A Study of Bank Customer Retention

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Discussion Paper No. 109

CUSTOMER SATISFACTION: A STUDY OF BANK CUSTOMER RETENTION IN NEW ZEALAND

David Cohen1 Christopher Gan2 Hua Hwa Au Yong3 and Esther Choong4

March 2006

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Commerce Division, PO Box 84, Lincoln University, Canterbury, New Zealand, Tel: 64-3-3252811, Fax: 64-3-325-3847, cohend@lincoln.ac.nz Corresponding Author, Commerce Division, PO Box 84, Lincoln University, Canterbury, New Zealand, Tel: 64-3-325-2811, Fax: 64-3-325-3847, ganc1@lincoln.ac.nz Department of Accounting and Finance, Faculty of Business and Economics, Monash University, Victoria 3800, Australia, Tel: 61-3-9905-5178, Fax: 61-3-9905-5475, Email: HueHwa.AuYong@BusEco.monash.edu.au Standard and Chartered Bank, Kuala Lumpur, Malaysia, Email: mcc9999@gmail.com

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Commerce Division Discussion Paper No. 109

CUSTOMER SATISFACTION: A STUDY OF BANK CUSTOMER RETENTION IN NEW ZEALAND

David Cohen Christopher Gan Hua Hwa Au Yong and Esther Choong

March 2006

Commerce Division PO Box 84 Lincoln University CANTERBURY Telephone No: (64) (3) 325 2811 extn 8155 Fax No: (64) (3) 325 3847 E-mail: ganc1@lincoln.ac.nz ISSN 1174-5045 ISBN 1-877176-86-9

Abstract
Customer retention is an important element of banking strategy in today’s increasingly competitive environment. Bank management must identify and improve upon factors that can limit customer defection. These include employee performance and professionalism, willingness to solve problems, friendliness, level of knowledge, communication skills, and selling skills, among others. Furthermore, customer defection can also be reduced through adjustments in a bank’s rates, policies and branch locations (Leeds, 1992).

Clearly, there are compelling arguments for bank management to carefully consider the factors that might increase customer retention rates. Several studies have emphasised the significance of customer retention in the banking industry (see Dawkins and Reichheld, 1990; Marple and Zimmerman, 1999; Page et al., 1996; Fisher, 2001). However, there has been little effort to investigate factors that might lead to customer retention. Most of the published research has focused on the impact of individual constructs, without attempting to link them in a model to further explore or explain retention. If retention criteria are not well managed, customers might still leave their banks, no matter how hard bankers try to retain them.

This paper examines the impact of several retention-relevant constructs that influence consumers’ decisions to stay with or leave their banks in New Zealand. These constructs were rated by customers as having strong effects on loyalty to their banks. Demographic characteristics (i.e. age, gender, educational level and income) were also assessed for their contribution to intentions of staying with or finding alternative banks. Results suggest that the most important constructs were customer satisfaction, followed by corporate image and switching barriers. There was also evidence that customers’ age groups and level of education contributed to explaining respondents' propensity to stay with their current banks.

JEL Classification: G20, M30 Keywords: customer retention, customer satisfaction, retail banking

Contents
List of Tables 1. 2. INTRODUCTION LITERATURE REVIEW 2.1 Competitive Advantage 2.2 Customer Satisfaction 2.3 Customer Perceptions of Value 2.4 Corporate Image 2.5 Switching Barriers 2.6 Consumers’ Behavioural Intention 2.7 Customer Loyalty METHODOLOGY AND DATA 3.1 Data Collection 3.2 Results and Discussion 3.2.1 Durability of Relationships 3.2.2 Research Constructs CONCLUSIONS i 1 2 3 4 5 5 6 6 7 8 8 8 9 11 20 22

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REFERENCES

List of Tables
1. 2. 3. 4. 5a. 5b. 5c. 5d. 5e. 5f. 5g. 6. Demographics of Respondents Bank of Respondents with Length to Stay Intention to Say with Current Bank Relationship Between Respondents’ Likelihood of Staying and Bank Mean Scores of Respondents’ Perceived Satisfaction (α...
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