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 Acknowledgments Tables of content List of tables List of figures 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 iii 3.1 Research process 3.2 Measurement scale 3.2.1 Customer loyalty 3.2.2 Corporate image 3.2.3 Perceived service quality 3.2.4 Customer satisfaction 3.2.5 Switching cost 3.2.6 Trust 3.3 Measurement refinement 3.3.1 Qualitative research 3.3.2 Quantitative pilot research 3.4 Sample and date collection 3.4.1 Sample size 3.4.2 Sampling 3.4.3 Data analysis methods Chapter 4: Data analysis and results 4.1 Pilot study 4.1.1 Cronbach’s alpha 4.1.2 Exploratory factor analysis 4.2 Main survey 4.2.1 Descriptive analysis 4.2.2 Cronbach’s alpha 4.2.3 Exploratory factor analysis 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 57 Appendix 5: Descriptive analysis Demographic profile of the respondents Gender Age Marital status Education level Occupation Mothly income ( million VND) 58 Appendix 6: Reliability in main survey Corporate image Corporate image Corporate image Corporate image Corporate image Corporat Service quality Service quality Service quality Service quality Service quality Service quality Service quality Service quality Service quality Service quality 10 Service quality 11 Service quality 12 Service quality 13 Service quality 14 Service quality 15 Service quality 16 Service quality 17 Service quality 18 Service quality 19 Service quality 20 Service Customer satisfaction Customer satisfaction Customer satisfaction Customer satisfaction Customer s Switching cost Switching cost Switching cost Switchin Customer loyalty 59 Customer loyalty Customer loyalty Customer loyalty 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 Rotated Component Matrix a Service quality Service quality 14 Service quality 13 Service quality 11 Service quality 15 Service quality 16 Service quality Service quality Service quality 12 Service quality Service quality 10 Service quality Service quality 17 Service quality 20 Service quality 18 Service quality 19 Service quality Service quality Service quality Service quality Extraction Method: Principal Component Analysis Rotation Method: Varimax with Kaiser Normalization a Rotation converged in iterations 61 Total Variance Explained Initial Eigenvalues Component 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 Approx Chi-Square Rotated Component Matrix a Corporate image Corporate image Corporate image Corporate image Corporate image Customer satisfaction Customer satisfaction Customer satisfaction Customer satisfaction Customer loyalty Customer loyalty Customer loyalty Switching cost Switching cost Switching cost Extraction Method: Principal Component Analysis Rotation Method: Varimax with Kaiser Normalization a Rotation converged in iterations 63 Total Variance Explained in main survey Component 64 Appendix 9: Partial regression plot 65 66 Appendix 10: Homoscedasticity of residuals 67 Appendix 11: Charts of residual normality 68 ... Conclusion As in the research problem, the purpose of this study is to find out which are the main factors affecting customer loyalty in Vietnamese banking industry In the following sections, the conclusions... customer loyalty in banking sector of Vietnamese? - How is the relationship between these factors and customer loyalty in banking industry? Which will influence customer loyalty the most? 1.4 Research... determine customer loyalty to retain and attract customer This study is conducted to identify the factors affecting customer loyalty in banking industry of Vietnam Therefore, it also helps the