A Bayesian Network Model on the association between CSR, perceived service quality and customer loyalty in Indian Banking Industry

https://doi.org/10.1016/j.spc.2016.12.001Get rights and content

Highlights

  • It assess relationship of CSR with perceived service quality and customer loyalty.

  • It signifies that perceived service quality affects customer’s recommendations.

  • Employee focus CSR has strong positive impact on the bank customer relationship.

  • On improving customer centric CSR will improve the customers’ recommendation.

  • Community focus CSR improvement affects Company’s product valuation.

Abstract

Corporate Social Responsibility has become a buzzword in the contemporary era. Decision makers are including CSR as important part of company’s corporate strategy. Indian banking industry is also facing huge challenges and looking for the avenues to create competitive advantage to retain and attract the customer. This study aims at identifying the association of various CSR initiatives on the perceived service quality and customer loyalty in the Indian perspective by using Bayesian Network analysis. Results of the study show the different dimensions of CSR that establishes relationship with the perceived service quality and customer loyalty.

Introduction

Indian banking industry has enjoyed a huge growth and expansion in the 21st century. Entry of various private players has made this industry more competitive. Due to this, banking institutions need to develop strategies to retain and attract more and more customers to remain successful in the market. In contemporary era awareness about the environmental issue, intense exposure to the information has increased customer’s knowledge about companies’ activities. Currently, incorporation of CSR in business strategy had become an important concern due to its widespread impact on wide variety of stakeholders.

Growing competition and increasing awareness for the environment has developed CSR as a mainstream corporate agenda in the contemporary era. In order to behave as responsible corporate citizen companies are focusing on their CSR initiatives. Increasing demand for organization’s CSR efforts from government, employees, and customers is also motivating companies to think beyond the traditional bottom line of the organization. Organizations are voluntarily taking steps to showcase their CSR efforts among all stakeholders (Luo and Bhattacharya, 2006). Companies are adopting various communication modes to showcase their CSR initiatives. CSR has become the important ingredient of the firm’s marketing strategy (Pirch et al., 2007). Companies are concerned how their CSR efforts can affect the consumer’s behavior in order to improve customer loyalty. Literature has reported that CSR initiatives exert significant impact on customer product interaction (Bhattacharya and Sen, 2004). Literature also widely acknowledged the positive influence of CSR on customer loyalty (Mandhachitara and Poolthong, 2011) and customer’s attitude towards the product (Berens et al., 2005).

Pursuit of CSR efforts and their appropriate disclosure can manage both regulatory and social pressure on the organization. Economic Times (2016) reported that improvement in CSR disclosure may attract more foreign investment. Rai and Bansal (2014) argued that investment in CSR initiatives can lead to better brand image. CSR expenditure may facilitate firms in differentiating them in competitive environment. CSR initiatives can strengthen the relationship with stakeholders of the organization (Bhattacharya et al., 2009). According to a study conducted by E&Y (2016), disclosure of sustainability efforts leads to various benefits to the organization like better reputation, meeting the expectations of the employees, environmental and social risk reduction. De Klerk et al. (2015) states that higher level of CSR disclosure has a positive impact on the company’s share prices. Zain et al. (2006) emphasized the importance of inclusion of social information in the financial statements. CSR reporting can also help company in positioning them as responsible member of the society (Kulkarni, 2014). The present study attempts to identify a relationship between consumer’s perception about bank’s CSR initiatives and perceived service quality and customer loyalty. Despite growing interest about CSR and its impact on customer loyalty, there is a dearth of studies investigating this relationship in the context of banking industry in developing economies like India.

In 2016, Economic Times in association with Futurescape and IIM Udaipur conducted a survey in India on the best companies for CSR.2 According to the survey Tata Steel Ltd tops the CSR list followed by Tata Power, UltraTech Cement and Mahindra & Mahindra. Most of the companies have taken CSR initiatives in the areas of girl child, education, environment, community development, health, safety, skill building, women’s empowerment, etc. Companies focused maximum of their CSR initiatives on education and healthcare. The survey also reveals that maximum of the CSR initiatives is being taken by manufacturing industry. Unfortunately not a single company from Indian Banking Industry featured in the Top 10 list. Thus Indian banking industries need to take more focused approach in the area of CSR initiatives to engage with communities.

The present study contributes in a different manner to the existing literature. First, this evaluates the role of various CSR initiatives in the development of various dimensions of customer loyalty. Second, study extends existing literature by assessing the impact of perceived service quality on customer loyalty in the banking industry. To the best of author’s knowledge, no research has been conducted for banking industry using Bayesian approach considering these factors in the context of developing economies. The objective of the study is to identify the relationship between different dimensions of corporate social responsibility and perceived service quality and customer loyalty. This paper is structured in a very regular manner. Next section deals with the literature review followed by measurement scales of variables in interest. Next to this, methodology is discussed. In next section data analysis and results are presented. Further, discussion, conclusion, implications and limitation of the present study are presented.

Section snippets

Literature review and hypotheses development

This section consists of three main parts. We review the CSR initiatives in the development of various dimensions of customer loyalty in Section  1. Section  2 consists of a brief discussion on assessing the impact of perceived service quality on customer loyalty in the banking industry. In Section  3 we discuss the customer loyalty and customer focus CSR initiatives.

Research methodology

The conceptual framework developed from the literature review has been presented in Fig. 1. Quantitative research approach has been adopted in the present study. A structured questionnaire was developed and tested to collect data from the consumers of banks. The questionnaire was initially developed and tested on the 25 management graduates of one of the reputed management colleges. Some of them were well aware about some bank’s CSR initiatives. After this, bank managers working in both

Conceptualization of Bayesian belief network

In this section a Bayesian Belief Network (BBN) was used to develop an analytically driven graphical representation of the relationships among CSR initiatives, perceived service quality and customer loyalty. As discussed a BBN is an analytical approach to model and graphically represent the probabilistic relationships among variables of interest based on directed acyclic graph and a probability distribution. In this paper a BBN is developed for representing the causal relationships among the

Discussion

The overall objective of the paper is to transform all the available data into knowledge so that it can help managers to take complex decisions on a daily basis. From Table 8, based on the network of the Bayesian model we can observe that some of the input variables are intensely related to the output variables. These variables are intensely related to the customer loyalty and hence can be useful for the decision makers. In the next subsections we will use the proposed BBN Model for predicting

Conclusion

Awareness and effect of spending on the CSR related initiatives is rapidly increasing in all sectors. Both manufacturing and service industries are involved in CSR activities. This involvement also raises concern whether investing in CSR activities is having any positive impact on the customer loyalty and perceived quality, especially in the context of the Banking sector. The present study attempted to identify the relationship of various CSR initiatives with different dimensions of perceived

Acknowledgments

The authors are thankful to the anonymous referees for their useful suggestions. This article was revised in light of the comments.

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