Customer satifaction and switching intentions_ A study of retail banking

UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business NGO TUAN TAI CUSTOMER SATISFACTION AND SWITCHING INTENTIONS: A STUDY OF RETAIL BANKING MASTER OF BUSINESS (Honours) Ho Chi Minh City – Year 2014 UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business NGO TUAN TAI CUSTOMER SATISFACTION AND SWITCHING INTENTIONS: A STUDY OF RETAIL BANKING ID: 22110051 MASTER OF BUSINESS (Honours) SUPERVISOR: DR LE NGUYEN HAU Ho Chi Minh City – Year 2014 ACKNOWLEDGMENT I would like to express my deep gratitude, special appreciation and thanks to my supervisor Dr Le Nguyen Hau I would like to thank Dr Hau for encouraging my research and for his valuable time and efforts in guiding me to complete this study I would like to thank all members of International School of Business (ISB) – University of Economic Ho Chi Minh City for supporting and assisting me wholeheartedly And also, my special thanks to Professor Nguyen Dinh Tho who provided me with the appropriate orientations of my study I would like to thank to my friends who assisted me in distributing my questionnaires to the respondents and all respondents who spent their valuable time in completing my questionnaires I would like to thank the board of directors of Aardwolf Company, who sympathized with me and gave me facilities during the last two years enabling me to complete both my jobs and study Finally, a special thanks to my family It’s very hard to express how grateful I am to my mother, wife and son They are always my great supports Ngo Tuan Tai Ho Chi Minh City, April 20, 2014 i ABSTRACT There is an intense competition in the retail banking in Vietnam To exist and develop in such intense competition, bank managements must develop customer-oriented strategies to maintain their bank’s market shares In this industry, the retail banking products and services are closely identical, additionally their prices are competitive giving consumers an ability to purchase those financial products and services from various banks or financial companies Subsequently, consumers are also more prone to change their current bankers Hence, how does a bank prevent their customers from switching to other banks? What is the distinction among the banks as a foundation for the banks to build up appropriate strategies to maintain the business relationship with their customer in such intense competition? The study assumes that perceived bank reputation is a distinctive factor among the various banks Hence, the main aim of this study is to investigate the effects of various components of customer satisfaction on perceived bank reputation, and also determine the impact of the perceived bank reputation on customer intentions to switch The data for this study was obtained from 198 retail banking consumers in Ho Chi Minh City and Binh Duong province The analysis results revealed the perceived bank reputation is impacted by customer satisfaction of branches and image, and it plays an important role in lessening the consumer intention to switch the bank Key words: customer satisfaction, bank reputation, switching intentions ii TABLE OF CONTENTS Page Chapter 1: Introduction 1.1 Research background 1.2 Research objectives and questions 1.3 Scope of the study 1.4 Signification 1.5 Study structure Chapter 2: Literature review, model and hypotheses 2.1 Customer satisfaction 2.2 Bank reputation 11 2.3 Switching behavior 12 2.4 Conceptual model 14 2.5 Hypotheses 15 Chapter 3: Research method 19 3.1 Research process 19 3.2 Measurement scales 20 3.3 Qualitative test of measurement scales 23 3.4 Data collection 23 3.5 Data analysis method 24 Chapter 4: Data analysis and results 27 4.1 Respondent profile and descriptive statistics 27 4.2 Reliability analysis 28 4.3 Exploratory factor analysis for the independent variables 29 4.4 Exploratory factor analysis for the dependent variables 33 iii 4.5 The first hypothesis testing (satisfaction and bank reputation) 34 4.6 The second hypothesis testing (reputation and switching intentions) 39 4.7 Summary of hypothesis testing results 41 4.8 Discussion of findings 43 Chapter 5: Conclusion, implication and limitation 46 5.1 Conclusion 46 5.2 Implication 47 5.3 Limitation 49 References 51 Appendix 1: Research questionnaire 55 Appendix 2: Descriptive statistic 59 Appendix 3: Results of cronbach’s alpha reliability analysis 61 Appendix 4: First time of running exploratory factor analysis of independent variables 70 Appendix 5: Total Variance Explained for the second time of running exploratory factor analysis of independent variables 72 iv LIST OF TABLES Page Table 3.1: Measurement constructs 21 Table 4.1: Respondent profile 27 Table 4.2: Cronbach’s alpha 28 Table 4.3: KMO and Barlett’s Test for independent variables 30 Table 4.4: Rotated component matrix for independent variables 30 Table 4.5: Two replacement constructs 32 Table 4.6: Cronbach’s alpha of the two replacement constructs 33 Table 4.7: KMO and Barlett’s Test for dependent variables 34 Table 4.8: Rotated component matrix for dependent variables 34 Table 4.9: Model summary of the first hypothesis testing 37 Table 4.10: ANOVA for regression of the first hypothesis testing 38 Table 4.11: Multiple regression analysis results of the first hypothesis testing 38 Table 4.12: Model summary of the second hypothesis testing 40 Table 4.13: ANOVA for regression of the second hypothesis testing 41 Table 4.14: Multiple regression analysis results of the second hypothesis testing 41 Table 4.15: Hypothesis testing results (summary) 42 v LIST OF FIGURES Page Figure 1: Conceptual model 14 Figure 2: Research process 19 Figure 3: Modified research model 35 Figure 4: Bank reputation – Histogram 36 Figure 5: Bank reputation – Scatterplot 37 Figure 6: Switching intentions – Histogram 39 Figure 7: Switching intentions – Scatterplot 40 vi Chapter INTRODUCTION 1.1 Research background There are a large number of bankers in Vietnam that are categorized into three types: state-owned commercial banks, joint stock commercial banks and wholly foreignowned banks (Vietnam banking technology report, 2012) The strong competitive trends in banking products and services on financial markets have increasingly urged not only the small and medium joint stock commercial banks, but also the state-owned commercial banks to renew and continue to have effective customer policies, strategies and services towards the customers in order to maintain and increase their bank’s market shares The state-owned commercial banks have great advantages of finance capabilities, larger branch networks, greater supports from the government, etc over other commercial bankers enabling them to build up reliability and safety, portraying a respectable image in the eyes of consumers, thus they have accounted for a large percentage of the bank’s market shares in Vietnam and have gained satisfaction of the consumers Nevertheless, those banks are enduring intense competitions from the following financial banks and companies:  The new established commercial banks in recent years, those banks just recently participate in the market, thus they have important advantages such as they learn from experiences of the existing banks to build up appropriate strategies, they have all information about the market, and importantly they have great ambitions and thirst for gaining the market share  The current commercial banks are growing up such as Sacombank, Techcombank, ACB bank, etc Those banks are competing intensively in gaining the consumers and increasing market shares  The foreign-own banks such as HSBC, ANZ, etc with advance technologies, strong financial capability and professional services have been overtaking the retail banking market Those banks have an advantage of having their foreigner clients whom have a trusting relationship in there home countries They especially have a resilient advantage with worldwide branch networks aboard that enable them to offer unique banking products and services, which are far more superior against the local banks  The financial companies such as Prudential Vietnam, AIA, etc are offering many distinct financial products attracting the consumers Hence, the consumers now have a wider range of choices in purchasing the financial products Due to such competitions above, consumers now have the ability to purchase closely identical financial products provided from various banks or financial companies Subsequently, consumers are more prone to change their current bankers if they realize any changes among the banks, even it’s just a minor change For instance, due to a difficulty in lending funds resulted from economic recessions, plus a surplus in cash deposit, the state-owned bankers have lowered the deposit rate since the beginning of May, 2013 Typically, Vietcombank cut its monthly deposit interest rate for the VND to Appendix 2: Descriptive statistic Construct/Variable N Mean Std Deviation Minimum Maximum Bank reputation Bank reputation 198 5.32 1.02 Bank reputation 198 5.23 1.01 Branches 198 5.30 1.04 Branches 198 5.31 1.05 Branches 198 5.21 0.97 Branches 198 5.36 0.96 Branches 198 5.38 1.05 Bank image 198 5.28 1.06 Bank image 198 5.42 1.01 Bank image 198 5.06 1.07 Bank image 198 4.98 1.09 Bank image 198 4.92 1.17 Bank image 198 5.36 1.06 Bank image 198 5.04 0.97 Satisfaction of bank branches Satisfaction of bank image Satisfaction of automatic teller machines (ATM) ATM 198 5.54 1.04 ATM 198 5.67 0.97 ATM 198 5.17 1.25 59 ATM 198 5.54 1.14 ATM 198 4.65 1.46 ATM 198 4.87 1.35 ATM 198 5.13 1.18 ATM 198 5.13 1.37 Personal service 198 4.93 1.16 Personal service 198 5.24 1.16 Personal service 198 5.21 1.12 Personal service 198 5.16 1.08 Personal service 198 5.41 0.96 Personal service 198 5.43 1.03 Communication 198 5.27 0.96 Communication 198 5.31 0.90 Communication 198 5.24 0.85 Switching intention 198 3.05 1.43 Switching intention 198 2.77 1.38 Switching intention 198 3.18 1.55 Satisfaction of personal services Satisfaction of communication Switching intentions 60 Appendix 3: Results of cronbach’s alpha reliability analysis Construct: Satisfaction - bank reputation Reliability Statistics Cronbach's Alpha Cronbach's Based on Standardized Alpha Items 828 N of Items 832 Item-Total Statistics Scale Bank reputation Bank reputation Corrected Squared Cronbach's Scale Mean if Variance if Item-Total Multiple Alpha if Item Item Deleted Item Deleted Correlation Correlation Deleted 5.2323 1.022 738 545 a 5.3232 1.042 738 545 a a The value is negative due to a negative average covariance among items This violates reliability model assumptions You may want to check item codings 61 Construct: Satisfaction – bank branches Reliability Statistics Cronbach's Cronbach's Alpha Based Alpha on Standardized Items 839 N of Items 839 Item-Total Statistics Scale Mean if Scale Corrected Squared Cronbach's Variance if Item-Total Multiple Alpha if Item Correlation Correlation Deleted Item Deleted Item Deleted Satisfaction - branches Satisfaction - branches Satisfaction - branches Satisfaction - branches Satisfaction - branches 21.2677 10.177 666 484 800 21.2576 9.888 713 569 786 21.3586 10.180 738 586 781 21.2071 11.333 531 297 835 21.1919 10.643 573 338 826 62 Construct: Satisfaction – bank image Reliability Statistics Cronbach's Cronbach's Alpha Based Alpha on Standardized Items 903 N of Items 903 Item-Total Statistics Scale Mean if Scale Corrected Squared Cronbach's Variance if Item-Total Multiple Alpha if Item Correlation Correlation Deleted Item Deleted Item Deleted Satisfaction - bank image Satisfaction - bank image Satisfaction - bank image Satisfaction - bank image Satisfaction - bank image Satisfaction - bank image Satisfaction - bank image 30.7828 26.435 679 507 893 30.6364 27.167 641 502 897 31.0051 25.173 799 729 879 31.0808 25.090 792 727 880 31.1364 25.377 697 556 892 30.6970 25.877 738 565 886 31.0253 27.365 653 462 895 63 Construct: Satisfaction – ATMs Reliability Statistics Cronbach's Alpha Cronbach's Based on Alpha Standardized Items 874 N of Items 877 Item-Total Statistics Scale Scale Mean if Variance if Corrected Item- Item Deleted Item Deleted Total Correlation Satisfaction ATM Satisfaction ATM Satisfaction ATM Satisfaction ATM Satisfaction ATM Satisfaction ATM Satisfaction ATM Satisfaction ATM Squared Cronbach's Multiple Alpha if Item Correlation Deleted 36.1566 42.052 610 527 861 36.0303 42.314 638 598 859 36.5253 40.088 608 568 861 36.1566 41.361 592 361 862 37.0505 37.926 629 522 860 36.8232 38.573 650 638 856 36.5657 40.338 642 562 857 36.5707 37.353 722 676 848 64 Construct: Satisfaction – personal service Reliability Statistics Cronbach's Alpha Cronbach's Based on Standardized Alpha Items 910 N of Items 912 Item-Total Statistics Scale Mean if Scale Corrected Squared Cronbach's Variance if Item-Total Multiple Alpha if Item Correlation Correlation Deleted Item Deleted Item Deleted Satisfaction - personal service Satisfaction - personal service Satisfaction - personal service Satisfaction - personal service Satisfaction - personal service Satisfaction - personal service 26.4495 21.406 621 432 914 26.1364 19.662 812 684 885 26.1667 20.038 811 690 885 26.2222 20.387 802 646 887 25.9697 21.674 759 632 894 25.9495 21.459 716 611 899 65 Construct: Satisfaction – communication Reliability Statistics Cronbach's Alpha Cronbach's Based on Alpha Standardized Items 809 N of Items 810 Item-Total Statistics Scale Mean if Scale Corrected Squared Cronbach's Variance if Item-Total Multiple Alpha if Item Correlation Correlation Deleted Item Deleted Item Deleted Satisfaction communication Satisfaction communication Satisfaction communication 10.5455 2.513 623 428 780 10.5101 2.424 752 565 638 10.5808 2.874 609 415 787 66 Construct: Switching intentions Reliability Statistics Cronbach's Alpha Cronbach's Based on Alpha Standardized Items 851 N of Items 854 Item-Total Statistics Scale Mean Scale Corrected Squared Cronbach's if Item Variance if Item-Total Multiple Alpha if Item Correlation Deleted Deleted Item Deleted Correlation Switching intention 5.9545 7.120 720 552 793 Switching intention 6.2323 7.052 777 611 743 Switching intention 5.8232 6.806 675 465 842 67 Construct: Satisfaction – ATM convenience Reliability Statistics Cronbach's Cronbach's Alpha Based Alpha on Standardized Items 841 N of Items 846 Item-Total Statistics Scale Mean Scale Corrected Squared Cronbach's if Item Variance if Item-Total Multiple Alpha if Item Correlation Deleted Deleted Item Deleted Correlation Satisfaction - ATM 15.9646 9.456 672 518 803 Satisfaction - ATM 15.8384 9.943 640 544 818 Satisfaction - ATM 16.3333 8.528 642 550 815 Satisfaction - ATM 16.3788 7.160 787 658 748 68 Construct: Satisfaction – ATM safety Reliability Statistics Cronbach's Cronbach's Alpha Based Alpha on Standardized Items 828 832 N of Items Item-Total Statistics Scale Mean if Scale Corrected Squared Cronbach's Item Variance if Item-Total Multiple Alpha if Item Deleted Item Deleted Correlation Correlation Deleted Satisfaction - ATM 10.0051 5.477 631 435 828 Satisfaction - ATM 9.7778 5.209 787 630 656 Satisfaction - ATM 9.5202 6.535 661 510 793 69 Appendix 4: First time of running exploratory factor analysis of independent variables Rotated Component Matrixa Component Satisfaction - personal service 815 Satisfaction - personal service 792 Satisfaction - personal service 789 Satisfaction - personal service 689 Satisfaction - personal service 645 Satisfaction - personal service 582 Satisfaction - bank image 760 Satisfaction - bank image 739 Satisfaction - bank image 725 Satisfaction - bank image 642 Satisfaction - bank image 630 Satisfaction - bank image 617 Satisfaction - bank image 495 570 Satisfaction - ATM 848 Satisfaction - ATM 771 Satisfaction - ATM 684 Satisfaction - ATM 649 Satisfaction - ATM 473 431 Satisfaction - branches 726 Satisfaction - branches 704 Satisfaction - branches 698 Satisfaction - branches 530 Satisfaction - branches 413 70 500 450 Satisfaction - ATM 729 Satisfaction - ATM 699 Satisfaction - ATM 668 Satisfaction - communication 771 Satisfaction - communication 728 Satisfaction - communication 703 71 Appendix 5: Total Variance Explained for the second time of running exploratory factor analysis of independent variables Com Rotation Sums of Squared Loadings Loadings Initial Eigenvalues pone nt Extraction Sums of Squared % of Total Variance Cumulative % 12.157 43.419 2.133 7.617 51.036 1.823 6.510 1.367 % of Total Variance 43.419 12.157 Cumulativ e% Total % of Cumulativ Variance e% 43.419 43.419 4.519 16.139 16.139 2.133 7.617 51.036 4.306 15.378 31.517 57.546 1.823 6.510 57.546 3.075 10.982 42.499 4.882 62.428 1.367 4.882 62.428 2.935 10.482 52.981 1.196 4.272 66.700 1.196 4.272 66.700 2.466 8.807 61.787 1.021 3.645 70.346 1.021 3.645 70.346 2.396 8.558 70.346 925 3.303 73.649 679 2.425 76.074 653 2.331 78.405 10 607 2.169 80.574 11 580 2.071 82.646 12 554 1.978 84.624 13 471 1.683 86.307 14 427 1.526 87.833 15 406 1.451 89.284 16 371 1.326 90.610 17 343 1.226 91.836 18 324 1.156 92.992 19 297 1.061 94.053 20 281 1.003 95.056 72 21 254 909 95.964 22 232 829 96.793 27 128 459 99.624 28 105 376 100.000 … Extraction Method: Principal Component Analysis 73 ... strong financial capability and professional services have been overtaking the retail banking market Those banks have an advantage of having their foreigner clients whom have a trusting relationship... Competence - Bank image - Be a Vietnamese bank - Bank image - Variety of transactions performed in - ATM automatic teller ATMs machines - Ease of ATMs’ usage - ATM (Matos et al, - Ease of finding ATMs... interact and deal with human banking tellers, and the delivery and consumption of financial services and products are through (Durkin et al., 2003) Despite the availability of alternative forms of