Relationship marketing in attaining and retaining customers
The study seeks to establish the contributions of relationship marketing in attaining and retaining customers in the Kenya commercial banks, Specifically the study will seek to establish how increased competition among the commercial banks, pressure to increase profits or revenues, high cost of acquiring new customers and improving corporate image have contributed to the banks adopting on relationship marketing strategies.
The study will adopt a descriptive research design. The population of interest for this study will comprised all 45 commercial banks in Kenya. Data will be collected by use of interview and questionnaire methods to the banks' branch managers, relationship managers and officers and retrieval of secondary information. Data collected will be analysed using descriptive statistics method tools of analysis, such as mean scores, percentages, and frequencies. Data will then be presented using tables, pie charts and graphs.
The findings of the study will be recommended to the management who will use them in policy formulation and strategic decision making and the banks relationship managers who will use them to attain and retain high value customers in the banks.
1.0 Over view
Relationship marketing (RM) aims at establishing, maintaining and enhancing relationships with customers and other parties at a profit so that the objectives of the parties involved are met. When the relationship is established between the customer and the company, brand loyalty is created from the customer's repeat purchase and this translates to more profits to the company.
1.2 BACKGROUND OF THE STUDY:
Relationship marketing is a concept that has gained popularity over the recent years; companies are beginning to understand the value that customers rather than products, generate from them. Consequently, they are now striving to develop meaningful relationship more proactively. This concept was originally introduced by Leornard Berry in 1983 when he made the distinction between relationship marketing which was based on the concept of developing a long term relationship with a customer, and transaction marketing, which viewed the customer in terms of one off transactions (Connor, Galvin, Evans, 2005).
According to Doyle P & Stern P (2006), relationship marketing is a long term continuous series of transactions between parties which occurs when each trusts each trusts each to deal fairly, reliably and helpfully. Relationship marketing has therefore emerged as a popular new paradigm due to shift in focus from customer acquisition to customer retention. It is likely to shift once again and will transform into customer relationship management (CRM) with a hybrid of marketing relationship programs that range from relation to outsourcing market exchange and customer interactions Sheth & Kellstadt (2002).When a good working relationship is built, negotiating time and costs are reduced and the patterns of transactions become more predictable and secure.
Due to increased competition today's companies are beginning to understand the value that customers, rather than the value the products generate for them. To retain these customers banks are now striving to develop meaningful relationships with key customers and more so to manage those customer relationships more pro actively (Connor et al, 2004). Relationship marketing therefore attempts to create a more holistic, personalised brand experience (service) to create stronger customer ties.
Kottler, Keller, koshhy, Jha (2009) a number of companies are today shaping separate officers, services and messages to individual customers based on information about past transactions, demographics, psychographics and media and distribution preferences. By focusing on the their most profitable customers, products and channels these firms hope to achieve profitable growth capturing a larger share of each customer's expenditure by building high customer loyalty. Relationship marketing is aimed at retaining existing customers since attracting new customer may cost up to 5 times more than retaining an existing customer. Commercial banks in Kenya are now aiming at increasing the size of their customer's wallet. The banks are now training their employees in cross selling and up selling their products. They have realised the benefits from lowered costs and increased profitability from the long term relationships. On the other hand customers will enjoy the services of an organisation that understands them and their requirements and they will also have a reliable financial service provider.
The study will involve 45 commercial banks in Kenya who will form the target population. A sample of 10 respondents from each of the commercial banks who will include branch managers, relationship managers and officers from each bank will be selected randomly to answer to a simple questionnaire.
1.3 Problem statement:
Traditionally banks operated in relatively stable environment for decades, but today the industry is faced with increased competition from upcoming new banks and micro finance institutions. The idea of building a long term relationship with consumers to earn a favour from them was a not known even to the earliest merchant and it has taken time to develop since traditional marketing was aimed at acquiring customers not retaining them(Scheneider,1980). Historically the key factors influencing the selection of a bank were influenced by rates, fees and prices charged. It has appeared that, on its own, superior service is not sufficient. Prices are essential, if not more important than service and relationship quality. In a service industry like in the bank, the quality of customer service holds a primal significance in the context of sustained business growth.
Pelsmacker et al (2005), one of the trends in marketing today is the increasing importance of building customer loyalty instead of attracting and seducing new customers. In the wake of the changing dynamics in the financial services sector, commercial banks in Kenya have the uphill task of retaining key value customers, acquiring new customers, building their confidence and maintaining a robust financial performance. Corporate customers who have traditionally been reluctant to switch banks are now demanding for better services and are willing to switch banks if they are offered better services elsewhere (Farquhar, 2004; Lam & Burton, 2006).
From this development, banks now find themselves operating in a highly competitive and fragmented marketplace, characterised by increasingly empowered and financially literate consumers. It is therefore emerging that the strength of a banks today lies in the quality of service the offer to their customers through relationship marketing.
This study seeks to find out the contribution of relationship marketing in attaining and retaining customers in the commercial banks in Kenya. Specifically the study will seek to find out how increased competition among the commercial banks, increased pressure to increase profits, high cost of acquiring new customers and improving corporate image has led adoption of relationship marketing strategies among these commercial banks.
1.4 Research Questions:
- Does relationship marketing contribute to attaining and retaining customers in the Kenyan bank?
- Has increased competition among the commercial banks led to relationship marketing strategies among the commercial banks in Kenya?
- Does the cost of acquiring new customers resulted to increased relationship marketing in the Kenyan commercial banks?
- Does increased pressure to increase revenue or profits lead to the banks adopting relationship marketing strategies?
- Does relationship marketing lead to improved corporate image?
1.5 Research Objectives:
1.5.1 General Objective of the study.
The general objectives are to find out how relationship marketing contributes to attaining and retaining customers in the Kenyan bank?
1.5.2 Specific Study Objectives.
Specifically the study will be aimed at achieving the following objectives;
- To determine whether increased competition has result to increased relationship marketing strategies among the commercial banks in Kenya.
- To determine whether the cost of acquiring new customers has resulted to increased relationship marketing in the Kenyan commercial banks.
- To determine whether extent to which pressure to increase revenue or profits has led to the banks adopting relationship marketing strategies.
- To determine whether corporate image has led to banks embarking on relationship marketing.
1.6 Limitations and Delimitations:
1.6.1 Delimitations of the study.
This study will limited to only four predictor variables, which may not be the only variables that determine the contributions of relationship marketing in the Kenyan commercial banks. The study will be aimed at analysing the contributions of relationship marketing in attaining and retaining customers in the Kenyan commercial banks which may not be similar in all the banks.
The study further assumes that the variables being investigated such increased competition among the commercial banks, increased pressure to increase profits, high cost of acquiring new customers and improving corporate image remain unchanged during the period of the study.
1.6.2 The limitations of the study
The limitations of this study will include non respondent from the target population for the fear of exposing the bank. Many of the relationship officers and managers have worked in the bank for less than 2 years so they may not have much information on the main contributions of relationship marketing to the banks. There are a high turnover relationship officers and managers from one bank to other banks or to senior position in the same bank. Some managers and officers might fear giving some information that due to victimisation by the employer.
The researcher however will target the relationship officers who have worked in the bank for at least 2 years either doing the same job or doing a different job in the bank. The research questions will be structured in a way that they will not expose the bank to competition or pose a danger of giving confidential information.
1.7 Significance of the Study:
The study will be of important to the following audiences;
The management and policy makers
The management and the bank's policy makers who may use the findings of the study in crafting of viable strategies to assist in attaining and retaining key customers in the bank as well as remain competitive in the industry. They may need the findings to come up with strategies of improving the level of customer service. Policy makers in the banks will be able to make informed decisions and advising management on the best practises.
Relationship managers and officers.
Relationship managers and officers in the banks may use the findings while initiating the process of customer acquisition as well as when offering financial services and advise to the customers on the banks products. From this they will be able to make informed decisions to evaluate the value of the customers they are managing or recruiting, this will ultimately lead to good customers service and low level customers switching to other service providers.
The academicians will find the study useful as it will highlight areas for further research and also will contribute to new knowledge. The academicians being charged with dissemination of knowledge to various stakeholders will hence find this study useful when doing so.
Other researchers will use the study to further their study in this area by reviewing the empirical literature and establishing study gaps to fill.
1.8 Assumptions of the Study:
The study assumes that the increased competition among the commercial banks, increased pressure to increase profits, high cost of acquiring new customers and improving corporate image are the main contributing factors that lead to increased relationship marketing among the commercial banks in Kenya.
1.9 Definition of terms:
S.M.E.S – Small and Medium Enterprises. In Kenya a small business are defined as one that are privately owned and operated with less than 50 employees and are managed, controlled by owner/managers who contribute most if not all of the operating capital; the principal decision making resting with the owner/managers. (Sessional paper 2005).
C.R.M- Customer relationship management. CRM is a business strategy that assists the organisation to acquire and manage the most valuable customer relationships.
R.M- Relationship marketing. Relationship marketing is identifying and establishing, maintaining and enhancing and when necessary also to terminating relationships with customers and other stakeholders, at a profit, so that the objectives of all parties involved are met. This is achieved by a mutual exchange and fulfilment of promises Gronroos (1997).
2.0 LITERATURE REVIEW
The chapter contains literature review from past studies, internet, text books and published articles. It has focused on the variables of the study which form the basis of the conceptual framework. An empirical review of past studies has been done to guide the research gaps in this study. In addition, various theoretical factors that contribute to attaining and retaining customers in the commercial banks will be reviewed.
2.2. Theoretical Orientation.
2.2.1. Revenue growth/profitability
Kotler, et al (2009), Marketing is the art of attracting and keeping profitable customers, the 20-80 rule says that the 20% of the customers often generate 80% or more of the company's profits. The ultimate outcome of relationship marketing is a unique company asset called a marketing network. A marketing network consists of the company and its supporting stakeholders-customers, employees, distributors, retailers advertising agencies, university scientists and others. With whom it has built mutually profitable business relationships. The operating principle is build an effective network of relationship with the key stakeholders and profits will follow. Companies should also realise that relationship marketing is not effective in all the situations and that it is not always that the companies largest customers who yield more profits. The largest customers can demand considerable service receive deepest discounts. The small customers pay full price and receive minimal service but the cost of transacting with them can reduce their profitability.
According to Egan (2008), Revenue growth is associated active intervention on the part of the suppliers in expanding the offering (in terms of variety and value) relative to the offer of competition. Where there is no customer growth, gardening maintenance contract which involves a fixed level of service are applied.
Although many companies measure the customer's satisfaction, most companies fail to measure individual customer profitability. Banks claim that it is difficult each customer to use different banking services as the transactions are logged in different departments.
Customer oriented companies are in a better position to identify new opportunities and set a course that promises to deliver long run profits. They do this by monitoring the customers need hence are able to decide which customer groups and emerging needs are most important to serve given its resources and objectives Kotler et al (2009). Following the fierce price competitiveness created by the sticky inelastic demand, demand curve firms utilise non price competition in order to achieve greater revenue and market share (Egan 2008).According to Blyithe (2006), Marketers should always try to do something that the competition has not yet thought of yet.
If a firm maintains good relations with its customers, the customers will continue to avail its services without being detracted by competitors. People tend to increase the amount of money they spend on services with each visit to the bank, the organisation therefore benefits from increased revenues from its existing customers.
Cost of customers acquisition and retention.
According to Barker & Hart (2007), competition increased among industries in the 1980 and it became obvious that customer retention was the equally if not more important than customer creation. Given a saturated market everyone became somebody's customer and the only way to grow your customer was by winning new customers at the competitor's expense.
The rule of the thumb confirms that:
It cost five times more to create or win a customer than keep one as you need to spend on marketing in order to keep the customer happy.
If you could retain 5% of your customer base which even successful companies tend to lose annually you could improve your profitability by between 25% and 80% depending on the kind of the business you are involved in. Most customers will not switch from their current service providers for less than 10% improvement in value, whether this will be price discount or improved performance or some combination of these.
Steward, Bruicker, Gregory (1985), insisted that you should make sure your customers keep coming back. The address the questions of how the onset of maturity affect buyer seller relationships and what steps sellers should take as buyers change from what they call inexperienced specialists with growing expectations change and four strategies are suggested as follows; strengthening account management practises, Augmenting the product, improving customer services, lowering prices.
A benefit to the banks in retaining customers is that they can cut down on costs involved in attracting new customers; they benefit more by maintaining a good relationship with the existing customers. These customers become repeat customers and even provide free word of mouth publicity, which will bring in more customers and additional revenues.
The interactions between banks employees and its customers are constantly transmitting the image of the banks since how customers are treated by the bankers influences to a greater percentage their perception about the organisation. According to Balmer & Stotvig (1997), a banks image is of utmost importance and of great concern, it largely depends on the treatment of the customers during their interaction with the employees. Blithe (2006), Corporate identity is the outward manifestation of the organisations, a visual means of identification. It includes not only the corporate logo but also the house style used on the letter head and corporate publications, interior and exterior design of building, staff uniforms and vehicle livery, and packaging and products. The recognition level of a corporate identity can be very high. The theory of RM emphasizes the importance of meeting customers' needs during interactions because this clearly influences customers' images of a firm and its products.
Internal marketing ensures that all the employees understand the mission, vision and objectives of the organization and their role in achieving the organization objectives. Committed employees render superior services to exceed customers' expectations and these delighted customers develop appositive attitude towards the organisation. The satisfied employees and customers create a good corporate image of the organisation in the society.
Critics however view that many banks have however standardized their behaviour towards their customers and failed to realise that all customers are not exactly the same. Most banks nowadays are perceived as being poorly adapted to meet SMEs' specific needs (Harrison, 2001).
The conceptual framework posit relationship marketing as the dependent variable is subject to four independent variables; namely, the increased pressure to increase profits, increased competition among the banks, building corporate image and cost of acquiring new customers as depicted in figure 2.1 below (conceptual framework).
Independent variables Dependent variables
(Source: Researcher, 2011)
Creating a long term relationship with the customers requires lots of efforts and time by the bank and it is so when a bank tries to create a bonding with existing customers. It is less costly for a bank when serving the existing customers than to entice new ones, when seeking the new customers there are costs involved in administration and services provided to these new customers. If a bank manages to create a strong relationship based on trust and loyalty with it customers, then it will be hard for the competitors to overcome this relationship.
Empirical literature review
The relationship between the client and bank is influenced by the quality of the service the client receives from the banks they operate with (Beatty et al., 1996; Crosby et al., 1990). Much emphasises is therefore placed on the need to maintain high service levels since all the banks products are easily copied and all the banks are competing for the same customers.
According to Gordon (1998), relationship marketing is the ongoing process of identifying and creating new value with individual customers and benefits of a lifetime of association. It involves the understanding, focusing and management of ongoing collaboration between supplier and selected customers for mutual value and sharing through interdependence and organisational alignment. Most studies conducted recently on the bank-SME relationship indicate that SME customers prefer a personalized, face-to-face relationship with a bank manager or a relationship officer who understands and is sympathetic to their business needs and who is able to provide them with necessary advice (Tyler & Stanley, 2001) According to these customers, the bankers are good at giving advice that is closely related to bank financing but are not as good at giving advice concerning wider issues with a strong impact on the SMEs' core businesses. The bankers are also perceived as not being active enough in the relationship. The rigidity and slowness in the bank's decision-making process is another issue that the SME customers do not appreciate. The bankers are aware of the fact that their SME customers perceive the bank as a capital supplier.
A bank's ability to meet its SME customers' specific needs and provide necessary advice can greatly influence its relationships, thus affecting its image as perceived by its SME customers. Employees' knowledge and competence influence their customer relationships to a high degree Vegholm (2011).
Adamson, Chan, Handford (2003).The retention of existing customers is becoming more crucial, particularly when opportunities in loan growth locally appear to have reached an upper limit. Many SME customers do not appreciate doing business with bankers who are extremely focused on selling their banks product. They expect their bank to adopt a customer-centred marketing strategy that encourages individual banker to work toward meeting their specific needs.
Sheth & Kellstandt (2002).The largest revenue accounts are often found not to be most profitable. There is a strong believe that a company must be selective in using relationship marketing and indeed consider segmenting market into relational and transaction markets. The existing clients are said to be less price sensitive and are likely to recommend the bank to friends and colleagues.
According to Ennew & Binks (1996), the cost of customer acquisition has shifted the emphasis to building and maintaining long-term customer relationships to improve profitability.
3.0 RESEARCH METHODOLOGY
This section describes the method the researcher will apply in carrying out the study. It includes the research design, target population, sampling technique, instruments of data collection and data analysis.
3.2 Research design
The researcher will use descriptive research design. A descriptive study will be undertaken in order to ascertain and be able to describe the characteristics of the variable of interest in this. The research is aimed at offering a profile of the phenomena of interest from a specific perspective. This research will be restricted to fact findings and the results will be used in forming important principles of knowledge and solutions to significant problems.
3.3 Target population
A pilot study will be conducted in order to refine the questionnaire and assess the validity and reliability of the data; and to decide upon an acceptable final sample size. Fifteen bank managers, relationship managers and officers in the banks will be requested to fill in the draft questionnaire. The subjects of the study will be the bank managers, relationship managers and officers who are charged with the responsibility of carrying out relationship management duties with the customers in the bank.
3.4 Sample size and data collection techniques.
3.4.1 Sample size
The study will be conducted from a sample size of 250 bank managers, relationship managers and officers in the banks. This method will be appropriate because the population of study is known and is easy to locate and carry out the survey. This therefore, means all the commercial banks will be represented.
3.4.2 Data Collection Techniques
The researcher will seek authority from the University and the banks to collect data. A cover letter introducing the researcher to the respondents will be attached to the questionnaire for data collection. Once this authority is granted, the researcher will send the questionnaires to the respondents throughout the banks. The researches will also use the research assistants to assist conducting the survey. Research questionnaires will be personally administered to the samples respondents.
The drop-and-pick method of distribution will used to administer the research instrument, because of the need to collect detailed and well thought out responses. The method will offer the respondents time and privacy to fill in the questionnaire at their convenience.
3.5 Data Analysis.
Both quantitative and qualitative techniques will be used. The data from the questionnaires will be coded and the response on each item put into specific main themes. The data obtained from the research instruments will be analyzed by use of descriptive statistics (frequencies and percentages, means and standard deviations) as well as inferential statistics (correlations and one away variance analysis and regression of variables).The data will then presented in form of frequency tables, charts and bar graphs.
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