Customer Involvement and Interaction in Retail Banking

Journal of Services Marketing
Customer involvement and interaction in retail banking: an examination of risk and confidence in the
purchase of financial products
Barry Howcroft Robert Hamilton Paul Hewer
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Barry Howcroft Robert Hamilton Paul Hewer, (2007),"Customer involvement and interaction in retail banking: an examination of
risk and confidence in the purchase of financial products", Journal of Services Marketing, Vol. 21 Iss 7 pp. 481 - 491
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Customer involvement and interaction in retail

banking: an examination of risk and confidence
in the purchase of financial products
Barry Howcroft and Robert Hamilton
University of Loughborough, Loughborough UK, and
Paul Hewer
University of Stirling, Stirling, UK

Abstract
Purpose The purpose of the paper is to examine bank customer involvement and the importance of risk when contemplating the purchase of
financial products.
Design/methodology/approach The paper is a discussion of the literature on customer involvement, risk and interaction forms the basis for a
series of focus discussion groups and facilitates the design of a questionnaire. The questionnaire is used to collect information on bank customer
involvement and confidence when purchasing a comprehensive range of financial products. The data is analysed using cluster analysis.
Findings The paper finds that the clusters provide evidence to suggest that the market consist of a number of distinctive customer segments.
Although the research suggests that the market might be changing and becoming more active, the majority of bank customers are still essentially
passive.
Research limitations/implications The sample size means that it is not fully representative of the UK banking population. The findings also raise a
number of issues, which require further research, such as, the possibility that customer involvement could be used as the basis for segmenting the
customer base.
Practical implications There appears to be an overwhelming customer need for more product information and more involvement with banks. This
has major implications for the banks in formulating and implementing relationship management strategies.
Originality/value The paper provides new insights into the importance of customer involvement when purchasing a range of financial products.
Keywords Banking, Customers, Banks, Consumer behaviour, Financial services
Paper type Research paper
Against this background of change and increased competition,

the paper reports the findings of some exploratory research
into customer involvement and risk when purchasing a
comprehensive range of financial products.
The paper was, therefore, prompted to some extent by the
need to better understand consumer involvement in an
environment, which appears to be gravitating towards greater
consumer empowerment. However, the paper was also
motivated by the research of Foxhall and Pallister (1998)
and Aldlaigan and Buttle (2001), which suggested that the
conventional measures of customer involvement might not
apply in a financial services setting. Specifically, Foxhall and
Pallister compared Zaichkowskys (1985) personal
involvement inventory scale (PII) with Mittals (1989)
purchase decision involvement scale (PDI) and found that
although both scales performed well, in a financial service
context, rational involvement is more dominant than
emotional involvement. Aldlaigan and Buttle compared
Zaichkowskys PII scale with Kapferer and Laurents (1985)
consumer involvement profile (CIP) and similarly concluded
that certain dimensions of involvement in each of the two
scales were irrelevant in financial services and that a new
customised scale could be of value.
An executive summary for managers can be found at

the end of this article.
Introduction
For several decades the financial services markets have been
gradually becoming more competitive as, inter alia,
developments in technology and deregulation have eroded
the usefulness of branch networks as effective barriers to entry
and created the opportunity for new players to enter the
market. During this same period society has also been
changing with, amongst other things, a noticeable trend
towards greater consumer empowerment. In the UK,
examples of greater empowerment are clearly discernible in
the trends towards individuals taking responsibility for their
own pension arrangements and tax return, etc. Harris (2000)
has also argued that developments in electronic online
banking have the potential to empower customers and make
them more pro-active in the banker-customer relationship.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0887-6045.htm

21/7 (2007) 481 491
q Emerald Group Publishing Limited [ISSN 0887-6045]
[DOI 10.1108/08876040710824843]
Received: July 2005

Revised: January 2006
Accepted: January 2006
481
Customer involvement and interaction in retail banking
Barry Howcroft, Robert Hamilton and Paul Hewer
Volume 21 Number 7 2007 481 491
The paper, therefore, tries to explain why the conventional

measures of customer involvement do not necessarily apply in
financial services. It also presents some findings on the
importance of risk and confidence when purchasing financial
products, which might be useful in developing a revised scale.
By ascertaining the views of bank customers on their
involvement and interaction with banks in the search and
purchase of a range of financial products, the paper will also
provide some insights into bank customer behaviour. Section
2 of the paper, accordingly provides a review of the relevant
literature, section 3 discusses the research methods and
section 4 presents the research findings and interprets the
results. The paper concludes by identifying a number of
important strategic implications of the findings for banks.
individuals do not have an inherent interest or derive much

pleasure from financial services. Brown (1952) introduced the
term behavioral loyalty to describe customers that were
loyal because of inertia rather than because of any strong
feelings of brand loyalty. Subsequent research has also shown
that behavioural (or spurious) loyalty is prevalent in financial
services because there is a lack of differentiation in the market
place (Watkins, 1990; Knights et al., 1994; Dick and Basu,
1994; Ennew and Binks, 1996; Colgate and Hedge, 2001).
In contrast, the academic literature generally places
particular emphasis on risk and need, and it was, therefore,
decided to focus attention on these two dimensions of
customer involvement. In examining each of these two
dimensions in turn, risk perceptions are generally regarded as
being associated with unpleasant experiences, which emanate
from unanticipated or uncertain consequences when
purchasing products (Bauer, 1960). However, risk and its
relationship with involvement is important because these two
constructs play an important role, as explanatory and
motivational variables, in understanding various facets of
customer behaviour when contemplating product purchases
(see, for example, Dholakia, 2001; Mitchel, 1999; Laaksonen,
1994; Richins et al., 1992; Laurent and Kapferer, 1985)
In order to understand how risk and involvement determine
customer behaviour Kaplan et al. (1974) identified several
dimensions of risk. Psychological risk is concerned with exposte reactions to making a purchase, such as worry or regret.
The other dimensions are essentially functional risks and
arise from cognitive processing of specific aspects of product
related information. As such, they include financial risk,
which is concerned with the cost considerations of a purchase;
physical risk, which is concerned with any physical harm that
might be associated with purchasing a product; and social
risk, which is concerned with the possibility of attracting
unfavourable attention and response from purchasing a
particular product. Other cognitively-evaluated types of risk,
which arise from the objective features of a product or service,
include performance risk, which is concerned with how well
the product will perform relative to expectations; and time
risk, which is concerned with the amount of time invested by
the customer when making a purchase. From this brief
exposition of the dimensions of risk it is apparent that
different types of product have different inherent risks.
Moreover, these inherent risks become salient to the customer
when interacting with the product in terms of thinking about
it and contemplating a purchase (Bettman, 1973).
In order to relate the concept of risk to financial services, it
is necessary to examine the fundamental characteristics of
financial products. In the first instance, the relevant literature
recognises that financial products are not homogeneous
(Shostack, 1977). This suggests that they have inherent risks,
which are specific to the different categories of financial
product. This is important because it has been shown that the
risk perceived by a customer when contemplating a product
purchase will determine the complexity and extensiveness of
cognitive processes and, therefore, it will influence the nature
of the interaction in terms of it duration and intensity (see, for
example, Celsi and Olson, 1988; Gemunden, 1985; Laurent
and Kapferer, 1985). This apart, it is difficult to reconcile the
general academic literature on risk and involvement with the
purchase of financial products and service. This is
undoubtedly due to the unique characteristic of financial
Customer involvement and banker-customer

interactions
There has been considerable discussion about how best to
define and measure the construct customer involvement
(Zaichkowsky, 1985). These discussions have been protracted
because interactions can be associated with advertisements,
promotional material, service provision and purchase
decisions. As such they do not necessarily involve physical
involvement and an individual can, for example, interact with
a company by simply reading a brochure or by watching an
advertisement on television. Moreover, in the financial
services sector, a bank can perform numerous automated
transactions without any ongoing physical interaction with its
customers. These examples also indicate that involvement can
vary according to frequency and duration. For example,
reading a brochure will typically take longer than watching an
advert on television but the former will probably occur less
frequently than the latter.
In an attempt to understand what determines the level of
involvement, Houston and Rothschild (1978) and Bloch and
Richins (1983) classified it into three dimensions, which
Zaichkowsky (1985 and 1986) subsequently used as the basis
for constructing the PII scale. The PII scale consists of the
following three dimensions:
1 Personal: inherent interests, values or needs that motivate
individuals towards an object.
2 Physical: the characteristics of the object that causes
differentiation and increased interest.
3 Situational: something that temporarily increases
relevance or interest towards an object.
Kapferer and Laurent (1985) developed the customer
involvement profile (CIP) measure using five similar
dimensions:
1 Interest: the personal interest an individual has in an
object.
2 Pleasure: the hedonic or emotional appeal or pleasure an
individual derives from an object.
3 Sign value: the extent to which an object reflects or
expresses the individuals self.
4 Importance risk: the perceived importance of the negative
consequences of making a bad purchase.
5 Risk probability: the perceived probability of making a bad
purchase.
These dimensions reflect concepts, such as, inherent interest,
pleasure, differentiation, values, relevance, need and risk, etc.
However, academic research has shown that the majority of
482
Volume 21 Number 7 2007 481 491
products, which distinguish them from products and other

types of service (Zeithaml et al., 1985).
The literature on risk in financial services accordingly
adopts a different approach to the one advocated in the wider
academic literature. In essence, it is primarily concerned with
psychological risk, financial risk, performance risk and time
risk but particular emphasis is placed on what the literature
refers to as risk aversion and perceived risk (Bateson, 1989;
Betts, 1994; Gwinner et al., 1998, Dholakia, 2001). Risk
aversion is primarily concerned with security and the fear of
loss and, as such, it can be mitigated by deliberation and
customers seeking advice from suppliers in an attempt to
build up their knowledge and understanding of alternative
product offerings. Within financial services, risk aversion can
also be used to explain why customers purchase certain types
of financial product. For example, the fear of loss may be the
primary motive behind a customer purchasing an insurance
policy or a pension plan. However, it is not the primary reason
for purchasing or opening a current account, where the
dominant need is to have a reliable and convenient method of
depositing money and paying bills.
Perceived risk is synonymous with performance risk and is
concerned with uncertainty of outcome when purchasing a
financial product. Once again, this varies according to the
fundamental characteristics of different financial products.
Using the previous examples, there is generally little
uncertainty associated with opening a current account and
consequently, there is relatively minimal effort involved in
monitoring its outcome. However, with an investment
product or a pension plan the eventual outcome is uncertain
and, therefore, the customer needs to monitor the investment
or devolve this responsibility to the financial provider. In the
wider service literature Lehtinen (1983), Bowen and Larsson
(1989) and Hocutt (1998) have shown that customer
involvement either during the search or at the point of
purchase can reduce levels of perceived risk. Similarly,
researchers such as Bateson and Hui (1987), Bateson (1989),
Parker and Ward (2000) Harris et al. (2001), and Youngdahl
et al. (2003) have shown that increased levels of customer
involvement can increase levels of customer confidence when
making product choices.
To explain how customers in financial services reduce risk,
Chant (1987) utilised the concept of customer need and
identified two important considerations: the need to identify
good from bad products, and the need to monitor and
enforce the anticipated outcomes from the purchase. Chant
claimed that both considerations are essentially met by
customers engaging in a process of search, participation and
discussion prior to purchase. In other words, customer
involvement prior to purchase may actually reduce levels of
risk and increase levels of customer confidence in their ability
to purchase good financial products.
Normann and Haikola (1986) also used the idea of
customer need to differentiate and classify heterogeneous
financial products. They identified two fundamental or basic
needs: the first is concerned with the need to transfer money.
It is typically referred to as a transaction and because it
requires only a small amount of information exchange it is
usually standardised and automated via standing orders,
direct debits and online banking. The second fundamental
need is concerned with the need to balance consumption over
a period of time and is primarily concerned with deposit and
lending products. Gupta and Torkzadeh (1988) developed
this analysis further by introducing an additional customer

need, namely, the need for specialist advice prior to
purchasing more complicated financial products, and
Storbaka (1994) made a distinction between this specialist
advice, which invariably involves a fee and general advice,
which is typically free of charge and is present in most
financial service encounters.
Discussion and deliberation would, therefore, appear to be
an indication of involvement when contemplating the
purchase of a financial product. However, although they are
a common theme within the literature they reveal themselves
in a number of different ways. For example, Bateson and Hui
(1987) and Bateson (1989), emphasise the degree of control
exercised by customers in the service process, and Suprenant
and Soloman (1985), focus on the level of customer
participation. Similarly, Lehtinen (1983), Bowen and
Larsson (1989) and Hocutt (1998) concentrate on how
customer engagement in either the service encounter or the
search prior to purchase can reduce risk and uncertainty.
Research methods
In order to understand customer involvement and behaviour
in financial services, it was decided to ascertain how
customers interact with their banks when purchasing a
comprehensive range of financial products. Four generic
categories of financial products were identified as broadly
representing customer need as suggested by Normann and
Haikola (1986), Gupta and Torkzadeh (1988) and Storbaka
(1994). The product categories in question were as follows:
.
primary current accounts, i.e. where customers have
several current accounts, the one that is most frequently
used;
.
general insurance products, such as house contents,
building and motor insurance;
.
lending or credit products, such as, personal loans and
mortgages; and
.
specialist or complex investment products, such as,
investments in stocks and shares, or pensions, etc.
To facilitate the design of a questionnaire, three focus
discussion groups were arranged in London (the South of
England), Leeds (the North) and Oakham (the Midlands).
The London group consisted of males and females aged
between 18-29 years old in the B socio-economic group, i.e.
middle class people accounting for approximately 16 percent
of the UK population. The Leeds group consisted entirely of
females aged between 30-45 years old in the C1 (lower middle
class people accounting for approximately 28 percent of the
population) and C2 (skilled working class people representing
about 24 percent of the population) socio-economic groups.
The Oakham Group consisted of B and C1 males aged
between 48-65 years old. Having introduced the purpose of
the research and defined involvement as an unobservable state
of motivation, arousal or interest (Rothschild, 1984) an
interview schedule was used to promote discussion on the
four generic categories of financial product. The schedule was
based on Houston and Rothschilds (1978), and Kapferer and
Laurents (1985) dimensions of involvement. It consisted of
the following main themes:
.
To what extent were group participants intrinsically
interested in financial products?
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Volume 21 Number 7 2007 481 491
To what extent did they perceive any significant

differences between competitors?
To what extent did they purchase financial products to
impress friends or express themselves?
To what extent were they confident in their own ability to
make good purchases?
In summary, the focus groups revealed that participants

were generally not intrinsically interested in financial products
and did not perceive any significant differences between
providers. Neither did they typically purchase financial
products to impress friends or express themselves. In
contrast, the overriding consideration when purchasing
financial products was the customers need to deliberate and
talk to providers prior to purchase. This apparently reduced
risk at the point of purchase by increasing customer
knowledge and understanding of financial products, and as
such, it increased customer confidence in their ability to make
the best product choices.
Based on the literature review and the findings from the
focus discussion groups a questionnaire was designed and
piloted on university personnel. It was then mailed to 1,500
bank customers in England aged between 18-65. The
addresses were obtained from a mail broker but despite
using pre-stamped, pre-addressed return envelopes and a
modest financial incentive in the form of a prize draw, this
resulted in only 244 useable responses. The low response rate
of 16.3 percent was a little disappointing but to some extent it
probably reflected the confidential nature of the
questionnaires. It did however raise a number of important
questions. For example, to what extent was the relatively low
response rate indicative of the respondents disinterest in
financial affairs and apathy towards banks? Another major
concern was the representativeness of the sample. When
compared with recent UK statistics (Social Trends, 1999;
Advertising Association, 1998), it was found that the sample
was over-representative of middle age groups (between 35-45
years old) and under-representative of younger customers
(between 18-24). The sample was also biased towards
customers in the higher income groups (i.e. . 30,000).
This profile might, therefore, be reflecting the fact that
wealthier customers are generally older and have relatively
more experience and interest in financial services than their
younger counterparts.
The questionnaire, shown in Table I, focuses on the
selection and purchase of a range of financial products and
consists of five questions and 24 variables. Variables 1-8 focus
on involvement in an attempt to ascertain how customers
reduce the risk associated with financial products. Specifically,
variables 1-4 capture elements of customer deliberation, i.e.
shopping around and trying to make comparisons between
the alternative product offerings, and variables 5-8 ascertain
the importance of talking to somebody and seeking financial
advice prior to purchase. Variables 9-12 use switching as a
general indication of customer propensity to be involved.
Variables 13-16 relate to customer knowledge and
understanding of financial products, and variables 17-20
relate to uncertainty at the point of purchase, i.e. the extent to
which customers believed that they were in a position to make
a good purchase. As such, they attempt to ascertain the
extent to which deliberation and talking to somebody prior to
purchase, increases customer confidence at the point of
purchase by increasing customer knowledge and reducing
uncertainty. The remaining variables (21-24) provided
additional insight into the socio-demographic profiles of the
respondents.
Questions 1-5 relate to the four different categories of
financial product under examination: primary transaction or
current accounts; general insurance based products; lending
or credit based products; and specialised investment based
In brief the discussions revealed that participants regarded

providers of financial products as being essentially the same.
In general, there was a singular lack of interest in financial
products and the younger and less affluent participants
revealed less interest and confidence in their ability to make
good product choices, compared to older and more affluent
group members. However, all of the groups recognised that
financial products were not homogeneous and argued that
whereas transaction based products were essential to the
immediate needs of modern-day life, investment and
insurance based products were conducive to alleviating
concerns about future security. The older, more affluent
group (Oakham) also believed that some customers, albeit a
minority, did get intrinsic pleasure from financial products
and cited playing the stock market as an example.
The discussion groups agreed that levels of customer
involvement were determined by the generic nature of
products and customer profiles. For example, they expressed
a lack of knowledge and understanding of financial products
in general but with more complicated products, the groups
expressed a feeling of uncertainty. When this issue of
uncertainty was discussed in more detail it became clear that
the participants believed that they were not always in a
position to know whether they had made the best choice
when purchasing complicated financial products. This
problem was primarily caused by the intrinsic nature of
financial products and was particularly acute with
complicated, long-term investment and pension type
products. As a consequence, the question as to whether a
purchase had been good or not, could not be easily answered
at the point of purchase. The groups also felt that the
problem was exacerbated by a lack of transparency in the
sales literature and the frequent use of jargon and specialised
financial terms. In this respect online banking was regarded
as useful for transaction banking but the general consensus
was that the proliferation of financial information on the
internet made it difficult to make informed purchase
decisions. This point of view is supported by authors, such
as, Ogilve (1996), Mols (2001) and Yaklef (2001), who
argue that there is little evidence of truly interactive online
sites in financial services. It was agreed, however, that
uncertainty was mitigated by talking to different providers
prior to purchase and by customer deliberation, i.e. shopping
around and looking at the alternative product offerings in
terms of price, promotional material, and the track record
and reputation of alternative providers. Finally, in probing
deeper into Rothschilds (1984) definition of involvement,
the participants suggested that within financial services,
willingness to switch was probably the best single indicator of
customer involvement. This possibility, which has also been
suggested by Aldlaigan and Buttle (2001), could be
motivated by customer dissatisfaction with the underlying
service or by price, etc. but it could also reflect customer
willingness and confidence to search for the best products on
offer.
484
Volume 21 Number 7 2007 481 491
Wards method of cluster analysis was used because it is a

common technique that is both:
.
a hierarchical procedure, as it moves in a stepwise manner
to form an entire range of clusters; and
.
an agglomerative method, as clusters are formed from the
combination of existing clusters starting with each
observation (Hair et al., 1998).
Table I Questionnaire items used for cluster variate
Question
no.
Question
Financial services attitudes:

Q1
I tend to deliberate a lot prior to purchasing . . .
My current account
My insurance products
My credit-based products
My investment-based products
Q2
It is important to talk to somebody prior to
purchasing . . .
My current account
Q3
I frequently consider switching providers in respect of
...
My current account
Q4
I possess a good knowledge and understanding of
...
My current account
Q5
I felt unsure when purchasing . . .
My current account
Socio-demographic variables:
Q6
What is your current (gross) annual household
income?
Q7
Age last birthday
Q8
Which of the following qualifications do you
possess?
Q9
How many dependent children do you have?
Variate
no.
V1
V2
V3
V4
The measure of similarity was the Squared Euclidean distance

measure.
To determine how many clusters should be formed, an
examination of both the agglomeration schedule and the
dendrogram (Hair et al., 1998) suggested that either a sixcluster solution or a five-cluster solution might be the most
appropriate. To arrive at the best solution, from both a
statistical and a practical viewpoint, a number of other factors
were considered. Firstly, both solutions were compared on the
basis of distinctiveness using the Levene statistic, i.e. testing
the homogeneity of variance for each variable among the
clusters (Norusis, 1997), and the values of the F ratio, taken
from the Anova. Compared with the five-cluster solution, the
six-cluster solution for both measures provided more variables
that were significantly different (at the 0.05 level). Further
supporting evidence for the distinctiveness of the six-cluster
solution came from the results of a multiple comparison
procedure, based on the Bonferroni test (Norusis, 1997).
Further analysis of the characteristics of the six-cluster
solution suggested that the latter solution would allow a
greater understanding of bank-customer interactions and
would also make the results more dynamic. This issue is
addressed in more detail in the interpretation section of the
analysis. In order to determine whether or not the chosen six
cluster solution was stable (or reliable) as well as distinctive, a
non-hierarchical clustering procedure (K-means clustering)
was performed on the data using the cluster centroids from
the Wards method as the initial seed points (Hair et al.,
1998). This approach facilitates: fine-tuning of the results
and validation of the final cluster solution (Milligan and
Cooper, 1987).
To test for an acceptable level of agreement between the
two clustering methods the Kappa Coefficient, which may be
used as an objective measure of stability (Punj and Stewart,
1983), was calculated. Table II shows the consistency
between the results of the two clustering methods with 192
(78.7 percent) of the 244 cases appearing in the same clusters.
The Kappa coefficient (0.743) also indicated an acceptable
level of agreement (Cramer, 1998) between the two methods.
Table II also highlights, in terms of the number of
observations in each cluster, the similarity between the two
clustering methods.
Table III, as well as providing further support for the
distinctiveness and reliability of the final solution, provides
information that is essential to the interpretation of the
solution (Hair et al., 1998), i.e. the final cluster centroids; the
F values; and, the levels of significance for each of the 24
variables. Based upon an analysis of the F values, which test
for differences between the means of the clusters (McDougall
and Levesque, 1994), the most influential factors appear to
be: the importance of talking to somebody prior to purchasing
a current account (V5: F 45:27) and credit-based products
(V7: F 44:84); knowledge and understanding for insurance
and credit-based products (V14 and V15: F 30:17); and
uncertainty for investment (V20: F 25:59) and insurance-
V5
V6
V7
V8
V9
V10
V11
V12
V13
V14
V15
V16
V17
V18
V19
V20
V21
V22
V23
V24
products. Respondents were invited to respond on a five-point

Likert Scale ranging from Strongly Disagree to Strongly
Agree. In addition, four socio-demographic questions (Q6-9)
were included to differentiate customers on the basis of their
income, age, education and dependent children.
Given that the research is essentially exploratory it was
decided to use cluster analysis to examine the data. Cluster
analysis facilitates pattern recognition within exploratory
studies and is a way of simplifying and portraying the
structure in a set of data (Everitt and Dunn, 1991, p. 6). The
method attempts to maximise the homogeneity of objects
(e.g. customers) within the clusters, while simultaneously
maximising the heterogeneity between the clusters (Hair et al.,
1998). Support for adopting this methodology comes from
Punj and Stewart (1983) when they state . . . important use
of cluster analysis has been made in seeking a better
understanding of buyer behaviours by identifying
homogeneous groups of buyers.
485
Volume 21 Number 7 2007 481 491
Research results
Table II Measuring agreement between the wards method and the k

means method
Clusters (%)
1
2
Ward method
3
4
5
6
Total
K-means method
2
3
4
5
87.5
(28)
5.4 75
(3) (42)
This section provides a discussion of the results and relates

the main characteristics of each cluster to risk, involvement,
and customer confidence when purchasing financial products.
In interpreting the results, deliberation, talking to somebody,
and willingness to switch were taken as indicators of increased
customer involvement. Similarly, knowledge and
understanding, and uncertainty when making the purchase
were taken as indicators of customer confidence to distinguish
good from bad products, at the point of purchase. The
basic objective of this exploratory research was to examine
customer involvement, perceptions of risk and confidence
when purchasing a comprehensive range of financial products.
Total
9.4
(3)
3.1
13.1
(1)
(32)
8.9 3.6 7.1 23
(5) (2) (4) (56)
72.1 18.6
9.3 17.6
(31) (8)
(4) (43)
3.4 3.4 3.4 86.2 3.4
11.9
(1) (1) (1) (25) (1)
(29)
2.1
6.3
81.3 10.4 19.7
(1)
(3)
(39) (5) (48)
2.8 11.1 2.8 5.6 2.8 75
14.8
(1) (4) (1) (2) (1) (27) (36)
13.9 19.3 16 16.4 18 16.4 100
(34) (47) (39) (40) (44) (40) (244)
Cluster one: action inert customers

Cluster one comprised only 13.1 percent of the respondent
sample and was the second smallest cluster in the analysis. It
possessed the highest annual household income, ranging from
40,000 upwards; members had professional qualifications
and were aged between 36-45 years old.
The involvement of these customers was moderately high.
They exhibited the lowest levels of deliberation for three of
the four products under consideration but felt that it was
fairly important to talk to somebody. In terms of switching
behaviour, these customers were not willing to switch and
revealed the lowest levels of switching behaviour for each of
the financial products under consideration. In contrast,
however, confidence levels were very high as revealed by the
Note: The value in parenthesis is the count within each cell and total by
clustering method
Source: Measure of agreement: kappa value 0.743
based products (V18: F 25:84). The socio-demographic

characteristic that proved to be the most influential factor in
differentiating between clusters was the level of education
(V23: F 73:67).
Table III Six cluster solution of the K-means cluster analysis with initial seed points from the Wards method
Variables
Cluster1
Cluster2
V1(Del)
V2 (Del)
V3 (Del)
V4 (Del)
V5 (Talk)
V6 (Talk)
V7 (Talk)
V8 (Talk)
V9 (Sw)
V10 (Sw)
V11 (Sw)
V12 (Sw)
V13 (K&U)
V14 (K&U)
V15 (K&U)
V16 (K&U)
V17 (Unc)
V18 (Unc)
V19 (Unc)
V20 (Unc)
V21 (Inc)
V22 (Age)
V23 (Edu)
V24 (Child)
2.18 (L)
3.26 (L)
3.53 (L)
3.79
3.38
3.26
4.00
4.00
1.29 (L)
1.21 (L)
1.74 (L)
1.56 (L)
4.29
4.18
4.18
4.18 (H)
1.21 (L)
1.24 (L)
1.53 (L)
1.41 (L)
4.10 (H)
3
3
2
3.47
3.70
3.55
3.68
4.13
3.55
4.00
3.91
2.49
2.83
2.74
2.66
4.09
3.79
3.79
3.32
2.13
2.60
2.85
3.15
2.28
3
2
2
(L)
(H)
(H)
(H)
(L)
Final cluster centres

Cluster3
Cluster4
2.18
3.51
3.59
3.95
1.56
1.56
2.10
2.49
3.08
3.44
3.08
3.08
4.36
4.10
4.10
3.69
1.64
1.90
2.23
2.56
3.32
2
4 (H)
2
(L)
(L)
(L)
(L)
(L)
(H)
(H)
(H)
3.25
3.95
3.90
3.85
2.03
1.90
2.15
2.90
2.03
3.18
2.93
2.83
4.28
4.08
4.08
3.73
1.58
1.75
1.95
2.40
2.95
2
1 (L)
2
Cluster5
3.48
4.27
4.32
4.36
3.48
3.34
4.18
4.05
2.00
3.73
2.93
2.57
4.45
4.25
4.25
4.02
1.66
2.00
2.14
2.18
3.94
4
3
2
(H)
(H)
(H)
(H)
(H)
(H)
(H)
(H)
(H)
(H)
Cluster6
2.70
3.45
3.68
3.68
2.73
2.85
3.60
3.83
2.73
3.10
2.85
2.85
3.63
2.63
2.63
2.58
1.95
3.10
3.53
3.65
3.23
2
4 (H)
2
(L)
(L)
(L)
(L)
(L)
(H)
(H)
(H)
F Value
Sig.
11.890
5.866
3.983
3.067
45.266
30.800
44.841
15.573
9.044
22.512
6.504
9.779
6.534
30.173
30.173
17.146
7.656
25.842
23.101
25.593
17.063
7.352
73.671
1.424
0.000
0.000
0.002
0.011
0.000
0.000
0.000
.000
.000
.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.000
0.216
Notes: Current account: V1, V5, V9, V13 and V17; Insurance products: V2, V6, V10, V14 and V18; Credit based products: V3, V7, V11, V15 and V19; Investment
based products: V4, V8, V12, V16 and V20
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Volume 21 Number 7 2007 481 491
scores for knowledge and understanding, and uncertainty.

The respondents believed that they possessed a good
knowledge and understanding of the four categories of
financial products and exhibited the strongest disagreement
with the assertion that they felt unsure when making
purchases.
A moderate level of involvement and a significant
reluctance to switch financial providers suggests that
customers in cluster one are not actively involved with their
financial services providers. However, high levels of
confidence combined with the emphasis on talking to
somebody and low levels of switching behaviour is probably
more indicative of customers who are both sophisticated and
highly satisfied with their financial provider. In this respect,
this group of customers are probably exhibiting what Knights
et al. (1994) referred to as action inertia.
account. They strongly disagreed, however, that it was

necessary to talk to somebody when selecting financial
products. In fact, this group exhibited the lowest scores for
the importance of talking to somebody for each of the four
products. However, in terms of switching behaviour, this
group had the highest propensity to change providers. This
group of customers were also fairly confident. They believed
that they possessed a high level of knowledge and
understanding of financial products and did not feel
uncertain when purchasing such products.
The customers in this cluster appear to be fairly confident
in terms of knowledge and certainty, but the three
components of the involvement dimension are not as easy to
interpret. In fact they appear contradictory insomuch as the
customers strongly disagreed with the importance of talking
to somebody but expressed agreement with the importance of
deliberation and had the highest propensity to switch financial
providers. However, there is evidence to suggest that
educated, younger customers are more disposed to use
online banking (see, for example, Sathye, 1999 and
Jayawardhena and Foley, 2000) and this might be reducing
their need to talk to somebody. As the youngest cluster and
university educated, this group of customers may, therefore,
be revealing an emerging banker-customer profile, which
supports Harris (2000) assertion that online banking may be
empowering customers and eroding inertia.
Cluster two: repeat passive customers

Cluster two comprised 23 percent of the respondent sample
and was the largest cluster. It possessed the lowest annual
household income, ranging from 10,000 to 19,999;
members were aged between 36-45 years old and were
educated to O or A Level standard, i.e. they left school at
either 16 or 18 years old and did not obtain a university
education. These customers expressed agreement with the
importance of deliberation and, in particular, with the need to
talk to somebody when selecting financial products. The
group, therefore, ostensibly exhibited a high degree of
involvement. However, in terms of switching behaviour,
although not as extreme as cluster one, these customers were
generally unwilling to switch providers. In contrast to cluster
one, confidence levels were very low and customers exhibited
the second lowest levels for knowledge and understanding of
all the groups except for cluster six. Similarly, in terms of
being uncertain when selecting financial products, these
customers had the second highest level of uncertainty; with
cluster six once again exhibiting the highest level.
On the basis of these characteristics, customers in cluster
two have the lowest levels of confidence as indicated by the
highest levels of uncertainty and the lowest levels of
knowledge and understanding of all the groups. Moreover,
although these customers recognise the importance of
deliberation and taking to somebody, i.e. being involved
with their financial services provider, it does not mean that
they necessarily do. Retail banks in the UK currently focus
their relationship strategies on the most profitable segments of
their customer base. As customers in this cluster are the
poorest of the six clusters, their lack of actual and potential
profitability probably precludes them from having a close
involvement with their financial providers. As such these
customers are referred to as repeat passive in so much as they
tend to remain with the same provider, primarily because of
their low levels of confidence.
Cluster four; emerging repeat passive customer

This cluster was the smallest comprising 11.9 percent of the
respondent population. It had the same age profile as cluster
3, between 26-35 years old but in contrast, it had the lowest
educational qualifications (O levels or equivalent) and the
second lowest income in the 10,000-19,000 range. The
interaction profile reveals slightly higher levels of involvement
and confidence than cluster three but they were much less
inclined to switch financial providers. To some extent they
exhibit characteristics, which are similar to Knights action
loyalty. However, their similarity with cluster two, in terms
of education and income, raises the possibility that they might
evolve into the sort of mature customers depicted by this
cluster. This interpretation assumes that as these customers
mature their financial requirements will increase. However, if
this increased financial need is not matched by a
commensurate increase in the willingness of the banks to
become more involved, confidence levels could decline,
producing an enforced repeat passive profile not too
dissimilar to cluster two.
Cluster five: rational-active customers
Cluster five comprised 19.7 percent of the sample population
and was the second largest cluster. Customers possessed
income of between 30,000 and 39,999 and were the oldest
in the sample, aged between 46-55 years old, with
professional qualifications. Involvement levels were very high
and customers exhibited the highest levels of deliberation for
each of the four products. The importance of talking to
somebody was interesting insomuch as it revealed the highest
scores in the sample for credit and investment based products
and was only marginally less important when purchasing a
current account or an insurance based product. In addition
these customers also revealed fairly high levels for willingness
to switch. Confidence was similarly high (the second highest
score next to cluster 1) and customers strongly agreed with
Cluster three: emerging on line customers

Cluster three comprised 17.6 percent of the sample and was
the third largest. The customers possessed an annual
household income of between 20,000 and 29,999, had a
university education and were the youngest cluster in the
sample, aged between 26-35 years old. These customers
expressed agreement with the importance of deliberation for
insurance, credit and investment based products, but
disagreed that it was important when changing a current
487
Volume 21 Number 7 2007 481 491
the assertion that they had knowledge and understanding of

the four financial products and accordingly disagreed that
they felt unsure when purchasing them. In this respect these
customers appear to be reinforcing Foxhall and Pallisters
(1998) finding that rational involvement is prevalent in
financial services.
some extent, by the introduction of internet banking, it has

been suggested that the internet is not an ideal substitute for
talking to somebody, especially, when contemplating the
purchase of more complicated financial products (Durkin
et al., 2003).
Unless these issues are addressed, the majority of customers
will continue to lack confidence when purchasing financial
products. Being cynical one could ague that if a lack of
customer confidence is associated with passivity and low
switching behaviour, banks have little incentive to address
these issues. However, considerations such as the move
toward greater consumer empowerment, increases in
educational standards and greater use of internet banking,
will increase customer expectations and might well lead to an
increase in customer behaviour depicted by clusters three and
five. These factors combined with higher levels of competition
and the trend towards commoditisation of financial markets,
strongly suggest that banks will have to place more emphasis
on educating and developing closer relationships with their
customers.
The net result of these strategies could well be a significant
increase in the number of action inert customers revealed in
cluster one. However, relationship management strategies are
expensive and a bank, like any other joint stock company,
needs to see a return on its strategic efforts. This
consideration, therefore, raises the question as to whether
these strategies should be targeted at the sort of customers
depicted in cluster 6 (and possibly 3 and 5) rather than at the
entire customer base.
Finally, the results also contain some interesting findings,
which warrant further research. Inter alia, customer
involvement appears to differ according to the type of
financial product being purchased and this raises the
possibility that banks can use more complicated products to
generate interest and, if required, create closer relationships
with their customers. Similarly, the paper has shown that
banker-customer involvement and, specifically, perceptions of
risk and confidence might be used to segment the customer
base. This approach could, therefore, provide an alternative
approach to more conventional segmentation based on age,
wealth, income, life cycle, etc.
Cluster six: emerging profit potential customers

Cluster six comprised 14.8 percent of the sample population,
the customers were aged between 26-35 years old, university
educated and had an annual income of between 20,00029,999. The analysis revealed that these customers had
fairly low levels of involvement. To some extent they did
deliberate when purchasing financial products, but the levels
of deliberation were relatively low, especially for investment
products. With regard to speaking to somebody, the
respondents believed that it was fairly important for
investment and credit based products, but less important
for current accounts and insurance products. The group,
nevertheless, shared a high willingness to switch financial
providers. In terms of confidence, this cluster exhibited the
lowest level of knowledge and the highest levels of uncertainty
in the sample. This suggests that these customers perceive
high levels of purchase risk, which ceteris paribus means that
they should have high levels of involvement. Conversely, the
low levels of involvement might explain why the levels of
confidence are so low.
In this respect, this cluster might be indicative of a
customer segment that is not only intrinsically disinterested in
financial products, as evidenced by low levels of involvement
and confidence, but also a little fearful and mistrustful of
banks, as revealed by fairly low levels of talking and
deliberation, and high levels of switching behaviour. If this
interpretation is correct, these customers present an
important strategic challenge for banks, especially as their
age, education and income profile indicates that they have
future profit potential. As such they should be targeted with
relationship strategies that will increase involvement,
confidence and satisfaction.
Conclusions and strategic implications

Even though the paper is exploratory, and the sample was not
fully representative of the UK banking population, the results
have a number of important strategic implications. For
example, the dominant customer segment, which was cluster
two (repeat passive), indicated that the majority of
respondents lacked confidence in their ability to choose
good financial products. These customers also revealed a
desire to have more information about products and
emphasised the need for increased involvement with
financial services providers, via greater deliberation and
talking. The validity of these findings and the need for greater
deliberation is underlined by the fact that the Cruickshank
Report (2000) highlighted similar considerations when it
emphasised the need to educate bank customers and
introduce greater transparency into bank advertising and
documentation. The need to talk to providers prior to
purchase is clearly part of this education process but talking to
banks is also becoming more problematic as branch closures
and the ensuing pressure on call centres, have made it more
difficult and certainly more time consuming to talk to banks.
Moreover, although branch closures have been facilitated, to
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This summary has been provided to allow managers and executives

a rapid appreciation of the content of the article. Those with a
particular interest in the topic covered may then read the article
in toto to take advantage of the more comprehensive description of
the research undertaken and its results to get the full benefit of the
material present.
Its more than seven years since an independent investigation
into banking services, ordered by the UK government,
published a report which said that many consumers found it
difficult to compare financial products and there was clear
evidence that consumers were not adequately informed about
them.
Consumers who were locked in to a provider (by inertia if
nothing else) tolerated higher prices than those who actively
shopped around and switched. Furthermore, it was in the
banks interests to suppress switching.
That was in 2000, so whats been happening since the
Cruickshank Report was published? Increased competition
among financial institutions, including the increasing use of
online banking, has ensured that banking services are more
understandable, transparent and flexible, and that retail
customers are now far more knowledgeable about what they
are buying and more involved in with their banking service
provider. Or so you might have thought.
questioned bank customers of different ages and incomes
from different parts of the UK to try to find out:
.
To what extent were they intrinsically interested in
financial products?
.
To what extent did they perceive any significant
differences between competitors?
.
To what extent did they buy financial products to impress
friends or express themselves?
.
To what extent were they confident in their own ability to
make good purchases?
Participants were found generally not intrinsically interested
in financial products and did not perceive any significant
differences between providers. Neither did they typically
purchase financial products to impress friends or express
themselves (for example, playing the Stock Market). In
contrast, the overriding consideration when buying financial
products was their need to deliberate and talk to providers
before purchase. This was expressed as a wish to reduce the
risk of buying something inappropriate by increasing their
knowledge and understanding of the products.
Analysis of responses resulted in six clusters of customers
with differing perceptions. Dominant was the cluster labelled,
repeat passive which indicated that the majority lacked
confidence in their ability to choose, good financial
products. However, they demonstrated an, involvement in
the process in their expressed desire to have more information
about products, via greater deliberation and talking.
Supporting the Cruickshank Reports findings of the need
to educate bank customers and introduce greater
transparency into bank advertising and documentation, the
results of this study note that talking to banks is becoming
more problematic as branch closures and pressure on call
Corresponding author
Barry Howcroft can be contacted at: J.B.Howcroft@
lboro.ac.uk
490
Volume 21 Number 7 2007 481 491
centers, have made it more difficult and certainly more time

consuming to talk to banks.
Moreover, although branch closures have been facilitated,
to some extent, by the introduction of internet banking, it has
been suggested that the internet is not an ideal substitute for
talking to somebody, especially, when contemplating the
purchase of more complicated financial products.
Unless these issues are addressed, the majority of customers
will continue to lack confidence when purchasing financial
products. Being cynical one could argue, say the authors, that
if a lack of customer confidence is associated with passivity
and low switching behavior, banks have little incentive to
address these issues.
However, a move toward greater consumer empowerment,
increases in educational standards and greater use of internet
banking, will increase customer expectations and might well
lead to an increase in customer behaviour depicted by those
identified as, emerging on-line customers (who wanted
discussion about insurance, credit and investment-based
products, but did not feel it important when changing a
current account) and, rational-active customers (who were
confident they had the knowledge and understanding to buy
financial products).
These factors, combined with higher levels of competition
and the trend towards commoditisation of financial markets,
strongly suggest that banks will have to place more emphasis
on educating and developing closer relationships with their
customers.
The net result of these strategies could well be a significant

increase in the number of, action inert customers (not
willing to switch, but with high confidence levels for
knowledge and understanding).
Relationship management strategies are expensive and a
bank, like any other joint stock company, needs to see a return
on its strategic efforts. This consideration, therefore, raises
the question as to whether these strategies should be targeted,
rather than at the entire customer base, at the, emerging
profit potential customers who might be indicative of a
customer segment that is not only intrinsically disinterested in
financial products, as evidenced by low levels of involvement
and confidence, but also a little fearful and mistrustful of
banks, as revealed by fairly low levels of talking and
deliberation, and high levels of switching behaviour.
If this interpretation is correct, these customers present an
important strategic challenge for banks, especially as their age,
education and income profile indicates that they have future
profit potential. As such they should be targeted with
relationship strategies that will increase involvement,
confidence and satisfaction.
(A precis of the article Customer involvement and interaction in
retail banking: an examination of risk and confidence in the
purchase of financial products. Supplied by Marketing
Consultants for Emerald.)
To purchase reprints of this article please e-mail: reprints@emeraldinsight.com

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