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Modeling customer satisfaction and loyalty: Survey data versus data mining

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DOI: 10.1108/08876041211223951

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 Journal of Services Marketing
Modeling customer satisfaction and loyalty: survey data versus data mining
Chris Baumann Greg Elliott Suzan Burton
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Chris Baumann Greg Elliott Suzan Burton, (2012),"Modeling customer satisfaction and loyalty: survey data versus data mining",
Journal of Services Marketing, Vol. 26 Iss 3 pp. 148 - 157
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Marketing, Vol. 27 Iss 4 pp. 334-344 http://dx.doi.org/10.1108/08876041311330807

Roger Hallowell, (1996),"The relationships of customer satisfaction, customer loyalty, and profitability: an empirical study",
International Journal of Service Industry Management, Vol. 7 Iss 4 pp. 27-42 http://dx.doi.org/10.1108/09564239610129931
Mark D. Uncles, Grahame R. Dowling, Kathy Hammond, (2003),"Customer loyalty and customer loyalty programs", Journal of
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 Modeling customer satisfaction and loyalty:
survey data versus data mining
Chris Baumann and Greg Elliott
Department of Marketing and Management, Macquarie University, Sydney, Australia, and
Suzan Burton
School of Business, University of Western Sydney, Sydney, Australia

Abstract
Purpose – The loyalty literature has investigated the association between customer satisfaction and customer loyalty and revealed mixed results.
Some studies have indicated that the relationship is linear, whereas others have found it to be non-linear. This study examines the nature of this
association in retail banking, an issue that has not been tested empirically.
Design/methodology/approach – A survey study examined bank customers’ attitudes, perceptions, and behavior. Bivariate and multivariate testing
was applied to develop two loyalty models: one based only on variables typically known to a bank, such as demographics and recent consumer
behavior, and the other based on additional survey data.
Findings – A non-linear relationship between customer satisfaction and customer loyalty was found, and a model explaining 56.9 percent of the
variation in customer loyalty was developed. Predictors of loyalty beyond the attitudinal dimensions traditionally tested for their association with loyalty
were found to be associated with customers’ intentions to remain with their bank. In particular, market conditions such as switching costs and benefits
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as well as recent consumer behavior were found to add explanatory power. Further, this study contrasted a full model explaining 56.9 percent of the
variation in loyalty with a model based only on variables known to banks, which explained only 8.4 percent. Profiling customers based on survey data
can thus provide additional explanatory power compared to data mining models
Originality/value – The models can be used by bankers to profile customers who are likely to remain loyal, allowing practitioners to implement
proactive marketing action to reward such loyalty. Customers least likely to defect have high satisfaction levels, perceive switching as an unattractive
option, and typically have a long-established banking relationship.

Keywords Customer satisfaction, Non-linearity, Customer loyalty, Segmentation, Consumer behaviour, Banking

Paper type Research paper

An executive summary for managers and executive characteristics with customer loyalty measures has received
readers can be found at the end of this article. less attention in the marketing literature than the association
between customer satisfaction and loyalty, and thus warrants
further investigation.
1. Introduction This study measures customer loyalty as customers’
This study investigates the factors that help to explain behavioral intentions, specifically, intentions to remain long-
consumers’ behavioral intentions in retail banking. In term customers of their bank. A series of customer loyalty
particular, this research examines the associations between models are generated which include data typically readily
customer satisfaction, perceived service quality, recent and available to banks in customer records – for example,
demographic data such as age and gender, together with
current consumer behavior, and a customer’s long-term
additional data gathered by customer surveys. The resulting
intentions to remain a customer. Two factors, customer
models have strong managerial implications for bankers since
satisfaction and perceived service quality, have previously
they allow profiling of customers’ intended probability of
been found to be significantly associated with customer
defection.
loyalty. To these potential predictors of loyalty in retail
banking, this paper adds customers’ perceptions of market
conditions, such as perceived switching costs and benefits, 2. Literature review
and customer characteristics, such as demographic factors,
thereby extending the customer loyalty literature. The The issue of customer loyalty is becoming increasingly
association of market conditions and customer important given that the banking industry in most western
markets is suffering from limited growth, high fees, and the
substantial costs of winning new customers (Candler, 2005).
The current issue and full text archive of this journal is available at This situation follows a long period of cost cutting in the
www.emeraldinsight.com/0887-6045.htm

The authors would like to thank the JSM Editor, Professor Charles
L. Martin, and the anonymous reviewers for providing very useful
Journal of Services Marketing
26/3 (2012) 148– 157 suggestions for further developing this paper. An earlier version of the
q Emerald Group Publishing Limited [ISSN 0887-6045] paper was presented at the Western Decision Sciences Institute
[DOI 10.1108/08876041211223951] Conference, San Diego, CA, 18-22 March 2008.

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 Modeling customer satisfaction and loyalty Journal of Services Marketing
Chris Baumann, Greg Elliott and Suzan Burton Volume 26 · Number 3 · 2012 · 148 –157

industry, the merger of some providers, and the focus of The relationship between satisfaction and loyalty was found to
banks on their internal processes and activities, which be non-linear with high correlations at high satisfaction levels,
arguably results in “little perceived difference between but low correlations at low satisfaction levels. These findings
financial institutions” (Candler, 2005, p. 287). Given this have led to suggestions of a curvilinear relationship (Heskett
fierce competition, further intensified by the global financial et al., 1997) between satisfaction and loyalty. Heskett et al.
crisis in 2008/2009, bankers need to better understand the (1997) described the extremes of customer loyalty as ranging
drivers of customer loyalty. In addition, there is conclusive from the so-called “evangelists” (i.e. customers in the “zone
evidence that commercial customers and private consumers of affection” who are close to 100 percent satisfied or
no longer just bank with one institution but are increasingly delighted and near 100 percent loyal) to the “terrorists”
using a number of banks at the same time and have thus (those customers who are very dissatisfied).
become “multi-banked” (Nielsen et al., 1998; Rowley and The association between customer satisfaction and
Dawes, 1999, p. 3; Trayler et al., 2000; Lam and Burton, various measures of loyalty has also been investigated in
2005). In this sense, “loyalty” is often directed towards the retail banking sector; for example, Hallowell (1996)
multiple banks and, equally, loyalty to one’s “main bank” (as found a positive association between satisfaction and word
measured in this study) can be regarded as a question of of mouth; Moutinho and Smith (2000) found a positive
“degree” (rather than “binary”). The motivators for multi- relationship between satisfaction and retention, and Methlie
banking may include the desire to spread risk (although in and Nysveen (1999) and Veloutsou et al. (2004) found a
Australia and most other developed countries such as the US, positive relationship between satisfaction and behavioral
Canada and most European countries, retail bank security is intentions.
de-facto “government-guaranteed”) and opportunism, in
addition to a range of structural explanations such as 3. Model development
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location, family and business relationships. For all financial

institutions, better understanding customer loyalty and its Based on previous research, this study incorporated customer
indicators, and being able to predict future intentions has perceptions, such as overall satisfaction, affective attitude, and
arguably become crucial. service quality dimensions, as potential predictors of loyalty.
The literature has previously established a strong In addition, the study included customers’ perceptions of
relationship between customer satisfaction and customer market conditions – that is, switching costs and benefits –
loyalty (Oliver, 1980; Oliver and Swan, 1989; Cronin and and customer characteristics in order to maximize prediction
Taylor, 1992; Levesque and McDougall, 1996; Mooradian of customer loyalty. Customer characteristics such as
and Olver, 1997; McDougall and Levesque, 2000), as well as demographic variables have been found to play a role in
between service quality and customer loyalty (Bitner, 1990; consumer behavior but have rarely been tested for their
Taylor and Baker, 1994; Spreng et al., 1995; Zeithaml et al., prediction of loyalty in banking. Recent consumer behavior
1996). Generally, strong associations have been found for was also incorporated in this study based on the logic of a
both factors, indicating that both customer satisfaction and Markov model where past behavior is used to predict current
perceived service quality are important and reliable predictors and future behavior (Vilcassim and Jain, 1991; Ansari et al.,
of customer loyalty. Consequently, a substantial body of 2000; Shively et al., 2000; Chib et al., 2004; Paas et al., 2004).
literature on the topic of customer satisfaction has emerged. Moreover, the importance of past behavior as a strong
Customer satisfaction has been found to be related to higher predictor of future behavioral intentions is also indicated in
levels of profitability (Reichheld and Sasser, 1990; Anderson the literature (e.g. Woodside and Bearden, 1977; McQuarrie,
et al., 1994; Ittner and Larcker, 1996; Heskett et al., 1997; 1988; Bagozzi et al., 1991).
Eklof et al., 1999; Anderson et al., 2004), willingness of Although customer perceptions (i.e. overall satisfaction,
customers to pay a premium price for products and services affective attitude, and service quality) and customers’
(Reichheld and Teal, 1996; Yu and Dean, 2001), favorable perceptions of the market conditions (i.e. switching costs,
behavioral intentions (Oliver and Linder, 1981; Mooradian switching benefits, product perception, and consumer
and Olver, 1997; Brady and Robertson, 2001), retention confidence) are not known by bankers (unless they have
(Fornell, 1992; Rust and Zahorik, 1993), repeat visiting previously conducted research to evaluate them), banks do
behavior (Bloemer and De Ruyter, 1998), and repeat have access to customer demographic data. Therefore, it
purchasing (Söderlund, 1998; Sivadas and Baker-Prewitt, would be helpful for bankers to model loyalty based only
2000). on known customer characteristics data rather than having
However, there is evidence that satisfaction and loyalty are to rely on collecting survey data, which typically only
not always strongly correlated (Cronin and Taylor, 1992; captures a portion of the customer database and where the
Oliva et al., 1992; Mittal and Lassar, 1998). East and findings provide no evidence of stability of customers’
Hammond (1999), in a review of the relationship between perceptions.
satisfaction and retention, found that most studies only The importance of using customers’ behavioral intentions
revealed weak associations between customer satisfaction and to predict customer retention has been recognized by many
customer loyalty. A landmark study on the association researchers (e.g. Norman and Smith, 1995; Godin et al.,
between customer satisfaction and loyalty is Jones and 2004; Patterson, 2004; Luarn and Lin, 2005), and
Sasser’s (1995) article on “why satisfied customers defect.” consequently, customer loyalty in this study has been
Jones and Sasser concluded that the only “true loyalists” were measured as a customer’s intention to remain with their
the totally satisfied customers, and that the association main bank over the long term. This approach is in line with
between satisfaction and loyalty was especially complex. Jones related studies on intentions to repurchase (e.g. Byrnes, 1964;
and Sasser (1995) also found that some customers remain Bloemer et al., 1999; Lee and Cunningham, 2001). However,
with a service provider regardless of their level of satisfaction. since banking is a “subscription-type” business (Garland and

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 Modeling customer satisfaction and loyalty Journal of Services Marketing
Chris Baumann, Greg Elliott and Suzan Burton Volume 26 · Number 3 · 2012 · 148 –157

Gendall, 2004, p. 91), repurchase intentions, which are 5. Results

generally used to measure loyalty for physical products, may
be more appropriately modeled in the case of retail banking as 5.1 Bivariate analysis of long-term behavioral
intentions to remain a customer[1]. intentions
T-tests were used to test for differences in behavioral intentions
according to demographic characteristics, with the results
shown in Table I. Four variables revealed significant differences
4. Methodology (three at the Bonferroni adjusted p # 0.01 level and one at the
Customer loyalty was investigated using a survey to examine p # 0.05 level): whether a customer had recently opened an
the banking attitudes, perceptions, and behavior of retail account with a competitor (higher long-term behavioral
banking customers. The study achieved a high response rate intentions for customers who had not), whether a customer
(nearly 40 percent), and the subsequent data analyses were had recently closed an account with their main bank (higher
based on a sample of 1,951 responses. Females (61 percent) long-term behavioral intentions for those who had not), a
were over-weighted in the sample, reflecting the higher customer’s level of education (higher long-term behavioral
intentions for non-university educated customers), and
proportion in the sample frame (63 percent females).
Principal component analysis was used for data reduction residential location (higher long-term behavioral intentions
for rural customers). There were, however, no significant
(Johnson and Wichern, 2002), i.e. single values were obtained
differences between males and females in their long-term
for each of the multi-item constructs, following Pritchard
behavioral intentions to remain with their main bank.
et al.’s (1992) suggestion that multidimensional
measurements are most appropriate for studies based on
5.2 Multivariate analysis of long-term behavioral
attitudinal measures. The resulting variables were
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subsequently used in bivariate and multivariate analyses to intentions

In the modeling and prediction of long-term behavioral
model behavioral intentions. The dependent variable (long-
intentions, the square term of overall satisfaction was found to
term intention to remain loyal) was a factor score resulting
be significantly associated with the dependent variable.
from the principal component analyses and was based on two
Figure 1 is based on the following equation:
questions from the questionnaire: firstly, the extent to which a
customer would resist competing offers, and secondly to what Long-term BI ¼ 20:523 þ 0:311 £ affective attitude þ 0:125
extent they intend to remain a customer for the next five
years. Both variables were found to measure the same £ overall satisfaction 2 0:219 £ SB þ 0:204
underlying construct during the data reduction process, and
therefore were factor scored into a new construct labeled £ SC þ 0:039 £ length of relationship
“long-term behavioral intentions,” the dependent variable in
þ 0:024 £ overall satisfaction squared
this study.
Regression models were estimated using a step-wise method
for the behavioral intentions models. This approach revealed X values ranging from 2 3 to þ 3 for satisfaction and
the main effects of the model, i.e. the key predictors of the satisfaction squared were computed, giving the predicted
dependent variable after allowing for the effects of the other
variables in the model (Derksen and Keselman, 1992). Next, Table I T-test analysis of categorical variables and long-term
a model of the main effects was created from the above model behavioral intentions
and was tested for possible significance of the square terms of
affective attitude and overall satisfaction since these two Predictors n Mean SD P
independent variables may have a non-linear relationship with Recently opened account with competitor , 0.001
the dependent variable – long-term intentions to remain a Yes 316 20.41 1.018
customer. In order to test the associations between the main No 1,383 0.09 0.975
effects and the square terms of attitude and satisfaction with
the dependent variable, the model with the significant main Recently closed account with main bank , 0.001
effects was run again as a “forward addition procedure” as Yes 169 20.37 1.032
recommended by Hosmer and Lemeshow (2000). The square No 1,539 0.04 0.990
term of overall satisfaction was significantly associated with
the dependent variable (as explained in more detail in the Education , 0.001
results section below). No university 1,179 0.05 1.005
Where the quadratic term was found to be significantly University 493 20.14 0.985
associated with the dependent variable, the model with the
main effects was once again run in a multiple regression Residential location 0.003
(applying the “enter method”), including the significant Urban 796 20.09 0.969
square term as recommended by Derksen and Keselman Rural 737 0.06 1.020
(1992). The model was then once again run based only on the
customer characteristics variables such as demographics, Gender 0.227
length of relationship, and recent consumer behavior – factors Female 1,021 0.02 1.014
typically known to the bank or which can be estimated Male 692 20.04 0.979
relatively easily.

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Chris Baumann, Greg Elliott and Suzan Burton Volume 26 · Number 3 · 2012 · 148 –157

Figure 1 Non-linear relationship between overall satisfaction and long-term behavioral intentions (BI)
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long-term behavioral intentions values (i.e. the Y values) for was tested for model fit and no evidence of lack of fit was
each level of satisfaction. The results are shown in Figure 1, found (F value ¼ 294.436; df ¼ 6).
which shows the non-linear and additive effect of satisfaction The strongest single predictor of a customer’s long-term
on a customer’s long-term behavioral intentions, after intention to remain with the main bank was affective attitude
allowing for the effects of all the other variables in the model. towards the bank, followed by overall satisfaction. Both
This finding raised the issue of how many respondents were predictors have a positive association with intentions to
in the left-hand side of the chart since this group could remain a customer: the more positive a customer’s attitude
represent a problem segment to the bank. An additional test towards the bank and the more satisfied they are, the more
was conducted and found that the number of respondents in likely they are to report that they will stay for another five
this category was low. There were 93 customers (5.4 percent) years. Switching benefits and switching costs were also found
to be strong predictors of long-term behavioral intentions, but
who rated their level of satisfaction 23, 85 (5.0 percent) who
unsurprisingly, with opposite directions of association (i.e. the
rated it as 22, and 104 (6.1 percent) who rated it as 2 1.
effect of switching benefits was negative and that of switching
These low numbers are in marked contrast to the satisfied costs was positive). The negative association (b ¼ 2 0.220,
customers who intended to remain with the bank long term, p , 0.001) for switching benefits indicates that the less
e.g. 582 (or 34 percent) respondents rated their level of benefits that customers see in switching, the more they intend
satisfaction as þ2 on the seven point scale of minus three to to remain with their main bank in the long run. Switching
plus three. Although the dissatisfied segment is small, these costs, on the other hand, had a positive association with the
customers could still be important to the bank should they dependent variable (b ¼ 0.208, p , 0.001): the higher the
belong to a profitable segment, in which case the bank could perceived switching costs, the more likely that a customer
implement a retention strategy. intends to remain with their main bank in the long term.
The model presented in Table II explained 56.9 percent of After allowing for the effects of all the other predictors in
the variation in long-term behavioral intentions. The model the model, length of relationship with the main bank was the

Table II Multivariate predictors of long-term behavioral intentions – multiple regression – based on all potential predictors
Unstandardized Standardized
Predictor coefficients Standard error coefficients (Beta) t P
Constant 2 0.523 0.065 2 7.993 , 0.001
Affective attitude towards the bank 0.311 0.034 0.319 9.234 , 0.001
Overall satisfaction 0.125 0.020 0.214 6.329 , 0.001
Switching benefits 2 0.219 0.021 20.220 210.373 , 0.001
Switching costs 0.204 0.018 0.208 11.262 , 0.001
Length of relationship 0.039 0.008 0.091 5.036 , 0.001
Overall satisfaction squared 0.024 0.006 0.078 4.054 , 0.001
Note: R2 ¼ 0.571; Adjusted R2 ¼ 0.569; F-value ¼ 294.436; df ¼ 6; n ¼ 1,333

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 Modeling customer satisfaction and loyalty Journal of Services Marketing
Chris Baumann, Greg Elliott and Suzan Burton Volume 26 · Number 3 · 2012 · 148 –157

fifth strongest predictor (b ¼ 0.091, p , 0.001). The longer a i.e. whether customers had recently closed an account with
customer had been banking with their main bank, the higher their main bank, was also significantly associated with the
their intentions to remain a customer for the next five years. dependent variable (b ¼ 0.067, p ¼ 0.011). Customers who
While these results are, perhaps, unsurprising, it does had recently closed an account had lower levels of long-term
highlight the importance of the customer’s emotional behavioral intentions. Lastly, residential location also revealed
connection to the bank. Collectively, variables based on the a significant association with long-term behavioral intentions
emotional connection to the bank (affective attitude, (b ¼ 0.062, p ¼ 0.018). Customers in urban areas have lower
satisfaction, empathy and assurance, and trust) overpower levels of long-term behavioral intentions than customers in
all other variables in explaining loyalty. Clearly however, the rural locations.
terms share much common meaning. The second group of The results of Table III, when compared and contrasted
factors seems to be the economic costs and benefits (fees, with those of Table II, highlight an important and difficult
charges, interest rates, and switching costs and benefits) challenge for management. Because those factors already
which will need to at least match those provided by known to management (shown in Table III) account for so
competitors. The combination of these two factors – little variance, the results in Table III highlight how difficult it
emotional connection and economic benefits – would is to understand, predict and thus manage these relationships.
appear to provide an impregnable “shield” for the customer After all, by the time the customer has opened an account
relationship and would defend against the customer with a competitor, it may be too late to preserve the
acquisition efforts of competitors. relationship. As the results of Table II demonstrate, loyalty is
The second model developed in this study was the one based overwhelmingly on the emotional connection and not
predicting long-term behavioral intentions based only on the on factors readily known to the bank. At the same time, the
factors known to the bank. A model was developed explaining “emotional” aspects identified in Table II go to the heart of
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8.4 percent of long-term behavioral intentions (Table III). the relationship which the customer shares with the bank.
The model explained substantially less than the model based
on all predictors, which explained 56.9 percent (Table II). 6. Discussion
There is thus a substantial difference in the predictive power
of the two models. The results presented in the previous section offer an insight
The model presented in Table III shows that the variable into the associations between customer perceptions, perceived
“recently opened an account with the competitor” was the service quality, market conditions, and customer
strongest predictor of long-term behavioral intentions when characteristics (as independent variables) and a bank
only the factors known to the bank were tested for their customer’s intention to remain with their main bank in the
association with long-term behavioral intentions (b ¼ 0.144, long term, defined in this study as a five-year period (as the
p , 0.001). Customers who had not recently opened an dependent variable).
account with a competing financial services provider were During times of increased cost pressures and the financial
found to have higher levels of long-term behavioral intentions turmoil as a result of the 2008/2009 global financial crisis, it is
to remain loyal. Age also had a positive association with long- crucial for banks to better profile customers in order to
term behavioral intentions: the older the customer, the more improve customer satisfaction, relationship management
likely they were to intend to stay with their bank long term (CRM) and loyalty. This study finds that modeling based
(b ¼ 0.140, p , 0.001). Income, however, had a negative only on customer demographics and account openings and
association with the dependent variable, indicating that the closings explains roughly 8 percent, and thus has very limited
higher a customer’s income, the lower their intention to explanatory power in illuminating and predicting loyalty in
remain with their main bank long term (b ¼ 2 0.093, terms of a customer’s intention to remain or defect. In
p , 0.001). Even after allowing for the effect of age in this comparison, this study finds that, if loyalty is modeled based
model, the variable “length of relationship” was found to have on survey data, nearly 57 percent of customer intentions can
a significant association with long-term behavioral intentions. be predicted. While collecting satisfaction and market
The association was positive, i.e. the longer a customer had perception data such as switching costs and switching
been with their main bank, the more likely they were to intend benefits is expensive, the benefits should outweigh the costs
to stay with their main bank long term (b ¼ 0.081, of conducting the survey if the profiling of customers can be
p ¼ 0.003). The second of the recent behavior variables, substantially improved. It appears from these results that

Table III Multivariate predictors of long-term behavioral intentions – multiple regression – based on predictors known to the bank
Unstandardized Standardized
Predictor coefficients Standard error coefficients (Beta) t P
Constant 2 1.726 0.242 2 7.134 , 0.001
Recently opened account with competitor 0.358 0.066 0.144 5.453 , 0.001
Age 0.087 0.017 0.140 5.164 , 0.001
Income 20.060 0.017 2 0.093 23.545 , 0.001
Length of relationship 0.35 0.012 0.081 3.007 0.003
Recently closed account with main bank 0.222 0.087 0.067 2.562 0.011
Residential location 0.122 0.052 0.062 2.370 0.018
Note: R2 ¼ 0.088; Adjusted R2 ¼ 0.084; F-value ¼ 23.134; df ¼ 6; n ¼ 1,427

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Chris Baumann, Greg Elliott and Suzan Burton Volume 26 · Number 3 · 2012 · 148 –157

profiling can be used to detect customers with an intention to of a two-way relationship with the service supplier.
defect, and thus CRM may prove useful in attempting to Customers, quite reasonably, will increasingly expect to be
rescue the relationship. Also, a model explaining 57 percent of rewarded for their loyalty.
loyalty allows a bank to profile “attached” customers who are
not likely to defect, and to direct CRM retention strategies to 7. Conclusion
that segment. Personalized customer service can be directed
toward those segments determined to be of strategic This study modeled customers’ long-term intentions to
importance. Cost/benefit analyses of increased customer remain with their main bank, and contrasted the full model
service can be conducted for specific loyalty segments, and with one based only on factors known to the bank. It was
thus the likelihood of their reactions to CRM can be shown that the latter model had a much lower explanatory
associated with their level of profitability to the bank. power than the model based on all potential predictors. The
Resources can therefore be allocated to segments that are full model explained 56.9 percent of the variation in the
“attached” and profitable (retention) and also to the ones that dependent variable but the model based only on factors
are likely to defect, but are actually profitable to the bank known to the bank explained a modest 8.4 percent of the
(rescue strategy). Conversely, less attention and resources variation in loyalty intentions.
should be implemented for segments that are likely to defect, In testing a range of potential determinants of loyalty in
but which are also not profitable to the bank in the first place. retail banking, this study found that customer perceptions
This, in turn, will increase the returns on marketing such as overall satisfaction and affective attitude have strong
investments. associations with behavioral intentions. It was also
While this study provides an argument for profiling demonstrated that the association between satisfaction and
customers based on survey data as a basis for customer loyalty is of a non-linear nature.
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relationship management, the study also models determinants The study also tested perceived market conditions as
for retention and defection. Both loyalty and disloyalty can be potential predictors of loyalty in retail banking. One of these
predicted based on a customer’s affective attitude, overall conditions, switching costs, was found to be a unique
satisfaction and perception of switching costs and benefits. predictor of long-term intentions to remain a customer. This
This study has found that customer satisfaction, while result suggests that switching costs contribute significantly to
undoubtedly important, is also quite complex. The customer loyalty. This may be particularly so in cases where
association between overall satisfaction and long-term switching is complicated, such as with debts, mortgages, loans
behavioral intentions was found to be non-linear in this and some high-yield deposit funds. Further, switching
study. Customers who are very satisfied with their bank have benefits, which also captured perceived market conditions,
an over-proportionately high level of intention to remain with was a unique negative predictor of long-term intentions to
their bank in the long run. More dangerously, Figure 1 shows remain with the bank, further supporting the hypothesis that
that customers who are very dissatisfied, and those who are perceived market conditions can be used and managed to
mildly dissatisfied are nearly equally likely to defect. predict customer loyalty.
Customer care for banks is thus complex and needs to be
managed on a case-by-case basis. In this context, regular 8. Implications for practice
monitoring of individual customers’ satisfaction levels would
make abundant sense. In practice, this would have to be This study has practical implications for bankers and service
conducted in a similar way to the airline industry that has providers in other industries, especially those based on
fine-tuned segmenting of their customers by officially “membership” or “subscription” relationships, such as
categorizing customers into standard, silver, gold and insurance products, frequent travelers, churches, charities,
platinum members. The same issues exist in valuing retail and professional associations. In other “non-subscription”
banking customers; however, the complexities in measuring businesses such as restaurants, resorts and casinos, the logic
banking relationships are not inconsiderable. For airlines, the of identifying “tiered” loyalty segments and matching “tiered”
value of a customer is driven overwhelmingly by ticket service offerings is equally relevant, and this study identifies
revenue over time. In banking, however, valuing a customer potentially generic drivers of customer loyalty (affective
relationship will necessarily need to include value of deposits, attitude, overall satisfaction, switching benefits and costs,
investments, debts and loans, transaction volumes and costs, and length of the relationships). While the specifics of the
credit card value and transactions, collateral relationships and model identified in this study may not be universal, this study
credit-worthiness. For airline customers, their status is delineates a “generic” process for identifying specific drivers
routinely communicated to consumers as part of their of loyalty across a broad range of service industry contexts.
frequent flyer programs; however, customers are typically Having identified “tiers” of customers in terms of their value
not made aware of their standing with their bank, unless they or “preferred” status, the challenge for organizations such as
fall into the “privileged” or “preferred” categories. Not restaurants, resorts and casinos next becomes that of
communicating the status may be beneficial for customers delivering matching “tiered” service offerings.
who have been categorized in a low-tiered (typically the “low The results of this study provide important justification for
value/high cost” segment), but customers in high value/profit the implementation of customer relationship management
tiers may not be aware of their “preferred” status. The clear programs, and have highlighted the drivers of loyalty and
implication of this process is that banks will seek to match switching. The task of “customer acquisition” is typically
service provision to the value of the relationship and to the performed within the marketing function as it relies on
customers’ needs, which may raise ethical issues that are attracting non-customers to the bank through the
beyond the scope of this paper. In any case, being part of a communication of a compelling, competitive product. This
loyalty program may be perceived by customers as some form task of prospecting for customers typically relies on a

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 Modeling customer satisfaction and loyalty Journal of Services Marketing
Chris Baumann, Greg Elliott and Suzan Burton Volume 26 · Number 3 · 2012 · 148 –157

combination of mass market communications (such as almost certainly true for many banking customers around the
television and press), and with more targeted mechanisms (developed) world.
such as targeted online advertising, direct mail and email. The In conclusion, this study found that customer perceptions,
difficulty which this study has identified is that profiling market conditions, and some customer characteristics were
customers based on demographic and limited activity data unique predictors of behavioral intentions. The models
seems to offer only modest predictive power. Moreover, developed in this study could assist banks to profile
successful capture of target customers also depends on a customers who are likely to defect or remain long term.
bank’s offering a competitive package in terms of fees, While explaining behavior is generally a challenging task, this
charges, interest rates, and account conditions. This study study demonstrates that nearly 57 percent of behavioral
provides clear indications of the likely profile of “switchers” intentions in retail banking can be explained. The challenge
who could be attracted to the bank – young, professional, for banks is to carefully manage the drivers of customer
high-income earners who are likely to be concerned with loyalty better than their competitors. As always, the dividend
“cost/benefit” considerations. At the same time, it should be for those banks which are successful is the long-term loyalty of
recognized that they may also defect from a bank for the same valuable, and valued, customers.
reasons.
In contrast to “acquisition”, customer “retention” relies on
the quality of the relationship and the experience which the Note
customer has with their bank. This imperative is primarily an
operational issue and should be the primary focus of customer 1 Customers do not typically “repurchase” in retail banking
service staff, personal bankers and customer relationship unless they apply for a new product, e.g. a new credit
managers. Creating satisfied, happy customers is crucial to card. Typically, accounts are used on a continuous basis.
Downloaded by 178.18.19.221 At 03:53 26 October 2015 (PT)

maintaining their long-term loyalty, provided, of course, that

the bank continues to offer competitive account packages.
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 Modeling customer satisfaction and loyalty Journal of Services Marketing
Chris Baumann, Greg Elliott and Suzan Burton Volume 26 · Number 3 · 2012 · 148 –157

Rust, R.T. and Zahorik, A.J. (1993), “Customer satisfaction, Fraser University (SFU) in Canada as an MBA Alumni and
customer retention, and market share”, Journal of Retailing, research collaborator. Prior to academia, Chris spent several
Vol. 69 No. 2, pp. 193-215. years in the Swiss banking industry. Chris Baumann is the
Shively, T.S., Allenby, G.M. and Kohn, R. (2000), “A corresponding author and can be contacted at:
nonparametric approach to identifying latent relationships [email protected]
in hierarchical models”, Marketing Science, Vol. 19 No. 2, Greg Elliott is Professor of Business (Marketing) in the
pp. 149-62. Department of Marketing and Management at Macquarie
Sivadas, E. and Baker-Prewitt, J.L. (2000), “An examination University. Prior to taking up this appointment he was Head
of the relationship between service quality, customer of the Department of Business in the Division of Economic
satisfaction, and store loyalty”, International Journal of and Financial Studies at Macquarie University. He has also
Retail and Distribution Management, Vol. 28 No. 2, held academic positions at a number of other Australian and
pp. 73-82. overseas universities. His current research interests are in the
Spreng, R.A., Harrell, G.D. and Macjoy, R.D. (1995), fields of financial services marketing, cross-cultural marketing
“Service recovery: impact on satisfaction and intentions”, (with an emphasis on China), country-of-origin effects and
Journal of Services Marketing, Vol. 9 No. 1, pp. 15-23. social marketing. He currently teaches marketing
Söderlund, M. (1998), “Customer satisfaction and its management, strategic marketing and services marketing.
consequences on customer behaviour revisited: the impact He has also had extensive experience in management
of different levels of satisfaction on word-of-mouth, education and training in Australian and Asia for major
feedback to the supplier and loyalty”, International Journal international and local companies.
of Service Industry Management, Vol. 9 No. 2, pp. 169-88. Suzan Burton is a Professor of Marketing at the University
Taylor, S.A. and Baker, T.L. (1994), “An assessment of the of Western Sydney, Sydney Australia. Dr Burton has extensive
Downloaded by 178.18.19.221 At 03:53 26 October 2015 (PT)

relationship between service quality and customer consulting experience in the public and private sectors in the
satisfaction in the formation of consumers’ purchase design and implementation of marketing strategy, particularly
intentions”, Journal of Retailing, Vol. 70 No. 2, pp. 163-78. in the area of customer feedback and information systems.
Trayler, R., Nielson, J. and Jones, R. (2000), “How small She is the co-author of the top selling marketing textbook in
business firms select a bank: comparisons between the Australia, the co-editor of an edited book, Surviving Your
United States and Australia”, Journal of Financial Services Thesis, and the author of over 80 refereed journal articles and
Marketing, Vol. 5 No. 1, pp. 73-85. conference papers. Dr Burton has received teaching awards
Veloutsou, C., Daskou, S. and Daskou, A. (2004), “Are the from Macquarie University (the Macquarie University Award
determinants of bank loyalty brand specific”, Journal of for Teaching Excellence) and from the Australian and New
Financial Services Marketing, Vol. 9 No. 2, pp. 113-25. Zealand Marketing Academy Conference (the Pearson
Vilcassim, N.J. and Jain, D.C. (1991), “Modeling purchase- Education ANZMAC Distinguished Marketing Educator of
timing and brand-switching behavior incorporating the Year Award). Her research has been recognized by eight
explanatory variables and unobserved heterogeneity”, awards from conferences and journals, and she has been the
Journal of Marketing Research, Vol. 28 No. 1, pp. 29-41. Chief Investigator on Australian Research Council (ARC)
Woodside, A.G. and Bearden, W.O. (1977), “Longitudinal funded work in the marketing of socially undesirable goods.
analysis of consumer attitude, intention, and behavior She is a reviewer for the Australian Research Council, and a
toward beer brand choice”, Advances in Consumer Research, member of the Editorial Board of International Journal of Bank
Vol. 4 No. 1, pp. 349-56. Marketing.
Yu, Y.T. and Dean, A. (2001), “The contribution of
emotional satisfaction to consumer loyalty”, International Executive summary and implications for
Journal of Service Industry Management, Vol. 12 No. 3,
managers and executives
pp. 234-50.
Zeithaml, V.A., Berry, L.L. and Parasuraman, A. (1996), This summary has been provided to allow managers and executives
“The behavioral consequences of service quality”, Journal a rapid appreciation of the content of the article. Those with a
of Marketing, Vol. 60 No. 2, pp. 31-46. particular interest in the topic covered may then read the article in
toto to take advantage of the more comprehensive description of the
About the authors research undertaken and its results to get the full benefit of the
material present.
Chris Baumann is a Senior Lecturer at Macquarie University
in Sydney, Australia. His research includes customer loyalty, Deserved or not, banking the world over has a tarnished
competitiveness in education and society, ethnic marketing, reputation. All the more reason for retail banks to think about
and East Asia (China and Korea). Dr Baumann has in excess how to persuade existing customers that they are getting
of 30 publications in international journals and conference competitive services and products combined with service
proceedings with roughly 100 citations. Chris has been quality and satisfaction essential to earning their loyalty.
awarded several times for his research and teaching, including Deserved or not, it’s many people’s perception that retail
from the Australian government for his enthusiastic approach banks and other financial institutions are “all the same” these
to education. At the Academy of International Business (AIB) days. All the more reason to find ways to convince customers
Conference in 2010, Chris won a Best Reviewer Award. He to stay loyal and persuade others to defect from rival
has been appointed as a Visiting Professor at Seoul National institutions.
University (SNU) in South Korea and at Aarhus University in Given the industry’s fierce competition, intensified by the
Denmark, and Chris also teaches Macquarie students in global financial crisis, bankers need to better understand the
Hong Kong. He has a long-standing relationship with Simon drivers of customer loyalty. In addition, there is conclusive

156
 Modeling customer satisfaction and loyalty Journal of Services Marketing
Chris Baumann, Greg Elliott and Suzan Burton Volume 26 · Number 3 · 2012 · 148 –157

evidence that commercial customers and private consumers The study has practical implications for bankers and service
no longer just bank with one institution but are increasingly providers in other industries, especially those based on
using a number of banks at the same time and direct their “membership” or “subscription” relationships, such as
“loyalty” towards multiple banks. The motivators for multi- insurance products, frequent travelers, churches, charities,
banking may include the desire to spread risk, and and professional associations. In other “non-subscription”
opportunism, in addition to a range of structural businesses such as restaurants, resorts and casinos, the logic
explanations such as location, family and business of identifying “tiered” loyalty segments and matching “tiered”
relationships. For all financial institutions, a better service offerings is equally relevant, and this study identifies
understanding of customer loyalty and its indicators, and potentially generic drivers of customer loyalty (affective
being able to predict future intentions have become crucial. attitude, overall satisfaction, switching benefits and costs,
In “Modeling customer satisfaction and loyalty: survey data and length of the relationships).
vs data mining” Chris Baumann et al. investigate the factors While the specifics of the model identified in this study may
that help to explain consumers’ behavioral intentions in retail not be universal, it delineates a “generic” process for
banking. In particular, they examine the associations between identifying specific drivers of loyalty across a broad range of
customer satisfaction, perceived service quality, recent and service industry contexts. Having identified “tiers” of
current consumer behavior, and a customer’s long-term customers in terms of their value or “preferred” status, the
intentions to remain a customer. challenge for organizations such as restaurants, resorts and
They conclude that banks need to work assiduously at casinos next becomes that of delivering matching “tiered”
ensuring that they continue to offer competitive products and
service offerings.
that they continue to closely manage personal relationships
The task of “customer acquisition” is typically performed
and reward valued customers – in other words, that they go to
within the marketing function as it relies on attracting non-
the heart of customer relationship management.
Downloaded by 178.18.19.221 At 03:53 26 October 2015 (PT)

customers to the bank through the communication of a

They also note that, while collecting satisfaction and market
compelling, competitive product. This task of prospecting for
perception data such as switching costs and switching benefits
customers typically relies on a combination of mass market
is expensive, the benefits should outweigh the costs of
communications (such as television and press), and with more
conducting the survey if the profiling of customers can be
substantially improved. Profiling can be used to detect targeted mechanisms such as targeted online advertising,
customers with an intention to defect, and thus CRM may direct mail and e-mail.
prove useful in attempting to rescue the relationship. Also, a The difficulty which this study has identified is that
bank can profile “attached” customers who are not likely to profiling customers based on demographic and limited
defect. Personalized customer service can be directed toward activity data seems to offer only modest predictive power.
the segments determined to be of strategic importance. Cost/ Moreover, successful capture of target customers also
benefit analyses of increased customer service can be depends on a bank’s offering a competitive package in terms
conducted for specific loyalty segments, and thus the of fees, charges, interest rates, and account conditions. This
likelihood of their reactions to CRM can be associated with study provides clear indications of the likely profile of
their level of profitability to the bank. “switchers” who could be attracted to the bank – young,
Resources can therefore be allocated to segments that are professional, high-income earners who are likely to be
“attached” and profitable (retention) and also to the ones that concerned with “cost/benefit” considerations. At the same
are likely to defect, but are actually profitable to the bank time, it should be recognized that they may also defect from a
(rescue strategy). Conversely, less attention and resources bank for the same reasons.
should be implemented for segments that are likely to defect,
but which are also not profitable to the bank in the first place. (A précis of the article “Modeling customer satisfaction and loyalty:
This, in turn, will increase the returns on marketing survey data versus data mining”. Supplied by Marketing
investments. Consultants for Emerald.)

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