The Importance Of Customer Loyalty Towards Bank

1.0 Introduction

With the new economic era coming, it is becoming the essential to understand the importance of customer loyalty towards bank. The aim of this research is to analyze the factors the affect the customer loyalty towards bank and study how to improve the relationship between Bank and Customer. After the brief introduction, I will explain the overview for the customer loyalty. Research background, problem statement and research objective will also be discussed. Besides, the justification, scope of the study, and limitation of the study hand been thoroughly discussed in chapter one. Definition of the important terms used in this paper will be provided.

Overview

Nowadays, Customer loyalty becomes very important for an organization to retain its current customers. Gaining customer loyalty becomes a key objective for majority banking organizations in the world. Customer loyalty defines loyalty as “a deeply held commitment to rebuy or repatronize a preferred product or service consistently in the future, despite situational influences and marketing efforts having the potential to cause switching behavior” (Oliver 1997,p.360) This has lead to a different definition of customer loyalty, “an ongoing propensity to buy the brand, usually as one of several” (Uncles et al., 2003, Gee et al., 2008).

Customer loyalty can be determined by looking at the number of purchases made by the customer from the product portfolio of a company, the frequency of acquisition, the percentage from the total expenditures made by a customer for a certain product or service (Filip and Anghel, 2009). Besides, customer loyalty can also be determined through consumer preferences and their affective disposition toward the bank, which are combined with repeat purchasing. Due to Filip and Constantinescu, 2007, we can conclude that repetitive customer behavior is not enough for us to be considered loyal towards the banking industry. (Filip and Anghel, 2009)

Academics need to have more knowledge and better understanding to the process of developing customer loyalty (Oliver, 1999; Knox and Walker, 2001; Tsaur et al. 2002; McMullan and Audrey, 2008). When the academics have enough knowledge, they can know how to segmentation the customers according to different levels of customer. So, Different level customers have different strategies based on their background. In addition, the relationship between competition and loyalty becomes stronger when level of competition increase. Services sector is one of the examples because this sector has a lot of choices and rapidly emerging innovative products and services (McMullan and Audrey, 2008, Stevens, 2000). However, the academic and practical knowledge of the determinants of customer loyalty is very important for a organization to survive in market.

In overall, a successful strategic can help the organization to retain the customer in order to survive in highly competitive market. Developing an efficient customer loyalty strategic is very important to organizations especially banks to build a strong relationship with their customers.

1.2 Background of the research

In Malaysia, there are many bank located in different states, banking sector becoming increasing competitive from day to day. Due to the rapid development of information technology, it has made a great impact in the banking industry deeply. The high technology can provide the customer better alternative than before. It can help the customer to fulfill their financial needs. Improving bank services with high technology helps to retain customers.

Besides that, bankers also need to have different kind of marketing and management strategic. One of the strategies is to understand their customer needs and try to satisfy their needs. There are several reasons that can influence customers’ selection of a bank. The range of services, rates, fees and prices charged can influence the customer mind when they want choose the suitable bank to keep their money (Abratt and Russell, 1999; Cohen et al., 2006). Furthermore, providing service excellence, innovative products are vital to succeed in the banking industry.

1.3 Problem statement

Customer loyalty becoming an important element of banking strategy in today’s increasingly competitive environment. Nowadays, the entire bankers need to compete with each other to survive in this highly competitive market. The banks not only need to compete among each other. It also needs to compete with non-banks and other financial institutions (Kaynak and Kucukemiroglu, 1992). The entire banker must identify the problem occur in the bank and try to manage the problem in a proper way.

Employees play an important role in a banking industry. Employees represent the professionalism of an organization. So, the banker must make sure their employee willingness to solve problems when emergency case happens. They must train their employee on how to dealing with customer. Friendliness, sufficient knowledge, excellent communication skills, outstanding selling skills are essential for the employee while dealing with customers.

Many researches show that retaining an existing bank customer costs less than getting a new customer. They discover that the cost of creating a new customer has been expected to be five times more than that of retaining an existing customer (Reichheld, 1996; Gan et al., 2006).

Some researcher has explored the influence of several factors on loyalty. There are service quality, customer satisfaction, corporate image, commitment and conflict handling. Based on the research, this several factors have great impact on customer loyalty. Unfortunately, many banking industries do not fulfill the requirement of this several factors.

The common problem is bank does not fully understand customer needs, this lead to provide wrong or insufficient information to help the customers. Some banks do not provide good quality of service to customers. Other than that, the way the bank employee deal with customer does matters. The communication between the employee and customer that is not professional will effect the impression of the bank to the customer. Besides, some banks do not provide the special promotion to attract the customer will not have the strong relationship with the loyalty customer. If retention criteria are not well managed, customers may just switch to other bank to manage their wealth. In conclusion, the above problem need to solve and handled correctly to satisfy customer in many ways.

Research question:

Is there any significant relationship between reliability and customer loyalty?

Is there any significant relationship between responsiveness and customer loyalty?

Is there any significant relationship between assurance and customer loyalty?

Is there any significant relationship between empathy and customer loyalty?

Is there any significant relationship between tangibles and customer loyalty?

Is there any significant relationship between customer satisfaction and customer loyalty?

Is there any significant relationship between corporate image and customer loyalty?

Is there any significant relationship between commitment and customer loyalty?

Is there any significant relationship between conflict handling and customer loyalty?

1.4 Research Objective

Past researches show that customer loyalty is very important for banks. Therefore, the objective of this research is to analyze the factor that can influence customer loyalty towards banking industry. Besides, to investigate how the bank to strengthen the relationship between bank and customer is also the purpose of this research. The target respondent for this research is undergraduate university student.

The study has some specific objective are as follow,

i) To determine important factors affect the customer loyalty on bank

ii) To analyze the relationship between reliability, responsiveness, assurance, empathy, tangibles, customer satisfaction, corporate image, commitment and conflict handling.

iii) To make suggestion that could assist bank manager to increase customer loyalty towards bank.

1.5 Research Justification

Nowadays, gaining customer loyalty becomes the purpose of a bank in order to survive in the competitive market. So, all the banking organization tries to make every customer satisfy their services. The result of this research will be able to provide an insight into how the bank manager to determine the factor that can affect the customer loyalty towards banking industry. All the relationship between the factors and customer loyalty can help the bank manager to making more effective market strategic.

Besides, this result also can benefit all organizations especially banking industry. With this research, they can determine the factor that can influence the customer loyalty and the relationship between the factors and customer loyalty. Therefore, they can improve and make decision in the better ways.

Furthermore, the findings of this research are very useful to local banking industry. The findings of this research can provide some useful feedbacks that help the bank manager to improve the bank service quality wich has direct impact of customer loyalty. If the improvement of the bank services parallel with the needs of the customer, the customer satisfactory level will be increased High level customer satisfaction will prevent the customer switching to other banks.

1.6 Limitation of the study

This study only focuses on banking industry in Malaysia due to the time and location limitation. Also, Customer loyalty also affect by other external factors such as price.

Besides, the research only focuses on undergraduate university students which include the local university and private university.

It is assumed that the respondents will answer the question in an honest manner.

1.7 Scope of the study

This research target respondents consist of a group of 200 undergraduate university students. The undergraduate university students are bank customers. In this research, data are collected through primary research by the questionnaire survey form. Suggestion, recommendations from the bank customer can get through the survey form. In order to achieve the objective of the research, the questionnaires will be set based on research objective and hypotheses statement. It can make sure that the data that had been collected are more accurate and useful for the research.

1.8 Conclusion

As a conclusion, bank should always keep improve the services in order to compete with other competitor. Customer loyalty is a key success for a banking industry. And retaining customer is important because the cost of creating a new customer has been expected to be five times more than that of retaining an existing customer (Reichheld, 1996).

1.9 Definition

bank

A bank is a financial institution that accepts deposits and channels those deposits into lending activities. Banks primarily provide financial services to customers while enriching investors. Government restrictions on financial activities by banks vary over time and location. Banks are important players in financial markets and offer services such as investment funds and loans.

Customer loyalty

Customer loyalty can be define as “a deeply held commitment to rebuy or repatronize a preferred product or service consistently in the future, despite situational influences and marketing efforts having the potential to cause switching behavior”.(Oliver 1997,p.360)

Customer Satisfaction

Customer satisfaction is defined as “the customer’s response to the evaluation of the perceived discrepancy between prior expectations and the actual performance of the product/service as perceived after its consumption” (Tse and Wilton, 1988; Che-Ha, Tse, 2007,p.127).

1.10 Organization of Research Project

This research project consists of five chapters which is introduction, literature review and research methodology, results and discussion, conclusions and recommendations.

Chapter one is introduction of the research project. It begins with the overview and background of the topic. After that, this chapter also covers problem statement. After identify objective of research, research justification will be discussed. Finally, limitation of the study and scope of the study will be explained.

Chapter two is literature review. It presents the variables that involve in this research. The variables include reliability, responsiveness, assurance, empathy, tangibles, customer satisfaction, corporate image, commitment and conflict handling. First the key terms and variables are defined, and then followed by literature review in the context of factors affecting customer loyalty towards bank. Finally, a small conclusion will be discussed.

Chapter three states the research methodology. It begins with introduction and then followed by a complete research framework to illustrate the relationship between the dependent variable and independent variable. After that, nine hypotheses were developed to test the correlation. Sampling procedures and sources of data will also discuss in this chapter. Furthermore, some technique to develop questionnaire also will also be discussed.

Chapter four presents the results from the data analyses. The analysis examines the results on whether the variables can influent the bank customer loyalty. The analysis is to find out if there is any significant relationship between the independent variables and dependent variable.

Chapter five states the recommendation and conclusion. It discusses the major finding and concludes the study. It also highlights the implication of this study, limitations and some suggestion for the future research.