The factors in ho chi minh city markets that drive customer loyalty are perceptions of stability and regulation

In order to find alternatives to consumer satisfaction with service quality—which has long been seen to be the main predictor of client loyalty, especially for services—this study will l

HO CHI MINH CITY UNIVERSITY OF FOREIGN LANGUAGES —

INFORMATION TECHNOLOGY FACULTY OF BUSINESS ADMINISTRATION

FINAL REPORT

THE FACTORS IN HO CHI MINH CITY MARKETS THAT DRIVE CUSTOMER LOYALTY ARE

PERCEPTIONS OF STABILITY AND REGULATION

Student’s name: Nguyén Thuy Bao Ngoc Student’s code: 22DH481925

Instructor: Dang Hoang Son

HCMC, July/2024

Contents

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2 Lif€rafUT€ F@VÏ€W ch nh nén hen kg TH ĐK ĐK ĐK ĐK Và 5

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4 Result and Discussiion LTD nh nen nén hen hp nh tk kế ĐK 16

4.1 Demographic proffile cuc nền II EEE CUI EE ke kh ĐH ti ki ĐK hit 16 4.2 Ássessing the outer measurement modelÌ On kh nh He 17 4.3 Inspecting the inner structural model, tí ch tt nh nền nh EOE be khe 18

4.4, DISCUSSION neni 19

5 Conclusion, Limitations and Future Research: co ch nh nh bền nh Hhoce 20

5.1 Conclusion and LimitatiOns ‹‹ nore 20

In order to find alternatives to consumer satisfaction with service quality—which has long been seen to be the main predictor of client loyalty, especially for services—this study will look at customer loyalty determinants Information on consumer attitudes and behaviors on satisfaction with service quality, competition, risk, regulation, stability, and loyalty was gathered through a survey of a stratified sample of bank customers Partial least squares path modeling, or PLSPM, was used to develop loyalty models for Ho Chi Minh City's both dynamic and stable markets The study's empirical findings support theoretical arguments in favor of including customer perceptions of competition in loyalty programs Perceptions of stability and regulation interfere with the relationship that exists between the elements that foster loyalty and itself The study emphasizes that bankers ought to concentrate on relative competitiveness supremacy, which includes competitive products and productivity, rather than use customer satisfaction with service quality to explain customer loyalty Apart from the standard satisfaction-based loyalty models, a customer profile that takes into account the client's perception of a bank's

competitiveness might provide additional insight The service components have been the emphasis of services marketing, and their importance cannot be overstated Services research has, however, tended to ignore other aspects, such as the real product component, because of this focus The study shows how important it is to include consumer views of other aspects as suitable to market situations, which makes it unique in understanding and modeling customer loyalty

Key word: Customer loyalty, Competitiveness, Competitive productivity, Service

Quality, Regulation, Risk

1.Introduction

There has been a lot of discussion in the marketing literature on how to forecast and explain the evolution of client loyalty Traditionally, explanations for loyalty focused on basic customer characteristics like age, gender, and cultural background, particularly with service quality(C Baumann et al., 2007a) as measured by the SERVQUAL scale(A Parsu Parasuraman

et al., 1991) Because of this, the literature is a little "stuck" in the conventional narrative that

"satisfaction leads to loyalty." In their assessment of the literature on customer loyalty research,

(V Kumar et al., 2013), however, conclude that several studies show that the relationship between satisfaction and loyalty is, in fact, weak, and they recommend looking into alternative sources of allegiance Moreover, the literature on service marketing has paid little attention to the

complexity of the usually non-linear relationship (C Baumann, Hamin, et al., 2012) between

satisfaction and loyalty, a partnership that implies that loyalty cannot be fully explained by enjoyment alone A typical example, Vietjet air is a low-cost airline that often has very low satisfaction because of many reasons of quality and most of all, frequent delays, but the repurchase is surprisingly high Full-service airlines report substantially greater levels of customer satisfaction, yet they are losing market share The goal of the research is to clarify this phenomenon and look into the potential that elements other than customer satisfaction with service quality may explain it, as the complexity of consumer behavior is not well known at this time We contend that SERVQUAL measures of customer happiness are insufficient to predict customer loyalty because they are evaluated in isolation, as if other factors, such

as competitiveness, did not exist (Chris Baumann et al., 2016)

This work is the first to combine two distinct streams of business literature in order to extend the modeling of customer loyalty to include competitiveness: The Harvard-based Porter (1985) mentions the school of competitive advantage found in business literature in his measurement and forecast of client loyalty In the context of retail banking and financial services,

we evaluate competitiveness and customer loyalty by looking at how customers perceive variables like risk, regulation, and stability We examine how these elements are perceived in the banking industry in Ho Chi Minh City using a sample of institutions in order to determine how real market volatility affects client loyalty The Ho Chi Minh City market was chosen for its stability with a regulatory framework designed to ensure stability and transparency, but it is still risky because it faces external challenges such as the COVID-19 pandemic and the impact of major economies The model uses (Sabrina Helm et al., 2009) Partial Least Squares (PLS) approach on a sample of 150 from Ho Chi Minh City Our methodology is founded on groundbreaking research on measuring customer loyalty that takes into account both behavioral loyalty in the present and intentions for the future (C Baumann et al., 2007b, 2011b) We employ the traditional SERVQUAL scale, which was first presented by Parasuraman and his colleagues,

as a predictor for customer satisfaction with service quality see, (Parasuraman et al., 1991) We break down the competitiveness notion into two distinct aspects to find predictors of

competitiveness: the competitive productivity paradigm, which was recently introduced (P

Baumann, 2013a), which is assessed by customers based on their assessment of the firm's

performance in the major competitiveness domains; and the price point competitiveness, which

is reflected in the competitive products that service providers offer (Edvardsson et al., 2000a)

We also look into the connection between client loyalty and perceived bankruptcy risk for the company Furthermore, we investigate how industry and national perceptions of stability and regulation are perceived (Carol Ann Northcott, 2004) By comprehending how competitiveness, service quality, and other variables interact, as well as how these interactions vary depending on how stable or unstable the market is—our study gives a fresh perspective on exploring and achieving consumer loyalty The literature review that follows this section provides an overview

of the development of customer loyalty modeling over time, including SERVQUAL's creation and application In addition, we provide evidence from the literature that supports the inclusion

of competitiveness and other aspects in loyalty modeling, which leads to the presentation of the study's hypothetical model and hypotheses The parts that follow outline and show our approach and findings The paper's final two sections address the degree to which the hypotheses are supported, taking into account differences between the two marketplaces, and offer some concluding remarks that are especially relevant to future study and business practices

2 Literature review

After years of researching consumer behavior, including purchasing trends and service duration, the customer loyalty theory has been improved The hypothesis looks into what motivates customers to remain loyal This can be a useful tool if loyalty predictors are well understood as strong instruments for attracting and retaining clients Although it's standard practice to use customer perceptions of product and service quality to predict customer loyalty, not much research has empirical investigation of performance perceptions in comparison to rivals As a result, although the marketing literature suggests a connection between customer loyalty and competition, it typically lacks empirical support Furthermore, although they have been shown to increase explanatory power in earlier loyalty research, additional contextual factors have been disregarded in the literature (C Baumann, Elliott, et al., 2012a; C Baumann, Hamin, et al., 2012) The literature on the definition and assessment of customer loyalty, probable motivators for customer loyalty, and the function of perceptions of stability and

regulation as potential mediators in the development of consumer loyalty are all reviewed in the sections that follow

2.1 Theoretical background

2.1.1 Customer loyalty

According to Dick & Basu, (1994); Oliver, (1999) measurements of client loyalty are now conceptualized in the marketing literature as either behavioral or attitudinal These were the initial two aspects of loyalty first mentioned by (Day & G.S, 1969), who pointed out that behavioral loyalty, or buying habits, is unable to discriminate between genuine commitment and false loyalty brought on by a lack of options or simple convenience The research appears to have concluded that Measures of loyalty that are behavioral and attitude-based are both important and relevant in this discussion According to recent research, it is possible to effectively extract significant indicators of customer loyalty using both behavioral and attitude measurements (C Baumann et al., 2007b;Kassim & Asiah Abdullah, 2010; McMullan, 2005) This study adopts the novel viewpoint that has been provided by characterizing these two aspects of loyalty

as future intentions and current behavioral loyalty (C Baumann et al., 2011b) For this paper's purposes, the two aspects of loyalty are modeled since the goal is to examine the predictors’ impacts on the two dimensions independently of one another (Muhammad Ahmad Raza et al.,

2012; Um et al., 2006; Zeithaml et al., 1996)

The term "behavioral loyalty" mainly describes a customer's consistent, repeated

purchases (Dick & Basu, 1994) Nevertheless, several researchers have shown that behavioral

loyalty includes many metrics; for instance, word-of-mouth (WOM), share of wallet (SOW), cross-buying, and relationship duration are all mentioned by (V Kumar et al., 2013) In the literature on retail banking, SOW is frequently used to gauge current behavioral loyalty According to (Keiningham et al., 2007a), the specified proportion of the customer's total assets that the bank holds is known as the SOW in the banking sector In their investigation of the factors influencing behavioral loyalty and intentions, (C Baumann et al., 2005) initially employed SOW to quantify behavioral loyalty (C Baumann et al., 2005) application of SOW to gauge behavioral loyalty in retail is followed by (Cooil et al., 2007), (C Baumann, Hamin, et al.,

2012), (Foscht et al., 2009), and(Hamin et al., 2016) banking In general, SOW is a well-

researched and recognized indicator of behavioral loyalty We utilize % SOW evaluated

separately for debts (credit cards, mortgages, loans, etc.) and assets (savings accounts, mutual funds, etc.) to quantify behavioral loyalty in this study We believe that this will be a dependent variable influenced by the issues we are looking into

According to (Frederick F Reichheld, 2003) future purchase intentions are a reliable indicator of a behavioral loyalty and potential for development Customers' future intentions, measured by the chance of suggesting or repurchasing, have been acknowledged in other literature as a type of attitude loyalty as stated by (Agustin & Singh, 2005; Anderson & Sullivan, 1993; Cronin et al., 2000) In this study, a dependent variable that reflects future intentions—and one that is likely to be impacted by the issues under investigation—is the likelihood of purchasing a product from a different bank

2.1.2 Drivers of customer loyalty

Research on the relationship between loyalty and customer happiness has been conducted for a long time, both inside and outside the retail banking industry For instance (Hallowell, 1996) discovered a favorable correlation between satisfaction and word-of-mouth (WOM), (Moutinho & Smith, 2000) discovered a positive correlation between retention and

satisfaction; (Methlie & Nysveen, 1999) and (Veloutsou et al., 2004)discovered a positive

correlation between behavioral intentions and satisfaction As was previously indicated, a recent study found a non-linear relationship between customer happiness and loyalty, meaning that higher satisfaction does not automatically result in higher loyalty (C Baumann, Elliott, et al., 2012b) Instead, the loyalty of unsatisfied consumers is disproportionately low This result suggests that although customer pleasure is a factor in determining customer loyalty, customer loyalty modeling may be expanded to include more sensitive factors

¢ Service quality

To elucidate several types of loyalty, such as word-of-mouth (WOM) and intentions to remain a customer for the long and short term, C Baumann et al (2007) and his colleagues investigated the SERVQUAL scale dimensions (C Baumann et al., 2007) The ability of service quality to explain loyalty in many industries has been the subject of several research For instance, a strong model with a good Structural Equation Modelling (SEM) fit was created in the hotel industry, and quality factors (cleanliness, room quality, family friendliness, and customer service) were shown to contribute to the explanation of customer loyalty (Ramanathan &

Ramanathan, 2013) According to Namukasa (2013), quality of pre-flight, in-flight, and post- flight service in the airline sector was found to account for 7-21% of customer satisfaction, which in turn accounted for approximately 26% of passenger loyalty

The SERVQUAL scale and the five dimensions—teliability, responsiveness, assurance, empathy, and tangibles—introduced by (A Parsu Parasuraman et al., 1988) are most commonly used to measure service quality Using the five SERVQUAL dimensions, we expand on this literature by identifying service quality as a possible factor influencing customer loyalty However, we have modified the SERVQUAL items in our survey to make them responsive to competition, given that we are criticizing the use of service quality in isolation of other factors, notably competitiveness, as stated below, as a driver of customer loyalty "The state bank's internet banking system is more user friendly compared to other banks in HCMC" for instance, says the item on online banking

Competitive productivity and competitive goods are the two aspects of competitiveness

that we consider According to Chris Baumann & Iggy Pintado (2013), the term "competitive

productivity" refers to a set of attitudes and actions that are modified throughout time to maintain competitiveness in the face of shifting market and industry conditions The competitive productivity paradigm acknowledges that there are limitations to productivity as a metric By comparing productivity to rivals, competitive productivity places productivity in perspective and shows how comparatively greater levels might provide a competitive edge and possibly increase consumer loyalty Although all six of the factors that (Chris Baumann & Iggy Pintado, 2013) first identified as indicators of competitive productivity were included in this analysis, only two

—infrastructure (the degree to which the clients thought their bank prioritized infrastructure) and innovation (the degree to which the clients thought their bank was cutting edge in comparison to other banks) were discovered to be important and were thus incorporated into the modeling Competitive goods, or the competitiveness of service providers’ offerings at different price points, constitute the second component of competitiveness employed in the study (Edvardsson et al., 2000) Competitive items were evaluated based on what consumers thought

of the competitiveness of their bank's offerings in terms of interest rates for loans and credit card services, as well as rates of return for savings and investments, as compared to other domestic

® Compctiiveness

A corporation is considered competitive if it has a competitive edge A competitive strategy's goal, according to (Porter, 1985), is to establish a lucrative and long-lasting position concerning the elements that characterize industrial rivalry In 1989, Jay B Barney et al (1989) defined competitive advantage as the state in which a business is pursuing a valuable strategy that is not being pursued by its present rivals at the same time Although the competitive advantage may disappear as a result of structural changes to the industry or environment, If the company's present or future rivals are unable to replicate the approach or materially copy it, it is considered sustained (Dierickx & Cool, 1989; R P Rumelt, 1984) These conceptions of competition hold that consumers see and assess their service provider to other suppliers in the market A favorable comparison constitutes a competitive advantage Thus, the perception of competition held by beyond the conventionally separated service/satisfaction quality measurements, customers are likely to add to the explanation of customer loyalty

Despite signs that this may play a significant role in the building of loyalty, customers’ perceptions of competitiveness have been almost completely ignored in the literature on customer loyalty Specifically, (Bitner et al., 1990) found that customer loyalty in business marketplaces is positively impacted by superior performance when compared to alternative providers Furthermore,Chen (2015) shows that the link between service quality and customer loyalty is moderated by the amount of competition (low, moderate, and high) This is true even though competition is a necessary condition of the market, but competitiveness is the capacity to generate a competitive advantage Competitive advantage in elements like the supply chain can serve as a deterrent to rivals and bolster one's advantage (Howgego, 2002) Regarding plans, (P Kumar, 2002) proves that a customer's desire to make another purchase depends on how satisfied they are with their last provider in comparison Competitive performance is acknowledged as a

crucial indicator of customer satisfaction and market share (Ganesh et al., 2000; Rust et al.,

2000) These studies demonstrate the importance of examining consumers’ views of relative competitiveness as a factor influencing customer loyalty

s Risk

According to (C Baumann et al., 2011), there are additional elements that may be used to explain client loyalty in financial services, such as reluctance to change, variety seeking, and

Stathakopoulos, 2004; Mitchell, 1999)and investment decisions (¢.g., De Long et al.,

1990; Jacoby & Skoufias, 1997; jarrow & turnbull, 1995; Sharpe, 1964)have linked risk

with risk seeking/avoidance Thus, we have incorporated one potential predictor of client loyalty into our model and hypotheses is the degree to which consumers believe that their bank, and consequently their assets, are vulnerable to bankruptcy

2.1.3 Mediators of customer loyalty

Customer loyalty mediators in his analysis of the intricate interactions between stability and regulation in banking systems, (Carol Ann Northcott, 2004) elements Given this complexity, customer perceptions of these factors—while potentially influencing the relationship between loyalty drivers and loyalty itself—are unlikely to be drivers of customer loyalty to the service provider in and of themselves, unlike customer perceptions of risk, competitiveness, and service quality Instead, they most likely will have a secondary effect This study analyzes views of stability and regulation as mediators of customer loyalty in both stable and turbulent markets like

Ho Chi Minh city, where such beliefs and their role as mediators could most likely differ The goal is to investigate this indirect influence

When looking at the country's regulatory system alone, customers’ evaluations of its efficacy in preventing hazardous banking operations are what constitute perceptions of regulation in this study in comparison to other nations Similarly, client opinions of stability pertain to the degree

of stability that clients perceive in the country's financial system and the degree of susceptibility

of local banks to collapse, both on an individual basis and relative to other countries

2.2 Hypotheses development

2.2.1 Behavioral loyalty

Behavioral loyalty is the dependent variable that is used to conceptualize customer loyalty (C Baumann et al., 2011) The degree of trust and desire to continue using a company's goods or services in the future is known as customer loyalty

2.2.2 Service quality

Customer loyalty and future intentions (i.e., behavioral loyalty) are influenced by customer satisfaction with service quality (as determined by SERVQUAL) (Ramanathan & Ramanathan, 2013)

H1: Perceptions of regulation act as a mediating factor between behavioral loyalty and service quality

H2: Perceptions of stability act as a mediating factor between behavioral loyalty and service quality

2.2.3 Competitiveness

Competitiveness may influence customer loyalty, which is a favorable comparison with

other suppliers (Bitner et al., 1990; P Kumar, 2002) The benefit that consumers derive from

competition is that firms will consistently improve the quality of their products and services at

the same time

Two dimensions are considered while conceptualizing competitiveness Competitive

Productivity is one factor, which measures relative customer satisfaction with customized

attitudes and actions to maintain competitiveness in ever-changing markets and business

environments (Chris Baumann & Iggy Pintado, 2013) The second is Competitive Products,

which measures how satisfied customers are with how competitive a product is (Edvardsson et

Customer loyalty may also be influenced by risk (Jacoby & Skoufias, 1997; jarrow & turnbull, 1995) Consumers may worry that the good or service won't live up to their expectations or won't be of high quality, which will cause them to bear the brunt of the loss H7: Risk significantly affects behavioral loyalty, with beliefs of regulation acting as a mediating factor

H8: Perceptions of stability operate as a mediating factor in the substantial impact of risk on behavioral loyalty

3.1 Research design

In order to ensure that high-quality data were obtained from two distinct types of banks in

Ho Chi Minh City in 2024 and to reach an appropriate sample size, the study employed a professional data-gathering service Such consumer panel data have been effectively employed

by previous studies, which have demonstrated that they are a valid source of information (Faber

et al., 1987; Michael E Drew & Jon Stanford, 2001) Professional data collecting services polled a stratified sample of market State bank customers in Ho Chi Minh City as opposed to

consumers of other kinds of banks, claim (Craig & McCann, 1978)

In compliance with the stratified sample, the data collection agency forwarded the survey link to 150- panel members who met the eligibility requirements (being over fifteen years old and state bank customers) parameters (banking time, gender, and age) The stratified sample criteria specify the age (low, middle, and high), gender, and education (college, university, and others) ranges (Table 4.1) The stratified sample approach differs from often used surveys in that the sample is chosen from a near-random population according to specific criteria, much like a shopping mall intersection This demonstrates that there is no non-response bias and that the response rate is expressed as a percentage of the population

Twelve techniques were employed to gauge the level of service quality for items related

to the five SERVQUAL characteristics (A Parsu Parasuraman et al., 1988) Although these dimensions are normally measured in absolute terms (i.¢., isolated from the competition), we changed them so that the measures were relevant to the competition Infrastructure and innovation were the only two of the six initial dimensions that were determined to be significant for competitive productivity (Chris Baumann & Iggy Pintado, 2013) These measurements were each item capturing two Data on competitive products were gathered using three items that asked respondents to rank the competitiveness of the products their bank offers (Edvardsson et al., 2000b) Risk was measured by two questions that asked about the respondent's perception of the risk that their primary bank will fail (C Baumann, Elliott, et al, 2012b) Perceptions of regulation and stability were reflected by two and four items, respectively, according to (Carol Ann Northcott, 2004) The regulatory elements pertain to the perceived impacts of the regulatory framework, specifically with regard to local banks, the stability items are related to opinions