Effect of customer perceived value on satisfaction and customer loyalty in banking service: the moderating effect of main-bank status.

• Author: Boonlertvanich, Karin
• Position: Report

1. INTRODUCTION

   Increase in business competition and more dynamic market pricing environment impact the effectiveness of marketing strategy in the banking service industry. Although an effective marketing strategy is important, it is not the only factor that determines a bank's success (Christopher, 2001).

   Research suggested that customer loyalty is the key driver in a company's profitability and should be set as one of the key strategic goals of the company (Reichheld, 1996; Oliver, 1997). Several authors emphasized the positive relationship existing between customer loyalty and business performance (Reichheld and Sesser, 1990; Reichheld, 1993; Sheth and Parvatiyar, 1995). Many banks started focusing on maintaining long-term relationship with their customers via increasing customer loyalty (Jacoby & Robert, 1978) with a believe that the higher the loyalty the better value to their organization.

   Numerous studies proposed that customer satisfaction is the primary antecedent to customer loyalty (e.g. Cronin et al., 2000; Oliver, 1999; Boonlertvanich, 2009). Thus, many banks try to improve their customers' level of satisfaction in order to create strong preferences and hence increase their customers' loyalty.

   While satisfaction is a strong predictor of customer loyalty, modern marketing theory suggests shifting focus from just measuring customer satisfaction toward the measurement of customer perceived value. Kotler and Keller (2003) suggested that companies should develop and provide superior value to their customers. In addition, customer perceived value is one of the most important performance measurements on the effectiveness of marketing activities and is one of the foundations on building long-term relationship with their customers, which, as indicated in Jacoby & Robert (1978), is the way to obtain the advantages of a clientele loyal to the firm. Several literatures on financial services indicate that banks should also focus their efforts in consumer perceived value (Reidenbach, 1996; Marple & Michael, 1999).

   For the last several years, retail banking industry in Thailand has been dramatically changed. This is partly due to an increase in business competition from foreign banks, either directly or indirectly through local Thai-bank partners. Moreover, the incoming of non-bank companies, such as specialized personal credit providers and auto leasing companies, the changes on IT technologies, the changes in customer service channel and the fact that all banks can offer similar kind of financial products lead to a reconsideration from focusing only on product development toward marketing strategy development. This kind of business environment has also been reported in other countries as well (Gardener & Barry, 1999).

   This research aims to analyze the effect of customer perceived value on satisfaction and customer loyalty in retail banking industry. Customer perceived value is categorized into three aspects (Roig et al., 2006), which are functional value, emotional value and social value. Customer satisfaction is measured at an aggregated overall satisfaction level. Customer loyalty is measured in terms of repurchase intention, word-of-mouth and first-in-mind. Another important factor analyzed in this study is the main-bank status. Many banks are now employing this measurement as another important key success factor. It indicates the perception from a customer toward a particular bank as being his or her main bank or not. This is not a quantitative measurement, e.g. based on amount of deposits or number of transactions or number of visits, rather it represents a customer perception toward a particular bank as a whole.

   The results obtained from this study distinguish the degree of differences between direct effect and indirect effect of customer perceived value on customer loyalty. This allows banks to formulate corporate strategy and also improve their development on differentiating their product and service values. A better and more effective marketing strategy toward increasing customer satisfaction and customer loyalty can also be achieved.

2. CONCEPTS AND THEORIES

   Customer Perceived Value

   Customer delivered value can be defined as a difference between total customer value that a customer receives from a product or service and total customer cost incurred from assessing, receiving, using and getting rid of that product or service (Zeithaml, 1988; Lovelock, 1991; Roig et al., 2006)

   This value can not be determined objectively by the seller; rather it can only be perceived by customers who use the product or receive the service. In order to purchase a product or service from a company, customers will consider and compare the net customer delivered value as a key decision criterion to select their best product or service provider. Therefore, modern marketing practitioners are more focusing on providing value for their customer as the key success for their organization (Christopher, 2001).

   For measuring the level of perceived value, two major approaches can be found. The first approach defines perceived value as a construct comprised of two parts, one is benefits received and the other is the sacrifices made (Dodds et al., 1991; Cronin et al., 2000). Zeithaml (1998) defined customer benefits as the perceived quality of service and a series of psychological benefits. For the sacrifices component, it can be in a form of monetary or non-monetary prices such as time, risk and convenience (Dodds et al., 1991).

   The second approach views customer perceived value as a multidimensional construct (Woodruff, 1997; De Ruyter et al., 1997 and 1998; Sweeney & Soutar, 2001; Roig et al., 2006). Sheth et al. (1991) defined perceived value as a multidimensional construct composed of five core values, which are social, emotional, functional, epistemic and conditional. The functional value is a perceived utility of the attributes of the products or services. Emotional value is the feelings or the affective states obtained by the experience of consumption. Social value is the acceptability or utility at the level of the individuals' relationship with his social environment. Epistemic value is the capacity of the product or service to surprise, arouse curiosity or satisfy the desire of knowledge. Finally, conditional value refers to the conjunctural or situational factors such as illness or specific social situation.

   PERVAL scale proposed by Sweeney and Soutar (2001) did not include the epistemic and conditional aspect of value into their construct, thus the perceived value can be explained from just three dimensions: functional value, social value, and emotional value. GLOVAL scale developed by Sanchez et al. (2006) also composed of three major dimension as PERVAL scale with an additional breakdown of functional value into value of establishment, value of personnel, value of service quality and value of price.

   Roig et al. (2006) analyzed the value perceived by the consumer in the banking sector and found that customer perceived value result from integration between functional value, emotional value and social value as those found in tourism industry studied in Sanchez et al. (2006). Functional value can be identified through logical and economical evaluation from a customer based on price and quality of a product or service. Emotional value and social value are more intangible and can be considered as value judged by a customer feeling toward purchasing a product or service from a company. Emotional value can be considered as a value driven by internal factors, while social value is a value driven by external factors.

   Customer Satisfaction

   Customer satisfaction studies remain the single largest category of marketing research, demonstrating the practical importance of this construct (Oliver 1999). In general, satisfaction can be considered as a feeling of happiness when a person achieves his or her goals, wants or motivation. It represents a positive kind of feeling when receives a good response and will be deteriorated or disappeared when goals or wants have not been responded. Everyone want to be satisfied, however, each person's satisfaction on a particular kind of stimulus may be different depending on one's attitude, value, education and situation of interaction.

   Customer satisfaction also depends on their expectation. In general, satisfaction is a comparative feeling resulted from the difference between expectation and actual experience. The higher the actual experience compared to expectation, the higher the satisfaction. Repetitive satisfaction on a product or service will finally lead to a satisfaction toward the brand of that product or service in the long-term (Kotler & Keller, 2003).

   There are two approaches on measuring customer satisfaction. The first is a transactional satisfaction and the second is an overall satisfaction. Transactional satisfaction is defined as the emotional reaction following a consumption of product or service, which then leads to a global assessment on perceived quality. Hence, this kind of satisfaction will precede the firm's perceived quality (Bitner, 1990; Carman 1990; Parasuraman et al., 1996). However, for overall satisfaction, it refers to an overall dissatisfaction or satisfaction with a firm based on all encounters and experiences with that particular firm (Anderson & Sullivan, 1993; Bitner & Hubbert, 1994; Taylor & Baker 1994). This approach of satisfaction measurement therefore follows the firm's perceived quality or value and can be considered as a better predictor of customer loyalty.

   In understanding the cause of...