Corporate Social Responsibility and Customer Loyalty: Exploring the Role of Satisfaction and Corporate Image in the Banking Industry

This study aims to determine the impact of corporate social responsibility on customer loyalty and satisfaction with the mediating effect of customer satisfaction and the moderating effect of corporate image in Pakistan’s banking sector. The study collected 302 responses from the target population. We used a self-administered questionnaire for collecting the data of banking customers in Pakistan by employing the convenience sampling technique. The study has used the PLS-SEM technique for statistical analysis. The results reveal that corporate social responsibility positively influences customer satisfaction. The results also suggest that CSR positively affects customer satisfaction. At the same time, CSR has an insignificant association with customer loyalty. We also found that CS stimulates customer loyalty, and corporate image promotes CL. The results suggest that customer satisfaction mediates CSR and CL. We also found that corporate image does not moderate customer loyalty. Given the importance of CSR, we suggest that banks should allocate considerable resources for CSR activities. CSR is necessary for firms’ growth and sustainability. It also, directly and indirectly, affects the brand image, loyalty, and customer satisfaction. Due to Corresponding Author: Munawar Javed Ahmed; Email: munawar.javed@iqra.edu.pk Munawar Javed Ahmad1 Iqra University, Karachi, Pakistan Arif Jawaid Lahore Garrison University, Lahore, Pakistan Muhammad Zulqalnain Arshad Lahore Garrison University, Lahore, Pakistan Sumaira Habib Paracha Iqra University, Karachi, Pakistan 67 Market Forces College of Management Sciences Volume 16, Issue 1, June 2021 https://doi.org/10.51153/mf.v16i1.480


Introduction
Firms' concern for corporate social responsibility (CSR) has increased significantly in the era of social awareness. Thus, consumers expect that firms spend their resources on CSR activities (Shah & Khan 2019). Many past studies suggest that CSR positively affects consumers' attitudes and behavior (Sen & Bhattacharya, 2001). Kotler & Lee (2005) argue that investing in CSR activities helps companies achieve a sustainable competitive edge. The tangible resources of service-sector and manufacturing firms are similar, which has made it difficult for them to create differentiation. Thus, firms are forced to incorporate intangible features in their marketing strategies, such as focusing on brand image and CSR (Shah & Khan 2019). CSR activities help firms develop sustainable relationships with customers and a competitive edge (Rajaobelina, Brun, Tep & Arcand, 2018;Arrive, Feng, Yan & Chege, 2019).
Many past studies have documented that CSR activities stimulate customer satisfaction and help build sustainable relationships with customers, especially in the service sector (Rajaobelina et al., 2018;Gustafsson, Johnson & Roos, 2005). CSR, directly and indirectly, affects customers' loyalty. Both satisfaction and loyalty are important constituents of relationship marketing. For example, Iglesias, Markovic, Bagherzadeh & Singh (2020) claim that CSR affects consumer satisfaction. While Pérez & del-Bosque (2015) report that CSR promotes loyalty and purchase intentions. Marketers use CSR to position their products for sustainable growth. Gustafsson, Johnson & Roos (2005) and Abbas, Gao & Shah (2018) suggest that firms that can connect themselves with customers would have a sustainable competitive advantage. Although there are abundant studies on the association between customer satisfaction, loyalty, CSR, and corporate image in the manufacturing sector, a few studies on these aspects are available in the service sector.

Hypothesis Development CSR and Customer Satisfaction
Customer satisfaction is an essential constituent of corporate strategy and a firms' value proposition. A firm's profitability and sustainability depend on customer satisfaction (Phillips, Thai & Halim, 2019). Successful firms tend to create "generalized customers. " Generalized customers, besides purchasing goods and services of a firm, also participate in various stakeholder activities (Irshad, Rahim, Khan & Khan, 2017). Customers' concern for environmental decay has increased significantly in recent years; therefore, they are more satisfied with firms involved in CSR activities (Latif, Pérez & Sahibzada, 2020). High-performance firms realizing CSR's importance spend considerable resources on it (Ashraf, Ilyas, Imtiaz & Tahir, 2017). Mohammed & Rashid (2018) argue that CSR activities enhance brand identity and image resulting in customer satisfaction. Chang & Yeh (2017) argue that besides the conventional drivers of satisfaction, responsible social activity has become an important driver of customer satisfaction. For example, when consumers see that a firm gives employment to disabled people, they develop a positive attitude towards it and support the firm by purchasing its goods and services (Abbas, Gao & Shah, 2018;Ishaq, 2012). Many past studies have examined CSR's impact on financial performance, and only a few of them have examined its impact on factors such as customer satisfaction and loyalty (Goyal & Chanda, 2017). Thus, examining CSR's effect on satisfaction may also contribute towards the body of knowledge (Xie, Jia, Meng & Li, 2017;Zhang, Cao, Zhang, Liu & Li, 2020).

CSR and Customer Loyalty
Customer loyalty is their desire to develop a sustainable relationship with a firm (Townend, Hay, Jung & Smith, 2021). Mesquita, Luiz, Herrero & Fernando (2020) refers to loyalty as "a deep commitment to the product/services thereby encouraging the purchase of the same brand again and again, despite situational influences and marketing efforts having the potential to cause switching behavior. " A firm's growth and survival significantly depend on customer loyalty (Irshad, Rahim, Khan & Khan, 2017).
Many studies have documented that CSR and brand loyalty are positively correlated. For example, Adebayo & Ogunshola (2017) found that CSR stimulates customer loyalty and retention. Choi, Chang, Jessica-Li & Jang (2016) imply that CSR activities motivate consumers to develop a sustainable relationship with the organization. Therefore, they suggest that the firm should allocate adequate resources for CSR activities. Many past studies found that customers appreciate a firm that spends resources on marketing environment-friendly products and contributes to society's betterment (Al-Ghamdi & Badawi, 2019). Consequently, customers develop sustainable relationships with such firms and encourage their peers to purchase from them (Dabor, 2019). CSR has many attributes, and all of them, directly and indirectly, affect customer loyalty.

CSR, Customer Satisfaction and Customer Loyalty
Customer satisfaction and loyalty are positively associated. Customer satisfaction depends on the variation between their expectations of a product and its actual value (Chung, Yu, Choi & Shin, 2015). If the actual value is more than the customers' expectations, they would be satisfied and develop a sustainable relationship with the brand (Kim, Song, Lee & Lee, 2017). Adebayo & Ogunshola (2017) also found that satisfied customers have a strong willingness to repurchase products and services. They also recommend others to purchase the products (Afsar, Rehman & Shahjehan, 2010). Customer satisfaction helps build a sustainable relationship between a firm and its customers and enhances a firm's profitability and market share. Many previous studies have documented that CSR and brand loyalty are positively correlated. For example, Adebayo & Ogunshola (2017) found that CSR stimulates customer loyalty and retention. Al-Ghamdi & Badawi (2019) suggest that CSR activities motivate consumers to develop a sustainable relationship with the organization. Therefore, they suggest that the firm should allocate adequate resources for CSR activities. Many past studies found that customers appreciate a firm that spends resources on marketing environment-friendly products and contributes to society's betterment.
H4: Customer satisfaction mediates CSR and customer loyalty.

CSR, Corporate Image and Customer Loyalty
Many past studies have documented that corporate image and reputation are significantly associated with customer buying behavior (Ball, Coelho & Vilares, 2006;Nguyen & Leblanc, 2001). Consumers' perception about an organization remains in their memory which triggers a response when consumers buy a product (Kotler & Lee, 2008). Similarly, Gupta, Raj & Wilemon (1985) suggest that corporate image has two diverse effects on customer buying behavior. It directly affects customers' loyalty. Further, it may enhance or reduce the association between CSR and customer loyalty. The attitude theory postulates that corporate image influences customers in their evaluation process (Herr, Farquhar & Fazio, 1990). Many studies have extended the signaling theory to understand the association between corporate image and customer loyalty and document that they are positively associated (Chen & Dubinsky, 2003). Lee, Hsiao, Chen & Guo (2020) argue that corporate image, directly and indirectly, affects customer loyalty.
H5: Corporate image positively stimulates customer loyalty.
H6: Corporate image moderates CSR and customer loyalty.

Conceptual Framework
Based on the above theoretical discussion, we have formulated a conceptual framework with four variables and six relationships, including one mediating and one moderating. The model is presented in Figure 1.

Methodology
This study adopts a quantitative approach with a cross-sectional data collection technique. The population of the study comprises the customers of conventional banks operating in Pakistan. We collected data from 302 respondents using the convenience sampling technique as the sampling frame of bank customers was not available. The study has used a self-administered questionnaire adapted from earlier studies for collecting the data.
The second part is related to the main study. It has four constructs and 15 indicator variables based on the five-point Likert Scale, i.e., one indicates highly disagree, and five indicates highly agree. We adapted the CSR scale with four items from Carroll & Shabana (2010). The brand loyalty scale with four items is adopted from Ishaq (2012). The customer satisfaction scale with four items is adopted from Kaur & Soch (2012). Further, the brand image scale was adopted from Lassar, Mittal & Sharma (1995).

Analysis and Results
We used IBM-SPSS to check the accuracy of the data and any missing values. Subsequently, we plotted the data to identify the outliers. We found eight outliers which were adjusted by dropping the relevant observations. Further, we also performed reliability and validity analyses. The Smart PLS software was used for estimation and testing the derived hypotheses.

Demographic Profile of Respondents
We have collected the data from bank customers of Pakistan. Their profile is illustrated in Table 1.

Measurement Model
The measurement model effectively examines the data and identifies its reliability and validity. The measurement model generates results related to validity and reliability, discussed in the following section.

Reliability Analysis
The results related to reliability (via Cronbach's alpha) and composite reliability analyses are presented in Table 2. The results suggest that Cronbach's alpha values of all the indicator variables are greater than 0.70, suggesting that the constructs have acceptable internal consistency (Hair, Ringle & Sarstedt, 2011). The constructs' composite reliability is at least 0.70, and the AVE values are at least 0.60. These values suggest that the constructs meet the convergent validity requirements (Hair, Ringle & Sarstedt, 2011).

Discriminant Validity
We have assessed the discriminant validity based on the Cross-Loadings, Fornell & Larcker (1981)  following sections describe this analysis. Table 3 shows the cross-loadings of the latent constructs. The results suggest that all the cross-loading values are within the prescribed range (Lucas, Diener & Suh, 1996), implying that the constructs are distinct and unique.

Fornell & Larcker Approach
The results related to the discriminant validity analysis using the Fornell & Larcker (1981) approach are illustrated in Table 4. The results show that the square root of AVE values is lesser than correlation values suggesting that the constructs are unique and distinct.

Heterotrait-Monotrait Ratio (HTMT)
Table 5 contains the HTMT ratios. The results show that all the HTMT values are less than 0.90, meeting the discriminant validity requirement proposed by Henseler, Hubona & Ray (2016).

Predictive Power
The study has used the Smart-PLS version 3.2.9 for generating the R-squared values. The results presented in Table 6 suggest that customer loyalty has substantial predictive power while customer satisfaction has weak predictive power (Hair, Hollingsworth, Randolph & Chong, 2017).

PLS-SEM Results
The study has empirically tested six hypotheses using the bootstrapping technique with 500 subsamples. Of all the hypotheses, our results support four hypotheses and do not support two hypotheses. Table 7 shows the summary of results.

Market Forces
College of Management Sciences Volume 16, Issue 1

Discussion and Conclusion
The study examines CSR's effect on customer satisfaction and loyalty and the mediating effect of customer satisfaction, and the moderating effect of corporate image in Pakistan's banking sector. The PLS-SEM technique was used for analysis. We used a self-administered questionnaire for collecting the data. The target population of this study comprises banking sector customers.
The results support all the hypotheses except (i) the association between corporate social responsibility and customer loyalty (H2) and (ii) the moderating role of corporate image on customer social responsibility and customer loyalty (H6). The results suggest that CSR positively affects customer satisfaction. Further, CSR has an insignificant association with customer loyalty. We also found that CS stimulates customer loyalty, and corporate image promotes CL. The results also suggest that customer satisfaction mediates CSR and CL. On the contrary, we found that corporate image does not moderate customer loyalty.

Managerial Implications
The findings of the study have implications for banks. For example, we find that CSR positively impacts customer satisfaction and loyalty. Therefore, banks and financial institutions should spend considerable resources on CSR. Additionally, CSR activities allow banks and financial institutions to develop a sustainable relationship with customers, which leads to increased market share and improved organizational performance. CSR activities also give an edge to a firm which is necessary for sustainable growth. Banks and financial institutions have little room for product variation. Thus, banks rely on brand image, corporate image, and CSR for creating differentiation.

Limitations and Future Research
The study finds that customer satisfaction and loyalty are essential for a bank's growth and sustainability. However, the study has several limitations. For instance, the sample size was relatively small when compared to the target population. Therefore, future research should include a larger sample. Similarly, future research can also adopt a longitudinal research design. A qualitative or mixed approach may also help in understanding the importance of CSR. The study's focus was on the banking sector. Other studies may extend our conceptual framework in other sectors. The cultural values of private and public sector banks are different. Therefore, we suggest a comparative study of private and public sector banks.