The Roles of the Physical Environment, Price Perception, and Customer Satisfaction in Determining Customer Loyalty in the Restaurant Industry

Abstract

This research aims to examine the relationships among three components of the physical environment (i.e., décor and artifacts, spatial layout, and ambient conditions), price perception, customer satisfaction, and customer loyalty in the restaurant industry. A total of 279 cases from a survey were used to assess overall fit of the proposed model and test hypotheses using structural equation modeling. The three factors of the physical environment strongly influenced how customers perceived price, and this price perception, in turn, enhanced customer satisfaction level and directly/indirectly influenced customer loyalty. Décor and artifacts were the most significant predictors of price perception among the three components of the physical environment. Furthermore, both price perception and customer satisfaction played significant partial/complete mediating roles in the proposed model. The paper provides potential ways for restaurateurs to increase customer loyalty by improving their understanding of the roles of physical environment, price perception, and customer satisfaction.