Journal of International Consumer Marketing

ISSN: 0896-1530 (Print) 1528-7068 (Online) Journal homepage: http://www.tandfonline.com/loi/wicm20

Relationship Marketing, Customer Satisfaction and

Loyalty: A Theoretical and Empirical Analysis From
an Asian Perspective
Nelson Oly Ndubisi , Naresh K. Malhotra & Chan Kok Wah
To cite this article: Nelson Oly Ndubisi , Naresh K. Malhotra & Chan Kok Wah (2008)
Relationship Marketing, Customer Satisfaction and Loyalty: A Theoretical and Empirical
Analysis From an Asian Perspective, Journal of International Consumer Marketing, 21:1, 5-16
To link to this article: http://dx.doi.org/10.1080/08961530802125134

Published online: 02 Jan 2009.

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Date: 17 November 2016, At: 00:23

Journal of International Consumer Marketing, 21:516, 2009

c Taylor & Francis Group, LLC
Copyright

ISSN: 0896-1530 print / 1528-7068 online
DOI: 10.1080/08961530802125134

ARTICLES

Relationship Marketing, Customer Satisfaction

and Loyalty: A Theoretical and Empirical Analysis
From an Asian Perspective
Nelson Oly Ndubisi
Naresh K. Malhotra
Chan Kok Wah

ABSTRACT. The purpose of this article is to theoretically and empirically analyze relationship
marketing (RM), customer satisfaction, and customer loyalty from an Asian perspective. A field
survey of bank customers in Malaysia was conducted using a questionnaire. The data were factoranalyzed to determine the key dimensions of RM. The resulting dimensions were applied in the
subsequent hierarchical multiple regression analysis conducted to determine the relationship between
the relationship marketing dimensions (competence, communication and conflict handling), customer
satisfaction, and customer loyalty.

KEYWORDS. Relationship marketing, customer satisfaction, customer loyalty, bank customers,

Asia

Marketing scholars have suggested that firms

should leverage firmcustomer relationships to
gain privileged information about customers
needs and thereby serve them better than competitors (Ndubisi, 2006). This has culminated
in the advent and popularity of the concept of
relationship marketing (RM) in the past few

decades. Besides its ability to help understand

customers, relationship marketing also helps
to increase market share and profitability, and
to reduce cost. Research has shown that the
cost of serving one loyal customer is five to
six times less than the cost of attracting and
serving one new customer. Although there is

Nelson Oly Ndubisi is affiliated with the School of Business at Monash University, Selangor, Malaysia.
Naresh K. Malhotra is affiliated with the College of Management at Georgia Tech University, Atlanta, GA
USA. Chan Kok Wah is affiliated with the La-Salle School, Kota Kinabalu, Malaysia.
Address correspondence to Nelson Oly Ndubisi, School of Business, Building 6, Level 4, Monash
University, 46150 Bandar Sunway, Selangor, Malaysia. E-mail: nelson.ndubisi@ buseco.monash.edu.my
5

JOURNAL OF INTERNATIONAL CONSUMER MARKETING

a long list of benefits associated with relationship marketing, little is understood from
an empirical viewpoint about the (direct and
indirect) influences of the dimensions of relationship marketing on customer satisfaction
and customer loyalty, as vast scholarship in this
area has remained conceptual (Malhotra, 2001;
Malhotra and Agarwal, 2002). Moreover, much
of the work on relationship marketing to date
focuses on the Western perspective, as hardly
any work has been done in the Malaysian and
Asian context to identify the key dimensions
of relationship marketing that could explain
changes in customer satisfaction and loyalty. The
growing importance of the Malaysian market
to the global economy means that a study of
the Malaysian market is necessary to find ways
and means of assisting marketing practitioners
in designing effective customer management
strategies that will aid in achieving high levels
of customer satisfaction and customer loyalty.
Thus, the objectives of this research are:
1. to examine the relationship between the
dimensions of relationship marketing
competence, communication and conflict
handlingand customer satisfaction and
customer loyalty;
2. to examine the mediation effect of customer satisfaction in the association of the
three dimensions of relationship marketing
on customer loyalty;
3. to provide guidance to researchers and
practitioners concerning the relationship
factors and organizational processes that
may facilitate quality customer relations, customer satisfaction, and customer
loyalty.

RELATIONSHIP MARKETING
According to Hennig-Thurau and Hansen
(2000), the relationship marketing concept is
built on three distinct, yet interrelated, theoretical approaches: the behavioral approach, the
network approach, and the new institutional
economics approach. The behavioral approach
encompasses most of the extant models related
to relationship marketing, including constructs
such as trust, commitment, satisfaction, and

customer retention. The network theory, conversely, focuses on the interactive character of
relationships in the field of business-to-business
marketing and takes an inter-organizational perspective (Hennig-Thurau and Hansen, 2000, p.
4). Within the network model, firms (labeled
actors) are engaged in a number of complex and
long-term social arrangements called networks
of relationships (Low, 1996). Finally, HennigThurau and Hansen (2000) describe the new
institutional economics approach as trying to use
modern economic theories, such as transactioncost theory and agency theory, to explain the
development and breakdown of relationships,
with the overall goal of minimizing the costs of
structuring and managing a given relationship.
Key constructs in the relationship marketing
literature are trust, commitment, competence,
communication, and conflict handling. As extant
literature shows, both trust and commitment are
well researched, whereas competence, communication, and conflict handling have received
relatively marginal (empirical) attention. Thus,
emphasis is placed on them in this article.
The customer relationship life cycles model
(Gronroos, 1990b; Normann, 1991; Schlesinger
and Hallowell, 1994) and the relationship
profitability model (Storbacka, Strandvik, and
Gronroos, 1994) further form the other underlying models adopted in this study. The customer
relationship life cycles model argues that good
external quality leads to satisfied customers, customer retention, and profitability. The relationship profitability model links perceived value to
customer satisfaction, relationship strength, relationship longevity, and customer relationship
profitability. The model argues that perceived
value (the outcome of customer-perceived quality and the customers sacrifice) is an antecedent
to customer satisfaction, which in turn influences
customer commitment (Gummesson, 1999). In
a (relationship marketing) sense, both perceived
value and good external quality can be viewed
in terms of the value of the banks competence,
communications, and conflict-handling ability.
This study adopts these models by juxtaposing
the relationship marketing dimensions with customer satisfaction and customer loyalty.
Prior studies (e.g., Berry, 1983; Jackson,
1985; Christopher, Payne, and Ballantyne, 1991;

Ndubisi, Malhotra, and Wah

Gummesson, 1991) have applied the relationship

marketing concept to the field of service marketing and industrial marketing. According to
Webster (1992), the phenomenon described by
this concept is strongly supported by ongoing
trends in modern business. Berry (1983) looked
at relationship marketing as a strategy to attract,
maintain, and enhance customer relationships.
The goals of relationship marketing have been
linked to creating and maintaining lasting relationships between the firm and its customers that
are rewarding for both sides (Rapp & Collins,
1990). Blomqvist, Dahl, and Haeger (1993)
offered the following key characteristics of
relationship marketing: Every customer is considered an individual person or unit; activities
of the firm are predominantly directed towards
existing customers; it is based on interactions
and dialogues; and the firm is trying to achieve
profitability through the decrease of customer
turnover and the strengthening of customer
relationships.
The importance of relationship marketing is
being recognized to a growing extent. Webster
(1992), in an analysis of the current developments in business and marketing, reported
that the relatively narrow conceptualization of
marketing as a profit-maximization problem,
focused on market transactions or series of transactions, seems increasingly out of touch with an
emphasis on long-term customer relationships
and formation and management of strategic alliances. Ndubisi (2003) argued that the only real
sustainable business growth strategy is through
a mutual symbiotic relationship with customers,
which enables a business to understand their
needs more clearly and to create and deliver
superior value.
According to Calonius (1988), an integral
element of the relationship marketing approach
is the promise concept. The responsibilities
of marketing do not only, or predominantly,
include giving promises and thus persuading customers as passive counterparts in the
marketplace to act in a given way, but in
keeping promises, which maintains and enhances evolving mutual relationships (Calonius,
1988). Reichheld and Sasser (1990) concurred
that fulfilling promises is equally important as
a means of achieving customer satisfaction,

retention of the customer base, and long-term

profitability.
Extant literature (e.g., Anderson and Weitz,
1989; Dwyer, Schurr, and Oh, 1987; Crosby,
Evans, and Cowles, 1990; Moorman, Deshpande, and Zaltman, 1993; Morgan and Hunt,
1994; Ndubisi and Chan, 2005; Ndubisi, 2006)
has theorized some factors that underpin relationship marketing: for example, competence,
trust commitment, conflict handling, and communication, or sharing of secrets. Two main
shortcomings are associated with some of these
prior reports. First, the majority of them are
conceptual, hence they lack empirical validation.
Second, the few prior empirical studies on
relationship marketing consider the relationship
variables in bits and pieces, not allowing a full
understanding of their impacts. Third, while
some of these dimensions have been examined extensively (e.g., trust and commitment),
others (e.g., competence, communication and
conflict handling) have been relatively overlooked. This paper aims to fill this research
gap.

Competence, Communication,
and Conflict Handling
Competence as a key relationship marketing
variable is supported by the rationale that people
tend to value and nurture relationships with
competent individuals. Such competence may
be the result of intellectual, technical, commercial, and social skills. Organizational behavior
research (e.g., Drucker, 2001; McShane and
Travaglione, 2007) recognizes the existence of
expert powerinfluencing others by possessing knowledge or skills that the others value.
Competence gives the expert in the relationship
the power to influence the other party, who
willingly stays in the relationship and nurtures
it because it allows him/her to leverage that
valued skill or knowledge possessed by the
expert. This is a demonstration of the mutuality
of the relationship. In this context, competence
is defined as the buyers perception of the
(banking services) suppliers technological and
commercial competence (Anderson and Weitz,
1989). From this definition, there are four items
that are linked to competence: the suppliers

JOURNAL OF INTERNATIONAL CONSUMER MARKETING

knowledge about the market for the buyer, the

ability to give good advice on the operating
business, the ability to help the buyer plan
purchases, and the ability to provide effective
sales promotion materials. The National Retail
Merchants Association reported that businesses
lose approximately 20 percent of their customers
each year (Rakstis, 1996), mostly due to issues relating to incompetent service delivery.
This undermines the significance of customer
retention; 65 percent of the average companys
business comes from its present customers
(Vavra, 1992), and small increases in customer
retention rates can lead to dramatic increases
in profits (Reichheld, 1996). It costs five to six
times as much to attract a new customer than to
retain an existing one (Rosenberg and Czepiel,
1983; Ndubisi, 2003), and that is the idea behind
customer relationship management (CRM).
Communication is the exchange of information between supplier and customer (Selnes,
1998). It is the ability to provide trustworthy and
timely information. Prior studies (e.g., Frazier
and Rody, 1991; Metcalf, Frear, and Krishnan,
1992) suggest that the exchange of information
is an important part of both traditional industrial
selling and relationship marketing. Anderson
and Narus (1990) remarked that there is a
new view of communication as an interactive
dialogue between the company and its customers
that takes place during the preselling, selling,
consuming, and postconsuming stages. Besides
providing timely and trustworthy information,
effective communication oils the wheel of trust
and keeps it rolling. Because language is imperfect, an open dialogue is often a necessary
means of developing and preserving a shared
understanding of the relationship (Sabel, 1993).
When there is effective communication between
the bank and customers, a better relationship,
customer satisfaction, and fidelity are likely to
result.
Conflict handling refers to the suppliers
ability to minimize the negative consequences of
manifest and potential conflicts (Dwyer, Schurr,
and Oh, 1987). Conflict handling reflects the
suppliers ability to avoid potential conflicts
and solve manifest conflicts before they create
problems, and the ability to openly discuss
solutions when problems arise. Rusbult et al.

(1988) argued that the likelihood that an individual will demonstrate loyalty, exit, or voice
depends on the degree of prior satisfaction
with the relationship, the magnitude of the
persons investment in the relationship, and
an evaluation of the alternatives one has. The
ability of the bank to handle conflict well will
determine customer satisfaction and customer
loyalty.

Customer Satisfaction and Loyalty

Satisfaction with the delivered products and
services has been suggested and empirically
documented as affecting the buyers decisions
to continue a relationship (Ndubisi, 2003; Anderson, 1994; Fornell, 1992; Hirchman, 1970).
According to Hirchman (1970), Richins (1983),
and Singh (1988), when customers are satisfied,
the likelihood of exit from the relationship and
negative word of mouth is reduced greatly. The
confirmation/disconfirmation theory (Churchill
and Surprenant, 1982; Oliver, 1980) explains
that satisfaction is achieved when expectations are fulfilled (confirmed), that negative
disconfirmation of expectations will result in
dissatisfaction, and that positive disconfirmation
will result in enhanced satisfaction. Lovelock,
Patterson, and Walker (1998) listed the virtues
of customer satisfaction: First, satisfaction is
inextricably linked to customer loyalty and relationship commitment. Second, highly satisfied
customers spread positive word of mouth and in
effect become a walking, talking advertisement
for an organization whose service has pleased
them. Third, highly satisfied customers may be
more forgiving. Someone who has enjoyed good
service delivery many times in the past is more
likely to believe that service failure is a deviation
from the norm. Hence it may take more than
one unsatisfactory incident for strongly loyal
customers to change their perceptions and consider switching to an alternative supplier. Other
studies have shown that delighted customers are
less susceptible to competitive offerings. For
example, Selnes (1998) found that satisfaction
had a direct effect on continuity.
Loyalty is a deeply held commitment to rebuy
or repatronize a preferred product or service
in the future in spite of situational influences

Ndubisi, Malhotra, and Wah

FIGURE 1. The Schema of the Research Model

Competence

Communication

Customer
Satisfaction

Customer
Loyalty

Conflict
Handling

and marketing efforts to cause switching behavior (Oliver, 1999). Grossman (1998) defined
customer loyalty as :making customers feel
committed: When the benefits are meaningful
to them, they will stay on. It has been argued
that for loyal buyers, companies must invest in
relationship building and closeness to customers
(Ndubisi, 2006).
From the above discussion and schema
(shown as Figure 1), the following hypotheses
were generated for empirical testing:
Hypothesis 1a: Competence is directly
associated with customer satisfaction.
Hypothesis 1b: Communication is directly
associated with customer satisfaction.
Hypothesis 1c: Conflict handling is directly associated with customer satisfaction.
Hypothesis 2: Customer satisfaction is
directly associated with customer loyalty.
Hypothesis 3a: Customer satisfaction is a
mediator in the association of competence
with customer loyalty.
Hypothesis 3b: Customer satisfaction is a
mediator in the association of communication with customer loyalty.
Hypothesis 3c: Customer satisfaction is
a mediator in the association of conflict
handling with customer loyalty.

METHODOLOGY
Bank customers in Malaysia comprise the
studys population. A participating bank allowed
its customers to be surveyed in the banks
premises by the researchers, informed customers

that it authorized the survey, and also encouraged

them to complete and return the questionnaire.
The exercise was conducted over a period of
three weeks, five days a week, between 9:30
a.m. and 3 p.m. The timing was designed to suit
the time the banks open and close to customers.
Customers participation was not mandatory,
thus all the respondents voluntarily supplied
the data for the study. Of the 400 customers
who accepted the survey, 230 completed and
returned it. However, only 217 were usable for
this analysis: 13 were excluded either because of
incomplete data or because they were outliers.
This resulted in a 54 percent response rate.
A multiple-item approach was chosen for
this study in line with marketing preference
(Churchill, 1979; Nunnally, 1978). The questionnaire items were adapted from the following
sources: communication (Anderson and Narus,
1990), competence (Anderson and Weitz, 1989),
and conflict handling (Dwyer, Schurr, and Oh,
1987). Items for customer satisfaction were
adapted from Singh (1988) and Churchill and
Surprenant (1982), and customer loyalty included two items adapted from Bloemer, de
Ruyter, and Wetzels (1999). The items were
measured on a five-point Likert scale ranging
from strongly disagree to strongly agree.
Factor analysis was performed on the questionnaire items to establish their suitability for
performing the subsequent multivariate analyses. The results presented are based on parsimonious sets of variables, based on acceptance
of factor loadings of 0.50 (Hair et al., 1998).
The oblique factor rotation was employed for
this analysis, since the factors are conceptually
linked, and oblique rotation represents the clustering of variables more accurately (Hair et al.,

10

JOURNAL OF INTERNATIONAL CONSUMER MARKETING

TABLE 1. Factor Loading and Communalities

Key Dimensions and Items

Loadings

F1 (Eigenvalue = 6.05; Variance = 37.84%)

1. I am completely happy with the bank.
2. I am pleased with what the bank does for me.
3. My experience with the bank has always been
good.
4. Overall, I am very satisfied with the bank.
F2 (Eigenvalue = 1.95; Variance = 12.17%)
5. I consider the bank the first choice among all banks in the area.
6. The bank is the first thing that comes to my mind when making purchase
decisions on bank services.
F3 (Eigenvalue = 1.35; Variance = 8.46%)
7. The bank has knowledge about banking services.
8. The bank has adequate knowledge about the market trend.
9. The bank provides me with advice on how I should invest my money.
F4 (Eigenvalue = 1.11; Variance = 6.95%)
10. The bank provides timely and trustworthy information.
11. The bank provides information if there are new banking services.
12. The bank makes and fulfills promises.
13. Information provided by the bank is always accurate.
F5 (Eigenvalue = 1.01; Variance = 5.81%)
14. The bank tries to avoid potential conflicts.
15. The bank tries to solve manifest conflicts before they create problems.
16. The bank openly discusses solutions when problems arise.

Communalities

0.77
0.72
0.84

0.70
0.66
0.75

0.79

0.70

0.85
0.80

0.82
0.78

0.83
0.88
0.77

0.71
0.80
0.62

0.70
0.90
0.60
0.50

0.62
0.79
0.61
0.61

0.71
0.83
0.82

0.64
0.75
0.68

Note. Total Variance = 71.22%; KMO = 0.822.

F1 = customer satisfaction; F2 = customer loyalty; F3 = competence; F4 = communication; F5 = conflict handling.

1998) as compared to the orthogonal rotation,

which keeps factors uncorrelated throughout the
rotation process. High communality values were
recorded for all the variables, indicating that the
total amount of variance an original variable
shares with all other variables included in the
analysis is high. Overall, the results show that
the construct measures are valid, and define
the concept of study very well. The summarized results of factor analysis are shown in
Table 1.
To evaluate the relationship of competence,
communication, and conflict handling with customer satisfaction and customer loyalty, the
Hierarchical Multiple Regression Model was
employed. The predictor variables (i.e., competence, communication, and conflict handling)
and the mediator (customer satisfaction) were
entered into the model at different stages. The
hierarchical regression is employed so that the
increase in R2 corresponding to the inclusion
of each category of predictor variables and
the unique variance in the dependent variable
explained by the predictor categories could be

examined. The R2 for all sets can be analyzed

into increments in the proportion of Y variance
due to the addition of each new set of predictor
variables to those higher in the hierarchy. These
increments in R2 are squared multiple semipartial correlation coefficients. The following general hierarchical model equation for three sets
in alphabetical hierarchical order was adopted
from Cohen and Cohen (1975):
R2Y TU = R2Y T + R2Y (UT)
Using this general formula, each term in the
right hand side of the equation is the coefficient
of determination at each stage of introduction of
a set of predictor variables in the regression.
R2Y T represents the coefficient of determination for the set of variables introduced in
stage 1.
R2Y (U.T) represents the coefficient of determination for the set of variables in stage 2.
The mediation effect of customer satisfaction
was measured based on Baron and Kenney
(1986). According to Baron and Kenney (1986),

Ndubisi, Malhotra, and Wah

a variable functions as a mediator when it meets

the following conditions: (a) variations in levels
of the independent variable significantly account
for variations in the presumed mediator; (b)
variations in the mediator significantly account
for variations in the dependent variable; and
(c) when a and b are controlled, a previously
significant relation between the independent and
dependent variables is no longer significant or
it is significantly decreased. If Z = dependent
variable, X = independent variable, and Y =
intervening variable:
Z = f(X) = a + bX; Y = f(X) = c + dX
Z = f(Y) = e + fY; Z = f(X, Y) = g + hX + jY
Full effect:
Partial effect:

b = 0
b=
 0

d = 0
d=
 0

f = 0 also j = 0 f = 0 also j = 0

h=0
h = 0 but h < b

RESULTS AND DISCUSSION

Table 1 shows key dimensions, items, loadings, and communality statistics. Sixteen items
loaded on 5 factors out of the original 18. Due to
high cross loading, one item was dropped from
customer satisfaction (If I had to do it again,
I will still choose to use the bank) and two
from competence (The bank helps me to plan
my investment; the bank provides effective sales
promotion). Total variance explained by the 5
factors was 71.22 percent.
The first dimension consists of items that
relate to customer satisfaction such as being
completely happy with the bank, being very
pleased with what the bank does for the customer, customers experience with the bank
being always good, and overall satisfaction with
the bank. Customer loyalty (factor 2) includes
the following items: first choice among banks
in the area, and the bank that first comes to
mind when making banking service purchase
decisions. The third factor (competence) consists of three items; for example, knowledge
about banking services, knowledge about market
trends, and providing advice on investments.
Communication is the fourth dimension and

11

includes the following items: providing timely

and trustworthy information, providing information if there are new banking services, making
and fulfilling promises, and providing accurate
information. The fifth factor includes items
relating to the way and manner in which the
bank handles conflict. Dwyer, Schurr, and Oh
(1987) defined conflict handling as the suppliers
ability to minimize the negative consequences
of manifest and potential conflicts. Items of
conflict handling in the study include both
proactive and reactive measures such as ability
to avoid potential conflicts, solving manifest
conflicts before they create problems, and openly
discussing solutions when problems arise.
The internal consistency of the instrument
was tested via reliability analysis. Reliability
estimates (Cronbachs Alpha) for the constructs
dimensions are as follows: competence (0.60),
communication (0.78), conflict handling (0.73),
customer satisfaction (0.87), and customer loyalty (0.93), suggesting a high degree of reliability. The results exceed 0.60 (Hair et al., 1998;
Malhotra, 2004), the lower limit of acceptability.

Testing for Association

The results of the regression analysis in
Table 2 show that competence, communication,
and conflict handling contribute significantly
(F = 32.39; p = 0.000) and predict 31 percent
of the variations in customer satisfaction. The
relationship marketing dimensions predicted a
significant change in customer satisfaction.
The results in Table 2 also show that there is
a significant relationship between communication, conflict handling, and customer satisfaction
at a 5 percent significance level. This justifies the
acceptance of hypotheses 1b and 1c. Therefore,
TABLE 2. Predictors of Customer Satisfaction

Variables
Constant
Competence
Communication
Conflict Handling

Beta
Coefficients

t -value

p-value

0.025
0.328
0.267

6.559
0.457
5.034
4.744

0.000
0.648
0.000
0.000

Note. R2 = 0.311; F = 32.39; Sig. F = 0.000.

12

JOURNAL OF INTERNATIONAL CONSUMER MARKETING

TABLE 3. Predictors of Relationship Quality

Variables
Constant
Customer
satisfaction

Beta
Coefficients

t -value

p-value

0.831

3.083
14.557

0.002
0.000

Note. R2 = 0.50; F = 211.91; Sig. F = 0.000.

the extent of customer satisfaction is dependent

on the regularity and quality of information
the bank communicates, as well as the banks
conflict-handling ability. The positive sign of the
estimates shows that the higher the level of communication and conflict handling, the greater
the level of customer satisfaction. Competence
shows no significant direct relationship with
customer satisfaction at a 5 percent significance
level. Therefore hypothesis 1a is rejected. The
outcome of this study shows that possessing
(industry and market) knowledge by itself is
not sufficient to deliver customer satisfaction;
instead banks should communicate such
knowledge to customers as well as apply it in
service delivery to minimize errors and conflicts.
The results of the regression analysis in
Table 3 show that customer satisfaction contributes significantly (F = 211.91; p = 0.000)
and predicts 30 percent of the variations in
customer loyalty. It is further observed that there
is a significant relationship between customer
satisfaction and customer loyalty at a 5 percent significance level (hypothesis 2). In short,

customer loyalty depends largely on customer

satisfaction with the bank.

Mediation Effects
To test for the mediation effect of customer
satisfaction in the association of the independent
dimensions with customer loyalty, another regression was conducted that hierarchically introduced competence, communication, and conflict
handling in stage 1 and customer satisfaction in
stage 2, against loyalty (dependent dimension).
Table 4 shows the results of this analysis.
Based on Baron and Kenny (1986), customer
satisfaction mediates in the association of communication and conflict handling with customer
loyalty. From the above table, it is observed that
there is a significant increase of 28 percent in
the coefficient of determination (R2 ) between
stage 1 and stage 2 of the regression model. This
increase is accounted for by the introduction of
the mediator (customer satisfaction). Furthermore, the beta coefficients in stage 1 are significantly reduced in stage 2 for communication
and conflict handling. Such an increase in R2
and decrease in beta coefficients explains the
mediation effect of satisfaction in the association
of communication, and conflict handling with
customer loyalty. Hence, the two independent
dimensions have an indirect relationship with
customer loyalty through customer satisfaction.
In contrast, satisfaction does not mediate in
the competenceloyalty relationship. This is
because the condition (c) of the mediation test
(i.e., when a and b are controlled, a previously

TABLE 4. Mediation Effect of Customer Satisfaction

Independent
Variables

Stage 1
Regression without Customer Satisfaction
Beta Coefficients
(p-value)

Stage 2
Regression with Customer Satisfaction
Beta Coefficients
(p-value)

(0.000)
0.170 (0.014)
0.253 (0.002)
0.295 (0.000)

R2 = 0.269
F = 25.95

(0.906)
0.153 (0.005)
0.006 (0.934)
0.095 (0.103)
0.763 (0.000)
R2 = 0.550
F = 64.49

Constant
Competence
Communication
Conflict handling
Customer satisfaction

Note. R2 change = 0.281; Sig. F change = 0.000.

Ndubisi, Malhotra, and Wah

significant relation between the independent and

dependent variables is no longer significant or it
is significantly decreased) is violated. The above
results lead to the acceptance of hypotheses 3b,
and 3c, as well as the rejection of hypothesis 3a.

IMPLICATIONS AND CONCLUSIONS

The theoretical implication of this study lies
in the strong evidence for the significant association of the relationship marketing dimensions
with customer satisfaction, the significant association of customer satisfaction with customer
loyalty, and the mediation effect of customer
satisfaction in the association or relationship
marketing dimensions with customer loyalty.
Thus there is an indirect relationship via customer satisfaction between the dimensions of
relationship marketing and customer loyalty.
There is also a direct relationship between the
three RM dimensions and customer loyalty.
Overall, the results indicate that the indirect
effect of relationship marketing variables on
customer loyalty (via customer satisfaction) is a
better model than the direct effect, as it explains
a higher percentage of variance in customer
loyalty. Customer loyalty is an indicator of return
on relationship as reflected in the concept of
lifetime value of customers, and in the idea
that it costs 5 to 10 times as much to get a new
customer as it costs to keep an existing customer
(Gummesson, 1999). Gummesson (2004, p. 141)
defines return on relationship (ROR) narrowly as
the long-term net financial outcome caused by
the establishment and maintenance of individual
customer relationships. This study shows that
customer satisfaction is a strong antecedent to
customer loyalty. The study also supports the
notion of customer relationship life cycles (see
Gronroos, 1990b; Normann, 1991), which links
(among other constructs) satisfied customers
with loyalty. The outcome of this research further identifies communication and conflict handling as the relationship marketing constructs
with significant influence on customer satisfaction, while mere knowledge of the industry
and market has no significant relationship with
customer satisfaction. This is plausible because
if customers cannot see the value added (in terms

13

of service improvements and better customer

relationship management) by the knowledge
possessed by the banking service provider, there
may be only a marginal impact on satisfaction.
Extant literature has linked perceived value
directly to customer satisfaction, so also do the
models of relationship profitability and customer
relationship life cycles. The outcome of this
study corroborates these models.
Customer satisfaction in this study explains
the 50 percent variance in customer loyalty
(see Table 3). The other half is accounted
for by other variables, hence not all satisfied
customers would remain loyal. It has been
suggested that satisfied customers who defect
do that for a number of reasons, including another suppliers marketing, being persuaded by
friends, the desire to test something new, or mere
coincidence (Gummesson, 1999). These factors
may offer further plausible explanation for the
lack of full explanation of customer loyalty by
satisfaction and may form an interesting future
research direction in this area. Communication
and conflict handling are significantly directly
associated with satisfaction and together with
competence explain 31 percent variance in customer satisfaction. Thus, relationship marketing
can be useful in explaining the antecedents of
customer satisfaction, which in turn explains
customer loyalty.
The practical implications of the study are
discussed next. By building quality relationships
with customers, based on effective communication and conflict handling, practicing banks
can satisfy customers better than competitors
and in turn keep them loyal. By furnishing
timely and reliable information, useful information on new services, communicating and
fulfilling promises, and giving accurate information, customer satisfaction can be attained.
Customer satisfaction can also be delivered
through proactive and reactive conflict-handling
mechanisms. By preempting potential sources of
conflict banks can create customer satisfaction.
Reactively, by ensuring that manifest problems
are discussed openly and solutions offered that
would eliminate or minimize customer losses
and inconveniences, banks can also deliver
customer satisfaction. Although taking proactive
measures is preferable and deserves emphasis,

14

JOURNAL OF INTERNATIONAL CONSUMER MARKETING

reactive measures are important since no organization can guarantee 100 percent error-free
services.
The ultimate goal is to turn satisfied customers
into loyal customers. The immense benefits of
customer loyalty make this effort worthwhile for
the relational bank. Examples of such benefits
include: mutuality of rewards (Rapp and Collins,
1990); reduced marketing, distribution, and logistics costs resulting in low-cost advantage and
low-cost service differentiation (Ndubisi, Chan,
and Ndubisi, 2007); and a 5 percent increase
in customer retention that typically grew the
companys profit by 60 percent by the fifth year
(Reichheld, 1993).
In sum, the relationship marketing strategy
can be useful in creating customer satisfaction
and customer loyalty. Factor analysis shows
the parsimonious set of relationship marketing
dimensions that can be used to understand
the antecedents of customer satisfaction and
customer loyalty in Malaysias banking sector.
These include competence, communication, and
conflict handling, which have so far not received
serious attention through empirical research.
The outcome of the study includes a significant
positive relationship between communication,
conflict handling, and customer satisfaction, a
direct association between customer satisfaction
and customer loyalty, as well as an indirect
relationship (via customer satisfaction) between
communication, conflict handling, and customer
loyalty. These findings are useful in understanding the subjects of relationship marketing,
return on relationships, customer satisfaction,
and customer loyalty

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REVISED: September 1, 2007
ACCEPTED: November 1, 2007