Strategic Customer Retention


Strategic Customer Retention through excellent Service quality Initiatives of Share brokers


Financial service sector is the most important sector in the modern developing and even developed economy. The financial service institutions had been operating in a fairly stable environment for a longer period. The financial services industry is facing a very aggressive competitive environment within today's deregulated world, the net result of which is that traditional banks have lost a non-insignificant proportion of their domestic business to essentially non-financial institutions or non-bank competitors1. The financial service must have to face stiff competition and undoubtedly it will continue. The financial service institutions that are not responding to the changing environment by building and protecting their present position by focusing on better service quality, product innovation, service differentiation and customer retention will face difficult futures. Strategic plans help the management to formulate tactic to develop a competitive advantage. A competitive advantage provides investors, savers, and other customers with superior value compared with competitive offerings.

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The financial services industry has undergone major changes in the last two decade. The pace of these changes and development are like to continue and go faster than ever before. While it is impossible to say with certainty what the financial services industry will look like in the next 20 years, there is no doubt that it will be very different than it is today. Two major forces in this change will be demographics and technology. Changing demographics will alter the customer base and the demands and needs of these customers. The evolution of technology will potentially provide the opportunity for institutions to adapt to these demographic changes. The challenge for financial institutions will be to correctly identify the changing needs of their customer and the proper technology to deliver the necessary services.

In spite of the increasing importance of the financial services sector in world economies, not enough research has been carried out in the field of innovation and new service development 2. Every company has a business model, whether they articulate it or not. At its heart, a business model performs two important functions: value creation and value capture. First, it defines a series of activities, from procuring raw materials to satisfying the final consumer, which will yield a new product or service in such a way that there is net value created throughout the various activities.3 The financial service institutions must not provide only a few types of traditional products. They have to diversify into different and new technologically advanced user friendly services.

1.Zineldin, M., 2005a, “Quality and customer relationship management (CRM) as competitive strategy in the Swedish banking industry,” The Total Quality Management Magazine, 17:4, 329-344

2.Edvardsson, B., L. Haglund, and J. Mattsson, 1995, “Analysis, planning, improvisation and control in the development of new services,” International Journal of Service Industry Management, 6:2, 24-35

3.Chesbrough, H., 2007, “Business model innovation: it's not just about technology anymore,” Strategy & Leadership, 35:6, 12-17

The first half of the 20th century was populated with incredibly bad management served by technology and innovation and the second half was much the same except that management was able to overcome the advantages of technology in many cases to produce low growth and erratic quality 4 .The 2008 global financial crisis has provided evidence for the necessity of a new holistic view on the recent events in order to be able to avoid future failures.

Financial service institutions have to improve their strategic management activities in order to invent new financial services which would allow them to improve their quality and differentiate themselves from their competitors. Total relationship management is a very effective tool for leading current and future total quality efforts. TRM can act as the driving force behind achieving the primary objectives of total quality: quality, innovation, differentiation, efficiency, customer retention, and profitability 5

Increasing use of information and communication technologies (ICT) has a positive impact on the process of creating value and differentiation in service activities.6 The service institutions must exploit the unutilized or under utilized communication technology to improve relationship and customer satisfaction. The opportunity to innovate high quality products is only feasible with a high degree of customer and IT involvement7. IT tools should be used not only “to provide relationship-building credibility and opportunities” but also to enable marketers to “keep their finger on the customer‟s pulse and respond to changing needs.” Indeed, as companies look to satisfy customer needs for technological advancement, communication tools will “provide great opportunities for creating long-term and close relationships.”8

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The 21st century provides opportunities to corporate management to deal completely with the information technology to develop total relationship management. Competitiveness means that a bank or a financial institution, in terms of its competitive position, its management and marketing strategies, its use of information technology, the quality of its product and service, and its ability of managing long-term customer relationships, must be increasingly responsive to market considerations and customer orientation9.

4.Liu, V. C., and B. H. Kleiner, 2001, “Global trends in managing innovation and quality,” Management research news, 24:3-4, 13-16

5.Zineldin, M., 1999, “Exploring the common ground of total relationship management (TRM) and total quality management (TQM),” Management Decision, 37:9, 719-730

6.Meyronin, B., 2004, “ICT: the creation of value and differentiation in services,” Managing Service Quality, 14:2, 216-225

7.Matthing, J., B. Sandén, and B. Edvardsson, 2004, “New service development: learning from and with customers,” International Journal of Service Industry Management,” 15:5, 479-498

8.Zineldin, M., 2000b, “Beyond relationship marketing,” Marketing Intelligence & Planning, 18:1, 9-23

9. Zineldin, M., 2005a, “Quality and customer relationship management (CRM) as competitive strategy in the Swedish banking industry,” The Total Quality Management Magazine, 17:4, 329-344

Service quality

One of the most important events in the second half of 20th century in business world is “quality initiatives”. Quality initiatives refer to quality management programs, quality certifications, quality award models, and methods & methodologies to improve quality both for the product and services. These initiatives have gained importance, because they provide the tools to improve the quality of the products or services that the companies deliver to their customers. Even not-for-profit organizations such as hospitals, schools, governmental institutions have implemented these initiatives to improve their service quality. However, the ultimate aim of implementing quality initiatives has been to achieve customer satisfaction.

The criteria of most of the quality award programs encouraged strategic initiatives in the approach and deployment of quality practices (Vokurka et al., 2000: 41). Quality award models provide the organizations tools for implementing effective quality strategies, benchmarking, and self assessment of their own product/service quality in their business environment. However, the eventual goal is to improve organizational performance in financial terms and other important aspects. Some studies provide possible linkages between quality initiatives and financial returns. For example, for the 4 years between 1997 and 2000, the stock index made up of publicly traded US companies that received Malcolm Baldrige National Quality Award (MBNQA) outperformed the Standard & Poor's 500 by almost 4.5:1 (Lee et al.: 2003).

Quality is considered as the most important and critical determinant of competitiveness among the service institutions. Quality has been interpreted by various stakeholders in different perspective. Service quality would include not only quality final service but also production and delivery process of services. It is important that the employees involvement in process redesign and commitment to constant improvement of service. Quality consciousness will help the organization to deviate themselves among the competitors. High quality of products/services is considered an essential determinant of the long-term profitability not only of service organizations, but also of manufacturing firms10 [Margolies (1988)]. Wilson (1972) stated that: "often the initial mistake ... is to restrict its perspectives and to limit its consideration of market opportunities by taking the existing service product as the basic target in planning marketing activities. If, however, the service product is seen as a means of reaching the sales targets, the need for analysis of product alternatives and the constant search for new product ideas are highlighted.”

As a matter of fact, usually people do not just demand a physical product or tightly defined service. People need a product and its associated services. In fact, they demand the whole relationship with the supplier11. As a result of the intangibility of services, providers find it difficult to control and measure the specification or quality of services before launching. For this reason, service companies tend to revamp service development processes in their own ways. As a result, many service developers would rather believe that new services came about as a result of intuition, personal fancy, or inspiration [12].

Service quality (functional and technical) is of paramount importance in the management of any business-to-business relationship [13,14,15]. Relationship quality can be used as a measure of how successful or unsuccessful the relationship is. The principal component is being trust, commitment and customer satisfaction. “Total quality management (TQM) and marketing have very strong links within the organization. Both share a customer directed philosophy and both focus on teamwork and commitment from all levels within the organization. Managing service quality combines the aims of marketing within a framework for implementing quality, which has similarities with TQM. Developments in internal marketing and relationship marketing combine to provide an approach which foster integration and commitment to quality throughout the organization”. As part of managing service quality an organisation should design and operate an ongoing quality improvement programme that will monitor the level and consistency of service quality (Stanton, Etzel & Walker, 1991). Zeithamal, Parasuraman et al (1988) have developed a scale called SERVQUAL, which is used to aid the measurement of service quality in the consumer market. It aims to measure customer perceptions and expectations so any gaps can be identified.

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10. Margolies, J. M., 1988, When good service isn't good enough, PriceWaterhouse, Dallas

11.Zineldin, M. and P. Jonsson, (2000, “An examination of the main factors affecting trust/commitment in supplier-dealer relationships: an empirical study of Swedish wood industry," The Total Quality Management Magazine, 12:4, 245-265

12. Gummesson, E., 1989, “Nine lessons on service quality,” The Total Quality Management Magazine, 1:2, 82-90

13.Woodruffe H. (1995) Services Marketing Pearson Professional Ltd.

14. Gronroos, C. (1993) From Marketing Mix to Relationship Marketing: Towards a Paradigm

Shift in Marketing Asia - Australia Marketing Journal, Vol. 2 No 1.

15.Jobber D. (1995) Principles and Practice of Marketing McGraw-Hill Book Company Europe.

[]Vokurka, R.J., Stading, G.L., Brazeal, J. (2000) “A Comparative Analysis of National and Regional Quality Awards”, Quality Progress 33 (8): 41-49.

[] Lee, S. M., Rho, B.-H. and Lee, S.-G. (2003) “Impact of Malcolm Baldrige National Quality Award Criteria on Organizational Quality Performance”, International Journal of Production Research, 41 (9): 2003-2020.


Research scholars and practitioners have recognized that service quality is an elusive construct that is difficult to conceptualize [16]. While there is general agreement as to the positive effect of service quality on customer loyalty, there is debate as to the nature and content of the dimensions that constitute the service quality construct [17]. The first conceptualization of analysis the service quality is the Nordic perspective advocated by Grönroos who argues that service quality consists of two dimensions, functional quality and technical quality. Functional quality takes into account the manner in which service is delivered, whereas technical quality is concerned with the outcome of the service act [18]. The next conceptualization of service quality relates to the work of Parasuraman, Zeithamal and Berry who posit that service quality consists of five dimensions: reliability, responsiveness, assurance, empathy and tangibles. The other conceptualization of service quality advocated by Rust and Oliver contend that service quality consists of three dimensions: service product, (technical quality), service delivery, (functional quality), and the service environment [20]. It is very clear that perceptions of service quality are based on numerous dimensions.

Measuring the quality of internal services is relevant since an external-customer support requires internal systems aligned with external customer expectations, including each internal subsystems adding value to others systems within the organization[21] (Gilbert, 2000). As part of managing service quality an organization should design and operate an ongoing quality improvement programme that will monitor the level and consistency of service quality

[16]Smith, A.M. 1999, ‘Some Problems when Adopting Churchill's Paradigm for the Development of Service Quality Measures', Journal of Business Research, vol. 46, no. 2, pp. 109-120.

[17].Brady, M.K. & Cronin, J.J. 2001, ‘Some New Thoughts on Conceptualizing Perceived Service Quality: A Hierarchical Approach', Journal of Marketing, vol. 65, no. 3, pp. 34-49.

[18]Grönroos, C. 1984, ‘A Service Quality Model and its Marketing Implications', European Journal of Marketing, vol. 18, no. 4, pp. 36-44.

[19].Parasuraman, A., Zeithaml, V.A. & Berry, L.L. 1988, ‘SERVQUAL: A Multiple-Item Scale for Measuring Consumer Perceptions of Service Quality', Journal of Retailing, vol. 67, no. 4, pp. 420-450.

[20].Rust, R.T. & Oliver, R.L. 1994, Service Quality: Insights and Managerial Implications from the frontier, in Rust, R.T. & Oliver, R.L. (eds), Service Quality: New Directions in Theory and Practice, Sage Publications, Thousand Oaks, pp. 1-19.

[21].Gilbert, G. R., Measuring internal customer satisfaction, Managing Service Quality, Vol. 10, No. 3, pp. 178-86, 2000.

Most of the time customers form no real judgment about the service, and even when they do they often quickly forget it. This is evidenced by the wide scale success of the Dirichlet model of repeat-purchase that assumes no purchase feedback[22] Not surprisingly then, decades of research into the link between customer's expressed attitudes and their subsequent behavior has consistently shown a very weak link[ 23,24]. The vast bulk of customers who switch away from the brand they used previously said they were satisfied. Attitudes appear to be more a function of behavior (we like brands we have used) rather than the other way round [25]. Therefore, basing service quality research on attitudes is not sensible or useful.

The importance of the “customer” to an organization has grown in recent years. Greater emphasis is now being placed on customer satisfaction and more effort is being expended on broad quality concepts. Increased participation of employees is also being encouraged in a growing number of organizations. Total Quality Management is the system of activities directed at achieving delighted customers, empowered employees, higher revenues, and lower costs (Juran, and Gryna, 1993: 12).[26] Total quality management is a universal business strategy which is not culture bound. It is equally applicable to manufacturing and service industries, private and public organizations, structures of different sizes, and to companies of any socio cultural background (Krueger, 1999: 262).[27] TQM is a long-term strategic issue, which is about continuous improvement in all areas of the organization's activities. Therefore the key areas in ensuring the success of a TQM program in an organization are commitment and a systematic approach to the achievement of TQM improvements. Commitment must start with top management and then be gained from each individual employee. Not only is commitment needed, but also a systematic approach to the achievement of TQM improvements requires that the necessary infrastructure of people, systems and training (Keogh, 1994: 25). [28]

[22]Goodhardt, Gerald J., Andrew S.C. Ehrenberg, and Christopher Chatfield (1984), "The Dirichlet: A Comprehensive Model of Buying Behaviour," Journal of the Royal Statistical Society, 147 (part 5), 621-55.

[23] Foxall, Gordon R. (1999), "Attitudinal Behaviour," Working Paper: Keele University, UK.

[24] Kraus, Stephen J (1995), "Attitudes and the Prediction of Behavior: A Meta-Analysis of the Empirical Literature," Personality and Social Psychology Bulletin, 21 (No. 1, January), 58-75

[25] Bird, Michael and Andrew S.C. Ehrenberg (1966), "Intentions-to-Buy and Claimed Brand Usage," Operational Research Quarterly, 17 (1), 27-46.

[26] Juran, J. M., and Gryna, F. M. (1993) Quality Planning and Analysis, McGraw-Hill, International Editions.

[27] Krueger, V. (1999) “Towards a European Definition of TQM - A Historical Review”, The TQM Magazine 11 (4): 257-263.

[28] Keogh, W. (1994) “The Role of the Quality Assurance Professional in Determining Quality Costs”, Managerial Auditing Journal 9 (4): 23-32.

The technology has had an unbelievable impact on both the delivery and creation of new financial services. Financial service firms continue to spend huge money on new technology. Technology spending by financial institutions worldwide is growing very much in the recent years. Much of this spending is to improve internal procedures r, a significant amount is for “end user” services such as improved delivery channels, improved mobile banking, and increased branch automation. So far, consumers appear to be embracing these services. A recent report by the Tower Group estimates that the number of online transactions in the United States will grow to over 31 billion in 2010 from 11.8 billion in 2006.[29] There is a question, however, as to whether customers will continue to accept more automation of their financial services needs. As the financial services provided to customers evolve (as discussed above), it is uncertain what the best delivery method for these services will be.

[29]Silva, Jerry, Delivery Channel Volumes in the United States, 2006-10: From “In Line” to Online, TowerGroup, May 2007

A general definition is “the totality of features and characteristics of a product or service that bears on its ability to satisfy stated or implied needs” (Johnson and Winchell, 1988). Service quality is important to all organizations as it is “regarded as a driver of corporate marketing and financial performance” (Buttle, 1996). Various models have been developed for measuring perceptions of service quality (Gro¨nroos, 1983; 1990; Parasuraman et al., 1985; 1988;, 1991; Stafford, 1996; Bahia and Nantel, 2000; Aldlaigan and Buttle, 2002).

Service quality has been recognized as a key strategic issue for organizations operating in service sectors (Lewis and Mitchell, 1990). The banks believe customers will be loyal if they receive greater value than from competitors (Dawes & Swailes, 1999). Therefore, banks should

focus on improving service quality as a core competitive strategy. Previous research has indicated that high levels of customer satisfaction are related to the service quality provided through customer interactions (van der Wiele et al., 2002; Vilares and Coehlo, 2003). The service profit chain (Heskett et al., 1994) specifically identifies a relationship between employee satisfaction, service quality and customer satisfaction. Research investigating these relationships has subsequently generated support for this model (Loveman, 1998; Anderson and Mittal, 2000; Voss et al., 2004). Frei et al. (1997) also suggested that processes have an important r ole to play in driving service quality and customer satisfaction. Banks with good, consistent processes enjoy

higher financial performance. More specilically, service quality affects the repurchase intentions of customers (Ghobadian et al., 1994). Many companies are focusing upon service quality improvement issues in order to drive high levels of customer satisfaction. Parasuraman et al. (1985) also recognized the significance of staff satisfaction and service quality as drivers of customer satisfaction in developing their SERVQUAL measurement tool. Heskett et al. (1994) proposed a positive linear relationship between staff satisfaction, service quality and customer satisfaction leading, ultimately, to profitability. Thus the following hypothesis was tested:

According to the other studies, customer satisfaction and service quality have been consider as two distinct, though highly correlated, constructs (Bansal and Taylor, 1997; Dabholkar et al., 2000). In marketing literature, several studies have found positive relationships of service quality and customer satisfaction with customer behavioral intentions (Anderson and Sullivan, 1993; Parasuraman et al., 1988). Further, studies have also shown that customer satisfaction mediates the effect of service quality on behavioral intentions (Gotlieb et al., 1994). It is recommended that customer satisfaction should be measured separately from service quality in order to understand how customers evaluate service performance (Dabholkar et al., 2000).


Various forms of trust have been identified in the literature. Moorman et al. (1992) define trust as “a willingness to rely on an exchange partner in whom one has confidence.” In prior research, trust has been conceptualized in several ways; researchers have long acknowledged this confusion (McKnight, Cummings, Chervany, 1998; McKnight et al. 2002). In other words, trust also can be defined as “the belief in the integrity, honesty and the reliability of another person” (Dwyer and Tanner, 2002). No matter what definition is used, trust is a key element for relationship success and tends to be related to a number of elements such as competitive advantage and satisfaction (Ratnasingam and Pavlou, 2003). Chiou (2002) found that perceived trust had direct and positive impacts on the overall satisfaction and International Research Journal of Finance and Economics - Issue 36 (2010) 78 loyalty of customers. Because we also expected these variables and relationships to apply in customer satisfaction with financial service, we hypothesized that:

Customer satisfaction was therefore considered to be a mediating variable between trust and customer loyalty. In addition, most researchers agreed that trusting beliefs directly influenced trusting intentions (e.g., repurchase intentions). Chaoprasert and Elsey (2004) discovered that a bank's staffplays a key role in mediating between the driving force of systems, such as new technology, and the need to retain customer loyalty by providing a good quality personal service across the counter in the case of the Thai banks.

Customer Satisfaction

Satisfaction is a consumer's purchase perception of the difference between the expected and received value of a transaction. Zeithaml and Bitner (2000) defined customer satisfaction as the “customers' evaluation of a product or service in terms of whether that product or service has met their needs and expectations”. Satisfaction is therefore a consumer's post-purchase evaluation and affective response to the overall product or service experience. A substantial amount of research has concluded that satisfaction is an important determinant of customer loyalty (Bearden and Teel, 1983; Cronin and Taylor, 1992; Caruana, 2002; Dick and Basu, 1994; Oliva et al., 1992; Selnes, 1993). Also, Oliver (1999) defined customer loyalty as “a deeply held commitment to re-buy or re-patronize a preferred product/service consistently in the future, thereby causing repetitive same-brand or same brand-set purchasing, despite situational influences and marketing efforts have the potential to cause switching behavior”. The satisfaction/dissatisfaction occurring through a matching or mismatching of expectations and perceived performance is considered to act as an antecedent to loyalty behavior (Bitner, 1990).

In a service context, Asuncion et al. (2004) concluded that customer satisfaction was the key factor affecting service loyalty. Oliver (1999) suggested that satisfaction is a pleasurable fulfillment and that for satisfaction to affect loyalty, cumulative satisfaction (an affective response) was required so each and every satisfaction episode gets blended or becomes aggregated. Zairi (2000) found that satisfied customers possibly share their experiences with five or six people while dissatisfied clients might inform another ten. Since customer loyalty responses are conative in nature representing levels of customer commitment towards the service provider (Chiou et al. 2002; Oliver, 1997, 1999),

As noted in earlier literature, we think that the banking sector must understand what the demands of the customer are and which factors the customer cares about after the “Financial Tsunami”, and, furthermore, to design and suggest suitable financial commodities to reduce the turnover of customers, and thereby forming a superior-quality cycle. Consequently, customers will create positive trust and satisfaction and retain them over the long run. According to the aforementioned literature, we discuss the casual relationships of these variables and formed the following research framework (see


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The management of the broking organisation will want to establish how the ‘prospect' obtained details of their organisation, whether it is as a result of networking, a promotional exercise or by referral from an existing client. This will enable them to assess the effectiveness of each. During the information gathering stage management must ensure that the appropriate level of technical quality is available is to ensure that the ‘prospect' is given the correct advice thus ensuring the relationship foundations are firmly laid. Management must also ensure that the insurance carriers are providing an agreed level of service and wide product portfolio.

However, it is the management's responsibility, at this stage, to make sure that measures are in place to identify whether or not the prospective relationship will be profitable or not. Once the relationship has been formally established, the emphasis shifts to the level of functional quality provided. Management must ensure that the appropriate team of professionals and account handlers is put in place, and that the agreed standards are met and maintained. Measures must also be put in place to assess the ongoing relationships, principally because the objective of a relationship marketing strategy is to establish and maintain long term profitable relationships. Yorke (1990) believes that clients will only retain their supplier if they perceive that their needs are being properly managed during the purchasing and consumption process. Others like Woodruffe (1995) points out that when organisations are striving to gain and maintain competitive advantage, both quality and production are of key importance. However, improvements in service production can lead to sacrifices in the level of quality; that is at its most sensitive when people are the service deliverers. Woodruffe summarises.

It has been argued that when inspired leadership, a customer minded corporate culture, excellent service system design and effective IT are combined then superior service quality and services marketing should follow (Berry & Parasuraman, 1991). The focus should be on customer satisfaction through integration of service quality and the entire system. To sum up, quality is difficult to define, measure, control and communicate. Yet in services marketing the quality of the service is critical to a firm's success. However difficult it may be to define the concept of service quality, management must understand that the consumer and not the producer or the seller of a service defines quality. Moreover, it is important to note that management strives to maintain consistent quality at or above the level of customer expectations (Morgan and Hunt, 1994).

[ ]. Morgan R. M. & Hunt S. D. (1994) The Commitment - Trust Theory of Relationship

Marketing Journal of Marketing Volume 58 p20 - 38.