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Investigation of customer loyalty and customer satisfaction with respect to corporate social responsibility: a model for the Indian banking industry
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This paper aims to study the roles of corporate social responsibility (a non-service related concept) and perceived service quality (a service-related concept) in determining the attitudinal and behavioral loyalty and satisfaction of customers in the retail banking sector in India.

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  1. International Journal of Management (IJM)
    Volume 6, Issue 9, Sep 2015, pp. 93-101, Article ID: IJM_06_09_010
    Available online at
    http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=6&IType=9
    ISSN Print: 0976-6502 and ISSN Online: 0976-6510
    © IAEME Publication
    ___________________________________________________________________________

    INVESTIGATION OF CUSTOMER
    LOYALTY AND CUSTOMER
    SATISFACTION WITH RESPECT TO
    CORPORATE SOCIAL RESPONSIBILITY: A
    MODEL FOR THE INDIAN BANKING
    INDUSTRY
    Victor Saha and Abhilas ha Sharma
    BITS Pilani

    ABSTRACT
    This paper aims to study the roles of corporate social responsibility (a
    non-service related concept) and perceived service quality (a service-related
    concept) in determining the attitudinal and behavioral loyalty and satisfaction
    of customers in the retail banking sector in India. The study is quantitative in
    nature and uses the responses of 1067 respondents who answered a survey
    questionnaire. Data analysis was performed using partial least squares (PLS),
    a variance based structural equation modeling method. The results of the
    study demonstrate that corporate social responsibility (CSR) has a significant
    strong and positive association with attitudinal loyalty and satisfaction. While
    the results are clear and have strong salience for the retail banking industry,
    future research should take into account the specific industry context within
    the national culture. The study provides a set of findings relating to CSR
    initiatives and perception of service quality that could be readily incorporated
    into banks’ corporate strategic plans. The paper demonstrates an empirical
    operationalization of CSR initiatives measured from the customers’ point of
    view, and from which banks could learn for corporate strategy development.
    Key words: Corporate Social Responsibility, Customer loyalty, Customer
    Satisfaction and India.
    Cite this Article: Saha, V. and Sharma, A. Investigation of Customer Loyalty
    and Customer Satisfaction with respect to Corporate Social Responsibility: A
    model for the Indian Banking Industry. International Journal of Management
    (IJM), 6(9), 2015, pp. 93-101.
    http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=6&IType=9

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  2. Victor Saha and Abhilasha Sharma

    1. INTRODUCTION
    Corporate Social Responsibility also called social conscience or business
    responsibility is a form of corporate self-regulation integrated into a business model.
    In the late 1960s and early 1970s, the term “corporate social responsibility or CSR”
    came into common use. Holmes and Watts (1999) defined CSR as the continuing
    commitment by business to behave ethically and contribute to economic development
    while improving the quality of life of the workforce and their families as well as of
    the local community and society at large. Some researchers argue that corporations
    make more long term profits by operating with a CSR perspective, while others argue
    that CSR distracts from the economic role of businesses. However, Matten & Crane
    (2005) [12] emphasized that the firms will experience divergent degrees of internal,
    external and lateral pressures to engage in CSR, as firms are embedded in different
    national business systems. Robbins and Coulter (2007) explained that the
    management’s social responsibility goes beyond making profit to include protecting
    and improving social’s welfare of its stakeholders and the environment in which the
    firm carries out its operations. One of the main reasons for the growing interest in
    CSR is because of the idea that CSR influence consumer loyalty at a time when
    hospitality companies are facing an extremely business competitive environment and
    ever growing customer expectations (Hanet al., 2011). Many hospitality firms are
    having difficulty increasing their market share because of rising international
    competition, slower growth rates, decreased population growth, and over supplied and
    mature markets (So et al., 2013). Thus, firms within this sector have become more
    interested in looking after and retaining their customers because the advantages seem
    obvious. When customers become loyal, they buy more, are willing to pay more and
    recommend more (Harris and Goode, 2004). However, creation of loyalty among
    customers represents a challenge for hospitality business since switching hospitality
    supplier can represent a risk because it is difficult to estimate the quality of the service
    before it is consumed (Nemec, 2010).
    Customer satisfaction is a part of customer loyalty or we can say that customer
    loyalty is influenced by customer satisfaction. So the report analyzes the relationship
    between customer satisfaction and customer loyalty in the banking sector. This will be
    seen as implication for managers in banks and guidance on how to enhance CSR in
    their firm.

    2. LITERATURE SURVEY AND HYPOTHESES
    DEVELOPMENT:
    “Social responsibility is the responsibility of an organization for the impacts of its
    decisions and activities on society and the environment through transparent and
    ethical behaviour that is consistent with sustainable development and the welfare of
    society; takes into account the expectations of stakeholders; is in compliance with
    applicable law and consistent with international norms of behaviour; and is integrated
    throughout the organization.” – Working definition, ISO 26000 Working Group on
    Social Responsibility, Sydney, February 2007.
    Further it is also defined as “the basis on which business renegotiates and aligns
    the boundaries of its accountability.”-Responsible Competitiveness: Reshaping Global
    Markets Though Responsible Business Practices, Accountability, December 2005).
    In recent years, the CSR debate has transitioned from a state of passive
    compliance with society’s legal and moral rules to a more proactive engagement with
    social issues (Husted and Allen, 2007; Jamali and Mirshak, 2007). This new

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  3. Investigation of Customer Loyalty and Customer Satisfaction with respect to Corporate Social
    Responsibility: A model for the Indian Banking Industry

    engagement ranges from minimization of negative consequences to tangible and
    social value creation, and from whether corporations should act as social agents and
    how a business case can be made for corporate social strategy (Margolis and Walsh,
    2003; McWilliams et al., 2006). Some of the core questions currently driving the CSR
    discussions are what individual, institutional, and environmental dynamics shape
    corporate social activities and to what extent corporations’ relationships with the
    larger environment depend on these dynamics (Bies et al., 2007).
    The concept of CSR is not new in the Indian scenario. CSR is being practiced in
    Indian scenario in different manner including the protection of environment, donation
    to society, transparency in business transactions. Although post industrialization profit
    making motive of the companies sidelined the social responsibility issues in India.
    But recently due to globalization, access to the internet and other worldwide
    information awareness for CSR issue has increased among the various stakeholders.
    Therefore an increasing trend of adoption of CSR practices has been observed among
    Indian companies. In company law, 2013 government of India has made spending of
    2% of profit compulsory in CSR activities. In India, CSR has had a major influence
    on business, government, and society relationships (Balasubramanian et al., 2005).
    Companies like Tata Steel (the oldest and best known Indian steel company, whose
    founder was more a nation-builder than a businessman seeking profits) were very
    involved in trying to tackle many social problems even before the term CSR formally
    entered the vocabulary of management texts (Singh, 2008).

    2.1. Customer Satisfaction and Customer Loyalty:
    Customer satisfaction is a well- established concept in marketing (Fornell, 1987;
    Fornell, 1988; Kotler, 1991), Mano and Oliver (1993) said satisfaction is an
    evaluation of judgment that is measured after consumption. Customer satisfaction has
    judge through feeling of customer about certain goods or services. Customer
    satisfaction is the personal feeling about the goods or services after consumption
    which he/she compares and gets pleasure (Brady and Robertson, 2001). Marketing
    literature shows that if the firm improves goods or service s to fulfill the customer
    needs, then firm would enhance their customer satisfaction, market value and
    profitability (Anderson and Sullivan, 1993;Fornell, 1992; Hauser et al., 1994, 1996,
    1997; Rust et al., 1995; Zeithaml et al., 1990).
    Boshoff and Gray underlined that satisfaction is not inherent in the product or the
    service itself but, instead, satisfaction primarily consists in the consumer’s perceptions
    of the attributes of the product or service as they relate to that individual. Thus,
    different consumers will express varying levels of satisfaction for the same experience
    or service encounter. In the marketing literature, customer satisfaction has been
    recognized as an important part of corporate strategy and a key driver of firm long-
    term profitability and market value. Thus, it is expected that CSR is positively related
    to customer satisfaction. (Chung, Ki-Han., Yu, Ji-Eun, Choi, M.,Shin, M.,2013).
    Loyalty is behavioural, because continuous purchase of services from the same
    supplier, increasing the scale and or scope of a relationship (Yi, 1990). The term
    customer loyalty is used to describe the behaviour of repeated purchases. [11] Loyalty
    is built through a positive strategy that is usually obtained by providing high quality
    customer service (Javalgi and Moberg, 1997). In banking sectors, customer loyalty is
    achieved through better service quality and honest commission and fair interest rate
    must have the basic requirement to satisfy and retain customer (Zielke, 2008). Loyalty
    develops through different variables like experience (Hess et al., 2003), satisfaction

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  4. Victor Saha and Abhilasha Sharma

    (Heitmann et al., 2007), competitive attractiveness (Jones et al., 2000), through
    relationship with supply chain (Sirdeshmukh et al., 2002), and exit barriers (Burnham
    et al., 2003).
    As customer loyalty is considered a vital objective for a firm’s survival and
    growth, building a loyal customer base has not only become a major marketing goal,
    but it is also an important basis for developing a sustainable competitive advantage
    (Dick and Basu, 1994). Understanding loyalty cultivation or retention is thus
    considered to be a key element in delivering long-term corporate profitability, as
    profits can be increased over the lifetime of a customer through his/her retention.
    (Chung, Ki-Han., Yu, Ji-Eun, Choi, M.,Shin, M., 2013).

    2.2. Corporate Responsibility and Customer Satisfaction:
    Actual corporate philanthropy initiatives had more positive attitudes to the company
    and higher brand purchase and investment intent (Korschun et al., 2006). CSR
    initiative, mainly on education, balanced growth, health, environmental marketing and
    affect customer satisfaction (Narwal, 2007). Customer satisfaction is a fundamental
    determinant of long-term consumer behavior (Oliver, 1980; Yi, 1990 &Cooil, 2007).
    Various theories such as resource based view if the firm (Barney, 1986), risk
    management theory (Godfrey, 2005), and institutional theory (Handelman and
    Stephen, 1999) and stakeholder theory (Clarkson, 1995) have used link between
    corporate social performance and customer satisfaction. Corporate social performance
    (CSP) earned by the organization, involving in cause related marketing, corporate
    philanthropy, green marketing, minority support programs) enhances firm
    performance. Corporate social performance (CSP) delivers different benefits such as
    customer satisfaction, customer- firm identification, and favourable image (Brown and
    Dacin, 1997) (Chung, Ki-Han., Yu, Ji- Eun, Choi, M.,Shin, M.,2013).
    The hypothesis that has been developed in this case is:
    H1: Customer Satisfaction affects Corporate Social Responsibility in the banking
    sector in India

    2.3. Corporate Responsibility and Customer Loyalty:
    Chaffey (2008) defined consumer loyalty as a desire on the part of the customer to
    continue to conduct business with a given company over time. Kotler and Armstrong
    (2008) [7] uses the idea of repetitive buying patterns of a particular brand as an
    indication of consumer loyalty. This also includes a verbal promotion of the currently
    used product or services by the incumbent consumer to others who have yet to try a
    particular product or service (Kotler and Armstrong, 2008). The author classified
    purchase behavioural loyalty into three aspects: (1) The hardcore – those who only
    buy one particular brand; (2) The soft core – those who buy only a couple of brands;
    and (3) The switchers – those with no loyalty. Grant (2000) stated that a loyal
    consumer is seldom discount-oriented. He associated loyalty to recognition and
    preference towards a particular company or its brands. The author further asserted that
    consumer loyalty can be enhanced though its societal contributions. (Raman, M., Lim,
    W., Nair, S.,2012).
    The hypothesis that has been developed in this case is:
    H2: Customer Loyalty also affects Corporate Social Responsibility in the banking
    sector in India.

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  5. Investigation of Customer Loyalty and Customer Satisfaction with respect to Corporate Social
    Responsibility: A model for the Indian Banking Industry

    3. RESEARCH METHODOLOGY:
    The data collected is a random sample since it was voluntary decision to reply to the
    responses via social networking sites and e- mail. To evaluate our research we
    collected data via questionnaire designed for consumers to know about perceived
    customer loyalty and customer satisfaction in the banking sector in India. A total of
    1067 responses were received. The participants were mixed composition of bank
    customers leading to a random sample for the research. The assessment is based on
    two criteria: customer loyalty and customer satisfaction affecting CSR on a 5 point
    scale in order to find out relationship between them in order to formulate better CSR
    policies for managers in banking sector. The responses were translated in five point
    scale and hypotheses were stated.

    4. DATA ANALYSIS :
    Using the random sample data collected data via the responses we will run the
    regression using a path modeling technique, Partial Least Squares (PLS), which is a
    variance-based structural equation model. PLS is an appropriate approach for this
    study because of its accommodation of a relatively modest sample size and its
    predictive capabilities. PLS can evaluate theoretical hypotheses as well as indicate the
    existence of relationships for further testing (Anderson and Gerbing, 1988; Chin et al.,
    2003; Wold, 1981) [2]. Table 1 summarizes the results of the hypothesis testing.

    Table 1 Summary of Results

    Variance
    Latent Construct Items Loadings α
    Explained
    CSR 72.80 0.82
    Community Donates to charity. .875 0.74
    responsibility Helps the disadvantaged. .854
    (6 Items)
    Disaster relief .793
    Anti-drug .898
    Provide education scholarship .752
    Rural reconstruction .783
    Customer Responsibility .753 0.89
    ( 3 Items) .781
    .822
    Employee Responsibility Livelihood training and support. .774 0.76
    (5 Items) Day-care centre for women .794
    employees.
    Ensure safe working place. .745
    Equal Employment opportunity. .736
    Offer fair compensation .776
    Environmental Support environment preservation 11.80 .807 0.77
    Responsibility Waste paper management .844
    (4 Items)
    Carbon management .823
    Support forest preservation .797

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  6. Victor Saha and Abhilasha Sharma

    Variance
    Latent Construct Items Loadings α
    Explained
    Customer Satisfaction (5 Promote consumer rights and 72.78 .755 0.84
    Items) interests
    Quality of services .769
    Prompt service .811
    Reliable .754
    Warm atmosphere .786
    Customer Loyalty You consider your bank as first 70.56 .805 0.80
    choice
    You will say positive things about .843
    your bank
    You consider yourself as loyal patron .811
    of your bank
    You will definitely keep using this .722 0.78
    bank
    You will use this bank next time you .778
    need new service
    You will do most of your banking .746
    with this bank

    Table 2 Variables used in the model

    Variable Frequency %

    Gender Male 800 75

    Female 267 25

    Age Under 20 139 13

    Age 21–35 928 87

    Marital status Married 779 73

    Unmarried 288 27

    Qualification

    Masters’ degree 535 50.14

    Bachelors’ degree 233 21.84

    Professional degree 49 4.59

    Diploma 108 10.12
    High school and
    142 13.31
    below

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  7. Investigation of Customer Loyalty and Customer Satisfaction with respect to Corporate Social
    Responsibility: A model for the Indian Banking Industry

    Table 3 Measurement model results

    Latent Item Loadings AVE Composite Critical
    Construct reliability
    Ratio

    CSR 0.76
    Provides livelihood training and .871 0.71 20.145
    support to its employees
    Day-care center for women .894
    employees
    Safe working place for its .823
    employees
    Equal employment opportunity .908
    Donates to charities. .792
    Donates to disaster relief. .773
    Local community development .743 0.59 16.467
    Poverty eradication programs .739
    Anti-drug campaigns .832
    education scholarship .827 0.61 14.244
    rural reconstruction .834
    promotion of socially backward .764
    groups
    women empowerment .736
    waste paper management .743
    environment preservation .748 0.65 16.354
    carbon management .864
    consumer rights and interests .837
    always meets your expectations .784
    Customer .748 0.60 0.79 12.342
    Satisfaction provided offers matches to your .738
    expectations
    quality product and services .837
    overall banking experiences .792
    the right thing in purchasing this .764
    bank services
    Customer .811 0.67 9.73 8.386
    Loyalty main bank in the next few years .829
    sense of security .847
    Trust on the quality of this bank. .733 0.56 0.84 14.385

    quality assurance .740
    If the services of another bank is 0.774
    not different from that of this bank
    in any way, it seems smarter to
    purchase services of this bank

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  8. Victor Saha and Abhilasha Sharma

    Table 4 Results of Hypothesis testing

    Hypothesis Dependent Independent β CR R2 Results
    Variable Variable

    H1 Customer Customer 0.638 8.633 0.73 Supported
    Satisfaction Loyalty

    H2 Customer CSR 0.283 6.954 0.267 Supported
    Loyalty

    H3 Customer CSR 0.481 4.234 Supported
    Satisfaction

    5. MANAGERIAL IMPLICATIONS:
    Business houses all over the world are realizing their required contribution to the
    society and engaging in various social and environmental activities. What’s needed
    more now is to formulate effective policies and adopt various instruments according
    to the company nature and its relationship with its customers so that CSR can be best
    implemented towards its goals – sustained environmental, social and economic
    growth. This research explores the existing literature available on CSR. In today’s
    scenario, the trends have changed and CSR affects not only the company’s reputation
    and goodwill but also govern the financial performance. It was analyzed that the
    reporting practices range from the very sophisticated and well-established system to
    “a brief mention of CSR” in the annual report. India’s markets continue to exhibit a
    profusion of negative externalities where the costs of resource use, environmental
    degradation, or community disruption are neither paid by those who incur them nor
    are reflected in actual prices. Today’s economic framework gives little
    encouragement for companies to consider the long-term – the essence of true
    sustainable development. There are several companies in India involved in diverse
    issues such as healthcare, education, rural development, sanitation, microcredit, and
    women empowerment. Analysis of several surveys in India suggests that though many
    companies in India have taken on board the universal language of CSR, CSR seem to
    be in a confused state. Individual companies define CSR in their own limited ways
    and contexts. The end result being that all activities undertaken in the name of CSR
    are mainly philanthropy, or an extension of philanthropy. There is a need to increase
    the understanding and active participation of business in equitable social development
    as an integral part of good business practice.

    5.1. Limitations and Future Research
    This report has only considered customer satisfaction and customer loyalty being
    affected by CSR activities in the banking sector. Other variables are not taken into
    consideration while doing this study. Thus for further research other variables such as
    customer trust, patronage etc. can be taken for studies. Since the study here
    concentrate only on Indian banking industry it can further be stretched to banking
    industries of other nations or various other industries in the service sector such as
    hospitality, hotel management, aviation etc.

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  9. Investigation of Customer Loyalty and Customer Satisfaction with respect to Corporate Social
    Responsibility: A model for the Indian Banking Industry

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