Research Proposal
An Empirical Study of Commercial Banks’ Transformation Towards
Enhancing Customers Loyalty: A Perspective of Bank’s Customers
in Klang Valley, Malaysia.
Zahir Osman
February 2011
Chapter 1
1.
Introduction
Commercial banks in Malaysia are the largest component and the most vital component
in country when the financial institutions are concern. With the liberalization,
deregulation and change in technological environment, the banking industry has
become more integrated. This has created highly competitive market environment in
banking industry. In today business, a customer loss is a customer gain for a
competitor. Due to stiffer market competition, commercial banks need more effort to be
done to retain their existing customer as much as they do on acquiring them. The
banking industry in Malaysia today has become very dynamic, competitive and complex
environment where the financial products and services offered by the commercial banks
have only minor differences where the situation of the industry is having tremendous
increase in customer demand which require greater transformation in the industry.
Commercial banks which are previously known as product oriented banks are
progressively more become customer oriented which is in line with the principle of
relational marketing where it puts a greater emphasis on customer loyalty.
1.1 Background
Aftermath of Asian Financial Crisis in 1997, commercial banks in Malaysia had gone
through a series of consolidation processes. The consolidation cannot be avoided
because the government wanted to make sure that commercial banks are ready to face
the challenge of globalization in banking industry. Prior to the crisis in 1997, there were
52 local commercial banks in Malaysia. This number has been reduced to only 9 local
commercial banks that are operating today.
With only 9 local commercial banks which are operating in local banking market, the
competition among them has become more intense especially in capturing and retaining
their customers. The competition is not only among the local commercial banks, but
they also have to face with competition posed by the foreign commercial banks that
operate in Malaysia. Hence, commercial banking players in Malaysia have to take
proactive measures in providing high quality services and products to fulfill the needs
and wants of their customers. To achieve this, commercial banks need to know the
expectation of their customers for the services and products offered.
Table 1.1
List of Commercial Banks in Malaysia
NO
LOCAL COMMERCIAL BANKS
1
2
3
4
5
6
7
Maybank Bhd
CIMB Bank Bhd
Alliance Bank Bhd
Affin Bank Bhd
Public Bank Bhd
RHB Bank Bhd
AmBank Bhd
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
EON Bank Bhd
Hong Leong Bank Bhd
Bangkok Bank Bhd
Bank of America (Malaysia) Bhd
Bank of China(Malaysia) Bhd
Bank of Tokyo-Mitsubishi UFJ (Malaysia) Bhd
Citibank Bhd
Deutsche Bank (Malaysia) Bhd
HSBC Bank (Malaysia) Bhd
Industrial and Commercial Bank of China (Malaysia) Bhd
J.P. Morgan Chase Bank Bhd
OCBC Bank (Malaysia) Bhd
Standard Chartered Bank (Malaysia) Bhd
The Bank of Nova Scotia Bhd
The Royal Bank of Scotland Bhd
United Overseas Bank (Malaysia) Bhd
Sumitomo Mitsui Banking Corporation Malaysia Bhd
OWNERSHIP
Local
Local
Local
Local
Local
Local
Local
Local
Local
Foreign
Foreign
Foreign
Foreign
Foreign
Foreign
Foreign
Foreign
Foreign
Foreign
Foreign
Foreign
Foreign
Foreign
Foreign
source : Bank Negara Malaysia Report 2010
For the past decade, the financial service
industry has undergone many drastic
changes which caused the financial services market competition to become very
intense, very minor growth in primary demand and increased deregulation.(Bloemer,
Ruyters and Peeters, 1998). In the current market place, the relationship that has been
committed and inherited between the customer and the bank is becoming increasingly
scarce (Levesque and Mc Dougall, 1996). There are many strategies have been adopted
by the banks in their attempts to retain their existing customers. Many banks have
introduced creative and innovative banking products in their effort to strengthen their
customer loyalty (Meidan, 1996). Although such innovations of financial products are
much welcomed by the customers, it can be easily imitated by the competitors in
market. There are critics saying that commercial banks should emphasize on intangibles
and difficult to be copied by the competitors such as service quality and customer
satisfaction (Worchester, 1997 ; Yavas and Shemwell 1996)
Commercial banks previously were comfortably operated in a quite stable environment.
However, things have changed completely today where the commercial banks are
facing intense competition from their competitors in a most deregulated environment.
Competition will continue to be the determining factor in the current financial services
industry and to find a place in this red ocean environment essential for the commercial
banks to ensure their future profitability and their survival. Commercial banks that fail
to acknowledge the changes that already taken place in the financial service industry
and protect their competitive advantage will be sooner or later drown in the red ocean
(Zineldin, 2006).
Commercial banks now started to recognize the facts that no bank can offer the best
product or services and become the best commercial bank to their customer. They are
pushed to come out with the right approach to counter the stiff competitions that are
taking place and initiate the proper actions to upgrade the quality of their products and
services (Zineldin, 1996; Olsen, 1992). Commercial banks have to establish effective
customer relationship management that can bring more added value rather than just
depend on the value of core products. This can be achieved through the combination of
tangible and intangible factors to the core products which eventually will strengthen
and enhance the surrounding of the products.
Most commercial banks adopt positioning strategy to differentiate their banks from the
competitors in their effort to be the most preferred commercial bank to their customers.
The ability of commercial banks to position themselves in the market indirectly will
portray those commercial banks are competitive. Competitiveness of the commercial
banks can be translated as competitive in management and marketing strategies,
competitive in use of information technology, competitive in managing the quality of its
products and services and competitive in its ability to administer future customer
relationship that is sensitive and responsive to the market changes and customer
needs and wants.
1.2 Commercial Banking Outlook in Malaysia
The banking in Malaysia encompassing commercial banks, investment banks and
Islamic Banks is the main fund mobilizer and the important source of funding to
generate economic activities. The non-bank financial intermediaries including
development financial institutions, provident and provision funds, insurance companies,
and takaful operators, are complementing the banking industry in activating savings
and fulfill the needs and wants of the economy (Bank Negara Malaysia , 2010).
The Central Bank of Malaysia is the top in the monetary and banking structure in the
country. The primary objectives of the Central Bank of Malaysia a as defined in the
Central Bank of Malaysia Act 1958 are to issue currency and keep the reserves
safeguarding the value of the currency, act as a banker and financial adviser to the
Government, promote monetary stability and a sound financial structure, promote the
reliable, efficient and smooth operation of national payment and settlement systems
and to ensure that the national payment and settlement systems policy is directed to
the advantage of Malaysia, and Influence the credit situation to the advantage of
Malaysia. To fulfill all the above objectives, the Central Bank of Malaysia is given the
legal power under the laws to regulate and monitor the banking institutions and nonfinancial intermediaries (BAFIA, 1989).
After the financial crisis of 1997 and 1998, Malaysia has put more effort in
strengthening institutional capacity through merger and strengthening the regulation
and supervision framework. The government has initiated powerful domestic banking
institutions while progressively pushing up the banking sector to more competitive
environment. The actions takes obviously have produced a positive result. The merger
exercise of 22 banks into 9 anchor banking group has resulted sizeable and profitable
banking groups that remain strong and able to face the global financial crisis recently.
The capital strength of the commercial banks enhanced with the sufficient liquidity in
the financial system, given a shield against the global financial downturn. The nonperforming loans in the commercial banks decreased significantly in 2009 (Bank Negara
Malaysia, 2009).
1.3 Problem Statement
Despite the uncertainty of global financial and economic situation, consumers in
particular are expected to face bumpy ride and difficult environment which eventually
would require increasing demand for financing. There is already a situation where
consumers actively looking for the financing in response to overcome the problem faced
due to the financial and economic crisis. Among the moves that have been taken by the
consumers was drawing down on internal funds, using overdraft facilities, as well as
looking into alternative option such as personal financing from the commercial banks.
Banks in the Asia-Pacific banks are believed to be diminishing short on customer loyalty.
Banks are experiencing the lost of growth opportunities as their current customers are
looking for better deals from their competitors. Of the over 4,700 retail banking
customers across Singapore (16%), China (34%), Hong Kong (16%), New Zealand
(17%) and Australia (17%) who were surveyed, most of them felt that they are not
appreciated, recognized and not properly rewarded by their respective bank (Chua,
2010). Research reveals that 63% of the respondent admitted that they have other
bank products outside their main bank. Just 26%that have more than four products and
20% have only a product with their main bank. The low number of product the
customers hold means that the banks will have the opportunity to sell the now products
to their current customers. However it also translates the customers concerns by
concentrating their banking products with only one bank. There is a diminishing
customer loyalty to the main bank as consumers are moving towards establishing
relationships with several banks which the customers deem that can give them better
deals and returns. It is not about changing banks than going to other banks when the
new needs and wants arise. Therefore, it is prudence for the banks to alter their value
propositions by combining product packaging, pricing and access to value added
services to offer the current customers the motivation to provide them more business.
To strengthen customer loyalty, banks must consider institutionalizing the client
relationships by shifting towards discretionary management and providing trusted
advisory services that are attached to the banks and not only to the Relationship
Managers. The other way is to raise the customers’ holdings of sticky bank products
such as loans and illiquid investments. Even then, customers with more than one
product with their banks have impression that their loyalty is not valued and sufficiently
recognized.
While 62% of the respondents believe their banks are aware of their multiple product
holdings, only 29% of bank customers feel they are being rewarded for this loyalty.
Almost 80% of the bank customers indicated they would value a loyalty program. Bank
customers who have more than one product with their bank are expecting that they will
be fairly rewarded for supporting their banks. Banks will have to be more innovative to
recognize their customers before they decide to approach other banks for better deals
and returns. Besides considering real rewards through savings and other value added
services, the banks must be able to make sure there is a visible acknowledgement
through key interactions and communications. Successful customer loyalty is all about
to make customers feel that their needs and wants fully understood and acknowledged
by their banks. To accomplish this, a greater customer experience that is steady across
all channels is needed.
1.4 Research Questions
The fact is that there are many factors that contribute to the loyalty of customers
towards their banks. Since customer loyalty is very important issue in financial industry,
this study will seek out those factors that will lead to the customer’s loyalty with their
current bank.
In order to get the suitable solution to overcome the problem faced by the customers
with regards to their loyalty with their present banks, this research is designed to
answer the following questions:
1.
Does service quality of commercial banks will lead to customer’s
satisfaction?
2.
Does trust towards commercial banks will lead to customer’s satisfaction?
3.
Does image of commercial banks will lead to customer’s satisfaction?
4.
Does customer’s satisfaction mediates the relationship between service quality
and customer’s loyalty?
5.
Does customer’s satisfaction mediates the relationship between trust and
customer’s loyalty?
6.
Does customer’s satisfaction mediates the relationship between image and
customer’s loyalty?
7.
Does corporate social responsibility of commercial banks has moderating effect
on customer’s satisfaction and customer’s loyalty relationship?
1.5
Research Objectives
Through the designed research questions as mention above, this study aims to find
whether service quality provided by the commercial banks will lead to customer’s
satisfaction. Customers are actively seeking financing and other banking services to
meet their banking needs. The ability of commercial banks to provide superior service
quality usually satisfies the customers once their need and wants are fulfilled. Since
the product in banking industry is almost similar, service quality will make the difference
among the banks. Delivering service quality by commercial banks today is consider very
vital strategy to success in facing the stiff financial market competition (Parasuraman et
al., 1985; Reichheld and Sasser, 1990; Zeithaml et al., 1990, 1996).
Second objective is to determine whether service quality provided by the bank will lead
to customer loyalty. Many studies show that high quality of service will have many
beneficial behavioral intentions such as positive publicity, recommended to others,
remain loyal to the company, willing to pay higher prices, and etc. Many studies also
show that if the service quality is low. , customers will behave negatively and will show
behavior such as negative publicity the company, for services to other companies,
reducing the company's business dealings, etc.
Third objective is to determine whether consumers’ trust with their banks will lead to
their satisfaction. Trust is an important element when customer deals in banking
transaction with their respective bank. Customers will remain loyal towards their
respective banks base on the service quality provided. For banks to win the trust from
their customers, they must show and proof t their integrity to their customers. This is
very crucial for the banks to enhance their relationship with their customers.
Fourth objective is to determine whether customer trust will lead to customer loyalty
towards their bank. Trust is a very crucial issue in banking industry especially mostly all
the banking transactions involve money. It is very important to the banks to make their
customers think that the bank can be trusted when they are dealing with the bank and
make the customers feel safe and comfortable in their dealings.
Fifth objective is to determine whether image of commercial banks will lead to customer
loyalty towards their respective banks. It is very important for the commercial banks to
have a good image in the eyes of their customers where it will likely to attract more
customers to visit to the banks for banking and financing transactions. Image is the
most important element that the customer will consider especially in the service
business when they make assessment whether to receive the service offered (Gronroos,
1984).
Sixth objective is to determine whether customer satisfaction of commercial banks will
lead to customer loyalty towards their respective banks. Many studies suggest that
when customers satisfy with the product or service offered by the company, customers
tend to be more loyal and will produce positive behavior towards the company such as
repeat purchase, word of mouth and etc. It is very important for the bank to ensure
that their customers always satisfy with the product and service offered if the bank
wants to retain their customers in the future.
Seventh objective is to determine whether satisfaction mediates the relationship
between service quality and customer’s loyalty. This study will look whether there is
through service quality will lead to satisfaction and eventually lead to customer loyalty
with the bank.
Eighth Objective is to determine whether satisfaction mediates the relationship between
trust and Customer’s loyalty. This study will look whether there is with trust, it will lead
to satisfaction and eventually lead to customer loyalty with the bank. When the
customer has trust in this bank, it will make the customer more satisfy and eventually
will make the customer more loyal towards his bank.
Nineth objective is to determine whether corporate social responsibility of commercial
banks has moderating effect on customer’s satisfaction and customer’s loyalty
relationship. This study will look whether corporate social responsibility can moderate
the relationship between customer satisfaction and customer loyalty. It is very
important for commercial banks to understand that their contribution to the society can
have a great impact on their business. Besides to maximize the profit which are their
main business objectives, banks’ contribution to the society also equally important.
Tenth objective is to determine whether corporate social responsibility of commercial
banks has moderating effect on bank image and customer’s loyalty relationship. This
study will look whether corporate social responsibility of the bank will enhance the
customer loyalty through bank image.
1.6
Significance of Study
This study will contribute to the better services provided for bank’s customers. Among
the significance of this study that it will give input to the commercial banks and the
government who is policy making and the prime stakeholder to improve and develop
effective strategy to create the superior service quality for bank’s customers so that can
satisfy their needs and retain their loyal customer .
Commercial banks can use the findings of this study to formulate and make proper
planning in providing reliable banking service to the customers. This will elevate the
level dependency of the customers with the bank. Furthermore, the findings will enable
to better understand the needs and wants of their customers.
Commercial banks would be able to respond swiftly to address the needs of customers.
Banks can make decision better in responding to the customers’ problems. By being
more responsiveness to the needs of the customers, it will encourage customers to
approach the bank more frequent due to the time taken by the bank to address and
solve their problems.
Commercial banks in particular will be able to come out with an effective strategy and
policy to establish a good relationship with the customers in providing better financial
service and customer relationship management with the customers. Banks would be
able to formulate effective strategy in maintaining strong relationship with their
customers. This is very important for the bank to retain their customers as long as
possible.
This study also will provide findings that can be used by commercial banks to improve
their image by formulating the right relationship marketing strategy. Banks with positive
image in the eyes of their customers will be able to attract and retain their existing
customers in receiving the services from respective banks.
Besides commercial banks, other stakeholders such as government agencies such as
Ministry of International Trade and Industry, Ministry of Finance, MARA, and SME
Corporation Malaysia will be very much interested on the findings of this study. They
can make used of the information from this research findings to formulate effective
policies and strategies to ensure the customers will benefit from superior quality
services for the customers. This will increase the role played by the government
agencies in providing the access of financing to customers. With the right strategies and
policies, the government agencies would be able to educate and provide the services
and products that will fulfill the needs and wants of the public.
1.7
Scope of Study
To ensure a comprehensive findings and results so the valid generalization can be
made, the scope off this study will involve commercial banks’ customers. The
respondents will be selected randomly from Klang Valley. The reason why this study
covers only Klang Valley are because all commercial banks operating in Malaysia are
available in Klang Valley and Klang Valley also has the highest number of commercial
bank customer. By covering the Klang Valley, this research would be able to make
assessment of the success of commercial banks customer’s loyalty.
1.8
Definition of Concept
1.8.1 Service Quality
Conventionally, service quality has been conceptualized as the difference between client
expectations regarding the service to be received and perceptions of the service being
received (Grönroos, 2001) ; Parasuraman et al. 1988).Service quality has been referred
as the extent to which a service meets customers’ needs or expectations (Lewis &
Mitchell, 1990; Dotchin & Oakland, 1994). It is also conceptualized as the consumer’s
overall impression of the relative inferiority or superiority of the services (Zeithaml,
Berry, & Parasuraman, 1990).
Service Quality Dimensions
Parasuraman et al. (1988) acknowledged five dimensions of service quality (reliability,
responsiveness, assurance, empathy, and tangibles) that link specific service
characteristics to consumers’ expectations.
(a) Tangibles - physical facilities, equipmentand appearance of personnel;
(b) Empathy - caring, individualized attention;
(c) Assurance - knowledge and cour tesy of employees and their ability to convey trust
and confidence;
(d) Reliability - ability to perform the promised service dependably and accurately; and
(e) Responsiveness - willingness to help customers and provide prompt service.
After a complete evaluation of service quality studies, Asubonteng, McCleary, and Swan
(1996) concluded that the number of service quality dimensions varies in different
industries. For example, Kettinger and Lee (1994) recognized four dimensions in a
study of information systems (IS) quality, which did not have physical dimension.
Cronin and Taylor (1992) developed a one-factor measurement instrument instead of
the five-factor measures proposed by Parasuraman et al. (1988).
1.8.2 Trust
Trust is considered as one of the most important antecedent of stable and collaborative
relationships. Researchers had recognized that trust is vital for constructing and
sustaining long-term relationships (Rousseau, Sitkin, Burt, & Camerer, 1998; Singh &
Sirdeshmukh, 2000). Morgan and Hunt (1994) stated that trust emerge only when one
party has belief in an exchange partner’s trustworthiness and honesty. While defining
trust Moorman, Deshpande, and Zaltman (1993) referred to the readiness to rely on an
trade partner in whom one has confidence. According to Lau and Lee (1999), if one
party trusts another party that eventually engenders positive behavioral intentions
towards the second party.
1.8.3 Image
In highly competitive sectors like banking, corporate image represents an asset which
allows firms to differentiate and increase their success chances. Nevertheless, reality
proves that financial institutions often show a weak brand with little knowledge among
customers (Debling, 2000; Harris, 2002). In fact, firms still give priority to strictly
economical results rather than those based on brand and image in the market (de
Chernatony and Cottam, 2006).
(Granbois, 1981; Korgaonkar et al., 1985), viewed as a critical aspect of a company’s
ability to maintain its market position, as image has been related to core aspects of
organizational success such as customer patronage. (Zimmer and Golden, 1988), view
image as the “overall impression” left on the minds of customers,
as a “gestalt”
1.8.4 Customer Satisfaction
Customer satisfaction is a renowned and recognized concept in several areas like
marketing, consumer research, economic psychology, welfare-economics, and
economics. The most common interpretations obtained from various authors reflect the
idea that satisfaction is a feeling which results from a process of evaluating what has
been received against what was expected, including the purchase decision itself and the
needs and wants associated with the purchase (Armstrong & Kotler, 1996). Bitner &
Zeithaml (2003) stated that satisfaction is the customers’ evaluation of a product or
service in terms of whether that product or service has met their needs and
expectations. According to Boselie, Hesselink, and Wiele (2002) satisfaction is a
positive, affective state resulting from the appraisal of all aspects of a party’s working
relationship with another. The definition provided by Boselie et al. (2002) will be used
for this study.
1.8.5 Corporate Social Responsibility
While there is no universally accepted definition, CSR generally refers to a firm’s
activities, organizational processes, and status in relation to its perceived societal or
stakeholder obligations (Davis, 1973; Wartick and Cochran, 1985; Wood, 1991; Sen and
Bhattacharya, 2001). Responsibility means different things to different stakeholders –
organizations, governments (head office and host), consumers, employees, etc.
(Dawkins and Lewis, 2003; Frankental, 2001). Murray and Vogel (1997) defined CSR
pro-social corporate endeavors. While Davis and Blomstrom, (1975) referred CSR as the
managerial obligation to take action to protect and improve both the welfare of society
as a whole and the interest of organization
Much has been written on what constitutes CSR and although many viewpoints exist,
Carroll’s (1979) conceptualization of the responsibilities of firms has remained a
consistently accepted approach, particularly with respect to empirical study. Carroll’s
(1979) conceptualization includes four social responsibilities, namely:
(1) the economic responsibility to generate profits, provide jobs, and create products
that consumers want;
(2) the legal responsibility to comply with local, state, federal, and relevant international
laws;
(3) the ethical responsibility to meet other social expectations, not written as law (e.g.
avoiding harm or social injury, respecting people’s moral rights, doing what is right
and just); and
(4) the discretionary responsibility to meet additional behaviors and activities that
society finds desirable (e.g. contributing resources to various kinds of social or
cultural enterprises; providing employee benefits such as training and improved
salaries).
1.8.6 Loyalty
As identified by the researchers that customer loyalty as a construct is comprised of
both customers’ attitudes and behaviors. Customers’ attitudinal component represents
notions like: repurchase intention or purchasing additional products or services from the
same company, willingness of recommending the company to others, demonstration of
such commitment to the company by exhibiting a resistance to switching to another
competitor (Cronin & Taylor, 1992; Narayandas, 1996; Prus & Brandt, 1995), and
willingness to pay a price premium (Zeithaml, Berry, & Parasuraman, 1996).
On the other hand, the behavioral aspect of customer loyalty represents- actual repeat
purchase of products or services that includes purchasing more and different products
or services from the same company, recommending the company to others, and
reflecting a long-term choice probability for the brand (Feick, Lee, & Lee, 2001). It can
be concluded that customer loyalty expresses an intended behavior related to the
product or service or to the company. Pearson (1996) has defined customer loyalty as
the mind-set of the customers who hold favorable attitudes toward a company, commit
to repurchase the company’s product/service, and recommend the product/service to
others. The definition of Pearson (1996) will be used for this study.
1.8.7 Limitation
This study was conducted and confines within the following limitations which were the
precincts of this studies:
1)
The geographical area is limited to Klang Valley only.
2)
The survey participants must be able to write and read in English
and the minimum age of 18 years old.
3)
The survey participants must have at least one active bank
account.
4)
The survey participants must be staying in Malaysia.
5)
This study focuses the impact on service quality, customer
satisfaction, image and trust on customer loyalty. Product quality
was not considered in this study.
1.9
Steps in this research
In the chapter two of this research we have a look on previous studies that had
been done on the topic of customer loyalty. In the chapter three will have a look
on the methodology of this research. In the chapter four, will discuss the
analysis and findings of this research. In the chapter five will discuss the
conclusion of this research and will propose further research that can be done
on this topic.
Literature Review
Chapter 2
2.1
Underpinning Theory
2.1.1 Expectation Disconfirmation Theory
This theory suggested that individuals foresee there will be a certain level of service
when they involve in a purchase transaction (Oliver 1977 and Oliver 1980). When
customer get into the actual service, they will have a convincing perception with
regards to the service performance they are involving. There will be some degree of
positive and negative disconfirmation to develop when pre and post purchase
anticipations are evaluated which in turn will influence the overall satisfaction. Positive
disconfirmation will occur when the service performance is above the service
expectation where it will lead to the higher satisfaction. On the other hand, the negative
disconfirmation will occur when the service performance is below from the service
expectation where it will result a lower satisfaction of the customer. This theory is very
well known in the area of marketing and lately has became much admired in other
academically domains such as information systems and electronic commerce
(Bhattacherjee 2001; Bhattacherjee 2001 and Khalifa 2002). Customer satisfaction is
one of the most crucial factors for banking services provider. However, banks are
keener in the results of customer satisfaction. Oliver and his co-researchers (Oliver and
Swan, 1989a; Oliver, 1993) improve the original of expectancy disconfirmation by
including performance, affect and equity as the factors determine customer satisfaction
and repurchase intention. Disconfirmation the extent to which performance exceeds,
equals, or become short of an individual’s expectations which will produce positive,
zero, and negative disconfirmation, respectively (Oliver and Swan, 1989). Previous
research has identified that it is necessary for each performance dimension to have
equivalent individual judgments of disconfirmation. Previous studies have showed that
research for this model hold the conceptualization of service quality as a separate
construct which is distinct from customer satisfaction (Bitner and Hubbert, 1994). Oliver
(1980) found satisfaction and dissatisfaction in terms of customer’s expectation
disconfirmation.
2.1.2 Theory of Cognitive-Affective-Conative Behavior
Earlier studies on behavioral insight in customer loyalty which were done back in 1970s,
many researchers had focused the loyalty measurement from the view of repeat
purchase. The most important measurement model of customer loyalty is Oliver’s fourstage loyalty purchasing model Oliver, 1977; Sawmong and Omar, 2004). Cognitiveaffect-conation pattern model is the main source of Oliver (1997) model framework and
he proposed that customer can be loyal at every stage of the above mentioned model
(cognitive loyalty-affective loyalty-conative loyalty-action loyalty). The first phase which
is cognitive loyalty, cognition is the resultant of the earlier or specific comprehension or
on current experienced-based information. The customer loyalty in this circumstance is
an apparent nature. The strength of loyalty at this phase is weightless because it is just
a mere performance. This is because customers are more aware about cost and benefit
than other else. At this stage, if satisfaction starts to surface, it will be part of the
customer experience and starts to take on affective implication. Sivadas and Baker
(2000), studies the customer switching behavior in service industries, found that
customers form their conclusion prior service or product on several factors such as cost
and benefit, better prices or services delivery from the competitors and therefore
influence customer loyalty (Sawmong and Omar, 2004).
The second phase is affective loyalty. This stage of loyalty is formed based on affect.
During this period, a fondness or attitude towards the brand starts to develop through
accumulation of satisfying usage occasions. This reveals the pleasure aspect of the
satisfaction meaning which is pleasurable fulfillment. Persistency at this phase is known
as affective loyalty and programmed in the customer’s mind as cognition and affect
(Sawmong and Omar, 2004).
The third phase is conative loyalty. The next phase of loyalty development is the
conative (behavioral intention) phase. Loyalty during this period is a matter repeated
events of encouraging affect in respect to the services. Conation can be defined as the
product or service commitment to repurchase or repeat buying. Customer during this
stage is committed to repeat purchase or to re-patronize or maintain the frequency use
of the product or service consistency in the future. Therefore conative loyalty is a phase
of loyalty that has, initially, seems to be profoundly held commitment to purchase as
mentioned in the loyalty definition (Sawmong and Omar, 2004).
The fourth phase of loyalty is action loyalty. Action loyalty is the last phase of customer
loyalty. During this phase, action loyalty emerges out of prior intentions. Action loyalty
phase depicts the motivated intention that progress from the previous phases of loyalty
transforming into willingness to take action (Sawmong and Omar, 2004).
As acknowledged by Oliver (1997), action loyalty phase has not been studied in the
literature until this point in time. Majority of the researches only concentrated on the
non-action loyalties which are cognitive, affective and conative loyalty. This is because
action loyalty is difficult to observe and measure despite it is ideal to be gauged. Due to
the dimness, most researchers operationalized only at conative phase or the behavioral
intention measure. Therefore, Oliver’s four-phase purchasing model concept will be
employed and the conative loyalty approach will be adopted as the foundation to
formulate the study conceptual model.
2.2
Customer Loyalty
The concept of customer loyalty has been researched for the past decades in business
industries. Loyalty is a commitment of current customer in respect to a particular store,
brand and service provider, when there are other alternatives that the current customer
can choose for (Shankar et al. 2003). It forms positive attitudes by producing repetitive
purchasing behavior from time to time. There is a strong connection customer loyalty
and firm’s profit. Zeithaml, (2000), states that previous researches look at customer
loyalty as being either attitudinal or behavioral. The behavioral perspective the
customer is loyal as long as they continue to purchase and use the goods or services
(Woodside et al., 1989; Parasuraman et al., 1988; Zeithaml et al., 1996). Reicheld
(2003) suggested that the most superior evidence of the customer loyalty is the
proportion amount in percentage of current customers who are having lots of
enthusiasm to recommend a specific good or service to their friends. Whereas the
attitudinal perspective, the current customers have a feeling of belongings to a specific
product or service or commitment of the current customers towards a specific good or
service. Baumann et al. (2005) found that Day (1969) had introduced the concept of
customer loyalty covering both behavioral and attitudinal dimensions forty years ago.
The behavioral approach of customer loyalty has certain criterion such as word of
mouth, referrals, share-of-wallet and repeat purchase. Meanwhile, attitudinal approach
has criterion such as commitment and emotional attachment. Pearson (1996) has
defined customer loyalty as a mindset of the customers who hold favorable attitudes
towards a company, commit to repurchase the company’s product or service, and
recommend the product or service to others.
A review of the previous literatures has revealed that the behavioral perspective of the
customer loyalty has begun to surface back in 1970s. The behavioral perspective for
customer loyalty measurement appeared after the era when most of the researchers
gauged loyalty in the form of repeat purchasing (Sawmong and Ogenyi, 2003). Latest
researches indicate that loyalty is developed in a vibrant and intricate manners and then
mirrored in the common “satisfaction builds loyalty” model (Chaudhuri and Holbrook,
2001). Oliver (1999) has proposed that satisfaction is an important pre-requisite to
loyalty behavior. However, there are also other elements to determine loyalty such as
personal determination and social support (Chi, 2005). Pritchard and Howard (1993,
1997) in their studies found that three crucial antecedents are performance, satisfaction
and customer involvement. Firstly, the excellent and the quality of service performance
can have a great influence of customer’s loyalty (Fick & Ritchie, 1991). Therefore the
large performance quality difference perceptions among competitive offerings increase
the possibility for customer loyalty formation (McConnel, 1968). Second antecedent,
loyalty customer is assumed to be more satisfied compared to less loyal and non-loyal
customers (Hawkins, Best, & Coney, 1989). When the service is well performed and
managed to lock the customers’ satisfaction, it will enhance the attachment of the
customer loyalty towards the service provider (Bitner, 1990). The third antecedent of
the customer loyalty is consumer involvement. Many researchers have discovered that
active participation of customers in purchase decision tend to increase the customer
loyalty towards a particular service provider (Assael, 1987; Backman & Crompton, 1991)
Jones & Sasser, Jr.(1995), defines customer loyalty is the sense of attachment and
affection towards people, product or service of a particular company. These feelings
signify the customers in various form of customer behavior. The eventual measure of
loyalty, definitely, is share of purchase in the category.
Customer Loyalty in Banking Sector
Besides its ability to understand the customers much better, the study of customer
loyalty and the bank performance also will result the increase of market share, financial
performance and minimizing cost of operation. Research performed by Ndubisi and Sinti
(2006) on Malaysian banks showed that the cost will increase to five to six fold in order
to get and serve one new customer as compared to current loyal customer. Even
though there are major benefits with regards to customer loyalty, there is little
information about the real influences of the foundations of the link between banks
performance and customer loyalty. Until today, many studies and understanding being
done on issues of customer satisfaction and customer loyalty are from western views.
In Malaysia and Asean countries, the study on customer satisfaction and customer
loyalty is still lacking and need more to be done. In Malaysia, the in depth study in
customer loyalty is very much needed because it will allow marketing practitioners to
come out with the most effective approach to ensure customer loyalty and customer
satisfaction objective can be achieved especially in banking industry. This research will
produce significant result for both marketing researchers and practitioners in banking
industry that who have interest in customer loyalty.
Customer is one of the crucial factors that be used in banking sector to gauge the
service quality offered by the banks. In view of that, to win the loyalty from the current
and new customers always become the most important objective in banking
organization which banks will decide to take on a relationship marketing approach (Filip
and Anghel, 2007). Many published relationship marketing literature mentioned that
many advantages and benefits brought by a loyal customer to the organization which
will lead to the increase of growth rate and increase in the stability of organization
(Reichheld and Sasser, 1990; Grönroos, 1994). Dick and Basu (1994) suggested that
loyalty is an intricate structure that includes psychological and behavioral elements.
Different types of loyalty are expected to constitute a combination of repeat purchase
and relative attitude towards the business organizations. In view of that, customer
loyalty can be described in term of customer behavior, which will be identical to
customer retention and in term of customer attitude. Behavioral loyalty can be gauged
by the assistance of various quantitative indices such as the number of purchase made
from the business organization product portfolio, acquisition frequency, proportion from
customer total expenses made by a buyer for a certain good or service with regards to
a particular business organization. This type of loyalty is also known as fake loyalty if
the customer’s repeated behavior without coupled by a strong attitude and clear
fondness towards the present bank.
2.3 Service Quality
Service quality is one of the critical elements in determining the success and the
competitiveness of a particular organization. Organization such as banks can distant
itself from the competitors by performing high quality services to its customers. Service
quality is one the favorite areas to the researchers in their studies in retail banking
industries (Avkiran, 1994; Stafford, 1996; Johnston, 1997; Angur et al, 1999; Lasser et
al, 2000; Bahia and Nantel, 2000; Sureshchandar et al, 2002; Gounaris et al, 2003;
Choudhury, 2008). Service quality has been considered as one of the most critical
elements in the retail banking industry (Stanford, 1994). Parasuraman et al. (1985 and
Zeithmal et al. (1990) found that in order for the business organizations to be
successful and survive in the business competition, the most critical strategy is to
deliver a superior service quality to their customers. Newman and Cowling (1996) in
their study mentioned that it is important for the business organization to perform
exceptional service quality for their customers if they want their business to be
profitable and successful. There are many studies have looked into the importance of
service quality as the main element in distinguishing service products and achieving
competitive advantage (Parasuraman et al., 1985; Bolton and Drew, 1991; and Cronin
and Taylor, 1992). Since financial services are almost the same among the banks, it is
very important for the banks to focus into the improvement of service quality offered to
their customers if they want to be looked different in doing their business in a very
competitive market. Roth and Van der Velde (1991) and Bennet (1992) have found
that there is a positive correlation between superior service quality and the impressive
financial performance of the business organizations. In addition, ability of the business
organizations to perform superior service quality on their customers will also allow them
to expand their market share (Bowen and Hedges, 1993). Most of the latest marketing
literatures focus on the issue of service quality as how it related to the attitude of the
customers on the relationship between the customer expectation of the service and the
customer’s perception of the service quality provided. This relationship was originally
introduced by Gronroos, (1982) is known as perceived service quality. Groonroos
proposed that perceived service quality is an outcome from the evaluation course of
action because customers compare the service they expect and the perception of
service quality they receive. In view of that, he makes conclusion that service quality
are influence by two factors which are expected service and perceived service.
Parasuraman et al, (1085) suggested that customers make evaluation of service quality
based on the gap expected service and perceived service. Therefore, it is very crucial to
reduce this gap in order to manage service quality effectively. According to Zeithmal,
(1988), service quality is the customer comprehensive evaluation of total excellence
service quality. According to Bolton and Drew (1991), service quality is a kind of
attitude that formed after the customers compare the expectation and performance.
Berry et al. (1990) suggested that organizations can form a strong image and
reputation for service quality by consistently meeting the customer service expectations
because customer is the sole judge in determine the quality of service delivered.
There are various ways to measure service quality which is either comparison of scores
of mean and detail statistical model or latest market research questionnaire. The
current approach to measure perceived service quality can be mapping out from the
Parasuraman et al. (1985) research. Through the exploratory study done on four types
of service companies, they found ten service quality determinants that customers
consistently rank which to be the most important with regards to service quality. The
results from this study was use as a basis to develop customer’s service quality
perception measuring instrument known as SERVQUAL in 1988 and later improved
further in 1991. In improving SERVQUAL, Parasuraman et al., (!988) reconstruct the 10
determinants into five principal-dimensions which are reliability, responsiveness,
assurance, empathy and tangible. Tangibles are defined as physical facilities, equipment
and appearance of personnel. Assurance is defined as knowledge and courtesy of
employees and their capability to demonstrate trust and confidence. Empathy is defines
as caring employees and ability to give individualized attention. Responsiveness is
defined as ability and readiness to assist customers at earliest possible. Reliability is
defined as capability to performed the pledged service without fail and correctly.
Following their footsteps, other researchers also follow the same suit by adopting
SERVQUAL model to measure service quality across industries such as Blanchard
(1994), Donnelly et al. (1995), Angur et al. (1999), Lassar (2000), Brysland and Curry
(2001), Wisniewski (2001) and Kang et al. (2002). Newman (2001) applied the
SERVQUAL model to gauge service quality in banking industry. In view of the above,
the five dimensions of service quality proposed by Parasuraman et al. (1988) will be
employed for this research.
2.4 Customer Satisfaction
Customer satisfaction is an intricate construct. There are many definition of customer
satisfaction have been given by different authors (Besterfield, 1994; Barsky, 1995; Kanji
and Moura, 2002; Fecikova, 2004). Recently, researchers have made an argument that
there is a difference between customer satisfaction associated to tangible product and
customer satisfaction associated to intangible product. The difference is a result of the
intrinsic intangibility and perishability of the intangible good and unable to divide
production and utilization. Therefore, customer satisfaction of tangible and intangible
goods may be derived and influenced by different element and need to be treated
separately and distinctly (Veloutsou et al., 2005).
Satisfaction is regarded as customer’s evaluation of post-purchase and affective
reaction to the experience of overall product or service (Oliver 1992). Satisfaction is
regarded as a powerful predictor to foresee the behavioral variables such as word-ofmouth recommendations, repurchase intentions and loyalty (Eggert & Ulaga, 2002).
According to Levesque and McDougall (1996), satisfaction generally an overall
consumer attitude towards service provider, or an emotional response to the distinction
between what customer anticipate and what consumer receives (Zineldin, 2000),
concerning the accomplishment of some goal, need or desire (Oliver, 1999). Gerpott et
al. (2001) provides the same description by proposing that the customer satisfaction is
based on a customer’s estimated experience of the degree to which a provider’s
services accomplish what the customer expects. Customer satisfaction brings many
advantages to the service provider. Customers who are experiencing satisfaction are
less price sensitive, will buy additional products and furthermore, hardly can be
influenced by competitors and eventually they tend to stay loyal longer (Zineldin, 2000).
Even though customer satisfaction is vital, some businesses tend to look at it not
equally important. Many customers are considered that their satisfaction less important
such as the company that is unprofitable whereas there are companies who view the
important of customer satisfaction and very crucial for the companies’ survival and their
main aim will always to satisfy their customer (Bhote, 1996). Ovenden (1995) proposes
that organisations have to be alert on how well or badly its customers are being taken
care of. Customers’ who are seldomly complain, and when they do, it might be too late
to stop them from switching to the competitor. For bank customers, they ask
themselves regarding the level of services and decide about the short comings and lack
of service before decide the repurchase behavior after utilize the service. Customers will
be most satisfied if they get maximum usage of service and benefit at the lower cost
(Jamal & Kamal, 2004). If a customer is experiencing satisfaction, the loyalty will
automatically injected and the customer remains loyal for a longer and longer period of
time (Giese & Cote, 2000). There are many evidences suggested that customer
satisfaction should be seen and viewed as an attitude (Yi, 1990).
The most general definition acquired from various researchers mirror the idea that
satisfaction is a feeling which results from a course of action of evaluating what has
been obtained against what was expected, including the buying decision itself and the
needs and wants related with the purchase (Armstrong & Kotler, 1996). Bitner &
Zeithaml (2003) suggested that satisfaction is the customers’ assessment of a product
or service in terms of whether that product or service has attained their needs and
expectations. According to Boselie, Hesselink, and Wiele (2002) satisfaction is a
positive, affective state as a result of the evaluation of all parts of a party’s working
relationship with another.
2.5 Trust
In doing business, trust has been seen as one of the most important antecedents of
steady and two-way relationships. Researchers had found that trust is very crucial for
developing and preserving long-term relationships (Rousseau, Sitkin, Burt, & Camerer,
1998; Singh & Sirdeshmukh, 2000). Morgan and Hunt (1994) proposed that trust
presents only when one party has self-belief in an exchange partner’s reliability and
integrity. Moorman, Deshpande, and Zaltman (1993) stated that the readiness to rely
on a trade partner in whom one has confidence. Lau and Lee (1999) suggested that if
one party trusts another party that ultimately produces positive behavioral intentions
towards the second party. Trust can be developed when one party believes that the
actions of the other party will bring positive results to the first party (Anderson & Narus,
1990). Doney and Cannon (1997) stated that the concerned party also must have the
capability to keep on to meet its responsibility towards its customers within the costbenefits relationship; so, the customer should not only anticipate the positive outcomes
but also believe that these positive outcomes will go on in the future. Trust develops
steadily all the way through the relationship (Sheaves and Barnes, 1996) as customers
get more experience and discover that promises are accomplished and expectations are
met (Urban et al., 2000). Consumers utilize different indication to form opinions of
trust. It has been debated that trust can stem from the reputation of the site,
information provided to the customer (Zeithaml et al., 2000), seals of approval (Urban
et al., 2000), facts such as background information about the company (Kaynama and
Black, 2000), and the design of the user interface (Roy et al., 2001). Anderson and
Weitz (1990) defined trust as cognitive and affective belief that one person hold his
partner will not exploit their vulnerability which is also known as perceived
trustworthiness. Zand (1972) suggested that trust as behavioral intention of one person
act in the manner that inclines towards the risk, uncertainty or heighten the
vulnerability to another person. Mayer et al. (1995) acknowledge that the significance
and interrelation of the belief element (perceived trustworthiness) and behavioral
element (trusting behavior) of trust, but maintains that these are separate
phenomenon. All of the above definitions are in the opinion that the key role of trust as
the management of risk, uncertainty and vulnerability related with exchange. This
underlying principle is mirrored in the essential components of trust. These include:
reliability (Andaleeb, 1996; Dwyer et al., 1987; Morgan and Hunt, 1994); honesty
(Bonoma, 1976; Morgan and Hunt, 1994); predictability (Busch and Hantusch, 2000);
mutuality, an expectation a partner is equally committed, and will act reciprocally to
mutual advantage (Barney and Hansen, 1994; Dwyer et al., 1987); benevolence (Doney
and Cannon, 1997) and forbearance from opportunism (Barney and Hansen, 1994;
Bradrach and Eccles, 1989).
2.6 Image
Corporate image has been recognized as a vital factor in the overall assessment of a
firm (Bitner, 1990) and is debated to be what comes across to the mind of a customer
when they hear the firm’s name. (Nguyen, 2006). There are two main elements of
corporate image: functional and emotional. The functional component is connected to
those tangible characteristics that can easily be gauged, such as the physical setting
offered by the bank; the emotional component is related with those psychological
measurements that are evident from the feelings and attitudes towards the
organization. These kind feelings are originated from the various experiences with an
organization and from the processing of information on the attributes that constitute
functional indicators of image (Kennedy, 1977). Brown et al.’s (2006) found corporate
image at two levels, one relating to the intended image and the other, construed
image. The distinction between the two is the level of intent and the degree to which a
specific image would be projected. For example, a deserved image would be an image
that organizational leaders want their audiences to have of their organization. Whereas,
a construed image is the one that organizational members have a belief that their
audiences have of their organization. Gioia et al. (2000) proposed organizational
identity as an infirm notion which needs to redefine and re-justify by organizational
members. There are also contending conceptions of this view which proposes that it is
either a shared perception or an institutionalized claim available to members (Whetten
and Mackey, 2002). Such a difference is difficult to make. If we were to assume
corporate image and identity as a self-implicating collective construct, we would be
building more weaken forces on both notions, asking members to engage in a steady
restructuring of their organizational self sense (Gioia et al., 2000). Flavian et al. (2005)
state the concept of corporate image as a strategic means that would generate
considerable value for the financial sector. They have a strong belief that financial
institutions, in their mission long-term goal, need to utilize corporate image as a
foundation of competitive advantage. Due to a quite a long time period taken for an
image to be in place, it cannot be simply knocked down and duplicated. Further, it can
detract new contenders from coming into the market and building trust among
customers (Flavian et al., 2004; Herstein et al., 2008). Lewis (2001), Wartick (2002),
Schwaiger (2004), Cornelissen (2004) and Berens and van Riel (2004) have different
view of approached on how the corporate image should be measured. Back in 1960s,
Spector (1961) found six dimensions of corporate image, which were empirically
originated from assessments of the personality characteristics of a business
organization, namely, whether it was dynamic, co-operative, business-wise, of good
character, successful and withdrawn. Dowling (1986, 1993), alternatively, debated that
corporate image is shaped by organizational members and external groups encoding
information connected to both the actual organizational practices and its imaginary or
attributed qualities, such as personal experience, interpersonal communication and
mass media communication, all of which project an image desired by the organization.
Additionally, Dowling (2004) suggested that the characteristics of corporate image
consist of two types of factors: one is more based on fact in nature such as corporate
abilities and financial performance, whereas the other one has a more emotional
character such as social accountability and the uniqueness or personality of the
organization. The dependence on such factors minimizes the abstractness of the
concepts for the creation of a trustworthy device to measure corporate image (Bryman
and Cramer, 2005). However, Fombrun (1996) proposed that the essentials of an
organization’s image comprise its relationships with the stakeholders, the marketing of
brands, its financial performance and its interaction with the community during ordinary
business operations and crises.
2.7 Corporate Social Responsibility
The advantages of corporate social responsibility (CSR) for corporations, including
increased profits, customer loyalty, trust, positive brand attitude and confronting
negative publicity, are well-documented (e.g. Brown and Dacin, 1997; Drumwright,
1996; Maignan and Ferrell, 2001; Murray and Vogel, 1997; Sen and Bhattacharya,
2001; Sen et al., 2006). In view of these known positive effects, CSR approach have
been embraced by the international banks. There is a total number of 30 major
international private banks, including Citigroup, JPMorgan Chase, Bank of America, ABN
Amro, Barclays, HSBC and ING, have signed the Equator Principles agreement which
advocates socially-responsible development (Yeomans, 2005). CSR has irrevocably
become part of the corporate fabric (Pearce and Doh, 2005). Many Business
organizations have initiated extensive corporate social responsibility (CSR) agendas
aimed to spawn stakeholder goodwill and increase market value. Banks around the
world are injecting millions of dollars into different kinds of CSR activities in the pursuit
to reinforce their reputation and get better relationships with stakeholders, including
customers, both business and retail. There is a strong conformity that CSR is concerned
with societal responsibility, although the nature and scope of these responsibilities
remains unclear (Craig Smith, 2003). Some authors (Craig Smith, 2003; Maignan and
Ferrell, 2004) debate that business organizations should only be responsible to
company stakeholders, while other authors firmly state that companies should be
responsible to society as a whole (Brown and Dacin, 1997; Kotler and Lee, 2005). The
expansion of the CSR concept has raised much interest among scholars. Carroll (1979,
1991) outlined the CSR construct by affirming “the social responsibility of business
covers the economic, legal, ethical, and discretionary (philanthropic) anticipations that
society has of organizations.” This concept definition has become fairly widely accepted
(Mohr et al., 2001; del Mar Garcia de los Salmones et al., 2005) and accentuates four
principle types of responsibilities; economic, legal, ethical and philanthropic (Matten and
Crane, 2005). Carroll (1999) furthermore acknowledged that these responsibilities are
primarily left to individual managerial and corporate decision and choice; however, the
anticipation that businesses achieve these goals is motivated by social norms.
2.8
Conceptual Development
2.8.1 Relationship Service Quality and Customer Satisfaction
Over the pas past there are greater emphasis has been placed on service quality and
customer satisfaction in business and academic world as well. Akhbar and Parvez
(2009) found that service quality has strong influence and significantly and positively
related to customer satisfaction in their study on 304 customers of a major private
telecommunication company operating in Bangladesh. Hossain & Leo (2009) in their
study revealed that service quality is a strong antecedent and significantly related to
customer satisfaction in their study of banking industry in Qatar. Munusamy et al.
(2010) studied the banking industry in Malaysia In their research they found that
Assurance has positive relationship but it has no significant effect on customer
satisfaction. Reliability has negative relationship but it has no significant effect on
customer satisfaction. Tangibles have positive relationship and have significant impact
on customer satisfaction. Empathy has positive relationship but it has no significant
effect on customer satisfaction. Responsiveness has positive relationship but no
significant impact on customer satisfaction. Jamal & Anatassiadou (2007) conducted the
study on 200 bank customers in Greece relating to service quality and customer
satisfaction. The result showed that reliability, tangibility and empathy are positively
related to customer satisfaction. The study of service quality and customer satisfaction
in banking industry in Malaysia by Tahir & Bakar (2007) revealed the similar result. The
result from 300 bank customers data were analyzed and showed that overall service
quality provided by the commercial banks was below customers’ expectations.
Responsiveness was rated as the most important dimension followed by reliability,
tangibility, assurance, and empathy. Customers were slightly satisfied with the overall
service quality of the banks.
2.8.2 Relationship Service Quality and Customer Loyalty
Many researchers in various studies have studied the relationship between service
quality and customer loyalty. Rousan et al. (2010) in their study on 322 hotel guests of
hotel industry in Jordon, they found that empathy, reliability, responsiveness and
tangible and assurance significantly predict customer loyalty. The similar result also
found in Chen & Lee (2008) study when the revealed that service quality has strong
and significant relationship with customer loyalty in their International Logistic provider
industry. Liang (2008) study on 308 hotel guests of hotel industry in United Stated
revealed that service quail has a positive influence and significant relationship with
customer loyalty. Clottey et al. (2008) in their study of 972 retail customers of United
States retail industry have found the strong statistical evidence that service quality has
a great influence where it positively and significantly correlated with customer loyalty.
Jamal & Anatassiadou (2007) besides studying the relationship between service quality
and customer satisfaction in banking industry in Greece, they also study the relationship
between service quality and customer loyalty and they found their study that service
quality has a strong impact and positively and significantly related to customer loyalty in
banking industry in Greece.
2.8.3 Relationship Customer Satisfaction and Customer Loyalty
The survival and sustainability of any business organization is largely depends on the
customer satisfaction and customer loyalty. Faullant et al. (2008) in their study on
6172 ski resort customers in Australia have found that customer satisfaction is positively
and significantly correlated to customer loyalty. Pantouvakis & Lymperopoulos (2008)
have done the study on 388 ferry passengers in Creece and revealed that customer
satisfaction has great impact on customer loyalty and positively and significantly
correlated with customer loyalty. Akhbar & Parvez (2009) in their study on 302
Telecommunication customers in Bangladesh have found that customer satisfaction is
significantly and positively related to customer. Hume & Mort (2010) conducted a study
on 250 performing arts members and audience and have found that customer
satisfaction very much has impact on customer loyalty and positively and significantly
related. Chen & Lee (2008) in their study on 261 non Vessel Owners and shippers in
Taiwan’s International Logistic Provider industry has revealed that customer satisfaction
is very critical to customer loyalty and both are positively and significant correlated.
Rizan (2010) studied on customer satisfaction and customer loyalty relationship on 160
passengers in airline industry in Indonesia and have found that customer satisfaction
has a great impact on customer loyalty and positively and significantly influence
customer loyalty.
2.8.4 Relationship Trust and Customer Satisfaction
There are numbers of researches have been done and advocated that customer
satisfaction is the critical factor in developing customer trust. Kantsperger & Huntz
(2010) in their study on 357 E-services customer in Malaysia and Qatar E-Commerce
have revealed that customer satisfaction is the main antecedent to trust and positively
and significantly correlated. Yeh & Li (2001) in their study have also found a similar
result where in their study on 212 m-commerce customers in Taiwan revealed that
customer satisfaction has a stronger impact on trust and significantly and positively
correlated. Ribbink et. al (2005) in their study on 350 online customers in Europe ecommerce industry have found that customer satisfaction has greater influence on trust
and significantly and positively related to trust. Sahadev & Purani (2008) in their study
on 184 University students online customer in e-commerce (India) have found that
customer satisfaction has a strong influence on trust and significantly and positively
correlated. Edwin et al. (2011) studied the B2B financial services in South Africa concur
the above findings where they found that customer satisfaction has a positive and
significant influence on trust.
2.8.5 Relationship Trust and Customer Loyalty
There are quite a number of researches have been done and found the importance of
trust as an antecedent to customer loyalty. Akhbar & Parvez (2009)in their study on
302 Telecommunication customers in Bangladesh telecommunication industry have
revealed that trust has a strong impact and significantly and positively correlated with
customer loyalty. Liang (2008) has done a research on 308 Hotel guests in hotel
industry in United States has revealed the importance of trust in determining customer
loyalty in hotel industry. She found there is a strong impact of trust on customer loyalty
where trust is significantly and positively correlated. Luarn & Lin (2003) has revealed
the importance of trust as an antecedent to customer loyalty in their study on 180
Tourists in Taiwan tourism industry. They found that trust has a stronger relationship
after commitment and customer satisfaction. The relationship is also positively and
significantly correlated. Horppu et. al (2008) in their study on 867 Website magazine
consumer in Finland have found that trust on the web site level are determinant of web
site loyalty where the relationship is positively and significantly correlated. Kassim &
Abdullah (2010) in their study on 357 E-services customer in Malaysia and Qatar ecommerce industry have revealed that trust has a strong influence on customer loyalty
where it is positively and significantly correlated.
2.8.6 Relationship Image and Customer Loyalty
The bank image is an important element that positively or negatively influences the
bank marketing activities. Faullant et. al (2008) in their study on 6172 ski resort
customers in Australia have revealed that image has a strong influence on customer
loyalty and the relationship is positively and significantly correlated. Clottey et. al (2008)
in their study on 972 retail customers in United States retail industry have found that
image is the main determinant on customer loyalty and statistically supported. Bravo et.
al (2009) in their study on 450 bank customers in Spain banking industry have found
that image has positive and significant influence on customer loyalty. Ogba & Tan
(2009) in their study on 250 university students in China telecommunication industry
have revealed that image have positive impact on customer expression of loyalty to
market offering. Kandampully & Hu (2007) in their study on 1500 hotel customers in
Mauritius hotel industry have found that image has a strong influence on customer
loyalty and positively and significantly correlated.
2.8.7 Mediating Effect of Customer Satisfaction on Service Quality and
Customer Loyalty Relationship
Many studies have found that customer satisfaction play a mediating role in the service
quality and customer loyalty relationship. Akhbar & Parvez (2009), in their study on 302
Telecommunication customers in Bangladesh telecommunication industry have found
customer satisfaction to be an important mediator between perceived service quality
and customer loyalty. Ismail et al. (2006),in their study if 115 public companies in
Malaysia have revealed that customer satisfaction to partially mediate the relationship
of reliability and customer loyalty. Kheng et al. (2010) in their study on 238 bank
customers in Malaysia have found that satisfaction has mediating effect on service
quality and loyalty relationship in banking industry. Kumar et. al (2010), in their study
on 100 bank customers in India have revealed that service quality fosters customer’s
attitudinal loyalty through latent customer satisfaction. Chen & Lee (2008) in their study
on 261 non Vessel Owners and shippers in Taiwan International Logistic Provider
industry have found that customer satisfaction has a positive influence on service
quality and customer loyalty relationship.
2.8.8 Mediating Effect of Trust on Customer Satisfaction and Customer
Loyalty Relationship
Many researchers in studying customer satisfaction and customer loyalty relationship
have found that trust has a mediating effect on the relationship. Castenada (2011) in
his study on website customers in Spain has revealed that trust has a significant and
positive mediating effect on customer satisfaction and loyalty relationship. Kerler and
Killough (2009) in their study 289 auditors in auditor and client relationship have found
that trust has a positive and significant influence on customer satisfaction and loyalty
relationship in United States. Wetsch (2005) in his study on customer relationship
management has found that satisfaction over time reinforces the perceived reliability of
the firm and contributes to trust and eventually lead to customer loyalty. Sadeh et al.
(2011) revealed that trust plays an important role on customer satisfaction and loyalty
relationship where trust has appositive and significant mediating effect on the
relationship in e-retailing system in Iran. Valenzuela and Parraga (2006) in their study
on 437 hotel guests in Mexico and Chile have revealed that trust has a mediating effect
on customer satisfaction and loyalty relationship in hotel industry in Mexico and Chile.
2.8.9 Moderating Effect of Corporate Social Responsibility on Customer
Satisfaction and Customer Loyalty Relationship
Quite a number of researchers have regarded the impact of CSR on various factors,
such as word of mouth, loyalty, attitudes, intentions, emotional attachment, shopping
in-store, and brand identification, not many research have focused the relationship
between satisfaction and CSR. Luo and Bhattacharya (2006) examined Fortune 500
companies, discovering a direct relationship between CSR and customer satisfaction.
Their study recognized that satisfaction fully mediated the relationship between CSR
and firm market value. That is, the addition of the customer satisfaction construct
weakens to non-significance the effect of CSR on market value. However, the
researchers also recognized cases where CSR did not all the time lead to customer
satisfaction. Specifically, Luo and Bhattacharya (2006) discovered that, in firms with a
low capability to be innovative, CSR actually reduced customer satisfaction levels and,
through lowered satisfaction, damaged market value. The review of the above studies
indicated that the role of CSR in determining customer satisfaction has obtained less
research attention even though the recognized importance of customer satisfaction in
the marketing literature (Anderson et al., 2004; Fornell et al., 2006; Gruca et al, 2005).
2.8.10 Moderating Effect of Corporate Social Responsibility on Image and
Customer Loyalty Relationship
In present’s highly competitive market environment, many corporations have utilized
CSR as a tactical tool to react to expectations of different stakeholders such as media,
public opinion, nongovernment organizations and even consumers, therefore create a
positive corporate image (Jones, 2005). In reality, companies have viewed CSR
activities as needs, therefore pushed managers to consider how to implement CSR
activities in line with their business strategy (Porter and Kramer, 2006). McWilliams et
al. (2006, p. 4) highlighted that CSR ‘‘should be considered as a form of strategic
investment’’ which ‘‘can be regarded as a type of image building or maintenance.’’ On
the other hand, Fombrun (2005) suggested strengthening corporate image as an
external motivation for corporations to get involve in CSR activities. Garberg and
Fombrun (2006) also pointed out that image gain as relevant results of CSR programs.
Finally, Bendixen and Abratt (2007) studied a large South African MNC’s reputation in
supplier–buyer relationships, signifying that the buyer’s ethical opinion about suppliers
forms the basis of corporate image.
Research Methodology
Chapter 3
3.1
Proposed Model
For the purpose of this study as mentioned on introduction chapter is to seek the
factors that influence customer loyalty in Malaysia banking industry. The customer
loyalty in Malaysia banking industry is developed to provide conceptual framework and
suitable measurement scale to determine the customer loyalty towards banking services
in Malaysia. In the proposed model of this study, there are six latent variables which
are service quality, trust, image, customer satisfaction, corporate social responsibility
and customer loyalty are included as main dimensions. The structural model are used to
capture the causal influences of exogenous latent variables on endogenous latent
variables and endogenous latent variables upon one another.
Figure 3.1 Proposed Conceptual Model
3.2
Research Hypotheses
The following are the research hypotheses tested in this study:
Hypotheses 1: There is a positive relationship between bank service quality and
customer satisfaction
Hypotheses 2: There is a positive relationship between bank service quality and
customer loyalty
Hypotheses 3: There is a positive relationship between trust and customer satisfaction
Hypotheses 4: There is a positive relationship between trust and customer loyalty
Hypotheses 5: There is a positive relationship between image and customer loyalty
Hypotheses 6: There is a positive relationship between customer satisfaction and
customer loyalty
Hypotheses 7: There is a mediating effect of customer satisfaction on bank service
quality and customer loyalty relationship
Hypotheses 8: There is a mediating effect of customer satisfaction on trust and
customer loyalty relationship
Hypotheses 9: There is a moderating effect of corporate social responsibility on
customer satisfaction and customer loyalty relationship
Hypotheses 10: There is a moderating effect of corporate social responsibility on
image and customer loyalty relationship
3.3
Definition of Concept
The following terms are defined for the purpose of this study:
Customer Loyalty- is the mind-set of the customers, who hold favorable attitudes
toward a company, commit to repurchase the company’s product/service, and
recommend the product/service to others
Service Quality- is the difference between the customer’s expectation of the service to
be received and the perceptions of service being received
Tangible- is the appearance of physical facilities, equipment, personnel, printed and
visual materials
Reliability- is the ability to perform promised service dependably and accurately
Responsiveness- is the willingness to help customers to provide prompt service
Empathy-are caring and individualized attention
Assurance- are the knowledge and courtesy of staff and their ability to convey trust and
confidence.
Trust- is the situation when one party has confidence in an exchange partner’s reliability
and integrity.
Image-is the net result of all the experiences, impressions, beliefs, feelings and
knowledge that people have about a company.
Customer Satisfaction-is the consumer's fulfillment response. It is a judgment that a
product or service feature, or the product or service itself, provided (or is providing) a
pleasurable level of consumption related fulfillment, including levels of under-or overfulfillment
Corporate Social Responsibility- is an organization’s commitment to operate in an
economically and environmentally sustainable manner while recognizing the interests of
all its stakeholders
3.4 Population
The population consist all elements, individuals, objects or items that characteristics are
being under studied. The population is that being study also known as target population
(Mann, 1005). For the purpose of this study, the population in this research will be the
bank customers who are staying in Klang Valley.
3.5 Sampling
The acceptable level of sample size should be least 200 completed responses to be
required in order to meet the statistical requirements of structural equation modeling
(Bollen, 1989; Hair, et al., 1995). More specifically, several factors were suggested to
be reviewed in determining the sample size: (a) model misspecification (i.e., chance of
omission of relevant variables from the specified model), (b) model size (e.g., it was
most appropriate to have a ratio of 10 respondents per each estimated parameter), (c)
departures from normality (the ratio of respondents to parameters needs to increase
with a generally accepted ratio of 15 respondents for each parameter), and (d)
estimation procedure (maximum likelihood estimation - minimum of 100 to 150) (Hair,
et al, 1995, Klein, 1998). As a rule of thumb, a total of 200 subjects ("Critical Sample
Size") were recommended for the structural equation modeling analysis (Hair, et al.,
1995). The sampling technique for data collection for this study will be simple random
sampling.
3.6 Data Collection Technique
For this study, data from the sample collected by using questionnaire technique through
survey. Saunders et al. (2000) suggested that the superior use of questionnaire is done
by the survey strategy. Hence, questionnaire can be used to in descriptive research
such as that using attitude and view questionnaires and questionnaires of organizational
practices will allow to discover and explain the variability in different phenomenon.
3.7 Questionnaire Design
Self administered questionnaire will be applied for primary data collection. For the
purpose of this study, the combination of questionnaires is used. The duplicated
statements are excluded. Due to the differences in banking environment in Malaysia
from other countries, statements have to be verifies to ensure whether changes or
localization is needed or not. Sallant and Dillman (1994) suggested that to get the
highest possible response rate, clear and concise explanation must be given to
respondent why they have to complete the first page. With regards to this, the cover
page is placed on the first page of the questionnaire. The statements posed in the
questionnaire attempt to discover the factors that influence bank customer loyalty in
Malaysia. The opinion of the respondents measured by asking them to specify on a fivepoint Likert type scales, attached on “1=Strongly Agree”, “2= Disagree”, “3=Neutral”,
“4=Agree” and “5=Strongly Agree”, their agreement and disagreement with a sequence
of statements that set apart the factors for loyalty model of the customers in Malaysia
banking industry. Likert scales were introduces in 1932 as the five-point bi-polar
response format that the majority people are familiar with presently. The scales always
ask respondent to what extent they agree or disagree with certain statement and most
importantly is to have at least five response categories (Likert, 1932)
3.8 Data Analysis
Data obtained from the survey is analyzed by utilizing the software Statistical Package
for the Social Sciences (SPSS 15.0) and Analysis of Moment Structure (AMOS 5.0,
Arbuckle, 1998). Descriptive Analyses, Confirmatory Factor Analyses (CFA), and
Structural Equation Model (SEM) analyses techniques applied in this study. Descriptive
analyses give SEM the essential understanding of the data, such as means, variance,
distributions (frequencies), and standard deviation. Additionally, demographic
characteristics of the sample also determined. Tests on the efficacy of the proposed
model by examining the model fit for the measurement and structural models. In
general, a structural equation model has of 2 main parts: (1) Latent variables
(Structural) model, which specifies the relationships among the dependent and the
independent latent variables and (2) Measurement model, which specifies the
relationship among the latent variables and their indicators (Bollen, 1989). To examine
the efficacy of the proposed model, SEM is employed. The main advantages of the SEM,
it allows instantaneous equation estimation that evaluates both measurement issues
and causal relationships in one model and the use of path analysis that statistically and
visually illustrates the system of complex relationships. A path diagram helps clearly
present the direction of each effect and the correlation or non correlation among all
variables in one complete picture (Bollen, 1989). Structural equation analysis includes
investigations of both structural and measurement models. The structural model is the
path model, which relates the independent to the dependent variables. Structural model
analysis is an essential device for the identification of the causal relationship among
numerous constructs in which separate multiple regression equations are estimated
simultaneously (Henderson, 1999). The measurement model allowed the use of several
variables for a sole independent or dependent variables and evaluates the input of each
scale item as well as integrates how well the scale measures the concept into the
estimation of the relationship between the dependent and independent variables
(Fassinger, 1986; Hair, et al., 1995).
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