The impact of customer satisfaction and bank image on loyalty: a case study (Sanandaj private banks) using structural equations method

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1 International Research Journal of Applied and Basic Sciences 2013 Available online at ISSN X / Vol, 4 (4): Science Explorer Publications The impact of customer satisfaction and bank image on loyalty: a case study (Sanandaj private banks) using structural equations method Aziz Arfai 1, Nasrin Fereydouni Valashejerdi 2, Yousef Najafi 3 Department of Management, Kermanshah Branch, Islamic Azad University, Kermanshah, Iran Departmentof Management,Science and Research branch,islamic Azad university, Khomein, Iran Department of Management, Kermanshah Branch, Islamic Azad University, Kermanshah, Iran Corresponding Author aziz.arfai@yahoo.com ABSTRACT:Each customer nowadays has its own special value and organizations should consistently fight to obtain a greater share of a declining or steady market. The marketing in its evolutionary trend is in a stage in which marketers are not thinking only to find new customers, but, the main objective is to manage demand through increasing the number of customers and implementing strategies to enhance their loyalty to organization. Therefore this research attempts to study the effect of customer satisfaction and bank image on customer loyalty in the private banks of province of sanandaj. Six hypotheses were proposed for this purpose in this study which is applied in terms of objective. The research method used is descriptive-correlative and typically based on structural equations modeling, using software AMOS. The customer community of the private banks, the random sampling method and the observations on the questionnaire and variables related to any question were presented with a scale of 1 to 10. The results showed that there is a positive and significant correlation between customer satisfaction and customer loyalty and, of six hypotheses proposed five were confirmed. Also, although the regression model fitted between the independent satisfaction variable and the dependent variable of customer loyalty is appropriate and significant, between the dependent variable of the bank image and the dependent variable of customer loyalty is not so. INTRODUCTION Today production or service organizations consider customer satisfaction as a significant criterion for measuring the quality of their work, and the trend continues to rise (Yi Y1, 1989). Customer satisfaction can be considered as a background for customer loyalty. A satisfied customer is more likely to stay in business (Abdinnour-Helm et al., 2005). Customer loyalty is a key factor in the survival and development of the business. Customer loyalty is a component of an organization's competitive assets. A loyal customer is the determining factor in predicting the level of profits (Reichheld and Teal, 1996) and the share of profits (Baldinger and Rubinson, 1997). Thus, understanding the factors that can increase customer loyalty is a critical factor in business management. In general, some researchers have argued that it is likely that a satisfied customer not be changed into a loyal customer (Oliver, 1999). Thus, in addition to customer satisfaction, there are other variables influencing customer loyalty which necessarily must be surveyed. Also based on the image of organization, the evidences from both theoretical and empirical studies show that the image of bank has a positive impact on loyalty (Bloemer and de Ruyter, 1998). If consumers have a favorable image of the bank, they will tend to develop the loyalty to a certain level in commensurate with the utility of image. Providing higher capacity of the bank to the customer will result in a more favorable image (Sirgy and Samli, 1985). So, to empower and expand their presence at the market, banks must consider the role of customer satisfaction in the establishment of customers' loyalty in order to formulate marketing strategies for creating satisfaction at the market and in competition with competitors to attract loyal customers. Numerous studies have been performed on customer loyalty and satisfaction indicating the relationship between these two variables (Shu-Ching Chen,2012). Also, the effect of bank image on loyalty has been addressed in a few studies (Zhaohua Denget.al 2010), as they were addressed in literature background; but according to the performed investigations, almost no research done on the simultaneous effect of these two variables on the customer loyalty. Therefore, the

2 present study attempts to survey the impact of customer satisfaction and bank image on the loyalty of the customers in service market, specifically the banks working in private sector. Research literature Customer Satisfaction Customer satisfaction is a cumulative experience of buying and using commercial clients and is influenced by two factors expectations and experienced service performance (yi, Y, 1989, ). Customer satisfaction is the feeling that people feel when their demands and expectations are met. Dissatisfaction or lack of customer satisfaction is a situation in which one of the causes of discontent influences sufficiently individuals' inference of the quality of goods or purchased services (Biggs and Swailes, 132, 2006). Customer loyalty loyalty is referred to as one's strong desire to re-purchasing a superior product or service in the future. As if the same brand or product to be purchased again despite the impact of potential marketing efforts(carolyn FOLKMAN CURASI, KAREN NORMAN KENNEDY, 2002). Richard Oliver defines the loyalty as follows: maintaining deep desire to re-purchase the products or service continuously in the future despite the impact of potential marketing efforts(richradm,b. and oliviera, 1999, p.34). According to the definition of the customer loyalty, it could be mentioned that the loyalty is followed by three elements: 1) the behavioral element (constituent) of customer which is same repeated purchasing 2) customer perspective element (constituent) that is same customer trust 3) accessibility element which is accompanied by many options to select and purchase (Kahrizi, 2011, p. 22). Trust The "trust" is defined as follows: "it is normally used when an entity trusts the second entity; so that the second one assumes that its behavior is in accordance with the first" (Anderson, 2003, 121). Trust is defined as "the fulfilled expectations of a consumer indicating a reliable service provider able to fulfill its promises" (Sirdeshmukh et al., 2002, p ). According to Fukuyama trust impacts the performance of all organizations and businesses (Fukuyama F, 1995). Involvement involvement is described as a motivational state of mind about an object or behavioral effects caused by different sources in achieving the relevant goals (Olsen, 2007). Involvement has been the most important element in the behavioral research for years (Tsiotsou, 2006). It is expected that the satisfaction of a customer with a high involvement and a favorable attitude to be obtained more easily (Priester, 2004). Customers with high involvement are less likely to change their attitude and consequently attempt to keep more their consent (Priester, 2004). Also involvement is defined as an effective and strong factor in customer loyalty (for example, Olsen, 2007). Bank image along with both marketing and management, there is a growing interest in the image and broader concept of validity (Dolphin, 2004 ;). In the management and marketing literature, the terms and validity are sometimes interchangeably used. Brown and Dasin (1997) in an effective study showing that image derives from customer perceptions its social responsibility and capability. The ability to provide expertise is related to in product/ service. (For instance, the validity of firm for innovation or quality) social responsibility refers to the management of social issues. (For example, investment in humanitarian activities, being responsible for the environment), a range of studies showing the benefits of dealing with a strong image and validity (Ulrich R.Orth a, Mark T.Green b, 2009). Study Background In the study "identifying factors influencing the insured people (case study: Iran Insurance Co.) (2010) by M. Haghighi Kafash, M. Akbari, and N. Lalianpoor, European satisfaction model was used and three factors customer satisfaction, image perceived by firm, the quality perceived by the software were considered. The results indicated that at the confidence level of 95%, all factors identified on two main indicators of loyalty (repurchase and recommendation to others) are effective for clients of Iran insurance company. In the study "the relationship between customer satisfaction loyalty in a set of electronic services" by Shu-Ching Chen (2012), it was concluded that customer satisfaction is an essential element of loyalty services, but there are some intermediaries between satisfaction and loyalty. Trust and involvement have been proven as a partial mediator between satisfaction and loyalty.

3 Concept model Figure 1. research conceptual model Research hypothesis The main hypothesis There is a significantly positive relationship between Customer satisfaction and Loyalty within Sanandaj private banks. There is a significantly positive relationship between Bank image and Loyalty within Sanandaj private banks. Sub-hypotheses There is a significantly positive relationship between Customer satisfaction and Involvement within Sanandaj private banks There is a significantly positive relationship between Customer satisfaction and Trust within Sanandaj private banks There is a significantly positive relationship between Trust and Loyalty within Sanandaj private banks There is a significantly positive relationship between Involvement and Loyalty within Sanandaj private banks MATERIALS AND METHODS The research method, according to the type of data is descriptive, in which the relationship between variables is described using correlation study. To investigate the relationship between the independent and dependent variables and study hypotheses via SPSS software, Spearman's correlation coefficient is used. To test the causal relations between the variables and studied parameters, multi regression models were applied and ultimately to determine the optimal model, via software AMOS structural equation model, relationship among variables were modeled. To determine how well works a particular model specially compared with other models, in explaining a set of observed data, Smooth Fitness Index (NFI), Relative Fitness Index (RFI), Incremental Fitness Index (IFI) and Comparative Fitness Index (CFI), Root Mean Square Residual (RMR), Goodness-of-Fit index (GFI), Adjusted Goodness of Fit Index (AGFI), The Root Mean Square Error of Approximation (RMSEA) were used. The questionnaire used in the study consists of two main sections: general questions, in which general and demographic information about the respondents are collectedand first two questions in the questionnaire belong to this category. Specialized questions in which 18 questions on variables and indices are discussed from the perspective of the private banks customers. Measurement scale of the questionnaire is presented with a scale of 1 to 10. The sampling method used in this study is simple random sampling. Considering the following factors, the sample size was calculated using the following equation: N: Size of customers community = 6532 : sampling error =0.05 d: sampling absolute error = 0.05 n: the original sample size s: The maximum standard deviation of each variable based on prototype 30 folds which is equal to 5.12 Y: average variable based on prototype 30 equal 15.7

4 Which using this model, we have The n values obtained from the above equation are equal to 246. Content validity was determined by the content method, so that following developing the questionnaire, a sample of it was presented to the experts in this area and their important comments and corrections were applied. Cronbach's alpha reliability coefficient for the reliability of all questions which was calculated via SPSS is equal to Data Analysis Kolmogorov-Smirnov Test Before we examine the hypotheses, the normality of the variables is investigated.for this purpose, nonparametric Kolmogorov-Smirnovtest is used. This test will examine the following hypothesis:!"##$+#!"#,)- %./ )$#0'%)'.("!"##$+#!",)- %./ )$#0'%)'.(" 2 Results Table1. Kolmogorov- Smirnovtest Hypotheses P-VALUE (SIG) 3'%)'.(" Satisfaction Image Trust Involvement Loyalty Hypotheses survey The Spearman correlation coefficient was used to test the hypotheses. If significance level is less than of 0.05, we conclude that there is statistically significant correlation between the variables. The results obtained from Table 2indicate that at the significance level of (0), the correlation coefficient between satisfaction and loyalty is equal to and the calculated significance isless than Therefore, there is a positive and significant correlation between customer satisfaction and loyalty. The results obtained from the original hypothesis indicate that at the significance level of (0), the correlation coefficient between variables is less than 0.517, therefore, there is a positive and significant correlation between switching and customer loyalty. The results from hypothesis 1, 2, 3, and 4 as secondary hypotheses in Table 2 indicate that at the significance level of (0), the correlation coefficient the variable sis less than Therefore, there is a positive and significant relationship between satisfaction, trust and correlation, and also there is a positive and significant relationship between customer trust and loyalty. Overall, the results and findings of the study hypotheses test are presented in Table 2 in summary. Hypotheses Main1 Main1 Sub-hypotheses1 Sub-hypotheses2 Sub-hypotheses3 Sub-hypotheses4 Table2.Results of testing research hypotheses Researchhypothesestext sig There is a significantly positive relationship between Customer satisfaction and Loyalty within Sanandaj private banks. There is a significantly positive relationship between Bank image and Loyalty within Sanandaj private banks. There is a significantly positive relationship between Customer satisfaction and Involvement within Sanandaj private banks There is a significantly positive relationship between Customer satisfaction and Trust within Sanandaj private banks There is a significantly positive relationship between Trust and Loyalty within Sanandaj private banks There is a significantly positive relationship between Involvement and Loyalty within Sanandaj private banks The correlation coefficient Results For analysis of the path analysis and regression model fitness to the model data, the normalized data must be used, which in the above equations, is the first order differentiation, which for a series of sequences {x 1, x 2,..., x n }, it is specified as follows: 45' )-+'6 )$ 4)&'7" 4)0$(&"

5 4 %/- 84($*'( * Results Table 3. P-VALUE (SIG) variables Satisfaction Image Involvement Trust Loyalty According to the results in the table above, all the variables are normalized at =0.05 because p-value of all of them is greater than So they can be used to build models of path analysis. Model Path Analysis In this part, we examine the fitting of the model via AMOS software. The following output by AMOS shows the path analysis model in which linear relations are indicated by one way arrows.the numbers written on these one way lines are regression coefficients estimated by AMOS. The variables e1, e2 are error terms that should be considered when introducing the model via AMOS. Figure2. Sub model As can be seen in the presented model, the regression coefficient related to the variable satisfaction (independent variable), and contribution (involvement) (dependent variable) is equal to 0.86, indicating this variable is capable of estimating and justifying the performance of this dependent variable. As in correlation hypothesis test, the rate of correlation for them was high, so it could be said that these variables interact each other due to the satisfaction factor; therefore, by increasing satisfaction, trust will be increased as well. The following table shows the regression coefficients estimated by Amos. Table4. The regression coefficients estimated by Amos Regression relation regression coefficients estimated P-VALUE Involvement <-- Satisfaction 0.86 Trust<--- Satisfaction For this model, the 9 statistics is , the degrees of freedom 1 and the significance level of 1 is equal to. As the significance level is less than 0.05, we can conclude that the regression model fitted between dependent and independent variables is significant. AMOS outlets when considering the fitting of the model are as follows: RMR.015 AGFI GFI Table5. The fitting of the model by AMOS NFI RFI IFI CFI RMSEA.000 AIC In this table, variables RFI, AGFI, GFI NFI and IFI are great numbers that confirm the model. As the value of RMSEA statistic is less than 0.05, the model is acceptable

6 The final study model Figure 3. Final model of research As can be seen in the model, the regression model of the variable satisfaction over involvement has great coefficients indicating that the satisfaction variable is capable of estimating and explaining the performance of this dependent variable; so that in the correlation hypothesis test, they had a high correlation. Therefore, these variables interact with each other and this effect is mainly caused by the satisfaction, i.e. a person more satisfied with provided services, has a higher rate of the trust, contribution (involvement) and loyalty toward that bank. The following table shows the regression coefficients estimated by Amos: Table6. The regression coefficients estimated final model by Amos regression regression coefficients P-VALUE estimated Involvement <--- Satisfaction.86 Trust <--- Satisfaction.887 Loyalty <--- involvement.402 Loyalty <--- Satisfaction.249 Loyalty <--- Trust.401 Loyalty <--- Image This model, 9 statistics is equal to , degree of freedom 4 and significance level of 0 As the significance level is less than 0.05, we conclude that the regression model fitted between dependent and independent variables is significant. The second column of the above output shows the estimated regression coefficient between the two variables. And the last column indicates the significance of the coefficients in the regression relationship between two variables. The coefficients at the significant level :# reject only the effect of the coefficient related to the switching cost because their p-value is more than AMOS outlets when considering the fitting of the model is as follows: RMR AGFI.882 GFI.974 NFI.949 Table7. The fitting of the final model RFI IFI CFI RMSEA.193 AIC In this table, variables RFI, AGFI, GFI NFI AND IFI are great numbers confirming the model because RMSEA statistics is greater than 0.05 then the model is not a reasonable model. Modified model The model presented in the previous part of this model had a bank image variable and caused the model experience a poor RMSEA. In this part, by eliminating this factor, we modify the model and create an optimal one.

7 Figure4. Modified model of research As it is shown in this model, the amount of the justification of the performance and reliability by satisfaction is high but it has the greatest effect on the variable loyalty and all the independent factors have a positive effect on the loyalty. The following table shows the regression coefficients estimated by AMOS: Table 8. The regression coefficients estimated Modified model by Amos regression regression coefficients estimated P-VALUE Involvement <--- Satisfaction.869 Trust <--- Satisfaction.887 Loyalty <--- Involvement.508 Loyalty <--- Satisfaction.258 Loyalty <--- Trust.301 The second column of the above-mentioned output shows the regression coefficient estimated between two relevant variables, and the last column indicates the significance of these coefficients in the regression relationship between these two variables. These coefficients are significant at :because the p-values related to them is less than As it could be seen from the model, the regression coefficient of the satisfaction variable (independent variable) and trust (its dependent variables) have high coefficients indicating this variable is capable of estimating and justifying the performance of the dependent variable. So that at the correlation hypothesis testing, correlation was high for them. Therefore, it could be said that there is an interaction between variables and this effect is mainly results from the satisfaction.so a person satisfied with the provided services, will have a more contribution (involvement) and trust to bank. But a variable that has the greatest impact on loyalty is contribution (involvement) which has the coefficient and receives the lowest direct effect from the satisfaction. In the other words, the loyalty is less influenced directly by satisfaction but due to the effect of the satisfaction on the trust and involvement, the function of the loyalty is indirectly influenced by the satisfaction. For this model, the rate of 9 statistic is and degree of freedom is 1 and significance level is. As the significance level is less than 0.05, we can conclude that the independent fitted model between independent variable and the dependent variables is significant.the AMOS outlets in terms of the suitability of the model are as follows. RMR.011 AGFI GFI Table 9. The fitting of the Modified model NFI RFI IFI CFI RMSEA.011 AIC In this table, variables RFI, AGFI, GFI NFI, and IFI are great numbers which confirm the model. As the RMSEA statistics is less than 0.05, the presented model is a good one.the model has a higher AIC than the sub-model showing the superiority of the former over the latter. CONCLUSION The findings confirm that the main hypotheses of the present study are dependent upon the significant relationship between customer satisfaction and image bank over the customer loyalty of private banks, in terms of correlation coefficient at the significance level 0 between customer loyalty and bank image. But based on the regression coefficient, switching cost has no effect on the loyalty but customer satisfaction affects

8 loyalty: more satisfaction in customer means higher customer loyalty in private banks. The overall result is that the higher rate of the customer satisfaction, the higher customer loyalty will be in the sanandaj private banks. The correlation between the variables is linear, i.e. it simultaneously increases or decreases. The intensity of the correlation between two variables is high. Therefore, the main hypothesis of the study (there is a direct and significant correlation between customer satisfaction and bank image, with loyalty) is confirmed; but based on the regression coefficient, the changes in the customer satisfaction in sanandaj private banks result in a variation in dependent variable (customer loyalty). But this is not true for the bank image. This result agrees with that of Zhahova Deng and others (2010). With emphasis on results from the secondary hypotheses, there is a positive and significant correlation between satisfaction and trust, satisfaction, loyalty, trust and loyalty in sanandaj private banks at the significance level of This result is consistent with that of Walter, Miolro Holfert (2008), Zhahova Deng and others (2010), Iranzadeh and others (2009). REFERENCES Abdinnour-HelmS,ChaparroBS,Farmer Usingtheend-usercomputingsatisfaction(EUCS)instrument asuresatisfactionwithaweb site.decisionsciences36, Anderson E, Weitz B Determinants of continuity in conventional industrial channel dyads, Marketing Science, Vol.8, No.4, pp Baldinger AL,RubinsonJ.1997.Thejeopardyindoublejeopardy.Journalof Advertising Research37(6), Biggs, Swailes2006. Relation Commitment and Satisfaction in Agency Workers and Permanent Workers pp BloemerJ,deRuyterK.1998.Ontherelationshipbetweenstoreimage,storesatisfactionandstoreloyalty.EuropeanJournalofMarketing32(5/ CurasiCF, KennedyKN From Prisonersto Apostles: A Typology of Repeat Buyers and Loyal Customers in Service Business, Journal of Services Marketing, 4/16. CaruanaA,RamasashanB,KrentlerKA.2004.Corporatereputation,customersatisfaction,andcustomerloyalty:whatistherelationship?In:Spot ts,h.e(ed.), DevelopmentsinMarketingScience,Vol.27,p.301. Kuo-Ming C The Construction Model of Customer Trust, Perceived Value and Customer Loyalty, The Journal of American Academy of Business, Cambridge,Vol.14, No.2, pp Fukuyama F Trust; New York: Free Press, MazurskyD,JacobyJ.1986.Exploringthedevelopmentofstoreimages.Journalof Retailing62, Oliver RL.1999.Whenceconsumerloyalty?JournalofMarketing63,33 Olsen OS Repurchase loyalty: the role of involvement and satisfaction. Psychology & Marketing 24, Osman MZ A conceptual model of retail image influences on loyalty patronage behavior. The International Review of Retail, Distribution and Consumer Research 31, Priester JR The ASC model: the influence of attitudes and attitude strength on consideration and choice. Journal of Consumer Research 30, Reichheld FF,TealT.1996.TheLoyaltyEffect.HarvardBusinessSchoolPress, Boston ReichheldFF.1993.Loyalty-basedmanagement.HarvardBusinessReview71(273 Shu-Ching Chen n The customer satisfaction loyalty relation in an interactive e-service setting: The mediators, Journal of Retailing and Consumer Services Sirdeshmukh D, Singh J, Sabol B Consumer trust, value and loyalty in relational exchanges. Journal of Marketing 66 (1), SirgyMJ,SamliAC.1985Apathanalyticmodelofstoreloyaltyinvolvingselfconcept,,storeimage,geographicloyalty andsocioeconomicstatus.journaloftheacademyofmarketingscience13(3), Tsiotsou R The role of perceived product quality and overall satisfaction on purchase intentions. International Journal of Consumer Studies 30, Ulrich R, Orth A, MarkT,Green B Consumer loyalty to family versus non-family business: The roles of store image, trust and satisfactionjournal of Retailing and Consumer Services 16, Yi Y A critical review of customer satisfaction, in Zeithhaml, V. A. (Ed), reviews of marketing, American marketing association, Chicago, IL, DengZ, LuY, Kee WeiK, Zhang J Understanding customer satisfaction and loyalty: An empirical study of mobile instant messages in China,International Journal ofinformation Management 30,