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STATUS OF CUSTOMER LOYALTY AND

CUSTOMER SATISFACTION IN RETAIL BANKING

Financial services in India have experienced numerous changes over

the last decades with a growing attention to customer needs. Financial

institutions in India realized the strategic importance of customer value and

seem to be continuously seeking innovative ways to enhance customer

relationships. The success in delivering good services and to gain customer

loyalty does not only depend on raising income but also on other factors

related to product, service and support provided to the customers in banks.

However, the customers are unlikely to be loyal unless they get satisfied

with products and services provided by the banks. Further, customer

retention strategy of banks will be successful only if the customers are

satisfied with various services provided by the banks. So, customer

satisfaction is the most important factors behind loyalty.

Furthermore, an increasingly competitive environment prevailing in

the global market and rapid advances in customer intelligence technologies

have led retail banks to look for new business and marketing models for

realizing intelligence-driven customer transactions and experiences.

Nowadays great attention is paid to all the bank-customer touch-points,

aiming to optimise the interaction, towards affecting specific customer

behaviour variables such as customer satisfaction and customer loyalty.

Therefore, particularly, in the retail banking the customer satisfaction and in

turn customer loyalty is important for retaining the existing customers and
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also to acquire new customers. Hence the present chapter is dedicated to

empirically evaluate the customer satisfaction and customer loyalty towards

various products and services as well as social aspect related services under

retail banking based on the views of the customers in the study region. Also,

inter-relationship of service quality in retail banking with customer loyalty

and customer satisfaction is also analyzed in this chapter.

5.1 Customer Loyalty

The viewpoints of the customers regarding their loyalty towards

banks based on the retail banking services provides by the banks in

Cuddalore district is obtained by incorporating nine items (Das et al, 2009)1

with Likerty type 5-point scale (1 for Strongly Disagree, 2 for Disagree, 3

for Neutral – Neither Disagree nor Agree, 4 for Agree and 5 for Strongly

Agree). The internal consistency of the scale items is tested by reliability /

item analysis and important factors underlying customer loyalty are

extracted using Principal component method of factor analysis with varimax

rotation. The score for each factor underlying customer loyalty in retail

banking is calculated by averaging the scores of highly loaded items with

that factor. To empirically evaluate whether the mean score of entire sample

relative to each major factor lies in the disagree range or agree range, the

mean score is compared with ‘3’, the value for neutral opinion using one-
1
Das, K., Parmar, J. and Sadanand, V.K. (2009). “Customer Relationship
Management (CRM) Best Practices and Customer Loyalty: A Study of Indian
Retail Banking Sector”, European Journal of Social Sciences, Vol.11, No.1, pp.61-
85.
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sample t-test. Further, to know whether there is any notable difference in

customer satisfaction and customer loyalty among respondent groups with

different socio-economic status as well as among respondent group with

different bank account operating status, the respondents’ opinion is

compared across categories by socio-economic and bank account operating

status. The significant of the difference in perception across categories is

evaluated by t-test if the categories are two and F-test if the categories are

more than two. The results of the analysis are tabulated and discussed in

the remaining part of this chapter.

From Table 5.1, which presents the reliability / item analysis for scale

items measuring customer loyalty with retail banking, it is understood that

the Cronbach alpha reliability coefficient for all nine items, 0.9649 is very

high and it is in ‘excellent’ range. Also, the correlation of each item with

their total sum score is more than 0.30 and range between 0.3995 (item 5)

and 0.6408 (item 9). As the items in the scale measuring customer loyalty

are highly reliable and internally consistent, the principal component method

of factor analysis is carried out.

Table 5.1

Results of Reliability / Item Analysis for Items in the Scale Measuring

Customer Loyalty

Item to
Item Alpha if
No Description of Scale Items Total
Deleted
Correlation

1 I have never seriously considered changing this bank 0.5211 0.9644

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2 I consider myself to be a loyal customer of this bank 0.5465 0.9643

3 I will continue using the services offered by this bank 0.4938 0.9645

I will use other products/ services offered by this bank in the

4 future
0.4705 0.9646

5 I recommend my bank to others 0.3995 0.9648

I will switch to a competitor bank that offers more attractive

6 benefits / interest rates/ service charges
0.4148 0.9647

I will switch to a competitor bank when there are problems with

7 the current bank’s service
0.4790 0.9645

I deal with the bank because I want to deal, not because I have to
8 deal
0.5188 0.9644

Sometimes I get a feeling of being trapped in dealing with the

9 retail bank
0.6408 0.9640

Cronbach’s Alpha Reliability Coefficient 0.9649

Source: Primary Data

Table 5.2 shows the eigenvalue and percentage of total variance of

the actual data contained in each factor underlying customer loyalty. From

the observation of the table shows that there are two major aspects

underlying customer loyalty as eigenvalue is above one for first two factors.

The first two factors together possess 74.10 per cent of the characteristics of

actual data. While essence of actual data possessed by first and sector factor

is 61.03 per cent and 13.08 per cent before varimax rotation and 40.42 per

cent and 33.68 per cent after varimax rotation respectively.

Table 5.2

Eigenvalues of Factors Underlying Items Measuring Customer Loyalty

Before Varimax Rotation After Varimax Rotation

Factor Cumulative Cumulative
% of Total % of Total
Eigenvalue % of Total Eigenvalue % of Total
Variance Variance
Variance Variance
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1 5.49 61.03 61.03 3.64 40.42 40.42

2 1.18 13.08 74.10 3.03 33.68 74.10
3 0.43 4.74 78.84
4 0.40 4.49 83.33
5 0.36 4.03 87.36
6 0.33 3.65 91.00
7 0.30 3.33 94.34
8 0.27 2.95 97.29
9 0.24 2.71 100.00
Source: Primary Data

The factor loading of every item in the scale on every extracted

factor is produced by the analysis in order to know actual characteristics of

each factor. Table 5.3 presents the factor loadings of items in the scale

measuring customer loyalty.

According to the table, the first factor is highly loaded by item 3 (I

will continue using the services offered by this bank) followed by items 2 (I

consider myself to be a loyal customer of this bank), 1 (I have never

seriously considered changing this bank), 4 (I will use other products/

services offered by this bank in the future) and 5 (I recommend my bank to

others). The item 8 (I deal with the bank because I want to deal, not because

I have to deal) followed by items 7 (I will switch to a competitor bank when

there are problems with the current bank’s service), 9 (Sometimes I get a

feeling of being trapped in dealing with the retail bank) and 8 (I will switch

to a competitor bank that offers more attractive benefits / interest rates/

service charges) has high loading with second factor. That is, first factor is

highly characterized by customer loyalty by way of continuing the services

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offered by bank and not considering seriously changing the bank apart from

maintaining themselves to be loyal customers of the bank.

Table 5.3

Loadings of Items with Valid Factors Underlying

Customer Loyalty (After Varimax Rotation)

Item Extracted Factors

No Description of Scale Items
1 2
3 I will continue using the services offered by this bank 0.84 0.27
2 I consider myself to be a loyal customer of this bank 0.83 0.29
1 I have never seriously considered changing this bank 0.81 0.29
4 I will use other products/ services offered by this bank in the future 0.79 0.28
5 I recommend my bank to others 0.76 0.33
8 I deal with the bank because I want to deal, not because I have to deal 0.23 0.85
I will switch to a competitor bank when there are problems with the
7 current bank’s service 0.27 0.82
Sometimes I get a feeling of being trapped in dealing with the retail
9 bank 0.33 0.81
I will switch to a competitor bank that offers more attractive
6 benefits / interest rates/ service charges 0.38 0.74
Explained Variance (Eigenvalue) 3.64 3.03
% of Total Variance 40.42 33.68
Cumulative % of Total Variance 40.42 74.10
Loyalty over

Loyalty over
product and

relationship
customer
service

Factor Label

Source: Primary Data

Similarly, the second factor posses the characteristics of customers’

willingness to deal though not necessary to deal (I want to deal not because I

have to deal), customers switch over to competitor bank when there are

problems with the current bank and customers’ feeling of being trapped in
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dealing with the retail bank. Therefore, the first factor is labeled as

“customer loyalty based on product and services” and second factor is

named as “customer loyalty based on customer relationship” of the retail

banks.