Assignment

Course: MKT 531 (Customer Relationship Management)

Section: A

Summary of the Article:

“Identifying Customer Loyalty Supporting Factors
in the Retail Banking Context: An Empirical
Examination”

Submitted to:

Dr. A. B. M. Shahidul Islam

Professor, Department of Marketing
University of Dhaka

Submitted by:

GROUP 2
NO. Name ID
1 A.S.M. Masudul Aftab Hridoy 41737011
2 S.M. Abu Sayeed Redoy 41737053
3 Noshin Shejuti 41737068
4 Ashif Ahmed 41737010
5 Mustakeem Leuon 41737026

Submission Date: August 8, 2019

TABLE OF CONTENTS
Introduction ............................................................................................................................................ 1
Literature Review .................................................................................................................................... 2
Benefits of Customer Loyalty ................................................................................................................... 2
Evolution of Concept of Loyalty ............................................................................................................... 3
Factors Supporting Loyalty ...................................................................................................................... 3
Objective of the study ............................................................................................................................. 4
Research Methodology............................................................................................................................ 4
Findings................................................................................................................................................... 5
Conclusion............................................................................................................................................... 5
Recommendation .................................................................................................................................... 6

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INTRODUCTION

This article aims to identify factors which support customer loyalty, either through dedication or
by imposing constraints, and subsequently empirically analyzes the relationship between identified
factors and the attitudinal and behavioral component of loyalty in the context of retail banking.
Data collected from a sample of 293 retail banking customers have been analyzed through
structural equation modeling. The study results suggested two constraint promoting factors and
one dedication promoting factor which supported loyalty. The study contributes to knowledge by
empirically testing the qualitative model and coming out with empirically proven dedication-
promoting and constraint-promoting loyalty supporting factors.

It has been studied by many researchers from academia and industry and has been instrumental in
the way companies operate in the business scenario. Nordman studied the loyalty-supporting
factors in her work and proposed a research framework. This research article aims to extend that
research and identify the factors which support loyalty in the Indian context, testing the model
empirically in the Indian context. This study is conducted in the retail banking sector. The reasons
for choosing this industry were, first, retail banking is a typical service industry wherein customers
become profitable only after some years of patronization. Second, banking services are inherently
relational in that they are contract-based and usually purchased in long-term relationships. It is an
interesting context in which to study customer loyalty and to find behaviorally loyal customers.

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LITERATURE REVIEW

It has been studied since 1923, when the first study was cited in the literature of Copeland.
Churchill was one of the first to collect data to understand buying behavior of customers, their
brand loyalty, and switching between brands.

In this study, a literature review on customer loyalty has been conducted. Loyalty has many
definitions and remains a complex construct. Jacoby and Chestnut pointed out that more than 53
definitions of loyalty existed. Jacoby, Dick and Basu,, Gremler, and Gremler and Brown suggested
that most of the studies focused on operational definitions or measurement of the loyalty
constructs. Martin and Goodall, Gremler, and Gremler and Brown concluded that even after the
continuous evolution of the loyalty construct, there is no universally accepted definition.

BENEFITS OF CUSTOMER LOYALTY

Rosenberg and Czepiel suggested that acquiring a new customer is expensive. Reichheld and
Sasser suggested that word of mouth is one of the salient benefits of customer loyalty, especially
in-service products.

First, loyal customers reduce the market share of competitors as they consciously select the
organization repeatedly. Second, loyal customers will not get distracted by lower prices being
offered by competitors. Third, loyal customers will be more patient with the organizations by
letting them match the offering of the competitor or allowing them. Fourth, loyal customers reduce
the marketing costs of acquiring new customers. Fifth, customer loyalty acts as a barrier to prevent
customers to change easily to the competition.

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EVOLUTION OF CONCEPT OF LOYALTY

Jacoby identified 90 studies on brand loyalty, focusing on the act of repeat purchasing. Brown
used a behavioral approach to measure loyalty. Pessemier developed the price-until-switching
measure of brand loyalty by observing shopping behavior through laboratory simulation.
Attitudinal dimension was then added to behavioral measures to measure loyalty, as it was argued
by researchers that in order to fully understand the concept of loyalty, it must be measured as a
combination of attitudinal loyalty and behavioral loyalty. Customer loyalty evolved from those
two dimensions to include a third dimension, cognitive loyalty. Worthington, Russell-Bennett, and
Hartel divided attitudinal loyalty into cognitive loyalty and emotional or affective loyalty, and
adding behavioral loyalty makes it a complete three-dimensional view of loyalty. While Oliver
defined cognitive loyalty as a concept that is a function of information such as price and features

FACTORS SUPPORTING LOYALTY

Heskett, Jones, Loveman, Sasser Jr. and Schlesinger suggested that satisfied customers stick to
their service provider, whereas dissatisfied customers change their service provider. Empirical
evidence on confirming influence of switching cost on customer loyalty has been found by
Burnham, Frels, and Mahajan and Ranaweera and Prabhu.

Colgate, Tong, Lee, and Farley suggested that there are emotional bonds wherein a customer is
afraid to switch because of the sense of loyalty developed with the service provider. Colgate and
Lang suggested that customers choose to stay with their existing service provider because of the
investment that they put into the relationship, and some of the customers might fear losing
important benefits. Information search costs are a part of switching cost which customers have to
counter when they evaluate switching service providers. Since the services are generated and
consumed at the same location, the location should be convenient to the customer. Constraining
factors can prevent customers from switching by impacting their behavioral loyalty but may have
adverse effects on their attitudes.

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OBJECTIVE OF THE STUDY

• To identify loyalty-supporting factors which support loyalty through dedication and which
support loyalty through constraints in retail banking customers toward various services
offered by selected banks in the Indian context.

• To study the relationship between loyalty-supporting factors through dedication and

attitudinal and behavioral loyalty toward the various services offered by selected banks in
India.

• To study the relationship between loyalty-supporting factors through constraints and

attitudinal and behavioral loyalty toward the various services offered by selected banks in
India.

• To study the relationship between attitudinal loyalty and behavioral loyalty toward the
various services offered by selected banks in India.

RESEARCH METHODOLOGY

Factor analysis was applied to the data set to narrow the list of factors to the most important factors
only. Factor rotation is one of the most important tools to interpret factors. Factor rotation is the
rotation of factors about their origin until some other position has been reached. This rotation
redistributes the variance from earlier factors to new ones in order to achieve a solution that is
theoretically simpler and has a more meaningful factor pattern. The factors were renamed as per
the loading of respective items. Once the final factors list was obtained, the model was analyzed
through SEM, and the model was assessed on various fit indices. The first step was to develop an
acceptable measurement model through confirmatory factor analysis.

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FINDINGS

It can be concluded that the factors which imposed constraints made customers loyal but had
negative effects on attitudinal loyalty. A high social cost of change was found to have a negative
relationship with attitudinal loyalty but was not significant. This factor had a positive significant
relationship with behavioral loyalty. Hypothesis testing as conducted in this study suggested that
the relationship between attitudinal loyalty and behavioral loyalty was significant and positive.
When customers do not have positive attitudinal loyalty, it will further impact the behavioral
loyalty negatively. Constraint-promoting factors which have a negative relationship with
attitudinal loyalty will have an adverse impact on behavioral loyalty. On the other hand,
dedication-promoting factors that have positive effects on attitudinal loyalty will have a positive
impact on behavioral loyalty.

CONCLUSION
Attitudinal loyalty and behavioral loyalty shared a positive and significant relationship with each
other, meaning any factor which has a positive impact on attitudinal loyalty will lead to its positive
effect on behavioral loyalty, making customers loyal attitudinally and behaviorally. Factors which
have a negative effect on either attitudinal loyalty or behavioral loyalty will have an adverse effect
on the other. Dedication-promoting factors had a positive and significant relationship with
attitudinal and behavioral loyalty.

This study has also concluded that there exist a positive and significant relationship between
attitudinal and behavioral loyalty, so all dedication-promoting factors will have a higher impact on
behavioral loyalty in comparison to constraint-promoting factors. Dedication-promoting factors
attain high importance for banks as they develop dedication in customers and promote loyalty.

In this study, overall satisfaction, which included trust, service quality, availability of service and
satisfaction, has been proved to have a positive relationship with both attitudinal loyalty and
behavioral loyalty. In the case of constraint-promoting factors, since they were found to have a

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negative relationship with attitudinal loyalty, they will have an adverse effect on behavioral
loyalty.

RECOMMENDATION

• As this study clearly suggests, overall satisfaction implies putting a special focus on
fulfilling promises, unfulfilled services, quality of services, and availability of services as
the most important ways of developing dedication-based loyalty.
• Bank managers have to ensure that promises are made for services which can be fulfilled
by the banks, as any broken promises will weaken trust and impact loyalty.
• Secondly, bank managers should address customer complaints of unfulfilled promises with
the highest priority and should educate their staff accordingly.
• Bank managers should monitor the satisfaction levels of the quality of services in order to
understand the gaps and fill the gaps with prompt action.
• To ensure the availability of services, bank managers should have a system in place to keep
gauging the services that are sought by customers and the bank's ability to fulfill the same
and address gaps.
• As the study suggested that dedication-based loyalty is much more important as compared
to loyalty through constraints, bank managers have to ensure that they keep focusing on
identifying customers who are in the domain of loyalty due to constraints and find a way
to move them to the zone of dedication.
• The items of constraint factors will only help in the identification of loyal customers due
to constraints, but actual gaps for their not being loyal through dedication will be known
through the scale items of overall satisfaction, factors that cause loyalty through dedication.

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