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IJBM
38,2 The effect of service quality
and customer satisfaction on
customer loyalty
384 The mediation of perceived value of services,
Received 19 March 2019 corporate image, and corporate reputation
Revised 28 July 2019
20 August 2019
Accepted 22 August 2019
Pınar Özkan
Department of Business Administration,
Dokuz Eylul Universitesi Iktisadi ve Idari Bilimler Fakultesi, Buca, Turkey
Seda Süer
Department of Tourism Managament,
Izmir Katip Celebi University, Izmir, Turkey, and
İstem Köymen Keser and İpek Deveci Kocakoç
Department of Econometrics,
Dokuz Eylul Universitesi Iktisadi ve Idari Bilimler Fakultesi, Buca, Turkey

Abstract
Purpose – The purpose of this paper is to investigate the impact of customer satisfaction, service quality, the
perceived value of services, corporate image and corporate reputation on customer loyalty and their
relationship in the Turkish banking industry. Mediation effects of the perceived value and corporate image
and reputation are also studied. Understanding the relationships between the determinants of customer
loyalty toward the bank helps management to use corporate image and reputation more effectively in its
strategy, thus enhancing the institution’s position in the minds of consumers.
Design/methodology/approach – A model is proposed to explore the relationships of service quality and
customer satisfaction with a perceived value and their effect on transforming the corporate image and
corporate reputation into the form of customer loyalty toward the bank. A survey is designed within this
framework and SEM analysis is conducted in order to study the nature of relationships between variables of
interest hypothesized to affect customer behavior and customer loyalty. Mediation tests for perceived value
and corporate image and reputation are also conducted.
Findings – The findings of the survey indicate that corporate image and corporate reputation can be used as
a common marketing benchmark to measure a bank’s performance. The results demonstrated that customers
perceive quality and satisfaction effects loyalty through perceived value, image and reputation.
Research limitations/implications – The study was conducted in Izmir, the third biggest city of Turkey.
The sample is composed of regular customers, and the sample size is enough for the study but more studies
are needed to generalize the results.
Practical implications – The results provide information to bank managers to effectively assist them to
offer appropriate customer service levels sustaining satisfaction, quality and value to the customers within
the transactions.
Originality/value – The paper studies the determinants of customer loyalty in the Turkish banking
industry and considers the effects of corporate image and corporate reputation as measured by customer
satisfaction, service quality and perceived value, on customer loyalty toward banks in Turkey. This model is
not studied in bank marketing in Turkey and also in the banking literature.
Keywords Service quality, Banking industry, Customer loyalty, Customer satisfaction,
Corporate image and reputation, Perceived value of services
Paper type Research paper

International Journal of Bank

Marketing Introduction
Vol. 38 No. 2, 2020
pp. 384-405
Corporate brands tend to be more important in the banking industry than in manufacturing
© Emerald Publishing Limited
0265-2323
as banks lack a tangible product whose qualities can be directly observed. Moreover, in
DOI 10.1108/IJBM-03-2019-0096 countries that are well-integrated into the global economy, banks often face stiff competition
from both domestic and foreign rivals, forcing them to offer services to set themselves apart Service quality
from the rest. In this respect, building a solid corporate image with a strong corporate and customer
reputation is particularly important for banks, as this is believed to significantly help to satisfaction
develop loyalty among bank customers. Positive perceptions of the way a company often
improves customer faithfulness indeed and financial service companies are very well aware
that the creation/development of a good corporate image and maintenance of a strong
corporate reputation will render a sustainable competitive advantage. Thus, strong 385
corporate image and corporate reputation are important assets for a bank (Gray and Balmer,
1998), in which customers have a wide range of choices to select among.
Given that financial institutions are often forced to operate in turbulent environments
like in the times of economic and financial crises, a credible corporate reputation can mean
the difference between staying in business and going bankrupt. Financial institutions
traditionally rely more on their corporate image and corporate reputation as the intangible
nature of services makes it hard to differentiate themselves and to position their offerings on
the top of the consumers’ list of choices. It is, therefore, well recognized that the success or
failure of a financial institution depends significantly on the positive or negative image and
reputation that the public holds about it. By the same token, a damaged image and
reputation can harm customer loyalty, particularly in the financial services industry.
Therefore, building a positive corporate reputation is important for both financial and
customer outcome variables, in general.
The purpose of this paper is to handle this issue in the context of the Turkish banking
industry, where customer loyalty is viewed to be a critical channel for banks to maintain
their market shares. For this purpose, the paper studies the effects of the antecedents of
customer loyalty in the Turkish banking industry. The banking industry in Turkey studied
in this paper is no exception - rapid changes in the world’s financial architecture in the
aftermath of the global crisis, new regulations introduced to keep the industry under control
in light of the vast increases in the variety of financial services and also banking products
forced the Turkish banks to gear up efforts to keep up with the changing conditions in the
rest of the world to maintain their competitiveness. New (domestic and foreign) banks
entering the market, rapid diversification of financial services and products offered by the
banks due to product innovation and technological developments, newly emerging banking
platforms, reduction/elimination of costs facing the bank customers who want to switch to
other banks, declining customer loyalty among the members of “generation y” have all made
competition in the sector increasingly stiffer. In this environment, having loyal customers
has become a critical success (if not survival) factor for Turkish banks. In fact, a loyal
customer base is currently a crucial asset for all banks in the country and likely to remain so
in the foreseeable future. There are some previous studies investigating the antecedent’s
effects on customer loyalty in the Turkish banking industry. Kalyoncuoğlu and Faiz (2016)
investigated the effects of customers’ perception of the quality of services received on the
corporate image of banks with different ownership types. Eroğluer (2013) studied the effects
of service quality on the customers’ perception of corporate image in banking. Koçer (2017)
examined the impact of CRM practices on customer loyalty in the banking sector. Doğan
and Varinli (2010) investigated the relationship between the institutional image of a bank in
the minds of its customers and social responsibility activities carried out by the bank.
Yılmaz et al. (2018) investigated the relationship between service quality dimensions,
customer satisfaction and loyalty in the Turkish banking sector. Calik and Balta (2006)
studied if consumer satisfaction and loyalty are derived from the perceived quality of
individual banking services. Cengiz et al. (2007) examined the relationships between image,
advertising efficiency, customer satisfaction, customer expectation, perceived quality,
perceived value, customer complaints and customer loyalty. None of the studies investigates
the proposed model and relationships so far.
IJBM The present study aims to contribute to the banking industry literature (and also help
38,2 Turkish banks to provide sustainable customer loyalty and retain high-wealth customers) in
four ways:
(1) investigating via a structural model the causal relationship between service quality
and customer satisfaction in establishing the perceived value of services;
(2) analyzing the mediating effects of the perceived value of services and on corporate
386 image and corporate reputation separately;
(3) demonstrating the mediating effects of corporate image and corporate reputation on
customer loyalty modeling the causal relationships among constructs such as
service quality, customer satisfaction and perceived value of services; and
(4) enhancing the understanding of the importance of corporate image and corporate
reputation on customer loyalty separately.
More precisely, the paper considers the mediation effect of corporate image and corporate
reputation as measured by customer satisfaction, service quality and perceived value, on
customer loyalty toward banks in Turkey. For this purpose, the paper studies the
determinants of customer loyalty in the Turkish banking industry. Initially, the theoretical
framework is adopted and then the following section focuses on customer satisfaction,
service quality and perceived value as determinants of corporate image/corporate
reputation. The relationship between customer satisfaction and service quality and their
effect on perceived value is argued and the related hypotheses under investigation are
developed. Then, the mediating effect of the perceived value of services on corporate image
and corporate reputation is evaluated and the related hypotheses are proposed. Eventually,
the relationship between corporate image and corporate reputation and the mediating effect
of them on customer loyalty is identified, and the related hypotheses are given according to
the proposed theoretical framework. Following these sections, the methods employed to test
them are described to be followed by a discussion on the findings of the study and their
implications. The paper concludes with suggestions for further research.

Theoretical background and hypotheses development

The foundation for a business focused on establishing and preserving strong customer loyalty
is the key to business success (Bergeron, 2002) and has resonated with business performance
and sustainability (Hasiri and Afghanpour, 2016; Leninkumar, 2017; Ofori et al., 2017; Zietsman
et al., 2019). Lam et al. (2004) identified customer loyalty as repeated buyers of a business and
recommenders of the business to other customers. To ensure customer loyalty, diverse banking
service models have exposed the key antecedents that affect customer loyalty (Nguyen and
LeBlanc, 1998; Ehigie, 2006; Parahoo, 2012; Seiler et al., 2013; Osman et al., 2015; Zameer et al.,
2015; Bapat, 2017; Makanyeza and Chikazhe, 2017; Omoregie et al., 2019; Boonlertvanich, 2019).
In a fiercely competitive environment, understanding these antecedents provides banking
service managers to improve organizations’ financial performance by retaining their existing
customers while attracting new customers (Boonlertvanich, 2019). Therefore, the nature and
drivers of customer loyalty to bank services have been drawing attention in the field of services
marketing by practitioners and researchers (Keisidou et al., 2013; Ofori et al., 2017; Omoregie
et al., 2019). Moreover, some studies have demonstrated that the cost of acquiring a new
customer is five times more costly than retaining an existing customer and 50 to 100 times more
costly to retrieve a lost customer (Ofori et al., 2017; Boonlertvanich, 2019; Zietsman et al., 2019).
Therefore, managing customer attrition is the biggest challenge for businesses that can be
obviated by understanding the needs of their customers to decrease defection rates and aim to
build a relationship around those needs to support long-term customer loyalty.
 In the literature, loyalty has been defined as both an attitude and as a behavior (Ball et al., Service quality
2004). Service loyalty is based on a positive attitude and behavior toward a business, and customer
preventing customers from switching to another business (Caruana et al., 2000). Therefore, satisfaction
customer loyalty has two dimensions: attitudinal loyalty (what customers feel) and
behavioral loyalty (what customers do). The attitudinal perspective positions loyalty as the
emotional and psychological desire of the customer to repurchase (Bowen and Shoemaker,
1998; Hennig-Thurau et al., 2001; Wong and Zhou, 2006; Baumann et al., 2012; Tabrani et al., 387
2018) and the behavioral perspective positions loyalty as the customer’s tendency to seek
continued service from the business or to recommend the business to others (Zeithaml et al.,
1996; Bontis et al., 2007; Jiang et al., 2015; Tabrani et al., 2018). Lenka et al. (2009) defined
behavioral loyalty as a strong commitment of customers to purchase the product/service
despite the availability of excess options in the market. Thus, it represents the actual
purchase behavior of customers. On the contrary, attitudinal loyalty is customers’ favorable
preference, proclivity, or affinity toward a business relative to other firms offering the same
product/service (Peppers and Rogers, 2004; Kaura et al., 2015). This study defines loyalty
from a behavioral perspective because loyalty in terms of attitude is about enhancing
customer preference. Thus, behavioral loyalty can be increased by improving quality,
satisfaction, perceived value, corporate image, reputation and other customer experience
elements of the company’s performance. Hence, the study investigates the effect of each
antecedent to establish behavioral loyalty toward the banking service company.
The antecedents of customer loyalty are proposed by a theoretical framework and the
potential effect of these antecedents of customer loyalty is analyzed. According to previous
studies, the framework proposes that service quality and customer satisfaction exert a
direct positive influence on a perceived value (Bolton and Drew, 1991; Zeithaml et al., 1988)
and have a direct influence on corporate image and reputation evaluations as well as a direct
influence on customer loyalty (Boulding et al., 1993; De Ruyter et al., 1998). Initially, the
relationship between service quality and customer satisfaction on perceived value is
explored, as the perceived value is the latent variable that affects both corporate image and
corporate reputation. Eventually, the relationship between corporate image and corporate
reputation is examined and their direct impact on customer loyalty is investigated.
Therefore, the framework consists of five related variables: customer satisfaction, service
quality, perceived value, corporate image and corporate reputation that affect customer
loyalty. Consequently, we argue that loyalty toward a service company is based on
confirmation of customers’ image of the company and its reputation. The theoretical
framework we propose and related hypotheses in the present study is described in Figure 1
that depicts the relationship between service quality (Qual), customer satisfaction (Sat) and

Customer
Satisfaction
(Sat)
H2a
Corporate
H3a H5a
Image
Perceived (Im)
Customer
value of H3 H4 H5
Loyalty
H1 services (Loy)
(Pv) Corporate
Reputation
H3b (Rep) H5b
H2b Figure 1.
Proposed theoretical
Service framework and
Quality
(Qual)
related hypotheses
IJBM perceived value (Pv) of a bank and loyalty (Loy), taking into account the effect of the image
38,2 (Im) and reputation (Rep) of the bank on the market. Hypotheses and their foundations are
detailed in the next sub-sections.
While this theoretical framework was inspired by the 1998 study by Nguyen and
LeBlanc which considers the effects of corporate image on customer loyalty, we take the
corporate image and corporate reputation as strongly related concepts that both have an
388 effect on customer loyalty. Consideration of customer satisfaction, service quality and
perceived value as antecedents to image and reputation assessments and customer loyalty
allows for the formation of a more comprehensive view of loyalty. Nguyen and LeBlanc
(1998) also argued that loyalty is affected by a set of relationships considering customer
satisfaction, service quality and perceived value.
However, previous studies offer contradictory relationships between customer satisfaction,
service quality, perceived value, corporate image and reputation that influences customer
loyalty (Lai et al., 2009; Hu et al., 2009; Bontis et al., 2007) with the present study.
Notwithstanding the proposed framework in this study, Bontis et al. (2007) developed four
models to develop an understanding of the mediating effect of organizational reputation on
service recommendation and customer loyalty. Their study focused on the consequences of
customer satisfaction is proposed and its variations are examined in which the potential
mediating effect of reputation on customer loyalty and service recommendation is explored.
Lai et al. (2009) argued that service quality has a significant positive effect on the value,
satisfaction, image and loyalty, whilst image also has a significant positive effect on value.
Their study reveals that service quality directly influences both perceived value and image
perceptions, that value and image influence satisfaction, that corporate image influences
value and that both customer satisfaction and value are significant determinants of loyalty.
According to another contradictory study, Hu et al. (2009) focused on behavioral intentions
that describe the relationship between service quality, satisfaction and perceived value, taking
into account the effect of the image on consumer behavioral intentions. Their empirical study
aimed to understand the relationships that exist between service quality and perceived value
and how they impact customer satisfaction, corporate image and behavioral intentions.
Additionally, Kaura et al. (2015) asserted that customer satisfaction serves as a mediating
variable between service quality dimensions and customer loyalty contradicting with the
current study.

The relationship between service quality and customer satisfaction and their
effect of on perceived value
In services marketing literature, it is assumed that the customer can evaluate the service
performance, and then the result is compared with the expectations that are before purchase or
consumption. Customer satisfaction is the consumers’ overall evaluation based on their overall
experience. Likewise, Kotler and Keller (2013, p. 110) identified customer satisfaction as “a
person’s feeling of pleasure or disappointment which resulted from comparing a product’s
perceived performance or outcome against his or her expectations” (as suggested in Narteh,
2018). The present literature proposes that service quality is determined by the difference
between customer expectations of a business’s performance and the evaluation of the actual
product/service received (Parasuraman et al., 1988). Taylor and Baker (1994) accepted that
satisfaction and service quality act jointly on intentions and suggested that the higher perceived
service quality and customer satisfaction levels are, the higher purchase intentions will become.
The focus in most models of customer valuations of banking services has been on comparative
ratiocinate of expectations vs perceived performance resulting in the two major valuative
ratiocinates of service quality and customer satisfaction (Murphy, 1996; Smith, 1992). Moreover,
prior studies have often presumed a direct relationship between service quality dimensions and
customer satisfaction (Ladhari et al., 2011; Priluck and Lala, 2009; Narteh, 2018). Thus, both Service quality
perceived service quality and customer satisfaction have been frequently used and measured and customer
(Lewis and Mitchell, 1990; Smith, 1992; Lewis, 1993) in the banking services area. In line with the satisfaction
literature review, it is hypothesized that there is a relationship between customer satisfaction
and service quality:
H1. There is a favorable bilateral relationship between customer satisfaction and service
quality. 389
According to many academicians, the perceived value is the customer’s overall assessment
of the benefits they receive relative to the sacrifice they make (Dodds et al., 1991; Fornell
et al., 1996; Slater, 1997; Woodruff, 1997; Zeithaml, 1988; Bontis et al., 2007). Some studies
postulate that customers’ perceived value of a service can be enhanced either by offering
superior service quality (Cronin et al., 2000; Ravald and Grönroos, 1996). Ziethaml et al.
(1985) asserted that there is a direct relationship between the level of service quality and the
extent of customers’ perceived value. Additionally, Zameer et al. (2015) argued that customer
satisfaction establishes a strong basis for a positive customer’s perceived value. Thus,
customers’ perceived value is the perception of customers about quality and satisfaction
related to the firm or services. In the same vein with previous studies, it is hypothesized that
service quality and customer satisfaction exert a direct positive influence on perceived value
(Zameer et al., 2015; Bolton and Drew, 1991; Zeithaml et al., 1988):
H2a. Favorable customer satisfaction is positively related to the perceived value.
H2b. Favorable service quality is positively related to the perceived value.
Therefore, H1 inspects the relationship between service quality and customer satisfaction in
the banking industry. Then, H2a and H2b investigate their effect on the perceived value
of services.

The mediating role of perceived value and the relationship between corporate
image and corporate reputation
Corporate image and corporate reputation are external perceptions of the company. Image is
the company’s portrait made in the mind of consumers, whereas reputation is the degree
(or the lack) of confidence in a company’s ability to meet customers’ expectations on a
certain attribute. A favorable image is viewed as a critical aspect of a company’s ability to
maintain its market position, as image and reputation have been related to core aspects of
organizational success such as customer patronage. Corporate image is a process through
which internal and external stakeholders perceive the organization’s identity or image that
establishes a brand’s reputation in the mind of its internal and external stakeholders
(Herstein et al., 2008). Thus, corporate image is a hierarchical reticulum of the range of the
meanings that are exposed in the minds of its internal and external stakeholders. It can
mainly be originated by the technical quality that the customer perceives the service
experience and also originated by functional quality comprising the manners how the
services are delivered (Nguyen and LeBlanc, 1998). Minkiewicz et al. (2011) claimed that
corporate image is the result of the people’s feelings, beliefs, experiences, thoughts,
impressions and knowledge that people have about the organization. The corporate image
serves as a bridge between the individual image of the organization and the consumer
response toward the company. Zameer et al. (2015) claimed that corporate image positively
related to the customers’ perceived value. Additionally, Minkiewicz et al. (2011) asserted that
corporate image positively related to the customers’ perceived value.
On the contrary, corporate image and corporate reputation are generally considered as two
distinct constructs that may be strongly related. This relationship is intuitively appealing given
IJBM the idea that image and reputation are two socially constructed entities and derived from the
38,2 shareholder’s perception (Tanković, 2015). A review of the related literature hints that there is a
dynamic, bilateral relationship (Gotsi and Wilson, 2001) between a company’s image and
reputation. They suggest that theorists argue that corporate image and corporate reputation are
different, but strongly related concepts. Moreover, Nguyen and LeBlanc (2001) advocated
corporate reputation should be incorporated into the explanation of customer loyalty together
390 with corporate image. Thus, corporate reputation is often viewed as a concept related to the
image and is taken to refer to value judgments held by the public about a company’s qualities,
shaped up over long periods, such as its consistency, trustworthiness and reliability (Bennett
and Rentschler, 2003). The concept of reputation is wider because it is a synthesis of the
opinions, perceptions, and attitudes of an organization’s stakeholders including employees,
customers, suppliers and investors and the community (Chun, 2005). Sirgy and Samli (1989)
demonstrated that the link between image and reputation is affected by customer evaluative
judgments such as satisfaction, service quality and perceived value perceptions.
The perceived value is an aggregated variable reflecting the perception of all quality and
satisfaction attributes as a function of loyalty is believed to impact the company’s image
(as suggested in Andreassen and Lindestad, 1998) and reputation in the minds of customers.
According to the given theoretical framework, the mediating role of the perceived value of
services is also tested with H3:
H3. Perceived value of services has a mediating role between “customer satisfaction and
service quality” and “corporate image and corporate reputation.”
H3a. Favorable perceived value of services is positively related to corporate image.
H3b. Favorable perceived value of services is positively related to corporate reputation.
As mentioned earlier, corporate image and corporate reputation are strongly related concepts
that one can take the other for granted. With this perspective, the following hypothesis is
conducted to examine the relationship between corporate image and corporate reputation:
H4. There is a favorable bilateral relationship between corporate image and corporate
reputation.

The mediating role of corporate image and corporate reputation on

customer loyalty
Andreassen and Lindestad (1998) argued that corporate image – part of reputation – is an
antecedent to customer loyalty. Later, it was concluded that reputation may be loyalty’s
strongest driver (Andreassen, 1994, Ryan et al., 1999). The recognition of this relationship in
this study encouraged the investigation considering these two constructs both have an
impact on customer loyalty. Thus, the study investigates the impact of corporate image and
corporate on customer loyalty in financial institutions. In line with the theory of cognitive
psychology (Folkes, 1988; Weiner, 1980, 1985a, b), we expect that a service company’s
reputation, as well as its image (Andreassen and Lindestad, 1998), will function as a filter in
the perception of quality, satisfaction, perceived value, and as a judgment to the decision
process when consumers choose where to purchase services.
In the service marketing literature, there is ample evidence that image and reputation
significantly affect customer loyalty. This is because other factors, such as reputation, become
particularly important in services where there is little physical evidence to evaluate services
(Hardaker and Fill, 2005; Bromley, 2001). As Wang et al. (2003, p. 76) argue, “Reputation plays
an especially important strategic role in service markets because the pre-purchase evaluation
of service quality is necessarily vague and incomplete.” Therefore, it is proposed that as
customer evaluative judgments of service quality, satisfaction and perceived value are
established in a process of expectation of corporate image and reputation that will precede Service quality
customer evaluations (Walsh et al., 2009; Kim and Choi, 2003; Fombrun, 1996). That is, image and customer
and reputation determine the nature of consumer expectations, which, in turn, are a decisive satisfaction
influence on the formation of customer loyalty.
In financial institutions, these concepts may be used as positioning instruments to
influence customers’ choice of financial institution. Moreover, corporate image and reputation
may also have an impact on customers’ decision to do business with the financial institution in 391
the future. As stated by Nguyen and LeBlanc (2001), “Service loyalty in itself represents the
customer’s rejection of competitive offerings aimed at changing buying habits and constitutes
one of the most reliable overall indicators of the service organization’s success. In the case of
services which are mostly categorized as experience products whose quality can be evaluated
after consumption, given their intangibility, corporate image and corporate reputation can
both be used as effective means of predicting the future outcome of the service production
process and, perhaps, considered as the most reliable cues to signal the ability of a service
organization to satisfy the customers’ desires.” Many studies claim that positive image and
reputation help organizations to increase their market share (Shapiro, 1982) and to establish
and maintain a loyal relationship with customers (Andreassen and Lindestad, 1998;
Robertson, 1993; Yoon et al., 1993; Weiwei, 2007).
There are also several studies looking at the relationship between corporate image/reputation
and customer loyalty in the context of different sectors (see, e.g. Seo and Park, 2017 for an
application to the airlines industry; Rak (2013) for a study on a football team; Ali et al. (2012) for a
study on the cellular industry. For example, Graca and Arnaldo (2016) investigates the role of
corporate reputation on cooperatives’ attitudes and behavior and also on an organization’s
performance. The influence on behavior (loyalty) is mediated by investor satisfaction and the
influence on performance is mediated by image. According to the study of Graca and Arnaldo
(2016) on cooperatives, corporate reputation seems to influence trust, affective loyalty, image,
investor satisfaction and performance. The findings reveal that corporate reputation can
contribute to greater internal cohesion and the overall performance of the company. On the
contrary, Schirmer et al. (2018) proposed that trust and commitment partially mediate the extent
to which satisfaction influences loyalty. Compatible with the given statements, the following
hypothesis is established to reveal the mediating role of corporate image and corporate
reputation on customer loyalty:
H5. Corporate image and corporate reputation have a mediation effect between the
perceived value of services and customer loyalty.
A favorable image is viewed as a critical aspect of a company’s ability to maintain its market
position, as image and reputation have been related to core aspects of organizational success
such as customer patronage. The exact relationship between image, reputation and customer
loyalty has remained a matter of debate. Strong, positive reputation strengthens loyalty and
confidence not only from the side of customers but also investors, business partners,
employees, which translates into better financial results (Roberts and Dowling, 2002; Dowling,
2001; Fuente-Sabatè and Quevedo-Puente, 2003; Helm, 2007). A good reputation builds and
consolidates customer loyalty and then loyal customers, thanks to their attitudes and
recommendations, create positive opinions about the company in the environment (Szwajca,
2016). In light of the previous studies, the following hypothesis is formulated and investigated:
H5a. Favorable corporate image is positively related to customer loyalty.
Corporate reputation can affect the potential to provide sustainable competitive advantages
and additionally, Dowling (2006) examined how this reputation can improve the intrinsic
value of a firm and the market share. Some authors argued that corporate reputation and
performance have a two-way relationship (López and Iglesias, 2010; De la Sabaté and
IJBM Puente, 2003; Park et al., 2014). Graca and Arnaldo (2016) argued that the relationship
38,2 between corporate reputation and loyalty is positive and meaningful only in reliable and
financially strong companies. Numerous articles study how corporate reputation affects
organizational performance (Carmeli, 2004; Flatt and Kowalczyk, 2008; López, 2006; Rose
and Thomsen, 2004; Thomaz and Brito, 2010). In the model of customer-based corporate
reputation presented by Walsh et al. (2009), there are four factors to analyze: customer
392 satisfaction, trust (predictions of a reputation), loyalty and word of mouth behavior
(consequences of corporate reputation). This implies that organizations should focus on
customer orientation aspects and quality of offered services and products to maintain
customer satisfaction and trustworthiness which, in turn, are expected to lead to loyalty.
Based on the previous researches, the following hypothesis is formulated and investigated:
H5b. Favorable corporate reputation is positively related to customer loyalty.
Although there are many studies in the literature to prove a positive relationship between
loyalty and image and reputation, Szwajca’s (2016) research in Poland showed a weak
relationship between reputation and loyalty: the banks that received the highest ratings of
reputation obtained the poorest results in terms of loyalty.

Methodology
To investigate the hypotheses that are stated earlier, a questionnaire was designed and
conducted among regular customers in different branches of a major domestic bank in Izmir
to capture different customer profiles. The list of customers, who have diverse and recent
transactions, was obtained from the bank’s customer database, therefore representing an
appropriate population to sample from. Customers were informed that their participation
was strictly voluntary.
Customer opinions were measured using a questionnaire focusing on their perceptions of the
image and reputation of the bank, their quality perceptions of the bank, their perceived value of
the bank, their satisfaction with the bank and their loyalty toward the bank. The design of the
questionnaire was primarily based on multiple-item measurement scales taken from previous
research. Thus, the review of the literature provided the basis for the generation of the items
used to measure each of the constructs in this study. After an extensive literature review, expert
opinions are taken to operationalize the constructs and building the questionnaire. The
questionnaire is administrated by personal interviews and consists of two sections.
The first section of the questionnaire consists of the items for measuring customer
satisfaction, perceived value, service quality, corporate image, corporate reputation and customer
loyalty. The items of the questionnaire are primarily based on previous research studies. The
items and their designated scales are given in Appendix. Response categories range from
strongly agree (5) to strongly disagree (1) and measured with a five-point Likert-type scale.
The second section contains demographic statements. The respondents are asked to
share information on four demographic variables: age, gender, education and income. The
survey booklet takes approximately 15 min to complete.
A total of 300 questionnaires are conducted and 16 are eliminated as a result of cross-checks.
The sample consists of 163 (57.4 percent) males and 121 (42.6 percent) females. Additional care
is taken to ensure that these individuals had different demographic characteristics.

Analysis and results

Before testing our hypotheses, we first evaluated our data set to see if common method
variance exists. Afterwards, we conducted a confirmatory factor analysis to validate the
factors. Then, we obtained reliability scores of the factors. Consequently, we evaluated
average variance extraction and composite reliability of each scale. To test our hypotheses,
we estimated six structural equation models and interpreted them.
Common method variance Service quality
Although the expressions in the questionnaire belong to different concepts, there is a and customer
possibility of common method variance tendency as they are evaluated by the same people satisfaction
at the same time. For this reason, questions that reveal the identity in the questionnaire are
not asked, the questionnaire is kept as short as possible and anonymity guarantee is given
to the participants for their answers. Also, the questions in the same scale are not asked
consequently and scrambled in order. 393
In addition, it is re-examined whether there was a common method variance after
application. Harman’s Single Factor Test is one of the most widely used methods to test the
variance of the common method. In the case of a common method variance tendency, the
main assumption of this test is that only one factor emerges as a result of factor analysis or a
general factor explains a large part of the variance (Podsakoff et al., 2003; Tehseen et al.,
2017; Hair et al., 2014).
All the variables were subjected to confirmatory factor analysis under a single factor and
it is found that the single factor model did not have adequate fit values. It shows that there is
no common method variance for this data.

Confirmatory factor analysis, scale reliability and validity assessments

A confirmatory factor analysis is utilized in LISREL. The results show that the six-factor model
is satisfactory, statistically significant and acceptable (RMSEA ¼ 0.064, χ2 ¼ 1,037.81, df ¼ 480).
Standardized loadings in the CFA model range between 0.72 and 0.92, which also indicates an
acceptable fit. Although RMSEA and other fit indices are satisfactory, SEM models have better
statistics due to the error covariance structures that CFA does not include. Only two of the
items, one measuring customer satisfaction (Customer satisfaction is at the forefront in this
bank.) and one measuring loyalty (when I do banking, this bank is my first choice.) are removed
from the analysis because of their insignificant t-values and cross-loadings. There were
recommendations to add error covariances between some items due to the similarities in some
constructs such as image and reputation, as stated in the previous sections. However, since the
SEM model accounts for these covariances in their paths, their statistics got better and no
modifications in terms of error covariances are needed.
Since the items are not normally distributed, the standard maximum likelihood estimate
will not give robust results, so the robust maximum likelihood method with asymptotic
covariances is used in estimating the CFA and SEM models as recommended by Li (2016)
and LISREL 8.80 manual.
Cronbach’s coefficient αwas used to separately assess the reliability of the scales. Table I
reveals that the reliability of the scales we designated is satisfactory according to α values,
varying from 0.727 to 0.915. As the α values for all scales are greater than the guideline of
0.70, it can be concluded that the scales can be used for the analysis with acceptable
reliability (Saunders et al., 2003). Correlations given by CFA can also be seen in Table I. All
correlation coefficients are statistically significant for p ¼ 0.05.

No. of items Scale reliability AVE CR

Sat 6 0.882 0.64 0.91 Table I.

Qual 8 0.895 0.59 0.92 Reliability scores,
Pv 4 0.727 0.51 0.80 average variance
Im 4 0.849 0.70 0.78 extracted and
Rep 4 0.848 0.70 0.90 composite reliability
Loy 8 0.915 0.64 0.92 of scales
IJBM Since the items are developed from the literature and expert judgment, content validity is
38,2 assumed to be acceptable. However, the convergent validity of the scale is tested using CFA.
The construct reliability (CR) and the average variance extracted (AVE) are computed for
the factors. All of the factors exceed the threshold value of 0.70 for CR and 0.50 for AVE.
The results are given in Table I. Discriminant validity is also tested by using the square root
of AVE and all the constructs except Qual-Sat and Pv-Qual are found to have discriminant
394 validity. The indiscrimination potential of those two construct pairs is expected in Turkish
culture because the phrases expressing these constructs are similar in language and culture.
However, models have good fit values when these constructs are taken separately, so no
action is taken for this problem.

Testing the hypotheses: Structural equation models

To test the hypotheses outlined previously, structural equation models are formed and
tested in LISREL. To see if there is a plausible relationship between customer satisfaction,
service quality and loyalty, we first estimated a basic model which only includes there
constructs. The results of this basic model are given in Figure 2. The overall fit of the basic
model is first verified by examining the χ2 statistics. The ratio of χ2 to df has been
recommended as a better goodness of fit measure than testing just the χ2 (Hair et al., 2014).
The χ2/df ratio is 424.8/186 ¼ 2.28 (below 3), indicating a good fit. As the relationships
between these three constructs are significant and strong, we find enough motivation to test
the full model.
The results of the full structural model in Figure 1 are given in Figure 3. The χ2/df ratio is
1,169.49/487 ¼ 2.4 (below 3), indicating a good fit. Other indicators of goodness of fit are
RMSEA ¼ 0.06, CFI ¼ 0.98, NFI ¼ 0.97, GFI ¼ 0.85, NNFI ¼ 0.98. These model-fit indices,
except GFI, exceeded their acceptance levels (Hu and Bentler, 1999; Hair et al., 2014),
indicating that the hypothesized model fits the empirical data well.
The comparison of the basic and full models in terms of χ2/df and fit indices shows that
the added constructs (namely perceived value, image and reputation) enriched the model
without making it worse. We can conclude that the proposed model explains the process
from customer satisfaction and service quality to customer loyalty better and more detailed
than the basic model, which is studied most in the literature.

0.48 V2
0.45 V3
V10 0.35
0.34 V5
0.46 V6
V12 0.36
0.45 0.72 0.81
V7 0.74 Sat 0.80
0.49 V9 0.72 V20 0.32
0.71 0.35
0.83
0.74 Loy
0.49 V11 0.83
0.62 V24 0.31
0.30 V13 0.82
0.75
Qual
0.87 0.75
0.38 V15 0.75 V25 0.43
0.89 0.83
0.41 V16
0.32 V31 0.44
V27
0.25 V33
V32 0.31
0.44 V34
Figure 2.
SEM results for the 0.21 V35
basic model
Notes: n = 284, Standardized Solution. 2 = 424.80, df =186, p-value = 0.00000, RMSEA = 0.067
 Customer
Service quality
Satisfaction and customer
0.60 satisfaction
0.86 Corporate 0.40
Image
Perceived Customer
0.87
0.81
value of
services
Loyalty 395
Corporate
0.86 Reputation 0.48
0.44

Service
Quality Figure 3.
Results of the full
structural model
Notes: n = 284, Standardized Solution

The structural equations indicate that the latent variables have high percentages of
variance predicted (R2 values ranging between 0.72 and 0.98), with low unexplained error
variances due to random or systematic error, and variables not in the model. The t-values for
the structural equation coefficients indicate that all variables statistically significantly
predict their dependent variables at the 0.05 level of significance. The structural equation
with coefficients, standard errors in parentheses and associated t-values, is listed below:

Pv ¼ 0:60  Sat þ 0:44  Qual; Errorvar: ¼ 0:018; R2 ¼ 0:98;

ð0:094Þ ð0:076Þ ð0:044Þ
ð6:38Þ ð5:81Þ ð0:42Þ

Im ¼ 0:86  Pv; Errorvar: ¼ 0:26 ; R2 ¼ 0:74;

ð0:11Þ ð0:060Þ
ð6:38Þ ð4:36Þ

Rep ¼ 0:86  Pv; Errorvar: ¼ 0:27 ; R2 ¼ 0:73;

ð0:12Þ ð0:054Þ
ð7:29Þ ð4:98Þ

Loy ¼ 0:40  Im þ0:48  Rep; Errorvar: ¼ 0:28 ; R2 ¼ [Link]

ð0:16Þ ð0:16Þ ð0:059Þ
ð2:50Þ ð2:99Þ ð4:81Þ

The results of the hypothesis tests are given in Table II. Table II shows that all structural
coefficients are statistically significant and fairly high and all hypotheses about
relationships are supported by the data.

Testing mediation effects

One of the aims of this study is to test the mediation effects of perceived value between
“satisfaction and quality” and “image and reputation.” This is a complicated mediation
effect which includes many paths to estimate. The mediation test results are given in
Figure 4. Without Pv in the model, all direct effects except Qual→Im are significant. When
Pv is added as the mediator factor, direct effects do not decrease and Pv does not have a
significant relationship with Im and Rep. However, when direct effects are eliminated, the
IJBM relationship between Pv and Im and Rep becomes significant and strong. From this test, we
38,2 can conclude that Pv has a partial mediation effect, and H3 is partially supported.
The other mediation effect we want to test for is the mediation of image and reputation
between perceived value and loyalty. To test this effect, we formed two more SEM models
(Figure 5). When the direct effect of Pv on Loy is added, the effect of Im and Rep on Loy
becomes insignificant. From this test, we can conclude that Im and Rep have a full mediation
396 effect, and hypothesis H5 is supported.

Discussions and conclusion

As a result of the analyses, it is found that both customer satisfaction and customer
perceptions of service quality are important and indistinguishable predictors of loyalty.
Moreover, the study shows that customer satisfaction and service quality has a direct effect on
perceived value, corporate image and corporate reputation and customer loyalty. Customer
satisfaction and service quality help to explain the likelihood that customers will repurchase
the service. According to this finding, bank managers should ensure that performance levels
on all components of the bank meet customer expectations. Moreover, the increased
competition provides customers with a wider selection of financial institutions. Therefore, for
a financial institution to attract and retain customers in the long-term, understanding a

Hypothesis Path Standardized parameter estimate t-value Result*

H1 Sat ↔ Qual 0.81 24.4 Supported

H2a Sat →Pv 0.6 6.38 Supported
H2b Qual→Pv 0.44 5.81 Supported
H3a Pv →Im 0.86 8.16 Supported
H3b Pv →Rep 0.86 7.29 Supported
Table II. H4 Im → Loy 0.4 2.5 Supported
Summary of H5a Im ↔ Rep 0.13 3.48 Supported
hypothesis tests on H5b Rep → Loy 0.48 2.99 Supported
relationships Note: *Significant at the 0.05 level (two-tailed)

Sat 0.88
Sat 0.76 Sat
0.59 –0.28* Im
0.60
Im 0.42 0.86
0.58 Im
0.13 0.81 Pv Pv 0.13
0.81 0.81
0.12* Rep Rep Rep
0.57 –0.02* 0.86
0.29* 0.44
0.32 0.32*
Qual Qual Qual
Figure 4.
Mediation process of Direct Effects Direct and indirect effects Indirect effects-Mediation
perceived value (H3)
Note: *Insignificant coefficients

0.82 0.03* 0.86 0.40

Im Im
0.93 0.88 Loy
Pv Loy Pv 0.19 Pv 0.86 Loy

Figure 5. 0.83 Rep 0.09* 0.86

Rep 0.48
Mediation process
of image and Direct Effects Direct and indirect effects Indirect effects-Mediation
reputation (H5)
Note: *Insignificant coefficients
customer’s specific needs sends a powerful signal to the customers like the quality and Service quality
satisfaction of the service delivered to customers. Careful screening of sales personnel can help and customer
to ensure a good job fit that will contribute to financial institutions positioning via friendly satisfaction
and courteous staff that contribute to customer loyalty. Thus, customer satisfaction is an
indicator of the company’s past, current and future performance, and there is ample evidence
for its positive effect on loyalty in traditional services. Satisfying customer needs by delivering
superior service quality is claimed to be an equally important contributor to customer loyalty. 397
Many researchers revealed that customer satisfaction is the key to success and make the
emphatic statement that a satisfied customer is a repeat customer.
Encounters with the customer should be managed to result in customer satisfaction and
service quality. To influence consumer behavior, financial institutions should employ
arguments based on quality and satisfaction in the eyes of the customers, these constitute
the benefits promised to the service transactions. It is found that favorable customer
satisfaction and service quality will form a favorable corporate image and reputation both
directly and indirectly on perceived value. Therefore, financial institutions should exploit
the presence of material elements in technology and innovativeness to make the intangible
tangible, conveying the value to the customers.
Customer satisfaction and service quality are positively and directly related to customer
loyalty as hypothesized. Every satisfied customer can be a loyal one if he feels that the
service is quality. The only missing link in this final model is the direct effect of perceived
value on loyalty. The sole feeling of the value does not create loyalty on customers. An
indirect effect over corporate image and reputation is needed.
Finally, the bank’s image and reputation are found to be positively related to customer
loyalty. This finding is in contrast with the study of Omoregie et al. (2019), in which corporate
image was found to have a significant effect on both satisfaction and trust but not on loyalty.
The reason for this difference might come from cultural differences between the two countries.
This finding suggests that customers with a positive overall impression of the image and
reputation of a bank are more likely to prefer the bank and recommend it to others.
Analyzing loyalty, image and reputation is a compelling task because the terms are
complex to conceptualize in the context of financial institutions whose products are
essentially intangible. An important result of this analysis is that image and reputation
provides additional insight into the relationship to customer loyalty. The analysis shows
that overall image and reputation have a direct positive effect on customer loyalty and the
findings make it clear that specifically image and reputation are important determinants of
customer loyalty in services and critical assets for a financial institution. Additionally, one
of the important findings is that image and reputation have a mediation effect between
perceived value and loyalty.
A positive corporate image is a very important factor in consumer choices in the
purchasing process because it makes those decisions easier to make. Strong customer loyalty
and faithfulness have a positive effect on the customer’s opinions about the enterprise and
also on passing them to the other groups of stakeholders, which creates a positive reputation.
Furthermore, the present study reinforced the importance of financial institutions to
enhance their corporate image and corporate reputation in the eyes of the customers, thereby
building a source of competitive advantage. Specifically, the findings of this study are
significant to marketers on both a theoretical and applied level. On a theoretical level, the
findings add to the current knowledge of the importance of the corporate image and corporate
reputation influencing customer patronage decisions in financial institutions. On an applied
level, the results provide information to financial institutions’ managers to effectively assist
them to offer appropriate customer service levels sustaining satisfaction, quality and value to
the customers within the transactions. Thus, the results demonstrated that corporate image
and corporate reputation have a positive impact on patronage behavior.
IJBM Customer loyalty is a worthwhile goal in a saturated and competitive marketplace where
38,2 banks struggle to maintain their competitive positions against new entrants and discerning
customers. Traditionally, customer loyalty has generally been conceptualized as an outcome
of the quality-satisfaction-loyalty chain. However, the existence of other factors influencing
loyalty in the banking industry such as perceived value, corporate image and corporate
reputation are also considered in the present study. It can be inferred from the findings in
398 the present study that corporate image and corporate reputation can be used as a common
marketing benchmark of an organization’s performance.
To make recommendations based on customer characteristics, it would be worthy to
investigate the moderation effect of customer demographics and customer personality types
on this model. Since the model is validated in this study, further studies can be conducted
with a different data set designed to include different customer types or segments.

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IJBM Appendix
38,2

No. Factor Item

21 Im This bank has a positive image on its customers

404 22 Im This bank is one of Turkey’s largest and reliable organization
23 Im The bank has a better image than its competitors
26 Im Bank employees are always friendly and care about their appearance
10 Loy I will continue to work with this bank in the future
12 Loy I continue to work with this bank even if the transaction costs of other banks are lower
20 Loy I feel loyal to this bank
24 Loy I’m getting what I paid for when I use this bank’s products and services
25 Loy I enjoy being a customer of this bank
30 Loy When I do banking, this bank is my first choice
31 Loy I believe this is the best bank in the banking sector
32 Loy I would recommend my relatives and friends to work with this bank
8 Pv Customer benefits are always at the forefront
14 Pv This bank provides quality service beyond the expectations of its customers
28 Pv The quality of the service provided is the most important feature that distinguishes this bank
from other banks
29 Pv The variety of products/services offered is a feature that distinguishes this bank from
other banks
2 Qual This bank always looks for ways to offer better
3 Qual Customer demands and transactions are controlled and error-free
5 Qual The services requested by the customers are carried out as soon as possible
6 Qual Customer complaints and suggestions are taken into consideration in order to improve
service quality
7 Qual The bank applies the rules in a way that does not put the customer in troubl, and serves in a way
to facilitate the customer’s work
13 Qual The bank understands the needs of its customers and determines their needs correctly and thus
offers solutions according to their expectations
15 Qual Customers are informed in clear and simple terms about products and services and other issues
they asked
16 Qual Customers are informed of the costs and commissions they will pay before commencing
the transaction
4 Rep This bank has a better reputation than its competitors
17 Rep This bank is a modern and high-tech bank
18 Rep This bank constantly improves itself
19 Rep This bank is a pioneering and strong bank among its competitors
9 Sat This bank’s products and services always meet my expectations
11 Sat This bank finds satisfactory solutions to my problems
27 Sat I am generally satisfied with the services I received from the bank
33 Sat Based on my experience with other banks, I find the services of this bank more satisfactory
34 Sat The variety of products and services of the bank is satisfactory for me
Table AI. 35 Sat This bank’s costs and commissions are low
Items in the 1 Sat Customer satisfaction is at the forefront of this bank
questionnaire Note: Shaded items (1 and 30) are found to be insignificant in CFA and eliminated from the analysis

About the authors

Pınar Özkan is Assistant Professor of Marketing at Business Department of Dokuz Eylul University.
She holds a PhD Degree from the same university. Her areas of research are relationship marketing,
key account management and service marketing.
Seda Süer received her MA from the Faculty of Business Administration at Dokuz Eylul
University, with a major in Labor Economics. Her research centers on customer loyalty, especially
specializing on service sector. She is currently Assistant Professor at Department Of Tourism Service quality
Management of Katip Çelebi University. and customer
İstem Köymen Keser received her MS in Econometrics with a major in Econometrics from Dokuz
Eylul University, Turkey. Her research interests include multivariate data analysis, sampling, and satisfaction
especially functional data analysis. She is currently Associate Professor of Statistics at Econometrics
Department of Dokuz Eylul University.
İpek Deveci Kocakoç received her PhD Degree in Econometrics with a major in Industrial Engineering
from Dokuz Eylul University, Turkey. Her broad research interests include quantitative data analysis, 405
quality improvement techniques and performance measurement. She is currently Professor of operations
research at Econometrics Department of Dokuz Eylul University. İpek Deveci Kocakoç is the corresponding
author and can be contacted at: [Link]@[Link]

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