CHAPTER ONE

INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The road to customer satisfaction is not paved with a large number of unusual demands. Lasting relationships with bank customers are built on some very simple ideas. Banks must strive to provide uncomplicated services and, in so doing, provide a competitive advantage for their institutions. Market share is earned one customer at a time. Given the high percentage of customers who have experienced dissatisfaction with their banks, it is likely that bankers have not "walked the walk" taken by other consumer-driven businesses Monitoring customer satisfaction on an ongoing basis, on the factors we find define customer satisfaction, is a strategic opportunity for banks. This paper provides an assessment of the factors that affect the choice of customers in choosing their bankers. A similar study conducted elsewhere in West Africa of personal banking habits and preferences (see Owusu-Frimpong 1999) shows that the reasons people choose retail banks appear to be based on location, reputation, service and security of funds. There are, however, likely to be some differences in how Ghanaian consumers interpret these variables especially with the rapid transformation of the Ghanaian Banking sector in recent past and especially considering the influx of foreign banks into the industry with the Nigerian Banks being dominant. The foregoing has led to the the Ghanaian banking industry undergoing metamorphosis in terms of adoption of technology and automation. These new generation private sector banks which came into existence in the last ten

years have gained a substantial market share and government owned banks are losing market share to these new banks. It is very important for the banks to understand the preferences of the customers to offer the services required both to attract new clients and protect existing client-base from migrating to other banks.

A bank, savings and loan, and credit union cannot simply open the doors and expect the customers to enter. In the consumer's mind, a savings account is just another savings account; a checking account is just that - another checking account. In order to capture a significant market share, banking institutions must create a distinct and compelling advantage. The bad news is that consumers frequently tend to lump the overall behavior of the institution of banking together. Thus, individual banks have to work hard to distinguish themselves from the competition and forge long-lasting relationships with their customers. A clich in consumer research is that it costs an average five to six times more to attract a new customer than to keep an existing one. What better way, then, to forge relationships than to understand just what it is that customers want from their "friendly neighborhood bank"? According to a Wall Street Journal article (August 17, 1995, p. A1), understanding what the customer wants ranks in importance over "home banking, derivatives, smart cards or the latest whiz-bang." In this paper, we follow up with previous work published in the Journal of Retail Banking (Chakravarty, Feinberg and Widdows, 1995: 1996) and attempt to uncover what kind of relationship customers want with their banks and the major factors defining this relationship. A grasp of these issues will help banks forge long-lasting relationships with

their customer base. The purpose of this study was to determine the factors considered important in customer choice of retail bankers to enable retail banks reorganize their activities to achieve their corporate mission and goals.

1.2

STATEMENT OF THE PROBLEM

December 2009 marked the year end that all foreign banks (banks with foreign majority ownership) were to meet the new stated capital requirement of GH60 million. Of the fourteen foreign banks in the country, ten were able to comply with the requirement. Local banks (banks with local majority ownership) are required to meet the minimum capital of GH25 million by December 2010. As at December 2009 six local banks had met the requirement. In the last three years, the industrys total shareholders funds have more than doubled from GH0.8 billion to GH1.8 billion as banks inject new capital and retained earnings to meet the minimum capital requirements. The after effects of the global economic crisis continue to reverberate through corporate boardrooms, bringing risk management into sharper focus In the 2009 What directors Think survey conducted by PricewaterhouseCoopers and Corporate Board Member magazine, risk management was clearly of primary concern to directors, none the less the need to make profit cannot be overemphasized. The phenomenal growth in the Banking industry as referred to in this paper arose from; capital injection by existing banks to meet minimum regulatory capital requirements, entry of eight banks from the sub region and Asia, and expansion in the branch network. The new capital requirements may lead to an improved buffer for risk absorption in the

sector. However, increased competition, growing customer demands, and new regulations are likely to continue to add complexity to business models of banks and information technology environment. These complexities may not be easily unraveled. The days of the loyal, life-long customer appear to be over. Transient customers are generally willing to move to banks that make their customers feel valued. The current economic reforms, improvements in budget deficit, and the new oil find will definitely attract foreign investments and lead to buoyant economic activity. In view of the foregoing, it is evident that pprofitability of banks and growth of client base are interlinked. With intensifying competition in the market, it is very important for the banks to understand "How customers choose their banks?" Then only banks can take proper marketing efforts to increase client base. Improper identification of true determinants of consumers' bank selection decision may result in poor results for marketing efforts. Management's failure to identify customers' desire is one kind of quality gap (Zeithmal et al., 1990). Therefore the quest to conduct an assessment of the factors affecting customers choice of bankers becomes very important to enable banks to meet these set objectives.

1.3

OBJECTIVES OF STUDY

The objectives of this study are in three-folds. 1. The objectives of this paper are to determine the relative strengths of factors used by consumers in the commercial bank selection process. Similarly, the study seeks to determine the factors bank customers consider important when

choosing a bank and how these factors are prioritized according to their importance. 2. The study also gauges the knowledge of the customers regarding their perception about their choice to do business with Nigerian Banks in Ghana. 3. Lastly, the study tests whether customer choice of bankers varies by demographic profiles of the respondents. The findings presented in this paper will be useful and provide pertinent information for bank managers in formulating their marketing strategies with a focus on customers retention and satisfaction since consumer is sovereign in todays competitive and capitalistic markets and therefore the bankers must reengineer their view and recognize the predilection and tang of the retail customers. This will also enable banks improve on their levels of profitability and ultimately this paper will serve as a source of useful information for future research conducted in this area.

1.4

RELEVANCE OF THE STUDY

A prominent Japanese car manufacturer goes so far as to measure the satisfaction received by the owners of its cars from their dealers. If the satisfaction rating of any dealer falls below a cutoff, the parent company sends out a "customer-satisfaction SWAT team" that stays with the dealer as long as it takes to bring customer satisfaction ratings back up to par, or better.

Relationships with customers are forged by making satisfaction a certainty. A bank that provides a competitively satisfying experience to its customers will have won partners

for life and will have created disciples who spread the word better than the bank ever could.

This study tends to highlight the importance of effective market positioning and the different approaches that a bank can use to occupy competitive position in competitive market place. The study lead to the conclusions that from the bank's customers point

of view, factors relating to the functional quality such as friendliness and helpfulness of personnel, accuracy in account transaction management, efficiency in correcting mistakes and speed of service and decision making, are the most important determinants of bank selection. This paper portrays the increasingly competitive environment prevailing in todays financial market and the rapid advances in customer intelligence technologies which have led retail banks to look for new business and marketing models for realizing intelligence-driven customer transactions and experiences to also reflect why nowadays great attention is paid to all the bank-customer touch-points, aiming to optimise the interaction, towards affecting specific customer behaviour variables (satisfaction, loyalty, etc.).

Lastly, the objective of this study is to focus on the criteria of bank services or image which customers perceive as important in their selection of a bank. In particular, the focus on the choice of a bank, whether foreign or local. The emphasis on foreign or local is mainly due to the growing global nature of the industry. The greater liberalization and globalization of world trade will enforce Ghanaian owned banks to address the

issue of how customers perceive them in comparison to their foreign competitors. These developments and the growing number of foreign banks setting up branches in Ghana resulting in increased competition, makes it imperative for local banks to also analyse the attributes that shape the overall image of bank amongst its customers. This image evaluation will eventually determine the choice of bank to patronize.

1.5

LIMITATIONS OF THE STUDY

This study required ample time for appropriate methodology and statistical technique. Also, in a study such as this, the ability to present a better view of its abstract nature near reality required that adequate income be invested. There were problems in the area with data collection since relevant data were not released on time by the relevant banks.

The research was also affected by time constraints and other problem, although effect was made to overcome these challenges for accuracy. However, in any area where this conduct has failed to address itself adequately it is assured that it will never the less provide input and stipulate research in the future.

CHAPTER TWO
2.0 LITERATURE REVIEW
The business literature is flooded with vast array of information on the customer choice of bankers of various countries, while such data is limited in the Ghanaian context. Even though customer preferences vary from country to country based on the culture,

demography, affordability, IT penetration etc., study of the scenario in the other countries may throw some light to us on the subject.

Profitability of banks and growth of client base are interlinked. With intensifying competition in the market, it is very important for the banks to understand "How customers choose their banks?" Then only banks can take proper marketing efforts to increase client base. Improper identification of true determinants of consumers' bank selection decision may result in poor results for marketing efforts. Management's failure to identify customers' desire is one kind of quality gap (Zeithmal et al., 1990).

It was found that Bank customers tend to be loyal provided they are satisfied with its service and stick on to the same bank for five to seven years on an average and they change over only when they move to a new home in an area outside their bank's network. (Huber et al., 1998)

Khazeh and Decker (1992) analyzed the determinants of consumers' bank selection decision thro a survey conducted among 1198 of business school alumni of Salisbury state university in Maryland using a questionnaire containing 22 factors that were identified to influence the banking decision. Service charges, the reputation of the bank, interest rates on loans, time required for loan approval and friendly tellers were identified as the top 5 determinants of bank selection decision. Effective advertising was considered as least important (Rank 22) while ATM availability, closeness to work, closeness to home were ranked 12, 16 & 17 respectively. Focusing customer attention

on low ranking factors may do little to attract new customers and on retaining the existing one. Thwaites and Vere (1995) studied the student buying behavior of banking services and concluded that students are not convinced about the concept of financial supermarket and were more inclined to shop around for the best offer. They were also found conducting business with more than one institution and were not particularly loyal. A survey of customer perceptions of competing banks and their attributes are essential in providing the bank manager with usual representation of customers' view on banks attributes and position in market place. A study conducted by Zineldin (1996) in Sweden highlights the importance of effective market positioning and has examined the concept of bank positioning and different approaches that a bank can use to occupy competitive position in competitive market place. The study highlights the fact that a well integrated application of technology and staff helps to build customer loyalties by creating deeper and fuller customer relationships. The study lead to the conclusions that from the bank's customers point of view, factors relating to the functional quality such as friendliness and helpfulness of personnel, accuracy in account transaction management, efficiency in correcting mistakes and speed of service and decision making, are the most important determinants of bank selection. Results implied that convenience of location, price and advertising had a minor effect on bank selection. The results also indicated that the performance of the contact personnel, word-of-mouth and technological based services might also compensate for an overall low score of factors such as full service provider.

Edris and Almahmeed (1997) conducted a study at Kuwait and concluded that the true determinants of bank selection decision made by business customers are more likely to be a function of both perceived importance of bank attributes and the difference among banks in a given region with regard to each of these attributes.

Ulengin (1998) indicated that customer in Turkey was more interested in the functional quality of financial services rather than the technical quality dimension. The study further concluded that as there were no big differences among financial products offered by banks and the quality of financial products offered by banks are much beyond expectations of the customers, delivery channels and customer relations gain importance in bank choice process as there were a lot of problems in those areas. The substantive conclusions of this study are that, on an average, respondents of the survey prefer the extended customer loyalty programs, the continuous information flow from the bank, the off site ATMs, the minimum waiting time in the branches and a simplified applications form for all accounts a bank offers.

Nielson et al., (1998) conducted a survey of CEOs of business firms and banks to find out how well banking industry in Australia understands the need of their business clients. Significant differences were found for six factors, which business firms consider prior to establishing a banking relationship. Business firms were found to place far more importance on the banks willingness to accommodate their credit needs, the efficiency of banking operations and the fact that banks have knowledge of their specific business.

On the other hand, banks felt it was more important for them to offer competitive prices, full range of services and provide a personal banking relationship.

Mylonakis et al., (1998) concluded that the most important bank selections criteria are convenience, bank reputations, quality of products and services, interest rates and fees, education and personnel contacts, facilities, branch environment, services and after service satisfaction. Their research on bank customers of Greece showed that bank selection criteria like location-convenience, quality of service (attention to the customer, personalized service, no queues) seen to influence the bank selection and factors like Advertising did not seem to influence bank customers at all.

Phuong and Har (2000) under took a study of bank selection decisions in Singapore using the Analytical Hierarchy process through a study of banking preferences of college students. The findings indicated that the most important criteria affecting undergraduates' bank selection decisions are higher interest rate for saving, convenient location and overall quality of service. They are followed by the availability of self bank facilities, charges on services provided by banks, low interest rate on loans, long operating hours, availability of students privileges and recommendations by friends and parents specifically. The respondents considered overall quality of service more than twice as important as recommendations by parents/friends.

Devlin (2002) analysed the customer choice criteria in retail banking market in the UK on the potential variations in the importance of various choice criteria, which were

classified as either intrinsic or extrinsic, with respect to customer financial knowledge. Intrinsic attributes were defined as those specific to a particular service rather than generalisable across services like price and service specific features. Extrinsic attributes were those factors that are not specific to a particular service and can be generalized across offering like service quality factors, corporate brand and relationship factors. It was found that lower knowledgeable groups were particularly influenced by extrinsic criteria of location of the branch and recommendations that they receive. Even though such extrinsic factors were found to influence higher financial knowledgeable groups also, higher knowledgeable groups were found more likely to take account of intrinsic attributes such as service features, rate of return and low fees in their choice.

Studying and understanding customer defection/ switching process is equally important as studying customers bank selection process as losing clients can have negative effect in bank's market share and profit.

Levesque and McDougall (1996) investigated the major determinants of customer satisfaction and future intentions to switch in the retail banking sector. 17 items were selected to measure service quality and switching intentions such as service quality dimensions (e.g. getting it right at the first time) service features (e.g. competitive interest rates), service problems, service recovery and products used. It was found that service problem and the bank's service recovery ability have a major impact on customer satisfaction and intentions to switch.

Colgate and Hedge (2001) studied the process of defection in Australia and New Zealand through a mail survey. The study indicated three main problem areas, which influenced customers to switch banks, were service failures, pricing problems and denied services. This finding is important in our context of study because, a client may switch to another bank because his present banker may not provide a service, which the customer thinks most important. They further add that customers tend to complain more often about services failure prior to exiting firm and customers may be staying silent about the problems that are most important in their decision to exit the firm.

Aish et al., (2003) compared the bank selection decisions of the small business market across UK and Egypt and the results advocated various similarities and provides evidence to suggest that brand plays major role in the bank selection decisions of the small businesses at both UK and Egypt .The study reinforces the opinion that technical quality (quality of service itself) is more important than functional quality (quality of the service provider) in bank selection decisions. More specifically both Egyptian and UK small business customers consider financial items (fees, interest rates and credit availability) as the most important factors in bank selection decisions.

Devlin and Gerrard (2005) studied the relative importance of various choice criteria for main and secondary banks. Results showed that relatively rudimentary factors such as location, recommendation and relationships were important choice criteria when choosing a main bank. Though the same criteria were found to be strongly influential in choosing the secondary bank, offering an incentive was also significantly more

important in prompting the choice of secondary bank. Service exception was found to be significantly more important for main bank as were low fees and over draft charges.

The services market is becoming ever more competitive, as price competition intensifies and the shifting of loyalty becomes an acceptable practice. Many industries have already experienced a rearrangement of marketing budgets in order to devote more resources to defensive marketing, namely customer retention (Patterson and Spreng, 1998). Several initiatives have been undertaken to improve retention, including value chain analysis, customer satisfaction and loyalty programmes (Gummerson, 1998).

Several authors (Bloemer and Lemmink, 1992; Bloemer and Kasper, 1995; Sharma and Patterson, 2000) highlighted, however, that the link between customer satisfaction and customer retention is reliant, to some extent, upon other factors such as the level of competition, switching barriers, proprietary technology and the features of individual customers. The relationship between these two key constructs is considered to be far more complex than it might first seem (Fournier and Mick, 1999).

Satisfaction has a significant impact on customer loyalty (Sharma and Patterson, 2000) and, as a direct antecedent, leads to commitment in business relationships (Burnham et al., 2003), thus greatly influencing customer repurchase intention (Morgan and Hunt, 1994). Indeed, the impact of satisfaction on commitment and retention varies in relation to the industry, product or service, environment, etc.

However, customer commitment cannot be dependent only on satisfaction (Burnham et al., 2003). Relational switching costs, which consist in personal relationship loss and brand relationship costs and involve psychological or emotional discomfort due to loss of identity and breaking of bonds (Burnham et al., 2003), have a moderating effect on the satisfaction commitment link (Sharma and Patterson, 2000).

CHAPTER THREE
3.0 RESEARCH METHODOLOGY

Research Instrument
Previously, permission was sought and gained from the respective bank managers to conduct the study at the banks entrance. Structured questionnaire was prepared for use in the survey based on literature review and objective of the study. The questionnaires were constructed and pre-tested to correct errors. The final questionnaires were hand-delivered to the customers as they entered the banks. Only those who directly operate a bank account were requested to complete the questionnaires. The questionnaires were designed to reduce any form of writing to its minimum and were typed and presented to respondents in an arranged manner. This is to make the job feasible for both the respondents and the researcher. Following facts were kept in mind while preparing the questionnaires: The questionnaire was produced and brought about in an easy language. All the questions are in form of multiple choice questions and there can be more than one answer for most of them. The comments and suggestions were open-ended questions so that the respondent could elaborate upon his thoughts. Part A of the questionnaire captured demographic characteristics viz, age, sex, occupation, educational qualification, marital status, industry and monthly earnings with the view to capture the demographic influence on bank choice. Part B captured the respondents banking habits and preferences and asked about their preference of a local bank to a foreign bank to conduct their personal financial transaction. Part B also sought

to explore significance of the perception about doing business with Nigerian owned banks in Ghana. Part C captures bank the services offered by the main / prime bank and services used from main bank and secondary banks. Lastly, Part D captures the bank choice decisions and the satisfaction level with current bank. This section was designed to generate data in order to rank the importance of selection factors by bank customers.

The questionnaires listed the important factors identified as the influencing factors on decision making and satisfaction levels of the clients from various studies referred in the literature survey and captured the respondents perceived importance of the factors viz. a viz. the performance of the bank on each of the factors. The responses were captured in a scale of 1 to 5, 1 representing the very important while 5 representing Not at all important. The weighted average scores of all responses were calculated and the scores on importance were ranked and tabulated.

Sampling method used: This study was conducted in the Greater Accra region of
Ghana. Of the 26 banks currently operating in Ghana, 12 are local banks and 14 are foreign banks. The sample for this study was selected from among bank customers. To get a representative cross-section of the population, six main banks which have extensive branch network were selected for the survey of which a total of 60 questionnaires were distributed equally among the banks.

Trained research agents collecting the data assured the respondents of the confidentiality of their responses and their names were not solicited. Ten (10) respondents were chosen at random from each bank to complete the questionnaires then and there at the banks premises, or at their own free time at home.

Within a one-month period, the questionnaires were collected from the respondents in stages from the agents appointed to administer the data collection. A total of 56 were received which accounted for 93.33% return rate. Such response rate was considered sufficient for statistical reliability and generalisability (Tabachnick and Fidell, 2001) and most satisfactory especially when compared with earlier research works on bank selection decision (Khazeh and Decker, 1992-93; Huu and Karr, 2000; Garrard and Cunningham, 2001). However, after screening only 54 were useable for analysis purposes.

CHAPTER FOUR
4.0 ANALYSIS