Determining predictors of customer

loyalty in the South African retail

banking industry

RK Major
23725869

Dissertation submitted in fulfilment of the requirements for the

degree Master of Commerce in Marketing Management at the
Potchefstroom Campus of the North-West University

Supervisor: Dr N Mackay

May 2017
ACKNOWLEDGEMENTS

I would like to express my gratitude and thanksgiving to Him (God), who is faithful who has made
what I have imagined and prayed for become a moment of reality. Never would have made it
through without my Creator and his grace in this journey.

Furthermore, I would like to extend my gratitude to:

 My supervisor, Dr Nedia Mackay, for her tireless support, patience and motivation through
the whole journey to complete my dissertation. I could not have imagined having a better
supervisor and mentor for my Master’s study. I am very thankful and indebted to her for
sharing her expertise, and for the sincere and valuable guidance and encouragement
extended to me. It has been a blessing, honour and great privilege to have you as my
supervisor and I have developed into a better student through you.
 NWU (Potchefstroom) School of Marketing staff for their motivation and support.
 My dearest and loving mother, Shongedzai, my sisters Tsitsi and Tanya, and my brother-
in-law David; thank you for the continuous encouragement, support and most importantly,
for believing in me.
 Pastor Madzinga, Apostle TK Masunda, Mr Innocent Pfupa, Mr Emmanuel Pfupa, Prof
Mavetera and Mrs Mavetera, thank you for your unceasing encouragement and for being
an inspiration to my studies.
 My best friends Ruth, Victoria, Jonathan and Sandra; thank you my dearest friends for
always being there to support me. I am not forgetting all the unmentioned individuals who
supported me in different ways, thank you.
 The fieldworkers who assisted in data collection, and all the respondents who participated
in the survey; thank you for your contribution to my work.

i
ABSTRACT

The South African retail banking industry is a highly competitive industry which has experienced
an increase in customer attrition. A large number of customers showing intentions to leave their
banks have been observed. Consequently, South African banks have begun to put more focus
on the use of loyalty or loyalty programmes to ensure that customers are not easily tempted to
switch banks. To this end, banks are investing billions of Rands on loyalty programmes with the
aim of obtaining and keeping profitable customers.

From a literature perspective, relationship marketing has proven to be an invaluable tactic in the
banking industry to create intimate relationships with its customers. This type of marketing helps
to gain insights about customers and their satisfaction levels, also in light of the intensifying
competition in this sphere. It is a truism that relationship marketing can result in loyalty.

The primary objective of this study was to determine the predictors of customer loyalty, including
service quality, trust, switching costs, and satisfaction, in South African retail banks. The primary
research conducted was based on a quantitative descriptive research approach. A non-probability
convenience sampling technique was implemented to reach respondents, and self-administered
questionnaires were distributed among South African retail bank (Absa, Capitec, FNB, Nedbank
and Standard bank) customers in the Gauteng Province who have been with their bank for a
period of two or more years. The sample size realised included 464 responses.

The structural equation modelling (SEM) results indicated that service quality, trust and
perceptions of switching costs statistically significantly predict satisfaction, which in turn
statistically significantly predicts loyalty. The confirmatory factor analysis (CFA) and Cronbach
alpha values confirmed the reliability and validity of the measurement scales for measuring
service quality, trust, switching cost, satisfaction and loyalty. Furthermore, no practically
significant differences were uncovered among retail banks in terms of service quality, trust,
switching cost perceptions, satisfaction and loyalty.

Based on the results, this study proposes a model that indicates how South African retail banks
can use service quality, trust and switch cost to increase satisfaction, which consequently results
in loyalty.

It is recommended that, in order to achieve loyalty, retail banks should improve satisfaction, which
is achieved by improving service quality, establishing trust and discouraging customers from
incurring switching costs (during the change from one bank to another). Therefore, to improve
satisfaction, banks should not exaggerate on promises as this might lead to dissatisfaction.

ii
 Abstract

Service quality perceptions can be improved by specifically addressing banks’ responsiveness to

their customers. Furthermore, trust can be improved by being reliable in the promises made.
Lastly, to improve perceptions of switching costs, banks should inform customers beforehand of
the potential costs involved in switching.

Recommendations for future research include using online surveys which are less costly and
time-consuming. Researchers can liaise with retail banks to conduct primary research within bank
branches since the Protection of Personal Information Act restricts banks from giving out
customers’ information. Finally, the conceptual model developed can be tested in other service
industries to assess its reliability, relevance and applicability.

iii
LIST OF KEY TERMS

 Relationship marketing

Sheth et al. (2015:123) define relationship marketing as the process of collaborating with
customers in the long term, with a view to understand these customers’ needs and wants,
to ultimately establish mutual economic, social and psychological value in a profitable
manner.

 Service quality

According to Parasuraman et al. (1988:17), service quality is defined as the difference

between what customers look forward to receive from a service and their perceptions of the
actual service received.

 Trust

Trust is the willingness of one party to depend on another party in whom one has confidence
within a transaction between the parties (Morgan & Hunt, 1994:23).

 Switching cost

According to Porter (1980:10), switching cost is defined as once-off costs that are incurred
by a customer due to moving from one provider to another.

 Satisfaction

According to Oliver (1981), customer satisfaction refers to the assessment that a customer
makes of a transaction, which shows the relationship between the customer’s expectations
and the actual perceptions that the customer has about the business’ offerings.

 Loyalty

Oliver (1999:34) defines loyalty as a customer’s deep-held commitment to repurchase a

desired product or service in future – regardless of situational influences and marketing
efforts – having the possibility to result in staying behaviour and recommending the product
or service to other people.

 Retail banking

Retail banking includes those financial products and/or services that are provided to
individuals for personal use or consumption, at physical branches or via online interactions
(Das, 2009:23; Lin et al., 2011:252).

iv
TABLE OF CONTENTS

ACKNOWLEDGEMENTS ................................................................................................ i

ABSTRACT ............................................................................................................... ii

LIST OF KEY TERMS .................................................................................................... iv

TABLE OF CONTENTS .................................................................................................. v

LIST OF FIGURES ....................................................................................................... xiii

LIST OF TABLES ........................................................................................................ xiv

CHAPTER 1: INTRODUCTION AND OVERVIEW

1.1 Introduction................................................................................................................. 1

1.2 Background and research problem ........................................................................... 1

1.3 Industry overview ....................................................................................................... 4

1.4 Research objectives ................................................................................................... 8

1.4.1 Primary objective .......................................................................................................... 8

1.4.2 Secondary objectives .................................................................................................... 8

1.5 Hypotheses ................................................................................................................. 9

1.6 Research methodology ............................................................................................ 12

1.6.1 Research design ......................................................................................................... 12

1.6.2 Questionnaire design and pretesting .......................................................................... 12

1.6.3 Sample design ............................................................................................................ 12

1.6.4 Data collection ............................................................................................................ 14

1.6.5 Data analysis .............................................................................................................. 14

1.7 Contribution of the study ......................................................................................... 14

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 Table of contents

1.8 Outline of chapters ................................................................................................... 15

1.9 Conclusion ................................................................................................................ 16

CHAPTER 2: RELATIONSHIP MARKETING

2.1 Introduction............................................................................................................... 17

2.2 Marketing .................................................................................................................. 17

2.2.1 Definition of marketing ................................................................................................ 17

2.2.2 Importance of marketing ............................................................................................. 18

2.3 The emergence of relationship marketing .............................................................. 19

2.4 Defining relationship marketing .............................................................................. 20

2.5 The evolution from transactional marketing to relationship marketing................ 23

2.6 The fundamentals of relationship marketing .......................................................... 25

2.6.1 Relationship marketing process .................................................................................. 26

2.6.2 Long-term orientation of relationship marketing .......................................................... 27

2.6.3 Interactive relationships .............................................................................................. 27

2.6.4 Customer lifetime value .............................................................................................. 28

2.6.5 Customer intimacy ...................................................................................................... 29

2.6.6 Customer share .......................................................................................................... 30

2.7 Drivers of relationship marketing ............................................................................ 31

2.7.1 Service quality ............................................................................................................ 31

2.7.2 Trust ........................................................................................................................... 31

2.7.3 Switching costs ........................................................................................................... 32

2.7.4 Satisfaction ................................................................................................................. 32

2.7.5 Loyalty ........................................................................................................................ 32

2.8 Developing relationships ......................................................................................... 33

2.9 Relationship marketing implications....................................................................... 35

2.10 Relationship marketing tools ................................................................................... 36

2.11 Benefits of relationship marketing .......................................................................... 39

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 Table of contents

2.11.1 Benefits of relationship marketing to businesses ........................................................ 39

2.11.2 Benefits of relationship marketing to customers .......................................................... 41

2.12 Pitfalls of relationship marketing ............................................................................ 42

2.13 Relationship marketing and the South African banking industry ......................... 42

2.14 Conclusion ................................................................................................................ 44

CHAPTER 3: SERVICE QUALITY, TRUST, SWITCHING COST, SATISFACTION

AND LOYALTY IN CONTEXT

3.1 Introduction............................................................................................................... 45

3.2 Conceptualisation of constructs ............................................................................. 45

3.3 Service quality .......................................................................................................... 45

3.3.1 Goods versus services ............................................................................................... 46

[Link] Intangibility ............................................................................................... 47

[Link] Inseparability ............................................................................................ 48

[Link] Perishability .............................................................................................. 49

[Link] Heterogeneity ........................................................................................... 49

3.3.2 Defining service quality ............................................................................................... 49

3.3.3 The importance of service quality ............................................................................... 50

3.3.4 Gaps Model of Service Quality.................................................................................... 51

[Link] Gap 1: Difference between customer’s expectations and marketer’s

perceptions ............................................................................................... 53

[Link] Gap 2: Difference between management’s perceptions and service quality

specifications ............................................................................................ 53

[Link] Gap 3: Difference between quality specifications and service delivery...... 53

[Link] Gap 4: Difference between service delivery and external communications 54

[Link] Gap 5: Difference between perceived service and expected service ........ 54

3.3.5 Measuring service quality ........................................................................................... 54

3.3.6 Service quality and the banking industry ..................................................................... 57

3.4 Customer trust .......................................................................................................... 57

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 Table of contents

3.4.1 Defining trust .............................................................................................................. 58

3.4.2 Types of trust .............................................................................................................. 58

3.4.3 Trust in business and customer relationships ............................................................. 58

3.4.4 Benefits of trust ........................................................................................................... 59

3.4.5 Strategies to building customer trust ........................................................................... 60

3.4.6 Trust in banks ............................................................................................................. 62

3.5 Switching costs ........................................................................................................ 62

3.5.1 Switching costs: a conceptualisation ........................................................................... 63

3.5.2 Categories of switching costs ..................................................................................... 64

[Link] Financial costs .......................................................................................... 64

[Link] Procedural costs ....................................................................................... 64

[Link] Relational costs ........................................................................................ 65

3.5.3 The consequences of switching costs ......................................................................... 65

3.5.4 Switching costs in banks ............................................................................................. 66

3.6 Satisfaction ............................................................................................................... 66

3.6.1 Defining satisfaction.................................................................................................... 67

3.6.2 Types of customer satisfaction.................................................................................... 68

[Link] Transaction-specific satisfaction ............................................................... 68

[Link] Overall satisfaction ................................................................................... 68

3.6.3 Importance of satisfaction ........................................................................................... 69

3.6.4 Measuring customer satisfaction................................................................................. 69

3.6.5 Satisfied customers and the business ......................................................................... 71

3.6.6 Satisfaction in the banking industry ............................................................................. 71

3.7 Loyalty ....................................................................................................................... 72

3.7.1 Defining loyalty ........................................................................................................... 72

3.7.2 Types of loyalty ........................................................................................................... 73

[Link] Attitudinal loyalty....................................................................................... 73

[Link] Behavioural loyalty ................................................................................... 74

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 Table of contents

3.7.3 The significance of customer loyalty ........................................................................... 75

3.7.4 Loyalty programmes ................................................................................................... 76

3.7.5 Differentiating customer loyalty from customer retention ............................................. 77

3.7.6 Loyalty in banks .......................................................................................................... 78

3.8 Service quality, trust, switching costs, satisfaction and loyalty ........................... 78

3.9 Conclusion ................................................................................................................ 79

CHAPTER 4: RESEARCH METHODOLOGY

4.1 Introduction............................................................................................................... 80

4.2 Marketing research ................................................................................................... 80

4.2.1 Marketing research defined ........................................................................................ 80

4.2.2 Determinants for conducting marketing research ........................................................ 81

[Link] Time constraints ....................................................................................... 81

[Link] Data availability ........................................................................................ 82

[Link] The nature of the decision ........................................................................ 82

[Link] Benefits versus costs ................................................................................ 82

4.3 The marketing research process ............................................................................. 82

4.3.1 STEP 1: Identify the problem and define the research objectives ............................... 84

4.3.2 STEP 2: Determine the research design ..................................................................... 86

[Link] Exploratory research ................................................................................ 86

[Link] Descriptive research ................................................................................. 87

[Link] Causal research ....................................................................................... 87

4.3.3 STEP 3: Design the data collection methods and forms ............................................. 88

[Link] Secondary data ........................................................................................ 88

[Link] Primary data ............................................................................................. 91

4.3.4 STEP 4: Developing a sample plan .......................................................................... 103

[Link] Sample design ........................................................................................ 103

[Link] Data collection ........................................................................................ 109

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 Table of contents

4.3.5 STEP 5: Analyse and interpret the data .................................................................... 110

[Link] Reliability and validity ............................................................................. 110

4.3.6 Data analysis strategy followed in this study ............................................................. 111

[Link] Descriptive statistics ............................................................................... 111

[Link] Inferential statistics ................................................................................. 112

[Link] Interpreting the results of hypotheses testing.......................................... 113

[Link] Structural equation modelling ................................................................. 113

4.3.7 STEP 6: Presentation of results ................................................................................ 114

4.4 Conclusion .............................................................................................................. 114

CHAPTER 5: EMPIRICAL RESULTS

5.1 Introduction............................................................................................................. 115

5.2 Sample realisation rate........................................................................................... 115

5.3 Sample profile of respondents .............................................................................. 116

5.4 Retail bank patronage habits of respondents ...................................................... 117

5.5 Respondents’ service quality perceptions of retail banks .................................. 118

5.6 Respondents’ trust in their retail banks ................................................................ 121

5.7 Respondents’ perceptions of switching cost towards their retail banks ........... 122

5.8 Respondents’ satisfaction with their retail banks ................................................ 123

5.9 Respondents’ loyalty towards their retail banks .................................................. 124

5.10 Construct validity ................................................................................................... 125

5.10.1 Construct validity of service quality ........................................................................... 125

5.10.2 Construct validity of trust........................................................................................... 126

5.10.3 Construct validity of switching costs .......................................................................... 126

5.10.4 Construct validity of satisfaction ................................................................................ 127

5.10.5 Construct validity of loyalty ....................................................................................... 127

5.11 Reliability ................................................................................................................ 127

5.12 Assessing the distribution of data ........................................................................ 128

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 Table of contents

5.13 Hypotheses testing................................................................................................. 128

5.13.1 Hypothesis 1 ............................................................................................................. 129

5.13.2 Hypothesis 2 ............................................................................................................. 130

5.13.3 Hypothesis 3 ............................................................................................................. 132

5.13.4 Hypothesis 4 ............................................................................................................. 132

5.13.5 Hypothesis 5 ............................................................................................................. 134

5.13.6 Hypothesis 6 ............................................................................................................. 135

5.13.7 Hypothesis 7 ............................................................................................................. 138

5.14 Testing the conceptual model and hypotheses 8 to 14 ....................................... 140

5.14.1 Measurement model ................................................................................................. 141

5.14.2 Path model ............................................................................................................... 142

5.15 Summary of findings .............................................................................................. 143

5.15.1 Main findings on the demographic profile and patronage habits of retail bank
respondents .............................................................................................................. 144

5.15.2 Main findings on the constructs................................................................................. 144

5.16 Conclusion .............................................................................................................. 147

CHAPTER 6: CONCLUSIONS AND RECOMMENDATIONS

6.1 Introduction............................................................................................................. 148

6.2 Overview of the study ............................................................................................ 148

6.3 Conclusions and recommendations for secondary objectives ........................... 152

6.3.1 Secondary objective 1 .............................................................................................. 152

6.3.2 Secondary objective 2 .............................................................................................. 152

6.3.3 Secondary objective 3 .............................................................................................. 153

6.3.4 Secondary objective 4 .............................................................................................. 156

6.3.5 Secondary objective 5 .............................................................................................. 157

6.3.6 Secondary objective 6 .............................................................................................. 158

6.3.7 Secondary objective 7 .............................................................................................. 160

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 Table of contents

6.3.8 Secondary objective 8 .............................................................................................. 161

[Link] Service quality ........................................................................................ 161

[Link] Trust ....................................................................................................... 162

[Link] Switching cost ........................................................................................ 163

[Link] Satisfaction ............................................................................................. 163

[Link] Loyalty .................................................................................................... 164

6.3.9 Secondary objective 9 .............................................................................................. 165

6.3.10 Summary of recommendations ................................................................................. 167

6.4 The links between the research objectives, hypotheses, questions in the
questionnaire, main findings, conclusions and recommendations .................... 167

6.5 Limitations of the study ......................................................................................... 169

6.6 Recommendations for future research ................................................................. 169

6.7 Conclusion .............................................................................................................. 170

REFERENCE LIST ...................................................................................................... 171

APPENDIX A: QUESTIONNAIRE ............................................................................. 200

APPENDIX B: LETTER FROM LANGUAGE EDITOR .............................................. 205

xii
LIST OF FIGURES

Figure 1-1: Customer intentions to leave South African retail banks ..................................... 3

Figure 1-2: Market share of South African retail banks ......................................................... 6

Figure 1-3: Conceptual model............................................................................................. 11

Figure 2-1: Relationship marketing process ........................................................................ 26

Figure 2-2: Value customers generate during different phases of the lifecycle .................... 29

Figure 2-3: Relationship marketing loyalty ladder ............................................................... 33

Figure 3-1: Service characteristics ...................................................................................... 47

Figure 3-2: Gaps Model of Service Quality ......................................................................... 52

Figure 3-3: Customer satisfaction measurement process ................................................... 70

Figure 3-4: Conceptual model............................................................................................. 79

Figure 4-1: Marketing research process for this study......................................................... 83

Figure 4-2: Customer intentions to leave South African retail banks ................................... 84

Figure 4-3: Categories of secondary data ........................................................................... 89

Figure 4-4: Guidelines for designing a questionnaire .......................................................... 95

Figure 4-5: Sampling plan ................................................................................................. 104

Figure 5-1: Conceptual model........................................................................................... 141

xiii
LIST OF TABLES

Table 1-1: List of South African banks ................................................................................. 4

Table 1-2: Summary of target population ........................................................................... 13

Table 1-3: Summary of sample quotas .............................................................................. 13

Table 2-1: Relationship marketing definitions .................................................................... 21

Table 2-2: Relationship marketing common elements ....................................................... 22

Table 2-3: Transactional marketing versus relationship marketing .................................... 25

Table 2-4: Berry’s five relationship marketing strategies ................................................... 38

Table 3-1: Goods marketing versus services marketing .................................................... 46

Table 3-2: Measuring service quality: a summary of areas of disagreement ...................... 55

Table 4-1: Factors that determine when to conduct marketing research ............................ 81

Table 4-2: Research designs ............................................................................................. 86

Table 4-3: Criteria for evaluating secondary data .............................................................. 88

Table 4-4: Differentiating qualitative from quantitative research ......................................... 91

Table 4-5: Determinants of surveys ................................................................................... 93

Table 4-6: Questions used in final questionnaire of this study ......................................... 100

Table 4-7: Sample design considerations ........................................................................ 103

Table 4-8: Types of probability and non-probability sampling techniques ........................ 105

Table 4-9: Sample sizes used in marketing research studies .......................................... 108

Table 4-10: Summary of sample quotas ............................................................................ 108

Table 4-11: Sample plan used for this study ...................................................................... 109

Table 4-12: List of fit indices .............................................................................................. 114

Table 5-1: Sample realisation rate ................................................................................... 115

Table 5-2: Sample profile................................................................................................. 116

Table 5-3: Patronage habits ............................................................................................ 118

xiv
 List of tables

Table 5-4: Respondents’ service quality perceptions of retail banks ................................ 119

Table 5-5: Respondents’ trust in their retail banks ........................................................... 121

Table 5-6: Respondents’ switching cost perceptions towards their retail banks ............... 122

Table 5-7: Respondents’ satisfaction levels towards their retail banks ............................. 123

Table 5-8: Respondents’ loyalty levels towards their retail banks .................................... 124

Table 5-9: Cronbach alpha values of the constructs used in the study ............................ 128

Table 5-10: Significant differences between age groups .................................................... 129

Table 5-11: Significant differences between genders......................................................... 131

Table 5-12: Significant differences between ethnic groups ................................................ 133

Table 5-13: Significant differences between respondents of different retail banks ............. 136

Table 5-14: Significant differences between respondents and duration with their banks .... 138

Table 5-15: Fit indices of the measurement model ............................................................ 141

Table 5-16: Standardised regression weights .................................................................... 142

Table 5-17: Correlations .................................................................................................... 143

Table 5-18: Main findings on demographic profile and patronage habits ........................... 144

Table 5-19: Main findings on the constructs ...................................................................... 144

Table 6-1: Links between research objectives, hypotheses, questions, main findings,
conclusions and recommendations ................................................................. 168

xv
 CHAPTER 1

INTRODUCTION AND OVERVIEW

1.1 INTRODUCTION

The main objective of this study is to determine the predictors of customer loyalty in the South
African retail banking industry. To achieve this, the influence of selected relationship marketing
constructs (namely service quality, trust and switching cost) on customer satisfaction are
investigated, in order to analyse the influence of customer satisfaction on customers’ loyalty
levels. It is imperative to conduct ongoing research in this field due to continuous changing trends
in the retail banking industry. This study, therefore, focuses on providing a conceptual model that
links the aforementioned relationship marketing constructs (i.e. service quality, trust, switching
cost, and customer satisfaction) and customer loyalty within South African retail banks.

This chapter includes a contextualisation and formulation of the research problem, followed by an
overview of the South African banking industry. Afterwards, a literature overview is provided on
the theoretical constructs and relationship between the constructs of the study. The next section
includes a formulation of the primary and secondary objectives, the research hypotheses and the
conceptual model. After this section, a discussion of the research methodology is given, followed
by a section that highlights the importance or contribution of the study. The chapter concludes
with a structural and chronological outline of the remainder of the study.

1.2 BACKGROUND AND RESEARCH PROBLEM

In the increasingly competitive global financial environment (including South Africa), relationship
marketing is believed to be a perfect means for banks to create distinctive and long-term
relationships with customers (Taleghani et al., 2011:155). Gilaninia et al. (2011a:508) posit that
relationship marketing has proven to be an invaluable tactic in the banking industry to create
intimate relationships with its customers in order to gain insights about customers and their
satisfaction, also in light of the intensifying competition in this sphere. According to Adejoke and
Adekemi (2012:102), the concept of relationship marketing has been studied from different
viewpoints and examined in several ways, and has grown its theoretical and practical importance.
Therefore, the concept of relationship marketing became the strategy – with the goal of creating
and cultivating long-term relationships with customers – to manage challenges and to gain a
competitive advantage (Rezaei et al., 2015:352).

1
 Chapter 1: Introduction and overview

The fundamentals of this relationship philosophy (relationship marketing approach) entail that it
is costly to attract new customers as compared to nurturing and developing existing customers
(Anabila et al., 2012:51). Rizan et al. (2014:2) indicate that the concept of relationship marketing
was introduced on the basis that customers differ in needs, choices, purchasing behaviour and
price sensitivity. It is a truism that customer relationships are of significant value to businesses,
hence it is crucial for businesses to be focused on customers and to create good relationships
with all stakeholders (especially customers) in order to offer excellent service to customers and
to establish a competitive advantage (Oogarah-Hanuman & Ramnarain, 2013:1).

The emphasis on creating and cultivating quality relationships can bring about numerous
desirable marketing results (Clark & Melancon, 2013:132). Petzer et al. (2009:32) state that
businesses are constantly searching for innovative methods to obtain, increase and retain
customers due to the increasing costs associated with lost customers. In many instances, when
any of the South African banks initiates an innovative offering into the market, other banks imitate
this offering shortly after (BusinessTech, 2016a). Subsequently, the core products and services
that banks provide to their customers tend to be much the same (Taleghani et al., 2011:155). As
a result, it is not difficult for customers to consider shifting from one bank to another – resulting in
banks having to implement marketing strategies aimed at attracting new customers or retaining
existing ones (Magasi, 2015:2). Furthermore, Mecha et al. (2015:270) note that it is crucial for
banks to pinpoint specific aspects that can improve customer retention, in light also of the fact
that Mackay et al. (2014:307) emphasised that the existence of customers is the core reason for
the existence of businesses.

In order to address the issue of customer switching, South African banks have focused a great
deal on the use of loyalty or reward programmes to ensure that current customers are not easily
tempted to switch banks (Mather, 2013). Ernst and Young (2012) indicate that customer attrition
in South African banks has risen from 34% to 39%, and 13% of customers were considering
moving to other banks. As indicated in Figure 1-1, BusinessTech (2015b) also provided statistical
figures of customers who were intending to leave South African retail banks in 2015.

Acquiring loyal customers in service industries such as banks is difficult, because regardless of
the customers being satisfied or not, they may still switch to other service providers in search of
variety (Kashif et al., 2015:24). According to SAcsi (South African customer satisfaction index)
(2015), customers are more likely to switch from one bank to another if they are dissatisfied with
products or services – evident from the latest popular South African advertising campaigns
encouraging customers to change banks if they were unhappy with their present banks. This form
of behaviour poses challenges in terms of customer retention that banks should not underestimate
([Link], 2015).

2
 Chapter 1: Introduction and overview

Figure 1-1: Customer intentions to leave South African retail banks

Capitec
10% Absa
20%

Standard bank
20%
FNB
36%

Nedbank
14%

Source: Adopted from BusinessTech (2015b).

Considering that the banking industry is reliant on customers, the sustainability of banks is
essential; and this can be accomplished through customer satisfaction over the long-term (Ujakpa
et al., 2015:44). According to Dalhstrom et al. (2014:269), the aspect of trust is critical in the
banking industry considering the financial transactions that implicate risk. Chigamba and Fatoki
(2011:72) and Rootman and Cupp (2016:283) assert that it is not difficult for customers to switch
banks due to the high concentration of banks in South Africa; but customers experience some
switching costs when they switch (Bhattacharya, 2013:102). Hence, as noted by Coetzee et al.
(2013:2), during the past years, South African banks have considered service quality to be of
strategic importance and as the main driver for gaining a competitive edge. Rasheed et al.
(2015:240) further suggest that customer loyalty has been a key issue in banking due to the
intense competition and increasing customer expectations. Consequently, each year, bank
marketers spend billions of Rands on loyalty programmes to obtain and keep profitable
customers, although the question remains whether the money spent provides the best results
(Mokoena & Govender, 2015:22).

Considering the frequent switching of customers between banks and increasing customer
attrition, it is important to study and observe those aspects (from a relationship marketing
perspective) that might potentially predict customer loyalty in South African retail banks, since
relationship marketing is regarded as the foundation for reinforcing relationships and maintaining
customer loyalty (Lo, 2012:92).

3
 Chapter 1: Introduction and overview

1.3 INDUSTRY OVERVIEW

The South African retail banking industry is a highly competitive market (KPMG, 2014). According
to the Banking Association South Africa (2014:1), the banking industry has experienced a number
of changes pertaining to the regulatory environment, product offerings and the number of
competitors. This gave rise to high levels of competition from smaller bankers which have entered
a low-income and formerly unbanked market. The most significant retail banking segments
include traditional retail banking (such as deposit taking and transactional banking), electronic
banking and personal banking (PWC, 2013:8).

A MarketLine report (2015:13) states that South African retail banks differentiate themselves by
means of offering different fees, interest rates on loans and deposits, lending limits, notice periods
for withdrawing, customer convenience, as well as the general quality and range of product and
service offerings. These factors, along with customer service, reputation and security against
fraud, significantly influence customers’ loyalty.

According to the South African Reserve Bank (2016), the South African banking industry consists
of two banks in liquidation, 15 branches of foreign banks, 38 foreign representative banks, six
foreign controlled banks, 10 locally controlled banks and three mutual banks. Table 1-1 below
provides a list of banks in South Africa.

Table 1-1: List of South African banks

Bank category Bank name

Banks in liquidation  Islamic Bank Limited (In Final Liquidation)
 Regal Treasury Private Bank Limited
Branches of foreign banks  Bank of Baroda
 Bank Of China Limited
 Bank of India
 Bank of Taiwan South Africa Branch
 BNP Paribas SA
 Canara Bank
 China Construction Bank Corporation
 Citibank N.A.
 Deutsche Bank AG
 HSBC Bank plc - Johannesburg Branch
 Icici Bank Limited
 JPMorgan Chase Bank
 Société Générale
 Standard Chartered Bank
 State Bank of India

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 Chapter 1: Introduction and overview

Table 1-1: List of South African banks (cont.)

Bank category Bank name

Foreign representative banks  AfrAsia Bank Limited
 African Banking Corporation of Botswana
 Banco BIC
 Banco BPI, SA
 Banco Nacional De Desenvolvimento Econômico E Social
 Banco Santander Totta S.A.
 Banif - Banco Internacional do Funchal, S.A.
 Bank Leumi Le-Israel BM
 Bank of America, National Association
 Bank One Limited
 Banque SYZ Suisse SA
 Commerzbank AG Johannesburg
 Credit Suisse AG
 Doha Bank
 Ecobank
 Export-Import Bank of India
 First Bank of Nigeria
 Hellenic Bank Public Company Limited
 Industrial and Commercial Bank of China
 KfW Ipex-Bank GmbH
 Millenium BCP
 Mizuho Bank Limited
 National Bank of Egypt
 Notenstein Private Bank Limited
 Novo Banco
 Société Générale Representative Office for Southern Africa
 Sumitomo Mitsui Banking Corporation
 Swedbank AB (Publ)
 The Bank of New York Mellon
 The Bank of Tokyo-Mitsubishi UFJ, Ltd
 The Mauritius Commercial Bank Limited
 The Rep. Off. for Southern and Eastern Africa of The
Export-Import Bank of China
 UBS AG
 Unicredit Bank AG
 Union Bank of Nigeria Plc
 Vnesheconombank
 Wells Fargo Bank, National Association
 Zenith Bank Plc

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 Chapter 1: Introduction and overview

Table 1-1: List of South African banks (cont.)

Bank category Bank name

Foreign controlled banks  Absa Bank Limited
 Albaraka Bank Limited
 Habib Overseas Bank Limited
 Mercantile Bank Limited
 The South African Bank of Athens Limited
Locally controlled banks  African Bank Limited
 Bidvest Bank Limited
 Capitec Bank Limited
 FirstRand Bank Limited
 Investec Bank Limited
 Nedbank Limited
 Sasfin Bank Limited
 The Standard Bank of South Africa Limited
 UBANK Limited
Mutual banks  Finbond Mutual Bank
 GBS Mutual Bank
 VBS Mutual Bank

Source: Adopted from South African Reserve Bank (2016).

As indicated in Figure 1-2, the major role-players in the South African retail banking industry
include Absa, Capitec bank, FNB, Standard bank and Nedbank (BusinessTech, 2016c). Figure
1-2 highlights the five major South African retail banks, indicating their respective market shares.

Figure 1-2: Market share of South African retail banks

Standard bank Capitec

27% 17%

Nedbank Absa
18% 22%

FNB
16%

Source: Adopted from BusinessTech (2016c).

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 Chapter 1: Introduction and overview

The bank profiles for these five major South African banks are as follows:

 Absa is a subsidiary of the Barclays Africa Group (Absa, 2016). The bank was founded in
1991 after a consolidation of four retail banks (Allied, Volkskas, United Bank and Trust
Bank) forming the Amalgamated Banks of South Africa (Swart, 2016). Services offered by
Absa include investment banking, retail banking, commercial banking, credit cards, finance
and insurance, private equity and investment management (Bank Information of South
Africa, 2014). According to BusinessTech (2016c), as of December 2015, Absa had 9.4
million customers, holding 22% market share of the South African retail bank customers.
 Capitec bank was established in 2001 (Capitec Bank, 2015) and as of December 2015,
Capitec bank had 7.3 million customers, holding 17% market share of the South African
retail bank customers (BusinessTech, 2016c). According to [Link] (2015), Capitec
bank has grown with nearly 100% within a period of one year between 2014 and 2015,
overtaking the major banks and the broader financial services industry. Within a decade,
the Capitec bank has risen from a small micro lending start-up to a major competitor, and
is considered a market leader in terms of acquiring a clientele of first-time bank users and
middle to low-income earners (MWEB, 2014).
 FNB is the oldest South African Bank, established in 1838, and currently trades as a division
of FirstRand Bank Limited (FNB, 2016). The bank provides several business solutions that
includes merchant service, instant accounting, instant payroll, e-wallet pro, prepaid cards
and cell pay point (Bank Information of South Africa, 2014). According to [Link]
(2012), the 2012 BAI-Finacle Global Banking Innovation Awards awarded FNB as the
world’s most innovative bank. As of December 2015, FNB had 7.2 million customers,
holding a 16% market share of South African retail bank customers (BusinessTech, 2016c).
 Nedbank is a principal banking subsidiary of the Nedbank Group. It provides a range of
wholesale and retail banking services, growing insurance, asset management and wealth
management offering (Nedbank, 2016). According to BusinessTech (2016c), in December
2015, Nedbank had a customer base of 7.4 million customers indicating 18% market share
of South African retail banks.
 Standard Bank continues to have the largest customer base from previous years in South
Africa (BusinessTech, 2015b). As of December 2015, BusinessTech (2016c) indicate that,
Standard Bank had 11.6 million customers. Standard Bank currently has operations in 20
countries in Africa, including South Africa, and other upcoming markets (Standard Bank,
2014). According to the Banking Information of South Africa (2014), Standard Bank’s main
offerings include personal and business banking, wealth-Liberty and investment and
corporate banking.

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 Chapter 1: Introduction and overview

The South African retail banking industry is experiencing fast and irrevocable changes, including
demographic shifts, which means that banks have to anticipate these changes and render
products and services that suit these changing demographic profiles (PWC, 2013:26, 41). In
addition, according to Slater (2014), the nature of customers is changing -especially the young
technological generation who seeks a technological means of service delivery. Slater (2014)
further indicate that trends in technology, especially technology such as mobile banking, cell-
phone banking applications and money transfers through cell phones, have taken over retail
banking. Regulatory trends have also emerged, which means that banks have to modify their
approach towards greater transparency, market integrity and consumer protection, as suggested
in the structural separation recognised as Twin Peaks (KPMG, 2013:4).

According to a report by PWC (2014:26), regulations in the South African banking industry pose
a great challenge to the affiliated banks. Regulatory changes include forced amendments to
remuneration structures (Gouws, 2012:10). Furthermore, shortage of regulatory oversight of
market conduct practices has slowed transformations such as applying Jali Enquiry
recommendations (National Treasury Republic of South Africa, 2014:10). The changing business
cycles encountered by the South African banking industry makes it difficult to attract and retain a
flexible working staff to ensure enhanced productivity and customer service (Banker SA,
2012:20).

1.4 RESEARCH OBJECTIVES

This section highlights the primary and secondary objectives formulated for this study based on
the above discussion and the research problem.

1.4.1 Primary objective

The primary objective of this study is to determine predictors of customer loyalty, including service
quality, trust, switching costs, and satisfaction, in South African retail banks.

1.4.2 Secondary objectives

In order to address the primary objectives and research problem, the following secondary
objectives have been formulated:

1) Compile a demographic profile of respondents.

2) Determine the retail banking habits of respondents.
3) Determine respondents’ perceptions of the service quality of their banks.
4) Determine respondents’ trust towards their bank.
5) Determine respondents’ perceived costs of switching between banks.
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 Chapter 1: Introduction and overview

6) Determine respondents’ levels of satisfaction with their banks.

7) Determine respondents’ loyalty towards their banks.
8) Determine whether significant differences exist between different groups of retail banking
customers in terms of each of the above constructs.
9) Determine the interrelationship between service quality, trust, switching costs, satisfaction
and loyalty in South African retail banks (as presented in the conceptual model).

1.5 HYPOTHESES

Based on the literature discussion, the research problem (section 1.2) and research objectives
(section 1.4), the hypotheses pertinent to this study are subsequently provided. According to
Armstrong and Kotler (2013:156), customers worldwide differ in terms of age, income, level of
education, and tastes. Due to the diverse nature of customers, the following alternative
hypotheses are formulated to further address the secondary objectives:

H1: Respondents of different age groups differ statistically significantly in terms of their service
quality perceptions, trust, switching costs, satisfaction and loyalty towards their retail banks.

H2: Respondents of different genders differ statistically significantly in terms of their service
quality perceptions, trust, switching costs, satisfaction and loyalty towards their retail banks.

H3: Respondents with different levels of education differ statistically significantly in terms of their
service quality perceptions, trust, switching costs, satisfaction and loyalty towards their retail
banks.

H4: Respondents of different ethnicities differ statistically significantly in terms of their service
quality perceptions, trust, switching costs, satisfaction and loyalty towards their retail banks.

H5: Respondents with different employment levels differ statistically significantly in terms of their
service quality perceptions, trust, switching costs, satisfaction and loyalty towards their retail
banks.

H6: Respondents of different retail banks differ statistically significantly in terms of their service
quality perceptions, trust, switching costs, satisfaction and loyalty towards their retail banks.

H7: The duration that respondents have been with their retail bank, differs statistically
significantly in terms of their service quality perceptions, trust, switching costs, satisfaction
and loyalty towards their retail banks.

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 Chapter 1: Introduction and overview

To keep customers, and to look after and sustain long-term customer interest, banks need to
maintain a continuing relationship with their customers. This can be achieved by understanding
the needs of these customers, in so doing serving them satisfactorily by enhancing service quality
(Lee & Moghavvemi, 2015:92). According to Minh and Huu (2016:105), customers’ perceptions
of a service’s quality constitute a significant antecedent of their level of satisfaction. Hossain and
Hossain (2015:115) conducted research in the banking context and their results proved a
significant correlation between service quality and satisfaction. Furthermore, Chenet et al.
(2010:340) found that there is a positive relationship between service quality and trust in business
relationships. Ahmad et al. (2014:78) further note a significant relationship between service
quality and switching costs. Therefore, the following alternative hypotheses are formulated:

H8: There is a statistically significant correlation between service quality and trust.

H9: There is a statistically significant correlation between service quality and perceptions of
switching costs.

H11: Service quality statistically significantly predicts respondents’ levels of satisfaction with their
retail banks.

Trust is a factor that can increase the likelihood of customer interest in a repurchasing behaviour
(Dimyati, 2015:16). According to Dash and Rajshekhar (2013:3), maintaining and reinforcing trust
is crucial to the long-term success of a relationship. The research of Fatima and Razzaque
(2014:566) found that trust statistically significantly predicts customer satisfaction. In addition,
Raza et al. (2015:15) established a significant relationship between trust and switching cost.
Therefore, the following alternative hypotheses are formulated:

H10: There is a statistically significant correlation between trust and perceptions of switching
costs.

H12: Trust statistically significantly predicts respondents’ levels of satisfaction with their retail
banks.

According to Ting (2014:315), if customers perceive high switching costs, they are more probable
not to demonstrate switching behaviour. Furthermore, customers may consider not switching if
perceive a risk of not being satisfied properly somewhere else (other businesses) (Sahin &
Kitapci, 2013:910). Thus, Jaroensrisomboon (2009:27) notes that customers may develop loyalty
due to costs related to switching and purchasing from another business. According to Baksi
(2015:28), there is a positive relationship between switching cost and satisfaction. Therefore, the
following alternative hypothesis is formulated:

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 Chapter 1: Introduction and overview

H13: Perceptions of switching costs statistically significantly predicts respondents’ levels of

satisfaction with their retail banks.

Satisfying the customer is the main aim of well-reputed businesses (Haq, 2012:363). Bricci et al.
(2016:175) indicate that customer satisfaction creates confidence in the business that is providing
the product or service. According to Lee and Moghavvemi (2015:96), meeting or exceeding the
customer’s expectations ensures satisfaction. Therefore, improving customer satisfaction ought
to be a key driver for banks in sustaining on-going relationships with their customers (Magasi,
2016:576). Furthermore, Madjid (2013:49) posit that customer satisfaction can result in customer
loyalty. Asfar et al. (2010:1045), Rizan et al. (2014:8) and Siddiqi (2011:23) support the notion
that a significant relationship exists between customer satisfaction and loyalty as demonstrated
by the research conducted by these authors. Therefore, the following alternative hypothesis is
formulated:

H14: Satisfaction statistically significantly predicts respondents’ levels of loyalty with their retail
banks.

From the formulated hypotheses, the following conceptual model has been developed as shown
in Figure 1-3.

Figure 1-3: Conceptual model

Service
quality H11
H8
H9

H12 H14
Trust Satisfaction Loyalty

H13
H10
Switching
cost

The research constructs dealt with above (service quality, trust, switching cost, satisfaction and
loyalty) have to be measured by some method. Therefore, the following section briefly discusses
the research methodology pertinent to this study.

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 Chapter 1: Introduction and overview

1.6 RESEARCH METHODOLOGY

This section provides an overview of the methods used to collect and evaluate data for the study
(discussed in detail in Chapter 4). The research design, population and sampling, measurement
instrument, data collection and data analysis are discussed below, indicating the procedures
followed to accomplish the research objectives.

1.6.1 Research design

For the present study, a descriptive research design was used. According to McDaniel and Gates
(2010:49), descriptive research is done to answer who, what, when, where and how questions.
Malhotra (2009:100) states that descriptive research uses several data-collection methods,
including quantitative analysis of secondary data, surveys, panels and observational data.

1.6.2 Questionnaire design and pretesting

The nature of research conducted is quantitative descriptive research design, which involves a
numerical measurement and statistical analysis of the research objectives (Zikmund & Babin,
2013:99). Hence, for the purpose of this study, primary data was collected by means of a survey
(see section [Link].2), where self-administered structured questionnaires were used. The
questionnaire was designed and pretested amongst a representative sample of 30 respondents
from the chosen study population. After the pretesting, the final questionnaire was compiled.
Therefore, the following sections were included in the questionnaire:

 Section A: Demographic information.

 Section B: Patronage habits.
 Section C: Research constructs.

The final questionnaire was distributed to respondents as briefly discussed in the subsequent
sections.

1.6.3 Sample design

According to Neelankavil (2015:234), a clear definition of the target population has to be done;
since Whitley and Kite (2012:485) state that the target population can affect the validity of the
research. Neelankavil (2015:234) defines a population as the total number of elements in a
particular population appropriate to a study. For this study, the target population (summarised in
Table 1-2) included all individuals in the Gauteng province of South Africa who are customers at
one of the five major South African banks (Absa, Capitec, FNB, Standard Bank and Nedbank).
The Gauteng province population was selected based on the fact that it is the economic hub or

12
 Chapter 1: Introduction and overview

powerhouse of South Africa, contributing to 35% to the country's economy (The Citizen, 2016).
This province also has the largest population, representing 23.7% of the South African population
among the country’s provinces (Statistics South Africa, 2014:16).

Table 1-2: Summary of target population

Sampling aspect Sample description

Target population Gauteng province residents using retail banks (Absa, Capitec, FNB,
Nedbank and Standard bank)
Time period 2016
Sample size 500 respondents
Sample elements Respondents in the Gauteng Province which were accessible during the
time the primary data was collected

For the purpose of this study, a non-probability convenience sampling method was used, which
means the likelihood of a respondent being selected was unknown (Whitley & Kite, 2012:486),
since there was no sampling frame available due to Protection of Personal Information Act (4 of
2013) that promotes the protection of personal information by public and private bodies.
Therefore, respondents were surveyed based on convenience and availability (Shiu et al.,
2009:480), meaning that respondents were randomly chosen based on ease of accessibility to
fieldworkers. Furthermore, a quota was used, based on the market share of each South African
retail bank.

The sample size for the study was determined based on previous studies of the same field (Dash
& Rajshekar, 2013:5; Husnain & Akhtar, 2015:5; Kishada & Wahab, 2013:267). According to
BusinessTech (2016c), the market share for the five retail banks is 27.04% Standard Bank,
21.91% Absa, 17.25% Nedbank, 17.02% Capitec, and 16.78% FNB. From this indication of the
market share of the retail banks, a total sample of 500 respondents was drawn with quota
sampling, based on each bank’s market share – summarised in Table 1-3.

Table 1-3: Summary of sample quotas

Bank Sample quota

Absa 110
Capitec 85
FNB 84
Nedbank 86
Standard bank 135
Total 500

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 Chapter 1: Introduction and overview

Based on the market share of each retail bank and the total sample of 500 respondents drawn,
the quota sample was 135 Standard Bank respondents, 110 Absa respondents, 86 Nedbank
respondents, 85 Capitec respondents and 84 FNB respondents.

1.6.4 Data collection

Data was collected through structured, self-administered questionnaires. According to Wiid and
Diggines (2015:206), several challenges can occur at this point, and therefore measures must be
set up to reduce or eliminate potential challenges. For the purpose of this study, five BCom
Honours (Marketing Management) students from the North-West University (Potchefstroom
Campus) were trained as fieldworkers. The fieldworkers had marketing research as a 3rd year
subject and at the time of data collection, they were busy with marketing research as an honours
subject.

1.6.5 Data analysis

After the collection of primary data had taken place, the data was analysed. According to Zikmund
and Babin (2010:66), the most appropriate analytical method for data analysis is determined by
management’s information needs, the nature of research design and the characteristics of the
data collected. Therefore, in this study, the Statistical Package for Social Sciences (SPSS version
23) was used for data analysis. The data analysis process includes: (1) determining the reliability
and validity of measures (by means of Cronbach alpha values and confirmatory factor analyses);
(2) analysing descriptive results (including frequencies, percentages, means and standard
deviations); (3) determining the distribution of the results (by means of skewness and kurtosis);
and (4) testing hypotheses (by means of structural equation modelling). Consequently, a number
of main findings were formulated in Chapter 5 taking into account the results obtained after data
analysis with the aim of addressing the secondary objectives.

1.7 CONTRIBUTION OF THE STUDY

It is imperative for ongoing research in the field of relationship marketing to be conducted due to
constantly changing customer behaviour. The present study will be of significance to scholars,
government and the commercial industry. Scholars will gain greater insight and knowledge of the
trends in the South African retail banking industry. Information from the study will show banks
reasons why customers remain loyal to a bank and how they can implement strategies to attract
and keep customers loyal to banks. The management of banks in South Africa will, in this manner,
be enlightened in areas of improvement that are critical.

14
 Chapter 1: Introduction and overview

Banks will also be able to identify specific profitable and effective relationship marketing strategies
to implement, which can maintain sustainable relationships, keep customers loyal and retain
customers. Furthermore, this study will help banks to identify changing customer behaviour and
patterns that need attention. The identification of appropriate and effective relationship marketing
strategies can also help banks to increase their performance. Through the identification of
effective relationship marketing strategies, customers will have access to better and efficient
services from the retail banks in South Africa. Chapter 6 provides a discussion of the final
contribution of this study.

1.8 OUTLINE OF CHAPTERS

The structure of the study is as follows, in chronological order:

 Chapter 1 (Introduction): This chapter provides insights into the research topic, its context
and the goal of the study. The chapter also highlights the structure of the research study
and presents the aspects that are further addressed.
 Chapter 2 (Relationship marketing literature review): This chapter discusses the
concept of relationship marketing as gleaned from the existing literature. This includes the
definition of relationship marketing, comparison of relationship marketing and transactional
marketing, the benefits of relationship marketing and the concept of relationship marketing
in the retail banking industry.
 Chapter 3 (Service quality, trust, switching cost, satisfaction and loyalty in context):
This chapter provides detail on the constructs of the study, which include service quality,
trust, customer switching costs, satisfaction and loyalty. This includes definitions and
characteristics of the key constructs from the existing literature.
 Chapter 4 (Research methodology): This chapter presents the available methods for data
collection and the methodology most suitable pertaining to the study of customer loyalty in
South African retail banks. Aspects addressed in this chapter include an explanation of the
secondary data collected, the empirical investigation, the research design, the target
population and sample size, the measuring instrument and data analysis methods.
 Chapter 5 (Empirical results): This chapter provides a detailed discussion of the empirical
results obtained from the collected data. The related data analysis methods are
implemented with a view to realise the objectives and hypotheses for this study.
 Chapter 6 (Conclusion, limitations and recommendations): This chapter provides
recommendations to banks based on the results from the study. Also, the limitations of the
study are noted, as well as future research suggestions. Finally, this chapter includes a
summary of the entire study.

15
 Chapter 1: Introduction and overview

1.9 CONCLUSION

This chapter provided insight into the research topic, its context and objectives of the study.
Accordingly, the aspects discussed in this chapter include the background and research problem,
industry overview, research objectives and hypotheses and the relationship between constructs.
Furthermore, the chapter briefly discussed the research methodology pertinent to this study
followed by the contribution that the study hopes to make. Finally, the last section highlights the
structure of the study indicating the aspects that are further addressed. The next chapter explores
the discipline of relationship marketing.

16
 CHAPTER 2

RELATIONSHIP MARKETING

2.1 INTRODUCTION

This chapter explores the concept of relationship marketing and presents a comprehensive review
of relevant literature in the field of marketing. Therefore, a clear perspective is provided with
regard to the discipline of marketing and the importance thereof. From the marketing perspective
follows the emergence of relationship marketing, the evolution from transactional marketing to
relationship marketing, the nature and variables of relationship marketing, relationship marketing
tools, benefits, and pitfalls to avoid in relationship marketing, and linking the concept of
relationship marketing to the South African banking industry.

2.2 MARKETING

At the heart of marketing, is developing satisfying exchanges from which both customers and
marketers (businesses) can receive benefits (Hult et al., 2014:5). Outstanding marketing
businesses go the extra mile in order to gain more insights on customer and understanding their
needs, wants and demands (Armstrong & Kotler, 2013:59). Al-Hersh et al. (2014:71) state that,
for a lengthy period, marketing had the primary goal of acquiring customers rather than attempting
to keep them; the main focus was therefore on transactions and exchanges (Adejoke & Adekemi,
2012:103). According to Rasul (2015:66), customers were persuaded to buy, but there was no
emphasis on the establishment of a long-standing relationship between the customer and the
business. The introduction of relationship marketing therefore sought to change the customer-
business relationship (Rasul, 2015:66). Therefore, relationship marketing is a logical
improvement in the gradual development of marketing thinking (Cant, 2010:10) and encompasses
building and maintaining relationships (Ibok & Akaninyene, 2014:97).

2.2.1 Definition of marketing

Regardless the fact that many people consider marketing as advertising or selling, marketing is
much more complex than what most people perceive (Hult et al., 2014:4). According to Armstrong
and Kotler (2013:33), marketing is the process through which businesses create value and
establish customer relationships with the aim of obtaining value from customers in return. The
American Marketing Association (2013) defines marketing as “the activity, set of institutions, and
processes for creating, communicating, delivering, and exchanging offerings that have value for
customers, clients, partners, and society at large”. Mullins and Walker (2010:6) further define

17
 Chapter 2: Relationship marketing

marketing as a social process comprising the activities essential to enable individuals and
businesses to get what they need and want by means of exchanges with others and to cultivate
continuous exchange relationships.

From the above definitions, marketing is defined in this study as:

A mutually beneficial process which involves a business creating and delivering

valuable offerings to customers and in exchange the business also obtains benefits
from the customer.

2.2.2 Importance of marketing

It is important that businesses should strive to obtain insights on what their customers actually
feel and want, to enable meeting those needs. This is also the fundamental argument that proves
the significance of marketing (Ellis et al., 2011:134). According to Armstrong and Kotler (2013:33),
sound marketing strategies are vital for the success and sustainability of businesses. In light of
these statements, marketing is important because:

 It is required in order to create awareness of a new product and to permit innovative

businesses to earn benefits from their efforts before the product reaches the decline stage
of the product life-cycle (or is overtaken by competing products) (Ailemen, 2013:152).
 It provides information to stakeholders, the businesses and customers. It gives basic
interrelated information with respect to demand, supply, and competition of products other
than successes and failures of a product in the market (Tabassum, 2014:42).
 It is a business function encompassing a chain of techniques such as advertising and
marketing research (Gbadamosi, 2013:18). Advertising performs the marketing
communications function (Rad et al., 2014:121), and as identified by McDaniel and Gates
(2013:4), marketing research constitutes the planning, gathering and analysis of data
pertinent to marketing decision-making and the communication of the findings of this
analysis to management.
 Through the appropriate use of marketing within a business, a business knows that keeping
customers informed; this is not difficult if the business continuously interacts
(communicates) with the customer (Burnett, 2007:27).
 It draws attention and builds interest (Morello, 2016). In other words, marketing can entice
customers and cause them to develop interest in the business or products.
 It provides a wide range of job opportunities (Adamson & King, 2013:38). In other words,
marketing is a viable source of employment to people.

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 Chapter 2: Relationship marketing

As indicated above, relationship marketing emerged in order to establish relationships between

customers and the business, since more traditional forms of marketing only focused on attracting
customers instead of keeping customers. The following section discusses the advent of
relationship marketing.

2.3 THE EMERGENCE OF RELATIONSHIP MARKETING

The concept of relationship marketing may appear to have been non-existent, but it has been in
use for hundreds of years (Sonkova & Grabowska, 2015:201). Although the term was only
formally presented by Berry in 1983, numerous authors have previously debated on the
relationship between marketers and customers (Khojastehpour & Johns, 2014:242). Shirshendu
et al. (2009:2) further argue that to a certain extent, it is difficult to determine the actual period
when the concept of relationship marketing began in marketing literature. Keshvari and Zare
(2012:157) posit that the term relationship marketing rose to prominence in the 1980s when the
focus of marketers began to change from gaining customers to retaining customers. According to
Taleghani et al. (2011:156), relationship marketing emerged as an alternative to the main
interpretation of marketing as a sequence of transactions, because many exchanges (specifically
in the service industry) were regarded to have interpersonal features (Gummesson, 1994).

According to Jesri et al. (2013:305), the development of industrial marketing and service
marketing resulted in a new tactic that emphasised long-term and intimate relationships between
the business and the customer. Hence, the evolution of relationship marketing was predicated on
the criticism of pure transaction oriented marketing (Ogechukwu, 2012:32) and in reaction to the
weaknesses of transactional marketing (Widana et al., 2015:3), which was a major trend in the
20th century (Sonkova & Grabowska, 2015:197). During the 1970s and 1980s, numerous authors
such as Gummesson, Grönroos, Berry, Sheth, Hammarkvist, Håkansson and Mattson began to
query on the validity of the concept of transactional marketing as a generally accepted marketing
theory (Maxim, 2009:289). Ogechukwu (2012:32) further states that the key principles upon which
relationship marketing is rooted is that the greater the level of customer satisfaction in a business
relationship, the more likely the customer will be to continue the relationship with a specific
business.

The establishment of the relationship marketing approach resulted in remarkable changes in

marketing methods (Nezhad, 2015:602). Morgan et al. (2015:1) state that the major force behind
the emergence of relationship marketing was the economic recession of the 1980s. According to
Koi-Akrofi et al. (2012:79), the concept of relationship marketing was strongly influenced by the
reengineering of marketing theory, which was of increasing significance at the same time.
Furthermore, the increase in the number of scholars studying the concept of relationship

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 Chapter 2: Relationship marketing

marketing became a driving force in its growth, with numerous studies justifying and supporting
the relational approach in academic conferences and journals (Egan, 2011:17). Sheth et al.
(2015:125) state that the need to embrace total quality management in order to enhance quality
and decrease costs – thus making it essential for suppliers and customers to be part of the
programme in the value chain – led to the adoption of relationship marketing, as this required
interactions between customers, suppliers and other marketing members.

According to Gilaninia et al. (2011a:510), researchers identified several factors that resulted in
the emergence of relationship marketing, which include:

 Increasing intensity of global competition.

 Customers’ increasing knowledge and demand.
 The fragmentation of markets.
 Significant changes in customer buying patterns.
 Continuous improvement in quality standards.
 The overall influence of technology.

Morgan et al. (2015:16) indicate that Berry encouraged both marketing scholars and practitioners
to observe, and to implement a strategic focus on retaining customers rather than merely
acquiring them. Oogarah-Hanuman and Ramnarain (2013:1) stipulate that customers are the
reason for the presence of businesses and without customers, businesses cannot obtain profits
and will cease to operate. Khalifa (2014:944) further notes that a relationship marketing focus is
giving rise to significant successes and improvements due to environmental characteristics and
the swift evolution of information and communication technologies. Since the ultimate goal of
relationship marketing is to obtain the utmost value from a customer, customer loyalty should be
accentuated to reach this goal (Ogungbade, 2015:3).

2.4 DEFINING RELATIONSHIP MARKETING

Defining relationship marketing is rather difficult, because its conceptual and theoretical
foundations span several fields and disciplines (Beetles & Harris, 2010:348). Abeysekera and
Kumaradeepan (2012:48) argue that the concept of relationship marketing can be simplified and
easily understood through a comparison with its complementary concept known as transactional
marketing. The field of relationship marketing has been broadly studied (Soimo, 2015:1307) and
Rahman and Masoom (2012:97) indicate that researchers have defined the concept of
relationship marketing in different terms. According to Gilaninia et al. (2011b:788), relationship
marketing continues to be one of the least understood concepts, regardless of the fact that it is
one of the oldest approaches to marketing.

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 Chapter 2: Relationship marketing

Berry (1983) viewed relationship marketing as a tactic to attract, maintain and improve the
relationship between the customer and the business (Percy et al., 2010:2597). Abdullah et al.
(2013:373) further state that even though attaining more customers was and would continue to
be part of the marketer’s duty, this perspective highlights that a relationship view of marketing
means that retention and development are equivalent or even more significant to a business in
the long term than customer acquisition. This notion further implied that by categorising
customers, not all customers or prospects should be treated in the same manner (Oboreh et al.,
2011:230).

According to Berry and Parasuraman (1991), relationship marketing entails “attracting customers,
developing lasting relationships with those customers, and potentially retaining those customers
for as long as profitable”. Palmatier (2008:3) further defines relationship marketing as the process
of identifying, developing, keeping, and ending relational exchanges with the aim of improving
performance. According to Godson (2009:4), relationship marketing involves the focus of
marketing efforts and resources on developing and preserving long-term, intimate relationships
with customers. Sheth et al. (2015:123) also define the concept of relationship marketing as “the
ongoing process of engaging in collaborative activities and programs with immediate and end-
user customers to create or enhance mutual economic, social and psychological value, profitably”.
Further definitions of relationship marketing from different authors over the last two decades are
provided in Table 2-1 below.

Table 2-1: Relationship marketing definitions

Author(s) Definition

Gummesson (1994) Relationship marketing can be seen as relationships, networks and

interactions.
Morgan and Hunt Relationship marketing is any marketing effort aimed at the creation,
(1994) development and maintenance of successful interactions (exchange values).

Möller and Wilson Relationship marketing is about understanding, creating and managing
(1995) interactions between economic partners, suppliers, service providers and
end-users.
Sheth and Parvatiyar Relationship marketing includes communications and marketing programs
(1995) focused on economic development, i.e. customers benefit by lowering the
price of products or services.
Grönroos (1997) Relationship marketing can be seen as a process of identifying and creating,
maintaining, improving and, if necessary, terminating relationships with
customers or other stakeholders. The aim is to build profitable relationships
based on mutual trust, fulfilling promises and achieving the objectives of all
parties involved.
Berry (2002) Relationship marketing is the development of strategies to cultivate
relationships with customers, developing these relationships further,
maintaining them over the long term, and adding more value during the
process.

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 Chapter 2: Relationship marketing

Table 2-1: Relationship marketing definitions (cont.)

Author(s) Definition

Dudinská et al. Relationship marketing is one of the strategic business management

(2006) concepts and its essence is to establish, develop, maintain and improve
relationships with customers and other stakeholders (such as employees,
owners, suppliers, intermediaries, public and professional institutions) in
order to create mutual value and benefits for all parties involved.
Michalová (2006) Relationship marketing is forcing one to immediately analyse the marketing
situation and develop activities and resources in order to create, maintain and
expand relationships with customers or specific customer segments.
Peng and Wang Relationship marketing involves all the marketing tools with a focus on
(2006) developing customer loyalty, and gives benefits to all parties involved in the
process.
Žvirelienė and Relationship marketing is defined as “the new marketing”, oriented towards
Bučiūnienė (2008) the main objective of the business’ operations-fulfilment of customer needs
and building of long-term relationships with customers.
Jurgilevičiūtė and Relationship marketing can be defined as a long-term, mutually useful
Sūdžius (2010) relationship, which is characterised among others by such attributes as
confidence, cooperation, communication, commitment, dependence, as well
as development and maintenance.
Koi-Akrofi et al. (2013) Relationship marketing entails an understanding of customers' needs and
wants through their lifecycle and providing a variety of products or services to
meet their needs and wants.

Source: Adapted from Lendel and Varmus (2015:65).

According to Benouakrim and Kandoussi (2013:148) and Moretti and Tuan (2013:254),
regardless of the various definitions of relationship marketing, there are similar elements
noticeable in the definitions as shown in Table 2-2. Sonkova and Grabowska (2015:197) provide
the following three main elements of relationship marketing (also highlighted in Table 2-2), namely
that it is concerned with:

 Setting up engagement activities on the overall process of the relationship life-cycle.

 Identifying individual customers, groups of customers, other businesses and/or employees
as targets of relationship marketing activities.
 Creating mutual benefits for the exchange parties involved.

Table 2-2: Relationship marketing common elements

Author(s) Relationship marketing entails

Gummesson (1994), Morgan and … the maintenance of successful interactions.

Hunt (1994), Möller and Wilson
(1995)

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 Chapter 2: Relationship marketing

Table 2-2: Relationship marketing common elements (cont.)

Author(s) Relationship marketing entails

Godson (2009:4), Sheth and … communications and marketing programs.

Parvatiyar (1995)
Berry (2002), Berry and … the establishment, development, maintenance and
Parasuraman (1991), Dudinská et al. improvement of relationships.
(2006), Grönroos (1997)
Grönroos (1996), Peng and Wang … mutual benefits to both parties involved.
(2006), Sheth et al. (2015)
Jurgilevičiūtė and Sūdžius (2010), … long-term relationships with customers.
Žvirelienė and Bučiūnienė (2008)

From the above discussion and definitions, relationship marketing is defined in this study as:

A concept that involves attracting customers, converting short-term transactions

between a business and customers into long-term transactions in order to establish
sustainable long-term relationships while eliminating costly or unnecessary
relationships and nurturing existing relationships to ensure there are mutual
economic, social and psychological benefits acquired while adding value
continuously.

2.5 THE EVOLUTION FROM TRANSACTIONAL MARKETING TO RELATIONSHIP

MARKETING

Marketing philosophies and practices are continuously changing (Khalifa, 2014:943). According
to Al-Hersh et al. (2014:71), marketing efforts used to be typically aimed at getting customers
rather than retaining them. The intensifying competition in the production of goods and services
has in recent times resulted in the transactional marketing approach evolving into to the
relationship marketing approach, which is focused on forming and maintaining long-term
relationships with customers (Gilaninia et al., 2011b:789). Over the past decades, businesses
have therefore become aware that a focus on transactional marketing may not be enough to
provide an advantage above competitors (Sonkova & Grabowska, 2015:197). According to
Morgan et al. (2015:2), relationship marketing has transformed the marketing paradigm from a
transactional to a relational viewpoint, and from a market share, to share-of-wallet objective in
marketing, and this resulted in a change from competition and competitive advantage concepts
to collaboration and transaction cost as economics concepts. It is worthwhile to state that in the
past, marketers did have concerns regarding retaining customers, encouraging repeat purchases,
nurturing trust and facilitating future marketing (Al-Hersh et al., 2014:72).

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 Chapter 2: Relationship marketing

Since relationship marketing entails a transition from market share to customer share, as such, a
sale should be considered as the genesis of a continuous relationship (Veerasamy, 2011:2356).
Al-Hamed and Amin (2014:47) posit that the paradigm shift from transactional to relationship
marketing is related to the reappearance of direct marketing. According to Rahman and Masoom
(2012:98), the causes as to why this paradigm shift occurred include:

 Recognising the importance of customer retention.

 Globalisation of businesses.
 Keeping up with the progressing market economy.
 The developing nature of the marketing mix.
 Fulfilling the need for establishing closer customer relationships.

Rahman and Masoom (2012:98) further state that, in addition to the aforementioned market
demands, paradigm shifts concurred with a view to develop marketing practices and
achievements that were missing. In contrast to relationship marketing, which focuses not only on
attracting customers but also on keeping customers and understanding more about the customer,
transactional marketing is centred on attracting new customers and making as many transactions
as possible (Maxim, 2009:289). In other words, transactional marketing seeks to reach the target
market as a whole (i.e. mass marketing), whereas relationship marketing attempts to provide
individual communication to the relevant customer (Sonkova & Grabowska, 2015:202).
Furthermore, transactional marketing has no objective of creating loyal customers (Domazet et
al., 2010:5), whereas relationship marketing is very much concerned with building relationships
based on every possible transaction between the business and the customer (Lo, 2012:92).

Ogechukwu (2012:35) further indicates that the differentiating features between relationship
marketing and transactional marketing include the following:

 Relationship marketing consists of the key concepts of interaction, relationships and

networks, whereas with transactional marketing, the 4Ps (price, place, product, promotion),
segmentation, and branding are the important aspects.
 With regard to marketing goals, transactional marketing activities seek only to obtain new
customers, while relationship marketing focuses not only on obtaining new customers but
also on their retention and recovery.
 Relationship marketing attempts to establish two-way communication with the customer in
order to align the business’ product and services with specific customer needs. In contrast,
in transactional marketing, the marketing strategy involves presenting the product.

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 Chapter 2: Relationship marketing

 While a transactional marketing strategy implements non-personal advertising as a

promotion strategy, the promotional strategy of relationship marketing involves personal
interaction with customers.

Egan (2011:39) further theorises that relationship marketing advocates a paradigm shift in the
type of marketplace transactions - from discrete to relational exchange. Table 2-3 below
summarises the differences between relationship marketing and transactional marketing.

Table 2-3: Transactional marketing versus relationship marketing

Characteristics Transactional marketing Relationship marketing

Time orientation Short-term Long-term
Organisational goal Emphasis on making the sale Emphasis on retaining the
customer
Customer service priority Relatively low Key component
Customer contact Low to moderate Frequent
Degree of customers’ Low High
commitment
Basis for seller-customer Conflict manipulation Cooperation and trust
interactions
Source of quality Primarily from production Companywide commitment

Source: Adapted from Al-Hamed and Amin (2014:48).

In every marketing interaction between the buyer and seller in a transaction-based situation, a
relationship exists - although the relationship might be short and narrow in scope (Al-Hamed &
Amin, 2014:48). Rahmaan and Masoom (2012:97) opine that marketing in the 21st century is
centred mainly on creating a relationship between a business and its customers. However,
Nakhleh (2012:539) argues that some businesses use both components of relationship and
transactional marketing tactics. Hence, Egan (2011:106) argues that the coexistence of
relationship marketing and transactional marketing means that relationship marketing is a
different marketing perspective, not a replacement for transactional marketing strategies. Bhaskar
et al. (2012:46) finally add that relationship marketing is the maturity of transactional marketing.

2.6 THE FUNDAMENTALS OF RELATIONSHIP MARKETING

The main characteristics of relationship marketing are that all customers are regarded as unique.
All activities, therefore, must be focused on current customer satisfaction, by implementing plans
that are centred on the flow of information. Subsequently, businesses should realise profits by
upholding lower customer turnover and reinforcing relationships with existing customers (Husnain
& Akhtar, 2015:2). Veerasamy (2011:2356) states that the concept of relationship marketing is

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 Chapter 2: Relationship marketing

characterised by the occurrence and number of exchanges between customers and the business.
According to Chidozie and Anayochukwu (2012:28), the philosophy of relationship marketing is
predicated on the notion that customers seek to have a continuous relationship with one business
rather than constantly changing service providers in their quest for value. Hence, at the heart of
relationship marketing is the interaction between the business and relevant stakeholders (Pop et
al., 2012:353). Among these different stakeholders, a customer is regarded as the most important
(Rashed & Asil, 2015:82). In light of the fundamentals of relationship marketing set out above, the
subsequent sections presents an overview of the relationship marketing process and the main
characteristics of relationship marketing.

2.6.1 Relationship marketing process

Relationship marketing is a process rather than a onetime event, and therefore, customers have
to be aware that the business is committed to enduring relationships and that they can trust the
business to deliver services as required (Al-Hamed & Amin, 2014:51). Al-Hamed and Amin
(2014:51) concur that relationship marketing is a process (as shown in Figure 2-1), consequently,
the entire process of building and maintaining healthy and long-lasting relationships has to be
controlled at every stage (Buhler & Nufer, 2010:82). Sahaf (2008) further adds that a business
has to be cautious while developing the relationship marketing process.

Figure 2-1: Relationship marketing process

Past purchase history

Identify high-potential
Extent of cross-buying
customers
Depth of buying

Develop segment-focused offerings Develop customer

Share information acquisition strategy

Differentiate between high and low Develop customer

profit customers portfolio management
strategy
Create trust with high profit
customers
Increase share of wallet with low Maximise customer
profit customers equity

Source: Adopted from Slater et al. (2009:39).

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 Chapter 2: Relationship marketing

2.6.2 Long-term orientation of relationship marketing

As explained in section 2.4, relationship marketing is long-term orientated (Taleghani et al.,

2011:157). According to Adejoke and Adekemi (2012:102), relationship marketing underscores
that long-term relationships benefit both exchange partners. Bazini et al. (2011:159) posit that the
development of long-term relationships with customers is regarded as one of the main elements
in relationship marketing and a fundamental aspect to a business’ profitability. The concept also
means an ongoing exchange between the business and selected valued customers (Lee et al.,
2013:1200). Undeniably, as indicated by Moenardy et al. (2016:49), the business’ commitment to
retain customers is a fundamental part of relationship marketing. Therefore, businesses that are
able to create long-term relationships with customers can gain a competitive advantage that
cannot be easily imitated (Juščius & Grigaite, 2011:71). According to Domazet et al. (2010:9), the
prerequisite for long-term relationships is the ongoing interaction between a business and its
customers. A long-term relationship with customers guarantees continuous purchases by
customers (Shruthi & Devaraja, 2012:6).

Domazet et al. (2010:7) postulate that in the development of long-term relationships with
customers, the business has to pay attention to relationships with customers’ management value
chain and actions should be planned for the growth of profitable relationships. Tarokh and
Sheykhan (2015:63) add that relationship marketing seeks to build long-term fulfilling relations
with customers, suppliers and distributors with a view to attain and keep long-term business
priorities. Hence, a good relationship involves at least two necessary conditions, namely that it
should benefit both the business and the customer, and that it involves commitment from both
exchange parties over time (Bazini et al., 2011:159). Accordingly, Madan et al. (2015:7) postulate
that relationship marketing requires appropriate management in order to maintain, improve and
cultivate longstanding relationships between the business and the customer.

2.6.3 Interactive relationships

Prasath (2014:164) propounds that relationship marketing is primarily concerned with

communicating or interacting with customers through online contents and connecting products
and services by social networks like Facebook, Twitter, Pinterest and other social networking
platforms to create word-of-mouth in the market. As Prasath (2014) noted above, relationship
marketing is an interactive relationship between two active exchange partners (Khalifa,
2014:945). Al-Hamed and Amin (2014:47) further support Khalifa’s (2014) statement when they
indicate that relationship marketing requires two-way communication rather than one-way
communication, as well as the proper management of customers. Two-way communication (or
even multi-way communication) enables customers to interact and state their needs to the

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 Chapter 2: Relationship marketing

business (Williams & Chinn, 2010:424). Du Plessis and Lombard (2013:3) posit that it is
necessary for the business to communicate with the customer and the customer has the duty to
listen.

Successful communication can be useful in retaining current customers (Lo, 2012:93). Al-Hersh
et al. (2014:80) note that effective communication between a business and its customers builds
a superior relationship and ultimately results in loyal customers. Active communication permits
customers and businesses to meet and interchange information-related needs that might be a
challenge to express (Gustafsson et al., 2012:314). Balaji et al. (2016:186) further state that
communication is regarded as the epitome of customer relationship management, as it gives an
understanding of the exchange partners’ aims, and nurtures trust and information exchange
required to stimulate long-term customer relationships.

2.6.4 Customer lifetime value

According to Blythe (2012:284), relationship marketing is also concerned with the customer
lifetime value. Customer lifetime value changes marketing from a transactional marketing
approach to a relationship marketing approach (Rozek & Karlíček, 2014:29). Safari (2014:168)
defines customer lifetime value as the existing value of all future profits acquired from a customer
over his or her life of relationship with a business. According to Bassett (2013:1), customer lifetime
value is about “optimising each interaction and conversation in order to create an engaged
customer relationship which drives customer retention, repeat purchases, customer referrals,
reduced support costs, and possibly even price premiums”. It is therefore crucial to retain
customers in order to realise the highest possible customer lifetime value (Roberts & Zahay,
2012:86). Bassett (2013:4) states that higher customer lifetime value is influenced by a business’
capability to create valuable and sustainable relationships with its customers.

Damm and Monroy (2011:268) underscore that customer lifetime value is an instrument that
assists in estimating the financial potential of customers; this requires a great deal of information.
According to Krstevski and Mancheski (2016:66), customer lifetime value can be useful to a
business in identifying the profitable customers. Customer lifetime value plays a significant role
in driving the different marketing efforts through the customer’s life-cycle (Mahishi, 2014:5). Figure
2-2 shows the value created by a typical customer over his or her life-cycle.

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 Chapter 2: Relationship marketing

Figure 2-2: Value customers generate during different phases of the lifecycle

Acquire Grow Maintain Retain

Value

Time

Source: Adopted from Mahishi (2014:6).

2.6.5 Customer intimacy

Customer intimacy is also one of the main components of relationship marketing (Blythe,
2012:287). Beetles and Harris (2010:353) posit that customers are often more willing to engage
in a marketing relationship where a certain level of intimacy is reached between the business and
the customer. Customer intimacy focuses on getting insights about customers’ needs and
expectations with a view to enable the customisation of the product or service offering (Habryn,
2012:50). According to Peck et al. (1999:418), the success of customer intimacy as a strategy
entails identifying the type of customers who are willing to be in an intimate (business-customer)
relationship. Omarini (2011:86) indicate that the existence of customer intimacy occurs when both
the relationship between a business and a customer, and when the capability of a business to
adapt to customers are high. With reference to the service industry, human resources play a
crucial role to ensure the appropriate service delivery towards achieving customer intimacy
(Anantadjaya et al., 2015:13).

Anantadjaya et al. (2015:17) posit that, within competitive market environments, businesses must
provide customer value through intimate relationships with customers in order to encourage
loyalty. Therefore, businesses pursuing a customer intimacy strategy ought to have extremely
sophisticated tools, often comprising of comprehensive IT databases, to record important
customer information; they should also concentrate on building knowledge concerning customer
need and expectations frequently (Kandasamy, 2016:199). According to Sulaiman et al.
(2013:357), the customer intimacy tactic is characterised by the fact that businesses must
establish a relationship with customers. Undeniably, businesses that concentrate on customer
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 Chapter 2: Relationship marketing

intimacy will thrive or fail mainly by giving high levels of personalised service to their customers
as compared to the market rivals (Cobb, 2015:228).

2.6.6 Customer share

Relationship marketing refers to customer share and not market share (Veerasamy, 2010:2356).
Customer share (or share-of-wallet) measures the extent to which a customer is committed to a
business’ products by calculating the percentage increase of customers’ total purchases of those
products (Davis & Hilbert, 2013:163). In contrast to share–of-wallet, Kumar and Reinartz
(2012:106) define market share as the share of a business’ sales as compared to the sales of all
other competing businesses across the total number of customers in a given market. According
to Armstrong et al. (2014:30), businesses seek to obtain profitable customers as well as building
relationships that will retain these customers and grow customer share. Ferrell et al. (2015:66)
believe that having the knowledge that customers have distinct needs and that all customers have
different values for the business is necessary when focusing on customer share. The ability to
recognise single customers enables marketers to change their concentration from targeting
groups of same customers to increasing their share of a single customer’s purchases (Pride &
Ferrell, 2016:17).

According to Armstrong et al. (2014:29), providing great customer value results in highly satisfied
customers who will have more repeat purchases, which in turn assists the business in capturing
customer lifetime value and greater customer share. Customer share is helpful in assessing
individual salespersons as the outcome suggests how successful they have been in extending
their relationship with the customer (Davis & Hilbert, 2013:164). As noted by Cravens et al.
(2011:319), share-of-wallet shows different customer groups’ potential value, a significant
contribution for direct marketing and sales tactic and steering promotional programmes. In
addition to using share-of-wallet to track the progress of an individual’s customer lifetime value
contributions, this measure can be useful when making a distinction between profitable and
unprofitable customers (Kumar & Shah, 2015:151).

In conclusion, one of the fundamental principles of relationship marketing is to distinguish

profitable customers from non-profitable customers with a view to allow a business to focus
properly on customer share (Veerasamy, 2011:2357). Relationship marketing also involves the
engagement of a business in certain important activities that include setting up tactics to draw
customers and retaining the attracted customers (Udegbe et al., 2010:168). Paliwal and Indu
(2013:407) hold that relationship marketing also entails an understanding of customers’ needs
and wants through their life-cycle and catering for those needs and wants by providing products
and services. For relationship marketing to be used and form part of business culture, it has to be

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 Chapter 2: Relationship marketing

oriented towards all customer groups (Hughes & Fill, 2003:97). The overall objective of
relationship marketing is to unpack all those aspects that affect customer relationship with the
business and to work on those factors to allow customer retention (Lo, 2012:92).

In light of these features of relationship marketing, the customer-business bonds established in

relationship marketing tend to last longer and encompasses a broader scope than those
established in transactional marketing (Kurtz, 2014:348). According to Ocloo and Tsetse
(2013:138), relationship marketing is primarily focused on how businesses create and improve
their relationships with customers for lasting profitability. However, Al-Hamed and Amin (2014:50)
argue that relationship marketing has to take into consideration whether a customer is indeed
keen to engage in a longstanding relationship or not.

2.7 DRIVERS OF RELATIONSHIP MARKETING

Numerous efforts have been directed towards enhancing business performance through different
relationship marketing practices (Rajalingam & Pushpanathan, 2013:58). According to
Chowdhury (2012:50), the main aim of relationship marketing is to detect the main drivers of the
relationship and their results. The following section therefore discusses the different key drivers
of relationship marketing.

2.7.1 Service quality

Service quality is generally noted as a critical requirement and contributing factor of

competitiveness for creating and sustaining satisfying relationships with customers (Agyapong,
2011:204). However, Ariani (2015:35) posit that the concept of service quality receives much
attention and debate in the research literature since it is difficult to define and measure. Ocloo
and Tsetse (2013:140) add that, if the anticipated service is higher than the received service, the
service quality is considered unsatisfactory. According to Hutt and Speh (2010:268), from a
customer’s viewpoint, service quality implies a responsive employee who stimulates confidence
and adjusts to the customer’s distinctive needs or choices in a professional way.

2.7.2 Trust

Marketing academics have acknowledged the significance of trust in creating and managing
business relationships (Naderian & Baharun, 2015:6). Rezaei et al. (2015:353) define trust as the
level to which one party considers the other party as being honest. According to Halimi et al.
(2011:209), in order for trust to be developed, a customer should have confidence in the business’
reliability and honesty. Furthermore, Rahmani-Nejad et al (2014:263) propound that customers
who have trust in a business are most likely to be loyal to the business. Afzal et al. (2010:44) add

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that trust is an indicator of customers’ commitment and satisfaction with a specific business, brand
product or service.

2.7.3 Switching costs

Switching costs (or perceptions thereof) are a powerful mechanism to avoid customer defection
(Eid, 2013:283). According to Matzler et al. (2014:118), switching costs are viewed as a powerful
marketing instrument that results in higher revenue and less costly relationships. Lucchesi et al.
(2015:25) believe that the main consequence of switching costs is the likelihood of businesses to
increase their prices and generate a captive demand. Furthermore, Stan et al. (2013:1545) state
that an increase in switching costs may imply that dissatisfied customers maintain their
relationship with the service provider (business) even if the business’ image is subject to negative
change. According to Marshall (2010:71), customers tend to develop commitment if they perceive
high switching costs associated with changing from their current business to another business.

2.7.4 Satisfaction

In the course of creating customer satisfaction, economic aspects, emotional attitudes, and
behaviours of customers are important factors (Magasi, 2016:577). Therefore, as highlighted by
Naderian and Baharun (2015:8), those customers who feel satisfied about the whole experience,
would be satisfied. Ariani (2015:35) defines customer satisfaction as “the perception or judgment
made by customers for services it receives”. According to Kishada and Wahab (2013:265), when
experiencing a lack of satisfaction, customers would tend to spend less on a business’s services
and would not advocate the services to others. On the other hand, Angelova and Zekiri (2011:236)
state that overall customer satisfaction results in additional profits for businesses and market
share growth.

2.7.5 Loyalty

Angelova and Zekiri (2011:236) note that customer loyalty is a critical aspect in businesses’
growth and their performance. Loyalty is built through methods that strengthen and create a
positive mind-set and related behaviours (Sidiqqi, 2011:17). According to Auka (2012:185), there
are more benefits related to keeping loyal customers as compared to getting new customers.
Onditi et al. (2012:225) argue that customer loyalty encompasses attracting the appropriate
customer, getting them to purchase, purchase frequently, purchase in large quantities and bring
more customers to the business. Furthermore, Poku et al (2013:601) add that loyal customers
are the ones that are not easily attracted to price incentives from business’s market rivals, and
loyal customers frequently purchase more than less loyal customers.

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The implementation of successful relationship marketing strategies tends to result in long-term

loyal customer relationships (Gaurav & Khan, 2013:47). Madjid (2013:49) notes that, in order to
establish long-term loyalty amongst customers, these customers need to be satisfied, which
according to Hutchinson et al. (2011:194) can be achieved by establishing a trusting relationship
between customer and provider, and as postulated by Karimi et al. (2011:10) by providing
consistent and high-quality services, and by discouraging customers from incurring the additional
costs required to switch to another provider.

2.8 DEVELOPING RELATIONSHIPS

Once a business has obtained a customer, the relationship with the business can develop in two
distinct directions based on the level of customer satisfaction achieved. A customer can either
become an enthusiast for the business if he or she is continuously satisfied, or on the other hand,
a customer can become a “terrorist” if he or she has been dissatisfied (Brink & Berndt, 2013:34).
According to Beamish (2003:203), relationship development is a lengthy process and in order to
attain customer loyalty, there are various significant stages through which the relationship should
move. The popular relationship marketing ladder of loyalty (shown in Figure 2-3) is used to show
the six stages of relationship development and these also signify the various stages of relationship
development, or customer bonding, in order to attain loyalty (Brink & Berndt, 2013:34).

Figure 2-3: Relationship marketing loyalty ladder

Partner

Advocate

Supporter

Client

Customer

Prospect

Source: Adopted from Payne et al. (1999:45).

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 Chapter 2: Relationship marketing

The first three stages of the ladder (i.e. prospect, customer and client) concentrate on obtaining
customers (as is the case with the transactional marketing approach), and the upper three stages
(i.e. supporter, advocate and partner) focus on the development of business-customer
relationships (Buhler & Nufer, 2012:30). The six stages of relationship development are discussed
below:

 Prospects: At the bottom of the loyalty ladder is a prospect who needs to be convinced to
buy for the first time and to experience the product offering. These prospects have the
possibility of buying in the future since they are attracted to a business’ promotions. In a
scenario where prospects are addressable, businesses do not only have to choose how
much to spend; they have to select more interesting prospects to target first. By approaching
a prospect, a salesperson must have details about the prospects concerning their needs,
use of brands, feelings about existing brands as well as individual characteristics (Bowie &
Buttle, 2011:380; Buhler & Nufer, 2012:30; Kumar & Shah, 2015:180; Ferrell et al.,
2015:478).
 Customer: In relationship marketing, a customer refers to someone who has had a
transaction with a business on one occasion or occasionally. Superior service and follow-
up contacts are, however, essential to move customers to the next step of the ladder (Brink
& Berndt, 2013:35; Smith et al., 2007:202).
 Client: The business should attempt to convert the new buyer into a client who buys more
often. If clients are satisfied with all their interactions with the business, they may turn out
to be more significant, and the relationship evolves to be more than just buyer and supplier,
and brand loyalty starts to increase (Brink & Berndt, 2013:35; Withey & Lancaster,
2007:244)
 Supporter: Supporters tend to like the business, but only supports it passively. Although
supporters can patronise a business, its products and services and while they spread good
word-of-mouth, they are not motivated to the level of an advocate (Buhler & Nufer, 2012:31;
West et al., 2010:225).
 Advocate: Advocates include those customers who have high levels of commitment
towards the business, and only a major breach of trust will break this goodwill. These
customers begin to create word-of-mouth about a business’ products, telling other people
about the satisfaction they have experienced and recommending them to use a specific
business’ products (Brink & Berndt, 2013:35; Withey & Lancaster, 2007:245).
 Partners: Finally, advocates turn into partners in the ultimate equally rewarding
relationship. Fulfilled with the period during which a business has been catering to the
customer’s needs, at this point, a customer prefers a certain business as a provider of their

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 Chapter 2: Relationship marketing

needs, and the business now has the customer’s trust (Bowie & Buttle, 2011:380; Brink &
Berndt, 2013:35).

The main aim of the loyalty ladder is to progress customers up the ladder, although some
customers may move down the ladder and some may remain at the same rung (Bowie & Buttle,
2011:380). Getting customers to move up the ladder entails a shift from customer acquisition
(which is a transactional approach), to customer retention, which is a relationship approach
(Jackson, 2013:48). According to Yoon and Sims (2014:230), the main objective of relationship
marketing is to shift customers to the highest rung possible, since greater benefits accumulate to
the business at the higher level of loyalty. Gledhill (2010:61) notes that there are numerous
methods that can be implemented to get customers from being a prospect to a partner. Some of
these methods include:

 Loyalty programmes: These function on the basis of giving rewards to customers in

exchange for their on-going support (Harris & Botten, 2008:111). According to Magatef and
Tomalieh (2015:78), loyalty programmes have to be designed with specific rewards to
specific groups depending on their value, and they have to offer high value to higher
customer value tiers, by rewarding best customers to stimulate purchasing higher levels.
 Exit barriers: Making barriers to exit a business can assist a business in keeping customers
by making it difficult for the customers to switch to the competitors’ offerings (Gledhill,
2010:61). In other words, a business can put in place switching costs that will make it hard
for customers to change to another business offering products or services of the same
range.
 Customer satisfaction: In a turbulent market arena, customer satisfaction is the best
method to guarantee that customers buy continuously with the same business (Gledhill,
2010:61). According to Mohsan et al. (2011:264), customer satisfaction is of great
importance in business world because without satisfied and loyal customers, a business will
cease to exist.

2.9 RELATIONSHIP MARKETING IMPLICATIONS

According to Lancaster and Massignham (2011:29), adopting a relationship marketing approach

has implications on how a business conducts its promotional strategies, how a business handles
its customers and customer service functions, and how a business develops and implements
customer information. Therefore, as posited by Withey and Lancaster (2007:34), adopting
relationship marketing approach has the following implications:

 The entire emphasis in marketing shifts from getting the customer to retaining the customer.

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 Chapter 2: Relationship marketing

 The entire business unit, not only the marketing department, has to be customer-oriented
and must assist in creating advocates for the business.
 It is important to establish and sustain a customer-focused environment, which must be
motivated and supported by top business managers.
 More emphasis should be on researching and understanding customers. Effective
relationship marketing is sustained by getting relevant and good information and databases
which, in turn, form the foundation for customer relationship management. Therefore,
customer research is an inevitable requirement for relationship marketing (Buhler & Nufer,
2012:71).
 Relationship marketing includes the use of the additional 3Ps of the marketing mix, namely
people, physical evidence and processes.

2.10 RELATIONSHIP MARKETING TOOLS

According to Ogungbade (2015:9), relationship marketing tactics are regarded as important in

establishing long-standing relationships with customers with a view to attain mutual benefits for
all parties. Some of the tools used in achieving relationship marketing include financial bonds,
social bonds, promises, trusts, commitment, and structural bonds (Dash & Rajshekhar, 2013:2).
The above-mentioned relationship marketing tools are briefly explained below.

 Financial bonds entail that businesses utilise financial incentives to reinforce customer
relationships (Wu & Lin, 2014:55). According to Lin and Chung (2013:4), this type of bond
forms a relationship that encourages customers’ consumption motivation and gains their
loyalty by means of price incentives such as discounts, free VIP cards, coupons and free
delivery charge. The main idea behind the implementation of financial bonds as a strategy
is that customers are more willing to be involved in an exchange relationship if they can
save money from the exchange (Buhler & Nufer, 2012:27). This bond can be easily imitated
by market rivals, and it cannot give a competitive advantage to a business (Lin & Chung,
2013:4).
 Social bonds as defined by Dash and Rajshekhar (2013:2) are “investments of time and
energy that produce positive interpersonal relationships between partners, although this
can be range from formal organizational contacts to informal, personal contacts”.
Businesses that have social bonds as their focal point understand that forming a relationship
comprises social relations with their customers; furthermore, the quality of social relations
is a key aspect for building these social bonds (Lee et al., 2015:831). The main objective of
social bonds is to make customers personally involved in the relationship (Buhler & Nufer,
2012:27). This type of bond allows the business to understand their customers’ needs and

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 Chapter 2: Relationship marketing

wants, and the business is therefore able to make and deliver individualised products or
services (Lin & Chung, 2013:4). Shruthi and Devaraja (2012:11) posit that social bonds
cannot be easily broken and therefore they tend to last longer. The creation of social bonds
usually occurs during interactions between employees and customers in the context of
service delivery within the working hours, but also and afterwards (Basera, 2013:236).
According to Buhler and Nufer (2012:27), the more positive interactions created by a
business with a customer, the closer the social bond will be.
 Structural bonds are formed when businesses and customers commit resources to a
relationship (Buttle, 2009:275). According to Lee et al. (2015:832), “firms focusing on this
level rely on structural solutions in establishing and maintaining a relationship with their
customers. The structural solutions may include technical or informational factors (e.g.
requesting a business partner to adopt a software that enables the partner to share certain
information) and strategic partnership (e.g. co-branding)”. This bond provides solution to
important customer, and is a worthy dimension in relationship marketing (Lin & Chung,
2013:4). Structural bonds can also result in switching costs being incurred by the customer
when they change their service provider (Adiwijaya, 2014:19). Shruthi and Devaraja
(2012:14) posit that a structural bond comprises a strong bond between the customer and
the business. Among structural bonds, product or service performance is at the core of an
exchange transaction, because a product or service has to align with the customer’s
expectations to enable the continuation of the relationship and to be at least of a similar
value to its market rivals (Chirica, 2013:293).
 Trust is the level to which one party feels that the other party is honest (Rezaei et al.,
2015:353). According to Dash and Rajshekhar (2013:3), keeping and reinforcing trust are
necessary to the long-term success of a relationship. The key advantage of trust is customer
loyalty that results in a sustainable relationship, better share of wallet, and referrals
(Halliburton & Poenaru, 2010:3). In addition, Dash and Rajshekhar (2013:3) indicate that
trust can result in the commitment to a relationship from another partner putting more effort
to preserve an essential relationship. If a customer regards a business as reliable and as
having integrity, the customer will tend to trust the business (Buhler & Nufer, 2012:29).
 Commitment suggests that exchange partners in a relationship assume a successful and
on-going relationship (Li et al., 2015:1046). The concept of commitment can be categorised
into calculative commitment, which is based on the cognitive assessment of the importance
of a relationship, and affective commitment, which is based on a sense of preferring and
emotional bonding to a relationship (Buhler & Nufer, 2012:29). Husnain and Akhtar (2015:3)
state that communication is necessary between exchange partners for sustainable
relationships and commitment. In addition, Danish et al. (2015:30) posit that commitment is

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 Chapter 2: Relationship marketing

a crucial aspect in attaining successful relationships between exchange partners. Dagger

et al. (2011:276) further note that customers who are committed to a business will greatly
value the relationship given that the relationship demands effort and attention. When
customers maintain long relationships with a specific business, they seek not only its core
service, but also expect additional favours as a mutual benefit to their commitment to a
business (Lee et al., 2013:1204).
 Promises communicate what a customer can anticipate to receive from a business' goods
and services. Promises must be genuine and consistent with other promises (Al-Hamed &
Amin, 2014:49). According to Dash and Rajshekhar (2013:2), delivering a promise is equally
essential as a means of attaining customer satisfaction, and as a way to retain existing
customers and long-term profitability. Al-Hersh et al. (2014:80) suggest that a business can
use promises to lure customers, thus influencing customers to act in some desired manner.
These promises may be clear and imbedded in the image of a brand. However, if promises
are broken, the developing relationship cannot be maintained and improved (Dash &
Rajshekhar, 2013:2).

Customers differ in the degree to which they are receptive to relationship marketing initiatives
(Hutt & Speh, 2010:412). Al-Hersh et al. (2014:68) posit that the relationship marketing strategy
is specifically essential in the service industry, which is characterised by intangible products with
high levels of customer contact. According to Shirshendu et al (2009:2), Berry also suggested five
relationship marketing strategies which are core service, relationship customisation, service
augmentation, relationship pricing and internal marketing. The relationship marketing strategies
highlighted by Berry are depicted in Table 2-4.

Table 2-4: Berry’s five relationship marketing strategies

Strategy Description

Core services marketing – Develop a “core service” that attracts new customers by meeting their
the foundation needs, product quality, offers multiple parts or choices, is long-term in
nature and provides a base for selling additional services to those
customers over time. This type of core service should be foundation for
building customer relationships.
Relationship Custom-fit the service offering to create relationships. Learn about specific
customisation – not mass characteristics and requirements of individual customers, capture the
marketing individual data, and ultimately create unique, personalised service
experience for each individual customer.
Service augmentation – Augment the core service offering with “extras” to encourage customer
the extras loyalty and develop relationships. “Extras” can be anything, ranging from
preferred customer programs to free gifts, as long as they are value by the
target market and not easily matched by the competitors.

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 Chapter 2: Relationship marketing

Table 2-4: Berry’s five relationship marketing strategies (cont.)

Strategy Description

Relationship pricing – a Give customers quantity discounts or price incentives to consolidate much
better price for better or all of their business with one supplier (e.g., frequent flyer programmes).
customers Customer loyalty should be encouraged with gifts.
Internal marketing – view Use marketing activities to develop relationships with the internal
the employee as the customer or employees. Marketers should encourage external customers
customer, and the job as to buy; however, they should also encourage internal customers to
the product perform. Good employee performance increases the likelihood of external
customer buying.

Source: Adopted from Morgan et al. (2015:18).

2.11 BENEFITS OF RELATIONSHIP MARKETING

Husnain and Akhtar (2015:1) state that in the current fast-moving global environment, more
competition necessitates an increase in performance, which suggests the need to establish strong
relationships. Relationship marketing tactics are recognised as an important aspect for building
sustainable relationships with customers in order to realise mutual benefits for both exchange
parties (Ogungbade, 2015:9). Moreover, as noted by Adejoke and Adekemi (2012:102), in any
true relationship, both exchange partners should mutually benefit from the relationship results.
Top business managers are aware of the significance of creating strong relationships with
customers to guarantee enduring profitability and sustainable core revenues (Al-Hersh et al.,
2014:67). According to Adejoke and Adekemi (2012:102), the concept of relationship marketing
has been investigated and examined from different perspectives thus, signifying its conceptual
and practical importance. The following sections therefore provide the different benefits of
relationship marketing to the business and to the customers respectively.

2.11.1 Benefits of relationship marketing to businesses

Regardless of the various interpretations of the concept of relationship marketing by different

scholars, its benefits and effects on business performance cannot be overlooked (Khandabi et
al., 2014:1546). Relationship marketing has the following benefits to the business:

 Previous studies have shown that the costs of keeping existing customers are less as
compared to acquiring new customers. Therefore, relationship marketing helps businesses
to reduce the costs of new customer acquisition. Indeed, research indicates that it is five
times more costly to attract new customers, compared to keeping existing customers (Bahri
et al., 2013:46; Bhaskar et al., 2012:46; Masoudi & Ansary, 2015:198).
 Relationship marketing results in greater customer loyalty. Customers who have a
relationship with a certain business’ brand are less likely to switch to other businesses’
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 Chapter 2: Relationship marketing

products or services. More often, marketers implement relationship marketing to make

customers loyal to ensure that customers keep returning to the business over and over
again with similar requirements (Biswas, 2014:37; Gaurav & Khan, 2013:47).
 By building relationships with customers through relationship marketing, a business can
obtain quality sources of marketing intelligence to help in developing better marketing
tactics. In other words, relationship marketing enables a business to gain greater customer
insights. Better performance tactics are thus developed and implemented. Relationship
marketing also allows a business to have greater knowledge of customer value, so that they
segment and improve its customer base and marketing tactics and even implement systems
that can warn of customer failure (Anabila et al., 2012:51; Jersi et al., 2013:304).
 Relationship marketing allows the business to establish an intimate relationship with
customers, and in this way, customer expectations are served in a manner superior to the
market rivals or competing businesses (Capel & Ndubisi, 2011:18).
 Cross-selling and up-selling also result from relationship marketing. Cross-selling involves
linking related products to the ones already being used by the customer, while up-selling
involves linking to a more expensive option from the customer’s choice (Biswas, 2014:37).
 Existing customers acquired through relationship marketing freely advertise the business’s
products and services to non-customers (Bahri et al., 2013:46). In other words, relationship
marketing results in existing customers making referrals or participation in word-of-mouth
to non-customers about the business and its products services. Word-of-mouth advertising
has a significant influence on the way that customers view goods and services, and
therefore it makes changes in judgment, values and purchasing a possibility (Rashed & Asil,
2015:82), since customers trust recommendations from other customers more than from
the business itself (Kordnaeij et al., 2013:1838).
 Businesses using relationship marketing can engage the customer in product development
(Sonkova & Grabowska, 2015:205). In this sense, relationship marketing allows the
business to get contributions from customers - this means value co-creation in the
development of products. As stipulated by Kavosh et al. (2011:77), it is essential for a
relationship to be cooperative, which implies that a customer can suggest improvements or
innovations of the product.
 Relationship marketing also results in higher profitability by means of the creation of long-
lasting relationships with existing customers (Bazini et al., 2011:159). In other words,
creating long-term relationships results in customer retention and ultimately high
profitability.

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 Chapter 2: Relationship marketing

 Customer relationship has become a factor that stakeholders use to evaluate a business
with regards to profitability, and therefore relationship marketing attracts new investors for
the business (Lo, 2012:93).
 Relationship marketing has the ability to create effective and influential relationships with
the customers and with other businesses, and these would result in a competitive
advantage (Rahman & Masoom, 2012:98).

2.11.2 Benefits of relationship marketing to customers

Cosic and Djuric (2010:54) posit that, the purpose of relationship marketing is to provide long-
term value to customers, and long-term satisfaction to customers. Accordingly, relationship
marketing benefits to the customers include:

 Relationship marketing results in special treatment benefits where customers who have a
long-lasting established relationship with the business are offered better deals, quick
service or more offers than other customers without these relationships (Morgan et al.,
2015:33).
 Social benefits also emerge from relationship marketing whereby employees individually
recognise customers, as they become familiar with each other. This allows for customised
interface opportunities. Customisation of services is the best approach to use for
relationship building, and employees should be encouraged to be aware of their duty in
enabling this process. The relationship, alliance and personal recognition that are part of
social benefits result in greater value to a customer’s experience, which encourages the
customer to maintain and commit to a specific business. Customers with good relationships
with a service business will obtain benefits associated to this relationship (Bhaskar et al.,
2012:47; Dagger et al., 2011:274; Mackay et al., 2014:307; Morgan et al., 2015:33).
 Interactive communication emanates from the effective use of relationship marketing. This
will allow customers to relate and communicate with the business, thus allowing customers
to have specific needs they require from a business satisfied (Buhler & Nufer, 2012:40).
 Lastly, relationship marketing leads to confidence benefits where customers experience
reduced anxiety because they understand the service encounter that they will have.
Confidence benefits are considered to be very influential on customer satisfaction and
customers derive more advantages from them (Adejoke & Adekemi, 2012:104; Mackay et
al., 2014:306).

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 Chapter 2: Relationship marketing

2.12 PITFALLS OF RELATIONSHIP MARKETING

Despite all the advantages mentioned above, relationship marketing has also been condemned
for several reasons (Bowie & Buttle, 2011:384). The pitfalls of relationship marketing to both the
business and the customers are provided below.

Pitfalls of relationship marketing to the business include:

 Costs of technological systems: This implies a failure of a business to use and maintain
relationship marketing software, above all for financial reasons (Buhler & Nufer, 2012:38).
 Fostering relationships to wrong customers: Certain customers may prefer to have
transactional relationships with their service provider, and consequently, if a business
constantly concentrates their relationship marketing efforts on this segment of customers,
the customers may want to change to another business for products and services
(Rootman, 2011:81). In other words, a business may lose customers if they apply the
relationship marketing approach to an inappropriate segment of customers.

Pitfalls of relationship marketing to customers include:

 Intrusion of privacy: In many businesses that give special treatment benefits to long-term
customers, the customer has to provide confidential and personal information he or she
may not be willing to share with a business. Customers are increasingly concerned about
the quantity of information they have given to businesses and what the information is used
for. Furthermore, many critics fear that marketers may obtain too much information about
the customer and they may use this information to manipulate the customer (Buhler & Nufer,
2012:41; Buttle, 2009:117; Kotler & Armstrong, 2010:542).
 Additional costs: Long-term relationships between the business and the customer often
mean that the customer should have membership that has to be paid. Even though a
membership fee is supposed to cover the costs by certain benefits of the business, the costs
of acquiring the benefits may be greater than their perceived value (Buhler & Nufer,
2012:42).
 Different treatment of customers: The creation of long-term relationships with certain
customers often means that customers who are profitable will be treated differently from
those who are seen as less profitable to the business (Buhler & Nufer, 2012:42).

2.13 RELATIONSHIP MARKETING AND THE SOUTH AFRICAN BANKING INDUSTRY

In the highly competitive South African banking industry, it is crucial for banks to develop
sustainable and close relationships with target customers in order to reduce competition in the

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 Chapter 2: Relationship marketing

market and to maintain long-term profitability (Shahrami et al., 2016:40). The stiff competition and
complexity of the business environment have resulted in the adoption of relationship marketing
by banks and implement defensive marketing strategies rather than aggressive marketing
strategies (Rashed & Asil, 2015:81). In addition, the dynamic nature of technology has intensified
the competition, and therefore it has become a challenge to obtain a competitive advantage. On
the other hand, customers are more demanding in terms of the quality of goods and services they
expect to receive for them to be loyal to banks (Rizan et al., 2014:2). As postulated by Veerasamy
(2011:2357), it is an environment where customers can assess different business offers and can
individually choose how to fulfil their desires. Banking customers are more knowledgeable and
very selective, and thus banks cannot consider themselves as having an advantage over their
customers (Domazet et al., 2010:3). According to Djajanto et al. (2014:39), existing customers
will easily shun banks that do not counteract competition and understand changes in customer
preferences.

Relationship marketing can result in a great change in the case of banking industry (Madan et al.,
2015:2) which can mutually benefit the customers and the banks (Rootman et al., 2011:185).
Among banks worldwide, relationship marketing is considered as the ultimate approach towards
forming and maintaining long-term relationships with customers, because services provided in
banks are almost identical and it is a challenge to differentiate services from a competitors’ (Jesri
et al., 2013:305). It is also difficult to increase market share and to get a competitive edge over
competitors when businesses provide identical products and services (Ogungbade, 2015:3) thus
making it is simple for customers to shift from one bank to another (Magasi, 2015:2). In the
increasingly competitive global financial environment, relationship marketing has been suggested
to be a perfect means for banks to create a distinctive long-term relationship with their customers
(Taleghani et al., 2011:155). However, as noted by Rootman et al. (2011:185), it is essential for
banks to have knowledge of the appropriate variables that have a bearing on their relationship
marketing activities.

Widana et al. (2015:1) further state that for banks, relationship marketing is a tactical strategy for
acquiring a desired position in the selected market, in order to acquire long-term and profitable
customer-bank relationships. According to Anabila et al. (2012:51), the main reason for this move
is that it is less costly to nurture and develop current customers than to attract new customers.
Specifically for the banking industry, relationship marketing has a major role to play in increasing
the level of customer retention; indeed, it has been empirically confirmed to be very influential on
customer retention (Moenardy et al., 2016:60). When a bank claims to have adopted the
relationship marketing approach, it implies that they have embarked on a business

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comprehensive strategy to manage and nurture their interface with customers and sales
prospects (Keshvari & Zare, 2012:157).

Therefore, banks should identify to what extent they should implement relationship marketing.
The key aspects in the successful implementation of relationship marketing include the choice of
the appropriate customer, as well as their motivation and their commitment (Kromidha & Kristo,
2014:3). Furthermore, relationship marketing strategies should be appropriately and creatively
conceived and applied by the business to encourage customers to remain active and committed
in doing business with a particular bank in the long term (Udegbe et al., 2010:175).

2.14 CONCLUSION

This chapter examined the relationship marketing concept. The first sections of this chapter
discussed the emergence of relationship marketing followed by definitions of the concept. A
discussion of the evolution from transactional marketing to relationship marketing was also
provided and succeeded by a brief examination of the fundamental aspects of relationship
marketing. This chapter also discussed the development of relationships and implications of
relationship marketing. Furthermore, a brief overview of the tools that can be implemented to
achieve or realise relationship marketing was provided. Then, the benefits and pitfalls of
relationship marketing to both the business and customers were highlighted. Lastly, a discussion
of the relationship between the South African banking industry and relationship marketing was
provided.

In overall conclusion, it is imperative to state that relationship marketing is an important marketing

strategy that can be implemented by any business to be successful in retaining customers. In
addition, the relationship marketing approach is a key to enable businesses to subdue competition
in the current tense business environment. However, it is also important for any business to
ascertain whether the benefits of implementing the approach will not be outweighed by the costs
of using it. The subsequent chapter discusses relationship marketing variables.

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 CHAPTER 3

SERVICE QUALITY, TRUST, SWITCHING COST, SATISFACTION AND

LOYALTY IN CONTEXT

3.1 INTRODUCTION

This chapter explores the constructs pertaining to this study from a comprehensive review of
relevant literature in the field of marketing and relationship marketing. Therefore, the literature
review provides an in-depth discussion of the key constructs under examination, namely service
quality, switching costs, trust, satisfaction and loyalty. Since the main objective of this study is to
determine customers’ loyalty towards their retail banks, it is necessary to investigate those
aspects that could influence their loyalty, namely their service quality perceptions, trust in the
bank, switching costs, and finally satisfaction.

3.2 CONCEPTUALISATION OF CONSTRUCTS

The research problem statement in Chapter 1 (section 1.2) addressed certain issues with regard
to service quality, trust, switching costs, satisfaction and loyalty. Furthermore, as briefly explained
in Chapter 2 (section 2.7), service quality, trust, switching costs, satisfaction and loyalty are
influential factors in the formation of customer relationships with the business (drivers of
relationship marketing). Consequently, in light of the above sentiments and previous discussions,
each of the related relationship marketing constructs, namely service quality, trust, switching cost,
satisfaction and loyalty are subsequently discussed in greater detail.

3.3 SERVICE QUALITY

Izogo and Ogba (2015:250) posit that service quality and its end-results are among the few topics
in services marketing literature that have received broad academic research for over three
decades. Service quality is inevitably accepted as being of significant strategic value to a business
(Adil et al., 2013:66). Lau et al. (2013:265) further state that service quality is a critical success
factor for businesses to distinguish themselves from rivals. From a customer’s point of view,
service quality significantly affects their satisfaction with the service offering and service provider,
as well as their trust and long-term behavioural intentions (Adil, 2013:44). Service providers
should, therefore, continuously attempt to enhance their overall service quality with a view to
improve customer satisfaction and loyalty, to ultimately establish a competitive advantage
(Yarimoglu, 2014:80).

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 Chapter 3: Service quality, trust, switching cost, satisfaction and loyalty in context

Since the business environment is generally highly competitive, the need for unique and high-
quality service offerings is increasingly being regarded as critical towards establishing and
maintaining a competitive advantage (Pina et al., 2014:4). According to Vennila (2014:44), in a
competitive environment, customers are progressively knowledgeable of substitutes to services
and service providers, and as a result, customers’ expectations increase and they become more
critical of the quality of services.

The intangible nature of services poses a challenge for customers in attempt to assess service
quality (Hult et al., 2013:294). Therefore, it is important to distinguish between goods and services
as discussed in the following section.

3.3.1 Goods versus services

Goods and services can be distinguished in numerous ways based on their features (Kumar,
2010:20). According to Madjid et al. (2013:55), a service is an action (or need) which is offered
by one party to another, the results of which are intangible in nature. Siddiqi (2011:13) points out
that there is a noticeable difference between physical goods and services in terms of the order of
production and consumption. As indicated in Table 3-1, the difference between goods and
services requires different marketing strategies (Rao, 2011:30).

Table 3-1: Goods marketing versus services marketing

Goods marketing Services marketing

Tangible goods stand as evidence to persuade The intangibility of services creates evidence
customers. problems.
The task of the marketer is relatively easy – to Creating tangible evidence in support of services
persuade customers. is a critical challenge.
Limited customer connectivity. Greater customer connectivity.
Customers connect only with output and the sales Customers connect with production as well as the
process. sales processes.
Only the marketing department deals with Several departments of the business deal with
customers directly. customers directly in different processes.
Specific standards can be formulated and Total standardisation is impossible in services.
communicated to customers.
The marketing mix consists of 4Ps, namely Service characteristics demand the inclusion of
product, price, place and promotion. additional elements to the mix.
The marketing mix of services consists of 7Ps,
namely product, price, place, promotion, physical
evidence, people and process.
Multiple distribution channel options. Limited distribution channel options.

Quality problems can be detected before products Quality problems occur mostly in the presence of
are delivered to customers. customers.

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 Chapter 3: Service quality, trust, switching cost, satisfaction and loyalty in context

Table 3-1: Goods marketing versus services marketing (cont.)

Goods marketing Services marketing

Quality is primarily measured on the technical Quality is primarily measured on the technical
features of the product. features of the product as well as functional
performance of the service.
Customers can compare choices by examining Services cannot be compared, but is experienced
them side by side. simultaneously.
Employees of the business (other than marketing) Employees (of all departments) play an important
play an indirect and supportive role. role in services marketing.
Internal marketing is, therefore, not prominently Internal marketing is, therefore, prominently
implemented. implemented.

Source: Adapted from Rao (2011:30).

According to Armstrong and Kotler (2013:236), a business must take into consideration four
special service features when designing marketing programs, which include intangibility,
inseparability, variability and perishability, and these are shown in Figure 3-1 and discussed in
the subsequent sections.

Figure 3-1: Service characteristics

Intangibility
Inseparability
Services cannot be
Services cannot be
seen, tasted, felt,
separated from their
heard or smelt before
providers
purchase

Services

Variability
Perishability
Quality of services
Services cannot be
depends on who
stored for later sale or
provides them and
use
when, where and how

Source: Adopted from Armstrong and Kotler (2013:236).

[Link] Intangibility

Intangibility refers to the absence of a product’s physical presence and the ensuing inability of
being seen, touched or showed before purchase (Omarini, 2011:81). Hult et al. (2014:384) state

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 Chapter 3: Service quality, trust, switching cost, satisfaction and loyalty in context

that the intangible nature of services provides customers with few factors to consider when
deciding on which brand to choose, and therefore, a customer trying to choose an intangible
product depends more on the brand to function as a cue to the nature and quality of the service.
Thus, as posited by Armstrong and Kotler (2013:237), the service provider’s duty is to present the
service in a tangible way and ensure that it portrays the correct signals about quality. According
to Hoffman et al. (2011:63), the intangible nature of services results in several marketing
challenges, including:

 The absence of service inventories.

 The absence of patent protection.
 The challenges faced in exhibiting and communicating the features of services to the
prospective target market.
 The difficulties in pricing of services.

[Link] Inseparability

Inseparability refers to the concurrent production and consumption of services (Hult et al.,
2014:384). In comparison to tangible products (i.e., goods), the production and consumption of
services occur concurrently in the presence of both the customer and the service provider
(Ramseook-Munhurrun et al., 2010:38). Customer co-production makes business-customer
contact a special feature of services marketing, as both the business and the customer have
influence on the service outcome (Armstrong & Kotler, 2013:236). Due to the inseparability of
services, customers not only want a particular type of service, but expect it to be provided in a
particular manner and generally by a particular individual (Pride & Ferrell, 2010:359). According
to Wilson et al. (2012:17), due to the inseparability of services, the following consequences are
relevant in terms of marketing:

 It becomes difficult to do mass production.

 The service quality and customer satisfaction heavily rely on employees’ activities and
contact between employees and customers.
 Any customer can influence another customer’s experience.
 Concurrent production and consumption also infer that it is generally difficult to obtain
significant economies of scale through centralisation.
 The involvement of the customer in the production process can positively or negatively
influence the result of the service transaction.

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[Link] Perishability

The perishability of a product refers to the inability of service providers to create and keep
inventory of the product (namely the service-offering) (Omarini, 2011:81). This feature results in
considerable problems in planning and promotion in order to match supply and demand
(Hollensen, 2010:394). According to Pride and Ferrell (2010:360), goods marketers can manage
the supply-demand problem by means of production scheduling and inventory techniques, while
service marketers do not enjoy the same benefits, and rather experience numerous challenges
when attempting to balance supply and demand. Therefore, the marketer must make efforts to
estimate demand levels in order to optimise the use of capacity (Hollensen, 2010:394). According
to Wilson et al. (2012:18), the perishability of services implies the following:

 Lack of ability to keep stock.

 Considering that services cannot be returned or resold, strong recovery strategies are
required in case of mistakes.

[Link] Heterogeneity

Heterogeneity refers to the dissimilarity in quality of the service emanating from the difference in
customers’ service needs and to the need for the one-to-one interface between the customer and
provider (Omarini, 2011:81). A high level of customer involvement is present in the production of
services, which poses the challenge of maintaining quality, specifically in international markets
with diverse customer service attitudes (Hollensen, 2010:395). According to Pride and Ferrell
(2010:360), the nature of human behaviour poses a challenge for service providers to sustain a
consistent quality of service delivery. This difference in quality can happen from one business to
another, one service person to another in the similar service setting, and one service setting to
another within the same business (Hult et al., 2014:386). Heterogeneity generally increases as
the extent of labour intensiveness increases (Pride & Ferrell, 2010:360). According to Wilson et
al. (2012:17), due to the heterogeneity of services, consequences for marketing include:

 It is a challenge to guarantee consistent service quality.

 In certain instances, services may be offered by a third party, further increasing the possible
heterogeneity of the offering.

3.3.2 Defining service quality

Saghier and Nathan (2013:3) mention that the expectations and perceptions of customers are the
two core components of service quality. Any prior experience concerning services can have an
influence on customer expectations, while services received are the outcome of customers’

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 Chapter 3: Service quality, trust, switching cost, satisfaction and loyalty in context

perceptions of the services themselves (Hanzaee & Rahpeima, 2012:2127). According to

Radomir (2013:44), in the process of providing services, different perceptions of quality may
emerge. Therefore, the quality of service delivered is essential to the customer (Ardakani et al.,
2014:104). Aydin and Yildirim (2012:220) note that service quality is an assessment of how well
the service level provided matches customers’ prior expectations.

Verma (2012:424) propounds that the objective of meeting and surpassing customer expectations
is difficult. The service provider and customer both intrinsically have an influence on service
quality in all service encounters (Ramseook-Munhurrun et al., 2010:38). Lau et al. (2013:265)
state that the practice of excellent service quality, combined with customer products, is a great
means to fulfil customers’ needs and interact with them. However, the intangibility, heterogeneity
and inseparability of services make it difficult to define, measure or control service quality (Zhang
et al., 2014:84).

Regardless of the difficulty of defining service quality as noted by (Zhang et al., 2014), Grönroos
(1984:38) defines service quality as “a perceived judgment, resulting from an evaluation process
where customers compare their expectations with the service they perceive to have received”.
Parasuraman et al. (1988:17) and Rahmani-Nejad (2014:264) further define service quality as the
difference between what customers look forward to receive from a service and the view of the
actual service quality received. According to Loke et al. (2011:24), service quality can be
described as “a rationale of differences between expectation and competence along the important
quality dimensions”. Chitty et al. (2012:225) also define service quality as the total assessment
that is centred on customers’ general perceptions of the reliability, responsiveness, assurance,
empathy and tangibles related with the performance of service.

For purposes of this study, service quality is defined as:

Customers’ perceptions of the service actually received from a service provider or

business.

3.3.3 The importance of service quality

A service business can distinguish itself by delivering continuously higher levels of quality in
comparison to rivals (Armstrong & Kotler, 2013:241). According to Pride and Ferrell (2010:367),
high-quality service delivery is vital, yet among the most challenging tasks that any service
business encounters. Service quality is important because:

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 Chapter 3: Service quality, trust, switching cost, satisfaction and loyalty in context

 Customers’ perceptions of high levels of service quality results in positive behavioural

intentions (such as repurchasing), which in turn reinforces their relationship with the
business - building on the relationship marketing strategy (Ravichandran et al., 2010:20).
 An increase in service quality results in an increase in customer satisfaction, which
consequently leads to customer commitment and loyalty, enhanced customer retention,
establishing an interactive relationship between the customer and the business, increasing
customer tolerance (in terms of shortages and service failures), and finally positive word-
of-mouth communication (Karimi et al., 2011:10).
 High levels of perceived service quality tend to encourage customers to purchase and
repurchase a particular brand or the set of products and brands offered by a business
(Fragata & Munoz-Gallego, 2010:154).
 Good service quality aids in forming and enhancing the service provider’s image (Grubor et
al., 2009:277). In other words, if a business becomes characterised by a certain level of
service quality, this helps to build and improve the image or brand of the business. A positive
brand image makes it easier for a business to express its brand value to customers and
also produces favourable word-of-mouth amongst people (Koi-Akrofi et al., 2013:82).
 Service quality makes it possible for businesses to differentiate themselves from other
businesses and to establish a competitive advantage. A sustainable competitive advantage
is a good long-term business strategy and gives a business the chance to have a superior
image as compared with competitors (Basera, 2013:236; Karimi et al., 2011:10).
 High levels of service quality improve the business’ overall service value (Grubor et al.,
2009:277). In other words, good service quality makes the service provided or received to
be worth or valuable.

3.3.4 Gaps Model of Service Quality

Insufficient service quality emanates from differences between customer expectations from a
particular service quality level and the actual level received (Praeg & Spath, 2011:112).
Consequently, Hernon and Altman (2010:87) posit that the Gaps Model of Service Quality –
developed by Parasuraman et al. (1985) – provides service providers with a framework to identify
services in the form of gaps that surpass (or fail to meet) customer expectations. Praeg and Spath
(2011:112) also refer to Parasuraman et al.’s (1985) having identified five gaps in the model: four
gaps on the service provider’s side (gaps 1 to 4) and one gap on the customer’s side (gap 5) as
depicted in Figure 3-2 and discussed in the subsequent sections.

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 Chapter 3: Service quality, trust, switching cost, satisfaction and loyalty in context

Figure 3-2: Gaps Model of Service Quality

Word-of-mouth
Personal needs Past experience
communications

Customer
expected service
CUSTOMER

Gap 5

Customers’
perceived service

Service delivery External

(pre- and post- communications
Gap 1

contacts) to customers
Gap 4

Gap 3

Translation of
MARKETER perceptions into
service quality
specifications

Gap 2

Management’s
perceptions of
customer
expectations

Source: Adapted from Parasuraman et al. (1985:44).

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 Chapter 3: Service quality, trust, switching cost, satisfaction and loyalty in context

[Link] Gap 1: Difference between customer’s expectations and marketer’s perceptions

The first gap – known as the Knowledge Gap or the Listening Gap – emerges when managers
are unable to identify customer expectations correctly (Pizam, 2010:278). According to Wilson et
al. (2012:97), the main reason why many businesses fail to surpass customers’ expectations is
because the businesses do not have an accurate understanding of customers’ exact
expectations. In essence, service businesses may not understand what attributes signify high
quality to customers in advance, what attributes a service should contain to surpass customer
needs, and what levels of performance on those attributes are required to deliver high quality
service (Parasuraman et al. (1985:44). Therefore, as posited by Mullins and Walker (2010:447),
the initial step in offering good service is to gather information by means of customer surveys and
assessing customer complaints to determine essential service attributes to customers.

[Link] Gap 2: Difference between management’s perceptions and service quality

specifications

The second gap is known as the Design Gap (Pizam, 2010:279). This refers to the distinction
between management’s perception of customer expectations and the interpretation of those
perceptions into service quality perceptions (Krishundutt & Parumasur, 2009:43). Wilson et al.
(2012:98) note that correct perceptions of customers’ expectations are important, although
inadequate for delivering superior quality services. According to Pena et al. (2013:1229), the
difference in this gap results from the lack of specification of the offer, accustomed to the desires
of the customer. In the same vein, Mauri et al. (2013:137) indicates that this gap emanates from
managers’ failures or indifference to implement information acquired from the study of customer
expectations concerning satisfactory service standards.

[Link] Gap 3: Difference between quality specifications and service delivery

Gap 3, also referred to as the Performance Gap, deals with the discrepancy in service design and
service delivery (Pizam, 2010:279). Verma (2012:419) propounds that this gap is about the
inability to conform to set standards. According to Mauri et al. (2013:137), this gap emerges when
there is a difference between service quality standards and business employees’ performance in
service delivery because of the lack of relevance of both technology and operating systems, which
emanate from business problems or is associated to downward communication. Therefore, a
business should put in place systems, mechanisms and people to ensure that service delivery
actually matches (or is better than) the designs and standards set (Wilson et al., 2012:100).

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 Chapter 3: Service quality, trust, switching cost, satisfaction and loyalty in context

[Link] Gap 4: Difference between service delivery and external communications

This gap is referred to as the Communication Gap (Pizam, 2010:279). Mauri et al. (2013:137)
note that, often, a business promises a service that does not match up with what is really
delivered. According to Wilson et al. (2012:101), promises made by a service provider by means
of media advertising, employees and other communications may possibly increase customers’
expectations, which form the standards against which customers measure service quality.
Therefore, even a good service performance may still dissatisfy some customers if the business’s
external communications heighten customer’s expectations to unrealistically high expectations
(Mullins & Walker, 2010:448). Undeniably, as posited by Pizam (2010:279), the communication
gap usually results from overpromising. A business can therefore minimise this gap by instituting
strategic initiatives that limit the tendency of overpromising or making incorrect promises (Verma,
2012:419).

[Link] Gap 5: Difference between perceived service and expected service

Gap 5 represents the difference between customers’ expectations regarding the service and their
perceptions about the specific service (Blešić et al., 2011:42). According to Mullins and Walker
(2010:448), this refers to the distinction between a customer’s expectations and his or her actual
experiences with the business, which could result in dissatisfaction. Therefore, fundamental to
delivering good service quality is meeting or surpassing customer expectations (Verma,
2012:424). Blešić et al. (2011:46) ascertain that, if the aforementioned gaps (Gaps 1 to 4), or a
combination of the gaps exists, certainly, Gap 5 will also exist. Thus, Grigoroudis and Siskos
(2010:65) posit that the strategy to minimise Gap 5 is by closing Gaps 1 to 4.

3.3.5 Measuring service quality

Measuring service quality is essential and critical for marketing professionals and researchers, in
order to obtain an improved perception of requirements and results, and also for generating
techniques of quality improvement in realising a competitive edge and building loyalty among
customers (Karimi et al., 2011:10). Kristian and Panjaitan (2014:143) indicate that service quality
is determined by a customer’s own point of view, and therefore a range of responses from the
customer needs to be acknowledged as a valuable contribution for strategy development.
According to Lakshmi and Santhi (2015:70), when evaluating service quality, it is the opinion of
the customer that matters, not what the service provider thinks. Baker (2013:69) points out that
various researchers have developed numerous conceptual models to measure service quality.
SERVQUAL and SERVPERF are two of the most well-known and well-implemented models used
to assess service quality (Radomir, 2013:43).

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 Chapter 3: Service quality, trust, switching cost, satisfaction and loyalty in context

The SERVQUAL model, coined by Parasuraman et al. (1988), is based on the customer’s
expectations of the service levels and perceptions of the realised service performance level
(Mohammad & Alhamadani, 2011:62). According to Aydin and Yildirim (2012:220), the model
consists of five factors, namely tangibles, reliability, responsiveness, assurance and empathy,
and comprise of a 22-item scale concerning expectations and performance. The initial
SERVQUAL model of Parasuraman et al. (1985) recognised ten dimensions of service quality,
including tangibles, reliability, responsiveness, communication, credibility, security, competence,
courtesy, understanding/knowing the customer, and access (Parasuraman et al., 1988:17). Izogo
and Ogba (2015:252), explored these dimensions through the disconfirmation approach whereby
measures of service quality can be obtained easily by subtracting expectation scores from
perception scores. Nguyen et al. (2011:199) ascertain that, even though the SERVQUAL
instrument has been used in numerous studies to measure service quality, the reliability and
validity of this measure have been questioned by numerous authors, mostly with regard to the
expectation dimension.

The SERVPERF model was developed by Cronin and Taylor (1992), who amended the gap-
based SERVQUAL model into a performance-only index (Adil et al., 2013:7). Adil et al. (2013:67)
feel that the SERVPERF model (consisting of 22-items) is an improved technique for measuring
service quality (Nguyen et al., 2011:199). According to Karimi et al. (2011:12), the key aspect
differentiating the SERVQUAL and SERVPERF model is that there is a set of questions in
SERVQUAL, unlike the SERVPERF model, that measures customers’ preconceived outcomes
and views of services. The SERVPERF model specifically measures the actual experiences of
service quality instead of the expectations of customers (Coetzee et al., 2013:8).

In light of the above, there has been a series of arguments concerning the measurement of
service quality and particularly to the issue of whether the SERVQUAL or SERVPERF model
should be used (Culiberg & Rojsek, 2010:153). The arguments that have emerged with regards
to measuring service quality are presented in Table 3-2.

Table 3-2: Measuring service quality: a summary of areas of disagreement

Area Nature of disagreement

The purpose of the Is the prime purpose diagnostic or predictive?

measurement instrument
The definition of service quality Does the nature of the attitude relate to performance, expectations
and/or ideal standards?
Models for service quality To measure expectations or not?
measurement To measure importance or not?

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Table 3-2: Measuring service quality: a summary of areas of disagreement (cont.)

Area Nature of disagreement

The dimensionality of service Are the 5 dimensions of service quality correct for its original
quality context?
Issues relating to expectations What is the definition of expectations?
Is it necessary to identify which items are vector attributes and which
are classic ideal point attributes?
When to measure expectations, before or after the service
encounter?
The format of the Which measurement approach is best: difference score, non-
measurement instrument difference score or semantic-differential scales?
Should importance be measured by item or dimension, or inferred
from performance and expectations scores?

Source: Adopted from Culiberg and Rojsek (2010:154).

The majority of research on service quality has been conducted using the well-known SERVQUAL
model (Ravichandran et al., 2010:19). However, Cronin and Taylor (1994) also developed the
SERVPERF model that uses the same five dimensions of the SERVQUAL but mainly concentrate
on the service’s actual performance, not customers’ expectations (Al-Hawari, 2016:3). For the
purpose of this study, the SERVPERF model developed by Cronin and Taylor (1992) is used.

Based on the SERVQUAL and SERVPERF models, service quality comprises five dimensions,
namely reliability, tangibility, responsiveness, assurance, and empathy.

 Reliability refers to the capability to deliver the promised service dependably and perfectly.
This dimension entails the ability of providing committed services in a complete and reliable
way (Karimi et al., 2011:11).
 Tangibles can be referred to as the presentation of physical facilities, equipment,
employees and communication materials in the service procedure (Yunus et al., 2013:334).
 Responsiveness refers to the enthusiasm of employees to assist customers, to provide
speedy service as well as the capability of responding to individual customer needs. This
also means providing services to the customer in the appropriate time (Grubor et al.,
2009:278).
 Assurance refers to the competence and politeness of staff and their capacity to express
trust and credibility. Culiberg and Rojsek (2010:152) further state that it is also the ability of
a service provider to stimulate trust and confidence in the business through knowledge,
politeness and honesty of the employees.
 Empathy comprises the contact with customers, communication with customers and
understanding customers that give rise to personalised attention to customers. It involves

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 Chapter 3: Service quality, trust, switching cost, satisfaction and loyalty in context

providing customers with personalised attention and requires employees who are aware of
the needs of their customers and the appropriate business hours (Saghier & Nathan,
2013:4).

3.3.6 Service quality and the banking industry

Customers’ increasing awareness and knowledge about their rights, their shifting demands, and
intensifying competition in the industry require continuous improvement in service quality from
banks as service providers, in order to ensure that their customers remain loyal (Auka et al.,
2013:33). Furthermore, taking into consideration that banks mostly provide similar product or
service offerings in a highly competitive environment, banks are concentrating more on service
quality in order to remain sustainable and competitive (Lau et al., 2013:265). Therefore, as posited
by Mittal et al. (2015:331), banks should identify and manage the service quality dimensions which
would result in a competitive edge with their customers.

Service quality refers to the reliability dimension which can reflect the extent to which a service
provider is trustworthy. Therefore, through providing quality services that are reliable and
dependable, the service provider can establish trust among its customers. The following section
discusses trust as a relationship marketing construct.

3.4 CUSTOMER TRUST

In the strenuous business environment, trust has evolved as an important aspect in customer-
business relationships (Roberts-Lombard et al., 2015:28). As indicated by Utami (2015:640), trust
between a business and a customer makes it simple to nurture interactive relationships.
Customers’ trust decreases the feelings of vulnerability (Al-Hersh et al., 2014:78). However, the
absence of trust will stop exchange partners to commit their time, energy and resources required
to develop a relationship (Graf et al., 2011:82). According to Paliszkiewicz and Klepacki
(2013:1288), trust is key to building and maintaining successful long-term relationships. Nguyen
et al. (2013:96) further note that trust affects customers’ decisions on whether to pursue or
terminate a relationship with a business. Therefore, trust demonstrates customer commitment
and satisfaction with a certain brand (Akpan & Etuk, 2014:3).

According to Halliburton and Poenaru (2010:4), trust means an on-going process that is
strengthened by positive assessments of earlier experiences and is shared between customers.
In building trust, customers need to see things in the business such as the business’ ability to
deliver on promises, the business’ equal handling of customers, and the trustworthiness and
authenticity of business employees, and management of the business as a whole (Damtew &
Pagidimarri, 2013:85). Damtew and Pagidimarri (2013:84) further state that trust in a relationship

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 Chapter 3: Service quality, trust, switching cost, satisfaction and loyalty in context

means non-opportunistic behaviour for both exchange partners. Therefore, trust reveals the
magnitude of one party’s assurance in another party’s integrity (Al-Hamed & Amin, 2014:49), as
no individual wants a long-term focused relationship with an untrustworthy partner (Damtew &
Pagidimarri, 2013:84). Undeniably, trust is the cornerstone of a business (Utami, 2015:649).

3.4.1 Defining trust

Trust can be described as the willingness of one party to depend on another party in whom one
has confidence within a transaction between the parties (Morgan & Hunt, 1994:23). According to
Akpan and Etuk (2014:3), trust means “confidence on exchange partner’s reliability and integrity”.
Al-Hersh et al. (2014:77) state that relationships have to be established on mutual trust. According
to Rahmani-Nejad et al. (2014:263), trust has been defined as one party having confidence that
the other party will satisfy his or her desires. Rezaei et al. (2015:353) further define trust as the
level to which one party considers the other party as being honest. Based on the above definitions,
trust is defined for the purpose of this study as:

The willingness of one exchange partner to depend on and believe in the ability of
another partner to meet or fulfil his or her needs in a transaction.

3.4.2 Types of trust

Customer trust comprises two basic forms of trust, namely affective and cognitive trust (INSEAD
Knowledge, 2016:2). Hanzaee and Norouzi (2012:4998) define affective trust as the self-
assurance that one places in a partner based on feelings created by the level of care and concern
the partner shows. According to Trif (2013:114), affective trust is lodged in the ability of a party to
depend on his or her partner based on emotions. According to Akpan and Etuk (2014:4), affective
trust is “the emotion-driven form of trust that is based on immediate affective reactions on
attractiveness, aesthetics, and signals of benevolence”.

Cognitive trust, on the other hand, entails individuals who are looking for a rational motive to
depend on the other party (Trif, 2013:113). Cognitive trust, therefore, provides a base for affective
trust hence it is an antecedent for the development of affective trust (Hanzaee & Norouzi,
2012:4999). To attain a certain level of cognitive trust, it is essential to gather information about
the partner, as accumulated knowledge enables a party to set expectations that have some level
of confidence about the possibility that the other party will fulfil its obligations (Trif, 2013:113).

3.4.3 Trust in business and customer relationships

In the business context, trust is perceived as one of the most appropriate antecedents of firm and
cooperative relationships (Kundu & Datta, 2015:27). According to Nguyen et al. (2013:99),
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customers who have trust in a business expect promises to be fulfilled as advertised. Therefore,
if a business fails to fulfil the exchange as agreed upon, trust is negatively affected (Glass,
2011:118). Furthermore, a customer who trusts a business is more likely to continue with his or
her interaction (Baharvand et al., 2015:254). It follows that the betrayal of trust results in the
interruption of the relationship, which has a negative effect on the sustainability and profitability
of the business (Lendel & Varmus, 2015:69). According to Chen et al. (2016:95), initial trust of
the business that helps to diminish uncertainty in business interaction may cause customers to
help shape new products with the business in a cooperative manner. Thus, as posited by
Dahlstrom et al. (2014:269), trust is a catalytic managerial aspect that can help to diminish
perceived risk.

Customers who are prepared to trust a business expect responsiveness and prompt delivery of
service in exchange for their trust (Roberts-Lombard et al., 2015:28). According to Rehman et al.
(2012:607), for a business to compete with other businesses, trust must be created in the
customer’s mind together with a high level of quality. Consequently, when a customer places trust
in a business or brand, he or she is keen to create a positive purchasing intention towards the
business (Van Vuuren et al., 2012:85). Trust is an exceptional psychological state that can only
happen in specific relationships and when a customer trusts a business, and when he or she has
confidence in the business’ service quality and product quality (Rahmani-Nejad et al., 2014:263).
According to Kotler and Keller (2012:203), a business is more likely to be perceived as trustworthy
when it:

 provides complete and honest information;

 provides incentives to employees that are aligned to meet with customer desires;
 associates with customers to assist them to learn and assist themselves; and
 provides valid contrasts with competitive products.

3.4.4 Benefits of trust

According to Paliszkiewicz and Klepacki (2013:1288), building and maintaining trust are important
for successfully attaining long-term relationships. Hult et al. (2013:713) add that trust must be
established or restored in order to gain the customer’s confidence. In light of the above sentiments
on the need for establishing trust, the benefits of trust to a business and the customer include:

 From a long-term perspective, trust results in customer loyalty. Having loyal customers
means that customers can contribute by means of suggestions on improvement, which is
value co-creation, since they understand the business processes, which can in turn assist
in research and development (Sarwar et al., 2012:34; West et al., 2015).

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 Trust acts as a safety net. Trust is seen as an important driver to both relationships and
relationship enhancement in that it would appear to reduce risk perception more effectively
than anything. Trust essentially decreases the perception of risk, which further results in
strong relationships (Egan, 2011:120; Halliburton & Poenaru, 2010:4; Rehman et al.,
2012:606).
 Customers’ trust towards a service provider can prevent them from switching to another
provider. The consequence of customers’ defection or switching could have great impact
on profit and service continuity (Amin et al., 2012:285; Oyeniyi & Abiodun, 2010:112).
 Trust can trigger commitment to a relationship that emerges from an exchange partner
putting all his or her efforts into keeping a significant relationship. A high level of commitment
enables both parties to attain personal and mutual goals without fear of opportunistic
behaviour (Dash & Rajshekhar, 2013:3; Van Vuuren et al., 2012:86).
 It is believed that trust permits less costly transactions and encourages long-term
relationships. Trust is a core element in creating long-term relationships between the
business and its customers (Al-Hawari, 2011:47; Fragata & Antunes, 2016:173).
 High levels of trust in an exchange partner lead to positive results such as satisfaction in a
relationship. High customer satisfaction will have an effect on commitment, which influences
customer loyalty (Hutchinson et al., 2011:194; Madjid et al., 2013:54).
 The presence of trust results in customers’ understanding and positive handling of any
negative communication from the business (Du Plessis & Roberts-Lombard, 2013:3). In
other words, the presence of trust enables customers to be forgiving of poor experiences
with the business.

3.4.5 Strategies to building customer trust

Customer attrition indicates the absence of trust in a business (Rehman et al., 2012:607).
Therefore, as postulated by Roberts-Lombard et al. (2015:28), businesses must concentrate on
simplicity to build trust in the long-term. In the same vein, Rehman et al. (2012:607) state that to
build and continue with a relationship, trust building is a requirement. Consequently, according to
Paliszkiewicz and Klepacki (2013:1291), strategies for building customer trust can include the
following:

 Share testimonials. Testimonials assist prospects to make decisions about using a new
business because they are going by the reference of a third party (Griffiths, 2010:116).
Testimonials are beneficial because they make a business’ visitors comfortable to do
business with them and it brings new potential customers (Shaffstall, 2010:110).

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 Businesses should be honest and straightforward. The main strategies for developing
trust through marketing and advertising are honesty and straightforwardness. If a business
is honest, it will also attract honest customers (Limbeck, 2015:53).
 Secured transaction. Businesses should show customers that they want to protect their
information by using of secure communications.
 Make it simple for customers to air their complaints. Businesses should provide contact
details or any other means for customers to notify them when there is a problem. Among
the customers who air their complaints, 54% to 70% will do transactions with a business
again if the customer’s complaint is resolved (Kotler & Keller, 2012:131).
 Provide customers with the appropriate advice. In other words, a business should give
customers relevant advice pertaining to their needs and should not issue wrong or
misleading information.
 Customer review sites. A customer review site is a great means for building trust.
Customer reviews also work as a valuable feedback tool, indicating to the business more
preferred products and the reason for high purchase of certain products than others (Singh,
2010:161).
 Customer contact. In order to improve trust and commitment, businesses have to regularly
cooperate with users, and manage the customer base through a direct approach and with
high intensity of contacts (Moretti & Tuan, 2013:257).
 Highlight professional achievements, certificates and awards on websites. If a
professional association has acknowledged a business, this information should be put on
the website.
 Business profile. A business can build trust by introducing customers to the people behind
the business. This can include historical information about the business, reasons for the
existence of the business, and employee profiles.

Echoing similar sentiments, Halliburton and Poenaru (2010:14) further highlight some strategies
on how businesses can build trust; these include:

 Transparency and greater integrity in pricing. Price transparency occurs when

information pertaining to the trading goods and transaction procedure are made accessible
such as quotations and transaction costs (Christou, 2016:137).
 Make customers feel looked after. Customer care is at the core of successful businesses,
and it can assist in creating a loyal customer base and enhance relationships with
customers (Marketing Donut, 2016).
 Customise the customer experience by dealing with one individual where it is possible
and appropriate. Every relationship needs listening and talking, and this creates the

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opportunity for customers to talk and be heard which is pleasurable and memorable, and
defines their customer experience (Zwilling, 2014).
 Ensure high standards in frontline employees. In simple terms, there should be
competent and expert employees to serve customers. Frontline employees who are
unfriendly, unsupportive, uncooperative, or unconcerned in the customer will cause the
customer to reciprocate with the same attitude (Peter & Donnelly, 2011:180).

3.4.6 Trust in banks

Sustaining long-term relationships appears to be difficult with the absence of trust, and if a
customer has no trust in the bank, he or she will most likely switch to another bank, and if the
bank has no trust in the customer, it will be inclined to reject the customer (Dalhstrom et al.,
2014:269). As discussed by Madjid et al. (2013:54), if customers genuinely trust the bank they do
transactions with, loyalty will be the result. Therefore, as posited by Magasi (2015:4), a bank
should concentrate on ways to encourage customers develop trust in the bank, and once trust
has been attained, this will result in customer satisfaction, and consequently in long-term
customer loyalty. According to Dalhstrom et al. (2014:269), trust is therefore critical in the banking
industry considering the financial transactions that implicate risk.

As highlighted above, trust can result in long-term relationships and loyalty. This can reduce
customer switching from one business to another and avoid incurring switching costs associated
with switching. The following section discusses switching costs.

3.5 SWITCHING COSTS

In various markets, customers experience switching costs when they switch from one product to
another in the similar category, or when they change suppliers (Bhattacharya, 2013:102). Ningsih
and Segoro (2014:1016) posit that, costs involved appear to be the significant reason for a
customer not to switch to another service provider. Consequently, as discussed by Nagengast et
al. (2014:411), the presence of high switching costs makes it difficult for customers to switch to
another business, irrespective of satisfaction perceptions. According to Bhattacharya (2013:106),
a business may pursue a number of strategies to obtain a competitive advantage such as low
cost or differentiation strategies, but switching costs help a business to sustain the advantage.
Unsurprisingly, it appears that management practice and strategies often intend to increase
switching costs by presenting loyalty schemes or providing matchless customer solutions (Blut et
al., 2015:82).

Managers make efforts in setting up measures that intensify switching cost with the perception
that these activities will strengthen customer relationships (Blut et al., 2015:82). According to Lee

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and Neale (2012:267), considering the stiff competition in most customer markets, businesses
frequently give benefits to customers in exchange for locking them in through switching costs.
Haj-Salem and Chebat (2013:1108) state that previous benefits received may cause customers
to feel somewhat indebted to the business and, consequently, uncomfortable, guilty, and
embarrassed about their decision to leave. However, Yen (2015:148) argues that there are no
switching costs experienced for leaving a business until the customer has reached the threshold
of perceived risk to engage the provider. The literature suggests that higher levels of switching
costs and barriers result in weak switching intentions, mainly due to the involvement of both
financial and non-financial costs (Kaur et al., 2014:78).

Oyeniyi and Abiodun (2010:112) indicate that the result of customers’ defection or switching could
have a significant influence on revenues and service continuity. Thus, one of the serious problems
for businesses is to understand why customers switch suppliers (Yen et al., 2011:250). El-
Manstrly (2016:151) propound that customers perceive switching costs as relationship
investments and therefore their choice to stay in a relationship is more likely to be a function of
avoiding losses that may be greater than the benefits of supplier-imposed ethical codes of
conduct. In other words, as soon as they change to other service providers, they would lose these
benefits (Shi et al., 2015:648) but if they do not switch, customers do not have to incur these costs
(Park & Lee, 2014:260).

3.5.1 Switching costs: a conceptualisation

According to Zhang et al. (2014:269), Porter (1980) was the first author to present the concept of
switching costs into the field of marketing management. Porter (1980:10) defined switching costs
as once-off costs incurred by a customer due to moving from one product provider to another.
Burnham et al. (2003:110) also defined switching costs as “Onetime costs that customers
associate with the process of switching from one provide to another”. Switching costs refer to
customers’ costs from switching and are also known as switching barriers (Park & Lee, 2014:260).
According to Oyeniyi and Abiodun (2009:112), switching costs are costs incurred by customers
because of terminating a relationship and starting a new one. Ting (2014:214) further defines
switching costs as the risk, investment and cost that are incurred by customers due to moving
from one service provider to another. As such, switching costs turn into a barrier for customers to
change from one provider to another (Matzler et al., 2015:121).

In this study, switching costs are defined as:

Costs that customers incur as a result of ending transactions with a certain business
and switching to another business to begin new transactions and relationships.

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3.5.2 Categories of switching costs

Customers normally perceive switching costs due to a commitment to use specific product or
business (Molina-Castillo et al., 2012:167). According to Matzler et al. (2015:122), customers are
generally reluctant to switch providers if they are likely to incur significant expenses and effort (i.e.
to become a part of the exchange relationship with the business). Switching costs can be
categorised into financial costs, procedural switching costs and relational switching costs (Blut et
al., 2015a:226; Burnham et al., 2003:112). These are subsequently discussed.

[Link] Financial costs

Financial costs are defined by Schulte (2015:56) as “the loss of financially quantifiable resources
and add to the individual level lock-in mechanism including loss benefits gained due to ongoing
relationship and sunk investment costs”. According to Ting (2014:314), financial switching costs
include benefit loss cost and monetary loss cost. These costs may be regarded as coercive or
penal to the customer and are perceived negatively (Bhattacharya, 2013:107). Ting (2014:314)
defines benefit loss cost as the loss of financial benefits given by the original business after
switching took place, such as the collected points or discounts. Monetary loss costs refer to the
costs once promised or given prior to getting the services of the original businesses, such as fees
incurred for signing the contract or penalty for breaking of contract (Ting, 2014:314).

[Link] Procedural costs

Procedural costs refer to the time and effort involved for the customer to switch from one business
to another (Haj-Salem & Chebat, 2013:1107). Procedural costs are generally exogenous to the
business, although the business may have some influence on them (Bhattacharya, 2013:107).
Procedural switching cost comprise of the expenses of time and efforts (Ting, 2014:314) and are
divided into risk cost, evaluation cost, learning cost and setup cost (Schutle, 2015:55). According
to Ting (2014:314), risk cost is the cost of probable negative outcomes when customers switch to
a new service provider about which the customer has insufficient information. Evaluation cost
entails the cost of time and effort to gather and analyse information for switching decision-making
(Shi et al., 2015:649). Learning cost entails the cost of time and effort necessary to obtain
expertise and knowledge to enable the effective utilisation of the services offered by new service
providers (Shamsudin et al., 2015:29). According to Shi et al. (2015:649), setup cost involves the
expenditure of time and effort when starting to utilise the services of new service providers.

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[Link] Relational costs

Relational switching costs involve the loss of identification and emotional ties with both the
previous service provider and any employees with whom the customer cooperates (Blut et al.,
2015b:83). Bhattacharya (2013:107) posits that if customers trust that they are taken care of, that
they are properly attended to and are familiar with the brand, the business or employees of the
business, they would opt to stay in the relationship. According to Schulte (2015:56), relational
costs include personal relationship and relationship facets. Personal relationship loss cost refers
to the loss acquired by losing customers’ personal relationship with the past service employees
after switching the business. These costs are predominant in services with a high relational
element where they play a significant role (Schulte, 2015:56). Brand relationship loss entails the
loss of customers’ benefits, which emanate from the positive image of the past businesses, after
switching from the business (Ting, 2014:315).

3.5.3 The consequences of switching costs

An increase in switching costs may lead to a competitive outcome for the business (Belleflamme
& Peitz, 2015:181). According to Bhattacharya (2013:106), although a business may implement
recognised strategies to obtain a competitive advantage – such as low cost or differentiation
strategies – switching costs enable a business to sustain the advantage. Zhang et al. (2014:268)
state that, because competition in the marketplace is intensifying, improving customer switching
tendencies has already become a significant tactical choice for businesses. However, it is
worthwhile to mention that although switching costs can prevent existing customers from
changing to other businesses, they typically have less impact on new customers who have no
switching costs to be concerned about (Afuah, 2009:153).

A less satisfied customer might choose not to switch due to the perceived costs being higher than
the benefits of switching (Matzler et al., 2015:120), and this may cause customers to tolerate poor
or unsatisfactory service (Li, 2015:374). According to Chebat et al. (2010:79), switching costs
create barriers that prevent customers from switching to other businesses. However, dissatisfied
customers are more probable to inform ten people about their experience with the product or
service (Angelova & Zekiri, 2011:233). Clearly, as posited by Bhattacharya (2013:105), a
customer who chooses to leave the business and is forced to stay, is less beneficial to the
business.

Switching to another business includes effort, time and money, which may compel the customers
to remain loyal (Chebat et al., 2010:78). According to Eid (2013:283), switching costs are a
powerful instrument to avoid customer defection. Therefore, Sahin and Kitapci (2013:910) note

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that high switching costs keep customers from changing brand relationships and as a result, an
increase in switching costs will result in an increase in commitment to a brand.

3.5.4 Switching costs in banks

Switching costs in banking symbolise a source of rent that decreases the market competition (Yin
& Matthews, 2016:4156). It is important to note that banks have a measure of uncertainty in their
attitude towards the problem of switching costs, just as other businesses in other markets do
(Matthews, 2013:25). Vyas and Raitani (2014:324) posit that switching from a bank is often the
result of several incidents, in contrast to other service industries, because bank customers are
locked to a degree into a relationship with their service providers. According to Matthews
(2013:25), banks need lower switching costs to allow customers to easily switch to them, but
simultaneously they benefit from switching costs, discouraging customers from changing to
another bank. According to Tong et al. (2012:107), customers with several bank accounts at
different banks usually perceived themselves as having fewer problems with switching costs as
they can easily change from one bank to another.

As indicated from the above discussions on the existing research supporting the conceptual
model (Figure 1-3), it is evident that service quality, trust and switching costs significantly
influence customers’ levels of satisfaction towards a business. Therefore, the following section
discusses the concept of satisfaction.

3.6 SATISFACTION

Satisfying customers is a challenge faced by many businesses in a competitive environment (Yap

et al., 2012:154). Amin et al. (2013:81) note that if the perceived performance is equal to or more
than customers’ expectations, it means customers are satisfied and if it does not, it means that
customers are dissatisfied. According to Arokiasamy (2013:15), businesses have to acquire
knowledge on how to retain customers even if they seem to be satisfied. Acquiring information on
the satisfaction levels and specifically the antecedents of satisfaction will benefit industries, thus
enabling them to concentrate and build upon main areas that lead to highly satisfied customers
(Alhemoud, 2010:334). Arokiasamy (2013:14) states that the significance of customer satisfaction
in the current dynamic business environment is clear, as it highly influences customers’
repurchase intentions, while dissatisfaction has been identified as the main reason for customers’
plans to switch. In the same vein, Alhemoud (2010:333) postulates that customer satisfaction is
broadly accepted as a main force in the creation of customers’ future purchase intentions.

The absence of customer satisfaction reduces customers’ spending as well as their referrals to
other people (Kishada & Wahab, 2013:266). One unsatisfied customer can lead away more

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customers from a business compared to the number of customers that can be referred to the
business by ten highly satisfied customers. Therefore, the more a business concentrates on
customer satisfaction and retention, the better the outcome will be for long-term relationships with
the customer (Mohsan, 2011:264). According to Qadri and Khan (2014:3), businesses are
increasingly focused on optimising customer satisfaction, as it is believed that customer
satisfaction yields superior economic returns. Kotler and Keller (2010:160) note that marketers
can take the following steps to ensure post-purchase satisfaction:

 Establish realistic expectations, not too high and not too low.
 Show appropriate use of products, as inappropriate usage can result in dissatisfaction.
 Support the product or service by offering money-back guarantees and warranties.
 Encourage customer response, which reduces negative word-of-mouth and will assist
marketers to modify their offering.
 Occasionally interact with customers and show appreciation to them for patronising your
business. This interaction reminds customers that marketers care about their business and
want them to be satisfied.

According to Khedkar (2015:2), upholding relationships with customers and giving them complete
customer satisfaction appear to be a central focus for many industries. Besides creating
relationships with customers, it is also crucial to manage them effectively (Juscius & Grigaite,
2011:71). Certainly, as posited by Arokiasamy (2013:15), customer satisfaction has for numerous
years been observed as a fundamental aspect in determining the reasons for customers leaving
or staying with a business.

3.6.1 Defining satisfaction

There are numerous definitions of customer satisfaction, depending on the actual purpose of
every study (Lin, 2012:33). According to Oliver (1981), customer satisfaction is the assessment
that a customer makes of a certain transaction, which shows the relation of customers’
expectations and the actual perceptions customers have of the product or service provided by the
business. Consequently, a contrast between expectations and perceptions will result in either
confirmation or disconfirmation, where confirmation occurs when product or service perceptions
precisely meet expectations, and disconfirmation will occur due to perceptions being lower than
expectations (Siddiqui, 2012:4135). According to Zeithaml and Bitner (2000), satisfaction is “the
customer’s evaluation of a product or service in terms of whether that product or service has met
their needs and expectations”. Harris (2010:2) further defines customer satisfaction as the
customer’s total feeling of fulfilment with a customer interface. Satisfaction refers to a customer’s

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emotional response when assessing the difference between expectations concerning the service
and the perception of real performance (Van Vuuren et al., 2012:84).

From the above definitions, in this study, satisfaction is defined as:

The customer’s sense of fulfilment from a product or service received.

3.6.2 Types of customer satisfaction

Among the more popular measures of customer satisfaction, two widely employed approaches
are transaction-specific and cumulative or overall satisfaction (Ganiyu et al., 2012:16; Matos et
al., 2013:527). Transaction-specific satisfaction is likely to differ from experience to experience,
while overall satisfaction is a moving average that is somewhat stable and identical to a complete
attitude towards buying a brand (Eid, 2015:252). The following sections provide more detail on
the two respective types of customer satisfaction.

[Link] Transaction-specific satisfaction

Transaction-specific satisfaction is the satisfaction that emerges from a one-time transaction

(Sunder, 2009:43). Merchant and Chen (2010:7) state that the transaction-specific concept
concerns customer satisfaction as a post-purchase evaluation made after a particular occasion.
Bello (2012:25) explains that transaction-specific satisfaction depends on an individual level; in
other words, customers make their judgement of customer satisfaction on a particular purchase
event (Bello, 2012:25). According to Abdullah and Rozario (2009:347), transaction-specific
satisfaction has a significant influence on overall customer satisfaction. Baran and Galka
(2013:218) posit that it is probable for a customer to have low transaction-specific satisfaction yet
have high overall satisfaction with a business. Transaction-specific views of customer satisfaction
are very valuable in pointing out issues associated with a particular customer experience, with a
product or service (Davis & Farrell, 2016:60).

[Link] Overall satisfaction

Fornell (1992) defines overall (cumulative) satisfaction as a customer’s consumption experience

over a time with respect to a specific product or service. Overall satisfaction also refers to the
customer’s total subjective after-consumption evaluative judgement based on all interactions and
experiences with a business (Bello, 2012:25). Overall customer satisfaction implies more profits
for businesses and market share growth (Angelova & Zekiri, 2011:236). According to Davis and
Farrell (2016:60), overall satisfaction is a better indicator of a business’ past, current and future
performance, as it includes customers’ overall assessment of a product, service or provider.

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3.6.3 Importance of satisfaction

Several scholars emphasise the importance of customer satisfaction (Angelova & Zekiri,
2011:233). The ability of a business to satisfy customers is important for several reasons (Ganiyu
et al., 2012:14), including:

 High customer satisfaction encourages customer loyalty. Customers remain loyal to a

business if they feel that the business offers them better services or products than another
business (Bose & Rao, 2011:545; Madjid, 2013:49).
 Improved reputation arises from satisfaction. Highly satisfied customers are more likely to
communicate positive things about the business and its products and are less likely to make
negative remarks (Davis & Farrell, 2016:61).
 Customer satisfaction stimulates future repurchase intentions and increases purchasing
rate (Sharifi & Esfidani, 2014:561). In other words, when customers are satisfied, they have
the desire to purchase again.
 Customer satisfaction has a positive influence on a business’ profitability. Customers are
the ultimate source of income for businesses and it is important to understand customers in
order to have a competitive edge in the market (Angelova & Zekiri, 2011:239; Karakaya et
al., 2011:1).
 Lastly, having highly satisfied customers will cause customers to ignore other competitive
offerings, which subsequently decreases marketing activities required to convince
customers to remain with the business (Davis & Farrell, 2016:61).

3.6.4 Measuring customer satisfaction

Measuring and enhancing customer satisfaction are evidently vital in building and maintaining
long-term relationships with customers (Lariviere et al., 2011:40). Arokiasamy (2013:15) believes
that customer satisfaction is a critical aspect relating to all business types, and is justified by the
customer-oriented philosophy and the ideologies of continuous enhancement in modern
enterprise. Accordingly, Grigoroudis and Siskos (2009:1) note that customer satisfaction should
be measured and translated into various quantifiable parameters. Dehghan and Shahin (2011:3)
further argue that it is somewhat difficult to assess customer satisfaction using an objective
measure. Customer satisfaction measures enable the business to have knowledge of business
process performance, to identify where change is required to make necessary improvements, and
to determine the results of any changes that have been initiated (Cengiz, 2010:83).

Customer satisfaction measurement may be regarded as the most dependable response, giving
customers choices and experiences in an effective, direct, significant and objective manner

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(Arokiasamy, 2013:15). Cengiz (2010:83) holds that customer satisfaction measurement provides
deep insights into the customer’s pre- and post-purchase behaviour. According to Pokalsky
(2014:2), all businesses are different and thus, a single approach to satisfaction measurement is
hardly very effective; rather a particular approach is needed to meet the needs of specific
businesses. Nevertheless, Pokalsky (2014:2) further states that the whole process can be divided
into six interactive phases as shown in Figure 3-3.

Figure 3-3: Customer satisfaction measurement process

Phase 2: Discovery
Phase 1: Mobilisation
Identify:
Define business and information
objectives  Needs or expectations
Develop overall plan  Types of problems
 Points of customer or business
Gain management commitment
interaction
Conduct qualitative research survey
with customers or employees

Phase 4: Action planning

Identify teams
Identify research implications: Phase 3: Needs and performance
 Changes in product or service evaluation
 Internal processes Provide quantitative measures of:
 Development of new products or  Importance of key attributes
services  Business performance on key
 Training attributes
Set-customer driven standards  Competitive performance
Create detailed plans  Expectations of specific levels of
performance
Determine areas of great impact

Phase 5: Implementation of plan Phase 6: Tracking

Implement plans Provide ongoing quantitative
assessment of performance
Deliver easy-to-understand reports to
both employees and management

Source: Adapted from Pokalsky (2014:2).

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3.6.5 Satisfied customers and the business

Researchers have debated whether there is a discrepancy between customer satisfaction

concerning tangible products and concerning service experiences (Arokiasamy, 2013:16).
Arokiasamy (2013:16) argues that this possible discrepancy emanates from the inherent
intangibility and perishability of services, as well as the failure to distinguish between production
and consumption.

According to Angelova and Zekiri (2011:233), satisfied customers are the cornerstone of any
successful business because customer satisfaction results in repeat buying, brand loyalty, and
positive word-of-mouth. Pokalsky (2014:1) adds that satisfied customers spend more money,
recommend more customers and patronise businesses longer than unsatisfied customers
patronise – all these result in more revenue for businesses if they can keep their customers
satisfied.

Many scholars highlight the fact that satisfied customers share their experiences with five to six
other people (Angelova & Zekiri, 2011:233). According to Arokiasamy (2013), the fulfilment of a
customer’s expectations will assist in improving customer satisfaction and may result in a highly
satisfied customer, and therefore the customer will:

 patronise for a long time;

 purchase more, given that the business produces new products and the current products
are improved;
 talk about the business and its products with praise;
 stay indifferent to other brands competing with the products of the business and are price
insensitive; and
 form part of value co-creation of a business’ products.

From the above discussion it is clear that satisfied customers are good for the business. However,
considering the fact that an increase in customer satisfaction means costs incurred to the
business, it is important to have empirical evidence concerning the benefits of customer
satisfaction to determine if the rise in costs outweighs the perceived benefits (Davis & Farrell,
2016:61).

3.6.6 Satisfaction in the banking industry

Mohsan et al. (2011:264) postulate that the type of relationship between the customer and the
bank is a central aspect of customer satisfaction in the banking industry. Taking into consideration
that the banking industry relies on customers for the banking industry to sustain itself,

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sustainability can be accomplished through customer satisfaction by means of long-term

relationships (Ujakpa et al., 2015:44). According to Hanzaee and Nasimi (2012:1353), from the
bank manager’s perspective, satisfaction has a major effect on profitability. To this end,
measuring customer satisfaction can be a great source of information for retail bank managers
about their actual performance and the expectations of their customers (Adil, 2013:47).

In light of the above discussion, satisfaction encourages loyalty. Consequently, the next section
discusses loyalty.

3.7 LOYALTY

Loyalty has long been a significant topic in the field of marketing (Hsu et al., 2014:80). Jaiswal
and Niraj (2011:165) emphasise that cultivating loyalty and keeping customers are vital for every
business. Hence, customer loyalty has been incorporated in the strategic goals of numerous
businesses because of the competitive strength it provides (Rai & Srivastava, 2012:50).
According to Roberts-Lombard et al. (2014:28), to obtain loyal customers, businesses are
required to invest in relationship-building and customer intimacy, because establishing such
relationships and intimacy will end up in stronger loyalty. Kocoglu and Kirmaci (2012:283) indicate
that the ability of businesses to improve their existing customers’ loyalty is based on whether they
can manage the customer relationships in a satisfactory manner. According to Amoaka et al.
(2012:17), businesses have opted to satisfy customer needs by being reactive and proactive to
ensure that they gain customers and encourage them to remain loyal. The aspects that contribute
to loyalty have to be examined and understood before planning and executing the tactics for
customer retention and loyalty (Rai & Srivastava, 2012:50).

3.7.1 Defining loyalty

Customer loyalty has traditionally been defined as the continual purchasing of a brand of interest
(Hsu et al., 2014:80). Oliver (1999:34) defines loyalty as a customer’s deep-held commitment to
repurchase a desired product or service in the future, regardless of situational influences and
marketing efforts that may have the potential to result in switching behaviour and recommending
the product or service to other people. Moorman et al. (1992) describe customer loyalty as “an
intention to keep a valued relationship”. Loyalty is further defined by Bose and Rao (2011:545) as
the customer’s commitment to conduct business with a specific business, which results in the
repeat purchases of goods and services provided by that business. According to Rai and
Srivastava (2014:56), in practical terms, businesses need repeat purchases because such
behaviour in customers can indicate the customer’s preference for a product, reveal the
customer’s buying intentions, and secure long-term profitability.

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In this study, loyalty is defined as:

A customer’s desire to continue patronising a specific business regardless of other

offerings available from competing businesses; in other words, repeat purchases over
time from that specific business.

3.7.2 Types of loyalty

According to Dehghan and Shahin (2011:3), the concept of loyalty first emerged in the 1940s.
Two distinct loyalty notions developed namely, “brand preference” which was later referred to as
attitudinal loyalty, and “share of market” which was later referred to as behavioural loyalty
(Dehghan & Shahin, 2011:3). Cheng (2011:150) notes that behavioural loyalty aims to change
customer loyalty into actual purchase behaviours, while attitudinal loyalty entails customers
communicating positively about the business (word-of-mouth) and establishing a positive
business image. Dehghan and Shahin (2011:6) add that customers may be loyal because of high
switching barriers or due to the limited availability of real alternatives. Customers may also be
loyal due to satisfaction attained and consequently, they want to remain in the relationship with
the related business. However, according to Rai (2012:139), certain factors can disrupt customer
loyalty, namely:

 if the customer is moving away from the service area;

 when changes occur in the customer’s needs and choices;
 the availability of superior alternatives, emerging from substitute products or competition; or
 if a critical episode is handled unsatisfactory.

According to Kharouf et al. (2014:365), this composite view of loyalty enables researchers to
conceptually and empirically make distinctions of the customer’s feelings of loyalty towards a
business from their genuine behaviours. Additionally, the two concepts of behavioural and
attitudinal loyalty are significant when trying to understand long-term customer relationships,
particularly when it is essential to forecast future customer support (Marshall, 2010:71). In the
following sections, the aforementioned types of loyalty are discussed.

[Link] Attitudinal loyalty

Attitudinal loyalty emerges from emotional bonds with a brand and encourages behavioural loyalty
(Sharifi & Esfidani, 2014:560). Balakrishnan (2011:222) states that attitudinal loyalty tends to be
longer lasting and is a condition of the mind. Customers with attitudinal loyalty contribute to both
the business’ revenue (by repurchasing often) and spreading positive word-of-mouth concerning
the business to others (Mubarik et al., 2016:47). Balakrishnan (2011:222) further states that

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attitudinal loyalty is particularly important when the functional benefits of products are difficult to
assess. According to Rai and Srivastava (2014:56), a customer’s attitudinal preference can be
conveyed by:

 Repurchase intention or buying more products or services from the same business. The
percentage of customers who surpass a number of repeat purchases within a certain
timeframe shows customer retention (Utami, 2015:647).
 The desire to recommend the business to others. Once a customer is satisfied and pleased,
recommending a business’s products or services will be transformed to his or her
unconscious objective (Tarokh & Sheykhan, 2015:69).
 The desire to suggest the business to others and demonstrating a level of commitment
towards the business by resisting profitable offers from competitors. Loyal customers are
less likely to turn to the competitors with price incentives; they also buy more than less loyal
customers. Customers who are committed to a business will hold the relationship in high
regard, believing that the relationship deserves effort and devotion (Dagger et al., 2011:276;
Hanzaee & Rahpeima, 2012:2129).
 The preparedness to pay a premium price. A premium pricing entails setting the price of a
product above the same competing products. However, premium pricing will only be
effective over time if a business provides superior value to the customers (Magloff, 2016;
Simon, 2015:70).

[Link] Behavioural loyalty

Behavioural loyalty refers to the ‘ordinary’ loyalty of the customer. In other words, customers with
high levels of behavioural loyalty tend to stay loyal to a business as long as there are no
alternatives existing to them, or if there is a lack of existing product substitutes (Mubarik et al.,
2016:47). Kaur and Soch (2012:49) state that the behavioural approach postulates that the repeat
buying of a brand over time by a customer reveals his or her loyalty. With behavioural loyalty,
repurchase action is the only indicator of loyalty, and any internally held attitudes or inclinations
are disregarded (Rai & Srivastava, 2014:134). As posited by Watson et al. (2015:794),
behavioural loyalty directly upsurges business revenues through repeated purchasing and shows
the customer’s capability and chance to patronise the business. According to Rahmani-Nejad et
al. (2014:263), behavioural loyalty refers to a customer’s frequent transactions, and researchers
commonly assess this aspect by observational methods. Two behavioural dimensions to loyalty
exist; firstly, an enquiry should be made if the customer is still active and secondly, the business
needs to know if it has sustained its share of the customer’s expenditure (Roberts-Lombard,
2011:3490).

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3.7.3 The significance of customer loyalty

Customers remain loyal to a business if they feel that the business offers them better services or
products than another business (Bose & Rao, 2011:545). Consequently, Petzer et al. (2009:32)
note that businesses are constantly searching for innovative methods to obtain, increase and
retain customers due to the increasing cost of losing customers. Hundre et al. (2013:703) mention
the following statistics to emphasise the need for establishing loyal customer relationships:

 Getting new customers can be five times more costly as compared to satisfying and
retaining current customers.
 A 2% increase in customer retention has the same effect on profits as cutting costs by 10%.
 Worldwide, on average, a business loses 10% of its customers each year.
 A 5% reduction in customer defection rate can increase profits by 25-125%, depending on
the industry.
 Customer profitability rate tends to increase over the lifetime of a retained customer.
 Only 1 out of 25 dissatisfied customers will express dissatisfaction.
 Two-thirds of customers do not feel valued by those serving them.

It is, therefore, crucial for businesses to understand why their customers stay with them.
Businesses should not make assumptions that when customers stay, that it is a positive and
mindful choice on their part (Petzer et al., 2009:34). Retaining a customer has emerged to be
equally as or if not more significant than getting a new customer (Alnsour, 2013:124). Harris
(2010:139) suggests that the ability to retain customers constantly show customers that they are
important. The significance of loyalty in this regard has been broadly accepted in the marketing
literature (Kaur & Soch, 2012:48). According to Rai and Srivastava (2012:65), the success of a
business is based on its ability to create loyal customers and retaining them. Therefore, it can be
argued that loyalty is significant or beneficial because:

 The record of customer retention is a good reflection of the quality of the products and the
services provided by a business (Singh & Khan, 2012:1). In other words, when a business
has a high customer retention rate, it proves that the business is offering good services and
it will have a large customer base. According to Ocloo and Tsetse (2013:139), a good loyal
customer base that exists for a long period is one of the great advertising strategies for a
business, and portrays an image of high quality. This image assists the business in
attracting other customers who desire long-term relationships with a business that offers
high quality products and services.
 Loyal customers assist with customer retention. Customer retention is the activity a
business gets involved in to decrease customer defections. Mostly, businesses gain

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 Chapter 3: Service quality, trust, switching cost, satisfaction and loyalty in context

benefits from retention in the form of profit, lower cost and long lasting benefits (Rai &
Srivastava, 2012:67; Singh & Khan, 2012:1; Danish et al., 2015:29).
 Having loyal customers means that customers can contribute by means of suggestions on
improvement. These contribute to value co-creation, since such customers understand the
businesses’ processes – such activity can also assist in research and development (West
et al., 2015).
 Loyalty makes employees' jobs easier and more fulfilling; the outcome is happy employees’
feedback into better customer satisfaction (Hundre et al., 2013:705).
 Loyal customers tend to insulate a business from competitors, because loyal customers will
remain with a brand because they have trust in the brand. Such businesses are safe both
in terms of market opposition from other businesses and economic changes. These, in turn,
assist to protect the bottom line (First Perspective, 2015).
 A loyal customer is unlikely to be very price-sensitive and will be prepared to pay a premium
for products to avoid taking risk with a new business (Rai & Srivastava, 2012:67).
 Current customers are relatively easier and less costly to retain than to obtain new
customers. Less marketing effort and financial input are needed to satisfy existing
customers. As noted above, research has indicated that it is five times more costly to attract
new customers as compared to keeping existing customers (Rahmaan & Masoom 2012:98;
Masoudi & Ansary, 2015:198).
 Sales records of a business can improve positively if customers remain loyal to the business
(Bagram & Khan, 2012:2). In other words, loyal customers can improve the sales of a
business through their purchases.
 The continuity of a relationship between a business and a customer gives a business a
platform to cross-sell and up-sell and thus contribute to the business’s revenues (Rai &
Srivastava, 2012:67).
 A loyal customer tends to use positive word-of-mouth. Word of mouth advertisement is one
of the key aspects in buying decisions (Mubarik et al., 2016:48; Rashed & Asil, 2015:82).
 Lastly, customer loyalty also results in brand advocacy, which means that customers
become promoters of a brand without having to be paid. The tendency of loyal customers
to get new customers to the business without having to be paid is helpful as a business
grows, specifically if it functions in a mature industry (Gamble, 2013; Gaurav & Khan,
2013:46).

3.7.4 Loyalty programmes

Businesses make efforts to overcome their competitors through a range of marketing strategies
and tactics. A typical tactic that is used is the universal loyalty programme (Bose & Rao,

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2011:544). According to Estanesti and Abad (2015:534), customers hold different opinions and
therefore strategies should be planned to match with the level of loyalty of existing customers and
the attraction of new customers. Kocher (2015:7) defines loyalty programmes as long-term
focused techniques meant to develop and improve customer loyalty by rewarding and
encouraging programme members’ loyal buying patterns according to a well-defined programme
structure. In order to build customer loyalty, the programme should be regarded as valuable to
customers (Strahle, 2015:239). Sezgin (2015:43) states that the most critical part of a loyalty
programme is the type of benefits that are presented by the business.

According to Dehghan and Shahin (2011:2), there are two objectives of customer loyalty
programmes: lifting sales revenues by increasing purchase or usage levels, and increasing the
variety of products purchased from the supplier. The second objective is more defensive and by
building an intimate bond between the brand and existing customers, it is hoped to sustain the
existing clientele (Dehghan & Shahin, 2011:2). Bose and Rao (2011:544) further hold that the
main objective of a loyalty programme is to reward customers for their repeat purchase behaviour,
and to encourage, uphold and improve the level of loyalty by setting targets at which customers
can acquire various benefits. Onditi et al. (2012:225) add that the actual aim of customer loyalty
programmes is happy customers who will return to buy again and convince others to use that
business’ products or services.

Through the use of effective loyalty programmes, marketers keep their existing customers to earn
their loyalty (Bose & Rao, 2011:544). Mokoena and Govender (2015:23) posit that, by giving more
incentives, loyalty programmes stimulate customers to purchase more from a business and less
from competitors. Loyal customers usually create stable relationships with a business in
comparison to non-loyal customers (Chakiso, 2015:58) and as a member of a loyalty programme,
customers tend to buy from a specific business in order to acquire rewards rapidly (Bose & Rao,
2011:546). Myftaraj and Nexhipi (2014:3) add that a loyalty programme helps to create intimate
customer-business relationships and to establish an interactive environment. However, according
to Bose and Rao (2011:546), such a programme is not valuable to the customer for a single
transaction, as it has the objective of attaining loyalty over time.

3.7.5 Differentiating customer loyalty from customer retention

It is essential to understand the difference between loyalty and retention due to the underlying
assumptions associated with business success (i.e., more revenue or profits or both) (Klein,
2013). Ocloo and Tsetse (2013:139) note that retention should not be regarded as similar to
loyalty, since loyalty refers to a situation when alternatives exist for customers to select. According
to Rai (2012:162), the meaning of the two concepts indicates the dissimilarities between them.

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Ocloo and Tsetse (2013:139) define customer retention as an effort made by businesses to
ensure that its customers do not change to other business. In contrast to customer retention,
Bagram and Khan (2012:2) define customer loyalty as the behaviour of a customer in which he
or she shows the desire to repurchase from a business and continue relationships with the same
business in his or her forthcoming purchases. According to Rai (2012:162), customer loyalty is
an antecedent of customer retention, but customer retention does not necessarily result in
customer loyalty.

3.7.6 Loyalty in banks

Loyalty to a bank can be considered as on-going support over time (Asfar et al., 2010:1040).
Hundre et al. (2013:704) posit that the longer a customer remains with a bank, the better the
chance for a relationship developing between the customer and the bank. This allows the bank
to provide personalised services, making it hard for customers to defect. Therefore, acquiring
knowledge on the aspects that improve the level of customer loyalty is a prerequisite for banks
that want to establish a sustainable competitive edge (Trif, 2013:110). According to Bain and
Company (2013:5), banks with firm customer loyalty can gain additional business from their
customers. Thus, banks should continue to move customers up the loyalty pyramid and in so
doing, converting them from mere customers into devoted supporters and partners (KPMG,
2013:26).

3.8 SERVICE QUALITY, TRUST, SWITCHING COSTS, SATISFACTION AND LOYALTY

According to Karimi et al. (2011:10), an increase in service quality will increase satisfaction.
Fatima and Razzaque (2014:566) found that there is a positive relationship between trust and
satisfaction. Furthermore, Baksi (2015:28) also found a positive and significant relationship
between switching costs and satisfaction. Ultimately, satisfaction predicts loyalty (Kishada &
Wahab, 2013:266,271). Therefore, the above sentiments indicate that service quality, trust and
switching costs are predictors of satisfaction, and satisfaction as the ultimate predictor of loyalty
as summarised in Figure 3-4.

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 Chapter 3: Service quality, trust, switching cost, satisfaction and loyalty in context

Figure 3-4: Conceptual model

Service
quality H11
H8
H9
H12 H14
Trust Satisfaction Loyalty

H10 H13

Switching
cost

3.9 CONCLUSION

This chapter provided a comprehensive discussion of the constructs under investigation in this
study, namely service quality, trust, switching costs, satisfaction and loyalty. From existing
literature, definitions were provided on each of the constructs, the importance of each of the
constructs was highlighted, and strategies to implement these constructs were explored. In
addition, the role of each of the constructs within the banking industry was discussed. In light of
the above discussion, it is noteworthy to mention that service quality, trust, switching costs,
satisfaction and loyalty are important concepts that should not be underestimated by any
business, as they contribute significantly to the success and sustainability of the business. Failing
to manage or address these constructs can severely compromise a business’ competitive
advantage, and most importantly its business-customer relationships. The research methodology
chapter follows below.

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 CHAPTER 4

RESEARCH METHODOLOGY

4.1 INTRODUCTION

The main objective of this chapter is to present the research methodology used in this study. This
includes a discussion of the marketing research process and the steps taken to address the
research problem and to accomplish the research objectives.

4.2 MARKETING RESEARCH

The existence of a business is the reason for the development of marketing research (Babin &
Zikmund, 2016a:4). Feinberg et al. (2013:49) indicate that the main objective of marketing
research is to provide information to facilitate all phases of the decision-making process, from
identifying a decision to choosing a course of action. Therefore, marketing research encompasses
idea inception and theory development, problem description, information gathering, data analysis
and communicating the research outcomes (Babin & Zikmund, 2016b:5).

4.2.1 Marketing research defined

Numerous definitions of marketing research exist in the marketing literature (Mackay, 2012:104).
Below are some of these definitions of marketing research:

 The American Marketing Association (2004) defines marketing research as “the function
that links the consumer, customer, and public to the marketer through information –
information used to identify and define marketing opportunities and problems; generate,
refine, and evaluate marketing actions; monitor marketing performance; and improve the
understanding of marketing as a process”.
 According to Malhotra et al. (2013:39), marketing research is “the systematic and objective
identification, collection, analysis, dissemination and use of information for the purpose of
improving decision-making related to the identification and solution of problems and
opportunities in marketing”.
 McDaniel and Gates (2013:4) define marketing research as the planning, gathering and
analysis of data pertinent to marketing decision-making and the communication of the
findings of this analysis to management.

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 “Marketing research is the process of designing, collecting, analysing and reporting

information that may be used to solve a specific marketing problem” (Burns & Bush,
2014:34).
 Babin and Zikmund (2016b:5) define marketing research as the use of scientific methods in
seeking the truth concerning market and marketing events.

In light of the various marketing research definitions above, the following definition can be
formulated for purposes of the present study:

Marketing research is a process designed to gather, analyse, interpret and

communicate the research findings pertinent to a specific marketing problem
recognised with the aim of providing a solution to the identified problem.

4.2.2 Determinants for conducting marketing research

Conducting marketing research is driven by the need to make intelligent and informed decisions
(Babin & Zikmund, 2016a:18). However, according to Burns and Bush (2014:70), only certain
decisions will require marketing research. Therefore, Zikmund and Babin (2010:19) note that
when facing an important decision, a marketing manager has to choose whether to proceed with
the marketing research or not. The aspects discussed below and shown in Table 4-1 therefore
necessitate marketing research.

Table 4-1: Factors that determine when to conduct marketing research

Factor Conduct marketing research Do not conduct marketing research

Time Enough time is available before a Time pressure requires a decision before
decision can be made. adequate research can be completed.
Data availability Business does not have access to Business already has relevant data or
data but data can be obtained. data cannot be obtained.
Nature of decision Decision is of significant strategic or Decision is not of significant strategic or
tactical importance. tactical importance.
Benefits versus Potential value of research exceeds Costs of research exceed potential value
costs costs of conducting research. of project

Source: Adapted from Babin and Zikmund (2016a:20).

[Link] Time constraints

Conducting proper research requires time (Wiid & Diggines, 2015:10). Time often plays a
significant role in the market research decision-making process (Burns & Bush, 2014:71).
According to Babin and Zikmund (2016a:18), in many circumstances, managers feel that a
decision must be promptly made so that there is no time for research. Echoing the same

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sentiments, Aaker et al. (2011:19) state that, usually, decisions have a specific timeframe and
must be taken according to a particular schedule, by means of any information that exists. Even
though making decisions without conducting research on a particular aspect are not perfect,
sometimes the urgency of a situation eliminates the use of research (Zikmund & Babin, 2010:19).

[Link] Data availability

Before research can be done, it is essential to determine if sufficient information exists for the
particular decision that has to be made (Wiid & Diggines, 2015:10), because managers often have
sufficient information to make good decisions without conducting additional marketing research
(Zikmund & Babin, 2010:20). Therefore, Burns and Bush (2014:71) note that a researcher should
consider doing marketing research when the information required is unavailable. This implies that
data has to be gathered from the right sources (Babin & Zikmund, 2016a:18). However, Babin
and Zikmund (2016b:19) argue that if data cannot be accessed or accessed within a short space
of time, the project should not be undertaken.

[Link] The nature of the decision

Decisions that will have a great impact on business operations will attract more attention than
less significant decisions (Wiid & Diggines, 2015:10). Zikmund and Babin (2010:20) state that the
significance of marketing research is based on the nature of the managerial decision to be made.
A routine strategic decision that does not need an extensive investment does not warrant
extensive expenditure for research (Zikmund et al., 2013:11). According to Wiid and Diggines
(2015:10), it would not be economical to conduct research for every decision that has to be made.

[Link] Benefits versus costs

Wiid and Diggines (2015:11) posit that it is costly to do research and it must be of value to the
business to conduct research. Thus, McDaniel and Gates (2013:10) suggest that research should
be conducted only when the expected value of information outweighs the cost of obtaining it.
When considering to make a decision with or without marketing research, managers should ask
whether the payoff will be of value to the investment, whether the marketing research is likely to
enhance the quality of marketing adequately to permit the expenditure, and if the suggested
research spending represents the best use of financial resources (Babin & Zikmund, 2016b:19).

4.3 THE MARKETING RESEARCH PROCESS

The marketing research process consists of numerous interconnected activities that overlap and
that do not strictly follow a specific order (Beri, 2013:54). Feinberg et al. (2013:50) define the
marketing research process as “the systematic assemblage, processing and interpretation of
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market-related information to enhance managerial decision-making”. The orientation of the

marketing research process is determined by the marketing problem (Wiid & Diggines, 2015:36).
The following marketing research processes are suggested by different researchers:

 McDaniel and Gates (2013:67) identify the following eight steps for the marketing research
process: (1) identification of the problem and statement of the research objectives; (2)
creation of the research design; (3) choice of method of research; (4) selection of the
sampling procedure; (5) collection of data; (6) analysis of data; (7) writing and presentation
of the report; and (8) follow-up.
 Churchill et al. (2010:51) suggest seven steps for the marketing research process: (1)
formulate the problem; (2) determine the research design; (3) determine the data collection
method; (4) design the data collection forms; (5) design the sample and the data; (6) analyse
and interpret the data; and (7) prepare the research report.
 Malhotra et al. (2010:42) propose six steps for the marketing research process: (1) problem
definition; (2) development of an approach to the problem; (3) research design formulation;
(4) fieldwork and data collection; (5) data analysis; and (6) report presentation.

For the purpose of this study, the marketing research process depicted in Figure 4-1 is used.

Figure 4-1: Marketing research process for this study

Identify the problem and define the research

Step 1
objectives

Step 2 Determine the research design

Step 3 Design the data collection methods and forms

Step 4 Design the sample and collect data

Step 5 Analyse and interpret the data

Step 6 Present the results

Source: Adapted from Feinberg et al. (2013:30), Iacobucci and Churchill (2010), and McDaniel
and Gates (2013:67).

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4.3.1 STEP 1: Identify the problem and define the research objectives

The research process should start with defining the research problem and developing particular
research objectives (Ghauri & Cateora, 2010:153). According to Hair et al. (2013:32),
appropriately defining the problem is an essential first step in determining if there is a need for
research. Churchill et al. (2010:37) add that the research process should not proceed unless the
research problem and objectives can be clearly identified. McDaniel and Gates (2013:66)
highlight that properly formulated objectives work as a guideline in pursuing the research project.
However, Wiid and Diggines (2015:51) feel that defining the research problem is the most
challenging phase in the marketing research process. Accordingly, for the purpose of this
study, the research problem is presented below (see also section 1.2):

In order to address the issue of customer switching, South African banks have put more emphasis
on the use of loyalty or reward programmes to ensure that current customers are not easily
tempted to switch banks (Mather, 2013). Ernst and Young (2012) indicate that customer attrition
in South African banks had risen from 34% to 39%, and 13% of customers were considering
moving to other banks. As indicated in Figure 4-2, BusinessTech (2015b) also provided statistical
proportions of customers who were intending to leave South African retail banks in 2015.

Figure 4-2: Customer intentions to leave South African retail banks

Capitec Absa
10% 20%

FNB
36%
Standard bank
20%

Nedbank
14%

Source: Adopted from BusinessTech (2015b).

Acquiring loyal customers in service industries such as banks is difficult, because regardless of
the customers being satisfied or not, they may still switch to other service providers in search of
variety (Kashif et al., 2015:24). According to SAcsi (the South African customer satisfaction index)

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(2015), customers are more likely to switch from one bank to another if they are dissatisfied with
products or services – evident from the latest popular South African advertising campaigns
encouraging customers to change banks if they were unhappy. This form of behaviour poses
customer retention challenges that banks should not underestimate ([Link], 2015).

Considering that the banking industry relies on customers, the sustainability of banks is essential,
and is something that can be accomplished through customer satisfaction over the longer term
(Ujakpa et al., 2015:44). According to Dalhstrom et al. (2014:269), the aspect of trust is critical in
the banking industry considering the financial transactions that implicate risk. Chigamba and
Fatoki (2011:72) and Rootman and Cupp (2016:283) concur that it is not difficult for customers to
switch due to the high concentration of banks in South Africa and consequently, customers
experience switching costs when they switch (Bhattacharya, 2013:102). Therefore Coetzee et al.
(2013:2) note that over the past years, South African banks have regarded service quality to be
of strategic importance and the main driver for gaining a competitive edge. Rasheed et al.
(2015:240) further posit that customer loyalty has been a key issue in banking due to the intense
competition and increased customer expectations. Consequently, each year, bank marketers
spend billions of Rands on loyalty programmes with a view to obtain and keep profitable
customers, although the question remains whether the money spent provides the best results
(Mokoena & Govender, 2015:22).

Given the tendency of customers to switch between banks and increasing customer attrition, it is
important to study and observe those aspects (from a relationship marketing perspective) that
might predict customer loyalty in South African retail banks, since relationship marketing is
regarded as the foundation for reinforcing relationships and maintaining customer loyalty (Lo,
2012:92).

Therefore, in light of the above research problem identified, the primary objective of this study
is to determine the predictors of customer loyalty, including service quality, trust, switching costs,
and satisfaction, in South African retail banks. Consequently, the following secondary objectives
have been formulated to support the primary objective:

1) Compile a demographic profile of respondents.

2) Determine the retail banking habits of respondents.
3) Determine respondents’ perceptions of the service quality of their banks.
4) Determine respondents’ trust towards their banks.
5) Determine respondents’ perceived switching costs among banks.
6) Determine respondents’ levels of satisfaction towards their banks.
7) Determine respondents’ loyalty towards their banks.

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8) Determine whether significant differences exist between different groups of retail banking
customers in terms of each of the constructs.
9) Determine the interrelationship between service quality, trust, switching costs, satisfaction
and loyalty in South African retail banks (as presented in the conceptual model).

4.3.2 STEP 2: Determine the research design

A research design is a blueprint that specifies the methods and processes for collecting and
analysing the required information (Zikmund & Babin, 2010:64). Cooper and Schindler (2014:82)
state that choosing a research design may be difficult due to the availability of a large range of
methods, techniques, processes, protocols and sampling plans. Establishing the suitable
research design is mainly based on the research objectives and information requirements (Hair
et al., 2010:36). According to Churchill et al. (2010:79), research designs can be categorised into
three types, namely exploratory, descriptive and causal. These research designs are summarised
in Table 4-2 and accordingly discussed in the following sections.

Table 4-2: Research designs

Exploratory research Descriptive research Causal research

Objective Discovery of ideas and Describe market Determine cause-and-
insights characteristics effect relationships
Characteristics Flexible versatile Marked by prior Manipulation of one or
Often the front-end of total formulation of specific more independent
research design hypotheses variables
Pre-planned and Control of other mediating
structured design variables
Methods Literature search Literature search Experiments
Experience surveys Quantitative in nature
Focus groups Surveys
Pilot surveys Panels
Case studies Observations

Source: Adopted from Malhotra (2009:98).

[Link] Exploratory research

Exploratory research has various uses, including gaining background information, defining terms
precisely, illuminating problems and hypotheses, and establishing research priorities (Burns &
Bush, 2014:101). Iacobucci and Churchill (2010:58) propound that the main emphasis of
exploratory research is to find of ideas and insights. In general, exploratory research is suitable
for any problem where there is little existing knowledge (Iacobucci & Churchill, 2010:61).

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According to Feinberg et al. (2013:54), it is suitable to use exploratory research when the research
objectives include:

 Identifying or developing a more specific formulation of problems or opportunities.

 Obtaining a perspective about the breadth of variables operating in a situation.
 Establishing priorities about the potential impact of different problems or opportunities.
 Gaining management’s and the researcher’s viewpoints about the character of the problem.
 Developing possible courses of action.
 Collecting information on the possible consequences of conducting conclusive research.

[Link] Descriptive research

Descriptive research is conducted in order to answer who, what, when, where, why and how
questions (Burns & Bush, 2014:103). According to Babin and Zikmund (2016a:54), accuracy is
vital in descriptive research. Malhotra (2009:100) postulates that with descriptive research, data
is gathered in a structured manner, typically by means of large representative samples. Hair et
al. (2010:104) add that the decision to use a descriptive research design is based on three factors,
namely (1) the kind of the preliminary problem or opportunity, (2) the research questions, and (3)
the research objectives. A statement of the problem, particular research objectives and full
information requirements results in effective descriptive research (Feinberg et al., 2013:58).

[Link] Causal research

The main focus of causal research is to gather data that allows researchers to measure cause-
and-effect relationships between two or more variables (Hair et al., 2010:118). In the same vein,
McDaniel and Gates (2010:50) state that in causal studies, the researcher examines if the value
of a single variable is responsible for a change in another in an effort to create a relationship
between them. The key causal research method is experimenting (in either a laboratory or field
setting) (Malhotra, 2009:104). Feinberg et al. (2013:59) further note that causal research needs
a planned and structured design that will reduce systematic errors and maximise reliability as well
as allowing reasonably unambiguous conclusions about causality with a view to select among
possible courses of action. According to Babin and Zikmund (2016a:57), causal research enables
decision-makers to make causal inferences.

For the purpose of this study, a descriptive research design was selected, because the
research problem was clear, and research objectives have been formulated. Therefore, the
descriptive research questions are covered by surveying retail bank (what) customers (who) in
the Gauteng province (where) on what influences them to be loyal (why). Furthermore, the use of
hypotheses support the use of descriptive research in this study (Aaker et al., 2011:73).
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4.3.3 STEP 3: Design the data collection methods and forms

The type of research design determines the type of data to be collected as well as the method of
data collection (Hult et al., 2014:115). Accordingly, Sarstedt and Mooi (2014:28) identify two types
of data, namely primary data and secondary data. Research projects frequently begin with
secondary data which was collected and recorded by a different researcher before and for the
purpose of another project other than the research at hand (Zikmund & Babin, 2010:163). The
subsequent sections therefore expound on the types of data noted above.

[Link] Secondary data

After the research objectives have been stated and related information has been gathered, the
researcher must formulate the research design and choose suitable sources of marketing data
(Feinberg et al., 2013:78). According to Bradley (2010:76), secondary data is already available,
and therefore it is less costly than collecting data for the first time. Malhotra et al. (2010:134)
provide criteria for evaluating secondary data as shown in Table 4-3. Silver et al. (2013:41) identify
the following most common uses of secondary data:

 In certain instances, the information and insights obtained from secondary data are
sufficient to answer the research question.
 Secondary data can provide the prior knowledge needed to understand the context of the
problem and can give an indication of the market dynamics.
 It can offer exploratory information that can help in the planning and design of the
instruments used to collect primary data.
 It can function as a check and standard for assessing primary data.
 It can provide insight into sample selection.
 It can assist in formulating the research hypotheses or ideas that can be studied during the
primary data collection stage of the research process.

Table 4-3: Criteria for evaluating secondary data

Criteria Issues Remarks

Specifications/ Data collection method Data should be reliable, valid and
Methodology Response rate generalisable to the current problem.
Quality of data
Sampling technique
Questionnaire design
Fieldwork
Data analysis

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Table 4-3: Criteria for evaluating secondary data (cont.)

Criteria Issues Remarks

Error/Accuracy Examine errors in approach, research Assess accuracy by comparing data
design, sampling, data collection, data from different sources.
analysis, reporting
Currency Time lag between collection and Census data is periodically updated by
publication syndicated businesses.
Frequency of updates
Objective Why was the data collected? The objective will determine the
relevance of the data
Nature Definition of key variables Reconfigure the data to increase its
Units of measurement usefulness, if possible.
Categories used
Relationships examined
Dependability Expertise, credibility, reputation and Data should be obtained from an original
trustworthiness of the source rather than an acquired source.

Source: Adapted from Malhotra et al. (2010:134).

Secondary data sources can further be categorised into internal and external secondary data
sources (Bradley, 2010:77) as depicted in Figure 4-3. Internal data is data obtained from within
the business and external data is data acquired from sources outside of the business (Malhotra,
2009:128).

Figure 4-3: Categories of secondary data

Secondary data

Internal secondary data External secondary data

Published
Ready to use
materials

Requires Computerised
further databases
processing

Syndicated
services

Source: Adapted from Malhotra (2009:129).

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[Link].1 Advantages of secondary data

Although secondary data cannot provide all the information needed for a research project, it can
assist in establishing the research problem, and can be used to propose methods and suggest
the kinds of data necessary to meet information needs, and it can function as a source of
comparative data through which primary data can be interpreted and evaluated (Feinberg et al.,
2013:79). Malhotra (2009:124) notes that the main advantages of secondary data are the time
and costs savings. In the same vein, Silver et al. (2013:42) state that secondary data has the
following advantages:

 The cost of acquiring secondary data is low, as it can be obtained from published sources
(for which primary data collection was already done).
 Secondary data can be obtained within a short period of time, in contrast to primary data
that needs design and execution of primary data-collection instruments.
 Secondary data may be everything that is needed to accomplish the research objective
(Burns & Bush, 2013:126). In other words, secondary data may provide enough information
thus eliminating the need for obtaining primary data.

[Link].2 Disadvantages of secondary data

Considering that secondary data was generated for other uses not pertaining to provide answers
to the present research question, care must be taken when using this data. In addition, the
limitations of secondary data must be taken into account (Silver et al., 2013:42). Iacobucci and
Churchill (2010:144-147) provide the following disadvantages of secondary data:

 Problems of fit: Due to the fact that secondary data was meant to address a specific
problem and not the problem at hand, it is unusual for it to fit to the current problem perfectly.
It is common for a researcher to find that secondary data was expressed in units which differ
from those needed for the current project (Feinberg et al., 2013:79). Echoing the same
sentiments, Malhotra (2009:125) mentions that the significance of secondary data is
typically limited to the scope of its fit with the existing research problem and by concerns
about data accuracy.
 Problems of accuracy: The accuracy of many secondary sources may be questionable.
Several errors are possible during the collection, analysis and reporting of marketing
information. According to Feinberg et al. (2013:80), evaluating the accuracy of secondary
data is challenging. Therefore, users of secondary data should constantly evaluate and
verify the accuracy of the data obtained (McDaniel & Gates, 2010:74). This can be done by
using the criteria shown above in Table 4-3. Feinberg et al. (2013:80) posit that it is

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imperative to obtain secondary data from its original source instead of using acquired
sources at any time possible.

For the purpose of this study, secondary data was used in Chapters 1 to 4. Chapter 1 focused
on the literature to provide background on the use of relationship marketing, as well as information
on the South African retail banking industry. Chapter 2 provided more detail on the discipline of
relationship marketing, and Chapter 3 focused on the theoretical constructs (i.e. service quality,
trust, switching costs, customer satisfaction and loyalty). Chapter 4 presented a literature
overview of the available marketing research methods. Relevant secondary data was obtained
from published academic journals, theses, textbooks and credible internet sources.

[Link] Primary data

Primary data is gathered for a particular purpose (Sarstedt & Mooi, 2014:38). Lamb et al.
(2012:299) further describe primary data as data that is collected for the very first time and is used
to solve a specific problem. When the problem under investigation is unique to a particular
business, the use of primary data might be the only source of viable information (Kuiper,
2009:275). According to Wiid and Diggines (2015:94), primary data can be collected by using
qualitative research or quantitative research. Table 4-4 provides a distinction between the two
primary data collection methods which are subsequently discussed.

Table 4-4: Differentiating qualitative from quantitative research

Qualitative research Differentiating dimension Quantitative research

Probing Types of questions Limited probing
Small Sample size Large
Substantial Amount of information Varies
from each respondent
Interviewer with special skills Requirements for Interviewer with fewer special skills
administration or no interviewer

Subjective, interpretive Type of analysis Statistical, summation

Sound recorders, projection Hardware Questionnaires, computers,
devices, video recorders, printouts, mobile devices
pictures, discussion guides
Low Degree of replicability High
Psychology, sociology, social Researcher training Statistical, decision models, decision
psychology, consumer support systems, computer
behaviour, marketing, marketing programming, marketing, marketing
research research
Exploratory Type of research Descriptive or causal

Source: Adapted from McDaniel and Gates (2013:80).

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[Link].1 Qualitative research

Qualitative research methods are relatively unstructured; in other words, these are methods that
do not require a format. Instead, the respondent is openly questioned about the key issue and
permitted to provide long answers (Feinberg et al., 2013:218). Babin and Zikmund (2016a:113)
state that qualitative research does not concentrate on numeric values but on stories, visual
displays, meaningful characterisations, interpretations and other expressive descriptions.
According to Wiid and Diggines (2015:98), the three most common qualitative research methods
are:

 Focus group interviews: A focus group is a research method whereby a topic is introduced
to a panel of respondents. A moderator leads the panel and guides the discussion of the
topic in an unstructured and natural manner. Six to ten respondents normally participate in
focus groups. The moderator uses group dynamics principles to lead the group to exchange
ideas, feelings and experiences on a particular topic (Cooper & Schindler, 2014:160).
Iacobucci and Churchill (2010:63) identify the following aims of focus groups: to formulate
hypotheses that can be further confirmed quantitatively, to formulate information that can
be used to design customer questionnaires, and to give insight on a product category and
acquire customer impressions on new product concepts or ad copy.
 In-depth interviews: The aim of an in-depth interview is to obtain a deeper understanding
of a topic that the respondent is able to speak about (Belk et al., 2013:31). McDaniel and
Gates (2013:93) note that the interviewer has to be properly trained in order to probe and
elicit detailed responses to every question. Considering that a great deal of information is
gathered from in-depth interviews, it is advisable to have two interviewers with one
interviewer asking questions and the other observing and making notes, as well
participating from time to time (Churchill et al., 2010:84). According to McDaniel and Gates
(2013:93), some of the benefits of using in-depth interviews are that the more time spent on
individual respondents encourages them to review new information, and each respondent’s
perspective can be acquired without influence from others.
 Projective techniques: Researchers are frequently searching for concealed or suppressed
feelings. To this end, they can use projective techniques in the interview (Cooper &
Schindler, 2014:155). Churchill et al. (2010:97) posit that projective techniques stimulate
respondents to disclose their own feelings, thoughts and behaviours by moving the focus
away from the individual by means of indirect tasks. Furthermore, Churchill et al. (2010:97)
state that the basic idea with projective techniques is that an individual’s responses to an
ambiguous stimulus shows the person’s elementary view of the phenomenon. The most
often used projective techniques include association, completion, construction and

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expressive techniques (Wiid & Diggines, 2015:106). According to Babin and Zikmund
(2016a:130), projective techniques are particularly effective when studying sensitive
matters. However, using projective techniques is very costly due to fact that expert
interviewers are needed (Wiid & Diggines, 2015:110).

[Link].2 Quantitative research

According to Wiid and Diggines (2015:95), “quantitative research is the collection of data that
involves larger, more representative respondent samples and the numerical calculation of
results”. Saunders et al. (2012:162) indicate that quantitative research investigates the
relationships between variables, which are measured mathematically and analysed using various
statistical methods. With quantitative research, formal and structured questions are administered
to a large numbers of respondents (Hair et al. 2013:77). As discussed by Wiid and Diggines
(2015:95), quantitative research methods include:

 Surveys: A survey comprises interview a large number of respondents by means of a

structured questionnaire (Burns & Bush, 2014:172). Cooper and Schindler (2014:219)
postulate that survey questions are carefully selected, arranged and precisely asked of each
respondent. Therefore, as indicated in Table 4-5, certain aspects need to be considered
when selecting a research method (McDaniel & Gates, 2013:120). Surveys provide a fast,
less costly, efficient and accurate means of obtaining information about a population (Babin
& Zikmund, 2016a:168). McDaniel and Gates (2013:119) recommend that a researcher
should select a survey method that can provide required data types, quality and quantity at
low cost possible. Surveys can be done by means of telephone interviews, personal
interviews, mail interviews and electronic interviews (Malhotra et al., 2010:210).

Table 4-5: Determinants of surveys

Factor Comment
Sampling precision If the need of accuracy in the study results is not great, less rigorous
and less expensive sampling procedures may be appropriate.
Budget It is important to determine how much money is available for the
survey portion of the study.
Need to expose respondent to Taste tests and prototype usage tests usually require face-to-face
various stimuli and have contact. Card sorts, certain visual scaling methods and the like
respondent perform require either face-to-face contact of the internet.
specialised tasks
Quality of data required It is important to determine how accurate the results of the study
need to be.
Length of questionnaire Long questionnaires are difficult to do by mail, over the phone, or in
a mall.

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Table 4-5: Determinants of surveys (cont.)

Factor Comment
Incidence rate Are you looking for people who make up 1 percent of the total
population or 50 percent of the population? If you are looking for a
needle in haystack, you need an inexpensive way to find it. The
internet is probably the best source.
Degree of structure of Highly structured questionnaires may require data collection by
questionnaire personal interview.
Time available to complete There may not be time to wait for responsive vial snail mail. The
survey internet is the fastest way to go.

Source: Adapted from McDaniel and Gates (2013:120).

 Observations: An observation encompasses the collection of primary data by means of

observing relevant scenarios, people, and their actions (Kotler & Armstrong, 2010:133).
Silver et al. (2013:137) note that observation is more effective for assessing particular
behavioural variables than for assessing attitudinal variables. According to Bradley
(2010:130), observations can be conducted by humans or by machines. Kotler and
Armstrong (2010:133) state that researchers often record customer behaviour to gather
customer insights that they are unable to acquire through questioning customers. Therefore,
observational techniques are effective when investigating unconscious behaviour patterns
or behaviours that individuals may not want to share honestly (Malhotra, 2009:231).
According to Ghauri and Grønhaug (2010:117), the selection of an observation technique
is greatly influenced by the problem at hand, the research design, the expertise of the
researcher as well as the nature and characteristics of the subject to be observed.
 Experiments: An experiment is a research method whereby a single variable is
manipulated to determine its effect on another variable (McDaniel & Gates, 2010:215). As
mentioned earlier (section [Link].), an experiment is a research technique generally used
in causal research. According to Malhotra (2009:261), the constraints to experiments
include the time, cost and administration of an experiment. Cooper and Schindler
(2014:195) recommend that, to conduct a successful experiment, the researcher must: (1)
select appropriate variables, (2) clearly state the treatment levels, (3) control the
experimental environment, (4) select the experimental design, (5) choose and assign the
subjects, (6) pilot test, revise and test, and (7) analyse the data. Experiments can be done
in a laboratory or in a natural (field) setting (McDaniel & Gates, 2010:217). In a laboratory
experiment, the researcher sets the desired conditions (Wiid & Diggines, 2015:142) while a
field experiment involves assessing behaviour, attitudes or perceptions in the environment
in which they occur (Malhotra, 2009:260).

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For the purpose of this study, a survey was done by administering questionnaires to
respondents. Fieldworkers approached potential respondents at shopping malls to ask for
participation in the requested survey.

[Link].3 Questionnaire design and content

The aim of this study is to gather quantitative data. Therefore, data was collected by means of
structured, self-administered questionnaires. According to Neelankavil (2015:184), a
questionnaire is a collection of questions that is used to obtain the necessary information from a
sample. To design a good questionnaire, researchers need to take into account whether the
questionnaire provide the essential decision-making information for managers, whether it
considers the respondent, and whether it complies with all the standards for editing, coding and
data processing (McDaniel & Gates, 2010:288). According to Feinberg et al. (2013:267-287),
when designing a questionnaire, researchers follow certain guidelines as shown in Figure 4-4.
These are further discussed in the following sections.

Figure 4-4: Guidelines for designing a questionnaire

Review preliminary considerations

Decide on question content

Decide on response format

Decide on question wording

Decide on question sequence

Decide on physical characteristics

Pre-testing and revision

Make the final draft

Source: Adopted from Feinberg et al. (2013:268).

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(i) Preliminary considerations

Researchers want sufficient coverage of the subject and wish to obtain information in its
most usable form (Cooper & Schindler, 2014:300). Feinberg et al. (2013:267) note that
central to this procedure is the development of research objectives and the listing of
information requirements. Furthermore, the research design has to be designed, the phases
in the research process must be visualised and planned, and several decisions should be
made before the questionnaire can be designed (Feinberg et al., 2013:267).

(ii) Question content

Question content is influenced by the objectives of the study (Cooper & Schindler,
2014:302). According to Malhotra (2009:333), the researcher has to identify what should be
included in every question. The respondent’s ability and willingness to answer correctly
influence the question content (Feinberg et al., 2013:269). Wiid and Diggines (2015:166)
recommend that, when deciding on the content of each question, the researcher must
answer the following questions:

 Is there need for the question?

 Are numerous questions required instead of only one?
 Does the respondent possess the information that is required?
 Does the question fit within the respondent’s field of expertise?
 Will the respondent find it challenging to respond to the question?
 Will the respondent be ready to provide the requested information?

To ensure that all the required information is obtained from respondents (and no
unnecessary information is gathered), the research objectives of the study must be
considered in compiling the questionnaire. In this study, the questionnaire included
three sections:

 Section A: designed to gather information of respondents’ demographic information (to

reach objective 1).
 Section B: formulated to obtain information on respondents’ retail bank patronage habits
(to reach objective 2).
 Section C: designed to gather information by determining respondents’ perceptions of
service quality, trust, switching cost, satisfaction and loyalty towards their retail banks (to
reach objectives 3 to 8).

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(iii) Response format

Once the question content has been decided, the researcher has to decide on the specific
form of response (Iacobucci & Churchill, 2010:212). Wiid and Diggines (2015:169) posit
that, when selecting the type of questions to include in a questionnaire, the researcher has
to consider the respondent’s likely reaction or expected answer. According to Clow and
James (2014:246), the main decision the researcher has to make with regard to the
response format is whether to use open-ended questions, closed-ended questions or a
combination of the two formats. The two main types of questions, as identified by Clow and
James (2014:246), are further discussed below:

 Open-ended questions: With open-ended questions, respondents can answer in their

own words rather than being restricted to select from a set of alternatives (Iacobucci &
Churchill, 2010:212). According to Hair et al. (2010:180), there is no predetermined list
of responses provided to help or restrict the respondent’s answers. Bradley (2010:194)
states that open-ended questions stimulate responses over-looked by the researcher
and may reveal answers that were not expected. However, Hair et al. (2010:180) posit
that open-ended questions are very difficult to code for analysis.
 Closed-ended questions: With closed-ended questions, there is a predetermined list
of answers (Bradley, 2010:196). Aaker et al. (2011:280) state that, usually, closed-ended
questions take less time to answer as compared to open-ended questions. According to
Malhotra et al. (2010:341), closed-ended questions or structured questions may be
multiple choice, dichotomous, or a scale. With multiple-choice questions, the respondent
has a list of predetermined optional answers to choose from (Feinberg et al., 2013:276).
Dichotomous questions only have two choices such as yes or no, or a selection of two
opposite options (Silver et al., 2013:146). Scale questions are intended to capture
respondents’ intensity of the related sentiments (i.e. statement) on a progressive
measure (McDaniel & Gates, 2013:255).

For the purpose of this study, dichotomous questions and multiple-choice questions were
used to determine the respondent’s demographic information and patronage habits.
Furthermore, scaled questions were used to determine respondents’ expectations and
perceptions of service quality, trust, switching costs, satisfaction and loyalty. The questions
for the constructs were obtained from previous research studies related to the present
study.

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(iv) Question wording

Once the researcher has chosen the particular types of questions and response format, the
subsequent task is the actual formulation of the questions to be included in the
questionnaire (McDaniel & Gates, 2013:255). According to Iacobucci and Churchill
(2010:216), this is a critical task, as poor phrasing of a question will result in respondents
leaving some questions unanswered or incorrectly answering the question. Feinberg et al.
(2013:280) recommend the following for correct question wording:

 Use simple language.

 Use clear words.
 Avoid leading questions.
 Avoid biased questions.
 Avoid implicit options.
 Avoid implicit assumptions.
 Avoid estimations.
 Avoid double-barrelled questions.
 Consider the frame of reference.

For this study, in order to ensure that a clear, understandable, and high quality
questionnaire was compiled, the above recommendations were taken into consideration
during the compilation of the questionnaire.

(v) Question sequence

Once the response format and wording for each question have been chosen, the researcher
is ready to compile them into the questionnaire (Churchill et al., 2010:305). Aaker et al.
(2011:289) point out that the sequence of questions is primarily influenced by the need to
maintain respondents’ cooperation and to make the questionnaire simple for the interviewer
to administer. Selecting the proper order of questions is important because it determines
the logical flow of the questionnaire, and consequently contributes to accurate and high
response rates (Sarstedt & Mooi, 2014:75). According to Babin and Zikmund (2016a:318),
the respondent’s cooperation and participation can be maintained throughout the
questionnaire if the first questions to a questionnaire are interesting, easy to understand
and answer. For the purpose of this study, the above considerations were taken into
account.

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(vi) Physical characteristics

The physical layout of the questionnaire can have an effect in obtaining the respondent’s
cooperation (Feinberg et al., 2013:276). According to Iacobucci and Churchill (2010:221),
the physical appearance of the questionnaire can affect response accuracy, respondents’
reactions, and can also simplify the processing of responses. Churchill et al. (2010:306)
posit that, in determining the layout of the questionnaire, the researcher has to take note of
a number of things that will assist in getting to the respondent to accept the questionnaire,
and enable handling and control by the researcher. According to Wiid and Diggines
(2015:173), two important considerations on questionnaire format include (1) the cost of
producing the final questionnaire has to be low, and (2) the questionnaire has to be
attractive and convenient to enable its completion by the respondent.

For this study, on the front page of the questionnaire, a brief summary about what the
study intends to do was provided. These included obtaining customers’ feedback regarding
their loyalty towards their bank, by determining the service quality and trust they obtain from
their bank, as well as their switching cost perceptions and satisfaction. In addition, the
questionnaire had a screening question to identify potential respondents who had been
using South African retail banks (Absa, Capitec, FNB, Nedbank and Standard bank) for a
duration of two or more years. In this way, only potential respondents who had been using
any of the retail banks for a duration of two or more years were asked to participate in the
survey. Inside the questionnaire, the questions were arranged beginning with the
respondent’s demographic information, patronage habits and finally, the research
constructs i.e. service quality, trust, switching cost, satisfaction and loyalty.

(vii) Pre-testing and revision

After obtaining final approval, the questionnaire must be pretested (McDaniel & Gates,
2010:310). Malhotra (2009:350) defines pre-testing as the testing of the questionnaire on a
small sample of respondents in order to detect and remove any potential problems. As
discussed by Churchill et al. (2010:311), the real test of a questionnaire is how it works in
the real situations of data gathering. In a pre-test, respondents are asked to provide
comments regarding the wording, phrasing, instructions and question order (Hair et al.,
2010:191). Silver et al., (2013:149) posit that it is recommended to do a second pre-test
after appropriate revisions have been made if significant changes occur from the original
pre-test. Accordingly, Malhotra et al. (2010:351) recommend that pretesting should be
conducted until no additional changes are required. Aaker et al. (2011:292) state that

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effective pre-testing can only happen if the researcher can accept criticism and is willing to
pursue the deficiencies.

In this study, the questionnaire was pre-tested by 30 respondents from the target
population.

(viii) Compile the final draft

The researcher has to be careful when compiling the final version of the questionnaire
(McDaniel & Gates, 2013:263). Hence, McDaniel and Gates (2010:310) recommend that
specific guidelines for skip patterns, numbering and pre-coding have to be set and the
results should be checked. Once the questionnaire has been approved, researchers can
implement it for gathering primary data (Wiid & Diggines, 2015:174).

[Link].4 Design and content for the questionnaire used in this study

In designing the questionnaire pertinent to this study, the guidelines for questionnaire design
(sections [Link].1 – [Link].8) were taken into consideration. Table 4-6 further indicates the
questions formulated, adopted and adapted in the final questionnaire design used in this study.

Table 4-6: Questions used in final questionnaire of this study

Section Question or statement Source(s)

Have you been making use of the banking services of one or more Self-generated
Screening
of the major South African banks (Absa, Capitec, FNB, Nedbank,
question
Standard bank) for two or more years?

1) In which year were you born?

2) What is your gender?

Section A:
Demographic 3) What is your highest level of education?
information
4) What is your ethnicity?

5) What is your employment status?

Section B: 6) At which one of the following banks do you hold your personal
Patronage account, or most of your personal accounts?
habits 7) How long have you been with your bank?

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Table 4-6: Questions used in final questionnaire of this study (cont.)

Section Question or statement Source(s)

8) On a scale of 1 to 5, where 1 is ‘strongly disagree’ and 5 is ‘strongly agree’,

indicate the extent to which agree with each of the following statements
regarding your satisfaction with your bank.

I am satisfied with the services I receive from my bank. Armstrong and

Satisfaction

Seng (2000),
I believe my bank treats me fairly. Bennet and
Rundle-Thiele
My bank’s services meet my expectations. (2004)
I am proud of my relationship with my bank.

My experiences with my bank have always been good.

I am completely happy with my bank.

9) On a scale of 1 to 5, where 1 is ‘strongly disagree’ and 5 is ‘strongly agree’,
indicate the extent to which agree with each of the following statements
regarding the trust in your bank.
My bank is trustworthy. Alvarez et al.
(2011), Morgan
I have confidence in my bank.
Trust

and Hunt
Section C: Research constructs

(1994)
My bank is concerned with the security of my transactions.

My bank is consistent in providing quality services.

My bank’s promises are reliable.

My bank’s employees show respect to its customers.

10) On a scale of 1 to 5, where 1 is ‘strongly disagree’ and 5 is ‘strongly agree’,
indicate the extent to which agree with each of the following statements
regarding the service quality of your bank.
When I have a problem, the staff show a sincere interest to Coetzee et al.
help me. (2013:11)
The bank has my personal and banking information up to date
and error free.
The staff perform a service correctly the first time.
Service quality

The staff keep the promises they make.

The staff perform the service they promise or claim to do.

The staff are never too busy to respond to my requests and
queries.
The staff are willing to help me.

The staff give me prompt and quick service.

The staff constantly keep me informed about the progress of
my queries.
The staff have the knowledge and know-how of bank
processes and policy to deal with my queries and concerns.
The staff are polite towards me.

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Table 4-6: Questions used in final questionnaire of this study (cont.)

Section Question or statement Source(s)

The behaviour and knowledge of the staff instil confidence in Coetzee et al.
me. (2013:11)
I feel safe and confident about the staffs’ abilities to deal with
my concerns.
The staff always have my best interests at heart.

The staff give me personal attention.

Service quality

My bank’s employees are neat appearing.

The staff understand my personal banking needs.

The staff treat me as an individual with individual needs.

My bank has operating hours that are convenient to me.

My bank’s branch layout is clearly demarcated and easy to
understand.
My bank’s branch is visually appealing and clean.

The staff are neatly and professionally dressed.

Section C: Research constructs

My bank’s branch has modern equipment.

11) On a scale of 1 to 5, where 1 is ‘strongly disagree’ and 5 is ‘strongly agree’,
indicate the extent to which agree with each of the following statements
regarding the costs involved in switching from your bank.
Switching costs

I like the image (the brand) of my bank. Matzler et al.

(2015:123)
Switching to another bank could cause hidden (unpredictable)
costs.

Switching to another bank will probably result in some

unexpected hassle.

The process of switching to another bank is connected to

many formalities.

12) On a scale of 1 to 5, where 1 is ‘strongly disagree’ and 5 is ‘strongly agree’,

indicate the extent to which agree with each of the following statements
regarding your loyalty towards your bank.

I say positive things about my bank to other people. Kaura et al.

(2015:412)
I would recommend my bank to someone who seeks my
advice.
Loyalty

I encourage friends and/or relatives to do business with my

bank.
I consider my bank as my first choice when I need services
concerning my finances.
I intend to continue doing business with my bank in the next
few years.
I am willing to try new services that my bank provides.

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4.3.4 STEP 4: Developing a sample plan

After designing the data collection method and formulating the questionnaire, the researcher can
proceed to the next step of the marketing research process, which involves planning the sample
and collecting the data. As noted, gathering primary data takes longer, is more costly and more
difficult as compared to gathering secondary data (Pride & Ferrell, 2010:137). The following
sections therefore provide a discussion on the sample design and data collection.

[Link] Sample design

Sampling is an important stage of the marketing research process (Babin & Zikmund, 2016b:337).
Armstrong and Kotler (2013:138) define a sample as a unit of the total population chosen for
marketing research to represent the whole population. According to Pride and Ferrell (2010:137),
due to scarce resources and time, it is practically impossible to investigate all the members of a
target population. Numerous aspects have to be considered when selecting the best sample
design (Hair et al., 2013:146); these are shown in Table 4-7.

Table 4-7: Sample design considerations

Factor Question(s)
Research objectives Do the research objectives require the use of a qualitative or quantitative
research design?
Degree of accuracy Does the research require the making of predictions or inferences about
the defined target population, or only preliminary insights?
Resources Are there tight budget limitations with regards to financial and human
resources allocated to the research project?
Time frame How quickly does the research project have to be completed?
Knowledge of the target Are there complete lists of the defined target population elements? How
population easy or difficult is it to generate the required sampling frame of
prospective respondents?
Scope of the research Is the research going to be international, national, regional, or local?
Statistical analysis needs To what extent are accurate statistical projections and or testing of
hypothesised differences in the data needed?

Source: Adapted from Hair et al. (2013:147).

The sampling procedure encompasses arriving at conclusions about the total population by taking
measurements from part of all population elements (Zikmund & Babin, 2010:412). Accordingly,
the sampling plan used in this study is shown below in Figure 4-5.

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Figure 4-5: Sampling plan

Step 1 Define the target population

Step 2 Identify the sampling frame

Step 3 Select a sampling procedure

Step 4 Determine the sample size

Step 5 Select the sample elements

Step 6 Collect the data from the designated elements

Source: Adopted from Iacobucci and Churchill (2010:283).

[Link].1 Define the target population

Once the researcher has chosen to use sampling methods instead of a census, he or she has to
take several essential sampling decisions and the first decision is to define the population (Silver
et al. 2013:153). Hult et al. (2014:116) define a population as the total components, units, or
individuals of interest to researchers for a particular study. Wiid and Diggines (2015:185) note
that the population units available for analysis as determined by the research problem are referred
to as the target population. Hints to identifying the target population can be obtained in the
statement of research objective (Silver et al. 2013:153). According to Feinberg et al. (2013:301),
it is essential to define the population with all relevant detail, as nothing else establishes proper
sampling. Hence, Wiid and Diggines (2015:188) recommend that the population must be clearly
defined in respect of the sample unit, sample element, extent and time.

For the purpose of this study, the target population includes South African retail bank
customers. The sampling unit and elements consist of bank customers who have had an account
at any South African retail bank in Gauteng Province for a period of two or more years.

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[Link].2 Identify the sampling frame

The second phase of the sampling plan is to select the sampling frame (Silver et al., 2013:155).
Feinberg et al. (2013:302) define a sampling frame as a list of sample units that can be chosen
from the target population for participation in the study. In the same vein, Malhotra (2009:372)
states that a sampling frame consists of a list or set of directions available for identifying the target
population. Babin and Zikmund (2016b:343) posit that a sampling frame error may happen if
particular sample elements are not included or if the entire population is not accurately
represented in the sampling frame. According to Wiid and Diggines (2015:188), the researcher
initially has to find out which sample frames exist to acquire a full, accurate and appropriate
sample from the population.

For the purpose of this study, no sampling frame was available and therefore a non-probability
sampling technique was used with a questionnaire which had a screening question to identify
respondents who have been using South African retail banks for a period of two years or more.

[Link].3 Select a sampling procedure

After identifying the sample frame, the next phase involves selecting the sampling procedure. The
main sampling techniques are probability sampling and non-probability sampling (Babin &
Zikmund, 2016b:348). Probability sampling and non-probability are briefly discussed below and
the different types of both sampling techniques are shown in Table 4-8.

Table 4-8: Types of probability and non-probability sampling techniques

Probability sampling methods Non-probability sampling methods

Simple random sampling Convenience sampling
Systematic random sampling Judgement sampling
Stratified random sampling Quota sampling
Cluster sampling Snowball sampling

Source: Adopted from Hair et al. (2013:140).

(i) Probability sampling

Probability sampling involves samples where every sample element (i.e. potential
respondent) has a chance of being included in the sample (Stevens et al., 2012:185), which
is generally accomplished by using an accurate sampling frame (Sarstedt & Mooi, 2014:40).
According to Silver et al. (2013:156), probability sampling techniques tend to be more

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objective and permit the use of statistical techniques. The types of probability sampling
identified in Table 4-7 are briefly discussed below:

 Simple random sampling is a sampling process that guarantees that each element in
the target population will have an equal chance to be selected for the sample (Zikmund
& Babin, 2010:426). Wiid and Diggines (2015:194) posit that for simple random sampling
to be practically used, every element in the population must be clearly identifiable and a
sample frame must exist or be compiled.
 Systematic random sampling involves choosing a starting point randomly and then
every nth number on the sample frame is selected (Babin & Zikmund, 2016b:351). The
frequency with which the sample elements are selected is referred to as sampling interval
(Malhotra, 2009:382). However, Hair et al. (2013:141) posit that this sampling technique
is prone to bias due to hidden patterns that may exist in the list of names.
 Stratified random sampling occurs when a population is divided into groups with similar
characteristics and a random sample is selected from each group (Hult et al., 2013:118).
The population is divided into groups called strata (Sarstedt & Mooi, 2014:41). According
to Malhotra (2009:383), the strata are developed based on similarities, differences,
relatedness, and/or cost.
 Cluster sampling is a cost-effective sampling approach that retains the attributes of a
probability sample (Zikmund & Babin, 2010:430). According to Sarstedt and Mooi
(2014:41), “cluster sampling requires dividing the population into different heterogeneous
groups with each group’s characteristics similar to those of the population”.

(ii) Non-probability sampling

With non-probability sampling, the likelihood of a sample element (i.e. potential respondent)
being selected is unknown (Whitley & Kite, 2012:486). The main distinctions between
probability and non-probability sampling techniques are based on the mechanics used in
sample design (Burns & Bush, 2014:254). Sarstedt and Mooi (2014:42) posit that non-
probability sampling techniques are frequently used as they are easy to use, and generally
cheaper than probability sampling. The types of non-probability sampling shown in Table 4-
7 are briefly discussed below:

 Convenience sampling uses respondents who can be easily or conveniently accessed

(Bradley, 2013b:168). Consequently, as discussed by Malhotra (2009:377), choosing
sampling units is mainly done by the researcher or fieldworker. Sarstedt and Mooi
(2014:43) posit that the researcher’s control over who participate in the sample is
constrained to and influenced by situational aspects.

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 Judgement sampling means the researcher or fieldworker decides on the participants

who might best help in the study (Bradley, 2013:168). Clow and James (2014:232) posit
that the key to using judgement sampling is selecting individuals or objects that will be
representative of the population under study.
 Snowball sampling procedure is used to choose more respondents on the basis of
referrals from the first respondent (McDaniel & Gates, 2013:293). According to Burns
and Bush (2014:256), this type of sampling starts after the researcher has shortlisted
potential respondents fewer than the entire sample required for the study at hand.
 Quota sampling involves segmenting the population into groups and randomly selecting
specific participants from each segmented group (Pride & Ferrell, 2010:140). Aaker et
al. (2011:251) state that quota sampling is frequently based on demographic information
such as geographical area, gender, education and income.

For this study, the sampling technique implemented is the non-probability convenience sampling
method, since there was no sampling frame available due to the Protection of Personal
Information Act (4 of 2013) which promotes the protection of personal information by public and
private bodies. Therefore, respondents had to be surveyed based on convenience and availability
(Shiu et al., 2009:480) meaning respondents were randomly chosen based on their accessibility
to fieldworkers.

Furthermore, quotas were used based on each retail bank’s market share. Therefore, based on
the market share of each retail bank, and a total sample of 500 respondents drawn, the quota
sample was 135 Standard Bank respondents, 110 Absa respondents, 86 Nedbank respondents,
85 Capitec respondents and 84 FNB respondents.

[Link].4 Determine the sample size

Once the sampling procedure has been identified, the sample size has to be determined (Sarstedt
& Mooi, 2014:43). Bradley (2013:175) posits that the sample size is often determined before the
data collection begins, although in some research projects it may be decided upon after the data
collection has commenced. According to Silver et al. (2013:159), the sample size influences the
sample accuracy. As discussed by Bradley (2013:175), the sample size is based on:

 The needed accuracy of the study (the purpose).

 The size and characteristics of the people under investigation (the population).
 The time, budget, and resources available (the procedural aspects).
 The significance of the results (publishing aspects).

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In the same vein, Wiid and Diggines (2015:202) state that a sample size is determined by using
any of the following methods:

 Blind guesses: The researcher uses personal judgement to decide on the sample size. This
technique is arbitrary and does not take into account the accuracy of the survey results.
 Statistical method: The statistical method uses statistical formulae to determine the sample
size based on: (1) desired level of confidence; (2) desired accuracy or precision of the
sample results and (3) standard deviation of the population.

Malhotra (2009:374) further provides an idea of sample sizes used in various marketing
researches as shown in Table 4-9.

Table 4-9: Sample sizes used in marketing research studies

Nature of study Minimum size Typical range

Problem identification research 500 1000 – 2500
Problem-solving research 200 300 – 500
Product tests 200 300 – 500
Test-marketing studies 200 300 – 500
TV/radio print advertising 150 200 – 300

Source: Adapted from Malhotra (2009:374).

For the purpose of this study, the sample size was determined by the guidelines for marketing
research sample size as provided by Malhotra (2009). Since the present study is a problem-
solving research project, the researcher had a sample of 500 respondents which is the typical
range provided by Malhotra (2009:374). Therefore, based on the market share of each retail bank
and a total sample of 500 respondents drawn, the quota sample was 135 Standard Bank
respondents, 110 Absa respondents, 86 Nedbank respondents, 85 Capitec respondents and 84
FNB respondents as shown in Table 4-10.

Table 4-10: Summary of sample quotas

Bank Sample quota

Absa 110
Capitec 85
FNB 84
Nedbank 86
Standard bank 135
Total 500

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[Link] Data collection

The next phase after selecting the sampling plan involves selecting the sample elements, as
shown in Figure 4-5. Clear plans and processes for the selection of respondents should be
provided in the data collection stage (Wiid & Diggines, 2015:206). Silver et al. (2013:166) posit
that the key factor here is to acquire enough representative information and eliminate sampling
and non-sampling error as much as possible, even if using probability or non-probability sampling.

For the purpose of this study, respondents were chosen on the basis of convenience and
accessibility. Respondents included retail bank customers in Gauteng Province. Table 4-11
shows the sample plan followed in the study.

Table 4-11: Sample plan used for this study

Sampling aspect Sample description

Target population Gauteng province residents using retail banks (Absa, Capitec,
FNB, Nedbank and Standard bank)
Sampling frame No sampling frame was available
Sampling procedure Non-probability; Convenience sampling
Sample size 500 respondents
Sample elements Respondents in Gauteng Province who were accessible during
the time the primary data was collected

Finally, the researcher can collect the primary data from the respective respondents (Wiid &
Diggines, 2015:206). Hult et al. (2014:115) mention that the research design must clearly state
the nature of data to collect and how to collect the data. Also, Sarstedt and Mooi (2014:21) posit
that gathering primary data is a practical but sometimes a challenging phase of the marketing
research process. According to Mullins and Walker (2010:175), the data collection could
contribute more to overall error than any other phase in the process. During the collection of
primary data, there should be an individual present to record answers to questions (Zikmund &
Babin, 2010:471). For the purpose of this study, fieldworkers and the researcher were available
to conduct the fieldwork.

The fieldworkers included five [Link]. Honours (Marketing Management) students from the
North-West University (Potchefstroom Campus). Fieldworkers play a crucial part in determining
the data quality from the survey conducted (Wiid & Diggines, 2015:213) and therefore the
fieldworkers had to be trained on how to administer the questionnaires. Accordingly, the
fieldworkers had the duty to ensure that respondents answer all questions and explain any

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matters with regards to the questionnaire. The data collection was done over an eight-week
period.

4.3.5 STEP 5: Analyse and interpret the data

According to Cooper and Schindler (2014:86), data analysis encompasses reducing collected
data to a manageable size, developing summaries, searching for patterns and applying statistical
methods. Data analysis should begin during the planning phase of the research project. The
researcher cannot decide on analysis procedures after the data has been gathered, as the data
may be inappropriate or inadequate (Wiid & Diggines, 2015:240). Computer packages for
statistical analysis comprise of two forms: specialised programs, for a specific application, and
general programs offering a wide range of facilities (Ghauri & Grønhaug, 2010:164). For the
purpose of this study, Statistical Package for Social Science (SPSS version 23) was used.

[Link] Reliability and validity

In designing research, marketing researchers must ensure that research techniques are both
reliable and valid (Hult et al., 2014:114). A reliable measure is one that constantly produces a
similar result over repeated measures (Silver et al., 2013:103). Furthermore, the reliability of a
scale shows how random error free it is (Pallant, 2010:6). With a reliable measure, a respondent
provides same or very similar answers to an identical or near-identical question (Burns & Bush,
2014:214). Nevertheless, a reliable method is not necessarily valid (Hult et al., 2014:114). Hair et
al. (2010:156) identify two methods for evaluating the reliability of scales: test-retest and
equivalent form. According to Zikmund and Babin (2010:334), a test-retest technique
encompasses administering an identical scale or measure to similar sample elements at two
different occasions in time to test for stability. Equivalent form reliability is determined by
measuring the correlation of the scores on the two instruments (McDaniel & Gates, 2013:217).

Cronbach alpha is regarded the most popular measure to assess internal consistency reliability
(Cavusgil et al., 2009:98), and was used in this study to determine the reliability of the measuring
scales. Cronbach alpha is generally used when a measurement scale is only administered on one
occasion (Felicia & Olagbemi, 2011:60). According to Hair et al. (2013:166) and Pallant (2010:97),
good reliability is presented by Cronbach alpha values larger than 0.70.

Validity refers to the degree to which the dissimilarities found among sampling elements by means
of a measuring tool reflect exact dissimilarities among sampling elements (Silver et al., 2013:103).
According to Hult et al. (2014:114), in order to ascertain validity, the research technique should
measure exactly what it is designed to measure. Pallant (2010:7) identifies three main types of
validity, namely content validity, criterion validity and construct validity. Content validity of a

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measuring instrument is the degree to which it gives sufficient coverage of the research questions
guiding the study and if the instrument contains a representative sample of the universe of topic
of interest, then content validity is good (Cooper & Schindler, 2014:257). Pallant (2010:7) states
that criterion validity entails the correlation between scale scores and some clearly stated,
measurable criterion. Hollensen (2010:611), adds that construct validity creates appropriate
operational measures for the concepts under study; if a measurement technique lacks construct
validity, it is not measuring what is designed to measure. In this study, content and face criterion
validity are assessed through the input from experienced researchers, peers and literature. To
determine construct validity, confirmatory factor analyses (CFAs) were done using principle axis
factoring with direct oblimin rotation.

4.3.6 Data analysis strategy followed in this study

Aaker et al. (2011:391) point out that when choosing the data analysis strategy, numerous factors
influence the suitable data analysis technique namely: type of data, research design and
assumptions underlying the test statistic and associated considerations. Hair et al. (2010:259)
add that data analysis enables the detection of interesting patterns in databases that are
challenging to recognise and have the capacity to enhance decision-making and creating
knowledge. According to Burns and Bush (2014:317), researchers can use five types of statistical
analysis to reduce a dataset, namely: descriptive analysis, inferential analysis, differences
analysis, associative analysis and predictive analysis. For the purpose of this study, descriptive
and inferential analysis are used; these are discussed in the following sections.

[Link] Descriptive statistics

Feinberg et al. (2013:396) define descriptive statistics as “a branch of statistics that provides
researchers with summary measures for the data in their sample. According to Singpurwalla
(2013:9), the primary objective of descriptive statistics is to provide a description of a data set.
Applying descriptive statistics is the most useful technique of providing a summary of the
characteristics of large data sets (McDaniel & Gates, 2013:343). Clow and James (2013:378)
note that the type of descriptive statistics acquired is dictated by the kind of scale within every
question.

Pertinent to this study, descriptive statistical techniques that are used are briefly discussed
below.

 Frequency distribution: Researchers frequently create a set of frequency distributions

which show how respondents responded to the survey questions (Silver et al., 2013:194).

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According to Zikmund and Babin (2010:441), the procedure commences with recording the
frequencies a specific value of a variable occurs.
 Percentages are simple and effective ways to indicate comparative correlation between
variables (Wiid & Diggines, 2015:252). Wiid and Diggines (2015:252) further state that
percentages are mostly used in marketing research as they show the relative significance
of figures more visibly as compared to the original data.
 Mean refers to the total of all existing values, divided by the quantity of values (Wiid &
Diggines, 2015:253). However, Babin and Zikmund (2016b:366) posit that, in certain
instances, the mean may be misleading, specifically when extreme values or outliers are
available.
 Standard deviation gives an indication of the extent of variation in the answers (Clow &
James, 2014:378. Sarstedt and Mooi (2014:105) state that standard deviation is frequently
used to measure dispersion. Standard deviation assist in providing information on how
clustered or dispersed the distribution is around the mean value (Malhotra, 2009:486).

[Link] Inferential statistics

Inferential statistics is a type of statistical analysis that depends on a sample in order to arrive at
a conclusion about a larger group (Feinberg et al., 2013:393). Zikmund and Babin (2010:440)
posit that the main objective of inferential statistics is to make a judgement about a population or
the whole collection of all elements about which the researcher needs information. According to
Singpurwalla (2013:30), probability is the basis of inferential statistics. As is the case with
descriptive statistics, selecting the correct inferential statistical test also depends on the scale
level of the data that needs to be analysed (Feinberg et al., 2013:404). For the purpose of this
study, the following inferential statistical methods are used:

 Independent-samples t-test is utilised when the researcher needs to make a comparison

of the mean score on some constant variable for two distinct groups of participants (Pallant,
2010:239). Babin and Zikmund (2016b:420) further state that the researcher will use
independent sample t-test to assess the variances between means drawn from two
independent samples or groups.
 Analysis of variance (ANOVA) is the correct statistical instrument to use when comparing
the means of two or more groups or populations (Zikmund & Babin, 2010:573). According
to Silver et al. (2013:211), the aim of ANOVA is to determine if samples come from two or
more populations with equal means. When using ANOVA, the researcher needs to
determine if a statistically significant difference exists between the means for any two

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groups in a sample with a particular variable irrespective of the number of groups (Burns &
Bush, 2013:367).

[Link] Interpreting the results of hypotheses testing

In this study, the results of hypotheses testing is interpreted in the following manner:

Statistical significance: Statistical significance – which is determined by means of the p-value

– indicates whether the results of a test, such as a hypothesis, can be accepted as significant,
and whether the results occurred by chance (Hardy & Bryman, 2004:180). According to Zikmund
and Babin (2010:542), the common acceptable level of statistical significance is at 0.10, 0.05 and
0.01. In this study, the hypotheses are supported when a statistical significance level of 5% (p <
0.05) is attained (Ellis & Steyn, 2003:51).

Practical significance: According to Schlotzhauer (2007:168), a p-value indicates statistical

significance, but does not imply practical significance. Practical significance indicates the
importance of the statistically significant results in practice. Cohen’s d-value is, therefore, used to
determine practical significance through the use of effect sizes (Ellis & Steyn, 2003:51). According
to Cohen (1988:25), a d-value of 0.20 indicates a small effect, a value of 0.50 indicates a medium
effect, and a value of 0.80 or larger indicates a large practically significant effect.

[Link] Structural equation modelling

To test the relationships between service quality, trust, switching cost, satisfaction and loyalty (as
proposed in the conceptual model of the study), structural equation modelling (SEM) was
conducted. According to Zikmund and Babin (2010:630), SEM is “a multivariate tool that combines
an interdependence and dependence technique to allow a researcher to test theory by providing
an omnibus assessment of fit centred around a 2 goodness of fit test”. Sarstedt and Mooi
(2014:257) note that SEM encompasses making estimations of the association between specific
theoretical constructs. Schumacker and Lomax (2016:1) add that the objective of SEM is to
assess if the theoretical model is supported by the sample data.

The proposed model is evaluated by a variety of goodness-of-fit indices, to determine which

potential model has the best fit with the collected data (Meyers et al., 2006:614). A variety of fit
indices have been developed, and according to Bowen and Guo (2012:145), it is good practice
to report more than one of these indices. The most commonly reported fit indices, and also the
indices reported in this study, are summarised in Table 4-12.

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Table 4-12: List of fit indices

Type of fit Description Recommended cut-off value

indices
Explores the proportion of cases that fall ≤ 5.00
2/df into the categories of one variable
(Pallant, 2010:212). (Wheaton et al., 1977:99)

Compares the 2/df to a baseline model ≥ 0.90

CFI
(Bagozzi & Yi, 2012:34). (Hoe, 2009:78; Hu & Bentler, 1999:27)
< 0.05 = good fit
Selects the model with the smallest ≤ 0.08 = acceptable fit
RMSEA number of estimate parameters
(Schreiber, 2008:89). ≤ 0.10 = average fit
(Hoe, 2008:78; Meyers et al., 2006:559)

4.3.7 STEP 6: Presentation of results

This step is presented in Chapters 5 and 6 of this study, where the results of the research are
presented and the findings of the results are interpreted and discussed. If the research study was
conducted without specified objectives, reporting the results can be challenging, as unclear
conclusions may be available (Mullins & Walker 2010:175).

4.4 CONCLUSION

This chapter presented the research methodology applied to this study. The marketing research
process provided guidelines, from the formulation of research objectives up to the sampling plans
and data collection methods. Furthermore, the chapter gave insight on the data analysis method
applied in this study. The last step of the marketing research process, which involves presenting
the results, is discussed in the subsequent Chapter 5.

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 CHAPTER 5

EMPIRICAL RESULTS

5.1 INTRODUCTION

This chapter represents step six of the marketing research process, by presenting the results
obtained from the collected data. This chapter, therefore, commences with a discussion of the
sample realisation rate, a description of the sample profile, followed by findings of respondents’
retail banking habits. The distribution of the data, the reliability as well as the validity of the scales
used to measure the key constructs of the study are also assessed. This is followed by the results
of the hypotheses formulated for the study and structural equation modelling. The chapter
concludes with the main findings derived from the empirical results.

5.2 SAMPLE REALISATION RATE

This study was conducted among respondents who have had personal bank accounts at one of
the major South African retail banks (Absa, Capitec, FNB, Nedbank and Standard bank) for two
years or more, and who reside in the Gauteng Province of South Africa. The proposed sample
size for this study was 500 respondents, and the objective was to obtain a market-share based
quota (see explanation in section [Link].4). After data collection, data capturing and data
cleaning, 464 usable questionnaires were obtained from the data collection process. Table 5-1
presents the proposed and actual sample sizes, as well as the sample realisation rate.

Table 5-1: Sample realisation rate

Bank Proposed sample size Actual sample size Realisation rate

Absa 110 98 89%
Capitec 85 71 82%
FNB 84 97 115%
Nedbank 86 75 87%
Standard bank 135 123 91%
Total 500 464 92.6%

As indicated in Table 5-1, the realised sample is a close representation of the initially proposed
sample size. In addition, Table 5-1 indicates that the majority of respondents are Standard bank
personal account holders (with a sample realisation rate of 91%), and the least of the respondents

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are Capitec bank personal account holders (with a sample realisation rate of 82%). The following
sections present and discuss the results obtained from the actual realised sample.

5.3 SAMPLE PROFILE OF RESPONDENTS

The aim of Section A of the questionnaire was to obtain demographic information about
respondents, the results of which are discussed in this section. The demographic information
obtained from the sample includes respondents’ gender, age, ethnicity, level of education and
employment status. Table 5-2 provides a summary of the sample profile, with the frequencies (F)
and percentages (%) of each demographic variable analysed in this study.

Table 5-2: Sample profile

Demographic variable Frequencies Percentages

Gender F %
Male 192 41.4
Female 272 58.6
Age F %
Younger than 38 281 60.6
38 to 49 years old 90 19.4
50 or older 83 17.9
Missing values 10 2.1
Ethnicity F %
Asian 7 1.5
Black 170 36.6
Coloured 24 5.2
Indian 17 3.7
White 246 53.0
Level of education F %
Some primary school 4 0.9
Primary school completed 1 0.2
Some high school 25 5.4
Matric / Grade 12 completed 183 39.4
Technical college diploma 76 16.4
University or technology diploma 42 9.1
University degree (B-degree or Honours) 103 22.2
Postgraduate degree (Master’s or Doctorate) 26 5.6
Missing values 4 0.8

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Table 5-2: Sample profile (cont.)

Demographic variable Frequencies Percentages

Employment F %
Full-time student 98 21.1
Unemployed 8 1.7
Self-employed 37 8.0
Part-time employed 35 7.5
Full-time employed 271 58.4
Housewife or househusband 4 0.9
Retired 8 1.7
Other 3 0.6

It is evident from Table 5-2 that there is a relatively even gender spread of respondents, with
males representing 41.4% and females 58.6% of the sample. In terms of age, the sample is also
fairly distributed between the different age cohorts, with most of the respondents being aged
younger than 38 (60.6%). Furthermore, the majority of respondents were either white (53.0%) or
black (36.6%). Most respondents either completed matric (39.4%) or hold a university degree
(22.2%). Lastly, with regard to the employment status of the respondents, more than half of the
respondents (58.4%) are full-time employed.

Main finding 1: The majority of respondents are females of the ages 21 to 25 years old, and
either white or black. Also, the majority of respondents completed matric or have a university
degree, and more than half of the respondents are full-time employed.

5.4 RETAIL BANK PATRONAGE HABITS OF RESPONDENTS

The aim of Section B of the questionnaire was to obtain information about respondents’ retail
bank patronage habits. Therefore, respondents were asked to identify their main retail bank,
having to select only one bank where they hold their personal account or most of their personal
accounts. In addition, respondents had to indicate the duration they have been with their
respective retail banks. Table 5-3 subsequently presents the results (frequencies and
percentages) pertaining to respondents’ main retail bank, and the duration they have been with
this bank.

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Table 5-3: Patronage habits

Patronage habit Frequencies Percentages

Retail bank F %
Absa 98 21.1
Capitec 70 15.1
FNB 97 20.9
Nedbank 75 16.2
Standard bank 123 26.5
Missing values 1 0.2
Duration with retail bank F %
Less than 5 years 131 28.2
5 to 10 years 144 31.0
10 to 15 years 61 13.2
15 to 20 years 37 8.0
Longer than 20 years 80 17.2
Missing values 11 2.4

It is evident from Table 5-3 that the majority of the respondents have their personal (or most of
their personal accounts) at Standard bank (26.6%), whereas the smallest number of respondents
uses Capitec bank (15.1%). These results correspond closely with the initially proposed quota
sample size (see section [Link].3).

In addition, the majority of respondents (31.8%) have been with their bank for 5 to 10 years, and
the smallest number of the respondents has been with their bank for 15 to 20 years.

Main finding 2: The majority of the respondents hold their personal account (or most of their
personal accounts) at Standard bank.

Main finding 3: The majority of respondents have been with their retail banks for 5 to 10 years.

5.5 RESPONDENTS’ SERVICE QUALITY PERCEPTIONS OF RETAIL BANKS

Table 5-4 presents the results of respondents’ perceptions of the service quality of their respective
retail banks. Respondents were asked to indicate their perceptions on a 5-point Likert scale
(where “1” represented “strongly disagree” and “5” represented “strongly agree” to the statement
provided). The service quality construct consists of five dimensions (reliability, responsiveness,
assurance, empathy and tangibles), which were separately measured, as well as in entirety (i.e.,
overall service quality). Accordingly, the means and standard deviations were calculated for each
service quality dimension, as well the overall mean and standard deviation for service quality.

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Table 5-4: Respondents’ service quality perceptions of retail banks

Mean Std. Dev.

Overall service quality 3.97 0.732
Overall reliability 3.93 0.818
When I have a problem, the staff show a sincere interest to help me. 3.92 0.950
The bank has my personal and banking information up to date and error
4.08 0.969
free.
The staff perform a service correctly the first time. 3.89 0.984
The staff keep the promises they make. 3.88 0.935
The staff perform the services they promise or claim to do. 3.89 0.938
Overall responsiveness 3.80 0.900
The staff are never too busy to respond to my requests and queries. 3.76 1.027
The staff are willing to help me. 3.99 0.947
The staff give me prompt and quick service. 3.79 1.037
The staff constantly keep me informed about the progress of my queries. 3.65 1.098
Overall assurance 3.93 0.865
The staff have the knowledge and the know-how of bank processes and
3.84 1.034
policy to deal with my queries and concerns.
The staff are polite towards me. 4.04 0.942
The behaviour and knowledge of the staff instil confidence in me. 3.94 0.919
I feel safe and confident about the staff's ability to deal with my concerns. 3.91 0.964
Overall empathy 3.93 0.802
The staff always have my best interests at heart. 3.84 1.013
The staff give me personal attention. 3.88 0.991
My bank's employees are neat appearing. 4.23 0.841
The staff understand my personal banking needs. 3.90 0.990
The staff treat me as an individual with individual needs. 3.91 0.979
My bank has operating hours that are convenient to me. 3.78 1.123
Overall tangibles 4.22 0.742
My bank's branch layout is clearly demarcated and easy to understand. 4.11 0.939
My bank's branch is visually appealing and clean. 4.27 0.820
The staff are neatly and professionally dressed. 4.26 0.800
My bank's branch has modern equipment. 4.24 0.833

As indicated in Table 5-4, with regards to the reliability dimension of service quality, the highest
mean is 4.08 on the statement “The bank has my personal and banking information up to date
and error free” and the lowest mean is 3.88 which was realised on the statement “The staff keep
the promises they make”. The overall mean for the reliability dimension of service quality is 3.93.

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The standard deviation of the reliability dimension ranges from 0.935 to 0.969 and has an overall
standard deviation of 0.818.

Pertaining to the responsiveness dimension of service quality, the highest mean realised is 3.99
on the statement “The staff are willing to help me”, and the lowest mean is 3.65 on the statement
“The staff constantly keep me informed about the progress of my queries”. The overall mean for
the responsiveness dimension is 3.80. It is also evident from Table 5-4 that the standard deviation
of the responsiveness dimension ranges from 0.947 to 1.098, with an overall standard deviation
of 0.900.

With regard to the assurance dimension, respondents indicated the strongest level of agreement
on the statement “The staff are polite towards me.” with a mean of 4.04, and lowest level of
agreement was on the statement “The staff have the knowledge and the know-how of bank
processes and policy to deal with my queries and concerns” with a mean of 3.84. The overall
mean of the four statements of the assurance dimension is 3.93. The assurance dimension had
standard deviations ranging from 0.919 to 1.034, as well as an overall standard deviation of 0.865.

Table 5-4 also shows that the empathy dimension realised the highest mean of 4.23 on the
statement “My bank’s employees are neat appearing.” and lowest mean of 3.78 on the statement
“My bank has operating hours that are convenient to me”. With regards to the overall mean of the
six statements of the empathy dimension, 3.93 was realised. Furthermore, the standard deviation
for the empathy dimension ranges from 0.841 to 1.123 and the overall standard deviation is 0.802.

Regarding the tangibles dimension, the highest mean is 4.27 on the statement “My bank’s branch
is visually appealing and clean” and the lowest mean is 4.11 on the statement “My bank’s branch
layout is clearly demarcated and easy to understand”. An overall mean of 4.22 was realised from
the four statements of the tangibles dimension. In addition, the tangible dimension has standard
deviations ranging from 0.800 to 0.939 and an overall standard deviation of 0.742.

With regards to respondents’ overall service quality perceptions, the tangibles dimension realised
the highest mean (mean = 4.22), whereas responsiveness realised the lowest mean (mean =
3.80). In its entirety, the service quality construct realised a mean of 3.97 and a standard deviation
of 0.732.

Main finding 4: With regard to the reliability dimension of service quality, respondents agreed
most with the statement that the staff should keep the promises they make.

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Main finding 5: In terms of to the responsiveness dimension of service quality, respondents

agreed most with the statement that the staff should constantly keep customers informed about
their queries.

Main finding 6: With regard to the assurance dimension of service quality, respondents agreed
most with the statement that the staff should have the knowledge and the know-how of bank
processes and policies to deal with their queries and concerns.

Main finding 7: With reference to the empathy dimension of service quality, respondents agreed
most with the statement that the bank should have operating hours that are convenient to them.

Main finding 8: With regard to the tangibles dimension of service quality, respondents agreed
most with the statement that the bank’s branch layout should be clearly demarcated and easy to
understand.

Main finding 9: As far as overall service quality perceptions are concerned, respondents agreed
most with the statements of the tangible dimension.

Main finding 10: With regard to overall service quality perceptions, respondents agreed least
with the statements related to the responsiveness dimension.

5.6 RESPONDENTS’ TRUST IN THEIR RETAIL BANKS

Table 5-5 presents the results of respondents’ levels of trust in their respective retail banks.
Respondents were asked to indicate their level of trust on a 5-point Likert scale (where “1”
represented “strongly disagree” and “5” represented “strongly agree” to the statement provided).
The trust construct consisted of six statements which were measured separately, as well as in
entirety (i.e., overall trust). Accordingly, the means and standard deviations were calculated for
each trust statement, as well as the overall mean and standard deviation for trust.

Table 5-5: Respondents’ trust in their retail banks

Mean Std. Dev.

Overall trust 4.07 0.784
My bank is trustworthy. 4.15 0.915
I have confidence in my bank. 4.10 0.912
My bank is concerned with the security of my transactions. 4.18 0.933
My bank is consistent in providing quality services. 3.97 0.947
My bank’s promises are reliable. 3.96 0.951
My bank’s employees show respect to its customers. 4.05 0.967

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As shown in Table 5-5, the highest mean realised on the trust construct is 4.18 on the statement
“My bank is concerned with the security of my transactions” and the lowest mean realised is 3.96
on the statement “My bank’s promises are reliable”. The overall mean for the six statements of
the trust construct is 4.07. Furthermore, the standard deviation ranges from 0.912 to 0.967. The
overall standard deviation of the six statements of trust is 0.784.

Main finding 11: With regard to respondents’ trust in their retail bank, respondents agreed the
most with the statement about their banks’ concern with the security of banking transactions.

Main finding 12: In terms of respondents’ trust in their retail bank, they agreed the least with the
statement on the reliability of their banks’ promises.

Main finding 13: Overall, respondents indicated a high level of trust in their retail banks.

5.7 RESPONDENTS’ PERCEPTIONS OF SWITCHING COST TOWARDS THEIR RETAIL

BANKS

Table 5-6 presents the results of respondents’ switching cost perceptions towards their respective
retail banks. Respondents were asked to indicate their perceptions on a 5-point Likert scale
(where “1” represented “strongly disagree” and “5” represented “strongly agree” to the statement
provided). The switching cost construct consists of four statements, which were separately
measured, as well as in entirety (i.e., overall switching cost). Accordingly, the means and standard
deviations were calculated for each switching cost statement, as well the overall mean and
standard deviation for switching cost.

Table 5-6: Respondents’ switching cost perceptions towards their retail banks

Mean Std. Dev.

Overall switching costs 3.89 0.804
I like the image (brand) of my bank. 4.13 0.918
Switching to another bank could cause hidden (unpredictable) costs. 3.78 1.133
Switching to another bank will probably result in some unexpected hassle. 3.82 1.153
The process of switching to another bank is connected to many formalities. 3.82 1.134

As shown in Table 5-6, with regard to switching costs, respondents agreed the most with the
statement “I like the image (brand) of my bank” with a mean of 4.13. The lowest mean is 3.82 on
the two statements “Switching to another bank could cause hidden (unpredictable) costs” and
“The process of switching to another bank is connected to many formalities”. The overall mean
for the four statements of switching cost is 3.89. Furthermore, the switching cost construct had a

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standard deviation ranging between 0.918 and 1.153. The overall standard deviation for the
switching cost construct is 0.804.

Main finding 14: With regards to switching costs, respondents agreed the most with the
statement that they like the image (brand) of their bank.

Main finding 15: In terms of switching costs, respondents agreed the least with the statement
that switching to another bank could cause hidden (unpredictable) costs.

5.8 RESPONDENTS’ SATISFACTION WITH THEIR RETAIL BANKS

Table 5-7 presents the results of respondents’ satisfaction with their respective retail banks.
Respondents were asked to indicate their perceptions on a 5-point Likert scale (where “1”
represented “strongly disagree” and “5” represented “strongly agree” to the statement provided).
The satisfaction construct consisted of six statements, which were separately measured, as well
as in entirety (i.e., overall satisfaction). Accordingly, the means and standard deviations were
calculated for each satisfaction statement, as well the overall mean and standard deviation for
satisfaction.

Table 5-7: Respondents’ satisfaction levels towards their retail banks

Mean Std. Dev.

Overall satisfaction 3.94 0.889
I am satisfied with the services I receive from my bank. 4.02 0.911
I believe my bank treats me fairly. 3.98 0.943
My bank’s services meet my expectations. 3.86 1.019
I am proud of my relationship with my bank. 3.93 1.026
My experiences with my bank have always been good. 3.88 1.030
I am completely happy with my bank. 3.94 1.024

As shown in Table 5-7, the highest mean (4.02) was realised on the statement “I am satisfied with
the services I receive from my bank” and the lowest mean (3.86) was realised on the statement
“My bank’s services meet my expectations”. With regards to overall satisfaction, the six
statements had an overall mean of 3.94. In addition, overall satisfaction has standard deviations
ranging from 0.911 to 1.030, and an overall standard deviation of 0.889 on the six statements of
satisfaction construct.

Main finding 16: With regards to satisfaction, respondents agreed the most with the statement
that they are satisfied with the services they receive from their bank.

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Main finding 17: In terms of satisfaction, respondents agreed the least with the statement that
their banks’ services meet their expectations.

Main finding 18: Overall, respondents indicated that they are generally satisfied by their retail
banks.

5.9 RESPONDENTS’ LOYALTY TOWARDS THEIR RETAIL BANKS

Table 5-8 presents the results of respondents’ levels of loyalty towards their respective retail
banks. Respondents were asked to indicate their perceptions on a 5-point Likert scale (where “1”
represented “strongly disagree” and “5” represented “strongly agree” to the statement provided).
The loyalty construct consisted of six statements, which were separately measured, as well as in
entirety (i.e., overall loyalty). Accordingly, the means and standard deviations were calculated for
each loyalty statement, as well the overall mean and standard deviation for loyalty.

Table 5-8: Respondents’ loyalty levels towards their retail banks

Mean Std. Dev.

Overall loyalty 3.96 0.948
I say positive things about my bank to other people. 3.95 1.060
I would recommend my bank to someone who seeks my advice. 3.96 1.049
I encourage friends and/or relatives to do business with my bank. 3.86 1.118
I consider my bank as my first choice when I need services concerning
3.90 1.112
my finances.
I intend to continue doing business with my bank in the next few years. 4.04 1.109
I am willing to try new services that my bank provides. 4.03 1.056

As evidently shown in Table 5-8, the statement “I intend to continue doing business with my bank
in the next few years” has the highest mean (4.04) and the statement “I encourage friends and/or
relatives to do business with my bank” has the lowest mean (3.86). With regards to overall loyalty,
the six statements of loyalty had an overall mean of 3.96. Furthermore, the loyalty construct has
standard deviations between 1.049 and 1.118, as well as an overall standard deviation of 0.948.

Main finding 19: With regards to loyalty, respondents agreed the most with the statement that
they intend to continue doing business with their banks in the next few years.

Main finding 20: In terms of loyalty, respondents agreed the least with the statement that they
encourage friends and/or relatives to do business with their banks.

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Main finding 21: Overall, respondents indicated that they are generally loyal towards their retail
banks.

5.10 CONSTRUCT VALIDITY

According to Pallant (2010:7), the validity of constructs should be determined in order to ensure
that the scales that were used to measure each construct truly measured the related construct.
In this study, the construct validity was determined by means of confirmatory factor analyses
(CFA), using principle axis factoring with direct oblimin rotation (see section [Link]). As part of a
CFA, the MSA (measure of sample adequacy) is considered, and if the MSA value is greater than
0.50, the data is regarded acceptable for a CFA (Hair et al., 2010:93). In addition, factors were
extracted based on the rule of thumb that at least 50% of the variance must be explained by the
extracted factors. The results of the CFAs are subsequently reported for each construct.

5.10.1 Construct validity of service quality

As discussed in section 5.5, the service quality construct consists of five dimensions – reliability,
responsiveness, assurance, empathy and tangibles – which can be used to determine
respondents’ overall perceptions of their retail banks’ service quality. With regards to the reliability
dimension of service quality, an MSA of 0.87 was obtained (which is above the cut-off point of
0.50), which meant that the data was acceptable for conducting a CFA. The CFA confirmed that
the five items measuring reliability can be reduced to one factor, explaining 73.32% of the
variance, with the communalities varying from 0.55 to 0.82.

Main finding 22: The CFA confirmed reliability as one factor, thus confirming the validity of the
scale measuring respondents’ perceptions of the reliability of their retail banks.

With regards to the responsiveness dimension of service quality, an MSA of 0.82 was obtained,
which meant the data was acceptable for conducting a CFA. The CFA confirmed that the four
items measuring responsiveness can be reduced to one factor, explaining 77.70% of the variance,
with the communalities varying from 0.74 to 0.79.

Main finding 23: The CFA confirmed responsiveness as one factor, thus confirming the validity
of the scale measuring respondents’ perceptions of the responsiveness of their retail banks.

With regards to the assurance dimension of service quality, an MSA of 0.85 was obtained. The
CFA confirmed that the four items measuring assurance can be reduced to one factor, explaining
80.18% of the variance, with the communalities varying from 0.76 to 0.84.

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Main finding 24: The CFA confirmed assurance as one factor, thus confirming the validity of the
scale measuring respondents’ perceptions of the assurance of their retail banks.

With regards to the empathy dimension of service quality, an MSA of 0.88 was obtained. The CFA
confirmed that the six items measuring empathy can be reduced to one factor, explaining 66.03%
of the variance, with the communalities varying from 0.47 to 0.77.

Main finding 25: The CFA confirmed empathy as one factor, thus confirming the validity of the
scale measuring respondents’ perceptions of the empathy of their retail banks.

With regard to the tangibles dimension of service quality, an MSA of 0.82 was obtained. The CFA
confirmed that the four items measuring tangibles can be reduced to one factor, explaining
76.78% of the variance, with the communalities varying from 0.85 to 0.92.

Main finding 26: The CFA confirmed tangibles as one factor, thus confirming the validity of the
scale measuring respondents’ perceptions of the tangibles of their retail banks.

5.10.2 Construct validity of trust

To determine the construct validity of trust, a CFA was conducted on the six statements used to
measure trust. The CFA identified whether the statements included in the scale could be grouped
into one factor – as identified by Alvarez et al. (2011) and Morgan and Hunt (1994) – to measure
trust (see section [Link].4). The results of the CFA obtained an MSA of 0.67, and confirmed that
the six items measuring trust can be reduced to one factor, explaining 70.39% of the variance.
The communalities varied between 0.52 and 0.79.

Main finding 27: The CFA confirmed trust as one factor, thus confirming the validity of the scale
measuring respondents’ trust in their retail banks.

5.10.3 Construct validity of switching costs

In order to determine the construct validity of switching costs, a CFA was conducted on the four
statements used to measure switching costs. The CFA identified whether the statements included
in the scale could be grouped into one factor – as identified by Matzler et al. (2015:123) – to
measure switching costs (see section [Link].4). The results of the CFA obtained an MSA of 0.71,
and confirmed that the four items measuring switching costs can be reduced to one factor,
explaining 55.49% of the variance. The communalities varied between 0.35 and 0.76.

Main finding 28: The CFA confirmed switching costs as one factor, thus confirming the validity
of the scale measuring respondents’ switching costs towards their retail banks.

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5.10.4 Construct validity of satisfaction

To determine the construct validity of satisfaction, a CFA was conducted on the six statements
used to measure the construct. The CFA identified whether the statements included in the scale
could be grouped into one factor – as identified by Armstrong and Seng (2000) and Bennet and
Rundle-Thiele (2004) – to measure satisfaction (see section [Link].4). The results of the CFA
obtained an MSA of 0.92, and confirmed that the six items used to measure satisfaction can be
reduced to one factor, explaining 80.13% of the variance. The communalities varied between 0.74
and 0.83.

Main finding 29: The CFA confirmed satisfaction as one factor, thus confirming the validity of the
scale measuring respondents’ satisfaction with their retail banks.

5.10.5 Construct validity of loyalty

To determine the construct validity of loyalty, a CFA was conducted on the six statements used
to measure the construct. The CFA identified whether the statements included in the scale could
be grouped into one factor – as identified by Kaura et al. (2015:412) – to measure loyalty (see
section [Link].4). The results of the CFA obtained an MSA of 0.92, and confirmed that the six
statements used to measure loyalty can be reduced to one factor, explaining 76.66% of the
variance. The communalities varied between 0.51 and 0.87.

Main finding 30: The CFA confirmed loyalty as one factor, thus confirming the validity of the
scale measuring respondents’ loyalty towards their retail banks.

5.11 RELIABILITY

As discussed in Chapter 4 (section [Link]), the reliability of the scales measuring the service
quality dimensions, trust, switching cost, satisfaction and loyalty constructs were determined by
evaluating Cronbach alpha values, which are used to indicate the internal consistency of
constructs (Pallant, 2010:97). Table 5-9 indicates the Cronbach alpha values of the service quality
dimensions, trust, switching costs, satisfaction and loyalty constructs.

As shown in Table 5-9, all the constructs of this study had a Cronbach alpha coefficient larger
than 0.70, which indicates reliable and satisfactory results, as Hair et al. (2013:166) state that
values smaller than 0.70 would indicate no reliability. Pallant (2010:97) also states that the
acceptable Cronbach alpha coefficient of a scale should exceed 0.70. Therefore, it can be
established that all the constructs of this study (service quality, trust, switching cost, satisfaction
and loyalty) are reliable.

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Table 5-9: Cronbach alpha values of the constructs used in the study

Cronbach alpha
Constructs N of items
values
Service quality 23 0.968
Reliability 5 0.907
Responsiveness 4 0.903
Assurance 4 0.916
Empathy 6 0.894
Tangibles 4 0.897
Trust 6 0.914
Switching cost 4 0.722
Satisfaction 6 0.950
Loyalty 6 0.938

Main finding 31: The constructs of this study (i.e., service quality, trust, switching costs,
satisfaction and loyalty) indicate reliability, with Cronbach alpha values exceeding 0.70.

5.12 ASSESSING THE DISTRIBUTION OF DATA

Before testing the hypotheses formulated for the study, it is important to determine the distribution
of the data obtained for each of the constructs, with a view to ensure that the correct statistical
techniques are implemented. Hair et al. (2013:279) posit that non-parametric statistics are used
in instances where normal distribution cannot be assumed, and Harris et al. (2005:140) propound
that parametric statistics are used in instances where data is normally distributed. According to
Pallant (2010:59), distribution can be measured by determining the skewness and kurtosis of the
constructs.

The results indicate that all the statements measuring the respective constructs have a skewness
of less than 2.00 and a kurtosis of less than 7.00, thus falling within the cut-off points (West et al.,
1995:74). It can, therefore, be concluded that the distribution of the data falls within the
parameters of what can be considered a normal distribution. Subsequently, the following
parametric tests were used to test the hypotheses of the study: independent samples t-tests and
ANOVAs (one-way analysis of variance) (see section [Link] for detailed discussion).

5.13 HYPOTHESES TESTING

This section presents the results of the hypotheses formulated for this study (in Chapter 1, section
1.4). Each hypothesis is presented, followed by the results and subsequent main finding(s)
pertaining to the results. Hypotheses are supported when statistical significance is achieved, at a

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significance level of 0.05 (p < 0.05) (Ellis & Steyn, 2003:51). According to Zikmund and Babin
(2010:542), the common acceptable level of significance is 0.10, 0.05 and 0.01. The hypotheses
of this study are accepted at the 95% significance level (thus, p < 0.05), and rejected if p > 0.05.

According to Schlotzhauer (2007:168), however, a p-value indicates statistical significance but

does not imply practical significance. Therefore, Cohen’s d-value can be assessed to determine
the standardised mean difference of an effect (Lakens, 2013:3). The general interpretation of
effect sizes (d-values) are either small (d = 0.20), medium (d = 0.50) or large (d = 0.80) (Cohen,
1988).

5.13.1 Hypothesis 1

Respondents of different age groups differ statistically significantly in terms of their service quality
perceptions, trust, switching costs, satisfaction and loyalty towards their retail banks.

This hypothesis is further refined as follows:

H1a: Respondents of different age groups differ statistically significantly in terms of their service
quality perceptions.
H1b: Respondents of different age groups differ statistically significantly in terms of their trust.
H1c: Respondents of different age groups differ statistically significantly in terms of their switching
costs.
H1d: Respondents of different age groups differ statistically significantly in terms of their satisfaction.
H1e: Respondents of different age groups differ statistically significantly in terms of their loyalty.

In order to address H1, ANOVAs were conducted. The results of the abovementioned hypotheses
(H1a to H1e) are presented in Table 5-10, representing the descriptive statistics (mean, standard
deviation and count). The table also presents the p-values and the corresponding d-values.

Table 5-10: Significant differences between age groups

d-value
Std.
N Mean p-value Age Younger
Dev. 38 to 49 50 or older
than 38
Service quality 270 3.92 0.723 Younger than 38 -0.07 0.03
85 3.97 0.641 > 0.05 38 to 49 0.07 0.09
80 3.90 0.852 50 or older -0.03 -0.09
Trust 280 4.09 0.779 Younger than 38 0.06 0.16
88 4.05 0.665 > 0.05 38 to 49 -0.06 0.12
81 3.95 0.930 50 or older -0.16 -0.12
Switching costs 281 3.89 0.752 Younger than 38 0.09 0.04
90 3.81 0.941 > 0.05 38 to 49 -0.09 -0.05
80 3.86 0.819 50 or older -0.04 0.05

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Table 5-10: Significant differences between age groups (cont.)

d-value
Std.
N Mean p-value Age Younger
Dev. 38 to 49 50 or older
than 38
Satisfaction 478 3.99 0.872 Younger than 38 0.14 0.18
89 3.87 0.815 > 0.05 38 to 49 -0.14 0.06
82 3.81 1.036 50 or older -0.18 -0.06
Loyalty 277 4.01 0.917 Younger than 38 0.20 0.15
89 3.82 0.963 > 0.05 38 to 49 -0.20 -0.03
81 3.86 1.048 50 or older -0.15 0.03

It is evident from Table 5-10 that:

 With regard to H1a, the p-value (p > 0.05) indicates no statistically significant differences
between the means of the three age groups with respect to their perceptions of their retail
banks’ service quality. H1a can therefore be rejected.
 With regard to H1b, the p-value (p > 0.05) indicates no statistically differences between the
means of the three age groups with respect to their trust in their retail bank. H1b can therefore
be rejected.
 With regard to H1c, the p-value (p > 0.05) indicates no statistically significant differences
between the means of the three age groups with respect to their perceptions of their retail
banks’ switching costs. H1c can therefore be rejected.
 With regard to H1d, the p-value (p > 0.05) indicates no statistically significant differences
between the means of the three age groups with respect to their levels of satisfaction with
their retail bank. H1d can therefore be rejected.
 With regard to H1e, the p-value (p > 0.05) indicates no statistically significant differences
between the means of the three age groups with respect to their levels of loyalty towards
their retail bank. H1e can therefore be rejected.

Main finding 32: Respondents of different age groups do not differ statistically significantly from
each other in terms of their service quality perceptions, trust, switching costs, satisfaction or
loyalty towards their retail banks.

5.13.2 Hypothesis 2

Respondents of different genders differ statistically significantly in terms of their service quality
perceptions, trust, switching costs, satisfaction and loyalty towards their retail banks.

This hypothesis is further refined as follows:

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H2a: Respondents of different genders differ statistically significantly in terms of their service quality.
H2b: Respondents of different genders differ statistically significantly in terms of their trust.
H2c: Respondents of different genders differ statistically significantly in terms of their switching costs.
H2d: Respondents of different genders differ statistically significantly in terms of their satisfaction.
H2e: Respondents of different genders differ statistically significantly in terms of their loyalty.

In order to address H2, independent samples t-tests were calculated, as only two groups (male
and female) were compared. The results of the abovementioned hypotheses (H2a to H2e) are
presented in Table 5-11, representing the descriptive statistics (mean, standard deviation and
count). The table also presents the p-values and the corresponding d-values.

Table 5-11: Significant differences between genders

Gender N Mean Std. Dev. p-value d-value

Service quality Male 183 3.88 0.696
0.90 -0.24
Female 261 4.04 0.750
Trust Male 190 3.98 0.783
0.09 -0.19
Female 269 4.13 0.780
Switching costs Male 191 3.75 0.744
0.10 -0.30
Female 270 3.98 0.832
Satisfaction Male 192 3.82 0.874
0.20 -0.24
Female 267 4.02 0.892
Loyalty Male 188 3.87 0.975
0.12 -0.16
Female 269 4.01 0.925

It is evident from Table 5-11 that:

 With regard to H2a, the p-value (p > 0.05) indicates no statistically significant differences
between male and female respondents in terms of their perceptions of their retail banks’
service quality. H2a can therefore be rejected.
 In terms of H2b, the p-value (p > 0.05) indicates no statistically significant differences
between male and female respondents in terms of their trust towards their retail bank. H2b
can therefore be rejected.
 With regard to H2c, the p-value (p > 0.05) indicates no statistically significant differences
between male and female respondents in terms of their perceptions of their retail banks’
switching costs. H2c can therefore be rejected.
 In terms of H2d, the p-value (p > 0.05) indicates no statistically significant differences
between male and female respondents in terms of their satisfaction with their retail bank.
H2d can therefore be rejected.

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 With regard to H2e, the p-value (p > 0.05) indicates no statistically significant differences
between male and female respondents in terms of their loyalty towards their retail bank. H2e
can therefore be rejected.

Main finding 33: Male and female respondents do not differ statistically significantly from each
other in terms of their service quality perceptions, trust, switching costs, satisfaction, or loyalty
towards their retail banks.

5.13.3 Hypothesis 3

Respondents with different levels of education differ statistically significantly in terms of their service
quality perceptions, trust, switching costs, satisfaction and loyalty towards their retail banks.

This hypothesis is further refined as follows:

H3a: Respondents with different levels of education differ statistically significantly in terms of their
service quality perceptions.
H3b: Respondents with different levels of education differ statistically significantly in terms of their
trust.
H3c: Respondents with different levels of education differ statistically significantly in terms of their
switching costs.
H3d: Respondents with different levels of education differ statistically significantly in terms of their
satisfaction.
H3e: Respondents with different levels of education differ statistically significantly in terms of their
loyalty.

In order to address H3, ANOVAs were conducted. The results of the abovementioned hypotheses
(H3a to H3e) indicated no statistically significant differences between respondents of different levels
of education and the various constructs. Subsequently, H3 can be rejected.

Main finding 34: Respondents with different levels of education do not differ statistically
significantly in terms of their service quality perceptions, trust, switching costs, satisfaction or
loyalty towards their retail banks.

5.13.4 Hypothesis 4

Respondents of different ethnicities differ statistically significantly in terms of their service quality
perceptions, trust, switching costs, satisfaction and loyalty towards their retail banks.

This hypothesis is further refined as follows:

H4a: Respondents of different ethnicities differ statistically significantly in terms of their service quality
perceptions.
H4b: Respondents of different ethnicities differ statistically significantly in terms of their trust.

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H4c: Respondents of different ethnicities differ statistically significantly in terms of their switching
costs.
H4d: Respondents of different ethnicities differ statistically significantly in terms of their satisfaction.
H4e: Respondents of different ethnicities differ statistically significantly in terms of their loyalty.

In order to address H4, ANOVAs were conducted. The results of the abovementioned hypotheses
(H4a to H4e) are presented in Table 5-12, representing the descriptive statistics (mean, standard
deviation and count). The table also presents the p-values and the corresponding d-values.

Table 5-12: Significant differences between ethnic groups

d-value
N Mean Std. Dev. p-value Ethnicity
Asian Black Coloured Indian White
Service 5 3.50 0.200 Asian -1.35 -1.07 -1.09 -0.64
quality
161 4.17 0.668 Black 1.35 0.13 0.40 0.45
20 4.08 0.738 0.00 Coloured 1.07 -0.13 0.24 0.31
17 3.93 0.521 Indian 1.09 -0.40 -0.24 -0.12
239 3.85 0.745 White 0.64 -0.45 -0.31 0.12
Trust 5 3.80 0.491 Asian -0.79 -0.22 -0.07 -0.25
168 4.29 0.718 Black 0.79 0.44 0.55 0.44
24 3.95 0.834 0.00 Coloured 0.22 -0.44 0.12 -0.01
17 3.85 0.865 Indian 0.07 -0.55 -0.12 -0.13
243 3.96 0.772 White 0.25 -0.44 0.01 0.13
Switching 5 3.80 0.958 Asian -0.16 -0.06 -0.05 -0.07
costs
170 3.94 0.822 Black 0.16 0.09 0.12 0.10
24 3.86 1.018 0.88 Coloured 0.06 -0.09 0.01 0.00
17 3.85 0.701 Indian 0.05 -0.12 -0.01 -0.01
243 3.86 0.779 White 0.07 -0.10 -0.00 0.01
Satisfaction 5 3.43 0.480 Asian -1.11 -0.78 -0.42 -0.52
170 4.19 0.832 Black 1.11 0.26 0.49 0.46
23 3.97 0.849 0.00 Coloured 0.78 -0.26 0.24 0.19
17 3.75 0.952 Indian 0.42 -0.49 -0.24 -0.05
242 3.80 0.876 White 0.52 -0.46 -0.19 0.05
Loyalty 5 3.80 0.505 Asian -0.54 0.00 -0.09 -0.03
169 4.19 0.881 Black 0.54 0.39 0.41 0.39
23 3.80 1.104 0.00 Coloured 0.00 -0.39 -0.06 -0.02
17 3.86 0.738 Indian 0.09 -0.41 0.06 0.03
241 3.83 0.960 White 0.03 -0.39 0.02 -0.03

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It is evident from Table 5-12 that:

 With regards to H4a, the p-value (p = 0.00) indicates statistically significant differences
between respondents of different ethnicities in terms of service quality. Black respondents
(mean = 4.17) perceive the service quality of their banks to be statistically significantly
higher than white respondents (mean = 3.85) do. H4a can therefore be accepted. However,
the practically significant difference (d = 0.45) between black and white respondents is
relatively small (d < 0.50).
 As regards to H4b, the p-value (p = 0.00) indicates statistically significant differences
between respondents of different ethnicities in terms of trust. Black respondents (mean =
4.29) trust their retail banks statistically significantly more than white respondents (mean =
3.96) do. H4b can therefore be accepted. However, the practically significant difference (d =
0.44) between black and white respondents is relatively small (d < 0.50).
 In terms of H4c, the p-value (p > 0.05) indicates that there are no statistically significant
differences between respondents in terms of their switching costs. H4c can therefore be
rejected.
 With regards to H4d, the p-value (p = 0.00) indicates statistically significant differences
between respondents of different ethnicities in terms of satisfaction. Black respondents
(mean = 4.19) are statistically significantly more satisfied with their retail banks than white
respondents (mean = 3.80) are. H4d can therefore be accepted. However, the practically
significant difference (d = 0.46) between black and white respondents is relatively small (d
< 0.50).
 In terms of H4e, the p-value (p = 0.00) indicates statistically significant differences between
respondents of different ethnicities in terms of loyalty. Black respondents (mean = 4.19) are
statistically significantly more loyal towards their retail banks than white respondents (mean
= 3.83). H4e can therefore be accepted. However, the practically significant difference (d =
0.39) between black and white respondents is relatively small (d < 0.50).

Since H4c is rejected, and H4a, H4b, H4d and H4e are accepted, H4 is partially accepted.

Main finding 35: Respondents of different ethnic groups only differ statistically significantly in
terms of their service quality perceptions, trust, satisfaction or loyalty towards their retail banks.

5.13.5 Hypothesis 5

Respondents with different employment levels differ statistically significantly in terms of their service
quality perceptions, trust, switching costs, satisfaction and loyalty towards their retail banks.

This hypothesis is further refined as follows:

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H5a: Respondents with different employment levels differ statistically significantly in terms of their
service quality perceptions.
H5b: Respondents with different employment levels differ statistically significantly in terms of their
trust.
H5c: Respondents with different employment levels differ statistically significantly in terms of their
switching costs.
H5d: Respondents with different employment levels differ statistically significantly in terms of their
satisfaction.
H5e: Respondents with different employment levels differ statistically significantly in terms of their
loyalty.

In order to address H5, ANOVAs were conducted. The results of the abovementioned hypotheses
(H5a to H5e) indicated no statistically significant differences between respondents with different
employment levels and the various constructs. Subsequently, H5 can be rejected.

Main finding 36: Respondents with different employment levels do not differ statistically
significantly in terms of their service quality perceptions, trust, switching costs, satisfaction, or
loyalty towards their retail banks.

5.13.6 Hypothesis 6

Respondents of different retail banks differ statistically significantly in terms of their service quality
perceptions, trust, switching costs, satisfaction and loyalty towards their retail banks.

This hypothesis is further refined as follows:

H6a: Respondents of different retail banks differ statistically significantly in terms of their service
quality perceptions.
H6b: Respondents of different retail banks differ statistically significantly in terms of their trust.
H6c: Respondents of different retail banks differ statistically significantly in terms of their switching
costs.
H6d: Respondents of different retail banks differ statistically significantly in terms of their satisfaction.
H6e: Respondents of different retail banks differ statistically significantly in terms of their loyalty.

In order to address H6, ANOVAs were conducted. The results of the abovementioned hypotheses
(H6a to H6e) are presented in Table 5-13, representing the descriptive statistics (mean, standard
deviation and count). The table also presents the p-values and the corresponding d-values.

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Table 5-13: Significant differences between respondents of different retail banks

d-value
Std.
N Mean p-value Bank Standard
Dev. Absa Capitec FNB Nedbank
bank
Service 93 3.66 0.833 Absa -0.72 -0.64 -0.35 -0.40
quality
65 4.21 0.682 Capitec 0.72 0.14 0.40 0.35
97 4.12 0.596 0.00 FNB 0.64 -0.14 0.28 0.23
71 3.93 0.717 Nedbank 0.35 -0.40 -0.28 -0.05
117 3.97 0.705 Standard bank 0.40 -0.35 -0.23 0.05
Trust 97 3.79 0.888 Absa -0.56 -0.50 -0.44 -0.27
69 4.24 0.723 Capitec 0.56 0.05 0.13 0.29
97 4.20 0.724 0.00 FNB 0.50 -0.05 0.08 0.24
74 4.14 0.706 Nedbank 0.44 -0.13 -0.08 0.16
121 4.02 0.768 Standard bank 0.27 -0.29 -0.24 -0.16
Switching 97 3.74 0.829 Absa -0.17 -0.26 -0.25 -0.19
costs
70 3.88 0.843 Capitec 0.17 -0.09 -0.06 -0.02
96 3.96 0.826 0.37 FNB 0.26 0.09 0.04 0.07
75 3.93 0.628 Nedbank 0.25 0.06 -0.04 0.04
122 3.90 0.838 Standard bank 0.19 0.02 -0.07 -0.04
Satisfaction 96 3.59 0.976 Absa -0.58 -0.66 -0.62 -0.21
70 4.13 0.874 Capitec 0.58 -0.02 -0.01 0.36
96 4.15 0.697 0.00 FNB 0.66 0.02 0.01 0.42
74 4.14 0.762 Nedbank 0.62 0.01 -0.01 0.39
122 3.80 0.936 Standard bank 0.21 -0.36 -0.42 -0.39
Loyalty 95 3.56 1.047 Absa -0.74 -0.77 -0.41 -0.27
70 4.28 0.887 Capitec 0.74 0.02 0.39 0.46
94 4.26 0.739 0.00 FNB 0.77 -0.02 0.41 0.48
75 3.94 0.813 Nedbank 0.41 -0.39 -0.41 0.11
122 3.84 0.991 Standard bank 0.27 -0.46 -0.48 -0.11

It is evident from Table 5-13 that:

 With regards to H6a, the p-value (p = 0.00) indicates statistically significant differences
between respondents of different banks in terms of service quality. Capitec bank
respondents (mean = 4.21), FNB bank respondents (mean = 4.12) and Standard bank
respondents (mean = 3.97) perceive the service quality of their banks to be statistically
significantly higher than Absa bank respondents (mean = 3.66) do. H6a can therefore be
accepted. However, the practically significant differences between Absa bank respondents
and Capitec bank respondents (d = 0.72), between Absa bank respondents and FNB bank

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respondents (d = 0.64), and between Absa bank respondents and Stand bank respondents
(d = 0.40) are medium to small (d < 0.80; d < 0.50).
 As regards to H6b, the p-value (p = 0.00) indicates statistically significant differences
between respondents of different banks in terms of trust. Capitec bank respondents (mean
= 4.24), FNB bank respondents (mean = 4.20) and Nedbank respondents (mean = 4.14)
indicate trust towards their banks to be statistically significantly higher than Absa bank
respondents (mean = 3.79) do. H6b can therefore be accepted. However, the practically
significant differences between Absa bank respondents and Capitec bank respondents (d
= 0.56), between Absa bank respondents and FNB bank respondents (d = 0.50), and
between Absa bank respondents and Nedbank respondents (d = 0.44) are medium to small
(d < 0.80; d < 0.50).
 With regard to H6c, the p-value (p > 0.05) indicates that there are no statistically significant
differences between respondents of different banks in terms of their switching costs. H6c
can therefore be rejected.
 In terms of H6d, the p-value (p = 0.00) indicates statistically significant differences between
respondents of different banks in terms of their satisfaction. FNB bank respondents (mean
= 4.15), Nedbank respondents (mean = 4.14) and Capitec bank respondents (mean = 4.13)
indicate satisfaction towards their banks to be statistically significantly higher than Absa
bank respondents (mean = 3.59) do. H6d can therefore be accepted. However, the
practically significant differences between Absa bank respondents and Capitec bank
respondents (d = 0.58), between Absa bank respondents and FNB bank respondents (d =
0.66), and between Absa bank respondents and Nedbank respondents (d = 0.62) are
relatively medium to small (d < 0.80; d < 0.50).
 With regard to H6e, the p-value (p = 0.00) indicates statistically significant differences
between respondents of different banks in terms of their loyalty. FNB bank respondents
(mean = 4.26) and Capitec bank respondents (mean = 4.28) indicate loyalty towards their
banks to be statistically significantly higher than Absa bank respondents (mean = 3.56),
Nedbank respondents (mean = 3.94) and Standard Bank (mean = 3.84) do. H6e can
therefore be accepted. However, the practically significant differences between Absa bank
respondents and Capitec bank respondents (d = 0.74), between Absa bank respondents
and FNB bank respondents (d = 0.77), and between Absa bank respondents and Nedbank
respondents (d = 0.62) are medium to small (d < 0.08; d < 0.50). Furthermore, the practically
significant differences between Standard bank respondents and Capitec bank respondents
(d = 0.46), and between Standard bank respondents and FNB bank respondents (d = 0.48)
are relatively small (d < 0.50).

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Based on the above results, H6 is partially accepted, since H6c is rejected and H6a, H6b, H6d and
H6e are accepted.

Main finding 37: Respondents of different banks only differ statistically significantly in terms of
their service quality perceptions, trust, satisfaction and loyalty towards their retail bank.

5.13.7 Hypothesis 7

Respondents who have been with their retail banks for different durations differ significantly in terms of
their service quality perceptions, trust, switching costs, satisfaction and loyalty towards their retail
banks.

This hypothesis is further refined as follows:

H7a: Respondents who have been with their retail banks for different durations differ statistically
significantly in terms of their service quality perceptions.
H7b: Respondents who have been with their retail banks for different durations differ statistically
significantly in terms of their trust.
H7c: Respondents who have been with their retail banks for different durations differ statistically
significantly in terms of their switching costs.
H7d: Respondents who have been with their retail banks for different durations differ statistically
significantly in terms of their satisfaction.
H7e: Respondents who have been with their retail banks for different durations differ statistically
significantly in terms of their loyalty.

In order to address H7, ANOVAs were conducted. The results of the abovementioned hypotheses
(H7a to H7e) are presented in Table 5-14, representing the descriptive statistics (mean, standard
deviation and count). The table also presents the p-values and the corresponding d-values.

Table 5-14: Significant differences between respondents and duration with their banks

d-value
Std.
N Mean p-value Duration Less than 5 to 10 10 to 15 15 to 20 Longer than
Dev.
5 years years years years 20 years
Service 124 4.05 0.703 Less than 5 years 0.01 0.04 0.29 0.23
quality
140 4.03 0.683 5 to 10 years -0.01 0.03 0.27 0.21
56 4.00 0.694 10 to 15 years -0.04 -0.03 0.24 0.18
0.06
37 3.76 0.655 15 to 20 years -0.29 -0.27 -0.24 -0.06
Longer than 20 -0.23 -0.21 -0.18 0.06
76 3.81 0.887
years
Trust 130 4.20 0.725 Less than 5 years 0.11 0.11 0.46 0.28
144 4.09 0.753 5 to 10 years -0.11 0.00 0.35 0.17
60 4.08 0.734 10 to 15 years -0.11 -0.00 0.34 0.16
0.01
37 3.74 0.893 15 to 20 years -0.46 -0.35 -0.34 -0.17
Longer than 20 -0.28 -0.17 -0.16 0.17
77 3.91 0.883
years

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Table 5-14: Significant differences between respondents and duration with their banks
(cont.)

d-value
Std.
N Mean p-value Duration Less than 5 to 10 10 to 15 15 to 20 Longer than
Dev.
5 years years years years 20 years
Switching 131 3.95 0.793 Less than 5 years 0.08 0.14 0.19 0.11
costs
144 3.86 0.755 5 to 10 years -0.08 0.05 -0.06 0.03
61 3.80 0.825 10 to 15 years -0.14 -0.05 -0.12 -0.02
0.74
37 3.93 0.778 15 to 20 years -0.19 0.06 0.12 0.09
Longer than 20 -0.11 -0.03 0.02 -0.09
77 3.83 0.924
years
Satisfaction 129 4.11 0.864 Less than 5 years 0.14 0.13 0.52 0.41
143 3.97 0.806 5 to 10 years -0.14 -0.00 0.38 0.26
61 3.98 0.772 10 to 15 years -0.13 0.00 0.39 0.27
0.00
37 3.59 0.999 15 to 20 years -0.52 -0.38 -0.39 -0.11
Longer than 20 -0.41 -0.26 -0.27 0.11
78 3.70 1.040
years
Loyalty 131 4.10 0.898 Less than 5 years 0.07 0.06 0.54 0.41
139 4.03 0.859 5 to 10 years -0.07 -0.00 0.46 0.34
60 4.03 0.875 10 to 15 years -0.06 0.00 0.47 0.35
0.00
37 3.56 1.139 15 to 20 years -0.54 -0.46 -0.47 -0.12
Longer than 20 -0.41 -0.34 -0.35 0.12
79 3.68 1.060
years

It is evident from Table 5-14 that:

 With regards to H7a, the p-value (p > 0.05) indicates that there are no statistically significant
differences between respondents that have been with their retail banks for different
durations in terms of service quality.
 In terms of H7b, the p-value (p = 0.01) indicates statistically significant differences between
respondents that have been with their retail banks for different durations in terms of trust.
Respondents who have been with their retail banks for less than 5 years (mean = 4.20)
indicated that they trust their banks more than respondents who have been with their banks
for 15 to 20 years (mean = 3.74) do. H7b can therefore be accepted. However, the practically
significant differences between the two groups (d = 0.46) are relatively small (d < 0.50).
 With regard to H7c, the p-value (p > 0.05) indicates that there are no statistically significant
differences between respondents that have been with their retail banks for different
durations in terms of their switching costs. H7c can therefore be rejected.
 With reference to H7d, the p-value (p = 0.00) indicates statistically significant differences
between respondents who have been with their retail banks for different durations in terms

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of their satisfaction. Respondents who have been with their retail banks for less than 5 years
(mean = 4.11) indicated that they are more satisfied than those respondents who have been
with their banks for 15 to 20 years (mean = 3.59) or longer than 20 years (mean = 3.70).
H7d can therefore be accepted. However, the practically significant differences between
respondents who have been with their bank for less than 5 years and 15 to 20 years (d =
0.52) and respondents who have been with their bank for less than 5 years and longer than
20 years (d = 0.41) are medium to small (d < 0.80; d < 0.50).
 With regards to H7e, the p-value (p = 0.00) indicates statistically significant differences
between respondents that have been with their retail banks for different durations in terms
of their loyalty. Respondents who have been with their retail banks for less than 5 years
(mean = 4.10) indicated that they are more loyal than those respondents who have been
with their banks for 15 to 20 years (mean = 3.56) or longer than 20 years (mean = 3.68).
H7e can therefore be accepted. However, the practically significant differences between
respondents who have been with their bank for less than 5 years and 15 to 20 years (d =
0.54) and respondents who have been with their bank for less than 5 years and longer than
20 years (d = 0.41) are medium to small (d < 0.08; d < 0.50).

Based on the above results, H7 is partially accepted, since H7c is rejected and H7a, H7b, H7d and
H7e are accepted.

Main finding 38: Respondents who have been with their retail banks for different durations only
differ statistically significantly in terms of their trust, satisfaction and loyalty towards their retail
bank.

5.14 TESTING THE CONCEPTUAL MODEL AND HYPOTHESES 8 TO 14

As discussed in Chapter 4 (section [Link]), SEM is used to test the interrelationship between
various constructs (dependent and/or independent variables), as well as to determine the
importance of each of these constructs (Sarstedt & Mooi, 2014:257). Therefore, a SEM was
conducted to test H8, H9, H10, H11, H12, H13 and H14 from the conceptual model (Figure 1-3). This
section therefore presents the findings of the measurement model and path model that were
tested in order to obtain the structural model. Figure 5-1 depicts the conceptual model to be tested
in order to determine how well it fits with the observed data.

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Figure 5-1: Conceptual model

Service
quality H11
H8
H9
H12 H14
Trust Satisfaction Loyalty

H13
H10
Switching
cost

5.14.1 Measurement model

According to Dattalo (2013:109), a measurement model allows the researcher to assess the
extent to which the measured variables correlate, and to detect the underlying hypothesised
constructs. The measurement model is assessed by conducting a CFA, which is according to
Zikmund and Babin (2010:625), the best technique for evaluating construct validity. The validity
of the variables was discussed in section 5.10, which subsequently supports the measurement
model, as the results indicated that the statements measuring the constructs (i.e., observed
variables) function effectively as indicators of the constructs (latent variables) (McDonald & Ho,
2002:65). The fit indices obtained for the measurement model and the related cut-off points are
subsequently presented in Table 5-15.

Table 5-15: Fit indices of the measurement model

Fit indices Source for suggested Suggested cut-off Fit indices value
cut-off point point
Chi square/ degrees of Wheaton et al. (1977:99)
≤ 5.00 x2/df = 3.21
freedom (x2/df)
CFI Hoe (2008:78), Hu and
≥ 0.90 0.96
Bentler (1999:27)
RMSEA Hoe (2008:78), McDonald < 0.05 = good fit
and Ho (2002:72), Meyers ≤ 0.08 = acceptable fit 0.064 [0.059 – 0.07]
et al. (2006:559)
≤ 0.10 = average fit

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It is evident from Table 5-15 that the x2/df value of 3.21 signifies an adequate model fit, since the
value is well below the suggested cut-off point of 5.00 as proposed by Wheaton et al. (1977:99).
The CFI value of 0.96 is above the cut-off point (≥ 0.90), and the RMSEA of 0.064 [0.59 – 0.07]
indicates an acceptable overall fit for the model (Hoe, 2008:78).

5.14.2 Path model

SEM is associated to path analysis since it may be used to test hypotheses formulated for the
constructs (Dattalo, 2013:109). Therefore, besides determining the fit indices for the
measurement model, SEM investigates the path amongst the variables to determine their
statistical significance, and also helps to uncover the strength of the paths (by means of
standardised regression weights). According to Suhr (2006:5), standardised regression weights
with values less than 0.10 imply a small effect, values up to 0.30 imply a medium effect, and
values larger than 0.50 imply a large effect. Statistical significance is realised at a significance
level of p < 0.05 (Ellis & Steyn, 2003:51). Table 5-16 presents the p-values as well as the
standardised regression weights (β-weight) of the different paths.

Table 5-16: Standardised regression weights

Relationships β-weight p-value

Service quality  Satisfaction 0.13 0.02
Trust  Satisfaction 0.80 0.00
Switching cost  Satisfaction 0.06 0.00
Satisafction  Loyalty 0.83 0.00
(β-weight: standardised regression weight)

It is evident from Table 5-16 that:

 Service quality has a statistically significant (p < 0.05) and medium effect (β-weight = 0.13)
on satisfaction. Therefore, H11 can be accepted.
 Trust has a statistically significant (p < 0.05) and large effect (β-weight = 0.80) on
satisfaction. Therefore, H12 can be accepted.
 Switching costs have a statistically significant (p < 0.05) and small effect (β-weight = 0.06)
on satisfaction. Therefore, H13 can be accepted.
 Satisfaction has a statistically significant (p < 0.05) and large effect (β-weight = 0.83) on
loyalty. Therefore, H14 can be accepted.

Table 5-17 presents the correlations between the variables indicated in the conceptual and path
model, in order to provide an indication of the strength of the relationships between these
variables.
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 Chapter 5: Empirical results

Table 5-17: Correlations

Relationships Correlation p-value

Service quality  Trust 0.37 0.00
Service quality  Switching cost 0.16 0.00
Trust  Switching cost 0.14 0.00

As seen in Table 5-17, it is clear that there is a statistically significant correlation between service
quality and trust (r = 0.37), there is a statistically significant correlation between service quality
and switching cost (r = 0.16), and there is a statistically significant correlation between trust and
switching cost (r = 0.14). Based on these results, H8, H9 and H10 can therefore be accepted.

Based on the above findings, it can be concluded that the structural model illustrates and
acceptable fit to the empirical data, with all the paths statistically significantly supported.
Therefore, the model can be accepted.

Main finding 39: Service quality perceptions have a significant positive effect on satisfaction.

Main finding 40: Trust has a significant positive effect on satisfaction.

Main finding 41: Switching costs have a significant positive effect on satisfaction.

Main finding 42: Satisfaction has a significant positive effect on loyalty.

Main finding 43: Service quality and trust correlate with each other.

Main finding 44: Service quality and switching costs correlate with each other.

Main finding 45: Trust and switching costs correlate with each other.

Main finding 46: Service quality, trust and switching costs lead to satisfaction, which in turn leads
to loyalty.

5.15 SUMMARY OF FINDINGS

This section presents all the main findings obtained from this chapter. Therefore, it reports the
main findings on patronage habits, the constructs, construct validity, hypotheses testing and
structural equation modelling.

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5.15.1 Main findings on the demographic profile and patronage habits of retail bank
respondents

Sections A and B of the questionnaire were designed to obtain the demographic profiles and
patronage habits of retail bank respondents. Consequently, this section acquired information on
the year in which the respondent was born, gender, ethnicity, education level and employment
status. Furthermore, the section acquired information on respondents’ main retail bank and
duration with the bank. Table 5-18 presents the main findings derived from the descriptive results
of sections A and B of the questionnaire (i.e., demographic profile and patronage habits).

Table 5-18: Main findings on demographic profile and patronage habits

Section A: Demographic profile

Main finding 1 The majority of respondents are females of the ages 21 and 25 years old,
and either white or black. Also, the majority of the respondents completed
matric or have a university degree, and more than half of the respondents
are full-time employed.
Section B: Patronage habits
Main finding 2 The majority of the respondents hold their personal accounts (or most of
their personal accounts) at Standard bank.
Main finding 3 The majority of the respondents have been with their respective retail
banks for 5 to 10 years.

5.15.2 Main findings on the constructs

This section provides the main findings from section C of the questionnaire, which measured the
constructs of the study. Subsequently, the main findings pertaining to the descriptives, CFA,
hypotheses results and structural equation model are presented in Table 5-19.

Table 5-19: Main findings on the constructs

Section C: Service quality

Main finding 4 With regard to the reliability dimension of service quality, respondents
agreed most with the statement that the staff should keep the promises they
make.
Main finding 5 In terms of the responsiveness dimension of service quality, respondents
agreed most with the statement that the staff should constantly keep
customers informed about their queries.
Main finding 6 With regard to the assurance dimension of service quality, respondents
agreed most with the statement that the staff should have the knowledge
and the know-how of bank processes and policies to deal with their queries
and concerns.

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Table 5-19: Main findings on the constructs (cont.)

Section C: Service quality

Main finding 7 With reference to the empathy dimension of service quality, respondents
agreed most with the statement that the bank should have operating hours
that are convenient to them.
Main finding 8 With regard to the tangibles dimension of service quality, respondents
agreed most with the statement that the bank’s branch layout should be
clearly demarcated and easy to understand.
Main finding 9 As far as overall service quality perceptions are concerned, respondents
agreed most with the statements of the tangible dimension.
Main finding 10 With regard to overall service quality perceptions, respondents agreed least
with the statements related to the responsiveness dimension.
Main finding 22 The CFA confirmed reliability as one factor, thus confirming the validity of
the scale measuring respondents’ perceptions of the reliability of their retail
banks.
Main finding 23 The CFA confirmed responsiveness as one factor, thus confirming the
validity of the scale measuring respondents’ perceptions of the
responsiveness of their retail banks.
Main finding 24 The CFA confirmed assurance as one factor, thus confirming the validity of
the scale measuring respondents’ perceptions of the assurance of their retail
banks.
Main finding 25 The CFA confirmed empathy as one factor, thus confirming the validity of
the scale measuring respondents’ perceptions of the empathy of their retail
banks.
Main finding 26 The CFA confirmed tangibles as one factor, thus confirming the validity of
the scale measuring respondents’ perceptions of the tangibles of their retail
banks.
Section C: Trust
Main finding 11 With regard to respondents’ trust in their retail bank, respondents agreed the
most with the statement about their banks’ concern with the security of
banking transactions.
Main finding 12 In terms of respondents’ trust in their retail bank, they agreed the least with
the statement on the reliability of their banks’ promises.
Main finding 13 Overall, respondents indicated a high level of trust in their retail banks.
Main finding 27 The CFA confirmed trust as one factor, thus confirming the validity of the
scale measuring respondents’ trust in their retail banks.
Section C: Switching cost
Main finding 14 With regards to switching costs, respondents agreed the most with the
statement that they like the image (brand) of their bank.
Main finding 15 In terms of switching costs, respondents agreed the least with the
statement that switching to another bank could cause hidden
(unpredictable) costs.
Main finding 28 The CFA confirmed switching costs as one factor, thus confirming the validity
of the scale measuring respondents’ switching costs towards their retail
banks.

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Table 5-19: Main findings on the constructs (cont.)

Section C: Satisfaction
Main finding 16 With regards to satisfaction, respondents agreed the most with the
statement that they are satisfied with the services they receive from their
bank.
Main finding 17 In terms of satisfaction, respondents agreed the least with the statement
that their banks’ services meet their expectations.
Main finding 18 Overall, respondents indicated that they are generally satisfied by their
retail banks.
Main finding 29 The CFA confirmed satisfaction as one factor, thus confirming the validity of
the scale measuring respondents’ satisfaction with their retail banks.
Section C: Loyalty
Main finding 19 With regards to loyalty, respondents agreed the most with the statement
that they intend to continue doing business with their banks in the next few
years.
Main finding 20 In terms of loyalty, respondents agreed the least with the statement that
they encourage friends and/or relatives to do business with their banks.
Main finding 21 Overall, respondents indicated that they are generally loyal towards their
retail banks.
Main finding 30 The CFA confirmed loyalty as one factor, thus confirming the validity of the
scale measuring respondents’ loyalty towards their retail banks.
Section C: Service quality, trust, switching cost, satisfaction, loyalty
Main finding 31 The constructs of this study (i.e., service quality, trust, switching costs,
satisfaction and loyalty) indicate reliability, with Cronbach alpha values
exceeding 0.70.
Main finding 32 Respondents of different age groups do not differ statistically significantly
from each other in terms of their service quality perceptions, trust, switching
costs, satisfaction or loyalty towards their retail banks.
Main finding 33 Male and female respondents do not differ statistically significantly from each
other in terms of their service quality perceptions, trust, switching costs,
satisfaction, or loyalty towards their retail banks.
Main finding 34 Respondents with different levels of education do not differ statistically
significantly in terms of their service quality perceptions, trust, switching
costs, satisfaction or loyalty towards their retail banks.
Main finding 35 Respondents of different ethnic groups only differ statistically significantly in
terms of their service quality perceptions, trust, satisfaction or loyalty towards
their retail banks.
Main finding 36 Respondents with different employment levels do not differ statistically
significantly in terms of their service quality perceptions, trust, switching
costs, satisfaction, or loyalty towards their retail banks.
Main finding 37 Respondents of different banks only differ statistically significantly in terms
of their service quality perceptions, trust, satisfaction and loyalty towards
their retail bank.
Main finding 38 Respondents who have been with their retail banks for different durations
only differ statistically significantly in terms of their trust, satisfaction and
loyalty towards their retail bank.

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Table 5-19: Main findings on the constructs (cont.)

Section C: Service quality, trust, switching cost, satisfaction, loyalty

Main finding 39 Service quality perceptions have a significant positive effect on satisfaction.
Main finding 40 Trust has a significant positive effect on satisfaction.
Main finding 41 Switching costs have a significant positive effect on satisfaction.
Main finding 42 Satisfaction has a significant positive effect on loyalty.
Main finding 43 Service quality and trust correlate with each other.
Main finding 44 Service quality and switching costs correlate with each other.
Main finding 45 Trust and switching costs correlate with each other.
Main finding 46 Service quality, trust and switching costs lead to satisfaction, which in turn
leads to loyalty.

5.16 CONCLUSION

This chapter presented the results and main findings of this study. To begin with, the chapter
provided the sample realisation rate, followed by a presentation of the sample profile and
patronage habits. The reliability of the constructs were determined by means of Cronbach alpha
coefficients, and validity was determined by means of confirmatory factor analyses. The
distribution of data was assessed, and the hypotheses were tested by means of ANOVAS,
independent samples t-tests and structural equation modelling. To conclude, the chapter provided
a summary of the main findings pertinent to the study. The next chapter provides a conclusion of
this study. Accordingly, conclusions, limitations and recommendations of this study are given.

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CONCLUSIONS AND RECOMMENDATIONS

6.1 INTRODUCTION

This chapter serves as an overall conclusion to the study. Accordingly, an overview of the
previous chapters is provided. The chapter further presents conclusions and provides
recommendations based on the main findings from Chapter 5 and the secondary research
objectives of the study. This chapter also provides an outline of the links between the research
objectives of the study, the questions formulated in the questionnaire, the tested hypotheses, the
main findings, the conclusions, and the recommendations. Limitations of the study are also
discussed in this chapter, and finally, a number of suggestions for future research are made.

6.2 OVERVIEW OF THE STUDY

The South African retail banking industry is experiencing fast and irrevocable changes, including
demographic shifts, changes in the nature of customers, technological trends and regulatory
requirements (KPMG, 2013:4; PWC, 2013:26; Slater, 2014). These changes contribute towards
increasing levels of competition in this industry. As a result of these changes and challenges,
South African retail banks work towards differentiating themselves by means of offering different
fees, varying interest rates on loans and deposits, different lending limits, changes in notice
periods for withdrawing, improved customer convenience, as well as the general quality and range
of product and service offerings (MarketLine, 2015:13). These factors, along with customer
service, reputation and security against fraud, significantly influence customers’ loyalty.

As explained in Chapter 1, however, customer attrition in South African retail banks has increased
from 34% to 39%, with 13% of customers considering moving to other banks (BusinessTech,
2015b; Ernst & Young, 2012). According to SAcsi (South African customer satisfaction index,
2015), customers are more likely to switch from one bank to another if they are dissatisfied with
products or services. This form of behaviour poses a challenge to banks in terms of the loyalty of
their customers. In addition, Rootman and Cupp (2016:283) note that it is not difficult for
customers to switch banks due to the high concentration of banks in South Africa; however,
customers experience switching costs when they switch banks (Bhattacharya, 2013:102).

Considering the switching of customers between banks, increasing customer attrition and
increase in the use of loyalty programmes to ensure that customers are not tempted to switch
banks, it is important to study and observe those aspects (from a relationship marketing

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perspective) that might potentially predict customer loyalty in South African retail banks. This is
important because relationship marketing is regarded as the foundation for reinforcing
relationships and maintaining customer loyalty (Lo, 2012:92). Gilaninia et al. (2011:508) and
Talgehani et al. (2011:155) posit that relationship marketing has proven to be an invaluable tactic
in the banking industry to create distinct and long-term relationships with customers in order to
gain insights about customers and their satisfaction.

The results, findings and recommendations from this study could assist the South African retail
banking industry to identify those aspects that need to be addressed in order to manage customer
relationships effectively and to keep customers, in this manner increasing customer loyalty and
reducing the number of customer who switch banks.

Therefore, the primary objective of the study (see section 1.4.1) was to determine predictors of
customer loyalty, including service quality, trust, switching costs, and satisfaction, in South African
retail banks. By determining these factors, the researcher was able to gain insights into
respondents’ perceptions of service quality, trust, their switching cost perceptions, satisfaction
and loyalty levels towards their retail banks (specifically Absa, Capitec, FNB, Nedbank and
Standard bank).

In order to address the primary objective, the following secondary objectives were formulated (see
section 1.4.2), namely to:

1) Compile a demographic profile of respondents.

2) Determine the retail banking habits of respondents.
3) Determine respondents’ perceptions of the service quality of their banks.
4) Determine respondents’ trust towards their banks.
5) Determine respondents’ perceptions of the cost of switching between banks.
6) Determine respondents’ levels of satisfaction with their banks.
7) Determine respondents’ loyalty towards their banks.
8) Determine whether significant differences exist between different groups of retail banking
customers in terms of each of the above constructs.
9) Determine the interrelationship between service quality, trust, switching costs, satisfaction
and loyalty in South African retail banks (as presented in the conceptual model).

Chapter 2 presented a literature survey on the concept of relationship marketing, since the study
and implementation of relationship marketing is generally accepted as the best way to focus
effectively on the customer and to realise long-term relationships (i.e., loyalty) (Lo, 2012:92).
According to Ibok and Akaninyene (2014:97), relationship marketing encompasses building and

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maintaining relationships. Cosic and Djuric (2010:54) posit that the purpose of relationship
marketing is to provide long-term value to customers, and to ensure the long-term satisfaction of
customers. As indicated by Rahman and Masoom (2012:98), relationship marketing can help to
establish influential relationships with customers and with other businesses that would in turn help
to achieve a competitive edge. Therefore, by building and maintaining strong relationships with
customers, businesses obtain useful information for marketing intelligence to create marketing
tactics tailored to the relevant target market (Gaurav & Khan, 2013:47).

In section 2.11 of this study, some of the main advantages of implementing a relationship
marketing approach were highlighted, including:

 Customer loyalty (Gaurav & Khan, 2013:47).

 Higher profitability (Bazini et al., 2011:159).
 Existing customers freely advertise (Bahri et al., 2013:46).
 Customers can be involved in product development (Sonkova & Grabowska, 2015:205).
 Special treatment benefits to customers (Morgan et al., 2015:33).
 Interactive communication (Buhler & Nufer, 2012:40).
 Establishing a competitive advantage (Rahman & Masoom, 2012:98).

In addition, section 2.7 explained that, in order to realise an integrated relationship marketing
approach, several factors should be considered as potential drivers of relationship marketing,
including:

 Service quality;
 Trust;
 Switching cost;
 Satisfaction, and
 Loyalty.

Chapter 3 provided a detailed discussion of salient constructs used in the study, namely service
quality, trust, switching costs, satisfaction and loyalty, which were identified as important drivers
of relationship marketing (section 2.7) in the retail banking industry.

Service quality was defined (in section 3.3.2) as customers’ perceptions of the service actually
received from a service provider or business. According to Agyapong (2011:204), service quality
is generally regarded as a critical requirement and contributing factor of competitiveness for
creating and sustaining satisfying relationships with customers. Service quality consists of five

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dimensions, namely reliability, responsiveness, assurance, empathy and tangibles (Cronin &
Taylor, 1992; Parasuraman et al., 1988).

Trust was defined (in section 3.4.1) as the willingness of one exchange partner to depend on and
believe in the ability of another partner to meet or fulfil his or her needs in a transaction. According
to Dalhstrom et al. (2014:269), trust is critical in the banking industry considering the financial
transactions that implicate risk. Nguyen et al. (2013:96) further note that trust affects customers’
decisions on whether to pursue or terminate a relationship with a business.

Switching costs were defined (in section 3.5.1) as costs that customers incur as a result of ending
transactions with a certain business and switching to another business to begin new transactions
and relationships. According to Blut et al. (2015:82), managers make efforts in putting measures
in place that intensify switching costs with the perception that these activities will strengthen
customer relationships. In addition, from a customer’s perspective, it may not be worth switching
because a customer may risk not being satisfied suitably elsewhere (Sahin & Kitapci, 2013:910).

Satisfaction was defined (in section 3.6.1) as the customer’s sense of fulfilment from a product or
service received. Arokiasamy (2013:15) posit that businesses have to acquire knowledge on how
to retain customers even if they seem to be satisfied. Satisfied customers are the cornerstone of
any successful business because customer satisfaction results in repeat buying, brand loyalty,
and positive word-of-mouth (Angelova & Zekiri, 2011:233).

Loyalty was defined (in section 3.7.1) as a customer’s desire to continue patronising a specific
business regardless of other offerings available from competing businesses; in other words,
repeat purchases over time from that specific business. Chakiso (2015:58) adds that loyal
customers usually create more stable relationships with a business as compared to non-loyal
customers. According to Madjid (2013:49), in order to establish long-term loyalty amongst
customers, customers need to be satisfied.

Chapter 4 focused on the research methodology used in this study. In order to achieve the
research objectives, primary research was conducted. Consequently, the study followed a
descriptive research approach where a self-administered questionnaire was distributed among
customers of South African retail bank (Absa, Capitec, FNB, Nedbank and Standard bank) in
Gauteng Province who have been with their bank for a period of two or more years. The fieldwork
was conducted by five [Link]. Honours (Marketing Management) students from the North-West
University (Potchefstroom Campus) who had marketing research as a 3rd year subject (at the time
of data collection, they were busy with Marketing research as an honours subject).

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A convenience sample was drawn from 500 retail bank respondents from the Gauteng Province.
After primary data capturing and data cleaning, the sample realisation rate (see section 5.2) was
92.6% with 463 respondents. The data was analysed using SPSS (version 23). Statistical
analyses included frequencies, percentages, means, standard deviations, Cronbach alpha
values, CFAs, ANOVAS, independent samples t-tests, and structural equation modelling (see
sections 5.4 to 5.14). The conclusions drawn from the main findings and recommendations for
each secondary objective are presented in the following sections.

6.3 CONCLUSIONS AND RECOMMENDATIONS FOR SECONDARY OBJECTIVES

This section presents a number of conclusions drawn the research objectives and the empirical
results presented in Chapter 5. Furthermore, the section proposes recommendations pertinent to
each secondary research objective formulated and presented (section 1.4.2.).

6.3.1 Secondary objective 1

Compile a demographic profile of respondents.

Armstrong and Kotler (2013:156) note that customers worldwide differ in terms of their age,
income, education level, tastes and preferences. Therefore, a demographic profile was compiled
of the respondents who participated in the study, thus achieving secondary objective 1. The
demographic profile of respondents can be concluded as follows:

The majority of respondents were either black or white females, aged 21 to 25 years old. Most
respondents had completed matric or held a university degree, and more than half of the
respondents were full-time employed.

Recommendation 1: The sample profile can be considered as an indication of the banks’

customer base, and therefore banks should note that their customer base could be relatively
young (aged 21 to 25), and accordingly adapt their marketing strategies to address this age group.

Recommendation 2: Most respondents had completed matric or held a university degree.

Therefore, banks could implement marketing strategies that are targeted at educated and
informed people.

6.3.2 Secondary objective 2

Determine the retail banking habits of respondents.

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Since the focus of this study was to obtain information on and feedback from retail bank
customers, it was deemed important to determine which banks respondents are using. In addition,
the duration that respondents have been with their banks was also determined, since the study
also aimed to determine respondents’ loyalty levels. According to Bose and Rao (2011:546),
loyalty programmes have the objective of attaining loyalty over time and not with a single
transaction, which implies that loyalty is generally attained over the long term. This fact meant
that it was necessary to obtain a clear indication of the duration that respondents have had a
relationship with their banks. Based on the empirical results (in section 5.4), the following
conclusions are drawn:

Conclusion 1: Most respondents hold their personal account(s) at Standard bank, which is in
line with the proposed sample size and demarcation of the target population.

Conclusion 2: The majority of the respondents have been with their respective retail banks for 5
to 10 years.

Recommendation 3: Since the majority of customers have been with their retail banks for 5 to
10 years, retail banks should work towards keeping these customers even longer by establishing
more intimate relationships with these customers and meeting their customised needs.

6.3.3 Secondary objective 3

Determine respondents’ perceptions of the service quality of their banks.

As discussed in Chapter 3, service quality is a critical success factor for businesses to distinguish
themselves from rivals (Lau et al., 2013:265). Vennila (2014:44) posits that, in a competitive
environment, customers are progressively knowledgeable of substitutes to services and service
providers, and as a result, customers’ expectations increase and they become more critical of the
quality of related services. High levels of perceived service quality tend to encourage customers
to purchase and repurchase a particular brand or the set of products and brands offered by a
business (Fragata & Munoz-Gallego, 2010:154). Therefore, as postulated by Armstrong and
Kotler (2013:241), a service business can distinguish itself by delivering continuously higher
levels of quality in comparison to rivals. Cronin and Taylor (1992) developed a SERVPERF model,
based on the initial SERVQUAL model of Parasuraman et al. (1988), to measure service quality.
This model consists of the following dimensions:

 The Reliability dimension comprises the capability of offering committed services in a

complete and reliable way (Karimi et al., 2011:11).

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 Tangibles can be referred to as the presentation of physical facilities, equipment,

employees and communication materials in the service procedure (Yunus et al., 2013:334).
 Responsiveness refers to the enthusiasm of employees to assist customers, to provide
speedy service and the ability to respond to individual customers’ needs. This also means
taking care when providing services to the customer in the appropriate time (Grubor et al.,
2009:278).
 Assurance is the ability of a service provider to stimulate trust and confidence in the
business through the knowledge, politeness and honesty of the employees (Culiberg &
Rojsek, 2010:152).
 Empathy comprises the contact with customers, communication with customers and
understanding of customers, which implies personalised attention to customers. It involves
providing customers with personalised attention and requires employees to be aware of the
needs of their customers as well as offering appropriate business hours (Saghier & Nathan,
2013:4).

Main findings 4, 5, 6, 7, 8, 9, 10, 22, 23, 24, 25, 26 and 31 were formulated to address secondary
objective 3. The Cronbach alpha values and CFA confirmed the validity and reliability of the
SERVPERF model for measuring service quality within the retail banking industry.

Conclusion 3: The Cronbach alpha values and CFA confirmed the validity and reliability of the
SERVPERF measurement scale used to measure service quality in the South African retail bank
industry.

Conclusion 4: Respondents indicated that, to improve their perceptions of their banks’ reliability,
it is most important to them that the staff of their retail banks keep the promises they make.

Conclusion 5: Respondents indicated that in order to improve their perceptions of their banks’
responsiveness, the most important aspect is that the staff should constantly keep customers
informed about their queries.

Conclusion 6: Respondents indicated that, with a view to better their perceptions of their banks’
assurance, it is important to them that the staff should have the necessary knowledge and the
know-how of bank processes and policies to deal with their queries and concerns.

Conclusion 7: Respondents indicated that their perceptions of their banks’ empathy can be
improved if banks have operating hours that are convenient to them.

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Conclusion 8: Respondents indicated that, to improve their perceptions of their banks’ tangibles,
it is important to them that the bank’s branch layout should be clearly demarcated and easy to
understand.

Conclusion 9: On overall service quality, respondents indicated that they perceive their banks
not to be really responsive in delivering their services.

Recommendation 4: South African retail banks can consider measuring the quality of their
services by means of the SERVPERF measurement scale.

Recommendation 5: Retail banks can improve the reliability dimension by:

 Keeping the promises made to customers.

 Avoid making exaggerated promises which cannot be met.
 Providing enough training to the staff to equip them in terms of performing and fulfilling
promises made to customers.
 Offering rewards to best performing staff to stimulate the delivery of good customer service.
 Designing a service rating system to continuously identify where there is need for
improvement.

Recommendation 6: Retail banks can enhance the responsiveness dimension by:

 Continuously updating customers on the progress of their queries.

 Increasing the number of staff during projected days where there are more customers
visiting the bank to ensure prompt and quick service.
 Communicating and informing customers to expect delays in cases where there are many
customers to be served.
 The bank manager should have the overall responsibility to ensure that the staff are
performing their duties appropriately.
 Implementing a customer-centric process in the retail banks.

Recommendation 7: Retail banks can improve the assurance dimension by:

 Providing staff with the necessary skills and expertise in order to be knowledgeable of the
bank processes and when dealing with customers’ queries and concerns.
 Improving bank staff’s interpersonal and communication skills.
 Ensuring that the staff make customers feel confident when dealing with them.

Recommendation 8: Retail banks can improve the empathy dimension by:

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 Increasing their banking hours to ensure convenient banking hours to customers.

 Providing an individualised and customised customer interface.
 Ensuring that the bank staff are asking all the important questions to the customers in order
for them to understand customers’ needs.
 The bank staff should express that they have the customers’ interest at heart.
 Improving the staff’s interpersonal and communication skills.

Recommendation 9: Retail banks can improve the tangibles dimension by:

 Ensuring that the bank’s branch layout is clearly demarcated and easy to understand for
the customer.
 Continually ensuring that customers can access all important areas in the bank easily.
 Ensuring that the staff are ready to assist customers with directions of where they intend to
go into the bank.

Recommendation 10: Banks could also embark on customer follow-ups after service delivery to
obtain continuous feedback and input from customers to ensure that quality services are
consistently provided to all customers.

Recommendation 11: Banks can encourage customers to participate in value co-creation in

order to develop better ways of improving overall service quality.

6.3.4 Secondary objective 4

Determine respondents’ trust towards their bank.

As discussed in Chapter 3, Utami (2015:640) believes that trust between a business and a
customer makes it easier to nurture interactive relationships. Trust consists of affective trust,
which is the self-assurance one places in a partner based on feelings created by the level of care
and concern the partner shows (Hanzaee & Norouzi, 2012:4998), and cognitive trust, which
entails individuals who are looking for a rational motive to depend on the other party (Trif,
2013:113). Damtew and Pagidimarri, (2013:85) posit that, in building trust, customers need to see
things in the business such as the business’ ability to deliver on promises, the business’ equal
handling of customers, and the trustworthiness and authenticity of business employees, and
management of the business as a whole. A customer who trusts a business is more likely to
continue with his or her interaction with the business (Baharvand, 2015:254). This implies that the
betrayal of trust results in the interruption of the relationship, which has a negative effect on the
sustainability and profitability of the business (Lendel & Varmus, 2015:69).

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Main findings 11, 12, 13, 27 and 31 address secondary objective 4. The Cronbach alpha values
and CFA confirmed the validity and reliability of the trust dimension in measuring trust within the
retail banking industry.

Conclusion 10: The Cronbach alpha values and CFA confirmed the validity and reliability of the
trust dimension in this study in determining respondents’ level of trust towards their banks.

Conclusion 11: Respondents indicated that, to improve their trust towards their banks, it is most
important to them that the staff should make reliable promises.

Recommendation 12: South African retail banks can consider measuring trust by means of the
trust measurement scale.

Recommendation 13: Retail banks can improve trust by:

 Ensuring that promises made to the customers are delivered appropriately.

 Ensuring that the bank staff consistently deliver quality services.
 In cases of failure to fulfil promises made, they need to establish communication between
the bank and the customer to apologise to the customer.

6.3.5 Secondary objective 5

Determine respondents’ perceived costs of switching between banks.

As explained in Chapter 3, in various markets, customers experience switching costs when they
switch from one product to another in the similar category, or when they change suppliers
(Bhattacharya, 2013:102). According to Oyeniyi and Abiodun (2009:112), switching costs are
costs experienced by customers for terminating a relationship and starting a new one. Switching
costs can be categorised into financial costs, procedural switching costs and relational switching
costs (Burnham et al., 2003:112). Ting (2014:314) indicates that financial switching costs include
benefit loss cost and monetary loss cost. Procedural costs refer to the time and effort involved
when the customer switches from one business to another (Haj-Salem & Chebat, 2013:1107) and
these are further categorised into risk cost, evaluation cost, learning cost and setup cost (Schutle,
2015:55). Blut et al. (2015b:83) explain that relational switching costs involve the loss of
identification and emotional ties with both the previous service provider and any employees with
whom the customer has worked. Schulte (2015:56) add that relational costs comprise of personal
relationship and relationship facets. According to Chebat et al. (2010:79), switching costs create
barriers that prevent customers from switching to other businesses.

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Matzler et al. (2014:120) explain that customers’ decision to stay with a business depends on how
he or she evaluates the related switching costs. Therefore, if customers perceive the costs
involved in switching to another business to be higher than the potential benefits that might be
obtained, they will be more likely to remain with the current business.

Main findings 14, 15, 28 and 31 address secondary objective 5. The Cronbach alpha values and
CFA confirmed the validity and reliability of the switching cost items as a measure of respondents’
switching cost perceptions within the retail banking industry.

Conclusion 12: The Cronbach alpha values and CFA confirmed the validity and reliability of the
switching cost items as a measure of respondents’ switching cost perceptions in this study, hence
the switching cost items identified can also be used to measure switching cost perceptions within
the retail banking industry.

Conclusion 13: Respondents indicated that, to improve their perceptions of their banks’ switching
costs, it is important to them that the staff should indicate all hidden costs during the process of
switching from one bank to another.

Recommendation 14: South African retail banks can consider measuring switching cost by
means of the switching cost measurement scale.

Recommendation 15: Retail banks can improve switching cost perceptions by informing
customers beforehand of all the costs involved when considering to switch from one bank to
another.

6.3.6 Secondary objective 6

Determine respondents’ levels of satisfaction with their banks.

Chapter 3 discussed satisfaction and highlighted that acquiring information on the satisfaction
levels and specifically the antecedents of satisfaction will benefit industries, thus enabling them
to concentrate and build upon main areas that lead to highly satisfied customers (Alhemoud,
2010:334). According to Ganiyu et al. (2012:16) and Matos et al. (2013:527), customer
satisfaction may be transaction-specific satisfaction or overall satisfaction. Transaction-specific
satisfaction is the satisfaction that emerges from a one-time transaction (Sunder, 2011:43) while
overall satisfaction is the customer’s total subjective after-consumption evaluative judgement
based on all interactions and experiences with a business (Bello, 2012:25). According to Lee and
Moghavvemi (2015:96), meeting or exceeding the customer’s expectation assures satisfaction.

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Consequently, a contrast between expectations and perceptions will result in either confirmation
or disconfirmation, where confirmation occurs when product or service perceptions precisely meet
expectations, and disconfirmation will occur due to perceptions being lower than expectations
(Siddiqui, 2012:4135). Sharifi and Esfidani (2014:561) opine that, customer satisfaction stimulates
future repurchase intentions and increases purchasing rate. Furthermore, Madjid (2013:49)
postulates that customer satisfaction can result in customer loyalty.

Secondary objective 6 is addressed by main findings 16, 17, 18, 29 and 31. The CFA and
Cronbach alpha values confirmed the validity and reliability of the satisfaction items as a measure
of customers’ satisfaction levels within the retail banking industry.

Conclusion 14: The CFA and Cronbach alpha values confirmed the validity and reliability of the
satisfaction items as a measure of respondents’ satisfaction levels in this study, and therefore the
satisfaction items that have been identified can also be used to measure satisfaction levels within
the retail banking industry.

Conclusion 15: Respondents indicated that, to improve their satisfaction towards the banks, the
banks’ services should meet their expectations.

Recommendation 16: South African retail banks can consider measuring satisfaction by means
of the satisfaction measurement scale.

Recommendation 17: Retail banks can improve satisfaction in order to meet customers’
expectations by:

 Not overpromising customers on what they should expect from during their service delivery.
Therefore, realistic expectations should be set.
 Ensuring that staff is well-equipped to satisfy customers’ needs.
 Striving to exceed customers’ expectations.
 Ensuring that promises are kept and apologising to customers in cases of failure.
 Surprise and delight customers.
 Delivering the best service quality and offering value for money.
 The bank staff should develop interpersonal and communication skills to deal with
customers to ensure that they feel satisfied.
 Banks should maintain consistent service delivery to customers to ensure continuous
satisfaction and good customer experiences.

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6.3.7 Secondary objective 7

Determine respondents’ loyalty towards their banks.

Chapter 3 indicated that cultivating loyalty and keeping customers are vital for every business
(Jaiswal & Niraj, 2011:165). Sidiqqi (2011:17) suggests that loyalty is built through methods that
strengthen bonds and create a positive mind-set. Two distinct loyalty notions emerged, namely
behavioural and attitudinal loyalty (Dehghan & Shahin, 2011:3). According to Cheng (2011:150),
behavioural loyalty aims to change customer loyalty into actual purchase behaviours, while
attitudinal loyalty entails customers communicating positively about the business (word-of-mouth)
and establishing a positive business image. As explained by Bose and Rao (2011:545),
customers remain loyal to a business if they feel that the business offers them better services or
products than another business. Therefore, as postulated by West et al. (2015), having loyal
customers means customers can contribute by means of suggestions on improvements. This is
a form of value co-creation since customers now understand the business’ processes and this
can assist in research and development. Furthermore, sales records of a business can improve
positively if customers remain loyal to them (Bagram & Khan, 2012:2).

Secondary objective 7 was addressed by main findings 19, 20, 21, 30 and 31. The CFA and
Cronbach alpha values confirmed the validity and reliability of the loyalty items as a measure of
customers’ loyalty levels within the retail banking industry.

Conclusion 16: The CFA and Cronbach alpha value confirmed the validity and reliability of the
loyalty items as a measure of respondents’ loyalty levels in this study, and therefore the loyalty
items identified can also be used to measure customers’ loyalty levels within the retail banking
industry.

Conclusion 17: Respondents indicated that their willingness to encourage friends and/or
relatives to do business with their banks is relatively low.

Recommendation 18: South African banks can consider measuring loyalty by means of the
loyalty measurement scale.

Recommendation 19: Retail banks can stimulate customers to encourage friends and/or
relatives to do business with their banks by:

 Satisfying and exceeding the expectations of existing customers, to encourage word-of-

mouth communications.

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 Directly appealing to customers to be brand ambassadors and encourage others to do

business with their banks.
 Offering competitive offerings which will prompt customers to encourage friends and/or
relatives to do business with their banks.
 Offering rewards to customers for successful referrals.
 Delivering the best service quality, value and a good customer experience.

6.3.8 Secondary objective 8

Determine whether significant differences exist between different groups of retail

banking customers in terms of each of the above constructs.

The purpose of secondary objective 8 was to determine whether the service quality and switching
cost perceptions, trust, satisfaction and loyalty levels are different among the different customers
of the main South African retail banks (Absa, Capitec, FNB, Nedbank and Standard bank) in terms
of age, gender, ethnicity, education level, employment status, type of bank and duration with the
bank. Therefore, hypotheses were formulated and tested by means of parametric tests
(independent samples t-tests and ANOVAs – see section [Link]) with the aim of determining if
statistically and practically significant differences exist. Consequently, secondary objective 8 is
associated with main findings 32, 33, 34, 35, 36, 37, 38. The differences between different groups
of retail banking customers with regards to service quality, trust, switching cost, satisfaction and
loyalty are subsequently discussed.

[Link] Service quality

To determine whether differences exist between different groups of retail banking customers in
terms of service quality, respondents’ perceptions were determined on the aspects age, gender,
ethnicity, education level, employment status, type of bank and duration with the bank. No
statistically significant differences were found with regards to age, gender, education level,
employment status and duration with the bank. Statistically significant differences were found
between respondents of different ethnicities and respondents banking with different banks, but
the differences were too small to indicate practical significance.

Conclusion 18: The perceptions of different groups of retail banking respondents (based on age,
gender, ethnicity, education level, employment status, type of bank and duration with the bank)
regarding service quality do not differ practically significantly. Therefore, indicating that all
respondents generally have the same perceptions of the service quality of their retail banks.

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Recommendation 20: Considering that all respondents indicated similar service quality
perceptions, retail banks should aim to establish and maintain the same level of service quality
for all customers across all demographic and psychographic dimensions.

Recommendation 21: Retail banks can improve overall service quality by:

 Training bank staff on delivering the best service.

 Effectively communicating with the customers.
 Actively listening to customers’ needs.
 Having convenient operating hours.
 Delivering on the promises made.
 Improving their interpersonal skills to deal effectively with customers.
 Keeping customers informed on the progress of their queries.
 Undertaking internal marketing to motivate and empower staff to deliver exceptional
services.
 Encouraging customers to participate in value co-creation in order to identify better ways of
improving service quality.
 Implementing a customer-centric process.

[Link] Trust

In order to determine whether differences exist between different groups of retail banking
customers in terms of trust, respondents’ levels of trust were determined based on age, gender,
ethnicity, education level, employment status, type of bank and duration with the bank. No
statistically significant differences were found with regards to age, gender, education level, and
employment status. Statistically significant differences were found between respondents of
different ethnicities, respondents of different banks, and respondents with different duration with
the bank. However, these differences were too small to indicate practical significance.

Conclusion 19: The different groups of retail banking respondents (based on age, gender,
ethnicity, education level, employment status, type of bank and duration with the bank) do not
differ practically significantly in terms of their trust towards their retail bank. This finding indicates
that all respondents generally have the same level of trust in their retail banks.

Recommendation 22: Considering that all respondents indicated that they have similar levels of
trust, retail banks should aim to establish and maintain the same level of trust for all customers
across all demographic and psychographic dimensions.

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 Chapter 6: Conclusions and recommendations

Recommendation 23: Retail banks can improve customers’ trust towards them by:

 Ensuring that promises align with the promises made.

 Having direct contact with customers.
 Ensuring secure transactions with customers.
 Providing consistent quality of services to customers.

[Link] Switching cost

In order to determine whether differences exist between different groups of retail banking
customers in terms of switching cost, respondents’ perceptions were determined on the aspects
of age, gender, ethnicity, education level, employment status, type of bank and duration with the
bank. No statistically significant differences were found with regards to age, gender, ethnicity,
education level, employment status, type of bank and duration with the bank.

Conclusion 20: The perceptions of different groups of retail banking respondents (based on age,
gender, ethnicity, education level, employment status, type of bank and duration with the bank)
regarding switching cost do not differ practically significantly. This finding means that the
respondents have similar perceptions of switching costs.

Recommendation 24: Considering that the respondents indicated that they have similar
switching cost perceptions, retail banks should aim to establish and maintain the same level of
perceptions on switching cost for all customers across all demographic and psychographic
dimensions.

Recommendation 25: Retail banks can improve switching cost perceptions by ensuring that they
inform customers beforehand about all the potential costs involved when switching from one bank
to another.

[Link] Satisfaction

In order to determine whether differences exist between different groups of retail banking
customers in terms of satisfaction, respondents’ levels of satisfaction were determined based on
age, gender, ethnicity, education level, employment status, type of bank and duration with the
bank. However, no statistically significant differences were found with regards to age, gender,
education level, and employment status. Statistically significant differences were found between
respondents of different ethnicities, respondents of different banks, and respondents with different
duration with the bank. However, the differences were too small to indicate practical significance.

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 Chapter 6: Conclusions and recommendations

Conclusion 21: The different groups of retail banking respondents (based on age, gender,
ethnicity, education level, employment status, type of bank and duration with the bank) do not
differ practically significantly in terms of their satisfaction towards their retail bank. Therefore, all
respondents have similar levels of satisfaction with their retail banks.

Recommendation 26: Considering that all respondents indicated that they generally have the
same level of satisfaction, retail banks should aim to establish and maintain the same level of
satisfaction for all customers across all demographic and psychographic dimensions.

Recommendation 27: Retail banks can improve satisfaction by:

 Ensuring that they offer competitive offerings and exceptional services as provided by other
retail banks to ensure that their customers are satisfied at the same level as other customers
served by other banks.
 Striving to meet or even exceed customers’ expectations.
 Ensuring all customer needs are met by communicating with customers and asking what
they require.
 Conducting internal marketing to motivate and empower staff to deliver exceptional
services.
 Treating customers fairly.
 Improving customer experience by actively listening and giving feedback to customers.
 Encouraging customers to participate in value co-creation in order to identify better ways of
satisfying their needs.
 Avoiding exaggerated promises that will increase customers’ expectations and lead to
disappointment and dissatisfaction.
 Implementing a customer-centric process in retail banks.

[Link] Loyalty

In order to determine whether differences exist between different groups of retail banking
customers in terms of loyalty, respondents’ level of loyalty was determined based on age, gender,
ethnicity, education level, employment status, type of bank and duration with the bank. However,
no statistically significant differences were found with regards to age, gender, education level,
and employment status. Statistically significant differences were found between respondents of
different ethnicities, respondents of different banks and respondents with different duration with
the bank. However, these differences were too small to indicate practical significance.

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 Chapter 6: Conclusions and recommendations

Conclusion 22: The different groups of retail banking respondents (based on age, gender,
ethnicity, education level, employment status, type of bank and duration with the bank) do not
differ practically significantly in terms of their loyalty towards their retail bank. Therefore, the
respondents generally have similar levels of loyalty towards their retail banks.

Recommendation 28: Considering that all respondents indicated that they generally have the
same level of loyalty, retail banks should aim to establish and maintain the same level of loyalty
for all customers across all demographic and psychographic dimensions.

Recommendation 29: Retail banks can improve loyalty by:

 Consistently satisfying the customers.

 Developing intimate relationships with customers.
 Delivering valued services to customers for their commitment to the banks.
 Continuously delivering competitive offerings to ensure that customers consider their retail
bank as their first preference on their financial concerns.
 Doing something that customers do not expect such as instant rewards.

6.3.9 Secondary objective 9

Determine the interrelationship between service quality, trust, switching costs,

satisfaction and loyalty in South African retail banks (as presented in the conceptual
model).

Chapter 1 indicated that retail banking customers are not as loyal as banks would want them to
be, since it is fairly easy to switch to different banks regardless of being satisfied. Indeed, a large
number of customers have shown intentions to leave their bank (see section 1.2). However,
relationship marketing has proven to be an invaluable tactic in the banking industry to create
intimate relationships with its customers in order to gain insights about customers and their
satisfaction, also in light of the intensifying competition in this sphere (Gilaninia et al., 2011:508).

Previous research (Al-Hersh et al., 2014; Gaurav & Khan, 2013:47; Matzler et al., 2014; Oogarah-
Hanuman & Ramnarain, 2013) identified service quality, trust, switching cost, satisfaction and
loyalty as basic components of relationship marketing. Relationship marketing has the objective
of long-term customer satisfaction (Cosic & Djuric, 2010:54) as it leads to loyalty (Madjid,
2013:49), thus indicating its practical importance.

Secondary objective 9 is addressed by main findings 39 to 46 and hypotheses H8, H9, H10, H11,
H12, H13 and H14 by conducting structural equation modelling. From main findings 39 to 41, it was

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 Chapter 6: Conclusions and recommendations

determined that respondents’ service quality perceptions, trust and switching cost perceptions
have a significant positive effect on their satisfaction with their retail banks. From main finding 42,
it was determined that respondents’ satisfaction with their retail banks has a positive effect on
their loyalty towards their retail banks. Main findings 43, 44 and 45 indicated that service quality,
trust and switching cost correlate positively with each other. Main finding 46 concluded that there
is indeed an interrelationship between service quality, trust and switching cost, which lead to
customer satisfaction, and subsequently resulting in loyalty. From these findings, a model (SEM)
for South African retail banks was compiled (see Figure 5-1).

Conclusion 23: Service quality positively affects satisfaction. Therefore, if retail banks are able
to provide high quality services, their customers will be more satisfied with their retail banks.

Conclusion 24: Trust positively affects satisfaction. Therefore, if retail banks can instil trust in
their customers regarding their products and services, their customers will be more satisfied with
their retail banks.

Conclusion 25: Switching cost positively affects satisfaction. Therefore, if retail banks keep their
customers informed about the switching costs involved in moving to a different bank, their
customers will be more satisfied their retail banks.

Conclusion 26: Satisfaction positively affects loyalty. Therefore, if retail banks are able to
continuously satisfy their customers – by meeting or exceeding customers’ expectations – their
customers will be more likely to remain loyal towards their retail banks.

Conclusion 27: Service quality and trust correlate positively with each other. This implies that if
retail banks provide better quality services, customers would consider their retail banks to be more
trustworthy. In the same manner, if retail banks are able to instil trust in their customers, customers
will perceive their retail bank to be delivering better services.

Conclusion 28: Service quality and switching cost correlate positively with each other. This
implies that if banks offer better quality services, customers would perceive the switching cost of
their retail banks to be higher. In the same vein, if retail banks’ switching costs are higher,
customers would perceive their retail banks to be delivering better quality services.

Conclusion 29: Trust and switching cost correlate positively with each other. Therefore, if retail
banks are more trustworthy, customers would perceive the switching cost of their retail banks to
be higher. If retail banks’ switching costs are higher, customers would consider their retail banks
to be more trustworthy.

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 Chapter 6: Conclusions and recommendations

Conclusion 30: Service quality, trust and switching cost lead to satisfaction, which in turn leads
to loyalty. Therefore, to encourage long-term and loyal relationships, retail banks need to satisfy
their customers by providing high quality services, promoting trust in relationships, and clearly
communicating switching costs.

Recommendation 30: Retail banks can use the model (see Figure 5-1) developed in this study
with the aim of improving customer loyalty towards the retail banks.

Recommendation 31: In order to attain overall loyalty, banks can focus on meeting or exceeding
customers’ satisfaction with the bank. Satisfaction can be achieved by establishing a trusting
relationship between customer and provider, providing consistent and high-quality services, and
making clear the costs involved in switching from one bank to another.

6.3.10 Summary of recommendations

In light of the above recommendations, it can be concluded that the measurement scales used
for measuring service quality, trust, switching cost, satisfaction and loyalty can be considered by
South African retail banks to measure those aspects. It is essential for retail banks to implement
marketing strategies that are targeted at educated and informed people. Noteworthy, retail banks
should aim to establish and maintain the same service quality and switching cost perceptions,
trust, satisfaction and loyalty levels of customers across all demographic and psychographic
dimensions.

With regards to overall service quality, retail banks should specifically pay attention to their
responsiveness when delivering services to their customers. In terms of trust, reliable promises
should be made to customers. Furthermore, in order to improve switching cost perceptions, retail
banks should inform customers in advance about the costs involved in switching from one bank
to another. It is also important for retail banks to meet customers’ expectations in order to improve
satisfaction. Developing intimate relationships with customers will be key to achieving customer
loyalty. On an overall perspective, retail banks should aim to satisfy customers, which can be
accomplished through good service quality, establishing trust and making clear the costs involved
in switching from one bank to another.

6.4 THE LINKS BETWEEN THE RESEARCH OBJECTIVES, HYPOTHESES,

QUESTIONS IN THE QUESTIONNAIRE, MAIN FINDINGS, CONCLUSIONS AND
RECOMMENDATIONS

This section draws links between research objectives, hypotheses research questions in the
questionnaire, main findings, conclusions and recommendations as presented in Table 6-1.

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 Chapter 6: Conclusions and recommendations

Table 6-1: Links between research objectives, hypotheses, questions, main findings,
conclusions and recommendations

Questions Hypotheses Main findings Conclusions Recommendations

Secondary objective 1: Compile a demographic profile of respondents.
Section A: Main finding 1 Recommendations 1 & 2
Questions 1 - 5
Secondary objective 2: Determine the retail banking habits of respondents.
Section B: Main findings 2 Conclusions 1 & 2 Recommendation 3
Questions 6 & 7 &3

Secondary objective 3: Determine respondents’ perceptions of the service quality of their banks.
Section C: Main findings 4 - Conclusions 3 - 9 Recommendations 4 - 11
Question 10 10 & 22 - 26

Secondary objective 4: Determine respondents’ trust towards their banks.

Section C: Main findings 11 Conclusions 10 & 11 Recommendations 12 &
Question 9 - 13 & 27 13

Secondary objective 5: Determine respondents’ perceived costs of switching between banks.

Section C: Main findings Conclusions 12 & 13 Recommendations 14 &
Question 11 14, 15 & 28 15

Secondary objective 6: Determine respondents’ levels of satisfaction with their banks.

Section C: Main findings 16 Conclusions 14 & 15 Recommendations 16 &
Question 8 - 18 & 29 17

Secondary objective 7: Determine respondents’ loyalty towards their banks.

Section C: Main findings 19 Conclusions 16 & 17 Recommendations 18 &
Question 12 - 21 & 30 19

Secondary objective 8: Determine whether significant differences exist between different groups
of retail banking customers in terms of each of the above constructs.
Sections A - C: H1, H2, H3, Main findings 32 Conclusions 18 - 22 Recommendations 20 - 29
Questions 1 - 12 H4, H5, H6 & - 38
H7
Secondary objective 9: Determine the interrelationship between service quality, trust, switching
costs, satisfaction and loyalty in South African retail banks.
Section C: H8, H9, H10, Main findings 39 Conclusions 23 - 30 Recommendations 30 &
Questions 8 - 12 H11, H12, H13 - 46 31
& H14

As shown in Table 6-1, the primary objective of the study, namely to determine predictors of
customer loyalty, including service quality, trust, switching costs, and satisfaction, in South African
retail banks has been achieved. In addition, it can be concluded that the secondary objectives
have been achieved, and that the proposed hypotheses have been addressed. Therefore, for
every secondary objective, main findings were presented, conclusions were drawn and
recommendations were provided.
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 Chapter 6: Conclusions and recommendations

6.5 LIMITATIONS OF THE STUDY

All research studies are presented with certain limitations. This section provides the literature and
empirical limitations experienced in this study.

 Limited research has been conducted with regard to South African retail banks concerning
switching costs of customers. Therefore, the researcher had to rely on information from
international studies on banks and other industries.
 Due to the POPI Act, retail banks were reluctant to provide their customer databases to
serve as a framework for this study, and therefore the study had to rely on non-probability
convenience sampling. Consequently, this study is only representative of those
respondents who took part of the survey and not the entire target population.
 The absence of a sampling frame (i.e., customer databases) made it difficult for the
fieldworkers to identify potential respondents who have been using retail banks for two or
more years from those who have been using retail banks for less than two years, and this
increased the time needed for data collection.
 Response bias could have occurred as a number of the respondents were hesitant to
provide some of their demographic information.
 The length of section C of the questionnaire presented limitations to the study, as some
respondents did not complete the questions. As a result, a few incomplete questionnaires
were withdrawn during the data cleaning stage.
 The respondents’ readiness to answer the questionnaire was also a limitation to this study
as some people were busy at the time they were approached.
 Due to time and budget constraints, the study had to rely on a relatively small sample
representing the Gauteng Province of South Africa. With the availability of more time and a
larger budget, the researcher could have been able to conduct the study on a larger scale,
thus making the sample richer by increasing the representativeness of retail banking
customers of South Africa as a whole.

Considering these limitations of the study, it is possible to make a number of recommendations

for future research.

6.6 RECOMMENDATIONS FOR FUTURE RESEARCH

The following suggestions for future research can be made:

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 Chapter 6: Conclusions and recommendations

 Due to the POPI Act, which makes it difficult to obtain a sampling frame for research,
researchers could seek permission from the related banks to collect data within the bank
branches without having to get personal details of respondents.
 Online surveys, which are mobile and more compatible, can be developed and shared on
websites and social media platforms in order to cater for time and budget constraints of
conducting research with a large sample size. Furthermore, the survey can contain the save
and continue option to reduce the number of incomplete questionnaires if the questionnaire
is a bit lengthy.
 In order to obtain accurate sample results, future research should use a larger sample size.
 This study only focused on respondents from a specific geographical location (Gauteng
Province). Therefore, future studies should attempt to represent all geographical locations
in their sample as some arguments exist that customers tend to differ or behave differently
based on geographical locations.
 A comparative study including different types of banks (i.e., private banks and commercial
banks) would be interesting, in order to determine whether the same or a similar loyalty
model can be implemented.
 The questionnaire can also be designed to be available in different languages (especially
in South Africa), to ensure that all respondents understand all the questions, and
subsequently avoid possible misinterpretation of questions.
 The conceptual model developed in this study can be implemented in different studies in
other emerging economies and in different service industries to test its reliability, relevance
and applicability.

6.7 CONCLUSION

This chapter provided an overview of the entire study, by highlighting the previously discussed
chapters (Chapters 1 to 5). Furthermore, conclusions were drawn and recommendations
proposed for each secondary objective of the study in order to assist retail banks in designing
strategies for each of the research constructs (service quality, trust, switching cost, satisfaction
and loyalty) pertinent to the research topic to determine the predictors of customer loyalty in the
South African retail banking industry. Subsequently, Table 6-1 presented the links between
research objectives, hypotheses research questions in the questionnaire, main findings,
conclusions and recommendations. The limitations inherent to this study were also presented.
Lastly, this chapter proposed research suggestions for future studies.

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199
 APPENDIX A

QUESTIONNAIRE

Fieldworker initials and surname: Questionnaire number:

Your loyalty towards your bank

This questionnaire is designed to obtain feedback regarding your loyalty towards your bank, by
determining the service quality and trust you obtain from your bank, as well as your switching cost
perceptions and satisfaction.

Taking part in this survey is completely voluntary and anonymous. Completing the questionnaire
should take approximately 10 minutes. When evaluating a question, please answer from your
own perspective, by marking or completing where required.

Should you have any questions, please contact Dr Mackay at 12194778@[Link].

Please provide us with your contact number and/or e-mail address. It is imperative that we
follow up on the fieldwork for quality control purposes. Your personal information will NOT,
by any means, be used for ANY purpose other than quality control.

Contact number:

OR

E-mail:

Screening question:

Yes
Have you been making use of the banking services of one or more of the major South
African banks (Absa, Capitec, FNB, Nedbank, Standard bank) for two or more years?
No

If your answer is ‘Yes’ to the above question, please complete the questionnaire.
If your answer is ‘No’ to the above question, you do not have to complete the questionnaire.

200
 Appendix A: Questionnaire

SECTION A – DEMOGRAPHIC INFORMATION

1. In which year were you born? 19

2. What is your gender? x

Male 1
Female 2

3. What is your highest level of education? x

Some primary school 1
Primary school completed 2
Some high school 3
Matric / Grade 12 completed 4
Technical College diploma 5
University or Technology diploma 6
University degree (B-degree or Honours) 7
Postgraduate degree (Masters or Doctorate) 8

4. What is your ethnicity? x

Asian 1
Black 2
Coloured 3
Indian 4
White 5
Other, please specify:
6

5. What is your employment status? x

Full-time student 1
Unemployed 2
Self-employed 3
Part-time employed 4
Full-time employed 5
Housewife or Househusband 6
Retired 7
Other, please specify:
8

201
 Appendix A: Questionnaire

SECTION B – PATRONAGE HABITS

6. At which one of the following banks do you hold your personal

account, or most of your personal accounts? x
Absa 1
Capitec 2
FNB 3
Nedbank 4
Standard Bank 5

7. How long have you been with your bank?

years and months

SECTION C – SERVICE QUALITY, TRUST, SWITCHING COST, SATISFACTION, LOYALTY

disagree
Strongly

Strongly
8. On a scale of 1 to 5, where 1 is ‘strongly disagree’ and 5 is

agree
‘strongly agree’, indicate the extent to which you agree with
each of the following statements regarding your satisfaction
with your bank.
1 2 3 4 5
I am satisfied with the services I receive from my bank. 1 2 3 4 5
I believe my bank treats me fairly. 1 2 3 4 5
My bank’s services meet my expectations. 1 2 3 4 5
I am proud of my relationship with my bank. 1 2 3 4 5
My experiences with my bank have always been good. 1 2 3 4 5
I am completely happy with my bank. 1 2 3 4 5
disagree
Strongly

Strongly

9. On a scale of 1 to 5, where 1 is ‘strongly disagree’ and 5 is

agree

‘strongly agree’, indicate the extent to which you agree with

each of the following statements regarding your trust in your
bank.
1 2 3 4 5
My bank is trustworthy. 1 2 3 4 5
I have confidence in my bank. 1 2 3 4 5
My bank is concerned with the security of my transactions. 1 2 3 4 5
My bank is consistent in providing quality services. 1 2 3 4 5
My bank’s promises are reliable. 1 2 3 4 5
My bank’s employees show respect to its customers. 1 2 3 4 5

202
 Appendix A: Questionnaire

disagree
Strongly

Strongly
10. On a scale of 1 to 5, where 1 is ‘strongly disagree’ and 5 is

agree
‘strongly agree’, indicate the extent to which you agree with
each of the following statements regarding the service quality
of your bank.
1 2 3 4 5
Reliability
When I have a problem, the staff show a sincere interest to
1 2 3 4 5
help me.
The bank has my personal and banking information up to date
1 2 3 4 5
and error free.
The staff perform a service correctly the first time. 1 2 3 4 5
The staff keep the promises they make. 1 2 3 4 5
The staff perform the service they promise or claim to do. 1 2 3 4 5
Responsiveness
The staff are never too busy to respond to my requests and
1 2 3 4 5
queries.
The staff are willing to help me. 1 2 3 4 5
The staff give me prompt and quick service. 1 2 3 4 5
The staff constantly keep me informed about the progress of
1 2 3 4 5
my queries.
Assurance
The staff have the knowledge and know-how of bank
1 2 3 4 5
processes and policy to deal with my queries and concerns.
The staff are polite towards me. 1 2 3 4 5
The behaviour and knowledge of the staff instil confidence in
1 2 3 4 5
me.
I feel safe and confident about the staffs’ abilities to deal with
1 2 3 4 5
my concerns.
Empathy
The staff always have my best interests at heart. 1 2 3 4 5
The staff give me personal attention. 1 2 3 4 5
My bank’s employees are neat appearing. 1 2 3 4 5
The staff understand my personal banking needs. 1 2 3 4 5
The staff treat me as an individual with individual needs. 1 2 3 4 5
My bank has operating hours that are convenient to me. 1 2 3 4 5
Tangibles
My bank’s branch layout is clearly demarcated and easy to
1 2 3 4 5
understand.
My bank’s branch is visually appealing and clean. 1 2 3 4 5
The staff are neatly and professionally dressed. 1 2 3 4 5
My bank’s branch has modern equipment. 1 2 3 4 5

203
 Appendix A: Questionnaire

disagree
Strongly

Strongly
11. On a scale of 1 to 5, where 1 is ‘strongly disagree’ and 5 is

agree
‘strongly agree’, indicate the extent to which you agree with
each of the following statements regarding the costs involved
in switching from your bank.
1 2 3 4 5
I like the image (the brand) of my bank. 1 2 3 4 5
Switching to another bank could cause hidden (unpredictable)
1 2 3 4 5
costs.
Switching to another bank will probably result in some
1 2 3 4 5
unexpected hassle.
The process of switching to another bank is connected to many
1 2 3 4 5
formalities.

disagree
Strongly

Strongly
12. On a scale of 1 to 5, where 1 is ‘strongly disagree’ and 5 is

agree
‘strongly agree’, indicate the extent to which you agree with
each of the following statements regarding your loyalty towards
your bank.
1 2 3 4 5
I say positive things about my bank to other people. 1 2 3 4 5
I would recommend my bank to someone who seeks my
1 2 3 4 5
advice.
I encourage friends and/or relatives to do business with my
1 2 3 4 5
bank.
I consider my bank as my first choice when I need services
1 2 3 4 5
concerning my finances.
I intend to continue doing business with my bank in the next
1 2 3 4 5
few years.
I am willing to try new services that my bank provides. 1 2 3 4 5

Thank you for taking the time to complete the survey!

204
 APPENDIX B

LETTER FROM LANGUAGE EDITOR

Declaration

This is to declare that I, Louisemarié Rathbone

Language editor and translator

have language edited the thesis by

RK Major
with the title

Determining predictors of customer

loyalty in the South African retail
banking industry

Date: 15 November 2016

205