The effect of service quality and customer satisfaction on customer loyalty

Abstract

The purpose of this paper is to investigate the impact of customer satisfaction, service quality, the perceived value of services, corporate image and corporate reputation on customer loyalty and their relationship in the Turkish banking industry. Mediation effects of the perceived value and corporate image and reputation are also studied. Understanding the relationships between the determinants of customer loyalty toward the bank helps management to use corporate image and reputation more effectively in its strategy, thus enhancing the institution’s position in the minds of consumers. A model is proposed to explore the relationships of service quality and customer satisfaction with a perceived value and their effect on transforming the corporate image and corporate reputation into the form of customer loyalty toward the bank. A survey is designed within this framework and SEM analysis is conducted in order to study the nature of relationships between variables of interest hypothesized to affect customer behavior and customer loyalty. Mediation tests for perceived value and corporate image and reputation are also conducted. The findings of the survey indicate that corporate image and corporate reputation can be used as a common marketing benchmark to measure a bank’s performance. The results demonstrated that customers perceive quality and satisfaction effects loyalty through perceived value, image and reputation. The study was conducted in Izmir, the third biggest city of Turkey. The sample is composed of regular customers, and the sample size is enough for the study but more studies are needed to generalize the results. The results provide information to bank managers to effectively assist them to offer appropriate customer service levels sustaining satisfaction, quality and value to the customers within the transactions. The paper studies the determinants of customer loyalty in the Turkish banking industry and considers the effects of corporate image and corporate reputation as measured by customer satisfaction, service quality and perceived value, on customer loyalty toward banks in Turkey. This model is not studied in bank marketing in Turkey and also in the banking literature.