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Designing a New Model for Determining Customer ... - EuroJournals

European Journal of Economics, Finance and Administrative Sciences

ISSN 1450-2275 Issue 28 (2011)

© EuroJournals, Inc. 2011

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Designing a New Model for Determining Customer Value

Satisfaction and Loyalty towards Banking Sector of Iran

Mehdi Fathollahzadeh

Academic member of Management Department

Azad University of Meshkin Shahr, Iran

Tel: +98-914-3523259

E-mail: fathollahzadeh@gmail.com

Asgar Hashemi

M.A in Business Administration and Expert of Research and

Education Department in Sina Bank, Iran

Tel: +98-912-7290620

E-mail: hasemi.asgar@gmail.com

Mohammad Safari Kahreh

Corresponding Author, PhD Candidate of Business Policy Making

University of Tehran, Tehran, Iran

Tel: +98-918-9451204

E-mail: m.safari@ut.ac.ir

Abstract

Customer satisfaction and loyalty is two dimensions of the most important constructs in

relationship marketing. In the new marketing era customer satisfaction is a main effective

factor for long term behaviour of customers. Also, Loyalty of customers leads to increase

business value and remain business costs low as well. That means lower than the time when

companies seek for new customers. This article aims to design a new model for customer

value, satisfaction and loyalty in banking sector of Iran. The study chooses the most

important factors mentioned in literature. After literature review in detail, the main factors

that affect on the customer satisfaction and loyalty will identified. Number of these factors

was directly affected on loyalty while another number of these factors were indirectly and

via the satisfaction was affected on the loyalty. Thus in this paper a new model that

determined this relationships will presented. This research is descriptive and analytic and it

is carried out in a survey design. The participants are the three biggest bank’s customers in

Iran. More than 1000 questionnaires had been sent to the participants and just 750

questionnaires were used in final analysis. The findings examine the impact of these

antecedents on customer value, satisfaction and loyalty. This study also investigates and

analyzes the relations among these antecedents. Finally the findings propose a model which

is the most fitted with the data. The findings revealed that there are many interactions

between these variables related to customer behaviour and these relations could depict a

process which begins with company behaviour and then continues with customer

behaviour. Also, Customer Value for investigate the determinants of customer satisfaction

and loyalty, is essential and key concept. The article also discusses marketing implications

of the results, both theoretically and practically.


127 European Journal of Economics, Finance and Administrative Sciences - Issue 28 (2011)

Keywords: Customer loyalty, customer value, satisfaction, banking sector, Iran.

1. Introduction

Satisfaction and loyalty of customers are important factors having effect on managerial thoughts in

1990’s. Notably, to understand, satisfy and forecast needs of customers were considered most

important competitive advantages for companies (Vilares and Coelho, 2003).

Nowadays, in competitive economy there is no warranty for business companies to survive.

Loyal customers can be of great help to companies to survive and improve. Therefore, companies need

to concentrate on loyalty of customers and enjoy customers' loyalty as a main strategy for future.

Although, many companies have accepted loyalty as a key strategy to survive they do not seem

understand the meaning and apply it effectively. Many researchers believe that loyalty antecedents are

complex and dynamic, changing and evolving over time (Johnson, Herrmann, and Huber, 2006). There

are still a number of important gaps in understanding of the loyalty and other relationship marketing

constructs (Taylor, Hunter, and Longfellow, 2006).

Reichheld and Sasser (1990) stress the importance of customer loyalty in sharpening a firm’s

competitive edge. Customer loyalty will eventually become visible in a company’s bottom line through

increased revenue, decreased customer acquisition costs, reduced costs of serving repeat customers,

and increased profits. Consumer’s behavioral motivation of loyal relationship is assumed from their

satisfaction level. Customer satisfaction is understood as an evaluative process of consumption

experiences. The role of creating customer value is meeting a target customer’s needs and thus,

increasing customer satisfaction (porter, 1985). Thus, it can be argued that the objective of loyalty

marketing, which is achieved through keeping and nurturing customers, rests upon delivering customer

value and customer satisfaction.

This article develops a model for determining customer value, satisfaction and loyalty using

several important constructs together to determine their impacts on loyalty and also considering the

relations among these antecedents. While the main effects of trust, commitment and cooperation are

quiet apparent, and have indeed been supported in existing literature, their interaction effects have

rarely been examined. this paper attempts to build a more complete model that incorporate the main

effects of customer value, satisfaction, trust, commitment, cooperation and complaints handling on

loyalty together with the interaction effects between these items. Indeed this study tries to explain the

relationship between three components of marketing endeavors in the banks including: customer

value, satisfaction and loyalty.

2. Literature Review

2.1. Customer Value

In today’s competitive environment, creating superior customer value is necessary to protect a

company’s market niche (Day, 1990). Porter (1985) notes that a company can adopt one of two generic

market strategies: product differentiation or cost driven competitiveness. Day (1990) argues with

porter’s position, explaining that both strategies bear the same objective: creating superior customer

value. He points out that each strategy should be based on significant customer value. Otherwise,

regardless of what strategies are taken, achieving market leadership will fail.

Many marketing strategists and much management literature suggest that creating superior

customer value is a key element for a company’s success (Porter, 1996; Woodruff, 1997). However,

the definition of customer value is quite diverse and varies with academic field and from researcher to

researcher even within the same field. Huber, Herman and Morgan (2001) express diverse definitions

of customer value. They note: “the value concept is multifaceted and complicated by numerous

interpretations, biases, and emphasis”. The concept of value is used not only different in diverse fields,

such as finance, economics, management, information system, justice, ethics, etc., but also in streams


128 European Journal of Economics, Finance and Administrative Sciences - Issue 28 (2011)

of marketing literature, including relationship marketing, consumer behaviour, pricing, and strategy

(Khalifa, 2004).

The definition of customer value that theorists share is that customer value reflects how the

customers perceive products or services, not what a firm wants to objectively deliver to its customers.

Customer value is linked to use of a product or service. Customer value is related to the trade off

between what the consumer pays in exchange for acquiring and using a product or service from the

seller, and what the customer perceives he or she has received (woodruff, 1997).

Three models of the customer value definitions are proposed by Khalifa (2004). These are:

value components models, utilitarian or benefits/costs ratio models, and means- end models. Each

modeling category emphasizes certain dimensions of customer value, paying little attention to others.

Thus, taken separately, each of these three models are imperfect by themselves, and their usefulness is

limited (Khalifa, 2004).

2.2. Customer Loyalty

Engaging in loyal relationship between individual consumers and their product/service provides is

beneficial for both parties. Oliver (1999) argues that firms have shifted their strategies away from an

emphasis on simply satisfying consumers to an emphasis on keeping and nurturing them, due to the

profit impact of having loyal customers. Nurturing profitable customers through various types of

relationships has emerged as an important issue. Through loyal relationships, consumers can receive

higher level of their preferred service or products from their providers. Also, the market paradigm shift

from mass marketing centric to customer centric marketing stimulates firms to adapt customized

service. The customer- centric marketing encourages firms to seek individual customer’s needs and

wants. This trend will ultimately lead to firm’s increasing marketing productivity and market diversity

in household and business markets (Sheth et al, 2000).

Considerable discussion exists in the academic literature over the definition and dimensions of

loyalty or similar constructs such as commitment (e.g., Ball, Coelho, and Vilares, 2007; Oliver, 1999;

Dick and Basu, 1994). Customer loyalty is an important objective for strategic marketing planning

(Kotler, 1984) and represents an important basis for developing a sustainable competitive advantage

(Maydeu- Olivares and Lado, 2003). Some researchers state that a positive relation exists between

loyalty of customers and performance of companies. Customer loyalty leads to increase business value

and remain business costs low as well. Increase in value and save money means lower time when

companies seek for new customers. Many definitions about loyalty have two points in common; that is,

behavioural aspect and attitudinal aspect (Oliver, 1999). Behavioural loyalty is customer’s repeated

transaction and researches usually measure this aspect by observational techniques. Attitudinal loyalty

is both positive affect toward the relationship’s continuance, and the tendency to continue to remain in

the relationship (e.g. Morgan and Hunt, 1994). The method for measuring attitudinal loyalty is usually

questionnaire-based. These two kinds of loyalty are both highly prized because they are intertwined

and influence company’s profit (Oliver, 1999).

Several definitions, based on attitude and also behavioural intentions, exist for loyalty. Some

researchers define two factors in loyalty items: active loyalty (word-of-mouth and intention to use) and

passive loyalty (not switching even under less positive conditions) (Ganesh, Reynolds, and Arnold,

2000). The theory of transaction cost (Williamson, 1975) introduces three major advantages of keeping

customers loyal: first, acquisition costs will decrease because fewer dissatisfied customers have to be

replaced; second, long-standing customers are not as price sensitive and, third, loyal customer can

provide more feedback to the supplier (wong, Chan, Ngai, and Oswald, 2009). Loyalty forms when a

customer thinks a benefit he receives from a company is more than other companies (Mirhadi, 2006).

The current study measures attitudinal loyalty, first because of a focus on behavioural loyalty alone

may masks any causes in which customers are loyal for reasons of convenience or habit (Ball, Coelho,

and Macha´s, 2004). Second, Strong attitudinal loyalty makes customers more resistant to other’s

attempts to steal them away (Gundlach, Achrol, and Mentzer, 1995) and also more resistant to counterpersuasion

and search for alternatives (Dick and Basu, 1994). Furthermore, Iran’s baking sector has


129 European Journal of Economics, Finance and Administrative Sciences - Issue 28 (2011)

changed greatly, because it is just a few years that private sector has entered the market. Not many

years ago there were just governmental banks in Iran but there are now 9 private banks. So, because of

increasing competition among the banks, governmental bank’s market share is diminishing. So it is

more important for the banks to know how their customers will behave in the future and so bankers

have to know customers’ attitudes and tendency to be loyal to their current banks.

3. Research Model and Hypotheses

In this section conceptual model of the research are presented. In this research eight variables are

identified for determining customer loyalty in the banking sector, including:

• Satisfaction

• Cooperation

• Trust

• Commitment

• Service Quality

• Complaint handling

• Image

• Communication

And also: Customer Value that affect on Customer Loyalty through above 8 variables.

Figure 1 show the research conceptual model and whole of the relationships between identified

variables.

Customer Satisfaction

Customer

Value

Figure 1: The Research Conceptual Framework

Satisfaction

Cooperation

Trust

Commitment

Service Quality

Complaint handling

Image

Communication

Customer

Loyalty

Satisfaction and loyalty are related but they are clearly distinct (Ball et al., 2004). Satisfaction is the

one of the most important antecedents of loyalty stated in various researches (e.g., Gummerus,

Liljander, and Pura, 2004; Ulaga and Eggert, 2004; Ranaweear and Prubho, 2003). The more satisfied

customers have greater retention rate (Anderson and Sullivan, 1993; Fornell, 1992). The relationship

between satisfaction and loyalty is almost a proved relation and exists in many famous models such as


130 European Journal of Economics, Finance and Administrative Sciences - Issue 28 (2011)

ECSI (e.g., Deng, Lu, Wei, and Zhang, 2009; Espejel, Fandos, and Flavia´n, 2008; Ball et al. 2007). In

line with earlier research (e.g., Bodet, 2008; Zins, 2001).

H1a: customer value is positively related to customer satisfaction.

H2a: customer satisfaction is positively affected on customer loyalty.

Cooperation, Trust and Commitment

Satisfied customers generate the positive word of mouth (Schneider and Bowen, 1999). But

satisfaction alone does not ensure continuing customer support. While satisfaction is an important

driver, trust, commitment and cooperation are also likely to influence loyalty (Ranaweera and Prubho,

2003). Morgan and Hunt (1994), identifies these two variables as key mediating variables of

relationship marketing. Several studies consistently identify commitment and trust as central constructs

of relationship marketing (Ulaga and Eggert, 2004).

Trust is logically and experientially a critical variable in relationships, as the marketing

literature shows (Green and Orth, 2009; Moorman, Deshpande, and Zaltman, 1993). This variable is

based on past behaviours but it shapes the future (Walter and Ritter, 2003). Recent researches show

that while satisfaction and trust are closely related but they are conceptually different and consequently

have different impacts on loyalty (szymanski and henard, 2001; Geyskens, Steenkamp, and Kumar

1998). Some researchers argue that trust is stronger emotion than satisfaction so it may have greater

impact on loyalty (Hart and Johnson, 1999). Several articles discuss that trust along with commitment

is an important antecedent of loyalty (e.g., Floh and Treiblmaier, 2006; Ball et al., 2004; Wong and

Sohal, 2004).

Commitment is one of the key concepts in relationship marketing (Hennig-Thurau and Klee,

2002; Dwyer, Schurr, and Oh, 1987). Moorman et al. (1993) defines commitment as an exchange

party’s long-term desire to maintain a valuable ongoing relationship with another. Some literatures

recognize trust as a preceding state for commitment development. These researchers believe that

building trust among customers has positive influence on customer commitment (Čater and Čater,

2010; Keh and Xie, 2009). Many studies show that trust influences commitment empirically (e.g.,

Lancastre and Lages, 2006; Walter and Ritter, 2003; Ruyte, Moorman, and Lemmink, 2001).

Many researches show that relationship commitment motivates buyers to act (Hennig- Thurau

and Klee, 1997; Morgan and Hunt, 1994; Moorman et al., 1993). These researchers state that

commitment is positively related to the loyalty and it is proved empirically in many researches (e.g.,

Wang, 2008; Dimitriades, 2006; Wong and Sahal, 2004).

Cooperation refers to “the extent that the work of the buyer and seller is co-oriented” (Metcalf,

Frear, and Krishnan, 1992). Cooperative behaviours are voluntary (Mills and Morris, 1986). Morgan

and Hunt (1994) suggest that cooperation requires the two parties in a relationship to participate

actively to achieve mutual benefits. So, cooperation promotes success in the relationship. Lancastre

and Lages (2006) explain that there is positive relationship between commitment and cooperation.

Since the commitment is higher among individuals who believe that they receive more value from

relationship, highly committed customers should be willing to reciprocate effort on behalf of a firm due

to past benefits received (Chonko, 1986; Mowday, Porter, and Steers, 1982).According to Dai study

(2002) customer cooperation is positively related to customer loyalty.

H1b: customer value is positively related to cooperation.

H2b: cooperation is positively affected on customer loyalty.

H1c: customer value is positively related to trust.

H2c: trust is positively affected on customer loyalty.

H1d: customer value is positively related to commitment.

H2d: commitment is positively affected on customer loyalty.


131 European Journal of Economics, Finance and Administrative Sciences - Issue 28 (2011)

Service Quality

The concept of service quality is linked to the concepts of perceptions and expectations. Service quality

perceived by the customers is the result of comparing the expectations about the service they are going

to receive and their perceptions of the retail baking’s actions (Lapierre et al, 1996). If perceptions

exceed expectations, the service provided by the retail banks will be considered excellent; if it only

equals the expectations it will be regarded as good or adequate; if it does not meet them, the service

will be classed as bad, poor or deficient (Vazquez et al, 2001).

Figure 2: Approaches to the concept of quality.

Source: Garvin (1988), Huete (1997) and James (1997).

H1e: customer value is positively related to service quality.

H2e: service quality is positively affected on customer loyalty.

Complaint Handling

Hsu (2008) defines complaint as a conflict between the customer and the organization. Complaint

handling is a case of customer interactions. In the ECSI model, satisfaction is antecedent of the

complaints handling. According to social exchange theory how the company deals with its customer

complaints has great impact on how the customers perceive their relation with the firm. It is a part of

the value that companies make for their customers. Improper and slow handling of complaints could

reasonably be perceived by customers as opportunistic behaviour or incompetence and consequently it

has negative impact on credibility of the company and thereby on customers trust to the company

(Ganesan, 1994).

Morgan and Hunt (1994) propose this variable as an antecedent of trust. Complaint handling,

hereafter referred to as “complaints” is already validated as an antecedent of loyalty in the ECSI model

and it proposed by Ball et al. (2004), as antecedent of trust in an extension of ECSI model. The

relationship between the level of customer complaints and the level of customer loyalty depends on the

efficacy of a company’s complaint-handling capabilities (Fornell, 1992).

H1f: customer value is positively related to complaint handling.

H2f: complaint handling is positively affected on customer loyalty.

Image

The marketing literature’s perspective on reputation generally views it as an aggregation of

performances, actions, or images regarding consumer knowledge about a brand, which essentially

equates reputation to branding. This perspective suggests that reputation is a resource that can be used

to generate value. Reputation can be viewed as being the result of a continuous process of credibility


132 European Journal of Economics, Finance and Administrative Sciences - Issue 28 (2011)

transactions, thereby enhancing trust and commitment. The notion of image has been widely used by

marketing and behavioural science scholars to refer to people’s perception of a product, store, or

corporate entity (Pan and Li, 2011). Some researchers (Gartner, 1996; Pike & Ryan, 2004) argue that

there is a third dimension, cognitive image, which reflects the behavioural aspect (i.e., intention to

visit) of one’s destination perception. Image of organization in the mind of customers for constructing

loyalty is very important. The image of a bank is relying of any marketing activities and achievement

of its programs.

H1g: customer value is positively related to image of bank.

H2g: image of bank is positively affected on customer loyalty.

Communication

From both theoretical and practical perspectives, it is worth studying what makes marketing

communications that introduce new products effective, especially in banking industry. The marketing

communication decision has become far more complicated, because they essentially function in both

business and consumer markets. Therefore, an investigation of the marketing communications used to

launch products in banking industry may offer interesting and significant insights into various launchsupporting

communication behaviours across product categories and services.

When marketing communication are related to the customer’s needs and wants it is positively

affect on bank’s profitability and can gather more liquidity in the market.

H1h: customer value is positively related to communication.

H2h: communication is positively affected on customer loyalty.

And finally,

H3: customer value is positively affected on customer loyalty.

4. Research Methodology and Design

4.1. Research Method

The method of this research are Applied Research in goal, and in the view point of data gathering is

Descriptive-Analytic (non-experimental) that is implemented with the case study format. In this study,

by using a standard questionnaire the relationship between identified variables of research will test. For

achieving this purpose, 17 hypotheses were formed.

4.2. Sampling

The study was done in a large governmental commercial bank (Melli Bank) with hundreds of branches

was contacted in order to obtain a sample. In this research a standard questionnaire was used to gather

data. The study is conducted in Tehran city. More than 1000 questionnaires had been sent to the

participants and just 750 questionnaires were used in final analysis.

4.3. Validity and Reliability

Validity and reliability are two necessary features for every measuring material such as questionnaire

because these materials should analyze data and provide final conclusions for researchers. To sum up,

validity means that a measuring material is used to measure the characteristics.

A questionnaire with 45 questions was used for data collection. 5 questions were about

descriptive statistics and characteristics of respondents and measured by numerical measures. Others

were evaluated by the Likert 5-choice measurement. Cronbach’s Alpha Coefficient was used to

measure reliability. The average of Cronbach’s alpha for 5 basic elements and categories of this

research was 0.842 that is more than the mean acceptable alpha. Hence, the questionnaire is reliable.


133 European Journal of Economics, Finance and Administrative Sciences - Issue 28 (2011)

Reliability of the questions was evaluated. Table 1 shows the results (Alpha Cronbach is used

to test the reliability of the materials used in the research). All these parts bear high reliability (a> 0.7)

(Nunnally, 1978).

Also, validity of this questionnaire, because this instrument was unique and for gathering data

was used in this research, was meet by means of experts insights and then examine and analysis of

those.

Finally, the gathered data was processed by SPSS and LISREL 8.50.

Table 1: Reliability Test Results

Independent Variable Dependent Variable Alpha Cronbach amount Number of questions

Customer value Satisfaction 0.778 2

Customer value Cooperation 0.876 2

Customer value Trust 0.805 2

Customer value Commitment 0.890 2

Customer value Service Quality 0.799 2

Customer value Complaint handling 0.8000 2

Customer value Image 0.768 2

Customer value Communication 0.859 2

Satisfaction Customer loyalty 0.896 3

Cooperation Customer loyalty 0.888 3

Trust Customer loyalty 0.769 3

Commitment Customer loyalty 0.840 3

Service Quality Customer loyalty 0.870 3

Complaint handling Customer loyalty 0.834 3

Image Customer loyalty 0.877 3

Communication Customer loyalty 0.860 3

Customer value Customer loyalty 0.905 5

Table 2: Descriptive characteristics of case of the research (Gender)

Gender Percent Number Total

Male

Female

65%

35%

487

263

750

Table 3: Descriptive characteristics of case of the research (Work Area)

Work Area Percent Number Total

Academician 10% 75

Bank’s managers 13% 100

750

Bank’s Customers 77% 575

5. Analysis and Results

For measuring the model by using gathered datas, we use t-test and β coefficient. Results show that all

of the 8 variables positively impact on customer loyalty and also customer value is positively affect on

both 8 main variables of research and customer loyalty.

Figure 3 show the results of structural model based on gathered datas.


134 European Journal of Economics, Finance and Administrative Sciences - Issue 28 (2011)

Customer

Value

Figure 3: Results of the structural equation modeling

0.325

0.222

0.231

0.401

0.197

0.189

0.302

0.266

Satisfaction

Cooperation

Trust

Commitment

Service Quality

Complaint handling

Image

Communication

0.465

0.169

0.200

0.380

0.199

0.281

0.241 0.214

0.309

Customer

Loyalty

6. Conclusion and Recommendations

Customer satisfaction and loyalty is two dimensions of the most important constructs in relationship

marketing. In the new marketing era customer satisfaction is a main effective factor for long term

behaviour of customers. Also, Loyalty of customers leads to increase business value and remain

business costs low as well. That means lower than the time when companies seek for new customers.

This article was designed a new model for customer value, satisfaction and loyalty in banking sector of

Iran. The study chooses the most important factors mentioned in literature. After literature review in

detail, the main factors that affect on the customer satisfaction and loyalty were identified. Number of

these factors was directly affected on loyalty while another number of these factors were indirectly and

via the satisfaction was affected on the loyalty. Thus in this paper a new structural equation modeling

that determined this relationships will presented. This research is descriptive and analytic and it is

carried out in a survey design. The participants are the three biggest bank’s customers in Iran. More

than 1000 questionnaires had been sent to the participants and just 750 questionnaires were used in

final analysis. The findings showed that customer value are positively affected on all of 8 identified

variable of research and also all of main 8 identified variables of research were positively affected on

customer loyalty for banking sector. In this research we propose a new model that was unique and

innovative one in the banking industry.

Future researchers can use this model for banking sector or other industries that similar to this

industry and develop and enrich this model. Also bank’s managers and decision makers can use these

identified variables for constructing lifetime and profitable relationships with customers.


135 European Journal of Economics, Finance and Administrative Sciences - Issue 28 (2011)

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