Effects of Perceived Value and Trust on Customer Loyalty towards ...

Global Journal of Emerging Trends in e-Business, Marketing and Consumer Psychology (GJETeMCP) An Online International Research Journal (ISSN: 2311-3170)

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www.globalbizresearch.org

Effects of Perceived Value and Trust on Customer Loyalty towards

Foreign Banks in Sabah, Malaysia

Haslinda Hasan,

Faculty of Business, Economics, and Accountancy

Universiti Malaysia Sabah, Kota Kinabalu, Malaysia.

Email: [email protected]

Teo Poh Kiong,



Raja Azimah Ainuddin,



_____________________________________________________________________

Abstract

Liberalization of the Malaysian banking industry has attracted a number of foreign banks to

set up branches in Malaysia providing competition to the local banking industry. Foreign

banks such as Standard Chartered, HSBC, OCBC, and Bangkok Bank have been here for

decades and despite facing various restrictions, they have survived and remained competitive

until today. Newer banks such as Al-Rajhi Bank and Kuwait Finance House have also joined

in this increasingly competitive landscape. This study focused on factors influencing customer

loyalty in foreign banks at Kota Kinabalu, Sabah. Previous studies have shown that customer

loyalty played an important role in determining the competitive advantage of banks. This

study examined the level of customer loyalty towards foreign banks in Malaysia and

investigated whether factors such as perceived value and trust influenced loyalty. Data were

obtained from 239 customers of foreign banks located in Kota Kinabalu, Sabah who

responded to a self-administered survey questionnaire. The analyses showed that customer

loyalty is relatively above average, at a mean of 4.86 (based on a seven-point Likert scale)

and that both perceived value and trust showed positive and significant effects on customer

loyalty. Implications of the study are discussed and suggestions for future research are

provided.

___________________________________________________________________________

Keywords: Customer loyalty, Perceived value, Trust, Foreign banks, Malaysia

mailto:[email protected]


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1. Introduction

The trend towards globalization has led to many changes in the world economy and

business environment. The financial sector is one of the sectors affected by this trend which is

growing rapidly with globalization especially within the recent two decades (Rehman and

Ahmed, 2008). According to Herrero and Simon (2006), internationalisation of the financial

sector has grown significantly during the 1990s. Most established banks have expanded their

business into the international market place and cross border operations. The key reasons of

expanding operations into the international market are to achieve competitive advantage,

efficiencies and geographical risk diversification. In order to survive in this competitive

market, banks have to differentiate themselves from their competitors as a means of attracting

customers (Blankson et al., 2007). In 2001, the Central Bank of Malaysia (BNM) introduced

and implemented the Financial Sector Master Plan with the objective to strengthen domestic

financial institutions (BNM, 2001). Under the BNM guidelines, all foreign banks in Malaysia

must operate as locally controlled subsidiaries, with the equity stake at 49% for foreign

investment banks and 30% for foreign commercial banks. The existing foreign banks that

entered the Malaysian financial market before 2001 were allowed to open one branch in an

urban commercial market, two in semi-urban centres, and one in a rural area.

According to Thwaites and Vere (1995), financial institutions are continually

experiencing pressure to increase their profitability as a result of low growth and strong

competition in the market. This aggressive competition has weakened the relationships

between the customers and the financial institutions. Hence, offensive strategies for acquiring

new customers and defensive strategies in strengthening customer loyalty become important

(Miles, 1994). As stated by Thomas, Judith, Cesar and Chia (2009), it is crucial to develop

and maintain customer loyalty in the service industry because loyalty has a strong correlation

with increased sales and profit through repeat patronage of the services or products, positive

word-of-mouth to the public and less price sensitivity. Hence customer loyalty is also

important in defining market share and profitability (Jones and Sasser, 1995; Meidan, 1996).

As supported by Pont and Mcquilken (2005), financial institutions must be conscious and

aware of all those factors that lead to customer satisfaction in order to achieve customer

loyalty.

The conceptualization and measurement of loyalty has significant difference in a number

of studies (Oliver, 1999) and though loyalty in relation to tangible goods and brands have

been extensively studied limited theoretical or empirical studies have been conducted on

service loyalty (Bloemer, De Ruyter and Wetzels, 1999). According to Berry (1983),

perceived value is an important component in relationship marketing which consists of

creating, maintaining and growing of long term relationships in order to benefit from


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customers’ loyalty. Johnston (1997) states that although banks try hard to generate positive

perceived value for the customer, they still experience high levels of dissatisfaction because

most banks do not fully understand what customers want. Hence, values that a customer

generates towards a bank is more important and effective compared to the values generated

by a bank to the customer (Payne, Holt and Frow, 2000) as higher perceived value is the

source of competitive advantage in today’s competitive market (Woodruff, 1997). The above

discussion has led to this study to explore the variables of perceived value and trust; on the

relationship between both variables and loyalty which has been supported by previous

empirical studies and holds a significant influence towards customer loyalty.

2. Literature Review

Customer loyalty is defined as the behaviour where consumers have it in mind to

repurchase or repatronage favoured products or services continuously (Oliver, 1999). Loyalty

is important for an organization and it is equally important to customers as well because

customers are willing to invest their loyalty in products or services that are expected to bring

greater value compared to the organization’s competitors (Reichheld, 1996). When a

customer has developed loyalty towards the products or services provided by a certain

organization, it has directly minimized the time consumed in searching, locating and

evaluating the same services provided by other competitors. Customer loyalty can be

measured by behavioural and attitudinal elements or both (Day, 1969; Grisaffe, 2001;

Russell-Bennett, Mccoll-Kennedy and Coote, 2007). As a result, customer loyalty can be a

major source of sustained growth and profit and a strong asset to an organization (Anderson

and Mittal, 2000).

According to Zeithaml (1988), the definition of value results from the comparison

between the benefits obtained and scarifies made. Value is considered as a subjective and

personal concept toward the products, services and relationships (Parasuraman, Zeithaml and

Berry, 1985). Customer perceived value is described as the perception of quality, mindset,

benefits gained and the financial value of the products or services (Bishop, 1984; Velimirovie,

Velimirovie and Stankovic, 2011).

Oliver and DeSarbo (1988) state that perceived value reflected the relation of the

consumer’s outcome or input to that of the firm’s outcome or input in equity theory. The

equity concept is related with customer perception and evaluation of what is right, fair and

worth in price and value in obtaining the product or services (Bolton and Lemon, 1999). In

another word, customer perceived value is the result from a calculation of the rewards and

expenses related with what the firm is offering. Customers feel fairly treated if the calculation

of the outcome to input is equally measurable to what the firm is offering and receiving

(Oliver and DeSarbo, 1988). As supported by previous research and studies, perceived value


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is a main element of customer loyalty in a majority of organizations in the service industry

such as telecommunication (Bolton and Drew, 1991), airline travel, tourism and retail

(Sirdeshmukh, Singh and Sabol, 2002). Chang and Wildt (1994) indicate that customer

perceived value is inter-related to purchase intention. Higher perceived value will lead to

repurchasing intention towards the services and products offered which develops customer

loyalty in the long run.

Mayer, Davis and Schoorman (1995) refer trusting beliefs to the trustworthiness of the

firms and consumer’s perceptions towards the abilities, integrity, honesty and goodwill

showed by the organization in handling the transactions in the e-commerce service context

(McKnight et al., 2002; Kim and Benbasat, 2003). McKnight et al., (2002) further explains

that trusting intentions means the customer is willing to trust or depend on the organization.

Referring to previous studies, most of the researchers agreed that trusting beliefs have a

positive relationship in influencing trusting intentions (McKnight et al., 1998, 2002; Kim and

Benbasat, 2003). In general, researchers have commonly classified trust as trusting beliefs

(Ganesan, 1994; Gefen and Silver, 1999) and trusting intentions (Hosmer, 1995). This study

will discuss whether trust-related behavioral intentions will lead to more frequent visits or

repeat patronage of a bank’s products or services.

2.1 Tripartite Attitude Model: Cognitive-Affective-Conative

The tripartite attitude model: cognitive, affective, and conative has been commonly used

in conducting consumer research. Oliver (1999), Fishbein and Ajzen (1975) and Dabholkar

(1994) have used this model in conducting consumer behaviour related research. Fishbein and

Ajzen (1975) viewed cognition as an individual belief, perception and opinion toward the

products or services but Day (1972) describes cognition as the information or knowledge that

the customer has about the product. According to Oliver (1999), cognitive attitude can be

formed prior to knowledge or experience about the product from the customers’ perception or

observation. Hence, Sivadas and Baker- Prewitt (2000) consider consumer perceptions of

service quality or value assessments as part of the formation of a cognitive response. The

affective component of attitude refers to the individual’s overall feeling of like or dislike

towards a brand or product with regards to the situation, concept and person (Fishbein and

Ajzen, 1975). Many scholars have agreed that customer satisfaction an affective attitude or

emotional response (Fishbein and Ajzen, 1975; Oliver, 1997; Sivadas and Baker-Prewitt,

2000).

2.2 Relationship between Customer Loyalty and Perceived Value

Oliver and DeSarbo (1998) state that customers are motivated to feel justifiably treated if

they perceive that the ratio of their outcome to input is comparable to the ratio of outcome to

input experienced by the company. In the other words, customers often measure a company’s


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ratio of outcome to input by making comparisons with its competitors’ offers in the market.

Holbrook (1994) states customer value as the fundamental basis for all marketing activities.

The higher the customer value, the higher the chances of a customer repurchasing the product

or services because a high perceived value is one of the primary motivations for patronage.

Sirdeshmukh et al. (2002) stated that customer value is a super ordinate goal and

customer loyalty is a subordinate goal for the businesses as it is a behavioral intention.

Previous empirical research also identified perceived value as a major cause of customer

loyalty in most service industries such as telephone services (Bolton and Drew, 1991), airline

travel, tourism and retail services where a significant relationship was found between the

variables (Sirdeshmukh et al., 2002). Furthermore, Chang and Wildt (1994) also found that

customer perceived value is one of the key contributors to purchase intention because higher

perceived value of a service provider will create the behavioral intention to purchase and

patronize the product or services offered which will directly increase the firm’s sale and

revenue.

Hypothesis 1: There is a positive relationship between perceived value and customer

loyalty.

2.3 Relationship between Customer Loyalty and Trust

According to Fukuyama (1995) and Dasgupta (1998) trust is a fundamental aspect in

many business relationships especially in those containing an element of risk. Most

researchers agreed that trusting beliefs directly influenced trusting intentions (McKnight et

al., 2002; Kim and Benbasat, 2003). Trust is an important factor in affecting relationship

commitment and customer loyalty (Aydin and Ozer, 2005) besides perceived value and

satisfaction. Trust is considered a component of customer loyalty that has an influence on

building customer loyalty (Aydin and Ozer, 2005; Chen and Xie, 2007; Du Plessis, 2010).

Strong customer trusting behavior will enable the customer to make a confident

prediction about the service provider’s future transactions hence influencing customer loyalty

and attitude. Trust influences loyalty by affecting the customer’s perception of congruence in

values with the service provider, which is significantly related to the customer’s satisfaction

and loyalty. The development of trust is further considered as an important result of investing

in affective relationship between the parties in the relationship. A customer will continue

maintaining a good business relationship with a specific business or service provider if he

finds that the benefits received is exceeding the effort in obtaining benefits. Thus, both parties

in the relationship have a certain costs or effort, but also expect benefits (Rootman, 2006).

The benefits that customers seek through the relationship are satisfaction, value and quality

but what the business eventually looks forward to is creating and maintaining a long-term

customer loyalty and higher organization profitability (Wetsch, 2005).


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Hypothesis 2: There is a positive relationship between trust and customer loyalty.

3. Methodology

The main purpose of this research is to test the variables that influence customer loyalty

towards foreign bank in Kota Kinabalu, Sabah and the mediating effect of customer

satisfaction between independent and dependent variables. Respondents were selected using

convenience sampling consisting of walk in customers, existing account holders, credit card

holders, ATM users or users of any other banking facilities of the chosen foreign banks and

snowball sampling on the friends and family of respondents.

3.1 Measurement Items of Perceived Value, Trust and Customer Loyalty

Table 1: Measurement Items for Perceived Value

No. Perceived Value

1. The bank service fees are fair and reasonable.

2. This bank offers the best service for the bank charges I had to pay.

3. The bank provides high quality customer services.

4. This bank creates positive atmosphere.

5. When in this bank I feel relaxed.

6. I feel safe keeping my money in this bank.

7. I feel trust and confident in this bank.

Adapted from Roiget al. (2006)

Table 2: Measurement Items for Trust

No. Trust

1. I trust this bank to have my best interest at heart.

2. I trust this bank to do what it says it will do.

3. This bank is reliable.

4. This bank has a reputation for being dependable.

5. This bank has a reputation for being honest.

6. This bank has a reputation for being reliable.

7. This bank has a reputation for looking after its customers.

8. This bank has a reputation for having its customers’ interest at heart.

9. This bank makes every effort to address my needs.

10. I feel I can trust this bank.

11. I feel that this bank is trustworthy. Adapted from Sekhon et al. (2013)

Table 3: Measurement Items for Customer Loyalty

No. Customer Loyalty

1. This bank has always been my first choice.

2. I will say positive things about this bank to other people.

3. I consider myself as a loyal customer of this bank.

4. I will definitely continue using this bank.

5. I will do most of my banking needs with this bank.

6. I will encourage my friends and relatives to choose this bank.

7. I will recommend this bank to anyone who seeks my advice. Adapted from Zeithaml et al. (1996).

Perceived value was measured using seven items measurement adapted from Roig,

Garcia, Tena and Monzonis (2006) as can be seen in Table 3.1. Table 3.2 shows eleven

measurement items of trust adapted from Sekhon et al. (2013). The measurement items for


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customer loyalty can be seen in Table 3.3 as adapted from Zeithaml et al. (1996). The seven-

point Likert scale of strongly disagree (1) to strongly agree (7) was used to assess each

statement.

4. Findings and Discussion

4.1 Profile of Respondents

Table 4: Profile of respondents

Demographic Variables Categories Frequency Percentage

Gender Male 118 49.4

Female 121 50.6

Marital Status Single 86 36.0

Married 139 58.2

Other Divorced 14 5.8

Age (years) Less than 30 62 25.9

30 – 39 102 42.7

40 – 49 56 23.4

50 and more 19 8.0

Education SPM 26 10.9

STPM 40 16.7

College Diploma 89 37.2

Bachelor Degree 69 28.9

Master Degree 13 5.4

Other 2 0.8

Occupation Public Sector Employee 106 44.4

Private Sector Employee 79 33.1

Self-Employed 43 18.0

Unemployed 4 1.7

Housewife 7 2.9

Income (per month) RM5,000 and less 169 70.7

RM5,001 – RM10,000 39 16.3

RM10,001 – RM15,000 19 7.9

RM15,001 – RM20,000 6 2.5

More than RM20,000 6 2.5

Table 4 shows the demographic profile of the respondents. A total of 239 participants were

included in the final sample. Out of the 239 respondents, 118 were male (49.4%) and 121

(50.6%) were female. The majority of the respondent were 30-39 years old (42.7%). 25.9%

were between 20-29, 23.4% were in the range of 40-49, while 7.0% and 1.0% were from the

groups of 50-59 and 60-69 years old respectively. The majority of the respondents were

College/Diploma holders or higher with 71.5%. Most of the respondents were also from the

government sector, comprising 106 respondents (44.4%). 33.1% were from the private sector

and the rest were either self-employed or non-working (e.g., retirees, students, unemployed).

The most represented personal income in the sample was in the range of less than or equal to

RM5, 000 per month with 70.7%, followed by the income group of RM5,001 – RM10,000

with 16.3%. 7.9% of the respondents earned between RM10,001-RM15,000 monthly, 2.5%

earned RM15,001 – RM20,000 and another 2.5% of the respondents had a monthly income of


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more than RM20,001. The sample reflected that the majority of foreign banks’ customers

were made up of young, working and educated people. All the respondents were Malaysian.

Table 5: Respondents’ Banking Information

Categories Frequency Percentage

Al-Rajhi Bank (ARB) 6 2.5

Hong Kong and Shanghai Banking Corp. (HSBC) 73 30.5

Kuwait Finance House (KFH) 7 2.9

Overseas Chinese Banking Corporation (OCBC) 67 28.0

Standard Chartered Bank (SCB) 52 21.8

United Overseas Bank (UOB) 34 14.2

Table 5 shows the banking information of respondents. According to the table, the

majority of the respondents were Hong Kong and Shanghai Banking Corporation customers

comprising 30.5%, followed by Overseas Chinese Banking Corporation (28.0%), Standard

Chartered Bank (21.8%), United Overseas Bank (14.2%), Kuwait Finance House (2.9%) and

lastly Al-Rajhi (2.5%).

Table 6: Number of Bank Accounts per Customer and Services Obtained

Number of accounts Frequency Percentage

Number of foreign bank accounts One 148 61.9

Two 62 25.9

Three 24 10.0

Four and more 5 2.1

Number of local bank accounts One 97 40.6

Two 91 38.1

Three 42 17.6

Four and more 9 3.7

Number of services obtained One 58 24.3

Two 97 40.6

Three 58 24.3

Four and more 26 10.8

Table 6 shows the number of accounts with both local and foreign banks as well as the

services obtained from these banks in Kota Kinabalu per customer. The results show that

most of the respondents (61.9%) held only one foreign bank account and one local bank

account (40.6%). This suggests that most of the respondents had customer loyalty and

maintained an account with only one bank. 25.9% of the respondents held accounts in two

foreign banks, while 10.0% of respondents had borrowing or non-borrowing relationships

with three foreign banks. The remaining of 2.1% held accounts in four foreign banks or more.

The majority of the respondents used more than two services or products offered by the

foreign banks, including personal banking accounts, financing accounts (housing loan, hire

purchase, etc), credit cards, investments, ATM cards, online banking services and others. As

can be seen in the table, 40.6% of the respondents obtained two types of services offered

followed by 24.3% using one or three services, 10.8% using four services or more.


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Table 7: Method of Banking Transactions

Frequency Percentage

Method of Banking Bank premises only 106 44.4

Transactions Bank website only 1 0.4

Bank premises and website 132 55.2

Bank Premises Everyday 2 0.8

Twice a week 23 9.6

Once a week 16 6.7

Twice a month 31 13.0

Once a month 109 45.6

Less than once a month 58 24.2

Bank Website Everyday 8 3.3

Twice a week 21 8.8

Once a week 21 8.8

Twice a month 21 8.8

Once a month 28 11.7

Less than once a month 34 14.2

None 106 44.4

The method of conducting banking transactions and the frequency of respondents visiting

or conducting their transactions in either bank premises or online are presented in Table 4.4.

The majority of respondents conducted banking transactions at both bank premises and via e-

banking (55%), followed by bank premises only (44.4%) and e-banking only (0.4%).

Results also show that the majority of respondents visited bank premises once a month

(45.6%), followed by less than once a month (23.8%), twice a month (13.0%), twice a week

(9.6%), once a week (6.7%) and everyday (0.8%). Only 1 respondent out of 239 respondents

(0.4%) in the sample did not perform banking transactions at the bank premises. In addition,

results show that most of the respondents did not visit bank website (44.4%), 14.2% of

respondents visited the bank website less than once a month, followed by once a month

(11.7%), twice a month (8.8%), once a week (8.8%), and twice a week (8.8%). Only 3.3% of

respondents visited the bank website daily.

Table 8: Reliability Analysis of Study Variables

Construct Variables No. of Items Cronbach Alpha

Factors Perceived Value 6 .909

Trust 11 .935

Loyalty Customer Loyalty 7 .921

Table 8 shows the reliability analysis of study variables. According to Sekaran and

Bougie (2009), alpha values less than 0.6 considered poor, and values above 0.8 are good. As

shown in the table, all of the three variables have alpha values of 0.9 and above, indicating

that the variables are reliable with a high degree of consistency.

Table 9: Mean and standard deviation of Study Variables


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Variables Mean Standard Deviation

Perceived Value 4.9428 .83584

Trust 4.8836 .74613

Customer Loyalty 4.8643 .83038

Table 4.6 presents the mean and standard deviation values for all of the variables in this

study. Results show that the mean scores for the independent variables varied from 4.8836 to

4.9428 which indicates that all respondents had a moderate perception towards perceived

value and trust. The standard deviation for these variables ranged from 0.74613 to 0.83584.

Overall customer loyalty achieved a mean of 4.8643 with a standard deviation of 0.83038

which indicates that respondents have the intention to build long-term relationships and

loyalty to foreign banks. In summary, the means and standard deviations for the variables in

the study were found to be average.

Table 10: Pearson Correlations Matrix of Study Variables (N=239)

1. Perceived Value 1

2. Trust .819** 1

4. Customer Loyalty .697** .795** 1

Note: **Correlation is significant at the 0.01 level (2-tailed)

As shown in Table 10, results indicate that all variables were positively correlated with

customer loyalty. All the variables had the correlation values of greater than 0.5. Those

variables were perceived value (r=0.697, p<0.01), trust (r=0.795, p<0.01) and customer

satisfaction (r=0.699, p<0.01).Trust is a variable that is highly and positively associated with

loyalty intention (r=.795, p<0.01). A correlation coefficient value in which r=0.50 to 1.0 is

considered strong (Cohen, 1988). Therefore, three of the abovementioned variables have

strong significant or positive correlation with customer loyalty. In this study, trust is

significantly correlated with customer loyalty.

The correlation coefficient values between factors towards customer loyalty ranged

between 0.795 (p<1.00) to 0.696 (p<1.00). All of the variables were found to be positively

correlated with customer satisfaction. The correlation coefficient values of perceived value

(r=.790, p<0.01), trust (r=.808, p<0.01) and customer loyalty (r=.699, p<0.01) were strongly

and significantly correlated with customer satisfaction. The correlation coefficient values

between factors towards customer satisfaction are ranged between 0.808 (p<1.00) to 0.699

(p<1.00).

Overall, the results of the correlation coefficient analysis reveal that the correlation

between the independent variable, mediating variable and dependent variable are significant

and positive, as the correlation coefficient values between the independent variable, mediating

variable and dependent variable appear to be in the range of 0.697 to .819 (p<0.01) which

shows a strong, positive and significant relationship.


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Table 11: Regression Analysis of Perceived Value and Trust with Customer Loyalty

Dependent Variable Independent

Variable

Standard Coefficient

Beta (β) Significance

Customer Loyalty Perceived Value .140 .041*

Trust .680 .000**

R2 .639

Adjust R2 .636

Sig. F .000**

Note: Significant levels: **p<0.01, *p<0.05

Based on Table 11, 63.9% variances in customer loyalty can be explained by both factors

(R2=0.639, p>0.01). Shown are the regression results of the abovementioned hypotheses in

detail. For Hypothesis 1, it is anticipated that there is a positive relationship between

perceived value and customer loyalty. For Hypothesis 2, results show that there is a positive

relationship between trust and customer loyalty. Both of the independent variables were found

to have a positive influence on customer loyalty, perceived value (β=0.140, p<0.05), and trust

(β=0.680, p<0.01). Therefore, both Hypothesis 1 and Hypothesis 2 are supported in this

study.

Results indicate that perceived value has a significant effect on customer loyalty toward

the products and services provided by the foreign banks. The higher the perceived value such

as the perception of the quality of services, customer security and confidence will directly

increase the level of customer loyalty towards the bank. This result is similar to previous

studies carried out in the telecommunication (Bolton and Drew, 1991), banking (Roiget al.,

2006), airline, tourism and retail services industries (Sirdeshmukhet al., 2002; Parasuraman

and Grewal, 2000; Reichheld, 1996).

According to Dasgupta (1998), trust is an important element in all business relationships.

Trust also leads loyalty and commitment because it can create and foster an mutually

beneficial relationship. Loyalty and commitment will lead to the process of purchase and

repatronage and continue maintaining the valued and important relationship that was created

by trust (Chaudhuri and Holbrook, 2001). In this study trust has a positive and significant

relationship with customer loyalty as a high perceived trust towards a foreign bank leads to

commitment and loyalty. The finding is similar to previous studies which stated that trust is

an important element in the service industry (McKnight et al., 1998; Kim and Benbasat, 2003;

Sheppard, Hartwick and Warshaw, 1998). Trust was found to be significantly related to

customer satisfaction. The greater the customer satisfaction with the foreign banks either due

to the product purchased or quality of services, the greater the trust generated in the customer.

Hence, the findings of this study are supported by previous literature which found that there

was a significant relationship between trust and satisfaction (Garbarino and Johnson, 1999;

Singh and Sirdeshmukh, 2000; Anderson and Srinivasan, 2003).


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This study provides empirical evidence supporting the relationship between perceived

value, trust, customer satisfaction and customer loyalty towards the foreign banks in Kota

Kinabalu. The results support the findings on perceived value and trust leading towards

customer loyalty with the mediating effects of satisfaction. At the same time, this study also

provides the empirical support for the Tripartite Attitude Model: Cognitive-Affective-

Conative. In this study, perceived value and trust is cognition where customers form a

positive perception towards foreign banks. Customer satisfaction is the affective component

where customers form a positive feeling towards the bank’s product and services. Customer

loyalty is the conative component where customers will have the intention to repatronage the

bank in the long run. Results show that perceived value, trust and customer satisfaction have a

strong effect and influence on customer loyalty towards foreign banks.

This study has also contributed to the literature to highlight the importance of building

strong customer loyalty in the banking industry because loyalty has a strong correlation to the

increase of sales and profit through repeat patronage, positive word of mouth and less price

sensitivity. It is important to know the perceived value and trust experienced by the customer

in order for a bank to improve its customer service as well as to survive in today’s

competitive market. Results suggest that foreign banks have created a good perception and

image to the public. At the same time, it shows that foreign banks are caring about the

customers and involved in developing customer loyalty.

5. Conclusion

Today’s competitive environment has directly encouraged the banking sector’s

development and growth through increasing efficiency and market discipline, as well as

introducing more sophisticated products and services. It is now important for banks to

understand the factors affecting customer loyalty and the process of development of customer

loyalty, customer relationship management and how to increase customer satisfaction as

customer loyalty is considered to be the foundation of a company’s competitive advantage

thus influencing performance (Rust et al., 2000). Further research is recommended to extend

the findings described in this study. For future research, more variables should be

incorporated into the model which should include both attitudinal and behavioural dimensions

to represent the entire relationship of customer loyalty in the banking industry. The sample

size can be increased in order to get more accurate and reliable data. The same model to

assess satisfaction and loyalty relationship also can be tested in other service industries such

as in hospitality, telecommunication and transportation industries.

Implementation of a customer loyalty program is important to retain the existing portfolio

because the cost of acquiring new customers is always higher than retention. Banks should

build a strong relationship with the customer and provide higher quality of services to reduce


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customer switching behaviour. As discussed earlier, perceived value and trust have a positive

and strong significant relationship towards customer satisfaction and loyalty. Bankers should

also focus on operational issues, especially staff service, customer relationship managers and

personal bankers. Furthermore, packages offered to the customer should match market

requirements. Customer retention relies on the quality of a bank’s services and products

This study indicates that if the customer is satisfied and happy, and assuming that the

banking products and services received by the customer is measurable and offer competitive

value, the customer will then remain loyal to the bank for the long term. Hence, innovation is

a factor of success as bankers need to continue to introduce and offer competitive products to

the market. In conclusion it is important for banks to focus on the development of customer

loyalty programs because strong loyalty will lead to profitability and competitive advantage.

This will enable them to sustain their business in the present competitive environment.

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