1

1

Structural Equation Modeling on the Antecedents of Customer Loyalty Mohammad Muzahid Akbar
1
and Md. Munir Hossain
2
Three conceptual frameworks had been proposed and investigated to
assess the effects of perceived service quality, trust, switching cost,
customer satisfaction, and corporate image on customer loyalty.
Structural equation modelling was employed to analyse the data
collected from 322 subscribers/customers of a private
telecommunication company in Bangladesh. The results revealed that
perceived service quality, customer satisfaction, corporate image, and
trust are very powerful antecedents of customer loyalty. Customer
satisfaction and trust found to be important mediators between service
quality and customer loyalty; corporate image and customer loyalty
respectively. Such study might encourage the service providers to take
appropriate course of action in order to create a loyal customer base.

Keywords: Service quality, Trust, Switching cost, Customer satisfaction, Corporate image,
and Customers loyalty.

Introduction

sustain or improve their competitive advantage. Interestingly, in Bangladesh mobile
subscribers are not that loyal to any particular mobile service provider as they have the
option of switching to another company for more convenient and suitable service offerings.
Thus, the mobile service providers are pushed to undertake various strategic and tactical
measures to attract new customers while retaining the existing customers. Therefore, the
mobile service providers must realize the necessity of studying and understanding various
antecedents (viz. service quality, trust, switching cost, customer satisfaction, and corporate
image) of the customer loyalty which might help them to develop a loyal customer base.

As reported in the relevant literature high quality service helps to generate customer
satisfaction and customer loyalty and growth of market share by soliciting new customers,
and improved productivity and financial performance (Anderson, Fornell, & Lehmann,
1994; Lewis, 1993). Corbitt, Thanasankit, and Yi (2003) have investigated the effect of
trust on customer loyalty in telecommunication sector and found trust has a strong effect
on customer loyalty. Aydin and Ozer (2005) in a study on telecommunication industry
showed that the switching cost and corporate image have positive and direct affect on
customer loyalty. Hackl, Scharitzer, and Zuba (2000) had substantiated the point by adding
that customer satisfaction is a prerequisite of customer retention and loyalty. So the
understanding of these commonly cited antecedents of customer loyalty is important for
the survival and long term success of any mobile service provider. Because customer
loyalty ensures higher profit through enhanced revenues, reduced costs to acquire
customers (Sharp & Sharp, 1997).

The objective of this study is to analyze a conceptual framework empirically that considers
the interrelationships of service quality, trust, switching cost, and customer satisfaction in
relation to customer loyalty for a group of customers of a major private telecommunication
company in Bangladesh.

Literature Review


relevant to the subscribers (namely, coverage of network or calling area, value-added
services, customer support services, the suppliers‟ services of the operator, and services
in campaigns). This paper has chosen the conceptualization of Aydin and Ozer (2005).

Trust

In business trust is viewed as one of the most relevant antecedents of stable and
collaborative relationships. Researchers had established that trust is essential for building
and maintaining long-term relationships (Rousseau, Sitkin, Burt, & Camerer, 1998; Singh &
Sirdeshmukh, 2000). Morgan and Hunt (1994) stated that trust exists only when one party
has confidence in an exchange partner's reliability and integrity. While defining trust
Moorman, Deshpande, and Zaltman (1993) referred to the willingness to rely on an
exchange partner in whom one has confidence. According to Lau and Lee (1999), if one
party trusts another party that eventually engenders positive behavioral intentions towards
the second party.

From Anderson and Narus (1990) it can be safely deduced that if one party believes that
the actions of the other party will bring positive outcomes to the first party, trust can be
developed. Doney and Cannon (1997) added that the concerned party also must have the
ability to continue to meet its obligations towards its customers within the cost-benefits
relationship; so, the customer should not only foresee the positive outcomes but also
believe that these positive outcomes will continue in the future. In this study trust has been
operationalized following Aydin and Ozer (2005) who used several contemporary
definitions.

Switching Cost

According to Porter (1998), switching cost is the cost involved in changing from one
service provider to another. In addition to measurable monetary costs, switching costs also
include time and psychological effort involved in facing the uncertainty of dealing with a

overall satisfaction like most of studies on customer satisfaction.

Corporate Image

Barich and Kotler (1991) tried to define corporate image as the overall impression a firm
has left on the minds of the people. According to Keller (1993) corporate image is „the
perception of a firm reflected in the associations held in consumer memory‟. A firm‟s
various attributes eventually settle in the minds of people or customers resulting in certain
mental image(s) relatable to the firm intuitively (Nguyen & Leblanc, 2001). Corporate
image germinates as customers or people actively and/or passively receive and process
information about a firm from various sources. Kennedy (1997) said corporate image has
two dimensions; functional (tangible characteristics) and emotional (feelings and attitude
towards a firm). Nguyen and Leblanc (2001) said that as people or customers get exposed
to the realities created by a firm they tend to construct an image or form an attitude about
the firm regardless of how little or abundant information they have. Aydin and Ozer (2005)
borrowed several notions from Bayol, LaFoye, Tellier, and Tenenhaus (2001) in order to
conceptualize corporate image pertinent to mobile services. Hence, this study has
employed the aforesaid notions for corporate image.
5

5

Customer Loyalty

Pearson (1996) has defined customer loyalty as the mind set of the customers who hold
favorable attitudes toward a company, commit to repurchase the company‟s
product/service, and recommend the product/service to others. As identified by experts
customer loyalty is comprised of both customers‟ attitudes and behaviors. Customers‟
attitudinal component represents notions like: repurchase intention or purchasing
additional products or services from the same company, willingness of recommending the

had been examined (Boulding, Kalra, Staelin, & Zeithaml, 1993; Cronin & Taylor, 1992). In
their study Cronin and Taylor (1992) focused solely on repurchase intentions, whereas
Boulding et al. (1993) focused on the elements of repurchasing as well as the willingness
to recommend. In the study by Cronin and Taylor (1992) service quality did not appear to
have a significant (positive) effect on repurchase intentions (in contrast to the significant
positive impact of satisfaction on repurchase intention), whereas Boulding et al. (1993)
6

6

found positive impact of service quality on both repurchase intentions and willingness to
recommend. Therefore, following hypothesis has been proposed:

Hypothesis 2: Perceived service quality has a positive effect on customer loyalty.
Relationship between Service quality and Trust

Many services marketing related studies have admitted the notion like relationship
between quality of services and trust is a formidable one in context of relationship
marketing. Garbarino & Johnson (1999) found that service quality related features or
attributes typically foster or enhance customers‟ trust or confidence on an organization that
provides the service. The causal link between two variables has also been supported by
Hsieh & Hiang (2004). Often better services lead the customer to believe that the provider
is trustworthy or dependable. In other circumstances, simply the perceived quality of
service may help the service providers to gain the confidence of the customers (Doney &
Cannon, 1997; Singh & Sirdeshmukh, 2000). Therefore, following hypothesis has been
proposed:

Hypothesis 3: Perceived service quality has a positive effect on Trust.
Relationship between Customer satisfaction and Corporate Image


Sirdeshmukh, Singh, and Sabol (2002). However, lack of trust in a market with suitable
alternatives might lead to negative loyalty. Corbitt et al. (2003) have pointed out that a
strong positive effect of trust on customer loyalty in case of telecommunications sector.
Therefore, following hypothesis has been formulated:

Hypothesis 6: Trust has a positive effect on customer loyalty.
Relationship between Switching cost and Customer loyalty

It has been suggested in numerous studies that the degree of switching costs may have an
influence on customer loyalty in a certain industry (Anderson & Fornell, 1994; Dick & Basu,
1994; Fornell, 1992; Gremler & Brown, 1996). Andreasen (1982; 1985) found empirical
support for the effect of high switching costs on customer loyalty in relation to medical
services. Therefore, following hypothesis has been formulated:

Hypothesis 7: Perceived switching cost has a positive effect on Customer loyalty.
Relationship between Corporate Image and Trust

In marketing literature typically reputation or image of a firm is often linked with its
credibility and trustworthiness as perceived by the customers (Herbig and Milewicz, 1993;
Hyde and Gosschalk, 2005). Casalo, Flavia‟n and Guinali‟u (2007) said that in the absence
of physical contact (which is particularly relevant to the service providers), a firm should
increase its reputation in order to diminish the perceived risk by the consumer. Numerous
researchers have tried to explain the connection between reputation or corporate image
with consumers‟ trust in the online context (Walczuch, Seelen, & Lundgren, 2001;
Jarvenpaa, Tractinsky & Vitale, 2000). The researchers have hypothesized the following:

Hypothesis 8: Corporate Image has a positive effect on Trust.
Relationship between Corporate Image and Customer Satisfaction

According to Grönroos (1990) “(corporate) image is a filter which influences the perception

analyze the relationships among these variables in order to detect the discerning impact of
several antecedents on customer loyalty (Table I). Structural Equation Modeling has been
applied to investigate the causal links among the studied variables as the research
hypotheses suggested by testing the model for best data fit (Figure 1, Figure 2, and Figure
3). García and Caro (2008) tried to build a sound causal model to measure the relationship
between attitudes and customer loyalty by examining various causal models presented by
earlier researchers using various antecedents of customer loyalty. This study is similar to
the abovementioned study to a certain extent in its purpose; the only distinctive feature of
this study is that all three models have employed the same five antecedents of customer
loyalty in the context of mobile services.

Figure 1: Proposed research model 1 with results

9

9 Figure 2: Proposed research model 2 with results

Figure 3: Proposed research model 3 with results
Table I: Summary of Measurement Models
Model
Theoretical Models
Model 1
a) Paths from perceived service quality to customer satisfaction,
corporate image, and customer loyalty; b) perceived service
quality to customer satisfaction, and customer loyalty; c) trust to
customer loyalty; and d) switching cost to customer loyalty.
Model 2

were female.

Measures

A structured questionnaire was used to collect data which was comprised of six scales
borrowed from earlier researchers with properly assessed validity and acceptable level of
reliability. For all of these variables like the earlier researchers the authors have used 5
point Likert scale. Service quality was measured by using 21 items developed by Zeithaml,
Berry, and Parasuraman (1996).

Instead of SERVQUAL, perceived service quality is measured (six-item scale) by
employing a unidimensional scale covering all the base services pertinent to mobile
services for the sake of data collection efficiency (Bloemer, Ruyter, & Wetzels, 1998). As
Aydin and Ozer (2005) pointed out in the GSM sector, the base services are- coverage of
calling area, value-added services, customer support services, the suppliers‟ services of
the operator, and services in campaigns. This scale of service quality has reported
reliability is 0.827.

The trust (five-item scale) has been measured by using several complementary definitions
as used in the study of Aydin and Ozer (2005) that has a reported reliability of 0.856.
Customer satisfaction was measured by using 4 items adopted from Cronin, Brady and
Hult (2000) and Wang et al. (2004), and the reported reliability of this scale is above 0.886.
Perceived switching cost was measured by seven item scale borrowed from Burnham,
Frels, and Mahajan (2003); Guiltinan (1989); and Jones et al. (2002). Corporate image
was measured by using five items borrowed from Bayol et al. (2001) and it has reliability of
0.871. This scale‟s reported reliability is .674. To measure customer loyalty five item scale
developed by Narayandas (1996) was used, and the reported reliability of this scale is
0.824.
and corporate image is pretty high. Their perceived switching cost involved in changing the
current service provider is also high but no as high as other variables. Moreover, they
seem pretty loyal to the company. However, in isolation these descriptive statistics could
be quite misleading. Hence, other statistics must be consulted.

Table II: Reliability Coefficient and Descriptive Statistics of Service Quality, Trust,
Switching Cost, Customer Satisfaction, Corporate Image, and Customer Loyalty
Scales
Number of items
Alpha
M
SD
Service quality
6
0.74
4.53
0.49
Trust
4
0.80
4.36
0.60
Switching cost
5
0.71
4.07
0.45
Corporate image
5
0.76

cor_ima
cus_loy
ser_qua
-
0.02
0.17**
0.50**
0.10
0.40**
swi_cos

-
0.04
0.03
0.07
0.09*
tru -
0.21**
0.20**
0.35**
cus_sat
-
0.11**
0.43**

/df ratio should be less than 3; the values of GFI, RFI,
NFI, and CFI should be greater than 0.90; and RMSEA is recommended to be up to 0.05,
and acceptable up to 0.08 (Gefen, Straub, & Boudreau, 2000; Hair et al., 2003). 13

13

Table IV: Summery of Results of Measurement Models
Note: RMSEA = root mean square error of approximation; GFI = Goodness-of-Fit Index;
NFI= Normed Fit Index; CFI = Comparative Fit Index.

Structural Equation Analysis

Table IV represents the results of measurement models to test the hypotheses with regard
to model paths. The first model examined the causal (several direct and few indirect or
mediated) links among perceived service quality, customer satisfaction, corporate image,
trust, switching cost , and customer loyalty, where customer satisfaction and corporate
image were mediating variables respectively between perceived service quality and
customer loyalty (χ
2
= 22.1, df = 5). Afterwards, this model had been compared to the
second model which assessed both the direct and mediated (indirect) causal links among

χ
2
df
χ
2
/df
CFI
NFI
GFI
RMSEA
Model1
22.1
5
2.50
0.987
0.985
0.979
0.103
Model 2
22.5
6
3.75
0.991
0.967
0.980
0.092
Model 3
7.3
3
2.43

0.232***
0.232***
0.229***
swi_cos → cus_loy
0.090
0.090
0.089
ser_qua → cus_loy
0.231***
0.230***
0.228***
ser_qua → tru
-
0.167
0.148
cor_ima → tru
-
-
0.194***
cor_ima → cus_sat
-
-
0.064
Note- *** p< .001

Considering the pattern of significance for the parameters estimated in Model 1,
hypothesis 1, hypothesis 2, hypothesis 5, hypothesis 6, and hypothesis 8 found to be true
in the hypothesized direction with high statistical (p< .001) significance. Similarly in Model
2, hypotheses 1, 2, 5, 6, and 8 found to be true in the hypothesized direction with high
statistical (p< .001) significance. However, Similarly in Model 3, in addition to hypotheses

Corporate image has to be improved continuously in order to create a loyal customer base.

However, perceived switching cost is found to have little and statistically insignificant
impact on customer loyalty. This is not surprising, because the nature of GSM Mobile
sector has reduced the actual switching cost for the subscribers. That‟s why most of the
mobile phone subscribers have more than one mobile phone connection(s) from different
operators. Hence, this (reduced) switching cost is found not to be an important antecedent
of subscribers‟ loyalty in Bangladeshi context.

The findings of this study have to be interpreted after considering few limitations. First,
data were collected only from the subscribers of one private telecommunication company;
so the results might not be generalized without applying caution for other
telecommunication companies. Moreover, data collection was limited to the subscribers
who live in Dhaka metropolitan area; so the findings should not be generalized for all
subscribers that company has throughout the country. Second, the current study was a
cross-sectional study but to determine the causal paths of the studied variables a
longitudinal study would be more appropriate one (Poon, 2004). In addition, the current
study not being an experimental one it was not possible to eliminate or withhold the
influence of unidentified and undesired extraneous variables from the study. Hence, future
researchers might consider these recommendations to draw causal inferences more
assertively and safely. Finally, there may be many other variables like price perception,
customer value etc., which influence customer loyalty and inclusion of such variable(s)
might have made the research models more robust and interesting. In future research
additional variables may be incorporated.

References

Anderson, J.C. & Narus, J.A. (1990). „A model of distributor firm and manufacturer firm
working partnerships‟. Journal of Marketing, 54 (January), 42-58.
Anderson, E.W. & Fornell, C. 1994. A customer satisfaction research prospectus, in Rust,

Barich, H, Kotler, P (1991), "A framework for marketing image management", Sloan
Management Review, pp.94-104.
Bayol, M.P, LaFoye, A., Tellier, C., ve Tenenhaus, C. (2001), “Use of PLS path modeling
to estimate the European Customer Satisfaction Index (ECSI) Model”
www.stat.ucl.ac.bl/ISarchives
Bitner, M.J., and A.R. Hubbert (1994), “Encounter Satisfaction Versus Overall Satisfaction
Versus Quality,” in: Rust, R.T., and R.L. Oliver (eds.), Service Quality: New
Directions in Theory and Practice, Thousand Oaks, CA, Sage Publications, pp. 72-
94
Bitner, M. J. & Zeithaml, V. A. (3rd ed.) 2003. Service Marketing. New Delhi: Tata McGraw
Hill.
Bloemer, J., Ruyter, K. and Wetzels, M. (1998), “On the relationship between perceived
service quality, service loyalty and switching costs”, International Journal of Industry
Management, Vol. 9 No. 5, pp. 436-53.
Boselie, P., Hesselink, M. & Wiele, T.V 2002. Empirical evidence for the relationship
between customer satisfaction and business performance. Managing Service
Quality, 12 (3): 184-193.
Bollen, K.A. & Long, J. S. 1993. Testing Structural Equation Models. CA: Sage.
Bolton, R. N. & Drew, J. H. 1991. A multistage model of customers' assessments of
service quality and value. Journal of Consumer Research, 17 (January): 375-384.
Boulding, W., Kalra, A., Staelin, R. & Zeithaml, V. A. 1993. A dynamic process model of
service quality: from expectations to behavioral intentions. Journal of Marketing
Research, 30 (February): 7-27.
Burnham, T.A., Frels, J.K. & Mahajan, V. 2003. Consumer switching costs: a typology,
antecedents and consequences. Journal of the Academy of Marketing Science, 31
(2): 109-26.
Casalo, L. V., Flavia‟n, C. & Guinali‟u, M. (2007). The Influence of Satisfaction, Perceived
Reputation and Trust on a consumer‟s Commitment to a Website. Journal of
Marketing Communications, Vol. 13, No. 1, 1–17, March 2007
Chaudhuri, A. & Holbrook, M. (2001). „The chain of effects from brand trust and brand

relationship between attitudes and customer loyalty, International Journal of Market
Research, Vol. 50, Issue 4.
Gefen, D., Straub, D.W. & Boudreau, M.C. 2000. Structural equation modeling and
regression: guidelines for research practice. Communication of the Association for
Information Systems, 4 (7): 1-30.
Gerbing, D. W. & Anderson, J. C. 1993. Monte Carlo evaluation of goodness-of-fit indices
for structural equations models, In K.A. Bollen & J.S. Long (Eds.), Testing structural
equation models, Newbury Park, CA: Sage 40-65.
Graack, C. 1996. Telecom operators in the European Union: Internationalized strategies
and network alliances. Telecommunications Policy, 20 (5): 341- 355.
Gremler, D. D. & Brown, S. W. 1996. Service loyalty: its nature, importance, and
implications, in Edwardson, B., Brown, S.W. and Johnston, R. (Eds), Advancing
Service Quality: A Global Perspective. International Service Quality Association, 15
(7): 171-180.
Grönroos, C. (1983), Strategic Management and Marketing in the Service Sector, Swedish
School of Economics and Business Administration, Helsingfors, Report No. 83-104,
.
Grönroos, C. (1990), Service Management and Marketing, Lexington Books, Lexington,
MA.
Guiltinan, J.P. 1989. A classification of switching costs with implications for relationship
marketing, in Childers, T.L., Bagozzi, R.P. et al. (Eds), AMA Winter Educators’
Conference: Marketing Theory and Practice, Chicago: 216-20.
18

18

Hackl, P., Scharitzer, D. & Zuba, R. 2000. Customer satisfaction in the Austrian food retail
market. Total Quality Management, 1 (7): 999-1006.
Hair, J. F., Anderson, R. E., Tatham, R. L. & Black, W. C. (5
th

Journal of Financial Intermediation, 12 (1): 25-56.
Kline, R.B. 1998. Principles and Practice of Structural Equation Modeling. New York: The
Guilford Press.
Kristensen, K., Martensen, A., Grønholdt, L. (2000), "Customer satisfaction measurement
at Post Denmark: results of application of the European Customer Satisfaction Index
methodology", Total Quality Management, Vol. 11 No.7, pp.S1007-15.
Lau, G. & Lee, S. (1999). „Consumers‟ trust in a brand and link to brand loyalty‟. Journal of
Market Focused Management, 4, 341-70.
Lewis, B. R. 1993.Service quality: recent developments in financial services. International
Journal of Bank Marketing, 2 (6): 19-26.
Lewis, B. R. & Mitchell, V. W. 1990. Defining and measuring the quality of customer
service. Marketing Intelligence & Planning, 8 (6): 11-17.
Lim, K. & Razzaque, A.M. (1997). „Brand loyalty and situational effects: An interactionist
perspective‟. Journal of International Consumer Marketing, 9 (4), 95-115.
19

19

MacInnis, D.J. & L.L. Price (1987). The role of Imagery in Information Processing: Review
and Extensions. Journal of Consumer Research, 13:473-491
Moorman, C., Deshpande, R. & Zaltman, G. (1993). „Factors affecting trust in market
research relationships‟. Journal of Marketing, 57 (January), 81-101.
Morgan, R. M. & Hunt, S. D. (1994). „The commitment-trust theory of relationship
Marketing‟. Journal of Marketing, 58 (July), 20-38.
Narayandas, N. 1996. The link between customer satisfaction and customer loyalty: an
empirical investigation. Working Paper, No. 97-017, Harvard Business School,
Boston, MA.
Nguyen, N., & LeBlanc, G. (2001), "Corporate image and corporate reputation in
customers retentions decisions in services", Journal of Retailing and Consumer
Services, Vol. 8 pp.227-36.

relational exchanges‟. Journal of Marketing, 66 (1), 15-37.
Shy, O. 2002. A quick and easy method for estimating switching costs. International
Journal of Industrial Organization, 20: 71-87.
Spreng, R.A. & Mackoy, R.D. 1996. An empirical examination of a model of perceived
service quality and satisfaction, Journal of Retailing, 72 (2): 201-14.
Steiger, J. H. 1990. Structural model evaluation and modification: An interval estimation
approach. Multivariate Behavioral Research, 25: 173-180.
20

20

Sureshchandar, G. S., Rajendran, C. & Anantharaman, R. N. 2003. The relationship
between service quality and customer satisfaction - a factor specific approach.
Journal of Service Marketing, 16 (4): 363-379.
Walczuch, R., Seelen, J., Lundgren, H. (2001), "Psychological determinants for consumer
trust in e-retailing", Proceedings of the 8th Research Symposium on Emerging
Electronic Markets, available at: www-i5.informatik.rwth-
achen.de/conf/rseem2001/papers/walczuch.pdf (accessed March 2009).
Wang, Y., Lo, H.P., Yang, Y.H. (2004), "An integrated framework for service quality,
customer value, satisfaction: evidence from China's telecommunication industry",
Information Systems Frontiers, Vol. 6 No.4, pp.325-40.
Yuille, J.C., Catchpole, M.J. (1977), "The role of imagery in models of cognition", Journal
of Mental Imagery, Vol. 1 pp.171-80.
Zeithaml, V. A., Berry, L. L. & Parasuraman, A.1996. The behavioral consequences of
service quality. Journal of Marketing, 60 (1), 31-46.
Zeithaml, V. A., Parasuraman, A., Berry, L. L.1990. Delivering Quality Service: Balancing
Customer Perceptions and Expectations, New York: The Free Press.