Role of Value Relevance, Ethical Standards, Trust, and Satisfaction

Abstract

On the one hand, in today’s competitive world customer loyalty has been introduced as a critical issue for the growth and survival of firms, in which the profitability of firms increases as a result of Positive Word-of-Mouth (PWOM) of loyal customers. On the other hand, research has shown that, in addition to the features of goods and services, observing the principles of Corporate Social Responsibility (CSR) increases the loyalty and PWOM of customers. In this research, we investigated the issue that how the similarity of bank values ​​with customers and the bank's ethical standards affect the commitment of the bank to CSR that ultimately leads to customer loyalty and PWOM. Also, we examined the effect of the bank's social responsibility on customer loyalty and PWOM on the basis of the mediator role of customer trust and satisfaction. The Partial Least Square (PLS) approach of Structural Equation Modeling (SEM) was used to analyze the data (n = 300). The results showed that the bank values relevance ​​with the customer and the bank's ethical standards have a positive effect on the bank's commitment to CSR; commitment of the bank to CSR has a positive effect on customer trust and satisfaction; customer trust has a positive effect on customer satisfaction, loyalty, and PWOM; customer satisfaction has a positive effect on customer loyalty and customer loyalty has a positive effect on customer PWOM. Also, customer trust and satisfaction are the mediators of the effect of customer perception about the commitment of the bank to CSR on customer loyalty, and trust mediates the effect of customer perception about the commitment of the bank to CSR on customers' PWOM.

Keywords: Corporate Social Responsibility (CSR), Trust, Satisfaction, Loyalty, Positive Word-of-Mouth (PWOM), Banking

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1. Introduction

Banks at the core of the service industry offer a wide range of competitive technology-based services and benefits to meet the changing needs of customers. Accordingly, the nature of customer relationships has changed in banking services. Banks revise their attitude toward customer satisfaction and optimize the quality and performance of services because of the highly competitive and rapidly changing environment in that have to operate in (Arasli et al., 2005). In this regard, researchers are proposing a solution to the banks, called Corporate Social Responsibility (CSR).

Social responsibility has become an important task of a business and requires extensive attention from managers (Melo & Galan, 2011). The challenges and opportunities that arise from observing or disregarding CSR cannot be ignored at all. These challenges include different aspects of CSR such as the environment, safety, corporate governance, human resource management, human rights, and consumer rights. Corporations have to address more social, environmental, and economic issues as well as legal activities because of the increasing expectations. Today's modern firms focus not only on social responsibility but also find it as one of the key management tools (Bielak et al., 2007). Proponents of CSR believe that businesses should be involved in CSR because people are strongly advocating it. In other words, people believe that businesses should feel more responsible for their employees, the community, and other shareholders, in addition to pursuing profits, even if it is necessary to sacrifice a part of their profit to better address these issues (Carroll & Shabana, 2010). Another argument from CSR advocates is that, on the one hand, the firm’s commitment to CSR not only has a positive effect on corporate financial performance (Fayad et al., 2017) but also has a positive effect on customer loyalty and PWOM (Al Jarah & Emeagwali, 2017). Similarly, banking research has shown that the bank's commitment to CSR has a positive effect on the financial performance of the bank (Lu et al., 2014; Xiong et al., 2016; Wang et al., 2016); It also has a positive effect on customer loyalty (Arıkan & Güner, 2013) and PWOM (Khan et al., 2015). On the other hand, CSR makes customers trust the firm and be satisfied (Fatma et al., 2016; Mombeuil & Fotiadis, 2017; Park et al., 2017). Similarly, in banking research, it has been shown that CSR has a positive effect on customer trust (Khan et al., 2015; Fatma & Rahman, 2016) and customer satisfaction (Bravo et al., 2009; Salmones et al., 2009; He & Li, 2011). CSR has high benefits for banks which are also corporates, but in the first step, customers should be able to understand that the bank is committed to its CSR. According to Park et al. (2017), customer perceptions of the ethical standards and values relevant to the firm are two factors that prove that the firm is committed to its CSR.

Customer loyalty leads to lower costs of attracting new customers, increasing the efficiency of service to old customers, and increasing revenues as a result of repeated purchases and customer visits (Kumar & Shah, 2004). In other words, customer loyalty as a competitive asset for an organization increases profits by reducing costs and increasing revenues. She/he has significant effects on business survival, profits, and development, and also paves the way for a firm's sustainable competitive advantage (Chen, 2015). Loyalty has high benefits for the banks, but in the first step, banks should be aware of what makes customer loyalty. In research in banking, it has been shown that customer trust leads to customer satisfaction (Dehghan et al., 2012) and customer trust and satisfaction create customer loyalty (Amin et al. 2013; Dehghan et al., 2012; Kingshott et al., 2018).

Since some people believe that WOM is one of the most efficient and effective advertising methods, it has great importance for marketers. WOM also is described as a very powerful tool in promoting the product, so that brings unknown and unidentified products quickly in the path of reputation (Dye, 2000). Therefore, the customers with more Positive-Word-of-Mouth (PWOM), the firms with more profits. The question is: what causes the customer PWOM? Banking research has shown that customer trust (Khan et al., 2015), customer satisfaction (Casaló et al., 2008; Cambra-Fierro et al., 2017; Ladhari et al., 2011) and customer loyalty (Mukherjee, 2018) play an important role in the formation of customer PWOM. Finally, it should be noted that WOM is generally considered to be more important in the service industry than production. Since service evaluation before purchase is difficult, its features compel customers to pay attention to others' opinions in evaluating before making a purchase. As a result, perceived risk is usually higher in services than goods. Therefore, service customers may have more trust in WOM in purchasing decisions (Wirtz & Chew, 2002).

This research examines the bank values ethical standards' relevance ​​with customers as two main factors of the bank's commitment to social responsibility from the customer's point of view. Also, we anticipate that the bank values and ethical standards relevant ​​to customers will make the customer understand that the bank is committed to its social responsibility; therefore, leading to customer trust and satisfaction happen and are likely to have customer loyalty and PWOM in results.

2. Literature and hypotheses

2.1. Values relevance

Enterprises should seek to maintain current customers and establish long-term and profitable relationships with them. The main point of customer preservation is that it should satisfy the customer by providing better value for them (Kotler & Armstrong, 2009). Consequently, a concept called 'Relationship Marketing' was created to provide long-term relationships with customers and profit for corporates by providing better value for them. Kotler & Armstrong (2009) defines relationship marketing to create, maintain, and strengthen a strong relationship with customers and other interest groups. Sin et al. (2005) considered relationship marketing as a structure with six key factors that include: communication, trust, empathy, reciprocity, bonding, and shared value. Kotler & Armstrong, (2009) know ethical values ​​as the criterion for assessing others’ activities. Park et al. (2017) state that since each person has their own values ​​and rules, customer awareness and assessment of CSR are largely determined by them. Therefore, it seems that customer perception of the value's relevance ​​with firm values ​​has a positive effect on customer perception of a firm commitment to CSR. Similarly, we predict that the bank as an enterprise can demonstrate to customers that it is committed to doing its social responsibility by creating common values ​​with its customers. Based on these findings, this study suggests the following hypothesis:

• H1. The customer perception of the value's relevance ​​with the bank has a positive effect on the customer perception of the bank's commitment to CSR.

2.2. Ethical standards

Corporations must have 'ethical marketing policies'. These policies are guidelines that everyone in the firm is required to comply with. These policies should include relations with distributors, advertising standards, customer service, pricing, product genesis development, and general ethical standards (Kotler & Armstrong, 2009). Similarly, Islam et al. (2013) state that, according to ethical principles, the observance of the values, norms, and beliefs of people in the society should be included in the instructions of the firms. According to Park et al. (2017), firms should explain and upgrade their ethical standards by actively communicating with their customers, usually through statements, because such a connection has a positive effect on the overall ethical context of the firm. On the other hand, Linthicum et al. (2010) defined CSR as a firm’s sustainable commitment to ethical behaviors and participation in economic development while caring about the development of the career of employees, their families, and social organizations and institutions. Therefore, customer perception of the firm's ethical standards has a positive effect on customer perception of corporate commitment to social responsibility (Park et al., 2017). Similarly, we anticipate that the bank, as an enterprise, can prove to customers that it is committed to doing its social responsibility by adopting, announcing, and implementing ethical codes. Based on these findings, this study suggests the following hypothesis:

• H2. Customer perception of the bank's ethical standards has a positive effect on customer perception of the bank's commitment to CSR.

2.3. Commitment to CSR

Customer social responsibility (CSR) means the commitment of an enterprise to the community and those stakeholders that influence the politics, policies, and activities of the firm (Hsu, 2012). According to Carroll (1979), CSR consists of four dimensions: economic (making a profit), legal (complying with the law), ethical (being ethical), and precautionary (being a good member of society). The main motivation for firms to implement CSR is its huge potential profitability, and it comes when the commitment of a firm to CSR is perceived by its stakeholders (Perez & del Bosque, 2014). Activities that are perceived as CSRs have a positive effect on the firm on society (Wagner et al., 2009) and lead to a positive attitude in customers toward the firm (McDonald & Lai, 2011; Sheikh & Beise Zee, 2011; Chung et al., 2015) and its products (Brown & Dacin, 1997; Sen & Bhattacharya, 2001). Also, Mombeuil & Fotiadis (2017) say CSR perceptions have a positive effect on the quality of service. Generally, customer satisfaction is created when emotional and functional perceived value is accompanied by a positive previous experience (Polo Pena et al., 2013). Therefore, if customers understand the commitment of the firm to CSR, they will be satisfied (Fatma et al., 2016; Mombeuil & Fotiadis, 2017; Park et al., 2017; Khosroshahi et al., 2019). In research in the field of banking, the results indicate that the customer's perception of CSR has a positive effect on her/his satisfaction (Bravo et al., 2009; Salmones et al., 2009; He & Li, 2011). Similarly, the perception that a firm is ethically responsible is a stimulant of trustworthiness (Pivato, 2008; Martinez & Del Bosque, 2013). It is logical for firms to create a belief in customers that they never lied and adhere to their commitments. Trust in a firm can be seen when customers believe that the organization is trusted and claims honestly (Radvieciene & Dzemyda, 2014). So, if customers understand the commitment of the firm to CSR, they will trust the firm (Choi & La, 2013; Fatma et al., 2016; Mombeuil & Fotiadis, 2017; Park et al., 2017). Results of research in banking also indicate that the customer's perception of CSR has a positive effect on her/his trust (Khan et al., 2015; Fatma & Rahman, 2016). Based on these findings, this study suggests the following hypotheses:

• H3. Customer perception of the bank's commitment to CSR has a positive effect on customer satisfaction.
• H4. Customer perception of the bank's commitment to CSR has a positive effect on customer trust.

2.4. Trust

Trust is the belief that the word or the promise of the partner is believable and trusted, and she/he will execute the partnership that is promised in the working relationship (Oly Ndubisi, 2007). Purwanto (2010) considers customer trust as a refinement of perceived past experiences and performances, the image and features of the corporate, the willingness to tolerate the risk of trust, and a sense of safety and trust in the services of the corporate. Trust is essentially considered as a convenient mechanism to reduce the risk of interactions by increasing the expectation of positive outcomes and perceived assurance of the behavior of trust holders (Wu, 2013). Trust is a two-way feeling that neither party removes the agreement between the parties. In other words, trust reflects the trustworthiness of a partner of interaction in fulfilling its obligations leading to positive outcomes (Radvieciene & Dzemyda, 2014). Johnson & Grayson (2005), proposed 'cognitive' and 'emotional' dimensions for trust, based on the social psychology literature. The cognitive dimension of trust is the customer's confidence or the desire to trust in the deservingness and reliability of the service provider. The emotional dimension of trust is the certainty of a person to the partner based on the feelings that she/he carries through his/her care and attention. Therefore, customer trust in the firm will create its satisfaction (Martinez & del Bosque, 2013; Fatma et al., 2016; Park et al., 2017). The result of research in banking showed that customer trust has a positive effect on satisfaction (Dehghan et al., 2012). Since, trust encourages the customer to continue the relationship with the provider (Akbar, 2013), and given that customer, trust plays a crucial role in re-purchasing (Han & Hyun, 2015; Chen et al., 2019), customer trust leads to loyalty (Amin et al., 2013; Kim & Ham, 2016; Park et al., 2017; Song et al., 2019; Lee et al., 2015). In research in the field of banking, the results indicate that customer trust has a positive effect on his/her loyalty (Amin et al., 2013; Dehghan et al., 2012; Kingshott et al., 2018). Meanwhile, customer trust makes it possible for them to share positive and beneficial experiences about the firm with friends and relatives (Gremler et al., 2001), so customer trust in the firm creates his/her willingness to PWOM (Gremler et al., 2001; Ranaweera & Prabhu, 2003; Harris & Khatami, 2017; Wang et al., 2018; Kim et al., 2009). The result of another research in banking indicates that customer trust has a positive effect on her/his PWOM (Khan et al., 2015). Based on these findings, this study suggests the following hypotheses:

• H5. Customer trust has a positive effect on customer satisfaction.
• H6. Customer trust has a positive effect on customer loyalty.
• H7. Customer trust has a positive effect on customer PWOM.

2.5. Satisfaction

According to Kotler (2000), satisfaction is a pleasant or unpleasant person's feeling that results from a subjective comparison of product performance with her/his expectations. As explicitly stated in this definition, satisfaction is related to product performance and customer expectations. Kotler also states that customers find their expectations provided so they are satisfied; if their provided expectations are below the limit, there is disapproval and leads to dissatisfaction; if the goods and services appear to be in the expectations, the customer is satisfied, and if the performance of goods and services outstrips expectations, the customer is pleased or, in other words, is delighted. Therefore, the perception of quality has significant effects on satisfaction (Van Vuuren et al., 2012; Loureiro et al., 2012) and the previous positive experience (Pena et al., 2013). Also, other factors affecting satisfaction include corporate responsibility policies and price image (Lombart & Louis, 2014), demographic characteristics (gender and age) (Cambra-Fierro et al., 2017), and customer complaints management (Johnson et al., 2001). Caro & Garcia (2007) states that satisfaction results from a cognitive and an emotional part of the evaluation of a consumption process, both of which are important and essential for the modeling of consumer behavior. Customers’ positive evaluation of the overall experience of consumption increases their levels of satisfaction and willingness/readiness to re-purchase (Han & Hyun, 2015). Therefore, customer satisfaction leads to loyalty (Casaló et al., 2008; Cambra-Fierro et al., 2017; Park et al., 2017; Song et al., 2019; Lee et al., 2015). The result of research in the field of banking indicates that customer satisfaction has a positive effect on loyalty (Ladhari et al., 2011; Dehghan et al. 2012; Amin et al., 2013). Also, satisfied customers are likely to talk to others about their good experiences (Jamal & Naser, 2002). According to Bougie et al. (2003), customers who are satisfied with the organization transfer their positive experiences to others, thus promoting the organization. Reputation and credibility from the point of view of others are the sources of public trust and reduce the cost of customer attraction. This is especially important for service providers. Therefore, customer satisfaction is a predictor of PWOM (Casaló et al., 2008; Cambra-Fierro et al., 2017; Harris & Khatami, 2017; Wang et al., 2018; Kim et al., 2009). In research in the field of banking, the results indicate that customer satisfaction has a positive effect on PWOM (Casaló et al., 2008; Cambra-Fierro et al., 2017; Ladhari et al., 2011). Based on these findings, this study suggests the following hypotheses:

• H8. Customer satisfaction has a positive effect on customer loyalty.
• H9. Customer satisfaction has a positive effect on customer PWOM.

2.6. Loyalty

Chen (2015) defines 'customer loyalty' as the loyal attitude and behavior of a customer toward a particular service company, despite offering different service options from competitors on the market. Loyalty is a sense of feeling of belonging to employees, services, or products of a firm; this feeling has a direct impact on customer behavior (Radaviciene & Dzemyda, 2014). Several positive benefits arise from loyal customer behavior: less search for options, greater stability despite rival's efforts, greater neglect of small enterprise mistakes, and ultimately PWOM (Chen, 2015). PWOM means sharing potential positive experiences of a product or service in informal communication between a customer and a potential customer (Ennew et al., 2000). Therefore, it can be considered the power of WOM, because, first, WOM is more reliable than corporate-owned information resources; second, WOM is a real relationship and is the same as the conversion process between individuals, and third individuals share their experiences with goods, services, and brands with others, leads to reducing risk for potential customers (Derbaix & Vanhamme, 2003). It can be seen that customer loyalty has a positive effect on PWOM in the result of a recent study in banking (Mukherjee, 2018). Therefore, the loyalty of customers is the predictor of their PWOM (Ennew et al., 2000; Chen, 2015; Harris & Khatami, 2017). Based on these findings, this study suggests the following hypothesis:

• H10. Customer loyalty has a positive effect on customer PWOM.

Trust and satisfaction are the main mediators of this research. Previous studies have shown that customer perception of a firm commitment to CSR has an effect on customer loyalty (e.g., Martinez & del Bosque, 2013; Fatma et al., 2016; Kim & Ham, 2016) and customer PWOM by the mediator role of trust (e.g., Hong & Rim, 2010; Kang & Hustvedt, 2014; Khan et al., 2015); therefore, it is expected that this relationship will be true in the bank as an economic enterprise. Previous studies have also shown that customer perceptions of a firm commitment to CSR have an effect on customer loyalty (e.g., Martinez & del Bosque, 2013; Pérez & del Bosque, 2015; Chang & Yeh, 2017) and customer PWOM by the mediator role of satisfaction (e.g., Walsh & Bartikowski, 2013; Su et al., 2017); therefore, this relationship is also expected to apply to the bank as an economic enterprise. Based on these findings, this study suggests the following hypotheses:

• H11. Customer trust is the mediator of the effect of customer perception of the commitment of the bank to CSR on customer loyalty.
• H12. Customer satisfaction is the mediator of the effect of customer perception of the commitment of the bank to CSR on customer loyalty.
• H13. Customer trust is the mediator of the effect of customer perception of the commitment of the bank to CSR on customer PWOM.
• H14. Customer satisfaction is the mediator of the effect of customer perception of the commitment of the bank to CSR on customer PWOM.

3. Method

Questionnaires from valid studies were adapted to measure individuals' perceptions of their value relevance with the bank, people's perceptions of the ethical standards of the bank, people's perception of bank commitment to CSR, customer trust, customer satisfaction, customer loyalty, and customer PWOM. The validity of the questionnaire items was reviewed by four management professors. Table 1 shows the complete list of questionnaire items in this study. We used a 7-point Likert scale to measure items in the questionnaire (from 1 = 'complete disagree' to 7 = 'complete agree') and Structural Equation Modeling (SEM) with Partial Least Squares (PLS) approach by smart PLS software V3 to investigate research hypotheses. Researchers have mentioned many reasons for using this method, including that it is the best tool for analyzing research with the complex relationships between variables, small sample size, and abnormal distribution (Diamantopoulos et al., 2012). Customers of branches of Mellat bank in Guilan province (one of the largest banks in Iran) were the statistical population of this research. The statistical community was chosen because the banks generally participate significantly in CSR programs due to positive financial outcomes. Also, the largest banks are pursuing CSR significantly more than smaller ones (Cornett et al., 2016). In general, in models that are examined by the SEM method, the sample size is more than 200 (Barrett, 2007; Joreskog, 2004). According to Bartlett et al. (2001), in the SEM method, the sample size can be set somewhere between 5 and 15for per question. Therefore, according to the number of items in this study (25 items), the sample size was estimated between 125 and 375. Finally, 350 questionnaires were distributed in 10 branches. A total of 300 valid questionnaires were received. 60.9% were female and 39.1% were male.