DETERMINANTS OF
ATTITUDINAL AND
BEHAVIORAL LOYALTY IN THE
BANKING SECTOR
University of Groningen
Faculty of Economics and Business
Department of Marketing
MSc Marketing Intelligence
Introduction
Customer retention matters
▪ To retain customers;
▪ To stimulate a firm's profits. However….
▪ Firms have limited resources;
▪ Effective allocation of resources is key. Preliminary research have looked at:
▪ Attitudinal loyalty & behavioral intentions;
▪ And used intentions as a proxy for actual behaviour.
Can customer intentions be a good proxy for actual behavior?
Introduction
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Study 1
▪ This aim of this research focuses specifically on the effects that influence the intentions of customers and examines whether these effects also influence actual behavior of customers.
▪ Focus on the different effects of both loyalty components. Extension of study 1
▪ Use a set of machine learning techniques to predict customer churn.
Conceptual model
Perceived switching costs
Definition
▪ Costs in terms of both monetary and non-monetary that a customer perceives and that is associated with switching from one provider to another (Jones et al., 2000).
Relation towards customer loyalty
▪ Preliminary research states that switching costs is an important predictor for customer loyalty (Jones et al., 2000; Bansal and Taylor 1999; Matos et al. 2009).
▪ Switching costs discourage customers to change providers due to time, money, and energy one has to invest in finding and setting up a new provider.
Trust
Definition
▪ “A willingness to rely on an exchange partner in whom one has confidence.” (Moorman et al., 1993).
Relation towards customer loyalty
▪ Preliminary research states that trust is an important in long-term relationships (Berry, 1995; Grönroos, 1995; Morgan and Hunt, 1994).
▪ Trust can help to reduce uncertainty and in situations as such that customers feel safe about making decisions by their current service provider. It simplifies choices and makes risk manageable.
Interaction effect of satisfaction
Satisfaction as an interaction effect between PSC and customer loyalty
Lam et al. (2004) proposed that customers stay with their current service provider under high switching costs, regardless of the level of satisfaction.
Illustrations
1. Satisfied customers will neglect the perceived amount of switching costs, customer perceive switching costs when seeking alternative options. However, this will less likely to be taken into consideration. 2. When customers are dissatisfied with their current provider then perceived switching costs will play a
more important role regarding customer´s loyalty.
Satisfaction as an interaction effect between trust and customer loyalty
▪ A customer’s level of trust, developed based on previous experiences with the supplier, will influence how the customer will react in the event of dissatisfaction.
▪ It is expected that customers who trust their provider to have confidence that the provider will work to resolve the issue(s) when dissatisfaction arises.
Mediation effect of engagement
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Definition of engagement
▪ “Active interactions of a customer with a firm, with prospects, and with other customers, whether they are transactional or non-transactional in nature.” (Kumar et al. 2010)
Preliminary research
▪ Limited research have investigated the mediation effect of engagement on customer loyalty.
▪ Hussein (2016) empirically found that engagement mediates the relation between trust on attitudinal loyalty.
▪ Engagement is often mentioned in preliminary research to be a covariate for customer loyalty (Banyte and Dovaliene 2014; Thakur 2016; Fernandes and Esteves 2016).
Trust
▪ It is expected that customers engage more with their provider if they believe the firm is trustworthy. This interaction between provider and customer creates a bond between the customer and the firm.
Perceived switching costs
▪ If customers perceive switching costs to be high, they are more willing to engage in their current service provider.
Sample characteristics
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Variables Churners Non Churners
N 148 1131
Mean age 51 till over 70 51 till over 70
Mean household income $30,000 to less than $35,000 $30,000 to less than $35,000
Mean assets $10,000 to less than $20,000 $10,000 to less than $20,000
Male 49.32% 51.85%
Female 50.68% 47.00%
Education Associate’s degree to a
bachelor’s degree. Associate’s degree to a bachelor’s degree. Caucasian 91.89% 89.7% Black 0.00% 1.5% Asian 6.08% 4.4% Hispanic 1.35% 2.0% Indian 1.35% 0.5% Other ethnicity 0.00% 0.5%
Conceptualization
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▪ Attitudinal loyalty, the level of dedication a customer has towards their current bank ▪ Behavioral loyalty, churned or stayed
▪ Satisfaction, as the satisfaction level of all services a customer uses at their primary bank
▪ Perceived switching costs, the costs that customers associate with the process of switching from banks ▪ Trust, the perception of customers with regards to the trustworthiness of their primary bank in terms of
reliability
▪ Engagement, a proxy for all interactions (channels used) one has with their current service provider.
Variable Mean Min Max SD
Attitudinal loyalty 4.257 0.250 10.000 2.445
Satisfaction 4.807 0.500 10.000 2.386
Perceived switching costs (residuals) 0.000 -4.277 3.2893 1.003
Trust 8.231 1.000 10.000 1.910
Methods
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Study 1
▪ Linear and logistic regressions.
▪ According to the procedure of Preacher and Hayes. ▪ Model assumptions:
▪ VIF-scores, autocorrelation and heteroscedasticity were not violated. ▪ Non-normality was violated.
Extension of study 1
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Regression analysis Engagement Attitudinal loyalty Behavioral loyalty Direct effects β β β (Intercept) 8.865 -0.555 1.453 PSC 1.342 0.202 *** 0.296 *** Satisfaction 2.685 * 0.846 *** 0.179 * Trust 1.717 0.144 *** -0.023 Engagement 0.001 0.003 USEcon 7.786* -0.055 0.282 USEcon1YrAgo 1.765 -0.050 -0.014 USEconin1Yr 1.071 0.067 -0.034 Age -0.326 -0.070 -0.098 Assets -1.376 -0.047 -0.024 Signif. codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ Summary of results
1. Perceived switching costs has a positive effect on both types of loyalty.
2. Trust has a positive effect on attitudinal loyalty, but is insignificant on behavioral loyalty.
3. Engagement does not mediate the effect of trust & PSC on both types of loyalty.
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Regression analysis Engagement Attitudinal loyalty Behavioral loyalty Interaction effects β β β (Intercept) 34.416 ** 4.595 *** 2.143 ** c_PSC 1.490 0.216 *** 0.314 *** c_Satisfaction 2.691 * 0.846 *** 0.187 * c_Trust 2.037 * 0.168 *** -0.025 Engagement 0.000 0.002 USEcon 8.132 -0.029 0.266 USEcon1YrAgo 1.744 -0.049 -0.007 USEconin1Yr 1.030 0.064 -0.033 Age -0.317 -0.069 -0.096 Assets -1.260 -0.038 -0.022 c_PSC:c_Satisfaction 0.506 0.045 *** 0.041 c_Satisfaction:c_Trust 0.515 0.038 *** -0.002 Signif. codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ Summary of results
1. The positive effect of perceived switching on attitudinal loyalty is higher with
increasing levels of customer satisfaction. 2. The positive effect of trust on attitudinal
loyalty is higher with increasing levels of customer satisfaction.
3. No interaction effects were found on behavioral loyalty.
4. Engagement does not mediate the effect of trust & PSC on both types of loyalty.
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Conditional direct effects
Summary of results
▪ The conditional direct effects gets stronger when the level of satisfaction rises.
▪ For higher levels of satisfaction the effect of PSC & trust on attitudinal loyalty increases.
Conditional direct effects of perceived switching costs
Satisfaction Effect p LLCI ULCI -2.3863 .1269 .0038 .0412 .2127
.0000 .2364 .0000 .1695 .3033 2.3863 .3459 .0000 .2445 .4473
Conditional direct effects of trust
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Machine learning techniques
▪ The Boosting technique shows to give the best results in terms of predicting the top 10% highest predictions (TDL).
▪ The Random Forest technique shows to give the best results in terms of the GINI-coefficient, the AUC and the hit-rate.
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Implications for theory
Different impact of covariates on customer loyalty
▪ Satisfaction has to greatest impact on attitudinal loyalty, which is in line with (Lee et al., 2001; Yang and Peterson, 2004; Aydin et al., 2005)
▪ Perceived switching costs has the greatest impact on behavioral loyalty, which supports Lam et al. (2014)
Interaction effects
▪ Lee et al. (2001) and Yang and Peterson (2004) state that the perceived switching costs – satisfaction link is an important interaction effect in explaining customer loyalty.
▪ No interaction effects were found on behavioral loyalty.
Mediation effects
▪ It may be that engagement in the banking sector is more utilitarian, as customers do not engage more if they do not have more business with the bank.
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Implications for practice
Strategy regarding recommendations
▪ Focus on customers by enhancing satisfaction, perceived switching costs and trust simultaneously.
Strategy regarding retaining loyal customer
▪ Focus on utilizing perceived switching costs, using multiple components together will not create a synergy.
ML Techniques
