Determinants of customer loyalty in retail banking in ho chi minh city

The findings of this research showthat factors which affect customer loyalty are Service Quality, Price and Switching Cost.They , have strong influence on customer loyalty with the stron

VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT

ECONOMICS

DE 1EKMINANTS GF CUSTOMER LOYALTY

IN RETAIL BANKING IN HO CMI MINH

CITY

BY

PHAM THI THU HA

MDE CLASS 15

“A thesis was submitted in partial fulfillment of the requirements for the

Master of Development Economics degree (MDE) of Vietnam- Netherlands

program for M.A in Development Economics”

Jaly, 2011

I am greatly thankful to my supervisor, Dr Cao Hao Thi, whose valuable advice and guidance

at every stage of my thesis to help me to develop an understanding of this research

I also give thanks to all professors, tutors, MDE staff for giving me academic knowledge and advice and my classmates for encouragement to complete the thesis

I would like to thank Service Managers at VCB and friends who works at banks who supported me in building the questionnaires and collecting data for this study

Finally, I would like to give special thanks to my parents, aunt and sister and friends who give

me great and warm support me to follow this MDE program

In spite of my endeavour, this study may have many shortcomings and limitations I am looking forward to receive suggestions and opinions of teachers and colleagues

With the development of financial market in Vietnam especially retail banking sector, bankmanagers should have many strategies to keep customers stay with their banks longer Thebank mangers focus on the loyalty of their customers because they know the revenue and costsavings from the old customers are greater than from the attracting the new ones Thus, bankmanagers need to find solutions to impact the factors that influence customer loyalty tocompete with the other banks This study focuses on two objectives: identifying thedeterminants of customer loyalty in retail banking in Ho Chi Minh city, and based on theresults to give recommendations to improve the loyalty of state-owned banks’ customers, inthis case, it is Vietcombank The qualitative and quantitative method will be applied to findout the determinants of customer loyalty in retail banking The findings of this research showthat factors which affect customer loyalty are Service Quality, Price and Switching Cost.They

, have strong influence on customer loyalty with the strongest impact factor is Price (beta

coefficient 0.583) and two factors Service Quality (beta coefficient 0.327), Switching Cost(0.301) Based on the findings, recommendations for Vietcombank to improve customerloyalty such as: diversifying distribution channels and service-products, different pricestrategies for each kind of customers, some special program for VIP customers, etc Thisstudy only makes survey on 8 banks in HCMC, there are 2 state-owned banks (Vietcombankand Agribank), 2 private-owned banks (ACB and VIBBank), 2 joint-venture banks (IndovinaBank and Vid Public) and 2 foreign-owned banks (HSBC and Citibank) It should be widen tomore banks, big areas to increase the accuracy of the research This study provides usefulinformation for future researchers who study customer loyalty in banking industry

Keywords Service quality, Price, switching cost, customer loyalty, retail banking.

TABLE OF CONTENTS

ACKNOWLEDGEMENTS i

ABSTRACT ii

TABLE OF CONTENTS iii

LIST OF FIGURES vi

LIST OF TABLES vi

ABBREVIATIONS vii

CHAPTER I: INTRODUCTION p 1 1.1 Research Statement p 1 1.2 Research Objectives p 2 1.3 Research Questions p 2

* 1.4 Research Scope p 2

1.5 Research Structure p

2 CHAPTER II: LITERATURE REVIEW p

4 2.1 Customer Loyalty p 4

2.2 Factors affect Customer Loyalty p 5 2.2.1 Service Quality p 5 2.2.2Price p 7 2.2.3 Switching cost p 8 2.3 Conceptual framework and hypotheses p 9 2.4 Adjustment of Measurement Scales p.10 2.4.1 Service Quality p 10 2.4.2 Price p.12

2.4.3 Switching cost p.12

p.20 4.1 Descriptive Statistics

p.21

4.1.1 Sample size p.21

4 1.2 Demographic Characteristics p.224.2 Measurement Scale Refinement p.234.2.1 Reliability Assessment p.234.2.2 Exploratory Factor Analysis p.254.3 Hypotheses testing p.284.3.1 Correlation Coefficient Analysis p.294.3.2 Multiple Regression Results p.294.3.3 Interpreting Customer Loyalty Equation and testing Hypotheses p.314.3.4 Means Score Comparison between VCB with other banks and Industry

Average p.314.3.4 1 Service Quality p.3243.4.2 Price p.33

4.3.4.4 Customer Loyalty p.33

CHAPTER V: CONCLUSION AND RECOMMENDATIONS p.35

5 1 Summary of findings .p.35

5.1.1 Determinants of Customer Loyalty p.35

5.1.2 Comparison between Vietcombank and Industry Average p.o5

5.2 Recommendations to Vietcombank p.36

5.2.1 Improving the Service Quality p.365.2.2 Improving Price p.385.2.3 Improving Switching cost p.395.3 Limitations p.39 5.4Conclusion .p.39

References .p.41

APPENDICES

Appendix 1 Questionnaire- English version p.46Appendix 2 Questionnaire- Vietnamese version p.49Appendix 3: Reliability of all variables (23 items) p.52Appendix 4: Results of exploratory factor analysis

Appendix 5: Correlation of coefficients p.59

LIST OF FIGURES

Figure 2 1: Conceptual Framework of Customer Loyalty

Figure 3 1: Research process p.15

- Figure 4.1: Model of Customer Loyalty after carrying out EFA p.28

LIST OF TABLES

Table 2.1: Original Scales of Service Quality and research scales p.10

Table 2.2: Original Scales of Price and Research Scales p 12

Table 2.3: Original Scales of switching cost and Research scales p.13 Table 2.4: Customer Loyalty

p.13

Table 3.1 : Variable Codes p.17Table 4.1: Sample size p.20Table 4.2: Demographic Characteristics p.22Table 4.3: Reliability Test Results p.23Table 4.4: Results of Exploratory Factor Analysis p.26Table 4.5: Result of Customer Loyalty p.27Table 4.6: Correlation Matrix p.29Table 4.7: Model Summary p.29Table 4.8: Coefficients p.29Table 4.9: Model Summary p.30Table 4 10: Coefficients p.30Table 4.11: Means Score Comparison between VCB and other banks

and Industry Average p.31

Exploratory Factor Analysis Vietcombank

Asia Commercial Bank

Agribank VlBBankHongkong and Sanghai Bank Corporation Citibank

Indovina BankVid Public BankStatistical Package for Social Science

Tangibles

Reliability Responsiveness Assurance

Empathy

PriceService Quality

Switching Cost Customer Loyalty

CHAPTER I: INTRODUCTION

1.1 RESEARCH STATEMENT

From 1990 until now, number of banks increases highly especially private-owned banks andforeign-owned bank branches, shows that attractive and potential development of Vietnam’s

banking industry for domestic and foreign investors According to the data of State Bank of

Vietnam (SBV) until October 2009, Vietnam’s banking system has 3 state-owned banks, 40private-owned banks, 5 joint-venture banks and 41 branches of foreign-owned bank Vietnam

with population of 85 million people and increasing income is a potential market forcommercial banks Moreover, many Government policies are issued to limit cash payment

in the public such as: pay salary through cards system, accepted banking documents indeducting VAT, etc

Vietnam’s accession to the World Trade Organization (WTO) with their commitments offinancial services market’s liberalization and deregulation, their customers have more choice

between domestic and foreign banks Furthermore, the customers access financial products

• with no limitation, as a result, it affects to customer loyalty In Vietnam, service market is

more and more improved and it is a new potential market for banks to explore However,the

" more increasing is personal income, the higher demands for products and services are

Customers expect the higher quality of products and services than before The higherperceived service quality, the more satisfied and loyal the customers (Petruzzellis, D’Uggento and Romanazzi, 2006) Beside the competing each other about the total assetsand market share (number of customers), efficiency in using the capital, ratio of bad debt,banks always find out the customers' needs and supply at the right time to get the moremarket share They must try to offer attractive interest rates to both savers and borrowers,which means that they must minimize their own internal operating costs and loss

Nowadays, commercial banks have intend to develop retail sector, approach the individualcustomers, small and medium enterprises (SMEs) because it is a large market and disperse

risks in banking business Customers have opportunities to approach a lot of banks and choosethe best bank suitable to their own based on the price, service quality and convenience In

2011, the competition is more and more heated when lots of commercial banks try to change

technology, reduce cost to strengthen competitive ability over the others In this race,

foreign-1

owned banks have experience and strategy to expand their market in retail sector;

private-• owned and joint-venture commercial banks always change in technology, service quality and

staff skills, is it state-owned commercial banks known as ‘to be hard to please’ have

competitive ability with trials or not?

1.2 RESEARCH OBJECTIVES

The objectives of this study are:

• To identify the key factors impact on customer’s loyalty

• To measure the strength of relationship between key factors and loyalty

• Based on the research results to give recommendations to improve customer loyalty

in retail banking, especially Vietcombank- state-owned commercial bank

1.3 RESEARCH QUESTIONS

In order to find out the solutions to improve customer loyalty of the retail banking, this study deals with the following questions:

• Which factors affect the customer loyalty?

• How the banks improve and make their customers become loyal in retail sector?

• What recommendations to Vietcombank about how to improve customer loyalty

1.4 RESEARCH SCOPE

This study focuses on identifying the main factors influence on the customer loyalty in retailbanking in Viet Nam The survey questionnaire is applied to collect data for this study withthe survey time from February to March, 2011 The survey interviewees of this study areindividuals who aged over 18 and usually go to the banks irrespective of purposes gender,age, income and education

1.5 RESEARCH STRUCTURE

This study includes five sections compatible with five chapters with the names of theirs are:introduction, literature review, research methodology data analysis and findings, andconclusions and recommendations Chapter 1 introduces the structure of the research,including research statement, research objectives, research questions and research scope.Chapter 2- literature review consists of definitions of factors influenc ing on customerloyalty as service quality, price and switching cost, and relevant literature review and

evidence to

2

clarify the research topic, the conceptual framework: and hypotheses also are presented in this

• chapter The next chapter named research methodology that presents detail of qualitative

and quantitative research Chapter 4 shows the results of sample size through theassessment of measurement scale, this chapter also apply multiple regression analysis totest hypotheses The last chapter is chapter of conclusion and recommendations indicates themain findings of

- the research and gives out some suggestions to improve customer loyal in retail banking,

finally, this chapter also shows the limitations of this research for further studies in thefuture

CHAPTER II: LITERATURE REVIEW

This chapter presents an overview of customer’s loyalty and factors influencing on customer’sloyalty in retail banking This chapter also presents conceptual framework, hypotheses of this

study and measurement scales of factors of customer loyalty and its affected factors

2.1 CUSTOMER LOYALTY

Service loyalty can be defined in the following way: “Service loyalty refers the degree towhich a customer exhibits repeat purchasing behavior from a service provider, possesses apositive attitudinal disposition toward the provider, and consider using only this providerwhen a need for this service arises” (cited in Caruana, 2002, p813)

According to Oliver (1999), ther• are foui stages of brand-loyalty such as: cognition, affect,intentional and action loyalty At the first stage-cognition, based on the information aboutthe brand that the customers collect, they are loyal to the brand The next stage is affectiveloyal, the customers have some positive attitudes toward a brand When customers havebehavioral intention of purchasing, it is the intention phrase The last stage is actionloyalty when customers change from intentions to actions

Loyalty plays an important role in the competition of building successful relationships withtheir customers in the competitive retail banking environment According to Duncan andElliot (2002) showed that loyalty of customer takes an important part in contributingearnings and profits of an organization Nowadays, the financial institutions are in theprocess of competition with globalization, a suitable customer loyalty program is necessaryfor them to keep customers stay with their organizations The banks always find many ways

to supply the most qualified services to satisfy the customers on the best way to get themaximum profit and improve the comparative position over the trials Some studies havepointed out that profitability of banks is connected to customer retention (Garland, 2002;Anderson, Fornell and Lehmann, 1994; Reichheld and Sasser, 1990) In real world, if onebusiness increases 5% loyal customers with satisfaction about his products and services,profit will increase from 25% to 85% Customer loyalty provides the banks with greatrevenue and cost savings Surveys show that it is up to five times as expensive to recruitnew customer as retain an existing customer (Morgan, 2007; Clemens, Reichheld and

Sasser 1990) When most banks

4

provide nearly identical financial products and services, customers have attention to change

• their behavior (Beckett, Hewer and Howcroft, 2000)

2.2 FACTORS AFFECT CUSTOMER LOYALTY

There are so many studies indicated factors influencing customer loyalty in many fields, inbanking field, the previous researches showed that customer loyalty is affected by factorssuch as: service quality, price and switching cost

2.2.1 Service Quality

Service quality is defined as an impression of customer about the overall and service

provision of an organization through the interactions between a customer and a service

provider (Bitner and Hubbert, 1994) There are many definitions of service quality, thewidely used one defines service quality as a measure of how well the service level providedmeets customer’s expectations or needs (Lewis and Mitchell, 1990; Dotchin and Oakland,1994a; Asubonteng et al., 1996; Wisniewski and Donnelly, 1996) Spathis, Petridon andGlaveli (2004) developed the perceived service quality as the customer’s attitude toevaluate the oveTall service provision In the banking sector, Kamilia and Jacques(2000) stated that perceived service quality is the difference between the customerexpectations and the perceived service provided by the bank

Parasuraman et at (1988) clearly identified service quality into five dimensions through theSERVQUAL model as follows:

• Tangibles: Physical facilities, equipment and appearance of personnel

• Reliability: Ability to perform the promised service dependably and accurately

• Responsiveness: Willing to help customers and promote service

• Assurance: Knowledge and courtesy of employees and their ability to inspire trust and confidence

• Empathy: Caring such as individualized attention which the employee provides for its customers

Tangibles relates to the effect of physical facility equipment, personnel and communication

“ materials on customers; and reliability, responsiveness, assurance and empathy relate to

element of human intervention in the service delivery

5

The five SERVQUAL dimensions of Parasuraman et at (1985, 1988, 1991) have been applied

• in evaluating service quality For example, Levesque and McDougall (1996) based on the

SERVQUAL model to find the determinants of customer satisfaction in the bank Avkiran(1994) also based on the SERVQUAL measurement to identify four dimensions including

17 items in the Australian retail banking industry, there are: staff conduct, credibility,communication and access to teller services Ennew and Bink (1996) developed threebanking service quality dimension in United Kingdom, they are: knowledge, adviceoffered, personalization in the service delivery and general product characteristics

It is very difficult for customers to evaluate services at pre-consumption, consumption andpost-consumption stage Because of intangible nature of services, it is also difficult fororganizations to understand how its customers perceive and evaluate the quality of itsservices Service quality is a comparative function between consumer expectations andactual service performance (Parasuraman et al., 1985) In the banking industry, there are twotypes of perceived quality: (1) perceived quality product (tangible) is the assessment ofcustomer about the banks products and (2) perceived quality service (intangible) is theassessment

• toward service related to products such as: service in and after purchasing, advanced and

delivery condition Both perceived products and services are important attributes ofperceived quality of retail banking Today’s competition between organizations iscomparing the products and success of business is to have to deliver a diversifiedproduct to customers Easingwood and Storey (1995) showed that the important successfulstrategy is to introduce new products successfully and service products related to technologycan reduce transaction costs, switching rate and encourage customers to create servicesoutcomes on their own (Bitner, Ostrom and Meuter, 2002) With intangible characteristics,perceived services of the bank are lending condition, credit information, time to release aloan, manager and staff style, transaction environment, etc

With high service quality the firm will obtain a lot of advantages such as enhancingreputation, increasing customer retention, attracting new customers through word-of-mouth,creating competitive product difference and improving financing performance andprofitability (James 1998, Zeithaml et at., 1996; Julian and Ramaseshan, 1994) In thebanking sector, high service quality is always connected to customer loyalty In aninvestigation of Berggren and Dewar (1991) in United States found that 42% of customersclosed their accounts or switched to another bank as a result of service-related problem In a

empirical evidence in Asian financial market (Islamic banks in Malaysia) of Dusuki and

• Abdullal (2006) showed that service quality of Islamic banks contributes to customer

satisfaction and influences customer’s support for Islamic banking

Service quality can affect customer’s behavior, especially factors related to service quality

- such as: speed of delivery, efficiency, friendliness, frequent communication can increase

customer’s loyalty (Lewis and Soureli, 2006) Customer’s behavior can be determined byservice quality: loyalty will be raised depend on perceived higher standards of servicequality than their expectations, on the other hand, poor service quality leads to the highercustomer’s defection (Leed’s, 1992; Zeithaml et al, 1996) In the investigation of Mavriand Loannou (2008) of customer’s switching behavior in Greek banking services, foundthat there is positive relationship between good service quality and customer’s loyalty

2.2.2 PriceAccording to Zeithaml (1998), price is an attribute that must be given up or sacrificed to

obtain certain kinds of products or service In a research of Keaveny (1995) stated that

• ‘pricing’ factor involves prices, rates, fees, charges, surcharges, service charges, penalties,

price deals, coupons, and price promotions

Madill and colleagues (2002) showed that there are some advantages for customers andbanks in their relationships: the final goal of banks is to maximize profit, improve financialreport with low risk, the customers want tc easily borrow money with suitable rate, etc Thus, the good relationships with customers bring a lot of advantages to banks such as:reducing the switching rate of customers and increasing the number of new customersthrough the recommendations of their current customers In the financial service industry,transaction cost has wider implications than other service industries such as bankcharges, interest rates charged and paid, fee implementation (Gerrard and Cunningham,2004)

Price is an important factor that can effect on customer satisfaction and behavioral intentions(Varki and Colgate, 2001) Some studies of Stewart (1998), Colgate et at (1996) andKeaveny (1995) also showed that price has strong influence on the customer’s decision.Especially in the banking sector, price has a wider implication, Gerrad and Cunningham(2004) found that pricing seems to effect to customer loyalty of bank more than of otherservices In the study of Colgate and Hedge (2001) of customers’ switching behavior

determinants in Australia and

7

New Zealand, showed that price is the top switching determinant, followed by service failures

- and denial of services

Changing price can impact on customer’s behavior (Varki and Colgate, 2001) In a survey

of Keaveney (1995) found that about 30% customers had switched firms because of poorservice price perceptions Martins and Monroe (1994) showed that customers are sensitive

to price, any price increasing can lead to switching actions of customers (Campell, 1999).Gerrad and Cunningham (2004) suggested that price plays an important role in thebanking industry, influencing customers’ behavior compared with service failures andinconvenience The authors discussed that applying higher charges on customers orincreasing fees can lead to opposite effects such as switching behavior (leave the banks,stop to use the bank services, etc) Moreover, Dawes (2004) showed that there is apositive relationship between prices increases and defection rates in the banking industry.Therefore, transaction cost and customer’s loyalty are in negative relationship

2.2.3 Switching Cost

Switching cost is cost of changing suppliers including financial and non-financial cost(Matthews and Murray, 2007) Lee and Cunningham (2001) showed that customer loyaltycan be affected not only by the cost of dealing with the service supplier but also by thecost of switching to another supplier There are many ways of categorizing switchingcost For instance, Fornell (1992) divided switching costs into search costs, transactioncosts, learning cost, loyal customer discounts and emotional costs Dick and Basu (1994)also summarized switching costs into time costs, monetary costs and psychologicalcosts Matthews and Murray (2007) summarized switching costs into three kinds:procedural switching costs which including time and effort expenses related to evaluationcosts, training and setup; financial switching costs involving the loss of benefits andfinancial resources, and relational switching costs associated with the loss of personalrelationship and with the mark that can generate emotional and psychological discomfort

In the banking industry, Matthews and Murray (2007) showed switching cost is the costthat the customers suffer since they wish to change the bank provider Kiser (2002) showedthe switching cost for bank customers including the time necessary to open a new account,close an old account, and inform to their partners about the new account information

Customer Loyalty

Switching

costPrice

Many studies stated that there is relationship between switching cost and defection rate of

• customers Fornell (1992) showed that high switching cost can reduce switching rate of

customer and prevent switching behavior if switching cost is higher than the expected benefits of changing service supplier (Lees and al., 2007) Colgate and Lang (2001) found that

switching cost takes an important role in decisions of customers to stay or not wheninvestigated the switching barriers in the New Zealand financial industry

2.3 CONCEPTUAL FRAMEWORK AND HYPOTHESES

From the research objectives and literature review, the conceptual framework is presented in Figure 2 1 and hypotheses of customer loyalty are proposed as follows:

Figure 2.1: Conceptual Framework of Customer Loyalty

Hypothesis 1: In retail banking, Service Quality has positive impact on Customer loyalty Hypothesis 2: In retail banking, Price has positive impact on Customer Loyalty

Hypothesis 3: In retall banking, Switching Cost has positive impact on Customer loyalty

No Original items Research itemsXYZ Company has operating hours

' that are convenient to all its customers

Eliminated item (all banks have the sameopening hours)

XYZ Company’s has modern-looking2

equipments

3 XYZ Company’s ph) sical facilities are Banks’ equipments and materials are well

2.4 ADJUSTMENT OF MEASUREMENT SCALES

- In the previous researches, there are measurement scales of service quality, price and

switching cost, however, these scales have been adjusted to be suitable with retail banking

in Vietnam

2.4.1 Service quality

According to Parasuraman et al (1988) showed 22 original scales of service quality of five

dimensions which have been revised and modified to suitable to this study

• Tangibles: the scale ‘operating hours that are convenient to all its customers’ will notused in this research because all banks have the same opening hours, the scale

‘modern-looking equipment’, scale visually appealing of physical facilities’ andscale ‘materials associated with the service’ will be combined into one scale

‘physical and materials are well supporting for bank transactions’

• Responsiveness: the scale ‘employees are willing to help’ and scale ‘employees arenever too busy to respond to your request’ will be combined into one scale ‘staff ofbanks make every effort to help customers to solve their problems’

• Assurance: The scale ‘behavior employees instills confidence in you’ and scale ‘feelsafe in transactions’ also will be combined into one scale I feel safe to have mybank serviced at this bank’

• Empathy: The scale ‘employees who gives you personal attention’ is moremeaningful than the scale ‘gives you individual attention’

The table below indicates the original items of Parasuraman et at (1988) and adjusted items scale fit to this study:

Table 2.1: Original Scales of Service Quality and research scales

•

visually appealing

Materials associated with the service (such a pamphlets or statements) are visually appealing at XYZ Company XYZCompany’s employees appear neatWhen XYZ Company promises to do something by a certain time, it does so When you have a problem, XYZ Company shows a sincere interest in solving itXYZ Company performs the service right the first time

XYZ Company provides its services at the time it promises to do so

XYZ Company insists on error-free

The bank does customer’s demand right at

the first time

The bank finishes customer’ transaction as promisedEliminated item

9

XYZ Company keeps customers The bank informs customers about any changes in service needs or additional maintenance requirement

Bank staff can answer customers’ questions

or concerns quickly

l l informed about when services will be performed

Employees in XYZ Company give you

prompt service

12

Employeesin XYZ always willing to help

Employeesin XYZ Company are

13

Bankstaffmakesanyefforttohelpcustomers to solve their problems

Customers feel safe to have bank serviced at

You feel safe in your transactions withthis bank XYZ Company

Employeesin XYZCompanyareBank staff always courteous with customers

16

17

consistently courteous with you during the process of doing transaction

11

g E ployees in XYZ Company have the

knowledge to answer your questions

Bank staff can provide customers clear and

2 ‘‘YZ Company has employees who

gives you personal attention

21 YZ Company has your best interest

22 Employees of XYZ Company

understand your specific needs

The bank staff understand

service needs

customer’s

0

2.4.2 Price:

This study will modify the scale of price in the research of Levesque et al., (1996) and add

some items to suitable with this study

The table 2.2 shows items of ‘Price’ factor

Table 2.2: Original Scales of Price and Research Scales Original items Research items

I XYZ Company offers a competitiveprice

The bank offers a competitive price

2 New The charged price suitable with the used

services

2.4.3 Switching cost:

According to Jones et a1., (2000), switching cost scale will be revised and adjusted to suitable with this research:

• The scale ‘inconvenient for me to switch to another service’ is not clear and difficult

to understand so it will be replaced by scale I don’t want to move to further location’

• The scale ‘take a lot of time and effort to change to another company’ and scale ‘thecosts in time, money and effort to switch to another company’ will be combined into

• one scale ‘take a lot of time to change to another bank’

12

The table 2.3 shows the items scale of switching cost.

Table 2.3: Original Scales of switching cost and Research scales

J In general, it would be a hassle for me to change

to another service company

It would be cost me too much to

change to another bank

2

It would be inconvenient for me to switch to

another service company to purchase the

products/services I need

Eliminated item

It would take a lot of time and effort to change

to another service company For me, it would take a lot of time

to change to another bank

4 For me, the costs in time, money and effort

to switch to another service company are

Table 2.4: Customer Loyalty

No Original items Research items

i Overall satisfaction with the service of

XYZ Company I feel satisfied with the bank service

2 Definitely with reuse the service of

XYZ Company I will be the loyal customer of the bankDefinitely would recommend the

service of XYZ Company to others

I would recommend the bank service to my

friends and relatives

In summary, the concepts and relevant researches related to customer loyalty and factors

- affect it such as: service quality, price and switching cost This chapter has presented the

conceptual framework, hypothesis and measurement scales of factors affecting to customer loyalty and based on them to design the questionnaire in the next chapter

14

Literature review of Customer loyalty and influenced factors

Conceptual framework, its hypothesis and adjustments of measurement scales

Modify to complete final questionnaire Conclusion and Recommendations

CHAPTER III: RESEARCH METHODOLOGY

Based on the findings in the chapter 2, a questionnaire design will be completed in this ' chapter that is very useful for collecting data This chapter also presents the research method

EFA (Exploratory Factor Analysis) used in analyzing survey data

3.1 RESEARCH PROCESS

This study will apply qualitative and quantitative method In qualitative method,measurement scales of factors will be adjusted to complete the final questionnaire Datacollection and data analysis procedure will be presented in the quantitative method

The research process is presented in Figure 3.1:

Figure 3.1: Research process

15

This study mainly uses measurement scales of SERVQUAL, price and switching cost.

Although these scales have been tested and employed in many previous researches, the

difference of culture, economic condition and society of Vietnam, these ones will have to be adjusted to suitable to Vietnam retail banking context

- This qualitative study is carried out by interviewing 5 Banking Service Managers and 5

Banking Service Tellers who have more than 2 years working experience in communicatingwith customers in retail banking Based on the information collected during the interview,the original items scales will be adjusted- called as pilot survey to fit with the specificretail banking industry characteristics

Pilot survey will be tested by 20 customers aged 18 and over about the format and usingwords in the questionnaire to complete the final one And based the final questionnaire, aquantitative research will be conducted, instead of conducted in 89 commercial banks,because of limitation of time, this research will conduct in 2 state-owned banks (

V ietcombank and Agribank), 2 private-owned banks ( ACB and VIB), 2 joint-venture banks (

Vid Public and Indovina bank), and 2 foreign-owned banks (HSBC and Citibank)

A questionnaire was designed to analyze customer loyalty in retail banking in HCM city.The questionnaire was developed based on the findings from literature and adjusted from thepilot survey in practice The literature review identified factors influencing customer’sloyalty in the retail banking The final questionnaire consist of 2 sections, first sectionincludes 23 statements of factors affect to customer loyalty ( indicated in Table 2.1, 2.2, 2.3and 2.4) and section II includes other information also impact on customer loyalty such asgender, income, education level, etc

This questionnaire will be translated into 2 languages: Vietnamese and English The design

of the questionnaire was based on seven-point Likert scale measurement from 1(strongly disagree) to 7 (strongly agree)

16

Table 3.1: Variable Codes

Component Code Variables

REL3 The bank provides services as committed

REL4 When problem happened, the bank shows a sincere

interest in solving it

The bank does customer’s demand right at the first

The bank informs customer about any changes in

service needs or additional maintenance requirement

Bank staff can answer customer’s questions orconcerns quickly

RES9 Bank staff makes any effort to help customers to

solve their problems

Assurance

ASS10 Customer feels safe to have bank serviced at this

bank

ASS11 Bank staff always courteous with customer during

the process of doing transaction

ASS12 Bank staff can provide customer clear and helpful

EMP14 The bank has customer’s best interest at heartEMP15 The bank staff understand customer’s service

needs

17

Price The bank offers a competitive price

The charged price suitable with the used services

CL21 I feel satisfied with the bank service

CL22 I will be the loyal customer of the bankCL23 I would recommend the bank service to my friends

and relatives

3.3 DATA COLLECTION

In order to investigate levels of loyalty in retail banking, a questionnaire will be submitted

randomly to bank customers in eight banks in HCM city (VCB, AGR, ACB, VIB, VIDPUBLIC, INDOVINABANK, HSBC and CITIBANK) The data will be collected from the

individuals irrespective of their banking purpose, gender, occupation or income but

" compulsory of respondents aged over 18 According to Hair, Black, Babin, Anderson and

Thatham (2006), the minimum sample size should be at least five times the number ofvariables in factor analysis Therefore, this study includes 23 variables, required at least 115completed questionnaire Carson (2006) suggested that in multiple regression analysis, thesample size should be at least equal to the number of independent variables plus 104 for

testing regression coefficients, and at least 8 times the number of independent variables plus

50 for testing the R-square respectively Since there are 3 independent variables in this study,

at least 107 completed questionnaires will be required The sample size of this study will beabout 150 This survey will be done in one month during the time when people usually go to

the banks (from 8 am to 11 am, and from 2 pm to 4pm) And to make sure the intervieweesare suitable groups for retail banking services survey, they will be first asked how often theyuse traditional services such as bank accounts, money deposits, savings, ATM cards, internetand SMS banking, ect

3.4 DATA ANALYSIS TECHNIQUE

This study will use Statistical Package for Social Science (SPSS) version 16 to analyze the

collected data and test reliability and validity This study also uses Exploratory FactorAnalysis (EFA), Multiple Regression analysis to find out the results

3.4.1 Reliability

Reliability can be used to access the measurement scale The common measurement ofreliability examines the internal consistency between multiple measurements of variables(Cooper and Schindler, 2006) Cronbach’s alpha is applied to test the reliability of themeasures According to Hair et a1., (1998), the most widely value of Cronbach’s alpha isexceeds 0.60 in exploratory research Variables are considered to be not enough qualifiedthat have Corrected Item-Total Correlation values less than 0.3 and will be eliminated toimprove the reliability level of the model

3.4.2 Validity

Exploratory Factor Analysis (EFA) will be used to measure unidimensionality, discriminant

validity and convergent validity

According to Hair et a1., (1998), unidimensional ity means that the items in a scale have astrongly correlated with each other and present a single concept (Neuman, 1999) Asummated scale considered as unidimensional that should consist of items loading highly on

a single factor (Hair et a1., 2006) Discriminant validity means that the items of oneconstruct have negative relationship with opposing constructs (Neuman, 1999) Convergentvalidity measure the correlation of two measures in the same concept (Hair et at., 1998)

There are two basic methods to extract factors in EFA, they are: principle component factoranalysis and common factor analysis (principle axis factoring) Principle component factoranalysis with VARIMAX rotation is mainly used to evaluate unidimensionality forprediction purpose as minimize the number of factors from most the original information(Hair et al., 1998) Common factor analysis is used to assess discriminant validity andconvergent validity

for testing the latent dimension of the original variables (Conway and Huffcutt, 2003) The

common factor analysis with the condition eigenvalue >1 used to decide the number of

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extracted factors, and eliminated the factors with latent roots ft 1 because of itsinsignificance (Hair, Anderson, Tatham, Black, 1998).

CHAPTER IV: DATA ANALYSIS AND FINDINGS

This chapter presents the results of collected data by applying Exploratory Factor Analysis

and Multiple Regression in the chapter 3 This chapter also test the hypotheses mentioned inchapter 2 The results are discussed that relate to each of the relevant research objectives.SPSS software version 16 will be used to analysis the data

4.1 DESCRIPTIVE STATISTICS

4.1.1 Sample size:

A total of 138 questionnaires were returned from 150 questionnaires delivered to 8 banksdue to ownership (2 state-owned banks, 2 private-owned banks, 2 joint-venture banksand 2 foreign-owned banks) in HCMC After checking 12 questionnaires were rejectedbecause they were filled incompletely, the remaining 138 questionnaires used for thisanalysis, generating a 92% useable response rate

Table 4 l indicates sample size of collected data and frequency of each bank in the totalnumber of 138 returned responses

Table 4.1: Sample size

BANK Frequency Percent Valid

Percent CumulativePercent

4.1.2 Demographic Characteristics

• The collected data includes the demographic characteristics of customers such as gender, age,

incomes and education level It indicates the frequency of going to the bank of eachcustomer’s group that helps bank managers to give suitable solutions for each group

The Table 4.2 shows the demographic characteristics of customers and the frequency of each group in the sample size

Table 4.2 Demographic Characteristics Demographic Characteristics Frequency Percent Valid

19 13.8 13.8 88.4

16 11.6 1 l 6

The Table 4.2 shows that 52.9% respondents are females and 47 1% are males That indicates

that females use banking services more than males because the most of family financialholders are females In the practice, most of females go to the bank for having savings forfuture, males go to the bank for their own business transactions

That above table also shows that the large ratio of customers go to the bank are in the age of

46-55 (42%), the next is 26-35 (28.3%) It indicates that is the age of thinking of the life inthe future and they save more than consume

About the income and education, 42.8% of the respondents have the fair high income (7-10mil), 30.4% of customers who have high income (over l0mil); most of respondents havebachelors degree (58%), the other levels of education take a small ratio This shows that the

higher income and education they have the more banking services they use, they know how to

use banking services to serve their purpose easily

4.2 MEASUREMENT SCALE REFINEMENT

In this section, the measurement scales will be screened through reliability assessmentbefore carrying out EFA to test the Cronbach Alpha of each scale whether satisfy thecondition of Factor analysis

4.2.1 Reliability Assessment:

The Table 4.3 presents the Cronbach Alpha results of each variable in factors that affectCustomer Loyalty as Service quality, Price and Switching cost and Customer Loyalty factor

Table 4.3 Reliability Test Results

Variables Description CorrectedTotal

Correlation deleted

TAGI Banks’ equipments and materials are

well supporting for transactions .647 a

23

TAG2 Bank staffs appear neat and sympathy

Alpha - 785

The bank provides services as

REL4 When problem happened, the bank

shows a sincere interest in solving it .891 85 IThe bank does customer’s demand

REL6 The bank finishes customer’

Alpha - 909

RES7

The bank informs me about any

changes in service needs or additional

maintenance requirement

.747

Bank staff can answer my questions or

RES9 Bank staff makes any effort to help

Alpha - 890

ASS10 I feel safe to have my bank serviced at

ASS11

Bank staff always courteous with me

during the process of doing

The bank gives me individual attention

(send Happy Birthday gift, Happy

New Year calendar, etc .)

PR16 The bank offers a competitive price

a

PR17 The charged price suitable with the

Alpha - 937

It would be cost me too much to

SW19 For me, it would take a lot of time to

I don’t want to move to the further

Alpha - 692

CL21 I feel satisfied with the bank service .850 .840

CL22 1 will be the loyal customer of the bank 828

CL23 I would recommend the bank service

to my friends and relatives .742 .928Alpha - 908

The above table shows that the Cronbach Alpha of each scale TAG, REL, RES, ASS, EMP,

PR, SW and CL is 785; 909; 890; 803; 803; 937; 692 and 908 that exceeds 0.6 andcorrected item total correction value in each scale is greater than 0.3 Therefore, data set isappropriate for factor analysis

4.2.2 Exploratory Factor Analysis

With appropriate Cronbach Alpha of 23 variables, we can apply factor analysis withinterdependent technique for all items to explain the pattern of correlations among the

observed items

The principle component factor analysis with Varimax rotation was conducted on all of theitems Only those variables were greater than 0.5 (using Kaiser’s criterion) that wereconsidered to be significant

With 20 dependent variables, the last result showed that the KMO score was 0.628 (greaterthan 0.5) and sig smaller than 0.5 and they accounted for 77.503% of the total variance The

25

.833 737

Alpha 927

items with factor loadings were smaller than 0.5 that were eliminated such as REL3, REL4,

- RES7, ASS10, EMPI4 The factor analysis creates 4 factors as the tables as follows (based on

the results showed in Appendix 4)

Table 4.4 indicates the last results of EFA, the results show that beside factors influence

Customer Loyalty in the presented research model in Chapter such as Service quality, Priceand Switching cost, there is another factor, it is Tangibles factor

Table 4.4: Results of Exploratory Factor Analysis

The first factor included variables of REL6, RES8, REL5, RES9, EMP15, ASS11, ASS12and the name was unchanged Service Quality (SQ) The second one was price consisted ofPR16, PR17, SW19, SW20 with the name Price (PR).The third is Tangibles factor

(TA) with