Modelling customer loyalty in financial services

Chris Baumann · Greg Elliott · Hamin Hamin

79 citations0/0 files storedInternational Journal of Bank Marketing

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Customer Service Quality and Loyalty Consumer Market Behavior and Pricing Customer churn and segmentation

Abstract

Purpose Customer loyalty is a focal concern for marketers who seek to identify its antecedents and causal structure with the aim of better understanding, predicting and managing loyalty. The purpose of this paper is to model both current behaviour (measured as share of wallet) and future intentions as measures of customer loyalty, to quantify the link between current and future behaviour. Design/methodology/approach A hybrid model, combining reflective and formative constructs, was developed, moving away from the traditional “reflective only” approach to explain customer loyalty. New predictors such as variety seeking, “resistance to change” and risk taking behaviour were tested to explain loyalty. Findings While “risk” is traditionally viewed as a key variable in financial services, this study finds that variety seeking and “resistance to change” predicted current behaviour and future behavioural intentions better than risk. Higher explanatory power and better model fit was found for a hybrid model combining formative and reflective constructs; in contrast to the more common fully reflective approach. Research limitations/implications This study adds to the emerging debate on whether concepts such as loyalty should be treated as reflective and/or formative. The implications from this study suggest that future research can usefully model current behaviour as formative and future intentions as reflective. Future research should test the extent that these findings apply across products and services beyond banking. Originality/value This study establishes that variety seeking and “resistance to change” can usefully explain and predict loyalty. The examination of “formative” and “reflective” concepts in explaining loyalty is also novel.

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References

1979Prospect Theory: An Analysis of Decision under Risk 1988Prospect theory: An analysis of decision under risk 1974Judgment under Uncertainty: Heuristics and Biases 1975Judgment under Uncertainty: Heuristics and Biases 1964CAPITAL ASSET PRICES: A THEORY OF MARKET EQUILIBRIUM UNDER CONDITIONS OF RISK*1989Structural Equations with Latent Variables 1991Structural Equations with Latent Variables.1992Advances in prospect theory: Cumulative representation of uncertainty

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