Understanding consumer online shopping behaviour from the perspective of transaction costs

3.6.3 Customer Satisfaction as a Mediating Variable 
Recent research has greatly enhanced knowledge concerning the link between value, 
customer satisfaction and loyalty (Cronin
 et al.
2000, Deng
 et al.
2010, Flint
 et al.
2011), 
however, at yet little attention has been devoted to examining the link between TCs, customer 
satisfaction and loyalty in the e-commerce domain. This study posits an alternative 
mechanism for the TCs - customer loyalty relationship whereby customer satisfaction 
mediates the effect of TCs on customer loyalty. Understanding how satisfaction acts in the 
relationship between TCs and loyalty provides guidelines for management practices in online 
firms seeking to improve their customer loyalty.
3.6.3.1 TCs Affect Customer Satisfaction 
In this study, customer satisfaction is defined as how pleased the customer is with services 
and products provided by an online store (MacDonald and Smith 2004). The Internet is 
believed to reduce cognitive dissonance and information asymmetry through portrayed 
availability of information and data pertaining to the availability of markets’ offerings 
(Mavlanova
 et al.
2012), the fact that this data is drafted by online vendors on their websites 
gives them a chance to conceal vital information, which may raise the consumers’ concern 
over online vendors’ opportunistic behaviour (Dinev
 et al.
2012). This would create 
uncertainties in the online transaction process and result in consumers bearing the evaluation, 
monitoring and adaptation costs, eventually leading to dissatisfaction. In online buying, 
before receiving the product purchased online, consumers might be concerned about the 
transportation fee and delivery time. They would invest additional time and effort to monitor 

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online vendors to check if their orders are processed in time and to contact the delivery party 
to check the delivery status. The time, money, and effort involved in this process would 
reduce customer satisfaction with online shopping.
When consumers receive the products, product quality problem may necessitate a need to 
return the products for refund or replacement. To this end, they would bear some 
psychological, time and monetary costs, which would greatly increase the post-sale costs. 
The increased TCs would result in dissatisfaction with the product quality, e-service, or 
delivery performance. In a study of TCs in brick-and-mortar stores, Grønhaug and Gilly 
(1991) state that satisfaction is related to TCs while Bharadwaj and Matsuno (2006) note that 
low TCs positively influence customer satisfaction. In a similar vein, Kim and Li (2009b) and 
Kim et al. (2011) suggest that customers tend to be satisfied with the reduced TCs in the 
online travel context. Hence, the following hypothesis is put forward:
H4c. A customer’s perception of TCs associated with purchasing from an online store is 
negatively related to his/her satisfaction with the online store. 
3.6.3.2 Customer Satisfaction Affects Loyalty 
According to Anderson and Srinivasan (2003), customer satisfaction means the contentment 
of customer with respect to his or her purchasing experience with a given electronic 
commerce firm. A dissatisfied customer is more likely to search for information on 
alternatives and more likely to yield to competitor overtures than is a satisfied customer. Also, 
a dissatisfied customer is more likely to resist attempts by his or her current service provider 
to develop a closer relationship and more likely to take steps to reduce dependence on that 
provider. Dissatisfied customers may wish to redefine the relationship while satisfied 
consumers are more likely to repeat purchase, to resist competitive offers, and to generate 

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positive word of mouth (Horppu
 et al.
2008, Kassim and Abdullah 2010, Flint
 et al.
2011). 
Several empirical studies have revealed that customer satisfaction is a general antecedent of 
loyalty (MacDonald and Smith 2004, Kim and Li 2009b), and these studies indicate that a 
customer cannot be loyal without being highly satisfied. Therefore, the following hypothesis 
is advanced:
H5. A customer’s satisfaction with an online store is positively related his/her loyalty 
towards the online store. 
3.6.3.3 Partially Mediating Role of Consumer Satisfaction 
The discussion so far suggests that consumer TCs affect customer loyalty and customer 
satisfaction, which in turn affects customer loyalty. Kim and Li (2009b) provide evidence for 
some of these links but do not formally test the mediating role of customer satisfaction in the 
relationship between TCs and customer loyalty. Theoretical justification for the mediating 
role can be attributed to a well-investigated framework in attitudinal literature (Ajzen and 
Fishbein 1980). The framework is depicted as follows: Cognition 

Affect 

Behavioural 
intent or behaviour.
Appling this framework to the online retailing context, this study proposes a mediating effect 
for customer satisfaction. Consumer TCs reflect consumer’s perceived costs of purchasing a 
product or service online and thus is regarded as a cognitive variable. Customer satisfaction is 
an affect variable. Customer loyalty concerns behaviour or a disposition to behave positively 
toward an online vendor. Thus, the framework provides a basis for hypothesizing that 
customer satisfaction mediates the effect of consumer TCs on loyalty. Customer satisfaction, 
serving as the missing link in a chain of causation, may provide a more accurate explanation 
for the causal effect the consumer TCs have on loyalty.

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In addition, consumer and advertising research suggests that cognition about a product may 
also affect a consumer’s purchasing intention and behaviour directly (Vakratsas and Ambler 
1999, Koufaris 2002, Ha and Stoel 2009, Yulihasri
 et al.
2011).The purchase decision of 
these products is directly affected by information that consumers have about these products 
(Pavlou and Fygenson 2006). Thus, given the significant direct and indirect effects from TCs 
on customer loyalty, the mediation performed by customer satisfaction on the relationship 
between TCs and loyalty may be partial. Furthermore, the partial mediation is consistent with 
the study by Woodruff and Gardial (1996) that report both a direct effect of consumer TCs on 
loyalty and an indirect effect of TCs on loyalty through consumer satisfaction. The findings 
of Kim and Li’s (2009) study also imply that a customer’s satisfaction mediates the impact of 
his/her perception of TCs on loyalty in the online travel market.
The partially mediating effect of customer satisfaction on the relationship between perceived 
TCs and loyalty gains support from the partially mediating effect of customer satisfaction on 
the relationship between perceived value and loyalty hypothesized and tested in prior 
research. For example, Eggert and Ulaga (2002) state that customer satisfaction partially 
mediated the effect of perceived value on loyalty in the retailing context. Although the 
authors have their own explanations for why consumer perceived value increases satisfaction 
and satisfaction in turn increases loyalty, this researcher believes that the rationale lies in the 
concept that it is the consumer TCs that influence value in the first place. Reduced TCs 
increase consumer’s perceived value which then increases the satisfaction and satisfaction 
finally enhances loyalty.

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Based on this reasoning and the associated evidence, it is hypothesized that customer 
satisfaction partially mediates the relationship between TCs and loyalty. Direct effect of TCs 
on customer loyalty may achieve significance, consistent with H4b, in addition to the 
mediated effect through consumer satisfaction, consistent with H4c and H5.
 
H6. A customer’s satisfaction with an online store partially mediates the effect of his/her 
perception of TCs on loyalty towards the online store.