The effects of customer relationship marketing on customer retention

Abstract

Customer relationship marketing as a strategic marketing concept has gained tremendous interest among researchers and practitioners in recent times. However, few empirical studies on market orientation and performance have been established in the Cameroon banking sector.  The major objective of this study was to assess the role of relationship marketing on customer retention in the Commercial Banks in Cameroon using Ecobank Buea as a case study. Data used in the study was principally primary collected through the use of structured questionnaires administered to 987customers of the bank. Data was analysed through descriptive and quantitative means and in several stages. In measuring the variables based on the questions asked, composite variables were generated in order to determine if the extracted dimensions offer a good fit to the data. Quantitatively the study makes used of Principal Component Analysis to generate quantitative data on which the multiple regression was applied. The result of the study revealed that except for communication that has positive but insignificant effects on customer retention, all relationship marketing strategies particularly bonding, trust, customer satisfaction and commitment have positive and significant influence on customer retention at Ecobank Buea. Moreover, the study finds that the trust between the customer of the bank and the bank is attributed to their past relationship with the bank while the communication link between the customer and the bank is considerably appreciated to be good, although the public relations element is weak. Furthermore, the study reveals that the two most appreciable aspects of relationship marketing with Ecobank Buea are trust and communication and the least applicable is measures to enhance satisfaction of customers. On the basis of this, the study recommends a policy mix involving appropriate measures to strengthen trust, bonding, commitment, communication and customer satisfaction at the bank so as to attract more customers.

CHAPTER ONE

INTRODUCTION

This chapter expresses the global view as far as the nexus between relationship marketing and customer retention is concerned. It also highlights the current scenario of Ecobank in the context of relationship marketing. The chapter exposes clearly the objectives and hypothetical premises on which the study hinges and also situates the study in the current context of relationship marketing and management literature by highlighting the knowledge gap the study stands to fill.

1.1 Background of the Study

It is an upheld tendency in marketing that the customer is regarded as the king in every production and marketing activity. In fact, every competitive company or organization is often faced with two customer related issues: creation of new customers and retention of existing customers. Whereas the creation of customers is a process of attracting new customers, retention of customers involves creation of satisfaction and loyalty among the existing customers (Jain, 2013). This shows that every frantic effort of any contemporary profit making and competitive institution is to have and retain its customers.

However, customers’ retention practices are not new to industry and trade for they are as old as marketing itself. Marketing history holds that ever since the marketing of goods started, the sellers adopted various methods to retain existing customers. They kept close association even personal contacts with them so that they may not shift to other shops (Jain, 2013). Today, the concept has become more acceptable and brought out the newer requirements and challenges for the marketing function with customers’ retention being a driving philosophy. Marketing attention shifted gradually but definitely from mutually independent transactions to loyalty based repeat purchases and cross-sell opportunities (e.g. Blattberg and Dayton, 1996; Fournier, 1998; Gruen et al.,2000; Lemon et al., 2002; Peterson, 1995; Winer, 2001 and DeWulf et al., 2001).  In fact, the ever expanding and rapidly changing nature of the marketing environment has made it such that companies cannot maintain attitudes characterized by attracting customers or expanding in new markets but also struggling to maintain existing customers. Berry (1983) perceived relationship marketing as a tool from which customer loyalty can be secured and, as a result, the attainment of higher competitiveness and enhanced customer satisfaction can be achieved. This implies that transforming customers into loyal ones and establishing a long term relationship with customers is critical for organizational success (Bhardwaj, 2007). The key success factor to survive in mature markets relies on sustaining long-term relationships with stakeholders (De Madariaga and Valor, 2007). The challenge all marketers face today is finding ways of increasing customer loyalty and retention.

Generally, the justification why customer retention remains a major preoccupation of any competitive institution is relatively straightforward. It is more economical to keep customers than to acquire new ones. The costs of acquiring customers to “replace” those who have been lost are high. This is because the expense of acquiring customers is incurred only in the beginning stages of the commercial relationship (Reichheld and Kenny, 1990). Moreover, longer-term customers buy more and, if satisfied, they act as an advertisement medium as they generate positive word-of-mouth promotion for the company in addition to the fact that such customers take less of the company’s time and are less sensitive to price changes (Healy, 1999). Wills (2009) argued that to obtain new customers is costly more than 5 times than to retain the existing customers and he adds that loyal customers are helpful in increasing revenues in two ways.  According to Schiffman and Kanuk (2004) customer’s relationship with the company will be successful when company provides values to customers which keep them satisfied. Customer service, quality, and marketing correlate with one another (Gillemo et al., 2000). However, organizations have always faced hardships in aligning these concepts together although relationship marketing places great emphasis on customer value rather than simply ‘getting the customers’ (Christopher et al., 2000). On their part, the customers are smarter, more informed, and have an access to many channels and choices which they take little time to exercise such that the customer can easily defect to competitors who promise better offerings at lower prices (Bhardwaj, 2007).

According to Arnett and Badrinarayanan (2005), numerous factors that influence relationship marketing success, three factors consistently identified as important are: trust, relationship commitment, and communication (Mohr and Nevin 1996; Mohr et al.,1996). In addition to commitment, trust, and communications, satisfaction, bonding, shared value, empathy, dependence and reciprocity have been considered as important components of relationship marketing orientation (Wetzels et al., 1998; Sin et al., 2005 and Eisingerich and Bell, 2006).

The Institutional theory posits that the social contexts in which firms operate influence the behavior of the firms (Meyer and Rowan 1977) such that it sometimes causes firms in an industry to adopt similar structures and practices. The level of competition in the banking industry is very high most especially as banks do not only compete among each other but also with non-banks and other financial institutions (Kaynak and Kucukemiroglu, 1992 and Hull, 2002). This is further worsened by the fact that most bank product developments are easy to duplicate and when banks provide nearly identical services, they can only distinguish themselves on the basis of price and quality. Indeed, commercial banks around the world are struggling to maintain their competitiveness in the face of severe external challenges such as massive debt loads threatening the global economy, and stringent regulations put in place as a result of the financial crisis of 2008 which resulted in hindering traditional revenue streams.

This means that customer retention is potentially an effective tool that banks can use to gain a strategic advantage and survive in today’s ever-increasing banking competitive environment. Indeed, the use of relationship management as a key driver in the sustenance and growth of customer base in the banking industry has never been in doubt (Kincaid, 2003; Bauer et al., 2002; Danciu and Danciu, 1996; Berry and Donnelly, 1984). Effective relationship marketing strategy helps the organization to understand customers’ needs, so that organizations can serve their customers better than their competitors, which finally leads to cost reduction and customer loyalty (Gaurav, 2008).

1.2 Problem Statement

In a very dynamic, vibrant and competitive financial market charaterised by both banking and non-banking financial institutions in Cameroon, customer retention is paramount to the overall success of commercial banks. The ever increasing numbers of already banked people opening accounts with new banks while closing accounts with other banks implies that many commercial banks are currently facing a problem of losing customers to their competitors. This, coupled with other factors, has led to collapse of certain banks or bank branches in some parts of Cameroon.

In the opinion of Sin et al. (2002), for a bank to maximize its long-term performance in such aspects as customer retention and loyalty, it must build, maintain and enhance long-term and mutually beneficial relationships with its target customers. However, a derivative implication from the prevailing situation in commercial banks and other financial institutions in Cameroon and Fako Division in particular shows that commercial banks (as well as other financial institutions) devote much of their resources in attracting prospective customers while they simultaneously fail to address the issues of how to retain the existing ones. Presumably, these firms fail to create long-term relationships with their customers; a situation that negates customer retention. It is against this backdrop that this study was necessitated with the aim of assessing how customer relationship affects customer retention in banks in the Fako Division with special reference to Ecobank Buea.

1.3 Research Questions

Based on the above situation on customer relationship in banks, the study seeks answers to the following research questions

What are the common customer retention strategies put in place at Ecobank?

1.5 Objectives of the Study

The main objective of the study is to examine the effect of customer relationship marketing on customer retention in Commercial banks taking Ecobank Buea as a case study. The specific objectives include:

1. To assess the role bonding plays on customers’ retention in commercial banks,
2. To evaluate the effects of trust on customers’ retention in commercial banks;
3. To examine the influence of communication on the rate at which customers are retain in commercial banks;
4. To investigate the implications of commitment on customers’ retention rate in commercial banks;
5. To appraise the extent to which customer satisfaction and loyalty influence their retention in commercial banks.

MARKETING PROJECT TOPICS WITH MATERIALS