Jiun-Sheng C.L., Haw-Yi L. (2011).pdf

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The influence of serviceenvironments on customer

emotion and service outcomesJiun-Sheng Chris Lin and Haw-Yi Liang

Department of International Business, National Taiwan University,Taipei, Taiwan

Abstract

Purpose Previous research on the relationship between service environments and customeremotions and service outcomes has focused on the physical environment. Among studies exploring thesocial environment, the emphasis has been on service employees, ignoring the impact of othercustomers. Recent research has further called for the need to include displayed emotion within the

social environment. Therefore, this study aims to develop and test a more comprehensive model thatfocuses on the relationship between the social environment (employee displayed emotion and customerclimate) and the physical environment (ambient and design factors) and resulting customer emotionand service outcomes.

Design/methodology/approach Based on past research, a theoretical framework was developedto propose the links between social/physical environments and customer emotion/perceptions. Extantresearch from various academic fields, including environmental psychology, was reviewed, deriving11 hypotheses. Data collected from fashion apparel retailers, using both observation and customersurvey methods, was examined through structural equation modeling (SEM).

Findings Results show that both social and physical environments have a positive influence oncustomer emotion and satisfaction, which in turn affect behavioral intentions. The physicalenvironment exhibited more influence on customer emotion and satisfaction than social environment.

Research limitations/implications This research explains how both social and physical

environments affect customer emotion and perceptions. Future research directions are discussed, withan emphasis on incorporating customer characteristics, industry attributes, and cultural variables tobetter understand the influence of service environments in different service settings.

Practical implications Social and physical environments influence customer emotional stateswithin the service delivery context, which in turn affect customer service evaluations. Therefore, bothsocial and physical service environments should be emphasized by service firms.

Originality/value This research represents an early attempt to develop a more comprehensivemodel explaining how both social and physical environments affect customer emotion andperceptions. This study also represents the first empirical study of service environment research toinclude employee displayed emotion as part of the social environment.

KeywordsService environments, Social environment, Physical environments, Customer emotion,Service outcomes, Consumer behaviour, Customer service management

Paper typeResearch paper

IntroductionAs service providers find it increasingly difficult to create a differential advantage inservice delivery, the service environment[1] itself becomes a fertile opportunity formarket differentiation. In this context of increasing competition, service firms must becertain that their service environments appeal to customers. Recognizing theimportance of service environments to consumer behavior, service providers are

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Managing Service Quality

Vol. 21 No. 4, 2011

pp. 350-372

q Emerald Group Publishing Limited

0960-4529

DOI 10.1108/09604521111146243


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devoting considerable resources to make improvements. Simultaneously, the role ofemotion has gained attention as a central element in understanding service encountersand experiences (Richins, 1997; Oliver, 1997; Mattila and Enz, 2002), with academicresearch showing that emotions experienced in a store environment can affect service

outcomes, such as behavioral intentions (Baker et al., 1992; Donovan et al., 1994;Sherman et al., 1997). As services are produced and consumed simultaneously,customer affective responses to various cues within service environments have astrong impact on perceptions and behavior (Baker et al., 2002; Chang, 2000; Tsai andHuang, 2002). Pleasure derived from the service environment influences in-storebehaviors such as spending levels, amount of time spent in the store, and willingness torevisit (Donovan and Rossiter, 1982; Donovan et al., 1994; Yoo et al., 1998). Therefore,service firms have a strategic stake in understanding how service environments fostercustomers positive emotions (Sherman et al., 1997).

Mehrabian and Russell (1974) offered a framework indicating that environmentalstimuli influence an individuals emotional state, which in turn affects behavioralresponses, based on the stimulus-organism-response (S-O-R) paradigm. Donovan andRossiter (1982) and Donovan et al. (1994) suggested store environments affect theemotional state of consumers, which in turn affects buying behavior. However, thestimulus factors in these models only include physical features within the environment.Shermanet al.(1997) and Bakeret al.(2002) considered social factors as part of serviceenvironments, focusing on perceptions of employee characteristics. No previousresearch has included both service employees and other customers in the socialenvironment milieu. Pointing out this gap, Tombs and McColl-Kennedy (2003) calledfor empirical studies to explore the social servicecape, with both service employees andcustomers, and further proposed using displayed emotion as a important indicator ofsocial environment. Addressing this research gap, the current study attempts to add tothis research stream by proposing and empirically testing a more comprehensive

model of service environments, which include employee displayed emotion andcustomer climate within social environments while examining ambient and designfactors within physical environments. Building on extant research, we propose that aservice firms social and physical environment influences customer emotion andsatisfaction, which in turn influence behavioral intentions.

The remainder of this paper is organized as follows. We first review the theoreticalbackground and concepts that are central to our study. We next present a conceptualmodel and discuss the relationships among model elements, along with researchmethodology and data collection. Finally, we present the findings, discussimplications, and suggest future research directions.

Conceptual background

Customer emotion has been regarded as a principal element in understandingperceptions of service experiences (Mattila and Enz, 2002; Oliver, 1997; Richins, 1997).When customers assess a specific consumption experience, they often draw on theircurrent emotional state (Isen and Shalker, 1982). Since emotion constitutes a primarysource of human motivation and exerts substantial influence on the thought processes(Westbrook and Oliver, 1991), a positive emotion is likely to lead to a positive reactionand less critical thinking when making judgments (Forgas, 1995; Barger and Grandey,2006). This increases service performance appraisals, such as satisfaction (Gorn et al.,

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1993; Mano and Oliver, 1993; Miniardet al., 1992; Mattila and Enz, 2002). In addition,customers experiencing more positive emotions during service encounters will also bemore likely to visit again and spread positive word-of-mouth, building loyalty(Liljander and Strandvik, 1997; Stauss and Neuhaus, 1997; Oliver et al., 1997; Wong,

2004).Service environments play an important role in service delivery because

environments can foster pleasant emotional reactions, while strengthening customerperceptions and retention (Bitner, 1992; Baker et al., 2002; Sherman et al., 1997; Tsaiand Huang, 2002). Research in environmental psychology has produced a body ofknowledge examining interactions between service environments and humanbehaviors. Earlier research by Mehrabian and Russell (1974) offers amulti-dimensional perspective in environmental psychology. Their framework,based on the stimulus-organism-response (S-O-R) paradigm, suggests environmentalstimuli lead to an emotional reaction that drives consumers behavioral responses.Donovan and Rossiter (1982) and Donovan et al. (1994) employed theMehrabian-Russell (M-R) environmental psychology model to show individualsperceptions and behaviors, within a given environment, are the result of emotionalstates created by the environment. Specifically, environmental stimuli affect emotionalstates of pleasure and arousal that in turn affect behaviors. In other words, the featuresof environment (S) can have a measurable impact on behavior (R) while being mediatedby an individuals emotional state (O) that is influenced by the environment. In the M-Rmodel, emotional responses are measured using the pleasure, arousal, and dominance(PAD) scale, three orthogonal dimensions of emotions that underlie any emotionalresponses to environmental stimuli. Pleasure refers to the affective state of feelinggood, happy, pleased or joyful. Arousal is the extent to which an individual feelsstimulated, excited, alert or active, while dominance is the degree to which anindividual feels influential, in control, or important. Pleasure influences response

behavior, while arousal interacted with pleasure such that it also increased responsebehaviors (Donovan and Rossiter, 1982; Donovan et al., 1994). Pleasure and arousalboth positively influence purchase behavior (Bakeret al., 1992)[2]. Many studies havealso been conducted on environmental stimuli as predictors of emotional responses andbehaviors, such as time spent in a store and incremental spending (e.g. Jang andNamkung, 2009; Shermanet al., 1997). However, these studies are quite inconsistent intheir measurement of the social environment, while customer perception variables,such as satisfaction, are still unexplored.

Typologies of service environment elements vary widely across studies. The mostwidely cited typology is Bitners (1992) servicescape, focusing on the physical aspectsof the environment, including ambient and design factors. However, for many servicefirms, the influence of other individuals (i.e. customers and service employees) is also

critical often more important than physical environments (Tombs andMcColl-Kennedy, 2003). For example, a customers experience in a restaurant maybe negatively influenced by rowdy customers at a neighboring table, even though thephysical environment is excellent. This introduces a social environment, with otherpeople playing influential roles. The elements of service environment can thus becategorized into social and physical environments (Baker, 1987; Baker et al., 1994;Sherman et al., 1997), both affecting customer emotion and service outcomes (Bakeret al., 2002).

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Although the social aspect of any service environment is commonly considered veryimportant, the topic has received limited academic attention. Research addressingsocial environments has been limited and inconsistent. While a social environmentincludes both service employees and other customers, no existing empirical research

has examined both simultaneously. Previous work has been asymmetrical, focusingonly on perceptions of service employees (e.g. Baker et al., 1992, 1994, 2002; Shermanet al., 1997; Yooet al., 1998; Harris and Ezeh, 2008) or perceptions of other customers(Brady and Cronin, 2001). There is a large gap concerning the symmetric aspect of thesocial environment that normally includes both service employees and othercustomers. The current research addresses this gap by including customer climate[3] a customers perception of the social environment shared with other customers. Tombsand McColl-Kennedy (2003) pointed out the importance of emotional contagion fromservice employees to customers, addressing the important role of displayed emotion insocial servicesape for more comprehensive empirical work. In response, we includeemployee displayed emotion as part of the social environment, completing thesymmetry. Distinct from previous research, this study constructs more complete andrealistic social environments that include employee displayed emotion and customerclimate.

Moreover, previous studies tend to follow the S-O-R paradigm, with a heavyemphasis on R (customer behavior) variables as service outcomes in developing theirresearch frameworks. Customer perceptions such as satisfaction are often ignored. Toaddress this, the current research further includes satisfaction in addition to behavioralintentions to comprehensively explore the relationship of service environments withcustomer emotion, perceptions, and service outcomes.

Social environment, customer emotion, and satisfactionEmployee displayed emotion, customer emotion, and satisfaction. Research on

emotional contagion suggests that service employees expression of emotions canproduce a corresponding emotional state in customers (Hatfield et al., 1994; Pugh,2001; Tsai and Huang, 2002). McHugo et al. (1985), for example, reported thatexposure to smiling or frowning images produced corresponding changes in thefacial expressions of viewers. Pugh (2001) found that when service employeessmile, increase eye contact, display gratitude, and extend greetings, customersexperience more positive emotion. Tsai and Huang (2002) also show that salesclerks positive affective delivery creates inner cues that contribute to customersexperience of positive emotions. This emotional contagion occurs outside ofconscious awareness (Pugh, 2001). When exposed to employees positive emotionaldisplays, customers are likely to mimic the employee expressive behaviorsubconsciously during the service encounter (Barger and Grandey, 2006). This

mimicking alters the customers own emotional state (Hennig-Thurau et al., 2006),leading to our first hypothesis:

H1. Service employees displayed emotion is positively related to customerpositive emotion.

Service encounter satisfaction is a response to an individual transaction, in contrast toa customers general assessment of a firms service (Bitner, 1990; Mano and Oliver,1993). In general, people appraise others who express positive emotion as more likable


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and courteous, all else being equal, when in a transactional or business relationship(Clark and Taraban, 1991; Harker and Keltner, 2001) or service context (Grandey, 2003;

Tsai and Huang, 2002). Customers often interpret an employees emotional display as

part of the service (Grove and Fisk, 1997), suggesting customers hold expectations

about the display of positive emotions (Tsai and Huang, 2002). Thus, an employeesdisplayed emotions will influence a customers satisfaction. Previous research has

supported that service with a positive affective delivery impacts customer impressionof the service encounter (Bitner, 1990; Pugh, 2001; Tsai and Huang, 2002). Barger and

Grandey (2006) and Hennig-Thurau et al. (2006) also found employee smiling had asignificant impact on encounter satisfaction. Therefore, we propose:

H2. Service employees displayed emotion is positively related to customersatisfaction.

Customer climate, customer emotion, and satisfaction. Customer climate refers to acustomers perception of the environment, shared by other customers receiving service,

in which he/she plays an integral role (Baker, 1987; Brocato and Kleiser, 2005; Groveand Fisk, 1997). Other customers are often viewed as part of the service environment(Martin and Pranter, 1989; Brocato and Kleiser, 2005; Huang, 2008). Customers provide

each other cues useful in service assessment (Baker et al., 2002; Hui and Bateson, 1991).Interaction among customers within service sites influences emotions (Huang, 2008;

McGrath and Otnes, 1995; Moore et al., 2005). When other customers manners andbehaviors align with expectations, more positive emotions are encouraged. On theother hand, a customer interfering with others tends to encourage negative feelings.

For example, noisy children screaming and running around a restaurant can lead tonegative emotions for most customers. More positive interactions among customers

can lead to a favorable service experience (Brocato and Kleiser, 2005; Huang, 2008).

Davies e t a l. (1999) and Moore et al . (2005) also suggest that positivecustomer-to-customer interaction serves to highlight a shared experience, enhancingenjoyment of the service. Therefore, we propose:

H3. Customer climate is positively related to customer positive emotion.

Though firms may view the behavior of customers as uncontrollable, consumers

consider firm management of customers behaviors an important component of theservice process (Bitner et al., 1994; Harris and Reynolds, 2003; Martin, 1996; Moore et al.,2005). Past research has found the presence of other customers within a service

environment influences levels of satisfaction (Martin and Pranter, 1989; Brocato andKleiser, 2005; Moore et al., 2005; Wu, 2007, 2008). The appearance, behavior, andnumber of other customers can affect service perception (Baker, 1987; Bitner, 1990;

Brocato and Kleiser, 2005; Harriset al., 1997; Mooreet al., 2005). In addition, interactionamong customers is an important aspect of the service experience and subsequent

service evaluation (Bitner, 1990; Huang, 2008; Langeard et al., 1981; Moore et al., 2005;Prahalad and Ramaswamy, 2000). Positive customer-to-customer experience canincrease service satisfaction (Martin and Pranter, 1989; Moore et al., 2005). Therefore,we propose customer climate will positively influence customer satisfaction.

H4. Customer climate is positively related to customer satisfaction.

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Physical environments, customer emotion, and satisfactionCustomers are likely to use physical environments as tangible cues for making

judgments ( Jang and Namkung, 2009). Many empirical studies have shown thatcustomers respond emotionally to a variety of physical environments (e.g. Bitner,

1992; Sherman et al., 1997; Wakefield and Baker, 1998), which include both designand ambient factors (Baker et al., 1994; Sherman et al., 1997). Ambient factors arenonvisual, background conditions in the environment, including elements such asair, lighting, music, and scent, while design factors are store environmental elementsthat are more visual in nature, including layout, facilities and color (Baker et al.,1994). Prior studies have offered empirical support for the link between physicalenvironment and affect (e.g. Donovan and Rossiter, 1982; Donovan et al., 1994;Wakefield and Baker, 1998). Physical environment creates in-store experiences thatare linked with customer emotion (Babin and Darden, 1996; Chebat et al., 1995;Burns and Neisner, 2006; Morrison and Beverland, 2003). In other words, physicalenvironments trigger affective reactions in customers (Babin and Darden, 1996;Baker et al., 1992; Donovan et al., 1994; Tsai and Huang, 2002; Wakefield and

Blodgett, 1999).Past studies showed that both ambient and design factors enhance customer

positive emotion, generating excitement among customers (e.g. Harris and Ezeh, 2008;Morinet al., 2007; Shermanet al., 1997; Wakefield and Baker, 1998). Design can createpositive visual effects, convey a sense of coziness and help consumers form a mentalpicture that precedes emotional response (Jang and Namkung, 2009). Ambient cues cancreate a sense of harmony with decor and make the experience more pleasant, leadingto positive emotion (Harris and Ezeh, 2008; Liu and Jang, 2009). A well-designed andpleasant physical environment reduces pressure and evokes positive emotions (such asbeing pleased or excited). Similarly, a poorly designed and unpleasant environmentmakes consumers feel negative (i.e. ignored, angry, or displeased) and leads todeterioration of customer positive emotion (Baker et al., 2002; Wong, 2004; Yoo et al.,1998). Therefore, we hypothesize:

H5. Ambient factors are positively related to customer positive emotion.

H6. Design factors are positively related to customer positive emotion.

Service research suggested the physical environment also influences servicesatisfaction (e.g. Bitner, 1990, 1992; Harrell et al., 1980). Customers rely uponphysical environments for cues in evaluating service satisfaction (Bitner, 1992;Chang, 2000). Research in environmental psychology also indicated the physicalenvironment influences customer satisfaction (Darley and Gilbert, 1985; Holahan,1986; Stokols and Altman, 1987; Chang, 2000). Specific design factors positivelyimpact satisfaction (Andrus, 1986; Jang and Namkung, 2009; Vilnai-Yavetz and

Rafaeli, 2006). Customers expect to find aesthetic design in a service site, and aremore satisfied when the design of the serviceape is perceived as more aesthetic.Similarly, the ambience and atmosphere of a service place communicates its level ofconcern for customers, contributing to customer satisfaction (Baker et al., 2002).Customers often have expectations regarding the ambience of a physicalenvironment, and satisfaction is likely to result when expectations are met (Bitner,1990, 1992; Zeithaml et al., 1993, 1996). Bitner (1990, 1992) asserts that both ambientand design elements influence customer satisfaction. Countryman and Jang (2006),


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Jang and Namkung (2009) and Wakefield and Blodgett (1994) also suggested thatpositively perceived ambient and design factors in physical environments lead togreater satisfaction. We thus propose:

H7. Ambient factors are positively related to customer satisfaction.H8. Design factors are positively related to customer satisfaction.

Customer emotion, customer satisfaction, and behavioral intentionsTheoretical support for the relationship between customer positive emotion andsatisfaction is strong (Oliver, 1997). In particular, when customers assess a specificconsumption experience, they draw on their current emotional state(Hennig-Thurau et al., 2006). A change in emotion should influence satisfactionlevels (Baron, 1987; Sinclair and Mark, 1995). Past research has indicated thepositive and significant association between a customers positive affect andsatisfaction (Mano and Oliver, 1993; Oliver, 1993; Price et al., 1995; Wirtz et al.,

2000; Soderlund and Rosengren, 2004). When a customer experiences positiveemotions in a service encounter, he/she will express higher levels of satisfaction.Therefore, we hypothesize:

H9. Customer positive emotion is positively related to customer satisfaction.

Past research has shown a link between customer positive emotions and behavioralintentions. Donovan and Rossiter (1982) and Gardner (1985) suggest customers whoexperience positive emotions tend to see the bright side of things and are more willingto return. Such customers return in order to experience positive emotions linked tohedonic values (Jang and Namkung, 2009; Keng et al., 2007; Tsai and Huang, 2002).Furthermore, Nyer (1997) found people in positive emotions are more willing to engage

in positive word of mouth, while Baker et al. (1992) reported customers experiencingmore positive emotions are more willing to make a purchase. Thus, we propose thatcustomer positive emotion in the service encounter will lead to positive behavioralintentions.

H10. Customer positive emotion is positively related to behavioral intentions.

Evidence for the impact of satisfaction on behavioral intentions derives from a widebase of service research that can be summarized as: customer satisfaction has apositive influence on behavioral intentions such as repurchase, likelihood ofrecommending, purchase volume, and loyalty (Cronin et al., 2000; DabholkarThorpe, 1994; Rust and Williams, 1994). A satisfied customer is less likely to search forinformation on alternatives, yield to competitor overtures, resist a close relationship, or

take steps to reduce dependence on the existing service provider (Anderson andSrinivasan, 2003). In addition, Szymanski and Henard (2001) also found that satisfiedcustomers do not partake in negative word-of-mouth and have higher repurchaseintention. Therefore, we propose:

H11. Customer satisfaction is positively related to behavioral intentions.

The hypothesized relationships (H1-H11) are shown in the conceptual framework inFigure 1. Relationships among the constructs were empirically tested as follows.

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MethodsResearch proceduresCustomers of fashion apparel retailers participated in the current research. Fashionapparel stores were selected, following Shermanet al. (1997), to ensure that emotionalstate and service environments would be relevant to the shoppers buying experience.To ensure consistency, only fashion apparel retail stores were sampled (Shermanet al.,1997). These stores carry the type of merchandise most amenable to this study in that

they sell high-involvement goods with sufficient interactions between customers andsocial/physical environments (Flicker and Speer, 1990; Sherman et al., 1997). Prior tothe research, stores were screened to ensure that only those stores that matched thecharacteristics of a fashion store or boutique were selected (Sherman et al., 1997). Onesemotional state or perception of a store is far less likely to be a salient if one is, forexample, taking a quick trip to a drug store for cold medicines or bandages.

There are two separate data sources for this study:

(1) employee displayed emotion collected by trained observers; and

(2) customer exit interviews.

Sixteen research assistants trained by a marketing research firm were recruited for thisstudy. Each research assistant acted as a field observer, collecting information on

employee displayed emotions and soliciting opinions from customers (Tsai and Huang,2002).

A random sample of fashion apparel retailers were selected for this study. Eachobserver visited each store (Finn and Kayande, 1999) during regular business hours,randomly selecting customers and time frames based on a sampling schedule thatemployed various time frames based on random selection. Sample schedules weregenerated based on peak/off-peak time intervals (morning, afternoon, and evening)during weekdays and weekends. The observers next selected target customers, noting

Figure 1.Conceptual framework


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service interaction throughout the entire service delivery, including the employeesdisplayed emotions. Employees and customers were not aware of the presence ofobservers during the service interaction. The observer then followed the customeroutside the retail location and formally requested cooperation in rating emotions and

various perceptions. Respondents were given a gift after completing the survey. Thetotal sample included 296 pairs of employees and customers (see Table I for samplecharacteristics). The sample included 74.9 percent female, with the overall customerage ranging from 18 to 65.

MeasuresTo empirically test the hypotheses, multi-item scales from previous studies wereadopted for this study (see Appendix). Following Pugh (2001) and Tsai and Huang(2002), units of analysis for employees displayed emotions included greeting,speaking in a rhythmic vocal tone, smiling, making eye contact, thanking, andtalking actively. Perceived customer climate was measured with three indicatorsregarding perception of other customers derived from Brady and Cronin (2001),

including overall impression of other customers as well as other customersinfluence on service provision and customer perceptions[4]. Items measuring thedesign and ambient characteristics of physical environments were adopted fromBaker et al. (2002), Bitner (1992), Sherman et al. (1997), and Yoo et al. (1998). Designfactors included layout, facilities, and color, while ambient factors included airquality, light, music, and odor.

Four emotion items were adopted from Hennig-Thurau et al. (2006), includingelated, peppy, enthusiastic, and excited[5]. Participants were asked to indicate theirlevel of agreement with the four items. To measure customer satisfaction, we usedthree items adopted from Chiou et al.(2002). Behavioral intention was operationalizedthrough four items based upon Cronin et al.s (2000) study: say positive things aboutthem, recommend them to other consumers, remain loyal to them, and spend more withthe company.

A questionnaire was constructed and pretested in four rounds to ensure questionswere understood as intended and to assess the feasibility of the survey approach. Eachitem related to the studied constructs was rated on a seven-point Likert scale, rangingfrom strongly disagree (1) to strongly agree (7).

Category Customer samples (%)

Age ,20 22.020-29 48.1

30-39 18.140-49 8.0$50 3.8

Gender Male 25.1Female 74.9

Education Junior high school or below 2.9High school 13.5College or university degree 76.8Master degree or above 6.8

Table I.Sample characteristics

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ResultsTest for common method biasCommon-method bias can cause problems if data from single informants are used fordependent and independent variables. Accordingly, we employed Harmans

single-factor test as reviewed by Podsakoff et al. (2003). Common-method variancedoes not appear to be a problem in the present study because the variance explained bythe first factor extracted in the factor analyses was not greater than 50 percent(Podsakoffet al. 2003)

Total measurement model estimationWe tested our measurement model using LISREL VIII ( Joreskog and Sorbom, 1996). A27-item CFA, including six items from employees displayed emotion, three indicatorsfrom perception of other customers, four items from ambient factor of physicalenvironments, three items from design factor of physical environments, four itemsfrom customer positive emotions, four items from service encounter satisfaction and

four items from customer behavioral intention, was employed as the primary dataanalysis tool. Results suggested a good fit overall ( x2 490:93, df 294,RMSEA 0:045, GFI 0:90, AGFI 0:87, NFI 0:97, NNFI 0:98, IFI 0:99,CFI 0:99, SRMR 0:044).

For internal consistency, a reliability assessment was conducted using Cronbachscoefficient ato ensure items for each factor were internally related. The final a valuesall surpassed 0.7, a common threshold for exploratory research (Nunnally andBernstein, 1994), showing satisfactory reliability. We also evaluated reliability bymeans of composite scale reliability (CR; Chin, 1998; Fornell and Larcker, 1981). For allmeasures, the CR is well above the cut-off value of 0.70, exhibiting satisfactoryreliability. See Table II for details.

Further, we assessed convergent validity by first reviewing the t-tests for the factor

loadings in the CFA (Anderson and Gerbing, 1988). All factor loadings in the CFA forthe total measurement model were statistically significant (with all t values at p ,0:01 level), demonstrating convergent validity (Kumar et al., 1998). Discriminantvalidity is exhibited when the unconstrained model fits significantly better than theconstrained model (Bagozzi and Heatherton, 1994). Pairwise chi-square difference testsindicated that in each case, the chi-square difference statistic is significant at the 0.01level, providing evidence of discriminant validity.

Structural model resultsAfter confirming the total measurement model, the structural model was estimated,producing the following statistics: x2 475:16; x2=df 1:59, NFI 0:97,NNFI 0:99, CFI 0:99, IFI 0:99, GFI 0:90, AGFI 0:87, RMSEA 0:043.Results indicated an acceptable level of fit between the hypothesized model and thedata. Estimated structural coefficients were next examined to evaluate individualhypotheses (see Table III).

As predicted, employees affective delivery was positively related to customeremotion (g11 0:15, t 2:67, p , 0:01) and customer satisfaction (g21 0:16,t 2:72, p , 0:01), providing support of H1 and H2. Customer climate was alsopositively related to customer emotion (g12 0:23, t 3:42, p , 0:01), therebyconfirmingH3.In addition, customer climate has a positive relationship with customer


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satisfaction (g22 0:17, t 2:55, p , 0:01), supporting H4. Consistent with both H5and H6, ambient factors were positively related to customer emotion (g13 0:28,t 2:16, p , 0:05) and customer satisfaction (g23 0:27, t 2:21, p , 0:05). Designfactors have positive influence on customer emotion (g14 0:29, t 2:21,p , 0:05) andcustomer satisfaction (g24 0:27, t 2:08,p , 0:05), providing support ofH7andH8.

Customer emotion was also positively related to customer satisfaction (b21 0:19,t 2:42, p-value , 0:01) and b eh av ioral i nt ent ion ( b31 0:24, t 2:94,p-value , 0:01), thereby confirming H9 and H10. Results also supported H11,where customer satisfaction had a positive relationship with behavioral intention(g32 0:45, t 5:03, p-value , 0:01).

Construct and scale itemsStandardized

loading * t-valueCoefficient

alphaCompositereliability

Employee displayed emotion 0.83 0.85

EDE 1 0.67 11.96EDE 2 0.76 14.28EDE 3 0.62 10.91EDE 4 0.72 13.37EDE 5 0.68 12.31EDE 6 0.59 10.39Customer climate 0.73 0.75CC 1 0.55 9.19CC 2 0.76 13.47CC 3 0.82 14.77

Ambient factors 0.79 0.81AF 1 0.77 14.71AF 2 0.64 11.65

AF 3 0.68 12.21AF4 0.76 14.63Design factors 0.76 0.77DF 1 0.74 13.80DF 2 0.66 11.97DF 3 0.78 14.78Customer emotion 0.85 0.85CE 1 0.80 15.74CE 2 0.77 14.90CE 3 0.77 14.98CE 4 0.70 13.04Customer satisfaction 0.85 0.80SAT 1 0.74 14.27SAT 2 0.81 16.48

SAT 3 0.89 18.83Behavioral intention 0.93 0.93BI 1 0.81 16.53BI 2 0.92 20.27BI 3 0.91 20.02BI 4 0.85 18.06

Notes: Chi-square (x2) 490.93, d.f. 294, RMSEA 0.045, GFI 0.90, AGFI 0.87,CFI 0.99; *All item loadings were significant at p , 0.01

Table II.Confirmatory factoranalysis results

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DiscussionAlthough the effect of service environments on consumer emotion has been well

explored by marketing researchers, a model that includes comprehensive social andphysical environments is still lacking. This has restricted the understanding of howservice environments influence customer emotion and perceptions. Therefore, thisstudy fills this research gap by developing a more comprehensive model that includesboth social and physical environments in order to better understand the effect ofservice environments on service results. Specifically, this study contributestheoretically and practically to existing service environment research throughempirical work that expands the conceptualization of social environments to includeboth employee behavior (displayed emotion) and customer climate. Thiscomprehensive approach extended the M-R model by taking a further step inunderstanding the distinct effects of each environmental factor on customer responses.Additionally, distinct from past research, this research contributes methodologically to

service environment research by adopting a different survey method that utilizesobservers noting employee affective delivery in addition to customer survey method tobetter investigate displayed emotion from service employees (Pugh, 2001; Tsai andHuang, 2002). Furthermore, another contribution of this study is the extension of theM-R environmental stimuli-emotional state-behavior paradigm by includingsatisfaction in the current model, confirming that service environments not onlyaffect customer emotion and behavior, but also customer perceptions such assatisfaction.

RelationshipCompletely standardized

coefficient t-value

H1: Employee displayed emotion ! Customer emotion 0.15( g11) * * 2.67

H2: Employee displayed emotion ! Service satisfaction 0.16( g21) * * 2.72H3: Customer climate! Customer emotion 0.23( g12) * * 3.42H4: Customer climate! Service satisfaction 0.17( g22) * * 2.55H5:Ambient factors! Customer emotion 0.28( g13) * 2.16H6:Ambient factors! Service satisfaction 0.27( g23) * 2.09H7:Design factors! Customer emotion 0.29( g14) * 2.21H8:Design factors! Service satisfaction 0.27( g24) * 2.08H9: Customer emotion! Service satisfaction 0.19( 21) * * 2.42H10: Customer emotion! Behavioral intentions 0.24( 31) * * 2.94H11:Service satisfaction! Behavioral intentions 0.45( 32) * * 5.03Model fitx

2 475.16df 298

RMSEA 0.043GFI 0.90AGFI 0.87NFI 0.97NNFI 0.99CFI 0.99IFI 0.99

Notes: *p-value , 0.05; * *p-value , 0.01, two-tailed

Table III.Path estimates for

proposed model


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In terms of social environments, current results showed employee displayedemotion is positively associated with customer positive emotion and satisfaction,providing support for emotional contagion theory. Employees positive affectivedelivery contributes to both customer positive emotion and satisfaction. Results also

documented customer climate is positively related to emotions and satisfaction.Positive perception of other customers will create a pleasant shared experience whileenhancing enjoyment of the service experience, which, in turn, will positively affectcustomer perception of the service (Martin and Pranter, 1989; Moore et al., 2005).

Our findings indicate both design and ambient factors of physical environments arepositively related to customer positive emotion, supporting past empirical evidencethat customers experience more positive emotions when environmental stimuli areperceived as more attractive (Shermanet al., 1997; Yooet al., 1998). Results also showboth design and ambient factors are related to customer satisfaction, similar to Bitner(1992), Countryman and Jang (2006), and Wakefield and Blodgetts (1994) findings thatthe environmental comfort, such as temperature level, lighting, and music, affectsoverall satisfaction. Furthermore, results revealed that each of the four serviceenvironment constructs contributes differentially to the variance in customers emotionand overall satisfaction. From the standardized coefficient of the paths in the model, itappeared that the physical environment is more important than the social environment.Both ambient and design factors have almost equal influence on customer emotion andsatisfaction, and both are more influential than employee displayed emotion andcustomer climate. In terms of social environment, customer climate is a more criticalcontributor to customer emotion and satisfaction when compared to employeedisplayed emotion.

Results show positive emotions evoked during consumption have an importantrelationship to customer satisfaction. This is consistent with past research, suggestingpositive consumption emotions will exert a positive influence on satisfaction (Mano

and Oliver, 1993; Oliver, 1993; Oliver et al., 1997; Westbrook, 1987; and Westbrook andOliver, 1991). Findings also support the existence of positive links among customerspositive emotions and their behavioral intentions. An increase in customer positiveaffect is related to customer behavioral intentions. Overall, current results support ourassertions that service environments, including both social and physical environments,play important roles in service encounters and impact customer emotion and serviceoutcomes.

Managerial implicationsFrom a practical perspective, this study can help managers of high-involvementgoods/service providers or retailers better understand the important role of serviceenvironments in creating positive customer responses. Results from our study

identified the influence of service environments on customer emotional states andservice outcomes, providing important managerial implications for service firms.Managers need to recognize the overwhelming benefits derived from paying particularattention to service environments in differentiating themselves from competitors.Competitive advantage can be gained by building on the relationship between serviceenvironments and customer emotional states/perceptions. As these environmentalelements lie largely within the area of management control and can be manipulated toaffect customer emotions, perceptions, and behaviors, managers should actively

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promote desired social and physical environments with a positive impact oncustomers.

Human actors play an important role on the service environment, influencingcustomer responses (Zeithamlet al., 2006). The social environment of a firm, including

employee displayed emotion and customer climate, is a vital driver of customerpositive emotion during service encounters. As customers often interpret a serviceemployees affective delivery as part of the service itself, customers hold expectationsabout service employees display of positive emotion. Given the impact of employeedisplayed emotion on customer emotion and perceptions, such social element requiresincreased managerial emphasis on hiring talented and qualified frontline employeeswith lively, courteous, cheerful, and extroverted personalities, which should beincluded as criteria within the employee selection process (Tan et al., 2003). Such apersonality will contribute to appropriate and positive emotional displays duringservice encounters (Eysenck and Eysenck, 1991; Tan et al., 2003). In addition, researchon emotional labor suggested the authenticity of emotional displays in serviceencounters is critical to the appraisal of the encounter (Grandey, 2003). In other words,emotional display is considered most effective when employees engage in deep acting,genuinely feeling the emotions they display. As fostering employees genuine positivedisplay of emotion requires organizational efforts (Soderlund and Rosengren, 2004),service firms should thus encourage deep acting strategies through appropriatetraining and motivation. For example, service employees can be trained andencouraged to demonstrate appropriate and positive emotions with empathy towardcustomers (Clarket al., 2003; Gremler and Gwinner, 2008). This can be accomplishedthrough emotional management skills that include identifying customer pre-existingemotions, understanding the emotional contagion between the service providers andcustomers, and learning how to manage the emotions of both parties to create apleasant service interaction.

Customers receive services while other customers are simultaneously being served.Therefore, other customers sharing the service experience are often considered part ofthe service environment, affecting a customers appraisal of the delivered service. Suchan interactive scene presents both an opportunity and a threat. Current results provideevidence that customer climate is a critical aspect in determining a customers emotionand perceptions. The presence of other customers is inevitable in many serviceindustries. A customer may find himself compatible with some customers, whileincompatible with others (Martin, 1996). Customer management is thus an importantissue for service firms to create service environments where customers are compatible(Brocato and Kleiser, 2005; Wu, 2007). Customer compatibility appears to be positivelyrelated to the homogeneity of the customer group in terms of similar preferences,sought benefits, attitudes, past experiences, and physical characteristics. Customers

are often drawn toward those social environments with which they are mostcompatible (Brocato and Kleiser, 2005; Martin and Pranter, 1989). In contrast,incompatibility creates negative affect toward the service. The more customercharacteristics can be recognized, the more likely service managers and employees cananticipate and prevent problems, enhancing a customers perception of othercustomers. This in turn affects customer experienced emotion and satisfaction duringservice encounters, and ultimately behavioral intentions. Consequently, servicemanagers and frontline employees should engage in some form of compatibility


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management to avoid placing incompatible customers together (Huang, 2008; Martinand Pranter, 1989). Service employees need to be trained with appropriate coping andproblem-solving skills to handle problem customers as well as affected customers(Bitneret al., 1994; Harris and Reynolds, 2003). For example, employees can be taught

to recognize characteristics of difficult situations and anticipate the emotions ofaffected customers so that problem situations can be avoided before escalation. Moreimportantly, employees should be trained to comfort and help affected customers,alleviating any bad feelings caused by other-customers behaviors. This can beachieved by having the employee express empathy towards the affected customer,such as offering a heartfelt apology.

Finally, consistent with past research, current results show physical environmentsplay an important role in enhancing customer emotion and satisfaction. Aestheticallypleasing and comfortable physical environments play a key role in creating customerpositive emotions and satisfying customers hedonic needs, which in turn improvesbehavioral intentions. As physical environments serve to facilitate service pleasureand customer emotion, learning what physical environment elements are preferred bycustomers should be a priority for service firms when allocating business resources.Service firms should devote efforts to the ambient and design features ofenvironmental design such as store layout, decoration style, lighting, and music, inways that appeal to the firms clientele. In other words, service managers shouldconsider their target customers tastes and preferences, then use various visual andnon-visual elements to create a favorable physical environment. Enjoying awell-designed physical environment will elevate customers positive emotions andperceptions of the service encounter, leading to enhanced behavioral intentions.

Limitation and future researchThis research contains a number of limitations that suggest directions for future

research. First, our data were obtained from fashion apparel retailers, so caution mustbe exercised when generalizing findings. Further cross-industry studies takingindustry attributes (e.g. degree of customer-employee, customer-to-customerinteractions, and importance of physical environment to customers) intoconsideration are encouraged to enrich the theoretical and empirical foundationwhile increasing generalizability. Second, we did not examine customer characteristicsthat could influence perception of service environments under study. For example,individual personality traits and motivations may affect perception of social andphysical environments, tempering the level of customer positive emotion andsatisfaction in a particular service encounter. Future research exploring such customercharacteristics will provide a more diverse context and improve generalizability.Finally, cultural norms of service contact, aesthetics and emotions vary widely.

Another direction for future research is to test the cross cultural stability of thesefindings. Additional research can examine the impact of cultural norms on social andphysical environments within the context of service encounters.

Notes

1. The term service environment used in this research was derived from servicecape(Bitner, 1992) and store environment (Baker et al., 1994; Sherman et al., 1997) to includemore comprehensive environmental factors discovered by previous researchers.

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2. While the PAD scale is simple and intuitive, it was not designed to capture the entire domain

of emotional experience (Richins, 1997). Limitations have been recognized in its use tomeasure consumption-related emotions (Yoo et al., 1998). Thus, this scale is suggested asinadequate for capturing consumer emotions during consumption (Babin et al., 1998; Jang

and Namkung, 2009). Based on these previous studies, the current research adopts thediscrete emotion approach for measuring customers emotional responses.

3. Psychological climate refers to an individuals perception of the environment (Dicksonet al.,2006). The concept of climate: permits investigation into complex social situations such asservice environments; simplifies the problem of measuring situational determinants by

allowing individuals to consider more integrated chunks of their experience; and serves as

a medium through which individuals interpret and understand their environment (Evans

et al., 2007). Therefore, we define customer climate as a customers perception of the socialenvironment that is shared with other customers.

4. Brady and Cronin (2001) used only the perceptions of other customers as a social factor,excluding the role of service employees. To fit our definition of social environment, we

re-termed perceptions of other customers as customer climate which was explained in

footnote 2.

5. As mentioned previously, Jang and Namkung (2009) and Yoo et al. (1998) have suggestedthat the unipolar view is more appropriate in understanding consumption emotion. The M-Rscale offers a bipolar framework for emotional responses to environmental stimuli, that

cannot not adequately characterize the nature and range of emotional experiences

encountered in service consumption (Richins, 1997; Yoo et al., 1998). The unipolar view forinvestigating service experiences appears more suitable because the bipolarconceptualization allows for ambivalence of the joint occurrence of pleasant and

unpleasant states as well as indifference or the occurrence of neither pleasant nor

unpleasant states ( Jang and Namkung, 2009). Babinet al.(1998) also suggested that, despiteits convenience, the bipolar view was inadequate for capturing consumer emotions.

Therefore, this research adopted a unipolar (discrete emotion) approach to measure

consumers emotional responses instead of Mehrabian and Russells (1974) bipolarpleasure-arousal approach. The discrete emotion approach regards all human emotions as

originating from several basic emotions. More complex emotions are the result of a mixture

or interaction of the basic emotions (Jang and Namkung, 2009). Therefore, a customer

emotion scale with four basic items adopted from Hennig-Thurauet al.(2006) was used forthis study.

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Appendix. The measuresEmployee displayed emotion

EDE1: Greeting.

EDE2: Speaking in a rhythmic vocal tone.

EDE3: Smiling.

EDE4: Making eye contact.

EDE5: Thanking.

EDE6: Talking actively.

Customer climate

CC1: I find that this companys other customers leave me with a good impression of itsservice.

CC2: This companys other customers do not affect its ability to provide me with goodservice.

CC3: This company understands that other customers affect my perception of its service.

Ambient factor

AF1: Pleasant air quality.

AF2: Comfortable lighting.

AF3: Pleasant music.

AF4: Pleasant odors.

Design factor

DF1: Organized layout.

DF2: Attractive facilities.

DF3: Pleasing color scheme.


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Customer emotion

CE1: Elated.

CE2: Peppy.

CE3: Enthusiastic.

CE4: Excited.

Customer satisfaction

SAT1: Overall, I am satisfied with this company.

SAT2: I think I did the right thing to visit this company.

SAT3: Overall, I am happy with this company.

Behavioral intention

BI1: I will say positive things about this company.

BI2: I will recommend this company to other consumers.

BI3: I will remain loyal to this company.

BI4: I will spend more with this company.

About the authorsJiun-Sheng Chris Lin is an Associate Professor of Marketing at National Taiwan University. He

received his PhD from Robert H. Smith School of Business, University of Maryland at CollegePark. His research interests focus on service quality measurement, customer-employeeinteractions, customer perceptions of various service encounters and marketing channelrelationships. His research has appeared in various journals such as Journal of Retailing,Journalof Service Management, Journal of Business & Industrial Marketing, and Supply Chain

Management. Jiun-Sheng Chris Lin is the corresponding author and can be contacted at:[email protected]

Haw-Yi Liang received her MBA from National Taiwan University. Her research interestsinclude consumers emotional responses to service encounters.

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