Title: Does Relationship Marketing Improve Customer Relationship Satisfaction and Loyalty?
By: Leverin, A.& Liljander, V.
Source: Journal of Bank Marketing Vol. 24, No. 4, 2006 pp. 232-251
1.0 Introduction
During the previous years, the banks were mainly providing the saving service and investments for the customers, they did not realize that the importance of establishing relationship between bank and customer is essential. Due to the increase number of banks nowadays, banks tend to organize various competitive programmes in order to receive profits and to obtain more customers.
The aim of this study is to investigate the RM strategy of a retail bank, in order to discover whether the implementation of the strategy has had the intended strengthening effect on customer relationships. A survey was conducted on two different profitability segments, collecting data on customer relationship satisfaction, perceived relationship improvement, and loyalty towards the bank. The study examines the RM strategy and investigates whether its implementation has led to customer-perceived improvements in the banking relationship, and to increased loyalty in the targeted segment.
According to O’Malley, and Tyanan (2000), relationship marketing works better if only the customers get themselves involved in the product or service, personal interaction and willing to engage in relation ship building activities. However, it does not mean that all of the customers are characterized as the profitable customers in the context of long-term and short-term customers in the banking service.
1.1 Definition of Relationship Marketing, (RM)
Relationship marketing is the method of gradually turning potential customers into subscribers and leads them from position to position along a planned program to convert them into life time customers (Yahya, 2003). In the context of retail banking setting, Walsh et al. (2004, p. 469) define RM as “the activities carried out by banks in order to attract, interact with, and retain more profitable or high net-worth customers.”
According to O’Malley, and Tyanan (2000), customers who perceived benefits of involving themselves in banking relationships are highly encourage the strategy of relationship marketing by the banks.
1.2 Principles of Relationship Marketing (RM)
Paynne, 2006 suggests three main principles of RM. The first is an emphasis on customer retention and extending the ‘lifetime value’ of customers through strategies that focus on retaining targeted customers. The second is a recognition that companies need to develop relationship with a number of stakeholders, or ‘market domains’, if they are to achieve long term success in the final marketplace. The third is that marketing is seen as a pan-company or cross-functional responsibility and not solely the concern of the marketing department.
On the other hand, Hennig-Thuau & Hansen (2000) suggest that there are “6 i’s of RM.”
1. Intention
- of a unique relationship
2. Interaction
- with customer
3. Integration
- of customers
4. Information
- about customers
5. Investment
- in customers
6. Individuality
- of customers
2.0 Literature Review
2.1 Customer Relationship Satisfaction
According to Ennew and Binks, 1999; Jamal and Naser, 2002; Hooi Ting, 2004, A positive relationship between service quality and satisfaction has been well established in the banking sector.
2.2 Customer Loyalty
Customer loyalty is defined 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 having the potential to cause switching behaviour (Oliver, 1999, p. 34).
That implies, customer loyalty is a customer who shows positive attitude or preference toward one of the particular service or product rather than the other.
According to Nordman (2004) even satisfied customers switch banks and move to another while they were showing satisfaction to the bank service. The main factor that contributes to this problem is pricing. Therefore the banks carry out customer loyalty programmes that provide economic incentives.
2.3 The Link Between Loyalty and Profitability
Not all loyal customers are profitable (Storbacka, 1994, 1997). According to Reinartz and Kumar (2002), the overall link between loyalty and profitability in many industries is questionable for two reasons:
(a) a relatively large percentage of long-term customers are only marginally profitable;
(b) a relatively large percentage of short-term customers are highly profitable.
2.4 Profitability Segmentation in Banks
Customer profitability segmentation has been implemented in order to fulfill the RM strategy. Storbacka (1997) suggests applying the principles of segmentation in an RM context. The segmentation criteria are:
- relationship revenue and relationship cost;
- relationship volume;
- relationship profitability; or
- relationship volume and profitability.
3.0 Method
This study was conducted in 2003 and the bank which had fully carried out RM strategy that was launched in 1998 was chosen that is, OP bank in
4.0 Relationship Marketing and Profitability Segmentation at the Bank
4.1 Implementing the RM strategy
a) Bonus point given to the customer through loyalty programme.
b) 2003, allowed customers to receive cash of collected bonus points
c) Divided customers into three segments. The main criteria for segmenting customers are rate of profitability, loans, deposits, and investment.
i) Segment 1: Most profitable customers and highest business volume or wealth.
- Use customer oriented strategy towards these customers.
- Map the needs of 80 percent and a bonus system to motivate the staff to reach the objective.
- Customers that visit the bank at least twice a year are asked by contact employees how satisfied they are with the bank and its services.
- Customers that seldom visit the bank office are contacted by telephone.
ii) Segment 2: Possess certain volume or profitability (less than Segment1), younger than 26 years old.
- Exposed to a sales oriented strategy to increase the long-term savings.
- Contacted by telephone and offered different types of long-term savings, such as mutual funds.
- Not offered personal appointments and no continuous contact is kept with these customers in order to map their needs.
iii) Segment 3: At least 26 years old, smaller volume and less profitable.
- To increase their profitability
- Directs a transaction oriented strategy towards these customers, minimizing the amount of time spent on them and encouraging them to use self-service options, such as online banking, thus aiming to reduce the relationship costs.
5.0 Results
- Customers had perceived improvements in their relationship with the bank over the past 4-5 years.
- The findings indicate that loyalty in both segments depend on the current level of relationship satisfaction than on perceived relationship improvements.
- The intention of a customer oriented focus on Segment 1 customers, did not lead to higher loyalty in Segment 1 customers compared with Segment 2 customers.
- No differences between the two groups on any of the relationship strength items: relationship satisfaction, relationship improvement or loyalty.
- Profitable customers are likely to be aware of their worth to the bank, and less tolerance for the service. They are more demanding has high expectations on the bank service.
- Customers in segment 2 show that they concern on price issues related to fees and interest rates.
- Customer in segment 1 complaint about the things in bonus programmes such as complexity and inadequacy.
6.0 Conslusion
