FACTORS AFFECTING CUSTOMER LOYALTY IN FOREX SERVICES
PROVIDERS IN KENYA
BY
OLUOCH, PASCAL OTHIENO
A PROJECT SUBMITTED IN PARTIAL FULFILLMENT FOR THE DEGREE
OF EXECUTIVE MASTERS OF BUSINESS ADMINISTRATION IN THE
SCHOOL OF BUSINESS AND ECONOMICS
MOI UNIVERSITY
NOVEMBER, 2013
ii
DECLARATION
DECLARATION BY THE CANDIDATE
This is to certify that this project is my original work and has not been presented or is
being presented for the award of a degree in any other university or institution of higher
learning. Information from other sources has been duly recognized and acknowledged.
PASCAL OTHIENO OLUOCH
MU / EMBA 019/ 2012
Student’s signature…………………………….…… Date: ……………………………
DECLARATION BY THE SUPERVISOR
This project has been submitted with my approval as the University Supervisor.
DR. LOICE C MARU
SCHOOL OF BUSINESS AND ECONOMICS
MOI UNIVERSITY
Supervisor’s signature: ……………………
Date: ……………………………………
MR. ROBERT ODUNGA
SCHOOL OF BUSINESS AND ECONOMICS
MOI UNIVERSITY
Supervisor’s signature: ……………………
Date: …………………………………
iii
DEDICATION
I sincerely dedicate this project to my wife Fiona and my son Joshua for their continued
encouragement and support during the entire period of my studies. Were it not for them,
this project would not have been successfully completed.
iv
ABSTRACT
This study sought to identify the relationships between good service quality, customer
satisfaction, perceived customer value, good corporate image and customer loyalty in
Forex services providers in Kenya. The study targeted a population drawn from Blueseas
Forex bureau and National Bank of Kenya in Mombasa, Rift Valley Forex Bureau and
NIC Bank in Nakuru, Victoria Forex Bureau and Kenya Commercial Bank in Kisumu
and finally Sky Forex Limited and Equity Bank in Nairobi. The target population for this
study comprised of all customers who access Forex services in Kenya. Since there is a
high likelihood that a huge majority of the banked population could transact in Forex
services from at one point or the other, this was therefore treated as the target population.
Since the target population was estimated to be far more than 10,000, a sample size of
384 customers was considered for purposes of this research as being representative of the
entire population of customers of Forex services in Kenya. A deliberate sampling design
was used to select eight Forex services providers from different geographical regions. A
convenient sample of 384 Forex services customers was then obtained from the selected
Forex services providers mentioned above. This research was conducted through the use
of questionnaires and random sampling in order to explain these phenomena in the
market. The study provided two types of data analysis; namely descriptive analysis and
inferential analysis. Results reveal an average high agreement levels with views that
business trust, customer satisfaction, service quality, perceived customer value and
corporate image are important in the respondents’ business relationship with their Forex
services providers. Majority of respondents also highly agree that factors influence their
continued dealings with the Forex services. The regression results show that perceived
customer value exhibits the strongest and positive influence on customer loyalty,
followed by service quality. Customer satisfaction, business trust and corporate image are
also positively correlated with customer loyalty. The researcher finally recommends that
Forex services providers invest highly in developing appropriate core values and
facilitate trainings that espouse and inculcate honesty, professionalism and integrity to
ensure that they gain the trust of their customers, implement processes and systems that
enhance the quality of customer service. Based on a discrepancy between the study
findings and an earlier study reviewed in the literature, the study recommends that further
research be conducted to ascertain the relationship between customer satisfaction and
customer loyalty, ideally employing a different methodology.
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TABLE OF CONTENTS
DECLARATION ........................................................................................................................... ii
DEDICATION .............................................................................................................................. iii
ABSTRACT ................................................................................................................................... iv
TABLE OF CONTENTS .............................................................................................................. v
LIST OF TABLES ...................................................................................................................... viii
LIST OF FIGURES ...................................................................................................................... ix
LIST OF ABBREVIATIONS ....................................................................................................... x
OPERATIONAL DEFINITION OF TERMS ............................................................................ xi
ACKNOWLEDGEMENT .......................................................................................................... xiii
CHAPTER ONE
INTRODUCTION.......................................................................................................................... 1
1.0 Overview ................................................................................................................................... 1
1.1 Background to the Study ............................................................................................................ 1
1.2 Statement of the Problem ........................................................................................................... 4
1.3 Research Objectives ................................................................................................................... 5
1.3.1 General objective ................................................................................................................ 5
1.3.2 Specific Objectives ............................................................................................................. 5
1.3.3 Research Hypotheses .......................................................................................................... 6
1.4 Significance of the Study ........................................................................................................... 6
1.5 Scope of the Study ..................................................................................................................... 7
CHAPTER TWO
LITERATURE REVIEW ............................................................................................................. 8
2.0 Introduction ................................................................................................................................ 8
2.1 Customer Loyalty....................................................................................................................... 8
2.1.1 Loyalty as primary an attitude that sometimes leads to a relationship
with brand (Model 1) ........................................................................................................ 10
2.1.2 Loyalty mainly expressed in terms of revealed behavior (Model 2) ................................ 11
2.1.3 Buying moderated by the individual's characteristics, circumstances,
and/or the purchase situation (Model 3) ........................................................................... 12
2.1.4 Theory of Multidimensional Brand Loyalty ..................................................................... 12
2.2 Business Trust .......................................................................................................................... 17
2.3 Customer Satisfaction .............................................................................................................. 19
2.4 Service Quality......................................................................................................................... 21
2.5 Perceived Customer Value ....................................................................................................... 23
2.6 Corporate Image....................................................................................................................... 25
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2.7 Conceptual Framework ............................................................................................................ 26
2.7.1 Conceptual Framework and Hypotheses Development .................................................... 27
2.7.2 Business Trust – Customer Satisfaction ........................................................................... 27
2.7.3 Service Quality – Customer Satisfaction .......................................................................... 27
2.7.4 Customer Satisfaction – Customer Loyalty ...................................................................... 27
2.7.5 Perceived Customer Value – Customer Loyalty .............................................................. 28
2.7.6 Corporate image – Customer Loyalty............................................................................... 28
CHAPTER THREE
RESEARCH METHODOLOGY ............................................................................................... 30
3.1 Introduction .............................................................................................................................. 30
3.2 Research Design....................................................................................................................... 30
3.3 Target Population ..................................................................................................................... 31
3.4 Sampling Frame ....................................................................................................................... 31
3.4.1 Sample size ....................................................................................................................... 32
3.5 Data Collection ........................................................................................................................ 32
3.5.1 Research Instruments ........................................................................................................ 33
3.5.2 Piloting ............................................................................................................................. 33
3.5.3 Test for reliability and validity of data collection instruments ......................................... 34
3.6 Data Analysis and Presentation................................................................................................ 34
3.7 Limitations of the Study........................................................................................................... 35
3.8 Ethical Considerations ............................................................................................................. 36
CHAPTER FOUR
DATA ANALYSIS, PRESENTATION AND INTERPRETATION .................................... 37
4.1 Introduction .............................................................................................................................. 37
4.2 Response Rate .......................................................................................................................... 37
4.3 Respondent Characteristics ...................................................................................................... 38
4.3.0 Demographic information................................................................................................. 38
4.3.1 Respondents’ Gender ........................................................................................................ 38
4.3.2 Level of Education............................................................................................................ 39
4.3.3 Nature of Occupation........................................................................................................ 40
4.3.4 Work experience ............................................................................................................... 41
4.3.5 Forex services providers mostly frequented ..................................................................... 42
4.3.6 Number of years traded with the said Forex services provider ........................................ 42
4.4 Business Trust .......................................................................................................................... 43
4.5 Customer satisfaction ............................................................................................................... 45
4.6 Service quality ......................................................................................................................... 46
4.7 Customer value ........................................................................................................................ 47
4.8 Corporate image ....................................................................................................................... 48
4.9 Regression Analysis ................................................................................................................. 51
4.10 Test of Multicollinearity ........................................................................................................ 55
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CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS................... 56
5.1 Introduction .............................................................................................................................. 56
5.2 Summary of Findings............................................................................................................... 56
5.3 Conclusions .............................................................................................................................. 59
5.4 Recommendations .................................................................................................................... 61
5.5 Suggestions for further research .............................................................................................. 62
REFERENCES............................................................................................................................. 63
APPENDICES
Appendix I: Research Questionnaire ............................................................................................. 67
APPENDIX II: LETTER OF INTRODUCTION .......................................................................... 76
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LIST OF TABLES
Table 3.1 Distribution of the sample size ......................................................................... 32
Table 4.1 Response Rate ................................................................................................... 38
Table 4.2 Respondents’ levels of education ..................................................................... 39
Table 4.3 Business trust influence on customer loyalty ................................................... 44
Table 4.4 Customer satisfaction influence on customer loyalty ....................................... 45
Table 4.5 Service quality influence on customer loyalty .................................................. 46
Table 4.6 Customer value influence on customer loyalty................................................. 47
Table 4.7 Corporate image influence on customer loyalty ............................................... 49
Table 4.8 Correlation Analysis ......................................................................................... 50
Table 4.9 Model Goodness of Fit ..................................................................................... 51
Table 4.10 Analysis of Variance ....................................................................................... 52
Table 4.11 Regression Coefficient Results ....................................................................... 53
Table 4.12 Attributable factors Vs Customer loyalty ....................................................... 54
Table 4.13 Test of Multicollinearity ................................................................................. 55
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LIST OF FIGURES
Figure 2.1 Conceptual Framework ................................................................................... 26
Figure 4.1 Respondents’ gender ....................................................................................... 39
Figure 4.2 Nature of occupation ....................................................................................... 40
Figure 4.3 Work experience .............................................................................................. 41
Figure 4.4 Category of Forex services provider mostly frequented ................................. 42
Figure 4.5 Years of trade .................................................................................................. 42
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LIST OF ABBREVIATIONS
SMEs:
Small and Meduim sized Enterprises
ACSI:
American Customer Satisfaction Index
ECSI:
European Customer Satisfaction Index
FOREX:
Foreign Exchange
SPSS:
Statistical Package for Social Sciences
EMBA:
Executive Masters in Business Administration
FX Accounts: Foreign Currency Accounts
TT services:
Telegraphic Transfer services
JPY:
Japanese Yen
CHF:
Swiss Franc
CAD:
Canadian Dollar
AUD:
Australian Dollar
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OPERATIONAL DEFINITION OF TERMS
Customer Loyalty
Customer loyalty is both an attitudinal and behavioral
tendency to favor one brand over all others, whether due to
satisfaction with the product or service, its convenience or
performance, or simply familiarity and comfort with the
brand.
Customer Satisfaction
Customer satisfaction is a term used in marketing to
measure how products and services supplied by a company
meet customer expectation.
Foreign Exchange
This refers to the purchase / sale of the currency of one
country using the currency of another country,
Foreign Drafts
These are banker’s cheques denominated in foreign
currency and are useful for settling obligations abroad such
as college fees. These are available in all major currencies
at any of our branches countrywide
Spot Transactions
These are transactions done on one day and settlement is
done after two working days e.g. the inter-bank
transactions, it is normally extended to clients doing large
transactions subject to prior arrangements and approval.
Foreign Exchange Forwards These are arrangements with the Forex service provider for
the sale or purchase of a specific amount of foreign
currency at a specified exchange rate for settlement on a
particular date up to 180 days (6 months) in the future.
This enables the customer to eliminate any risk of exchange
rates moving between the time that commitment is first
xii
established (deal date) and the date of actual delivery of
funds (value date) at no additional cost.
Forward Transactions
which are transactions done on one day and settlement
done after more than two working days with clients who
either receive or remit determinable amount of foreign
exchange on a definite future date. A 10 % cash collateral
is usually required and forward is a binding contract in
which the amounts involved, the rate and the settlement
date are specified.
Telegraphic Transfer (TT)
This is a funds transfer service where the bank remits
money on behalf of its clients to foreign countries, in
foreign currencies
Foreign Currency (FX) Accounts: These are savings and current accounts that are
denominated in foreign currencies.
Foreign Currency Fixed Deposits: These are accounts into which clients deposit
specified funds for a fixed period of time and in turn
receive preferential rates.
Foreign Currency Denominated Loans: This refers to loans to clients advanced in foreign
currency. The loans are subject to credit appraisal and
pricing is benchmarked on LIBOR or other international
benchmarks.
Foreign Exchange Swaps
This is an arrangement that allows clients to manage the
exchange and interest rate risks associated with financing
and investing in currencies other than the domestic one
xiii
ACKNOWLEDGEMENT
I would like to thank the Almighty God for giving me the will and strength to accomplish
this task. I also owe my gratitude to my supervisors, Dr. Loice Maru and Mr. Robert
Odunga for their patience and continued guidance throughout my studies. Finally, I am
grateful to Moi University for having given me the opportunity to further my studies in
the specialty of Business Administration. Finally, I say thank you to each and every
individual who assisted me in one way or another bring my studies to a successful
completion.
1
CHAPTER ONE
INTRODUCTION
1.0 Overview
The aim of this section was to identify the research topic and to formulate research
objectives. Thus the chapter begins with an introductory background which includes the
importance of customer loyalty in business generally and particularly for Forex services
providers, the problem statement and the reasons for researching in this area, the research
hypothesis, scope and significance of the study are also covered in this chapter.
1.1 Background to the Study
The Forex services sector in Kenya has experienced a significant boom in the last decade.
With the country economic position characterized by increasing economic development,
improved infrastructure, improved tourism and multilateral trade in the international
market, Forex trading in Kenya has been one of the key ways of facilitating the supply of
international currency that has been key in the facilitation of the above and the balance of
payments. The most interesting thing is that, almost 85% of all currency transactions
involve the 7 major currency pairs of USD, GBP, JPY, EUR, CHF, CAD, AUD.
Most Forex service providers offer an array of services including foreign exchange,
foreign drafts, spot transactions, foreign exchange forwards, forward transactions, TT
services, FX accounts, foreign currency fixed deposits, foreign currency denominated
loans and foreign exchange swaps among others. All these transactions have an element
of financial risk associated with foreign exchange losses. Every businessman is always
interested in getting the best Forex services to hedge or mitigate any financial risk
exposures on account of foreign currency transactions. Service providers who excel in
this providing the best customer experience always attracts customer trust and hence
customer loyalty finally getting an edge over the competitors.
2
Recent years have shown a growing interest in customer awareness. The globalization of
competition, saturation of markets, and development of information technology have
enhanced customer awareness and created a situation where long-term success is no
longer achieved through optimized product price and qualities. Instead, companies build
their success on a long-term customer relationship. On this same account, entities that
deal with in large volumes of import export find it inevitable to seek the most suitable
services the market can offer. Customer loyalty is a very critical ingredient of business in
the services sector where service delivery is characterized by intangibility. Loyalty brings
repeat business and hence high profitability, furthermore, the cost of repeat business is
not as high as that of a new business. According to previous studies, it can cost as much
as six times more to win a new customer than it does to keep an existing one. (Rosenberg
et al., 1984) Depending on the particular industry, it is possible to increase profit by up to
60% after reducing potential migration by 5%. (Reichheld, 1993: 65). Hence it can be
seen that the increase and retention of loyal customers has become a key factor for longterm success of companies.
Business trust of the business partner is a factor that has certain impact on the
establishment of loyalty. Nobody expects a long-term relation with a business partner that
cannot be business trusted. Business trust is one criterion for measuring the value of the
business partner. (Doney, et al., 1997) referred to business trust as a cornerstone of the
strategic partnership.
Morgan and Hunt (1994) posit that business trust is a major determinant of relationship
commitment: brand business trust leads to brand loyalty because business trust creates
exchange relationships that are highly valued. Chauduri and Holbrook (2001: 91) have
shown that brand business trust is directly related to both purchase and attitudinal loyalty.
Many authors have accented that business trust is important in conditions of uncertainty
(Moorman, et al., 1992: 315; Doney, et al., 1997; Dwyer, et al., 1987; Morgan, et al.,
1994). Uncertainty may be caused by dependence or large choice: people tend then to
prefer popular or familiar brands or business partners. The main emphasis in marketing
has shifted from winning new customers to the retention of existing ones. Traditionally
3
there are two approaches to treat customer loyalty. Some researchers like MC Doldan
(1996) have investigated the nature of different levels of loyalty; others have explored the
influence of individual factors on loyalty. In this article both treatments are combined.
The starting point of the paper is to test whether the list of most important factors
affecting customer loyalty is dependent on the levels of loyalty of costumers. More
specifically the current paper is going to estimate which specific factors in the Forex
services providers influence the loyalty rate of the various customers segmented by
loyalty. The potential for establishing loyalty depends on the object (product or vendor),
on the subject (customer) or on the environment (market, other suppliers).
It is known that long-term customers are more likely to expand their relationship within
the product range and so the rewards from this group are long term and cumulative
(Grayson & Ambler, 1999). Another widely perceived benefit is that repeat or
behaviorally loyal customers are also thought to act as information channels, informally
linking networks of friends, relatives and other potential customers to the organization
(Shoemaker & Lewis, 1999). Much academic literature has sought to define customer
loyalty, however, consensus points to customer loyalty being characterized by the
customer's preference to purchase a product or service from an organization consistently
when the need arises to purchase. The key issues of this characterization are preference
and consistency. Loyalty takes the following dimensions: repeat purchase (Ehrenberg,
1988), preference (Guest, 1944), commitment (Hawkes, 1994), retention and allegiance.
Loyalty can be classified: Behavioral loyalty which measures brand loyalty in terms of
the actual purchases observed over a time period (Mellens, et al., 1996) and attitudinal
loyalty measures are based on stated preferences, commitment or purchase intentions
(Mellens, et al., 1996). Attitudinal measures are usually based on surveys.
Hofmeyr and Rice 2000 point out that the more important the relationship is to a person,
the more willing that person is to tolerate dissatisfaction in favour of trying to fix it. By
contrast, when a relationship doesn’t matter, then even the perfectly satisfied consumer
can switch on a whim (Hofmeyr, et al., 2000). A relationship can also be made important
by personal approach. Various authors have compared loyalty with marriage (Levitt,
4
1983; Dwyer, et al., 1987; Gummeson, 1998; Hofmeyr, et al., 2000). Marriage is one of
the most personal and important relationships. That means that intimacy is one
determinant for importance of the relationship. Levitt (1983: 89) considers the role of a
salesman in making relationship more personal. The more intimate the relationship
between the company salesmen and that of its customers the better the chances of
customer loyalty.
1.2 Statement of the Problem
As markets become more competitive, many companies recognize the importance of
retaining current customers and some have initiated a variety of activities to improve
customer loyalty. Indeed, most companies recognize the problem that comes with the loss
of already acquired customers in terms of actual loss of revenues, bad publicity to the
public and an indented corporate image. Indeed, the benefits associated with customer
loyalty are widely recognized within business, these include lower costs associated with
retaining existing customers, rather than constantly recruiting new ones especially within
mature, competitive markets (Ehrenberg & Goodhardt, 2000).
The Forex services providers sector has seen tremendous growth in the last few years
with the number of Forex bureaus growing from 48 in 1998 to around 146 in 2012. This
is in addition to the 44 banks and almost a thousand online traders that also provide the
same services. Both banks and Forex bureaus have increased the range of Forex services
providers to ensure that customers get the best services possible. With increased
economic activity in tourism, multilateral and international trade, there is an ever
increasing demand for Forex services in Kenya. The Kenyans in the diaspora have also
had a great impact in the Forex services sector by their remittances of foreign currency.
Competition in the Forex services business is becoming cut-throat by the day with
customers increasingly demanding better services more and more. But again with this
increased activity has brought problems of getting the best exchange rate for business
transactions and to hedge against Forex losses brought about by market uncertainties, risk
5
of fake currency for individual customers, risk of getting poor professional advice from
the Forex service providers occasioning losses on Forex transactions especially to
corporate customers who deal in bulk Forex transactions, the issue of developing
reputable business relationships with providers of financial services due to business
confidentiality among others. All these factors affect the business relationships and
therefore loyalty of the customers to the Forex services providers. The purpose of this
study was to determine whether and to what extent business trust, service quality,
customer satisfaction, perceived customer value and corporate governance influence
customer loyalty in Forex services providers in Kenya.
1.3 Research Objectives
1.3.1 General objective
The general objective of this study was to determine the factors affecting customer
loyalty in Forex services providers in Kenya.
1.3.2 Specific Objectives
The following were the specific objectives of the study:
i) To determine how business trust affects customer loyalty in Forex services providers in
Kenya.
ii) To establish the effect of customer satisfaction on customer loyalty in Forex services
providers in Kenya.
iii) To establish the effect of service quality on customer loyalty in Forex services
providers in Kenya.
iv) To determine the effect of perceived customer value on customer loyalty in Forex
services providers in Kenya.
v) To determine the effect of corporate image on customer loyalty in Forex services
providers in Kenya.
6
1.3.3 Research Hypotheses
H1: Business Trust does not have a positive effect on customer loyalty in Forex services
providers in Kenya.
H2: Service quality does not have a positive effect on customer loyalty in Forex services
providers in Kenya.
H3: Customer satisfaction does not have a positive effect on customer loyalty in Forex
services providers in Kenya.
H4: Perceived customer value does not have a positive effect on customer loyalty in
Forex services providers in Kenya.
H5: Corporate image does not have a positive effect on customer loyalty in Forex
services providers in Kenya.
1.4 Significance of the Study
This study was very significant because it attempted to address the pertinent question of
the determinants to customer loyalty in the Forex services sector in Kenya. Especially,
why some Forex services providers in Kenya had better business relationships and
increasing numbers of customers than others, yet they offered more or less the same
services. The management of Forex services providers in Kenya will benefit from this
research since they will now understand the major determinants that influence customer
loyalty and therefore develop appropriate strategies to improve service delivery and meet
their customers’ expectations.
The results of the study will provide the managers of Forex services providers in Kenya
additional insights in regard to the key issues that need to be addressed to retain
customers and realize customer loyalty in the Forex services business. This will enable
them obtain a strategic competitive edge over other competitors. This research will also
7
provide an invaluable opportunity for customers to air their views on the issues that in
their opinion need to be addressed to ensure Forex service providers offer quality
customers services that are then capable of attracting their loyalty. The study focused on
the factors affecting customer loyalty and this is an area that scholars might find useful
for reference and research purposes in the future.
1.5 Scope of the Study
The study was focused on the Forex services sector in Kenya. A convenient sample was
selected from the target population of customers of Forex services providers. A suitable
questionnaire was administered to the different customers and collected for analysis on
whether business trust, customer satisfaction, service quality, perceived customer value
and corporate image affected customer loyalty in the Forex services sector in Kenya. The
results on the same have been analyzed and interpreted accordingly. The study was
carried out in Forex services providers in the cities of Nairobi, Mombasa, Kisumu and
Nakuru for a period of one week. Not all respondents in the target population responded.
A 71.1% response rate was attained, with 273 respondents managing to respond out of a
total of 384 targeted.
8
CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
This chapter presents the literature review, specifically the literature review focuses on
the variables of the study, and the discussion includes customer value, customer
satisfaction, service quality, perceived customer value and corporate image. The review
of literature focuses on the effect of the above variables on customer loyalty.
2.1 Customer Loyalty
Many definitions describe loyalty as a desire to retain a valuable or important
relationship. (Morgan, et al., 1994: 22; Moorman, et al., 1992: 316) That way the
establishment of loyalty is predetermined by the importance of relevant relationship or
selection. Weiss (2001) points out three aspects that may increase the importance of the
relationship: Strategic importance of a product, High risks involved in the transaction or
costs incurred by cancellation of contracts.
The concept of customer loyalty often used in the literature incorporates behavioral and
attitudinal measures (Otim & Grover, 2006). In this chapter, loyalty was defined as
building and sustaining a trusted business relationship with customers that leads to the
customers’ repeated purchases of products or services over a given period of time (Lam,
Shankar, Erramilli, & Murthy, 2004). Customer loyalty, in general, increases profit and
growth to the extent that increasing the percentage of loyal customers by as little as 5%
can increase profitability by as much as 30% to 85%, depending upon the industry
involved (Gefen, 2002). Loyal customers are typically willing to pay a higher price and
more understand when something goes wrong.
Singh and Sirdeshmukh (2000) suggested that customer loyalty is “the market place
currency of the twenty-first century”. Ndubisi and Pfeifer (2005) pointed out that the cost
of serving a loyal customer is five or six times less than a new customer. This statement
shows the importance of customer loyalty. Walsh, et al., (2005) mentioned that it is better
9
to look after the existing customer before acquiring new customers. Gee, et al., (2008)
stated the advantages of customer loyalty are as: The service cost of a loyal customer is
less than new customers, they will pay higher costs for a set of products; and for a
company a loyal customer will act as a word-of-mouth marketing agent. Levesque and
McDougall (1996) pointed out that by increasing loyalty, a retail bank decreases its
servicing cost (that is, customers do not open or close their accounts).
At a very general level, loyalty is something that consumers may exhibit to brands,
services, stores, product categories (such cigarettes), and activities (such swimming).
Here, we use the term customer loyalty as opposed to brand loyalty; this is to emphasize
that loyalty is a feature of people, rather than something inherent in brands. A person's
attitude towards a specific subject will affect his or her intention to execute various
actions with regards to this subject (Fishbein & Ajzen, 1975). Customer loyalty, which
may be called the continuously positive purchasing behavior of a customer towards a
certain company or brand, will, clearly, be affected by customer satisfaction. This
conclusion has many times been supported by empirical research (Chiou, Droge, &
Hanvanich 2002; Cronin, Brady, & Hult, 2000; Cronin & Taylor, 1992; McDougall &
Levesque, 2000).
Prus and Randall (2001) have also described customer loyalty as follows: "Customer
loyalty is a composite of a number of qualities. It is driven by customer satisfaction, yet it
also involves a commitment on the part of the customer to make a sustained investment
in an ongoing relationship with a brand or company. Finally, customer loyalty is reflected
by a combination of attitudes (intention to buy again and /or buy additional products or
services from the same company, willingness to recommend the company to others,
commitment to the company demonstrated by a resistance to switching to a competitor)
and behaviors (repeat purchasing, purchasing more and different products or services
from the same company, recommending the company to others)".
Unfortunately, there is no universally agreed definition (Jacoby & Chestnut, 1978; Dick
& Basu, 1994; Oliver, 1999). Instead, there are three popular conceptualizations: Loyalty
10
as primarily an attitude that sometimes leads to a relationship with the brand (Model 1);
Loyalty mainly expressed in terms of revealed behavior (that is, the pattern of past
purchases) (Model 2); and Buying moderated by the individuals characteristics,
circumstances, and/or the purchase situation (Model 3).
Many researchers and consultants argue that there must be strong attitudinal commitment
to a brand for true loyalty to exist (Day, 1969; Jacoby & Chestnut1978; Foxall &
Goldsmith, 1994; Mellens, et al., 1996; Reichheld, 1996). Where brand loyalty increases
revenue streams become more predictable. A deeply held commitment to rebuy or
repatronize a preferred product/service consistently in the future, thereby causing
repetitive same-brand or same brand-set purchasing despite situational influences and
marketing efforts having the potential to cause switching behavior. An extension of the
attitudes define loyalty perspective is to suggest that consumers form relationships with
some of their brands. A good example of this perspective is provided by Fournier, (1998),
who sees loyalty as a committed and affect-laden partnership between consumers and
brands.
2.1.1 Loyalty as primary an attitude that sometimes leads to a relationship with
brand (Model 1)
Hammond, et al., (2003) discusses many researchers and consultants who talk about
“attitudinal commitment” just for a brand in order to highlight the idea of true loyalty to
exist (Jacoby & Chestnut, 1978; Foxall & Goldsmith, 1994; Reichheld, 1996). It is
usually observed that consistent support with set of stated beliefs lead towards the notion
of brand purchased. Companies can be asked and judged through these attitudes that how
much people are interested in such brand, they display their full steadfastness and in this
way they would give their recommend to others without any hesitation. This thing gives
the picture of their positive frame of mind with healthy beliefs and feelings, relative to
competing brands (Dick & Basu, 1994). Oliver, (1997) has given the same view about
customer loyalty as: “A deeply held commitment to rebuy or re-patronize a preferred
product/service consistently in the future, thereby causing repetitive same-brand or same
brand-set purchasing despite situational influences and marketing efforts having the
potential to cause switching behaviour”(Hammond, et al.,2003).
11
2.1.2 Loyalty mainly expressed in terms of revealed behavior (Model 2)
Paradoxically, Model 2 is arguably the most controversial but the best supported by data.
The controversy comes about because loyalty in this model is defined mainly with
reference to the pattern of past purchases with only secondary regard to underlying
consumer motivations or commitment to the brand (Ehrenberg, 1988; Fader & Hardie,
1996; Kahn, et al., 1988; Massy, et al., 1970). Researchers have gathered impressive
amounts of data about these purchase patterns over many years -across dozens of product
categories and for many diverse countries (Uncles, et al., 1994). They have found that
few consumers are monogamous (100 percent loyal) or promiscuous (no loyalty to any
brand). Rather, most people are polygamous (that is, loyal to a portfolio of brands in a
product category). From this perspective, loyalty is defined as an ongoing propensity to
buy the brand, usually as one of several (Ehrenberg & Scriven, 1999).
These researchers tend to adopt a market focus as opposed to an individual focus (such as
key performance measures are brand shares, penetration, average purchase frequencies,
repeat-buying for a defined period). Given these descriptions, loyalty is inferred to
operate in the following manner. Through trial and error, a brand that provides a
satisfactory experience is chosen. Loyalty to the brand (measured by repeat purchase) is
the result of repeated satisfaction that in turn leads to weak commitment. The consumer
buys the same brand again, not because of any strongly-held prior attitude or deeply-held
commitment, but because it is not worth the time and trouble to search for an alternative.
If the usual brand is out of stock or unavailable for some reason, then another
functionally similar (or substitutable) brand (from the portfolio) was purchased (for
instance East, 1997; Ehrenberg, et al., 1997; Ehrenberg, et al., 2003). There is little
reason to spend much effort weighing up the alternatives when all are likely to be
satisfactory. However, over repeated purchases a weak commitment to the (limited)
number of brands bought in a product category can form.
12
2.1.3 Buying moderated by the individual's characteristics, circumstances, and/or
the purchase situation (Model 3)
Proponents of Model 3, the contingency approach, argue that the best conceptualization
of loyalty is to allow the relationship between attitude and behavior to be moderated by
contingency variables such as the individual s current circumstances, their characteristics,
and/or the purchase situation faced. That is, a strong attitude towards a brand may
provide only a weak prediction of whether or not the brand was bought on the next
purchase occasion because any number of factors may co-determine which brand(s) are
deemed to be desirable (Belk, 1974, 1975; Blackwell, et al., 1999; Fazio & Zanna 1981).
Individual circumstances include budget effects (for instance the desired brand is too
expensive), and time pressure (for instance the need to buy any brand in the category at
the next available opportunity). Individual characteristics are reflected in the desire for
variety, habit, the need to conform, the tolerance for risk, etc. Purchase situation effects
include product availability, promotions/deals, the particular use occasion (for instance,
gift, personal use, family use). A three-factor model emerges, based on antecedents
(including weak prior attitudes and characteristics of the consumer), contingency factors
(including type of use occasion and the purchase situation), and consequences (up-dated
attitudes, intentions and the actual purchase behavior).
The other theory that has been applied to reconceptualize brand loyalty is the theory of
reasoned action. According to this theory, the antecedents of purchase behaviour are
attitudes towards the purchase and subjective norm. If the antecedents of purchase
behaviour are integrated to predict and measure brand loyalty, the prediction and
measurement of brand loyalty will be more stable over time and accurate. When attitude,
subjective norm and purchase behaviour are all consistent and favourable, the maximum
level of unit brand loyalty will be realized.
2.1.4 Theory of Multidimensional Brand Loyalty
Sheth and Park, (2001) of University of Illinois have also developed a multidimensional
theory to brand loyalty.
13
They define brand loyalty as a positively biased emotive, evaluative and / or behavioral
response tendency toward a branded, labeled or graded alternative or choice by an
individual in his capacity as the user, the choice maker, and /or the Purchasing agent.
They theorize that not all the three dimensions are present in every situation where brand
loyalty prevails. Depending upon the product class and upon the consumer, the
dimensionality of brand loyalty may be as simple as any one of the above three
dimensions or as complex as all the three dimensions. Logically, they hypothesize a total
of seven different types of brand loyalty based upon the combinations. Each type of
brand loyalty is briefly described below:
1. Behavioral brand loyalty- This type of brand loyalty has only the behavioral tendency
dimension. It is analogous to what Day, (1969) has defined as "spurious" brand loyalty
although they do not fully agree with his adjective. The behavioral brand loyalty has no
evaluative or emotive components and it represents the simple R-R relationship presumed
in the contiguity conditioning. In terms of Osgood's analysis of the learning theory
(1956), it represents the evocative or the predictive integration (Howard & Sheth, 1969).
The strength of behavioral brand loyalty is, therefore, directly a function of the repetitive
occurrence of purchase or consumption behavior. The consumer establishes a systematic
biased response or habit simply due to frequency of encounters. It is, therefore, analogous
to what Krugman, (1965) has called learning without involvement. Finally, most of the
stochastic learning models (Bush & Mosteller 1955) are operational measures of
behavioral brand loyalty.
From the marketing viewpoint, it is relatively easy to generate behavioral brand loyalty
by primarily ensuring that the time and place stimuli are made conducive to repetitive
occurrence of purchase behavior, for example, making sure that the brand is available at
all times, is easy to reach on the shelf, or that the display is strategically placed. In this
respect, behavioral brand loyalty is analogous to the "interia" or "marketer's strategies"
classifications suggested by Engel, Blackwell and Kollat, (1973). However, they also
believe that once the behavioral brand loyalty is strongly manifested by the consumer, it
is very difficult to change the systematic bias away from the brand.
14
2. Behavioral-evaluative brand loyalty- This type of brand loyalty is two dimensional. It
represents not only a systematic biased response toward a brand but concomitantly the
consumer also has a consistent cognitive structure underlying his biased behavior. This
represents the classical manifestation of attitude-behavior theories in social psychology in
which attitudes are determined by the instrumental or utilitarian evaluation of the brand
(Katz, 1960; McGuire, 1969). It is also best represented by the representational mediation
model which Osgood, (1956) has theorized based on instrumental learning. Due to the
cognitive consistency tendencies (dissonance, incongruity, balance, and consistency), it is
presumed that there is a congruent relationship between the consumer's evaluative
dimension and his behavioral dimension so that it should be possible to predict one from
the knowledge of the other.
The behavioral-evaluative brand loyalty is probably closest to the economist's dream of
the "rational" consumer. It is also the presumed world of the consumer for those mass
communication practitioners and researchers who believe in the persuasion strategy of
advertising (Sheth, 1974). They believe that the behavioral-evaluative brand loyalty is
developed by the reinforcement (instrumental) conditioning process in which the
consequences following a purchase of the brand strengthen or weaken future behavioral
tendencies and evaluations. In addition, the informational sources such as the
commercial, social, or the neutral sources (Howard & Sheth 1969) also strengthen or
weaken the behavioral-evaluative brand loyalty.
3. Behavioral-emotive brand loyalty- This type of brand loyalty is also two dimensional.
It represents the systematic and biased response tendencies toward the brand and
concomitantly the consumer has emotive tendencies toward the brand. It is probably most
common among children who are primarily the consumers of the brand and manifest
affective, compliance or fear responses. However, they believe that it is not inconceivable
to find behavioral-emotive brand loyalty even among adults, especially when they are not
the buyers of the brand. In general, we should expect the manifestation of the behavioralemotive brand loyalty in situations where the consumer and the buyer are distinct
individuals.
15
They theorize that the behavioral-emotive brand loyalty arises from the contiguous
conditioning and possibly also from the informational sources which communicate to the
consumer directly. As contiguous learning, it is representative of the evocative and
predictive integrations suggested by Osgood, (1956).
4. Behavioral-evaluative-emotive brand loyalty- This is the most complex type of brand
loyalty consisting of all the three dimensions. It is analogous to what Day, (1969) calls
"intentional" brand loyalty. Also, it meets all the six necessary and collectively sufficient
conditions which Jacoby, (1971) has specified as part of his definition of brand loyalty.
The behavioral-evaluative-emotive brand loyalty is perhaps the most common type of
brand loyalty which has been often suggested in consumer psychology and marketing by
the proponents of the hierarchy-of-effects models (Howard & Sheth 1969, Lavidge &
Steiner 1962, Sheth 1970, Colley 1961). It probably also represents closest to the
Rosenberg (1956) and Fishbein (1967) theories of attitude-behavior relationship. Finally,
it is this type of brand loyalty which can represent all the four functional aspects of
attitude (utilitarian, knowledge, ego-defensive and value-expressive) suggested by Katz,
(1960). It is presumed that a strong consistency relationship exists among the three
dimensions so that it is possible to predict one from the knowledge of the other two
dimensions. While there have been several proponents of this type of brand loyalty, the
empirical evidence is as yet not conclusive. Especially, there seems to be a relatively
small correlation between the behavioral and the non behavioral components.
The behavioral-evaluative-emotive brand loyalty largely arises from the reinforcement
learning of repetitive buying or consuming experiences. It is also likely to arise from the
informational sources.
5. Evaluative brand loyalty- This type of brand loyalty is based on one dimension only. It
is lacking in both the emotive and the behavioral tendencies. It refers to the individual's
positively biased evaluation of a brand strictly based on the perceived utility function of
that brand. There are a number of situations in which this type of brand loyalty exists.
First, it is appropriate in all situations where the consumer is neither the buyer nor the
16
user of the product but at the same time possesses the cognitive evaluative knowledge
about the brand. For example, the husband has positive evaluative bias toward a brand
which his wife is both the buyer and the consumer such as lipstick or pantyhose. Second,
there are several situations in the broader context of consumer behavior in which the
consumer is expected to have evaluative biases for or against choice alternatives but is
never likely to manifest choice behavior. For example, evaluative tendencies toward
religions, subcultures, political parties, and the likes.
Since there is no behavioral tendency in this type of brand loyalty, experience is not the
relevant source of learning. It is, therefore, likely to be either generalization or
informational.
6. Evaluative-emotive brand loyalty- This type of loyalty is probably more common than
either simply the evaluative or the emotive brand loyalty. If consistency theories are of
any usefulness, they have proposed a strong relationship between the evaluative and the
emotive tendencies (Rosenberg 1956, Fishbein 1967, Sheth 1970).
The evaluative-emotive brand loyalty is often prevalent in consumer behavior for those
products and services which are typically beyond the reach of the consumer, although he
may strongly aspire for them. For example, Rolls Royce automobile is likely to have
evaluative-emotive brand loyalty in the minds of most of us even though we may have
never experienced the automobile either as consumers or buyers. Of course, this type of
brand loyalty can only arise from informational sources or from generalizations.
7. Emotive brand loyalty- This type of brand loyalty consists of the emotive dimensions
only. There seems to be a number of areas of consumer behavior in which the individual
has strong emotive tendencies toward a brand without any experience or evaluation. They
believe that most of the stereotypes among nonusers of a product or service fall into this
category. For example, a strong emotive brand loyalty towards a brand of beer on the part
of a nondrinker or toward a brand of cigarette on the part of a nonsmoker is probably
based on the stereotype or imagery of the brand. Similarly, one member of the family
may like a brand without any cognitive evaluation or experience simply because some
17
other member in the family likes it. The only sources of learning for this type of brand
loyalty are information or generalization.
In summary, they proposed a vector of seven different types of brand loyalty in consumer
psychology based on combinations of three dimensions of emotive, evaluative and
behavioral tendencies toward a brand. They hypothesized that the distribution of products
and consumers with respect to this vector of seven types of brand loyalty is neither
random nor equal, but skewed toward some elements more than toward others.
2.2 Business Trust
Business trustworthiness of the partner is a factor that has certain impact on the
establishment of loyalty – nobody expects a long-term relation with a partner that cannot
be business trusted. Business trust is one criterion for measuring the value of the partner.
(Doney, et al. 1997) Spekman (1988) calls business trust a cornerstone of the strategic
partnership. Morgan and Hunt (1994: 22) posit that business trust is a major determinant
of relationship commitment: brand business trust leads to brand loyalty because business
trust creates exchange relationships that are highly valued. Chauduri and Holbrook (2001:
91) have showed that brand business trust is directly related to both purchase and
attitudinal loyalty. Many authors have accented that business trust is important in
conditions of uncertainty (Moorman et al. 1992; Doney, et al. 1997; Dwyer, et al. 1987;
Morgan, et al. 1994). Uncertainty may be caused by dependence or large choice: people
tend then to prefer popular or familiar brands or partners.
Reichheld and Schefter (2000) stressed that customer loyalty is built through relationship
development. Another determinant of customer loyalty is the degree of business trust that
customers have in the vendor (Reichheld & Schefter, 2000) business trust is important in
managing relationship (Komiak, Wang, & Benbasat, 2005). The use of Web tools may
have an effect on the relationship between business trust and customer loyalty because
business trust is a precursor to customer loyalty. Business trust is a willingness to rely on
an exchange partner in whom one has confidence (Berry, 1995). Becoming a business
trusted partner is very important to maintaining relationships.
18
Business trust can be achieved by providing the customer with valuable information
using a high quality Web site. Anecdotal evidence shows that the Internet can enable an
SME that is involved in an internal organizational relationship with a customer to
globalize and to achieve a multimillion dollar turnover in a couple of years (Poon, 2000).
However, such success stories are not widespread. Many SMEs have difficulty achieving
the benefits suggested by media and early research (Poon, 2000). In fact, many SMEs
have failed to follow the robust technical standards needed to make relationships practice
economical (Dai & Kauffman, 2001; Daniel & Mc Inerney, 2005).
Self-service is an important concept to be applied to business-to-consumer e-commerce.
Online shoppers look for items they want to purchase on the Internet, add items into an
online basket, and click the submit button to send an order to online stores. The growing
level of online sales every year is the evidence that consumers increasingly prefer to
"help themselves" and demand to obtain instant information (Bonde & Cahill, 2005).
Time saving is the biggest advantage of self-service according to 50% of 1,008 survey
respondents, whereas lack of human contact is the biggest disadvantage of self-service by
43% of respondents (Howard & Worboys, 2003). Like a shop window for a physical
retail store, a Web page is an essential element for a virtual store. However, an online
store not only needs a fancy, informative Web page, but also requires a reliable system to
support the operation. A study conducted by the Boston Consulting Group indicates that
48% of respondents cite slow response time as the main reason for abandoned online
transactions (as cited in Teeter & Schointuch, 2000). Zeithaml, Parasuraman, and
Malhotra (2000) developed 11 e-SQ dimensions for measuring perceived e-good service
quality through a three-stage process using exploratory focus groups and two phases of
empirical data collection and analysis.
19
2.3 Customer Satisfaction
Customer satisfaction is one of the key factors in modern marketing and customers’
behavior analysis. Generally speaking, if the customers are satisfied with the provided
goods or services, the probability that they use the services again increases (East, 1997).
Also, satisfied customers will most probably talk enthusiastically about their buying or
the use of a particular service; this will lead to positive advertising (File & Prince, 1992)
& (Richens, 1983). On the other hand, dissatisfied customers will most probably switch
to a different brand; this will lead to negative advertising. The importance of satisfying
and keeping a customer in establishing strategies for a market and customer oriented
organization cannot be neglected (Kohli & Jaworski, 1990). Customer satisfaction is
often considered the most important factor to thriving in today’s highly competitive
business world.
Services have unique characteristics that distinguish them from the physical goods
(Zeithaml & Bitner, 1996). Services are often characterized by intangibility,
inseparability, heterogeneity, and perishability (Lovelock, 1996). The importance of the
above characterizations is that using them for evaluation before, while, and after using a
particular service by the customers is often very hard (Legg & Baker, 1996). Because of
the quality of being intangible, understanding how the customers would evaluate the
quality of the organization’s services is often very hard (Zeithaml & Bitner, 1996). In
addition, the services are real time, i.e. they are used or consumed by the customers as
soon as offered. They cannot be stored and quality passed like physical goods. Therefore
any bad service will most probably be experienced by a customer, which results in
customer’s dissatisfaction while using the service (East, 1997).
Researchers have studied customer satisfaction in different contexts, such as Chen and
Ko (2007) proposed fuzzy linear programming models to determine the fulfillment levels
of parts characteristics under the requirement to achieve the determined contribution
levels of design requirements for customer satisfaction. Grigoroudis et al., (2008),
considered the problem of measuring user satisfaction in order to analyze user
perceptions and preferences to assess website quality. Hsu, (2008) proposed an index for
20
online customer satisfaction, which is adapted from an American Customer Satisfaction
Index (ACSI). Bodet, (2008) explored the satisfaction–loyalty relationships according to
an empirical analysis in a sports-service context (Yang & Peng, 2008).
The impact of satisfaction on loyalty has been one of the most popular subjects of studies.
Several studies have revealed that there exists a direct connection between satisfaction
and loyalty: satisfied customers become loyal and dissatisfied customers move to another
vendor. (Heskett, et al., 1993) The primary objective of creating ACSI (American
Customer Satisfaction Index) in 1984 was to explain the development of customer
loyalty. In ACSI model customer satisfaction has three antecedents: perceived quality,
perceived value and customer expectations (Anderson, et al., 2000), in the ECSI
(European Customer Satisfaction Index) model perceived quality is divided into two
elements: “hard ware”, which consists of the quality of the product or service attributes,
and “human ware”, which represents the associated customer interactive elements in
service, the personal behaviour and atmosphere of the service environment (Gronholdt, et
al., 2000)
In both models, increased satisfaction should increase customer loyalty. When the
satisfaction is low customers have the option to exit to a competitor or express their
complaints. Researches have shown that 60–80% of customers who defect to a
competitor said they were satisfied or very satisfied on the survey just prior to their
defection. (Reichheld, et al., 2000) So it’s clear that there must be also other factors
beside satisfaction that have a certain impact on customer loyalty. An early pioneer in the
study of equity, George Homans stated that the essence of equity was contained in a "rule
of justice" (as cited in Oliver, 1997). In fundamental terms, equity is an evaluation of
fairness, rightness, or deservingness that customers make in reference to what others
receive (Oliver, 1997). In the satisfaction literature, equity theory considers the ratio of
the customer's perceived outcome/input to that of the service provider's outcome/input
(Oliver & DeSarbo, 1988). Bolton and Lemon (1999) extended this concept of
outcome/input to the perspective of perceived value. They declared that equity referred to
customers' evaluation of the perceived sacrifice (input) of the offering (outcome).
21
Perceived sacrifices include purchase price and other possible costs such as time
consumption (Yang, 2001).
A positive perception of value may bring customers back to make another transaction
(Minocha, Dawson, Blandford, & Millard, 2005). When customers believe they are being
treated fairly in an exchange, they were satisfied with the transaction if their outcome-toinput ratio is in some sense adequate (Oliver & DeSarbo, 1988). Fredericks and Salter
(1998) pointed out that quality, price, and company or brand image were three factors
that comprise the customer value package. In other words, customers will make an
explicit comparison between what they give and what they get. The positive relationship
between equity and satisfaction was supported in the literature (Oliver, 1993; Oliver &
Swan, 1989). However, customers expect prices to be lower in an online store than in a
traditional sales channel (Karlsson, Kuttainen, Pitt, & Spyropoulou, 2005). They may
expect to get more value from an online store than from a physical store.
2.4 Service Quality
Bloemer and Ruyter (1998) suggested that store loyalty resulted from a consumer
committed to the store through an explicit and extensive decision-making process.
Customer loyalty is frequently operated as a conscious evaluation of the price/quality
ratio or the willingness to pay a premium price, or alternatively price indifference (Raju,
Srinivasan, & Lal, 1990; Zeithaml, Berry, & Parasuraman, 1996).
Parasuraman, et al., (1985) undertook a Qualitative Research to investigate the concept of
Good service quality. Parasuraman et al., (1985) identified ten key determinants of
service quality. They are: Reliability, Responsiveness, Competence, Access, Courtesy,
Communication, Credibility, Security, Understanding, Tangibles. In 1988, Parasuraman,
et al., arranged a quantitative Research. They revealed an instrument for measuring
consumers’ perception of good service quality, after that it became known as
SERVQUAL.
22
They collapsed their dimensions from ten to five. The dimensions were: Tangibles such
as physical facilities, appearance of personnel and equipment, Reliability which is the
ability
to
perform
the
promised
service
dependably
and
accurately,
Responsiveness which includes the willingness to help customers and provide prompt
service, Assurance which is a combination of items designed originally to assess
Competence, Courtesy, Credibility, and Security and details the ability of the
organization’s employees to inspire business trust and confidence in the organization
through their knowledge and courtesy and finally, Empathy which includes a
combination of items designed originally to assess Access, Communication, and
Understanding the customer and refers to the personalized attention given to customer.
Organizations can use SERVQUAL in various ways. (Parasuraman et al., 1988)
mentioned that SERVQUAL can help the Service and Retailing Organizations in
assessing the expectations of customers and Good service quality perceptions.
Cronin and Taylor (1992) examined the causal relationships among good service quality,
customer satisfaction, and purchase intention. Each variable was measured by one item.
There were 660 usable questionnaires randomly collected from customers of four types of
businesses in the southeastern United States: banking, pest control, dry cleaning, and fast
food. The results of correlation analysis have suggested that, good service quality was an
antecedent of consumer satisfaction, good service quality had less effect on purchase
intentions than did consumer satisfaction, and consumer satisfaction had a significant
effect on purchase intentions. Dabholkar, et al., (2000) also found that customer
satisfaction strongly mediated the effect of good service quality on behavioral intentions.
The data used in their study were systematically randomly collected from 397 churches.
A test of discriminant validity revealed that the construct of good service quality was
different from the construct of customer satisfaction. The result of regression analysis in
structural equations modeling supported their proposition that customer satisfaction had a
stronger effect on behavioral intentions than good service quality did (Dabholkar, et al.,
2000).
Based on empirical findings in service quality and satisfaction literature, service quality
23
is one of the antecedents of satisfaction (Anderson & Sullivan, 1993; Cronin & Taylor,
1992, 1994; Reidenbach & Sandifer-Smallwood, 1990; Spreng & Mackoy, 1996;
Woodside, Frey, & Daly, 1989), and loyalty is one of the consequences of satisfaction
(Coner & Gungor, 2002; Cronin & Taylor, 1992, 1994; Dabholkar, Shepherd, & Thorpe,
2000). Luarn and Lin (2004) tested their hypothesized customer loyalty model and found
that customer satisfaction, perceived value, and customer loyalty were different
constructs. Their findings indicated that not only customer satisfaction and perceived
value directly affected customer loyalty, but also indirectly affected customer loyalty
through commitment.
Service quality literature indicated that perceptions of high service quality and high
service satisfaction resulted in a very high level of purchase intentions (Boulding, Kalra,
Staelin, & Zeithaml, 1993). Coner and Gungor (2002) claimed that customer loyalty was
affected by product quality, good service quality, and retailer image. They also suggested
"quality [of product and service] is directly related to customer satisfaction and lead [s] to
the loyalty of the customer" (Coner & Gungor, 2002, p. 195). Customer satisfaction
literature showed that the relationship between customer satisfaction and customer
loyalty depended on the type of satisfaction. The positive impact of manifest satisfaction
on customer loyalty was stronger than that of latent satisfaction on customer loyalty
(Bloemer & Kasper, 1995; Bloemer & Ruyter, 1998).
2.5 Perceived Customer Value
Designing and delivering superior customer value is the key to successful business
strategy in the 21st century. Value reigns supreme in today’s marketplace and
marketspace; customers will not pay more than a goods or service is worth (Johnson and
Weinstein, 2004). Customers are increasingly searching for and demanding value in
products and services. Bhattacharya and Singh (2008) mentioned that managing
organization from the perspective of customer value would increase the likelihood
of success. Companies that provide superior value to their customers obtain a competitive
advantage (Raich, 2008). Cohen et al., (2007) argued that customer value is more viable
24
element than customer satisfaction because it includes not only the usual benefits that
most banks focus on but also a consideration of the price that the customer pays.
According to Day (1994), “Perceived Customer Value = Perceived benefits – Perceived
cost”. The core concept of the definition is benefits versus sacrifice. Roig et al., (2006)
pointed out that the benefits component would include the perceived quality of the
service and a series of psychological benefits. The sacrifice component, what the
customer must contribute, would be formed by the monetary and non-monetary prices,
i.e. money and other resources such as time, energy, effort etc. Value is best defined by
Zeithaml, (1988). Based on her exploratory study, she found the patterns of consumers’
responses that can be grouped into four definitions: value is low price, value is whatever I
want in a product, value is the quality I get for the price I pay, and value is what I get for
the price that I give. Zeithaml, (1988) further captures the essence of the four expressions
into a general definition: “Perceived value is the customer’s overall assessment of the
utility of a product based on perceptions of what is received and what is given”. Chu,
(2009) pointed out that customer value is an important determinant of customer loyalty.
Another key aspect of reinforcing customer value is after sales service and customer
complaints handling can be regarded as a passive strategy for the improvement of
customer satisfaction. Customer complaints handling refers to the actions taken by a firm
in response to a service failure (Zeithaml & Bitner, 2003). Service failure often occurs
when the customer's perceived good service quality falls below customer expectations.
For example, delivery and Web site design problems are two major types of service
failure in online retailing (Holloway & Beatty, 2003). Such failures may cause significant
costs to the firm, such as lost customers and negative word of mouth (Bitner, Brown, &
Meuter, 2000). Literature has addressed the importance of customer complaints handling.
According to Hart, Heskett, and Sasser (1990), firms learn from experiences of customer
complaints handling when they may not be able to prevent service failure. Berry and
Parasuraman, (1992) believed that firms should not regard service failure as a problem
but as an opportunity to create satisfied customers. Hence, recovery strategies have a
dramatic impact on a firm's revenue and profitability (Tax & Brown, 1998). Customer
complaints handling literature has shown that resolving customer problems has a strong
25
impact on customer satisfaction and loyalty (Miller, Craighead, & Karwan, 2000; Smith
& Bolton, 2002). Swanson and Kelley (2001) also found that customer behavioral
intentions are more favorable when customers believe that firms consistently implement
customer complaints handling when failures occur. Furthermore, Robbins and Miller
(2004) found out that excellent customer complaints handling affects customer loyalty
significantly.
2.6 Corporate Image
Image of a brand or a supplier is one of the most complex factors in customer loyalty. It
affects loyalty at least in two ways. Firstly, customer may use his preferences to present
his own image. That may occur both in conscious and subconscious level. According to
the Belk’s theory of extended self, people define themselves by the possessions they
have, manage or create. (Belk, 1988) Aaker has shown how consumers prefer brands with
personality traits that are congruent with the personality traits that constitute their
(malleable) self schemas (Aaker, 1999) Kim, Han and Park have researched the link
between brand personality and loyalty. They did get positive support to hypothesis that
the attractiveness of the brand personality indirectly affects brand loyalty (Kim, et al.,
2001).
Tidwell and Horgan (1993) have showed that people use products to enhance self-image.
Secondly, according to social identity theory, people tend to classify themselves into
different social categories. That leads to evaluation of objectives and values in various
groups and organisations in comparison with the customer’s own values and objectives.
They prefer partners who share similar objectives and values. (Ashforth, et al., 2001: 23)
Fournier (1998) states that consumer-brand relationships are more a matter of perceived
goal compatibility. Brands cohere into systems that consumers create not only to aid
living but also to give meanings to their lives. Oliver (1999) argues that for fully bonded
loyalty the consumable must be part of the consumer’s self-identity and his or her socialidentity.
John and Snorre (1997) stated that corporate image refers to the impressions held of an
organization by an individual or a group. In the marketing literature it normally refers to
26
the experiences, impressions, beliefs, feelings and knowledge that people have about a
company. Harwood, (2002) argued that branding, as a tool to build image, is critical in
the banking industry where all firms offer about the same kind of products. Bharadwaj et
al., (1993) mentioned that services are highly intangible and are, therefore, high in
experience and credence qualities. As a consequence, brand reputation is important as a
potential competitive advantage. According to Tariq and Moussaoui (2009), corporate
image can differentiate a corporation from its competitors. Gronroos, (1984) proposed
that image as an alternative to product differentiation.
2.7 Conceptual Framework
The conceptual framework presents the independent variables as business trust, customer
satisfaction, service quality, customer value and corporate image while the dependent
variable is customer loyalty. Business trust is a key aspect of customer loyalty because it
reinforces relationship building and mutual commitment to beneficial business; beneficial
business relationships can only be built on trust. Satisfied customers are able to provide
repeat patronage; therefore they are likely to be loyal. The ability to match the customer
expectations to the service quality aspects of Tangibles, Reliability, Responsiveness,
Assurance and Empathy is also likely to attract loyalty from customers. Customers are
likely to be more loyal if a service provider gives them value for their money and hence
feel that the perceived benefits is more than the perceived cost while a corporate image is
likely to attract many customers who want to identify with the industry’s best provider.
The conceptual framework is provided here below:
BUSINESS TRUST
CUSTOMER SATISFACTION
SERVICE QUALITY
CORPORATE IMAGE
PERCIEVED CUSTOMER
VALUE
CUSTOMER LOYALTY
27
Independent variables
Dependent Variable
Figure 2.1 Conceptual Framework
Source: Researcher (2013)
2.7.1 Conceptual Framework and Hypotheses Development
2.7.2 Business Trust – Customer Satisfaction
Morgan and Hunt (1994: 22) posit that business trust is a major determinant of
relationship commitment: business trust leads to brand loyalty because business trust
creates exchange relationships that are highly valued. Chauduri and Holbrook (2001: 91)
have showed that brand business trust is directly related to both purchase and attitudinal
loyalty. The development of hypothesis can be as follows:
H1: Business Trust has a positive effect on customer loyalty in Forex services providers
in Kenya
2.7.3 Service Quality – Customer Satisfaction
As mentioned earlier in the literature review that in marketing literature, service quality
and customer satisfaction have been conceptualized as a distinct, but closely related
constructs. There is a positive relationship between the two constructs (Suh & Pedersen,
2010; Saha & Theingi, 2009; Rod et al., 2009; Al-hawari, 2008; Hsu & Hsu, 2008;
Eakuru & Mat, 2008; Beerliet et al., 2004). The development of hypothesis can be as
follows:
H2: Service quality has a positive effect on customer loyalty in Forex services providers
in Kenya.
2.7.4 Customer Satisfaction – Customer Loyalty
There is a strong positive correlation between customer satisfaction and customer loyalty
(Donio et al., 2006; Story & Hess, 2006; Cheng et al., 2008). Most of the researchers
found that customer satisfaction is the predictor of customer loyalty (Faullant et al., 2008;
Leverin & Liljander, 2006; Terblanche, 2006). Pont and McQuilken (2005) found that
28
Customer satisfaction and customer loyalty are related to each other, furthermore, they
pointed out that satisfied customers are not always loyal customers. Al-Wugayan and
Pleshko (2010) and Pleshko (2009) pointed out that there is no relationship between
customer satisfaction and loyalty. They mention that their findings are only applicable for
banks as related to Mutual funds. Based on most of the researcher’s findings, the
development of hypothesis (Customer satisfaction – customer loyalty) can be as follows:
H3: Customer satisfaction has a positive effect on customer loyalty in Forex services
providers in Kenya
2.7.5 Perceived Customer Value – Customer Loyalty
The relationship between perceived customer value and customer loyalty has aroused
service practitioners’ interest. Marketing professionals have recognized perceived
customer value as one of the key drivers improving customer loyalty. Several researchers
have proposed that perceived value positively influences customer loyalty (Cronin et al.,
2000; Kuo et al., 2009; Lai et al., 2009; Lin & Wang, 2006; Wang et al., 2004). Cronin et
al., (2000) revealed that there is a positive relationship between perceived value and
customer loyalty. Wang et al., (2004) and Lin and Wang (2006) also pointed out that
perceived value has a positive effect on customer loyalty. Recently, Kuo et al., (2009) and
Lai et al., (2009) found that perceived value is positively related to customer loyalty.
Therefore, Hypothesis is proposed as follows:
H4: Perceived customer value has a positive effect on customer loyalty in Forex services
providers in Kenya.
2.7.6 Corporate image – Customer Loyalty
Belk 1988 has shown how consumers prefer brands with personality traits that are
congruent with the personality traits that constitute their (malleable) self schemas (Aaker
1999) Kim, Han and Park have researched the link between brand personality and
loyalty. They did get positive support to hypothesis that the attractiveness of the brand
personality indirectly affects brand loyalty (Kim et al., 2001). Tidwell and Horgan (1993)
have showed that people use products to enhance self-image. Secondly, according to
29
social identity theory, people tend to classify themselves into different social categories.
That leads to evaluation of objectives and values in various groups and organizations in
comparison with the customer’s own values and objectives. They prefer partners who
share similar objectives and values. (Ashforth et al., 2001: 23) Fournier (1998) states that
consumer-brand relationships are more a matter of perceived goal compatibility.
Hypothesis is proposed as follows:
H5: Corporate image has a positive effect on customer loyalty in Forex services providers
in Kenya.
30
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
This chapter discusses the research design, target population, sample and sampling
procedure, research instruments, piloting of the instruments, data collection, expected
outcome and data analysis procedure.
3.2 Research Design
This was an explanatory type of research which was conducted through the use of
questionnaires and random sampling in order to explain these phenomena in the market.
The term explanatory research implies that the research in question is intended to explain,
rather than simply to describe the phenomena studied (Maxwell & Mittapalli 2008).
Traditionally, the research denoted by the term explanatory research has been quantitative
in nature and has typically tested prior hypotheses by measuring relationships between
variables; the data are analyzed using statistical techniques.
Explanatory research identifies the cause and effect of a specific event or series of events.
It typically attempts to identify a type of behavior occurring in a current market
environment. In this study explanatory research was used to determine the cause and
effect (causal relationship) between the dependent and the independent variables. It was
established that business trust, service quality, customer satisfaction, perceived customer
value and corporate image had causal relationships with customer loyalty in varying
degrees.
31
3.3 Target Population
The target population for this study comprised of all customers who access Forex
services in Kenya. Currently, there are approximately 6.7 Million Kenyans who have
commercial bank accounts. Since there is a high likelihood that a majority of the banked
population could transact in Forex services from time to time, this was therefore treated
as the target population. To ensure population validity, the study ensured a wide
geographical spread to access the population and therefore targeted Blueseas Forex
bureau and National Bank of Kenya in Mombasa, Rift Valley Forex Bureau and NIC
Bank in Nakuru, Victoria Forex Bureau and Kenya Commercial Bank in Kisumu and
finally Sky Forex Limited and Equity Bank in Nairobi.
3.4 Sampling Frame
The sampling frame was drawn from the banked population in Kenya. A convenient
sample of eight Forex service providers in Kenya including commercial banks and Forex
bureaus, geographically dispersed in the cities of Nairobi, Mombasa, Nakuru and Kisumu
was identified.
The number of customers accessing Forex services in Kenya was estimated to be in the
hundreds of thousands. For that reason, the following formula was used to determine the
sample size in cases where the target population is more than 10,000 units.
n = Z2 p q
d2
Where;
n = Desired sample size (if the target population is greater than 10,000)
Z = The standard normal deviate at the required confidence level.
p = The proportion in the target population estimated to have characteristics being
measured.
q = 1-p
d = the level of statistical significance set.
32
3.4.1 Sample size
Sample size according to Kothari (2004) refers to the total number of items to be selected
from the universe to ensure validity at the confidence level of 95%. According to Kothari
(2004), the confidence level or reliability is the expected percentage of times that the
actual value will fall within a specified precision limits, it indicates the likelihood that the
answer will fall within that range. Because there was no estimate available of the
proportion of the target population assumed to be accessing Forex services regularly, an
estimate of 50% was taken as recommended by Fisher et al. A desired confidence level of
95% was also recommended giving the desired sample size (n) computation as below:
n = (1.96)2 (.50) (.50)
(.05)2
n = 384
A sample size of 384 customers was therefore recommended as the prospective
respondents. This was distributed between the targeted cities as follows:
Table 3.1 Distribution of sample size
City
Nairobi
Nakuru
Kisumu
Mombasa
Total
Number of Respondents
Bank
Bureau
48
48
48
48
48
48
48
48
192
192
3.5 Data Collection
The researcher collected mainly qualitative data from the respondents; a sample of 384
respondents was selected at random. The primary data was collected by use of a
questionnaire which was used to record respondents’ responses. A well designed
questionnaire was used. This was ideal because the researcher planned to give the
respondents time to respond to the questions during their free time bearing in mind that
they were administered when the respondents were on their busy daily schedules. The
respondents were selected from eight different Forex service providers in the cities of
33
Nairobi, Mombasa, Kisumu and Nakuru. They were issued with questionnaires to fill by
themselves, allowed the confidentiality and ample time to gather their thoughts and focus
on the task at hand. Questionnaires were considered very reliable because they provided a
permanent reference and hence the researcher was able to do a more thorough analysis
from the data. Secondary data was obtained from the other records. Secondary data was
useful in providing collaborative information on the problem of the study.
3.5.1 Research Instruments
Data collection utilized questionnaires for the customers who came to seek various
services at the bureau. The questionnaires were ideal because the confidentiality of the
respondents was upheld. The questionnaire items sought to determine the level of
business trust with the service provider, customer satisfaction with the services offered,
the level of service quality by the service provider, perceived customer value and the
strength of the corporate image of the service provider.
3.5.2 Piloting
Piloting was carried to test the validity and reliability of the instruments. Validity
indicates the degree to which the instrument measures the constructs under investigation
(Mugenda & Mugenda, 1999). There are three types of validity test, content, criterion and
related construct validity. This study used content validity because measured the degree
to which the sample of items represents the content that the test is designed to measure.
A pilot study was conducted by the researcher administering a few questionnaires to the
customers of Sky Forex bureau. From this pilot study the researcher was able to detect
questions that needed editing and those with ambiguities. The final questionnaire was
then printed and dispatched to the field for data collection with the help of research
assistants.
34
3.5.3 Test for reliability and validity of data collection instruments
Reliability is the extent to which measures are free from errors (Creswell, 2007). It can
also be defined as the measure of the degree to which a research instrument yields
consistent results or data after repeated trials. The greater the reliability of the instruments
the less chance of errors of measurement to occur. Reliability of the research instruments
was assessed from the test questionnaires sent out in advance to ensure that it was well
designed to collect data that is as accurate as possible. The split half technique was
administered on the results to correlate the subject scores from different samples in
different geographical locations from which the samples were drawn. This offered a
better possibility to eliminate chance error due to differing test conditions.
Content validity was used to identify all the variables necessary to measure the concept of
customer loyalty. Since there are so any determinants to customer loyalty, the sample of
five variables was identified as being the most relevant from the domain of all available
indicators. Population validity was also obtained by ensuring that the accessible
population was geographically spread in order to enhance confidence in the
generalizations to the entire population.
3.6 Data Analysis and Presentation
The research was both quantitative and qualitative in nature. Descriptive statistics was
therefore employed accordingly. Once the data was collected it was checked for
completeness and readiness for analysis. The data from the field was first coded
according to the themes of the Research. This enabled the use of computerized
applications in the summarizing of data in tables. Descriptive analyses were used to
analyze the data collected; frequency tables were produced using the statistical package
for social sciences (SPSS) package. This was to give the distribution of responses in the
questionnaire in percentage form. The output was presented in terms of pie charts and
graphs. Inferential statistics was also used to make conclusions that generalized the
behaviour of the sample population to the general population.
35
Multivariate regression model based on cross sectional pooled data from the annual
reports was used to investigate the influence of various factors affecting customer loyalty
in the Forex services sector in Kenya. Customer loyalty = α + β1 (Customer satisfaction)
+ β2 (Business trust) + β3 (Service quality) + β4 (Perceived customer value) + β5 (Corporate
image) + ε.
In order to test the preposition, the multivariate regression model was as follows:
Y = 𝜷𝟎+𝜷𝟏X1 +𝜷𝟐X2 +𝜷𝟑X3+𝜷𝟒X4 +𝜷𝟓X5 +𝜺
Where:
Y: Customer loyalty
𝜷𝟎: The constant term
𝜷𝟏: Customer satisfaction
𝜷𝟐: Business trust
𝜷𝟑: Service quality
𝜷𝟒: Perceived customer value
𝜷𝟓: Corporate image
𝜺: The error term that is a surrogate for all other variables
To complement regression analysis, correlation analysis was carried out to analyze the
relationship between working capital management and firm’s financial performance. Test
of significance was carried out for all variables using t-test at a 95% level of significance.
To examine the relationship among these variables, Pearson correlation coefficients were
calculated.
3.7 Limitations of the Study
The limiting factors of this study included the following; Due to the veil of
confidentiality surrounding the many firms, most of the respondents were reluctant to
participate. However, the researcher assured the respondents that the findings were used
for academic purposes only. Due to their busy business schedules, customers were not
willing to participate others were suspicious as to the intended purpose of the information
36
being sought and were not as enthusiastic and economical with the truth of what they
really know. There was also inadequacy of time to carry out thorough research, limited
financial resources to cover the entire country as there are towns which offer Forex
services that were not covered unrealistic expectations from the target groups.
The above limitations were addressed in a number of ways: First, with regard to time
constraints, the research adopted data collection methods that required little time to
achieve the desired results while ensuring that the objectives of the research were
maintained. Second, there was a detailed explanation of the purpose of the study, the
rationale of the study as well as why it is important so as to achieve the co-operation of
the respondents as well as achieve truthful answers from them. Third, effort was made to
ensure that cost cutting measures were achieved in order to work within minimal
budgetary financial resources.
3.8 Ethical Considerations
The principle of voluntary participation was adhered to in this study. This study was
structured in a way that the mere fact of participating did not become reason to expose
any participant to any harm. All information gotten from the respondents was treated with
confidentiality without disclosure of the respondents’ identity. Moreover, no information
was modified or changed, hence information gotten was presented as collected and all the
literatures collected for the purpose of this study were appreciated in the reference list.
37
CHAPTER FOUR
DATA ANALYSIS, PRESENTATION AND INTERPRETATION
4.1 Introduction
This chapter details the analysis, presentation and interpretation of data. The study
objective was to determine the factors affecting customer loyalty in Forex services
providers in Kenya.
A sample size of 384 people was selected to participate in the research. This figure was
ideal since it represented a significant representative percentage. Since there was no
estimate available of the proportion of the population assumed to have the characteristics
of interest, 50% was taken as recommended by Fisher et al. In addition there was
extensive literature review from the available public as well as private records together
with any significant information on the factors affecting customer loyalty in the Forex
services sector in Kenya. This information was sourced from books, journals, articles and
other periodicals written by eminent people with rich knowledge on the role of women in
climate change mitigation and adaptation. The internet was also very resourceful.
Data collected was coded and a data sheet drawn. All the variables were assigned a value
ranging from 1 or A upwards for the number of variables being tested. The value
assigned had no quantitative value attached.
The analysis was comprised of information from representative participants, describing
the findings and incorporating them in the final data derived from the questionnaires.
The reliability and viability of the data collected for the study through ascertaining the
reliability of the questionnaires used in data collection by both a pilot study and Cronbach
alpha internal consistency measure used to test the internal reliability of the measurement
instrument.
4.2 Response Rate
A sample of 384 respondents was targeted, randomly selected. To this end, a total of 384
customers were expected to participate in the study. A 71.1% response rate was attained,
38
with only 273 respondents managing to respond. According to Mugenda and Mugenda
(1999), a response rate of 50% is adequate for analysis and reporting; a rate of 60% is
good and a response rate of 70% and over is excellent. It therefore goes that the study
registered an excellent response rate. This is reflected in the table below.
Table 4.1 Response Rate
Questionnaires
Returned
Unreturned
Distributed
Source: Survey Data (2013)
Frequency
Percent (%)
273
111
384
71.1
28.9
100.0
4.3 Respondent Characteristics
4.3.0 Demographic information
This section captures the respondent’s demographic information as regards gender, level
of education, nature of occupation, work experience, as well as the period traded with the
said Forex services providers.
4.3.1 Respondents’ Gender
The study sought to establish gender distribution among respondents. The frequencies
and percentages are as presented in figure 4.1 below.
39
250
213
200
150
Male
female
78.0%
100
60
22.0%
50
0
frequency
percentage
Figure 4.1 Respondents’ gender
Source: Survey Data (2013)
As from figure 4.1 above, the male gender recorded the highest frequency at 213 (78 %)
as compared to the female counterparts at 60 (22 %). It therefore goes from the findings
that the male gender participates more in the Forex services sector in Kenya.
4.3.2 Level of Education
Respondents were also asked to indicate their levels of education. This would serve to
show the academic backgrounds of customers of Forex services providers in Kenya.
Findings are as shown in table 4.2 below.
Table 4.2 Respondents’ levels of education
Level of education
Mean
Std. Dev
High School
0.703
.5013
Diploma College
1.752
.4739
University
3.014
.5348
Post Graduate
2.002
.6329
Source: Survey Data (2013)
40
From the means, it can be deduced that most participants in the Forex services business
are university degree holders as indicated by the highest mean (X = 3.014, S.D = .5348).
This is closely followed by the post graduates (X = 2.002, S.D = .6329). The high school
level recorded the lowest mean (X = 0.703, S.D = .703, S.D = .5013). This goes to show
that most respondents who participate in Forex trade are either university degree holders
or post graduates.
4.3.3 Nature of Occupation
The study also sought to establish the nature of occupation among the Forex customers.
Results are as shown in figure 4.2 below.
Figure 4.2 Nature of occupation
Survey Data (2013)
It was established as indicated in figure 4.2 above that most respondents, 112 (41.0%) are
into the import-export business. A close number, 87 (31.9%) of respondents were also
41
found to be employed while the least number, 74 (27.1%) of respondents affirming to the
‘SMEs’ category. As expected, most Forex services customers are in the import-export
business going by the nature of Forex business.
4.3.4 Work experience
With some level of working experience necessary in establishing the study objectives, the
study found it necessary to establish the length of work experience of the respondents, in
years. The findings are as illustrated in figure 4.3 below.
Figure 4.3 Work experience
Source: Survey Data (2013)
It was established as indicated in figure 4.3 above that most respondents, 117 (42.7%),
who frequently seek Forex services have a work experience of between 5 and 10 years.
This was followed by 88 (32.2%), those with work experiences of less than 5 years. Only
a few respondents have either 10-15 and over 15 years of work experience as indicated
by the low frequencies, 41and 27 and percentages, 15.2% and 9.9% respectively.
42
4.3.5 Forex services providers mostly frequented
The study further sought to establish the Forex services provider’s respondents
frequented. This would be useful in studying loyalty among the respondents towards
these providers. Findings are illustrated in figure 4.4 below.
Figure 4.4 Category of Forex services provider mostly frequented
Source: Survey Data (2013)
It was established as indicated in figure above that most respondents, 97 (35.5%) access
Forex services from Forex bureaus. This was followed by 59 (21.6%), those seeking
services from medium size local banks, 44 (16.1%); small size local banks and
multinational, 41 (15.0%). Quite a number, 32 (11.8%) of respondents indicated that they
did not have a particular preferred but were keen on looking for any service provider
offering the best services.
4.3.6 Number of years traded with the said Forex services provider
The study further sought to find out the number of years respondents had engaged in
trade with the said Forex services providers. This would also be useful in studying loyalty
among the respondents towards these providers. Figure 4.5 below presents the findings.
43
Figure 4.5 Years of trade
Source: Survey Data (2013)
As presented in figure 4.5 above, most respondents, 114 (41.8%), were found to have
engaged the said Forex services providers for between 5 and 10 years. A fairly high
number of respondents, 103 (37.7%), have been in business with the said Forex services
providers for between (1 – 5 years). This underscores a finding of interest to the study,
loyalty. This is seen with the agreement between the number of years respondents have
been in the Forex business and the number of years served with the same Forex services
provider.
4.4 Business Trust
This section provides findings and discussion of responses established in respect to
business trust and customer loyalty. Respondents were asked to rate their agreements
with statements posed with a view to assess business trust in relation to their Forex
services providers. An important determinant of loyalty, this would serve to indicate the
value of trust in the build-up to loyalty in Forex services providers. Table 4.3 below
presents the findings.
Scale: 1 = Strongly Disagree; 2 = Disagree; 3 = Slightly Agree; 4 = Agree; 5 = Strongly
Agree.
44
Table 4.3 Business trust influence on customer loyalty
Statement
Mean
Standard Deviation
Business trust is important in my business relationship
4.539
0.8317
4.193
0.6315
3.725
0.5092
3.857
0.4718
4.142
0.6347
3.825
0.705
with my Forex services provider
Business trust influences my continued dealings with
my Forex services provider
My level of business trust with my Forex services
provider in Kenya is significantly high
Customers of Forex services providers in Kenya have
high business trust in their Forex services providers
Levels of business trust between the Forex services
providers in Kenya and their customers have improved
customer loyalty and customer numbers
Average mean
Source: Survey Data (2013)
The scores of ‘Strongly Disagree’ and ‘Disagree’ have been taken to represent low levels
of agreement (equivalent to mean score of 0 to 2.5 on the continuous Likert scale of 0≤
2.4. The score of ‘Slightly Agree’ has been taken to represent moderate levels of
agreement (equivalent to a mean score of 2.5 to 3.4 on the continuous Likert scale of 2.5≤
3.4). The score of ‘Agree’ and ‘Strongly Agree’ have been taken to represent high levels
of agreement (equivalent to a mean score of 3.5 to 5.4 and on a continuous Likert scale;
3.5≤ <5.4). This applies across all the variables studied.
Overall, high agreement levels (X = 3.825; S.D = 0.705) are observed in the responses
presented in table 4.3 above. As seen from the findings, it is notable that most
respondents strongly agree that business trust is very important in the business
relationship with their Forex services providers (X = 4.539, S.D = 0.8317). Majority
respondents also agree that trust influence their continued dealings with the Forex
services to a large extent (X = 4.193, S.D = 0.6315). High levels of trust are also
established among respondents towards their Forex services providers (X = 3.925, S.D =
0.5092). Most respondents were further found to strongly agree with the view that ‘the
customers of Forex services providers in Kenya have high business trust in their Forex
45
services providers;’ (X = 4.257, S.D = 0.4718) and that ‘the levels of business trust
between the Forex services providers in Kenya and their customers have improved
customer loyalty and customer numbers’ (X = 4.642, S.D = 0.6347).
4.5 Customer satisfaction
The study also found it paramount to assess customer satisfaction in relation to customer
loyalty. This section provides findings and discussion of responses to that effect.
Respondents were asked to rate their agreements with statements posed with a view to
assess customer satisfaction in relation to their Forex services providers. An important
determinant to loyalty, this would serve to indicate the value of trust in the build-up to
loyalty in Forex services providers. Table 4.4 below presents the findings.
Scale: 1 = Strongly Disagree; 2 = Disagree; 3 = slightly Agree; 4 = Agree; 5 = Strongly
Agree.
Table 4.4 Customer satisfaction influence on customer loyalty
Statement
Mean
Standard Deviation
Customer satisfaction is important in my business
4.534
.5360
4.215
.5137
3.913
.4976
3.872
.5587
4.691
.5645
3.821
.506
relationship with my Forex services provider
Customer satisfaction influences in my continued
dealings with my Forex services provider
My level of satisfaction with my Forex services
provider in Kenya is significantly high
Customers of Forex services providers in Kenya derive
high customer satisfaction from the services offered by
their Forex services providers
Levels of customer satisfaction between the Forex
services providers in Kenya and their customers have
improved customer loyalty and customer numbers
Average mean
Source: Survey Data (2013)
On average high agreement levels are also observed in the findings (X = 3.821; SD =
.506). From findings in table 4.4 above, it is notable that most respondents rate customer
46
satisfaction in dealing with the Forex services providers as very highly important going
by the high levels of customer satisfaction (X = 4.534, S.D = .5360). To a majority of the
respondents, customer satisfaction highly influences their continued dealings with the
Forex services as indicated by the high levels of agreement (X = 4.215, S.D = .5137).
High levels of customer satisfaction towards their Forex services providers are also seen
in the findings (X = 3.913, S.D = .4976). Most respondents were further found to strongly
agree with the view that ‘the Customers derive high customer satisfaction from the
services offered by the Forex services providers’ (X = 3.872, S.D = .5587) and that ‘the
customer satisfaction delivered by Kenya’s Forex services providers to their customers
has improved customer loyalty and customer numbers’ (X = 4.691, S.D = .5645).
4.6 Service quality
Service quality was also deemed important a factor in assessing customer loyalty.
Respondents were asked to rate their agreements with statements posed with a view to
assess service quality in relation to their Forex services providers. Table 4.5 below
provides findings and discussion of responses established in respect to Service quality
and customer loyalty.
Scale: 1 = Strongly Disagree; 2 = Disagree; 3 = slightly Agree; 4 = Agree; 5 = Strongly
Agree.
Table 4.5 Service quality influence on customer loyalty
Statement
Mean Standard
Deviation
Service quality is very important in my business relationship with 4.614
.5765
my Forex services provider
Service quality influences in my continued dealings with my Forex 3.923
.4812
services provider
My Forex services provider’s service quality in Kenya is 3.861
.5408
significantly high
Forex services providers in Kenya have delivered superior quality 3.655
.5312
services to their customers consistently
Levels of service quality between the Forex services providers in 3.954
.4937
Kenya and their customers have improved customer loyalty and
customer numbers
47
Average mean
Source: Survey Data (2013)
3.826
.523
The average agreement level remains high (X = 3.826; SD = .523). From the findings in
table 4.5 above, most respondents strongly agree with the view that service quality is very
important in their business relationship with their Forex services providers (X = 4.614,
S.D = 0.5765). Service quality was also found to have influenced majority of
respondents’ continued dealings with the Forex services providers (X = 3.923, S.D =
.5449). Majority also consider their Forex services provider’s service quality in Kenya to
be significantly high (X = 3.861, S.D = .5408). Most respondents were further found to
agree with the view that ‘Forex services providers in Kenya have delivered superior
quality services to their customers consistently’ (X = 3.655, S.D = .5312) and that
‘Levels of service quality between the Forex services providers in Kenya and their
customers have improved customer loyalty and customer numbers’ (X = 3.954, S.D =
.4973).
4.7 Customer value
This section provides findings and discussion of responses established in respect to
customer value and customer loyalty. Respondents were asked to rate their agreements
with statements posed with a view to assess service value in relation to their Forex
services providers. An important determinant to loyalty, this would serve to indicate the
value of trust in the build-up to loyalty in Forex services providers. Table 4.6 below
presents the findings.
Scale: 1 = Strongly Disagree; 2 = Disagree; 3 = slightly Agree; 4 = Agree; 5 = Strongly
Agree.
Table 4.6 Customer value influence on customer loyalty
Statement
Mean Standard
Deviation
Perception of the customer value is very important in my business
relationship with my Forex services provider
4.901
0.9431
48
Perception of the customer value influences in my continued
4.613
0.5423
3.576
0.8612
3.913
1.0617
3.263
1.2610
3.935
.906
dealings with my Forex services provider
My level of Perception of the customer value with my Forex
services provider in Kenya is significantly high
Customers of Forex services providers in Kenya derive high
perception of the customer value from the services offered by their
Forex services providers
Levels of perception of the customer value towards the Forex
services providers in Kenya by their customers have improved
customer loyalty and customer numbers
Average mean
Source: Survey Data (2013)
High agreement scores are observed in the findings presented in table 6 above (X =
3.735; SD = .906). From the results, the study established, that most respondents rate
perceived customer value as a determinant in dealing with the Forex services providers as
very highly important indicated by the means (X = 4.901, S.D = 0.9431). To a majority of
the respondents also, perceived customer value highly influences customers’ continued
dealings with the Forex services providers (X = 4.613, S.D = 0.5423). Respondents also
agreed that they derive high levels of customer value perception from their Forex services
providers (X = 3.913, S.D = 1.0617). Slight levels of agreement are however observed
from the findings, with the view that ‘the perceived customer value by the Forex services
providers in Kenya has improved the level of customer loyalty and customer numbers’ (X
= 3.263, S.D = 1.2610).
4.8 Corporate image
This section provides findings and discussion of responses established in respect to
corporate image and customer loyalty. Respondents were asked to rate their agreements
with statements posed with a view to assess Corporate image in relation to their Forex
services providers. An important determinant to loyalty, this would serve to indicate the
value of trust in the build-up to loyalty in Forex services providers. Table 4.7 below
presents the findings.
49
Scale: 1 = Strongly Disagree; 2 = Disagree; 3 = slightly Agree; 4 = Agree; 5 = Strongly
Agree. Table 12 below presents the results.
Table 4.7 Corporate image influence on customer loyalty
Mean Standard
Statement
Corporate image is very important in my business relationship with
Deviation
4.384
0.9745
3.553
0.6734
3.952
1.0080
3.857
0.6834
3.652
1.2317
3.725
.923
my Forex services provider
Corporate image influences in my continued dealings with my Forex
services provider
I rank the corporate image of my Forex services provider in Kenya
as strong
Loyalty to my Forex services provider has purely attributed to its
corporate image
Strong corporate image has improved customer loyalty towards their
Forex services providers
Average mean
Source: Survey Data (2013)
High average agreement scores are also noted in table 4.7 above (X= 3.725; SD = .923).
Results as presented in the table indicate that most respondents strongly agree with the
view that Corporate image is very important in their business relationship with my Forex
services provider (X = 4.384, S.D = 0.9745). A majority also agree that strong corporate
image influences their continued dealings with the Forex services providers (X = 3.553,
S.D = 0.6734). Most respondents further rank their Forex services providers as strong (X
= 3.952, S.D = 1.0080). A majority of the respondents, also agree with the views that
loyalty to their Forex services provider has purely attributed to its corporate image (X =
3.857, S.D = 0.6834) and that strong corporate image has improved customer loyalty
towards their Forex services providers (X = 3.652, S.D = 1.2317).
50
Table 4.8 Correlation Analysis between customer loyalty and performance of Forex
services providers in Kenya
Customer
loyalty
Customer
satisfaction
Business
trust
Custome
r loyalty
Customer
satisfaction
Busines
s trust
Service
quality
0.9023
Perceived
customer
value
0.9318
Corpor
ate
image
0.8903
1.000
0.8934
0.9284
1.000
0.6874
0.6947
0.5856
0.5184
1.000
0.6222
0.4994
0.4264
1.000
0.6145
0.6128
1.000
0.4982
Service
quality
Perceived
customer
value
Corporate
image
1.000
Source: Computed by the researcher from annual reports Forex services providers
(2013)
*Correlation is significant at the 0.05 level (2-tailed).
The correlation matrix in Table 4.8 indicates that customer satisfaction is strongly and
positively correlated with customer loyalty as indicated by a correlation coefficient of
0.8934 hence denoting a very strong association with customer loyalty. Further the matrix
also indicated that business trust is also positively correlated with customer loyalty as
indicated by a coefficient of 0.9284, this too represented a very strong association with
customer loyalty as well. The correlation matrix further indicates that service quality is
also strongly and positively correlated with customer loyalty as indicated by a coefficient
of 0.9023, this too showed a strong relationship with customer loyalty. Perceived
customer value showed the highest correlation with customer loyalty as indicated by a
51
strong correlation coefficient of 0.9318 while corporate image was also strongly and
positively correlated with customer loyalty with a coefficient of 0.8903, both showing
very strong association to customer loyalty. These results informed strongly the case to
conduct further analysis by regression analysis to determine the nature of relationships
between the dependent and independent variables.
4.9 Regression Analysis
To establish the influence of various factors affecting customer loyalty in the Forex
services sector in Kenya, a multiple regression analysis was conducted. The regression
model was as follows: Customer loyalty = α + β1 (Customer satisfaction) β2 (Business
trust) + β3 (Service quality) + β4 (Perceived customer value) + β5 (Corporate image) + ε.
Regression analysis also produced correlation, coefficient of determination and analysis
of variance (ANOVA). Correlation sought to show the nature of relationship between
dependent and independent variables and coefficient of determination showed the
strength of the relationship. Analysis of variance was done to show whether there is a
significant mean difference between dependent and independent variables. The ANOVA
was conducted at 95% confidence level.
Table 4.9 Model Goodness of Fit
R
R2
Adjusted R2
Std. Error of the Estimate
0.771
0.631
0.532
0.06227
a. Predictors: (Constant), customer satisfaction, business trust, service quality, perceived
customer value, corporate image
b. Dependent Variable: Customer loyalty
Regression analysis was used to establish the relationship between customer loyalty
(dependent variable) and the possible factors influencing customer loyalty, that is, service
quality, business trust, customer satisfaction, corporate image and perceived customer
value (independent variables). The results showed a correlation value (R) of 0.771 which
depicts that there is a good linear dependence between the independent and dependent
variables.
52
With an adjusted R-squared of 0.532, the model shows Customer satisfaction, service
quality, Perceived customer value, corporate image explain 53.2 percent of the variations
in customer loyalty while 46.8 percent is explained by other factors not in the model.
Table 4.10
Analysis of Variance
Sum
of Df
Squares
Mean
F
Sig.
3.135
.038a
Square
Regression
4.181
3
1.394
Residual
15.562
35
.445
Total
19.744
38
ANOVA statistics was conducted to determine the differences in the means of the
dependent and independent variables thus show whether a relationship exists between the
two. The P-value of 0.038 implies that customer loyalty has a significant joint
relationship with business trust, customer satisfaction, service quality, perceived
customer value, corporate image which is significant at 5 percent level of significance.
This also depicted the significance of the regression analysis done at 95% confidence
level.
53
Table 4.11
Regression Coefficient Results
Unstandardized
Standardized
T
Sig.
Coefficients
Coefficients
B
Std. Error
Beta
(Constant)
7.724
5.006
1.543
.132
Customer
1.434
.697
.338
2.058
.047
Business trust
1.652
.689
.287
2.243
.027
Service quality
1.719
.720
.362
2.387
.023
customer 0.724
.506
.762
1.942
.003
.827
.091
1.897
.045
satisfaction
Perceived
value
Corporate image
1.256
a. Dependent Variable: Customer Loyalty
b. Source: Survey Data (2013)
From the data in the above table, there is a positive relationship between customer loyalty
and all the independent variables, that is, service quality, business trust, customer
satisfaction, perceived customer value and corporate image. The established regression
equation was: customer loyalty = 7.724 + .338 customer satisfaction + .287 business trust
+ .362 service quality + .762 perceived customer value + .091 corporate image p=0.038
Y= 7.724 + .338 X1 + .287 X2 + .362 X3 + .762 X4 + .091 X5
The regression results show that perceived customer value exhibits the strongest and
positive influence on customer loyalty as indicated by a coefficient value of .762 closely
followed by service quality at a coefficient value of .362. Customer satisfaction, business
trust and corporate image are also positively correlated with customer loyalty at
coefficient values of .338, .287 and .091 respectively. When service quality, business
trust, customer satisfaction, corporate image and perceived customer value have zero
values, the space allocation value would be 7.724. It is also established that a unit
increase in perceived customer value leads to a .762 increase in customer loyalty and so
on. This statistic had a t-value of 1.942 at .003 showing that the statistic is significant at
95% confidence level. Further the study carried out the hypothesis testing between
54
customer loyalty and all the independent variables. The study findings are as shown
below.
Table 4.12 Attributable factors Vs Customer loyalty
Customer loyalty
Attributable factors Pearson Correlation
0.782
Sig. (2-tailed)
0.000
N
18
Source: Survey Data (2013)
A Pearson coefficient of 0.782 and p-value of 0.000 shows a strong, significant, positive
relationship between the attributable factors and customer loyalty as established from the
survey data. Therefore basing on these findings the study rejects the null hypothesis that
there is no relationship between service quality, business trust, customer satisfaction,
perceived customer value and corporate image and customer loyalty to their respective
Forex services providers in Kenya and accepts the alternative hypothesis that there exists
a relationship between service quality, business trust, customer satisfaction, perceived
customer value and corporate image and customer loyalty to their respective Forex
services providers in Kenya as follows:
H1: Business Trust has a positive effect on customer loyalty in Forex services providers
in Kenya
H2: Service quality has a positive effect on customer loyalty in Forex services providers
in Kenya
H3: Customer satisfaction has a positive effect on customer loyalty in Forex services
providers in Kenya
H4: Perceived customer value has a positive effect on customer loyalty in Forex services
providers in Kenya
55
H5: Corporate image has a positive effect on customer loyalty in Forex services providers
in Kenya
4.10 Test of Multicollinearity
Table 4.32: Collinearity Statistics
Tolerance
VIF
Customer satisfaction
0.304
3.290
Perceived customer value
0.612
1.635
Business trust
0.246
4.200
Service quality
0.316
3.163
Corporate image
0.472
2.120
Multicollinearity test was conducted to establish if the independent variables were
correlated. Multicollinearity affects the regression model and its lack, thereof, is a key
assumption for regression.
The study conducted formal detection-tolerance or the
variance inflation factor (VIF) for multicollinearity. For tolerance, value less than 0.1
suggest multicollinearity while values of VIF that exceed 10 are often regarded as
indicating multicollinearity. The values of tolerance were greater than 0.1 and those of
VIF were less than 10. This shows lack of multicollinearity among the independent
variables i.e business trust, service delivery, customer satisfaction, perceived customer
value and corporate image and further enhances reliability of the results.
56
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS
5.1 Introduction
This chapter summarizes the study and makes conclusion based on the results. The
implications from the findings and areas for further research are also presented. This
section presents the findings from the study in comparison to what other scholars have
said as noted under literature review.
5.2 Summary of Findings
The study provided two types of data analysis; namely descriptive analysis and inferential
analysis. The descriptive analysis helped the study describe the relevant aspects of the
phenomena under consideration and provide detailed information about each relevant
variable. For the inferential analysis, the study used the panel data regression analysis.
The study first evaluated the performance of the various variable of interest, that is, good
service quality, business trust, customer satisfaction, perceived customer value and the
good corporate image. Their mean, standard deviation, minimum and maximum values
were determined.
Overall, high agreement levels (X = 3.825; S.D = 0.705) are observed in response to
business trust in relation to customer loyalty. From the findings, it is notable that most
respondents strongly agree that business trust is very important in the business
relationship with their Forex services providers (X = 4.539, S.D = 0.8317). This is
consistent with findings by Morgan and Hunt (1994: 22) who posit that business trust is a
major determinant of relationship commitment and with Chauduri and Holbrook (2001:
91) who showed that brand business trust is directly related to both purchase and
attitudinal loyalty. This also supports the attitudinal commitment model to customer
loyalty as well as the emotive approach to loyalty as espoused in the multidimensional
theory.
It is also notable from the findings that some respondents did not hold trust in the
business with as much importance. Majority respondents also agree that trust influence
57
their continued dealings with the Forex services to a large extent (X = 4.193, S.D =
0.6315). High levels of trust are also established among respondents towards their Forex
services providers (X = 3.925, S.D = 0.5092). Most respondents were further found to
strongly agree with the view that ‘the customers of Forex services providers in Kenya
have high business trust in their Forex services providers;’ (X = 4.257, S.D = 0.4718) and
that ‘the levels of business trust between the Forex services providers in Kenya and their
customers have improved customer loyalty and customer numbers’ (X = 4.642, S.D =
0.6347). This is in agreement with (Berry, 1995) who determined that business trust is a
willingness to rely on an exchange partner in whom one has confidence and that
becoming a trusted business partner was very important to maintaining relationships
On average high agreement levels are also observed in the findings (X = 3.821; SD =
.506) in respect customer satisfaction and its influence on customer loyalty. From
findings, it is notable that most respondents rate customer satisfaction in dealing with the
Forex services providers as very highly important going by the high levels of customer
satisfaction (X = 4.534, S.D = .5360). This supports the revealed behaviour model of
customer loyalty as well as the behavioural approach to loyalty as explained in the
multidimensional theory.
To a majority of the respondents, customer satisfaction highly influences their continued
dealings with the Forex services as indicated by the high levels of agreement (X = 4.215,
S.D = .5137). High levels of customer satisfaction towards their Forex services providers
are also seen in the findings (X = 3.913, S.D = .4976). Most respondents were further
found to strongly agree with the view that ‘the Customers derive high customer
satisfaction from the services offered by the Forex services providers’ (X = 3.872, S.D =
.5587) and that ‘the customer satisfaction delivered by Kenya’s Forex services providers
to their customers has improved customer loyalty and customer numbers’ (X = 4.691,
S.D = .5645). These findings also agreed to several studies that have revealed the
existence of a direct connection between satisfaction and loyalty: satisfied customers
ordinarily become loyal while dissatisfied customers move to other vendors. The findings
however disagreed with Al-Wugayan and Pleshko (2010) and Pleshko (2009) who
58
pointed out that there was no relationship between customer satisfaction and customer
loyalty.
The average agreement level remains high (X = 3.826; SD = .523) in response to service
quality and its influence on customer loyalty. From the findings, most respondents
strongly agree with the view that service quality is very important in their business
relationship with their Forex services providers (X = 4.614, S.D = 0.5765). Service
quality was also found to have influenced majority of respondents’ continued dealings
with the Forex services providers (X = 3.923, S.D = .5449). Majority also consider their
Forex services provider’s service quality in Kenya to be significantly high (X = 3.861,
S.D = .5408). This also supported the revealed behaviour model of customer loyalty as
well as the evaluative approach to loyalty as explained in the multidimensional theory.
This confirms the findings of (Suh & Pedersen, 2010; Saha & Theingi, 2009; Rod et al.,
2009; Al-hawari, 2008; Hsu & Hsu, 2008; Eakuru & Mat, 2008; Beerli et al., 2004) all of
whom assert that there is a positive relationship between the service quality and customer
loyalty.
High agreement scores are further observed in response to customer value and its
influence on customer loyalty (X = 3.735; SD = .906). From the results, the study
established, that most respondents rate perceived customer value as a determinant in
dealing with the Forex services providers as very highly important indicated by the
means (X = 4.901, S.D = 0.9431). This supports the attitudinal commitment model to
customer loyalty as well as the evaluative approach to loyalty as espoused in the
multidimensional theory. To a majority of the respondents also, perceived customer value
highly influences customers’ continued dealings with the Forex services providers (X =
4.613, S.D = 0.5423). Respondents also agreed that they derive high levels of customer
value perception from their Forex services providers (X = 3.913, S.D = 1.0617). Slight
levels of agreement are however observed from the findings, with the view that ‘the
perceived customer value by the Forex services providers in Kenya has improved the
level of customer loyalty and customer numbers’ (X = 3.263, S.D = 1.2610). This is also
consistent with several researchers proposing that perceived value positively influences
59
customer loyalty (Cronin et al., 2000; Kuo et al., 2009; Lai et al., 2009; Lin & Wang,
2006; Wang et al., 2004).
High average agreement scores are also noted in response to corporate image and its
influence on customer loyalty (X= 3.725; SD = .923). Results as presented in the table
indicate that most respondents strongly agree with the view that Corporate image is very
important in their business relationship with my Forex services provider (X = 4.384, S.D
= 0.9745). A majority also agree that strong corporate image influences their continued
dealings with the Forex services providers (X = 3.553, S.D = 0.6734). Most respondents
further rank their Forex services providers as strong (X = 3.952, S.D = 1.0080). A
majority of the respondents, also agree with the views that loyalty to their Forex services
provider has purely attributed to its corporate image (X = 3.857, S.D = 0.6834) and that
strong corporate image has improved customer loyalty towards their Forex services
providers (X = 3.652, S.D = 1.2317). This is consistent with the hypothesis that the
attractiveness of the brand personality indirectly affects brand loyalty (Kim et al., 2001).
It also supports the attitudinal commitment model to customer loyalty as well as the
emotive approach to loyalty as espoused in the multidimensional theory.
The regression results show that perceived customer value exhibits the strongest and
positive influence on customer loyalty as indicated by a coefficient value of 0.762 closely
followed by service quality at a coefficient value of 0.362.
Customer satisfaction,
business trust and corporate image are also positively correlated with customer loyalty at
coefficient values of 0.338, 0.287 and 0.091 respectively.
5.3 Conclusions
The study has determined the factors affecting customer loyalty in the Forex services
sector in Kenya. More specifically, it has determined the effect of business trust on
customer loyalty; the effect of customer satisfaction on customer loyalty; the effect of
service quality on customer loyalty; the effect of customer value on customer loyalty as
well as the effect of corporate image on customer loyalty.
60
It can be deduced from the study that customer satisfaction strongly and positively
correlates with customer loyalty and therefore affects customer loyalty. This agrees to
several studies that have revealed the existence of a direct connection between
satisfaction and loyalty: satisfied customers ordinarily become loyal and dissatisfied
customers move to another vendor, it supports the revealed behaviour model of customer
loyalty as well as the behavioural approach to loyalty as explained in the
multidimensional theory, but also disagrees with Al-Wugayan and Pleshko (2010) and
Pleshko (2009) who pointed out that there is no relationship between customer
satisfaction and loyalty. Business trust was also found to strongly and positively correlate
with customer loyalty, supporting the attitudinal commitment model to customer loyalty
as well as the emotive approach to loyalty as espoused in the multidimensional theory. It
was also consistent with findings by Morgan and Hunt (1994: 22) who posit that business
trust is a major determinant of relationship commitment: brand business trust leads to
brand loyalty because business trust creates exchange relationships that are highly valued.
It is therefore concluded that business trust affects customer loyalty. Service quality also
strongly and positively correlates with customer loyalty, adding substantially to the
findings of (Suh and Pedersen, 2010; Saha & Theingi, 2009; Rod et al., 2009; Al-hawari,
2008; Hsu & Hsu, 2008; Eakuru & Mat, 2008; Beerli et al., 2004) all of whom assert that
there is a positive relationship between the two constructs. It also supported the revealed
behaviour model of customer loyalty as well as the evaluative approach to loyalty as
explained in the multidimensional theory. This reinforces the conclusion in this study that
service quality also affects customer loyalty. It is notable that perceived customer value
showed the highest correlation with customer loyalty, supporting the attitudinal
commitment model to customer loyalty as well as the emotive approach to loyalty as
espoused in the multidimensional theory and also consistent with several researchers
proposing that perceived value positively influences customer loyalty (Cronin et al.,
2000; Kuo et al., 2009; Lai et al., 2009; Lin & Wang, 2006; Wang et al., 2004). We
therefore conclude that perceived customer value affects customer loyalty. Corporate
image is also strongly and positively correlated with customer loyalty Kim, Han and Park
have researched the link between brand personality and loyalty. They did get positive
support to hypothesis that the attractiveness of the brand personality indirectly affects
61
brand loyalty (Kim et al., 2001).This supports the attitudinal commitment model to
customer loyalty as well as the emotive approach to loyalty as espoused in the
multidimensional theory. From the results, it is accordingly confirmed from this study
that corporate image affects customer loyalty. The results of the findings suggest that the
management of Forex services providers need to emphasize on all the five areas of
business trust, customer satisfaction, service quality, perceived customer value and
corporate image in order to attract and retain customers and ensure their competitiveness.
5.4 Recommendations
As detailed in the findings, it is clear that customers of Forex services regard all these
determinants as very important determinants to customer loyalty in the Forex business.
The following recommendations should be seriously considered by Forex business
owners to streamline their businesses and improve their competitiveness:
Invest highly in developing appropriate core values and facilitate trainings that espouse
and inculcate honesty, professionalism and integrity to ensure that they gain the trust of
their customers.
Implement processes and systems that enhance the quality of customer service as well as
improve customer complaints handling.
Improve service delivery to ensure that customers perceive that they are getting good
quality of service for their money. Forex services providers should improve on their
communication, reliability, courtesy, access, competence, responsiveness, credibility,
security, understanding, tangibles, prices and association image to on improve service
delivery.
Improve service quality to ensure that customers perceive to get a higher benefit than the
costs associated with obtaining the service and should continually develop superior
business value propositions than the competitors.
Implement good corporate governance practices and good business practices to develop a
superior corporate image that customers would love to be associated with in priority to
competitors.
62
5.5 Suggestions for further research
In this study, one of the findings was that customer satisfaction was strongly and
positively correlated with customer loyalty. This is consistent with findings by Morgan
and Hunt (1994: 22) who posit that business trust is a major determinant of relationship
commitment and with Chauduri and Holbrook (2001: 91) who showed that brand
business trust is directly related to both purchase and attitudinal loyalty.
However
it
disagrees with Al-Wugayan and Pleshko (2010) and Pleshko (2009) who pointed out that
there was no relationship between customer satisfaction and loyalty. A study can
therefore be conducted to further ascertain the relationship between customer satisfaction
and customer loyalty, ideally employing a different methodology. Further research can
be done in this area with greater emphasis on corporate customers only.
63
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67
APPENDICES
Appendix I: Research Questionnaire
This questionnaire was meant to help in the collection of information on factors the
influence customer loyalty in Forex services providers in Kenya. You are kindly
requested to sincerely and appropriately respond to the questions herein to the best of
your knowledge and ability.
SECTION A: Respondent Profile
1
Gender (Tick as appropriate)
Male
2
Female
[ ]
What is your level of education? (Tick as applicable)
a) High School
[ ]
b) Diploma College
[ ]
c) University
[ ]
d) Post Graduate
[ ]
e) Others (specify)
3
[ ]
………………………………………………...
Nature of Occupation (Tick as applicable)
a) Employed
b) Import Export Business
c) SMEs
d) Others (specify)
4
………………………………………………..
Work Experience (Tick as applicable)
a) Less than 5 years
b) 5-10yrs
c) 10-15yrs
d) Over 15yrs
5. Which category of Forex services provider in Kenya do you frequent for your
Forex transactions?
………………………………………………………………………
68
6
For how long have you traded with the said category of Forex services provider
(Tick as applicable)
a) 0-5 yrs
[ ]
b) 5-10 yrs
[ ]
c) 10-15 yrs
[ ]
d) 15 yrs and above
[ ]
SECTION B: BUSINESS TRUST AND CUSTOMER LOYALTY (loyalty is the
desire to retain a valuable or important relationship)
1. In your opinion, how important is business trust in your business relationship with
your Forex services provider?
Very high
[ ]
High
[ ]
Moderate
[ ]
Fairly Low
[ ]
Very Low
[ ]
2. To what extent does business trust influence in your continued dealings with your
Forex services provider?
Very large extent
[ ]
Large extent
[ ]
Moderate extent
[ ]
Less extent
[ ]
No extent
[ ]
3. How can you rate the level of business trust you have for the Forex services
providers in Kenya?
Very high
[ ]
High
[ ]
Moderate
[ ]
69
Fairly Low
[ ]
Very Low
[ ]
4. To what extent do you agree with the following statements:
i)
The customers of Forex services providers in Kenya have high business
trust in their Forex services providers?
Strongly agree
[ ]
Moderately agree
[ ]
Neither agree nor disagree
[ ]
Moderately disagree
[ ]
Strongly disagree
[ ]
ii)
The levels of business trust between the Forex services providers in Kenya
and their customers have improved customer loyalty and customer
numbers.
Strongly agree
[ ]
Moderately agree
[ ]
Neither agree nor disagree
[ ]
Moderately disagree
[ ]
Strongly disagree
[ ]
SECTION C: CUSTOMER SATISFACTION AND LOYALTY
1.
In your opinion, how important is customer satisfaction to your business
relationship with a Forex services provider?
Very high
[ ]
High
[ ]
Moderate
[ ]
Fairly Low
[ ]
Very Low
[ ]
70
2.
To what extent does customer satisfaction influence your dealings with your
Forex services provider?
Very large extent
[ ]
Large extent
[ ]
Moderate extent
[ ]
Less extent
[ ]
No extent
[ ]
3. Kindly rank the level of satisfaction you derive from your Forex services
provider.
Very high
[ ]
High
[ ]
Moderate
[ ]
Fairly Low
[ ]
Very Low
[ ]
4. i)
What is your opinion on the following statement: Customers derive high
customer satisfaction from the services offered by the Forex services providers?
Strongly agree
[ ]
Moderately agree
[ ]
Neither agree nor disagree
[ ]
Moderately disagree
[ ]
Strongly disagree
[ ]
ii)
The customer satisfaction delivered by Kenya’s Forex services providers
to their customers has improved customer loyalty and customer numbers.
Strongly agree
[ ]
Moderately agree
[ ]
Neither agree nor disagree
[ ]
Moderately disagree
[ ]
Strongly disagree
[ ]
71
SECTION D: SERVICE QUALITY AND LOYALTY (Tangibility, Good service
quality includes Service reliability, Service accessibility, Empathy and responsibility)
1. Kindly rank the level of importance of service quality as a determinant of your
business relationship with a Forex services provider?
Very high
[ ]
High
[ ]
Moderate
[ ]
Fairly Low
[ ]
Very Low
[ ]
2. To what extent does service quality influence your dealings with your Forex
services provider?
Very large extent
[ ]
Large extent
[ ]
Moderate extent
[ ]
Less extent
[ ]
No extent
[ ]
3. Kindly rank the level of service quality you derive from your current Forex services
provider
Very high
[ ]
High
[ ]
Moderate
[ ]
Fairly Low
[ ]
Very Low
[ ]
4. What is your opinion on the following statement:
Forex services providers in Kenya have delivered superior quality service to their
customers consistently.
Strongly agree
[ ]
72
Moderately agree
[ ]
Neither agree nor disagree
[ ]
Moderately disagree
[ ]
Strongly disagree
[ ]
5. Do you agree with the following statement:
The quality of service offered by the Forex services providers in Kenya has
improved the level of customer loyalty and customer numbers.
Strongly agree
[ ]
Moderately agree
[ ]
Neither agree nor disagree
[ ]
Moderately disagree
[ ]
Strongly disagree
[ ]
SECTION E: PERCIEVED CUSTOMER VALUE (Perceived benefit - perceived
cost)
1. Kindly rank the level of importance of perception of the service value delivered to
your business relationship with a Forex services provider?
Very high
[ ]
High
[ ]
Moderate
[ ]
Fairly Low
[ ]
Very Low
[ ]
2. To what extent does perceived service value influence your dealings with your
Forex services provider?
Very large extent
[ ]
Large extent
[ ]
Moderate extent
[ ]
Less extent
[ ]
No extent
[ ]
73
3. Kindly rank the level of perceived service value you derive from your current
Forex services provider.
Very high
[ ]
High
[ ]
Moderate
[ ]
Fairly Low
[ ]
Very Low
[ ]
4. To what extent is your loyalty to your Forex services provider purely attributed to
perceived service value?
Very large extent
[ ]
Large extent
[ ]
Moderate extent
[ ]
Less extent
[ ]
No extent
[ ]
5. Do you agree with the following statement:
The perceived customer value by the Forex services providers in Kenya has
improved the level of customer loyalty and customer numbers.
Strongly agree
[ ]
Moderately agree
[ ]
Neither agree nor disagree
[ ]
Moderately disagree
[ ]
Strongly disagree
[ ]
74
SECTION F: CORPORATE IMAGE (The image of the Forex services provider’s
brand name to the public)
1. Kindly rank the level of importance of corporate image to your business
relationship with a Forex services provider?
Very high
[ ]
High
[ ]
Moderate
[ ]
Fairly Low
[ ]
Very Low
[ ]
2. To what extent does corporate image influence your dealings with your Forex
services provider?
Very large extent
[ ]
Large extent
[ ]
Moderate extent
[ ]
Less extent
[ ]
No extent
[ ]
3. How would you rank the corporate image of your current Forex services
provider?
Very strong
[ ]
Strong
[ ]
Fairly strong
[ ]
Weak
[ ]
Very weak
[ ]
4. Do you agree with the following statement: Strong corporate image of Forex
services providers in Kenya has improved customer loyalty and high customer
numbers?
Strongly agree
[ ]
Moderately agree
[ ]
75
Neither agree nor disagree
[ ]
Moderately disagree
[ ]
Strongly disagree
[ ]
5. To what extent is your loyalty to your Forex services provider purely attributed to its
corporate image?
Very large extent
[ ]
Large extent
[ ]
Moderate extent
[ ]
Less extent
[ ]
No extent
[ ]
76
APPENDIX II: LETTER OF INTRODUCTION
Pascal Othieno Oluoch
Moi University,
School of Business and Economics,
Nairobi, Kenya.
Dear Respondent,
I am conducting a study on “factors affecting customer loyalty in Forex services
providers in Kenya’’ and would wish to request for your time and participation in this
study by filling in the questionnaire attached.
Rest assured that the information you provide in the questionnaire will be treated with
utmost privacy and confidentiality. Should you have any questions or concerns with
regards to the questionnaire, please do not hesitate to contact me at any time through my
contact provided above.
Thank you for your co - operation and time.
Sincerely,
Pascal Othieno Oluoch
………………………………….
END ………………………………….