Influence of customer perceived ethicality on customer loyalty in the banking industry of Pakistan

• DOI: https://doi.org/10.1108/IJOES-03-2021-0071
• Published date: 06 April 2022
• Date: 06 April 2022
• Pages: 54-80
• Subject Matter: Economics,Social economics
• Author: Shahina Batool,Babrak Ali Panezai,Ghulam Jan Baloch,Shamaila Sohail

Influence of customer perceived

ethicality on customer loyalty in

the banking industry of Pakistan

Shahina Batool and Babrak Ali Panezai

Department of Management Sciences, Balochistan University of Information

Technology Engineering and Management Sciences, Quetta, Pakistan

Ghulam Jan Baloch

Department of Management Sciences, University of Turbat, Turbat, Pakistan, and

Shamaila Sohail

Department of Management Sciences, Balochistan University of Information

Technology Engineering and Management Sciences, Quetta, Pakistan

Abstract

Purpose –The purpose of this paper is to determineempirically the effect of customer perceived ethicality

(CPE) on customer loyalty(CL) and further the authors ascertained if customertrust (CT), customer affective

commitment (CAC) and customer perceivedquality (CPQ) acted as mediating mechanisms linking CPE and

CL. This study also testedthe influence of CL on customer word of mouth (CWOM).

Design/methodology/approach –In this study, data were collected from 390 customers of banks in

Pakistan through a self-administered questionnaire and tested through partial least squares (PLS) with smart

PLS 3.2.7 version.

Findings –Research findings provided evidence for the positive relationship between CPE and CL and

mediating effects of CT, CAC and CPQ for the CPE–CL linkage. Furthermore, a positive and significant

relationshipbetween CL and CWOM was experienced.

Practical implications –This study canhelp banks to determine the importance of CT, CAC and CPQ,as

they can facilitate translating CPE into CL. Furthermore, managers need to effectively communicate about

their ethicalactivities and encourage their customersto share their experiences.

Originality/value –First, this paper has consideredthe effect of CPE on customer loyalty under research

area of corporate service brands.Second, it examines the mediating role of three factors (CT, CAC and CPQ)

between CPEand customer loyalty in the banking industry.

Keywords Customer trust, Customer affective commitment, Customer perceived ethicality,

Customer perceived quality, Customer positive word of mouth

Paper type Research paper

Introduction

In the contemporary business environment,brands’reputation and competitiveness depend

on how they portray societal and ethical commitments at the corporate level (Sierra et al.,

2017). This is because of the fact that ethical consumerism has increased rapidly and

customers are now expecting their brands to have ethical values (Carrigan and Attalla,

2001). Accordingly, strong brands need to represent their social and ethical commitment

while interacting with their customers (Balmer, 2001;Rindell and Svensson, 2011). With

respect to the service industry, it becomes more important to act ethically with each

transaction that involvesa large number of touchpoints and interactionswith the customers

IJOES

39,1

54

Received26 March 2021

Revised27 June 2021

31January 2022

Accepted4 March 2022

InternationalJournal of Ethics and

Systems

Vol.39 No. 1, 2023

pp. 54-80

© Emerald Publishing Limited

2514-9369

DOI 10.1108/IJOES-03-2021-0071

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/2514-9369.htm

(Grönroos, 2006). Regardless of the great importance of the ethical reputation of corporate

brands, there is limited research in the field of services (Singh et al., 2012). To address this

limitation, this study aims to explore customer perceived ethicality (CPE) on customer

loyalty (CL) in the service sector, particularlyin the banking industry of Pakistan.

In the past few years, the banking industry of Pakistan has remained competitive using

various business opportunities and growing as an emerging sector because of the

homogeneity of its services (Shah and Khan, 2019). For banks to develop loyal customers

remains a difficult and hardtask as almost most banks offer the same products and services

(Raza et al., 2018). Echoing this sentiment, Raza et al. (2018) argued that maintaining CL

remains a challenge for the banking industry. However, the banking sector can differentiate

itself withthe proper implementation of ethicaland social practices to strengthen CL that will

result in profitabilityand informal marketing channelwith customer wordof mouth (CWOM).

Shah and Khan (2019) indicated that the banking sector of Pakistan has homogeneity of

servicesthat makes them highly competitive, and therefore, they can differentiatethemselves

with properimplementationof corporate socialresponsibility(CSR) activities.

Prior research found the positiveindirect influence of CPE on CL mediated with customer

affective commitment (CAC) and customer perceived quality (CPQ) and impact of CL on

word of mouth (WOM) in brand services (Markovic et al.,2018). In this study, we aim to

extend this list of mediation by adding customer trust (CT) in the model. CT is one of the

most important factors that need to be focused in the banking sector as this industry’s

reputation is undermined because of the current financial crisis. To provide a better

customer experience in the banking sector amid the recent financial crises, banks need to

achieve CT again (Johnsonand Peterson, 2014). Further, Khan et al. (2015) contented that the

significance of CT has been largely ignored in prior research when considering CSR

perception. Thus, thisstudy aims to explore the influence of CPE on CL mediated with three

factors (CT, CAC and CPQ). Further, this study aims to investigate the effect of CL on

CWOM in the service sector more specificallyin the banking context of Pakistan.

Theory and hypotheses development

Stakeholder theory

Stakeholder theory is associated with CSR and it explains the extent to which a firm

appropriately treats its stakeholders (Driver and Thompson, 2002;Laczniak and Murphy,

2006). This theory proposes that a business should create great value for its stakeholders

(Joseph and Jerome, 2017).According to the stakeholder theory introduced by (Mitchell et al.,

1997), stakeholdersare those groups that are important for the firms’survival.These groups

include customers, employees, owners and suppliers (Donaldson and Preston, 1995). Prior

studies suggested stakeholder’stheory as a foundation for CSR framework (Donaldson and

Preston, 1995;Ralph etal.,2007). Accordingly, corporatesocial responsibility is presented as

a tool for serving all the stakeholders responsiblyand reasonably (Joseph and Jerome, 2017).

Fan (2005) stated that CSR and business ethics are used interchangeably because both the

terms are associated in nature and objectives.Moreover, the model of CPE is conceptualized

and defined as “consumer aggregate perception of the brand ethical behaviors toward

different stakeholders”(Brunk,2010a, 2012). In line with the above justifications for the

relevance of the stakeholder theory, we have discussed that the stakeholder theory is the

firm’s fair treatmentof its stakeholders.

Customer perceived ethicality and customer trust

Trust is the main element of relationshipliterature (Morgan and Hunt, 1994;Fournier, 1998).

According to Wilson (1995), it is a belief that one relationship partner will act in the best

Influence of

customer

perceived

ethicality

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