Key antecedents of customer loyalty - a study of small chartered commercial banks.pdf

1. UNIVERSITY OF ECONOMICS HO CHI MINH CITY
International School of Business
------------------------------
Vu Thanh Hoan
KEY ANTECEDENTS OF CUSTOMER
LOYALTY: A STUDY OF SMALL CHARTERED
COMMERCIAL BANKS
MASTER OF BUSINESS (Honours)
Ho Chi Minh City – Year 2014

2. UNIVERSITY OF ECONOMICS HO CHI MINH CITY
International School of Business
------------------------------
Vu Thanh Hoan
KEY ANTECEDENTS OF CUSTOMER
LOYALTY: A STUDY OF SMALL CHARTERED
COMMERCIAL BANKS
ID: 22110021
MASTER OF BUSINESS (Honours)
SUPERVISOR: DR. CAO HAO THI
Ho Chi Minh City – Year 2014

3. ACKNOWLEDGEMENTS
I would like to express my sincere gratitude to my supervisor, Dr. Cao Hao Thi for the
valuable advice, critical comments and encouragement he gave me.
I would like to express my gratitude to my ISB class friends for SPSS directions. Your
encouragement, excellent guidance, and support have greatly contributed to this thesis.
Finally, I would like to thank all of the respondents without whom, this research would
have been impossible.
Ho Chi Minh City, March 01, 2014
Vu Thanh Hoan

4. ABSTRACT
It is costly to attract new customers so that the managers always try to find ways to retain
their current customers and concentrate on different factors which enhances the customer
loyalty among the customers of the organizations. This research attempts to find the
factors of customer loyalty and their relationships with banking industry in one of the
developing countries i.e. Vietnam, where the large part of banking industry are small
chartered commercial banks.
In order to do this, a questionnaire is designed and validated, then based on the data
which were gained from the 150 respondents' answers to the designed questionnaire, the
analysis is done and the results and the relations among the factors are explained.
Customer’s Perceived Quality, Customer Satisfaction, Customer Trust, Switching Cost
and Customer Commitment are the factors which influence the Loyalty of the customers.
These factors also influence each other as well. The relationships of different factors with
each other are also studied and the SPSS software is used to analyze the data gathered
from the respondents.

5. TABLE OF CONTENTS
Chapter 1 Introduction ........................................................................................... 1
1.1 Background.......................................................................................................... 1
1.2 Research problems................................................................................................2
1.3Research Objectives.............................................................................................. 4
1.4 Research Scope.................................................................................................... 4
1.5 Thesis structure.....................................................................................................4
Chapter 2 Literature Review.................................................................................. 6
2.1 Customer loyalty ..................................................................................................6
2.2 Customer's perceived quality ...............................................................................8
2.3 Customer satisfaction ........................................................................................11
2.4 Switching Cost .................................................................................................. 13
2.5 Customer Trust ................................................................................................. 16
2.6 Commitment ...................................................................................................... 17
2.7 Research model and Hypothesis ....................................................................... 18
Chapter 3 Research Methodology........................................................................ 21
3.1 Research Process .............................................................................................. 21
3.2 Measurement scales........................................................................................... 22
3.2.1 Perceived quality .............................................................................. 22

6. 3.2.2 Customer trust................................................................................... 22
3.2.3 Switching cost................................................................................... 23
3.2.4 Customer satisfaction ....................................................................... 23
3.2.5 Customer commitment ..................................................................... 24
3.2.6 Customer loyalty............................................................................... 24
3.3 Qualitative research ........................................................................................... 25
3.4 Sampling method............................................................................................... 25
3.4.1 Sampling ........................................................................................... 26
3.4.2 Data collection .................................................................................. 26
3.5 Data analysis methods ....................................................................................... 26
3.5.1 Cronbach’s alpha............................................................................... 26
3.5.2 Exploratory Factor Analysis ............................................................. 27
3.5.3 Multiple regression analysis.............................................................. 28
Chapter 4 Data Analysis and results ................................................................... 29
4.1 General Information ......................................................................................... 29
4.2 Measurement assessment .................................................................................. 30
4.2.1 Cronbach’s alpha .............................................................................. 30
4.2.2 Exploratory Factor Analysis ............................................................. 31
4.3 Hypothesis testing.............................................................................................. 32
4.3.1 Testing customer satisfaction sub-model ......................................... 34

7. 4.3.2 Testing customer commitment sub-model ....................................... 34
4.3.3 Testing customer loyalty sub-model................................................. 35
Chapter 5 Conclusions and Implications ........................................................... .38
5.1 Conclusions .................................................................................................... .38
5.2 Implications ..................................................................................................... .39
5.3 Limitations ....................................................................................................... .41
References............................................................................................................... 42
Appendix 1: Questionaire........................................................................................ 52
Appendix 2: Results of Exploratory factor analysis ............................................... 58
Appendix 3: Simple linear regression results (S).................................................... 60
Appendix 4: Multiple linear regression results (CMT)........................................... 62
Appendix 5: Multiple linear regression results (CL)............................................... 64

8. LIST OF TABLE
Table 3.1: Scale of perceived quality ........................................................................ 22
Table 3.2: Scale of customer trust ............................................................................. 22
Table 3.3: Scale of switching cost............................................................................. 23
Table 3.4: Scale of customer satisfaction.................................................................. 23
Table 3.5: Scale of customer commitment................................................................ 24
Table 3.6: Scale of customer loyalty ......................................................................... 24
Table 3.7: Cronbach’s alpha reliability coefficients ................................................. 27
Table 4.1: General information about respondents ................................................... 29
Table 4.2: Reliability analysis ................................................................................... 30
Table 4.3: Rotated component matrix ....................................................................... 31

9. LIST OF FIGURE
Figure 2.1: A conceptual model ................................................................................ 19
Figure 3.1: Research process..................................................................................... 21
Figure 4.1: Customer satisfaction sub-model............................................................ 32
Figure 4.2: Customer commitment sub-model.......................................................... 33
Figure 4.3: Customer loyalty sub-model................................................................... 33
Figure 4.4: Multiple regression results...................................................................... 37

10. 1
CHAPTER 1
INTRODUCTION
This chapter introduces the background of Vietnamese banking industry as well as the
status of customer loyalty. The research objectives are proposed in this chapter. Base on
the objectives, research scope is proposed and thesis structure is presented.
1.1 Background
Loyalty to a bank can be thought of as continuing patronage over time. The degree
of loyalty can be gauged by tracking customer accounts over defined time periods
and noting the degree of continuity in patronage (Yi and Jeon, 2003).
During the past decade, the financial service sector has undergone drastic changes,
resulting in a market place which is characterized by intense competition, little
growth in primary demand and increased deregulation (Bloemer, Ruyter and Peeters,
1998). In the new market place, the occurrence of committed and often inherited
relationships between a customer and his or her bank is becoming increasingly scarce
(Li-Ting Huang et al, 2007). Several strategies have been attempted to retain
customers. In order to increase customer loyalty, many banks have introduced
innovative products and services (Alam and Khokhar, 2006).
However, as such innovations are frequently followed by similar change; it has been
argued that a more viable approach for banks is to focus on less tangible and less

11. 2
easy-to-imitate determinants of customer loyalty such as customer evaluative
judgments like service quality and satisfaction (Worcester, 1997; Yavas and
Shemwell, 1996).
Banking has traditionally operated in a relatively stable environment for decades.
However, today the industry is facing a dramatically aggressive competition in a new
deregulated environment. The KPMG (2014) reported that the banking industry in
Vietnam has 33 commercial banks and they can be divided 33 banks into four group
base on the chartered capital. The first group includes four state owned banks with
the capital over 20,000 billion dong. The second group includes 11 commercial banks
have the capital from 5,000 billion dong to 20,000 billion dong. The third group has 7
commercial banks with the capital ranging from 3,500 billion dong to under 5,000
billion dong. Finally, the forth group comprises 11 commercial banks with the capital
under 3,500 billion dong. The real estate industry got stuck recently which further
increases the competition and complexity among the banks in the retail market. The
small chartered commercial banks are the group three and four, where the limitation
in capital made them traditionally become specialty in the retail market.
1.2 Research Problems
As every industry has the intense competition, the challenge in reserving the loyalty
among customers is put in the first priority. The sustainable relationship is the crucial
for the benefits of the business. The most important reasons are dictated by Reis,
Pena and Lopes (2005). Firstly, loyal customers are often willing to pay premium
prices for a supplier they know and trust. Secondly, the cost of acquiring new

12. 3
customers can be substantial. A higher customer retention rate implies that fewer
customers need to be acquired and these can be acquired more cheaply. Thirdly, loyal
customers often refer new customers to the supplier at virtually no cost. And finally,
established customers tend to buy more.
Marketing experts always say that the number of customer that the company loses
becomes the number that the competitor gains. According to Kotler et al (1996), it
takes the company five times as much money and effort to gain a new customer as to
reserve an existing one. However, in today’s highly competitive global market, it
takes as much energy and efforts to keep customer as to find a new one. Therefore,
loyalty is recently seen as the difficulty that every company must learn to do all its
best.
Individuals and small and medium enterprises are the traditional of the small
chartered banks, but the real estate industry got a crunch, therefore all the banking
industry is focus on the retail market. The limitation in capital of commercial affects
their ability in the risk taking, leading to the low ratio of loan over the mortgage value
and the loan giving to one customer. Small chartered capital commercial banks also
have less tangible facilities compared to the group one and two.
However, increasing the capital is not the answer to the low competitiveness in this
situation due to some reasons. Firstly, the stock market is not a lucrative investing
channel anymore. The bank stock is not getting the attention like before. Secondly,
the Government issues the regulations made the state owned corporation to not invest
in other industry especial in financial and banking. And last but not least, the banking

13. 4
industry is currently got the surplus of the deposit, whereas the loaning is difficult
and risky. Therefore, increasing the capital is not the brilliant measure in this
situation. The best way is to raising the customer loyalty measures to get the benefits
and compete with other commercial banks with higher capital.
1.3 Research Objectives
The overall objective is to analyze the factors which influence the customer loyalty in
the banking industry of Vietnam. The research objectives are as follows:
- To analyze the influence of satisfaction, commitment and switching cost on
customer loyalty.
- To analyze the influence of perceived quality on satisfaction.
- To analyze the influence of satisfaction and trust on commitment.
1.4 Research Scope:
This study focuses on enterprise customers of small chartered commercial banks in
Ho Chi Minh City, who have more frequently banking activities and more continuous
account transaction than the individual customers. Therefore, this sample cannot
represent for Vietnam nationwide.
1.5 Thesis Structure:
The thesis is organized as follows:
- Chapter 1 introduced the background of the study, research problems, research
objectives, and research scope.
- Chapter 2 presents the literature review and conceptual foundation.
- Chapter 3 presents the methodology and methods of the study

14. 5
- Chapter 4 reports the analysis of data and findings of the study.
- Chapter 5 discusses the recommendations of the study and suggestions for
future research are made.

15. 6
CHAPTER 2
LITERATURE REVIEW
This chapter is an overview of customer loyalty and its antecedents which have
been conducted by previous researchers. Based on these studies, a conceptual
model is proposed.
2.1 Customer loyalty.
Is customer loyalty is the most – mentioned subject in the business management
meeting and is it the success secret of all the industries in general and banking sector
in particular? Bain & Company (2001) show the research result about the relation
between business profit and customer loyalty. They find that the company pays more
attention on building the customer loyalty is gaining great profit. Their research
points that five percent rising in the customer retention increasing almost thirty
percents in profits.
Finding a new customer always costs the company more financial expenses and
efforts than retaining an existing customer. Especially, the existing customers have
the high ability to buy again and again the products and services and the scale of
buying is increasing over the time. These research result push the managers try to
find innovative to retain the existing customer and encourage the loyal customers
buying more (Rigby et al, 2003).
Customer loyalty is the decision of the customer to buy repeatedly the products and
the services of the same brand over a long period of time. The customer becomes

16. 7
loyalty to one brand name just when they have the sufficient commitment and trust to
a particular company. Loyalty in banking industry requires strong satisfactions from
the customer to the banks for a long time. Therefore, when the customer becomes
loyal to one bank, it will keep buying the services from this bank. Even the services
might dissatisfy them from time to time, they have the trust the services will return
balanced in the long run.
The customers have the adequate knowledge about the products and services that
made them feel satisfied. This satisfactions showed by the intention of customers to
repurchasing, the usage of the product and recommend about the products to other
buyers (Oliver, 1999). Lin and Wang (2006) made the relevant researches to find that
satisfaction is the reliable predictor of the repurchasing behavior. Anderson et al
(2007) states that if a loyal customer is dissatisfied on one time and they may not
think of switching, but the quality of the products still do not improve, the customer
will search for the information of other brand names.
Trubik and Smith (2006) divide the loyal customer in two groups. The first group is
the satisfied customers and the second group is the unsatisfied customers. The
satisfaction is not a prerequisite condition for loyalty, so satisfied do not have to be
loyal. However, there are the correlations between being satisfied and loyalty. There
is sometimes that the unsatisfied customer still loyal to the banks because they are
refrained by the hurdles and frontier. Those hurdles and frontier may be the
commitment with the supplier. If the unsatisfied customers lack the commitment, the
reasons for not switching to another supplier are switching costs (Moutinho, L.,

17. 8
Smith, 2009).
2.2. Customer’s perceived quality
Perceived quality is a definition that has an approximate relation with customer
satisfaction and customer loyalty. A clear differentiating among their perceived
meanings sometimes is difficult to understand. Occasionally, they appeared to express
for the same meaning. Anderson and Sullivan (2007) try to analyze the difference
between those definitions. They suggest that satisfaction is the result of a process of
previous consumption and depends on the cost, while the quality does not require
previous consuming experience and often does not depend on the cost of buying
products or services. However, there are situations when the buyers have difficulty
collecting the comments about the products or services. And there are circumstances
where the quality evaluation is hard to test. Therefore, price seems to be an indicator of
quality. In this sense, Teck-Yong et al. (1996), starting from Oliver's (1997, 1999)
conceptual model of service quality and service satisfaction, found that these constructs
are different and have their own determinants. Customer satisfaction has been
discovered to be affected profoundly by the service quality. Darrell et al. (2003) define
customer satisfaction as the result when customers compare their expectations about
the service with the way that the service performance is perceived.
Perceived quality is the perceived utility relative to its monetary and nonmonetary
costs. The consumer gauged perceived value based on considerations of both what is
received and what is given up to receive it (Ladebo, 2006). Consequently, quality of
the service is the crucial part of perceived value. For example, E-vendor sells to their

18. 9
customers the kind of digitized product/service (e.g., online banking, content
aggregators, and online stock trading). There is no product that can be touched, but
only can be felt. Therefore, it is difficult for consumers to differentiate product quality
and service quality. Even in the case where the e-vendor sells a physical product to the
consumers, the good presale and after sale service made by the e-vendor can add to the
benefits received and also reduce the customer’s nonmonetary cost such as time, effort,
and exempt mental stress (Bob Thompson, 2008). Analyzing from prior studies, there
is the support for the general idea that perceived value of the customer contributes to
the customer loyalty (Parasuraman and Grewal, 2000; Laurn and Lin, 2003).
Service quality is divided into two terms: technical quality refering to what is delivered
to the customer and functional quality involving result of the process transferred to the
customer according to Caruana (2002). In addition, service quality includes two
aspects, psychological and behavioral. They include the accessibility to the provider
and the way service providers perform their tasks. More specifically, it is whether the
content of their saving deposit is safe and the way the service is done. There are three
dimensions of the customer's assessment of the service. They are the customer-
employee interaction, the service environment, and the service outcome. Through this
process of assessment, the service quality perception is done.
Even though Carman et al. (2009) suggest that there is hardly any consensus
conceptualizing and measuring service quality. Aydin and Ozer (2005) assumed
service quality to be "the consumer's judgment about the overall excellence or
superiority of a service" (Zeithaml, 1988). The service quality has some attributes.

19. 10
First, services are intangible. Secondly, services are heterogeneous. It means their
performance often varies with respect to the provider and the customer. Besides,
services cannot be settled in a time capsule and thus be tested again and again.
Eventually, the production of services is probably to be inseparable from their
consumption. In order to have a better understanding about service quality, they have
to understand these attributes. The evaluation of product quality is much easier than the
evaluation of service quality due to the attributes of service. The evaluation may be
also connected with the service delivery process, along with output (Gustafson and
Lundgren, 2005).
Besides, service quality gain customers' inclination. It makes them buy more, become
less price-sensitive and tell others about their experiences (Venetis and Ghauri, 2000).
Bloemer et al. (1998) have determined the positive relationship between service
qualities and repurchase intention, recommendation, and resistance to better
alternatives. They are behavioral abstraction and form customer loyalty. Service quality
has a positive impact to the bottom-line performance of a firm and the benefits gained
from an improvement in the quality of service offering. The perceived service
overgrows the service level desired by customers (Coyles and Gokey, 2004).
Our study was basically focused on system, information, and product/service quality as
the `get' component and on the money and time spent as the `give' component. Prior
studies explicitly modeled perceived performance or quality as a direct determinant of
value. In turn, it directly drove repurchase intention. Cumulative also insights from
prior studies supported the general notion that perceived value contributed to customer

20. 11
loyalty (Hansemark and Albinsson, 2004). Anderson et al, (2007) suggested that
customers would be more inclined to switch to competing businesses when the
perceived value was low, in order to increase perceived value, thus contributing to a
decline in loyalty. Technology can't replace impelling human entity. Your company's
job descriptions, performance measures, compensation systems and training programs
back up your customer strategy-rather need to make sure than undermine it (Jacob,
2005). The literature attaching to service management has stated that customer
satisfaction is the result of a customer's entity of value received (Hasan et al., 1996).
Perceived value is considered a content that captures any benefit-sacrifice differences
the same way that disconfirmation does for variations between anticipations and
perceived performance. Perceived service quality and perceived value has
approximately same meaning as it is explained.
H1: There is a positive relationship between customer’s perceived quality and customer
satisfaction.
2.3 Customer Satisfaction
The satisfaction is another important aspect that needs to be revised when shaping the
customer loyalty of the buyers towards their services suppliers. In banks, the customers
receive the services and check whether the offering is suitable to their requirements.
Then, they decide about repurchase after using the services from this bank. According
to Jamal and Kamal (2004), the customer satisfaction is high when the customer gains
maximum usage and pays the minimum price. If a customer buys the services from the

21. 12
bank a then quit buying its services one more time, it is because the customer is highly
dissatisfied with the quality of services. The satisfied customer is one that their needs
are served right through the services of the bank. Egan (2004) states that the company
directors not only have to pay attention to whether their customers are satisfied but also
to think about the extra offerings to keep them feel important in the relationship with
the business.
When the price of the services is higher the price that the customers thinks their needs
cost, customers are dissatisfied. In the banking sector, customers and the banks need to
agree on reasonable interest rates on loan and fee of usage of other banking services to
get the mutual contention. If the customers think they are charged higher by the
existing banks, they will find more information about other banks’ offering.
Satisfaction only occurs when the banks deal with the feedback from their customers
and should implement the reasonable requests from the customers about the prices of
their services. In case if the suggestions of customers are not taken into account, it will
start the customer defections process (Lin, 2003)
The customer, at the beginning, tries to compromise with the bank but at a certain point
he decides to defect. Today, it is too easy to open an account so the switching cost is
small. These help customers to switch from the current bank. The response of customer
plays a role in the whole satisfaction graph of the provider. If a customer is satisfied,
the loyalty infuses automatically and the customer stays fresh with the current
providers for a longer period of time (Gerrard and Cunningham, 2003).
H2a: There is a positive relationship between customer satisfaction and customer

22. 13
commitment.
H2b: There is a positive relationship between customer satisfaction and customer
loyalty.
2.4 Switching Cost
The switching cost is the barrier that prevents the customer from changing the suppliers
of services despite they see more profits in there (Jones et al, 2002). Another customer
loyalty aspect is the switching cost, which is any difficulties the customer confronts
such as technical and financial aspects (Shergill and Bing, 2006).
Customer loyalty has become the attracting object in recent business researches.
Therefore, there are various marketing researchers try to find the relationships between
customer loyalty and the different determinants, such as customer satisfactions and
switching costs (Boulding et al, 2003 Keaveney, 2005; Berne’, 2007).
Olsen (1992) states that the switching costs are the cost that the customers have to bear
when deciding to move to another seller. Switching costs are not just the financial costs
that the customer can measure, but also prefer to the time and psychological aspects
facing the customer when doing the switching (Jones, Beatty, Mothersbaugh, 2002).
The switching cost is the cost that the customer faces alone. It is the cost that prevent
customer from easily changing to the company’s competitions (Aydin and Ozer, 2005).
The switching cost make the customers think about the probability of remain loyalty,
especially when the cost is high for the customer. Because of the risk of expense in
switching that decreases the appeal of other suppliers (Selnes, 1993; Ruyter et al,
1995).

23. 14
The switching cost includes economic, psychological and physical costs according to
Jackson (2004). The economic or financial switching cost is a unsuccessful cost. It
happens when the customer switch his brand. They are the costs of closing an account
with one bank and opening another with another, the cost of changing one's long-
distance telephone service (Lauren and Lin, 2003) or the costs of changing one's GSM
operator.
Procedural switching costs are originally the process of customers' purchase decision
making and their implementation of the decision. The buying process includes: need
recognition, information search Evaluation of alternatives, and purchase decision.
When a consumer wants to change his function, he should valuate different operators
with regard to different standard, such as coverage area, charge, customer service,
value-added service, etc., complete the procedure for buying a new GSM line, and
eventually inform people of the new GSM number. That is post-purchase behavior.
The customer become aware of high risk regarding a brand he/she has never used
(Aydin and Ozer, 2005; Sharma and Patterson, 2008). Risk happens especially in
services, where customers prefer a rival service provider, because service quality
cannot be valuated before buying (Aydin and Ozer, 2005; Sharma et al., 2008).
Post-purchase cognitive dissonance is when a customer collecting information to
decrease his anxiety about a wrong purchasing decision will use all previous purchase
experiences. In this process, the customer would compare the switched brand and the
previous brand if he were to switch brand. As a result, the better the switched brand's
performance is, the higher the alternative's uncertainty. Therefore, customers will

24. 15
prefer the brands that they have used before if they want to decrease cognitive
dissonance (Ostrom and Iacobucci, 1999).
Switching barriers make customer desertion difficult or expensive. They include social
relationships, perceived switching costs, and the attractiveness of alternatives (Jones et
al, 2002).
Barriers to customer defection represent additional retention strategies. They include
development of strong interpersonal relationships or imposition of switching costs.
Such barriers are important because they may help company generally foster bigger
retention. It is because they may help company weather short-term fluctuations in
service quality that might otherwise result in defection (Jones et al. 2002).
Markets with switching costs are generally characterized by consumer lock-in. It is
observed that in markets with switching costs, consumers keep purchasing the same
brand even after competing brands have become cheaper. These markets are generally
characterized by consumer lock-in. Having consumer lock-in is important because of
the ability of firms to charge prices above marginal costs (Aydin and Ozer, 2005;
Srinivasan et al, 2007). If a market having switching costs, customers will show brand
loyalty and keep buying the same brand when they choose from a amount of same
brands (Lee and Feick, 2001). In addition, if customers are sensitive to a product's
properties, such as quality, uncertainty will decrease price sensitivity. That means the
customer behaves loyally.
Switching cost is a positive influence on customers' sensitivity to price level. It has a
positive influence on customer loyalty (Aydin and Ozer, 2005) referred to (Jones et al.,

25. 16
2002; Bloemer et al., 1998; Burnham, 2003; Lee and Feick, 2001).
It is important for those firms which have many potential customer bases to figure out
why they stay and to what these companies can prevent their customers from leaving.
Eventually, an understanding of why customers do not switch is important for those
services firms which are looking to attract these prospective switchers (e.g. new
entrants into the market. Because it will enable them to develop strategies to overcome
these switching barriers and gain market share (Colgate and Lang, 2009).
Switching barriers make customer desertion difficult or expensive. They include
interpersonal relationships, perceived switching costs, and the attractiveness of
alternatives (Jones et al. 2002). Barriers to customer desertion, such as development of
strong social relationships or imposition of switching costs, represent other retention
strategies. Such barriers are important because they may generally foster bigger
retention and because they may help companies weather short-term fluctuations in
service quality that may result in defection (Jones et al. 2002). Another stream suggests
that simply having less knowledge can influence evaluation. Consumers commonly
make decisions with incomplete knowledge about alternatives (Kivetz and Simonson,
2004). The situation where consumers are missing information about a single attribute
has been examined.
H3: There is a positive relationship between switching cost and customer loyalty.
2.5 Customer trust
Trust has been specified as the willingness to count on an exchange partner in whom
one has confidence (Moorman et al. 1993). Confidence in an exchange partner’s

26. 17
reliability and integrity is go with trust (Morgan and Hunt 2004). Chaudhuri and
Holbrook (2002) specify brand trust as the customer’s willingness to count on the
ability of the brand to show its stated operation. Trust causes dedication because it
reduces the costs of negotiating agreements (Dawes and Swailes, 1999) and lessens
customers’ fear of opportunistic behavior by the service provider (Bendapudi and
Berry, 1997). In social psychology trust is considered to consist of two elements: trust
in the partner’s honesty, and trust in the partner’s benevolence (Trubik et al, 2006).
Honesty is the belief that a partner swears by his word. Benevolence is the belief that
the partner is keen on the customer’s welfare, and will not do anything with negative
affect on the customer.
Morgan and Hunt (1994) recommend that in the marketing literature, brand trust leads
to brand loyalty and commitment. The reason is because trust creates relationships that
are highly valued. Therefore, loyalty or commitment implicit the process of
maintaining a valued and important relationship that has been made by trust (Gulati et
al, 2005; Ganesan et al, 2006; Moorman et al., 2007). We suggest that trust will
contribute to both commitment and loyalty.
H4: There is a positive relationship between customer’s trust and customer
commitment.
2.6 Customer commitment
Commitment is usually specified as a willingness to maintain a relationship (Moorman,
Deshpande and Zaltman 1993; Morgan and Hunt, 1994). Dwyer et al. (1987) defines it

27. 18
as a assurance of continuity. Pritchard, Havitz and Howard (1999) describe it as
opposition to change. Allen and Meyer (1990) determined three types of loyalty:
affective, continuance and normative in a conceptualization and study of employees’
commitment to an organization. Affective or emotional attachment happens when a
great committed individual identifies with and enjoys membership in an organization
(Allen and Meyer 1990). Affective loyalty is an emotional state of mind. Mind is based
on individual sharing, identifying with and interiorizing the values of an organization
and implies affective attachment (Morgan and Hunt, 2004).
This kind of loyalty is probably to lead to those mentioned desire to continue a
relationship. Continuance commitment implies cases where one tends to involve in
unchanging lines of activity to avoid costs of ending the relationship (Allen and Meyer,
1990). Normative commitment happens when one person feels responsible to the
organization, and exhibits behaviors towards it because he feels it is the right thing to
do. Despite being developed in an employee-employer setting, they are also applicable
in a customer-provider setting, and have been applied for describing consumption
relationships (Fullerton 2003).
H5: There is a positive relationship between customer commitment and customer
loyalty.
2.7 Research model and Hypotheses:
Perceived quality, satisfaction and switching cost, according to (Beerli, Martin and
Quintana, 2004) are the factors which have influenced the customer loyalty in banking

28. 19
industry have been selected. In this category, more models were reviewed to see if
there are more factors that can be considered in banking industry or not (Lin and Wang,
2006; Lauren and Lin, 2003). Therefore, the loyalty model for other industries was
considered in the reviewing of the literature. And finally according to (Lauren and
Lin,2003; Lin and Wang,2006) another factor which was mentioned in that loyalty
model and could be considered in banking industry, which is trust and commitment is
selected and added to the list. Also in the main model the authors didn't mention the
choosing factor in the model, but we also try to consider this item and find its relation.
Perceived Quality, Satisfaction, Switching cost, Commitment and Trust are the factors
which we have selected for my research after analyzing the cultural and socio
economic situation of Vietnam. Our proposed model has five factors which is from the
already published works of (Beerli, Martin and Quintana, 2004) and (Lin and Wang,
2006; Lauren and Lin, 2003).
Customer’s
perceived
quality
Customer
Satisfaction
Customer
Commitment
Customer
Trust
Customer
Loyalty
Switching
cost
H1
H3
H2b
H2a
H5
H4

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Figure 2.1: A conceptual model
H1: There is a positive relationship between customer’s perceived quality and customer
satisfaction.
H2a: There is a positive relationship between customer satisfaction and customer
commitment.
H2b: There is a positive relationship between customer satisfaction and customer
loyalty
H3: There is a positive relationship between switching cost and customer loyalty
H4: There is a positive relationship between customer trust and customer commitment.
H5: There is a positive relationship between customer commitment and customer
loyalty.

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CHAPTER 3
RESEARCH METHODOLOGY
This chapter includes five parts: the first part is research process in which the way to
conduct research will be presented; the second part is measurement scale; the third part is
the results of in-depth qualitative research interviews; the forth part is sampling methods;
and the last part introduces the method to analyze data.
3.1 Research Process
This study is conducted as given in Figure 3.1 below:
Problem
definition
Research model
Literature
review
Measurement scales
Qualitative research
Official scales
Quantitative research
Assessment of measurement
(Cronbach alpha, EFA)
Testing of hypotheses
(Linear regression)

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Figure 3.1: Research process
3.2 Measurement scales
This part includes measurement scales of customer loyalty and its antecedents
adapted from Wang et al. (2007), Chaudhuri and Holbrook (2002), Gefen et al.
(2005), Lee and Feick (2001), Pritchard et al. (2004), and Abdollahi et al. (2008).
3.2.1 Customer’s Perceived Quality
Scale items of perceived quality were adapted from Abdollahi et al. (2008, p. 192)
and presented in Table 3.1.
Table 3.1: Scale of Customer’s Perceived Quality
No. Coding Item
1 PQ1 You agree this bank's facilities are attractive and modern. (Such
as ATM Machines, telephone banking, internet...)
2 PQ2 You agree this bank’s employees are tidy in appearance.
3 PQ3 You agree that customer representatives are knowledgeable
4 PQ4 You agree that employees of this bank pay special attention to
you.
3.2.2 Customer Trust
Customer Trust was measured base on Gefen et al. (2005, p. 109) and presented in
Table 3.2.
Table 3.2: Scale of Customer Trust
No. Coding Item
1 T5 You agree this bank informed your company of its side services
from the beginning.

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2 T6 You agree employees of this bank solve your problems when
they promise to do so.
3 T7 You agree this bank delivers what it promises in its
advertisements and it is honest.
4 T8 You feel secure when using products and services of this bank.
3.2.3 Switching cost
Four scale items of Lee and Feick (2001, p. 45) were used to measured switching cost
(see Table 3.3).
Table 3.3: Scale of switching cost
No. Coding Item
1 SW9 Change to another bank involves investing time in searching for
information about other banks
2 SW10 Change to another bank involves a risk and uncertainty in
choosing which might turn out not to satisfy your company.
3 SW11 It would cost your company a lot of money to switch from your
bank to another bank
4 SW12 It would cost your company a lot of time to switch from your bank
to another bank.
3.2.4 Customer satisfaction
Scale items of customer satisfaction were adapted from Wang et al. (2007, p. 202) (see
Table 3.4).
Table 3.4: Scale of customer satisfaction
No. Coding Item
1 S13 You agree this bank meets your company’s needs.

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2 S14 Your company’s satisfied with the way complaints are handled.
3 S15 Your company’s satisfied with the online services and their
promptness.
4 S16 Your company’s satisfied with the pricing issues (Margins on
loans, charges on ATM and other online services).
3.2.5 Customer commitment
The items of customer commitment were suggested by Pritchard et al. (2004, p. 185)
(see Table 3.5).
Table 3.5: Scale of customer commitment
No. Coding Item
1 CMT17 Your company would always use this bank’s services.
2 CMT18 Your company’s intention to use the services of this bank would
not be changed.
3 CMT19 Even if close partners recommended another bank, your
company would not change your preference for this bank.
4 CMT20 To change your preference from this bank would require major
rethinking.
3.2.6 Customer loyalty
Three scale items of Chaudhuri and Holbrook (2002, p. 195) were used to measured
customer loyalty (see Table 3.6).
Table 3.6: Scale of customer loyalty
No. Coding Item
1 CL21 You would recommend your company’s bank to your partners.

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2 CL22 Your company is a loyal customer to this bank.
3 CL23 Your company intends to keep purchasing products and services
from this bank.
All the above items were measured by seven-point Likert-type scales, anchored on "1
= to a very little extent" through "7 = to a very great extent".
3.3 Qualitative Research
The purpose of qualitative research is to explore factors affecting customer loyalty and
their items. Scales of customer loyalty and the antecedents are adapted from Wang et
al. (2007), Chaudhuri and Holbrook (2002), Lee and Feick (2001), Gefen et al. (2005),
Pritchard et al. (2004), and Abdollahi, (2008).
3.4 Sampling Method
After conducting qualitative research, the survey via questionnaire is completed. This
study includes 23 variables, in which 22 variables are independent and 03 dependent
variables. According to Hair, Black, Babin, and Anderson (2010), a general
rule, the sample size should be 100 or greater and the minimum sample should have
a desired ratio of 5 observations per variable.
n > 100 samples and n=5k (where k = the number of variables).
Therefore, the minimum sample size is n = 5* 23 = 115.
For standard multiple regression analysis, Tabachnick and Fidell (1991) proposed
that the desired level is:
n > 50 + 8m (where m = number of independent variables)

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There were three models of regression in the proposed model and the largest number
of independent variables was three.
Hence, the required sample is:
n > 50 + 8*3 = 74.
Thus, the minimum sample size is 115.
3.4.1 Sampling
A sample of 150 respondents was drawn from enterprises that have the offices in Ho
Chi Minh City. The respondents should have the roles such as the business owners,
the managers, the accountants, who contact frequently with the banks to do works.
3.4.2 Data collection.
The data collection was conducted by the survey questionnaire. Out of 180
respondents 169 returned questionnaire, of which 150 were usable, for a
response rate 93.8 percent. The accepted questionnaire must not having more than
one missing value and not selecting all “1” or all “7” for more than two
factors. The data collection was carried out from 15th
Nov, 2013 to 15th
Jan, 2014.
3.5 Data Analysis Methods
All accepted questionnaire were reviewed for completion, coded and input the raw
data in IBM SPSS Statistic version 20. The reliability and validity of measurement
scales were evaluated by using Cronbach’s alpha and exploratory factor analysis.
Then, multiple regression analysis is used to provide for interpreting the results
of its application from a managerial and statistical viewpoint (Hair et al., 2010).
3.5.1 Cronbach’s alpha.
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According to Connely (2011, p. 45), “Cronbach’s alpha is used as only one criterion
for judging instruments or scales. It only indicates if the items “hang together;” it
does not determine if they are measuring the attribute they are supposed to
measure. Therefore, scales also should be judged on their content and construct
validity”.
George and Malley (2003, cited in Matkar, 2012, p. 94) provide the following
techniques (see Table 3.7).
Table 3.7: Cronbach’s Alpha Reliability Coefficient
Cronbach’s alpha Internal consistency
α ≥ 0.9
0.8 ≤ α < 0.9
0.7 ≤ α < 0.8
0.6 ≤ α < 0.7
0.5 ≤ α < 0.6
α < 0.5
Excellent
Good
Acceptable
Questionable
Poor
Unacceptable
3.5.2 Exploratory factor analysis (EFA).
Norris and Lecavalier (2010, p. 9) supposed that “EFA is based upon a testable model
and can be evaluated in terms of its fit to the hypothesized population model; fit
indices can be generated to help with model interpretation”. Moreover, “EFA’s
purpose is to identify latent constructs underlying a set of manifest variables”.
Hair et al. (1998, cited in Lee and Hooley, 2005, p. 376) claimed that with samples of
350 or more, a factor loading of the attribute higher than 0.3 is significant. In
addition, with samples of 200, a factor loading of 0.4 or greater will take to indicate.
Therefore, the researchers must carefully consider the sample size for choosing
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significant factor loadings. Factors with a total eigenvalue of 1 or greater will
take into account; hence, any factors with an eigenvalue of less than 1 are
discounted (Kim and Mueller, 1978, cited in Lee and Hooley, 2005).
Based on these studies, any factors with eigenvalue greater than 1 will be
retained. In addition, any factor loadings of 0.3 or higher on a factor are counted
3.5.3 Multiple regression analysis
Hair et al. (2010) claimed that there is the difference between the actual and
predicted values of dependent variable. That means the random error will occur
when predicting sample data. It is called the residual (ε or e)
Based on these studies, the multiple regression formula will be
Y = a + β1X1 + β2X2 + … + βnXn + ε
Where in: Y: is the dependent variable.
a: is constant.
β: is called beta weight, standardized regression coefficient, or beta
coefficient .
X: is the predictor entered into the equation in a single step.
ε: is the residual.
Moreover, Meyers, Gamst, and Guarino (2006, p. 161) introduced the value of R2
indicating how much variance of the dependent variable is accounted for by the full
regression model. Therefore, the higher the value of R2
, the greater the explanatory
power of the regression equation (Hair et al., 2010).
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