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A model of customer loyalty in the retail banking market

Asuncion Beerli, Josefa D. Martn and Agustn Quintana
University of Las Palmas de Gran Canaria, Facultad Ciencias Economicas y Empresariales, Las Palmas de Gran Canaria, Canary Islands, Spain
Keywords Customer loyalty, Customer satisfaction, Costs, Quality Abstract On the basis of empirical research carried out in the retail banking market, this paper proposes a structural equations model enabling us to reach the conclusions that satisfaction together with personal switching costs are antecedents leading directly to customer loyalty, with the former exerting the greatest inuence; and perceived quality is a consequence of satisfaction. At the same time, the paper shows that the degree of elaboration in the bank selection process does not have a moderating inuence on the causal relationships between satisfaction/switching costs and customer loyalty.

A model of customer loyalty

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Received March 2001 Revised July 2001, January 2002

Introduction In the highly competitive, complex and dynamic environment of the banking industry, the very slight differences which exist in nancial services and products together with an increasingly demanding customer have led to a great transformation in the industry. The traditional product-oriented bank is becoming increasingly customer-oriented in accordance with the basic principles of relational marketing, which focuses on customer loyalty as its main goal. In this sense, Gilmore (1997) considers that constant customer-oriented behaviour is a requisite for improving the implementation of quality in services marketing. Indeed, factors such as nancial products and distribution have attained similar levels of development and technology and have thus been relegated to a secondary role as reference points for distinguishing between one bank and another (Rodrguez Sanchez and Rodrguez Parada, 1993). In this sense, Barnes and Howlett (1998) argue that, given that many nancial services are parity offerings, it can be stated that a customer is unlikely to be overly impressed by core product attributes when all companies are providing similar offerings. The main objective of this paper is to identify the key factors that inuence the extent to which customers are loyal towards their banks. The customers of market leaders in retail banking will form the subject of our research. To this end, we have carried out empirical analyses of the complex interdependence relationships that exist among the different variables, or factors, which explain customer loyalty in the retail banking market, using a methodology based on structural equation models.

European Journal of Marketing Vol. 38 No. 1/2, 2004 pp. 253-275 q Emerald Group Publishing Limited 0309-0566 DOI 10.1108/03090560410511221

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Prior to developing the model, we carried out a review of the most important contributions to academic literature about causal relationships between loyalty and its antecedents. We reached the conclusion that customer satisfaction together with barriers or the switching costs were the key factors affecting loyalty. Similarly, there is a theoretical framework which considers that perceived quality is one of the indirect antecedents of loyalty that has a direct inuence on customer satisfaction, although the nature of the causal relationship between quality and customer satisfaction is the subject of great academic debate. While quality researchers claim that satisfaction is an antecedent of quality (Carman, 1990; Parasuraman et al., 1988; Bitner, 1990), researchers in the eld of customer satisfaction have exactly the opposite point of view (Woodside et al., 1989; Reidenbach and Sandifer-Smallwood, 1990; Cronin and Taylor, 1992; Fornell, 1992; Anderson and Sullivan, 1993). In the light of this, several authors stress the desirability of further comparison of the causal relationships between these two concepts, all of which has led us to explore, as an additional objective of this paper, the direction of this relationship with new empirical evidence. Finally, and with a view to examining more closely the relationships which exist between customer loyalty and its antecedents, we decided to analyse the possible inuence on such relationships that the degree of elaboration in the bank selection process could have.

Theoretical background The increasing importance of relational marketing in recent years, particularly in the servicing and manufacturing industries, has been accompanied by a bundle of works on customer loyalty. Several authors emphasize the positive relationship existing between customer loyalty and business performance (Reichheld and Sasser, 1990; Reichheld, 1993; Sheth and Parvatiyar, 1995). Loyal customers not only increase the value of the business, but they also enable it to maintain costs lower than those associated with attracting new customers (Barroso Castro and Martn Armario, 1999). Generally, loyalty has been, and continues to be, dened as repeat purchasing frequency or relative volume of same-brand purchasing. Many denitions in the literature suffer from the problem that they record what the consumer does, and none taps into the psychological meaning of loyalty (Oliver, 1999). According to Jacoby and Kyner (1973), brand loyalty is the biased (i.e. non-random) behavioural response (i.e. purchase), expressed over time, by some decision-making unit, either on the part of an individual, family or organization, with respect to one or more alternative brands out of a set of such brands, which means that it is necessary to distinguish between exclusivity and loyalty and a function of psychological processes which involves the

evaluation of different alternatives using specic criteria. Similarly, Oliver A model of (1999, p. 35) denes loyalty as: customer loyalty
. . . a deeply held commitment to rebuy or repatronize a preferred product/service consistently in the future, thereby causing repetitive same-brand or same brand-set purchasing, despite situational inuences and marketing efforts having the potential to cause switching behavior.

Jacoby and Chestnut (1978) have explored the psychological meaning of loyalty in an effort to distinguish it from behavioural (i.e. repeat purchase) denitions. Their analysis concludes that consistent purchasing as an indicator of loyalty could be invalid because of happenstance buying or a preference for convenience, and that inconsistent purchasing could mask loyalty if consumers were multi-brand loyal. Therefore, loyalty is a concept that goes beyond simple purchase repetition behaviour since it is a variable which basically consists of one dimension related to behaviour and another related to attitude, where commitment is the essential feature (Day, 1969; Jacoby and Kyner, 1973; Berne, 1997). According to Jacoby and Chestnut (1978), Solomon (1992) and Dick and Basu (1994), the combination of these two components enables us to distinguish two types of customer loyalty concepts: (1) loyalty based on inertia, where a brand is bought out of habit merely because this takes less effort and the consumer will not hesitate to switch to another brand if there is some convenient reason to do so; and (2) true brand loyalty, which is a form of repeat purchasing behaviour reecting a conscious decision to continue buying the same brand, and it must be accompanied by an underlying positive attitude and a high degree of commitment toward the brand. Inertia means the consumer is buying the same brand, not because of true brand loyalty, but because it is not worth the time and trouble to search for an alternative. A competitor who is trying to change a buying pattern based on inertia can often do so rather easily, because little resistance to brand switching will be encountered if some reason to do so is apparent (Solomon, 1992). On the other hand, under low involvement conditions brand loyalty may reect only the convenience inherent in repetitive behaviour rather than commitment to the brand purchased. Relatively uninvolved consumers are less likely to be brand loyal and will be more likely to be brand switchers (Traylor, 1981). In relation to true brand loyalty, Oliver (1999), based on the traditional consumer attitude structure, considers that all three decision-making phases must point to a focal brand preference if true brand loyalty exists. Thus: (1) the brand attribute ratings (beliefs) must be preferable to competitive offerings; (2) this information must coincide with an affective preference (attitude) for the brand; and

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(3) the consumer must have a higher intention (conation) to buy the brand compared with that for alternatives. Compared to an inertia situation where the consumer passively accepts a brand, a true brand loyal consumer is actively involved with his or her favourite. In the retail banking market, the length of relationship between bank and customer is a common feature. The tradition of the industry has been for banks and other nancial services organisations to engage in long-term customer relationships. In agreement with Stewart (1998), the reasons for such relationship longevity are open to interpretation. While genuine preference and loyalty may have been instrumental, so also could ignorance, inertia and dependence. There has been a growing interest in recent years in analysing the factors inuencing customer loyalty. As a result, there are numerous works in marketing which have attempted to explain the relationships between brand loyalty and the various variables regarded as antecedents, the most signicant of which are customer satisfaction, and, to a lesser degree, switching costs (Bearden and Teel, 1983; LaBarbera and Mazursky, 1983; Kasper, 1988; Bloemer and Lemmink, 1992; Cronin and Taylor, 1992; Fornell, 1992; Oliva et al., 1992; Anderson and Sullivan, 1993; Bloemer and Kasper, 1993, 1995; Boulding et al., 1993; Berne, 1997; Oliver, 1999). Customer satisfaction is a concept that has been widely debated in literature and for which numerous denitions have been made, but researchers have yet to develop a consensual denition of this concept. In this sense, Oliver (1997, p. 13) notes that everyone knows what [satisfaction] is until asked to give a denition. Then it seems, nobody knows. Giese and Cote (2000) suggest in their literature review that consumer satisfaction comprises three basic components: (1) the type of response, that is to say, whether the response is cognitive, affective or conative, and its level of intensity, although those authors concluded from their validation, carried out by means of group and personal interview data, that satisfaction is a summary affective response which varies in intensity; (2) the centre of interest or the subject on which the response is focused, which could be based on an evaluation of product-related standards, product consumption experiences and/or purchase-related attributes (e.g. salesperson); and (3) the moment in time at which the evaluation is made, which may be before choice, after choice, after consumption, after extended experience, or at just about any other time. This theoretical framework enables us to develop specic denitions adapted to the conditions of the context specic to each study, which are conceptually

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richer and more empirically useful than a generic denition, making it easier to A model of interpret and compare empirical results. Along these lines, Halstead et al. (1994) customer loyalty regard satisfaction as an affective response, focused on product performance compared to some prepurchase standard during or after consumption. Mano and Oliver (1993) establish that satisfaction is an attitude or evaluative judgement varying along the hedonic continuum focused on the product, which 257 is evaluated after consumption. Fornell (1992) identies satisfaction as an overall evaluation based on the total purchase and consumption experience focused on the perceived product or service performance compared with prepurchase expectations over time. Oliver (1997, 1999) regards satisfaction as a fullment response/judgment, focused on product or service, which is evaluated for one-time consumption or ongoing consumption. A concept which is very closely related with satisfaction is perceived quality, and the differences between these two have not always been very clearly dened, both having been used on occasion in an indistinct manner. In an attempt to clarify the distinction between satisfaction and perceived quality, Anderson et al. (1994) consider that satisfaction requires previous consumption experience and depends on price, whereas quality can be perceived without previous consumption experience and does not normally depend on price, although in circumstances where there is little available information or where quality evaluation is difcult, price can be an indicator of quality. In this sense, Spreng and Mackoy (1996), starting from Olivers (1997, 1999) conceptual model of service quality and service satisfaction, concluded that these constructs are distinct and have different antecedents. On the other hand, there is a lack of consensus in literature and among researchers about the causal link between the two constructs. While quality service literature claims that customer satisfaction is an antecedent of perceived quality (Parasuraman et al., 1988; Bitner, 1990; Carman, 1990), other authors regard the relationship as being the other way round, in other words, perceived quality is considered an antecedent of customer satisfaction (Woodside et al., 1989; Reidenbach and Sandifer-Smallwood, 1990; Cronin and Taylor, 1992; Fornell, 1992; Anderson and Sullivan, 1993; Gotlieb et al., 1994; Spreng and Mackoy, 1996). According to Parasuraman et al. (1994), this controversy derives from the type of evaluation that is carried out in terms of quality and satisfaction, and it is possible to distinguish between a transaction-specic evaluation and an overall evaluation as the result of cumulative experience. While service quality researchers start from the premise that satisfaction is a transaction-specic evaluation and that quality is an overall evaluation made using a whole set of cumulative evaluations, researchers focusing on the satisfaction topic tend to have quite the opposite point of view. Parasuraman et al. (1994), following up the work of Teas (1993), consider that service quality and satisfaction can be examined from both transaction-specic as well as global perspectives and

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they suggest that an interesting direction for further research is to analyse the causal links of these two constructs from both perspectives. Nevertheless, from a theoretical point of view these authors establish that perceived quality is an antecedent of satisfaction when both constructs are measured in the context of a transaction-specic perspective. Another brand loyalty antecedent is known as switching costs, which can be dened as the technical, nancial or psychological factors which make it difcult or expensive for a customer to change brand (Selnes, 1993). According to Alet i Vilagines (1994), the switching costs can be broken down as follows: . the customers personal costs, referring to tradition and the clients habits, to effort in terms of the time and commitment needed to evaluate new alternatives, to the economic advantages associated with loyalty, to the social and psychological risks stemming from making a wrong choice, and to the established contracts with the supplier company; and . costs associated with the product, such as the costs of redesigning the process of production or consumption, investment in related equipment, and contractual costs. When the costs of switching brand are high for the customer, there is a greater probability that the customer will remain loyal in terms of repeat purchase behaviour, because of the risk or expense involved in switching and because of the accompanying decrease in the appeal of other alternatives (Wernerfelt, 1991; Selnes, 1993; Klemperer, 1995; Ruyter et al., 1996; Anton Martn et al., 1998). However, if loyalty is dened as true loyalty, the relationship between this construct and the switching costs is not so simple. For example, it might easily be that the customer repurchases, but due to his dissatisfaction, he does not recommend the product or service to others. Moreover, the effect of switching costs on loyalty varies with the type of industry, the category of the product and the characteristics of the customer (Fornell, 1992). In the banking industry, Sheth and Parvatiyar (1995) found some factors that may inhibit customer exit in retail banking; for instance, the length of their relationships with the bank; the fact that they knew, and were known by, the branch staff; and the perception that closing/transferring accounts was difcult. These factors, whether real or perceived, act as exit barriers. Wernerfelt (1991), Selnes (1993) and Klemperer (1995) consider that brand loyalty increases considerably when switching costs and customer satisfaction converge, although a competitor will nd it more difcult to capture a customer of a rival brand when the customers loyalty is based on satisfaction than when it is based on switching costs. Along these lines, Fornell (1992) establishes two disadvantages of switching costs that highlight the greater relative weight of satisfaction as an antecedent of customer loyalty. These disadvantages are, rst, the greater difculty of capturing new customers when these are

conscious of the existence of switching costs, and, second, the possibility that A model of external forces can eliminate switching barriers. customer loyalty Consistent with Anton Martn et al. (1998), in the relationship existing between customer satisfaction/perceived switching costs and loyalty, the degree of elaboration which is followed in the decision-making process can have a moderating inuence. Elaboration is a construct based on the 259 information processing theory (Petty and Cacioppo, 1997) and is determined by the motivation and the ability of a consumer to elaborate on the brand choice (Bloemer and Ruyter, 1998). Motivation can be operationalised by bank choice involvement and ability can be operationalised by bank choice deliberation. Despite the fact that motivation and the ability of a consumer to elaborate on the choice can be high, if the consumer does not perceive differences among brands, the degree of elaboration in the decision-making process may be low. Therefore, to measure elaboration we have also included the dimension related to the perceived distinction between different brands. Moreover, when the levels of satisfaction and switching costs are equal in value, consumers that take a longer time to make a decision tend to be more loyal to the brand chosen because the decision-making process is more conscious and deliberate. However, this moderating inuence can vary with respect to product categories. Thus, for example, in the work carried out by Anton Martn et al. (1998), after analysing the moderating inuence of the degree of elaboration in the relationship between satisfaction/switching costs and loyalty for three categories of products, they were only able to identify a signicant moderating inuence in one of the product categories analysed. Moreover, in the paper on store loyalty by Bloemer and Ruyter (1998), they concluded that the customer who elaborates more on department store shopping might take more stores into consideration. This might lead to less loyalty in the case of a stronger motivation and ability to evaluate a store. Nevertheless, when combined with the amount of satisfaction and as a moderator variable, elaboration strengthens the positive effect of store satisfaction on store loyalty. Research design Objectives This paper has three objectives related to customer loyalty in the retail banking market. First, using a structural equation model, we analyse empirically whether customer satisfaction and perceived switching costs are antecedents of customer loyalty toward different retail banks. Second, we explore the causal direction between perceived quality and satisfaction, in order to establish whether perceived quality is an indirect antecedent of customer loyalty, a consequence of satisfaction or whether there exists a bidirectional relationship between perceived quality and satisfaction. With this second objective, we want to add new empirical evidence on the causal relationship between

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perceived quality and satisfaction, with the object of shedding some light on the subject. Finally, we study the moderating inuence that the degree of elaboration might exert on the causal relationships between loyalty and the aforementioned antecedents. More specically, the above-mentioned objectives and the hypotheses deriving from the same are as follows. Objective 1. To analyse whether satisfaction and switching costs are antecedents of customer loyalty in the retail banking market. H1.1. The greater the satisfaction, the greater the customer loyalty. H1.2. The greater the perceived switching costs, the greater the customer loyalty. Objective 2. To explore the causal direction between perceived quality and satisfaction. H2.1. The greater the perceived quality, the greater the customer satisfaction. H2.2. The greater the customer satisfaction, the greater the perceived quality. H2.3. There exists a bidirectional relationship between perceived satisfaction and customer satisfaction. Objective 3. To study the moderating inuence that the degree of elaboration can have on the causal relationships between customer satisfaction/perceived switching costs and loyalty. H3.1. The greater the degree of elaboration, the greater the positive impact of satisfaction on loyalty. H3.2. The greater the degree of elaboration, the greater the positive impact of perceived switching costs on loyalty. Methodology Data were gathered from personal interviews using a structured questionnaire. The customers of the six banks with the largest market share, in the geographical zone in which this study was carried out, were selected as the target population. These are Banco Bilbao-Vizcaya, Banco Central-Hispano, Banesto, Banco de Santander, Caja de Canarias and La Caixa. The main reason for selecting the clients of those banks is that those six banks have 71.68 per cent of all the bank branches in the geographical region of the study, according to the data of the Internal Report of the Caja de Canarias (2001). None of the banks whose clients are not included in the sample has more than 2 per cent of the total number of bank branches. The nal sample consists of 576 individuals who stated that they were habitual customers of one of the aforementioned

banks. Those clients were selected according to age, education and occupation, A model of which were all proportional to the actual population of the region. The customer loyalty sampling error was ^4:16 per cent at the 95.5 per cent level. The interviews were carried out in situ, at the main door of the branches. We carried out the same number of surveys for each of the banks in order to be able to obtain an acceptable sample size of the clients of each bank. 261 The items of the scales and its reliabilities measured with Cronbachs alpha are reported in Table I. Loyalty was measured indirectly by means of an attitude scale, which, as Berne (1997) points out, is the most commonly used system of measurement due to the difculty involved in obtaining sequential information about purchase repetition. To do this we used a seven-point, three-item Likert scale, which measures resistance to switching bank, individuals loyalty attitude and the degree to which they would recommend the bank that they use. These variables measure the degree of commitment toward the bank and intention to continue with the relationship. Therefore, following the properties of true brand loyalty established by Oliver (1999), the rst item attempts to inversely measure the intention to continue the relationship with the present bank (conation), and the other two items measure affective preference for the bank (attitude). We have not evaluated the brand attribute rating (beliefs) because of problems caused by the length of the questionnaire and because an in-depth study of the clients beliefs was not the main objective of this work. However, attitudes are a direct consequence of beliefs, and so, when measuring the affective component, we are, albeit indirectly, considering the cognitive component of loyalty. In order to evaluate customer satisfaction with their bank we followed Fornell (1992) and used a seven-point, three-item Likert scale which measures general satisfaction with the banking entity, the degree to which the bank conrms customers expectations, and the gap which customers consider to exist between the bank they use and what they regard as being the perfect or ideal bank. We have used Fornells (1992) scale because it incorporates the three aspects of satisfaction most widely used in the literature. In this way, and in line with the basic components of satisfaction established by Giese and Cote (2000), the scale used complies with the following characteristics: . the type of response is affective; . the centre of interest is based on an evaluation of bank consumption experiences; and . the moment of evaluation is after extended experience. Perceived quality was measured based on an overall evaluation as the result of cumulative experience of the customer, using a 20-item SERVPERF scale adapted to the banking industry. Although this scale has a high number of items, we have not reduced it because we consider that it was important to maintain the original SERVPERF scale. This scale has ve components

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Loyalty L1 L2 L3

Alpha = 0.7829 I do not like to change to another bank because I value the selected bank I am a customer loyal to my bank I would always recommend my bank to someone who seeks my advice

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Satisfaction Alpha = 0.8106 S1 To what extent does this bank live up to your general expectations of it? S2 Imagine the perfect bank. How far and/or close does this bank come to your ideal? S3 Given your experience with this bank, how satised or dissatised are you with it overall? Quality Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Q13 Q14 Q15 Q16 Q17 Q18 Q19 Q20 Alpha = 0.9373 Xs physical facilities are attractive and comfortable X has modern-looking equipment Xs employees are tidy in appearance Materials associated with the service are visually appealing at X X insists on error-free records When you have a problem, X shows a sincere interest in solving it Employees of X solve your problems when they promise to do so X provides its services at the time it promises to do so X performs the service right the rst time Employees of X give you prompt service Employees of X are always willing to help you Employees of X are never too busy to respond to your requests Employees of X tell you exactly when services will be performed The behaviour of employees of X instills condence in customers Employees of X are constantly courteous to you Employees of X have the knowledge to answer your questions X gives you individual and personal attention X has operating hours convenient to all its customers X has your best interests at heart Employees of X understand your specic needs

Switching costs Alpha = 0.8039 SC1 To change to another bank involves investing time in searching for information about other banks SC2 To change to another bank involves much effort in deciding which other bank to use SC3 To change to another bank involves a risk in choosing another bank which might turn out not to satisfy me Degree Degree DEL 1 DEL 2 of elaboration in the bank selection process of deliberation When I selected my bank, I made a previous comparison with other bank entities When I selected my bank, I did a previous analysis of the advantages and disadvantages of the chosen bank in comparison with other bank entities

Degree of involvement I1 The rst time that I chose a bank, it was a very important decision for me Table I. Scales and reliability coefcients Degree of differentiation between bank entities DIF 1 I think there are signicant differences between different banks Note: X denotes the name of the main bank

(tangibles, reliability, responsiveness, assurance and empathy) and was A model of adopted since it is still the most widely used instrument, having been customer loyalty developed from data collected across ve separate service categories, one of which was retail banking. Furthermore, some studies show that this scale is a good interpretation of perceived quality in retail banking (Llorens Montes, 1996; Yavas et al., 1997; Bloemer et al., 1998. In accordance with the codes of the 263 variables which can be seen in Table I, tangibles correspond with labels Q1 to Q4, reliability with labels Q5 to Q9, responsiveness with labels Q10 to Q13, assurance with labels Q14 to Q16, and nally, empathy with labels Q17 to Q20. After carrying out an exploratory factorial analysis of this scale, we were able to isolate three factors, which represent 59.4 per cent of explained variance. The rst of these factors accounts for some 47.8 per cent of the variance and covers the dimensions of reliability, responsiveness and assurance with the banking entity; the second factor explains 6.6 per cent of the variance and deals with the dimension related to empathy; and nally, the third factor accounts for 5 per cent of the variance and represents the tangibles of the banking entities. The differences which exist between the theoretical dimensions of the scale and those obtained in our research could be due to the fact that the dimensionality of the service quality scale varies from industry to industry (Babakus and Boller, 1992). Along these lines, Carman (1990) and Buttle (1995) identied a number of dimensions that differ from the ve included in the SERVPERF scale. As the number of dimensions of this scale does not coincide with the theoretical dimensions, and the percentage of explained variance is relatively reduced, we opt to use all the items of the SERVPERF scale in our structural equations model. With respect to switching costs, and using the typology proposed by Alet i Vilagines (1994), we have included the personal switching costs that are most directly related to the industry that is the subject of our research. We have thus used a seven-point, three-item Likert scale to evaluate the time required to search for information about other banks, the effort involved in deciding on another bank and the risk of making a mistake with the switch. Finally, in order to measure the degree of elaboration in the bank selection process, we used three seven-point Likert sub-scales in accordance with Anton Martn (1998) to measure the following three dimensions: (1) the degree of deliberation in the bank selection process; (2) the degree of involvement in the choice of bank; and (3) the degree of differentiation which exists between the different bank entities. Results and discussion In order to analyse the antecedents of customer loyalty in the retail banking market and to explore the direction which exists in the relationship between perceived quality and customer satisfaction we have applied the structural

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equations model, rst because it enables us to estimate the multiple and crossed relationships which exist between dependent and independent variables, and second, for its capacity to represent constructs not observed in these relationships and to take into account measurement error in the estimation process. Before specifying the structural equations model we tested out the reliability of the scales to be used by means of the Cronbachs alpha, as can be seen in Table I. The coefcients obtained demonstrate that the indicators used to measure the different constructs are reliable since their values oscillate between 0.7829 and 0.9373. The high Cronbachs alpha for the SERVPERF scale is inuenced by the high number of scale items; however, the SERVPERF scale has been extensively applied in numerous studies because of its good psychometric properties. With the aid of the literature review, we have proposed a causal model using the software AMOS 3.6 in which we propose that customer satisfaction and switching costs are antecedents of customer loyalty and that there exists a bidirectional relationship between customer satisfaction and perceived quality. We used a correlation matrix, shown in the Appendix, as the starting point, since because it is a standardised variance-covariance matrix it enables us to make direct comparisons of regression coefcients between the variables included in the model. While many researchers propose a two-stage structural modelling process in which the measurement and structural models are kept separate, in our study, and in the line of Hair et al. (1990), we will make a simultaneous estimation of the measurement and structural models based on the strength of extensive theoretical support which exists for the use of such a model and on the high degree of reliability of the measurements used. Figure 1 displays the resulting causal model with its standardised regression coefcients, together with the global t measures for the model which are used to verify the quality of the t via the correspondence between the observed correlation matrix and that which is reproduced using the proposed model. As measurements of t we obtained a chi-square value of 414.814 with 375 degrees of freedom (p 0:076). This value was obtained for a sample of 170 individuals, bearing in mind that the recommended sample size for obtaining a valid contrast with the chi-square statistic using the maximum likelihood criterion is 100-200. This is because, when the sample size is increased above this limit, the maximum likelihood criterion becomes increasingly sensitive, while the t of the model is adversely affected (Hair et al., 1999). In fact, the values of the remaining measures of the global t of the model are exactly the same for a sample size of 576 as for one of 170, with the exception of the standardised chi-square (CMIN/DF), which obviously increases in value when the sample size is increased, and the Tucker-Lewis Index (TLI), which changes from 0.982 to 0.879 when the sample size is increased to 576. In our model the values obtained for the goodness of t index (GFI 0:849) and the root mean square residual (RMR 0:068) indicate a good absolute t of the model. Regarding the incremental t measurements, which compare the proposed model with the

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Figure 1. Regression model (standardised values)

independence model, we obtained values close to, or superior t,o the 0.9 value generally considered acceptable. Finally, the values of the last two measurements, AGFI 0:825 and CMIN=DF 1:106, indicate that the model is parsimonious, since the value of the rst is close to 0.9 while the second falls in the recommended interval between 1 and 2. Once the global t has been accepted, we can proceed to evaluate separately each of the latent variables, analysing their convergent validity by evaluating the weights of the indicators and their reliability and variance. Thus, in accordance with Anderson and Gerbing (1988), we assume that convergent validity exists when the regression weights of a constructs measurements are statistically signicant, in other words, when the critical ratio (CR) of the variables observed against their respective latent variables is over 1.96 at the 0.05 level. In our case, as can be observed from the data displayed in Table II, all the critical ratios of the indicators of constructs satisfy this criterion, and the convergent validity of the measurements can thus be demonstrated, the

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Regression weights Loyalty Loyalty Satisfaction Quality SC1 SC2 S3 S1 L3 L2 Q6 Q7 Q8 Q11 Q12 Q13 Q14 Q15 Q16 Q10 SC3 L1 S2 Q5 Q1 Q4 Q3 Q9 Q18 Q19 Q2 Q20 Q17 Note: Squared

Estimates

Standard deviation

Critical ratio (CR) 2.800 9.695 0.441 1.938 11.762 11.742 8.122 11.804 13.547 10.869 12.182 10.039 12.868 11.915 11.619 12.464 7.582 9.310 8.645 6.566 5.308 6.764 8.169 10.047 6.753 8.748 4.287 9.339 9.919

Standardised estimates 0.182 0.833 0.231 0.635 0.823 0.949 0.866 0.791 0.807 0.645 0.761 0.831 0.719 0.838 0.777 0.679 0.805 0.766 0.753 0.789 0.557 0.735 0.627 0.482 0.398 0.494 0.579 0.679 0.493 0.611 0.327 0.643 0.673

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Table II. Results of regression model

Switching 0.145 0.052 Satisfaction 0.765 0.079 Quality 0.239 0.542 Satisfaction 0.615 0.317 Switching 0.849 0.072 Switching 1.000 Satisfaction 1.000 Satisfaction 0.913 0.078 Loyalty 1.000 Loyalty 0.804 0.099 Quality 0.908 0.077 Quality 0.992 0.073 Quality 0.858 0.079 Quality 1.000 Quality 0.927 0.076 Quality 0.810 0.081 Quality 0.960 0.075 Quality 0.914 0.077 Quality 0.898 0.077 Quality 0.941 0.076 Switching 0.565 0.074 Loyalty 0.914 0.098 Satisfaction 0.724 0.084 Quality 0.574 0.087 Quality 0.475 0.090 Quality 0.589 0.087 Quality 0.690 0.084 Quality 0.810 0.081 Quality 0.588 0.087 Quality 0.729 0.083 Quality 0.390 0.091 Quality 0.767 0.082 Quality 0.803 0.081 2 multiple correlation (R ) = 72.7 per cent

proposed relationships between indicators and constructs having been veried. With regard to reliability and variance, the data displayed in Table III demonstrate that the different indicators are sufcient in the representation of the constructs, since the reliability values exceed the recommended values of 0.70 and the variances are superior to or close to the 0.5 level. Starting from the premise that the goodness of t is high (R 2 72:7 per cent), we will proceed to analyse the hypotheses related to the rst two objectives of this study. First, and with respect to loyalty antecedents, the relationships between satisfaction/switching costs and loyalty display positive and statistically

signicant regression coefcients. Satisfaction has a greater weight on loyalty A model of than switching costs (0.833 and 0.182 respectively), which leads us to accept customer loyalty H1.1 and H1.2. Second, in order to test out the hypotheses related to the direction of the relationship between perceived quality and customer satisfaction, we must previously verify the stability of the non-recursive model between these two 267 latent variables. In this way, we obtained a stability index of 0.147 which, being lower than 1, indicates that the regression coefcients are stable. The data displayed in Table II show that there exists a positive and statistically signicant relationship within the satisfaction-perceived quality relationship, thus verifying H2.2. The perceived quality-satisfaction relationship, although positive, is not statistically signicant, meaning that H2.1 and H2.2 cannot be veried. These results, which are in contrast to the suggestions of Woodside et al. (1989), Reidenbach and Sandifer-Smallwood (1990), Cronin and Taylor (1992), Fornell (1992) and Anderson and Sullivan (1993), indicate that when perceived quality and satisfaction are measured in a global perspective, satisfaction is an antecedent of perceived quality and not vice versa, as has been proposed by Carman (1990), Parasuraman et al. (1988) and Bitner (1990). In order to address our third objective, which was to analyse the moderating inuence which the degree of elaboration in the bank selection process has on the relationships between loyalty and customer satisfaction/switching costs, we carried out a multiple regression analysis using the following equation L a bSAT cSC dCLUS eCLUS SAT fCLUS SC where: L SC = Customer loyalty = Switching costs SAT = Customer satisfaction CLUS = variable dummy which denes belonging either to the group of customers with a high degree of elaboration in the decision-making (1) or to the low level group (0). In order to classify the customers into two categories according to the degree of elaboration of their decision making, we applied a K-means cluster analysis to the four variables that make up the scale used. The results can be observed in
Latent variables Perceived quality Satisfaction Switching costs Loyalty Reliability of the constructs 0.940 0.809 0.824 0.778 Variance of the constructs 0.450 0.589 0.619 0.541 Table III. Reliability of latent variables

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Table IV. The 288 individuals who make up Cluster 1 display a greater degree of elaboration in the decision-making process than the 287 individuals who make up Cluster 2. Similarly, an ANOVA demonstrates that there are signicant differences between the two groups for each of the variables used in the division process (p # 0:001). From the cluster, we have created dummy variable CLUS, which has a value of 1 when individuals show a high degree of elaboration and a value of 0 when the degree of elaboration is low. The results of the multiple regression, which are displayed in Table V, indicate that the degree of elaboration does not have a moderating inuence on the relationships between satisfaction/switching costs and loyalty, which leads us to reject H3.1 and H3.2. One possible explanation for these results could be derived from the industry which we chose as the subject for this research, since the intangible nature of banking services could have a conditioning effect on the degree of elaboration in the bank selection process. We could therefore state that deliberation in bank selection and the perception of differences between rival entities are far more complex processes than for other categories of products. Conclusions The aim of this research, which is based on the retail banking market, was to carry out an empirical analysis of the factors determining customer loyalty, using a structural equation modeling. We have tried to contribute to the academic literature by considering customer loyalty not only as a frequency of repeated purchase, but also including the psychological meaning of loyalty. In this sense, we have differentiated between the two types of concept of customer loyalty (loyalty based on inertia and true brand loyalty). Moreover, along these lines, we analysed the inuence on customer loyalty, not only of satisfaction, which is the most widely studied factor in academic literature, but also of the
Cluster DIF1 3.715 3.199 I1 4.535 3.014 DEL1 5.576 2.056 DEL2 5.670 2.216 n 288 287

Table IV. Size and proles of the clusters

Cluster 1 Cluster 2

Independence variables SAT SC CLUS CLUS*SAT CLUS*SC Constant

Betas 0.762 0.164 20.591 0.030 0.084 0.156

Standard deviations Standardised betas t-value p-value 0.054 0.046 0.486 0.085 0.068 0.297 0.594 0.156 2 0.181 0.047 0.135 14.065 3.557 21.216 0.355 1.239 0.525 0.000 0.000 0.224 0.723 0.216 0.599

Table V. Results of multiple regression

Notes: F 86.75 ( p 0.000); Squared multiple Correlation R 2 43:47 per cent

switching costs, which are most directly related to the banking industry. A model of Similarly, and taking into account the great controversy which exists about customer loyalty whether perceived quality is an antecedent exerting an indirect inuence on loyalty and a direct inuence on satisfaction, or whether, to the contrary, it is a consequence of satisfaction, we have attempted to explain the causal direction of the relationship existing between perceived quality and satisfaction. 269 The results of the proposed model, whose validity has been demonstrated by the relatively acceptable levels of the indicators of the absolute, incremental and parsimony ts and by its high explanatory value, demonstrate that both satisfaction and switching costs can be regarded as loyalty antecedents. Nevertheless, the inuence exerted by satisfaction is far greater than that of switching costs. With respect to the direction of the relationship between satisfaction and perceived quality, our model demonstrates that there is only a positive and statistically signicant relationship in this link. Thus, when these two constructs are measured in a global perspective, satisfaction is an antecedent of perceived quality in the retail banking market, and not vice versa. A possible theoretical explanation of this result is that the satisfaction construct supposes an evaluative judgement of the value received by the customer. Perhaps a customer perceives a high level of quality and is not satised because of the economic sacrice made to obtain the service. Moreover, a high level of perceived quality may not implicate a high level of satisfaction if the quality does not meet customer needs. Furthermore, if a customer is satised, he will tend to value the perceived quality more positively in order to be congruent with himself and to avoid dissonance. In this study, we also explored the possible moderating inuence which the degree of elaboration in the bank selection process could exert on the relationship between customer loyalty and its antecedents, using a multiple regression analysis, and we reached the conclusion that, in the retail banking market, the degree of elaboration does not exert any moderating inuence. Limitations and managerial implications The results of this research are limited to and conditioned by the context in which the empirical work was carried out, and we would therefore recommend future research to study not only the direct inuence of satisfaction and switching costs on loyalty, but also the relationship between perceived quality and satisfaction at both the global and specic perspectives in other industries and for other categories of products. In the same way, an interesting line of enquiry would be to replicate the research across the corporate sector of the banking industry. Similarly, we would recommend studying other possible antecedents which could have an inuence on bank customer loyalty, for example, some of the dimensions which constitute brand equity, such as brand image, reputation and awareness; as well as the market orientation strategy implemented by the bank entities. Such factors are important to the process of adding value to service offerings and, hence,

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achieving competitive advantage in retail nancial services markets (Devlin, 2000). Gardener et al. (1999) argue that, in the new nancial environment, there is also a greater focus on banks achieving added value and improving their public image. Issues relating to the elements of the offering that should be emphasised when adding value may be particularly important in the case of services. For offerings which are highly intangible, either mentally, or cognitively, as well as physically, options for adding value, and hence, achieving competitive advantage, may be limited due to customer reliance on experience and credence qualities during the purchase decision. Financial services are arguably highly typical of service offerings in general, with more complicated nancial services in particular being highly intangible as well as problematic in terms of consumer cognition (Devlin, 2000). According to Nguyen and LeBlanc (1998), in nancial services, future research might consider a better knowledge of how customer satisfaction, service quality, and value interact to inuence image assessments and loyalty, which promises to provide useful insights for formulating competitive strategy. Finally, we would draw attention to the possibility of carrying out further research to analyse the effect of other possible moderating variables in the relationship between loyalty and its antecedents, such as, for example, the psycho-demographic characteristics of individuals like the degree of nancial knowledge on the part of customers in the retail banking market. Our ndings have several managerial implications. The impact of satisfaction on loyalty is considerably stronger than the cost of switching. This implies that banks should place greater emphasis on achieving high levels of customer satisfaction than on creating switching barriers. This is because, on the one hand, loyalty is based mainly on satisfaction, and on the other, switching costs present the additional disadvantage of the difculty of attracting new customers when these are aware of the existence of such costs, and the possibility that outside forces may eliminate the barriers erected by switching costs. Nevertheless, the direct positive relationship between switching costs and loyalty may imply that banks could undertake actions that increase switching costs for their customers, such as establishing preferred customer programmes, which can also contribute to increasing customer satisfaction. In this sense, Barnes and Howlett (1998) argue that the loyalty programmes would be customer-focused and the companies would examine: . the manner in which the customer denes a relationship; . whether the conditions under which the company interacts with customers are conducive to forming relationships; and . the factors which contribute most to quality relationships. On the other hand, while there may not be a direct relationship between overall service quality and satisfaction response, the banks should not overlook the importance of quality, whenever the quality improvement efforts are oriented to meet the customers needs.

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Oliva, T.A., Oliver, R.L. and MacMillan, I.C. (1992), A catastrophe model for developing services satisfaction strategies, Journal of Marketing, Vol. 56, July, pp. 83-95. Oliver, R.L. (1997), Satisfaction. A Behavioral Perspective on the Consumer, McGraw-Hill, New York, NY. Oliver, R.L. (1999), Whence consumer loyalty?, Journal of Marketing, Vol. 63, October, pp. 33-44. Parasuraman, A., Zeithaml, V.A. and Berry, L.L. (1988), SERVQUAL: a multiple-item scale for measuring consumer perceptions of service quality, Journal of Retailing, Vol. 64 No. 1, pp. 12-40. Parasuraman, A., Zeithaml, V.A. and Berry, L.L. (1994), Reassessment of expectations as a comparison standard in measuring service quality: implications for further research, Journal of Marketing, Vol. 58 January, pp. 111-24. Petty, R.E. and Cacioppo, J.T. (1997), Communication and Persuasion: Central versus Peripheral Routes to Attitude Change, Springer Verlag, New York, NY. Reichheld, F. (1993), Loyalty-based management, Harvard Business Review, March-April, pp. 64-73. Reichheld, F. and Sasser, W.E. (1990), Zero defections: quality comes to service, Harvard Business Review, September-October, pp. 105-11. Reidenbach, R.E. and Sandifer-Smallwood, B. (1990), Exploring perceptions of hospital operations by a modied SERVQUAL approach, Journal of Health Care Marketing, Vol. 10, December, pp. 47-55. Rodrguez Sanchez, J.A. and Rodrguez Parada, S. (1993), Calidad de servicio: exigencia actual para entidades nancieras competitivas, Esic-Market, October-November, pp. 93-107. Ruyter, K., Wetzels, M. and Bloemer, J. (1996), On the relationship between perceived service quality and behavioral intentions: a cross-sectional perspective, in Beracs, J., Bauer, A. and Simons, J. (Eds), Proceedings 25th EMAC Conference, Budapest. Selnes, F. (1993), An examination of the effect of product performance on brand reputation, satisfaction and loyalty, Journal of Marketing, Vol. 27 No. 9, pp. 19-35. Sheth, J. and Parvatiyar, A. (1995), Relationship marketing in consumer markets: antecedents and consequences, Journal of the Academy of Marketing Science, Vol. 23 No. 4, pp. 255-71. Solomon, M.R. (1992), Consumer Behavior, Allyn & Bacon, Boston, MA. Spreng, R.A. and Mackoy, R.D. (1996), An empirical examination of a model of perceived services quality and satisfaction, Journal of Retailing, Vol. 72 No. 2, pp. 201-14. Stewart, K. (1998), An exploration of customer exit in retail banking, International Journal of Bank Marketing, Vol. 16 No. 1, pp. 6-14. Teas, R.K. (1993), Expectations, performance evaluation and consumers perceptions of quality, Journal of Marketing Research, Vol. 25, May, pp. 204-12. Traylor, M.B. (1981), Product involvement and brand commitment, Journal of Advertising Research, December, pp. 51-6. Wernerfelt, B. (1991), Brand loyalty and market equilibrium, Marketing Science, Vol. 10 No. 3, pp. 229-45. Woodside, A.G., Frey, L.L. and Daly, R.T. (1989), Linking service quality, customer satisfaction, and behavioral intention, Journal of Health Care Marketing, Vol. 19, December, pp. 5-17. Yavas, U., Bilgin, Z. and Shemwell, D.J. (1997), Service quality in the banking sector in an emerging economy: a consumer survey, The International Journal of Bank Marketing, Vol. 15 No. 6, pp. 217-23.

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1.0000 0.5524 0.4251 0.5979 0.1477 0.1917 0.1700 0.7088 0.5387 0.3552 0.1998 0.3459 0.3446 0.3028 0.5187 0.5586 0.4321 0.4263 0.4769 0.4675 0.4206 0.3791 0.5284 0.4758 0.5234 0.4461 0.3601 0.5194 0.4826 1.0000 0.1742 0.2193 0.2027 0.5413 0.4009 0.2983 0.1659 0.3419 0.2465 0.3662 0.4498 0.4845 0.4066 0.3801 0.4611 0.4769 0.4211 0.3954 0.4698 0.4605 0.4540 0.4084 0.3782 0.4932 0.4323 1.0000 0.7633 0.4563 0.0877 0.0262 0.0814 0.0352 0.1208 0.0282 0.1003 0.0513 0.1009 0.0608 0.0870 0.0086 0.0499 0.0306 0.0687 0.0708 0.0995 0.1085 0.0475 0.0719 0.0916 0.1205 1.0000 0.5023 0.1412 0.0943 0.1414 0.0762 0.1372 0.1113 0.0962 0.1172 0.1681 0.0935 0.0966 0.0535 0.1066 0.0614 0.0686 0.1143 0.1281 0.1096 0.0767 0.1295 0.1556 0.1235 1.0000 0.1265 0.0816 0.1063 0.1090 0.1461 0.1411 0.1336 0.1246 0.1750 0.1384 0.1261 0.0706 0.1516 0.1226 0.1135 0.1062 0.1901 0.1641 0.1172 0.0566 0.1297 0.0901 1.0000 0.5276 0.2592 0.1826 0.2946 0.3024 0.2754 0.4578 0.5060 0.3981 0.3418 0.3919 0.4159 0.3709 0.3747 0.4676 0.4176 0.4536 0.3545 0.2942 0.4179 0.4253 1.0000 0.1868 0.1495 0.2691 0.2891 0.2572 0.3918 0.4287 0.3584 0.3292 0.3301 0.3464 0.3239 0.3143 0.3319 0.3544 0.3622 0.2796 0.2239 0.3083 0.3450 1.0000 0.4436 0.4045 0.2593 0.1438 0.3066 0.3175 0.2909 0.2726 0.2682 0.2906 0.2606 0.1924 0.3692 0.2652 0.3214 0.3012 0.2951 0.2085 0.1769 1.0000 0.3468 0.2436 0.2502 0.2540 0.2295 0.2580 0.2243 0.2294 0.2554 0.2304 0.1976 0.2573 0.2105 0.2082 0.2154 0.1848 0.2119 0.2090 1.0000 0.3755 0.3023 0.4054 0.4554 0.4483 0.3579 0.4453 0.4431 0.4218 0.3864 0.5117 0.4881 0.4687 0.3815 0.2509 0.3426 0.3256 1.0000 0.2248 0.3722 0.3763 0.3593 0.3983 0.3524 0.3934 0.3354 0.3331 0.3926 0.3386 0.4295 0.3809 0.2517 0.3508 0.2933

Table AI. Correlation matrix Appendix 1.0000 0.4081 0.3781 0.3494 0.5116 0.3491 0.3298 0.4609 0.3186 0.3424 0.3278 0.3882 0.2823 0.2537 0.3250 0.2708 1.0000 0.7620 0.5821 0.5430 0.5768 0.6372 0.5564 0.4861 0.5551 0.5403 0.5207 0.5145 0.3519 0.4526 0.5076 (continued)

1.0000 0.5070 0.5763 0.1493 0.1997 0.2224 0.4801 0.4088 0.2557 0.2376 0.3113 0.2318 0.3334 0.4324 0.5022 0.3961 0.3738 0.4408 0.4640 0.4074 0.3540 0.4628 0.4436 0.4457 0.3714 0.2991 0.3969 0.4333

1.0000 0.5555 0.2113 0.2764 0.1353 0.3408 0.2819 0.2502 0.1579 0.2765 0.1602 0.1990 0.2935 0.3950 0.3282 0.2802 0.3280 0.3980 0.2686 0.2328 0.4150 0.3312 0.3480 0.2906 0.2610 0.2935 0.3462

1.0000 0.6396 0.5672 0.6336 0.7145 0.6295 0.5249 0.6486 0.6349 0.6110 0.5431 0.3677 0.4842 0.5022 1.0000 0.7291 0.7171 0.5664 0.6381 0.6174 0.5369 0.5205 0.3970 0.4519 0.5034 1.0000 0.7091 0.5634 0.6921 0.6960 0.5979 0.5540 0.3568 0.4367 0.5246 1.0000 0.5598 0.6194 0.6145 0.5386 0.4823 0.3765 0.4349 0.4996 1.0000 0.5257 0.4730 0.5048 0.4963 0.3577 0.4809 0.5199 1.0000 0.7181 0.6552 0.5591 0.3775 0.4562 0.4974 1.0000 0.6294 0.4926 0.3387 0.3978 0.4508 1.0000 0.5560 0.4084 0.4837 0.4776 1.0000 0.3778 0.4886 0.4421 1.0000 0.4684 0.3736 1.0000 0.5730

1.0000 0.6316 0.5209 0.5951 0.5691 0.5427 0.5390 0.4891 0.5349 0.4409 0.3338 0.4096 0.4291

1.0000 0.5222 0.5552 0.5003 0.4657 0.5007 0.4577 0.5295 0.4392 0.3295 0.4072 0.4130

1.0000

A model of customer loyalty

Table AI.

275