Exploring Customer Satisfaction and Customer Loyalty Relationship: A Case Study on Banks in Melbourne

This study explores the relationship between customer satisfaction and customer loyalty in banking sector in Melbourne. It investigates the existing relationship between basic service in banking sector and customer satisfaction, advanced service in banking sector and customer satisfaction, correlation between cost and prestige in banking sector and customer satisfaction, and relationship between customer satisfaction and customer loyalty in the banking sector.

Running head: EXPLORING CUSTOMER SATISFACTION AND LOYALTY 1
Exploring Customer Satisfaction and Customer Loyalty Relationship: A Case Study on Banks in
Melbourne
Name
Institutional Affiliation

EXPLORING CUSTOMER SATISFACTION AND LOYALTY 2
Table of Contents
1. Introduction............................................................................................................................2
1.1 Problem Statement.................................................................................................................3
1.2 Research aim and objectives..................................................................................................6
1.2.1 General Objective............................................................................................................6
1.2.2 Specific Objectives..........................................................................................................6
1.3 Research Questions:...............................................................................................................7
1. Conceptual Framework.........................................................................................................7
2. Research Hypothesis................................................................................................................8
3. Research Methodology.............................................................................................................9
4.1 Research Approaches.............................................................................................................9
4.2 Data Collection and Sampling.............................................................................................10
4.3 Data Collection Method.......................................................................................................11
4.4 Data Analysis Method..........................................................................................................13
4.5 Ethical Considerations.........................................................................................................13
4. Milestone and Schedule..........................................................................................................14
5. Budget....................................................................................................................................15
6. Organization of the Project.....................................................................................................15
References......................................................................................................................................16

EXPLORING CUSTOMER SATISFACTION AND LOYALTY 3
1. Introduction
The service sector has an indispensable contribution to the worldwide GNP. Within the
massive service sector, the banking industry is recognized as one of the most important entities.
In the recent past, the industry is experiencing tremendous growth as compared to other sectors.
The commercial banks in Melbourne are fundamental components of the Australian economy.
Chen and Hu (2010) observe that Melbourne has outstanding, well-regulated as well as
diversified financial systems that match the high demand for the services in the region. Arguably,
the city’s competitive reputation is based on the presence of highly skilled workforce, large asset
management sector, a world-class education system, and considerably sophisticated banking
industry.
With the increasing change in the technological space, liberalization, mass deregulation
and even privatization, the banking sector is becoming more integrated especially the leading
firms in Melbourne. As a result, the marketing environment in the banking industry has become
highly competitive. Today more than ever, in Melbourne, a customer lost in one firm is a
customer gained in competing firm. Owing to the stiff market competition, Chand (2010)
observes that there is a need for commercial banks to undertake measures to retain their already
existing customers as much as they need to acquire more. The banking sector in Melbourne is
presently more competitive, very dynamic in nature and complex since most of the products and
services offered have minor differences. Thus, the market environment has created a vast
customer demand which requires implementation of transformative measures with a particular
focus on customer satisfaction and loyalty. In effect, the study seeks to investigate the
relationship that customer satisfaction has with customer loyalty with specific emphasis on basic
and advanced banking services, cost and prestige issues that the selected banks in Melbourne
provide to their consumers.

EXPLORING CUSTOMER SATISFACTION AND LOYALTY 4
1.1 Problem Statement
The relationship between customer satisfaction and loyalty has been a subject of
discussion for many scholars in different forums and fields of study. By large the association of
the two concepts has been linked to the enhancement or improvement to organization
performance and even productivity (Mittal & Frennea 2010). Many scholars, among whom
Walsh et al. (2008) observe that product or service quality plays an essential role in ensuring
customer satisfaction which in turns guarantees the possibility that the customers may become
loyal to the product brand or firm. According to Arnold, Fang, and Palmatier (2011) when
customers are consistently satisfied with particular products they are likely to become loyal to
the organization and its products. To Chand (2010) customer loyalty is the outcome of consistent
positive emotional experience and physical-attribute-based satisfaction that come as a result of
the perceived value of experience.
Over the years, researchers and scholars have explored the impact that customer
satisfaction and customer loyalty have on the organization performance. Walsh et al. (2008)
consider customer satisfaction to occur when customers develop positive feelings towards a
particular product or brand based on their evaluation of what they received against their
anticipation. The satisfactory feelings are often associated with the consumers’ purchase
decisions, their needs and want which trigger the decision to buy a product or service (Martínez,
2013). Mittal and Frennea (2010) in their article observe that customer satisfaction has a positive
relationship with customer loyalty since as customers get delighted with particular products or
services; they tend to build a long-lasting relationship with the provider. The relationship
between customer satisfaction and loyalty has been a subject of discussion in the business field
especially in regards to how they influence consumers’ repurchases decision. According to

EXPLORING CUSTOMER SATISFACTION AND LOYALTY 5
Gregoire and Fisher (2008), customer satisfaction is the price of entry to customer category as
the starting point when a firm considers building customer loyalty.
Arguably, in their article Parida & Baksi (2011) argue that to ensure a successful
provision of services, an organization must make sure that it develops a proper and quality
relationship with the customers. Having established a reliable relationship with the consumers, it
is highly likely that the bond may result in satisfaction and ultimately customer loyalty.
Interesting, those organizations which provide the best services to their clients are usually likely
to emerge as the most superior in terms of retaining its customer base and even market share.
Kheng et al. (2010), together with Gregoire & Fisher (2008), claims that superiority performance
results to increase in profit margin, market share, good customer relations, good customer loyalty
and creation of the excellent business image. It is with no doubt a fully satisfied customer will
always come back and refer to others for the excellent services.
In the contemporary business environment, customer satisfaction is considered a priority.
Marketing concepts developed by different researchers show that a customer who has been
served well and satisfied will always come back without hesitation. To this end, Kheng et al.
(2010) observe that customer satisfaction and loyalty are the key long-term goals of any
business. The process of acquiring new customers is always considerably costlier as compared to
retaining the already existing customers.
While there exists numerous researches in regards to customer satisfaction and loyalty in
the public domain, it is interesting to note that limited studies have been conducted on the subject
matter as it applies to the banking sector in Melbourne. The Australian city is known for being a
vibrant hub of business activities with its financial systems regarded among the best in the world,
and yet, such fundamental research has not been carried out. It is for this reason that the present

EXPLORING CUSTOMER SATISFACTION AND LOYALTY 6
study seeks to bridge this eminent gap in research to provide useful insights through which banks
in Melbourne can turn their customer satisfaction efforts to creating a clientele of loyal
customers in the region. According to Arnold and Palmatier (2011), the loyalty of a customer is
often an observable behavior that manifests some level of satisfaction and morale to continue
operating receiving services from an organization. A customer who wants to get back to the
organization and purchase more or recommend to other people about the company indicates the
comfort of the customer with the company. Thus, the present study seeks to explore the
relationship between customer satisfaction and customer loyalty in regards to the banking sector
in Melbourne
1.2 Research aim and objectives
The objectives of the study include the general and specific objectives.
1.2.1 General Objective
The primary objective of this study is to critically explore the relationship between customer
satisfaction and customer loyalty in banking sector in Melbourne
1.2.2 Specific Objectives
 To investigate the existing relationship between basic service in banking sector and
customer satisfaction
 To investigate the existing relationship between advanced service in banking sector and
customer satisfaction
 To investigate the correlation between cost and prestige in banking sector and customer
satisfaction

EXPLORING CUSTOMER SATISFACTION AND LOYALTY 7
 To investigate the relationship between customer satisfaction and customer loyalty in the
banking sector
1.3 Research Questions:
 What is the existing relationship between basic service in banking sector and customer
satisfaction?
 What is the existing relationship between advanced service in banking sector and
customer satisfaction?
 What is the correlation between cost and prestige in banking sector and customer
satisfaction?
 What is the relationship between customer satisfaction and customer loyalty in the
banking sector?
1. Conceptual Framework
The conceptual framework below indicates how the identified independent variables
affect the dependent variable which is customer satisfaction and loyalty in banking sector in
Melbourne.
Fig 1: Conceptual Framework (Source: Author 2017)

EXPLORING CUSTOMER SATISFACTION AND LOYALTY 8
The banks that would be sampled for the study in Melbourne are considered as service
providers in which case each of them is striving to acquire a competitive edge amidst the stiff
competition in a robust financial market. As providers in Melbourne, the banks are obliged to
adopt strategies that seek to enhance the levels of their service provision and customer service to
ensure they constantly meet the influx market demands. To this end, the independent variables
that would be used in the conceptual framework for the study include the basic service, advanced
service, cost and prestige that are provided by the banking institutions in Melbourne. On the
other hand, the dependent variables would be taken to be customer satisfaction and loyalty. The
concept illustrated in the framework is based on the assumption that an increase in the level of
basic and advance service as well as the suitable placement of cost and prestige in the sampled
banks would lead to a corresponding increase in customer satisfaction and loyalty.
2. Research Hypothesis
This study will adopt the following hypotheses based on the independent variables of the study.
The hypotheses of the study were formulated as follows:
H1: There exists no relationship between basic service in banking sector and customer
satisfaction
H1: There exists no relationship between advanced service in banking sector and customer
satisfaction
H1: There is no correlation between cost and prestige in banking sector and customer satisfaction
H1: There is no relationship between customer satisfaction and customer loyalty in the banking
sector

EXPLORING CUSTOMER SATISFACTION AND LOYALTY 9
3. Research Methodology
This chapter captures the research methodology which will be employed by the
researcher to find answers to the research questions and then to finally conclude the study.
Accordingly, it addresses the various aspects of research and data collection methods as well as
highlights the sampling technique that would be adopted to obtain a representative sample of the
study population.
4.1 Research Approaches
The present research on banks in Melbourne would adopt a mixed research method that
would integrate both qualitative and quantitative research design in both data collection and
analysis (Nam et al., 2011). The choice of this approach is facilitated by the nature of the data
that would be gathered which are likely to be both qualitative and quantitative. According to
Saunders et al., (2015) this method involves the collection, analysis, and integration of
quantitative and qualitative data in a single study primarily to provide a better understanding of
the research problem under investigation.
To this end, the rationale of using mixed research design is based on the assumption that
neither quantitative nor qualitative methods independently are sufficient to provide an exhaustive
approach to comprehend the existing trends and details of a research problem (Bryman 2015).
However, when used in combination, the two research methods complement one another to
provide for more robust analysis of the situation, taking advantage of the strength inherent in
each approach (Polyorat and Sophonsiri, 2010).
4.2 Data Collection and Sampling
Sekaran (2003) regards population in research as the entire group of individuals, objects,
or events that have common observable characteristics which are of interest of the investigation.

EXPLORING CUSTOMER SATISFACTION AND LOYALTY 10
In other words, it refers to the aggregate of all cases characterized by a set of specifications.
Thus, to critically explore the relationship between customer satisfaction and customer loyalty
using a case study of banks in Melbourne, the study will use a sample of eight major banking
institutions in Melbourne market (Richard and Zhang, 2012). It is worth pointing out that while
the target population selected for this study comprised of all banks in Melbourne, a small sample
of the banks would be taken as a representation of all the remaining banking institutions in the
region.
As an Australian city that has strong economic growth given the triple-A credit (AAA)
rating, Melbourne is home of well-established banking institutions such as NAB, ANZ, Bendigo,
Westpac, Adelaide Bank in the region. For this reason, a sample of these institutions would
provide sufficient data to help understand the relationship that customer service satisfaction has
with their loyalty to the institutions. The eight banks will be chosen from a population of 18
major banking firms using the judgmental sampling method. According to Jokovich (2013), this
sampling involves the choice of subjects who are most favorably placed to provide the required
information that is relevant to the study (Siddiqi, 2011). Thus, in the present context, the
judgmental sampling method is preferred over other sampling methods because it would allow
the researcher to base the sample for the study on the specific company attributes which have
relevance to the subject matter under investigation.
It is worth mentioning that their sizes also drive the choice of these banks in terms of the
number of customers that each has, the number of newly acquired clientele and those that the
company has retained over time. The selected companies for the study are as shown in the table
below.

EXPLORING CUSTOMER SATISFACTION AND LOYALTY 11
S/no. Representation Name of Banking Institution in Melbourne
1 A National Australian Bank (NAB)
2 B Australia and New Zealand Banking Group (ANZ)
3 C Bendigo Bank
4 D Adelaide Bank
5 E Westpac Bank
6 F The Commonwealth Bank of Australia
7 G Bank of Queensland
8 H Macquarie Bank
(Source: Bakir 2011)
4.3 Data Collection Method
The study will adopt the use of both primary and secondary data sources. The
quantitative data will be gathered from secondary data sources such as annual banking reports
from individual banks, Australian Bureau of Statistics, and other relevant reports and articles.
Bình (2012) describes secondary data as those that have been previously gathered by other
scholars while conducting their primary studies and recorded systematically in respective reports
and journals. The study will rely on banks yearly reports within the period 2013 – 2018 to
provide excellent background information about the existing number of customers in each firm.
On the other hand, qualitative data will be gathered from primary data sources, primarily
from the field which in this case include raw data collected through the use of interviews.
Interviews will be preferred for obtaining primary data from the field since they provide a
platform for the researcher to elicit more information about the subject matter as well as provide
the ability to observe both the subject and the situation to which the interviewees respond to on
the question (Creswell and Creswell 2017). The researcher will conduct one on one interview
through the use of structured topic guide of five questions. The possible interviewee for the study
would include randomly picked customers walking into the banks, the employees of the banks

EXPLORING CUSTOMER SATISFACTION AND LOYALTY 12
(namely executive representative, cashier, and customer service agent), branch management and
key shareholders.
Besides, the study will employ the use of questionnaires to gather data from the field,
particularly the sampled institutions. The questionnaires will be designed to have various parts
which will include issues that relate to customer satisfaction, basic and advanced service, cost
and prestige as well as customer loyalty. The questions will be measured and tested on a five-
point scale that had been standardized by Brayfield-Rothe (1951) Saunders et al. (2015). The
scale will also consist of 25 statements with each state having five options which include
strongly agree (5), agree (4), undecided (30), disagree (2) and finally strongly disagree (1).
The study will use two banks in Melbourne, namely Bankwest and Suncorp Bank; will be
used for a pilot study using a draft questionnaire. The banks that will participate in the pilot study
will not take part in the primary research. After this piloting which Bryman (2011) observes as
useful for testing the tool of data collection, the initially selected variables would be dropped to
ensure that the outcome avoids the problem of multicollinearity. Moreover, the questionnaire
would be rephrased and re-structure to provide a final version of the tool in readiness for the
primary study (Yuen and Chan, 2010). The final version of the too would be administered
through the use email to the already collected email addresses of the respondents, mail to the
respective institutions and even personal administration with the help of research assistants.
4.4 Data Analysis Method
After receiving the data from the questionnaires, the researcher will clean the gathered
data and code them for easy interpretation. Cole et al. (2011) observe that raw data collected
from the field are often difficult and cumbersome to interpret, and thus, it must first be cleaned,
coded and keyed into the computer to make them ready for analysis. The research study will

EXPLORING CUSTOMER SATISFACTION AND LOYALTY 13
then employ the use of the statistical analytical tool, Statistical Package for the Social Sciences
(SPSS) to analyze the collected data. For the secondary data from the annual banking reports and
extant literature, content analysis will be used to help provide supporting evidence to the data
collected from the field. Saunders et al. (2015) note that content analysis is often considerably
orderly and impartial in the analysis the available secondary data sources and this makes it
suitable for use in the study. Besides, the use of content analysis in the study would help
contribute to the existing corpus body of knowledge especially in regards to the relationship
between customer satisfaction and customer loyalty.
4.5 Ethical Considerations
Cole et al. (2011) observe that any researcher, regardless of the field of study, any
researcher is often obligated to make sure that they adhere to ethical standards for conducting
research especially those that involve other people. Observance of the stipulated guideline in
research is helpful in minimizing the possibility of causing unprecedented harm to the reputation
and interest of the participants in the study process (Assaf and Magnini 2012).
4. Milestone and Schedule
Task Name Duration Start Finish
1 Research Proposal 6 days Mon 04-09-17 Sat 09-09-17
2 Literature Review 18 days Mon 11-09-17 Sat 30-09-17
3 Data Collection 16 days Mon 02-10-17 Thu 19-10-17
3.1 Secondary Data 8 days Fri 20-10-17 Sat 28-10-17
4 Data Analysis 14 days Mon 30-10-17 Tue 14-11-17
5 Report Preparation 15 days Wed 15-11-17 Sat 02-12-17
Total number of days 69 days

EXPLORING CUSTOMER SATISFACTION AND LOYALTY 14
5. Budget
Item Amount (US $)
Stationery 150
Research Assistant 250
Travelling 200
Consultation 500
Printing 1300
Books and Online resources 1500
Clerical work 50
Refreshments 500
Binding 300
Total 4750
6. Organization of the Project
The report will begin with an introduction which will include background information,
statement of the problem, research objectives, research questions and hypotheses. This will be
followed by research methodology which encompasses research design, data collection and
sampling and finally the analysis method that would be adopted to answer the research questions
and ethical considerations. The last component of the report will be milestone and schedule of
the project and its proposed budget.

EXPLORING CUSTOMER SATISFACTION AND LOYALTY 15
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