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5 Relationships between service quality, customer satisfaction and loyalty

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(3) Both service quality and service value were significant predictors for

consumer satisfaction;

(4) There are direct effects of service quality on behavioral intentions, service

value on behavioral intentions, and consumer satisfaction on behavioral


(5) There are indirect effect of service quality on behavioral intentions through

service value and consumer satisfaction, and indirect effect of service value

on behavioral intentions through consumer satisfaction.

Based on their study, they suggested considering the similar composite model and

including additional decision-making variables such as the physical or tangible

quality of service product and expectation.

There have been a large number of studies that focused on service quality and

satisfaction issues, but studies on the relationship between service quality, customer

satisfaction and loyalty in retail banking has been remained limited.

A study of service quality in bank setting by Johnston (1997) was conducted to

indentify the service quality factors, which are important to customers, and to

examine the effect of service quality on customer satisfaction. He reported that

responsiveness was shown to be an important factor to customer satisfaction. This

would suggest that efforts to increase speed of processing information and

customers are likely to have an important and positive effect on customer

satisfaction. The study has also indentified other important factors such as

functionality of machines, reliability of transactions, integrity of staff and

confidentiality of service. Another finding of the study is that other areas which

would have a positive, though not as great impact on customer satisfaction, were

flexibility, friendliness, courtesy, communication, and competence.

Lassar et al. (2000) conducted a study to examine the effect of service quality on

customer satisfaction of retail banking from two distinct methodological

perspectives. Specially, a study utilizing a sample of international private banking


customers was conducted wherein service quality is operationalized via two distinct

and well-known measures: SERQUAL and Technical/ Functional Quality. These

two service quality measures are subsequently compared and contrasted as to their

ability to predict customer satisfaction. The results show that from using five

service quality dimensions of SERVQUAL as independent variables, empathy was

only variable that was related to customer satisfaction, while using Technical/

Functional Quality as an independent variable; both technical and functional quality

dimensions were significantly related to customer satisfaction.

Athanassopoulos (2000) conducted research to assess the antecedents of customer

satisfaction and the effect of customer satisfaction on the customer switching

behavior. To test the model he drew sample of bank customers from the general

area of Athens. The results indicated that customer satisfaction is a function of

service quality, price, innovativeness, and convenience. Customer satisfaction was

also found to affect switching behavior.

Caruana (2002) proposed a meditational model that links the service quality to the

service loyalty via service satisfaction. He mentioned that service quality, customer

satisfaction and service loyalty are related to each other. The proposed model is as








Figure 2.2: The research model of service quality, customer satisfaction and service

loyalty by Caruana (2002)


He applied this model to the customers of retail banking in Malta. The results proof

the hypothesized relationships in the above research model. Service quality affects

service loyalty via customer satisfaction. This research contributes to the body of

knowledge by providing support for the contention that customer satisfaction

performs a mediating role in the link between service quality and service loyalty.

Based on his study, he suggested that there are other elements such as value and

company image that could be contributing to customer satisfaction, and service

loyalty or behavioral intentions.

Based on the underlying model of SERQUAL (Parasuraman et al., 1988) with five

dimensions and the above-mentioned meditational model of relationship between

service quality, customer satisfaction and service loyalty (Caruana, 2002), Kheng et

al. (2010) conducted a research to evaluate the impact of service quality on

customer loyalty among customers in Penang, Malaysia with customer satisfaction

mediating these variables. The findings show that improvement in service quality

can enhance customer loyalty. The overall respondents evaluate the bank positively,

but still there are rooms for improvements.

Also based on the meditational model adapted by Caruana (2002), Siddiqi (2011)

conducted a research to find the interrelationships between service quality

attributes, customer satisfaction and customer loyalty in the retail banking sector in

Bangladesh. The results show that all the service quality attributes are positively

related to customer satisfaction and customer satisfaction is positively related to

customer loyalty in the retail banking settings in Bangladesh.

In Vietnam context, Nguyen (2006) conducted a research to explore the

relationships between the quality service of the supermarkets, and the customer

satisfaction and loyalty and indicated that the quality of the service is an important

factor that makes customers satisfied and loyal to a supermarket. Basically, there

are still very few researches of building models of service quality and measuring it

in each kind of services and no study has yet investigated the service quality,


customer satisfaction and customer loyalty interrelationship, especially in banking

sector. The purpose of this study is to fill this gap by using BSQ instrument.

2.6 The research model and hypotheses

2.6.1 The research model

A research model is developed to find out the relationships between bank service

quality, customer satisfaction and customer loyalty in retailing banking sector in Ho

Chi Minh City. The research model is as follow:

Bank Service Quality (BSQ)

a) Effectiveness and Assurance

b) Access

c) Price

d) Tangibles

e) Service Portfolio

f) Reliability







Figure 2.3: Research Model

2.6.2 Hypotheses

Figure 2.3 demonstrates that the hypothesized relationships between the constructs

are bank service quality, customer satisfaction and customer loyalty. The

hypothesized relationships are as follows:

The first dimension of BSQ measurement scale is referred to as “Effectiveness and

assurance”. Bahia and Nantel (2000) put two aspects (competence and

responsiveness) in what could be called “effectiveness”, four aspects (credibility,

security, empathy, and communication) in what could be named “assurance”. Thus,

the following hypothesis is proposed:

H1.1: Effectiveness & assurance will have positive effect on customer satisfaction

in the retail banking sector in Ho Chi Minh City.

According to Bahia and Nantel (2000), access may reflect the customer perceptual

tendency to consider the modern equipment as an important element to guarantee


good access and not simply as a tangible element. This kind of association is

specific to the banking service quality domain such as automatic teller machines.

Therefore, the following is hypothesized:

H1.2: Access will have positive effect on customer satisfaction in the retail

banking sector in Ho Chi Minh City.

Bahia and Nantel (2000) purified the third dimension which essentially relates to

price, includes three items which deal with price in its specific monetary form and

two items which relate to a deeper conception of price. As such, the following is


H1.3: Price will have positive effect on customer satisfaction in retail banking

sector in Ho Chi Minh City.

In the fourth dimension, tangibles refer to the atmosphere, to an effective service

environment and to precise service representations (pamphlets, reports…).

Therefore, the following hypothesis is proposed:

H1.4: Tangibles will have positive effect on customer satisfaction in retail

banking sector in Ho Chi Minh City.

The fifth dimension, services portfolio focuses on the range of services offered.

Thus, the following is hypothesized:

H1.5: Service portfolio will have positive effect on customer satisfaction in retail

banking sector in Ho Chi Minh City.

The final dimension of BSQ deals with accuracy and reliability. Therefore, the

following hypothesis is proposed:

H1.6: Reliability will have positive effect on customer satisfaction in retail

banking sector in Ho Chi Minh City.

Customer satisfaction is measured by the gap between expectations and perceptions

of the service quality (Parasuraman et al., 1988) and it is positively related to

customer loyalty (Ehigie, 2006). Caruana (2002) found that service quality is

positively related to loyalty mediated by customer satisfaction. Pont and McQuilken


(2005) stated that satisfied customers are not always loyal customers. Thus, the

following hypothesis is proposed:

H2.1: Customer satisfaction will have positive effect on customer loyalty in retail

banking sector in Ho Chi Minh City.



Although most of the previous researches on service quality and customer loyalty

relationship examined whether there is direct or indirect effect of service quality on

customer loyalty, there is very little researches have empirically examined the

impact of service quality on customer loyalty via customer satisfaction, especially

in Vietnam retailing banking setting.

Based on this literature review, it can be concluded the need to examine and

evaluate the effect of bank service attributes performance on customer satisfaction,

and customer loyalty.



3.1 Introduction

This chapter presents the research methodology used to develop answers to the

research questions, including the following aspects: (a) research design, (b) research

process, (c) measurement scales, (d) sample size and data collection procedures, and

(e) data analysis method.

3.2 Research design

To create a design for research, one should consider whether a model and measures

are appropriate given the subject matter of the research. The focus of this research is

the relationship between bank service quality attributes and customer loyalty with

customer satisfaction serving as a mediating variable. An operational model of

service quality attributes in retail banking setting and customer satisfaction, and

customer loyalty is presented in Figure 2.3. The purpose of this research model is to

show the testable effects among the study constructs comprised of bank service

quality attributes, customer satisfaction, and customer loyalty. Since this research

will utilize primary data that will be collected from retail banking customers in Ho

Chi Minh City, a questionnaire survey design will be used as the data collecting


3.3 Research process

The research process was executed by two phases: the first phase of the pilot

research and the second phase of the main research. It was initiated with literature

review that built the operational model and research hypotheses. The pilot research

used the qualitative method by conducting deeply interview with 10 target

respondents in order to obtain the corrected items in Vietnam customer context, to

check the content and meaning of words were used in the initial measurement

scales. After the pilot research, the main research basing on quantitative method

was conducted.


Literature Review

The initial



Research Model and


Pilot Research



The main



Main Research


Reliability Measurement

Cronbach Alpha




Testing Hypotheses

Discussion and


Figure 3.1: Research Process

3.4 Measurement scales

Variables of this research are operationalized as follows:

1) Service quality attributes are comprised of 6 components: (1) Effectiveness

and Assurance, (2) Access, (3) Price, (4) Tangibles, (5) Service Portfolio,

and (6) Reliability. The current study used multiple scale items adapted from

Bahia and Nantel (2000). The items indicative of each component are

presented in Table 3.1 used 7-point Likert scales, ranging from “1-strongly

disagree” to “7-strongly agree”.


2) The construct of customer satisfaction is measured using a single-item scale.

Customer banking customer satisfaction is based on responses to a 7-point

Likert scales, ranging from “very unsatisfied” to “very satisfied” as

suggested by Cronin and Taylor (1992).

3) Customer loyalty is measured based on the conceptual ideas of Caruana

(2002). A 7-point Likert of scale described at either end by “extremely

likely” and “not at all likely” was used for the indicators of loyalty.

Table 3.1: The main measurement scales of the research



and Assurance




Service Portfolio



Recognition of a regular client


No contradictions in decisions between personnel

and management

Well-trained personnel

No delays due to bureaucratic factors and procedure

Feeling of security

Interruption of the service

Good reputation

Sufficient number of ATMs

Modern equipment

Sufficient number of open teller

Waiting is not too long

Queues that move rapidly

The bank contacts me every time it is useful

Good explanations of service fees

Balance amount from which service charges begin

Reasonable fees for administration of the accounts

Keeping the client informed when have better

solution appears for a problem

Precision on account statements

Cleanliness of facilities

Decoration of facilities

New facilities and new offices

Efficacious work environment

Complete gamut of services

The range of services is consistent with the latest

innovations in banking services

Many suitable services to choose


































Absence of errors in service delivery

Precision of filing systems

My feelings toward XYZ____’s services can best

be described as…

Say positive things about this bank to other people

Intend to continue doing business with this bank

Encourage friends and relatives to do business with

this bank

Try to use this bank every time I need banking


Consider this bank as my primary bank









The questionnaires used in the above survey were all in English, while the

respondents in this research are all Vietnamese people where their mother tongue

and national language is Vietnamese. As such, those original questionnaires were

translated first into Vietnamese language before being used.

A pre-testing of the Vietnamese questionnaires was done with 10 selected banks

customers who have experience with branch banking. The respondents were asked

to provide feedback in the ambiguity and structure of the questions. With the

assistance of the pre-test, the original questions were refined and some corrections

were made. Self-administered questionnaire was used to gather data from various

bank customers.

3.5 Sample size and data collection procedures

The focus of this research is on the relationship between service quality attributes

and customer loyalty with customer satisfaction as a mediating variable. Therefore,

the population for this research consists of retail banking customers who have

experience with retail banking services.

The sample size of 246 retail banking customers was drawn from famous major

banks in Ho Chi Minh City that comprise government banks, joint-stock banks, and

100% foreign banks. Hair et al. (1998) mentioned that for reliable EFA result, each

observed variable need 7 samples, thus this thesis required at least 203 samples for

total 29 observed variables.


Data were gathered from personal interviews using questionnaire as a measurement

tool, and it was conducted in Ho Chi Minh City during a two-week period in

December 2011, between December 3 and December 17, 2011. The first part of the

questionnaire focuses on demographic data, such as gender, age, education,

occupation, and income per month. The second part is a main part of the

questionnaire focusing on customer perceptions of bank service quality attributes,

which are the independent variables of this research. The third part focuses on

customer satisfaction, which is dependent/independent variable of the research. The

fourth part of the questionnaire focuses on customer loyalty, which is the main

dependent variable of this research.

The respondents were reached at some branches of each bank, which include in this

research that located in the same area. Of the 320 questionnaires distributed for this

study, 246 usable questionnaires were returned giving a response rate of 77 percent,

which was considered satisfactory for subsequent analysis.

3.6 Data analysis method

The conceptual model was assessed and modified by applying Cronbach alpha

measurement and exploratory factor analysis. Then, multiple linear regressions were

implemented to test the relationships between independent and dependent variables.

Cronbach alpha is the most commonly used measurement to test the reliability or

internal consistency of predefined scales used in a study. This index was originally

derived by Kuder & Richardson for dichotomously scored data (0 or 1) and later

generalized by Cronbach to assess any scoring method. The higher the alpha score,

the more reliable the generated score is. A high alpha score represent a high

variance of the scales. A score from 0.70 to 0.95 is generally considered to be


Principle component factor analysis is a method of data reduction to take many

variables and explain them in a few factors or components. As such, correlated

variables are grouped together and separated from other variables with no or low


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