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A Research Proposal: e Relationship between
Customer Satisfaction and Consumer Loyalty
Jiana Daikh
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Running head: CUSTOMER SATISFACTION AND CONSUMER LOYALTY 1
A Research Proposal: The Relationship between Customer Satisfaction and Consumer
Loyalty
Jiana Daikh
Johnson & Wales University
College of Management, Graduate Studies
RSCH 5500, Business Information & Decision-Making 33486
Martin W. Sivula, Ph.D.
May 7
th
, 2015
CUSTOMER SATISFACTION AND CONSUMER LOYALTY 2
Abstract
The purpose of this research is to study the relationship between customer satisfaction
and consumer loyalty and apply its relationship into all the market industries including
products and services, particularly in financial institutions. Preliminary sample data
(N=80) will be collected from faculties and students at Johnson and Wales University of
all ethnicities, national and international students. The hypothesis of the study is
developed as H1: There is a significant positive relationship between customer loyalty
and customer satisfaction. A t-test for independent samples is used to address the
hypothesis. The discussion of the study indicated that there is a significant positive
relationship between customer loyalty and customer satisfaction, however, it is important
to fully understand that the loyalty which is the main goal of each industry is very hard to
achieve and is not very easy to be reached by industries due to the customer satisfaction
which is very hard to reach by itself, and the service quality as well. There are many
other variables that can affect the consumer loyalty such as the high level of competition
among today’s companies and the fast track of technological advancement. These reasons
indicate that companies should work hard because loyalty is a fleeting issue, today’s loyal
customer would not be tomorrow’s loyal customer.
Keywords: customer satisfaction, customer loyalty and service quality.
CUSTOMER SATISFACTION AND CONSUMER LOYALTY 3
Introduction
Banks are competing intensely in a highly competitive environment to offer
quality oriented services according to customers’ expectations. Various important parts of
banking sector like operations, service quality, employee satisfaction, customer
satisfaction, financing products, efficiency, financial performance are being studied by
many researchers to better understand and serve the community at large (Arokiasamy,
2013).
The high quality relationship with customers is the main influence of a successful
service provider (Panda, 2003) “which determines customer satisfaction and loyalty”
(Jones, 2002 as cited by Lymperopoulos et al., 2006). Organizational outcome such as
performance superiority is primarily influenced by the service quality (Poretla &
Thanassoulis, 2005), “increasing sales profit” (Levesque & Mc. Dougal, 1996; Kish,
2000; Duncan & Elliot, 2002) and “market share” (Fisher, 2001), progressing customer
relations, improving corporate image and promote customer loyalty (Newman, 2001;
Caruana, 2002;). “Furthermore, service quality and customer satisfaction were found to
be related to customer loyalty through repurchase intentions” (Levesque & Mc. Dougall,
1996; Newman, 2001; Caruana, 2002). Banks must convey quality service to ensure
success and survival in today’s competitive banking. It is logical that a satisfied customer
will become at the end… a repeat purchaser and a loyal buyer for many causes. This
relationship between satisfaction and buyer loyalty should conclude in improved
marketing performance for a variety of reasons.
CUSTOMER SATISFACTION AND CONSUMER LOYALTY 4
Today, constant progress in service quality from the bank is a crucial need for
their customers to stay loyal, due to the increasing awareness among bank customers’
rights, their changing demands, and competition. This research intends to test whether the
bank customers are satisfied with the services provided to them, which will eventually
lead to loyalty.
Purpose of the study
“Customers became a center for all banking activities due to increased
competition for greater market share. Focusing on customer satisfaction has been the key
to increasing service quality according to customers’ expectations in the banking sector”
(Zairi, 2000). Hanson (2000) suggested that the level of service quality is an indication of
the organization's ability to meet customers' desires and demands. So organizations must
better their services to meet the customers' needs and requirements. Managers depend on
customers’ anticipation of service quality for the competition in the market (Hoffman and
Bateson, 2002).
The purpose of this study is to examine, in particular, the correlations between
consumer satisfaction and consumer loyalty. A prior study ran in the sector of the
financial services industry by Kuwaiti bank loan services. The bank loans are a unique
service type to be studied, the reason that the loans themselves are normally quite
durable. Other providers are excluded from the market once the bank is selected, until
another loan is required, possibly some time later. Bank loans have been especially
studied in Taiwan. By examining different institutions in other countries one should
benefit in this study to better understand loyalty and satisfaction. This study will initially
address the literature related to the primary constructs under study. The research will
CUSTOMER SATISFACTION AND CONSUMER LOYALTY 5
include definitions, instrumentation, sampling, data collection, hypotheses, discussion of
the data, conclusion as well as the references of the study.
Literature Review
“Regarding the competitive environment, there is a need for banks to plan their
strategies that will differentiate them from another. This can be achieved through the
delivery of high service quality. The practice of excellent service quality has been proven
that customer satisfaction will significantly lead to customer loyalty” (Caruana , 2000;
Caruana, 2002).
Customer Satisfaction
“Customer satisfaction is one of the most important issue concerning business
organization of all types, which is justified by the customer oriented philosophy and the
principles of continues improvement in modern enterprise” (Arokiasamy, 2013).
The marketing concept suggests that a satisfied buyer will be more likely to
repurchase again, or at least has the intention of repurchasing again, than those who are
dissatisfied. They consider that customer satisfaction and retention the most important
long-term objectives of firms. Reichheld and Sasser (1990) suggested that new buyers
cost more to serve than repeat customer, which means that repeat customers are
benefiting a firm’s cost structure.
A firm’s primary strategic objectives are to minimize customer regress and to
maximize customer intention rates to buy, as evidenced by the recent emphasis on
customer relationship management. Thus, previously satisfied buyers may help firms
both reduce marketing costs, and develop more stable levels of sales when a large
number of satisfied buyers are retained to purchase again in the future. There are several
CUSTOMER SATISFACTION AND CONSUMER LOYALTY 6
definitions of customer satisfaction in the marketing literature. It is generally accepted
that satisfaction is a psychological state that results from consumer experiences after
consumption (Pleshko, & Heiens, 1996).
According to a widely accepted conceptualization, customer satisfaction is “a
customer’s post-consumption evaluation of a product or service” (Mittal & Frennea
(2010, p. 3). This only “occurs if the perceived performance of a product or service
meets or exceeds customers’ prior expectations” ( Bearden & Teel, 1983; Oliver 1980,
2010). Thus, overall customer satisfaction with a company’s offerings is determined by
comparisons between customers’ expectations of the company’s products or services and
their perceptions of the products’ or services’ performance ( Fornell et al., 1996; Oliver
1980, 2010).
Customer Loyalty
Customer loyalty broadly refers to customer behaviors that indicate a desire to
better an ongoing relationship with a company (Palmatier et al., 2006). The customer’s
willingness to purchase again from the company, having a preference for the company, or
recommending the company to others could be indications to customers’ desire to remain
in a relationship with a company that demonstrate how much a customer is related to a
company. Loyal customers are often worth the marketing effort, owing to their
willingness to buy additional products and spread positive word of mouth as well as their
reliability as a source of continuous revenues (Zeithaml, Berry, & Parasuraman 1996).
The programs of customer retention could lead to a higher rate in buyer loyalty.
Although that marketing manager’s primary concern is maintaining and increasing brand
CUSTOMER SATISFACTION AND CONSUMER LOYALTY 7
loyalty, there is no guarantee for loyal buyers, because today’s buyer might not be so in
the future since loyalty is considered so transient.
“Loyalty is developed over a period of time from a consistent record of meeting,
and sometimes even exceeding customer expectations “(Teich, 1997). Kotler et al. (1999)
claims that the cost of attracting a new customer may be five times the cost of keeping a
current customer happy.
Customer loyalty is very difficult to be achieved. More and more unique ways are
adopted to meet the ever changing nature of the service industry. Additionally, time
constraints are most often a barrier to customer satisfaction. Every organization in the
market competes to develop advanced methods to keep on track. Technology, for
example affects the service industry, since constantly meeting customer satisfaction over
a period of time is the only way to achieve customer loyalty (Teich, 1997).
Service Quality
All the “definitions of service quality hold that this is the result of the comparison
that customers make between their expectations about a service and their perception of
the way the service has been performed” (Lehtinen & Lehtinen, 1982; Lewis & Booms,
1983; Parasuraman et al., 1985; 1988; Caruana, 2002). Service quality is defined as the
degree of contradiction between customers’ perceptions of service performance and their
normative expectation for service. (Parasuraman et al., 1985).
Interrelationship between Customer Satisfaction and Customer Loyalty
It is logic that satisfied buyers will probably return for future purchases and
eventually become loyal. This is the formal concept and the basis for thought in
marketing. “In fact, this relationship between satisfaction and loyalty has been shown to
CUSTOMER SATISFACTION AND CONSUMER LOYALTY 8
be the case throughout much of the literature. Recent studies support this strong
correlation between satisfaction and loyalty. Additionally, in the financial services
industry, it is shown that satisfaction should be treated as one of the main predictors of
loyalty “(Al-Wugayan,, Pleshko, & Baqer, 2008).
Methodology
Instrumentation
In order to make sure most of the respondents can read and understand the
questionnaire, it will be designed in an English version. The content of the questionnaire
will be divided into four different parts. The first part will solicit relevant personal
information, such as participants’ age, gender, educational level, job, income and
nationality. The second part will measure participants’ perceptions and expectations of
the services quality. It contains ten attributes which reflect the dimensions of institution
services. Furthermore, these attributes will be described by the statements that reflect
respondents’ perceptions of the services. This will be according to Likert scale a five-
point scale range from 1 (strongly disagree) to 5 (strongly agree) to be selected as their
responses. The third part will be four questions that measure customers’ satisfaction
level. The sample questions would be:
1- How satisfied are you with the service provided by your debit, checking/ saving
account?
2- How satisfied are you with the loan service provided by your financial institution?
3-How satisfied are you with the customer service of your financial institution?
4-In general, how satisfied are you with your financial institution?
CUSTOMER SATISFACTION AND CONSUMER LOYALTY 9
Then, there will also be a five-point Likert scale range from 1 (very dissatisfied) to 5
(very satisfied) to be selected as their responses to each question.
As for the last part, will be three questions which measure participants’ behavioral
intensions that express their loyalty. The sample problems would be: How likely are you
willing to invest more in your financial institution? How likely do you think of switching
to another financial institution? How likely will you recommend your financial institution
to other people? Each behavioral intension will be measured by one item, from 1 =“very
unlikely” to 5 = “very likely”.
Sampling and Data collection
A survey will be conducted to test the hypotheses generated for this research. The
population frame is customers of various local banks in Rohde Island who have at least
one account and they will be asked about their attitudes, behaviors, expectations,
perceptions, reliability and responsiveness. The quantitative research methodology
approach will be used in this research which conducted by survey. The survey will
consider the age, income, employment status and education level, regarding that every
element has different standard on the customer to be satisfied. Target stratified random
sample size will be N = 400 and with this sample size the sample error estimate is
approximately +-5%.
Research Framework and Hypothesis
A number of studies had identified the links between loyalty customer service,
satisfaction and trust. Beerli et al., (2004) as cited in (Arokiasamy, 2013) states “that in
retail banking sector impact of satisfaction on loyalty is considerably stronger that the
CUSTOMER SATISFACTION AND CONSUMER LOYALTY 10
cost of switching, and satisfaction is an antecedent of perceived quality”. In order to
verify the relationship between the independent and dependent variables, a hypothesis
were developed. The conceptual framework for the study is adopted and modified from
the empirical study by (Beerli et al. ,2004 by Arokiasamy, 2013) depicted below. The
figure illustrates the relationship between customer satisfaction, customer loyalty and
intentions to switch.
Figure 1. - (Beerli et al. ,2004 by Arokiasamy, 2013)
Hypotheses of the Study
The hypotheses of the study are developed as below:
H1: There is a significant positive relationship between customer loyalty and customer
satisfaction.
Discussion
It is clear that customer satisfaction in today’s dynamic corporate environment is
very essential. On the other hand dissatisfaction has been seen as a primary reason for
customers’ intentions to switch. Dissatisfied customers are more likely to tell almost ten
people their unfortunate experiences with a particular organization. Customer satisfaction
highly influences customers’ repurchase intentions. Satisfied customers are most likely to
CUSTOMER SATISFACTION AND CONSUMER LOYALTY 11
share their experiences with other four or six people around them. Organizations must be
able to build and maintain long lasting relationships with customers through satisfying
various customer needs and demands which eventually motivates them to continue to do
business with the organization on on-going basis.
Conclusion
Although many researches have been conducted in the customer service field, still
more studies banks must continue to conduct in order to meet the changes in the banking
industry. New technologies must be incorporated as a factor to measure service quality in
future researches. Researches and related questionnaires must also be accommodated
with the new banking requirements of the customer.” A clearer understanding as to the
sequence of relationship between service quality, customer satisfaction and customer
loyalty can help to ensure better targeting of customer using limited marketing
resources.” ( Gremler, & Brown,1996).
CUSTOMER SATISFACTION AND CONSUMER LOYALTY 12
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