Journal of Retailing and Consumer Services 15 (2008) 179–193
The effects of brand credibility on customer loyalty
, Joffre Swait
School of Economics and Commerce, University of Western Australia, Crawley, WA 6009, Australia
Advanis Inc. & Faculty of Business, University of Alberta, 103 Lennox Rd., Landrum, SC 29356, USA
Customer churn is an ever-growing issue in the relational services sector (e.g., retail banking, telecommunications), where business
models ultimately depend upon long-term relationships with customers as the basis for proﬁtability. Businesses in this sector have tended
to view satisfaction and service quality as the key tools for increasing customer retention. The present study investigates the important
additional role of the brand in managing the churn of current customers of relational services. Based on information economics,
we propose speciﬁcally that the credibility of the brand underlies the role that the brand can play in this process. This research leads to
the enhanced understanding that the brand has a signiﬁcant role to play in managing long-term customer relationships, and details
how the usual tools of customer relationship management, satisfaction and service quality, relate to brand credibility. Results from
samples of retail bank and long distance telephone company customers indicate that brand credibility serves in a defensive role: it
signiﬁcantly enhances word-of-mouth and reduces switching behaviors among customers; these relationships are mediated by customer
satisfaction and commitment. Implications of the study for theory and practice are discussed.
r 2007 Elsevier Ltd. All rights reserved.
Keywords: Customer relationship management; Brand credibility; Satisfaction; Commitment; Customer loyalty; Customer behavior
The management of customer churn, or turnover, is a
top priority of executives in service industries such as retail
banking and telecommunications. It is accepted wisdom in
marketing that new customer acquisition is a far more
costly undertaking than establishing a broader and deeper
relationship with existing customers (see, e.g., Heskett
et al., 1994; Reicheld and Sasser, 1990; Rust et al., 1995).
Hence, in general the loss of a customer should be viewed
with concern by banks and telecommunications ﬁrms, both
being examples of longer-term relational services requiring
the establishment of a formal relationship between
customer and ﬁrm.
Evidence for the rising recognition of the importance of
customer churn to ﬁrm proﬁtability is easily found in these
industries. For example, recent research by Teradata (2004)
demonstrates that US bankers are quite aware of this
problem: 79% of survey respondents (out of a total of 101
bank executives from ﬁnancial institutions with assets of
$25 billion or more) indicated that ‘‘preventing customer
churn is the key competitive issue for American bankers in
2004.’’ Similarly, the telecommunications industry, and
wireless carriers in particular, have had to concentrate
signiﬁcant efforts on customer retention: Carroll (2002)
quotes a Yankee Group report stating that from about
20–80% of annualized wireless subscribers churned in
2001, depending upon the carrier; more recent numbers for
the US telecommunications industry show that only about
a quarter of customers want to continue their current
telecom relationship (Myron, 2004). Indeed, the difﬁculty
in predicting customer churn is well known (Carroll, 2002;
Teradata, 2004; Dropping, 2005).
Examination of the academic literature also supports the
signiﬁcance of examining churn or retention in these
industries (e.g., Bell et al., 2005; Evans, 2002; Gustafsson
et al., 2005; Lee and Cunningham, 2001). While extant
studies recognize a degree of inertia in the telecommunica-
tions and retail ﬁnance sectors, due to switching costs
(e.g., Bell et al., 2005), there is also signiﬁcant interest in
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Corresponding author. Tel.: +61 8 6488 1438; fax: +61 8 6488 1055.
E-mail addresses: email@example.com (J. Sweeney),
Joffre_Swait@Advanis.ca (J. Swait).