The mediating effect of
organizational reputation on
customer loyalty and service
recommendation in the banking
Nick Bontis and Lorne D. Booker
DeGroote School of Business, McMaster University, Hamilton, Canada, and
Faculty of Business Administration, Lakehead University,
Thunder Bay, Canada
Purpose – The overall purpose of this study was to develop an understanding of the mediating effect of organizational reputation on service recommendation and customer loyalty. Design/methodology/approach – Four models were developed that were variations of the American Customer Satisfaction Model (ACSM). These models were then tested by using the Partial Least Squares (PLS) procedure on a data collected from a survey that yielded 8,098 respondents. Findings – It was found that customer satisfaction enhances reputation in the service environment. It was also discovered that reputation partially mediates the relationship between satisfaction and loyalty, and that reputation partially mediates the relationship between satisfaction and recommendation.
Research limitations/implications – More research needs to be undertaken to explore the role of reputation within the ACSM. It is necessary to conduct research employing experimental design with longitudinal data captured from across industries using robust measures. Originality/value – The ﬁndings suggest that the relationship between corporate reputation and proﬁtability may reside in reputation’s inﬂuence on customer loyalty, and that reputation plays an important role within the ACSM. This study is one of the ﬁrst documented attempts to use PLS to test a mediation effect.
Keywords Customer satisfaction, Customer loyalty, Banking
Paper type Research paper
Vol. 45 No. 9, 2007
q Emerald Group Publishing Limited
The third most-often cited construct in the intellectual capital literature is customer capital (Bontis, 1998, 1999). As such, customer capital is hypothesized to be a driving force behind organizational performance (Bontis and Fitz-enz, 2002). The satisfaction of customers is an extremely popular subject in the extant management literature. This is because it is often associated with higher customer loyalty rates and increased economic returns that drive strategic business valuation (Anderson et al., 1994, The authors wish to extend special thanks to Dr Wynne Chin for allowing the use of a beta version of PLS Graph 3.0.
Anderson and Srinivasan, 2003, Gronholdt et al., 2000, Parasuraman and Grewal, 2000, Spiteri and Dion, 2004, Srinivasan et al., 2002). Most previous research projects have investigated new approaches to increase customer satisfaction. However, businesses have begun to realize that satisﬁed customers are not always proﬁtable. Now, the attention has shifted to understanding of the link between satisfaction and proﬁtability (Bloemer and Kasper, 1995, Zeithaml, 2000). Researchers examine the consequences of satisfaction such as reputation, loyalty and service recommendation (Athanassopoulos et al., 2001, Hallowell, 1996).
The American Customer Satisfaction Model (ACSM) (Fornell et al., 1996) is one of the most widely employed models in satisfaction research. It is a causal model describing several key antecedents and consequences of customer satisfaction. The model and its various adaptations have been utilized in numerous multi-discipline investigations, for example, in information systems (Dow et al., 2006, Turel and Serenko, 2006), banking (Ball et al., 2004, Chakravarty et al., 2004, Hallowell, 1996, Mukherjee et al., 2003), transportation, communications, and retailing (Arnett et al., 2003).
The causal relationship between satisfaction and service recommendation has not been explored...