The impact of service innovation on customer satisfaction and customer loyalty: a case in Vietnamese retail banks

Abstract Customer loyalty continues to be a crucial factor for retail banks in maintaining market share, increasing revenue and profits, and reducing costs in the highly competitive business landscape of today. They consistently strive for innovation to maintain a competitive edge, introducing novel experiences and heightened satisfaction to customers, thereby enhancing customer loyalty. This study aims to examine the effect of service innovation on customer satisfaction and loyalty in the Vietnamese banking sector. The research investigates banking service innovation from three angles: novel service concept, novel service procedure, and novel technological distribution system. To confirm the relationship between concepts and complete the survey questionnaire, qualitative research techniques are employed. Simultaneously, a quantitative research technique (structural equation modeling—SEM) is used to assess the relationship between concepts. The study surveyed 398 clients of Vietnamese retail banks. All dimensions of service innovation, including novel service concept, novel service procedure, and novel technological distribution system, have positive effects on customer satisfaction and loyalty. Customer satisfaction also has a substantial effect on customer loyalty. Finally, it then draws some conclusions and makes some recommendations to retail banks to improve both customer satisfaction and customer loyalty via enhancing service innovation.