CHAPTER TWO: LITERATURE REVIEW

2.0 Introduction
The purpose of this literature review is to convey to the reader the knowledge and ideas that have
been established on the subject of customer relationship management in Ghanaian banks; as
well as to elaborate on what their strengths and weaknesses are. This is being done in order to
identify the gap in the research that this study is trying to address.
This section will examine the research that has already been conducted on customer relationship
management (CRM) in Ghanaian banks. This will be done for the purpose of identifying the
gap in the research that this study is trying to address.
This Literature Review section chapter will takes a look at the theoretical background to the
examination of the effect of customer relationship management on bank performance; with
performance being a typical indicator of the efficiency of a bank. The important issues to be
reviewed include:

(i) Customer Relationship Management Practices; (ii) the

Advantages of Customer Relationship Management; (iii) Customer Relationship Management

and Customer Retention; and

(iv) Customer Relationship Management and

Firm Financial Performance.

cover the following topics concerning the effects of customer relationship management on bank
performance: (i) Defining Customer Relationship Management;

(ii) Customer

Relationship Management Practices; (iii) Advantages of Customer Relationship Management;

(iv) Customer Relationship Management and Customer Retention; and
Customer Relationship Management and Financial Performance.

(v)

2.1 Defining Customer Relationship Management

The purpose of this section is to accurately define the term customer relationship management
(CRM).

In doing so, this section will look at the definitions of customer relationship

management (CRM) that were provided by different researchers. This must be done before the
advantages of CRM can be properly explained and understood.
Before defining customer relationship management (CRM), it is first important to note that
where CRM is concerned, there are different perspectives by different authors about its nature.
Some authors view CRM as a technology; some view it as a set of macro level processes that
concentrates on managing the experiences of customers; and others view it as a strategy that
increases customer retention.

Before looking at the definition of customer relationship management, it is important to first

define who a customer is. Sullivan (1993) defined a customer as a person or an organization
that buys from another person or organization.
Where it concerns a customer relationship, ICRM (2002) defined it as the intangible
connections between a customer and a company that depends upon the customers basic needs.
From this definition, it can be assumed that if a customers needs are not being provided, then the
relationship will eventually cease. With that said, it is of necessity that the customer sees value
in what the firm is providing him / her.
Desbordes (2011) also mentioned that people normally define value as the ratio between quality
and price. Moreover, that it is difficult to manage customer relationships based on this value

construction due to the fact that different customers may construct their perceived value
differently.
The complete termcustomer relationship managementwas defined by Popli and Rao (2006)
as the process of building long-term mutually beneficial relationships with customers. Gefen
and Ridings (2002) went a step further and stated that customer relationship management (CRM)
is a marketing strategy that is often used to effectively create and manage relationships between
organizations and customers. Shavazi et al. (2013) added that CRM is a kind of business
strategy that helps banks to identify the most profitable customers and prospects, and allocate
attention to expand relationships with customers by making, and customized services that
delivered to customers through the various bank channels.
Another definition of CRM was provided by Reinartz et al. (2003). He defined it as the
processes that consist of activities that were undertaken by the firms to gain long-term,
profitable, mutually beneficial customer relationships.
Kohli et al. (2001)s definition of CRM is a cross-functional process that includes managing
customer interactions and identifying the most valuable consumers and trying to personalize
activities according to their needs and establishing and maintain long-term and profitable
relationships.
Osarenkhone (2007) stated that customer relationship management (CRM) is a continuous
learning process where information about individual customers is transformed into a customer
relationship. Furthermore, he mentioned that the strategy aspect requires (i) commitment from
top management, (ii) customer loyalty training programs, and (iii) systematic cross-functional
communication.

Bateman and Snell (2007) defined CRM as an information technology assisted process that
establishes a collaborative environment for businesses to analyze the buying behaviour and
product / service requirements of an individual or group of exiting as well as potential
customers.
Apart from their simple definition above, Popli and Rao (2006) also explained that CRM is
a simple philosophy, which places the customer at the heart of the business processes, activities
and cultures for improving customer satisfaction and maximizing profits.
Parvatiyar and Sheth (2001) observed that CRM is a comprehensive strategy and process of
acquiring, retaining and partnering with selective customers to create superior value for the
company with the customers.
The final definition to be looked at is that of Rigby (2013) who stated that customer relationship
management is a process companies use to understand their customer groups and respond
quicklyand at times, instantlyto shifting customer desires.
From all of the above definitions, it can be observed that customer relationship management
(CRM) is a process, strategy or technology meant for effectively creating and managing
relationships between companies and customers for the benefit of both parties.

2.2 Customer Relationship Management Practices

Ghavani and Olyaei (2006) stated that in any business, customers are the most important aspect
of a successful company and therefore must be looked after and managed properly. Where
CRM is concerned, there are different perspectives by different researchers about its nature.
Some authors view it as a technology; some view it as a set of macro level processes that

concentrates on managing the experiences of customers; and others view it as a strategy that
increases customer retention. Despite the differences in outlooks, many researchers seem to
agree that in order for organizations to properly excel at CRM, they must adhere to its best
practices.
Springer Science and Business Media Inc. (2005) explained that This section will
take a look at the specific practices / activities that are associated with customer relationship
management that were suggested by different researchers.
Where it concerns the development of a customer relationship, Evens, OMalley and Patterson
(2004) suggested that it can be broken down into a six (6) stage model. These stages are the
following: (1) attraction, (2) interaction, (3) progression, (4) deterioration, (5) cessation, and
(6) reclamation.
Attraction
During this particular stage, both the banker and the potential customer must evaluate the
prospects of doing business with each other. How the bank is perceived is a very critical factor
during this stage. With that said, it is essential that banks are able to establish a positive brad
image in their attempt to attract customers. Furthermore, trust and commitment on the part of
both the bank and the customer is also essential (Evens, OMalley & Patterson, 2004).

Interaction
This can be described as the behavioural aspect of the relationship. More specifically, if both the
bank and the customer are able to interact well, the result will be collaboration and partnership

that will be of enormous benefit to both parties. This will then establish the progression of the
relationship (Evens, OMalley & Patterson, 2004).
Progression
This is the stage in which the relationship between the bank and the customer improves and
eventually reaches its climax. During this stage, both parties gain trust for each other and
continue to collaborate and engage in commerce with each other (Evens, OMalley & Patterson,
2004).
Deterioration
After the relationship between the bank and the customer reaches its climax, the relationship
begin to slowly deteriorate as a result of the law of diminishing marginal returns (Evens,
OMalley & Patterson, 2004).
Cessation
After deteriorating for enough time, this phenomenon reaches a point in which it pauses before
moving to the Reclamation stage (Evens, OMalley & Patterson, 2004).

Reclamation
During this particular stage, there is a resurgence of the positive relationship between the bank
and the customer after having reached its lowest point during the Deterioration stage (Evens,
OMalley & Patterson, 2004).
Figure 2.1: Six Stage Model of Customer Relationship Development

Source: Evens, OMalley & Patterson, 2004.

ICRM (2002), on the other hand, argued that there are two (2) important steps in improving a
competitive customer relationship. They are the following:

Identifying the most valuable customer segment(s) in the market- A company improving
customer relationships with its most valuable customers in the market is in a better
position to generate the highest return on income (ROI) on customer relationship
management. In the long run, this will assist the company in maintaining its sustainable
competitive advantages.

Identifying key drivers of customer relationship- This analysis is done for the purpose of
finding the most important factors for improving customer relationships. As a matter of
fact, this is the first step towards effective customer relationship management. When
these key drivers of customer relationship are improved upon, it helps a company to
improve upon its competitive customer relationships.

ICRM (2002) added that it is always the best strategy for a company to effectively improve its
relationships with the most effective systems put in place to achieve results. Secondly, that the

improvement of customer relationships needs continuous efforts because a company cannot

achieve its optimal customer relationship in a short time. Finally, they mentioned that a firm
must monitor its customer relationship management process continuously in order to be able to
observe how it has been doing and what efforts it needs for its future customer relationship
management. the practices of CRM can be organized according the customer lifecycle model: (i)
Acquisition, (ii) Development (Enhancement, Penetration) and (iii) Retention (which will be
explained in the sub-sections). They also defined the customer relationship model as being a
model for how customers interaction can be viewed within an organization. However, it
should be noted that the theoretical model, developed by Ansari et al. (2004), has been adapted
by various organizations to include additional steps; or to take some of the original steps and
expand them into multiple steps. An example, constructed by QCI (2009), can be seen in Figure
2.1.
This model begins with the recognition and selection of customers, before moving to the
management of customer dissatisfaction. It then ends with the winning back of customers
(Buttle, 2009).
Figure 2.1: Customer Management Activity

Source: QCI, 2009.

2.2.1 Acquisition
Acquisition is a term that refers to the process of a firm acquiring (or
attaining) its customers through any means possible.

Springer Science and

Business Media Inc. (2005) argued that despite the importance of this process, it still remains an
area of scant attention.
According to Blattberg et al. (2001), the objective of customer acquisition is
to obtain more and profitable customers. Moreover, that acquisitions tend to
be more profitable if the expected value of acquiring the customer (over the
lifetime of the relationship) exceeds the cost of doing so.
Bolton et al. (2004) stated that customer acquisition occurs across a variety
of channels; which could include direct television, direct mail, internet,
telemarketing, etc. Ansari et al. (2004) added that this process extends

from the channels customers use to first access a firm to the promotions that
bring them to the firm.

2.2.2 Development
According to Ansari and Mela (2003), development is meant to enhance the value of a customer.
In other words, to increase the revenues gained from existing customers. Furthermore, the
development stage can include strategies such as (i) delivering customized products, (ii) crossselling- encouraging customers to buy across categories; (iii) up-selling- increasing demand
in existing categories; and (iv) channel management- migrating customers across channels in
order to lower costs or increase demand (Kamakura et al., 1991, 2003).

2.2.3 Retention
Customer retention involves the activities taken by organizations for the purpose of preventing
customer defection. It is a key to increasing long-run firm profitability (Gupta et al., 2004). In
fact, in a study by Fleming and Asplund (2007), it discovered that engaged customers generate
approximately 1.7 times more revenue than normal customers do.
According to Ansari et al. (2004), customer retention involves understanding the determinants of
customer defection (or churn) and being able to predict customers who are at risk of defecting at
any particular point in time. They added that if companies were able to understand the drivers
for customer defection, they would be able to design CRM strategies and interventions for
increasing the lifetime of customers as well as customer loyalty.

As it stands, companies are using a variety of efforts to reduce churn. Fleming and Asplund
(2007) placed them into three different categories; namely, (i) improving service quality,
(ii) targeting interventions to prevent churn, and (iii) loyalty programs.

2.2.4 CRM Models

Over the years, researchers, as well as organizations, have been able to construct a number of
CRM models to depict how companies can effectively manage their customers. The more
popular models include: (i) the IDIC Model; (ii) the QCI Model; (iii) the CRM Value Chain
Model; (iv) Paynes Five-Process Model; and (v) the Gartner Competency Model. Each model
places the customer differently into the CRM concept (Buttle, 2009). They can be seen in
Figures 2.2 through 2.6.
In Figure 2.2, the IDIC Model, which was developed by Peppers and Rogers, suggests that
organizations must take four (4) specific actions in order to build, maintain and retain their longterm relationships with their customers: (1) Identify, (2) Differentiate, (3) Interaction, and
(4) Customize (Gul, 2012).
Figure 2.2: IDIC Model

Source: Saya, 2010.

In Figure 2.3, the QCI Model, developed by the QCI consultancy firm, is a customer
management model which suggests that the external environment affects both the customer
experience and planning process of the organization.
Figure 2.3: QCI Model

Source: Saya, 2010.

The CRM Value Chain Model was developed with the underlying assumption that CRM is
simply a bridge between marketing and IT. In other words, a tool to manage customer
relationships with the help of people, information technology, customers data, companys
process and the customers themselves (Gul, 2012).
The purpose of the CRM value chain process is to make certain that a company is able to build
long-term, mutually-beneficial relationship with its strategically-significant customers (Gul,
2012).

Figure 2.4: CRM Value Chain Model

Source: Saya, 2010.

Paynes Five Process Model is a comprehensive model, developed by Adrian Payne, that
identifies five (5) core processes in customer relationship management (CRM); namely, (1) the
strategy development process, (2) the value creation process, (3) the multichannel integration
process, (4) the performance assessment process, and (5) the information management process.
The strategy development process (Gul, 2012).

Figure 2.5: Paynes Five Process Model

Source: Saya, 2010.

The Gartner Competency Model, developed by Gartner Inc.a leading IT research and advisory
companydeals with an organizations: (1) CRM vision, (2) CRM strategies, (3) Valued
customer experiences, (4) organizational collaboration, (5) CRM processes, (6) CRM
information, (7) CRM technology, and (8) CRM metrics (see Figure 2.6).

2.3 Advantages of Customer Relationship Management

CRM has been observed by many researchers to assist organizations with the activity of
relationship building. Jayakumar and Sathiya (2010) stated that relationship building with
customers has been accepted as the principal goal of marketing, and of businesses as a whole.
Moreover, that this is especially true in service industries where repeat customers are believed to
cost far less than brand new customers.
Figure 2.6: Gartner Competency Model

Source: Saya, 2010.

2.3 Advantages of Customer Relationship Management

Appiah et al. (2012) described customer relationships as an essential part of every business
success. They even mentioned that these relationships are especially important with institutions
that provide services where customer satisfaction plays a key role in customer retention.
When it comes to specific benefits, Brookins (2013) explained that by collecting information
that identifies customers' buying habits (including preferences and frequency), CRM systems
provide companies with a closer look at their customers' wants and needs so that they can
provide better customer service solutions that will ultimately lead to an increase in sales.

Furthermore, that after being satisfied, these same customers are more likely to recommend the
companys products and/or services to friends and family members.
Another benefit Brookins (2013) mentioned was that CRM makes a wide range of customer data
available to organizations and their department heads. She further explained that this data allows
these companies to target specific consumers with marketing that is based on their buying
behaviors. Finally, she explained that through this effort, customers get the products and services
they want and need in a timely manner.
Gray and Byun (2001) argued a few points concerning the benefits of customer relationship
management (CRM) (as can be seen in Table 2.1). First off, they argued that when a company
properly identifies a customer (through clean data about the customer and a single customer
view), it can assist their sales force in cross-selling. They also argued that when an organization
is able to understand their customers through differentiation, it can lead to (i) the implementation
of a cost effective marketing campaign or (ii) the reduction of direct mailing costs. Another
argument they posed was that customer satisfaction and loyalty through interaction can lead to
cost effective customer services. Finally, their last argument was that customer satisfaction and
loyalty through personalization can lead to the lower cost of acquisition and retention of
customers, thereby maximizing their share of wallet.

Where banks are concerned, Where the objectives of customer relationship management are
concerned, Zeithmal and Bitner (2003) mentioned that their its main objective for using customer
relationship management (CRM) is to build and maintain a base of committed and loyal
customers who are profitable for banking / financial institutions.in order to increase their bottom
line.

Shavazi et al. (2013) added added that banks that practice customer relationship

management (CRM) can benefit immensely from focusing and concentrating on customer
relationship management in the midst of their competitive environments. This is consistent with
Prasad (2005)s statement that customer relationship management (CRM) can be better utilized
in situations where customers have many options in the market for the same products or services.
Moreover, that in these same markets, businesses try their best to maintain their clientele by way
of providing them with comparatively better products and services and, in so doing, achieve
customer loyalty. Furthermore, that once these businesses have achieved customer loyalty, it
becomes difficult for their competitors to outdo them in the marketplace.
in which they find themselves in.
Appiah et al. (2012) described customer relationships as an essential part of every business
success. They further explained that these relationships are especially important with
institutions that provide services where customer satisfaction plays a key role in customer
retention. Moreover, they also mentioned that business owners in the banking and microfinance
institutions sectors in Ghana have been challenged to discover new and efficient methods for
improving relationship marketing in their businesses; thus creating the need for improved
relationship management. Furthermore, they added that the need for CRM has been exacerbated

by customer becoming more selective as a result of the increased emergence of new products,
services and ideas in the industry.
Prasad (2005) stated that customer relationship management (CRM) can be better utilized in
situations where customers have many options in the market for the same products or services.
Moreover, that in these same markets, businesses try their best to maintain their clientele by way
of providing them with comparatively better products and services. In so doing, they achieve
customer loyalty. Once they have achieved customer loyalty, it becomes difficult for their
competitors to outdo them in the marketplace.
According to Jayakumar and Sathiya (2010), relationship building with customers has been
accepted as the principal goal of marketing, and of a business as a whole. This is especially true
in service industries where repeat customers are believed to cost far less than brand new
customers.
Popli and Rao (2006) outlined some of the specific benefits of customer relationship
management (CRM) for different parties in the banking industry, and broke them
downcategorized them as follows:
Eemployees; and

into: (i) Bbenefits for Ccustomers; (ii) Bbenefits for

(iii) Bbenefits for Bbanks.

Benefits for Customers (Popli and Rao, 2006)

With CRM, there is more of a harmonized and professional approach to customer contact.

The use of CRM provides banks with up-to-date customer information with which they
can offer more personalized services.

CRM provides customers with greater access to products and services with which they
can feel empowered.

Targeted product and service offerings can be timed to coincide with customer events and
requirements.

Benefits for Employees (Popli and Rao, 2006)

CRM possesses the ability to empower employees with the information to deliver high
quality service and meet customer expectations.

The practice of CRM gives employees more time to serve customers.

With CRM, employees usually have higher satisfaction ratings.

Benefits for Banks (Popli and Rao, 2006)

CRM helps in capitalizing on short windows of opportunities in the market.

CRM can lead to improved customer acquisition and cross-selling.

CRM can lead to customer satisfaction and increased loyalty.

CRM helps to empower managers with information that can assist them in managing
customer relationships and making better decisions.

2.4 Customer Relationship Management and Customer Retention

Customer retention is an important metric in customer relationship management (CRM). This
section will take a look at studies which have examined the relationship between relationship
management and customer retention.
Sullivan

(1993) described . stated that customer retention asis a process meant practiced by

selling organizations for the purpose ofto reducinge customer defection. He also mentioned that
it begins with the initial contact a company has with a customer and continues throughout the
entire duration of the relationship. Moreover, . Additionally, that it is highly beneficial because
(as it has been observed by many firms) the cost of acquiring a new customer is often usually far
greater than the cost of maintaining a relationship with an existing customer.
With the proliferation of banks, customer retention has become increasingly important. As a
matter of fact, without it, banks have been suffering from (i) damage to their corporate image,
(ii) low profitability and / or (iii) loss of competitive edge (Sullivan, 1993).
Kotler, Armstrong, Saunders and Wong (2001) explained that, formerly, customer retention was
not as big of an issue as it is today. In fact, they also mentioned that many companies took their
customers for granted since they (the customers) (i) often did not have any alternate suppliers,
(ii) the other suppliers performed poorly in terms of quality or service provision, or (iii) the
market was growing so fast that the company in question did not worry about fully satisfying its
customers.
In contrast, where current statistics are concerned (through a variety of different surveys) it has
been discovered that (i) it is approximately 50% easier to sell to existing customers than it is to
sell to brand new prospects; (ii) a 5% increase in customer retention can lead to a 75% increase

in a companys profitability; (iii) approximately 80% of a companys revenue will come from
20% of its existing customers; and (iv) attracting new customer costs a company approximately
five (5) times more than does keeping existing customers (Lawrence, 2012).
Taking a look at empirical studies, one conducted by With the proliferation of banks, customer
retention has become increasingly important. Without it, it is possible for banks to suffer from
(i) damage to corporate image, (ii) low profitability and/or (iii) loss of competitive edge
(Sullivan, 1993).
In a study by Owusuah (2012) , it sought to assess the effects of customer retention strategies on
the branchs and customers perception of quality at Stanbic Bank, Kumasi.

The specific

objectives of the study were to: (i) identify the customer service strategies used by Stanbic Bank
Ghana Limited; (ii) assess customer perception about the quality of customer service strategies
used by Stanbic Bank Ghana Limited, Kumasi; and

(iii) assess the effects of

service strategies on customer loyalty and retention at Stanbic Bank Ghana Limited, Kumasi.
This study utilized a qualitative approach. The samples for the study consisted of the Marketing
Manager for Stanbic Bank Ghana Limited and 201 of the Banks customers. The marketing
manager was selected using the purposive sampling technique, whereas the customers were
selected using the convenience sampling technique.
Data was collected through the use of interviews (with the Marketing Manager) and
questionnaires (with the Banks customers). Data presentation and discussions were support
with tables and line graphs.
According to the findings of the study,The findings of the study indicated that Stanbic Bank
Ghana Limited did, in fact, utilized customer retention strategies; and that these strategies were

(that were periodically subjected to reviews. This was done) in order to have the
maximummaximize the impact that these strategies had on customer retention and loyalty.
The specific customer retention strategies of consisted ofthat the Bank utilized were: (i) timely
service delivery, (ii) the effective handling of complaints, (iii) customer acknowledgement, and
(iv) reliable technology (i.e. ATM service).
Where the customers were concerned, the majority indicated that they were highly satisfied with
the Bank. For instanceexample, (i) most of theits customers were satisfied with the physical
attractiveness of the Bank; (ii) most of the customers considered the Banks service delivery to
be satisfactory; and (iii) most of the customers considered the Banks services to be reliable.
AAnother study,, conducted by Appiah et al. (2012), sought to ascertain the effects of of
customer relationship management (CRM) on the microfinance sector. Appiah et al. (2012) It
used First African Savings and Loans as a case study. The purpose of the study was to discover
why many institutions in Ghanas microfinance sector that implement the customer relationship
management (CRM) concept had customers that were not satisfied with their services and still
switched to other institutions. Moreover, the study had the following objectives: (i) to assess the
CRM practices at First African Savings and Loans; (ii) to identify problems associated with
CRM at First African Savings and Loans; and (iii) to recommend possible solutions to CRM
problems.
In the study, a qualitative approach was utilized. With that, questionnaires and interviews were
used as the primary data collection instruments. Secondary data was gathered from textbooks,
websites and journals. Where data processing is concerned, statistical tables were used to
provide a clear visual expression as well as an easy understanding of the data presented in the

study. Moreover, an inductive approach was used to compare the ideas and definitions of
customers and professionals.
According to the results of the studyThrough the study, it was discovered that:

(i) the

Mmanagement of First African Savings and Loans were committed to maintaining a long-term
relationship through customer relationship management practices; (ii) the organizations staff had
limited knowledge of customer relationship management techniques due to a lack of training;
and (iii) their customers expectations of service delivery, processes and requirements varied;
and (iv) the application of the organizations customer retention strategies had been instrumental
in it being able to retain its existing customers. .
The last study that will be looked at in this section is one byA study by Gyasi (2012) . This study
sought to find a solution to Access Bank Ghana Limiteds (ABG) relationship marketing issues.
In other words, it sought an answer to the question:s to Hhow would relationship marketing
would affect customer retention at Access Bank Ghana Limited (ABG).
). With that, tThe specific objectives of the study were as followsthe following: (i) tTo find out
the relationship between customer relationship marketing and customer retention at ABG; (ii) to
find out how customer relationship marketing is practiced at ABG; and (iii) to find out how
relationship marketing affects customer retention.
During the study, questionnaires were distributed to 200 customers of Access Bank Ghana
Limited.The study made use of the administration of questionnaires to 200 of the Banks
customers. Furthermore, tThe findings of the study revealed that: (i) Access Bank has been
performing well by maintaining the relationships that it initiates with its clients, (but most work
on improving the number of contact times with them as relationship marketing provides them

with the opportunity to do so); (ii) the Banks level of adoption of relationship marketing is very
high; (iii) Access Banks relationship marketing is positively correlated with its customer
retention; and

(iv) Access Banks successful relationship marketing effort has led

to an increase in its customers over the years.

Ghavami and Olyaei (2006) conducted a study to evaluate the impact of customer relationship
management on customer retention. The objectives of the study were the following: (i) to
discover the role of the customer relationship management process in customer retention; and
(ii) to discover the types of impact that the application of CRM will have on customer retention.
Through the study, it was discovered that (i) there exists a significant positive relationship
between effective CRM practices and customer retention; (ii) it is a lot cheaper to maintain
existing customer than to attract new ones; and (iii) maintaining good relationships with existing
customers to the degree of encouraging them to stay with a company is both a dynamic and a
meticulous job.

2.5 Customer Relationship Management and Firm Financial Performance

According to Businessdictionary (2013a), an organizations performance refers to an analysis of
its actual results against its set goals or objectives. Throughout the years, one popular measure
of organizational performance has been financial performancea subjective measure of how
well a firm can use assets from its primary mode of business and generate revenues
(Businessdictionary, 2013b). Where financial performance is concerned, different researchers
have observed that it can be measured through the use of indicators such as (i) profit, (ii) an
increase in customer base, (iii) an improvement in customer service, and (iv) other operational

controls that are put in place to support the efficient running and profitability of these
institutions (Desbordes, 2011).
However, it should be noted that not all researchers have agreed with measuring organizational
performance by financial measures alone (Huerta and Villanueva, 2006). Kaplan and Norton
(1996) even stated that a major problem encountered when firms use financial indexes for
measuring performance alone is the failure of these indicators to show (i) how successful the
organization will be in the market and (ii) how successful it will be within a competitive
environment.
Different studies have been conducted to determine the relationship between customer
relationship management and a firms financial performance. One such study, conducted by This
section takes a look at studies that have dealt with the relationship between customer relationship
management (CRM) and financial performance.
Over the years, studies such as those conducted by Gemudden et al. (1996),

have

revealedrevealed that an organizations level of relationship management activities are indeed

positively correlated withto not only its financial performance, but with its employee satisfaction
and new product success as well. Where it concerns performance, researchers have observed
that it can be measured by different indicators such as (i) profit,

(ii) an increase

in customer base, (iii) an improvement in customer service, and (iv) other operational controls
that are put in place to support the efficient running and profitability of these
institutions(Desbordes, 2011).

First off, Soch and Sandhu (2010) conducted a study in India to determine whether customer
relationship management activity positively or negatively affects firm financial performance
using a sample of 171 large firms from eight different industry types (not including the banking
industry). In doing so, the study identified four (4) CRM constructs: (1) customer need sensing,
(2) communication, (3) intermediaries, and (4) the internal environment of firms.
The findings of the study showed that there exists a positive correlation between CRM and firm
performance; however, not a significant one.
Another study to be reviewed is one that was conducted by Reinartz et al. (2004). This study
attempted to establish a link between customer relationship management (CRM) and
organizational performance. The findings of the study indicated that there are three (3) distinct
customer relationship-related stages: (1) the Initiation Stage, (2) the Maintenance Stage, and
(3) the Termination Stage. Moreover, that customer relationship management (CRM) has an
impact on financial performance across the three (3) aforementioned stages. With that said, in the
Initiation and Maintenance stages, some support was found for CRM's impact on Performance;
but little support was found for CRM's impact on the Termination Stage.
When focusing on the performance of firms in the banking industry, aA study by Desbordes
(2011)a case study of selected Barclays Bank branches in Kumasi) sought to identify the
effect of customer relationship marketing (CRM) on the performance of banks in Ghanas
banking industry. To be more specific, it was a case study of selected Barclays Bank branches in
Kumasi.
This study was conducted by the Researcher (Desbordes (2011))Through the study, the
Researcher

after having observed that banks in Ghana have become more innovative,

competitive and attractive to investors. As a result of this success, the number of banks in Ghana
has been steadily increasing; therefore resulting in increased competition. This increased
competition, in turn, has made it necessary for these same banks to become more innovative as
they have already been continuously developing strategies whichtheir already existing strategies
are slowly becoming archaic.
The specific objectives of the study were to: (i) identify the customer relationship marketing that
were being used by selected Barclays Bank branches in Kumasi; (ii) measure the customer
satisfaction of the relationship marketing strategies used by the selected branches of Barclays
Bank in Kumasi; (iii) measure the performance of the selected Barclays Bank branches in
Kumasi; and (iv) find out the effect of customer relationship marketing strategies on the
performance of selected Barclays Bank branches in Kumasi. Performance was measured in terms
of (i) the retention of existing customers, (ii) new accounts opened, and (iii) returns on
investment (during specific years).
The study made use of a quantitative approach, and non-probability sampling was used. With a
population size of seventy-five (75) respondents, purposive sampling was used for twenty-five
(25) bank officials at Barclays Bank, and convenient sampling was used for fifty (50) bank
customers. More specifically, interviews and closed-ended questionnaires were used on
respondents. Statistical Package for Social Sciences (SPSS) software was used to process and
interpret the data that was collected during the study. Afterwards, this data was tabulated and
analyzed appropriately.
With regard to the findings of the study, it was determinedAmong other things, the findings of
the study indicated that, over the years, customer relationship management is has been critical to

the successful performance of Barclays Bank Ghana Limited. As a matter of factIn fact, it was
even observed discovered that the Bank (during the years in questionunder consideration) moved
from making net losses to becoming profitableprofitable. This was observed by with an
increase in its number of customers, and likewise, its customer depositss and the number of
customers. Because of thisDue to this occurrence, Barclays Bank has made it a priority put in
place good customer relationship strategies to for the purpose of (i) identifying customer needs
and (ii)to satisfying them customers in order for them to desire to continually do business with
the Bank. Additionally, it was also discovered that the Banks strategies have encouraged its
numerous customers to engage in positive word of mouthrecommending the Bank to their
friends and family members.
In another study by Shavazi et al. (2013), conducted in the Islamic Republic of Iran, the main
objective of the study was to investigate the effects of customer relationship management
practices on the organizational performance of Iranian banks using the balanced scorecard
approachthe use of both strategic non-financial performance measures and financial metrics to
provide a more balanced view of organizational performance. .In this same manner,
study relied on four (4) indicators of organizational performance; namely,

tThe

(1) financial

performance, (2) customer-based performance, (3) internal processes performance, and (4)
learning and growth performance.
Prior to conducting the study, the Researcher had observed that Iranian banks were experiencing
stiff competition in the banking their respective industry. Moreover, aAs a resultcounteractive
measure of this, the these Iranian banks were doing their best to reform their strategies and
processes in order to achievefor the purpose of achieving a competitive advantage.

More

specifically, the banksthey were going through a reformreforming their practices from a position

of product orientation to customer orientation. This was done after having realized that building
long-term relationships with their customers was critical for improving performance and
achieving a sustainable competitive advantage in the banking industry.
The study utilized a questionnaire survey in which questionnaires were distributed to 480
employees of Iranian banks. Where data analysis is concerned, this particular study utilized
regression analysis in which customer relationship management (CRM) was the independent
variable and the different types of organizational performances (financial performance,
customer-based performance, internal processes, and learning and growth) served as the
dependent variables.
According to the findings of the study, the overall hypothesis was proven to be truethat there is
a significant relationship between customer relationship management (CRM)CRM processes and
bank performance. As a result of the findingsis, the study recommended that it is important for
managers to (i) observe the different processes and activities of customer relationship
management (CRM) in their respective banks, (ii) understand who their valued potential
customers are, (iii) understand what kinds of products and services their valued potential
customers need, (iv) understand why customers connect to their competitors, ,

(v)

understand how the banks can retain loosing customers, and (vi) understand how banks can
attract valuable customers to increase their performance.
The last study to be examined is one that was conducted by Coltman, Devinney and Midgley
(2011). The purpose of this study was to understand the importance of the use of customer
relationship management (CRM) in helping firms to acquire new customers, retain existing
customers and maximize their financial performance. It was determined that the use of customer

relationship management (CRM) can have a positive effect on a firms financial performance.
Moreover, that CRM initiatives which jointly emphasize customer intimacy and cost reduction
outperform those taking a less-balanced approach.
Furthermore, a study by Reinartz et al. (2004) attempted to establish a link between customer
relationship management (CRM) and organizational performance. The findings of the study
showed that there are three (3) distinct customer relationship-related stages: initiation,
maintenance, and termination. They found CRM has an impact on perceptual performance across
the three stages. In the initiation and maintenance stages, some support was found for CRM's
impact on Performance, but little support was found for CRM's impact on the termination stage.
2.6 Conclusion
This literature review examined the research that been conducted on customer relationship
management (CRM) in Ghanaian banks.
There are numerous definitions for customer relationship management. The most basic is the
process of building long-term mutually beneficial relationships with customers (Popli and Rao,
2006). Nevertheless, CRM can be effectively understood as a process, strategy or technology
meant for effectively creating and managing relationships between companies and customers for
the benefit of both parties.
When it comes to the advantages of customer relationship management, they are many and can
typically be broken down into: (i) benefits for customers, (ii) benefits for employees, and
(iii) benefits for banks. Where the benefits for customers is concerned, CRM provides a more
harmonized and professional approach to consumer relations; it provides banks with the most
current information with which to offer customers more personalized services; it provides
customers with greater access to products and services; and it allows targeted product and service
offerings to be timed to coincide with customer events and requirements (Popli and Rao, 2006).

Where the benefits for employees are concerned, CRM can empower employees with
information to deliver high quality services and meet customer expectations; it can provide
employees with more time to serve customers; and it usually leads to employees having higher
satisfaction ratings (Popli and Rao, 2006).
Where the benefits for banks are concerned, CRM can help them to capitalize on opportunities; it
can lead to improved customer acquisition and cross-selling; can lead to customer satisfaction
and increased loyalty; and can help to empower managers with information that can assist them
in managing customer relationships and making better decisions (Popli and Rao, 2006).
When it comes to customer relationship management and customer retention, different studies
have shown that customer relationship management is positively correlated with customer
retention.
When it comes to customer relationship management and financial performance, different studies
were able to show that customer relationship management is positively correlated with financial
performance.

2.7 Theoretical Conceptual Framework

Over the years, researchers have sought to discover whether or not a betterment in relationship
management practicesactivities at banksat an organization leads to an increase in financial
performance. financial performance as well as customer retention. The proposed model of this
study conceptualizes the relationship between CRM practices, Customer Retention, and
Financial Performance at banks.

Financial Performance
A study by Gemudden et al. (1996) revealed that an organizations level of relationship
management activities are positively correlated with its financial performance. In another study
by Desbordes (2011), it was discovered that customer relationship management led to the
increased profitability of Barclays Bank Ghana Limited. Furthermore, in another study by
Shavazi et al. (2013) there was shown to be a significant positive correlation between customer
relationship management and bank performance. In summary, from this assessment, it appears
that there exists a positive correlation between customer relationship management (CRM) and
the financial performance of an organization.

Customer Retention
There are already many studies which have asserted a positive correlation between CRM
practices and a firms financial performance (Desbordes, 2011; Gemudden et al., 1996; Soch &
Sandhu, 2010; Reinartz et al., 2004; Shavazi et al., 2013; Coltman, Devinney & Midgley, 2011).
Furthermore, there are also a number of studies which have asserted a positive correlation
between CRM practices and customer retention (Owusuah, 2012; Appiah et al., 2012; Ghavami
& Olyaei, 2006).
Where it concerns customer retention, Sullivan (1993) stated that customer retention involves
the steps taken by a selling organization in order to reducefor reducing customer defection.
Chitra and Subashini (2011) indicated that customer retention is a critical issue in todays evercompetitive commercial arena, as well as one of the top imperatives for the survival and growth
of commercial banks around the world. Because of this, customer relationship management
(CRM) tools have been developed and applied for the purpose of improving customer retention.

Where studies are concerned, the following facts related to customer relationship management
(CRM) practices and customer retention at banks were discovered:

With time, the customers of commercial banks have a tendency to increase their
patronage of the other products / services from across the range of financial products /
services available (Parvez, 2005).

Long-term customers of commercial banks are much more likely to become referral
sources to help the banks to acquire more customers (Feick et al., 2001).

The longer the relationship between the customer and bank continues, the more the bank
is able to understand the customer and his/her needs, tastes and preferences. This
provides the bank with a greater opportunity to tailor its products / services and cross-sell
its product /service range (Cote & Giese, 2002).

Customers in long-term relationships with their banks are far more comfortable with the
products / services, the organization, its methods and its procedures. This, in effect, helps
to reduce operating costs as well as the costs arising out of customer error (Caruana,
2002).

The following factors have been observed to lead to an increase in profitability at banks (Appiah
et al., 2012).
Appiah et al. (2012) asserted that customer relationships play a key role in customer retention in
the banking and microfinance institutions sectors in Ghana. Another study by Owusuah (2012)
ascertained that the use of relationship management strategies at Stanbic Bank Ghana Limited
led to an increase in customer retention.

Figure 2.2: Conceptualized Relationship aAmong Variables

Source: Author.

2.6 Conclusion
This literature review examined the research that been conducted on the effects of customer
relationship management (CRM) in organizations; mainly banks. From the review of literature,
it appears that in any business, customers are the most important aspect of a successful company.

Therefore, it is important that they are looked after and managed properly. In fact, over the years,
this need has created the desire for organizations to practice customer relationship management
(CRM).
Customer relationship management (CRM practices can be organized according to the customer
lifecycle

model:

(i) Acquisition,

(ii)

Development

(Enhancement,

Penetration)

and

(iii) Retention. In addition, researchers and organizations have been able to construct a number
of CRM models to depict how companies can effectively manage their customers. Each model
differs according to how it places the customer into the CRM concept.
Where CRM and customer retention are concerned, past studies have indicated that CRM
practices have helped organizations (even banks) to retain their customers. On the other hand,
where it concerns CRM and financial performance, past studies have indicated that there is a
positive correlation between the practice of customer relationship management (CRM) and a
firms financial performance.
Note

Avoid one sentence paragraphs.

Your review should be done in the light of the objectives. As it stands, some of the
objectives have not been covered.

You dont conclude a study before you write the ceonceptual framework.

Avoid those funny introductions and move straight to the sub-topic.

Your conceptual framework does not sound convincing. Pls rework it.

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