Below is a brief overview of this Project Work.
Format: MS WORD
| Chapters: 1-5
| Pages: 75
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The start of the 19th century through to the 20th century saw an increase in growth in the banking industry all over the world. This was attributed to the increased need to make savings, the need for mortgages, loans and privacy of customer’s documents. Klein and Lambert (1987) concur that banks existed solely for the safekeeping of the customer’s funds. However, according to Genesys (2010), these needs were at a saturated level by the start of the 21st century after the number of banks in the market increased enormously, leading to increased competition. In the face of slowing industry growth and the new increased competition, today’s retail banks are under tremendous pressure to grow organically. The terrifying competition from both traditional brick and mortar operations and emerging internet banks has made a large number of banks to have trouble meeting performance expectations due to difficulties in differentiating their businesses, difficulties in reaching customers likely to respond positively to new sales opportunities and difficulties in making the most of their valued staff.
Banks that define and implement solutions to such problems as identified above are those that will successfully compete and thrive into the future. These are the banks that can be able to keep their main asset - customers in place. Such banks therefore need to establish good relationships with their customers so as to create a customer loyalty image that in turn will lead to their sustenance (Huber and O’Gorman, 2008). In this relation, the American Marketing Association (2004) notes that marketing is very vital. The association, in defining what marketing is, further explains marketing as an organisational function that comprises a set of processes that create, communicate and deliver value to customers and manage customer relationships in ways that are beneficial to the organisation and its stakeholders (American Marketing Association, (AMA), 2004). This view establishes marketing as a very vital factor in the success of banks. Berry (1995) opines that the intangible nature of products in the service industry - banks comprising this service industry - makes it difficult for customers to evaluate them. He adds that customer centred marketing easens this process.
Since many banking products are undifferentiated commodities, retail banks are constantly looking for ways to set themselves apart from the competition to help them win and retain customers and to improve the banks bottom line. As customers begin to view all banks as the same and make their product selections based solely on the best price, one method that retail banks can employ to differentiate themselves is to optimize their customer service (Genesys, 2010). Wright (2002), in concurrence with Genesys, notes that the best way to keep up with the high competition in the banking industry is to hold on to the existing customers as well as acquire many more customers as possible. Abratt and Russell (1999) explain that keeping clients through development of relationships with them is crucial to establishing and maintaining a competitive advantage in the market.
According to Rao (2000), most banks in the world and specifically in the developed countries concentrated most on the systems and accounting rather than on the operations and marketing. When competition increased, towards the latter half of the 20th century, these banks started realizing the importance of marketing in enhancing customer loyalty as well as attracting more new customers than competitors. This heat-up led to the extensive and wide practice of marketing - an arm that greatly took customer needs into consideration as opposed to the previous strategies. Rao (2000) further notes that marketing in banks involves being customer oriented which means that banks should strive to create new and innovative services while keeping in view the changing needs of their customers. To further specify the target of the marketing strategy, Ennew and Binks (1996) wrote that the higher relative cost of acquiring new customers had shifted the emphasis on maintaining long term customer relationships to improve profitability as part of the marketing plan.
Though relationship marketing was highly emphasized in the early 80’s, it started being used during the earlier days of business. Grönroos (1994) confirms this from a Middle East ancient proverb among merchants: “As a merchant, you’d better have a friend in every town.” Though that is the case, relationship marketing appeared in literatures in the early 80’s (Barness, 1994; Grönroos, 1994). Schneider (1980) recounted that during the period preceding the 80’s, researchers and business people had concentrated more on how to attract consumers to products and services rather than how to retain these customers.
As a confirmation of how banks were adopting the issue of relationship marketing, Kumar (2005) says that the focus of financial institutions has shifted towards empowering customers with the right financial solution comprising of the right product mix, and most importantly, at the right price. The concept of relationship based pricing, therefore, is not an opportunity, but merely an eventuality. Additional factors that have seen the high adoption of relationship marketing are identified as maturing of services marketing; increased recognition of potential benefits for the firm and the customer; and technological developments (Berry, 1995). Brown and Molla (2005) say that "Most banks are continually looking for alternative ways of relating to customers, reducing costs, (and) improving efficiencies" as these have a history of reduction in costs and increases in profitability.
Cohen, Gan, Yong and Choong (2006) while commenting on New Zealand banks’ customer retention strategies noted that banks in collaboration with the government have enhanced adjustments in bank rates, policies governing bank services and management and the bank branch locations so as to reduce, as much as possible, the barriers between customers and the bank and thus bring up the level of customer loyalty and customer attraction. In India, skepticism prevented managers from adopting marketing as a strategy for competition. It was only in the early 70’s, after the nationalization of banks, that banks realized the need for marketing their services. The State Bank of India started this pace by reorganizing itself on the basis of major market segments, a framework that saw the fulfillment of Drucker’s philosophy on the purposes and fruits of segmentation (Shrivastava, Pandey, and Vidyarthi, 2007).
Across Africa and specifically in South Africa, the need to service customers has changed drastically over the last 20 years. Berry (1995) reports that the needs of most banks have shifted from attracting new customers, as the main marketing tool, to retaining them as well. The incorporation of more customer friendly services has contributed to this great change. The only banks of the 1980's- the original branch has evolved into sophisticated electronic delivery channels such as telephone banking, Automated Teller Machines (ATMs), online banking, and more recently, cell phone banking. These innovations were implemented so as to keep customer service between the bank and customers on a stable and consistent level that would be desirable not only to the existing customers, but also to new (targeted) customer.
In Nigeria, Laura (2005) notes that customer retention has been, and is still, a thorn to most Nigerian banks. She notes that most banks in Nigeria lose up to 40% of their customers before the customers' first-year anniversary. These is a shocking result, putting in mind that a lot of investment is put to task for the banks to be able to get the customers. Laura however notes that banks attract many customers due to their lucrative offers but are unable to keep them as expected.
GTBank is one Nigerian bank that has been provided with the environment of attracting new customers as well as maintaining those already attracted as a way of responding to the high competition experienced in the industry since its inception in 2004. To be able to enhance their customer contact, the bank increased its branches from two in 2004 to seventeen in 2010 with eight of the seventeen being in Nairobi. It also reduced rates charged on bank transactions, offered diversified products and services as well as increased hours of contact with customers (BOA, 2011).With increased competition and the need to cut on costs to enhance profitability, managers realized the importance of dwelling more on the customers that are already within their system than those who are not yet theirs. This may have been brought about by the realization that dwelling more on retaining already available customers was cheaper than attracting new customers as Reichheld and Sasser’s (1990) experiments showed. Some authors like Berry considered relationship marketing the backbone of any service industry business and the core strategy that ensured that a company got the customers it required to run. He emphasized that attraction of new customers should be viewed only as an intermediate step in the marketing process. Solidifying the relationships, transforming indifferent customers into loyal ones and serving customers as clients should also be considered as marketing (Berry, 1983).
1.2 Problem Statement
In the ancient days, the marketing perspective of many service firms was basically devoted to attracting new customers rather than retaining them (Schneider, 1980), a strategy that led to the increase in the cost of acquiring new customers (Ennew and Binks, 1996). The increase in competition in most business sectors in the world coupled with the need for a change in the marketing perspective have led managers to develop strategies that enable them keep up with the growing competition. Since this competition is very stiff, managers thought of holding onto the available customers on the same level as attracting new ones. Levitt (1981) writes that customers’ behavior of establishing relationships with people rather than goods has also pushed for customer relationship marketing to meet the customer needs. This meant that an overhaul from the purely systems processes to operations processes was important and viable for the retention of customers. This is aimed at making the organization profitable even when the recruitment of new customers is very low. Originally, banks emphasized most of their time on the systems rather than the operations in bank activities as a way of keeping up with competition. This was only to last with stiffer competition due to the reduction in the penetrable market. At this point, holding onto the available market was a major item.
The need to keep hold of the already available customers led to managers in banks looking for relationship marketing, an item that kept customers to banks. Previous studies showed that relationship marketing had helped banks to hold on to their available customers and keep up with profitability (Reichheld and Sasser, 1990). However, some people like Laura (2005) insist that Nigerian banks still have problems with retention of customers even with the implementation of relationship marketing. These banks lose customers to new banks because they do not have better strategies of enhancing customer loyalty. Other scholars like Huber & O’Gorman (2008) explain that the relationship between customer retention and bank success cannot be quantified or be given a definite direction. They claim that it all depends with the practicing bank. Heskett, Sasser and Hart (1990) on the other hand advise that, to achieve customer satisfaction, a superior level of service and customer orientation is required lest the desires of adoption of relationship marketing would not be achieved.
Few banks in Nigeria have shown a little improvement in customer retention when it comes to the implementation of relationship marketing. In other areas though, relationship marketing has borne fruits, a result that is significantly different from the Nigerian scenario.
1.3 Purpose of the study
The purpose of this study was to determine the impact of relationship marketing on retention of customers among Nigerian banks.
1.4 Research questions
To accomplish the aim of this study, the research study relied on the following research questions:
1 What are the different types or approaches of relationship marketing that banks use to attract and retain customers?
2 What are the effects of relationship marketing to customer satisfaction?
3 What are the aspects of relationship marketing that enhance profitability?
1.5 Significance of the Study
The study would be very important and useful to the following groups of people:
The Banking Industry as a whole
Managers of banks would use the findings of this project to establish the relevance of relationship marketing in their organizations and thus know how to use the operations and systems of the bank to enhance the level of relationship marketing. Other staff in the bank would be able to know the stake relationship marketing provides to the bank and thus know the priority areas to keep the bank running effectively. Generally, the findings of this study will be very useful to the improvement of the banking industry which would generally use these findings to edge their competitive tools as relates to relationship marketing so that they can outshine their counterparts.
Scholars and Researchers
This study would also act as a base for reference and information to other researchers willing to develop on the topic. The research would also compel other researchers to do researches on critiquing the facts mentioned in this study’s findings.
Bank Customers (public)
Since the study revealed the importance of relationship marketing in attracting and retaining customers, it would give the general public an idea of what they would expect from banks so that they can easily identify value for their investments. It would also enable the public to identify banks that meet their needs.
CBN (Central Bank of Nigeria)
The information in this project provides a rough idea on the scale of competition in the banking industry and thus enabling the CBN to offer operation licenses to new entrants into the banking industry on a much regulated basis. The findings would also be beneficial in providing a base of creating the required regulatory policies governing competition and fair play. For instance, a policy on tariffs - the range of charges a bank should charge on loans or transaction fees would arise from its observations.
1.6 Scope of the Study
The study sought to identify the impact of relationship marketing to customer retention in the Nigerian branches of GTBank. Though the study was specific on doing the case of GTBank, it was aimed at investigating the impact of relationship marketing to customer retention on the whole banking industry in Nigeria. The scope of this study revolves around this industry.
1.7 Definition of Terms
Relationship marketing: Relationship marketing is the process of attracting, maintaining, and enhancing long-term relationships with key people in a firm or organization (DeYoung, 1988). According to Grönroos (1990:138), relationship marketing is “to establish, maintain and enhance relationships with customers and other partners, at a profit, so that the objectives of the parties are met. This is achieved by a mutual exchange and fulfillment of promises”.
Bank marketing: This is the creation and delivering of want satisfying services to the present and prospective customers at a profit to the bank by integrating all the banking activities effectively (Rao, 2002).
Strategic Pricing: Strategic pricing clarifies the relationship between market segmentation and price, and delivers the tools an organization needs to stay focused on value as it determines break-even, defines price elasticity, and analyzes tradeoffs between features and price points. Using strategic pricing tools yields a better positioning approach (Industrial Relations Center (IRC), 2011).
Service industry: This is an industry made up of companies that primarily earn revenue through providing intangible products and services. Companies in the service industry are involved in retail, transport, distribution, banking services, as well as other service-dominated businesses. The service industry is also called the service sector or tertiary sector of industry (Clarke, 2000).
1.8 Chapter Summary
This chapter started by introducing the background information about the topic of the study. From this background, the chapter then developed the problem statement for the study and then defined the purpose of doing the study. It went ahead to pose the research questions that the study aimed to answer, spelt out the beneficiaries of the findings of the study, and defined the scope within which the study would confine itself. The chapter finalized by noting the meanings of operational words used in the study. The next chapter reviews the literatures related to relationship marketing as per the research questions created in chapter one.
INTRODUCTION
1.1 Background of the Study
The start of the 19th century through to the 20th century saw an increase in growth in the banking industry all over the world. This was attributed to the increased need to make savings, the need for mortgages, loans and privacy of customer’s documents. Klein and Lambert (1987) concur that banks existed solely for the safekeeping of the customer’s funds. However, according to Genesys (2010), these needs were at a saturated level by the start of the 21st century after the number of banks in the market increased enormously, leading to increased competition. In the face of slowing industry growth and the new increased competition, today’s retail banks are under tremendous pressure to grow organically. The terrifying competition from both traditional brick and mortar operations and emerging internet banks has made a large number of banks to have trouble meeting performance expectations due to difficulties in differentiating their businesses, difficulties in reaching customers likely to respond positively to new sales opportunities and difficulties in making the most of their valued staff.
Banks that define and implement solutions to such problems as identified above are those that will successfully compete and thrive into the future. These are the banks that can be able to keep their main asset - customers in place. Such banks therefore need to establish good relationships with their customers so as to create a customer loyalty image that in turn will lead to their sustenance (Huber and O’Gorman, 2008). In this relation, the American Marketing Association (2004) notes that marketing is very vital. The association, in defining what marketing is, further explains marketing as an organisational function that comprises a set of processes that create, communicate and deliver value to customers and manage customer relationships in ways that are beneficial to the organisation and its stakeholders (American Marketing Association, (AMA), 2004). This view establishes marketing as a very vital factor in the success of banks. Berry (1995) opines that the intangible nature of products in the service industry - banks comprising this service industry - makes it difficult for customers to evaluate them. He adds that customer centred marketing easens this process.
Since many banking products are undifferentiated commodities, retail banks are constantly looking for ways to set themselves apart from the competition to help them win and retain customers and to improve the banks bottom line. As customers begin to view all banks as the same and make their product selections based solely on the best price, one method that retail banks can employ to differentiate themselves is to optimize their customer service (Genesys, 2010). Wright (2002), in concurrence with Genesys, notes that the best way to keep up with the high competition in the banking industry is to hold on to the existing customers as well as acquire many more customers as possible. Abratt and Russell (1999) explain that keeping clients through development of relationships with them is crucial to establishing and maintaining a competitive advantage in the market.
According to Rao (2000), most banks in the world and specifically in the developed countries concentrated most on the systems and accounting rather than on the operations and marketing. When competition increased, towards the latter half of the 20th century, these banks started realizing the importance of marketing in enhancing customer loyalty as well as attracting more new customers than competitors. This heat-up led to the extensive and wide practice of marketing - an arm that greatly took customer needs into consideration as opposed to the previous strategies. Rao (2000) further notes that marketing in banks involves being customer oriented which means that banks should strive to create new and innovative services while keeping in view the changing needs of their customers. To further specify the target of the marketing strategy, Ennew and Binks (1996) wrote that the higher relative cost of acquiring new customers had shifted the emphasis on maintaining long term customer relationships to improve profitability as part of the marketing plan.
Though relationship marketing was highly emphasized in the early 80’s, it started being used during the earlier days of business. Grönroos (1994) confirms this from a Middle East ancient proverb among merchants: “As a merchant, you’d better have a friend in every town.” Though that is the case, relationship marketing appeared in literatures in the early 80’s (Barness, 1994; Grönroos, 1994). Schneider (1980) recounted that during the period preceding the 80’s, researchers and business people had concentrated more on how to attract consumers to products and services rather than how to retain these customers.
As a confirmation of how banks were adopting the issue of relationship marketing, Kumar (2005) says that the focus of financial institutions has shifted towards empowering customers with the right financial solution comprising of the right product mix, and most importantly, at the right price. The concept of relationship based pricing, therefore, is not an opportunity, but merely an eventuality. Additional factors that have seen the high adoption of relationship marketing are identified as maturing of services marketing; increased recognition of potential benefits for the firm and the customer; and technological developments (Berry, 1995). Brown and Molla (2005) say that "Most banks are continually looking for alternative ways of relating to customers, reducing costs, (and) improving efficiencies" as these have a history of reduction in costs and increases in profitability.
Cohen, Gan, Yong and Choong (2006) while commenting on New Zealand banks’ customer retention strategies noted that banks in collaboration with the government have enhanced adjustments in bank rates, policies governing bank services and management and the bank branch locations so as to reduce, as much as possible, the barriers between customers and the bank and thus bring up the level of customer loyalty and customer attraction. In India, skepticism prevented managers from adopting marketing as a strategy for competition. It was only in the early 70’s, after the nationalization of banks, that banks realized the need for marketing their services. The State Bank of India started this pace by reorganizing itself on the basis of major market segments, a framework that saw the fulfillment of Drucker’s philosophy on the purposes and fruits of segmentation (Shrivastava, Pandey, and Vidyarthi, 2007).
Across Africa and specifically in South Africa, the need to service customers has changed drastically over the last 20 years. Berry (1995) reports that the needs of most banks have shifted from attracting new customers, as the main marketing tool, to retaining them as well. The incorporation of more customer friendly services has contributed to this great change. The only banks of the 1980's- the original branch has evolved into sophisticated electronic delivery channels such as telephone banking, Automated Teller Machines (ATMs), online banking, and more recently, cell phone banking. These innovations were implemented so as to keep customer service between the bank and customers on a stable and consistent level that would be desirable not only to the existing customers, but also to new (targeted) customer.
In Nigeria, Laura (2005) notes that customer retention has been, and is still, a thorn to most Nigerian banks. She notes that most banks in Nigeria lose up to 40% of their customers before the customers' first-year anniversary. These is a shocking result, putting in mind that a lot of investment is put to task for the banks to be able to get the customers. Laura however notes that banks attract many customers due to their lucrative offers but are unable to keep them as expected.
GTBank is one Nigerian bank that has been provided with the environment of attracting new customers as well as maintaining those already attracted as a way of responding to the high competition experienced in the industry since its inception in 2004. To be able to enhance their customer contact, the bank increased its branches from two in 2004 to seventeen in 2010 with eight of the seventeen being in Nairobi. It also reduced rates charged on bank transactions, offered diversified products and services as well as increased hours of contact with customers (BOA, 2011).With increased competition and the need to cut on costs to enhance profitability, managers realized the importance of dwelling more on the customers that are already within their system than those who are not yet theirs. This may have been brought about by the realization that dwelling more on retaining already available customers was cheaper than attracting new customers as Reichheld and Sasser’s (1990) experiments showed. Some authors like Berry considered relationship marketing the backbone of any service industry business and the core strategy that ensured that a company got the customers it required to run. He emphasized that attraction of new customers should be viewed only as an intermediate step in the marketing process. Solidifying the relationships, transforming indifferent customers into loyal ones and serving customers as clients should also be considered as marketing (Berry, 1983).
1.2 Problem Statement
In the ancient days, the marketing perspective of many service firms was basically devoted to attracting new customers rather than retaining them (Schneider, 1980), a strategy that led to the increase in the cost of acquiring new customers (Ennew and Binks, 1996). The increase in competition in most business sectors in the world coupled with the need for a change in the marketing perspective have led managers to develop strategies that enable them keep up with the growing competition. Since this competition is very stiff, managers thought of holding onto the available customers on the same level as attracting new ones. Levitt (1981) writes that customers’ behavior of establishing relationships with people rather than goods has also pushed for customer relationship marketing to meet the customer needs. This meant that an overhaul from the purely systems processes to operations processes was important and viable for the retention of customers. This is aimed at making the organization profitable even when the recruitment of new customers is very low. Originally, banks emphasized most of their time on the systems rather than the operations in bank activities as a way of keeping up with competition. This was only to last with stiffer competition due to the reduction in the penetrable market. At this point, holding onto the available market was a major item.
The need to keep hold of the already available customers led to managers in banks looking for relationship marketing, an item that kept customers to banks. Previous studies showed that relationship marketing had helped banks to hold on to their available customers and keep up with profitability (Reichheld and Sasser, 1990). However, some people like Laura (2005) insist that Nigerian banks still have problems with retention of customers even with the implementation of relationship marketing. These banks lose customers to new banks because they do not have better strategies of enhancing customer loyalty. Other scholars like Huber & O’Gorman (2008) explain that the relationship between customer retention and bank success cannot be quantified or be given a definite direction. They claim that it all depends with the practicing bank. Heskett, Sasser and Hart (1990) on the other hand advise that, to achieve customer satisfaction, a superior level of service and customer orientation is required lest the desires of adoption of relationship marketing would not be achieved.
Few banks in Nigeria have shown a little improvement in customer retention when it comes to the implementation of relationship marketing. In other areas though, relationship marketing has borne fruits, a result that is significantly different from the Nigerian scenario.
1.3 Purpose of the study
The purpose of this study was to determine the impact of relationship marketing on retention of customers among Nigerian banks.
1.4 Research questions
To accomplish the aim of this study, the research study relied on the following research questions:
1 What are the different types or approaches of relationship marketing that banks use to attract and retain customers?
2 What are the effects of relationship marketing to customer satisfaction?
3 What are the aspects of relationship marketing that enhance profitability?
1.5 Significance of the Study
The study would be very important and useful to the following groups of people:
The Banking Industry as a whole
Managers of banks would use the findings of this project to establish the relevance of relationship marketing in their organizations and thus know how to use the operations and systems of the bank to enhance the level of relationship marketing. Other staff in the bank would be able to know the stake relationship marketing provides to the bank and thus know the priority areas to keep the bank running effectively. Generally, the findings of this study will be very useful to the improvement of the banking industry which would generally use these findings to edge their competitive tools as relates to relationship marketing so that they can outshine their counterparts.
Scholars and Researchers
This study would also act as a base for reference and information to other researchers willing to develop on the topic. The research would also compel other researchers to do researches on critiquing the facts mentioned in this study’s findings.
Bank Customers (public)
Since the study revealed the importance of relationship marketing in attracting and retaining customers, it would give the general public an idea of what they would expect from banks so that they can easily identify value for their investments. It would also enable the public to identify banks that meet their needs.
CBN (Central Bank of Nigeria)
The information in this project provides a rough idea on the scale of competition in the banking industry and thus enabling the CBN to offer operation licenses to new entrants into the banking industry on a much regulated basis. The findings would also be beneficial in providing a base of creating the required regulatory policies governing competition and fair play. For instance, a policy on tariffs - the range of charges a bank should charge on loans or transaction fees would arise from its observations.
1.6 Scope of the Study
The study sought to identify the impact of relationship marketing to customer retention in the Nigerian branches of GTBank. Though the study was specific on doing the case of GTBank, it was aimed at investigating the impact of relationship marketing to customer retention on the whole banking industry in Nigeria. The scope of this study revolves around this industry.
1.7 Definition of Terms
Relationship marketing: Relationship marketing is the process of attracting, maintaining, and enhancing long-term relationships with key people in a firm or organization (DeYoung, 1988). According to Grönroos (1990:138), relationship marketing is “to establish, maintain and enhance relationships with customers and other partners, at a profit, so that the objectives of the parties are met. This is achieved by a mutual exchange and fulfillment of promises”.
Bank marketing: This is the creation and delivering of want satisfying services to the present and prospective customers at a profit to the bank by integrating all the banking activities effectively (Rao, 2002).
Strategic Pricing: Strategic pricing clarifies the relationship between market segmentation and price, and delivers the tools an organization needs to stay focused on value as it determines break-even, defines price elasticity, and analyzes tradeoffs between features and price points. Using strategic pricing tools yields a better positioning approach (Industrial Relations Center (IRC), 2011).
Service industry: This is an industry made up of companies that primarily earn revenue through providing intangible products and services. Companies in the service industry are involved in retail, transport, distribution, banking services, as well as other service-dominated businesses. The service industry is also called the service sector or tertiary sector of industry (Clarke, 2000).
1.8 Chapter Summary
This chapter started by introducing the background information about the topic of the study. From this background, the chapter then developed the problem statement for the study and then defined the purpose of doing the study. It went ahead to pose the research questions that the study aimed to answer, spelt out the beneficiaries of the findings of the study, and defined the scope within which the study would confine itself. The chapter finalized by noting the meanings of operational words used in the study. The next chapter reviews the literatures related to relationship marketing as per the research questions created in chapter one.
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