Determinants of customer loyaty in eatail banking : An empirical study in Vietnam

This study aims to define some determinants of customer loyalty in Vietnam retail banking, including Brand Awareness, Convenience, Service Personnel, Satisfaction, Social Influence and S

UNIVERSITY OF ECONOMICS HO CHI MINH CITY INTERNATIONAL SCHOOL OF BUSINESS

-

PHAM THI PHUONG THAO

DETERMINANTS OF CUSTOMER

LOYALTY IN RETAIL BANKING: AN

EMPIRICAL STUDY IN VIETNAM

MASTER OF BUSINESS

SUPERVISORS: DR TRAN HA MINH QUAN

Ho Chi Minh City – Year 2014

ABSTRACT

Loyal customers are considered as an important source of business profit and a free channel of advertisement Although companies can boost their profit more than 85% by reducing customer defection rate by just 5%, the fact is that most of businesses lose from 15% to 20% of customers each year (Reichheld and Sasser, 1990) This study aims to define some determinants of customer loyalty in Vietnam retail banking, including Brand Awareness, Convenience, Service Personnel, Satisfaction, Social Influence and Switching Costs The survey was conducted in Ho Chi Minh City The result showed that all six factors have a positive influence on the loyalty in Vietnam retail banking In which, the influence from Brand Awareness, Satisfaction and Switching Costs was stronger than others The least impact was caused by Social Influence and Convenience

Keywords: Loyalty, Retail banking, Vietnam

TABLE OF CONTENTS

ACKNOWLEDGEMENT i

ABSTRACT ii

TABLE OF CONTENTS iii

LIST OF TABLES iv

LIST OF FIGURES v

CHAPTER 1: INTRODUCTION 1

1.1 Introduction 1

1.2 Research background 2

1.3 Research gap 6

1.3 Research objective 7

1.4 Research Scope and Research Contribution 8

1.5 Research structure 9

CHAPTER 2: LITERATURE REVIEW 10

2.1 Retail Banking 10

2.2 Customer Loyalty 10

2.2.1 Definition of Customer Loyalty 11

2.2.2 Determinants of Customer Loyalty 12

2.3 Brand Awareness 14

2.4 Convenience 15

2.5 Service Personnel 16

2.6 Customer Satisfaction 17

2.7 Social Influence 18

2.8 Switching Costs 19

2.9 Research Model 20

CHAPTER 3: RESEARCH METHODOLOGY 22

3.1 Research Design 22

3.2 Sampling 24

3.3 Questionnaire Design 26

3.4 Data Collection Result 29

3.5 Data Analysis Method 30

CHAPTER 4: DATA ANALYSIS 31

4.1 Descriptive Analysis 31

4.2 Reliability Test 33

4.3 Exploratory Factor Analysis (EFA) 35

4.3.1 EFA for Independent variables 36

4.3.2 EFA for Dependent variables 38

4.4 Correlation Matrix 40

4.5 Regression Assumption Tests 41

4.5.1 Assumption Test 1 41

4.5.2 Assumption Test 2 41

4.5.3 Assumption Test 3 42

4.6 Regression Analysis 42

CHAPTER 5: CONCLUSION AND DISCUSSION 50

5.1 Discussion 50

5.2 Managerial Implications 52

5.3 Limitations and further research 55

5.4 Conclusion 56

REFERENCE 57

APPENDICES 66

APPENDIX A - VIETNAM BACKGROUND 66

APPENDIX B - IN-DEPTH INTERVIEW 68

APPENDIX C - QUESTIONNAIRE IN ENGLISH VERSION 71

APPENDIX D - QUESTIONNAIRE IN VIETNAMESE VERSION 73

APPENDIX E – RESEARCH RESULTS 75

LIST OF TABLES Table 1 – Distribution System of Vietnam banks 2013 67

Table 2 – Distribution of Vietnam banking Infrastructure in 2013 68

Table 3 - Construction of Measurement scale 27

Table 4 – Source of questionaire collection 30

Table 5 – Demographic Information 31

Table 6 – Reliability test result 34

Table 7 – KMO and Bartlett's Test 36

Table 8 – Rotated Component Matrixa 37

Table 10 – KMO and Bartlett's Test 39

Table 11 – Total Variance Explained 39

Table 12 – Component Matrixa 39

Table 13 – Correlations Matrix 40

Table 14 – Model Summaryb 43

Table 15 – ANOVAa 43

Table 16 – Coefficientsa 44

Table 17 – Hypotheses results 44

LIST OF FIGURES Figure 1– Vietnam GDP per capita (USD) 66

Figure 2 – GNI per capita (USD) 66

Figure 3 – The rate of people (>15 years old) using debit card and credit card in 2011 67

Figure 4 – Research Model 21

Figure 5 – Research Process 23

Figure 6 – Scatterplot 75

Figure 7 – Histogram 76

CHAPTER 1: INTRODUCTION

1.1 Introduction

Customer Loyalty is always an attractive topic in marketing Long-term customers are not only the vital source of profit but also a free channel of advertisement for business Cultivating loyal customers can lead to increased sales and customer share, lower costs, and higher prices (Zeithaml et al., 1996) Reichheld and Sasser (1990) reveal the surprising statistical number that companies can boost their profit more than 85% by reducing customer defection rate

by just 5% However, the fact is that most of businesses lose from 15% to 20% of customers each year (Reichheld and Sasser, 1990) This explains for the reason why there are a number of economists as well as marketers all over the world do research on customer loyalty

In Vietnam, an emerging economy, marketing is still underdeveloped in comparison to the US, European and even some Asian countries (Khuat, 2012) Most of business, therefore, has not put a deep focus on loyalty and its important role to their business performance yet Vietnam has experienced a period of economic crisis for recent years Although the influence from the recession is not too serious as in some strong countries, most of business in Vietnam had to go bankruptcy and a large amount of bank debts could not be collected (The Financeplus, 2009; Le, 2014) Some small banks had to merge to the stronger ones for survival Many bank branches and transaction offices had to be closed or merged to others to cut off cost because of inefficient operation (The Vietinbank Network, 2014) The new trend for Vietnam banking therefore has opened This is retail banking, which aims to individual customers with small value on each transaction but a large amount of deals and customers However, the development of Vietnamese retail banking performance has been still not corresponding with the potential market of over

ninety million residents (The VPBS Report, 2014) Many banks, especially state-own ones, still ignore loyal individual customers who have a long time in good relationship with the banks in order to set a new relationship with big enterprises instead (Nguyen, 2014) Indeliberately, banks

do not create a good conditions for long-term customers to be loyal with them Hence, this study focuses on some determinants influencing on the loyalty of individual customers in Vietnam banks This study could be a reference for banks to be more concerned on retail banking

1.2 Research background

Vietnamese retail banking is evaluated as an emerging market that is still full of potential (The VPBS Report, 2014; Keith Pogson, as cited in Thanh Thanh Lan, 2014) but the level of customer loyalty is low These features are demonstrated in the following analyses

people at the end of the year 2013 Fifty percent of this number was in the labor force However, only 20% of Vietnam population has banking accounts (The VPBS Report, 2014) The rest 80% creates a potential market for retail banking in Vietnam In addition, the development of Vietnam economy in recent decades leads to a significant increase in the numbers of the Gross Domestic Product (GDP) per capita and the Gross National Income (GNI) per capita The Figure 1 and 2 reveal that the average income and the standard of living of Vietnamese people rise over the years One of cultural feature of Asian countries is accumulating Therefore, people have a tendency to allocate more budgets into saving items when they earn more money As a result, the demand of using financial service increases This contributes to create a potential market for retail banking in Vietnam

However, the number of Vietnamese people using banking service still accounts for a low rate Although there was a significant increase in market penetration rate of Vietnam banking, which was from 6% in 2006 to 21% in 2011; this rate was still modest in comparison to the number 55% held by the Pacific region (The VPBS Report, 2014) The VPBS Report 2014 shows that the rates of over-15-year-old people using debit card and credit card in Vietnam are lower than some developed Asian countries As can be seen from the Figure 3 (Apendix A), Thailand is the country, which has the highest rate of over-15-year-old people using debit card (43%), followed by China (41%), Singapore (29%) and Philippines (23%), while that is only 15% in Vietnam The rate of over-15-year-old people using credit card in Vietnam is just 1%, holding the lowest rank among countries

One more reason for the high potentiality of Vietnam retail banking is the unequal distribution in banking system between urban area and rural area The table 1 (see Apendix A) shows clearly that up to 30% branches and transation offices of State Owning Commercial Banks, Foreign Banks and over 50% that of Commercial Banks gather in only four big cities; namely Hanoi, Ho Chi Minh City, Danang City and Can Tho City While the remainder spread over 59 provinces and cities from the North to the South of Vietnam

The Table 2 (see Apendix A) illustrates the distribution of infrastruture in Vietnam banking system in 2013 The figures show that Hanoi and Ho Chi Minh City have high density

of transaction offices, which nearly 50 times higher than the average density of the whole country Due to a great number of transaction offices in these two cities, the average number of customers served in each transaction office is 30% lower than the average of the whole Vietnam Similarly, the number of customers using an ATM or POS is also approximately from 30% to 40% lower than the average number of the whole country This proves that service quality in the

large cities is better than the average level in the whole country There is aparently unequal development in retail banking service quality among regions, leading to opportunities to recruit the potentiality in far distance areas

Relating to the elastic level of customer loyalty in Vietnam banking, it is claimed that there are too many banks in Vietnam (around 49 banks) offering the same service for customer to select while there are only 3 to 4 large banks for options in Australia and Japan (Keith Pogson, Douglas J Hamilton; according to Thanh Thanh Lan, 2014) In addition, marketing, especially bank marketing, in Vietnam are still under developed compared with other neighbor countries; while banking belongs to intangible service Therefore, customers are confused among so many bank brands that they even could not remember and recognize The VPBS Report (2014) shows that Agribank, one of the four biggest banks in Vietnam, lost 1.91% its market share during the period of 2010 and 2013

Besides this, low service quality from personnel may lead to customer defection The lack of professional experience of staff in some banks, for instance, led to unexpected service quality (Le Chi, 2013; The Infonet, 2013) Interviewing some customers in well-known banks around Ho Chi Minh City about service quality from banking staffs reveals some inadequacies Firstly, customers have to wait for a long time, even over one hour in rush days, to be served because the number of customers is overload for bank tellers Secondly, bank staffs seem to have

no time to introduce new promotional program or listen to customers for cross-selling Thirdly, due to working stress and crowded customers, bank tellers sometimes interact with customers in

an unhappy attitude Bank managers just focus on promulgating policies and launching marketing strategies but ignore to observing their staff in conducting process Failure in solving customer dissatisfaction in the current era of information technology leads to a mass of loss for

banks For example, with a sharing on personal website via social network such as facebook or twitter about a dissatisfied experience when withdrawing money from personal account in Vietcombank branch Ho Chi Minh City, this bank lost not only one current customer but also many potential ones who indirectly have a negative brand awareness through their friend’s sharing

Interview from banking professors of Vietinbank about retail banking and personnel quality showed that although banking strategy is aiming to individual customers, some branches still ignore long-term customers who have good relationship with the banks for many years and focus on establishing new relationship with large enterprises instead Banks are available to refuse individual credit, even for current and long-term customers, to offer credit limit for large corporations Moreover, the one-way view of service, which considers that only customers need the banks, still exists in some banks, especially state-own banks Bank tellers therefore passively receive customers’ request They have not perceived the important role of customer loyalty in banking performance yet They even do close banking account according to customers’ order without asking for the reason or persuading customers to continue using banking service

In conclusion, Vietnam retail banking is still potential market, which needs to be employed to support the economy development Despite of much positive changes in several years, Vietnam banks, especially the state-own ones, have still not focus much on this retail segment as they set up in their goals Retail banking customers therefore are not created good conditions to be loyal with banks One of the most efficient solutions is to put a serious concern

on long-term customers because they are not only a vital source of generating profit but also a free channel of advertisement Hence, doing research on determinants of customer loyalty in retail banking is necessary

1.3 Research gap

Reichheld and Sasser (1990) clearly showed that customer loyalty plays an important role

to business performance Only 5% customers retained, the profit can boost up to 85% Therefore, determinants of customer loyalty have become an attractive research topic to marketers in the world

Retail banking in Vietnam is estimated as a new trend full of potential because of a market of large population Moreover, the banking system still contains inadequacies Vietnam banks still focus on finding new customers and look down on retaining the current ones Among the KPIs (Key Performance Indicators), which are used to evaluate staff capacity- the standard to pay salary, Vietnamese banks such as Vietinbank and Eximbank input the indicator of new customers increasing without the one of current customers defecting Banks have not put a serious concern on managing customer defection yet The marketing programs therefore mainly aim to attract new customers There are a few promotional programs to satisfy long-term customers The number of official research on determinants of customer loyalty in retail banking

in Vietnam is still modest Hence, this empirical study aims to define some determinants, which are considered as important factors of customer loyalty in many countries

Many determinants of bank selection, behavioral intention and customer loyalty are defined in United State and Asia Perceived quality and customer satisfaction are considered the most important determinants of customer loyalty (Parasuraman et al., 1988; Parasuraman et al., 1991; Boulding et al., 1993; Zeithaml et al., 1996) Other scholars find out some determinants such as brand awareness (Aaker, 1996; Jing et al.,2014), service quality (Laroche et al., 1986; Sinkula & Lawtor, 1988; Ying & Chua, 1989), convenience (Laroche et al., 1986; Martenson

1985; Lewis, 1982; Schram, 1991), social influence (Chua, 1980; Martenson, 1985), service personnel (Ying & Chua, 1989) and switching costs (Beerli et al., 2004; Cronin & Taylor, 1992; Hellier et al., 2003)

To the best of our knowledge, there are many studies on customer loyalty in retail banking in Vietnam However, almost studies deeply focus on the influence on customer loyalty

in Vietnam retail banking of one or two determinants Phan and Ghantous (2013) found the influence of brand associations, social influence on trust and loyalty of customers in Vietnamese banking Pham and Le (2010) employ the influence of service personal values on loyalty in banking services It still lacks of official studies, which simultaneously consider the influence of

a portfolio of determinants of customer loyalty such as brand awareness, convenience, service personnel, and switching costs… This study therefore aims to employ the influence of these factors besides satisfaction and social influence on the loyalty of individual customers in Vietnam banking This would be a reference source for managers to improve retail banking service in Vietnam

1.3 Research objective

As mentioned above, customer loyalty plays a vital role in the development of retail banking service There are many researches on customer loyalty in retail banking in the world while the number of studies is still modest in Vietnam Moreover, this is a large research topic, which is influenced by many factors including culture and ethnic As a result, researches on loyalty of retail banking customers in various countries and regions could be not consistent to Vietnam context Therefore, reviewing previous theories in other countries and testing in Vietnam context are important to define whether the determinants of customer loyalty in retail

banking service such as Brand Awareness, Convenience, Service Personnel, Customer Satisfaction, Social Influence and Switching costs, which are considered as the important factors

in other countries, really influence on customer loyalty of Vietnamese people or not Due to some limitations, this study just focuses to employ the influence of these six factors on the loyalty of customers in Vietnam retail banking This study will not consider the relationship among six determinants This limitation could be researched in future studies

In order to accomplish the study purpose, the author defines and focuses on some following research objectives:

Awareness, Convenience, Service Personnel, Customer Satisfaction, Social Influence and Switching costs, which are considered as important factors in other countries

customer loyalty in Vietnam retail banking

1.4 Research Scope and Research Contribution

This study focuses on some determinants of customer loyalty because of the important role of customer loyalty to business performance We select to do empirical test on retail banking because this is the new trend in Vietnam banks in recent years The survey is conducted in Ho Chi Minh City due to convenience Thank to some limitations, this study only consider the simultaneous influence of six determinants on customer loyalty in Vietnam retail banking, including Brand Awareness, Convenience, Service Personnel, Satisfaction, Social Influence and Switching Costs

This study result would contribute to theories and empirical research about customer loyalty in retail banking This study is also a useful reference source for banking managers to improve retail banking service, which has become the new trend of commercial banks in Vietnam

1.5 Research structure

This study is divided into five chapters that provide following contexts:

Chapter 1 provides the background of this study, defines research gap and research objective This chapter also points out the scope and contribution of the current study, as well as draws out the structure of content

Chapter 2 provides the comprehensive review of literature about customer loyalty and related concepts This chapter also develops the hypothesized conceptual model

Chapter 3 provides the conceptual regarding research design and sampling The research methodology is also defined in this chapter

Chapter 4 includes data analysis, results of this study and all hypotheses testing

Chapter 5 is the discussion, implications and limitations of the study

CHAPTER 2: LITERATURE REVIEW

Basing on the research background and research objective defined in chapter 1, this chapter makes an effort on finding previous studies about retail banking, customer loyalty and its determinants The different point of views of relating concepts and the relationships between customer loyalty in retail banking and its determinants are also compared and contrasted in this chapter Reviewing these theories is the reliable foundation for the hypotheses of this study

2.1 Retail Banking

Retail banking is becoming one of new marketing strategies in Vietnamese commercial banks in the recent years Retail banking offers banking service to individuals and small and medium entrepreneurs Different from wholesale banking, retail banking has small value but large volume of transactions (Buckle & Thompson, 1998) According to Kumar (2010, p.12),

“Retail banking is typical mass-market banking where individual customers use local branches of larger commercial banks Services offered include: savings and checking accounts, mortgages, personal loans, debit cards, credit cards …”

In comparison to wholesale banking, which focuses on large corporations, retail banking helps to scatter business risk The reason is that retail banking aims to individuals, small and medium enterprises, which have small value on each transaction but large number of quantity (Le, 2011)

Due to differences between individual customers and small enterprises, this study restricts the concept of retail banking within individual customers

2.2 Customer Loyalty

2.2.1 Definition of Customer Loyalty

Customer Loyalty is one of the most important objectives that marketers aim to because it has a strongly positive relationship with business performance (Reichheld & Sasser, 1990; Reichheld, 1993; Sheth & Parvatiyar, 1995) Many studies claim that finding a new customer costs the company more than retaining the current one Reichheld & Sasser (1990) find out in their study that the profit which the fourth-year customer can generate for an auto-service company is triple as much as the first-year one Since the important role above, numerous scholars make an effort to define customer loyalty and find out its determinants

Most of the early studies consider customer loyalty just on the aspect of behavior which expressed by repeat patronage (Cunningham, 1956; Massy et al, 1970; Kahn et al., 1986) However, doing research on repurchase behavior cannot explain how and why customer loyal to

a brand (Dick & Basu, 1994) Consequently, some scholars realize the role of psychology besides behavior in customer loyalty Customer loyalty is defined as the combination of relative attitude and repeat patronage (Day, 1969; Dick & Basu, 1994)

Jacoby and Kyner (1973) described loyalty as “a biased behavioral response expressed over time by a decision making unit with respect to one or more alternative brands out of a set of brands and being a function of psychological processes” This definition emphasizes loyalty is the selective purchase behavior, not random behavior among alternatives Jacoby and Kyner (1973) also put forth the concept of “decision making unit”, which turns to the people who make purchase decision, not the real users or the buyer when doing research on loyalty

Oliver (1999) delineates loyalty as the commitment to repurchase a favorite brand although the situational factors or marketing efforts can cause switching behaviors

Basing on various level of the combination between attitude and behavior, customer loyalty is distinguished into different levels from no loyalty to spurious loyalty, latent loyalty and loyalty (Dick & Basu, 1994) Kuusik (2007) divides customer loyalty into three cases: forced to

be loyal, loyal due to inertia or functionally loyal

In the purchasing process, the consumer passes through three “successive related phases”, which are cognitive, affective-evaluative and conative (Lavidge & Steiner, 1961; Dick & Basu, 1994)

From the past studies above, this study considers Customer Loyalty in retail banking as the strength of the combination between individual customers’ relative attitude and their repeat patronage towards a preferred bank

2.2.2 Determinants of Customer Loyalty

Since the important role of customer loyalty in business performance, numerous studies find out the determinants of loyalty in retail banking However, most of researches are conducted

in the United State of America and Europe The official studies in Asian context are still modest Moreover, these studies are predominantly fulfilled by surveys on student segmentation

When reviewing previous theories relating to customer loyalty, we realize the relationships among bank selection, behavioral intention and customer loyalty Before analyzing the determinants of customer loyalty, it is necessary to make these linkages clear Firstly, determinants of bank selection are the factors, which have influence on that why customers choose this bank for their transactions but not another one while customer loyalty is the measurement of the repeat patronage of customers with a preferred bank Bank selection towards the same bank at different times creates loyalty The determinants of bank selection therefore

have influence on customer loyalty also Secondly, behavioral intention is defined as one of determinants of loyalty Thus, the determinants of behavioral intention also influence on customer loyalty

Many determinants of bank selection, behavioral intention and customer loyalty are discovered via surveys on residents and students in United State and Asia Perceived quality and customer satisfaction are considered the most important determinants of customer loyalty (Parasuraman et al., 1988; Parasuraman et al., 1991; Boulding et al., 1993; Zeithaml et al., 1996) According to previous studies, perceived quality and customer satisfaction have positive relationship with customer loyalty However, in many cases, these factors cannot explain for the loyalty For example, some consumers dissatisfy with the service but they continuously consume instead of switching to another one Many scholars find out other determinants such as brand awareness (Aaker, 1996; Jing et al.,2014), service quality (Laroche et al., 1986; Sinkula & Lawtor, 1988; Ying & Chua, 1989), convenience (Laroche et al., 1986; Martenson 1985; Lewis, 1982; Schram, 1991), social influence (Chua, 1980; Martenson, 1985), service personnel (Ying

& Chua, 1989) and switching costs (Beerli et al., 2004; Cronin & Taylor, 1992; Hellier et al., 2003)

Chua (1980) find out social influence such as family influence, friends’ influence has significant impact on bank selection of Singapore students while the influence of the third party

is the least important determinant of Singapore undergraduates’ bank selection (Gerard & Cunningham, 2001; Ta & Har, 2000)

From previous studies of the determinants of customer loyalty above, Vietnamese background and the interview with a group of people who are individual customers in

Vietnamese commercial banks, this study focuses on the influence of band awareness, convenience, service personnel, customer satisfaction, social influence and switching costs on customer loyalty in retail banking in Vietnam In the next sections, this study analyses each determinants in turns

2.3 Brand Awareness

Brand awareness is a component of brand equity, which expresses the ability of consumer

to recall and recognize the brand among the alternatives under different conditions (Aaker, 1991; Keller, 1998) Brand awareness symbolized for the strength of a brand’s presence in the consumer’s mind” (Aaker, 1996)

According to the definition above, brand awareness consists of brand recall and brand recognition The degree of brand awareness is different from various consumers Some people can recognize the brand among competitors but cannot recall it ((Mariotti, 1999; Laurent et al 1995) The highest brand awareness is unaided recall when consumer is aware of a brand without any external stimulus (Mariotti, 1999; Laurent et al, 1995)

Brand awareness belongs to cognitive phase, which is a part of relative attitude in customer loyalty (Lavidge & Steiner, 1961; Dick & Basu, 1994) Hence, brand awareness has an influence

on relative attitude

In addition, the more deeply the consumers are aware of the brand, the more possible the consumers repurchase the brand The reason is that people usually save in their memory a consideration set of brands which contains only brands they are aware of and possible to purchase Before making buying decision, brand awareness is one of the cues for them to select a

brand from the consideration set (Hoyer & Brown, 1990) Brand awareness therefore has an influence on purchase behavior

From the two points above, brand awareness influences on both of the two aspects of customer loyalty, which are relative attitude and purchase behavior Hence, the following hypothesis is developed:

Hypothesis 1: Brand awareness has a positive relationship with customer loyalty

2.4 Convenience

The more developing the society is, the busier the people are becoming People would not spend for hours together to visit a familiar store if they can get the same service from another store near them As a result, the demand of convenience service increases significantly Facing to competition, service providers always plan new strategies to make their service more and more convenient for their customer There are many studies about convenient service in retail service and even in retail banking

Morganosky (1986) defines service convenience as "the ability to accomplish a task in the shortest amount of time with the least expenditure of human energy" (p 37) In other words, saving time and effort is the benefit of a convenient service and the reason the customer is interested in the service (Brown, 1990) According to Michael et al (2003), convenience is considered as a barrier/reason to defection in more standardized, less personal services such as banks, making it an important strategic factor in minimizing defection when satisfaction with the core service drops Lee and Marlowe (2003) emphasize in their research that convenience is perceived differently from various individuals In detail, convenience, for young people, is

available ATMs; while for older people, are branch location and transaction hours In this study, the convenience of location, transaction hours and ATMs available are mentioned

About the impact of convenience on customer loyalty, many previous studies show that convenience is one of the factors of customer repurchase intention (Jones et al., 2003), bank selection (Laroche et al., 1986; Martenson, 1985; Lee & Marlowe, 2003) Thus, convenience has influence on loyalty Besides this, convenience is mentioned in most of perceived service quality measurement scale such as SERVQUAL scale (Parasuraman et al., 1988) and SERVPERF scale (Cronin & Taylor, 1992) Convenience therefore is one of criteria measuring service quality; while service quality is considered as the key antecedent of behavioral intention (Parasuraman et al., 1988; Parasuraman et al., 1991; Boulding et al., 1993; Zeithaml et al., 1996) Hence, it is inferred that convenience has influence on loyalty The hypothesis 2 is proposed as below

Hypothesis 2: Convenience has a positive influence on customer loyalty

2.5 Service Personnel

Service Personnel refers to the ability and attitude of employees when interacting with

customer Although Jones et al (2003) allocate banking into semi-customized, less personal service, service personnel still plays a vital role in differentiation among banking competitors Especially in Vietnam, there is a little difference in service and even in interest rate of commercial banks because of the ceiling rate policy controlled by the government The distinguishing features focus on size of capital and service quality offered by the staff Unlike other industries, banking is intangible service using employees with high background The customers perceive intangible service through interaction with banking officers Therefore, the

quality of banking staff is important However, the quality of Vietnamese banking employees is not homogenous because of different background and regional culture

Similar to convenience, service personnel is also one of standards used to estimate service quality Service personnel is also mentioned in SERVQUAL scale (Parasuraman et al., 1988), SERVPERF scale (Cronin & Taylor, 1992), DTR scale (Dabholkar et al., 1996) and MLH model (Mehta et al., 2000) Service quality as mentioned above has a positive relationship with behavioral intention (Parasuraman et al., 1988; Parasuraman et al., 1991; Boulding et al., 1993; Zeithaml et al., 1996) Therefore, service personnel also influences on the loyalty The hypothesis 3 is supposed as follow

Hypothesis 3: Service Personnel has a positive influence on customer loyalty

2.6 Customer Satisfaction

Customer satisfaction is the key antecedent of customer loyalty (Oh, 1999; Cronin & Taylor, 1992; Dick & Basu, 1994) Customer satisfaction is an uni-dimentional construct implying the feeling after consumption Some studies consider satisfaction as the trade-off between expected service quality and perceived service quality Consumer feels satisfied if the quality of the service perceived is better than expectation In the opposite case, what they perceive from service quality is less than what they expected, dissatisfaction occurs

Dick and Basu (1994) define satisfaction as the post-purchase response to a brand after matching expectations and perceived performance

Many studies find out that customer satisfaction has a positive influence on repurchase intention (Cronin & Taylor, 1992; Oh, 1999) The probability that a satisfied customer

repurchases or intends to repurchase is higher than a dissatisfied one Repurchase behavior is then a measure of loyalty Fornell (1992) also claims that loyal customer may not be always satisfied, but satisfied customers are apt to be loyal Satisfaction is considered to act as an antecedent of loyalty (Bitner, as cited in Dick & Basu, 1994)

Due to previous points of view on the relationship between satisfaction and loyalty, the hypothesis 4 is given as below

Hypothesis 4: Customer satisfaction has a positive influence on customer loyalty

2.7 Social Influence

Social influence refers to the influence caused by reference groups such as media, family, friends, and peers on an individual’s consumption behavior (Ryan, 1982; Ryan & Bonfield, 1975; Mei Min et al.2012)

Deustch and Gerard (as cited in Phan & Ghantous, 2013) state that consumers can be influenced by the others when seeking information for products/service (informative influence)

or choosing products/service approved by others (normative influence)

Social influence is a determinant of patronage behavior (Darden, as cited in Evans et al., 1996) Many previous studies show the social influence on purchase behavior (Bloch et al., 1994; Feinberg et al., 1989; Evans et al., 1996)

Hofstede (as cited in Phan & Ghantous, 2013) finds out the influence of collectivism and individualism on individual’s behaviors, including purchase behaviors In general, people of collectivism are interdependent and group-oriented whereas people of individualism are independent and self-oriented In other words, the behaviors of people in collectivistic culture are

influenced by social factors (reference groups, social norms …) much more than that of people in individualistic culture Consumers have a trend to comply with social influence in collectivist culture (Dogerlioglu-Demir & Tansuhaj, Gupta, as cited in Phan & Ghantous, 2013)

Vietnam is a country with high level of collectivism Purchase behavior and then, customer loyalty is therefore under the social influence Phan and Ghantous (2013) also find out the impact of social influence on loyalty in Vietnamese retail banking From the previous studies

on social influence above, we propose the following hypothesis

Hypothesis 5: Social influence has a positive influence on customer loyalty

2.8 Switching Costs

Switching costs is another factor of customer loyalty Switching costs are all of the costs including financial costs and non-financial costs such as time and effort that customers suffer from changing to use another service provider (Cronin & Taylor, 1992; Klemperer, 1995; De De Ruyter et al., 1998) Selnes (1993) defines switching costs as technical, financial or psychological factors, which creates the barriers of difficulty and expensiveness for customers when altering to another brand

About the impact of switching cost on customer behavior, it can be explained as follow Customers usually have an intention to choose another brand for consumption when they are not satisfied with the current one However, they have to face with many costs arising from this change Some of these costs are time and effort spending for searching alternatives and compare each other; charges from closing account and opening the new one; risk of choosing a not good service… These costs influence on customer behavioral intention If the influence from dissatisfaction is over the switching costs perceived, customers more likely to choose another

service immediately; otherwise, they still stay with the current one to avoid the costs For example, the customers are not satisfied with the attitude of bank officers and want to withdraw all saving amounts to send to another bank Before switching, they have to consider of the new bank they change to and pay some fees, including the interest amount losing when withdrawing before mature; the remittance fee (usually high) if they want to transfer money to the new bank; the risk of bringing cash to the new bank; the risk of choosing the new bank with not good service Then, the influence from dissatisfaction and switching costs are compared to get the final decision that whether they switch or not

Many previous studies show that the higher the switching costs are perceived by the customers, the less attractive the competitive brands become and the less probable the customers switch to the alternatives (Selnes, 1993; Klemperer, 1995; De Ruyter et al., 1998) Switching costs randomly creates an effect of barrier to make customers remain with the company although this lead to the spurious loyalty, which is the combination of low relative attitude but high repeat patronage (Dick & Basu, 1994) From the previous studies on switching costs, the hypothesis 6 is added in this research as follow

Hypothesis 6: Switching costs have a positive influence on customer loyalty

2.9 Research Model

According to research objective and questions, research model is established based on literature review and the relationships between customer loyalty and its determinants in Vietnamese retail banking

Hypothesis 1: Brand awareness has a positive relationship with customer loyalty in Vietnamese retail banking

Hypothesis 2: Convenience has a positive influence on customer loyalty in Vietnamese retail banking

Hypothesis 3: Service Personnel has a positive influence on customer loyalty in Vietnamese

The six hypotheses above are presented in the figure of research model below

Figure 4 – Research Model

CHAPTER 3: RESEARCH METHODOLOGY

Research methodology is one of the important parts in research procedure A reasonable methodology leads to a good research result and contrast Basing on the related theories discussed in chapter 2, this chapter outlines and justifies the procedure including research design, sampling, measurement scale construction and data collection to achieve the research objectives

3.1 Research Design

According to Singleton and Straits (2005), there are various research methods available such as survey research, experimental research, qualitative research and historical research Depending on purpose of studies, researchers may choose one or more methods to design their research For this study, survey research method is adopted to test the relationships between customer loyalty and its determinants

Survey research is implemented to examine the characteristics, attitudes, behavior or opinions of specific population Moreover, survey research possibly gathers a broad range of information from a large population and directly collects data from actual scenarios (Singleton & Straits, 2005) Singleton and Straits (2005) also claims that survey research is the most effective mean of social description

The measurement scales for seven concepts in the research model were constructed on the reviewed theories in chapter 2 The initial questionnaire was then designed on these scales and tested in an in-depth interview with a group of eight people who are customers of some commercial banks in Vietnam The purpose of the in-depth interview is to ensure that the respondents well understand the questionnaire so that the measurement scales and the collected

data would be more qualified After the interview, all comments from the group were noted to adjust the initial questionnaire and make the final one

The final questionnaires were launched via email, google survey and directly distributed

to the study population, which was defined in research sampling The data was then filtered, collected and inputted into the excel file for the SPSS analysis The incompleted questionnaires

or the questionnaires having the same option for all survey statements were all removed out of the data In the next step, the SPSS program supported to run some necessary tests:

assumption

Research process is below in figure 5:

Figure 5 – Research Process

Reliability Analysis Main Survey

(n = 258)

3.2 Sampling

Sampling is one of the most important steps before testing hypotheses Sampling helps to reduce cost and save time In order to achieve the good result, the sample needs to be representative for research population There are two kinds of sampling, probability sampling and non-probability sampling Probability sampling better represents for population but took more time and cost than non-probability sampling Therefore, this study chooses non-probability sampling

This study aims to test the relationships of Brand Awareness, Convenience, Service Personnel, Customer Satisfaction, Social Influence and Switching Costs on Customer Loyalty in Vietnam retail banking service Therefore, the sample is towards to individuals and households who are customers of commercial banks in Vietnam

The sample area chosen is Ho Chi Minh City because of some reasons Firstly, most of people using banking service live in large cities where they have more conditions to touch modern facilities including banking service Ho Chi Minh City is the biggest and most developed city in Vietnam Unlike Hanoi and rural areas, banking service quality in Ho Chi Minh City is evaluated the best in Vietnam A large proportion of people in Ho Chi Minh City have background and knowledge of banking service The interaction between bank staffs and customers are better than other areas Sampling in Ho Chi Minh City therefore offers a variety of survey and highly represents for population

Secondly, there are about 49 banks competing in Vietnam Ho Chi Minh City is the unique place in Vietnam where almost commercial banks have branches Sampling in Ho Chi Minh City has an overall view about Vietnam retail banking

Since this study did research on customer loyalty in Vietnam retail banking, the study population aims to individuals and households who are customers of banks in Ho Chi Minh City The reasons to do survey on current customers is that it is convenient to launch questionnaires In addition, most of concepts in the research model such as service personnel and customer satisfaction are of experience For receiving more actual data, the measurement scales for these concepts need to be conducted by the people, who experienced banking service

Besides sample area, defining reasonable sample size is important to a research The sample size should be considered based on the nature of the study and the statistical techniques chosen to analyze data, as the extent to which observations could be generalized to the target population The research needs to ensure the sample size for generate enough statistical power

(Hair et al, 2009) Babbie and Mouton (2001) recommends that for validation purpose, the

survey needs approximately 50 subjects, depending on the number of assessments used

However, the common rule in defining sample size bases on minimum size This means that there are many methods to choose sample size The selected number is the one satisfying all requirements of technical analysis used in the research This study applied Exploratory Factor Analysis and multiple regression techniques Therefore, the sample size needs to be large enough

to run Exploratory Factor Analysis and regression model According to Hair et al (2009), the sample size for Exploratory Factor Analysis is recommended at least five observations for each item and not smaller than 100; whereas the minimum sample size, which is usually symbolized

by (n), for regression model is defined by the function: n = 50 + 8k, with k is the number of independent variables in the model (Nunnally & Burnstein, as cited in Nguyen, 2011) This study had one multiple regression model with one dependent variable (Customer Loyalty) and six independent ones (Brand awareness, Convenience, Service Personnel, Customer Satisfaction,

Social Influence and Switching Costs) Moreover, the measurement scales comprised of 25 items Therefore, the sample size for Exploratory Factor Analysis is not under n = 25*5 = 125 observations while sample sizes for regression model is at least n = 50+8*6 = 98 observations

To conclude, the minimum sample size for this study is 125 observations because it satisfies all requirements of Exploratory Factor Analysis and regression model

3.3 Questionnaire Design

Questionnaire specifies research concepts into the items, which can be measured via the answers of respondents The questionnaire could be constructed by researchers under in-depth interview or based on previous theories This study built up the measurement scale for seven concepts on the foundation of the research before

The measurement scale of Brand Awareness was adapted from Aaker (1996) with five items Three items adapted from Lee and Marlowe (2003) measured Convenience factor The Service Personnel scale was built up according to the scale in Hellier et al (2003) research, comprising of five items Three items in Customer Satisfaction scale were adapted from Cronin

et al (2000) The Social Influence was measured by three items from Phan and Ghantous (2013) Finally, the measurement scales for Switching Costs and Customer Loyalty included in each of three items from Beerli et al (2004) Totally, the initial questionnaire had 25 items

This initial questionnaire was firstly tested by a group of eight people, who have been customers of some banks in Ho Chi Minh City The group included one architect, one pharmaceutical representative, one student, one retied person, two logistic staffs and two business people All of them are customers of Vietinbank, Vietcombank and Asia Commercial Bank The group proved to understand 25 items well However, there were still some statements

need to be made clearer in words All comments of the interviewees were noted down for questionnaire adjustment (see Appendix B) The measurement scales for seven concepts of the research model were presented in the table below

Table 3 - Construction of Measurement scale

Aaker (1996) When talking about banking, I will remember my bank

I can recognize my bank among others

I can distinguish my bank from others

Characteristics of my bank could come to me quickly

and Marlowe (2003) This bank has many ATMs

This bank has convenient hours

Hellier et al (2003) Employees are always willing to help me

Employees tell me exactly when a service can be provided

Behavior of employees instills confidence to me

Employees give me prompt service

Services of this bank are exactly same what I need

I often consult other people to help choose the best banking

service from various banks

Adapted from Phan and Ghantous (2013)

I frequently gather information from other people about the

banking service I intend to use

I often observe what banking service others are using

To change to another bank requires me to invest time in

searching for information about other banks

Adapted from Beerli et al (2004)

To change to another bank involves me much effort in deciding

which bank to use

To change to another bank involves me a risk in choosing another

bank which might turn out not to satisfy me

I do not like to change to another bank because I value the

selected bank

Adapted from Beerli et al (2004)

I am a customer loyal to my bank

I would always recommend my bank to someone who seeks my

advice

For the survey research, the final questionnaire was modified basing on previous research and an in-depth interview of Vietnamese group (see appendix C) Due to applying theories from foreign studies in the context of Vietnam, the 25 items above were translated into Vietnamese (see Apendix D) before launching to the study population

The questionnaire comprised of two sections (Section I and II) Each section was designed to acquire the required information

Section I : is the main part beginning with the two open questions about the bank the

respondents frequently visit and the kinds of banking service they are using in that bank The purpose of these two questions is to help the respondents focus on the bank they answered to do the whole survey The next in this section was 25 items constructed above, measured with five-point Likert Scale from 1-Strongly Disagree, 2-Disagree, 3-Neutral, 4-Agree to 5-Strongly agree This section measures all seven concepts in the research model

Section II: is the general information of the respondent, including gender, age,

occupation and average monthly income This section was designed to acquiring specific demographic information

3.4 Data Collection Result

In the sampling section, we defined the minimum size for this survey is 125 observations

To achieve this task, 330 questionnaires translated into Vietnamese were sent to customers of banks in Ho Chi Minh City via email, google survey and direct distribution at branches of banks

In the direct questionnaire distribution, 120 papers were sent randomly and directly to customers of some banks in Ho Chi Minh City, including Vietinbank Branch 7, Eximbank Tan Dinh Branch and Vietcombank Phu My Hung Branch Only 283 questionnaires were received, in which, 25 respondents’ answer sheets were unaccepted because of some missing statements and the same option for all sentences in the questionnaire The final data included 258 observations with the source as presented in the table below

Table 4 – Source of questionaire collection

Source Distributed Collected Eliminated Valid

3.5 Data Analysis Method

The collected data was conducted by SPSS software version 19 using enter method Various statistical tests were also extracted Firstly, the validity and reliability of the measurement scales were checked using Cronbach’s Alpha analysis and Exploratory Factor Analysis (EFA) The items which were not satisfied the conditions of reliability and validity would be deleted before running regression After that, six hypotheses were tested via multiple regression to identify the relationship between each determinant and Customer loyalty

This chapter defined research methodology from research design to sampling, measurement scale construction, data collection and data analysis method The result from data conduction will be in the next chapter

CHAPTER 4: DATA ANALYSIS

Basing on the survey data collected in the previous chapter, this section continues to conduct the figures to support the hypotheses and research model The content of this chapter includes descriptive analysis, reliability test, Exploratory Factor Analysis test, correlation analysis, regression assumption tests and regression model

4.1 Descriptive Analysis

The demographic statistic conducted by SPSS in the table below illustrated the study population

Table 5 – Demographic Information

information showed that women usually visit banks than men More than a half of respondents in the survey were female with the ratio 150 females/ 258 respondents The rest 42% were male This is consistent with Vietnamese culture In most of Vietnamese families, managing financial budget is allotted to women

The largest proportion in this sample is office staff and businessperson, which accounts for up to 70% The next were workers and student with 17.8% and 7.4% respectively These are main individual customers in retail banking service Workers, students, especially businessperson and office staffs are the people who have a high demand of credit, account, money remittance, payment, saving money … Therefore, the answers from these respondents would be resulted usefully for the study

More than a half of Vietnam population is in working age The labor force mainly concentrates in big cities, which have financial centers and large industrial zones This creates a potential market for retail banking in Vietnam The sample showed that more than 70% respondents were from 18 to 45 years old, which is the period of earning and accumulating money Hence, people in these ages belong to one of the most important segments for retail banking

In the study population, more than 50% respondents earned from 10million to 20million dongs per month; whereas, nearly 23% people surveyed had their monthly income in the range of 5million and 10million dongs The number of people whose income was more than 20million dongs per month accounted for only 15.1% The lowest rate, which was 10%, was held by the group earning under 5million per month According to Maslow's hierarchy of needs, income is used firstly for physiological needs such as food and living cost Saving money with retail

banking service is therefore put after physiological needs In other words, the more income people earn, the more banking service they think of and use The sample with more than ninety percent respondents having income of more than 5 million dong per month is positively meaningful for this study

In conclusion, the demographic information collected from the survey on individual customers of some banks in Ho Chi Minh City showed that the sample could be used for testing the influence of the model determinants on customer loyalty of retail banking customers Due to the advantages and characteristics of population in the large financial center like Ho Chi Minh City, the study population could represent for retail banking market in Vietnam Hence, model testing with this sample would be meaningful and in some extent could imply for the development of Vietnam retail banking industry

4.2 Reliability Test

The reliability test is necessary before running any regression model Cronbach’s alpha is

a measurement of internal consistency The Cronbach’s alpha is usually used to evaluate whether the measurement scales are reliability or not The Cronbach’s alpha coefficient ranges between 0 and 1 The measurement scale of a variable is reliable if the value of Cronbach’s alpha is higher than 0.6 and the corrected item – total correlation is above 0.4 If the corrected item-total correlation score is negative or less than 0.3, it is neccessary to examine the item for wording problems or conceptual fit and decide whether such items should be deleted or not (Leech et al., 2005) The result of reliability test for 25 items in this study was presented in the table below

Table 6 – Reliability test result

Observed

Variable

Scale Mean if Item Deleted

Scale Variance

if Item Deleted

Corrected Total Correlation