Customer loyalty in indian banking sector a comparative study

808 views

Published on

Published in: Business, Economy & Finance
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
808
On SlideShare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
30
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Customer loyalty in indian banking sector a comparative study

  1. 1. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 –6510(Online), Volume 4, Issue 2, March- April (2013)236CUSTOMER LOYALTY IN INDIAN BANKING SECTOR: ACOMPARATIVE STUDYDr. Sandip Ghosh Hazra1, Prashant Piyush2and Tapan Kumar31Head, Department of Humanities & Management, Birla Institute of Technology, Mesra-Deoghar Campus2Student- B.E.-Final Year Birla Institute of Technology, Mesra3Student- B.E.-Final Year Birla Institute of Technology, MesraABSTRACTPrior to liberalisation, public sector banks functioned in a sheltered environment. Thearrival of foreign and private banks forced Indian public sector banks to meet the challenge ofcompetition. A competition between the public sector banks and private sector banks hastaken place fiercely. Customer loyalty serves as a significant source of competitive benefit inbanking sector. The objectives of the study are to examine the differences in customer loyaltybetween private and public sector banks and to examine the effect of demographiccharacteristics of customers. Purposive sampling method has used to collect data. Threefactors of customer loyalty have identified-loyalty to company, response to problems andwillingness to pay. The results reveal that there are significant differences in public andprivate sector banks with regard to willingness to pay, and loyalty to company.Keywords: Customer Loyalty, Banking SectorINTRODUCTIONCustomer loyalty is the repeat purchase, referring the company to other customers(Day, 1969; Heskett, Jones, Loveman, Sasser & Schlesinger, 1994), generates positive andmeasurable financial results (Duffy, 2003) and contributes to the profitability of the serviceproviders (Anderson & Mittal, 2000; Anderson & Sullivan, 1993).The arrival of foreign and private banks forced Indian public sector banks to meet thechallenge of competition, to pay attention to their customers and retain their customer base.Public sector banks are facing increasingly more competition, whereas foreign and privateINTERNATIONAL JOURNAL OF MANAGEMENT (IJM)ISSN 0976-6502 (Print)ISSN 0976-6510 (Online)Volume 4, Issue 2, March- April (2013), pp. 236-243© IAEME: www.iaeme.com/ijm.aspJournal Impact Factor (2013): 6.9071 (Calculated by GISI)www.jifactor.comIJM© I A E M E
  2. 2. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 –6510(Online), Volume 4, Issue 2, March- April (2013)237sector banks are trying to win customer loyalty by providing them better quality services. Afierce competition between the public sector banks and private sector banks has taken place.Researchers have suggested that customer relationship with service personnel is influential inthe development of customer loyalty to a service firm (Barnes, 1995; Beatty, Mayer,Coleman, Reynolds & Lee, 1996; File & Prince, 1993; Gwinner, Gremler & Bitner, 1998).Customer loyalty has a powerful impact on the performance of service firms and serves as animportant source of competitive advantage (Heskett, Sasser & Schlesinger, 1997; Rust,Zeithaml & Lemon, 2000; Woodruff, 1997), and concerned with the likelihood of customerreturning, making business referrals, providing strong word-of-mouth references andpublicity (Bowen & Shoemaker, 1998). Loyal customers are less likely to switch to acompetitor due to a given price inducement, and these customers make more purchasescompared to less loyal customers (Baldinger & Rubinson, 1996). The major objectives of thestudy are to identify the factors of customer loyalty, to examine the differences in customerloyalty between private and public sector banks and to examine the effect of demographiccharacteristics of customers between public and private sector banks.MethodSampleThe data were collected from three hundred customers belonging to five nationalizedbanks and three private sector banks in India. 160 (53 per cent) were from public sectorbanks, and 140 (47 per cent) from private sector banks. The banks were mainly located inWest Bengal. The respondents had contacts with the banks on a regular basis over the last 3years, visited the bank premises frequently for transactions and were savings bank accountholders. A total of 350 questionnaires were distributed. Total number of filled questionnairescollected back from respondents was 320 representing the return rate of 91 per cent. Theresponse rate was considered satisfactory for self-report survey of this type (Miller, 1991;Yammarino, Skinner & Childers, 1991). Out of these questionnaires, 20 had to be rejectedbecause of a high number of missing data or high response bias leaving an overall samplesize of 300. Purposive sampling method was used to collect data. Respondents belonged todifferent education levels and occupations. A brief summary of sample characteristics isgiven (Table 1).Table 1. Summary of Sample CharacteristicsPublic sector banks Private sector banksNo. Percentage No. PercentageEducationHigh School 17 10.62 02 1.43Intermediate 15 9.37 13 9.29Graduation 63 39.38 89 63.57Master’s Degree 56 35 31 22.14Others 09 5.63 05 3.57Total 160 100 140 100OccupationProfessionals 57 35.63 45 32.14Sales related work 19 11.87 31 22.14Services related work 48 30 42 30Others 36 22.5 22 15.72Total 160 100 140 100
  3. 3. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 –6510(Online), Volume 4, Issue 2, March- April (2013)238MeasuresThe study was conducted in an exploratory framework using survey research. Customerloyalty was measured using a 13-item scale adopted from the behavioural-intentions battery(BIB) developed by Zeithaml, Berry and Parasuraman (1996), using the five-point LikertScale. It contained five items relating to loyalty to company, two items relating to propensityto switch, two items relating to willingness to pay, three items on external response toproblems and one item regarding internal response to problems. Questions related to thedemographic characteristics of the respondents were also measured.Results and discussionThe data were subjected to factor analysis to identify the factors and establish theconstruct validity. The factor analysis was done using principal component with varimaxrotation, as they appeared to be interrelated with each other. The highest loading against anyfactor was taken into account as a representative of that scale showing the construct validity.The 13-item scale of customer loyalty was factor analyzed, which resulted in three distinctfactors, namely loyalty to company, response to problems, and willingness to pay. It had anEigen value of 3.83, 2.07, and 1.46 respectively and together accounted for 57 per cent ofvariance. A summary of the factor analysis results along with their loadings is presented inTable 2.Table 2. Summary of Factor Analysis for Customer LoyaltyFactor1 Factor 2 Factor3Loyalty to company Response to problems Willingness to payItem Loading Item Loading Item Loading1 .69 10 .63 7 .552 .81 11 .82 8 .783 .75 12 .84 9 .814 .76 13 .335 .796 .63Eigen Value 3.83 2.07 1.46Percentage of Variance 30 16 11Total variance explained= 57 per centIn order to examine whether Factor Analysis is an appropriate analysis to identifyfactor, the Kaiser-Meyer-Olkin (KMO) measure of sampling adequacy and Bartletts test ofsphericity was conducted. For the scale of customer loyalty, the Kaiser-Meyer-Olkin (KMO)measure of sampling adequacy (KMO=0.80) value is acceptable if KMO value is greater than0.70 (Kaiser & Rice, 1974). Bartletts test result shows that the values are significant and thusacceptable (Table 3).Table 3. KMO and Bartletts Test Results for Customer LoyaltyKaiser-Meyer-Olkin Measure of Sampling Adequacy .80Bartletts Test of SphericityApprox. Chi-Square 1156.95df 78Sig. .01
  4. 4. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 –6510(Online), Volume 4, Issue 2, March- April (2013)239Thus, customer loyalty emerged as multidimensional in nature. Customer loyalty factors wereloyalty to company, response to problems, and willingness to pay. The reliability coefficientfor loyalty to company was .84. It was .65 for response to problems; and for willingness topay it was.63. A summary of tool characteristics for each of the scales is provided in Table 4.Table 4. A Summary of Tool CharacteristicsFactors No. ofItemsMean SD AlphaCoefficientLoyalty to Company 6 22.36 4.57 .84Response to Problems 4 15.16 3.08 .65Willingness to Pay 3 8.40 2.75 .63After examining the construct validity and identifying the factors, proposed hypotheses weretested. The results related to different hypotheses are presented and discussed below.H1. Customers’ perception would significantly differ between public and private sector bankswith regard to customer loyalty.In order to examine the differences, t-test for independent samples was conducted. Theresults were given in Table 5.Table 5. Summary of Independent Samples T-Test examining differences in Loyalty toCompany, Response to Problems and Willingness to Pay in public sector banks andprivate sector banksThe results showed that there were significant differences in public and privatesector banks with regard to willingness to pay, and loyalty to company. No significantdifferences were found for response to problems. Customers would recommend their banks toothers, as employees were more responsive to their requests. They would not mind payingextra charges due to the convenient operating hours of the bank. Customers from privatesector banks seem to be satisfied because of management’s willingness to help customers,and their adequate knowledge about banking services. They would also defend whensomeone would criticize their bank. Public sector banks have been losing customers toprivate sector banks. They need to satisfy their customers by providing better quality servicesat a higher speed for increased loyalty.Banks N Mean Std.DeviationStd. ErrorMeant-test Sig(2-tailed)Loyalty toCompanyPublic Sector 160 21.76 5.14 .41 2.44 .02Private Sector 140 23.04 3.71 .31Response toProblemsPublic Sector 160 15.12 2.90 .23 .25 .80Private Sector 140 15.21 3.28 .28Willingnessto PayPublic Sector 160 7.96 2.78 .22 3.01 .01Private Sector 140 8.90 2.64 .22
  5. 5. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 –6510(Online), Volume 4, Issue 2, March- April (2013)240H2. Perception of customers regarding customer satisfaction, customer loyalty, customercommitment and customer trust would differ across education of customers.In order to examine the differences in customer perception across education, ANOVA wasconducted. Customers were divided into five different educational categories starting fromhigh school to post-graduate studies and others. The results (Table 6) showed that there weresignificant differences with regard to willingness to pay (F=5.13, p<. 01). However, nosignificant differences were found with regard to loyalty to company (F=1.46, p>.05), andresponse to problems (F=. 67, p>.05).Table 6. Summary of Analysis of Variance (ANOVA) examining differences in Loyaltyto Company, Response to Problems and Willingness to Pay in education** Significant at 0.01 level * Significant at 0.05 level.The results reveal that highly educated customers were more satisfied with thebehaviour of the employees. Customers, who were better educated (graduates), were willingto pay extra charges to the bank mainly due to the better quality of service. However,customer perception did not significantly differ regarding loyalty and response to problems.This shows that customers are not loyal to banks. They could switch their loyalty in case thebanks did not provide services as per their expectations. Irrespective of their level ofeducation, customers from both types of banks perceived them equally good or bad in solvingtheir problems.H3. Perception of customers regarding customer loyalty would differ across occupations ofcustomers.In order to examine the differences in the perception across differences in occupationalgroups, ANOVA was conducted. The results of the analysis of variance (Table 7) showedthat there were significant differences in perception across different occupational groups withregard to loyalty to company (F=2.51, p<.05). However, no significant differences werefound with regard to willingness to pay (F=1.26, p>.05) and response to problems (F=. 52,p>.05).Sum ofSquaresdf MeanSquareFLoyalty toCompanyBetween Groups 121.47 4 30.37 1.47Within Groups 6109.65 295 20.71Total 6231.12 299Response toProblemsBetween Groups 25.85 4 6.46 .68Within Groups 2806.47 295 9.51Total 2832.32 299Willingnessto PayBetween Groups 146.88 4 36.72 5.13**Within Groups 2110.92 295 7.16Total 2257.80 299
  6. 6. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 –6510(Online), Volume 4, Issue 2, March- April (2013)241Table 7. Summary of Analysis of Variance (ANOVA) examining differences in Loyaltyto Company, Response to Problems and Willingness to Pay in occupation** Significant at 0.01 level * Significant at 0.05 level.The results indicate that customers, who are doing business, recommended the sameto others who asked for advice. Banks’ performance greatly depends on such customers, sothey try to provide them better services so that they remain loyal to them. So far as salariedclass, low-end customers are concerned, they do not seem to be loyal and have a tendency toswitch their loyalty to other banks.Summary and ConclusionSummary of ResultsThe data were subjected to factor analysis to establish the construct validity andidentify the factors for customer loyalty namely, loyalty to company, response to problemsand willingness to pay. The results reveal that there were significant differences in public andprivate sector banks with regard to willingness to pay, and loyalty to company. Highlyeducated customers were more satisfied and ready to pay extra charges to their bank, andcustomers, who are doing business, recommended their bank to others who asked for advice.CONCLUSIONCustomers from private sector banks and customers, who are doing business,seem to be more delighted compare to public sector. They would recommend their banks toothers, defend when someone criticize their bank and ready to pay extra charges. Highlyeducated customers were more pleased with the behaviour of the employees and were willingto pay extra charges to their bank.Sum ofSquaresdf MeanSquareFLoyalty to CompanyBetween Groups 154.96 3 51.652.52*Within Groups 6076.16 296 20.53Total 6231.12 299Response to ProblemsBetween Groups 15.10 3 5.03.53Within Groups 2817.22 296 9.52Total 2832.32 299Willingness to PayBetween Groups 28.60 3 9.531.27Within Groups 2229.20 296 7.53Total 2257.80 299
  7. 7. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 –6510(Online), Volume 4, Issue 2, March- April (2013)242LIMITATIONSThe study was limited to saving bank account customers, who had contacts with thebanks on a regular basis over the last 3 years. The sample size was relatively small and drawnfrom a specific state (West Bengal) of India, which makes the generalisation of the findingsdifficult.Suggestions for Future ResearchBased on the limitations, certain suggestions are offered for further research. Thestudy can be extended to other types of firms such as investment banks, financial institutions,insurance companies, travel agencies, higher education institutions, and healthcare providers.Future research can also be taken up by using a larger and diversified random sample toincrease its generalisability. Future research should incorporate other types of serviceproviders, and more variables to combine them into an integrated model to get a betterunderstanding of the relationship among these variables in the Indian banking sector.REFERENCES1. Anderson, E.W., & Mittal, V. (2000). Strengthening the satisfaction-profit chain. Journalof Service Research, 3 (2), 107-120.2. Anderson, E.W., & Sullivan, M.W. (1993). The antecedents and consequences ofcustomer satisfaction for firms. Marketing Science, 12 (2), 125-143.3. Baldinger, A.L., & Rubinson, J. (1996). Brand loyalty: the link between attitude andbehavior. Journal of Advertising Research, 36 (6), 22-34.4. Barnes, J.G. (1995). Establishing relationships-getting closer to the customer may bemore difficult than you think. Irish Marketing Review, 8,107–116.5. Beatty, S.E., Mayer, M., Coleman, J.E., Reynolds, K.E., & Lee, J. (1996). Customer–sales associate retail relationships. Journal of Retailing, 72 (3), 223–247.6. Bowen, J.T., & Shoemaker, S. (1998). Loyalty: a strategic commitment. Cornell Hoteland Restaurant Administration Quarterly, 39 (1), 12-25.7. Day, G.S. (1969). A two-dimensional concept of brand loyalty. Journal of AdvertisingResearch, 9 (3,) 29-36.8. Duffy, D.L. (2003). Internal and external factors which affect customers loyalty. Journalof Consumer Marketing, 20 (5), 480-485.9. File, K.M., & Prince, R.A. (1993). Evaluating the effectiveness of interactive marketing.Journal of Services Marketing, 7 (3), 49–58.10. Gwinner, K.P., Gremler, D.D., & Bitner, M.J. (1998). Relational benefits in servicesindustries: the customers perspective. Journal of the Academy of Marketing Science, 26(2), 101–114.11. Heskett, J.L., Jones, T.O., Loveman, G.W., Sasser, W.E., & Schlesinger, L.A. (1994).Putting the service profit chain to work. Harvard Business Review, 72 (2), 164-174.12. Heskett, J.L., Sasser, W.E., & Schlesinger, L.A. (1997). The Service Profit Chain. NewYork: The Free Press.13. Kaiser, H.F., & Rice, J. (1974). Little Jiffy Mark IV. Educational and PsychologicalMeasurement, 34(1), 111-117.14. Miller, D.C. (1991). Handbook of research design & social measurement (5thed).Newbury Park, Calif: Sage Publications.
  8. 8. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 –6510(Online), Volume 4, Issue 2, March- April (2013)24315. Rust, R., Zeithaml, V.A., & Lemon, K. (2000). Driving Customer Equity. Boston: FreePress.16. Woodruff, R.B. (1997). Customer value: The next source for competitive advantage.Journal of the Academy of Marketing Science, 25 (2), 139-153.17. Yammarino, F.J., Skinner, S.J., Childers, T.L. (1991). Understanding mail surveyresponse behaviour: a meta-analysis. Public Opinion Quarterly, 55.18. Zeithaml, V.A., Berry, L.L., & Parasuraman, A. (1996). The behavioral consequences ofservice quality. Journal of Marketing, 60 (2), 31-46.19. TR.Kalai Lakshmi and Dr. SS Rau, “Creation of Loyal Customers with RelationshipMarketing”, International Journal of Management (IJM), Volume 2, Issue 2, 2011,pp. 44 - 50, ISSN Print: 0976-6502, ISSN Online: 0976-6510.20. Vani Haridasan P and Dr. Shanthi Venkatesh, “Impact of Service Quality in ImprovingThe Effectiveness of CRM Practices Through Customer Loyalty – A Study on IndianMobile Sector”, International Journal of Management (IJM), Volume 3, Issue 1, 2012,pp. 29 - 45, ISSN Print: 0976-6502, ISSN Online: 0976-6510.21. T.Vijayakumar and Dr. R. Velu, “Customer Relationship Management in Indian RetailBanking Industry”, International Journal of Management (IJM), Volume 2, Issue 1,2011, pp. 41 - 51, ISSN Print: 0976-6502, ISSN Online: 0976-6510.

×