every construct was more than the highest correlation construct with any other in the model [56], thereby supporting discriminant validity.

We also conducted the Heterotrait - Monotrait Ratio (HTMT) criterion test as it has been shown to outperform the Fornell-Larcker test [53]. The calculation results in HTMT values less than 1, which also supports the discriminant validity among the constructs [53].

4.3 Testing the Path Model

The PLS algorithm calculates the path coefficients and the coefficient of determination, denoted as R2, which is the most commonly used measurement to evaluate the structural model [53]. The higher the R2value of endogenous constructs, the better the construct is explained by the latent variables in the path model. R2 ranges between 0 and 1 with higher values indicating that more of the variance is explained by the independent variables [53]. R2 for Intention to use is 0.402, which is moderately strong [53].

The significance of each path was calculated via a bootstrap, where randomly drawn observations are created from the original data set, with replacement. This was repeated for 5,000 sub-samples. Three paths were significant and the results are summarized in Table 2.

Table 2. Summary of results
Full size table

4.4 Summary of Results

Table 2 summarizes the paths and their significance, showing which hypotheses were supported.

5 Discussion

This study explored the influence of service quality, perceived value, trust, reputation, habit and servicescape on customer loyalty, with empirical data collected from two third-party automotive service shops. The data illuminated which of the six factors motivate customers to remain loyal. Statistical analysis of the data indicated that three hypotheses are supported, while three hypotheses are rejected at the significance level of p < 0.05.

Service quality significantly influences the level of customer loyalty. Customers will be loyal to automotive shops which are reliable, responsive to a customer’s needs, competent in carrying out the necessary work, and have employees who are approachable, courteous, exhibit strong communication skills and trustworthy. Service quality, in this case, means that customers have their vehicles serviced with care, quality parts are used resulting in customers feeling satisfied [12]. Taking clients’ complaints or grievances seriously is also part of perceived service quality [11].

Perceived value did not have a significant effect on customer loyalty. When the exact services a consumer wants are readily available at numerous shops with nearly equivalent pricing, such as an oil change, other non-monetary factors have greater influence [44, 46, 47].

Consumer habits do not directly relate to loyalty as behavior is automated and repeated without regarding the quality of parts, services, or prices [30]. This tendency can be seen in the repeated purchase of the same vehicle brand across generations and the same brands across different shopping episodes or locations [1]. Rather than habit influencing customer loyalty, it may well be that customer loyalty is an antecedent of habit. Loyal customers will show habitual behavior, frequenting the same automotive repair shop.

Of surprise is that servicescape did not significantly influence loyalty. Servicescape is determined by a number of factors like accessibility, parking space, building, its design and color, lighting, air quality, temperature, noise, cleanliness, smell, layout of furnishings, signs, symbols (such as flags), employee uniforms, and a myriad of other things [43]. Some reasons for this result could be that customers know they are going to an automotive shop and they do not expect a clean, quiet environment. They may even be less inclined to visit a shop which has a more refined atmosphere, as they may feel that prices are inflated because of money being diverted towards superfluous servicescape items rather than the service itself.

Trust has a direct impact on customer loyalty. When customers first enter the premises of a business, they are vulnerable, but if the shop meets or exceeds their expectations, then trust will be established [23]. Trust can be further built by treating customers well, explaining clearly what service needs to be performed and returning the vehicle on time with no surprise charges. Paying careful attention to the needs of customers, who are likely to know less about automobile repairs than the employees, will lead to satisfied customers [27]. With greater trust, there is greater loyalty with more likelihood of returning customers.

Reputation has a significant influence on customer loyalty. Clients prefer giving their car to a company that has a good reputation [37, 39], which in turn gives the repair shop an advantage when competing with other shops that offer cheaper services of a similar nature but whose reputation is less stellar [41]. By having a reputable business, loyalty is encouraged bringing an increased number of customers while also retaining the present ones.

5.1 Theoretical Implications

The concept of service quality, which is directly linked to customer satisfaction and loyalty, has evolved over the last years. Scholars have adapted the construct to study different industrial sectors and business types. We adapted the website construct of es-servqual and successfully applied it to the context of third party automotive repair shops. We extended the model of Yee and Faziharudean [12] with the construct of servicescape, which includes factors such as lighting conditions, color, noise, and numerous other sensory stimuli. The study has broadened the understanding of factors that influence loyalty within the context of third-party auto repair shops.

5.2 Implications for Business

For third-party auto-repair and service shops, there are significant benefits of this research. Due to increased competition between many third-party shops and other similar service providers, customer loyalty is a priority [10]. The study highlighted service quality, trust and reputation as key, implying that managers in the automotive industry should build their retention strategies around these elements. A trusting relationship can be built by being honest, loyal, sincere and keeping promises. Findings in a study conducted by Dasu and Chase [62] found that service providers need to recognize how factors, such as emotions, trust and control, shape how customers perceive their service experience. They found that “ETCs” (emotions, trust and control) can influence customer assessments of service experiences and their loyalty. This study confirms that trust, service quality and reputation are important factors in gaining customer loyalty. Third-party service shops can mitigate defection rates and increase customer retention by modifyingtheir practices in light of these findings.

5.3 Future Research

The study has highlighted trust and good reputation to be among the key factors influencing customer loyalty in the automotive repair business. Future research could focus on the antecedents of trust and reputation in the automotive business, with additional data collected to determine the moderating role of gender. Considering that in this study, the research focused on third-party automotive shops in Canada, further research could be done to investigate factors influencing loyalty in other services in other cultures [63].

5.4 Limitations

The study employed a quantitative design where structured closed ended questions were used to gather data. An important limitation to this study could be that participants were about to have their car serviced and therefore might be biassed to provide more positive answers. The sample was from two similar businesses, owned and operated by the same family. The sample may not be representative of other third party shops managed in a different manner. Vehicle owners may be influenced by the condition of the car, or the incentive to participate. These factors would limit the generalizability of the results.

6 Conclusion

This study addresses the current gaps in knowledge by identifying the main factors that influence customer loyalty for third-party automotive repair shops. Among the six independent variables, service quality, trust and reputation were found to be the significant predictors of customer loyalty. Customers want assurance that the repairs will last a reasonable time without problems. In many cases, customers compare available offerings in the market and settle for what they perceive to be quality service at the lowest price. Repair shops must therefore emphasize the quality of their service by delivering according to customers’ expectation. There is less need to invest in the physical surroundings, as represented by the construct of servicescape. Consumers understand they are in an automotive shop and they expect the surroundings to reflect this. Establishing a good reputation by building trust through excellent quality of service will lead to increased customer loyalty.