The Relationship between Service Quality, Customer Satisfaction and Customer Loyalty: An Investigation in Vietnamese Retail Banking Sector

Abstract

This study develops and empirically tests the interrelationships between service quality, customer satisfaction, and customer loyalty in a retail banking context. Increasingly intense competitiveness and fundamental changes in the business environment nowadays are forcing firms to implement a customer-focused strategy which raises the importance of customer-related constructs such as customer satisfaction, service quality, and customer loyalty in explaining a firm's performance. In particular, they are essential for competitiveness in industries where the exchanges are complex and customers are closely involved in the decision-making process, such as the banking industry. In this study, first, a research model about the interrelationships between service quality, customer satisfaction, and customer loyalty is suggested. Then a survey is conducted with retail banking customers about these constructs, which results in 261 valid respondents. The hypotheses are then proposed and tested using confirmatory factor analysis (CFA) and the structural equation modelling technique (SME). The analysis reveals that service quality and customer satisfaction are important antecedents of customer loyalty and customer satisfaction mediates the effects of service quality on customer loyalty. These findings suggest that there are non-linear relationships between three constructs and emphasize the need to treat customer loyalty management as a process which includes plenty of factors interacting with each other.

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