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The Determinants of Brand Loyalty in the Online and
Offline Banking Sectors
Orose Leelakulthanit, Ph.D., NIDA Business School, National Institute of Development
Administration, Bangkok, Thailand
Boonchai Hongcharu, Ph.D., NIDA Business School, National Institute of DevelopmentAdministration, Bangkok, Thailand
ABSTRACT
This study adopts a comprehensive customer value approach in determining brand loyalty. Multiple
regression results reveal that online customers loyalty is driven positively by the func tional value of
service variety, the functional value of convenience, the functional value of the internet, the emotional
value of trust, and the corporate value of reputation, whereas the negative driver is the functional value
of price. The positive determinants of brand loyalty for offline customers are the functional value of
quality, the corporate value of reputation, and switching cost, while the negative determinant is the
functional value of establishment. Societal value works positively for referral and against repurchase for
offline customers.
Keywords:brand loyalty, customer loyalty, customer value, banking
INTRODUCTION
In the more demanding market of the banking industry these days, banks can hardly survive with
the old way of product orientation. They are supposed to be market driven by forming a long-termrelationship with their customers. A stable customer base is a core business asset. The essence and nature
of relationships and their business value are encapsulated in the concept of customer loyalty. The
significance of brand loyalty is manifold. Surveys show that it is up to six times as expensive to recruit
new customers as it is to retain existing customers (Rosenberg & Czepiel, 1993). Retail banks have
discovered that increased customer retention rates can have a substantial impact on profits, since an
increase in a banks retention rate by 5 % could lead to an 85 % increase in its profits (Reichheld &
Sasser, 1990). Furthermore, loyal customers are assumed to be less price sensitive (Krishnamurthi & Raj,
1991) and the presence of loyal customers provides the firm with valuable time to respond to competitive
actions (Aaker, 1991). Seybold (1998) described the economics of customer loyalty based on a
profitability model developed by Reichheld (1996). According to Seybold, the elements to achieving
higher revenues via customer retention are: (1) base revenuethe longer you retain customers, the more
money you make; (2) cost savingsthey cost you less to serve; (3) price premiumthey pay more for
your products, (4) acquisition coststhey cross-sell and up-sell themselves; and (5) they generate
referrals. Personal recommendations are often very influential in customers selection of service providers
(Murray, 1991) as well as in banking (Reichheld & Kenny, 1990). On average, bank customers
recommend the bank to 5.55 others (Gremler & Brown, 1999).
This study intends to contribute to the marketing literature in three main ways: First, the loyalty
effect will be studied in the detailed components of repeat purchase and positive word-of-mouth. Second,
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the multichannel issue is addressed by comparing the customer values that lead to brand loyalty in online
banking and traditional branch operations. Finally, customer values in the banking sectors will be
reconceptualized to capture the two schools of thought, which are the benefit versus sacrifice perceived
by the customers, and the multidimensional approach. The next section of the paper presents a review of
related research. Then, the studys methodis described. The results of the survey are presented, and the
paper ends with a discussion of the results and the conclusion.
LITERATURE REVIEW
Previous research indicates that customer value, which is the essential result of marketing activities,
is seen to be an element of the first order within relationship marketing (Peterson, 1995; Huber et al.,
2001). The advantages that the company obtains from the relationship are linked to the loyalty of the
customer. A faithful customer will generate more income than a customer that abandons the relationship.
At a general level, two major approaches to the conceptualisation anddimensionality of perceived value
can be identified. The first defines the perceived value as a construct configured by two parts, one of
benefits received (economic, social and relational) and another of sacrifices made (price, time, effort, risk,
and convenience) by the customer (Cronin et al., 1997; Gale, 1994; Zeithaml, 1988). The second
approach is based on the conception of perceived value as a multidimensional construct (De Ruyter,
Wetzels, & Bloemer, 1998; De Ruyter, Wetzels, Lemmink, & Mattsson, 1997; Mattsson, 1991; Sheth,
Newman, & Gross, 1991a, 1991b; Sweeney & Soutar, 2001; Woodruff, 1997).
According to a definition by Zeithaml (1988), value for the consumer results from the personal
comparison of the benefits obtained and the sacrifices made. Therefore, it contains a component of
benefits and another of sacrifices. The benefits component, or what a consumer receives from the
purchase, would include the perceived quality of the service and a series of psychological benefits
(Zeithaml, 1988). To assess service quality, the original SERVQUAL, which consists of five service
dimensions, does not seem to fit the model of customer value in relation to brand loyalty (Parasuraman etal., 1988). In this study, a more parsimonious service quality component of the GLOVAL scale of
measurement of perceived value, developed by Sanchez et al. (2006) for the tourism sector, has been
adopted. These service quality components are referred to as the functional value of establishment, the
functional value of contact personnel, and the functional value of quality. The key service quality factors
in the traditional banking environment deal with the interaction between employees and customers. On
the other hand, the main service quality factors in internet banking have to do with the interaction
between customers and computers. Internet banking has only one dimension of service quality, which is
adapted from the study of Al-Hawari, Ward and Newby (2009), and this is called the functional value of
the internet. The sacrifice component, or the switching cost, is the customers perception of the magnitude
of additional costs required to terminate the current relationship and to guarantee an alternative one; such
perceived costs prevent the customer from shifting to a competitors offers (Yanamandram & White,
2006). Switching costs encompasses not only those that can be monetarily measured, but also the
psychological effect of becoming a customer of a new provider (Dick & Basu, 1994). The measures of
switching cost in this study are adapted from the research of Matos, Henrique & Rosa (2009).
According to the multidimensional approach, besides service quality, customer value is
conceptualized here as consisting of several other dimensions, including the functional value of service
variety, the functional value of convenience, the functional value of price, the emotional value of feeling,
the emotional value of trust, societal value and the corporate value of reputation. Service variety is a kind
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of portfolio that enables the company to better serve the customers various needs. It also allows the
banks to engage in cross-selling by promoting additional products and services to existing customers in
addition to the ones a customer currently has (Butera, 2000). Cross-selling is widely spread in the banking
sector because of its advantage in reducing the money spent on customer acquisition and leads to a price
advantage over competitors (Reichheld & Sasser, 1990). Moreover, the customers knowledge of the
service providers service delivery processes lowers her/his resistance to the providers cross -selling
propositions. The firm also has a lower risk and liability exposure due to its knowledge of the customer.Finally, the more products and services a customer buys the longer s/he is likely to stay with the firm
(Reinartz & Kumar, 2003).
A distribution channel has been described as the exchange relationship between the organization
and its customers that creates customer value in acquiring and consuming products and services (Pelton et
al., 1997). The use of a number of distribution channels by organizations is becoming widespread (Frazier,
1999), as increasingly organizations add new channels and communication methods, providing an
opportunity to extend market coverage cost effectively (Moriarty & Moran, 1990). Physical locations,
such as branches, remain highly used by customers and can be seen to be an important source of
competitive advantage for many financial services providers (Bekier et al., 2000). However, online
banking allows customers to access their accounts and conduct financial transactions with their respective
banks from homes and offices (Bauer et al., 2005; McMahon, 1996).
The role of price as a purchasing determinant as well as in post-purchasing processes is well
recognized. In a qualitative study focusing on switching behavior in services, Keaveney (1995) reported
that more than half of the customers switched because of poor price perception (compared to competitors).
Varki and Colgate (2001) arrived at similar results in their study of the banking industry; particularly that
price perception directly influences customer satisfaction, the likelihood of switching, and the likelihood
of recommendation to others. This signifies the functional value of price in relation to brand loyalty.
Successful service brands derive from carefully-nurtured relationships, which develop staffs and
consumers respect for certain functional and emotional values of the brand (de Chernatony andDallOlmo Riley, 1999).The affective dimension that is formed by an emotional component, relating to
internal emotions or feelings, is called the emotional value of feeling, and the feelings towards the firm
practices is referred to as the emotional value of trust. The measures of this functional value of feeling are
adapted from the GLOVAL scale (Snchez et al., 2006).
Trust is logically and experientially a critical variable in relationships, as has been hypothesized and
borne out in the marketing literature (Moorman et al. , 1993; Morgan & Hunt, 1994). The importance of
trust in explaining loyalty is also supported by authors such as Chaudhuri and Holbrook (2001),
Garbarino and Johnson (1999), Lim and Razzaque (1997), Singh and Sirdeshmukh (2000), and
Sirdeshmukh et al. (2002). In this study, the measures of emotional value of trust are adapted from the
research of Ball, Coelho, and Machs (2004).
Social responsibility is marketings function to society to advance life and the general welfare of
consumers through value-creating marketing activities. A 1994 study by Walker Research and Analysis
found that 88 percent of consumers claimed they were much or somewhat more likely to buy from a firm
which is socially responsible and a good corporate citizen if quality, service, and price are all comparable
to those of competitors, while 92 percent said they would be much or somewhat less likely to buy from a
company that lacks social responsibility (Smith, 2001, p. 155). A 1997 Cone/Roper survey revealed that
76 percent of consumers claimed they would switch brands or stores that seem concerned about the
community (Jones, 1997). This societal value creates brand loyalty.
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The companys reputation provides easy access to the evoked set of stimuli with the target group.
Andreassen and Lindestad (1998) argued that corporate imagepart of reputationis an antecedent to
customer loyalty. Later, it was concluded that reputation may be loyaltys strongest driver (Andreassen,
1994; Ryan et al., 1999). Moreover, Rogerson (1983) showed that a high reputation increases the
likelihood that consumers will provide a recommendation. Therefore, the corporate value of reputation is
likely to lead to brand loyalty.
Gremler and Brown (1996) defined loyalty as the degree to which the client performs a re-buyingbehavior from a service supplier, presents a positive attitudinal disposition toward it, and considers it as
the only choice when making a decision. For example, an indicator of positive attitude is recommendation
or positive word-of-mouth (Sivadas & Baker Prewitt, 2000). For some authors (e.g., Bloemer & Kasper,
1995; Oliver, 1999), this perspective defines true loyalty. It follows that loyalty is composed of
repurchase behavior and positive word-of-mouth. From the aforementioned literature review, it can be
hypothesized that the functional value of service quality, the functional value of service variety, the
functional value of convenience, the functional value of price, the emotional value of feeling, the
emotional value of trust, societal value, the corporate value of reputation, and switching cost have a
positive relationship with both re-buying behavior and positive word-of-mouth.
METHODOLOGY
Questionnaire Design
Generally, the design of the questionnaire content in this study was based on the measures of
previous related research, except the measures of societal value. Many of these were measured on mult i-
item scales. However, several constructs were measured by single item scale. These include the functional
value of service variety, the functional value of convenience, the functional value of price, the corporate
value of reputation, repeat-buying behavior, and positive word-of-mouth. The questionnaire content was
divided into five sections. The first section dealt with banking consumption behavior. The second sectioncontained all of the determinants of brand loyalty in the banking sector according to the authors
conceptualization. The third section had to do with brand loyalty towards bank. The fourth section
concerned satisfaction or dissatisfaction and complaining behavior. The fifth section contained
demographic information on the respondents. The questionnaire was pretested with fifteen executive
MBA students. After that, personal interviews with 37 convenient samples of eligible respondents were
conducted. These eligible interviewees were those that currently had savings deposits with banks. They
had to be at least 18 years of age and have at least 4 months experience in using the banks services. The
questionnaire was reworded for clarity of terms based on the feedback received from both groups.
Sampling Method
There were two population groups for this study; namely, online and offline bank customers. The
researchers adopted convenience sampling for both groups. The online group consisted of those that used
online banking as their major transaction medium with their most often-used banks, unlike the offline
group, who used branches as the mode of conducting transactions with their most often-used banks. For
the online group, two hundred and nine eligible respondents were interviewed in nineteen departments
and discount stores spread over Bangkok. Similarly, for the offline group, two hundred and sixteen
eligible respondents were interviewed in eighteen departments and discount stores in Bangkok. The
response rates for the online and offline groups were 77% and 69%, respectively. Because some
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respondents did not have saving deposits with their most often-used banks, a total of six samples were
dropped from the analysis. That is to say, the usable respondents for the online and offline bank
customers were 206 and 213 respectively.
Factor Analysis and Reliability
In order to investigate that each multi-item scale construct was unidimensional, a principal
component factor analysis was performed on these constructs. It was found that the extracted eigenvaluewas more than 1 and the factor loadings were more than +0.70 (see Table 1). According to Hair et al.
(2006), loadings exceeding +0.70 are considered indicative of well-defined structure and are the goal of
any factor analysis. In addition, good measures should be reliable. Nunnally (1978) views that reliability
over 0.7 implies relatively high reliability. Cuieford (1965) also indicated that a Cronbach alpha of more
than 0.7 suggests high reliability. When it is less than 0.35, it should be rejected. Thus, the measures used
in this study were found to be highly reliable since it was at least 0.7 for each construct in this study.
Table 1: The results of the factor analysis and reliability of customer values
Factor and item description Factor loadings Eigenvalue Cronbach
Factor 1: Functional value of establishment 2.42 0.88The installations favor the privacy of dealings. 0.87
It seems tidy and well organized. 0.93
The installations are spacious, modern and clean. 0.90
Factor 2: Functional value of contact personnel 3.64 0.90
The personnel know their job well. 0.87
The personnels knowledge is up-to-date. 0.88
The personnel provide fast service. 0.81
The information provided by the personnel has
always been very valuable to me.0.85
The personnel have knowledge of all of the services
offered by the bank.0.86
Factor 3: Functional value of quality 3.15 0.91
The service as a whole is correct. 0.86
The quality has been maintained all of the time. 0.90
The level of quality is acceptable in comparison
with other banks.0.90
The results of the service received were as expected. 0.90
Factor 4: Functional value of internet 4.29 0.89
Availability of information 0.74
Easy to use 0.77
Secure 0.76
Error-free transactions 0.82Attractive website 0.77
Up-to-date information 0.84
Responsiveness 0.79
Factor 5: Emotional value of feeling 4.42 0.93
The personnel give me positive feelings. 0.86
The personnel dont hassle me. 0.84
You feel good with the service you get. 0.88
You feel relaxed. 0.87
You feel confident. 0.85
In general you feel at ease. 0.87
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Factor 6: Emotional value of trust 2.76 0.85
The information provided by the bank is clear and
transparent.0.82
When the bank suggests that you buy a new
product it is because it is best for your situation.0.77
The bank treats You in an honest way in
every transaction.0.86
The bank often keeps its promise. 0.87Factor 7: Societal value 4.76 0.92
The bank does the business not only for profit. 0.79
The bank creates employment. 0.77
The bank treats the customers equally. 0.83
The bank treats the customers fairly. 0.85
The bank generates benefits for the society. 0.86
The bank takes part in creating well-being for the
society.0.86
The bank helps with environmental conservation. 0.82
Factor 8 : Switching cost 2.59 0.82
You have no time or you are not willing to
purchase services provided by another bank. 0.77
You believe that in case you switched to another
bank, it would be unpleasant or difficult to get used
to or to adapt to the services provided by it.
0.79
You would not be willing to lose the benefits
accumulated to date.0.84
You are not willing to pay for the costs
associated with changing banks.0.81
RESULTS
Characteristics and Behavior of Online and Offline Respondents
From Table 2, it can be seen that as compared to offline respondents, online respondents are more
inclined to be males. Additionally, they tend to be married and hold a bachelors degree, whereas the
offline group is more inclined to be advanced degree holders. The majority of both groups are employed,
although there are more students in the offline group. Online respondents are far outweighed by white
collar workers, while offline interviewees tend to be professionals and high-ranking executives. However,
online respondents have a higher income of 35,340 Baht per month as compared to offline respondents,
with an income of only 24,336 Baht per month.
Table 2: Characteristics of online and offline customers
CharacteristicsOnline Offline
% mean % mean
Gender
Male 45.6 39.4
Female 54.4 60.6
Age (years) 31.24 29.96
Marital status
Never married 72.8 78.4
Married 25.7 20.2
Widowed 0.5 0.5
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Divorced 0.5 0.9
Separated 0.5 0.0
Highest education attained
Less than lower primary school 0.5 0.0
Lower primary school 0.5 0.0
Upper primary school 0.5 1.4
Lower secondary school 0.5 0.0
Upper secondary school 1.5 1.9Some college 3.9 8.0
College graduate 73.8 62.9
Advanced degree 18.9 25.8
Employment status
Employed 88.8 76.5
Unemployed 1.5 2.8
Retired 1.0 1.9
Housewife 1.5 1.9
Student, not employed 7.3 16.9
Occupation
Administration or professional 14.1 24.4Government officer except those
specified earlier6.8 3.8
Employee in a private business or
bank or big store46.6 31.0
Merchant 6.8 4.7
Own business 9.7 5.6
Skilled or semi-skilled laborer 1.9 1.9
Others 3.4 4.7
Monthly income (Baht) 35,340.51 24,336.27
On average, the number of banks used by both groups were three; namely, Bangkok Bank, SiamCommercial Bank, and Kasikorn Thai Bank (Table 3). The most often used bank for online interviewees
was Siam Commercial Bank, while that of the offline interviewees was Bangkok Bank. Online
respondents tended to be longer users of the bank services than their counterparts. Specifically, they have
used the bank services for 87 months, whereas the offline respondents used the bank services for 68
months. Both groups put their money in savings deposits for the prime purpose of emergency cases.
Almost half of the online customers were only credit card holders while abroad a quarter of offline ones
did. Online customers are more satisfied with their most often-used banks than offline ones. Both groups
tended to switch banks when they were dissatisfied, especially the offline customers. When dissatisfied,
online customers are likely to complain with the bank employees, whereas offline patronages tend to
complain with other customers.
Table 3: Behavior of online and offline customers
BehaviorOnline Offline
% mean % mean
Number of banks used 2.36 2.42
Banks used
Bangkok bank 59.7 56.3
Kasikorn Thai bank 54.4 49.3
Siam commercial bank 55.8 54.5
Krung Thai bank 25.2 30.0
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Bank of Ayudhya 18.0 19.2
Thai Military bank 10.7 11.3
Other banks 12.6 21.1
Most often used bank
Bangkok bank 30.6 29.1
Kasikorn Thai bank 26.2 21.1
Siam commercial bank 31.1 21.6
Krung Thai bank 5.8 12.2Bank of Ayudhya 2.9 6.1
Thai Military bank 2.4 2.8
Other banks 1.0 6.6
Length of time used (months) 86.81 68.30
Purpose of saving
Emergency 67.5 72.3
Investment 31.1 32.4
Sick 18.4 21.6
Buying assets 39.3 30.0
Wedding 6.8 5.6
Education 25.2 27.7Retirement 18.0 10.8
Interest 23.8 22.5
Safety 34.0 28.6
Travelling 20.4 19.2
Others 3.4 2.3
Types of services used
Saving 100.0 100.0
Time deposit 36.9 27.7
Cheque 8.3 5.2
Credit card 43.2 26.3
Home loan 11.7 7.5
Personal loan 2.9 6.1
Car insurance 7.8 7.0
House insurance 4.4 3.3
Life insurance 16.0 17.8
Mutual fund investment 10.2 8.0
Others 1.5 1.4
Frequency of transactions (times/month) 4.61 2.91
Amount of savings deposit 107,256.74 119,966.48
Satisfaction with most often used bank 5.25 4.88
Action when dissatisfied
Change to use other banks 34.5 40.4
Complain with other customers 28.2 34.7Complain with other organizations 5.3 5.6
Complain with bank employee 30.1 24.2
Do nothing 24.8 21.6
Never dissatisfied 13.6 16.9
Issues of dissatisfaction
Wait too long 63.1 51.2
Too few branches 9.2 13.6
Too few ATMs 18.4 13.6
Others 6.3 17.4
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Determinants of Repurchase for Online and Offline Customers
In order to find out whether the functional value of service quality, the functional value of service
variety, the functional value of convenience, the functional value of price, the emotional value of feeling,
the emotional value of trust, societal value, the corporate value of reputation, and switching cost have a
positive relationship with re-buying behavior, these independent variables were regressed on repurchase
behavior. The service quality construct is different for the online and offline customers. For the online
customers, the functional value of service quality is simply the functional value of the internet, while thefunctional value of service quality for the offline customers is composed of the functional value of
establishment, the functional value of contact personnel, and the functional value of quality. The results
of these two multiple regressions are shown in Table 4. For the online customers, the values of
standardized beta coefficients suggest that the emotional value of trust is most positively related to repeat-
buying, followed by the corporate value of reputation, the functional value of convenience, and the
functional value of price. The functional value of price is negatively related to repurchase, which will be
an issue of discussion later. For the offline customers, the positively significant determinants of
repurchase are the corporate value of reputation, the functional value of quality, and switching cost. The
negatively significant determinants of repeat-buying are the societal value and functional value of
establishment.
Determinants of Positive Word-of-Mouth for Online and Offline Customers
Similarly, in order to investigate whether the functional value of service quality, the functional
value of service variety, the functional value of convenience, the functional value of price, the emotional
value of feeling, the emotional value of trust, societal value, and corporate value of reputation have a
positive relationship with positive word-of-mouth, these independent variables were regressed on positive
word-of-mouth. The switching cost was irrelevant to positive word-of-mouth for either group. Therefore,
it was dropped from the multiple regression for both the online and offline groups. The results of the two
multiple regression analysis for online and offline customers are illustrated in Table 4. Positive word-of-mouth of online patronages is determined by the corporate value of reputation the most, followed by the
functional value of the internet and the functional value of service variety. In the case of offline customers,
the most important factor affecting positive word-of-mouth remained the corporate value of reputation,
followed by societal value.
Table 4: The results of the multiple Regression of the determinants of brand loyalty
Customer values
Repeat purchase Positive referral
Online Offline Online Offline
Standardized Standardized Standardized Standardized
Service Variety 0.156**Convenience 0.212***
Price -0.183***
Establishment NA -0.157* NA
Personnel NA NA
Quality NA 0.344*** NA
Internet NA 0.165*
Feel
Trust 0.408***
Societal values -0.206** 0.170*
Reputation 0.317*** 0.402*** 0.334*** 0.240***
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Switching cost 0.178*** NA NA
R square 0.412 0.401 0.434 0.325
Adjusted R square 0.385 0.368 0.411 0.292*** Significant at 0.01** Significant at 0.05* Significant at 0.10
NA = Not applicable
DISCUSSION
Since brand loyalty consists of repeat-buying and positive word-of-mouth, this section attempts to
bring together the results of the factors affecting both repeat-buying and positive word-of-mouth. Taken
together, the determinants of brand loyalty for online customers are the functional value of service variety,
the functional value of convenience, the functional value of price, the functional value of the internet, the
emotional value of trust, and the corporate value of reputation. However, the determinants of brand
loyalty for offline customers were the functional value of establishment, the functional value of quality,
societal value, the corporate value of reputation, and switching cost.
In the case of banks, the functional value of price consisted of the relative interest earned by thesavings depositors as compared to the competitors. It is noteworthy that the functional value of price was
the only factor which was negatively related to repurchase for online customers. This suggests the online
customers perception of the high interest rate offered by banks as a signal of the hidden costs that the
consumers have to pay in some fashion. In terms of offline patronage, the functional value of
establishment was negatively related to repurchase. This may be because the spacious and modern bank
buildings lead the offline customers to think about the unnecessarily high investment of the banks. On the
other hand, societal value works like a double-edge sword. The bright side of societal value occurs when
it yields positive word-of-mouth, whereas the dark side of societal value happens when it withholds
repeat-buying. The reason is that offline customers may like to let other people know if the banks are
doing well by taking corporate, socially responsible actions with others. However, they themselves maynot like to continue to use the banks if the banks are not performing properly.
CONCLUSION
Each market segment has its own customers values according to the groups that the customers
belong to. In order to create brand loyalty, whether it be repeat-buying or positive word-of-mouth,
marketers should be aware of these unique sets of customers values. These values, which work positively
in terms of creating brand loyalty for the online customers, are the functional value of service variety, the
functional value of convenience, the functional value of the internet, the emotional value of trust, and the
corporate value of reputation. For the offline customers, the positive customer values are the functional
value of quality, societal value, the corporate value of reputation, and switching cost. However,
marketers should also be cautious about the customer values that work against brand loyalty. The sole
customer value that falls into this category for online customers is the functional value of price or interest
rate for savings deposits. The negative determinants of brand loyalty for offline customers are the
functional value of establishment and societal value. Societal value works positively in terms of
generating positive word-of-mouth but works against repeat-buying. This signifies the importance of
delivering the functional value of quality correctly; otherwise it might backfire when societal value is
implemented. Moreover, the corporate value of reputation is likely to be the prime driver of brand loyalty
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because it is positively related to repeat-buying and positive word-of-mouth for both online and offline
segments. Thus, marketing managers should play an increasing role in creating corporate reputation along
with other managers in the organization.
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