Analysis of Factors that influence Customer Loyalty

Abstract

The concept of Customer Loyalty has received much consideration and attention from both academics and practitioners in different industries. It is always costly to attract new customers, so the managers always try to find ways to retain their current customers and concentrate on different factors which enhances the customer loyalty among the customers of the organizations. In increasingly competitive markets, being able to build consumer loyalty is seen as the key factor in winning market share and developing a sustainable competitive advantage. And banking industry is no exception as it has high interaction with the customers, so managers must understand the factors which influence the loyalty of the customers towards their respective banks.

So this research attempts to find the factors of customer loyalty and their relationships with banking industry in one of the developing countries i.e. Pakistan. Then analyzing the relationship among different factors a model for the customer loyalty is proposed at the end of the research.

In order to do this, a questionnaire is designed and validated, then based on the data which were gained from the 316 respondents’ answers to the designed questionnaire, the analysis is done and the results and the relations among the factors are explained.

Tangible Perceived Quality, Intangible Perceived Quality, Satisfaction, Trust, Switching Cost, Habit and Choosing are the factors which influence the Loyalty of the customers. Theses factors also influence each other as well. The relationships of different factors with each other are also studied and the SPSS software is used to analyze the data gathered from the respondents.

It is hoped that this Master thesis would be helpful and interesting for both academics and practitioners.

Introduction

This chapter of the thesis will provide the reader with an insight to the research area. First, a brief discussion of the background will be presented that will be followed by the problem discussion. The problem discussion ends with the overall purpose of the study and specific research questions. The background of this research starts with customer loyalty and the factors which influences the customer loyalty, such as satisfaction, perceived quality, switching cost, trust, choosing, commitment and habit. Afterward, Impact of these factors on customer loyalty in Pakistani banks and a model will be proposed. The respondents will be the customers of Allied Bank Limited, Habib Bank Limited and National Bank of Pakistan.

1.1 Background

Customer loyalty is a topic of grave interest for both academia and practice and a base of loyal customers is found to be very beneficial and advantageous for the firms. Loyal customers are those who stick with their bank over the long term, even if they’re not getting the best price. They tend to trans-act and invest more over time as their income grows, or as they devote an increasingly larger “share of wallet” to a bank they feel good about. They are also those customers who will tell their family, friends and business associates about their bank.( Forrester, June 2004). Customer disloyalty or the ending of relationship has also gained much importance in the last decade. During the past thirty years the economic conditions have been changing due to economic stagnation, higher inflation and increased unemployment. Many markets have settled into maturity. It could be said that the actor who nowadays dominates the market is the customer because focus has moved from the seller to the customer. The trend from transaction marketing towards relationship marketing has been significant in recent years (Kotler et al, 1996). The main point of transaction marketing has been to focus continually on single sale, short time-scale, to limit the customer commitment and to put little emphasis on customer service.

Every company tries to maintain a loyal customer base and they continually strive for customer loyalty through different loyalty programs. As the competition in most sectors grows tighter, both the importance of, and the challenge in, keeping customers loyal increases. Long term relationship is imperative for more profits and success of the firm.

The most important reasons according to (Reis, Pena, & Lopes,2005) are:

“Loyal customers are often willing to pay premium prices for a supplier they know and trust”.
“The cost of acquiring new customers can be substantial. A higher customer retention rate implies that fewer customers need to be acquired and these can be acquired more cheaply”. “Loyal customers place frequent, consistent orders and, therefore, usually cost less to serve”.
“Loyal customers often refer new customers to the supplier at virtually no cost”.
“Established customers tend to buy more”.
“Loyal customers place frequent, consistent orders and, therefore, usually cost less to serve”.

Today, a customer loss is a customer gain for a competitor. According to Kotler et al (1996) it takes five times as much effort, time and money to attract a new customer than it does keeping an existing customer. In today’s highly competitive world companies need to spend as much energy and efforts in retaining customers as they do on acquiring them. Loyalty is seen to be difficult to define and measure. The problem lies in identifying whether loyalty is an attitudinal or behavioral measure. McGoldrick and Andre (1997) argues that the term loyalty is been used loosely and includes affection, fidelity or commitment. For this reason, customer satisfaction is been used as a measure of loyalty because it has been assumed that satisfaction affects buying intentions in a positive way. Reichheld (1994) finds that despite being satisfied or very satisfied many customers still defect. Such behaviour may be explained by the impact of other variables such as choice, convenience, price, and habit.

The subject of customer retention, loyalty, and churn is receiving much-needed attention in many industries (Matt Hasan, 2001). This is evident from the number of “customer intimacy” initiatives that are either under way or being considered in a variety of companies. Businesses need to consider customer market among different markets that are taken into account. Businesses traditionally employed transaction marketing, i.e. marketing through 4Ps: transactions of product, price, promotion, and place. However, over the past two decades, businesses across all sectors have increasingly moved towards relationships, networks and interactions.

The complete change and shift in customer’s behaviour and business thinking is due to the commoditization of offerings and the intensification of competition in many industries, rendering ownership of the customer relationship, the most critical business success factor. Examples of these types of market dynamics are in long distance telecommunications as well as the credit card, retail banking, insurance, food and beverage industries, cellular phone service, cable TV, information services, and health care, banking service.

The realization on the part of key decision makers to shift the paradigm from transaction oriented marketing to customer-centric marketing is obvious now. Studies reveal the importance that business decision makers now place on customer retention, loyalty and churn in several industries. Back and Aperia (2004) states suppliers who form close working relationships with their customers tend to have “better” customers. These close relationships make the customer more loyal to the suppliers and the customers often give the suppliers a greater share of their business.

In the highly dynamic and complex banking industry, the very slight differences which exist in financial services and products together with an increasingly demanding customer have led to a great transformation in the industry. The industry is becoming more customer-oriented, which states that the main goal of any relationship marketing would always be to build customer loyalty. In this sense, Gilmore (2001) considers that constant customer-oriented behaviour is a requisite for improving the implementation of quality in services marketing.

Building customer loyalty through loyalty marketing is a business strategy not just a marketing program, all businesses should seek to increase and maximize the share of customers. The pursuit of customer loyalty is continuous and it is more of a journey than a destination. (Duffy, 1998). Fullerton (2003) states that focus on loyalty segmentation provide strategic and tactical insights that will assist in building strong brands. The market is divided into several different segments that consist of groups of people with similar preferences within the groups rather than between the groups (Stewart, 1998). If a company practice loyalty marketing, they must first know who their loyal customers are, which a lot is easier for many business-to-business marketers than for most consumer goods marketers (Fox and Poje, 2002).

The CRM approach to marketing has gained much currency in recent years, seeking to establish closer relationships and interactions between a business and its most important customers. CRM-oriented businesses market their products and services through relationships and interactions with multiple markets, most notably the customer market, often taking advantage of IT-based interactivity. This is why relationship marketing is termed “customer relationship management” when it emphasizes the customer market in particular.

It is, of course, possible to acquire and retain unprofitable customers. Some companies make this mistake by constantly acquiring new customers with price promotions and then wondering why these same customers flit to the next deal offered by a competitor. The resulting high-churn, low-margin customer base is unlikely to ever be profitable. Keeping the right customers is crucial to effective CRM. To be close to the customer and manage successful investments to create customer loyalty is not only important, it is the key factor to success for many companies. The established companies’ closeness to the customers becomes a high entrance barrier for new companies on the market. This because the new companies do not only have to meet the already established companies high standards, but also break into a system of strong personal relationships, trust and respect. (Butscher, 2000)

Many researchers consider CRM as a new paradigm in marketing. The concept of “paradigm” has been defined as “a set of assumptions about the social world, and about what constitute proper techniques and topics for inquiry”. Much of the marketing literature has regarded CRM as representing a paradigm shift in marketing thought. CRM is reshaping the marketing landscape. Customer Relationship Management has overtaken the market and it is revolutionizing marketing and reshaping entire business models.

Butscher (2000) states that on a market, which is distinguished by increasing competition, unpredictable and well informed customers, efforts to increase brand loyalty will get a greater significance. To create loyalty will become one of the most important strategic factors to succeed, neglecting these factors could lead to failure for the companies.

According to Zineldin (2005), it would seem that the discussion is much similar to the one in the 1990s on whether relationship marketing constituted a new paradigm or not. In this respect, relationship marketing is defined as being about “establishing, developing, and maintaining successful relational exchanges”. Exchanges would take place between the business and important markets, including the customer market (Christopher et al., 1991).

The main objective of this paper is to identify the key factors that influence the extent to which customers are loyal towards their banks. The customers of National Bank Pakistan, Allied Bank Limited and Habib Bank 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.

1.2 Who Is a Customer?

Customer can be defined in different ways, for example Sara Gustafson and Erica Lundgren (2005) described “a customer” as below:

A Customer is the most important person ever in this office . . . in person or by mail.
A Customer is not dependent on us . . . we are dependent on him.
A Customer is not an interruption of our work . . . he is the purpose of it. We are not doing a favor by serving him . . . he is doing us a favor by giving us the opportunity to do so.
A Customer is not someone to argue or match wits with. Nobody ever won an argument with a customer.
A Customer is a person who brings us his wants. It is our job to handle them profitably to him and to ourselves.

1.3 Customer churn

Customer churn is the tendency for customer to move from one competitive provider to another (Michael Fox and Missy Poje, 2002). Reichheld (1996) cited research indicating that 65 to 85 percent of defecting customers do so despite being “satisfied” or “highly satisfied.” Thus, high satisfaction levels do not guarantee that customers will not defect. And dissatisfaction does not necessarily lead to defection-customers may continue to purchase from a vendor that has been a source of dissatisfaction (Hennig-Thurau and Klee, 1998).

It’s not easy for a business to predict churn. “Only a small percentage of customers will complain,” writes Griffin in Customer Loyalty. “A typical business hears from only four percent of its dissatisfied customers. The remaining 96 percent go away, and on average, 91 percent never go back.” Yet, you can track customers’ actions.

After four years of research on the best practices of about 200 companies for Customer Loyalty, Griffin was able to put together the following list of six indicators that a customer was ready to walk out the door for good:

Customer approval of your proposals comes slower.
Access to upper-level management decreases.
The flow of customer data slows down.
Plans for future work become progressively shorter-term.
One or more of your products or services are discontinued.
The volume of business the customer is doing with you is reduced.

Some indicators, such as customer approval of proposals and access to upper-level management, are related more to the business-to-business market than the business-to-consumer market. However, even consumer businesses can note if the level of business is reduced. Certain industries, where companies keep activity logs-such as telecommunications, pay television and Internet service-are in a good position to note when activity drops off and take action before a defection occurs.

1.4 Loyalty

Loyalty has to be defined as an internal intensity of customers towards sticking with or switching from their current supplier-an inherent value. Customer loyalty is when a customer remains as a client of original supplier even if a competitor proposes more advantageous conditions.

In a December 2004 CRMGuru survey, 64 percent defined loyalty as repeat buying behavior; 58 percent as a customer who makes referrals to friends and colleagues and 54 percent as a customer’s emotional commitment to the relationship. Only 32 percent of the respondents defined loyalty as a customer spending more over time. According to Jacoby and Kyner (1973), loyalty is the biased (i.e. non-random) behavioral response (i.e. purchase), expressed over time, by some decision-making unit, either on the part of an individual, family or organization.

Oliver (1999) defines loyalty as:

“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 influences and marketing efforts having the potential to cause switching behavior.”

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, 1999; Jacoby and Kyner, 1973; Berne´, 1997).

1.5 Retention

Retention is the outcome or the event that customers are retained with their current provider. Retaining customers is the most important strategic issue for the managers in the business. As is said that it’s very easy to make a friend but very difficult to keep him or her, similarly in businesses customers are your friends, so it’s very easy to attract them for the first time but quite complex and difficult to keep them motivated for the repeat purchases of your firm’s products and services.

Customer retention is a well-known and heavily researched topic in the field of marketing. Throughout the years, the main stream of retention and loyalty research has focused on the willingness of customers to enter and to stay in a relationship with the provider of a product or service based on their satisfaction (Hirschman, 1970, Oliver, 1980, Swan, Trawick, & Carroll, 1982, Garfein, 1987, Oliver & Swan, 1989, Anderson & Sullivan, 1993, Bloemer & Kasper, 1995, Enew & Brinks, 1996, Oliver, 1997, Anderson, 1998, Bolton, 1998, Day, 1999, Jones, Mothersbaugh, & Beatty, 2000, Anderson & Mittal, 2000, Bowman & Narayandas, 2001, Dver, 2001, Homburg & Giering, 2001).

Retained customers are profitable customers, according to Reichheld (1996) and Reichheld et al. (2000), and that customer retention rates can be connected to profitability (Page et al., 1996; Payne and Frow, 1997). The driver of a higher rate of customer retention was found to be customer satisfaction (Berry and Parasuraman, 1991; Rust and Zahorik, 1993).

In other studies, Storbacka et al. (1994), found customer satisfaction drove longevity in relationships. Other authors (Oliver, 1980; Zeithaml et al., 1990; Storbacka et al., 1994; Rust et al., 1995; Hallowell, 1996; Heskett et al., 1997) found that satisfaction drove customer loyalty and also exerted influence on purchase intention (Cronin and Taylor, 1992).

Retention rather than satisfaction is becoming the number one strategic goal in today’s competitive business environment (Oliver, 1999). With a renewed interest in loyalty, the concept of brand commitment has received increasing attention among consumer behavior researchers (e.g. Dick and Basu, 1994, Fournier, 1998, Ahluwalia et al., 2001). The customer retention will be increased since customers stay longer; spend more for the service and products.

1.6 Customer relationship

Relationship management, however, emphasizes the organization of marketing activities around cross-functional processes as opposed to organizational functions or departments. The crux of customer relationship is that the company or the business gives value to the customer and customer has a say in the firm. This results in a stronger link between the internal processes and the needs of customers, and results in higher levels of customer satisfaction.

CRM evolved from business concepts and processes such as relationship marketing and the increased emphasis on improved customer retention through the effective management of customer relationships. Both RM and CRM emphasize that customer retention affects company profitability in that it is more efficient to maintain an existing relationship with a customer than create a new one (Zineldin, 2000, 2005) sited by (Payne et al., 1999; Reichheld, 1996).

According to Bob Thompson (2005) if a firm’s objective is to improve genuine customer loyalty, remember that the value the customer perceives is all important. CRM systems can have an impact on customer loyalty by helping you:

Improve service delivery with a single view of the customer. CRM systems that give you an integrated view of each customer across all channels and touch-points enable your organization to provide the flawless service that customers demand today. And remember, poor customer service is the leading cause of defection.

Optimize marketing with customer analysis. Instead of “spray and pray” campaigns, use CRM analytical tools to dig deep into customer data to uncover purchase patterns and buying indicators. Then you’re prepared to make offers that are welcomed.

Identify potential defectors and be proactive. Analysis is critical, but the real secret is acting before it’s too late. CRM systems, especially when tied to other operational systems, enable you to proactively contact “at risk” customers and resolve their issues before they leave for good. Chances are you won’t get a second chance.

Tie customer-centric behavior to employee rewards. If you know the factors that drive customer loyalty, then you can use CRM systems to track employee behavior. But don’t stop there. Real change will only occur when employees and management are rewarded for doing the right things.

Several studies have examined the importance for a business of retaining its customers in great depth, with evidence suggesting that retention leads to increase market share and eventually greater profits. Marketing tools that businesses can employ for retaining customers may, therefore, provide for a competitive advantage. For example, tools may contribute to product and service differentiation, as well as to create barriers for customers switching to other products and services.

During the 1990s, many organizations and consumers experienced great movements and actions. Some key environmental factors provided the setting whereby companies changed their attention and orientation toward marketing and the consumer.

Companies have recognized the fact that they must change and restructure their way of establishing and maintaining business relationships. For example, many manufacturers discovered, or more adequately, re-discovered that close relationship with customers is not valuable with constantly changing technology and increasing global competition.

Today’s businesses are facing fierce and aggressive competition while operating in both domestic and global markets. Most managers and marketers would of course agree that establishing long-term business relationships is about development and survival. According to Lewis (1991), the world has never been so interdependent. All trends point to cooperation as a fundamental, growing force in business.

Marketing is also about how to integrate the customer into the design of the products/services and how to design a systematic process for the interaction that will create substance in relationships. In a competitive world, companies have to work hard to gain any added value. They have to work with their customers to discover the new ways for running the business more efficiently for themselves and more effectively for the customers.

1.7 Banking and Loyalty

Loyalty to a bank can be thought of as continuing patronage over time. The degree of loyalty can be gauged by tracking customer accounts^, over defined time periods and noting the degree of continuity in patronage (Yi and Jeon, 2003).

During the past decade, the financial service sector has undergone drastic changes, resulting in a market place which is characterized by intense competition, little growth in primary demand and increased deregulation. (Bloemer, Ruyter,Peeters ,1998) In the new market place, the occurrence of committed and often inherited relationships between a customer and his or her bank is becoming increasingly scarce (Levesque and McDougall, 1996). Several strategies have been attempted to retain customers. In order to increase customer loyalty, many banks have introduced innovative products and services (Alam and Khokhar, 2006). Marketing success requires understanding and frequently monitoring the product and service attributes which increase loyalty and share of wallet.

However, as such innovations are frequently followed by similar charges; it has been argued that a more viable approach for banks is to focus on less tangible and less easy-to-imitate determinants of customer loyalty such as customer evaluative judgments like service quality and satisfaction (Worcester, 1997; Yavas and Shemwell, 1996).

Banking has traditionally operated in a relatively stable environment for decades. However, today the industry is facing a dramatically aggressive competition in a new deregulated environment. Government of Pakistan has privatized quite a number of banks which further increases the competition and complexity among the banks. The net result of the recent competition and legislation is that traditional banks have lost a substantial proportion of their domestic business to essentially non-bank competition. Competition will undoubtedly continue to be a more significant factor.

Thus it is imperative for banks to get useful feedback on their actual response time and customer service quality aspects of retail banking, which in turn will help them take positive steps to maintain a competitive edge. Finding a place in this heating sun becomes vital to the long-range profitability and ultimate survival of the bank. Those banks that are not considering the new atmosphere to build and protect their competitive position will likely become victims of that heating sun. (Zineldin, 2006).

With the phenomenal increase in the country’s population and the increased demand for banking services; commitment, service quality and customer satisfaction are going to be key differentiators for each bank’s future success. Banks begin to realize that no bank can offer all products and be the best/leading bank for all customers. They are forced to find a new basis for competition and they have to improve the quality of their own products/services (Zineldin, 1996; Olsen, 1992). A bank has to create the customer relationship that delivers value beyond the provided by the core product. This involves added tangible and intangible elements to the core products, thus creating and enhancing the “product surrounding”.

Positioning is an attempt to distinguish the bank from its competitors along real dimensions in order to be the most preferred bank for a certain market segment or in other words, if a bank can position itself favorably within a particular marketplace, relative to competitors, that bank is a competitive one. Competitiveness means that a bank, in terms of its competitive position, its management and marketing strategies, its use of information technology, the quality of its products/services and its ability of managing long term customer relationship must be increasingly responsive to the market consideration and customer orientation.

With better understanding of customers’ perceptions, companies can determine the actions required to meet the customers’ needs. They can identify their own strengths and weaknesses, where they stand in comparison to their competitors, chart out path future progress and improvement. Customer satisfaction measurement helps to promote an increased focus on customer outcomes and stimulate improvements in the work practices and processes used within the company.

The increasing importance of relational marketing in recent years, particularly in the servicing and manufacturing industries, such as banks, has been accompanied by a bundle of works on customer loyalty. Several authors emphasize the positive relationship existing between customer loyalty and business performance (Beerli et al., 2004; Reichheld and Sasser, 1996). Loyal customers not only increase the value of the business, but also enable it to maintain the costs lower than those associated with attracting new customers (Beerli et al., 2004).

Many definitions 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). By the above introduction to customer relationship, loyalty and bank, now it is time to have a brief look at what is going to be in this research.

1.8 Retail Banking in Pakistan

Retail banking industry refers to the banking industry that provides personal financial services to the mass market – individuals or retail banking customers, henceforth also referred to as customers. Retail banking products refer to traditional financial products used by individuals such as cash accessibility, remittances, loans, deposits, investment, and related advices. These products have become commodities and the market has been opened to near-banks and non-banks providers of financial services. Branch network remains the main channel for delivering retail banking services in the Pakistan but self service technologies such as ATM Machines, Online Transactions are increasingly being used partly to meet consumer needs and partly to minimise operating costs.

Pakistani banking industry is made of different banks which are in three main categories:

Central Bank
Commercial government-owned banks
Private banks

According to State Bank of Pakistan and Finance Division every country has a central bank. The name of central bank in Pakistan is State Bank of Pakistan. The aim of this bank is not to earn profit but to regard the supreme interest of the country. It is responsible for regulating the volume of money and credit in the country. All the notes are issued by this bank. It is financial adviser to the government.

In the second category, the banks are owned by government and they do the commercial tasks which are described in the Pakistani banking rules. The Government of Pakistan owns the following banks:

1.8.1Government Owned Banks

First Women Bank Ltd
Industrial development Bank Of Pakistan
Khushhali Bank
National Bank Of Pakistan
SME Bank Limited
The Bank Of Khyber
The Bank Of Punjab
The Punjab Provincial Co-operative Bank Limited
Zarai Taraqiati Bank Limited

The third category includes the banks which obey the Pakistani banking rules but they are not owned by the government. These banks are established by a person or a group of people under the control and supervision of the central bank of Pakistan. These banks do the banking tasks which are described in the banking rules of Pakistan.

Their main aim is to earn profit. The banks accept deposits from the people and advance short, medium and long term loans to the businessmen. The commercial bank also provides a number of agency and utility services to the public.

1.8.2 Privatized Banks

The following four banks were owned by the Government of Pakistan but now they have been privatized.

Allied Bank Limited
Habib Bank Limited
MCB Bank Limited
United Bank Limited

1.8.3 Private Banks:

The following banks are the private banks of Pakistan:

Askari Commercial Bank Limited
Bank Al-Falah Limited
Bank Al Habib Limited
Bolan Bank Limited
Faysal Bank Limited
Metropolitan Bank Limited
Platinum Commercial Bank Ltd
Prime Commercial Bank Limited
Saudi Pak Commercial Bank Ltd
PICIC Commercial Bank Limited
Soneri Bank Limited
Union Bank Limited
ABN Amro Bank
Al Baraka Islamic Bank
American Express
The Bank of Tokyo Mitsubishi
CITI Bank
Credit Agricole Indo Suez
Deutsche Bank
Doha Bank
Emirates Bank
Habib Bank A. G. Zurich
Hong Kong Shangai Banking Corporation
IFIC
Mashreq Bank PJSC
Oman Bank
Rupali Bank
Standard Chartered Bank

In this research only the main commercial banks of Pakistan are considered. The customers of National Bank of Pakistan, Allied Bank Limited and Habib Bank Limited in Abbottabad region will be considered. All of these banks have some main tasks like credit activities, monetary activities such as opening different accounts, payment activities…

The National Bank of Pakistan has its headquarters in Karachi, Pakistan. It has over 1,200 branches throughout Pakistan. The bank provides both commercial and public sector banking services. It has assets worth USD 12.293 billion in 2007.

Allied Bank is located in Lahore, Punjab, Pakistan.It was established in 1942 before independence, and Allied Bank Limited is one of the largest banks in Pakistan with 735 branches connected to an online network. In August 2004 the Bank was restructured and the ownership was transferred to Ibrahim Group.

Habib Bank Limited (commonly referred to as “HBL”) , headquartered in Habib Bank Plaza, Karachi, Sindh, is the largest bank in Pakistan. The bank has a network of 1425 branches in Pakistan and 55 branches worldwide. It has a domestic market share of over 40%. It continues to dominate the commercial banking sector with a major market share in inward foreign remittances (55%) and loans to small industries, traders and farmers.

1.9 Research Area and Problem

In this competitive environment each company or bank wants to absorb the customers. This can be done both by maintenance or having new ones. So main and clever ones understand that they should work on the customer loyalty. In this research I tried to find the main determinants of the customer loyalty in banking industry of Pakistan in order to help this key industry to have a wider look for supporting their customers and finally having more loyal ones. I will consider the customers of three major banks of Pakistan (National Bank, Allied Bank and Habib Bank) due to shortage of time and money resources. In this environment naturally there are some customers who are using the banking services, and because of the similarity of the offered services by different banks, I consider the customers similar to each other.

1.10 Research Questions

The answer to the following questions will together provide us the possibility to reach the objective of this research.

Can a model for customer loyalty in banking industry of Pakistan be specified?
What factors influence the customer loyalty in banking industry in Pakistan?
What are the relationships between the factors?

In order to answer to the research questions I defined some more detailed questions such as:

Does customer satisfaction influence the loyalty of the customer in the banking industry of Pakistan?
Does customer habit influence the loyalty of the customer in the banking industry of Pakistan?
Does switching cost influence the loyalty of the customer in the banking industry of Pakistan?
Does perceived quality influence the loyalty of the customer in the banking industry of Pakistan?
Does choosing influence the loyalty of the customer in the banking industry of Pakistan?

Does trust influence the loyalty of the customer in the banking industry of Pakistan?
Does commitment influence the loyalty of the customer in the banking industry of Pakistan?

1.11 Research Hypotheses

This research attempts to determine the factors which affect customer loyalty in banking in order to make a loyalty model for Pakistani banking customers.

Therefore the following hypotheses are formulated:

Choosing influences the loyalty
Tangible Perceived Quality influences the loyalty
Intangible Perceived Quality influences the loyalty
Trust influences the loyalty
Satisfaction influences the loyalty
Switching cost influences the loyalty
Habit influences the loyalty
Commitment influences the loyalty

Structure of the Thesis

The structure of the report is outlined here. Chapter 1 introduced the background of the study and the definitions of important concepts related to customer loyalty, as well as the retail banking context. Chapter 2 presents the literature review and conceptual foundation. Chapter 3 presents the methodology and methods of the study, and Chapter 4 reports the analysis of data and findings of the study. Chapter 5 discusses the recommendations of the study and suggestions for future research are made.

Chapter 2

Literature Review

This chapter provides the reader with sufficient theory to assimilate the continuing part of this study. It will begin briefly by the concepts associated with the customer loyalty, all the factors or determinants associated with customer loyalty will be explained, then discusses why loyalty is important and finally proposes a model for determining customer loyalty in the banking sector of Pakistan, which is going to be evaluated in following chapters.

2.1 Literature Review

Why do all the decision makers talk about the customer loyalty and why it is so crucial for all business in general and banking in particular? In 2001, Bain & Company worked on a comparative analysis of different businesses on the basis of profitability vs. loyalty. The finding suggested that a business can achieve outstanding financial result by cultivating customer loyalty. Their analysis showed that a five to ten percent increase in customer retention increases profits by almost thirty to eighty five percent.

Acquiring a new customer is always expensive because it costs higher in the acquisition of a customer then in retention customers as falls it happens only with customers has they repeatedly purchase the products and services and the volume of purchases increases. The firms and do not invest much in attracting the loyal customers towards their products and services. These findings prompted business decision makers and executive to search for new innovative strategies to keep their existing customers loyal towards their products and services, and also to further increase the base of loyal customers (Darrell K. Rigby, Frederick Reichheld and Chris Dawson, 2003)

According to Ellie Trubik and Malcolm Smith, there are four major factors and attributes which identify defected customers in the banking industry. The first attribute is that the customer had a very minimal range of products out of which to choose. Usually those customers leave the bank which offer only one product or one service. Customer needs a variety of services in the banks and they prefer banks with more advance services for which can address a range of customers needs.

The second factor is that the major channel of the distribution of the services is the branch bank with fewer branches is likely to suffer customer satisfaction. Today customer needs services at his or her door step. The third factor is the service charges. If banks do not exempt fee on their services, they will surely lose a customer base. The forth attribute is quite interesting which showed that most of the customers defected on their third month with their respective banks.

2.2 Customer’s Relationship

The attachment or relationship of customer with a business has three levels. According to Berry, the first level is the financial bond, which refers to the sensitivity of price in establishing a long term relationship. The second level is the social bond, which refers to the close-ties between a customer and service staff. This friendship also makes the relationship stronger and longer in nature. The third level is the structural bond in which the seller in consent with buyer invests jointly.

The price is above all consideration. The relationship or bond is strengthened on the basis of fewer prices and more value. The customers also consider their friendships with employees or service staff as a very important factor in their decision to remain loyal with the current firm or service provider. On the basis of this decision, they keep on repurchasing the same service or to purchase additional services.

Applying this bond in the banking industry, Berry’s analysis implies that the customers bond with the bank takes place under three conditions:

Fewer prices and more value to the customer.
Friendship between customer and the bank staff
Both parties (customer and bank) decide to make joint investments and benefit from it. The customers become the shareholders of the bank by buying it shares.

However, every customer is different from one another because his needs and wants are different. A customer who has the money but lacks time tends to value low price less then convenience, freedom, friendships with banking staff and privacy. Additionally, the introduction of ATM machines and online services has made the social relationship between customer and the banks les important or insignificant.

Such customers have minimal interaction with the banks because they do not go in the banks for cash withdrawals. The interactions between a customer and his or her bank can be grouped into three types: The first type is the interaction of customer with the service provider’s technologies such as ATM machines, self –service machines and online services.

The second type of interaction occurs when the customer goes to the bank and asks for personal services and personal advices. The customer interacts with the staff of the bank and builds relationship. The third type of interaction s the combination of first two type’s .it occurs when both the customer as well as the banks representatives works in collaboration to produce, deliver and consume a bank service with use of banking technologies and physical infrastructure.

The example is when banks service representative solves a problem of the customer through the use of technologies related to information technology. Meuter et al (2000) found that almost 90 percent of complaints resulted from the failure of online technologies and self service technologies. So to resolve these complaints the hybrid interaction is used.

Ahmad (2005) also explains the existence of relationship between customers and their banks. He categorized the relationship into three bonds. The primary bond may be measured in terms of overall value of the particular basic product. It is concerned with the quality of product or service. Is quality is based on the functional characteristics of the product or service. Which refers to the minimum condition on the basis of which a customer’s decides to choose a bank and connects with his or her bank for a definite time period?

The second category is the secondary bond which is concerned with the personal relationship of the customer with his/her bank. It is least related h the quality of the service infrastructure package which means the ease with which a service is utilized by the bank. Secondary bond establishes the commitment of a customer towards his/her bank. It strengthens the primary bond. It further cements the relationship initiated in the primary bond and help in the prolongation and protection of customer- bank relationship.

Secondary bond reinforces the primary bond and it is irrelevant without the establishing of the primary bond. The dimension of the secondary bond includes the helpfulness of the service representatives, how courteous are they in providing customs with the service and solving their problems instantly. The reliability of the banking infrastructure means the banks and all of their branches should ensure error- prompt in usage and user friendly. Interface. The banks must insure trustworthiness of their services. The aims should be error free which will increase the trust of the customers. There should be no underlying meanings or features in any service. The bank representatives should explain he complete features or attributes of their services.

The banking infrastructure should be convenient to the customers. If there is more number of branches, the more convenient it will be for the customers.

The last category is the superlative bond. after the establishment of first two banks between the customer and the employees, the superlative bond creates the ultimate satisfaction which make a customer loyal towards his/her bank .it in calculates behavior due to which a customer remain committed towards the service of the bank. Even if the service are not up to the mark. These bond barriers which stops customers from switching to other banks. These barriers get so strong that the customer does not even think of switching to other banks. This bond also establishes strong affiliation with the bank and the customers also convince other people to come and join their bank. They become a part of the marketing campaign and advertise the services of the bank to their relatives and friends etc.

Secondary bond may be measured in term of friendly-typed behaviors such as politeness, trustworthiness, friendliness and understanding of service staff. The already published researches (Bitner et al., 1990; Ostrom and Iacobucci, 1999; Hurley, 2000; Keaveney, 2001) also emphasized that the friendly relation between the customers and the banks representatitives improve the outcome of the service.

The quality of banking service infrastructure and the relationship of customer with his/her bank is important for two reasons. Firstly, it would enable customers to have problem –free interaction with the advanced online technologies. The customers would be able to use the services with a lot of ease and the online services would be fast and error-free. Secondly the level of relationship between the customer and his/her bank will improve tremendously. Social interactions always will inculcate higher level of relationship. The speed of online services and efficiency of a banks computer based information system make the level of relationship more qualitative. If a customer wants any information from the banks representatives that information is retrieved through computer based system. The fast the information is retrieved, the more responsive and helpful is the impression of the representatives that is created. So the relationship is improved due to instant accessibility of the information. The delivery of the online services goes in tandem with the behavior of the banks representatives.

Moreover, an efficient, fast, reliable, error-free and easy to use information system would also facilitate and encourage a faster rate of customer adaptability to the bank which will encourage the repeated use of all the services especially the self-services IT based technologies.

So secondary bond is measured in terms of the level of user friendliness as to what level the customer is attached with the service of the bank and the convenience of the banks service infrastructure to the user as to how easily the customer can utilize the service of the bank. Satisfied and loyal customers have very strong secondary bond with their bank and they find their relationship quite enjoyable. In today’s fast faced world people love to use the online services. So most of the customers prefer to withdraw their money through ATM machines and transfer money through.

2.3 Loyalty

Loyalty is the decision of the customer to purchase from the products and services of the same brand repeatedly for longer period of time. Loyalty demands commitment and trust of the customers over the services and products of their particular companies. Loyalty in banking sector comes gradually and is of great importance. It is usually a life time decision. Once the customer become loyal to a bank, he/she will continue to purchase its services through out its life that is why it is pivotal to make customers loyal in the banking industry. The loyalty of a customer has a strong link with the satisfaction. The satisfied customers usually become loyal with the passage of time, and once they become loyal they don’t switch despite the fact that the quality of the product may not satisfy them. Even if they are dissatisfied from the quality of products and services, they remain loyal and committed.

The knowledge of the customers about the products and services leads to the satisfaction and it is explained by the posy purchase behaviors, such as repurchase intention, usage of the product, word of mouth and complaints about the quality of the product as well as services (Oliver, 1999). Past researches also reinforce this point that satisfaction is always a reliable predictor of re-purchase intentions (Lin and Wang, 2006).

Anderson and Srinivasan suggested that if a loyal customer is dissatisfied on a rare occasion he/she may not think of switching, but if the quality of the product/ service continuously comes up with complaints, he/she is likely to search for information on alternatives and will switch to a competitor wit the better level of products and services.

Feurst (1999) divides loyalty into four different types. He tries to categorize the concept of loyalty on the basis of force that opens the door towards loyal behavior. These categories show the strength of loyalty and bond between customer and his/her brand. Customers are harder to get by competitor if the grade of the loyalty is high and relationship is strong. The grades go from enforcement from the outside through different techniques to the inner commitment. The first two grades are easier to create if they are set in a tandem with the other two. The customers who are in either of the grades are quite easy for competitors to steal and churn.

The first grade is:

Forced Loyalty. The first grade is categorized by different obstacles. The obstacles can be: lack of alternatives, lack of time to search the market for the company offering bet services, monopoly the brand over its competitor, or if the change from one supplier to another proves expensive.

An example could be that you choose a bank just because it is close to your home or office geographically, even if there are other banks with superior services.

Bought Loyalty. This loyalty is bought consciously. In bought loyalty, customers receive some sort of bonus in the form of money or discount in reward of their loyalty and repeated purchase. The loyalty of customer can be because when he/she buys three of something then he/she gets fourth for free.

Sometimes banks give monetary bonuses to their loyal customers. Every bank employs different loyalty program to buy loyalty of the customers.

Practical Loyalty. This is unconscious loyalty. Customer is aware of his loyalty and chooses on routine basis without searching the market and competitors. He always uses one supplier and continues to do so without researching the market and competitors, he always uses one supplier and continue to do so without prior analysis of the market.

An example could be when customer goes to same hair dresser without thinking much.

Engaged Loyalty. This type of loyalty is subject to status, symbolic value, inner awards and social values. The customer becomes committed to the supplier on the basis pf the quality it provides. The customer thinks the supplier is providing him/her the best possible set of pleasures and quality among all the competitors.

Sodurland (2001) says that these are two main categories of loyal customers. The first category is of loyal customers. With in the loyal category there are satisfied and un-satisfied customers. The satisfaction is not an essential requirement for loyalty, so satisfied customers do not have to be loyal but there is a correlation between the satisfied customers and loyal customers.

Sometimes unsatisfied customers are also loyal due to attachment and commitment with the supplier. And satisfied customers, if lack the trust commitment and attachment with the suppliers products and services will always deflect once they find a competitor with better quality of products and services. This type of loyalty is sometimes called False Loyalty in whish unsatisfied customers remain loyal to their suppliers. The reason for this false loyalty is the factors due to which the customer feels hurdles and obstacles in his/her way, which stops him her from switching or choosing another supplier. These hurdles are called switching costs.

2.3.1 Loyalty and Retention

In today’s technologically advanced world and due to arrival of internet, it’s much more difficult to retain a customer. They have far more choices, the level of competition is high, and each supplier tries to attract customers through different packages. Within second a customer can surf the internet and can check out for better deal. The defection rates are ever on increase. A company with a seemingly impressive 80% retention rate will lose more than 60% of its customers in the next five to ten years (Kim, 2004). By retaining more and more customers, the profits increase phenomenally and costs are reduced considerably.

In a recent survey of business executives, these terms i.e., loyalty and retention are used synonymously. But if the switching behavior of customers is taken into account, then the distinction between these two terms is essential. As it was mentioned in chapter no 1, loyalty is essential intensity of customers towards sticking with or switching from their supplier and deciding to buy repeatedly from the same supplier. Loyalty can never be bought on the other hand, retention is the decision of the customer to stay with his/her current supplier. Retention is usually bought with the appropriate incentives or packages. The retention is subject to the product attributes, pecuniary switching costs, prices and internal loyalty is through customer care. The retention is also subject to advertisement strategies and the company has to of offer some sort of external incentives. When the loyalty is increased, It actually means that the retention of the customer is increasing and on a rise.

Loyalty is somewhat internal to the customer it can only be changed through a shift in the value system and thinking pattern of the customer. Retention on the other hand can be increased by the firm through the application of incentives as well as rewards. Retention can never be ensured. Satisfied customers are usually retained and they maintain their relationship with the supplier. However, whenever the level of satisfaction decreases from the expectations, the customers start churning and look for better suppliers. The concept of providing complete satisfaction to the customer incurs heavy costs and is usually not investment friendly.

Instead, a mutually beneficial relationship between the supplier and the customer has to be achieved and worked upon. This mutual “win-win” relationship considers traditional revenue and cost measures as well. It also takes into account the different cost of acquiring and retaining each customer on the basis of their internal loyalty intensity. In terms of marketing, it is always costly to attract and then acquire new customers. The cost of advertisement and developing of attractive marketing promotional campaigns incurs additional burden on economics of a company. Hence, currently it is becoming an industry-wide belief among all the business decision makers that the best marketing is to try to retain existing customers by increasing customer loyalty (Kim, 2004). Although the task of retaining a customer is also difficult but it yields more profits and ensures long term revenue generation.

To acquire new customers is always costly and as difficult in marketing terms. Hence, currently the best marketing strategy is to retain existing customers by increasing customer loyalty and customer value (Peppers and Rogers, 1995 and Reichheld, 2003). Long term business relationships result in considerable savings in costs. In banking industry, just like other businesses, the costs of attracting new customers is quite high, e.g. costs of setting new accounts for customers; costs of attracting potential customers through advertisements and aggressive marketing campaign; costs of personal selling and advertisement; costs of explaining the banking rules and procedures to the new customers; costs of orientation of the customers costs of charging minimal fee for selling up accounts etc (Berry 1995; Bendapudi and Berry 1997; Chaudhuri and Holbrook 2001). So, there is no doubt in acknowledging the importance of customer retention. It has a two-way advantage for banks. Firstly, the revenues increase through repeat purchase of the banks services throughout the life and secondly all the above mentioned costs decline to a minimal value. Thus customer retention has become a major tool for long-term success (Rust and Zahorik, 1993).

If the customers start leaving, the revenues start declining .the business decision makers must understand and know that customer defection is really important to tackle. The more the customer defection, the greater is the loss in profits. In todays globalise world, it is quite demanding to retain a customer. The customers have so many banks to choose from and each bank allures the customer with some differentiating features. The customers can defect at anytime. so, encouraging customers to stay stuff but the managers have to try hard because they know that keeping an existing customer is go more beneficial, cost effective and profitable than acquiring a new one.

2.3.2 Internal Loyalty

Loyalty indicates residences because of conveyance problems. Where as this conveyance is not an important issue in developed countries. Similarly, sometimes customers may be loyal to banks simply because they are lazy and lethargic to switch which mean there comfort – related switching cost is high. Others may decide not to switch because of the high risks or uncertainties associated with the market as well as unknown entity. Others may not switch because they do not have time to search for a better alternative. Each customer has a unique way of behaving and buying. The inherent orientation toward switching from current situation for each customer makes him/her loyal or switcher from the provider. The attitude of the individuals varies from each other as ell as it varies from commodity to commodity. The attitude does not apply uniformly over all aspects of life. An individual may have loyalist approach and intensity for a bank but defection approach for electronic appliances. It may depend on his / her attachment toward a product or service. He/she may b vary choosy and sensitive about one thing and lazy about another thing.

Kim (2004) states that internal intensity may also change gradually over time due to the life experiences and market experiences. An individual may decide to leave the provider after he/she came to know about the fraud in product or the sub standard quality of the products and services. Therefore, the companies divide the market into different segments on the basis of varying attitudes of the consumers. The product mix for each segment is according to the chunks demands and needs, but the segments are supported only if they are economically justifiable. The action of customers can also be influence through external stimuli such as product attributes, price and other pecuniary costs of communications, customer care, switching and choosing. The companies try to attract customers through such incentives or external stimuli. These incentives do help companies to achieve the desired results.

2.3.3 Customer Loyalty Objectives

The development of customer loyalty is one of the most important and current issues that are being encountered by the organizations. Businesses are attempting to create long term sustained relationship with their customers. The businesses have to satisfy the customers. Nowadays, the markets are highly concentrated and competition is increasing phenomenally, so companies need to attract the customers for long term (Gremler and Brown, 1996).Many organizations know that it is critical for their success to increase the pool of satisfied and loyal customers.

It is a widely acknowledged fact that loyalty changes over time. Garland (2002) states that loyalty gradually grows from indifference to commitment. There is a continuum that customers at the lowest level always intend to switch; they are not loyal to the provider and always look for better alternatives. The customers who are at the highest level are highly loyal and they become enthusiastic advocates of the company (Ayden and Ozer, 1995). And shaped in to conative sense and at the end the loyalty is turned into behavior and customers exhibit loyalty through actions. Organizations achieve a lot of goals by creating loyal customers’ pool. The main goal is to increase the profits of the organization. They help the organization to predict the sales and profit streams with an increased certainty level. The organizations make strategies that are long term and certain in such predictable level. The loyal customers purchase repeatedly which help to increase the production of goods and services (Gremler and Brown, 1999).

The customer loyalty does not only help in generating revenues and profits but it also helps achieve other benefits like advocating the process in which loyal customers become the advocates of the providers’ goods and services. They more likely talk about the providers’ quality of products and services.

They even recommend it to their near and dear ones like family and friends. This will help in generating new businesses and further expand the market range of the provider. Many researchers (Rust,Zahorik and Keiningham 19995;Trafimow 2000) emphasized that the share of wallet come from studies attempting to tickle down the effect from service quality programs upon the satisfaction, loyalty and profitability of the customers. This chain is termed as service-profit chain by Burnham and Mahajan in 2003.These results suggest that quality improvements help both customer acquisition and customer retention. New customers are attracted and endorsed from existing customers about quality products. Existing customers are encouraged by their banks to remain committed which will result in the higher retention and automatically lower churn rates. Such customers devote a greater share of wallet to their banks.Reichland(1996) has shown in his research that minimal increase in retention rates result in considerable effects on profitability.

In a Scandinavian banking context, Chumpitaz, Paparoidamis and Nicholas, (2004) demonstrated direct relationships between customer longevity with their main bank and share of wallet given to that bank. In New Zealand, Colgate (1999) in his study of customer satisfaction with New Zealand banks wrote that the depth of relationship with customers (the “quality” of the relationship rather than the number of relationships) was particularly important. Gummesson (1999) echoed these sentiments in the context of long-term customer relationships in general, supported by earlier work by Fomell (1992), Anderson, Fomell and Lehman (1994).

Maximization of customer loyalty is a priority for most industries. It is often stated that industries like banks need to operate on a long-term “cradle-to-grave” customer management strategy where youthful customers are recognized as being unprofitable in their earlier years but becoming profitable as they move on through the family lifecycle (Ron Garland, 2002). Concomitantly, customers can become “entangled” with their main bank to such an extent that the perceived cost of defection outweighs the benefits of shifting banking business to a new provider.Coyles and Gokey (2005), has identified that there is a relationship between customer loyalty and profitability and suggests that some customers can never be satisfied while it is unprofitable to try to satisfy others.

2.3.4 Loyalty Programs and Its Benefits

Banks employ different loyalty programs to retain the customers. Customer Loyalty Programs have developed remarkably in the era of customer retention in recent years. This is due to recent advances in information technology. They have been considered by many organizations and many of them have adapted customer loyalty programs. According to Yi and Jeon (2003) loyalty programs are introduced to build customer loyalty. Dowling and Hammond (2003) stated that customer loyalty programs offer rewards to customers in form of relationships and financial rewards. Customer loyalty programs have also been willingly embraced by customers; this is due to the benefits associated with it (O’Malley, 1998).

The importance of benefits for enticing customers into these loyalty programs and according to YI and Jeon (2003) the goal of customer loyalty programs is to create a high level of customer retention. Gilbert referred to O’Malley (1998) states that the basic idea of a loyalty scheme is to reward customers’ repeat purchasing and encourage loyalty by providing targets at which various benefits can be achieved. The longer a customer stays with an organization the more profit the customer generates (Reichheld and Sasser, 1990).This result in increasing the number of purchases by the customers.

.It was recognized by Colgate et al. (1996) and by Storbacka et al. (1994) that once the rate of defection is reduced it contributes to the sudden increase in profits whereas the impact on profit shares is not as high and considerable. The profits of organizations can increase by 100 percent through retaining 5 percent more of their customers (Reichheld and Sasser, 1990; O’Malley, 1998).

Moreover, seen from a customer perspective, loyalty scheme can be a way to decrease price sensitivity, increase brand loyalty, reduce the willingness to consider alternative brands, encourage word-of-mouth support and endorsement, attract a larger group of customers and increase the amount product bought (Daniel Jacobsen 2004).

Customer loyalty programs are assumed to create value for the customer and it is due to this value that customer loyalty programs promote loyalty. On the other hand, the degree to which customer loyalty programs offer value to customers is uncertain, mostly because customers are not equal and value will represent different things to different people and will also be different in different context (O’Malley, 1998). In order to make the value of customer loyalty programs work properly and succeed, an organization needs to understand the needs and desires of their customers. The value an organization delivers to its customers needs to be competitive in five dimensions. Seen from a customer perspective, the dimensions are: cash value (as a percentage of the proportion spends), aspiration value (how much this reward motivates a customer), relevance (the extent to which the reward is achieved), and convenience (ease of participation of the scheme), choice (the variety of rewards offered) (O’Brien and Jones, 1995).

Even though a small number of schemes today offer all dimensions of value, it is obvious that companies which want to play the rewards game should be sure that their value measures up to customers’ alternatives (O’Brien and Jones, 1995). This is most significant when customer loyalty programs are mainly used as a differentiation.

Due to the popularity and benefits derived from customer loyalty programs many corporations have adapted these schemes. Customer loyalty programs can and do build customer loyalty and corporations now realize how important loyalty is for their profitability. One of the main reasons of creating loyalty programs is to increase revenues, which can be done by either increasing purchase and usage levels and also by increasing the range of products bought. However, there are other reasons for creating loyalty programs including: to generate information, to reward loyal customers, to manipulate consumer behavior and as a defensive measure toward competitors (O’Malley, 1998).

Apart from the benefits that longevity of customers brings, research findings also suggest that the costs of customer retention activities are less than the costs of acquiring new customers. Rust and Zahorik (1993) identify the financial implications of customer retention, citing US Office of Consumer Affairs research that estimates that attracting new customers may be five times as costly as keeping existing customers.

We believe that banks use loyalty programs (Blomqvist et al, 1993; Feurst, 1999).Loyalty programs are used by the managers and decision makers of the banks to retain and put different emotional as well as economic hurdles in the ways of the customers which prevent them from switching to other banks (Feurst,1999).banks in today’s highly vulnerable and competitive industry can not even think of surviving in the long term without employing such strategies which help them in retaining customers. The programs can be on the basis of the culture, economy, and political situation, social and technological aspects of a country. The decision makers have to decide as which strategy to pursue. In western countries, the banks provide their customers with free memberships of different types such as hotel, golf club, beach resorts etc. They also allow some of their customers to go on free tours to different countries. So companies manage these loyalty programs through different measures and in this way they retain the customers and make profits through repeat purchases.

2.3.5 Involvement of the Customer

In order to implement the loyalty programs, we have to focus on the involvement of the customer. The interaction between customers and service providers is an important determinant of perceptions of service quality (DeLone and McLean. 2003). In some instances, this interaction will be largely of a transactional nature but more commonly interaction occurs within the context of an ongoing service relationship. Indeed, services marketing places considerable emphasis on the development and management of relationships with customers as a means of enhancing the quality of service delivery (Berry, 1983; Christopher et al., 1991; Anew and Binks, 1996).

Those relationships are seen as being of particular importance in situations in which the service is long term in nature, when customers are heavily dependent on credence qualities in service evaluation and where perceived risk in high (Farquahar, 2004). Furthermore, building effective and successful relationships can contribute significantly to customer satisfaction, loyalty, retention and thus to improved performance (Reichheld and Sasser, 1993; Rust and Zahorik, 1993). These all reduce the churn process.

A handsome amount of customers in a survey by CRMGuru in 2006 said that defection occurs due to lack of importance the compnies give to their customers. The customers think that in today’s competitive market, the ultimate authority lies with the customer who is always the boss of the provider’s specifications. In banking industry every customer is to be taken care of. When they come in the banks, they should be thought as a part of the bank. Their complaints must be handled with minimum of delays and maximum of ease. There should be an effective way of dealing with the queries of the customers. The grievances are to be curtained. In such environment, the customers would feel themselves important which will increase the level of loyalty. The acknowledgement of their thoughts and innovative ideas has to be considered. This will decrease defection phenomenally (Anderson, 1999).The greater the level of participation, the lesser are the defection rates.

2.3.6 Offensive and Defensive Strategies

Companies’ relationship to their customers can be divided into two separate business strategies, offensive and defensive. The offensive strategy is also termed as proactive strategy in which companies try to capture new markets and concentrate on the acquisition of new potential customers whose defection chances are higher than others. The defensive strategy is a reactive strategy in which businesses try to retain their current pool of customers because of intense completion and limited capital. Traditionally companies devoted more resources to acquire new customers but today most companies apply a combination of both offensive and defensive strategies. Defensive strategies are pursued when the brand is to be protected from highly competitive market and it increases the barriers for the customers which force them not to switch because of the high concentration up on a single segment of the market (Caruana, 2002).

2.4 Quality

A concept which is very closely related with satisfaction and loyalty is perceived quality, and the differences between these have not always been very clearly defined. They have been used on occasion in an indistinguishable 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. However in circumstances where there is little available information or where quality evaluation is difficult, price can be an indicator of quality. In this sense, Spreng and Mackoy (1996), starting from Oliver’s (1997, 1999) conceptual model of service quality and service satisfaction, concluded that these constructs are distinct and have different determinants. Service quality has been found to have a profound input on customer satisfaction and loyalty as a whole and is defined as the result of the comparison that customers makebetween their expectations about a service and their perception of the way the service has been performed (Parasuraman et al., referred to in Caruana, 2002).

According to Caruana (2002), the concept of service quality has several dimensions. Out of these dimensions there are two dimensions which are of great concern to the companies and their decision makers. The first one is the technical aspects of the quality which refers to the details of delivery process of the quality. How easily is the customer gain access to the qualitative aspects of the product or service of the concerned providers? The other aspect is the end result of the deliverance process. These aspects invoke psychological as well as behavioral aspects of the customers. The behaviors of the customers are shaped on the basis of the tasks performance of the service providers, the easy accessibility of the providers and the way these services are performed.

The service industry should focus more and more on the quality of their services. In banking industry it is indeed very difficulty to access the qualitative aspects of the services because of the intangibility of the services. The banks provide their customers with error free services and also handle the complaints of the customers with minimum of difficulties and maximum of ease (Grönroos, 2002). The more time will it take to resolve a problem or complaint of the customer, the poorer will be the level of the services which will result in the dissatisfaction and ultimately the customer churns from the current service provider. The banks have reanalyzed that they can not survive without the proper imposition of excellent quality of their services. A customer feels satisfied when he uses the services with no error and instant response (Carman, 1990).

A major factor which defines quality is the instant action of the complaint handling and other queries handling. If a customer starts feeling himself a part of the bank, that is the point where the actual quality is delivered. The employees of the bank have to be courteous and should pay special attention to their customers whenever they interact with each other. Similarly the tangible part of the quality can be the interest rate being bestowed to the customers (Zeithaml, 1988). The better is the interest rate the better is the level of quality which leads to better retention of customers and a highly involved and loyal customer. The banks should also facilitate their customers with modern looking equipment and easy to interact services. The online services should be used with easy to use interfaces and minimum of clicks. If a customer requires utilizing any services, those services are to be accessed with minimum of clicks and time on the internet (Gustavsson, Lundgren, 2005).

These are the attributes which differentiate one service provider from another. The attributes of quality are considered by every provider. Without this qualitative aspect, the companies start liquidating and suffer losses. The companies have to get the instant access to all the information from different sources to improve the level of quality (Hansemark & Albinsson, 2004; Dodds, 1991). Some banks take feedback from the customers about the areas where better quality can be provided to the customers. Such feedbacks help the companies and their decision maker to understand the deficiencies and upgrade the system with better level of quality and better retention strategies (Jacob, 2005).

The quality should be traded off with price and cost. It is to be decided by the decision makers as to what aspect to be included. If extra feature is added to enhance the quality, that feature must correspond with the price and required profit margins (Hallowel, 1996). Those features are added which require minimum of resources and efforts while generate maximum of satisfaction and loyalty among customers (Aydin&Ozer, 2005).

2.5 Customer Satisfaction

Dissatisfaction usually occurs when the pricing issues are not suiting the needs of the customers. In banking industry also, the interest rates on loans and charges on the usage of online services such as ATM machines and the processing fee is a major bone of contention between the bank and its customers. If the customer thinks that the charges are more than the needs he churns. Satisfaction only results when the banks take regular feedback from the customers and whatever practical is told to them by the customers should also be implemented with in the banks. In case if the suggestions of customers are not taken into account, it will gradually start the process of defection (Lin, 2003).

Kotler (2000) says:

“Satisfaction is a person’s feeling of pleasure or disappointment resulting from comparing a product’s perceived performance (or outcome) in relation to his or her expectations “.

Yi (1990) believes that:

“Customer satisfaction is a collective outcome of perception, evaluation and psychological reactions to the consumption experience with a product/service”.

The customer initially tries to compromise with the bank but at a certain point he decides to defect. Nowadays, it has become too easy to open an account in any other bank so the switching cost is also minimal. These all factors help customers to switch from the current bank. The response of customer plays a pivot role in the overall satisfaction graph of the provider. If a customer is satisfied, the loyalty injects automatically and the customer remains with the current providers for a longer and longer period of time (Giese and Cote; 2000).

2.6 Switching Cost

As defined by Jones et al (2000), a switching barrier is any factor that makes it difficult or costly for customers to change providers.

Another brand loyalty determinant is known as switching costs, which can be defined as the technical, financial or psychological factors which make it difficult or expensive for a customer to change brand (Selnes, 1993).

Whenever a customer decides to switch from one brand to another, the cost involved in this shifting process is known as switching cost. This cost involves the level of uncertainty involved in new provider’s products and services (Porter, 1998). In case of banking industry, the consumer decides to switch when the level of services is not up to expectations and the desired needs are not fulfilled. The consumer has to decide whether the new bank to which he is going has the minimum level of uncertainty. The customers usually churn when they realize that the banks do not take care of their needs and wants. Switching from one bank to another requires a lot of effort and customers have to gain complete knowledge about the new service providers as to what services are they providing; whether the services are reliable or not; whether the online services are error free (Jones, Beatty, Mothersbaugh, 2002).

The decision to switch causes major behavioral transformations because every brand has a different positioning concept in the market. Some companies are known for their superior quality, others for their cheap prices and so on. So when a customer switches from a company with high quality product and service to cheap product, he switches to a different concept (Aydin and Ozer, 2005). Every bank tries its level best to break the customers of its competitors. For this reason, the banks are trying to introduce customer friendly environment and nowadays the opening of new account has become too easy and user friendly. The banks almost charge very minimal fee for the opening of account and gives access to online services charge less (Selnes, 1993).

The world is moving at a very fast pace. Consumers have limited time to analyze the market and switch from their current providers. The firms keep on adopting new and innovative strategies to attract new customers (Kon, 2004). In telecommunication services, the companies charge nothing for a new potential customer and sometimes give them bonuses on starting new connection. There are some customers who never switch despite the fact that they are not satisfied with the products and services and the overall quality dimensions (Wernerfelt, 1991; Selnes, 1993; Klemperer, 1995; Ruyter et al., 1996; Anto´n Martı´n et al., 1998).

On the other hand there is another category of customers who switch the moment they see a lack of quality and other traits’ deficiencies. Most of the customers initially try to compromise on some of the loop holes in the standards and switch when they decide that enough is enough and the required level of quality is not there (Jackson, 1985). The firms do not concentrate on the first type of customers. They will never switch so the firms do not employ any strategy to gain access of such customers. It is the third category on which the firms concentrate the most. This group is called the potential churners and the firms have to devise different strategies to attract these customers (Lauren and Lin, 2003).

The customers usually switch when they are persistently not getting the desired level of performance and standard from their providers. The consumers will always think of switching when the pricing strategies do not match their demands. If the company is charging more and giving low quality the customer switches (Aydin and Ozer, 2005; Sharma and Patterson, 2000). If the customer does not switch even then he is a potential defector and the competitors start working on such customers. It is very difficult to retain customers. For retention, the firms keep on employing different programs and make customers a part of their organizations (Aydin and Ozer, 2005; Sharma et al., 1997).

It is indeed a tough work to for the banks to attract such customers who will likely switch. Every bank tries to attract such customers towards its services. At this time the overall image of the brand matters the most (Klemperer, 1995). If the bank is renowned for its services and quality that bank will always be chosen because satisfaction yields from quality and trust. The trust is never developed over night. It takes blood of the firms and especially banks to build their good will and positive image. Once the require level of image is created, that is the time when the banks start attracting new customers who switch from other banks due to poor quality of services (A. Jones, L. Mothersbaugh et al. 2000).

The banks try to put barriers for their potential defectors. The barriers can be non refundable processing fee and block of services and incurring extra charges when the money is withdrawn from the bank on permanent basis. The banks will employ a combination of defensive and offensive strategies to gain access of all the customers which include the potential customers and the churners who are fed up from the services and their qualities. The firms who take in to account such factors are always successful not only in the short run but also in the longer term (Lee and Feick, 2001).

The banks are facing fierce competition nowadays. In developed countries, each bank comes up with attractive packages for its customers. The chances of defection are minimal in today’s highly competitive industry. So it is imperative to maintain a handsome base of customers who can prove to be a permanent source of revenue generation and who can help the firms in handling pressures. These customers become very important in the moment of crisis. The customers repeatedly purchase the services which help the firms to carry on their day to day operations. In this way it is really important for the banks to retain customers. These traits are presented by every bank but very few know the actual trick of retaining customers. In highly vulnerable industry it is not only about retaining customers but also about attracting new pools of customers by employing different marketing campaigns and strategies(Aydin and Ozer, 2005; Shy, 2002).

The last resort for today’s banks in view of Kon (2004) is to put maximum barriers in the way of those customers who might switch or think of switching in future due to drop in the standard or due to a better alternative with excellent level of services and products. The decision makers then employ only those strategies which help them to reinforce their current customers and help to give a deep understanding of the needs and wants of their current customers.

Switching barriers make customer defection difficult or costly and include interpersonal relationships, perceived switching costs, and the attractiveness of alternatives(A. Jones, L. Mothersbaugh et al. 2000).Barriers to customer defection, such as development of strong interpersonal relationships or imposition of switching costs, represent additional retention strategies. Such barriers are important because they may generally foster greater retention and because they may help companies weather short-term fluctuations in service quality that might otherwise result in defection (A. Jones, L. Mothersbaugh et al. 2000). Another stream suggests that simply having less knowledge can influence evaluation. Consumers commonly make decisions with incomplete knowledge about alternatives (Kivetz and Simonson 2000).

2.7 Choosing

In the relationship existing between the different factors and loyalty, the degree of elaboration which is followed in the decision-making process can have a moderating influence. Elaboration is a construct based on the 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. (Beerli, Quintana, Martin, 2004)

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 the perceived distinction between different brands is important.

2.8 Habit

The satisfaction is yet another important trait which must be taken in to account when shaping the overall loyalty of the customers towards their service providers. In banks, the customers ask themselves about the level of the services and decide about the lack of importance given to them and decides about repurchase behavior after using the services. The level of satisfaction is always high when the customer gives minimum price and gets maximum of usage and profit (Jamal and Kamal, 2004). If a customer buys some product and the post purchase scenario forces him to quit the current provider then it means the customer was highly dissatisfied from the level of quality and service provided to him. A satisfied customer is the one whose needs are taken in to consideration. In today’s world, the business managers not only have to think about satisfying customers in terms of products and their basic features but they have to give extra features as well which can differentiate their products and services from the other providers and which can give some extra pleasures to the customers (Egan, 2004). The banks try to put barriers for their potential defectors. The barriers can be non refundable processing fee and block of services and incurring extra charges when the money is withdrawn from the bank on permanent basis. The banks will employ a combination of defensive and offensive strategies to gain access of all the customers which include the potential customers and the churners who are fed up from the services and their qualities. The firms who take in to account such factors are always successful not only in the short run but also in the longer term (Lee and Feick, 2001).

As a result, there are numerous works in marketing which have attempted to explain the relationships between loyalty and the various variables regarded as determinants, the most significant 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; Oliver, 1999).

2.9 Trust

Trust has been defined as the willingness to rely on an exchange partner in whom one has confidence (Moorman et al. 1992) or confidence in an exchange partner’s reliability and integrity (Morgan and Hunt 1994). Chaudhuri and Holbrook (2001:82) define brand trust as the customer’s willingness to rely on the ability of the brand to perform its stated function. Trust causes dedication because it reduces the costs of negotiating agreements (Williamson 1981; Bendapudi and Berry 1997) and lessens customers’ fear of opportunistic behaviour by the service provider (Bendapudi and Berry 1997). In social psychology trust is considered to consist of two elements: trust in the partner’s honesty, and trust in the partner’s benevolence (Wetzels et al. 1998). Honesty is the belief that a partner stands by his word, while benevolence is the belief that the partner is interested in the customer’s welfare, and will not take actions with negative impact on the customer.

2.10 Commitment

2.11 Model

As it is mentioned in the introduction chapter, the goal of this research is finding the factors of customer loyalty for banking industry of Pakistan. In order to do this, the previous studies were reviewed.

According to (Beerli, Martin and Quintana, 2004) the factors which have influenced the customer loyalty in banking industry have been selected which are perceived quality, satisfaction and switching cost and choosing. Also more models in this category were reviewed to see whether there are more factors that can be considered in banking industry or not (Lin and Wang, 2006; Lauren and Lin, 2003, etc). So the loyalty model for other industries was considered in the reviewing of the literature. And finally according to (Lin and Wang, 2006) another factor which was mentioned in that loyalty model and could be considered in banking industry, which is habit is selected and added to the list. Also in the main model the authors didn’t mention the choosing factor in the model, but I also try to consider this item and find its relation.

Tangible Perceived Quality, Intangible Perceived Quality, Satisfaction, Trust, Switching Cost, Habit and Choosing are the factors which I have selected for my research after analyzing the cultural and socio economic situation of Pakistan. My proposed model has seven factors which is different from the already published works of (Beerli, Martin and Quintana, 2004) and (Lin and Wang, 2006; Lauren and Lin, 2003).

The original model of banking industry is mentioned in figure 1.

Figure 1: Loyalty Model (Beerli, Martin and Quintana, 2004)

Chapter 3

Methodology

In this chapter, the outline of the methodology that is used in the research and the theoretical basis behind the approach and their definitions will be explained. The choices of methodology approaches that were adapted in order to answer the research questions posed will be explained and justified.

The data collection methods will also be discussed in this chapter. After mentioning the research purpose, according to (Saunders et al., 2000)’s research process onion, the first layer raises the question of the research philosophy. The second layer considers the subject of the research approach that flows from our research philosophy. Thirdly, the research strategy will be examined and the fourth layer is about time horizons which are applied to the research. In the fifth layer data collection method will be identified, and then the validity and reliability of the research will be explained.

3.1 Research Purpose

The purpose of research is a statement of what is to be accomplished by conducting research and how the results of the research can be used (Weidersheim et. al., 2000).

According to (Saunders et al., 2000) enquiries can be classified in terms of their purposes as well as the research strategy which is used (Robson, 1993).

There are three categories; one of them is often used:

Exploratory study: This category is trying to find out “what is happening; to seek new insights; to ask questions and to assess phenomena in a new light” (Robson, 1993).It is particularly a useful approach if you wish to clarify your understanding of a problem and it is suitable when the researcher is uncertain which theories are relevant and when important characteristics and relations are difficult to determine.
Descriptive study: A descriptive research approach is appropriate when the

problem is well structured, when the researcher knows what knowledge it aims to collect, and where there is no intend to look for the cause and effect relationships (Weidersheim et. al., 2000).

The object of descriptive studies is “to portray an accurate profile of persons, events or situations” (Robson, 1993). The objective with this kind of research is to describe something, such as a population or a phenomenon. It seeks to answer who, what, where, and how questions. Consequently, it doesn’t give the answer to why questions, in other words, it doesn’t give the explanation of the cause of findings.

Explanatory study: It is a study that establishes causal relationships between variables. The emphasis here is on studying a situation or a problem in order to explain the

relationships between variables (Saunders, et. al., 2003). Explanatory studies are designed to test whether one event causes another (Hair, Babin, Money & Samouel 2003). According to Yin (2003), the objective with this kind of research is to analyze cause-effect relationship, explaining what cause produces what effects.

It establishes causal relationships between variables. In these studies the emphasis is on studying a situation or a problem in order to explain the relationships between variables.

The purpose of this thesis is to find out the main determinants of customer loyalty and then evaluate and validate the proposed model in the Pakistan’s Banking Industry. Five of the determinants of in the studied model which are satisfaction, perceived quality, switching cost, choosing and habit have been considered in literature and previous theories and the influencers of loyalty, and two of them, commitment and trust, are going to be added to the studied model.

Based on this description and the mentioned types of research purpose this can be figured out that the purpose of this research is descriptive. As we know what we want to investigate but we are not sure about the answers, we have chosen descriptive research. Also because the relationship between the variables is going to be discovered, it is also explanatory.

3.2 Research Philosophy

According to (Saunders et al., 2000), there are two research processes which dominate the literature:

Positivism
Phenomenology

Positivism approach was influenced by the scientific discoveries made during the 18^th and 19^th centuries. It seemed clear at that time that the body of knowledge existed independently of whether people knew it or not, and the scientific task was to discover this knowledge. It was assumed that there are laws that manage the operation of the social world and these can be discovered. Social behavior is seen as a result of external pressure acting on relatively passive people. It was assumed that there was such a thing as absolute truth and that it could be used (once obtained) to create a better society. This research tradition leads to the development of methods that concentrate on producing supposedly objective data, usually in the form of statistics.

The assumption is that “the researcher is independent of and neither affects nor is affected by the subject of the research”.

Phenomenologists deny what positivists assert, that humans can be studied using the same philosophical base as used in studying physical objects or other animals. Phenomenologists assert that there is a difference between the subject matter of sociology and natural science. Humans are active, conscious beings and they can make choices.

It is important to consider that there is no research approach “better” than another, they are “better” at doing different things. Lots of researches are a mixture of two philosophies (Saunders et al.,2000).In this research, in order to find the factors of the customer loyalty model in banking industry in Pakistan, positivism is the philosophy .

3.3 Research Approach

Research approach includes both a theoretical and methodological approach. The theoretical approach can be either inductive or deductive, and methodological approach is qualitative or quantitative (Zikmund, 2000). The deductive approach implies that a conclusion is derived from a known premise or something known to be true. In this kind of research the researcher starts from a general rule and explains a specific case (Zikmund, 2000).

The research approach is deductive when a theory and the hypothesis (or hypotheses) are developed and a research strategy is designed to test the hypothesis. When applying a deductive approach already established theories and literature are used as a foundation for the research in, 1994). Several hypotheses are constituted from existing theory and are then tested in reality (Weidersheim et. al., 2000).

On the other hand, induction means generalization from conclusions derived from a specific case or when the data is collected and the theory is developed as a result of the data analysis. The deductive approach owes more to positivism and inductive approach more to phenomenology, although it is believed that such labeling is potentially misleading and of no practical value (Saunders et al., 2000).

This research is deductive since the research starts with a literature overview which later is compared with the empirical findings and the main idea is drawn form already existing theories within the research area and then the hypotheses are developed and then the research strategy is designed.

Quantitative research implies hard data, like information on profits gained and order size, and is often presented as numbers that will determine the quantity or extent of some phenomena. The purpose of this kind is to gather, analyze and measure statistical data.

The researchers have in advance constructed questions, which give the researchers a high degree of control (Yin, 1994).A wide sample selection is normally used and the questions asked are generally not of a complex nature and close-ended. In most of exploratory researches the data collected is qualitative and on the other hand in descriptive ones the data is quantitative.

In this study, a lot of data has been collected by distributing questionnaires. All of this data was numerical and as a result the methodological research approach in his thesis is quantitative.

3.4 Research Strategy

Research strategy is a general plan of how to answer the research questions that have been set. It deals with the strategy that is appropriate for the research question(s) and objectives be chosen (Saunders et al., 2000).Saunders et al. (2000) explained that the research strategy is employed as follow:

Experiment: The purpose with the experiment study is to help formulate the problem and clarify concepts, rather than develop conclusive evidence (Zikmund, 2000).It involves the definition of theoretical hypothesis, selection of samples and allocation of them to different experimental conditions, introduction of planned changes, measurement on some variables and control of other variables.

Survey: Survey method is a popular and common strategy in business research. Surveys allow the collection of a large amount of data from a sizeable population in a highly economical way. Based mostly on the questionnaires, the data are standardized and allow easy comparison. It is also easily understood.

There can be limited number of questions. Another threat is that the questionnaires might be answered not completely by the respondents. There are also other data collection devices that belong to the survey category such as structure observations and structured interviews where standardized questions are asked from all interviewees. Questions “what” and “how” tend to be more the concern of the survey method.

Case study: Saunders et al. (2000) define case study as the development of detailed, intensive knowledge about a single case, or a small number of related cases. This strategy is of particular interest when the purpose is to gain a rich understanding of the context of the research and the processes being enacted. This is beneficial when the researcher wishes to gain a deeper understanding of the concept of research (Robson, 1993).The information collection methods might differ between case studies. Case study can be a very worthwhile way of exploring a theory. The case study approach has considerable ability to generate answers to the questions “why” as well as “what” and “how”.

Grounded theory: Grounded theory is often thought of the best example of the inductive approach. It is better to think of it as a combination of induction and deduction. In grounded theory data collection starts without the formation of an initial theoretical framework. Theory is developed from the data generated by series of observations. These data lead to the generation of predictions that are then tested in further observations.

Action Research: Action research is the part of the organization within which the research and the changing process are taking place. So action research differs from other forms of applied research because of its explicit focus on action, in particular promoting change within the organization.

In this research, survey method is employed to have an analysis on the model of customer loyalty in banking industry of Pakistan. The research approach is deductive and quantitative; survey would be a good choice. In order to find the factors and also the relationship between these factors, a questionnaire is designed. For doing so the factors of models which were mentioned in the literature review are used. Because one of those models is for e-commerce industry, I had to check the factors to see whether they are appropriate for banking in Pakistan or not.

So I had a discussion with some experts in banking industry to show them the factors which were going to be used in the new model. After the discussion all of the considered factors were accepted. after finalizing the factors the questionnaire of those researches were combined together, then among those questions some had little changes, some were eliminated, some were added and the rest were not changed. Then a complete translated questionnaire was ready.

3.5 Time Horizon

(Saunders et al., 2000) believes that most research projects undertaken for academic courses are necessarily time constrained. When planning for the research there are two options in the time perspective:

Cross -sectional: a study in which a group(s) of individuals are composed into one large sample and studied at only a single point of time.
Longitudinal: a study in which an individual or a group of individuals is observed over a period of time.

In this research cross -sectional study is performed.

3.6 Data Collection Method

The gathering of data may range from a simple observation at one location to an extravagant survey of multinational corporations at sites in different parts of the world. The method of research can determine how the data are collected. Questionnaires, standardized tests, observational forms, laboratory notes, and instrument calibration logs are among the devices used to recover raw data (cooper and Schindler, 2003).Saunders, etc. al. (2000) explains that when gathering data and information to meet the objectives of the research questions, there are two options to face, primary and secondary data.

Kotler &Armstrong (1994) declare that secondary data is information collected from former existing studies and literatures, gathered for another purpose. They continue to explain that the main advantage of this data compared to primary data is that it is fairly inexpensive. In this study the information can be obtained from books, articles and research reports. Because no previous data and documents were available for this thesis, and the data is gathered only for the problem at hand, the type of data which is going to be used here is primary. Also for collecting data there are different ways. Yin (1994) calls them source of evidence. A few examples are: interviews, observations, literature study, etc.

After validating the model, in order to apply it in the Pakistani Banking Industry, a questionnaire was designed and distributed among the studied sample. So the method employed to gather primary data was through questionnaires. The sampling frame for any probability sample is a complete list of all cases in the population from which your sample will be drawn (Saunders et al., 2000).As the research questions in this study concern bank customers, so the sampling frame is a complete list of all banking customers in Pakistan.

While employing all probability samples, it is very important to consider the response rate. According to (Saunders et al.,2000), response rates in business surveys are usually as low as 15-20 percent for postal surveys and also response rate of between 50 to 92 percent for questionnaire surveys and of 73 to 99 percent for telephone interviews.

Therefore I asked the customer in my sample population to fill the questionnaires. Those who didn’t want to participate mentioned the lack of time was the reason. The response rate in this research performing the above method of data gathering was calculated as 93 percent and this is because the questionnaires were given one by one and face to face.

3.7 Sample Selection

There are two major alternatives on how to select an appropriate sample: random (probability) and non-random (non-probability) sampling. The random sampling gives every part of population an equal probability of selection. The non-probability sampling includes a selection of a sample on other basis than the random sampling, such as convenience and personal judgment (Zikmund, 2000).The random sampling technique was used in this thesis when all the members of the population had same chance to be selected and no specific characteristic more than being a customer of the bank, was considered while selecting them.

3.8 Collecting Primary data using questionnaire

Primary data is collected for a specific purpose by the researcher and the information is gathered for instance through interviews, questionnaires and observations (Weidersheim et. al., 1997). (Saunders et al., 2000) note that the greatest use of questionnaires is made by the survey strategy. Questionnaires can therefore be used for descriptive research, such as that undertaken using attitude and opinion questionnaires and questionnaires of organizational practices will enable you to identify and describe the variability in different phenomena.

3.9 Questionnaire Design

Because of the reasons mentioned above I used a self-administered questionnaire method for collecting the primary data. More importantly replicated a study that had been done in Taiwan by (Lin and Wang, 2006) and in Spain by (Beerli, Martin, Quintana, 2004)’s questionnaire and in Iran by (Golrou Abdollahi, 2007).

Hence in this research I combine those three questionnaires and added some more to them.

First the duplicated questions were omitted. Then because of the different environment between the banking industry of Pakistan and other countries, questions had to be checked to see whether they needed localization changes or not. Some of the questions were edited for this reason. And a few questions were added to some of the factors.

(Salant and Dillman, 1994) argue that, to achieve a response rate as high as possible, you need to explain clearly and concisely why you want the respondent to complete the survey on the first page. Regarding this issue a covering letter was provided for the first page. The questions in the questionnaire tried to find the factors of customer loyalty in Pakistan. The above opinions were measured by requesting respondents to indicate, on a five-point Likert-type scales, anchored on “1 = to a very little extent” through “5 = to a very great extent”, their agreement or disagreement with a series of statements that characterize the factors for loyalty model of the customers in banking industry in Pakistan.

Likert scales were developed in 1932 as the familiar five-point bipolar response format most people are familiar with today. These scales always ask people to what extent they agree or disagree with something, approve or disapprove something and believe something to be true or false. There’s really no wrong way to do a Likert scale, the most important thing is to at least have five response categories (Likert, 1932).The questionnaire also contained some personal questions to reach to some contextual sense of the answers collected such as name, age, position, etc.

A total of 350 questionnaires were distributed among the respondents out of which I got 316 filled questionnaires. The response rate was 93% which was quite high.

3.10 Research Credibility

When researchers research they must take the two concepts of validity and reliability into consideration. A research must have high validity, meaning that a research must measure what it is suppose to measure. The reliability must also be high, meaning that a research has to be done in a reliable way. There is a relation between these two concepts, and therefore researchers must take both concepts into consideration and they cannot focus only on one of them (Saunders et al, 2003).

According to (Saunders et al., 2000) reducing the possibility of getting the wrong answer means that attention has to be paid to two particular points in the research design:

Reliability
Validity

3.10.1 Reliability

Reliability means that the research is performed in a reliable way. This is how well the measuring method resists different influences. If the reliability is high, different researchers will be able to come to the same conclusions with the same measuring methods, if the research would be repeated. (Denscombe, 1998).This is about the results of each investigation, which have to be reliable. If nothing changes in a population between two investigations for the same purpose, it is reliable.

As we dispensed the questionnaires during the exhibitions we really did not face the subject error. For reducing the subject bias, we tried to make the respondents certain that their answers would be considered confidential. Since the questionnaire was designed as a survey format, we did not face the observer error or the observer bias.

A minimum (Cronbach, 1951)’s Alpha value of 0.7 indicates reliability of the questionnaire. In my research all the factors and their individual questions have very high reliability.

3.10.2 Validity

According to Denscombe (1998) “validity is about to what extent researched data and the methods to receive this data are exact, real and accurate.” (p. 238). Widersheim-Paul and Eriksson (2001) claims that validity is the most important requirement of a measuring tool since this will show the accuracy of the found data.

Validity is concerned with whether the findings are really about what they appear to be about (Saunders et al., 2000).

If a question can be misunderstood, the information is said to be of low validity. In order to avoid low validity, I myself administered most of the questionnaires and explained each question thoroughly to the respondent. In addition, questionnaires were given to the respondents face-to-face, so that if they faced any difficulties while filling out the questionnaire, the ambiguity could be explained.

Chapter 4

Analysis

In this chapter I will present the result of the statistical analysis. I have used SPSS software to analyze the data. Then after analyzing the data, some suggestions will also be given according to the results.

4.1 General Information

At the start of the questionnaire. I asked for some general information from the respondents (Table 2).According to the results, the most active bank customers are the ones between 35 to 50 and most of the respondents are having the bachelor’s degree. The results also show that most of the respondents have official occupation. An interesting information that the results show is that a large number of customers are male. This could be because of male dominant society of Pakistan, in general and Abbottabad, in particular and also due to the fact that males usually are the caretakers of the family’s financial matters.

Table 1: General Information about the respondents

Gender Female	86%
Male	14%
Age Under 20	4%
20-35	32%
35-50	48%
50-60	9%
Over 60	7%
Education Under SSC	11%
Under HSSC	14%
Bachelor	51%
Master and higher	24%
Occupation Employee	60%
Businessman	27%
Unemployed	8%
Student	5%

The general information also shows that the majority of the customers have their accounts in the banks for a period of more than three years and less than five years. So, it is very important to make these customers loyal to the bank for longer periods.

4.2 Analysis of the factors

Quality

Customer loyalty is mainly shaped by the quality of the service or products, thus quality plays a pivotal role in determining the loyalty of the customers. The customers can think of giving up the loyalty on serious grounds if they perceive quality in negative terms. The quality of the services can further be divided into two categories.

a) Tangible Perceived Quality

The tangible perceived quality is the quality which can be seen by the customers. The customers perceive the tangibility of the services provided by the bank such as the appearance and outlook of bank employees, equipment and the interest rates. The tangible perceived quality questions are as follows:

Table 2: Tangible Perceived Questions

Do you agree that the received interest from the bank is effective to continue my work with this bank?Do you agree that the bank has modern-looking equipment?Do you agree this bank’s facilities are attractive and modern? (Such as ATM Machines, telephone banking, internet…)Do you agree this bank’s employees are tidy in appearance?Do you agree materials associated with the services are visually clean, tidy, intact, and enough? (Such as pen, chair…)Do you agree the opening hours of the bank are convenient to you?Do you agree your needs and interests are considered in the bank’s services?Do you use this bank because all of its services are available in the branch?Was my problem resolved on the first contact to customer representative or was additional customer representative contacts required?Are customer representatives knowledgeable?

The Cronbach’s alpha, which was gained from these questions after running the questionnaire in the SPSS, were 0.818 which was a high one. This means that the reliability of the questions was high and also the validity as well. Variable’s validity determines the extent to which a scale measures a variable of interest.

The table 3 shows the mean and the standard deviations of the questions answered by the customer. The mean column shows the average answers given to the questions. As I have used five point liker methods and by considering that “1” responds to very little extent and “5” to a very large extent. I have asked the customers for their agreement to each question. The following table shows the mean and standard deviation results.

Table 3: Tangible Perceived Quality Mean and Standard Deviation Result

	Mean	Std. Deviation
TPQ1	3.22	.75
TPQ2	3.45	.80
TPQ3	3.30	.71
TPQ4	3.49	.88
TPQ5	3.11	.77
TPQ6	3.70	.73
TPQ7	3.27	.80
TPQ8	3.76	.71
TPQ9 TPQ10	3.12 3.50	.64 .85

In tangible perceived quality, the customers felt particularly strong about the eighth question. There are ten questions in tangible perceived quality category. The customers agree to a great extent that they use bank because all of it’s services are available in the branch. The customers felt weak about the fifth as well as ninth question with mean of 3.11 and 3.12 respectively.

Variance and standard deviation show the spread ness of the answers. If we have a high average mean number and also high variance, it doesn’t mean that the questions have been answered properly. There was some problem in the questions, and we have to find the reason of the problem. On the other hand, a low variance is a good symptom.

Table 4: Tangible Perceived Quality average result

Tangible Quality Category	Mean
Item Means	3.395
Item Variances	.596

The inter-item correlation between these questions is as follows:

Table 5: Tangible Perceived Quality Inter-Item Correlation Matrix

	TPQ1	TPQ2	TPQ3	TPQ4	TPQ5	TPQ6	TPQ7	TPQ8	TPQ9	TPQ10
TPQ1	1.000	.243	.863	.217	.816	.241	.921	.221	.746	.145
TPQ2	.243	1.000	.231	.253	.270	.285	.206	.280	.120	.168
TPQ3	.863	.231	1.000	.188	.780	.171	.798	.148	.615	.101
TPQ4	.217	.253	.188	1.000	.135	.151	.157	.135	.177	.120
TPQ5	.816	.270	.780	.135	1.000	.208	.757	.200	.620	.174
TPQ6	.241	.285	.171	.151	.208	1.000	.180	.948	.245	.009
TPQ7	.921	.206	.798	.157	.757	.180	1.000	.155	.689	.136
TPQ8	.221	.280	.148	.135	.200	.948	.155	1.000	.234	.008
TPQ9	.746	.120	.615	.177	.620	.245	.689	.234	1.000	.147
TPQ10	.145	.168	.101	.120	.174	.009	.136	.008	.147	1.000

b) Intangible Perceived Quality

Intangible quality is the unseen perceived quality of the product or service. The product is equal to the service in the service sector, so in banking industry, the quality of the services is analyzed by the customers. The customers are asked different questions about the intangibility of the services.

The intangible perceived quality category has eight questions in total. The table shows the questions for the customers.

Table 6: Intangible Perceived Quality Questions

Do you agree this bank insists on providing the services error free?Do you agree this bank provides its services at the time it promises to do so?Do you agree the bank employees are fast enough in providing the services?Do you agree employees of this bank are always willing to help you to overcome the problems?Do you agree the behavior of employees of this bank instills confidence in customers?Do you agree employees of this bank are constantly courteous to you?Do you agree employees of the bank pay special attention to you?Do banks value people and relationships ahead of short-term goals?

The Cronbach’s alpha which is used to check the reliability and validity of the questions, was gained from these right questions. The Cronbach’s alpha for intangible perceived quality category were 0.816 which was a very high one. This means that the questions about intangible perceived quality were reliable and also valid.

The following table shows the average of means and also variances of the questions. The average item means was 3.612 which shows that the customers agreed to almost great extent with the fact that the banks are providing them with the desired level of intangible quality in their services. The overall unseen quality of services of the bank is on the stronger side. The item variances of the intangible perceived quality category was 0.615 and a low variance is always a good symptom. This low variance shows that the questions were designed in such a way that most of the customers understand it in the same way.

Table 7: Intangible Perceived Quality Average Result

Intangible Quality Category	Mean
Item Means	3.612
Item Variances	.615

The following table shows the standard deviations and means of the questions which were answered by the customers.

Table 8: Intangible Perceived Quality Mean and Std. Deviation Result

	Mean	Std. Deviation
IPQ1	3.55	.83
IPQ2	3.57	.75
IPQ3	3.46	.94
IPQ4	3.65	.77
IPQ5	3.61	.74
IPQ6	3.66	.78
IPQ7	3.17	1.17
IPQ8	3.63	.87

In intangible perceived quality category the customers felt particularly strong about the sixth and fourth questions with an average of 3.66 and 3.65 respectively. The customers do not feel strong enough about the employees of the bank as they do not pay special attention to them whenever they are stuck with any problem.

The inter-item correlation between these questions is as follows:

Table 9: Intangible Perceived Quality Inter-Item Correlation Matrix

	IPQ1	IPQ2	IPQ3	IPQ4	IPQ5	IPQ6	IPQ7	IPQ8
IPQ1	1.000	.539	.278	.318	.268	.162	.061	.102
IPQ2	.539	1.000	.408	.359	.358	.293	.187	.073
IPQ3	.278	.408	1.000	.615	.416	.413	.326	.141
IPQ4	.318	.359	.615	1.000	.680	.510	.450	.266
IPQ5	.268	.358	.416	.680	1.000	.695	.599	.254
IPQ6	.162	.293	.413	.510	.695	1.000	.893	.278
IPQ7	.061	.187	.326	.450	.599	.893	1.000	.257
IPQ8	.102	.073	.141	.266	.254	.278	.257	1.000

Trust

As it was mentioned in chapter 2, and as every person, at least has felt this feeling once, all can agree that trust has a major role in being loyal to a brand or company.

Trust plays a pivotal role in making a customer loyal especially in Pakistani environment; trust on the services of the bank is always a major priority of the customers. The customers want error free and transparent services such as ATM services, leasing services, credit card services etc. ‘Loyalty’ and ‘trust’ are related concepts: while banks want loyal customers, the consumers want trustworthy banks. If consumers feel that their bank is trustworthy, they respond with trust and perhaps loyalty. If trust is threatened, e.g. by unreasonable bank conditions, loyalty could disappear. Some would claim, though, that true loyalty is to continue buying a product even after disappointing incidents.

The trust on the services of the bank in this research is measured by nine questions.

Table 10: Trust Questions

Do you agree this bank informed me of its side services from the beginning?Do you agree the bank insists on error-free records?Do you agree employees of this bank solve your problems when they promise to do so?Do you trust the bank and its ATM Services?Based on my experience with the bank in the past, I know it is not opportunistic.Based on my experience with the bank in the past, I know it cares about customers.Based on my experience with the bank in the past, I know it delivers what it promises in its advertisements and it is honest.I feel secure when I use products and services of the bank because I know that the bank will never let me down and will never cheat me.The bank provides me with reliable and worthwhile (value formoney) product and services?

The test for reliability of thes3e questions was done and the result of Cronbach’s alpha is 0.947 which is high one and shows that the questions were chosen properly and they are reliable. Then the mean and variances of the items in the trust category is calculated. The following table shows the mean and the standard deviations of the questions which are answered by the customers.

Table 11: Trust Mean and Std. Deviation Result

	Mean	Std. Deviation
T1	3.57	.75
T2	3.55	.73
T3	3.45	.71
T4	3.64	.73
T5	3.86	.82
T6	3.67	.79
T7	3.60	.73
T8	3.65	.75
T9	3.58	.74

It seems that most of the customers agreed to a great extent to the fact that their experiences reveal that the banks are not opportunistic at all and the banks do really care for them. However a little concern of the customers is that the employees do not necessarily solve their problems when they promise to do so and when they make commitment.

The following table is about the average of the mean and variances.

Table 12: Trust Average Result

Trust Category	Mean
Item Means	3.628
Item Variances	.562

The variances of the questions in the trust category is 0.562 which is a good symptom because low variance shows that the customers have understood the questions in the same way. The average answers of the question is 3.628 which shows that the customers agree to above average extent with the fact that the banks in which they have the accounts, are trustworthy in providing them with error free and transparent services.

The inter-item correlation between these questions is as follows:

Table 13: Trust Inter-Item Correlation Matrix

	T1	T2	T3	T4	T5	T6	T7	T8	T9
T1	1.000	.490	.482	.475	.202	.377	.457	.456	.466
T2	.490	1.000	.909	.931	.406	.842	.955	.907	.973
T3	.482	.909	1.000	.846	.351	.767	.867	.825	.885
T4	.475	.931	.846	1.000	.388	.782	.902	.872	.909
T5	.202	.406	.351	.388	1.000	.326	.433	.350	.381
T6	.377	.842	.767	.782	.326	1.000	.842	.783	.806
T7	.457	.955	.867	.902	.433	.842	1.000	.902	.911
T8	.456	.907	.825	.872	.350	.783	.902	1.000	.870
T9	.466	.973	.885	.909	.381	.806	.911	.870	1.000

Switching Cost

Switching cost means the price paid by the customers for moving from one company or brand and choosing another. The price includes both the internal and external price. The previous researchers show that there are always some barriers for the customers in defection time, so they don’t feel that it is simple to switch from one company to another. 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.

The customers find it difficult to switch from one bank to another due to different reasons or barriers. Barriers to customer defection, such as development of strong interpersonal relationships or imposition of switching costs, represent additional retention strategies. Such barriers are important because they may generally foster greater retention and because they may help companies weather short-term fluctuations in service quality that might otherwise result in defection.

This factor is analyzed using five questions. The following table shows the questions through which the customers switching cost is analyzed.

Table 14: Switching Cost Questions

Change to another bank involves investing time in searching for information about other banksChange to another bank involves much effort in deciding which other bank to use.Change to another bank involves a risk and uncertainty in choosing which might turn Out not to satisfy me. It would cost me a lot of money to switch from my bank to another bank.It would cost me a lot of time to switch from my bank to another bank.

The reliability of these questions was calculated by SPSS software and the Cronbach’s alpha was found to be 0.841 which is good to conclude that the questions are reliable as well as valid in the switching cost category.

Then the mean and standard deviation of each question is shown.

Table 15: Switching Cost Mean and Std. Deviation

	Mean	Std. Deviation
SC1	3.42	.77
SC2	3.12	1.15
SC3	3.00	1.10
SC4	3.02	.99
SC5	3.40	.85

The table shows that the first question has the maximum mean. The customers agree to a great extent that it requires investing a lot of time in order to switch from one bank to another. The customers would require time to find out the information about the other alternative banks and their services.

Switching does not require a lot of money investment initially and the customers do not consider it a major barrier in churning. The respondents think that even switching may turn out not to satisfy them at the end and this uncertain situation will further complicate the problems as well as their satisfaction status.

Then the average of the variance and the mean of all the questions in the switching cost category are shown in the following table.

Table 16: Switching Cost Average Result

Switching Cost Category	Mean
Item Means	3.486
Item Variances	.666

The switching cost category’s item means is 3.486 which shows that the customers agree to an average extent that the switching cost of the bank is considerably high enough. So, most of the customers do not switch from one bank to another because they consider the barriers too high and effective.

The switching cost item variances are .666 which is quite low and shows that the customers have understood the questions in a common way.

The inter-item correlation between these questions is as follows:

Table 17: Switching Cost Inter-Item Correlation Matrix

	SC1	SC2	SC3	SC4	SC5
SC1	1.000	.893	.386	.607	.818
SC2	.893	1.000	.298	.531	.732
SC3	.386	.298	1.000	.212	.347
SC4	.607	.531	.212	1.000	.504
SC5	.818	.732	.347	.504	1.000

Satisfaction

Satisfaction in banking industry means that the product or service which is offered to the customer makes him/her satisfied and meets his/her expectations. Customer satisfaction is another determinant of customer loyalty. In the highly competitive business world of today, customer satisfaction can be seen as the substantial of success, as customer satisfaction can lead to customer retention and therefore to profitability for an organization.

The customers would love to buy the services from the same bank again and again. In the competitive environment which the competitors are trying to have the other’s customers, this determinant can be vital. By this, the company can gain more profit. The direct monetary profit and the indirect one which can be for example advertising by word-of-mouth process or etc can be the means of profit gaining.

This factor in this research is measured by eight questions given in table 19, and the test for reliability of these questions was done. The Cronbach’s alpha is 0.883 which is a good one and shows that the questions were chosen properly and they are reliable.

Table 18: Satisfaction Questions

Do you agree this bank meets my needs? Do you agree the bank I deal with is far from my expectations of an ideal bank? According to my experiences, am I satisfied with this bank? In comparison to other banks, do I consider this bank and its services successful?Do your banks take your feedback regularly? Are you satisfied with the way complaints are handled?Are you satisfied with the online services and their promptness?Are you satisfied with the pricing issues (Margins on loans, charges on ATM and other online services)?

To check whether these eight questions are showing one common thing, which is the satisfaction, factor analysis was done. The extraction communalities are estimates of the variance in each variable accounted for by the components. The communalities for satisfaction factor are all high, which indicates that the extracted components represent the variables well. If any communalities are very low in a principal components extraction, you may need to extract another component.

The table below shows the mean and the variance of the questions which are answered by the customer.

Table 19: Satisfaction Mean and Std. Deviation Result

	Mean	Std. Deviation
S1	3.84	.85
S2	3.02	1.05
S3	3.95	.83
S4	3.85	.86
S5	2.64	1.04
S6	3.59	.69
S7	3.94	.87
S8	2.99	1.04

The customers felt particularly strong about the third and seventh question with the mean of 3.95 and 3.94 respectively. This means, most of the customers are satisfied with the services of the banks and their needs are being taken care of by the banks. The fifth question has the least mean of 2.64 which highlights an important issue that the feedback about the services of the bank is not taken regularly by the customers.

The average of the means and variances is as below:

Table 20: Satisfaction Average Result

Satisfaction	Mean
Item Means Item Variances	3.517 .837

The item means of 3.517 shows that the customers agreed to a great extent to the point that the banks are fulfilling their needs and they are satisfied from the services of the banks.

The inter-item correlation between these questions is as follows:

Table 21: Satisfaction Inter-Item Correlation Matrix

	S1	S2	S3	S4	S5	S6	S7	S8
S1	1.000	.318	.822	.963	.281	.553	.848	.294
S2	.318	1.000	.264	.296	.888	.319	.267	.980
S3	.822	.264	1.000	.788	.237	.420	.765	.243
S4	.963	.296	.788	1.000	.262	.543	.838	.273
S5	.281	.888	.237	.262	1.000	.306	.222	.870
S6	.553	.319	.420	.543	.306	1.000	.429	.298
S7	.848	.267	.765	.838	.222	.429	1.000	.247
S8	.294	.980	.243	.273	.870	.298	.247	1.000

Choosing

Choosing has an important role to play in the loyalty of a customer. This variable will find out what role does choosing power plays in making a customer loyal or churn. If the customer chooses a bank after a careful analysis of different banks and considering some of the crucial factors then obviously his or her loyalty towards that particular bank will be quite strong because of his/her efforts in choosing the right bank. When a customer decides to choose a company for getting some sort of services, for example a bank to have the financial services, if the selection of that target company is done by considering some factors, then being loyal to that company in the future is more possible and probable.

The questionnaire has four questions which represent this category. The table 23 enlists the questions related to the choosing category.

Table 22: Choosing Questions

Before choosing a bank do I consider its advantages and disadvantages? The decision which I make for choosing a bank for the first time is very important? Before choosing a bank, do I compare it with other banks? Before choosing a bank, have you taken input from others (Parents, Relatives and Friends)?

The reliability of this factor was calculated through SPSS which was 0.897 showing that the questions were reliable as well as valid.

The means and standard deviations of these four questions of choosing category are shown in the following table.

Table 23: Choosing Mean and Std. Deviation Result

	Mean	Std. Deviation
CH1	3.67	.91
CH2	3.29	.88
CH3	3.50	.865
CH4	3.40	.93

The results show that the customers consider the advantages and disadvantages of a bank while choosing. The customers analyze the merits of the services of the banks and compare it other banks and finally select or chooses a bank. The lowest mean is of question number 2 which shows the decision of choosing bank is not as important in the first instance.

The average of the means and the variance of the questions of the choosing factor are given in table 24.

Table 24: Choosing Average Result

Choosing	Mean
Item Means	3.466
Item Variances	.808

The inter-item correlation between these questions is as follows:

Table 25: Choosing Inter-Item Correlation Matrix

	CH1	CH2	CH3	CH4
CH1	1.000	.499	.768	.678
CH2	.499	1.000	.665	.615
CH3	.768	.665	1.000	.892
CH4	.678	.615	.892	1.000

4.2.6 Habit

Habit is an important factor in repeat purchases and becoming loyal. I visit some of the websites out of habit. Gradually habits turn in to permanent behaviors. Once a behavior has become a habit, or a well-practiced behavior, it becomes automatic and is carried out without conscious decision. The researchers have found that habit can directly affect behavioral intentions more than attitude and social norms. It is a fact of life that the force of habit still dictates many behavioral intentions, when people have gained experience.

Six questions in my research has described this all important factor. These are:

Table 26: Habit Questions

Do I use this bank because my family also uses it? Do I use this bank because I am admitted as a member of this bank by my office or family?Do I use this bank because it is near my office or home?Do I use this bank because it has many branches?Do I use this bank because this is the first bank which I used its services?Am I used to using of the services of this bank?

The Cronbach’s alpha which was gained from the respondents’ answer was 0.769.Although this was the lowest of all the other factors but even then it is above 0.70 which is the standard. So the questions are reliable and valid.

The table 27 shows the results of mean and Std. Deviation of the questions which are related to the habit.

Table 27: Habit Mean and Std. Deviation

	Mean	Std. Deviation
H1	3.07	.965
H2	3.20	.913
H3	3.26	.963
H4	3.32	.985
H5	2.96	.739
H6	3.32	.944

The fourth and sixth question has the highest mean. The fifth question has the lowest mean and standard deviation which states, the customers do not agree to a considerable extent that they became habitual after initially using the services. The average of means and variance is as follows:

Table 28: Habit Average Result

Habit	Mean
Item Means	3.186
Item Variances	0.850

The inter-item correlation between these questions is as follows:

Table 29: Tangible Perceived Quality Inter-Item Correlation Matrix

	HB1	HB2	HB3	HB4	HB5	HB6
HB1	1.000	.042	.031	.022	-.120	-.009
HB2	.042	1.000	.944	.868	.025	.808
HB3	.031	.944	1.000	.829	.039	.786
HB4	.022	.868	.829	1.000	.030	.685
HB5	-.120	.025	.039	.030	1.000	.055
HB6	-.009	.808	.786	.685	.055	1.000

4.2.7 Commitment

Commitment is a desire to maintain a relationship as well as a pledge of continuity with the bank. This factor is explained with the help of six questions. Firstly, the factor analysis was done to check the relation of the questions with the factor. The communalities for commitment factor are all high, which indicates that the extracted components represent the variables well. If any communalities are very low in a principal components extraction, you may need to extract another component. The table 31 presents the six questions of commitment.

Table 30: Commitment Questions

1. My preference for this bank would not willingly change. 2. It would be difficult to change my beliefs about this bank. 3. Even if close friends recommended another bank, I would not change my preference for this bank 4. To change my preference from this bank would require major rethinking? 5. My intention to use the services of this bank would not be changed. 6. Would I always use this bank’s services?

The reliability of the commitment was 0.937 which is quite high. So the questions are reliable and valid. The means and standard deviations of each question was also calculated and the result is shown in table 32.These means show the average response of all the respondents for a given question.

Table 31: Commitment Mean and Std. Deviation

	Mean	Std. Deviation
CMT1	3.72	.881
CMT2	3.80	.904
CMT3	3.55	.930
CMT4	3.66	.935
CMT5	3.56	.956
CMT6	3.67	.967

The result shows that the highest mean is 3.80 of question 1 and the lowest mean is 3.55 of question 3.The highest standard deviation is of question 6 and the lowest standard deviation is of question 1.The customers felt strongly about almost all the questions of commitment. They agree to recommend their respective banks to others and are determined that no one can change their commitment and preference towards their own banks. Even if the banks fail to meet some of their demands, they will continue their relationship with the banks.

The average of the means and variances for the commitment category questions is as follows:

Table 32: Commitment Average Result

Commitment	Mean
Item Means	3.662
Item Variances	0.863

The item means of 3.662 shows the customers are committed to continue their relationship with their own banks even if minor problems exist in the services of the banks. To change their commitment from a bank will require a major flaw in the service.

The inter-item correlation between these questions is as follows:

Table 33: Commitment Inter-Item Correlation Matrix

	CMT1	CMT2	CMT3	CMT4	CMT5	CMT6
CMT1	1.000	.830	.696	.832	.685	.812
CMT2	.830	1.000	.628	.820	.666	.771
CMT3	.696	.628	1.000	.614	.654	.639
CMT4	.832	.820	.614	1.000	.600	.867
CMT5	.685	.666	.654	.600	1.000	.606
CMT6	.812	.771	.639	.867	.606	1.000

4.2.8 Loyalty

All of the factors which are mentioned above are designed to identify the customer’s loyalty in banking industry in order to create a model in the Pakistani industry. To do so, in addition to the elements which were designed and discussed above, some questions are trying to show the loyalty factor directly. There are four questions in this category which are showing one common factor i.e. loyalty. The following table enlists these four questions representing the Loyalty category.

Table 34: Loyalty Questions

Would I always recommend my bank to the others?Am I a loyal customer to this bank?I intend to keep purchasing products/services from this bank.Will you continue relationship with this bank even if it is unable to meet some Of your needs?

The Cronbach’s alpha was 0.873 which gives evidence of the reliability and the validity of the data. This is the dependent variable of my research and all other factors are trying to find and identify the customer’s loyalty in the banking sector of Pakistan. Through these four questions, the direct response of customers about the loyalty is measured.

The means and standard deviations are as follows:

Table 35: Loyalty Mean and Std. Deviation Result

	Mean	Std. Deviation
LOY1	3.58	.967
LOY2	3.46	.996
LOY3	3.62	.909
LOY4	3.28	.972

The third question has the highest mean and the customers have shown their strong willingness to continue buying the products and service of their respective banks. The fourth question has the least mean which states that the customers may think to switch the bank if it is unable to meet some of their basic demands and needs.

The average of means and variances is then given in the table 36.

Table 36: Loyalty Average Result

Commitment	Mean
Item Means	3.486
Item Variances	0.925

The inter-item correlation between these questions is as follows:

Table 37: Loyalty Inter-Item Correlation Matrix

	LOY1	LOY2	LOY3	LOY4
LOY1	1.000	.829	.967	.408
LOY2	.829	1.000	.812	.376
LOY3	.967	.812	1.000	.421
LOY4	.408	.376	.421	1.000

4.3 Discriminate Validity of the factors

The validity determines the extent to which a scale measures a variable of interest. In this research, I have conducted a principal components factor analysis with varimax rotation to investigate the distinctions among Tangible Perceived Quality, Intangible Perceived Quality, Trust, Satisfaction, Habit, Switching Cost, Choosing, Commitment and Loyalty. As shown in Table 39, the nine factors emerged with no cross-factor loadings above 0.5, indicating good discriminant validity. These results confirm that each of the nine factors is unidimensional and factorially distinct and that all items used to operationalize a particular determinant is loaded onto a single factor. The research has nine factors in total with one dependent factor and eight independent factors which are determining their effect on the dependent factor i.e. Loyalty. The table 38 shows the result of Principal Component Extraction.

Table 38. Factor Analysis Results: Principal Component Extraction

Items	Extraction
TPQ1	.941
TPQ2	.591
TPQ3	.833
TPQ4	.624
TPQ5	.799
TPQ6	.944
TPQ7	.876
TPQ8	.936
TPQ9	.695
TPQ10	.589
IPQ1	.600
IPQ2	.898
IPQ3	.660
IPQ4	.717
IPQ5	.727
IPQ6	.865
IPQ7	.802
IPQ8	.535
T1	.898
T2	.970
T3	.884
T4	.890
T5	.521
T6	.825
T7	.928
T8	.862
T9	.924
SC1	.918
SC2	.836
SC3	.591
SC4	.582
SC5	.807
S1	.949
S2	.965
S3	.805
S4	.924
S5	.897
S6	.733
S7	.842
S8	.956
CH1	.716
CH2	.649
CH3	.893
CH4	.864
HB1	.581
HB2	.951
HB3	.922
HB4	.833
HB5	.786
HB6	.787
CMT1	.849
CMT2	.791
CMT3	.615
CMT4	.829
CMT5	.579
CMT6	.813
LOY1	.807
LOY2	.665
LOY3	.819
LOY4	.695

4.4 Correlation between factors

I have discussed each factor and the questions which identified these factors in detail, the relationship between questions in each factor through inter-item correlation matrices, the reliability of each factor, the validity of each factor, now it’s time to analyze the correlation and relationship between the elements of the model. The Correlations procedure computes the pair wise associations for a set of variables and displays the results in a matrix. It is useful for determining the strength and direction of the association between two variables.

The correlation matrix between different factors is shown in table 39.

Table 39: Correlation Result

	LOY	TPQ	IPQ	T	SC	S	CH	HB	CMT
LOY	1	.516	.474	.254	.376	.741	.315	.127	.563
TPQ	.516	1	.673	.303	.291	.608	.285	.152	.200
IPQ	.474	.673	1	.207	.258	.400	.283	.166	.550
T	.254	.303	.207	1	.171	.125	.081	.091	.405
SC	.376	.291	.258	.171	1	.035	.142(*)	.364	.162
S	.741	.608	.405	.125	.035	1	.223	.205	.127
CH	.315	.285	.283	.081	.142(*)	.223	1	.143	.197
HB	.127	.152	.166	.091	.364	.205	.143	1	.110
CMT	.563	.200	.550	.405	.162	.127	.197	.110	1

Correlation is significant at the 0.05 level (2-tailed).

By looking at the correlation matrix between the factors we can understand that satisfaction is the most correlated element with loyalty. The correlation of 0.741 between these two factors shows that a little change in the satisfaction has a major influence on the loyalty of the customer towards his/her bank. the managers must meet the basic needs of the customers to make them satisfied such as the prompt and error free services and pricing issues(margins on loans, charges on usage of ATM services).once the customer is satisfied, the chances of his/her becoming loyal to the bank increases considerably.

The next factor which is more important is the commitment. The correlation between commitment and loyalty is 0.563 which shows that the highly committed customers are always loyal to the bank. The next factor which is more important is the tangible perceived quality with a correlation of 0.516 which shows a strong relationship with loyalty.

The managers should emphasize on the quality factors such as the availability of modern looking equipment and services and ensure that all the services of the bank are present in every branch. By giving the seen aspects of quality to the customer, the loyalty can be increased.

The next factor is intangible perceived quality. The managers should focus on the provision of error free services and train their employees to pay special attention to each customer and treat them courteously. By treating the customer well, the managers can make them loyal to their banks.

These are the most important factors which show strong correlation with the loyalty. The rest of the factors are also correlated but not as much as the satisfaction, commitment, tangible perceived quality and intangible perceived quality.

Then we analyze the correlation of each factor with other factors. The tangible perceived quality is most correlated with the satisfaction factor and least correlated with trust factor. So for having more satisfied customers, tangible perceived quality factors are more important to be considered by the banks. If the banks are successful in increasing the tangible quality of the services, they also become successful in increasing the number of satisfied customers. Intangible perceived quality has a good correlation with commitment and satisfaction. This means by providing error free services and paying special attention to the queries of the customers, the commitment of the customers can be increased. The highly committed customers are those who received high standard of intangible quality of services provided by the banks. The rest are also correlated with intangible quality but the effect is not as much as the effect of these two factors.

In trust column, the commitment factor is more correlated than the others. This means that when a customer is committed to a bank, his/her trust on the bank is increased more and more. Trust on the services of the banks is also increased depending on the standard of the tangibility provided by banks in their services. So changes in commitment or tangibility cause changes in the trust of the customer on the bank. The switching cost factor is most correlated with the habit factor. This means that when the customers are habitual in using the services of the bank, they do not switch easily from their bank. The more habitual the customers are, the higher the number of the barriers in switching from one bank to another bank. So habitual customers are usually not churners.

The choosing factor shows that loyalty, tangible perceived quality, intangible perceived quality and satisfaction are more correlated with this factor. This means that for choosing a bank as the service provider, quality factors and satisfaction can have a main role.

The habit factor has strong correlation with the switching cost and satisfaction as well. The commitment factor has strong correlation with intangible perceived quality and trust factor. This means that the highly committed customers trust the services of the bank more than the customers who are not committed to the bank. The correlation of all the factor with each other has been discussed which is given in the table 40.

4.5 Factors’ Relationship

The factors which influence the loyalty factor in this model are:

Tangible quality
Intangible quality
Satisfaction
Choosing
Trust
Switching Cost
Habit
Commitment.

Some of the factors also influence the others. The relations were explained completely in previous parts.

So the primary hypotheses are shown in figure 2.

Figure 2: Primary Hypotheses

The final hypotheses which were considered in the research are as below:

Choosing influences the loyalty
Tangible Perceived Quality influences the loyalty
Intangible Perceived Quality influences the loyalty
Trust influences the loyalty
Satisfaction influences the loyalty
Switching cost influences the loyalty
Habit influences the loyalty
Commitment influences the loyalty

According to the above explanation, the hypotheses of the research are all approved (explained in previous parts). Also some more hypotheses were found in the analysis and explained in the previous part. They are as below:

H9: Trust will positively affect commitment.

H10: Tangible perceived quality influences satisfaction.

H11: Intangible perceived quality influences satisfaction.

H12: Tangible perceived quality influences habit

H13: Intangible perceived quality influences habit

H14: Intangible perceived quality influences choosing.

H15: Tangible perceived quality influences choosing.

H16: Intangible perceived quality influences switching cost

H17: Tangible perceived quality influences switching cost

H18: Intangible perceived quality influences commitment

H19: Tangible perceived quality influences commitment

H20: Satisfaction will positively affect commitment.

H21: Choosing will positively affect satisfaction.

H22: Tangible perceived quality influences trust

The complete relationships among different factors of customer loyalty in the banking industry of Pakistan are presented in the figure 3.

Figure 3: Factors’ Relations

The hypothesized relationships were tested using the multiple regression analysis of SPSS. The average scores of the items representing each of the nine factors were used in the data analysis. The R2 was used to assess the model’s overall predictive fit. Properties of the causal paths, including standardized path coefficients, t-values, and variance explained for each equation in the hypothesized model are presented in Figure 5. In hypotheses H1, H2, H3, H4, H5, H6, H7 and H8 we investigate the influence of choosing, tangible perceived quality, intangible perceived quality, trust, satisfaction, switching cost, habit and commitment on loyalty.

As expected, choosing (β=0.196, t-value=3.033, p<0.01), tangible perceived quality (β =0.263, t-value=3.078, p<0.001) and intangible perceived quality (β =0.487, t-value=8.891, p<0.001) had a strong positive influence on the loyalty. Similarly, trust (β=0.293, t- value=3.367, p<0.001) and satisfaction (β=0.418, t-value=5.948, p<0.001) had a significant positive effect on the loyalty. The results of switching cost (β =0.114, t-value=2.592, p<0.001), habit (β =0.186, t-value=2.925, p<0.001) and commitment (β =0.215, t-value=3.011, p<0.001) also show that these factors have a positive strong influence on loyalty. Therefore, hypotheses H1, H2, H3, H4, H5, H6, H7 and H8 were supported. We found that the proposed model explained a significant percentage of variance in loyalty (R²=79.9%, F-value=84.571, p<0.001).It means that about 80 percent of the variance in loyalty was accounted for by trust, satisfaction, tangible perceived quality, intangible perceived quality, choosing, habit, switching cost and commitment. According to the path coefficients, intangible perceived quality and satisfaction exhibited the strongest direct effect on loyalty.

Hypotheses H9, H10, and H11 examine the paths from trust to commitment, tangible perceived quality to satisfaction and intangible perceived quality to satisfaction. Trust (β =0.325, t-value=4.370, p<0.001) had a significant positive effect on commitment. The tangible perceived quality (β =0.181, t-value=2.393, p<0.001) as well as intangible perceived quality (β =0.165, t-value=2.179, p<0.001) also had a significant positive effect on the satisfaction thus supporting the hypotheses. The tangible perceived quality had no significant influence on the habit (β=0.071, t-value=1.579, p=0.068) at the 0.05 level. Similarly, intangible quality also had no substantial influence on the habit (β =0.097, t-value=1.823, p=0.073). Thus, hypotheses H12 and hypothesis H13 were rejected whereas hypotheses H9, H10 and H11 were supported by the results.H14 and H15 examine the paths from intangible quality to choosing and tangible quality to choosing respectively. The intangible perceived quality (β =0.273, t-value=3.913, p<0.001) and tangible perceived quality (β =0.251, t-value=3.801, p<0.001) show a positive significant influence on choosing. So the hypotheses H14 and H15 were supported by the path coefficients and t-values. The influence of intangible and tangible quality on switching cost was (β =0.110, t-value=2.02, p<0.001) and (β =0.142, t-value=2.152, p<0.001) respectively which showed the support of the hypotheses H16 and H17.The hypotheses H18 and H19 are about the influence of these two factors on commitment. The intangible quality (β =0.401, t-value=5.720, p<0.001) and tangible quality (β =0.343, t-value=4.171, p<0.001) effect on commitment is strong and positive. Hence, H18 and H19 are also supported.

The results showed an interesting fact according to which the satisfaction (β =0.213, t-value=2.617, p<0.001) had a significant and substantial influence on commitment. On the other hand, choosing(β =0.195, t-value=2.321, p<0.001) had a positive influence on satisfaction thus supporting H21.The influence of tangible perceived quality on trust was not strong as t value was 1.034 and p value was 0.065 which is not significant, so hypothesis H22 was rejected.

The analysis shows that satisfaction has a link with loyalty. This link is very strong, and it shows that if the bank managers want to make the customers loyal, they should have some special strategies to satisfy the customer. A satisfied customer never takes the risk of changing or moving to other competitors.

So, managers should always consider the needs of the customers. The loyalty comes in the customers once their stated as well as unstated needs are fulfilled by the managers of the banks. It can be the current needs or the ones which could be desired in the future. The unstated needs can be the future needs of the customers. The point is, the managers should not only think of few basic needs of the customers. They should focus on providing extra pleasures to their customers.

This means that the managers should have a team which can estimate the future requirements by having the fast movement in the world and technology, specially in the developing countries like Pakistan, this movement could be a little faster, so the research team of the banks should consider the environment and by having the focus on the culture requirements estimate the future needs of the customer. The next link which is going to be explained is habit. Habit also has a relationship with loyalty. The t-value of the analysis for this relationship is more than 2, and this shows that this relation ship exists.

When a customer stays with a bank to have some sort of services, it can have two reasons. First this customer is really satisfied with the current services and the next reason could be the habitual behavior. It means that some sort of reasons is related to the factor Habit. Some of the most important habitual reasons are measured in this research like the family influence, or the distance which can make a customer find the habit of using a special bank services. In finding the loyal customer, this category also can be considered. But it is not as serious as the satisfied customers.

The customer managers should find this category and to minimize the risk of defecting of these customers, they can find a way to change this group of customers to satisfied ones. By doing this, the number of loyal customers is not changed at the moment but the number of satisfied ones and also the number of future loyal customers is changed.

The next link which is valid, and its t-value is greater than 2 is the link between switching cost and loyalty. By analyzing the answers of the three questions of this part, the relationship between the loyalty of the customer and the switching cost can be explained as below:

When a customer is not sure about the new bank which might be chosen, it makes him/her not move simply and suddenly. He or she thinks that should spend more time in order to be able to make a good decision. This process makes the customer stay more with the current bank, because he/she considers the risk of not being satisfied with the new bank and tries to think more about switching. By doing so, staying with the bank for a longer time is more possible than choosing a new one carelessly.

The next factor that has a valid relationship with loyalty is choosing. In this factor when a customer tries to find a new bank for having financial transactions, he or she tries to compare the different banks with each other. And at last the best one will be found (almost it is in his/her point of view), so because of the effort that the customer puts for selecting the bank, he/she would be more satisfied with the services of the new bank. In long time, this can make a long-term relationship, and the customer who tries to compare the banks and select the proper one would be more satisfied and loyal. By this explanation, the link between choosing and satisfaction becomes clear.

So the managers of the banks can give this permission to the banking industry’s customers to have some sort of clear information about the services and also about the bank itself. Choosing can have a big role in making a new customer a loyal one.

The next factors which are going to be discussed are the quality factors. As I mentioned in the previous parts, in the main model, the researchers analyze the quality as one factor. But by having a deeper look at this element, I found that it could be separated into two factors, and I decided to measure them separately and find each one’s relation with loyalty. The first category is about tangible qualities. This means the feasible perceived quality in the branches or wherever the customer has the services, fore example, the beauty or the neatness of the materials, has influence on the loyalty of the customer. It is important for the customer to have the financial services in a tidy way. Also the other element that affects this factor is the advertisements and the interest for the customers’ investments.

Intangible factor is about the infeasible quality .It also can be named as behavioral quality, like the respectfulness of the bank’s staffs. This factor has also an important relationship with the loyalty of the customer. Both of these factors got the valid t-value in the analysis, but in comparison the tangible quality has a greater coefficient with loyalty. This shows that the viable perceived quality has a greater role in making a customer loyal or defector.

The bank managers should focus their strategies on offering the financial services with considering these two factors. Also these two factors have influence on the satisfaction of the customer. It means that by providing a better service, banks can make their customers more satisfied. At the next step, they can make them loyal. As the analysis shows, these two factors have influence on loyalty and satisfaction.

Quality factors have also influence on switching cost. It means that when a customer receives a good quality (tangible or intangible),his/her expectations of the banking services increase, so at the switching time, he wants to get more in the other new banks, and this makes the movement not simple.

Quality factors have relationship with choosing. When a bank is offering the financial services in a qualified way, and the customer perceived quality (tangible or intangible) is high, at choosing time, he/she wants to compare the new bank’s services with perceived one. This can also influence the new customers’ choosing decisions. Also managers can advertise on the customer perceived quality by having some researches on it and representing the results to the public. Quality factors have relationship with habit. This is because when a customer gets a good service quality, this remains in his mind and when needed he is likely to go to the same place.

Chapter 5

Conclusion

This chapter will provide an overall conclusion to my research findings. In the first chapter we developed some hypotheses as well as research questions, now is the time to get answers of theses research questions. After giving answers to the research questions, the conclusion will be presented and the final model for the customer loyalty in the banking industry of Pakistan will be revealed. Then the limitations of the research along with the areas for further research will be mentioned.

5.1 Research Questions and their Answers

As it was mentioned in the previous part, the analysis of the data shows the different links which have been explained previously. The hypothesized relationships were tested using the multiple regression analysis of SPSS. In the introduction chapter some research questions were mentioned and I bring them again here:

Can a model for customer loyalty in banking industry of Pakistan be specified?
What factors influence the customer loyalty in banking industry in Pakistan?
What are the relationships between the factors?

In order to answer to the research questions I, defined some more detailed questions which are as below:

Does customer satisfaction influence the loyalty of the customer in the banking industry of Pakistan?
Does customer habit influence the loyalty of the customer in the banking industry of Pakistan?
Does switching cost influence the loyalty of the customer in the banking industry of Pakistan?
Does perceived quality influence the loyalty of the customer in the banking industry of Pakistan?
Does choosing influence the loyalty of the customer in the banking industry of Pakistan?
Does trust influence the loyalty of the customer in the banking industry of Pakistan?
Does commitment influence the loyalty of the customer in the banking industry of Pakistan?

According to the result of the analysis of the model, all of the research questions can be answered. A model for banking industry in Pakistan is made. And the factors which influence the loyalty factor in this model are Tangible quality and Intangible quality, Satisfaction, Choosing, Trust, Switching Cost, Habit and Commitment. Some of the factors also influence the others. The relations were explained completely in previous parts.

5.2 Conclusion

Previous chapters tried to find the factors and their links with customer loyalty in banking industry in the Pakistani environment. As a conclusion this research found Habit, Choosing, Trust, Switching cost, Tangible Quality, Intangible Quality, Commitment and Satisfaction, as the factors which have influence on loyalty .Also these factors have relationships with each other which were explained in detail in the previous chapter. And also the factors which are added to the main model (Beerli, 2004) improve the fitness of the model. I hope that this model will surely help the managers of Pakistani Banks to further increase their pool of loyal customers.

5.3 Final Model

The final model of the customer loyalty in the banking industry of Pakistan can be presented in figure 4.

Figure 4: The Loyalty Model

As we can see, among the factors that have links with loyalty, satisfaction coefficient is the highest of all. This means that satisfaction is more important for the managers to be considered in order to make their customers loyal.

In comparison, (Beerli, Martin and Quintana, 2004) the coefficient of the satisfaction in the perceived model (0.67) in Pakistan is less than the one which is chosen as the resource model (0.83). This means that the satisfaction factor in Pakistan has less influence on loyalty than Spain. This could be because of the differences in the environment and also culture. It could be also because of the influence of the added factors on the model.

But the switching cost in Pakistan (0.28) has more influence than what is mentioned in the original model (0.18). This could be because of the reasons mentioned above.

Trust also has an important role to play in the loyalty of the customers in Pakistani banks because Beerli did not consider this factor in his model for the Spanish banking industry. Choosing has influence on loyalty in Pakistan (0.20). In the main model, (Beerli et al., 2004) this factor wasn’t mention in the final model and the authors rejected the hypothesis of the relationship of choosing with other factors in their model, but in this model this relations are exist. Habits also play a pivotal role in Pakistani environment as people prefer banks if they are nearer to their offices or homes. The reason can be most of the customers come to banks on foot as the number of car owners are still not as high as in European countries like Spain and also due to the high prices of traveling.

According to (Lin and Wang, 2006), the habit in the perceived loyalty model has less influence (0.17) than the model of loyalty in m-commerce industry in Taiwan (0.35). This could be because of the difference in the industries.

5.4 Contribution

This research has been done to find the customer loyalty factors and their relations in order to present a model for customer loyalty in banking industry. And it has been done in Pakistani environment.

This research tries to present the factors which influence in this environment for banking industry. And different factors and also different relations were found in this study.

As it was mentioned previously in this research, loyal customers have different benefits for the industries. Having more profit is the simplest one to mention. This model will help managers to better shape their strategies to make more and more loyal customers. Loyalty is a big challenge for every manager in today’s competitive world. In Pakistan, there are so many banks with different alluring services who can snatch a customer from your customer base at any time, so the managers have to be vigilant and they can only make customers loyal through the application of these factors in their respective banks. According to the main strategy of the bank, they can choose some factors of the presented model and by considering the relations between them they can make their sub-strategies. Also it might differ from one bank to another and it could be because of each bank’s goal.

5.5 Limitations

This research has some limitations, which are time and money. Although it is a valid sample size, but if the time allowed this research could be done in a bigger sample size which needs time and money. The research could be carried out in all the major cities of Pakistan but again that needs a lot of time and money.

But all of the attempts were used not to allow the limitations to have influence on the results.

5.6 Further research

These days the loyalty concept has great importance and its different aspects can be studied in different situations.

This research tries to investigate more factors which have links with the customer loyalty in banking industry in comparison to the previous researches. Also different relations were found during this study.

It is hoped that the findings could stimulate further research in other parts of the world; especially in the other developing countries .If this happens, the model can be presented in a wider area not only in Pakistan.

The other people who are interested in modeling could analyze, find and test more factors according to their environment, or also the same factors in other industries.

Also a research which is about the factors that influence the “loyalty model” can also be done in order to find the external points which could differ from one environment to another, in case of existence. In this way, a general model for the banking industry’s customer loyalty can be presented after the analysis of the factors in all the countries.

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Analysis of Factors that influence Customer Loyalty

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