European Journal of Social Sciences Volume 17, Number 2 (2010)

Assessing of Bank Customers Retention and Loyalty: A Case Study of State-owned Banks in Tehran
Mostafa Ghazizadeh Department of management, Shahed University, Tehran, Iran E-mail: ghazizadeh@shahed.ac.ir Ali Soleimani Besheli Department of management, Shahed University, Tehran, Iran E-mail: asoleimani@shahed.ac.ir Vajiheh Talebi M.A Student in Marketing, Tehran Science and Research Branch) University E-mail: vtalebi@gmail.com Abstract Customer retention and loyalty is one of important factors regarding to banking strategy in todays increasingly competitive market. Bank management must recognize and improve elements that can affect customer satisfaction. These include employee performance, willingness to solve problems, friendliness, level of service quality, communication skills, and selling skills. Furthermore, customer defection can be reduced through adjustments in a banks rates, policies and branch locations [1,2]. Clearly, there are compelling arguments for bank management to carefully consider the factors that might increase customer retention rates. Several studies have emphasized the significance of customer retention in the banking industry [2]. There has been little effort to assess factors that might lead to customer retention. Most of the published research has focused on the impact of individual constructs, without attempting to link them in a model to further explore or explain retention. If retention factors are not well managed, customers might still leave their banks, no matter how hard bankers try to retain them. This paper assessed the effects of several retentions and loyalty constructs that influence consumers decisions to continue their relation with banks or change their banks in Tehran. These constructs were rated by customers as having strong effects on loyalty to their banks. Demographic characteristics (i.e. age, gender, educational level and income) were also assessed for their contribution to intentions of staying with or finding alternative banks. Results suggest that the most important constructs were customer satisfaction, followed by corporate image and changing barriers. There was also evidence that customers age groups and level of education contributed to explaining respondents' propensity to stay with their current banks. Keywords: Customer retention, customer satisfaction, retail banking.

Introduction
The banking industry is highly competitive, with banks not only competing among each other, but also with non-banks and other financial institutions. Most banks product developments are easy to increase and when banks provide nearly similar services, they can only distinguish themselves based on price 274

European Journal of Social Sciences Volume 17, Number 2 (2010) and quality. Therefore, customer retention is an effective and importance tool that banks can use to gain a strategic advantage and survive in todays ever increasing banking competitive environment. The Subject of customer retention and loyalty is relatively global issue. It is more rational and economical to keep customers instead to looking for new ones. The costs of acquiring customers to replace those who have been lost are high. This is because the expense of acquiring customers is incurred only in the beginning stages of the commercial relationship [3]. In addition, old customers buy more and, if satisfied, may create positive image for company by word-of-mouth promotion. Additionally, long-term customers also take less of the companys time and are less sensitive to price changes [4, 5]. These findings highlight the opportunity for management to save customers as a competitive advantage. Thus, it is believed that reducing customer defections by as little as five percent can double the profits [6]. The main factors influencing customers selection of a bank include the range of services, rates, fees and prices charged [7]. It is clear that superior service, alone, is not sufficient to satisfy customers. Prices are essential, if not more important than service and relationship quality. Therefore, service excellence, meeting client needs and also providing innovative products are essential to earn success in the banking industry. Most private banks claim that creating and maintaining customer relationships are important to them and they are aware of the positive values that relationships provide [8]. While there have been several studies confirming the significance of customer retention and loyalty in the banking industry [9], there has been little research regarding to customer retention and related factors. The objective of this paper is examines the parameters which affect consumers decision to stay with or replace their current banks in Tehran. In addition, the paper explores whether there is any association between descriptive statistic characteristics of customers (i.e. age, gender, educational level and income) and loyalty decisions.

Literature Review
Previous studies have identified the benefits that customer retention delivers to an organization [7]. In fact, the longer a customer stays with an organization or company the more utility than seeking new customers [4]. Many factors consisting of higher initial costs of finding and attracting new customers, increases in both the value and number of purchases, positive word of mouth promotion and the customer better understanding of the organization affects the loyalty of customers and the time that customers stay with the organization. Apart from the benefits that the longevity of customers brings, research findings also suggest that the costs of customer retention activities are less comparing the costs of acquiring new customers. For example, Rust and Zahorik [10] declared that the cost of attracting new customers may be five times of keeping existing customers. However, maintaining high levels of satisfaction will not, by itself causes customer loyalty. Today, retaining customers becomes a priority. In spite of importance of customer retaining, some research shows that longevity does not alone leads to profitability [7,8]. In other research, Beckett et al, [11] found interesting conclusions as to why consumers appear to remain loyal to the same financial provider such as banks, in spite of in many factors they hold less favorable views toward these service providers. For example, many consumers appear to perceive little differentiation between banks, because according to their opinion, the change of banks essentially is useless. Secondly, consumers appear motivated by convenience. Finally, consumers associate changing banks with high switching costs in terms of the potential sacrifice and effort involved. Furthermore, it is necessary for bank management to be carefully considering the factors that might increase customer loyalty and retention rates. There are little empirical researches that investigate the reasons result in customer loyalty and retention. Previous surveys focused on identifying factors which causing customer retention. Others researches have focused on developing measures of customer satisfaction, customer value and customer loyalty without specifically looking into other potential meaningful factors. Examples of mentioned factors are competitive advantage, 275

European Journal of Social Sciences Volume 17, Number 2 (2010) changing barriers, corporate image, and bank services characteristics. These factors form the basis of current survey. This is curious, for if retention criteria do not well managed, customers might still leave their banks, no matter how hard bankers try to retain them.

Competitive Advantage
In a highly competitive market, the shortest way to differentiation is through the development of brands and active promotion to both intermediaries and final consumers [4]. In the long term, some activities such as branding, targeting and positioning would all be much more effective if the supplier had some tangible advantage to offer consumers [12]. This is evident in the banking industry, where many banks are providing more or less the similar services for nearly the same price. Unless a bank can improve its service quality beyond the core service with additional and potential service features and value, it is unlikely to gain a sustainable competitive advantage [9]. Thus, the most likely way to both retain customers and improve profitability is adding value via a strategy of differentiation [13] while increasing margins through higher prices. Todays customers do not just buy core quality products or services; they also buy a variety of benefit. This condition forces the service providers such as banks to adopt a market orientation approach that identifies consumer new needs and designs new products or services and redesigns current ones . Further, competitive pressures then push other financial service firms to target consumer segments by integrating service quality, brand loyalty, and customer retention strategies [9].

Customer Satisfaction
Quality of service depends heavily on the quality of its personnel. According to research of Smiths and et al [1], approximately 40% of customers changed their banks because of what they considered poor and low level of service quality. Leeds further argued that nearly 75% of the banking customers declared that courtesy is a prime consideration in choosing a bank. The study also showed that increased use of service quality/sales and professional behaviors (such as formal greetings) improved customer satisfaction and reduced customer discontent. In fact, customer satisfaction has for many years been perceived as key in determining why customers leave or stay with an organization. Organizations need to know how to keep their customers, even if they appear to be satisfied. Reichheld [13] suggests that unsatisfied customers may choose not to defect, because they do not expect to receive better service elsewhere. Additionally, satisfied customers may look for other providers because they believe they might receive better service elsewhere. Keeping customers is also dependent on a number of other factors. These include a wider range of product choices, better convenience, better prices, and increased benefit [5]. Fornell [15], in his study of Swedish consumers, notes that although customer satisfaction and quality appear to be important for all companies, satisfaction is more important for loyalty in industries such as banks, insurance, mail order, and automobiles. Ioanna [16] proposed that product differentiation is impossible in a competitive market like the banking industry. Banks everywhere are delivering the same products. Bank prices are fixed and driven by the marketplace. Thus, bank management tends to differentiate their activities comparing to other competitors by service quality. Service quality is an essential factor that affects customers satisfaction and loyalty level in the banking industry. In banking, quality is a multi-variable concept, which consist differing types of convenience, reliability, services portfolio, and the employees delivering the service.

Customer Perceptions of Value

At present time, customers are more value oriented in their consumption of services because they have many alternatives. For example, Fornell [15],explained how customers make purchase decisions 276

European Journal of Social Sciences Volume 17, Number 2 (2010) between competing providers. The author argued that customers buy on value; they do not only buy products. It was observed that customers learn to think objectively about value in the form of preferred attributes, attribute performance, and consequences from using a product in a use situation [17]. Thus, banks must be able to provide high quality service for customers who come with high expectations. For customers who value convenience most, banks should offer the latest product such as electronic banking, Mobile banking, access to account information by phone and internet banking. It is clear that customer value can be a strong factor regarding to customer retention and loyalty. Harwood [17] argued that customer value is a more important factor than customer satisfaction because it includes not only the usual benefits that most banks focus on but also with attention of the price that the customer pays. Customer value is a dynamic that should be managed. Customer satisfaction is a response to the value proposition offered in specific products and markets [18]. By this view, it is necessary for banks managers to determine how customers define value in order to provide high level services.

Corporate Image
Todays consumers have more choices for their financial needs than ever before. For some reasons such as technology, globalization, competition and increased consumer mobility have changed the way people selecting the banks [13]. Many financial institutions are intended to use branding techniques to differentiate themselves. Harwood [19] argued that branding, as a tool to build image, is important in the banking industry where all banks offer about the similar kinds of services. Therefore, it is critical that banks have a comprehensive knowledge of customers values, attitudes, needs and perceptions of various services the bank offers and the image that customers have of the bank itself [7]. Accordingly, banks managers should be able to build and manage their banks image in order to define the differences between their bank and other banks.

Changing Barriers
Changing barriers is one of the marketing strategies to make it costly for customers to change to another organization. Some of changing barriers are search costs, transaction costs, learning costs, loyal customer discounts and emotional costs [3]. These barriers provide disincentives for the customer to leave or change the current organization. Curasi and Kennedy [18] have shown that customer satisfaction does not motive the continuation of the relationship. High changing and replacing costs are an important factor obligating the customers to the service organization. Even with relatively low levels of satisfaction, the customer continues to patronize the service provider because repurchasing is easier and more cost effective than searching for a new provider or sampling the services of an unknown provider [16]. Other than changing costs, cross-selling is another important factor affects customer retention and loyalty. Cross-selling is the banks effort to sell as many different products and services as they can to a particular customer [19]. One aspect of loyalty is the impact of cross-selling, which forms a critical factor in increasing benefit. It seems with increasing of products or services that bank sells to a customer; the less likely it is that they will lose the relationship [12].

Consumers Behavioral Intentions

To earn success in strongly competitive environment, banks must focus on understanding the needs, attitudes, satisfactions and behavioral patterns of the market and customers [12]. Customers evaluate a number of parameters when choosing a bank. Prioritization and use of these parameters differ between countries, and thus cannot generalize. For example, in a study of Canadian customers in Montreal, Harwood [13] found that convenience is the principal reason for bank selection, followed by parental influence with respect to the status of the bank. In contrast, Kaynak and Kucukemiroglu's [19] study of 277

European Journal of Social Sciences Volume 17, Number 2 (2010) the Hong Kong banking market discovered that customers choose their banks because of convenience, long association, recommendations of friends and relatives, and accessibility to credit. Social and technological change has had a notable effect on banking. These developments, such as internationalization and standardization of money markets and the application of new technologies in information and communications systems to banking, have forced banks to adopt strategic marketing practices. These have included offering extended services, diversification of products, entry into new markets, and emphasizing on electronic banking [18]. This greater range of services and products, along with improvements in communications efficiency, could have a significant effect on customer satisfaction and consequent behavioral intentions.

Customer Loyalty
Customer retention improves profitability principally by reducing costs incurred in acquiring new customers. A primary objective of retention strategies must therefore be zero defections of profitable customers [10]. There is a distinction between customers who are simply retained and those who are loyal. The concept of consumer inertia implies that some customers are only being retained, rather than expressing loyalty. In fact, loyal customers are usually less price sensitive and more intend to increase the number or frequency of purchases and may become advocates of the organization. Satisfaction with a bank's products and services thus also plays a role in generating loyalty that might be absent in the retention situation. Therefore, customer loyalty is not the same with customer retention, as loyalty is distinct from simple repurchase behavior. Loyalty is only a valid concept in situations where customers can choose other providers. Companies thus need to understand the nature of their consumers reasons for staying and must not assume that it is constantly a positive situation [12] Changes in the industrial context of banking could also have an impact on the durability of relationship between customers and banks.

Methodology and Data

Data Collection Data collection method is highly influenced by the methodology chosen. A questionnaire was used to collect empirical for this study in order to test the factors, which affect customers retention and loyalty of state-owned banks in Tehran. The questionnaire gathered information on consumers perceptions of their banks, the reasons they remain with their banks, and the reasons why they might switch to a rival. Likert-format items were presented with 5-point scales, where 1 = "strongly disagree," 3 = "neither disagree nor agree," and 5 = strongly agree." After that, a pilot test of the questionnaire was carried out. Furthermore, several experts with knowledge of banking and marketing also test the questionnaire. All the test respondents filled in the questionnaire and then a discussion was held concerning their opinions how they felt about filling in the questionnaire. The test was followed by many revisions, before it was sent to respondents. The Cronbachs alpha value was calculated for this questionnaire. The result has been appeared in Table.1. The sample size (n = 520) was computed and the respondents (n = 65 respondent for every state-owned bank) were randomly selected from the customers of 52 branches of state-owned banks located in Tehran consisting of Saderat(Sad), Melli(Mel), Tejarat(Tej), Maskan(Mas), Keshavarzi(Kesh), Refahe Kargaran(Ref), Sepah (Sep) and Mellat(Mel). The time interval of this research was between from May to September 2009.

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Table 1: Chronbachs Reliability Coefficient
Cronbachs Coefficient Alpha 0.831 0.867 0.814 0.862 0.823 0.836 0.785

Customer Retention Dimensions Perceived Satisfaction Perceived Value Perceived Corporate Image Perceived Competitive Advantage Perceived Changing Barriers Behavioral Intentions Loyalty Level

Results and Discussion A profile of sampled respondents is presented in Table 2. The respondents based on their educational level including high school qualification, Diploma, Technician, Bachelor degree and postgraduate degree have been classified. Somewhat more than half the sample (52.7%) was male (Panel B). Half of the sample (48.0 %) reported having earned a diploma or higher educational qualification and 46.6% of respondents have academic degree (Panel C).

Durability of Relationships The length of time that customers have been with their banks was also measured. As noted above, there is a distinction between more retention and the more desirable outcome of loyalty. However, durability of a bank-customer relationship is a necessary indicator of both. Length of stay (LOS) figures appears as Table 3. Durability figures appear to demonstrate overall contentment with banking services. Nearly eighty percent of the sample (26.1%) reported LOS at greater than five years (Table 4). Melli Bank (Mel) respondents have more greater than five years (38.6 %). Figures for the other LOS categories are generally small, perhaps reflecting low defection rates or a small number of first time accounts. Given the preponderance of customers in the greater than five years categories across banks, Table 3 seems to reflect strong, stable relationships. A somewhat different impression emerges when examining the proportion of respondents for each bank with a LOS greater than five years. According to Table 3, Melli Bank showed highest fiveyear LOS (38.6 %) and Keshavarzi bank suffered the lowest five-year LOS proportion of the total respondents (20 %). Saderat, Maskan and Sepah Banks showed similar result regarding to five-year LOS proportion (24.7 %).
Table 2: Demographics of Respondents
Frequency 55 92 124 120 66 63 520 274 246 520 54 116 Valid (%) 10.6 17.7 23.8 23.1 12.7 12.1 100 52.7 47.3 100 10.4 22.3 Cumulative (%) 10.6 28.3 52.1 75.2 87.9 100 52.7 100 10.4 32.7

Demographic Panel A: Age Group 18-30 years old 31-40 years old 41-50 years old 51-60 years old 61-70 years old 71 years old and above Total Panel B: Gender Male Female Total Panel C: Education Level Postgraduate Degrees Bachelor Degree

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Technician Diploma High School Qualification Uneducated Total 72 177 73 28 520 13.9 34.0 14.0 5.4 100 46.6 80.6 94.6 100

Table 3:
LENGTH OF STAY < 1 year 1-2 years 2-3 years 3-4 years 4-5 years > 5 years Total

Bank of Respondents and Length of Stay

Respondents Banks Sad* 6 7 11 3 22 16 65 9.2 % 10.8 % 16.9 % 4.7 % 33.9 % 24.7 % 100 % 10 4 8 6 12 25 65 Mel 15.4 % 6.1 % 12.3 % 9.2 % 18.5 % 38.6 % 100 % 3 9 6 18 10 19 65 Tej 4.7 % 13.9 % 9.2 % 27.7 % 15.4 % 29.2 % 100 % 14 16 6 3 10 16 65 Mas 21.3% 24.7% 9.2 % 4.7 % 15.4% 24.7% 100 % 18 10 7 9 8 13 65 Kesh 27.7% 15.4% 10.8% 13.8% 12.3% 20% 100 % 7 13 8 7 12 18 65 Ref 10.8 % 20.1 % 12.3 % 10.8 % 18.5 % 27.7 % 100 % 2 6 11 13 17 16 65 Sep 3.1 % 9.2 % 16.9 % 20.1 % 26.2 % 24.7 % 100 % 12 5 7 12 14 15 65 Melt 18.5% 7.7% 10.8% 18.5% 21.3% 23.1% 100%

* Saderat(Sad), Melli(Mel), Tejarat(Tej), Maskan(Mas), Keshavarzi(Kesh), Refahe Kargaran(Ref), Sepah (Sep) and Mellat(Melt).

Table 4:
< 1 year 1-2 years 2-3 years 3-4 years 4-5 years > 5 years

Total of Respondents and Length of Stay

Length of Stay 72 70 64 71 107 136 520 Total respondents 13.8 % 13.5 % 12.3 % 13.7 % 20.6 % 26.1 % 100 %

Total

However, this may not mean that Melli Bank is the best of the group in retaining its customers. Retention relevant items were measured using a five point rating scale (where "Very Unlikely =1). When asked about the likelihood of staying with their service provider into the near future (Table 5), Melli Bank customers had the lowest mean, at 3.61 (s.d. = 0.679), only somewhat above the neutral hinge of the scale. This suggests that customers might be slightly more willing to switch to other service providers than the customers of the other banks. Comparing Melli Bank to the other institutions does not confirm this view, however. In ascending order of their five-year retention rates, mean intention to stay figures were 4.08 (s.d. = 0.745) for Tejarat Bank, Refahe Kargaran 4.03 (s.d. = 0.762), 4.07 (s.d. = 0.786) for Sepah, 3.98 (s.d. = 0.684) for Maskan, 4.11(s.d. = 0.812) for Saderat, Mellat 3.69 (s.d. = 0.661) (included here as customers reported on their intention to stay) and 3.76 (s.d. = 0.673) for Keshavarzi Bank. All of the means summarising respondents' likelihood of staying were within the 3.5 to 4.5 interval, and were thus roughly equivalent. This widespread moderate satisfaction implies that the bulk of bank customers are not so completely satisfied that they would not switch if attractive incentives were offered by competitors.
Table 5: Intention to Stay with Current Bank.
Number 65 65 65 65 65 65 Mean 4.11 3.61 4.08 3.98 3.76 4.03 Std. Deviation 0.812 0.679 0.745 0.684 0.673 0.762

Bank Saderat Melli Tejarat Maskan Keshavarzi Refahe Kargaran

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Sepah Mellat Total 65 65 520 4.07 3.69 3.92 0.786 0.661 0.694

Further analysis to determine the relationship between banks and the respondents likelihood of staying with their current banks was tested by One-way ANOVA (Table 6). The impact of the bank on durability of the relationship was significant (F = 9.59, p=.000). This (7,512) implies that the bank has a positive impact on customers' likelihood of staying with their bank.
Table 6: Relationship Between Respondents Likelihood of Staying and Bank.
Sum of Squares 34.23 261.14 295.37 df 7 512 519 Mean Square 4.89 0.51 F 9.59 Sig .000

Between Groups Within Groups Total

Research Constructs Multiple factors were used to create the constructs. All factors were measured with five-point rating scales. Descriptive statistics were computed for responses to each item, along with a summated score for each and a mean score representing the construct of interest. Cronbach's alpha was used to test for reliability, with a minimum value of 0.60 as the cut-off point. As this study was exploratory in nature, 0.60 was seen as indicating satisfactory internal consistency. Item and item-total means and standard deviations are presented in Tables 7 through 13, along with the alpha for each construct.

Customer Satisfaction Customer satisfaction was measured using a nine-factor index. The overall mean of perceived satisfaction was 4.09. Individually, each of the nine factors had mean scores that were above the neutral pivot on the rating scale. Respondents appear to be highly satisfied with the banks accuracy of records and transactions, presented in Table 7. This suggests that state-owned banks (located in Tehran) are reliable in carrying out transactions. Respondents were relatively less satisfied with banks' pricing. Some complained about the high fees charged. Financial institutions know the key to retaining customers is more than just providing satisfaction or competitive pricing. This view is confirmed by responses to the satisfaction items. The results show that banks cannot rely upon price competition alone in order to be competitive; they must also try to better inform consumers of the products and services they offer, and provide convenient, agreeable surroundings, as well as continue to emphasize the human interaction basis of service delivery.
Table 7: Mean Scores of Respondents Perceived Satisfaction ( = .831)
Mean 4.52 4.41 4.39 4.21 4.28 4.05 3.88 3.75 3.36 4.09 Std. Deviation 0.816 0.784 0.842 0.759 0.814 0.771 1.032 0.988 0.964 0.611 n 520 520 520 520 520 520 520 520 520

Customers are satisfied with Accuracy of banking records Access to electronic transactions Accuracy of transactions The staff who deliver the service The efficiency of customer service Physical appearance of the branches Convenience of branch locations effort to inform new products and services Pricing Mean Perceived Satisfaction

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European Journal of Social Sciences Volume 17, Number 2 (2010) Customer Perceptions of Value The customer perceptions of value construct was measured using an eight-factors index. These are presented in Table 8. The overall perceived value mean was 3.54, only somewhat above the neutral centre of the scale and thus indicating moderate perceived value of banks. The variable measuring bank service efficiency (4.02) had the highest mean score while the extended banking hours (3.16) had the lowest. All of the means were above the neutral point on the scales, suggesting that banking services were at least adequate for most respondents. Overall, the respondents valued bankers efficient service. The respondents did not think their banks had numerous branches or suitable locations. Some respondents complained that were no bank branches located near their workplaces or their homes. Convenience is thus an issue for some customers. Clearly, such a policy has also reduced convenience for many customers as they are forced to do their banking at less convenient locations. At present, state-owned bank managers have sought to develop other delivery techniques to increase convenience for their customers. These efforts have included increasing self-service in the form of ATMs, phone banking, e-banking, and drive-through banking. Some respondents have criticized that such forms of service can only satisfy consumers day-to-day banking transaction-based needs. These delivery channels are not able to perform additional services such as offering financial advice or providing detailed information about mortgages, loans, and interest rates. Thus, the process by which such services are offered should be continuously monitored to guarantee that customers have access to adequate financial services at all times. Extended banking hours earned the lowest mean score, indicating an area of some concern. Customers want to perform transactions when, where, and how they choose. They want to minimize transaction costs and time. They want specialist advice and perhaps most of all they want to see value in their relationship with their bank [17]. These aspects of the customer-bank relationship would be complemented by extended banking hours. Many customers would welcome weekend opening, or extended hours on weekdays.
Table 8: Mean Scores of Respondents Perceived Value ( = .867)
Mean 4.02 3.94 3.56 3.51 3.76 3.43 3.19 3.16 3.57 Std. Deviation 0.914 0.880 1.173 1.135 0.973 1.169 1.227 1.108 0.740 n 520 520 520 520 520 520 520 520

Consumers value their bank because it has Efficient service Offers latest electronic products Listens and be sensitive to consumers needs Convenient branch locations Flexible banking policies Many branch locations Fair method of setting fees Extended banking hours Mean Perceived Value

Corporate Image Seven factors were used to assess perceived corporate image (Table 9). The mean of this index was 3.92, signifying that overall, respondents have a relatively positive feeling of their bank. In general, the respondents believed that the image of their service provider is widely-known, reliable, trustworthy and stable. The offering of reliable, unmistakable financial transactions should thus enhance customers confidence in their banks. A favorable image could also motivate customers to resist competitive offerings. However, the respondents do not perceive their bank to be distinctive or unique compared to competitors. It might be the state-owned banks have not attempted to differentiate or reposition themselves and build positive brand equity with their customers. Indeed, banks must rise to the challenge and begin to take advantage of the brand equity that undoubtedly exists or can be developed 282

European Journal of Social Sciences Volume 17, Number 2 (2010) [9]. More importantly, convincing customers that they are getting high value from their bank should be a key advertising and promotion objective to create and strengthen corporate image.
Table 9: Mean Scores of Respondents Perceived Corporate Image ( = .814)
Mean 4.24 4.17 4.16 4.16 3.72 3.57 3.38 3.92 Std. Deviation 0.811 0.824 0.863 0.887 1.013 1.047 1.041 0.711 n 520 520 520 520 520 520 520

Consumers perceive the image of their bank is Widely-known Stable Reliable Trustworthy Involved in the community Well-liked Distinctive/Unique compared to others Mean Perceived Corporate Image

Perceived Competitive Advantage Perceived competitive advantage was measured using a five-item index (Table 10). The mean score was 3.48, revealing that respondents have a neutral positive impression of their bank's competitive advantage. Excellent service quality (3.77) and implementation of latest technology (3.75) have been perceived as the highest factor to competitive advantage. Service quality may be the only sustainable form of differentiation in such a highly competitive and homogenous industry [13]. Bank managers should consider that delivering better service is not enough. Nevertheless, they should deliver services that are better than consumers expectations in order to increase satisfaction and maintain a positive image. In terms of the implementation of the latest technology, respondents replied that internet banking was easy to navigate. Distance banking technology, such as internet and telephone services offer convenience to many consumers and may decrease some of the criticism related to bank branches.
Table 10: Mean Scores of Respondents Perceived Competitive Advantage ( = 0.862)
Consumers perceive their bank has competitive advantage because it. Has excellent service quality Uses latest technology Has memorable advertisements Offers unique and distinctive products Has competitive pricing compare to others Mean Perceived Competitive Advantage Mean 3.77 3.75 3.39 3.26 3.24 3.48 Std. Deviation 0.984 0.932 1.014 0.924 1.074 0.769 n 520 520 520 520 520

Changing Barriers The changing barriers index was consisted of seven factors. The overall mean was 3.81, showing that these barriers have a moderate degree of influence on the respondents intention to stay. The individual means are presented in Table 11. The strongest factor to this construct was banks ability to provide products and services that meet respondents needs. In addition, the respondents felt little advantage to changing, since they perceive that all banks provide the similar range of products and services. Furthermore, inconvenience, the disruption caused by changing, and having a good relationship with bank personnel contributed to respondents reluctance to change to alternative providers. Between the changing barriers factors, incentives had the lowest mean score (3.23), suggesting that they might not have much effect on changing decisions. This does not mean that incentives are not important to bank customers. In fact, many respondents suggested that their banks should improve their products by using 283

European Journal of Social Sciences Volume 17, Number 2 (2010) some form of bonus. Thus, banks could possibly improve customer satisfaction by providing attractive incentive plans for consumers who are purchasing several products and services from their bank.
Table 11: Mean Scores of Respondents Perceived Changing Barriers ( = 0.823)
Consumers do not feel like changing because Their banks are able to provide products and services they need They see little advantage in changing Changing would be too disruptive They have good relationships with their banks Changing is too inconvenient They use a variety of products from their banks They receive incentives from their banks Mean Perceived Changing Barriers Mean 4.14 4.02 3.98 3.87 3.81 3.57 3.23 3.81 Std. Deviation 1.001 1.094 1.052 1.060 1.125 1.070 1.244 0.758 n 520 520 520 520 520 520 520

Bank Service Characteristics and Behavioral Intentions As noted above, characteristics of banks' services can have a significant effect on the behavioral intentions of customers. Six factors representing such characteristics were included in the questionnaire. The mean score of this index is 3.62 (Table 12). This means that most of the respondents have a positive view of their banks' performance on items that might affect loyalty and thus the intention to remain a customer. Between the individual factors, the highest mean score was for ability to meet consumer's changing needs. This suggests that customers want their banks to monitor change in the financial environment, and respond with products that add value to customers' accounts. It also suggests that banks that offer new or refine current products in a proactive manner may enhance their customer relationships. Prices (3.74) were rated as the next most important variable that could influence consumers behavioral intentions. Thus, it is strongly recommended that prices be charged at a competitive rate
Table 12: Mean Scores of Respondents Behavioral Intentions ( = 0.836)
Consumers chose their bank because they think It was able to meet consumers changing needs Prices of services were acceptable It has convenient branch locations It offers a variety of products It has a reputation of superior service quality It has a favorable image Mean Respondents Behavioral Intentions Mean 3.92 3.74 3.49 3.56 3.53 3.47 3.62 Std. Deviation 1.021 1.046 1.071 0.948 1.043 1.049 0.784 n 520 520 520 520 520 520

Customer Loyalty The index of customer loyalty was composed of six factors. The mean score for the index was 3.38, implying that most of the respondents have an intention to stay loyal with their banks (Table 13). It has been documented that the respondents tend to stay loyal with their service providers if they have excellent relationship with its staff [19]. Another important variable is respondents perception of difficulty in changing banks. In today's banking environment, it is unusual for a customer to have many automatic payment orders to a wide variety of different firms, such as electricity and telephone companies. Notification and subsequent changes to billing details or other difficulties would be time consuming. Thus, it might not be worth the effort and inconvenience, unless the respondent had a very bad experience with the current bank. Thus, the respondents focus on inconvenience in changing banks is still a prevalent concern. 284

European Journal of Social Sciences Volume 17, Number 2 (2010) If mistakes are made by the bank, then bankers must be able to handle service recovery efficiently. In this study, most of the respondents appeared satisfy with the services their banks have performed. There were minor complaints, but the respondents commented that their banks are able to resolve them.
Table 13: Mean Scores of Respondents Loyalty Level ( = 0.785)
Consumers stay with their bank because It is difficult to change banks They have excellent relationship with staff Their bank is responsive to their changing needs Their bank is efficient in handling complaints Their bank offers them rewards and benefits Other banks cannot offer the products and services they want Mean Customer Loyalty Mean 3.61 3.61 3.53 3.40 3.15 2.90 3.38 Std. Deviation 1.091 1.111 1.004 1.008 1.190 1.027 0.741 n 520 520 520 520 520 520

Customers Demographic and Customer Retention Rate This study investigates whether demographic differences affect the respondents decision to stay with or leave their banks. Demographic variables included the respondents age, gender and educational level. The results shows that age is related to the decision to stay with or leave service providers (Table 14). The 18-30 years age group has the lowest retention rate of 46.5%, whereas the age group above 61 years old has highest retention rate of 95%. In general, when the age group of the customers increases, the customers will have higher propensity to stay with their banks. This result is consistent with Harwood [13] findings that younger consumers probably have a higher likelihood of leaving their banks in search of greater convenience, lower prices, higher deposit interest rates or better services. This may be because younger consumers often must adjust to significant and substantial changes in their lives. Changes might include such events as taking up tertiary study, moving away from home, finding a different job, buying a house, marrying, or having a child. Thus, these consumers thus may have strong reasons for switching banks. Presumably, they do not mind the inconvenience so long as the new bank is able to satisfy their changing needs. This suggests that in order to retain younger customers, the bank managers should introduce new products or services that attract young consumers. Financial institutions have long attempted to attract young consumers with the use of latest technology [18]. For gender, male respondents have an average retention rate of 82.6%, whereas female respondents have a retention rate of 75.3%. However, the test results are non-significant indicating no association between gender and the respondents intention to stay with or leave their service providers (Table 14). Retention rates for different educational levels of respondents were quite similar. The mean score for retention ranged between 3.6 and 3.9. One-way ANOVA was used to test whether education had an effect on customer retention. The test results demonstrated a significant effect (F = 3.55, p= 0.015). This may be because more highly educated consumers tend to have greater expectations of services. More educated respondents are also more well-informed. This result has implications for staff training and servicing support to improve consumers positive experiences while interacting with the bank.

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Table 14: Respondents Demographic with Regards to Retention
Chi Square Test Value Sig. 87.428 0.000 7.078 0.215 ********** *********** T-Test F value Sig. ********** ********** 5.410 0.134 ********** ********** ANOVA F value Sig. 3.38 0.005 ********** ******** 3.55 0.015

ITEMS Age Gender Education

Conclusions
The constructs investigated in this study all received positive marks by the respondents as factors that would influence their decision to stay with or leave their current banks. The most important construct (by mean score) was customer satisfaction, followed by corporate image and changing barriers. These results lead to suggestions for bank managers to consider as to how they might improve customer retention in todays competitive banking environment. Results of this analysis have also shown that as the age of customers increases, the propensity to stay with their current banks increases too. In addition, respondents with higher education are most likely to change banks perhaps because highly educated consumers tend to have greater expectations of services. Gender and income appear not to have significant association with the respondents intention to stay with or leave their service providers. The state-owned banks may gain by testing their performance against the smaller institutions. Since the results of this study are based on consumers perceptions only, future research should investigate the congruence between consumers and service providers perceptions. This will help the industry to better understand whether both consumers and banks have the same perceptions regarding issues relevant to retention. While this study found that customer satisfaction alone is not effective in building customer loyalty, future research may attempt to explore the unexplored constructs that consumers would value most. For example, are consumers more concerned about the convenience issue such as location of branches, or the use of technology? Or are consumers more focused on how bank staff delivers services? Given the importance of employee competence, future research should also examine the impact of employees behavior that could affect customer retention.

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