Supplier-customer relationshipmanagement and customer

loyaltyThe banking industry perspective

Nelson Oly NdubisiSchool of Business, Monash University Malaysia, Selangor, Malaysia

Chan Kok WahSchool of Business and Economics, University of Malaysia Sabah,

Kota Kinabalu, Malaysia, and

Gibson C. NdubisiSelangor, Malaysia

AbstractPurpose – The purpose of this paper is to examine the impact of the relationship marketingunderpinnings, namely: commitment; competence; communication and conflict handling on the onehand and customer loyalty on the other, as well as the mediation effects of trust and relationshipquality.

Design/methodology/approach – Bank customers in Kota Kinabalu, Malaysia were surveyedusing a questionnaire. Bank intercept technique was used in administering the instrument. A total of220 customers provided the data for the study. Multiple regression analysis was used to measure theconstruct’s relationship.

Findings – The results show that relationship marketing strategies, namely: communication;commitment; competence; and conflict handling are directly and indirectly (through trust andrelationship quality) associated with customer loyalty. Moreover, trust and relationship quality aredirectly associated with loyalty.

Research limitations/implications – Although the study focuses on the banking industry inMalaysia, the outcome may be relevant to other service sectors. By identifying the relevant RMunderpinnings in this sector, more researches adapting or replicating the present study in other sectorswould help in pushing back the frontier of knowledge in the customer relationship managementdomain.

Practical implications – This study unveils how firms can use the relationship marketing (RM)strategy to nurture and keep loyal customers and how to manage the supplier-customer relationship inthe banking sector.

Originality/value – Not much is understood about the actual influences of the underpinnings ofrelationship marketing on customer loyalty from empirical evidence. This research would helporganisations in evaluating the results of investments and sacrifices of the firm in buildingrelationships with its customers.

Keywords Supplier relations, Trust, Customer loyalty, Banking, Malaysia

Paper type Research paper

IntroductionThe variety of new banking products (including automated teller machine, phonebanking, tele-banking, Internet banking, etc.), developed to accommodate the increased

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customer needs, provide a clear indication of the changes that the banking industry hasundergone during the last two decades. The growing applications of these technologiesespecially the computerized networks to banking which has been mainly driven bychanges in distribution channel, has reduced the cost of transaction and increased thespeed of service substantially. These banking innovations have helped in managingthe logistics and other activities involved in serving customers, however, they havealso affected the supplier-customer relationship in many ways. For example, thegreater use of these innovations including teleworking (Ndubisi and Kahraman, 2005)means less personal contact between the bank interface personnel and customers. Insome cases, these interfaces have shifted from employees (face-to-face) to equipmentsuch as ATM, PC, Internet, etc. (face-to-screen). Yet the issue of managingsupplier-customer relationship is a crucial one (Ndubisi et al., 2005).

To achieve success in such a technology driven, complex and competitive market oftoday, researchers have prescribed a number of key areas that need to be considered ifthe customer is to be kept loyal. One of these key areas is leveraging firm-customerrelationship to gain privileged information about customers and thereby betterunderstand their needs and serve them satisfactorily. Davenport and Brooks (2004)discussed how firms can use enterprise systems to manage their supply chain, whileKirchmer (2004) showed how the Internet can be used to integrate enterprises andinter-enterprise processes. Relational marketing therefore, gets the firm close enough tothe customers in order to correctly sense their needs and then create and deliversuperior value that will make them to stick with the firm.

Relationship marketing, with its ability to build loyal customers (through betterunderstanding and serving of customers’ needs), can lead to cost reduction. Since thecost of serving one loyal customer is less than the cost of attracting and serving onenew customer (Ndubisi, 2003; Rosenberg and Czepiel, 1983), a firm can reducemarketing, distribution and logistics costs and thereby gain low-cost competitiveadvantage and low cost service differentiation. Although there is a long list of benefitsassociated with relationship marketing, little is understood about the actual direct andindirect influences of the underpinnings of relationship marketing on customer loyaltyfrom empirical evidence especially in Malaysia. Therefore, the objectives of thisresearch include: to understand the impact of the underpinnings of relationshipmarketing on customer trust and relationship quality; to evaluate the relationshipbetween trust, relationship quality and customer loyalty; and to examine the indirectinfluence of the underpinnings of relational marketing on customer loyalty throughtrust and relationship quality.

Literature reviewThe concept of relational marketing has emerged within the field of service marketingand industrial marketing (Berry, 1983; Jackson, 1985; Gummesson, 1987; Christopheret al., 1991; Gummesson, 1991). The phenomenon described by this concept is stronglysupported by on-going trends in modern business (Webster, 1992). Berry (1983) viewedrelationship marketing as a strategy to attract, maintain and enhance customerrelationships. Rapp and Collins (1990) argued that the goals of relationship marketingare to create and maintain lasting relationships between the firm and its customers thatare rewarding for both sides, while Blomqvist et al. (1993) offered the following keycharacteristics of relationship marketing: every customer is considered an individual

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person or unit, activities of the firm are predominantly directed towards existingcustomers, it is based on interactions and dialogues, and the firm is trying to achieveprofitability through the decrease of customer turnover and the strengthening ofcustomer relationships. Gummesson (1993) concluded that relationship marketing is astrategy where the management of interactions, relationships and networks arefundamental issues.

Relationship marketing is to establish, maintain, and enhance relationships withcustomers and other partners, at a profit, so that the objectives of the parties involvedare met (Gronroos, 1994). This is achieved by a mutual symbiosis and fulfillment ofpromises (Ndubisi, 2003). The interaction and network approach of industrialmarketing and modern service marketing approaches, clearly views marketing as aninteractive process in a social context where relationship building and management area vital underpinning (Bagozzi, 1975; Webster, 1992).

Marketing studies have theorized a number of key underpinnings of relationshipmarketing namely, trust (Morgan and Hunt, 1994; Ndubisi et al., 2004), equity(Gundlach and Murphy, 1993; Ndubisi, 2004), benevolence (Buttle, 1996), empathy(Ndubisi, 2004), commitment (Morgan and Hunt, 1994; Ndubisi, 2004), conflict handling(Ndubisi et al., 2004), communication or sharing of secrets (Crosby et al., 1990; Morganand Hunt, 1994; Ndubisi et al., 2004) and competence (Ndubisi et al., 2004). In this study,we empirically examine the relationship among these constructs namely, commitment,competence, communication conflict handling, trust, overall relationship quality, andcustomer loyalty.

Hypotheses generationThe schema of the hypothesized relationships is as shown in Figure 1. It is theorizedthat competence, communication, commitment, and conflict handling, will directlyinfluence trust and relationship quality, and indirectly (through the latter duo)influence customer loyalty.

Customer loyalty is a deeply held commitment to re-buy or re-patronize a preferredproduct or service in the future despite there are situational influence and marketingefforts having the potential to cause switching behavior (Oliver, 1999). It has beenargued that for loyal buyers, companies must invest in relationship building andcustomer intimacy. Building such relationship and intimacy will also culminate tostronger loyalty (Ndubisi et al., 2004).

Figure 1.Research framework

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Relationship quality is a bundle of intangible value, which augments products orservices and results in an expected interchange between buyers and sellers (Levitt,1986). The more general concept of relationship quality describes the overall depth andclimate of a relationship (Johnson, 1999). The term also refers to a customer’sperceptions of how well the whole relationship fulfils the expectations, predictions,goals and desires the customer has concerning the whole relationship (Jarvelin andLehtinen, 1996). Consequently, it forms the overall impression that a customer hasconcerning the whole relationship including different transactions. Bejou et al. (1996)concluded that customer-salesperson relationship quality is an important prerequisiteto a successful long-term relationship.

Moorman et al. (1993) defined trust as “ . . . a willingness to rely on an exchangepartner in whom one has confidence. A betrayal of this trust (by the supplier or serviceprovider) can lead to defection (Ndubisi et al., 2004). Gronroos (1990) asserted that theresources of the seller – personnel, technology and systems – have to be used in such amanner that the customer’s trust in the resources involved and, thus, in the firm itself ismaintained and strengthened. Schurr and Ozanne(1985) defined the term as the beliefthat a partner’s word or promise is reliable and a party will fulfill his/her obligations inthe relationship. Other authors have defined trust in terms of, shared values, mutualgoals, opportunistic behavior, making and keeping promises, uncertainty, and actionswith positive outcomes (Anderson and Narus, 1984; Wilson, 1995; Dwyer et al., 1987;Bitner, 1995; Crosby et al., 1990; Morgan and Hunt, 1994).

Commitment, similar to trust is one of the important variables for understanding thestrength of a marketing relationship, and it is a useful construct for measuring thelikelihood of customer loyalty as well as for predicting future purchase frequency(Gundlach et al., 1995; Morgan and Hunt, 1994; Dwyer et al., 1987). Wilson (1995)argued that commitment is the most common dependent variable used in buyer-sellerrelationship studies. In sociology, the concept of commitment is used to analyze bothindividual and organizational behavior (Becker, 1960), and as a descriptive concept tomark out forms of action characteristic of particular kinds of people or groups (Wongand Sohal, 2002), while psychologists define commitment in terms of decisions orcognitions that fix or bind an individual to a behavioral disposition (Kiesler, 1971). Inmarketing, Moorman et al. (1992) defined commitment as an enduring desire tomaintain a valued relationship. This implies a higher level of obligation to make arelationship succeed and to make it mutually satisfying and beneficial (Gundlach et al.,1995; Morgan and Hunt, 1994). Since commitment is higher among individuals whobelieve that they receive more value from a relationship, highly committed customersshould be willing to reciprocate effort on behalf of a firm due to past benefits received(Mowday et al., 1982) and highly committed firms will continue to enjoy the benefits ofsuch reciprocity.

Competence is defined as the buyer’s perception of the supplier’s technological andcommercial competence. This is in line with the operationalisation employed inAnderson and Weitz (1989). From this, there are four items that are linked tocompetence. The supplier’s knowledge about the market for the buyer, ability to givegood advice on the operating business, ability to help the buyer plan purchases andability to provide effective sales promotion materials. Competence also refers to theability of the bank to serve customers well (Ndubisi et al., 2004).

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Communication refers to the ability to provide timely and trustworthy information.Today there is a new view of communications as an interactive dialogue between thecompany and its customers that takes place during the pre-selling, selling, consumingand post-consuming stages (Anderson and Narus, 1990). Communications insupplier-customer relationship means providing information that can be trusted;providing information if delivery problem occur; providing information on qualityassurance, providing procedural information to customers, opportunity for customerfeedback, etc. It is the communicator’s task to create awareness, build consumerpreference by promoting quality, value, performance and other features, convinceprospects and encourage them to make the purchase decision (Ndubisi et al., 2004).Communication also tells a dissatisfied customer what the organization is doing torectify the source of dissatisfaction.

Conflict handling was defined by Dwyer et al.(1987) as the supplier’s ability tominimize the negative consequences of manifest and potential conflicts. Conflictshandling reflects the supplier’s ability to avoid potential conflicts, solve manifestconflicts before they create problems and the ability to discuss openly, solutions whenproblems arise. How conflicts were handled will ensure loyalty, exit or voice. Rusbultet al. (1988) concluded that the likelihood that an individual will engage in thesebehaviors depends on the degree of prior satisfaction with the relationship, themagnitude of the person’s investment in the relationship and an evaluation of thealternatives one has.

From the above discussion, it is expected that competence, commitment,communication, and conflict handling would have direct association with trust andoverall relationship quality, as well as an indirect association with customer loyalty.Thus, the following hypotheses were developed for testing:

H1. There is a significant positive relationship between: (a) competence; (b)communication; (c) commitment; (d) conflict handling and trust.

H2. There is a significant positive relationship between: (a) competence; (b)communication; (c) commitment; (d) conflict handling and relationshipquality.

H3. There is a significant positive relationship between: (a) trust; (b) relationshipquality and customer loyalty.

H4. Trust mediates in the relationship between: (a) competence; (b)communication; (c) commitment; (d) conflict handling and customer loyalty.

H5. Relationship quality mediates in the relationship between: (a) competence; (b)communication; (c) commitment; (d) conflict handling and customer loyalty.

MethodologyThe population of this study is bank customers in the city of Kota Kinabalu, Malaysia.All the banks (20 of them) in the city were approached to participate in the survey andonly 15 accepted the invitation. Bank intercept method was used to administer thequestionnaire. A total of 400 respondents from the 15 banks accepted the researchquestionnaire; of this number, only 230 completed and returned the instrument which

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translates to 57.5 percent response rate. Out of this, only 220 were usable as 10 werevoided because of incomplete data.

The questionnaire items were adapted from different sources. Competence,communication, commitment and conflict handling items were adapted from Morganand Hunt (1994). Competence included 5 items (e.g. knowledge about the bank,knowledge about market trend, etc.); communication was made up of another 5 items(such as, providing timely and trustworthy information, providing information ifproblem occurs); commitment items were 4 for example, offering personalize services,flexibility in serving customer needs, etc., and conflict handling had 3 items whichinclude, avoid potential conflicts, solving conflicts before it manifest, and openlydiscussing problems. Items for trust and relationship quality were adapted fromChurchill and Surprenant (1982) and Oliver (1980). Trust items were six namely,concern for security, reliable in words and promises, fulfilling obligation to customer,etc. Five items measured overall relationship quality, for example, desirablerelationship with the bank, the bank shows high professionalism, etc. Lastlycustomer loyalty included two items namely, considering the bank as first choiceamong other banks, the first that comes to my mind when making purchases decisionon bank services, which were adapted from Bloemer et al. (1999).

The Hierarchical Multiple Regression Model was employed to predict relationships.The predictor variables (i.e. competence, communication, commitment, and conflicthandling) and the mediators (trust and relationship quality) were entered into themodel at different stages. The hierarchical regression is employed so that the increasein R 2 corresponding to the inclusion of each category of predictor variables and theunique variance in the dependent variable explained by the predictor categories couldbe examined. The R 2 for all sets can be analyzed into increments in the proportion of Yvariance due to addition of each new set of predictor variables to those higher in thehierarchy. These increments in R 2 are squared multiple semi-partial correlationcoefficients. The following general hierarchical model equation for three sets inalphabetical hierarchical order was adopted from Cohen and Cohen (1975):

R2Y·TU ¼ R2

Y·T þ R2Y· ðU·TÞ

Using this general formula, each term in the right hand side of the equation is thecoefficient of determination at each stage of introduction of a set of predictor variablein the regression.

R2Y·T – represents the coefficient of determination for the set of variables introduced

in stage 1.R2Y· ðU·TÞ – represents the coefficient of determination for the set of variables in stage

2, and so on.Mediation effect of trust and relationship quality were measured based on Baron

and Kenny (1986). According to Baron and Kenny (1986), a variable functions as amediator when it meets the following conditions:

. variations in levels of the independent variable significantly account forvariations in the presumed mediator;

. variations in the mediator significantly account for variations in the dependentvariable; and

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. when a and b are controlled, a previously significant relation between theindependent and dependent variables is no longer significant or it is significantlydecreased.

If Z ¼ dependent variable, X ¼ independent variable, and Y ¼ intervening variable:

Z ¼ f Xð Þ ¼ aþ bX ; Y ¼ f ðXÞ ¼ cþ dX

Z ¼ f Yð Þ ¼ eþ fY ; Z ¼ f ðXY Þ ¼ g þ hX þ jY

Full effect : Partial effect

*b – 0 *b – 0

*d – 0 *d – 0

*f – 0 also j – 0 *f – 0 also j – 0

*h ¼ 0 *h – 0 but h , b

Results and discussionTable I is the summary of the demographic composition of the respondents. Apartfrom the descriptive statistics in Table I, information on the respondents’ patronage ofthe bank, based on the number of years they have been with the particular bank showthat 19 percent have been with the bank for 5 years or less, 39.1 percent between 6-10years and 42 percent have been with the bank for 11 years or more. Approximately 61percent of the respondents visited the bank more than three times in a given month.These results show that respondents have a considerable level of repurchase behaviortowards their bank.

No. Profile Description Responses Percentage

1 Age Below 20 years 7 3.220-39 years 161 73.240-59 years 50 22.760 years above 2 0.9

2 Gender Male 92 41.8Female 128 58.2

3 Occupation Business 11 5.0Student/housewife/retiree 17 7.7Paid employment 192 87.3

4 Monthly income Below RM2000 90 40.9RM2000 - RM3999 97 44.1RM4000 - RM5999 22 10.0RM6000 and above 11 5.0

5 Highest educational qualification Primary 5 2.3Secondary 47 21.4HSC/Diploma 73 33.2Degree 82 37.3Postgraduate 13 5.9

Table I.Respondents’demographic profile

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The internal consistency of the instrument was tested via reliability analysis.Reliability estimates (Cronbach’s Alpha) for the construct’s dimensions are as follows:Competence (0.71), Communication (0.78), Commitment (0.84), Conflict Handling (0.73),Trust (0.84), Relationship quality (0.83), Customer loyalty (0.93), suggesting a highdegree of reliability. The results very well exceed 0.60 (Hair et al., 1998) lower limit ofacceptability.

Testing for associationThe results of the regression analysis in Table II show that competence,communication, commitment, and conflict handling contribute significantly(F ¼ 40.83; p ¼ 0.000) and predict 43 percent of the variations in trust. In otherwords, the relationship marketing dimensions predict a significant change in trust.

The results in Table II also show that there is significant relationship betweencommunication, commitment, conflict handling and trust at five percent significancelevel. This justifies the acceptance of hypotheses 1b, 1c and 1d. Therefore, the extent oftrust customers have in their bank depends on the level of timely and reliableinformation the bank communicates, the commitment level exhibited by the bank, andthe bank’s conflict handling ability. The positive sign of the estimates shows that thehigher the level of communication, commitment, and conflict handling ability of thebank, the greater the level of customers’ trust in the bank. Competence shows nosignificant relationship with trust at five percent significance level. Thereforehypothesis 1a is rejected.

The results of the regression analysis in Table III show that competence,communication, commitment, and conflict handling contribute significantly(F ¼ 40.803; p ¼ 0.000) and predict 45 percent of the variations in relationship quality.

The results further show that there is significant relationship between commitment,conflict handling, and relationship quality at 5 percent significance level (hypotheses

Variables Beta coefficients t-value p-value

Constant 7.605 0.000Competence 20.83 21.214 0.226Communication 0.382 5.541 0.000Commitment 0.165 2.468 0.014Conflict handling 0.324 5.218 0.000

Notes: R 2 ¼ 0.433; F ¼ 40.803; Sig. F ¼ 0.000Table II.

Predictors of trust

Variables Beta coefficients t-value p-value

Constant 6.932 0.000Competence 0.087 1.278 0.203Communication 0.035 0.511 0.610Commitment 0.304 4.442 0.000Conflict handling 0.398 6.425 0.000

Notes: R 2 ¼ 0.446; F ¼ 42.273; Sig. F ¼ 0.000

Table III.Predictors of relationship

quality

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2c and 2d). In short, perceived relationship quality depends on the level of commitmentand conflict handling ability of the bank. Customers have better relationship with abank when the bank shows commitment to service and resolves conflicts timely andsatisfactorily. This implies that banks that are committed to service would buildquality relationship with customers and such is also the case with banks that handleconflicts efficiently. There is no significant relationship at 5 percent level betweencompetence, communication, and relationship quality; hence hypotheses 2a and 2b arerejected.

Table IV shows the results of the analysis of the impacts of trust and relationshipquality on customer loyalty. Trust and relationship quality contribute significantly(F ¼ 69.94; p ¼ 0.000) and predict 40 percent of the variations in customer loyalty.Further discoveries include the significant direct association between trust,relationship quality and customer loyalty at five percent and 0.1 percentsignificance levels respectively. These results show that the higher the level of trustand the quality of the relationship, the higher the level of customer loyalty. Thus therespondents anchor loyalty to the trustworthiness of the bank and the quality of therelationship between them and the bank.

Mediation effectsTo test for the mediation effect of trust in the association of the independentdimensions with customer loyalty, another regression that hierarchically regressed,competence, communication, commitment, and conflict handling in stage 1 and trust instage 2, against loyalty (dependent dimension) was conducted. Table V shows theresults of this analysis.

Based on Baron and Kenny (1986), trust mediates in the association ofcommunication, commitment, and conflict handling with customer loyalty. From the

Variables Beta coefficients t-value p-value

Constant 1.829 0.000Trust 0.166 2.517 0.013Relationship Quality 0.517 7.832 0.000

Notes: R 2 ¼ 0.400; F ¼ 69.94; Sig. F ¼ 0.000

Table IV.Direct predictors ofcustomer loyalty

Independent variablesBeta coefficients without trust

(Stage 1)Beta coefficients with trust

(Stage 2)

Competence 0.212 0.216Communication * 0.160 0.110Commitment * 0.117 0.099Conflict Handling * 0.204 0.154Trust – 0.148 * *

R 2 ¼ 0 .294; Sig. F change ¼ 0.000 R 2 ¼ 0.307; Sig. F change ¼ 0.049

Notes: R 2 change ¼ 0.013; Sig. F change ¼ 0.000; *trust significantly mediates in their relationshipwith loyalty; * *trust is significantly directly associated with loyalty

Table V.Mediation effect of trust

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above table, it is observed that there is an increase in the coefficient of determination(R 2) between stage 1 and stage 2 of the regression model. This increase is accounted forby the introduction of the mediator (trust). Furthermore, the beta coefficients in stage 1are significantly higher than those in stage 2 for communication, commitment, andconflict handling. Such increase in R 2 and decrease in beta coefficients explain themediation effect of trust in the association of communication, commitment, and conflicthandling with customer loyalty. Hence, the three independent dimensions have anindirect relationship with customer loyalty through trust. In contrast, trust does notmediate in the competence-loyalty relationship. This is because the condition (a) of themediation test (i.e. variations in levels of the independent variable significantly accountfor variations in the presumed mediator) is violated, moreover there is an increase(instead of a decrease in beta coefficient) between stage 1 and stage 2. The aboveresults lead to the acceptance of hypotheses 4b, 4c, and 4d, as well as the rejection ofhypothesis 4a.

The mediation effect of relationship quality is verified next (see Table VI).Relationship quality mediates in the association of commitment and conflict handlingwith customer loyalty, but does not mediate in the association of communication andcompetence with customer loyalty. From the above table, it is observed that there is anincrease of 0.110 (11 percent) in the coefficient of determination (R 2) between stage 1and stage 2 of the regression model. The beta coefficients in stage 1 are significantlyhigher than those in stage 2 for all the independent dimensions, however, onlycommitment and conflict handling meets the condition (a) of the mediation test (i.e.variations in levels of the independent variable significantly account for variations inthe presumed mediator). Such increase in R 2 and decrease in beta coefficients explainthe mediation effect of relationship quality in the association of commitment andconflict handling with customer loyalty (hypotheses 5c and 5d). Therefore, the twoindependent dimensions have an indirect relationship with customer loyalty throughrelationship quality. There is no indirect association between competence,communication, and customer loyalty through relationship quality because of theviolation of the above condition (a). Thus, it is concluded that relationship quality doesnot mediate in the relationship between competence, communication, and customerloyalty (hypotheses 5a and 5b). In sum, bank customers anchor their loyalty to thequality of their relationship with the bank, and relationship quality is anchored to thebank’s level of commitment to service, and ability to resolve conflicts satisfactorily.

Independent variables

Beta coefficients withoutrelationship quality

(Stage 1)

Beta coefficients withrelationship quality

(Stage 2)

Competence 0.212 0.216Communication 0.160 0.110Commitment * 0.117 0.099Conflict Handling * 0.204 0.154

R 2 ¼ 0.294; F ¼ 21.978 R 2 ¼ 0.307; F ¼ 3.922

Note: *Relationship quality significantly mediates in their relationship with loyalty

Table VI.Mediation effect of

relationship quality

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Limitations and future researchAlthough the objectives of this research were met, two limitations were identified in thecourse of this research. First, the study focuses on only the banking sector. Suchconcentration could limit generalization of the findings to the entire service industry.Anyway, this limitation creates an opportunity for future research in this area. Thisfuture research should replicate this study in other service sectors order than banking,for example tourism, hospitality, health care, education, etc.

Another future research direction is to include other less common relationalmarketing keystones not included in this research, for example, empathy, equity andmutualism. These were excluded from this research, which concentrated only on thestronger underpinnings as identified by past works. By using a more comprehensivelist, a richer outcome may possibly emerge. Future studies may also investigate thepossible moderation and mediation effects of customer satisfaction. By examiningthese effects, these future studies would add value to the present knowledge in thisarea, by establishing an indirect association between the RM underpinnings andcustomer loyalty via customer satisfaction, and whether the relationship between therelational marketing keystones and customer loyalty are moderated by customersatisfaction.

Implications and conclusionsThis research has a number of implications on customer management by banks.Firstly, banks in particular and service organizations in general, interested in acquiringand keeping loyal customers, should strive to earn customers’ trust as well as buildquality relationship with customers. There are a number of benefits associated withcustomer loyalty apart from profitability, customer loyalty can reduce the cost ofbusiness operation by five to six times. Earlier reports (e.g. Ndubisi, 2003; Rosenbergand Czepiel, 1983) have shown that it costs 5 to 6 times more to attract a new customerthan to retain an existing one. Moreover, loyal customers can also attract newcustomers by carrying positive word-of-mouth communication about the business.These self appointed evangelists can also contribute new product ideas to theorganization. By acting trustworthily and building quality relationships withcustomers, the bank can lift switching cost higher to ensure loyalty.

To ensure trust and quality relationship, banks must communicate effectively, becommitted, and handle conflicts well. They must give and keep promises, communicatetimely and reliable information to customers on new services, changes in services, andwhen problems occur, it should keep customers informed on what the bank is doingregarding the problem. These are some of the ways banks can use communication toenhance trust. Banks must be willing to make adjustments to customers’ needs, beflexible and innovative in providing services, be flexible in serving customers, and alsooffer personalized services, as strategies for creating trust and quality relationship.Lastly, handling conflicts capably will also increase trust and relationship quality.Both proactive and reactive ways of handling conflicts namely, avoiding potentialconflicts, solving conflicts before they manifest, and openly discussing problems willhelp the bank in earning customer trust and building quality relationship with them.

With regards to managing logistics and distribution activities of banks, (service)supplier-customer relationship can provide management with privileged informationon changing customer needs as well as how to more satisfactorily serve customers, and

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more efficiently manage customers’ transactions. Lambert et al. (1998) define logisticsmanagement as the process of planning, implementing and controlling the efficient,effective flow and storage of services and related information from point of origin topoint of consumption for the purpose of conforming to customer requirements.Effective supplier-customer relationship management strategies are apt to aid in abetter understanding of the movement of information and funds of bank customers, inidentifying novel ways to serve them, and in customization of services to loyalcustomers.

Conclusively, this research investigated the impact of the underpinnings ofrelationship marketing, namely, competence, communication, commitment, andconflict handling on trust and relationship quality. Secondly, the impact of trust andrelationship quality on customer loyalty was examined, as well as the mediation effectsof trust and relationship quality in the relationship between the relationship marketingunderpinnings and customer loyalty. By using the data supplied by bank customers inMalaysia, some important discoveries were made. The study found that customersanchor loyalty to the bank’s trustworthiness and the quality of the bank-customerrelationship. Thus by building trust and quality relationship, banks are able to keeployal customers. Moreover, trust and relationship quality are anchored to commitmentand conflict handling ability of the bank. Trust is further anchored to communication.So committed banks, banks that communicate efficiently and reliably to customers,and banks that handle conflicts satisfactorily will earn customers’ trust, have qualityrelationship with them and in turn keep them loyal. Managers of banks and marketersof banking services should recognize the salience of these factors in their efforts toattract and keep loyal customers.

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About the authorsNelson Oly Ndubisi is associate professor in the school of business at Monash UniversityMalaysia. Prior to joining Monash, Professor Ndubisi was the head of post-graduate studies andresearch at the Labuan campus of the University Malaysia Sabah (UMS). He has publishedextensively in leading journals. He has bagged four international research awards besides theseveral marketing and technology research models he has developed and published inprestigious journals. His research interests are in the area of relationship marketing, customerservice, services marketing, etc. Nelson Oly Ndubisi is the corresponding author and can becontacted at: Olynels@yahoo.com

Chan Kok Wah holds the MBA of the University of Malaysia Sabah. He has many years ofteaching experience. Mr. Chan is keenly interested in the subject of relationship marketing, adomain he is at the verge of pursuing his doctorate in. Some of his publications have eitherappeared or is forthcoming in reputable journals and conference proceedings. His other researchinterests are in financial services and customer relationship management.

Gibson C. Ndubisi is an international scholar and researcher. He is particularly interested inunderstanding the behavior of Asian consumers. He has substantial experience in teaching andadministration of non-profit organizations such as institutions of higher learning. His articleshave featured in a number of international journals and conference proceedings. Gibson’sresearch interests are in consumer behavior, social deviant, and society and technology usagebehavior.

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