International Journal of Bank Marketing

Assessing the outcomes of Generation-Y customers' loyalty

Thomas Foscht Judith Schloffer Cesar Maloles III Swee L. Chia
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Thomas Foscht Judith Schloffer Cesar Maloles III Swee L. Chia, (2009),"Assessing the outcomes of
Generation-Y customers' loyalty", International Journal of Bank Marketing, Vol. 27 Iss 3 pp. 218 - 241
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IJBM
27,3
218
Received August 2008
Revised December 2008
Accepted January 2009
Downloaded by Cornell University Library At 02:57 15 December 2014 (PT)
International Journal of Bank
Marketing
Vol. 27 No. 3, 2009
pp. 218-241
q Emerald Group Publishing Limited
0265-2323
DOI 10.1108/02652320910950204
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0265-2323.htm
Assessing the outcomes of
Generation-Y customers’ loyalty
Thomas Foscht and Judith Schloffer
Department of Marketing, University of Graz, Graz, Austria
Cesar Maloles III
Department of Marketing and Entrepreneurship, California State University,
Hayward, California, USA, and
Swee L. Chia
La Salle University, Philadelphia, Pennsylvania, USA
Abstract
Purpose – The purpose of this paper is to examine what factors influence the satisfaction, loyalty,
and behavioral intentions of the members of Generation Y with regard to their banking needs.
Design/methodology/approach – Using a multiple-item survey instrument, 242 Austrian
respondents were queried on what factors affect their satisfaction, loyalty, and behavioral
intentions. Factor analysis and regression analysis are employed in the study.
Findings – The study finds differences among the three age groups contained in Generation Y in
terms of their sources of information, financial services used, likelihood of switching, and number of
banks utilized. In addition, determinants of satisfaction, loyalty, and behavioral intention are primarily
affected by satisfaction with employees and services rendered. The results indicate that as young
people reach certain milestones, their needs become more multifaceted. Consequently, the
determinants of satisfaction also change.
Originality/value – This paper treats Generation Y as a heterogeneous group rather than
homogeneous as many studies usually treat this age cohort. Moreover, given that many banks are
trying to “grow” markets, this study looks at how the determinant factors change from one stage to
another. Financial institutions will benefit from the insight derived from this paper in crafting their
marketing strategies. It indicates what seems to be important to each age group in increasing their
satisfaction level.
Keywords Customer loyalty, Behaviour, Austria
Paper type Research paper
Introduction
For several years now the banking sector has been undergoing changes triggered by
regulatory, structural, and technological factors (Angur et al., 1999). Financial
institutions are constantly experiencing pressure to increase their profitability as a
result of low growth and more intense competition (Thwaites and Vere, 1995) in their
target markets. This cut-throat competition has weakened customer relationships. In
addition to offensive strategies for acquiring new customers, defensive strategies
meant to strengthen customer loyalty and provide cross-selling opportunities have
become important (Miles, 1994). Developing and maintaining customer loyalty is
important particularly in the service sector because loyalty results in increased profits
through repeat patronage, less price sensitivity, and positive word-of-mouth. This
makes it an important determinant of market share and profitability (Meidan, 1996;
 Jones and Sasser, 1995). In order to achieve customer loyalty, banks must be aware of Generation-Y
those factors that lead to customer satisfaction and ultimately, to customer loyalty customers’
(Pont and McQuilken, 2005). Previous studies, however, indicate that loyalty may vary
among different customer segments (e.g., Molina et al., 2007). Consequently, the need to loyalty
identify segments that are prone to be more loyal has become a critical issue for banks
(Harrison, 1994; Speed and Smith, 1992).
Sometimes, it is possible to “grow” a segment. This occurs when the initial targeted 219
segment is deemed to be not profitable or marginally profitable but changes into a
profitable one over time.
One customer segment receiving greater attention in the financial sector is the youth
market – particularly Generation Y. This is due to the fact that these young people
have substantial discretionary buying power relative to their incomes. Given the
intensive competition that they face for older customers, many banks are seeking to
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acquire young people as customers early on and, above all, to retain them over time.
Generation Y is a particularly attractive segment as it is the largest demographic group
in many developed countries and is also a highly lucrative segment (Josefowicz, 2003;
Solomon, 2007). Moreover, reaching young people at an early age often forms the basis
for a relationship upon which other services may be cross-sold over time as a deeper
and a more profitable relationship is engendered. (Thwaites and Vere, 1995).
Nevertheless, the youth market is not homogenous (Lewis and Bingham, 1991;
Bartlett, 2004). Consequently, it is important to examine the characteristic features of
the individual sub-groups and use this information to develop strategies addressed to
the various segments. With this in mind, this study analyzes the differences among
customer groups from Generation Y divided by age and occupation as well as the
determinants of their satisfaction with their banking relationships. Additionally, this
empirical study investigates whether these customer groups differ significantly in
terms of customer loyalty, share of wallet, and behavioral intentions.

Theoretical background
Seeking competitive advantage through product differentiation in the banking
industry is increasingly difficult today. This is due to the fact that product and service
offerings offered by one bank are very quickly copied by competing banks (Devlin,
1995; Samli and Frohlich, 1992; Duncan and Elliott, 2002, 2004). This forces banks to
find new ways and opportunities of identifying and developing customer relationships
and enhancing loyalty (Hennig-Thurau et al., 2002). As a result, interest in the
determinants of customer loyalty, such as quality of service and customer satisfaction,
is quite high (e.g. Yavas and Shemwell, 1996; Worcester, 1997).

Customer satisfaction
Various studies have dealt with service quality and customer satisfaction in the service
sector in general and in the banking sector in particular. Many of these studies deal
with the measurement of service quality suggesting that higher levels of service
quality leads to more satisfied customers (e.g., Anderson and Sullivan, 1993; Cronin
and Taylor, 1992; Taylor and Baker, 1994; Rust and Oliver, 1994; Levesque and
McDougall, 1996). There is, however, a view that customer satisfaction is a broader
concept than evaluation of service quality and that the latter is just one component of
customer satisfaction. Nevertheless, investigations suggest the causal relationship
 IJBM between service quality and customer satisfaction, where customer satisfaction is the
27,3 higher-order construct and, consequently, has an impact on behavioral intentions
(Cronin and Taylor, 1992; De Ruyter et al., 1997; Jamal and Naser, 2002).
While it is undisputed that customer satisfaction is very important, there is no
consensus on the composition of the construct. Molina et al. (2007) posited that
customer satisfaction is a construct with both a cognitive and affective dimensions.
220 The cognitive dimension was investigated using the confirmation/disconfirmation
(C/D) paradigm. The starting point of the C/D paradigm is a comparison of the
customer’s actual experience in using a product or service with his/her expectations
before purchase (Sharma and Ojha, 2004). Liljander and Strandvik (1997) suggested
that customer satisfaction cannot be understood entirely without considering the
affective dimension. This was supported by Homburg et al. (2006) who noted that the
affect experienced during purchase and consumption of the product or service had a
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substantial influence on the assessment of customer satisfaction. Each service

encounter causes the customer to make an assessment and generates an accompanying
emotional reaction (Molina et al., 2007). Over time, the customer creates an overall
assessment of the service based on the valence associated with each service encounter
(Crosby et al., 1990). Aside from service quality and the cognitive and affective
dimensions, other authors such as Westbrook (1981) and Anselmsson (2006) concluded
that customer satisfaction had other determinants. For example, expectations,
disconfirmation, performance, desires, affect, and equity were also identified as
determinants of customer satisfaction (Churchill and Suprenant, 1982; Voss et al., 1998;
Levesque and McDougall, 1996; Oliver, 1993; Patterson et al., 1996; Spreng et al., 1996;
Szymanski and Henard, 2001). Furthermore, customer satisfaction can also be
attributed to extrinsic factors such as satisfaction with the frontline employees, the
core service, or the organization in general (Lewis and Soureli, 2006).
Against this background, it seems that there is a gap in the literature regarding
whether there are different factors that influence overall satisfaction among young
customers. Thus, the following exploratory hypothesis is investigated:
H1. The factors that influence overall satisfaction differ for the various subgroups
within the youth market.

Customer loyalty
Many studies relate customer satisfaction to purchase behavior (Bolton, 1998; Jones
and Sasser, 1995; LaBarbera and Mazursky, 1983; Loveman, 1998; Mittal and
Kamakura, 2001; Newman and Werbel, 1973; Rust and Zahorik, 1993; Sambandam and
Lord, 1994). Furthermore, the literature previously established a relationship between
customer satisfaction and behavioral intentions (Levesque and McDougall, 1996;
McDougall and Levesque, 2000; Mooradian and Olver, 1997; Oliver, 1980; Oliver and
Swan, 1989). Moreover, the positive influence of customer satisfaction on cross-buying
was supported by several researchers (Anderson and Sullivan, 1993; Cronin and
Taylor, 1992; Parasuraman et al., 1988; Verhoef et al., 2001; Zeithaml et al., 1996; Bolton
et al., 2004). East (1997) also established that customers are more likely to use a product
(or product line extensions) or service again if they were satisfied with the product or
service.
Customer loyalty, however, is a complex construct, which has been investigated in
the literature using various different approaches. As a result, there is no uniform
 definition of customer loyalty (Lewis and Soureli, 2006). Many studies assume that Generation-Y
customer loyalty has both a behavioral and an attitudinal dimension (e.g. Day, 1969). customers’
Here, the behavioral dimension embraces such aspects as repurchase behavior,
purchase frequency, and switching habits, while the attitudinal dimension covers loyalty
customer attitude, commitment, and intention to recommend. In addition to the
behavioral and attitudinal dimensions, customer loyalty also has a cognitive
component (Lee and Zeiss, 1980). Compared to loyalty in the product sector, customer 221
loyalty in the service sector is even more difficult to conceptualize because of the
characteristic features of services (Mittal and Lassar, 1998). This is mainly due to the
fact that loyalty in the service sector depends more on the development of interpersonal
relationships (Berry, 1983).
Customer bonding, however, is becoming more and more difficult for banks because
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there are reduced opportunities for personal contact due to the technology through
which the latest services, such as self-service zones and internet banking, are offered.
In addition, there are phenomena that encourage variety-seeking and switching habits
(Beckett et al., 2000). For example, bank customers are more interested than ever in
banking offers and are more receptive to products and services offered by competitors,
promotional campaigns, and incentives; often they divide their business among several
suppliers (Worcester, 1997; Yavas and Shemwell, 1996). Furthermore, bank customers
have higher expectations and behave in a more sophisticated manner (Ennew et al.,
1995).
It is clear that there are different ideas about what determines customer satisfaction
and loyalty. Based on the above discussion, it would be interesting to know whether
young people behave similarly. Thus, the following hypothesis is developed and
examined:
H2. There is a significant difference among different youth groups regarding the
influence of customer satisfaction on customer loyalty.
If there is a connection between customer satisfaction and customer loyalty, then their
influence on behavioral intention seems evident. Loyal customers tend to be more
receptive to cross-selling efforts and are relatively less price sensitive leading to higher
customer lifetime value (Jones, 2002). Furthermore, the likelihood of loyal customers
recommending their bank to others is relatively high. Studies have also shown that as
customer loyalty increases, there is less likelihood of these customers switching banks.
Thus, customer loyalty also influences customer behavior.
In the highly competitive banking sector, the share of a customer’s bank
transactions conducted through one bank, known as share of wallet, is gaining more
importance (Keiningham et al., 2003; Perkins-Munn et al., 2005). Share of wallet may be
seen as an indicator of the customer’s loyalty as demonstrated by past behavior. Past
customer loyalty (as shown by their banking behavior) may not necessarily be a good
indicator of future loyalty because of situational factors (e.g., the bank to which your
salary is deposited was chosen by your employer based on your employer’s needs
rather than the customer’s needs). Share of wallet will only likely be a predictor of
future behavior if the bank is able to bond with their customers by not only
maintaining the level of customer loyalty, but by improving it (Baumann et al., 2007a).
Studies have shown that customer bonding and share of wallet are closely linked
(Cooil et al., 2007). Thus, the crucial factor in increasing the value of a relationship with
 IJBM a customer is not just loyalty, but also its share of wallet (Jones and Sasser, 1995).
27,3 There are also discussions in the literature as to whether share of wallet, customer
bonding, and customer loyalty have an impact on profits (Perkins-Munn et al., 2005;
Hofmeyr et al., 2008) when looking at the satisfaction-profit chain. This raises the
question of whether share of wallet has superseded customer bonding as a factor
influencing profitability – particularly for young customers. In order to verify whether
222 and in what way customer loyalty and share of wallet influence a customer’s
behavioral intentions, it makes sense to relate both to this dimension. Thus, the
following hypothesis is developed:
H3. There is a significant difference among different youth groups in the influence
of customer loyalty and share of wallet on behavioral intention.
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Studies on customer satisfaction and customer loyalty in retail banking

There are several studies that have dealt with antecedents of customer satisfaction and
customer loyalty and/or the relationships between these factors. For example,
Hallowell (1996) analyzed the relationships between customer satisfaction, customer
loyalty, and profitability. He found that customer satisfaction could explain 37 percent
of the difference in customer loyalty levels. Several studies have investigated the
impact of service quality on customer satisfaction (Levesque and McDougall, 1996;
Lassar et al., 2000; Jamal and Naser, 2002). Both Jamal and Naser (2002) and Levesque
and McDougall (1996) found that core and relationship dimensions of service quality
are important drivers for customer satisfaction. Molina et al. (2007) defined the
relationship between relational benefits and satisfaction. They discovered that
customer satisfaction depends on service policy satisfaction, on accessibility, and on
frontline employee satisfaction. Bloemer et al. (1998) investigated how image, perceived
service quality, and satisfaction determine loyalty. Service quality is found to have an
impact on loyalty via customer satisfaction. This result is consistent with the findings
of Caruana (2002). Other studies also examined antecedents of customer loyalty. Beerli
et al. (2004) established that satisfaction and perceived switching are antecedents of
customer loyalty. Veloutsou et al. (2004) also examined satisfaction, perceived quality,
and image as antecedents. They found a clear indication that the drivers of bank
loyalty may vary from one bank to another. Pont and McQuilken (2005) investigated
the relationship between customer satisfaction and loyalty intentions for two distinct
customer segments – retired people and university students – and concluded that the
results indicate no significant difference in the satisfaction levels of either group.
However, there were differences with respect to loyalty and switching behavior.
Retired people are more loyal, are willing to recommend their service provider, and
wish to remain a customer of the firm. Lewis and Soureli (2006) identified a strong
relationship between satisfaction and loyalty. Additional drivers for loyalty seem to be
value and corporate image. Liu and Wu (2007) examined the effects of location
convenience, one-stop shopping convenience, firm’s reputation, firm’s expertise, and
direct mailings on both customer retention and cross-buying. They found that
customer satisfaction has a significantly larger effect on customer retention than on
cross-buying. Both Baumann et al. (2005) and Baumann et al. (2007b) analyzed the
extent to which overall satisfaction, affective attitude, and future behavioral intentions
in retail banking can be predicted. Baumann et al. (2005) discovered that better
predictions of behavior can be obtained by modeling satisfied and dissatisfied
 customers separately and by modeling different components of retail banking Generation-Y
separately. Overall satisfaction and affective attitude were found to be reliable customers’
predictors of future behavioral intentions by Baumann et al. (2007b).
loyalty
Youth market – Generation Y
A large customer segment is the youth market, which is characterized in turn by 223
sub-groups. Young people are generally considered to be particularly attractive
customers in the banking and financial services sector due to their potential (Lewis and
Bingham, 1991; Josefowicz, 2003). Furthermore, a bank’s future share of the market will
depend on its ability to cater to the youth market and retain young people as customers
(Lewis and Bingham, 1991).
If we look at the financial value of an initial customer relationship in the youth
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market, it is relatively low compared to that of adults because young people generally
have low disposable income. However, young people have relatively more
discretionary income and purchasing power. Thus, by attracting young customers,
banks can achieve more revenue on the one hand; and on the other hand, they can
profit from these loyal customers in the future by establishing a customer relationship
with the opportunity for cross-selling (Lewis and Bingham, 1991).
If one considers the age structure of today’s youth market, one can see that it
comprises the so-called Generation Y – people born between 1977 and 1995 (Bartlett,
2004; Dalton, 2003). In the literature, Generation Y is sometimes also defined as being
those born between 1982 and 2001 (Paul, 2001). Descriptions characterizing Generation
Y, which is the largest segment in the world, derive predominantly from studies
conducted in the United States (Heaney, 2007). For example, Ebenkamp and Marciniak
(2002) picture Generation Y as being shaped by Nintendo, having a civic purpose,
possessing grand ambitions, and feeling optimistic about the future. Further
characteristics of the so-called MTV generation, Echo Boomers, Boomlets, or the
Millennium Generation are: globally and environmentally conscious, open to chronic
boredom, short attention spans, disruptive behavior, and mistrust of the media.
Paradoxically, Generation Y values reality television alongside a need for privacy
(Paul, 2001).
As a consumer group, Generation Y is very astute and very well informed and also
on the lookout for bargains (Heaney, 2007). People in this age group have been
accustomed to using computers from an early age (Allerton, 2001) and therefore make
intensive use of electronic media (Murray, 2000). They use the internet, for example, as
part of the purchase decision process as well as for conducting business transactions
(Heaney, 2007). On the other hand, they are very fickle consumers who appreciate rapid
change, but are nevertheless brand-conscious and fashion-conscious (Bartlett, 2004).
However, they also have poor financial skills and lack a realistic approach in financial
planning (Der Hovanesian, 1999).
Studies have been conducted in various disciplines in order to gain a better
understanding of Generation Y. Roberts and Manolis (2000), for example, looked at
their general attitudes toward marketing, advertising, and consumerism; Ebenkamp
and Marciniak (2002) examined the mindsets of Generation Y; Harwood (2002)
investigated their environmental consciousness; Josefowicz (2003) explored their
leadership styles; and Salt (2001) studied their fashion orientation.
 IJBM Studies on youth market and retail banking
27,3 In one of the first studies in the field, Lewis and Bingham (1991) examined attitudes
and behavior of the youth market and determined elements of satisfaction and loyalty.
They established that the youth market is not homogeneous in terms of needs and
behavior. However, they discovered that banks and thrift institutions (may also be
known as building societies) met the needs of young people, and young people are
224 generally satisfied. Kara et al. (1994) explored the decision-making process regarding
credit cards. Tank and Tyler (2005) and Thwaites and Vere (1995) studied the
decision-making process in choosing a retail bank and the criteria that influenced
students’ choices. Tank and Tyler (2005) established that word-of-mouth (WOM) and
recommendations by friends and acquaintances are more important than marketing
measures. In addition, a good reputation and a bank’s image are important criteria in
choosing a bank, but location is less crucial. In contrast, in the investigation by
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Thwaites and Vere (1995), the convenience factor was an important criterion for
choosing a bank, whereas the influence of parents was less decisive. Rugimbana
(2007a, 2007b) centered on cultural differences regarding the use of banking
technologies within Generation Y in his studies. Heaney (2007) analyzed the Internet
banking behavior and perceptions of Generations X and Y. Here, Heaney (2007)
established that less than half of the respondents, mostly from Generations X and Y,
used internet banking. It was also established that different strategies than those used
for the “adult market“ are needed to appeal to young people (Lewis and Bingham,
1991). Pont and McQuilken (2005) prescribed that in order to gain as many advantages
as possible from customer relationships in different customer segments, firms must
analyze customer satisfaction and how it affects behavioral intention. Table I provides
a synopsis of the different studies on retail banking and the youth market.
Many firms treat Generation Y as a homogeneous market even though the literature
indicates they are more heterogeneous. Consequently, the aim of this investigation is to
analyze this relationship for this customer segment, which is divided into sub-groups
based on age and occupation. This study analyses how these sub-groups differ from
one another, particularly in terms of satisfaction, and the connection among
satisfaction, loyalty, share of wallet, and behavioral intention.

Research methodology
Sampling frame, instrument development, and data collection
In order to test the posited hypotheses, an empirical investigation was conducted based
on personal interviews with 242 respondents belonging to Generation Y in Austria.
Stratified random sampling was employed based on gender and age.
The demographic profile of this sample was as follows: The age of the respondents
ranged between 10 and 30, with the median age being approximately 21. This sample
is unique in the existing literature to the extent that none of the other investigations
included the 10 to 14 age group (see Table I). Ethical concerns were addressed by
securing parental permission beforehand. The entire sample was divided into three
groups. These groups were formed according to age limits at which young people in
the Austrian education system move from one school type to another, attend a
university, or start working. In retail banking, these parameters are an extremely
important indicator of a new phase in life and a resulting new situation in terms of
financial needs. Against this background, a detailed investigation of the 10 to 14, 15 to
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Author(s) and year Sample Objectives/context/focus Findings

Lewis and Bingham (1991) 469 students and young employed in Identified needs, attitudes, behavior
the UK aged 16-24 years
Kara et al. (1994) 229 undergraduate students in the
USA
Thwaites and Vere (1995) 324 students in the UK aged 18-30
Tank and Tyler (2005) 115 students in the UK aged 18-21
of the youth market and determined
elements of
satisfaction/dissatisfaction and
loyalty
Explored the decision-making
process regarding credit cards and
the relative importance of factors
influencing their choice
Identified influences on the choice of Students have already established a
supplier and aimed at identifying
discrete market segments
Explored the decision-making
process and in particular the criteria influencing students’ bank selection
that influence students’ choice of
retail bank for their account
The youth market is not
homogeneous with respect to needs
and behavior. Regarding customer
satisfaction, the majority of the
respondents felt that their bank and
building societies were meeting their
needs
The interest rate and the type of the
payment are the two most important
factors for the college students
relationship with a financial
institution before arriving at college.
Convenience of location and free
banking are important influences on
the choice of supplier, although the
guidance of parents has significantly
less impact. Students are not a
homogenous group. Different
segments among students were
identified that illustrate different
influences on the choice process
Reputation and image are criteria
decisions, locational convenience is
less important. Word of mouth and
family and friends had a greater
influence than the banks’ marketing
efforts
(continued)
customers’
loyalty

behavior
and their retail banking
studies of young people
Overview of relevant
Generation-Y

225

Table I.
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27,3

226
IJBM

Table I.
Author(s) and year Sample Objectives/context/focus Findings

Heaney (2007) 376 students in Australia aged 18-40 Analyzed internet banking behavior Less than half of the mostly
and perceptions of Generations X Generations X and Y respondents
and Y use internet banking. Internet
banking users perceive their banks
as providing higher quality services
compared to non-internet banking
users. A large majority of
non-internet banking users never
tried internet banking at all. Security
and privacy concerns were cited
Rugimbana (2007b) 292 students in Malaysia aged 15-24 Examined the likelihood of choosing Prominent cultural values, such as
e-banking technology based services those that stress integrity of the
and assessed the relative importance referent group, self-reliance, and
of culture and perceptions as social identity, are important
predictors of product preference influencers in the likelihood of
choice for segmentation purposes adopting selected electronic banking
channels
Rugimbana (2007b) 235 students in Australia aged 18-21 Analyzed to what extent individual Findings demonstrate a significant
perceptions of the importance of correlation between certain
banking technology attributes are individualistic cultural values and
more powerful as predictors of the preference for or likelihood of
preference behavior than individual choosing specific e-banking product
level cultural values categories;, e.g. certain collectivistic
cultural values and an aversion
toward using e-banking services
 20, and 21 to 30 age groups was conducted. The age distribution of the samples for the Generation-Y
three age categories analyzed in this study shows that 18.18 percent of the respondents customers’
are in the 10 to 14 group. Some 23.97 percent of the respondents belong to the 15 to 20
age group, and 57.85 percent are in 21 to 30 age group. Fifty-nine percent of the loyalty
respondents were male and 41 percent were female. As far as occupation is concerned,
the majority of the respondents, 42 percent, were college students, 28 percent were
attending school, and 30 percent were employed. 227
The design of the questionnaire was based primarily on multiple-item measurement
scales. In order to measure customer satisfaction, items relating to general overall
satisfaction were surveyed. To establish the importance of individual determinants
that are associated with overall satisfaction, several items were combined to form
factors. Customer loyalty was measured on the basis of items concerning their
attachment to the bank, their regret if a particular bank or branch no longer existed,
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and their willingness to recommend. In addition, the share of wallet was measured as a
percentage of services used at the main bank and at other financial service providers,
respectively. Behavioral intentions were measured using intention to recommend, to
repurchase, and to switch. All items mentioned were measured on five-point Likert
scales, ranging from “very satisfied to “not satisfied”, “totally agree” to “do not agree at
all”, or “most likely” to “not at all likely”. Furthermore, the survey obtained variables to
analyze the respondents’ usage of financial services. Finally, demographic data, such
as age, gender, and occupation, were gathered about the respondents.

Survey findings
The results showed that the 10 to 14 age group was the most satisfied with their bank.
There was a clear tendency that indicated the older the respondents, the less satisfied
they were; although the level of satisfaction was still relatively high. In comparison,
customer loyalty yielded higher values than customer satisfaction and was, thus, less
developed. In addition, customer loyalty dropped as the respondents got older – at a
faster rate than the decline in customer satisfaction. Behavioral intention (i.e. intention
to recommend and to purchase other products or not to switch banks) changed in the
course of time, but not as dramatically as customer loyalty (see Table II).

Opening an account
The section of the survey dealing with opening an account contained questions about
age at the time of initial contact and the reasons for initial contact. Sixty-one percent of
respondents replied that they had opened their first account between the ages of 14 and
18, a further 18 percent were between 10 and 13, 12 percent were under 10, and 9
percent were between 19 and 24. The results show that the respondents opened an
account at a relatively early age. Thus, banks should start to approach young
customers at a fairly early stage in life in order to be able to win their business and then
hopefully build a long-term relationship.
The majority of respondents – 47 percent – stated that their parents had been
decisive factor in determining initial contact with the bank. Other reasons given were
Weltspartag (International Savings Day) (28 percent), school campaigns (14 percent),
influence of friends (5 percent), own initiative (4 percent), and bank initiative (2
percent). Clearly, the influence of parents in a young person’s initial contact with a
bank was quite strong. Thus, it would make sense to target parents.
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27,3

228
IJBM

Table II.

sub-groups
the total sample and the
Central characteristics of
Age 15-20 Age 21-30
High-school
Total sample Age 10-14 Employed students College students Employed
Mean SD Mean SD Mean SD Mean SD Mean SD Mean SD

Satisfaction factor 1 1.81 0.729 1.49 0.620 1.63 0.715 1.82 0.702 1.97 0.753 1.89 0.730
Satisfaction factor 2 2.25 0.689 2.06 0.688 2.28 0.693 2.24 0.712 2.36 0.680 2.25 0.680
Satisfaction factor 3 2.49 0.829 2.23 0.962 2.60 0.915 2.44 0.567 2.54 0.809 2.59 0.884
Satisfaction factor 4 1.93 0.669 1.77 0.708 1.99 0.744 1.97 0.685 1.92 0.613 2.03 0.696
Overall satisfaction 1.84 0.646 1.42 0.555 1.82 0.688 1.78 0.643 2.04 0.617 1.94 0.586
Loyalty 2.62 0.998 2.18 0.924 2.52 0.953 2.37 0.874 2.91 1.019 2.72 1.011
Intention 2.16 0.796 1.91 0.676 2.17 0.937 1.99 0.707 2.30 0.772 2.28 0.901
Share of wallet 0.24 0.162 0.20 0.172 0.31 0.155 0.21 0.104 0.25 0.163 0.25 0.179
 Financial services used Generation-Y
The most common replies to the question about which banking products and services customers’
were already used by the respondents were savings account (29 percent), checking
(current) account (17 percent), automatic teller machine (cash) cards (13 percent), and loyalty
thrift institution (building society) account (10 percent).

Switching behavior and split banking 229

Sixty-seven percent of respondents stated that they had never switched banks. On the
other hand, the results show that the probability of switching banks increases with
age. The most common reasons stated for switching banks were dissatisfaction with
friendliness, competence, or effort by staff (28 percent); terms granted (22 percent);
advice provided (13 percent); and change in place of residence (15 percent). In addition,
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some 40 percent of the respondents said they were customers of more than one bank.
Of this 40 percent, three-quarters were customers of two banks.

Group comparison
Since this analysis focused on the difference among various groups within the youth
market, respondents were classified according to age and occupation. However, no
distinctions were made for the 10 to 14 age group because all its members are still of
school age.
In order to do a comparison, the sample was split first into two age groups – young
people between 15 and 20 and young people between 21 and 30. These two groups were
then surveyed in terms of occupation. In the 15 to 20 age group, the differences between
high school students and employed people were examined, and in the 21 to 30 age
group the differences between college students and employed people were assessed.
In order to analyze the importance of factors that are associated with overall
satisfaction, a multiple regression analysis was used to determine the extent to which a
connection exists between factors for satisfaction and overall customer satisfaction.
In the factor analysis – using the principal component method for extraction and
Varimax rotation with Kaiser normalization – four factors were determined that
together account for 63.24 percent of the overall variance. The KMO measure of
sampling adequacy was 0.894 and the x2 of Bartlett’s test of sphericity was highly
significant (sign: ¼ 0:000), with a value of 2161.43. These results indicated that the
data were suitable for factor analysis. Table III identifies the factors and their specific
components derived through factor analysis.
Thus, the first factor – “satisfaction regarding employees” – includes satisfaction
of respondents with friendliness, appearance/manner, effort, reliability, and
competence of employees. The second factor – entitled “satisfaction regarding
service” – comprises items about terms of service, opening hours, processing of
transactions, account management, product range, and orientation of offering toward
customers’ requirements. Factor 3 contains items on satisfaction regarding additional
services, such as membership in a club. Finally, the fourth factor – satisfaction
regarding other aspects of services – contains items on location, self-service zone,
internet platform, and design of the bank. In order to test the coherence of individual
items, a reliability analysis was also conducted. This resulted in a Cronbach’s alpha of
0.75 and more for the first three factors. Only Factor 4 showed a Cronbach’s alpha of
0.648. This factor covers all items that yielded controversial results in the preceding
 IJBM
Factor 1 Factor 2 Factor 3 Factor 4
27,3 Satisfaction Satisfaction Satisfaction Satisfaction
Item – satisfaction regarding regarding regarding regarding other
with . . . employees services additional services aspects of services

Friendliness 0.895
230 Appearance/manner 0.853
Effort 0.798
Reliability 0.773
Personal advice 0.742
Competence 0.732
Atmosphere 0.642
Fairness 0.524
Terms 0.760
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Opening hours 0.663

Processing of
transactions 0.636
Account management 0.606
Product range 0.509
Orientation offering
toward customers’
requirements 0.457
Club offer 0.835
Additional services 0.759
Transparency 0.581
Convenience of
location 0.761
Self-service zone 0.709
Internet platform 0.534
Interior design 0.324
Table III. Variance explained 40.90 10.28 6.94 5.12
Results from the factor Cumulative variance
analysis of satisfaction explained 40.90 51.18 58.12 63.24
items Cronbach’s alpha 0.920 0.783 0.750 0.648

studies. The convenience aspect – which includes location, internet, but also
self-service zones – seemed to affect the choice of bank by young people in some
studies (Thwaites and Vere, 1995), while other studies found no connection (Tank and
Tyler, 2005). This factor was therefore included in further analyses. New variables
were derived from these factors by calculating the mean value from the items assigned
to the factor. These new variables are used as independent variables for regression
analysis to analyze their effects on overall satisfaction.
Figure 1 shows the connection that serves as the basis for further analyses. In Model
1, for example, the relationship between satisfaction and overall satisfaction factors
was determined by using multiple regression. Model 2 describes the relationship
between customer satisfaction and customer loyalty. The third model uses multiple
regression to analyze the effect of customer loyalty and share of wallet on the
behavioral intention of the respondents.
An analysis of the entire sample shows that all three models are fundamentally
significant. Model 1 shows that satisfaction with employees has by far the strongest
relationship with overall satisfaction, followed by satisfaction with services. The other
 Generation-Y
customers’
loyalty

231
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Figure 1.
Proposed framework of
the study

two factors have no significant association. In Model 2, overall satisfaction is shown to

have a relatively strong, significant relationship with loyalty. Finally, it is shown in
Model 3 that loyalty has a very strong and significant association with behavioral
intention, but share of wallet has a significant – but distinctly weaker – relationship
(see Table IV).
In the following, the models presented above are analyzed in detail for the
sub-groups previously identified.

Age group 10 to 14
In the 10 to 14 age group there is no comparable analysis because the entire group
consists of young people of school age only so all respondents are schoolchildren.

Dependent variable
Model 1 Model 2 Model 3
Independent variable Overall satisfaction Loyalty Intention

Satisfaction factor 1 0.616 *

Overall satisfaction 0.514 *
Loyalty 0.694 *
Share of wallet 0.136 *
Satisfaction factor 2 0.249 *
Satisfaction factor 3 0.013 n.s.
Satisfaction factor 4 0.077 n.s. Table IV.
R 2 (adjusted) 0.521 0.261 0.522 Results for Model 1, 2,
Sig. 0.000 0.000 and 3 (regression
analysis) – overall
Notes: * p # 0.01; n.s. not significant sample
 IJBM Thus, from the viewpoint of retail banking, this is a homogenous group because there
27,3 is little variation in the financial services required by its members.
An analysis of the influencing factors on overall satisfaction in Model 1 shows that
satisfaction with bank staff is the only aspect that has a significant relationship, and
this relationship is very strong. Model 2 is not significant and thus cannot be
interpreted further. On the other hand, Model 3 appears to be significant. A review of
232 the determinant factors on behavioral intention shows that loyalty is the only aspect
that has a significant association. The impact is quite significant (see Table V).

Differences in the 15 to 20 age group

Analysis of the determinants of overall satisfaction for the two sub-groups in the 15 to
20 age group shows that satisfaction with bank staff is very important for both
sub-groups. For the employed group, this was the primary factor; for high-school
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students it was the second most important factor. Satisfaction with service had a
significant impact on overall satisfaction for both sub-groups; for high-school students
this was the most important factor. The two other factors of satisfaction – additional
services and satisfaction with regard to other services – did not seem to have an
impact on customer satisfaction. In looking at the effect of overall satisfaction on
customer loyalty, this model was again significant for both sub-groups. This meant
that that the more satisfied the customers were, the greater their intention to be loyal.
Furthermore, customer loyalty had a significant association with behavioral intention
for both sub-groups. Share of wallet had a significant relationship with behavioral
intention of the employed sub-group. This association could not be identified for the
high school students group (see Table VI).

Differences in the 21 to 30 age group

The analysis of the first model for the sub-groups aged 21 to 30 – consisting of college
students and working people – showed that satisfaction with bank staff had a highly
significant effect on the overall satisfaction for both sub-groups. Unlike the group
containing those employed, satisfaction with service also plays a significant role for the
college student group. The other factors have no significant association with
satisfaction. Analysis of the second model demonstrates that overall satisfaction is
associated with customer loyalty in both sub-groups. In contrast, share of wallet only

Dependent variable
Model 1 Model 2 Model 3
Independent variable Overall satisfaction Loyalty Intention

Satisfaction factor 1 0.703 *

Overall satisfaction 0.232 n.s.
Loyalty 0.666 *
Share of wallet 2 0.193 n.s.
Satisfaction factor 2 0.043 n.s.
Satisfaction factor 3 2 0.143 n.s.
Table V. Satisfaction factor 4 0.240 n.s.
Results for model 1, 2, R 2 (adjusted) 0.523 0.031 0.484
and 3 (regression Sig. 0.000 0.134 0.000
analysis)
– age group 10 to 14 Notes: * p # 0.01; n.s.not significant
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Dependent variable
Model 1 Model 2 Model 3
Overall satisfaction Loyalty Intention
Independent variable Employed High-school students Employed High-school students Employed High-school students

Satisfaction factor 1 0.515 * * * 0.306 * * *

Overall satisfaction 0.651 * * * 0.627 * * *
Loyalty 0.790 * * 0.669 * * *
Share of wallet 0.267 * 0.136 n.s.
Satisfaction factor 2 0.399 * * 0.374 * *
Satisfaction factor 3 2 0.023 n.s. 20.068 n.s.
Satisfaction factor 4 0.095 n.s. 0.013 n.s.
R 2 (adjusted) 0.656 0.639 0.397 0.375 0.612 0.420
Sig. 0.000 0.000 0.001 0.000 0.000 0.000
Notes: * p # 0.10; * * p # 0.05; * * * p # 0.01; n.s. not significant
customers’
loyalty

analysis)
and 3 (regression

– age group 15-20

Generation-Y

Results for Model 1, 2,

233

Table VI.
 IJBM had a relationship with behavioral intention in the model for college students and had
27,3 no relationship with behavioral intention for those employed (see Table VII).
In almost all of the models the bank staff factor was the main element influencing
customer satisfaction. This factor dropped to secondary importance for the 15 to 20 age
group but only among high-school students. Furthermore, in this age group, loyalty
had a greater association with behavioral intention in the model for those working than
234 in the sub-group of high-school students. In the 21 to 30 age group, however, the
association with satisfaction with bank staff is much more significant for college
students than for those in employment. Here it was also evident that customer loyalty
has a greater effect on behavior for those working than is the case for college students.
Remarkably, the satisfaction regarding services has a significant relationship to
customer satisfaction in all sub-groups, except for those employed in the 21 to 30 age
group. For this group, such aspects as terms, opening hours, processing of
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transactions, account management, or range of products appear to play a subordinate

role. As already mentioned, the association of customer satisfaction with customer
loyalty is highly significant for all sub-groups examined. The only differences found
here related to the intensity of the relationship. This was found to be greater in both
models for people employed than in the models for high school and college students.
Consequently, the first and second hypotheses are supported.
A comparison of the overall models shows that the adjusted R 2 for all sub-groups
lies between almost 64 percent and 71 percent for Model 1. Thus, the four factors
explained a very large portion of the variance in all models. The models dealing with
the relationship between customer satisfaction and customer loyalty show lower
adjusted R 2 values. These extend from 21 percent to almost 40 percent. Hallowell
(1996) found that customer satisfaction could explain 37 percent of the variance in
customer loyalty levels regarding bank customers. So satisfaction appears to be a
useful predictor of loyalty in retail banking. The model that explains the determinant
factors on behavioral intention shows higher values in both models for those employed
than for high school and college students. As such, the third hypothesis is supported.

Conclusion and managerial implications

Satisfaction and loyalty are critical issues for any service industry (Pont and
McQuilken, 2005). This study examined satisfaction, loyalty, share of wallet, and the
behavioral intentions of young customers of retail banks. One of the special features of
the present study is that bank customers in the 10 to 14 age group were also included in
the sample. This age group is of particular interest to banks, even though it is likely to
be unprofitable or marginally profitable at the onset, because of the potential to
develop them early on into loyal customers that can eventually translate into
substantial profits down the road. The results indicate that there are differences among
the different subgroups in the determinants of customer satisfaction. Moreover, this
study found that while satisfaction has a relationship with loyalty for all groups, the
intensity of the loyalty varied by group. The outcome of testing the linkage between
customer loyalty and behavioral intentions by group varied with some groups
displaying a significant relationship and others, not at all.
In terms of the managerial implications of this study, the study found that young
bank customers in general felt more satisfied when they received personal attention.
This result runs counter to the prevailing idea that young people prefer alternative (i.e.
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Dependent variable
Model 1 Model 2 Model 3
Overall satisfaction Loyalty Intention
Independent variable College students Employed College students Employed College students Employed

Satisfaction factor 1 0.618 * * 0.552 * *

Overall satisfation 0.468 * * 0.526 * *
Loyalty 0.634 * * 0.776 * *
Share of wallet 0.156 * 0.007 n.s.
Satisfaction factor 2 0.293 * * 0.177 n.s.
Satisfaction factor 3 0.004 n.s. 0.151 n.s.
Satisfaction factor 4 0.060 n.s. 0.140 n.s.
R 2 (adjusted) 0.692 0.710 0.210 0.261 0.465 0.579
Sig. 0.000 0.000 0.000 0.000 0.000 0.000
Notes: * p # 0.10; * * p # 0.01; n.s. not significant
customers’
loyalty

(regression analysis)
– age group 21 to 30
Model 1, 2, and 3
Results for
Generation-Y

Table VII.
235
 IJBM electronic) ways of banking over traditional modes. This represents an opportunity for
27,3 banks to inform these young clients of their different products and services as they
move from one life cycle stage to the next.
Whereas the locational convenience factor was found in several studies to be an
antecedent of customer satisfaction (Thwaites and Vere, 1995), this relationship was
not supported by the current study. A possible explanation for this is that ATM
236 networks that allow one to withdraw anywhere even though it is not one’s bank, has
negated locational convenience as a determinant of customer satisfaction.
In three of the four models analyzed, satisfaction with products and services had a
significant relationship with customer satisfaction. This study also found that if
customer satisfaction is high, young bank customers are more likely to be loyal to their
bank; furthermore, they are more likely to recommend their bank and to make use of
further bank products and services (cross-buying). They are also less likely to switch
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banks. An examination of the share of wallet, which is considered to be an indicator of

customer loyalty, yielded different results when related to behavioral intentions.
Whereas customer loyalty had a highly significant association with behavioral
intentions in all models, share of wallet only had an impact on behavioral intentions in
two models. One plausible reason for this result is that the younger groups had less
service needs and resources than those in the older groups. Consequently, their share of
wallet is relatively smaller.

Limitations and suggestions for further research

This study deals with the retail banking industry and Generation Y. Consequently, it is
not possible to make generalizations beyond the scope of the present study. In addition,
the scope for generalization is somewhat limited because the study was conducted in
Austria, and the results may deviate in markets with different structures of the
banking industry and financial markets.
With regard to the choice of variables and their measurement, the authors wish to
point out that there may be other variables that influence customer satisfaction,
customer loyalty, and behavioral intentions. In this study, behavioral intention was not
broken down. It would be interesting to analyze actual behavior by loyal bank
customers in future investigations.
In the present study, multiple regression analysis was used in each case in several
models. While using a structural equation modeling (SEM) approach would have been
more desirable, this was not possible in the present study because of the small sample
size (especially in the three sub-groups).

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Corresponding author
Thomas Foscht can be contacted at: thomas.foscht@ uni-graz.at

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