Exploring the Impact of Brand Equity and Customer Satisfaction on
Customer Loyalty
Dr. Gurjeet Kaur
Assistant Professor,
Dept of Commerce,
University of Jammu,
Jammu.
Email id.: gurjeetkaur18@gmail.com
Phone no – 09419197802
Ms. Neetu Mahajan
Research Scholar,
Dept of Commerce,
University of Jammu,
Jammu.
Email id.: neetu228_1982@yahoo.co.in.
Phone no – 09086030001
Abstract
This paper examines the impact of brand equity and customer satisfaction on customer loyalty on the basis of
information collected from 650 bank customers, selected through systematic sampling. The findings of the
study indicate that perceived service quality has a most significant effect on brand trust. Brand equity exerts a
positive and direct impact on customer satisfaction. However, only perceived service quality and customer
satisfaction predict customer loyalty. Thus, the results imply that bank management has to pay attention
towards staff skills, knowledge and attention towards customer needs so that fast and efficient services can be
provided to their customers.
Keywords: Brand Equity, Customer Satisfaction, Customer Loyalty, Banking Sector
Exploring the Impact of Brand Equity and Customer Satisfaction on
Customer Loyalty
Introduction
Building and properly managing brand equity has become essential for most companies. So, more and more
companies have realised that brand equity is one of their most valuable intangible assets. Further, maintaining
and enhancing the strength of company’s brand has become an important management imperative (Keller and
Lehmann 2006). Brand equity is viewed as consisting of brand strength and brand value (Lassar, Mittal and
Sharma 1995). Brand strength constitutes the brand associations held by customers. On the other hand, brand
values are the gains that accrue when brand strength is leveraged to obtain superior current and future profits.
Brand equity is widely accepted as a multidimensional concept that consists of brand loyalty, brand
awareness, perceived quality, brand associations, and other proprietary assets (Aaker 1991). Keller (1993)
proposed a knowledge–based framework for creating brand equity based on two dimensions, i.e., brand
awareness and brand image. Yoo and Donthu (2001) adopted four dimensions to measure brand equity, viz.,
brand loyalty, brand awareness, perceived quality, and brand associations. Atilgan et al. (2009) considered
perceived quality, brand loyalty, brand associations, brand awareness and brand trust as five basic customer
related dimensions of brand equity. For the purpose of this study, we adopted six dimensions to measure brand
equity, viz., brand awareness, brand image, brand association, brand trust, perceived service quality and brand
loyalty.
Brand awareness as a component of brand equity refers to the strength of brand node in memory, i.e.,
how easy it is for consumers to remember the brand (Keller 1993). A brand awareness memory node is
necessary before any brand association can be formed. Without an established brand node in the memory, it is
impossible to build a brand image. Brand image represents the reasoned or emotional perceptions consumers
attach to a specific brand (Ogba and Tan 2009). Brand image consists of functional and symbolic brand beliefs
(Low and Lamb 2000). Further, customers form an image of the brand based on the associations that they have
with respect to that brand (Moisescu 2007). Brand association is concerned with the level of association, i.e.,
how much information is summarised or subsumed in the association. Keller (1993) classified brand association
into three major categories, viz., attributes, benefits and attitudes. Attributes are those descriptive features that
characterise a product or service. Benefits are the personal values customers attach to the brand attributes, i.e.,
what customers can think the brand can do for them. However, as studied by Keller (1993) and Pappu, Quester
and Cooksey (2005), customers who hold favourable associations toward a brand, have favourable perceptions
of quality and vice- versa.
In today’s world of fierce competition, rendering quality service is a key for subsistence and success
(Sureshchandar, Rajendran and Kamalanabhan 2002), as it allows organisation to differentiate itself from the
competitors and thus, gain a competitive advantage (Gounaris, Stathakopoulos and Athanassopoulos 2003).
Further, Parasuraman, Zeithaml and Berry (1988) developed a model to measure service quality (SERVQUAL)
where a large number of researchers used this instrument to assess service organisations. Initially they
identified ten dimensions on which services should be evaluated, i.e., reliability, responsiveness, competence,
accuracy, courtesy, communication, credibility, security, understanding/knowing the customers and access
(Kuo 2003). Thereafter, they refined these ten determinants into 22 items/five dimensions, i.e., tangibles,
reliability, responsiveness, assurance and empathy (Thelen Jr. and Murphy 2010).
However, SERVQUAL instrument has been criticised by some researchers (Lin, Chiu and Hsien 2001),
viz., Carman (1990); Cronin and Taylor (1992); Teas (1993), where Carman (1990) argued that SERVQUAL
could not be a generic measure applicable to any service, it is needed to be customised to the specific service.
Cronin and Taylor (1992) and Teas (1993) questioned the validity of SERVQUAL and proposed alternative
model SERVPERF. No doubt SERVQUAL is not without its critics, it is still the most widely used instrument
for measuring service quality (Angur, Nataraajan and Jahera1999). Besides service quality, service firms attract
customers through their promises. Customer’s decision to purchase is grounded on the trust that the firm will
fulfill his/her needs (Kandampully 1998).
Brand trust is viewed as a belief, confidence, or expectation about an exchange partner’s trust
worthiness that results from the partner’s expertise, reliability or intentionality. It is also the customer’s brand
perceptions, viz., altruism, honesty and potential performance of the product (Bouhlel et al 2009). Further, trust
is considered to be along with commitment, communication and satisfaction, i.e., basic pillars supporting the
relationship marketing theory (Flavian and Guinaliu 2006). Moreover, it has various positive outcomes, such as
customer positive outcomes, commitment, value, price-tolerance, long term orientation in the relationship and
brand effect. Thus, trust leads to loyalty because it creates exchange relationships that are highly valued
(Poolthong and Mandhachitara 2009).
Copeland (1923) appears to be the first to suggest a phenomenon related to brand loyalty, which he
labeled as ‘brand insistence’. Brand loyalty can be categorised into behavioural and attitudinal. Behavioural
loyalty is brand loyalty in terms of the actual purchases observed over a time period whereas attitudinal loyalty
is based on stated preferences, commitment or purchase intentions (Rundle-Thiele and Mackay 2001). Brand
loyalty cannot be analysed without considering its relationship with awareness, reputation, perceived quality,
image, innovation, promotion, brand extension, customer background and satisfaction (Moisescu 2007).
Customer Satisfaction
Achieving customer satisfaction is the primary goal for most of the service firms (Jones and Sasser 1995).
Customer satisfaction is the heart of marketing, which has been regarded as a primary factor of repurchasing
behaviour, meaning thereby greater the degree to which a customer is satisfied, greater will be the probability
that the customer will re-visit that particular retailer (Burns and Neisner 2006).
Satisfaction is an “overall customer attitude towards a service provider” (Levesque and McDougall 1996,
p.14) or an emotional reaction to the difference between what customers anticipate and what they receive
regarding the fulfillment of some need, goal or desire (Hansemark and Albinsson 2004). Yang and Peterson
(2004) in their paper distinguished between two forms of customer satisfaction, i.e., cumulative and transaction-
specific. Cumulative satisfaction is an overall evaluation based on the total purchase and consumption
experience with a good or service overtime (Fornell 1992) whereas transaction–specific satisfaction provides
specific diagnostic information about a particular product or service encounter. Further, cumulative satisfaction
is a more fundamental indicator of the firm’s past, current and future performance (Anderson, Fornell and
Lehman 1994). Customer satisfaction is generally defined as a feeling or judgement by customers towards
products or services after they have used them (Jamal and Naser 2002). Moreover, customer satisfaction brings
many benefits as satisfied customers are less price sensitive, buy additional products, are less influenced by
competitors and stay loyal longer (Hansemark and Albinsson 2004). It is believed that customer satisfaction is a
good, if not the best, indicator of a firm’s future profits (Chan et al 2003).
Customer Loyalty
Customer loyalty is critical to the conduct of business in today’s competitive market place and banks are no
exception (Ehigie 2006). Developing and maintaining customer loyalty is important particularly in the service
sector because loyalty results in increased profits through repeat patronage, less price sensitivity, and positive
word-of-mouth. This makes it an important determinant of market share and profitability (Jones and Sasser
1995). Hence, customer loyalty has a powerful impact on firm’s performance and is considered by many
companies as an important source of competitive advantage (Lam et al. 2004). Consistently high levels of
customer loyalty not only create tremendous competitive advantage but also boost employee morale and
productivity. On the other hand, persistent customer defection has a devastating impact on a company’s
performance (Lee and Cunningham 2001).
In this regard, Dick and Basu (1994) argued that loyalty is determined by the strength of the relationship
between relative attitude and repeat patronage and that it has both attitudinal and behavioural elements. Further,
the combination of these enable us to distinguish two types of customer loyalty concepts, i.e., loyalty based on
inertia, where a brand is bought out of habit merely because this takes less effort and customer will not hesitate
to switch to another brand if there is some convenient reason to do so. Secondly, true brand loyalty, which is a
form of repeat purchasing behaviour reflecting a conscious decision to continue buying the same brand, must be
accompanied by an underlying positive attitude and a high degree of commitment towards the brand (Beerli,
Martin and Quintana 2004). Dick and Basu (1994) proposed four conditions related to loyalty:
1. Loyalty signifies a favourable correspondence between relative and repeat patronage.
2. Latent loyalty is associated with high relative attitude, but low repeat patronage (Rowley 2005).
3. Spurious loyalty occurs when a customer frequently purchases a brand but sees no significant difference
among brands.
4.
No loyalty exists in a category when customers see few differences between alternative brands and
there are low repeat purchases (Javalgi and Moberg 1997).
Rundle-Thiele (2005) in his paper studied the dimensions of loyalty as situational loyalty, price sensitivity,
propensity to be loyal, attitudinal loyal and complaining behaviour. The dimensions of customer loyalty, viz.,
recommendation and patronage were studied by Lam et al. (2004). Thus, the study focuses on the four major
dimensions of customer loyalty, viz., recommendation, patronage, price insensitivity and complaining
behaviour.
The present study is an outcome of the related literature pertaining to customer satisfaction, customer
loyalty and brand equity and the impact of brand equity on customer satisfaction, brand equity on customer
loyalty, customer satisfaction on customer loyalty. The pertinent literature appears to have examined either the
impact of customer satisfaction on customer loyalty or simply has analysed the impact of service quality on
customer loyalty; service quality on customer satisfaction.
Hume and Mort (2010) revealed that repurchase intention is largely based on satisfaction but did not
explore other dimensions of customer loyalty, viz., word-of-mouth, recommendation and complaining
behaviour. Rousan, Ramzi and Mohamed (2010) observed the strength of association between the variables of
service quality and customer loyalty in the five-star hotels in Jordan but failed to recognise the power of
customer satisfaction, as customer satisfaction is the strength of customer retention and loyalty. Ojo (2010)
investigated the impact of service quality on customer satisfaction in the telecommunication industry.
Thereafter, Ahangar (2011) examined the impact of five service quality (responsiveness, reliability, efficiency,
privacy of information and easiness to use) on customer satisfaction.
Akbar and Parvez (2009) investigated the effects of customers’ perceived service quality, trust and
customer satisfaction on customer loyalty, but overlooked other dimensions, viz., price perception and image,
which greatly influence customer loyalty. Vanniarajan and Gurunathan (2009) examined the linkage between
service quality and customer loyalty. However, the study ignored trust and image while analysing the customer
loyalty. Jamal and Anastasiadou (2009) investigated the role of reliability, tangibility and empathy in predicting
loyalty via satisfaction. However, advertising messages that depict tangible dimensions of service quality were
not covered. The present study shall incorporate the dimensions that are related to advertising, viz., ‘brand
awareness’.
On the whole, the study shall examine the impact of customer satisfaction on customer loyalty; brand
equity on customer satisfaction and customer loyalty, by considering six dimensions of brand equity, viz., brand
awareness, brand image, brand association, brand trust, brand loyalty and perceived quality and four
dimensions of customer loyalty, viz., recommendation, patronage, complaining behaviour and price
insensitivity.
Formulation of Hypotheses
Delivery of high quality services is necessary for developing and nurturing trust (Hennig-Thurau and Klee
1997). The better the perceived quality of a service, the more likely the customer will gain confidence in the
organisation and the more trust he/she reposes in that service provider (Doney and Cannon 1997). Gounaris and
Karin (2002) revealed that service quality has a significant positive effect on customer trust. Further, Yieh,
Chiao and Chiu (2007) found that perceived service quality has a significant and positive influence on trust.
Poolthong and Mandhachitara (2009) confirmed the relationship between perceived service quality and trust in
retail banking. Similarly, Omar (2009) revealed that perceived service quality has a positive impact on brand
trust in a child care centre.
On the basis of the above cited literature, we can safely assume that in Indian banking context also bank
customers shall repose confidence in the service provider to the extent he facilitates timely, efficient, reliable,
credible and most satisfactory services. Trust towards a particular bank shall be determined on the basis of the
quality of the services being delivered by it. Thus, we hypothesise thatH1: Perceived service quality has a direct and significant effect on brand trust.
Berry (2000) advocates that brand equity comprises of two components, i.e., brand awareness and brand image.
Brand equity is created when a consumer has an awareness of a brand and an associated positive image that
together create unique brand association (Keller 1993). Brand trust requires brand knowledge and thus, unless a
consumer has a representation of the brand in memory, including awareness and a positive image, he/she cannot
trust the brand (Esch et al 2006). It is established through a combination of word-of-mouth advertising,
familiarity and brand image and it results in achieving a sustainable competitive advantage (Garbarino and
Johnson 1999). Flavian, Guinaliu and Torres (2005) found that image has a positive influence on consumer
trust because it can diminish the risk perceived by consumers and simultaneously increase the probability of
purchase at the moment of execution of transaction. Chen (2009) in his study also supported that brand image is
positively associated with brand trust.
This assertion is also true in case of banking sector, where trust towards a particular bank is dependent on the
level of awareness regarding that bank and image it carries in the market. In order to reduce the level of risk
involved in transacting with a bank, Indian customers would also like to generate information regarding that
bank and the reputation it enjoys in contrast to its competitors. Thus, it is hypothesised thatH2a: Brand awareness has a direct and positive effect on Brand trust.
H2b: Brand image has a direct and positive effect on Brand trust.
Customers’ perceptions regarding brand basically consist of brand awareness and brand image (Keller 1998).
Awareness of a brand is not enough to ensure a brand’s success, as it is not sufficient to offer superior value to
customers and differentiate an offering from those of competitors, which is achieved by brand image (Simms
and Trott 2006). So, company creates and translates its brand into the brand image as perceived by customer,
leading to customer satisfaction (Gocek, Kursum and Beceren 2007). Kandampully and Suhartanto (2000)
pointed out that a desirable image leads to customer satisfaction, while an undesirable image leads to
dissatisfaction, which means that there is a positive relationship between brand image and customer
satisfaction. Chang and Tu (2005) found a positive relationship between brand image and customer satisfaction.
Wu and Batmukh (2010) reported that brand equity has a direct and significant influence on customer
satisfaction. Sivadas and Prewitt (2000) reported that service quality influences satisfaction whereas Olsen
(2002) concluded that the relationship between quality and satisfaction is much stronger for comparative
evaluation of several product alternatives rather than as a non comparative or individual evaluation of products
in sea food category (home frozen, frozen from supermarket, fresh from supermarket and fresh from seafood
store. The study by Ojo (2010) revealed that service quality has an effect on customer satisfaction and that there
is a positive relationship between service quality and customer satisfaction.
Beside awareness regarding a bank and its image, satisfaction or dissatisfaction of bank customers is also
dependent on the quality of services being offered, promised and intentions to fulfill that promise in future.
Level of satisfaction towards banking services shall be more influenced by the service quality of a bank, where
creating complete awareness regarding that banking services and sound image it enjoys are considered as
necessary conditions. This leads to the following set of hypothesesH3a: Brand awareness has a direct and positive effect on customer satisfaction.
H3b: Brand image has a direct and positive effect on customer satisfaction.
H3c: Perceived service quality has a direct and positive effect on customer satisfaction.
Customer satisfaction is assumed to be formed through trust. Since trust can be measured on the basis of cuebased trust and experience-based trust in relation to the pre-encounter and post-encounter with a seller
respectively, cue-based and experience-based trust can, therefore, affect overall customer satisfaction (Wang,
Beatty and Foxx 2004). Razzaque and Boon (2003) found a significant effect of trust on satisfaction. Moreover,
when a customers’ feeling of faith in the provider is satisfied, his satisfaction will increase over time (Chiou
and Droge 2006). In this regard, Macintosh (2009) revealed that trust is related to dental patients’ satisfaction
regarding their relationship with dental professionals and Ouyang (2010) found trust to be positively and
significantly related to customer satisfaction in financial consultancy firms. Choi, Sohn and Lee (2010)
observed the significant effects of trust on customer satisfaction in relation to online stores. Lastly, Deng et al.
(2010) revealed that trust has a positive effect on customer satisfaction in context to MIM (Mobile Instant
Messages).
Trust towards an Indian bank has a significant impact on the level of satisfaction its customers enjoy.
Trustworthy services, reliable staff, sound reputation, and fair financial dealings shall determine the satisfaction
of a bank customer. Hence, fourth hypothesisH4: Brand trust has a direct and significant influence on customer satisfaction.
Trust is fundamental in developing customer loyalty (Morgan and Hunt 1994). When a customer trusts the
service provider, he will continually use the service and even recommend the service provider to others.
Garbarino and Johnson (1999) also demonstrated trust as an antecedent of loyalty. Corbitt, Thanasankit and Yi
(2003) confirmed a strong positive effect of trust on customer loyalty. Yieh, Chiao and Chiu (2007) found that
trust positively influences customer loyalty whereas Tariq and Moussaoui (2009) concluded that trust
influences customer loyalty positively in Moroccan banking sector. Akbar and Parvez (2009) revealed that trust
has a positive and significant correlation with customer loyalty. Lastly, Deng et al. (2010) also supported that
trust influences customer loyalty.
Even in Indian banking context, trust influences loyalty through customer satisfaction. When customers are
completely satisfied with the quality of services being delivered by a bank, they develop trust towards that bank
and remain satisfied with its services, which ultimately results into repeat visits and positive recommendation.
Thus, we propose that-
H5: Brand trust has a direct positive effect on customer loyalty.
Satisfaction is a necessary prerequisite for loyalty (Kandampully and Suhartanto 2000). Fornell (1992) stated
that high customer loyalty is mainly caused by high customer satisfaction. Jones and Sasser (1995) found that
the relationship between satisfaction and loyalty is neither linear nor simple whereas Hallowell (1996) showed
that higher customer satisfaction translates into higher than normal market share growth, the ability to charge a
higher price, improved customer loyalty with a strong link to improved profitability and lower transaction costs.
Hong and Goo (2004) examined that customer satisfaction and loyalty are significantly and positively
associated because satisfaction is a necessary prerequisite for loyalty in various industries like cement, food,
banking and insurance industries. Bennett and Rundle-Thiele (2004) analysed that the relationship between
satisfaction and loyalty is positive but high levels of satisfaction do not always yield high levels of loyalty.
If Indian bank customers derive cumulative satisfaction from a particular bank, they develop loyalty towards it
and shall spread positive word-of-mouth for that bank. Satisfaction is a significant determinant of repatronage
and recommendation of Indian banking services. Hence, we hypothesise thatH6: Customer satisfaction has a positive effect on customer loyalty.
Brand awareness positively affects brand satisfaction to shape favourable attitude (Kim, Kim and An 2003).
Image serves as an important factor influencing customer loyalty and a favourable image influences repeat
patronage (Andreassen and Lindestad 1998; Nguyen and Le Blanc 2001; Ogba and Tan 2009). There exists a
positive relationship of service quality with customer loyalty (Lee and Cunningham 2001; Wong and Sohal
2003; Clottey, Collier and Stodnick 2008). Lau and Lee (1999) and Yieh, Chiao and Chiu (2007) examined a
link between customers’ trust in a brand and their loyalty and found a significant positive association between
them.
Indian bank customers also perceive the brand equity of a bank so as to develop trust towards it. This brand
trust accompanied by continuous superior service quality determines the bank customers’ loyalty. Therefore,
loyalty of bank customers is determined through the reputation of a bank, quality of services delivered, trust
generated by it and complete disclosure and transparency of that bank. Hence, the last hypothesisH7: Higher the brand equity (brand awareness, brand image, perceived service quality, brand trust), higher will
be the customer loyalty.
Research Methods
The data were collected through an instrument covering almost all the aspects of brand equity, i.e., brand
awareness, brand image, brand association, perceived service quality, brand trust, and brand loyalty; customer
satisfaction and customer loyalty (i.e., recommendation, patronage, complaining behaviour and price
insensitivity). Some items were kept in negative form so as to have internal cross checking and to ensure the
active involvement of respondents.
Brand equity comprised of 68 items pertaining to brand awareness, brand association, brand image,
perceived quality, brand trust and brand loyalty, which were borrowed from Bansal, Irving and Taylor (2004);
Pappu, Quester and Cooksey (2005); Kim, Kim and An (2003); Lassar, Mittal and Sharma (1995). The items
related to customer satisfaction comprised of 12 items, which were adopted from various studies, viz., Bennett
and Rundle-Thiele, (2004); Robinson, Abbot and Shoemaker (2005). Customer loyalty was determined through
recommendation (3 items); patronage (2 items); price insensitivity (4 items) and complaining behaviour (5
items). Customer loyalty included six items, which were taken from Lam et al. (2004), Ganesh, Arnold and
Reynolds (2000).
For measuring the impact of brand equity and customer satisfaction on customer loyalty among bank
customers, primary data were gathered from bank customers. These customers were residing in one of the
northern cities of India (with population of 71,600 as per Telephone Directory 2007-2008). To determine the
sample size, a pilot survey was conducted during the end of 2007. For the selection of respondents, a list was
obtained from the office of PHE (Public Health Engineering), which consisted of approximately 1000
households. Out of these households, 5% (i.e., 50) were selected using 2-digit abridged random number table,
which was used to work out the mean and variance in the population so as to determine the appropriate sample
size. Although the sample size came to be 659, it was rounded off to 670. These respondents were selected from
telephone directory (2007-08) through systematic sampling technique. The first respondent was selected purely
on random basis and thereafter, every 107th respondent was contacted for the collection of required data. Out of
670 customers contacted, 650 responded properly. Brief description of these customers is provided in Table 1.
Data Purification
For data purification, factor analysis was carried out through SPSS (15.0 version), as it helps in reducing large
number of dimensions into few manageable and meaningful sets. Finally, out of 100 items, 26 items got
grouped under 8 factors, viz., price insensitivity, brand awareness, efficient staff and effective complaint
handling, complaining behaviour, brand trust, recommendation, customer satisfaction and brand image with
71% variance explained (Table 2 and 3). Detailed description of items deleted and retained in every factorial
round has been provided in Table 2.
Price insensitivity contains five dimensions, viz., ‘no switching in case of attractive prices elsewhere’,
‘not price based buying decisions’, ‘no influence of price for bank loyalty’, ‘continuous dealing even at
competitive prices’ and ‘preference for own bank irrespective of cheaper rates elsewhere’. Out of these five
dimensions, ‘no switching in case of attractive prices elsewhere’ and ‘not price based buying decisions’
obtained highest factor loading (0.93 each). However, customers have not agreed to the assertion that they
should prefer their own bank if other banks are providing services at cheaper rates (5.04). Thus, it can be
apprehended that price perception directly influences customer satisfaction, the likelihood of switching and
recommendation to others.
The second factor, i.e., Brand awareness, consists of five dimensions, viz., ‘organising cultural and
social programmes’, ‘organising awareness programmes’, ‘advertisements regarding schemes, discounts at right
time’, ‘attractive advertising messages’ and ‘effective promotion through posters and banners’. Out of these
five dimensions, ‘organising cultural and social programmes’ received highest factor loading (0.829), thus
revealing its significance towards predicting brand awareness. Thus, it indicates that bank management should
concentrate on advertising, as it plays a very important role in providing information to customers and reducing
uncertainty.
The next factor, i.e., Efficient staff and effective complaint handling, comprises of four variables, viz.,
‘knowledgeable and confident staff’, ‘well trained staff’, ‘satisfactory information regarding banking needs’,
‘effective and efficient handling of complaints’. Out of these four variables ‘well trained staff’ generated 5.70
mean value. However, customers are slightly more satisfied with the ‘complaint handling’ (5.59) rather than
‘satisfactory information regarding banking needs’ (5.55). Thus, it indicates that delivery and prompt response
to customer’s concern and inquiries are important means of reducing dissatisfaction and increasing customer
satisfaction.
The fourth factor, i.e., complaining behaviour, contains three dimensions, viz., ‘registering complaints
for service failures’, ‘concern towards bank’s weaknesses’ and ‘complaints only in case of frequent failures’.
Out of these three items, ‘concern towards bank’s weaknesses’ obtained highest mean value (5.66) as compared
to other variables. However, ‘concern towards bank’s weaknesses’ means thinking positively about the bank
and exhibiting one’s loyalty, which facilitates enough opportunity for the bank to take corrective actions and
deliver better service performance.
The factor, i.e., Brand trust, entails two dimensions, viz., ‘due consideration to customers’ interest’ and
‘customer caring attitude’. Out of these two, ‘due consideration to customers’ interest’ obtained slightly higher
factor loading (0.896) as compared to ‘customer caring attitude’ (0.875). Thus, it can be concluded that in order
to meet and fulfill the customers’ needs and expectations, bank must keep its promises through the way the
product/service is developed, produced, sold, serviced and advertised.
Recommendation emerging as sixth factor comprises of two variables, viz., ‘strong recommendation to
others’ and ‘encouragement for transacting with prime bank’. Out of these two dimensions ‘encouragement for
transacting with prime bank’ obtained higher mean score (5.68) as compared to ‘recommendation to others’
(5.25). Thus it reflects that positive word-of-mouth increases the bank’s reliability and decreases customer’s
perceived risks. Moreover, loyal customers indeed spread positive word- of-mouth and make recommendations.
The factor Customer satisfaction consists of two variables, viz., ‘satisfactory advertisements’ and
‘satisfactory publicity’. Out of these two, ‘satisfactory publicity’ obtained slightly lower mean score (5.32) as
compared to ‘satisfactory advertisements’ (5.39). Thus, it reflects that customers are more satisfied with the
advertisements of their bank than the publicity of its services and schemes. Apparently, promotion generates
frequent visits, but keeping target customers informed of new services also reinforces their satisfaction level.
Finally, Brand image contains two dimensions, ‘popularity among friends’ and ‘popularity among
family members and relatives’. ‘Popularity among family members and relatives’ (5.66) obtained higher mean
value as compared to ‘popularity among friends’ (5.20). Thus, it reflects that a strong brand image facilitates
customer-personnel interaction, minimises defame towards the corporate name, positively affects the internal
climate of the bank, facilitates hiring of valuable employees, attracts investors etc.
Analysis, Discussion and Managerial Implications
The proposed model has been found to have a good fit, as its chi-square statistics was below the
recommended level, i.e., 5.0 (Figure 1 & Table 4). As Chi-square statistics is not the appropriate measure to
know the fitness of model, other indices were also considered and found to be appropriate. The various absolute
fit indices such as GFI (.998), AGFI (.985), RMSR (.015) and RMSEA (.024) also reveal a good model fit. The
three incremental fit indices, i.e., NFI (.988), CFI (.997) and TLI (.984) were also found to be acceptable, as
their values were above .90.
Convergent validity has been examined through correlation co-efficients among the items in each factor
while discriminant validity has been observed through correlation co-efficients between the factors. Almost all
the correlation co-efficients among the items of each factor were greater than .30. All the correlation coefficients between the factors were less than .30. Thus, convergent and discriminant validity stand established.
Further, in order to check internal consistency of the data, Cronbach’s alpha has been computed. For individual
factor coefficient alpha has been proved authentic.
While estimating path model, brand trust seems to be best predicted by brand awareness (b=.176), and
perceived service quality (b=.164), thus accepting H1 and H2a. Result for H2a is coherent with the findings of
the previous studies, viz., Poolthong and Mandhachitara (2009) and Omar (2009). However, brand image
appeared to be insignificant in predicting brand trust, hence rejecting H2b. Further, brand awareness and brand
image have significant influence over customer satisfaction, thereby accepting H3a and H3b. This result also
finds support from Kim, Kim and An (2003) and Kim and Kim (2004). Similarly, perceived service quality also
has a direct significant effect on customer satisfaction (b=.201), hence approving H3c. This relationship finds
support from Sivadas and Prewitt (2000) and Ojo (2010). The model further explains that brand trust has a
significant impact on customer satisfaction (b=.148), thereby accepting H4. This finding is consistent with the
studies conducted by Razzaque and Boon (2003) and Chiou and Droge (2006). The results of path model
further indicate that brand trust does not have a significant influence customer loyalty, thus rejecting H5.
However, there appears to be a significant correlation between customer satisfaction and customer loyalty
(b=.155), thus accepting H6. This result is coherent with the findings of Bennett and Rundle-Thiele (2004),
Lam et al. (2004) and Liang, Wang and Farquhar (2009). While predicting customer loyalty through brand
equity, the model shows that only perceived service quality significantly predicts customer loyalty (b=.199),
however brand awareness, brand image and brand trust do not significantly influence customer loyalty, thus
partially accepting H7 (Table 5).
The indirect relationships have also been examined between brand equity variables and customer loyalty
(Sobel 1982). Sobel statistics reveal that the impact of brand trust on customer loyalty through customer
satisfaction is significant (b=3.465, p=.000). Hence, brand trust doesn’t have direct significant relationship with
customer loyalty and this relationship is significantly mediated by customer satisfaction. While analysing
indirect impact of brand awareness, brand image and perceived service quality on customer loyalty through
brand trust, Sobel statistics reveal that brand trust mediation is significant for brand awareness and perceived
service quality (p=.026 & .05), however not for brand image (p=.324). Indirect relationships of brand
awareness, brand image and perceived service quality with customer loyalty when mediated by customer
satisfaction are quite significant (p=.000 each). Hence, it can be concluded that the impact of brand equity
dimensions on customer loyalty is mediated by customer satisfaction. Ultimately, it is the customers’
satisfaction that determines their loyalty.
The study has confirmed the importance of analysing brand equity, customer satisfaction and customer
loyalty in the banking sector. To survive in the present world, banking institutions have to develop strong
brands with a different corporate image in order to provide competitive advantage. Best example in this regard
is SBI’s brand revival after 2006, where management has paid considerable attention towards bank’s staff
skills, knowledge and attention towards customer needs so that fast and efficient services are provided to them.
Moreover, in order to enhance the timeliness of their services and ease the access of customers, banks have to
invest significant sums on new technologies, e.g., video banking, internet banking, telephone banking.
Further, study highlights that the price in a bank is related to price transparency, price- quality ratio and
the relative price, as customers will be confident only if they are able to evaluate the price of a service/ product
and if this price is favourable, customers shall not always process price information actively and extensively.
Thus, these dimensions of price give honest and complete information regarding products/services and as a
consequence, these dimensions are highly effective at increasing satisfaction, trust and sales. The analysis of
service quality reveals that recruiting trained and knowledgeable staff, who have the ability to give each
customer a personal attention, create conditions that make customers feel safe while carrying out their
transactions and have an understanding of their specific needs. So, employees should be courteous (which
involves politeness, respect and consideration), instill confidence in users, and deal with users in a caring
fashion. Tie-ups with top Indian business schools to regularly train the employees can boost the morale of the
employees. Further, the analysis reveals that complaints give the chance to remove the source of dissatisfaction
and strengthen true loyalty through a successful recovery. Therefore, banks should design a comprehensive
recovery strategy that can handle complaints effectively, resolve complaints quickly, and learn from the
recovery experiences. An online employee suggestion system, recently introduced by SBI, can also be initiated.
Further, bank managers should also take steps to reward employees who have successfully handled the
complaints made by bank customers through various incentives, which will motivate bank staff to take a willing
part in the processes of handling customer complaints, effectively managing complaints and increasing the
quality of the services offered by the bank
The loyal customers are the most important asset to a bank, therefore, bank managers have to
communicate efficiently with the customers and be highly responsive when dealing with their complaints, as
loyal customers will not only repeat the purchases but also bring their friends and family with them. Bank
management should seriously adopt internal market orientation, as it helps to improve the effectiveness of the
company’s internal marketing practices and also to obtain brand loyalty, where eventually employees can be
made brand ambassadors for the external market. Within this framework, managers should seek to foster an
internal market orientation, particularly those seeking differentiation through customer service excellence.
Finally, advertising through media is the best way to deliver the message to the target audience. It can create a
good rapport between customers and product. The study indicates that satisfactory advertisements not only
effectively communicate the desired messages but the individual audience must be willing to “buy into” the
desired message. In other words, for the advertisement to be effective, the communication must be sent and
received. The analysis of brand image indicates that having a strong brand image implies having the upper hand
over competitors and thus, preventing customers from shifting one bank to another.
Limitations
The study is cross-sectional and confined to one city and banking sector only. Hence, generalisability of the
study findings is restricted to financial services only. Thus, future research should attempt at replicating the
present study to other services, i.e., telecommunication, education, health care services, etc., and product
categories such as computers, mobile handsets, televisions, etc. Although the present research focused on
general banking services, more specific research could address each of the services provided in the banking
industry, like current, savings, and electronic accounts, rather than combining all. Brand value, performance
and commitment are some of the dimensions of Brand equity, which have not been included in the present
study, so future research can be pursued by taking these dimensions. The relationship between advertising,
brand personality and brand relationship quality can be considered for future research. Further, a comparative
analysis of customer loyalty among the customers belonging to public and private bank can be focused in near
future. Finally, future research efforts can concentrate on other variables that influence perceived service
quality such as company incentives, communication programmes in general and the interaction of the user with
the technology employed during the provision of the service.
Figure 1: Conceptual Model of Brand Equity, Customer Satisfaction and Customer Loyalty
PSQ
BA
BT
CS
CL
BI
Abbreviations used: PSQ= perceived service quality, BA= brand awareness, BI= brand image, BT= brand trust,
CS= customer satisfaction, CL= customer loyalty.
Table 1: Brief Profile of Bank Customers
Respondent Profile
Number
Percentage
Male
626
96%
Female
24
4%
Less than 30
173
27%
30-39
198
31%
40-49
132
20%
50-59
74
11%
More than 60
73
11%
Under graduate
128
20%
Graduate
321
50%
Post graduate
132
20%
Professionals
55
8%
Others
14
2%
Service
179
28%
Business
351
54%
Profession
41
6%
Others
79
12%
Married
545
84%
Single
102
15%
Others
3
1%
Upto Rs 10,000
16
2%
Rs 10,001-20,000
238
37%
Rs 20,001-30,000
333
51%
Above Rs 30,000
63
10%
Gender
Age (in years)
Qualification
Occupation
Marital Status
Income (pm)
Table 2: Factorial Profile of Brand Equity, Customer Satisfaction and Customer Loyalty
Rounds
1
2
3
4
5
6
7
8
9
10
11
12
13
14
No.
of Variance
Factors
Explained
Extracted
Items
emerged
Iterations
No.
of
Items
deleted
Extent
Factor
Loading
26
65.136
68
155
32
18
64.420
61
11
16
65.170
59
16
66.916
13
KMO
Bartlett
Above 0.50
.893
22886.549
7
Above 0.50
.883
15348.955
9
2
Above 0.50
.882
14322.963
56
10
3
Above 0.50
.885
14169.937
63.461
55
10
1
Above 0.55
.885
13762.808
14
64.726
53
18
2
Above 0.55
.884
13412.400
14
65.544
46
9
7
Above 0.60
.883
12894.837
13
66.539
43
8
3
Above 0.60
.864
10988.54
12
66.455
40
10
3
Above 0.60
.861
10444.657
11
66.801
39
8
Above 0.60
.867
10003.675
11
68.162
35
7
Above 0.65
.868
9632.313
10
67.552
29
6
Above 0.65
.845
8673.717
8
69.126
28
6
Above 0.65
.834
7534.743
8
71.145
26
6
Above0.70
.836
7434.622
1
4
6
1
2
of
Table 3: Summary of Results of Scale Purification- Mean, Standard Deviation, Factor Loading,
Communalities, Variance Explained and Cronbach Alpha
Factor
Factor-wise dimensions
Mean
SD
F.L.
Com.
F1
Price Insensitivity
PS1
5.08
2.00
0.933
0.885
PS4
No switching incase of attractive prices
elsewhere
Not price based buying decisions
5.06
1.82
0.933
0.864
PS3
No influence of price for bank loyalty
5.05
1.85
0.926
0.863
CL4
Continuous dealings even at competitive
prices.
Preference for own bank irrespective of
cheaper rates elsewhere.
4.47
1.69
0.909
0.74
5.04
1.41
0.792
0.655
CL2
F2
Brand Awareness
BAW6
Organising cultural and social
programmes.
Organising Awareness programmes.
5.19
1.30
0.829
0.699
5.24
1.21
0.826
0.712
Advertisements regarding schemes,
discounts at right time.
Attractive advertising messages
4.97
1.27
0.776
0.659
5.37
1.14
0.774
0.684
5.27
1.26
0.754
0.625
PSQ13
Effective promotion through posters and
banners
Efficient Staff and Effective Complaint
Handling
Knowledgeable and confident staff.
5.66
0.75
0.772
0.613
PSQ15
Well trained staff.
5.70
0.76
0.747
0.601
PSQ17
5.55
0.81
0.739
0.582
5.59
0.81
0.737
0.591
F4
Satisfactory information regarding banking
needs.
Effective and efficient handling of
complaints.
Complaining Behaviour
CB2
Registering complaints for service failures.
5.22
1.08
0.816
0.685
CB5
Concern towards bank’s weaknesses.
5.66
0.68
0.813
0.676
CB4
5.34
0.84
0.792
0.656
F5
Complaints only incase of frequent
failures.
Brand Trust
BT11
Due consideration to customer’s interest.
5.00
1.28
0.896
0.824
BT5
Customer caring attitude
4.62
1.34
0.875
0.814
F6
Recommendation
Rec1
Recommendation to others.
5.25
0.90
0.88
0.812
Rec2
0.852
0.785
F7
Encouragement for transacting with prime
bank.
Customer Satisfaction
CS6
Satisfactory advertisements
0.847
0.826
BAW4
BAW3
BAW7
BAW5
F3
PSQ11
5.39
0.97
Variance Cronbach
Explained Alpha
18.677
.951
31.55
.890
41.115
.770
48.969
.731
55.31
.779
61.346
.731
67.378
.795
CS8
Satisfactory publicity
5.32
0.90
0.809
0.796
F8
Brand Image
BI8
Popularity among friends.
5.20
0.96
0.847
0.755
BI10
Popularity among family members and
relatives.
5.66
0.86
0.817
0.72
71.145
Abbreviations used: SD = Standard Deviation, F.L. Factor Loading and Com = Communalities.
Table 4: Results of Absolute and Incremental Goodness-of- Fit Indices
Chi/df (p)
1.367 (.251)
RMR
.015
RMSEA
.024
GFI
.998
AGFI
.985
NFI
.988
CFI
.997
TLI
.984
Table 5: Hypotheses Testing through Path Analysis
β-value
Result
H1: Perceived Service Quality  Brand Trust
.164
Supported
H2a: Brand Awareness  Brand Trust
.176
Supported
H2b: Brand Image  Brand Trust
.028
Not Supported
H3a: Brand Awareness  Customer Satisfaction
.356
Supported
H3b: Brand Image Customer Satisfaction
.141
Supported
H3c: Perceived Service Quality Customer
.201
Supported
H4: Brand Trust  Customer Satisfaction
.148
Supported
H5: Brand Trust  Customer Loyalty
.054
Not Supported
H6: Customer Satisfaction Customer Loyalty
.253
.155
Supported
Hypotheses
Satisfaction
H7: Brand Equity  Customer Loyalty
Partially Supported
Brand Awareness  Customer Loyalty
.024
Not Supported
Brand Image  Customer Loyalty
.049
Not Supported
Perceived Service Quality  Customer Loyalty
.199
Supported
Brand Trust  Customer Loyalty
.054
Not Supported
.636
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