Determining predictors of customer loyalty in the South African retail banking industry

Abstract

The South African retail banking industry is a highly competitive industry which has experienced an increase in customer attrition. A large number of customers showing intentions to leave their banks have been observed. Consequently, South African banks have begun to put more focus on the use of loyalty or loyalty programmes to ensure that customers are not easily tempted to switch banks. To this end, banks are investing billions of Rands on loyalty programmes with the aim of obtaining and keeping profitable customers. From a literature perspective, relationship marketing has proven to be an invaluable tactic in the banking industry to create intimate relationships with its customers. This type of marketing helps to gain insights about customers and their satisfaction levels, also in light of the intensifying competition in this sphere. It is a truism that relationship marketing can result in loyalty. The primary objective of this study was to determine the predictors of customer loyalty, including service quality, trust, switching costs, and satisfaction, in South African retail banks. The primary research conducted was based on a quantitative descriptive research approach. A non-probability convenience sampling technique was implemented to reach respondents, and self-administered questionnaires were distributed among South African retail bank (Absa, Capitec, FNB, Nedbank and Standard bank) customers in the Gauteng Province who have been with their bank for a period of two or more years. The sample size realised included 464 responses. The structural equation modelling (SEM) results indicated that service quality, trust and perceptions of switching costs statistically significantly predict satisfaction, which in turn statistically significantly predicts loyalty. The confirmatory factor analysis (CFA) and Cronbach alpha values confirmed the reliability and validity of the measurement scales for measuring service quality, trust, switching cost, satisfaction and loyalty. Furthermore, no practically significant differences were uncovered among retail banks in terms of service quality, trust, switching cost perceptions, satisfaction and loyalty. Based on the results, this study proposes a model that indicates how South African retail banks can use service quality, trust and switch cost to increase satisfaction, which consequently results in loyalty. It is recommended that, in order to achieve loyalty, retail banks should improve satisfaction, which is achieved by improving service quality, establishing trust and discouraging customers from incurring switching costs (during the change from one bank to another). Therefore, to improve satisfaction, banks should not exaggerate on promises as this might lead to dissatisfaction. Service quality perceptions can be improved by specifically addressing banks’ responsiveness to their customers. Furthermore, trust can be improved by being reliable in the promises made. Lastly, to improve perceptions of switching costs, banks should inform customers beforehand of the potential costs involved in switching. Recommendations for future research include using online surveys which are less costly and time-consuming. Researchers can liaise with retail banks to conduct primary research within bank branches since the Protection of Personal Information Act restricts banks from giving out customers’ information. Finally, the conceptual model developed can be tested in other service industries to assess its reliability, relevance and applicability