Academic journal article International Journal of Business and Information

Impact of Relationship Quality on Customer Retention – A Study with Reference to Retail Banking in India

Academic journal article International Journal of Business and Information

Impact of Relationship Quality on Customer Retention – A Study with Reference to Retail Banking in India

Article excerpt

1. INTRODUCTION

In today's competitive business environment, losing a customer is very costly. Service industries, especially banks, are facing stiff competition in a market where retaining customers is part of their core strategy to gain competitive advantage. Previous studies have found that it costs more to acquire a new customer than to retain an existing one (Gallo, 2014).

Service quality is one of the measures used to analyze the performance of service industries such as banks. Service quality is the customers' belief or attitude about the degree of service excellence (Al-Hawari et al., 2009). Service quality is measured using the scales reliability, assurance, tangibles, empathy, and responsiveness (RATER model), as proposed by Parasuraman et al. (1988).

Another dimension used to measure performance in service industries is relationship quality. The term can be defined as the quality of interaction between the organization and its customers (Giovanis et al., 2015). Previous research has shown that relationship quality can even replace service quality and customer satisfaction (Giovanis et al., 2015). There are circumstances in which customers are willing to place relationship quality over service quality. Relationship quality can be viewed, therefore, as a vital factor in determining customer retention in an organization.

Although the association between relationship quality and customer retention can be understood intuitively, few researchers have attempted to measure the impact of relationship quality on customer retention. The current study addresses this issue in the context of the banking industry.

1.1.Theoretical Background

The concept of relationship marketing is derived from social exchange theory. Kingshott (2006) found that relationships are interpersonal and are built on trust, interdependence, moral obligation, and reciprocity. In business-to-customer relationships, customers expect the business to exhibit respect for customers and to consider them as co-creators of value. In relationships where customers are treated this way, the bond between them and the organization improves and lasts for a longer period. Previous research has shown that the relationship between customers and the organization is extended even beyond the closing of the sale (O'Malley & Tynan, 2000; O'Malley et al., 2008). Customers are willing to extend their relationship with the organization if they feel positive about their transactions with the organization. Customers' perception about the relationship will help them in making their next choice. Maintaining a healthy relationship with the customer is essential, therefore, for the sustainability and survival of any organization.

In this context, it is important to measure the perception of customers about their relationship with the organization. Relationship quality is one of the dimensions used by social science researchers in relationship marketing to measure the perception of customers about their relationship with the organization. Relationship quality can also be defined as a multi-dimensional construct that explains the nature of the relationship between companies and consumers (Hennig-Thurau et al., 2000).

The evolution of relationship quality can be traced to Crosby et al. (1990), who explored it using trust and satisfaction as antecedents. Later, Wray et al. (1990) extended the study of relationship quality using neural network as well as trust and satisfaction as antecedents. Henning-Thuru (2000) used commitment as an antecedent to measure relationship quality. Later, Molinear et al. (2007) constructed relationship quality with trust, commitment, and satisfaction as antecedents for relationship quality and used structural equation modeling for validating their results.

From these prior studies, it is clear that trust, commitment, and satisfaction are the building blocks of relationship quality. The current study follows the suggestions provided by Tung et al. …

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