“A study on the effect of service quality on customer loyalty and corporate performance in financial industry”

Since the government opened to the establishment of new private banks in 1990s, the competition in banking industry has become fierce in Taiwan. Especially, the establishment of financial holding companies after 2000s has resulted in the merge among financial institutions. The competition in banking industry becomes even fiercer. The price war of interest rate among banks gradually shortens the deposit and lending rate difference in banking industry that banks could no longer survive with the traditional business of deposit and lending rate differences. Banks have to attract customers with different service quality, satisfy customer needs, and create new profits for banking industry. Generally speaking, service quality is related to customer satisfaction after receiving service, and satisfaction becomes the internal assessment indicator of financial industry for customers. A lot of excellent foreign businesses or national financial institutions present brilliant competitiveness in the field of finance by the specialty and service quality. Taking Land Bank of Taiwan as the research subject, this study aims to discuss the effect of service quality on customer loyalty and corporate performance in financial industry. It is discovered in this study that an enterprise enhancing the service quality through the mediation effect of customer loyalty could effectively promote the corporate performance. For this reason, the relationship between customer loyalty and service quality, corporate performance are established in this study, and the results of the analysis could be the reference for banking industry in Taiwan.


INTRODUCTION
Since the government opened to the establishment of new private banks in 1990s, the competition in banking industry has become fierce.Especially, after the establishment of financial holding companies in 2000s, the merge of financial institutions has resulted in fiercer competition in banking industry.Such competition shortens the deposit and lending rate difference in traditional banking industry that banks could no longer survive with the business of deposit and lending rate difference.In this case, banks attract customers with different service quality, satisfy customer needs, and create new profits for banking industry.Under the competitive financial environment with meager profits, enhancing the service quality to satisfy customers allows banks to continuously make profit and survive with development.It becomes an essential issue for banking industry.
A lot of researchers consider service quality as the major competitive tactics and the difference from other banks.From the aspect of service recipients, the enhancement of service quality would promote customer satisfaction and induce customers to receive the next service.The good service quality and the repeated consumption of customers are the source of profits for service businesses.Service businesses would enhance the overall performance when gaining higher profits, and further promote the service quality for the feedback to customers.Such a good cycle would satisfy customers and allow banks to make profits.Service quality, therefore, has become an important indicator of competition in banking industry.
Taking the Land Bank of Taiwan as the research subject, this study aims to discuss the effect of service quality on customer loyalty and corporate performance in financial industry.It intends to understand the correlations between service quality and customer loyalty, between customer loyalty and corporate performance, and between service quality and corporate performance for the reference of Land Bank of Taiwan.

Service quality, customer loyalty, and corporate performance
Generally speaking, service quality is an abstract idea, the cognition difference of service judged by consumers' subjective differences, i.e., the comparison between the pre-expected service of cusomers and the actual perception after receiving service.It is also the subjective judgment of affairs rather than the quantatitive measurement of the property or characteristics of affairs.Regarding the management, higher correctness and rapidness of service is required in banking industry.
Colletti pointed out service quality as the degree of service offered by a bank satisfying customers' needs and expectations (Colletti, 1987).Soteriou and Frei also considered service quality as the variance of operation quality and operation process and the key factor in service quality performance and customer satisfaction (Soteriou, 1999;Frei, 1999).Most researchers agreed that "performance was the measurement of organizational goal reaching certain degree" (Robbins, 1990).Apparently, performance was a primary indicator for enterprises.Although a lot of researchers proposed similar opinions and definitions of performance, the measurement standards of performance were different.Venkatraman and Amanujam (1986) proposed to measure corporate performance with financial performance, business performance, and organizational performance.Delaney and Husleid (1996) applied organizational performance and market performance to measure performance, where organizational performance contained quality of product/service, development of new product/service, ability to attract talents, ability to retain talents, customer satisfaction, relationship between managers and employees, and relationship among employees, and market performance included market capability, revenue growth rate, profitability, and market share.
In this study, the measurement of corporate performance is divided into productivity, profitability, and growth capacity, and the questions are properly revised to become the converted "corporate performance" scale.

Relationship among dimensions
(1) Correlations between service quality and customer loyalty.Parasuraman et al. (1988) proved the positive correlation between service quality and customer loyalty, but the negative correlation with transfer behavior and external response.Moreover, research also indicated that the effect of service quality on post-purchase behavior would change with the service property of enterprises.Rust et al. (1995) mentioned that service quality would affect customer loyalty; customers would present satisfactory post-purchase behavior when perceiving higher service quality to further enhance the customer loyalty and repurchase intention, i.e., positive correlations between service quality and customer loyalty.However, dissatisfactory postpurchase behavior (e.g., negative word of mouth and public complaint) appears to have negative correlations with customer satisfaction.
Dong and Cannon (1997), as well as Garbarino and Johnson (1999) include service quality as one of the most frequently analyzed customer loyalty determinants.Especially, service quality is very important for customer satisfaction, and it will impact customer loyalty (Cronin & Taylor, 1992;Oliver, 1999).
(2) Correlations between customer loyalty and corporate performance.The establishment of customer loyalty to enterprises has been a goal for marketing staff.Having customers preliminarily know about an enterprise with favorable information to further present good impression could result in certain customer loyalty.Having customers actively seek for service so that an enterprise has more opportunities to establish the mutual trust could promote customer loyalty and create profits for the enterprise.Loyal customers are the key factor in enterprises making profits, and market performance could affect customer loyalty.(3) Correlations between service quality and corporate performance.Rust et al. (1995) tested the relationship between quality and financial re-turns with return on quality.They mentioned that the returns on the expense of service quality were decreasing; when the improvement of service quality exceeded certain point, the expense of service quality did not appear the cost benefit.Accordingly, the improvement of service quality stresses on increasing income, rather than reducing costs as the expense purpose.
Heskett et al. (1994) and Loveman (1998) also indicated that satisfactory employees could provide better service to enhance customers' perceived service quality.Customers would enhance the satisfaction after receiving high-quality service, and customer loyalty was then promoted to enhance the profits of the company.Levesque and Mc. Dougall (1996), Newman (2001) and Caruana (2002) all found that service quality and satisfaction have close relationship with customer loyalty through repurchase intentions.It seems service quality to customers is a important key for success in today's competitive banking industry.Hussein and Jabnoun (2006) revealed that financial institutions could improve the service quality to enhance the profitability, and a bank with high profits had more resources to improve the service quality and promote the profits.
According to the literature mentioned above, the following hypotheses are proposed in this study: H1: Service quality presents positive effects on repurchase intention in customer loyalty.
H2: Service quality shows positive effects on primary behavior in customer loyalty.
H3: Service quality reveals positive effects on secondary behavior in customer loyalty.
H4: Customer loyalty appears positive effects on profitability in corporate performance.
H5: Customer loyalty presents positive effects on productivity in corporate performance.
H6: Customer loyalty shows positive effects on growth capacity in corporate performance.
H7: Service quality reveals positive effects on profitability in corporate performance.
H8: Service quality appears positive effects on productivity in corporate performance.
H9: Service quality presents positive effects on growth capacity in corporate performance.

Research framework
This study aims to discuss the relations among service quality, customer loyalty, and corporate performance.The diagram of various hypotheses is shown below.

Customer loyalty
Referring to Jones and Sasser (1995), it is divided into repurchase intention, primary behavior, and secondary behavior.

Corporate performance
Based on the literature mentioned above, it contains productivity, profitability, and productivity.

Research sample and sampling data analysis
The questionnaires are distributed and collected on site.Customers of the branches of Land Bank of Taiwan in Tainan areas are sampled for the survey.Total 300 copies of questionnaire were distributed and 272 copies were collected, including 250 valid copies.The valid retrieval rate is 83.3%.The retrieved questionnaires were analyzed with SPSS, and Factor Analysis, Reliability Analysis, and Regression Analysis were utilized for testing hypotheses.

RESULT AND ANALYSIS
Multiple Regression Analysis of service quality and customer loyalty

Regression Analysis of service quality and primary behavior
H3 is, therefore, supported.
In sum, according to the data given above, tangibles, reliability, responsiveness, assurance, and empathy in service quality would directly affect repurchase intention, primary behavior, and secondary behavior in customer loyalty in financial industry.Customer loyalty in financial industry, therefore, could be promoted by the enhancement of service quality.

Regression Analysis of customer loyalty and profitability
2 R shows 0.587, presenting that customer loy- alty could explain 58.7% variance of profitability ( ) The overall customer loyalty reaches the significance ( ) where "repurchase intention", "primary behavior", and "secondary behavior" reveal remarkably positive effects on profitability in corporate performance 0.326, 0.001; 0.216, 0.01; 0.330, 0.001.
H4 is, therefore, supported.According to the data given above, corporate performance in financial industry is affected by repurchase intention, primary behavior, and secondary behavior in customer loyalty, where profitability, productivity, and growth capacity appear to have direct effects, revealing that corporate performance would be changed by the effect of customer loyalty.In this case, businesses should enhance the customer loyalty as much as possible to effectively promote the corporate performance.

Multiple Regression Analysis
of service quality and corporate performance  According to the data given above, corporate performance in financial industry is affected by tangibles, reliability, responsiveness, assurance, and empathy in service quality, where profitability, productivity, and growth capacity appear to have direct effects, revealing that corporate perfor-mance is changed by the effect of service quality.Businesses, therefore, have to create better service to satisfy customer needs so that the acquired expected experience is more satisfactory.In this case, the corporate performance could be effectively promoted.

CONCLUSION
From the data given above, the findings are organized as follows.

Effects of service quality on customer loyalty
With our analysis, the dimensions of tangibles, reliability, responsiveness, assurance, and empathy in service quality could enhance the dimensions of repurchase intention, primary behavior, and secondary behavior in customer loyalty.As a result, it is confirmed that customer loyalty to the product or service provided by the enterprise could be effectively reinforced and promoted after the practice of service quality, and it presents positive correlations.

Effects of customer loyalty on corporate performance
From the viewpoint of service quality matching with the relationship between loyalty and performance proposed in past literature, a new theoretical framework is constructed in this study.The research findings show the significantly positive effects of service quality on customer loyalty, and customer loyalty presents remarkably positive effects on corporate performance.Such a result proves the hypotheses in this study as well as verifies the correlations between customer loyalty and corporate performance proposed in past research.With the mediation effect of customer loyalty, customer loyalty to enterprises would be enhanced when the perceived service quality is deep that the corporate performance would be promoted.

Relationship among service quality, customer loyalty, and corporate performance
According to the research findings, the promotion of service quality could effectively enhance corporate performance through the mediation effect of customer loyalty.For this reason, customer loyalty is a mediator between service quality and corporate performance.The finding corresponds to the conclusions of Parasuraman, Zeitithaml and Berry (1988), Hennig and Hansen (2000), and Delaney and Husleid (1996) that the promotion of service quality could enhance corporate performance.Such a conclusion is expected to provide reference for banking industry in Taiwan.In the future, the analysis could be applied to other banks and even different industries to present distinct results.

Table 1 .
Multiple Regression Analysis of service quality and customer loyaltyData source: self-organized in this study.

Table 2 .
Multiple Regression Analysis of customer loyalty and corporate performanceData source: self-organized in this study.

Table 3 .
Multiple Regression Analysis of service quality and corporate performanceData source: self-organized in this study.