Factors influencing customer retention some emprical evidences from local and foreign banks in ho chi minh city

Therefore, in an effort to preclude switching and harden long-term working relationships, business suppliers nowadays find many methods to make customers feel satisfied, reinforce their

International School of Business -

Nguyen Quang Minh

Factors Influencing Customer Retention Some Empirical Evidences from Local and Foreign

Banks in Ho Chi Minh City

MASTER OF BUSINESS (Honours)

Ho Chi Minh City – Year 2015

International School of Business

-

Nguyen Quang Minh

Some Empirical Evidences from Local and Foreign

Banks in Ho Chi Minh City

ID: 22130039

MASTER OF BUSINESS (Honours)

SUPERVISOR: DR LE NGUYEN HAU

Ho Chi Minh City – Year 2015

1 INTRODUCTION 1

1.1 Research background 1

1.2 Research questions and research objective 3

1.3 Research delimitation 3

1.4 Thesis Structure 3

2 LITERATURE REVIEW 5

2.1 Theoretical review 5

2.1.1 Customers retention 5

2.1.2 Relationship quality 7

2.1.3 Switching barriers 9

2.1.3.1 Relational benefits 9

2.1.3.2 Switching costs 10

2.1.3.3 Availability and attractiveness of alternatives 10

2.2 Hypotheses Development 11

2.2.1 Customer satisfaction and customer retention 11

2.2.2 Trust and customer retention 13

2.2.3 Commitment and customer retention 14

2.2.4 Switching barriers and customer retention 16

2.3 Research Model 18

3 METHODOLOGY 21

3.1 Research design 21

3.2 Measurement scales 22

3.3 Method of data collection 24

3.3.1 Sample size 24

3.4.1 Assessment of measurement of scale 26

3.4.2 Multiple Regressions 27

4 DATA ANALYSIS AND RESULT 28

4.1 Sample characteristics 28

4.2 Assessment of measurement scales 29

4.2.1 Cronbach Alpha 29

4.2.2 Exploratory factor analysis 32

4.2.2.1 EFA for independent factors 32

4.2.2.2 EFA for dependent factors 34

4.3 Hypothesis testing 35

4.3.1 Testing relationship of independent factors & dependent factor 35

4.3.2 Testing Assumption of multiple Regressions 37

4.3.3 Evaluate and test the relevance of the model 41

4.4 Comparing foreign banks and local banks 43

5 IMPLICATION AND CONCLUSION 46

5.1 Summary 46

5.2 Conclusion 47

5.3 Recommendation 49

5.4Limitation and further research directions 51

APPENDIX 3: KMO & BARTLETT‟S TEST FOR THIRD TIME RUNNING 75 APPENDIX 4: EFA FOR INDEPENDENT FACTOR 76 APPENDIX 5: MULTIPLE REGRESSION 77

Figure 2: Research process 21

Figure 3: Revised research model 37

LIST OF TABLES Table 3.1: Summary of scales for 9 constructs in the model 23

Table 4.1: Sample characteristic 28

Table 4.2: Reliability Analysis 30

Table 4.3: Revised Reliability Analysis 32

Table 4.4: EFA result for independent factors 33

Table 4.5: EFA result for dependent factor 35

Table 4.6: Result of Pearson Correlation 35

Table 4.7: Hypothesis testing result 38

Table 4.8: Multiple Regressions results of Customer retention to independent 41

Table 4.9: Conclusion 42

Table 4.10: Comparing factors between local banks and foreign banks 44 Table 4.11: Relationship between Respondents‟ Likelihood of Staying and Bank 45

Customer retention is an important element of any banking strategy in today‟s increasingly competitive environment To achieve the customer retention strategy, some elements are examined Among of them are relationship quality and switching barriers Relationship quality is often seen as the key factor for business building a successful and long-term relationship In the context of high competitive market place nowadays, relationship quality is often viewed as a central determinant of customer retention However, the few empirical investigations in this area indicate that relationship quality is only a necessary condition, not enough to keep customer stay with the business One more factor is given to discuss in this study is switching barriers Together with relationship quality, we explore how switching barriers help the services suppliers keep their existing customers from changing to another competitor

This research examined these factors in the context of banking industry in Vietnam,

a developing country with penetration of many foreign banks through the process of integrate WTO Customers nowadays have many options to choose which bank they want to cooperate Therefore, both foreign banks and local banks have to develop their strategies to retain their customers and increase their advantages

CHAPTER 1: INTRODUCTION

This chapter provides a background of information on the present study and its objectives and purposes It is divided into four sections The first section presents background of the research, the second part presents the problem statement and its objectives, and the third part presents the scope of study and the final part present the thesis structure

1.1 Research Background

In today‟s highly competitive environment, losing customer is very costly Researcher concluded that it can be ten times more expensive to attract a customer than to retain an existing one, and the cost of bringing new customer to the level of profitability as the lost one is up to 16 times more (Lindgreen et al., 2000) Understanding thoroughly these difficulties, companies are more focusing their strategic effort on customer retention (Berry, 1983; Fornell, 1992) Many studies have been conducted for this issue, and many opinions have been explored for which factors influencing customer retention Obviously, a key component in any customer retention program is relationship quality (Oliver, 1997) Relationship quality can be defined as customers‟ perception of how well the relationship responds to his/her expectations, aims and demands (Jarvelin & Lehtinen, 1996) From that, they would consider about continuing or terminating with current suppliers There are many factors that constitute relationship quality After reviewing the empirical and theoretical literatures, we identified three elements which are commonly claimed to represent as significant components of perceived relationship quality: customer satisfaction (Hendrick, 1988), trust (Rempel, Holmes & Zanna, 1985) and commitment (Adams & Jones, 1997; Lund, 1985)

However, for the purpose of keeping customer staying with business longer, the management need to consider other factors helping them to achieve that

objective In recent studies, switching barriers is a significant element should be mentioned Follow Jones et al (2000) switching barriers is any factor that makes it difficult or costly for customers to change supplier Thus, if company desires to develop long-lasting relationships with their customers, it is important for them to understand why dissatisfied customers may or may not switch to other suppliers and how the presence of switching barriers can affect the evaluation of service recovery effort (Yanamandram & White, 2006) In case, businesses know which dimensions are important to customer‟s decision about switching to competitors they can tailor their products to respond more specifically to customer needs Responding appropriately to customer needs mean that company is likely to retain more customers and build brand loyalty amongst existing customers Therefore, in an effort to preclude switching and harden long-term working relationships, business suppliers nowadays find many methods to make customers feel satisfied, reinforce their trust and commitment in customers‟ perception and strengthen exit barriers to effectively retain buyers This research is to identify the interaction effects of relationship quality and switching barriers to customers‟ awareness and decision

We test our model in a continuous purchasing setting, the banking sector Banking industry is a modern services industry Especially, becoming a membership

of World Trade Organization (WTO) requests Vietnam opening out to foreign investors as their liberalization requirements (Nguyen, 2008) Therefore, the number

of foreign-owned financial institutions has been steadily increased Until now, foreign banks have been growth to 49 branches, which mostly concentrated in Ho Chi Minh city and Hanoi This is an impression number compared with 2007, the year Vietnam joined WTO, were 5 foreign owned banks In this highly competitive banking market, foreign banks, however, are at an advantage in comparison with their Vietnamese counterparts They have better organizational structures, offer more professional services, and enjoy the network across many countries On the

other hand, local banks also have their own specific strength such as widespread braches, familiar with Vietnamese, and support from State Bank With more and more diversified customer‟s demand nowadays, banks have to renew themselves and find more effective solutions to attract new customers as well as retain the current ones That makes the competition between the local banks and foreign banks become more fierce and intensive to stand firm in competitive marker-place Researching about above factors and how they affect to customer retention greatly contributes to bank‟s strategy.

1.2 Research question and research objective

The objective of this study isto identify the effect of relationship quality and switching barriers on customer retention Particularly:

- How many factors constituting relationship quality? How does each of them affect customer retention?

- How many factors constituting switching barriers? How does each of them affect customer retention?

- Which factor will influence customer retention most?

1.3 Research delimitation

This study focuses on retail customers at local banks and foreign banks in Ho Chi Minh City The candidates for this research usually use banking services on routine life Young people under 18 years old who do not have much income and can not make individual financial decisions are not chosen to be respondent Hence, this sample can not represent for Vietnam nationwide Furthermore, there are four factors including satisfaction, trust, commitment, and switching barriers being explored

1.4 Thesis structure

This thesis is organized as follows:

- Chapter 1 introduces the background view, research problems, research objectives, research question, research delimitation and thesis structure

- Chapter 2 introduces research model and its hypotheses as well as its literature review

- Chapter 3 illustrates the methodology conducted in this paper

- Chapter 4 presents research results is based on data collected

- Chapter 5 summarizes the research result, provide the findings, limitation and recommendations

CHAPTER 2: LITERATURE REVIEW

In this chapter, theoretical background and review on previous studies are presented This chapter includes three sections The first section is theoretical review relating to relationship quality and switching barriers and customer retention The second describes the hypothesis development among them for this research The last section presents research model

2.1 Theoretical review

2.1.1 Customer retention

Several explanations have been offered in previous studies for customer retention According to Jones et al (2000), customer‟s retention is an activity that selling organization undertakes in order to reduce customer defection It is a result of

a kind repetitive behaviour ultimately aims at achieving customer loyalty (Liu &

Wu, 2007) Customer retention can be viewed as a measurement of relationship continuation also It is a significant area of study in the field of relationship marketing that is mainly concern with keeping customers in the long term (Gronroos, 1997) Therefore, customer retention is potentially an effective tool that business can use to gain a strategic advantage and survive in today‟s highly competitive market place (Thomas, 2001; Clayton-Smith, 1996; Dawkins & Reichheld, 1996)

Many studies insist on the benefits of customer retention in improving firm value (Hidalgo et al., 2008) Keeping the customer has become as well as, if not more important, than creating a new customer It is gradually recognized that customer can be managed overtime as they have a life-cycle from acquirement, retaining and can be grown in value (Ang & Buttle, 2006) Successful customer retention begins with the first contract an organization has with customer and continues throughout the entire timeline of a relationship In addition, the longer

term customers buy more and, if satisfied, may generate positive word-of-mouth promotion for the company Besides the benefits that the longevity of customers brings, research finding also explores that the cost for customer retention activities are less than the cost of acquiring new customers It can be five times as costly as keeping existing customers like Rust and Zahorik‟s research (1993), or even ten times costly like Lindgreen‟s research (2000) Obviously, this cost is higher with every passing day Most business declares that creating and maintaining customer relationships are important to them and they are aware of the positive values that relationship provides (Colgate et al., 1996) With each additional year of relationship between the supplier and customer, the customer becomes less costly to serve because of learning effects and decreased serving costs (Reichheld & Sasser, 1990; Turnbull, 1990) The replacement costs will fall also since fewer customers churn From there, the stability of income and expense are improved and developed With all above advantages, for manager to compete successfully in today‟s marketplace, it

is a key priority to develop a smart and profitable customer retention strategy to keep their existing customers and making more profit from them (Weinstein, 2002)

The main factors influencing customer‟s selection of a bank include quality

of services, rates, fees and price charges (Abratt & Russell, 1999) Service excellence, meeting client‟s demands, and providing innovative products are essential to succeed in the banking industry However, it is apparent that superior service, alone, is insufficient to satisfy customers and make them stay with us in long term Some factors become important also are relationship quality and switching barriers Most commercial banks claim that creating and maintaining customer relationships are significant to them and they are aware of the positive values that relationship quality and switching barriers provided (Colgate et al., 1996) In view of these results it comes as no surprise that service provider has to

increase their level of customer relationship quality and bring in more switching barriers to retain customers

2.1.2 Relationship quality

Over last two decades, relationship quality has become a main pillar of customer relationship and gained in important as a measure of successful business relationship According to Crosby et al (1990), relationship quality is a general evaluation of relationship strength and the extent to which a relationship meets the demands and expectations of the parties involved based on a history of successful or unsuccessful cooperates or events The concept of relationship quality also expresses

a multidimensional construct reflecting the essence of relationships between suppliers and consumers (Hennig-Thurau & Klee, 1997; Hennig-Thurau et al., 2002) and as a condition for long-term relationships and customer retention (Bejou et al., 1996; Crosby et al., 1990; Hennig-Thurau, 2002; Hennig-Thurau & Klee, 1997; Moliner et al., 2007) Amongst the dimensions which constitute the relationship quality construct, in the antecedent studies of consumer markets research steadily suggest the concepts of trust and satisfaction (Bejou et al., 1996; Crosby et al., 1990; Lin & Ding, 2005) However, most of authors also consider commitment to be an dimension of this (De Wulf et al., 2001, Hennig-Thurau, 2000; Moliner et al., 2007), while only a few adds some other dimensions beyond the three above ones (e.g affective conflict in Roberts et al., 2003, or social bonds in Lang & Colgate, 2003)

As a result, we define the construct of relationship quality in the retail environment with trust, commitment and satisfaction All of them give the signal a long-term orientation, and link up consumer markets (Farrelly & Quester, 2005; Garbarino & Johnson, 1999; Lang & Colgate, 2003; Morgan & Hunt, 1994; Woo & Ennew, 2004)

Roberts-Lombard (2009) defines customer satisfaction as “the degree to which a business‟s product or service performance matches up to the expectation of the customer If the performance matches or surpasses the expectations, then the customer is satisfied, if performance is below par then the customer is dissatisfied” Follow to Salami (2005), satisfaction is a customer‟s emotional response when evaluating the discrepancy between expectations of the service and the perception of actual performance This perception of performance is obtained via the physical interaction with the products and services of the business High levels of service and product quality may lead to increase customer loyalty, higher profitability, increase market share and lower customer turnover On the contrary, a customer who is unsatisfied with services received is not expected to have a good relationship with the business (Roberts et al., 2003)

Trust is defined as a willingness to depend on a partner in whom one has confidence (Moorman et al., 1993) Schurr and Ozanne (1985) defined the term as the belief that a partner‟s word or promise is reliable and a party will fulfil his/her obligations in the relationship Generally, the strength and quality of a relationship rely on the level of trust – the higher the trust level, the stronger the relationship will

be Loyalty and trust for exchange partners in a relationship is an obligation and rendered without anticipation of reciprocity (Yau et al., 2000) Disregarding this obligation can seriously damage one‟s reputation and lead to many disadvantages Indeed, one would expect a positive outcome from a partner on whose integrity one can rely on confidently (Morgan & Hunt, 1994)

According to Morgan and Hunt (1994), commitment rises from trust, shared values and the belief that it will be difficult to find partners can offer the same value Commitment encourages both parties to cooperate aim at conserving investments in the relationship (Morgan & Hunt, 1994) Relationships are built on the foundation of

mutual commitment, and the commitment level has been found to be the strongest predictor of the voluntary decision to pursue a relationship (Ibrahim & Najjar, 2008) Parties in the relationship identify commitment as the key element to develop and maintain their relationship A high level of commitment brings about the context

in which both parties can gain individual and joint objectives without fear of opportunistic behaviour

Relationship quality has been conceded by a number of researchers as a significant variable in the study of customer loyalty and retention This is not to say that loyalty does not occur in the condition of low relationship strength, however, in such situation, the likelihood of future services encounters is more depend on external factors such as low level of alternatives or high switching barriers

2.1.3 Switching barriers

Switching barriers in the retail services industry include search costs, transaction costs, learning costs, loyal customer discounts and emotional costs (Va´zquez-Carrasco & Foxall, 2006; Pass, 2006; Pont & McQuilken, 2005; Sengupta et al., 1997) Switching barriers also relate to perceived risk of customer, which is defined as the buyer‟s perception of the uncertainty and untoward consequences of buying a product or service (Dowling & Staelin, 1994) Colgate and Lang (2001) divide switching barriers into relational benefits, switching costs, availability and attractiveness of alternatives and service recovery In their later research, Va´zquez-Carrasco and Foxall (2006) used the first three switching barriers:

1 Relational benefits

2 Switching costs

3 Availability and attractiveness of alternatives

2.1.3.1 Relational benefits

Consumers commit themselves to creating, developing, and maintaining relationships with company that provides higher ranking valued benefits (Liu, 2006; Gwinner et al., 1998) Va´zquez-Carrasco and Foxall (2006) generalize relational benefits as social benefits, confidence benefits and special treatment benefits By switching to another supplier, the customer would lose the benefits from the existing relationship which not readily available from the competitors Hence, although a customer is dissatisfied with his or her business services the scare of losing relational benefits makes him or her decide in favour of staying with the company (Yanamandram & White, 2006) Ranaweera and Prabhu (2003) confirm that service providers may be able to retain even with unsatisfied customers who perceive high switching barriers However, in long term, unsatisfied customer would find a way out for their problems So that, firms should develop a combined strategy that makes switching barriers act as a complement to satisfaction to retain customer (Ranaweera

& Prabhu, 2003)

2.1.3.2 Switching costs

In simple terms, switching costs are costs of changing services in terms of time, monetary and psychological costs (Jones et al., 2002; Dick & Basu, 1994; Sengupta et al., 1997) Panther and Farquhar (2004) mentioned the trouble to change service providers such as have no time to change or appraise another service providers as some of the reasons why customers choose to stay with their present services Other examples of switching costs include the customer‟s effort needed to inform his or her business partners about this changing In case switching to a new bank service provider, customer has also take time to deal with the old services provider‟s relevant issues (e.g in banking industry, he or she has to delay in receiving check books and automated teller machine (ATM card), cancelling internet banking, mobile banking and any loan or commitment with the old bank)

Because services are intrinsically difficult to evaluate, it has been argued that the costs of switching tend to be higher for service providers (Gremler & Brown, 1996)

2.1.3.3 Availability and attractiveness of alternatives

Availability and attractiveness of alternatives refers to customers‟ perception regarding the extent to which competing alternatives are available in the market-place and how good the competing alternatives would be in comparison with current supplier According to Bendapudi and Berry (1997), customers might continue in current relationship because there may be not many or any alternatives due to the nature of the industry Moreover, Patterson and Smith (2003) comment that customers may perceive few alternatives in the market because of the fact that many

of the alternatives are not in their memories or simply they do not perceive the alternatives as more attractive as the current relationship

2.2 Hypothesis development

In this part, we construct the model about the relationship among relationship quality and switching barriers and customer retention How the dimensions of relationship quality such as customer satisfaction, trust and commitment affect to customer retention, as well as how each of switching barriers factors influence customer retention

2.2.1 Customer satisfaction and customer retention

Following Magesh (2010), satisfaction means a feeling of pleasure cause one has something or has achieved something According to Cronin et al (2000), customer satisfaction is an emotion state which arises in evaluating a particular service It also can be defined as a degree at which the standard of services meets the customer‟s expectation

Customer satisfaction has been long recognized in marketing theories and practices as a core concept in business activities (Anderson & Weitz, 1992; Fornell, 1992) Marketers treat customer satisfaction as an important determinant of positive

word of mouth, consumer loyalty and repeat purchase intention (Kotler, Armstrong

& Cunningham, 2002) In recent publications, satisfaction has been treated as the necessary condition for the retention of customers, and therefore has moved to the forefront of relational marketing approaches (Rust & Zahorik, 1993) From those opinions, we can understand that customer satisfaction and retention mutually correlate The higher level of satisfaction customers feel, the higher probability they stay with the services That is the key factor for long term business relationship (Tsoukatos & Rand, 2006) Storbacka et al (1994) also asserts that improved service quality leads to improve customer satisfaction, while the latter leads to a stronger customer relationship The higher stage of relationship, the stronger the role of satisfaction in eliminating other primary exchange partners providing similar benefits (Dwyer & Oh, 1987) As a result, a customer who feels unsatisfied with the service received is not expected to have a good relationship with the firm as well as stay with the business longer (Roberts et al., 2003) Many authors (e.g Andreassen

& Lindestad, 1998; Garbarino & Johnson, 1999; Guenzi & Pelloni, 2004; Lam et al., 2004) treat customer satisfaction as a cumulative factor which means that, instead of appraising specific evaluations and emotions at a specific moment, they focus on consumer‟s general level of satisfaction based on all history experiences with a particular retailer In these terms, satisfaction really looks like to be “backward looking”, being a function of performance from the past until current date (Gustafsson et al., 2005)

Addition, Levy and Weizt (2009) and Storbacka et al (1994), at a more concrete view, define customer satisfaction in a retail environment as a post-consumption evaluation of how well a retailer with its mix of goods and services meets or surpasses customer expectations From that point of view, we can understand that customer satisfaction concentrates not only on services but also products In highly competitive market with diversified products nowadays, banks

need to pass their competitors by offering high quality products and services to make their customers feel satisfied That is a positive foundation to build up a good relationship with customer and keep them staying longer In some particular cases, current customer would create more new customers for bank by commenting good things to others That would be considered as a good marketing method and increasing advantage for bank So that, the importance of satisfaction on retention is appropriately recognised by many huge economic on the world to predict customer‟s behaviour and future finance performance (Fornell, 1992)

H1 There is a positive impact of customer satisfaction on customer retention

2.2.2 Trust and customer retention

We generalize the idea from Morgan and Hunt‟s (1994) study that relationship can be considered as a series of transactions that bring out an awareness

of a hard relationship through trust and commitment Higher level of trust is closely relevant to higher probability level of customer retention

Recent studies show that in some particular situations, service providers cannot prevent customers from switching even with who are satisfied (Heskett et al., 1994; Schneider & Bowen, 1999) Customer satisfaction alone can not maintain long term relationship to a single provider Hence, it should be looked beyond satisfaction to other factors that reinforce customer loyalty such as trust (Hart & Johnson, 1999) Trust is something you have to continually build, earn and renew In the retail environment, trust is the consumer‟s confidence in a retailer‟s reliability and integrity (De Wulf et al., 2001, p 36) Thomas (2009) defines trust as an expectancy of positive results that one can get based on the expected action of someone Trust also describes one party‟s expectation that the other party will behave in a certain predictable way in a given situation (Gro¨nroos, 2007) Trust in business comes from customers‟ positive experiences that make them to continue with the relationship (Berry, 2000; Foster & Cadogan, 2000)

The marketing literature differentiates between two types of trust, namely, trust in a partner‟s credibility and trust in a partner‟s benevolence (e.g Doney & Cannon, 1997; Ganesan, 1994; Kumar et al., 1995) According to the definitions, the study suggests that trust in a retailer‟s credibility applies in the context that the customer believes that he or she can rely on the retailer‟s knowledge, and that the retailer will perform its role in an effective and reliable way With the concept of trust in a partner‟s benevolence in the retailing environment it is the customer‟s perception of the extent to which the retailer care about the customer‟s welfare (Ganesan, 1994; Kumar et al., 1995; Roberts et al., 2003) In the financial service industry, according

to Bayne (1999) trust together with honesty, has been taken as one of the basic customer needs Customer trust within the retail banking services is the belief that banks can look after their money, ensure competitive interest rates, and to effect payments and transactions in a timely and accurate manner It is also the belief that their current banks care about their benefits, their demands and their expectations Therefore, banks have to prove that they deserve to be trusted If a bank fails in any

of these basic duties, it will suffer damage to its reputation and brand Once damaged, this fail brings about many consequences such as customer switching, losing its market share and taking a long time and a great deal of effort to repair its reputation According to Wirtz and Lihotzky (2003), building and developing customer trust and loyalty are the most proper strategy for commerce-based businesses Customer trust significantly contributes to sales growth through customer acquisition and retention It is therefore hypothesised that:

H2.There is a positive impact of trust on customer retention.

2.2.3 Commitment and customer retention

Commitment is recognized as a necessary element for successful long term relationship (Anderson & Weitz, 1992) In general, commitment refers to an

orientation that specifies both parties‟ intentions and behaviours over the long term (Farelly & Quester, 2005) Commitment is a multidimensional construct including emotional, calculative, and normative commitment Emotional commitment refers to customer desire to do business with the firm they want (Allen & Meyer, 1990) Customers uphold a relationship with business because they identify themselves with and like the firm (Fullerton, 2005) In other words, when customers are emotionally attached, they want the organization which they are interested in (Fullerton, 2005) Therefore, emotional commitment refers to a customer‟s free will

to uphold the relationship with the firm with which they do business Calculative commitment relates to the necessary of maintaining a relationship with a supplier (Allen & Meyer, 1990) Either customer or his/ her partner aware of losing benefits and other interests incurred if the relationship brings to an end (Geyskens et al., 1996) Sometimes, both parties scare of losing each other Calculative commitment

is consequently identified as more rational, economic-based dependence, while emotional commitment refer to more emotional factor, which develops through the degree of reciprocity or personal involvement, that a customer has with a company (Gustafsson et al., 2005) Normative commitment refers to the moral obligation to stay in a relationship (Allen & Meyer, 1990)

The nature of emotional, calculative and normative commitment are different,

in term of the focus on the respect want to stay, the need to stay out of economic investments and the need to stay out of moral obligations It is argued that the respect want to stay (emotional commitment) and the need to stay out of moral obligations (normative commitment) indeed have positive impacts on customer behaviour, therefore they have positive effect on customer retention, whereas the need to stay out of economic investments (calculative commitment) is negatively relevant to customer behaviour Emotional and normative commitment can be considered to be driven by personal considerations such as personal attachment or

personal ethics, while calculative commitment is rather based on a rational trade-off

of costs and benefits comparing the current supplier with potential alternatives and the sunk costs made to establish the relationship (Meyer & Allen, 1984) However,

in the context of keeping customer, calculative commitment still has positive impact

on retention It contributes on making some difficulties to customer in changing suppliers In banking sector, the effect of commitment, emotional, calculative and normative commitment, are important Customer‟s attitudes are diversified They can choose to maintain relationship with bank based on emotional commitment or calculative commitment or normative commitment It depends on their perception which kind of commitment gives more benefit for them Or in different period, customer has different decision based on their given status

H3 There is a positive impact of emotional commitment on customer retention H4 There is a positive impact of calculative commitment on customer retention H5 There is a positive impact of normative commitment on customer retention

2.2.4 Switching barriers and customer retention

Switching barriers represent any factors, which make it more difficult or costly for consumers to change providers Switching barriers in customer‟s perception can be define as consumer‟s assessment of the resources and opportunities needed to perform the switching act, or alternatively, the constraints that prevent the switching act (Bansal & Taylor, 1999) Keaveney‟s (1995) study was one of the first to prove switching barriers as a determining factor of customer switching behaviour Later on, Gremler and Brown (1996) used in-depth interviews

to construct a model that included switching costs as a prerequisite factor of customer loyalty and customer retention They defined switching costs as the investment of time, money and attempt that, in customers‟ perception, made it more difficult to switch Among the examples of switching costs they listed were habit, inertia, set up, search, learning, contractual and continuity costs

Switching barriers in the banking industry include search cost, transaction costs, learning cost, loyal customer discounts and emotion costs (Vazques-Carrasco

& Foxall, 2006; Pass, 2006; Pont & McQuilken, 2005; Senguptaetal., 1997) Julander and Soderberg (2003) stated that switching barriers could be considered as both positive and negative Hirschman (1970) indicated that the positive aspect of switching barriers is relevant to “wanting to be in a relationship” while negative aspect is relevant to “having to be in a relationship”

In term of the positive or more reward-based type of switching barriers, firms could encourage the interpersonal relationship between customers and providers to keep them stay (Berry & Parasuraman, 1991) This kind of relationship offers many relational benefits to customers such as social, economic and customization Empirical study shows that customers want to commit with the suppliers that provide them better value benefits and efficient switching barriers (Colgate & Danaher, 2000)

H6 There is a positive impact of relational benefits on customer retention

Regarding to negative or punitive type of switching barriers, firms could use switching costs and lack of existing attractive alternatives to retain their clients Switching costs are customer‟s perception of time, money, and effort they have to give in when changing services supplier (Jackson, 1985; Jones et al., 2000) Some studies have examined the relationship between switching costs and customer retention (Burnham et al., 2003; Grace & O‟Cass, 2003; Jones et al., 2000; Nielson, 1996; Ping, 1993) and some studies conclude that switching costs are one of the significant reasons why dissatisfied customers do not changed their provider Therefore, switching costs has positive effect on customer retention, although its nature is to force customer staying with current supplier It is also an element to explore when we examine customer retention

H7 There is a positive impact of switching cost on customer retention

Attractive alternatives refer to customer‟s perception about available suppliers in the market place (Jones et al., 2000) The existence of alternatives is also a key factor for switching When viable alternatives are lacking, the possibility customers exiting their current relationship also decrease (Sharma & Patterson, 2000) On the contrary, when customers perceive the existing of attractive alternatives, they refer to switch (Sharma & Patterson, 2000) Thus, if dissatisfied customers are unaware about the existence of other alternatives, they are more likely

to stay in the relationship

H8 There is a negative impact of availability and attractiveness of alternatives on customer retention

In summary, no matter switching barriers affects the relationship in positive

or negative way, they decrease customer‟s leaving intention and increase the quantity of customer stay with the business

2.3 Research Model

H1 There is a positive impact of customer satisfaction on customer retention

H2 There is a positive impact of trust on customer retention

H3 There is a positive impact of emotional commitment on customer retention H4 There is a positive impact of calculative commitment on customer retention

H8- H7+

H5 There is a positive impact of normative commitment on customer retention H6 There is a positive impact of relational benefits on customer retention

H7 There is a positive impact of switching cost on customer retention

H8 There is a negative impact of availability and attractiveness of alternatives on

customer retention

follows the procedure illustrated in figure as below:

Figure 2: research process

Qualitative study Literature

Draft Questionnaire

Translation

In depth interview (n=10)

Revision

Final Questionnaire

EFA

Cronbach‟s Alpha Main survey

(n~350) Quantitative study

Multiple regressions

3.2 Measurement scales

The scales for nine constructs in the model have been developed on the basis

of previously established studies, in conjunction with the adjustment for contextual situation (i.e banking industry in Vietnam) Multiple item scales were used in the form of five point Likert type

Scales for customer satisfaction, trust, emotional commitment, calculative commitment, normative commitment were adapted from previous research of Cronin et al (2000), Coote, Forest and Tam (2003), Ball, Celho and Machas (2004), Gustafsson et al (2005), Kelly (2004), Allen and Meyer (1990) The relational benefits, switching costs, availabilities and attractiveness of alternatives scales were drawn from previous scales in the switching barriers literature (Burnham, Frels, and Mahajan, 2003; Jones et al., 2000; Goitom and Nancy, 2011) With the final scale for retention, we define retention as the future propensity of a customer to stay with service provider We measured retention by adapting a three-item formative scale used by Morgan and Hunt (1994) to measure “propensity to leave” in a business-to-business relationship The three items used measured the likelihood of the respondents leaving their current banks at three different periods in the future: six months, one year and two years respectively The overall score was a summation of the three weighted items Following Morgan and Hunt's approach, the first item was the most weighted, then the second item, and the third item was left un-weighted If

we use the range of scores is from 1 to 5, the proportion can be 2.5: 1.5:1

The participants were asked to respond to survey questions by using five point Likert scale ranging from 1 to 5:

1- Totally disagree

2- Disagree

3- Neutral

4- Agree 5- Totally agree

Table 3.1: Summary of scales for 9 constructs in the model

Customer

satisfaction

Cus1 1 Overall, I am happy with my bank

Cronin et al, (2000)

Cus2 2 My bank meets my expectations

Cus3 3 I think I did the right thing when I

joined this bank

Trust

Trt4 1 I have great confidence in my banking

services

Items 1, 2 are adapted from Coote, Forest and Tam (2003) Items 3,4 are adapted from Ball, Celho and Machas (2004)

Trt5 2 Promises made by my bank are

reliable

Trt6 3 My bank is capable in providing

banking service to me

Trt7 4 My bank treats me in an honest way in

Emc9 2 Bank X is the operator that takes the

best care of their customers

Emc10 3 There is a presence of reciprocity in

my relationship with bank X

Emc11 4 I have feelings of trust toward bank X

Calculative

commitment

Cam12 1 It would be too costly for me to leave

Bank, therefore I stay

Allen and Meyer, (1990)

Cam13 2 One of the major reasons I continue to

bank with Bank is that leaving would require considerable personal sacrifice

Cam14 3 I stay with Bank because the costs of

changing exceed the benefits

Normative

commitment

Noc15 1 Our attachment to bank X is mainly

based on the similarity of our values Items 1,2,3 are adapted from

Kelly (2004), whist item 4,5 are adapted from

Noc16 2 The reason I refer bank X to others is

because of what it stands for, its value

Noc17 3 What bank X stands for is important to

us

Noc18 4 I do feel an obligation to remain with

bank

Allen and Meyer (1994) Noc19 5 I owe a great deal to bank

Relational

benefits

Reb20 1 Staying allows me to get discounts and

Frels, Mahajan (2003)

Reb21 2 Staying saves me money

Reb22 3 Staying allows me to get extra service

Swc25 3.For me, the costs in time, money, and

effort to switching banks are high Swc26 4 If I switch to another bank, I am

concerned about negative financial outcomes

Aaa27 2 I am not sure if other banks offer

better services

Aaa29 3 Other banks do not offer better

services

Aaa30 4 I know other banks offer better

services but I prefer to stay with my present main bank

Retention

How likely is that you continue your relationship with bank?

Morgan and Hunt (1994)

Ret31 1 Within the next six months?

Ret32 2 Within the next one year?

Ret33 3 Within the next two years?

3.3 Method of data collection.

3.3.1 Sample size.

Due to limited time, the convenience sampling approach was applied in Ho Chi Minh City The method of self-administered survey was employed for this study, which consisted of 09 factors and 33 variables It was generally agreed that the minimum sample for appropriate use for statistical is equal to or greater than 5 times of in dependent variables, but not less than 100 (Hair et al., 1995) Thus, the minimum sample size was determined by equation: n=33*5=165 observations.

With expectation to obtain a sample size of 165, 350 questionnaires were delivered to participants The interval of respondent‟s age is from 18 to 60 years old Actual practice shows that people around this interval of age have demands and financial conditions to use banking services more than the others Respondents are working from many variety careers and have a level of income enough to do transactions with bank regularly

All the respondents selected usually have transactions with commercial banks, or foreign banks or both

3.3.2 Method of data collection

 Qualitative study: to get qualitative data from customers at commercial banks

in Ho Chi Minh City The results were used as additional inputs into the process of questionnaire design to find out the final questionnaire

 Draft questionnaire: using the outcomes of qualitative study, the measures

and measurements scale of the conceptual model were decided and the questionnaire was formed

 Pilot survey: the main purpose of pilot study is to test the questionnaire on

the small sample of respondents It helps to exclude potential problems, increase the reliability, and assure the appropriateness of the data collection instruments According to Malhotra (2004), the sample size of pilot study is small, which is around 10 to 30 respondents The pilot study of this research

involved distribution of questionnaire to 10 interviewees randomly The interviews were face-to-face interview, the interview question around customer satisfaction, which factors make them satisfy or dissatisfy with banking services, whether they have trust on their current provider or whether they realize barriers in the services The collected information was used to modify for questionnaire design

After pilot study, some confused questions were refined cause of the equivocal Vietnamese meaning

 Data collection process: 350 questionnaires were delivered via email,

colleagues, and sent directly to customers who come to bank

3.4 Data analysis method

We use descriptive and inferential statistics (Cronbach‟s Alpha, EFA, Correlation, Multiple regression analysis) with SPSS software package The analysis process is carried out as follow:

3.4.1 Assessment of measurement of scale

The multi-item scales developed above have to be evaluated for their reliability and validity Cronbach‟s Alpha is the most popularly use approach to test reliability Cronbach‟s Alpha will be high if the scale items are highly correlated Items having low Cronbach‟s Alpha ≤ 0.60, item-to-total correlation coefficients ≤ 0.4 were eliminated

In the current research, the main assessment method is exploratory factor analysis (EFA) using SPSS 16.5 There are two basic methods used for extracting factors in EFA, common factor analysis and principal components factor analysis While principal component factor analysis is used mainly for item reduction and test unidimensionality, reliability, common factor analysis is for exploring the latent dimensions represented in the original variables (Conway & Huffcutt, 2003) and test convergent validity, discriminant validity

The analysis process was implemented through these respective steps:

At first, Exploratory Factor Analysis was employed to explore the interrelationship among a set of variables so as to identify the number of underlying factors Principal components factor analysis was used as a method to extract the factors in this study, together with varimax as a rotation technique In order to assure the suitability of the data for factor analysis, the following conditions should be met (Pallant, 2005):

- The sample size should be appropriate: the sample size should be at least 165

as the above foundation

- The factorability of the data would be appropriate if:

 The Kaiser-Meyer-Olk in value (KMO) should be 0.5 or above

 The Bartlett‟s test of sphericity should be statistically significant

- The number of factors were determined when:

 The components have eigenvalue of 1 or more

 The total variance explained by these components should be above 50%

 Factor loading criteria should be 0.4 or more to ensure a practical significance

3.4.2 Multiple regressions

After completing the refinement, correlation is performed to measure the size and direction of the relationship between two types of variables (Tabachnick & Fidell, 2001) In this study, a correlation analysis was carried out to measure the inter relationship between independent variables and dependent variable On completion of the correlation analysis, a regression analysis was conducted in order

to further evaluate and understand the relationships between the dependent and independent variables of the study, and to test the hypotheses of interest

CHAPTER 4: DATA ANALYSIS AND RESULTS

The previous chapter describes the research design, the constructs and the measurement scales used in this study This chapter presents sample characteristics, the assessment and refinement of these measurement scales based on the data collected from respondents, the results from statistical estimation, the discuss and managerial implications

4.1 Sample characteristics

As mentioned in the previous chapter, the data was collected from 350 questionnaires delivered through emails and directly sent to random customers of some random banks in Ho Chi Minh City The response rate was 57.7% After filtering, a number of questionnaires were eliminated due to many missing The data was then based on 202 questionnaires– the sample The following sections describe the main characteristics of the sample

Table 4.1: Sample characteristic

Frequency

Percentage (%)

Cumulative percent (%)

The sample consisted of 85 (equivalent to 42.1%) males and 117 (equivalent

to 57.9%) female The majority of respondents in the sample were around of 18 to

50 years old Among the 202 cases, 11.4% or 23 respondents which were from 18 to

22 years old, 42.6% or 86 respondents were between 23 to 29 years old, 30.2% or 61 respondents were between 30 to 39 years old, and 15.8% or 32 people were more than 40 years old

The sample consisted of 112 (equivalent to 55.45%) people usually had transactions with commercial banks or local banks, 90 (equivalent to 44.55%) respondents had accounts with foreign banks These percentages reflected that there was no significant difference between the number of respondents using commercial banks and foreign banks

There were 8.9% or 18 respondents had high school level and, 56.9% or 115 respondents had bachelor degrees, and 34.2% or 69 people had master degrees This suggested that majority of people who using banking services had a particular education level

4.2 Assessment of measurement scales

Following the procedure and criteria in Chapter 3, the process of assessment and refinement of measurement scales were implemented through two steps using of SPSS 16.5 software The first step was Cronbach‟s Alpha to assess reliability The second step was EFA with all scales together in order to assess convergent validity and discriminant validity In this process, the items which did not meet evaluating criteria were eliminated Criteria of reliability and measurement of items included: factor-loading>0.40, item-total correlation >0.40, Cronbach Alpha >0.60, percentage

of variance>60% (Hairandetal, 1998)

4.2.1 Cronb ach’s Alpha

Table 4.2 showed the result of Cronbach‟s Alpha of each scale in the first time running All the values of Cronbach‟s Alpha were in the range 0.6 through 0.9; the highest was 900 (customer satisfaction) and the lowest was 615 (Normative

commitment) It was acceptable if the Cronbach‟s Alpha was higher than 0.6 However, in some constructs the alpha values of overall constructs were lower than the alpha if item deleted, and the corrected item - total correlation of some items were lower than 0.4 That means one (or some items) of that construct was not correlated with the other Items Trt7, Emc11, Noc18, Noc9, Swc26, Aaa30 were in this situation

Table 4.2: Reliability Analysis

Cronbach's Alpha If Item

After eliminating uncorrelated items, the Cronbach‟s Alpha of that constructs became better in the second time running We could refer to table 4.3 for the new figures

Table 4.3: Revised Reliability Analysis

Cronbach's Alpha If Item

4.2.2 Exploratory factor analysis

All the independent and dependent factors were separately run through the Principal component analysis, using the varimax rotation method

4.2.2.1 EFA result for measurement scales of independent factors

After three times of running factor analysis, the results showed that all remained variables had higher factor loadings than 0.4 and a significant loading on

an acceptable factor Details were as follows:

First time running factor analysis showed the good KMO values of all independent factors (> 0.8) at the Bartlett‟s test significant 000<0.05 There are six factors with the eigen values were higher than1 However, the variable Emc9 and Emc10 were loading into 2 factors (see Appendix 1) Emc8 was loading into another group with lower value So, they were omitted

In the second time running, the variable Cam13 had no value Cam 12 was loading into 2 factors Cam 14 was loading into another group (see Appendix 2) Therefore, they were omitted

In the third time running, all the independent factors were satisfied with KMO > 0.8, the Bartlett‟s test significant 000< 0.05, and the Cumulative % total variance 74.527 (see Appendix 3) Six independent factors were extracted Rotation was converged in 6 iterations

The generated factors, the attributes of 6 factor loadings (customer satisfaction, trust, normative commitment, switching cost, relational benefits and availability and attractiveness of alternatives) were presented in Table 4.4

Table 4.4: EFA result for independent factors

Rotated Component Matrix