Customer Satisfaction: A robust predictor of Customer Loyalty ISSN

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1 Customer Satisfaction: A robust predictor of Customer Loyalty ISSN Rouf Ahmad Mir Research scholar, Department of Business and Financial Studies, University of Kashmir Dr.Riyaz Ahmad Rainayee Associate professor, Department of Business and Financial Studies, University of Kashmir Abstract: Businesses can survive as long as they can meet the customers needs and enable customer satisfaction which ultimately leads to customer loyalty. This study reveals that the customer satisfaction has highest positive correlation with customer loyalty. However, the regression analysis unveils a terrific significant impact of customer satisfaction on customer loyalty. Hence, the customer satisfaction may be assumed to be the robust predictor of customer loyalty in the retail banking businesses. This study reveals that customer loyalty can be enhanced by focusing on customer satisfaction. Keywords: Customer Satisfaction, Customer Loyalty.

2 1. Introduction: In today s competitive service industry, customer satisfaction is considered as key to success. One of the sectors in which competition is experienced intensively is that of banking. Banks are the financial institutions which meet the economic needs of the individuals and businesses and that perform such economic activities as collecting bank deposits, giving credits, providing capital, etc.. Most of the retail banks set their strategies towards increasing satisfaction and loyalty of customers through the quality of service. In recent years developments in the understanding of modern banking have appeared. With the transition to automation, customer satisfaction and management of customer relationships are the buzz words in the banking industry. The most important factor that matters a lot in today s modern and successful banking business is the quality of services. Businesses can survive as long as they can meet the customers needs and enable customer satisfaction which ultimately leads to customer loyalty. Understanding the customer s needs and meeting them is one of the ways of enabling customer satisfaction. Therefore, banks have to provide service carefully because of stiff competition. Banks need to improve the service level continuously. There is no guarantee that what is excellent service today is also applicable for tomorrow. To survive in the competitive banking industry, banks have to develop new strategies which will satisfy their customers. In today s competitive environment, it is important to be in regular contact with the customers and to follow the changes in them closely. 2. Literature Review: Customer satisfaction means that customer needs, wishes and expectations are met or overcome during the product/service period, giving way to re-purchasing and customer loyalty. (Anton, 1996: 23) In other words, customer satisfaction is the assessment of the prepurchasing expectations from the product, with the results reached after the act of purchasing. (Lemon et al, 2002: 1). Customer loyalty is defined as consideration paid to the amount of buying for a given trademark. The level of loyalty is measured by watching the frequency of buying (Javalgi and Moberg, 1997: 165). Customer loyalty is long and uninterrupted retention of the relationship by offering service that meets and even goes beyond the customer needs (Acuner, 2001: 89). Today firms have entered into an effort to present at a lower cost than their rivals the International Journal of Innovative Research and Studies Page 671

3 products and services that can meet the customer wishes and expectations fully, so that they can render customers more loyal (Çoban, 2002: 117). Both service management and the marketing literatures suggest that there is a strong theoretical foundation for an empirical exploration of the linkages between customer satisfaction and customer loyalty. According to these literatures, customer satisfaction with the service experience will lead to higher level of customer loyalty. Horstmann (1998), states that there is a strong and positive relationship between customer satisfaction and loyalty. A satisfied customer is six times more likely to repurchase a product and share his experience with five or six other people (Grönroos, 2000; Zairi, 2000); further unsatisfied customer can banish more business from the organization than ten highly satisfied customers can do (Mohsan, 2011). With higher customer satisfaction the level of loyalty increases. Tee et al. (2012) found a significant positive relationship between customer satisfaction and customer loyalty. Other several studies have indeed found satisfaction to be a leading factor in determining loyalty (Sit et al., 2009; Mensah, 2010; He and Song, 2009). These studies have concluded that there is a significant relationship between customer satisfaction and loyalty. They assert that high level of customer satisfaction will result in increased loyalty for the firm and is positively associated with repurchase intentions, positive words of mouth and profitability. On the basis of the above empirical literatures, customer satisfaction is indicated as a foremost determinant of customer loyalty. 3. Rationale: The purpose of this study is to understand the relationship between customer satisfaction and customer loyalty in retail banking. This study will explore the influence of customer satisfaction on customer loyalty. It will also disclose whether the customer satisfaction can be considered as the robust predictor of customer loyalty in the retail banking sector. 4. Objectives: i. To assess the relationship between customer satisfaction and customer loyalty with reference to the banking sector. ii. To identify the impact of customer satisfaction on customer loyalty. iii. To unveil whether the customer satisfaction can be the robust predictor of customer loyalty in the retail banking sector. International Journal of Innovative Research and Studies Page 672

4 5. Hypothesis: H 1 : There is a positive relationship between customer satisfaction and customer loyalty. H 2 : Customer satisfaction has significant impact on the customer loyalty. 6. Methodology: The analyses were done on SPSS-20. Pearson Correlation Coefficient (r) were applied to evaluate the level and relationship between dependent and Independent variables. In addition, regression analysis equation was developed, in which the customer satisfaction is considered as independent variable and customer loyalty as dependent variable. All the analyses were conducted at the and significance level. A questionnaire method was used for data collection using standardized measurement tools. Customer Satisfaction was measured by Kumar and Gangal (2011) instrument 5 point agreement-disagreement scale (α=.886). Self developed questionnaire was developed to measure customer loyalty. In order to check its reliability conbrach alpha was used. The scale showed good reliability (α=.800). 7. Findings: A parametric test such as Pearson correlation coefficient was calculated to analyze the data and Table 1 shows the correlation between customer satisfaction and customer loyalty. The results disclose that the customer satisfaction (r=.910, <.001) has the highest significant positive correlation with customer loyalty. Therefore H 1 stand accepted. Customer satisfaction Customer loyalty Customer satisfaction Pearson Correlation 1 Sig. (2-tailed) N 111 International Journal of Innovative Research and Studies Page 673

5 Customer loyalty Pearson Correlation.910 ** 1 Sig. (2-tailed).000 N ** Correlation is significant at the 0.01 level (2-tailed) Table 1: Correlations 8. Regression: The coefficient of determination R 2 is.828 (Table 2) implies that 82% of the variation in customer loyalty (dependent variable) is defined by the customer satisfaction (Independent variable). Interestingly, it is clear that the customer satisfaction has significant impact on the dependent variable, that is, customer loyalty. Thus, the findings of this study provide enough support to accept H2. Model R R Square Adjusted R Square Std. Error of the Estimate a a. Predictors: (Constant), customer satisfaction Table 2: Model Summary The Model analysis includes the independent variable (Customer satisfaction) and dependent variable (Customer loyalty). The linear combination of the independent variable was significantly related to the dependent variable, R=0.910, adjusted R square=0.827, F= (p=0.000) (Table-3). An estimated 82% of variance of the predictor, i.e., Customer satisfaction is on the dependent variable i.e., Customer loyalty. International Journal of Innovative Research and Studies Page 674

6 Model Sum of Squares Df Mean Square F Sig. 1 Regression a Residual Total Table 3: ANOVA b a. Predictors: (Constant), customer satisfaction b. Dependent Variable: customer loyalty 9. Conclusion: The main aim of this study was to exhibit whether the customer satisfaction can be the robust predictor of customer loyalty in the retail banking sector. The study concludes that customer satisfaction has the highest positive correlation with customer loyalty. However, the independent variable explained 82% of the variance(r square=0.828,) in the dependent variable ie., customer loyalty. The 82% positive change in the level of customer loyalty (dependent variable) in the retail banking sector could be interpreted as resulting from increased customer satisfaction (independent variable). Therefore, it is obvious that the customer satisfaction is the robust predictor of customer loyalty. This study reveals that customer loyalty can be enhanced in private retail banks by focusing on customer satisfaction. Retail banking businesses need to evolve strategies around the customer satisfaction in order to enhance customer loyalty. 10. Limitations And Recommendations For Future Research: This study has some limitations, such as the sample size, the variables and the area considered; future research will be focused especially on the variables other than customer satisfaction that was eliminated from the analysis which could influence the customer loyalty in retail banking environment. Future research should concentrate on a bigger sample size and all types of retail banks. Several issues, associated with the limitations inherent in this study require further research considerations. International Journal of Innovative Research and Studies Page 675

7 References: 1. Anton, J. (1996), Customer Relationship Management, New Jersey: Prentice-Hall Inc. International Journal of Innovative Research and Studies Page 676

8 2. Acuner, Ş. (2001), Müşteri Memnuniyeti ve Ölçümü, Mert Matbaası, 2.Basım, Ankara. 3. Grönroos, Christian (2000). Service Management and Marketing: A Customer Relationship Approach. Chichester: John Wiley. 4. He Y, Song H (2009). A Mediation Model of Tourists' Repurchase Intentions for Packaged Tour Services, J. Travel. Res. 47(3): Horstmann R (1998). Customer Satisfaction and Loyalty: an empirical assessment in the service industry. J.Appl. Manage. Entrepreneurship. 4: Javalgı, R.G. and Moberg C.R. (1997), Service Loyalty: Implications for Providers, The Journal of Services Marketing, Vol. 11, No:3. 7. Kotler, P. (2000), Pazarlama Yönetimi, (Millenium Baskı), (Onuncu baskıdan çeviren Nejat Muallimoğulları), Beta Basım Yayım, Yayın No: Lemon, K.N, White, T. and Winer R.S. (2002), Dynamic Customer Relationship Management: Incorporating Future Considerations into The Service Retention Decision, Journal of Marketing, Vol Mohsan F (2011). Impact of Customer Satisfaction on Customer Loyalty and Intentions to Switch: Evidence from Banking Sector of Pakistan, Int. J. Bus. Soc. Sci.2(16) 10. Mensah (2010). Customer Satisfaction in the banking industry: A comparative Study of Spain and Ghana Unpublished PhD Dissertation. 11. Tekinay, N. (2002), Pazarlama Rönesansı, Capital, Yıl: 10, Temmuz (Çoban, 2002: 117). 12. Tee (2012). The Effects of Service Quality, Customer Satisfaction on Re-patronage Intentions of Hotel Existing Customers, Int. J. Manage. Administr. Sci.1(8). 13. Zairi M (2000). Managing Customer Dissatisfaction Through Effective Complaint Management Systems. The TQM Magazine, 12(5): International Journal of Innovative Research and Studies Page 677