Determinants of Performance in Retail Banking: Perspectives of Customer Satisfaction and Relationship Marketing

Singapore Management Review, 2008 by Jham, Vimi, Khan, Kaleem Mohd

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 of the 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. 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, 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 western (Anglo-Saxon) cultural contexts such as Europe, the United States, Australia or the United Kingdom, few studies have examined this in an eastern 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.

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.