(Luận văn thạc sĩ) determinants of customer loyalty in retail banking in ho chi minh city

} ~'(1!}>;1~· i*llutu•• o1 Sodild ~· ~? ~ ·~: DETERMINANTS OF CUSTOMER LOYALTY IN RETAIL BANKING IN HO CHI MINH CITY BY PHAM THI THU HA MDE CLASS 15 :· ' _., ··~ ~· "A thesis was submitted in partial fulfillment of the requirements for the -· Master of Development Economics degree (MDE) of Vietnam- Netherlands program for M.A in Development Economics" , ' ' July, 2011 ~1 i ACKNOWLEGEMENTS I am greatly thankful to my supervisor, Dr Cao Hao Thi, whose valuable advice and guidance at every stage of my thesis to help me to develop an understanding of this research I also give thanks to all professors, tutors, MDE staff for giving me academic knowledge and advice and my classmates for encouragement to complete the thesis I would like to thank Service Managers at VCB and friends who works at banks who supported me in building the questionnaires and collecting data for this study Finally, I would like to give special thanks to my parents, aunt and sister and friends who give me great and warm support me to follow this MDE program In spite of my endeavour, this study may have many shortcomings and limitations I am looking forward to receive suggestions and opinions of teachers and colleagues I -·· ·.- ABSTRACT With the development of financial market in Vietnam especially retail banking sector, bank managers should have many strategies to keep customers stay with their banks longer The bank mangers focus on the loyalty of their customers because they know the revenue and cost savings from the old customers are greater than from the attracting the new ones Thus, bank managers need to find solutions to impact the factors that influence customer loyalty to compete with the other banks This study focuses on two objectives: identifying the determinants of customer loyalty in retail banking in Ho Chi Minh city, and based on the results to give recommendations to improve the loyalty of state-owned banks' customers, in this case, it is Vietcombank The qualitative and quantitative method will be applied to find out the determinants of customer loyalty in retail banking The findings of this research show that factors which affect customer loyalty are Service Quality, Price and Switching Cost They have strong influence on customer loyalty with the strongest impact factor is Price (beta coefficient 0.583) and two factors Service Quality (beta coefficient 0.327), Switching Cost (0.301) Based on the findings, recommendations for Vietcombank to improve customer loyalty such as: diversifying distribution channels and service-products, different price strategies for each kind of customers, some special program for VIP customers, etc This study only makes survey on banks in HCMC, there are state-owned banks (Vietcombank and Agribank), private-owned banks (ACB and VIBBank), joint-venture banks (Indovina Bank and Vid Public) and foreign-owned banks (HSBC and Citibank) It should be widen to more banks, big areas to increase the accuracy of the research This study provides useful information for future researchers who study customer loyalty in banking industry Keywords: Service quality, Price, switching cost, customer loyalty, retail banking 11 TABLE OF CONTENTS ACKNOWLEDGEMENTS i ABSTRACT ii TABLE OF CONTENTS iii LIST OF FIGURES vi LIST OF TABLES vi ABBREVIATIONS vii CHAPTER I: INTRODUCTION p 1.1 Research Statement p 1.2 Research Objectives p 1.3 Research Questions p • 1.4 Research Scope p 1.5 Research Structure p CHAPTER II: LITERATURE REVIEW p 2.1 Customer Loyalty p 2.2 Factors affect Customer Loyalty p 2.2.1 Service Quality p 2.2.2 Price ~ p 2.2.3 Switching cost p 2.3 Conceptual framework and hypotheses p 2.4 Adjustment ofMeasurement Scales p.lO 2.4.1 Service Quality p.l 2.4.2 Price p.12 2.4.3 Switching cost p.12 lll 2.4.4 Customer Loyalty p.13 CHAPTER III: RESEARCH METHODOLOGY p.15 3.1 Research Process p.15 3.2 Questionnaire Design p.16 3.3 Data Collection p.18 3.4 Data Analysis Technique p.18 3.4.1 Reliability p.19 3.4.2 Validity p.19 3.4 Multiple Regression p.19 CHAPTER IV: DATA ANALYSIS AND FINGDINGS p.20 4.1 Descriptive Statistics p.21 4.1.1 Sample size p.21 4.1.2 Demographic Characteristics p.22 4.2 Measurement Scale Refinement p.23 4.2.1 Reliability Assessment p.23 4.2.2 Exploratory Factor Analysis p.25 4.3 Hypotheses testing p.28 4.3 Correlation Coefficient Analysis p.29 4.3 Multiple Regression Results p.29 4.3 Interpreting Customer Loyalty Equation and testing Hypotheses p.31 4.3.4 Means Score Comparison between VCB with other banks and Industry Average p.31 4.3.4.1 Service Quality p.32 4.3 4.2 Price p.33 4.3.4.3 Switching cost p.33 iv 4.3.4.4 Customer Loyalty p.33 CHAPTER V: CONCLUSION AND RECOMMENDATIONS p.35 5.1 Summary offindings p.35 5.1.1 Determinants of Customer Loyalty p.35 5.1.2 Comparison between Vietcombank and Industry Average p.35 5.2 Recommendations to Vietcombank p.36 2.1 Improving the Service Quality p.36 5.2.2 Improving Price p.38 5.2.3 Improving Switching cost , p.39 5.3 Limitations p.39 5.4 Conclusion p.39 References p.41 APPENDICES Appendix Questionnaire- English version p.46 Appendix Questionnaire- Vietnamese version p.49 Appendix 3: Reliability of all variables (23 items) p.52 Appendix 4: Results of exploratory factor analysis (EFA) p.54 Appendix 5: Correlation of coefficients p.59 v LIST OF FIGURES Figure 2.1: Conceptual Framework of Customer Loyalty Figure 3.1: Research process p.l5 Figure 4.1: Model of Customer Loyalty after carrying out EF A p.28 LIST OF TABLES Table 2.1: Original Scales of Service Quality and research scales p.1 Table 2.2: Original Scales ofPrice and Research Scales p.12 Table 2.3: Original Scales of switching cost and Research scales p.13 Table 2.4: Customer Loyalty : p.13 Table 3.1: Variable Codes p.17 Table 4.1: Sample size p.20 Table 4.2: Demographic Characteristics p.22 Table 4.3: Reliability Test Results p.23 Table 4.4: Results of Exploratory Factor Analysis p.26 Table 4.5: Result of Customer Loyalty p.27 Table 4.6: Correlation Matrix p.29 Table 4.7: Model Summary p.29 Table 4.8: Coefficients p.29 Table 4.9: Model Summary p.30 Table 4.10: Coefficients p.30 Table 4.11: Means Score Comparison between VCB and other banks and Industry Average p.31 { # vi ABBREVIATIONS I SBV State Bank of Vietnam SMEs Small and Medium Enterprises WTO World Trade Organization SERVQUAL Service Quality EFA Exploratory Factor Analysis VCB Vietcombank ACB Asia Commercial Bank AGRI Agribank VIB VIBBank HSBC Hongkong and Sanghai Bank Corporation CITI Citibank INDO Indovina Bank VID Vid Public Bank SPSS Statistical Package for Social Science TAG Tangibles REL Reliability RES Responsiveness ASS Assurance EMP Empathy PR Price SQ Service Quality sw Switching Cost CL Customer Loyalty -· vii CHAPTER I: INTRODUCTION l.lRESEARCH STATEMENT From 1990 until now, number of banks increases highly especially private-owned banks and foreign-owned bank branches, shows that attractive and potential development of Vietnam's banking industry for domestic and foreign investors According to the data of State Bank of Vietnam (SBV) until October 2009, Vietnam's banking system has state-owned banks, 40 private-owned banks, joint-venture banks and 41 branches of foreign-owned bank Vietnam with population of 85 million people and increasing income is a potential market for commercial banks Moreover, many Government policies are issued to limit cash payment in the public such as: pay salary through cards system, accepted banking documents in deducting VAT, etc Vietnam's accession to the World Trade Organization (WTO) with their commitments of financial services market's liberalization and deregulation, their customers have more choice between domestic and foreign banks Furthermore, the customers access financial products with no limitation, as a result, it affects to customer loyalty In Vietnam, service market is more and more improved and it is a new potential market for banks to explore However, the more increasing is personal income, the higher demands for products and services are Customers expect the higher quality of products and services than before The higher perceived service quality, the more satisfied and loyal the customers (Petruzzellis, D'Uggento and Romanazzi, 2006) Beside the competing each other about the total assets and market share (number of customers), efficiency in using the capital, ratio of bad debt, banks always find out the customers' needs and supply at the right time to get the more market share They must try to offer attractive interest rates to both savers and borrowers, which means that they must minimize their own internal operating costs and loss Nowadays, commercial banks have intend to develop retail sector, approach the individual customers, small and medium enterprises (SMEs) because it is a large market and disperse risks in banking business Customers have opportunities to approach a lot of banks and choose the best bank suitable to their own based on the price, service quality and convenience In 2011, the competition is more and more heated when lots of commercial banks try to change technology, reduce cost to strengthen competitive ability over the others In this race, foreign- owned banks have experience and strategy to expand their market in retail sector; privateowned and joint-venture commercial banks always change in technology, service quality and staff skills, is it state-owned commercial banks known as 'to be hard to please' have competitive ability with trials or not? 1.2 RESEARCH OBJECTIVES The objectives of this study are: • To identify the key factors impact on customer's loyalty • To measure the strength of relationship between key factors and loyalty • Based on the research results to give recommendations to improve customer loyalty in retail banking, especially Vietcombank- state-owned commercial bank 1.3 RESEARCH QUESTIONS In order to find out the solutions to improve customer loyalty of the retail banking, this study deals with the following questions: • Which factors affect the customer loyalty? • How the banks improve and make their customers become loyal in retail sector? • What recommendations to Vietcombank about how to improve customer loyalty 1.4 RESEARCH SCOPE This study focuses on identifying the main factors influence on the customer loyalty in retail banking in Viet Nam The survey questionnaire is applied to collect data for this study with the survey time from February to March, 2011 The survey interviewees of this study are individuals who aged over 18 and usually go to the banks irrespective of purposes, gender, age, income and education 1.5 RESEARCH STRUCTURE This study includes five sections compatible with five chapters with the names of theirs are: introduction, literature review, research methodology, data analysis and findings, and conclusions and recommendations Chapter introduces the structure of the research, including research statement, research objectives, research questions and research scope Chapter 2- literature review consists of definitions of factors influencing on customer loyalty as service quality, price and switching cost, and relevant literature review and evidence to - framework for determining and prioritizing critical factors m delivering quality services 39 Lewis, R.R., and Soureli, M (2006), The antecedents of customer loyalty m retail banking, Journal of customer behavior, pp 15-31 40 Madill, J., Feeney, L., Riding, A and Haines JR., G (2002), Determinants of SME owners' satisfaction with their banking relationships: a Canadian study, International journal of bank marketing, vol 20, no2, pp 86-98 41 Martins, M., and Monroe, K.B (1994), Perceived price fairness: a new look at an old construct, in advances in consumer research, (21 ), Chris T Allen and Deborah Roedder John, Eds, Provo, UT: Association for consumer research, pp 75-78 42 Matthews, C., and Murray, D (2007), Helping bank customers switch: a case study, Journal of financial services marketing, vol 11, no 4, pp 360-370 43 Mavri, M., and Ioannou, G (2008), Cusromer switching behavior in Greek banking services using survival analysis Managerial Finance, vol 34, no 3, pp 186-197 44 Morgan, J (2007), Customer Information Management (CIM): The key to successful CRM in financial services, Journal of Performance Management, vol 20, No 2, pp 470-66 45 Neuman, W.L (1999), Social research method, University of Wisconsin at Whitewater, the 4th edition 46 Oliver, R.L (1999), Satisfaction: a behavioral perspective on the customer, New York, NY: McGraw Hill Parasuraman, A., Zeithaml, V , and Berry, L (1985), A conceptual model of service quality and its implications for future research, Journal of marketing, Vol 49, fall, pp 41-50 48 Parasuraman, A., Zeithaml, V., and Berry, L (1988), SERVQUAL: A multiple-item scale for measuring consumer perceptions of service quality, Journal of retailing, vol 64, spring, pp 12-40 49 Parasuraman, A., Zeithaml, V., and Berry, L (1991), Refinement and reassessment ofthe SERVQUAL scale, Journal of retailing, vol67, no 4, pp 420-450 50 Petruzzellis, L., D'Uggento, AM., and Romanazzi, S (2006)" Student satisfaction and quality of service in Italian Universities", Managing Service Quality, vol.16 No4, pp 349-364 51 Reichheld, F., and Sasser, W.E.Jr (1990), Zero defections: Quality comes to services, Havard Business Review, vol 68, pp i 05-111 44 52 Spathis, C., Petridou, E., and Glaveli, N (2004), Managing service quality in banks: customers' gender effects, Managing service quality, vol I4, No I, pp 90 53 Stewart, K (1998), An exploration of customer exit in retail banking, International journal ofbank marketing, vol I6, no I, pp 6-14 54 Varki, S and Colgate, M (2001), The role of price perception in an integrated model • behavioral intention, Journal of service research, vol 3, no 3, pp 232-24I 55 Vuong, Nguyen Do (2009), Determinants of customer loyalty in automobile repaire service companies in Ho Chi Minh VietNam 56 Wisniewski, M and Donnelly M (1996), Measuring service quality in the public sector: the potential for SERVQUAL, in ed Shahin, A., SERVQUAL and model of service quality gaps: a framework for determining and prioritizing critical factors in delivering quality services 57 Zeithaml, V.A., Berry, L., and Parasuraman, A (1996), The behavioral consequences of service quality, Journal of marketing, vol 60, no 2, pp 31-46 58 Zeithaml, V.A (1998), Customer perceptions of price, quality and value: a measure model and synthesis of evidence, Journal of marketing, vol 52, no 7, pp 2-22 45 APPENDIX 1: QUESTIONNAIRE Dear Customers, In order to improve service quality at bank, we need more suggestion from you so we would be thankful if you could spend a little bit of time to fill in this questionnaire Your • feedback is very important for us in improving service quality There is no right or wrong answer, there are agree of your agreement level for you to choose from (strongly disagree) to (strongly agree) All information received from you is valuable and useful for our study SECTION I Bank staffs appear neat and sympathy The bank provides services as committed When problem happened, the bank shows a sincere interest The bank does customer's demand right at the first time The bank finishes customer' transaction as promised 7 The bank informs customers about any changes in service !7 Banks'equipments and materials are well supporting for transactions in solving it needs or additional maintenance requirement Bank staff can answer customer's questions or concerns quickly Bank staff makes any effort to help customers to solve their problems I 10 Customers feel safe to have bank serviced at this bank 11 Bank staff always courteous with customers during the , 17 process of doing transaction 12 Bank staff can provide customers clear and helpful advice 13 The bank gives customers individual attention (send Happy Birthday gift, Happy New Year calendar, etc ) I I I 14 The bank has customer's best interest at heart 15 The bank staffunderstand customer's service needs 16 The bank offers a competitive price 46 I 17 The charged price suitable with the used services 18 It would be cost me too much to change to another bank 19 For me, it would take a lot of time to change to another 20 I don't want to move to the further location 21 I feel satisfied with the bank service 22 I will be the loyal customer of the bank 7 bank 23 I would recommend the bank service to my friends and I relatives I SECTION II: OTHER INFORMATION Please provide more information by choosing (X) the appropriate row: a What is your gender? D Female D Male b Which is your age group? D 18-25 D 36-45 D 56-65 D 26-35 D 46-55 D 66-75 D 76+ c Which is the highest level of education you have completed? D Primary education D Diploma! Certification D Middle school education D Bachelors Degree D High school education D Postgraduate Degree D Other d What is your personal monthly income before tax? (VND) D 10.000.000 47 e Your current bank is: D VCB D VID PUBLIC D AGRIBANK D INDOVINABANK D ACB D HSBC D VIB D CITIBANK THANK FOR YOUR PARTICIPATION! 48 APPENDIX 2: BANG CAU H(H Kinh thua Quy Khach Hang, Nh~m nang cao chcit luQTig dich V\1 t:;ti Ngan hang, chung toi rcit dn SlJ dong gop chan tir Quy Khach hang vi v~y chting toi rcit bi~t on n~u Quy Khach hang danh it thai gian d~ tn1lai bang cau hoi MQi thong tin cua Quy Khach hang th~t SlJ rcit quan trQng cho vi~c dii ti~n chcit luQTig dich V\1 cua Ngan hang Khong c6 cau tra lai dung hay sai rna chu y~u luang IDUC dQ df>ng y CUa Quy Khach hang tirng m\lC cau hoi tir 1(hoan toan khong d6ng y) d~n (hoan toim d6ng y) Tclt ca thong tin cua Quy Khach hang d~u rcit gia tri va hiiu ich cho nghien Clru cua Chung toi va chi dm;rc cong bf> du&i dang thf>ng ke PHANI Ca sa v~t chat va trang thiet bi cua Ngan hang h6 trq tot cho qua trinh giao dich Trang ph\lC cua nhan vien gQn gang va thi~n cam 7 N gan hang cung cap dich V\1 nhu da cam ket K,hi c6 SlJ co xay ra, Ngan hang da no ll,fc het minh de giai quyet Ng~ h~ng c6 the dap trng dung yeu cau cua Khach hang 1an dau tien Ngan hang hoan giao dich cho Khach hang dung thai gian nhu da hua Ngan hang thong bao cho khach hang nhling thay doi tru&c ti~n hanh thl,fc hi~n giao dich ,Nha~ vien Ngan hang c6 the tra lai cac cau hoi va thac mac cua Khach hang 9., Nhan vien Ngan hang luon co gang de giai quyet cac van de cua Khach hang 10 Khach hang cam thay yen tam Slr d\lng dich V\1 ngan hang 11 Nhan vien Ngan hang luon lich SlJ va nha nh~ suot qua trinh giao dich 12 Nhan vien Ngan hang tu van ro rang Khach hang cac dich V\1 ccln thi~t 13 Ngan hang the hi~n slJ quan tam den ca nhan Khach hang (gui qua t~g sinh nh~t, lich chuc mirng nam m&i ) 14 Ngan hang luon d:;tt l