Crm in Banking Sector

Determinants of Performance in Retail Banking: Perspectives of Customer Satisfaction and Relationship Marketing Vimi Jham tnstitute of Management Technology, India Kaleetn Mohd Khan Stamford University, Bangladesh Abstract Satisfaction with banking services is an area of growing interest to researchers and managers. Building on the synthesis of existing literature on satisfaction and relationship marketing, this study explores the satisfaction variables within the banking industry. The key findings of an empirical research are based on the data collected from 555 customers.

Systematic methodology, including design and validation of questionnaire, factor analysis and regression analysis were utilised to enhance reliability ofthe findings. The study reinforces that customer satisfaction is linked with performance of the banks. The authors demonstrate how adaptation of satisfaction variables can lead to better performance. Relationship Marketing and Customer Satisfaction -An Overview Relationships are as old as mankind. Traders and businesspeople of yesteryears relied on relationship for their success.

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In the early 1990s, the concept of relationship marketing was formally introduced into the field of services marketing. It was established that building closer relationship with customers resulted in better returns to companies (Reichheld, 1993). Higher cost of the acquisition of customers has shifted the emphasis to building and maintaining long-term customer relationships to improve profitability (Ennew and Binks, 1996). Today, banks have moved away from a transactional-based marketing approach to a relationship-based approach that has at its core the recognition of the lifetime value of the customer.

Satisfaction is a multidimensional construct which has been conceptualised as a prerequisite for building relationships and is generally described as the full meeting of one’s expectations (Oliver, 1980) and is the feeling or attitude of a customer towards a product or service after it has been used. It has been attributed with three dimensions by (Crosby and Stevens, 1987) namely, 35 SINGAPORE MANAGEMENT REVIEW, VOLUME 30 NO 2 satisfactory interactions with personnel, satisfaction with the core service, and satisfaction with the organisation. Need for Research in Relationship Marketing and Customer Satisfaction

While relationships have been extensively studied in westem (Anglo- Saxon) cultural contexts such as Europe, the United States, Australia or the United Kingdom, few studies have examined this in an eastem cultural context such as Thailand, China, South Korea, Malaysia, or India. The only exceptions include empirical studies of relationship marketing and customer satisfaction in an Asian market (Aulukh, 1996). Customer satisfaction in the retail banking industry has been studied by (Jamal Ahmad, 2002) along with customer profitability management being integrated and optimised for the customer (Lenskold James, 2004).

A positive relationship has been demonstrated between equity and satisfaction (Athanassopoulos, 2004). Furthermore, no studies could be located that specifically examined relationship marketing and customer satisfaction being linked with sales and profits in a consumer service context in southeast Asia. Though much has been written about relationship marketing, few studies have attempted to address the implementation of relationship marketing in organisations, or what it entails with the focus on customer satisfaction (Morris et al, 1999).

Secondly, fewer empirical articles pertaining to this construct have appeared in the literature (Perrien and Ricard, 1995). Thirdly, little attention has been paid to research in consumer retail marketing (Reynolds and Beatty, 1999). Problem Statement The present study seeks to address the above gaps. The main objective of this paper is to study the linkage between performance and the customer satisfaction variables in the Indian banking sector and develop a conceptual framework of satisfaction in Indian banks from the perspective of the customer.

In order to do so, relationship marketing dimensions were identified by conducting a customer satisfaction survey of five banks. In this research, the focus is on customer facing level, building a view of the customer with respect to satisfaction with various service parameters, and various services provided by the bank. 36 DETERMINANTS OF PERFORMANCE IN RETAIL BANKING Research Methodology Research Objectives The study attempts to empirically investigate the following objectives: • To identify the variables of customer satisfaction To link customer satisfaction with performance of the banks, and • To measure the difference in satisfaction of services of current and savings account customers. Research Methodology The research process involved the following steps. First, a literature review was undertaken to identify what parameters to consider with respect to customer satisfaction in the banking industry. Second, focus group discussions were held with customers to establish the evaluation criteria and factors were identified in customer satisfaction. Third, a questionnaire was constructed and piloted.

Last, a population and sampling procedure was established and methods of data collection and analysis determined. Five banks were selected for the study. Out of these, two are national banks, namely. State Bank of India (SBI), Punjab National Bank (PNB) and three are private sector banks, namely. Housing Finance Corporation (HDFC), (Industrial Credit and Investment Corporation of India) ICICI Ltd, and Industrial Development Bank of India (IDBI). SBI and PNB were chosen because they have the largest network of branches in India. ICICI, HDFC, and IDBI were the first private banks to introduce intelligent banking in India.

These banks have strong retail presence and offer comprehensive range of information to the customer. They have taken initiatives to satisfy the customer and provide value-added services. A total of 1,000 customers’ data was collected, and 417 contacts were rejected. The questionnaire was administered to 583 customers of these banks, out of which 555 were accepted. Probability and systematic sampling methods were used to draw the sample from the population. The five banks were contacted individually to obtain the contact addresses of the customers.

Three focus group discussions were held. Care was taken to see that all the three groups had representation from all the five banks. The research instrument was refined several times based on the pilot findings and on the comments and suggestions of the experts, focus group discussions, and literature (Levesque and McDougall, 1996). Each item is measured on a seven-point semantic differential scale, fully an- 37 SINGAPORE MANAGEMENT REVIEW, VOLUME 30 NO 2 chored by extremely satisfied/extremely good at one end to extremely dissatisfied/extremely bad at the other.

Additional data on demographics were also collected. It included 16 variables which determined the satisfaction of the customer with the five banks chosen for the study. The questionnaire was divided into five sections. To measure the satisfaction of the customer, the questionnaire was randomly administered on customers who have been with the bank for three years. The first part consisted of the satisfaction level with general services. Table 1: General Banking Services 1 Service scape (interiors) 2 Parking space 3 Attitude of bank staff 4 Dissemination of information Promptness in query handling 6 Networking (branches) The second part of the questionnaire dealt with variables involving transactions. Table 2: Services Involving Transactions with Customers 1 ATM 2 Debit Card 3 Credit Card 4 Demand Draft Facility 5 Fixed Deposits Schemes 6 Money Transfer 7 Locker Facility 8 D-mat Facility 9 Tele Banking 10 Mobile Banking 11 Net Banking The third part of the questionnaire dealt with satisfaction with respect to loans. 38 DETERMINANTS OF PERFORMANCE IN RETAIL BANKING Table 3: Types of Loans 1 Home loans 2 Car loans 3 Personal loans Education loans 5 Business loans 6 Overdraft facility/limits The fourth part ofthe questionnaire dealt with satisfaction with quality of services. Table 4: Quality of Banks’ Services 1 2 3 4 5 6 7 Processing time a) Pass book updating b) Cheques c) Withdrawal/deposit d) Loan sanction Process fee Acceptability (debit/credit cards) Paperwork involved in operations Working days Working hours Value-added services The fifth part of the questionnaire dealt with satisfaction with the ATM services. Table 5: ATM Services of Banks 1 Proximity 2 Linguistic variance 3 Cash limits Efficiency 5 Password-based security 39 SINGAPORE MANAGEMENT REVIEW, VOLUME 30 NO 2 The raw data were captured in a spreadsheet software twice to ensure accuracy. The spreadsheet was then imported into a software statistical package (SPSS 11. 0 for Windows). Factor analysis was used to tease out important relationship dimensions of customer satisfaction. Results of the factor analysis were put through the Alpha reliability test. The difference in satisfaction of services provided by various banks, and differences in the satisfaction of different account holders were tested.

The factors of customer satisfaction were linked to the performance of these banks. The performance of the banks was judged on basis of sales per branch and profit before income and tax (PBIT) per branch. Also the sales per employee and PBIT per employee were taken into consideration. Regression analysis was used to link customer satisfaction with the performance of the bank. Reliability and Validity Internal consistency is estimated by using Cronbach’s alpha (Cronbach , 1951). The Cronbach’s alpha values for all the 16 scales (three principal components) are shown in Table 6.

Table 6: Reliability Tests for Three Principal Components Factor No of items Cronbach alpha Traditional Facilities 5 0. 86 Multi channel Banking 5 0. 87 Internal Marketing 6 0. 82 Analysis and Results Factor Analysis The first analysis involved the 16 variables of satisfaction with the banks’ services being subjected to principal component analysis, a method categorised under the broad area of factor analysis. The 16 variables were reduced to three principal components named as relationship dimensions through the varimax rotation method.

In our sample, the Kaiser-Meyer- Olkin measure of sampling adequacy was . 916 which greater than . 5. This suggests that the data are adequate for factor analysis. The 16 variables listed under the broad head of the satisfaction level of services, satisfaction with general services, satisfaction with transac- 40 DETERMINANTS OF PERFORMANCE IN RETAIL BANKING tion of services; loans facility provided by the bank, and satisfaction with quality of services were included the 16 variables shown in Table 7. Table 7: Interpretation of Factors 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 6 Principal Component One Traditional Facilities Demand draft facility Fixed deposits Money transfer Locker facility ATM Principal Component Two Multi channel Banking Debit card Credit card Tele banking Net bank D mat Principal Component Three Internal Marketing Service Scape Parking space Attitude of bank staff Dissemination of information Query handling Networking of branches Factor Loadings 0. 43 0. 31 0. 38 0. 73 -1. 48 0. 36 0. 38 0. 16 0. 20 0. 12 0. 69 0. 69 0. 75 0. 66 0. 68 9. 40 Factor Loadings 0. 31 0. 23 0. 26 0. 22 0. 29 0. 57 0. 57 0. 85 9. 35 0. 70 0. 25 . 39 0. 26 0. 29 0. 27 0. 46 Factor Loadings 0. 61 0. 74 0. 66 7. 68 5. 81 0. 28 0. 29 0. 19 0. 81 0. 28 0. 22 -0. 19 0. 26 0. 32 0. 31 0. 43 Figures in bold indicate the highest factor loading for the variable. Table 8: Performance of Banks Bank SBI PNB IDBI ICICI HDFC Sales/branch 3. 47 1. 85 8. 05 49. 34 10. 53 Sales/employee 0. 14 0. 12 0. 61 0. 67 0. 51 PBIT/branch 0. 01 0. 02 1. 01 0. 89 0. 45 PBIT/employee 0. 00 0. 00 0. 08 0. 01 0. 02 41 SINGAPORE MANAGEMENT REVIEW, VOLUME 30 NO 2 Factor one had all the statements dealing with facilities provided by the hank.

These were named as Interactions with the bank (traditional facilities). Factor two had all the statements related to convenience to the customer without actually going to the bank. This factor was named as multichannel hanking. The statements in factor three are concerned with the behaviour of the employees and the environment of the hank. The third factor was named internal marketing. Relationship Between Customer Satisfaction and Performance of Indian Banks The relationship dimensions which result in customer satisfaction are linked with the performance of the hanks.

The factor loadings and mean of the three principal components derived are taken and the weighted average is calculated for each of the 16 factors for all the five hanks separately. The data of the five hanks namely, HDFC, ICICI, IDBI, PNB, and SBI with respect to sales per hranch, sales per employee, PBIT per branch, and PBIT per employee are taken from CMIE’s (Centre for Monitoring Indian Economy Private Limited) Prowess from 2000 to 2003. Table 9: Linking Performance with Satisfaction Regression Dependent Independent Model Variable Variable a B 1 Sales/Branch

Sales/Branch Sales/Branch Sales/Employee Sales/Employee Sales/Employee Traditional facilities Multichannel banking Internal marketing Traditional facilities Multichannel banking Internal marketing 92,96 (1. 29) 226,52 (2. 06) 115,85 (1,09) 1,89 (2. 64) 1. 38 (0. 66) 2. 48 (2,39) -26,71 (1. 09) -65. 88 (1,93) -31,23 (0,96) -0,50 (2,08) -0,30 (0,46) -0. 64 (2,00) 0. 28 0,55 0,23 0. 59 0. 067 0. 57 42 DETERMINANTS OF PERFORMANCE IN RETAIL BANKING Table 9: Linking Performance with Satisfaction (cont’d) Regression Model 7 8 9 10 11 12 Dependent Variable

PBIT/Branch PBIT/Branch PBIT/Branch PBIT/Employee PBIT/Employee PBIT/Employee Independent Traditional facilities Multichannel banking Internal marketing Traditional . facilities Multichannel banking Internal marketing a 3. 22 (2,54) 1,70 (0. 44) 4. 17 (2,17) 0. 15 (1,33) 0. 14 (0. 58) 0,20 (1,23) B -0,94 (2,18) 0,38 (0. 32) -1. 14 (1. 93) 0. 04 (1,14) 0,05 (0. 67) 0,05 (1,09) R2 0,61 0. 03 0,55 0,30 0. 13 0. 28 Figures in parentheses show t-values The regression equation Y=a-f-bx-i-U was used to determine the relationship between satisfaction and performance.

The regression models establish the criteria that increase in customer satisfaction with respect to services provided by the hanks results in better performance. The study aimed to establish that customer satisfaction results in building better relationships with customers. The dependent variahle taken is performance of hank and the independent variable is customer satisfaction. Twelve regression models have been proposed in this study. Assessing Satisfaction of Current Account Customers and Savings Account Customers with Banks’ Services

The three principal components which were identified with factor analysis, namely, traditional facilities, multichannel banking, and internal marketing were put through t tests to determine whether there was any significant difference among satisfaction of the current account customer and savings account customer with the five banks. The results of t tests which indicate the difference in satisfaction of the current and savings account are shown in Table 10. 43 SINGAPORE MANAGEMENT REVIEW, VOLUME 30 NO 2 Table 10: Independent Sample t Test (Savings and Current Account Customers) Factor t statistic Prob;T Standard error

Traditional facilities -4. 98 0. 00 8,75 Multichannel banking -3,58 0. 00 0,10 Internal marketing -5,92 0,00 9,80 Conclusions, Findings, and Managerial Implications The findings of this study corrohorate the ohservations of earlier researchers in the area of relationship marketing with focus on customer satisfaction. In this study, identification of customer satisfaction variahles is reviewed and its importance reinforced. Further, regression models estahlish the criteria that increase in customer satisfaction with respect to services provided by the hanks and result in hetter performance hy the hanks.

The study aimed to estahlish that customer satisfaction results in huilding hetter relationships with customers through hetter services. The current research contributes towards understanding the relationship hetween satisfaction and performance. This is in line with empirical findings reported hy Anderson and Suvillan (1993). As the geographical extent of this study was limited to western Uttar Pradesh, Union territory of Delhi, and Gurgaon (Haryana) in India, similar studies in other regions of the country would add hoth breadth and depth to the understanding of the banking services to customer and the requirements of the customer.

The first and primary managerial implication of this study is that the hanks are not at the same stage of providing the infrastructure and marketing institutional development and therefore a standardised global strategy affecting performance will not be valid in India. Therefore, hanks need to develop unique relationship marketing strategies based on the regions they operate. We can infer that since the nature of services is such that interaction of the external customer with the internal customer is essential, satisfaction from these interactions play a very important role in developing relationships.

The results in this research revealed that satisfaction of the customer varies from bank to bank and from customer to customer. We can see that customer satisfaction affects banks’ sales and profitability. 44 DETERMINANTS OF PERFORMANCE IN RETAIL BANKING References Anderson EA and MW Sullivan, 1993. “The Antecedents and Consequences of Customer Satisfaction for Firms”, Marketing Science, Vol 12 Spring, pp 125-43. Athanassopoulou, Peggy Johne, C Axel, 2004. “Effective Communication with Lead Customers in Developing New Banking Products”, Internaiional Journal of Bank Marketing, Vol 22 No 2, Aulukh P, M Kotabe and A Sahay, 1996. Trust and Performance in Cross-border Marketing Partnerships: A Behavioral Approach,” Journal of International Business Studies, Vol 27 No 5, pp 1005-1032, Cronbach LJ, 1951, “Coefficient Alpha and the Internal Structure of Tests”, Psychometrica. Crosby Stevens, 1987. “Effects of Relationship Marketing and Satisfaction, Retention, and Prices in the Life Insurance Industry,” Journal of Marketing Research, November, pp 404-411, Ennew CT and MR Binks, 1996. “The Impact of Service Quality and Service Characteristics on Customer Retention: Small business and their Banks in UK”, British Journal of Management.

Jamal Ahmad, 2002, “Customer Satisfaction and Retail Banking: An Assessment of Some of the Key Antecedents of Customer Satisfaction in Retail Banking”, International Journal of Bank Marketing, Vol 4 No 5, p 146, Lenskold James D, 2004, “Customer-Centric Marketing ROI”, Marketing Management, Jan/Feb,Voll3Nol, Levesque T and GHG McDougall, 1996. “Determinants of Customer Satisfaction in Retail Banking”, International Journal of Bank Marketing, Vol 14 No 7, pp 12-20. Morris MH, BR Barnes and JE Lynch, 1999. “Relationship Marketing in Practice: Myths and Realities, Industrial Marketing Management, Vol 27, pp 359-371.

Oliver RL, 1980, “Cognitive Model of the Antecedents and Consequences of Satisfaction Decisions”, Journal of Marketing Research, Vol 17, November, pp 460-469. Perrien J and L Ricard, 1995, “The Meaning of a Marketing Relationship: A Pilot Study”, Industrial Marketing Management, Vol 24, pp 37^3, Reichheld FF, 1993, “Loyalty Based Management”, Harvard Business Review, Vol 71 No 2, pp 64-73, Reynolds KE and SE Beatty, 1999, “Customer Benefits and Company Consequences of Customer Salesperson Relationships in Retailing”, Journal of Retailing , Vol 75 No t, pp 11-31, 45

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