psychological contract and customers’ brand...

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PSYCHOLOGICAL CONTRACT AND CUSTOMERS’ BRAND LOYALTY: THE

INFLUENCE OF BRAND COMMITMENT IN TANZANIAN BANKING INDUSTRY

Amani David Department of Business Administration and Management

College of Business Studies and Law University of Dodoma

Email: [email protected]

ABSTRACT As an attempt to examine brand in the context of the social contract, this study examines the influence of psychological contract on customers’ brand loyalty when mediated with brand commitment. The study was conducted in the banking industry in Tanzania by involving 361 respondents largely from CRDB Bank PLC and NMB Bank PLC. Structural Equation Modelling was used to analyze data that were collected using semi-structured questionnaires. The findings of both direct (β= 0.201, p< 0.05) and indirect effects (β= 0.059, p< 0.05) indicate that psychological contract influences Customers’ Brand Loyalty when mediated with brand commitment. Therefore, in order to build loyalty which is a very important asset of any business firm, a brand should be built while incorporating features that can depict the brand as a social tie that connects the banks and their customers.

Keywords: Psychological Contract, Brand Loyalty, Customers’ Brand Loyalty, Brand Commitment Paper type: Research paper Type of Review: Peer Review

1. BACKGROUND INFORMATION

In recent times, there has been great emphasis on examining the concept of branding in the lens of the social

contract (McMurrian & Washburn, 2008; Tarnovskaya, 2015). In the context of the social contract, a brand should

be perceived as a contractual agreement or covenant which is guided by specific social conditions. However,

despite the emphasis, there is a dearth of empirical studies that examine a brand and branding in the milieu of the

social contract (Melewar & Nguyen, 2014; Tarnovskaya, 2015). As a matter of fact, there are a plethora of studies in

the banking industry that examine the concept of branding as a relationship-building agent and their contribution

towards customer loyalty (see Guo, et al., 2015; Bi, 2019; Unes et al., 2019). For instance, Unes et al., (2019) pointed

out that, trust as an element of relationship building is very crucial in building loyalty to the customers of

commercial banks. Regardless of this view, it has been documented in the literature that, the relationship which is

built under social contract goes beyond conventional relationship building which dominates the majority of

empirical studies in branding (Guo, et al., 2015).

From a broader perspective, a brand in the milieu of the social contract implies a contractual relationship which

cannot be legally enforceable rather socially enforceable (Guo et al., 2015). In this view, when customers feel any

sign of breach of the contract can motivate them to register their concerns to “social court” to claim their rights in

the form of public complaints (Bell and Luddington, 2006). In fact, public complaints may further take the form of

decreasing commitment, and eventually disloyalty (Liao, 2007). A brand as a bilateral social contract is expected to

stimulate positive responses behaviour in the form of patronage, brand referral, fidelity, etc. (Bi, 2019). In this

regard, viewing the brand as a social contract implies that, the brand is emotional or psychological phenomena

which can be theorized appropriately in the lens of reciprocal relationships which is built under mutual trust

between the organisation and its customers (Hatch & Schultz, 2010; Cornelissen et al., 2012).

East African Journal of Social and Applied Sciences (EAJ-SAS) Vol.1, No.2 Publication Date: December 30, 2019

ISSN: 0856-9681

The current issue and full text archive of this journal is available at: http//www.mocu.ac.tz

Cite this article as: David, A. (2019). Psychological Contract and Customers’ Brand Loyalty: The Influence of Brand Commitment in Tanzanian Banking Industry, East African Journal of Social and Applied Sciences, 1(2), 161-173.

mailto:[email protected]

David, A. (2019). Psychological Contract and Customers’ Brand Loyalty: The Influence of Brand Commitment in Tanzanian Banking Industry.

East African Journal of Social and Applied Sciences [EAJ-SAS] Vol. 1, Issue 2, 2019 162

In addition, in the context of marketing a brand is a social contract that is expected to establish an atmosphere that

ensures a dynamic equilibrium between the organisation’s promises and consumers’ expectations (Melewar et al.,

2014). Theoretically, a dynamic equilibrium between organisation’s promises and consumer’s expectations makes

the reciprocal relationship to become apparent in the form of informal or unwritten contracts, as well as the formal

or written contract (Balmer & Greyser, 2003). In the view of Theotokis et al., (2012) feelings of a reciprocal

relationship between parties i.e. organisations and customers are likely to elicit reciprocations in terms of

behavioural responses such as positive Word of Mouth (WOM), intention to stay, and Loyalty. Therefore,

negative behavioural responses such as the intention to switch, disloyalty are an outcome of psychological contract

violations (Lin et al., 2015).

Therefore, when the brand is viewed from the lens of a social contract echoes a social agreement that is well

defined by the organisation's promises and consumers' expectations (McMurrian & Washburn, 2008). In this view,

organisation pledge specific brand promises, representing an offer expecting either acceptance or rejection from

consumers (Otubanjo et al., 2010; Vallaster et al., 2012; Tarnovskaya, 2015). Based on this view, when a consumer

develops expectations notably positive expectations are a way to accept an offer hoping that all promises

presented as an offer will be fulfilled (Tarnovskaya, 2015). In the context of branding, customers’ positive

responses toward organizations promises can be interpreted as customers’ acceptance to the brand promises

which can prompt loyalty towards the organization (Unes et al., 2019)

Empirical evidence indicates that responses that consumers take towards organisations’ promises create an

atmosphere for an exchange process to take place between the organisation and consumers (Bhattacharya et al.,

2009). Of course, the paramount condition for an exchange process to take place is an agreement (formal and

informal) between two parties i.e. consumers and the organisation (Balmer & Greyser, 2003). In marketing, the

agreement is evolving around the key dimensions of branding i.e. commitment, trust, loyalty, etc. which are the

bond agents of the mutual relationship between organization and consumers. However, unlike other forms of

legal contract usually social contracts in the milieu of branding are unwritten or informal built on trust, goodwill,

good faith, etc. Therefore, the fact the contract is built on good faith and trust once it has not been upheld no legal

actions can be taken, and therefore consumers are always taking alternative actions including negative Word of

Mouth (WOM), disparaging the brands, switching to competitors brands, disloyalty, etc. (Lin et al., 2015; Amani,

2018).

It is agreed however that, despite scholars’ emphasis on examining a brand as a social contract, there is a lack of

theoretical as well as empirical explanations about a brand in the context of the social contract (Melewar &

Nguyen, 2014; Tarnovskaya, 2015). Although, the psychological contract has recently been recommended to be

relevant in providing theoretical and empirical explanations of the brand as a social contract yet; there is a dearth

of empirical and theoretical evidence of the psychological contract in the context of marketing (Guo et al., 2015;

Hannah et al., 2016).

This study, therefore, is an attempt to integrate the concept of psychological contract (transactional and relational

psychological contract) with the concept of branding. The point of departure in this study is that it examines a

brand beyond conventional relationship to contractual kind of relationship which is viewed as a social contract

constituting social elements that have been deduced from a legal perspective. The main purpose of integrating the

concept of the psychological contract with a brand is to create a wide and deep theoretical base for conceptualizing

the brand as a social contract. Theoretically, the psychological contract has rooted in social exchange theory one of

the most popular theory in explaining why and how two parties could exchange resources to achieve mutual

benefits (Guo et al., 2015).

2. LITERATURE REVIEW 2.1 Psychological Contract

For the past 50 years, the concept of psychological contract has been the area of interest to scholars in sociology,

psychology, employee-employer relationship, labour relation, etc. (Thomas et al., 2014). In an employee-employer

relationship, for example, the psychological contract has been very useful in conceptualizing the exchange

relationship that exists between an organisation and its employees (Thomas et al., 2014; Amani, 2018). In this line



of thinking, the exchange relationship is perceived as an agreement consisting of dimensions such as promises and

expectations of both parties in a given contract (Wang and Hsieh, 2014; Shahbaz et al., 2017). In fact, the two

dimensions of psychological contract i.e. promises and expectations suggest that the exchange relationship

involves the idea of “give and take” between the parties (Rousseau, 2001). Scholars in an employee-employer

relationship believe that employees demonstrate psychological behaviour such as an intention to stay, intention to

recommend, organisational commitment, etc. when they feel that there are likelihoods of receiving something

equivalent to such behaviours from their employers (Newell & Dopson, 1996; Amani, 2018).

From the marketing perspective, the psychological contract has been very useful in explaining the nature,

antecedent, and consequences of service provider-customer relationships (Su, 2014). It is said that the theoretical

context of psychological contract provides a framework which conceptualizes how service provider-customer

relationship can be established and sustained (Amani, 2018). In the context of marketing, the psychological

contract is a perceptual agreement between an organisation and a consumer that is very essential in predicting

responses or behaviour of consumers towards an organisation. It is said that when customers feel that the contract

is upheld they can reciprocate positively through expressing behaviours such as commitment, trust, loyalty,

positive recommendation, etc. (Theotokis et al., 2012). In order for customers to predict favourite behaviour

towards an organisation, the contract should fulfill promises that usually take the form of materialistic or tangible

and intangible benefits (Zhao et al., 2007). In this study, these materialistic and intangible benefits have been

conceptualized into four categories namely economic exchange, social exchange, mutual/other interest, and self-

interest.

In the same line of argument, Guo et al., (2015) have an opinion that the notion that psychological contract should

fulfil promises in the form of materialistic and intangible benefits imply that, the psychological contract is

categorized into transactional and relational psychological contracts. On one hand, the transactional psychological

contract contains well-defined terms and conditions to be fulfilled by parties in the contract. Usually, this form of

contract can be legally enforceable, as it involves written or official agreements accompanied by extrinsic rewards

notably materialistic benefits such as money (Bal et al., 2013). However, most of the time relationships that have

been established on this form of contract are short term or interim. On the other hand, a relational psychological

contract is a form of contract that is defined by mutual trust, generousity, good faith, etc. between parties in the

relationship (Rousseau, 1995). In other words, each party fulfils the conditions and obligations of the contract in

good faith, trust, and aboveboard dealings. It takes the form of unwritten or implicit agreements, and hence not

legally enforceable. Unlike a transactional psychological contract, this form of contract offers intrinsic rewards in

the form of social-emotional benefits or intangible benefits (Rousseau, 2004).

2.2 Customers’ Brand Loyalty

It is widely accepted that brand loyalty offers substantial value to both customers and the organisation. Under

normal circumstances, customers tend to be willing to devote their loyalty to a brand and an organisation that is

consistent in delivering superior value that surpasses competitors' value (Reichheld, et al., 1996). On the other side,

an organisation considers brand loyalty as an asset that generates considerable returns on investment. Being loyal

to an organisation and its services or products, customers reduce time lost in searching, locating as well as

evaluating various purchase options or alternatives. In addition, customers can elude unnecessary learning

process that may demand a lot of time and effort to become accustomed to a new service provider or a brand. It

has been well documented that, a customer who is loyal to a brand exhibit readiness and willingness to forgive

some customer-service misfortunes, exhibit reducing sensitivity to price or willingness to pay premium price, and

promulgate positive recommendation or word-of-mouth regarding the organisation and its products or services to

others (Anderson & Mittal, 2000).

Although many issues have already been documented with respect to brand loyalty, experience shows that

scholars and practitioners still facing difficulties in defining and measuring brand loyalty. In this view, scholars

have suggested attitudinal and behavioural measures in defining and assessing this construct (Zeithaml, 2000). In

the attitudinal perspective, brand loyalty is defined by some scholars like a specific desire developed by a

consumer to continue a relationship with a given service provider. On the other side, the behavioural perspective

of brand loyalty proposes an idea that loyalty is something that has to do with repeat patronage. In this vein,



repeat patronage means, the proportion in the form of times that a given customer makes the decision to choose

the same product or service in a certain category compared to the sum of all the number of purchases the customer

made in the category (Neal, 1999). In view of Chaudhuri and Holbrook (2001) customers, brand loyalty can be

conceptualized as repeat purchase possibility, exclusive buying or purchase and share of category requirements.

However, the most critical challenge lies in the idea that intention may not always lead to action, and at the same

time, repeating buying behaviour does not reflect intentions (Yang & Peterson, 2004).

Thus, Oliver (1999), proposed four major ascending brand loyalty stages that take the form of the Cognition–

Affect–Conation pattern. Cognitive loyalty, that is the first stage, proposes that customers develop loyalty towards

a brand based on information that they have regarding that brand. In addition, affective loyalty, which represents

the second stage, suggests that affective loyalty implies customers’ state of mind that takes the form of liking or

positive attitudes towards a given brand. On the other side, conative loyalty or behavioural intention is stage three

that covers a psychological state defined by a profoundly held commitment to purchase. It is sometimes called

“good intention”. However, sometimes this desire may not be able to trigger complete action. Based on this,

action loyalty, that is the last stage, point out that, loyalty becomes feasible when individual customers convert

their intentions into real actions. In fact, at this stage customers are usually experiencing the so-called action

inertia, accompanied by a specific desire to manage challenges in making a purchase. Empirical evidence shows

that despite the ideal of action loyalty, scholars agree that, it is indeed very difficult to observe and eventually to

measure. In this regard, the majority of scholars choose conative or behavioural intention measures. This study

adopts behavioural measures, to examine the influence of psychological contract dimensions on customers’ brand

loyalty when mediated with brand commitment.

2.3 Brand Commitment

It is widely accepted that brand commitment is associated with customers’ behaviour of being ready, willing, and

proud to work for the brand to ensure it continues to be powerful. A customer who is committed to a brand is

expected to express ownership by sharing information and knowledge about the brand with others. According to

Albert and Merunka (2013), brand commitment is a psychological state that expresses the favorable attitude of

consumers concerning the organisation and their willingness to engage in the relationship with an organisation's

brands. Hence, brand commitment can take the form of economic, emotional, or psychological dimension/feeling

that trigger consumers’ interest towards the organisation or commercial name. In all these forms, when a

consumer develops high commitment, develops strong feelings relating to strong self-connection and

identification with the brand (Walsh et al., 2010). In this regard, the concept of commitment should be viewed as a

multidimensional concept although several studies or scholars have been examining the concept as one-

dimensional.

In fact, as a multidimensional concept commitment can be viewed in the context of economic, emotional, or

psychological dimensions. Technically, these three contexts gave birth to two major groups of commitment i.e.

continuance commitment and affective commitment. Continuance commitment is well described on the basis of

cost means that a person stays in a relationship because there are not any other comparable options or the cost of

exchange with other options is too high (Albert and Meronka, 2013). Therefore, the continuance commitment in

exchange relationships is built on the side bets, switching costs and scarcity of alternatives (Ziaullah et al., 2015).

On the other side, affective commitment is a kind of emotional affection to a commercial name or an organisation

on the basis of identification of the brand or an organisation. Therefore, affective commitment is based on the

affective or emotional attachment to the organisation such that the strongly committed individual identifies with,

is involved in, and enjoys membership in the organisation.

2.4 Theoretical Base

Social Exchange Theory by Blau (1968) is proposed in this study to explain the relationship between variables in

the study. In general, social exchange theory is very popular in predicting behaviour in the form of reciprocating

responses. The theory of social exchange suggests that, in order for an exchange relationship to exist, each party in

the relationship should feel the atmosphere that supports mutual benefits. This theory views the social exchange

relationship as a contract or an agreement between parties in the relationship. Thus, each party can respond

positively towards the behaviour of the other party in the contract to ensure the relationship flourish. In other



words, any sign of breach or violation of the contract done by one party may lead to negative reciprocation to

another party.

According to Blau (1968), the theory is more powerfully in establishing distinctions between economic exchange

and social exchange relationships. In fact, these two forms of exchange relationship can be viewed in the lens of

transactional psychological and relational psychological contracts. In this line of thinking, economic exchange

relationships are usually interim, quid pro quo, and are clearly defined by interactive connections or attachments

that are very weak. On the other side, social exchange relationships are usually longer-term, more open-ended,

and are accompanied by very strong interpersonal attachments.

3. METHODS AND MATERIAL 3.1 Area of Study

The study was conducted at Dodoma Region the Capital City of Tanzania. This region has been selected due to the

fact that it is among the fastest-growing cities in the country, and evidence indicates that the city is expected to

grow faster following the relocation of central Government from Dar-es-Salaam to Dodoma (Leah et al., 2017). In

addition, the study involved customers among giants commercial banks in Tanzania, namely CRDB Bank and

NMB Bank. According to Mrema (2013), these are among commercial banks which perform better in different

aspects including the value of assets, profitability, and loan portfolio. Therefore, the selection of the study area was

done by considering the possibility of data accessibility and learning opportunity.

3.2 Population, Sample Size and Sampling Technique

The targeted study population was all customers of commercial banks in the study area. The sample size was

established or derived by looking at previous studies in the banking industry. It is thought to be the best approach

because; statistics show the population (customers) of the banking industry notably customers of CRBD and NMB

banks cannot be easily obtained. In this case, the majority of studies in the banking industry have a sample size of

respondents ranging from 50-200 (see Mtui, 2011; Mduma, 2014; William, 2016). This study, therefore, has a

sample of 361 respondents. Technically, this sample is adequate given the requirements of using multivariate

analysis techniques such as Structual Equation Mdeling (SEM) which requires sample size above 150 ( Kline, 2011)

and previous studies in the banking industry which had sample size ranging from 50-200.

In establishing sample size, the study used a simple random sampling technique, which offers an equal

opportunity or the chance for members of the population to be included in the study sample size. This technique

was relevant for this study because the sample was derived randomly as customers of selected banks quite bank

halls. Previous studies that were done in the banking industry propose that the best way for deriving sample size

when doing studies in the banking industry is either to access participants when they are receiving services inside

bank halls or outside bank halls soon after they have received services (Mtui, 2011). In this study, therefore, the

sample size was derived through access customers outside bank halls soon after they have received services. 3.3 Data Collection Procedures

In the process of collecting data, a semi-structured questionnaire was administered to customers of selected banks.

The questionnaire took a very short time, and therefore respondents were just asked to participate in the study

soon after they have walked outside the banks' hall. The objective and purpose of the study were explained to

respondents before they fill the questionnaire, and hence they were free either to participate or not to participate.

3.4 Data Analysis

The analysis of data was done by using Structural Equation Modelling (SEM). This is a multivariate data analysis

technique that is more powerful in analyzing the complex structural relationship between latent variables (Hair et

al., 2006). It is a statistical technique for investigating the existing relationships between latent (unobserved)

constructs that can be measured by using multiple manifest (observed) indicators (Byrne, 2010; Kline, 2011). This

study hypothesized three factors model i.e. psychological contract and Customers’ Brand Loyalty while mediated

by brand commitment. These are unobserved constructs which all are measured by using multiple observed

indicators.



3.5 Measurement of Variables

The study used multiple measurement scales in operationalising all the study constructs. In addition, all

measurement scales were adopted from previous studies in psychological contract, brand commitment, and brand

loyalty and minor adjustments were done to ensure the scales fit the specific setting and context of the study. In

view of this, psychological contract dimensions i.e. economic exchange, social exchange, mutual/other-interest,

and self-interest were operationalised by using measurement scales adopted from Guo et al., (2015). In addition, a

brand commitment was measured by using measurement scales adopted from Burmann et al., (2009). Lastly,

customers’ brand loyalty was operationalised by using measurement scales proposed by Delgado-Ballester et al.,

(2003). The study constructs were measured by using multi-item 5-point Likert scales with responses varying from

1 for strongly agree to 5 for strongly disagree.

4. FINDINGS AND DISCUSSION 4.1 The goodness of Fit of the Models

The following goodness of fit indexes were used in assessing goodness of fit for measurement model and

structural model: Goodness of Fit Index (GFI), Adjusted Goodness of Fit Index (AGFI), Normed Fit Index (NFI),

Incremental Fit Index (IFI), Tucker-Lewis Coefficient (TLI), Comparative Fit Index (CFI), 2/df and Root Mean

Square Error of Approximation (RMSEA) (see Hooper et al., 2008).

4.2 Confirmatory Factor Analysis (CFA)

Statistically, when the study intends to examine variables that have multiple measurement scales derived from

theories, Confirmatory Factor Analysis is compulsory (see Holtzman and Vezzu, 2011). Other scholars suggest that

CFA is a necessary process before a researcher runs structural modeling process. Therefore, CFA validates if the

multiple measurement scales are the good measure of unobserved variables of the study (Hair et al., 2006). In this

view, it can be concluded that CFA assesses and confirms the validity and reliability of the underlying structure of

the study constructs (Joreskog and Sorbom, 2006; Jun et al., 2017). The results of CFA show that the hypothesized

model fits well the data and therefore the model was accepted (see Hu and Bentler, 1999). This statistical

conclusion is derived from the value of the model goodness of fit index which shows that the value for the index

was within the recommended range as it can be validated as in table 1.

Table 1: Measurement model Goodness of fit Index values

Model Goodness of Fit Index Accepted Value Actual Value

GFI Close to 1 0.961

AGFI Close to 1 0.936

NFI Close to 1 0.928

IFI Close to 1 0.965

TLI Close to 1 0.951

CFI Close to 1 0.964

2/df < 3 1.876

RMSEA < 1 0.049

Source: Data Analysis, 2019

On one hand, the reliability of the instruments used was tested against factor loadings, Cronbach’s Alpha

coefficient (α), and composite reliability. The findings show that all items factor loadings were within the cut of

point > 0.6 (see Tabachnick and Fibell, 2007). The value for Cronbach’s Alpha coefficient (α) for Economic

Exchange (ECE), Social Exchange (SOE), Mutual/Other-Interest (MOI) and Self-Interest (SI) were 0.813, 0707, 0.752,

and 0.636 respectively. The values are within the recommended threshold > 0.7 (Nunnally, 1978; Reynalldo and

Santos, 1999), except for Self-interest which is slightly below the threshold. In view of these values, Hair et al.,

(2007); Tabachnick and Fidell (2007) recommended that the value for Cronbach’s Alpha coefficient (α) slightly

below the acceptable value can be accepted for further analysis. On the other hand, the value for composite

reliability (CR) for Economic Exchange (ECE), Social Exchange (SOE), Mutual/Other-Interest (MOI) and Self-

Interest (SI) were 0.824, 0.710, 0.759, and 0.648 respectively. The recommended value for Composite Reliability is >

0.6 (see Bagozzi and Yi, 1988; Reynaldo and Santos, 1999; Tavakol and Dennick, 2011). Therefore, the internal



reliability of the instruments used is good, meaning that the measurement items were the good measures of the

variables.

Additionally, convergent validity was assessed by using the value of Average Variance Extracted (AVE), and

convergent validity is achieved if the value of AVE is > 0.5 (see Anderson and Gerbing, 1988). The value for AVE

for Economic Exchange (ECE), Social Exchange (SOE), Mutual/Other-Interest (MOI) and Self-Interest (SI) were 0.6,

0.5, 0.5, and 0.4 respectively. However, the value for AVE of self-interest was slightly below 0.5 but Fornell and

Larcker, (1981) put forth that the value of AVE just below 0.5 can be accepted. On the same argument, Floyd and

Widaman (1995) stated categorically that the value of AVE should be > 0.4 in order to claim convergent validity.

For that reason, the values of AVE for all variables were satisfactory and hence confirming convergent validity in

the data. On the other hand, discriminant validity was assessed by comparing the values of AVE and the square of

intercorrelations. Statistically, a researcher can claim that discriminant validity was achieved if the value of AVE is

greater than the square of the intercorrelations (see Fornell and Larcker, 1981). Thus, in this study discriminant

validity was achieved because the value of AVE is above the squared correlations between the variable and other

variables. 4.3 Structural Model

For the evaluation and validation of the proposed structural model, path analysis was conducted. The structural

model goodness of fit is satisfactory because the values of the model goodness of fit index are within the

acceptable threshold (Hu and Bentler, 1999). This means the results validate the proposed structural model, and

hence the model was accepted. Table 2 shows the model goodness of fit index, their acceptable value, and actual

value.

Table 2: Structural Model Goodness of Fit Index

Model Goodness of Fit Index Accepted Value Actual Value

GFI Close to 1 0.901

AGFI Close to 1 0.870

NFI Close to 1 0.866

IFI Close to 1 0.907

TLI Close to 1 0.890

CFI Close to 1 0.906

2/df < 3 2.949

RMSEA < 1 0.074


4.3 Regression Analysis

The relationship between dimensions of psychological contract and customer brand Loyalty was established

through conducting regression analysis. The findings as depicted in Table 3 indicate that psychological contracts

influence customer brand loyalty when mediated with brand commitment. However, the findings as presented in

table 3 show that Self-interest as the dimension of psychological contract is not found to have the influence of

brand commitment as a mediating variable.

Table 3: Regression Analysis Output

Regressed Variables Estimate S.E C.R P

ECE→BC 0.447 0.065 6.924 ***

SOE→BC 0.637 0.088 7.257 ***

MOI→BC 0.238 0.062 3.823 ***

SE→BC 0.136 0.086 1.576 0.115

BC→CBL 0.953 0.081 11.835 ***


4.4 Testing the Strength of Mediating Variable

SOBEL test was conducted to test the power of brand commitment as a mediating variable. The conditions for

testing and interpreting simple mediation as suggested by Baron and Kenny (1986) were used to interpret the

results. Based on conditions for testing and interpreting simple mediation by Baron and Kenny (1986) and SOBEL



Test output, brand commitment partially mediate the relationship between psychological contract and Customers’

Brand Loyalty. This conclusion is due to the fact that, when brand commitment is introduced in the relationship,

the significant level between psychological contract and customer brand loyalty decreases slightly but not to zero.

Table 4 represents the SOBEL test output.

Table 4: SOBEL Test Output

Variables Coeff s.e. t Sig (two)

PSC→CBL .2012 .0183 10.9879 .0000

PSC→BCI .2181 .0148 14.7514 .0000

BCI→CBL .6497 .0557 11.6623 .0000

PSC→BCI→CBL .0595 .0198 3.0062 .0028

Source: Data Analysis, 2019 5. DISCUSSION OF FINDINGS

As previously noted, all dimensions of the psychological contract except self-interest were found to influence

brand commitment as a mediating variable. This means all dimensions of the psychological contract except self-

interest are the determinant of brand commitment. Specifically, economic exchange influence brand commitment

(β= 0.447, p< 0.05). This means, there is a positive increase of almost 44.7% for brand commitment when there is an

increase of at least one percent of economic exchange between customers and the bank. In addition, Social

exchange has a positive influence on brand commitment (β= 0.637, p< 0.05). These findings imply that there is a

positive increase of almost 63.7% for brand commitment when there is a social exchange between the bank and

customers. Furthermore, there is a significant positive influence between mutual/other interest and brand

commitment (β= 0.238, p< 0.05). Thus, there is an increase of 23.8% of brand commitment when mutual/other

interest between customers and the bank increase by at least one percent. On top of that, self-interest does not

influence brand commitment (β=0.136, > 0.05) and hence is not the determinant of customer brand loyalty. This

indicates that, though self-interest is not the determinant of brand commitment, there is a positive increase in the

brand commitment by almost 13.6% when self-interest increases by at least one percent. On top of that, there is a

positive significant influence between brand commitment and customer brand loyalty (β=0.953, p< 0.05).

Therefore, customer brand Loyalty increase by almost 95.3% when customers increase their level of commitment

towards the brand by at least one percent.

The findings of the study shed light on branding as a social contract between customers and banks. It has been

revealed that psychological contract influences significantly customer brand loyalty when mediated with brand

commitment behaviour. In fact, these findings are in line with the theoretical understanding that, to a large extent

a brand is psychological phenomena covered by emotional aspects. In relation to the findings of the study, a brand

is a social tie that creates equilibrium between the service firm's business promises and customers’ expectations.

Therefore, a brand that can be defined by specific promises and expectations is a social tie that brings together

customers and services firms i.e. bank. In this view, promises should be viewed as the way services firms want to

be perceived by their potential customers (brand identity), and expectations are how customers define or interpret

promises (brand image). In other words, promises are very important elements in building service firms' identity,

and expectations are the most useful element in building the image of the service firms. In the context of branding,

brand identity and brand image have the reciprocal relationship of which brand identity assists customers to

establish a specific and unique brand image, and at the time brand image is more helpful in strengthening brand

identity. The findings of this study imply that promises as elements of a social contract carry specific elements that

can be well conceptualized as the identity of the service firms, and therefore identity is a technical way to present

those promises. On the other side, brand image is an outcome of customers’ interpretation of the promises in the

form of specific expectations. Thus, customers use brand identity in the lens of their expectations to establish a

specific brand image.

In addition, in the context, social contract banks have specific, explicit and implicit obligations to fulfill i.e.

delivering value to customers, and customers are expected to respond through building commitment towards the

brand. It has been revealed from the study that, Customers’ Brand Loyalty is the result of the social contract which

creates a very strong social tie between customers and banks. It is this social tie between customers and banks in



the form of a psychological contract that prompted customers’ commitment to the brand. Therefore, brand

commitment is a byproduct of customers’ responses due to the fulfillment of their expectations by the banks in a

given social contract. On top of that, brand commitment is indeed customers’ reciprocation to specific benefits

obtained from the bank, which gives them reasons to stay in the contract. In the context of this study, the social

contract has been conceptualized in the context of psychological contract which provides the best framework for

exploring relationships in the setting of social exchange. It is commonly agreed that social contract creates an

auspicious atmosphere for mutual exchange process to take place, which is the basis for mutual benefits to occur to

both parties i.e. banks and customers. Under normal circumstances, social exchange demonstrates a close and

strong relationship that exists between customers and banks. In this line of argument, the more the solid social

exchange between customers and banks, the more the strong commitment to the brand. For instance, the findings

show that customers of the banks are ready to pay more for the services offered by their respective banks due to

the relationship which is more of a social contract rather than other forms of relationships.

Therefore, commitment towards the brand is behaviour expressed by customers who are ready to give reflecting

special benefits they receive from the banks in the social contract. This means social contract highlight specific

roles and responsibilities to be played by banks and customers so as to establish and sustain social exchange or

relationship. Thus, customers’ responses in the form of brand commitment are one way for customers to fulfill

their implicit roles or responsibilities due to specific expectations fulfilled to them by the banks. In this regard,

brand commitment as customers’ responses due to specific hopes fulfilled by the banks should be examined in the

cycle of give and take. The cycle of give and take implies that, each part i.e. banks and customers should have

something of value to exchange with each other, so as to sustain the relationship. In this cycle, banks should give

special benefits to customers, and customers should respond by building a strong commitment to the brand, and

finally behavioural loyalty. Although the social contract is viewed in the context of psychological benefits, yet

financial benefits can also be accumulated but in the same line of psychological viewpoint. That means, in the

context of the social contract, financial benefits are always viewed and interpreted by customers as something

which touches the psychological parts of customers. Unlike other forms of relationship, the social contract

establishes a relationship that is of benefit to service providers in terms of building unpaid selling persons in the

form of brand evangelistic, etc.

These findings are consistent with Guo (2015) who reveals that the relationship between service providers and

consumers should be viewed in the context of the psychological contract. It further implies that it is very vital for

service business firms to point out different customer groups who have diverse psychological contracts for the

purpose of differentiating relationship marketing strategies. In other words, each psychological contract held by

specific customer groups requires different relationship marketing strategies. In addition, Amani (2018) revealed

that the psychological contract is the determinant of customer behavioural intention among students of higher

learning institutions. He further indicates that, in order to build loyalty towards the university brand, universities

should invest in initiating and sustaining psychological contract between them and students. On top of that, the

findings conform to Boxer and Rekettye (2011), who revealed that emotional intelligence which is very crucial in

defining the social relationship between individuals has influence in determining loyalty which can be portrayed

in the form of Word of Mouth, purchase intention, prince insensitivity, and complaining.

On top of that, the findings of Yu and Ai-zhong (2008) look similar to the findings of the current study as they

discovered that, the presence of customers' trust and the psychological contract is the most important determinant

in building life cycle of brand relationship. In the view of this study, the life cycle brand relationship implies a

long-term relationship that addresses the specific needs of both parties i.e. customers and organisations. Therefore,

in order to build a competitive advantage, a business firm should build trust and psychological contracts with its

customers to maximize customers’ satisfaction, shareholders' value, and firm profits. Furthermore, the findings by

Montgomery et al., (2018) uncovered that customers have specific psychological contracts with particular brands,

which usually dictate the distinctive terms of the relationship. They went saying, violation of the psychological

contract might trigger negative or indifferent responses. On the other hand, similar findings can be seen from Lin

and Jiawei (2014) who found that a brand’s relation management should focus on improving customers’

psychological contract, for it is what matters to the majority of customers.



6. CONCLUSION AND RECOMMENDATIONS 6.1 Conclusion

The study examined the influence of psychological contract and customer brand loyalty when mediated with

brand commitment. Based on the findings of this study, a brand should be viewed as a bond that ties together

customers and services firms i.e. commercial banks. In this view, in order to get benefits from the brand, it should

be designed while considering specific psychological aspects that affect the emotional parts of customers. Thus, in

order to build brand commitment as the basis for building Customers’ Brand Loyalty banks should invest in

touching the psychological or emotional aspects of customers. In fact, relationship building between customers

and banks should consider different dimensions of psychological contract including social exchange, social

interest, economic exchange, etc. It has been documented in the literature that, customers' commitment towards

the brand is an outcome of a very strong emotional connection between the brand and customers. This strong

emotional connection should focus on building trust by addressing specific expectations of customers. Thus, when

banks fulfill customers’ expectations it implies delivering value while taking into account their promises or

delivering value which seeks to fulfill organisations’ promises.

6.2 Recommendations

By considering the findings of the study, it is therefore, recommended that banks should make sure the brand

carries important features of being defined as a social contract. In fact, the findings suggest that, in order for a

brand to be accepted by current and prospective customers, it should be able to act as a social tie that connects

service providers and its customers. In other words, the relationship between customers and banks should be built

on the social exchange which is the basis for building other forms of exchange. In the context of consumer

psychology, usually, consumers develop loyalty with service providers if they are in the relationship which is

highly defined in the form of a communal relationship rather than of materialistic relationship. Therefore, service

providers should invest in building a brand which prompts a sense of communal relationship with customers to

influence them to build relational commitment, and eventually brand loyalty. This can be realized through

ensuring the brand communicates and fulfill promises which echo customers’ self-image and more important their

expectations.

However, evidence indicates that to build a relationship through the social exchange has been a critical challenge

to the majority of business firms. In fact, conventional marketing practices could not be able to establish a

relational exchange that builds relational commitment in order to establish brand loyalty. The reason is that

business firms were concentrating on building technical skills (intellectual intelligence/competencies) to their

employees while disregarding or put very little attention on emotional skills (emotional intelligence/competencies)

(See Joseph and Wawire, 2015). In fact, emotional intelligence which is a person's competency in managing his/her

emotions and the relationship with others is admired as a very crucial element in building the social relationship

between customers and organisations in today’s business management practices (see Mayer et al., 2008). In view of

this, many fail to get sustainable outcomes simply because technical skills (intellectual intelligence) have relatively

little contribution to building a strong brand as the brand is to great extent emotional phenomena. Therefore,

service business firms should strive to develop emotional intelligence/competencies to their employees to

empower necessary emotional skills in translating different brand features or elements (both tangible and

intangible) into emotional aspects. It is emotional aspects that act as a social tie that connects between service

providers and customers. Theoretically, the emotional aspects of a brand are bonding agents that tight up the

relationship between service providers and customers.

6.3 Limitations and Future Research Direction

This study was conducted in the banking industry in Tanzania while involving mainly customers of two giant

commercial banks namely CRDB Bank PLC and NMB Bank PLC. Further studies can be conducted by involving

customers of other commercial banks that perform better in accordance with the Bank of Tanzania (BOT)

performance index. Furthermore, by adopting a quantitative approach, a representational picture of the subject

under the study is missing. Therefore, the future study can adopt a qualitative approach for exploring the

naturalistic picture of the topic under the study from different settings and contexts. In addition, comparative

studies can be done by comparing the difference between relational and transactional contracts in influencing

brand commitment and customer brand loyalty in the banking industry. This is necessary to explore the strength



of different forms of psychological contracts on brand commitment and brand loyalty as well as other forms of

loyalties. In addition, this study has adopted only two major forms of psychological contract i.e. relational and

transactional psychological contract. Further studies can explore more types of psychological contracts and

investigate their influence on brand commitment and brand loyalty.

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