Factors affecting customer loyalty in the Vietnamese banking industry

UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business Tran Nguyen Anh Tuan FACTORS AFFECTING CUSTOMER LOYALTY IN THE VIETNAMESE BANKING INDUSTRY MASTER OF BUSINESS (Honours) Ho Chi Minh City – Year 2014 UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business Tran Nguyen Anh Tuan FACTORS AFFECTING CUSTOMER LOYALTY IN THE VIETNAMESE BANKING INDUSTRY ID: 22110077 MASTER OF BUSINESS (Honours) SUPERVISOR: DINH THAI HOANG Ho Chi Minh City – Year 2014 ABSTRACT With a population of 91 million consumers and economic growth rate averaged 6.57 percent from 2006 until 2012, Vietnam has been an attractive foreign investment destination Therefore, the competition has been gradually increasing Banking industry is no exception as it has high interaction with the customers, so managers have to understand the factors which influence the loyalty of customers towards their respective banks According to Afsar et al., (2010), “it is always costly to attract new customers, so the managers always try to find ways to retain their current customers and focus on different factors which enhances the customer loyalty among the customers of the organizations” Based on that, the study was carried out to reveal the impact of corporate image, service quality, customer satisfaction, switching cost and trust on customer loyalty in the Vietnamese banking industry This study gathered survey data from a convenience sample of 252 consumers are living and working in Ho Chi Minh City The results demonstrate that corporate image, customer satisfaction and switching cost have positive relationships with customer loyalty The relationships of these factors are studied and the SPSS software is used to analyze the data gathered from the respondents i ACKNOWLEDGMENTS I would like to express my sincere thankfulness to my research advisor, Prof Dinh Thai Hoang for his support throughout the research process He had devoted his valuable time and efforts in patiently guiding me to complete this study I would like to convey my special thanks to him for his assistance and encouragement I would like to express my gratitude to all ISB staffs that supported necessary materials and helped summit my papers Especially, I would like to give my special thanks my family for supporting me spiritually throughout my life I thank my friends and colleagues who provided much needed inspiration and support during this time Ho Chi Minh City, Viet Nam Tran Nguyen Anh Tuan ii TABLE OF CONTENTS Abstract i Acknowledgments ii Tables of content iii List of tables vi List of figures vii Chapter 1: Introduction 1.1 Background 1.2 Research problem 1.3 Research questions 1.4 Research delimitations 1.5 Contribution of the research 1.6 Outline of study Chapter 2: Literature review 2.1 Customer loyalty 2.2 Factors affecting customer loyalty 2.2.1 Customer satisfaction 2.2.2 Trust 2.2.3 Service quality 2.2.4 Switching cost 2.2.5 Corporate image 2.3 Research model and hypotheses Chapter 3: Research method 12 iii 3.1 Research process 12 3.2 Measurement scale 14 3.2.1 Customer loyalty 14 3.2.2 Corporate image 14 3.2.3 Perceived service quality 14 3.2.4 Customer satisfaction 15 3.2.5 Switching cost 16 3.2.6 Trust 16 3.3 Measurement refinement 16 3.3.1 Qualitative research 17 3.3.2 Quantitative pilot research 17 3.4 Sample and date collection 18 3.4.1 Sample size 18 3.4.2 Sampling 19 3.4.3 Data analysis methods 19 Chapter 4: Data analysis and results 22 4.1 Pilot study 22 4.1.1 Cronbach’s alpha 22 4.1.2 Exploratory factor analysis 23 4.2 Main survey 26 4.2.1 Descriptive analysis 26 4.2.2 Cronbach’s alpha 28 4.2.3 Exploratory factor analysis 28 iv 4.2.4 Regression analysis 30 Chapter 5: Conclusion and implications 36 5.1 Conclusion 36 5.2 Managerial implications 36 5.3 Limitations of study and future research 38 References 40 Appendices 43 Appendix 1: Questionnaire 43 Appendix 2: Reliability analysis in Pilot study 49 Appendix 3: EFA result of service quality in pilot study 53 Appendix 4: EFA result of the remaining variables in pilot study 55 Appendix 5: Descriptive analysis 58 Appendix 6: Reliability in main study 59 Appendix 7: EFA result of service quality in main study 61 Appendix 8: EFA result of the remaining variables in main study 63 Appendix 9: Partial regression plot 65 Appendix 10: Homoscedasticity of residuals 67 Appendix 11: Charts of residual normality 68 v LIST OF TABLES Table 3.1: Scales of customer loyalty Table 3.2: Scales of corporate image Table 3.3: Scales of perceived service quality Table 3.4: Scales of customer satisfaction Table 3.5: Scales of switching cost Table 3.6: Scales of trust Table 4.1: Summarized EFA analysis for Service quality in pilot study Table 4.2: Summarized EFA analysis of the remaining variables in pilot study Table 4.3: Service characteristics Table 4.4: Summarized EFA analysis for Service quality in main survey Table 4.5: Summarized EFA analysis for the remaining variables in main survey Table 4.6: Correlations Tables 4.7: Coefficients Table 4.8: Model summary and ANOVA Table 4.9: Summary of Hypotheses testing results vi LIST OF FIGURES Figure 2.1: A conceptual model Figure 3.1: Research process Figure 4.1: A revised model vii CHAPTER INTRODUCTION This chapter introduces the background and problems of the research It then shows the research questions that are needed to answer It also reviews the contribution and the structure of the research 1.1 Background During the past decade, the financial services sector has undergone drastic changes, resulting in a market place which is characterized by intense competition, little growth in primary demand and increased deregulation 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 (Levesque & McDougall, 1996) Banking industry has traditionally operated in a stable environment for decades Today, this industry is facing fierce competition for market share Indeed, Huong Tra (2013) stated, “Currently the retail market has witnessed fierce competition from banks in Viet Nam Although this industry has developed in the early stages, it has been contributing significantly to the economic growth of the country On average, the contribution of retailers to GDP is about 14% each year By 2014, the sector’s contribution to GDP will increase to 23%” Banks begin to realize that no bank can offer all products as every bank is trying hard to retain their existing customers with all sorts of innovation in their product According to Afsar et al., (2010), “it is always costly to attract new customers, so the managers always try to find ways to retain their current customers and focus on different factors which enhances the customer loyalty among the customers of the organizations” Tariq and Moussaoui (2009) stated that “a loyal customer generally behaves better than a satisfied one and prefers to repurchase the products and Total Variance Explained of service quality in pilot study Initial Eigenvalues Component Total % of Variance Cumulative % Extraction Sums of Squared Loadings % of Cumulative Total Variance % Rotation Sums of Squared Loadings % of Cumulative Total Variance % 10.546 52.728 52.728 10.546 52.728 52.728 6.762 33.808 33.808 1.764 8.820 61.548 1.764 8.820 61.548 3.312 16.558 50.366 1.029 5.143 66.692 1.029 5.143 66.692 3.265 16.325 66.692 54 Appendix 4: EFA result of the remaining variables in pilot study -First-time running factor analysis Total Variance Explained Extraction Sums of Squared Rotation Sums of Squared Loadings Loadings Initial Eigenvalues Component Total % of Cumulative Variance % Total % of Cumulative Variance % Total % of Cumulative Variance % 8.137 47.866 47.866 8.137 47.866 47.866 3.447 20.276 20.276 1.654 9.732 57.598 1.654 9.732 57.598 3.314 19.495 39.771 1.291 7.592 65.190 1.291 7.592 65.190 2.953 17.370 57.142 1.095 6.440 71.630 1.095 6.440 71.630 2.463 14.488 71.630 846 4.974 76.604 698 4.108 80.712 596 3.503 84.215 467 2.748 86.964 395 2.322 89.286 10 351 2.066 91.352 11 303 1.783 93.135 12 269 1.585 94.719 13 237 1.393 96.113 14 209 1.231 97.343 15 194 1.142 98.485 16 148 872 99.357 17 109 643 100.000 Extraction Method: Principal Component Analysis 55 a Rotated Component Matrix Component Customer satisfaction 865 215 Customer satisfaction 712 161 308 183 Customer satisfaction 680 253 290 240 Trust 670 392 334 178 Trust 487 347 389 256 Trust 484 212 401 398 Corporate image 160 790 189 135 Corporate image 195 779 297 Corporate image 147 776 157 Corporate image 321 720 115 Corporate image 530 559 105 Customer loyalty 221 185 847 169 Customer loyalty 188 261 828 178 Customer loyalty 310 214 825 120 156 169 864 Switching cost Switching cost 233 Switching cost 319 153 125 187 823 236 723 Extraction Method: Principal Component Analysis Rotation Method: Varimax with Kaiser Normalization a Rotation converged in iterations -Final running factor analysis KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy Bartlett's Test of Sphericity Approx Chi-Square 881 792.499 df 105 Sig .000 a Rotated Component Matrix 56 Component Corporate image 791 Corporate image 790 Corporate image 770 Corporate image 730 Corporate image 566 526 Customer satisfaction 869 Customer satisfaction 734 Customer satisfaction 686 Trust 420 628 Customer loyalty 847 Customer loyalty 835 Customer loyalty 833 Switching cost 865 Switching cost 828 Switching cost 728 Extraction Method: Principal Component Analysis Rotation Method: Varimax with Kaiser Normalization a Rotation converged in iterations Total Variance Explained Initial Eigenvalues Component Rotation Sums of Squared Loadings % of Cumulative Total Variance % 3.229 21.527 21.527 7.115 % of Variance 47.433 1.622 10.815 58.248 1.622 10.815 58.248 2.927 19.511 41.038 1.289 8.593 66.841 1.289 8.593 66.841 2.683 17.887 58.925 1.091 7.276 74.117 1.091 7.276 74.117 2.279 15.191 74.117 Total Cumulative % 47.433 Extraction Sums of Squared Loadings % of Cumulative Total Variance % 7.115 47.433 47.433 57 Appendix 5: Descriptive analysis Demographic profile of the respondents Categories Gender Age Marital status Education level Occupation Mothly income ( million VND) Frequency Percentage Cumulative (%) percent (%) 44,44% 44,44% 55,56% 100,00% 32,14% 32,14% 59,13% 91,27% 7,94% 99,21% 0,79% 100,00% 25,40% 25,40% 73,81% 99,21% 0,79% 100,00% 0,00% 0,00% 1,98% 1,98% 71,83% 73,81% 26,19% 100,00% 13,10% 13,10% Male Female Below 25 25-35 36-46 Over 46 Married Single Other Elementary education High school University Other Student 112 140 81 149 20 64 186 181 66 33 Office staff 152 60,32% 73,41% Managerial level Other or less 6-10 11-15 16-20 Over 20 37 30 61 112 38 20 21 14,68% 11,90% 24,21% 44,44% 15,08% 7,94% 8,33% 88,10% 100,00% 24,21% 68,65% 83,73% 91,67% 100,00% 58 Appendix 6: Reliability in main survey Scale Mean if Item Deleted Scale Variance if Item Deleted Corrected ItemTotal Correlation Cronbach's Alpha if Item Deleted Corporate image 212.421 16.184 750 865 Corporate image 214.722 16.752 772 860 Corporate image 215.992 16.624 779 858 Corporate image 215.556 16.758 756 863 Corporate image 216.706 18.110 622 892 Cronbach's alpha Corporate image 892 Service quality 974.484 334.161 631 960 Service quality 975.675 333.880 629 960 Service quality 971.270 339.107 607 960 Service quality 977.183 333.900 676 959 Service quality 973.095 327.713 771 958 Service quality 975.992 324.910 798 958 Service quality 973.730 326.984 808 958 Service quality 974.048 328.648 771 958 Service quality 973.770 327.734 771 958 Service quality 10 974.365 326.868 794 958 Service quality 11 974.365 324.502 835 957 Service quality 12 976.349 329.173 721 959 Service quality 13 974.881 326.378 780 958 Service quality 14 973.333 326.526 837 957 Service quality 15 972.381 329.473 759 958 Service quality 16 972.698 332.859 754 958 Service quality 17 979.246 334.867 619 960 Service quality 18 976.706 330.756 586 961 Service quality 19 979.246 328.548 719 959 Service quality 20 977.817 332.880 692 959 Cronbach's alpha Service quality 961 Customer satisfaction 149.484 10.814 764 862 Customer satisfaction 151.627 10.360 776 858 Customer satisfaction 150.873 11.140 765 863 Customer satisfaction 151.587 10.580 754 866 Cronbach's alpha Customer satisfaction 893 Switching cost 97.857 5.771 720 823 Switching cost 101.429 5.055 766 779 Switching cost 101.270 5.299 731 812 Cronbach's alpha Switching cost Customer loyalty 100.000 7.490 861 780 879 59 Customer loyalty 98.968 7.551 834 835 Customer loyalty 99.524 7.233 800 863 Customer loyalty Cronbach's alpha 901 60 Appendix 7: EFA result of service quality in main study KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy Bartlett's Test of Sphericity Approx Chi-Square 953 4.172E3 df 190 Sig .000 a Rotated Component Matrix Component Service quality 794 Service quality 14 789 Service quality 13 774 Service quality 11 772 Service quality 15 724 Service quality 16 702 Service quality 698 Service quality 697 Service quality 12 688 Service quality 686 Service quality 10 680 Service quality 678 Service quality 17 240 828 Service quality 20 739 Service quality 18 721 Service quality 19 709 Service quality 230 858 Service quality 845 Service quality 754 Service quality 545 Extraction Method: Principal Component Analysis Rotation Method: Varimax with Kaiser Normalization a Rotation converged in iterations 61 Total Variance Explained Initial Eigenvalues Component Rotation Sums of Squared Loadings % of Cumulative Total Variance % 7.224 36.120 36.120 11.595 % of Variance 57.974 1.490 7.449 65.423 1.490 7.449 65.423 3.536 17.678 53.798 1.107 5.535 70.958 1.107 5.535 70.958 3.432 17.160 70.958 Total Cumulative % 57.974 Extraction Sums of Squared Loadings % of Cumulative Total Variance % 11.595 57.974 57.974 62 Appendix 8: EFA result of the remaining variables in main study KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy Bartlett's Test of Sphericity 887 Approx Chi-Square 2.503E3 df 105 Sig .000 a Rotated Component Matrix Component Corporate image 845 Corporate image 830 Corporate image 812 Corporate image 806 Corporate image 600 Customer satisfaction 162 853 Customer satisfaction 812 Customer satisfaction 786 Customer satisfaction 767 Customer loyalty 293 846 Customer loyalty 827 Customer loyalty 824 Switching cost 161 873 Switching cost 829 Switching cost 808 Extraction Method: Principal Component Analysis Rotation Method: Varimax with Kaiser Normalization a Rotation converged in iterations 63 Total Variance Explained in main survey Initial Eigenvalues Component Total % of Variance Cumulative % Extraction Sums of Squared Loadings % of Cumulative Total Variance % Rotation Sums of Squared Loadings Total % of Variance Cumulative % 6.832 45.543 45.543 6.832 45.543 45.543 3.462 23.083 23.083 2.170 14.469 60.012 2.170 14.469 60.012 3.096 20.642 43.725 1.442 9.610 69.622 1.442 9.610 69.622 2.487 16.578 60.304 1.037 6.911 76.533 1.037 6.911 76.533 2.434 16.230 76.533 64 Appendix 9: Partial regression plot 65 66 Appendix 10: Homoscedasticity of residuals 67 Appendix 11: Charts of residual normality 68