Key antecedents of customer loyalty: a study of small chartered commercial banks

Customer’s Perceived Quality, Customer Satisfaction, Customer Trust, Switching Cost and Customer Commitment are the factors which influence the Loyalty of the customers.. Customer’s perc

International School of Business

International School of Business

MASTER OF BUSINESS (Honours)

SUPERVISOR: DR CAO HAO THI

Ho Chi Minh City – Year 2014

I would like to express my sincere gratitude to my supervisor, Dr Cao Hao Thi for the valuable advice, critical comments and encouragement he gave me.

I would like to express my gratitude to my ISB class friends for SPSS directions Your encouragement, excellent guidance, and support have greatly contributed to this thesis Finally, I would like to thank all of the respondents without whom, this research would have been impossible

Ho Chi Minh City, March 01, 2014

Vu Thanh Hoan

It is costly to attract new customers so that the managers always try to find ways to retain their current customers and concentrate on different factors which enhances the customer loyalty among the customers of the organizations This research attempts to find the factors of customer loyalty and their relationships with banking industry in one of the developing countries i.e Vietnam, where the large part of banking industry are small chartered commercial banks

In order to do this, a questionnaire is designed and validated, then based on the data which were gained from the 150 respondents' answers to the designed questionnaire, the analysis is done and the results and the relations among the factors are explained

Customer’s Perceived Quality, Customer Satisfaction, Customer Trust, Switching Cost and Customer Commitment are the factors which influence the Loyalty of the customers These factors also influence each other as well The relationships of different factors with each other are also studied and the SPSS software is used to analyze the data gathered from the respondents

Chapter 1 Introduction 1

1.1 Background 1

1.2 Research problems 2

1 3 Research Objectives 4

1.4 Research Scope 4

1.5 Thesis structure 4

Chapter 2 Literature Review 6

2.1 Customer loyalty 6

2.2 Customer's perceived quality .8

2.3 Customer satisfaction .11

2.4 Switching Cost 13

2.5 Customer Trust 16

2.6 Commitment 17

2.7 Research model and Hypothesis 18

Chapter 3 Research Methodology 21

3.1 Research Process 21

3.2 Measurement scales 22

3.2.3 Switching cost 23

3.2.4 Customer satisfaction 23

3.2.5 Customer commitment 24

3.2.6 Customer loyalty 24

3.3 Qualitative research 25

3.4 Sampling method 25

3.4.1 Sampling 26

3.4.2 Data collection 26

3.5 Data analysis methods 26

3.5.1 Cronbach’s alpha 26

3.5.2 Exploratory Factor Analysis 27

3.5.3 Multiple regression analysis 28

Chapter 4 Data Analysis and results 29

4.1 General Information 29

4.2 Measurement assessment 30

4.2.1 Cronbach’s alpha 30

4.2.2 Exploratory Factor Analysis 31

4.3 Hypothesis testing 32

4.3.3 Testing customer loyalty sub-model 35

Chapter 5 Conclusions and Implications 38

5.1 Conclusions .38

5.2 Implications .39

5.3 Limitations .41

References 42

Appendix 1: Questionaire 52

Appendix 2: Results of Exploratory factor analysis 58

Appendix 3: Simple linear regression results (S) 60

Appendix 4: Multiple linear regression results (CMT) 62

Appendix 5: Multiple linear regression results (CL) 64

Table 3.1: Scale of perceived quality 22

Table 3.2: Scale of customer trust 22

Table 3.3: Scale of switching cost 23

Table 3.4: Scale of customer satisfaction 23

Table 3.5: Scale of customer commitment 24

Table 3.6: Scale of customer loyalty 24

Table 3.7: Cronbach’s alpha reliability coefficients 27

Table 4.1: General information about respondents 29

Table 4.2: Reliability analysis 30

Table 4.3: Rotated component matrix 31

Figure 2.1: A conceptual model 19

Figure 3.1: Research process 21

Figure 4.1: Customer satisfaction sub-model 32

Figure 4.2: Customer commitment sub-model 33

Figure 4.3: Customer loyalty sub-model 33

Figure 4.4: Multiple regression results 37

CHAPTER 1 INTRODUCTION

This chapter introduces the background of Vietnamese banking industry as well as the status of customer loyalty The research objectives are proposed in this chapter Base on the objectives, research scope is proposed and thesis structure is presented

1.1 Background

Loyalty to a bank can be thought of as continuing patronage over time The degree

of loyalty can be gauged by tracking customer accounts over defined time periods and noting the degree of continuity in patronage (Yi and Jeon, 2003)

During the past decade, the financial service sector has undergone drastic changes, resulting in a market place which is characterized by intense competition, little growth in primary demand and increased deregulation (Bloemer, Ruyter and Peeters, 1998) In the new market place, the occurrence of committed and often inherited relationships between a customer and his or her bank is becoming increasingly scarce (Li-Ting Huang et al, 2007) Several strategies have been attempted to retain customers In order to increase customer loyalty, many banks have introduced innovative products and services (Alam and Khokhar, 2006)

However, as such innovations are frequently followed by similar change; it has been argued that a more viable approach for banks is to focus on less tangible and less

easy-to-imitate determinants of customer loyalty such as customer evaluative judgments like service quality and satisfaction (Worcester, 1997; Yavas and Shemwell, 1996)

Banking has traditionally operated in a relatively stable environment for decades However, today the industry is facing a dramatically aggressive competition in a new deregulated environment The KPMG (2014) reported that the banking industry in Vietnam has 33 commercial banks and they can be divided 33 banks into four group base on the chartered capital The first group includes four state owned banks with the capital over 20,000 billion dong The second group includes 11 commercial banks have the capital from 5,000 billion dong to 20,000 billion dong The third group has 7 commercial banks with the capital ranging from 3,500 billion dong to under 5,000 billion dong Finally, the forth group comprises 11 commercial banks with the capital under 3,500 billion dong The real estate industry got stuck recently which further increases the competition and complexity among the banks in the retail market The small chartered commercial banks are the group three and four, where the limitation

in capital made them traditionally become specialty in the retail market

1.2 Research Problems

As every industry has the intense competition, the challenge in reserving the loyalty among customers is put in the first priority The sustainable relationship is the crucial for the benefits of the business The most important reasons are dictated by Reis, Pena and Lopes (2005) Firstly, loyal customers are often willing to pay premium prices for a supplier they know and trust Secondly, the cost of acquiring new

customers can be substantial A higher customer retention rate implies that fewer customers need to be acquired and these can be acquired more cheaply Thirdly, loyal customers often refer new customers to the supplier at virtually no cost And finally,

established customers tend to buy more

Marketing experts always say that the number of customer that the company loses becomes the number that the competitor gains According to Kotler et al (1996), it takes the company five times as much money and effort to gain a new customer as to reserve an existing one However, in today’s highly competitive global market, it takes as much energy and efforts to keep customer as to find a new one Therefore, loyalty is recently seen as the difficulty that every company must learn to do all its best

Individuals and small and medium enterprises are the traditional of the small chartered banks, but the real estate industry got a crunch, therefore all the banking industry is focus on the retail market The limitation in capital of commercial affects their ability in the risk taking, leading to the low ratio of loan over the mortgage value and the loan giving to one customer Small chartered capital commercial banks also have less tangible facilities compared to the group one and two

However, increasing the capital is not the answer to the low competitiveness in this situation due to some reasons Firstly, the stock market is not a lucrative investing channel anymore The bank stock is not getting the attention like before Secondly, the Government issues the regulations made the state owned corporation to not invest

in other industry especial in financial and banking And last but not least, the banking

industry is currently got the surplus of the deposit, whereas the loaning is difficult and risky Therefore, increasing the capital is not the brilliant measure in this situation The best way is to raising the customer loyalty measures to get the benefits and compete with other commercial banks with higher capital

- To analyze the influence of perceived quality on satisfaction

- To analyze the influence of satisfaction and trust on commitment

1.4 Research Scope:

This study focuses on enterprise customers of small chartered commercial banks in

Ho Chi Minh City, who have more frequently banking activities and more continuous account transaction than the individual customers Therefore, this sample cannot represent for Vietnam nationwide

1.5 The sis Str uct u re:

The thesis is organized as follows:

- Chapter 1 introduced the background of the study, research problems, research objectives, and research scope

- Chapter 2 presents the literature review and conceptual foundation

- Chapter 3 presents the methodology and methods of the study

- Chapter 4 reports the analysis of data and findings of the study

- Chapter 5 discusses the recommendations of the study and suggestions for future research are made

CHAPTER 2 LITERATURE REVIEW

This chapter is an overview of customer loyalty and its antecedents which have been conducted by previous researchers Based on these studies, a conceptual model is proposed

Finding a new customer always costs the company more financial expenses and efforts than retaining an existing customer Especially, the existing customers have the high ability to buy again and again the products and services and the scale of buying is increasing over the time These research result push the managers try to find innovative to retain the existing customer and encourage the loyal customers buying more (Rigby et al, 2003)

Customer loyalty is the decision of the customer to buy repeatedly the products and the services of the same brand over a long period of time The customer becomes

loyalty to one brand name just when they have the sufficient commitment and trust to

a particular company Loyalty in banking industry requires strong satisfactions from the customer to the banks for a long time Therefore, when the customer becomes loyal to one bank, it will keep buying the services from this bank Even the services might dissatisfy them from time to time, they have the trust the services will return balanced in the long run

The customers have the adequate knowledge about the products and services that made them feel satisfied This satisfactions showed by the intention of customers to repurchasing, the usage of the product and recommend about the products to other buyers (Oliver, 1999) Lin and Wang (2006) made the relevant researches to find that satisfaction is the reliable predictor of the repurchasing behavior Anderson et al (2007) states that if a loyal customer is dissatisfied on one time and they may not think of switching, but the quality of the products still do not improve, the customer will search for the information of other brand names

Trubik and Smith (2006) divide the loyal customer in two groups The first group is the satisfied customers and the second group is the unsatisfied customers The satisfaction is not a prerequisite condition for loyalty, so satisfied do not have to be loyal However, there are the correlations between being satisfied and loyalty There

is sometimes that the unsatisfied customer still loyal to the banks because they are refrained by the hurdles and frontier Those hurdles and frontier may be the commitment with the supplier If the unsatisfied customers lack the commitment, the reasons for not switching to another supplier are switching costs (Moutinho, L.,

Smith, 2009)

2.2 Customer’s perceived quality

Perceived quality is a definition that has an approximate relation with customer satisfaction and customer loyalty A clear differentiating among their perceived meanings sometimes is difficult to understand Occasionally, they appeared to express for the same meaning Anderson and Sullivan (2007) try to analyze the difference between those definitions They suggest that satisfaction is the result of a process of previous consumption and depends on the cost, while the quality does not require previous consuming experience and often does not depend on the cost of buying products or services However, there are situations when the buyers have difficulty collecting the comments about the products or services And there are circumstances where the quality evaluation is hard to test Therefore, price seems to be an indicator of quality In this sense, Teck-Yong et al (1996), starting from Oliver's (1997, 1999) conceptual model of service quality and service satisfaction, found that these constructs are different and have their own determinants Customer satisfaction has been discovered to be affected profoundly by the service quality Darrell et al (2003) define customer satisfaction as the result when customers compare their expectations about the service with the way that the service performance is perceived

Perceived quality is the perceived utility relative to its monetary and nonmonetary costs The consumer gauged perceived value based on considerations of both what is received and what is given up to receive it (Ladebo, 2006) Consequently, quality of the service is the crucial part of perceived value For example, E-vendor sells to their

customers the kind of digitized product/service (e.g., online banking, content aggregators, and online stock trading) There is no product that can be touched, but only can be felt Therefore, it is difficult for consumers to differentiate product quality and service quality Even in the case where the e-vendor sells a physical product to the consumers, the good presale and after sale service made by the e-vendor can add to the benefits received and also reduce the customer’s nonmonetary cost such as time, effort, and exempt mental stress (Bob Thompson, 2008) Analyzing from prior studies, there

is the support for the general idea that perceived value of the customer contributes to the customer loyalty (Parasuraman and Grewal, 2000; Laurn and Lin, 2003)

Service quality is divided into two terms: technical quality refering to what is delivered

to the customer and functional quality involving result of the process transferred to the customer according to Caruana (2002) In addition, service quality includes two aspects, psychological and behavioral They include the accessibility to the provider and the way service providers perform their tasks More specifically, it is whether the content of their saving deposit is safe and the way the service is done There are three dimensions of the customer's assessment of the service They are the customer-employee interaction, the service environment, and the service outcome Through this

process of assessment, the service quality perception is done

Even though Carman et al (2009) suggest that there is hardly any consensus conceptualizing and measuring service quality Aydin and Ozer (2005) assumed service quality to be "the consumer's judgment about the overall excellence or superiority of a service" (Zeithaml, 1988) The service quality has some attributes

First, services are intangible Secondly, services are heterogeneous It means their performance often varies with respect to the provider and the customer Besides, services cannot be settled in a time capsule and thus be tested again and again Eventually, the production of services is probably to be inseparable from their consumption In order to have a better understanding about service quality, they have

to understand these attributes The evaluation of product quality is much easier than the evaluation of service quality due to the attributes of service The evaluation may be also connected with the service delivery process, along with output (Gustafson and Lundgren, 2005)

Besides, service quality gain customers' inclination It makes them buy more, become less price-sensitive and tell others about their experiences (Venetis and Ghauri, 2000) Bloemer et al (1998) have determined the positive relationship between service qualities and repurchase intention, recommendation, and resistance to better

has a positive impact to the bottom-line performance of a firm and the benefits gained from an improvement in the quality of service offering The perceived service overgrows the service level desired by customers (Coyles and Gokey, 2004) Our study was basically focused on system, information, and product/service quality as the `get' component and on the money and time spent as the `give' component Prior studies explicitly modeled perceived performance or quality as a direct determinant of value In turn, it directly drove repurchase intention Cumulative also insights from prior studies supported the general notion that perceived value contributed to customer

loyalty (Hansemark and Albinsson, 2004) Anderson et al, (2007) suggested that customers would be more inclined to switch to competing businesses when the perceived value was low, in order to increase perceived value, thus contributing to a decline in loyalty Technology can't replace impelling human entity Your company's job descriptions, performance measures, compensation systems and training programs back up your customer strategy-rather need to make sure than undermine it (Jacob, 2005) The literature attaching to service management has stated that customer satisfaction is the result of a customer's entity of value received (Hasan et al., 1996) Perceived value is considered a content that captures any benefit-sacrifice differences the same way that disconfirmation does for variations between anticipations and perceived performance Perceived service quality and perceived value has approximately same meaning as it is explained

H1: There is a positive relationship between customer’s perceived quality and customer

satisfaction

2.3 Customer Satisfaction

The satisfaction is another important aspect that needs to be revised when shaping the customer loyalty of the buyers towards their services suppliers In banks, the customers receive the services and check whether the offering is suitable to their requirements Then, they decide about repurchase after using the services from this bank According

to Jamal and Kamal (2004), the customer satisfaction is high when the customer gains maximum usage and pays the minimum price If a customer buys the services from the

bank a then quit buying its services one more time, it is because the customer is highly dissatisfied with the quality of services The satisfied customer is one that their needs are served right through the services of the bank Egan (2004) states that the company directors not only have to pay attention to whether their customers are satisfied but also

to think about the extra offerings to keep them feel important in the relationship with the business

When the price of the services is higher the price that the customers thinks their needs cost, customers are dissatisfied In the banking sector, customers and the banks need to agree on reasonable interest rates on loan and fee of usage of other banking services to get the mutual contention If the customers think they are charged higher by the existing banks, they will find more information about other banks’ offering Satisfaction only occurs when the banks deal with the feedback from their customers and should implement the reasonable requests from the customers about the prices of their services In case if the suggestions of customers are not taken into account, it will start the customer defections process (Lin, 2003)

The customer, at the beginning, tries to compromise with the bank but at a certain point

he decides to defect Today, it is too easy to open an account so the switching cost is small These help customers to switch from the current bank The response of customer plays a role in the whole satisfaction graph of the provider If a customer is satisfied, the loyalty infuses automatically and the customer stays fresh with the current providers for a longer period of time (Gerrard and Cunningham, 2003)

H2a: There is a positive relationship between customer satisfaction and customer

commitment

H2b: There is a positive relationship between customer satisfaction and customer

loyalty

2.4 Switching Cost

The switching cost is the barrier that prevents the customer from changing the suppliers

of services despite they see more profits in there (Jones et al, 2002) Another customer loyalty aspect is the switching cost, which is any difficulties the customer confronts such as technical and financial aspects (Shergill and Bing, 2006)

Customer loyalty has become the attracting object in recent business researches Therefore, there are various marketing researchers try to find the relationships between customer loyalty and the different determinants, such as customer satisfactions and switching costs (Boulding et al, 2003 Keaveney, 2005; Berne’, 2007)

Olsen (1992) states that the switching costs are the cost that the customers have to bear when deciding to move to another seller Switching costs are not just the financial costs that the customer can measure, but also prefer to the time and psychological aspects facing the customer when doing the switching (Jones, Beatty, Mothersbaugh, 2002) The switching cost is the cost that the customer faces alone It is the cost that prevent customer from easily changing to the company’s competitions (Aydin and Ozer, 2005) The switching cost make the customers think about the probability of remain loyalty, especially when the cost is high for the customer Because of the risk of expense in switching that decreases the appeal of other suppliers (Selnes, 1993; Ruyter et al, 1995)

The switching cost includes economic, psychological and physical costs according to Jackson (2004) The economic or financial switching cost is a unsuccessful cost It happens when the customer switch his brand They are the costs of closing an account with one bank and opening another with another, the cost of changing one's long-distance telephone service (Lauren and Lin, 2003) or the costs of changing one's GSM operator

Procedural switching costs are originally the process of customers' purchase decision making and their implementation of the decision The buying process includes: need recognition, information search Evaluation of alternatives, and purchase decision When a consumer wants to change his function, he should valuate different operators with regard to different standard, such as coverage area, charge, customer service, value-added service, etc., complete the procedure for buying a new GSM line, and eventually inform people of the new GSM number That is post-purchase behavior The customer become aware of high risk regarding a brand he/she has never used (Aydin and Ozer, 2005; Sharma and Patterson, 2008) Risk happens especially in services, where customers prefer a rival service provider, because service quality cannot be valuated before buying (Aydin and Ozer, 2005; Sharma et al., 2008)

Post-purchase cognitive dissonance is when a customer collecting information to decrease his anxiety about a wrong purchasing decision will use all previous purchase experiences In this process, the customer would compare the switched brand and the previous brand if he were to switch brand As a result, the better the switched brand's performance is, the higher the alternative's uncertainty Therefore, customers will

prefer the brands that they have used before if they want to decrease cognitive dissonance (Ostrom and Iacobucci, 1999)

Switching barriers make customer desertion difficult or expensive They include social relationships, perceived switching costs, and the attractiveness of alternatives (Jones et

Markets with switching costs are generally characterized by consumer lock-in It is observed that in markets with switching costs, consumers keep purchasing the same brand even after competing brands have become cheaper These markets are generally characterized by consumer lock-in Having consumer lock-in is important because of the ability of firms to charge prices above marginal costs (Aydin and Ozer, 2005; Srinivasan et al, 2007) If a market having switching costs, customers will show brand loyalty and keep buying the same brand when they choose from a amount of same brands (Lee and Feick, 2001) In addition, if customers are sensitive to a product's properties, such as quality, uncertainty will decrease price sensitivity That means the customer behaves loyally

Switching cost is a positive influence on customers' sensitivity to price level It has a positive influence on customer loyalty (Aydin and Ozer, 2005) referred to (Jones et al.,

2002; Bloemer et al., 1998; Burnham, 2003; Lee and Feick, 2001)

It is important for those firms which have many potential customer bases to figure out why they stay and to what these companies can prevent their customers from leaving.Eventually, an understanding of why customers do not switch is important for those services firms which are looking to attract these prospective switchers (e.g new entrants into the market Because it will enable them to develop strategies to overcome these switching barriers and gain market share (Colgate and Lang, 2009)

Switching barriers make customer desertion difficult or expensive They include interpersonal relationships, perceived switching costs, and the attractiveness of alternatives (Jones et al 2002) Barriers to customer desertion, such as development of strong social relationships or imposition of switching costs, represent other retention strategies Such barriers are important because they may generally foster bigger retention and because they may help companies weather short-term fluctuations in service quality that may result in defection (Jones et al 2002) Another stream suggests that simply having less knowledge can influence evaluation Consumers commonly make decisions with incomplete knowledge about alternatives (Kivetz and Simonson, 2004) The situation where consumers are missing information about a single attribute has been examined

H3: There is a positive relationship between switching cost and customer loyalty

2.5 Customer trust

Trust has been specified as the willingness to count on an exchange partner in whom one has confidence (Moorman et al 1993) Confidence in an exchange partner’s

reliability and integrity is go with trust (Morgan and Hunt 2004) Chaudhuri and Holbrook (2002) specify brand trust as the customer’s willingness to count on the ability of the brand to show its stated operation Trust causes dedication because it reduces the costs of negotiating agreements (Dawes and Swailes, 1999) and lessens customers’ fear of opportunistic behavior by the service provider (Bendapudi and Berry, 1997) In social psychology trust is considered to consist of two elements: trust

in the partner’s honesty, and trust in the partner’s benevolence (Trubik et al, 2006) Honesty is the belief that a partner swears by his word Benevolence is the belief that the partner is keen on the customer’s welfare, and will not do anything with negative

affect on the customer

Morgan and Hunt (1994) recommend that in the marketing literature, brand trust leads

to brand loyalty and commitment The reason is because trust creates relationships that are highly valued Therefore, loyalty or commitment implicit the process of maintaining a valued and important relationship that has been made by trust (Gulati et

al, 2005; Ganesan et al, 2006; Moorman et al., 2007) We suggest that trust will contribute to both commitment and loyalty

H4: There is a positive relationship between customer’s trust and customer

commitment

2.6 Customer commitment

Commitment is usually specified as a willingness to maintain a relationship (Moorman, Deshpande and Zaltman 1993; Morgan and Hunt, 1994) Dwyer et al (1987) defines it

as a assurance of continuity Pritchard, Havitz and Howard (1999) describe it as opposition to change Allen and Meyer (1990) determined three types of loyalty: affective, continuance and normative in a conceptualization and study of employees’ commitment to an organization Affective or emotional attachment happens when a

great committed individual identifies with and enjoys membership in an organization (Allen and Meyer 1990) Affective loyalty is an emotional state of mind Mind is based

on individual sharing, identifying with and interiorizing the values of an organization and implies affective attachment (Morgan and Hunt, 2004)

This kind of loyalty is probably to lead to those mentioned desire to continue a relationship Continuance commitment implies cases where one tends to involve in unchanging lines of activity to avoid costs of ending the relationship (Allen and Meyer, 1990) Normative commitment happens when one person feels responsible to the organization, and exhibits behaviors towards it because he feels it is the right thing to

do Despite being developed in an employee-employer setting, they are also applicable

in a customer-provider setting, and have been applied for describing consumption relationships (Fullerton 2003)

H5: There is a positive relationship between customer commitment and customer

loyalty

2.7 Research model and Hypotheses:

Perceived quality, satisfaction and switching cost, according to (Beerli, Martin and Quintana, 2004) are the factors which have influenced the customer loyalty in banking

industry have been selected In this category, more models were reviewed to see if there are more factors that can be considered in banking industry or not (Lin and Wang, 2006; Lauren and Lin, 2003) Therefore, the loyalty model for other industries was considered in the reviewing of the literature And finally according to (Lauren and Lin,2003; Lin and Wang,2006) another factor which was mentioned in that loyalty model and could be considered in banking industry, which is trust and commitment is selected and added to the list Also in the main model the authors didn't mention the choosing factor in the model, but we also try to consider this item and find its relation Perceived Quality, Satisfaction, Switching cost, Commitment and Trust are the factors which we have selected for my research after analyzing the cultural and socio economic situation of Vietnam Our proposed model has five factors which is from the already published works of (Beerli, Martin and Quintana, 2004) and (Lin and Wang, 2006; Lauren and Lin, 2003)

Customer’s

perceived

quality

Customer Satisfaction Commitment Customer

Customer Trust

Customer Loyalty

Figure 2.1: A conceptual model

H1: There is a positive relationship between customer’s perceived quality and customer satisfaction

H2a: There is a positive relationship between customer satisfaction and customer commitment

H2b: There is a positive relationship between customer satisfaction and customer loyalty

H3: There is a positive relationship between switching cost and customer loyalty

H4: There is a positive relationship between customer trust and customer commitment

H5: There is a positive relationship between customer commitment and customer loyalty

CHAPTER 3 RESEARCH METHODOLOGY

This chapter includes five parts: the first part is research process in which the way to conduct research will be presented; the second part is measurement scale; the third part is the results of in-depth qualitative research interviews; the forth part is sampling methods; and the last part introduces the method to analyze data

Testing of hypotheses (Linear regression)

Figure 3.1: Research process 3.2 Measurement scales

This part includes measurement scales of customer loyalty and its antecedents adapted from Wang et al (2007), Chaudhuri and Holbrook (2002), Gefen et al (2005), Lee and Feick (2001), Pritchard et al (2004), and Abdollahi et al (2008)

3.2.1 Customer’s Perceived Quality

Scale items of perceived quality were adapted from Abdollahi et al (2008, p 192) and presented in Table 3.1

Table 3.1: Scale of Customer’s Perceived Quality

1 PQ1 You agree this bank's facilities are attractive and modern (Such

as ATM Machines, telephone banking, internet )

2 PQ2 You agree this bank’s employees are tidy in appearance

3 PQ3 You agree that customer representatives are knowledgeable

4 PQ4 You agree that employees of this bank pay special attention to

you

3.2.2 Customer Trust

Customer Trust was measured base on Gefen et al (2005, p 109) and presented in Table 3.2

Table 3.2: Scale of Customer Trust

1 T5 You agree this bank informed your company of its side services

2 T6 You agree employees of this bank solve your problems when

they promise to do so

3 T7 You agree this bank delivers what it promises in its

advertisements and it is honest

4 T8 You feel secure when using products and services of this bank

3.2.3 Switching cost

Four scale items of Lee and Feick (2001, p 45) were used to measured switching cost (see Table 3.3)

Table 3.3: Scale of switching cost

1 SW9 Change to another bank involves investing time in searching for

information about other banks

2 SW10 Change to another bank involves a risk and uncertainty in

choosing which might turn out not to satisfy your company

3 SW11 It would cost your company a lot of money to switch from your

bank to another bank

4 SW12 It would cost your company a lot of time to switch from your bank

to another bank

3.2.4 Customer satisfaction

Scale items of customer satisfaction were adapted from Wang et al (2007, p 202) (see Table 3.4)

Table 3.4: Scale of customer satisfaction

1 S13 You agree this bank meets your company’s needs

2 S14 Your company’s satisfied with the way complaints are handled

3 S15 Your company’s satisfied with the online services and their

promptness

4 S16 Your company’s satisfied with the pricing issues (Margins on

loans, charges on ATM and other online services)

3.2.5 Customer commitment

The items of customer commitment were suggested by Pritchard et al (2004, p 185) (see Table 3.5)

Table 3.5: Scale of customer commitment

1 CMT17 Your company would always use this bank’s services

2 CMT18 Your company’s intention to use the services of this bank would

not be changed

3 CMT19 Even if close partners recommended another bank, your

company would not change your preference for this bank

4 CMT20 To change your preference from this bank would require major

rethinking

3.2.6 Customer loyalty

Three scale items of Chaudhuri and Holbrook (2002, p 195) were used to measured customer loyalty (see Table 3.6)

Table 3.6: Scale of customer loyalty

1 CL21 You would recommend your company’s bank to your partners

2 CL22 Your company is a loyal customer to this bank

3 CL23 Your company intends to keep purchasing products and services

from this bank

All the above items were measured by seven-point Likert-type scales, anchored on "1

= to a very little extent" through "7 = to a very great extent"

a desired ratio of 5 observations per variable

n > 100 samples and n=5k (where k = the number of variables)

Therefore, the minimum sample size is n = 5* 23 = 115

For standard multiple regression analysis, Tabachnick and Fidell (1991) proposed that the desired level is:

n > 50 + 8m (where m = number of independent variables)

There were three models of regression in the proposed model and the largest number

of independent variables was three

Hence, the required sample is:

3.4.2 Data collection

The data collection was conducted by the survey questionnaire Out of 180 respondents 169 returned questionnaire, of which 150 were usable, for a response rate 93.8 percent The accepted questionnaire must not having more than one missing value and not selecting all “1” or all “7” for more than two factors The data collection was carried out from 15th Nov, 2013 to 15th Jan, 2014

3.5 Data Analysis Methods

All accepted questionnaire were reviewed for completion, coded and input the raw data in IBM SPSS Statistic version 20 The reliability and validity of measurement scales were evaluated by using Cronbach’s alpha and exploratory factor analysis Then, multiple regression analysis is used to provide for interpreting the results

of its application from a managerial and statistical viewpoint (Hair et al., 2010)

3.5.1 Cronbach’s alpha

According to Connely (2011, p 45), “Cronbach’s alpha is used as only one criterion for judging instruments or scales It only indicates if the items “hang together;” it does not determine if they are measuring the attribute they are supposed to measure Therefore, scales also should be judged on their content and construct validity”

George and Malley (2003, cited in Matkar, 2012, p 94) provide the following techniques (see Table 3.7)

Table 3.7: Cronbach’s Alpha Reliability Coefficient

α ≥ 0.9 0.8 ≤ α < 0.9

3.5.2 Exploratory factor analysis (EFA)

Norris and Lecavalier (2010, p 9) supposed that “EFA is based upon a testable model and can be evaluated in terms of its fit to the hypothesized population model; fit indices can be generated to help with model interpretation” Moreover, “EFA’s purpose is to identify latent constructs underlying a set of manifest variables”

Hair et al (1998, cited in Lee and Hooley, 2005, p 376) claimed that with samples of

350 or more, a factor loading of the attribute higher than 0.3 is significant In addition, with samples of 200, a factor loading of 0.4 or greater will take to indicate Therefore, the researchers must carefully consider the sample size for choosing